10-K

UNITED STATES SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

Form 10-K

(Mark One)
þ	ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the fiscal year ended December 31, 2005
or
o	TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
	For the transition period from           to

Commission file number: 0-51295

NNN 2003 Value Fund, LLC

(Exact name of registrant as specified in its charter)

Delaware	20-0122092
(State or other jurisdiction of incorporation or organization)	(I.R.S. Employer Identification No.)

1551 N. Tustin Avenue, Suite 200

Santa Ana, California 92705

(Address of principal executive offices)

(877) 888-7348

(Registrant’s telephone number, including area code)

Securities registered pursuant to Section 12(b) of the Act:

	Name of Each Exchange
Title of Each Class:	on Which Registered
None	None

Securities registered pursuant to Section 12(g) of the Act:

Title of Class:

Class A LLC Membership Interests

Class B LLC Membership Interests

Class C LLC Membership Interests

      Indicate by check mark if the registrant is a well-known seasoned issuer, as defined in Rule 405 of the Securities Act.     Yes o          No þ

      Indicate by check mark if the registrant is not required to file reports pursuant to Section 13 or Section 15(d) of the Act. Yes o          No þ

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

      Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (§229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K.     o

      Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, or a non-accelerated filer. See definition of “accelerated filer and large accelerated filer” in Rule 12b-2 of the Exchange Act. (Check one):

Large accelerated filer o          Accelerated filer o          Non-accelerated filer þ

      Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act).     Yes o          No þ

      As of June 30, 2005, the aggregate market value of the outstanding units held by non-affiliates of the registrant was approximately $50,000,000 (based on the price for which each unit was sold). No established market exists for the registrant’s units.

      As of March 30, 2006, there were 9,970 units of NNN 2003 Value Fund, LLC outstanding.

NNN 2003 VALUE FUND, LLC

(a Delaware limited liability company)

TABLE OF CONTENTS

		Page
PART I
Item 1.	Business		1
Item 1A.	Risk Factors		6
Item 2.	Properties		15
Item 3.	Legal Proceedings		20
Item 4.	Submission of Matters to a Vote of Security Holders		21
PART II
Item 5.	Market for and Distributions on Units and Related Security Holder Matters		21
Item 6.	Selected Financial Data		22
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations		24
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk		48
Item 8.	Financial Statements and Supplementary Data		49
Item 9.	Changes in and Disagreements With Accountants on Accounting and Financial Disclosure		49
Item 9A.	Controls and Procedures		50
Item 9B.	Other Information		50
PART III
Item 10.	Directors and Executive Officers of the Registrant		51
Item 11.	Executive Compensation		54
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters		54
Item 13.	Certain Relationships and Related Transactions		55
Item 14.	Principal Accounting Fees and Services		58
PART IV
Item 15.	Exhibits, Financial Statement Schedules		F-1
SIGNATURES
EXHIBIT 10.17
EXHIBIT 10.18
EXHIBIT 31.1
EXHIBIT 31.2
EXHIBIT 32.1
EXHIBIT 32.2

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PART I

Item 1. Business

OUR COMPANY

      NNN 2003 Value Fund, LLC was formed as a Delaware limited liability company on June 19, 2003. The use of the words, “we”, “us”, or “our” refers to 2003 Value Fund and its subsidiaries. We were organized to purchase, own, operate and subsequently sell all or a portion of a number of unspecified properties believed to have higher than average potential for capital appreciation, or “value-added” properties. As of December 31, 2005, we have interests in eight properties, including five consolidated interests in office properties aggregating a total gross leaseable area, or GLA, of 951,000 square feet, one consolidated interest in a land parcel for development and two unconsolidated interests in office properties aggregating a total GLA of 751,000 square feet. At December 31, 2005, 66.8% of the total GLA of our consolidated properties was leased. At the time of our formation, our principal objectives were to: (i) have the potential within approximately one to five years, subject to market conditions, to realize income on the sale of our properties; (ii) realize income through the acquisition, operation, development and sale of our properties or our interests in our properties; and (iii) make monthly distributions to our unit holders from cash generated from operations and capital transactions.

      Triple Net Properties, LLC, or our Manager, is responsible for managing our day-to-day operations and assets pursuant to the terms of an operating agreement, or the Operating Agreement, between us and our Manager. While we have no employees, certain employees of our Manager provide services to us in connection with the Operating Agreement. Richard T. Hutton, Jr., our chief executive officer, also serves as a member of our Manager’s board of managers, or the Board of Managers, and as our Manager’s executive vice-president and chief investment officer. Our Manager is 36% owned by Anthony W. Thompson, our Manager’s chairman and chief executive officer. In addition, Triple Net Properties Realty, Inc., or Realty, an affiliate of our Manager, is 84% owned by Anthony W. Thompson and 16% owned by Louis J. Rogers, president of our Manager and a member of its Board of Managers. Realty serves as our property manager pursuant to the terms of the Operating Agreement and a property management agreement, or the Management Agreement, between us and Realty. The Operating Agreement terminates upon our dissolution. Our unit holders may not vote to terminate our Manager prior to the termination of the Operating Agreement or our dissolution except for cause. The Management Agreement terminates with respect to each of our properties upon the earlier of the sale of each respective property or ten years from acquisition. Realty may be terminated with respect to any of our properties without cause prior to the termination of the Management Agreement or our dissolution, subject to certain conditions, including the payment by us to Realty of a termination fee as provided in the Management Agreement.

      Our Manager’s principal executive offices are located at 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705 and the telephone number is (877) 888-7348. We make our periodic and current reports available on our Manager’s website at www.1031nnn.com as soon as reasonably practicable after such materials are electronically filed with the Securities and Exchange Commission, or SEC. They will also be available in print to any unit holder upon request. We do not maintain our own website or have an address separate from our Manager. Since we pay a management fee to our Advisor, we do not pay rent for the use of its space.

CURRENT INVESTMENT OBJECTIVES AND POLICIES

Business Strategy

      Our primary business strategy is to purchase properties with greater than average appreciation potential and realize gains upon disposition of the properties. In order to increase the value of our properties, we actively manage our property portfolio to seek to achieve gains in rental rates and occupancy, control operating expenses and maximize income from ancillary operations and services. In the case of land purchases, we expect to increase the value of the land by preparing the land for development.

We intend to own and operate our properties for approximately one to five years and, after that time, depending upon market conditions and other factors, the property will be offered for sale. We believe that our recent acquisitions and dispositions of real estate investments will have a significant impact on our future results of operations. In the event of dispositions, if we do not redeploy the funds into additional acquisitions, our future results of operations could be negatively impacted due to the dilutive impact of the uninvested funds. Additionally, we may invest excess cash in interest-bearing accounts and short-term interest-bearing securities or equity securities. Such investments may include, for example, investments in marketable securities, certificates of deposit and interest-bearing bank deposits.

Acquisition Strategies

      We believe, based on our Manager’s prior real estate experience, that our Manager has the ability to identify properties capable of meeting our current investment objectives. In evaluating potential acquisitions, the primary factor we consider is the “value-added” investment potential of a property. We define “value-added” investing as investing in properties with a higher than average potential for capital appreciation by:

•  targeting real estate in markets in an early stage of economic recovery;

•  targeting unstabilized assets with significant lease-up opportunity;

•  targeting assets in mature markets with existing rents below-market and significant near-term lease rollover; and

•  targeting assets with solvable property-specific issues or development opportunities.

      In addition, we consider a number of other factors relating to a property, including, without limitation, the following:

•  current and projected cash flow;

•  geographic location and type;

•  construction quality and condition;

•  ability of tenants to pay scheduled rent;

•  lease terms and rent roll, including the potential for rent increases;

•  potential for economic growth in the tax and regulatory environment of the community in which the property is located;

•  potential for expanding the physical layout of the property;

•  occupancy and demand by tenants for properties of a similar type in the same geographic vicinity;

•  prospects for liquidity through sale, financing or refinancing of the property;

•  competition from existing properties and the potential for the construction of new properties in the area; and

•  treatment under applicable federal, state and local tax and other laws and regulations.

      Our Manager has total discretion with respect to the selection of properties for acquisition, the percent of ownership we acquire and the type of ownership interest we purchase in a given property.

      We will not close the purchase of any property unless and until we obtain at least a Phase I environmental assessment for that property and we are generally satisfied with the environmental status of the property.

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      In purchasing properties, we will be subject to risks generally incident to the ownership of real estate, including:

•  changes in general economic or local conditions;

•  changes in supply of, or demand for, similar competing properties in an area;

•  changes in interest rates and availability of permanent mortgage funds which may render the sale of a property difficult or unattractive;

•  changes in tax, real estate, environmental and zoning laws;

•  periods of high interest rates and tight money supply which may make the sale of properties more difficult;

•  tenant turnover; and

•  general overbuilding or excess supply in the market area.

      As of December 31, 2005, we have interests in eight properties, including five consolidated interests in office properties aggregating GLA, of 951,000 square feet, one consolidated interest in a land parcel for development and two unconsolidated interests in office properties aggregating a total GLA of 751,000 square feet. We may purchase interests in properties where the other entities are participating in tax-free exchanges arranged by our Manager. In connection with any reinvestment of sales proceeds in connection with a tax-free exchange, our Manager or its affiliates may earn commissions. Other methods of acquiring a property may be used when advantageous. For example, we may acquire properties through joint ventures.

      We generally acquire properties with cash and mortgage or other debt; however, we may also acquire properties free and clear of permanent mortgage indebtedness by paying the entire purchase price for such properties in cash. In the case of properties purchased on an all-cash basis, we may later incur mortgage indebtedness by obtaining loans secured by selected properties, if favorable financing terms are available. The proceeds from such loans, if any, would be used to acquire additional properties to potentially increase our cash flow.

      As of December 31, 2005, three of our consolidated properties are located in Texas and one in each of Nevada, Oregon and Utah. Our consolidated properties were 66.8% leased as of December 31, 2005.

      To assist us in meeting our objectives, our Manager and its affiliates may purchase properties in their own name, assume loans in connection with the purchase of properties and temporarily hold title to such properties for the purpose of facilitating our acquisition of such property. They may also borrow money; obtain financing or complete construction of properties on our behalf. We may also acquire properties from the entities managed by our Manager. Such acquisitions must be approved by a majority of the Board of Managers and supported by an independent appraisal prepared by an appraiser who is a member in good standing of the American Institute of Real Estate Appraisers or similar national organization selected by our Board of Managers.

Disposition Strategies

      We consider various factors when evaluating potential property dispositions. These factors include, without limitation, the following:

•  the ability to sell the property at a price we believe would provide an attractive return to our unit holders;

•  our ability to recycle capital into other properties consistent with our business strategy;

•  our desire to exit non-performing markets;

•  whether the property is strategically located;

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•  tenant composition and lease rollover for the property;

•  general economic conditions and outlook, including job growth in the local market; and

•  the general quality of the asset.

      Our Manager has total discretion with respect to the disposition of our properties.

Operating Strategies

      Our primary operating strategy is to acquire suitable properties that meet our acquisition standards and to enhance the performance and value of those properties through management strategies designed to address the needs of current and prospective tenants. Our management strategies include:

•  aggressively leasing available space through targeted marketing, augmented where possible by the personnel in our Manager’s local asset and property management offices;

•  re-positioning our properties to include, for example, shifting from single to multi-tenant use in order to maximize desirability and utility for prospective tenants;

•  controlling operating expenses by centralization of asset and property management, leasing, marketing, financing, accounting, renovation and data processing activities;

•  emphasizing regular maintenance and periodic renovation to meet the needs of tenants and to maximize long-term returns; and

•  financing acquisitions and refinancing properties when favorable terms are available to increase cash flow.

FINANCING POLICIES

      As of December 31, 2005, we have financed our investments through a combination of equity as well as secured debt. A primary objective of our financing policy is to manage our financial position to allow us to raise capital at competitive rates. As of December 31, 2005, 55.6% of our outstanding debt at our consolidated properties had a fixed interest rate, which limits the risk of fluctuating interest rates.

      As of December 31, 2005, five of our consolidated properties were subject to existing mortgages with an aggregate principal balance of $93,492,000, consisting of $52,000,000, or 55.6%, of fixed rate debt at a weighted-average interest rate of 6.2% per annum and $41,492,000, or 44.4%, of variable rate debt at a weighted-average interest rate of 7.7% per annum.

      In addition, we utilize certain derivative financial instruments at times to limit interest rate risk. The derivatives we enter into are those which are used for hedging purposes rather than speculation. If an anticipated hedged transaction does not occur, any positive or negative value of the derivative will be recognized immediately in net income.

TAX STATUS

      We are a pass-through entity for income tax purposes and taxable income is reported by our unit holders on their individual tax returns. Accordingly, no provision has been made for income taxes in the accompanying consolidated statements of operations except for insignificant amounts related to state franchise and income taxes.

DISTRIBUTION POLICY

      We have three classes of units with different rights with respect to distributions. As of December 31, 2005 and 2004, 4,000 Class A units were issued, 3,200 Class B units were issued, and 2,800 Class C units were issued. The rights and obligations of all unit holders are governed by the Operating Agreement.

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COMPETITION

      We compete with a considerable number of other real estate companies seeking to purchase and sell properties and lease space, some of which may have greater marketing and financial resources than we do. Principal factors of competition in our business are the quality of properties (including the design and condition of improvements), leasing terms (including rent and other charges and allowances for tenant improvements), attractiveness and convenience of location, the quality and breadth of tenant services provided and reputation as an owner and operator of properties in the relevant market. Our ability to compete also depends on, among other factors, trends in the national and local economies, financial condition and operating results of current and prospective tenants, availability and cost of capital, including capital raised by incurring debt, construction and renovation costs, taxes, governmental regulations, legislation and population trends.

      When we dispose of our properties, we will be in competition with sellers of similar properties to locate suitable purchasers, which may result in us receiving lower proceeds than our estimated liquidation proceeds.

      As of December 31, 2005, we hold interests in properties located in Texas, Oregon, Nevada, California, and Utah. Other entities managed by our Manager or its affiliates also own property interests in some of the same regions in which we own property interests and such properties are managed by Realty. Our properties may face competition in these geographic regions from such other properties owned, operated or managed by our Manager or Realty. Our Manager or Realty have interests that may vary from our interests in such geographic markets.

GOVERNMENT REGULATIONS

      Many laws and government regulations are applicable to our properties and changes in these laws and regulations, or their interpretation by agencies and the courts, occur frequently.

      Costs of Compliance with the Americans with Disabilities Act. Under the Americans with Disabilities Act of 1990, or ADA, all public accommodations must meet federal requirements for access and use by disabled persons. Although we believe that we are in substantial compliance with present requirements of the ADA, none of our properties have been audited, nor have investigations of our properties been conducted to determine compliance. We may incur additional costs in connection with the ADA. Additional federal, state and local laws also may require modifications to our properties or restrict our ability to renovate our properties. We cannot predict the cost of compliance with the ADA or other legislation. If we incur substantial costs to comply with the ADA or any other legislation, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and pay distributions could be adversely affected.

      Costs of Government Environmental Regulation and Private Litigation. Environmental laws and regulations hold us liable for the costs of removal or remediation of certain hazardous or toxic substances which may be on our properties. These laws could impose liability without regard to whether we are responsible for the presence or release of the hazardous materials. Government investigations and remediation actions may have substantial costs and the presence of hazardous substances on a property could result in personal injury or similar claims by private plaintiffs. Various laws also impose liability on persons who arrange for the disposal or treatment of hazardous or toxic substances for the cost of removal or remediation of hazardous substances at the disposal or treatment facility. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. As the owner and operator of our properties, we may be deemed to have arranged for the disposal or treatment of hazardous or toxic substances.

      Use of Hazardous Substances by Some of Our Tenants. Some of our tenants routinely handle hazardous substances and wastes on our properties as part of their routine operations. Environmental laws and regulations subject these tenants, and potentially us, to liability resulting from such activities. We require the tenants, in their leases, to comply with these environmental laws and regulations and to

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indemnify us for any related liabilities. We are unaware of any material noncompliance, liability or claim relating to hazardous or toxic substances or petroleum products in connection with any of our properties.

      Other Federal, State and Local Regulations. Our properties are subject to various federal, state and local regulatory requirements, such as state and local fire and life safety requirements. If we fail to comply with these various requirements, we may incur governmental fines or private damage awards. While we believe that our properties are currently in material compliance with all of these regulatory requirements, we do not know whether existing requirements will change or whether future requirements will require us to make significant unanticipated expenditures that will adversely affect our ability to make distributions to our stockholders. We believe, based in part on engineering reports which are generally obtained at the time we acquire the properties, that all of our properties comply in all material respects with current regulations. However, if we were required to make significant expenditures under applicable regulations, our financial condition, results of operations, cash flow and ability to satisfy our debt service obligations and to pay distributions could be adversely affected.

SIGNIFICANT TENANTS

      As of December 31, 2005, one of our tenants at our consolidated properties accounted for 10% or more of our aggregate annual rental income, as follows:

			Percentage of						Lease
	2005 Annual		2005 Annual				Square Footage		Expiration
Tenant	Base Rent(*)		Base Rent		Property		(Approximately)		Date
Heritage Capital Corporation	$	1,575,000		14.5%		3500 Maple		75,000		06/30/15

*  Annualized rental income is based on contractual base rent from leases in effect at December 31, 2005.

The loss of this tenant or its inability to pay rent could have a material adverse effect on our business and results of operations.

      We are also subject to a concentration of regional economic exposure as 77.3% of our aggregate annual base rental income is generated by our consolidated properties located in Texas. Regional economic downturns in Texas could adversely impact our operations.

EMPLOYEES

      While we have no employees, certain employees of our Manager provide services to us pursuant to the terms of the Operating Agreement. In addition, Realty serves as our property manager pursuant to the terms of the Operating Agreement and the Management Agreement.

FINANCIAL INFORMATION ABOUT INDUSTRY SEGMENTS

      We are in the business of owning, managing, operating, leasing, acquiring, developing, investing in and disposing of commercial properties. We internally evaluate all of our properties as one industry segment and, accordingly, we do not report segment information.

Item 1A.     Risk Factors

RISK FACTORS

The pending SEC investigation of our Manager could result in lawsuits or other actions against us which could negatively impact our ability to pay distributions.

      On September 16, 2004, our Manager learned that the Securities and Exchange Commission, or the SEC, is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC has requested information from our Manager relating to disclosure in public and private securities offerings

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sponsored by our Manager and its affiliates, or the Triple Net securities offerings (including our offering). The SEC has requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents. This investigation could result in fines, penalties or administrative remedies imposed on us, which could have a material adverse impact on our results of operations and ability to pay distributions to our unit holders.

Erroneous disclosures in the prior performance tables in our private placement offering could result in lawsuits or other actions against us which could have a material adverse effect upon our business and results of operations.

      In connection with our offering of the sale of our units from July 11, 2003 through October 14, 2004, we disclosed the prior performance of all public and non-public investment programs sponsored by our Manager. Our Manager subsequently determined that there were certain errors in those prior performance tables. In particular, the financial information in the tables was stated to be presented on a generally accepted accounting principles, or GAAP, basis. Generally the tables for the public programs were not presented on a GAAP basis and the tables for the non-public programs were prepared and presented on a tax or cash accounting basis. Moreover, a number of the prior performance data figures were themselves erroneous, even as presented on a tax or cash basis. In particular, certain programs sponsored by our Manager have invested either along side or in other programs sponsored by our Manager. The nature and results of these investments were not fully and accurately disclosed in the tables. In addition, certain calculations of depreciation and amortization were not on an income tax basis for a limited liability company investment; certain operating expenses were not reflected in the operating results; and monthly mortgage and principal payments were not reported. In general, the resulting effect is a total overstatement of our Manager’s program and aggregate portfolio operating results in an amount of approximately $1,730,000 for cash generated after payment of cash distributions. The overstatement of results could result in lawsuits or other actions against us which could create added liability for us and could reduce the expected cash available for distribution to our unit holders.

We expect to incur significant costs in connection with Exchange Act compliance and we may become subject to liability for any failure to comply.

      As a result of our obligation to register our securities with the SEC under the Securities Exchange Act of 1934, as amended, or the Exchange Act, we are subject to Exchange Act Rules and related reporting requirements. This compliance with the reporting requirements of the Exchange Act requires timely filing of Quarterly Reports on Form 10-Q, Annual Reports on Form 10-K and Current Reports on Form 8-K, among other actions. Further, recently enacted and proposed laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, including the Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and new SEC regulations have increased the costs of corporate governance, reporting and disclosure practices which are now required of us. Our efforts to comply with applicable laws and regulations, including requirements of the Exchange Act and the Sarbanes-Oxley, are expected to involve significant, and potentially increasing, costs. In addition, these laws, rules and regulations create the potential for new legal bases for administrative enforcement, civil and criminal proceedings against us in the event of non-compliance, thereby increasing our risks of liability and potential sanctions.

We could be treated as a publicly-traded partnership for U.S. federal income tax purposes.

      We could be deemed to be a publicly-traded partnership for U.S. federal income tax purposes if our interests are either (i) traded on an established securities market, or (ii) readily tradable on a secondary market (or the substantial equivalent thereof). If we are treated as a publicly-traded partnership, we may be taxed as a corporation unless we meet certain requirements as to the nature of our income. In such circumstances, our income (including gains from the sale of our assets, if any) would be subject to corporate-level tax, which could reduce distributions to you. While we do not believe that we will be

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taxable as a corporation, we have not requested a ruling from the IRS and there can be no assurance that the IRS will not successfully challenge our status as a partnership.

Distributions by us have and will in the future continue to include a return of capital.

      In 2004 and 2005, 54.0% and 1.7%, respectively, of the distributions paid by us represented a return of capital, and any future distributions payable to our unit holders will include a return of capital as well as a return in excess of capital. Distributions exceeding taxable income will constitute a return of capital for federal income tax purposes to the extent of a unit holder’s tax capital account. Distributions in excess of tax capital are non-taxable to the extent of tax basis. Distributions in excess of tax basis will constitute capital gain.

Due to the risks involved in the ownership of real estate, there is no guarantee of any return on our unit holders’ investment and our unit holders may lose some or all of their investment.

      By owning units, our unit holders will be subjected to the significant risks associated with owning real estate. The performance of our unit holders’ investment in us is subject to risks related to the ownership and operation of real estate, including:

•  changes in the general economic climate;

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

•  changes in interest rates and the availability of financing; and

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

      If our assets decrease in value, the value of our unit holders’ investment will likewise decrease and they could lose some or all of their investment.

Our acquisition of “value-added” properties increases the risk of owning real estate and could adversely affect our results of operations, our ability to make distributions to our unit holders and our ability to dispose of properties in a timely manner.

      Our acquisition strategy of purchasing “value-added” properties subjects us to even greater risks than those generally associated with investments in real estate. Value-added properties generally have some negative component, such as location in a poor economic market, significant vacancy, lower than average leasing rates or the need for capital improvements. If we are unable to take advantage of the value-added component following our acquisition of a property, we may be unable to generate adequate cash flows from that property. In addition, if we desire to sell that property, we may not be able to generate a profit or even recoup our original purchase price. As a result, our investment in value-added properties could reduce the amount of cash generated from our results of operations, our ability to make distributions to our unit holders and our ability to profitably dispose of our properties.

Our properties face significant competition.

      We face significant competition from other property owners, operators and developers. All or substantially all of our properties face competition from similar properties in the same markets. Such competition may affect our ability to attract and retain tenants and may reduce the rents we are able to charge. These competing properties may have vacancy rates higher than our properties, which may cause their owners to rent space at lower rental rates than those charged by us or to provide greater tenant improvement allowances or other leasing concessions than we are willing to provide. This combination of circumstances could adversely affect our results of operations, liquidity and financial condition, which could reduce distributions to our unit holders. As a result, we may be required to provide rent concessions, incur charges for tenant improvements and other inducements, or we may not be able to timely lease the space, all of which would adversely impact our results of operations, liquidity and financial condition,

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which could reduce distributions to our unit holders. In the event that we elect to acquire additional properties, we will compete with other buyers who are also interested in acquiring such properties, which may result in an increase in the cost that we pay for such properties or may result in us ultimately not being able to acquire such properties. At the time we elect to dispose of our properties, we will be in competition with sellers of similar properties to locate suitable purchasers, which may result in us receiving lower proceeds from the disposal or result in us not being able to dispose of the property due to the lack of an acceptable return.

Competition with entities that have greater financial resources may limit our investment opportunities.

      We compete for investment opportunities with entities with substantially greater financial resources. These entities may be able to accept more risk than we can manage wisely. This competition may limit the number of suitable investment opportunities offered to us. This competition also may increase the bargaining power of property owners seeking to sell to us, making it more difficult for us to acquire properties. In addition, we believe that competition from entities organized for purposes similar to ours has increased and is likely to increase in the future.

We depend upon our tenants to pay rent, and their inability to pay rent may substantially reduce our revenues and cash available for distribution to our unit holders.

      Our investments are subject to varying degrees of risk that generally arise from the ownership of real estate. The underlying value of our properties and the ability to make distributions to our unit holders depend upon the ability of the tenants at our properties to generate enough income in excess of their operating expenses to make their lease payments to us. Changes beyond our control may adversely affect our tenants’ ability to make lease payments to us and, consequently, would substantially reduce both our income from operations and our ability to make distributions to our unit holders. These changes include, among others, the following:

•  downturns in national, regional or local economic conditions where our properties are located, which generally will negatively impact the demand for office space and rental rates;

•  changes in local market conditions such as an oversupply, including space available by sublease, or a reduction in demand, making it more difficult for us to lease space at attractive rental rates or at all;

•  competition from other properties, which could cause us to lose current or prospective tenants or cause us to reduce rental rates;

•  the ability to pay for adequate maintenance, insurance, utility, security and other operating costs, including real estate taxes and debt service payments, that are not necessarily reduced when circumstances such as market factors and competition cause a reduction in income from a property; and

•  changes in federal, state or local regulations and controls affecting rents, prices of goods, interest rates, fuel and energy consumption.

      Due to these changes, among others, tenants and lease guarantors, if any, may be unable to make their lease payments. A default by a tenant or the failure of a tenant’s guarantor to fulfill its obligations, or other early termination of a lease could, depending upon the size of the leased premises and our Manager’s ability to successfully find a substitute tenant, have a material adverse effect on our revenues and cash available for distribution to our unit holders. Moreover, as of December 31, 2005, rent paid by the ten largest tenants at our consolidated properties represented 73.1% of our annualized revenues. The revenues generated by the properties these tenants occupy is substantially dependent on the financial condition of these tenants and, accordingly, any event of bankruptcy, insolvency or a general downturn in the business of any of these large tenants may result in the failure or delay of such tenants’ rental payments which may have an adverse impact on our financial performance and our ability to pay distributions to our unit holders.

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Lack of diversification and illiquidity of real estate may make it difficult for us to sell underperforming properties or recover our investment in one or more properties.

      Our business is subject to risks associated with investment solely in real estate. Real estate investments are relatively illiquid. Our ability to vary our portfolio in response to changes in economic and other conditions is limited. We cannot provide assurance that it will be able to dispose of a property when we want or need to. Consequently, the sale price for any property may not recoup or exceed the amount of our investment.

Lack of geographic diversity may expose us to regional economic downturns that could adversely impact our operations or our ability to recover our investment in one or more properties.

      Our portfolio lacks geographic diversity due to its limited size and the fact that as of December 31, 2005 we own properties in only five states: Texas, Oregon, Nevada, California and Utah. This geographic concentration of properties exposes us to economic downturns in these regions. A recession in any of these states could adversely affect our ability to generate or increase operating revenues, attract new tenants or dispose of properties. In addition, our properties may face competition in these states from other properties owned, operated or managed by our Manager or its affiliates. Our Manager or its affiliates have interests that may vary from our interests in such states.

Our properties may face competition from other properties owned, operated or managed by our Manager or its affiliates.

      At December 31, 2005, our Manager, G REIT, Inc., T REIT, Inc., NNN 2002 Value Fund and Realty currently own, operate or manage properties that may compete with our properties in Texas, Oregon, Nevada, California and Utah. These properties may compete with our properties, which may affect: (i) our ability to attract and retain tenants, (ii) the rents we are able to charge, and (iii) the value of our investments in our properties. Our Manager’s or its affiliates’ interest in, operation of, or management of these other properties may create conflicts between our Manager’s fiduciary obligations to us and its fiduciary obligations to, or pecuniary interest in, these competing properties. Our Manager’s management of these properties may also limit the time and services that our Manager devotes to us because it will be providing similar services to these other properties.

Our properties depend upon the Texas economy and the demand for commercial property.

      As of December 31, 2005, we had a 77.3% concentration of tenants in our Texas properties, based on aggregate annual rental income. We are susceptible to adverse developments in Texas (such as business layoffs or downsizing, industry slowdowns, relocations of businesses, changing demographics, increased telecommuting, terrorist targeting of high-rise structures, infrastructure quality, Texas state budgetary constraints and priorities, increases in real estate and other taxes, costs of complying with government regulations or increased regulation and other factors) and the national, Texas commercial property market (such as oversupply of or reduced demand for commercial property). Any adverse economic or real estate developments in Texas, or any decrease in demand for office space resulting from Texas’ regulatory environment, business climate or energy or fiscal problems, could adversely impact our financial condition, results of operations, cash flow, and our ability to satisfy our debt service obligations and to pay distributions to our stockholders. We cannot assure the continued growth of the Texas economy or the national economy or our future growth rate.

Losses for which we either could not or did not obtain insurance will adversely affect our earnings and we may be unable to comply with insurance requirements contained in mortgage or other agreements due to high insurance costs.

      We endeavor to maintain comprehensive insurance on each of the properties we own, including liability and fire and extended coverage, in amounts sufficient to permit the replacement of the properties in the event of a total loss, subject to applicable deductibles. We could suffer a loss due to the cost to

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repair any damage to properties that are not insured or are underinsured. There are types of losses, generally of a catastrophic nature, such as losses due to terrorism, wars, earthquakes, floods or acts of God that are either uninsurable or not economically insurable. If such a catastrophic event were to occur, or cause the destruction of one or more of our properties, we could lose both our invested capital and anticipated profits from such property or properties.

Our co-ownership arrangements with affiliated entities may not reflect solely our unit holders’ best interests and may subject these investments to increased risks.

      We have acquired our interests in the Oakey Building, Enterprise Technology Center and Executive Center II & III properties through co-ownership arrangements with one or more affiliates of our Manager and/or entities that are also managed by our Manager. The terms of these co-ownership arrangements may be more favorable to the other co-owners than to our unit holders. In addition, key decisions, such as sales, refinancing and new or amended leases, must be approved by the unanimous consent of the co-owners.

Our co-ownership arrangements contain risks not present in wholly-owned properties.

      Investing in properties through co-ownership arrangements, including investments held as tenant in common, or TICs, or interests in limited liability companies, subjects that investment to risks not present in a wholly-owned property, including, without limitation, the following:

•  the risk that the co-owner(s) in the investment might become bankrupt;

•  the risk that the co-owner(s) may at any time have economic or business interests or goals which are inconsistent with our business interests or goals;

•  the risk that the co-owner(s) may be unable to make required payments on loans under which we are jointly and severally liable;

•  the risk that the co-owner(s) may breach the terms of a loan secured by a co-owned property, thereby triggering an event of default that affords the lender the right to exercise all of its remedies under the loan documents, including possible foreclosure of the entire property; or

•  the risk that the co-owner(s) may be in a position to take action contrary to our instructions or requests or contrary to our policies or objectives, such as selling a property at a time when it would have adverse consequences to us.

      Actions by co-owner(s) might have the result of subjecting the applicable property to liabilities in excess of those otherwise contemplated and may have the effect of reducing our cash available for distribution to our unit holders. The co-ownership arrangements generally limit our ability to manage properties in our sole judgment and best interests including, without limitation, decisions regarding capital improvements, renewing or entering new tenant leases, refinancing a property or selling a property. It also may be difficult for us to sell our interest in any co-ownership arrangement at the time we deem it best for our unit holders.

There is currently no public market for our units. Therefore, it will likely be difficult for our unit holders to sell their units and, if our unit holders are able to sell their units, they will likely do so at a substantial discount from the price they paid.

      There currently is no public market for our units. Additionally, the Operating Agreement contains restrictions on the ownership and transfer of our unit holders’ units, and these restrictions may inhibit their ability to sell their units. It may be difficult for our unit holders to sell their units promptly or at all. If our unit holders are able to sell their units, they may only be able to do so at a substantial discount from the price they paid.

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Our success is dependent on the performance of our Manager as well as key employees of our Manager.

      We are externally managed by our Manager. Thus, our ability to achieve our investment objectives and to pay distributions is dependent upon the performance of our Manager and its key employees in the acquisition and disposition of investments, the selection of tenants, the determination of any financing arrangements, the management of our assets and operation of our day-to-day activities. Our Manager’s key employees include Anthony W. Thompson, Louis J. Rogers, Talle A. Voorhies, Jack R. Maurer, Scott D. Peters, Andrea R. Biller and Richard T. Hutton, Jr. If our Manager suffers or is distracted by adverse financial or operational problems in connection with its operations unrelated to us, our Manager’s ability to allocate time and/or resources to our operations may be adversely affected. If our Manager is unable to allocate sufficient resources to oversee and perform our operations for any reason, our results of operations may not generate as much cash as expected.

Our use of borrowings to partially fund acquisitions and improvements on properties could result in foreclosures and unexpected debt service expenses upon refinancing, both of which could have an adverse impact on our operations and cash flow, and restrictive covenants in our loan documents may restrict our operating or acquisition activities.

      We rely on borrowings and other external sources of financing to partially fund the costs of new investments, capital expenditures and other items. As of December 31, 2005, we had $93,492,000 of debt outstanding related to our portfolio of properties. Accordingly, we are subject to the risks normally associated with debt financing, including, without limitation, the risk that our cash flow may not be sufficient to cover required debt service payments. There is also a risk that, if necessary, existing indebtedness will not be able to be refinanced or that the terms of such refinancing will not be as favorable as the terms of the existing indebtedness.

      In addition, if we cannot meet our required mortgage payment obligations, the property or properties subject to such mortgage indebtedness could be foreclosed upon by, or otherwise transferred to, our lender, with a consequent loss of income and asset value to us. For tax purposes, a foreclosure of any of our properties would be treated as a sale of the property for a purchase price equal to the outstanding balance of the debt secured by the mortgage. If the outstanding balance of the debt secured by the mortgage exceeds our tax basis in the property, we would recognize taxable income on foreclosure, but we may not receive any cash proceeds.

      The mortgages on our properties contain customary restrictive covenants such as satisfaction of certain total debt-to-asset ratios, secured debt-to-total-asset ratios, and debt service coverage ratios. The mortgages also include provisions that may limit the borrowing subsidiary’s ability, without the prior consent of the lender, to incur additional indebtedness, further mortgage or transfer the applicable property, discontinue insurance coverage, change the conduct of its business or make loans or advances to, enter into any transaction of merger or consolidation with, or acquire the business, assets or equity of, any third party. In addition, any future lines of credit or loans may contain financial covenants, further restrictive covenants and other obligations.

      If we materially breach such covenants or obligations in our debt agreements, the lender may, including, without limitation, seize our income from the property securing the loan or legally declare a default on the obligation, require us to repay the debt immediately and foreclose on the property securing the loan. If we were to breach such covenants or obligations, we may then have to sell properties either at a loss or at a time that prevents us from achieving a higher price. Any failure to pay our indebtedness when due or failure to cure events of default could result in higher interest rates during the period of the loan default and could ultimately result in the loss of properties through foreclosure. Additionally, if the lender were to seize our income from property securing the loan, we would no longer have any discretion over the use of the income, which may prevent us from making distributions to our unit holders.

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The pending SEC investigation of our Manager could result in defaults or alleged defaults under our loan documents or limit our ability to obtain debt financing in the future.

      We rely on debt financing for our acquisition of new investments and for meeting capital expenditure obligations, among other things. The SEC investigation of our Manager described above, or any other related enforcement action by government authorities against our Manager or us, could result in defaults or alleged defaults under our existing loan agreements or could make it more difficult for us to obtain new debt financing or prevent us from satisfying customary debt covenants or conditions required by existing loan documents, including conditions for additional advances.

If we purchase assets at a time when the commercial real estate market is experiencing substantial influxes of capital investment and competition for properties, the real estate we purchase may not appreciate or may decrease in value.

      The commercial real estate market is currently experiencing a substantial influx of capital from investors. This substantial flow of capital, combined with significant competition for real estate, may result in inflated purchase prices for such assets. To the extent we purchase real estate in such an environment, we are subject to the risk that if the real estate market ceases to attract the same level of capital investment in the future as it is currently attracting, or if the number of companies seeking to acquire such assets decreases, our returns will be lower and the value of our assets may not appreciate or may decrease significantly below the amount we paid for such assets.

Since our cash flow is not assured, we may not pay distributions in the future.

      Our ability to pay distributions may be adversely affected by the risks described herein. We cannot assure our unit holders that we will be able to pay distributions in the future at the same level or at all. We also cannot assure our unit holders that the level of our distributions will increase over time or the receipt of income from additional property acquisitions will necessarily increase our cash available for distribution to our unit holders.

Our Manager’s past performance is not a predictor of our future results.

      Neither the track record of our Manager in managing us, nor its performance with entities similar to ours, shall imply or predict (directly or indirectly) any level of our future performance or the future performance of our Manager. Our Manager’s performance and our performance is dependent on future events and is, therefore, inherently uncertain. Past performance cannot be relied upon to predict future events for a variety of factors, including, without limitation, varying business strategies, different local and national economic circumstances, different supply and demand characteristics relevant to buyers and sellers of assets, varying degrees of competition and varying circumstances pertaining to the capital markets.

We do not expect to register as an investment company under the Investment Company Act of 1940 and, therefore, we will not be subject to the requirements imposed on an investment company by such Act.

      We believe that we will not operate in a manner that requires us to register as an “investment company” under the Investment Company Act of 1940, or the Act. Investment companies subject to this Act are required to comply with a variety of substantive requirements such as requirements relating to:

•  limitations on the capital structure of the entity;

•  restrictions on certain investments;

•  prohibitions on transactions with affiliated entities; and

•  public reporting disclosures, record keeping, voting procedures, proxy disclosure and similar corporate governance rules and regulations.

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      Many of these requirements are intended to provide benefits or protections to security holders of investment companies. Because we do not expect to be subject to these requirements, our unit holders will not be entitled to these benefits or protections.

      In order to maintain our exemption from regulation under the Act, we must engage primarily in the business of buying real estate. In addition, in order to operate in a manner to avoid being required to register as an investment company we may be unable to sell assets we would otherwise want to sell, and we may need to sell assets we would otherwise wish to retain. This may reduce the cash available for distribution to unit holders and possibly lower our unit holders’ returns.

If we are required to register as an investment company under the Act, the additional expenses and operational limitations associated with such registration may reduce our unit holders’ investment return.

      We do not expect that we will operate in a manner that requires us to register as an “investment company” under the Act. However, the analysis relating to whether a company qualifies as an investment company can involve technical and complex rules and regulations. If we own assets that qualify as “investment securities,” as such term is defined under this Act, and the value of such assets exceeds 40% of the value of our total assets, we may be deemed to be an investment company. It is possible that many, if not all, of our interests in real estate may be held through other entities and some or all of these interests in other entities may be deemed to be investment securities.

      If we held investment securities and the value of these securities exceeded 40% of the value of our total assets we may be required to register as an investment company. Investment companies are subject to a variety of substantial requirements that could significantly impact our operations. The costs and expenses we would incur to register and operate as an investment company, as well as the limitations placed on our operations, could have a material adverse impact on our operations and our unit holders’ investment return.

      If we were required to register as an investment company but failed to do so, we would be prohibited from engaging in our business, criminal and civil actions could be brought against us, our contracts would be unenforceable unless a court were to require enforcement and a court could appoint a receiver to take control of us and liquidate our business.

Conflicts of Interest

The conflicts of interest described below may mean we will not be managed solely in the best interests of our unit holders.

      Our Manager’s key executives and members of its Board of Managers have conflicts of interest relating to the management of our business and properties. Accordingly, those parties may make decisions or take actions based on factors other than the interests of our unit holders.

      Under the Operating Agreement, there are no restrictions on our Manager, or any of our members or executive officers, from engaging in or possessing an interest in any other business or venture of any nature, whether or not competitive with us. Moreover, our Manager also advises G REIT, Inc., T REIT, Inc., NNN 2002 Value Fund, LLC and other private programs that may compete with us or otherwise have similar business interests and/or investment objectives. Some of our Manager’s officers and managers also serve as officers and directors of G REIT, Inc. and T REIT, Inc. Mr. Thompson, members of the Board of Managers and key executives of our Manager collectively own approximately 43% of our Manager.

      As officers, directors, managers and partial owners of entities that do business with us or that have interests in competition with our own interests, these individuals will experience conflicts between their

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fiduciary obligations to us and their fiduciary obligations to, and pecuniary interests in, our Manager and its affiliated entities. These conflicts of interest could:

•  limit the time and services that our Manager devotes to us, because it will be providing similar services to G REIT, Inc., T REIT, Inc., NNN 2002 Value Fund, LLC and other real estate programs and properties;

•  impair our ability to compete for tenants in geographic areas where other properties are advised by our Manager and its affiliates; and

•  impair our ability to compete for the acquisition of properties with other real estate entities that are also advised by our Manager and its affiliates.

      If our Manager or its affiliates breach their fiduciary obligations to us, we may not meet our investment objectives, which could reduce the expected cash available for distribution to our unit holders.

The absence of arm’s length bargaining may mean that our agreements are not as favorable to unit holders as these agreements otherwise would have been.

      Any existing or future agreements between us and our Manager, Realty or their affiliates were not and will not be reached through arm’s length negotiations. Thus, such agreements may not solely reflect your interests as a unit holder. For example, the Operating Agreement and the Management Agreement were not the result of arm’s length negotiations. As a result, these agreements may be relatively more favorable to the other counterparty than to us.

Item 2. Properties

      As of December 31, 2005, we owned five consolidated office properties located in Texas, Oregon and Nevada with an aggregate GLA of 951,000 square feet and a 9.05 acre land parcel located in Utah. We also owned interests in two unconsolidated office properties located in Texas and California with an aggregate GLA of 751,000 square feet.

      The majority of the rental income from our properties consists of rent received under leases that provide for the payment of fixed minimum rent paid monthly in advance, and for the payment by tenants of a pro rata share of the real estate taxes, special assessments, insurance, utilities, common area maintenance, management fees and certain building repairs of the center. Under the majority of our leases, we are not currently obligated to pay the tenant’s proportionate share of real estate taxes, insurance and property operating expenses up to the amount incurred during the tenant’s first year of occupancy, or Base Year, or a negotiated amount approximating the tenant’s pro rata share of real estate taxes, insurance and property operating expenses, or expense stop. The tenant pays their pro rata share of an increase in expenses above the Base Year or expense stop.

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      The following table presents certain additional information about our consolidated and unconsolidated properties (excluding our undeveloped land parcel) at December 31, 2005:

																				Annual
												Annual		% Total			Physical			Rent Per
			GLA		% of			%		Date		Rent		of Annual			Occupancy			Sq Ft
Property	Property Location		(Sq Ft)		GLA			Owned		Acquired		(1)		Rent			(2)			(3)
Consolidated Properties:
Executive Center I		Dallas, TX		205,000		21.6	%		100.0%		12/30/03	$	763,000		7.0	%		21.3	%	$	17.50
Interwood		Houston, TX		80,000		8.4			100.0%		01/26/05		1,012,000		9.3			65.0			19.47
Woodside Corp Park		Beaverton, OR		193,000		20.3			100.0%		09/30/05		1,649,000		15.1			57.4			14.83
3500 Maple		Dallas, TX		375,000		39.4			99.0%		12/27/05		6,636,000		61.0			88.3			20.06
Oakey Building		Las Vegas, NV		98,000		10.3			75.4%		04/02/04		830,000		7.6			100.0			8.45
Total/ Weighted Avg				951,000		100.0	%					$	10,890,000		100.0	%		66.8	%	$	17.13
Unconsolidated Properties:
Enterprise Technology Center		Scotts Valley, CA		381,000					8.5%		05/07/04	$	8,570,000					83.8	%	$	11.51
Executive Center II & III		Dallas, TX		370,000					41.1%		08/01/03		3,681,000					83.3			27.80
Totals/ Weighted Avg.				751,000								$	12,251,000					83.5	%	$	18.31

(1)	Annualized rental income is based on contractual base rent from leases in effect at December 31, 2005.
(2)	As of December 31, 2005, approximately 66.8% of the total GLA in our consolidated properties was leased.
(3)	Average annual rent per occupied square foot at December 31, 2005.

      Our investments in unconsolidated real estate consist of certain investments where we have purchased a membership interest in a limited liability company that has invested in a property or a direct TIC ownership in a property. The following table presents certain additional information regarding our investments in unconsolidated properties at December 31, 2005:

			%			December 31,
Property:	Location:		Owned			2005
Enterprise Technology Center		Scotts Valley, CA		8.5	%	$	2,638,000
Executive Center II & III		Dallas, TX		41.1	%		2,993,000
Total						$	5,631,000

      The following information generally applies to the properties:

•  we believe all of our properties are adequately covered by insurance and are suitable for their intended purposes;

•  our properties are located in markets where we are subject to competition in attracting new tenants and retaining current tenants; and

•  depreciation is provided on a straight-line basis over the estimated useful lives of the buildings, ranging primarily from 15 to 39 years and over the shorter of the lease term or useful lives of the tenant improvements.

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      The following is a summary of our ownership information for the properties in which we own an interest as of December 31, 2005:

NNN 2003 Value Fund, LLC

      The following is a summary of our ownership information for the properties in which we own less than a 100% interest:

3500 Maple Ownership

      The following is a summary of our relationships with entities with ownership interests in the 3500 Maple property as of December 31, 2005.

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Oakey Building Ownership

      The following is a summary of our relationships with entities with ownership interests in the Oakey Building property as of December 31, 2005.

Enterprise Technology Center Ownership

      The following is a summary of our relationships with entities with ownership interests in Enterprise Technology Center property as of December 31, 2005.

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Executive Center II & III Ownership

      The following is a summary of our relationship with entities with ownership interests in the Executive Center II & III property as of December 31, 2005.

Lease Expirations

      The following table presents the sensitivity of our annual base rent due to lease expirations for the next 10 years at our consolidated properties as of December 31, 2005, by number, square feet, percentage of leased area, annual base rent, and percentage of annual rent.

						% of					% of Total
				Total Sq.		Leased Area			Annual Rent		Annual Rent
		Number		Ft. of		Represented			Under		Represented by
		of Leases		Expiring		by Expiring			Expiring		Expiring
Year Ending December 31		Expiring		Leases		Leases			Leases		Leases(1)
2006			9		21,000		3.4	%	$	370,000		3.4	%
2007			14		83,000		13.3			1,401,000		12.9
2008			3		29,000		4.6			743,000		6.8
2009			11		62,000		9.9			1,055,000		9.7
2010			5		39,000		6.3			639,000		5.9
2011			18		140,000		22.4			1,675,000		15.4
2012			2		12,000		1.9			236,000		2.2
2013			4		56,000		9.0			1,006,000		9.2
2014			2		52,000		8.3			1,012,000		9.3
2015			12		128,000		20.5			2,624,000		24.1
Thereafter			1		2,000		0.4			48,000		0.4
	Total		81		624,000		100.0	%	$	10,809,000		99.3	%

(1)  The annual rent percentage is based on the total annual base rent as of December 31, 2005, which, in addition to leases with scheduled expirations as included in this table, include certain tenants that have leases extended on a monthly basis.

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Geographic Diversification; Concentration Table

      The following table lists the states in which our consolidated properties are located and provides certain information regarding our portfolio’s geographic diversification/concentration as of December 31, 2005.

						Approximate					Approximate
				Aggregate		% of			Current		% of
		No. of		Rentable		Rentable			Annual Base		Aggregate
State		Properties		Square Feet		Square Feet			Rent		Annual Rent
Texas			3		660,000		69.4	%	$	8,411,000		77.3	%
Oregon			1		193,000		20.3			1,649,000		15.1
Nevada			1		98,000		10.3			830,000		7.6
Utah			1		—		—			—		—
	Total		6		951,000		100.0	%	$	10,890,000		100.0	%

Indebtedness

      At December 31, 2005, we had secured mortgage loans outstanding on five of our consolidated properties, representing aggregate indebtedness in the principal amount of $93,492,000 consisting of $52,000,000 or 55.6%, of fixed rate debt at a weighted-average interest rate of 6.2% per annum and $41,492,000, or 44.4%, variable rate debt at a weighted -average interest rate of 7.7% per annum.

Item 3. Legal Proceedings

SEC Investigation

      On September 16, 2004, our Manager advised us that it learned that the SEC is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC has requested information from our Manager relating to disclosure in public and private securities offerings sponsored by our Manager and its affiliates, or the Triple Net securities offerings (including our offering). The SEC has requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents. Our Manager has advised us that it believes it has and intends to continue to cooperate fully with the SEC’s investigation. This investigation could focus on or involve us and fines, penalties or administrative remedies could be asserted against us.

      We cannot at this time assess the outcome of the investigation by the SEC. Therefore, at this time, we have not accrued any loss contingencies in accordance with Statement of Financial Accounting Standards No. 5, Accounting for Contingencies.

Prior Performance Tables

      In connection with our offering of the sale of our units from July 11, 2003 through October 14, 2004, we disclosed the prior performance of all public and non-public investment programs sponsored by our Manager. Our Manager subsequently determined that there were certain errors in those prior performance tables. In particular, the financial information in the tables was stated to be presented in accordance with GAAP. Generally, the tables for the public programs were not presented on a GAAP basis and the tables for the non-public programs were prepared and presented on a tax or cash accounting basis. Moreover, a number of the prior performance data figures were themselves erroneous, even as presented on a tax or cash basis. In particular, certain programs sponsored by our Manager have invested either along side or in other programs sponsored by our Manager. The nature and results of these investments were not fully and accurately disclosed in the tables. In addition, certain calculations of depreciation and amortization were not on an income tax basis for a limited liability company investment; certain operating expenses were not reflected in the operating results; and monthly mortgage and principal payments were not reported. In general, the resulting effect is a total overstatement of our Manager’s program and aggregate portfolio

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operating results in an amount of approximately $1,730,000 for cash generated after payment of cash distributions.

      The Board of Managers has reviewed issues relating to addressing these errors in the prior performance tables. In connection with this review, our Manager, working with independent outside financial consultants, prepared revised prior performance tables, or the Revised Prior Performance Tables. The Revised Prior Performance Tables correct certain information which was included in our private placement memorandum dated July 11, 2003. A detailed explanation regarding the nature of the errors and a more detailed discussion and analysis of the overstatements and differences in operating results may be found in our Revised Prior Performance Tables that were filed as Appendix A to Amendment No. 5 to our Registration Statement on Form 10, filed on March 17, 2006.

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

      No matters were submitted to a vote of security holders during the fourth quarter of 2005.

PART II

Item 5. Market for and Distributions on Units and Related Security Holder Matters

Market Information

      During the period covered by this report, there was no established public trading market for our units.

Unit Holders

      As of December 31, 2005, there were 825 unit holders of record with 324, 246 and 262 holders of Class A, Class B and Class C units, respectively. Certain of our unit holders own units in more than one class of units.

Distributions

      The Operating Agreement provides that Class A unit holders receive a 10% priority return, Class B unit holders receive a 9% priority return and Class C unit holders receive an 8% priority return.

      The distributions declared per Class A unit in each quarter of 2005 and 2004 were as follows:

Quarters Ended	2005		2004
March 31	$	88	$	88
June 30	$	88	$	88
September 30	$	88	$	88
December 31	$	88	$	88

      The distributions declared per Class B unit in each quarter of 2005 and 2004 were as follows:

Quarters Ended	2005		2004
March 31	$	88		N/A
June 30	$	88	$	88
September 30	$	88	$	88
December 31	$	88	$	88

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      The distributions declared per Class C unit in each quarter of 2005 and 2004 were as follows:

Quarters Ended	2005		2004
March 31	$	88		N/A
June 30	$	88		N/A
September 30	$	88	$	59
December 31	$	88	$	88

      Our quarterly distribution rate during 2004 and 2005 has been $352 per unit on an annualized basis, or 7.0% per annum. In the event we cannot make the distributions from operations, we may use one of the following sources of funds to pay distributions: short-term debt; long-term debt; and proceeds from the sale of one or more of our properties.

Distribution Policy

      The declaration of distributions is determined by the Board of Managers who will determine the amount of distributions on a regular basis. The amount of distributions will depend on our actual cash flow, financial condition, capital requirements and such other factors the Board of Managers may deem relevant.

Equity Compensation Plan Information

      We have no equity compensation plans as of December 31, 2005.

Item 6. Selected Financial Data

      The following sets forth our selected consolidated financial and operating information on a historical basis. The following should be read with the sections titled “Risk Factors,” “Management’s Discussion and Analysis of Financial Condition and Results of Operations” and the consolidated financial statements and the notes thereto.

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SELECTED FINANCIAL DATA

NNN 2003 VALUE FUND, LLC

(a Delaware limited liability company)

	December 31,
Selected Financial Data(1)	2005		2004		2003
BALANCE SHEET DATA:
Total assets	$	145,190,000	$	67,334,000	$	14,114,000
Mortgage loans payable, including properties held for sale		93,492,000		23,625,000		4,500,000
Unit holders’ equity		40,521,000		37,102,000		7,628,000
Book value per unit	$	4,052.10	$	3,710.20	$	4,042.40

							For the Period from
							June 19, 2003
	Years Ended December 31,						(Date of Inception)
							through
	2005			2004			December 31, 2003
OPERATING DATA (BY YEAR):
Rental income	$	2,194,000		$	653,000		$	—
Rental expenses	$	1,714,000		$	1,084,000		$	11,000
General and administrative expense	$	1,298,000		$	339,000		$	7,000
Interest expense	$	1,158,000		$	638,000		$	—
Income (loss) from continuing operations	$	185,000		$	(2,157,000	)	$	(116,000	)
Income (loss) from discontinued operations	$	926,000		$	(145,000	)		—
Gain on sale of real estate	$	5,802,000			—			—
Net income (loss)	$	6,913,000		$	(2,302,000	)	$	(116,000	)
Net income (loss) per unit:
Continuing operations — basic and diluted(2)	$	18.50		$	(350.28	)	$	(178.74	)
Discontinued operations — basic and diluted(2)		672.80			(23.54	)		—
Net income (loss) per unit — basic and diluted(2)	$	691.30		$	(373.82	)		(178.74	)
Distributions declared	$	3,493,000		$	1,908,000		$	35,000
Distributions per common unit(2)	$	349.30		$	309.84		$	53.93
Weighted-average number of units outstanding — basic and diluted(2)		10,000			6,158			649
OTHER DATA:
Cash flows provided by operating activities	$	238,000		$	2,476,000		$	174,000
Cash flows used in investing activities	$	(64,529,000	)	$	(45,158,000	)	$	(9,932,000	)
Cash flows provided by financing activities	$	65,155,000		$	49,953,000		$	12,383,000
Number of consolidated properties at year end		6			5			1
Rentable square feet		951,000			649,000			208,000
Occupancy of consolidated properties		66.8	%		62.4	%		21.4	%

(1)	The above selected financial data should be read in conjunction with the historical consolidated financial statements and related notes appearing elsewhere in this report.
(2)	Net income (loss) and distributions per unit are based upon the weighted-average number of units outstanding.

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

      The following discussion should be read in conjunction with Item 6: “Selected Financial Data” and our consolidated financial statements and notes appearing elsewhere in this Form 10-K. Such financial statements and information have been prepared to reflect our financial position as of December 31, 2005 and 2004, together with results of operations for the years ended December 31, 2005 and 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003, and the cash flows for the years ended December 31, 2005 and 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003.

Forward-Looking Statements

      Historical results and trends should not be taken as indicative of future operations. Our statements contained in this report that are not historical facts are forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended, of the Securities Act, and Section 21E of the Securities Exchange Act of 1934, as amended, or the Exchange Act. Actual results may differ materially from those included in the forward-looking statements. We intend those forward-looking statements to be covered by the safe-harbor provisions for forward-looking statements contained in the Private Securities Litigation Reform Act of 1995, and are including this statement for purposes of complying with those safe-harbor provisions. Forward-looking statements, which are based on certain assumptions and describe future plans, strategies and expectations of us, are generally identifiable by use of the words “believe,” “expect,” “intend,” “anticipate,” “estimate,” “project,” “prospects,” or similar expressions. Our ability to predict results or the actual effect of future plans or strategies is inherently uncertain. Factors which could have a material adverse effect on our operations and future prospects on a consolidated basis include, but are not limited to: changes in economic conditions generally and the real estate market specifically; sales prices, lease renewals and new leases; legislative/regulatory changes; availability of capital; interest rates; our ability to service our debt, competition; supply and demand for operating properties in our current and proposed market areas; accounting principles generally accepted in the United States, or GAAP, and policies and guidelines applicable to us; our ongoing relationship with our Manager (as defined below); and litigation, including, without limitation, the investigation by the Securities and Exchange Commission, or the SEC, of our Manager. These risks and uncertainties should be considered in evaluating forward-looking statements and undue reliance should not be placed on such statements. Additional information concerning us and our business, including additional factors that could materially affect our financial results, is included herein and in our other filings with the SEC.

Overview and Background

      We are a Delaware limited liability company which was formed on June 19, 2003 to purchase, own, operate and subsequently sell all or a portion of a number of unspecified properties believed to have a higher than average potential for capital appreciation, or value added properties. Our current investment objectives are to: (1) have the potential within one to five years, subject to market conditions, to realize income on the sale of our properties; (2) realize income through the acquisition, operation, development and sale of our properties or our interests in our properties; and (3) make monthly distributions to the unit holders from cash generated from operations and capital transactions.

