AS FILED WITH THE SECURITIES AND EXCHANGE COMMISSION ON NOVEMBER 10, 1997

REGISTRATION NO. 333-34983
================================================================================

SECURITIES AND EXCHANGE COMMISSION
WASHINGTON, D.C. 20549

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AMENDMENT NO. 3

FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933

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CAPTEC NET LEASE REALTY, INC.
(EXACT NAME OF REGISTRANT AS SPECIFIED IN ITS GOVERNING INSTRUMENTS)

24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MICHIGAN 48106
(313) 994-5505
(ADDRESS OF PRINCIPAL EXECUTIVE OFFICES)

PATRICK L. BEACH
24 FRANK LLOYD WRIGHT DRIVE
ANN ARBOR, MICHIGAN 48106
(313) 994-5505
(NAME AND ADDRESS OF AGENT FOR SERVICE)

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With copies to:

ALBERT T. ADAMS, ESQ. THOMAS W. DOBSON, ESQ.
BAKER & HOSTETLER LLP LATHAM & WATKINS
3200 NATIONAL CITY CENTER 633 WEST 5TH STREET, SUITE 4000
CLEVELAND, OHIO 44114 LOS ANGELES, CALIFORNIA 90071
(216) 621-0200 (213) 485-1234

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APPROXIMATE DATE OF COMMENCEMENT OF PROPOSED SALE TO THE PUBLIC: AS SOON AS
PRACTICABLE AFTER THE REGISTRATION STATEMENT BECOMES EFFECTIVE.

If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of the earlier effective
registration statement for the same offering. [ ]

If this Form is a post-effective amendment filed pursuant to Rule 462(c)
under the Securities Act, check the following box and list the Securities Act
registration statement number of the earlier effective registration statement
for the same offering. [ ]

If delivery of the prospectus is expected to be made pursuant to Rule 434,
please check the following box. [ ]

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2

8,500,000 Shares

CAPTEC NET LEASE REALTY, INC.

Common Stock
($.01 par value)
------------------

Captec Net Lease Realty, Inc. (the "Company"), a Delaware corporation which
intends to qualify as a real estate investment trust, acquires, develops and
owns high-quality freestanding properties leased to operators of national
and regional restaurants and retailers. As of June 30, 1997, the Company's
portfolio consisted of 79 properties located in 24 states. The Company
leases its properties principally pursuant to "triple-net" leases
which require the lessee to pay all operating costs of the property
and provide the Company with steady periodically escalating
long-term revenue.

All of the shares of Common Stock offered hereby (the "Offering") are being sold
by the Company. Prior to the Offering, there has been no public market for the
Common Stock. Upon completion of the Offering, the shares of Common Stock
offered hereby will represent 85.4% of the outstanding Common Stock (87.0%
if the Underwriters' over-allotment option is exercised in full). To assist
the Company in obtaining and maintaining its qualification as a real estate
investment trust, ownership by any person is generally limited to 9.8%
of the then outstanding Common Stock. See "Capital Stock of the Company
-- Restrictions on Transfer". The Company will use approximately $107.2
million of the Offering proceeds to pay indebtedness owed to an Affiliate
of the lead managing Underwriter and approximately $47.7 million to
redeem its outstanding preferred stock from an Affiliate of the Company.
For information relating to the factors considered in determining the
initial public offering price, see "Underwriting". The Common Stock
has been approved for quotation on the Nasdaq National Market under
the symbol "CRRR". See "Glossary" commencing on page 96 for
definitions of certain terms used in this Prospectus.

FOR A DISCUSSION OF CERTAIN RISK FACTORS THAT SHOULD BE CONSIDERED IN CONNECTION
WITH AN INVESTMENT IN THE COMMON STOCK, SEE "RISK FACTORS" COMMENCING ON PAGE
15, INCLUDING:

- Dependence on Captec Net Lease Realty Advisors, Inc., an Affiliate, which
is newly formed and has a limited operating history, for significant
investment and management decisions, and which will be subject to
conflicts of interest with respect to the allocation of investment
opportunities.
- Conflicts arising from serving as the general partner of affiliated
partnerships, one of which has $23.9 million in unsold limited partnership
interests; exposure to partnership liabilities; and conflicts regarding
allocation of investment opportunities and fiduciary duties.
- Dependence on key personnel who are engaged in other and conflicting
activities and who are not obligated to devote substantially all of their
time to the business of the Company.
- Potential inability of the Company to make initial distributions estimated
at 97.1% of cash available for distribution.
- Intention to incur substantial indebtedness for acquisitions and
potentially for future operations and stockholder distributions; absence
of limitation on borrowing; need to refinance credit facility upon
maturity; and resulting risk of default and foreclosure.
- Risk associated with leasing, acquisition, ownership and development of
commercial real property, including lessee defaults which could materially
adversely affect the financial condition of the Company and its ability to
make distributions to stockholders.
- Immediate and substantial dilution of $3.75 per share from the initial
public offering price in the net tangible book value per share of the
Common Stock.
- Lack of operating history and experience in qualifying and operating as a
REIT, and adverse tax consequences of failing to qualify as a REIT
resulting in taxation of the Company as a corporation and decrease in cash
available for distribution.

THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE
SECURITIES AND EXCHANGE COMMISSION OR ANY STATE SECURITIES
COMMISSION PASSED UPON THE ACCURACY OR ADEQUACY OF THIS
PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.

UNDERWRITING
PRICE TO DISCOUNTS AND PROCEEDS TO
PUBLIC COMMISSIONS COMPANY(1)
-------- ------------- ------------

Per Share........................................................ $ $ $
Total(2)......................................................... $ $ $

- ---------------
(1) Before deduction of expenses payable by the Company estimated at $1,000,000.

(2) The Company has granted the Underwriters an option, exercisable for 30 days
from the date of this Prospectus, to purchase a maximum of 1,275,000
additional shares to cover over-allotments of shares. If the option is
exercised in full, the total Price to Public will be $ , Underwriting
Discounts and Commissions will be $ and Proceeds to Company will be
$ .

The Common Stock is offered by the several Underwriters when, as and if
issued by the Company, delivered to and accepted by the Underwriters and subject
to their right to reject orders in whole or in part. It is expected that the
Common Stock will be available for delivery on or about November , 1997,
against payment in immediately available funds.

CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
MCDONALD & COMPANY SECURITIES, INC.
PIPER JAFFRAY INC.
PROSPECTUS DATED NOVEMBER , 1997
3

[PHOTOGRAPHS OF EIGHT OF THE COMPANY'S RENTAL PROPERTIES, INCLUDING BOSTON
MARKET, BLOCKBUSTER VIDEO, APPLEBEE'S, BURGER KING, GOLDEN CORRAL, BABIES 'R'
US, UNITED AUTO GROUP AND DENNY'S ON THE INSIDE OF THE COVER PAGE OF THE
PROSPECTUS WITH CAPTIONS STATING "CAPTEC NET LEASE REALTY, INC." AND CAPTEC LOGO
AND CAPTION STATING, "PHOTOGRAPHS DEPICT CERTAIN PROPERTIES, AND DO NOT INCLUDE
ALL PROPERTIES, OWNED BY THE COMPANY." SEE "PROSPECTUS SUMMARY -- THE
PROPERTIES".]

[ON FIRST PAGE FOLLOWING COVER PAGE A MAP OF CONTINENTAL UNITED STATES
INDICATING LOCATIONS OF EXISTING PROPERTIES AND CERTAIN ACQUISITION PROPERTIES
WITH CAPTION STATING "THERE IS NO ASSURANCE THAT THE COMPANY WILL ACQUIRE ANY OR
ALL OF THE ACQUISITION PROPERTIES" AND KEY SHOWING SYMBOLS FOR "EXISTING
PROPERTIES" AND "CERTAIN ACQUISITION PROPERTIES".]

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

CERTAIN PERSONS PARTICIPATING IN THE OFFERING MAY ENGAGE IN TRANSACTIONS
THAT STABILIZE, MAINTAIN OR OTHERWISE AFFECT THE PRICE OF THE COMMON STOCK
OFFERED HEREBY, INCLUDING OVER-ALLOTMENT, STABILIZING TRANSACTIONS, SYNDICATE
SHORT COVERING TRANSACTIONS AND PENALTY BIDS. FOR A DESCRIPTION OF THESE
ACTIVITIES, SEE "UNDERWRITING".

This Prospectus contains registered trademarks, service marks and trade
names of third parties.
4

TABLE OF CONTENTS

PAGE
-----

PROSPECTUS SUMMARY.............................. 1
The Company..................................... 1
Summary Risk Factors............................ 2
The Advisor..................................... 3
Transactions with Affiliates and Conflicts of
Interest...................................... 4
Industries...................................... 5
The Restaurant Industry....................... 6
The Retail Industry........................... 6
Growth Strategy................................. 6
Acquisitions from Operators................... 6
Acquisitions from Developers.................. 7
Increases in Revenues and Operating Margins... 7
Operating Strategy.............................. 7
Underwriting Restaurant Chains and
Retailers................................... 7
Underwriting Lessee Credit.................... 7
Underwriting Site Selection................... 7
Maintenance of Relationships with Restaurant
Chains, Retailers and Lessees............... 7
Active Management of Lessee Credit............ 8
Diversification of Property Portfolio,
Restaurant Chains, Retail Concepts and
Lessees..................................... 8
Credit Facility................................. 8
Financing Policy................................ 8
The Properties.................................. 9
Existing Properties........................... 9
Acquisition Properties........................ 9
Tax Status of the Company....................... 10
The Offering.................................... 10
Distribution Policy............................. 11
Summary Financial Data.......................... 12
Executive Offices............................... 14
RISK FACTORS.................................... 15
Conflicts of Interest........................... 15
Acquisition of Properties..................... 15
Prior and Future Programs..................... 16
Competition for Management Time............... 16
Compensation of the Advisor................... 16
Financial Instruments from Affiliates......... 16
Redemption of Preferred Stock and Issuance of
Exchange Shares............................. 17
Repayment of Indebtedness to Affiliate of Lead
Managing Underwriter........................ 17
Joint Investment With Affiliates.............. 17
Exposure to Liabilities of Affiliated
Partnerships.................................. 17
Reliance on Management and Captec Advisors; Lack
of Stockholder Control........................ 18
Dependence on Key Personnel and Limited
Management Group.............................. 18
Leverage........................................ 18
No Limitation on Debt........................... 19
Ownership and Leasing of Properties............. 19
Vulnerability to Market and Lessee
Conditions.................................. 19
Market Illiquidity............................ 20
Interest Rate Increases......................... 20
Estimated Initial Cash Available for
Distribution May Not Be Sufficient to Make
Distributions at Expected Levels.............. 20
Creditworthiness of Lessees and Financial
Instruments................................... 21
Dilution........................................ 21
Adverse Consequences of Failure to Qualify as a
REIT.......................................... 21

PAGE
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REIT Minimum Distribution Requirements.......... 21
Failure to Distribute Non-REIT Earnings and
Profits....................................... 22
Changes in Tax Laws............................. 22
Repayment of Indebtedness to Affiliate of Lead
Managing Underwriter.......................... 22
Potential Inability to Acquire Acquisition
Properties; No Assurance of Profitability..... 22
Lessee and Concept Concentration................ 23
Competition..................................... 23
Other Tax Liabilities........................... 23
Anti-Takeover Effect of Limitation on Ownership
of Common Stock............................... 24
Absence of Prior Public Market for the Common
Stock......................................... 24
Absence of Profitable Operations................ 24
Acquisition of Properties Under Construction.... 25
Joint Venture Development....................... 25
Recharacterization of Sale/Leaseback
Transactions.................................. 25
Uninsured Losses; Costs and Availability of
Insurance..................................... 25
Americans with Disabilities Act Compliance...... 26
Potential Environmental Liability............... 26
Shares Eligible for Future Sale................. 27
Limited Liability and Indemnification of
Officers, Directors and the Advisor........... 27
CONFLICTS OF INTEREST........................... 28
Acquisition of Properties....................... 28
Prior and Future Programs....................... 28
Competition for Management Time................. 29
Compensation of the Advisor..................... 29
Financial Instruments from Affiliates........... 29
Redemption of Preferred Stock and Issuance of
Exchange Shares............................... 29
Repayment of Indebtedness to Affiliate of Lead
Managing Underwriter.......................... 29
Joint Investment With Affiliates................ 30
Certain Conflict Resolution Procedures.......... 30
USE OF PROCEEDS................................. 31
DISTRIBUTION POLICY............................. 32
CAPITALIZATION.................................. 35
DILUTION........................................ 36
SELECTED FINANCIAL DATA......................... 37
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF
OPERATIONS.................................... 40
Overview........................................ 40
Historical Results of Operations -- Six Months
Ended June 30, 1997 to June 30, 1996.......... 40
Historical Results of Operations -- 1996 to
1995.......................................... 41
Pro Forma Results of Operations -- Six Months
Ended June 30, 1997........................... 41
Pro Forma Results of Operations -- 1996......... 42
Liquidity and Capital Resources................. 42
Inflation....................................... 43
Accounting Pronouncements Issued but not Adopted
by the Company................................ 43
INDUSTRIES...................................... 44
The Restaurant Industry......................... 44
The Retail Industry............................. 44
BUSINESS........................................ 45
General......................................... 45

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5

PAGE
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Growth Strategy................................. 46
Acquisitions from Operators................... 46
Acquisitions from Developers.................. 46
Increases in Revenues and Operating Margins... 47
Operating Strategy.............................. 47
Underwriting Restaurant Chains and
Retailers................................... 47
Underwriting Lessee Credit.................... 48
Underwriting Site Selection................... 48
Maintenance of Relationships with Restaurant
Chains, Retailers and Lessees............... 49
Active Management of Lessee Credit............ 49
Diversification of Property Portfolio,
Restaurant Chains, Retail Concepts and
Lessees..................................... 49
Construction.................................. 49
Properties...................................... 50
Existing Properties........................... 50
Acquisition Properties........................ 51
Lease Expiration................................ 51
The Advisor and the Advisory Agreement.......... 51
Prior Performance of Captec Financial........... 53
Description of Tables......................... 54
Financing Policies.............................. 64
Investment Policies............................. 64
Other Policies.................................. 64
Investment in Financial Instruments............. 65
Loans to Affiliate Collateralized by Mortgage
Loans....................................... 65
Impaired Mortgage Loans....................... 65
Other Loans................................... 65
Other Investments............................... 65
Employees....................................... 65
The Affiliated Partnerships..................... 65
Promoters....................................... 67
DESCRIPTION OF PROPERTIES AND LEASES............ 68
Land............................................ 68
Buildings....................................... 68
The Leases...................................... 68
Term of Leases.................................. 69
Lease Payments.................................. 69
Insurance, Taxes, Maintenance and Repairs....... 69
Assignment and Sublease......................... 69
Alterations to Premises......................... 69
Lessee Purchase Option.......................... 69
Substitution of Business Activity............... 70
Events of Default............................... 70
Management of Property Portfolio................ 70
MANAGEMENT...................................... 71
General......................................... 71
Independent Directors........................... 71
PAGE
-----
Fiduciary Responsibility of the Board of
Directors..................................... 71
Directors and Executive Officers................ 72
Audit Committee................................. 73
Compensation Committee.......................... 73
Indemnification and Limitation of Liability..... 73
Insurance....................................... 74
Executive Compensation and Employment
Contracts..................................... 74
Compensation of Directors....................... 74
Directors' Deferred Compensation Plan........... 75
Long-Term Incentive Plan........................ 75
Share Options and Tandem SARs................. 75
Share Awards.................................. 75
Other Share-Based Awards...................... 75
Miscellaneous................................. 75
CERTAIN TRANSACTIONS............................ 76
PRINCIPAL STOCKHOLDERS.......................... 77
CAPITAL STOCK OF THE COMPANY.................... 77
General......................................... 77
Common Stock.................................... 78
Preferred Stock................................. 78
Restrictions on Transfer........................ 78
Delaware Business Combination Provisions........ 79
SHARES ELIGIBLE FOR FUTURE SALE................. 80
FEDERAL INCOME TAX CONSIDERATIONS............... 81
General......................................... 81
Taxation of the Company as a REIT............... 82
Requirements for Qualification as a REIT........ 83
General....................................... 83
Asset Tests................................... 84
Income Tests.................................. 84
Characterization of Property Leases........... 86
Annual Distribution Requirements.............. 89
Failure to Qualify............................ 90
Other Tax Considerations........................ 90
Taxation of Taxable Domestic Stockholders..... 90
Backup Withholding............................ 91
Taxation of Tax-Exempt Stockholders........... 91
Taxation of Foreign Stockholders.............. 92
State and Local Taxes......................... 93
ERISA CONSIDERATIONS............................ 93
UNDERWRITING.................................... 94
LEGAL MATTERS................................... 95
EXPERTS......................................... 96
ADDITIONAL INFORMATION.......................... 96
GLOSSARY........................................ 96
INDEX TO FINANCIAL STATEMENTS................... F-1

ii
6

PROSPECTUS SUMMARY

The following summary is qualified in its entirety by the more detailed
information and financial information and statements, and notes thereto,
appearing elsewhere in this Prospectus. This Prospectus contains forward-looking
statements that involve risks and uncertainties. The Company's actual results
may differ significantly from the results discussed in the forward-looking
statements. Factors that might cause such differences include, but are not
limited to, those discussed in "Risk Factors". Unless otherwise indicated, the
information contained in this Prospectus (i) gives effect to the merger of
Captec Net Lease Realty, Inc., a Michigan corporation ("Net Lease Michigan"),
and Captec Net Lease Realty Advisors, Inc., a Michigan corporation ("Advisors
Michigan"), into the Company in September 1997 (see "-- The Company"); (ii)
gives effect to a .745249 for one reverse split of the Common Stock in November
1997 (see "-- The Company"); and (iii) assumes no exercise of the Underwriters'
over-allotment option. See "Glossary" for the definition of certain terms used
in this Prospectus.

THE COMPANY

The Company, which intends to qualify as a real estate investment trust
("REIT"), acquires, develops and owns high-quality freestanding properties
leased principally on a long-term triple-net basis to national and regional
chain and franchised restaurants and retailers (the "Lessees"). The Company was
incorporated in Delaware in August 1997 and in September 1997, Net Lease
Michigan and Advisors Michigan were merged into the Company. Net Lease Michigan
and Advisors Michigan each were incorporated in Michigan in October 1994 and
commenced operations in February 1995. Prior to being merged into the Company,
Net Lease Michigan was engaged in substantially the same business as the Company
and Advisors Michigan was engaged in the business of providing management and
investment and financial advisory services to Net Lease Michigan. In this
Prospectus, references to the "Company" include the Company, Net Lease Michigan
and Advisors Michigan as the context may require. In November 1997 the Company
effected a reverse stock split whereby each issued and outstanding share of the
Common Stock was converted into .745249 shares of the Common Stock.

As of June 30, 1997, the Company had a portfolio of 79 properties (71 of
which are restaurant properties and eight of which are retail properties) (the
"Existing Properties") located in 24 states, which was 96.2% leased. In
addition, as of September 1, 1997, the Company had agreements in principle for
acquisitions, which the Company expects to be substantially completed by July
1998, of 62 properties (23 of which are restaurant properties and 39 of which
are retail properties) (the "Acquisition Properties") located in 21 states for
an aggregate cost of approximately $94.5 million. The Lessees of the Existing
Properties include operators of 24 different restaurants and retailers,
including Applebee's, Arby's, Babies 'R' Us, Black Angus, Blockbuster Video,
BMW, Boston Market, Burger King, Church's, Denny's, Golden Corral Family
Steakhouses, Jack in the Box, Kenny Rogers Roasters, Nissan, Stanford's and
Whataburger. For the six months ended June 30, 1997, two of the Company's
Lessees, United Auto Group, Inc. (which leases two retail properties in Georgia)
and ARG Enterprises, Inc. (which leases four Black Angus restaurant properties
in Minnesota) accounted for 10.2% and 9.9%, respectively, of the Company's total
annual rent from its properties. As of June 30, 1997, operators of Boston Market
restaurants were the Lessees of 27 of the Company's properties in 10 states
which accounted for 24.9% of the Company's total annual rent. Accordingly, the
Company is significantly dependent on revenues derived from these Lessees as
well as the continued success of the Boston Market and Black Angus restaurant
concepts. See "Risk Factors -- Lessee and Concept Concentration". The
Acquisition Properties will expand the Company's portfolio into five additional
states, and further diversify its property and Lessee base to include operators
of Circle K, Michael's Crafts, Office Depot, SportMart, Stop n Go, Taco Bell and
Tony Roma's. The Company anticipates that most future acquisitions will be newly
constructed at the time of acquisition. There is no assurance that the Company
will be able to acquire all of the Acquisition Properties. See "Risk Factors --
Potential Inability to Acquire Acquisition Properties; No Assurance of
Profitability", "Business -- General" and "-- Properties".

for all operating costs and expenses including repairs, maintenance, real
property taxes, assessments, utilities and insurance. In addition, the Leases
provide for minimum rent plus specified fixed periodic rent increases or, in
certain circumstances, indexation to the Consumer Price Index ("CPI") and/or
percentage rent. The Company believes that the structure of its Leases provides
steady periodically escalating long-term revenue while reducing operating
expenses and capital costs, and that its underwriting standards reduce the risk
of default or non-renewal. Defaults by Lessees or premature terminations of
Leases could have a material adverse effect on the Company's financial condition
and its ability to make distributions to stockholders. See "Risk
Factors -- Creditworthiness of Lessees and Financial Instruments" and
"Description of Properties and Leases".

The Company's executive officers and directors have extensive experience in
the acquisition, development and ownership of net leased properties,
particularly those used in restaurant and retail operations, and have served in
senior positions with large restaurant franchisees, retailers and real estate
companies. The Company's executive officers have substantial experience in the
franchise and retail finance industry and have been primarily responsible for
the Company's acquisition, development and leasing of the Existing Properties
and agreements in principle to acquire the Acquisition Properties. The Company's
executive officers, upon whom the Company is substantially dependent, are
engaged in other and conflicting activities and are not obligated to devote any
specific amount of time to the business of the Company. The Company's investment
policies may be altered by the Board of Directors without the consent of the
Company's stockholders. See "Risk Factors -- Dependence on Key Personnel and
Limited Management Group" and "Management -- Directors, Proposed Directors and
Executive Officers".

SUMMARY RISK FACTORS

Prospective investors should carefully consider the matters discussed under
"Risk Factors" prior to investing in the Company which, individually or in the
aggregate, could have a material adverse effect on the financial condition of
the Company and its ability to make distributions to stockholders. These risks
include:

- Conflicts between the business interests of the Company, Captec Net Lease
Realty Advisors, Inc. ("Captec Advisors"), an Affiliate, and Captec
Financial Group, Inc. ("Captec Financial"), an Affiliate (collectively,
the "Advisor"), in the acquisition, selection, leasing and sale of the
properties and the operation of the Company, including the requirement
that all potential investments in properties be offered first to Captec
Franchise Capital Partners L.P. III ("Captec III") and Captec Franchise
Capital Partners L.P. IV ("Captec IV") (each an "Affiliated Partnership",
and collectively, the "Affiliated Partnerships") for which the Company
will serve as the general partner.

- Dependence on the Advisor, including Captec Advisors which is newly
formed and has a limited operating history, for significant investment
and management decisions, which will be subject to conflicts of interest
with respect to the allocation of investment opportunities.

- Exposure to liabilities as general partner of the Affiliated
Partnerships, one of which as of June 30, 1997 had $23.9 million in
unsold limited partnership interests, and conflicts with those
partnerships with respect to allocation of investment opportunities and
fiduciary duties.

- Dependence on key personnel who are engaged in other and conflicting
activities and who are not obligated to devote substantially all of their
time to the business of the Company.

- Intention to incur substantial indebtedness for acquisitions and
potentially for future operations and stockholder distributions; absence
of limitation on borrowing; need to refinance credit facility upon
maturity; and resulting risk of default and foreclosure.

- Potential inability of the Company to make initial distributions
estimated at 97.1% of cash available for distribution.

- The ownership, leasing, acquisition, development and expansion of the
properties, including changes in economic and real estate market
conditions, changes in interest rates, availability of financing, impact
of environmental laws and potential significant liabilities, ongoing need
for capital improvements, Lessee

2
8

defaults and other factors beyond the Company's control, which could have
a material adverse effect on the financial condition of the Company and
its ability to make distributions to stockholders.

- Dependence on Lessees for operating income and risk of Lessee defaults on
Leases or franchise obligations resulting in the termination of
franchises, bankruptcy or other Lease termination events.

- Immediate and substantial dilution of $3.75 per share from the initial
public offering price in the net tangible book value per share of Common
Stock.

- The Company's lack of experience in qualifying and operating as a REIT.

- Taxation of the Company as a corporation if it fails to qualify as a
REIT.

- Payment of substantially all of the Offering proceeds to Credit Suisse
First Boston Mortgage Capital L.L.C. ("CSFBMC"), an Affiliate of the lead
managing Underwriter, and The Public Institution For Social Security, an
Affiliate and the Company's sole preferred stockholder.

- Potential conflicts of the lead managing underwriter, Credit Suisse First
Boston Corporation, in establishing the initial public offering price of
the Common Stock resulting from substantial offering proceeds being paid
to its Affiliate.

- Potential inability to acquire all of the Acquisition Properties.

- Franchise relationships, including the possibility that a franchisor may
impose various increased costs, exercise options to buy or lease
properties and impose restrictions on a Lessee's ability to compete,
potential loss of franchises upon franchisee defaults and the uncertainty
and costs of renewing franchises upon their expiration.

- Concentration of investment in certain Lessees and restaurant concepts.

- Intense competition, including for acquisition of properties.

- Risk inherent in investment in the foodservice and retail industries.

- Potential tax reclassification of preferred stock dividends and resulting
tax liability.

- Restrictions on stock ownership impeding potential changes of control.

- The absence of a prior public market for the Common Stock.

THE ADVISOR

The Company has retained Captec Advisors, an Affiliate which, together with
Captec Financial, manages the operations of the Company and provides it with
investment and financial advisory services pertaining primarily to the
acquisition, development and leasing of properties. Captec Financial and its
Affiliates provide a diverse line of financing products to the franchise, chain
restaurant and specialty retail industries including equipment leases, mortgage
and acquisition loans and construction and development financing. Since 1981,
Captec Financial and its Affiliates have developed substantial expertise in all
aspects of the franchise, chain restaurant and specialty retail finance
business, including business concept, property and lessee underwriting, property
acquisition, lessee credit analysis and monitoring, direct marketing, portfolio
management, accounting and other administrative functions. As of June 30, 1997,
Captec Financial employed over 60 people, including a senior management team
with substantial direct industry experience. Including the Company, as of June
30, 1997, Captec Financial had assets under management of approximately $350.0
million and combined debt and equity capital of approximately $540.0 million
including available, but unutilized, borrowing capacity. The Company's retention
of the Advisor will be reviewed by the Board of Directors annually. Captec
Financial is engaged in other and conflicting activities and is not obligated to
provide any services to or on behalf of the Company. The Advisor will be subject
to conflicts of interest in allocating opportunities among the Company and the
Advisor's Affiliates, and the Company will be subject to conflicts of interest
in allocating business opportunities between itself and each of the Affiliated
Partnerships of which it will become the general partner. See "Risk
Factors -- Conflicts of Interest",

3
9

"Conflicts of Interest -- Compensation of the Advisor", "Business -- The Advisor
and the Advisory Agreement" and "-- The Affiliated Partnerships".

TRANSACTIONS WITH AFFILIATES AND CONFLICTS OF INTEREST

Captec Advisors was formed in August 1997. Pursuant to an advisory
agreement (the "Advisory Agreement"), Captec Advisors will provide daily
management and investment and financial advisory services to the Company
pertaining primarily to the acquisition, development and leasing of properties.
As compensation for its services pursuant to the Advisory Agreement, the Company
will pay Captec Advisors (i) an incentive fee of 15.0% of the amount by which
any increase in annual Funds From Operations ("FFO") per share exceeds a 7.0%
annual increase in FFO per share multiplied by the weighted average number of
shares of the Common Stock outstanding; (ii) reimbursement of all
acquisition-related costs incurred in connection with the acquisition of
properties identified by the Advisor during the term of the Advisory Agreement;
and (iii) a management fee which will vary depending upon the size of the
Company's portfolio and revenues. This fee structure may encourage the Advisor
to recommend investments which are not in the best financial interests of the
Company and its stockholders in order to generate compensation under the
Advisory Agreement. See "Conflicts of Interest -- Compensation of the Advisor".
Because Captec Advisors is newly formed and has a limited operating history, it
is anticipated that Captec Financial, on behalf of Captec Advisors, will perform
certain, and initially, substantially all of the, services required to be
provided to the Company pursuant to the Advisory Agreement. Any services which
are required under the Advisory Agreement and which are provided to the Company
by Captec Financial will be paid for by Captec Advisors from its compensation
under the Advisory Agreement and will result in no additional expense to the
Company. See "Business -- The Advisor and the Advisory Agreement". For a
definition of FFO see note 1 to "Selected Financial Data".

Captec Financial and certain of its Affiliates have organized other real
estate investment funds, currently have other real estate holdings, and in the
future expect to form, offer interests in, and manage other real estate programs
in addition to the Company, including programs which invest in restaurant and
retail properties. See "Conflicts of Interest -- Prior and Future Programs". The
Affiliated Partnerships invest in properties similar to those in which the
Company invests. The Company and the Advisor could experience conflicts of
interest in connection with the selection of properties for the Company, the
Affiliated Partnerships or other real estate programs. The Company and the
Advisor also could experience conflicts of interest in connection with the
negotiation of the purchase price and other terms of the acquisition of
properties, as well as the terms of the Leases, due to the Advisor's
relationship with its Affiliates and the ongoing business relationship of the
Advisor and its Affiliates with restaurant operators and retailers. See
"Conflicts of Interest -- Acquisition of Properties".

Subsequent to completion of the Offering, the Company intends to acquire
the general partnership interests (the "General Partnership Interests") in each
of the Affiliated Partnerships from the corporate general partner of each
Affiliated Partnership and Patrick L. Beach, the Company's Chairman of the Board
of Directors, President and Chief Executive Officer. As compensation for acting
as the general partner, the Company will receive 1.0% of all distributions of
cash from each Affiliated Partnership, and real property and equipment
acquisition and management fees, reimbursement of expenses and specified
percentages of the net proceeds from the sale, refinancing or liquidation of
property or equipment. The Company will pay $3.3 million for the General
Partnership Interests, $315,000 of which will be paid to Mr. Beach and the
balance of which will be offset against amounts due to the Company from Captec
Financial, an Affiliate. Upon acquiring the General Partnership Interests, the
Company will own a 1.0% interest in each Affiliated Partnership, will become
liable for all of the debts and obligations of each Affiliated Partnership, and
will indemnify the current general partners of the Affiliated Partnerships,
including Mr. Beach, against all liabilities to which they may be subject as a
result of having served in that capacity. As of June 30, 1997, $23.9 million of
limited partnership interests in Captec IV remained unsold. The Company will be
obligated to offer first to the Affiliated Partnerships all properties which may
also be suitable for acquisition by the Company. This could result in the
Company being required to acquire potentially less attractive properties to
implement its growth strategy. The Company's purchase of the General Partnership
Interests is contingent upon the approval of the limited partners of each
Affiliated Partnership, and there is no assurance that the Company will acquire
either or both General Partnership Interests. See "Risk Factors -- Exposure to
Liabilities of Affiliated Partnerships" and "Business -- The Affiliated
Partnerships".

4
10

Patrick L. Beach, the Company's Chairman of the Board of Directors,
President and Chief Executive Officer, W. Ross Martin, the Company's Executive
Vice President, Chief Financial Officer and a director, Ronald Max, the
Company's Vice President and Chief Investment Officer, and H. Reid Sherard, a
director of the Company, are each officers of Captec Financial and, in the case
of Mr. Beach and Mr. Martin, officers and directors of the Advisor. Mr. Beach,
Mr. Martin and Mr. Sherard are also directors of Captec Financial. The Company
could experience conflicts of interests as a result of these relationships,
including competition for management time and with respect to fiduciary duty.
See "Conflicts of Interest -- Acquisition of Properties" and "-- Competition for
Management Time".

The Company also has made certain investments in financial instruments
which are or were held or made by Affiliates of the Company, including the
acquisition of (i) delinquent mortgage loans from Captec Financial, (ii) a
master revolving note agreement (the "Master Note") with Captec Financial, (iii)
a promissory note issued by Captec Loans Receivable Trust -- 1996 ("Captec
Trust"), an Affiliate and (iv) a demand note issued by the father-in-law of W.
Ross Martin, the Company's Executive Vice President, Chief Financial Officer and
a director. These investments were not the result of arms-length negotiations.
See "Business -- Investment in Financial Instruments" and "Certain
Transactions". The Company does not intend to make future loans to Affiliates.
In the event of default under any of these financial instruments, the Company
would be subject to conflicts of interest with respect to any legal or other
action to be taken in order to enforce its rights thereunder because any such
action could also be contrary to the interests of certain of the Company's
directors or officers. See "Certain Transactions".

The Company currently has outstanding 50,000 redeemable shares of its
preferred stock, $.01 par value (the "Preferred Stock"), all of which are owned
by The Public Institution For Social Security. Upon completion of the Offering,
40,500 shares of the Preferred Stock will be redeemed utilizing a substantial
portion of the net proceeds of the Offering, and 9,500 shares of the Preferred
Stock will be exchanged for 475,000 shares of Common Stock (the "Exchange
Shares"), which number of shares was determined by dividing $9,500,000 (the
aggregate liquidation preference of the 9,500 unredeemed shares of Preferred
Stock) by the initial public offering price, after which there will be no
Preferred Stock outstanding. The Company has agreed to include the Exchange
Shares in any subsequent registration of the Common Stock or to register the
Exchange Shares upon the demand of the holder thereof at any time after 180 days
following the completion of the Offering.

CSFBMC, an Affiliate of the lead managing Underwriter, will receive
approximately $107.2 million of the net proceeds of the Offering for the
repayment of amounts outstanding under the Company's $150.0 million revolving
credit facility (the "Credit Facility"). See "Conflicts of Interest -- Repayment
of Indebtedness to Affiliate of Lead Managing Underwriter".

The Company has developed procedures to resolve potential conflicts of
interest between the Company and certain of the Affiliates, including (i) the
Company will not make any loans to Affiliates, (ii) the Company will not
purchase or lease properties in which the Advisor or its Affiliates has an
interest unless approved by the Board of Directors, including a majority of the
Independent Directors, (iii) the Advisor or its Affiliates will not provide
goods or services to the Company unless approved by the Company's Board of
Directors, including a majority of the Independent Directors, and (iv) any
matter related to the removal of, or a transaction with, the Advisor, a director
of the Company or an Affiliate which may be submitted to a vote of the Company's
stockholders must be approved by a majority vote of the Company's stockholders
excluding voting stock owned by the Advisor and its Affiliates. See "Conflicts
of Interest -- Certain Conflict Resolution Procedures".

INDUSTRIES

The net lease industry is a large and rapidly expanding source of financing
to the restaurant and retail industries. The Company believes that net lease
financings will continue to grow because net lease transactions enable a
restaurant operator or retailer to realize the value of its owned real estate
while continuing long-term occupancy. The Company believes that, due to the
significant demand for net lease transactions, numerous opportunities for the
net leasing of properties through development or sale/leaseback transactions
will be available to the Company for the foreseeable future. See "Industries".

5
11

THE RESTAURANT INDUSTRY. The National Restaurant Association projects that
in 1997 total restaurant industry revenue will increase by 4.2% over 1996 to an
historic high of $320.0 billion and will represent in excess of 4.0% of gross
domestic product. According to the National Restaurant Association, there
presently are over 787,000 foodservice locations in the United States and 51.0%
of American adults eat at a fast-food restaurant and 42.0% patronize a
moderately priced family restaurant at least weekly. The National Restaurant
Association also indicates that Americans spend approximately 55 cents of every
food dollar on dining away from home and projects that in 1997 fast-food
restaurants will outpace average industry real growth, with a 4.2% increase over
1996, and that fast-food sales will increase to $110.8 billion from $105.0
billion in 1996. See "Industries -- The Restaurant Industry".

THE RETAIL INDUSTRY. According to the U.S. Department of Commerce, the
retail industry represents approximately one-third of the gross domestic
product. The International Council of Shopping Centers ("ICSC") projects that
through 2000 retail sales will increase by nearly $500.0 billion (4.1% annually)
to $2.9 trillion. Growth in retail sales has resulted in growth in demand for
retail properties. ICSC projects that gradual obsolescence of existing
facilities, changes in location and tenant format preferences and increasing
sales will support the development of over 770.0 million additional square feet
of retail space through 2000. See "Industries -- The Retail Industry".

GROWTH STRATEGY

Since commencing operations in 1995, the Company has experienced
substantial growth in its real estate portfolio, revenues and FFO. As of June
30, 1997, the Company had total assets of $123.1 million. In addition, for the
year ended December 31, 1996, total revenues and FFO increased to $6.9 million
and $3.6 million, respectively, from $1.9 million and $1.0 million,
respectively, for the year ended December 31, 1995. Similarly, for the six
months ended June 30, 1997, total revenues and FFO increased to $5.8 million and
$2.1 million, respectively, from $2.7 million and $1.4 million, respectively,
for the six months ended June 30, 1996. FFO does not represent cash generated
from operating activities in accordance with generally accepted accounting
principles ("GAAP") and is not necessarily indicative of cash available to fund
cash needs. FFO should not be considered an alternative to net income in
accordance with GAAP as an indicator of the Company's operating performance. FFO
should not be considered an alternative to cash flow as a measure of liquidity
or the Company's ability to make distributions in accordance with GAAP. The
Company's methodology used to calculate FFO may differ from that utilized by
other equity REITs. Accordingly, the Company's FFO may not be comparable to that
of other equity REITs. The Company believes that FFO is a useful alternate
measure of the performance of an equity REIT because it provides investors with
an understanding of the Company's ability to incur and service debt and make
capital expenditures. After giving effect to dividend obligations on its
Preferred Stock, the Company recorded a loss attributable to the Common Stock
for the years ended December 31, 1996 and 1995, respectively, and there is no
assurance that the Company will achieve profitable operations or make
anticipated distributions to stockholders, which currently are estimated to be
97.1% of FFO as adjusted for capital expenditures and scheduled principal
payments ("Cash Available for Distribution.") See "Risk Factors -- Estimated
Initial Cash Available for Distribution May Not Be Sufficient to Make
Distributions at Expected Levels" and "-- Absence of Profitable Operations",
"Distribution Policy" and "Selected Financial Data".

The Company intends to maximize returns to stockholders by increasing cash
flow per share and the value of its property portfolio. The Company believes it
can achieve these objectives primarily by acquiring additional properties and
structuring net leases on advantageous terms. As of September 1, 1997, the
Company had agreements in principle to acquire the 62 Acquisition Properties for
approximately $94.5 million. The Company utilizes procedures and methodologies
which have been developed and refined by Captec Financial to identify, acquire
and manage net leased properties. The Company's principal growth strategies
include:

ACQUISITIONS FROM OPERATORS. The Company purchases properties from, and
enters into net leases with, creditworthy multi-unit operators of national and
regional chain and franchised restaurants and retailers. The Company will make
such acquisitions when it can achieve escalating revenue and targeted returns on
its investment through base rent and periodic rent increases. Occasionally the
Company will purchase from an operator a property undergoing development subject
to a Lease which commences upon completion of

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12

construction. See "Risk Factors -- Potential Inability to Acquire Acquisition
Properties; No Assurance of Profitability," "-- Acquisition of Properties Under
Construction" and "Business -- Growth Strategy -- Acquisitions from Operators".

ACQUISITIONS FROM DEVELOPERS. The Company intends selectively to acquire
primarily retail properties from developers prior to the completion of the
development process but subsequent to execution of a net Lease with the
property's operator. By acquiring a property during, and assuming certain risks
of, development, the Company seeks to obtain a more favorable purchase price,
thereby enhancing its overall return. The Company intends, in limited
circumstances, to form joint ventures with developers for the ownership and
leasing of properties. See "Risk Factors -- Joint Venture Development" and
"-- Acquisition of Properties Under Construction" and "Business -- Growth
Strategy -- Acquisitions from Developers".

INCREASES IN REVENUES AND OPERATING MARGINS. The Company will seek to
enhance the financial performance of its portfolio primarily through increasing
revenues, maintaining high Lessee retention and aggressively managing operating
expenses. To provide revenue growth, the Company's Leases require fixed periodic
increases in revenue over the term of the Lease, indexation to the CPI and/or
percentage rent. The Company believes that, as its portfolio grows, it will
realize additional operating efficiencies and benefit from its underwriting
policies which are designed to minimize defaults and non-renewals. See "Risk
Factors -- Potential Inability to Acquire Acquisition Properties; No Assurance
of Profitability" and "-- Creditworthiness of Lessees and Financial Instruments"
and "Business -- Growth Strategy -- Increases in Revenues and Operating
Margins".

OPERATING STRATEGY

The Company continually monitors the business developments of its existing
and targeted restaurants and retailers, the financial condition of its Lessees,
Lease compliance and other factors affecting the financial performance of its
properties. The Company's operating strategies, which have been developed and
refined by Captec Financial, include:

UNDERWRITING RESTAURANT CHAINS AND RETAILERS. The Company undertakes a
thorough analysis in selecting the restaurant and retail chains and franchises
towards which to direct its leasing activities. A franchise is a contractual
arrangement whereby a franchisor licenses its concept to a third party operator.
A chain is any business with multiple locations and may include franchises. The
Company's analysis includes a review of publicly available information
concerning the franchisor or chain operator, a credit analysis of the
franchisor's or operator's financial statements and operating history,
evaluation of unit level performance including closure and business failure
statistics, analysis of concept penetration and name recognition, and, for
franchisors, a survey of representative franchisees. See "Business -- Operating
Strategy -- Underwriting Restaurant Chains and Retailers" and "Risk
Factors -- Lessee and Concept Concentration".

UNDERWRITING LESSEE CREDIT. The Company's Lessees are predominantly
experienced, multi-unit operators of fast-food, family-style and casual dining
restaurants and retailers. The Company subjects each proposed Lessee to a
thorough underwriting process designed to identify the most creditworthy Lessees
and minimize the Company's risk from defaults and business failures. The Company
targets only Lessees with the competitive position and financial strength to
meet their obligations throughout the Lease term. See "Business -- Operating
Strategy -- Underwriting Lessee Credit" and "Risk Factors -- Creditworthiness of
Lessees and Financial Instruments".

UNDERWRITING SITE SELECTION. Prior to acquiring a property, the Company
engages in an extensive site review. The Company typically undertakes a
long-term viability and market value analysis, including an inspection of the
property and surrounding area by an acquisition specialist, and assessment of
market area demographics, consumer demand, traffic patterns, surrounding land
use, accessibility, visibility, competition and parking. See
"Business -- Operating Strategy -- Underwriting Site Selection".

MAINTENANCE OF RELATIONSHIPS WITH RESTAURANT CHAINS, RETAILERS AND
LESSEES. Once a business concept has been approved, the Company, with the
Advisor, seeks to develop a strong ongoing working

7
13

relationship with national or regional senior chain or retailer management. See
"Business -- Operating Strategy -- Maintenance of Relationships with Restaurant
Chains, Retailers and Lessees".

ACTIVE MANAGEMENT OF LESSEE CREDIT. In addition to monitoring Lessee
compliance with Lease obligations, the Company regularly reviews the financial
condition of its Lessees and business, economic and market trends to identify
and anticipate problems with Lessee performance which could adversely affect the
Lessee's ability to meet Lease obligations. See "Business -- Operating
Strategy -- Active Management of Lessee Credit" and "Risk
Factors -- Creditworthiness of Lessees and Financial Instruments".

DIVERSIFICATION OF PROPERTY PORTFOLIO, RESTAURANT CHAINS, RETAIL CONCEPTS
AND LESSEES. The Company believes that it has achieved, and will continue to
emphasize, significant diversification of its portfolio among both retail and
restaurant concepts and Lessees. The Company's 79 Existing Properties located in
24 states currently are leased to 36 Lessees operating 18 different restaurant
and six retail concepts. The Company currently anticipates acquiring the 62
Acquisition Properties located in 21 states to be leased to 20 potential Lessees
operating 12 different restaurant and eight retail concepts, resulting in
further diversification of its portfolio. See "Risk Factors -- Potential
Inability to Acquire Acquisition Properties; No Assurance of Profitability" and
"-- Lessee and Concept Concentration" and "Business -- Operating
Strategy -- Diversification of Property Portfolio, Restaurant Chains, Retail
Concepts and Lessees ".

CREDIT FACILITY

Consistent with its investment policies the Company utilizes leverage to
enable it to fund its growth strategy, maintain operating flexibility and
enhance stockholder returns. The Company maintains the $150.0 million Credit
Facility with CSFBMC, an Affiliate of the lead managing Underwriter. Upon
completion of the Offering and the application of a substantial portion of the
net proceeds to repay amounts outstanding under the Credit Facility, the Company
will have no material debt. The Company will continue to maintain the Credit
Facility to fund the future acquisition and development of properties including
substantially all acquisition and development costs of the Acquisition
Properties. The Credit Facility will expire approximately two years after
completion of the Offering, at which time the entire outstanding balance of the
Credit Facility will mature. Since the Company intends to grow its portfolio
aggressively through the acquisition of additional properties utilizing funds
from the Credit Facility, and to lease those properties on a long-term basis, it
is likely the Company will not have sufficient funds to repay the outstanding
balance of the Credit Facility upon its maturity and will be required to obtain
the funds necessary to repay the Credit Facility either through the refinancing
of the Credit Facility, the issuance of additional equity or debt securities or
the sale of properties. See "Risk Factors -- Conflicts of Interest -- Repayment
of Indebtedness to Affiliate of Lead Managing Underwriter", " -- Leverage" and
"-- No Limitation on Debt", "Conflicts of Interest -- Repayment of Indebtedness
to Affiliate of Lead Managing Underwriter" and "Management's Discussion and
Analysis of Financial Condition and Results of Operations -- Liquidity and
Capital Resources".

FINANCING POLICY

Subject to economic conditions, the Company intends to limit its total
indebtedness to 50.0% of the market value of its issued and outstanding shares
of capital stock plus the Company's total consolidated debt ("Market
Capitalization"). This policy may be altered by the Board of Directors without
the consent of the Company's stockholders. There is no limit on the maximum
indebtedness which the Company may incur on an individual property and the
Company's organizational documents do not limit the amount of indebtedness that
the Company may incur. When appropriate the Company intends to utilize various
sources of capital, including the Credit Facility and the issuance of debt or
equity securities in public or private capital markets for future acquisitions,
capital improvements and development. The use of leverage, while intended to
provide a greater rate of return by permitting the Company to acquire properties
of greater aggregate cost than would otherwise be possible, also increases the
Company's risk of loss resulting from defaults and foreclosures on properties
pledged as collateral to secure indebtedness. The Company depreciates its
properties over 40 years utilizing the straight-line method of depreciation. See
"Risk Factors -- Leverage" and "-- No Limitation on Debt" and
"Business -- Financing Policies".

8
14

THE PROPERTIES

EXISTING PROPERTIES. The 79 Existing Properties are located in 24 states
and leased to 36 operators of 24 different restaurant and retail concepts. As of
June 30, 1997, the Existing Properties were 96.2% leased pursuant to Leases. The
Existing Properties typically are freestanding structures located on lots
ranging from 20,000 to 80,000 square feet for restaurant properties and up to
150,000 square feet for retail properties. Typical building size ranges from
2,000 to 6,000 square feet for restaurant properties and up to 40,000 square
feet for retail properties. The following is a summary description of the
Existing Properties as of June 30, 1997. See "Business" for further information
concerning each Existing Property, Lessee and related Lease terms.

ANNUALIZED
FACILITY NO. OF ACQUISITION LOCATION ACQUISITION RENT AT
CONCEPT TYPE PROPERTIES DATE (STATE) COST JUNE 30, 1997(1)
- ------------------ ----------- ---------- ----------- --------------- ----------- ----------------

Applebee's Restaurant 2 1996 MO,WA $ 3,876,444 $ 398,724
Arby's Restaurant 2 1997 GA,IN 1,292,807 128,009
Babies 'R' Us Retail 1 1996 MO 3,003,000 309,516
Black Angus Restaurant 4 1996 MN 9,219,000 1,005,108
Blockbuster Music Retail 1 1997 AL 1,449,000 147,480
Blockbuster Video Retail 2 1996 TX 1,554,000 160,500
BMW Retail 1 1997 GA 6,769,613 709,200
Boston Market Restaurant 27 1995-1997 IL,IN,MI,NJ 25,451,285 2,518,835
OH,OR,PA
SC,WA,WI
Burger King Restaurant 1 1997 WV 847,364 88,771
Carrows Restaurant 4 1996 CA 4,620,000 483,996
Church's Restaurant 1 1996 GA 835,321 87,516
Denny's Restaurant 9 1995-1997 AZ,FL,LA,NC,TX 8,017,134 824,867
Golden Corral Restaurant 2 1995-1997 FL,TX 3,829,309 387,322
Jack in the Box Restaurant 1 1996 CA 985,425 100,896
Kenny Rogers Restaurant 5 1995-1997 AZ,CA,FL 3,775,470 282,852
Roasters
Mountain Jack's Restaurant 3 1996-1997 MI,OH 4,105,500 426,192
Nissan Retail 1 1997 GA 3,092,250 323,952
Red Line Burgers Restaurant 2 1995 TX 533,994 30,000
Red Robin Restaurant 2 1996 CO,WA 6,124,417 679,224
Roadhouse Grill Restaurant 1 1995 NY 997,500 118,428
Stanford's Restaurant 1 1996 CO 2,310,000 242,004
Taco Cabana Restaurant 3 1994-1996 GA,NV 3,631,975 380,868
Video Update Retail 2 1997 AZ,IL 2,311,108 243,648
Whataburger Restaurant 1 1997 NM 851,141 52,488
-- ----------- ------------
Total 79 $99,483,057 $ 10,130,396
== =========== ============

% OF TOTAL LEASE
ANNUAL TERM
CONCEPT RENT EXPIRATION
- ------------------ ---------- ----------

Applebee's 3.9% 2016
Arby's 1.3 2017
Babies 'R' Us 3.1 2011
Black Angus 9.9 2021
Blockbuster Music 1.5 2006
Blockbuster Video 1.6 2005-2006
BMW 7.0 2017
Boston Market 24.9 2010-2025

Burger King 0.9 2012
Carrows 4.8 2016
Church's 0.9 2016
Denny's 8.1 2010-2017
Golden Corral 3.8 2009-2012
Jack in the Box 1.0 2009
Kenny Rogers 2.8 2005-2014
Roasters
Mountain Jack's 4.2 2016-2017
Nissan 3.2 2017
Red Line Burgers 0.3 2010
Red Robin 6.7 2016
Roadhouse Grill 1.1 2015
Stanford's 2.4 2016
Taco Cabana 3.7 2014-2016
Video Update 2.4 2012
Whataburger 0.4 2007
-----
Total 100.0%
=====

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

(1) Based upon monthly rent as of June 30, 1997, as annualized and without
giving effect to any future rent increases or percentage rent or deduction
for the effect of three non-revenue producing properties which in the
aggregate accounted for $346,716 or 3.4% of annualized rent at June 30,
1997. Four of the Existing Properties operated as Boston Market restaurants
and one property under construction as a Boston Market restaurant
subsequently have been purchased from the Company by Boston Chicken, Inc.;
the Company will acquire four Boston Market restaurants in exchange. See
"Risk Factors -- Lessee and Concept Concentration".

ACQUISITION PROPERTIES. As of September 1, 1997, the Company had
agreements in principle to purchase the 62 Acquisition Properties which are
located in 21 states for an aggregate cost of approximately $94.5 million. The
Acquisition Properties will expand the Company's existing portfolio into five
additional states and will further diversify its property, concept and Lessee
base to include operators of Circle K, Michael's Crafts, Office Depot,
SportMart, Stop n Go, Taco Bell and Tony Roma's. The Company expects the
acquisitions of the Acquisition Properties to be substantially completed by July
1998. There is no assurance that the Company will be successful in acquiring all
of the Acquisition Properties. See "Risk Factors -- Potential Inability to
Acquire

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15

Acquisition Properties; No Assurance of Profitability" and "-- Lessee and
Concept Concentration" and "Business -- Properties -- Acquisition Properties".

TAX STATUS OF THE COMPANY

The Company intends to elect to be taxed as a REIT under Sections 856
through 860 of the Internal Revenue Code of 1986, as amended (the "Code"),
commencing with its taxable year ending December 31, 1997. If the Company
qualifies as a REIT, under current federal income tax law the Company generally
will not be subject to federal income tax on income distributed to stockholders
provided it distributes at least 95.0% of its REIT taxable income annually and
satisfies other organizational and operational requirements. If the Company
fails to qualify as a REIT in any taxable year, the Company will be subject to
federal income tax (including any applicable alternative minimum tax) on its
taxable income at prevailing corporate rates, which effectively would impose on
the Company's stockholders the "double taxation" generally applicable to
investment in a corporation. The Company has received an opinion of Baker &
Hostetler LLP that, beginning with its tax year ending December 31, 1997, based
on certain representations made by the Company and certain assumptions, the
Company will be organized in conformity with the requirements for qualification
as a REIT under the Code and that the method of operation of the Company will
permit the Company to continue to so qualify for its current and future taxable
years. See "Risk Factors -- Adverse Consequences of Failure to Qualify as a
REIT" and "Federal Income Tax Considerations". Even if the Company qualifies for
taxation as a REIT, it may be subject to certain state and local taxes on its
income and property and excise taxes on its undistributed income, and will be
subject to federal and state income tax on its undistributed income.

THE OFFERING

All shares of Common Stock offered hereby are being offered by the Company.
Stockholders of the Company prior to the Offering will beneficially own 14.6% of
the Common Stock (13.0% if the Underwriters' over-allotment option is exercised
in full) outstanding immediately following the Offering.

Issuer....................................... Captec Net Lease Realty, Inc.
Offering..................................... 8,500,000 shares(1)
Shares outstanding after the Offering........ 9,955,330 shares(1)(2)
Use of Proceeds.............................. Repayment of indebtedness and redemption of,
and payment of accumulated dividends on,
Preferred Stock. See "Use of Proceeds".
Nasdaq National Market Symbol................ "CRRR"

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

(1) Assumes no exercise of the Underwriters' over-allotment option.

