UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 2001
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15666
CNL INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2666264
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained 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. [X]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
PART I
Item 1. Business
CNL Income Fund, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 26, 1985. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on April 16, 1986, the
Partnership offered for sale up to $15,000,000 in limited partnership interests
(the "Units") (30,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on December 31, 1986, as of which date the maximum offering
proceeds of $15,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$13,284,970, and were used to acquire 20 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer. One Property was sold in each of the years ended December 31, 1992
and 1994. During the year ended December 31, 1997, the Partnership sold its
Property in Casa Grande, Arizona to a third party. In addition, during 1997,
Seventh Avenue Joint Venture, in which the Partnership owned a 50% interest,
sold its Property to the tenant and the Partnership received a return of capital
from the net sales proceeds. The Partnership reinvested the majority of the net
sales proceeds from the sale of the Property in Casa Grande, Arizona, and the
return of capital received from Seventh Avenue Joint Venture in a Property in
Camp Hill, Pennsylvania, and in a Property in Vancouver, Washington, as
tenants-in-common, with affiliates of the General Partners. During 1998, the
Partnership sold its Property in Kissimmee, Florida to the tenant and
distributed the majority of the net sales proceeds as a special distribution to
the Limited Partners and used the remaining net sales proceeds to pay
Partnership liabilities. During 1999, the Partnership sold its Property in Kent
Island, Maryland, to a third party and distributed the majority of the net sales
proceeds as a special distribution to the Limited Partners and used the
remaining net sales proceeds to pay Partnership liabilities. During 2000, the
Partnership sold its Property in Merritt Island, Florida, to a third party and
distributed the sales proceeds as a special distribution to the Limited
Partners. In addition, during 2000, the Partnership sold its Property in
Salisbury, Maryland to a third party and during 2001 distributed the majority of
the net sales proceeds as a special distribution to the Limited Partners and
used the remaining net sales proceeds to pay Partnership liabilities. As a
result of the above transactions, as of December 31, 2001, the Partnership owned
14 Properties. The Partnership owned 11 Properties directly and held interests
in two Properties owned by joint ventures in which the Partnership is a
co-venturer and one Property owned with affiliates of the General Partners as
tenants-in-common. In February 2002, the Partnership sold its Property in
Mesquite, Texas to an unrelated third party. Generally, the Properties are
leased on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to repurchase Properties, generally at
the Property's then fair market value after a specified portion of the lease
term has elapsed. The Partnership has no obligation to sell all or any portion
of a Property at any particular time, except as may be required under property
or joint venture purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. Under the Agreement and Plan of Merger,
APF was to issue shares of its common stock as consideration for the Merger. On
March 1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger entered into in March 1999.
The agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable. The General
Partners are continuing to evaluate strategic alternatives for the Partnership,
including alternatives to provide liquidity to the Limited Partners.
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from ten to 20 years (the average being 16 years), and
expire between 2004 and 2018. Generally, the leases are on a triple-net basis,
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $16,000 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
Generally, the leases of the Properties provide for two to five
five-year renewal options subject to the same terms and conditions as the
initial lease. Lessees of seven of the Partnership's 14 Properties also have
been granted options to purchase Properties at the Property's then fair market
value, or pursuant to a formula based on the original cost of the Property,
after a specified portion of the lease term has elapsed. Fair market value will
be determined through an appraisal by an independent appraisal firm. Under the
terms of certain leases, the option purchase price may equal the Partnership's
original cost to purchase the Property (including acquisition costs), plus a
specified percentage from the date of the lease or a percentage of the
Partnership's purchase price, if that amount is greater than the Property's fair
market value at the time the purchase option is exercised. Additionally, certain
leases provide the lessees the option to purchase up to a 49% joint venture
interest in the Property, after a specified portion of the lease term has
elapsed, at an option purchase price similar to those described above multiplied
by the percentage interest in the Property with respect to which the option is
being exercised.
The leases also provide that, in the event the Partnership wishes to
sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
During 2001, the leases for the Properties in Virginia Beach, Virginia,
Jasper, Alabama and Eunice, Louisiana which were scheduled to expire during 2001
were terminated by the Partnership and the tenant. The Partnership re-leased
these Properties to three new tenants with terms substantially the same as the
Partnership's other leases.
Major Tenants
During 2001, Golden Corral Corporation and The Ground Round, Inc. each
contributed more than 10% of the Partnership's total rental income (including
the Partnership's share of the rental income from Properties owned by joint
ventures and Properties owned with affiliates of the General Partners as
tenants-in-common). As of December 31, 2001, The Ground Round, Inc. was the
lessee under a lease relating to one restaurant. It is anticipated that based on
the minimum rental payments required by the leases and the termination of three
leases with Golden Corral Corporation (See Item 7. Management's Discussion and
Analysis of Financial Condition and Results of Operations), only The Ground
Round, Inc. will continue to contribute 10% or more of the Partnership's total
rental income in 2002. In addition, three Restaurant Chains, Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), Wendy's Old Fashioned Hamburger
Restaurants ("Wendy's"), and The Ground Round each accounted for more than 10%
of the Partnership's total rental income in 2001 (including the Partnership's
share of the rental income from Properties owned by joint ventures and
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2002, it is anticipated that only Wendy's and The Ground Round will each
continue to account for more than 10% of the total rental income to which the
Partnership is entitled under the terms of its leases. Any failure of this
lessee or these Restaurant Chains could materially affect the Partnership's
income if the Partnership is not able to re-lease the Properties in a timely
manner. No single tenant or groups of affiliated tenants lease Properties with
an aggregate carrying value in excess of 20% of the total assets of the
Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into two separate joint venture
arrangements: Sand Lake Road Joint Venture and Orange Avenue Joint Venture, each
with Pembrook Properties, an unaffiliated entity, for each joint venture to
purchase and hold one Property. The joint venture arrangements for Sand Lake
Road Joint Venture and Orange Avenue Joint Venture provide for the Partnership
and its joint venture partner to share equally in all costs and benefits
associated with the joint venture. The Partnership has a 50% interest in each of
Sand Lake Road Joint Venture and Orange Avenue Joint Venture. The Partnership
and its joint venture partner are jointly and severally liable for all debts,
obligations and other liabilities of the joint venture.
Each joint venture has an initial term of 20 years, and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture.
The Partnership shares management control for each joint venture with
Pembrook Properties. The joint venture agreements restrict each venturer's
ability to sell, transfer or assign its joint venture interest without first
offering it for sale to the joint venture partner, either upon such terms and
conditions as to which the venturers may agree or, in the event the venturers
cannot agree, on the same terms and conditions as any offer from a third party
to purchase such joint venture interest.
Net cash flow from operations of each joint venture is distributed 50%
to each joint venture partner. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter in proportion to each partner's percentage interest in the joint
venture.
In addition to the above joint venture agreements, the Partnership has
entered into an agreement to hold a Property in Vancouver, Washington, as
tenants-in-common, with CNL Income Fund II, Ltd., CNL Income Fund V, Ltd. and
CNL Income Fund VI, Ltd., affiliates of the General Partners. The agreement
provides for the Partnership and the affiliates to share in the profits and
losses of the Property in proportion to each co-tenant's percentage interest.
The Partnership owns a 12.17% interest in this Property. Each of the affiliates
is a limited partnership organized pursuant to the laws of the state of Florida.
The tenancy in common agreement restricts each co-tenant's ability to sell,
transfer, or assign its interest in the tenancy in common's Property without
first offering it for sale to the remaining co-tenants.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of Properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of a
Property if the proceeds are reinvested in an additional Property.
Certain Management Services
CNL APF Partners, LP, an affiliate of the General Partners, acts as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership. Under this agreement, CNL APF Partners, LP, (the
"Advisor") is responsible for collecting rental payments, inspecting the
Properties and the tenants' books and records, assisting the Partnership in
responding to tenant inquiries and notices and providing information to the
Partnership about the status of the leases and the Properties. The Advisor also
assists the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay the Advisor an annual fee of one-half of one
percent of Partnership assets (valued at cost) under management, not to exceed
the lesser of one percent of gross rental revenues or competitive fees for
comparable services. Under the property management agreement, the property
management fee is subordinated to receipt by the Limited Partners of an
aggregate, 10%, noncumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return"), calculated in accordance
with the Partnership's limited partnership agreement (the "Partnership
Agreement"). In any year in which the Limited Partners do not receive a 10%
Preferred Return, no property management fee will be paid.
During 2000, CNL Fund Advisors, Inc. assigned its rights in, and its
obligations under, the management agreement with the Partnership to CNL APF
Partners, LP. All of the terms and conditions of the management agreement,
including the payment of fees, as described above, remain unchanged.
The property management agreement continues until the Partnership no
longer owns an interest in any Properties unless terminated at an earlier date
upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of APF, the parent company of the
Advisor perform certain services for the Partnership. In addition, the General
Partners have available to them the resources and expertise of the officers and
employees of CNL Financial Group, Inc., a diversified real estate company, and
its affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 2001, the Partnership owned 14 Properties. Of the 14
Properties, 11 are owned by the Partnership in fee simple, two are owned through
joint venture arrangements and one is owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its Partnership Agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 16,200
to 77,400 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
Alabama 1
Arizona 2
Florida 2
Georgia 1
Louisiana 1
Oklahoma 1
Pennsylvania 1
Texas 3
Virginia 1
Washington 1
--------------
TOTAL PROPERTIES 14
==============
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,900 to 7,400 square feet. All buildings on Properties acquired by the
Partnership are freestanding and surrounded by paved parking areas. Buildings
are suitable for conversion to various uses, although modifications may be
required prior to use for other than restaurant operations. As of December 31,
2001, the Partnership had no plans for renovation of the Properties.
