CNL HEALTH CARE PROPERTIES INC
S-11/A, 1998-09-17
REAL ESTATE INVESTMENT TRUSTS
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As filed with the Securities and Exchange Commission on September 17, 1998
    
                                                    Registration No. 333-47411

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


                       SECURITIES AND EXCHANGE COMMISSION
                             Washington, D.C. 20549

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


   
                               AMENDMENT NO. THREE
    
                                       TO
                                    FORM S-11
                             REGISTRATION STATEMENT
                                      UNDER
                           THE SECURITIES ACT OF 1933
              -----------------------------------------------------


                        CNL HEALTH CARE PROPERTIES, INC.
               (Exact Name of Registrant as Specified in Charter)

                              400 East South Street
                             Orlando, Florida 32801
   
                            Telephone: (407) 650-1000
    
                    (Address of Principal executive offices)

                              James M. Seneff, Jr.
                             Chief Executive Officer
                              400 East South Street
                             Orlando, Florida 32801
   
                            Telephone: (407) 650-1000
    
                          (Name, Address and Telephone
                          Number of Agent for Service)

                                   COPIES TO:
                          THOMAS H. McCORMICK, ESQUIRE
                            THOMAS J. PLOTZ, ESQUIRE
                         Shaw Pittman Potts & Trowbridge
                               2300 N Street, N.W.
                             Washington, D.C. 20037

         Approximate  date of  commencement  of proposed sale to the public:  As
soon as practicable after the registration statement becomes effective.

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

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

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

The registrant hereby amends this  registration  statement on such date or dates
as may be necessary to delay its effective date until the registrant  shall file
a further amendment which specifically  states that this registration  statement
shall  thereafter  become  effective  in  accordance  with  Section  8(a) of the
Securities  Act of  1933  or  until  the  registration  statement  shall  become
effective on such date as the Commission,  acting pursuant to said Section 8(a),
may determine.


<PAGE>

                   CNL HEALTH CARE PROPERTIES, INC. PROSPECTUS
                             Shares of Common Stock
                              $2,500,000 -- Minimum

                     Minimum Purchase -- 250 Shares ($2,500)
            100 Shares ($1,000) for IRAs and Keogh and Pension Plans
               (Minimum purchase may be higher in certain states)

         CNL  HEALTH  CARE  PROPERTIES,  INC.  (the  "Company")  is  a  Maryland
corporation  which intends to qualify for federal  income tax purposes as a real
estate investment trust (a "REIT"). The Company may sell up to 15,500,000 shares
of common  stock  (the  "Shares"),  including  500,000  Shares  pursuant  to the
Company's reinvestment plan, for a maximum of $155,000,000. The Company has been
formed primarily to acquire real estate properties (the "Properties") related to
health care and seniors'  housing  facilities  (the  "Health  Care  Facilities")
located  across the United  States.  The Health  Care  Facilities  may  include,
congregate living,  assisted living and skilled nursing  facilities,  continuing
care  retirement  communities  and life care  communities,  and  medical  office
buildings and walk-in  clinics.  The  Properties  will be leased on a long term,
"triple-net"  basis to  operators  of the  Health  Care  Facilities.  Under  the
Company's  triple-net  leases,  the tenant  generally  will be  responsible  for
property  costs   associated  with  ongoing   operations,   including   repairs,
maintenance, property taxes, utilities, and insurance.

         There are material risks  associated  with an investment in the Company
(see "Risk Factors" at Page 9), including the following:

o        The Company  currently  owns no Properties,  and investors,  therefore,
         will not have any  opportunity  to  evaluate  the  Properties  that the
         Company will acquire.
o        If the Company raises only $2,500,000 from sales of Shares, it will
         acquire no more than two medical office buildings or walk-in clinics,
         and will have reduced diversification of its investments.  Reduced
         diversification will increase the potential adverse effect on the
         Company from an underperforming tenant or an underperforming facility
         type.  In the event it raises only $2,500,000 from sales of Shares,
         the Company will not provide mortgage financing (the  "Mortgage
         Loans ").
o        The Company will rely on CNL Health Care Advisors, Inc. (the "Advisor")
         with respect to all  investment  decisions,  subject to approval by the
         Board of  Directors  in  certain  circumstances.  The  Advisor  and its
         Affiliates  have no previous  experience  in  investing  in health care
         Properties,  which could  result in the  Company's  failure to meet its
         investment objectives.
o        The  Advisor  and  its  Affiliates  are or  will be  engaged  in  other
         activities  that will result in conflicts of interest with the services
         that the Advisor will  provide to the  Company,  and could take actions
         that are more favorable to such other entities than to the Company. Any
         such conflicts could have a negative impact on the Company's  financial
         performance and, consequently, on Distributions.
o        There is currently no public trading market for the Shares, and there
         is no assurance that one will develop.  Although the Company currently
         intends to seek listing on a national securities exchange or over-the
         counter market of its common stock ( "Listing ") within five to ten
         years from the date the offering commences, Listing does not assure
         liquidity.  If the Shares are not listed within ten years of
         commencement of the offering, as to which there can be no assurance,
         the Company will commence the orderly sale of its assets and the
         distribution of the proceeds.
o        The Company has not obtained a financing  commitment  and may be unable
         to do so on  satisfactory  terms.  The failure to obtain  financing may
         impede the  acquisition  of Properties and the making of Mortgage Loans
         and  equipment  financing  ("Secured  Equipment  Leases").  Because  no
         proceeds from the sale of Shares will be used to fund Secured Equipment
         Leases,  the Secured  Equipment  Lease  program is  dependent  upon the
         Company obtaining financing.
o        In addition to general market and economic conditions, the Company is
         subject to risks arising out of government regulation of the health
         care industry, which may reduce the value of the Company's investments
         and the amount of revenues the Company receives from tenants.  Certain
         of the Company's tenants may be dependent upon government
         reimbursements and certain other of the Company's tenants, to the
         extent that they are not dependent upon government reimbursements, may
         be dependent on their success in attracting senior citizens with
         sufficient independent means to pay for the tenants' services.
   
o        The Company may, without the approval of a majority of the Independent
         Directors, incur debt totalling up to 300% of the value of the net
         assets of the Company, including debt to make Distributions to
         stockholders in order to maintain its status as a REIT.   The Company
         may not be able to meet its debt service obligations, and, to the
         extent that such obligations cannot be met, the Company may lose its
         investment in any Properties that secure underlying indebtedness on
         which the Company has defaulted.
    
o        The Company may not qualify or remain  qualified  as a REIT for federal
         income tax purposes,  which could result in  subjecting  the Company to
         federal  income tax on its taxable income at regular  corporate  rates,
         thereby reducing the amount of funds available for paying Distributions
         to stockholders.
o        The Company anticipates that it will pay substantial fees to
         Affiliates of the Company and estimates that approximately 9% of the
         proceeds from the sale of Shares will be paid in fees and expenses to
         Affiliates of the Company for services and as reimbursement for
         Organizational and Offering Expenses incurred on behalf of the
         Company.  The amount of proceeds that will be available to purchase
         Properties and to make Mortgage Loans will be decreased as a result of
         such payments.

         Of the proceeds from the sale of Shares, approximately 84% will be used
to acquire Properties and make Mortgage Loans, and approximately 9% will be paid
in fees and  expenses to  Affiliates  of the Company for their  services  and as
reimbursement for Organizational and Offering Expenses incurred on behalf of the
Company;  the balance will be used to pay other expenses of the offering.

THESE  SECURITIES  HAVE NOT BEEN APPROVED OR  DISAPPROVED  BY THE SECURITIES AND
EXCHANGE  COMMISSION OR ANY STATE  SECURITIES  COMMISSION NOR HAS THE SECURITIES
AND  EXCHANGE  COMMISSION  OR ANY STATE  SECURITIES  COMMISSION  PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
                         Price to              Selling            Proceeds to
                          Public            Commissions(1)       Company(2)(3)
                         --------           --------------       -------------
Per Share             $      10.00          $      0.75           $       9.25
Total Minimum         $  2,500,000          $   187,500           $  2,312,500
Total Maximum(4)      $155,000,000          $11,625,000           $143,375,000
                                                 (footnotes on following page)

                              CNL SECURITIES CORP.
   
                                September , 1998
    


<PAGE>



(1)      CNL  Securities  Corp.  (the "Managing  Dealer ") will receive  Selling
         Commissions of 7.5% on sales of Shares, subject to reduction in certain
         circumstances.  The  Managing  Dealer,  which  is an  Affiliate  of the
         Company,  may  engage  other  broker-dealers  that are  members  of the
         National  Association  of Securities  Dealers,  Inc. or other  entities
         exempt from broker-dealer registration  (collectively,  the "Soliciting
         Dealers ") to sell Shares and reallow to them  commissions  of up to 7%
         with  respect to Shares  which they sell.  The  amounts  indicated  for
         Selling  Commissions  assume that reduced  Selling  Commissions are not
         paid in connection with the purchase of any Shares and do not include a
         0.5%  marketing  support and due diligence  expense  reimbursement  fee
         payable  to the  Managing  Dealer,  all or a  portion  of which  may be
         reallowed to certain  Soliciting  Dealers,  with prior written approval
         from,  and in the sole  discretion  of, the Managing  Dealer.  See "The
         Offering--  Plan of  Distribution"  for a description  of the marketing
         support  and due  diligence  expense  reimbursement  fee payable to the
         Managing  Dealer.  The Company also will issue to the Managing Dealer a
         warrant (the  "Soliciting  Dealer  Warrants ") to purchase one share of
         common  stock for every 25 Shares  sold,  to be  exercised,  if at all,
         during  the  five-year  period  commencing  with the date the  offering
         begins (the "Exercise Period "), at a price of $12.00 per share. All or
         any part of such Soliciting Dealer Warrants may be reallowed to certain
         Soliciting  Dealers with prior written  approval  from, and in the sole
         discretion  of, the Managing  Dealer,  unless  prohibited by federal or
         state securities  laws. See "Summary of Articles of  Incorporation  and
         Bylaws-- Description of Capital Stock-- Soliciting Dealer Warrants" and
         "The Offering-- Plan of Distribution."

(2)      Before  deducting  (i)  Organizational  and  Offering  Expenses  of the
         Company  estimated  to be 3% of gross  offering  proceeds  computed  at
         $10.00  per  Share  sold ( "Gross  Proceeds  ") and (ii) the  marketing
         support and due diligence expense reimbursement fee. Organizational and
         Offering Expenses exclude Selling Commissions and the marketing support
         and due diligence reimbursement fee.

(3)      In addition,  assuming  15,500,000  Shares,  including  500,000  Shares
         available to stockholders  participating in the Company's  Reinvestment
         Plan, are sold and 600,000 Soliciting Dealer Warrants are issued to the
         Managing  Dealer,  $480 of  additional  proceeds  will be  raised,  and
         assuming  all such  warrants are  exercised  at the  exercise  price of
         $12.00 per share, a total of $7,200,000 of additional  proceeds will be
         raised.  No Selling  Commissions or marketing support and due diligence
         expense  reimbursement fee will be paid in connection with the issuance
         of the  Soliciting  Dealer  Warrants  or the shares  issuable  upon the
         exercise thereof.

(4)      Includes  500,000 Shares which may be issued  pursuant to the Company's
         Reinvestment  Plan. Those  stockholders who elect to participate in the
         Reinvestment   Plan  will  have  their   Distributions   reinvested  in
         additional Shares.

         NEITHER THE ATTORNEY  GENERAL OF THE STATE OF NEW YORK NOR THE ATTORNEY
GENERAL OF THE STATE OF NEW JERSEY OR THE BUREAU OF  SECURITIES  OF THE STATE OF
NEW  JERSEY  HAS  PASSED  ON OR  ENDORSED  THE  MERITS  OF  THIS  OFFERING.  ANY
REPRESENTATION TO THE CONTRARY IS UNLAWFUL.

         All   subscription   funds  for  Shares   will  be   deposited   in  an
interest-bearing  escrow account with  SouthTrust  Asset  Management  Company of
Florida,  N.A.,  which will act as the  escrow  agent for this  offering,  until
subscription funds for the Company's Shares total $2,500,000. Subscription funds
will be released  from  escrow to the  Company to be used for  Company  purposes
within  approximately  30 days after the minimum is  reached.  No sale of Shares
shall be completed until at least five business days after the date on which the
subscriber  receives a copy of this  Prospectus.  No Shares  will be sold unless
subscriptions for at least 250,000 Shares ($2,500,000) have been obtained within
one  year  after  the  initial  date  of  this  Prospectus.  In  no  event  will
subscription  funds be held in escrow for longer than one year,  and any refunds
of subscriptions due to the failure of the Company to reach the required minimum
shall be returned  promptly with interest.  Pursuant to the  requirements of the
Commissioner  of Securities  of the State of  Pennsylvania,  subscriptions  from
Pennsylvania  residents  may  not  be  released  from  escrow,  or  included  in
determining  whether the  $2,500,000  minimum for the Company has been  reached,
until  subscriptions for Shares totalling at least $7,775,000 have been received
from  all  sources.  The  offering  of  Shares  will  terminate  no  later  than
___________,  1999 (one year after the initial date of this Prospectus),  unless
the Company elects to extend it to a date no later than  ___________,  2000 (two
years after the  initial  date of this  Prospectus),  in states that permit such
extension.
   
         CALIFORNIA,  FLORIDA AND IOWA INVESTORS:  California,  Florida and Iowa
investors  will  have  the  right  to  withdraw  their   subscription  funds  if
subscriptions  for at least  $2,500,000  have not been  accepted  by the Company
within six months after the initial offer of Shares  pursuant to this Prospectus
and the Company  elects at that time to continue the offering  beyond that date.
The Company will promptly notify  California,  Florida and Iowa investors if the
Company so elects to continue the  offering,  and such  investors  must exercise
their right to  withdraw  within 10 days of such  notice by  delivering  written
notice  to  the  Company  of  their  intention  to  exercise  such  right.   The
subscription funds of withdrawing California, Florida and Iowa investors will be
returned  promptly along with such  investors' pro rata share of interest earned
thereon net of any escrow fees.
    
         PENNSYLVANIA  INVESTORS:  Because  the  minimum  offering  is less than
$15,500,000,  all Pennsylvania investors are cautioned to evaluate carefully the
Company's ability fully to accomplish its stated objectives and to inquire as to
the current dollar volume of subscriptions for the Shares.

         NO PERSON HAS BEEN  AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY  INFORMATION OR TO MAKE ANY  REPRESENTATIONS  OTHER THAN THOSE  CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE IN WHICH  SUCH OFFER OR SALE WOULD BE  UNLAWFUL,  AND NO  SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN.  NEITHER THE DELIVERY OF THIS  PROSPECTUS  NOR ANY SALE  HEREUNDER
SHALL CREATE,  UNDER ANY  CIRCUMSTANCES,  AN IMPLICATION  THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE COMPANY  SINCE THE DATE HEREOF.  IF,  HOWEVER,  ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.


                                                            iii

<PAGE>



         THE  USE  OF   FORECASTS   IN  THIS   OFFERING   IS   PROHIBITED.   ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR  CERTAINTY  OF ANY PRESENT OR FUTURE CASH  BENEFIT OR TAX  CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS COMPANY IS PROHIBITED.

         Until  ___________,  1998  (90  days  after  the  initial  date of this
Prospectus),  all dealers effecting  transactions in the registered  securities,
whether or not participating in this distribution,  may be required to deliver a
Prospectus.  This is in  addition  to the  obligation  of  dealers  to deliver a
prospectus when acting as underwriters and with respect to unsold  allotments or
subscriptions.

                                                            iv

<PAGE>



                                TABLE OF CONTENTS



TABLE OF CONTENTS..........................................................v
SUMMARY....................................................................2
     CNL Health Care Properties, Inc.......................................2
     Summary Risk Factors..................................................2
     Investment Objectives and Policies....................................4
     Business..............................................................4
     Estimated Use of Proceeds.............................................4
     Conflicts of Interest.................................................4
     Management............................................................5
     Management Compensation...............................................5
     Summary of Reinvestment Plan..........................................6
     Description of Shares.................................................6
     Distribution Policy...................................................7
     Prior Performance of Affiliates.......................................8
     Tax Status Of The Company.............................................8
     The Offering..........................................................8
     Definitions...........................................................10
RISK FACTORS...............................................................10
     Investment Risks......................................................10
         Insufficient Offering Proceeds....................................10
         Lack of Diversification...........................................10
         Possible Delays in Investment.....................................10
         Inexperience of Management........................................11
         Reliance on Advisor and Board of Directors;
            No Management Rights for Stockholders..........................11
         Effects of Governing Documents
            and Maryland Law on Potential Takeovers........................11
         Leverage..........................................................11
         Conflicts of Interest.............................................12
         Competing Demands on Officers and Directors.......................12
         Potential Impact of Advisor's Compensation
            on Investment Decisions........................................12
         Property Development by Affiliates................................12
         The Company May Invest with Affiliates of the Advisor.............12
         No Independent Review of the Company or the Prospectus
            by Managing Dealer.............................................12
         No Separate Counsel for the Company, Affiliates and
            Investors......................................................12
         Lack of Liquidity of Shares.......................................12
         Potential for Dilution............................................12
         Lack of Control by the Company over Joint Ventures................12
         Lack of Control of Property Management............................13
         Mortgage Loans....................................................13
              Unfavorable Real Estate Market Conditions May
                 Impact Operations.........................................13
              Interest Rate Fluctuations May Adversely Affect
                 Mortgage Loans............................................13
              Delays in Liquidating Defaulted Mortgage Loans...............13
              Possible Noncompliance with Regulations......................14
         Secured Equipment Leases..........................................14
              Default by Lessee............................................14
              Possible Noncompliance with Regulations......................14
              Tax Risks....................................................14
         No Operating History..............................................14

                                                         v

<PAGE>



         Impact of Inflation...............................................14
         Majority Stockholder Vote Binding on All Stockholders.............15
         Broad Discretion of the Board of Directors in Management
            of the Company's Operations....................................15
         Restrictions on Transfer Relating to REIT Status..................15
         Limited Liability of Officers and Directors.......................16
         Possible Effect of ERISA..........................................16
         Insufficient Working Capital......................................16
         Distributions Funded by Borrowings May Constitute
            Return of Capital..............................................16
     Real Estate and Financing Risks.......................................16
         An Unspecified Property Offering..................................16
              Inability of Potential Investors to Evaluate
                 Tenants and Properties....................................16
              No Limitation on Number of Properties of a Particular
                 Facility Type.............................................17
              No Assurance of Obtaining Suitable Investments...............17
              No Opportunity to Evaluate Procedures for Resolving
                 Conflicts of Interest.....................................17
         Lack of Control Over Properties Under Construction................18
         Ground Lease Property Risks.......................................18
         Impasse or Conflicts with Joint Venture Partner...................18
              Impasse with Joint Venture Partner...........................18
              Divergent Interests of Joint Venture Partner.................18
         Limitations on the Ability of the Company to Liquidate............18
         Inability to Control the Sale of Certain Properties...............19
         Real Property Investments.........................................19
              Lack of Control Over Market and Business Conditions..........19
              Multiple Property Leases or Mortgage Loans with
                 Individual Tenants or Borrowers...........................20
              Inability to Re-lease Properties.............................20
              Lack of Adequate Insurance...................................20
         Health Care Facilities............................................20
              Reliance on Government Reimbursement.........................20
              Dependence on Attracting Senior Citizens with Ability
                 to Pay....................................................20
              Effects of Cost Control and Other Health Care Reform
                 Measures..................................................21
              Constraints of Government Regulation of Health Care
                 Industry..................................................21
              Limitations on Alternative Uses of Company Properties........21
         Impact of Adverse Trends..........................................21
         Investment Barriers Imposed by Certificate of Need Laws in
            Certain States.................................................21
         Potential Adverse Impact of Competitors...........................22
         Possible Environmental Liabilities................................22
         Possible Lack of Ability to Obtain the Line of Credit and
            Permanent Financing............................................22
         Unspecified Secured Equipment Leases..............................22
     Tax Risks.............................................................22
         REIT Qualification................................................22
         Secured Equipment Lease Treatment.................................23
         Effect of REIT Disqualification...................................23
         Effect of Distribution Requirements...............................23
         Restrictions on Maximum Share Ownership...........................23
         Other Tax Liabilities.............................................24
         Changes in Tax Laws...............................................24
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE.................................24

                                                        vi

<PAGE>



     Suitability Standards.................................................24
     How to Subscribe......................................................24
ESTIMATED USE OF PROCEEDS..................................................27
MANAGEMENT COMPENSATION....................................................28
CONFLICTS OF INTEREST......................................................35
     Prior and Future Programs.............................................35
     Competition to Acquire Properties and Invest
        in Mortgage Loans..................................................37
     Sales of Properties...................................................37
     Joint Investment With An Affiliated Program...........................38
     Competition for Management Time.......................................38
     Compensation of the Advisor...........................................39
     Relationship with Managing Dealer.....................................39
     Legal Representation..................................................40
     Certain Conflict Resolution Procedures................................40
SUMMARY OF REINVESTMENT PLAN...............................................41
     General...............................................................41
     Investment of Distributions...........................................42
     Participant Accounts, Fees, and Allocation of Shares..................42
     Reports to Participants...............................................43
     Election to Participate or Terminate Participation....................43
     Federal Income Tax Considerations.....................................43
     Amendments and Termination............................................44
REDEMPTION OF SHARES.......................................................44
BUSINESS...................................................................45
     General...............................................................45
     Site Selection and Acquisition of Properties..........................51
     Standards for Investment in Properties................................54
     Description of Properties.............................................55
     Description of Property Leases........................................57
     Joint Venture Arrangements............................................61
     Mortgage Loans........................................................62
     Management Services...................................................63
     Borrowing.............................................................63
     Sale of Properties, Mortgage Loans and Secured
        Equipment Leases...................................................65
     Competition...........................................................66
     Regulation of Mortgage Loans and Secured
        Equipment Leases...................................................66
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
   FINANCIAL CONDITION OF THE COMPANY......................................66
     Liquidity and Capital Resources.......................................68
     Results of Operations.................................................68
MANAGEMENT.................................................................68
     General...............................................................68
     Fiduciary Responsibility of the Board of Directors....................69
     Directors and Executive Officers......................................69
     Independent Directors.................................................73
     Committees of the Board of Directors..................................73
     Compensation of Directors and Executive Officers......................73
     Management Compensation...............................................74


                                                        vii

<PAGE>



THE ADVISOR AND THE ADVISORY AGREEMENT.....................................74
     The Advisor...........................................................74
     The Advisory Agreement................................................74
PRIOR PERFORMANCE INFORMATION..............................................77
INVESTMENT OBJECTIVES AND POLICIES.........................................86
     General...............................................................86
     Certain Investment Limitations........................................86

                                                       viii

<PAGE>



DISTRIBUTION POLICY........................................................93
     General...............................................................93
     Distributions.........................................................93
SUMMARY OF THE ARTICLES OF INCORPORATION
   AND BYLAWS..............................................................94
     General...............................................................94
     Description of Capital Stock..........................................94
     Board of Directors....................................................98
     Stockholder Meetings..................................................99
     Advance Notice for Stockholder Nominations for
        Directors and Proposals of New Business............................99
     Amendments to the Articles of Incorporation...........................99
     Mergers, Combinations, and Sale of Assets.............................100
     Control Share Acquisitions............................................100
     Termination of the Company and REIT Status............................101
     Restriction of Ownership..............................................101
     Responsibility of Directors...........................................103
     Limitation of Liability and Indemnification...........................103
     Removal of Directors..................................................105
     Inspection of Books and Records.......................................105
     Restrictions on "Roll-Up" Transactions................................106
FEDERAL INCOME TAX CONSIDERATIONS..........................................108
     Introduction..........................................................108
     Taxation of the Company...............................................109
     Taxation of Stockholders..............................................118
     State and Local Taxes.................................................125
     Characterization of Property Leases...................................125
     Characterization of Secured Equipment Leases..........................126
     Investment in Joint Ventures..........................................128
REPORTS TO STOCKHOLDERS....................................................129
THE OFFERING...............................................................131
     General...............................................................131
     Plan of Distribution..................................................132
     Subscription Procedures...............................................137
     Escrow Arrangements...................................................140
     ERISA Considerations..................................................142
     Determination of Offering Price.......................................145
SUPPLEMENTAL SALES MATERIAL................................................145
LEGAL OPINION..............................................................146
EXPERTS....................................................................146
ADDITIONAL INFORMATION.....................................................146
DEFINITIONS................................................................146

Form of Reinvestment Plan .......................................Appendix A
Financial Information............................................Appendix B
Prior Performance Tables.........................................Appendix C
Subscription Agreement...........................................Appendix D


                                                        ix

<PAGE>



                                     SUMMARY

         THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS  AND IS INTENDED  FOR QUICK  REFERENCE  ONLY.  THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL STOCKHOLDERS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS APPENDICES
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE COMPANY.  THE FOLLOWING SUMMARY
THEREFORE  IS  QUALIFIED  IN ITS  ENTIRETY BY REFERENCE TO THE FULL TEXT OF THIS
PROSPECTUS AND THE SUPPORTING DOCUMENTS. CAPITALIZED TERMS NOT OTHERWISE DEFINED
HEREIN  SHALL HAVE THE MEANINGS  SET FORTH IN THE  "DEFINITIONS"  SECTION OF THE
PROSPECTUS.

CNL HEALTH CARE PROPERTIES, INC.

   
         CNL  Health  Care  Properties,  Inc.  (the  "Company")  is  a  Maryland
corporation  which intends to qualify for federal  income tax purposes as a real
estate  investment  trust (a "REIT").  The  Company's  address is 400 East South
Street,  Orlando,  Florida  32801,  telephone  (407) 650-1000 or toll free (800)
522-3863.
    


<PAGE>




         The Company has been formed primarily to acquire real estate properties
(the  "Properties")  related to health care and seniors' housing facilities (the
"Health Care  Facilities")  located  across the United  States.  The Health Care
Facilities may include  congregate  living,  assisted living and skilled nursing
facilities,  continuing care retirement  communities and life care  communities,
and medical office buildings and walk-in clinics.  The Properties will be leased
on a  long-term  (generally,  10  to 20  years,  plus  renewal  options  for  an
additional  10 to 20 years),  "triple-net"  basis,  which  means that the tenant
generally  will  be  responsible  for  repairs,  maintenance,   property  taxes,
utilities,  and  insurance.  The Company  expects to structure the leases of its
Properties to provide for payment of base annual rent with (i)  automatic  fixed
increases in base rent or (ii)  increases in the base rent based on increases in
consumer price indices,  over the term of the lease.  The Company also may offer
mortgage financing (the "Mortgage Loans") to operators of Health Care Facilities
secured by real estate  owned by the  borrower.  However,  because it prefers to
focus on investing in Properties,  which have the potential to  appreciate,  the
Company currently  expects to provide Mortgage Loans in the aggregate  principal
amount of  approximately  5% to 10% of the Company's  total assets.  The Company
expects  that the  interest  rate and terms  (generally,  10 to 20 years) of the
Mortgage Loans will be similar to those of its leases.  To a lesser extent,  the
Company also may offer furniture, fixtures and equipment ("Equipment") financing
to operators of Health Care Facilities  through loans or direct financing leases
(collectively,  the  "Secured  Equipment  Leases").  The  aggregate  outstanding
principal  amount of Secured  Equipment  Leases is not expected to exceed 10% of
the Company's  total assets.  See  "Business"  for a description of the types of
Properties  that  may be  selected  by  CNL  Health  Care  Advisors,  Inc.  (the
"Advisor"),  the Property selection and acquisition processes, and the nature of
the  Mortgage  Loans and  Secured  Equipment  Leases.  The  Company  has not yet
acquired any  Properties,  made any  Mortgage  Loans or entered into any Secured
Equipment Leases,  nor have any Properties,  Mortgage Loans or Secured Equipment
Leases been identified for investment.