(2) Does not include 400,000 shares of Common Stock reserved for issuance
pursuant to the Company's Long-Term Incentive Plan, and 600,000 shares of
Common Stock reserved for issuance upon exercise of options granted to
Messrs. Beach and Martin pursuant to their employment agreements. See
"Management -- Long-Term Incentive Plan", "-- Executive Compensation and
Employment Contracts" and "-- Compensation of Directors".

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16

DISTRIBUTION POLICY

In general, qualification as a REIT requires the annual distribution to
stockholders of at least 95.0% of the REIT's taxable income. Following the
completion of the Offering, the Company intends to pay regular quarterly
dividends to its stockholders. The Company anticipates that the first dividend
to stockholders purchasing Common Stock in the Offering will be paid with
respect to the quarter ending December 31, 1997, based upon $.375 per share for
a full quarter (which if annualized, would be $1.50 per share or an annual
distribution rate of 7.5%). The Company does not intend to reduce the expected
dividend per share if the Underwriters' over-allotment option is exercised. The
Company has established its initial dividend policy based on information and
certain assumptions described herein. See "Distribution Policy". The Company
intends to maintain its initial distribution rate for the first 12 months
following the Offering, unless actual results of operations, economic conditions
or other factors differ from the assumptions used in its estimate, and to review
the dividend rate on a quarterly basis.

The Company intends to distribute annually approximately 80.0% of its Cash
Available for Distribution, although its initial distributions will approximate
97.1% of Cash Available for Distribution. In general, distributions by the
Company of its current or accumulated earnings and profits, other than capital
gain dividends, will be taxable to stockholders as ordinary income for federal
income tax purposes. The Company anticipates that none of the distributions
intended to be paid by the Company for the 12-month period following the
completion of the Offering will represent a return of capital for federal income
tax purposes. For a discussion of the tax treatment of distributions to
stockholders, see "Risk Factors -- Estimated Initial Cash Available for
Distribution May Not Be Sufficient to Make Distributions at Expected Levels" and
"Federal Income Tax Considerations -- Other Tax Considerations -- Taxation of
Taxable Domestic Stockholders".

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17

SUMMARY FINANCIAL DATA

The summary historical financial data set forth below as of December 31,
1996 and December 31, 1995 and for each of the two years in the period ended
December 31, 1996 have been derived from the financial statements of Net Lease
Michigan included elsewhere herein which have been audited by Coopers & Lybrand
L.L.P., independent accountants, and should be read in conjunction with those
financial statements (including the notes thereto) and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", all
appearing elsewhere in this Prospectus. The statement of operations data for the
six months ended June 30, 1997 and June 30, 1996 and the selected balance sheet
data as of June 30, 1997 have been derived from the unaudited financial
statements of Net Lease Michigan appearing elsewhere in this Prospectus which,
in the opinion of management, reflect all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation. Results of
operations for interim periods are not necessarily indicative of results
expected for the full year.

The summary unaudited pro forma balance sheet data as of June 30, 1997 set
forth below is presented as if the transactions contemplated by this Prospectus,
including the Offering and the application of proceeds therefrom, had occurred
on June 30, 1997. The unaudited pro forma statement of operations data for the
six months ended June 30, 1997 and the year ended December 31, 1996 are
presented as if the transactions contemplated by this Prospectus, including the
Offering and the application of proceeds therefrom, had occurred on January 1,
1996. See "Use of Proceeds". The pro forma financial data set forth below is not
necessarily indicative of what the actual results of operations or financial
position of the Company would have been, nor do they purport to represent the
Company's results of operations or financial position for future periods. The
pro forma financial data should be read in conjunction with the Company's pro
forma financial statements and related notes and historical financial statements
and related notes included elsewhere in this Prospectus.

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18

SIX MONTHS ENDED YEAR ENDED
JUNE 30, DECEMBER 31,
----------------------------------- -----------------------------------
HISTORICAL HISTORICAL
PRO FORMA NET LEASE PRO FORMA NET LEASE
COMPANY MICHIGAN COMPANY MICHIGAN
--------- ----------------------- --------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1997 1996 1996 1996 1995
--------- ---------- ---------- --------- ---------- ----------

STATEMENT OF OPERATIONS DATA:
REVENUE:
Rental income....................... $ 4,996 $ 4,996 $ 1,612 $ 4,907 $ 4,907 $ 614
Interest income on loans to
Affiliates........................ 343 343 905 1,587 1,587 526
Interest income on investments...... 242 242 -- 104 104 15
Interest income on short-term loans
to Affiliates..................... 247 247 156 302 302 714
Other............................... 148 (3) 7 487 18 --
--------- ---------- ---------- -------- ---------- ----------
Total revenue....................... 5,976 5,825 2,680 7,387 6,918 1,869
EXPENSES:
Interest............................ -- 2,707 423 -- 1,977 112
Management fees, Affiliates......... 278 824 399 316 935 329
General and administrative.......... 559 251 112 1,120 283 --
Depreciation and amortization....... 749 677 263 792 649 88
--------- ---------- ---------- -------- ---------- ----------
Total expenses...................... 1,586 4,459 1,197 2,228 3,844 529
--------- ---------- ---------- -------- ---------- ----------
Income before income tax.............. 4,390 1,366 1,483 5,159 3,074 1,340
Provision (credit) for income tax..... -- (39) 372 -- 95 457
--------- ---------- ---------- -------- ---------- ----------
Net income.......................... 4,390 1,405 1,111 5,159 2,979 883
Redeemable Preferred Stock dividend
requirements........................ -- 3,750 3,750 -- 7,496 3,619
--------- ---------- ---------- -------- ---------- ----------
Income/(loss) attributable to Common
Stock............................. $ 4,390 $ (2,345) $ (2,639) $ 5,159 $ (4,517) $ (2,736)
========= ========== ========== ========= ========== ==========
Income/(loss) per share of Common
Stock............................. $ .44 $ (2,345) $ (2,639) $ .52 $ (4,517) $ (2,736)
========= ========== ========== ========= ========== ==========
Weighted average number of shares of
Common Stock outstanding.......... 9,955,330 1,000 1,000 9,955,330 1,000 1,000
========= ========== ========== ========= ========== ==========
OTHER DATA:
Cash flows from operating
activities........................ -- $ 2,191 $ 706 -- $ 3,994 $ 869
Cash flows from investing
activities........................ -- $ (26,896) $ (21,497) -- $ (53,274) $ (39,526)
Cash flows from financing
activities........................ -- $ 22,387 $ 20,589 -- $ 51,173 $ 40,626
Funds From Operations (1)........... $ 5,139 $ 2,082 $ 1,374 $ 5,951 $ 3,628 $ 971
Total properties (at end of
period)........................... 79 79 45 63 63 18

JUNE 30 DECEMBER 31
----------------------- -----------------------
HISTORICAL HISTORICAL
PRO FORMA NET LEASE NET LEASE
COMPANY MICHIGAN MICHIGAN
--------- --------- -----------------------
(IN THOUSANDS)
1997 1997 1996 1995
--------- --------- --------- ---------

BALANCE SHEET DATA:
Cash and cash equivalents.............................. $ 33,882 $ 1,544 $ 3,862 $ 1,969
Properties subject to operating leases, net............ 104,028 98,293 70,175 15,554
Total investments...................................... 122,531 113,481 85,735 37,302
Total assets........................................... 164,550 123,082 98,614 42,292
Notes payable.......................................... -- 72,922 48,160 1,588
Total liabilities...................................... 1,810 74,652 49,215 2,121
Redeemable Preferred Stock (2)......................... -- 48,429 49,399 40,000
Total stockholders' equity............................. 162,740 1 1 171

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

(1) Industry analysts generally consider FFO to be an appropriate measure of the
performance of an equity REIT. In March 1995 the National Association of
Real Estate Investment Trusts ("NAREIT") adopted the NAREIT White Paper on
FFO (the "NAREIT White Paper") which provided additional guidance on the
calculation of

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19

FFO. FFO is defined by NAREIT as net income (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. In addition,
FFO should not be considered an alternative to net income in accordance with
GAAP as an indicator of the Company's operating performance or as an
alternative to cash flow as a measure of liquidity or of the Company's
ability to make distributions, nor is it comparable to cash flows provided
by operating, investing and financing activities determined in accordance
with GAAP. The Company computes FFO in accordance with the NAREIT White
Paper, which may differ from the methodology for calculating FFO utilized by
other equity REITs. Accordingly, the Company's FFO may not be comparable to
other equity REITs' FFO and does not represent amounts available for
distribution because of certain capital expenditures, scheduled mortgage
loan principal payments and other items. The Company believes that FFO is a
useful alternate measure of the performance of an equity REIT because it
provides investors with an understanding of the Company's ability to incur
and service debt and make capital expenditures. See "Distribution Policy".

(2) Mandatory redemption value (in thousands) of $58,026, $56,651, and $42,905
at June 30, 1997, December 31, 1996 and December 31, 1995, respectively.

EXECUTIVE OFFICES

The Company's principal executive offices are located at 24 Frank Lloyd
Wright Drive, Ann Arbor, Michigan 48106, and its telephone number is (313)
994-5505.

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20

RISK FACTORS

THE SHARES OFFERED HEREBY INVOLVE A HIGH DEGREE OF RISK, INCLUDING THE
RISKS DESCRIBED BELOW. PROSPECTIVE INVESTORS SHOULD CAREFULLY CONSIDER THE
SPECIFIC FACTORS SET FORTH BELOW, AS WELL AS THE OTHER INFORMATION CONTAINED IN
THIS PROSPECTUS, BEFORE DECIDING TO INVEST IN THE COMMON STOCK OFFERED HEREBY.

THIS PROSPECTUS CONTAINS CERTAIN "FORWARD-LOOKING STATEMENTS" WHICH
REPRESENT THE COMPANY'S EXPECTATIONS OR BELIEFS, INCLUDING, BUT NOT LIMITED TO,
STATEMENTS CONCERNING INDUSTRY PERFORMANCE AND THE COMPANY'S OPERATIONS,
PERFORMANCE, FINANCIAL CONDITION, PLANS, GROWTH AND STRATEGIES. ANY STATEMENTS
CONTAINED IN THIS PROSPECTUS THAT ARE NOT STATEMENTS OF HISTORICAL FACT MAY BE
DEEMED TO BE FORWARD-LOOKING STATEMENTS. WITHOUT LIMITING THE GENERALITY OF THE
FOREGOING, WORDS SUCH AS "MAY", "WILL", "EXPECT", "ANTICIPATE", "INTEND",
"COULD", "ESTIMATE" OR "CONTINUE" OR THE NEGATIVE OR OTHER VARIATIONS THEREOF OR
COMPARABLE TERMINOLOGY ARE INTENDED TO IDENTIFY FORWARD-LOOKING STATEMENTS.
THESE STATEMENTS BY THEIR NATURE INVOLVE SUBSTANTIAL RISKS AND UNCERTAINTIES,
CERTAIN OF WHICH ARE BEYOND THE COMPANY'S CONTROL, AND ACTUAL RESULTS MAY DIFFER
MATERIALLY DEPENDING ON A VARIETY OF IMPORTANT FACTORS, INCLUDING THOSE
DESCRIBED BELOW IN THIS "RISK FACTORS" SECTION AND ELSEWHERE IN THIS PROSPECTUS.

CONFLICTS OF INTEREST

The Company, the Advisor, and certain of the Company's directors and
executive officers will be subject to potential conflicts of interest arising
out of the relationships of the Company, the Advisor, such directors and
executive officers and the Affiliated Partnerships. The Company has adopted
certain procedures to resolve any conflicts which arise. See "Conflicts of
Interest -- Certain Conflict Resolution Procedures". There is no assurance that
these procedures will be effective or will not be changed, or that conflicts
will be resolved in the best interests of the Company and its stockholders. Any
failure to so resolve conflicts could have a material adverse effect on the
Company's financial condition and ability to make distributions to stockholders.

Potential conflicts include:

Acquisition of Properties. Affiliates of the Company, such as the
Affiliated Partnerships and the Advisor, regularly have opportunities to acquire
restaurant and retail properties of a type suitable for acquisition by the
Company as a result of existing relationships and past experience with various
restaurant chains, retailers and franchisees. The Company will be obligated to
offer first to the Affiliated Partnerships all properties which may also be
suitable for acquisition by the Company. This could result in the Company being
required to acquire potentially less attractive properties to implement its
growth strategy. See "Business -- General". The Advisor or its Affiliates also
may be subject to conflicts of interest if the Company wishes to acquire a
property that also would be a suitable investment for an Affiliate. In addition,
an opportunity to purchase a property may arise when the Company may be unable
to make the acquisition (due to insufficient funds, for example). The Advisor
could encounter conflicts of interest in the negotiation of the purchase price
and other terms of the acquisition or lease of a property due to its
relationship with its Affiliates and the ongoing business relationship of its
Affiliates with restaurant operators and retailers.

Patrick L. Beach, the Company's Chairman of the Board of Directors,
President and Chief Executive Officer, W. Ross Martin, the Company's Executive
Vice President and Chief Financial Officer and a director, Ronald Max, the
Company's Vice President and Chief Investment Officer, and H. Reid Sherard, a
director of the Company, are each officers of Captec Financial and, in the case
of Mr. Beach and Mr. Martin, officers and directors of the Advisor. Mr. Beach,
Mr. Martin and Mr. Sherard are also directors of Captec Financial. In their
capacity as directors and officers of the Company, each has a fiduciary
obligation to act in the best interests of the stockholders of the Company and,
as general partners or directors of Affiliates, where applicable, to act in the

15
21

best interests of the limited partners or stockholders in other programs with
investments that may be similar to those of the Company. See
"Management -- Fiduciary Responsibility of the Board of Directors".

Prior and Future Programs. Captec Financial and other Affiliates of the
Company have organized other real estate investment funds, currently have other
real estate holdings, and in the future expect to form, offer interests in, and
manage other real estate programs. Some of these programs involve, and will
involve, ownership, operation, leasing, and management of fast-food,
family-style and casual dining restaurants, retailers and other businesses that
may be suitable for investment by the Company. Certain of these affiliated
public or private real estate programs invest or may invest, in some cases
solely, in restaurants and other retailers, may be seeking properties
concurrently with the Company and may lease restaurant and retail properties to
operators who also lease or operate certain of the Company's properties. These
properties, if located in the vicinity of the Company's properties, may
adversely affect the Company's revenues. Such conflicts between the Company and
affiliated programs may affect the value of the Company's investments as well as
its net income. See "Business -- Prior Performance of Captec Financial".

As of June 30, 1997, the offering of limited partnership interests in
Captec IV was ongoing, and $23.9 million of limited partnership interests in
Captec IV remained unsold. The failure of Captec IV to sell any or all remaining
limited partnership interests after the Company's acquisition of the General
Partnership Interests may have a material adverse effect on Captec IV, and hence
the Company, because Captec IV may not be able to acquire sufficient properties
to achieve profitability. Additionally, any competition between the Company and
the Affiliated Partnerships for properties may have a material adverse effect on
the Company because either of the Affiliated Partnerships may acquire a property
instead of the Company.

Competition for Management Time. The officers and directors of each of the
Advisor and the Company currently are engaged, and in the future will engage, in
the management of other businesses and properties. They will devote only as much
of their time to the business of the Company as they, in their judgment,
determine is reasonably required, which will be substantially less than their
full time. These officers and directors may experience conflicts of interest in
allocating management time, services and functions among the Company and the
various Affiliates, public or private investor programs and any other business
ventures in which any of them are, or may become, involved.

Compensation of the Advisor. Under the Advisory Agreement, a transaction
involving the purchase, lease and sale of any property may result in the
realization by the Advisor of substantial fees, compensation or other income. As
compensation for its services pursuant to the Advisory Agreement, the Company
will pay Captec Advisors (i) an incentive fee of 15.0% of the amount by which
any increase in annual FFO per share exceeds a 7.0% annual increase in FFO per
share multiplied by the weighted average number of shares of the Common Stock
outstanding; (ii) reimbursement of all acquisition-related costs incurred in the
acquisition of properties identified by the Advisor during the term of the
Advisory Agreement; and (iii) a management fee which will vary depending upon
the size of the Company's portfolio and revenues. This fee structure may
encourage the Advisor to recommend investments which are not in the best
financial interests of the Company and its stockholders in order to generate
compensation under the Advisory Agreement. Although the Advisory Agreement was
approved by a majority of the Board of Directors, including a majority of the
Independent Directors, as being fair and reasonable to the Company and on terms
and conditions no less favorable than those which could be obtained from
non-Affiliates, the Advisory Agreement was not the result of arms-length
negotiations. Potential conflicts may arise in connection with the
recommendation by the Advisor to the Company of whether to sell a property, as
such a sale could impact the timing and amount of fees payable to the Advisor.
See "Business -- The Advisor and the Advisory Agreement".

Financial Instruments from Affiliates. The Company has made certain
investments in financial instruments which are or were held or made by
Affiliates of the Company, including the acquisition of (i) delinquent mortgage
loans from Captec Financial, (ii) the Master Note from Captec Financial, (iii) a
promissory note issued by Captec Trust, an Affiliate, and (iv) a demand note
issued by the father-in-law of W. Ross Martin, the Company's Executive Vice
President and Chief Financial Officer and a director. These investments were not
the result of arms-length negotiations. See "Business -- Investment in Financial
Instruments" and "Certain

16
22

Transactions". The Company does not intend to make future loans to Affiliates.
In the event of default under any of these financial instruments, the Company
would be subject to conflicts of interest with respect to any legal or other
action to be taken in order to enforce its rights thereunder because any such
action could also be contrary to the interests of certain of the Company's
directors or officers. See "Certain Transactions".

Redemption of Preferred Stock and Issuance of Exchange Shares. The Public
Institution For Social Security, an Affiliate, currently holds 50,000 shares of
the Company's Preferred Stock. Upon completion of the Offering, 40,500 shares of
the Preferred Stock will be redeemed for $47.7 million of the net proceeds of
the Offering and 9,500 shares of the Preferred Stock will be exchanged for the
Exchange Shares, after which there will be no Preferred Stock outstanding.

Repayment of Indebtedness to Affiliate of Lead Managing
Underwriter. CSFBMC, an Affiliate of the lead managing Underwriter, will
receive approximately $107.2 million, which exceeds 10.0% of the net proceeds of
the Offering, for the repayment of amounts outstanding under the Credit
Facility. As a result, Credit Suisse First Boston Corporation, the lead managing
Underwriter, was subject to conflicts of interest in establishing the initial
public offering price of the Common Stock. See "Conflicts of
Interest -- Repayment of Indebtedness to Affiliate of Lead Managing Underwriter"
and "Underwriting".

Joint Investment With Affiliates. The Company may invest in joint ventures
with the Advisor or other Affiliates, including the Affiliated Partnerships and
Captec Financial, if a majority of the directors, including a majority of the
Independent Directors, determines that the investment in the joint venture is
fair and reasonable to the Company and on terms no less favorable to the Company
than in comparable transactions between unaffiliated parties.

EXPOSURE TO LIABILITIES OF AFFILIATED PARTNERSHIPS

Subsequent to the completion of the Offering, the Company will become the
sole general partner of Captec III and Captec IV, each of which is a Delaware
limited partnership engaged in substantially the same business as the Company.
Both Affiliated Partnerships have publicly offered securities under the
Securities Act of 1933, as amended (the "Securities Act"), and have numerous
limited partners. The offering of Captec IV is continuing and $23.9 million of
limited partnership interests in Captec IV remained unsold as of June 30, 1997.
See "Business -- The Affiliated Partnerships". As part of the acquisition of
General Partnership Interests in Captec III and Captec IV, and in addition to
their existing rights of indemnification from the Affiliated Partnerships, the
Company has agreed to indemnify the current general partners of the Affiliated
Partnerships, including Mr. Beach, from certain liabilities incurred in their
capacity as such, including liabilities under the Securities Act. See
"-- Limited Liability and Indemnification of Officers, Directors and the
Advisor". The acquisition by the Company of the General Partnership Interest in
each Affiliated Partnership is contingent on the approval of a majority in
interest of the limited partners of each Affiliated Partnership. There is no
assurance that the limited partners of either or both Affiliated Partnership(s)
will approve the transaction and that the Company will be successful in
acquiring the General Partnership Interest in either or both Affiliated
Partnership(s).

The Company's rights, responsibilities and obligations as the general
partner of each Affiliated Partnership are set forth in the respective
partnership agreements or arise at law. As a general partner, the Company will
own a 1.0% interest in each Affiliated Partnership and be responsible for all
recourse obligations of each Affiliated Partnership to the extent of any
insufficiency of partnership assets. As the general partner, the Company also
will owe the limited partners of each Affiliated Partnership a fiduciary duty
for the breach of which, or of other obligations under the partnership
agreements or at law, the Company may be liable to the limited partners or
others. Conflicts of interest may arise between the interests of the Company's
stockholders and the interests of the limited partners of the Affiliated
Partnerships because the Company and the Affiliated Partnerships are engaged in
substantially the same business. See "Business -- The Affiliated Partnerships".

As general partner, the Company will be entitled to its allocable share of
partnership income or loss in respect of its 1.0% interest, certain additional
income or loss in certain circumstances, certain fees for its services and the
reimbursement of certain expenses from the Affiliated Partnerships. See
"Business -- The Affiliated Partnerships". Generally, such income and fees
(including certain income allocated to the Company with respect

17
23

to its 1.0% interest) will not qualify for the 95.0% income test applicable to
REITs, and all such income and other non-qualifying income must aggregate less
than 5.0% of the Company's income in any year for the Company to qualify as a
REIT. Moreover, for purposes of the income and asset tests described in "Federal
Income Tax Considerations -- Requirements for Qualification as a REIT", the
Company will be treated as owning a proportionate share of the assets of the
Affiliated Partnerships, and as earning a proportionate share of the income of
the Affiliated Partnerships, each of which own assets and have income which are
"nonqualifying" for certain REIT requirements under the Code. The accumulation
by the Affiliated Partnerships of such assets or accrual of such income could
result in the Company failing to meet these tests and failing to qualify as a
REIT. In addition, in the event either Captec III or Captec IV loses its
classification as a partnership for federal income tax purposes for any reason
(such as the excessive transferability of partnership interests) the Company
could cease to be qualified as a REIT which would have a material adverse effect
on the Company's financial condition and its ability to make distributions to
stockholders. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT". The need to resolve these matters in the Company's
interests may create additional conflicts of interest. See "-- Conflicts of
Interest".

RELIANCE ON MANAGEMENT AND CAPTEC ADVISORS; LACK OF STOCKHOLDER CONTROL

Stockholders will be relying substantially on the ability of management of
the Company and the Advisor, particularly with respect to the Company's
restaurant properties. Both the Company and Captec Advisors are newly formed and
have limited operating histories. Captec Advisors (which will rely substantially
on Captec Financial and its Affiliates, subject to oversight by the Board of
Directors) will be responsible for all aspects of the acquisition, financing,
development and leasing of the Company's restaurant properties and certain
aspects of the Company's retail properties. Upon completion of the Offering,
senior management will have significant control over the operations of the
Company as a result of their senior management positions, which influence may
not be consistent with the interests of other stockholders. Stockholders have no
right or power to participate in the management of the Company except through
the exercise of voting rights. The investment and financing policies of the
Company and its policies with respect to certain other activities, including its
growth, capitalization, distributions, REIT status and operating policies, are
determined by the Board of Directors. These policies may be changed from time to
time at the discretion of the Board of Directors without a vote of the
stockholders and any such change could be detrimental to the interests of the
stockholders.

DEPENDENCE ON KEY PERSONNEL AND LIMITED MANAGEMENT GROUP

The Company is dependent on the efforts of Patrick L. Beach, its Chairman,
President and Chief Executive Officer, W. Ross Martin, its Executive Vice
President and Chief Financial Officer and a director, and Ronald Max, its Vice
President and Chief Investment Officer. Because the Company is substantially
dependent on the services of Messrs. Beach, Martin and Max and there currently
are no other executive officers of the Company, the Company may be considered to
have limited management. The loss of the services of any of these executive
officers could have a material adverse effect on the Company's financial
condition and its ability to make distributions to stockholders. Although the
Company has entered into three-year employment agreements with Messrs. Beach and
Martin, those agreements may not assure the continued service of either of them
to the Company. See "Management -- Executive Compensation and Employment
Contracts". Moreover, Messrs. Beach and Martin hold comparable positions with
the Advisor, and although the Advisor has many other employees, the services of
Messrs. Beach and Martin are equally important to the Advisor and to its ability
to fulfill its obligations to the Company. See "-- Conflicts of Interest".

LEVERAGE

Although upon completion of the Offering the Company will have no material
debt, the Company anticipates that in the future some or all of the Company's
properties, including the Acquisition Properties, will be acquired primarily
with borrowings under the Credit Facility. Amounts borrowed under the Credit
Facility are general obligations of the Company secured by a first priority lien
on substantially all of the Company's tangible and intangible assets, including
its properties, the Leases and all rents derived therefrom, accounts receivable
and bank accounts. In borrowing under the Credit Facility to acquire or develop
a property, the Company anticipates

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24

that the funds needed to service any debt attributable to that property will be
derived from the income to be produced from the property for which the
indebtedness is incurred. Any default by a Lessee of a property which has been
acquired and/or developed utilizing borrowings under the Credit Facility will
require the Company to divert funds from other sources in order to service that
portion of the Company's obligations under the Credit Facility. Further, the
rental from any re-letting or the proceeds from the sale of any property may be
insufficient to satisfy related debt service. The use of leverage, while
intended to provide a greater rate of return by permitting the Company to
acquire properties of greater aggregate cost than would otherwise be possible,
also increases the Company's risk of loss and foreclosure on other properties
which have been pledged to secure indebtedness.

Upon completion of the Offering and the repayment of all amounts
outstanding under the Credit Facility, the Company will be able to borrow up to
$150.0 million under the Credit Facility subject to satisfaction of conditions
set forth in the Credit Facility for such borrowing, including with respect to
the value of property pledged as collateral. The Credit Facility will expire
approximately two years after the completion of the Offering, at which time the
entire outstanding balance of the Credit Facility will mature. Since the Company
intends to grow its portfolio aggressively through the acquisition of additional
properties, including substantially all acquisition and development costs of the
Acquisition Properties, utilizing funds from the Credit Facility and to lease
those properties on a long-term basis, it is likely the Company will not have
sufficient funds available to repay the outstanding balance of the Credit
Facility upon its maturity. Accordingly, the Company would be required to obtain
the funds necessary to repay the Credit Facility at maturity either through the
refinancing of the Credit Facility, the issuance of additional equity or debt
securities or the sale of properties. The Company has not received a commitment
from any institutional or other lender or investor to loan the funds or purchase
any equity or debt securities which the Company may seek to issue to refinance
its indebtedness under the Credit Facility. If the Company were unable to obtain
funds to repay indebtedness on acceptable terms, or at all, the Company might be
forced to dispose of properties or take other actions upon disadvantageous
terms, which could result in losses to the Company and have a material adverse
effect on the Company's financial condition and its ability to make
distributions to stockholders. Pursuant to the Code and related regulations of
the U.S. Department of the Treasury under the Code (the "Treasury Regulations"),
the Company may incur adverse tax consequences upon the sale of properties under
certain circumstances. See "Federal Income Tax Considerations". For these
reasons, there is no assurance that the Company will be able to repay the Credit
Facility upon its maturity. Any default by the Company under the Credit Facility
would subject the Company to risk of foreclosure on substantially all of its
assets, including the properties, to the extent necessary in order to repay any
amounts due under the Credit Facility including, but not limited to, principal,
interest, penalties or other costs and expenses incurred in the event of a
default. Any such default would have a material adverse effect on the Company's
financial condition and its ability to make distributions to stockholders.

NO LIMITATION ON DEBT

Although the Board of Directors has adopted a policy to limit the Company's
indebtedness to 50.0% of Market Capitalization, the organizational documents of
the Company do not limit the amount or percentage of indebtedness that the
Company may incur. The Board of Directors, without stockholder approval, could
alter the Company's borrowing policy at any time. If this policy were changed,
the Company could become more highly leveraged, resulting in an increase in debt
service expense that could materially adversely affect the Company's financial
condition and its ability to make distributions to stockholders and increase the
Company's risk of default on its obligations. See "-- Leverage" and
"Business -- Financing Policies".

OWNERSHIP AND LEASING OF PROPERTIES

Vulnerability to Market and Lessee Conditions. Investment in properties
leased to chain and franchised restaurants, specialty retailers or other
businesses may be affected by adverse changes in general or local economic or
market conditions, increased costs of energy or products, competitive factors,
fuel shortages, quality of management, ability of a franchisor to support its
franchisees, limited alternative uses for buildings, changing consumer habits or
foodservice or retailing trends, condemnation or uninsured losses, changing
demographics and traffic patterns, inability to remodel outmoded or limited
purpose properties as required by franchise agreements or Leases due to
regulatory or other factors, voluntary or involuntary termination by a Lessee of
its

19
25

obligations under a Lease or loss by a Lessee of its franchise or operating
rights and other factors. Real estate values also are affected by such factors
as government regulation, interest rates and the availability of financing and
potential liability under, and changes in, environmental, zoning, tax and other
laws.

The rent from the properties, which is the principal source of the
Company's income, and the Lessee's ability to pay rent are affected by these
general economic conditions within the franchise, foodservice and retail
industries as well as changes in consumer preferences and increased competition.
The failure of a particular franchise concept or a franchisor's inability to
support its franchisees could materially adversely affect the ability of a
franchisee to make lease payments, which could have a material adverse effect on
the Company's financial condition and its ability to make distributions to
stockholders. In the event of termination of a Lease or of a franchise agreement
between a Lessee and a franchisor, the Company may be unable to lease the
property on comparable terms and may incur a loss, and in any case is likely to
suffer an interruption of revenue and substantial expense as the property is
refurbished and relet. The Company will not be a party to franchise agreements
between franchisors and Lessees and such agreements could be modified or
canceled without notice to, or the prior consent of, the Company. Laws
regulating the franchise industry in various states may adversely affect the
ability of the Company to enforce contractual agreements or obtain remedies on
default. In the event of a default by a Lessee, the Company may experience
delays in, and incur substantial costs of enforcing, its rights. A default by
the Lessee or other premature termination of a Lease could have a material
adverse effect on the Company's financial condition and its ability to make
distributions to stockholders. As a result of these and other factors, including
the cyclical nature of the real estate markets, the value of the Company's
properties could decrease. See "-- Creditworthiness of Lessees and Financial
Instruments" and "-- Lessee and Concept Concentration".

Market Illiquidity. The inherent illiquidity of real estate investment
will limit the ability of the Company to vary its portfolio expeditiously in
response to changing economic or other conditions. Pursuant to the Code and
related Treasury Regulations, the Company may incur adverse tax consequences
upon the sale of properties under certain circumstances. See "-- Lessee and
Concept Concentration" and "Federal Income Tax Considerations".

INTEREST RATE INCREASES

The interest rate on borrowings under the Credit Facility is a variable
rate based on prevailing short-term rates while the rents from Leases vary in
accordance with their terms, generally based primarily on periodic increases.
Changes in interest rates and rents are unlikely to be uniform, and increases in
interest rates on borrowings may exceed increases in rents, potentially for
sustained periods of time. Similarly, interest rates or other costs of funds to
refinance the Credit Facility may be higher than those prevailing under the
Credit Facility without any corresponding increase in rents. Such increases in
costs of funds could have a material adverse effect on the Company's financial
condition and its ability to make distributions to stockholders.

Increases in interest rates also may decrease the value of the Company's
properties, including as collateral, and the Company's ability to borrow.
Increases in interest rates also may adversely affect the value of the Common
Stock as compared to alternative investments and other REITs. See "-- Ownership
and Leasing of Properties".

ESTIMATED INITIAL CASH AVAILABLE FOR DISTRIBUTION MAY NOT BE SUFFICIENT TO MAKE
DISTRIBUTIONS AT EXPECTED LEVELS

The Company's proposed initial annual distributions following completion of
the Offering represent 97.1% of the Company's estimated initial Cash Available
for Distribution for the 12 months ending November 30, 1998. Since commencing
operations in 1995, and after giving effect to its Preferred Stock dividend
obligations, the Company has not operated profitably and there can be no
assurance that the Company will be able to make the anticipated, or any,
distributions to stockholders. In the event that the Company is not able to pay
its estimated initial annual distribution of $1.50 per share to stockholders out
of Cash Available for Distribution, the Company could be required to fund
distributions from working capital, to attempt to borrow for such distributions
or to reduce the amount of such distributions. Pending investment of the net
proceeds, or in the event the Underwriters'

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over-allotment option is exercised, the Company's ability to pay such
distributions out of Cash Available for Distribution may be further adversely
affected.

CREDITWORTHINESS OF LESSEES AND FINANCIAL INSTRUMENTS

Although the Company requires prospective Lessees to satisfy its
substantial financial and credit underwriting requirements, the Company will
remain subject to the economic risk inherent in the leasing of property,
including that the financial condition of a Lessee may deteriorate over the term
of the Lease resulting in a default, causing an interruption in revenue from the
property and requiring the Company to obtain a new tenant at substantial
expense. The Company also has invested in a small number of equipment and
financing leases which are subject to similar economic and business risks. As of
June 30, 1997 the Company held a master revolving note, promissory notes
collateralized by subordinated interests in real estate or asset-backed
securities and five delinquent mortgage loans, some of which are subordinated to
the interests of senior lenders and the borrowers under some of which were
delinquent in the performance of their obligations. There is no assurance that
the borrowers under these instruments will be able to fulfill their obligations
to the Company or that any of these instruments could be sold for the amounts at
which they are recorded on the Company's financial statements. See "-- Lessee
and Concept Concentration" and "Business -- Investment in Financial
Instruments".

DILUTION

Purchasers of the Common Stock in the Offering will experience immediate
and substantial dilution of $3.75 per share from the initial public offering
price in the net tangible book value per share of the Common Stock. See
"Dilution".

ADVERSE CONSEQUENCES OF FAILURE TO QUALIFY AS A REIT

The Company intends to operate to qualify as a REIT under the Code
commencing with its taxable year ending December 31, 1997. The Company does not
have any operating history or experience in qualifying, or operating in
accordance with the requirements for maintaining qualification, as a REIT and
there is no assurance that the Company will qualify or, once qualified, will
remain qualified as a REIT. There is no assurance that new legislation,
regulations, administrative interpretations or court decisions will not
significantly change the tax laws with respect to qualification as a REIT or the
federal income tax consequences of such qualification. Qualification as a REIT
involves the application of highly technical and complex Code provisions for
which there are only limited judicial and administrative interpretations. The
determination of various factual matters and circumstances not entirely within
the Company's control may affect the Company's ability to qualify as a REIT. For
example, in order to qualify as a REIT, at least 95.0% of the Company's gross
income in any year must be derived from qualifying sources, and the Company must
make distributions to stockholders aggregating annually at least 95.0% of its
REIT taxable income (excluding capital gains). The Company intends to make
distributions to its stockholders to comply with the distribution provisions of
the Code. Although the Company anticipates that its cash flows from operations
will be sufficient to pay its operating expenses and meet distribution
requirements, there is no assurance it will be able to do so.

If the Company were to fail to qualify as a REIT in any taxable year, the
Company would be subject to federal income tax (including any applicable
alternative minimum tax) on its taxable income at regular corporate rates and
would not be allowed a deduction in computing its taxable income for amounts
distributed to its stockholders. Unless entitled to relief under certain
statutory provisions, the Company also would be ineligible for qualification as
a REIT for the four taxable years following the year during which qualification
was lost. Such disqualification would reduce the net earnings of the Company
available for investment or distribution to its stockholders due to the
additional tax liability of the Company for those years. See "Federal Income Tax
Considerations -- Requirements for Qualification as a REIT -- Failure to
Qualify".

REIT MINIMUM DISTRIBUTION REQUIREMENTS

In order to qualify as a REIT, the Company generally will be required to
distribute to stockholders annually at least 95.0% of its REIT taxable income
(excluding capital gains). The Company will be subject to a 4.0%

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nondeductible excise tax on the amount, if any, by which certain distributions
paid by it for any calendar year are less than the sum of 85.0% of its ordinary
income plus 95.0% of its capital gain net income for that year plus amounts not
distributed in prior years. The Company intends to make distributions to its
stockholders to comply with the 95.0% distribution requirement and to avoid the
nondeductible excise tax. The Company's income will consist primarily of its
income from the properties. Differences in timing between taxable income and
receipt of Cash Available for Distribution and the seasonality of certain
industries or a default or Lease termination could cause the Company to have
taxable income without sufficient cash to make the annual distributions required
of a REIT under the Code. In such cases, the Company could be compelled to seek
to borrow under the Credit Facility or otherwise, or to liquidate investments on
disadvantageous terms, in order to meet the distribution requirements. See
"Management's Discussion and Analysis of Financial Condition and Results of
Operations -- Liquidity and Capital Resources", "Business" and "Federal Income
Tax Considerations". Distributions will be determined by the Board of Directors
and will depend on a number of factors, including the amount of Cash Available
for Distribution, the Company's financial condition, any decision by the Board
of Directors to reinvest rather than distribute available funds, the Company's
capital expenditures, the annual distribution requirements under the REIT
provisions of the Code and any other factors the Board of Directors deems
relevant. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Annual Distribution Requirements".

FAILURE TO DISTRIBUTE NON-REIT EARNINGS AND PROFITS

The Company was incorporated in Delaware in August 1997 and in September
1997 Net Lease Michigan and Advisors Michigan were merged into the Company in a
transaction in which the Company succeeded to the earnings and profits of the
merged companies. Under the Code, a company with earnings and profits
accumulated in a non-REIT year must distribute all such earnings and profits by
the end of the year in which it elects to be taxed as a REIT in order to qualify
as a REIT. If for any reason the Company fails to distribute all such earnings
and profits by December 31, 1997, the Company will fail to qualify as a REIT.
See " -- Adverse Consequences of Failure to Qualify as a REIT" and "Federal
Income Tax Considerations -- Requirements for Qualification as a REIT -- Failure
to Qualify".

CHANGES IN TAX LAWS

The discussion of the federal income tax aspects of the Offering is based
on current law, including the Code, the Treasury Regulations, certain
administrative interpretations thereof and court decisions. Future events that
modify or affect prevailing law may result in federal income tax treatment of
the Company and the stockholders that is materially and adversely different from
that described in this Prospectus, both for taxable years arising before and
after such events. There is no assurance that future legislation and
administrative interpretations will not be retroactive in effect.

REPAYMENT OF INDEBTEDNESS TO AFFILIATE OF LEAD MANAGING UNDERWRITER

CSFBMC an Affiliate of Credit Suisse First Boston Corporation, the lead
managing Underwriter, will receive approximately $107.2 million of the net
proceeds of the Offering for amounts outstanding under the Credit Facility. As a
result, Credit Suisse First Boston Corporation, the lead managing Underwriter,
was subject to conflicts of interest in establishing the initial public offering
price of the Common Stock. See "Underwriting".

POTENTIAL INABILITY TO ACQUIRE ACQUISITION PROPERTIES; NO ASSURANCE OF
PROFITABILITY

As of September 1, 1997, the Company had agreements in principle to acquire
the 62 Acquisition Properties located in 21 states for an aggregate cost of
approximately $94.5 million. The Acquisition Properties are material to the
Company's current growth strategy. Although the Company and sellers of the
Acquisition Properties have reached agreement on certain fundamental terms of
each of the proposed acquisitions, the consummation of most of these
acquisitions by the Company remains contingent upon the negotiation, execution
and closing of definitive agreements and numerous other factors and
contingencies, many of which are beyond the control of the Company. For these
reasons, there is no assurance that the Company will be successful in acquiring
all the Acquisition Properties. The Company's ability to make distributions may
be adversely affected if it is unsuccessful in acquiring some or all of the
Acquisition Properties and unable to obtain satisfactory alternative

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investments for an extended period of time. There also is no assurance that any
of the Acquisition Properties or any other property acquired by the Company will
perform profitably.

LESSEE AND CONCEPT CONCENTRATION

For the six months ended June 30, 1997, two of the Company's Lessees,
United Auto Group, Inc. (which leases two retail properties in Georgia) and ARG
Enterprises, Inc. (which leases four Black Angus restaurant properties in
Minnesota) accounted for 10.2% and 9.9%, respectively, of the Company's total
annual rent from its properties. As of June 30, 1997 operators of Boston Market
restaurants were the Lessees of 27 of the Company's properties in 10 states
which accounted for 24.9% of the Company's total annual rent. Accordingly, the
Company is significantly dependent on revenues derived from these Lessees as
well as the continued success of the Boston Market and Black Angus restaurant
concepts. The loss of either of these significant Lessees or a material adverse
change in the popularity of either the Boston Market or Black Angus restaurants
could have a material adverse effect on the financial condition of the Company
and its ability to make distributions to stockholders. Although the Company
seeks to diversify its Lessee and concept base, there is no assurance it will be
successful in doing so and it may continue to be substantially reliant on the
success of specific Lessees and concepts for the foreseeable future. See
"Business -- Properties".

On October 30, 1997, Boston Chicken, Inc. ("Boston Chicken"), the
franchisor of the Boston Market restaurants and the Lessee of three of the
Existing Properties, announced that it is considering a restructuring pursuant
to which it would acquire all of its existing franchisees and eliminate its
franchisee system. The reorganization proposal accompanied announcements that,
although Boston Chicken has remained profitable, sales and net income for the
third quarter of 1997 were less than for the corresponding periods in 1996; that
a small number of Boston Chicken's existing stores would be closed; and that
development would be suspended. As of June 30, 1997, the Lessees of 24 of the
Existing Properties were franchisees of Boston Chicken. The Company's Leases for
the Existing Properties which are operated by franchisees of Boston Chicken are
assignable by the franchisee to Boston Chicken without the consent of the
Company. Boston Chicken guarantees certain of the Company's Leases with Boston
Chicken franchisees. Subsequent to June 30, 1997, four of the Existing
Properties which are operated as Boston Market restaurants and one property
which is under construction as a Boston Market restaurant were acquired by
Boston Chicken from the Company. In exchange, the Company will acquire four
additional Boston Market restaurant properties (not included in the Acquisition
Properties) which will be operated by a Boston Chicken franchisee pursuant to
Leases that will not be guaranteed by Boston Chicken. The exchange transaction
will have no material effect on the Company's balance sheet or statement of
operations and the Company believes that the properties being acquired in the
exchange are superior to those sold to Boston Chicken. Any material adverse
developments in Boston Chicken's financial position or results of operations
could have a material adverse effect on the financial condition of the Company
and its ability to make distributions to stockholders.

COMPETITION

The restaurant and retail chain finance industry is characterized by
intense competition. The Company will compete with other restaurant and retail
finance companies (some of which are REITs), commercial banks, other financial
institutions and certain franchisors which offer financing services directly to
their franchisees. Based upon its knowledge of this industry and its assessment
of other REITs, the Company considers Franchise Finance Corporation of America,
Realty Income Corporation and Commercial Net Lease Realty, Inc. to be its
primary competitors among REITs. Some of these competitors for investments have
substantially greater financial resources than the Company. These entities
generally may be able to accept more risk than the Company prudently can manage,
including risk with respect to the creditworthiness of lessees or risk related
to geographic or other concentration of investment. Such competition may reduce
the number of suitable investment properties available to the Company and
increase the bargaining position of the owners of those properties.

OTHER TAX LIABILITIES

Even if the Company qualifies as a REIT for federal income tax purposes, it
may be subject to certain federal, state and local taxes on its income and
property and excise taxes on its undistributed income, and will be

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subject to federal and state income taxes on its undistributed income. See
"Federal Income Tax Considerations -- Other Tax Considerations -- State and
Local Taxes".

The Company has deducted from its income for federal income tax purposes
the dividends paid on the Preferred Stock as interest expense, and has not
withheld any amounts in respect of such distributions to the holder of the
Preferred Stock. If the deduction or failure to withhold is challenged by the
Internal Revenue Service (the "IRS"), the Company could be assessed and
ultimately required to pay income and withholding taxes which, as of June 30,
1997, could aggregate up to $3.4 million, plus interest and costs of defense.
The Company's financial statements reflect as of June 30, 1997 an aggregate
provision of $875,000 which represents, in accordance with GAAP, the minimum
amount (exclusive of costs of defense) the Company believes would be necessary
to settle any claim brought by the IRS. There is no assurance that if any claim
is asserted, it could be settled for $875,000 or any amount less than the entire
claim. See Note 9 to Financial Statements.

ANTI-TAKEOVER EFFECTS OF LIMITATION ON OWNERSHIP OF COMMON STOCK

In order for the Company to maintain its qualification as a REIT, not more
than 50.0% in value of the outstanding Common Stock of the Company may be owned,
directly or indirectly, by five or fewer individuals. The Company's Amended and
Restated Certificate of Incorporation (the "Certificate") prohibits ownership of
more than 9.8% of the Common Stock by any single stockholder following
completion of the Offering, with certain exceptions. A holder of Common Stock
may be prohibited from increasing its holdings of Common Stock. Generally
prohibiting any stockholder from owning more than 9.8% of the Common Stock may
(i) discourage a change in control of the Company; (ii) deter tender offers for
the Common Stock which may otherwise be beneficial to the Company's
stockholders; or (iii) limit the opportunity for stockholders to receive a
premium for their Common Stock that could be obtained from an investor
attempting to assemble a block of Common Stock in excess of 9.8% or to effect a
change in control of the Company.

Certain tender offers and invitations for tender for more than 10.0% of the
outstanding shares of the Company's Common Stock also may be subject to Section
203 of the Delaware General Corporation Law (the "GCL"). See "Capital Stock of
the Company -- Delaware Business Combination Provisions".

The Certificate authorizes the Board of Directors to issue up to 10,000,000
shares of Preferred Stock and to designate certain preferences and rights of any
such shares. Upon completion of the Offering, $47.7 million of Offering proceeds
will be utilized to redeem 40,500 shares of Preferred Stock from The Public
Institution For Social Security, an Affiliate, and the issuance of the Exchange
Shares for the balance of the outstanding shares of the Preferred Stock, no
Preferred Stock will be outstanding. The Company has no current intention to
issue any additional Preferred Stock. The future issuance of any Preferred Stock
with preferential dividend rights would reduce the Cash Available for
Distribution to the holders of Common Stock. The issuance of shares of Preferred
Stock also could delay or prevent a change in control of the Company even if a
change in control otherwise was in the stockholders' interests. See "Capital
Stock of the Company -- Preferred Stock".

ABSENCE OF PRIOR PUBLIC MARKET FOR THE COMMON STOCK

Prior to the Offering there has been no public market for the Common Stock.
There is no assurance that an active trading market will develop or be sustained
following the Offering or that at any time the Common Stock may be resold at or
above the initial public offering price. The initial public offering price will
be determined through negotiations between the Company and the representatives
of the Underwriters (the "Representatives") without independent appraisals or
other valuations and may not be indicative of the value of the Company's assets
or the market price of the Common Stock after the Offering. See "Conflicts of
Interest - Repayment of Indebtedness to Affiliate of Lead Managing Underwriters"
and "Underwriting".

ABSENCE OF PROFITABLE OPERATIONS

For the six months ended June 30, 1997 and 1996, the Company recorded net
income of $1.4 million and $1.1 million, respectively, and for the years ended
December 31, 1996 and 1995, the Company recorded net income of $3.0 million and
$882,592, respectively. After giving effect to its dividend obligations on its
Preferred Stock, the Company recorded losses attributable to Common Stock of
$2.3 million for the six months ended

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June 30, 1997; $2.6 million for six months ended June 30, 1996; $4.5 million for
the year ended December 31, 1996; and $2.7 million for the year ended December
31, 1995. The Company has not had profitable operations and there is no
assurance that the Company will achieve profitable operations in the future.

ACQUISITION OF PROPERTIES UNDER CONSTRUCTION

Under certain circumstances the Company may acquire the site on which a
particular property is to be built prior to commencement or completion of
construction. To the extent the Company acquires property on which improvements
are to be constructed or completed, the Company may be subject to certain risks
from the builder's inability to control construction costs or to build in
conformity with plans, specifications and timetables. The builder's failure to
perform its contractual obligations may necessitate legal action by the Company
to rescind its purchase of a property (which may not be possible in the case of
certain property where the site is purchased prior to completion), to compel
performance or to seek damages. Any such legal action would result in increased
costs to the Company. In any case in which improvements are to be constructed or
completed or in which a property is not yet in operation, the Company will be
subject to additional risk, including the risk of delay in completion and in
receipt of rental income and that the Lessee will not be successful. See
"Business -- Operating Strategy -- Construction".

JOINT VENTURE DEVELOPMENT

Some of the Company's future investments may be owned by joint ventures
between the Company and others, including Affiliates. Joint ventures are subject
to the potential risk of impasse in business decisions where the approval of
each venturer is required. Joint venture ownership of properties also may
involve risks not otherwise present in sole ownership, including that the
Company's co-venturer might become bankrupt or have economic or business
interests or goals inconsistent with those of the Company, or may act contrary
to the Company's interests, subjecting the joint venture to unanticipated
liabilities. See "Business -- Growth Strategy -- Acquisitions from Developers".

RECHARACTERIZATION OF SALE/LEASEBACK TRANSACTIONS

Frequently, the Company enters into sale/leaseback transactions, pursuant
to which the Company purchases a property and leases it back to the seller. In
the event of the bankruptcy of a seller-Lessee, a sale/leaseback transaction may
be recharacterized as either a financing or a joint venture resulting in adverse
economic consequences to the Company. If the transaction is recharacterized as a
loan, the Company may be required to recognize a repayment of principal, thereby
losing the benefit of any rent participation payments it would otherwise have
been entitled to receive. Similar adverse consequences can result if the
transaction is recharacterized as a joint venture between the Company and a
Lessee.

UNINSURED LOSSES; COSTS AND AVAILABILITY OF INSURANCE

Each Lessee is required to obtain comprehensive insurance for the
properties, including casualty, liability, fire and extended coverage in amounts
and on other terms satisfactory to the Company. There are certain types of
losses (generally of a catastrophic nature, such as earthquakes, hurricanes,
floods and civil disorders) which are either uninsurable or not economically
insurable in the judgment of the Company. The destruction of, or significant
damage to, property due to an uninsured cause would result in an economic loss
to the Company and could result in the Company losing both its investment in,
and anticipated profits from, such property. When a loss is insured, the
coverage may be insufficient in amount or duration (as in the case of business
interruption insurance), or a Lessee's customers may be lost, such that the
Lessee cannot resume its business after the loss at prior levels or at all,
resulting in reduced rent or a default under its Lease. Any such loss could have
a material adverse effect on the financial condition of the Company and its
ability to make distributions to stockholders.

The Company carries insurance against such risks and in such amounts as it
believes is customary for businesses of its kind. However, the costs and
availability of insurance change, and the Company is not covered presently, and
may not be covered in the future, against certain losses where not warranted in
the judgment of management by the cost or availability of coverage or the
remoteness of perceived risk. There is no assurance that the Company's insurance
against loss is, or will be, sufficient.

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AMERICANS WITH DISABILITIES ACT COMPLIANCE

Under the American with Disabilities Act (the "ADA") places of public
accommodation or commercial facilities are required to meet certain federal
requirements for access and use by disabled persons. Although the Company
believes the Existing Properties are in material compliance with the ADA, the
Company may incur additional costs in connection with ADA compliance in the
future. Also, the ADA and other federal, state and local laws and regulations
concerning access by disabled persons may require modifications to the Company's
properties. Non-compliance with the ADA could result in the imposition of fines,
awards of damages to private litigants or an order to correct non-compliance.
Although the Company's Lessees are responsible for ensuring that the properties
comply with all laws and regulations, including the ADA, this contractual
responsibility does not relieve the Company of its obligations under the ADA in
the event of any non-compliance by a Lessee and, notwithstanding the provisions
of the Leases, the Company may be required to make substantial capital
expenditures to comply with the ADA.

POTENTIAL ENVIRONMENTAL LIABILITY

Under various federal, state and local environmental laws, ordinances and
regulations, a current or previous owner or operator of real estate may be
required to investigate and remediate hazardous or toxic substances or petroleum
product releases at such property and may be held liable to a governmental
entity or to private parties for property damage and for investigation and
remediation costs incurred by such parties in connection with the contamination.
Such laws typically impose remediation responsibility and liability without
regard to whether the owner knew or caused the presence of the contaminants, and
the liability under such laws has been interpreted to be joint and several
unless the harm is divisible and there is a reasonable basis for allocation of
responsibility. The costs of investigation, remediation or removal of such
substances may be substantial, and the presence of such substances, or the
failure properly to remediate the contamination on such property, may adversely
affect the owner's ability to sell or rent such property or to borrow using such
property as collateral. Persons who arrange for the disposal or treatment of
hazardous or toxic substances at a disposal or treatment facility also may be
liable for the costs of removal or remediation of hazardous or toxic substances
at such disposal or treatment facility, whether or not such facility is owned or
operated by such person. In addition, some environmental laws create a lien on
the contaminated site in favor of the government for damages and costs incurred
in connection with the contamination. Finally, the owner of a site may be
subject to common law claims by third parties for damages and costs resulting
from environmental contamination emanating from such site.

Certain federal, state and local laws, regulations and ordinances govern
the removal, encapsulation or disturbance of asbestos-containing materials
("ACM") when such materials are in poor condition or in the event of
construction, remodeling, renovation or demolition of a building. Such laws may
impose liability for release of ACM and may permit third parties to seek
recovery from owners or operators for personal injury resulting from ACM. In
connection with its ownership and operation of the properties, the Company
potentially may be liable for such costs.

In the past few years, independent environmental consultants have conducted
or updated environmental site assessments, including Phase I and Phase II site
assessments, and other environmental investigations as appropriate
("Environmental Site Assessments") at the Existing Properties. These
Environmental Site Assessments have included visual inspections of the Existing
Properties and the surrounding areas, employee interviews and reviews of
relevant state, federal and historical documents. Soil and groundwater sampling
was performed where warranted and remediation, if necessary, has been or is
being conducted. The Company currently is not directing or paying the costs of
any remediation or monitoring work at any Existing Property. In addition, where
possible, the Company has entered into indemnification agreements with current
Lessees and/or prior owners at certain of the Existing Properties where
potential environmental issues have been raised, but have been remediated or
otherwise resolved.

The Environmental Site Assessments of the Existing Properties have not
revealed any environmental liability that the Company believes could have a
material adverse effect on the Company's financial condition or ability to make
distributions to stockholders, nor is the Company aware of any material
environmental liability. Nevertheless, it is possible that the Company's
Environmental Site Assessments do not reveal all environmental

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liabilities and that there are material environmental liabilities of which the
Company is unaware. Moreover, there is no assurance that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Existing Properties or any
future properties, including the Acquisition Properties, will not be affected by
Lessees, the condition of land or operations in the vicinity of the properties
(such as the presence of underground storage tanks) or third parties unrelated
to the Company.