Depreciation expense is computed for buildings and improvements using the
straight line method using depreciable lives of 19, 31.5, and 39 years for
federal income tax purposes.
As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures (including the Property owned through a
tenancy in common arrangement) for federal income tax purposes was $7,409,020
and $3,691,857, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 2001 by Restaurant Chain.
Properties Number of Properties
Burger King 1
Chevy's Fresh Mex 1
Ground Round 1
Pizza Hut 2
Wendy's 5
Other 4
--------------
TOTAL PROPERTIES 14
==============
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
Leases
The Partnership leases the majority of the Properties to operators of
selected national and regional fast-food Restaurant Chains. The Properties are
generally leased on a long-term "triple net" basis, meaning that the tenant is
responsible for repairs, maintenance, property taxes, utilities and insurance.
Generally, a lessee is required, under the terms of its lease agreement, to make
such capital expenditures as may be reasonably necessary to refurbish buildings,
premises, signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 2001, 2000, 1999, 1998 and 1997, the Properties were
100% occupied. The following is a schedule of the average annual rent per
Property for each of the years ended December 31:
2001 2000 1999 1998 1997
------------- -------------- --------------- -------------- -------------
Rental Revenues (1) $ 871,579 $ 1,047,257 $ 1,126,114 $ 1,154,410 $ 1,183,568
Properties 14 14 16 17 18
Average Rent per
Property $ 62,256 $ 74,804 $ 70,382 $ 67,906 $ 65,754
(1) Rental income includes the Partnership's share of rental income from
the Properties owned through joint venture arrangements and the
Property owned through a tenancy in common arrangement. Rental revenues
have been adjusted, as applicable, for any amounts for which the
Partnership has established an allowance for doubtful accounts.
The following is a schedule of lease expirations for leases in place as
of December 31, 2001 for each year for the next ten years and thereafter.
Percentage of
Expiration Year Number Annual Rental Gross Annual
of Leases Revenues Rental Income
----------------- ---------------- ------------------ --------------------------
2002 -- $ -- --
2003 -- -- --
2004 1 30,615 4.41%
2005 -- --
2006 4 249,569 35.95%
2007 1 15,960 2.30%
2008 -- -- --
2009 -- -- --
2010 1 56,644 8.16%
2011 3 175,056 25.22%
Thereafter 3 166,443 23.96%
---------------- ------------------ ----------------
Totals(1) 13 $ 694,287 100.00%
================ ================== ================
(1) Excludes one Property that was sold in February 2002.
Leases with Major Tenant
The terms of the leases with the Partnership's major tenant as of
December 31, 2001 see Item 1. Business - Major Tenants), are substantially the
same as those described in Item 1. Business - Leases.
The Ground Round, Inc. leases one Ground Round restaurant. The initial
term of the lease is 20 years (expiring 2017) and the minimum base annual rent
is approximately $88,500.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2002, there were 1,058 holders of record of the Units. There
is no public trading market for the Units, and it is not anticipated that a
public market for the Units will develop. During 2001, Limited Partners who
wished to sell their Units could have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), could have done so pursuant to such
Plan. The General Partners have the right to prohibit transfers of Units. From
January 1997 through April 1998, due primarily to sales of Properties in prior
years, the price paid for any Unit transferred pursuant to the Plan was $422 per
Unit. Effective with the date of sale of the Property in Kissimmee, Florida, the
price paid for any Unit transferred pursuant to the Plan ranged from $329 to
$410. The price paid for any Unit transferred other than pursuant to the Plan
was subject to negotiation by the purchaser and the selling Limited Partner. The
Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 2001 and 2000 other than
pursuant to the Plan, net of commissions.
2001 (1) 2000 (1)
-------------------------------- ---------------------------------
High Low Average High Low Average
------- ------- ---------- ------- ------- ----------
First Quarter $195 $195 $ 195 $431 $431 $431
Second Quarter 251 206 248 370 289 329
Third Quarter (2) (2) (2) 230 230 230
Fourth Quarter (2) (2) (2) (2) (2) (2)
(1) A total of 187 and 110 Units were transferred other than pursuant to
the Plan for the years ended December 31, 2001 and 2000, respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 2001 and 2000, the Partnership
declared cash distributions of $1,428,668 and $2,162,878, respectively, to the
Limited Partners. Distributions during the year ended December 31, 2001 included
$600,000 in a special distribution, as a result of the distribution of net sales
proceeds from the 2000 sale of the Property in Salisbury, Maryland.
Distributions during the year ended December 31, 2000 included $1,200,000 in a
special distribution, as a result of the distribution of net sales proceeds from
the sales of Properties in Merritt Island, Florida, and Kent Island, Maryland.
These special distributions in 2001 and 2000, were effectively a return of a
portion of the Limited Partners' investment; although, in accordance with the
Partnership agreement, $183,820 and $509,695, respectively, were applied towards
the 10% Preferred Return, on a cumulative basis, and the balances of $416,180
and $690,305, respectively, were treated as a return of capital for purposes of
calculating the 10% Preferred Return. As a result of the returns of capital and
the returns of capital in prior years, the amount of the Limited Partners'
invested capital contributions (which generally is the Limited Partners' capital
contributions, less distributions from the sale of Properties that are
considered to be a return of capital) was decreased; therefore, the amount of
the Limited Partners' invested capital contributions on which the 10% Preferred
Return is calculated was lowered accordingly. As a result of the sales of these
Properties, the Partnership's total revenue was reduced during 2001 and 2000 and
is expected to remain reduced in subsequent years, while the majority of the
Partnership's operating expenses remain fixed. Therefore, distributions of net
cash flow were adjusted commencing during the quarters ended September 30, 2000
and March 31, 2001. No distributions have been made to the General Partners to
date.
As indicated in the chart below, distributions were declared at the
close of each of the Partnership's calendar quarters. This amount includes
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
Quarter Ended 2001 2000
-------------------- -------------- ---------------
March 31 $ 807,167 $ 266,982
June 30 207,167 266,982
September 30 207,167 1,414,457
December 31 207,167 214,457
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
(b) Not Applicable
Item 6. Selected Financial Data
2001 2000 1999 1998 1997
------------- ------------- ------------- ------------- -------------
Year ended December 31:
Revenues (1) $ 936,372 $1,104,017 $1,169,652 $1,153,824 $1,333,000
Net income (2) 626,317 1,112,519 1,075,771 1,001,437 1,248,757
Cash distributions
declared (3) 1,428,668 2,162,878 1,067,928 1,703,468 1,264,884
Net income per Unit (2) 20.88 37.08 35.51 33.09 41.24
Cash distributions declared
per Unit (3) 47.62 72.10 35.60 56.78 42.16
At December 31:
Total assets $6,884,715 $7,672,948 $8,825,685 $8,760,926 $9,500,078
Partners' capital 6,482,152 7,284,503 8,334,862 8,327,019 9,029,050
(1) Revenues include equity in earnings of joint ventures. In addition,
revenues for the years ended December 31, 2001, 2000 and 1999, include
lease termination income of $60,758, $35,863 and $50,000, respectively,
recognized by the Partnership as consideration for the Partnership
releasing former tenants from their obligation under the terms of their
respective leases.
(2) Net income for the years ended December 31, 2000, 1999, 1998, and 1997,
includes $306,715, $315,649, $235,804, and $233,183, respectively, from
gains on sale of assets.
(3) Distributions for the years ended December 31, 2001, 2000 and 1998
include $600,000, $1,200,000 and $586,300, respectively, as a result of
the distribution of a portion of the net sales proceeds from the sales
of Properties.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 26, 1985, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are generally triple-net leases, with the lessees generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 2001, the Partnership owned 11 Properties directly and held
interest in three Properties either through joint venture or tenancy in common
arrangements.
Capital Resources
During the years ended December 31, 2001, 2000, and 1999, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $831,136, $881,410, and $1,043,124, respectively. The decrease
in cash from operations during 2001, as compared to 2000, was primarily a result
of changes in the Partnership's working capital and changes in income and
expenses as described in "Results of Operations," below. The decrease in cash
from operations during 2000, as compared to 1999, was primarily a result of
changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
years ended December 31, 2001, 2000 and 1999.
In October 1999, the Partnership sold its Property in Kent Island,
Maryland to a third party for $875,000 and received net sales proceeds of
approximately $820,500, resulting in a gain of $315,649. In connection with the
sale, the Partnership also received $50,000 from the former tenant as
consideration for the Partnership releasing the tenant from its obligation under
the terms of its lease. The Partnership used a portion of the net sales proceeds
to pay liabilities of the Partnership, including quarterly distributions to the
Limited Partners, and a portion to pay a special distribution to the Limited
Partners.