      As of December 31, 2005, we have interests in eight properties, including five consolidated interests in office properties, one consolidated interest in a land parcel for development and two unconsolidated interests in office properties. At December 31, 2005, 66.8% of the total gross leaseable area, or GLA, of our consolidated properties was leased.

      Triple Net Properties, LLC, or our Manager, which is 36% owned by Anthony W. Thompson, our Manager’s chief executive officer and chairman, manages us pursuant to the terms of an operating agreement, or the Operating Agreement. Our Manager engages affiliated entities, including Triple Net Properties Realty, Inc., or Realty, an affiliate of our Manager which is 84% owned by Anthony W. Thompson and 16% owned by Louis J. Rogers, president of our Manager. Realty serves as our property

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manager pursuant to the terms of the Operating Agreement and a property management agreement, or the Management Agreement. Richard T. Hutton, Jr., our chief executive officer, also serves as a member of our Manager’s board of managers, or the Board of Managers, and as our Manager’s executive vice-president and chief investment officer.

Business Strategy

      Our primary business strategy is to purchase properties with greater than average appreciation potential, and realize gains upon disposition of our properties. In order to increase the value of our properties, we actively manage our property portfolio to seek to achieve gains in rental rates and occupancy, control operating expenses and maximize income from ancillary operations and services. In the case of land purchases we expect to increase the value of the land by preparing the land for development. We intend to own and operate our properties for approximately one to five years and, after that time, depending upon market conditions and other factors, the property will be offered for sale. We believe that our recent acquisitions and dispositions of real estate investments will have a significant impact on our future results of operations. In the event of dispositions, if we do not redeploy the funds into additional acquisitions, our future results of operations could be negatively impacted due to the dilutive impact of the uninvested funds. Additionally, we may invest excess cash in interest-bearing accounts and short-term interest-bearing securities or equity securities. Such investments may include, for example, investments in marketable securities, certificates of deposit and interest-bearing bank deposits.

2005 Acquisitions

      We acquired interest in the following properties during 2005:

Consolidated Properties

Interwood — Houston, Texas

      On January 26, 2005, we purchased a 100% interest in the Interwood property, an 80,000 square foot, two-story office building located in Houston, Texas. The property was purchased from an unaffiliated third party for a purchase price of $8,000,000. We financed the property with a two-year $5,500,000 first mortgage from LaSalle Bank National Association, or LaSalle, which bears interest at one-month LIBOR plus 300 basis points, requiring interest-only payments. Realty was paid a sales commission of $250,000, or 3.1%, of the purchase price, of which 75.0% was passed through to our Manager pursuant to an agreement between our Manager and Realty, or the Realty-Triple Net Agreement.

Woodside Corporate Park — Beaverton, Oregon

      On September 30, 2005, we purchased five office buildings at Woodside Corporate Park, or the Woodside property, totaling 193,000 square feet of GLA from an unaffiliated third party for a purchase price of $22,862,000. The Woodside property is part of the 13-building Woodside Corporate Park master-planned office and flex campus located in Beaverton, a suburb of Portland, Oregon. The property was financed with a mortgage loan from Wrightwood Capital Lender, LLC in the amount of $15,915,000, which bears interest at one-month LIBOR plus 335 basis points, requiring interest-only payments. Realty was paid a sales commission of $579,000, or 2.5% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Daniels Rd land parcel — Heber City, Utah

      On October 14, 2005, we purchased 100% of 1590 South Daniels, a 9.05 acre land parcel with three buildings, consisting of an 864 square foot detached garage, an 810 square foot log cabin and a 1,392 square foot manufactured home, located in Heber City, Utah. The property was purchased from an unaffiliated third party for a cash purchase price of $731,000. We intend to explore development of the land into public storage units.

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3500 Maple — Dallas, Texas

      On December 27, 2005, we purchased a 99.0% interest in 3500 Maple Avenue, a 375,000 square-foot office building located in Dallas, Texas, from an unaffiliated third party. An affiliated entity, NNN 3500 Maple, LLC, purchased the remaining 1.0% interest. The total purchase price was $66,500,000. The purchase was financed with: (i) a first mortgage loan from Wachovia Bank, National Association, or Wachovia, of $47,000,000 due in ten years with an effective fixed interest rate of 5.77% per annum, requiring interest-only payments for five years and a 30-year amortization thereafter; and (ii) a mezzanine loan from Wachovia of $11,320,000 due in ten years with a floating interest rate of 500 basis points over the 30-day LIBOR for 120 days and a floating interest rate of 1,000 basis points over the 30-day LIBOR thereafter.

Potential Property Acquisitions

      We are currently considering several other potential property acquisitions. The decision to acquire one or more of these properties will generally depend upon the following conditions, among others:

•  receipt of a satisfactory environmental survey and property appraisal for each property;

•  no material adverse change occurring in the properties, the tenants or in the local economic conditions; and

•  receipt of sufficient financing.

      There can be no assurance that any or all of the conditions will be satisfied.

2005 Dispositions

      We sold our interest in the following properties during 2005:

Consolidated Properties

Southwood Tower — Houston, Texas

      On December 19, 2005, we sold Southwood Tower, our wholly-owned property located in Houston, Texas, to an unaffiliated third party for a sales price of $9,373,000. Our cash proceeds were $7,493,000 after closing costs and other transaction expenses. The sale resulted in us recording a gain of $2,402,000. A property disposition fee of $94,000, or 1.0% of the sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $375,000, or 4% of the sales price, were paid to unaffiliated brokers. We may reinvest the net proceeds from the sale in real estate property that qualifies for like-kind exchange treatment under Section 1031 of the Internal Revenue Code.

      As part of the sale of Southwood Tower, a leasing reserve escrow account was funded at the close of the sale with $1,148,000 which will pay for vacant space within the sold building for a period of five years. The purchaser will receive payments from this escrow account until such time as the vacant space is leased and, at that time, we will receive any remaining proceeds, net of leasing costs and required tenant improvements. We have accounted for this as an escrow deposit with offsetting deferred revenue. We will recognize revenue, if any, upon release of escrow funds to us.

Financial Plaza — Omaha, Nebraska

      On April 13, 2005, we sold Financial Plaza, our wholly-owned property, located in Omaha, Nebraska, to an unaffiliated third party for a sales price of $9,500,000. In connection with the sale, the buyer assumed a first mortgage note of $4,110,000 due to American Express Certificate Company. We also received a note receivable secured by the property for $2,300,000 that bears interest at a fixed rate of 8.0% per annum and matures on April 1, 2008. The note requires monthly interest-only payments. Our proceeds after closing costs and the note receivable were $2,327,000. The sale resulted in a gain of

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$3,015,000. Realty was paid a disposition fee of $475,000, or 5.0% of the sales price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Satellite Place — Atlanta, Georgia

      On February 24, 2005, we sold Satellite Place, our wholly-owned property located in Atlanta, Georgia, to NNN Satellite 1100 & 2000, LLC, for a sales price of $19,410,000. Because the property was purchased by tenant-in-common, or TIC, entities also managed by our Manager, our Manager engaged an independent third party to provide an opinion as to the fairness of the transaction to us. This opinion was received by us prior to the consummation of the transaction. In connection with the sale, the first mortgage note of $11,000,000, plus accrued interest, was repaid to LaSalle. Our proceeds from this sale were $7,727,000 after closing costs. The sale resulted in a gain of $385,000. Realty did not receive a disposition fee upon the sale of the property.

Unconsolidated Properties

Emerald Plaza Building — San Diego, California

      On November 10, 2005, our Manager sold the Emerald Plaza Building located in San Diego, California, of which we owned a 4.6% interest, to an unaffiliated third party for a total sales price of $123,634,000. Our cash proceeds were $2,405,000 after closing costs and other transaction expenses. The sale resulted in us recording a gain of $988,000. A property disposition fee of $2,250,000, or 1.8% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $700,000, or 0.6% of the total sales price, were paid to unaffiliated brokers. In conjunction with the sale, all related party notes payable due to Cunningham Lending Group, LLC, or Cunningham, an entity wholly owned by Anthony W. Thompson, were paid in full.

801 K Street — Sacramento, California

      On August 26, 2005, our Manager sold 801 K Street located in Sacramento, California, of which we owned an 18.3% interest, to an unaffiliated third party for a total sales price of $79,350,000. Our cash proceeds were $7,244,000 after closing costs and other transaction expenses. The sale resulted in us recording a gain of approximately $2,079,000. A property disposition fee of $2,550,000, or 3.2% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $555,000, or 0.7% of the total sales price, was paid to unaffiliated brokers. In conjunction with the sale, all related party notes due to Cunningham were paid in full.

2004 Acquisitions

      We acquired interests in the following properties during 2004:

Consolidated Properties

Oakey Building — Las Vegas, Nevada

      On April 2, 2004, we purchased a 75.4% interest in the Oakey Building, a four-story, Class A office building of 98,000 square feet located in Las Vegas, Nevada. In the purchase transaction, T REIT, Inc., an affiliated party, who is also managed by our Manager, acquired a 9.8% interest in the Oakey Building and unaffiliated members acquired the remaining 14.8%. The total purchase price for the Oakey Building was $8,137,000. Our initial investment was $6,178,000. The purchase was financed by $4,000,000 in borrowings secured by the property. The loan is payable to the Ivan Halaj and Vilma Halaj Inter Vivos Trust. The loan required principal and interest payments at a fixed interest rate of 10.0% per annum until the due date of April 1, 2005. On April 1, 2005, the loan was extended until October 1, 2005 and from that date bears interest at a fixed interest rate of 8.0% per annum. The seller paid Realty a sales

27

commission of $237,000, or 2.9% of the purchase price, of which 75.0% was passed though to our Manager pursuant to the Realty-Triple Net Agreement. On September 6, 2005, the $4,000,000 first mortgage loan secured by the Oakey Building property was refinanced with LaSalle providing a refinance of the existing mortgage, construction and tenant improvement financing loan of $5,585,000 and additional financing for operating requirements and interest expense during the construction period up to $1,065,000. The loan term provides for our option of LaSalle’s prime rate or three months LIBOR plus 2.0% per annum. The loan matures on September 6, 2007. We are required to make interest-only payments. The outstanding balance of the loan as of December 31, 2005 was $8,757,000 at interest rate of 6.29% per annum.

Southwood Tower — Houston, Texas

      On October 27, 2004 we purchased a 100% interest in Southwood Tower, a Class A office building of 79,000 square feet located in Houston, Texas. The property was purchased from an unaffiliated third party for a cash purchase price of $5,461,000. The seller paid Realty a sales commission of $159,000, or 2.9% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement

Financial Plaza — Omaha, Nebraska

      On October 29, 2004 we purchased a 100% interest in Financial Plaza, a four-story, Class A office building of 86,000 square feet located in Omaha, Nebraska. The property was purchased from an unaffiliated third party for a purchase price of $5,660,000. At acquisition, we obtained a first mortgage loan from American Express Certificate Company in the amount of $4,125,000, which bears interest at a 6-month LIBOR plus 180 basis points. The initial term of the loan is three years from the date of acquisition. The seller paid Realty a sales commission of $160,000, or 2.8% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Satellite Place — Atlanta, Georgia

      On November 29, 2004, through our wholly-owned subsidiary, NNN VF Satellite Place, LLC, we purchased a 100% interest in Satellite Place, two single-story, Class A office buildings totaling 178,000 square feet located in Atlanta, Georgia. The property was purchased from an unaffiliated third party for a purchase price of $18,300,000. At acquisition, we obtained a first mortgage loan from LaSalle Bank National Association, or LaSalle, in the amount of $11,000,000, which bears interest at 30-day LIBOR plus 275 basis points. The initial term of the loan is six months from the date of acquisition with one six-month option to extend and an option to convert to fixed-rate debt with LaSalle in favor of the borrower anytime during the term. The seller paid Realty a sales commission of $356,000, or 1.9% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Unconsolidated Properties

801 K Street — Sacramento, California

      On March 31, 2004 we purchased an 18.3% interest in 801 K Street, a 28-story, Class A office building of 336,000 square feet located in Sacramento, California.

      Through the date of disposition, 801 K Street was owned by the following interest holders as TIC’s:

Tenants-in-Common	Interest Held
NNN 801 K Street, LLC		21.5%
Unaffiliated third parties (combined)		78.5%

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      Through the date of disposition, NNN 801 K Street, LLC, which owns an aggregate 21.5% interest in 801 K Street, was owned by the following members, with the proportionate membership interest and interest in 801 K Street listed respectively:

	Membership Interest in		Interest in 801 K
Members	NNN 801 K Street, LLC		Street Property
NNN 2003 Value Fund, LLC		85.0%		18.3%
Unaffiliated members (combined)		15.0%		3.2%

      The property was purchased from an unaffiliated third party for a total purchase price of $65,780,000. Our total investment consisted of $12,064,000. We used the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from HSH Nordbank AG in the amount of $41,350,000. The loan bears interest at a 30-day LIBOR plus 200 basis points until the property reaches 80% leasing at which time interest was reduced to 30-day LIBOR plus 190 basis points. The first 24 months of the loan term are interest only; the last 12 months of the initial loan term are amortized with $56,250 monthly principal payments. The initial term of the loan is three years, due March 2007. The borrower had an option to extend the maturity date for two 12-month terms. The rate was 4.18% at December 31, 2004. The seller paid Realty a sales commission of $1,500,000, or 2.3% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Enterprise Technology Center — Scotts Valley, California

      On May 7, 2004, we purchased an 8.5% interest in Enterprise Technology Center, a Class A office building campus of 370,000 square feet located in Scotts Valley, California.

      As of December 31, 2005, Enterprise Technology Center was owned by the following interest holders as TIC’s:

Tenants-in-Common	Interest Held
NNN Enterprise Technology Center, LLC		11.6%
Unaffiliated third parties (combined)		88.4%

      As of December 31, 2005, NNN Enterprise Technology Center, LLC, which owns an aggregate 11.6% interest in Enterprise Technology Center, was owned by the following members, with the proportionate membership interest and interest in Enterprise Technology Center listed respectively:

			Interest in
	Membership Interest in		Enterprise
	NNN Enterprise Technology		Technology Center
Members	Center, LLC		Property
NNN 2003 Value Fund, LLC		73.3%		8.5%
Unaffiliated members (combined)		26.7%		3.1%

      The property was purchased from an unaffiliated third party for a total purchase price of $61,300,000. Our total investment consisted of $5,233,000. We use the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from UBS Investment Bank, in the amount of $36,500,000, which bears interest at a fixed rate of 6.44%. The note requires monthly interest only payments. The initial term of the loan is 36 months and may be extended by the borrower for an additional 24 months. The seller paid Realty a sales commission of $1,800,000, or 2.9% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Emerald Plaza — San Diego, California

      On June 14, 2004, we purchased a 4.6% interest in the Emerald Plaza Building. Emerald Plaza is a Class A office tower of 355,000 square feet located in downtown San Diego, California.

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      Through the date of disposition, Emerald Plaza was owned by the following interest holders as TIC’s:

Tenants-in-Common	Interest Held
NNN Emerald Plaza, LLC		20.5%
Unaffiliated third parties (combined)		77.6%
AWT Family, LP, a limited partnership wholly owned by Anthony W. Thompson		1.9%

      Through the date of disposition, NNN Emerald Plaza, LLC which owns an aggregate 20.5% interest in Emerald Plaza, was owned by the following members, with the proportionate membership interest and interest in Emerald Plaza listed, respectively:

			Interest in
	Membership Interest in		Emerald Plaza
Members	NNN Emerald Plaza, LLC		Property
NNN 2003 Value Fund, LLC		22.2%		4.6%
Unaffiliated Members (combined)		64.2%		13.2%
T REIT, Inc.		13.2%		2.7%
Affiliated Members (combined)		0.4%		0.1%

      The LLC members include T REIT, Inc, an affiliated party that is also managed by our Manager, and affiliated members, including two members of the Board of Managers.

      Emerald Plaza was purchased from an unaffiliated third party for a purchase price of $100,940,000. Our investment consisted of $4,595,000. We used the equity method of accounting to account for this investment. The property was financed with a $68,500,000 secured loan from Citigroup Global Markets Realty Corp. The loan requires interest only payments through the maturity date of June 17, 2007 at a variable interest rate based on 30-day LIBOR plus 245 basis points. The rate in effect at December 31, 2004 was 4.93% per annum. The seller paid Realty a sales commission of $2,940,000, or 2.9% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

2003 Acquisition

      We acquired interests in the following properties during 2003:

Consolidated Properties

Executive Center I — Dallas, Texas

      On December 30, 2003, we purchased a 100% interest in Executive Center I, a 205,000 square foot, ten story, office building, located in Dallas, Texas. The property was purchased from an unaffiliated third party for a purchase price $8,178,000. We financed the property with a $4,500,000 secured loan from Vestin Mortgage, Inc. with a fixed interest rate of 10.5% per annum. The seller paid Realty a sales commissions of $223,000, or 2.7% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Unconsolidated Properties

Executive Center II & III, Dallas, Texas

      On August 1, 2003, we, as a member of NNN Executive Center, LLC, a Texas limited liability company, purchased a 38.1% interest in Executive Center II & III, two Class A office buildings, totaling 381,000 square feet located in Dallas, Texas.

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      As of December 31, 2005, Executive Center II & III is owned by the following interest holders as TIC’s:

Tenants-in-Common	Interest Held
NNN Executive Center, LLC		49.6%
NNN Executive Center II & III 2003, LP (wholly owned by us),		3.0%
Unaffiliated third parties (combined)		45.9%
AWT Family, LP, a limited partnership wholly owned by Anthony W. Thompson		1.5%

      As of December 31, 2005, NNN Executive Center, LLC, which owns an aggregate 49.6% interest in Executive Center II & III, is owned by the following members, with the proportionate membership interest listed respectively:

	Membership Interest
	In NNN Executive		Interest in Executive
Members	Center, LLC		Center II & III Property
NNN 2003 Value Fund, LLC		76.8%		38.1%
Unaffiliated members (combined)		23.2%		11.5%

      The property was purchased from an unaffiliated third party for a purchase price of $24,600,000. Our total investment consisted of our proportionate share of the purchase price of $9,390,000. We use the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from LaSalle in the amount of $14,950,000, which bears interest at 30-day LIBOR plus 300 basis points, with a floor of 5.0% per annum. The seller paid Realty a sales commission of $600,000, or 2.4% of the purchase price, of which 75% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

      Our aggregate ownership percentage in Executive Center II & III property is 41.1% at December 31, 2005, based on our ownership in NNN Executive Center, LLC and our TIC ownership on the property.

      On December 28, 2005, our Manager refinanced the Executive Center II & III property with LaSalle as follows: (i) a senior loan of $13,000,000 due January 1, 2008 at a rate of the borrower’s option of either LaSalle’s prime rate plus 0.5% or LIBOR plus 2.25%, requiring interest-only payments; and (ii) a mezzanine loan of $3,000,000 due January 1, 2008 at a rate of the borrower’s option of either LaSalle’s prime rate plus 5.00% or LIBOR plus 7.60%, requiring interest-only payments until specified tenant lease payments begin, at which time an additional monthly principal payment of $25,000 will be required and applied to the mezzanine principal loan balance, or cumulatively the Bank Loans. Effective as of December 28, 2005, we obtained a waiver from LaSalle for noncompliance with a certain covenant of the Bank Loans which precludes us from having or incurring additional indebtedness which is not subordinated to the Bank Loans. The waiver allows us to subordinate the additional indebtedness to the Bank Loans and to cure our noncompliance with the covenant by June 27, 2006.

Critical Accounting Policies

Use of Estimates

      The preparation of financial statements in accordance with GAAP requires us to make estimates and judgments that affect the reported amounts of assets, liabilities, revenues and expenses, and related disclosure of contingent assets and liabilities. We believe that our critical accounting policies are those that require significant judgments and estimates such as those related to revenue recognition, allowance for doubtful accounts, impairment of real estate and intangible assets, purchase price allocation, deferred assets and properties held for sale. These estimates are made and evaluated on an on-going basis using information that is currently available as well as various other assumptions believed to be reasonable under the circumstances. Actual results could vary from those estimates, perhaps in material adverse ways, and those estimates could be different under different assumptions or conditions.

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Properties Held for Sale

      Statement of Financial Accounting Standards, or SFAS, No. 144, Accounting for the Impairment or Disposal of Long Lived Assets, addresses financial accounting and reporting for the impairment or disposal of long-lived assets and requires that, in a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statements for current and prior periods shall report the results of operations of the component as discontinued operations. In addition, a property being held for sale ceases to be depreciated. On February 24, 2005, we sold Satellite Place, on April 13, 2005, we sold Financial Plaza, on June 8, 2005, the Oakey Building was listed for sale, and on December 19, 2005, the Southwood Tower property was sold. In addition, on December 27, 2005, we purchased the 3500 Maple property and immediately listed it for sale. As a result of such sales and listing for sale, we reclassified amounts related to Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, and NNN Oakey Building, LLC and 3500 Maple property in the consolidated financial statements to reflect the reclassification required by SFAS No. 144.

      Accordingly, revenues, operating costs and expenses, and other non-operating results for the discontinued operations of Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, NNN Oakey Building, LLC and 3500 Maple, have been excluded from our results from continuing operations for all periods presented herein. The financial results for Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, NNN Oakey Building, LLC and 3500 Maple are presented in our consolidated statements of operations in a single line item entitled “Income (loss) from discontinued operations” and the related assets and liabilities are presented in the consolidated balance sheets in line items entitled “Properties held for sale, net,” “Other assets — properties held for sale,” “Mortgage loans payable secured by properties held for sale,” “Other liabilities — properties held for sale, net” and “Minority interests — properties held for sale.”

Revenue Recognition and Allowance for Doubtful Accounts

      Base rental income is recognized on a straight-line basis over the terms of the respective lease agreements (including rent holidays). Differences between rental income recognized and amounts contractually due under the lease agreements are credited or charged, as applicable, to rent receivable. We maintain an allowance for doubtful accounts for estimated losses resulting from the inability of tenants to make required payments under lease agreements. We also maintain an allowance for deferred rent receivables arising from the straight-lining of rents. We determine the adequacy of this allowance by continually evaluating individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees, if applicable, and current economic conditions.

Impairment

      Our properties are stated at historical cost less accumulated depreciation of fair value less costs to sell. We assess the impairment of a real estate asset when events or changes in circumstances indicate that the net book value may not be recoverable. Indicators we consider important which could trigger an impairment review include the following:

•  a significant negative industry or economic trend;

•  a significant underperformance relative to historical or projected future operating results; and

•  a significant change in the manner in which the asset is used.

      In the event that the carrying amount of a property exceeds the sum of the undiscounted cash flows (excluding interest) that are expected to result from the use and eventual disposition of the property, we would recognize an impairment loss to the extent the carrying amount exceeded the estimated fair value of the property. The estimation of expected future net cash flows is inherently uncertain and relies on subjective assumptions dependent upon future and current market conditions and events that affect the ultimate value of the property. It requires us to make assumptions related to future rental rates, tenant

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allowances, operating expenditures, property taxes, capital improvements, occupancy levels, and the estimated proceeds generated from the future sale of the property.

      We did not record any impairment losses during the years ended December 31, 2005 and 2004 or the period from June 19, 2003 (date of inception) through December 31, 2003.

Purchase Price Allocation

      In accordance with SFAS No. 141, Business Combinations, we, with assistance from independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

      The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in the intangible assets and below market lease values are included in intangible liabilities in the accompanying consolidated financial statements and are amortized to rental income over the weighted-average remaining term of the acquired leases with each property.

      The total amount of other intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on our evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors.

      These allocations are subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.

Recently Issued Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods’ financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 in the first quarter of 2006 did not have a material effect on our consolidated financial statements.

      In June 2005, the FASB ratified its consensus in Emerging Issues Task Force, or EITF, Issue 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (Issue 04-05). The effective date for Issue 04-05 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 in the first quarter of 2006 did not have a material effect on our consolidated financial statements.

      In November 2005, the FASB issued FASB Staff Position, or FSP, Nos. FAS 115-1 and FAS 124-1 which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. These FSPs also includes accounting considerations accounting considerations subsequent to the recognition of an other-

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than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities. The adoption of FSP Nos. FAS 115-1 and FAS 124-1 in the first quarter of 2006 did not have a material effect on our consolidated financial statements.

Factors Which May Influence Results of Operations

Rental Income

      The amount of rental income generated by our properties depends principally on our ability to maintain the occupancy rates of currently leased space and to lease currently available space and space available from unscheduled lease terminations at the existing rental rates. Negative trends in one or more of these factors could adversely affect our rental income in future periods.

Scheduled Lease Expirations

      As of December 31, 2005, our consolidated properties were 66.8% leased to 48 tenants. 3.4% of the GLA expires during 2006. Our leasing strategy for 2006 focuses on negotiating renewals for leases scheduled to expire during the year and identifying new tenants or existing tenants seeking additional space to occupy the GLA for which we are unable to negotiate such renewals. Of the leases expiring in 2006, we anticipate, but cannot assure, that all of the tenants will renew for another term. At the time the leases expire and the tenants do not renew the lease, we will write-off all tenant relationship intangible assets associated with such tenants.

Sarbanes-Oxley Act

      The Sarbanes-Oxley Act of 2002, as amended, or the Sarbanes-Oxley Act, and related laws, regulations and standards relating to corporate governance and disclosure requirements applicable to public companies, have increased the costs of compliance with corporate governance, reporting and disclosure practices which are now required of us. These costs were unanticipated at the time of our formation and may have a material impact on our results of operations and could impact our ability to continue to pay distributions at current rates to our unit holders. Furthermore, we expect that these costs will increase in the future due to our continuing implementation of compliance programs mandated by these requirements. Any increased costs may affect our ability to distribute funds to our unit holders.

      In addition, these laws, rules and regulations create new legal bases for potential administrative enforcement, civil and criminal proceedings against us in case of non-compliance, thereby increasing the risks of liability and potential sanctions against us. We expect that our efforts to comply with these laws and regulations will continue to involve significant, and potentially increasing costs and, our failure to comply, could result in fees, fines, penalties or administrative remedies against us.

Results of Operations

      The operating results are primarily comprised of income derived from our portfolio of properties. Because of the significant property acquisitions and dispositions throughout the years ended December 31, 2005 and 2004, the comparability of financial data from period to period is limited.

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Comparison of the years ended December 31, 2005 and 2004

		Years Ended December 31,
											Percent
		2005			2004			Change			Change
Revenues:
	Rental income	$	2,194,000		$	653,000		$	1,541,000			236.0	%
Expenses:
	Rental expenses		1,714,000			1,084,000			630,000			58.1	%
	General and administrative		1,298,000			339,000			959,000			282.9	%
	Depreciation and amortization		943,000			286,000			657,000			229.7	%
			3,955,000			1,709,000			2,246,000			131.4	%
Loss before other income (expense) and discontinued operations			(1,761,000	)		(1,056,000	)		(705,000	)		66.8	%
Other income (expense):
	Interest expense (including amortization of deferred financing costs)		(1,158,000	)		(638,000	)		(520,000	)		81.5	%
	Interest and dividend income		416,000			86,000			330,000			383.7	%
	Gain on sale of marketable securities		344,000			—			344,000			100.0	%
	Equity in earnings (losses) and gain on sale of unconsolidated real estate		2,510,000			(682,000	)		3,192,000			468.0	%
	Minority interests		(166,000	)		133,000			(299,000	)		(224.8	)%
Income (loss) from continuing operations before discontinued operations			185,000			(2,157,000	)		2,342,000			(108.6	)%
Discontinued operations:
	Gain on sale of real estate		5,802,000			—			5,802,000			100.0	%
	Income (loss) from discontinued operations		926,000			(145,000	)		1,071,000			(738.6	)%
			6,728,000			(145,000	)		6,873,000			(4,740.0	)%
Net income (loss)		$	6,913,000		$	(2,302,000	)	$	9,215,000			(400.3	)%

Rental Income

      Rental income increased $1,541,000, or 236.0%, to $2,194,000 during the year ended December 31, 2005, compared to rental income of $653,000 for the year ended December 31, 2004. $929,000, or 60.3%, of the increase is primarily attributable to the acquisition of Interwood during 2005 and $486,000, or 31.5%, of the increase is attributable to the acquisition of Woodside during 2005.

Rental Expenses

      Rental expenses increased $630,000, or 58.1%, to $1,714,000 during the year ended December 31, 2005, compared to rental expenses of $1,084,000 for the year ended December 31, 2004. $510,000, or 81.0%, of the increase is primarily attributable to the acquisition of Interwood during 2005 and $232,000, or 36.8%, of the increase is attributable to the acquisition of Woodside during 2005. The increase is offset by savings at Executive Center I of $110,000, or 17.5%, due to increase in building maintenance and utilities during 2005.

General and Administrative Expenses

      General and administrative expenses consist primarily of third party professional legal and accounting fees related to our SEC filing requirements. General and administrative expenses increased $959,000, or

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282.9%, to $1,298,000 during the year ended December 31, 2005, compared to general and administrative expenses of $339,000 for the year ended December 31, 2004. The increases were primarily due to the increase in auditing fees of $467,000, or 48.7%, the increase in SEC preparation and filing costs of $302,000, or 31.5%, and an increase in tax preparation and legal fees of $95,000, or 9.9% during 2005.

Depreciation and Amortization Expenses

      Depreciation and amortization expense increased $657,000, or 229.7%, to $943,000 during the year ended December 31, 2005, compared to the depreciation and amortization expense of $286,000 for the year ended December 31, 2004. The increase of $611,000, or 93.0%, for the year ended December 31, 2005 was attributable to the acquisition of Interwood and Woodside during 2005.

Interest Expense

      Interest expense increased $520,000, or 81.5%, to $1,158,000 during the year ended December 31, 2005, compared to the interest expense of $638,000 during the year ended December 31, 2004. The increase is due to $710,000, or 136.5%, attributable to interest expense on mortgages for Interwood and Woodside properties acquired during 2005. The increase is offset by the payoff of the Executive Center I mortgage loan in the second quarter of 2005 and the subsequent refinancing in September 2005 resulted in a reduction of interest expense of $169,000, or 32.5%.

Interest and Dividend Income

      Interest and dividend income increased $330,000, or 383.7%, to $416,000 during the year ended December 31, 2005, compared to $86,000 during the year ended December 31, 2004. The increase was attributable to a $138,000, or $41.8%, increase due to interest income on the $2,300,000 notes receivable from the buyer of Financial Plaza, $90,000, or 27.3%, dividend income earned on our investment in marketable equity securities, and $93,000, or 28.2%, increase attributable to interest income earned in interest bearing cash accounts in the current year as a result of higher cash balances in the current year.

Equity in Earnings (Losses) and Gain on Sale of Unconsolidated Real Estate

      Equity in earnings and gain on sale of unconsolidated real estate increased by $3,192,000, or 468.0%, to income of $2,510,000 during the year ended December 31, 2005, compared to the equity in losses of $(682,000) during the year ended December 31, 2004. The increase for the year ended December 31, 2005, was primarily due to the gain on sale of 801 K Street of $2,079,000, or 65.1%, and the gain on sale of Emerald Plaza of $988,000, or 31.0%. Equity in earnings of unconsolidated real estate also includes our share of the operating results of Executive Center II & III, Enterprise Technology Center, Emerald, and 801K Street.

Minority Interests

      Minority interests (expense) income decreased by $299,000, or 224.8%, to ($166,000), during the year ended December 31, 2005 compared to the minority interest income the year ended December 31, 2004. During the year ended December 31, 2005 NNN 801 K Street, LLC’s underlying real estate asset was sold for a gain of approximately $2,079,000, and the minority interests shared in this gain. There was no comparable gain during the year ended December 31, 2004.

Income (Loss) from Continuing Operations Before Discontinued Operations

      As a result of the above items, income (loss) from continuing operations was $185,000, or $18.50 per basic and diluted unit, for the year ended December 31, 2005 compared to ($2,157,000), or ($350.28) per basic and diluted unit, for the year ended December 31, 2004.

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Income (Loss) from Discontinued Operations

      Income (loss) from discontinued operations was $6,728,000, or $672.80 per basic and diluted unit, for the year ended December 31, 2005 compared to ($145,000), or ($23.54) per basic and diluted unit, for the year ended December 31, 2004. Satellite Place, Southwood Tower and Financial Plaza, were sold during the year ended December 31, 2005, with an aggregate gain on sale of $5,802,000. In addition, Oakey Building and 3500 Maple were classified as discontinued operations for the year ended December 31, 2005.

Net Income (Loss)

      As a result of the above items, net income for the year ended December 31, 2005 was $6,913,000, or $691.30 per basic and dilutive unit, compared with a net loss of $2,302,000, or $(373.82) per basic and dilutive unit, for the year ended December 31, 2004.

Comparison of the year ended December 31, 2004 to the Period From June 19, 2003 (Date of Inception) Through December 31, 2003

					For the Period
					from
					June 19, 2003
					(Date of
					Inception)
		Year Ended			through
		December 31,			December 31,						Percent
		2004			2003			Change			Change
Revenues:
	Rental income	$	653,000		$	—		$	653,000			—
Expenses:
	Rental expenses		1,084,000			11,000			1,073,000			9,754.5	%
	General and administrative		339,000			7,000			332,000			4,742.9	%
	Depreciation and amortization		286,000			—			286,000			—
			1,709,000			18,000			1,691,000			9,394.4	%
Loss before other income (expense) and discontinued operations			(1,056,000	)		(18,000	)		(1,038,000	)		5,766.7	%
Other income (expense):
	Interest expense (including amortization of deferred financing costs)		(638,000	)		—			(638,000	)		—
	Interest and dividend income		86,000			3,000			83,000			2,766.7	%
	Gain on sale of marketable securities		—			—			—			—
	Minority interests		133,000			31,000			102,000			329.0	%
	Equity in earnings (losses) and gain on sale of unconsolidated real estate		(682,000	)		(132,000	)		(550,000	)		416.7	%
Loss from continuing operations before discontinued operations			(2,157,000	)		(116,000	)		(2,041,000	)		1,759.5	%
Discontinued operations:
	Loss from discontinued operations		(145,000	)		—			(145,000	)		—
			(145,000	)		—			(145,000	)		—
Net loss		$	(2,302,000	)	$	(116,000	)	$	(2,186,000	)		1,884.5	%

      The following discussion of results of operations for the year ended December 31, 2004 compared to the period from June 19, 2003 (date of inception) through December 31, 2003 does not contain

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comparable periods; however, such comparison is provided to present a discussion of general trends in the operating results of our company.

Rental Income

      Rental income increased from $0 to $653,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. The increase was attributable to a full year ownership of Executive Center I in 2004. Rental revenue is net of $72,000 of above and below market lease amortization.

Rental Expenses

      Rental expenses increased by $1,073,000, or 9,754.5%, to $1,084,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. The increase in rental expenses was attributable to a full year ownership of Executive Center I in 2004.

General and Administrative Expenses

      General and administrative expenses increased by $332,000, or 4,742.9%, to $339,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. Our operations were limited to investments in unconsolidated real estate until December 30, 2003 and, as a result, we experienced nominal general and administrative expenses during the period from June 19, 2003 (date of inception) to December 31, 2003. General and administrative expenses in 2004 included $282,000, or 83.2%, for consulting fees.

Depreciation and Amortization Expenses

      Depreciation and amortization expense increased from $0 to $286,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. The increase was attributable to a full year ownership of Executive Center I in 2004.

Interest Expense

      Interest expense increased from $0 to $638,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. The increase was attributable to a full year ownership of Executive Center I in 2004.

Interest and Dividend Income

      Interest income increased $83,000, or 2,766.7%, to $86,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. The increase was due to interest earned in money market accounts from the funds from the equity raised until such funds were used to acquire properties.

Equity in Earnings (Losses) and Gain on Sale of Unconsolidated Real Estate

      Equity in earnings of unconsolidated real estate decreased by $550,000, or 416.7%, to a loss of $682,000 during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. $153,000, or 27.8%, of the decrease was attributable to the three investments that were acquired during 2004. $503,000, or 91.5%, of the decrease was attributable to a full year of ownership of our investment acquired during 2003.

Minority Interests

      Minority interests increased by $102,000, or 329.0%, to $133,000, during the year ended December 31, 2004, compared with the period from June 19, 2003 (date of inception) through December 31, 2003. At

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December 31, 2003, we owned one investment with a minority interest, NNN Executive Center, LLC. During the year ended December 31, 2004 we acquired minority interests in NNN 801 K Street, LLC and Enterprise Way, LLC.

Loss from Continuing Operations Before Discontinued Operations

      As a result of the above items, loss from continuing operations was ($2,157,000), or ($350.28) per basic and diluted unit, for the year ended December 31, 2004, compared to ($116,000), or ($178.74) per basic and diluted unit, for the period from June 19, 2003 (date of inception) through December 31, 2003.

Loss from Discontinued Operations

      Loss from discontinued operations was ($145,000), or ($23.54) per basic and diluted unit, for the year ended December 31, 2004 compared to $0 for the period from June 19, 2003 (date of inception) through December 31, 2003. Four properties, Satellite Place, Southwood Tower, Oakey Building, NNN Oakey, LLC and Financial Plaza, were classified in discontinued operations for the year ended December 31, 2004.

Net Loss

      As a result of the above items, net loss was ($2,302,000), or ($373.82), per basic and diluted unit and ($116,000), or ($178.74) per basic and diluted unit, for the years ended December 31, 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003, respectively.

Liquidity and Capital Resources

Current Sources of Capital and Liquidity

      We seek to create and maintain a capital structure that allows for financial flexibility and diversification of capital resources. Our primary sources of liquidity to fund distributions, debt service, leasing costs and capital expenditures are gains from the sale of assets and net cash from operations. As of December 31, 2005 and 2004, our total debt as a percentage of total capitalization was 68.2% and 36.5%, respectively.

Factors Which May Influence Future Sources of Capital and Liquidity

SEC Investigation

      On September 16, 2004, our Manager advised us that it learned that the SEC is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC has requested information from our Manager relating to disclosure in public and private securities offerings sponsored by our Manager and its affiliates, or the Triple Net securities offerings (including our offering). The SEC has requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents. Our Manager has advised us that it believes it has and intends to continue to cooperate fully with the SEC’s investigation. This investigation could focus on or involve us and fines, penalties or administrative remedies could be asserted against us.

      We cannot at this time assess the outcome of the investigation by the SEC. Therefore, at this time, we have not accrued any loss contingencies in accordance with SFAS No. 5, Accounting for Contingencies.

Prior Performance Tables

      In connection with our offering of the sale of our units from July 11, 2003 through October 14, 2004, we disclosed the prior performance of all public and non-public investment programs sponsored by our Manager. Our Manager subsequently determined that there were certain errors in those prior performance tables. In particular, the financial information in the tables was stated to be presented in accordance with GAAP. Generally, the tables for the public programs were not presented on a GAAP basis and the tables

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for the non-public programs were prepared and presented on a tax or cash accounting basis. Moreover, a number of the prior performance data figures were themselves erroneous, even as presented on a tax or cash basis. In particular, certain programs sponsored by our Manager have invested either along side or in other programs sponsored by our Manager. The nature and results of these investments were not fully and accurately disclosed in the tables. In addition, certain calculations of depreciation and amortization were not on an income tax basis for a limited liability company investment; certain operating expenses were not reflected in the operating results; and monthly mortgage and principal payments were not reported. In general, the resulting effect is a total overstatement of our Manager’s program and aggregate portfolio operating results in an amount of approximately $1,730,000 for cash generated after payment of cash distributions.

      The Board of Managers has reviewed issues relating to addressing these errors in the prior performance tables. In connection with this review, our Manager, working with independent outside financial consultants, prepared revised prior performance tables, or the Revised Prior Performance Tables. The Revised Prior Performance Tables correct certain information which was included in our Private Placement Memorandum dated July 11, 2003. A detailed explanation regarding the nature of the errors and a more detailed discussion and analysis of the overstatements and differences in operating results may be found in our Revised Prior Performance Tables that were filed as Appendix A to Amendment No. 5 to our Registration Statement on Form 10, filed on March 17, 2006.

Debt Financing

      Mortgage loans payable, including mortgage loans payable secured by properties held for sale, were $93,492,000 and $23,625,000 at December 31, 2005 and 2004, respectively. Mortgages payable as a percentage of total capitalization increased to 68.2% at December 31, 2005 from 36.5% at December 31, 2004. The increase of $69,867,000 during the year ended December 31, 2005 compared to December 31, 2004 was due to the following: borrowings of $5,500,000 associated with the acquisition of Interwood on January 26, 2005; borrowings of $15,915,000 associated with the acquisition of the Woodside property on September 30, 2005; borrowings of $58,320,000 associated with the acquisition of the 3500 Maple property on December 27, 2005; pay-off of a loan obligation of $4,500,000 and refinancing of a $5,000,000 loan obligation at the Executive Center I property on September 19, 2005; pay-off of a loan obligation of $4,000,000 and refinancing at the Oakey Building property on September 6, 2005 which, at December 31, 2005, has an outstanding loan balance of $8,757,000; and pay-off of the mortgage loans payable of $15,110,000 associated with sales of the Satellite Place and Financial Plaza properties on February 24, 2005 and April 13, 2005, respectively, and scheduled principal payments of $15,000.

      At December 31, 2005 and 2004, $41,492,000, or 44.4%, and $15,125,000, or 64.0%, respectively, of our total debt required interest payments based on variable rates and the remaining debt was at fixed rates.

      During 2005, we borrowed $93,492,000 under various fixed and variable rate mortgage loans, secured by five consolidated office properties. The fixed interest rate loans require monthly principal and interest payments based on an average fixed rate of 6.2% per annum. Variable interest rate loans include interest only loans, with interest rates ranging from 6.3% to 9.4% per annum. Loans mature at various dates through January 2016.

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      The composition of our aggregate debt balances at December 31, 2005 and 2004 were as follows:

						Weighted-Average
		Total Debt				Interest Rate
		December 31,				December 31,
		2005		2004		2005			2004
Mortgage and other debt
	Mortgage	$	93,492,000	$	23,625,000		6.9	%		6.8	%
	Other debt	$	1,385,000	$	—		—			—
Fixed rate and variable rate
	Fixed rate	$	52,000,000	$	8,500,000		6.2	%		10.3	%
	Variable rate	$	41,492,000	$	15,125,000		7.7	%		4.9	%

      Although the interest payments on 55.6% of our debt are fixed, the remaining 44.4% of our debt is exposed to fluctuations on the one-month LIBOR rate. We cannot provide assurance that we will be able to replace our interest-rate swap and cap agreements as they expire and, therefore, our results of operations could be exposed to rising interest rates in the future.

      As of December 31, 2005, the 3500 Maple property has an outstanding unsecured advance in the amount of $1,385,000 due to our Manager, and is presented as “Other debt” in the table above.

      On September 6, 2005, the $4,000,000 first mortgage loan secured by the Oakey Building property was refinanced with LaSalle providing a refinance of the existing mortgage, construction and tenant improvement financing loan of $5,585,000 and additional financing for operating requirements and interest expense during the construction period up to $1,065,000. The loan term provides for our option of LaSalle’s prime rate or three months LIBOR plus 2.0% per annum. The loan matures on September 6, 2007 and we are required to make interest-only payments during the term. The outstanding balance of the loan as of December 31, 2005 was $8,757,000 with an interest rate of 6.29% per annum.

      We may acquire additional properties and may fund these acquisitions through utilization of the current cash balances and/or net proceeds received from a combination of subsequent equity issuances, debt financings or asset dispositions. There may be a delay between a receipt of funds and the purchase of properties, which may result in a delay in the benefits to our unit holders of returns generated from property operations. During such a period, we may temporarily invest any unused net proceeds from any such offering in investments that could yield lower returns than investments in real estate. Additionally, we may invest excess cash in interest-bearing accounts and short-term interest-bearing securities. Such investments may include, for example, investments in marketable securities, certificates of deposit and interest-bearing bank deposits.

      We have restricted cash balances of $4,049,000 as of December 31, 2005 that are held as credit enhancements and as reserves for property taxes, capital expenditures and capital improvements in connection with our loan portfolio. When we repay the loans, the restricted balances that are outstanding at that time will become available to us as unrestricted funds.

Other Liquidity Needs

      Our distribution rate, at 7.0% per annum, has been the same among Class A, Class B and Class C unit holders since inception. In the event that there is a shortfall in net cash available due to various factors, including, without limitation, the timing of such distributions or the timing of the collections of receivables, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, including Cunningham Lending Group, LLC, or Cunningham. There are currently no limits or restrictions on the use of proceeds from Cunningham, which would prohibit us from making the proceeds available for distribution. We may also pay distributions from cash from capital transactions, including, without limitation, the sale of one or more of our properties.

41

      On March 29, 2006, we paid a special distribution of $2,500,000, or $250.75 per unit, which approximates the taxable share of our 2005 income to our unit holders when added to the 2005 distributions already paid.

      Our Manager is currently evaluating the current distribution rate, and if increased leasing activity does not occur our Manager may reduce or suspend distributions until cash flow from operations supports our current distribution rate of 7% per annum. Our Manager will monitor leasing activity in our portfolio and will make a decision during the second quarter of 2006 regarding our ability to maintain the current distribution rate.

      We estimate that our expenditures for capital improvements, tenant improvements and lease commissions will require up to $2,374,000 in the next twelve months. As of December 31, 2005, we had $3,017,000 of restricted cash in loan impounds and reserve accounts for such capital expenditures and any remaining expenditures will be paid with net cash from operations or gains from the sale of assets. We cannot provide assurance, however, that we will not exceed these estimated expenditure and distribution levels or be able to obtain additional sources of financing on commercially favorable terms or at all.

      Our distributions of amounts in excess of our taxable income has resulted in a return of capital to our unit holders. The income tax treatment for distributions reportable for the years ended December 31, 2005, 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003, was as follows:

									For the Period from
									June 19, 2003
	December 31,								(Date of Inception)
									through
									December 31,
	2005				2004				2003
Ordinary income	$	94,000	2.7	%	$	877,000	46.0	%	$	35,000	100.0	%
Capital gain		3,339,000	95.6	%		—	—			—	—
Return of capital		60,000	1.7	%		1,031,000	54.0	%		—	—
	$	3,493,000	100.00	%	$	1,908,000	100.00	%	$	35,000	100.00	%

      Our distributions representing a return of capital were 1.7%, 54.0%, and 0% during 2005 and 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively. The decrease in return of capital from 2004 to 2005 resulted from, among other things, the capital gains recognized during 2005 as a result of sales of our properties, as compared to 2004. The increase in return of capital from 2003 to 2004 resulted from, among other things, depreciation and amortization expenses recognized from interests in properties acquired in 2003 and 2004. We currently anticipate declaring distributions in 2006, a portion of which may also represent a return of capital.

      If we experience lower occupancy levels, reduced rental rates, reduced revenues as a result of asset sales, increased capital expenditures and leasing costs compared to historical levels due to competitive market conditions for new and renewal leases, the effect would be a reduction of net cash provided by operating activities. If such a reduction of net cash provided by operating activities is realized and our Manager continues to declare distributions for the unit holders at current levels, we may have a cash flow deficit in subsequent periods. In connection with such a shortfall in net cash available, we may seek to obtain capital to pay distributions by means of secured or unsecured debt financing through one or more third parties, including Cunningham. This estimate is based on various assumptions which are difficult to predict, including the levels of leasing activity at year end and related leasing costs. Any changes in these assumptions could impact the financial results and our ability to fund working capital and unanticipated cash needs. To the extent any distributions are made to the unit holders in excess of accumulated earnings, the excess distributions are considered a return of capital to the unit holders for federal income tax purposes. Distributions in excess of tax capital are non-taxable to the extent of tax basis. Distributions in excess of tax basis will constitute capital gains.

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      Effective April 15, 2005 and retroactive to January 1, 2005, our Manager reduced the base rent for Trailblazer Health Enterprise, LLC, a tenant at Executive Center II & III, of which we owned a 41.1% interest at December 31, 2005, from $18.50 per square foot to $10.00 per square foot in exchange for an early renewal and an extended lease term. The lease term was also extended from December 2006 to December 2015 and provides for periodic rent increases over the term of the lease, with base rents increasing to $19.50 at the end of the lease. As of December 31, 2005, Trailblazer Health Enterprises occupied 56.5% of the GLA of Executive Center II & III. On May 1, 2005, due to the reasons described above, our Manager suspended distributions to Executive Center II & III investors, including us.

      Effective November 1, 2005, cash distributions from Enterprise Technology Center, of which we own an 8.5% interest, were reduced from 8.0% to 4.0%, due to the occupancy decreasing from 90.7% to 83.3% as a result of our Manager not being able to renew expiring leases. Our Manager also has agreed to defer 50.0% of the property management fee payable to Realty. Our Manager will continue its efforts to increase occupancy at Enterprise and will continue an on-going evaluation of the cash requirements at the property to determine when, if at all, it will be able to increase the distributions.

Cash Flows

Comparison of the Years Ended December 31, 2005 and 2004

      Cash flows provided by operating activities decreased by $2,238,000 for the year ended December 31, 2005 compared to the year ended December 31, 2004. The decrease was primarily attributable to the decrease in accounts payable and security deposits and prepaid rent by $1,460,000 and $950,000, respectively.

      Cash flows used in investing activities increased $19,371,000 to $64,529,000 for the year ended December 31, 2005 compared to the year ended December 31, 2004. The primary use of cash was for the purchase of the Interwood property on January 26, 2005, the Woodside property on September 30, 2005, the 3500 Maple property on December 27, 2005 and marketable securities, offset by net proceeds from the sales of the Satellite Place, Financial Plaza, Southwood Tower, 801 K Street and Emerald Plaza properties on February 24, 2005, April 13, 2005, December 19, 2005, August 26, 2005 and November 10, 2005, respectively.

      Cash flows provided by financing activities increased $15,202,000 to $65,155,000 for the year ended December 31, 2005 compared to the year ended December 31, 2004. The increase was primarily due to the borrowings associated with the acquisitions of the Interwood, Woodside, and 3500 Maple properties and the refinancing of the Executive Center I and Oakey Building properties, offset by the pay-off of the mortgage loan associated with the sales of the Satellite Place and Financial Plaza properties, the pay-off of the mortgage loan for the Executive Center I and Oakey Building properties in 2005 and the issuance of units which ceased during 2004. In addition, cash distributions paid to unit holders in 2005 were $3,493,000 compared to $1,908,000 in 2004.

      As a result of the above, cash and cash equivalents increased by $864,000 for the year ended December 31, 2005 to $10,760,000.

Comparison of the Year Ended December 31, 2004 and the Period From June 19, 2003 (Date of Inception) Through December 31, 2003

      Net cash provided by operating activities increased $2,302,000 to $2,476,000 for the year ended December 31, 2004, compared to the period from June 19, 2003 (date of inception) through December 31, 2003. Our net loss for the year ended December 31, 2004 increased $2,186,000. Our operating cash flow was further decreased by an increase in accounts receivable of $557,000. These decreases were offset by increases in depreciation and amortization expense of $2,307,000, the distributions received in excess of earnings from unconsolidated operations of $1,490,000, and an increase in accounts payable and security deposits of $1,177,000 and $578,000, respectively.

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      Net cash used in investing activities increased $35,226,000 to $45,158,000 for the year ended December 31, 2004 compared to the period from June 19, 2003 (date of inception) through December 31, 2003. Cash flows used in investing activities were $45,158,000 for the year ended December 31, 2004 and were primarily used in the acquisitions of our interests in Oakey Building, Satellite Place, Southwood Plaza, Financial Plaza, 801 K Street, Enterprise Technology Center and Emerald Plaza properties.

      Net cash provided by financing activities increased $37,570,000 to $49,953,000 for the year ended December 31, 2004 compared to the period from June 19, 2003 (date of inception) through December 31, 2003. This increase was primarily due to borrowings on mortgages payable and the issuance of units, net of offering costs.

      As a result of the above, cash and cash equivalents increased by $7,271,000 for the year ended December 31, 2004 to $9,896,000.

Capital Resources

General

      Our primary sources of capital are our real estate operations, our ability to leverage the increased market value in the real estate assets we own, including proceeds from the sale of properties, and our ability to obtain debt financing from third parties and related parties including, without limitation, Cunningham. We derive substantially all of our revenues from tenants under leases at our properties. Our operating cash flow, therefore, depends materially on the rents that we are able to charge our tenants and the ability of these tenants to make their rental payments to us. The terms of any debt financing received from Cunningham are not negotiated on an arms length basis and under the terms of the Operating Agreement, we may be required to pay interest on our borrowings at a rate of up to 12% per annum. We may use the net proceeds from such loans for any purpose, including, without limitation, operating requirements, capital and tenant improvements, rate lock deposits and distributions.

      Our primary uses of cash are to fund distributions to our unit holders, to fund capital investment in our existing portfolio of operating assets, to fund our new acquisitions and for debt service. We may also regularly require capital to invest in our existing portfolio of operating assets in connection with routine capital improvements, deferred maintenance on our properties recently acquired and leasing activities, including funding tenant improvements, allowances, leasing commissions, development of land and capital improvements. The amounts of the leasing-related expenditures can vary significantly depending on negotiations with tenants and the willingness of tenants to pay higher base rents over the life of the leases.

      We currently anticipate that we will require up to $6,004,000 to fund our distributions for the year ended December 31, 2006, which we intend to fund from cash from operations and gains from the sale of real estate. In the event we cannot make the distributions from operations and sales of real estate, we may use one or a combination of short-term debt and long-term debt. Currently, we do not have a cash shortfall. We presently anticipate that we will require up to approximately $2,374,000 for the year ended December 31, 2006 for capital expenditures, including, without limitation, tenant and/or capital improvements in accordance with our leases. These lender reserves are specific to the underlying property, and cannot be used for properties other than the encumbered property; therefore, we still may incur amounts to fund these capital improvements and tenant improvements from sources other than lender reserves. We intend to incur debt to obtain funds for these purposes to the extent the reserves on deposit with the lender of $3,017,000 as of December 31, 2005, are not sufficient or cannot be used for these expenditures. During the year ended December 31, 2005 we obtained a construction and tenant improvement financing loan of $5,585,000 from LaSalle to fund the tenant improvements at the Oakey Building property.

      Distributions payable to our unit holders may include a return of capital as well as a return in excess of capital. Distributions exceeding taxable income will constitute a return of capital for federal income tax purposes to the extent of a unit holder’s basis. Distributions in excess of tax basis will generally constitute capital gain.

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Unconsolidated Debt

      Total mortgage and other debt of unconsolidated properties was $50,851,000 and $160,771,000 at December 31, 2005 and 2004, respectively. Our share of unconsolidated debt based on our ownership percentage was $9,300,000 and $19,366,000 at December 31, 2005 and 2004, respectively.

	December 31, 2005						December 31, 2004
					NNN 2003				NNN 2003
			Mortgage and		Value Fund,		Mortgage and		Value Fund,
	Ownership		Other Debt		LLC’s Portion		Other Debt		LLC’s Portion
Property	Percentage		Balance		of Debt		Balance		of Debt
801 K Street		18.3%	$	—	$	—	$	41,350,000	$	7,557,000
Emerald Plaza		4.6%		—		—		68,500,000		3,117,000
Enterprise Technology Center		8.5%		35,580,000		3,024,000		36,177,000		3,076,000
Executive Center II & III		41.1%		15,271,000		6,276,000		14,744,000		5,616,000
			$	50,851,000	$	9,300,000	$	160,771,000	$	19,366,000

      On December 28, 2005, our Manager refinanced the Executive Center II & III property with LaSalle as follows: (i) a senior loan of $13,000,000 which is due on January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 0.5%, or LIBOR plus 2.25%, requiring interest-only payments; and (ii) a mezzanine loan of $3,000,000 which is due on January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 5.00%, or LIBOR plus 7.60%, requiring interest-only payments until specified tenant lease payments begin, at which time an additional monthly principal payment of $25,000 will be required and applied to the mezzanine principal loan balance, or cumulatively the Bank Loans. Effective as of December 28, 2005, we obtained a waiver from LaSalle for noncompliance with a certain covenant of the Bank Loans which precludes us from having or incurring additional indebtedness which is not subordinated to the Bank Loans. This waiver allows us to subordinate the additional indebtedness to the Bank Loans and to cure our noncompliance with the covenant by June 27, 2006.

Cunningham Lending Group, LLC

      The following unconsolidated properties have outstanding unsecured notes payable due to Cunningham at December 31, 2005. The notes bear interest at 8% per annum and are due one year from origination.

					NNN 2003
					Value Fund,
			Amount of		LLC’s Portion
Property/Issue Date			Loan		of Debt
Executive Center II & III:
	06/09/05		$	1,000,000	$	411,000
	09/12/05			200,000		82,000
	10/18/05			240,000		99,000
	11/14/05			5,000		2,000
		Total	$	1,445,000	$	594,000

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Insurance

Property Damage, Business Interruption, Earthquake and Terrorism

      The insurance coverage provided through third-party insurance carriers is subject to coverage limitations. For each type of insurance coverage described below, should an uninsured or underinsured loss occur, we could lose all or a portion of our investment in, and anticipated cash flows from, one or more of our properties. In addition, there can be no assurance that third-party insurance carriers will be able to maintain reinsurance sufficient to cover any losses that may be incurred.