The Company has not been notified by any governmental authority, and is not
otherwise aware, of any material noncompliance, liability or claim relating to
hazardous or toxic substances or petroleum products in connection with ownership
of any of the Existing Properties. As part of its underwriting procedures, the
Company will obtain Environmental Site Assessments for all future properties,
including the Acquisition Properties.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering, all 8,500,000 shares of Common Stock
offered hereby will be eligible for public sale under the Securities Act,
without restriction, except for shares acquired in the Offering by Affiliates.
In addition, of the remaining shares of Common Stock to be outstanding
immediately after the Offering, up to 980,330 may be eligible for immediate
resale under Rule 144 promulgated under the Securities Act ("Rule 144"), subject
to Rule 144's volume, manner of sale and other restrictions, and the Exchange
Shares will be so eligible upon satisfaction of such conditions and a one year
holding period. The Company also may, at any time following the completion of
the Offering, register 1,000,000 shares of Common Stock reserved for issuance
pursuant to its Long-Term Incentive Plan and upon exercise of options to be
granted to Messrs. Beach and Martin pursuant to their employment agreements. The
Company also has agreed to register the Exchange Shares in the event of a
subsequent public offering of Common Stock by the Company or upon demand at any
time subsequent to 180 days following the completion of the Offering. The
Company also has the authority to issue additional shares of Common Stock and
shares of one or more series of the Preferred Stock. The issuance of such shares
could result in the dilution of voting power of the shares of Common Stock
purchased in the Offering and could have a dilutive effect on earnings per
share. The Company currently has no plans to designate and/or issue any
additional shares of Preferred Stock. Future sales of substantial amounts of
Common Stock, or the potential for such sales, could adversely affect prevailing
market prices. The Company and its officers, directors and all current
stockholders each have agreed that they will not, without the prior written
consent of Credit Suisse First Boston Corporation, the lead managing
Underwriter, offer, sell, contract to sell, announce their intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to any
additional shares of Common Stock or securities convertible, exchangeable or
exercisable for any shares of Common Stock without the written consent of Credit
Suisse First Boston Corporation for a period of 180 days from the date of this
Prospectus. See "Shares Eligible for Future Sale".

LIMITED LIABILITY AND INDEMNIFICATION OF OFFICERS, DIRECTORS AND THE ADVISOR

The Certificate and Bylaws of the Company (the "Bylaws") provide that an
officer's or director's liability to the Company, its stockholders or third
parties for monetary damages may be limited. Generally, the Company is obligated
under the Certificate and the Bylaws to indemnify its officers and directors
against certain liabilities incurred in connection with their service in such
capacities. The Company has executed indemnification agreements with each
officer and director requiring indemnification by the Company for most
liabilities incurred. Pursuant to the Advisory Agreement, the Company has agreed
that the Advisor, which includes Captec Advisors, Captec Financial and other
Affiliates, will not be liable to the Company, its stockholders or others,
except for acts constituting fraud, willful misconduct or reckless disregard of
its obligations under the Advisory Agreement, and will not be responsible for
any action of the Board of Directors in following or declining to follow any
advice or recommendation given by the Advisor. The Company also has agreed to
indemnify the Advisor with respect to acts or omissions of the Advisor
undertaken in good faith, in accordance with, and pursuant to, the requirements
of the Advisory Agreement. These indemnification obligations could limit the
legal remedies available to the Company and its stockholders against such
persons, and could require the Company to pay amounts, which could be material,
to such persons for their defense or in satisfaction of their obligations. See
"Management -- Indemnification and Limitation of Liability".

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CONFLICTS OF INTEREST

The Company will be subject to various conflicts of interest arising out of
its relationship to the Advisor, its Affiliates and the Affiliated Partnerships,
as described below. These conflicts of interest, either individually or in the
aggregate, could have a material adverse effect upon the Company's financial
condition and its ability to make distributions to stockholders. The Company has
adopted certain procedures to resolve any conflicts which arise. See "Risk
Factors -- Conflicts of Interest".

ACQUISITION OF PROPERTIES

Affiliates of the Company, such as the Affiliated Partnerships, and the
Advisor regularly have opportunities to acquire restaurant and retail properties
of a type suitable for acquisition by the Company as a result of existing
relationships and past experience with various restaurant chains, retailers and
franchisees. The Company will be obligated to offer first to the Affiliated
Partnerships all properties which may also be suitable for acquisition by the
Company. This could result in the Company being required to acquire potentially
less attractive properties to implement its growth strategy. See
"Business -- General". The Advisor or its Affiliates also may be subject to
conflicts of interest if the Company wishes to acquire a property that also
would be a suitable investment for an Affiliate. In addition, an opportunity to
purchase a property may arise when the Company may be unable to make the
acquisition (due to insufficient funds, for example). The Advisor could
encounter conflicts of interest in the negotiation of the purchase price and
other terms of the acquisition or lease of a property due to its relationship
with its Affiliates and the ongoing business relationship of its Affiliates with
restaurant operators and retailers.

PRIOR AND FUTURE PROGRAMS

Captec Financial and other Affiliates of the Company have organized other
real estate investment funds, currently have other real estate holdings, and in
the future expect to form, offer interests in, and manage other real estate
programs. Some of these programs involve, and will involve, ownership,
operation, leasing, and management of fast-food, family-style and casual dining
restaurants, retailers and other businesses that may be suitable for investment
by the Company. Certain of these affiliated public or private real estate
programs invest or may invest, in some cases solely, in restaurants and other
retailers, may be seeking properties concurrently with the Company and may lease
restaurant and retail properties to operators who also lease or operate certain
of the Company's properties. These properties, if located in the vicinity of
properties acquired by the Company, may adversely affect the Company's gross
revenues. Such conflicts between the Company and affiliated programs may affect
the value of the Company's investments as well as its net income. See
"Business -- Prior Performance of Captec Financial".

28
34

COMPETITION FOR MANAGEMENT TIME

The officers and directors of each of the Advisor and the Company currently
are engaged, and in the future will engage, in the management of other
businesses and properties. They will devote only as much of their time to the
business of the Company as they, in their judgment, determine is reasonably
required, which will be substantially less than their full time. These officers
and directors may experience conflicts of interest in allocating management
time, services and functions among the Company and the various Affiliates,
public or private investor programs and any other business ventures in which any
of them are, or may become, involved.

COMPENSATION OF THE ADVISOR

Under the Advisory Agreement, a transaction involving the purchase, lease
and sale of any property may result in the realization by the Advisor of
substantial fees, compensation or other income. As compensation for its services
pursuant to the Advisory Agreement, the Company will pay Captec Advisors (i) an
incentive fee of 15.0% of the amount by which any increase in annual FFO per
share exceeds a 7.0% annual increase in FFO per share multiplied by the weighted
average number of shares of the Common Stock outstanding; (ii) reimbursement of
all acquisition-related costs incurred in connection with the acquisition of
properties identified by the Advisor during the term of the Advisory Agreement;
and (iii) a management fee which will vary depending upon the size of the
Company's portfolio and revenues. This fee structure may encourage the Advisor
to recommend investments which are not in the best financial interests of the
Company and its stockholders in order to generate compensation under the
Advisory Agreement. Although the Advisory Agreement was approved by a majority
of the Board of Directors, including a majority of the Independent Directors, as
being fair and reasonable to the Company and on terms and conditions no less
favorable than those which could be obtained from non-Affiliates, the Advisory
Agreement was not the result of arms-length negotiations. Potential conflicts
also may arise in connection with the recommendation by the Advisor to the
Company to sell a property, as such a sale could impact the timing and amount of
fees payable to the Advisor. See "Business -- The Advisor and the Advisory
Agreement".

FINANCIAL INSTRUMENTS FROM AFFILIATES

The Company also has made certain investments in financial instruments
which are or were held or made by Affiliates of the Company, including the
acquisition of (i) delinquent mortgage loans from Captec Financial, (ii) the
Master Note with Captec Financial, (iii) a promissory note issued by Captec
Trust, an Affiliate, and (iv) a demand note issued by the father-in-law of W.
Ross Martin, the Company's Executive Vice President and Chief Financial Officer
and a director. These investments were not the result of arms-length
negotiations. See "Business -- Investment in Financial Instruments" and "Certain
Transactions". The Company does not intend to make future loans to Affiliates.
In the event of default under any of these financial instruments, the Company
would be subject to conflicts of interest with respect to any legal or other
action to be taken in order to enforce its rights thereunder because any such
action could also be contrary to the interests of certain of the Company's
directors or officers. See "Certain Transactions".

REDEMPTION OF PREFERRED STOCK AND ISSUANCE OF EXCHANGE SHARES

The Public Institution For Social Security, an Affiliate, currently holds
50,000 shares of the Company's Preferred Stock. Upon completion of the Offering,
40,500 shares of the Preferred Stock will be redeemed for $47.7 million of the
net proceeds of the Offering and 9,500 shares of the Preferred Stock will be
exchanged for the Exchange Shares, after which there will be no Preferred Stock
outstanding.

REPAYMENT OF INDEBTEDNESS TO AFFILIATE OF LEAD MANAGING UNDERWRITER

CSFBMC, an Affiliate of the lead managing Underwriter, will receive
approximately $107.2 million, which exceeds 10.0% of the net proceeds of the
Offering, for the repayment of amounts outstanding under the Credit Facility. As
a result, Credit Suisse First Boston Corporation, the lead managing Underwriter,
was subject to conflicts of interest in establishing the initial public offering
price of the Common Stock. See "Risk Factors -- Conflicts of Interest".

29
35

JOINT INVESTMENT WITH AFFILIATES

The Company may invest in joint ventures with the Advisor or other
Affiliates, including the Affiliated Partnerships and Captec Financial, if a
majority of the directors, including a majority of the Independent Directors,
determines that the investment in the joint venture is fair and reasonable to
the Company and on terms no less favorable to the Company than in comparable
transactions between unaffiliated parties.

CERTAIN CONFLICT RESOLUTION PROCEDURES

In order to resolve certain potential conflicts of interest, the Board of
Directors has adopted the following procedures relating to transactions between
the Company and the Advisor or its Affiliates. There is no assurance that these
procedures will be effective or will not be changed, or that conflicts will be
resolved in the best interests of the Company and its stockholders. Any failure
to resolve conflicts which may arise could have a material adverse effect on the
Company and its ability to make distributions to stockholders. These
restrictions include the following:

1. No goods or services will be provided by the Advisor or its
Affiliates to the Company except for transactions approved by a majority of
the directors (including a majority of the Independent Directors) not
otherwise interested in such transactions as fair and reasonable to the
Company and on terms and conditions not less favorable to the Company than
those available from unaffiliated third parties and not less favorable than
those available from the Advisor or its Affiliates in transactions with
unaffiliated third parties.

2. The Company will not purchase or lease properties in which the
Advisor or its Affiliates has an interest without the determination, by a
majority of the directors (including a majority of the Independent
Directors) not otherwise interested in such transaction, that such
transaction is competitive and commercially reasonable to the Company and
at a price to the Company no greater than the cost of the property to the
Advisor or its Affiliate unless there is substantial justification for any
amount that exceeds such cost and such excess amount is determined to be
reasonable. The Company will not acquire any such property for an amount in
excess of its appraised value. The Company will not sell or lease
properties to the Advisor or its Affiliates unless a majority of the
directors (including a majority of the Independent Directors) not otherwise
interested in the transaction determines the transaction is fair and
reasonable to the Company.

3. The Company will not make any loans to Affiliates. The Company will
not borrow from Affiliates for the purchase of properties. Any loans to the
Company by the Advisor or its Affiliates for other purposes must be
approved by a majority of the directors (including a majority of the
Independent Directors) not otherwise interested in such transaction as
fair, competitive, commercially reasonable and no less favorable to the
Company than comparable loans between unaffiliated parties.

4. In addition to any approvals required by applicable law, any matter
related to the removal of, or any transaction with, the Advisor, a director
or an Affiliate which may be submitted to a vote of the stockholders will
be required to be approved by the holders of a majority of the voting stock
other than stock owned by the Advisor and its Affiliates (including
management but excluding Independent Directors).

30
36

USE OF PROCEEDS

The net proceeds to the Company from the Offering, after payment of
Offering expenses, are estimated to be approximately $157.1 million ($180.7
million if the Underwriters' over-allotment option is exercised in full). The
Company will use the net proceeds approximately as follows:

APPROXIMATE
APPROXIMATE PERCENTAGE OF NET
APPLICATION OF PROCEEDS DOLLAR AMOUNT PROCEEDS
- --------------------------------------------------------------- ------------- -----------------
(IN
THOUSANDS)

Repayment of Credit Facility................................... $ 107,166 68.2%
Redemption of, and payment of accrued dividends on, Preferred
Stock........................................................ 47,686 30.4
Repayment of notes payable..................................... 2,248 1.4
--------- -----
Total........................................................ $ 157,100 100.0%
========= =====

The Company will use approximately $107.2 million of the estimated net
proceeds of the Offering to repay amounts outstanding under the Credit Facility
with CSFBMC, an Affiliate of the lead managing Underwriter. As of October 31,
1997, the Company will have incurred approximately $60.5 million of such
indebtedness for the acquisition of properties since January 1, 1997. The Credit
Facility currently accrues interest on its outstanding principal balance at a
variable annual rate of LIBOR for U.S. dollar deposits with 30 day maturities
(the "Benchmark Rate") in effect from time to time plus 2.318% (the "Revolving
Loan Rate"). As of June 30, 1997, the Benchmark Rate was 5.691% and the
Revolving Loan Rate was 8.009%. Upon completion of the Offering, the Revolving
Loan Rate will be reduced to the Benchmark Rate plus 1.75% and the expiration
date of the Credit Facility (currently February 26, 1998) will be extended until
the second anniversary of the completion of the Offering. A portion of the
outstanding principal balance of the Credit Facility is short-term borrowing
incurred after October 2, 1997 and before the date of this Prospectus which
exceeds the otherwise applicable borrowing base and bears interest at an annual
rate of 25.0%.

The Company will use approximately $47.7 million of the net proceeds of the
Offering to redeem Preferred Stock from The Public Institution For Social
Security, an Affiliate, and for the payment of approximately $7.2 million in
accumulated but unpaid dividends on the Preferred Stock for 1997, 1996 and 1995.

The Company will use approximately $2.3 million of the net proceeds of the
Offering to repay the outstanding principal balance of, and accrued interest on,
two notes payable to Heller Financial. These notes bear interest at fixed annual
rates of 9.85% and 10.35%, respectively, and mature in 1999 and 2001,
respectively.

If the Underwriters' over-allotment option is exercised, the additional net
proceeds will be used for working capital and general corporate purposes,
including possible financing of the Acquisition Properties. Pending the
described uses, the net proceeds may be invested in interest-bearing accounts
and short-term interest-bearing securities consistent with the Company's
intention to qualify as a REIT. These investments may include government and
government agency securities, certificates of deposit and interest-bearing bank
deposits.

31
37

DISTRIBUTION POLICY

Subsequent to the Offering, the Company intends to make quarterly
distributions to stockholders. The first dividend, for the period commencing
upon the completion of the Offering and ending December 31, 1997, is anticipated
to be in a prorated amount approximately equivalent to a quarterly distribution
of $.375 per share (which, if annualized, would equal $1.50 per share), or an
annual yield of 7.5% per share. The Company does not intend to reduce the
expected distribution per share if the Underwriters' over-allotment option is
exercised.

The Company currently expects to distribute approximately 97.1% of
estimated Cash Available for Distribution for the 12 months following the
completion of the Offering. The Board of Directors may vary the percentage of
Cash Available for Distribution which is distributed if the actual results of
operations, economic conditions or other factors differ from the assumptions
used in the Company's estimates. The estimate of Cash Available for Distribution
for the 12 months ending November 30, 1998 is based upon pro forma FFO for the
12 months ended June 30, 1997, adjusted (i) for certain known events and/or
contractual commitments that either have occurred or will occur subsequent to
June 30, 1997 or during the 12 months ended June 30, 1997, but were not
effective for the full 12 months and (ii) for certain adjustments consisting of
revisions to historical rent on a straight-line, GAAP basis to amounts currently
being paid or due from tenants based on contractual rents. No effect was given
to any changes in cash resulting from changes in current assets and current
liabilities (which changes are not anticipated to be material) or the amount of
cash estimated to be used for (i) investing activities for acquisition and other
activities and (ii) financing activities. The Company anticipates that, except
as reflected in the table below and the notes thereto, investing and financing
activities will not have a material effect on estimated Cash Available for
Distribution. The Company's estimated pro forma FFO, as adjusted as reflected
above, is expected to be substantially equivalent to the Company's estimated pro
forma cash flows from operating activities determined in accordance with GAAP.
The estimate of Cash Available for Distribution is made solely for the purpose
of setting the initial distribution and is not intended to be a projection or
forecast of the Company's results of operations or its liquidity, nor is the
methodology upon which such adjustments were made necessarily intended to be a
basis for determining future distributions. For a definition of FFO, see note 1
to "Selected Financial Data".

The Company believes that its estimate of Cash Available for Distribution
constitutes a reasonable basis, and is made solely for the purpose of, setting
the initial distribution rate and is not intended to be a projection or forecast
of the Company's results of operations or of its liquidity. The Company
presently intends to maintain the initial distribution rate for the 12 months
following the completion of the Offering unless actual results from operations,
economic conditions or other factors differ significantly from the assumptions
used in its estimate. However, no assurance is given that the Company's estimate
will prove accurate. The actual return that the Company will realize will be
affected by a number of factors, including the revenue received from the
properties, the operating expenses of the Company, the interest expense incurred
on its borrowings, the ability of Lessees to meet their obligations, general
leasing activity and unanticipated capital expenditures. See "Risk Factors --
Ownership and Leasing of Properties".

32
38

The following table estimates Cash Available for Distribution for the 12
months ending November 30, 1998:

IN THOUSANDS
------------

Estimated adjusted pro forma cash flows from operating activities for the 12
months ending November 30, 1998:
Pro forma net income for the year ended December 31, 1996.................. $ 5,159
Plus: Pro forma net income for the six months ended June 30, 1997.......... 4,390
Less: Pro forma net income for the six months ended June 30, 1996.......... (1,867)
Plus: Pro forma depreciation for the 12 months ended June 30, 1997(1)...... 1,206
--------
Pro forma FFO for the 12 months ended June 30, 1997........................ 8,888
Adjustments:
Net increase from existing leases and new leases(2)........................... 9,094
Net change in interest expense(3)............................................. (438)
Net increase from Affiliated Partnerships(4).................................. 46
Net change in general and administrative expenses(5).......................... (496)
--------
Pro forma FFO for the 12 months ending November 30, 1998........................ 17,094
Net effect of straight-line rents(6)............................................ (1,721)
--------
Estimated adjusted pro forma cash flows from operating activities for the 12
months ending November 30, 1998............................................... 15,373
Estimated pro forma cash flows used in investing activities for the 12 months
ending November 30, 1998:
Capital expenditures.......................................................... 0
--------
0
Estimated pro forma cash flows used in financing activities for the 12 months
ending November 30, 1998:
Scheduled debt principal payments............................................. 0
--------
Estimated Cash Available for Distribution for the 12 months ending November 30,
1998.......................................................................... $ 15,373
========
Total estimated initial distributions........................................... $ 14,933
========
Estimated initial annual distributions per share................................ $ 1.50
========
Payout ratio based on estimate Cash Available for Distribution.................. 97.1%

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

(1) Pro forma depreciation of $792,000 for the year ended December 31, 1996 plus
$749,000 for the period ended June 30, 1997 less $335,000 for the period
ended June 30, 1996.

(2) Represents the incremental increase in FFO attributable to rental revenue
from the Existing Properties and rental revenue from that portion of the
Acquisition Properties for which rental income is expected to commence by
December 1, 1997, for the 12 month period ending November 30, 1998.

(3) Represents the incremental decrease in FFO attributable to a net increase in
interest expense from the pro forma 12 months ended June 30, 1997 to the pro
forma 12 months ending November 30, 1998, resulting from debt estimated to
be incurred prior to December 1, 1997 and subsequent application of proceeds
to the repayment of principal and interest on the Credit Facility.

(4) Represents the incremental increase in FFO attributable to a net increase in
other revenue from the Affiliated Partnerships from the pro forma 12 months
ended June 30, 1997 to the pro forma 12 months ending November 30, 1998.

(5) Represents the incremental decrease in FFO attributable to a net increase in
general and administrative expenses resulting from increases in asset
management fees from the pro forma 12 months ended June 30, 1997 to the pro
forma 12 months ending November 30, 1998 for acquisitions to be completed
prior to December 1, 1997.

(6) Represents the effect of adjusting straight-line rental income included in
the 12 months ending November 30, 1998 from accrual basis under GAAP to a
cash basis.

In order to qualify to be taxed as a REIT, the Company must make annual
distributions to stockholders of at least 95.0% of its REIT taxable income
(determined without regard to the dividends received deduction and by excluding
any net capital gains). See "Federal Income Tax Considerations -- Taxation of
the Company as a REIT -- Annual Distribution Requirements". The Company
anticipates that its estimated Cash Available for Distribution will exceed its
REIT taxable income due to non-cash expenses, primarily depreciation and
amortization, to be incurred by the Company. It is possible, however, that the
Company occasionally may not have sufficient cash or other liquid assets to meet
these distribution requirements due to timing differences

33
39

between (i) the actual receipt of income and actual payment of deductible
expenses and (ii) the inclusion of such income and deduction of such expenses in
arriving at taxable income of the Company. In the event that such timing
differences, occur in order to meet the distribution requirements, the Company
may find it necessary to arrange for short-term, or possibly long-term,
borrowings, including to the extent permitted under the Credit Facility, or to
pay taxable stock dividends. Distributions by the Company of its current and
adjusted earnings and profits for federal income tax purposes, other than
capital gain dividends, will be taxable to stockholders as ordinary dividend
income. Capital gain distributions generally will be treated as long-term
capital gains. Distributions in excess of earnings and profits generally will be
treated as non-taxable return of capital to the extent of each stockholder's
basis in the Common Stock and thereafter as taxable gain. The non-taxable
distributions will reduce each stockholder's tax basis in the Common Stock and,
therefore, the gain (or loss) recognized on the sale of such Common Stock or
upon liquidation of the Company will be increased (or decreased) accordingly.
For a discussion of the tax treatment of distributions to holders of Common
Stock, see "Federal Income Tax Considerations -- Taxation of Taxable Domestic
Stockholders" and "-- Taxation of Foreign Stockholders".

Investing and financing activities such as the acquisition of properties
and the repayment or refinancing of loans also may affect the Company's assets
and liabilities and the amount of Cash Available for Distribution for future
periods. The Company will seek to control the timing and nature of investing and
financing activities to maximize its return on invested capital.

Future distributions by the Company will be subject to the requirements of
the Delaware General Corporate Law and the annual distribution requirements
under the REIT provisions of the Code (see "Federal Income Tax
Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements") and will depend on the actual cash flow of the
Company, its financial condition, its capital requirements and such other
factors as the Board of Directors deems relevant. There is no assurance that any
distributions will be made or that the expected level of distributions will be
maintained by the Company. See "Risk Factors -- Ownership and Leasing of
Properties" and "-- Estimated Initial Cash Available for Distribution May Not Be
Sufficient to Make Distributions at Expected Levels". If future revenues
generated by the Company's properties decrease materially from current levels,
the Company's ability to make expected distributions would be materially
adversely affected, which could result in a decrease in the market price of the
Common Stock.

The Company may in the future implement a distribution reinvestment program
under which holders of Common Stock may elect to reinvest distributions
automatically in additional shares of Common Stock. The Company may repurchase
or arrange for the repurchase of shares of Common Stock in the open market for
purposes of fulfilling its obligations under any distribution reinvestment
program, if adopted, or may elect to issue additional shares of Common Stock.
There is no assurance that the Company will adopt such a program.

34
40

CAPITALIZATION

The following table sets forth as of June 30, 1997, the capitalization of
the Company and the pro forma capitalization of the Company as adjusted to
reflect the sale of shares of Common Stock pursuant to the Offering, the
application of the net proceeds therefrom as described under "Use of Proceeds",
and the redemption of the Preferred Stock and the issuance of the Exchange
Shares for unredeemed Preferred Stock. The information set forth in the
following table should be read in conjunction with "Selected Financial Data",
the financial statements of the Company and notes thereto, the pro forma
financial statements of the Company and notes thereto, and "Management's
Discussion and Analysis of Financial Condition and Results of Operations"
included elsewhere in this Prospectus.

PRO FORMA
ACTUAL AS ADJUSTED
-------- -----------
(IN THOUSANDS)

Credit Facility(1).................................................... $ 70,669 --
Notes Payable......................................................... 2,253 --
Redeemable Preferred Stock(2) (mandatory redemption
value -- $58,026)................................................... 48,429 --
Stockholders' Equity:
Preferred Stock, $.01 par value, 10,000,000 shares authorized(2).... -- --
Common Stock, $.01 par value, 40,000,000 shares authorized, 980,330
shares issued and outstanding; 9,955,330 shares as adjusted(3)...
Paid-In Capital..................................................... 5,727 162,640
-------- ---------
Total stockholders' equity............................................ 5,737 162,740
-------- ---------
Total capitalization............................................. 127,088 162,740
======== =========

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

(1) Upon completion of the Offering and the application of the proceeds to the
repayment of principal and accrued interest of the Credit Facility, the
Company may, subject to the provisions of the Credit Facility, borrow up to
$150.0 million on a revolving credit basis. See "Risk Factors -- Leverage"
and "-- No Limitation on Debt", and "Management's Discussion and Analysis of
Financial Condition and Results of Operations --Liquidity and Capital
Resources".

(2) 50,000 shares of Redeemable Preferred Stock issued and
outstanding -- mandatory redemption value $1,000 per share, plus accumulated
and unpaid dividends; none issued or outstanding as adjusted.

(3) Does not include 1,000,000 shares of Common Stock reserved for issuance
pursuant to the Company's Long-Term Incentive Plan and upon exercise of
options granted to Messrs. Beach and Martin pursuant to their employment
agreements, and 1,275,000 shares of Common Stock which the Underwriters may
purchase pursuant to the over-allotment option. See "Management -- Long-Term
Incentive Plan", "-- Executive Compensation and Employment Contracts", and
"-- Compensation of Directors" and "Underwriting".

35
41

DILUTION

At June 30, 1997, the Company's tangible book value (deficit) was
$(4,804,438), or $(4.90) per share. At June 30, 1997, giving effect to the
issuance of the Exchange Shares for unredeemed Preferred Stock, the pro forma
net tangible book value per share was $3.23. The initial public offering price
per share of Common Stock exceeds the pro forma net tangible book value per
share, and stockholders of the Company immediately prior to the Offering will
realize an immediate increase in the net tangible book value of their Common
Stock upon completion of the Offering, while purchasers of Common Stock sold in
the Offering will realize immediate and substantial dilution from the initial
public offering price in the net tangible book value of their shares. Net
tangible book value per share is determined by subtracting the sum of total
liabilities plus the mandatory redemption value of the Preferred Stock from
total tangible assets and dividing the remainder by the number of shares of
Common Stock that will be outstanding before the Offering. Pro forma net
tangible book value per share is determined by subtracting total liabilities
from total tangible assets and dividing the remainder by the number of shares of
Common Stock that will be outstanding after the Offering. The following table
illustrates the dilution to purchasers of Common Stock sold in the Offering.

Initial public offering price per share.................................... $20.00
------
Pro forma net tangible book value per share before the Offering....... $ 3.23
Increase per share attributable to new investors...................... 13.02
------
Pro forma net tangible book value per share after the Offering............. 16.25
------
Dilution per share to new investors........................................ $ 3.75
======

The following table sets forth the number of shares of Common Stock to be
sold by the Company in the Offering, the total amount to be paid to the Company
by purchasers of Common Stock sold in the Offering, the number of shares of
Common Stock outstanding immediately prior to the Offering (giving effect to the
exchange of unredeemed Preferred Stock for Common Stock) and the total
consideration paid and average price per share paid for such shares by the
existing stockholders.

SHARES PURCHASED TOTAL CONSIDERATION
--------------------- -------------------------- AVERAGE PRICE
NUMBER PERCENT AMOUNT PERCENT PER SHARE
--------- ------- -------------- ------- -------------
(IN THOUSANDS)

Existing stockholders.......... 1,455,330 14.6% $ 9,501 5.3% $ 6.53
New investors.................. 8,500,000 85.4% $170,000 94.7% $ 20.00
--------- ----- ------------ ----- -------
Total........................ 9,955,330 100.0% $179,501 100.0%
========= ===== ============ =====

36
42

SELECTED FINANCIAL DATA

The selected historical financial data set forth below as of December 31,
1996 and December 31, 1995 and for each of the two years in the period ended
December 31, 1996 have been derived from the financial statements of Net Lease
Michigan included elsewhere herein which have been audited by Coopers & Lybrand
L.L.P., independent accountants, and should be read in conjunction with those
financial statements (including the notes thereto) and with "Management's
Discussion and Analysis of Financial Condition and Results of Operations", all
appearing elsewhere in this Prospectus. The statement of operations data for the
six months ended June 30, 1997 and June 30, 1996 and the selected balance sheet
data as of June 30, 1997 have been derived from the unaudited financial
statements of Net Lease Michigan appearing elsewhere in this Prospectus which,
in the opinion of management, reflect all adjustments (consisting solely of
normal recurring adjustments) necessary for a fair presentation. Results of
operations for interim periods are not necessarily indicative of results
expected for the full year.

The selected unaudited pro forma balance sheet data as of June 30, 1997 set
forth below is presented as if the transactions contemplated by this Prospectus,
including the Offering and the application of the proceeds therefrom, had
occurred on June 30, 1997. The unaudited pro forma statement of operations data
for the six months ended June 30, 1997 and the year ended December 31, 1996 are
presented as if the transactions contemplated by this Prospectus, including the
Offering and the application of the proceeds therefrom, had occurred on January
1, 1996. See "Use of Proceeds". The pro forma financial data set forth below is
not necessarily indicative of what the actual results of operations or financial
position of the Company would have been, nor do they purport to represent the
Company's results of operations or financial position for future periods. The
pro forma financial data should be read in conjunction with the Company's pro
forma financial statements and related notes and historical financial statements
and related notes included elsewhere in this Prospectus.

37
43

SIX MONTHS ENDED JUNE 30, YEAR ENDED DECEMBER 31,
------------------------------------ ------------------------------------
HISTORICAL HISTORICAL
PRO FORMA NET LEASE PRO FORMA NET LEASE
COMPANY MICHIGAN COMPANY MICHIGAN
---------- ----------------------- ---------- -----------------------
(IN THOUSANDS, EXCEPT PER SHARE DATA)
1997 1997 1996 1996 1996 1995
---------- ---------- ---------- ---------- ---------- ----------

STATEMENT OF OPERATIONS DATA:
REVENUE:
Rental income...................... $ 4,996 $ 4,996 $ 1,612 $ 4,907 $ 4,907 $ 614
Interest income on loans to
Affiliates....................... 343 343 905 1,587 1,587 526
Interest income on investments..... 242 242 -- 104 104 15
Interest income on short-term loans
to Affiliates.................... 247 247 156 302 302 714
Other.............................. 148 (3) 7 487 18 --
---------- ---------- ---------- ---------- ---------- ----------
Total revenue...................... 5,976 5,825 2,680 7,387 6,918 1,869
EXPENSES:
Interest........................... -- 2,707 423 -- 1,977 112
Management fees, Affiliates........ 278 824 399 316 935 329
General and administrative......... 559 251 112 1,120 283 --
Depreciation and amortization...... 749 677 263 792 649 88
---------- ---------- ---------- ---------- ---------- ----------
Total expenses..................... 1,586 4,459 1,197 2,228 3,844 529
---------- ---------- ---------- ---------- ---------- ----------
Income before income tax............. 4,390 1,366 1,483 5,159 3,074 1,340
Provision (credit) for income tax.... -- (39) 372 -- 95 457
---------- ---------- ---------- ---------- ---------- ----------
Net income......................... 4,390 1,405 1,111 5,159 2,979 883
Redeemable Preferred Stock dividend
requirements....................... -- 3,750 3,750 -- 7,496 3,619
---------- ---------- ---------- ---------- ---------- ----------
Income/(loss) attributable to
Common Stock..................... $ 4,390 $ (2,345) $ (2,639) $ 5,159 $ (4,517) $ (2,736)
========== ========== ========== ========== ========== ==========
Income/(loss) per share of Common
Stock............................ $ .44 $ (2,345) $ (2,639) $ .52 $ (4,517) $ (2,736)
========== ========== ========== ========== ========== ==========
Weighted average number of shares
of Common Stock outstanding...... 9,955,330 1,000 1,000 9,955,330 1,000 1,000
========== ========== ========== ========== ========== ==========
OTHER DATA:
Cash flows from operating
activities....................... -- $ 2,191 $ 706 -- $ 3,994 $ 869
Cash flows from investing
activities....................... -- $ (26,896) $ (21,497) -- $ (53,274) $ (39,526)
Cash flows from financing
activities....................... -- $ 22,387 $ 20,589 -- $ 51,173 $ 40,626
Funds From Operations(1)........... $ 5,139 $ 2,082 $ 1,374 $ 5,951 $ 3,628 $ 971
Total properties (at end of
period).......................... 79 79 45 63 63 48

JUNE 30 DECEMBER
--------------------- ---------------------
HISTORICAL HISTORICAL
PRO FORMA NET LEASE NET LEASE
COMPANY MICHIGAN MICHIGAN
--------- --------- ---------------------
(IN THOUSANDS)
1997 1997 1996 1995
--------- --------- --------- ---------

BALANCE SHEET DATA:
Cash and cash equivalents...................................... $ 33,882 $ 1,544 $ 3,862 $ 1,969
Properties subject to operating leases, net.................... 104,028 98,293 70,175 15,554
Total investments.............................................. 122,531 113,481 85,735 37,302
Total assets................................................... 164,550 123,082 98,614 42,292
Notes payable.................................................. -- 72,922 48,160 1,588
Total liabilities.............................................. 1,810 74,652 49,214 2,121
Redeemable Preferred Stock(2).................................. -- 48,429 49,399 40,000
Total stockholders' equity..................................... 162,740 1 1 171

- ---------------
(1) Industry analysts generally consider FFO to be an appropriate measure of the
performance of an equity REIT. In March 1995, NAREIT adopted the NAREIT
White Paper which provided additional guidance on the calculation of FFO.
FFO is defined by NAREIT as net income (computed in accordance with GAAP),
excluding gains (or losses) from debt restructuring and sales of property,
plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures. FFO does not represent cash
generated from operating activities in accordance with GAAP and is not
necessarily indicative of cash available to fund cash needs. In addition,
FFO should not be considered an alternative to net income as an indicator of
the Company's operating

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44

performance or as an alternative to cash flow as a measure of liquidity or
of the Company's ability to make distributions, nor is it comparable to cash
flows provided by operating, investing and financing activities determined
in accordance with GAAP. The Company computes FFO in accordance with the
NAREIT White Paper, which may differ from the methodology for calculating
FFO utilized by other equity REITs. Accordingly, the Company's FFO may not
be comparable to other equity REITs' FFO and does not represent amounts
available for distributions because of certain capital expenditures,
scheduled mortgage loan principal payments and other items. The Company
believes that FFO is a useful alternate measure of the performance of an
equity REIT because it provides investors with an understanding of the
Company's ability to incur and service debt and make capital expenditures.
See "Distribution Policy".

(2) Mandatory redemption value (in thousands) of $58,026, $56,651, and $42,905
at June 30, 1997, December 31, 1996 and December 31, 1995, respectively.

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45

MANAGEMENT'S DISCUSSION AND ANALYSIS
OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS

OVERVIEW

The following discussion and analysis should be read in conjunction with
"Selected Financial Data" and the historical and pro forma financial statements
and notes thereto appearing elsewhere in this Prospectus. The historical
financial data include certain interest, general and administrative and income
tax expenses which will not be incurred by the Company after the Offering which
are excluded from pro forma financial data. Conversely, the historical financial
data does not include certain revenues from the Affiliated Partnerships which
are included in the pro forma financial data.

The Company derives the preponderance of its revenues from the leasing of
restaurant and retail properties on a long-term triple-net basis under Leases
which generally impose on the Lessee all obligations of repairs, maintenance,
real property taxes, assessments, utilities and insurance. The Leases typically
provide for minimum rent plus specified fixed periodic rent increases or, in
certain circumstances, indexation to the CPI and/or percentage rent. Other
revenues are derived primarily from interest income on long- and short-term
investments and will include fees and income from the Affiliated Partnerships.
The Company records rental revenue on a straight line basis over the term of
each Lease.

General and administrative expenses will include management fees paid to
the Advisor under the terms of the Advisory Agreement.

Substantially all of the Leases are treated as operating leases for
purposes of GAAP and the related properties are recorded at cost less
accumulated depreciation. All costs associated with the acquisition and
development of a property, including fees paid to the Advisor, are capitalized
at the time of the acquisition. Buildings acquired or developed are amortized on
a straight-line basis over a 40-year period.

Since the Company has not historically been a REIT, a provision for income
tax has been recorded. This provision does not bear the usual relationship to
pretax income as a result of the treatment of dividends paid on Preferred Stock
as deductible interest expense for tax purposes. See Note 9 to Financial
Statements and "Risk Factors -- Other Tax Liabilities".

The substantial change in revenues and expenses from year to year is the
result primarily of the acquisition and development of properties and the
commencement of Leases during the year of acquisition and the recognition of a
full year's operation in the year subsequent to acquisition.

HISTORICAL RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1997 TO JUNE 30,
1996

Total revenue increased to $5.8 million for the six months ended June 30,
1997 as compared to $2.7 million for the six months ended June 30, 1996.

Rental revenue increased to $5.0 million for the six months ended June 30,
1997 from $1.6 million for the six months ended June 30, 1996. The increase in
rental revenue resulted principally from the acquisition of 34 net leased
properties and the benefit of a full period of rental revenue from properties
acquired and leased in preceding periods.

Interest income on investments, including interest income on loans to
Affiliates, decreased to $585,000 for the six months ended June 30, 1997 from
$814,000 for the six months ended June 30, 1996, as the Company's investments
and short-term loans declined.

Interest expense increased to $2.7 million for the six months ended June
30, 1997 from $423,000 for the six months ended June 30, 1996. The increase was
primarily due to interest on $59.3 million of additional debt used to fund the
acquisition of properties which was incurred during the twelve months ended June
30, 1997, as well as a full period of interest on debt incurred in prior
periods.

General and administrative expenses, including management fees to
Affiliates, increased to $1.1 million for the six months ended June 30, 1997
from $511,000 for the six months ended June 30, 1996. The increase was primarily
due to an increase in management fees paid to Affiliates.

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46

Depreciation and amortization increased to $678,000 for the six months
ended June 30, 1997 from $263,000 for the six months ended June 30, 1996,
primarily due to the continued acquisition of net leased properties and the
effect of a full period of depreciation of properties acquired and leased in the
preceding period.

The provision for income tax for the six months ended June 30, 1997
reflects a credit of $39,000 as compared to an expense of $372,000 for the
comparable period in the prior year. The 1997 amount reflects the benefit of a
loss-carryforward, net of a reserve for taxes, and the effect of treating
Preferred Stock dividends as deductible interest for tax purposes. See Note 9 to
Financial Statements and "Risk Factors -- Other Tax Liabilities".

As a result of the foregoing, the Company's net income prior to Preferred
Stock dividend requirements increased to $1.4 million for the six months ended
June 30, 1997, from $1.1 million for the six months ended June 30, 1996, and FFO
increased to $2.1 million from $1.4 million for the same periods, respectively.
Loss after Preferred Stock dividend requirements decreased to $2.3 million for
the six months ended June 30, 1997 from $2.6 million in the comparable period of
the prior year.

HISTORICAL RESULTS OF OPERATIONS -- 1996 TO 1995

Total revenue increased to $6.9 million for the year ended December 31,
1996 from $1.9 million for the year ended December 31, 1995.

Rental revenue increased to $4.9 million for the year ended December 31,
1996 from $614,000 for the year ended December 31, 1995. The increase in rental
revenue resulted principally from the acquisition of 45 net leased properties
and the benefit of a full period of rental revenue from properties acquired and
leased in the preceding period.

Interest income on investments, including interest income on loans to
Affiliates, increased to $1.7 million for the year ended December 31, 1996 from
$541,000 for the year ended December 31, 1995, primarily as a result of the
benefit of a full period of interest income from investments made in the
preceding period.

Interest expense increased to $2.0 million for the year ended December 31,
1996 from $112,000 for the year ended December 31, 1995. The increase was
primarily due to interest on $46.6 million of debt used to fund the acquisition
of properties which was incurred during 1996 and a full period of interest on
debt incurred in the preceding year.

General and administrative expenses, including management fees to
Affiliates, increased to $1.2 million for the year ended December 31, 1996 from
$329,000 for the year ended December 31, 1995. The increase was primarily due to
an increase in management fees paid to Affiliates.

Depreciation and amortization increased to $649,000 for the year ended
December 31, 1996 from $88,000 for the year ended December 31, 1995, primarily
due to the continued acquisition of net leased properties and the effect of a
full period of depreciation of properties acquired and leased in the preceding
period.

The provision for income tax for 1996 decreased to $95,000 from $457,000 in
1996 primarily as a result of the increased amount of Preferred Stock dividends
in 1996 and their treatment as deductible interest for tax purposes. See Note 9
to Financial Statements and "Risk Factors -- Other Tax Liabilities".

As a result of the foregoing, the Company's net income prior to Preferred
Stock dividend requirements increased to $3.0 million for 1996 from $883,000 in
1995, and FFO increased to $3.6 million from $971,000 for the same periods,
respectively. Loss after Preferred Stock dividend requirements increased to $4.5
million in 1996 from $2.7 million in 1995.

PRO FORMA RESULTS OF OPERATIONS -- SIX MONTHS ENDED JUNE 30, 1997

Pro forma net income was $4.4 million for the six months ended June 30,
1997, compared to historical net income of $1.4 million for the period. Pro
forma revenue increased by $151,000 as a result of the inclusion of revenues
from the Affiliated Partnerships. Pro forma expenses declined by $2.8 million as
a result of: (i) the elimination of interest expense based on repayment of the
entire outstanding principal balance of the Credit

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47

Facility and other notes payable; (ii) a reduction in management fees to conform
with the terms of the Advisory Agreement; and (iii) elimination of the provision
for income tax based upon the intent of the Company to qualify as a REIT, the
aggregate effects of which were offset in part by an increase in general and
administrative expenses to reflect the commencement of salaries and benefits and
other incremental costs related to operating as a public REIT and an increase in
depreciation to reflect the increase in the recorded value of properties subject
to operating leases. The pro forma adjustments were assumed to have occurred on
January 1, 1996.

PRO FORMA RESULTS OF OPERATIONS -- 1996

Pro forma net income was $5.2 million for the year ended December 31, 1996,
compared to historical net income of $3.0 million for the period. Pro forma
revenue increased by $468,000 as a result of the inclusion of revenues from the
Affiliated Partnerships. Pro forma expenses declined by $1.7 million as a result
of: (i) the elimination of interest expense based on repayment of amounts
outstanding under the Credit Facility and other notes payable; (ii) a reduction
in management fees to conform with the terms of the Advisory Agreement; and
(iii) elimination of the provision for income tax based upon the intent of the
Company to qualify as a REIT, the aggregate effects of which were offset in part
by an increase in general and administrative expenses to reflect the
commencement of salaries and benefits and other incremental costs related to
operating as a public REIT and an increase in depreciation to reflect the
increase in the recorded value of properties subject to operating leases. The
pro forma adjustments were assumed to have occurred on January 1, 1996.

LIQUIDITY AND CAPITAL RESOURCES

The Company will use proceeds of the Offering to repay the Credit Facility
and its other notes payable, to redeem a substantial portion of the Preferred
Stock and pay the accrued dividends thereon. Unredeemed shares of Preferred
Stock will be exchanged for the Exchange Shares. As a result, the Company's
Preferred Stock dividend requirement will be eliminated and cash required to
service debt will decrease substantially. The Credit Facility combined with the
absence of leverage upon the completion of the Offering will enhance the
Company's ability to take advantage of acquisition opportunities.

After the Offering and subject to the satisfaction of certain conditions,
the Company will be able to borrow up to $150.0 million under the Credit
Facility for the acquisition or lease of properties, including up to $5.0
million which may be borrowed to make distributions to stockholders. The Company
anticipates that it will utilize $94.5 million under the Credit Facility to
acquire the Acquisition Properties. The Credit Facility is secured by a first
lien on properties financed and other assets of the Company. Upon completion of
the Offering, the expiration date of the Credit Facility will be extended from
February 26, 1998 to the second anniversary of the completion of the Offering,
and the Revolving Loan Rate will be reduced from LIBOR plus 2.318% to LIBOR plus
1.75%. During the term of the Credit Facility, the Company is required to make
monthly payments of interest only, and the Credit Facility may be prepaid
without premium or penalty at any time provided that certain conditions of the
Credit Facility are met. The Company also may be required to make principal
payments in order to maintain certain ratios between the Company's aggregate
indebtedness under the Credit Facility and the value of the collateral pledged
as security for the Credit Facility. The Credit Facility imposes certain
limitations upon the Company's ability to incur additional financing.

The Credit Facility will expire approximately two years after the
completion of the Offering, at which time the entire outstanding balance of the
Credit Facility will mature. Since the Company intends to grow its portfolio
aggressively through the acquisition of additional properties utilizing funds
from the Credit Facility and to lease those properties on a long-term basis, it
is likely the Company will not have sufficient funds available to repay the
outstanding balance of the Credit Facility upon its maturity. Accordingly, the
Company would be required to obtain the funds necessary to repay the Credit
Facility at maturity either through the refinancing of the Credit Facility, the
issuance of additional equity or debt securities or the sale of properties. The
Company has not received a commitment from any institutional or other lender or
investor to loan the funds or purchase any of the Company's equity or debt
securities which the Company may seek to issue in order to refinance its
indebtedness under the Credit Facility. If the Company were unable to obtain
funds to repay the indebtedness on acceptable terms, or at all, the Company
might be forced to dispose of properties or take other actions upon
disadvantageous

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48

terms, which could result in losses to the Company and have a material adverse
effect on the Company's financial condition and its ability to make
distributions to stockholders. See "Risk Factors -- Leverage".

Subsequent to completion of the Offering, the Company expects to make
distributions from Cash Available for Distribution, which the Company expects
will exceed historical Cash Available for Distribution as a result of the
reduction in debt service and Preferred Stock dividend requirements, the
decreases in advisory fee rates and other factors described in the pro forma
results of operations, as well as the anticipated growth of the portfolio of net
leased properties. See "Risk Factors -- Estimated Initial Cash Available for
Distribution May Not Be Sufficient to Make Distributions at Expected Levels",
"Distribution Policy" and the Unaudited Pro Forma Financial Statements.

The Company intends to meet its short-term liquidity requirements generally
through its working capital and net cash from operations. The Company believes
that net cash from operations will be sufficient to allow the Company to make
distributions necessary to enable the Company to qualify as a REIT. The Company
also believes that the foregoing sources of liquidity will be sufficient to fund
its short-term liquidity needs for the foreseeable future.

The Company intends to meet its long-term liquidity requirements such as
property acquisition and development and scheduled debt maturities through
long-term secured and unsecured indebtedness and the issuance of additional
equity or debt securities. Specifically, the Company expects to utilize the
Credit Facility to finance the acquisition and development of additional
properties, including the Acquisition Properties. For a discussion of certain
contingencies pertaining to the Company's income tax liabilities, see Note 9 to
Financial Statements.

INFLATION

The Company's Leases contain provisions which mitigate the adverse impact
of inflation. The Leases generally provide for specified periodic rent increases
including fixed increased amounts, indexation to CPI and/or percentage rent. In
addition, most of the Company's Leases require the Lessee to pay all operating
costs and expenses including repairs, maintenance, real property taxes,
assessments, utilities and insurance, thereby substantially reducing the
Company's exposure to increases in costs and operating expenses resulting from
inflation.

The Credit Facility will bear interest at a variable rate which will be
influenced by changes in short-term interest rates and will be sensitive to
inflation.

ACCOUNTING PRONOUNCEMENTS ISSUED BUT NOT ADOPTED BY THE COMPANY

In February 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standards ("SFAS") No. 128, "Earnings Per
Share" ("SFAS 128"), which establishes standards for computing and presenting
earnings per share ("EPS") and applies to entities with publicly held common
stock. SFAS 128 simplifies the standards for computing EPS previously found in
APB Opinion No. 15, "Earnings Per Share", and makes them comparable to
international EPS standards. It replaces the presentation of primary EPS with a
presentation of basic EPS.

In February 1997, SFAS No. 129, "Disclosure of Information about Capital
Structure" ("SFAS 129"), was issued by the FASB. SFAS 129, which applies to all
entities that have issued securities, requires, in summary form, the pertinent
rights and privileges of the various securities outstanding. Examples of
information that shall be disclosed are dividends and liquidation preferences,
participation rights, call prices and dates, conversion or exercise prices or
rates and pertinent dates, sinking-fund requirements, unusual voting rights and
significant terms of contracts to issue additional shares. SFAS 129 is effective
for financial statements issues for periods ending after December 15, 1997.

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INDUSTRIES

THE RESTAURANT INDUSTRY

The National Restaurant Association projects that in 1997 total restaurant
industry revenue will increase by 4.2% over 1996 to an historic high of $320.0
billion and will represent in excess of 4.0% of gross domestic product.
According to the National Restaurant Association there presently are over
787,000 food service locations in the United States.

The Company invests primarily in properties for lease to operators of
select national and regional fast-food, family-style and casual dining chains.
Fast-food restaurants such as Burger King, Arby's and Jack in the Box feature
quality food and quick service, which often includes drive-through facilities,
and offer a variety of menu items such as hamburgers, pizza, chicken, hot and
cold sandwiches and salads. Family-style restaurants such as Denny's and Golden
Corral feature services generally associated with full-service restaurants such
as buffets or full table service and cooked to order food at value-conscious
prices. Casual dining restaurants such as Applebee's and Tony Roma's feature a
variety of popular contemporary foods, full table service, moderate prices and
surroundings that are appealing and entertaining to families and services
generally associated with full-service restaurants. The fast-food, family-style
and casual dining segments of the restaurant industry have demonstrated the
ability to adapt to changes in consumer influences such as health and dietary
issues, time constraints on working families and environmental awareness through
various innovations, including special value pricing and promotions, expansion
into non-traditional locations, menu expansion and new packaging.

International Franchise Association studies show that one out of every 12
business establishments is a franchise and one-third of all spending by
Americans for goods and services is to a franchised business. The National
Restaurant Association projects that for 1996 fast-food restaurants will have
outpaced average industry real growth with a 4.2% increase over 1995. According
to Nation's Restaurant News, the 100 largest restaurant chains posted average
sales growth of 6.5% for 1996. Casual dining concepts are among the chains
showing the strongest growth, experiencing system-wide sales growth of 12.9% in
1995 and 14.6% in 1996. Forecasts in the January 1, 1997 issue of Restaurants
and Institutions project that full service restaurant sales will experience 6.0%
real growth in 1997 to $102.0 billion. According to Nation's Restaurant News the
15 largest casual dining chains have a total of 4,913 restaurants throughout the
United States with 1996 revenues in excess of $11.0 billion.

According to the National Restaurant Association, 51.0% of American adults
eat at a fast-food restaurant and 42.0% patronize a moderately priced family
restaurant at least weekly. The National Restaurant Association also indicates
that Americans spend approximately 55 cents of every food dollar on dining away
from home. Surveys published in Restaurant Business indicate that families with
children choose quick-service restaurants four out of every five times they dine
out.

The Company believes that it will have the opportunity to participate in
foodservice industry growth through the ownership of properties leased to
operators of these restaurant concepts. The Company also believes that the
substantial fragmentation of its competition for the acquisition of restaurant
properties among large public corporations, private companies and individuals
results in additional opportunities for, and advantages to, the Company.

THE RETAIL INDUSTRY

According to the U.S. Department of Commerce, the retail industry
represents approximately one-third of the gross domestic product and total
retail sales increased by 5.0% in 1996 to $2.465 trillion. The International
Council of Shopping Centers ("ICSC") projects that through 2000 retail sales
will increase by nearly $500.0 billion (4.1% annually) to $2.9 trillion. Growth
in retail sales has resulted in growth in demand for retail

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50

properties. ICSC projects that gradual obsolescence of existing facilities,
changes in location and tenant format preferences and increasing sales will
support the development of over 770.0 million additional square feet of retail
space through 2000. The retail industry also is undergoing significant change
which the Company believes it is well-positioned to exploit through its growth
and operating strategies. In order to meet changing consumer preferences, and as
a result of the relatively high cost of mall space, the Company believes that
retailers increasingly prefer smaller, freestanding facilities which are more
accessible and facilitate the customized presentation of the retail concept. The
typical retail property is increasingly likely to be a freestanding facility of
the size and type of property which has been, and will continue to be, the focus
of the Company's retail acquisition strategy. The Company believes that it will
benefit from these trends because its properties meet these retailer
preferences.

BUSINESS

GENERAL

The Company, which intends to qualify as a REIT, acquires, develops and
owns high-quality freestanding properties leased principally on a long-term
triple-net basis to national and regional chain and franchised restaurants and
retailers. As of June 30, 1997, the Company had a portfolio of 79 Existing
Properties (71 of which are restaurant properties and eight of which are retail
properties) located in 24 states, which was 96.2% leased. In addition, as of
September 1, 1997, the Company had agreements in principle for acquisitions of
the 62 Acquisition Properties (23 of which are restaurant properties and 39 of
which are retail properties) located in 21 states for an aggregate cost of
approximately $94.5 million, which the Company expects to be substantially
completed by July 1998. The Lessees of the Existing Properties include operators
of 24 different restaurant and retail concepts, including Applebee's, Arby's,
Babies 'R' Us, Black Angus, Blockbuster Video, BMW, Boston Market, Burger King,
Church's, Denny's, Golden Corral Family Steakhouses, Jack in the Box, Kenny
Rogers Roasters, Nissan, Stanford's and Whataburger. The Acquisition Properties
will expand the Company's portfolio into five additional states, and further
diversify its property, concept and Lessee base to include operators of Circle
K, Michael's Crafts, Office Depot, SportMart, Stop n Go, Taco Bell and Tony
Roma's. The Company anticipates that most future acquisitions will be newly
constructed at the time of acquisition.