In September and November 2000, the Partnership sold its Properties in
Merritt Island, Florida and Salisbury, Maryland, for a total of approximately
$1,311,500, and received net sales proceeds totaling approximately $1,305,600,
resulting in a total gain of $306,715. Also, in connection with the sale of the
Property in Salisbury, Maryland, the Partnership received $35,863 from the
former tenant as consideration for the Partnership releasing the tenant from its
obligation under the terms of the lease. In connection with the sales, the
Partnership incurred deferred, real estate disposition fees of $39,345. Payment
of the real estate disposition fees are subordinated to receipt by the Limited
Partners of their 10% Preferred Return, plus their adjusted capital
contributions. The Partnership distributed a portion of the net sales proceeds
received as a special distribution to the Limited Partners and used the
remaining net sales proceeds to pay Partnership liabilities, including quarterly
distributions.
During 1999, the Partnership entered into a promissory note with the
corporate General Partner for a loan in the amount of $122,000 in connection
with the operations of the Partnership. The note was uncollateralized,
non-interest bearing and due on demand. As of December 31, 1999, the Partnership
had repaid the loan in full to the corporate General Partner. In addition,
during 2000, the Partnership entered into another promissory note with the
corporate General Partner for a loan in the amount of $70,000 in connection with
the operations of the Partnership. The note was uncollateralized, non-interest
bearing and due on demand. As of December 31, 2000, the Partnership had repaid
the loan in full to the corporate General Partner. No such promissory notes were
entered into during 2001.
None of the Properties owned by the Partnership, or the joint ventures
and tenancy in common arrangements in which the Partnership owns an interest, is
or may be encumbered. Subject to certain restrictions on borrowings from the
General Partners, however, the Partnership may borrow, in the discretion of the
General Partners, for the purpose of maintaining the operations of the
Partnership. The Partnership will not encumber any of the Properties in
connection with any borrowings or advances. The Partnership will not borrow for
the purpose of returning capital to the Limited Partners. The Partnership also
will not borrow under circumstances which would make the Limited Partners liable
to creditors of the Partnership. Affiliates of the General Partners from time to
time incur certain operating expenses on behalf of the Partnership for which the
Partnership reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties, are invested in money market
accounts or other short-term, highly liquid investments such as demand deposit
accounts at commercial banks, money market accounts and certificates of deposit
with less than a 90-day maturity date, pending the Partnership's use of such
funds to pay Partnership expenses or to make distributions to the partners. At
December 31, 2001, the Partnership had $414,999 invested in such short-term
investments as compared to $1,019,821 at December 31, 2000. The decrease in cash
and cash equivalents was attributable to the payment of a special distribution
of $600,000 to the Limited Partners, as described below in "Short-Term
Liquidity." As of December 31, 2001, the average interest rate earned by the
Partnership on rental income deposited in demand deposit accounts at commercial
banks was approximately 3.2% annually. The funds remaining at December 31, 2001,
after payment of distributions and other liabilities will be used to meet the
Partnership's working capital needs.
In December 2001, the Partnership entered into an agreement with an
unrelated third party to sell its Property in Mesquite, Texas. In February 2002,
the Partnership sold the Property for approximately $1,073,800 and received net
sales proceeds of approximately $1,062,200 resulting in a gain of approximately
$348,000 which will be recognized in the first quarter of 2002. The Partnership
intends to use the proceeds received from the sale for distributions to the
Limited Partners and to pay Partnership liabilities. The Partnership will
distribute amounts sufficient to enable the Limited Partners to pay federal and
state income taxes, if any (at a level reasonably assumed by the general
partners), resulting from the sale.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
cash flow in excess of operating expenses.
Due to low ongoing operating expenses and ongoing cash flow, the
General Partners do not believe that working capital reserves are necessary at
this time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. The General
Partners may determine to establish reserves in the future. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership, in which event such contributions will be
returned to the General Partners from distributions of net sales proceeds at the
same time that their initial capital contributions of $1,000 are returned.
The Partnership generally distributes cash from operations remaining
after the payment of the operating expenses of the Partnership, to the extent
that the General Partners determine that such funds are available for
distribution. Based primarily on current and anticipated future cash from
operations, and for 2001 and 2000 proceeds from the sale of Properties as
described above, the Partnership declared distributions to Limited Partners of
$1,428,688, $2,162,878, and $1,067,928 for 2001, 2000 and 1999, respectively.
This represents distributions of $47.62, $72.10, and $35.60 per Unit for the
years ended December 31, 2001, 2000 and 1999, respectively. The distributions to
the Limited Partners for 2000 and 1999 were also based on loans received from
the General Partners of $70,000 and $122,000, respectively, which were
subsequently repaid, as described above in "Capital Resources." Distributions
during 2001 and 2000 included $600,000 and $1,200,000, respectively, of net
sales proceeds from the sale of the Properties in Salisbury, Maryland, Merritt
Island, Florida, and Kent Island, Maryland. These special distributions were
effectively a return of a portion of the Limited Partners investment; although,
in accordance with the Partnership Agreement, $183,820 and $509,695,
respectively, was applied towards the 10% Preferred Return, on a cumulative
basis, and the balances of $416,180 and $690,305, respectively, were treated as
a return of capital for purposes of calculating the 10% Preferred Return. As a
result of the sales of these Properties, the Partnership's total revenue was
reduced during 2001, 2000 and 1999 and is expected to remain reduced in
subsequent years, while the majority of the Partnership's operating expenses
remained fixed. Therefore, distributions of net cash flow were adjusted
commencing during the quarters ended September 30, 2000 and March 31, 2001,
respectively. The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
During 2000, the General Partners waived their right to receive future
distributions from the Partnership, including both distributions of operating
cash flow and distributions of liquidation proceeds, to the extent that the
cumulative amount of such distributions would exceed the balance in the General
Partners' capital account as of December 31, 1999. Accordingly, the General
Partners were not allocated any net income and did not receive any distributions
during the years ended December 31, 2001 and 2000.
As of December 31, 2001, 2000 and 1999, the Partnership owed $3,783,
$2,484, and $36,327, respectively, to affiliates for operating expenses and
accounting and administrative services. As of March 15, 2002, the Partnership
had reimbursed the affiliates of all such amounts. In addition, as of December
31, 2001 and 2000, the Partnership owed affiliates $126,495 in real estate
disposition fees as a result of services rendered in connection with the sales
of two Properties in 2000 and three Properties in previous years. The payment of
such fees is deferred until the Limited Partners have received the sum of their
cumulative 10% Preferred Return and their adjusted capital contributions.
Amounts payable to other parties, including distributions payable, increased to
$272,285 at December 31, 2001, from $259,466 at December 31, 2000. The increase
was primarily the result of an increase in escrowed real estate taxes payable
and rents paid in advance and deposits at December 31, 2001, as compared to
December 31, 2000. The increase was partially offset by a decrease in accounts
payable at December 31, 2001, as compared to December 31, 2000. The General
Partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Critical Accounting Policies
The Partnership's leases are accounted for under the provisions of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for using either the direct financing or the operating
method. FAS 13 requires management to estimate the economic life of the leased
property, the residual value of the leased property and the present value of
minimum lease payments to be received from the tenant. In addition, management
assumes that all payments to be received under its leases are collectible.
Changes in management's estimates or assumption regarding collectibility of
lease payments could result in a change in accounting for the lease at the
inception of the lease.
The Partnership accounts for its unconsolidated joint ventures using
the equity method of accounting. Under generally accepted accounting principles,
the equity method of accounting is appropriate for entities that are partially
owned by the Partnership, but for which operations of the investee are shared
with other partners. The Partnership's joint venture agreements require the
consent of all partners on all key decisions affecting the operations of the
underlying Property.
Management reviews its Properties and investments in unconsolidated
entities periodically (no less than once per year) for impairment whenever
events or changes in circumstances indicate that the carrying amount of the
assets may not be recoverable through operations. Management determines whether
impairment in value has occurred by comparing the estimated future undiscounted
cash flows, including the residual value of the Property, with the carrying cost
of the individual Property. If an impairment is indicated, the assets are
adjusted to their fair value.
Results of Operations
During 1999, the Partnership owned and leased 14 wholly owned
Properties (including one Property which was sold during 1999). During 2000, the
Partnership owned and leased 13 wholly owned Properties (including two
Properties which were sold during 2000). During 2001, the Partnership owned and
leased 11 wholly owned Properties. During the years ended December 31, 2001,
2000 and 1999, the Partnership was a co-venturer in two separate joint ventures
that each owned and leased one Property. In addition, during 2001, 2000 and
1999, the Partnership owned and leased one Property, with an affiliate of the
General Partners, as tenants-in-common. As of December 31, 2001, the Partnership
owned, either directly or through joint venture arrangements, 14 Properties
which are, in general, subject to long-term, triple net leases. The leases of
the Properties provide for minimum base annual rental amounts (payable in
monthly installments) ranging from approximately $16,000 to $222,800. Generally,
the leases provide for percentage rent based on sales in excess of a specified
amount. In addition, certain leases provide for increases in the annual base
rent during the lease terms. For further description of the Partnership's leases
and Properties, see Item 1. Business - Leases and Item 2. Properties,
respectively.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership earned $710,043, $875,958, and $971,726, respectively, in rental
income from the Partnership's wholly owned Properties described above. The
decrease in rental income during 2001 and 2000, each as compared to the previous
year, was primarily attributable to a decrease in rental income as a result of
the sale of Properties during 2000 and 1999. Rental income is expected to remain
at reduced amounts due to the fact that the Partnership used the net sales
proceeds from the sales of the Properties to pay liabilities of the Partnership
and to make distributions to the Limited Partners.