   
         The Company  intends to borrow  money to acquire  Properties,  Mortgage
Loans, and Secured  Equipment Leases  (collectively,  the "Assets"),  and to pay
certain fees.  The Company plans to obtain a revolving line of credit (the "Line
of Credit") initially in an amount up to $45,000,000.  The Line of Credit may be
increased at the  discretion of the Board of Directors.  In addition to the Line
of Credit, the Company may obtain other financing (i) to acquire Assets, (ii) to
pay fees to the  Advisor in  consideration  for  negotiating  Secured  Equipment
Leases, (iii) to pay a fee to the Advisor in the amount of 4.5% of any permanent
financing  obtained,  excluding amounts to fund Secured  Equipment  Leases,  for
identifying the Properties,  structuring the terms of the acquisition and leases
of the  Properties and  structuring  the terms of the Mortgage Loans and (iv) to
refinance   outstanding  amounts  under  the  Line  of  Credit  (the  "Permanent
Financing").  The Board of Directors  anticipates  that the Permanent  Financing
will be  obtained  from a bank at a  competitive  interest  rate  and  that  the
aggregate amount of the Permanent Financing will not exceed 30% of the Company's
total  assets.   However,   in  accordance   with  the  Company's   Articles  of
Incorporation,  the aggregate  maximum  amount the Company may borrow is 300% of
Net Assets.  In general,  Net Assets are the Company's  total assets (other than
intangibles), calculated at cost, less total liabilities. The Company is engaged
in preliminary  discussions  with  potential  lenders but has not yet obtained a
commitment letter for the Line of Credit or any Permanent Financing, and may not
be able to obtain the Line of Credit or the Permanent  Financing on satisfactory
terms. The Company may repay the Line of Credit with offering proceeds,  working
capital or with Permanent Financing.  The Line of Credit and Permanent Financing
will be used to  acquire  Assets  and are the only  source of funds  for  making
Secured Equipment Leases. The Board of Directors may elect to encumber Assets in
connection with any borrowing.
    

         The Board of Directors may  determine to engage in future  offerings of
the  Company's  common  stock  ("Common  Stock") of up to the number of unissued
authorized  shares of Common Stock  available  following the  completion of this
offering.  The Company currently  anticipates listing the shares of Common Stock
of the  Company,  including  the shares  offered  hereby  (the  "Shares"),  on a
national securities exchange or over-the-counter  market ("Listing") within five
to ten years after the  commencement of this offering.  If the Company's  Common
Stock is listed, the Company  automatically will become a perpetual life entity.
Under the  Company's  Articles of  Incorporation,  if Listing  does not occur by
December 31, 2008, the Company will  undertake,  outside the ordinary  course of
business and consistent  with its objective of qualifying as a REIT, the orderly
Sale of the Company's  assets,  the  distribution  of Net Sales Proceeds of such
Sales to  stockholders  and the limitation of its activities to those related to
its orderly liquidation, unless the stockholders owning a majority of the Shares
elect to amend the  Articles  of  Incorporation  to extend the  duration  of the
Company.  See "Risk Factors -- Real Estate and  Financing  Risks" for a complete
discussion of risks relating to future disposition of the Company's assets. As a
perpetual life entity  following  Listing,  the Company would not be required to
dissolve and return  capital to  stockholders.  If Listing  occurs,  in order to
liquidate their investment,  stockholders would have to sell their Shares in the
market on which the Shares are traded. Listing is no assurance of liquidity. See
"Risk Factors -- Investment Risks" for a discussion of risks associated with the
lack of  liquidity  of the Shares and with  borrowing.  In  addition,  following
Listing the Company  intends to reinvest  proceeds  from Sales of assets  rather
than distribute such proceeds to stockholders.

SUMMARY RISK FACTORS

         The "Risk Factors" section discusses in detail the more important risks
associated with an investment in the Company, including risks associated with an
investment  in a  real  estate  investment  trust  such  as the  Company,  risks
associated  with an  investment  in real  estate such as the  Properties,  risks
associated with the Mortgage  Loans,  risks  associated  with Secured  Equipment
Leases, risks associated with borrowing and tax risks.
These risks include:

                                                        -2-

<PAGE>




o        Because the Company currently owns no Properties, stockholders will not
         have any  opportunity to evaluate the Properties  that the Company will
         acquire.

o        If the Company raises only $2,500,000 from sales of Shares, the Company
         will  acquire  no more than two  medical  office  buildings  or walk-in
         clinics,  and will have  reduced  diversification  of its  investments.
         Reduced  diversification  will increase the potential adverse effect on
         the  Company  from  an  underperforming  tenant  or an  underperforming
         facility  type.  In the event it raises only  $2,500,000  from sales of
         Shares, the Company will not make Mortgage Loans.

o        The Company will rely on the Advisor which,  together with the Board of
         Directors,  will have  responsibility for the management of the Company
         and its  investments,  subject to the  ability of the  stockholders  to
         elect the Directors.  The Advisor and its  Affiliates  have no previous
         experience  in investing in health care  Properties.  In addition,  the
         experience  of certain of the  Directors of the Company with  acquiring
         and leasing Health Care Facilities is limited.  The inexperience of the
         Advisor  and the  limited  experience  of certain of the  Directors  in
         investing  in health  care  Properties  could  result in the  Company's
         failure  to  make  investments  that  meet  the  Company's   investment
         objectives.

o        The services to be performed by the Advisor and its  Affiliates for the
         Company in connection with the offering,  the selection and acquisition
         of the Properties,  the making of Mortgage Loans and Secured  Equipment
         Leases  and  the  general  operation  of the  Company  will  result  in
         conflicts of interest. The resolution of any such conflicts in favor of
         entities  other than the  Company  could have a negative  effect on the
         Company's financial performance, and consequently, on Distributions.

o        The Board of Directors will have significant  flexibility regarding the
         Company's  operations,  including,  for  example,  the ability to issue
         additional  Shares and dilute  stockholders'  equity  interests and the
         ability to change the  compensation  of the  Advisor  and to employ and
         compensate  Affiliates.  The Board of  Directors  can take such actions
         solely on its own authority and without stockholder approval.

o        The Company may make investments that will not appreciate in value over
         time,  such as  building  only  Properties,  with the  land  owned by a
         third-party, and Mortgage Loans.

o        Stockholders  who must sell their  Shares will not be able to sell them
         quickly  because  it is not  anticipated  that  there  will be a public
         market for the Shares in the near term,  and there can be no  assurance
         that Listing will occur.

o        The Company  has not  obtained a  commitment  for the Line of Credit or
         Permanent Financing,  and may be unable to do so on satisfactory terms,
         thereby  affecting  its ability to acquire  Properties or make Mortgage
         Loans or Secured Equipment
         Leases.

o        In addition to general market and economic  conditions,  the Company is
         subject to risks  arising out of  government  regulation  of the health
         care industry,  which may reduce the value of the Company's investments
         and the amount of revenues the Company  receives from tenants.  Certain
         of  the   Company's   tenants   may  be   dependent   upon   government
         reimbursements  and  certain  other of the  Company's  tenants,  to the
         extent that they are not dependent upon government reimbursements,  may
         be  dependent  on their  success in  attracting  senior  citizens  with
         sufficient independent means to pay for the tenants' services..

o        The amount of revenues the Company will receive from  tenants,  lessees
         and borrowers cannot be predicted.

   
o        The Company may,  without the approval of a majority of the Independent
         Directors,  incur debt  totalling up to 300% of the value of Net Assets
         of the Company, including debt to make Distributions to stockholders in
         order to maintain its status as a REIT.  There can be no assurance that
         the  Company  will  be  able  to meet  its  debt  service  obligations,
         including interest costs which may be substantial.
    

o        The Company may, in connection with any borrowing, use Assets to secure
         the  repayment  of  indebtedness.  There is no limit on the  amount  of
         Assets that can be used as security for the repayment of  indebtedness,
         and a default  in the  payment  of any such  secured  indebtedness  may
         result in foreclosure  and the loss of the Company's  investment in the
         Assets.

o        Tenants,  lessees or  borrowers  may  default,  resulting  in decreased
         income.

o        The vote of  stockholders  owning at least a majority but less than all
         of the Shares will bind all of the  stockholders  as to matters such as
         the election of Directors  and  amendment  of the  Company's  governing
         documents.

o        Restrictions  on  ownership  of more  than  9.8% of the  shares  of the
         Company's  Common Stock by any single  stockholder  or certain  related
         stockholders  may have the effect of  inhibiting a change in control of
         the Company  even if such a change is in the  interest of a majority of
         the stockholders.

o        The Company may not qualify or remain  qualified  as a REIT for federal
         income tax purposes,  which could result in  subjecting  the Company to
         federal  income tax on its taxable income at regular  corporate  rates,
         thereby reducing the amount of funds available for paying Distributions
         to stockholders.

o        The Company anticipates that it will pay substantial fees to Affiliates
         of the Company and estimates that approximately 9% of the proceeds from
         the sale of Shares will be paid in

                                                        -3-

<PAGE>



         fees and  expenses to  Affiliates  of the Company for  services  and as
         reimbursement  for  Organizational  and Offering  Expenses  incurred on
         behalf of the Company. The amount of proceeds that will be available to
         purchase  Properties  and to make Mortgage Loans will be decreased as a
         result of such payments.

INVESTMENT OBJECTIVES AND POLICIES

         The Company's primary investment  objectives are to preserve,  protect,
and enhance the Company's  assets while (i) making  Distributions  commencing in
the initial year of Company operations;  (ii) obtaining fixed income through the
receipt of base rent, and increasing  the Company's  income (and  Distributions)
and providing  protection against inflation through automatic fixed increases in
base rent or increases  in the base rent based on  increases  in consumer  price
indices,  over the terms of the leases,  and obtaining  fixed income through the
receipt of payments  from Mortgage  Loans and Secured  Equipment  Leases;  (iii)
qualifying  and remaining  qualified as a REIT for federal  income tax purposes;
and  (iv)  providing  stockholders  of  the  Company  with  liquidity  of  their
investment within five to ten years after  commencement of the offering,  either
in whole or in part, through (a) Listing, or (b) the commencement of the orderly
sale of the Company's assets,  and distribution of the proceeds thereof (outside
the ordinary  course of business and consistent with its objective of qualifying
as a REIT).

         The  Company  intends to meet these  objectives  by  following  certain
investment  policies discussed herein, as summarized on the preceding pages. See
"Business - General," "Business - Site Selection and Acquisition of Properties,"
"Business - Description of Leases," and "Investment Objectives and Policies" for
a more  complete  description  of the  manner  in  which  the  structure  of the
Company's  business will facilitate the Company's ability to meet its investment
objectives.  There can be no assurance  that these  objectives  will be met. The
Company's  investment  objectives  are  subject  to  review  by the  Independent
Directors and may not be changed without the approval of  stockholders  owning a
majority of the shares of outstanding Common Stock.

BUSINESS

         The Company  intends to  capitalize on the growing real estate needs in
the  health  care  and  seniors'  housing  industries   primarily  by  acquiring
Properties and leasing them to health care  operators on a long-term  (generally
10 to 20  years,  plus  renewal  options  for  an  additional  10 to 20  years),
"triple-net"  basis.  With regard to housing for seniors,  there are three major
contributors to growth and the attraction of capital,  according to the National
Investment  Conference  for the Senior  Living and Long Term Care  Industries in
1996.  They are (i)  demographics,  (ii) the limited supply of new product,  and
(iii)  the  investment  community's  increased  understanding  of the  industry.
Although  the  Company  believes  the growth  will  continue  for a long  while,
overbuilding  is unlikely  due to the  favorable  demographics,  the increase in
public  awareness of the industry,  the preference of seniors for obtaining care
in   non-institutional   settings   and  the   cost   savings   realized   in  a
non-institutional environment.

         Management  believes  that other  changes and trends in the health care
industry will create  opportunities  for growth of seniors' housing  facilities,
including (i) the growth of operators serving specific health care niches,  (ii)
the  consolidation of providers and facilities  through mergers,  integration of
physician  practices,   and  elimination  of  duplicative  services,  (iii)  the
pressures  to  reduce  the cost of  providing  quality  health  care,  (iv) more
dual-income and single-parent  households leaving fewer family members available
for in-home care of aging parents and necessitating more senior care facilities,
and (v) an anticipated  increase in the number of insurance companies and health
care networks offering privately funded long-term care insurance.

ESTIMATED USE OF PROCEEDS

         The Company  will use the proceeds of the sale of the Shares to acquire
Properties,  to  make  Mortgage  Loans,  and to  pay  expenses  relating  to the
organization  of the  Company  and the sale of the  Shares.  In light of current
market  conditions,  management of the Company and the Advisor have  estimated a
purchase price of $1,000,000 to $30,000,000 for each Property.  See "Business --
General." If only 250,000 Shares ($2,500,000) are sold, the Company will acquire
no more than two medical  office  buildings or walk-in  clinics.  If  15,000,000
Shares  ($150,000,000)  are sold, the Company could own or finance  between four
and 126  Properties  depending on the types of  Properties.  Assuming an average
purchase  price of  $10,000,000  per Property,  based on the  Company's  present
expectation of the prices of Properties in which it will most likely invest, and
assuming  maximum Gross Proceeds of $150,000,000 are raised,  excluding  amounts
received for Shares issued  pursuant to the  Company's  Reinvestment  Plan,  the
Company  would  acquire  or finance  approximately  12  Properties  with the net
proceeds from this  offering.  In addition,  the Company has  registered  (i) an
offering  of  an  additional  500,000  Shares  ($5,000,000)  available  only  to
stockholders  who receive a copy of this Prospectus and who elect to participate
in the  Company's  reinvestment  plan  (the  "Reinvestment  Plan")  and  (ii) an
additional  600,000  shares of Common Stock  issuable upon the  exercise,  at an
exercise  price of $12.00 per share,  of the  Soliciting  Dealer  Warrants.  See
"Estimated  Use of  Proceeds"  and  "Business  -- General"  for a more  detailed
description  of the  anticipated  use of offering  proceeds.  Management  cannot
estimate the number of Mortgage  Loans that may be entered into. The Company may
provide Mortgage Loans in the aggregate  principal amount of approximately 5% to
10% of the Company's total assets.  The Company may also use the proceeds of the
Line of Credit and the Permanent Financing to acquire Assets.  Secured Equipment
Leases will be funded solely from borrowings.

CONFLICTS OF INTEREST

         All of the officers of the Company (some of whom are also  Directors of
the Company) are also  officers or directors of the Advisor and will  experience
conflicts  of  interest  in  their  management  of  the  Company.   These  arise
principally from their

                                                        -4-

<PAGE>



involvement in other activities that will conflict with those of the Company and
include matters related to (i) allocation of new investments and management time
and services between the Company and various other entities, (ii) the timing and
terms of the  investment in or sale of an Asset,  (iii)  development  of Company
Properties by Affiliates,  (iv) investments with Affiliates of the Advisor,  (v)
compensation of the Advisor,  (vi) the Company's  relationship with the Managing
Dealer, which is an Affiliate of the Company and the Advisor, and (vii) the fact
that the Company's  securities and tax counsel also serves as securities and tax
counsel for certain Affiliates of the Company,  and that neither the Company nor
the stockholders will have separate counsel.

         The  Directors of the Company who are  independent  of the Advisor (the
"Independent  Directors")  are  responsible for monitoring the activities of the
Advisor and must approve all of the  Advisor's  actions that involve a potential
conflict other than certain such actions specifically  permitted by the Articles
of  Incorporation.  Directors who are  independent  of the Advisor are those who
have not, within the last two years,  been  associated,  directly or indirectly,
with the Advisor or its Affiliates through (i) ownership of an interest therein,
(ii) employment thereby, (iii) service as an officer or director therefor,  (iv)
service  as a  director  on the boards of  directors  of more than  three  REITs
advised by the Advisor, (v) performance of services other than as a director for
the Company or (vi) a material business  relationship with the Advisor or any of
its Affiliates.  Although Independent  Directors may serve as directors of three
REITs advised by the Advisor, the Company does not anticipate that it will share
Independent Directors with other REITs advised by the Advisor. The "Conflicts of
Interest"  section  discusses  in more  detail  the  more  significant  of these
potential  conflicts  of  interest,  as well as the  procedures  that  have been
established to resolve a number of these potential conflicts.

         The Company has  established  certain  conflict  resolution  procedures
relating  to (i)  transactions  between  the  Company  and  the  Advisor  or its
Affiliates,  (ii) certain future offerings,  and (iii) allocation of investments
among  certain  affiliated  entities.  See  "Conflicts  of  Interest  -- Certain
Conflict
Resolution Procedures."

MANAGEMENT

         The Company has retained the Advisor, a Florida  corporation  organized
in July 1997, to provide management, advisory and administrative services to the
Company.  Pursuant to an advisory  agreement with the Company,  the Advisor will
handle the  day-to-day  operations  of the Company,  select the  Company's  real
estate investments, and administer its Secured Equipment Lease program. The five
members of the Board of Directors  will oversee the  management  of the Company.
Three of the  Directors of the Company are  independent  of the Advisor and have
responsibility  for reviewing its performance.  The Directors are elected to the
Board of Directors annually by the stockholders.

         All of the officers  and  directors of the Advisor also are officers or
Directors of the Company. The Advisor will have responsibility for (i) selecting
the  Properties  that the Company will acquire,  formulating  and evaluating the
terms of each proposed  acquisition,  and arranging for the  acquisition  of the
Property by the Company,  (ii) identifying  potential lessees for the Properties
and potential borrowers for the Mortgage Loans, and formulating, evaluating, and
negotiating the terms of each lease of a Property and each Mortgage Loan,  (iii)
locating and identifying  potential  lessees and  formulating,  evaluating,  and
negotiating the terms of each Secured  Equipment Lease, and (iv) negotiating the
terms of any  borrowing  by the  Company,  including  the Line of Credit and the
Permanent Financing. All of the foregoing actions are subject to approval by the
Board of  Directors.  The  Advisor  also will  have the  authority,  subject  to
approval  by a majority of the Board of  Directors,  including a majority of the
Independent  Directors,  to select assets for Sale in keeping with the Company's
investment  objectives  and based on an  analysis of  economic  conditions  both
nationally and in the vicinity of the assets being considered for Sale.

         See  "Management"  and "The Advisor and the Advisory  Agreement"  for a
description of the business  backgrounds of the individuals  responsible for the
management of the Company and the Advisor,  as well as for a description  of the
services that the Advisor will provide.

MANAGEMENT COMPENSATION

         The Advisor,  the Managing Dealer,  and other Affiliates of the Advisor
will receive  compensation  for  services  they will perform for the Company and
also will receive expense  reimbursements from the Company for expenses they pay
on  behalf  of  the  Company.   The  following  paragraphs  summarize  the  more
significant   items  of   compensation   and   reimbursement.   See  "Management
Compensation" for a complete description.

         Organizational Stage.

                  Selling  Commissions  and Marketing  Support and Due Diligence
Expense  Reimbursement  Fee. In connection with the formation of the Company and
the offering of the Shares, the Managing Dealer will receive Selling Commissions
of 7.5% (a  maximum  of  $11,250,000  if  15,000,000  Shares  are  sold),  and a
marketing support and due diligence expense reimbursement fee of 0.5% (a maximum
of $750,000 if 15,000,000  Shares are sold), of the total amount raised from the
sale of  Shares,  computed  at $10.00  per Share sold  ("Gross  Proceeds").  The
Managing  Dealer in turn may reallow  Selling  Commissions of up to 7% on Shares
sold,  and all or a portion  of the 0.5%  marketing  support  and due  diligence
expense  reimbursement fee, to certain Soliciting Dealers who are not Affiliates
of the Company, with prior written approval from, and in the sole discretion of,
the Managing Dealer.

                  Soliciting  Dealer  Warrants.  The  Company  will issue to the
Managing  Dealer one Soliciting  Dealer Warrant for every 25 Shares sold through
this offering, up to a maximum of 600,000

                                                        -5-

<PAGE>



Soliciting  Dealer Warrants to purchase an equivalent number of shares of Common
Stock.  The Soliciting  Dealer Warrants will be issued  quarterly  commencing 60
days  after  the date on which  the  Shares  are  first  sold  pursuant  to this
offering. All or any part of such Soliciting Dealer Warrants may be reallowed to
certain  Soliciting  Dealers with prior written  approval  from, and in the sole
discretion  of,  the  Managing  Dealer,  unless  prohibited  by federal or state
securities  laws.  Each  Soliciting  Dealer  Warrant  will entitle the holder to
purchase  one share of Common  Stock  from the  Company  for  $12.00  during the
Exercise Period;  provided however,  that Soliciting Dealer Warrants will not be
exercisable  until one year from the date of  issuance.  Holders  of  Soliciting
Dealer  Warrants may not exercise the Soliciting  Dealer  Warrants to the extent
such exercise would  jeopardize the Company's  status as a REIT. See "Summary of
Articles  of  Incorporation  and  Bylaws  --  Description  of  Capital  Stock --
Soliciting Dealer Warrants."

         Acquisition Stage.

                  Acquisition Fees. For identifying the Properties,  structuring
the terms of the  acquisition  and leases of the Properties and  structuring the
terms of the  Mortgage  Loans,  the Advisor  will receive a fee equal to 4.5% of
Gross Proceeds,  loan proceeds from Permanent  Financing and amounts outstanding
on the Line of  Credit,  if any,  at the time of  Listing,  but  excluding  that
portion of the Permanent  Financing  used to finance  Secured  Equipment  Leases
(collectively,  "Total Proceeds")  ($6,750,000 if 15,000,000 Shares are sold and
up to an  additional  $2,025,000  if Permanent  Financing  equals  $45,000,000),
payable as Acquisition Fees.

         Operational Stage.

                  Asset  Management  Fee. For managing  the  Properties  and the
Mortgage  Loans,  the  Advisor  will be  entitled  to  receive a  monthly  Asset
Management  Fee of  one-twelfth of .60% of the Company's Real Estate Asset Value
(generally,   the  total  amount  invested  in  the  Properties,   exclusive  of
Acquisition Fees and Acquisition  Expenses) and the total outstanding  principal
amount of the Mortgage Loans, as of the end of the preceding month.

                  Secured Equipment Lease Servicing Fee. For negotiating Secured
Equipment  Leases and  supervising  the Secured  Equipment  Lease  program,  the
Advisor  will be  entitled  to  receive  from the  Company  a  one-time  Secured
Equipment  Lease Servicing Fee of 2% of the purchase price of the Equipment that
is the subject of a
Secured Equipment Lease.

         Liquidation Stage.

                  Deferred,  Subordinated Real Estate  Disposition Fee. Prior to
Listing,  the Advisor may  receive a real  estate  disposition  fee of 3% of the
gross sales price of one or more Properties for providing  substantial  services
in connection with the Sale, which will be deferred and  subordinated  until the
stockholders  have  received  Distributions  equal  to the sum of an  aggregate,
annual,  cumulative,  noncompounded  8% return on their Invested  Capital,  (the
"Stockholders'  8% Return") plus 100% of the  stockholders'  aggregate  Invested
Capital.  In general,  the  stockholders'  investment in the Company  ("Invested
Capital")  is the number of shares of Common Stock they own,  multiplied  by the
offering  price per  share,  reduced by the  portion of all prior  Distributions
received  by  stockholders  from the sale of  assets of the  Company  and by any
amounts  paid by the Company to  repurchase  shares  pursuant to the  redemption
plan.  Upon  Listing,  if the  Advisor  has  accrued but not been paid such real
estate   disposition   fee,  then  for  purposes  of  determining   whether  the
subordination  conditions  have been satisfied,  stockholders  will be deemed to
have received a Distribution in an amount equal to the total number of shares of
Common Stock  outstanding  multiplied by the average closing price of the shares
over a period of 30 days during  which the Shares are  traded,  with such period
beginning 180 days after Listing. See "The Advisor and The Advisory Agreement --
The Advisory Agreement."

                  Deferred,  Subordinated  Share of Net Sales  Proceeds from the
Sale of Assets.  A deferred,  subordinated  share of Net Sales  Proceeds will be
paid to the Advisor from the Sale of assets of the Company in an amount equal to
10% of Net Sales Proceeds.  This amount will be subordinated and paid only after
the  stockholders  have received  Distributions  equal to the sum of 100% of the
stockholders' aggregate Invested Capital plus the Stockholders' 8% Return.

         Payment of certain fees is subject to conditions and restrictions or to
change under certain  specified  circumstances.  The Advisor and its  Affiliates
also may receive  reimbursement  for  out-of-pocket  expenses that they incur on
behalf  of  the  Company,   subject  to  certain  expense  limitations,   and  a
subordinated incentive fee if Listing occurs.

SUMMARY OF REINVESTMENT PLAN

         The Company has  established  the  Reinvestment  Plan pursuant to which
stockholders  may  elect to have  their  cash  Distributions  from  the  Company
automatically reinvested in Shares. See "Summary of Reinvestment Plan," "Federal
Income  Tax  Considerations  --  Taxation  of  Stockholders,"  and  the  form of
Reinvestment  Plan  accompanying this Prospectus as Appendix A for more specific
information  about the Reinvestment  Plan.  Expenses incurred in connection with
the Reinvestment Plan,  including Selling  Commissions and marketing support and
due  diligence  expense  reimbursement  fees,  will be paid by the  Company.  No
Soliciting  Dealer  Warrants  will be issued in  connection  with Shares  issued
pursuant to the Company's  Reinvestment Plan. A person who becomes a stockholder
otherwise than by participating in this offering may purchase Shares through the
Reinvestment Plan only after receipt of a separate prospectus relating solely to
the Reinvestment Plan.

DESCRIPTION OF SHARES

         A  stockholder's  investment  will  be  recorded  on the  books  of the
Company.  The Company will provide,  upon the request of any stockholder wishing
to transfer his or her Shares,  a transfer  form to be completed and executed by
the stockholder and returned

                                                        -6-

<PAGE>



to the  Company.  The Company  will not issue share  certificates  other than to
stockholders who make a written request to the Company.
   