The Company generally acquires properties from operators or developers in
locations which have exhibited growth in retail sales and population. Upon
acquiring a property, the Company normally enters into a long-term triple-net
Lease (typically 15 to 20 years plus one or more five-year renewal options) with
the Lessee which will operate the property. Under the terms of a typical
triple-net Lease, the Lessee is responsible for all operating costs and expenses
including repairs, maintenance, real property taxes, assessments, utilities and
insurance. In addition, the Leases generally provide for minimum rent plus
specified fixed periodic rent increases or, in certain circumstances, indexation
to the CPI and/or percentage rent. The Company believes that the structure of
its Leases provides steady periodically escalating long-term revenue while
reducing operating expenses and capital costs, and that its underwriting
standards reduce the risk of Lessee default or non-renewal.

The Company has retained the Advisor, which will manage the operations of
the Company and provide it with investment and financial advisory services
pertaining primarily to the acquisition, development and leasing of properties.
Captec Financial and its Affiliates provide a diverse line of financing products
to the franchise, chain restaurant and specialty retail industries including
equipment leases, mortgage and acquisition loans and construction and
development financing. Since 1981, Captec Financial and its Affiliates have
developed

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51

substantial expertise in all aspects of the franchise, chain restaurant and
specialty retail finance business, including business concept, property and
lessee underwriting, property acquisition, lessee credit analysis and
monitoring, direct marketing, portfolio management, accounting and other
administrative functions. As of June 30, 1997, Captec Financial employed over 60
people, including a senior management team with substantial direct industry
experience. Including the Company, as of June 30, 1997, Captec Financial had
assets under management of approximately $350.0 million and combined debt and
equity capital resources of approximately $540.0 million including available,
but unutilized, borrowing capacity. The Company's retention of the Advisor will
be reviewed by the Board of Directors annually. Captec Financial is engaged in
other and conflicting activities and is not obligated to provide any services
to, or on behalf of, the Company. The Advisor will be subject to conflicts of
interest in allocating opportunities among the Company and the Advisor's
Affiliates, and the Company will be subject to conflicts of interest in
allocating business opportunities between itself and each of the Affiliated
Partnerships in which it will become the general partner. See "Risk Factors --
Conflicts of Interest".

Since commencing operations in 1995, the Company has experienced
substantial growth in its real estate portfolio, revenues and FFO. As of June
30, 1997, the Company had total assets of $123.1 million. In addition, for the
year ended December 31, 1996, total revenues and FFO increased to $6.9 million
and $3.6 million, respectively, from $1.9 million and $1.0 million,
respectively, for the year ended December 31, 1995. Similarly, for the six
months ended June 30, 1997, total revenues and FFO increased to $5.8 million and
$2.1 million, respectively, from $2.7 million and $1.4 million, respectively,
for the six months ended June 30, 1996. FFO does not represent cash generated
from operating activities in accordance with GAAP and is not necessarily
indicative of cash available to fund cash needs. FFO should not be considered an
alternative to net income in accordance with GAAP as an indicator of the
Company's operating performance. FFO should not be considered an alternative to
cash flow as a measure of liquidity or the Company's ability to make
distributions in accordance with GAAP. The Company's methodology used to
calculate FFO may differ from that utilized by other equity REITs. Accordingly,
the Company's FFO may not be comparable to that of other equity REITs. The
Company believes that FFO is a useful alternate measure of the performance of an
equity REIT because it provides investors with an understanding of the Company's
ability to incur and service debt and make capital expenditures. After giving
effect to dividend obligations on its Preferred Stock, the Company recorded a
loss attributable to the Common Stock for the years ended December 31, 1996 and
1995, respectively, and there is no assurance that the Company will achieve
profitable operations or make anticipated distributions to stockholders which
currently are estimated at 97.1% of Cash Available for Distribution. See "Risk
Factors -- Estimated Initial Cash Available for Distribution May Not Be
Sufficient to Make Distributions at Expected Levels" and "-- Absence of
Profitable Operations" and "Selected Financial Data".

GROWTH STRATEGY

The Company intends to maximize returns to stockholders by increasing cash
flow per share and the value of its property portfolio. The Company believes it
can achieve these objectives primarily by acquiring additional properties and
structuring net Leases on advantageous terms. As of September 1, 1997, the
Company had agreements in principle to acquire the 62 Acquisition Properties for
approximately $94.5 million. The Company utilizes procedures and methodologies
which have been developed and refined by Captec Financial to identify, acquire
and manage net leased properties. The Company's principal growth strategies
include:

Acquisitions from Operators. The Company purchases properties from, and
enters into net leases with, creditworthy multi-unit operators of national and
regional chain and franchised restaurants and retailers. The Company will make
such acquisitions when it can achieve escalating revenue and targeted returns on
its investment through base rent and periodic rent increases. Occasionally, the
Company will purchase from an operator a property undergoing development subject
to a Lease which commences upon completion of construction. In those
circumstances, the Lease is executed at the time the land is purchased and is
structured to provide the Company with rates of return based upon the Company's
total acquisition cost.

Acquisitions from Developers. The Company intends selectively to acquire
primarily retail properties from developers prior to the completion of the
development process but subsequent to execution of a net lease with the
property's operator. By acquiring a property during, and assuming certain risks
of, development, the Company

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52

seeks to obtain a more favorable purchase price, thereby enhancing its overall
return. The Company intends, in limited circumstances, to form joint ventures
with developers to combine the capital resources of the Company with the
developer's capability and property supply. It is anticipated that in these
joint ventures the Company typically will provide some or all of the development
capital in return for a market rate of return plus a share of development
profits. Upon completion of development the Company may acquire some or all of
the property from the joint venture net of the Company's interest in the
property with the objective of obtaining a higher return than otherwise is
realized when acquiring a developed property. See "Risk Factors -- " Acquisition
of Properties Under Construction" and "-- Joint Venture Development".

Increases in Revenues and Operating Margins. The Company will seek to
enhance the financial performance of its portfolio primarily through increasing
revenues, maintaining high Lessee retention and aggressively managing operating
expenses. To provide revenue growth, the Company's Leases require fixed periodic
increases in revenue over the term of the Lease, indexation to the CPI and/or
percentage rent. The Company believes that as its portfolio grows, it will
realize additional operating efficiencies and benefit from its underwriting
policies which are designed to minimize defaults and non-renewals.

The Company intends to maintain significant flexibility with respect to the
form of its acquisition transactions, using cash available from operations or
the Credit Facility for sellers seeking immediate liquidity, as well as
tax-advantaged partnership structures to attract tax-motivated sellers. Such
structures may include joint ventures or other types of co-ownership with
sellers, whether in the form of limited partnerships, limited liability
companies, or other entities expected to be controlled by the Company. The
sellers may be offered interests in the ventures which are convertible into, or
exchangeable for, shares of Common Stock or otherwise allow the seller to
participate in the financial growth of the Company. Although the Company has no
present intention of doing so, the Company may in the future acquire all or
substantially all of the securities of other REITs or similar entities when such
investments would be consistent with the Company's investment objectives.

OPERATING STRATEGY

The Company continually monitors the success of its existing and targeted
restaurant and retail concepts, the financial condition of its Lessees, Lease
compliance and other factors affecting the financial performance of its
properties. The Company's operating strategies, which have resulted from years
of development and refinement by the Advisor, include:

Underwriting Restaurant Chains and Retailers. The Company leases its
properties to franchisees and operators of select major regional and national
restaurants and retailers because the Company believes these widely recognized
and centrally supported chains possess significant advantages over their
independent competitors. These competitive advantages, which include the use of
nationally recognized trademarks and logos and substantial management, training,
advertising, market and product support from franchisors and national or
regional chain management, strengthen the business and financial position of the
Company's Lessees. The Company monitors many franchise, restaurant and retail
concepts, ranging from smaller newly created concepts to large, mature
nationally recognized concepts with established operating histories.

The Company employs thorough underwriting procedures which have been
developed and refined by Captec Financial to select the franchise and chain
business concepts towards which to direct its leasing activities. This analysis
includes a review of publicly available information concerning franchisors or
chain operators; credit analysis of the franchisor's or operator's financial
statements for the three most recent fiscal years; assessment of business
strategies, operating history and key personnel; operational and financial
evaluation of unit level performance, including sales, costs, margins and
closure statistics; comparison of fee and expense structure to industry
averages; analysis of concept penetration and name recognition; assessment of
non-quantitative factors contributing to concept success; and, for franchisors,
surveys of representative franchisees to develop data on average sales,
profitability and satisfaction with franchisor support.

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53

To be considered by the Company, a franchise concept generally must meet
the following requirements:

- Minimum of 50 units

- Minimum of five years franchising experience

- Franchisor net worth of $5.0 million

- Two consecutive years net operating profit

- Low unit closure rates

- Limited litigation history, especially with franchisees

Non-franchised concepts are subject to similar criteria except that a smaller
number of units generally is required.

The Company's concept underwriting procedures also result in the
establishment of credit standards for concept Lessees. Once selected, the
Company conducts ongoing review of the performance of the business concept
through monitoring of financial information and news releases. Each business
concept is formally reevaluated annually. See "Risk Factors -- Lessee and
Concept Concentration".

Underwriting Lessee Credit. The Company's Lessees predominantly are
experienced, multi-unit operators of fast-food, family-style and casual dining
restaurants and retailers. The Company subjects each proposed Lessee to an
underwriting process designed to identify the most creditworthy Lessees and
minimize the Company's risk from defaults and business failures. The Company
targets only Lessees with the competitive position and financial strength to
meet their obligations throughout the Lease term. The Company's Lessees, as
franchisees or operators of major national and regional franchised and chain
outlets, undergo rigorous scrutiny and training by national and regional
franchisor and chain management and often must make substantial capital
investments prior to conducting business. This provides additional assurance as
to the quality of the Company's Lessees and further reduces the Company's risk.
The Company seeks to identify Lessees with positive trends in sales and profits;
positive cash flow sufficient to cover current long-term debt and Lease
obligations; moderate leverage position; and satisfactory bank and trade
references, personal and business financial histories and credit reports. The
Company favors applicants, the principals of which can demonstrate previous
operating success particularly within the same or similar concept, and who have
beneficial occupational expertise (such as a chief financial officer who is a
certified public accountant) and significant business contacts and presence
within the operating territory. The franchise agreement also is reviewed and the
term of the proposed financing should not exceed the remaining term of the
franchise agreement. When appropriate, the Company enhances Lessee credit by
requiring guarantees from principals, corporate parents or third parties. The
Company's Lessee underwriting process requires a completed Lease application and
application fee; two years of annual comparative financial statements for
existing operations on a consolidated and unit basis and/or two years of tax
returns; capitalization structure adequate to support existing and planned
units; credit application including bank and trade references and verification
of assets; demographic and site information; monthly projections for 12 months
of operations; and detailed statements of the business experience of principals.
The Company believes its success in attracting high-quality Lessees is based on
a number of factors, including the reputation of Captec Financial and Messrs.
Beach and Martin in the commercial net lease property industry. See "Risk
Factors -- Creditworthiness of Lessees and Financial Instruments" and "-- Lessee
and Concept Concentration".

Underwriting Site Selection. Prior to acquiring a property, the Company
engages in an extensive site review. The Company typically undertakes a
long-term viability and market value analysis, including an inspection of the
property and surrounding area by an acquisition specialist, and assessment of
market area demographics, consumer demand, traffic patterns, surrounding land
use, accessibility, visibility, competition and parking. The Company also (i)
obtains an independent appraisal of the property; (ii) obtains an independent
engineering report of the property's mechanical, electrical and structural
integrity; (iii) evaluates both the current and potential alternative use of the
property; and (iv) obtains an independent Phase I environmental site assessment.

In addition, many of the restaurant chain operators and franchisors have
sophisticated full-time staffs engaged in site selection, evaluation and
pre-approval of all new sites. As operators of national and regional franchised
and chain restaurants, the Company's Lessees typically are required to submit
their proposed locations to rigorous site evaluation pre-approval by franchisors
or national chain management, which typically includes

48
54

assessments of many of the factors considered by the Company in performing its
analysis. These studies often are made available to, and utilized by, the
Company in analyzing a potential acquisition. The retailers which become the
Company's Lessees also generally have full-time staffs engaged in site selection
and evaluation and typically develop new retail sites in conjunction with
selected developers which assist in site evaluation and selection. The retailers
operating on the Company's properties also submit their proposed locations to a
rigorous site evaluation and pre-approval process similar to that for
restaurants. These processes provide additional support and confirmation for the
Company's site selection process.

The Company ultimately determines to acquire or develop a property based
principally on an examination and evaluation of the site, the financial
condition and business history of the proposed Lessee, area demographics, the
proposed purchase price and Lease terms, geographic and market diversification
and potential sales. Although the purchase of each property is supported by an
independent appraisal, the Company makes an independent judgment in determining
whether to acquire a property. The purchase price of each property generally
does not exceed its appraised value. The Company makes an independent assessment
of both Lessees and properties and may decline to purchase certain properties or
accept certain Lessees notwithstanding satisfaction of franchisor or chain
standards.

Maintenance of Relationships with Restaurant Chains, Retailers and
Lessees. Once a business concept has been approved, the Company, with the
Advisor, seeks to develop a strong ongoing working relationship with national or
regional senior chain or retailer management. The Company believes that such
relationships facilitate the identification, negotiation and consummation of
transactions, are beneficial in resolving disputes or problems which arise
during the terms of Leases and are an excellent referral source of additional
financing opportunities.

Active Management of Lessee Credit. In addition to monitoring Lessee
compliance with Lease obligations, the Company regularly reviews the financial
condition of its Lessees and business, economic and market trends in order to
identify and anticipate problems with Lessee performance which could adversely
affect the Lessee's ability to meet Lease obligations. When potential problems
are identified, the Company seeks early intervention with its Lessees and, when
appropriate, chain or retailer national management in order to address and avoid
such problems.

Diversification of Property Portfolio, Restaurant Chains, Retail Concepts
and Lessees. The Company believes that it has achieved, and will continue to
emphasize, significant diversification of its portfolio both among retail and
restaurant concepts and Lessees. The Company's 79 Existing Properties (71 of
which are restaurant properties and eight of which are retail properties)
located in 24 states currently are leased to 36 Lessees operating 18 different
restaurant and six retail concepts. The Company currently anticipates acquiring
the 62 Acquisition Properties (23 of which are restaurant properties and 39 of
which are retail properties) located in 21 states to be leased to 20 potential
Lessees operating 12 different restaurant and eight retail concepts, resulting
in further diversification of its portfolio. Although the Company expects to
complete the acquisition of substantially all of the Acquisition Properties by
July 1998, there is no assurance the Company will be successful in acquiring all
of the Acquisition Properties. See "Risk Factors -- Potential Inability to
Acquire Acquisition Properties; No Assurance of Profitability" and "-- Lessee
and Concept Concentration".

Construction. In certain circumstances, the Company will acquire a site on
which a property is to be built prior to the commencement or completion of
construction. In these circumstances, the Company typically acquires the
property subject to construction simultaneously with the execution of a Lease
which commences immediately upon the completion of construction. During
construction, the Company acts essentially as a construction lender providing
periodic progress advances and construction draws against fully documented and
completed project costs. Amounts advanced for construction prior to the
completion of the property and commencement of the Lease bear a market rate of
return which may be paid currently or capitalized into the cost of the property.
Acquiring properties under construction enables the Company to compete against
others engaged in real estate development and investment which provide similar
services and also benefits the Company by allowing it to invest its capital and
derive the resulting returns earlier in the development process. See "Risk
Factors -- Acquisition of Properties Under Construction".

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55

PROPERTIES

Existing Properties. The 79 Existing Properties are located in 24 states
and leased to 36 operators of 24 distinct restaurant and retail concepts. As of
June 30, 1997, the Existing Properties (which average four years of age) were
96.2% leased and subject to Leases with an average remaining term (excluding
renewals) of approximately 16 years. As of June 30, 1997, substantially all of
the Existing Properties are pledged as collateral for the Company's indebtedness
under the Credit Facility. Upon completion of the Offering and the repayment of
amounts outstanding under the Credit Facility, the Company will have no material
debt. The Company intends to utilize proceeds of the Credit Facility to acquire
additional properties, including the Acquisition Properties, and to pledge any
such future properties to secure future indebtedness incurred under the Credit
Facility. Under the terms of its Leases, the Lessees are required to obtain
specified minimum amounts of liability insurance naming the Company as an
additional insured which the Company believes provides adequate insurance
coverage for the Existing Properties. See "Risk Factors -- Uninsured Losses;
Costs and Availability of Insurance". The Existing Properties typically are
freestanding structures located on lots ranging from 20,000 to 80,000 square
feet for restaurant properties and up to 150,000 square feet for retail
properties. Typical building size ranges from 2,000 to 6,000 square feet for
restaurant properties and up to 40,000 square feet for retail properties. The
following is a summary description of the Existing Properties and Lessees as of
June 30, 1997.

ANNUALIZED
CORPORATE RENT AT
OR FACILITY NO. OF LOCATION JUNE 30,
LESSEE FRANCHISEE CONCEPT TYPE PROPERTIES (STATE) 1997
- ----------------------------------- ----------- ------------------------ ---------- ---------- -------------- -----------

United Auto Group, Inc............. F BMW/Nissan Retail 2 GA $ 1,033,152
ARG Enterprises, Inc............... C Black Angus Restaurant 4 MN 1,005,108
BC Northwest, Inc.................. F Boston Market Restaurant 6 WA, OR 635,496
BC Great Lakes LLC................. F Boston Market Restaurant 6 IL, IN, MI, WI 563,772
Family Restaurants, Inc............ C Carrows Restaurant 4 CA 483,996
DenAmerica Corp.................... F Denny's Restaurant 5 TX, NC 475,680
Boston Chicken, Inc................ C Boston Market Restaurant 3 IL, PA 457,304
Paragon Steakhouse
Restaurant, Inc................... C Mountain Jack's Restaurant 3 MI, OH 426,192
P&L Food Services LLC.............. F Boston Market Restaurant 6 PA, OH 403,578
The Snyder Group Company........... F Red Robin Restaurant 1 CO 357,000
Red Robin International, Inc....... C Red Robin Restaurant 1 WA 322,224
Baby Superstore, Inc............... C Babies 'R' Us Retail 1 MO 309,516
Blockbuster Entertainment Inc...... C Blockbuster Video/Music Retail 3 TX, AL 307,980
Huntington Restaurant Group........ F Denny's Restaurant 3 TX, AZ, LA 266,193
Video Update, Inc.................. C Video Update Retail 2 IL, AZ 243,648
Pacific Coast Restaurant, Inc...... F Stanford's Restaurant 1 CO 242,004
Mid-Atlantic Restaurant
Systems, L.P...................... F Boston Market Restaurant 3 NJ, PA 229,008
Platinum Properties LLC............ F Boston Market Restaurant 3 PA, SC 229,677
Taco Cabana Atlanta JV............. F Taco Cabana Restaurant 2 GA 209,004
Gourmet Systems, Inc............... C Applebee's Restaurant 1 MO 204,324
Corral South....................... F Golden Corral Restaurant 1 FL 197,566
Pacific Apple Oregon, Inc.......... F Applebee's Restaurant 1 WA 194,400
Golden Corral Corporation.......... C Golden Corral Restaurant 1 TX 189,756
Tropical Taco Cabana, Ltd. ........ F Taco Cabana Restaurant 1 NV 171,864
Roadhouse Grill Buffalo LLC........ F Roadhouse Grill Restaurant 1 NY 118,428
Captec-Roasters LLC................ F Kenny Rogers Roasters Restaurant 3 AZ 108,000
KRR Realty, Inc.................... F Kenny Rogers Roasters Restaurant 1 FL 99,720
RTM Mid-America, Inc............... F Arby's Restaurant 1 IN 101,472
Food Service
Management, Inc................... F Jack in the Box Restaurant 1 CA 100,896
Western Maryland Fast Foods........ F Burger King Restaurant 1 WV 88,771
America's Favorite Chicken
Company........................... C Church's Restaurant 1 GA 87,516
Crown Management Group, Inc........ F Denny's Restaurant 1 FL 82,994
Pacific Foods, L.P................. F Kenny Rogers Roasters Restaurant 1 CA 75,132
Whatco of New Mexico, Inc.......... F Whataburger Restaurant 1 NM 52,488
Red Line San Antonio
One, Ltd.......................... F Red Line Burgers Restaurant 2 TX 30,000
Progressive Restaurant
Concepts.......................... F Arby's Restaurant 1 GA 26,537
--
-----------
Total.............................. 79 $10,130,396
== ===========

PERCENT PRIMARY
OF TOTAL LEASE
ACQUISITION ANNUAL TERM
LESSEE COST(1) RENT EXPIRATION
- ----------------------------------- ----------- -------- ----------

United Auto Group, Inc............. $ 9,861,863 10.2% 2017
ARG Enterprises, Inc............... 9,219,000 9.9 2021
BC Northwest, Inc.................. 6,607,824 6.3 2011
BC Great Lakes LLC................. 5,712,051 5.5 2016
Family Restaurants, Inc............ 4,620,000 4.8 2016
DenAmerica Corp.................... 4,635,188 4.7 2015
Boston Chicken, Inc................ 4,566,588 4.5 2012
Paragon Steakhouse
Restaurant, Inc................... 4,105,500 4.2 2016
P&L Food Services LLC.............. 4,112,928 4.0 2012
The Snyder Group Company........... 3,123,750 3.5 2016
Red Robin International, Inc....... 3,000,667 3.2 2016
Baby Superstore, Inc............... 3,003,000 3.0 2011
Blockbuster Entertainment Inc...... 3,003,000 3.0 2006
Huntington Restaurant Group........ 2,582,465 2.6 2017
Video Update, Inc.................. 2,311,108 2.4 2012
Pacific Coast Restaurant, Inc...... 2,310,000 2.4 2016
Mid-Atlantic Restaurant
Systems, L.P...................... 2,047,500 2.2 2012
Platinum Properties LLC............ 2,404,500 2.3 2011
Taco Cabana Atlanta JV............. 2,145,000 2.1 2016
Gourmet Systems, Inc............... 1,986,444 2.0 2016
Corral South....................... 1,903,160 1.9 2017
Pacific Apple Oregon, Inc.......... 1,890,000 1.9 2016
Golden Corral Corporation.......... 1,926,149 1.9 2009
Tropical Taco Cabana, Ltd. ........ 1,486,975 1.7 2014
Roadhouse Grill Buffalo LLC........ 997,500 1.2 2015
Captec-Roasters LLC................ 2,426,548 1.1 2012
KRR Realty, Inc.................... 933,647 1.0 2014
RTM Mid-America, Inc............... 1,039,500 1.0 2017
Food Service
Management, Inc................... 985,425 1.0 2009
Western Maryland Fast Foods........ 847,364 0.9 2012
America's Favorite Chicken
Company........................... 835,321 0.9 2016
Crown Management Group, Inc........ 799,481 0.8 2017
Pacific Foods, L.P................. 415,275 0.7 2005
Whatco of New Mexico, Inc.......... 851,141 0.5 2007
Red Line San Antonio
One, Ltd.......................... 533,994 0.3 2010
Progressive Restaurant
Concepts.......................... 253,307 0.3 2017

----------- -----
Total.............................. $99,483,057 100.0%
=========== =====

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

(1) Based upon monthly rent as of June 30, 1997, as annualized and without
giving effect to any future rent increases or percentage rents or deduction
for the effect of three non-revenue producing properties which in the
aggregate account for $346,716 or 3.4% of annualized rent at June 30, 1997.
Four of the Existing Properties operated as Boston Market restaurants and
one property under construction as a Boston Market restaurant subsequently
have been purchased from the Company by Boston Chicken. The Company will
acquire four additional Boston Market restaurants in exchange. See "Risk
Factors -- Lessee and Concept Concentration".

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56

Acquisition Properties. As of June 30, 1997, the Company had agreements in
principle to purchase the 62 Acquisition Properties which are located in 21
states for an aggregate acquisition cost of approximately $94.5 million. The
Acquisition Properties will expand the Company's existing portfolio into five
additional states and will further diversify its property, concept and Lessee
base to include operators of Circle K, Michael's Crafts, Office Depot,
SportMart, Stop n Go, Taco Bell and Tony Roma's. The acquisition of each of the
Acquisition Properties, which the Company expects to be substantially completed
by July 1998, is dependent upon numerous contingencies, many of which are beyond
the Company's control, including the negotiation, execution and closing of
definitive agreements for the acquisition and lease of each property. There is
no assurance that all of the Acquisition Properties will be acquired by the
Company or that if acquired any of the Acquisition Properties, or any other
properties which may be acquired by the Company in the future, will perform
profitably. See "Risk Factors -- Potential Inability to Acquire Acquisition
Properties; No Assurance of Profitability".

LEASE EXPIRATION

The following table sets forth scheduled Lease expirations as of June 30,
1997:

NUMBER OF PERCENTAGE
YEAR OF LEASES CURRENT TOTAL OF CURRENT
EXPIRATION(1) EXPIRING ANNUAL RENTS(2) TOTAL
------------- --------- --------------- ----------

1998-2004.................................... -- $ -- 0.0%
2005......................................... 2 152,628 1.5
2006......................................... 2 230,484 2.3
2007......................................... 1 52,488 0.5
2008 and thereafter.......................... 74 9,694,796 95.7
--
----------- -----
TOTAL................................... 79 $10,130,396 100.0%
== =========== =====

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

(1) Assumes no early termination due to exercise of purchase options, defaults
or otherwise.

(2) Based on monthly rent as of June 30, 1997, annualized and without giving
effect to any future rent increases or deduction for the effect of three
non-revenue producing properties or five properties subsequently sold to
Boston Chicken.

THE ADVISOR AND THE ADVISORY AGREEMENT

In August 1997 the Company retained Captec Advisors, a newly formed
Delaware corporation, pursuant to an Advisory Agreement. Captec Advisors,
together with Captec Financial, will provide management and investment and
financial advisory services to the Company.

The directors and officers of Captec Advisors are:

NAME POSITION WITH CAPTEC ADVISORS
- ----------------------------- --------------------------------------------------------------------------

Patrick L. Beach............. Chairman of the Board of Directors, President and Chief Executive Officer
W. Ross Martin............... Director, Executive Vice President and Chief Financial Officer
George R. Beach.............. Director

For biographies of Patrick L. Beach and W. Ross Martin, see
"Management -- Directors, Proposed Directors and Executive Officers". George R.
Beach is the father of Patrick L. Beach and an attorney.

It is anticipated that Captec Financial will perform certain of the
services required to be provided to the Company pursuant to the Advisory
Agreement. Any services provided to the Company by Captec Financial pursuant to
the Advisory Agreement will be paid for by Captec Advisors from the payments
received by it pursuant to the Advisory Agreement and will result in no
additional expense to the Company. Initially Captec Financial will provide
substantially all of the services to be rendered to the Company pursuant to the
Advisory Agreement. Subject to the direction of the Board of Directors, the
Advisor's responsibilities will include (i) selecting restaurant properties for
acquisition, formulating and evaluating the terms of each proposed acquisition,
and arranging for the acquisition of properties by the Company; (ii) identifying
potential Lessees for

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57

the restaurant properties and formulating, evaluating and negotiating the terms
of Leases; (iii) negotiating the terms of any borrowing; (iv) performing credit
analyses of prospective restaurant and retail Lessees; (v) conducting legal and
business diligence and overseeing the preparation of all legal documentation for
the development and leasing of all properties; and (vi) identifying restaurant
properties for sale consistent with the Company's investment objectives and
prevailing economic conditions. The Advisor also will provide all necessary and
reasonable billing and administrative functions with respect to the Leases; take
all actions necessary to cause the Company to comply with all applicable laws
and regulations; cooperate with the Company in preparing reports to, and meeting
materials for, stockholders; prepare and deliver to the Company periodic
financial statements; promptly notify the Company in writing upon the occurrence
of certain events including defaults under the Leases; and perform such other
administrative and managerial functions as may be requested by the Company.

As compensation for its services, the Company will pay to Captec Advisors a
Management Fee of the lesser of (i) 0.6% of the aggregate capitalized cost
(excluding accumulated depreciation) of all assets in the Company's portfolio,
including all restaurants and other properties, mortgage loans, leasehold
mortgages, secured equipment leases and joint venture and partnership interests,
or (ii) 5.0% of the Company's revenues, all determined in accordance with GAAP.
The Company also will pay to Captec Advisors an Incentive Fee, which will equal
15.0% of the amount by which any increase in annual FFO per share exceeds a 7.0%
annual increase in FFO per share multiplied by the weighted average number of
shares of the Common Stock outstanding. The Company will also pay to Captec
Advisors an amount equal to all costs incurred in the acquisition of properties
identified by the Advisor and acquired during the term of the Advisory Agreement
(the "Cost Reimbursement"). In no event will the sum of the Incentive Fee and
Cost Reimbursement exceed 3.0% of the acquisition cost of properties identified
by the Advisor and acquired during the term of the Advisory Agreement. The
Company also will reimburse the Advisor for any third party expenses incurred
directly in connection with the services it provides to the Company. If the
Advisor or an Affiliate performs services beyond the scope of the Advisory
Agreement, it will be compensated at such rates and at such amounts as may be
agreed to by Captec Advisors and the Independent Directors of the Company.

The following table sets forth the compensation payable to Captec Advisors
pursuant to the Advisory Agreement.

NAME OF TYPE OF
AFFILIATE COMPENSATION APPROXIMATE AMOUNT OF COMPENSATION
- ------------------- ---------------------- ----------------------------------------------------

Captec Advisors(1) Management Fee The lesser of (i) 0.6% of the aggregate capitalized
cost (excluding accumulated depreciation) of all
assets in the Company's portfolio, or (ii) 5.0% of
the Company's revenues, all determined in accordance
with GAAP(2)
Captec Advisors(1) Incentive Fee(3) 15.0% of the amount by which any increase in annual
FFO per share exceeds a 7.0% annual increase in FFO
per share multiplied by the weighted average number
of shares of the Common Stock outstanding
Captec Advisors(1) Cost Reimbursement(3) Reimbursement of all costs incurred by the Advisor
in connection with the acquisition of properties
identified by the Advisor during the term of the
Advisory Agreement(2)(4)

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

(1) Subject to payment to Captec Financial, in whole or in part, in
consideration of services rendered or costs advanced to, or on behalf of,
the Company.

(2) Specific amounts not ascertainable.

(3) The sum of the Incentive Fee and the Cost Reimbursement will not exceed 3.0%
of the acquisition cost of properties identified by the Advisor and acquired
during the term of the Advisory Agreement.

(4) Captec Advisors also may receive from lessees a commitment fee of up to 1.0%
of the value of a proposed lease.

The Advisory Agreement expires on December 31, 1998, subject to successive,
automatic one-year renewals unless terminated by either party at the conclusion
of the then-applicable term, upon 90 days prior written notice.

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58

The Advisory Agreement may be terminated for cause or by the mutual consent of
the parties. Captec Advisors shall be entitled to receive all accrued but unpaid
compensation and expense reimbursement in cash within 30 days of any termination
date. Captec Advisors has the right to assign the Advisory Agreement to an
Affiliate subject to approval by the Independent Directors of the Company. The
Company has the right to assign the Advisory Agreement to any successor to all
of its assets, rights and obligations.

The Advisory Agreement disclaims any fiduciary obligation of the Advisor to
the Company. The Advisory Agreement also provides that the Advisor will not be
liable to the Company, its stockholders or others except for fraud, willful
misconduct or reckless disregard of its responsibilities under the Advisory
Agreement, and will not be responsible for any action of the Board of Directors
in following or declining to follow, any advice or recommendation of the
Advisor. The Company has agreed in the Advisory Agreement to indemnify the
Advisor with respect to acts or omissions of the Advisor undertaken in good
faith in accordance with the foregoing standards. See "Risk Factors -- Limited
Liability and Indemnification of Officers, Directors and the Advisor".

PRIOR PERFORMANCE OF CAPTEC FINANCIAL

Since 1992 Captec Financial has sponsored three publicly offered programs
which have invested primarily in real estate (the "Prior Programs") and which
had certain common investment objectives with those of the Company. The Prior
Programs raised approximately $28.1 million in the aggregate from 1,996
investors. The Prior Programs purchased a total of 14 real estate properties
located throughout the United States. Substantially all of the real estate
properties purchased by the Prior Programs have been restaurant and retail net
lease properties.

Captec Franchise Capital Partners L.P. II ("Captec II") was, and Captec III
and Captec IV are, Affiliates of the Company and Captec Financial and public
programs. Captec II had, and Captec III and Captec IV each have, certain
investment objectives which are substantially similar to those of the Company.
Each of these Prior Programs invests or invested in triple-net leased restaurant
properties, secured equipment leases and mortgage loans, and Captec IV also
invests in retail properties.

Captec II invested approximately $1.9 million in the aggregate for land and
a restaurant building in Nevada and for land and a restaurant building in
Florida, and approximately $574,000 in the aggregate on four equipment packages.
The two restaurant properties and four equipment packages were leased to six
separate lessees. Both restaurant lessees defaulted under their leases. In
January 1997 the two restaurant properties which had gone into default and three
of the equipment packages (none of which had gone into default) were sold to the
Company by Captec II at their independently appraised values in transactions
approved by the limited partners of Captec II, and Captec II thereafter
liquidated. The fourth equipment package was sold to an unaffiliated third party
prior to the liquidation of Captec II. The foregoing restaurant lease defaults
are the only adverse business developments encountered by any of the Prior
Programs. The Company believes these defaults were the result of factors
specific to the operations of the properties and not the result of any generally
prevailing economic or other business condition. The Company purchased these
restaurant properties and equipment packages based upon its evaluation of the
potential of the properties as net-leased restaurant properties, its
determination that, notwithstanding the defaults by the lessees of the
restaurant properties these assets could be operated profitably as part of the
Company's portfolio and that the defaults were the result of factors specific to
the lessees of those properties..

Captec III completed its offering of limited partnership interests in
August 1996, and raised $20.0 million from 1,391 investors. Captec III invested
its net capital in 11 net-leased restaurant properties in Florida (new
construction), Illinois, New Jersey, North Carolina, Oklahoma, Texas, Virginia
and Washington for a total cost of approximately $14.8 million, and equipment
for a total cost of approximately $3.4 million.

As of June 30, 1997, Captec IV has sold limited partnership interests,
raising approximately $6.2 million from 411 investors, and continues to offer
its remaining $23.9 million of limited partnership interests to the public.
Captec IV invested its net capital in one net-leased investment consisting of
land and a building for a total cost of approximately $1.0 million, and
equipment for a total cost of approximately $1.7 million.

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59

Description of Tables.

The following Tables concerning the prior performance of the Prior Programs
are included herein:

Table I -- Experience in Raising and Investing Funds

Table II -- Compensation to Sponsor

Table III -- Operating Results of Prior Programs

Table IV -- Results of Completed Programs

Table V -- Sales or Disposals of Properties

Unless otherwise indicated in the Tables, all information contained in the
Tables is as of June 30, 1997. The following is a brief description of the
Tables:

Table I -- Experience in Raising and Investing Funds

Table I presents information on a percentage basis showing the experience
of Captec Financial and its Affiliates in raising and investing funds for the
Prior Programs, the offerings of which closed between May 1994 and August 1996
or are pending. The Table sets forth information on the offering expenses
incurred and amounts available for investment expressed as a percentage of total
dollars raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.

Table II -- Compensation to Sponsor

Table II provides information, on an aggregate dollar basis, regarding
amounts and types of compensation paid to the general partners of the Prior
Programs.

Table III -- Operating Results of Prior Programs

Table III presents a summary of operating results for the period from
inception through June 30, 1997, of the Prior Programs, the offerings of which
closed between May 1994 and August 1996 or are pending. The Table includes a
summary of income or loss of the Prior Programs presented on the basis of GAAP.
The Table also shows sources and uses of cash. The Table also presents
information pertaining to income and cash distributions per $1,000 invested.

Table IV -- Results of Completed Programs

Table IV presents a summary of results of completed programs for the period
from inception through June 30, 1997 of the Prior Programs, the offerings of
which closed between May 1994 and August 1996 or are pending. The Table presents
results on the basis of both GAAP and of cash distributions of the Prior
Programs.

Table V -- Sales or Disposals of Properties

Table V presents information concerning the cost and proceeds of properties
sold by the Prior Programs.

Table VI -- Acquisitions of Properties by Programs

The Company has filed Table VI -- Acquisitions of Properties by Programs,
which contains certain information concerning the acquisitions of specific
properties by the Prior Programs, as Exhibit 99.5 to its Registration Statement
on Form S-11 of which this Prospectus is a part. The Company will provide copies
of Table VI to potential investors free of charge or it may be obtained from the
Commission upon payment of fees prescribed by the Commission or may be examined
without charge at the offices of the Commission. See "Additional Information".

54
60

TABLE I

EXPERIENCE IN RAISING AND INVESTING FUNDS

CAPTEC II CAPTEC III
(a) (a)(b) CAPTEC IV (a)(c)
----------- --------------- -----------------

Dollar amount offered....................... $7,500,000 $20,000,000 $30,000,000
Dollar amount raised (100%)................. $1,940,500 $20,000,000 $ 6,155,688(c)
Less offering expenses:
Selling commissions -- non-Affiliates..... 8.0% 8.0% 8.0%
Organizational expenses -- Affiliates..... 3.0% 3.0% 3.0%
Other (non-accountable
allowance) -- Affiliates............... 2.0% (d) 2.0%(d) 2.0%(d)
Reserves.................................... 0.0% (e) 0.0%(e) 0.0%(e)
Percent available for investment............ 87.0% 87.0% 87.0%
Acquisition Costs:
Prepaid items and fees related to purchase
of property............................ 0.0% 0.0% 0.0%
Cash down payment......................... 80.8% 85.6% 42.1%(c)
Acquisition fees -- Affiliates............ 6.2% 3.5% 1.7%(c)
Acquisition fees -- non-Affiliates........
Acquisition expenses...................... 0.0% 0.0% 0.0%
Total acquisition costs..................... 87.0% 89.1% 43.8%
Percent leverage............................ 42.8% 1.7% 0.0%
Date offering began......................... May 7, 1992 August 12, 1994 December 23, 1996
Length of offering (months)................. 24 24 N/A
Months to invest 90% of amount available for
investment................................ 4 2 N/A

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

(a) Captec II, Captec III and Captec IV are each public programs with investment
objectives similar to those of the Company. Information in the Table is
presented as of June 30, 1997.

(b) Captec III closed its offering on August 12, 1996 having raised $20.0
million from 1,391 investors. As of June 30, 1997, Captec III had purchased
the land and building of 11 net-leased properties for a purchase price of
approximately $14.8 million and 10 equipment packages for approximately $3.4
million.

(c) Information in the Table is presented as of June 30, 1997. Captec IV
continues to raise funds through the offering of limited partnership units.
The offering of limited partnership interests in Captec IV will terminate
when the maximum number of interests are sold or December 23, 1998,
whichever occurs first. As of June 30, 1997, Captec IV had raised $6.2
million from 411 investors and purchased the land and building of one
net-leased property for a purchase price of approximately $1.0 million and
six equipment packages for approximately $1.7 million.

(d) Non-accountable expense allowance paid to the general partner for
reimbursement of expenses related to the offering and sale of limited
partnership interests.

(e) Reserves to satisfy any cash flow deficiencies were deemed unnecessary by
Captec Financial because the net leases require the lessees to pay all costs

of operating the properties.

55
61

TABLE II

COMPENSATION TO SPONSOR
CAPTEC II (A)

Date offering commenced................................................. May 7, 1992
Dollar amount raised.................................................... $1,940,500
Amount paid to sponsor from proceeds of offering
Offering expenses..................................................... $ 252,265
Acquisition fees
Real estate commissions............................................ --
Advisory fees...................................................... --
Other -- Affiliates (b)............................................ $ 119,953
Other................................................................. --

1994 1995 1996 1997(c)
---------- -------- -------- ----------

Dollar amount of cash generated from
operations before deducting payments to
sponsor.................................... $ 179,410 $256,554 $355,168 $ 44
Amount paid to sponsor from operations
Property management fees................... -- -- -- --
Partnership management fees................ -- -- -- --
Reimbursements............................. -- -- -- --
Leasing commissions........................ -- -- -- --
Other...................................... -- -- -- --
Dollar amount of property sales and
refinancing before deducting payments to
sponsor
Cash.................................... -- -- $ 7,400 $2,010,151
Assumption of note...................... -- -- -- $ 749,849
Amount paid to sponsor from property sales
and refinancing:
Real estate commissions................. -- -- -- --

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

(a) Captec II is a public program with investment objectives similar to those of
the Company.

(b) Acquisition Fee paid to Captec Financial in connection with acquisition of
properties.

56
62

TABLE II (CONTINUED)

COMPENSATION TO SPONSOR
CAPTEC III (A)

Date offering commenced............................................ August 12, 1994
Dollar amount raised............................................... $20,000,000
Amount paid to sponsor from proceeds of offering
Offering expenses................................................ $ 2,600,000
Acquisition fees
Real estate commissions....................................... --
Advisory fees................................................. --
Other -- Affiliates (b)....................................... $ 699,692
Other............................................................ --

1995 1996 1997(c)
-------- ---------- -----------

Dollar amount of cash generated from operations before
deducting payments to sponsor....................... $347,827 $1,436,358 $ 983,717
Amount paid to sponsor from operations
Property management fees............................ -- $ 19,038 $ 11,018
Partnership management fees......................... -- -- --
Reimbursements...................................... -- -- --
Leasing commissions................................. -- -- --
Other............................................... -- -- --
Dollar amount of property sales and refinancing before
deducting payments to sponsor
Cash............................................. -- -- --
Notes............................................ -- -- --
Amount paid to sponsor from property sales and
refinancing
Real estate commissions............................. -- -- --

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

(a) Captec III is a public program with investment objectives similar to those
of the Company.

(b) Acquisition Fee paid to Captec Financial in connection with acquisition of
properties.

57
63

TABLE II (CONTINUED)

COMPENSATION TO SPONSOR
CAPTEC IV (a)

Date offering commenced........................................... December 23, 1996
Dollar amount raised.............................................. $6,155,688(b)
Amount paid to sponsor from proceeds of offering
Offering expenses............................................... $ 800,240
Acquisition fees
Real estate commissions...................................... --
Advisory fees................................................ --
Other -- Affiliates (b)...................................... $ 103,752
Other........................................................... --

1996 1997(c)
---------- ----------

Dollar amount of cash generated from operations before deducting
payments to sponsor............................................. $ -- $ 104,478
Amount paid to sponsor from operations
Property management fees........................................ -- --
Partnership management fees..................................... -- --
Reimbursements.................................................. -- --
Leasing commissions............................................. -- --
Other........................................................... -- --
Dollar amount of property sales and refinancing before deducting
payments to sponsor
Cash......................................................... -- --
Notes........................................................ -- --
Amount paid to sponsor from property sales and refinancing
Real estate commissions......................................... -- --

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

(a) Captec IV is a public program with investment objectives similar to those of
the Company.

(b) Acquisition Fee paid to Captec Financial in connection with the acquisition
of properties.

(c) Information in this Table is presented as of June 30, 1997. Captec IV
continues to raise funds through the offering of limited partnership
interests. The offering of limited partnership interests in Captec IV will
terminate on the earlier of the sale of all remaining interests or December
23, 1998. As of June 30, 1997, Captec IV had raised $6.1 million from 411
investors and purchased the land and building of one net-leased property for
a purchase price of approximately $1.0 million and six equipment packages
for approximately $1.7 million.

58
64

TABLE III

OPERATING RESULTS OF PRIOR PROGRAMS
CAPTEC II

1994 1995 1996 1997(a)
----------- ----------- ----------- -----------

Gross revenues..................................... $ 169,837 $ 349,675 $ 514,963 $ 44
Profit on sale of properties....................... -- -- 3,652 216,756
Interest income.................................... 30,325 -- -- --
Less
Operating expenses............................... (6,443) (9,568) (84,138) --
Interest expense................................. (14,309) (83,553) (79,309) --
Depreciation..................................... (15,377) (28,462) (28,473) --
----------- ----------- ----------- -----------
Net income -- GAAP basis........................... $ 164,033 $ 228,092 $ 326,695 $ 216,800
=========== =========== =========== ===========
Taxable Income
From operations.................................. $ 126,606 $ 111,079 $ 279,893 $ 305,398
From gain on sale................................ -- -- -- --
Cash generated from operations..................... $ 179,410 $ 256,554 $ 355,168 $ 44
Cash generated from sales.......................... -- -- 7,400 2,010,151
Cash generated from refinancing.................... -- -- -- --
----------- ----------- ----------- -----------
Cash generated from operations, sales and
refinancing...................................... $ 179,410 $ 256,554 $ 362,568 $ 2,010,195
Less cash distributions to investors (b)
From operating cash flow......................... (136,988) (177,618) (149,076) (44)
From sales and refinancing....................... -- -- (7,400) (2,000,526)
From other: reduction of net investment in
financing leases............................... (6,957) (69,282) (137,024) --
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions.................................... 35,465 9,654 69,068 9,625
Special items (not including sales and refinancing)
Partners' capital contributions, net of offering
costs.......................................... 1,688,135 -- -- --
Proceeds from borrowings......................... 831,000 -- -- --
Purchase of real estate for operating leases..... (2,271,562) 326,760 -- 2,335,000
Purchase of equipment for financing leases....... (149,139) (425,284) -- 425,000
Reduction of net investment in financing
leases......................................... 6,957 69,282 137,024 --
Principal payments of debt obligations........... (6,133) (39,099) (43,343) (749,849)
Increase in other assets......................... (69,886) (7,837) (255,110) 7,834
Increase (decrease) in other liabilities......... 22,187 36,753 (9,625) (30,053)
----------- ----------- ----------- -----------
Cash generated (deficiency) after cash
distributions and special items.................. $ 87,024 $ (29,771) $ (101,986) $ 1,997,557
=========== =========== =========== ===========
Tax and Distribution Data per $1,000 Invested
Federal Income Tax Results
Ordinary income (loss)
From operations................................ $ 67 $ 57 $ 144 157
From recapture................................. -- -- -- --
Capital gain (loss).............................. -- -- -- --
Cash Distributions to Investors (b)
Source (on GAAP basis)
Investment income.............................. $ 77 $ 127 $ 151 $ 31
Return of capital.............................. -- -- -- $ 1,000
Source (on cash basis)
Sales.......................................... -- -- $ 4 $ 1,031
Refinancing.................................... -- -- -- --
Operations..................................... $ 73 $ 91 $ 77 $ --
Other: reduction of investment in financing
leases...................................... $ 4 $ 36 $ 70 $ --
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table............................ 100% 100% 94% 0%

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

(a) Six months ended June 30, 1997.

(b) Cash distributions are paid 15 days after the end of each quarter, but are
included above in the period in which they were made.

59
65

TABLE III (CONTINUED)

OPERATING RESULTS OF PRIOR PROGRAMS
CAPTEC III

1995 1996 1997(a)
---------- ----------- -----------

Gross revenues....................................... $ 359,018 $ 1,336,908 $ 993,980
Profit on sale of properties......................... -- -- --
Interest income...................................... 10,928 154,575 58,573
Less
Operating expenses................................. (23,119) (55,125) (63,124)
Interest expense................................... -- -- (5,712)
Depreciation....................................... (33,978) (114,272) (101,188)
---------- ----------- -----------
Net income -- GAAP basis............................. $ 312,849 $ 1,322,086 $ 882,529
========== =========== ===========
Taxable Income
From operations.................................... $ 63,498 $ 731,132 N/A(b)
From gain on sale.................................. -- -- N/A(b)
Cash generated from operations....................... $ 346,827 $ 1,436,358 $ 983,717
Cash generated from sales............................ -- -- --
Cash generated from refinancing...................... -- -- --
---------- ----------- -----------
Cash generated from operations, sales and
refinancing........................................ $ 346,827 $ 1,436,358 $ 983,717
Less cash distributions to investors (c)
From operating cash flow........................... (289,426) (1,282,553) (882,147)
From sales and refinancing......................... -- -- --
From other: reduction of net investment in
financing leases................................ (121,674) (331,707) (207,851)
---------- ----------- -----------
Cash generated (deficiency) after cash
distributions...................................... (64,273) (177,902) (106,281)
Special items (not including sales and refinancing)
Partners' capital contributions, net of offering
costs........................................... 6,437,467 10,957,187 --
Proceeds from borrowings........................... -- -- --
Purchase of real estate for operating leases....... (3,403,260) (9,537,532) (1,865,965)
Purchase of equipment for financing leases......... (2,001,275) (1,357,856) --
Construction loan draws............................ -- (939,778) 939,778
Reduction of net investment in financing leases.... 121,674 331,707 207,851
Principal payments of debt obligations............. -- -- --
Increase in other assets........................... (53,560) (179,661) (71,466)
Increase (decrease) in other liabilities........... 55,034 67,413 413,672
---------- ----------- -----------
Cash generated (deficiency) after cash distributions
and special items.................................. $1,091,807 $ (836,422) $ (482,411)
========== =========== ===========
Tax and Distribution Data per $1,000 Invested
Federal Income Tax Results
Ordinary income (loss)
From operations................................. $ 16 $ 47 N/A(b)
From recapture.................................. -- -- --
Capital gain (loss)................................ -- -- N/A(b)
Cash Distributions to Investors (c)
Source (on GAAP basis)
Investment income............................... $ 81 $ 85 $ 44
Return of capital............................... $ 26 $ 19 $ 10
Source (on cash basis)
Sales........................................... -- -- --
Refinancing..................................... -- -- --
Operations...................................... $ 75 $ 82 $ 44
Other: reduction of investment in financing
leases........................................ $ 32 $ 22 $ 10
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table.............................. 100% 100% 100%

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

(a) Six months ended June 30, 1997.

(b) Not available because taxable income is not computed for interim periods.

(c) Cash distributions are paid 15 days after the end of each quarter, but are
included above in the period in which they were made.

60
66

TABLE III (CONTINUED)

OPERATING RESULTS OF PRIOR PROGRAMS
CAPTEC IV

1997(a)
-----------

Gross revenues................................................................ $ 79,420
Profit on sale of properties.................................................. --
Interest income............................................................... 31,934
Less
Operating expenses.......................................................... (6,876)
Interest expense............................................................ --
Depreciation................................................................ (3,992)
-----------
Net income -- GAAP basis...................................................... $ 100,486
===========
Taxable Income
From operations............................................................. N/A(b)
From gain on sale........................................................... N/A(b)
Cash generated from operations................................................ 104,478
Cash generated from sales..................................................... --
Cash generated from refinancing............................................... --
-----------
Cash generated from operations, sales and refinancing......................... $ 104,478
Less cash distributions to investors (c)
From operating cash flow.................................................... --
From sales and refinancing.................................................. --
From other: reduction of net investment in financing leases................. (53,199)
-----------
Cash generated (deficiency) after cash distributions.......................... 51,279
Special items (not including sales and refinancing):
Partners' capital contributions, net of offering costs...................... 5,409,820
Proceeds from borrowings.................................................... --
Purchase of real estate for operating leases................................ (1,002,560)
Purchase of equipment for financing leases.................................. (1,694,979)
Reduction of net investment in financing leases............................. 53,199
Principal payments of debt obligations...................................... --
Increase in other assets.................................................... (30,212)
Increase (decrease) in other liabilities.................................... 155,429
-----------
Cash generated (deficiency) after cash distributions and special items........ $ 2,941,976
===========
Tax and Distribution Data per $1,000 Invested
Federal Income Tax Results
Ordinary income (loss)
From operations.......................................................... N/A(b)
From recapture........................................................... --
Capital gain (loss)......................................................... N/A(b)
Cash Distributions to Investors (c)
Source (on GAAP basis)
Investment income........................................................ $ 35
Return of capital........................................................ $ 13
Source (on cash basis)
Sales.................................................................... --
Refinancing.............................................................. --
Operations............................................................... $ 29
Reduction of investment in financing leases.............................. $ 19
Amount (in percentage terms) remaining invested in program properties at the
end of the last year reported in the Table.................................. 100%

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

(a) Six months ended June 30, 1997.

(b) Not available because taxable income is not computed for interim periods.

(c) Cash distributions are paid 15 days after the end of each quarter, but are
included above in the period in which they were made.

61
67

TABLE IV

RESULTS OF COMPLETED PROGRAMS
CAPTEC II

Dollar amount raised........................................................ $1,940,500
Number of properties purchased.............................................. 2
Number of equipment leases purchased........................................ 4
Date of closing of offering................................................. May 6, 1994
Date of first sale of property/equipment lease.............................. August 13, 1996
Date of final sale of property/equipment lease.............................. January 1, 1997
Tax and distribution data per $1,000
Investment through........................................................ March 31, 1997
Federal income tax results:
Ordinary income (loss)
from operations........................................................ $425
from recapture......................................................... --
Capital gain (loss)....................................................... --
Deferred gain............................................................. --
Capital................................................................ --
Ordinary............................................................... --
Cash Distributions to investors
Source (on GAAP basis).................................................... --
Investment income...................................................... $386
Return of capital...................................................... $1,000
Source (on cash basis)
Sales.................................................................. $1,035
Refinancing............................................................ --
Operations............................................................. $241
Reduction of Net Investment in Financing Leases........................ $110
Receivable on Net Purchase Money Financing.................................. --

62
68

TABLE V

SALES OR DISPOSALS OF PROPERTIES
CAPTEC II

SELLING PRICE,
DATE DATE OF NET OF CLOSING COSTS AND
PROPERTY ACQUIRED SALE GAAP ADJUSTMENTS
- ---------------------- --------- ----------- ---------------------------------------------------------------------------
CASH ADJUSTMENTS
RECEIVED PURCHASE MONEY RESULTING
NET OF MORTGAGE MORTGAGE TAKEN FROM
CLOSING BALANCE AT BACK BY APPLICATION
COSTS TIME OF SALE PROGRAM OF GAAP TOTAL(b)
---------- ------------ -------------- ------------ ----------

Taco Cabana Restaurant
Las Vegas, NV......... 5/25/94 1/1/97(a) $1,755,000 -- -- -- $1,755,000
Kenny Rogers Roasters
Tampa, FL............. 10/7/94 1/1/97(a) $ 580,000 -- -- -- $ 580,000
Checkers Drive-In
Kissimmee, FL......... 9/7/94 1/1/97(a) $ 132,000 -- -- -- $ 132,000
Popeye's Restaurant
Savannah, GA.......... 2/8/95 8/13/96 $ 7,400 -- -- -- $ 7,400
Schlotzsky's Deli
Huntsville, AL........ 2/13/95 1/1/97(a) $ 88,000 -- -- -- $ 88,000
Italian Oven
Ashland, KY........... 2/21/95 1/1/97(a) $ 205,000 -- -- -- $ 205,000
Leverage.............. $749,849(d)

EXCESS
(DEFICIENCY)
OPERATING
CASH
COST OF PROPERTIES RECEIPTS
INCLUDING CLOSING AND OVER CASH
PROPERTY SOFT COSTS EXPENDITURES
- ---------------------- ------------------------------------------------------ ------------
TOTAL ACQUISITION COST,
ORIGINAL CAPITAL IMPROVEMENT,
MORTGAGE CLOSING AND SOFT
FINANCING COSTS(C) TOTAL
------------ ------------------------ ----------

Taco Cabana Restaurant Purchase: 1,350,000
Las Vegas, NV......... -- Acq. Fees: 67,500 $1,417,500 $432,000
Kenny Rogers Roasters Purchase: 502,202
Tampa, FL............. -- Acq. Fees: 25,110 $ 527,312 $117,869
Checkers Drive-In Purchase: 142,000
Kissimmee, FL......... -- Acq. Fees: 7,100 $ 149,100 $ 94,614
Popeye's Restaurant Purchase: 74,000
Savannah, GA.......... -- Acq. Fees: 3,700 $ 77,700 $ 32,197
Schlotzsky's Deli Purchase: 103,968
Huntsville, AL........ -- Acq. Fees: 5,198 $ 109,166 $ 57,141
Italian Oven Purchase: 227,063
Ashland, KY........... -- Acq. Fees: 11,335 $ 238,416 $120,638
Leverage.............. $831,000(d)

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

(a) Captec II sold the property to the Company in January 1997.
(b) The taxable gain will be treated as ordinary income.
(c) Amounts shown do not include pro rata share of original offering costs.
(d) Amounts attributable to Taco Cabana and Kenny Rogers Roasters. Remaining
properties were secured equipment leases.