In addition, during 2001, the leases for the Properties in Virginia
Beach, Virginia, Jasper, Alabama and Eunice, Louisiana which were scheduled to
expire in 2001, were terminated by the Partnership and the tenant. The
Partnership re-leased these Properties to three new tenants with terms
substantially the same as the Partnership's other leases. Rents due under the
new leases are lower than rents due under the previous leases; therefore, the
Partnership expects that rental income in future periods will remain at reduced
amounts. However, the General Partners do not anticipate that the decrease in
rental income relating to the new leases will have a material adverse affect on
the Partnership's financial position or results of operations.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership recognized $60,758, $35,863, and $50,000, respectively, in lease
termination income from former tenants as consideration for the Partnership
releasing the former tenants from their obligations under the terms of their
respective leases.
During the years ended December 31, 2001, 2000 and 1999, the
Partnership also earned $44,692, $54,453, and $37,537, respectively, in
contingent rental income. The decrease in contingent rental income during 2001
as compared to 2000, was primarily attributable to a decrease in contingent
rental income as a result of the sale of Properties during 2000. The increase in
contingent rental income during 2000 as compared to 1999, was attributable to an
increase in gross sales of certain restaurant Properties, the leases of which
require the payment of contingent rent.
In addition, during the years ended December 31, 2001, 2000, and 1999,
the Partnership earned $95,251, $95,658, and $95,251, respectively, attributable
to net income earned by the two joint ventures in which the Partnership is a
co-venturer and one Property owned with affiliates of the General Partners as
tenants-in-common.
During the year ended December 31, 2001, two of the Partnership's
lessees, Golden Corral Corporation and The Ground Round, Inc., each contributed
more than 10% of the Partnership's total rental income (including the
Partnership's share of the rental income from Properties owned by joint ventures
and Properties owned with an affiliate as tenants-in-common). As of December 31,
2001, The Ground Round, Inc. was the lessee under a lease relating to one
restaurant. It is anticipated that based on the minimum rental payments required
by the leases, and the termination of three leases with Golden Corral
Corporation, as described above, only The Ground Round, Inc. will continue to
contribute 10% or more of the Partnership's total rental income during 2002. In
addition, three Restaurant Chains, Golden Corral, Wendy's, and The Ground Round
each accounted for more than 10% of the Partnership's total rental income in
2001 (including the Partnership's share of the rental income from Properties
owned by joint ventures and Properties owned with an affiliate as
tenants-in-common). It is anticipated that only Wendy's and The Ground Round
will each continue to account for more than 10% of the total rental income to
which the Partnership is entitled under the terms of its leases. Any failure of
this lessee or these Restaurant Chains could materially affect the Partnership's
income if the Partnership is not able to re-lease the Properties in a timely
manner.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership earned $25,628, $42,085, and $15,138, respectively, in interest and
other income. The decrease in interest and other income during 2001, as compared
to 2000, was primarily attributable to a decrease in the average cash balance
during 2001 due to a payment of a special distribution to the Limited Partners
during 2001 of $600,000 of net sales proceeds from the sale of the Property in
Salisbury, Maryland in 2000. The increase in interest and other income during
2000, as compared to 1999, was primarily attributable to interest income earned
on the net sales proceeds relating to the 1999 and 2000 sales of several
Properties pending distributions to the Limited Partners or payment of
liabilities of the Partnership.
Operating expenses, including depreciation and amortization expense,
were $310,055, $298,213, and $409,530, for the years ended December 31, 2001,
2000, and 1999, respectively. The increase in operating expenses during 2001, as
compared to 2000, was primarily attributable to an increase in the costs
incurred for administrative expenses for servicing the Partnership and its
Properties, as permitted by the Partnership agreement. The increase in operating
expenses during 2001 was partially offset by, and the decrease during 2000, as
compared to 1999, was partially attributable to, the amount of transaction costs
the Partnership incurred related to the General Partners retaining financial and
legal advisors to assist them in evaluating and negotiating the proposed and
terminated merger as described below in "Termination of Merger." In addition,
the increase in operating expenses during 2001 was partially offset by, and the
decrease in operating expenses during 2000, was partially attributable to, a
decrease in depreciation expense as a result of the 2000 sales of the Properties
in Merritt Island, Florida and Salisbury, Maryland and the 1999 sale of the
Property in Kent Island, Maryland. Operating expenses were lower during 2000, as
compared to 2001 and 1999 due to the fact that during 2000, the Partnership
received reimbursement from the tenant of the Property in Mesquite, Texas for
previously incurred legal expenses.
As a result of the sales of the Properties in Merritt Island, Florida
and Salisbury, Maryland, as described above in "Capital Resources," the
Partnership recognized gains totaling $306,715 during 2000. As a result of the
sale of the Property in Kent Island, Maryland, as described above in "Capital
Resources," the Partnership recognized a gain of $315,649 during 1999. No
Properties were sold during 2001.
The restaurant industry, as a whole, has been one of the many
industries affected by the general slowdown in the economy. The General Partners
remain confident in the overall performance of the fast-food and family style
restaurants, the concepts that comprise the Partnership's portfolio. Industry
data shows that these restaurant concepts continue to outperform and remain more
stable than high-end restaurants, those that have been more adversely affected
by the slowing economy.
The Partnership's leases as of December 31, 2001, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Inflation has had a minimal effect on results of
operations of the Partnership. Continued inflation may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however, also may have an adverse impact on the sales of the restaurants and on
potential capital appreciation of the Properties.
In December 1999, the Securities and Exchange Commission released SAB
101, which provides the staff's view in applying generally accepted accounting
principles to selected revenue recognition issues. SAB 101 requires the
Partnership to defer recognition of certain percentage rental income until
certain defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material impact on the
partnership's result of operations.
In July 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 141 "Business Combinations" (FAS 141) and
Statement of Financial Accounting Standards No. 142 "Goodwill and Other
Intangible Assets" (FAS 142). The Partnership has reviewed both statements and
has determined that both FAS 141 and FAS 142 do not apply to the Partnership as
of December 31, 2001.
In October 2001, the Financial Accounting Standards Board issued
Statement of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets" (FAS 144). This statement requires
that a long-lived asset be tested for recoverability whenever events or changes
in circumstances indicate that its carrying amount may not be recoverable. The
carrying amount of a long-lived asset is not recoverable if it exceeds the sum
of the undiscounted cash flows expected to result from the use and eventual
disposition of the asset. The assessment is based on the carrying amount of the
asset at the date it is tested for recoverability. An impairment loss is
recognized when the carrying amount of a long-lived asset exceeds its fair
value. If an impairment is recognized, the adjusted carrying amount of a
long-lived asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this Statement
retained the fundamental provisions of FAS No. 121 "Accounting for the
Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed of".
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger entered into in March 1999. The
agreement to terminate the Agreement and Plan of Merger was based, in large
part, on the General Partners' concern that, in light of market conditions
relating to publicly traded real estate investment trusts, the value of the
transaction had diminished. As a result of such diminishment, the General
Partners' ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable. The General
Partners are continuing to evaluate strategic alternatives for the Partnership
including alternatives to provide liquidity to the Limited Partners.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Certified Public Accountants 16
Financial Statements:
Balance Sheets 17
Statements of Income 18
Statements of Partners' Capital 19
Statements of Cash Flows 20-21
Notes to Financial Statements 22-34
Report of Independent Certified Public Accountants
To the Partners
CNL Income Fund, Ltd.