Type of Insurance Coverage	Loss Exposure/Deductible
Property damage and business interruption	$300 million annual aggregate loss limit, subject to a $10,000 per occurrence deductible
Boiler and machinery	$100 million per occurrence loss limit, subject to a $10,000 per occurrence deductible
Property Terrorism	$100 million per occurrence loss limit, subject to a $10,000 per occurrence deductible
Earthquake (all states, except CA & OK)	$20 million annual aggregate loss sublimit, subject to a 50,000 per occurrence deductible
Earthquake (California properties only)	$100 million annual aggregate loss sublimit, subject to a 5% ($100,000 minimum) per occurrence deductible
Flood — named storm	$35 million annual aggregate loss, subject to a 5% total insurable value of the property ($100,000 minimum) per occurrence deductible
Flood — Zone A	$20 million annual aggregate loss sublimit, subject to a 5% ($1,000,000 minimum) per occurrence deductible
Flood — Zone B	$35 million annual aggregate loss sublimit, subject to a 5% ($25,000 minimum/100,000 maximum) per occurrence deductible
Flood — all other	$100 million annual aggregate loss sublimit, subject to a 5% ($25,000 minimum/$100,000 maximum) per occurrence deductible
General liability	$1 million each occurrence limit of liability, and $25 million annual general aggregate limit of liability, including terrorism
Automobile liability	$1 million per accident for all Owned, Hired and Non-Owned
Umbrella (excess liability)	$100 million annual aggregate limit of liability, including terrorism

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Debt Service Requirements

      One of our principal liquidity needs are payments of interest and principal on outstanding indebtedness, which includes mortgages and other debt. As of December 31, 2005 and 2004, some of our properties, including properties held for sale, were subject to existing mortgages, which had an aggregate principal amount outstanding of $93,492,000 and $23,625,000, respectively. Our total debt consisted of $52,000,000, or 55.6% and $8,500,000, or 36.0%, allocable to fixed rate debt at a weighted-average interest rate of 6.2% per annum and 10.3% per annum as of December 31, 2005 and 2004, respectively. Of the total debt, $41,492,000, or 44.4%, and $15,125,000, or 64.0%, as of December 31, 2005 and 2004, respectively, was variable rate debt at a weighted-average interest rate of 7.7% per annum and 4.9% per annum as of December 31, 2005 and 2004, respectively. As of December 31, 2005 and 2004, the weighted-average interest rate on our outstanding debt was 6.9% per annum and 6.8% per annum. The scheduled principal payments for the next five years, as of December 31, 2005 are as follows:

Year	Amount
2006	$	—
2007		19,257,000
2008		15,915,000
2009		—
2010		—
Thereafter		58,320,000
Total	$	93,492,000

Contractual Obligations

      The following table provides information with respect to the maturities and scheduled principal repayments of our secured debt (including properties held for sale) as well as scheduled interest payments of our fixed and variable rate debt at December 31, 2005. The table does not reflect any available extension options.

		Payments Due by Period
		Less than						More than
		1 Year		1-3 Years		3-5 Years		5 Years
		(2006)		(2007-2008)		(2009-2010)		(After 2010)		Total
Principal payments  — variable rate debt		$	—	$	14,257,000	$	15,915,000	$	11,320,000	$	41,492,000
Principal payments  — fixed rate debt			—		5,000,000		—		47,000,000		52,000,000
Interest payments  — variable rate debt (based on rate in effect at December 31, 2005)			3,197,000		5,675,000		1,061,000		5,336,000		15,269,000
Interest payments  — fixed rate debt			3,212,000		8,511,000		2,712,000		13,642,000		28,077,000
Tenant improvement and lease commission obligations			615,000		—		—		—		615,000
	Total	$	7,024,000	$	33,443,000	$	19,688,000	$	77,298,000	$	137,453,000

Off-Balance Sheet Arrangements

      There are no off-balance sheet transactions, arrangements or obligations (including contingent obligations) that have, or are reasonably likely to have, a current or future material effect on our financial condition, changes in the financial condition, revenues or expenses, results of operations, liquidity, capital expenditures or capital resources.

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Inflation

      We will be exposed to inflation risk as income from long-term leases is expected to be the primary source of our cash flows from operations. We expect that there will be provisions in the majority of our tenant leases that would protect us from the impact of inflation. These provisions include rent steps, reimbursement billings for operating expense pass-through charges, real estate tax and insurance reimbursements on a per square foot allowance basis. However, due to the long-term nature of the leases, among other factors, the leases may not re-set frequently enough to cover inflation.

Subsequent Events

      On January 12, 2006 our 76.8% interest in NNN Executive Center, LLC was converted into a 38.1% TIC ownership interest directly in the Executive Center II & III property, which was our effective ownership of the underlying property through Executive Center, LLC before the conversion. On October 13, 2005, we bought a 3.0% TIC interest in Executive Center II & III from an existing unaffiliated TIC for $441,000. As a result of the purchase of the 3.0% TIC interest and the conversion of our ownership in Executive Center, LLC, we now own a 41.1% TIC interest in the property.

      Effective January 17, 2006, Kelly J. Caskey resigned as our chief financial officer.

      Effective January 17, 2006, Michael F. O’Flynn was appointed as our chief accounting officer.

      On January 24, 2006, our Manager sold the Oakey Building located in Las Vegas, Nevada, of which we owned a 75.4% interest, to an unaffiliated third party for a total sales price of $22,250,000. A rent guaranty of $1,424,000 was held in escrow and will be paid to the purchaser on a monthly basis over time. Our cash proceeds were $7,278,000 after closing costs and other transaction expenses. A property disposition fee of $500,000, or 2.2% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement. Sales commissions of $668,000, or 3.0% of the total sales price, were paid to unaffiliated brokers.

      On February 3, 2006, we repaid the $1,385,000 advance due to our Manager related to the purchase of the 3500 Maple property.

      On February 10, 2006, our Manager sold in an affiliated transaction the 14.0% of the 3500 Maple property located in Dallas, Texas, for a total sales price of $9,381,000 to TICs. Our cash proceeds were $3,161,000 after closing costs and other transaction expenses. Our interest in the property has decreased from 99.0% to 85.0%. In conjunction with the sale, the $6,581,000 loan on the property was assumed by the buyers on a joint and several basis. We expect to sell our remaining interests in the property to TICs through other affiliated transactions in 2006.

      On March 9, 2006, our Manager approved the repurchase of 30 units in the amount of $134,000.

      On March 29, 2006, we paid a special distribution of $2,500,000, or $250.75 per unit, which approximates the taxable share of our 2005 income to our unit holders when added to the 2005 distributions already paid.

Item 7A. Quantitative and Qualitative Disclosures About Market Risk

      We are exposed to interest rate changes primarily as a result of our long-term debt used to maintain liquidity and fund capital expenditures and expansion of our real estate investment portfolio and operations. Our interest rate risk objectives are to limit the impact of interest rate changes on earnings and cash flows and to lower our overall borrowing costs. To achieve these objectives, we borrow primarily at fixed rates or variable rates with the lowest margins available and, in some cases, with the ability to convert variable rate debt to fixed rate debt. We may enter into derivative financial instruments such as interest rate swaps, caps and treasury locks in order to seek to mitigate our interest rate risk on a related financial instrument. We do not enter into derivative or interest rate transactions for speculative purposes.

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      Our interest rate risk is monitored using a variety of techniques. The table below presents, as of December 31, 2005, the principal amounts and weighted-average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.

	Expected Maturity Date
	2006		2007			2008			2009		2010		Thereafter			Total			Fair Value
Fixed rate debt	$	—	$	5,000,000		$	—		$	—	$	—	$	47,000,000		$	52,000,000		$	59,496,000
Average interest rate on maturing debt		—		10.0	%		—			—		—		5.8	%		6.2	%		—
Variable rate debt	$	—	$	14,257,000		$	15,915,000		$	—	$	—	$	11,320,000		$	41,492,000		$	50,279,000
Average interest rate on maturing debt (based on rates in effect as of December 31, 2005)		—		6.7	%		7.4	%		—		—		9.4	%		7.7	%		—

      The estimated fair value of debt was $109,775,000 at December 31, 2005.

      The weighted-average interest rate of our mortgage debt as of December 31, 2005 was 6.9% per annum. At December 31, 2005, our mortgage debt consisted of $52,000,000, or 55.6%, of the total debt at fixed interest rate of 6.2% per annum and $41,492,000, or 44.4%, of the total debt at a variable interest rate of 7.7% per annum.

      An increase in the variable interest rate on certain mortgages payable constitutes a market risk. As of December 31, 2005, for example a 0.5% increase in LIBOR would have increased our overall annual interest expense by $207,000, or 6.5%. Our exposure to market changes in interest rates is similar to what we faced as of December 31, 2004.

      The table below presents, as of December 31, 2004, the principal amounts and weighted-average interest rates by year of expected maturity to evaluate the expected cash flows and sensitivity to interest rate changes.

	Expected Maturity Date
	2005			2006			2007			2008			2009		Thereafter		Total			Fair Value
Fixed rate debt	$	8,500,000		$	—		$	—		$	—		$	—	$	—	$	8,500,000		$	8,810,000
Average interest rate on maturing debt		10.3	%		—			—			—			—		—		10.3	%		—
Variable rate debt	$	11,084,000		$	809,000		$	993,000		$	2,239,000		$	—	$	—	$	15,125,000		$	15,451,000
Average interest rate on maturing debt (based on rates in effect as of December 31, 2004)		5.0	%		4.5	%		4.5	%		4.5	%		—		—		4.9	%		—

      The estimated fair value of debt was $24,261,000 at December 31, 2004.

      The weighted-average interest rate of our mortgage debt as of December 31, 2004 was 6.8% per annum. At December 31, 2004, our mortgage debt consisted of $8,500,000, or 36.0%, of the total debt at a weighted-average fixed interest rate of 10.3% per annum.

      An increase in the variable interest rate on certain mortgages payable constitutes a market risk. As of December 31, 2004, for example a 0.5% increase in LIBOR would have increased our overall annual interest expense by $76,000, or 10.2% increase to interest expense.

Item 8. Financial Statements and Supplementary Data

      See the index included at “Item 15. Exhibits, Financial Statement Schedules.”

Item 9. Changes in and Disagreements With Accountants on Accounting and Financial Disclosure

      None

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Item 9A. Controls and Procedures

      (a) Evaluation of disclosure controls and procedures. We maintain disclosure controls and procedures that are designed to ensure that information required to be disclosed in our reports under the Exchange Act is recorded, processed, summarized and reported within the time periods specified in the Securities and Exchange Commission, or the SEC, rules and forms and that such information is accumulated and communicated to us, including our principal executive officer and principal accounting officer, and our Manager’s Board of Managers as appropriate, to allow timely decisions regarding required disclosure. In designing and evaluating the disclosure controls and procedures, we recognized that any controls and procedures, no matter how well designed and operated, can provide only reasonable assurance of achieving the desired control objectives, as ours are designed to do, and we necessarily were required to apply our judgment in evaluating whether the benefits of the controls and procedures that we adopt outweigh their costs.

      Following the signatures section of this Annual Report are certifications of our chief executive officer and our chief accounting officer required in accord with Section 302 of the Sarbanes-Oxley Act of 2002 and Rules 13a-14(a) and 15d-14(a) under Exchange Act, or the Section 302 Certification. This portion of our Annual Report on Form 10-K is our disclosure of the results of its controls evaluation referred to in paragraphs (4) and (5) of the Section 302 Certification and should be read in conjunction with the Section 302 Certification for a more complete understanding of the topics presented.

      During the period covered by this report, we continued an evaluation under the supervision and with the participation of our management, including our chief executive officer and chief accounting officer, together with our Manager’s Board of Managers, which is acting in the capacity of our audit committee, or the Evaluation, of the effectiveness of the design and operation of our disclosure controls and procedures (as defined in Rules 13a-15(e) and 15d-15(e) under the Securities and Exchange Act, as amended). Our management, with the participation of our chief executive officer and chief accounting officer and the Board of Managers, has evaluated the effectiveness of the design and operation of our disclosure controls and procedures as of the end of the fiscal year covered by this Annual Report on Form 10-K. Based on that Evaluation, we have concluded that, as of such date, our disclosure controls and procedures were effective to meet the objective for which they were designed and operate at the reasonable assurance level.

      We are not currently required to comply with Section 404 (Management Assessment of Internal Controls) of the Sarbanes-Oxley Act because we are not an accelerated filer.

      (b) Changes in internal control over financial reporting. During the three months ended December 31, 2005, we continued to develop our internal controls as follows: we implemented a review of our lease expiration reports and rent rolls to ensure the proper and appropriate write-off of the intangible assets allocated to our tenants in conjunction with our SFAS No. 141 purchase price allocation; we formalized our procedures with respect to determining the difference between lease inducements versus tenant improvements; we continued to hire qualified and experienced personnel; we continued the design process for design and implementation of our policies and procedures; and we reviewed, tested and certified the financial information presented. We will continue to make changes in our internal control processes in the future and anticipate that the internal controls will continue to be in place and function over the next several quarters.

Item 9B. Other Information

      None.

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PART III

Item 10. Directors and Executive Officers of the Registrant

      The following table and biographical descriptions set forth information with respect to our two executive officers as of March 30, 2006. We have no directors.

Name	Age		Position	Term of Office
Richard T. Hutton, Jr.		54	Chief Executive Officer	Since September 2005
Michael O’Flynn		33	Chief Accounting Officer	Since January 2006

      Richard T. Hutton, Jr. has served as our chief executive officer since September 2005. Mr. Hutton has served as our Manager’s executive vice president and chief investment officer since August 2003, as a member of our Board of Managers since June 2005 and as our Manager’s senior vice president — real estate acquisitions from April 1999 through August 2003. Mr. Hutton also served as interim chief financial officer for each of our Manager, G REIT, Inc., and T REIT, Inc. from October 2003 through December 2003 and from April 2004 through September 2004. Mr. Hutton’s previous experience includes serving as controller for the TMP Group from November 1997 to April 1999. Mr. Hutton received a B.A. degree in psychology from Claremont McKenna College and is a California Certified Public Accountant (inactive).

      Michael F. O’Flynn, has served as our chief accounting officer since January 2006. Mr. O’Flynn is responsible for all areas of finance, including accounting and financial reporting. Mr. O’Flynn also continues to serve in his capacity as financial reporting manager for Triple Net Properties, LLC, our Manager, a position he assumed in August 2005. From December 2003 to August 2005, Mr. O’Flynn gained public accounting and auditing experience while employed as an auditor with Ernst & Young, LLP, specializing in the audits of real estate companies. Prior to joining Ernst & Young, LLP, from September 1999 until December 2003, Mr. O’Flynn worked as an auditor with Corbin and Company, a regional public accounting firm, where he worked on the audits of a variety of public and private entities. Mr. O’Flynn is a Certified Public Accountant and received his B.A. degree in Business Economics and a concentration in Accounting from UC Santa Barbara.

Board of Managers and Executive Officers of Our Manager

      We are managed by our Manager and employees of our Manager provide services to us. None of the members of the Manager’s Board of Managers are independent. The members of the Board of Managers serve for unlimited terms and our Manager’s executive officers serve at the discretion of the Board of Managers.

      Our Manager shall remain our Manager until (i) we are dissolved, (ii) removed “for cause” by a majority vote of our members, or (iii) our Manager, with the consent of our members and in accordance with the Operating Agreement, assigns its interest in us to a substitute manager. For this purpose, removal of our Manager “for cause” means removal due to the:

•  gross negligence or fraud of our Manager;

•  willful misconduct or willful breach of the Operating Agreement by our Manager;

•  bankruptcy, insolvency or inability of our Manager to meet its obligations as they come due; or

•  conviction of a felony of Mr. Thompson, chairman of the Board of Managers of our Manager.

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      As of March 30, 2006, the members of the Board of Managers and our Manager’s executive officers are as follows:

Name	Age		Position	Term of Office
Anthony W. Thompson		59	Chief Executive Officer and Chairman of the Board of Managers		Since 1998
Louis J. Rogers		48	President and Member of the Board of Managers		Since 2004
Talle A. Voorhies		58	Chief Operating Officer, Secretary and Member of the Board of Managers		Since 1998
Jack R. Maurer		62	Executive Vice President and Member of the Board of Managers		Since 1998
Daniel R. Baker		54	Member of the Board of Managers		Since 1998
Scott D. Peters		48	Chief Financial Officer, Executive Vice President and Member of the Board of Managers		Since 2004
Richard T. Hutton, Jr.		54	Chief Investment Officer and Member of the Board of Managers	Since 2003 Since 2005
Andrea R. Biller		55	General Counsel		Since 2003

      There are no family relationships between any managers, executive officers or between any managers and executive officer.

      Anthony W. “Tony” Thompson founded our Manager and has been its chief executive officer and chairman of the Board of Managers since its inception in April 1998. Mr. Thompson owns a 36% interest in our Manager. He is also president and 84% owner of Triple Net Properties Realty, Inc., an affiliated real estate brokerage and management company that provides certain real estate brokerage and management services to us. Prior to April of 1998, Mr. Thompson was co-founder, co-owner, director and officer of a number of real estate investment entities trading under the name The TMP Companies, including the TMP Group, Inc., a full-service real estate investment firm founded in 1978. Mr. Thompson also serves as the chairman of the board of our dealer manager, NNN Capital Corp. Mr. Thompson has been a registered representative with the National Association of Securities Dealers, or NASD, since 1969 and a licensed securities principal since 1986. He is a 1969 graduate of Sterling College with a B.S. degree in economics. He is also a member of the Sterling College Board of Trustees, The Bowers Museum Committee and various other community and charitable organizations. Mr. Thompson serves as the chairman of the board of directors for each of G REIT, Inc. and T REIT, Inc.

      Louis J. Rogers has been the president and a member of the board of managers since September 2004. Mr. Rogers is a 2% owner of our Manager; and a 16% owner and a director of Realty. Mr. Rogers was a member of the law firm of Hirschler Fleischer from 1988 and a shareholder of the firm from 1994 until December 31, 2004, and since January 2005, has served as their senior counsel. Mr. Rogers’ law practice focused on formation and operation of real estate investments, including REITs, and acquisition financings for real estate transactions, structuring like-kind (Section 1031) exchanges, private placements and syndications. Mr. Rogers earned a B.S. degree from Northeastern University (with highest honors), a B.A. degree (with honors) and an M.A. degree in Jurisprudence from Oxford University and a J.D. degree from the University of Virginia School of Law. Mr. Rogers is a member of the Virginia State Bar and is a registered securities principal and broker with the NASD.

      Talle A. Voorhies has served as a member of the Board of Managers since 1998. She also served as our Manager’s executive vice president from April 1998 to December 2001, when she became chief operating officer. Ms. Voorhies served as president (April 1998-February 2005) and financial principal (April 1998-November 2004) of NNN Capital Corp., the dealer manager of our offering. From December 1987 to January 1999, Ms. Voorhies worked with the TMP Group, Inc., where she served as chief

52

administrative officer and vice president of broker-dealer relations. Ms. Voorhies is responsible for our Manager’s investor services department and is a registered financial principal with the NASD.

      Jack R. Maurer has served as the executive vice president and a member of the Board of Managers since April 1998. Mr. Maurer also served as chief financial officer of our Manager from April 1998 to December 2001 and as chief operating officer and financial principal of NNN Capital Corp., and has served as executive vice president of G REIT, Inc., an affiliate, since December 2001. Mr. Maurer has over 33 years of real estate financial management experience, including chief financial officer and controller positions in residential and commercial development and the banking industry. From 1986 to April 1998, Mr. Maurer was a general partner and chief executive officer of Wescon Properties, a Santa Ana based real estate development company. His previous experience also includes employment at the national accounting firm of Kenneth Leventhal and Company. Mr. Maurer received a BS degree from California University at Northridge in 1973 and has served as president and chief executive officer of T REIT, Inc. since August 2004.

      Daniel R. “Dan” Baker, has served as a member of the Board of Managers since April 1998. Mr. Baker founded SugarOak Corporation in 1984 and served as its president until 2004. SugarOak Corporation provided asset management, construction management, property management and real estate development services. Since 2004, Mr. Baker has served as chairman of the board of SugarOak Holdings, a successor to SugarOak Corporation. SugarOak Holdings has three subsidiaries whose activities include construction, asset management and syndication. Mr. Baker is also president and chairman of the Board of Union Land and Management Company and director and president of Coastal American Corporation. In addition, Mr. Baker is a founding and former director of the Bank of the Potomac, a former board member of F&M Bank and currently an advisory board member of BB&T Bank. A cum laude graduate of Harvard College with a B. A. degree in government, Mr. Baker participates in numerous community organizations. Mr. Baker is a former Citizen of the Year in Herndon, Virginia and a Paul Harris Fellow in Rotary.

      Scott D. Peters has served as chief financial officer, executive vice president and a member of the Board of Managers since September 2004 and is responsible for all areas of finance, including accounting and financial reporting, as well as a liaison for institutional investors, lenders and investment banks. Effective December 2005, Mr. Peters also serves as the chief executive officer and president of G REIT, Inc., having previously served as its executive vice president and chief financial officer since September 2004. Mr. Peters has also served as the executive vice president and chief financial officer of T REIT, Inc. since September 2004. Since July 1996, Mr. Peters has served as senior vice president, chief financial officer and a director of Golf Trust of America, Inc., a real estate investment trust, which became publicly traded in February 1997. Mr. Peters received a B.B.A. degree in accounting and finance from Kent State University.

      Richard T. Hutton Jr. also serves as one of our executive officers. See disclosure under Directors and Executive Officers above.

      Andrea R. Biller has served as General Counsel for our Manager since March 2003, overseeing all legal functions for our Manager and coordinating with outside counsel. Ms. Biller has also served as the secretary and executive vice president of G REIT, Inc. since June 2004 and December 2005, respectively, and the secretary of T REIT, Inc. since May 2004. Ms. Biller practiced as a private attorney specializing in securities and corporate law from 1990 to 1995 and 2000 to 2002. She practiced at the SEC from 1995 to 2000, including two years as Special Counsel for the Division of Corporation Finance. Ms. Biller earned a B.A. degree in psychology from Washington University, an M.A. degree in psychology from Glassboro State University and a J.D. degree from George Mason University School of Law in 1990, where she graduated first in her class “With Distinction.” Ms. Biller is a member of the California, Virginia and the District of Columbia State Bars.

53

Fiduciary Relationship of our Manager to Us

      Our Manager is a fiduciary of us and has fiduciary duties to us and our unit holders pursuant to the Operating Agreement and under applicable law. Our Manager’s fiduciary duties include responsibility for our control and management and exercising good faith and integrity in handling our affairs. Our Manager has a fiduciary responsibility for the safekeeping and use of all of our funds and assets, whether or not in our immediate possession and control, and may not use or permit another to use such funds or assets in any manner except for our exclusive benefit.

      Our funds will not be commingled with the funds of any other person or entity except for operating revenue from our properties.

      Our Manager may employ persons or firms to carry out all or any portion of our business. Some or all such persons or entities employed may be affiliates of our Manager or Mr. Thompson. It is not clear under current law the extent, if any, that such parties will have a fiduciary duty to us or our members. Investors who have questions concerning the fiduciary duties of our Manager should consult with their own legal counsel.

Compensation of our Manager

      For a description of the compensation received by our Manager and its affiliates see “Certain Relationships and Related Transactions.”

Section 16(a) Beneficial Ownership Reporting Compliance

      Section 16(a) of the Exchange Act requires our officers and persons who own 10% or more of our units, to report their beneficial ownership of our units (and any related options) to the SEC. Their initial reports must be filed using the SEC’s Form 3 and they must report subsequent unit purchases, sales, option exercises and other changes using the SEC’s Form 4, which must be filed within two business days of most transactions. In some cases, such as changes in ownership arising from gifts and inheritances, the SEC allows delayed reporting at year-end on Form 5. Officers, directors and unit holders owning more than 10% of our common stock are required by SEC regulations to furnish us with copies of all of reports they file pursuant to Section 16(a).

      Based solely on our review of copies of these reports filed by or on behalf of our officers (or oral representations that no such reports were required), as of March 30, 2006, we believe that all Section 16(a) filing requirements applicable to our reporting persons during 2005 were complied with.

Item 11. Executive Compensation

Compensation of Executive Officers

      We are managed by our Manager and we have no directors or executive officers to whom we pay compensation.

Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Security Holder Matters

PRINCIPAL UNIT HOLDERS

      The following table shows, as of March 30, 2006, the number and percentage of beneficial ownership of units owned by:

•  each person who is known to us to hold more than 5% interest in us;

•  our chief executive officer;

54

•  the members of the Board of Managers; and

•  our chief executive officer and members of the Board of Managers, as a group.

			Percentage
	Beneficially		of
	Owned No.		Outstanding
Name and Address of Beneficial Owner(1)	of Units		Units
Richard T. Hutton, Jr.		—		—
Triple Net Properties, LLC(2)		—		—
Members of the Board of Managers as a group(2)(3)		5		*
Our chief executive officer and members of the Board of Managers as a group(2)(3)		5		*

* Represents less than 1% of the outstanding units.

(1)	The address for all persons named is 1551 N. Tustin Avenue, Suite 200, Santa Ana, California 92705.
(2)	We have no directors. Triple Net Properties, LLC serves as our Manager.
(3)	Jack R. Maurer, a member of the Board of Managers and executive vice president of our Manager, owned five units.

      We are not aware of any arrangements which may at a subsequent date result in a change in control of us.

Equity Compensation Plan Information

      We have no equity compensation plans as of December 31, 2005.

Item 13. Certain Relationships and Related Transactions

      Our Manager is primarily responsible for managing the day to day business affairs and assets, and carrying out the directives of the Board of Managers. Our Manager manages syndicated limited partnerships, limited liability companies, and other entities regarding the acquisition, management and disposition of real estate assets. Mr. Thompson, certain members of the Board of Managers and key executives of our Manager collectively own approximately 43% of our Manager. Our Manager currently advises 137 entities that have invested in properties located in 24 states.

The Operating Agreement

      Pursuant to the Operating Agreement, our Manager, which is 36% owned by Anthony W. Thompson, is entitled to receive the following payments and fees described below. These payments and fees were not negotiated at arm’s length and may be higher than payments and fees that would have resulted from an arm’s length transaction with an unrelated entity.

					For the Period from
	Years Ended				June 19, 2003
	December 31,				(Date of Inception)
					through
	2005		2004		December 31, 2003
Manager’s Compensation from Us for:
Acquisition Fees(1)	$	—	$	1,623,000	$	377,000
Organizational & Marketing Costs(2)		—		944,000		191,000
Expenses, Costs, or Fees(3)		—		—		—
Operating Expenses(4)		—		—		—
Distributions — Cash from Operations(5)		—		—		—
Distributions — Cash from Capital Transactions(6)		—		—		—
Accounting Fees(7)		43,000		10,000		—

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(1)	We paid our Manager 4.0% of the funds raised in our Private Placement of units for services rendered in connection with the due diligence investigation and acquisition of interests in real estate properties by us during the course of the investment and holding period.
(2)	We paid our Manager up to 2.5% for organizational costs and marketing expenses incurred by our Manager in connection with our Private Placement of units.
(3)	We have agreed to reimburse our Manager and its affiliates certain expenses, costs and fees incurred by our Manager, including, without limitation, for the cash payments, certain closing costs, escrow deposits, loan commitment fees, project studies and travel expenses related to the analysis and acquisitions of our properties. Our Manager did not incur and, therefore, was not reimbursed for, any such expenses, costs or fees for the years ended December 31, 2005 and 2004 or the period from June 19, 2003 (date of inception) through December 31, 2003.
(4)	We have agreed to reimburse our Manager for reasonable and necessary expenses paid or incurred by our Manager in connection with our operation, including any legal and accounting costs and the costs incurred in connection with the acquisition of our properties, including travel, surveys, environmental and other studies and interest expense incurred on deposits or expenses. Our Manager did not incur and, therefore, was not reimbursed for, any such expenses, costs or fees for the years ended December 31, 2005 and 2004 or the period from June 19, 2003 (date of inception) through December 31, 2003.
(5)	Our Manager is entitled to receive from us distributions that relate to cash from operations as discussed below under “Description of Registrant’s Securities to be Registered — Distributions — Cash from Operations.” Our Manager did not receive any such distributions for the years ended December 31, 2005 and 2004 or the period from June 19, 2003 (date of inception) through December 31, 2003.
(6)	Our Manager is entitled to receive from us distributions that relate to cash from Capital Transactions as discussed below under “Description of Registrant’s Securities to be Registered — Distributions — Cash from Capital Transactions.” Our Manager did not receive any such distributions for the year ended December 31, 2005 and 2004 or the period from June 19, 2003 (date of inception) through December 31, 2003.
(7)	Our Manager is entitled to receive accounting fees for record keeping services provided.

The Management Agreement

      Pursuant to the Operating Agreement and the Management Agreement, Realty, or in some cases, an affiliate of Realty, is entitled to receive the payments and fees described below. These payments and fees were not negotiated at arm’s length and may be higher than payments and fees that would have resulted from an arm’s length negotiation and transaction with an unrelated entity. The following table represents payments made by us for our consolidated properties.

					For the Period from
	Years Ended				June 19, 2003
	December 31,				(Date of Inception)
					to December 31,
	2005		2004		2003
Realty’s Compensation from Us for:
Management Fees(1)	$	268,000	$	272,000	$	—
Lease Commissions(2)		747,000		—		—
Project Fees(3)		173,000		—		—
Selling Commissions(4)		569,000		—		—
Loan Fees(5)		107,000		—		—
Real Estate Commissions(6)		829,000		912,000		223,000

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(1)	Realty is entitled to receive, for its services in managing our properties, a monthly management fee of up to 5% of the gross receipts revenue of the properties. 100% of all management fees are passed through to our Manager pursuant to the Realty-Triple Net Agreement.
(2)	Realty is entitled to receive, for its services in leasing our properties, a leasing commission equal to 6% of the value of any lease entered into during the term of the Management Agreement and 3% with respect to any renewal. The value of the lease will be calculated by totaling the minimum monthly rent for the term of the lease. The term of the lease will not exceed five years for purposes of the computation and will not include option periods. 100% of all leasing commission received by Realty are passed through to our Manager pursuant to the Realty-Triple Net Agreement.
(3)	Realty is entitled to receive, for its services in supervising any construction or repair project in or about our properties, a construction management fee equal to 5% of any amount up to $25,000, 4% of any amount over $25,000 but less than $50,000, and 3% of any amount over $50,000 which is expended in any calendar year for construction or repair projects. 100% of all construction fees received by Realty are passed through to our Manager pursuant to the Realty-Triple Net Agreement.
(4)	Realty is entitled to receive a selling commission of up to 5% of the gross sales price of any of our properties. No properties have been sold by us in 2003 or 2004. 75% of all selling commissions received by Realty are passed through to our Manager pursuant to the Realty-Triple Net Agreement.
(5)	Realty is entitled to receive a loan fee in the amount of 1% of the principal amount of all loans obtained by it for our properties during the term of the Property Management Agreement. 100% of all loan fees received by Realty are passed through to our Manager pursuant to the Realty-Triple Net Agreement.
(6)	Realty is entitled to receive a real estate commission in connection with our real estate acquisitions equal to the lesser of 3% of the sales price or 50% of the sales commission that would have been paid to third-party sales broker. 75% of all commissions received by Realty are passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Selling Commissions

      Pursuant to the Private Placement Memorandum, NNN Capital Corp., the dealer manager of our offering, which was wholly owned during the offering period by Anthony W. Thompson, our Manager’s chairman and chief executive officer, received selling commissions of up to 8.0% of the gross proceeds from the Private Placement, which were reallowed to the broker-dealer selling group. NNN Capital Corp. also received a non-accountable marketing and due diligence expense allowance in the amount of 1.5% of the gross proceeds, which it could reallow to other members of the selling group on an accountable basis. In addition, NNN Capital Corp. received a non-accountable marketing and due diligence expense allowance for serving as the managing broker dealer in the amount of 1.0% of the gross proceeds which it did not reallow to other members of the selling group. We incurred $0, $4,099,000 and $1,050,000 for the years ended December 31, 2005 and 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003, respectively, to NNN Capital Corp. for selling commissions and marketing and due diligence expenses.

Business Relationships with Legal Counsel

      Hirschler Fleischer, a Professional Corporation, acts as legal counsel to us. During the year ended December 31, 2005, we incurred and paid legal fees to Hirschler Fleischer of $22,000. Louis J. Rogers was a member of the law firm of Hirschler Fleischer from 1988 and a shareholder of the firm from 1994 until December 31, 2004 and since January 2005, has served as their senior counsel. Effective August 15, 2004, Mr. Rogers was appointed president of our Manager and effective September 27, 2004, Mr. Rogers was appointed a member of our Manager’s Board of Managers.

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Item 14. Principal Accounting Fees and Services

      Deloitte served as our independent auditors from January 12, 2005 and has audited our financial statements for the years ended December 31, 2005, 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003.

      The Board of Managers, which acts in the capacity of our audit committee, has voted and approved that all audit fees and other costs associated with our public company filings will be borne by our Manager. The following table lists the fees for services rendered by the independent auditors for 2005 and 2004:

Services	2005		2004
Audit Fees(1)	$	515,000	$	250,000
Audit-Related Fees(2)		142,000		—
Tax Fees(3)		—		—
All Other Fees(4)		—		—
Total	$	657,000	$	250,000

(1)	Audit fees billed in 2005 and 2004 consisted of the audit of our annual financial statements, acquisition audits, reviews of our quarterly financial statements, and statutory and regulatory audits, consents and other services related to filings with the SEC.
(2)	Audit-related fees billed in 2005 and 2004 consisted of financial accounting and reporting consultations.
(3)	Tax services billed in 2005 and 2004 consisted of tax compliance and tax planning and advice.
(4)	There were no fees billed for other services in 2005 and 2004.

      The Board of Managers has determined that the provision by Deloitte of non-audit services for us in 2005 is compatible with Deloitte’s maintaining its independence.

      The Board of Managers has approved Deloitte to perform the following non-audit services for us during 2005:

•  consultations and consents related to SEC filings and registration statements;

•  consultation of accounting matters; and

•  tax planning and tax compliance for the U.S. income and other taxes.

      The Board of Managers pre-approves all auditing services and permitted non-audit services (including the fees and terms thereof) to be performed for us by our independent auditor, subject to the de minimus exceptions for non-audit services described in Section 10A(i)(1)(B) of the Exchange Act and the rules and regulations of the SEC.

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PART IV

Item 15. Exhibits, Financial Statement Schedules

      (a) (1) Financial Statements:

INDEX TO CONSOLIDATED FINANCIAL STATEMENTS

NNN 2003 VALUE FUND, LLC:	Page
Report of Independent Registered Public Accounting Firm	F-3
Consolidated Balance Sheets	F-4
Consolidated Statements of Operations	F-5
Consolidated Statements of Unit Holders’ Equity	F-6
Consolidated Statements of Cash Flows	F-7
Notes to Consolidated Financial Statements	F-8

801 K STREET, A REAL ESTATE PROPERTY:	Page
Report of Independent Registered Public Accounting Firm	F-37
Balance Sheets	F-38
Statements of Operations	F-39
Statements of Owners’ Equity	F-40
Statements of Cash Flows	F-41
Notes to Financial Statements	F-42

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY:	Page
Report of Independent Registered Public Accounting Firm	F-50
Balance Sheets	F-52
Statements of Operations	F-53
Statements of Owners’ Equity	F-54
Statements of Cash Flows	F-55
Notes to Financial Statements	F-56

      (a)(2) Financial Statement Schedules:

      The following financial statement schedules for the year ended December 31, 2005 are submitted herewith:

	Page
Valuation and Qualifying Accounts (Schedule II)	F-65
Real Estate and Accumulated Depreciation (Schedule III)	F-66

      All schedules other than the ones listed above have been omitted as the required information is inapplicable or the information is presented in the consolidated financial statements or related notes.

      (a)(3) Exhibits:

      The exhibits listed on the Exhibit Index (following the signatures section of this report) are included, or incorporated by reference, in this annual report.

F-1

      (b) Exhibits:

      See Item 15(a)(3) above.

      (c) Financial Statement Schedules:

	Page
Valuation and Qualifying Accounts (Schedule II)	F-65
Real Estate and Accumulated Depreciation (Schedule III)	F-66

F-2

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Board of Managers and unit holders
NNN 2003 Value Fund, LLC
Santa Ana, California

      We have audited the accompanying consolidated balance sheets of NNN 2003 Value Fund, LLC and subsidiaries (the “Company”) as of December 31, 2005 and 2004, and the related consolidated statements of operations and comprehensive income (loss), unit holders’ equity and cash flows for each of the years then ended and the period from June 19, 2003 (date of inception) through December 31, 2003. Our audits also include the consolidated financial statement schedules listed in the index at Item 15. These consolidated financial statements and the consolidated financial statement schedules are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements and the consolidated financial statement schedules based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, 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 consolidated financial statements present fairly, in all material respects, the financial position of the Company as of December 31, 2005 and 2004, and the results of their operations and their cash flows for the years then ended and the period from June 19, 2003 (date of inception) through December 31, 2003, in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, such consolidated financial statement schedules, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects, the information set forth therein.

/s/ Deloitte & Touche, LLP

Los Angeles, California
March 30, 2006

F-3

NNN 2003 VALUE FUND, LLC

CONSOLIDATED BALANCE SHEETS

December 31, 2005 and 2004

		December 31,
		2005			2004
ASSETS
Real estate investments:
	Operating properties, net	$	32,952,000		$	6,525,000
	Land held for development		730,000			—
	Properties held for sale, net		62,019,000			30,209,000
	Investments in unconsolidated real estate		5,631,000			11,482,000
			101,332,000			48,216,000
Cash and cash equivalents			10,760,000			9,896,000
Investment in marketable securities			1,860,000			—
Accounts receivable, net			273,000			498,000
Accounts receivable from related parties			721,000			180,000
Restricted cash			4,049,000			325,000
Identified intangible assets, net			5,240,000			1,523,000
Other assets — properties held for sale			17,861,000			6,547,000
Other assets, net			794,000			149,000
Notes receivable			2,300,000			—
Total assets		$	145,190,000		$	67,334,000
LIABILITIES, MINORITY INTERESTS AND UNIT HOLDERS’ EQUITY
Mortgage loans payable and other debt		$	26,415,000		$	4,500,000
Mortgage loans payable secured by properties held for sale			67,077,000			19,125,000
Accounts payable and accrued liabilities			3,833,000			1,711,000
Accounts payable due to related parties			330,000			233,000
Advance from related party			1,385,000			—
Security deposits and prepaid rent			406,000			104,000
Other liabilities — properties held for sale, net			2,242,000			591,000
			101,688,000			26,264,000
Minority interests			1,368,000			2,397,000
Minority interests — properties held for sale			1,613,000			1,571,000
			2,981,000			3,968,000
Commitments and contingencies (Note 13)
Unit holders’ equity			40,522,000			37,102,000
Accumulated other comprehensive loss			(1,000	)		—
Total unit holders’ equity			40,521,000			37,102,000
Total liabilities, minority interests and unit holders’ equity		$	145,190,000		$	67,334,000

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

F-4

NNN 2003 VALUE FUND, LLC

CONSOLIDATED STATEMENTS OF OPERATIONS AND COMPREHENSIVE INCOME (LOSS)

For the Years Ended December 31, 2005, 2004 and the Period From

June 19, 2003 (Date of Inception) through December 31, 2003

									For the Period from
									June 19, 2003
			Years Ended December 31,						(Date of Inception)
									through
			2005			2004			December 31, 2003
Revenues:
	Rental income		$	2,194,000		$	653,000		$	—
Expenses:
	Rental expenses			1,714,000			1,084,000			11,000
	General and administrative			1,298,000			339,000			7,000
	Depreciation and amortization			943,000			286,000			—
				3,955,000			1,709,000			18,000
Loss before other income (expense) and discontinued operations				(1,761,000	)		(1,056,000	)		(18,000	)
Other income (expense):
	Interest expense (including amortization of deferred financing costs)			(1,158,000	)		(638,000	)		—
	Interest and dividend income			416,000			86,000			3,000
	Gain on sale of marketable securities			344,000			—			—
	Equity in earnings (losses) and gain on sale of unconsolidated real estate			2,510,000			(682,000	)		(132,000	)
	Minority interests			(166,000	)		133,000			31,000
Income (loss) from continuing operations before discontinued operations				185,000			(2,157,000	)		(116,000	)
Discontinued operations:
	Gain on sale of real estate			5,802,000			—			—
	Income (loss) from discontinued operations			926,000			(145,000	)		—
				6,728,000			(145,000	)		—
Net income (loss)			$	6,913,000		$	(2,302,000	)	$	(116,000	)
Comprehensive income (loss):
	Net income (loss)		$	6,913,000		$	(2,302,000	)	$	(116,000	)
	Unrealized loss on marketable securities			(1,000	)		—			—
Comprehensive income (loss)			$	6,912,000		$	(2,302,000	)	$	(116,000	)
Net income (loss) per unit:
		Continuing operations — basic and diluted	$	18.50		$	(350.28	)	$	(178.74	)
		Discontinued operations — basic and diluted		672.80			(23.54	)		—
Total net income (loss) per unit — basic and diluted			$	691.30		$	(373.82	)	$	(178.74	)
Weighted-average number of units outstanding — basic and diluted				10,000			6,158			649
Distributions declared per unit			$	349.30		$	309.84		$	53.93
Distributions declared			$	3,493,000		$	1,908,000		$	35,000

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

F-5

NNN 2003 VALUE FUND, LLC

CONSOLIDATED STATEMENTS OF UNIT HOLDERS’ EQUITY

For the Years Ended December 31, 2005, 2004 and the Period From

June 19, 2003 (Date of Inception) through December 31, 2003

	Number of
	Units		Total
BALANCE — June 19, 2003 (date of inception)		—		—
Capital Contributions, net of offering costs		1,887	$	7,779,000
Distributions		—		(35,000	)
Net loss		—		(116,000	)
BALANCE — December 31, 2003		1,887		7,628,000
Capital Contributions, net of offering costs		8,113		33,684,000
Distributions		—		(1,908,000	)
Net loss		—		(2,302,000	)
BALANCE — December 31, 2004		10,000		37,102,000
Distributions		—		(3,493,000	)
Net income		—		6,913,000
Unrealized loss on marketable securities		—		(1,000	)
BALANCE — December 31, 2005		10,000	$	40,521,000

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

F-6

NNN 2003 VALUE FUND, LLC

CONSOLIDATED STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005, 2004 and the Period From

June 19, 2003 (Date of Inception) through December 31, 2003

									For the Period from
			Years Ended						June 19, 2003
			December 31,						(Date of Inception)
									through
			2005			2004			December 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income (loss)			$	6,913,000		$	(2,302,000	)	$	(116,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Gain on sale of real estate			(5,802,000	)		—			—
	Gain on sale of marketable securities			(344,000	)		—			—
Depreciation and amortization (including deferred financing costs and above/below market leases and deferred rent)				1,757,000			2,307,000			—
Distributions received in excess of equity in (loss) earnings from investments and gain on sale in unconsolidated real estate				(1,695,000	)		1,738,000			248,000
Minority interests				330,000			(182,000	)		(31,000	)
Provision for doubtful accounts				2,000			59,000			—
Change in operating assets and liabilities:
	Accounts receivable			(304,000	)		(557,000	)		—
	Other assets			(37,000	)		(415,000	)		—
	Accounts payable and accrued liabilities			(210,000	)		1,250,000			73,000
	Security deposits and prepaid rent			(372,000	)		578,000			—
		Net cash provided by operating activities		238,000			2,476,000			174,000
CASH FLOWS FROM INVESTING ACTIVITIES:
	Acquisition of real estate properties			(98,989,000	)		(35,966,000	)		(8,069,000	)
	Acquisition of investments in unconsolidated real estate			(2,103,000	)		(8,772,000	)		(1,863,000	)
	Capital expenditures			(4,818,000	)		(420,000	)		—
	Proceeds from sale of real estate operating properties			32,782,000			—			—
	Proceeds from sale of unconsolidated real estate properties			9,648,000			—			—
	Purchase of marketable securities			(9,819,000	)		—			—
	Proceeds from sale of marketable securities			8,302,000			—			—
	Restricted cash			468,000			—			—
		Net cash used in investing activities		(64,529,000	)		(45,158,000	)		(9,932,000	)
CASH FLOWS FROM FINANCING ACTIVITIES:
	Borrowings on mortgages payable			96,192,000			19,125,000			4,500,000
	Principal repayments on mortgages payable and other debt			(24,940,000	)		—			—
	Due to/from related parties, net			—			(214,000	)		267,000
	Payment of deferred financing costs			(1,202,000	)		(326,000	)		(109,000	)
	Issuance of units, net of offering costs			—			33,684,000			7,779,000
	Minority interests distributions			(1,402,000	)		(408,000	)		(19,000	)
	Distributions			(3,493,000	)		(1,908,000	)		(35,000	)
		Net cash provided by financing activities		65,155,000			49,953,000			12,383,000
NET INCREASE IN CASH AND CASH EQUIVALENTS				864,000			7,271,000			2,625,000
CASH AND CASH EQUIVALENTS — beginning of year				9,896,000			2,625,000			—
CASH AND CASH EQUIVALENTS — end of year			$	10,760,000		$	9,896,000		$	2,625,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION:
Cash paid during the year for:
	Interest		$	1,467,000		$	807,000		$	—
	Income taxes		$	24,000		$	—		$	—
NONCASH INVESTING AND FINANCING ACTIVITIES:
Investing Activities:
	Accrual for tenant improvements and capital expenditures		$	1,625,000		$	—		$	—
The following represents the change in certain assets and liabilities in connection with our acquisitions and dispositions of operating properties:
Increase (decrease) in investment operating properties
	Security deposits and prepaid rent		$	(1,405,000	)	$	55,000		$	62,000
	Restricted cash		$	4,192,000		$	70,000		$	204,000
	Other assets		$	468,000		$	123,000		$	—
	Accrued expenses		$	(1,372,000	)	$	211,000		$	175,000
	Minority interests contributions		$	85,000		$	3,170,000		$	1,438,000
	Notes receivable		$	2,300,000		$	—		$	—

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

F-7

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS

For the Years Ended December 31, 2005, 2004 and 2003

1. Organization and Description of Business

      We were organized on June 19, 2003 as NNN 2003 Value Fund, LLC under the laws of the state of Delaware The use of the words “we,” “us” or “our” refers to NNN 2003 Value Fund, LLC and our subsidiaries, except where the context otherwise requires.

      We were formed to purchase, own, operate and subsequently sell all or a portion of a number of unspecified “value added” properties. As of December 31, 2005, we have interests in eight properties, including five consolidated interests in office properties aggregating a total gross leaseable area, or GLA, of 951,000 square feet , one consolidated interest in a land parcel for development and two unconsolidated interests in office properties aggregating a total GLA of 751,000 square feet. At December 31, 2005, 66.8% of the total GLA of our consolidated properties was leased.

      Triple Net Properties, LLC, or our Manager, manages us pursuant to the terms of an operating agreement, or the Operating Agreement, between us and our Manager. While we have no employees, certain employees of our Manager provide services to us in connection with the Operating Agreement. In addition, Triple Net Properties Realty, Inc., or Realty, is 84% owned by Anthony W. Thompson, our Manager’s chairman and chief executive officer, and 16% owned by Louis J. Rogers, president of our Manager. Realty serves as our property manager pursuant to the terms of the Operating Agreement and a property management agreement, or the Management Agreement, between us and Realty. The Operating Agreement terminates upon our dissolution. The unit holders may not vote to terminate our Manager prior to the termination of the Operating Agreement or our dissolution except for cause. The Management Agreement terminates with respect to each of our properties upon the earlier of the sale of each respective property or ten years from acquisition. Realty may be terminated with respect to any of our properties without cause prior to the termination of the Management Agreement or our dissolution, subject to certain conditions, including the payment by us to Realty of a termination fee as provided in the Management Agreement.

2. Summary of Significant Accounting Policies

      The summary of significant accounting policies presented below is designed to assist in understanding our consolidated financial statements. Such financial statements and accompanying notes are the representations of our management, who is responsible for their integrity and objectivity. These accounting policies conform to generally accepted accounting principles, or GAAP, in all material respects, and have been consistently applied in preparing the accompanying consolidated financial statements.

Principles of Consolidation

      The accompanying consolidated financial statements include our accounts and those of our wholly-owned subsidiaries, any majority-owned subsidiaries and any variable interest entities, as defined in Financial Accounting Standards Board, or FASB, No. 46, Consolidation of Variable Interest Entities, an Interpretation of Accounting Research Bulletin no. 51, as revised, or FIN 46(R), that we have concluded should be consolidated. All material intercompany transactions and account balances have been eliminated in consolidation. We account for all other unconsolidated real estate investments using the equity method of accounting. Accordingly, our share of the earnings (loss) of these real estate investments is included in consolidated net income.

Use of Estimates

      The preparation of our financial statements in conformity with GAAP requires our Manager to make estimates and assumptions that affect the reported amounts of the assets and liabilities as of December 31,

F-8

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005 and 2004 and the disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses for the years ended December 31, 2005, 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003. Actual results could differ, perhaps in adverse ways, from those estimates.

Reclassifications

      Certain reclassifications have been made to prior year amounts in order to conform to the current period presentation. These reclassifications have not changed the results of operations.

Cash and Cash Equivalents

      Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased. Short-term investments with remaining maturities of three months or less when acquired are considered cash equivalents.

Restricted Cash

      Restricted cash is comprised of impound reserve accounts for property taxes, insurance, capital improvements and tenant improvements.

Allowance for Uncollectible Accounts

      Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. An allowance is maintained for estimated losses resulting from the inability of certain tenants to meet the contractual obligations under their lease agreements. Our determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. We have established an allowance for uncollectible accounts of $2,000 and $59,000 at December 31, 2005 and 2004, respectively, to reduce receivables to our estimate of the amount recoverable.

Investment in Marketable Securities

      Marketable securities are carried at fair value and consist primarily of investments in marketable equity securities. We classify our marketable securities portfolio as available-for-sale. This portfolio is continually monitored for differences between the cost and estimated fair value of each security. If we believe that a decline in the value of an equity security is temporary in nature, we record the change in other comprehensive income (loss) in unit holders’ equity. If the decline is believed to be other than temporary, the equity security is written down to the fair value and a realized loss is recorded on our statement of operations. There were no realized losses recorded by us due to the write down in value for the years ended December 31, 2005. We had no investments in marketable securities for the year ended December 31, 2004 and for the period from June 19,2003 (inception to date) through December 31, 2003. Our assessment of a decline in value includes, among other things, our current judgment as to the financial position and future prospects of the entity that issued the security. If that judgment changes in the future, we may ultimately record a realized loss after having initially concluded that the decline in value was temporary.

F-9

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Purchase Price Allocation

      In accordance with Statements of Financial Accounting Standards, or SFAS, No. 141, Business Combinations, we, with the assistance of independent valuation specialists, allocate the purchase price of acquired properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) is based upon our determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by us include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

      The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) our estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in the intangible in-place lease asset and below market lease values are included in intangible lease liabilities in the accompanying consolidated financial statements and are amortized to rental income over the weighted-average remaining term of the acquired leases with each property.

      The total amount of other intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and our overall relationship with that respective tenant. Characteristics considered by us in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors.

      These allocations are subject to change based on information received within one year of the purchase related to one or more events identified at the time of purchase which confirm the value of an asset or liability received in an acquisition of property.

Operating Properties

      Operating properties are carried at the lower of historical cost less accumulated depreciation or fair value less costs to sell. The cost of the operating properties includes the cost of land and completed buildings and related improvements. Expenditures that increase the service life of properties are capitalized and the cost of maintenance and repairs is charged to expense as incurred. The cost of building and improvements are depreciated on a straight-line basis over the estimated useful lives of the buildings and improvements, ranging primarily from 15 to 39 years and the shorter of the lease term or useful life, ranging from one to eleven years for tenant improvements. When depreciable property is retired or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss reflected in operations.

      An operating property is evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded on long-lived assets used in operations. Impairment losses are recorded on an operating property when indicators of impairment are present and the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by that asset. We would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. We did not record any impairment losses during the years ended December 31, 2005 and 2004 or the period from June 19, 2003 (inception to date) through December 31, 2003.

F-10

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Properties Held for Sale

      In accordance with SFAS No. 144, Accounting for Impairment or Disposal of Long-Lived Assets, at such time as a property is held for sale, such property is carried at the lower of (i) its carrying amount or (ii) fair value less costs to sell. In addition, a property being held for sale ceases to be depreciated. We classify operating properties as property held for sale in the period in which all of the following criteria are met:

•  management, having the authority to approve the action, commits to a plan to sell the asset;

•  the asset is available for immediate sale in its present condition subject only to terms that are usual and customary for sales of such assets;

•  an active program to locate a buyer and other actions required to complete the plan to sell the asset have been initiated;

•  the sale of the asset is probable and the transfer of the asset is expected to qualify for recognition as a completed sale within one year;

•  the asset is being actively marketed for sale at a price that is reasonable in relation to its current fair value; and

•  given the actions required to complete the plan, it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn.

      SFAS No. 144, requires that, in a period in which a component of an entity either has been disposed of or is classified as held for sale, the income statements for current and prior periods shall report the results of operations of the component as discontinued operations. On February 24, 2005, we sold Satellite Place, on April 13, 2005, we sold Financial Plaza, on June 8, 2005, the Oakey Building was listed for sale, and on December 19, 2005, the Southwood Tower property was sold. In addition, on December 27, 2005, we purchased the 3500 Maple property and immediately listed it for sale. As a result of such sales and listing for sale, we reclassified amounts related to Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, NNN Oakey Building, LLC and 3500 Maple property in the consolidated financial statements to reflect the reclassification required by SFAS No. 144. Accordingly, revenues, operating costs and expenses, and other non-operating results for the discontinued operations of Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, NNN Oakey Building, LLC, and 3500 Maple property, have been excluded from our results from continuing operations for all periods presented herein. The financial results for Satellite Place, Financial Plaza, Southwood Tower, Oakey Building, NNN Oakey Building, LLC, and 3500 Maple property are presented in our consolidated statements of operations in a single line item entitled “Income from discontinued operations” and the related assets and liabilities are presented in the consolidated balance sheets in line items entitled “Properties held for sale, net,” “Other assets — properties held for sale,” “Mortgage loans payable secured by properties held for sale,” “Other liabilities — properties held for sale” and “Minority Interests — properties held for sale.”

Other Assets

      Other assets consist primarily of deferred rent receivables, leasing commissions, deferred financing costs, prepaid expenses and deposits. Costs incurred for property leasing have been capitalized as deferred assets. Deferred financing costs included amounts paid to lenders and others to obtain financing. Such costs are amortized over the term of the related loan. Amortization of deferred financing costs is included in interest expense in the consolidated statements of operations. Deferred leasing costs include leasing commissions that are amortized using the straight-line method over the term of the related lease.

F-11

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Derivative Financial Instruments

      We are exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts is to minimize the volatility that changes in interest rates could have on its future cash flows. We employ derivative instruments, including interest rate swaps and caps, to effectively convert a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes. As of December 31, 2005 and 2004 we did not have any derivative financial instruments at any of our consolidated properties.

      Derivatives are recognized as either assets or liabilities in the consolidated balance sheet and measured at fair value in accordance with SFAS No. 133, Derivative Instruments and Hedging Activities. Changes in fair value are included as a component of interest expense in the consolidated statement of operations in the period of change.

Revenue Recognition

      In accordance with SFAS No. 13, Accounting for Leases, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred.

Concentration of Credit Risk

      Financial instruments that potentially subject us to a concentration of credit risk are primarily cash investments and accounts receivable from tenants. Cash is generally invested in investment-grade short-term instruments and the amount of credit exposure to any one commercial issuer is limited. We have cash in financial institutions which is insured by the Federal Deposit Insurance Corporation, or FDIC, up to $100,000 per institution. At December 31, 2005 and 2004, we had cash accounts in excess of FDIC insured limits. We believe this risk is not significant. Concentration of credit risk with respect to accounts receivable from tenants is limited. We perform credit evaluations of prospective tenants, and security deposits are obtained upon lease execution.

      As of December 31, 2005, we had interests in one property located in Nevada which accounted for 7.6% of our total revenue, one property located in Oregon which accounted for 15.1% of our total revenue and three properties located in Texas which accounted for 77.3% of our total revenue based on contractual base rent from leases in effect at December 31, 2005.

      As of December 31, 2005, one of our tenants at our consolidated properties accounted for 10% or more of our aggregate annual rental income, as follows:

			Percentage of					Lease
	2005 Annual		2005 Annual			Square Footage		Expiration
Tenant	Base Rent(*)		Base Rent		Property	(Approximately)		Date
Heritage Capital Corporation	$	1,575,000		14.5%	3500 Maple		75,000		06/30/15

*  Annualized rental income is based on contractual base rent from leases in effect at December 31, 2005.

F-12

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of December 31, 2004, one of our tenants at our consolidated properties accounted for 10% or more of our aggregate annual rental income, as follows:

			Percentage of					Lease
	2004 Annual		2004 Annual			Square Footage		Expiration
Tenant	Base Rent*		Base Rent		Property	(Approximately)		Date
General Service Administration (IRS)	$	3,014,000		37.72%	Oakey Building		84,000		05/31/05

*  Annualized rental income is based on contractual base rent from leases in effect at December 31, 2004.

      As of December 31, 2003, one of our tenants at our consolidated properties accounted for 10% or more of our aggregate annual rental income, as follows:

			Percentage of					Lease
	2004 Annual		2004 Annual			Square Footage		Expiration
Tenant	Base Rent*		Base Rent		Property	(Approximately)		Date
Westwood College of Technology	$	539,000		100.0%	Executive Center I		33,000		01/31/13

*  Annualized rental income is based on contractual base rent from leases in effect at December 31, 2003.