         Any  stockholder  who has held Shares for at least one year may request
that the Company  redeem for cash all or a  significant  portion of such Shares.
The full amount of the proceeds  from the sale of Shares under the  Reinvestment
Plan  attributable  to any calendar  quarter will be used, at the sole option of
the Company,  to redeem Shares presented for redemption during such quarter.  In
addition,  the Company may, at its  discretion,  use up to $100,000 per calendar
quarter  of the  proceeds  of  any  public  offering  of its  common  stock  for
redemptions. Any amount of offering proceeds which is available for redemptions,
but which is unused, may be carried over to the next succeeding calendar quarter
for use in addition to the amount of offering proceeds and net proceeds from the
sale of Shares under the Reinvestment Plan that would otherwise be available for
redemptions.  There can be no  assurance  that  there will be  sufficient  funds
available to permit the Company to redeem all Shares  presented for  redemption.
See "Redemption of Shares."
    
         An  annual  meeting  of  stockholders  will be held  each  year for the
election of the Directors. Other business matters may be presented at the annual
meeting or at special stockholder  meetings.  Each Share is entitled to one vote
on each matter to be voted on by  stockholders,  including  the  election of the
Directors.  Stockholders who do not vote with the majority of Shares entitled to
vote on questions presented nonetheless will be bound by the majority vote.

         Stockholder  approval is required  under Maryland law and the Company's
Articles  of  Incorporation  and  Bylaws  for  certain  types  of  transactions.
Generally,  the  Articles  of  Incorporation  and Bylaws  may be amended  upon a
majority  vote of  stockholders.  Stockholders  holding a majority of the Shares
must approve a merger or a sale or other disposition of substantially all of the
Company's  assets  other than in the ordinary  course of business.  Stockholders
objecting to the terms of a merger,  sale, or other disposition of substantially
all of the Company's assets have the right to petition a court for the appraisal
and  payment  of the fair  value of  their  Shares  in  certain  instances.  The
affirmative vote of a majority of the Shares outstanding and entitled to vote is
required to approve the voluntary dissolution of the Company.

         In order to facilitate  compliance with certain restrictions imposed on
REITs by the  Internal  Revenue  Code of 1986,  as  amended  (the  "Code"),  the
Articles  of  Incorporation  generally  restrict  direct or  indirect  ownership
(applying certain attribution rules) of more than 9.8% of the outstanding shares
of Common Stock by one Person, as defined in the Articles of Incorporation.  See
"Summary  of  the  Articles  of  Incorporation  and  Bylaws  --  Restriction  on
Ownership."

         For a more complete description of the Shares and the capital structure
of the Company,  please  refer to the "Summary of the Articles of  Incorporation
and Bylaws -- Description of Capital Stock" section of the Prospectus.

DISTRIBUTION POLICY

         Consistent  with the Company's  objective of qualifying as a REIT,  the
Company  expects to  calculate  and  declare  Distributions  monthly  during the
offering period, monthly during any subsequent offering and quarterly otherwise,
and make  Distributions  quarterly  commencing  not later  than the close of the
first full calendar  quarter after the first release of funds from escrow to the
Company. The Board of Directors, in its discretion, will determine the amount of
the Distributions made by the Company, which amount will depend primarily on net
cash  from  operations.   The  Company  intends  to  increase  Distributions  in
accordance  with  increases  in net cash from  operations.  Consistent  with the
Company's  objective of qualifying as a REIT, the Company  expects to distribute
at least 95% of its real estate  investment  trust taxable income,  although the
Board of Directors, in its discretion,  may increase that percentage as it deems
appropriate.  If the cash  available  to the  Company  is  insufficient  to make
Distributions,  the  Company  may  obtain the needed  cash by  borrowing  funds,
issuing new securities, or selling assets. These methods of obtaining

                                                        -7-

<PAGE>



cash could affect future Distributions by increasing operating costs or reducing
income.   In  such  an  event,  it  is  possible  that  the  Company  could  pay
Distributions in excess of its earnings and profits and, accordingly,  that such
Distributions  could  constitute  a return of  capital  for  federal  income tax
purposes,  although such Distributions would not reduce stockholders'  aggregate
Invested Capital.

PRIOR PERFORMANCE OF AFFILIATES

   
         The "Prior Performance Information" section of this Prospectus contains
a narrative  discussion of the public and private real estate programs sponsored
by  Affiliates  of the  Company  and of the  Advisor  during the past ten years,
including one unlisted public REIT and 18 public limited  partnerships formed to
invest in restaurants  leased on a "triple-net" basis to operators of restaurant
chains and one unlisted  public REIT formed to invest in hotels and  restaurants
on a "triple-net"  basis. As of June 30, 1998,  these entities,  which invest in
restaurant properties but do not invest in health care facilities, had purchased
1,033 fast-food,  family-style and casual dining restaurant properties. Based on
an analysis of the operating results of the 91 real estate limited  partnerships
and two unlisted  public REITs in which  principals  of the Company have served,
individually or with others, as general partners or officers and directors,  the
Company  believes  that each of such  entities  has met, or  currently is in the
process of meeting, its principal investment  objectives.  However,  none of the
REITs or public  or  private  real  estate  limited  partnerships  sponsored  by
Affiliates  of the  Company  has  invested  in  properties  in the  health  care
industry.  Certain  statistical data relating to the two unlisted,  public REITs
and the  public  limited  partnerships,  the  offerings  of which  became  fully
subscribed  between  January 1993 and December 1997, are contained in Appendix C
- -- Prior Performance Tables.
    

TAX STATUS OF THE COMPANY

         The Company will make the election under Section 856(c) of the Internal
Revenue Code of 1986, as amended (the  "Code"),  to be taxed as a REIT under the
Code  beginning  with its taxable year ending  December 31, 1998.  As a REIT for
federal  income  tax  purposes,  the  Company  generally  will not be subject to
federal income tax on income that it distributes to its stockholders.  Under the
Code, REITs are subject to numerous organizational and operational requirements,
including  a  requirement  that they  distribute  at least 95% of their  taxable
income,  as  figured on an annual  basis.  Based  upon  representations  made by
officers  of the Company  with  respect to relevant  factual  matters,  upon the
existing  Code  provisions,   rules  and  regulations   promulgated   thereunder
(including  proposed  regulations)  and  reported  administrative  and  judicial
interpretations  thereof,  upon  the  independent  review  by  counsel  of  such
documents  as  counsel  deemed  relevant  in  the  circumstances  and  upon  the
assumption  that the  Company  will  operate  in the  manner  described  in this
Prospectus,  the Company's counsel, Shaw Pittman Potts & Trowbridge, has advised
the Company that,  in its opinion,  commencing  with the Company's  taxable year
ending  December 31, 1998, the Company will be organized in conformity  with the
requirements for  qualification as a REIT, and the Company's  proposed method of
operation will enable it to meet the requirements  for  qualification as a REIT.
However,  the  Company's  ability to qualify and remain  qualified  as a REIT is
dependent  upon  actual  operating  results  and  future  actions  by and events
involving the Company and others,  and no assurance can be given that the actual
results of the Company's  operations  and future  actions and events will enable
the Company to satisfy in any given year the requirements for  qualification and
taxation as a REIT.

         If the Company  fails to qualify for  taxation as a REIT in any taxable
year,  it will be subject  to  federal  income  tax  (including  any  applicable
alternative  minimum tax) on its taxable income at regular  corporate  rates and
will not be permitted to qualify for treatment as a REIT for federal  income tax
purposes for four years following the year during which  qualification  is lost.
See "Risk Factors -- Tax Risks" and "Federal Income Tax Considerations." Even if
the Company  qualifies  as a REIT for  federal  income tax  purposes,  it may be
subject to certain  federal,  state,  and local taxes on its income and property
and to federal income and excise taxes on its undistributed income. See "Federal
Income Tax Considerations."

THE OFFERING

         A minimum of 250,000  Shares  ($2,500,000)  and a maximum of 15,000,000
($150,000,000)  Shares in the  Company  will be offered at a price of $10.00 per
Share.  The Company also has  registered  an offering of an  additional  500,000
Shares  ($5,000,000)  that are available only to stockholders who receive a copy
of this  Prospectus  and elect to  participate  in the  Reinvestment  Plan.  Any
participation  in such plan subsequent to this offering must be made pursuant to
solicitation under a separate  prospectus.  See "Summary of Reinvestment  Plan."
The Board of Directors  may  determine  to engage in future  offerings of Common
Stock  of up to the  number  of  unissued  authorized  shares  of  Common  Stock
available following the completion of this offering.



                                                        -8-

<PAGE>



         The  Shares  are  being  offered  by  the  Managing  Dealer  and  other
broker-dealers  that are  members  of the  National  Association  of  Securities
Dealers,  Inc.  or  exempt  from  broker-dealer  registration  (the  "Soliciting
Dealers") on a "best  efforts"  basis,  which means that no one is  guaranteeing
that any minimum number of Shares will be sold. Both the Company and the Advisor
are  Affiliates  of  the  Managing   Dealer.   See  "The  Offering  --  Plan  of
Distribution."

         Until  subscription  funds for the Company total $2,500,000,  the funds
will be held in escrow by SouthTrust Asset Management Company of Florida,  N.A.,
and interest earned on such funds will accrue to the benefit of subscribers.  No
Shares  will  be  sold  unless   subscriptions   for  at  least  250,000  Shares
($2,500,000)  have  been  obtained  within  one  year  after  the  date  of this
Prospectus.  Pursuant to the  requirements of the  Commissioner of Securities of
the State of Pennsylvania,  subscriptions from Pennsylvania residents may not be
released from escrow, or included in determining  whether the $2,500,000 minimum
for the

                                                        -9-

<PAGE>



Company has been  reached,  until  subscriptions  for Shares  totalling at least
$7,775,000 have been received from all sources.  If such minimum amount is sold,
the  Company  may,  in its sole  discretion,  and  without  prior  notice to the
subscribers,  elect to extend  the  offering  for up to an  additional  one year
thereafter (in states that permit such an extension). See "The Offering."

         A minimum  investment of 250 Shares ($2,500) is required.  IRAs,  Keogh
plans,  and pension plans must make a minimum  investment of at least 100 Shares
($1,000).  For Minnesota  investors  only,  IRAs and qualified plans must make a
minimum investment of 200 Shares ($2,000). Following an initial subscription for
at least the required  minimum  investment,  any stockholder may make additional
purchases  in  increments  of one Share.  See "The  Offering --  General,"  "The
Offering -- Subscription Procedures," and "Summary of Reinvestment Plan."

DEFINITIONS

         This Prospectus  includes  simplified terms and definitions to make the
Prospectus  easier to understand.  These simplified terms and definitions do not
include all of the details of the terms,  however,  and  stockholders  therefore
should review the "Definitions" section for a more complete understanding.


                                  RISK FACTORS

         The  purchase of Shares  involves  significant  risks and  therefore is
suitable  only for  persons  who  understand  the  possible  consequences  of an
investment  in the  Company  and who are  able to bear the risk of loss of their
investment.  Prospective  stockholders  should  consider the following  risks in
addition to other  information  describing an investment in the Shares set forth
elsewhere in this Prospectus.

INVESTMENT RISKS

         Insufficient Offering Proceeds. The offering is on a best efforts basis
and is conditioned on the sale of at least 250,000 Shares. Because this offering
will be made on a best efforts basis, the potential profitability of the Company
and its ability to diversify its investments, both geographically and by type of
Properties  purchased,  will be limited by the amount of funds at its  disposal.
For example,  if minimum Gross  Proceeds of $2,500,000  are raised,  the Company
will be able to acquire no more than two  medical  office  buildings  or walk-in
clinics  and will make no Mortgage  Loans.  There can be no  assurance  that the
Company will sell the minimum number of Shares.

         Lack of Diversification.  Based on the estimated purchase price of each
Health  Care  Facility  ranging  from  $1,000,000  to  $30,000,000,  the Company
anticipates owning or financing with the net proceeds of this offering,  between
four and 126  Properties,  depending  on the types of  Properties.  Assuming  an
average  purchase  price of  $10,000,000  per  Property,  based on the Company's
present  expectation  of the prices of  Properties  in which it will most likely
invest,  and  assuming  maximum  Gross  Proceeds  of  $150,000,000  are  raised,
excluding   amounts  received  for  Shares  issued  pursuant  to  the  Company's
Reinvestment  Plan,  the  Company  would  acquire  or finance  approximately  12
Properties  with the net proceeds from this offering.  Depending on the purchase
price of each  Health  Care  Facility,  the  Company  may not be able to achieve
diversification  by  tenant,  facility  type  or  geographic  location.  Lack of
diversification  will increase the potential  adverse effect on the Company of a
single under-performing tenant, an under-performing facility type or a depressed
geographic region.

         Possible  Delays  in  Investment.  To the  extent  consistent  with the
Company's  objective of qualifying as a REIT,  the offering  proceeds may remain
uninvested  for up to the  later  of two  years  from the  initial  date of this
Prospectus  or one  year  after  termination  of the  offering,  although  it is
expected that substantially all net offering

                                                       -10-

<PAGE>



proceeds  will  be  invested  prior  to  the  end of  such  period.  See  "Prior
Performance  Information" for a summary description of the investment experience
of Affiliates  and the Advisor in prior CNL programs,  which is not  necessarily
indicative of the rate at which the proceeds of this offering will be invested.

         An extended  offering  period and the  inability of the Advisor to find
suitable  Properties  may result in delays in  investment  of  Company  funds in
Properties and in the receipt of a return from real property investments.

         Revenues  received by the Company  pending  investment in Properties or
making  Mortgage  Loans  will be  limited  to the rates of return  available  on
short-term,  highly liquid  investments  with  appropriate  safety of principal.
These  rates of  return,  which  affect  the  amount of cash  available  to make
Distributions  to the  stockholders,  are  expected to be lower than the Company
would  receive  under its Property  leases or Mortgage  Loans.  Further,  to the
extent  consistent  with the Company's  objective of  qualifying as a REIT,  any
funds of the Company  required to be invested in Properties  and Mortgage  Loans
and not so  invested or reserved  for Company  purposes  within the later of two
years  from  the  initial  date  of  this  Prospectus,  or one  year  after  the
termination  of  the  offering,  will  be  distributed  pro  rata  to  the  then
stockholders of the Company in accordance with the Articles of Incorporation.

         Inexperience  of Management.  None of the prior  programs  organized by
Affiliates of the Company has invested in Health Care Facilities.  While certain
Directors  and  officers of the Company have  experience  in investing in Health
Care  Facilities,  the  lack of  experience  of the  majority  of the  Company's
management  team and the Advisor and its Affiliates in  purchasing,  leasing and
selling  Health Care  Facilities may adversely  affect the Company's  results of
operations.

         Reliance on Advisor and Board Of Directors;  No  Management  Rights for
Stockholders.  The Advisor,  with approval from the Board of Directors,  will be
responsible for the daily management of the Company, including all acquisitions,
dispositions,  and financings.  Stockholders will have no right or power to take
part in the  management  of the  Company,  except  through the exercise of their
voting rights for Directors.  Thus, no prospective  stockholder  should purchase
any of the Shares offered hereby unless the  prospective  stockholder is willing
to entrust all aspects of the  management  of the Company to the Advisor and the
Board of Directors.

         The  Advisor  may be  terminated  by the  Board of  Directors,  with or
without  cause,  but only subject to payment and release from all guarantees and
other obligations  incurred in connection with its role as Advisor. In addition,
the  Advisor  has the  right to  assign  the  Advisory  Agreement  to one of its
Affiliates,  subject to the  approval  of a majority of the  Directors.  In such
event,  the  stockholders  will not be able to vote on the new Advisor and there
can be no  assurance  that the new  Advisor  will  perform  satisfactorily.  See
"Management Compensation." Also see "Conflicts of Interests" for a discussion of
the potential for  realization  by the Advisor and its Affiliates of substantial
commissions,  fees,  compensation,  and other  income  and for a  discussion  of
various other conflicts of interest.

         Effects of Governing Documents and Maryland Law on Potential Takeovers.
Certain  provisions of the Company's  Articles of  Incorporation,  including the
ownership  limitations,  transfer restrictions and ability to issue preferential
preferred  stock,  may have the effect of preventing,  delaying or  discouraging
takeovers  of the Company by third  parties.  Certain  other  provisions  of the
Company's  Articles  of  Incorporation,   which  exempt  the  Company  from  the
application  of  Maryland's  Business  Combinations  Statute and  Control  Share
Acquisition   Statute,   may  have  the  effect  of  facilitating  (i)  business
combinations  between the Company  and  beneficial  owners of 10% or more of the
voting  power  of the  outstanding  voting  stock  of the  Company  and (ii) the
acquisition by any person of shares  entitled to exercise or direct the exercise
of 20% or more of the total  voting  power of the  Company.  Because the Company
will not be subject to the provisions of the Business  Combinations  Statute and
the Control Share Acquisition Statute, it may be more difficult for stockholders
of the Company to prevent or delay business combinations with large stockholders
or  acquisitions of substantial  blocks of voting power by such  stockholders or
other  persons,  should  the  ownership  restrictions  be  waived,  modified  or
completely removed.  Such business  combinations or acquisitions of voting power
could  cause the  Company to fail to  qualify  as a REIT.  See " -- Tax Risks --
Effect of REIT  Disqualification,"  " -- Tax Risks --  Restrictions  on  Maximum
Ownership,"  "Summary of the Articles of  Incorporation  and Bylaws -- General,"
"Summary of the Articles of Incorporation  and Bylaws -- Mergers,  Combinations,
and Sale of Assets,"  "Summary of the  Articles of  Incorporation  and Bylaws --
Control Share  Acquisitions"  and "Summary of the Articles of Incorporation  and
Bylaws -- Restriction of Ownership."

         Leverage.  The Company may borrow money to acquire Assets,
to preserve its status as a REIT or for other corporate purposes.
   
 The Board of  Directors  anticipates  that the Company  will obtain a revolving
Line  of  Credit  up to  $45,000,000  in  order  to  provide  financing  for the
acquisition  of Assets and may also  obtain,  in addition to the Line of Credit,
Permanent Financing. Permanent Financing may, but is not expected to, exceed 30%
of the  Company's  total  assets.  The Line of Credit  may be  increased  at the
discretion of the Board of  Directors.  The Company may repay the Line of Credit
with offering  proceeds,  working  capital or Permanent  Financing.  The maximum
amount the Company may borrow, however, is 300% of the Company's Net Assets. The
use of borrowing  may present an element of risk in the event that the cash flow
from the Company's real estate and other investments is insufficient to meet its
debt  obligations.  In  addition,  lenders  to the  Company  may seek to  impose
restrictions on future  borrowings,  Distributions and operating policies of the
Company.  If Assets are mortgaged or pledged as collateral to secure  payment of
indebtedness and the Company is unable to meet its debt obligations,  the Assets
could be transferred to the lender,  with a consequent  loss of income and asset
value to the Company. There is no limit on the amount of Assets that may be used
as security for the repayment of indebtedness.
    


                                                       -11-

<PAGE>



         Conflicts  of  Interest.  The Company  will be subject to  conflicts of
interest  arising out of its  relationship  to the  Advisor and its  Affiliates,
including the material  conflicts  discussed  below. See "Conflicts of Interest"
for a further  discussion of the  conflicts of interest  between the Company and
the Advisor and its Affiliates and the Company's policies to reduce or eliminate
certain potential conflicts.

         Competing Demands on Officers and Directors. All of the officers of the
Company  (some of whom are also  Directors of the Company) are also officers and
directors of the Advisor and will  experience  conflicts in their  management of
the Company. In addition,  the officers and certain Directors of the Company and
the officers and directors of the Advisor have management  responsibilities  for
Affiliates  of the Company and the Advisor,  including  entities that may in the
future invest in the same types of assets in which the Company will invest.  See
"Management -- Directors and Executive Officers." Further, Independent Directors
may serve as directors of up to three REITS advised by the Advisor. Accordingly,
the officers and Directors will share their  management  time and services among
those  entities and the Company,  will not devote all of their  attention to the
Company,  and could take actions that are more  favorable to such other entities
than to the Company.

         Potential  Impact of Advisor's  Compensation  on Investment  Decisions.
Investment  in or Sale of an Asset by the  Company  may result in the  immediate
realization  by  the  Advisor  of  substantial   commissions,   fees  and  other
compensation.  Although  the Board of Directors of the Company must approve such
transactions,  the Advisor's recommendation to the Board may be affected more by
the impact of the transaction on the Advisor's  compensation  than by the impact
on  the  Company's  operating  results  or  financial  condition.  None  of  the
agreements  between the  Company  and the Advisor  pursuant to which the Advisor
will perform  services and receive  compensation  was the result of  arms-length
negotiations.

         Property Development by Affiliates.  Properties acquired by the Company
may require development prior to use of the Property by a tenant.  Affiliates of
the Company may serve as developer and if so, the  Affiliates  would receive the
development fee that would otherwise be paid to an unaffiliated  developer.  The
Board of Directors,  including the Independent Directors, must approve employing
an Affiliate of the Company to serve as a developer.  There is a risk,  however,
that the Company would acquire  Properties  that require  development so that an
Affiliate would receive the development fee.

         The Company May Invest with Affiliates of the Advisor.  The Company may
invest in Joint  Ventures with another  program  sponsored by the Advisor or its
Affiliates.   Although  the  Board  of  Directors,   including  the  Independent
Directors,  must approve each such investment,  investment  recommendations with
respect to such Joint  Ventures  may be affected by the  Advisor's  relationship
with one or more of the  co-venturers  and may be more  beneficial  to the other
programs than to the Company.

         No  Independent  Review of the  Company or the  Prospectus  by Managing
Dealer.  The Managing Dealer is an Affiliate of the Company and will not make an
independent  review of the Company and the offering.  Accordingly,  investors do
not have the benefit of such independent review.

         No Separate Counsel for the Company,  Affiliates and Investors. Each of
the Company, its Affiliates and investors may have interests which conflict with
one another, but none of them currently has the benefit of separate counsel.

         Lack of Liquidity of Shares. Stockholders may not be able to sell their
Shares promptly at a desired price;  therefore,  the Shares should be considered
as a long-term  investment  only.  Currently  there is no public  market for the
Shares. The Board of Directors, with or without the consent of the stockholders,
may apply for  Listing  if the  Board of  Directors  (including  a  majority  of
Independent  Directors)  determines  Listing to be in the best  interests of the
stockholders.  There can be no assurance,  however,  that the Company will apply
for  Listing,  that any such  application  will be made  before the passage of a
significant  period of time, that any  application  will be accepted or, even if
accepted,  that a public trading market will develop. In any event, the Articles
of Incorporation  provide that the Company will not apply for Listing before the
completion or termination of this offering.  If Listing occurs,  the business of
the Company may continue  indefinitely  without any specific time  limitation by
which the Company must  distribute  Net Sales Proceeds to the  stockholders.  In
that case, the stockholders would be dependent upon the sale of their Shares for
the return of their  investment in the Company.  There can be no assurance  that
the  price  a  stockholder  would  receive  in a sale on an  exchange  or in the
over-the-counter  market will be representative of the value of the assets owned
by the Company or that it will equal or exceed the amount a stockholder paid for
the Shares.  In the event  Listing  occurs,  Shares may be sold only through the
national securities exchange or the over-the-counter  market on which the Shares
are listed.

         Potential  for  Dilution.   Stockholders  have  no  preemptive  rights.
Therefore,  in the event the Company (i) commences a subsequent  public offering
of  Shares or  securities  convertible  into  Shares  or (ii)  otherwise  issues
additional  Shares,  including  Shares  issuable upon exercise of the Soliciting
Dealer  Warrants,  investors  purchasing  Shares  in  this  offering  who do not
participate  in the future  stock  issuances  will  experience  dilution  in the
percentage  of their equity  investment  in the  Company.  Although the Board of
Directors has not yet determined  whether it will engage in future  offerings or
other  issuances of Shares,  it may do so if it is  determined to be in the best
interests of the Company.

         Lack of Control by the Company over Joint Ventures.  Subject
to the approval of the Independent Directors, the Company may
enter into a Joint Venture or general partnership with an
unaffiliated party to purchase a Property, and the Joint Venture
or general partnership agreement relating to that Joint Venture
or partnership may provide that the Company will share management
control of the Joint Venture with the unaffiliated party.  Even

                                                       -12-

<PAGE>



in the event the Joint Venture or general  partnership  agreement  provides that
the  Company  will have sole  management  control  of the  Joint  Venture,  such
agreement  may be  ineffective  as to a third  party  who has no  notice  of the
agreement,  and the  Company  therefore  may be  unable  to  control  fully  the
activities of such Joint  Venture.  In the event that the Company  enters into a
Joint Venture with another program sponsored by an Affiliate,  it is anticipated
that the Company will not have sole management control of the Joint Venture.

         Lack of Control of Property  Management.  The Company uses "triple-net"
leases and,  therefore,  day-to-day  management  of the  Properties  will be the
responsibility of the tenants of the Properties. The Company has not yet entered
into any lease  arrangements  with specific tenants and does not intend to do so
until such time as one or more  Properties  suitable for purchase by the Company
have been  identified.  In general,  the Company  intends to enter into  leasing
agreements  only with  operators  having  substantial  prior  experience  in the
operation  of Health Care  Facilities,  but there can be no  assurance  that the
Company will be able to make such arrangements  because,  as of the date of this
Prospectus,  the  Company had not entered  into any  arrangements  that create a
reasonable probability that the Company will purchase any Properties.  There can
be  no  assurance  that  the  Company's   tenants  will  manage  the  Properties
successfully.

         Mortgage Loans.

                  Unfavorable   Real  Estate   Market   Conditions   May  Impact
Operations.  To the extent that the Company makes Mortgage Loans, the results of
the Company's  operations will be affected,  to the extent there are defaults on
such  loans,  by various  factors,  many of which are beyond the  control of the
Company.  The factors include local and other economic conditions affecting real
estate values and interest rate levels. The results of the Company's  operations
from making  Mortgage  Loans would depend on, among other  things,  the level of
interest income  generated by the Mortgage  Loans,  the market value of Mortgage
Loans and the supply of and demand for Mortgage Loans. No assurance can be given
that the values of the properties securing the Mortgage Loans will remain at the
levels existing on the dates of origination of the Mortgage Loans.

                  Interest  Rate  Fluctuations  May  Adversely  Affect  Mortgage
Loans.  Fluctuations  in interest rates may adversely  affect the Company to the
extent it invests in fixed-rate, long-term Mortgage Loans. In this situation, if
interest  rates  rise,  the  Mortgage  Loans  will  yield a  return  lower  than
then-current  market  rates.  If interest  rates  decrease,  the Company will be
adversely  affected to the extent that Mortgage  Loans are prepaid,  because the
Company will not be able to make new  Mortgage  Loans at the  previously  higher
interest rate.