63
69

FINANCING POLICIES

Although its organizational documents contain no limitation on the amount
of debt it may incur, the Company, subject to the discretion of the Board of
Directors, intends to maintain a debt capitalization ratio (total consolidated
debt of the Company as a percentage of Market Capitalization) of not more than
50.0%. The organizational documents contain no limits on the number or amount of
mortgages which may be placed on any particular property or on the types of
properties in which the Company may invest. The Company may from time to time
reevaluate its financing policies and without stockholder approval increase or
decrease its ratio of debt to Market Capitalization in response to changing
economic conditions, relative costs of debt and equity capital, market value of
its properties, growth, development and expansion opportunities and other
factors. In addition to the Credit Facility, indebtedness incurred by the
Company may be in the form of purchase money obligations to the sellers of
properties, secured or unsecured bank borrowings and publicly or privately
placed debt instruments. The Affiliated Partnerships, of which the Company will
become the general partner subsequent to completion of the Offering, also may
incur various forms of indebtedness for which the Company will be liable unless
the lender's recourse is expressly limited to collateral pledged as security for
such indebtedness. As of June 30, 1997, the Affiliated Partnerships had no debt
as to which the creditor has a right of recourse against the general partners in
the event of a default. See "Risk Factors -- Exposure to Liabilities of
Affiliated Partnerships" and "-- Leverage".

The Company may borrow to the extent necessary to make distributions
required to qualify as a REIT to the extent permitted under the Credit Facility
or otherwise. The Company does not intend to borrow to return capital to the
stockholders unless necessary to eliminate corporate-level tax to the Company.
See "Risk Factors -- REIT Minimum Distribution Requirements" and "Federal Income
Tax Considerations -- Requirements for Qualification as a REIT -- Annual
Distribution Requirements".

INVESTMENT POLICIES

The types of property and property interests in which the Company invests
are described under "Business -- General", "-- Growth Strategy" and
"-- Operating Strategy". The Company's policy with respect to borrowing is
described under "Business -- Financing Policies". The Company does not
anticipate making additional loans to Affiliates in the future. All of the
outstanding loans from the Company are described under "Business -- Investment
in Financial Instruments". Although the Company's policy is to acquire and own
properties subject to long-term net leases during which terms the properties may
appreciate, it is the policy of the Company to acquire properties primarily for
the production of income. Although the Company believes it has achieved, and
will continue to maintain, substantial diversification of its property
portfolio, the Company does not restrict the percentage of its assets which may
be invested in a single property. The Company will not invest in any further
equipment financing leases. See "Risk Factors -- Lessee and Concept
Concentration".

The Company has not underwritten the securities of any other issuer,
invested in the securities of any other issuer for the purpose of exercising
control or offered its securities in exchange for properties. The Company does
not anticipate engaging in any of the foregoing activities except that it may
issue shares of Common Stock or other of its securities as consideration for the
acquisition of properties. See "Business -- Growth Strategy -- Increases in
Revenues and Operating Margins". Upon the redemption of Preferred Stock from The
Public Institution For Social Security, an Affiliate, and the issuance of the
Exchange Shares, there will be no Preferred Stock outstanding and the Company
does not anticipate issuing Preferred Stock or other senior securities. The
Common Stock is not redeemable.

OTHER POLICIES

The Company intends to furnish its stockholders with annual reports
containing audited financial statements which have been certified by its
independent public accountants and will file quarterly reports containing
unaudited summary financial information for each of the first three quarters of
each fiscal year with the Commission. The Company will make such quarterly
reports available to stockholders upon request. See "Additional Information".

64
70

INVESTMENT IN FINANCIAL INSTRUMENTS

Loans to Affiliates Collateralized by Mortgage Loans. At June 30, 1997 the
Company had the Master Note with Captec Financial with an outstanding principal
balance of $9.7 million which bears interest at the annual rate of 8.0%, and is
payable on demand. The Master Note is collateralized in part by a senior
interest in a portfolio of first mortgage loans and in part by a subordinate
interest in portfolios of first mortgage and other secured loans.

As of June 30, 1997, the Company also held a $2.0 million promissory note
collateralized by a subordinate class certificate issued by Captec Trust, an
Affiliate, bearing interest at an annual rate of 15.7%. The subordinate class
certificate was issued in conjunction with an asset-backed securization of a
pool of long-term, fixed rate mortgage loans and other collateralized loans
originated by Captec Financial. See Note 3 to Financial Statements.

Impaired Mortgage Loans. The Company acquired in 1996 five impaired
mortgage loans in anticipation of a restructuring. At June 30, 1997 all but
$788,479 of the loans had been restructured as net leases and the balance is
expected to be similarly restructured in the near future. See Note 4 to
Financial Statements.

Other Loans. At June 30, 1997 the Company had other loans with a principal
balance of approximately $1.2 million consisting of a subordinated note
collateralized by subordinated interests in real estate and a mortgage loan
secured by a first mortgage on real estate. See Note 5 to Financial Statements.

The Company will not make further loans to Affiliates. See "Conflicts of
Interest" and "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Income Tests".

OTHER INVESTMENTS

The Company is the lessor under four secured leases of equipment, furniture
and fixtures to restaurant operators. The equipment subject to these leases was
acquired by the Company for an aggregate cost of approximately $1.6 million and
the aggregate annual rental income from these leases as of June 30, 1997, is
$203,000, all of which is non-qualifying income for purposes of satisfying
certain requirements relating to the qualification of the Company as a REIT. See
"Risk Factors -- Adverse Consequences of Failure to Qualify as a REIT" and
"Federal Income Tax Considerations -- Requirements for Qualification as a
REIT -- Income Tests".

EMPLOYEES

The Company's only employees are its executive officers. Day to day
services are provided to the Company by employees of the Advisor.

THE AFFILIATED PARTNERSHIPS

Subsequent to the completion of the Offering the Company will become the
sole general partner of Captec III and Captec IV, each of which is a Delaware
limited partnership engaged in substantially the same business as the Company.
The Company will acquire the General Partnership Interests from the current
general partners of the Affiliated Partnerships, which are wholly-owned
subsidiaries of Captec Financial and Patrick L. Beach, the Company's Chairman,
President and Chief Executive Officer. The Company will acquire the General
Partnership Interests in the Affiliated Partnerships for $3.3 million in the
aggregate, $315,000 of which will be paid to Mr. Beach and the balance of which
will be offset against amounts due to the Company from Captec Financial, which
are Affiliates. As part of the Company's acquisition of the General Partnership
Interests and in addition to rights of indemnification from the Affiliated
Partnerships, the current general partners, including Mr. Beach, will be
relieved from, and indemnified by the Company against, all liabilities of the
Affiliated Partnerships to which they may be subject as a result of having
served as general partners, other than for fraud, willful misconduct or breach
of fiduciary duty.

65
71

The following tables set forth certain information concerning Captec III's
and Captec IV's portfolios of properties and secured equipment leases as of June
30, 1997:

ORIGINAL
AFFILIATED PARTNERSHIP PRODUCT LINE NUMBER ASSET COST
- ---------------------------------------------------- ---------------------- ------ -----------

Captec Franchise Capital Partners L.P. III.......... Equipment Lease 10 $ 3,359,131
Net Lease Real Estate 11 14,806,757
---- -----------
Total 21 $18,165,888
==== ===========
Captec Franchise Capital Partners L.P. IV........... Equipment Lease 6 $ 1,694,979
Net Lease Real Estate 1 1,002,560
---- -----------
Total 6 $ 2,697,539
==== ===========

The public offering of limited partnership interests in Captec IV, which has
been registered under the Securities Act, is ongoing. As of June 30, 1997, $23.9
million in limited partnership interests in Captec IV remained unsold. Captec
III and Captec IV are permitted by their respective limited partnership
agreements to borrow up to 35.0% and 40.0% respectively of the aggregate amount
of their limited partnership interests sold. The net proceeds of any additional
sales of partnership interests in Captec IV or the proceeds of any borrowings by
Captec III or Captec IV may be used to invest in additional properties,
resulting in certain conflicts of interest. See "Risk Factors -- Conflicts of
Interest" and "Conflicts of Interest".

The Company's rights, responsibilities and obligations as the general
partner of each Affiliated Partnership are set forth in the respective
Affiliated Partnership's Amended and Restated Agreement of Limited Partnership
(each a "Partnership Agreement" and collectively the "Partnership Agreements").
As general partner of each of the Affiliated Partnerships, the Company will own
a 1.0% interest in each Affiliated Partnership and be responsible and liable for
all of the obligations of each Affiliated Partnership. As of June 30, 1997
neither Captec III or Captec IV had any indebtedness or other material recourse
liabilities. The Company will owe a fiduciary duty to the limited partners of
each Affiliated Partnership similar to the fiduciary duty that it owes its
stockholders which could subject it to conflicts between the interests of the
Company's stockholders and those of the limited partners of the Affiliated
Partnerships. See "Risk Factors -- Conflicts of Interest" and "Conflicts of
Interest".

As compensation for its services as a general partner of the Affiliated
Partnerships, the Company will be entitled to receive compensation from each of
the Affiliated Partnerships pursuant to the Partnership Agreements. This
compensation (which in some cases is subordinated to prior distributions to the
limited partners of specified returns on their initial capital investment)
includes real property and equipment acquisition fees, a property management fee
based on the gross rental revenue of the Affiliated Partnerships, reimbursement
of expenses and specified percentages of the net proceeds from the sale,
refinancing or liquidation of property or equipment. Based upon its 1.0% General
Partnership Interest in each Affiliated Partnership, pursuant to the Partnership
Agreements, the Company also will receive 1.0% of all distributions of cash made
by either Affiliated Partnership (the amount and timing of which distributions
will be determined by Company as the general partner). Generally, income such as
that which the Company will receive from the Affiliated Partnerships in respect
of its General Partnership Interests will not qualify for the 95.0% income test
applicable to REITs and all such income and other qualifying income must
aggregate less than 5.0% of the Company's income for the Company to qualify or
remain qualified as a REIT. See "Federal Income Tax
Considerations -- Requirements for Qualification as a REIT -- Income Tests".

The Company also will be allocated 1.0% of any taxable income, gain or loss
recognized by either Affiliated Partnership. Each Partnership Agreement
obligates the Affiliated Partnership to indemnify the general partner from and
against all liabilities except liabilities arising from misconduct, negligence
or violation of securities laws. Each Partnership Agreement further provides
that a general partner may be removed by a vote of a majority in interest of the
limited partners subject to the Affiliated Partnership's obligation to purchase
the interests of a removed or disqualified (as a result of insolvency or
bankruptcy) general partner for an amount to be agreed upon by the general
partner and its successor or fair market value as determined in arbitration.

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The acquisition by the Company of the General Partnership Interests in the
Affiliated Partnerships is subject to the satisfaction of certain conditions,
including the approval of the majority in interest of the limited partners of
each of the Affiliated Partnerships. There is no assurance that a majority in
interest of the limited partners of either or both Affiliated Partnerships will
approve the transaction and that the Company will be successful in acquiring the
General Partnership Interests in either or both Affiliated Partnerships. See
"Risk Factors -- Exposure to Liabilities of Affiliated Partnerships".

PROMOTERS

The Company's promoters were Patrick L. Beach, the Company's Chairman of
the Board of Directors, President and Chief Executive Officer, W. Ross Martin,
the Company's Executive Vice President and Chief Financial Officer and a
director, and Captec Financial and Michigan Corp., each of which held more than
10.0% of the Company's outstanding Common Stock at the time of its formation.
See "Principal Stockholders".

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DESCRIPTION OF PROPERTIES AND LEASES

The 79 Existing Properties conform generally to the following
specifications for size, cost and type of land and buildings. Based upon its
experience and knowledge of the fast-food, family-style and casual dining
restaurant and retail industries, the Company expects that a majority of its
future properties, including the Acquisition Properties, will conform generally
to these specifications, although the Company may purchase properties which vary
materially from these specifications.

LAND

Lot sizes generally range from 20,000 to 80,000 square feet for restaurant
properties and up to 150,000 square feet for retail properties, depending upon
building size and local demographics. Properties typically are freestanding and
may be located on smaller parcels if sufficient parking is available. Properties
purchased by the Company are in locations zoned for commercial use which have
been reviewed for traffic patterns and volume. Land costs vary but generally
range from $250,000 to $3.0 million, depending upon various factors including
the size of the parcel, competition for sites and local commercial real property
values generally.

BUILDINGS

The style and appearance of the buildings typically are dictated by the
franchisors and chain owners of the businesses which are operated from the
properties. The buildings generally are rectangular and constructed from various
combinations of stucco, steel, wood, brick and tile and typically range from
2,000 to 6,000 square feet for restaurant properties and up to 40,000 square
feet for retail properties. Building and site preparation costs, which generally
range from $300,000 to $4.0 million for each property, vary depending upon the
size of the building and the site and area in which the property is located. The
properties typically are freestanding, surrounded by paved parking areas, and
are convertible to various uses with certain modifications. Generally, the
properties acquired by the Company are improved with buildings although in some
instances the Company may acquire only land (even if improved) or only the
improvements. A Lessee generally is required to make capital expenditures
reasonably necessary to refurbish buildings, premises, signs and equipment so as
to comply with the Lessee's obligations under its franchise or other operating
agreement. The Company believes the size of its typical retail property is
especially well-suited to meet changes occurring in the retail industry. In
order to meet changing consumer preferences, and as a result of the relatively
high cost of mall space, the Company believes that retailers increasingly prefer
smaller, freestanding facilities which are more accessible and facilitate the
customized presentation of the retail concept. The Company believes that it will
benefit from these trends because its properties meet these retailer
preferences.

THE LEASES

The Company typically acquires only properties which are subject to
long-term (typically 15 - 20 years with one or more five-year renewals)
triple-net Leases with creditworthy multi-unit franchisees and operators of
national and regional restaurants and retailers. In limited circumstances the
Company's retail Leases are on a "double-net" basis pursuant to which the
Lessees are required to pay for all repairs, renovations (if permitted under the
Leases), certain maintenance, taxes, utilities, assessments and insurance, and
the Company generally is responsible for maintenance of the exterior walls and
roof of the property. The Company believes that its Leases significantly reduce
operating expenses because the Lessees are responsible for all costs of repairs,
maintenance, real property taxes, assessments, utilities and insurance on the
properties; minimize the risk of default because Lessees are experienced
multi-unit operators of major national and regional restaurant chains and
retailers; provide secure, predictable, periodically increasing revenue through
fixed rent increases or, in certain circumstances, indexation to the CPI and/or
percentage rent; and offer Lessees financial flexibility and the ability to
retain more of their capital for reinvestment in their business. The Company's
strategy of entering into 15- to 20-year Leases with creditworthy Lessees
operating well-located units of the most successful nationally franchised and
chain restaurants and retailers is intended to provide the Company with
long-term, steady and secure revenue growth.

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TERM OF LEASES

The Leases typically are for initial 15- to 20-year terms with up to three
five-year renewal options, although in some cases the Company will enter into
Leases for shorter terms. Upon termination, the Lessee surrenders possession of
the property to the Company, usually with any improvements made during the Lease
term, except for properties in which the Company owns only the land in which
case the Lessee may retain ownership of the building.

LEASE PAYMENTS

During the term of a Lease, the Lessee pays the Company minimum annual rent
which is determined based upon a specified percentage of the Company's cost of
the property including any costs of construction or renovation. Typically,
Leases provide automatic increases in the base rent at predetermined intervals
during the term of the Lease. In certain limited circumstances, in addition to
base rent, the Lessees may be required to pay percentage rent, which is computed
as a percentage of the Lessee's gross sales or revenues.

INSURANCE, TAXES, MAINTENANCE AND REPAIRS

All triple-net Leases require that the Lessee pay all costs and expenses
including repairs, maintenance, real property taxes, assessments, utilities and
insurance. The double-net Leases are similar to the triple-net Leases, but
require the Company to maintain the exterior walls and/or roof of the property
for which the Company reserves $.15 per square foot annually. Lessees are
required to maintain all properties in good order and repair. Lessees generally
also are required to maintain, for the benefit of both the Company and the
Lessee, casualty insurance in an amount not less than the full replacement value
of the building and other permanent improvements (or a percent of such value in
the case of certain Leases, but in no event less than an amount as required to
avoid co-insurance), as well as comprehensive general liability insurance,
generally in an amount not less than $1.0 million for each location and loss
occurrence. Lessees (other than those with a substantial net worth) generally
also are required to obtain "rental value" or "business interruption" insurance
for losses in operating revenue due to the occurrence of an insured event for a
specified period, generally six to 12 months.

ASSIGNMENT AND SUBLEASE

Leases may not be assigned or subleased without the Company's prior written
consent except to a Lessee's corporate franchisor, corporate affiliate or
subsidiary, a successor by merger or acquisition, or, in certain cases, another
franchisee, and provided such assignee or subtenant agrees to operate the same
type of business on the premises. The Leases set forth certain factors (such as
the financial condition of the proposed tenant or subtenant) that are deemed to
be reasonable grounds for the Company's refusal to consent. Where consent is
given, the Lessee typically remains fully liable for the performance of all
obligations under the Lease following assignment or sublease.

ALTERATIONS TO PREMISES

A Lessee generally has the right, without the prior consent of the Company,
to make certain immaterial structural modifications to the building and
improvements (with a cost of up to 10.0% of the purchase price of the property)
or, with the Company's prior written consent, to make material structural
modifications that may include demolition and rebuilding. Under certain Leases,
the Lessee may make any type of alterations to the leased premises without the
Company's consent but must provide the Company with plans of any proposed
structural modifications before construction commences. Certain Leases may
require the Lessee to post a payment and performance bond for any structural
alterations with a cost in excess of a specified amount. The Lessee is required
to pay for all permitted alterations.

LESSEE PURCHASE OPTION

In limited circumstances the Leases grant to Lessees a right of first
refusal to match any offer to buy the property prior to acceptance by the
Company. In many cases the Lease affords the Lessee the option to purchase the
property during one or more typically one-month window periods at designated
times during the fifth to

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tenth years of the Lease. Typically the purchase price applicable upon the
exercise of this option by the Lessee is intended to reflect fair market value
at the time the option is exercised and is equal to the contractual rent for the
year following the year in which the option is exercised divided by a percentage
rate which is lower than the current rate of return on the Lease.

SUBSTITUTION OF BUSINESS ACTIVITY

Under certain Leases, the Lessee, at its expense, is entitled to operate an
alternate approved business concept on the property, provided such alternate
concept has an operating history which reflects an ability to generate gross
sales and potential sales growth equal to, or greater than, that experienced by
the Lessee in operating the original concept. Certain Leases provide the Lessee
with the right to offer the substitution of another restaurant or retail
property selected by the Lessee in the event that (i) the property is not
producing rent pursuant to the terms of the Lease; and (ii) the Lessee
determines in good faith that the property is not economically viable (other
than as a result of an insured casualty loss or condemnation) for the Lessee's
continued use and occupancy in its business operation. If either event occurs,
the Lessee will have the right, pursuant to specified procedures, to offer the
Company the opportunity to change the use of the property for another national
or regional franchised chain or retail property, with a total cost for land and
improvements thereon (including overhead, construction interest, and other
related charges) equal to or greater than, the cost of the property to the
Company. The Lessee is required to pay all costs incurred by the Company in
connection with any substitution of business activity.

EVENTS OF DEFAULT

The Leases generally provide that the following events, among others,
constitute a default subject to applicable cure rights: (i) the insolvency or
bankruptcy of the Lessee; (ii) the failure of the Lessee to make timely payment
of rent or other charges due and payable under the Lease for a specified period
of time (generally three to seven days) after notice of such failure; (iii) the
failure of the Lessee to comply with any of its other obligations under the
Lease for a specified period of time (generally 20 to 30 days) after notice of
such failure; (iv) a default or termination of a franchise agreement between the
Lessee and its franchisor; (v) a default under, or termination of, a development
agreement for improvement of the property or indemnity agreement or the failure
to establish the minimum annual rent at the end of the development period; and
(vi) a "cross default" under any other Lease between the Lessee and the Company
for other properties.

Upon default by the Lessee, the Company generally has the right under the
Lease and most state laws to evict the Lessee, re-lease the property and hold
the Lessee responsible for any deficiency in Lease payments, or to attempt to
sell the property. In general, the Lessee remains liable for all amounts due
under the Lease to the extent not paid from a security deposit (if any) or by a
new Lessee. In the event of a default under a Lease, the Company either will
attempt to locate a replacement operator acceptable to the franchisor or
remarket the property. In lieu of obtaining a replacement operator, some
franchisors may have the option and may elect to operate the business directly.
The Company will have no obligation to operate the business, and no franchisor
will be obligated to permit the Company or a replacement operator to operate the
business. See "Risk Factors -- Ownership and Leasing of Properties" and
" -- Creditworthiness of Lessees and Financial Instruments".

MANAGEMENT OF PROPERTY PORTFOLIO

The Company monitors its property portfolio continually and will seek to
sell properties when warranted by property value and prevailing economic,
business and other conditions. The Company's general policy will be to sell
properties for cash. The terms of payment to the Company will be affected by
custom in the area in which the property is located and the then prevailing
economic conditions. The Company also may enter into tax-free exchanges to
reposition its portfolio. The Company will be subject to those risks inherent in
the investment in real estate including numerous factors beyond the Company's
control affecting the value of its properties. See "Risk Factors -- Ownership
and Leasing of Properties".

The Company intends, to the extent consistent with its objective of
qualifying and maintaining its status as a REIT, to invest in additional
properties any proceeds of the sale of a property that are not required to be
distributed to stockholders in order to preserve the Company's REIT status. The
Company also may be required

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to sell a property upon the exercise of any purchase options conferred upon
Lessees under the Leases, or pursuant to joint venture agreements. See
"-- Lessee Purchase Option". In selling properties, the Company may accept
purchase money obligations as partial payment of the sales price. The terms of
payment will be affected by custom in the area in which the property is located
and by prevailing economic conditions. If a purchase money obligation is
accepted in lieu of cash upon the sale of a property, the Company would continue
to hold a mortgage on the property and the proceeds of the sale would be
realized over a period of years rather than at closing of the sale.

MANAGEMENT

GENERAL

The Company operates under the direction of the Board of Directors, the
members of which are accountable to the Company as fiduciaries. The Company
currently has seven directors; it may have no fewer than three directors and no
more than 15 directors. Directors are elected annually, and each director holds
office until the next annual meeting of stockholders or until his successor has
been duly elected and qualified. There is no limit on the number of times that a
director may be elected to office. Although the number of directors may be
increased or decreased, a decrease shall not have the effect of shortening the
term of any incumbent director. Any director may resign at any time and may be
removed by the other directors with cause or by the stockholders with or without
cause upon the affirmative vote of at least a majority of all the outstanding
shares of the Common Stock entitled to vote at a meeting called for that
purpose. Officers are appointed and serve at the discretion of the Board of
Directors.

INDEPENDENT DIRECTORS

Under the Company's Bylaws, a majority of the Board of Directors must
consist of Independent Directors, except for a period of 90 days after the
death, removal or resignation of an Independent Director. An Independent
Director may not be (i) employed by the Company; (ii) an Affiliate of the
Company other than solely as a result of being a director of the Company, any
subsidiary of the Company or any entity in which the Company owns, beneficially
or of record, a 10.0% or greater equity interest; (iii) an Affiliate of any
Affiliate; (iv) a party to any transaction with the Company in which the amount
involved exceeds $60,000, provided that an Independent Director may be a Lessee
or an owner of an equity interest in a Lessee; or (v) a party to, or the owner
of a 10.0% or greater equity interest in any party to, any business relationship
which accounts for in excess of 5.0% of such party's gross income or
consolidated gross revenues for its last full fiscal year, provided that an
Independent Director may be a Lessee or an owner of an equity interest in a
Lessee. The Independent Directors were elected by the Company's other directors.

FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS

Although the Board of Directors will be responsible for the management and
control of the affairs of the Company, it will retain the Advisor to provide
certain management services and be responsible primarily for the Company's
restaurant properties and for certain activities relating to its retail
properties, subject at all times to the oversight of the Board of Directors. The
directors are required only to devote such time to the affairs of the Company as
their duties require. The Board of Directors will meet as required, but not less
frequently than quarterly. It is anticipated that the directors will rely
heavily on the Advisor with respect to the acquisition, development, financing
and leasing of restaurant properties. The Advisory Agreement states that the
Advisor will not be considered to be a fiduciary of the Company. The directors
will monitor the actions, performance and management of the Company and
activities of the Advisor to assure that such actions are in the best interests
of the stockholders and consistent with the policies and other directives
established by the Board of Directors.

A majority of the Independent Directors and a majority of disinterested
directors must approve each transaction with the Advisor or its Affiliates. The
Board of Directors also is responsible for reviewing and evaluating the
performance of the Advisor before entering into or renewing an advisory
agreement. The

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Independent Directors shall supervise the performance of the Advisor and
determine from time to time (and at least annually) that the compensation of the
Advisor is reasonable.

The liability of the officers and directors while serving in such capacity
is limited in accordance with the Certificate, the Bylaws and applicable law.
See "-- Indemnification and Limitation of Liability".

DIRECTORS AND EXECUTIVE OFFICERS

The directors and executive officers of the Company are:

NAME AGE POSITION WITH THE COMPANY
- ---------------------------------------- ---- -----------------------------------

Patrick L. Beach........................ 41 Chairman of the Board of Directors,
President and Chief Executive
Officer
W. Ross Martin.......................... 37 Director, Executive Vice President,
Chief Financial Officer and
Treasurer
Ronald Max.............................. 40 Vice President and Chief Investment
Officer
H. Reid Sherard......................... 49 Director
Richard J. Peters....................... 49 Independent Director
Creed L. Ford, III...................... 45 Independent Director
William H. Krul, II..................... 48 Independent Director
Lee C. Howley........................... 50 Independent Director

PATRICK L. BEACH is the Chairman of the Board of Directors, President and
Chief Executive Officer of the Company and Captec Advisors. Since founding
Captec Financial in 1981, Mr. Beach has served as the Chairman of its Board of
Directors, President and Chief Executive Officer, as well as in similar
capacities for various of its Affiliates. Mr. Beach has worked exclusively with
Captec Financial and its Affiliates since 1991. From 1989 to 1991 Mr. Beach also
served as Chairman and President of Illiana Printing, Inc., the master
franchisor for American Speedy Printing Centers, Inc. in the states of Illinois
and Indiana. From 1986 until 1990 Mr. Beach was the Chairman of Wendy's of San
Diego, Inc., a 27-unit franchisee of Wendy's International. Mr. Beach is a
graduate of the University of Michigan School of Business Administration (B.B.A.
1977). See "Risk Factors -- Conflicts of Interest", "-- Reliance on Management
and Captec Advisors; Lack of Stockholder Control" and "-- Dependence on Key
Personnel and Limited Management Group".

W. ROSS MARTIN is a director, Executive Vice President, Chief Financial
Officer and Treasurer of the Company and a director, Executive Vice President
and Chief Financial Officer of Captec Advisors. Mr. Martin joined Captec
Financial in 1985 as Controller, was promoted to Vice President -- Finance in
1986 and Chief Financial Officer in 1994, and currently serves as a director and
Executive Vice President and Chief Financial Officer of Captec Financial and in
a similar capacity for various of its Affiliates. From 1982 until 1985, he was
employed by Deloitte Haskins & Sells, most recently as senior consultant in the
Emerging Business Services practice. Mr. Martin is a graduate of the University
of Michigan School of Business Administration (B.B.A. 1982) and a Certified
Public Accountant. See "Risk Factors -- Conflicts of Interest", "-- Reliance on
Management and Captec Advisors; Lack of Stockholder Control" and "-- Dependence
on Key Personnel and Limited Management Group".

RONALD MAX is Vice President and Chief Investment Officer of the Company.
Mr. Max joined Captec Financial in 1995 to help establish a retail properties
acquisition and development program. From 1988 to 1995 Mr. Max held various
positions with Brauvin Real Estate Funds, including Chief Financial Officer and
Director of Acquisitions, where he was responsible for the acquisition and
funding of over $100.0 million of retail properties. Prior to 1988, Mr. Max had
extensive experience in real estate and financing. Mr. Max is a graduate of
Northern Illinois University (B.S. 1979) and a Certified Public Accountant. See
"Risk Factors -- Conflicts of Interest", "-- Reliance on Management and Captec
Advisors; Lack of Stockholder Control" and "-- Dependence on Key Personnel and
Limited Management Group".

H. REID SHERARD is a director and currently is Senior Vice
President -- Sales and Marketing of Captec Financial, by which he has been
employed since 1994. From 1986 to 1994 Mr. Sherard was employed by

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Franchise Finance Corporation of America in several positions including Vice
President, Acquisitions. Mr. Sherard is a graduate of Charleston Southern
University (B.S. 1970).

RICHARD J. PETERS is a director and currently serves as President of R.J.
Peters & Company, L.L.C., a privately held investment company. From 1986 through
June 1997, Mr. Peters was a senior executive of Penske Corporation ("Penske"), a
privately held transportation services company. Most recently, Mr. Peters served
as Executive Vice President and Chief Financial Officer of Penske, and as
President and Chief Executive Officer of Penske Motorsports, Inc. Mr. Peters
also is a director of Penske, Penske Motorsports, Inc. and Aon Funds. Mr. Peters
is a graduate of Wayne State University (B.B.A. 1969).

CREED L. FORD, III is a director and currently is the Chief Executive
Officer of Kona Restaurant Group which owns and operates Johnny Carino's Italian
Kitchen and Kona Ranch Steak House restaurants and is a Chili's Grill and Bar
franchisee. From 1976 until 1997 Mr. Ford served in numerous capacities with
Brinker International ("Brinker"), a multi-concept casual dining company, most
recently as its Chief Operating Officer and a director. While with Brinker, Mr.
Ford participated in the establishment of Chili's, the development of 600
restaurants world-wide and the management of over 70,000 employees. Mr. Ford is
a graduate of Texas A&M University (B.S. 1975). Mr. Ford is a prospective Lessee
of two of the Acquisition Properties.

WILLIAM H. KRUL is a director and has been associated for the past 28 years
with the Miller-Valentine Group and its affiliates, most recently as President
of Miller-Valentine Construction, Inc. Mr. Krul is a director of Mercy Siena
Woods Nursing Home and Mercy Western Ohio. Mr. Krul is a graduate of Wright
State University in Dayton, Ohio (B.A. 1971).

LEE C. HOWLEY is a director and has been the sole owner and President of
Howley & Company, a real estate brokerage and development company, since 1981,
and has been the sole owner and Chairman of Coast Management Company, a cleaning
and real estate management company, since 1987. Mr. Howley is a director of
Boykin Lodging Company, International Total Services, Inc. and LESCO, Inc., and
currently serves as Co-Chairman of the Rock 'n Roll Hall of Fame and Museum in
Cleveland, Ohio. Mr. Howley is a graduate of Georgetown University (B.A. 1970)
and New York University (M.B.A. 1972).

AUDIT COMMITTEE

The Audit Committee will consist initially of Mr. Peters, Mr. Ford and Mr.
Howley, each of whom are Independent Directors. The Audit Committee will
recommend the engagement of independent public accountants, the plans for, and
results of, audit engagements, approve professional services provided by the
independent public accountants, consider the range of audit and nonaudit fees,
and review the independent public accountants' letter of comments and
management's responses thereto, the adequacy of the Company's internal
accounting controls, and major accounting or financial reporting matters.

COMPENSATION COMMITTEE

The Compensation Committee, which will consist initially of Mr. Peters, Mr.
Howley and Mr. Krul, each of whom are Independent Directors. The Compensation
Committee will determine compensation for senior management, advise the Board of
Directors on the adoption and administration of employee benefit and
compensation plans and administer the Company's Long-Term Incentive Plan.

INDEMNIFICATION AND LIMITATION OF LIABILITY

As permitted under the Delaware General Corporation Law, the Company's
Certificate eliminates the personal liability of a director to the Company and
its stockholders for monetary damages for breach of the fiduciary duty of care
as a director. Liability is not eliminated or limited for (i) any breach of the
director's duty of loyalty to the Company or its stockholders; (ii) acts or
omissions not in good faith or which involve intentional misconduct or a knowing
violation of law; (iii) unlawful payment of dividends or stock purchases or
redemptions pursuant to Section 174 of the Delaware General Corporation Law; or
(iv) any transaction from which the director derived an improper personal
benefit.

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The Bylaws also provide for indemnification of officers and directors of
the Company and persons who serve at the request of the Company as a director,
officer, employee, agent or trustee of another corporation, partnership, joint
venture, trust or other enterprise, to the full extent allowed by Delaware law.
The Delaware General Corporation Law authorizes indemnification of officers,
directors and persons serving other entities in certain capacities at the
request of the corporation, subject to certain conditions and limitations set
forth therein, against all expenses and liabilities incurred by or imposed upon
them as a result of actions, suits and proceedings brought against them in such
capacity if they acted in good faith and in a manner they reasonably believed to
be in, or not opposed to, the best interests of the corporation.

The Company also has entered into indemnification agreements with its
directors and officers which provide for indemnification to the full extent
permitted under Delaware law and has agreed to indemnify the Advisor against
certain liabilities.

INSURANCE

The Company has obtained a directors and officers liability insurance
policy in the aggregate amount of $5.0 million. Subject to typical exclusions,
the policy insures (i) the officers and directors of the Company from any claim
arising out of an alleged wrongful act by the directors and officers of the
Company in their respective capacities, and (ii) the Company to the extent that
the Company has indemnified the directors and officers for such losses.

EXECUTIVE COMPENSATION AND EMPLOYMENT CONTRACTS

During the year ended December 31, 1996, the Company did not pay
compensation to its officers or directors. For the year ended December 31, 1996,
the Company's officers were paid salaries by Captec Financial which included
compensation for services rendered on behalf of the Company from funds received
by Captec Financial pursuant to the operation of the prior advisory agreement
between Advisors Michigan and Net Lease Michigan. In October 1997, Patrick L.
Beach and W. Ross Martin each entered into employment contracts with the
Company. Messrs. Beach's and Martin's agreements provide for initial three-year
terms that are extended automatically for an additional year at the end of each
full calendar year of the agreement, subject to the right of either party to
terminate the agreement at the end of the then applicable term by giving written
notice of termination on or before November 30 of any year. Mr. Beach will
receive an annual base salary of $150,000 and Mr. Martin will receive an annual
base salary of $100,000. Both Mr. Beach and Mr. Martin will be entitled to an
annual bonus on a sliding scale of from 10.0% to 100.0% of annual base salary
contingent, and based upon, the percentage increase of FFO per share in any
calendar year from the prior calendar year. For purposes of any bonuses payable
for 1997, the Compensation Committee of the Board of Directors will calculate
appropriate prorated amounts. Messrs. Beach and Martin also have been granted
10-year options to purchase 400,000 and 200,000 shares of Common Stock,
respectively, at the initial public offering price. The options will vest and
become exercisable in three equal annual installments on the first through third
anniversaries of the execution of the employment agreements. Each employment
agreement provides that upon the termination of the employee's employment by the
Company other than for "cause" (as defined in the employment agreements); by the
employee for certain actions of the Company, such as effecting a material
adverse change in the employee's responsibilities or the failure of the Company
to nominate Mr. Beach or Mr. Martin to the Board of Directors; or a "change in
control" of the Company (as defined in the employment agreements), the employee
will be entitled to all compensation and benefits payable under the employment
agreement for the remainder of its term.

COMPENSATION OF DIRECTORS

The Company will pay its Independent Directors an annual fee of $16,000 and
a fee of $1,000 for each directors' meeting and each committee meeting attended
and $250 for participation in each meeting by telephone. No other directors will
receive directors' fees. Each Independent Director named above has been granted
a 10-year option for 5,000 shares of Common Stock pursuant to the Long-Term
Incentive Plan, exercisable at the initial public offering price of the Common
Stock and subject to vesting fully within the first two years of issuance.

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DIRECTORS' DEFERRED COMPENSATION PLAN

The purpose of the Company's Directors' Deferred Compensation Plan (the
"Deferred Plan") is to assist in attracting and retaining persons of competence
and stature to serve as Independent Directors by giving them the option to defer
receipt of the fees payable to them by the Company for their services as
directors. The Deferred Plan is (i) applicable to all director's fees payable
with respect to periods commencing with the Company's fiscal quarter that begins
October 1, 1997; (ii) limited to those directors who receive fees for services
as a director and are not employed by the Company; and (iii) administered by
Company officers or directors appointed by the Board of Directors, who are not
eligible to participate in the Deferred Plan.

LONG-TERM INCENTIVE PLAN

The purpose of the Company's Long-Term Incentive Plan (the "Plan") is to
promote the long-term growth and profitability of the Company by enabling it to
attract, retain and reward key employees and directors of the Company and to
strengthen the mutuality of interest between such key employees and the
Company's stockholders. Grants of incentive or nonqualified share options,
restricted shares, deferred shares, share purchase rights, share appreciation
rights in tandem with options ("SARs"), other share-based awards or any
combination thereof, may be made under the Plan. Eligible employees of the
Company may participate in the Plan. The Compensation Committee will administer
the Plan, and the members of the Compensation Committee are not eligible to
participate in the Plan. The Company has reserved 400,000 shares of Common Stock
for issuance under the Plan. The share limitations, shares reserved and the
terms of outstanding awards will be adjusted, as the Compensation Committee
deems appropriate, in the event of a share dividend, split or other change in
the corporate structure of the Company affecting the shares.

Share Options and Tandem SARs. The exercise price of share options granted
under the Plan may not be less than the fair market value (as defined in the
Plan) of the shares on the date the option is granted. The Compensation
Committee may grant tandem SARs to any person granted an option under the Plan.
Each tandem SAR will represent the right to receive, in cash or shares as the
Compensation Committee may determine, a distribution in an amount equal to the
excess of the fair market value of the option shares (to which the SAR
corresponds) on the date of exercise over the exercise price for those shares.
Each tandem SAR expires at the same time as its corresponding option. The
exercise of an option will cause an immediate forfeiture of its corresponding
SAR, and the exercise of an SAR will cause an immediate forfeiture of its
corresponding option. The Plan provides that all options and tandem SARs will
vest on a change in control of the Company (as defined in the Plan).

Share Awards. The Compensation Committee may award shares of the Common
Stock under the Plan and may place restrictions on the transfer or defer the
date of receipt of those shares. Each award will specify any applicable
restrictions or deferral date, the duration of those restrictions and the time
at which the restrictions lapse. Participants will be required to deposit shares
with the Company during the period of any restrictions. The Compensation
Committee also may grant share purchase rights for which the purchase price may
not be less than the fair market value (as defined in the Plan) on the date of
grant, except that the purchase price may not be less than 85.0% of the fair
market value on the date of the grant if the grant is made in lieu of cash
compensation.

Other Share-Based Awards. The Compensation Committee may grant other awards
of shares and other awards that are valued or otherwise based on the Company's
Common Stock.

Miscellaneous. The Plan provides for vesting, exercise or forfeiture of
rights granted under the Plan on retirement, death, disability, termination of
employment or a change of control. The Board of Directors may modify, suspend or
terminate the Plan provided it does not impair the rights thereunder of any
participant. Under applicable law, the stockholders must approve any increase in
the maximum number of shares reserved for issuance under the Plan, any change in
the classes of employees eligible to participate in the Plan and any material
increase in the benefits accruing to participants. The Company also may, at any
time subsequent to completion of the Offering, register the 400,000 shares of
Common Stock reserved for issuance pursuant to the Plan creating additional
shares of Common Stock eligible to be sold in any public trading market which
may develop for the Common Stock. See "Risk Factors -- Shares Eligible for
Future Sale".

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CERTAIN TRANSACTIONS

Prior to the Offering, the Company engaged in numerous transactions with
Affiliates, including those set forth below.

In 1996 the Company acquired delinquent mortgage loans from Captec
Financial, an Affiliate, in anticipation of a restructuring pursuant to which
the Company received deeds in lieu of foreclosure and entered into net leases
with a new Lessee. At June 30, 1997, all but $788,479 of the delinquent mortgage
loans had been restructured as operating leases, and the balance is expected to
be similarly restructured in the near future. See "Business -- Investment in
Financial Instruments" and Notes 4 and 6 to Financial Statements.

In January 1997, the Company acquired two net leased real properties and
three equipment leases from Captec II for an aggregate purchase price of
approximately $2.4 million. See "Business -- Prior Performance of Captec
Financial".

At June 30, 1997, the Company had the Master Note with Captec Financial, an
Affiliate, collateralized in part by a $6.4 million senior interest in a
portfolio of loans under an assignment of contracts with Captec Financial, and
in part by a $3.3 million subordinate interest in a portfolio of loans owned by
Captec Funding, an Affiliate, under an assignment of contracts with Captec
Financial. The Master Note bears interest at the annual rate of 8.0% and is
payable on demand. The Company also holds a $2.0 million promissory note
collateralized by a subordinate class certificate issued by Captec Trust, an
Affiliate, which bears interest at an annual rate of 15.7%. See "Conflicts of
Interest" and Note 3 to Financial Statements.

The Company made a demand loan of $421,920 collateralized by a first
mortgage on a Blockbuster Video unit owned by the father-in-law of W. Ross
Martin, Executive Vice President, Chief Financial Officer and a director of the
Company. This note bears interest at a rate of 9.0% per annum. See Note 5 to
Financial Statements.

Prior to its merger, Net Lease Michigan had an agreement with Advisors
Michigan whereby Advisors Michigan managed the operations of Net Lease Michigan
and received fees of $600,000 and $250,000 in 1996 and 1995, respectively, which
it in turn paid to Affiliates. During 1995 and 1996, the Company also made
short-term demand notes to several Affiliates. At June 30, 1997, such loans
aggregated $5.2 million. The notes bear interest at 8.0% and are payable on
demand. See "Business -- Investment in Financial Instruments" and Note 11 to
Financial Statements.

Creed L. Ford, III, a director of the Company, is a prospective Lessee of
two of the Acquisition Properties.

In September 1997, the Company entered into the Advisory Agreement,
pursuant to which Captec Advisors, an Affiliate, will perform various services
for the Company, particularly with respect to restaurant properties, and will
receive fees and compensation for such services. See "Business -- The Advisor
and the Advisory Agreement" and "Conflicts of Interest -- Compensation of the
Advisor".

The Company has agreed, subsequent to the completion of the Offering, to
acquire the General Partnership Interests of Captec III and Captec IV from the
current general partners, which are wholly-owned subsidiaries of Captec
Financial, and Patrick L. Beach, the Company's Chairman, President and Chief
Executive Officer. The Company will acquire the General Partnership Interests
for $3.3 million in the aggregate, $315,000 of which will be paid to Mr. Beach
in cash, and the balance of which will be offset against amounts owed to the
Company by Affiliates. See "Risk Factors -- Exposure to Liabilities of
Affiliated Partnerships" and "Business -- The Affiliated Partnerships".

Upon the completion of the Offering, the Company will redeem 40,500 shares
of Preferred Stock from The Public Institution For Social Security, an
Affiliate, utilizing proceeds of the Offering and issue the Exchange Shares for
9,500 shares of Preferred Stock. The Company has agreed to register, at its
expense, these shares of Common Stock in the event of a subsequent public
offering of the Common Stock by the Company or upon demand by the owner of the
shares at any time subsequent to 180 days following the completion of the
Offering. See "Prospectus Summary -- Transactions with Affiliates and Conflicts
of Interest" and "Use of Proceeds".

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The Company believes that each of the foregoing transactions is fair to the
Company and on terms no less favorable to the Company than those available from
unrelated third parties.

Subsequent to the Offering, the Company will not make loans to Affiliates
and will enter into transactions with Affiliates only if the transaction has
been approved by a majority of the directors (including a majority of the
Independent Directors) not otherwise interested in such transactions as fair and
reasonable to the Company and on terms and conditions no less favorable to the
Company than those available from unaffiliated third parties. See "Conflicts of
Interest -- Certain Conflict Resolution Procedures".

PRINCIPAL STOCKHOLDERS

The following table sets forth, as of the date of this Prospectus and after
giving effect to the Offering, the redemption of the Preferred Stock and the
issuance of Exchange Shares for the unredeemed Preferred Stock, information
regarding the beneficial ownership of Common Stock by each person known by the
Company to be the beneficial owner of more than 5.0% of the outstanding Common
Stock, by each executive officer, director and proposed director of the Company,
and by all executive officers and directors of the Company as a group. To the
knowledge of the Company, each person named in the table has sole voting and
investment power with respect to all shares of Common Stock shown as
beneficially owned by such person. None of such stockholders is selling any
Common Stock in the Offering.

BENEFICIAL OWNERSHIP BENEFICIAL OWNERSHIP
PRIOR TO THE OFFERING AFTER TO THE OFFERING
NAME AND ADDRESS OF ---------------------- ----------------------
BENEFICIAL OWNER(1) SHARES PERCENTAGE SHARES PERCENTAGE
- -------------------------------------------------- ------- ---------- ------- ----------

Patrick L. Beach(2)............................... 460,266 47.0% 460,266 4.7%
W. Ross Martin(3)................................. 210,036 21.4 210,036 2.1
H. Reid Sherard................................... 33,086 3.4 33,086 0.3
Ronald Max(4)..................................... -- -- -- --
Richard J. Peters(5).............................. -- -- -- --
Creed L. Ford, III(5)............................. -- -- -- --
William H. Krul, II(5)............................ -- -- -- --
Lee C. Howley(5).................................. -- -- -- --
Captec Financial Group, Inc....................... 99,273 10.1 99,273 1.0
Michigan Corp..................................... 143,373 14.6 143,373 1.5
------- ----- ------- -----
All executive officers and directors as a group (8
persons)........................................ 703,388 71.8 703,388 7.1

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

(1) The address of each such person is 24 Frank Lloyd Wright Drive, Ann Arbor,
Michigan 48016.

(2) Excludes 400,000 shares of the Common Stock subject to options which are not
exercisable within 60 days.

(3) Excludes 200,000 shares of the Common Stock subject to options which are not
exercisable within 60 days.

(4) Excludes 50,000 shares of Common Stock subject to options which are not
exercisable within 60 days.

(5) Excludes 5,000 shares of Common Stock subject to options which are not
exercisable within 60 days.

CAPITAL STOCK OF THE COMPANY

GENERAL

The Certificate authorizes the issuance of up to 40,000,000 shares of
Common Stock of which 980,330 shares are issued and outstanding, and 10,000,000
shares of Preferred Stock, of which 50,000 shares are issued and outstanding and
none of which will be issued and outstanding upon completion of the Offering. In
addition, the Company will issue the Exchange Shares for 9,500 shares of
Preferred Stock upon the consummation of the Offering and has reserved up to
400,000 shares of Common Stock for issuance under the Plan and 600,000 shares of
Common Stock for issuance upon exercise of options to be granted to Messrs.
Beach and Martin pursuant to their employment agreements. Following the
completion of the Offering, 9,955,330 shares of Common Stock will

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be issued and outstanding (11,230,330 if the Underwriters' overallotment option
is exercised in full) and no shares of Preferred Stock will be issued and
outstanding.

There is no established trading market for the Common Stock. The Common
Stock has been approved for quotation on the Nasdaq National Market under the
symbol "CRRR".

Norwest Bank Minnesota, N.A. will act as transfer agent and registrar for
the Common Stock.

The following description of the Company's capital stock and of certain
provisions of the Certificate is a summary of, and is qualified in its entirety
by reference to, the Certificate, a copy of which is filed as an exhibit to the
Registration Statement of which this Prospectus is a part. See "Risk
Factors -- Anti-Takeover Effect of Limitation on Ownership of Common Stock" and
"Additional Information".

COMMON STOCK

Holders of the Common Stock are entitled to receive dividends, when, as and
if declared by the Board of Directors of the Company, out of funds legally
available therefor. The holders of Common Stock, upon any liquidation,
dissolution or winding-up of the Company, are entitled to share ratably in any
assets remaining after payment in full of all liabilities of the Company and all
preferences of the holders of any outstanding Preferred Stock. The shares of
Common Stock possess ordinary voting rights, each share entitling the holder
thereof to one vote. Holders of Common Stock do not have cumulative voting
rights in the election of directors and do not have preemptive rights. All of
the shares of the Common Stock now outstanding are, and the shares of the Common
Stock offered hereby when issued and sold to the Underwriters in the manner
described in this Prospectus will be, fully paid and nonassessable.

PREFERRED STOCK

The Board of Directors has the authority, without stockholder approval, to
issue up to 10,000,000 shares of Preferred Stock from time to time in one or
more series, to establish the number of shares of Preferred Stock to be included
in each such series and to fix the designations, powers, preferences and rights
of the Preferred Stock of each such series and the qualifications, limitations
or restrictions thereof. The issuance of Preferred Stock may have the effect of
delaying or preventing a change in control of the Company, could decrease the
amount of earnings and assets available for distribution to the holders of the
Common Stock, could adversely affect the rights and powers, including voting
rights, of the holders of the Common Stock and in certain circumstances, could
have the effect of decreasing the market price of the Common Stock. As of the
date of this Prospectus, there are 50,000 shares of Preferred Stock outstanding,
40,500 of which will be redeemed upon completion of the Offering utilizing a
substantial portion of the net proceeds of the Offering and 9,500 of which will
be exchanged for the Exchange Shares. Upon the completion of the Offering there
will be no Preferred Stock outstanding. The Company has not designated any
additional Preferred Stock and has no plans to issue any additional Preferred
Stock. See "Risk Factors -- Conflicts of Interest" and "Conflicts of Interest".

RESTRICTIONS ON TRANSFER

For the Company to qualify as a REIT under the Code, it must meet certain
requirements concerning the ownership of its outstanding shares. Not more than
50.0% in value of the Company's outstanding shares may be owned, directly or
indirectly, by five or fewer individuals (as defined in the Code to include
certain entities) during the last half of a taxable year (other than the first
year of the Company's existence) or during a proportionate part of a shorter
taxable year, and the Company must be owned beneficially by 100 or more persons
during at least 335 days of a taxable year (other than the first year) or during
a proportionate part of a shorter taxable year. See "Federal Income Tax
Considerations -- Requirements for Qualification as a REIT". Because the Company
expects to qualify as a REIT, the Certificate limits the acquisition of shares
of the Company's capital stock (the "Ownership Limit").

The Ownership Limit provides that, subject to certain exceptions set forth
in the Certificate, no person may own, or be deemed to own, by vote or value, by
virtue of the applicable attribution provisions of the Code, more than 9.8% of
the outstanding shares of the Company. The Board of Directors may, but is not
required to, waive

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the Ownership Limit if it determines that greater ownership will not jeopardize
the Company's status as a REIT. As a condition of waiver, the Board of Directors
may require opinions of counsel satisfactory to it and undertakings or
representations from the applicant with respect to preserving the REIT status of
the Company.

If any purported transfer of capital shares of the Company or any other
event would otherwise result in any person or entity violating the Ownership
Limit or would cause the Company to be owned beneficially by fewer than 100
persons, that transfer will be void and of no force or effect as to the number
of shares in excess of the Ownership Limit, and the purported transferee (the
"Prohibited Transferee") will acquire no right or interest (or, in the case of
any event other than a purported transfer, the person or entity holding record
title to shares in excess of the Ownership Limit (the "Prohibited Owner") will
cease to own any right or interest) in the shares in excess of the Ownership
Limit. In addition, if any purported transfer of shares of the Company or any
other event would cause the Company to become "closely held" under the Code or
otherwise to fail to qualify as a REIT under the Code, that transfer will be
void and of no force or effect as to the number of shares in excess of the
number that could have been transferred without that result, and the Prohibited
Transferee will acquire no right or interest (or, in the case of any event other
than a transfer, the Prohibited Owner will cease to own any right or interest)
in the excess shares. Also, if any purported transfer of shares of the Company
or any other event would otherwise cause the Company to own, or be deemed to own
by virtue of the applicable attribution provisions of the Code, 10.0% or more,
by vote or value, of the ownership interests in any Lessee or sublessee, that
transfer or event will be void and of no force or effect as to the number of
shares in excess of the number that could have been transferred or affected by
that event without that result, and the Prohibited Transferee will acquire no
right or interest (or, in the case of any event other than a transfer, the
Prohibited Owner will cease to own any right or interest) in the excess shares.

The Certificate further provides that notwithstanding the foregoing
restrictions, in the event of any transfer or other change which results in any
Prohibited Owner owing in excess of the Ownership Limit, the number of shares so
in excess shall be transferred automatically and without further action to a
trust, the beneficiary of which will be a qualified charitable organization
selected by the Company (the "Charitable Beneficiary"). The trustee of the
trust, who will be designated by the Company and be unaffiliated with the
Company and any Prohibited Owner, will be empowered to sell the shares-in-trust
to a qualified person or entity and to distribute to the applicable Prohibited
Transferee an amount equal to the lesser of the price paid by the Prohibited
Transferee for those excess shares or the sale proceeds received for those
shares by the trust. The trustee will be empowered to sell any shares-in-trust
resulting from any event other than a transfer, or from a transfer for no
consideration, to a qualified person or entity and distribute to the applicable
Prohibited Owner an amount equal to the lesser of the fair market value of those
excess shares on the date of the triggering event or the sale proceeds received
by the trust for those shares-in-trust. The proceeds, if any, in excess of the
amount owing to the Prohibited Owner shall be distributed to the Charitable
Beneficiary. For a 90-day period beginning on the date of a Prohibited Transfer,
the resulting shares-in-trust shall be deemed to be offered for sale to the
Company. Prior to a sale of any shares-in-trust by the trustee, the trustee will
be entitled to receive, in trust for the benefit of the Charitable Beneficiary,
all dividends and other distributions paid by the Company with respect to those
shares, and also will be entitled to exercise all voting rights with respect to
shares-in-trust. All certificates representing shares of the Company will bear a
legend referring to the restrictions described above.