Fair Value of Financial Instruments

      The SFAS No. 107, Disclosures About Fair Value of Financial Instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. SFAS No. 107 defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques such as discounted cash flow analysis. The fair value estimates are made at the end of each year based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider that tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

      Our consolidated balance sheets include the following financial instruments: cash and cash equivalents, tenant rent and other receivables, investments in marketable securities, accounts payable and accrued expenses and notes payable. We consider the carrying values of cash and cash equivalents, tenant rent and other receivables and accounts payable and accrued expenses to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. Marketable securities are carried at fair value. The fair value of due to and from related parties is not determinable due to its related party nature. Based on borrowing rates available to us, the fair value of our mortgage debt including properties held for sale at December 31, 2005 and 2004 was $109,775,000 and $24,261,000, respectively.

Income Taxes

      We are a pass-through entity for income tax purposes and taxable income is reported by our unit holders on their individual tax returns. Accordingly, no provision has been made for income taxes in the accompanying consolidated statements of operations except for insignificant amounts related to state franchise and income taxes.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Comprehensive Income

      We report comprehensive income in accordance with SFAS No. 130, Reporting Comprehensive Income. This statement defines comprehensive income (loss) as the changes in equity of an enterprise except those resulting from unit holders’ transactions. Accordingly, comprehensive income (loss) includes certain changes in equity that are excluded from net income (loss). Our only comprehensive income (loss) items were net income (loss) and the unrealized change in fair value of marketable securities.

Per Unit Data

      We report earnings per unit pursuant to SFAS No. 128, Earnings Per Unit. Basic earnings (loss) per unit attributable for all periods presented are computed by dividing the net income (loss) by the weighted-average number of units outstanding during the period. Diluted earnings per unit are computed based on the weighted-average number of units and all potentially dilutive securities, if any. We did not have any dilutive securities during the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003.

      Net income (loss) per unit is calculated as follows:

							For the Period from
							June 19, 2003
		Years Ended December 31,					(Date of Inception)
							through
		2005		2004			December 31 2003
Income (loss) from continuing operations		$	185,000	$	(2,157,000	)	$	(116,000	)
Income (loss) from discontinued operations			6,728,000		(145,000	)		—
Net income (loss)		$	6,913,000	$	(2,302,000	)	$	(116,000	)
Net income (loss) per unit — basic and diluted:
	Continuing operations — basic and diluted	$	18.50	$	(350.28	)	$	(178.74	)
	Discontinued operations — basic and diluted		672.80		(23.54	)		—
Total net income (loss) per unit — basic and diluted		$	691.30	$	(373.82	)	$	(178.74	)
Weighted-average number of units outstanding — basic and diluted			10,000		6,158			649

Segments

      We internally evaluate all of our properties as one industry segment and accordingly do not report segment information.

Minority Interests

      Minority interests relate to the interests in the consolidated entities that are not wholly owned by us.

Asset Retirement Obligations

      In March 2005, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, or FIN 47. FIN 47 clarifies guidance provided in FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” The term asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

of the entity. Entities are required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 is effective as of the end of the first fiscal year ending after December 15, 2005. The adoption of the interpretation in 2005 did not have a material effect on our consolidated financial statements or results of operations.

Recently Issued Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS No. 3. SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods’ financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 in the first quarter of 2006 did not have a material effect on our consolidated financial statements.

      In June 2005, the FASB ratified its consensus in EITF Issue 04-05, Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights (Issue 04-05). The effective date for Issue 04-05 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 in the first quarter of 2006 did not have a material impact on our financial position or results of operations.

      In November 2005, the FASB issued FASB Staff Position (FSP) Nos. FAS 115-1 and FAS 124-1 which addresses the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of an other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, Accounting for Certain Investments in Debt and Equity Securities. The adoption of FSP Nos. FAS 115-1 and FAS 124-1 in the first quarter of 2006 did not have a material effect on our consolidated financial statements.

3. Investments in Real Estate

Operating Properties

      Our investment in our consolidated properties consisted of the following at December 31, 2005 and 2004:

	2005			2004
Buildings and tenant improvements	$	26,289,000		$	4,517,000
Land		7,389,000			2,190,000
		33,678,000			6,707,000
Less: accumulated depreciation		(726,000	)		(182,000	)
	$	32,952,000		$	6,525,000

      Depreciation expense was $544,000, $182,000 and $0 for the years ended December 31, 2005 and 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003, respectively.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005 Acquisitions

      We acquired the following properties or interests therein during 2005:

Consolidated Properties

Interwood — Houston, Texas

      On January 26, 2005, we purchased a 100% interest in the Interwood property, an 80,000 square foot, two-story office building located in Houston, Texas. The property was purchased from an unaffiliated third party for a purchase price of $8,000,000. We financed the property with a two-year $5,500,000 first mortgage from LaSalle Bank National Association, or LaSalle, which bears interest at one-month LIBOR plus 300 basis points, requiring interest-only payments. Realty was paid a sales commission of $250,000, or 3.1% of the purchase price, of which 75.0% was passed through to our Manager pursuant to an agreement between our Manager and Realty, or the Realty-Triple Net Agreement.

Woodside Corporate Park — Beaverton, Oregon

      On September 30, 2005, we purchased five office buildings at Woodside Corporate Park, or the Woodside property, totaling 193,000 square feet of GLA from an unaffiliated third party for a purchase price of $22,862,000. The Woodside property is part of the 13-building Woodside Corporate Park master-planned office and flex campus located in Beaverton, a suburb of Portland, Oregon. The property was financed with a mortgage loan in the amount of $15,915,000, which bears interest at one-month LIBOR plus 335 basis points, requiring interest-only payments. Realty was paid a sales commission of $579,000, or 2.5% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Daniels Rd land parcel — Heber City, Utah

      On October 14, 2005, we purchased 100% of 1590 South Daniels, a 9.05 acre land parcel with three buildings, consisting of an 864 square foot detached garage, an 810 square foot log cabin and a 1,392 square foot manufactured home, located in Heber City, Utah. The property was purchased from an unaffiliated third party for a cash purchase price of $731,000. We intend to explore development of the land into public storage units.

3500 Maple — Dallas, Texas

      On December 27, 2005, we purchased a 99.0% interest in the 3500 Maple Avenue property, a 375,000 square-foot office building located in Dallas, Texas, from an unaffiliated third party. An affiliated entity, NNN 3500 Maple, LLC, purchased the remaining 1.0% interest. The total purchase price was $66,500,000. The purchase was financed with: (i) a first mortgage loan from Wachovia Bank, National Association, or Wachovia, of $47,000,000 due in ten years with an effective fixed interest rate of 5.77%, requiring interest-only payments for five years and a 30-year amortization thereafter; and (ii) a mezzanine loan from Wachovia of $11,320,000 due in ten years with a floating interest rate of 500 basis points over the 30-day LIBOR for 120 days and a floating interest rate of 1,000 basis points over the 30-day LIBOR thereafter.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

2005 Dispositions

      We sold our interests in the following properties during 2005:

Consolidated Properties

Southwood Tower — Houston, Texas

      On December 19, 2005, we sold Southwood Tower, our wholly-owned property located in Houston, Texas, to an unaffiliated third party for a sales price of $9,373,000. Our cash proceeds were $7,493,000 after closing costs and other transaction expenses. The sale resulted in us recording a gain of $2,402,000. A property disposition fee of $94,000, or 1.0% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $375,000, or 4% of the sales price, were paid to unaffiliated brokers. We may reinvest the net proceeds from the sale in real estate property that qualifies for like-kind exchange treatment under Section 1031 of the Internal Revenue Code.

      As part of the sale of Southwood Tower, a leasing reserve escrow account was funded at the close of the sale with $1,148,000 which will pay for vacant space within the sold building for a period of five years. The purchaser will receive payments from this escrow account until such time as the vacant space is leased and, at that time, we will receive any remaining proceeds, net of leasing costs and required tenant improvements. We have accounted for this as an escrow deposit with offsetting deferred revenue. We will recognize revenue, if any, upon release of escrow funds to us.

Financial Plaza — Omaha, Nebraska

      On April 13, 2005, we sold Financial Plaza, our wholly-owned property located in Omaha, Nebraska, to an unaffiliated third party for a sales price of $9,500,000. In connection with the sale, the buyer assumed a first mortgage note of $4,110,000 due to American Express Certificate Company. We also received a note receivable secured by the property for $2,300,000 that bears interest at a fixed rate of 8.0% per annum and matures on April 1, 2008. The note requires monthly interest-only payments from the buyer. Our proceeds after closing costs and the note receivable were $2,327,000. The sale resulted in a gain of $3,015,000. Realty was paid a disposition fee of $475,000, or 5.0% of the sales price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Satellite Place — Atlanta, Georgia

      On February 24, 2005, we sold Satellite Place, our wholly-owned property located in Atlanta, Georgia, to NNN Satellite 1100 & 2000, LLC, for a sales price of $19,410,000. Because the property was purchased by TICs also managed by our Manager, our Manager engaged an independent third party to provide an opinion as to the fairness of the transaction to us. This opinion was received by us prior to the consummation of the transaction. In connection with the sale, the first mortgage note of $11,000,000, plus accrued interest, was repaid to LaSalle. Our proceeds from this sale were $7,727,000 after closing costs. The sale resulted in a gain of $385,000. Realty did not receive a disposition fee upon the sale of the property.

Unconsolidated Properties

Emerald Plaza Building — San Diego, California

      On November 10, 2005, our Manager sold the Emerald Plaza Building located in San Diego, California, of which we owned 4.6%, to an unaffiliated third party for a total sales price of $123,634,000. Our cash proceeds were $2,405,000 after closing costs and other transaction expenses. The sale resulted in

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

us recording a gain of $988,000. A property disposition fee of $2,250,000, or 1.8%, of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $700,000, or 0.6% of the total sales price, were paid to unaffiliated brokers. In conjunction with the sale, all related party notes due to Cunningham Lending Group, LLC, or Cunningham, an entity wholly owned by Anthony W. Thompson were paid in full.

801 K Street — Sacramento, California

      On August 26, 2005, our Manager sold 801 K Street located in Sacramento, California, of which we owned an 18.3% interest therein, to an unaffiliated third party for a total sales price of $79,350,000. Our cash proceeds were $7,244,000 after closing costs and other transaction expenses. The sale resulted in us recording a gain of $2,079,000. A property disposition fee of $2,550,000, or 3.2% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement, and sales commissions of $555,000, or 0.7% of the total sales price, was paid to unaffiliated brokers. In conjunction with the sale, all related party notes due to Cunningham were paid in full.

2004 Acquisitions

      We acquired interest in the following properties during 2004:

Consolidated Properties

Oakey Building — Las Vegas, Nevada

      On April 2, 2004, we purchased a 75.4% interest in the Oakey Building, a four-story, Class A office building of 98,000 square feet located in Las Vegas, Nevada. In the purchase transaction, T REIT, Inc., an affiliated party, who is also managed by our Manager, acquired a 9.8% interest in Oakey Building and unaffiliated members acquired the remaining 14.8%. The total purchase price for the Oakey Building was $8,137,000. Our initial investment was $6,178,000. The purchase was financed by $4,000,000 in borrowings secured by the property. The loan is payable to the Ivan Halaj and Vilma Halaj Inter Vivos Trust. The loan requires principal and interest payments at a fixed interest rate of 10.0% per annum until the due date of April 1, 2005. On April 1, 2005, the loan was extended until October 1, 2005 and from that date bears interest at a fixed interest rate of 8.0% per annum. The seller paid Realty a sales commission of $237,000, or 2.9% of the total purchase price, of which 75.0% was passed though to our Manager pursuant to the Realty-Triple Net Agreement. On September 6, 2005, the $4,000,000 first mortgage loan secured by the Oakey Building property was refinanced with LaSalle providing a refinance of the existing mortgage, construction and tenant improvement financing loan of $5,585,000 and additional financing for operating requirements and interest expense during the construction period up to $1,065,000. The loan term provides for our option of LaSalle’s prime rate or three months LIBOR plus 2.0% per annum. The loan matures on September 6, 2007. We are required to make interest-only payments. The outstanding balance of the loan as of December 31, 2005 was $8,757,000 at interest rate of 6.29% per annum.

Southwood Tower — Houston, Texas

      On October 27, 2004, we purchased a 100% interest in Southwood Tower, a Class A office building of 79,000 square feet located in Houston, Texas. The property was purchased from an unaffiliated third party for a cash purchase price of $5,461,000. The seller paid Realty a sales commission of $159,000, or 2.9% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Financial Plaza — Omaha, Nebraska

      On October 29, 2004, we purchased a 100% interest in Financial Plaza, a four-story, Class A office building of 86,000 square feet located in Omaha, Nebraska. The property was purchased from an unaffiliated third party for a purchase price of $5,660,000. At acquisition, we obtained a first mortgage loan from American Express Certificate Company in the amount of $4,125,000, which bears interest at a 6-month LIBOR plus 180 basis points. The initial term of the loan is three years from the date of acquisition. The seller paid Realty a sales commission of $160,000, or 2.8% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Satellite Place — Atlanta, Georgia

      On November 29, 2004, we purchased a 100% interest in Satellite Place, two single-story, Class A office buildings totaling 178,000 square feet located in Atlanta, Georgia. The property was purchased from an unaffiliated third party for a purchase price of $18,300,000. At acquisition, we obtained a first mortgage loan from LaSalle Bank National Association, or LaSalle, in the amount of $11,000,000, which bears interest at 30-day LIBOR plus 275 basis points. The initial term of the loan is six months from the date of acquisition with one six-month option to extend and an option to convert to fixed-rate debt with LaSalle in favor of the borrower anytime during the term. The seller paid Realty a sales commission of $356,000, or 1.9% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Unconsolidated Properties

801 K Street — Sacramento, California

      On March 31, 2004, we purchased an 18.3% interest in 801 K Street, a 28-story, Class A office building of 336,000 square feet located in Sacramento, California.

      Through the date of disposition, 801 K Street was owned by the following interest holders as TICs:

Tenants-in-Common	Interest Held
NNN 801 K Street, LLC		21.5%
Unaffiliated third parties (combined)		78.5%

      Through the date of disposition, NNN 801 K Street, LLC, which owns an aggregate 21.5% interest in 801 K Street, was owned by the following members, with the proportionate membership interest and interest in 801 K Street listed, respectively:

	Membership Interest in		Interest in 801 K
Members	NNN 801 K Street, LLC		Street Property
NNN 2003 Value Fund, LLC		85.0%		18.3%
Unaffiliated members (combined)		15.0%		3.2%

      The property was purchased from an unaffiliated third party for a total purchase price of $65,780,000. Our total investment consisted of $12,064,000. We used the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from HSH Nordbank AG in the amount of $41,350,000. The loan bears interest at a 30-day LIBOR plus 200 basis points until the property reached 80% leasing at which time interest was reduced to 30-day LIBOR plus 190 basis points. The first 24 months of the loan term are interest only and the last 12 months of the initial loan term are amortized with $56,250 monthly principal payments. The initial term of the loan is three years, due in March 2007. The borrower had an option to extend the maturity date for two 12-month terms. The rate was 4.18% per annum at December 31, 2004. The seller paid Realty a sales commission of $1,500,000, or 2.3% of the

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Enterprise Technology Center — Scotts Valley, California

      On May 7, 2004, we purchased an 8.5% interest in Enterprise Technology Center, a Class A office building campus of 370,000 square feet located in Scotts Valley, California.

      As of December 31, 2005, Enterprise Technology Center was owned by the following interest holders as TICs:

Tenants-in-Common	Interest Held
NNN Enterprise Technology Center, LLC		11.6%
Unaffiliated third parties (combined)		88.4%

      As of December 31, 2005, NNN Enterprise Technology Center, LLC, which owns an aggregate 11.6% interest in Enterprise Technology Center, was owned by the following members, with the proportionate membership interest and interest in Enterprise Technology Center listed, respectively:

			Interest in
	Membership Interest in		Enterprise
	NNN Enterprise Technology		Technology Center
Members	Center, LLC		Property
NNN 2003 Value Fund, LLC		73.3%		8.5%
Unaffiliated members (combined)		26.7%		3.1%

      The property was purchased from an unaffiliated third party for a total purchase price of $61,300,000. Our total investment consisted of $5,233,000. We use the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from UBS Investment Bank, in the amount of $36,500,000, which bears interest at a fixed rate of 6.44% per annum. The note requires monthly interest only payments. The initial term of the loan is 36 months and may be extended by the borrower for an additional 24 months. The seller paid Realty a sales commission of $1,800,000, or 2.9% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Emerald Plaza — San Diego, California

      On June 14, 2004, we purchased a 4.6% interest in the Emerald Plaza Building in San Diego, CA. Emerald Plaza is a Class A office tower of 355,000 square feet located in downtown San Diego, California.

      Through the date of disposition, Emerald Plaza was owned by the following interest holders as TICs:

Tenants-in-Common	Interest Held
NNN Emerald Plaza, LLC		20.5	%
Unaffiliated third parties (combined)		77.6	%
AWT Family, LP, a limited partnership wholly owned by Anthony W. Thompson		1.9	%

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      Through the date of disposition, NNN Emerald Plaza, LLC which owns an aggregate 20.5% interest in Emerald Plaza, was owned by the following members, with the proportionate membership interest and interest in Emerald Plaza listed, respectively:

				Interest in
	Membership Interest in			Emerald Plaza
Members	NNN Emerald Plaza, LLC			Property
NNN 2003 Value Fund, LLC		22.2	%		4.6	%
Unaffiliated Members (combined)		64.2	%		13.2	%
T REIT, LP		13.2	%		2.7	%
Affiliated Members (combined)		0.4	%		0.1	%

      The LLC members include T REIT, Inc, an affiliated party that is also managed by our Manager, and affiliated members, including two members of the Board of Managers.

      Emerald Plaza was purchased from an unaffiliated third party for a purchase price of $100,940,000. Our investment consisted of $4,595,000. We used the equity method of accounting to account for this investment. The property was financed with a $68,500,000 secured loan from Citigroup Global Markets Realty Corp. The loan requires interest only payments through the maturity date of June 17, 2007 at a variable interest rate based on 30-day LIBOR plus 245 basis points. The rate in effect at December 31, 2004 was 4.93% per annum. The seller paid Realty a sales commission of $2,940,000, or 2.9% of the purchase price, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement. On November 10, 2005, our Manager sold the Emerald Plaza Building to an unaffiliated third party.

2003 Acquisition

      We acquired interests in the following properties during 2003:

Consolidated Properties

Executive Center I — Dallas, Texas

      On December 30, 2003, we purchased a 100% interest in the Executive Center I property, a 205,000 square foot, ten story, office building, located in Dallas, Texas. The property was purchased from an unaffiliated third party for a purchase price $8,178,000. We financed the property with a $4,500,000 secured loan from Vestin Mortgage, Inc. with a fixed interest rate of 10.5% per annum. The seller paid Realty sales commissions of $223,000, or 2.7% of the purchase price of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Unconsolidated Properties

Executive Center II & III, Dallas, Texas

      On August 1, 2003, we, as a member of NNN Executive Center, LLC, a Texas limited liability company, purchased a 38.1% interest in Executive Center II & III, two Class A office buildings, totaling 381,000 square feet located in Dallas, Texas.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

      As of December 31, 2005, Executive Center II & III is owned by the following interest holders as TIC’s:

	Interest
Tenants-in-Common	Held
NNN Executive Center, LLC		49.6%
NNN Executive Center II & III 2003, LP (wholly owned by us)		3.0%
Unaffiliated third parties (combined)		45.9%
AWT Family, LP, a limited partnership wholly owned by Anthony W. Thompson		1.5%

      As of December 31, 2005, NNN Executive Center, LLC, which owns an aggregate 49.6% interest in Executive Center II & III, is owned by the following members, with the proportionate membership interest listed respectively:

	Membership		Interest in
	Interest In		Executive
	NNN Executive		Center II &
Members	Center, LLC		III Property
NNN 2003 Value Fund, LLC		76.8%		38.1%
Unaffiliated members (combined)		23.2%		11.5%

      The property was purchased from an unaffiliated third party for a purchase price of $24,600,000. Our total investment consisted of our proportionate share of the purchase price of $9,390,000. We use the equity method of accounting to account for this investment. At acquisition, the owners obtained a first mortgage loan from LaSalle in the amount of $14,950,000, which bears interest at 30-day LIBOR plus 300 basis points, with a floor of 5.0% per annum. The seller paid Realty a sales commission of $600,000, or 2.4% of the total purchase price, of which 75% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

      Our aggregate ownership percentage in Executive Center II & III property is 41.1% at December 31, 2005, based on our ownership in NNN Executive Center, LLC and our TIC ownership on the property.

      On December 28, 2005, our Manager refinanced the Executive Center II & III property with LaSalle as follows: (i) a senior loan of $13,000,000 due January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 0.5% or LIBOR plus 2.25%, requiring interest-only payments; and (ii) a mezzanine loan of $3,000,000 which is due January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 5.00% or LIBOR plus 7.60%, requiring interest-only payments until specified tenant lease payments begin, at which time an additional monthly principal payment of $25,000 will be required and applied to the mezzanine principal loan balance, or cumulatively the Bank Loans. Effective as of December 28, 2005, we obtained a waiver from LaSalle for noncompliance with a certain covenant of the Bank Loans which precludes us from having or incurring additional indebtedness which is not subordinated to the Bank Loans. This waiver allows us to subordinate the additional indebtedness to the Bank Loans and to cure our noncompliance with the covenant by June 27, 2006.

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Investments in Unconsolidated Real Estate

      We had the following investments in unconsolidated real estate at December 31, 2005 and 2004:

					December 31,
			Percentage
Description	Location		Owned		2005		2004
801 K Street		Sacramento, CA		18.3%	$	—	$	5,103,000
Emerald Plaza		San Diego, CA		4.6%		—		1,529,000
Enterprise Technology Center		Scotts Valley, CA		8.5%		2,638,000		2,808,000
Executive Center II & III		Dallas, TX		41.1%		2,993,000		2,042,000
Total					$	5,631,000	$	11,482,000

      Summarized combined financial information about our unconsolidated real estate is as follows:

	December 31,
	2005		2004
Balance Sheet Data:
Assets (primarily real estate)	$	87,238,000	$	260,296,000
Mortgage loans and other debt payable	$	50,851,000	$	160,771,000
Other liabilities		6,614,000		10,603,000
Equity		29,773,000		88,922,000
Total liabilities and equity	$	87,238,000	$	260,296,000
Our share of equity	$	5,631,000	$	11,482,000

							For the Period from
							June 19, 2003
	Years Ended December 31,						(Date of Inception)
							through
	2005			2004			December 31, 2003
Revenues	$	27,401,000		$	23,117,000		$	2,049,000
Rental and other expenses		29,168,000			26,767,000			2,316,000
Net income (loss)	$	(1,767,000	)	$	(3,650,000	)	$	(267,000	)
Our equity in loss	$	(557,000	)	$	(682,000	)	$	(132,000	)
Gain on sale of unconsolidated real estate	$	3,067,000		$	—		$	—
Equity in earnings (loss) and gain on sale of unconsolidated real estate	$	2,510,000		$	(682,000	)	$	(132,000	)

      Effective May 1, 2005, our Manager suspended distributions at Executive Center II & III, of which we owned a 38.1% interest therein, due to the modification of a significant tenant lease at the property resulting in reduced revenues. On October 13, 2005, we bought a 3% TIC interest in Executive Center II & III from an existing unaffiliated TIC for $441,000. As a result of the purchase, we increased our effective ownership in the property from 38.1% to 41.1%.

      Effective November 1, 2005, cash distributions from Enterprise Technology Center, of which we own an 8.5% interest therein, were reduced from 8% to 4%, as a result of a decrease in occupancy from 90.7% to 83.3% because of our Manager’s inability to renew expiring leases. Effective November 1, 2005, our

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Manager has agreed to defer 50% of its property management fee until further notice. Our Manager will continue its efforts to lease the property.

4. Marketable Equity Securities

      The historical cost and estimated fair value of our investments in marketable equity securities are as follows:

				Gross Unrealized
		Historical						Estimated
		Cost		Gains		Losses		Fair Value
December 31, 2005
	Equity securities	$	1,861,000	$	6,000	$	7,000	$	1,860,000

      The fair value of equity securities was estimated using quoted market prices. Sales of equity securities resulted in realized gains of $344,000 and $0 for the years ended December 31, 2005 and 2004, respectively.

5. Identified Intangible Assets

      Identified intangible assets consisted of the following:

	December 31,
	2005		2004
In place leases, above market leases and tenant relationships, net of accumulated amortization of $800,000 and $176,000 at December 31, 2005 and 2004, respectively (with a weighted-average life of 50 months, 57 months, and 96 months for in-place leases, above market leases and tenant relationships, respectively, at December 31, 2005 and a weighted-average life of 97 months, 97 months, and 139 months for in-place leases, above market leases and tenant relationships, respectively, at December 31, 2004)	$	5,240,000	$	1,523,000

      Amortization expense recorded on the identified intangible assets, for each of fiscal years ended December 31, 2005 and 2004 and the period from June 19, 2003 (date of inception) through December 31, 2003 was $624,000, $104,000 and $0, respectively.

      Estimated amortization expense of the identified intangible assets as of December 31, 2005 for each of the five succeeding fiscal years is as follows:

Year	Amount
2006	$	1,163,000
2007	$	1,055,000
2008	$	823,000
2009	$	683,000
2010	$	591,000

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

6. Other Assets

      Other assets consisted of the following:

		December 31,
		2005		2004
Deferred rent receivable		$	158,000	$	38,000
Lease commissions, net of accumulated amortization of $10,000 and $0 at December 31, 2005 and 2004, respectively			158,000		77,000
Deferred financing costs, net of accumulated amortization of $92,000 and $109,000, at December 31, 2005 and 2004, respectively			331,000		34,000
Prepaid expenses, deposits and other			147,000		—
	Total other assets	$	794,000	$	149,000

7. Notes Receivable

      On April 13, 2005 we received a note receivable for $2,300,000 from the purchaser of Financial Plaza. The note is secured by the property and bears interest at a fixed rate of 8.0% per annum and matures on April 1, 2008. The note requires monthly interest-only payments to us.

8. Mortgage Loans Payable and Other Debt

      We have fixed and variable rate mortgage loans and mortgage loans secured by properties, including properties held for sale, of $93,492,000 and $23,625,000 as of December 31, 2005 and 2004, respectively. As of December 31, 2005 and 2004, the effective interest rates on mortgage loans ranged from 5.8% to 10.0% per annum and 4.49% to 10.50% per annum, respectively, and the weighted-average effective interest rate was 6.9% and 6.8% per annum, respectively. The loans mature at various dates through January 2016. As of December 31, 2005, none of our mortgage loans have monthly principal payments.

      Our properties financed by borrowings are required by the terms of the applicable loan documents to meet certain minimum loan to value, debt service coverage, performance covenants and other requirements on a combined and individual basis. As of December 31, 2005, we were in compliance with all such covenants.

      The principal payments due on notes payable for each of the next five years ending December 31 and thereafter are summarized as follows:

Year	Amount
2006	$	—
2007		19,257,000
2008		15,915,000
2009		—
2010		—
Thereafter		58,320,000
Total	$	93,492,000

Other Debt

      We have a margin securities account with the Margin Lending Program at Merrill Lynch which allows us to purchase securities on margin. The margin borrowing is secured by the securities purchased

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NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

and cannot exceed 50% of the fair market value of the securities purchased. If the balance of the margin account exceeds 50% of the fair market value of the securities held, we will be subject to a margin call and required to fund the account to return the margin to 50% of the fair market value of the securities. The margin securities account bears interest at the Merrill Lynch based lending rate, subject to additional interest on a sliding scale based on the value of the margin account. During the year ended December 31, 2005, we borrowed $1,315,000 and repaid $1,315,000 on margin. At December 31, 2005 and 2004, we did not have any margin liabilities outstanding.

9. Minority Interests

      Minority interests including property held for sale relate to the interests in the following consolidated limited liability company or limited partnership entities that are not wholly owned by us:

	Date		Minority
Entity	Acquired		Interests
NNN Enterprise Way, LLC		05/07/04		26.7%
NNN Executive Center, LLC		08/01/03		23.2%
NNN 801 K Street, LLC		03/31/04		15.0%
NNN Oakey Building 2003, LLC		04/02/04		24.6%
NNN 3500 Maple, LLC		12/27/05		1.0%

10. Unit Holders’ Equity

      Pursuant to our Private Placement Memorandum, we offered for sale to the public a minimum of 1,000 and a maximum of 10,000 units at a price of $5,000 per unit. We relied on the exemption from registration provided by Rule 506 under Regulation D and Section 4(2) of the Securities Act.

      There are three classes of units with different rights with respect to distributions. As of December 31, 2005 and 2004, 4,000 Class A units were issued, with aggregate gross proceeds of $20,000,000; 3,200 Class B units were issued with aggregate gross proceeds of $16,000,000 and 2,800 Class C units were issued with aggregate gross proceeds of $14,000,000. The rights and obligations of all unit holders are governed by the Operating Agreement.

      Cash from Operations, as defined in the Operating Agreement, is first distributed to all unit holders pro rata until all Class A unit holders, Class B unit holders and Class C unit holders have received a 10%, 9% and 8% cumulative (but not compounded) annual return on their contributed and unrecovered capital, respectively. In the event that any distribution of Cash from Operations is not sufficient to pay the return described above, all unit holders receive identical pro rata distributions, except that Class C unit holders do not receive more than an 8% return on their Class C units, and Class B unit holders do not receive more than a 9% return on their Class B units. Excess Cash from Operations is then allocated pro rata to all unit holders on a per outstanding unit basis and further distributed to the unit holders and our Manager based on predetermined ratios providing our Manager with a share of 15%, 20% and 25% of the distributions available to Class A units, Class B units and Class C units, respectively, of such excess Cash from Operations.

      Cash from Capital Transactions, as defined in the Operating Agreement, is first used to satisfy our debt and liability obligations; second, pro rata to all unit holders in accordance with their membership interests until all capital contributions are reduced to zero; and third, in accordance with the distributions as outlined above in the Cash from Operations.

      During the years ended December 31, 2005, 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, distributions of $352 per unit were declared, aggregating

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

approximately $3,493,000, $1,908,000 and $35,000 in distributions, respectively. Class A units, Class B units and Class C units have received identical per-unit distributions; however, distributions may vary among the three classes of units in the future.

      In connection with the sale of units, we incurred $0, $6,880,000 and $1,657,000 of costs related to the issuance and distribution of the units during the years ended December 31, 2005 and 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively. Such amounts include $0, $4,099,000, and $1,050,000 during the years ended December 31, 2005 and 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively, incurred to NNN Capital Corp., the dealer manager of our offering, which was wholly — owned by Anthony W. Thompson. These costs are comprised of selling commissions and marketing and due diligence expenses. The dealer manager reallowed all of the commissions and some of the marketing and due diligence expenses to participating broker dealers. In addition, $0, $2,567,000 and $568,000 was paid to our Manager for offering expenses during the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively.

11. Future Minimum Rent

Rental Income

      We have operating leases with tenants that expire at various dates through 2016 and in some cases subject to scheduled fixed increases or adjustments based on the consumer price index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, 2005, are summarized as follows:

Year Ending
2006		$	10,595,000
2007			12,569,000
2008			11,235,000
2009			10,789,000
2010			10,070,000
Thereafter			22,987,000
	Total	$	78,245,000

      A certain amount of our rental income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in excess of specified levels. For the years ended December 31, 2005, 2004, and for the period from June 19, 2003 (date of inception) through December 31, 2003 the amount of contingent rent earned by us was not significant.

12. Related Party Transactions

The Management Agreement

      Our Manager manages us pursuant to the terms of the Operating Agreement. While we have no employees, certain employees of our Manager provide connection with the Operating Agreement. In addition, Realty serves as our property manager pursuant to the terms of the Operating Agreement and property management agreement, or the Management Agreement, between us and Realty. The Operating Agreement terminates upon our dissolution. The unit holders may not vote to terminate our manager prior to the termination of the Operating Agreement or our dissolution except for cause. The Management

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Agreement terminates with respect to each of our properties upon the earlier of the sale of each respective property or 10 years from the date of acquisition. Realty may be terminated with respect to any of our properties without cause prior to the termination of the Management Agreement or our dissolution, subject to certain conditions, including the payment by us to Realty of a termination fee as provided in the Management Agreement.

      Pursuant to the Operating Agreement and the Management Agreement, Realty is entitled to receive the payments and fees described below:

Property Management Fees

      Realty is entitled to receive for its services in managing our properties a monthly management fee of up to 5.0% of the gross receipts revenue of the properties. For the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, we paid Realty management fees of $268,000, $272,000, and $0 respectively, of which 100.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

      Effective May 1, 2005, the Board of Managers and Realty renegotiated and amended the terms of the Management Agreement to reduce the property management fee paid by us to Realty to 5.0% of the gross receipts revenue from our properties.

Real Estate Commissions

      We pay Realty a real estate commission fee equal to the lesser of 3.0% of the sales price or 50.0% of the sales commission that would have been paid to third-party sales broker. For the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003 we paid Realty $829,000, $912,000, and $223,000, respectively, for real estate commission fees, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Real Estate Disposition Fees

      We pay Realty a real estate disposition fee equal up to 5.0% of the gross sales price of a property. For the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003 we paid Realty, $569,000, $0 and $0, respectively, for real estate disposition fees, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Lease Commissions

      We pay Realty a leasing commission fee for its services in leasing any of our properties equal to 6.0% of the value any lease entered into during the term of the Management Agreement and 3.0% with respect to any renewals. For the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003 we paid to Realty leasing commissions of $747,000, $0 and $0, respectively, of which 100.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Accounting Fees

      Our Manager is entitled to receive accounting fees for record keeping services provided to us. We paid our Manager accounting fees of $43,000, $10,000, and $0 for the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Construction Fees

      We pay Realty a construction fee for its services in supervising any construction or repair project in or about our properties equal to 5% of any amount up to $25,000, 4.0% of any amount over $25,000 but less than $50,000 and 3% of any amount over $50,000 which is expended in any calendar year for construction or repair projects. For, the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, we paid Realty construction fees $173,000, $0, and $0, respectively, of which 100.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Loan Fees

      We pay Realty a loan fee for its services in obtaining all loans obtaining by it for our properties during the term of the Property Management Agreement of 1.0% of the principal amount. For the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, $107,000, $0 and $0, respectively, was incurred to Realty for loan fees, of which 100.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Acquisition Fees

      We pay our Manager an acquisition fee for its services in connection with the due diligence investigation and acquisition of interests in real estate properties by us during the course of the investment and holding period in an amount equal to 4% of the funds raised in the Private Placement. We incurred acquisition fees of $0, $1,623,000 and $377,000 for the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively.

Related Party Accounts Receivable/ Payable

      Related party accounts receivable/payable consists primarily of amounts due from/to us for operating expenses incurred by us and paid by our Manager or agreed to be borne directly by our Manager as discussed above.

Advance from Our Manager

      As of December 31, 2005, the 3500 Maple property has an outstanding unsecured non-interest bearing advance in the amount of $1,385,000 due to our Manager.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Unconsolidated Debt Due to Related Parties

      Our properties may obtain secured or unsecured debt financing through one or more related parties, including our Manager or Cunningham. As of December 31, 2005, the following related party notes were outstanding:

Cunningham Lending Group, LLC

      The following unconsolidated properties have outstanding unsecured notes due to Cunningham at December 31, 2005. The notes bear interest at 8% per annum and are due one year from origination.

					NNN 2003
					Value Fund,
			Amount of		LLC’s Portion
Property/Issue Date			Loan		of Debt
Executive Center II & III:
	06/09/05		$	1,000,000	$	411,000
	09/12/05			200,000		82,000
	10/18/05			240,000		99,000
	11/14/05			5,000		2,000
		Total	$	1,445,000	$	594,000

Offering Expenses

Selling Commissions

      NNN Capital Corp., the dealer manager of our offering, or the Dealer Manager, which was solely owned during the offering period by Anthony Thompson, received selling commissions of up to 8.0% of the gross proceeds from the Private Placement, which were reallowed to the broker-dealer selling group. The Dealer Manager received selling commissions from us of $0, $2,944,000 and $954,000 for the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively, 100.0% of which were re-allowed to participating broker dealers.

Marketing and Due Diligence Expense Reimbursement Fees

      The Dealer Manager received non-accountable marketing and due diligence expense reimbursements from us of 1.5% of the aggregate gross offering proceeds from the Private Placement. The Dealer Manager received marketing and due diligence expense reimbursement fees of $0, $1,155,000 and $96,000 for the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively. The Dealer Manager may re-allow up to 1.0% of these fees to participating broker dealers.

Organization and Offering Expenses

      Our Manager bears some of our organization and offering costs incurred in our offerings. Our Manager was reimbursed by us for organizational and offering expenses up to 2.5% of the aggregate gross offering proceeds from our private placement of units. Our Manager was reimbursed $0, $944,000 and $191,000 for the years ended December 31, 2005 and 2004 and for the period from June 19, 2003 (date of inception) through December 31, 2003, respectively, for the reimbursement of organization and offering expenses incurred.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

13. Commitments and Contingencies

SEC Investigation

      On September 16, 2004, our Manager advised us that it learned that the SEC is conducting an investigation referred to as “In the matter of Triple Net Properties, LLC.” The SEC has requested information from our Manager relating to disclosure in public and private securities offerings sponsored by our Manager and its affiliates, or the Triple Net securities offerings (including our offering). The SEC has requested financial and other information regarding the Triple Net securities offerings and the disclosures included in the related offering documents. Our Manager has advised us that it believes it has and intends to continue to cooperate fully with the SEC’s investigation. This investigation could focus on or involve us and fines, penalties or administrative remedies could be asserted against us.

      We cannot at this time assess the outcome of the investigation by the SEC. Therefore, at this time, we have not accrued any loss contingencies in accordance with SFAS No. 5, Accounting for Contingencies.

Prior Performance Tables

      In connection with our offering of the sale of our units from July 11, 2003 through October 14, 2004, we disclosed the prior performance of all public and non-public investment programs sponsored by our Manager. Our Manager subsequently determined that there were certain errors in those prior performance tables. In particular, the financial information in the tables was stated to be presented in accordance with GAAP. Generally, the tables for the public programs were not presented on a GAAP basis and the tables for the non-public programs were prepared and presented on a tax or cash accounting basis. Moreover, a number of the prior performance data figures were themselves erroneous, even as presented on a tax or cash basis. In particular, certain programs sponsored by our Manager have invested either along side or in other programs sponsored by our Manager. The nature and results of these investments were not fully and accurately disclosed in the tables. In addition, certain calculations of depreciation and amortization were not on an income tax basis for a limited liability company investment; certain operating expenses were not reflected in the operating results; and monthly mortgage and principal payments were not reported. In general, the resulting effect is a total overstatement of our Manager’s program and aggregate portfolio operating results in an amount of approximately $1,730,000 for cash generated after payment of cash distributions.

      Our Manager’s board of managers, or the Board of Managers, has reviewed issues relating to addressing these errors in the prior performance tables. In connection with this review, our Manager, working with independent outside financial consultants, prepared revised prior performance tables, or the Revised Prior Performance Tables. The Revised Prior Performance Tables correct certain information which was included in our private placement memorandum dated July 11, 2003. A detailed explanation regarding the nature of the errors and a more detailed discussion and analysis of the overstatements and differences in operating results may be found in our Revised Prior Performance Tables that were filed as Appendix A to Amendment No. 5 to our Registration Statement on Form 10, filed on March 17, 2006.

Litigation

      Neither we nor any of our properties are presently subject to any other material litigation nor, to our knowledge, is any material litigation threatened against us or any of our properties which if determined unfavorably to us would have a material adverse effect on our cash flows, financial condition or results of operations. We are a party to litigation arising in the ordinary course of business, none of which if determined unfavorably to us, individually or in the aggregate, is expected to have a material adverse effect on our cash flows, financial condition or results of operations.

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

Environmental Matters

      We follow the policy of monitoring our properties for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, we are not currently aware of any environmental liability with respect to the properties that would have a material effect on our financial condition, results of operations and cash flows. Further, we are not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that we believe would require additional disclosure or the recording of a loss contingency.

Other

      Our commitments and contingencies include the usual obligations of real estate owners and operators in the normal course of business. In the opinion of management, these matters are not expected to have a material impact on our consolidated financial position and results of operations.

Unconsolidated Debt

      Total mortgage and other debt of unconsolidated properties was $50,851,000 and $160,771,000 at December 31, 2005 and 2004, respectively. Our share of unconsolidated debt based on our ownership percentage was $9,300,000 and $19,366,000 at December 31, 2005 and 2004, respectively.

			December 31, 2005				December 31, 2004
					NNN 2003				NNN 2003
			Mortgage		Value Fund,		Mortgage		Value Fund,
	Ownership		and Other		LLC’s Portion		and Other		LLC’s Portion
Property	Percentage		Debt Balance		of Debt		Debt Balance		of Debt
801 K Street		18.3%	$	—	$	—	$	41,350,000	$	7,557,000
Emerald Plaza		4.6%		—		—		68,500,000		3,117,000
Enterprise Technology Center		8.5%		35,580,000		3,024,000		36,177,000		3,076,000
Executive Center II & III		41.1%		15,271,000		6,276,000		14,744,000		5,616,000
			$	50,851,000	$	9,300,000	$	160,771,000	$	19,366,000

      On December 28, 2005, our Manager refinanced the Executive Center II & III property with LaSalle as follows: (i) a senior loan of $13,000,000 due January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 0.5% or LIBOR plus 2.25%, requiring interest-only payments; and (ii) a mezzanine loan of $3,000,000 due January 1, 2008, and at the borrower’s option, a rate equal to LaSalle’s prime rate plus 5.00% or LIBOR plus 7.60%, requiring interest-only payments until specified tenant lease payments begin, at which time an additional monthly principal payment of $25,000 will be required and applied to the mezzanine principal loan balance, or cumulatively the Bank Loans. Effective as of December 28, 2005, we obtained a waiver from LaSalle for noncompliance with a certain covenant of the Bank Loans which precludes us from having or incurring additional indebtedness which is not subordinated to the Bank Loans. This waiver allows us to subordinate the additional indebtedness to the Bank Loans and to cure our noncompliance with the covenant by June 27, 2006.

14. Discontinued Operations — Properties Held for Sale

      In accordance with SFAS No. 144, the net income (loss) and the net gain on dispositions of operating properties sold as of December 31, 2005 or classified as held for sale as of December 31, 2005 are reflected in the consolidated statement of operations as discontinued operations for all periods presented. For the years ended December 31, 2005 and 2004, discontinued operations included the net income (loss) of three properties sold and two properties held for sale at December 31, 2005. No

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

properties held for the period from June 19, 2003 (date of inception) through 2003 are considered discontinued.

Property	Date Purchased	Date Approved for Sale		Date Sold
3500 Maple Building	December 27, 2005		December 27, 2005	14% sold on February 10, 2006
Oakey Building	April 2, 2004		June 8, 2005	January 24, 2006
Southwood Tower	October 27, 2004		June 1, 2005	December 19, 2005
Financial Plaza	October 29, 2004		January 15, 2005	April 13, 2005
Satellite Place	November 29, 2004		December 17, 2004	February 24, 2005

      The following table summarizes the income (loss) and expense components that comprise discontinued operations for the years ended December 31, 2005 and 2004:

	Years Ended December 31,
	2005			2004
Rental income	$	3,826,000		$	2,215,000
Rental expenses		(1,540,000	)		(1,021,000	)
Depreciation and amortization		(813,000	)		(1,025,000	)
Income before other expense		1,473,000			169,000
Interest expense (including amortization of deferred financing costs)		(382,000	)		(363,000	)
Minority interests		(165,000	)		49,000
Income (loss) from discontinued operations — properties held for sale, net		926,000			(145,000	)
Gain on sale of real estate		5,802,000			—
Discontinued operations	$	6,728,000		$	(145,000	)

      A summary of the properties held for sale balance sheet information is as follows:

	December 31,		December 31,
	2005		2004
Operating properties, net of accumulated amortization of $139,000 and $214,000, at December 31, 2005 and 2004, respectively	$	62,019,000	$	30,209,000
Identified intangible assets, net of accumulated amortization of $0 and $1,564,000 at December 31, 2005 and 2004, respectively		15,622,000		5,932,000
Lease commissions, net of accumulated amortization of $39,000 and $3,000 at December 31, 2005 and 2004, respectively		658,000		71,000
Loan fees, net of accumulated amortization of $53,000 and $41,000 at December 31, 2005 and 2004, respectively		730,000		285,000
Other assets		851,000		259,000
Total Assets	$	79,880,000	$	36,756,000
Mortgage loans payable	$	67,077,000	$	19,125,000
Security deposits, prepaid rent and other liabilities		2,242,000		591,000
Total Liabilities	$	69,319,000	$	19,716,000
Minority interests	$	1,613,000	$	1,571,000

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NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

15. Tax Treatment of Distributions

      The income tax treatment for distributions reportable for the years ended December 31, 2005 and 2004, and the period from June 19, 2003 (date of inception) through December 31, 2003 was as follows:

									For the Period from
	Years Ended December 31,								June 19, 2003
									(Date of Inception)
									through
	2005				2004				December 31, 2003
Ordinary income	$	94,000	2.7	%	$	877,000	46.0	%	$	35,000	100.0	%
Capital gain		3,339,000	95.6	%		—	0.0	%		—	0.0	%
Return of capital		60,000	1.7	%		1,031,000	54.0	%		—	0.0	%
	$	3,493,000	100.0	%	$	1,908,000	100.0	%	$	35,000	100.0	%

16. Selected Quarterly Data (unaudited)

      Set forth below is certain unaudited quarterly financial information. We believe that all necessary adjustments, consisting only of normal recurring adjustments, have been included in the amounts stated below to present fairly, and in accordance with generally accepted accounting principles, the selected quarterly information when read in conjunction with the Financial Statements.

		Quarters Ended
		December 31,			September 30,			June 30,			March 31,
		2005			2005			2005			2005
Revenues		$	946,000		$	492,000		$	393,000		$	363,000
Expenses			2,024,000			638,000			778,000			515,000
	Loss before other income (expense) and discontinued operations		(1,078,000	)		(146,000	)		(385,000	)		(152,000	)
Other (expense) income			(195,000	)		39,000			(53,000	)		(189,000	)
	Equity in earnings (losses) and gain on sale of unconsolidated real estate		639,000			1,985,000			(273,000	)		159,000
Minority interests			92,000			(286,000	)		76,000			(48,000	)
Income (loss) from continuing operations			(542,000	)		1,592,000			(635,000	)		(230,000	)
Discontinued operations			2,765,000			224,000			3,139,000			600,000
Net income (loss)		$	2,223,000		$	1,816,000		$	2,504,000		$	370,000
Net income (loss) per unit — basic and diluted
	Continuing operations	$	(54.20	)	$	159.20		$	(63.50	)	$	(23.00	)
	Discontinued operations		276.50			22.40			313.90			60.00
Net income (loss) per unit — basic and diluted		$	222.30		$	181.60		$	250.40		$	37.00
Weighted-average number of units outstanding — basic and diluted			10,000			10,000			10,000			10,000

F-34

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

		Quarters Ended
		December 31,			September 30,			June 30,			March 31,
		2004			2004			2004			2004
Revenues		$	272,000		$	182,000		$	157,000		$	128,000
Expenses			520,000			660,000			620,000			547,000
Loss before other income (expense) minority interests and discontinued operations			(248,000	)		(478,000	)		(463,000	)		(419,000	)
Equity in earnings (losses) of unconsolidated real estate			(231,000	)		(120,000	)		(163,000	)		(168,000	)
Minority interests			26,000			30,000			37,000			40,000
Income (loss) from continuing operations			(453,000	)		(568,000	)		(589,000	)		(547,000	)
Discontinued operations			(62,000	)		(73,000	)		(10,000	)		—
Net income (loss)		$	(515,000	)	$	(641,000	)	$	(599,000	)	$	(547,000	)
Net income (loss) per unit — basic and diluted:
	Continuing operations	$	(45.30	)	$	(72.56	)	$	(136.06	)	$	(224.36	)
	Discontinued operations		(6.20	)		(9.33	)		(2.31	)		0.00
Net income (loss) per unit — basic and diluted		$	(51.50	)	$	(81.89	)	$	(138.37	)	$	(224.36	)
Weighted-average number of units outstanding — basic and diluted			10,000			7,828			4,329			2,438

17. Business Combinations

      During the year ended December 31, 2005, we completed the acquisition of three consolidated office properties, thereby adding a total of 648,000 square feet of GLA to our consolidated property portfolio. The aggregate purchase price of the properties was $97,362,000, of which $79,735,000 was financed with mortgage debt. In accordance with SFAS No. 141, we allocated the purchase price of the properties to the fair value of the assets acquired and the liabilities assumed, including the allocation of the intangibles associated with the in-place leases considering the following factors: lease origination costs; tenant relationships; and above or below market leases. During 2005, we allocated and recorded $19,963,000 of intangible assets associated with in-place lease origination costs and tenant relationships, as well as above market leases; on certain acquisitions, we recorded lease intangible liabilities related to the acquired below market leases of $353,000. Certain allocations as of December 31, 2005 are subject to change.

      In 2005, we also purchased a 9.05 acre land parcel with three buildings, consisting of an 864 square foot detached garage, an 810 square foot log cabin and a 1,392 square foot manufactured house. The property was purchased from an unaffiliated third party for a cash purchase price of $731,000. We intend to explore development of the land into public storage units.

      In addition, three consolidated properties were sold during the year ended 2005, and one was listed for sale at the end of December 31, 2005 as discussed in Note 3.

      During the year ended December 31, 2004, we completed the acquisition of three wholly-owned properties and a 75.4% interest in a limited liability company, or LLC, that owns one property adding a total of 441,000 square feet of GLA to our consolidated property portfolio. We also acquired interests in three LLCs: an 85.0% interest in NNN 801 K, LLC, which owns a 21.5% interest in a property; a 73.3% interest in NNN Enterprise Way, LLC, which owns a 11.6% interest in a property; and a 22.2% interest NNN Emerald Plaza, LLC, which owns a 20.5% interest in a property. The properties are equity basis

F-35

NNN 2003 VALUE FUND, LLC

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS — (Continued)

investments for these LLCs. The LLCs, with the exception of NNN Emerald Plaza, LLC, are consolidated for financial reporting purposes; NNN Emerald Plaza, LLC is an equity basis investment. The aggregate purchase price of our consolidated property acquisitions was $37,558,000, of which $19,125,000 was financed with mortgage debt. In accordance with SFAS No. 141, we allocated the purchase price to the fair value of the assets acquired and the liabilities assumed, including the allocation of the intangibles associated with the in-place leases considering the following factors: lease origination costs; tenant relationships; and above or below market leases. During 2004, we have allocated and recorded $4,742,000 of intangible assets associated with in-place lease origination costs and tenant relationships, as well as above market leases.

      Assuming all of the 2005 and 2004 acquisitions and dispositions had occurred on January 1, 2004, pro forma revenues, net loss and net loss per diluted unit would have been $3,582,000, $(1,177,000) and $(117.70), respectively, for the year ended December 31, 2005; and $3,243,000, $(3,735,000) and $(606.53), respectively, for the year ended December 31, 2004. The pro forma results are not necessarily indicative of the operating results that would have been obtained had the acquisitions occurred at the beginning of the periods presented, nor are they necessarily indicative of future operating results.

18. Subsequent Events

      On January 12, 2006 our 76.8% interest in NNN Executive Center, LLC was converted into a 38.1% TIC interest in the Executive Center II & III property, which was our effective ownership of the underlying property through Executive Center, LLC before the conversion. On October 13, 2005, we bought a 3% TIC interest in Executive Center II & III property from an existing unaffiliated TIC for $441,000. As a result of the purchase of the 3% TIC interest and the conversion of our ownership in Executive Center, LLC, we now own a 41.1% TIC interest in the property.

      Effective January 17, 2006, Kelly J. Caskey resigned as our chief financial officer.

      Effective January 17, 2006, Michael F. O’Flynn was appointed as our chief accounting officer.

      On January 24, 2006, our Manager sold the Oakey Building located in Las Vegas, Nevada, of which we owned a 75.4% interest, to an unaffiliated third party for a total sales price of $22,250,000. A rent guaranty of $1,424,000 was held in escrow and will be paid to the purchaser on a monthly basis over time. Our cash proceeds were $7,278,000 after closing costs and other transaction expenses. A property disposition fee of $500,000, or 2.2% of the total sales price, was paid to Realty, of which 75.0% was passed through to our Manager pursuant to the Realty-Triple Net Agreement. Sales commissions of $668,000, or 3.0% of the total sales price, were paid to unaffiliated brokers.

      On February 3, 2006, we repaid the $1,385,000 advance due to our Manager related to the purchase of the 3500 Maple property.

      On February 10, 2006, our Manager sold in an affiliated transaction the 14.0% of the 3500 Maple property located in Dallas, Texas, for a total sales price of $9,381,000 to TICs. Our cash proceeds were $3,161,000 after closing costs and other transaction expenses. Our interest in the property has decreased from 99.0% to 85.0%. In conjunction with the sale, the $6,581,000 loan on the property was assumed by the buyers on a joint and several basis. We expect to sell our remaining interests in the property to TICs through other affiliated transactions in 2006.

      On March 9, 2006, our Manager approved the repurchase of 30 units in the amount of $134,000.

      On March 29, 2006, we paid a special distribution of $2,500,000, or $250.75 per unit, which approximates the taxable share of our 2005 income to our unit holders when added to the 2005 distributions already paid.

F-36

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

To the Owners of

801 K Street

      We have audited the accompanying balance sheets of 801 K Street, (the “Property”), as of December 31, 2005 and 2004 and the related statements of operations, owners’ equity, and cash flows for the year ended December 31, 2005 and for the period from March 31, 2004 (date of purchase) through December 31, 2004. These financial statements are the responsibility of the Property’s management. Our responsibility is to express an opinion on these financial statements based on our audits.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audits to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Property is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, 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 the Property as of December 31, 2005 and 2004, and the results of its operations and its cash flows for the year ended December 31, 2005 and for the period from March 31, 2004 (date of purchase) through December 31, 2004 in conformity with accounting principles generally accepted in the United States of America.

/s/ Squar, Milner, Reehl and Williamson, LLP

March 15, 2006

F-37

801 K STREET, A REAL ESTATE PROPERTY

BALANCE SHEETS

December 31, 2005 and 2004

	2005		2004
ASSETS
Real estate property, held for sale, net	$	—	$	55,051,000
Cash and cash equivalents		63,000		757,000
Other receivables		33,000		59,000
Intangible assets, net		—		9,774,000
Other assets, net		—		1,104,000
	$	96,000	$	66,745,000
LIABILITIES AND OWNERS’ EQUITY
Accounts payable and accrued liabilities	$	29,000	$	1,376,000
Intangible liabilities, net		—		409,000
Security deposits and prepaid rent		—		48,000
Accounts payable to related parties		—		9,000
Mortgage loan payable		—		41,350,000
		29,000		43,192,000
Commitments and contingencies (Note 8)
Owners’ equity		67,000		23,553,000
	$	96,000	$	66,745,000

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

F-38

801 K STREET, A REAL ESTATE PROPERTY

STATEMENTS OF OPERATIONS

For the Year Ended December 31, 2005 and for the Period

March 31, 2004 (Date of Purchase) through December 31, 2004

					For the Period
					March 31, 2004
					(Date of
		Year Ended			Purchase) through
		December 31,			December 31,
		2005			2004
Revenues:
	Rental income	$	4,737,000		$	5,733,000
	Parking income and tenant reimbursements		381,000			354,000
			5,118,000			6,087,000
Operating expenses:
	Rental expenses		2,146,000			2,374,000
	General and administrative		169,000			83,000
	Depreciation and amortization		198,000			2,618,000
			2,513,000			5,075,000
Operating income			2,605,000			1,012,000
Gain on sale of property			9,851,000			—
Interest expense			(826,000	)		(1,113,000	)
Net income (loss)		$	11,630,000		$	(101,000	)

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

F-39

801 K STREET, A REAL ESTATE PROPERTY

STATEMENTS OF OWNERS’ EQUITY

For the Year Ended December 31, 2005 and for the Period

March 31, 2004 (Date of Purchase) through December 31, 2004

	NNN 801 K			Unaffiliated Tenant in
	Street, LLC			Common Interest			Total
BALANCE — March 31, 2004 (Date of Purchase)	$	—		$	—		$	—
Contributions		5,421,000			19,713,000			25,134,000
Distributions		(318,000	)		(1,162,000	)		(1,480,000	)
Net loss		(22,000	)		(79,000	)		(101,000	)
BALANCE — December 31, 2004		5,081,000			18,472,000			23,553,000
Distributions		(7,505,000	)		(27,611,000	)		(35,116,000	)
Net income		2,439,000			9,191,000			11,630,000
BALANCE — December 31, 2005	$	15,000		$	52,000		$	67,000

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

F-40

801 K STREET, A REAL ESTATE PROPERTY

STATEMENTS OF CASH FLOWS

For the Year Ended December 31, 2005 and for the Period

March 31, 2004 (Date of Purchase) through December 31, 2004

						For The Period March 31, 2004
			Year Ended			(Date of Purchase) through
			2005			December 31, 2004
CASH FLOWS FROM OPERATING ACTIVITIES
Net income (loss)			$	11,630,000		$	(101,000	)
Adjustments to reconcile net income (loss) to net cash provided by operating activities:
	Depreciation and amortization (including deferred financing costs, above/below market leases, and deferred rent)			19,000			2,214,000
	Gain on sale of real estate			(9,851,000	)		—
	Changes in operating assets and liabilities:
		Other receivables		440,000			(474,000	)
		Other assets		(410,000	)		(854,000	)
		Accounts payable and accrued liabilities		(1,128,000	)		1,386,000
		Security deposits and prepaid rent		(25,000	)		48,000
Net cash provided by operating activities				675,000			2,219,000
CASH FLOWS FROM INVESTING ACTIVITIES
Proceeds from sale of real estate property				75,097,000			—
Acquisition of real estate property				—			(56,046,000	)
Acquisition of intangible assets, net of intangible liabilities				—			(10,420,000	)
Net cash provided by (used in) investing activities				75,097,000			(66,466,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions				—			25,134,000
Distributions				(35,116,000	)		(1,480,000	)
Repayment of note payable				(41,350,000	)		—
Proceeds from note payable				—			41,350,000
Borrowings from related parties				317,000			—
Repayments to related parties				(317,000	)		—
Net cash (used in) provided by financing activities				(76,466,000	)		65,004,000
NET (DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS				(694,000	)		757,000
CASH AND CASH EQUIVALENTS — beginning of period				757,000			—
CASH AND CASH EQUIVALENTS — end of period			$	63,000		$	757,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest			$	708,000		$	1,096,000
Income taxes			$	41,000		$	—

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

F-41

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS

For the Year Ended December 31, 2005 and for the Period

March 31, 2004 (Date of Purchase) through December 31, 2004

1. ORGANIZATION

      On March 31, 2004, NNN 801 K Street, LLC, or NNN, and unaffiliated tenants-in-common, or TICs, (collectively the “Owners”) acquired a Class A 28-story office building with 336,000 square feet of gross leasable area located at 801 K Street, Sacramento, California, or the Property. The Property was purchased from an unaffiliated third party for a total purchase price of $65,780,000.