                  Delays in Liquidating  Defaulted Mortgage Loans. Even assuming
that the  mortgaged  properties  underlying  Mortgage  Loans held by the Company
provide adequate  security for the Mortgage Loans,  substantial  delays could be
encountered in connection with the liquidation of defaulted Mortgage Loans, with
corresponding  delays in the  receipt of related  proceeds  by the  Company.  An
action  to  foreclose  on a  mortgaged  property  securing  a  Mortgage  Loan is
regulated  by state  statutes and rules and is subject to many of the delays and
expenses  of  other  lawsuits  if  defenses  or  counterclaims  are  interposed.
Furthermore,  in some  states an action to obtain a  deficiency  judgment is not
permitted following a non-judicial sale of a mortgaged property. In the event of
default by a mortgagor,  these restrictions,  among other things, may impede the
ability of the  Company to  foreclose  on or sell the  mortgaged  property or to
obtain  proceeds  sufficient  to repay all amounts  due on the related  Mortgage
Loan.



                                                       -13-

<PAGE>



                  Possible  Noncompliance  with Regulations.  The Mortgage Loans
may also be subject to regulation by federal,  state and local  authorities  and
subject to various laws and judicial and administrative  decisions.  The Company
may  determine  not to make  Mortgage  Loans  in any  jurisdiction  in  which it
believes the Company has not complied in all material  respects with  applicable
requirements. Such a determination could have a negative effect on the Company's
operating  results.  See "Business -- Mortgage  Loans." See also "-- Real Estate
and Financing Risks."

         Secured Equipment Leases.

                  Default by Lessee.  In the event that a lessee  defaults  on a
Secured  Equipment  Lease,  the  Company  may not be able  to sell  the  subject
Equipment  at a price  that  would  enable  the  Company  to  recover  its costs
associated with such Equipment.

                  Possible Noncompliance with Regulations. The Secured Equipment
Lease  program may also be subject to  regulation  by  federal,  state and local
authorities  and  subject  to  various  laws  and  judicial  and  administrative
decisions.  The Company may determine not to operate the Secured Equipment Lease
program in any jurisdiction in which it believes the Company has not complied in
all material respects with applicable  requirements.  Such a determination could
have a negative effect on the Company's operating results.

                  Tax Risks.  In addition, there are certain federal
income tax risks associated with the Secured Equipment Lease
program.  See "-- Tax Risks."

         No Operating  History.  The Company has recently been formed, is in the
development stage and has no previous performance history. The lack of operating
history makes it impossible to predict the Company's future performance based on
past results.

         Impact of  Inflation.  Inflation  may  impact  the value of some of the
Company's  investments.  For example,  a substantial  rise in inflation over the
term of an investment in Mortgage Loans and Secured  Equipment Leases may reduce
the  Company's  actual  return on those  investments,  if they do not  otherwise
provide for adjustments based upon inflation. Investments in Properties may also
be  adversely  affected  by  inflation,  although  leases with  percentage  rent
provisions may not be so affected because inflation could cause those provisions
to be triggered earlier

                                                       -14-

<PAGE>



than they would otherwise become effective,  and leases with automatic increases
in base rent may be sufficient to protect against the effects of inflation.

         Majority Stockholder Vote Binding on All Stockholders. Stockholders may
take  certain  actions,  including  approving  amendments  to  the  Articles  of
Incorporation and Bylaws, by a vote of a majority of the Shares  outstanding and
entitled to vote. All actions taken, if approved by the holders of the requisite
number  of  Shares,  would be  binding  on all  stockholders.  Certain  of these
provisions may discourage or make it more difficult for another party to acquire
control of the Company or to effect a change in the operation of the Company.

         Broad  Discretion  of the  Board  of  Directors  in  Management  of the
Company's  Operations.  The Board of Directors has overall  authority to conduct
the Company's operations.  This authority includes significant flexibility.  For
example, the Board of Directors can (i) prevent the ownership,  transfer, and/or
accumulation  of Shares in order to protect the status of the Company as a REIT,
or, as otherwise  deemed by the Board of Directors,  to be in the best interests
of the stockholders (see "Summary of the Articles of Incorporation and Bylaws --
Restriction of  Ownership");  (ii) issue  additional  Shares  without  obtaining
stockholder approval,  which could result in dilution to existing  stockholders;
(iii)  change  the  compensation  of the  Advisor,  and  employ  and  compensate
Affiliates;  (iv) direct the Company's  investments toward investments that will
not appreciate over time, such as building only Properties,  with the land owned
by a  third-party,  and Mortgage  Loans,  and (v) establish  and change  minimum
creditworthiness standards with respect to tenants.

         Restrictions  on Transfer  Relating  to REIT  Status.  The  Articles of
Incorporation  generally restrict direct or indirect ownership (applying certain
attribution  rules) of more than 9.8% of the outstanding Common Stock or 9.8% of
any series of  outstanding  Preferred  Stock by one  Person  (as  defined in the
Articles of Incorporation). In the event the ownership, transfer, acquisition or
change in the corporate  structure of the Company would jeopardize the Company's
REIT status,  such ownership,  transfer,  acquisition or change in the corporate
structure of the Company would be void as to the  purported  transferee or owner
and the  purported  transferee  or owner would not have or acquire any rights to
the Common Stock.  See "Summary of the Articles of  Incorporation  and Bylaws --
Restriction of Ownership."



                                                       -15-

<PAGE>



         Limited   Liability  of  Officers  and   Directors.   The  Articles  of
Incorporation and Bylaws provide that an officer or Director's  liability to the
Company, its stockholders, or third parties for monetary damages may be limited.
Generally,  the Company is obligated under the Articles of Incorporation and the
Bylaws to indemnify  its  officers and  Directors  against  certain  liabilities
incurred in connection with their services in such capacities.  The Company will
execute  indemnification  agreements  with each officer and Director  which will
indemnify  the  officer  or  Director  for any such  liabilities  that he or she
incurs. Such indemnification agreements could limit the legal remedies available
to the Company and the  stockholders  against the  Directors and officers of the
Company.  See "Summary of the Articles of Incorporation and Bylaws -- Limitation
of Director and Officer Liability."

         Possible Effect of ERISA.  The Company  believes that the assets of the
Company will not be deemed,  under ERISA,  to be "plan  assets" of any Plan that
invests in the Shares,  although it has not  requested  an opinion of Counsel to
that effect.  If the assets of the Company were deemed to be "plan assets" under
ERISA (i) it is not clear that the exemptions from the "prohibited  transaction"
rules under ERISA would be available  for the Company's  transactions,  and (ii)
the prudence  standards of ERISA would apply to investments  made by the Company
(and might not be met). ERISA makes plan fiduciaries  personally responsible for
any losses  resulting to the plan from any breach of fiduciary duty and the Code
imposes  nondeductible excise taxes on prohibited  transactions.  If such excise
taxes  were  imposed  on the  Company,  the  amount of funds  available  to make
Distributions to stockholders would be reduced.

   
         Insufficient  Working  Capital.  There  can be no  assurance  that  the
Company will have sufficient  working  capital.  The lack of working capital may
cause the Company to be unable to pay certain  expenses or loan  payments due on
Permanent  Financing  which  could  result in a default  under such  loans.  The
Company has not  established  any policy  regarding a minimum  amount of working
capital  that  it  will  maintain.   As  of  June  30,  1998,  the  Company  had
stockholder's equity of $200,000.
    

         Distributions  Funded by Borrowings May  Constitute  Return of Capital.
The Company may incur  indebtedness if necessary to satisfy the requirement that
the Company  distribute at least 95% of its real estate investment trust taxable
income or  otherwise,  as is  necessary  or advisable to assure that the Company
maintains its  qualification as a REIT for federal income tax purposes.  In such
an event, it is possible that the Company could make  Distributions in excess of
its  earnings  and  profits  and,  accordingly,  that such  Distributions  could
constitute a return of capital for federal  income tax  purposes,  although such
Distributions would not reduce stockholders' aggregate Invested Capital.

REAL ESTATE AND FINANCING RISKS

         An Unspecified Property Offering.

                  Inability  of  Potential  Investors  to  Evaluate  Tenants and
Properties. Although the Company has established certain criteria for evaluating
operators and particular  Properties proposed for investment by the Company, the
Company has not set fixed  minimum  standards  relating to  creditworthiness  of
tenants.  Therefore,  the  Board  of  Directors  has  flexibility  in  assessing
potential tenants. In addition,  as of the date of this Prospectus,  the Company
has not entered into any arrangements that create a reasonable  probability that
the Company will purchase any Properties. Accordingly, this is an unspecified

                                                       -16-

<PAGE>



property offering,  and prospective  investors  therefore have no information to
assist  them in  evaluating  the  merits  of any  Property  to be  purchased  or
developed  by  the  Company.  See  "Business  --  Standards  for  Investment  in
Properties"  and "Business -- General" for a description  of these  criteria and
the types of Properties in which the Company intends to invest.

                  No Limitation on Number of Properties of a Particular Facility
Type.  There is no limit on the number of  Properties  of a particular  facility
type which the Company may acquire,  and the Company is not  obligated to invest
in more than one type of facility. The Board of Directors,  however, including a
majority of the Independent Directors,  will review the Company's Properties and
potential  investments  in  terms  of  geographic,  facility  type  or  operator
diversification.

                  No Assurance of Obtaining Suitable  Investments.  No assurance
can be  given  that  the  Company  will  be  successful  in  obtaining  suitable
investments on financially  attractive  terms or that, if investments  are made,
the objectives of the Company will be achieved.

                  No Opportunity to Evaluate  Procedures for Resolving Conflicts
of  Interest.  The  Advisor  or its  Affiliates  from  time to time may  acquire
properties on a temporary basis with the intention of subsequently  transferring
the properties to one or more of the CNL Group, Inc. ("CNL") programs, including
the Company,

                                                       -17-

<PAGE>



although the Company has adopted  guidelines  to minimize  such  conflicts.  See
"Conflicts of Interest -- Acquisition of Properties."  Potential  investors will
not have the  opportunity  to evaluate  the manner in which these  conflicts  of
interest are
resolved.

         Lack of Control Over Properties Under Construction. The Company intends
to acquire sites on which a particular Property to be owned by the Company is to
be built as well as existing  Properties  (including  Properties  which  require
renovation).  To the  extent  that the  Company  acquires  a  Property  on which
improvements  are to be constructed or completed or renovations  are to be made,
the Company may be subject to certain risks in connection  with the  developer's
ability  to  control  construction  costs,  and  the  timing  of  completion  of
construction,  or  to  build  in  conformity  with  plans,  specifications,  and
timetables.  The Company's  agreements  with the developer will provide  certain
safeguards designed to minimize these risks.  Further, in the event of a default
by a developer,  the Company generally will have the right to require the tenant
to repurchase the Property that is under development at a pre-established  price
designed  to  reimburse  the  Company  for all costs  incurred by the Company in
connection with the acquisition and development of the Property. There can be no
assurance,  however,  that  under  such  circumstances,  the  tenant  will  have
sufficient funds to fulfill its obligations. See "Business -- Site Selection and
Acquisition of Properties."

         Ground Lease  Property  Risks.  If the Company  invests in ground lease
Properties,  the  Company  will not own or,  except to the  extent of rights set
forth in any  assignment of lease or tripartite  agreement  that the Company may
enter into, have a leasehold interest in the underlying land. Thus, with respect
to ground lease  Properties,  the Company will have no economic  interest in the
land or building at the expiration of the lease on the underlying land, although
it  generally  will  retain  partial  ownership  of,  and will have the right to
remove, any equipment that the Company may own in the building. The Company will
not share in any  appreciation  of the land  associated  with any  ground  lease
Property. The Company,  however, will share in appreciation of the income stream
derived from the lease.

         Impasse or Conflicts with Joint Venture Partner.

                  Impasse  with  Joint  Venture  Partner.  In the event that the
Company enters into a Joint  Venture,  there will be a potential risk of impasse
in certain joint venture decisions since the approval of the Company and of each
co-venturer  is required  for certain  decisions.  In any Joint  Venture with an
affiliated  program,  however,  the Company will have the right to buy the other
co-venturer's  interest  or to sell its own  interest  on  specified  terms  and
conditions   in  the  event  of  an  impasse   regarding  a  Sale.   Under  such
circumstances,  it is possible that neither party will have the funds  necessary
to consummate the transaction.  See "Business -- Joint Venture Arrangements." In
addition,  the  Company  may  experience  difficulty  in  locating a third party
purchaser for its Joint Venture interest and in obtaining a favorable sale price
for such Joint Venture interest.

                  Divergent  Interests of Joint Venture Partner.  Investments in
Joint  Ventures  may involve the risk that the  Company's  co-venturer  may have
economic or  business  interests  or goals  which,  at a  particular  time,  are
inconsistent  with the interests or goals of the Company,  that such co-venturer
may be in a position to take  action  contrary  to the  Company's  instructions,
requests,  policies  or  objectives,  or that such  co-venturer  may  experience
financial  difficulties.  Among other  things,  actions by a  co-venturer  might
subject  property  owned by the Joint Venture to  liabilities in excess of those
contemplated  by the terms of the joint  venture  agreement or to other  adverse
consequences.

         Limitations on the Ability of the Company to Liquidate.  Unless Listing
occurs  within ten years after the  commencement  of the offering  (December 31,
2008), the Company will undertake,  to the extent  consistent with the Company's
objective of qualifying as a REIT, the orderly Sale of the Company's assets, the
distribution of the Net Sales Proceeds of such Sales to  stockholders,  and will
engage  only  in  activities  related  to its  orderly  liquidation  unless  the
stockholders elect otherwise. Neither the Advisor nor the Board of Directors may
be able to control the timing of Sales due to market  conditions,  and there can
be no assurance that the Company will be able to sell its assets so as to return
stockholders'   aggregate  Invested  Capital,  to  generate  a  profit  for  the
stockholders, or to fully satisfy its debt obligations. Invested Capital, in the
aggregate,  will be returned to stockholders  upon disposition of the Properties
only if the  Properties are sold for more than their  original  purchase  price,
although return of capital, for federal income tax purposes,  is not necessarily
limited to stockholder distributions following Sales of Properties. See "Federal
Income Tax  Considerations."  In the event that a purchase  money  obligation is
taken in partial  payment of the sales price of a Property,  the proceeds of the
Sale will be realized  over a period of years.  Further,  entering into Mortgage
Loans with terms of 10 to 20 years and  Secured  Equipment  Leases with terms of
seven  years may cause any  intended  liquidation  of the  Company to be delayed
beyond  the time of  disposition  of the  Properties  and until such time as the
Mortgage Loans and Secured Equipment Leases expire or are sold.



                                                       -18-

<PAGE>



         Inability to Control the Sale of Certain  Properties.  Certain  tenants
are  expected  to have the right to  purchase  the  Property  from the  Company,
commencing  a specified  number of years after the date of the lease,  which may
lessen the ability of the Advisor and the Board of Directors  to freely  control
the Sale of the Property. The leases also generally will provide the tenant with
a right of first  refusal on any  proposed  sale  provisions.  See  "Business --
Description  of Leases -- Right of Tenant to  Purchase."  A tenant  will have no
obligation to purchase the Property it leases.

         Real Property Investments.

                  Lack of Control Over Market and Business Conditions.
The value of Properties such as those to be acquired by the

                                                       -19-

<PAGE>



Company, the ability of the tenants to pay rent on a timely basis, the amount of
the rent and the ability of borrowers to make Mortgage Loan payments on a timely
basis may be adversely  affected by certain changes in general or local economic
or market  conditions,  increased  costs of energy,  increased  costs of food or
other  products,  increased costs and shortages of labor,  competitive  factors,
fuel  shortages,  quality  of  management,  limited  alternative  uses  for  the
building,  changing consumer habits,  condemnation or uninsured losses, changing
demographics,   changing  traffic   patterns,   inability  to  remodel  outmoded
buildings,  voluntary  termination by a tenant of its obligations under a lease,
bankruptcy of a tenant or borrower,  and other factors.  Neither the Company nor
the Board of Directors can control these factors.

                  Multiple  Property  Leases or Mortgage  Loans with  Individual
Tenants or Borrowers. Tenants may lease more than one Property and borrowers may
enter into more than one Mortgage Loan.  Events such as the default or financial
failure of a tenant or borrower  therefore could cause one or more Properties to
become  vacant  under  certain  circumstances.  Vacancies  would reduce the cash
receipts of the Company  and, at least until the Company is able to re-lease any
such  Properties,  could decrease their ultimate resale value.  The value of the
Company's Properties will depend principally upon the value of the leases of the
Properties.  Minor  defaults by a tenant or borrower  may continue for some time
before the Advisor or Board of Directors  determines  that it is in the interest
of the Company to evict the tenant or foreclose on the property of the borrower.

                  Inability  to  Re-lease  Properties.  If  a  Property  becomes
vacant,  the Company may be unable  either to re-lease the Property for the rent
due  under  the  prior  lease or to  re-lease  the  Property  without  incurring
additional  expenditures relating to the Property.  The Company could experience
delays in enforcing its rights against, and collecting rents (and, under certain
circumstances,  real estate  taxes and  insurance  costs) due from, a defaulting
tenant.

                  Lack of Adequate Insurance.  If the Company, as lessor, incurs
any  liability  which is not fully  covered by  insurance,  the Company would be
liable for such amounts,  and returns to the stockholders could be reduced.  See
"Business -- Description of Property  Leases -- Insurance,  Taxes,  Maintenance,
and Repairs" for a description  of the types of insurance that the leases of the
Properties will require the tenant to obtain.

         The inability of tenants to make lease payments or of borrowers to make
Mortgage  Loan  payments as a result of any of these  factors  could result in a
decrease  in  the  amount  of  cash  available  to  make  Distributions  to  the
stockholders.

         Health Care Facilities.

                  Reliance on Government Reimbursement. A significant portion of
the revenue of the Company's tenants and borrowers, particularly those operating
skilled nursing facilities,  may be derived from governmentally funded programs,
such as Medicaid and  Medicare.  Although the Company does not  anticipate  that
lease and  Mortgage  Loan  payments  will be  linked to the level of  government
reimbursement  received  by  the  operators,  to  the  extent  that  changes  in
government  funding  programs  adversely  affect the  operators  or the revenues
received by such operators,  such changes could adversely  affect the ability of
such  operators to make lease and loan payments to the Company and/or the amount
of such payments if and to the extent they are based on gross revenues.  Failure
of  tenants  and  borrowers  to make  their  lease  and  loan  payments,  and/or
reductions in such payments,  would have a direct and material adverse effect on
the Company's operations.

         Medicaid,  which is a medical  assistance  program for persons with few
assets and minimal  income  operated  by  individual  states with the  financial
participation  of the  federal  government,  provides  a  significant  source of
revenue  for  skilled  nursing  facilities.  The method of  reimbursement  under
Medicaid  varies from state to state,  but is typically based on per diem or per
diagnosis  rates.  The Medicaid  program is subject to change and is affected by
state  and  federal  budget  shortfalls  and  funding   restrictions  which  may
materially  decrease  rates of payment or delay  payment.  There is no assurance
that  Medicaid  payments  will remain  constant or be  sufficient to cover costs
allocable to Medicaid patients.  While Medicare,  the federal health program for
the aged and certain chronically disabled individuals,  is not anticipated to be
a major source of revenue for the types of Health Care  Facilities  in which the
Company expects to invest or make Mortgage  Loans,  the Company has reserved the
right  to  invest  in or make  Mortgage  Loans to other  types  of  Health  Care
Facilities  that are  substantially  dependent  on  Medicare  funding.  Like the
Medicaid  program,  the  Medicare  program is highly  regulated  and  subject to
frequent and substantial changes,  many of which may result in reduced levels of
payment  for a  substantial  portion of health  care  services.  In  addition to
pressures from providers of government reimbursement, the Company may experience
pressures  from private  payors  attempting  to control  health care costs,  and
reimbursement  from private payors eventually may decrease to levels approaching
those of government payors.

                  Dependence on Attracting  Senior Citizens with Ability to Pay.
Certain  of the  Health  Care  Facilities  which the  Company  intends to own or
finance,  in  particular,  assisted  living  facilities,  are dependent on their
ability to attract senior citizens with the ability to pay for the services they
receive.  While a portion  of the fees  payable  by  residents  of  Health  Care
Facilities  may be  reimbursed  by  government  and  private  payors,  many  are
substantially  dependent on the ability of the residents  and their  families to
pay directly. In addition, certain payors, such as Medicare, limit the number of
days for which payment will be made in certain settings, such as skilled nursing
facilities, and all payors limit the types of services for which payment will be
made  and/or the amount paid for each  particular  service.  Inflation  or other
circumstances  could affect the ability of such residents to continue to pay for
the services they receive.  Although the Company does not  anticipate  that base
lease  and  Mortgage  Loan  payments  to it will be  linked to the fees or rates
received by the operators, certain leases and Mortgage Loans may

                                                       -20-

<PAGE>



provide that the Company will receive a percentage  of the fees or rates charged
by the  operator  to  residents.  To the extent  that  residents  of Health Care
Facilities  are  unable  to pay fees  owed to the  facilities'  operators,  such
inability  could  adversely  affect the ability of such  operators  to make base
lease and loan payments and could have a material  adverse  impact on the amount
of lease and loan payments the Company receives in excess of base amounts.

                  Effects of Cost Control and Other Health Care Reform Measures.
The health  care  industry is facing  various  challenges,  including  increased
government  and private payor pressure on health care providers to control costs
and the vertical and  horizontal  consolidation  of health care  providers.  The
pressure  to control  health  care costs has  intensified  in recent  years as a
result of the national  health care reform  debate and has continued as Congress
attempts to slow the rate of growth of federal health care  expenditures as part
of its effort to balance the federal budget.  Similar debates are ongoing at the
state level in many states.  The Company  believes that  government  and private
efforts to contain and reduce health care costs will continue.  These trends are
likely  to lead to  reduced  or  slower  growth in  reimbursement  for  services
provided by some of the  Company's  tenants and  borrowers.  The Company  cannot
predict whether  governmental  reforms will be adopted and, if adopted,  whether
the  implementation  of these reforms will have a material adverse effect on the
Company's financial condition or results of operations.

                  Constraints of Government  Regulation of Health Care Industry.
The  health  care  industry  is highly  regulated  by  federal,  state and local
licensing   requirements,   facility   inspections,    reimbursement   policies,
regulations   concerning   capital   and   other   expenditures,   certification
requirements and other laws, regulations and rules. The failure of any tenant or
borrower to comply with such laws,  requirements  and  regulations  could affect
such tenant's or borrower's  ability to operate the Health Care Facilities owned
by the  Company  or to which the  Company  makes  Mortgage  Loans.  Health  care
operators  are  subject to federal  and state laws and  regulations  that govern
financial  and other  arrangements  between  health care  providers.  These laws
prohibit  certain  direct and indirect  payments or  fee-splitting  arrangements
between  health care  providers  that are  designed to induce or  encourage  the
referral of patients to, or the  recommendation  of, a  particular  provider for
medical  products and services.  They also require  compliance with a variety of
safety,  health and other requirements  relating to the design and conditions of
the licensed facility and quality of care provided.
 These  regulations may also enable the regulatory  agency to place liens on the
Property  which  may be  senior  to the  Company's  secured  position.  Possible
sanctions for violation of these laws and regulations  include loss of licensure
or  certification,  the imposition of civil monetary and criminal  penalties and
potential exclusion from the Medicare and Medicaid programs.

         Because this area of the law currently is subject to intense  scrutiny,
additional  laws and  regulations  may be enacted or adopted that could  require
changes in the design of the Properties and certain  operations of the Company's
tenants  and   borrowers.   For  example,   a  tenant's  loss  of  licensure  or
Medicare/Medicaid  certification  could  result in the Company  having to obtain
another tenant for the affected health care facility.  In addition, a tenant may
be required to make  significant  modifications to the Property and may not have
the  financial  ability to do so. No  assurances  can be given that the  Company
could contract with another tenant on a timely basis or on acceptable  terms and
a failure  to do so could  have an  adverse  effect on the  Company's  financial
condition or results of operations.

                  Limitations on  Alternative  Uses of Company  Properties.  The
Company  anticipates  that some of the  Properties  in which it  invests  may be
special  purpose  Properties  that could not be readily  converted  into general
residential,  retail or office  use.  Transfers  of  operations  of health  care
facilities often are subject to regulatory  approvals not required for transfers
of other types of commercial operations and other types of real estate. Thus, if
the operation of any of the Company's  Properties  becomes  unprofitable for its
operator due to competition,  age of improvements or other factors such that the
tenant becomes unable to meet its obligations  under the lease,  the liquidation
value of the  Property may be  substantially  less than would be the case if the
Property  were  readily  adaptable  to other uses.  The  receipt of  liquidation
proceeds could be delayed by the approval  process of any state agency necessary
for the transfer of the Property. Should such events occur, the Company's income
and funds available for distribution could be adversely affected.

         Impact of Adverse Trends.  The success of the future  operations of the
Company's  Properties will depend largely on each operator's ability to adapt to
dominant  trends in the health care and  seniors'  housing  industry,  including
greater competitive pressures,  increased consolidation,  industry overbuilding,
increased regulation and reform,  changing demographics,  availability of labor,
price levels, and general economic  conditions.  See "Business -- General" for a
description  of the size and  nature of the  health  care and  seniors'  housing
industry and current  trends in the industry.  The inability of the operators of
the Company's  Properties to adapt to dominant trends could adversely impact the
Company's income and funds available for distribution.

         Investment  Barriers  Imposed  by  Certificate  of Need Laws in Certain
States.  Certain  states  regulate  the supply of certain  types of Health  Care
Facilities,  such as skilled  nursing  facilities,  through  Certificate of Need
Laws. A Certificate of Need typically is a written  statement  issued by a state
regulatory agency evidencing a community's need for a new,  converted,  expanded
or otherwise  significantly  modified  health care  facility or service which is
regulated  pursuant  to the  state's  statutes.  These  restrictions  may create
barriers to entry or expansion and may limit the  availability of Properties for
acquisition or development by the Company.  In addition,  the Company may invest
in  Properties  which  cannot be replaced if they  become  obsolete  unless such
replacement is approved or exempt

                                                       -21-

<PAGE>



under a Certificate of Need Law.

         Potential Adverse Impact of Competitors.  The Company  anticipates that
it will  compete  with  other  REITs,  real  estate  partnerships,  health  care
providers and other investors, including, but not limited to banks and insurance
companies, many of which will have greater financial resources than the Company,
in the acquisition, leasing and financing of Health Care Facilities. The Company
may also compete with  Affiliates  for Mortgage  Loans and  borrowers.  Further,
non-profit  entities are  particularly  attracted to  investments in health care
facilities because of their ability to finance acquisitions through the issuance
of tax-exempt bonds,  providing non-profit entities with a relatively lower cost
of capital as compared to for-profit purchasers.  In addition, in certain states
health care  facilities  owned by  non-profit  entities are exempt from taxes on
real  property.  There  can be no  assurance  that the  Company  will be able to
identify suitable investments or that it will be able to consummate  investments
on commercially reasonable terms.