The Ownership Limit may have the effect of precluding an acquisition of
control of the Company without approval of the Board of Directors. See "Risk
Factors -- Anti-Takeover Effect of Limitation on Ownership of Common Stock".

DELAWARE BUSINESS COMBINATION PROVISIONS

As a Delaware corporation, the Company is subject to Section 203 of the
Delaware General Corporation Law ("Section 203") which may have the effect of
significantly delaying a purchaser's ability to acquire the entire interest in
the Company if such acquisition is not approved by the Company's Board of
Directors. In general, Section 203 prevents an "Interested Stockholder" (defined
generally as a person with 15.0% or more of a corporation's outstanding voting
stock) from engaging in a "Business Combination" (defined below) with a Delaware
corporation for three years following the date such person became an Interested
Stockholder. For purposes of Section 203, the term "Business Combination" is
defined broadly to include mergers and certain

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other transactions with or caused by the Interested Stockholder, sales or other
dispositions to the Interested Stockholder (except proportionately with the
corporation's other stockholders) of assets of the corporation or a subsidiary
equal to 10.0% or more of the aggregate market value of the corporation's
consolidated assets or its outstanding stock; the issuance or transfer by the
corporation or a subsidiary of stock of the corporation or such subsidiary to
the Interested Stockholder (except for transfers in a conversion or exchange or
a pro-rata distribution or certain other transactions, none of which increase
the Interested Stockholder's proportionate ownership of any class or series of
the corporation's or such subsidiary's stock); or receipt by the Interested
Stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.

The three-year moratorium imposed on Business Combinations by Section 203
does not apply if: (a) prior to the date on which a stockholder becomes an
Interested Stockholder, the Board of Directors approves either the Business
Combination or the transaction which resulted in the person becoming an
Interested Stockholder; (b) the Interested Stockholder owns 85.0% of the
corporation's voting stock upon consummation of the transaction which made him
or her an Interested Stockholder (excluding from the 85.0% calculation shares
owned by directors who are also officers of the corporation and shares held by
employee stock plans which do not permit employees to decide confidentially
whether to accept a tender or exchange offer); or (c) on or after the date a
person becomes an Interested Stockholder, the Board of Directors approves the
Business Combination, and it is also approved at a stockholders meeting by
two-thirds of the voting stock not owned by the Interested Stockholder. The
restrictions described above do not apply to certain Business Combinations
proposed by an Interested Stockholder following the announcement or notification
of one of certain extraordinary transactions involving the corporation and a
person who had not been an Interested Stockholder during the previous three
years or who became an Interested Stockholder with the approval of a majority of
the corporation's directors.

SHARES ELIGIBLE FOR FUTURE SALE

Upon completion of the Offering the Company will have outstanding 9,955,330
shares of Common Stock (assuming no exercise of the Underwriters' over-allotment
option). All shares sold in the Offering (other than any shares which may be
acquired by an Affiliate) will be freely tradable in the public market without
restriction or further registration under the Securities Act.

The remaining 1,455,330 outstanding shares of Common Stock upon completion
of the Offering are "restricted securities" as that term is defined under Rule
144 and may be sold only pursuant to registration under the Securities Act or
pursuant to an exemption therefrom, such as that provided by Rule 144. In
general, under Rule 144, if one year has elapsed since the later of (i) the date
of acquisition of shares of Common Stock from the Company, or (ii) the date of
acquisition of shares of Common Stock from any Affiliate of the Company (as
defined in the Securities Act), the acquiror or subsequent holder is entitled to
sell within any three-month period a number of shares of Common Stock that does
not exceed the greater of 1.0% of the then-outstanding shares of Common Stock or
the average weekly trading volume of shares of Common Stock on all national
securities exchanges or reported through the consolidated transactions reporting
system during the four calendar weeks preceding the date on which notice of the
sale is filed with the Commission. Sales under Rule 144 also are subject to
certain restrictions on the manner of sales, notice requirements and the
availability of current public information about the Company. If two years have
elapsed since the date of acquisition of shares of Common Stock from the Company
or from any Affiliate of the Company, and the acquiror or subsequent holder
thereof is deemed not to have been an Affiliate of the Company at any time
during the 90 days preceding a sale, such person would be entitled to sell such
shares of Common Stock in the public market under Rule 144(k) without regard to
the volume limitations, manner of sale provisions, public information
requirements or notice requirements. Of the shares of Common Stock to be
outstanding immediately after the Offering up to 980,330 shares may be eligible
for immediate resale under Rule 144 subject to Rule 144's volume, manner of sale
and other restrictions and the Exchange Shares will be so eligible upon
satisfaction of such conditions and of a one year holding period. The Company
and its stockholders, officers and directors have agreed that they will not
offer, sell, contract to sell, announce their intention to sell, pledge or
otherwise dispose of, directly or indirectly, or file with the Commission a
registration statement under the Securities Act relating to any additional
shares of Common Stock or securities convertible, exchangeable into or
exercisable for any shares of Common Stock

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without the prior written consent of Credit Suisse First Boston Corporation for
a period of 180 days after the date of this Prospectus.

After the completion of the Offering, the Company may file a Registration
Statement on Form S-8 under the Securities Act to register all of the shares of
Common Stock reserved for issuance under the Plan and upon exercise of stock
options granted to Messrs. Beach and Martin. The Company also has agreed to
register the Exchange Shares in the event of a subsequent public offering of the
Common Stock by the Company or upon demand by the owner of the shares at any
time subsequent to 180 days following the completion of the Offering. After the
date of any such registrations, such shares when issued will be immediately
eligible for sale in the public market, provided that shares owned by Affiliates
of the Company (as defined in the Securities Act) which are not sold pursuant to
an effective registration statement, will be subject to the volume limitations,
manner of sale provisions, and public information and notice requirements of
Rule 144.

Prior to the Offering, there has been no public market for the Common
Stock. The effect, if any, that future market sales of Common Stock or the
availability of such Common Stock for sale will have on the market price of the
Common Stock prevailing from time to time cannot be predicted. Sales of
substantial amounts of Common Stock in the public market (or the perception that
such sales could occur) might adversely affect the market price for the Common
Stock.

FEDERAL INCOME TAX CONSIDERATIONS

The following discussion summarizes the federal income tax considerations
that materially affect a prospective stockholder who is a U.S. citizen or
resident (including individual retirement accounts). The discussion is general
in nature and not exhaustive of all possible tax considerations, nor does the
discussion give a detailed description of any state, local or foreign tax
considerations. The discussion does not address all aspects of federal income
tax law that may be relevant to a prospective stockholder of the Company in
light of his or her particular circumstances or to certain types of stockholders
(including, for example, insurance companies, financial institutions or
broker-dealers, tax-exempt entities and (except to the limited extent discussed
herein) foreign corporations, tax-exempt entities and persons who are not
citizens or residents of the United States) subject to special treatment under
the federal income tax laws.

THIS DISCUSSION IS NOT INTENDED AS A SUBSTITUTE FOR CAREFUL TAX PLANNING
AND EACH PROSPECTIVE STOCKHOLDER OF THE COMPANY IS ADVISED TO CONSULT WITH HIS
OR HER TAX ADVISOR REGARDING THE SPECIFIC FEDERAL, STATE AND LOCAL TAX
CONSEQUENCES OF THE PURCHASE, OWNERSHIP AND SALE OF THE COMPANY'S COMMON STOCK,
OF THE COMPANY'S ELECTION TO BE TAXED AS A REIT AND OF POTENTIAL CHANGES IN
APPLICABLE TAX LAWS.

GENERAL

The Company intends to elect to be taxed as a REIT for federal income tax
purposes, and expects that it will be organized and will operate in such a
manner so as to qualify for taxation as a REIT under Sections 856 through 860 of
the Code commencing with its taxable year ending December 31, 1997 and
thereafter. No assurance can be given, however, that the Company will operate in
a manner so as to qualify or remain qualified as a REIT.

Baker & Hostetler LLP, counsel to the Company ("Counsel"), has rendered its
opinion, subject to certain assumptions and qualifications and conditioned upon
certain factual representations by the Company, that commencing with its taxable
year ending December 31, 1997 (i) the Company will be organized in conformity
with the requirements for qualification as a REIT under the Code and that the
method of operation of the Company will permit the Company to continue to so
qualify for its current and future taxable years provided the Company meets and
continues to meet the asset composition, source of income, stockholder
diversification, distribution and other requirements of the Code necessary for
the Company to qualify as a REIT, and (ii) the discussion of matters of law
contained herein under the heading "Federal Income Tax Considerations" is
accurate in all material respects, and, subject to the qualification set forth
herein such discussion fairly summarizes the federal income tax considerations
that are likely to be material to a holder of Common Stock.

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Unlike a tax ruling, an opinion of counsel is not binding on the IRS, and no
assurance can be given that the IRS will not challenge the status of the Company
as a REIT for federal income tax purposes. With respect to Counsel's opinion
relating to the qualification of the Company as a REIT, it should be noted that
the Company's continued qualification as a REIT in current and future taxable
years will depend upon whether the Company continues to meet the various
qualification tests imposed under the Code (discussed in detail below). Counsel
will not review compliance with these tests on a periodic or continuing basis.
Accordingly, no assurance is given that the actual results of the Company's
operations for the current or future taxable years will satisfy such
requirements. See "Federal Income Tax Considerations -- Requirements for
Qualification as a REIT -- Failure to Qualify".

The opinions and discussion herein are based upon the Code as currently in
effect, applicable Treasury Regulations adopted thereunder, reported judicial
decisions, and IRS rulings, all as of the date hereof, and certain factual
representations and assumptions made by the Company concerning the organization
and proposed operation of the Company. There is no assurance, however, that the
legal authorities on which such opinions and this discussion are based will not
change (perhaps retroactively), that the Company's representations and factual
assumptions underlying this discussion will be accurate or that there will not
be a change in circumstances of the Company that would affect such opinions or
this discussion. Accordingly, there is no assurance that the IRS will not
challenge Counsel's opinions.

TAXATION OF THE COMPANY AS A REIT

If the Company qualifies for taxation as a REIT and distributes to its
stockholders at least 95.0% of its REIT taxable income, it generally will not be
subject to federal corporate income tax on the portion of its ordinary income or
capital gain that is timely distributed to stockholders. This treatment
substantially eliminates the "double taxation" (at the corporate and stockholder
levels) that generally results from investment in a corporation. If the Company
were to fail to qualify as a REIT, it would be taxed at rates applicable to
corporations on all of its income, whether or not distributed to its
stockholders. Even if the Company qualifies as a REIT, it may be subject to
federal income or excise tax as follows:

(i) The Company will be taxed at regular corporate rates on REIT
taxable income and net capital gains not distributed to its stockholders.
With respect to capital gains not distributed to stockholders, however, if
the Company makes a proper tax election (the "Deemed Distribution
Election") and pays the tax due within 30 days after the close of the
taxable year, (i) the stockholder will include in its taxable income, as
long-term capital gains, the amount which would have been included had the
income been distributed, and (ii) the stockholder will be deemed to have
paid the tax on such amount and will be allowed a credit or refund as the
case may be, for the tax so deemed to have been paid by it.

(ii) Under certain circumstances, the Company may be subject to the
"alternative minimum tax" on its tax preference items, if any;

(iii) If the Company has net income from prohibited transactions
(which are, in general, certain sales or other dispositions of property,
other than foreclosure property, held primarily for sale to customers in
the ordinary course of business) such income will be subject to a 100.0%
tax;

(iv) If the Company should fail to satisfy the 75.0% gross income test
(the "75.0% Test") or the 95.0% gross income test (the "95.0% Test") (each
as discussed below), but has maintained its qualification as a REIT because
certain other requirements have been met, it will be subject to a 100.0%
tax on the income attributable to the greater of the amount by which the
Company fails the 75.0% Test or the 95.0% Test, multiplied by a fraction
intended to reflect the Company's profitability;

(v) If the Company fails to distribute during each calendar year at
least the sum of (A) 85.0% of its REIT ordinary income for such year, (B)
95.0% of its REIT capital gain net income for such year (except to the
extent the Deemed Distribution Election has been made) and (C) any
undistributed taxable income from prior years, it would be subject to a
4.0% excise tax on the excess of such required distribution over the
amounts actually distributed;

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(vi) If the Company has (A) net income from the sale or other
disposition of "foreclosure property" (which is, in general, property
acquired by the Company by foreclosure or otherwise on default on a loan
secured by the property) which is held primarily for sale to customers in
the ordinary course of business or (B) other nonqualifying income from
foreclosure property, it will be subject to tax on such income at the
highest corporate rate; and

(vii) If the Company acquires assets from a C corporation (generally a
corporation subject to tax at the corporate level) in a transaction in
which the Company's bases of the acquired assets are determined by
reference to the bases of the assets (or any other property) of the C
corporation (as it did from the merged companies), and the Company
recognizes net gain on the disposition of such assets in any taxable year
during the 10-year period (the "Restriction Period") beginning on the date
on which such assets were acquired by the Company then, pursuant to IRS
guidelines, and assuming the Company makes an election pursuant to IRS
Notice 88-19, the excess of the fair market value of such property at the
beginning of the applicable Restriction Period over the Company's adjusted
basis in such property at the beginning of the Restriction Period will be
subject to a tax at the highest regular corporate rate.

REQUIREMENTS FOR QUALIFICATION AS A REIT

General

The Code defines a REIT as a corporation, trust or association which:

(i) is managed by one or more trustees or directors;

(ii) the beneficial ownership of which is evidenced by transferable
shares or by transferable certificates of beneficial interest;

(iii) would be taxable as a domestic corporation but for Sections 856
through 860 of the Code;

(iv) is neither a financial institution nor an insurance company
subject to certain provisions of the Code;

(v) has the calendar year as its taxable year;

(vi) the beneficial ownership of which is held by 100 or more persons;

(vii) during the last half of each taxable year not more than 50.0% in
value of the outstanding shares of which is owned, directly or indirectly
(applying certain attribution rules), by five or fewer individuals (as
defined in the Code to include certain exempt entities);

(viii) makes an election to be a REIT (or made such an election in a
previous taxable year that is still valid) and satisfies all relevant
filing and other administrative requirements that must be met in order to
maintain REIT status; and

(ix) meets certain income and asset tests, described below.

Conditions (i) through (v), inclusive, must be met during the entire
taxable year and condition (vi) must be met during at least 335 days of a
taxable year of 12 months, or during an equally proportionate part of a taxable
year of less than 12 months. However, conditions (vi) and (vii) will not apply
until after the first taxable year for which an election is made to be taxed as
a REIT. The Company's taxable year will be the calendar year. Following the
consummation of the Offering, the Company will have satisfied the share
ownership requirements set forth in (vi) and (vii) above (respectively, the "100
Stockholder Requirement" and "Five or Fewer Requirement"). In order to assist
the Company in complying with the share ownership requirements, the Company has
placed certain restrictions on the transfer of its Common Stock to prevent
further concentration of share ownership. See "Capital Stock of the
Company -- Restrictions on Transfer". Moreover, to evidence compliance with
these requirements, the Company must maintain records which disclose the actual
ownership of its outstanding Common Stock. In fulfilling its obligation to
maintain these records, the Company must, and will, demand written statements
each year from the record holders of designated percentages of its Common Stock
disclosing the actual owners of such Common Stock. A list of those persons
failing or refusing to comply with

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such demand must be maintained as a part of the Company's records. A stockholder
failing or refusing to comply with the Company's written demand must submit with
his or her tax return a similar statement and certain other information. If the
Company (i) complies with all of these requirements designed to ascertain the
actual owners of the Company's Common Stock, and (ii) does not know, or through
the exercise of reasonable diligence would not have known, of the Company's
failure to meet the Five or Fewer Requirement, then the Company will be treated
as having met such requirement for that taxable year.

Asset Tests

In order for the Company to maintain its qualification as a REIT, at the
close of each quarter of its taxable year, it must satisfy three tests relating
to the nature of its assets:

(i) At least 75.0% of the value of the Company's total assets must be
represented by any combination of interests in real property, interests in
mortgages on real property, shares in other REITs, cash, cash items and
certain government securities;

(ii) Not more than 25.0% of the Company's total assets may be
represented by securities other than those in the 75.0% asset class; and

(iii) Of the investments included in the 25.0% asset class, the value
of any one issuer's securities owned by the Company may not exceed 5.0% of
the value of the Company's total assets, and the Company may not own more
than 10.0% of any issuer's outstanding voting securities (excluding
securities of a qualified REIT subsidiary (as defined in the Code) or
another REIT).

Where the Company owns an interest in a partnership, it will be treated for
purposes of the asset tests as owning a proportionate part of the partnership's
assets. Except for certain equipment owned and leased by the Affiliated
Partnerships, the Company's investment in the properties through its interest in
the Affiliated Partnerships are expected to constitute qualified assets for
purposes of the 75.0% asset test. Notwithstanding the Affiliated Partnership's
ownership of such equipment, the Company has performed financial analyses to
confirm that more than 75.0% of the value of its assets will be real estate
assets.

Further, the Company does not expect to hold any securities representing
more than 10.0% of any issuer's voting securities, nor does the Company expect
to hold securities of any one issuer in an amount exceeding 5.0% of the value of
the Company's gross assets.

If the Company inadvertently fails one or more of the asset tests at the
end of a calendar quarter, such a failure would not cause it to lose its REIT
status, provided that (i) it satisfied all of the asset tests at the close of a
preceding calendar quarter, and (ii) the discrepancy between the values of the
Company's assets and the standards imposed by the asset tests either did not
exist immediately after the acquisition of any particular asset or was not
wholly or partly caused by such an acquisition. If the condition described in
clause (ii) of the preceding sentence was not satisfied, the Company could still
avoid disqualification by eliminating any discrepancy within 30 days after the
close of the calendar quarter in which it arose.

Income Tests

In order for the Company to maintain its qualification as a REIT, it must
satisfy two percentage tests relating to the source of its gross income in each
taxable year. For purposes of these tests, where the Company invests in a
partnership, the Company will be treated as receiving its proportionate share of
the gross income of the partnership, and such gross income will retain the same
character with the Company as it had with the partnership.

(i) The 75.0% Test. At least 75.0% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from specified real estate sources, including "rents from real
property" and interest and certain other income earned from mortgages on real
property, gain from the sale of real property or mortgages (other than in
prohibited transactions) or income from qualified types of temporary
investments.

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(ii) The 95.0% Test. At least 95.0% of the Company's gross income
(excluding gross income from prohibited transactions) for each taxable year must
be derived from the same items which qualify under the 75.0% Test or from
dividends, interest and gain from the sale or disposition of stock or
securities, or from any combination of the foregoing.

Rents received by the Company will qualify as "rents from real property"
for purposes of the 75.0% Test and the 95.0% Test if the following requirements
are met:

(i) The amount of rent received must generally not be based in whole
or in part on the income or profits derived by any person from such
property. Amounts received or accrued generally will not be excluded from
the term "rents from real property" solely by reason of being based on a
fixed percentage or percentages of receipts or sales, or of being based on
the net income or profits of the tenant if (a) the tenant derives
substantially all of its income with respect to such property from the
leasing or subleasing of substantially all of such property and (b) such
tenant receives from subtenants only amounts which would be treated as
rents from real property if received directly by the Company;

(ii) Rent attributable to personal property leased in connection with
a lease of real property will qualify as "rents from real property" unless
such rent is greater than 15.0% of the total rent received under the lease,
in which case none of the rent qualifies (the "15.0% Test"). The rent
attributable to such personal property is the amount that bears the same
ratio to total rent for the taxable year as the average of the adjusted
bases of such personal property at the beginning and at the end of the
taxable year bears to the average of the aggregate adjusted bases of both
the real and personal property of a lease at the beginning and at the end
of such taxable year (the "Adjusted Basis Ratio"). The Company must
generally apply the 15.0% Test to each Lease separately. The Company has
reviewed these requirements and has represented that rents attributable to
personal property will not exceed 15.0% of the total rents received under
any the Leases.

(iii) Rents must not be received from a tenant in which the Company or
a direct or indirect owner of 10.0% or more of the Company owns directly or
constructively a 10.0% or greater interest in the assets or net profits of
such tenant (a "Related Party Tenant"). However, a REIT and a Tenant will
not be related (and, therefore, rents paid by the tenant to the REIT will
be qualifying rents) if (i)(a) the REIT's shares are owned by a partnership
and (b) a partner owning (directly or indirectly) less than a 25.0%
interest in that partnership also owns an interest in the tenant, or (ii)
where owners of the REIT and owners of the tenant are partners in a
partnership and neither the owners of the REIT nor the owners of the tenant
are directly and indirectly 25.0% or greater partners in the partnership;
and

(iv) The Company must not operate or manage its property or furnish or
render directly services to its tenants unless such services are of a type
that a tax-exempt organization can provide its tenants without causing its
rental income to be unrelated business taxable income under the Code
("Qualifying Services"). If such services are not Qualifying Services, such
services must be rendered by an "independent contractor" that is adequately
compensated and from whom the Company derives no income. Receipts for
services furnished (whether or not rendered by an independent contractor)
that are not customarily provided to tenants of properties of a similar
class in the geographic market in which the Company's property is located
("Noncustomary Services") will not qualify as rents from real property.
However, the Company may provide non-Qualifying Services and Noncustomary
Services in an amount (not valued at less than 150.0% of the Company's
direct cost for the services) that does not exceed 1.0% of the gross income
from the property for which the services are provided (the "De Minimis
Service Amount"). Although the Company does provide certain management
services, the Company has represented to Counsel that, except to the extent
of certain services the Company will perform for the Affiliated
Partnerships, these services are usual and customary management services
provided by landlords in the geographic areas in which the Company owns
property, and that such services are not primarily for the convenience of
its tenants. To the extent the provision of services would cause the
Company no longer to qualify as a REIT, the Company has represented that it
will hire independent contractors, from which the Company derives no
income, to perform such services.

If the sum of the income realized by the Company that does not satisfy the
requirements of the 75.0% Test and the 95.0% Test (collectively, "Non-Qualifying
Income"), exceeds 5.0% of the Company's gross income for

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any taxable year, the Company's status as a REIT would be jeopardized. The
Company has recognized that it will have non-Qualifying Income from a number of
sources including, but not limited to, the following:

1. Income from services performed for the Affiliated Partnerships;

2. Income allocation from the Company's general partner interest in the
Affiliated Partnerships attributable to equipment leased by such
partnerships;

3. Income from certain equipment and furniture and fixture leases;

4. Rental income from Related Party Tenants; and

5. The proportionate share of the Company's income from its investment in a
REMIC to the extent such income is not derived from the REMIC's
investment in real estate assets.

Notwithstanding the foregoing, the Company has performed financial analysis
with regard to this non-Qualifying Income and has represented that the amount of
its Non-Qualifying Income will not exceed 5.0% of the Company's annual gross
income for any taxable year. There is no guarantee, however, that the 75.0% Test
and the 95.0% Test will be met.

It is possible that, from time to time, the Company will enter into hedging
transactions with respect to one or more of its assets or liabilities. Any such
hedging transactions could take a variety of forms. If the Company enters into
any contract designed to hedge any indebtedness incurred or to be incurred to
acquire or carry real estate assets, any periodic income or gain from the
disposition of such contract should be qualifying income for purposes of the
95.0% Test, but not for the 75.0% Test. The Company intends to structure any
hedging transactions in a manner that does not jeopardize its status as a REIT.

If the Company fails to satisfy one or both of the 75.0% Test or the 95.0%
Test for any taxable year, it may still qualify as a REIT in such year if (i) it
attaches a schedule of the source and nature of each item of its gross income to
its federal income tax return for such year; (ii) the inclusion of any incorrect
information in its return was not due to fraud with intent to evade tax; and
(iii) the Company's failure to meet such tests is due to reasonable cause and
not due to willful neglect. It is not possible, however, to state whether in all
circumstances the Company would be entitled to the benefit of these relief
provisions. Even if these relief provisions apply, the Company will still be
subject to a tax imposed with respect to the excess net income. See "-- Taxation
of the Company as a REIT".

Characterization of Property Leases

The Company currently leases the Existing Properties pursuant to leases of
the type described in "Description of Properties and Property Leases". The
Company intends to acquire additional properties, including the Acquisition
Properties, and has represented that it will consult with counsel and lease them
on terms substantially identical to the terms described in "Description of
Properties and Leases". The ability of the Company to claim certain tax benefits
associated with ownership of the properties, such as depreciation, depends on a
determination that the lease transactions engaged in by the Company are true
leases (under which the Company is the owner of the leased property for federal
income tax purposes), rather than a conditional sale of the property or a
financing transaction. A determination by the IRS that the Company is not the
owner of the properties for federal income tax purposes may have adverse
consequences to the Company, such as the denying of the Company's depreciation
deductions. A denial of the Company's depreciation deductions could result in a
determination that the Company's distributions to stockholders were insufficient
to satisfy the 95.0% distribution requirement for qualification as a REIT.
However, as discussed above, if the Company has sufficient cash, it may be able
to remedy any past failure to satisfy the distribution requirements by paying a
"deficiency dividend" (plus a penalty and interest). See "-- Annual Distribution
Requirements", below. Furthermore, if the leases are recharacterized as service
contracts, partnership agreements or some other form of arrangement, the rents
likely would be disqualified as "rents from real property." However, in the
event that the Company were determined not to be the owner of a particular
property, the income that the Company would receive pursuant to the
recharacterized lease likely would constitute interest and qualify under the
95.0% Test and 75.0% Test by reason of being interest on an obligation secured
by a mortgage on an interest in real property, because the legal

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ownership structure of such property will have the effect of making the building
serve as collateral for the debt obligation.

The characterization of transactions as leases, conditional sales or
financings has been addressed in numerous cases. The courts have not identified
any one factor as being determinative of whether the lessor or the lessee of
property is to be treated as the owner, and courts have reached different
conclusions even where characteristics of two lease transactions were
substantially similar. Judicial decisions and pronouncements of the IRS with
respect to the characterization of transactions as either leases, conditional
sales or financing transactions have made clear that the characterization of
leases for tax purposes is a question which must be decided on the basis of a
weighing of many factors.

For example, a transaction generally will be treated as a lease and the
lessor will be treated as the owner of the property for federal income tax
purposes and will be entitled to claim depreciation and other tax benefits
associated with such ownership if the following conditions exist:

1. The lessor owns an equity investment at least equal to 20.0% of the
cost of both the building (or buildings, if there is more than one
building) and the underlying land with respect to a property, such equity
investment remains at risk throughout the lease term, and the lessor's
commitment to make its equity investment and continue with the transaction
is unconditional at the time the lease commences;

2. The lessor and lessee intend for their relationship to be that of
lessor and lessee and such relationship is documented by lease agreements;

3. The lessor bears the risk of loss in value of the building or
buildings and the underlying land with respect to a property;

4. The lessor benefits from any appreciation in value of the building
or buildings and the underlying land with respect to a property;

5. The lessee is liable for repairs and to return the property in
reasonably good condition;

6. Insurance proceeds will be used to restore the property and, to the
extent not so used, will belong to the lessor;

7. Any lessee purchase option is exercisable only at an amount equal
to the then fair market value of the leased property;

8. The lease term is less than 30 years, excluding renewal options
exercisable at fair market value;

9. The property is reasonably expected to have, at the end of its
lease term (including all renewal periods), a fair market value of at least
20% of the lessor's cost;

10. The remaining useful life of a property, at the end of its lease
term (including all renewal periods), will be at least 20% of the
property's useful life at the beginning of its lease term;

11. The lessee has the right to exclusive possession and use and quiet
enjoyment of a property during the term of the lease;

12. The lessee benefits from any savings in the costs of operating a
property during the lease term;

13. The lessee stands to incur substantial losses (or reap substantial
gains) depending on how successfully it operates a property;

14. Any lessee renewal option will provide for rents equal to the then
fair market rental value;

15. The rent is set at fair market rental value and the lessor expects
to receive a profit from the lease transaction exclusive of the benefits
derived from tax attributes associated with the lease or the leased
property;

16. No lessee (or person related to a lessee) will loan the lessor any
funds, guarantee any lessor debt, or have any investment interest in the
cost of the leased property.

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While certain characteristics of the Leases suggest the Company might not
be the owner of the properties, such as the fact that most of such leases are
triple-net leases, a substantial number of other characteristics indicate the
bona fide nature of such leases and that the Company is the owner of the
Existing Properties. For example, under the types of leases described in
"Description of Properties and Leases," the Company will bear the risk of
substantial loss in the value of the Existing Properties because the Company
acquired an interest in the Existing Properties with an equity investment,
rather than with nonrecourse indebtedness. Further, the Company, rather than the
Lessee, will benefit from any appreciation in the Existing Properties, since the
Company has the right at any time to sell or transfer its properties, subject to
the tenant's right to purchase the property at a price intended to be not less
than the property's fair market value.

Other factors that are consistent with the ownership of the Existing
Properties by the Company are (i) the Company and the lessees intend for their
relationship to be that of a lessor and lessee and such relationship is
documented by lease agreements; (ii) the lessees have the right to exclusive
possession and use and quiet enjoyment of the Existing Properties during the
term of the Leases; (iii) the lessee bears the cost of, and is responsible for,
day-to-day maintenance and repair of the Existing Properties (other than the
case of "double-net" leases, where the Company bears the cost of maintaining
exterior walls and/or roof of the Existing Property) and dictates how the
Existing Properties are operated, maintained and improved; (iv) the tenants are
generally liable for repairs and to return the Existing Properties in reasonably
good condition; (v) casualty insurance proceeds generally are to be used to
restore the Existing Properties and, to the extent not so used, belong to the
Company; (vi) the tenants agree to subordinate their interest in the Existing
Properties to the lien of any first mortgage upon delivery of a nondisturbance
agreement and agree to attorn to the purchaser upon any foreclosure sale; (vii)
the tenants may not assign or sublease without the consent of the Company; and
(viii) based on the Company's representation that the Existing Properties and
any Acquisition Properties can reasonably be expected to have at the end of
their lease terms (generally a maximum of 30 to 35 years) a fair market value of
at least 20.0% of the Company's cost and a remaining useful life of at least
20.0% of their useful lives at the beginning of the leases (and that no lessee
will be permitted to purchase a property for an amount intended to be less than
the property's fair market value at such time), the Company has not relinquished
the Existing Properties to the tenants for their entire useful lives, but has
retained a significant residual interest in them. Moreover, the Company will not
be primarily dependent upon tax benefits in order to realize a reasonable return
on its investments.

Concerning the Existing Properties for which the Company owns the buildings
and the underlying land, on the basis of the foregoing, assuming (i) the Company
leases the Existing Properties on substantially the same terms and conditions
described in "Description of Properties and Leases", and (ii) as is represented
by the Company, the residual value of the Existing Properties remaining after
the end of their lease terms (including all renewal periods) may reasonably be
expected to be at least 20.0% of the Company's cost of such properties, and the
remaining useful lives of the Existing Properties after the end of their lease
terms (including all renewal periods) may reasonably be expected to be at least
20.0% of the Existing Properties' useful lives at the beginning of their lease
terms, it is the opinion of Counsel that the Company will be treated as the
owner of the Existing Properties for federal income tax purposes and the Company
therefore will be entitled to claim depreciation and other tax benefits
associated with such ownership and may include rents from such leases as "rents
from real property" for purposes of the 75.0% Test and the 95.0% Test. In the
case of leases with respect to which the Company does not own the underlying
land, including, without limitation, equipment leases, and furniture and
fixtures leases and any leases not yet in place, Counsel cannot opine that such
transactions will be characterized as leases. As described above, the foregoing
conclusions and Counsel's opinion are based upon an analysis of all the facts
and circumstances and upon rulings and judicial decisions involving situations
that are considered to be analogous, as well as representations by the Company
and assumptions that are described above and set out in Counsel's opinion.
Opinions of counsel are not binding upon the IRS or a court. Accordingly, there
is no assurance that the IRS will not assert successfully a contrary position
and, therefore, prevent the Company from qualifying for taxation as a REIT.

The law governing the characterization of transactions as leases is
complicated and is in a state of change. Furthermore, for federal income tax
purposes, lease characterization is made on a property-by-property basis, based
on an analysis of each particular location including, among other factors, fair
rental value of the particular

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property and, in the case of any lease involving a lessee purchase option, the
fair market value of the property at the time the option is exercisable. There
are no controlling Treasury Regulations, published rulings, or judicial
decisions involving leases with terms substantially the same as the Leases that
discuss whether such leases constitute true leases for federal income tax
purposes. The foregoing conclusions with respect to the relationship between the
Company and the Lessees are based upon all of the facts and circumstances and
upon rulings and judicial decisions involving situations that are considered to
be analogous. There is no assurance that the IRS will not successfully assert a
contrary position. If the Leases are recharacterized as service contracts or
partnership agreements, rather than leases, or if payments under any lease or
sublease are based on income or profits of any tenant or sublessee, part or all
of the payments that the Company receives from the Lessees may not be considered
rent or may not otherwise satisfy the various requirements for qualification as
"rents from real property". In that case, the Company likely would not be able
to satisfy either the 75.0% Test or the 95.0% Test and, as a result, would lose
its REIT status. See "-- Requirements for Qualification as a REIT -- Income
Tests".

In summary, if the rents do not qualify as "rents from real property"
because (i) the percentage rent is based on income or profits of the Lessee (or
if any Lessee receives payment from a sublessee based on income or profits),
(ii) the Company exceeds the Tenant Ownership Limitation, (iii) the Company
furnishes more than the De Minimis Service Amount of non-Qualifying Services to
the Lessees of the properties other than through a qualifying independent
contractor (or furnishes more than the De Minimis Service Amount of
Non-Customary Services (whether or not through an independent contractor) unless
separately charged for by the independent contractor), or (iv) for some other
reason, the Company likely would lose its REIT status because it would be unable
to satisfy either the 75.0% Test or the 95.0% Test. See "-- Requirements for
Qualification as a REIT -- Income Tests".

Annual Distribution Requirements

In order to qualify as a REIT, the Company is required to distribute
dividends (other than capital gain dividends) to its stockholders in an amount
at least equal to (A) the sum of (i) 95.0% of the Company's "REIT taxable
income" (computed without regard to the dividends paid deduction and the REITs
net capital gain) and (ii) 95.0% of the net income (after tax), if any, from
foreclosure property, minus (B) the sum of certain items of noncash income. In
addition, if the Company disposes of any asset during its Restriction Period,
the Company will be required to distribute at least 95.0% of the built-in gain
(after tax), if any, recognized on the disposition of such asset. Such
distributions must be paid in the taxable year to which they relate, or in the
following taxable year if declared before the Company timely files its tax
return for such year and if paid on or before the first regular dividend payment
after such declaration. To the extent that the Company does not distribute all
of its net capital gain (or make the Deemed Distribution Election) or
distributes at least 95.0%, but less than 100.0%, of its "REIT taxable income,"
as adjusted, it will be subject to tax on the undistributed amount at regular
corporate tax rates. Moreover, if the Company should fail to distribute during
each calendar year at least the sum of (i) 85.0% of its REIT ordinary income for
such year, (ii) 95.0% of its REIT net capital gain income for such year (except
to the extent the Deemed Distribution Election is made) and (iii) any
undistributed taxable income from prior periods, the Company would be subject to
a 4.0% excise tax on the excess of such required distribution over the amounts
actually distributed.

The Company intends to make timely distributions sufficient to satisfy the
annual distribution requirements. From time to time, the Company may not have
sufficient cash or other liquid assets to meet the 95.0% distribution
requirement due primarily to the expenditure of cash for nondeductible expenses
such as principal amortization or capital expenditures. In the event that such
timing differences occur, the Company may find it necessary to borrow or
liquidate some of its investments in order to meet the annual distribution
requirement or attempt to declare a consent dividend, which is a hypothetical
distribution to holders of shares of Common Stock out of the earnings and
profits of the Company. The effect of such a consent dividend (which, in
conjunction with dividends actually paid, must not be preferential to those
holders who agree to such treatment) would be that such holders would be treated
for federal income tax purposes as if they had received such amount in cash and
they then had immediately contributed such amount back to the Company as
additional paid-in capital. This would result in taxable income to those holders
without the receipt of any actual cash distribution but would also increase
their tax basis in their shares of Common Stock by the amount of the taxable
income recognized. In order to avoid any

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problem with the 95.0% distribution requirement, the Company will closely
monitor the relationship between its REIT taxable income and cash flow and, if
necessary, will borrow funds in order to satisfy the distribution requirements.

If the Company fails to satisfy the 95.0% distribution requirement as a
result of an adjustment to the Company's tax return by the IRS, the Company may
be permitted to remedy such a failure by paying a "deficiency dividend" (plus
applicable interest and penalties) within a specified time.

Failure to Qualify

If the Company fails to qualify for taxation as a REIT in any taxable year
and the relief provisions do not apply, the Company will be subject to tax
(including any applicable corporate alternative minimum tax) on its taxable
income at regular corporate rates. Distributions to stockholders in any year in
which the Company fails to qualify will not be deductible by the Company, nor
will they be required to be made. In such event, to the extent of current and
accumulated earnings and profits, all distributions to stockholders will be
taxable to them as ordinary income, and, subject to certain limitations of the
Code, corporate distributees may be eligible for the dividends received
deduction. Unless entitled to relief under specific statutory provisions, the
Company also will be ineligible for qualification as a REIT for the four taxable
years following the year during which qualification was lost. It is not possible
to state whether in all circumstances the Company would be entitled to such
statutory relief.

OTHER TAX CONSIDERATIONS

Taxation of Taxable Domestic Stockholders

Provided the Company qualifies as a REIT, distributions made to the
Company's taxable stockholders out of current or accumulated earnings and
profits (and not designated as capital gain dividends) will be taken into
account by such stockholders as ordinary income. Domestic stockholders generally
are stockholders who are (i) citizens or residents of the United States; (ii)
corporations, partnerships or other entities created in, or organized under, the
laws of the United States or any political subdivision thereof; or (iii) estates
or trusts the income of which is subject to United States federal income
taxation regardless of its source. Corporate stockholders will not be entitled
to the dividends received deduction. Any dividend declared by the Company in
October, November or December of any year payable to a stockholder of record on
a specific date in any such month shall be treated as both paid by the Company
and received by the stockholder on December 31 of such year, provided that the
dividend is actually paid by the Company during January of the following
calendar year.

Distributions that are designated as capital gain dividends will be taxed
as long-term capital gains (to the extent they do not exceed the Company's
actual net capital gain for the taxable year) without regard to the period for
which the stockholder has held its shares. In addition, to the extent the
Company makes a Deemed Distribution Election, stockholders will be required to
include, in calculating their long-term capital gains for the taxable year, such
amount as the Company designates in respect of each stockholder's Common Stock
in a written notice to the stockholder mailed within 60 days of the close of the
Company's taxable year (or mailed with its annual report for the year). However,
the Company must pay tax on these capital gains within 30 days of the close of
the Company's taxable year, and each stockholder will be deemed to have paid the
portion of such tax imposed on the income that stockholder was required to
include in computing long-term capital gains and shall be entitled to a credit
or refund, as the case may be, for the tax so deemed to have been paid. As a
result, the adjusted basis of each stockholders's Common Stock will be
simultaneously increased by the amount of such includible gains, and decreased
by the amount of tax deemed paid by the stockholder on such gains.
Notwithstanding any of the foregoing, corporate stockholders may be required to
treat up to 20.0% of certain capital gain dividends as ordinary income.

Distributions in excess of current and accumulated earnings and profits
will not be taxable to a stockholder to the extent that they do not exceed the
adjusted basis of the stockholder's Common Stock, but rather will reduce the
adjusted basis of such shares. To the extent that such distributions exceed the
adjusted basis of a stockholder's Common Stock, they will be included in income
as long-term capital gain assuming the shares are a capital asset of the
stockholder and have been held for more than one year.

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Stockholders may not include in their individual income tax returns any net
operating losses or capital losses of the Company. In general, a stockholder
will realize capital gain or loss on the disposition of Common Stock equal to
the difference between (a) the sales price for such shares and (b) the adjusted
tax basis of such shares. Gain or loss realized upon the sale or exchange of
Common Stock by a stockholder who has held such Common Stock for more than one
year (after applying certain holding period rules) will be treated as long-term
gain or loss, respectively, and otherwise will be treated as short-term capital
gain or loss. Under tax legislation passed in August 1997, capital gains rates
applicable to individuals were reduced to 20.0% for assets held longer than
eighteen months. However, losses incurred upon a sale or exchange of Common
Stock by a stockholder who has held such shares for six months or less (after
applying certain holding period rules) will be deemed a long-term capital loss
to the extent of any capital gain dividends received by the selling stockholder
with respect to such Common Stock.

Distributions from the Company and gain from the disposition of shares will
not be treated as passive activity income. Distributions from the Company (to
the extent they do not constitute a return of capital) will generally be treated
as investment income for purposes of the investment interest limitation. Gain
from the disposition of shares and capital gain dividends will not be treated as
investment income unless the taxpayer elects to have the gain taxed at ordinary
income rates.

Backup Withholding

The Company will report to its domestic stockholders and the IRS the amount
of dividends paid during each calendar year, and the amount of tax withheld, if
any, with respect thereto. Under the backup withholding rules, a stockholder may
be subject to backup withholding at the rate of 31.0% with respect to dividends
paid unless such stockholder (a) is a corporation or comes within certain other
exempt categories and, when required, demonstrates this fact, or (b) provides a
taxpayer identification number, certifies as to no loss of exemption from backup
withholding and otherwise complies with applicable requirements of the backup
withholding rules. A stockholder who does not provide the Company with its
correct taxpayer identification number may also be subject to penalties imposed
by the IRS. Any amount paid as backup withholding will be creditable against the
stockholder's income tax liability. In addition, the Company may be required to
withhold a portion of capital gain distributions made to any stockholders who
fail to certify their nonforeign status to the Company.

Taxation of Tax-Exempt Stockholders

Tax-exempt entities, including qualified employee pension and
profit-sharing trusts, individual retirement accounts and certain funded welfare
plan arrangements ("Exempt Organizations"), generally are exempt from federal
income taxation. However, they are subject to taxation on their unrelated
business taxable income ("UBTI"). While many investments in real estate generate
UBTI, the IRS has issued a published ruling that dividend distributions by a
REIT to an exempt employee pension trust do not constitute UBTI, provided that
the shares of the REIT are not otherwise used in an unrelated trade or business
of the exempt employee pension trust. Based on that ruling and on the intention
of the Company to invest its assets in a manner that will avoid the recognition
of UBTI by the Company, amounts distributed by the Company to Exempt
Organizations generally should not constitute UBTI. However, if an Exempt
Organization finances its acquisition of the Common Stock with debt, a portion
of its income from the Company will constitute UBTI pursuant to the
"debt-financed property" rules. Social clubs, voluntary employee benefits
associations, supplemental unemployment benefit trusts, and qualified group
legal services plans that are exempt from taxation under paragraphs (7), (9),
(17), and (20), respectively, of Code section 501(c) are subject to different
UBTI rules, which generally will require them to characterize distributions from
the Company as UBTI. A pension trust that owns more than 10.0% of the Company is
required to treat a percentage of the dividends from the Company as UBTI (the
"UBTI Percentage") in certain circumstances. The UBTI Percentage is the gross
income derived from an unrelated trade or business (determined as if the Company
were a pension trust) divided by the gross income of the Company for the year in
which the dividends are paid. The UBTI rules apply only if (i) the UBTI
Percentage is at least 5.0%, (ii) the Company qualifies as a REIT by reason of
the modification of the 5/50 Rule that allows the beneficiaries of the pension
trust to be treated as holding shares of the Company in proportion to their
actuarial interests in the pension trust and (iii) either (A) one pension trust
owns more than 25.0% of the value of the Company's stock or

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(B) a group of pension trusts individually holding more than 10.0% of the value
of the Company's stock collectively owns more than 50.0% of the value of the
Company's stock.

While an investment in the Company by an Exempt Organization generally is
not expected to result in UBTI except in the circumstances described in the
preceding paragraph, any gross UBTI that arises from such an investment will be
combined with all other gross UBTI of the Exempt Organization for a taxable year
and reduced by all deductions attributable to the UBTI plus $1,000. Any amount
then remaining will constitute UBTI on which the Exempt Organization will be
subject to tax. If the gross income taken into account in computing UBTI exceeds
$1,000, the Exempt Organization is obligated to file a tax return for such year
on an IRS Form 990-T. Neither the Company, its Board of Directors nor any of its
Affiliates expects to undertake the preparation or filing of IRS Form 990-T for
any Exempt Organization in connection with an investment by such Exempt
Organization in the Common Stock. Generally, IRS Form 990-T must be filed with
the IRS by April 15 of the year following the year to which it relates.

Taxation of Foreign Stockholders

The rules governing U.S. federal income taxation of nonresident alien
individuals, foreign corporations, foreign partnerships and other foreign
stockholders (collectively, "Non-U.S. Stockholders") are complex, and no attempt
will be made herein to provide more than a summary of such rules. PROSPECTIVE
NON-U.S. STOCKHOLDERS SHOULD CONSULT THEIR TAX ADVISORS TO DETERMINE THE IMPACT
OF FEDERAL, STATE AND LOCAL INCOME TAX LAWS WITH REGARD TO AN INVESTMENT IN THE
COMMON STOCK, INCLUDING ANY REPORTING REQUIREMENTS.

It is currently anticipated that the Company will qualify as a
"domestically controlled REIT" (i.e., a REIT in which at all times during a
specified testing period less than 50.0% of the value of the shares is owned
directly or indirectly by Non-U.S. Stockholders) and, therefore, gain from the
sale of Common Stock by a Non-U.S. Stockholder would not be subject to United
States taxation unless such gain is treated as "effectively connected" with the
Non-U.S. Stockholder's United States trade or business.

Distributions that are not attributable to gain from the sale or exchange
by the Company of United States real property interests (and are not designated
as capital gain dividends) will be treated as dividends of ordinary income to
the extent that they are made out of current or accumulated earnings and profits
of the Company. Such distributions generally will be subject to a United States
withholding tax equal to 30.0% of the gross amount of the distribution, subject
to reduction or elimination under an applicable tax treaty. However, if
dividends from the investment in the shares are treated as "effectively
connected" with the Non-U.S. Stockholder's conduct of a United States trade or
business, such dividends will be subject to regular U.S. income taxation
(foreign corporations may also be subject to the 30.0% branch profits tax). The
Company expects to withhold United States income tax at the rate of 30.0% on the
gross amount of any such dividends made to a Non-U.S. Stockholder unless: (i) a
lower treaty rate applies (and with respect to payments made on or after January
1, 1999, the Non-U.S. Stockholder files IRS Form W-8 with the Company), or (ii)
the Non-U.S. Stockholder files an IRS Form 4224 with the Company claiming that
the distribution is "effectively connected" income. Distributions which exceed
current and accumulated earnings and profits of the Company will not be taxable
to the extent that they do not exceed the adjusted basis of a stockholder's
shares but, rather, will reduce (but not below zero) the adjusted basis of such
shares. To the extent that such distributions exceed the adjusted basis of a
Non-U.S. Stockholder's shares, they generally will give rise to United States
tax liability if the Non-U.S. Stockholder would otherwise be subject to tax on
gain from the sale or disposition of his or her shares in the Company, as
described above. If it cannot be determined at the time a distribution is made
whether or not such distribution will be in excess of current and accumulated
earnings and profits, the distributions will be subject to withholding at the
same rate as dividends. However, amounts thus withheld are refundable if it is
subsequently determined that such distribution was, in fact, in excess of
current and accumulated earnings and profits of the Company. Beginning with
payments made on or after January 1, 1999, newly issued Treasury Regulations
require a corporation that is a REIT to treat as a dividend the portion of a
distribution that is not designated as a capital gain dividend or return of
basis and apply the 30% withholding tax (subject to any applicable deduction or
exemption) to such portion, and to apply the FIRPTA withholding rules (discussed
below) with respect to the remainder of the distribution.

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Distributions by the Company to a Non-U.S. Stockholder that are
attributable to gain from sales or exchanges by the Company of a United States
real property interest are subject to income and withholding tax under the
provisions of the Foreign Investment in Real Property Tax Act of 1980
("FIRPTA"). Under FIRPTA, these distributions, if any, that are treated as gain
recognized from the sale of a United States real property interest, are taxed as
income "effectively connected" with a United States business. Non-U.S.
Stockholders would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders (subject to the applicable alternative minimum tax and a
special alternative minimum tax for nonresident alien individuals). Also,
distributions subject to FIRPTA may be subject to a 30.0% branch profits tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption.
The Company is required by applicable Treasury Regulations to withhold 35.0% of
any distribution that could be designated by the Company as a capital gains
dividend. This amount is creditable against the Non-U.S. Stockholder's FIRPTA
tax liability. A refund may be available if the amount exceeds the Non-U.S.
Stockholder's federal tax liability.

State and Local Taxes

The Company or its stockholders or both may be subject to state, local or
other taxation in various state, local or other jurisdictions, including those
in which they transact business or reside. The tax treatment in such
jurisdictions may differ from federal income tax consequences discussed above.
Prospective stockholders should consult with their tax advisors regarding the
effect of state, local and other tax laws on an investment in the Common Stock
of the Company.

ERISA CONSIDERATIONS

A fiduciary of a pension, profit sharing, retirement, welfare or other
employee benefit plan ("ERISA Plan") subject to the Employee Retirement Income
Security Act of 1974, as amended ("ERISA"), should consider the fiduciary
standards under ERISA in the context of the ERISA Plan's particular
circumstances before authorizing an investment of a portion of the ERISA Plan's
assets in the Common Stock. Accordingly, any such fiduciary should consider (i)
whether the investment satisfies the diversification requirements of Section
404(a)(1)(C) of ERISA, (ii) whether the investment is in accordance with the
documents and instruments governing the ERISA Plan as required by Section
404(a)(1)(D) of ERISA, and (iii) whether the investment is prudent under ERISA.
In addition to the imposition of general fiduciary standards of investment
prudence and diversification, ERISA, and the corresponding provisions of the
Code, prohibit a wide range of transactions involving the assets of the ERISA
Plan and persons who have certain specified relationships to the ERISA Plan
("parties in interest" within the meaning of ERISA or/and, "disqualified
persons" within the meaning of the Code). Thus, an ERISA Plan fiduciary
considering an investment in the Common Stock also should consider whether the
acquisition or the continued holding of the Common Stock might constitute or
give rise to a direct or indirect prohibited transaction.

The U.S. Department of Labor (the "DOL") has issued final regulations (the
"DOL Regulations") as to what constitutes assets of an employee benefit plan
under ERISA. The DOL Regulations, by their terms do not apply to any interest in
an entity, which interest is either a "publicly offered security" or a security
issued by an investment company registered under the Investment Company Act of
1940, as amended. The DOL Regulations define a "publicly offered security" as a
security that is "widely held," "freely transferable," and either part of a
class of securities registered under the Securities Exchange Act of 1934, as
amended (the "Exchange Act"), or sold pursuant to an effective registration
statement under the Securities Act (provided the securities are registered under
the Exchange Act within 120 days after the end of the fiscal year of the issuer
during which the public offering occurred). The Common Stock is being sold in an
offering registered under the Securities Act and will be registered under the
Exchange Act.

The DOL Regulations provide that a security is "widely held" only if it is
part of a class of securities that is owned by 100 or more investors independent
of the issuer and of one another. A security will not fail to be "widely held"
because the number of independent investors falls below 100 subsequent to the
initial public offering as a result of events beyond the issuer's control. The
Company expects the Common Stock to be "widely held" on completion of the
Offering.

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The DOL Regulations provide that whether a security is "freely
transferable" is a factual question to be determined on the basis of all
relevant facts and circumstances. The DOL Regulations further provide that when
a security is part of an offering in which the minimum investment is $10,000 or
less, as is the case with the Offering, certain restrictions ordinarily will
not, alone or in combination, affect the finding that those securities are
"freely transferable." The Company believes that the restrictions imposed under
its Certificate on the transfer of the Common Stock are limited to the
restrictions on transfer generally permitted under the DOL Regulations and are
not likely to result in the failure of the Common Stock to be "freely
transferable". The Company also believes that certain restrictions that apply to
the Common Stock, or derived from contractual arrangements requested by the
Underwriters in connection with the Offering, are unlikely to result in the
failure of the Common Stock to be "freely transferable." See "Shares Eligible
for Future Sale" and "Underwriting". The DOL Regulations establish only a
presumption in favor of the finding of free transferability and no assurance is
given that the DOL and the U.S. Treasury Department will not reach a contrary
conclusion.

Assuming that the Common Stock will be "widely held" and "freely
transferable," the Company believes that the Common Stock will be publicly
offered securities for purposes of the DOL Regulations and that the assets of
the Company will not be deemed to be "plan assets" of any ERISA Plan that
invests in the Common Stock.

UNDERWRITING

Under the terms of and subject to the conditions contained in an
Underwriting Agreement dated , 1997 (the "Underwriting
Agreement"), the Underwriters named below (the "Underwriters"), for whom Credit
Suisse First Boston Corporation, Bear, Stearns & Co., Inc., Prudential
Securities Incorporated, McDonald & Company Securities, Inc., and Piper Jaffray
Inc. are acting as representatives (the "Representatives"), have severally but
not jointly agreed to purchase from the Company the following respective numbers
of shares of Common Stock:

UNDERWRITER NUMBER OF SHARES
--------------------------------------------------------------------- ----------------

Credit Suisse First Boston Corporation...............................
Bear, Stearns & Co., Inc.............................................
Prudential Securities Incorporated...................................
McDonald & Company Securities, Inc...................................
Piper Jaffray Inc....................................................
----------
Total................................................................ 8,500,000
==========

The Underwriting Agreement provides that the obligations of the
Underwriters are subject to certain conditions precedent and that the
Underwriters will be obligated to purchase all of the Common Stock offered
hereby (other than those shares covered by the over-allotment option described
below) if any are purchased. The Underwriting Agreement provides that, in the
event of a default by an Underwriter, in certain circumstances, the purchase
commitments of the non-defaulting Underwriters may be increased or the
Underwriting Agreement may be terminated.