In our opinion, the accompanying balance sheets and the related statements of
income, of partners' capital and of cash flows present fairly, in all material
respects, the financial position of CNL Income Fund, Ltd. (a Florida limited
partnership) at December 31, 2001 and 2000, and the results of its operations
and its cash flows for each of the three years in the period ended December 31,
2001 in conformity with accounting principles generally accepted in the United
States of America. In addition, in our opinion, the financial statement schedule
listed in the index appearing under item 14(a)(2) presents fairly, in all
material respects, the information set forth therein when read in conjunction
with the related financial statements. These financial statements and financial
statement schedule are the responsibility of the Partnership's management; our
responsibility is to express an opinion on these financial statements and
financial statement schedule based on our audits. We conducted our audits of
these statements in accordance with auditing standards generally accepted in the
United States of America, which require that we plan and perform the audit to
obtain reasonable assurance about whether the financial statements are free of
material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements, assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for our opinion.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 8, 2002, except for Note 11, as to which the date is February 20, 2002.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
2001 2000
------------------ ------------------
ASSETS
Land and buildings on operating leases, net $ 5,580,917 $ 5,735,013
Investment in joint ventures 787,721 804,857
Cash and cash equivalents 414,999 1,019,821
Receivables 34,841 45,342
Due from related parties 1,574 --
Accrued rental income 43,559 37,871
Other assets 21,104 30,044
------------------ ------------------
$ 6,884,715 $ 7,672,948
================== ==================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 4,840 $ 11,770
Escrowed real estate taxes payable 13,688 2,176
Distributions payable 207,167 214,457
Due to related parties 130,278 128,979
Rents paid in advance and deposits 46,590 31,063
------------------ ------------------
Total liabilities 402,563 388,445
Commitment (Note 10)
Partners' capital 6,482,152 7,284,503
------------------ ------------------
$ 6,884,715 $ 7,672,948
================== ==================
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
Year Ended December 31,
2001 2000 1999
---------------- --------------- ----------------
Revenues:
Rental income from operating leases $ 710,043 $ 875,958 $ 971,726
Contingent rental income 44,692 54,453 37,537
Lease termination income 60,758 35,863 50,000
Interest and other income 25,628 42,085 15,138
---------------- --------------- ----------------
841,121 1,008,359 1,074,401
---------------- --------------- ----------------
Expenses:
General operating and administrative 122,338 91,029 87,383
Professional services 20,032 4,516 32,841
State and other taxes 11,089 8,600 4,867
Depreciation and amortization 156,596 178,510 201,277
Transaction costs -- 15,558 83,162
---------------- --------------- ----------------
310,055 298,213 409,530
---------------- --------------- ----------------
Income Before Gain on Sale of Assets and Equity in
Earnings of Joint Ventures 531,066 710,146 664,871
Gain on Sale of Assets -- 306,715 315,649
Equity in Earnings of Joint Ventures 95,251 95,658 95,251
---------------- --------------- ----------------
Net Income $ 626,317 $1,112,519 $ 1,075,771
================ =============== ================
Allocation of Net Income
General partners $ -- $ -- $ 10,338
Limited partners 626,317 1,112,519 1,065,433
---------------- --------------- ----------------
$ 626,317 $1,112,519 $ 1,075,771
================ =============== ================
Net Income Per Limited Partner Unit $ 20.88 $ 37.08 $ 35.51
================ =============== ================
Weighted Average Number of
Limited Partner Units Outstanding 30,000 30,000 30,000
================ =============== ================
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 2001, 2000, and 1999
General Partners Limited Partners
-------------------------------------- -------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
--------------- -------------- -------------- --------------- ------------ ------------- ----------
Balance, December 31, 1998 $ 193,400 $ 137,030 $ 12,944,586 $ (17,292,375 ) $ 14,007,518 $ (1,663,140) $8,327,019
Distributions to limited
partners ($35.60 per
limited partner unit) -- -- -- (1,067,928 ) -- -- (1,067,928)
Net income -- 10,338 -- -- 1,065,433 -- 1,075,771
------------- ------------- ----------------- ------------- ------------ ------------- ------------
Balance, December 31, 1999 193,400 147,368 12,944,586 (18,360,303 ) 15,072,951 (1,663,140) 8,334,862
Distributions to limited
partners ($72.10 per
limited partner unit) -- -- (690,305 ) (1,472,573 ) -- -- (2,162,878)
Net income -- -- -- -- 1,112,519 -- 1,112,519
------------- ------------- ----------------- ------------- ------------ ------------ ------------
Balance, December 31, 2000 193,400 147,368 12,254,281 (19,832,876 ) 16,185,470 (1,663,140) 7,284,503
Distributions to limited
partners ($47.62 per
limited partner unit) -- -- (416,180 ) (1,012,488 ) -- -- (1,428,668)
Net income -- -- -- -- 626,317 -- 626,317
------------- ------------- ----------------- ----------- ------------- ------------- ------------
Balance, December 31, 2001 $ 193,400 $ 147,368 $ 11,838,101 $(20,845,364 ) $ 16,811,787 $ (1,663,140) $6,482,152
============= ============= ================= ============ ============= ============= ============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
Years Ended December 31,
2001 2000 1999
--------------- --------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 848,610 $ 925,069 $1,134,569
Distributions from joint venture 112,387 113,794 113,637
Cash paid for expenses (152,054 ) (199,315 ) (216,695 )
Interest received 22,193 41,862 11,613
--------------- --------------- ---------------
Net cash provided by operating activities 831,136 881,410 1,043,124
--------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of assets -- 1,305,640 820,457
--------------- --------------- ---------------
Net cash provided by investing
activities -- 1,305,640 820,457
--------------- --------------- ---------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate general
partner -- 70,000 122,000
Repayment of loan from corporate general
partner -- (70,000 ) (122,000 )
Distributions to limited partners (1,435,958 ) (2,215,403 ) (1,067,928 )
--------------- --------------- ---------------
Net cash used in financing activities (1,435,958 ) (2,215,403 ) (1,067,928 )
--------------- --------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents
(604,822 ) (28,353 ) 795,653
Cash and Cash Equivalents at Beginning of Year 1,019,821 1,048,174 252,521
--------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 414,999 $1,019,821 $1,048,174
=============== =============== ===============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
Years Ended December 31,
2001 2000 1999
--------------- --------------- --------------
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $ 626,317 $1,112,519 $1,075,771
--------------- --------------- --------------
Adjustments to reconcile net income to net
cash provided by operating activities:
Depreciation 154,096 176,010 198,777
Amortization 2,500 2,500 2,500
Equity in earnings of joint
ventures, net of distributions 17,136 18,136 18,386
Gain on sale of assets -- (306,715 ) (315,649 )
Decrease (increase) in receivables 8,927 (26,574 ) 12,191
Increase in accrued rental income (5,688 ) (4,171 ) (2,909 )
Decrease (increase) in other assets 6,440 (1,097 ) (2,859 )
(Increase) decrease in accounts
payable and escrowed real
estate taxes payable 4,582 (58,975 ) 71,161
(Increase) decrease in due to
related parties 1,299 (33,843 ) (5,583 )
Increase (decrease) in rents paid in
advance and deposits 15,527 3,620 (8,662 )
--------------- --------------- --------------
Total adjustments 204,819 (231,109 ) (32,647 )
--------------- --------------- --------------
Net Cash Provided by Operating Activities $ 831,136 $ 881,410 $1,043,124
=============== =============== ==============
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Deferred real estate disposition fee
incurred and unpaid at end of year $ -- $ 39,345 $ --
=============== =============== ==============
Distributions declared and unpaid at
December 31 $ 207,167 $ 214,457 $ 266,982
=============== =============== ==============
See accompanying notes to financial statements.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50% shareholders of the
Corporate General Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are generally leased to unrelated
third parties on a triple-net basis, whereby the tenant is generally
responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance and repairs. The
leases are accounted for using the operating method. Under the
operating method, land and building leases are recorded at cost,
revenue is recognized as rentals are earned and depreciation is charged
to operations as incurred. Buildings are depreciated on the
straight-line method over their estimated useful lives of 30 years.
When scheduled rentals vary during the lease term, income is recognized
on a straight-line basis so as to produce a constant periodic rent over
the lease term commencing on the date the property is placed in
service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date. Whenever a tenant defaults under the terms of its
lease or events or changes in circumstances indicate that the tenant
will not lease the property through the end of the lease term, the
Partnership either creates an allowance or reverses the cumulative
accrued rental income balance.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, are removed from the
accounts and gains or losses from sales reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
carrying cost of the individual property. If an impairment is
indicated, the assets are adjusted to their fair value. Although the
general partners have made their best estimate of these factors based
on current conditions, it is reasonably possible that changes could
occur in the near term which could adversely affect the general
partners' best estimate of net cash flows expected to be generated from
its properties and the need for asset impairment write downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
although the Partnership continues to pursue collection of such
amounts. If amounts are subsequently determined to be uncollectible,
the corresponding receivable and the allowance for doubtful accounts
are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Sand
Lake Road Joint Venture and Orange Avenue Joint Venture, are joint
venture arrangements with an unaffiliated entity, and the Partnership's
investment in the property in Vancouver, Washington, is held as
tenants-in-common with affiliates of the General Partners. These
entities are accounted for using the equity method since each joint
venture agreement requires the consent of all partners on all key
decisions affecting the operations of the underlying property.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts.
Lease Costs - Other assets include lease incentive costs and brokerage
and legal fees associated with negotiating new leases which are
amortized over the terms of the new leases using the straight-line
method.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment.
Syndication costs are netted against partners' capital and represent a
reduction of Partnership equity and a reduction in the basis of each
partner's investment. See "Income Taxes" footnote for a reconciliation
of net income for financial reporting purposes to net income for
federal income tax purposes.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
Reclassification - Certain items in the prior years' financial
statements have been reclassified to conform to 2001 presentation.
These reclassifications had no effect on partners capital or net
income.
Staff Accounting Bulletin No. 101 ("SAB 101") - In December 1999, the
Securities and Exchange Commission released SAB 101, which provides the
staff's view in applying generally accepted accounting principles to
selected revenue recognition issues. SAB 101 requires the Partnership
to defer recognition of certain percentage rental income until certain
defined thresholds are met. The Partnership adopted SAB 101 beginning
January 1, 2000. Implementation of SAB 101 did not have a material
impact on the Partnership's results of operations.
Statement of Financial Accounting Standards No. 141 ("FAS 141") and
Statement of Financial Accounting Standards No. 142 ("FAS 142") - In
July 2001, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards No. 141 "Business Combinations" (FAS
141) and Statement of Financial Accounting Standards No. 142 "Goodwill
and Other Intangible Assets" (FAS 142). The Partnership has reviewed
both statements and has determined that both FAS 141 and FAS 142 do not
apply to the Partnership as of December 31, 2001.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
1. Significant Accounting Policies - Continued:
-------------------------------------------
Statement of Financial Accounting Standards No. 144 ("FAS 144") - In
October 2001, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 144 "Accounting for the
Impairment or Disposal of Long-Lived Assets". This statement requires
that a long-lived asset be tested for recoverability whenever events or
changes in circumstances indicate that its carrying amount may not be
recoverable. The carrying amount of a long-lived asset is not
recoverable if it exceeds the sum of the undiscounted cash flows
expected to result from the use and eventual disposition of the asset.