      On August 26, 2005, the Property was sold to an unaffiliated purchaser for $79,350,000, or the Sale. The Sale resulted in an approximately $9,851,000 net realizable gain to the Owners. The remaining assets as of December 31, 2005 represent undistributed amounts to the Owners and remaining assets and liabilities requiring final settlement.

      The Property was owned by the following interest holders as TICs:

Tenants-in-Common	Interest Held
NNN 801 K Street, LLC		21.5%
Unaffiliated third parties (combined)		78.5%

      Through the date of disposition NNN, which owns an aggregate 21.5% interest in the Property, was owned by the following members, with the proportionate membership interest and interest in the Property as listed below:

	Membership Interest in		Interest in 801 K
Members	NNN 801 K Street, LLC		Street Property
NNN 2003 Value Fund, LLC		85.0%		18.3%
Unaffiliated members (combined)		15.0%		3.2%

      The Owners as tenants in common directly own the Property, and share in profit and losses of the Property on a pro-rata basis.

      The Property is managed by Triple Net Properties, LLC, or the Manager, pursuant to the terms of an operating agreement, or the Operating Agreement. Triple Net Properties Realty, Inc., or Realty, an affiliate of Triple Net Properties, LLC, which is 84% owned by Anthony W. Thompson, the Manager’s chief executive officer and chairman, and 16% owned by Louis J. Rogers, president of the Manager, serves as the property manager pursuant to the terms of the Operating Agreement and a property management agreement, or the Management Agreement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Accounting and Presentation

      The summary of significant accounting policies presented below is designed to assist in understanding the Property’s financial statements. Such financial statements and accompanying notes are the representations of the Property’s management, who are responsible for their integrity and objectivity. These accounting policies conform to Generally Accepted Accounting Principles in the United States of America, or GAAP, in all material respects, and have been consistently applied in preparing the accompanying financial statements.

      Certain reclassifications have been made to the financial statements for the period March 31, 2004 (date of purchase) through December 31, 2004, to make their presentation consistent with the financial statements for the year ended December 31, 2005.

F-42

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

Use of Estimates

      The preparation of financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at December 31, 2005 and 2004, the reported amounts of revenues and expenses for the reporting periods then ended. Significant estimates made by management include, among others, provisions for losses on accounts receivable and realization of long-lived assets and intangible assets. Actual amounts could materially differ from those estimates.

Cash and Cash Equivalents

      Cash and cash equivalents consist of all highly liquid investments with a maturity of three months or less when purchased

Allowance for Uncollectible Accounts

      Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. Management’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. At December 31, 2005 and 2004, the allowance for uncollectible accounts was $0 and $1,000, respectively.

Concentration of Credit Risk

      The Property maintains substantially all of its day-to-day operating cash at one financial institution. At times, cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation.

      The Property extends credit to tenants based on financial condition and generally collects security deposits. The accounting loss, should a tenant be unable to meet its obligation to the Property, would be equal to the recorded account receivable and deferred lease concessions, if any, less the related security deposit.

      For the year ended December 31, 2005, one tenant accounted for 10% or more of the Property’s aggregate annual rental income calculated on an annualized basis as follows:

		Percentage
		of 2005				Lease
	2005 Base	Annual		Square Footage		Expiration
Tenant	Rent*	Base Rent		(Approximately)		Date
State of CA, Dept of Conservation	$5,696,000		78.7%		204,000		1/31/2014

      For the period from March 31, 2004 (date of purchase) through December 31, 2004, one tenant accounted for 10% or more of the Property’s aggregate annual rental income calculated on an annualized basis as follows:

		Percentage
		of 2004				Lease
	2004 Base	Annual		Square Footage		Expiration
Tenant	Rent*	Base Rent		(Approximately)		Date
State of CA, Dept of Conservation	$5,692,000		79.3%		204,000		1/31/2014

*  Annualized rental income is based on contractual base rent set forth in lease in effect at August 26, 2005 (date of Sale) and December 31, 2004, respectively.

F-43

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

      The Property is located in Sacramento, California; accordingly, there is a geographic concentration of risk subject to fluctuations in the local economy.

      Additionally, Property’s operations are dependent upon the real estate industry, which is historically subject to fluctuations in the local, regional and national economies.

Long-Lived Assets

      In July 2001, the Financial Accounting Statements Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS No. 144 also requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to shareholders) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

      This Property was classified as held for sale under SFAS No. 144 beginning on February 1, 2005. Concurrent with the held for sale classification, amortization of long lived assets was ceased. As of December 31, 2005 the Property, had been sold at a net realizable gain of $9,851,000 and all long lived assets are $0. The net realized gain on sale is classified as gain from sale of property in the accompanying financial statements. As of December 31, 2004, long lived assets were recorded at the lower of cost or fair value less cost to sell.

      The sale was not accounted for as discontinued operations under SFAS No. 144 as the Property was a single purpose investment. As such, there are no ongoing operations from which to separate the discontinued operations.

Real Estate Property, Held for Sale

      Real estate rental property is stated at cost, net of depreciation. Major additions and improvements are capitalized, while replacements, maintenance and repairs, which do not significantly improve or extend the useful life of the property, are expensed. The building is depreciated using the straight-line method over 39 years. Tenant improvements are depreciated over either the useful economic life or lease term, whichever is shorter.

      The operating property is carried at the lower of historical cost less accumulated depreciation or estimated fair value. The cost of the operating property includes the cost of land and completed building and related improvements. Expenditures that increase the service life of property are capitalized; the cost of maintenance and repairs is charged to expense as incurred. The cost of building and improvements are depreciated on a straight-line basis over the estimated useful lives of the building and improvements, ranging primarily from 15 to 39 years for the building and the shorter of the lease term or useful life, ranging from one to 10 years for tenant improvements. When depreciable property is retired or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss reflected in operations.

Purchase Price Allocation

      In accordance with SFAS No. 141, “Business Combinations”, the Property, with the assistance of independent valuation specialists, allocate the purchase price of acquired properties to tangible and

F-44

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

identified intangible assets based on their respective values. The allocation to tangible assets (building and land) is based upon management’s determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered by management include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases, the value of in-place leases and related tenant relationships.

      The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) management’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in the intangible in-place lease asset and below market lease values are included in intangible lease liability in the accompanying financial statements and are amortized to rental income over the weighted average remaining term of the acquired leases.

      The total amount of other intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and the Property’s overall relationship with that respective tenant. Characteristics considered in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors. These allocations are subject to change based on continuing valuation analysis or other evidence, until the allocations are finalized or the stipulated time of one year from the date of acquisition.

Other Assets

      Other assets consist primarily of deferred rent receivables, loan fees and prepaid expenses. Loan fees and other loan costs are amortized over the term of the respective loan using a method that approximates the effective interest method.

Revenue Recognition

      In accordance with SFAS No. 13, “Accounting for Leases,” minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tents for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. At December 31, 2005 and 2004, deferred rent receivables of approximately $0 and $414,000 are included in other assets the accompanying balance sheets.

Fair Values of Financial Instruments

      SFAS No. 107, “Disclosures About Fair Value of Financial Instruments,” requires disclosure of fair value information about financial instruments when it is practicable to estimate that value. Management believes that the carrying amounts of the Property’s financial instruments, consisting primarily of cash, accounts receivables and accounts payable and accrued liabilities approximated their fair values at December 31, 2005 and 2004, due to their short-term nature.

      Management also believes that the December 31, 2004 interest rate associated with the note payable secured by real estate approximates the market interest rate for this type of debt instrument, based on tenants, lease duration, rental markets and credit worthiness and as such, the carrying amount of the note

F-45

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

payable approximates its fair value. There were no notes payable as of December 31, 2005. The fair value of related party transactions is not determinable due to their related party nature.

Derivative Financial Instruments

      The Property is exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures which include the occasional use of derivatives. Our primary strategy in entering into derivative contracts is to minimize the volatility that changes in interest rates could have on its future cash flows. We employ derivative instruments, including interest rate swaps and caps, to effectively convert a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes.

      Derivatives are recognized as either assets or liabilities in the balance sheet and measured at fair value in accordance with SFAS No. 133, “Derivative Instruments and Hedging Activities”. Changes in fair value are included as a component of interest expense in the consolidated statement of operations in the period of change.

Income Taxes

      The Property, as a whole, is not a taxable entity. The profits and losses resulting from the Property’s operations are to be included in the respective Owners’ income tax returns. Accordingly, no provision for income taxes is reflected in the accompanying financial statements.

Recently Issued Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS No. 3.” SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior periods financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate effected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material effect on the Property’s financial statements.

      In June 2005, the FASB ratified its consensus in Emerging Issues Task Force, or EITF, Issue 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (Issue 04-05). The effective date for Issue 04-05 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 is not expected to have a material effect on the Property’s financial statements.

      In November 2005, the FASB issued FASB Staff Position, or FSP, Nos. FAS 115-1 and FAS 124-1 which address the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The adoption of FSP Nos. FAS 115-1 and FAS 124-1 is not expected to have a material effect on the Property’s financial statements.

F-46

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

3. REAL ESTATE RENTAL PROPERTY, HELD FOR SALE

      Real estate rental property, held for sale consists of the following as of December 31:

	2005		2004
Land	$	—	$	4,291,000
Building and building improvements		—		51,267,000
Tenant improvements		—		488,000
		—		56,046,000
Accumulated depreciation and amortization		—		(995,000	)
	$	—	$	55,051,000

4. INTANGIBLES

      In connection with the purchase of the Property and in accordance with SFAS No. 141 and Emerging Issues Task Force (“EITF”) 98-3, “Determining Whether a Nonmonetary Transaction Involves Receipt of Productive Assets or of a Business”, the Property had a third-party valuation firm estimate the fair value of the acquired Property and the consideration given. Based on this independent valuation, management recorded identified intangible assets related to in-place leases and tenant relationships, or the Intangible Assets, in connection with the Property. The Intangible Assets were amortized over 102 to 148 months.

      As of December 31, 2005 and 2004, the net book value of the Intangible Asset was $0 and $9,774,000, net amortization of $0 and $924,000, respectively.

      In addition, based on the independent valuation, management recorded an identified intangible liability related to below market leases (“Intangible Liability”) in connection with the Property. The Intangible Liability was amortized over 36 months. As of December 31, 2005 and 2004, the net book value of the Intangible Liability was $0 and $409,000, net of amortization of $0 and $132,000, respectively.

      The property was sold on August 26, 2005, accordingly there is no amortization expense for intangible assets for each of the next five years.

5. OTHER ASSETS

      Other assets consist of the following as of December 31:

	2005		2004
Deferred financing costs, net of accumulated amortization of $0 and $158,000 at December 31, 2005 and 2004, respectively	$	—	$	473,000
Leasing commissions, net of accumulated amortization of $0 and $6,000 at December 31, 2005 and 2004 respectively		—		217,000
Deferred rent receivables		—		414,000
	$	—	$	1,104,000

6. MORTGAGE LOAN PAYABLE

      In March 2004, the Owners entered into a mortgage loan payable (the “Note”) in the amount of $41,350,000, net of loan holdbacks of $3,650,000, to finance the purchase of the Property. The Note had an initial term maturity of March, 31, 2007. The variable interest rate on the Note was 2.0% per annum in excess of the London Inter-Bank Offer Rate (“LIBOR”). The interest rate was 5.1% at December 31, 2004 and interest only payments commenced May 1, 2004 and on the first day of each succeeding month.

F-47

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

The Note was secured by the Property and an assignment of rents and leases from the Property. As of December 31, 2005, the Note had been repaid in full with escrow proceeds from the Sale of the Property.

7. DERIVATIVE FINANCIAL INSTRUMENTS

      Derivatives are recognized as either assets or liabilities in the balance sheet and measured at fair value in accordance with SFAS No. 133, “Derivative Instruments and Hedging Activities”. Changes in fair value are included as a component of interest expense in the statement of operations in the period of change. The Property recorded $457,000 and $0 as a decrease to interest expense for the years ended December 31, 2005 and 2004, respectively. An interest rate cap was purchased during the year ended December 31, 2004 and was terminated during the year ended December 31, 2005. As of December 31, 2005 there were no derivatives outstanding

8. COMMITMENT AND CONTINGENCIES

Environmental Matters

      The Property’s management follows the policy of monitoring the Property for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, the Property’s management are not currently aware of any environmental liability with respect to the Property that would have a material effect on its financial condition, results of operations and cash flows. Further, the Property’s management its not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that management believes would require additional disclosure or the recording of a loss contingency.

Other Matters

      Other commitments and contingencies include the usual obligations of a real estate property in the normal course of business. In the opinion of the Property’s management, these matters are not expected to have a material adverse effect on the Property’s financial position and/or results of operations.

9. FUTURE MINIMUM RENT

      As the Property was sold on August 26, 2005, there are no future minimum rentals as of December 31, 2005.

10. RELATED PARTY TRANSACTIONS

Property Management Fees

      Concurrently with the purchase of the Property, the Owners entered into the Management Agreement with Realty. Under the terms of the Management Agreement, the Property is to pay a property management fee of up to six percent of the gross revenues, as defined, from the operations of the Property. In addition, the Property is to reimburse Realty for out-of-pocket and on-site personnel costs, as defined. For the year ended December 31, 2005 and for the period March 31, 2004 (date of purchase) through December 31, 2004, the Property recorded approximately $296,000 and $323,000, respectively, of property management fees which were included in rental expenses on the accompanying statement of operations. At December 31, 2005 and 2004, due to affiliate totaled approximately $0 and $9,000, respectively, consisting of fees due to Realty.

F-48

801 K STREET, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

Real Estate Commissions

      In connection with the purchase of the Property, the seller paid Realty a sales commission of $1,500,000, or 2.3% of the total purchase price, of which 75.0% was passed through to our Manager pursuant to an agreement between the Manager and Realty, or the Realty-Triple Net Agreement.

      Real estate commissions were paid to Realty for the Sale of the Property in the amount of $2,550,000, of which 75.0% of this commission was passed through to the Manager pursuant to the Realty-Triple Net Agreement. Sales commissions of $550,000 were paid to unaffiliated brokers.

Debt Due to Related Parties

      We may obtain secured or unsecured debt financing through one or more related parties, including Cunningham Lending Group, LLC, or Cunningham, an entity wholly owned by Anthony W. Thompson, the Manager’s chief executive officer. During the year ended December 31, 2005 we borrowed $317,000 from Cunningham and repaid $317,000 to Cunningham. No amount is outstanding as of December 31, 2005.

F-49

REPORT OF INDEPENDENT REGISTERED

PUBLIC ACCOUNTING FIRM

To the Owners of
Executive Center II & III

      We have audited the accompanying balance sheet of the Executive Center II & III Property (collectively, the “Property”), as of December 31, 2005, and the related statement of operations, owners’ equity and cash flows for the year ended December 31, 2005. These financial statements are the responsibility of the Property’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audit in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Property is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Property’s internal control over financial reporting. Accordingly, we express no such opinion. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides 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 the Property as of December 31, 2005, and the results of its operations and its cash flows for the year ended December 31, 2005 in conformity with accounting principles generally accepted in the United States of America.

/s/ Squar, Milner, Reehl & Williamson, LLP

March 15, 2006
Newport Beach, California

F-50

REPORT OF INDEPENDENT REGISTERED PUBLIC ACCOUNTING FIRM

Owners
Executive Center II & III

      We have audited the accompanying balance sheets of Executive Center II & III Property (collectively, the “Company”) as of December 31, 2004 and 2003, and the related statement of operations, owners’ equity, and cash flows for the year ended December 31, 2004 and the period from August 1, 2003 (date of acquisition) through December 31, 2003. These financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements based on our audit.

      We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. The Company is not required to have, nor were we engaged to perform, an audit of its internal control over financial reporting. Our audits included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the Company’s internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

      In our opinion, such 2004 financial statements present fairly, in all material respects, the financial position of the Executive Center II & III, Property, as of December 31, 2004 and 2003, and the results of their operations and their cash flows for the year ended December 31, 2004 and the period from August 1, 2003 through December 31, 2003 in conformity with accounting principles generally accepted in the United States of America.

/s/ Deloitte & Touche, LLP

Los Angeles, California
May 2, 2005

F-51

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

BALANCE SHEETS

December 31, 2005 and 2004

	2005		2004
ASSETS
Real estate rental property, net	$	15,660,000	$	15,922,000
Cash and cash equivalents		193,000		189,000
Restricted cash		—		134,000
Accounts receivable		34,000		259,000
Intangible assets, net		4,268,000		5,774,000
Other assets, net		3,349,000		464,000
	$	23,504,000	$	22,742,000
LIABILITIES AND OWNERS’ EQUITY
Accounts payable and accrued liabilities	$	1,345,000	$	739,000
Security deposits and prepaid rent		220,000		119,000
Accounts payable to related parties		17,000		71,000
Mortgage loans payable		12,622,000		14,744,000
Note payable to related parties		2,650,000		—
		16,854,000		15,673,000
Commitments and contingencies (Note 8)
Owners’ equity		6,650,000		7,069,000
	$	23,504,000	$	22,742,000

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

F-52

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

STATEMENTS OF OPERATIONS

For the Years Ended December 31, 2005 and 2004 and the

Period from August 1, 2003 through December 31, 2003

								Period from
								August 1, 2003
		Years Ended December 31,						through
								December 31,
		2005			2004			2003
Revenues:
	Rental income	$	3,891,000		$	4,949,000		$	2,008,000
Operating expenses:
	Rental expenses		2,613,000			3,539,000			1,269,000
	General and administrative		174,000			50,000			21,000
	Depreciation and amortization		1,636,000			1,476,000			609,000
			4,423,000			5,065,000			1,899,000
Operating income (loss)			(532,000	)		(116,000	)		109,000
Interest expense (including amortization of deferred financing costs)			(1,092,000	)		(956,000	)		(417,000	)
Other income			46,000			5,000			41,000
Net loss		$	(1,578,000	)	$	(1,067,000	)	$	(267,000	)

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

F-53

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

STATEMENTS OF OWNERS’ EQUITY

For the Years Ended December 31, 2005 and 2004, and the

Period from August 1, 2003 through December 31, 2003

BALANCE — August 1, 2003 (date of acquisition)		—
Contributions, net of offering costs	$	9,792,000
Distributions		(361,000	)
Net loss		(267,000	)
BALANCE — December 31, 2003		9,164,000
Distributions		(1,028,000	)
Net loss		(1,067,000	)
BALANCE — December 31, 2004,		7,069,000
Contributions		1,502,000
Distributions		(343,000	)
Net loss		(1,578,000	)
BALANCE — December 31, 2005	$	6,650,000

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

F-54

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

STATEMENTS OF CASH FLOWS

For the Years Ended December 31, 2005 and 2004 and the

Period from August 1, 2003 through December 31, 2003

			Years Ended December 31,						Period from August 1,
									2003 through
			2005			2004			December 31, 2003
CASH FLOWS FROM OPERATING ACTIVITIES
Net loss			$	(1,578,000	)	$	(1,067,000	)	$	(267,000	)
Adjustments to reconcile net loss to net cash (used in) provided by operating activities:
	Depreciation and amortization (including deferred financing costs, above/below market leases, and deferred rent)			1,441,000			2,434,000			982,000
	Provision for doubtful accounts			—			2,000			—
	Changes in operating assets and liabilities:
		Accounts receivable		225,000			(261,000	)		—
		Other assets		(2,187,000	)		(274,000	)		(206,000	)
		Accounts payable and accrued liabilities		606,000			(89,000	)		711,000
		Accounts payable to related parties		(54,000	)		—			—
		Security deposits and prepaid rent		101,000			2,000			56,000
Net cash (used in) provided by operating activities				(1,446,000	)		747,000			1,276,000
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of and additions to real estate operating properties				—			—			(24,721,000	)
Capital improvements				(371,000	)		(39,000	)		(31,000	)
Restricted cash				134,000			363,000			(163,000	)
Net cash (used in) provided by investing activities				(237,000	)		324,000			(24,915,000	)
CASH FLOWS FROM FINANCING ACTIVITIES
Contributions				1,502,000			—			9,792,000
Distributions				(343,000	)		(1,028,000	)		(361,000	)
Borrowings on mortgage notes payable				5,017,000			—			14,950,000
Repayments on mortgage notes payable				(4,489,000	)		(147,000	)		(59,000	)
Payment of deferred financing costs				—			(149,000	)		(241,000	)
Net cash provided by (used in) financing activities				1,687,000			(1,324,000	)		24,081,000
NET INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS				4,000			(253,000	)		442,000
CASH AND CASH EQUIVALENTS — beginning of year				189,000			442,000			—
CASH AND CASH EQUIVALENTS — end of year			$	193,000		$	189,000		$	442,000
SUPPLEMENTAL DISCLOSURE OF CASH FLOW INFORMATION
Cash paid during the year for:
Interest			$	970,000		$	753,000		$	255,000
Income taxes			$	47,000		$	—		$	—

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

F-55

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS

For the Years Ended December 31, 2005 and 2004 and the

Period from August 1, 2003 through December 31, 2003

1. ORGANIZATION

      On August 1, 2003 NNN Executive Center, LLC and unaffiliated tenant-in-common, or TICs, (collectively the “Owners,”) acquired two Class A office buildings with 381,000 square feet of gross leaseable area, located in Dallas, Texas, referred to as Executive II & III, or the Property.

      As of December 31, 2005, the Property is owned by the following interest holders as TICs:

Tenants-in-Common		Interest Held
NNN Executive Center, LLC			49.6%
NNN Executive Center II & III 2003, LP (wholly owned by NNN
	2003 Value Fund, LLC)		3.0%
Unaffiliated third parties (combined)			45.9%
AWT Family, L.P., a limited partnership wholly owned by Anthony W. Thompson			1.5%

      As of December 31, 2005, NNN Executive Center, LLC, which owns an aggregate 49.6% interest in the Property, is owned by the following members, with the proportionate membership interest listed respectively:

	Membership Interest		Interest in Executive
	in NNN Executive		Center II & III
Members	Center, LLC		Property
NNN 2003 Value Fund, LLC		76.8%		38.1%
Unaffiliated members (combined)		23.2%		11.5%

      The Owners, as TICs, directly own the Property and share in profit and losses of the Property on a pro-rata basis.

      Effective May 1, 2005, the Property’s Manager (as defined below) suspended distributions from the Property, due to the modification of a significant tenant lease resulting in reduced revenues.

      The Property is managed by Triple Net Properties, LLC, or the Manager, pursuant to the terms of an operating agreement, or the Operating Agreement. Triple Net Properties Realty, Inc., or Realty, an affiliate of Triple Net Properties, LLC, which is 84% owned by Anthony W. Thompson, the Manager’s chief executive officer and chairman, and 16% owned by Louis J. Rogers, president of the Manager, serves as the property manager pursuant to the terms of the Operating Agreement and a property management agreement, or the Management Agreement.

      The Property was purchased from an unaffiliated third party for a purchase price of $24,600,000. The seller paid Realty a sales commission of $600,000, or 2.4% of the total purchase price, of which 75% was passed through to the Manager pursuant to an agreement between Realty and the Manager, or the Realty-Triple Net Agreement.

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES AND PROCEDURES

Basis of Accounting and Presentation

      The summary of significant accounting policies presented below is designed to assist in understanding the Property’s financial statements. Such financial statements and accompanying notes are the representations of the Property’s management, who are responsible for their integrity and objectivity. These accounting policies conform to Generally Accepted Accounting Principles in the United States of America (“GAAP”) in all material respects, and have been consistently applied in preparing the accompanying financial statements.

F-56

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

Use of Estimates

      The preparation of these financial statements in conformity with GAAP requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities as of and for the year ended December 31, 2005 and 2004 and the period from August 1, 2003 to December 31, 2003 and the reported amounts of revenues and expenses for the reporting periods then ended. Significant estimates made by management include, among others, provisions for losses on accounts receivable and realization of long-lived assets. Actual amounts could materially differ from those estimates.

Cash and Cash Equivalents

      Cash and cash equivalents consist of all highly liquid temporary cash investments with original maturities of three months or less are considered cash equivalents. Short-term investments with remaining maturities of three months or less when acquired are considered cash equivalents.

Restricted Cash

      Restricted cash is comprised of impound reserves accounts for property taxes, insurance and tenant improvements.

Allowance for Uncollectible Accounts

      Tenant receivables and unbilled deferred rent receivables are carried net of the allowances for uncollectible current tenant receivables and unbilled deferred rent. Management’s determination of the adequacy of these allowances is based primarily upon evaluations of historical loss experience, individual tenant receivables considering the tenant’s financial condition, security deposits, letters of credit, lease guarantees and current economic conditions and other relevant factors. At December 31, 2005 and 2004, the allowance for uncollectible accounts was $0 and $2,000, respectively.

Concentration of Credit Risk

      The Property maintains substantially all of its day-to-day operating cash at one financial institution. At times, cash balances may be in excess of the amounts insured by the Federal Deposit Insurance Corporation.

      The Property extends credit to tenants based on financial condition and generally collects security deposits. The accounting loss, should a tenant be unable to meet its obligation to the Property, would be equal to the recorded account receivable and deferred lease concessions, if any, less the related security deposit.

      As of December 31, 2005, two tenants, individually, accounted for 10% or more of the Property’s aggregate annual rental income as follows:

			Percentage of
	2005 Annual		2005 Annual		Square Footage		Lease
Tenants	Base Rent*		Base Rent		(Approximately)		Expiration Date
Trinity Universal	$	1,401,000		38.0%		84,000		06/30/2013
Trailblazer Health Enterprises	$	2,174,000		59.0%		215,000		12/31/2015

F-57

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

      As of December 31, 2004, two tenants, individually, accounted for 10% or more of the Property’s aggregate annual rental income as follows:

			Percentage of
	2004 Annual		2004 Annual		Square Footage		Lease
Tenants	Base Rent*		Base Rent		(Approximately)		Expiration Date
Trinity Universal	$	1,379,000		27.8%		84,000		06/30/2013
Trailblazer Health Enterprises	$	3,490,000		70.2%		189,000		12/31/2006

*  Annualized rental income is based on contractual base rent set forth in lease in effect at December 31, 2005 and 2004, respectively.

      The Property is located in Dallas, Texas; accordingly, there is a geographic concentration of risk subject to fluctuations in the local economy.

      Additionally, the Property’s operations are dependent upon the real estate industry, which is historically subject to fluctuations in the local, regional and national economies.

Long-Lived Assets

      In July 2001, the Financial Accounting Statements Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of.” SFAS No. 144 requires that long-lived assets be reviewed for impairment whenever events or changes in circumstances indicate that their carrying amounts may not be recoverable. If the cost basis of a long-lived asset is greater than the projected future undiscounted net cash flows from such asset (excluding interest), an impairment loss is recognized. Impairment losses are calculated as the difference between the cost basis of an asset and its estimated fair value. SFAS No. 144 also requires companies to separately report discontinued operations and extends that reporting to a component of an entity that either has been disposed of (by sale, abandonment, or in a distribution to partners) or is classified as held for sale. Assets to be disposed of are reported at the lower of the carrying amount or fair value less costs to sell.

      The provisions of this statement for assets held for sale or other disposal are generally required to be applied prospectively after the adoption date to newly initiated commitments to plan to sell, as defined, by management. As a result, the Property cannot determine the potential effects that adoption of SFAS No. 144 will have on the financial statements with respect to future disposal decisions, if any. As of December 31, 2005 and 2004, management has determined that no impairment indicators were present and therefore, no adjustments have been made to the carrying values of long-lived assets.

Real Estate Rental Property

      The operating property is carried at the lower of historical cost less accumulated depreciation or estimated fair value. The cost of the operating property includes the cost of land and completed building and related improvements. Expenditures that increase the service life of property are capitalized; the cost of maintenance and repairs is charged to expense as incurred. The cost of building and improvements are depreciated on a straight-line basis over the estimated useful lives of the building and improvements, ranging primarily from 15 to 39 years for the building and the shorter of the lease term or useful life, ranging from 1 to 10 years for tenant improvements. When depreciable property is retired or disposed of, the related costs and accumulated depreciation are removed from the accounts and any gain or loss reflected in operations.

      An operating property is evaluated for potential impairment whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. Impairment losses are recorded on

F-58

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

long-lived assets used in operations. Impairment losses are recorded on the operating property when indicators of impairment are present and the carrying amount of the asset is greater than the sum of the future undiscounted cash flows expected to be generated by that asset. Management would recognize an impairment loss to the extent the carrying amount exceeded the fair value of the property. Management recorded no impairment losses for the years ended December 31, 2005 and 2004 or the period from August 1, 2003 (date of purchase) to December 31, 2003.

Revenue Recognition

      In accordance with SFAS No. 13, “Accounting for Leases”, minimum annual rental revenue is recognized on a straight-line basis over the term of the related lease (including rent holidays). Tenant reimbursement revenue, which is comprised of additional amounts recoverable from tenants for common area maintenance expenses and certain other recoverable expenses, is recognized as revenue in the period in which the related expenses are incurred. At December 31, 2005 and 2004, a deferred rent receivable of approximately $1,278,000, and $309,000, respectively, is included in the accompanying balance sheets in other assets, net.

Fair Values of Financial Instruments

      SFAS No. 107, “Disclosures about Fair Value of Financial Instruments” requires disclosure of fair value of financial instruments, whether or not recognized on the face of the balance sheet, for which it is practical to estimate that value. SFAS No. 107 defines fair value as the quoted market prices for those instruments that are actively traded in financial markets. In cases where quoted market prices are not available, fair values are estimated using present value or other valuation techniques. The fair value estimates are made at the end of each year based on available market information and judgments about the financial instrument, such as estimates of timing and amount of expected future cash flows. Such estimates do not reflect any premium or discount that could result from offering for sale at one time our entire holdings of a particular financial instrument, nor do they consider that tax impact of the realization of unrealized gains or losses. In many cases, the fair value estimates cannot be substantiated by comparison to independent markets, nor can the disclosed value be realized in immediate settlement of the instrument.

      The Property’s balance sheets include the following financial instruments: cash and cash equivalents, accounts receivables, accounts payable and accrued liabilities and mortgage loans payable. Management considers the carrying values of cash and cash equivalents, accounts receivables and accounts payable and accrued liabilities to approximate fair value for these financial instruments because of the short period of time between origination of the instruments and their expected realization. The fair value of payable to and receivable from related parties is not determinable due to its related party nature. At December 31, 2005 and 2004, and given a favorable interest rate, estimated fair value of the Property’s mortgage loans payable approximates $13,362,000 and $15,116,000 respectively.

Derivative Instruments and Hedging Activities

      The property is exposed to the effect of interest rate changes in the normal course of business. We seek to mitigate these risks by following established risk management policies and procedures which include the occasional use of derivatives. Management’s primary strategy in entering into derivative contracts is to minimize the volatility that changes in interest rates could have on its future cash flows. Management employs derivative instruments, including interest rate swaps and caps, to effectively convert a portion of our variable-rate debt to fixed-rate debt. We do not enter into derivative instruments for speculative purposes.

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EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

      Derivatives are recognized as either assets or liabilities in the balance sheet and measured at fair value in accordance with SFAS No. 133, “Derivative Instruments and Hedging Activities.” Changes in fair value are included as a component of interest expense in the statement of operations in the period of change.

Income Taxes

      The Property is owned by pass-through entities for income tax purposes and taxable income is reported by the owners on their individual tax returns. Accordingly, no provision has been made for income taxes in the accompanying statements of operations.

Purchase Price Allocation

      In accordance with SFAS No. 141, “Business Combinations,” Management allocated the purchase price of acquired properties to tangible and identified intangible assets based on their respective fair values. The allocation to tangible assets (building and land) is based upon determination of the value of the property as if it were vacant using discounted cash flow models similar to those used by independent appraisers. Factors considered include an estimate of carrying costs during the expected lease-up periods considering current market conditions and costs to execute similar leases. Additionally, the purchase price of the applicable property is allocated to the above or below market value of in-place leases and the value of in-place leases and related tenant relationships.

      The value allocable to the above or below market component of the acquired in-place leases is determined based upon the present value (using a discount rate which reflects the risks associated with the acquired leases) of the difference between (i) the contractual amounts to be paid pursuant to the lease over its remaining term, and (ii) our Manager’s estimate of the amounts that would be paid using fair market rates over the remaining term of the lease. The amounts allocated to above market leases are included in the intangible in-place lease asset and below market lease values are included in intangible lease liability in the accompanying financial statements and are amortized to rental income over the weighted average remaining term of the acquired leases with each property.

      The total amount of other intangible assets acquired is further allocated to in-place lease costs and the value of tenant relationships based on management’s evaluation of the specific characteristics of each tenant’s lease and the Property’s overall relationship with that respective tenant. Characteristics considered in allocating these values include the nature and extent of the credit quality and expectations of lease renewals, among other factors.

      These allocations are subject to change based on continuing valuation analysis or other evidence, until the allocations are finalized or the stipulated time of one year from the date of acquisition.

Other Assets

      Other assets consist primarily of deferred rent receivables, loan fees and prepaid expenses. Loan fees and other loan costs are amortized over the term of the respective loan using a method that approximates the effective interest method.

Asset Retirement Obligations

      In March 2005, the Financial Accounting Standards Board, or FASB, issued Interpretation No. 47, “Accounting for Conditional Asset Retirement Obligations”, or FIN 47. FIN 47 clarifies guidance provided in FASB Statement No. 143, “Accounting for Asset Retirement Obligations.” The term asset retirement obligation refers to a legal obligation to perform an asset retirement activity in which the timing and/or method of settlement are conditional on a future event that may or may not be within the control of the

F-60

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

entity. Entities are required to recognize a liability for the fair value of a conditional asset retirement obligation when incurred if the liability’s fair value can be reasonably estimated. FIN 47 effective as of the end of the first fiscal year ending after December 15, 2005. The adoption of the interpretation is not expected to have a material effect on the Property’s financial statements or results of operations.

Recently Issued Accounting Pronouncements

      In May 2005, the FASB issued SFAS No. 154, “Accounting Changes and Error Corrections — A Replacement of APB Opinion No. 20 and SFAS No. 3.” SFAS No. 154 changes the requirements for the accounting and reporting of a change in accounting principle by requiring retrospective application to prior period’s financial statements of the change in accounting principle, unless it is impracticable to do so. SFAS No. 154 also requires that a change in depreciation or amortization for long-lived, non-financial assets be accounted for as a change in accounting estimate affected by a change in accounting principle. SFAS No. 154 is effective for accounting changes and corrections of errors made in fiscal years beginning after December 15, 2005. The adoption of SFAS No. 154 is not expected to have a material effect on the Property’s financial statements.

      In June 2005, the FASB ratified its consensus in Emerging Issues Task Force, or EITF, Issue 04-05, “Determining Whether a General Partner, or the General Partners as a Group, Controls a Limited Partnership or Similar Entity When the Limited Partners Have Certain Rights” (Issue 04-05). The effective date for Issue 04-05 was June 29, 2005 for all new or modified partnerships and January 1, 2006 for all other partnerships for the applicable provisions. The adoption of the provisions of EITF 04-05 is not expected to have a material effect on the Property’s financial statements.

      In November 2005, the FASB issued FASB Staff Position, or FSP, Nos. FAS 115-1 and FAS 124-1 which address the determination as to when an investment is considered impaired, whether that impairment is other than temporary, and the measurement of an impairment loss. This FSP also includes accounting considerations subsequent to the recognition of other-than-temporary impairment and requires certain disclosures about unrealized losses that have not been recognized as other-than-temporary impairments. The guidance in this FSP amends FASB Statements No. 115, “Accounting for Certain Investments in Debt and Equity Securities.” The adoption of FSP Nos. FAS 115-1 and FAS 124-1 is not expected to have a material effect on the Property’s financial statements.

3. REAL ESTATE RENTAL PROPERTY

      Real estate rental property consisted of the following as of December 31:

	2005		2004
Land	$	2,409,000	$	2,409,000
Building and building improvements		13,096,000		13,095,000
Tenant improvements		1,665,000		1,295,000
		17,170,000		16,799,000
Accumulated depreciation		1,510,000		877,000
	$	15,660,000	$	15,922,000

4. INTANGIBLE ASSETS

      Intangible assets consist primarily of lease commissions, tenant relationships and above market leases net of accumulated amortization of $4,268,000 and $5,774,000, respectively, at December 31, 2005 and 2004. The accumulated amortization is $3,639,000 and $2,133,000, respectively, at December 31, 2005 and

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EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

2004. The weighted average life of intangible assets at December 31, 2005, 2004 and 2003, was 59, 68, and 74 months respectively.

      Amortization expense recorded on the identified intangible assets for the fiscal years ended December 31, 2005 and 2004 and the period from August 1, 2003 (date of purchase) through December 31, 2003 was $1,506,000, $1,506,000 and $627,000, respectively.

      Estimated amortization expense on identified intangible assets as of December 31, 2005 for each of the five succeeding fiscal years is as follows:

2006	$	1,506,000
2007		510,000
2008		502,000
2009		502,000
2010		502,000

5. OTHER ASSETS

      Other assets consist of the following as of December 31:

	2005		2004
Deferred rent receivable	$	1,278,000	$	309,000
Lease commissions (net of amortization expense of $156,000 and $0 as of December 31, 2005 and 2004 respectively)		1,642,000		—
Deferred financing costs, net accumulated amortization of $421,000 and $303,000 at December 31, 2005 and 2004, respectively		422,000		87,000
Prepaid expenses and other		7,000		68,000
	$	3,349,000	$	464,000

6. MORTGAGE LOANS PAYABLE

      The Property’s mortgage loans payable in the original amount of $14,950,000, or the Note secured by a deed of trust was executed on August 1, 2003 to finance the purchase of the Property. The Note had an initial term maturity of one year, due on August 1, 2004. The initial term was extended for two additional six-month terms for a fee of $148,000 in 2004. The note was repaid in full on December 28, 2005.

      A new mortgage loan payable in an amount up to $13,000,000 was executed on December 28, 2005. Its initial maturity is January 1, 2008. The note bears interest at the prime lending rate plus 0.5% per annum, or Management may elect 2.25% in excess of the London Inter-Bank Offering Rate, or LIBOR, requiring interest-only payments. As of December 31, 2005, the mortgage loan bears interest at 6.3% based on the LIBOR rate. The balance due on the note as of December 31, 2005 is $10,255,000.

      A new mezzanine loan for $3,000,000 was also executed on December 28, 2005. Its initial maturity is January 1, 2008. The note bears interest at the prime lending rate plus 5.0% per annum, or Management may elect 7.6% in excess of LIBOR, requiring interest-only payments until specified tenant lease payments begin, at which time an additional monthly principal payment of $25,000 will be required and applied to the mezzanine principal loan balance. As of December 31, 2005, the mortgage loan bears interest at 11.98% based on the LIBOR rate. The balance due on this mortgage loan as of December 31, 2005 is $2,367,000.

      Effective as of December 28, 2005, we obtained a waiver from the lender for noncompliance with a certain covenant of the mortgage loan and the mezzanine loan, or cumulatively the Bank Loans, which

F-62

EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

precludes us from having or incurring additional indebtedness which is not subordinated to the Bank Loans. This waiver allows us to subordinate the additional indebtedness to the Bank Loans and to cure our noncompliance with the covenant by June 27, 2006

7. DERIVATIVE FINANCIAL INSTRUMENTS

      Derivatives are recognized as either assets or liabilities in the balance sheet and measured at fair value in accordance with SFAS No. 133, “Derivative Instruments and Hedging Activities”. Changes in fair value are included as a component of interest expense in the statement of operations in the period of change. The Property recorded $10,000 as an increase to interest expense for the year ended December 31, 2005. Prior to December 31, 2004 we did not have any derivatives outstanding.

      The following table lists the derivative financial instruments held by us as of December 31, 2005:

Notional Amount	Carrying Value			Instrument		Rate	Maturity
$12,000,000	$	(10,000	)		Cap	5.75%	12/28/07

8. COMMITMENTS AND CONTINGENCIES

Environmental Matters

      Management follows the policy of monitoring the Property for the presence of hazardous or toxic substances. While there can be no assurance that a material environmental liability does not exist, Management is not currently aware of any environmental liability with respect to the Property that would have a material effect on its financial condition, results of operations and cash flows.

      Further, Management is not aware of any environmental liability or any unasserted claim or assessment with respect to an environmental liability that management believes would require additional disclosure or which would necessitate the recording of a loss contingency.

Other Matters

      Other commitments and contingencies include the usual obligations of a real estate property in the normal course of business. In the opinion of Management, these matters are not expected to have a material adverse effect on the Property’s financial position and/or results of operations.

9. FUTURE MINIMUM RENT

      The Property has operating leases with tenants that expire at various dates through 2015 and are either subject to scheduled fixed increases or adjustments based on the Consumer Price Index. Generally, the leases grant tenants renewal options. Leases also provide for additional rents based on certain operating expenses. Future minimum rent contractually due under operating leases, excluding tenant reimbursements of certain costs, as of December 31, are summarized as follows:

Year Ending	Amount
2006	$	4,387,000
2007	$	4,411,000
2008	$	4,480,000
2009	$	4,594,000
2010	$	4,720,000

      A certain amount of the Property’s rental income is from tenants with leases which are subject to contingent rent provisions. These contingent rents are subject to the tenant achieving periodic revenues in

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EXECUTIVE CENTER II & III, A REAL ESTATE PROPERTY

NOTES TO FINANCIAL STATEMENTS — (Continued)

excess of specified levels. For the years ended December 31, 2005 and 2004 and the period from August 1, 2003 through December 31, 2004, the contingent amount of rent earned by the Property was not significant.

10. RELATED PARTY TRANSACTIONS

Property Management Fees

      We pay Realty property management fees equal to 6% of the gross income of the property. Realty earned $168,000, $340,000 and $133,000 for services provided during the years ended December 31, 2005 and 2004 and for the period from August 1, 2003 (date of acquisition) through December 31, 2003, respectively, of which 100% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Real Estate Commissions

      Realty earns sales commissions from acquisitions and dispositions of our property. For the years ended December 31, 2005 and 2004 and for the period from August 1, 2003 (date of acquisition) through December 31, 2003 we paid no sales commissions to Realty. For the years ended December 31, 2005 and 2004, and for the period from August 1, 2003 (date of acquisition) through December 31, 2003, unaffiliated sellers paid sales commissions to Realty of $0, $0, and $600,000, respectively, related to property purchased of which 75% was passed through to our Manager pursuant to the Realty-Triple Net Agreement.

Debt Due to Related Parties

      We may obtain secured or unsecured debt financing through one or more related parties, including Cunningham Lending Group, LLC, or Cunningham, an entity wholly owned by Anthony W. Thompson, the Manager’s chief executive officer. At December 31, 2005 and 2004 there was $1,445,000 and $0 debt due to related parties. The notes bear interest at 8% per annum and are due one year from origination.

		Amount of
Issue Date		Loan
06/09/05		$	1,000,000
09/12/05			200,000
10/18/05			240,000
11/14/05			5,000
	Total	$	1,445,000

      In December 2005, the Property obtained $1,205,000 in loans from the TIC members. These loans are unsecured and bear interest at 8% per annum, and are due December 1, 2008.

Accounts Payable to Related Parties

      Related party accounts payable consists primarily of amounts due from us for operating expenses incurred by us and paid by our Manager or unpaid amounts due for management fees.

F-64

NNN 2003 VALUE FUND, LLC

SCHEDULE II — VALUATION AND QUALIFYING ACCOUNTS

					Deductions
	Balance at		Charged to		(Write-off of			Balance at
	Beginning of		Costs and		uncollectible			End of
	Period		Expenses		account)			Period
Allowance for Doubtful Accounts
Year Ended December 31, 2005  — Allowance for doubtful accounts	$	59,000	$	14,000	$	(71,000	)	$	2,000
Year Ended December 31, 2004  — Allowance for doubtful accounts	$	—	$	59,000	$	—		$	59,000
For the period from June 19, 2003 (date of inception) through December 31, 2003 — Allowance for doubtful accounts	$	—	$	—	$	—		$	—

F-65

NNN 2003 VALUE FUND, LLC

SCHEDULE III — REAL ESTATE AND ACCUMULATED DEPRECIATION

																					Maximum Life
																					on Which
	Initial Costs to Company						Gross Amount at Which Carried at Close of Period														Depreciation in
																					Latest Income
					Buildings and				Buildings and					Accumulated			Date		Date		Statement is
	Encumbrance		Land		Improvements		Land		Improvements		Total(a)			Depreciation(b)			Constructed		Acquired		Computed
Executive Center I	$	4,500,000	$	2,190,000	$	4,213,000	$	2,190,000	$	4,616,000	$	6,806,000		$	(401,000	)		1983		30-Dec-03		39 years
Oakey Building		4,000,000		1,539,000		4,618,000		1,539,000		10,833,000		12,372,000			(134,000	)		1988		04-Apr-04		39 years
Interwood		5,500,000		733,000		5,580,000		733,000		5,580,000		6,313,000			(153,000	)		2000		01-Jan-05		39 years
Woodside		19,700,000		4,466,000		16,089,000		4,466,000		16,089,000		20,555,000			(172,000	)		1987		30-Sep-05		39 years
Daniels Road		—		730,000		—		730,000		—		730,000			—			—		14-Oct-05		N/A
3500 Maple		58,320,000		6,265,000		43,520,000		6,265,000		43,520,000		49,785,000			—			1985		27-Dec-05		39 years
Total	$	92,020,000	$	15,923,000	$	74,020,000	$	15,923,000	$	80,638,000	$	96,561,000	(c)	$	(860,000	)

      (a) The changes in total real estate for the year ended December 31, 2005 are as follows:

	2005
Balance at December 31, 2004	$	21,724,000
Acquisitions		77,383,000
Additions		6,314,000
Disposals		(8,860,000	)
Balance at December 31, 2005	$	96,561,000

      (b) The changes in accumulated depreciation for the year ended December 31, 2005 are as follows:

	2005
Balance at December 31, 2004	$	358,000
Additions		559,000
Disposals		(57,000	)
Balance at December 31, 2005	$	860,000

      (c) Includes Oakey Building which was held for sale at December 31, 2005

F-66

SIGNATURES

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

NNN 2003 Value Fund, LLC

By:  /s/ Richard T. Hutton, Jr.

Richard T. Hutton, Jr.

Chief Executive Officer

(principal executive officer)

Date: March 30, 2006

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

Name	Title	Date
/s/ Richard T. Hutton, Jr. Richard T. Hutton, Jr.	Chief Executive Officer (principal executive officer); Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Michael O’Flynn Michael O’Flynn	Chief Accounting Officer (principal accounting officer)	March 30, 2006
/s/ Anthony W. Thompson Anthony W. Thompson	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Scott D. Peters Scott D. Peters	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Daniel R. Baker Daniel R. Baker	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Jack R. Maurer Jack R. Maurer	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Louis J. Rogers Louis J. Rogers	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006
/s/ Talle A. Voorhies Talle A. Voorhies	Member, Board of Managers of Triple Net Properties, LLC	March 30, 2006

EXHIBIT INDEX

      Pursuant to Item 601(a)(2) of Regulation S-K, this Exhibit index immediately precedes the exhibits.

      The following exhibits are included, or incorporated by reference, in this Annual Report on Form 10-K for the fiscal year 2005 (and are numbered in accordance with Item 601 of Regulation S-K).

Exhibit
Number			Exhibit
	3	.1	Articles of Organization of NNN 2003 Value Fund, LLC, dated June 19, 2003, (included as Exhibit 3.1 to our Form 10 filed on May 2, 2005 and incorporated herein by reference).
	10	.1	Operating Agreement of NNN 2003 Value Fund, LLC, by and between Triple Net Properties, LLC, as the Manager, and Anthony W. Thompson, as the Initial Member. (included as Exhibit 10.1 to our Form 10 filed on May 2, 2005 and incorporated herein by reference).
	10	.2	Management Agreement between NNN 2003 Value Fund, LLC and Triple Net Properties Realty, Inc. (included as Exhibit 10.2 to our Form 10 filed on May 2, 2005 and incorporated herein by reference).
	10	.3	Purchase and Sale Agreement and Escrow Instructions dated as of July 1, 2005 by and between PS Business Parks, L.P. and Triple Net Properties, LLC (included as Exhibit 10.01 to our Form 8-K filed on October 7, 2005 and incorporated herein by reference).
	10	.4	Agreement for Purchase and Sale of Real Property and Escrow Instructions by and between NNN VF Southwood Tower, LP and Rancho Pacific Development dated as of August 8, 2005 (included as Exhibit 10.6 to our Form 10-Q filed on November 14, 2005 and incorporated herein by reference).
	10	.5	First Amendment to Purchase and Sale Agreement and Escrow Instructions dated as of September 12, 2005 by and between PS Business Parks, L.P. and Triple Net Properties, LLC (included as Exhibit 10.02 to our Form 8-K filed on October 7, 2005 and incorporated herein by reference).
	10	.6	Second Amendment to Purchase and Sale Agreement and Escrow Instructions dated as of September   , 2005 by and between PS Business Parks, L.P. and Triple Net Properties, LLC (included as Exhibit 10.03 to our Form 8-K filed on October 7, 2005 and incorporated herein by reference).
	10	.7	Addendum To and Assignment Of Real Estate Purchase Contract and Receipt for Deposit Phase I by and between PS Business Parks, L.P. and Triple Net Properties, LLC dated as of September 26, 2005 (included as Exhibit 10.04 to our Form 8-K filed on October 7, 2005 and incorporated herein by reference).
	10	.8	Third Amendment to Purchase and Sale Agreement and Escrow Instructions dated as of September 29, 2005 by and between PS Business Parks, L.P. and Triple Net Properties, LLC (included as Exhibit 10.05 to our Form 8-K filed on October 7, 2005 and incorporated herein by reference).
	10	.9	Addendum to Purchase Agreement by and between NNN VF Southwood Tower, LP and Rancho Pacific Development dated as of October   , 2005 (included as Exhibit 10.7 to our Form 10-Q November 14, 2005 and incorporated herein by reference).
	10	.10	Purchase and Sale Agreement and Escrow Instructions dated as of October 21, 2005 by and between SP Reverchon Properties, LP and Triple Net Properties, LLC. (included as Exhibit 10.1 to our Form 8-K filed on January 4, 2006 and incorporated herein by reference).
	10	.11	Agreement for Purchase and Sale of Real Property and Escrow Instructions dated November 3, 2005, by and between NNN Oakley Building 2003, LLC and Trans-Aero Land & Development Corporation. (included as Exhibit 10.7 to our Form 10-Q November 14, 2005 and incorporated herein by reference).
	10	.12	First Amendment to Agreement for Purchase and Sale of Real Property and Escrow Instructions, dated November 5, 2005, entered into by and between NNN Oakey Building 2003, LLC and Trans-Aero Land and Development Company. (included as Exhibit 10.1 to our Form 8-K filed on January 30, 2006 and incorporated herein by reference).
	10	.13	Amendment to the Purchase Agreement between NNN VF Southwood Tower, LP and Rancho Pacific and/or related assignee dated December 6, 2005 (included as Exhibit 10.1 to our Form 8-K filed on December 22, 2005 and incorporated herein by reference).

Exhibit
Number			Exhibit
	10	.14	Amendment to the Purchase Agreement between NNN VF Southwood Tower, LP and Rancho Pacific and/or related assignee dated December 15, 2005 (included as Exhibit 10.2 to our Form 8-K filed on December 22, 2005 and incorporated herein by reference).
	10	.15	First Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of December 23, 2005 by and between SP Reverchon Properties, LP and NNN 3500 Maple, LLC, as successor-in-interest to Triple Net Properties, LLC. (included as Exhibit 10.2 to our Form 8-K filed on January 4, 2006 and incorporated herein by reference).
	10	.16	Second Amendment to Purchase and Sale Agreement and Joint Escrow Instructions dated as of December 27, 2005 by and between SP Reverchon Properties, LP and NNN 3500 Maple, LLC, as successor-in-interest to Triple Net Properties, LLC. (included as Exhibit 10.3 to our Form 8-K filed on January 4, 2006 and incorporated herein by reference).
	10	.17*	Deed of Trust, Security Agreement and Fixture Filing by NNN Executive Center, LLC et al to J. Michael Pruitt, as Trustee fbo LaSalle Bank National Association, dated December 28, 2005
	10	.18*	Promissory Note by and between NNN Executive Center, LLC et al and LaSalle Bank National Association, dated December 28, 2005
	31	.1*	Certification of Chief Executive Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	31	.2*	Certification of Chief Accounting Officer, pursuant to Section 302 of the Sarbanes-Oxley Act of 2002.
	32	.1*	Certification of Chief Executive Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.
	32	.2*	Certification of Chief Accounting Officer, pursuant to 18 U.S.C. Section 1350, as created by Section 906 of the Sarbanes-Oxley Act of 2002.

*  Filed herewith.

EX-10.17

                                                                   Exhibit 10.17


This instrument was prepared by and
after recording return to:
KATTEN MUCHIN ROSENMAN LLP
525 West Monroe Street
Chicago, Illinois 60661-3693
Attention: Phillip M. Estaver, Esq.

              DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING

                           NNN EXECUTIVE CENTER, LLC,
                      A DELAWARE LIMITED LIABILITY COMPANY,
               AND THE PARTIES LISTED ON EXHIBIT D ATTACHED HERETO
                             COLLECTIVELY, GRANTOR,

                                       TO

                               J. MICHAEL PRUITT,
                                   AS TRUSTEE
                                    (TRUSTEE)

                               FOR THE BENEFIT OF

                       LASALLE BANK NATIONAL ASSOCIATION,
                         A NATIONAL BANKING ASSOCIATION
                                  (BENEFICIARY)



              DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING

                                TABLE OF CONTENTS



PARAGRAPH                                                                   PAGE
- ---------                                                                   ----
                                                                         
Defined Terms ...........................................................    iv

1. Payment of Indebtedness; Performance of Obligations ..................     3

2. Taxes and Other Obligations ..........................................     3

3. Reserves for Taxes/Ground Rents/Insurance/Replacement Reserve/Tenant
   Improvements and Leasing Reserve .....................................     3

4. Use of Property ......................................................     5

5. Insurance and Condemnation ...........................................     5

6. Preservation and Maintenance of Property .............................     7

7. Protection of Beneficiary's Security; Leases .........................     7

8. Inspection ...........................................................     8

9. Books and Records ....................................................     8

10. Financial Statements ................................................     9

11. Hazardous Substances ................................................    10

12. Representations and Covenants .......................................    10

13. Lease Assignment ....................................................    14

14. Subordination, Non-Disturbance and Attornment Agreements/Estoppel
    Certificates ........................................................    14

15. Transfers of the Property or Ownership Interests in Grantor;
    Assumption; Due on Sale/Encumbrance .................................    15

16. No Additional Liens .................................................    18

17. Single Asset Entity .................................................    18

18. Grantor and Lien Not Released .......................................    20



                                        i



                                                                         
19. Uniform Commercial Code Security Agreement and Fixture Filing .......    20

20. Events of Default; Acceleration of Indebtedness; Remedies ...........    22

21. Entry; Remedies .....................................................    23

22. Expenditures and Expenses ...........................................    25

23. Application of Proceeds of Sale .....................................    25

24. Appointment of Receiver or Mortgagee in Possession ..................    25

25. Forbearance by Beneficiary Not a Waiver .............................    26

26. Waiver of Statute of Limitations ....................................    26

27. Waiver of Homestead and Redemption ..................................    26

28. Jury Trial Waiver ...................................................    26

29. Indemnification .....................................................    27

30. Dutv to Defend ......................................................    28

31. ERISA ...............................................................    28

32. No Oral Change ......................................................    28

33. Notice ..............................................................    28

34. Successors and Assigns Bound; Joint and Several Liability; Agents;
    Captions ............................................................    29

35. Governing Law; Jurisdiction; Severability ...........................    29

36. Release .............................................................    29

37. Covenants Running with the Land .....................................    29

38. Terms ...............................................................    30

39. Loss of Note ........................................................    30

40. Changes in the Laws Regarding Taxation ..............................    30

41. Substitution of Trustee .............................................    30




                                       ii




                                                                         
42. Exculpation .........................................................    30

43. Disclosure of Information ...........................................    30

44. Intentionally Deleted ...............................................    31

45. Actions and Proceedings .............................................    31

46. No Third Party Beneficiaries ........................................    31

47. Customer Identification-- USA Patriot Act Notice; OFAC ..............    31

48. Exhibits and Riders .................................................    32

49. Counterparts ........................................................    32

50. Disclaimers .........................................................    32

51. Trustee's Costs .....................................................    32

52. Special State Provisions ............................................    33

53. Partial Release of Properties .......................................    35



    EXHIBIT A - Legal Description
    EXHIBIT B - Personal Property Description
    EXHIBIT C - Pending and Threatened Litigation
    EXHIBIT D - Additional Grantors
    EXHIBIT E - Allocated Loan Amounts


                                       iii


                                  DEFINED TERMS

     As used in this Deed of Trust, the following terms shall have the following
meanings assigned to them:

                      
GRANTOR                  NNN Executive Center, LLC
                         and the parties listed on EXHIBIT D hereto

GRANTORS' ADDRESS        1551 N. Tustin Avenue Suite 200
                         Santa Ana, California 92705

PROPERTY ADDRESS         Executive Center II and III
                         8330-8360 LBJ Freeway
                         Dallas, Dallas County, Texas 75243

BENEFICIARY              LaSalle Bank National Association, a national banking
                         association, and its successors and assigns as holders
                         of the Note

BENEFICIARY'S ADDRESS    135 South LaSalle Street, Suite 1225
                         Chicago, Illinois 60603
                         Attention: Real Estate Capital Markets
                         Re: Executive Plaza II and III

TRUSTEE                  J. Michael Pruitt

TRUSTEE'S ADDRESS        11 Greenway Plaza
                         Suite 120
                         Houston, Texas 77046

NOTE                     That Promissory Note of even date herewith made by
                         Grantor to the order of Beneficiary in the Principal
                         Amount, together with all notes issued in substitution
                         or exchange therefor, as any of the foregoing may be
                         amended, consolidated, modified or supplemented from
                         time to time

PRINCIPAL AMOUNT         $13,000,000.00

MATURITY DATE            January 1,2008, or the Extended Maturity Date (as
                         defined in the Note)

LAND                     The property described on EXHIBIT A to this Deed of
                         Trust

PERSONAL PROPERTY        The property described on EXHIBIT B to this Deed of
                         Trust

REPLACEMENT RESERVE      $0.00
MONTHLY PAYMENT

TI AND LEASING RESERVE   $7,500.00
MONTHLY PAYMENT




                                       iv



                      
PERMITTED USE            Office

GUARANTORS               Anthony W. Thompson
                         81 Ritz Cove Drive
                         Dana Point, California 92629-4231

                         Triple Net Properties, LLC
                         1551 N. Tustin, Suite 200
                         Santa Ana, California 92705

REQUIRED RATING          A General Policy Rating of A: VIII or better in A.M.
                         Best's Key Rating Guide.