The Company has granted to the Underwriters an option, expiring at the
close of business on the 30th day after the date of this Prospectus, to purchase
up to 1,275,000 additional shares at the initial public offering price less the
underwriting discounts and commissions, all as set forth on the cover page of
this Prospectus. Such option may be exercised only to cover over-allotments in
the sale of the shares of Common Stock. To the extent such option is exercised,
each Underwriter will become obligated, subject to certain conditions, to
purchase approximately the same percentage of such additional shares of Common
Stock as it was obligated to purchase pursuant to the Underwriting Agreement.

The Company has been advised by the Representatives that the Underwriters
propose to offer the shares of Common Stock to the public initially at the
public offering price set forth on the cover page of this Prospectus and,
through the Representatives, to certain dealers at such price less a concession
of $ per share, and the Underwriters and such dealers may allow a
discount of $ per share on sales to certain other dealers.

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After the initial public offering, the public offering price and concession and
discount to dealers may be changed by the Representatives.

The Representatives have informed the Company that they do not expect
discretionary sales by the Underwriters to exceed 5.0% of the number of shares
being offered hereby.

The Company and its officers, directors and stockholders have agreed that
they will not offer, sell, contract to sell, announce their intention to sell,
pledge or otherwise dispose of, directly or indirectly, or file with the
Commission a registration statement under the Securities Act relating to, any
additional shares of Common Stock or securities convertible or exchangeable into
or exercisable for any shares of Common Stock without the prior written consent
of Credit Suisse First Boston Corporation for a period of 180 days after the
date of this Prospectus.

The Company has agreed to indemnify the Underwriters against certain
liabilities, including civil liabilities under the Securities Act, or contribute
to payments which the Underwriters may be required to make in respect thereof.

The Common Stock has been approved for quotation on the Nasdaq National
Market.

Prior to the Offering there has been no public market for the Common Stock.
The initial price to the public for the shares of Common Stock has been
negotiated among the Company and the Representatives. Such initial price is
based on, among other things in addition to prevailing market conditions, the
Company's financial and operating history and condition, its FFO and the amount
of its proposed distributions, its prospects and the prospects for its industry
in general, financial characteristics of publicly traded REITs that the Company
and the Representatives believe to be comparable to the Company, the management
of the Company and the market prices for securities of companies in business
similar to that of the Company. See "Risk Factors -- Absence of Prior Public
Market for the Common Stock".

The Representatives, on behalf of the Underwriters, may engage in
over-allotments, stabilizing transactions, syndicate covering transactions and
penalty bids in accordance with Regulation M under the Exchange Act. Over-
allotment involves syndicate sales in excess of the Offering size, which creates
a syndicate short position. Stabilizing transactions permit bids to purchase the
underlying security so long as the stabilizing bids do not exceed a specified
maximum. Syndicate covering transactions involve purchases of the Common Stock
in the open market after the distribution has been completed in order to cover
syndicate short positions. Penalty bids permit the Representatives to reclaim a
selling concession from a syndicate member when the Common Stock originally sold
by such syndicate member is purchased in a syndicate covering transaction to
cover syndicate short positions. Such stabilizing transactions, syndicate
covering transactions and penalty bids may cause the price of the Common Stock
to be higher than it would otherwise be in the absence of such transactions.
These transactions may be effected on the Nasdaq National Market or otherwise
and, if commenced, may be discontinued at any time.

CSFBMC, an Affiliate of Credit Suisse First Boston Corporation, currently
has a lending relationship with the Company. In February 1996, the Company
entered into the $150.0 million Credit Facility with CSFBMC for the purpose of
funding the acquisition of properties. Amounts outstanding under the Credit
Facility for principal and accrued interest, at the date of the Offering, will
be repaid to CSFBMC utilizing a substantial portion of the proceeds of the
Offering. See "Use of Proceeds".

LEGAL MATTERS

The legality of the shares of the Common Stock offered hereby will be
passed upon for the Company by Baker & Hostetler LLP, Cleveland, Ohio. In
addition, the description of federal income tax consequences contained in this
Prospectus entitled "Federal Income Tax Considerations" is based upon the
opinion of Baker & Hostetler LLP, Cleveland, Ohio. Certain legal matters related
to the Offering will be passed upon for the Underwriters by Latham & Watkins,
Los Angeles, California.

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EXPERTS

The financial statements of the Company as of December 31, 1996 and 1995
and for each of the two years in the period ended December 31, 1996 included in
this Prospectus and the related financial statement schedule included elsewhere
in the Registration Statement have been audited by Coopers & Lybrand L.L.P.,
independent accountants, as stated in their reports appearing herein and
elsewhere in the Registration Statement, and have been so included in reliance
upon the reports of such firm given upon their authority as experts in
accounting and auditing.

ADDITIONAL INFORMATION

The Company has filed with the Commission a Registration Statement on Form
S-11 (together with all amendments, exhibits and schedules thereto, the
"Registration Statement") under the Securities Act, with respect to the Common
Stock offered hereby. This Prospectus does not contain all of the information
set forth in the Registration Statement. For further information with respect to
the Company and the Common Stock offered hereby, reference is hereby made to the
Registration Statement. Statements contained in this Prospectus as to the
contents of any contract or other document are not necessarily complete and, in
each instance, reference is made to the copy of such contract or document filed
as an exhibit to the Registration Statement, each such statement being qualified
in all respects by such reference. Copies of the Registration Statement may be
obtained from the Commission's principal office at 450 5th Street, N.W.,
Washington, D.C. 20549, and at the regional offices of the Commission at 7 World
Trade Center, New York, New York 10048 and 500 West Madison Street, Suite 1400,
Chicago, Illinois 60661, upon payment of the fees prescribed by the Commission,
or may be examined without charge at the offices of the Commission. In addition,
copies of the Registration Statement and related documents may be obtained
through the Commission's Internet address at http:\\www.sec.gov.

The Company intends to furnish its stockholders with annual reports
containing audited financial statements which have been certified by its
independent public accountants.

GLOSSARY

Unless otherwise indicated or the context otherwise requires, the following
capitalized terms have the meanings set forth below for purposes of this
Prospectus.

"15.0% Test" means the requirement of the Code that rent attributable to
personal property leased in connection with a lease of real property will
qualify as "rents from real property" unless such rent is greater than 15.0% of
the total rent received under the lease, in which case none of the rent
qualifies.

"75.0% Test" means the requirement of the Code concerning the Company's
initial and continued qualification as a REIT that at least 75.0% of the
Company's gross income (excluding gross income from prohibited transactions) for
each taxable year must be derived from specified real estate sources, including
"rents from real property" and interest and certain other income earned from
mortgages on real property, gain from the sale of real property or mortgages
(other than in prohibited transactions) or income from qualified types of
temporary investments.

"95.0% Test" means the requirement of the Code concerning the Company's
initial and continued qualification as a REIT that at least 95% of the Company's
gross income (excluding gross income from prohibited transactions) for each
taxable year must be derived from the sale of items which qualify under the
75.0% Test or from dividends, interest and gain from sale or disposition of
stock or securities, or from any combination of the foregoing.

"100 Stockholder Requirement" means the requirement of the Code concerning
the Company's initial and continued qualification as a REIT that it be
beneficially owned by 100 or more persons.

"ACM" means asbestos-containing materials.

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"Acquisition Properties" means the 62 Properties located in 21 states
which, as of September 1, 1997, are subject to acquisition by the Company
pursuant to agreements in principle between the Company and the owners of the
Acquisition Properties.

"ADA" means the Americans with Disabilities Act.

"Adjusted Basis Ratio" means the ratio to total rent for the taxable year
as the average of the adjusted basis of the personal property of a property at
the beginning and at the end of the taxable year bears to the average of the
aggregate adjusted basis of the real and personal property of a property at the
beginning and end of such taxable year.

"Advisor" means Captec Advisors, Captec Financial and any person or entity
with which Captec Advisors subcontracts, or upon which it relies for the
performance of its responsibilities pursuant to the Advisory Agreement.

"Advisors Michigan" means Captec Net Lease Realty Advisors, Inc., a
Michigan corporation which was merged into the Company in September 1997.

"Advisory Agreement" means the Advisory Agreement between the Company and
Captec Advisors pursuant to which the Advisor will provide specified management
and advisory services to the Company.

"Affiliate" of any person means (i) any person who directly or indirectly
controls or is controlled by or is under common control with that person; (ii)
any other person who owns, beneficially, directly or indirectly, five percent
(5.0%) or more of the outstanding capital stock, shares or equity interests of
that person; or (iii) any officer, director, employee, partner or trustee of
that person or any person controlling, controlled by or under common control
with that person (excluding trustees and persons serving in similar capacities
who are not otherwise an affiliate of that person). The term "person" means and
includes individuals, corporations, general and limited partnerships, stock
companies or associations, joint ventures, associations, companies, trust banks,
trust companies, land trusts, business trusts, or other entities and governments
and agencies and political subdivisions thereof. For purposes of this
definition, "control" (including the correlative meanings of the terms
"controlled by" and "under common control with"), as used with respect to any
person, means the possession, directly or indirectly, of the power to direct or
cause the direction of the management and policies of that person, through the
ownership of voting securities, partnership interests or other equity interests.

"Affiliated Partnerships" means Captec III and Captec IV.

"Benchmark Rate" means the designated LIBOR for U.S. dollar deposits with
30 day maturities which plus 2.318% (1.75% upon completion of the Offering)
equals the Revolving Loan Rate under the Credit Facility.

"Board of Directors" means the board of directors of the Company as
constituted from time to time.

"Boston Chicken" means Boston Chicken, Inc.

"Business Combination" means mergers and certain other transactions with or
caused by the Interested Stockholder, sales or other dispositions to the
Interested Stockholder (except proportionately with the corporation's other
stockholders) of assets of the corporation or a subsidiary equal to 10.0% or
more of the aggregate market value of the corporation's consolidated assets or
its outstanding stock; the issuance or transfer by the corporation or a
subsidiary of stock of the corporation or such subsidiary to the Interested
Stockholder (except for transfers in a conversion or exchange or a pro-rata
distribution or certain other transactions, none of which increase the
Interested Stockholder's proportionate ownership of any class or series of the
corporation's or such subsidiary's stock); or receipt by the Interested
Stockholder (except proportionately as a stockholder), directly or indirectly,
of any loans, advances, guarantees, pledges or other financial benefits provided
by or through the corporation or a subsidiary.

"Bylaws" means the bylaws of the Company.

"Captec II" means Captec Franchise Capital Partners L.P. II, a Delaware
limited partnership.

"Captec III" means Captec Franchise Capital Partners L.P. III, a Delaware
limited partnership.

97
103

"Captec IV" means Captec Franchise Capital Partners L.P. IV, a Delaware
limited partnership.

"Captec Advisors" means Captec Net Lease Realty Advisors, Inc., a Delaware
corporation, and an Affiliate of the Company and Captec Financial.

"Captec Financial" means Captec Financial Group, Inc., a Michigan
corporation and an Affiliate of the Company and Captec Advisors.

"Captec Funding" means Captec Financial Group Funding Corporation.

"Captec Trust" means Captec Loans Receivables Trust -- 1996.

"Cash Available For Distribution" means FFO as adjusted for capital
expenditures and scheduled principal payments.

"Certificate" means the Amended and Restated Certificate of Incorporation
of the Company.

"Charitable Beneficiary" means one or more beneficiaries of the trust
determined in accordance with the Certificate, provided that each such
beneficiary must be described in Section 501(c)(3) of the Code and contributions
to each such beneficiary must be eligible for deduction under each of Sections
170(b)(1)(A), 2055 and 2522 of the Code.

"Code" means the Internal Revenue Code of 1986, as amended.

"Commission" means the United States Securities and Exchange Commission.

"Commitment Fee" means the 1.0% of the value of each Lease proposed to be
executed by prospective Lessees identified and obtained by the Advisor during
the term of the Advisory Agreement.

"Common Stock" means the common stock, par value $.01 per share, of the
Company.

"Company" means Captec Net Lease Realty, Inc., a Delaware corporation and,
as the context may require, Net Lease Michigan and Advisors Michigan.

"Consumer Price Index" means the "U.S. City Average, All Items" Consumer
Price Index for All Urban Consumers published by the Bureau of Labor Statistics
of the United States Department of Labor (Base: 1982-1984), or any successor
index thereto.

"Counsel" means Baker & Hostetler LLP.

"CPI" means the Consumer Price Index.

"Credit Facility" means the Company's $150.0 million revolving credit
facility with CSFBMC, an Affiliate of one of the managing Underwriters of the
Offering.

"CSFBMC" means Credit Suisse First Boston Mortgage Capital L.L.C., an
Affiliate of the lead managing Underwriter and the lender under the Credit
Facility.

"Deferred Plan" means the Company's Directors' Deferred Compensation Plan.

"De Minimis Service Amount" means the amount of Non-Qualifying Services and
Noncustomary Services which the Company may provide (which amount is not valued
at less than 150.0% of the Company's direct cost for service that does not
exceed 1.0% of the gross income from the property for which the services are
provided) so that rents received by the Company will qualify as rents from real
property for purposes of the 75.0% Test and the 95.0% Test.

"DOL" means the U.S. Department of Labor.

"DOL Regulations" means the final regulations issued by DOL concerning
employee benefit plans under ERISA.

"Environmental Site Assessments" means environmental site assessments,
including Phase I and Phase II site assessments and other environmental
investigations.

98
104

"ERISA" means the Employee Retirement Income Security Act of 1974, as
amended.

"ERISA Plan" means a pension, profit-sharing, retirement or other employee
benefit plan subject to ERISA.

"Exchange Act" means the Securities Exchange Act of 1934, as amended.

"Exchange Shares" means the 475,000 shares of the Common Stock to be issued
in exchange for the 9,500 unredeemed shares of Preferred Stock.

"Exempt Organizations" means tax-exempt entities, including qualified
employee pension and profit-sharing trusts, individual retirement accounts and
certain funded welfare plan arrangements that are generally exempt from federal
income taxation.

"Existing Properties" means the 79 Properties located in 24 states owned by
the Company as of June 30, 1997.

"FASB" means the Financial Standards Accounting Board.

"FFO" means Funds From Operations.

"FIRPTA" means the Foreign Investment in Real Property Tax Act of 1980.

"Five or Fewer Requirement" means the requirement of the Code concerning
the Company's initial and continued qualification as a REIT that during the last
half of each taxable year not more than 50.0% in value of the outstanding shares
of the Company be owned directly or indirectly (applying certain attribution
rules) by five or fewer individuals (as defined in the Code to include certain
exempt entities).

"Funds From Operations" means, as defined by the National Association of
Real Estate Investment Trusts, net income (loss) (computed in accordance with
GAAP), excluding gains (or losses) from debt restructuring and sales of
property, plus real estate related depreciation and amortization (excluding
amortization of deferred financing costs) and after adjustments for
unconsolidated partnerships and joint ventures.

"GAAP" means United States generally accepted accounting principles.

"GCL" means the Delaware General Corporation Law, as amended.

"General Partnership Interests" means the general partnership interests of
Captec III and Captec IV to be acquired by the Company.

"ICSC" means the International Council of Shopping Centers.

"Incentive Fee" means the fee to be paid by the Company to Captec Advisors
pursuant to the Advisory Agreement in connection with the acquisition of certain
properties as described under the heading "Business -- The Advisor and the
Advisory Agreement".

"Independent Director" means a person who is not (i) employed by the
Company; (ii) an Affiliate of the Company other than solely as a result of being
a director of the Company, any subsidiary of the Company or any entity in which
the Company owns, beneficially or of record, a 10.0% or greater equity interest;
(iii) an Affiliate of any Affiliate; (iv) a party to any transaction with the
Company in which the amount involved exceeds $60,000, provided that an
Independent Director may be a Lessee or an owner of an equity interest in a
Lessee; or (v) a party to, or the owner of a 10.0% or greater equity interest in
any party to, any business relationship which accounts for in excess of 5.0% of
such party's gross income or consolidated gross revenues for its last full
fiscal year, provided that an Independent Director may be a Lessee or an owner
of an equity interest in a Lessee.

"Interested Stockholder" means a person with 15.0% or more of a Delaware
corporation's outstanding voting stock.

"IRA" means an Individual Retirement Account.

"IRS" means the Internal Revenue Service.

99
105

"Leases" means the (generally long-term triple-net) leases pursuant to
which the Existing Properties are, and the properties acquired by the Company in
the future (which may include some or all of the Acquisition Properties) will
be, leased to Lessees.

"Lessees" means the parties (generally operators of franchised and chain
restaurants and retailers) who operate the Existing Properties and the parties
who will operate any properties acquired by the Company in the future (which may
include some or all of the Acquisition Properties) pursuant to the Leases.

"LIBOR" means London Interbank Offered Rate.

"Management Fee" means the fee payable by the Company to Captec Advisors
for management and advisory services pursuant to the Advisory Agreement and
described under the heading "Business -- The Advisor and the Advisory
Agreement".

"Market Capitalization" means the market value of the issued and
outstanding shares of the Company's capital stock plus the Company's total
consolidated debt.

"Master Note" means the master revolving note agreement between the Company
and Captec Financial which bears interest at the annual rate of 8.0% and is
payable on demand.

"NAREIT" means National Association of Real Estate Investment Trusts.

"NAREIT White Paper" means the March 1995 NAREIT White Paper on FFO.

"NASD" means the National Association of Securities Dealers, Inc.

"Nasdaq" means the Nasdaq National Market.

"Net Lease Michigan" means Captec Net Lease Realty, Inc. a Michigan
corporation which was merged into the Company in September 1997.

"Noncustomary Services" means services furnished (whether or not rendered
by an independent contractor) that are not customarily provided to tenants of
properties of a similar class in the geographic market, in which the Company's
property is located.

"Non-Qualifying Income" means the sum of the income realized by the Company
which does not satisfy the requirements of the 75.0% Test and the 95.0% Test.

"Offering" means the offering of shares of the Common Stock pursuant to,
and as described in, this Prospectus.

"Ownership Limit" means the beneficial or constructive ownership of 9.8% of
the outstanding shares of capital stock of the Company.

"Partnership Agreement" means the limited partnership agreements of each
Affiliated Partnership.

"Plan" means the Company's Long-Term Incentive Plan.

"Preferred Stock" means the preferred stock, par value $.01 per share in
such series and classes and with such powers, preferences and rights as may be
designated by the Board of Directors from time to time pursuant to the power
granted to it by the Certificate and by applicable law.

"Prohibited Owner" means the person or entity holding record or title to
shares of the Company's capital stock in excess of the Ownership Limit.

"Prohibited Transferee" means the transferee of a purported transfer of the
Company's capital stock which resulted in a violation of the Ownership Limit and
who will acquire no right or interest in the excess shares.

"Prospectus" means the final prospectus included in the Company's
Registration Statement filed with the Commission, pursuant to which the Company
will offer shares of Common Stock to the public, as the same may be amended or
supplemented from time to time after the effective date of such Registration
Statement.

100
106

"Qualified Plans" means qualified pension, profit-sharing and stock bonus
plans, including Keogh plans and IRAs.

"Qualifying Services" means services of a type that a tax-exempt
organization can provide its tenants without causing its rental income to be
UBTI under the Code.

"REIT" means real estate investment trust, as defined pursuant to Sections
856 through 860 of the Code.

"Registration Statement" means the registration statement filed with the
Commission by the Company on Form S-11, together with all amendments, exhibits
and schedules thereto.

"Related Party Tenant" means a tenant in which the Company or a direct or
indirect owner of 10.0% or more of the Company owns directly or constructively a
10.0% or greater interest in the assets or net profits of such tenant.

"Representatives" means collectively Credit Suisse First Boston
Corporation, Bear, Stearns & Co. Inc., Prudential Securities Incorporated,
McDonald & Company Securities, Inc. and Piper Jaffray Inc.

"Revolving Loan Rate" means the Benchmark Rate plus 2.318% (1.75% upon
written notification from the Company to (CSFBMC) of completion of the
Offering).

"Rule 144" means Rule 144 promulgated under the Securities Act.

"SARs" means share appreciation rights granted under the Plan.

"Section 203" means Section 203 of the GCL.

"Securities Act" means the Securities Act of 1933, as amended.

"SFAS 128" means Statement of Financial Accounting Standards No. 128 issued
by the FASB.

"SFAS 129" means Statement of Financial Accounting Standards No. 129 issued
by the FASB.

"Tenant Ownership Limitation" means (i) the Company must not own, directly
or constructively, 10.0% or more of any tenant; (ii) where the REIT's shares are
owned by a partnership, no 25.0% or greater partner may own an interest in a
tenant; or (iii) where any of the Company's stockholders and the owners of a
tenant are partners in a partnership, neither the Company's stockholders nor the
owner of the tenant is a 25.0% or greater partner in a partnership.

"Treasury Regulations" means the Income Tax Regulations promulgated by the
U.S. Department of the Treasury under the Code.

"UBTI" means unrelated business taxable income as defined in Section 512(a)
of the Code.

"Underwriters" means the Underwriters named in this Prospectus.

"Underwriting Agreement" means the Underwriting Agreement dated
, 1997 between the Company and the Underwriters.

101
107

INDEX TO FINANCIAL STATEMENTS

PAGES
-------------

Pro Forma Company:
Captec Net Lease Realty, Inc. (a Delaware corporation) Unaudited Pro Forma
Financial Statements......................................................... F-2
Unaudited Pro Forma Balance Sheet as of June 30, 1997........................ F-3
Unaudited Pro Forma Statement of Operations for
the Six Months Ended June 30, 1997........................................ F-4
Unaudited Pro Forma Statement of Operations for
the Year Ended December 31, 1996.......................................... F-5
Notes to Unaudited Pro Forma Financial Statements............................ F-6
Historical Net Lease Michigan:
Captec Net Lease Realty, Inc. (a Michigan corporation) Historical Financial
Statements:
Report of Independent Accountants............................................ F-8
Balance Sheet as of June 30, 1997 (unaudited) and December 31, 1996 and
1995...................................................................... F-9
Statement of Operations for the Six Months Ended June 30, 1997 and 1996
(unaudited) and for the Years Ended December 31, 1996 and 1995............ F-10
Statement of Changes in Stockholders' Equity for the Years Ended December 31,
1995 and 1996 and the Six Months Ended June 30, 1997 (unaudited).......... F-11
Statement of Cash Flows for the Six Months Ended June 30, 1997 and 1996
(unaudited) and for the Years Ended December 31, 1996 and 1995............ F-12
Notes to Financial Statements................................................ F-13 to F-20
Historical Advisors Michigan:
Captec Net Lease Realty Advisors, Inc. (a Michigan corporation) Historical
Financial Statements:
Report of Independent Accountants............................................ F-21
Balance Sheet as of June 30, 1997 (unaudited) and December 31, 1996 and
1995...................................................................... F-22
Statement of Operations for the Six Months Ended June 30, 1997 and 1996
(unaudited) and for the Years Ended December 31, 1996 and 1995............ F-23
Statement of Changes in Stockholders' Equity for the Years Ended December 31,
1995 and 1996 and the Six Months Ended June 30, 1997 (unaudited).......... F-24
Statement of Cash Flows for the Six Months Ended June 30, 1997 and 1996
(unaudited) and for the Years Ended December 31, 1996 and 1995............ F-25
Notes to Financial Statements................................................ F-26 to F-27
Historical Company:
Captec Net Lease Realty, Inc. (a Delaware corporation), Historical Financial
Statements:
Report of Independent Accountants............................................ F-28
Balance Sheet as of August 29, 1997.......................................... F-29
Notes to Financial Statement................................................. F-30
Report of Independent Accountants.............................................. S-1
Schedule III -- Properties and Accumulated Depreciation as of December 31,
1996......................................................................... S-2 to S-3

F-1
108

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

UNAUDITED PRO FORMA FINANCIAL STATEMENTS

The following pro forma balance sheet as of June 30, 1997 and pro forma
statements of operations for the six months ended June 30, 1997 and for the year
ended December 31, 1996 have been prepared to reflect the transactions and the
adjustments described in the accompanying notes. Captec Net Lease Realty, Inc.,
a Delaware corporation (the "Company"), was formed in August 1997. Captec Net
Lease Realty Inc., a Michigan corporation ("Net Lease Michigan"), which was
engaged in substantially the same business as the Company, and Captec Net Lease
Realty Advisors, Inc., a Michigan corporation ("Advisors Michigan") and an
Affiliate of Net Lease Michigan which provided Net Lease Michigan with certain
advisory services, were merged into the Company for the purposes of
reincorporating the businesses under the laws of the State of Delaware,
facilitating the initial public offering and combining the resources of Net
Lease Michigan and Advisors Michigan. The pro forma financial information is
based on the historical financial statements listed in the index on page F-1 and
should be read in conjunction with those financial statements and the notes
thereto. The historical balance sheet of the Company is not presented in the pro
forma balance sheet as all balance sheet amounts would round to zero in
thousands. The Company had no operations prior to the merger and accordingly
historical income statements are not presented. The pro forma balance sheet was
prepared as if transactions contemplated by this Prospectus, including the
Offering and the application of the proceeds therefrom, occurred on June 30,
1997. The pro forma statements of operations were prepared as if transactions
contemplated by this Prospectus, including the Offering and the application of
the proceeds therefrom, occurred on January 1, 1996. The pro forma financial
information is unaudited and is not necessarily indicative of the results which
actually would have occurred if the transactions had been consummated on the
dates described, nor does it purport to represent the Company's future financial
position or results of operations.

F-2
109

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

UNAUDITED PRO FORMA BALANCE SHEET

JUNE 30, 1997
(IN THOUSANDS, EXCEPT SHARE DATA)

PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA COMPANY PRO FORMA COMPANY
ADVISORS NET LEASE ADJUSTMENTS ADJUSTED ADJUSTMENTS(1) ADJUSTED
MICHIGAN MICHIGAN FOR MERGER FOR MERGER FOR OFFERING FOR OFFERING
----------- ---------- ----------- ---------- -------------- ------------

ASSETS
Cash and cash equivalents............ $ 1 $ 1,544 $ 1,545 $157,100(d) $ 33,882
(72,922)(e)
(48,526)(f)
(3,315)(h)
Investments:
Properties subject to operating
leases, net...................... 98,293 $ 5,735(a) 104,028 104,028
Loans to Affiliates, collateralized
by mortgage loans................ 11,684 11,684 11,684
Impaired mortgage loans............ 788 788 788
Other loans........................ 763 763 763
Other loans, related party......... 422 422 422
Financing leases, net.............. 1,531 1,531 1,531
General partner interests.......... -- 3,315(h) 3,315
--------- --------- --------- --------- -------- --------
Total investments........... 113,481 5,735 119,216 3,315 122,531
Short-term loans to Affiliates....... 5,155 5,155 5,155
Unbilled rent........................ 1,420 1,420 1,420
Accounts receivable.................. 3 429 432 432
Due from Affiliates.................. 432 -- (432)(c) -- --
Other assets......................... 77 1,053 1,130 1,130
--------- --------- --------- --------- -------- --------
Total assets................ $ 513 $ 123,082 $ 5,303 $ 128,898 $ 35,652 $164,550
========= ========= ========= ========= ======== ========
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable...................... $ 72,922 $ 72,922 $(72,922)(e) --
Accounts payable................... 703 703 $ 703
Due to Affiliates.................. 512 368 (432)(c) 448 448
Federal income tax payable......... 411 411 102 (g) 513
Deferred income tax................ 102 102 (102)(g) --
Security deposits held on leases... 146 146 146
--------- --------- --------- --------- -------- --------
Total liabilities........... 512 74,652 (432) 74,732 (72,922) 1,810
--------- --------- --------- --------- -------- --------
Redeemable Preferred Stock (mandatory
redemption amount $58,026) (Note
1)................................. 48,429 48,429 (58,026)(f) --
9,597 (f)
--------- --------- --------- --------- -------- --------
STOCKHOLDERS' EQUITY:
Preferred Stock, $.01 par value,
10,000,000 shares authorized (Note
1)................................. -- -- --
Common Stock (Note 1)................ 1 1 3 (a) 10 85 (d) 100
5 (b) 5 (f)
Paid-In Capital...................... -- -- 5,732 (a) 5,727 $157,015 (d) 162,640
(5)(b) 9,495 (f)
(9,597)(f)
Retained earnings.................... -- -- --
--------- --------- --------- --------- -------- --------
Total stockholders'
equity.................... 1 1 5,735 5,737 157,003 $162,740
--------- --------- --------- --------- -------- --------
Total liabilities and
stockholders' equity...... $ 513 $ 123,082 $ 5,303 $ 128,898 $ 35,652 $164,550
========= ========= ========= ========= ======== ========

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

F-3
110

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE SIX MONTHS ENDED JUNE 30, 1997

(IN THOUSANDS, EXCEPT PER SHARE DATA)

PRO FORMA
PRO FORMA COMPANY
HISTORICAL HISTORICAL PRO FORMA COMPANY PRO FORMA ADJUSTED
ADVISORS NET LEASE ADJUSTMENTS ADJUSTED ADJUSTMENTS(2) FOR
MICHIGAN MICHIGAN FOR MERGER FOR MERGER FOR OFFERING OFFERING
---------- --------- ----------- ---------- -------------- ----------

Revenue:
Rental income................ $ 4,996 $ 4,996 $ 4,996
Interest income on loans to
Affiliates................ 343 343 343
Interest income on
investments............... 242 242 242
Interest income on short-term
loans to Affiliates....... 247 247 247
Management fees from
Affiliates................ $ 2,012 -- $(2,012)(a) -- --
Other........................ (3) (3) $ 151 (h) 148
--------- -------- --------- -------- ---------- ----------
Total revenue........ 2,012 5,825 (2,012) 5,825 151 5,976
--------- -------- --------- -------- ---------- ----------
Expenses:
Interest..................... 2,707 2,707 (2,707)(c) --
Management fees,
Affiliates................ 2,012 824 (2,012)(a) 824 (546)(e) 278
General and administrative... 251 251 308 (f) 559
Depreciation and
amortization.............. 677 72 (b) 749 749
--------- -------- --------- -------- ----------
Total expenses....... 2,012 4,459 (1,940) 4,531 (2,945) 1,586
--------- -------- --------- -------- ---------- ----------
Income before income
tax................ -- 1,366 (72) 1,294 3,096 4,390
Provision for income tax....... -- (39) (39) 39 (d) --
--------- -------- --------- -------- ---------- ----------
Net income................ -- 1,405 (72) 1,333 3,057 4,390
Redeemable Preferred Stock
dividend requirements........ -- 3,750 -- 3,750 (3,750)(g) --
--------- -------- --------- -------- ---------- ----------
(Loss) income attributable
to Common Stock......... $ -- $(2,345) $ (72) $ (2,417) $ 6,807 $ 4,390
========= ======== ========= ======== ========== ==========
(Loss) income per common
share........................ $ -- $(2,345) $ (2.47) $ .44
========= ======== ======== ==========
Weighted average common shares
outstanding.................. 661,723 1,000 318,607(i) 980,330 8,975,000(i) 9,955,330
========= ======== ========= ======== ========== ==========

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

F-4
111

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

UNAUDITED PRO FORMA STATEMENT OF OPERATIONS

FOR THE YEAR ENDED DECEMBER 31, 1996

(IN THOUSANDS, EXCEPT PER SHARE DATA)

PRO FORMA PRO FORMA
HISTORICAL HISTORICAL PRO FORMA COMPANY PRO FORMA COMPANY
ADVISORS NET LEASE ADJUSTMENTS ADJUSTED ADJUSTMENTS ADJUSTED
MICHIGAN MICHIGAN FOR MERGER FOR MERGER FOR OFFERING(2) FOR OFFERING
---------- ----------- ----------- ---------- --------------- ------------

Revenue:
Rental income............. $ 4,907 $ 4,907 $ 4,907
Interest income on loans
to Affiliates.......... 1,587 1,587 1,587
Interest income on
investments............ 104 104 104
Interest income on
short-term investments
to Affiliates.......... 302 302 302
Management fees from
Affiliates............. $ 3,565 -- $(3,565)(a) -- --
Other..................... 1 18 19 $ 468 (h) 487
--------- ------- -------- --------- ----------
Total revenue.......... 3,566 6,918 (3,565) 6,919 468 7,387
--------- ------- -------- --------- ----------
Expenses:
Interest.................. 1,977 1,977 (1,977)(c) --
Management fees,
Affiliates............. 3,565 935 (3,565)(a) 935 (619)(e) 316
General and
administrative......... 1 283 284 836 (f) 1,120
Depreciation and
amortization........... 649 143 792 792
--------- ------- -------- --------- ----------
Total expenses......... 3,566 3,844 (3,422) 3,988 (1,760) 2,228
Income before income
tax.................. -- 3,074 (143) 2,931 2,228 5,159
Provision for income tax.... -- 95 95 (95)(d) --
Net income............. -- 2,979 (143) 2,836 2,323 5,159
Redeemable Preferred Stock
dividend requirements..... -- 7,496 -- 7,495 (7,495)(g) --
(Loss) income
attributable to
Common Stock......... $ -- $(4,517) $ -- $ (4,659) $ 9,818 $ 5,159
========= ======= ======== ========= ==========
(Loss) income per common
share..................... $ -- $(4,517) $ (4.75) $ .52
========= ======== ==========
Weighted average common
shares outstanding........ 661,723 1,000 318,607(i) 980,330 8,975,000 (i) 9,955,330
========= ======= ======== ========= ==========

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

F-5
112

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS

1. BALANCE SHEET:

The accompanying unaudited balance sheet as of June 30, 1997 has been
prepared as if the following transactions had been consummated as of June 30,
1997:

(a) Issuance of 318,607 shares at an assumed fair value of $18 per share to the
shareholders of Net Lease Michigan in exchange for 1,000 shares of Net Lease
Michigan in conjunction with the merger of Net Lease Michigan and Advisors
Michigan. The merger was accounted for as a purchase by Advisors Michigan in
accordance with Accounting Principles Board Opinion No. 16. Accordingly, the
transaction was accounted for at the fair value of the assets acquired and
the liabilities assumed.

Par value of Common Stock to be issued in merger............................ $ 3
Additional paid in capital from issuance of Common Stock in merger.......... 5,732
--------
Increase to recorded value of properties subject to operating leases........ $ 5,735
========

(b) To reflect $.01 per share par value of Advisors Michigan historical shares.

(d) Sale of 8,500,000 shares of Common Stock in the Offering at $20 per share:

Proceeds from the Offering.................................................. $170,000
Less, costs associated with the Offering.................................... (12,900)
--------
Net proceeds................................................................ $157,100
========
Par value of Common Stock to be issued in the Offering...................... $ 85
Additional paid-in capital from the net proceeds of the Offering............ 157,015
--------
$157,100
========
(e) Use of a portion of net proceeds of the Offering to retire debt as follows:

Credit Facility............................................................. $ 70,669
Other notes payable......................................................... 2,253
--------
$ 72,922
========

(f) Use of a portion of net proceeds of the Offering to redeem Redeemable Preferred Stock
as follows:

Mandatory redemption amount................................................. $ 58,026
Less, preferred shares exchanged for Common Stock........................... (9,500)
--------
Cash redemption amount...................................................... $ 48,526
========

The excess of the mandatory redemption value of the Redeemable Preferred Stock over
its carrying value ($9,597 at June 30, 1997) was charged to paid-in capital.

At the Offering date, $9,500 of Redeemable Preferred Stock will be exchanged for
$9,500 of Common Stock at the offering price of $20 per share (475,000 shares).

Par value of Common Stock to be exchanged for Redeemable Preferred Stock.... $ 5
Additional paid-in capital from the exchange of Redeemable Preferred 9,495
Stock.......................................................................
--------
$ 9,500
========

F-6
113

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)

NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS -- (CONTINUED)

(g) Reclassify net deferred tax liability as current as a result of
conversion to REIT status.

(h) Purchase of one percent general partner interest in Captec III and
Captec IV.

On a historical basis, 50,000 shares of Redeemable Preferred Stock were
issued and outstanding; on a pro forma basis following the Offering, none were
issued or outstanding. In conjunction with the merger, each share of Redeemable
Preferred Stock of Net Lease Michigan was exchanged for one share of Redeemable
Preferred Stock of the Company. No shares of Preferred Stock were issued or
outstanding on either a historical or pro forma basis.

On a historical basis, 10,000 shares of no par Common Stock were authorized
and 1,000 shares were issued and outstanding. On a pro forma basis, 40,000,000
shares of $.01 par value Common Stock were authorized and 9,955,330 shares were
issued and outstanding.

2. STATEMENTS OF OPERATIONS:

The accompanying unaudited pro forma statements of operations for the six
months ended June 30, 1997 and for the year ended December 31, 1996 presents
results as if the transactions described in Note 1 had been consummated on
January 1, 1996.

SIX MONTHS YEAR ENDED
ENDED JUNE 30, 1997 DECEMBER 31, 1996
------------------- -----------------

(a) Eliminate intercompany management and placement
fees.................................................. $(2,012) $(3,565)
(b) Increase depreciation expense to reflect increase in
recorded value of properties subject to operating
leases................................................ 72 143
(c) Eliminate interest expense on debt retired by the
Company............................................... 2,707 1,977
(d) Eliminate the provision for income taxes to reflect
qualification and operation as a REIT................. 66 (41)
(e) Reduce management fees from $824 to $278 and $935 to
$316, respectively, to reflect Advisory Agreement..... (546) (619)
(f) Increase general and administrative expenses to
reflect commencement of salaries and benefits and
other incremental costs related to operating as a
public REIT........................................... 308 836
(g) Eliminate Redeemable Preferred Stock dividend
requirements for Redeemable Preferred Stock redeemed
and exchanged......................................... (3,750) (7,495)
(h) Record revenues from general partner interests........ 151 468
(i) Weighted average outstanding Common Stock is as
follows:
Historical shares, Advisors
Michigan........................... 661,723
Shares issued in conjunction with
merger............................. 318,607
Shares exchanged for $9,500 Redeemable
Preferred Stock.................... 475,000
Sale of shares in the Offering........ 8,500,000
-----------
9,955,330 9,955,330 9,955,330
=========

F-7
114

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Captec Net Lease Realty, Inc. ("Net Lease Michigan")

We have audited the accompanying balance sheet of Captec Net Lease Realty, Inc.
as of December 31, 1996 and 1995, and the related statements of operations,
changes in stockholders' equity, and cash flows for the years then ended. These
financial statements are the responsibility of management. Our responsibility is
to express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free from
material misstatement. An audit includes examining, on a test basis, evidence
supporting financial statement amounts and disclosures. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Net Lease Realty, Inc.
as of December 31, 1996 and 1995, and the results of its operations, changes in
stockholders' equity and cash flows for the years then ended, in conformity with
generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.

Detroit, Michigan
March 25, 1997

F-8
115

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

BALANCE SHEET

DECEMBER 31,
JUNE 30, ---------------------------
1997 1996 1995
------------ ----------- -----------
(UNAUDITED)

ASSETS
Cash and cash equivalents.......................... $ 1,544,019 $ 3,862,159 $ 1,969,196
Investments:
Properties subject to operating leases, net...... 98,292,754 70,175,031 15,554,325
Loans to Affiliates, collateralized by mortgage
loans......................................... 11,684,080 9,101,714 21,747,755
Impaired mortgage loans.......................... 788,479 4,066,168 --
Other loans...................................... 762,784 788,512 --
Other loans, related party....................... 421,920 421,920 --
Financing leases, net............................ 1,530,760 1,181,900 --
------------ ----------- -----------
Total investments........................ 113,480,777 85,735,245 37,302,080
Short-term loans to Affiliates..................... 5,155,464 6,637,537 2,215,391
Unbilled rent...................................... 1,419,955 622,354 58,468
Accounts receivable................................ 428,693 135,451 20,800
Due from Affiliates................................ -- 269,780 479,242
Other assets....................................... 1,052,845 1,351,954 246,875
------------ ----------- -----------
Total Assets............................. $123,081,753 $98,614,480 $42,292,052
============ =========== ===========

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Notes payable.................................... $ 72,921,864 $48,160,231 $ 1,587,623
Accounts payable................................. 703,178 375,544 203
Due to Affiliates................................ 368,029 -- --
Federal income tax payable....................... 411,000 268,000 268,000
Deferred income tax.............................. 102,000 284,000 189,000
Security deposits held on leases................. 145,850 126,769 76,634
------------ ----------- -----------
Total liabilities........................ 74,651,921 49,214,544 2,121,460
------------ ----------- -----------
Redeemable Preferred Stock (mandatory redemption
amount of $58,026,395, $56,651,395 and
$42,905,493, respectively) (Note 8).............. 48,428,832 49,398,936 40,000,000
------------ ----------- -----------
Stockholders' Equity:
Common Stock; authorized: 10,000 shares; issued
and outstanding: 1,000 shares................. 1,000 1,000 1,000
Retained earnings................................ -- -- 169,592
------------ ----------- -----------
Total stockholders' equity............... 1,000 1,000 170,592
------------ ----------- -----------
Total Liabilities and Stockholders'
Equity................................. $123,081,753 $98,614,480 $42,292,052
============ =========== ===========

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

F-9
116

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF OPERATIONS

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------------- ---------------------------
1997 1996 1996 1995
----------- ----------- ----------- -----------
(UNAUDITED)

Revenue:
Rental income........................ $ 4,996,677 $ 1,612,094 $ 4,907,324 $ 614,166
Interest income on loans to
Affiliates........................ 343,615 904,556 1,587,181 526,621
Interest income on investments....... 241,655 -- 104,188 14,654
Interest income on short-term loans
to Affiliates..................... 246,972 155,973 302,147 713,772
Other................................ (3,447) 7,158 17,510 83
----------- ----------- ----------- -----------
Total revenue................ 5,825,472 2,679,781 6,918,350 1,869,296
----------- ----------- ----------- -----------
Expenses:
Interest............................. 2,707,201 423,116 1,976,634 112,091
Management fees, Affiliates.......... 823,798 398,724 935,241 329,496
General and administrative........... 250,928 112,494 282,784 --
Depreciation and amortization........ 677,649 262,741 649,347 88,117
----------- ----------- ----------- -----------
Total expenses............... 4,459,576 1,197,075 3,844,006 529,704
----------- ----------- ----------- -----------
Income before income tax..... 1,365,896 1,482,706 3,074,344 1,339,592
Provision for income tax............... (39,000) 372,000 95,000 457,000
----------- ----------- ----------- -----------
Net Income................... 1,404,896 1,110,706 2,979,344 882,592
Redeemable Preferred Stock dividend
requirements:
Paid dividends....................... 2,375,000 625,000 3,750,000 713,000
Accrued dividends.................... 1,375,000 3,125,000 3,745,902 2,905,493
----------- ----------- ----------- -----------
Loss attributable to Common
Stock........................... $(2,345,104) $(2,639,294) $(4,516,558) $(2,735,901)
=========== =========== =========== ===========
Loss per common share............. $ (2,345) $ (2,639) $ (4,517) $ (2,736)
=========== =========== =========== ===========
Weighted average number of common
shares outstanding................... 1,000 1,000 1,000 1,000
=========== =========== =========== ===========

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

F-10
117

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE SIX MONTHS ENDED JUNE 30,
1997 (UNAUDITED)

CAPITAL TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- ----------- -------------

BALANCE, JANUARY 1, 1995................................ -- -- --
Issuance of 1,000 shares of Common Stock................ $ 1,000 $ 1,000
Net income.............................................. $ 882,592 882,592
Redeemable Preferred Stock dividends paid from retained
earnings (Note 8)..................................... (713,000) (713,000)
------- -------- ----------
BALANCE, DECEMBER 31, 1995.............................. 1,000 169,592 170,592
Net income.............................................. 2,979,344 2,979,344
Redeemable Preferred Stock dividends paid from retained
earnings (Note 8)..................................... (3,148,936) (3,148,936)
------- -------- ----------
BALANCE, DECEMBER 31, 1996.............................. 1,000 -- 1,000
Net income.............................................. 1,404,896 1,404,896
Redeemable Preferred Stock dividends paid from retained
earnings (Note 8)..................................... (1,404,896) (1,404,896)
------- -------- ----------
BALANCE, JUNE 30, 1997 (unaudited)...................... $ 1,000 -- $ 1,000
======= ======== ==========

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

F-11
118

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF CASH FLOWS

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
----------------------------- -----------------------------
1997 1996 1996 1995
------------ ------------ ------------ ------------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:

Net income................................ $ 1,404,896 $ 1,110,706 $ 2,979,344 $ 882,592
Adjustments to net income:
Depreciation and amortization........... 677,649 262,741 649,347 88,117
Amortization of debt issuance costs..... 262,500 175,000 437,500 --
(Loss) Gain on sale of leased
equipment............................. 58,688 -- (10,351) --
Deferred income tax provision........... (182,000) -- 95,000 189,000
Increase in unbilled rent............... (797,601) (178,529) (563,886) (58,468)
(Decrease) increase in receivables and
other assets.......................... 296,176 (1,352,459) 32,232 (500,042)
Increase in payables.................... 470,635 688,595 375,341 268,203
------------ ------------ ------------ ------------
Net cash provided by operating
activities............................ 2,190,943 706,054 3,994,527 869,402
------------ ------------ ------------ ------------
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of properties................. (25,976,893) (25,269,921) (55,879,245) (41,281,845)
Acquisition of impaired mortgage loans.... -- -- (171,168) --
Advances on loans to Affiliates
collateralized by mortgage loans........ (5,123,234) (7,134,146) (10,055,492)
Acquisition of other loans................ -- -- (1,219,305) --
Acquisition of financing leases........... (370,164) (410,259) (1,181,900) --
Advances on short-term loans to
Affiliates.............................. -- (561,624) (9,677,570) (2,215,391)
Collections on short-term loans to
Affiliates.............................. 1,767,705 -- 5,255,424 --
Proceeds from the sale of leased
equipment............................... 200,522 -- 789,543 --
Collections on loans to Affiliates,
collateralized by mortgage loans........ 2,540,234 11,838,900 18,806,533 3,894,773
Collection of principal on other loans.... 25,729 -- 8,873 --
Collection of principal on financing
leases.................................. 21,305 -- -- --
Change in lease security deposits......... 19,081 39,781 50,135 76,634
------------ ------------ ------------ ------------
Net cash used in investing activities... (26,895,715) (21,497,269) (53,274,172) (39,525,829)
------------ ------------ ------------ ------------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Redeemable
Preferred Stock......................... -- 10,000,000 10,000,000 40,000,000
Proceeds from the issuance of Common
Stock................................... -- -- -- 1,000
Proceeds from issuance of notes payable... 24,803,825 12,880,750 46,607,525 1,617,845
Organization and offering costs........... -- (600,000) (600,000) (250,000)
Debt issuance costs....................... -- (1,050,000) (1,050,000)
Principal payments of notes payable....... (42,193) (17,030) (34,917) (30,222)
Dividends paid on Redeemable Preferred
Stock................................... (2,375,000) (625,000) (3,750,000) (713,000)
------------ ------------ ------------ ------------
Net cash paid by financing activities... 22,386,632 20,588,720 51,172,608 40,625,623
------------ ------------ ------------ ------------
NET CASH FLOWS.............................. (2,318,140) (202,495) 1,892,963 1,969,196
CASH AND CASH EQUIVALENTS, BEGINNING OF
YEAR...................................... 3,862,159 1,969,196 1,969,196 --
------------ ------------ ------------ ------------
CASH AND CASH EQUIVALENTS, END OF YEAR...... $ 1,544,019 $ 1,766,701 $ 3,862,159 $ 1,969,196
============ ============ ============ ============
SUPPLEMENTAL DISCLOSURE OF CASH
FLOW INFORMATION:
Cash paid for interest.................... $ 2,292,606 $ 170,415 $ 1,240,620 $ 112,091
============ ============ ============ ============
Cash paid for taxes....................... $ -- 12,579 $ 12,579 --
============ ============ ============ ============
Noncash transfers: From loans to
Affiliates, collateralized by mortgage
loans to investment in impaired mortgage
loans................................... $ -- $ -- $ 3,895,000 --
============ ============ ============ ============
From impaired mortgage loans to properties
subject to operating leases............. $ 3,277,689 -- -- --
============ ============ ============ ============

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

F-12
119

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:

Captec Net Lease Realty, Inc., a Michigan corporation, ("Net Lease
Michigan" or the "Company") was formed in October 1994 for the purpose of
investing in restaurant and retail real estate throughout the United States and
commenced operations in February 1995.

Following is a summary of the Company's significant accounting policies:

a. CASH AND CASH EQUIVALENTS: Cash equivalents consists of
investments in government securities money funds which hold securities with
original maturities of less than 90 days.

b. PROPERTIES SUBJECT TO OPERATING LEASES: Properties subject to
operating leases are stated at cost less accumulated depreciation.
Buildings are depreciated on the straight-line method over their estimated
useful lives (40 years).

c. RENTAL INCOME FROM OPERATING LEASES: The Company's operating
leases have scheduled rent increases which occur at various dates
throughout the lease terms. Net Lease Michigan recognizes the total rent,
as stipulated by the lease agreement, as income on a straight-line basis
over the term of each lease. To the extent rental income on the
straight-line basis exceeds rents billable per the lease agreement, an
amount is recorded as unbilled rent.

d. IMPAIRED MORTGAGE LOANS: Investments in impaired mortgage loans
have been recorded at the lower of the current balance due or the estimated
fair value of the collateral.

e. AMORTIZATION OF ORGANIZATION COSTS: Organization costs are
recorded at cost and amortized using the straight-line method over a
five-year period.

f. INCOME TAXES: Deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. Such differences arise principally from varying methods of
depreciating buildings and cash basis accounting for tax purposes. Deferred
tax liabilities and assets are recognized for the expected future tax
consequences of events that have been included in the financial statements
or tax returns, measured at the current tax rates. Deferred tax expense or
benefit represents the change in the deferred tax asset or liability
balance.

g. LOSS PER COMMON SHARE: Loss per common share is based on net
income reduced by Redeemable Preferred Stock dividend requirements, divided
by the weighted average number of common shares outstanding.

h. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

i. UNAUDITED INTERIM FINANCIAL INFORMATION: The balance sheet as of
June 30, 1997 and the statements of operations and cash flows for the six
months ended June 30, 1997 and 1996 have not been audited. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been reflected herein.
Results of operations for interim periods are not necessarily indicative of
results expected for the full year.

F-13
120

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

2. PROPERTIES SUBJECT TO OPERATING LEASES:

Net Lease Michigan's real estate portfolio is leased to tenants under
long-term net operating leases. The lease agreements generally provide for
monthly rents based upon a percentage of the property's cost. The initial term
of the leases typically ranges from 15 to 20 years, although the Company in
certain cases will enter into leases with terms that are shorter or longer. Most
leases also provide for one or more five-year renewal options. In addition,
certain leases provide the tenant one or more options to purchase the land and
buildings at a predetermined price, generally only during stated window periods
during the fifth to seventh lease years.

The net investment in real estate at December 31, 1996 and 1995 includes
capitalized acquisition and interest costs totaling approximately $3,250,000 and
$654,000, respectively, which costs have been allocated between land and
buildings and improvements on a pro rata basis. The net investment in real
estate under operating leases is comprised of the following:

DECEMBER 31,
JUNE 30, ---------------------------
1997 1996 1995
----------- ----------- -----------
(UNAUDITED)

Land........................................ $37,609,147 $25,647,078 $ 4,546,482
Buildings and improvements.................. 54,776,257 39,010,252 8,316,476
Construction draws on properties (including
land of $4,699,659, $4,861,012 and
$2,461,474 in 1997, 1996 and 1995,
respectively)............................. 7,097,653 6,071,689 2,776,359
----------- ----------- -----------
99,483,057 70,729,019 15,639,317
Less accumulated depreciation.......... (1,190,303) (553,988) (84,992)
----------- ----------- -----------
Total................................ $98,292,754 $70,175,031 $15,554,325
=========== =========== ===========

Net Lease Michigan periodically invests in properties under construction.
All construction draws are subject to the terms of a standard lease agreement
with the Company which fully obligates the tenant to the long-term lease of all
amounts advanced under construction draws. At December 31, 1996, the Company had
approximately $4,543,000 of unfunded commitments on properties under
construction.

The following is a schedule of future minimum lease payments to be received
on the noncancelable operating leases.

JUNE 30, DECEMBER 31,
1997 1996
------------ ------------
(UNAUDITED)

1997............................................ $ 4,680,548 $ 7,095,915
1998............................................ 10,144,324 7,370,146
1999............................................ 10,334,826 7,502,744
2000............................................ 10,424,597 7,577,415
2001............................................ 10,619,120 7,759,721
Thereafter...................................... 151,858,987 115,133,118
------------ ------------
Total........................................... $198,062,402 $152,439,059
============ ============

3. LOANS TO AFFILIATE, COLLATERALIZED BY MORTGAGE LOANS:

The Company has a master revolving note agreement with Captec Financial
Group, Inc. ("CFG"), an affiliate of the Company. The master revolving note
bears interest at a rate of 8.0 percent and 9.0 percent per annum at December
31, 1996 and 1995, respectively, and is payable on demand.

F-14
121

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

At December 31, 1996 and 1995, the Company held a loan under the master
revolving note collateralized by a senior interest totaling $3,274,876 and
$21,747,755, respectively, in a portfolio of loans under an assignment of
contracts agreement with CFG. Under the terms of the assignment, the Company has
taken a security interest in the underlying loan agreements, and further, has
the right to record an assignment of the related mortgages. At December 31,
1996, the underlying loan portfolio was comprised of 5 first mortgage loans. At
December 31, 1995, the underlying loan portfolio was comprised of 21 first
mortgage loans representing 79 percent of the loan balances, with the remainder
of the loans being collateralized by leasehold mortgages and/or general liens on
the obligor's business. The underlying loan portfolios at December 31, 1996 and
1995 bear fixed rates of interest at a weighted average of 10.31 percent and
10.06 percent, respectively, per annum and mature in 7 to 15 years from the date
of origination.

At December 31, 1996, the Company held a loan under the master revolving
note, collateralized by a subordinate interest totaling $3,826,838, in a
portfolio of loans owned by an affiliate, Captec Financial Group Funding
Corporation ("CFGFC"), which interest was equal to approximately 10 percent of
the face value of the underlying loans. CFGFC's interest in these mortgage loans
is subordinate to that of a senior lender. The Company has invested in these
loans under an assignment of contracts agreement with CFG, the parent company of
CFGFC. The Company has taken a security interest in the underlying loan
agreements, and further, has the right to record an assignment of the related
mortgage, subject to the priority interest of the senior lender. At December 31,
1996, the underlying loan portfolio was comprised of fifty loans, with 68
percent of the loan balance collateralized by first mortgage loans and the
remainder of the loans being collateralized by leasehold mortgages and/or
general liens on the obligor's business. The underlying loan portfolio at
December 31, 1996 bears fixed rates of interest at a weighted average of 9.95
percent per annum and mature in 3 months to 15 years from the date of
origination.