         In  addition,  the Health Care  Facilities  in which the  Company  will
invest are highly competitive,  and it is anticipated that any Property acquired
by the Company could compete with other health care  facilities in the vicinity.
There can be no assurance  that the Company will be able to compete  effectively
in any  market  that  it  enters.  The  inability  by  the  Company  to  compete
successfully would have a negative impact on the Company's  financial  condition
and  results  of  operations.   In  addition,  due  to  the  highly  competitive
environment,  it is  possible  that the  markets in which the  Company  acquires
Properties will be subject to over-building.

         Possible  Environmental  Liabilities.  Under various  federal and state
environmental  laws and regulations,  a current or previous owner or operator of
real estate may be required to  investigate  and clean up certain  hazardous  or
toxic substances,  asbestos-containing  materials, or petroleum product releases
affecting  the  property  and  surrounding  areas,  and may be held  liable to a
governmental   entity  or  to  third   parties  for  property   damage  and  for
investigation  and cleanup costs incurred by such parties in connection with the
contamination.  In  addition,  some  environmental  laws  create  a lien  on the
contaminated  site in favor of the government for damages and costs it incurs in
connection with the contamination.  The presence of contamination or the failure
to remediate contaminations on its Properties may adversely affect the Company's
ability to sell or lease the  Properties  or to borrow using the  Properties  as
collateral. At certain Properties,  such as skilled nursing facilities,  medical
office  buildings  and  walk-in  clinics,  some  environmental  and  bio-medical
hazardous wastes and products will be used and generated in the course of normal
operations  of the  facility.  While the leases will  provide that the tenant is
solely responsible for any environmental  hazards created during the term of the
lease, the Company or operator of a site may be liable under common law to third
parties for damages and  injuries  resulting  from  environmental  contamination
emanating from the site.

         All of the Properties  will be acquired by the Company subject to Phase
I  environmental  assessments,   which  generally  involve  inspection  of  site
conditions  without  invasive  testing  such as  sampling  or  analysis of soil,
groundwater or other media or conditions, or satisfactory Phase II environmental
assessments, which generally involve testing of soil, groundwater or other media
and conditions. The Board of Directors and the Advisor may determine the Company
will  acquire a Property in which Phase I or Phase II  environmental  assessment
indicates  that a  problem  exists  and has not  been  resolved  at the time the
Property  is  acquired  provided  that the  seller  has (i) agreed in writing to
indemnify the Company  and/or (ii)  established  in escrow cash funds equal to a
predetermined  amount greater than the estimated costs to remediate the problem.
There can be no assurance, however, that any seller will be able to pay under an
indemnity  obtained  by the  Company  or  that  the  amount  in  escrow  will be
sufficient to pay all  remediation  costs.  Further,  no assurances can be given
that all environmental  liabilities have been identified or that no prior owner,
operator or current occupant has created an environmental condition not known to
the  Company.  Moreover,  no  assurances  can be  given  that (i)  future  laws,
ordinances or regulations will not impose any material  environmental  liability
or (ii)  the  current  environmental  condition  of the  Properties  will not be
affected by tenants and occupants of the Properties, by the condition of land or
operations in the vicinity of the  Properties  or by third parties  unrelated to
the Company.  The imposition on the Company of environmental  liabilities  could
have an  adverse  effect on the  Company's  financial  condition  or  results of
operations.

         Possible  Lack of Ability  to Obtain  the Line of Credit and  Permanent
Financing.  The Company intends to obtain the Line of Credit and may also obtain
Permanent  Financing.  The Company is engaged in  preliminary  discussions  with
potential  lenders but has not yet obtained a commitment  for the Line of Credit
or any Permanent  Financing,  and there is no assurance that the Company will be
able to  obtain  either  the  Line  of  Credit  or any  Permanent  Financing  on
satisfactory  terms.  In the event the Company is unable to obtain a  commitment
for the Line of Credit or Permanent  Financing,  the Company will not enter into
any Secured Equipment Leases.

         Unspecified  Secured Equipment Leases.  The Company,  as of the date of
this Prospectus,  has not entered into any arrangements that create a reasonable
probability  that  the  Company  will  extend  a  Secured  Equipment  Lease to a
particular operator, and therefore prospective  stockholders have no information
to assist them in evaluating the merits of the Secured  Equipment  Lease program
or of any Secured  Equipment  Lease.  No assurance can be given that the Company
will be successful in  identifying  suitable  operators or  negotiating  Secured
Equipment  Leases on financially  attractive  terms or that lessees will fulfill
their obligations under Secured Equipment Leases.

TAX RISKS

         REIT Qualification.  The Company intends to operate so as to

                                                       -22-

<PAGE>



qualify  and  remain  qualified  as a REIT  for  federal  income  tax  purposes,
commencing  with its taxable year ending  December  31,  1998. A qualified  REIT
generally is not taxed at the corporate level on income it currently distributes
to its  stockholders,  so long as it distributes at least 95% of its real estate
investment  trust taxable  income.  See "Federal  Income Tax  Considerations  --
Taxation of the  Company." The Company  expects to qualify as a REIT  initially,
but no assurance  can be given that it will so qualify or that it will  continue
to qualify in the future. In this regard,  based on certain  representations and
assumptions,  the Company  will receive an opinion of tax counsel to the Company
("Counsel") to the effect that the Company will be organized in conformity  with
the  requirements for  qualification as a REIT, and that the Company's  proposed
method of operation will enable it to meet the requirements for qualification as
a REIT for  federal  income  tax  purposes.  Qualification  as a REIT,  however,
involves the  application of highly  technical and complex Code provisions as to
which  there  are only  limited  judicial  and  administrative  interpretations.
Certain  facts and  circumstances  which may be wholly or  partially  beyond the
Company's  control  may affect its  ability to qualify on an ongoing  basis as a
REIT.  In  addition,  no  assurance  can be given that future  legislation,  new
regulations,   administrative   interpretations  or  court  decisions  will  not
significantly  change the tax laws (or the application  thereof) with respect to
qualification  as a REIT for federal  income tax purposes or the federal  income
tax consequences of such qualification. The opinion of Counsel is not binding on
the Internal Revenue Service ("IRS") or the courts.

         Secured  Equipment Lease  Treatment.  In order to qualify as a REIT for
federal income tax purposes, not more than 25% of the Company's total assets may
be represented by personal  property,  or loans secured by personal  property on
certain testing dates. In addition,  loans secured by personal  property made to
each borrower must represent less than 5% of the Company's  total assets on such
testing dates. Counsel is of the opinion,  based on the assumptions that (i) the
Secured Equipment Leases are made on substantially the same terms and conditions
described in "Business -- General" and (ii) as represented by the Company,  each
of the  Secured  Equipment  Leases  will have a term that  equals or exceeds the
useful life of the Equipment  subject to the lease,  that the Secured  Equipment
Leases will be treated as loans secured by personal  property for federal income
tax purposes. The ability of the Company to qualify as a REIT may be impacted by
a determination  that the Secured  Equipment Leases are financing  arrangements,
under which the lessees  acquire  ownership of the equipment for federal  income
tax purposes.  If the Secured  Equipment Leases are treated as true leases,  the
Company may be unable to satisfy the income tests for REIT qualification.

         The Company  believes  that the value of the Secured  Equipment  Leases
together with any personal property owned by the Company,  will in the aggregate
represent less than 25% of the Company's  total assets and that the value of the
Secured  Equipment Leases entered into with any particular lessee will represent
less  than  5% of  the  Company's  total  assets.  Counsel  has  relied  on  the
representations of the Company regarding such values in rendering its opinion as
to the  qualification  of the Company as a REIT. If the Company fails to satisfy
the 25%  test or the 5%  test  either  at the  time  of the  offering  or on any
subsequent  testing date, the Company will fail to qualify (or cease to qualify,
as the case may be) as a REIT for federal income tax purposes. In addition,  if,
contrary to the opinion of Counsel, the Secured Equipment Leases are not treated
as loans,  but are instead  treated as leases for federal  income tax  purposes,
income from the Secured  Equipment  Leases will generally not satisfy either the
95% or the 75% gross income tests for REIT  qualification.  See "Federal  Income
Tax Considerations -- Taxation of the Company," and "--  Characterization of the
Secured Equipment Leases."

         Effect of REIT  Disqualification.  If, in any taxable year, the Company
were to fail to qualify as a REIT for federal income tax purposes,  it would not
be allowed a deduction for dividends to stockholders in computing taxable income
and would be subject to federal income tax (including any applicable alternative
minimum  tax) on its taxable  income at regular  corporate  rates.  In addition,
unless entitled to relief under certain statutory provisions,  the Company would
be disqualified from treatment as a REIT for federal income tax purposes for the
four taxable years following the year during which REIT  qualification  is lost.
The  additional  tax  liability  resulting  from the failure to so qualify would
significantly  reduce the amount of funds  available  to make  Distributions  to
stockholders.  Distributions  to  stockholders  generally  would be  taxable  as
ordinary  income to the extent of current and  accumulated  earnings and profits
and,  subject  to  certain  limitations,  would be  eligible  for the  corporate
dividends  received  deduction.  Although  the  Company  intends to operate in a
manner  designed  to permit  it to  qualify  as a REIT for  federal  income  tax
purposes,  it is possible that future  economic,  market,  legal,  tax, or other
events or  circumstances  could  cause it to fail to so  qualify.  See  "Federal
Income Tax Considerations -- Taxation of the Company."

         Effect of Distribution Requirements. The Company may be required, under
certain circumstances,  to accrue as income for tax purposes interest,  rent and
other  items  treated  as  earned  for tax  purposes  but not yet  received.  In
addition, the Company may be required not to accrue as expenses for tax purposes
certain  items  which  actually  have  been  paid or  certain  of the  Company's
deductions  might be disallowed by the IRS. In any such event, the Company could
fail to qualify as a REIT or have taxable income in excess of cash available for
distribution.  If the Company has taxable income in excess of cash available for
distribution,  the  Company  could be  required  to  borrow  funds or  liquidate
investments on unfavorable  terms in order to meet the distribution  requirement
applicable to a REIT. See "Federal Income Tax  Considerations -- Taxation of the
Company -- Distribution Requirements."

         Restrictions  on Maximum Share  Ownership.  In order for the Company to
qualify  as a REIT,  no more  than 50% of the  value of the  outstanding  equity
securities may be owned,  directly or indirectly  (applying certain  attribution
rules),  by five or fewer  individuals (or certain  entities) at any time during
the last half of the Company's taxable year. To ensure that the Company

                                                       -23-

<PAGE>



will not fail to qualify as a REIT under this test,  the  Company's  Articles of
Incorporation include certain provisions restricting the accumulation of Shares.
These  restrictions may (i) discourage a change of control of the Company;  (ii)
deter  individuals  and entities  from making  tender  offers for Shares,  which
offers may be attractive to  stockholders;  or (iii) limit the  opportunity  for
stockholders to receive a premium for their Shares in the event a stockholder is
making purchases of Shares in order to acquire a block of Shares.

         Other Tax  Liabilities.  Even if the  Company  qualifies  as a REIT for
federal  income tax purposes,  it may be subject to certain  federal,  state and
local taxes on its income and property.  See "Federal Income Tax  Considerations
- -- State and Local  Taxes." Any such income or property  tax  liabilities  would
reduce the amount of funds available for paying distributions to stockholders.

         Changes in Tax Laws. The  discussions of the federal income tax aspects
of the offering are based on current law,  including the Code,  the  Regulations
issued thereunder,  certain  administrative  interpretations  thereof, and court
decisions.  Consequently,  future  events that modify or otherwise  affect those
provisions  may result in  treatment  for  federal  income tax  purposes  of the
Company and the  stockholders  that is materially  and adversely  different from
that  described in this  Prospectus,  both for taxable years arising  before and
after  such  events.   There  is  no  assurance  that  future   legislation  and
administrative interpretations will not be retroactive in effect.


                   SUITABILITY STANDARDS AND HOW TO SUBSCRIBE

SUITABILITY STANDARDS

         The Shares offered  hereby are suitable only as a long-term  investment
for persons of adequate  financial  means who have no need for liquidity in this
investment.  Initially,  there is not  expected to be any public  market for the
Shares, which means that it may be difficult to sell Shares. See "Summary of the
Articles  of  Incorporation  and  Bylaws --  Restrictions  on  Ownership"  for a
description  of  the  transfer  requirements.  As  a  result,  the  Company  has
established  suitability  standards which require investors to have either (i) a
net worth (exclusive of home, furnishings, and personal automobiles) of at least
$45,000  and an annual  gross  income of at least  $45,000,  or (ii) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $150,000.
The Company's  suitability  standards also require that a potential investor (i)
can  reasonably  benefit  from  an  investment  in the  Company  based  on  such
investor's overall investment objectives and portfolio structuring, (ii) is able
to  bear  the  economic  risk  of  the  investment   based  on  the  prospective
stockholder's overall financial situation,  and (iii) has apparent understanding
of (a) the fundamental risks of the investment,  (b) the risk that such investor
may lose the  entire  investment,  (c) the lack of  liquidity  of the  Company's
shares,  (d) the background and  qualifications of the Advisor,  and (e) the tax
consequences  of the  investment.  In addition,  under the laws of the States of
Ohio and Pennsylvania, an investor's investment in the Shares may not exceed 10%
of such  investor's  net worth  (exclusive  of home,  furnishings,  and personal
automobiles).

         The  foregoing  suitability  standards  must be met by the investor who
purchases the Shares.  If the  investment is being made for a fiduciary  account
(such as an IRA, Keogh Plan, or corporate pension or  profit-sharing  plan), the
beneficiary,  the  fiduciary  account,  or any  donor  or  grantor  that  is the
fiduciary of the account who  directly or  indirectly  supplies  the  investment
funds must meet such suitability standards.

   
         Investors  should read carefully the  requirements  in connection  with
resales  of  Shares  as  set  forth  in the  Articles  of  Incorporation  and as
summarized  under  "Summary  of the  Articles  of  Incorporation  and  Bylaws --
Restriction of Ownership."
    

         In  purchasing  Shares,  custodians  or trustees  of  employee  pension
benefit  plans or IRAs may be subject  to the  fiduciary  duties  imposed by the
Employee  Retirement  Income Security Act of 1974 ("ERISA") or other  applicable
laws and to the  prohibited  transaction  rules  prescribed by ERISA and related
provisions of the Code.  See "Federal  Income Tax  Considerations  -- Retirement
Plan  Stockholders."  In addition,  prior to purchasing  Shares,  the trustee or
custodian of an employee  pension  benefit plan or an IRA should  determine that
such an investment would be permissible under the governing  instruments of such
plan or  account  and  applicable  law.  For  information  regarding  "unrelated
business taxable income," see "Federal Income Tax  Considerations -- Taxation of
Stockholders -- Tax-Exempt Stockholders."

         In order to ensure  adherence to the  suitability  standards  described
above,  requisite  suitability  standards  must  be  met,  as set  forth  in the
Subscription  Agreement in the form attached  hereto as Appendix D. In addition,
Soliciting  Dealers  who sell  Shares  have  the  responsibility  to make  every
reasonable  effort to  determine  that the  purchase of Shares is a suitable and
appropriate  investment  for an  investor.  In making  this  determination,  the
Soliciting Dealers will rely on relevant  information  provided by the investor,
including   information  as  to  the  investor's  age,  investment   objectives,
investment   experience,   income,  net  worth,   financial   situation,   other
investments,   and  any  other  pertinent  information.  See  "The  Offering  --
Subscription Procedures." Executed Subscription Agreements will be maintained in
the Company's records for six years.

HOW TO SUBSCRIBE

         An investor who meets the  suitability  standards  described  above may
subscribe for Shares by completing and executing the Subscription  Agreement and
delivering  it to a  Soliciting  Dealer,  together  with a check  for  the  full
purchase  price of the  Shares  subscribed  for,  payable to  "SouthTrust  Asset
Management  Company of  Florida,  N.A.,  Escrow  Agent."  See "The  Offering  --
Subscription  Procedures." Certain Soliciting Dealers who have "net capital," as
defined in the applicable  federal securities  regulations,  of $250,000 or more
may instruct  their  customers to make their  checks for Shares  subscribed  for
payable directly to

                                                       -24-

<PAGE>



the  Soliciting  Dealer.  Care should be taken to ensure  that the  Subscription
Agreement  is filled out  correctly  and  completely.  Partnerships,  individual
fiduciaries signing on behalf of trusts,  estates, and in other capacities,  and
persons signing on behalf of corporations and corporate trustees may be required
to obtain additional  documents from Soliciting Dealers. Any subscription may be
rejected  by the  Company  in  whole  or in  part,  regardless  of  whether  the
subscriber meets the minimum suitability standards.

         Certain   Soliciting   Dealers  may  permit   investors  who  meet  the
suitability  standards  described  above to subscribe  for Shares by  telephonic
order to the Soliciting  Dealer.  This procedure may not be available in certain
states. See "The Offering -- Subscription  Procedures" and "The Offering -- Plan
of Distribution."



                                                       -25-

<PAGE>



         A minimum  investment of 250 Shares ($2,500) is required.  IRAs,  Keogh
plans,  and pension plans must make a minimum  investment of at least 100 Shares
($1,000). For Minnesota investors,  IRAs and qualified plans must make a minimum
investment of 200 Shares  ($2,000) and, for Iowa  investors,  IRAs and qualified
plans  must make a minimum  investment  of 250  Shares  ($2,500).  Following  an
initial subscription for at least the required minimum investment,  any investor
may make additional  purchases in increments of one Share.  See "The Offering --
General,"   "The  Offering  --   Subscription   Procedures,"   and  "Summary  of
Reinvestment Plan."

                                                       -26-

<PAGE>



                            ESTIMATED USE OF PROCEEDS

         The table set forth below summarizes  certain  information  relating to
the anticipated use of offering  proceeds by the Company,  assuming that 250,000
Shares and 15,000,000  Shares are sold. The Company  estimates that 84% of Gross
Proceeds  will be  available  for the purchase of  Properties  and the making of
Mortgage Loans, and  approximately 9% of Gross Proceeds will be paid in fees and
expenses to  Affiliates of the Company for their  services and as  reimbursement
for Organizational and Offering Expenses incurred on behalf of the Company;  the
balance will be used to pay other expenses of the offering.  While the estimated
use of proceeds set forth in the table below is believed to be reasonable,  this
table  should be viewed only as an  estimate of the use of proceeds  that may be
achieved.
<TABLE>
<CAPTION>

                                                                Minimum Offering (1)           Maximum Offering (1) (2)
                                                                Amount       Percent           Amount           Percent
                                                                ------       -------           ------           -------
<S> <C>

GROSS PROCEEDS TO THE COMPANY (3)..........................  $2,500,000       100.0%        $150,000,000         100.0%
100.0%
Less:
   Selling Commissions to CNL
      Securities Corp. (3).................................     187,500         7.5%          11,250,000           7.5%
   Marketing Support and Due Diligence
      Expense Reimbursement Fee to
      CNL Securities Corp. (3).............................      12,500         0.5%             750,000           0.5%
   Organizational and Offering Expenses (4)................      75,000         3.0%           4,500,000           3.0%
                                                             ----------       -----          -----------         -----

NET PROCEEDS TO THE COMPANY................................   2,225,000        89.0%         133,500,000          89.0%
Less:
   Acquisition Fees to the Advisor (5) ....................     112,500         4.5%           6,750,000           4.5%
   Acquisition Expenses (6)................................      12,500         0.5%             750,000           0.5%
   Initial Working Capital Reserve ........................      (7)
                                                             ----------       -----          -----------         -----
(7)

CASH PAYMENT FOR PURCHASE OF PROPERTIES
   AND THE MAKING OF MORTGAGE LOANS
   BY THE COMPANY (8)......................................  $2,100,000        84.0%        $126,000,000          84.0%
                                                             ==========       =====         ============         =====
</TABLE>

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

FOOTNOTES:

(1)  Excludes  the  purchase of 20,000  shares of Common Stock by the Advisor in
     exchange for its $200,000  investment in the Company.  The Advisor may, but
     is not required to, purchase additional Shares of the Company.

(2)  Excludes 500,000 Shares that may be sold pursuant to the Reinvestment  Plan
     and 600,000 shares that may be sold upon exercise of the Soliciting  Dealer
     Warrants.

(3)  Gross  Proceeds of the offering are calculated as if all Shares are sold at
     $10.00  per Share and do not take into  account  any  reduction  in Selling
     Commissions. See "The Offering-- Plan of Distribution" for a description of
     the circumstances under which Selling Commissions may be reduced, including
     commission discounts available for purchases by registered  representatives
     or  principals  of the  Managing  Dealer  or  Soliciting  Dealers,  certain
     Directors and officers and certain investment advisers. Selling Commissions
     are calculated assuming that reduced commissions are not paid in connection
     with the purchase of any Shares. The Shares are being offered to the public
     through CNL Securities  Corp.,  which will receive  Selling  Commissions of
     7.5% on all sales of Shares and will act as Managing  Dealer.  The Managing
     Dealer is an Affiliate of the Advisor.  Other broker-dealers may be engaged
     as Soliciting  Dealers to sell Shares and reallowed Selling  Commissions of
     up to 7%, with  respect to Shares which they sell.  In  addition,  all or a
     portion of the marketing  support and due diligence  expense  reimbursement
     fee may be reallowed to certain Soliciting Dealers for expenses incurred by
     them in selling the Shares,  including reimbursement for bona fide expenses
     incurred in connection  with due diligence  activities,  with prior written
     approval from, and in the sole discretion of, the Managing Dealer. See "The
     Offering - Plan of  Distribution"  for a more complete  description of this
     fee.  The Company  also will issue to the  Managing  Dealer,  a  Soliciting
     Dealer  Warrant to purchase  one share of Common  Stock for every 25 Shares
     sold, to be exercised, if at all, during the Exercise Period, at a price of
     $12.00 per share. All or any part of such Soliciting Dealer Warrants may be
     reallowed to certain Soliciting Dealers with prior written approval of, and
     in the sole  discretion  of, the  Managing  Dealer,  unless  prohibited  by
     federal or state securities laws. See "Summary of Articles of Incorporation
     and Bylaws--  Description of Capital Stock -- Soliciting  Dealer  Warrants"
     and "The Offering-- Plan of Distribution."

(4)  Organizational and Offering Expenses include legal,  accounting,  printing,
     escrow,  filing,  registration,  qualification,  and other  expenses of the
     organization  of the  Company and the  offering of the Shares,  but exclude
     Selling  Commissions  and the marketing  support and due diligence  expense
     reimbursement  fee.  The Advisor will pay all  Organizational  and Offering
     Expenses which exceed 3% of Gross Proceeds. The Organizational and Offering
     Expenses  paid by the  Company  in  connection  with the  formation  of the
     Company,  together  with the 7.5% Selling  Commissions  and 0.5%  marketing
     support and due diligence expense reimbursement fee incurred by the Company
     will  not  exceed  13% of the  proceeds  raised  in  connection  with  this
     offering.

(5)  Acquisition  Fees include all fees and  commissions  paid by the Company to
     any person or entity in connection with the selection or acquisition of any
     Property or the making of any Mortgage  Loan,  including to  Affiliates  or
     nonaffiliates. Acquisition Fees do not include Acquisition Expenses.

                                                       -27-

<PAGE>


(6)  Represents  Acquisition Expenses that are neither reimbursed to the Company
     nor included in the purchase price of the Properties,  and on which rent is
     not  received,  but does  not  include  certain  expenses  associated  with
     Property   acquisitions  that  are  part  of  the  purchase  price  of  the
     Properties,  that are included in the basis of the Properties, and on which
     rent is  received.  Acquisition  Expenses  include  any  and  all  expenses
     incurred by the Company,  the Advisor,  or any  Affiliate of the Advisor in
     connection  with the selection or acquisition of any Property or the making
     of any Mortgage Loan, whether or not acquired or made,  including,  without
     limitation,  legal fees and expenses,  travel and  communication  expenses,
     costs  of  appraisals,   nonrefundable  option  payments  on  property  not
     acquired,  accounting fees and expenses,  taxes, and title  insurance,  but
     exclude  Acquisition Fees. The expenses that are attributable to the seller
     of the  Properties  and part of the  purchase  price of the  Properties  is
     anticipated to range between 1% and 2% of Gross Proceeds.

(7)  Because  leases  generally  will  be on a  "triple-net"  basis,  it is  not
     anticipated  that a permanent  reserve for  maintenance and repairs will be
     established. However, to the extent that the Company has insufficient funds
     for such purposes,  the Advisor may, but is not required to,  contribute to
     the Company an aggregate  amount of up to 1% of the net  offering  proceeds
     available to the Company for maintenance and repairs. The Advisor also may,
     but  is  not  required  to,  establish  reserves  from  offering  proceeds,
     operating funds, and the available proceeds of any Sales.

(8)  Offering proceeds  designated for investment in Properties or the making of
     Mortgage Loans  temporarily  may be invested in  short-term,  highly liquid
     investments with appropriate  safety of principal.  The Company may, at its
     discretion,  use up to $100,000 per calendar  quarter of offering  proceeds
     for redemptions of Shares. See "Redemption of Shares."


                             MANAGEMENT COMPENSATION

         The  table  below   summarizes  the  types,   recipients,   methods  of
computation, and estimated amounts of all compensation, fees, reimbursements and
distributions  to be paid  directly or  indirectly by the Company to the Advisor
and its Affiliates,  exclusive of any  distributions to which the Advisor or its
Affiliates  may be entitled by reason of their purchase and ownership of Shares.
The table  excludes  estimated  amounts of  compensation  relating to any Shares
issued  pursuant to the Company's  Reinvestment  Plan and the Soliciting  Dealer
Warrants.  See  "The  Advisor  and  the  Advisory  Agreement."  For  information
concerning compensation to the Directors, see "Management."

         A  maximum  of  15,000,000  Shares   ($150,000,000)  may  be  sold.  An
additional 500,000 Shares ($5,000,000) may be sold to stockholders who receive a
copy of this Prospectus and who purchase Shares through the  Reinvestment  Plan.
An additional  600,000 shares  ($7,200,000)  of Common Stock also may be sold to
the Managing Dealer or certain Soliciting Dealers who exercise Soliciting Dealer
Warrants at an exercise price of $12.00 per share during the Exercise Period for
such shares.

         The following arrangements for compensation and fees to the Advisor and
its Affiliates were not determined by arm's-length negotiations.  See "Conflicts
of Interest."  There is no item of  compensation  and no fee that can be paid to
the Advisor or its Affiliates under more than one category.