                                       V


     THIS DEED OF TRUST, SECURITY AGREEMENT AND FIXTURE FILING ("DEED OF TRUST")
is made as of the _______________ day of December, 2005, by Grantor to Trustee,
for the benefit of Beneficiary.

                                    RECITALS:

     A. Grantor has executed and delivered to Beneficiary the Note (which is
hereinafter referred to as the "NOTE"), providing for monthly installments of
principal and interest, with the balance thereof, if not sooner due or paid as
set forth in the Note, due and payable on the Maturity Date;

     B. Beneficiary wishes to secure (i) the prompt payment of the Note,
together with all interest thereon in accordance with the terms of the Note, as
well as the prompt payment of any additional indebtedness accruing to
Beneficiary on account of any future payments, advances or expenditures made by
Beneficiary pursuant to the Note or this Deed of Trust or any other agreement,
document, or instrument securing the payment of the indebtedness evidenced by
the Note (the Note, this Deed of Trust, and any other documents evidencing or
securing the indebtedness evidenced by the Note or executed in connection
therewith, and any modification, renewal, and/or extension thereof, are
hereinafter collectively referred to as the "LOAN DOCUMENTS"), and (ii) the
prompt performance of each and every covenant, condition, and agreement now or
hereafter arising contained in the Loan Documents of Grantor or any "GUARANTOR".
All payment obligations of Grantor or any Guarantor are hereinafter sometimes
collectively referred to as the "INDEBTEDNESS" and all other obligations of
Grantor or any Guarantor are hereinafter sometimes collectively referred to as
the "OBLIGATIONS"; and

     C. The Schedule of Defined Terms appearing immediately before this page is
incorporated into this Deed of Trust by reference with the same force and effect
as if contained in the body hereof.

     NOW, THEREFORE, TO SECURE TO BENEFICIARY the repayment of the Indebtedness
and the performance of the Obligations, Grantor has mortgaged, given, granted,
bargained, sold, alienated, enfeoffed, transferred, conveyed, confirmed,
warranted, pledged, assigned, hypothecated and granted and by these presents
Grantor has executed this Deed of Trust and does hereby irrevocably mortgage,
give, grant, bargain, sell, alien, enfeoff, transfer, convey, confirm, warrant,
pledge, assign, hypothecate and grant a security interest in and to Trustee, IN
TRUST, WITH POWER OF SALE, the following described property and all proceeds
thereof (which property is hereinafter sometimes collectively referred to as the
"PROPERTY"):

     A. The Land;

     B. All improvements of every nature whatsoever now or hereafter situated on
the Land and owned by Grantor (the "IMPROVEMENTS"), and all machinery,
furnishings, equipment, fixtures (the "FIXTURES"), mechanical systems and other
personal property now or hereafter owned by Grantor and used in connection with
the operation of the Improvements;

     C. All easements, rights-of-way, strips and gores of land, streets, ways,
alleys, passages, sewer rights, water, water courses, water rights and powers,
air rights and development rights, and all estates, rights, titles, interests,
privileges, liberties, tenements, hereditaments and appurtenances


                                        1


of any nature whatsoever, in any way belonging, relating or pertaining to the
Land and the Improvements and the reversion and reversions, remainder and
remainders, and all land lying in the bed of any street, road or avenue, opened
or proposed, in front of or adjoining the Land, to the center line thereof and
all the estates, rights, titles, interests, dower and rights of dower, curtesy
and rights of curtesy, property, possession, claim and demand whatsoever, both
at law and in equity, of Grantor of, in and to the Land and the Improvements and
every part and parcel thereof, with the appurtenances thereto;

     D. All agreements affecting the use, enjoyment or occupancy of the Land
and/or Improvements now or hereafter entered into (the "LEASES"), including any
and all guaranties of such Leases, and the immediate and continuing right to
collect all rents, income, receipts, royalties, profits, issues, service
reimbursements, fees, accounts receivables, revenues and prepayments of any of
the same from or related to the Land and/or Improvements from time to time
accruing under the Leases and/or the operation of the Land and/or Improvements
(the "RENTS"), reserving to Grantor, however, so long as no "EVENT OF DEFAULT"
(hereinafter defined) has occurred hereunder, a revocable license to receive and
apply the Rents in accordance with the terms and conditions of PARAGRAPH 13 of
this Deed of Trust;

     E. The Personal Property;

     F. All awards or payments, including interest thereon, which may heretofore
and hereafter be made with respect to the Land and the Improvements, whether
from the exercise of the right of eminent domain or condemnation (including but
not limited to any transfer made in lieu of or in anticipation of the exercise
of said rights), or for a change of grade, or for any other injury to or
decrease in the value of the Land and Improvements;

     G. All proceeds of and any unearned premiums on any insurance policies
covering the Property, including, without limitation, the right to receive and
apply the proceeds of any insurance, judgments, or settlements made in lieu
thereof, for damage to the Property;

     H. All proceeds of the conversion, voluntary or involuntary, of any of the
foregoing including, without limitation, proceeds of insurance and condemnation
awards, into cash or liquidation claims;

     I. Any and all proceeds and products of any of the foregoing and any and
all other security and collateral of any nature whatsoever, now or hereafter
given for the repayment of the Indebtedness and the performance of Grantor's
obligations under the Loan Documents, including (without limitation) the
Replacement Reserve, the TI and Leasing Reserve, and all other escrows
established with Beneficiary by Grantor; and

     J. The Lockbox Account (as defined in that certain Cash Management
Agreement of even date herewith executed by Grantor in connection with the
Loan).

     AND without limiting any of the other provisions of this Deed of Trust, to
the extent permitted by applicable law, Grantor expressly grants to Beneficiary,
as a secured party, a security interest in the portion of the Property that is
or may be subject to the provisions of the Uniform Commercial Code that are
applicable to secured transactions; it being understood and agreed that the
Improvements and Fixtures are part and parcel of the Land (the Land, the
Improvements and the


                                       2



Fixtures are collectively referred to as the "REAL PROPERTY") appropriated to
the use thereof and, whether affixed or annexed to the Real Property or not,
shall for the purposes of this Deed of Trust be deemed conclusively to be real
estate and mortgaged hereby.

     TO HAVE AND TO HOLD the Property and all parts thereof, together with the
rents, issues, profits and proceeds thereof, unto Trustee and Trustee's
successors and to the use, benefit and advantage of Beneficiary, forever, in
Trust, subject, however, to the terms, covenants, and conditions herein. Grantor
does hereby bind itself, its successors and assigns, to warrant and forever
defend the title to the Property unto Trustee against every person whomsoever
lawfully claiming or to claim the same or any part thereof.

     At no time shall the principal amount of the Indebtedness, not including
sums advanced in accordance herewith to protect the security of this Deed of
Trust, exceed TWO HUNDRED PERCENT (200%) of the original amount of the Note.

     Grantor covenants and agrees with Trustee and Beneficiary as follows:

     1. PAYMENT OF INDEBTEDNESS; PERFORMANCE OF OBLIGATIONS. Grantor shall
promptly pay when due the Indebtedness and shall promptly perform all
Obligations.

     2. TAXES AND OTHER OBLIGATIONS. Grantor shall pay, when due, and before any
interest, collection fees or penalties shall accrue, all taxes, assessments,
fines, impositions and other charges and obligations, including charges and
obligations for any present or future repairs or improvements made on the
Property, or for any other goods or services or utilities furnished to the
Property, which may become a lien on or charge against the Property prior to
this Deed of Trust, subject, however, to Grantor's right to contest such lien or
charge upon the posting of security reasonably satisfactory to Beneficiary so
long as such contest stays the enforcement or collection of such lien or charge.
Should Grantor fail to make such payments, Beneficiary may, at its option and at
the expense of Grantor, pay the amounts due for the account of Grantor. Upon the
request of Beneficiary, Grantor shall immediately furnish to Beneficiary all
notices of amounts due and receipts evidencing payment. Grantor shall promptly
notify Beneficiary of any lien on all or any part of the Property and shall
promptly discharge any unpermitted lien or encumbrance.

     3. RESERVES FOR TAXES/GROUND RENTS/INSURANCE/REPLACEMENT RESERVE/TENANT
IMPROVEMENTS AND LEASING RESERVE.

          (a) Grantor shall pay to Beneficiary, at the time of and in addition
     to the monthly installments of principal and/or interest due under the
     Note, a sum equal to 1/12 of the amount estimated by Beneficiary from time
     to time to be sufficient to enable Beneficiary to pay at least 30 days
     before they become due and payable, all taxes, assessments and other
     similar charges levied against the Property, and all ground rents, if
     applicable. So long as no Event of Default exists hereunder, Beneficiary
     shall apply the sums so paid by Grantor to pay such tax items and ground
     rents, if applicable. In making any such payments, Beneficiary may do so
     according to any bill, statement or estimate obtained by Beneficiary in
     good faith, without inquiry into the accuracy of such bill, statement or
     estimate or into the validity thereof. These sums may be commingled with
     the general funds of Beneficiary, and no interest shall be payable thereon
     nor shall these sums constitute trust funds. If such


                                       3


     amount on deposit with Beneficiary is insufficient to fully pay such tax
     items and ground rents, if applicable, Grantor shall, within 10 days
     following notice at any time from Beneficiary, deposit such additional sum
     as may be required for the full payment of such tax items and ground rents,
     if applicable. Grantor hereby grants Beneficiary a first priority security
     interest in such funds and Grantor shall execute any other documents and
     take any other actions necessary to provide Beneficiary with such a
     perfected security interest. Upon the Maturity Date, the moneys then
     remaining on deposit with Beneficiary or its agent shall, at Beneficiary's
     option, be applied against the Indebtedness. The obligation of Grantor to
     pay such tax items and ground rents is not affected or modified by the
     provisions of this paragraph.

          (b) Grantor shall pay to Beneficiary, at the time of and in addition
     to the monthly installments of principal and/or interest due under the
     Note, a sum equal to 1/12 of the amount estimated by Beneficiary from time
     to time to be sufficient to enable Beneficiary to pay at least 30 days
     before they become due and payable, all insurance premiums due for the
     renewal, on an annual basis, of the coverage afforded by the insurance
     policies required hereunder upon the expiration thereof. So long as no
     Event of Default exists hereunder, Beneficiary shall apply the sums so paid
     by Grantor to pay such insurance premiums. In making any such payment,
     Beneficiary may do so according to any bill, statement or estimate obtained
     by Beneficiary in good faith, without inquiry into the accuracy of such
     bill, statement or estimate or into the validity thereof. These sums may be
     commingled with the general funds of Beneficiary, and no interest shall be
     payable thereon nor shall these sums constitute trust funds. If such amount
     on deposit with Beneficiary is insufficient to fully pay such insurance
     premiums, Grantor shall, within 10 days following notice at any time from
     Beneficiary, deposit such additional sum as may be required for the full
     payment of such insurance premiums. Grantor hereby grants Beneficiary a
     first priority security interest in such funds and Grantor shall execute
     any other documents and take any other actions necessary to provide
     Beneficiary with such a perfected security interest. Upon the Maturity
     Date, the moneys then remaining on deposit with Beneficiary or its agent
     shall, at Beneficiary's option, be applied against the Indebtedness. The
     obligation of Grantor to pay such insurance premiums is not affected or
     modified by the provisions of this paragraph.

          (c) Intentionally Deleted.

          (d) At the time of and in addition to the monthly installments of
     principal and/or interest due under the Note, Grantor shall pay to
     Beneficiary monthly deposits in the amount of the TI and Leasing Reserve
     Monthly Payment for approved tenant improvements and leasing commissions
     (such payments shall be referred to as the "TI AND LEASING RESERVE"). The
     TI and Leasing Reserve may be commingled with the general funds of
     Beneficiary and such TI and Leasing Reserve shall not constitute trust
     funds. The funds contained in the TI and Leasing Reserve shall bear
     interest for the benefit of Grantor at the rate of interest which is the
     lower of (i) the amount paid from time to time by Beneficiary on commercial
     money market accounts; or (ii) the return on permitted investments to be
     made with the funds by any third party servicer, rating agency or loan
     purchaser, and all such interest shall be added to and become part of the
     TI and Leasing Reserve, provided Beneficiary shall make no representation
     or warranty as to the actual rate of interest. The funds contained in the
     TI and Leasing Reserve shall be disbursed to Grantor solely to pay for
     tenant improvements and


                                       4


     leasing commissions due pursuant to leases entered into in accordance with
     the requirements of PARAGRAPH 7 hereof or otherwise approved by
     Beneficiary, but only when the tenants under such leases are in occupancy,
     open for business, and paying full contractual rent without any right of
     offset or rent abatement. Beneficiary shall make disbursements from the TI
     and Leasing Reserve for the actual cost of such approved tenant
     improvements and leasing commissions upon Grantor's providing Beneficiary
     with receipts, invoices, lien waivers, photographs and other documentation
     deemed necessary by Beneficiary to insure that the work and/or materials
     related to the requested disbursement have been completed and/or provided,
     with minimum draws of $10,000.00, which shall occur no more frequently than
     once per month. Upon the Maturity Date, the moneys then remaining on
     deposit with Beneficiary or its agent shall, at Beneficiary's option, be
     applied against the Indebtedness. Grantor hereby grants Beneficiary a first
     priority security interest in the TI and Leasing Reserve and shall execute
     any other documents and take any other actions necessary to provide
     Beneficiary with such a perfected security interest in the TI and Leasing
     Reserve.

          (e) Upon the occurrence of an Event of Default, Beneficiary may apply
     any amounts then held in any of the Reserves described above to the payment
     of the Indebtedness in such order as Beneficiary may elect in its sole and
     absolute discretion.

     4. USE OF PROPERTY. Unless required by applicable law, Grantor shall not
permit changes in the use of any part of the Property from the use existing at
the time this Deed of Trust was executed, which use Grantor represents and
warrants is limited to the Permitted Use and related uses. Grantor shall not
initiate or acquiesce in a change in the zoning classification of the Property
without Beneficiary's prior written consent.

     5. INSURANCE AND CONDEMNATION. Grantor shall keep the Improvements insured,
and shall maintain during the entire term of this Deed of Trust, comprehensive
general liability coverage and such other coverages requested by Beneficiary, by
carrier(s), in amounts and in form at all times satisfactory to Beneficiary,
which carrier(s), amounts and form shall not be changed without the prior
written consent of Beneficiary. All such policies of insurance shall be issued
by insurers qualified under the laws of the state in which the Land is located,
duly authorized and licensed to transact business in such state and reflecting
the Required Rating. Grantor shall maintain all coverages on the Property as are
required by Beneficiary at the closing of the Loan, and all other coverages as
may be deemed necessary by Beneficiary from time to time during the term of the
Loan. Any failure by Beneficiary to insist on full compliance with all of the
above insurance requirements at closing does not constitute a waiver of
Beneficiary's right to subsequently require full compliance with these
requirements. All policies required hereunder shall be indicated by evidence of
insurance on the Accord 28 form of certificate (as such form may be updated and
renamed from time to time), naming Beneficiary as loss payee and as additional
insured. Unless Grantor provides Beneficiary with evidence of the insurance
coverage required by this Deed of Trust, Beneficiary may purchase insurance at
Grantor's expense to protect Beneficiary's interests in the Property and to
maintain the insurance required by this Deed of Trust. This insurance may, but
need not, protect Grantor's interests. The coverage purchased by Beneficiary may
not pay any claim made by Grantor or any claim that is made against Grantor in
connection with the Property or any required insurance policy. Grantor may later
cancel any insurance purchased by Beneficiary, but only after providing
Beneficiary with evidence that Grantor has obtained insurance as required by
this Deed of Trust. If Beneficiary purchases insurance for the Property or
insurance otherwise


                                        5



required by this Deed of Trust, Grantor will be responsible for the costs of
that insurance, including interest and other charges imposed by Beneficiary in
connection with the placement of the insurance, until the effective date of the
cancellation or expiration of the insurance. The costs of the insurance may be
added to the Indebtedness. The costs of the insurance may be more than the cost
of insurance Grantor is able to obtain on its own.

     In case of loss or damage by fire or other casualty, Grantor shall give
immediate written notice thereof to the insurance carrier(s) and to Beneficiary.
Beneficiary is authorized and empowered to make or file proofs of loss or damage
(in each case only so long as such loss or damage is equal to or greater than
$130,000.00 and to settle and adjust any claim under insurance policies which
insure against such risks, or to direct Grantor, in writing, to agree with the
insurance carrier(s) on the amount to be paid in regard to such loss. The
proceeds of any insurance claim are hereby assigned to and shall be paid to
Beneficiary as further security for the payment of the Indebtedness and
performance of the Obligations and applied as set forth herein.

     Grantor shall immediately notify Beneficiary of any action or proceeding
relating to any condemnation or other taking, whether direct or indirect, of the
Property, or part thereof, and Grantor shall appear in and prosecute any such
action or proceeding unless otherwise directed by Beneficiary in writing.
Grantor authorizes Beneficiary, at Beneficiary's option, as attorney-in-fact for
Grantor, to commence, appear in and prosecute, in Beneficiary's or Grantor's
name, any action or proceeding relating to any condemnation or other taking of
the Property, whether direct or indirect, and to settle or compromise any claim
in connection with such condemnation or other taking, provided such claim is for
an amount equal to or greater than $130,000.00. The proceeds of any award,
payment or claim for damages, direct or consequential, in connection with any
condemnation or other taking, whether direct or indirect, of the Property, or
part thereof, or for conveyances in lieu of condemnation, are hereby assigned to
and shall be paid to Beneficiary as further security for the payment of the
Indebtedness and performance of the Obligations and applied as set forth herein.

     Provided no Event of Default then exists hereunder, the net insurance
proceeds and net proceeds of any condemnation award (in each case after
deducting only Beneficiary's reasonable costs and expenses, if any, in
collecting the same) shall be made available for the restoration or repair of
the Property if, in Beneficiary's sole judgment (a) restoration or repair and
the continued operation of the Property is economically feasible, as determined
by Beneficiary, (b) the value of Beneficiary's security is not reduced, (c) the
loss or condemnation, as applicable, does not occur in the 6-month period
preceding the stated Maturity Date and Beneficiary's independent consultant
certifies that the restoration of the Property can be completed at least 90 days
prior to the Maturity Date, and (d) Grantor deposits with Beneficiary an amount,
in cash, which Beneficiary, in its sole discretion, determines is necessary, in
addition to the net insurance proceeds or net proceeds of any condemnation
award, as applicable, to pay in full the cost of the restoration or repair,
including the cost to carry the Property and make all required payments due
under the Loan during the period of restoration or repair. Notwithstanding the
foregoing, it shall be a condition precedent to any disbursement of insurance
proceeds held by Beneficiary hereunder that Beneficiary shall have approved (x)
all plans and specifications for any proposed repair or restoration, (y) the
construction schedule and (z) the architect's and general contractor's contract
for all restoration that exceeds $25,000.00 in the aggregate. Beneficiary may
establish other conditions it deems reasonably necessary to assure the work is
fully completed in a good and workmanlike manner free of all liens or claims by
reason thereof. Grantor's deposits made pursuant to this paragraph shall be used
before


                                        6



the net insurance proceeds or net proceeds of any condemnation award, as
applicable, for such restoration or repair. If the net insurance proceeds or net
proceeds of any condemnation award, as applicable, are made available for
restoration or repair, such work shall be completed by Grantor in an expeditious
and diligent fashion, and in compliance with all applicable laws, rules and
regulations. At Beneficiary's option, the net insurance proceeds or net proceeds
of any condemnation award, as applicable, shall be disbursed pursuant to a
construction escrow acceptable to Beneficiary. If following the final payments
for the completion of such restoration or repair there are any net insurance
proceeds or net proceeds of any condemnation award, as applicable, remaining,
such proceeds shall be paid (i) to Grantor to the extent Grantor was required to
make a deposit pursuant to this paragraph, (ii) then to fund any shortfall in
the Replacement Reserve, (iii) then to Beneficiary to be applied to the
Indebtedness, whether or not due and payable until paid in full, and (iv) then
to Grantor. If an Event of Default then exists, or any of the conditions set
forth in subparagraphs (a) through (d) of this PARAGRAPH 5 have not been met or
satisfied, the net insurance proceeds or net proceeds of any condemnation award,
as applicable, shall be applied to the Indebtedness, whether or not due and
payable, with any excess paid to Grantor.

     6. PRESERVATION AND MAINTENANCE OF PROPERTY. Grantor (a) shall not commit
waste or permit impairment or deterioration of the Property; (b) shall not
abandon the Property; (c) shall keep the Property in good repair and restore or
repair promptly, in a good and workmanlike manner, all or any part of the
Property to the equivalent of its original condition, ordinary wear and tear
excepted, or such other condition as Beneficiary may approve in writing, upon
any damage or loss thereto, if net insurance proceeds are made available to
cover in whole or in part the costs of such restoration or repair; (d) shall
comply with all laws, ordinances, regulations and requirements of any
governmental body, and all requirements of any documents applicable to the
Property; (e) shall provide for management of the Property by Grantor or by a
property manager satisfactory to Beneficiary pursuant to a contract in form and
substance satisfactory to Beneficiary; (f) shall not take any steps whatsoever
to convert the Property, or any portion thereof, to a condominium or cooperative
form of management; (g) shall not install or permit to be installed on the
Property any underground storage tank or above-ground storage tank without the
written consent of Beneficiary; and (h) shall give notice in writing to
Beneficiary of and, unless otherwise directed in writing by Beneficiary, appear
in and defend any action or proceeding purporting to affect the Property, the
security granted by the Loan Documents or the rights or powers of Beneficiary
and/or Trustee. Neither Grantor nor any tenant or other person shall remove,
demolish or alter any Improvement or any Fixture, equipment, machinery or
appliance in or on the Land and owned or leased by Grantor except when incident
to the replacement of Fixtures, equipment, machinery and appliances with items
of like kind.

     7. PROTECTION OF BENEFICIARY'S SECURITY; LEASES. If Grantor fails to pay
the Indebtedness or perform the Obligations, or if any action or proceeding is
commenced which affects the Property, Trustee or Beneficiary, at Beneficiary's
option, Beneficiary may make such appearances, disburse such sums and take such
action as Beneficiary deems necessary, in its sole discretion, to protect the
Property or Beneficiary's or Trustee's respective interests herein, including
entry upon the Property to make repairs and perform environmental tests and
studies. Any amounts disbursed by Beneficiary pursuant to this PARAGRAPH 7
(including attorneys' costs and expenses), with interest thereon at the "DEFAULT
RATE" (defined in the Note) from the date of disbursement, shall become
additional Indebtedness of Grantor secured by the Loan Documents and shall be
due and payable on demand. Nothing contained in this PARAGRAPH 7 shall require
Beneficiary to incur any expense or take any action hereunder.


                                        7


     Grantor shall not be authorized to enter into any ground lease of the
Property, without Beneficiary's prior written approval. Grantor shall not,
without Beneficiary's prior written consent, modify, amend, surrender or
terminate any Lease, which approval shall not be unreasonably withheld or
delayed. All Leases of space in the Property shall be on the form of lease
previously approved by Beneficiary with tenants and for a use acceptable to
Beneficiary. All Leases of space in the Property executed or renewed after the
date hereof must be approved by Beneficiary prior to the execution thereof by
Grantor.

     Notwithstanding anything contained herein to the contrary, Grantor may
enter into a proposed Lease (including the amendment, renewal or extension of an
existing Lease (a "RENEWAL LEASE") without the prior written consent of
Beneficiary, provided such proposed Lease or Renewal Lease (i) provides for
rental rates and terms comparable to existing local market rates and terms
(taking into account the type and quality of the tenant) as of the date such
Lease or Renewal Lease is executed by Grantor (unless, in the case of a Renewal
Lease, the rent payable during such renewal, or a formula or other method to
compute such rent, is provided for in the original Lease), (ii) is an
arms-length transaction with a bona fide, independent third party tenant, (iii)
is written on the standard form of lease previously approved by Beneficiary,
(iv) is not for premises greater than or equal to 20,000 square feet of gross
leaseable area of the Property, (v) is for the same use as the current use of
the Property, (vi) shall not contain any options for renewal or expansion by the
tenant thereunder at rental rates which are either below comparable market
levels or less than the rental rates paid by the tenant during initial lease
term; and (vii) shall be to a tenant which is experienced, creditworthy and
reputable. If Beneficiary consents to any new Lease of space in the Property or
the renewal of any existing Lease of space in the Property, at Beneficiary's
request, Grantor shall cause the tenant thereunder to execute a subordination
and attornment agreement in form and substance satisfactory to Beneficiary
contemporaneously with the execution of such Lease. Grantor expressly
understands that any and all new or proposed leases or Renewal Leases are
included in the definition of "LEASE" or "LEASES" as such terms may be used
throughout this Deed of Trust or any of the other Loan Documents.
Notwithstanding anything contained herein to the contrary, Grantor may terminate
a Lease without Beneficiary's request in the ordinary course of business if (a)
the related tenant is in default and (b) either (x) such Lease is for less than
20,000 square feet of the then currently occupied and rentable square feet of
space at the Property or (y) Grantor has executed a lease with a replacement
tenant for the premises in question.

     8. INSPECTION. Beneficiary and its agents and designees may make or cause
to be made reasonable entries upon and inspections of the Property, including
for performing any environmental inspections and testing of the Property, and
inspections of Grantor's books, records, and contracts at all reasonable times
upon reasonable advance notice, which notice may be given in writing or orally.
Grantor shall cooperate with Beneficiary and its agents and designees with
respect to all such inspections, including any related to the sale or potential
sale of all or any portion of the Loan by Beneficiary and any securitization or
potential securitization involving the Loan.

     9. BOOKS AND RECORDS. Grantor shall keep and maintain at all times at
Grantor's address stated above, or such other place as Beneficiary may approve
in writing, complete and accurate books of accounts and records adequate to
reflect correctly the results of the operation of the Property and copies of all
written contracts, Leases and other instruments affecting the Property.


                                       8



     10. FINANCIAL STATEMENTS. If required by Beneficiary, Grantor shall to
furnish to Beneficiary, within 60 days after the end of each calendar month,
until the first occurrence of either (i) the first 12 calendar months following
the closing of the loan (the "LOAN") evidenced by the Note, or (ii) the Loan is
securitized, a monthly unaudited (a) statement of income and expenses, each in
reasonable detail, prepared on a consistent, Cash/Tax basis in accordance with
sound accounting practices (relating to the real estate industry) and certified
as true and complete by Grantor or its general partner, manager/managing member
or chief financial officer, and (b) a rent roll showing the name of each tenant,
and for each tenant, (i) the space occupied, (ii) the lease expiration date,
(iii) the rent payable, (iv) aged accounts receivables, (v) the rent paid to
date and (vi) the security deposit being held for such tenant, each in
reasonable detail and dated and certified as true and complete by Grantor or its
general partner or chief financial officer. If required by Beneficiary, Grantor
shall furnish to Beneficiary, within 60 days after the end of each fiscal
quarter of the operation of the business of Grantor and at any other time upon
Beneficiary's request, an unaudited (a) balance sheet and (b) a statement of
income and expenses of the Property, each in reasonable detail, prepared on a
consistent, Cash/Tax basis in accordance with sound accounting practices
(relating to the real estate industry) and certified as true and complete by
Grantor or its general partner, manager/managing member or chief financial
officer. If required by Beneficiary, Grantor shall also furnish to Beneficiary,
and shall cause each Guarantor to furnish to Beneficiary, within 60 days after
the end of each fiscal year of Grantor, an unaudited (a) balance sheet, (b) a
statement of income and expenses and (c) a statement of cash flows, each in
reasonable detail, prepared on a consistent, Cash/Tax basis in accordance with
sound accounting practices (relating to the real estate industry) and certified
as true and complete by Grantor or its general partner, manager/managing member
or chief financial officer. In addition, if required by Beneficiary, Grantor
shall furnish within 60 days of Beneficiary's request (a) a leasing activity
report for the Property during such fiscal quarter, (b) a capital expenditure
report indicating the type and amount of each capital expenditure made during
such fiscal quarter, and (c) any other information that Beneficiary may
reasonably require, all of the foregoing shall be certified as true and complete
by Grantor or its general partner, manager/managing member or chief financial
officer. All of the information required by Beneficiary in this paragraph must
be in a form acceptable to Beneficiary in its absolute and sole discretion. In
addition, if required by Beneficiary, Grantor shall cause each Guarantor to
provide to Beneficiary a copy of his/her/its financial statements as required by
that certain Guaranty of even date herewith executed by Guarantor. If Grantor
fails to timely furnish Beneficiary with any of the financial information and
reports set forth in this paragraph within the required time periods,
Beneficiary shall have the right, acting in its sole discretion, to hire a
certified public accounting firm acceptable to Beneficiary, to prepare such
financial information and reports, on an audited basis. The costs and expenses
of such accounting firm shall be paid by Grantor on demand and, to the extent
advanced by Beneficiary become, with interest thereon from the date advanced by
Beneficiary at the Default Rate, additional Indebtedness of Grantor secured by
the Loan Documents, Additionally, if Grantor fails to timely furnish Beneficiary
with any of the financial information and reports set forth in this paragraph
within the required time periods, Beneficiary shall be entitled to receive a
late charge equal to $500.00 for each financial information and/or report not so
furnished to Beneficiary (the "FINANCIAL LATE CHARGE"). The Financial Late
Charge shall be due and payable by Grantor immediately upon receipt by Grantor
of an invoice for same from Beneficiary. Until paid, the Financial Late Charge
shall bear interest at the Default Rate, and shall be deemed additional
Indebtedness of Grantor secured by the Loan Documents.


                                        9



     11. HAZARDOUS SUBSTANCES. Grantor covenants and agrees that it (a) shall
not use, generate, store, or allow to be generated, stored or used, any
"HAZARDOUS SUBSTANCES" (hereinafter defined) on the Property, except in the
ordinary course of Grantor's business and in accordance with all "ENVIRONMENTAL
LAWS" (hereinafter defined), (b) shall at all times maintain the Property in
full compliance with all applicable Environmental Laws, including timely
remediating the Property if and when required, and (c) shall cause compliance by
all tenants and sub-tenants on the Property with Grantor's covenants and
agreements contained in this PARAGRAPH 11. Grantor shall promptly notify
Beneficiary in writing of (i) any investigation, claim or other proceeding by
any party caused or threatened in connection with any Hazardous Substances on
the Property, or the failure or alleged failure of the Property to comply with
any applicable Environmental Laws, or (ii) Grantor's discovery of any condition
on or in the vicinity of the Property to fail to comply with applicable
Environmental Laws.

     The term "ENVIRONMENTAL LAWS" shall include any present and future federal,
state and/or local law, statute, ordinance, code, rule, regulation, license,
authorization, decision, order, injunction or decree and/or other governmental
directive or requirement, as well as common law, which pertains or relates to
health, safety or the environment (including but not limited to, ground or air
or water or noise pollution or contamination, and underground or above ground
tanks) and shall include, without limitation, the Comprehensive Environmental
Response, Compensation and Liability Act of 1980, as amended ("CERCLA"), the
Resource Conservation and Recovery Act of 1976, as amended ("RCRA"), and any
state or federal lien or superlien or environmental clean-up statutes, and
regulations, rules, guidelines, or standards promulgated pursuant thereto all as
amended from time to time. The term "HAZARDOUS SUBSTANCES" shall include any
substance, whether solid, liquid or gaseous: (i) which is listed, defined or
regulated as a "hazardous substance," "hazardous waste" or "solid waste," or
otherwise classified as hazardous or toxic, in or pursuant to any Environmental
Laws; or (ii) which is or contains asbestos, radon, any polychlorinated
biphenyl, urea formaldehyde foam insulation, explosive or radioactive material,
lead paint, or motor fuel or other petroleum hydrocarbons; or (iii) which causes
or poses a threat to cause a contamination or nuisance on the Property or any
adjacent property or a hazard to the environment or to the health or safety of
persons on or about the Property.

     12. REPRESENTATIONS AND COVENANTS.

          (a) If Grantor is a corporation, it represents that it is a
     corporation duly organized existing and in good standing under the laws of
     its state of incorporation, that it is duly qualified and in good standing
     under the laws of the state where the Land is located, and that the
     execution and delivery of the Loan Documents and the performance of the
     obligations thereunder are within Grantor's corporate powers, have been
     duly authorized by all necessary action of its board of directors, and do
     not contravene the terms of its articles of incorporation or by-laws.

          (b) If Grantor is a general or limited partnership or a limited
     liability company, it represents that it is duly formed, organized and
     existing in the state of its formation, that it is qualified to do business
     under the laws of the state where the Land is located, and that the
     execution and delivery of the Loan Documents and the performance of the
     obligations thereunder do not conflict with any provision of Grantor's
     partnership agreement or


                                       10

     operating agreement, as applicable, and all other certificates and
     agreements governing Grantor, and have been duly authorized by all
     necessary action of its partners or members.

          (c) Grantor represents that (i) the execution and delivery of the Loan
     Documents, the payment of the Indebtedness, and the performance of the
     Obligations do not violate any law or conflict with any agreement by which
     Grantor is bound, or any court order by which Grantor is bound, (ii) no
     consent or approval of any governmental authority or any third party is
     required for the execution or delivery of the Loan Documents, the payment
     of Indebtedness, and the performance of the Obligations, and (iii) the Loan
     Documents are valid and binding agreements, enforceable in accordance with
     their terms.

          (d) Grantor represents that (i) it is lawfully seized with fee simple
     title in the estate hereby conveyed; (ii) it has the right to mortgage,
     convey, assign and grant a first security interest in the Property; (iii)
     the Property is unencumbered, and Grantor will warrant and defend title to
     the Property against all claims and demands, subject to easements and
     restrictions listed in a schedule of exceptions to coverage in the title
     insurance policy accepted by Beneficiary insuring Trustee's and
     Beneficiary's respective interests in the Property; and (iv) it has no
     operations, assets or activities other than the Property.

          (e) Grantor represents and covenants that (i) all material permits,
     licenses, authorizations, approvals, and certificates, including
     certificates of completion and occupancy permits, required by law,
     ordinance or regulation have been obtained and are and shall remain in full
     force and effect; and (ii) Grantor and the use and occupancy of the Land
     and all improvements thereon are and shall remain in compliance with all
     laws, regulations, and ordinances, including without limitation, all
     restrictive covenants of record and zoning and building laws.

          (f) Grantor represents that all of the improvements on the Land lie
     wholly within the boundaries of and building line restrictions relating to
     the Land and no improvements located on adjoining lands encroach upon the
     Land so as to affect the value or marketability of the Property, except
     those which are insured against by the title insurance policy accepted by
     Beneficiary insuring Trustee's and Beneficiary's respective interests in
     the Property.

          (g) Grantor represents that the Property is served by public
     utilities, water and sewer (or septic facilities) and services in the
     surrounding community, including police and fire protection, public
     transportation, refuse removal, public education, and enforcement of safety
     codes which are adequate in relation to the premises and location on which
     the Property is located (taking into account the Permitted Use of the
     Property).

          (h) Grantor represents that the Property is serviced by public water
     and sewer systems which are adequate in relation of the improvements and
     location on which the Property is located. All liquid and solid waste
     disposal, septic and sewer systems located on the Property are in good and
     safe condition and repair and in compliance with all applicable laws.


                                       11


          (i) Grantor represents that the Property has parking and other
     amenities necessary for the operation of the business currently conducted
     thereon which are adequate in relation to the premises and location on
     which the Property is located.

          (j) Grantor represents that the Property is a contiguous parcel and a
     separate tax parcel, and there are no delinquent taxes or other outstanding
     charges adversely affecting the Property.

          (k) Grantor represents that no action, omission, misrepresentation,
     negligence, fraud or similar occurrence has taken place on the part of any
     person that would reasonably be expected to result in the failure or
     impairment of full and timely coverage under any insurance policies
     providing coverage for the Property.

          (l) None of Grantor, any Guarantor, or any other holder of a direct or
     indirect legal or beneficial interest in Grantor is or will be, held,
     directly or indirectly, by a "foreign corporation," "foreign partnership,"
     "foreign trust," "foreign estate," "foreign person," "affiliate" of a
     "foreign person" or a "United States intermediary" of a "foreign person"
     within the meaning of IRC Sections 897 and 1445, the Foreign Investments in
     Real Property Tax Act of 1980, the International Investment and Trade in
     Services Survey Act, the Agricultural Foreign Investment Disclosure Act of
     1978, the regulations promulgated pursuant to such acts or any amendments
     to such acts.

          (m) None of Grantor or any Guarantor is insolvent, and there has been
     no (i) assignment made for the benefit of the creditors of any of them,
     (ii) appointment of a receiver for any of them or for the properties of any
     of them, or (iii) any bankruptcy, reorganization, or liquidation proceeding
     instituted by or against any of them.

          (n) All information in the application for the Loan submitted to
     Beneficiary (the "LOAN APPLICATION") and in all financial statements, rent
     rolls, reports, certificates and other documents submitted in connection
     with the Loan Application or in satisfaction of the terms thereof, are
     accurate, complete and correct in all material respects. There has been no
     material adverse change in the representations made or information
     heretofore supplied by or on behalf of Grantor or any Guarantor in
     connection with the Loan or the Loan Application as to Grantor, any
     Guarantor, or the Property. There has been no adverse change in any
     condition, fact, circumstance or event that would make any such
     representations or information inaccurate, incomplete or otherwise
     misleading.

          (o) Except as listed on EXHIBIT C hereto, (i) there is no litigation,
     arbitration, condemnation proceeding or other proceeding or governmental
     investigation pending or, to Grantor's knowledge, threatened against or
     relating to Grantor, any Guarantor, or the Property and there are no
     outstanding judgment(s) against or relating to Grantor or any Guarantor,
     (ii) Grantor and Guarantor each has not (A) had any property foreclosed
     upon, (B) given a deed in lieu of foreclosure, or (C) been involved in any
     criminal proceedings where Grantor or Guarantor was the defendant and (iii)
     Grantor has not defaulted on any loan or other indebtedness.


                                       12


          (p) The proceeds evidenced by the Note will be used by Grantor solely
     and exclusively for proper business purposes and will not be used for the
     purchase or carrying of registered equity securities within the purview and
     operation of any regulation issued by the Board of Governors of the Federal
     Reserve System or for the purpose of releasing or retiring any indebtedness
     which was originally incurred for any such purpose.

          (q) Grantor represents and covenants that all Leases of space in the
     Property existing as of the date hereof are in writing.

          (r) Grantor covenants that Beneficiary shall be allowed to advertise
     in the various news or financial media that Beneficiary has provided the
     Loan to Grantor, but Grantor shall not do so without Beneficiary's prior
     written permission.

          (s) Grantor represents that Grantor and all Guarantors have filed all
     federal, state, county, municipal, and city income and other tax returns
     required to have been filed by them and have paid all taxes and related
     liabilities which have become due pursuant to such returns or pursuant to
     any assessments received by them. Neither Grantor nor any Guarantor knows
     of any basis for any additional assessment in respect to any such taxes and
     related liabilities for prior years.

          (t) Grantor covenants that if at any time the United States of
     America, any State thereof or any subdivision of any such State shall
     require revenue or other stamps to be affixed to the Note or this Deed of
     Trust, or impose any other tax or charge on the same, Grantor will pay for
     the same, with interest and penalties thereon, if any.

          (u) As of the date hereof, Grantor represents that Grantor and
     Guarantors have no valid offset, defense, counterclaim, abatement or right
     to rescission with respect to any of the Loan Documents.

          (v) Grantor has dealt with no broker other than L.J. Melody ("BROKER")
     and Grantor shall pay all fees and expenses owing to any mortgage broker
     and will indemnify, defend and hold Beneficiary harmless from any and all
     other brokerage claims related to the Loan. Notwithstanding the foregoing,
     Beneficiary may, at its sole election, pay incentive fees or other
     compensation (collectively, "INCENTIVES") to Broker. Those Incentives are
     intended to encourage Broker to bring loans to Beneficiary, and may be
     based on a variety of different factors, including the amount of the Loan,
     the Contract Rate (as defined in the Note) the spread, the number of loan
     applications or loans referred to Beneficiary, the amount of investigative,
     due diligence or other assistance provided by Broker, or other factors. Any
     cash payments to Broker are not referenced in the Loan Documents.

          (w) Grantor shall not modify, amend or terminate any tenants in common
     agreement (the "TIC AGREEMENT") without the prior written consent of
     Beneficiary, which consent may be withheld in Beneficiary's sole and
     absolute discretion.

          (x) Without limiting the generality of PARAGRAPH 15, there shall never
     be more than sixteen (16) tenants in common (collectively, the "TENANTS IN
     COMMON") (including Grantor) owning the Property.


                                       13


          (y) Grantor covenants that it shall not terminate the property manager
     under that certain Management Agreement executed by and between Grantor and
     Triple Net Properties Realty, Inc. (the "PROPERTY MANAGER") or modify
     and/or terminate the Management Agreement or enter into a new management
     agreement, without the prior written consent of Beneficiary. In the event
     Grantor does terminate the Property Manager with the written consent of
     Beneficiary, Beneficiary shall have the right to approve the new management
     agreement and approve any new property manager named by Grantor which new
     property manager must be acceptable to Beneficiary in its sole discretion.
     The Management Agreement or any subsequently approved management agreement
     shall provide that such property manager may not be terminated without
     Beneficiary's prior written consent, and which such new property management
     agreement may not be terminated or amended without Beneficiary's prior
     written consent. In addition, the Management Agreement shall provide that
     all notice from Beneficiary to the Tenants in Common may go to the Property
     Manager on behalf of all Tenants in Common.

          (z) At all times during the term of the Loan, (1) Property Manager
     shall have all operating authority for the Property and (2) Grantor shall
     own no less than one percent (1%) of the total ownership interest, in the
     Property.

          (aa) Grantor shall give prompt notice to Beneficiary of any default
     under any the TIC Agreement.

Except as otherwise provided herein, each and all of the representations,
covenants and obligations of Grantor shall survive the execution and delivery of
the Loan Documents and shall continue in full force and effect until the
Indebtedness is paid in full.

     13. LEASE ASSIGNMENT. Grantor acknowledges that, concurrently herewith
Grantor is delivering to Beneficiary, as additional security for the repayment
of the Loan, an Assignment of Leases and Rents (the "ASSIGNMENT") pursuant to
which Grantor has assigned to Beneficiary all of Grantor's right, title and
interest in the Leases and the Rents and income from the Property. All of the
provisions of the Assignment are hereby incorporated herein as if fully set
forth at length in the text of this Deed of Trust. Grantor agrees to abide by
all of the provisions of the Assignment.

     14. SUBORDINATION, NON-DISTURBANCE AND ATTORNMENT AGREEMENTS/ESTOPPEL
CERTIFICATES.

          (a) Grantor shall, within 10 days after Beneficiary's request, furnish
     Beneficiary with a written statement, duly acknowledged, setting forth the
     sums secured by the Loan Documents and any right of set-off, counterclaim
     or other defense which exists against such sums and the Obligations.

          (b) If the Property includes commercial property, Grantor shall use
     best efforts (including institution of litigation) to deliver to
     Beneficiary upon request, tenant subordination, non-disturbance and
     attornment agreements/estoppel certificates from each commercial tenant at
     the Property in form and substance reasonably satisfactory to Beneficiary
     provided that Grantor shall not be required to deliver such certificates
     more frequently than two (2) times in any calendar year.


                                       14



     15. TRANSFERS OF THE PROPERTY OR OWNERSHIP INTERESTS IN GRANTOR;
ASSUMPTION; DUE ON SALE/ENCUMBRANCE.

          (a) NO SALE/ENCUMBRANCE. Grantor agrees that Grantor shall not,
     without the prior written consent of Beneficiary, sell, convey, mortgage,
     grant, bargain, encumber, pledge, assign, or otherwise transfer the
     Property or any interest therein any part thereof or permit the Property or
     any part thereof to be sold, conveyed, mortgaged, granted, bargained,
     encumbered, pledged, assigned, or otherwise transferred except for: (i)
     pursuant to Leases of space in the Property to tenants in accordance with
     the provisions of PARAGRAPH 7; (ii) in connection with a condemnation
     action or other taking; or (iii) the disposal of personalty that is
     obsolete or no longer used or useful, so long as such personalty is
     replaced with similar items of comparable value and utility and in which
     Beneficiary has a first lien and mortgage. In addition, Grantor shall not
     allow, without the prior written consent of Beneficiary, any pledge of any
     ownership interests in Grantor.

          (b) SALE/ENCUMBRANCE DEFINED. A sale, conveyance, mortgage, grant,
     bargain, encumbrance, pledge, assignment, or transfer of the Property
     within the meaning of this PARAGRAPH 15 shall be deemed to include, but not
     limited to the following: (i) an installment sales agreement wherein
     Grantor agrees to sell the Property or any part thereof for a price to be
     paid in installments; (ii) an agreement by Grantor leasing all or a
     substantial part of the Property for other than actual occupancy by a space
     tenant thereunder or a sale, assignment or other transfer of, or the grant
     of a mortgage in, Grantor's right, title and interest in and to any Leases
     or any Rents; (iii) a sale, encumbrance, pledge, hypothecation, or transfer
     of more than 49% in the aggregate (which may be pursuant to one or more
     transactions during the term of the Loan) of the ownership interests
     (including beneficial interests) in Grantor or in the general partner or
     managing member of Grantor, if applicable; or (iv) a sale, encumbrance,
     pledge, hypothecation, or transfer of any general partner or managing
     member interest in the Grantor, if applicable. Notwithstanding the
     foregoing, provided that no default has occurred, the following transfers
     of interests in Grantor shall not be deemed to be a sale or encumbrance for
     the purpose of this PARAGRAPH 15: (I) transfers of interests in Grantor for
     estate planning purposes to immediate family members (which shall be
     limited to a spouse, parent, child and grandchild (each an "IMMEDIATE
     FAMILY MEMBER")) of such party or to trusts or entities created for the
     benefit of Immediate Family Members provided that (A) if the transferor is
     a Guarantor, such Guarantor still controls such transferred interest and
     such Guarantor shall not be released from any guaranty or indemnity
     agreement by virtue of such permitted transfer, (B) Grantor shall provide
     Beneficiary with 30 days' prior written notice of any such permitted
     transfer, (C) Grantor shall reimburse Beneficiary for all costs and
     expenses, including reasonable attorney fees incurred by Beneficiary in
     connection with such permitted transfer, (D) there has been no change in
     control or management rights as a result of such transfer, (E) such
     transfer has no effect on the continuing status of Grantor, and (F) Grantor
     shall furnish Beneficiary with copies of any documentation executed in
     connection with such permitted transfer promptly after execution thereof,
     (ii) transfers of interests in Grantor by operation of law or upon death by
     devise or descent, or (iii) transfers of interests in Grantor to
     Guarantor(s).

          (c) ASSUMPTION. Notwithstanding the foregoing provisions of this
     PARAGRAPH 15, a sale of the Property (provided there are no more than
     sixteen [16] Tenants


                                       15



     in Common at any one time in the aggregate, including Grantor, TIME BEING
     OF THE ESSENCE in accordance with PARAGRAPH 15(D) BELOW and assumption of
     this Loan (hereinafter, an "ASSUMPTION") in its entirety prohibited by the
     foregoing may be permitted during the term of the Note to any entity,
     subject to Beneficiary's prior written consent, which shall not be
     unreasonably withheld or delayed, provided that each of the following terms
     and conditions are satisfied:

               (i) Grantor is in compliance with all terms and conditions of the
          Loan Documents and no default has occurred and is then continuing
          hereunder or under any of the other Loan Documents and the proposed
          transferee ("TRANSFEREE") agrees to continue to comply with and be
          bound by all provisions of the Loan Documents;

               (ii) Grantor gives Beneficiary written notice of the terms of
          such prospective Assumption not less than sixty (60) days before the
          date on which such Assumption is scheduled to take place and,
          concurrently therewith, gives Beneficiary all such information
          concerning Transferee as Beneficiary reasonably requests. Beneficiary
          shall have the right to approve or disapprove the proposed Transferee.
          In determining whether to give or withhold its approval of the
          proposed Transferee, Beneficiary shall consider Transferee's
          experience in owning and operating a facility similar to the Property,
          Transferee's entity structure, Transferee's financial strength, the
          Transferee's general business standing and Transferee's relationship
          and experience with contractors, vendors, tenants, lenders and other
          business entities;

               (iii) Grantor shall pay Beneficiary (A) in connection with such
          proposed Assumption, all reasonable out-of-pocket costs and expenses,
          including, without limitation, reasonable attorneys' fees incurred by
          Beneficiary and any rating agency approval fees (whether such transfer
          is approved or rejected), plus (B) concurrently with the closing of
          such Assumption, a nonrefundable assumption fee in an amount equal to
          1% of the then outstanding principal balance of the Note;

               (iv) Transferee executes and delivers such documents and
          agreements as Beneficiary shall reasonably require to evidence and
          effectuate said assumption and delivers such legal opinions as
          Beneficiary may reasonably require, including, without limitation,
          hazard insurance endorsements or certificates and other similar
          materials as Beneficiary may deem necessary at the time of the
          Assumption, all in form and substance satisfactory to Beneficiary,
          including, without limitation, an endorsement or endorsements to
          Beneficiary's loan title insurance policy insuring the lien of this
          Deed of Trust, extending the effective date of such policy to the date
          of execution and delivery of the assumption agreement referenced in
          this SUBPARAGRAPH 15(C)(IV), with no additional exceptions added to
          such policy, except for items consented to by Beneficiary or permitted
          under this Deed of Trust, and insuring that fee simple title to the
          Property is vested in the Transferee;

               (v) Grantor executes and delivers to Beneficiary, without any
          cost or expense to Beneficiary, a release of Beneficiary, its
          officers, directors, employees and agents, from all claims and
          liability relating to the transactions evidenced by the other security
          documents through and including the date of the closing of the


                                       16


          Assumption, which agreement shall be in form and substance
          satisfactory to Beneficiary and shall be binding upon the Transferee;

               (vi) subject to the provisions of PARAGRAPH 14 of the Note, such
          Assumption is not construed so as to relieve Grantor of any personal
          liability under the Note or any of the Loan Documents for any act or
          events occurring or obligations arising prior to or simultaneously
          with the closing of such Assumption (excluding payment of the
          principal amount of the Note and interest accrued thereon) and Grantor
          executes, without any cost or expense to Beneficiary, such documents
          and agreements as Beneficiary shall reasonably require to evidence and
          effectuate the ratification of such personal liability;

               (vii) Transferee shall furnish, if Transferee is a corporation,
          partnership or other entity, all appropriate papers evidencing
          Transferee's capacity in good standing and the qualification of the
          signers to execute the assumption of the Obligations, which paper
          shall include certified copies of all documents relating to the
          organization and formation of Transferee and of the entities, if any,
          which are partners, members or shareholders of Transferee. Transferee
          and such constituent partners, members or shareholders of Transferee
          (as the case may be) as Beneficiary shall require, shall be single
          purpose entities, whose formation documents shall be approved by
          counsel to Beneficiary; and

               (viii) Transferee shall furnish an opinion of counsel
          satisfactory to Beneficiary and its counsel stating that (A)
          Transferee's formation documents provide proof for the matters
          described in SUBPARAGRAPH (VII) above, (B) the assets of Transferee
          will not be consolidated with the assets of any other entity having an
          interest in, or affiliation with, the Transferee, in the event of a
          bankruptcy or insolvency of any such entity if required by any rating
          agency after the securitization of the Loan, (C) the assumption of the
          Obligations has been duly authorized, executed and delivered and the
          Loan Documents are valid, binding and enforceable against the
          Transferee in accordance with their terms, (D) Transferee and any
          entity which is a controlling stockholder, general partner or managing
          member of Transferee have been duly organized and are in good standing
          and in existence, and (E) with respect to such other matters as
          Beneficiary or any applicable rating agency may request.

Any such Assumption shall not be construed as to relieve any current Guarantors
of their obligations under any guarantees or indemnity agreements executed in
connection with the Note, provided that if Transferee or a party associated with
Transferee approved by Beneficiary in its sole discretion assumes the
obligations of the current Guarantors under their guarantees or indemnity
agreements and Transferee or such party associated with Transferee if
applicable, executes, without any cost or expense to Beneficiary, a new
guarantee and/or indemnity agreement in form and substance satisfactory to
Beneficiary, then Beneficiary shall release the current Guarantors from all
obligations first arising under their guarantees or indemnity agreements after
the closing of such Assumption;

          (d) BENEFICIARY'S RIGHTS. Except as provided in SUBPARAGRAPH 15(C)
     above, Beneficiary reserves the right to condition the consent required
     hereunder upon a


                                       17



     modification of the terms hereof and on assumption of the Note, this Deed
     of Trust and the Loan Documents as so modified by the proposed Transferee,
     payment of an assumption fee, and all of Beneficiary's expenses incurred in
     connection with such transfer, the approval by a rating agency of the
     proposed transferee, the proposed transferee's continued compliance with
     the covenants set forth in this Deed of Trust, including, without
     limitation, the covenants contained in Paragraph 17, or such other
     conditions as Beneficiary shall determine in its sole discretion to be in
     the interest of Beneficiary. All of Beneficiary's out-of-pocket expenses
     incurred shall be payable by Grantor whether or not Beneficiary consents to
     the Assumption. Beneficiary shall not be required to demonstrate any actual
     impairment of its security or any increased risk of default hereunder in
     order to declare the Note immediately due and payable upon Grantor's
     prohibited sale, conveyance, mortgage, grant, bargain, encumbrance, pledge,
     assignment, or transfer of the Property without Beneficiary's consent. This
     provision shall apply to every sale, conveyance, mortgage, grant, bargain,
     encumbrance, pledge, assignment, or transfer of the Property regardless of
     whether voluntary or not, or whether or not Beneficiary has consented to
     any previous sale, conveyance, mortgage, grant, bargain, encumbrance,
     pledge, assignment, or transfer of the Property.

          (e) MEZZANINE FINANCING. Beneficiary acknowledges, approves and
     consents to that certain Mezzanine Debt ("MEZZANINE DEBT") evidenced by
     that certain Junior Promissory Note, dated as of ______________, 2005 in
     the original principal amount of $3,000,000.00 to Grantor from Beneficiary
     ("MEZZANINE DEBT LENDER"), and secured by that certain junior Deed of
     Trust, Security Agreement and Fixture Filing dated as of ______________,
     2005, granted by Grantor, and which such Mezzanine Debt is subordinated to
     the Loan pursuant to that certain Intercreditor Agreement, dated as of
     ______________, 2005, between Mezzanine Debt Lender and Beneficiary.
     Notwithstanding anything contained herein to the contrary, Borrower
     acknowledges and agrees that the Mezzanine Debt shall be the only permitted
     Mezzanine Debt while the Loan is outstanding.