The assessment is based on the carrying amount of the asset at the date
it is tested for recoverability. An impairment loss is recognized when
the carrying amount of a long-lived asset exceeds its fair value. If an
impairment is recognized, the adjusted carrying amount of a long-lived
asset is its new cost basis. The adoption of FAS 144 did not have any
effect on the partnership's recording of impairment losses as this
Statement retained the fundamental provisions of FAS No. 121
"Accounting for the Impairment of Long-Lived Assets and for Long-Lived
Assets to be Disposed of".
2. Leases:
------
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases have been classified as
operating leases. Substantially all leases are for 15 to 20 years and
provide for minimum and contingent rentals. In addition, the tenant
generally pays all property taxes and assessments, fully maintains the
interior and exterior of the building and carries insurance coverage
for public liability, property damage, fire and extended coverage. The
lease options generally allow tenants to renew the leases for two or
three successive five-year periods subject to the same terms and
conditions as the initial lease. Most leases also allow the tenant to
purchase the property at fair market value after a specified portion of
the lease has elapsed.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
2001 2000
-------------- -------------
Land $ 3,107,282 $ 3,107,282
Buildings 4,618,604 4,618,604
-------------- -------------
7,725,886 7,725,886
Less accumulated depreciation (2,144,969 ) (1,990,873 )
-------------- -------------
$ 5,580,917 $ 5,735,013
============== =============
During the year ended December 31, 1999, the Partnership sold its
property in Kent Island, Maryland for $875,000 and received net sales
proceeds of approximately $820,500, resulting in a gain of $315,649. In
connection with the sale, the Partnership also received $50,000 from
the former tenant in consideration of the Partnership releasing the
tenant from its obligation under the terms of its lease.
During 2000, the Partnership sold two properties, one in each of
Merritt Island, Florida and Salisbury, Maryland, for a total of
approximately $1,311,500 and received total net sales proceeds of
approximately $1,305,600, resulting in a total gain of $306,715. In
connection with the sales, the Partnership incurred deferred,
subordinated, real estate disposition fees of $39,345 (see Note 7), and
received $35,863 from the former tenant of the Salisbury, Maryland
property in consideration of the Partnership releasing the tenant from
its obligation under the terms of its lease.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 2001:
2002 $ 569,993
2003 574,487
2004 541,587
2005 538,587
2006 482,731
Thereafter 2,581,241
----------------
$ 5,288,626
================
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Investment in Joint Ventures:
----------------------------
As of December 31, 2001, the Partnership had a 50% interest in the
profits and losses of Orange Avenue Joint Venture and Sand Lake Road
Joint Venture, and owned a 12.17% interest in a property in Vancouver,
Washington, with affiliates of the general partners. These joint
ventures, and the tenancy-in-common with affiliates of the general
partners, as tenants-in-common, each owns and leases one property to an
operator of national fast-food or family-style restaurant. The
following presents the combined, condensed financial information for
the joint ventures and the property held as tenants-in-common with
affiliates at December 31:
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
4. Investment in Joint Ventures - Continued:
----------------------------------------
2001 2000
------------- -------------
Land and buildings on operating leases, net $ 3,029,523 $ 3,106,804
Cash 3,232 513
Receivables 1,538 --
Accrued rental income 92,131 69,133
Other assets 335 227
Liabilities 3,111 913
Partners' capital 3,123,648 3,175,764
Revenues 419,940 420,947
Net income 339,931 341,488
The Partnership recognized income totaling $95,251, $95,658, and
$95,251, for the years ended December 31, 2001, 2000 and 1999,
respectively, from these joint ventures.
5. Allocations and Distributions:
-----------------------------
From inception through December 31, 1999, all net income and net losses
of the Partnership, excluding gains and losses from the sale of
properties, were allocated 99% to the limited partners and one percent
to the general partners. From inception through December 31, 1999,
distributions of net cash flow were made 99% to the limited partners
and one percent to the general partners; provided, however, that the
one percent of net cash flow to be distributed to the general partners
was subordinated to receipt by the limited partners of an aggregate,
10%, noncumulative, noncompounded annual return on their adjusted
capital contributions (the "10% Preferred Return").
From inception through December 31, 1999, generally, net sales proceeds
from the sale of properties not in liquidation of the Partnership, to
the extent distributed, were distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners then received, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds were distributed 95% to the
limited partners and five percent to the general partners. Any gain
from the sale of a property not in liquidation of the Partnership was,
in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property was, in general,
allocated first, on a pro rata basis, to partners with positive
balances in their capital accounts; and thereafter, 95% to the limited
partners and five percent to the general partners.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Allocations and Distributions - Continued:
-----------------------------------------
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: (i) first to pay and discharge all
of the Partnership's liabilities to creditors, (ii) second, to
establish reserves that may be deemed necessary for any anticipated or
unforeseen liabilities or obligations of the Partnership, (iii) third,
to pay all of the Partnership's liabilities, if any, to the general and
limited partners, (iv) fourth, after allocations of net income, gains
and/or losses, to distribute to the partners with positive capital
account balances, in proportion to such balances, up to amounts
sufficient to reduce such positive balances to zero, and (v)
thereafter, any funds remaining shall then be distributed 95% to the
limited partners and five percent to the general partners.
Effective January 2000, the general partners waived their right to
receive future distributions from the Partnership, including both
distributions of operating cash flow and distributions of liquidation
proceeds, to the extent that the cumulative amount of such
distributions would exceed the balance in the general partners' capital
account as of December 31, 1999. Accordingly, for years commencing
January 1, 2000 and after, the Partnership's net income will be
allocated entirely among the limited partners. However, if losses are
allocated to the general partners in a year, an amount of income equal
to the sum of such losses may be allocated to the general partners in
succeeding years. Accordingly, the general partners were not allocated
any net income and did not receive any distributions during the years
ended December 31, 2001 and 2000.
During the years ended December 31, 2001, 2000, and 1999, the
Partnership declared distributions to the limited partners of
$1,428,668, $2,162,878, and $1,067,928, respectively. Distributions for
the year ended December 31, 2001 included $600,000 in a special
distribution, as a result of the distribution of net sales proceeds
from the 2000 sale of the Property in Salisbury, Maryland and
distributions for the year ended December 31, 2000, included $1,200,000
in a special distribution, as a result of the distribution of net sales
proceeds from the sales of the properties in Merritt Island, Florida
and Kent Island, Maryland. These special distributions in 2001 and
2000, were effectively a return of a portion of the limited partners'
investment, although in accordance with the partnership agreement,
$183,820 and $509,695, respectively, were applied toward the limited
partners' 10% Preferred Return and the balances of $416,180 and
$690,305, respectively, were treated as a return of capital for
purposes of calculating the limited partners' 10% Preferred Return. As
a result of the returns of capital in 2001 and 2000, the amount of the
limited partners' invested capital contributions (which generally is
the limited partners' capital contributions, less distributions from
the sale of a property that are considered to be a return of capital)
was decreased; therefore, the amount of the limited partners' invested
capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. As a result of the sales of the properties,
the Partnership's total
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
5. Allocations and Distributions - Continued:
-----------------------------------------
revenue was reduced, while the majority of the Partnership's operating
expenses remained fixed. Therefore, distributions of net cash flow were
adjusted during the quarters ended September 30, 2000 and March 31,
2001. No distributions have been made to the general partners to date.
6. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
2001 2000 1999
------------ ------------- -------------
Net income for financial reporting purposes $ 626,317 $ 1,112,519 $ 1,075,771
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (54,364 ) (67,844 ) (79,392 )
Gain on sale of assets for tax reporting
purposes in excess of gain for
financial reporting purposes -- 226,810 159,469
Equity in earnings of joint ventures for
financial reporting purposes in
excess of equity in earnings of joint
ventures for tax reporting purposes (10,061 ) (14,938 ) (5,649 )
Capitalization (deduction) of transaction
costs for tax reporting purposes -- (90,484 ) 83,162
Accrued rental income (5,688 ) (4,171 ) (2,909 )
Rents paid in advance (1,044 ) 3,620 (8,662 )
Allowance for doubtful accounts -- (1,236 ) 1,236
------------ ------------- -------------
Net income for federal income tax purposes $ 555,160 $1,164,276 $ 1,223,026
============ ============= =============
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Holdings, Inc. The other individual
general partner, Robert A. Bourne, serves as President and Treasurer of
CNL Financial Group, Inc., a wholly owned subsidiary of CNL Holdings,
Inc. CNL APF Partners, LP (the "Advisor") is a wholly owned subsidiary
of CNL American Properties Fund, Inc. ("APF"). CNL Fund Advisors, Inc.,
a majority owned subsidiary of CNL Financial Group, Inc. until it
merged with and into APF effective September 1, 1999, served as the
Partnership's advisor until it assigned is rights and obligations under
a management agreement with the Partnership to the Advisor effective
July 1, 2000. The individual general partners are stockholders and
directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with
the Partnership. In connection therewith, the Partnership has agreed to
pay the Advisor an annual, noncumulative, subordinated property
management fee of one-half of one percent of the Partnership assets
under management (valued at cost) annually. The property management fee
is limited to one percent of the sum of gross operating revenues from
properties wholly owned by the Partnership and the Partnership's
allocable share of gross operating revenues from joint ventures or
competitive fees for comparable services. In addition, these fees will
be incurred and will be payable only after the limited partners receive
their aggregate, noncumulative 10% Preferred Return. Due to the fact
that these fees are noncumulative, if the limited partners do not
receive their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of
such threshold, no management fees were incurred during the years ended
December 31, 2001, 2000, and 1999.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Advisor provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. Payment of the real estate disposition fee is subordinated
to the receipt by the limited partners of their aggregate 10% Preferred
Return on a cumulative basis, plus their adjusted capital
contributions. For the year ended December 31, 2000, the Partnership
incurred $39,345 in a deferred, subordinated real estate disposition
fee as a result of the sale of two properties (see Note 3). No
deferred, subordinated real estate disposition fees were incurred for
the years ended December 31, 2001 and 1999.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
7. Related Party Transactions - Continued:
--------------------------------------
During the years ended December 31, 2001, 2000, and 1999, the
Partnership's advisor and its affiliates provided accounting and
administrative services to the Partnership on a day-to-day basis,
including services during 2000 and 1999 relating to the proposed and
terminated merger. The Partnership incurred $93,447, $60,102, and
$70,060, for the years ended December 31, 2001, 2000, and 1999,
respectively, for such services.