                                                       -28-

<PAGE>


<TABLE>
<CAPTION>

<S> <C>
- ------------------------------------------------------------------------------------------------------------------------------------
        Type of
     Compensation                                                                                            Estimated
     and Recipient                              Method of Computation                                     Maximum Amount
- ------------------------------------------------------------------------------------------------------------------------------------
                                                Organizational Stage
- ------------------------------------------------------------------------------------------------------------------------------------
Selling  Commissions    Selling Commissions of 7.5% per Share on all Shares sold, subject to    Selling Commisssions of $187,500 if
to Managing Dealer and  reduction under certain circumstances as described in "The Offering -   250,000 Shares are sold; $11,250,000
Soliciting Dealers      Plan of Distribution."  Soliciting Dealers may be reallowed             if 15,000,000 Shares are sold. 
                        Selling Commissions of up to 7% with respect to Shares they sell.  In
                        addition, the Managing Dealer will receive one Soliciting Dealer Warrant for
                        every 25 Shares sold, all or a portion of which may be reallowed to
                        Soliciting Dealers, with prior written approval from, and in the sole
                        discretion of, the Managing Dealer.  See "The Offering - Plan of
                        Distribution."
- ------------------------------------------------------------------------------------------------------------------------------------
Marketing support and   Expense allowance of 0.5% of Gross Proceeds to the Managing Dealer, all    $12,500 if 250,000 Shares are
due diligence expense   or a portion of which may be reallowed to Soliciting Dealers with prior    sold; $750,000 if 15,000,000
reimbursement fee to    written approval from, and in the sole discretion of, the Managing Dealer. Shares are sold.
Managing Dealer and     The Managing Dealer will pay all sums attributable to bona fide due
Soliciting Dealers      diligence expenses from this fee, in the Managing Dealer's sole discretion.
- ------------------------------------------------------------------------------------------------------------------------------------
Reimbursement to the    Actual expenses incurred, except that the Advisor will pay all such         Amount is not determinable at
Advisor and its         expenses in excess of 3% of Gross Proceeds.  The Organizational and         this time, but will not exceed
Affiliates for          Offering Expenses paid by the Company in connection with the formation      3% of Gross Proceeds, $75,000 if
Organizational and      of the Company, together with the 7.5% Selling Commissions and 0.5%         250,000 Shares are sold;
Offering Expenses       marketing support and due diligence expense reimbursement fee, incurred     $4,500,000 if 15,000,000 Shares
                        by the Company will not exceed 13% of the proceeds raised in connections    are sold.
                        with this offering.
- ------------------------------------------------------------------------------------------------------------------------------------

                                            Acquisition Stage
- ------------------------------------------------------------------------------------------------------------------------------------
Acquisition Fee to      4.5% of Total Proceeds payable to the Advisor as Acquisition Fees.          $112,500 if 250,000 Shares are
the Advisor                                                                                         sold plus $20,250 if Permanent
                                                                                                    Financing equals $450,000;
                                                                                                    $6,750,000 if 15,000,000 Shares
                                                                                                    are sold plus $2,025,000 if
                                                                                                    Permanent Financing equals
                                                                                                    $45,000,000.
- ------------------------------------------------------------------------------------------------------------------------------------
Other Acquisition       Any fees  paid to Affiliates of the Advisor in connection with the          Amount  is not  determinable  at
Fees to Affiliates      financing, development, construction or renovation of a Property.           this time.
of the Advisor          Such fees are in addition to 4.5% of Total Proceeds payable to the
                        Advisor as Acquisition Fees, and payment of such fees will be
                        subject to approval by the Board of Directors, including a majority
                        of the Independent Directors, not otherwise interested in the
                        transaction.
- ------------------------------------------------------------------------------------------------------------------------------------

                                      -29-

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
        Type of
     Compensation                                                                                            Estimated
     and Recipient                              Method of Computation                                     Maximum Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Reimbursement of       Reimbursement to the Advisor and its Affiliates for expenses actually        Acquisition Expenses, which are
Acquisition  Expenses  incurred.                                                                    based on a number of factors,
to the Advisor and                                                                                  including the purchase price of
its Affiliates                                                                                      the Properties, are not
                        The total of all Acquisition Fees and any Acquisition Expenses payable      determinable at this time.
                        to the Advisor and its Affiliates shall be reasonable and shall not
                        exceed an amount equal to 6% of the Real Estate Asset Value of a
                        Property,  or  in  the case of a Mortgage Loan, 6% of  the funds
                        advanced,  unless  a majority of the Board of Directors, including a
                        majority of the Independent Directors not otherwise interested in
                        the  transaction,  approves fees in excess of this limit subject to
                        a  determination  that  the  transaction  is commercially competitive,
                        fair and reasonable to the Company. Acquisition Fees shall be reduced
                        to the extent that, and if necessary to limit, the total  compensation
                        paid to all persons  involved in the  acquisition of any Property to
                        the amount customarily charged in arms-length transactions by other
                        persons or entities rendering similar services as an ongoing public
                        activity in the same  geographical  location  and for  comparable
                        types of Properties, and to the extent that other acquisition  fees,
                        finder's fees, real estate commissions, or other similar fees or
                        commissions are paid by any person in connection with the transaction.
                        "Real Estate Asset Value" means the amount actually paid or allocated
                        to the purchase, development, construction or improvement of a Property,
                        exclusive of Acquisition Fees and Acquisition Expenses.
- ------------------------------------------------------------------------------------------------------------------------------------
                                                  Operational Stage
- ------------------------------------------------------------------------------------------------------------------------------------
Asset Management Fee    A monthly Asset Management Fee in an amount equal to one-twelfth of         Amount is not determinable at 
to the Advisor          .60% of the Company's Real Estate Asset Value and  the  outstanding         this time.  The amount of the
                        principal amount  of any  Mortgage  Loans,  as of  the  end of the          Asset Management Fee will depend
                        preceding month. Specifically, Real Estate Asset Value equals the           upon, among other things, the
                        amount invested in the Properties wholly owned by the Company,              cost of the Properties and the
                        determined on the basis of cost, plus, in the case of Properties            amount invested in Mortgage
                        owned by any Joint Venture or partnership in which the Company is a         Loans.
                        co-venturer or partner, the portion of the cost of such Properties
                        paid by the Company, exclusive of Acquisition Fees and Expenses.  The
                        Asset Management Fee, which will not exceed fees which are competitive
                        for similar services in the same geographic area, may or may not be taken,
                        in whole or in part as to any year, in the sole discretion of the Advisor.
                        All or any portion of the Asset Management Fee not taken as to any fiscal
                        year shall be deferred  without  interest and may be taken in such other
                        fiscal year as the Advisor  shall determine.
- ------------------------------------------------------------------------------------------------------------------------------------
Reimbursement to the    Operating Expenses (which, in general, are those expenses relating to       Amount is not determinable at 
Advisor and Affiliates  adminiatration of the Company on an ongoing  basis) will be  reimbursed     this time.
for operating expenses  by the Company.  To the extent that  Operating  Expenses payable  or
                        reimbursable  by the  Company,  in any four consecutive fiscal quarters
                        (the "Expense Year"), exceed the greater of 2% of Average Invested
                        Assets or 25% of Net Income (the "2%/25% Guidelines"),  the Advisor shall
                        reimburse  the  Company  within 60 days after the end of the Expense Year
                        the amount by which the total Operating Expenses paid or incurred by the
                        Company exceed the 2%/25% Guidelines.  "Average Invested Assets" means, for
                        a specified  period,  the average of the aggregate  book value of the assets
                        of the Company invested, directly or indirectly,  in equity interests in and
                        loans secured by real estate  before  reserves  for  depreciation  or bad
                        debts or other similar  non-cash  reserves,  computed by taking the average
                        of such  values at the end of each month during such period.  "Net  Income"
                        means for any period,  the total  revenues  applicable to such period,
                        less the total expenses applicable to such period excluding additions to
                        reserves for  depreciation,  bad debts,  or other similar non-cash reserves;
                        provided, however,  Net Income for purposes of  calculating  total allowable
                        Operating Expenses shall exclude the gain from the sale of the Company's assets.


                                      -31-

<PAGE>

- ------------------------------------------------------------------------------------------------------------------------------------
        Type of
     Compensation                                                                                            Estimated
     and Recipient                              Method of Computation                                     Maximum Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred, subordinated  A deferred, subordinated real estate disposition fee, payable upon Sale of        Amount is not determinable
real estate             one or more Properties, in an amount equal to the lesser of (i) one-half of       at this time.  The amount
disposition fee         a Competitive Real Estate Commission, or (ii) 3% of the sales price of such       of this fee, if it becomes
payable to the Advisor  Property or Properties.  Payment of such fee shall be made only if the            payable, will depend upon
from a Sale or Sales    Advisor provides a substantial amount of services in connection with the          the price at which
of a Property not in    Sale of a Property or Properties and shall be subordinated to receipt by the      Properties are sold.
liquidation of the      stockholders of Distributions equal to the sume of (i) their aggregate Stock-
Company                 holders' 8% Return and (ii) their aggregate Invested Capital.  If, at the time
                        of a Sale, payment of the disposition fee is deferred because the subordination
                        conditions have not been satisfied, then the disposition fee shall be paid at
                        such later time as the subordination conditions are satisfied.  Upon Listing,
                        if the Advisor has accrued but not been paid such real estate disposition
                        fee, then for purposes of determining whether the subordination conditions
                        have been satisfied, stockholders will be deemed to have received a
                        Distribution in the amount equal to the product of the total number of shares
                        of Common Stock outstanding and the average closing price of the shares over
                        a period,  beginning 180 days after Listing,  of 30 days during which the
                        shares are traded.  "Stockholders' 8% Return," as of each date, means an
                        aggregate    amount   equal   to   an   8%   cumulative,
                        noncompounded, annual return on Invested Capital.
- ------------------------------------------------------------------------------------------------------------------------------------
Subordinated Incentive  At such time, if any, as Listing occurs, the Advisor shall be paid the            Amount is not determinable
Fee payable to the      Subordinated Incentive Fee in an amount equal to 10% of the amount by             at this time.
Advisor at such time,   which (i) the market value of the Company (as defined below) plus 
if any, as Listing      the total Distributions made to stockholders from the Company's inception
occurs                  until the date of Listing exceeds (ii) the sum of (A) 100% of Invested
                        Capital and (B) the total Distributions required to be made to the
                        stockholders in order to pay the Stockholders' 8% Return from inception
                        through the date the market value is determined.  For purposes of calculating
                        the Subordinated Incentive Fee, the market value of the Company shall be the
                        average closing price or average of bid and asked price, as the case may be,
                        over a period of 30 days during which the shares of Common Stock are traded
                        with such period beginning 180 days after Listing.  The Subordinated
                        Incentive Fee will be reduced by the amount of any prior payment to the
                        Advisor of a deferred,  subordinated  share of Net Sales
                        Proceeds from Sales of assets of the Company.
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred, subordinated  A deferred, subordinated share equal to 10% of Net Sales Proceeds from Sales      Amount is not determinable
share of Net Sales      of assets of the Company payable after receipt by the stockholders of             at this time.
Proceeds from Sales of  Distributions equal to the sum of (i) the Stockholders' 8% Return and (ii)
assets of the Company   100% of Invested Capital.  Following Listing, no share of Net Sales Proceeds
not in liquidation of   will be paid to the Advisor.
the Company payable to
the Advisor
- ------------------------------------------------------------------------------------------------------------------------------------
Performance Fee         Upon termination of the Advisory Agreement, if Listing has not occurred           Amount is not determinable
payable to the Advisor  and the Advisor has met applicable performance standards, the Advisor             at this time.
                        shall be paid the  Performance Fee in the amount equal to 10% of the
                        amount by which  (i) the  appraised value of the Company's assets on the
                        Termination  Date, less any indebtedness secured by such assets, plus total
                        distributions  paid to  stockholders  from the Company's inception through
                        the Termination Date, exceeds (ii) the sum of 100% of Invested Capital plus
                        an amount equal to the  Stockholders' 8% Return from inception  through the
                        Termination  Date.  The  Performance  Fee, to the extent payable at the time
                        of Listing,  will not be payable in the event the Subordinated Incentive Fee
                        is paid.


                                      -32-

<PAGE>


- ------------------------------------------------------------------------------------------------------------------------------------
        Type of
     Compensation                                                                                            Estimated
     and Recipient                              Method of Computation                                     Maximum Amount
- ------------------------------------------------------------------------------------------------------------------------------------
Secured Equipment Lease  A fee paid to the Advisor out of the proceeds of the Line of Credit       Amount is not determinable at
Servicing Fee to the     or Permanent Financing for negotiating Secured Equipment Leases           this time.
Advisor                  and supervising the Secured Equipment Lease program equal to 2% of
                         the purchase price of the Equipment subject to each Secured Equipment
                         Lease and paid upon entering into such lease.
- ------------------------------------------------------------------------------------------------------------------------------------
Reimbursement to the     Repayment by the Company of actual expenses incurred.                     Amount is not determinable at
Advisor and Affiliates                                                                             this time.
for Secured Equipment
Lease servicing expenses
- ------------------------------------------------------------------------------------------------------------------------------------
                                                  Liquidation Stage
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred, subordinated  A deferred, subordinated real estate disposition fee, payable upon Sale       Amount is not determinable at
fee payable to the      of one or more Properties, in an amount equal to the lesser of (i) one-       this time.  The amount of this
Advisor from a Sale or  half of a Competitive Real Estate Commission, or (ii) 3% of the sales price   fee, if it becomes payable,
Sales in liquidation    of such Property or Properties.  Payment of such fee shall be made only if    will depend upon the price at
of the Company          the Advisor provides a substantial amount of services in connection with the  which Properties are sold.
                        Sale of a Property or Properties and shall be subordinated to receipt by the
                        stockholders of Distributions equal to the sum of (i) their aggregate
                        Stockholders' 8% Return and (ii) their aggregate Invested Capital.  If, at
                        the time of a Sale, payment of the disposition fee is deferred because the
                        subordination conditions have not been satisfied, then the disposition fee
                        shall be paid at such  later time as the subordination conditions are satisfied.
- ------------------------------------------------------------------------------------------------------------------------------------
Deferred, subordinated  A deferred, subordinated share equal to 10% of Net Sales Proceeds from Sales  Amount is not determinable at 
share of Net Sales      of assets of the Company payable after receipt by the stockholders of         this time.
Proceeds from Sales of  Distributions equal to the sum of (i) the Stockholders' 8% Return and (ii)
assets of the Company   100% of Invested  Capital.  Following Listing,  no share of Net Sales
in liquidation of the   Proceeds will be paid to the Advisor.
Company payable to the
Advisor
- ------------------------------------------------------------------------------------------------------------------------------------

</TABLE>



                                                                  -34-

<PAGE>



                              CONFLICTS OF INTEREST

         The Company will be subject to various  conflicts  of interest  arising
out of its relationship to the Advisor and its Affiliates, as described below.

         The following chart indicates the relationship  between the Advisor and
those Affiliates that will provide services to the Company.


                               CNL Group, Inc. (1)
              Subsidiaries, Affiliates and Strategic Business Units
              -----------------------------------------------------

Capital Markets                       Retail
- ---------------                       ------
o  CNL Securities Corp. (2)           o  Commercial Net Lease Realty, Inc. (4)
o  CNL Investment Company

Corporate Services                    Restaurant
- ------------------                    ----------
o  CNL Corporate Services, Inc. (3)   o  CNL Fund Advisors, Inc.
                                      o  CNL Restaurant Services, Inc.

                                      Hospitality
                                      -----------
                                      o  CNL Real Estate Advisors, Inc.
                                      o  CNL Hotel Development Company

                                      Health Care
                                      -----------
                                      o  CNL Health Care Advisors, Inc. (5)

                                      Financial Services
                                      ------------------
                                      o  CNL Financial Services, Inc.
                                      o  CNL Advisory Services, Inc.

                                      Corporate Properties
                                      --------------------
                                      o  CNL Corporate Properties, Inc.



- --------------------------
(1)      James M. Seneff, Jr., Chairman of the Board and Chief Executive Officer
         of the Company,  shares ownership and voting control of CNL Group, Inc.
         with Dayle L. Seneff, his wife.

(2)      CNL Securities Corp. (a wholly-owned subsidiary of CNL Group, Inc.) has
         served as managing  dealer in the  offerings for various CNL public and
         private real estate programs, including the Company.

(3)      CNL Corporate Services,  Inc. (a wholly-owned  subsidiary of CNL Group,
         Inc.)  and  other  Affiliates  provide  administrative  and  accounting
         services for various CNL entities, including the Company.

(4)      Commercial  Net Lease  Realty,  Inc.  is a REIT  listed on the New York
         Stock Exchange.  Effective  January 1, 1998, CNL Realty Advisors,  Inc.
         and Commercial Net Lease Realty,  Inc. merged, at which time Commercial
         Net Lease  Realty,  Inc.  became self  advised.  James M.  Seneff,  Jr.
         continues to hold the positions of Chief Executive Officer and Chairman
         of the Board,  and Robert A. Bourne  continues  to hold the position of
         Vice Chairman of the Board of Commercial Net Lease Realty, Inc.

(5)      CNL Health Care Advisors, Inc. (a wholly-owned subsidiary of CNL Group,
         Inc.) provides management and advisory services to the Company pursuant
         to the Advisory Agreement.

PRIOR AND FUTURE PROGRAMS

         In the past,  Affiliates of the Advisor have  organized  over 100 other
real estate investments,  currently have other real estate holdings,  and in the
future expect to form, offer interests in, and manage other real estate programs
in  addition  to the  Company,  and make  additional  real  estate  investments.
Although neither the Advisor nor its Affiliates currently own, operate, lease or
manage  properties  that would be suitable for the  Company,  future real estate
programs  may involve  Affiliates  of the Advisor in the  ownership,  financing,
operation, leasing, and management of such properties.



                                                       -35-

<PAGE>



         Certain  public or private  real estate  programs  affiliated  with the
Advisor  may in the  future  invest  in health  care  properties,  may  purchase
properties  concurrently  with the Company and may lease properties to operators
who also  lease or  operate  certain  of the  Company's  Properties.  Such other
programs  may offer  mortgage  or  equipment  financing  to the same or  similar
entities as those  targeted by the  Company,  thereby  affecting  the  Company's
Mortgage Loan  activities or Secured  Equipment  Lease  program.  Such conflicts
between  the  Company  and  affiliated  programs  may  affect  the  value of the
Company's  investments as well as its Net Income.  The Company believes that the
Advisor has  established  guidelines  to minimize such  conflicts.  See "Certain
Conflict Resolution Procedures" below.


                                                       -36-

<PAGE>


COMPETITION TO ACQUIRE PROPERTIES AND INVEST IN MORTGAGE LOANS

         Affiliates  of the  Advisor  may  compete  with the  Company to acquire
health care  properties  or to invest in mortgage  loans of a type  suitable for
acquisition  or investment  by the Company and may be better  positioned to make
such  acquisitions or investments as a result of relationships  that may develop
with  various  operators  of  Health  Care  Facilities.  See  "Business  -- Site
Selection and  Acquisition of Properties -- Interim  Acquisitions."  A purchaser
who wishes to acquire one or more of these  properties  or invest in one or more
mortgage  loans  may have to do so  within a  relatively  short  period of time,
occasionally at a time when the Company (due to insufficient funds, for example)
may be unable to make the acquisition or investment.

         In an effort to address these  situations and preserve the  acquisition
and investment  opportunities for the Company (and other entities with which the
Advisor or its Affiliates are  affiliated),  Affiliates of the Advisor  maintain
lines of credit which enable them to acquire  properties or make mortgage  loans
on an interim basis.  These  properties  and/or mortgage loans generally will be
purchased from  Affiliates of the Advisor,  at their cost or carrying  value, by
one or more existing or future public or private  programs  formed by Affiliates
of the Advisor.

         The  Advisor  could  experience  potential  conflicts  of  interest  in
connection  with the  negotiation  of the purchase  price and other terms of the
acquisition of a Property or investment in a Mortgage Loan, as well as the terms
of the lease of a Property or Mortgage  Loan, due to its  relationship  with its
Affiliates and any business relationship of its Affiliates that may develop with
operators of Health Care  Facilities.  Consequently,  the Advisor may  negotiate
terms of  acquisitions,  investments  or leases that may be more  beneficial  to
other entities than to the Company.

         The  Advisor  or its  Affiliates  also  may  be  subject  to  potential
conflicts  of interest at such time as the Company  wishes to acquire a property
or invest in a mortgage  loan that also would be  suitable  for  acquisition  or
investment by an Affiliate of CNL.  Affiliates of the Advisor serve as Directors
of the Company and, in this capacity,  have a fiduciary obligation to act in the
best  interest of the  stockholders  of the Company and, as general  partners or
directors of CNL  Affiliates,  to act in the best  interests of the investors in
other programs with  investments that may be similar to those of the Company and
will use their  best  efforts  to assure  that the  Company  will be  treated as
favorably as any such other program. See "Management Fiduciary Responsibility of
the Board of Directors."  The Company has also  developed  procedures to resolve
potential  conflicts of interest in the  allocation of  properties  and mortgage
loans between the Company and certain of its Affiliates.  See "Certain  Conflict
Resolution Procedures" below.

         The Company will supplement this Prospectus  during the offering period
to disclose the  acquisition of a Property at such time as the Advisor  believes
that a reasonable probability exists that the Company will acquire the Property,
including  an  acquisition  from the Advisor or its  Affiliates.  Based upon the
experience  of  management  of the  Company  and the  Advisor  and the  proposed
acquisition  methods,  a reasonable  probability that the Company will acquire a
Property  normally will occur as of the date on which (i) a commitment letter is
executed by a proposed lessee,  (ii) a satisfactory  credit underwriting for the
proposed lessee has been completed and (iii) a satisfactory  site inspection has
been completed.

SALES OF PROPERTIES

         A  conflict  also  could  arise  in   connection   with  the  Advisor's
determination  as to whether or not to sell a Property,  since the  interests of
the  Advisor  and the  stockholders  may  differ as a result  of their  distinct
financial  and tax positions  and the  compensation  to which the Advisor or its
Affiliates may be entitled upon the Sale of a Property. See "Compensation of the
Advisor," below for a description of these compensation  arrangements.  In order
to resolve this potential  conflict,  the Board of Directors will be required to
approve each Sale of a Property.



                                                       -37-

<PAGE>



JOINT INVESTMENT WITH AN AFFILIATED PROGRAM

         The Company may invest in Joint Ventures with another program sponsored
by the Advisor or its  Affiliates  if a majority of the  Directors,  including a
majority  of  the  Independent  Directors,   not  otherwise  interested  in  the
transaction,  determine  that the  investment  in the Joint  Venture is fair and
reasonable to the Company and on substantially  the same terms and conditions as
those to be received by the co-venturer or  co-venturers.  Potential  situations
may arise in which the interests of the co-venturer or co-venturers may conflict
with those of the  Company.  In  addition,  the Company and the  co-venturer  or
co-venturers may reach an impasse with regard to business decisions, such as the
purchase  or sale of  Property,  in which the  approval  of the Company and each
co-venturer is required.  In this event,  none of the parties may have the funds
necessary to purchase the interests of the other  co-venturers.  The Company may
experience  difficulty in locating a third party purchaser for its Joint Venture
interest  and in  obtaining  a  favorable  sales  price for such  Joint  Venture
interest. See "Risk Factors -- Impasse or Conflicts with Joint Venture Partner."

COMPETITION FOR MANAGEMENT TIME

         The  officers  and  directors  of the  Advisor  and  the  officers  and
Directors of the Company  currently are engaged,  and in the future will engage,
in the  management  of  other  business  entities  and  properties  and in other
business activities,  including entities,  properties and activities  associated
with Affiliates.  They will devote only as much of their time to the business of
the Company as they, in their judgment,  determine is reasonably required, which
will be substantially less than their full time. These officers and directors of
the Advisor and officers and Directors of the Company may  experience  conflicts
of interest in allocating  management  time,  services,  and functions among the
Company and the various entities, investor programs (public or private), and any
other  business  ventures  in  which  any of them  are or may  become  involved.
Independent  Directors  may serve as  directors  of three  REITs  advised by the
Advisor; however, the Company does not anticipate that it will share Independent
Directors with other REITs advised by the Advisor.

                                                       -38-

<PAGE>





COMPENSATION OF THE ADVISOR

         The Advisor will be engaged to perform various services for the Company
and will receive fees and compensation for such services. None of the agreements
for such  services  were  the  result  of  arm's-length  negotiations.  All such
agreements,  including the Advisory Agreement, require approval by a majority of
the Board of Directors,  including a majority of the Independent Directors,  not
otherwise  interested in such transactions,  as being fair and reasonable to the
Company and on terms and  conditions no less favorable than those which could be
obtained  from  unaffiliated  entities.  The  timing  and  nature  of  fees  and
compensation to the Advisor could create a conflict between the interests of the
Advisor and those of the  stockholders.  A  transaction  involving the purchase,
lease, or Sale of any Property,  or the entering into or Sale of a Mortgage Loan
or a  Secured  Equipment  Lease  by the  Company  may  result  in the  immediate
realization by the Advisor and its Affiliates of substantial commissions,  fees,
compensation,  and other income.  Although the Advisory Agreement authorizes the
Advisor to take primary  responsibility  for all decisions  relating to any such
transaction,   the  Board  of  Directors  must  approve  all  of  the  Company's
acquisitions and Sales of Properties and the entering into and Sales of Mortgage
Loans or Secured Equipment Leases.  Potential  conflicts may arise in connection
with the  determination  by the  Advisor on behalf of the  Company of whether to
hold or sell a  Property,  Mortgage  Loan,  or Secured  Equipment  Lease as such
determination could impact the timing and amount of fees payable to the Advisor.
See "The Advisor and the Advisory Agreement."

RELATIONSHIP WITH MANAGING DEALER

         The  Managing  Dealer is CNL  Securities  Corp.,  an  Affiliate  of the
Company. Certain of the officers and Directors of the Company are also officers,
directors,  and registered  principals of the Managing Dealer. This relationship
may create  conflicts in connection  with the fulfillment by the Managing Dealer
of its due diligence obligations under the federal securities laws. Although the
Managing  Dealer will examine the information in the Prospectus for accuracy and
completeness,  the  Managing  Dealer is an Affiliate of the Company and will not
make an  independent  review of the Company and the offering.  Accordingly,  the
investors  do not have the benefit of such  independent  review.  Certain of the
Soliciting Dealers have made, or are expected to make, their own independent due
diligence  investigations.  The Managing Dealer is not prohibited from acting in
any  capacity in  connection  with the offer and sale of  securities  offered by
entities that may have some or all investment objectives similar to those of the
Company and is expected to  participate in other  offerings  sponsored by one or
more of the officers or Directors of the Company.