     16. NO ADDITIONAL LIENS. Grantor covenants not to execute any deed of
trust, security agreement, assignment of leases and rents or other agreement
granting a lien (except the liens granted to Beneficiary and Trustee by the Loan
Documents) or, except as set forth in PARAGRAPH 2 above, take or fail to take
any other action which would result in a lien against the interest of Grantor in
the Property without the prior written consent of Beneficiary.

     17. SINGLE ASSET ENTITY. Grantor shall not hold or acquire, directly or
indirectly, any ownership interest (legal or equitable) in any real or personal
property other than the Property, or become a shareholder of or a member or
partner in any entity which acquires any property other than the Property, until
such time as the Indebtedness has been fully repaid and all Obligations are
satisfied. Grantor's articles of incorporation, partnership agreement or
operating agreement, as applicable, (w) limit its purpose to the acquisition,
ownership, operation and disposition of the Property, (x) prohibit other
activities, mergers, consolidations, and asset sales while the Loan is
outstanding, (y) contain separateness covenants, and (z) provide that such
provisions shall not be amended without the prior written consent of
Beneficiary. Grantor covenants:


                                       18



          (a) To maintain its assets, accounts, books, records, financial
     statements, stationery, invoices, and checks separate from and not
     commingled with any of those of any other person or entity;

          (b) To conduct its own business in its own name, pay its own
     liabilities out of its own funds (including paying salaries of its own
     employees), allocate fairly and reasonably any overhead for shared
     employees and office space, and to maintain an arm's length relationship
     with its affiliates;

          (c) To hold itself out as a separate entity, correct any known
     misunderstanding regarding its separate identity, and observe all
     organizational formalities;

          (d) Not to guarantee or become obligated for the debts of any other
     entity or person or hold out its credits as being available to satisfy the
     obligations of others, including not acquiring obligations or securities of
     its partners, members or shareholders;

          (e) Not to pledge its assets for the benefit of any other entity or
     person or make any loans or advances to any person or entity;

          (f) Not to enter into any contract or agreement with any Guarantor or
     any party which is directly or indirectly controlling, controlled by or
     under common control with Grantor or Guarantor (an "AFFILIATE"), except
     upon terms and conditions that are intrinsically fair and substantially
     similar to those that would be available on an arms-length basis with third
     parties other than any Guarantor or Affiliate;

          (g) Grantor will maintain adequate capital for the normal obligations
     reasonably foreseeable in a business of its size and character and maintain
     a sufficient number of employees in light of its contemplated business
     operations;

          (h) Neither Grantor nor any constituent party of Grantor will seek to
     sell assets of Grantor or the dissolution or winding up, in whole or in
     part, of Grantor, nor will Grantor merge with or be consolidated into any
     other entity;

          (i) Grantor has and will maintain its assets segregated from those of
     any constituent party of Grantor, Affiliate, Guarantor or any other person
     or entity;

          (j) Grantor shall obtain and maintain in full force and effect, and
     abide by and satisfy the material terms and conditions of, all material
     permits, licenses, registrations and other authorizations with or granted
     by any governmental authorities that may be required from time to time with
     respect to the performance of its obligations under this Deed of Trust;

          (k) Since its inception, Grantor has not owned any asset, conducted
     any business or operation or engaged in any business or activity other than
     ownership and operation of the Property. Grantor has no debts or
     obligations other than normal accounts payable in the ordinary course of
     business that are not secured, this Deed of Trust, and the Loan it secures.
     Any other indebtedness or other obligation of Grantor has been paid in full
     prior to or through application of proceeds from the funding of the Loan;
     and


                                       19


          (1) Grantor represents that it does not have and will not incur any
     other indebtedness other than (i) the Indebtedness; (ii) unsecured trade
     payables (that are customary and not evidenced by a promissory note)
     related to the ownership and operation of the Property and incurred in the
     ordinary course of business and which shall not exceed 60 days in duration
     from the date such trade payables are first incurred by Grantor, and which
     shall not exceed $260,000.00; and (iii) the Mezzanine Debt.

     18. GRANTOR AND LIEN NOT RELEASED. Without affecting the liability of
Grantor or any other person liable for the payment of the Indebtedness, and
without affecting the lien or charge of this Deed of Trust as security for the
payment of the Indebtedness, Beneficiary and Trustee may, from time to time and
without notice to any junior lien holder or holder of any right or other
interest in and to the Property: (a) release any person so liable, (b) waive or
modify any provision of this Deed of Trust or the other Loan Documents or grant
other indulgences, (c) release all or any part of the Property, (d) take
additional security for any obligation herein mentioned, (e) subordinate the
lien or charge of this Deed of Trust, (f) consent to the granting of any
easement, or (g) consent to any map or plan of the Property.

     19. UNIFORM COMMERCIAL CODE SECURITY AGREEMENT AND FIXTURE FILING. This
Deed of Trust shall constitute a security agreement and fixture filing pursuant
to the Uniform Commercial Code in effect from time to time for any of the items
specified herein as part of the Property which, under applicable law, may be
subject to a security interest pursuant to the Uniform Commercial Code
(collectively, the "COLLATERAL"), and Grantor hereby, pursuant to the terms of
this Deed of Trust, grants Beneficiary a security interest in the Collateral.
Any reproduction of this Deed of Trust or of any other security agreement or
financing statement shall be sufficient as a financing statement. In addition,
Grantor agrees to execute and deliver to Beneficiary any financing statements,
as well as extensions, renewals and amendments thereof, and reproductions of
this Deed of Trust in such form as Beneficiary may require to perfect a security
interest with respect to said items. Grantor shall pay all costs of filing such
financing statements and any extensions, renewals, amendments and releases
thereof, and shall pay all reasonable costs and expenses of any record searches
for financing statements Beneficiary may reasonably require. Grantor shall, at
Beneficiary's request, at any time and from time to time, execute and deliver to
Beneficiary such financing statements, amendments and other documents and do
such acts as Beneficiary deems necessary in order to establish and maintain
valid, attached and perfected first security interests in the Collateral in
favor of Beneficiary, free and clear of all liens, claims and rights of third
parties whatsoever. Grantor hereby irrevocably authorizes Beneficiary at any
time, and from time to time, to execute and file in any jurisdiction any initial
financing statements and amendments thereto that (a) indicate the Collateral (i)
as all assets of the Grantor or words of similar effect, regardless of whether
any particular asset comprised in the Collateral falls within the scope of
Article 9 of the Uniform Commercial Code of the jurisdiction wherein such
financing statement or amendment is filed, or (ii) as being of an equal or
lesser scope or within greater detail, and (b) contain any other information
required by Section 5 of Article 9 of the Uniform Commercial Code of the
jurisdiction wherein such financing statement or amendment is filed regarding
the sufficiency or filing office acceptance of any financing statement or
amendment, including (i) whether the Grantor is an organization, the type of
organization and any organization identification number issued to the Grantor,
and (ii) in the case of a financing statement filed as a fixture filing or
indicating Collateral as as-extracted collateral or timber to be cut, a
sufficient description of real property to which the Collateral relates. Grantor
agrees to furnish any such information to Beneficiary promptly upon request.
Grantor further ratifies and affirms its


                                       20



authorization for any financing statements and/or amendments thereto, executed
and filed by Beneficiary in any jurisdiction prior to the date of this Deed of
Trust. In addition, Grantor covenants to: (w) obtain acknowledgments from any
bailee holding Collateral; (x) obtain consents from any letter of credit
issuers; (y) notify and take steps to perfect Beneficiary's security interest in
any Commercial Tort Claims; and (z) take any action necessary to vest control in
Beneficiary of any of Grantor's Electronic Chattel Paper. If an Event of Default
shall occur, Beneficiary, in addition to any other rights and remedies which it
may have, shall have and may exercise immediately and without demand, any and
all rights and remedies granted to a secured party upon default under the
Uniform Commercial Code, including without limitation, the right to take
possession of the Collateral or any part thereof, and to take such other
measures as Beneficiary may deem necessary for the care, protection and
preservation of the Collateral. Upon request or demand of Beneficiary, Grantor
shall, at its expense, assemble the Collateral and make it available to
Beneficiary at a convenient place acceptable to Beneficiary. Grantor shall pay
to Beneficiary on demand any and all expenses, including legal expenses and
attorneys' fees, incurred or paid by Beneficiary in protecting the interest in
the Collateral and in enforcing the rights hereunder with respect to the
Collateral. Any notice of sale, disposition or other intended action by
Beneficiary with respect to the Collateral sent to Grantor in accordance with
the provisions hereof at least ten (10) days prior to such action, shall
constitute commercially reasonable notice to Grantor. Capitalized words and
phrases used herein in this Paragraph 19 and not otherwise defined herein shall
have the respective meanings assigned to such terms in either: (i) Article 9 of
the Uniform Commercial Code as in force in the State of Illinois at the time the
financing statement was filed by Beneficiary, or (ii) Article 9 as in force at
any relevant time in the State of Illinois, the meaning to be ascribed thereto
with respect to any particular item of property shall be that under the more
encompassing of the two definitions.

     FOR PURPOSES OF THE UNIFORM COMMERCIAL CODE THE FOLLOWING INFORMATION IS
FURNISHED:

          a.   The name and address of the record owner of the real estate
               described in this instrument is:

               NNN Executive Center, LLC
               and the parties listed on EXHIBIT D hereto
               1551 N. Tustin Avenue
               Suite 200
               Santa Ana, California 92705

          b.   The name and address of the debtor (Grantor) is:

               NNN Executive Center, LLC
               and the parties listed on EXHIBIT D hereto
               1551 N. Tustin Avenue
               Suite 200
               Santa Ana, California 92705


                                       21



          c.   The name and address of the secured party (Beneficiary) is:

               LaSalle Bank National Association
               135 South LaSalle Street
               Suite 3410
               Chicago, Cook County, Illinois 60603

          d.   Information concerning the security interest evidenced by this
               instrument maybe obtained from the secured party at its address
               above.

          e.   This document covers assets and personal property which are or
               are to become fixtures.

          f.   The debtor (Grantor) is a Delaware limited liability company.

     20. EVENTS OF DEFAULT; ACCELERATION OF INDEBTEDNESS; REMEDIES. The
occurrence of any one or more of the following events shall constitute an "EVENT
OF DEFAULT" under this Deed of Trust:

          (a) failure of Grantor to pay (i) within 5 days of the due date, any
     of the Indebtedness, including any payment due under the Note or (ii) the
     outstanding Indebtedness including all accrued and unpaid interest in full
     on the Maturity Date; or

          (b) failure of Grantor to provide Beneficiary with evidence of renewal
     of any insurance required hereunder within 10 days of Beneficiary's request
     therefore, or

          (c) failure of Grantor to pay when due any taxes, assessments and
     other similar charges levied against the Property, or ground rents, if
     applicable, except to the extent sums sufficient to pay such amounts have
     been escrowed with Beneficiary as required under PARAGRAPH 3 and Grantor
     has given notice of such amounts due to Beneficiary; or

          (d) failure of Grantor to strictly comply with PARAGRAPHS 15,16 AND 17
     of this Deed of Trust; or

          (e) failure of Grantor to comply with the financial reporting
     requirements of PARAGRAPH 10 within 10 days after notice from Beneficiary;
     or

          (f) a petition under any Chapter of Title 11 of the United States Code
     or any similar law or regulation is filed by or against Grantor or any
     Guarantor (and in the case of an involuntary petition in bankruptcy, such
     petition is not discharged within 60 days of its filing), or a custodian,
     receiver or trustee for any of the Property is appointed, or Grantor or any
     Guarantor makes an assignment for the benefit of creditors, or any of them
     are adjudged insolvent by any state or federal court of competent
     jurisdiction, or an attachment or execution is levied against any of the
     Property; or

          (g) the occurrence of an "EVENT of DEFAULT" under and as defined in
     any other Loan Document; or


                                       22


          (h) Grantor is in default in the payment of any indebtedness (other
     than the Indebtedness) and such default is declared and is not cured within
     the time, if any, specified therefor in any agreement governing the same;
     or

          (i) any statement, report or certificate made or delivered to
     Beneficiary by Grantor or any Guarantor is not materially true and
     complete, or any representation or warranty made or delivered to
     Beneficiary by Grantor or any Guarantor is not materially true and correct;
     or

          (j) seizure or forfeiture of the Property, or any portion thereof, or
     Grantor's interest therein, resulting from criminal wrongdoing or other
     unlawful action of Grantor, its affiliates, or any tenant in the Property
     under any federal, state or local law; or

          (k) failure of Grantor, within 30 days after notice and demand, to
     satisfy each and every Obligation, other than those set forth in the
     subparagraphs above; provided, however, if such failure to satisfy such
     Obligation cannot by its nature be cured within 30 days, and if Grantor
     commences to cure such failure promptly after written notice thereof and
     thereafter diligently pursues the curing thereof (and then in all events
     cures such failure within 60 days after the original notice thereof),
     Grantor shall not be in default hereunder during such period of diligent
     curing; or

          (l) the termination of the Property Manager or modification or
     termination of the Management Agreement or TIC Agreement without the prior
     written consent of the Beneficiary; or

          (m) the filing of any action to partition all or any portion of the
     Property or any action to compel any sale thereof; or

          (n) the failure of Grantor to fully cooperate with Beneficiary in the
     establishment of the Lockbox Account.

     Upon the occurrence of an Event of Default, the Indebtedness, at the option
of the Beneficiary, shall become immediately due and payable without notice to
Grantor, and Beneficiary and Trustee, shall be entitled to immediately exercise
and pursue any or all of the rights and remedies contained in this Deed of Trust
and any other Loan Document or otherwise available at law or in equity. Each
remedy provided in the Loan Documents is distinct and cumulative to all other
rights or remedies under the Loan Documents or afforded by law or equity, and
may be exercised concurrently, independently, or successively, in any order
whatsoever.

     21. ENTRY; REMEDIES. Upon the occurrence of an Event of Default, (a)
Grantor, upon demand of Beneficiary, shall forthwith surrender to Beneficiary
the actual possession, or to the extent permitted by law, Beneficiary itself, or
by such officers or agents as it may appoint, may enter and take possession of
all or any part of the Property, and may exclude Grantor and its agents and
employees wholly therefrom, and may have joint access with Grantor to the books,
papers and accounts of Grantor; and (b) if Grantor shall for any reason fail to
surrender or deliver the Property or any part thereof after such demand by
Beneficiary, Beneficiary may obtain a judgment or decree conferring on
Beneficiary the right to immediate possession or requiring the delivery to
Beneficiary of the Property, and Grantor specifically consents to the entry of
such judgment or decree. Upon


                                       23



every such entering upon or taking of possession, Beneficiary may hold, store,
use, operate, manage and control the Property and conduct the business thereof.
Beneficiary shall have no liability for any loss, damage, injury, cost or
expense resulting from any action or omission by it or its representatives which
was taken or omitted in good faith.

     Upon any sale, Beneficiary may bid for and purchase the Property and shall
be entitled to apply all or part of the Indebtedness as a credit to the purchase
price.

     Upon the occurrence of an Event of Default, then, without notice to or the
consent of Grantor, Beneficiary shall be entitled to immediately exercise or
pursue or cause to be exercised or pursued any or all of the rights and remedies
contained in this Deed of Trust and in any other Loan Document or otherwise
available at law or in equity, including the right to do any one or more of the
following:

          (a) Cause the Trustee to sell the Property, and all estate, right,
     title, interest, claim and demand of Grantor therein, and all rights of
     redemption thereof, at one or more sales, as an entirety or in parcels,
     with such elements of real or personal property, or both, at public venue
     at the courthouse for the county where this Deed of Trust is recorded (or
     such other place as may be proper for the conduct of such sale in the
     jurisdiction in which the Property is located) to the highest bidder for
     cash at such time and place and upon such terms as it may deem expedient,
     or as may be required by applicable law, after first giving notice as
     required by applicable law, and in the event of a sale, by foreclosure,
     power of sale or otherwise, of less than all of the Property, this Deed of
     Trust shall continue as a lien and security interest on the remaining
     portion of the Property;

          (b) To enter upon, take possession of and manage the Property for the
     purpose of collecting the Rents;

          (c) To require Grantor to hold all Rents collected in trust for the
     benefit of Beneficiary;

          (d) Dispossess by the usual summary proceedings any Tenant defaulting
     in the payment of Rent to Grantor;

          (e) Lease the Property or any part thereof;

          (f) Repair, restore, and improve the Property;

          (g) Apply the Rent after payment of Property expenses as determined by
     Beneficiary to Grantor's indebtedness under the Loan Documents;

          (h) Apply to any court of competent jurisdiction for specific
     performance of this Deed of Trust, an injunction against the violation
     hereof and/or the appointment of a receiver; and

          (i) To foreclose this Deed of Trust by judicial or non-judicial
     process.


                                       24



     The foregoing remedies shall be cumulative of any other nonjudicial
remedies available to Beneficiary under this Deed of Trust or the other Loan
Documents, at law or in equity. Proceeding with a request or receiving a
judgment for legal relief shall not be or be deemed to be an election of
remedies or bar any available nonjudicial remedy of Beneficiary.

     22. EXPENDITURES AND EXPENSES. Grantor acknowledges and confirms that
Beneficiary shall impose certain administrative processing and/or commitment
fees in connection with (a) the extension, renewal, modification, amendment and
termination of its loans, (b) the release or substitution of collateral
therefor, (c) obtaining certain consents, waivers and approvals with respect to
the Property, or (d) the review of any Lease or proposed Lease or the
preparation or review of any subordination, non-disturbance and attornment
agreement. In addition, in any civil action to foreclose the lien hereof or
otherwise enforce Trustee's or Beneficiary's rights, there shall be allowed and
included as additional Indebtedness in the order or judgment for foreclosure and
sale or other order all expenditures and expenses which may be paid or incurred
by or on behalf of Beneficiary including attorneys' fees, costs and expenses,
receiver's fees, costs and expenses, appraiser's fees, engineers' fees, outlays
for documentary and expert evidence, stenographers' charges, publication costs,
and costs (which may be estimates as to items to be expended after entry of said
order or judgment) of procuring all such abstracts of title, title searches and
examination, title insurance policies, Torrens' Certificates and similar data
and assurances with respect to the title as Beneficiary may deem reasonably
necessary either to prosecute such civil action or to evidence to bidders at any
sale which may be had pursuant to such order or judgment the true condition of
the title to, or the value of, the Property (all said expenditures and expenses
are hereinafter collectively referred to as the "REIMBURSABLE EXPENSES"). All
Reimbursable Expenses, and such costs, expenses and fees as may be incurred by
Beneficiary at any time or times hereafter in the protection of the Property, in
enforcing the Obligations, and/or the maintenance of the lien established by any
of the Loan Documents, including accountants' and attorneys' fees, costs and
expenses in any advice, litigation, or proceeding affecting the Loan Documents
or the Property, whether instituted by Beneficiary, Trustee, Grantor or any
other party, or in preparation for the commencement or defense of any action or
proceeding or threatened action or proceeding, shall be immediately due and
payable to Beneficiary by Grantor, and, to the extent such services relate to
the Hazardous Substances Indemnification Agreement of even date herewith from
Grantor and Guarantors in favor of Beneficiary, by Grantor and Guarantors, with
interest thereon at the Default Rate set forth in the Note, and shall be secured
by the Loan Documents. In addition, Grantor shall be liable for the payment of
all commissions and brokerage fees relating to the Loan.

     23. APPLICATION OF PROCEEDS OF SALE. The proceeds of any sale of the
Property shall be distributed and applied in the order of priority set forth in
the Note with the excess, if any, being applied to any parties entitled thereto
as their rights may appear.

     24. APPOINTMENT OF RECEIVER OR MORTGAGEE IN POSSESSION. If an Event of
Default is continuing or if Beneficiary shall have accelerated the Indebtedness,
Beneficiary, upon application to a court of competent jurisdiction, shall be
entitled as a matter of strict right, without notice, and without regard to the
occupancy or value of any security for the Indebtedness, without any showing of
fraud or mismanagement on the part of Grantor or the insolvency of any party
bound for its payment, without regard to the existence of a declaration that the
Indebtedness, or any portion thereof, is immediately due and payable, and
without regard to the filing of a notice of default, to the appointment of a
receiver or the appointment of Beneficiary to take possession of and to operate
the


                                       25


Property, and to collect and apply the rents, issues, profits and revenues
thereof, and Grantor consents to such appointment.

     25. FORBEARANCE BY BENEFICIARY NOT A WAIVER. Any forbearance by Beneficiary
in exercising any right or remedy under any of the Loan Documents, or otherwise
afforded by applicable law, shall not be a waiver of or preclude the exercise of
any right or remedy. Beneficiary's acceptance of payment of any sum secured by
any of the Loan Documents after the due date of such payment shall not be a
waiver of Beneficiary's right to either require prompt payment when due of all
other sums so secured or to declare a default for failure to make prompt
payment. The procurement of insurance or the payment of taxes or other liens or
charges by Beneficiary shall not be a waiver of Beneficiary's right to
accelerate the maturity of the Indebtedness, nor shall Beneficiary's receipt of
any awards, proceeds or damages under PARAGRAPH 5 hereof operate to cure or
waive Grantor's default in payment or sums secured by any of the Loan Documents.
With respect to all Loan Documents, only waivers made in writing by Beneficiary
shall be effective against Beneficiary.

     26. WAIVER OF STATUTE OF LIMITATIONS. Grantor hereby waives the right to
assert any statute of limitations as a bar to the enforcement of the lien
created by any of the Loan Documents or to any action brought to enforce the
Note or any other obligation secured by any of the Loan Documents.

     27. WAIVER OF HOMESTEAD AND REDEMPTION. Grantor hereby waives all rights of
homestead exemption in the Property. Grantor hereby waives all right of
redemption on behalf of Grantor and on behalf of all other persons acquiring any
interest or title in the Property subsequent to the date of this Deed of Trust,
except decree or judgment creditors of Grantor.

     28. JURY TRIAL WAIVER. GRANTOR AND BENEFICIARY, BY ITS ACCEPTANCE OF THIS
DEED OF TRUST, EACH HEREBY WAIVES, TO THE FULLEST EXTENT PERMITTED BY LAW, ITS
RESPECTIVE RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING BASED UPON, OR
RELATED TO, THE SUBJECT MATTER OF THE LOAN DOCUMENTS AND THE BUSINESS
RELATIONSHIP THAT IS BEING ESTABLISHED. THIS WAIVER IS KNOWINGLY, INTENTIONALLY
AND VOLUNTARILY MADE BY GRANTOR AND BY BENEFICIARY, AND GRANTOR ACKNOWLEDGES ON
BEHALF OF ITSELF AND ITS PARTNERS, MEMBERS, SHAREHOLDERS, AS THE CASE MAY BE,
THAT NEITHER BENEFICIARY, TRUSTEE NOR ANY PERSON ACTING ON BEHALF OF BENEFICIARY
OR TRUSTEE HAS MADE ANY REPRESENTATIONS OF FACT TO INDUCE THIS WAIVER OF TRIAL
BY JURY OR HAS TAKEN ANY ACTIONS WHICH IN ANY WAY MODIFY OR NULLIFY ITS EFFECT.
GRANTOR AND BENEFICIARY ACKNOWLEDGE THAT THIS WAIVER IS A MATERIAL INDUCEMENT TO
ENTER INTO A BUSINESS RELATIONSHIP, THAT GRANTOR AND BENEFICIARY HAVE ALREADY
RELIED ON THIS WAIVER IN ENTERING INTO THE LOAN DOCUMENTS AND THAT EACH OF THEM
WILL CONTINUE TO RELY ON THIS WAIVER IN THEIR RELATED FUTURE DEALINGS. GRANTOR
AND BENEFICIARY FURTHER ACKNOWLEDGE THAT THEY HAVE BEEN REPRESENTED (OR HAVE HAD
THE OPPORTUNITY TO BE REPRESENTED) IN THE SIGNING OF THE LOAN DOCUMENTS AND IN
THE MAKING OF THIS WAIVER BY INDEPENDENT LEGAL COUNSEL SELECTED OF THEIR OWN
FREE


                                       26



WILL, AND THAT THEY HAVE HAD THE OPPORTUNITY TO DISCUSS THIS WAIVER WITH
COUNSEL.

     29. INDEMNIFICATION. In addition to any other indemnifications provided in
any of the other Loan Documents, Grantor shall, at its sole cost and expense,
protect, defend, indemnify, release and save harmless Beneficiary, Trustee, or
any person or entity who is or will have been involved in the servicing of this
Loan, as well as the respective affiliates, subsidiaries, persons controlling or
under common control, directors, officers, shareholders, members, partners,
employees, agents, servants, representatives, contractors, subcontractors,
participants, successors and assigns of any and all of the foregoing
(collectively, the "INDEMNIFIED PARTIES"), from and against all liabilities,
obligations, claims, demands, damages, penalties, causes of action, losses,
fines, costs and expenses (including without limitation reasonable attorneys'
fees and expenses), imposed upon or incurred by or asserted against any of the
Indemnified Parties and directly or indirectly arising out of or in any way
relating to any one or more of the following: (a) ownership of this Deed of
Trust, the Property or any interest therein or receipt of any Rents; (b) any
amendment to, or restructuring of, the Indebtedness, the Note, this Deed of
Trust or any other Loan Documents; (c) any and all lawful action that may be
taken by Beneficiary or Trustee in connection with the enforcement of the
provisions of this Deed of Trust or the Note or any other Loan Documents,
whether or not suit is filed in connection with same, or in connection with
Grantor or any Guarantor becoming a party to a voluntary or involuntary federal
or state bankruptcy, insolvency or similar proceeding; (d) any accident, injury
to or death of persons or loss of or damage to property occurring in, on or
about the Property or any part thereof or on the adjoining sidewalks, curbs,
adjacent property or adjacent parking areas, streets or ways; (e) any failure on
the part of Grantor to perform or comply with any of the terms of this Deed of
Trust; (f) performance of any labor or services or the furnishing of any
materials or other property in respect of the Property or any part thereof; (g)
any failure of the Property to comply with any laws or ordinances affecting or
which may be interpreted to affect the Property; or (h) any representation or
warranty made in the Note, this Deed of Trust or the other Loan Documents being
false or misleading in any respect as of the date such representation or
warranty was made. THE FOREGOING INDEMNIFICATION EXPRESSLY APPLIES TO AND
INCLUDES COSTS, DAMAGES AND CLAIMS ARISING, IN WHOLE OR IN PART, FROM THE
NEGLIGENCE OF LENDER, BUT NOT ITS GROSS NEGLIGENCE OR WILLFUL MISCONDUCT. IT IS
EXPRESSLY UNDERSTOOD AND AGREED THAT THE FOREGOING RELEASE COVERS ALL
LIABILITIES, OBLIGATIONS, COSTS, EXPENSES, CLAIMS AND DAMAGES, RESULTING FROM
THE NEGLIGENCE OF BENEFICIARY, ITS SUCCESSORS, ASSIGNS, PARTNERS, DIRECTORS,
OFFICERS, EMPLOYEES, AGENTS, ATTORNEYS, ADMINISTRATORS, TRUSTEES, SUBSIDIARIES,
AFFILIATES, BENEFICIARIES, SHAREHOLDERS AND REPRESENTATIVES, WHETHER SUCH
NEGLIGENCE BE THE SOLE NEGLIGENCE (WHETHER SIMPLE, GROSS, OR STRICT LIABILITY)
OF SUCH INDEMNIFIED PARTIES OR CONTRIBUTORY. The obligations and liabilities of
Grantor under this PARAGRAPH 29 (A) shall survive for a period of two (2) years
following any release of this Deed of Trust executed by Beneficiary and
satisfaction of the Loan evidenced by the Loan Documents, and (B) shall survive
the transfer or assignment of this Deed of Trust, the entry of a judgment of
foreclosure, sale of the Property by nonjudicial foreclosure sale, or delivery
of a deed in lieu of foreclosure (including, without limitation, any transfer by
Grantor of any of its rights, title and interest in and to the Property to any
party, whether or not affiliated with Grantor); provided, however, that any act
or omission pursuant to subparagraphs (a) through (h) above was taken or
occurred prior to the payment in full of the Indebtedness.


                                       27



     30. DUTY TO DEFEND. Upon written request by an Indemnified Party, Grantor
shall defend such Indemnified Party (if requested by an Indemnified Party, in
the name of the Indemnified Party) by attorneys and other professionals approved
by the Indemnified Parties. Notwithstanding the foregoing, any Indemnified
Parties may, in their sole and absolute discretion, engage their own attorneys
and other professionals to defend or assist them, and, at the option of the
Indemnified Parties, their attorneys shall control the resolution of the claim
or proceeding. Upon demand, Grantor shall pay or, in the sole and absolute
discretion of the Indemnified Parties, reimburse, the Indemnified Parties for
the payment of reasonable fees and disbursements of attorneys, engineers, and
other professionals in connection therewith. Any amounts payable to any of the
Indemnified Parties by reason of the application of PARAGRAPH 29 or this
paragraph shall be secured by this Deed of Trust and shall become immediately
due and payable and shall bear interest at the Default Rate specified in the
Note from the date loss or damage is sustained by any of the Indemnified Parties
until paid.

     31. ERISA. Grantor covenants and agrees that during the term of the Loan,
(a) Grantor is not a and will not become a "party in interest" as defined in
Section 3(14) of the Employee Retirement Income Security Act of 1974, as
amended, with respect to any employee benefit plan, (b) Grantor will take no
action that would cause it to (i) become an "employee benefit plan" or (ii)
otherwise be considered "plan assets" as defined in 29 C.F.R. Section
2510.3-101, or "assets of a governmental plan" subject to regulation under the
state statutes, and (c) Grantor will not sell, assign or transfer the Property,
or any portion thereof or interest therein, to any transferee that does not
execute and deliver to Beneficiary its written assumption of the obligations of
this covenant. Grantor further covenants and agrees to protect, defend,
indemnify and hold Beneficiary harmless from and against all loss, cost, damage
and expense (including without limitation, all attorneys' fees and excise taxes,
costs of correcting any prohibited transaction or obtaining an appropriate
exemption) that Beneficiary may incur as a result of Grantor's breach of this
covenant. This covenant and indemnity shall survive the extinguishment of the
lien of this Deed of Trust by foreclosure or action in lieu thereof;
furthermore, the foregoing indemnity shall supersede any limitations on
Grantor's liability under any of the Loan Documents.

     32. NO ORAL CHANGE. This Deed of Trust may not be modified, amended,
waived, extended, changed, discharged or terminated orally or by any act or
failure to act on the part of Grantor or Beneficiary, but only by an agreement
in writing signed by the party against whom enforcement of any modification,
amendment, waiver, extension, change, discharge or termination is sought.

     33. NOTICE. Except for any notice required under applicable law to be given
in another manner, (a) any notice to Grantor provided for in the Loan Documents
shall be given by mailing such notice by Federal Express or any other nationally
recognized overnight carrier addressed to Grantor at Grantor's address stated
above or at such other address as Grantor may designate by notice to Beneficiary
or Trustee as provided herein, and (b) any notice to Trustee or Beneficiary
shall be given by Federal Express or any other nationally recognized overnight
carrier to Trustee's or Beneficiary's address stated above or to such other
address as Trustee or Beneficiary may designate by notice to Grantor as provided
herein. Any notice provided for in the Loan Documents shall be deemed to have
been given to Grantor, Trustee or Beneficiary on the first Business Day
following such mailing in the manner designated herein. In addition, notice may
also be given by first class certified mail, return receipt requested, postage
prepaid, addressed to the address set forth above for


                                       28


the party to whom such notice is to be given and such notice given in this
manner shall be deemed received the third day after such notice was deposited
with the United States Postal Service.

     34. SUCCESSORS AND ASSIGNS BOUND; JOINT AND SEVERAL LIABILITY; AGENTS;
CAPTIONS. The covenants and agreements contained in the Loan Documents shall
bind, and the rights thereunder shall inure to, the respective successors and
assigns of Trustee, Beneficiary and Grantor, subject to the provisions of
PARAGRAPH 15 hereof. All representations, warranties, covenants and agreements
of Grantor contained in the Loan Documents shall be joint and several. In
exercising any rights under the Loan Documents or taking any actions provided
for therein, Trustee or Beneficiary may act through its employees, agents, or
independent contractors as authorized by Trustee or Beneficiary, respectively.
The captions and headings of the paragraphs of this Deed of Trust are for
convenience only and are not to be used to interpret or define the provisions
hereof.

     35. GOVERNING LAW; JURISDICTION; SEVERABILITY. THIS DEED OF TRUST SHALL BE
GOVERNED BY, CONSTRUED, APPLIED AND ENFORCED IN ACCORDANCE WITH THE INTERNAL
LAWS OF THE STATE OF ILLINOIS, WITHOUT REGARD TO CONFLICTS OF LAW PRINCIPLES,
AND GRANTOR AGREES THAT THE PROPER VENUE FOR ANY MATTERS IN CONNECTION HEREWITH
SHALL BE IN THE STATE OR FEDERAL COURTS LOCATED IN CHICAGO, ILLINOIS AS
BENEFICIARY MAY ELECT AND GRANTOR HEREBY SUBMITS ITSELF TO THE JURISDICTION OF
SUCH COURTS FOR THE PURPOSE OF ADJUDICATING ANY MATTERS RELATED TO THE LOAN,
PROVIDED, HOWEVER, THAT TO THE EXTENT THE MANDATORY PROVISIONS OF THE LAWS OF
ANOTHER JURISDICTION RELATING TO (I) THE PERFECTION OR THE EFFECT OF PERFECTION
OR NON-PERFECTION OF THE SECURITY INTERESTS IN ANY OF THE PROPERTY, (II) THE
LIEN, ENCUMBRANCE OR OTHER INTEREST IN THE PROPERTY GRANTED OR CONVEYED BY THIS
DEED OF TRUST, OR (III) THE AVAILABILITY OF AND PROCEDURES RELATING TO ANY
REMEDY HEREUNDER OR RELATED TO THIS DEED OF TRUST ARE REQUIRED TO BE GOVERNED BY
SUCH OTHER JURISDICTION'S LAWS, SUCH OTHER LAWS SHALL BE DEEMED TO GOVERN AND
CONTROL. THE INVALIDITY, ILLEGALITY OR UNENFORCEABILITY OF ANY PROVISION OF THIS
DEED OF TRUST OR THE LOAN DOCUMENTS SHALL NOT AFFECT OR IMPAIR THE VALIDITY,
LEGALITY OR ENFORCEABILITY OF THE REMAINDER OF THIS DEED OF TRUST AND THE OTHER
LOAN DOCUMENTS, AND TO THIS END, THE PROVISIONS OF THIS DEED OF TRUST AND THE
OTHER LOAN DOCUMENTS ARE DECLARED TO BE SEVERABLE.

     36. RELEASE. Upon payment of all sums secured by this Deed of Trust,
Beneficiary shall cause Trustee to release this Deed of Trust. Grantor shall pay
Beneficiary's and Trustee's reasonable costs incurred in releasing this Deed of
Trust and any financing statements related hereto.

     37. COVENANTS RUNNING WITH THE LAND. All covenants, conditions, warranties,
representations and other obligations contained in this Deed of Trust and the
other Loan Documents are intended by Grantor, Trustee and Beneficiary to be, and
shall be construed as, covenants running with the Property until the lien of
this Deed of Trust has been fully released by Beneficiary.


                                       29



     38. TERMS. As used in the Loan Documents, (i) "Business Day" means a day
when banks are not required or authorized to be closed in Chicago, Illinois or
New York, New York; and (ii) the words "include" and "including" shall mean
"including but not limited to" unless specifically set forth to the contrary.

     39. LOSS OF NOTE. Upon notice from Beneficiary of the loss, theft, or
destruction of the Note and upon receipt of indemnity reasonably satisfactory to
Grantor from Beneficiary, or in the case of mutilation of the Note, upon
surrender of the mutilated Note, Grantor shall make and deliver a new note of
like tenor in lieu of the then to be superseded Note.

     40. CHANGES IN THE LAWS REGARDING TAXATION. If any law is amended, enacted
or adopted after the date of this Deed of Trust which deducts the Indebtedness
from the value of the Property for the purpose of taxation or which imposes a
tax, either directly or indirectly, on the Indebtedness of Beneficiary's
interest in the Property, Grantor will pay such tax, with interest and penalties
thereon, if any. In the event Beneficiary is advised by counsel chosen by it
that the payment of such tax or interest and penalties by Grantor would be
unlawful or taxable to Beneficiary or unenforceable or provide the basis for a
defense of usury, then in any such event, Beneficiary shall have the option, by
written notice of not less than forty-five (45) days, to declare the
Indebtedness immediately due and payable.

     41. SUBSTITUTION OF TRUSTEE. Beneficiary may, from time to time by written
instrument executed and acknowledged by Beneficiary and recorded in the county
or counties where the Property is located, and by otherwise complying with the
provisions of any applicable statutes, substitute a successor or successors for
the Trustee named herein or acting hereunder. Any fees or expenses payable to
Trustee are the obligation of Grantor.

     42. EXCULPATION. This Deed of Trust and other Loan Documents and all of
Grantor's obligations hereunder and thereunder are subject to the provisions of
PARAGRAPH 11 of the Note entitled Exculpation. All of the provisions of the
Note, including PARAGRAPH 11, are incorporated herein by this reference.

     43. DISCLOSURE OF INFORMATION. Beneficiary shall have the right (but shall
be under no obligation) to make available to any party for the purpose of
granting participation in or selling, transferring, assigning or conveying all
or any part of the Loan (including any governmental agency or authority and any
prospective bidder at any foreclosure sale of the Property) any and all
information which Beneficiary may have with respect to the Property, Lease(s),
Grantor and any Guarantor, whether provided by Grantor, any Guarantor or any
third party or obtained as a result of any environmental assessments. Grantor
and each Guarantor agree that Beneficiary shall have no liability whatsoever as
a result of delivering any such information to any third party, and Grantor and
each Guarantor, on behalf of themselves and their successors and assigns, hereby
release and discharge Beneficiary from any and all liability, claims, damages,
or causes of action, arising out of, connected with or incidental to the
delivery of any such information to any third party. IT IS EXPRESSLY UNDERSTOOD
AND AGREED THAT THIS RELEASE COVERS ALL SUCH LIABILITIES, OBLIGATIONS, COSTS,
EXPENSES, CLAIMS AND DAMAGES, RESULTING FROM THE NEGLIGENCE OF BENEFICIARY, ITS
SUCCESSORS, ASSIGNS, PARTNERS, DIRECTORS, OFFICERS, EMPLOYEES, AGENTS,
ATTORNEYS, ADMINISTRATORS, TRUSTEES, SUBSIDIARIES, AFFILIATES, BENEFICIARIES,
SHAREHOLDERS AND


                                       30



REPRESENTATIVES, WHETHER SUCH NEGLIGENCE BE THE SOLE NEGLIGENCE (WHETHER SIMPLE,
GROSS, OR STRICT LIABILITY) OF SUCH INDEMNIFIED PARTIES OR CONTRIBUTORY.

     44. INTENTIONALLY DELETED.

     45. ACTIONS AND PROCEEDINGS. Beneficiary and Trustee have the right to
appear in and defend any action or proceeding brought with respect to the
Property and to bring any action or proceeding, in the name and on behalf of
Grantor, which Beneficiary and Trustee, in their discretion, decide should be
brought to protect their respective interests in the Property. Beneficiary and
Trustee shall, at their option, be subrogated to the lien of any deed of trust
or other security instrument discharged in whole or in part by the Indebtedness,
and any such subrogation rights shall constitute additional security for the
payment of the Indebtedness.

     46. NO THIRD PARTY BENEFICIARIES. The provisions of this Deed of Trust and
the other Loan Documents are for the benefit of Grantor and Beneficiary and
shall not inure to the benefit of any third party (other than any successor or
assignee of Beneficiary). This Deed of Trust and the other Loan Documents shall
not be construed as creating any rights, claims or causes of action against
Beneficiary or any of its officers, directors, agents or employees in favor of
any party other than Grantor including but not limited to any claims to any sums
held in the Replacement Reserve or the TI and Leasing Reserve.

     47. CUSTOMER IDENTIFICATION - USA PATRIOT ACT NOTICE; OFAC. Beneficiary
hereby notifies Grantor that pursuant to the requirements of the USA Patriot Act
(Title III of Pub. L. 107-56, signed into law October 26, 2001), as amended (the
"ACT"), and Beneficiary's policies and practices, Beneficiary is required to
obtain, verify and record certain information and documentation that identifies
Grantor, which information includes the name and address of Grantor and such
other information that will allow Beneficiary to identify Grantor in accordance
with the Act. Grantor represents and covenants that it is not and will not
become a person (individually, a "PROHIBITED PERSON" and collectively
"PROHIBITED PERSONS") listed on the Specially Designated Nationals and Blocked
Persons List maintained by the Office of Foreign Asset Control, U.S. Department
of the Treasury (the "OFAC LIST") or otherwise subject to any other prohibitions
or restriction imposed by laws, rules, regulations or executive orders,
including Executive Order No. 13224, administered by OFAC (collectively the
"OFAC RULES"). Grantor represents and covenants that it also (a) is not and will
not become owned or controlled by a Prohibited Person, (b) is not acting and
will not act for or on behalf of a Prohibited Person, (c) is not otherwise
associated with and will not become associated with a Prohibited Person, (d) is
not providing and will not provide any material, financial or technological
support for or financial or other service to or in support of acts of terrorism
or a Prohibited Person. Grantor will not transfer any interest in Grantor to or
enter into a Lease with a Prohibited Person. Grantor shall immediately notify
Beneficiary if Grantor has knowledge that any Guarantor or any member or
beneficial owner of Grantor or any Guarantor is or becomes a Prohibited Person
or (i) is indicted on or (ii) arraigned and held over on charges involving money
laundering or predicate crimes to money laundering. Grantor will not enter into
any Lease or any other transaction or undertake any activities related to the
Loan in violation of the federal Bank Secrecy Act, as amended ("BSA"), 31 U.S.C.
Section 5311, et seq. or any federal or state laws, rules, regulations or
executive orders, including, but not limited to, 18 U.S.C. Sections 1956, 1957
and 1960, prohibiting money laundering and terrorist financing (collectively
"ANTI-MONEY LAUNDERING


                                       31


LAWS"). Grantor shall (A) not use or permit the use of any proceeds of the Loan
in any way that will violate either the OFAC Rules or Anti-Money Laundering
Laws, (B) comply and cause all of its subsidiaries to comply with applicable
OFAC Rules and Anti-Money Laundering Laws, (C) provide information as
Beneficiary may require from time to time to permit Beneficiary to satisfy its
obligations under the OFAC Rules and/or the Anti-Money Laundering Laws and (D)
not engage in or conspire to engage in any transaction that evades or avoids, or
has the purpose of evading or avoiding, or attempts to violate, any of the
foregoing. Grantor shall immediately notify Beneficiary if any Tenant becomes a
Prohibited Person or (1) is convicted of, (2) pleads nolo contendere to, (3) is
indicted on, or (4) is arraigned and held over on charges involving money
laundering or predicate crimes to money laundering.

     48. EXHIBITS AND RIDERS. The following Exhibits and Riders (which may
contain additional representations, warranties, and covenants) are attached to
this Deed of Trust and hereby made a part of this Deed of Trust: EXHIBIT A
(legal description for Land) EXHIBIT B (definition of Personal Property), and
EXHIBIT C (pending and threatened litigation), EXHIBIT D (additional Grantors
and EXHIBIT E (Allocated loan amounts).

     49. COUNTERPARTS. This Deed of Trust may be executed in any number of
counterparts each of which shall be deemed to be an original but all of which
when taken together shall constitute one agreement.

     50. DISCLAIMERS. The relationship of Grantor and Beneficiary under this
Deed of Trust and the other Loan Documents is, and shall at all times remain,
solely that of borrower and lender; and Beneficiary neither undertakes nor
assumes any responsibility or duty to Grantor or to any third party with respect
to the Property. Notwithstanding any other provisions of this Deed of Trust and
the other Loan Documents: (i) Beneficiary is not, and shall not be construed to
be, a partner, joint venturer, member, alter ego, manager, controlling person or
other business associate or participant of any kind of Grantor and Beneficiary,
and Beneficiary does not intend to ever assume such status; (ii) Beneficiary
does not intend to ever assume any responsibility to any person for the quality,
suitability, safety or condition of the Property; and (iii) Beneficiary shall
not be deemed responsible for or a participant in any acts, omissions or
decisions of Grantor.

     Beneficiary shall not be directly or indirectly liable or responsible for
any loss, claim, cause of action, liability, indebtedness, damage or injury of
any kind or character to any person or property arising from any construction
on, or occupancy or use of, the Property, whether caused by or arising from: (i)
any defect in any building, structure, grading, fill, landscaping, or other
improvements thereon or in any on-site or off-site improvement or other facility
therein or thereon; (ii) any act or omission of Grantor or any of Grantor's
agents, employees, independent contractors, licensees or invitees; (iii) any
accident in or on the Property or any fire, flood, or other casualty or hazard
thereon; (iv) the failure of Grantor or any of Grantor's licensees, employees,
invitees, agents, independent contractors, or other representatives to maintain
the Property in a safe condition; or (v) any nuisance made or suffered on any
part of the Property.

     51. TRUSTEE'S COSTS. Grantor shall pay all costs, fees and expenses
incurred by Trustee and Trustee's agents and counsel in connection with the
Trustee's performance of its duties hereunder and all such costs, fees and
expenses shall be secured by this Deed of Trust.


                                       32



     52. SPECIAL STATE PROVISIONS. In the event of any conflict between the
terms and provisions of this section and any other provision of this Deed of
Trust, the terms and provisions of this section shall govern and control.

          (a) Instrument. This Deed of Trust shall be deemed to be and shall be
     enforceable as a deed of trust, leasehold deed of trust and security
     agreement and financing statement.

          (b) Foreclosure. Upon the occurrence of any Event of Default,
     Beneficiary may request Trustee to proceed with foreclosure under the power
     of sale which is hereby conferred, such foreclosure to be accomplished in
     accordance with the following provisions:

               (i) Public Sale. Trustee is hereby authorized and empowered, and
          it shall be Trustee's special duty, upon such request of Beneficiary
          to sell the Property, or any part thereof, at public auction to the
          highest bidder for cash, with or without having taken possession of
          same. Any such sale (including notice thereof) shall comply with the
          applicable requirements, at the time of the sale, of Section 51.002 of
          the Texas Property Code or, if and to the extent such statute is not
          then in force, with the applicable requirements, at the time of sale,
          of the successor statute or statutes, if any, governing sales of Texas
          real property under powers of sale, conferred by deeds of trust. If
          there is no statute in force at the time of the sale governing sales
          of Texas real property under powers of sale conferred by deeds of
          trust, such sale shall comply with applicable law, at the time of the
          sale governing sales of Texas real property under powers of sale
          conferred by deeds of trust.

               (ii) Right to Require Proof of Financial Ability and/or Cash Bid.
          At any time during the bidding, the Trustee may require a bidding
          party (A) to disclose its full name, state and city of residence,
          occupation, and specific business office location, and the name and
          address of the principal the bidding party is representing (if
          applicable), and (B) to demonstrate reasonable evidence of the bidding
          party's financial ability (or, if applicable, the financial ability of
          the principal of such bidding party), as a condition to the bidding
          party submitting bids at the foreclosure sale. If any such bidding
          party (the "Questioned Bidder") declines to comply with the Trustee's
          requirement in this regard, or if such Questioned Bidder does respond
          but the Trustee, in Trustee's sole and absolute discretion, deems the
          information or the evidence of the financial ability of the Questioned
          Bidder (or, if applicable, the principal of such bidding party) to be
          inadequate, then the Trustee may continue the bidding with
          reservation; and in such event (1) the Trustee shall be authorized to
          caution the Questioned Bidder concerning the legal obligations to be
          incurred in submitting bids, and (2) if the Questioned Bidder is not
          the highest bidder at the sale, or if having been the highest bidder
          the Questioned Bidder fails to deliver the cash purchase price payment
          promptly to the Trustee, all bids by the Questioned Bidder shall be
          null and void. The Trustee may, in Trustee's sole and absolute
          discretion, determine that a credit bid may be in the best interest of
          the Grantor and Beneficiary, and elect to sell the Property for credit
          or for a combination of cash and credit; provided, however, that the
          Trustee shall have no obligation to accept any bid except an all cash
          bid. In the event the Trustee requires a cash bid and cash is not
          delivered


                                       33



          within a reasonable time after conclusion of the bidding process, as
          specified by the Trustee, but in no event later than 3:45 p.m. local
          time on the day of sale, then said contingent sale shall be null and
          void, the bidding process may be recommenced, and any subsequent bids
          or sale shall be made as if no prior bids were made or accepted.

               (iii) Sale Subject to Unmatured Indebtedness. In addition to the
          rights and powers of sale granted under the preceding provisions of
          this subsection, if default is made in the payment of any installment
          of the Indebtedness, Beneficiary may, at Beneficiary's option, at once
          or at any time thereafter while any matured installment remains
          unpaid, without declaring the entire Indebtedness to be due and
          payable, orally or in writing direct Trustee to enforce this trust and
          to sell the Property subject to such unmatured Indebtedness and
          Obligations and to the rights, powers liens, security interests, and
          assignments securing or providing recourse for payment of such
          unmatured Indebtedness and Obligations, in the same manner, all as
          provided in the preceding provisions of this subsection. Sales made
          without maturing the Indebtedness may be made hereunder whenever there
          is a default in the payment of any installment of the Indebtedness,
          without exhausting the power of sale granted hereby, and without
          affecting in any way the power of sale granted under this subsection,
          the unmatured balance of the Indebtedness or the rights, powers,
          liens, security interests, and assignments securing or providing
          recourse for payment of the Indebtedness.

               (iv) Partial Foreclosure. Sale of a part of the Property shall
          not exhaust the power of sale, but sales may be made from time to time
          until the Indebtedness is paid in full. It is intended by each of the
          foregoing provisions of this subsection that Trustee may, after any
          request or direction by Beneficiary, sell not only the Land and the
          Improvements, but also the equipment and other interests constituting
          a part of the Property or any part thereof, along with the Land and
          the Improvements or any part thereof, as a unit and as a part of a
          single sale, or may sell at any time or from time to time any part or
          parts of the Property separately from the remainder of the Property.
          It shall not be necessary to have present or to exhibit at any sale
          any of the Property.

               (v) Trustee's Deeds. After any sale under this subsection,
          Trustee shall make good and sufficient deeds, assignments, and other
          conveyances to the purchaser or purchasers thereunder in the name of
          Grantor, conveying the Property or any part thereof so sold to the
          purchaser or purchasers with general warranty of title by Grantor. It
          is agreed that in any deeds, assignments or other conveyances given by
          Trustee, any and all statements of fact or other recitals therein made
          as to the identity of Beneficiary, the occurrence or existence of any
          Event of Default, the notice of intention to accelerate, or
          acceleration of, the maturity of the Indebtedness and Obligations, the
          request to sell, notice of sale, time, place, terms and manner of
          sale, and receipt, distribution, and application of the money realized
          therefrom, the due and proper appointment of a substitute trustee, and
          without being limited by the foregoing, any other act or thing having
          been duly done by or on behalf of Beneficiary or by or on behalf of
          Trustee, shall be taken by all courts of law and equity as prima facie
          evidence that such statements or recitals state true, correct, and


                                       34


          complete facts and are without further question to be so accepted, and
          Grantor does hereby ratify and confirm any and all acts that Trustee
          may lawfully do in the premises by virtue hereof.

          (c) Receiver. Beneficiary, as a matter of right and without regard to
     the sufficiency of the security for repayment of the Indebtedness and
     performance and discharge of the Obligations, without notice to Grantor and
     without any showing of insolvency, fraud, or mismanagement on the part of
     Grantor, and without the necessity of filing any judicial or other
     proceeding other than the proceeding for appointment of a receiver, shall
     be entitled to the appointment of a receiver or receivers of the Property
     or any part thereof, and of the Rents, and Grantor hereby irrevocably
     consents to the appointment of a receiver or receivers. Any receiver
     appointed pursuant to the provisions of this subsection shall have the
     usual powers and duties of receivers in such matters.

          (d) Inapplicability of Finance Code. In no event shall the provisions
     of Chapter 346 of the Texas Finance Code (which regulates certain revolving
     credit loan accounts and revolving triparty accounts) apply to the loan
     evidenced by the Loan Documents and/or secured hereby.

          (e) Entire Agreement. THIS DEED OF TRUST AND THE OTHER LOAN DOCUMENTS
     EMBODY THE FINAL, ENTIRE AGREEMENT AMONG THE PARTIES HERETO AND SUPERSEDE
     ANY AND ALL PRIOR COMMITMENTS, AGREEMENTS, REPRESENTATIONS AND
     UNDERSTANDINGS, WHETHER WRITTEN OR ORAL, RELATING TO THE SUBJECT MATTER
     HEREOF AND THEREOF AND MAY NOT BE CONTRADICTED OR VARIED BY EVIDENCE OF
     PRIOR, CONTEMPORANEOUS, OR SUBSEQUENT ORAL AGREEMENTS OR DISCUSSIONS OF THE
     PARTIES HERETO. THERE ARE NO ORAL AGREEMENTS AMONG THE PARTIES HERETO.

          (f) Notice of Indemnification. GRANTOR ACKNOWLEDGES THAT THIS DEED OF
     TRUST PROVIDES FOR INDEMNIFICATION OF BENEFICIARY BY GRANTOR PURSUANT TO
     SECTION 29.

          (g) Due on Sale. The entire Indebtedness shall be due and payable in
     full in the event of any sale, conveyance, alienation, mortgage,
     encumbrance, pledge or other transfer of the Property (or any part thereof)
     unless expressly permitted by the terms of this Deed of Trust or otherwise
     consented to in writing by Beneficiary.

     53. PARTIAL RELEASE OF PROPERTIES. The Real Property is comprised of the
Executive II project located at 8360 LBJ Freeway, Dallas, Texas (the "EXECUTIVE
II PROPERTY"), and the Executive III project 8330 LBJ Freeway, Dallas, Texas
(the "EXECUTIVE III PROPERTY"). Grantor shall have the right to obtain releases
of either one of the Executive II Property or the Executive III Property (each,
a "RELEASE PROPERTY"), from the lien of this Deed of Trust and the other Loan
Documents upon a written request made not later than ten (10) business days
prior to the requested release (and accompanied by any purchase agreements and
other supporting documentation), subject to the following terms and conditions:


                                       35



          (a) no default or Event of Default exists or shall have occurred
     during the most recent two (2) calendar quarters under the Loan Documents;

          (b) the applicable Release Property shall be sold to a third-party
     party purchaser in an arms-length transaction such that the Grantor and its
     partners, principals and affiliates will no longer own the applicable
     Release Property;

          (c) Grantor shall pay to Beneficiary in immediately available funds,
     the release price for Release Property, which release price shall be the
     greater of (i) 125% of the Allocated Loan Amount, as set forth on EXHIBIT E
     attached hereto and made a part hereof (the "RELEASE PRICE"); and (ii)
     ninety percent (90%) of the Net Sales Proceeds with respect to the
     applicable Release Property.

          (d) The Debt Service Coverage for the remaining unreleased Real
     Property shall be the Minimum Debt Service Coverage (as defined in the
     Note).

     For the purposes hereof, "NET SALES PROCEEDS" shall mean the value of all
consideration received in connection with the sale of a Release Property
including cash, notes, assumed indebtedness, deferred payments (contingent or
otherwise), less reasonable and customary costs and expenses of transfer
(including broker's commissions) not to exceed six percent (6.0%) of the
aggregate consideration.

            [THE REMAINDER OF THIS PAGE IS INTENTIONALLY LEFT BLANK;
                             SIGNATURE PAGES FOLLOW]


                                       36



     IN WITNESS WHEREOF, Grantor has executed this Deed of Trust or has caused
the same to be executed by its representatives thereunto duly authorized.

                                        GRANTOR:

                                        NNN Executive Center, LLC,
                                        a Delaware limited liability company

                                        By: Triple Net Properties, LLC,
                                            a Virginia limited liability company
                                            its sole manager


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 1, LLC,
                                        a Delaware limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 2, LLC,
                                        a Delaware limited liability company

                                        By: Triple Net Properties, LLC,
                                            a Virginia limited liability
                                            company, its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 3 LLC,
                                        a Delaware limited liability company

                                        By: Triple Net Properties LLC,
                                            a Virginia limited liability
                                            company, its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT





                                        NNN EXECUTIVE CENTER 4, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 5, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 6, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 7, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT



                                        NNN EXECUTIVE CENTER 8, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 9, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 10, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 11, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT



                                        NNN EXECUTIVE CENTER 12, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 13, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 15, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 16, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER II AND III 2003,
                                        LP, a Texas limited partnership

                                        By: NNN Executive Center II and III
                                            GP, LLC, a Delaware limited
                                            liability company, its sole
                                            general partner

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability
                                            company, its sole manager


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT




STATE OF CALIFORNIA   )
                      )SS.
COUNTY OF Orange      )

     On December 28, 2005, before me, J.Hu, Notary Public (Name, Title of
Officer, e.g., "Jane Doe, Notary Public") personally appeared Louis Rogers
(Name(s) of Signer(s))

     [X]  personally known to me - OR -

     [ ]  proved to me on the basis of satisfactory evidence

to be the person whose name are subscribed to the within instrument and
acknowledged to me that she/they executed the same in her/their authorized
capacity, and that by her/their signature on the instrument the person, or the
entity upon behalf of which person acted, executed the instrument.

     Witness my hand and official seal.