The due to related parties consisted of the following at December 31:
2001 2000
------------ ----------
Due to the Advisor and its affiliates:
Deferred, subordinated real
estate disposition fee $126,495 $ 126,495
Accounting and
administrative services 3,783 2,484
------------ ----------
$130,278 $ 128,979
============ ==========
The deferred, subordinated real estate disposition fees will not be
paid until after the limited partners have received their cumulative
10% Preferred Return, plus their adjusted capital contributions.
8. Concentration of Credit Risk:
----------------------------
The following schedule presents total rental income from individual
lessees, each representing more than 10%t of the Partnership's total
rental income (including the Partnership's share of rental income from
joint ventures and the property held as tenants-in-common with
affiliates of the general partners) for each of the years ended
December 31:
2001 2000 1999
---------- ---------- ------------
Golden Corral Corporation $165,460 $352,128 $433,228
The Ground Round, Inc. 88,523 N/A N/A
Wendy's International, Inc. N/A N/A 171,340
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
8. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental income from
individual restaurant chains, each representing more than 10% of the
Partnership's total rental income (including the Partnership's share of
rental income from joint ventures and the property held as
tenant-in-common with an affiliate of the general partners) for each of
the years ended December 31:
2001 2000 1999
----------- ---------- ----------
Wendy's Old Fashioned
Hamburger Restaurants $ 374,154 $374,416 $ 353,612
Golden Corral Family
Steakhouse Restaurants 165,460 352,128 433,228
Ground Round 88,523 N/A N/A
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
The information denoted by N/A indicates that for each period
presented, the tenant or restaurant chain did not represent more than
10% of the Partnership's total rental income.
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 2001, 2000, and 1999
9. Selected Quarterly Financial Data:
---------------------------------
The following table presents selected unaudited quarterly financial
data for each full quarter during the years ended December 31, 2001 and
2000:
2001 Quarter First Second Third Fourth Year
--------------------- -------------- -------------- --------------- ------------- ---------------
Revenues (1) $ 231,520 $274,206 $ 202,145 $228,501 $ 936,372
Net income 131,975 191,353 138,398 164,591 626,317
Net income per
limited partner
unit 4.40 6.38 4.61 5.49 20.88
2000 Quarter First Second Third Fourth Year
--------------------- -------------- -------------- --------------- ------------- ---------------
Revenues (1) $ 272,734 $262,682 $ 264,165 $304,436 $1,104,017
Net income 163,802 178,388 456,906 313,423 1,112,519
Net income per
limited partner
unit 5.41 5.89 15.12 10.66 37.08
(1) Revenues include equity in earnings of joint ventures.
10. Commitment:
----------
In December 2001, the Partnership entered into an agreement with an
unrelated third party to sell the property in Mesquite, Texas (see Note
11).
11. Subsequent Event:
----------------
In February 2002, the Partnership sold the property in Mesquite, Texas
for approximately $1,073,800 and received net sales proceeds of
approximately $1,062,200 resulting in a gain of approximately $348,000
which will be recognized in the first quarter of 2002.
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Financial Group, Inc.
and their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 55. Since 1971, Mr. Seneff has been active in
the acquisition, development, and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
co-venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff has
served as Director and Chairman of the Board of CNL American Properties Fund,
Inc. ("APF"), a public, unlisted real estate investment trust, since 1994. Mr.
Seneff served as Chief Executive Officer of APF from 1994 through August 1999,
and has served as Co-Chief Executive Officer of APF since December 2000. Mr.
Seneff served as Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., formerly the Partnership's advisor, until it merged with a
wholly-owned subsidiary of APF in September 1999, and in June 2000, was
re-elected to those positions of CNL Fund Advisors, Inc. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc., a diversified real estate company, and has served as a Director,
Chairman of the Board and Chief Executive Officer of CNL Financial Group, Inc.
since its formation in 1980. CNL Financial Group, Inc. is the parent company,
either directly or indirectly through subsidiaries, of CNL Real Estate Services,
Inc., CNL Capital Markets, Inc., CNL Investment Company and CNL Securities Corp.
Mr. Seneff also serves as a Director, Chairman of the Board and Chief Executive
Officer of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, as well as, CNL Hospitality Corp., its advisor. In addition,
he serves as a Director, Chairman of the Board and Chief Executive Officer of
CNL Retirement Properties, Inc., a public, unlisted real estate investment trust
and its advisor, CNL Retirement Corp. Since 1992, Mr. Seneff has also served as
a Director, Chairman of the Board and Chief Executive Officer of Commercial Net
Lease Realty, Inc., a public real estate investment trust that is listed on the
New York Stock Exchange. Mr. Seneff has also served as a Director, Chairman of
the Board and Chief Executive Officer of CNL Securities Corp. since 1979; CNL
Investment Company since 1990; and CNL Institutional Advisors, Inc., a
registered investment advisor for pension plans, since 1990. Mr. Seneff formerly
served as a Director of First Union National Bank of Florida, N.A., and
currently serves as the Chairman of the Board of CNL Bank. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968.
Robert A. Bourne, age 54. Mr. Bourne has participated as a general
partner or co-venturer in over 100 real estate ventures involved in the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Bourne is
Director of the Board of Directors of APF. Mr. Bourne served as President of APF
from 1994 through February 1999. He also served as Treasurer from February 1999
through August 1999 and from May 1994 through December 1994. He also served in
various executive positions with CNL Fund Advisors, Inc. prior to its merger
with a wholly-owned subsidiary of APF including, President from 1994 through
September 1997, and Director from 1994 through August 1999. Mr. Bourne serves as
President and Treasurer of CNL Financial Group, Inc.; Director, Vice Chairman of
the Board, President and Treasurer of CNL Hospitality Properties, Inc., a
public, unlisted real estate investment trust; as well as, Director, Vice
Chairman of the Board, President and Treasurer of CNL Hospitality Corp., its
advisor. In addition, Mr. Bourne serves as Director, Vice Chairman of the Board,
President and Treasurer of CNL Retirement Properties, Inc., a public, unlisted
real estate investment trust; as well as, a Director, Vice Chairman of the
Board, President and Treasurer of its advisor, CNL Retirement Corp. Mr. Bourne
also serves as a Director of CNL Bank. He has served as a Director since 1992,
Vice Chairman of the Board since February 1996, Secretary and Treasurer from
February 1996 through 1997, and President from July 1992 through February 1996,
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange. Mr. Bourne also serves as Director,
President and Treasurer for various affiliates of CNL Financial Group, Inc.
including, CNL Investment Company, CNL Securities Corp. and CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of Tax Manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
Curtis B. McWilliams, age 46. Mr. McWilliams has served as Co-Chief
Executive Officer of APF since December 2000 and previously served as Chief
Executive Officer from September 1999 through December 2000. Prior to the
acquisition of CNL Fund Advisors, Inc., Mr. McWilliams served as President of
APF from February 1999 until September 1999. From February 1998 to February
1999, he served as Executive Vice President of APF. Mr. McWilliams joined CNL
Financial Group, Inc. in April 1997 and served as an Executive Vice President
from October 1997 until September 1999. In addition, Mr. McWilliams served as
President of CNL Fund Advisors, Inc. and CNL Financial Services, Inc. from April
1997 until the acquisition of such entities by wholly-owned subsidiaries of APF
in September 1999. From September 1983 through March 1997, Mr. McWilliams was
employed by Merrill Lynch & Co. The majority of his career at Merrill Lynch &
Co. was in the Investment Banking division where he served as a Managing
Director. Mr. McWilliams received a B.S.E. in Chemical Engineering from
Princeton University in 1977 and a Master of Business Administration degree with
a concentration in finance from the University of Chicago in 1983.