                                                       -39-

<PAGE>



LEGAL REPRESENTATION

         Shaw Pittman  Potts & Trowbridge,  which serves as  securities  and tax
counsel to the  Company in this  offering,  also  serves as  securities  and tax
counsel for certain of its Affiliates,  including other real estate programs, in
connection with other matters. In addition,  certain members of the firm of Shaw
Pittman Potts & Trowbridge have invested as limited  partners or stockholders in
prior programs sponsored by Affiliates of the Advisor in aggregate amounts which
do not exceed one  percent of the  amounts  sold by any of these  programs,  and
members of the firm also may invest in the Company.  Neither the Company nor the
stockholders  will have separate  counsel.  In the event any controversy  arises
following the termination of this offering in which the interests of the Company
appear to be in  conflict  with those of the  Advisor or its  Affiliates,  other
counsel may be retained for one or both parties.

CERTAIN CONFLICT RESOLUTION PROCEDURES

         In  order  to  reduce  or  eliminate  certain  potential  conflicts  of
interest,  the  Articles  of  Incorporation  contain  a number  of  restrictions
relating  to (i)  transactions  between  the  Company  and  the  Advisor  or its
Affiliates,  (ii) certain future offerings,  and (iii) allocation of properties,
mortgage loans and secured equipment leases among certain  affiliated  entities.
These restrictions include the following:

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

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

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

                                                       -40-

<PAGE>



between  unaffiliated  parties.  It is  anticipated  that  the  Advisor  or  its
Affiliates  shall be entitled to  reimbursement,  at cost,  for actual  expenses
incurred  by the  Advisor or its  Affiliates  on behalf of the  Company or Joint
Ventures in which the Company is a co-venturer, subject to the 2%/25% Guidelines
(2% of  Average  Invested  Assets or 25% of Net  Income)  described  under  "The
Advisor and the Advisory Agreement - The Advisory Agreement."

         4. Until  completion of this  offering,  the Advisor and its Affiliates
will not offer or sell interests in any subsequently  formed public program that
has investment objectives and structure similar to those of the Company and that
intends to (i)  invest,  on a cash  and/or  leveraged  basis,  in a  diversified
portfolio  of health care  properties  to be leased on a  "triple-net"  basis to
operators of Health Care  Facilities,  (ii) offer mortgage loans and (iii) offer
secured equipment leases.  The Advisor and its Affiliates also will not purchase
a property or offer or invest in a mortgage loan or secured  equipment lease for
any such subsequently  formed public program that has investment  objectives and
structure  similar to the  Company  and that  intends to invest on a cash and/or
leveraged basis  primarily in a diversified  portfolio of health care properties
to be leased on a  "triple-net"  basis to  operators  of Health Care  Facilities
until  substantially all (generally,  80%) of the funds available for investment
(Net  Offering  Proceeds)  by the Company  have been  invested or  committed  to
investment.  (For purposes of the preceding  sentence only,  funds are deemed to
have been committed to investment to the extent written  agreements in principle
or letters of understanding  are executed and in effect at any time,  whether or
not any such  investment is  consummated,  and also to the extent any funds have
been  reserved to make  contingent  payments in  connection  with any  Property,
whether or not any such payments are made.) The Advisor or its Affiliates in the
future may offer interests in one or more public or private  programs  organized
to  purchase  properties  of the type to be acquired  by the  Company,  to offer
Mortgage Loans and/or to offer Secured Equipment Leases.

         5. The Board of  Directors  and the Advisor  have agreed  that,  in the
event that an investment  opportunity  becomes  available  which is suitable for
both the  Company  and a public or private  entity with which the Advisor or its
Affiliates are affiliated,  for which both entities have  sufficient  uninvested
funds,  then the entity which has had the longest period of time elapse since it
was  offered an  investment  opportunity  will first be offered  the  investment
opportunity.  An investment  opportunity  will not be considered  suitable for a
program  if the  requirements  of Item 4 above  could  not be  satisfied  if the
program were to make the investment. In determining whether or not an investment
opportunity  is  suitable  for  more  than  one  program,  the  Advisor  and its
Affiliates will examine such factors,  among others, as the cash requirements of
each program,  the effect of the  acquisition  both on  diversification  of each
program's  investments by types of health care  facilities and geographic  area,
and on  diversification  of the tenants of its properties (which also may affect
the need  for one of the  programs  to  prepare  or  produce  audited  financial
statements  for a  property  or a  tenant),  the  anticipated  cash flow of each
program,  the size of the  investment,  the  amount of funds  available  to each
program, and the length of time such funds have been available for investment.
 If a subsequent development,  such as a delay in the closing of a property or a
delay in the  construction  of a property,  causes any such  investment,  in the
opinion of the Advisor and its Affiliates,  to be more appropriate for an entity
other than the entity  which  committed  to make the  investment,  however,  the
Advisor has the right to agree that the other entity affiliated with the Advisor
or its Affiliates may make the investment.

         6. With respect to Shares owned by the Advisor,  the Directors,  or any
Affiliate, neither the Advisor, nor the Directors nor such Affiliate may vote or
consent on matters  submitted to the  stockholders  regarding the removal of the
Advisor,  Directors, or any Affiliate or any transaction between the Company and
any of them.  In  determining  the  requisite  percentage  in interest of Shares
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any Shares owned by any of them shall not be included.

         Additional conflict resolution procedures are identified under "- Sales
of  Properties," "- Joint  Investment With An Affiliated  Program," and "- Legal
Representation."


                          SUMMARY OF REINVESTMENT PLAN

         The  Company  has  adopted  the  Reinvestment  Plan  pursuant  to which
stockholders may elect to have the full amount of their cash  Distributions from
the Company  reinvested in additional  Shares of the Company.  Each  prospective
investor who wishes to participate in the Reinvestment  Plan should consult with
such  investor's  Soliciting  Dealer  as to  the  Soliciting  Dealer's  position
regarding  participation  in the  Reinvestment  Plan.  The following  discussion
summarizes the principal terms of the Reinvestment  Plan. The Reinvestment  Plan
is attached hereto as Appendix A.

GENERAL

         An independent agent (the "Reinvestment Agent"), which currently is MMS
Securities,  Inc., will act on behalf of the  participants  in the  Reinvestment
Plan  (the  "Participants").  The  Reinvestment  Agent  at  all  times  will  be
registered as a broker-dealer  with the Securities and Exchange  Commission (the
"Commission") and each state securities commission. At any time that the Company
is  engaged  in an  offering,  including  the  offering  described  herein,  the
Reinvestment Agent will invest all Distributions attributable to Shares owned by
Participants  in Shares of the Company at the public  offering  price per Share,
which  currently is $10.00 per Share. At anytime that the Company is not engaged
in an offering, and until Listing, the price per Share will be determined by (i)
quarterly  appraisal  updates  performed by the Company based on a review of the
existing  appraisal and lease of each Property,  focusing on a re-examination of
the  capitalization  rate  applied to the rental  stream to be derived from that
Property;  and (ii) a review  of the  outstanding  Mortgage  Loans  and  Secured
Equipment Leases focusing

                                                       -41-

<PAGE>



on a determination  of present value by a re-examination  of the  capitalization
rate applied to the stream of payments due under the terms of each Mortgage Loan
and Secured Equipment Lease. The capitalization rate used by the Company and, as
a result,  the price per Share paid by the Participants in the Reinvestment Plan
prior to Listing will be determined by the Advisor in its sole  discretion.  The
factors that the Advisor will use to determine the  capitalization  rate include
(i) its experience in selecting,  acquiring and managing  properties  similar to
the Properties;  (ii) an examination of the conditions in the market;  and (iii)
capitalization  rates  in use by  private  appraisers,  to the  extent  that the
Advisor  deems such factors  appropriate,  as well as any other factors that the
Advisor deems relevant or appropriate in making its determination. The Company's
internal  accountants will then convert the most recent quarterly  balance sheet
of the Company  from a "GAAP"  balance  sheet to a "fair market  value"  balance
sheet. Based on the "fair market value" balance sheet, the internal  accountants
will then  assume a sale of the  Company's  assets  and the  liquidation  of the
Company in accordance  with its  constitutive  documents and  applicable law and
compute the appropriate  method of distributing the cash available after payment
of reasonable liquidation expenses, including closing costs typically associated
with the sale of assets and shared by the buyer and seller,  and the creation of
reasonable  reserves to provide for the payment of any  contingent  liabilities.
All  Shares  available  for  purchase  under the  Reinvestment  Plan  either are
registered  pursuant  to  this  Prospectus  or  will  be  registered  under  the
Securities  Act of 1933  through a separate  prospectus  relating  solely to the
Reinvestment Plan. Until this offering has terminated,  Shares will be available
for purchase out of the additional 500,000 Shares registered with the Commission
in connection  with this  offering.  See "The Offering - Plan of  Distribution."
After the offering has terminated,  shares will be available from any additional
shares (not expected to exceed 500,000 Shares at any one time) which the Company
elects  to  register  with  the  Commission  for  the  Reinvestment   Plan.  The
Reinvestment  Plan may be amended or  supplemented  by an agreement  between the
Reinvestment Agent and the Company at any time,  including but not limited to an
amendment to the Reinvestment Plan to add a voluntary cash contribution  feature
or to substitute a new  Reinvestment  Agent to act as agent for the Participants
or to increase the administrative  charge payable to the Reinvestment  Agent, by
mailing  an  appropriate  notice at least 30 days  prior to the  effective  date
thereof to each Participant at his or her last address of record; provided, that
any such amendment must be approved by a majority of the  Independent  Directors
of the  Company.  Such  amendment  or  supplement  shall be deemed  conclusively
accepted by each  Participant  except those  Participants  from whom the Company
receives written notice of termination prior to the effective date thereof.

         Stockholders   who  have  received  a  copy  of  this   Prospectus  and
participate  in this offering can elect to  participate  in and purchase  Shares
through  the  Reinvestment  Plan at any time and  would  not need to  receive  a
separate  prospectus  relating  solely to the  Reinvestment  Plan.  A person who
becomes a  stockholder  otherwise  than by  participating  in this  offering may
purchase shares through the  Reinvestment  Plan only after receipt of a separate
prospectus relating solely to the Reinvestment Plan.

         At any time that the Company is not engaged in an  offering,  the price
per Share purchased  pursuant to the Reinvestment  Plan shall be the fair market
value of the Shares based on quarterly appraisal updates of the Company's assets
until such time,  if any,  as Listing  occurs.  Upon  Listing,  the Shares to be
acquired for the Reinvestment Plan may be acquired either through such market or
directly from the Company pursuant to a registration  statement  relating to the
Reinvestment   Plan,  in  either  case  at  a  per-Share   price  equal  to  the
then-prevailing   market   price  on  the   national   securities   exchange  or
over-the-counter  market on which the Shares are listed at the date of purchase.
In the event that, after Listing occurs, the Reinvestment Agent purchases Shares
on  a  national  securities  exchange  or  over-the-counter   market  through  a
registered  broker-dealer,  the amount to be reinvested  shall be reduced by any
brokerage  commissions  charged by such registered  broker-dealer.  In the event
that  such  registered  broker-dealer  charges  reduced  brokerage  commissions,
additional funds in the amount of any such reduction shall be left available for
the purchase of Shares. The Company is unable to predict the effect which such a
proposed  listing  would have on the price of the Shares  acquired  through  the
Reinvestment Plan.

INVESTMENT OF DISTRIBUTIONS

         Distributions  will  be  used  by  the  Reinvestment  Agent,   promptly
following  the  payment  date with  respect to such  Distributions,  to purchase
Shares on behalf of the Participants  from the Company.  All such  Distributions
shall be  invested  in Shares  within  30 days  after  such  payment  date.  Any
Distributions not so invested will be returned to Participants.

         At this time,  Participants  will not have the option to make voluntary
contributions  to the  Reinvestment  Plan to  purchase  Shares  in excess of the
amount of Shares that can be purchased  with their  Distributions.  The Board of
Directors  reserves the right,  however,  to amend the Reinvestment  Plan in the
future  to  permit  voluntary   contributions   to  the  Reinvestment   Plan  by
Participants,   to  the  extent  consistent  with  the  Company's  objective  of
qualifying as a REIT.

PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF SHARES

         For each  Participant,  the  Reinvestment  Agent will maintain a record
which shall reflect for each fiscal  quarter the  Distributions  received by the
Reinvestment  Agent  on  behalf  of  such  Participant.  The  Company  shall  be
responsible  for  all  administrative   charges  and  expenses  charged  by  the
Reinvestment  Agent. Any interest earned on such  Distributions  will be paid to
the Company to defray  certain  costs  relating to the  Reinvestment  Plan.  The
administrative  charge for each fiscal  quarter  will be the lesser of 5% of the
amount  reinvested for the Participant or $2.50, with a minimum charge of $0.50.
The maximum annual charge is $10.00.


                                                       -42-

<PAGE>


         The  Reinvestment  Agent will use the aggregate amount of Distributions
to all  Participants  for  each  fiscal  quarter  to  purchase  Shares  for  the
Participants.  If the aggregate amount of Distributions to Participants  exceeds
the amount  required to purchase all Shares then  available  for  purchase,  the
Reinvestment  Agent will  purchase  all  available  Shares  and will  return all
remaining  Distributions to the Participants  within 30 days after the date such
Distributions  are  made.  The  purchased  Shares  will be  allocated  among the
Participants based on the portion of the aggregate Distributions received by the
Reinvestment  Agent on behalf of each  Participant,  as reflected in the records
maintained by the  Reinvestment  Agent.  The  ownership of the Shares  purchased
pursuant  to the  Reinvestment  Plan  shall  be  reflected  on the  books of the
Company.

         Subject to the provisions of the Articles of Incorporation  relating to
certain  restrictions  on and the effective  dates of transfer,  Shares acquired
pursuant  to the  Reinvestment  Plan will  entitle the  Participant  to the same
rights  and  to be  treated  in  the  same  manner  as  those  purchased  by the
Participants  in the  offering.  Accordingly,  the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under "The Offering - Plan of  Distribution")  and a marketing  support
and due diligence fee of 0.5%. The Company will also pay the Advisor Acquisition
Fees  of  4.5%  of  the  purchase  price  of the  Shares  sold  pursuant  to the
Reinvestment Plan until the termination of the offering. Thereafter, Acquisition
Fees will be paid by the Company only in the event that  proceeds of the sale of
Shares are used to  acquire  Properties  or to invest in  Mortgage  Loans.  As a
result,  aggregate  fees payable to Affiliates of the Company will total between
8.0% and 12.5% of the proceeds of reinvested Distributions,  up to 7.5% of which
may be reallowed to Soliciting Dealers.

         The allocation of Shares among Participants may result in the ownership
of fractional Shares, computed to four decimal places.

REPORTS TO PARTICIPANTS

         Within 60 days after the end of each fiscal quarter,  the  Reinvestment
Agent will mail to each  Participant  a statement of account  describing,  as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares  purchased  during the  quarter,  the per Share  purchase  price for such
Shares,  the total  administrative  charge paid by the Company on behalf of each
Participant (see "Participant Accounts,  Fees, and Allocation of Shares" above),
and the total number of Shares  purchased on behalf of the Participant  pursuant
to the  Reinvestment  Plan.  Until such time,  if any,  as Listing  occurs,  the
statement  of account  also will report the most recent fair market value of the
Shares, determined as described above. See "General" above.

         Tax information for income earned on Shares under the Reinvestment Plan
will be sent to each  participant  by the Company or the  Reinvestment  Agent at
least annually.

ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION

         Stockholders  of the Company who purchase  Shares in this  offering may
become  Participants in the  Reinvestment  Plan by making a written  election to
participate  on their  Subscription  Agreements  at the time they  subscribe for
Shares.  Any other  stockholder  who  receives  a copy of this  Prospectus  or a
separate  prospectus  relating solely to the  Reinvestment  Plan and who has not
previously  elected to participate in the Reinvestment  Plan may so elect at any
time by written notice to the Board of Directors of such stockholder's desire to
participate in the Reinvestment  Plan.  Participation  in the Reinvestment  Plan
will commence with the next Distribution made after receipt of the Participant's
notice,  provided  it is received at least ten days prior to the record date for
such  Distribution.   Subject  to  the  preceding  sentence,   the  election  to
participate  in  the   Reinvestment   Plan  will  apply  to  all   Distributions
attributable  to the fiscal quarter in which the  stockholder  made such written
election to  participate  in the  Reinvestment  Plan and to all fiscal  quarters
thereafter,  whether made (i) upon subscription or subsequently for stockholders
who participate in this offering,  or (ii) upon receipt of a separate prospectus
relating solely to the Reinvestment Plan for stockholders who do not participate
in this offering.  Participants will be able to terminate their participation in
the Reinvestment  Plan at any time without penalty by delivering  written notice
to the Board of Directors ten business days before the end of a fiscal quarter.

         A   Participant   who  chooses  to  terminate   participation   in  the
Reinvestment  Plan  must  terminate  his  or  her  entire  participation  in the
Reinvestment Plan and will not be allowed to terminate in part. If a Participant
terminates his or her participation the Reinvestment  Agent will send him or her
a check in payment for any fractional  Shares in his or her account based on the
then  market  price of the Shares and the record  books of the  Company  will be
revised to reflect the ownership  records of his or her whole Shares.  There are
no fees associated  with a Participant's  terminating his or her interest in the
Reinvestment  Plan. A Participant in the Reinvestment Plan who terminates his or
her  interest in the  Reinvestment  Plan will be allowed to  participate  in the
Reinvestment  Plan  again  upon  receipt  of the then  current  version  of this
Prospectus or a separate current prospectus  relating solely to the Reinvestment
Plan by notifying the Reinvestment Agent and completing any required forms.

         The Board of Directors  reserves the right to prohibit  Qualified Plans
from  participating in the Reinvestment Plan if such  participation  would cause
the  underlying  assets of the Company to constitute  "plan assets" of Qualified
Plans. See "The Offering - ERISA Considerations."

FEDERAL INCOME TAX CONSIDERATIONS

         Stockholders  subject to federal  taxation who elect to  participate in
the Reinvestment Plan will incur a tax liability for Distributions  allocated to
them even though they have elected not to receive  their  Distributions  in cash
but rather to have their  Distributions  held pursuant to the Reinvestment Plan.
Specifically,  stockholders  will  be  treated  as if  they  have  received  the
Distribution from the Company and then applied such

                                                       -43-

<PAGE>



Distribution  to  purchase  Shares  in  the  Reinvestment  Plan.  A  stockholder
designating a Distribution for reinvestment  will be taxed on the amount of such
Distribution as ordinary income to the extent such  Distribution is from current
or accumulated earnings and profits,  unless the Company has designated all or a
portion of the  Distribution  as a capital  gain  dividend.  In such case,  such
designated portion of the Distribution will be taxed as long-term capital gain.

AMENDMENTS AND TERMINATION

         The Company reserves the right to renew, extend, or amend any aspect of
the Reinvestment Plan without the consent of stockholders,  provided that notice
of the amendment is sent to Participants at least 30 days prior to the effective
date thereof.  The Company also reserves the right to terminate the Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.


                              REDEMPTION OF SHARES

   
         Prior to such time, if any, as Listing occurs,  any stockholder who has
held Shares for not less than one year (other than the  Advisor) may present all
or any  portion  equal  to at  least  25% of  such  Shares  to the  Company  for
redemption at any time, in accordance with the procedures  outlined  herein.  At
such time, the Company may, at its sole option, redeem such Shares presented for
redemption for cash to the extent it has sufficient funds available. There is no
assurance  that there will be sufficient  funds  available for  redemption  and,
accordingly,  a stockholder's Shares may not be redeemed.  If the Company elects
to redeem Shares, the following conditions and limitations would apply. The full
amount of the proceeds from the sale of Shares under the Reinvestment  Plan (the
"Reinvestment  Proceeds")  attributable to any calendar  quarter will be used to
redeem Shares  presented for redemption  during such quarter.  In addition,  the
Company may, at its discretion,  use up to $100,000 per calendar  quarter of the
proceeds of any public offering of its common stock for redemptions.  Any amount
of offering  proceeds which is available for  redemptions,  but which is unused,
may be carried over to the next succeeding  calendar quarter for use in addition
to the  amount  of  offering  proceeds  and  Reinvestment  Proceeds  that  would
otherwise be available  for  redemptions.  At no time during a 12-month  period,
however,  may the  number of shares  redeemed  by the  Company  exceed 5% of the
number of shares of the Company's  outstanding  common stock at the beginning of
such 12-month period.
    

         In the event there are  insufficient  funds to redeem all of the Shares
for which redemption  requests have been submitted,  the Company plans to redeem
the Shares in the order in which such redemption requests have been received.  A
stockholder whose Shares are not redeemed due to insufficient funds can ask that
the  request to redeem the Shares be honored at such time,  if any, as there are
sufficient funds available for redemption.  In such case, the redemption request
will be  retained  and such  Shares  will be  redeemed  before any  subsequently
received  redemption  requests are honored.  Alternatively,  a stockholder whose
Shares are not redeemed may withdraw his or her redemption request. Stockholders
will not  relinquish  their  Shares,  until such time as the Company  commits to
redeeming such Shares.

         If the full amount of funds available for any given quarter exceeds the
amount  necessary for such  redemptions,  the remaining amount shall be held for
subsequent redemptions unless such amount is sufficient to acquire an additional
Property  (directly  or  through a Joint  Venture)  or to  invest in  additional
Mortgage Loans, or is used to repay outstanding indebtedness. In that event, the
Company  may  use  all or a  portion  of  such  amount  to  acquire  one or more
additional Properties,  to invest in one or more additional Mortgage Loans or to
repay  such  outstanding  indebtedness,   provided  that  the  Company  (or,  if
applicable,  the Joint Venture) enters into a binding  contract to purchase such
Property or Properties or invests in such  Mortgage Loan or Mortgage  Loans,  or
uses such amount to repay outstanding indebtedness, prior to payment of the next
Distribution and the Company's receipt of requests for redemption of Shares.

         A stockholder  who wishes to have his or her Shares  redeemed must mail
or deliver a written  request on a form  provided by the Company and executed by
the stockholder,  its trustee or authorized  agent, to the redemption agent (the
"Redemption  Agent"),  which is currently MMS  Securities,  Inc. The  Redemption
Agent at all times will be registered as a broker-dealer with the Commission and
each  state  securities  commission.  Within 30 days  following  the  Redemption
Agent's receipt of the stockholder's  request, the Redemption Agent will forward
to such stockholder the documents necessary to effect the redemption,  including
any signature  guarantee the Company or the  Redemption  Agent may require.  The
Redemption  Agent will effect such redemption for the calendar  quarter provided
that it receives the properly  completed  redemption  documents  relating to the
Shares to be redeemed from the  stockholder at least one calendar month prior to
the last day of the current  calendar quarter and has sufficient funds available
to redeem such Shares.  The effective  date of any  redemption  will be the last
date during a quarter  during which the  Redemption  Agent receives the properly
completed  redemption  documents.  As a result,  the Company  anticipates  that,
assuming sufficient funds for redemption, the effective date of redemptions will
be  no  later  than  thirty  days  after  the  quarterly  determination  of  the
availability of funds for redemption.

         Upon the Redemption Agent's receipt of notice for redemption of Shares,
the redemption price will be on such terms as the Company shall  determine.  The
redemption  price for Shares  redeemed  during an offering  would equal the then
current offering price, which the Company anticipates will continue to be $10.00
per Share, until such time, if any, as Listing occurs,  less a discount of 8.0%,
for a net redemption price of $9.20 per Share,  which approximates the per Share
net proceeds  received by the Company in the offering,  after deducting  selling
commissions of 7.5% and a 0.5%  marketing  support and due diligence fee payable
to the Managing Dealer and certain Soliciting Dealers in such offering.


                                                       -44-

<PAGE>



         It is not anticipated that there will be a market for the Shares before
Listing occurs (although liquidity is not assured thereby).  Accordingly, during
periods when the Company is not engaged in an offering,  it is expected that the
purchase  price for Shares  purchased  from  stockholders  will be determined by
reference to the following  factors,  as well as any others  deemed  relevant or
appropriate by the Company: (i) the price at which Shares have been purchased by
stockholders,  either  pursuant  to the  Reinvestment  Plan  or  outside  of the
Reinvestment  Plan (to the extent the  Company  has  information  regarding  the
prices paid for Shares purchased outside the Reinvestment Plan), (ii) the annual
statement of Share valuation  provided to certain  stockholders (see "Reports to
Stockholders"),  and (iii) the price at which  stockholders  are willing to sell
their Shares.  Shares purchased  during any particular  period of time therefore
may be purchased at varying  prices.  The Board of Directors  will  announce any
price adjustment and the time period of its effectiveness as part of its regular
communications  with stockholders.  Any Shares acquired pursuant to a redemption
will be retired and no longer available for issuance by the Company.

         A  stockholder  may  present  fewer  than all his or her  Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which  must be  presented  for  redemption  shall be at least  25% of his or her
Shares,  and (ii) if such stockholder  retains any Shares, he or she must retain
at least 250 Shares (100 Shares for an IRA, Keogh Plan or pension plan).

         The  Directors,  in their sole  discretion,  may amend or  suspend  the
redemption  plan at any time they determine that such amendment or suspension is
in the best interest of the Company. The Directors may suspend the redemption of
Shares if (i) they  determine,  in their sole  discretion,  that such redemption
impairs the capital or the operations of the Company;  (ii) they  determine,  in
their sole  discretion,  that an emergency  makes such redemption not reasonably
practical;  (iii) any governmental or regulatory  agency with  jurisdiction over
the  Company  so  demands  for the  protection  of the  stockholders;  (iv) they
determine, in their sole discretion, that such redemption would be unlawful; (v)
they determine, in their sole discretion,  that such redemption, when considered
with all other  redemptions,  sales,  assignments,  transfers  and  exchanges of
Shares in the Company, could cause direct or indirect ownership of Shares of the
Company to become concentrated to an extent which would prevent the Company from
qualifying  as a REIT  under  the  Code;  or  (vi)  such  other  reasons  as the
Directors,  in their sole  discretion,  deem to be in the best  interest  of the
Company. For a discussion of the tax treatment of such redemptions, see "Federal
Income Tax Considerations -- Taxation of Stockholders." The redemption plan will
terminate, and the Company no longer shall accept Shares for redemption,  if and
when Listing occurs.  See "Risk Factors -- Investment Risks -- Lack of Liquidity
of Shares."


                                    BUSINESS

GENERAL

         The Company has been formed primarily to acquire  Properties related to
Health  Care  Facilities  located  across the  United  States.  The Health  Care
Facilities may include  congregate  living,  assisted living and skilled nursing
facilities,  continuing care retirement  communities and life care  communities,
and medical office buildings and walk-in clinics.  The Properties will be leased
on a  long-term  (generally,  10  to 20  years,  plus  renewal  options  for  an
additional  10 to 20 years),  "triple-net"  basis to  operators  of Health  Care
Facilities. "Triple-net" means that the tenant generally will be responsible for
repairs,  maintenance,  property taxes, utilities, and insurance. The Properties
may consist of land and  building,  the land  underlying  the building  with the
building  owned by the tenant or a third party,  or the  building  only with the
land owned by a third party. The Company may provide Mortgage Loans to operators
of Health Care  Facilities  secured by real estate owned by the operators.  To a
lesser  extent,  the Company also intends to offer Secured  Equipment  Leases to
operators of Health Care Facilities  pursuant to which the Company will finance,
through loans or direct financing leases, the Equipment.