The Company is the holder of a $2,000,000 promissory note collateralized by
a subordinate class certificate issued by Captec Loan Receivables Trust 1996-A
(the "Trust"), an affiliate of the Company, bearing interest at a rate of 15.74
percent per annum. The subordinate class certificate was issued in conjunction
with an asset-backed securitization of a pool of long-term, fixed rate mortgage
loans and other collateralized loans originated by CFG. As of December 31, 1996,
the subordinate class certificate, which interest was equal to approximately 6
percent of the fair value of the underlying loans, was collateralized by a
portfolio of 58 loans aggregating $35,350,424 with a weighted average term of
approximately 170 months and a weighted average yield of 10.02 percent. Monthly
installment payments from the underlying loans will be used to pay both
principal and interest on all classes of certificates, including the
subordinated class certificate held as collateral by the Company.

4. IMPAIRED MORTGAGE LOANS:

At December 31, 1996, the Company's investment in impaired mortgage loans
was comprised of five mortgage loans to a single restaurant obligor. The loans
bear fixed rates of interest ranging from 10.41 to 10.67 percent per annum and
mature 15 years from the dates of origination. All loans are fully amortizing
with level installments of principal and interest due monthly. These loans were
purchased by the Company on December 31, 1996 from an affiliate at the then
outstanding balance, in anticipation of a settlement agreement with respect to
the loans which will result in the title to the underlying properties being
transferred to the Company by deed in lieu of foreclosure. In conjunction with
that settlement, the properties are expected to be leased to a new tenant, under
long-term net operating leases. Installment payments on these loans are
delinquent by more than 120 days and no income has been recognized by the
Company. No allowance for credit losses has been recorded as the estimated fair
value of the underlying properties exceeds the outstanding balances of the
mortgages.

Subsequent to December 31, 1996, three of the properties, comprising
$2,426,548 of the balance, were leased to a new tenant under long-term operating
leases and the balances have been reclassified to properties subject to
operating leases in the accompanying balance sheet. The tenant is 50 percent
owned by an affiliate.

F-15
122

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

Another of the properties, comprising $851,141 of the balance, was leased to a
non-related tenant under a long-term operating lease and has also been
reclassified.

5. OTHER LOANS:

The Company is the holder of a subordinated note with a principal balance
of $788,512 as of December 31, 1996, bearing interest at a rate of 12.5 percent
per annum. The loan is collateralized by a subordinate interest in nineteen real
estate properties, which properties are operated under the terms of long-term
net leases to a single tenant. The properties are being offered for sale to
third parties during a 24 month period. Monthly lease payments and proceeds from
the sale of individual properties will be used to pay both principal and
interest on the loan. The loan also provides for a participation interest in the
proceeds from the sale of individual properties which could result in a return
on the note in excess of the stated note rate. The Company also has a net
investment totaling $9,182,055 in four land and building properties subject to
operating leases with the same tenant.

As of December 31, 1996, the Company also has made a demand loan of
$421,920 collateralized by a first mortgage on a real estate property to a
relative of one of the Company's officers. The loan bears interest at a rate of
9.0 percent per annum.

6. FINANCING LEASES:

The net investment in financing leases as of December 31, 1996 is comprised
of the following:

Minimum lease payments to be received.................................... $1,555,846
Estimated residual value................................................. 92,268
----------
Gross investment in financing leases................................... 1,648,114
Unamortized initial direct costs......................................... 16,984
Unearned income.......................................................... (483,198)
----------
Net investment in financing leases..................................... $1,181,900
==========

The following is a schedule of future minimum lease payments to be received
on the financing leases as of December 31, 1996.

1997..................................................................... $ 491,401
1998..................................................................... 250,507
1999..................................................................... 250,507
2000..................................................................... 250,507
2001..................................................................... 234,184
Thereafter............................................................... 78,740
----------
Total............................................................... $1,555,846
==========

The entire investment in financing leases is comprised of seven leases to a
single restaurant lessee. At December 31, 1996 rents on these leases are
delinquent by more than 120 days and income accrual has been suspended by the
Company. These leases were purchased by the Company in 1996 from an affiliate,
in anticipation of a settlement agreement with respect to the leases.

Subsequent to December 31, 1996, new leases were executed, replacing the
existing leases. The new leases, on which payments are current, are to an entity
which is 50 percent owned by an affiliate.

F-16
123

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

7. NOTES PAYABLE:

In February 1996, the Company entered into a $100 million revolving credit
agreement, which is used to provide funds for the acquisition of properties.
Borrowings under this facility are secured by a first mortgage on the properties
financed. The credit agreement requires monthly installments of interest only at
LIBOR plus 2.318 percent. The acquisition facility expires in February 1998, at
which time the Company may elect to extend the facility for one additional year,
subject to the payment of an extension fee equal to 0.5 percent of the loan
facility amount. In addition, the agreement provided for a commitment fee and
closing expenses totaling $1,050,000, which were paid in February 1996 and
capitalized in other assets. These capitalized fees and expenses are being
amortized and treated as interest expense on a straight-line basis over the
initial term of the facility. Amortization during 1996 totaled $437,500. The
credit agreement contains covenants which, among other restrictions, require Net
Lease Michigan to maintain a capitalization, as defined in the agreement, of $40
million, liquid assets equal to the greater of $2 million or 5 percent of the
outstanding borrowings under the facility, and a loan-to-value ratio of not more
than 75 percent on the properties financed under the credit facility. Amounts
borrowed under the credit facility totaled $46,607,525 as of December 31, 1996.

In June, 1997, the Revolving Credit Agreement was increased to $150
million. Amounts borrowed under the credit facility totaled $70,668,295 at June
30, 1997.

The Company has a note payable to a financial institution with a principal
balance of $1,552,706 and $1,587,623 as of December 31, 1996 and 1995,
respectively. This note bears interest at a fixed rate of 9.85 percent per annum
and is payable in equal monthly installments of $15,813, with a balloon payment
for all remaining principal, approximately $1,350,059, due in June 2001. This
note is collateralized by a mortgage in one of Net Lease Michigan's real estate
investments. At June 30, 1997, the principal balance was $2,252,938, reflecting
an additional note payable to the same financial institution.

At December 31, 1996, annual maturities of the notes payable are as
follows:

1997............................................................ $ 38,517
1998............................................................ 46,650,011
1999............................................................ 46,866
2000............................................................ 51,696
2001............................................................ 1,373,141
-----------
Total...................................................... $48,160,231
===========

8. REDEEMABLE PREFERRED STOCK:

At December 31, 1996 and 1995, 50,000 and 40,000 shares of Redeemable
Preferred Stock ("RPS") were issued and outstanding, respectively. The RPS
provides for mandatory redemption on December 31, 1999 at a price of $1,000 per
share plus all accrued dividends, whether or not then payable, and any unpaid
dividends. The Company has the right and option to redeem these shares on or
after December 31, 1996 at a price of $1,000 per share plus all accrued and
unpaid dividends.

The RPS provide for a cumulative, non-compounded dividend at the rate of
$37.50 per share per quarter, proportionally adjusted for any shares issued and
outstanding for less than a full calendar year. The preferred shareholders have
preferential liquidation rights which require the payment of all accrued and
unpaid dividends prior to the payment of any dividends or liquidation payments
to the common shareholders. Dividends are paid as declared by the Company's
Board of Directors based upon results of Company operations. Any dividend paid
in

F-17
124

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

excess of retained earnings has been accounted for as a return of capital to the
holders of the RPS. RPS dividends paid through June 30, 1997 were as follows:

RETURN
FROM OF CAPITAL
RETAINED (REDUCTION OF RPS
EARNINGS CARRYING VALUE) TOTAL
---------- ----------------- ----------

Paid in 1995, $22.46 per share............. $ 713,000 -- $ 713,000
Paid in 1996, $75.00 per share............. 3,148,936 $ 601,064 3,750,000
Paid in 1997, $47.50 per share............. 1,404,896 970,104 2,375,000
---------- ---------- ----------
$5,266,832 $ 1,571,168 $6,838,000
========== ========== ==========

Accumulated unpaid dividends were $8,026,395, $6,651,395 and $2,905,493 as
of June 30, 1997, and December 31, 1996 and 1995, respectively.

9. INCOME TAX:

The components of the provision for income taxes are as follows:

SIX
MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
-------- ------- --------
(UNAUDITED)

Current............................................. $143,000 $268,000
Deferred............................................ (182,000) $95,000 189,000
-------- ------- --------
$(39,000) $95,000 $457,000
======== ======= ========

The reconciliation of the federal income tax provision to the amount
computed by applying the statutory federal income tax rate to income before
federal income taxes is summarized as follows:

SIX
MONTHS YEAR ENDED
ENDED DECEMBER 31,
JUNE 30, -----------------------
1997 1996 1995
-------- ---------- --------
(UNAUDITED)

Federal income taxes at statutory rates........... $464,405 $1,045,276 $455,461
Preferred stock dividends deducted as interest
expense......................................... (503,500) (947,400) --
Other............................................. 95 (2,876) 1,539
-------- ---------- --------
$(39,000) $ 95,000 $457,000
======== ========== ========

The provision for income taxes does not bear the usual relationship to
pretax income for the six months ended June 30, 1997 and for the year ended
December 31, 1996 principally as a result of the treatment of dividends paid on
the Redeemable Preferred Stock as deductible interest expense for income tax
purposes. If deduction as interest is challenged by the Internal Revenue
Service, the Company could be assessed and ultimately required to pay income and
withholding taxes aggregating up to approximately $3,400,000 and $3,035,000 for
deductions taken through June 30, 1997 and December 31, 1996, respectively. The
Company has provided an allowance, consisting of currently payable taxes and a
valuation allowance on deferred taxes, of approximately $875,000 and $570,000
through June 30, 1997 and December 31, 1996, respectively, to reflect its
estimate of the minimum settlement of this matter, should a claim by asserted by
the Internal Revenue Service.

F-18
125

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

There is no assurance that if any claim is asserted, it could be settled for the
amounts provided as of June 30, 1997 and December 31, 1996 or any amount less
than the aggregate amounts.

The components of net deferred taxes consist of the following:

DECEMBER 31,
JUNE 30, --------------------------------------------
1997 1996 1995
--------------------- --------------------- --------------------
ASSET LIABILITY ASSET LIABILITY ASSET LIABILITY
--------- --------- --------- --------- -------- ---------
(UNAUDITED)

Net operating loss
carryforward......... $945,000 -- $602,000 -- -- --
Other.................. -- $583,000 -- $583,000 $40,000 $229,000
Less: valuation
allowance............ (464,000) -- (303,000) -- -- --
-------- -------- -------- -------- ------- --------
Total deferred
income taxes.... $481,000 $583,000 $299,000 $583,000 $40,000 $229,000
======== ======== ======== ======== ======= ========

At December 31, 1996, the Company has a net loss carryforward for federal
income tax purposes of approximately $1,770,000 that will expire in 2011. Other
deferred assets and liabilities noted above arise principally from varying
methods of depreciating buildings and cash basis accounting for tax purposes.

10. FINANCIAL INSTRUMENTS:

The estimated fair value of financial instruments held by the Company at
December 31, 1996 and 1995, and the valuation techniques used to estimate the
fair value, were as follows:

1996 1995
--------------------------- ---------------------------
ESTIMATED ESTIMATED
BOOK FAIR BOOK FAIR
VALUE VALUE VALUE VALUE
----------- ----------- ----------- -----------

Assets:
Cash and cash equivalents... $ 3,862,159 $ 3,862,159 $ 1,969,196 $ 1,969,196
Impaired mortgage loans..... 4,066,168 4,066,168 -- --
Loans to Affiliates,
collateralized by
mortgage loans........... 9,101,714 9,101,714 21,747,755 21,747,755
Other loans................. 1,210,432 1,210,432 -- --
Short-term loans to
Affiliates............... 6,637,537 6,637,537 2,215,391 2,215,391
Liabilities, notes payable.... 48,160,231 48,267,687 1,587,623 1,587,623

- CASH AND CASH EQUIVALENTS. The book value approximates fair value because
of the short maturity of these instruments.

- IMPAIRED MORTGAGE LOANS. The fair value of the investment in mortgage
loans is estimated to be equal to the current balance due on the loans
since title to the real property collateralizing these loans is in the
process of being transferred to the Company and the estimated value of the
property exceeds the loan balances.

- LOANS TO AFFILIATES, COLLATERALIZED BY MORTGAGE LOANS. The book value
approximates fair value because the fixed interest rates charged under
these investments approximate market interest rates commensurate with
this type of instrument and due to the short maturity of these loans.

- OTHER LOANS. The book value approximates fair value because the fixed
interest rates charged under these investments approximates market
interest rates commensurate with this type of instrument.

F-19
126

CAPTEC NET LEASE REALTY, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

- SHORT-TERM LOANS TO AFFILIATES. The book value approximates fair value
because the fixed interest rate charged under these investments
approximates market interest rates commensurate with this type of
instrument and due to the short maturity of these loans.

- NOTES PAYABLE. The fair value of floating rate debt approximates the
book value due to the short maturity of the pricing mechanism for this
debt. The fair value of fixed rate debt is estimated by discounting
future cash flows using an estimated discount rate which reflects the
rate at which the Company currently borrows under its credit facility.

11. RELATED PARTY TRANSACTIONS AND AGREEMENTS:

Net Lease Michigan has entered into a management agreement with Captec Net
Lease Realty Advisors, Inc. ("Advisors Michigan"), an affiliate of Captec
Financial Group, Inc., whereby Advisors Michigan provides various organizational
and property and equipment management services for the Company. During 1995, the
Company paid to Advisors Michigan a total of $250,000 of organizational costs,
which costs have been capitalized. During 1995, the Company paid an asset
management fee of $30,000 per month, and beginning in 1996, asset management
fees under the agreement will be payable quarterly in advance in an amount equal
to 2% of the aggregate purchase price of real property assets held by the
Company. In addition, the asset management agreement provides for the payment of
an acquisition fee equal to 5% of the aggregate purchase prices of properties
originated by Advisors Michigan on behalf of the Company. During 1996 and 1995,
Net Lease Michigan incurred $935,000 and $330,000, respectively, of asset
management fees and approximately $2,630,000 and $654,000, respectively, in
acquisition fees to Advisors Michigan. The acquisition fees were capitalized
into the Company's investment in properties subject to operating leases.

The Company invested in mortgage loans held in the name of CFG and CFGFC
(see Note 3).

In addition, Net Lease Michigan had the following short-term loans to
affiliates at December 31, 1996 and 1995:

1996 1995
---------- ----------

Captec Financial Group, Inc......................................... $6,442,004 $1,970,000
Others.............................................................. 195,533 243,391
---------- ----------
Total............................................................. $6,637,537 $2,213,391
---------- ----------

The above loans principally represent demand notes to affiliates, which
were entered into as a short-term investment by the Company. In particular, the
proceeds of the loans to Captec Financial Group, Inc. are principally used as
short-term warehouse financing for Captec's lending and leasing activities.
These loans bear interest at the rate of 8.0 percent per annum and are payable
on demand.

At December 31, 1996, the Company was owed interest accrued on the loans to
affiliates, collateralized by mortgage loans, and the investment in short-term
loans totaling approximately $873,000, which was offset by approximately
$603,000 of amounts payable to such affiliates, resulting in a net balance due
from affiliates of $269,780. Interest earned on the loans during 1996 and 1995
was $1,871,846 and $596,316, respectively.

F-20
127

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Captec Net Lease Realty Advisors, Inc. ("Advisors Michigan")

We have audited the accompanying balance sheet of Captec Net Lease Realty
Advisors, Inc. as of December 31, 1996 and 1995, and the related statements of
operations, changes in stockholders' equity, and cash flows for the years then
ended. These financial statements are the responsibility of management. Our
responsibility is to express an opinion on these financial statements based on
our audits.

In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of Captec Net Lease Realty
Advisors, Inc. as of December 31, 1996 and 1995, and the results of its
operations, changes in stockholders' equity and cash flows for the years then
ended, in conformity with generally accepted accounting principles.

/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.

Detroit, Michigan
November , 1997

F-21
128

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

BALANCE SHEET

DECEMBER 31,
JUNE 30, --------------------
1997 1996 1995
----------- -------- -------
(UNAUDITED)

ASSETS
Cash and cash equivalents................................... $ 614 $ 1,135 $ 2,179
Short-term loans to Affiliates..............................
Accounts receivable......................................... 3,364 2,843 1,799
Due from Affiliates......................................... 509,042 415,328 87,022
---------- -------- -------

Total Assets...................................... $ 513,020 $419,306 $91,000
========== ======== =======

LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Due to Affiliates......................................... $ 512,020 $418,306 $90,000
---------- -------- -------
Total liabilities................................. 512,020 418,306 90,000
---------- -------- -------
Stockholders' Equity:
Common Stock; authorized: 40,000,000 shares; issued and
outstanding: 661,723 shares............................ 1,000 1,000 1,000
Retained earnings......................................... -- -- --
---------- -------- -------
Total stockholders' equity........................ 1,000 1,000 1,000
---------- -------- -------
Total Liabilities and Stockholders' Equity........ $ 513,020 $419,306 $91,000
========== ======== =======

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

F-22
129

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF OPERATIONS

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
------------------------- -----------------------
1997 1996 1996 1995
---------- ---------- ---------- --------
(UNAUDITED)

Revenue:
Management fees from Affiliates.......... $2,011,798 $1,489,724 $3,565,241 $984,000
Other.................................... 521 522 1,044 899
----------- ----------- ----------- -----------
Total revenue.................... 2,012,319 1,490,246 3,566,285 984,899
----------- ----------- ----------- -----------
Expenses:
Management fees, Affiliates.............. 2,011,798 1,489,724 3,565,241 984,000
General and administrative............... 521 522 1,044 899
----------- ----------- ----------- -----------
Total expenses................... 2,012,319 1,490,246 3,566,285 984,899
----------- ----------- ----------- -----------
Income before income tax......... -- -- -- --
Provision for income tax................... -- -- -- --
----------- ----------- ----------- -----------
Net Income....................... -- -- -- --
=========== =========== =========== ===========

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

F-23
130

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF CHANGES IN STOCKHOLDERS' EQUITY

FOR THE YEARS ENDED DECEMBER 31, 1996 AND 1995 AND THE SIX MONTHS ENDED JUNE 30,
1997 (UNAUDITED)

TOTAL
COMMON RETAINED STOCKHOLDERS'
STOCK EARNINGS EQUITY
------- ---------- -------------

BALANCE, JANUARY 1, 1995
Issuance of 661,723 shares of Common Stock............... $ 1,000 $ 1,000
Net income............................................... -- --
------- -------- ----------
BALANCE, DECEMBER 31, 1995............................... 1,000
Net income............................................... -- --
------- -------- ----------
BALANCE, DECEMBER 31, 1996............................... 1,000
Net income............................................... -- --
------- -------- ----------
BALANCE, JUNE 30, 1997 (unaudited)....................... $ 1,000 -- $ 1,000
======= ======== ==========

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

F-24
131

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

STATEMENT OF CASH FLOWS

SIX MONTHS ENDED YEARS ENDED
JUNE 30, DECEMBER 31,
--------------------- ---------------------
1997 1996 1996 1995
-------- -------- -------- --------
(UNAUDITED)

CASH FLOWS FROM OPERATING ACTIVITIES:
Net income.................................... -- -- -- --
Adjustments to net income:
Decrease (increase) in receivables and
other assets............................. $ (521) $ (522) $ (1,044) $ (1,799)
-------- -------- -------- --------
Net cash provided by operating
activities............................... (521) (522) (1,044) (1,799)
-------- -------- -------- --------
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from the issuance of Common Stock.... 1,000
Proceeds from net change in Due to/from
Affiliates................................. 2,978
-------- -------- -------- --------
Net cash paid by financing activities...... 3,978
-------- -------- -------- --------
NET CASH FLOWS.................................. (521) (522) (1,044) 2,179

CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR.... 1,135 2,179 2,179 --
-------- -------- -------- --------
CASH AND CASH EQUIVALENTS, END OF YEAR.......... $ 614 $ 1,657 $ 1,135 $ 2,179
======== ======== ======== ========

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

F-25
132

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS

1. THE COMPANY AND ITS SIGNIFICANT ACCOUNTING PRINCIPLES:

Captec Net Lease Realty Advisors, Inc. ("Advisors Michigan"), a Michigan
corporation, was formed in October 1994 for the purpose of providing certain
advisory services to Captec Net Lease Realty, Inc., an affiliate, and commenced
operations in February 1995.

In connection with a proposed initial public offering of common stock,
Captec Net Lease Realty, Inc., a Delaware corporation ("Net Lease Delaware"),
was formed in August 1997 and Advisors Michigan was merged into Net Lease
Delaware in September 1997 in exchange for 887,922 shares. In October 1997, a
reverse split of .745249 shares for each share of Common Stock was effected,
resulting in 661,723 shares outstanding. The accompanying financial statements
reflect the 661,723 shares as outstanding for all periods presented.

Following is a summary of Advisors Michigan's significant accounting
policies:

a. CASH AND CASH EQUIVALENTS: Cash equivalents consists of
investments in government securities money funds which hold securities with
original maturities of less than 90 days.

b. MANAGEMENT FEES FROM AFFILIATES: Management fees from affiliates
consist of advisory and acquisition fees and are recognized as earned on an
accrual basis.

c. INCOME TAXES: Deferred taxes are determined based on the
difference between the financial statement and tax bases of assets and
liabilities. Deferred tax liabilities and assets are recognized for the
expected future tax consequences of events that have been included in the
financial statements or tax returns, measured at the current tax rates.
Deferred tax expense or benefit represents the change in the deferred tax
asset or liability balance.

d. ESTIMATES: The preparation of financial statements in conformity
with generally accepted accounting principles requires management to make
estimates and assumptions that affect the reported amounts of assets and
liabilities and disclosure of contingent assets and liabilities at the date
of the financial statements and the reported amounts of revenues and
expenses during the reporting period. Actual results could differ from
those estimates.

e. UNAUDITED INTERIM FINANCIAL INFORMATION: The balance sheet as of
June 30, 1997 and the statements of operations and cash flows for the six
months ended June 30, 1997 and 1996 have not been audited. In the opinion
of management, all adjustments (consisting of normal recurring accruals)
considered necessary for a fair presentation have been reflected herein.
Results of operations for interim periods are not necessarily indicative of
results expected for the full year.

2. RELATED PARTY TRANSACTIONS AND AGREEMENTS:

Advisors Michigan has entered into a management agreement with Captec Net
Lease Realty, Inc. ("Net Lease Michigan"), an affiliate of Captec Financial
Group, Inc., ("CFG") whereby Advisors Michigan provides various organizational
and property and equipment management services for Net Lease Michigan. During
1995, Net Lease Michigan paid to Advisors Michigan a total of $250,000 of
organizational costs. Also during 1995, Net Lease Michigan paid an asset
management fee of $30,000 per month, and beginning in 1996, asset management
fees under the agreement will be payable quarterly in advance in an amount equal
to 2% of the aggregate purchase price of real property assets held by Net Lease
Michigan. In addition, the asset management agreement provides for the payment
of an acquisition fee equal to 5% of the aggregate purchase prices of properties
originated by Advisors Michigan on behalf of Net Lease Michigan. During 1996 and
1995, Advisors Michigan earned $935,000 and $330,000, respectively, of asset
management fees and approximately $2,630,000 and $654,000, respectively, in
acquisition fees from Net Lease Michigan.

F-26
133

CAPTEC NET LEASE REALTY ADVISORS, INC.
(A MICHIGAN CORPORATION)

NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)

CFG provides advisory services to Advisors Michigan. During 1996 and 1995,
Advisors Michigan incurred advisory fees of approximately $3,565,000 and
$984,000, respectively, to CFG.

Due to affiliates consists solely of amounts due to CFG. The composition of
due from affiliates was as follows as of December 31, 1996 and 1995:

1996 1995
-------- -------

Net Lease Michigan...................................... $338,306 $10,000
Others.................................................. 77,022 77,022
-------- -------
$415,328 $87,022
======== =======

F-27
134

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Captec Net Lease Realty, Inc. (a Delaware corporation)

We have audited the accompanying balance sheet of Captec Net Lease Realty, Inc.
as of August 29, 1997. This financial statement is the responsibility of
management. Our responsibility is to express an opinion on this financial
statement based on our audit.

We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free from material
misstatement. An audit includes examining, on a test basis, evidence supporting
financial statement amounts and disclosures. An audit also includes assessing
the accounting principles used and significant estimates made by management, as
well as evaluating the overall financial statement presentation. We believe that
our audits provide a reasonable basis for our opinion.

In our opinion, the financial statement referred to above presents fairly, in
all material respects, the financial position of Captec Net Lease Realty, Inc.
as of August 29, 1997, in conformity with generally accepted accounting
principles.

/s/ COOPERS & LYBRAND L.L.P.
COOPERS & LYBRAND L.L.P.

Detroit, Michigan
November , 1997

F-28
135

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
BALANCE SHEET

AUGUST 29,
1997
----------

ASSETS
Cash.............................................................................. $1
--
Total Assets............................................................ $1
==
STOCKHOLDER EQUITY
Common Stock, $.01 par value, 40,000,000 shares authorized, 1 share issued and
outstanding..................................................................... $1
--
Total Stockholder Equity................................................ $1
==

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

F-29
136

CAPTEC NET LEASE REALTY, INC.
(A DELAWARE CORPORATION)
NOTES TO FINANCIAL STATEMENT

1. THE COMPANY:

In connection with a proposed initial public offering of common stock,
Captec Net Lease Realty Inc., a Delaware corporation, (the "Company") was formed
on August 29, 1997.

2. SUBSEQUENT EVENT:

In September 1997, Captec Net Lease Realty Inc., a Michigan corporation,
("Net Lease Michigan") and Captec Net Lease Realty Advisors, Inc., also a
Michigan corporation ("Advisors Michigan"), were merged into the Company in
exchange for 1,315,440 shares of Common Stock and 50,000 shares of Redeemable
Preferred Stock. In October 1997, a reverse split of .745249 shares for each
share of Common Stock was effected, resulting in 980,330 shares outstanding.

F-30
137

REPORT OF INDEPENDENT ACCOUNTANTS

To the Board of Directors of
Captec Net Lease Realty, Inc.:

In connection with our audits of the financial statements of Captec Net
Lease Realty, Inc., as of December 31, 1996 and 1995, and each of the two years
in the period ended December 31, 1996, which financial statements are included
in the Prospectus, we have also audited the financial statement schedule listed
in the Index to Financial Statements contained in the Prospectus.

In our opinion, this financial statement schedule, when considered in
relation to the basic financial statements taken as a whole, presents fairly, in
all material respects, the information required to be included therein.

/s/ COOPERS & LYBRAND, L.L.P.
COOPERS & LYBRAND, L.L.P.

Detroit, Michigan
March 25, 1997

S-1
138

CAPTEC NET LEASE REALTY, INC.

SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 1996

COST
CAPITALIZED
INITIAL SUBSEQUENT
TYPE OF STATE COST TO TO
CONCEPT NAME PROPERTY LOCATION ENCUMBRANCES COMPANY ACQUISITION
- ------------------------------------------- ----------- -------- ------------ ----------- ----------

COMMENCED LEASES
Golden Corral Restaurant TX $ 1,552,706 $ 1,926,149 --
Kenny Rogers Roasters Restaurant FL -- 338,310 --
Boston Market Restaurant SC -- 477,750 --
Kenny Rogers Roasters Restaurant NY -- 997,500 --
Denny's Restaurant TX 675,000 592,771 --
Denny's Restaurant TX 675,000 588,140 --
Denny's Restaurant NC 675,000 776,521 --
Denny's Restaurant NC 675,000 776,521 --
Kenny Rogers Roasters Restaurant CA -- 415,275 --
Denny's Restaurant TX 450,000 630,000 --
Taco Cabana Restaurant GA 675,000 1,016,000 --
Carrows Restaurant CA 825,000 1,155,000 --
Carrows Restaurant CA 825,000 1,155,000 --
Carrows Restaurant CA 900,000 1,260,000 --
Church's Restaurant GA 596,650 835,321 --
Boston Market Restaurant OH 750,000 892,500 --
Boston Market Restaurant WA 911,250 1,275,750 --
Boston Market Restaurant NJ 862,500 850,500 --
Boston Market Restaurant PA 697,500 682,500 --
Carrows Restaurant CA 750,000 1,050,000 --
Taco Cabana Restaurant GA 750,000 1,129,000 --
Blockbuster Video Retail TX 537,000 751,800 --
Blockbuster Video Retail TX 535,000 802,200 --
Stanford's Restaurant CO 1,650,000 2,310,000 --
Boston Market Restaurant IL 1,425,000 1,789,200 --
Red Line Burgers Restaurant TX -- 266,997 --
Red Line Burgers Restaurant TX -- 266,997 --
Red Line Burgers Restaurant TX -- 266,997 --
Boston Market Restaurant OR 885,000 1,159,616 --
Boston Market Restaurant PA 753,750 871,500 --
Red Robin Restaurant WA 2,302,500 3,000,667 --
Boston Market Restaurant IL 656,250 589,050 --
Applebees Restaurant WA 1,637,625 1,890,000 --
Applebees Restaurant MO 1,575,000 1,986,444 --
Boston Market Restaurant PA 862,500 844,200 --
Baby Superstore Retail MO 2,145,000 3,003,000 --
Black Angus Restaurant MN 1,931,250 2,698,500 --
Black Angus Restaurant MN 1,380,000 1,932,000 --
Black Angus Restaurant MN 1,597,500 2,236,500 --
Black Angus Restaurant MN 1,683,750 2,352,000 --
Boston Market Restaurant OR 967,500 1,295,700 --
Mountain Jack's Restaurant MI 1,042,500 1,459,500 --
Mountain Jack's Restaurant MI 765,000 1,071,000 --
Boston Market Restaurant IL 787,500 844,200 --
Red Robin Restaurant CO 2,250,000 3,123,750 --
Denny's Restaurant TX 825,000 1,155,000 --
Boston Market Restaurant OH 765,000 729,828 --
Boston Market Restaurant IN 1,117,500 1,564,500 --
Jack In The Box Restaurant CA 750,000 985,425 --
Boston Market Restaurant PA 862,500 787,500 --
Boston Market Restaurant WA 795,000 894,706 --
Boston Market Restaurant WA 870,000 982,886 --
Boston Market Restaurant WA 825,000 999,165 --
Boston Market Restaurant PA 735,000 925,994 --
------------ -----------
Subtotal -- Commenced Leases 48,160,231 64,657,330 --
------------ -----------
CONSTRUCTION DRAWS ON LEASES
Boston Market Restaurant WI -- 519,750 --
Boston Market Restaurant WI -- 577,500 --
Boston Market Restaurant PA -- 403,200 --
Denny's Restaurant LA -- 382,352 --
Boston Market Restaurant PA -- 455,700 --
Mountain Jack's Restaurant OH -- 1,383,144 --
Boston Market Restaurant IL -- 830,025 --
Boston Market Restaurant PA -- 643,650 --
Golden Corral Restaurant FL -- 876,368 --
-----------
Subtotal -- Construction Draws -- 6,071,689 --
------------ -----------
Grand Total -- All Real Estate Leases $48,160,231 $70,729,019 --
============ ===========

GROSS AMOUNT
AT WHICH
CARRIED AT DATE OF
CLOSE ACCUMULATED ACQUISITION/ ACQUISITION/
CONCEPT NAME OF PERIOD DEPRECIATION CONSTRUCTION CONSTRUCTION DEPRECIATION
- ------------------------------------------- ------------ ----------- ------------ ------------- ------------

COMMENCED LEASES
Golden Corral $ 1,926,149 41,400 1995 Acquisition 40 Years
Kenny Rogers Roasters 338,310 -- 1995 Acquisition 40 Years
Boston Market 477,750 55,738 1995 Acquisition 40 Years
Kenny Rogers Roasters 997,500 15,316 1995 Acquisition 40 Years
Denny's 592,771 6,117 1995 Acquisition 40 Years
Denny's 588,140 6,323 1995 Acquisition 40 Years
Denny's 776,521 13,376 1995 Acquisition 40 Years
Denny's 776,521 15,605 1995 Acquisition 40 Years
Kenny Rogers Roasters 415,275 5,675 1995 Acquisition 40 Years
Denny's 630,000 18,413 1995 Acquisition 40 Years
Taco Cabana 1,016,000 14,360 1995 Acquisition 40 Years
Carrows 1,155,000 17,069 1996 Acquisition 40 Years
Carrows 1,155,000 14,212 1996 Acquisition 40 Years
Carrows 1,260,000 14,175 1996 Acquisition 40 Years
Church's 835,321 9,520 1996 Acquisition 40 Years
Boston Market 892,500 9,128 1996 Acquisition 40 Years
Boston Market 1,275,750 13,731 1996 Acquisition 40 Years
Boston Market 850,500 7,139 1996 Acquisition 40 Years
Boston Market 682,500 4,086 1996 Acquisition 40 Years
Carrows 1,050,000 14,766 1996 Acquisition 40 Years
Taco Cabana 1,129,000 11,307 1996 Acquisition 40 Years
Blockbuster Video 751,800 10,296 1996 Acquisition 40 Years
Blockbuster Video 802,200 9,055 1996 Acquisition 40 Years
Stanford's 2,310,000 31,929 1996 Acquisition 40 Years
Boston Market 1,789,200 12,063 1996 Acquisition 40 Years
Red Line Burgers 266,997 7,231 1995 Acquisition 40 Years
Red Line Burgers 266,997 7,231 1995 Acquisition 40 Years
Red Line Burgers 266,997 7,231 1995 Acquisition 40 Years
Boston Market 1,159,616 11,801 1996 Acquisition 40 Years
Boston Market 871,500 6,867 1996 Acquisition 40 Years
Red Robin 3,000,667 26,926 1996 Acquisition 40 Years
Boston Market 589,050 4,476 1996 Acquisition 40 Years
Applebees 1,890,000 12,892 1996 Construction 40 Years
Applebees 1,986,444 13,889 1996 Construction 40 Years
Boston Market 844,200 3,534 1996 Acquisition 40 Years
Baby Superstore 3,003,000 13,684 1996 Acquisition 40 Years
Black Angus 2,698,500 10,302 1996 Acquisition 40 Years
Black Angus 1,932,000 9,125 1996 Acquisition 40 Years
Black Angus 2,236,500 9,383 1996 Acquisition 40 Years
Black Angus 2,352,000 8,135 1996 Acquisition 40 Years
Boston Market 1,295,700 3,898 1996 Acquisition 40 Years
Mountain Jack's 1,459,500 7,218 1996 Acquisition 40 Years
Mountain Jack's 1,071,000 4,267 1996 Acquisition 40 Years
Boston Market 844,200 3,308 1996 Acquisition 40 Years
Red Robin 3,123,750 4,506 1996 Construction 40 Years
Denny's 1,155,000 1,695 1996 Construction 40 Years
Boston Market 729,828 919 1996 Construction 40 Years
Boston Market 1,564,500 2,450 1996 Construction 40 Years
Jack In The Box 985,425 959 1996 Acquisition 40 Years
Boston Market 787,500 -- 1996 Acquisition 40 Years
Boston Market 894,706 -- 1996 Construction 40 Years
Boston Market 982,886 -- 1996 Construction 40 Years
Boston Market 999,165 -- 1996 Construction 40 Years
Boston Market 925,994 1,262 1996 Construction 40 Years
------------ -----------
Subtotal -- Commenced Leases 64,657,330 553,988
------------ -----------
CONSTRUCTION DRAWS ON LEASES
Boston Market 519,750 -- 1996 Construction --
Boston Market 577,500 -- 1996 Construction --
Boston Market 403,200 -- 1996 Construction --
Denny's 382,352 -- 1996 Construction --
Boston Market 455,700 -- 1996 Construction --
Mountain Jack's 1,383,144 -- 1996 Construction --
Boston Market 830,025 -- 1996 Construction --
Boston Market 643,650 -- 1996 Construction --
Golden Corral 876,368 -- 1996 Construction --
------------
Subtotal -- Construction Draws 6,071,689 --
------------ -----------
Grand Total -- All Real Estate Leases $70,729,019 553,988
============ ===========

S-2
139

CAPTEC NET LEASE REALTY, INC.

PROPERTIES AND ACCUMULATED DEPRECIATION (CONTINUED)
AS OF DECEMBER 31, 1996

NOTES:

The changes in total properties for the years ended December 31, 1996 and
1995 are as follows:

1996 1995
----------- -----------

Balance, beginning of year........................ $15,639,317 $ --
Acquisitions...................................... 55,879,245 15,639,317
Dispositions and other............................ (789,543) --
-------------- --------------
Balance, end of year.............................. $70,729,019 $15,639,317
============== ==============

The change in accumulated depreciation for the years ended December 31,
1996 and 1995 are as follows:

1996 1995
----------- -----------

Balance, beginning of year........................ $ 84,992 $ --
Depreciation for the period....................... 479,347 84,992
Disposition and other............................. (10,351) --
-------------- --------------
Balance, end of year.............................. $ 553,988 $ 84,992
============== ==============

S-3
140

- ---------------------------------------------------------
NO DEALER, SALESPERSON OR OTHER PERSON HAS BEEN AUTHORIZED TO GIVE ANY
INFORMATION OR TO MAKE ANY REPRESENTATION NOT CONTAINED IN THIS PROSPECTUS AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATION MUST NOT BE RELIED UPON AS
HAVING BEEN AUTHORIZED BY THE COMPANY OR ANY UNDERWRITER. THIS PROSPECTUS DOES
NOT CONSTITUTE AN OFFER TO SELL OR A SOLICITATION OF AN OFFER TO BUY ANY OF THE
SECURITIES OFFERED HEREBY IN ANY JURISDICTION TO ANY PERSON TO WHOM IT IS
UNLAWFUL TO MAKE SUCH OFFER IN SUCH JURISDICTION. NEITHER THE DELIVERY OF THIS
PROSPECTUS NOR ANY SALE MADE HEREUNDER SHALL, UNDER ANY CIRCUMSTANCES, CREATE
ANY IMPLICATION THAT THE INFORMATION HEREIN IS CORRECT AS OF ANY TIME SUBSEQUENT
TO THE DATE HEREOF OR THAT THERE HAS BEEN NO CHANGE IN AFFAIRS OF THE COMPANY
SINCE SUCH DATE.

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

TABLE OF CONTENTS

PAGE
----

Prospectus Summary.......................... 1
Risk Factors................................ 15
Conflicts of Interest....................... 28
Use of Proceeds............................. 31
Distribution Policy......................... 32
Capitalization.............................. 35
Dilution.................................... 36
Selected Financial Data..................... 37
Management's Discussion and Analysis of
Financial Condition and Results of
Operations................................ 40
Industries.................................. 44
Business.................................... 45
Description of Properties and Leases........ 68
Management.................................. 71
Certain Transactions........................ 76
Principal Stockholders...................... 77
Capital Stock of the Company................ 77
Shares Eligible for Future Sale............. 80
Federal Income Tax Considerations........... 81
ERISA Considerations........................ 93
Underwriting................................ 94
Legal Matters............................... 95
Experts..................................... 96
Additional Information...................... 96
Glossary.................................... 96
Index to Financial Statements............... F-1

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

UNTIL , 1997 (25 DAYS AFTER THE COMMENCEMENT OF THE OFFERING),
ALL DEALERS EFFECTING TRANSACTIONS IN THE REGISTERED SECURITIES, WHETHER OR NOT
PARTICIPATING IN THIS DISTRIBUTION, MAY BE REQUIRED TO DELIVER A PROSPECTUS.
THIS IS IN ADDITION TO THE OBLIGATION OF DEALERS TO DELIVER A PROSPECTUS WHEN
ACTING AS UNDERWRITERS AND WITH RESPECT TO THEIR UNSOLD ALLOTMENTS OR
SUBSCRIPTIONS.

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

[CAPTEC LOGO]

8,500,000 Shares

Common Stock

($.01 par value)

PROSPECTUS

CREDIT SUISSE FIRST BOSTON
BEAR, STEARNS & CO. INC.
PRUDENTIAL SECURITIES INCORPORATED
MCDONALD & COMPANY SECURITIES, INC.
PIPER JAFFRAY INC.

- --------------------------------------------------------------------------------
141

PART II

ITEM 31. OTHER EXPENSES OF ISSUANCE AND DISTRIBUTION.

The following table sets forth the approximate expenses (other than the
underwriting discounts and commission) expected to be incurred in connection
with the issuance and distribution of the Common Stock being registered.

SEC Registration Fee................................................... $ 62,205
NASD Fee............................................................... 21,527
Nasdaq National Market Fee............................................. 47,500
Printing and Engraving Expenses........................................ 200,000
Legal Fees and Expenses................................................ 400,000
Accounting Fees and Expenses........................................... 100,000
Blue Sky Fees and Expenses............................................. 6,500
Miscellaneous.......................................................... 162,268
----------
TOTAL........................................................ $1,000,000
==========

ITEM 32. SALES TO SPECIAL PARTIES.

Not Applicable.

ITEM 33. RECENT SALES OF UNREGISTERED SECURITIES.

The Company has made the following sales of its Common Stock and Preferred
Stock within the past three years to the following persons for the cash or other
consideration indicated, which sales were not registered under the Securities
Act.

CONSIDERATION
DATE OF ----------------------
NAME ISSUANCE TOTAL PER SHARE(2) # SHARES(3)
------------------------------------------ -------- ------ ------------ -----------

Patrick L. Beach (1)...................... 10-10-94 $ 470 $ 1.00 617,600
W. Ross Martin (1)........................ 10-10-94 214 1.00 281,833
George R. Beach........................... 10-10-94 15 1.00 19,738
H. Reid Sherard (1)....................... 10-10-94 34 1.00 44,396
Gary A. Bruder (1)........................ 10-10-94 20 1.00 26,282
Captec Financial Group, Inc............... 10-10-94 101 1.00 133,208
Michigan Corp............................. 10-10-94 146 1.00 192,383
------ ------ ---------
Totals............................... 10-10-94 $1,000 $1,000 1,315,440
====== ====== =========

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

(1) Director or officer.

(2) Represents consideration paid for original issuance.

(3) Pursuant to the terms of the mergers of Net Lease Michigan and Advisors
Michigan into the Company (which was approved unanimously by the
stockholders of Net Lease Michigan and Advisors Michigan) the common shares,
without par value, of each of Net Lease Michigan and Advisors Michigan
became, without further action or consideration by the stockholders of Net
Lease Michigan and Advisors Michigan, the shares of the Company's Common
Stock. The 50,000 issued and outstanding redeemable preferred shares,
without par value, of Net Lease Michigan (originally issued from December
18, 1995 to January 24, 1996 for $10.00 per share) were exchanged for 50,000
shares of the Preferred Stock and subject to the holder's obligation to
exchange 9,500 unredeemed shares of the Preferred Stock for shares of the
Common Stock upon the terms described in the Prospectus and subject only to
completion of the Offering. These transactions were made pro rata to the
existing shareholders of Net Lease Michigan and Net Lease Advisors, each of
whom either are officers or directors of those companies, have a prior
business relationship with those companies and/or are accredited investors.
These transactions did not involve any public offering and were exempt
pursuant to Section 4(2) of the Securities Act.

II-1
142

ITEM 34. INDEMNIFICATION OF DIRECTORS AND OFFICERS

Reference is made to the Certificate of Incorporation of the Company, as
amended from time to time (the "Certificate") (Exhibit 3.1) and the form of
Indemnification Agreement to be entered into with the Registrant's directors and
officers (Exhibit 10.7).

Pursuant to the provisions of the Delaware General Corporation Law, the
Company has adopted provisions in its Certificate which provide that directors
of the Company shall not be personally liable for monetary damages to the
Company or its stockholders for a breach of fiduciary duty as a director, except
for liability as a result of (i) a breach of the director's duty of loyalty to
the Company or its stockholders, (ii) acts or omissions not in good faith or
which involve intentional misconduct or knowing violation of law, (iii) an act
related to the unlawful stock repurchase or redemption or payment of a dividend
under Section 174 of Delaware General Corporation Law, and (iv) transactions
from which the director derived an improper personal benefit.

The Company's Certificate and Bylaws also authorize the Company to
indemnify its officers, directors and persons who serve at the request of the
Company as a director, officer, employee, agent or trustee of another
corporation, partnership, joint venture, trust or other enterprise, to the
fullest extent permitted under Delaware law. The Company has entered into
separate indemnification agreements with its directors and officers which may,
in some cases, be broader than the specific indemnification provisions contained
in the Delaware General Corporation Law. The indemnification agreements require
the Company, among other things, to indemnify such officers and directors
against certain liabilities that may arise by reason of their status or service
as directors or officers (other than liabilities arising from willful misconduct
of a culpable nature), to advance their expenses incurred as a result of any
proceeding against them as to which they could be indemnified, and to obtain
directors' and officers' insurance if available on reasonable terms.

At present, there is no pending litigation or proceeding involving a
director, officer, employee or agent of the Company where indemnification will
be required or permitted. The Company is not aware of any threatened or
proceeding which may result in a claim for such indemnification.

The Company has obtained a directors and officers liability policy in the
aggregate amount of $5.0 million. Subject to typical exclusions, the policy
insures (i) the officers and directors of the Company from any claim arising out
of an alleged wrongful act by the directors and officers of the Company in their
respective capacities, and (ii) the Company to the extent that the Company has
indemnified the directors and officers for such losses.

Insofar as indemnification for liabilities arising under the Act may be
permitted to directors, officers and controlling persons of the Company pursuant
to the foregoing provisions, or otherwise, the Company has been advised that in
the opinion of the Securities and Exchange Commission, such indemnification is
against public policy as expressed in the Act and is, therefore, unenforceable.
See Item 37, "Undertakings."

ITEM 35. TREATMENT OF PROCEEDS FROM STOCK BEING REGISTERED.

Not Applicable.

ITEM 36. EXHIBITS AND FINANCIAL STATEMENT SCHEDULE.

(a) EXHIBITS. The following is a list of exhibits in this Registration
Statement.

EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------

1.1 Form of Underwriting Agreement.**
3.1 Certificate of Incorporation of the Company.**
3.2 Bylaws of the Company.*
3.3 Form of Amended and Restated Certificate of Incorporation.*
5.1 Opinion of Baker & Hostetler LLP regarding legality.**
8.1 Opinion of Baker & Hostetler LLP regarding tax matters.*

II-2
143

EXHIBIT NO. DESCRIPTION
----------- ------------------------------------------------------------------------------

10.1 February 26, 1996 Credit Facility between Credit Suisse First Boston Mortgage
Capital L.L.C. and the Company, and amendments thereto.*
10.2 Employment Agreement between the Company and Patrick L. Beach.**
10.3 Employment Agreement between the Company and W. Ross Martin.**
10.4 Agreement of Limited Partnership of Captec Franchise Capital Partners L.P.
III.**
10.5 Amended and Restated Agreement of Limited Partnership of Captec Franchise
Capital Partners L.P. IV.**
10.6 Advisory Agreement between the Company and Captec Net Lease Realty Advisors,
Inc.*
10.7 Form of Indemnification Agreement to be entered into by the Company's
directors and officers.*
10.8 Form of Acquisition Agreement of General Partnership Interests in the
Affiliated Partnerships.**
10.9 Long-Term Incentive Plan.**
10.10 Directors' Deferred Compensation Plan.**
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Baker & Hostetler LLP (included in Exhibit 5.1 hereto).**
23.3 Consent of Coopers & Lybrand L.L.P.*
23.4 Consent of Coopers & Lybrand L.L.P.*
24.1 Powers of Attorney (included on page II-5 hereto).**
27.1 Financial Data Schedule.*
27.2 Financial Data Schedule.*
27.3 Financial Data Schedule.*
99.1 Consent of Richard J. Peters.**
99.2 Consent of Creed L. Ford, III.**
99.3 Consent of William H. Krul, II.**
99.4 Consent of Lee C. Howley.**
99.5 Prior Performance Table VI.*

(b) FINANCIAL STATEMENT SCHEDULE.

SCHEDULE NO. DESCRIPTION OF DOCUMENT PAGE NO.
------------ -------------------------------------------------------------------- --------

Independent Auditors Report on Financial Statement Schedule* S-1
III Properties and Accumulated Debt* S-2

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

* Filed herewith.

** Filed previously.

ITEM 37. UNDERTAKINGS.

(1) The undersigned Registrant hereby undertakes to provide to the
Underwriters at the closing specified in the Underwriting Agreement
certificates in such denominations and registered in such names as required
by the Underwriters to permit prompt delivery to each purchaser.

(2) Insofar as indemnification for liabilities arising under the
Securities Act of 1933 may be permitted to directors, officers and
controlling persons of the Registrant pursuant to the foregoing provisions,
or otherwise, the Registrant has been advised that in the opinion of the
Securities and Exchange Commission such indemnification is against public
policy as expressed in the Securities Act of 1933 and is, therefore,

II-3
144

unenforceable. In the event that a claim for indemnification against such
liabilities (other than the payment by the Registrant of expenses incurred
or paid by a director, officer or controlling person of the Registrant in
the successful defense of any action, suit or proceeding) is asserted by
such director, officer or controlling person in connection with the
securities being registered, the Registrant will, unless in the opinion of
its counsel the matter has been settled by controlling precedent, submit to
a court of appropriate jurisdiction the question whether such
indemnification by it is against public policy as expressed in the
Securities Act of 1933 and will be governed by the final adjudication of
such issue.

(3) The undersigned Registrant hereby undertakes that:

(a) For determining any liability under the Securities Act of 1933,
the information omitted from the form of prospectus filed as part of
this registration statement in reliance upon Rule 430A and contained in
a form of prospectus filed by the Registrant pursuant to Rule 424(b)(1)
or (4), or 497(h) under the Securities Act shall be deemed to be a part
of this registration statement as of the time it was declared effective.

(b) For the purpose of determining any liability under the
Securities Act of 1933, each post-effective amendment that contains a
form of prospectus shall be deemed to be a new registration statement
relating to the securities offered therein, and the offering of such
securities at that time shall be deemed as the initial bona fide
offering thereof.

II-4
145

SIGNATURES

PURSUANT TO THE REQUIREMENTS OF THE SECURITIES ACT OF 1933, THE REGISTRANT
CERTIFIES THAT IT HAS REASONABLE GROUNDS TO BELIEVE THAT IT MEETS ALL OF THE
REQUIREMENTS FOR FILING ON FORM S-11 AND HAS DULY CAUSED THIS REGISTRATION
STATEMENT, OR AMENDMENT THERETO, TO BE SIGNED ON ITS BEHALF BY THE UNDERSIGNED,
THEREUNTO DULY AUTHORIZED, IN THE CITY OF ANN ARBOR, STATE OF MICHIGAN, ON
NOVEMBER , 1997.

CAPTEC NET LEASE REALTY, INC.

By: /s/ PATRICK L. BEACH
------------------------------------
Patrick L. Beach
Chairman, Chief Executive Officer
and President
(Principal Executive Officer)

By: /s/ W. ROSS MARTIN
------------------------------------
W. Ross Martin
Executive Vice President, Chief
Financial Officer and Treasurer
(Principal Accounting Officer)

By: /s/ RICHARD J. PETERS
------------------------------------

Richard J. Peters
Director

POWER OF ATTORNEY

KNOW ALL MEN BY THESE PRESENTS, that each person whose signature appears below
hereby severally constitutes and appoints Patrick L. Beach and W. Ross Martin,
and each of them, his true and lawful attorneys-in-fact and agents, with full
power of substitution and resubstitution, for him and in his name, place and
stead, in any and all capacities, to sign any and all amendments (including
post-effective amendments) to this Registration Statement and all documents
relating thereto, and to file the same, with all exhibits thereto, and other
documents in connection therewith, with the Securities and Exchange Commission,
granting unto said attorneys-in-fact and agents, full power and authority to do
and perform each and every act and thing necessary or advisable to be done in
and about the premises, as fully to all intents and purposes as he might or
could do in person, hereby ratifying and confirming all that said
attorneys-in-fact and agents, or his substituter substitutes, may lawfully do or
cause to be done by virtue hereof.

Pursuant to the requirements of the Securities Act of 1933, this
Registration Statement, or amendment thereto, has been signed by the following
persons in the capacities and on the dates indicated.

November ,1997 /s/ RICHARD J. PETERS Director
-----------------------------------------
Richard J. Peters

II-5
146

EXHIBIT INDEX

EXHIBIT NO. DESCRIPTION
- ----------- ----------------------------------------------------------------------------------

1.1 Form of Underwriting Agreement.*
3.1 Certificate of Incorporation of the Company.*
3.2 Bylaws of the Company.*
3.3 Form of Amended and Restated Certificate of Incorporation.*
5.1 Opinion of Baker & Hostetler LLP regarding legality.*
8.1 Opinion of Baker & Hostetler LLP regarding tax matters.*
10.1 February 26, 1996 Credit Facility between Credit Suisse First Boston Mortgage
Capital L.L.C. and the Company, and amendments thereto.*
10.2 Employment Agreement between the Company and Patrick L. Beach.*
10.3 Employment Agreement between the Company and W. Ross Martin.*
10.4 Agreement of Limited Partnership of Captec Franchise Capital Partners L.P. III.*
10.5 Amended and Restated Agreement of Limited Partnership of Captec Franchise Capital
Partners L.P. IV.*
10.6 Advisory Agreement between the Company and Captec Net Lease Realty Advisors, Inc.*
10.7 Form of Indemnification Agreement to be entered into by the Company's directors
and officers.*
10.8 Form of Acquisition Agreement of General Partnership Interests in the Affiliated
Partnerships.*
10.9 Long-Term Incentive Plan.*
10.10 Directors' Deferred Compensation Plan.*
23.1 Consent of Coopers & Lybrand L.L.P.*
23.2 Consent of Baker & Hostetler LLP (included in Exhibit 5.1 hereto).*
23.3 Consent of Coopers & Lybrand L.L.P.*
23.4 Consent of Coopers & Lybrand L.L.P.*
24.1 Powers of Attorney (included on page II-5 hereto).*
27.1 Financial Data Schedule.*
27.2 Financial Data Schedule.*
27.3 Financial Data Schedule.*
99.1 Consent of Richard J. Peters.*
99.2 Consent of Creed L. Ford, III.*
99.3 Consent of William H. Krul, II.*
99.4 Consent of Lee C. Howley.*
99.5 Prior Performance Table VI.*

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

* Filed previously.

II-6