Steven D. Shackelford, age 38. Mr. Shackelford was promoted to
Executive Vice President of APF in June 2000. He served as Senior Vice President
from September 1999 until his promotion in June 2000. Mr. Shackelford has served
as Chief Financial Officer since January 1997 and has served as Secretary and
Treasurer of APF since September 1999. He also served as Chief Financial Officer
of CNL Fund Advisors, Inc. from September 1996 to September 1999. From March
1995 to July 1996, Mr. Shackelford was a senior manager in the national office
of Price Waterhouse LLP where he was responsible for advising foreign clients
seeking to raise capital and a public listing in the United States. From August
1992 to March 1995, he was a manager in the Paris, France office of Price
Waterhouse, serving several multi-national clients. Mr. Shackelford was an audit
staff and senior from 1986 to 1992 in the Orlando, Florida office of Price
Waterhouse. Mr. Shackelford received a Bachelor of Arts degree in Accounting,
with honors, and a Master of Business Administration degree from Florida State
University and is a certified public accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2002, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2002, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
--------
100%
========
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 2001, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ------------------------------------ ---------------------------------- ------------------------------
Reimbursement to affiliates for Operating expenses are Accounting and
operating expenses reimbursed at the lower of cost administrative services:
or 90% of the prevailing rate at $93,447
which comparable services could
have been obtained in the same
geographic area. If the General
Partners or their affiliates
loan funds to the Partnership,
the General Partners or their
affiliates will be reimbursed
for the interest and fees
charged to them by unaffiliated
lenders for such loans.
Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for
which the Partnership reimburses
the affiliates without interest.
Annual, subordinated property One-half of one percent per year $-0-
management fee to affiliates of Partnership assets under
management (valued at cost),
subordinated to certain minimum
returns to the Limited Partners. The
property management fee will not
exceed the lesser of one percent of
gross operating revenues or
competitive fees for comparable
services. Due to the fact that these
fees are non-cumulative, if the
Limited Partners do not receive their
10% Preferred Return in any
particular year, no property
management fees will be due or
payable for such year.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ------------------------------------ ---------------------------------- ------------------------------
Deferred, subordinated real estate A deferred, subordinated real $-0-
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to the
lesser of (i) one-half of a
competitive real estate commission,
or (ii) three percent of the sales
price of such Property or Properties.
Payment of such fee shall be made
only if affiliates of the General
Partners provide a substantial amount
of services in connection with the
sale of a Property or Properties and
shall be subordinated to certain
minimum returns to the Limited
Partners. However, if the net sales
proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be
incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $-0-
subordinated share of Partnership equal to one percent of
net cash flow Partnership distributions of net
cash flow, subordinated to
certain minimum returns to the
Limited Partners.
General Partners' deferred, A deferred, subordinated share $-0-
subordinated share of Partnership equal to five percent of
net sales proceeds from a sale or Partnership distributions of
sales not in liquidation of the such net sales proceeds,
Partnership subordinated to certain minimum
returns to the Limited Partners.
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 2001
- ------------------------------------ ---------------------------------- ------------------------------
General Partners' share of Distributions of net sales $-0-
Partnership net sales proceeds proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership Partnership's assets will be
distributed in the following order or
priority: (i) first, to pay all debts
and liabilities of the Partnership
and to establish reserves; (ii)
second, to Partners with positive
capital account balances, determined
after the allocation of net income,
net loss, gain and loss, in
proportion to such balances, up to
amounts sufficient to reduce such
balances to zero; and (iii)
thereafter, 95% to the Limited
Partners and 5% to the General
Partners.
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 2001 and 2000
Statements of Income for the years ended December 31, 2001,
2000, and 1999
Statements of Partners' Capital for the years ended December
31, 2001, 2000, and 1999
Statements of Cash Flows for the years ended December 31,2001,
2000, and 1999
Notes to Financial Statements
2. Financial Statement Schedule
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 2001
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 2001
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included
as Exhibit 3.2 to Form 10-K filed with the Securities
and Exchange Commission on March 27, 1998, and
incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement
of Limited Partnership of CNL Income Fund, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 27, 1998,
and incorporated herein by reference.)
10.1 Property Management Agreement. (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on March 29, 1996,
and incorporated herein by reference.)
10.4 Assignment of Management Agreement from CNL Fund
Advisors, Inc. to CNL APF Partners, LP. (Included as
Exhibit 10.4 to Form 10-Q filed with the Securities and
Exchange Commission on August 9, 2001, and incorporated
herein by reference.)
(b) The Registrant filed no reports on Form 8-K during the
period from October 1, 2001 through December 31, 2001.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 15th day of
March, 2002.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
------------------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
------------------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
------------------------------------
JAMES M. SENEFF, JR.
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.
Signature Title Date
/s/ Robert A. Bourne President, Treasurer and Director March 15, 2002
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 15, 2002
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
Costs Capitalized
Subsequent To
Initial Cost Acquisition
------------------------ ------------------
Encum- Buildings anImprove- Carrying
brances Land Improvementsments Costs
---------- ----------- --------------------- -------
Properties the Partnership
has Invested in:
Ground Round Restaurant:
Camp Hill, Pennsylvania - 331,962 531,174 - -
Pizza Hut Restaurant:
Bowie, Texas - 29,683 106,042 10,897 -
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona - 440,339 328,579 - -
Oklahoma City, Oklahoma - 278,878 393,423 20,000 -
Stockbridge, Georgia - 282,482 363,008 - -
Mesquite, Texas - 443,956 456,983 - -
Payson, Arizona - 391,076 427,218 - -
Other:
Angleton, Texas - 162,107 447,511 1,572 -
Eunice, Louisiana - 186,009 477,947 - -
Jasper, Alabama - 220,665 473,818 - -
Virginia Beach, Virginia- 340,125 580,432 - -
----------- ----------- --------- -------
$3,107,282 $4,586,135 $32,469
=========== =========== ========= =======
Properties of Joint Ventures in Which the Partnership has a 50% Interest:
Burger King Restaurant:
Orlando, Florida - $291,159 $695,033 - -
Pizza Hut Restaurant:
Orlando, Florida - 206,575 234,064 - -
----------- ----------- --------- -------
$497,734 $929,097
=========== =========== ========= =======
Property in Which the Partnership has a 12.17% Interest as Tenants-in-Common and
has Invested in Under an Operating Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
=========== =========== ========= =======
Net Cost Basis at Which Life on Which
Carried at Close of Period (c) Depreciation in
- -------------------------------------- Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total DepreciationstructioAcquired Computed
- ------------ ----------- ----------- ---------- --------------- ------------
331,962 531,174 863,136 74,345 1983 10/97 (b)
29,683 116,939 146,622 54,736 1976 12/87 (b)
440,339 328,579 768,918 168,853 1986 08/86 (b)
278,878 413,423 692,301 210,162 1986 08/86 (b)
282,482 363,008 645,490 186,546 1986 08/86 (b)
443,956 456,983 900,939 233,569 1986 09/86 (b)
391,076 427,218 818,294 214,796 1986 12/86 (b)
162,107 449,083 611,190 229,710 1986 09/86 (b)
186,009 477,947 663,956 238,974 1987 01/87 (b)
220,665 473,818 694,483 238,225 1986 12/86 (b)
340,125 580,432 920,557 295,053 1986 10/86 (b)
- ------------ ----------- ----------- ----------
$3,107,282 $4,618,604 $7,725,886 $2,144,969
============ =========== =========== ==========
$291,159 $695,033 $986,192 $355,377 1986 11/86 (b)
206,575 234,064 440,639 121,583 1986 06/86 (b)
- ------------ ----------- ----------- ----------
$497,734 $929,097 $1,426,831 $476,960
============ =========== =========== ==========
$875,659 $1,389,366 $2,265,025 $185,373 1994 12/97 (b)
============ =========== =========== ==========
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 2001
(a) Transactions in real estate and accumulated depreciation during 2001,
2000, and 1999, are summarized as follows:
Accumulated
Cost Depreciation
----------------- ------------------
Properties the Partnership has Invested in:
Balance, December 31, 1998 $ 9,851,815 $ 2,277,627
Disposition (778,529) (273,721)
Depreciation expense -- 198,777
----------------- ------------------
Balance, December 31, 1999 9,073,286 2,202,683
Dispositions (1,347,400 (387,820
Depreciation expense -- 176,010
----------------- ------------------
Balance, December 31, 2000 7,725,886 1,990,873
Depreciation expense -- 154,096
----------------- ------------------
Balance, December 31, 2001 $ 7,725,886 $ 2,144,969
================= ==================
Property of Joint Ventures in Which the Partnership
has a 50% Interest:
Balance, December 31, 1998 $ 1,426,831 $ 384,051
Depreciation expense -- 30,971
----------------- ------------------
Balance, December 31, 1999 1,426,831 415,022
Depreciation expense -- 30,969
----------------- ------------------
Balance, December 31, 2000 1,426,831 445,991
Depreciation expense -- 30,969
----------------- ------------------
Balance, December 31, 2001 $ 1,426,831 $ 476,960
================= ==================
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 2001
Accumulated
Cost Depreciation
--------------- ----------------
Property in Which the Partnership has a 12.17% Interest as
Tenants-in-Common and has Invested in Under an Operating Lease:
Balance, December 31, 1998 $ 2,265,025 $ 46,437
Depreciation expense -- 46,312
--------------- -----------------
Balance, December 31, 1999 2,265,025 92,749
Depreciation expense -- 46,312
--------------- -----------------
Balance, December 31, 2000 2,265,025 139,061
Depreciation expense -- 46,312
--------------- -----------------
Balance, December 31, 2001 $ 2,265,025 $ 185,373
=============== =================
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 2001, the aggregate cost of the Properties owned by
the Partnership and joint ventures for federal income tax purposes was
$7,409,420 and $3,691,857, respectively. All of the leases are treated
as operating leases for federal income tax purposes.