                                        /s/ J. HU
                                        ----------------------------------------
                                        (Signature of Notary)

(SEAL)

My Commission expires:
Sept. 30, 2009                                                   J.HU
                                                         Commission # 1610142
                                         (STAMP)     Notary Public - California
                                                           Orange County
                                                   My Comm. Expires Sep 30, 2009



                                    EXHIBIT A

                                LEGAL DESCRIPTION


                                       A-l



                                    EXHIBIT B

                              THE PERSONAL PROPERTY

     As used herein, the following items are referred to as the "PERSONAL
     PROPERTY":

     Any and all assets of the Grantor, of any kind or description, tangible or
     intangible, whether now existing or hereafter arising or acquired,
     including, but not limited to:

          (e) all property of, or for the account of, the Grantor now or
     hereafter coming into the possession, control or custody of, or in transit
     to, the Beneficiary or any agent or bailee for the Beneficiary or any
     parent, affiliate or subsidiary of the Beneficiary or any participant with
     the Beneficiary in the loans to the Grantor (whether for safekeeping,
     deposit, collection, custody, pledge, transmission or otherwise), including
     all earnings, dividends, interest, or other rights in connection therewith
     and the products and proceeds therefrom, including the proceeds of
     insurance thereon; and

          (f) the additional property of the Grantor, whether now existing or
     hereafter arising or acquired, and wherever now or hereafter located,
     together with all additions and accessions thereto, substitutions for, and
     replacements, products and proceeds therefrom, and all of the Grantor's
     books and records and recorded data relating thereto (regardless of the
     medium of recording or storage), together with all of the Grantor's right,
     title and interest in and to all computer software required to utilize,
     create, maintain and process any such records or data on electronic media,
     identified and set forth as follows:

               (i) All Accounts and all Goods whose sale, lease or other
          disposition by the Grantor has given rise to Accounts and have been
          returned to, or repossessed or stopped in transit by, the Grantor, or
          rejected or refused by an Account Debtor;

               (ii) All Inventory, including, without limitation, raw materials,
          work-in-process and finished goods;

               (iii) All Goods (other than Inventory), including, without
          limitation, embedded software, Equipment, vehicles, furniture and
          Fixtures;

               (iv) All Software and computer programs;

               (v) All Securities and Investment Property;

               (vi) All Chattel Paper, Electronic Chattel Paper, Instruments,
          Documents, Letter of Credit Rights, all proceeds of letters of credit,
          Health-Care-Insurance Receivables, Supporting Obligations, notes
          secured by real estate, Commercial Tort Claims, contracts, licenses,
          permits and all other General Intangibles, including Payment
          Intangibles;

               (vii) All insurance policies and proceeds insuring the foregoing
          property or any part thereof, including unearned premiums; and


                                       B-l


               (viii) All operating accounts, the Loan funds, all escrows,
          reserves and any other monies on deposit with or for the benefit of
          Beneficiary, including deposits for the payment of real estate taxes
          and insurance, maintenance and leasing reserves, and any cash
          collateral accounts, clearing house accounts, operating accounts, bank
          accounts of Grantor or any other Deposit Accounts of Grantor.

     Capitalized words and phrases used herein and not otherwise defined herein
shall have the respective meanings assigned to such terms in either: (i) Article
9 of the Uniform Commercial Code as in force in Illinois at the time the
financing statement was filed by Beneficiary, or (ii) Article 9 as in force at
any relevant time in Illinois, the meaning to be ascribed thereto with respect
to any particular item of property shall be that under the more encompassing of
the two definitions.

Beneficiary:             LaSalle Bank National Association
Beneficiary's Address:   135 S. LaSalle Street, Suite 1225
                         Chicago, Illinois 60603
                         Attention: Commercial Real Estate

Grantor:                 NNN Executive Center, LLC
                         and the parties listed on EXHIBIT D hereto
Grantor's Address:       1551 N. Tustin Avenue, Suite 200
                         Santa Ana, California 92705


                                       B-2



                                    EXHIBIT C

                        PENDING AND THREATENED LITIGATION

As previously disclosed to Beneficiary.


                                       C-l



                                    EXHIBIT D

                               ADDITIONAL GRANTORS

                           NNN Executive Center 1, LLC
                           NNN Executive Center 2, LLC
                           NNN Executive Center 3, LLC
                           NNN Executive Center 4, LLC
                           NNN Executive Center 5, LLC
                           NNN Executive Center 6, LLC
                           NNN Executive Center 7, LLC
                           NNN Executive Center 8, LLC
                           NNN Executive Center 9, LLC
                          NNN Executive Center 10, LLC
                          NNN Executive Center 11, LLC
                          NNN Executive Center 12, LLC
                          NNN Executive Center 13, LLC
                          NNN Executive Center 15, LLC
                          NNN Executive Center 16, LLC
                    NNN Executive Center II and III 2003, LP


                                       D-l



                                    EXHIBIT E

                             ALLOCATED LOAN AMOUNTS



PROPERTY               ALLOCATED LOAN AMOUNT
- --------               ---------------------
                    
Executive Center II        $ 5,050,000.00
Executive Center III       $10,950,000.00



                                       E-l

EX-10.18

                                                                   Exhibit 10.18


                                PROMISSORY NOTE

$13,000,000.00                                                 December __, 2005
                                                           Santa Ana, California

     1. AGREEMENT TO PAY. FOR VALUE RECEIVED, NNN Executive Center, LLC, a
Delaware limited liability company ("NNN BORROWER"), and the parties listed on
EXHIBIT A attached hereto (collectively, "ADDITIONAL BORROWERS") (NNN Borrower
and Additional Borrowers are hereinafter individually and collectively referred
to as "BORROWER", as the context may require, provided, however, that the
context shall always be one which affords Lender the broadest possible rights
and remedies under the Loan Documents and which permits Lender, in its
discretion, to enforce the obligations and liabilities hereunder against one or
more of the entities comprising Borrower), hereby promise to pay to the order of
LASALLE BANK NATIONAL ASSOCIATION, a national banking association, its
successors and assigns ("LENDER"), the principal sum of Thirteen Million and
No/100 Dollars ($13,000,000.00) ("LOAN"), or so much as may be now or hereafter
disbursed by Lender to Borrower at the place and in the manner hereinafter
provided, together with interest thereon at the rate or rates described below
(the "INTEREST RATE"), and any and ALL other amounts which may be due and
payable hereunder from time to time.

     2. INTEREST RATE. The "INTEREST RATE" applicable to this Note shall mean
whichever of the Loan Rate, LIBOR Rate and Applicable Margin or Default Rate
are in effect from time to time.

          2.1 INTEREST PRIOR TO DEFAULT.

               (a) Unless an optional interest rate under Section 2.1(b) below
          is in effect, as described below, Interest shall accrue on the
          outstanding principal balance of this Note from the date hereof
          through January 1, 2008 ("MATURITY DATE") at an annual rate equal to
          the Prime Rate plus one-half percent (0.5%) ("LOAN RATE"). Changes in
          the rate of interest to be charged hereunder based on the Prime Rate
          shall take effect immediately upon the occurrence of any change in the
          Prime Rate.

               "PRIME RATE" means the rate of interest most recently announced
          by Lender at Chicago, Illinois as its prime or base rate. A
          certificate made by an officer of Lender stating the Prime Rate in
          effect on any given day, for the purposes hereof, shall be conclusive
          evidence of the Prime Rate in effect on such day. The "Prime Rate" is
          a base reference rate of interest adopted by Lender as a general
          benchmark from which Lender determines the floating interest rates
          chargeable on various loans to borrowers with varying degrees of
          creditworthiness and Borrower acknowledges and agrees that Lender has
          made no representations whatsoever that the "Prime Rate" is the
          interest rate actually offered by Lender to borrowers of any
          particular creditworthiness.

               (b) OPTIONAL INTEREST RATES. Borrower may elect the optional
          interest rate(s) described below in Section 2.1(c) for the Loan during
          the interest periods described below.



               (c) LIB0R RATE. Subject to the terms hereinafter set forth,
          Borrower may elect to have all of the outstanding principal balance of
          this Note bear interest at an annual rate equal to the LIBOR Rate plus
          two and 25/100 percent (2.25%) (the "APPLICABLE MARGIN"): The interest
          period during which the LIBOR Rate will be in effect will be
          successive one, two or three month periods, or such other period as
          may be agreed to by Lender and Borrower. Borrower shall irrevocably
          request, in writing, the LIBOR Rate Contract Period (each such period
          shall be deemed a "LIBOR RATE CONTRACT PERIOD") no later than 2:00
          p.m. Chicago time on the day on which the London Inter-Bank Offered
          Rate will be set, as specified below. If the first election for a
          LIBOR Rate is made such that the interest period shall commence on any
          day other than the first Business Day of a month, then the initial
          interest period shall end on the last day of the month in which such
          election is made and the portion for such partial month shall bear
          interest at a short term LIBOR Rate, plus the Applicable Margin. In
          any event the first day of the interest period must be a day on which
          Lender is open for business in Chicago, Illinois (a "BUSINESS DAY")
          and banks are open in London, England and dealing in offshore United
          States dollars. The last day of the interest period and the actual
          number of days during the interest period will be determined by Lender
          using the practices of the London Inter-Bank market. Each election by
          Borrower of the LIBOR Rate (and Applicable Margin) to apply to the
          principal balance of this Note for a LIBOR Rate Contract period shall
          be referred to herein as a "LIBOR CONTRACT". No more than five (5)
          LIBOR Contracts may be outstanding at any one time.

          "LIBOR RATE" means the interest rate deteramined by the following
          formula:

                            London Inter-Bank Offered Rate
                    LIBOR = ------------------------------
                              (1.00 - Reserve Percentage)

               Where,

                         (1) "LONDON INTER-BANK OFFERED RATE" means the rate per
                    annum equal to the offered rate for deposits in U.S. dollars
                    for the applicable interest period and for amounts
                    comparable to the LIBOR Rate published by Bloomberg's
                    Financial Markets Commodities News at approximately 8:00
                    a.m. Chicago time two (2) Business Days before the
                    commencement of the interest period (or if not so published,
                    Lender, in its sole discretion, shall designate another
                    daily financial or governmental publication of national
                    circulation to determine such rate); provided, however, that
                    after the first election of an interest period with respect
                    to the Libor Rate Contract Period, the London Inter-Bank
                    Offered Rate shall be determined at approximately 8:00 a.m.
                    Chicago time on the first day of the month for each interest
                    period thereafter with respect to such Libor Rate Contract
                    Period.


                                        2



                         (2) "RESERVE PERCENTAGE" means the total of the maximum
                    reserve percentages for determining the reserves to be
                    maintained by member banks of the Federal Reserve System for
                    Eurocurrency Liabilities, as defined in Federal Reserve
                    Board Regulation D, rounded upward to the nearest 1/100 of
                    one percent. The percentage will be expressed as a decimal,
                    and will include, but not be limited to, marginal,
                    emergency, supplemental, special, and other reserve
                    percentages.

                    (i) Each LIBOR Rate Contract Period elected by Borrower
               shall automatically renew for the same interest period at the
               then current LIBOR Rate plus the Applicable Margin unless
               Borrower shall otherwise irrevocably request, in writing, a
               different interest period or conversion of all the LIBOR Rate to
               the Loan Rate, no later than 2:00 p.m. Chicago time on the second
               (2nd) Business Day before the expiration of the existing
               interest period. Borrower may not elect a LIBOR Rate with respect
               to any principal amount which is scheduled to be repaid before
               the last day of the applicable interest period, and any such
               amounts shall bear interest at the Loan Rate, until repaid.

                    (ii) Lender is not obligated to accept a deposit in the
               inter-bank market in order to charge interest at the LIBOR Rate,
               once Borrower elects such rate.

                    (iii) Each prepayment of the Loan while a LIBOR Rate is in
               effect, whether voluntary, involuntary, by reason of acceleration
               or otherwise, will be accompanied by the amount of accrued
               interest on the amount prepaid and any and all costs, expenses,
               penalties and charges incurred by Lender as a result of the early
               termination or breakage of a LIBOR Rate Contract.

                    (iv) Lender will have no obligation to accept an election
               for a LIBOR Rate if any of the following described events has
               occurred and is continuing:

                         (1) Dollar deposits in the principal amount and for
                    periods equal to the interest period, of a LIBOR Rate
                    Contract are not available in the London Inter-Bank Market;
                    or

                         (2) maintenance of a LIBOR Rate Contract would violate
                    any applicable law, rule, regulation or directive, whether
                    or not having the force of law; or

                         (3) the LIBOR Rate does not accurately reflect the cost
                    of a LIBOR Rate Contract; or


                                       3



                         (4) an Event of Default has occurred and is continuing
                    or any event or circumstance exists which, with the giving
                    of notice or passage of time, would constitute an Event of
                    Default.

                    (v) In addition, Borrower shall be responsible for paying
               any costs ("ADDITIONAL COSTS") actually incurred by Lender as a
               direct result of any change in Lender's cost of complying with
               any law, rule, regulation or other requirement imposed,
               interpreted or enforced by any federal, state or other
               governmental or monetary authority which is applicable to assets
               held by or deposits or accounts with or credits extended by
               Lender and which causes Lender to incur costs or increases the
               effective cost to Lender of lending to Borrower at the LIBOR Rate
               or decreases the effective spread or yield of two and 25/100ths
               percent (2.25%) per annum above the LIBOR Rate which would be
               made by Lender on a LIBOR Rate Portion.

          2.2 INTEREST AFTER DEFAULT. From and after the Maturity Date or the
     Extended Maturity Date (as hereinafter defined) or upon the occurrence and
     during the continuance of an Event of Default, interest shall accrue on the
     balance of principal remaining unpaid during any such period at an annual
     rate ("DEFAULT RATE") equal to five percent (5%) plus the Loan Rate
     (whether or not a LIBOR Rate Contract is then in effect); provided,
     however, in no event shall the Default Rate exceed the maximum rate
     permitted by law. The interest accruing under this paragraph shall be
     immediately due and payable by Borrower to the holder of this Note upon
     demand and shall be additional indebtedness evidenced by this Note.

          2.3 INTEREST CALCULATION. Interest on this Note shall be calculated on
     the basis of a 360-day year and the actual number of days elapsed in any
     portion of a month in which interest is due.

     3. PAYMENT TERMS.

          3.1 PRINCIPAL AND INTEREST. Payments of principal and interest due
     under this Note, if not sooner declared to be due in accordance with the
     provisions hereof, shall be made as follows:

               (a) On the date the proceeds of the Loan are disbursed by Lender
          ("CLOSING DATE"), interest on the principal balance of this Note
          accruing during the period commencing on the Closing Date and ending
          on the last day of the month in which the Closing Date occurs shall be
          due and payable.

               (b) Commencing on February 1, 2006, and on the first Business Day
          of each month thereafter through and including the month in which the
          Maturity Date or Extended Maturity Date (as hereinafter defined)
          occurs, interest accrued on the portions of this Note bearing interest
          at the Loan Rate or the LIBOR Rate (and Applicable Margin) shall be
          due and payable. Any costs associated with the


                                       4



          termination or breakage or other disposition of a LIBOR Contract shall
          be due and payable in full on the date of such termination, breakage
          or disposition.

               (c) The unpaid principal balance of this Note, if not sooner paid
          or declared to be due in accordance with the terms hereof, together
          with all accrued and unpaid interest thereon and any other amounts due
          and payable hereunder or under any other Loan Document (as hereinafter
          defined), shall be due and payable in full on the Maturity Date or the
          Extended Maturity Date.

          3.2 APPLICATION OF PAYMENTS. Prior to the occurrence of an Event of
     Default, all payments and prepayments on account of the indebtedness
     evidenced by this Note shall be applied as follows: (a) first, to fees,
     expenses, costs and other similar amounts then due and payable to Lender,
     including, without limitation any prepayment premium, exit fee or late
     charges due hereunder, (b) second, to accrued and unpaid interest on the
     principal balance of this Note, (c) third, to the payment of principal due
     in the month in which the payment or prepayment is made, (d) fourth, to any
     escrows, impounds or other amounts which may then be due and payable under
     the Loan Documents (as hereinafter defined), (e) fifth, to any other
     amounts then due Lender hereunder or under any of the Loan Documents, and
     (f) last, to the unpaid principal balance of this Note in the inverse order
     of maturity. Any prepayment on account of the indebtedness evidenced by
     this Note shall not extend or postpone the due date or reduce the amount of
     any subsequent monthly payment of principal and interest due hereunder.
     After an Event of Default has occurred and is continuing, payments may be
     applied by Lender to amounts owed hereunder and under the Loan Documents in
     such order as Lender shall determine, in its sole discretion.

          3.3 METHOD OF PAYMENTS. All payments of principal and interest
     hereunder shall be paid by automatic debit, wire transfer, check or in coin
     or currency which, at the time or times of payment, is the legal tender for
     public and private debts in the United States of America and shall be made
     at such place as Lender or the legal holder or holders of this Note may
     from time to time appoint in the payment invoice or otherwise in writing,
     and in the absence of such appointment, then at the offices of Lender at
     135 South LaSalle Street, Suite 1225, Chicago, Illinois 60603, Attention:
     A. Brad Feine. Payment made by check shall be deemed paid on the date
     Lender receives such check; provided, however, that if such check is
     subsequently returned to Lender unpaid due to insufficient funds or
     otherwise, the payment shall not be deemed to have been made and shall
     continue to bear interest until collected. Notwithstanding the foregoing,
     the final payment due under this Note must be made by wire transfer or
     other final funds.

          3.4 LATE CHARGE. Other than the last payment due on the Maturity Date
     or the Extended Maturity Date, if any payment of interest or principal due
     hereunder is not made within seven days after such payment is due in
     accordance with the terms hereof (other than the payment due on the
     Maturity Date or Extended Maturity Date), then, in addition to the payment
     of the amount so due, Borrower shall pay to Lender a "late charge" of three
     cents for each whole dollar so overdue to defray part of the cost of
     collection and handling such late payment. Borrower agrees that the damages
     to be sustained by the holder hereof for the detriment caused by any late
     payment are


                                       5



     extremely difficult and impractical to ascertain, and that the amount of
     three cents for each one dollar due is a reasonable estimate of such
     damages, does not constitute interest, and is not a penalty.

          3.5 PREPAYMENT. [IF THE NOTE BEARS INTEREST AT THE LOAN RATE] The Note
     may be prepaid, either in whole or in part, without penalty or premium, at
     any time and from time to time upon five (5) days prior notice to Lender.
     [IF THE NOTE BEARS INTEREST AT THE LIBOR RATE] The Note may be prepaid,
     without penalty or premium, only on the last day of a LIBOR Rate Contract
     Period; provided, however, that Borrower may prepay a LIBOR Contract prior
     to such day so long as such prepayment is accompanied by the simultaneous
     payment of the Make Whole Costs (defined below), plus accrued interest on
     the LIBOR Contract being prepaid through the date of prepayment.

          "Make Whole Costs" shall mean the amount of accrued interest on the
     amount prepaid and any and all costs, expenses, penalties and charges
     incurred by the Lender as a result of the early termination or breakage of
     a LIBOR Contract, plus the amount, if any, by which (A) the additional
     interest which would have been payable during the Interest Period on the
     LIBOR Loan prepaid had it not been prepaid, exceeds (B) the interest which
     would have been recoverable by the Lender by placing the amount prepaid on
     deposit in the domestic certificate of deposit market, the eurodollar
     deposit market, or other appropriate money market selected by the Lender,
     for a period starting on the date on which it was prepaid and ending on the
     last day of the Interest Period for such LIBOR Contract.

          3.6 LOAN FEES. In consideration of Lender's agreement to make the
     Loan, Borrower shall pay to Lender a non-refundable fee in the amount of
     One Hundred Ninety-Five Thousand and No/100 Dollars ($195,000.00), which
     shall be due and payable as of the date hereof:

     4. EXTENSION OF MATURITY DATE. All principal, interest and other sums due
under the Loan Documents shall be due and payable in full on the Maturity Date.
Borrower shall have the right to extend the Maturity Date for one (1) additional
term of one (1) year ("EXTENSION PERIOD"), thereby extending the Maturity Date
to _________________, 2009 (the "EXTENDED MATURITY DATE") only upon satisfaction
of the following terms and conditions:

          4.1 Borrower shall have delivered to Lender written notice of such
     election no earlier than ninety (90) days and no later than forty-five (45)
     prior to the Maturity Date;

          4.2 Lender shall have received Borrower's and Guarantor's current
     financial statements, certified as correct by Borrower and Guarantor (as
     hereinafter defined). There must be no material adverse change in
     Borrower's or Guarantor's financial condition and no material adverse
     change in the condition of the Property;

          4.3 Such notice is accompanied by a non-refundable extension fee equal
     to one-quarter of one percent (0.25%) of the principal balance of the Loan
     (plus any undisbursed amounts) at the time of such extension request;


                                       6


          4.4 No Event of Default exists under any of the Loan Documents or has
     existed at any time, nor any event which would be an Event of Default if
     not cured within the time allowed; and

          4.5 The Debt Service Coverage (hereinafter defined) is not less than
     1.20 for the most recent calendar quarter.

     5. REFINANCING OF LOAN. Borrower agrees that, at such time as the Loan is
refinanced, Borrower shall permit Lender to offer a proposal for such
refinancing upon Lender's then-current underwriting standards. In the event that
Borrower shall solicit refinancing proposals from any other bank or credit
source, Borrower shall give Lender the right to offer to Borrower a proposal on
similar or more favorable terms than other competing proposals. Notwithstanding
the foregoing, Borrower acknowledges that Lender is under no obligation
whatsoever to make any proposal to Borrower on any specific terms and
conditions.

     6. SECURITY. This Note is secured by (i) a Deed of Trust, Security
Agreement and Fixture Filing ("DEED OF TRUST") of even date herewith made by
Borrower to Lender creating a mortgage lien on certain real property
("PROPERTY") legally described in Exhibit A attached to the Deed of Trust, (ii)
an Assignment of Leases and Rents ("ASSIGNMENT") of even date herewith from
Borrower to Lender, (iii) a Guaranty (Securities Laws) ("GUARANTY") of even date
herewith from Triple Net Properties, LLC ("GUARANTOR") to Lender, (iv) a Cash
Management Agreement from Borrower to Lender (the "LOCKBOX AGREEMENT"), (v) an
Environmental Indemnity Agreement ("INDEMNITY AGREEMENT") of even date herewith
from Borrower and Guarantor to Lender and (vi) a separate Guaranty of Payment
from each of Guarantor and Anthony W. Thompson (together, the "PAYMENT
GUARANTIES") (the Deed of Trust, the Assignment, the Guaranty, the Indemnity
Agreement, the Lockbox Agreement, the Payment Guaranties and any other document
now or hereafter given to evidence or secure payment of this Note or delivered
to induce Lender to disburse the proceeds of the Loan, as such documents may
hereafter be amended, restated or replaced from time to time, are hereinafter
collectively referred to as the "LOAN DOCUMENTS"). Reference is hereby made to
the Loan Documents (which are incorporated herein by reference as fully and with
the same effect as if set forth herein at length) for a statement of the
covenants and agreements contained therein, a statement of the rights, remedies,
and security afforded thereby, and all matters therein contained.

     7. EVENTS OF DEFAULT. The occurrence of any one or more of the following
events shall constitute an "EVENT OF DEFAULT" under this Note:

          7.1 the failure by Borrower to pay (i) any installment of principal or
     interest payable pursuant to this Note within five (5) days after the date
     when due, or (ii) any other amount payable to Lender under this Note, the
     Deed of Trust or any of the other Loan Documents within five (5) days after
     the date when any such payment is due in accordance with the terms hereof
     or thereof, or (iii) the outstanding Principal Amount and all outstanding
     and accrued and unpaid interest in full on the Maturity Date or the
     Extended Maturity Date;

          7.2 the occurrence of any "Event of Default" under the Deed of Trust
     or any of the other Loan Documents; or


                                        7



          7.3 the occurrence of the dissolution, insolvency, winding-up, death
     or legal incompetency, as applicable, of any guarantor of this Note,

          7.4 The occurrence of an Event of Default pursuant to Section 17 or 18
     below.

          7.5 The occurrence of an Event of Default under the loan documents
     evidencing the Mezzanine Loan (as hereinafter defined).

     8. REMEDIES. At the election of the holder hereof, and without notice, the
principal balance remaining unpaid under this Note, and all unpaid interest
accrued thereon and any other amounts due hereunder, shall be and become
immediately due and payable in full upon the occurrence of any Event of Default.
Failure to exercise this option shall not constitute a waiver of the right to
exercise same in the event of any subsequent Event of Default. No holder hereof
shall, by any act of omission or commission, be deemed to waive any of its
rights, remedies or powers hereunder or otherwise unless such waiver is in
writing and signed by the holder hereof, and then only to the extent
specifically set forth therein. The rights, remedies and powers of the holder
hereof, as provided in this Note, the Deed of Trust and in all of the other Loan
Documents are cumulative and concurrent, and may be pursued singly, successively
or together against Borrower, the Guarantor hereof, the Property and any other
security given at any time to secure the repayment hereof, all at the sole
discretion of the holder hereof. If any suit or action is instituted or
attorneys are employed to collect this Note or any part hereof, Borrower
promises and agrees to pay all costs of collection, including reasonable
attorneys' fees and court costs.

     9. COVENANTS AND WAIVERS. Borrower and all others who now or may at any
time become liable for all or any part of the obligations evidenced hereby,
expressly agree hereby to be jointly and severally bound, and jointly and
severally: (i) waive and renounce any and all homestead, redemption and
exemption rights and the benefit of all valuation and appraisement privileges
against the indebtedness evidenced by this Note or by any extension or renewal
hereof; (ii) waive presentment and demand for payment, notices of nonpayment and
of dishonor, protest of dishonor, notice of protest, notice of intent to
accelerate and notice of acceleration; (iii) except as expressly provided in the
Loan Documents, waive any and all notices in connection with the delivery and
acceptance hereof and all other notices in connection with the performance,
default, or enforcement of the payment hereof or hereunder; (iv) waive any and
all lack of diligence and delays in the enforcement of the payment hereof; (v)
agree that the liability of each Borrower, guarantor, endorser or obligor shall
be unconditional and without regard to the liability of any other person or
entity for the payment hereof, and shall not in any manner be affected by any
indulgence or forbearance granted or consented to by Lender to any of them with
respect hereto; (vi) consent to any and all extensions of time, renewals,
waivers, or modifications that may be granted by Lender with respect to the
payment or other provisions hereof, and to the release of any security at any
time given for the payment hereof, or any part thereof, with or without
substitution, and to the release of any person or entity liable for the payment
hereof; and (vii) consent to the addition of any and all other makers,
endorsers, guarantors, and other obligors for the payment hereof, and to the
acceptance of any and all other security for the payment hereof, and agree that
the addition of any such makers, endorsers, guarantors or other obligors, or
security shall not affect the liability of Borrower, any guarantor and all
others now liable for all or any part of the obligations evidenced hereby. This
provision is a material inducement for Lender making the Loan to Borrower.


                                        8



10. OTHER GENERAL AGREEMENTS.

     10.1 Time is of the essence hereof.

     10.2 This Note is governed and controlled as to validity, enforcement,
interpretation, construction, effect and in all other respects by the statutes,
laws and decisions of the State of Illinois. This Note may not be changed or
amended orally but only by an instrument in writing signed by the party against
whom enforcement of the change or amendment is sought.

     10.3 Lender shall not be construed for any purpose to be a partner, joint
venturer, agent or associate of Borrower or of any lessee, operator,
concessionaire or licensee of Borrower in the conduct of its business, and by
the execution of this Note, Borrower agrees to indemnify, defend, and hold
Lender harmless from and against any and all damages, costs, expenses and
liability that may be incurred by Lender as a result of a claim that Lender is
such partner, joint venturer, agent or associate.

     10.4 This Note has been made and delivered at Chicago, Illinois and all
funds disbursed to or for the benefit of Borrower will be disbursed in Chicago,
Illinois.

     10.5 If this Note is executed by more than one party, the obligations and
liabilities of each Borrower under this Note shall be joint and several and
shall be binding upon and enforceable against each Borrower and their respective
successors and assigns. This Note shall inure to the benefit of and may be
enforced by Lender and its successors and assigns.

     10.6 If any provision of this Note is deemed to be invalid by reason of the
operation of law, or by reason of the interpretation placed thereon by any
administrative agency or any court, Borrower and Lender shall negotiate an
equitable adjustment in the provisions of the same in order to effect, to the
maximum extent permitted by law, the purpose of this and the validity and
enforceability of the remaining provisions, or portions or applications thereof,
shall not be affected thereby and shall remain in full force and effect.

     10.7 If the interest provisions herein or in any of the Loan Documents
shall result, at any time during the Loan, in an effective rate of interest
which, for any month, exceeds the limit of usury or other laws applicable to the
Loan, all sums in excess of those lawfully collectible as interest of the period
in question shall, without further agreement or notice between or by any party
hereto, be applied upon principal immediately upon receipt of such monies by
Lender, with the same force and effect as though the payer has specifically
designated such extra sums to be so applied to principal and Lender had agreed
to accept such extra payment(s) as a premium-free prepayment. Notwithstanding
the foregoing, however, Lender may at any time and from time to time elect by
notice in writing to Borrower to reduce or limit the collection to such sums
which, when added to the said first-stated interest, shall not result in any
payments toward principal in accordance with the requirements of the preceding
sentence. In no event shall any agreed to or actual exaction as consideration
for this Loan transcend the


                                       9


     limits imposed or provided by the law applicable to this transaction or the
     makers hereof in the jurisdiction in which the Property are located for the
     use or detention of money or for forbearance in seeking its collection.

          10.8 Lender may at any time assign its rights in this Note and the
     Loan Documents, or any part thereof and transfer its rights in any or all
     of the collateral, and Lender thereafter shall be relieved from all
     liability with respect to such collateral. In addition, Lender may at any
     time sell one or more participations in the Note. Borrower may not assign
     its interest in this Note, or any other agreement with Lender or any
     portion thereof, either voluntarily or by operation of law, without the
     prior written consent of Lender.

     11. NOTICES. All notices required under this Note will be in writing and
will be transmitted in the manner and to the addresses or facsimile numbers
required by the Deed of Trust, or to such other addresses or facsimile numbers
as Lender and Borrower may specify from time to time in writing.

     12. CONSENT TO JURISDICTION. TO INDUCE LENDER TO ACCEPT THIS NOTE, BORROWER
IRREVOCABLY AGREES THAT, SUBJECT TO LENDER'S SOLE AND ABSOLUTE ELECTION, ALL
ACTIONS OR PROCEEDINGS IN ANY WAY ARISING OUT OF OR RELATED TO THIS NOTE WILL BE
LITIGATED IN COURTS HAVING SITUS IN CHICAGO, ILLINOIS. BORROWER HEREBY CONSENTS
AND SUBMITS TO THE JURISDICTION OF ANY COURT LOCATED WITHIN CHICAGO, ILLINOIS,
WAIVES PERSONAL SERVICE OF PROCESS UPON BORROWER, AND AGREES THAT ALL SUCH
SERVICE OF PROCESS MAY BE MADE BY REGISTERED MAIL DIRECTED TO BORROWER AT THE
ADDRESS STATED IN THE DEED OF TRUST AND SERVICE SO MADE WILL BE DEEMED TO BE
COMPLETED UPON ACTUAL RECEIPT.

     13. WAIVER OF JURY TRIAL. BORROWER AND LENDER (BY ACCEPTANCE OF THIS NOTE),
HAVING BEEN REPRESENTED BY COUNSEL, EACH KNOWINGLY AND VOLUNTARILY WAIVES ANY
RIGHT TO A TRIAL BY JURY IN ANY ACTION OR PROCEEDING TO ENFORCE OR DEFEND ANY
RIGHTS (A) UNDER THIS NOTE OR ANY RELATED AGREEMENT OR UNDER ANY AMENDMENT,
INSTRUMENT, DOCUMENT OR AGREEMENT DELIVERED OR WHICH MAY IN THE FUTURE BE
DELIVERED IN CONNECTION WITH THIS NOTE OR (B) ARISING FROM ANY BANKING
RELATIONSHIP EXISTING IN CONNECTION WITH THIS NOTE, AND AGREES THAT ANY SUCH
ACTION OR PROCEEDING WILL BE TRIED BEFORE A COURT AND NOT BEFORE A JURY.
BORROWER AGREES THAT IT WILL NOT ASSERT ANY CLAIM AGAINST LENDER ON ANY THEORY
OF LIABILITY FOR SPECIAL, INDIRECT, CONSEQUENTIAL, INCIDENTAL OR PUNITIVE
DAMAGES.


                                       10



     14. Partial Guaranty Loan.

          14.1 Subject to the terms of Section 14.2 below, this Note is payable
     only out of the property specifically described in the Deed of Trust and
     the other Loan Documents, by the enforcement of the provisions contained in
     the Loan Documents and out of any other property, security or guaranties
     given for the Loan and accordingly:

               (a) No personal liability shall be asserted or be enforceable
          against Borrower, its partners, officers or members, as applicable, or
          against its successors or assigns because of or in respect of this
          Note, or the making, issue or transfer hereof, all such liability, if
          any, being expressly waived by the Lender;

               (b) In case of default in the payment of this Note, the sole
          remedies of the Lender shall be (i) foreclosure of the Deed of Trust
          in accordance with the terms and provisions thereof, (ii) enforcement
          of the other Loan Documents, and (iii) enforcement of or realization
          upon any other property and security given for the Loan, if any;

               (c) Nothing herein contained shall be deemed a waiver by the
          Lender of any right which the Lender may have pursuant to Sections
          506(a), 506(b), and 1111 (b) or any other provision of the Bankruptcy
          Code of the United States to file a claim for the full amount of the
          Loan or to require that all collateral or security for the Loan shall
          continue to secure the entire amount of the Loan in accordance with
          the Loan Documents; and

               (d) Nothing herein contained shall affect or impair the liability
          or obligation of any guarantor, co-maker or other person who by
          separate instrument shall be or become liable upon or obligated for
          any of the Loan or any of the covenants or agreements contained in the
          Loan Documents.

          14.2 Notwithstanding the provisions of subparagraph 14.1 above,
     Borrower and Guarantor shall at all times that any amounts remain
     outstanding under this Note have joint and several liability for payment of
     the following amounts:

               (a) all amounts due and owing by Borrower under the Note and the
          Loan Documents if (i) there is fraud by Borrower, its partners,
          shareholders, members, officers or directors, as the case may be, or
          any Guarantor with respect to the Loan, (ii) a transfer or lien in
          violation of Paragraph 15 or 16 of the Deed of Trust occurs, (iii)
          Borrower contests, delays or otherwise hinders any action taken by the
          Lender in connection with the appointment of a receiver for the
          Property or the foreclosure of the liens, mortgages or other security
          interests created by any of the Loan Documents, or (iv) Borrower
          voluntarily files for bankruptcy or is involuntarily placed into
          bankruptcy by Guarantor or any member in Borrower or any
          representative of Borrower or any such party, and such involuntary
          bankruptcy is not dismissed within sixty (60) days after the filing
          thereof; and

               (b) the Additional Liabilities (as hereinafter defined) without
          regard to the limitation of liability set forth above, which amount
          shall be due and payable


                                       11



          to the Lender on demand. As used herein, the "Additional Liabilities"
          shall mean an amount equal to the sum of the following;

                    (i) all expenses and costs incurred by or on behalf of the
               Lender (including, without limitation, expenses and reasonable
               attorneys' fees) in enforcing the rights and remedies of the
               Lender under this section, together with all interest calculated
               at the Default Rate until paid on all amounts owed by the
               Guarantor which accrues from and after the date the Lender's
               demand for payment is delivered to the Guarantor;

                    (ii) all damages, expenses or costs suffered or incurred by
               the Lender as a result of any material misrepresentation in any
               of the Loan Documents;

                    (iii) all damages, expenses or costs suffered or incurred by
               the Lender as a result of physical waste with respect to any
               portion of the Property;

                    (iv) all damages, expenses or costs suffered or incurred by
               the Lender as a result of the removal or disposal of any property
               in which the Lender has a security interest in violation of the
               terms and conditions of the Loan Documents;

                    (v) all damages, expenses or costs suffered or incurred by
               the Lender as a result of claims for compensation asserted by any
               real estate broker not employed by the Lender or as a result of
               any such broker's liens on the Property or mechanic's or
               materialmen's liens not expressly permitted or contested under
               the Deed of Trust;

                    (vi) all damages, expenses or costs suffered or incurred by
               the Lender as a result of the application of any insurance
               proceeds or condemnation awards (to the full extent of such
               proceeds or awards) not permitted by the Deed of Trust or the
               failure of Borrower to maintain the insurance coverages required
               by the Deed of Trust;

                    (vii) all revenues received by or on behalf of Borrower from
               the operation or ownership of the Property after the Lender has
               notified Borrower of a Default under any of the provisions of the
               Loan Documents, less only that portion of such revenues which is
               (A) actually used by Borrower to operate the Property in the
               ordinary course of business and such use is in accordance with an
               operating budget approved by the Lender or otherwise approved in
               writing by the Lender or (B) paid to the Lender;

                    (viii) all security deposits provided for in any leases for
               any part of the Property (together with interest thereon to the
               extent that interest is payable under such leases) which are not
               (A) used in the ordinary course of business in accordance with
               the terms of such leases to cure defaults by


                                       12


               tenants depositing the same, (B) returned to tenants in
               accordance with the terms of the leases, or (C) paid over to the
               Lender, and all lease termination fees payable for terminating
               any such leases which are not paid jointly to Borrower and the
               Lender or otherwise applied as provided in the Loan Documents;

                    (ix) all damages, expenses or costs suffered or incurred by
               Lender as a result of the Environmental Indemnity Agreement from
               Borrower and Guarantor of even date herewith;

                    (x) all damages, expenses or costs suffered or incurred by
               Lender as a result of non-payment of real estate taxes; and/or

                    (xi) all damages, expenses or costs suffered or incurred by
               Lender as a result of misappropriation of rental payments paid
               more than one month in advance.

     15. CUSTOMER IDENTIFICATION - USA PATRIOT ACT NOTICE; OFAC AND BANK SECRECY
ACT. Lender hereby notifies Borrower that pursuant to the requirements of the
USA Patriot Act (Title III of Pub. L. 107-56, signed into law October 26, 2001)
(the "ACT"), and Lender's policies and practices, Lender is required to obtain,
verify and record certain information and documentation that identifies
Borrower, which information includes the name and address of Borrower and such
other information that will allow Lender to identify Borrower in accordance with
the Act. In addition, Borrower shall (a) ensure that no person who owns a
controlling interest in or otherwise controls Borrower or any subsidiary of
Borrower is or shall be listed on the Specially Designated Nationals and Blocked
Person List or other similar lists maintained by the Office of Foreign Assets
Control ("OFAC"), the Department of the Treasury or included in any Executive
Orders, (b) not use or permit the use of the proceeds of the Loan to violate any
of the foreign asset control regulations of OFAC or any enabling statute or
Executive Order relating thereto, and (c) comply, and cause any of its
subsidiaries to comply, with all applicable Bank Secrecy Act ("BSA") laws and
regulations, as amended.

     16. EXPENSES AND INDEMNIFICATION. Borrower shall pay all costs and expenses
in connection with the preparation of this Note and the Loan Documents,
including, without limitation, reasonable attorneys' fees and time charges of
attorneys who may be employees of Lender or any affiliate or parent of Lender.
Borrower shall pay any and all stamp and other taxes, UCC search fees, filing
fees and other costs and expenses in connection with the execution and delivery
of this Note and the other instruments and documents to be delivered hereunder,
and agrees to save Lender harmless from and against any and all liabilities with
respect to or resulting from any delay in paying or omission to pay such costs
and expenses. Borrower also agrees to defend (with counsel satisfactory to
Lender), protect, indemnify and hold harmless Lender, any parent corporation,
affiliated corporation or subsidiary of Lender, and each of their respective
officers, directors, employees, attorneys and agents (each an "INDEMNIFIED
PARTY") from and against any and all liabilities, obligations, losses, damages,
penalties, actions, judgments, suits, claims, costs, expenses and distributions
of any kind or nature (including, without limitation, the disbursements and the
reasonable fees of counsel for each Indemnified Party thereto, which shall also
include, without limitation, attorneys' fees and time charges of


                                       13



attorneys who may be employees of Lender, any parent corporation or affiliated
corporation of Lender), which may be imposed on, incurred by, or asserted
against, any Indemnified Party (whether direct, indirect or consequential and
whether based on any federal, state or local laws or regulations, including,
without limitation, securities, environmental laws and commercial laws and
regulations, under common law or in equity, or based on contract or otherwise)
in any manner relating to or arising out of this Note or any of the Loan
Documents, or any act, event or transaction related or attendant thereto, the
preparation, execution and delivery of this Note and the Loan Documents, the
making or issuance and management of the Loan, the use or intended use of the
proceeds of this Note and the enforcement of Lender's rights and remedies under
this Note, the Loan Documents any other instruments and documents delivered
hereunder, or under any other agreement between Borrower and Lender; provided,
however, that Borrower shall not have any obligations hereunder to any
Indemnified Party with respect to matters caused by or resulting from the
willful misconduct or gross negligence of such Indemnified Party. To the extent
that the undertaking to indemnify set forth in the preceding sentence may be
unenforceable because it violates any law or public policy, Borrower shall
satisfy such undertaking to the maximum extent permitted by applicable law. Any
liability, obligation, loss, damage, penalty, cost or expense covered by this
indemnity shall be paid to each Indemnified Party on demand, and failing prompt
payment, together with interest thereon at the Default Rate from the date
incurred by each Indemnified Party until paid by Borrower, shall be added to the
obligations of Borrower evidenced by this Note and secured by the collateral
securing this Note. The provisions of this section shall survive the
satisfaction and payment of this Note.

     17. DEBT SERVICE COVERAGE REQUIREMENT. Within forty-five (45) days after
each Calculation Date Borrower shall submit to Lender a detailed calculation of
the Debt Service Coverage for such calendar quarter certified as being true and
correct by an officer of Borrower (a "DSC CERTIFICATE"), in a form reasonably
acceptable to Lender. Lender shall have the right to adjust any calculation by
Borrower of Debt Service Coverage so as to correct such calculation or render
such calculation in compliance with the provisions of this Section 17. An Event
of Default shall occur if either (i) Borrower shall fail to deliver the DSC
Certificate as required above, or (ii) if the Debt Service Coverage is less than
the Minimum Debt Service Coverage for any Calculation Period (a "DSC DEFAULT");
provided that Borrower may cure a DSC Default by repaying such portion of the
principal balance of the Loan as is necessary to cause the Debt Service Coverage
to be not less than the Minimum Debt Service Coverage. During the existence of a
DSC Default, not later than fifteen (15) days following the end of each calendar
month Borrower shall pay to Lender all monthly Net Operating Income (calculated
based on actual Operating Expenses with no imputed or minimum Operating Expenses
included for purpose of such calculation) available after payment of amounts due
and payable pursuant to the Loan Documents, to be applied as set forth in the
Lockbox Agreement, and shall with each such payment deliver a statement setting
forth a detailed calculation of monthly Net Operating Income certified by an
officer of Borrower. For the purposes hereof, the following terms shall have the
meanings set forth below:

     ASSUMED DEBT SERVICE: On a per annum basis, the product obtained by
multiplying the outstanding principal balance of the Loan and the Mezzanine Loan
as of the Calculation Date by the loan constant derived by applying a thirty
(30) year amortization schedule to the outstanding principal balance of the Loan
using an interest rate equal to the yield per annum as of the date of such
calculation of the greater of (x) eight percent (8%) per annum, or (y) the "on
the run" U.S.


                                       14



Government T-Notes maturing approximately ten (10) years after the Calculation
Date (determined in good faith by Lender), plus two and one-half percent (2.50%)
per annum, or (z) the actual blended rate of interest payable with respect to
the Loan and the Mezzanine Loan.

     CALCULATION DATE: The last day of each Calculation Period.

     CALCULATION PERIOD: Any calendar quarter commencing on or after January 1,
2006 (For example, the first Calculation Period would consist of January,
February and March, 2006; the second Calculation Period would consist of April,
May and June, 2006 and so on).

     DEBT SERVICE COVERAGE: With respect to each Calculation Period, the amount
calculated by dividing Net Operating Income for such period by Assumed Debt
Service for such period.

     GROSS REVENUES: For any period, all revenues of Borrower, determined in
accordance with sound accounting practices related to the real estate industry
(excluding any straight-line adjustments to rent and with free rent not counted
as revenues), derived from leases entered approved by Lender or entered into in
accordance with the terms of the Loan Documents with Tenants in occupancy and
paying rent under their respective leases, as all such revenues are verified in
a sworn statement of Borrower delivered to Lender together with all necessary
supporting documentation reasonably requested by Lender; provided, however, that
in no event shall Gross Revenues include (i) any gain arising from any write-up
of assets; (ii) any loan proceeds, (iii) proceeds or payments under insurance
policies (except that proceeds of business interruption insurance covering the
Project shall be included in Gross Revenues); (iv) gross receipts of licensees,
concessionaires or similar third parties; (v) condemnation proceeds or sales
proceeds in lieu of and/or under threat of condemnation; (vi) any security
deposits received from tenants in the Project, unless and until the same are
applied to rent or other obligations in accordance with the tenant's lease; or
(vii) any other extraordinary non-recurring items, in Lender's reasonable
discretion.

     MEZZANINE LOAN: That certain mezzanine loan of even date herewith made by
Lender to Borrower in the original principal amount of $3,000,000.00.

     MINIMUM DEBT SERVICE COVERAGE: Shall initially mean 1.00 and shall be
increased to 1.20 on the earlier to occur of (x) the Calculation Period
immediately following the initial Calculation Period for which the Debt Service
Coverage equals or exceeds 1.20, and (y) the initial Calculation Period
commencing during the Extension Period.

     NET OPERATING INCOME: For any period, the amount by which Gross Revenues
for such period exceed Operating Expenses for such period.

     OPERATING EXPENSES: For any period, without duplication, the actual costs
and expenses of owning, operating, managing, repairing and maintaining the
Project during such period incurred by Borrower, including, without limitation,
real estate taxes; insurance premiums and utility costs, but using the following
adjustments: management fees shall be calculated at a rate equal to the greater
of three percent (3%) of gross revenues or the actual management fees for such
period; assumed reserves shall be included in Operating Expenses in the amount
of $0.25 per square foot of net rentable space in the Project per annum for
capital expenditures, leasing expenses and non-recoverable tenant improvement
costs; provided, however, that Operating


                                       15


Expenses shall exclude (i) interest or principal due on the Loan, (ii) any fees
paid to Lender in connection with the Loan, (iii) capital expenditures other
than the reserve amount set forth above, or (iv) depreciation, amortization and
other non-cash items. For the purpose of calculating Operating Expenses
hereunder, those Operating Expenses that are paid by Borrower on an irregular
basis during the calendar year, including real estate taxes and insurance, shall
be annualized and deemed expended in equal monthly installments throughout the
calendar year.

     18. CASH DISTRIBUTION. Borrower shall not make any distributions to
partners, members or shareholders; provided that so long as (i) no Event of
Default exists, (ii) Debt Service Coverage for each of the two most recent
Calculation Periods equals or exceeds 1.25, and (iii) Borrower is not obligated
to pay excess Net Operating Income to Lender pursuant to Section 17 above,
Borrower may distribute monthly Net Excess Cash Flow remaining after principal
and interest payments and payment of any required deposits due to Lender under
the Loan Documents (and pursuant to the documents evidencing and securing the
Mezzanine Loan) for such month. The failure of Borrower to comply with the
provisions of this Section 18 shall constitute an Event of Default.

     19. LOCKBOX ARRANGEMENT. Pursuant to the Lockbox Agreement, upon the
occurrence of a Trigger Event (as defined in the Lockbox Agreement), Borrower
shall direct all tenants under leases of space in the Property to make all
payments due to Lender directly to a post office box (the "LOCKBOX") designated
by, and under the exclusive control of, Lender. Pursuant to the Lockbox
Agreement, Borrower shall establish the Lockbox and an account (the "LOCKBOX
ACCOUNT") in Borrower's name with Lender into which all payments received in the
Lockbox shall be deposited, and into which Borrower will immediately deposit all
payments received by Borrower in the identical form in which such payments were
made, whether by cash or check. If Borrower, a subsidiary or any director,
officer, employee, agent or Borrower or any subsidiary, or any other person
acting for or in concert with Borrower shall receive any monies, checks, notes,
drafts or other payments relating to or as proceeds of Property, Borrower and
each such person shall receive all such items in trust for, and as the sole and
exclusive property of, Lender and, immediately upon receipt thereof, shall remit
the same (or cause the same to be remitted) in kind to the Lockbox Account.
Borrower agrees that all payments made to such Lockbox and Lockbox Account or
otherwise received by Lender, whether in respect of the accounts or as proceeds
of other collateral or otherwise, will be applied as set forth in the Lockbox
Agreement. Borrower agrees to pay all fees, costs and expenses which Lender
incurs in connection with opening and maintaining the Lockbox and the Lockbox
Account and depositing for collection by Lender any check or other item of
payment received by Lender on account of the indebtedness evidenced by this
Note. All of such fees, costs and expenses shall constitute indebtedness
evidenced by this Note, shall be payable to Lender by Borrower upon demand, and,
until paid, shall bear interest at the Default Rate. All checks, drafts,
instruments and other items of payment or proceeds shall be endorsed by Borrower
to Lender, and, if that endorsement of any such item shall not be made for any
reason, Lender is hereby irrevocably authorized to endorse the same on
Borrower's behalf. For the purpose of this section, Borrower irrevocably hereby
makes, constitutes and appoints Lender (and all persons designated by Lender for
that purpose) as Borrower's true and lawful attorney and agent-in-fact (i) to
endorse Borrower's name upon such items of payment and/or proceeds and any
document, instrument, invoice or similar document or agreement relating to any
account of Borrower or goods pertaining thereto; (ii) to take control in any
manner of any item of payment or proceeds thereof;


                                       16



and (iii) to have access to any lock box or postal box into which any of
Borrower's mail is deposited, and open and process all mail addressed to
Borrower and deposited therein.

     20. USE OF LOAN PROCEEDS. The proceeds of the Loan and the Mezzanine Loan
shall be used by Borrower for the purposes set forth in EXHIBIT B attached
hereto.

                  [BALANCE OF PAGE INTENTIONALLY LEFT BLANK -
                            SIGNATURE PAGE FOLLOWS]


                                       17



     IN WITNESS WHEREOF, Borrower has executed and delivered this Note as of the
day and year first written above.

                                        BORROWER:

                                        NNN EXECUTIVE CENTER, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its sole manager


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 1, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 2, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        NNN EXECUTIVE CENTER 3, LLC, a Delaware
                                        limited liability company

                                        By: Triple Net Properties, LLC, a
                                            Virginia limited liability company,
                                            its Vice President


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 4, LLC, a Delaware
                                       limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 5, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 6, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 7, LLC, a Delaware
                                       limited liability company,

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT



                                       NNN EXECUTIVE CENTER 8, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 9, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 10, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 11, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT



                                       NNN EXECUTIVE CENTER 12, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 13, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 15, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT


                                       NNN EXECUTIVE CENTER 16, LLC,
                                       a Delaware limited liability company

                                       By: Triple Net Properties, LLC,
                                           a Virginia limited liability company,
                                           its Vice President


                                       By: /s/ LOUIS ROGERS
                                           -------------------------------------
                                       Name: LOUIS ROGERS
                                       Its: PRESIDENT



                                        NNN EXECUTIVE CENTER II AND III 2003,
                                        LP, a Texas limited partnership

                                        By: NNN Executive Center II and III GP,
                                            LLC, a Delaware limited liability
                                            company, its sole general partner

                                        By: Triple Net Properties, LLC,
                                            a Virginia limited liability
                                            company, its sole manager


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT



                                     JOINDER

     The undersigned joins in the execution and delivery of this Note solely for
the purpose of joining in the obligations described in paragraph 14.2 thereof
and except as specifically described therein, the undersigned has no obligations
under this Note.

                                        GUARANTOR:

                                        TRIPLE NET PROPERTIES, LLC, a Virginia
                                        limited liability company


                                        By: /s/ LOUIS ROGERS
                                            ------------------------------------
                                        Name: LOUIS ROGERS
                                        Its: PRESIDENT


                                        /s/ Anthony W. Thompson
                                        ----------------------------------------
                                        Name: Anthony W. Thompson



                                    EXHIBIT A

                              ADDITIONAL BORROWERS

                           NNN Executive Center 1, LLC
                           NNN Executive Center 2, LLC
                           NNN Executive Center 3, LLC
                           NNN Executive Center 4, LLC
                           NNN Executive Center 5, LLC
                           NNN Executive Center 6, LLC
                           NNN Executive Center 7, LLC
                           NNN Executive Center 8, LLC
                           NNN Executive Center 9, LLC
                          NNN Executive Center 10, LLC
                          NNN Executive Center 11, LLC
                          NNN Executive Center 12, LLC
                          NNN Executive Center 13, LLC
                          NNN Executive Center 15, LLC
                          NNN Executive Center 16, LLC
                    NNN Executive Center II and III 2003, LP



                                    EXHIBIT B

                              USE OF LOAN PROCEEDS

                            EXECUTIVE CENTER II & III



                                                       TOTAL
                                                      COST/SF
                                                      -------
                                                
Total SF                                    368,305    $79.83




                                                         %      $/SF
                                                      ------   ------
                                                      
SOURCES
Senior Loan                             $13,000,000     44.2%  $35.30
Mezzanine Loan                            3,000,000     10.2%  $ 8.15
Initial Equity                           10,033,000     34.1%   27.24
Additional Equity                         3,368,102     11.5%    9.14
                                        -----------    -----   ------
TOTAL SOURCES                           $29,401,102    100.0%  $79.83
                                        ===========    =====   ======




                                                         %      $/SF
                                                      ------   ------
                                                      
USES
Current LBNA loan balance
   ($14.95MM original amount)           $14,567,000     49.5%  $39.55
Residual Equity (net of debt) from
   the Purchase Price ($24.6MM)          10,033,000     34.1%  $27.24
Elevator Upgrade
   (to be completed in 4Q06)                365,000      1.2%  $ 0.99

LEASING COSTS
   Tenant Improvements ($8.00/$20.00)   $ 1,966,528      6.7%    5.34
   Leasing Commissions (5.75%)            1,779,574      6.1%    4.83
                                        -----------   ------   ------
TOTAL LEASING COSTS                       3,746,102     12.7%   10.17
                                        ===========   ======   ======

FINANCING COSTS
   Loan Fees                            $   240,000      0.8%    0.65
   Interest Reserve                         450,000      1.5%    1.22
                                        -----------   ------   ------
TOTAL FINANCE COSTS                         690,000      2.3%    1.87
                                        -----------   ------   ------
TOTAL USES                              $29,401,102   100.00%   79.83
                                        ===========   ======   ======



                                      A-1

EX-31.1

EXHIBIT 31.1

CERTIFICATION OF CHIEF EXECUTIVE OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

I, Richard T. Hutton, certify that:

     1. I have reviewed this annual report on Form 10-K of NNN 2003 Value Fund, LLC;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/    Richard T. Hutton, Jr.  

Richard T. Hutton 

Chief Executive Officer
(principal executive officer) 

Date: March 30, 2006

EX-31.2

EXHIBIT 31.2

CERTIFICATION OF CHIEF ACCOUNTING OFFICER
Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002

     I, Michael O’Flynn, certify that:

1. I have reviewed this annual report on Form 10-K of NNN 2003 Value Fund, LLC;

     2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report;

     3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the registrant as of, and for, the periods presented in this report;

     4. The registrant’s other certifying officer and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)), for the registrant and have:

     a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the registrant, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared;

     b) Evaluated the effectiveness of the registrant’s disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and

     c) Disclosed in this report any change in the registrant’s internal control over financial reporting that occurred during the registrant’s most recent fiscal quarter (the registrant’s fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the registrant’s internal control over financial reporting; and

     5. The registrant’s other certifying officer and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the registrant’s auditors and the audit committee of the registrant’s board of directors (or persons performing the equivalent functions):

     a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the registrant’s ability to record, process, summarize and report financial information; and

     b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the registrant’s internal control over financial reporting.

/s/     Michael O'Flynn  

Michael O'Flynn 

Chief Accounting Officer
(principal accounting officer) 

Date: March 30, 2006

EX-32.1

Exhibit 32.1

Certification of Chief Executive Officer

     Pursuant to 18 U.S.C. § 1350, as adopted pursuant by Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of NNN 2003 Value Fund, LLC (the “Company”) hereby certifies, to his knowledge, that:

     (i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/     Richard T. Hutton, Jr.  

Richard T. Hutton 

Chief Executive Officer
(principal executive officer) 

Date: March 30, 2006

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

     The foregoing certification is being furnished with the Company’s Form 10-K for the period ended December 31, 2005 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing.

EX-32.2

Exhibit 32.2

Certification of Chief Accounting Officer

     Pursuant to 18 U.S.C. § 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, the undersigned officer of NNN 2003 Value Fund, LLC (the “Company”) hereby certifies, to his knowledge, that:

     (i) the accompanying Annual Report on Form 10-K of the Company for the fiscal year ended December 31, 2005 (the “Report”) fully complies with the requirements of Section 13(a) or Section 15(d), as applicable, of the Securities Exchange Act of 1934, as amended; and

     (ii) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Company.

/s/     Michael O'Flynn  

Michael O'Flynn 

Chief Accounting Officer
(principal accounting officer) 

Date: March 30, 2006

     A signed original of this written statement required by Section 906 has been provided to the Company and will be retained by the Company and furnished to the Securities and Exchange Commission or its staff upon request.

     The foregoing certification is being furnished with the Company’s Form 10-K for the period ended December 31, 2005 pursuant to 18 U.S.C. Section 1350. It is not being filed for purposes of Section 18 of the Securities Exchange Act of 1934, as amended, and it is not to be incorporated by reference into any filing of the Company, whether made before or after the date hereof, regardless of any general information language in such filing.