         The  Properties,  which  typically  will be  freestanding  and  will be
located  across the United  States,  will be leased to  operators of Health Care
Facilities to be selected by the Advisor and approved by the Board of Directors.
Each  Property  acquisition  and Mortgage Loan will be submitted to the Board of
Directors  for approval.  The Company has not  specified  any  percentage of Net
Offering Proceeds to be invested in any particular type of Health Care Facility.
It is  anticipated  that the Health Care  Facilities  will be leased to selected
national and regional operators.

         The Company  believes  that  demographic  trends are  significant  when
looking  at the  potential  for  future  growth  in the  health  care  industry.
According to 1995 data from the U.S.  Census Bureau,  the elderly  population is
projected to more than double  between now and the year 2050, to 80 million.  As
illustrated  below,  most of this growth is expected to occur  between  2010 and
2030 when the  number of  elderly  is  projected  to grow by an  average of 2.8%
annually.

                          Elderly Population Estimates

   Date           Over 85 Population (000)       Over 65 Population (000)
   ----           ------------------------       ------------------------

July 1, 1996                3,747                         33,872

July 1, 2000                4,259                         34,709

July 1, 2005                4,899                         36,166

July 1, 2010                5,671                         39,408

July 1, 2015                6,193                         45,567

July 1, 2020                6,460                         53,220

July 1, 2025                7,046                         61,952

July 1, 2030                8,455                         69,379

July 1, 2035               10,910                         73,434

July 1, 2040               13,552                         75,233

July 1, 2045               16,285                         76,521

July 1, 2050               18,223                         78,859


         Source:  U.S. Bureau of Census

         In  addition  to the  growth in the  number  of  elderly  people,  life
expectancies  are  increasing.  Those 85 and over are the most  rapidly  growing
elderly age group. Between 1960 and 1994, this group grew 274%. During this same
period of time, the entire population of the United States grew 45 percent.



                                                       -45-

<PAGE>



                             Life Expectancy Trends
                              at Age 65 (in years)

         Year                      Male                      Female
         ----                      ----                      ------

         1965                      12.9                       16.3
         1980                      14.0                       18.4
         1985                      14.4                       18.6
         1990                      15.0                       19.0
         1991                      15.1                       19.1
         1992*                     15.2                       19.3
         1993*                     15.1                       19.0
         1994*                     15.3                       19.0
         1995**                    15.4                       19.2
         1996**                    15.4                       19.2
         1997**                    15.5                       19.3
         1998**                    15.5                       19.3
         1999**                    15.6                       19.3

         * preliminary data
         ** estimated
         Source:  Social Security Administration Office of Programs:  Data  from
                  the Office of the Actuary

         Based on information from the Economic and Statistic  Administration of
the U.S.  Department of Commerce,  management  believes that all of these trends
suggest that as more people live to the oldest ages,  there may also be more who
face chronic,  limiting  illnesses or  conditions.  These  conditions  result in
people  becoming  dependent on others for help in performing  the  activities of
daily living.  The U.S. General Accounting Office anticipates that the number of
older people needing assistance with activities of daily living will increase to
14 million by 2020, from 7 million in 1994.

                   Percent of Persons Needing Assistance with
                        Activities of Daily Living (ADLs)


               Years of Age                      Percentage
               ------------                      ----------
     
                  65-69                              9%
     
                  70-74                             11%

                  75-79                             20%

                  80-84                             31%

                   85+                              50%


         Source:  U.S. Bureau of Census, 1991 data

         In addition  to an aging  population,  according  to 1996 data from the
U.S. Department of Commerce, a significant segment of the elderly population has
the financial resources to afford seniors' housing  facilities,  with people age
55 to 64 making a mean household  income of $52,000 per year. The mean household
income  for  those  age 65 and over is more than  $29,000  per year.  Management
believes  that other  changes and trends in the health care industry will create
opportunities  for growth of  seniors'  housing  facilities,  including  (i) the
growth of operators serving specific health care niches,  (ii) the consolidation
of providers and facilities through mergers, integration of physician practices,
and elimination of duplicative services,  (iii) the pressures to reduce the cost
of  providing  quality  health care,  (iv) more  dual-income  and  single-parent
households  leaving  fewer family  members  available  for in-home care of aging
parents and  necessitating  more senior care facilities,  and (v) an anticipated
increase in the number of insurance  companies and health care networks offering
privately funded long-term care insurance.

         According to the National Center for Health Statistics, the health care
industry  represents  over 13.6% of the United  States' gross  domestic  product
("GDP") with at least $988 billion in annual  expenditures.  The U.S. Department
of Health and Human Services  expects this figure to rise to over 18% of the GDP
by 2000.  According to the U.S.  Census Bureau,  U.S.  health care  construction
expenditures are estimated to be $16.4 billion per year and growing. With regard
to housing for  seniors,  there are three major  contributors  to growth and the
attraction of capital,  according to the National Investment  Conference for the
Senior Living and Long Term Care Industries in 1996. They are (i)  demographics,
(ii) the limited  supply of new product,  and (iii) the  investment  community's
increased  understanding  of the  industry.  Although  the Company  believes the
growth will  continue  for a long  while,  overbuilding  is unlikely  due to the
favorable  demographics,  the increase in public awareness of the industry,  the
preference of seniors for obtaining care in  non-institutional  settings and the
cost savings realized in a non-institutional environment.

          Estimate of Effective Demand for Seniors' Housing Categories
                   Elderly Population with Income Over $25,000

                                Thousands of Beds


Base         Independent Living        Assisted Living         Skilled Nursing
- ----         ------------------        ---------------         ---------------

1996                 826                     427                     524

                     849                     457                     567
2000

2005                 887                     492                     619

2010                 963                     537                     681

2015                1,108                    597                     752

2020                1,292                                            834
                                             671

2025                1,507                    778                     957

2030                1,694                    903                    1,120



         Source:  Price Waterhouse, LLP for the National  Investment  Conference
                  for the Senior Living and Long Term Care Industries

         The Company  intends to  capitalize on the growing real estate needs in
the  seniors'  housing  and  health  care  industries   primarily  by  acquiring
Properties and leasing them to health care  operators on a long-term  (generally
10 to 20  years,  plus  renewal  options  for  an  additional  10 to 20  years),
"triple-net"  basis.  The Properties that the Company will acquire and lease are
expected to include one or more of the following types:

o        Seniors' Housing,  Which Includes Congregate Living and Assisted Living
         Facilities.  Congregate  living  communities  offer a lifestyle choice,
         including residential  accommodations with access to services,  such as
         housekeeping,  transportation,  dining and social activities, for those
         who  wish to  maintain  their  lifestyles  independently.  The  fastest
         growing segment of the seniors'  housing  industry is assisted  living.
         While skilled nursing facilities focus on more intensive care, assisted
         living facilities provide housing for seniors that need assistance with
         activities of daily living, such as grooming,  dressing,  bathing,  and
         eating.  Assisted living facilities provide accommodations with limited
         health  care  available  when  needed but do not have an  institutional
         feel.  Certain assisted living  facilities are also now specializing in
         meeting the needs of Alzheimer's and dementia patients prior

                                                       -47-

<PAGE>



         to the time that their condition warrants a nursing home setting or, in
         some instances, in competition with what would otherwise be provided in
         a nursing home setting.  According to the U.S. Department of Health and
         Human  Services,  at least 15%,  and  possibly  as much as 70%,  of the
         patients in nursing  homes could more  appropriately  be cared for in a
         less institutional and  more  cost  effective  setting.   In  addition,
         seniors'  housing  facilities  include   continuing   care   retirement
         communities and life care communities which provide  a  full  range  of
         long-term care services in one location,  such  as  congregate  living,
         assisted living and skilled nursing facilities and home health care.

o        Skilled  Nursing   Facilities.   Skilled  nursing   facilities  provide
         extensive skilled nursing and other long term care services to patients
         that may require full time medical observation,  medication monitoring,
         ventilation   and   intravenous   therapies,    sub-acute   care,   and
         Alzheimer's/dementia  care.  Throughout much of the United States,  the
         supply  of  new  skilled  nursing  facilities  is  limited  by  complex
         Certificate  of Need Laws or similar state  licensing  regulations as a
         result of the National Health Planning and Resources Development Act of
         1974,  which require  nursing home  providers to obtain prior  approval
         from  regulators  before  undertaking  any  major new  construction  or
         renovation  projects.  As a  result,  the  supply  of  skilled  nursing
         facilities  is  growing  very  slowly.   Demand  for  skilled   nursing
         facilities is coming from a rapidly growing population

                                                       -48-

<PAGE>



         over 75 years of age and the shift of sub-acute  patients to lower cost
         formats for treatment.  Some states have eliminated Certificate of Need
         Laws allowing the market to address the issue of supply and demand.  If
         trends such as this continue,  it is probable that new skilled  nursing
         facilities  will be constructed to meet the demand,  thereby  providing
         potential development and investment opportunities for the Company.

o        Medical Office Buildings. Medical office buildings,  including doctors'
         offices,  special  purpose  facilities,  such  as  diagnostic,   cancer
         treatment  and  outpatient  centers,  and walk-in  clinics also provide
         investment  opportunities as more small physician practices consolidate
         to save on the increasing  costs of private practice and single purpose
         medical facilities become more common.

                     Continuum of long-term care facilities*
<TABLE>
<CAPTION>

    Retirement/Congregate
           Living                 Assisted Living                Skilled Nursing Facility          Acute Care Hospitals
    ---------------------         ---------------                ------------------------          --------------------
<S> <C>
Informal concierge, emergency   24-hour supervision,        24-hour medical care and protective    Short-term acute medical
call system, housekeeping &     personal assistance as      oversight, medication management,      care
maintenance, some group         needed, emergency           emergency response system, 3 meals
activities, food service        response system, social     per day, assistance with ADLs
and transportation              activities, housekeeping
                                and maintenance, 3 meals
                                per day, transportation,
                                assistance with medication
                                and shopping
</TABLE>

*        Interspersed throughout the continuum are visits to physicians offices,
         physical therapy,  occupational therapy, and other short-term necessary
         health care services.

         Legg Mason Wood Walker, Inc. in its industry analysis,  Health Facility
REITs Substantial Growth Ahead (December 15, 1997), estimates that there is $584
billion  worth of  health  care  facilities  in the  United  States.  Management
believes,  based on historical costs of property owned by publicly traded health
care REITs,  only a small portion of health care facilities in the United States
are owned by REITs.  Management believes that this fact, coupled with the health
care industry trends  previously  discussed,  provides a significant  investment
opportunity  for the  Company.  The  Company  has not  yet  identified  specific
properties or regions in which it will invest,  however,  and demographic trends
may vary depending on the properties and regions  selected for  investment.  The
success of the future operations of the Company's Properties will depend largely
on each  operator's  ability to adapt to dominant  trends in the health care and
seniors'  housing  industry in each specific  region,  including,  among others,
greater   competitive   pressures,    increased   consolidation   and   changing
demographics.  There can be no assurance  that the  operators  of the  Company's
Properties will be able to adapt to such trends.

         Management  intends to structure  the  Company's  leases to require the
tenant to pay base annual rent with (i)  automatic  fixed  increases in the base
rent or (ii)  increases in the base rent based on  increases  in consumer  price
indices,  over the term of the lease.  In an effort to provide regular cash flow
to the Company, the Company intends generally to structure its leases to provide
a minimum level of rent, with automatic  increases in the minimum rent, which is
payable regardless of the amount of gross revenues at a particular Property. The
Company also will endeavor to maximize growth and minimize risks associated with
ownership  and  leasing of real estate that  operates in this  industry  segment
through  careful  selection  and  screening  of its  tenants  (as  described  in
"Standards  for  Investment"  below)  in  order  to  reduce  risks  of  default;
monitoring  statistics  relating  to  operators  of Health Care  Facilities  and
continuing to develop  relationships  in the industry in order to reduce certain
risks associated with investment in real estate.  See "Standards for Investment"
below for a  description  of the  standards  which the Board of  Directors  will
employ in selecting operators and particular Properties for investment.

         Management  expects  to  acquire  Properties  in  part  with a view  to
diversification  among  facility  type  and in the  geographic  location  of the
Properties.  There are no restrictions on the types of Health Care Facilities in
which the Company may invest.  In  addition,  there are no  restrictions  on the
geographic area or areas within the United States in which  Properties  acquired
by the Company may be located. It is anticipated that the Properties acquired by
the  Company  will be located in various  states and  regions  within the United
States.

         The Company  also  intends to provide  Mortgage  Loans to  operators of
Health Care Facilities, or their affiliates, to enable them to acquire the land,
land and buildings or buildings.  The Mortgage Loans will be secured by property
owned by the  borrower.  The Company  expects that the  interest  rate and terms
(generally,  10 to 20 years) of the  Mortgage  Loans will be similar to those of
its leases.

         To a lesser extent, the Company also intends to offer Secured Equipment
Leases to operators of Health Care Facilities. The Secured Equipment Leases will
consist primarily of leases of, and loans for the purchase of, Equipment.  As of
the date of this Prospectus,  the Company has neither identified any prospective
operators that will  participate in such financing  arrangements  nor negotiated
any specific  terms of a Secured  Equipment  Lease.  The Company  cannot predict
terms and  conditions  of the Secured  Equipment  Leases,  although  the Company
expects  that the  Secured  Equipment  Leases  will (i) have terms that equal or
exceed the useful life of the subject  Equipment  (although  such terms will not
exceed 7 years),  (ii) in the case of the  leases,  include  an  option  for the
lessee to  acquire  the  subject  Equipment  at the end of the lease  term for a
nominal fee,  (iii) include a stated  interest rate, and (iv) in the case of the
leases,  provide  that the Company  and the lessees  will each treat the Secured
Equipment  Leases as loans secured by personal  property for federal  income tax
purposes.  See "Federal Income Tax  Considerations  Characterization  of Secured
Equipment  Leases." In  addition,  the Company  expects that each of the Secured
Equipment Leases will be secured by the Equipment to which it relates.  Payments
received

                                                       -49-

<PAGE>



from  lessees  under  Secured  Equipment  Leases  will be treated as payments of
principal and interest.  All Secured  Equipment Leases will be negotiated by the
Advisor  and  approved  by the Board of  Directors  including  a majority of the
Independent Directors.

   
         The  Company  will  borrow  money to acquire  Assets and to pay certain
fees. The Company  intends to encumber  Assets in connection with the borrowing.
The Company plans to obtain a revolving Line of Credit initially in an amount up
to $45,000,000,  and may, in addition,  obtain Permanent Financing.  The Line of
Credit may be increased at the  discretion of the Board of Directors.  The Board
of Directors  anticipates that the aggregate amount of any Permanent  Financing,
if obtained,  shall not exceed 30% of the Company's total assets.  In any event,
the  Company's  total  borrowings  will be  limited  to 300% of Net Assets . The
Permanent  Financing would be used to acquire  Assets,  and pay a fee of 4.5% of
any Permanent Financing,  excluding amounts to fund Secured Equipment Leases, as
Acquisition Fees, to the Advisor for identifying the Properties, structuring the
terms of the  acquisition and leases of the Properties and structuring the terms
of the Mortgage Loans. The Line of Credit may be repaid with offering  proceeds,
working  capital  or  Permanent  Financing.  The Line of  Credit  and  Permanent
Financing are the only source of funds for making Secured  Equipment  Leases and
for paying the Secured Equipment Lease Servicing Fee to the Advisor. The Company
has engaged in preliminary  discussions  with potential  lenders but has not yet
received a  commitment  for the Line of Credit or any  Permanent  Financing  and
there is no  assurance  that the  Company  will obtain the Line of Credit or any
Permanent Financing on satisfactory terms.
    

         As of the date of this Prospectus, the Company had not entered into any
arrangements that create a reasonable probability that the Company will purchase
any  Property  or enter  into any  Mortgage  Loan or  Secured  Equipment  Lease.
Moreover, no Properties have been definitively selected for acquisition nor have
any Mortgage Loan borrowers or Secured Equipment Lease lessees or borrowers been
specifically identified.

         The Company has  undertaken to supplement  this  Prospectus  during the
offering  period to disclose the  acquisition  of Properties at such time as the
Company  believes  that a reasonable  probability  exists that any such Property
will be acquired  by the  Company.  Based upon the  experience  and  acquisition
methods of the  Affiliates  of the Company and the Advisor  this  normally  will
occur,  with regard to acquisition of Properties,  as of the date on which (i) a
commitment letter is executed by a proposed lessee,  (ii) a satisfactory  credit
underwriting   for  the  proposed  lessee  has  been  completed,   and  (iii)  a
satisfactory site inspection has been completed.  The initial  disclosure of any
proposed  acquisition,  however,  cannot be relied upon as an assurance that the
Company  ultimately  will  consummate  such  proposed  acquisition  or that  the
information provided concerning the proposed acquisition will not change between
the date of such  supplement and the actual  purchase or extension of financing.
The terms of any  borrowing by the Company will also be disclosed by  supplement
following  receipt by the  Company of an  acceptable  commitment  letter  from a
potential lender.

         If the minimum number of 250,000 Shares  ($2,500,000 in Gross Proceeds)
is sold, the Company will acquire no more than two medical  office  buildings or
walk-in  clinics  and will  have  reduced  diversification  of its  investments.
Acquisition  of a Property  for a Health  Care  Facility  generally  involves an
investment  in land  and  building  ranging  from  approximately  $1,000,000  to
$30,000,000,  although  higher or lower amounts for  individual  Properties  are
possible. In light of current market conditions, if the maximum number of Shares
is sold,  the  Company  could  invest in  approximately  four to 126  Properties
depending on the types of Properties,  and assuming an average purchase price of
$10,000,000 per Property,  the Company would acquire or finance approximately 12
Properties  with the net proceeds  from this  offering.  In certain  cases,  the
Company may become a co-venturer  in a Joint Venture that will own the Property.
In each such case,  the Company's  cost to purchase an interest in such Property
will be less than the total  purchase  price and the Company  therefore  will be
able to acquire  interests in a greater  number of  Properties.  The Company may
also borrow to acquire Assets. See "Business  Borrowing."  Management  estimates
that 15% to 25% of the Company's investment will be for the cost of land and 75%
to 85% for the cost of buildings. See

                                                       -50-

<PAGE>



   
"Joint Venture Arrangements" below and "Risk Factors Investment Risks - Possible
Lack of  Diversification."  Management  cannot  estimate  the number of Mortgage
Loans that may be entered into.  The Company may also fund  Mortgage  Loans with
proceeds of the Line of Credit or Permanent Financing.
    

         Although  management  cannot  estimate the number of Secured  Equipment
Leases that may be entered into, it expects to fund the Secured  Equipment Lease
program  from the  proceeds of the Line of Credit or  Permanent  Financing in an
amount not to exceed  10% of the  Company's  total  assets  and  management  has
undertaken,  consistent  with its  objective of qualifying as a REIT for federal
income tax  purposes,  to ensure that the total  value of all Secured  Equipment
Leases  will not exceed 25% of the  Company's  total  assets,  and that  Secured
Equipment  Leases to a single lessee,  in the  aggregate,  will not exceed 5% of
total assets.

SITE SELECTION AND ACQUISITION OF PROPERTIES

         General. It is anticipated that the operators of Health Care Facilities
selected by the Advisor,  and as approved by the Board of  Directors,  will have
personnel  engaged in site selection and evaluation.  In addition,  due to rapid
expansion,  some  operators  may  outsource  their  site  selection  process  to
consultants  or developers for review or may rely on third party  analyses.  The
operators of Health Care Facilities and other parties  generally conduct studies
which  typically  include such factors as population  trends,  hospital or other
medical facilities development, residential development, per capita or household
median  income,  per capita or  household  median age,  and other  factors.  The
operators  of the  Health  Care  Facilities  are  expected  to make  their  site
evaluations and analyses available to the Company.

         The  Board of  Directors,  on  behalf  of the  Company,  will  elect to
purchase and lease Properties based principally on an examination and evaluation
by the Advisor of the potential  value of the site, the financial  condition and
business history of the proposed  tenant,  the demographics of the area in which
the  property  is located or to be  located,  the  proposed  purchase  price and
proposed  lease terms,  geographic  and market  diversification,  and  potential
revenues  expected to be generated by the business located on the property.  The
Advisor also will perform an  independent  break-even  analysis of the potential
profitability  of a property using  historical  data and other data developed by
the Company and provided by the operator.

         The Board of Directors  will  exercise its own judgment as to, and will
be  solely   responsible  for,  the  ultimate  selection  of  both  tenants  and
Properties.  Therefore,  some of the  properties  proposed  and  approved  by an
operator may not be purchased by the Company.

         In each Property  acquisition,  it is anticipated that the Advisor will
negotiate the lease agreement with the tenant. In certain instances, the Advisor
may negotiate an assignment of an existing lease, in which case the terms of the
lease may vary  substantially  from the Company's  standard lease terms,  if the
Board of Directors, based on the recommendation of the Advisor,  determines that
the terms of an  acquisition  and  lease of a  Property,  taken as a whole,  are
favorable to the Company.  It is expected  that the  structure of the  long-term
"triple-net"  lease  agreements,  which  generally  provide for  monthly  rental
payments with automatic  fixed  increases in base rent at specified times during
the lease terms or  increases  in the base rent based on  increases  in consumer
price  indices  over the term of the  leases,  will  increase  the  value of the
Properties and provide an inflation hedge. See "Description of Leases" below for
a discussion of the  anticipated  terms of the Company's  leases.  In connection
with a  Property  acquisition,  in the event the  tenant  does not enter  into a
Secured  Equipment  Lease with the  Company,  the tenant will provide at its own
expense all Equipment  necessary to operate the  Company's  Property as a Health
Care  Facility.  Generally,  a tenant  either pays cash or obtains a loan from a
third  party to purchase  such items.  If the tenant  obtains  such a loan,  the
tenant will own this personal property subject to the tenant's obligations under
its loan. In the  experience  of the  Affiliates of the Company and the Advisor,
there may be rare circumstances in which a tenant defaults under such a loan, in
which  event the lender may  attempt to remove the  personal  property  from the
building,  resulting in the Property becoming inoperable until new Equipment can
be purchased and installed.  In order to prevent  repossession  of this personal
property by the lender,  and only on an interim  basis in order to preserve  the
value of a Property,  the  Company may elect (but only to the extent  consistent
with the Company's objective of qualifying as a REIT) to use Company reserves to
purchase this personal property from the lender, generally at a discount for the
remaining unpaid balance under the tenant's loan. The Company then would expect,
consistent  with the Company's  objective of qualifying as a REIT, to resell the
personal  property to a new tenant in connection  with the transfer of the lease
to that tenant.

         Some lease agreements will be negotiated to provide the tenant with the
opportunity to purchase the Property under certain conditions,  generally either
at a price  not  less  than  fair  market  value  (determined  by  appraisal  or
otherwise)  or through a right of first  refusal to purchase  the  Property.  In
either case, the lease agreements will

                                                       -51-

<PAGE>



provide that the tenant may exercise these rights only to the extent  consistent
with the Company's  objective of qualifying as a REIT.  See "Sale of Properties,
Mortgage  Loans and Secured  Equipment  Leases"  below and  "Federal  Income Tax
Considerations Characterization of Leases."

         The purchase of each  Property will be supported by an appraisal of the
real estate prepared by an independent  appraiser.  The Advisor,  however,  will
rely on its own  independent  analysis and not on such appraisals in determining
whether or not to recommend that the Company acquire a particular property.  The
purchase  price of each such  Property,  plus any  Acquisition  Fees paid by the
Company  in  connection  with such  purchase,  will not  exceed  the  Property's
appraised  value.  (In connection with the acquisition of a Property which is to
be  constructed  or  renovated,  the  comparison  of the purchase  price and the
appraised  value  of  such  Property  ordinarily  will  be  based  on the  "when
constructed"  price  and  value of such  Property.)  It  should  be  noted  that
appraisals  are  estimates of value and should not be relied upon as measures of
true  worth or  realizable  value.  Each  appraisal  will be  maintained  in the
Company's  records for at least five years and will be available for  inspection
and duplication by any stockholder.

         The titles to  Properties  purchased  by the Company will be insured by
appropriate title insurance  policies and/or abstract  opinions  consistent with
normal practices in the jurisdictions in which the Properties are located.

         Construction and Renovation.  In some cases, construction or renovation
will be required  after the purchase  contract has been entered into, but before
the total  purchase price has been paid. In connection  with the  acquisition of
Properties  that are to be  constructed or renovated and as to which the Company
will own both the land and the building or building only, the Company  generally
will advance funds for  construction or renovation  costs, as they are incurred,
pursuant to a development agreement with the developer. The developer may be the
tenant or an Affiliate of the Company. An Affiliate may serve as a developer and
enter into the  development  agreement  with the Company if the  transaction  is
approved by a majority of the Directors, including a majority of the Independent
Directors. The Company believes that the ability to have an Affiliate capable of
serving as the  developer  provides the Company an  advantage  by enhancing  its
relationship with key tenants and by giving it access to tenant opportunities at
an earlier stage of the development  cycle. As a result, the Company believes it
will have a greater number of opportunities for investment  presented to it than
it  might  otherwise  have  and it  will  be  able to  obtain  better  terms  by
negotiating  the terms of its investment at an earlier stage in the  development
cycle when there are fewer competitive alternatives available to the tenant.

         The  developer  will enter  into all  construction  contracts  and will
arrange for and coordinate all aspects of the  construction or renovation of the
Property improvements. The developer will be responsible for the construction or
renovation of the building improvements, although it may employ co-developers or
sub-agents in fulfilling its responsibilities  under the development  agreement.
All  general  contractors  performing  work in  connection  with  such  building
improvements  must provide a payment and performance bond or other  satisfactory
form of  guarantee of  performance.  All  construction  and  renovation  will be
performed or  supervised by persons or entities  acceptable to the Advisor.  The
Company will be obligated,  as construction or renovation costs are incurred, to
make  the  remaining  payments  due  as  part  of the  purchase  price  for  the
Properties,  provided that the construction or renovation conforms to definitive
plans,  specifications,  and  costs  approved  by the  Advisor  and the Board of
Directors and embodied in the construction contract.

         Under the terms of the  development  agreement,  the Company  generally
will advance its funds on a monthly basis to meet the construction draw requests
of the developer.  The Company, in general,  only will advance its funds to meet
the  developer's  draw  requests  upon  receipt  of an  inspection  report and a
certification of draw requests from an inspecting architect or engineer suitable
to the  Company,  and the  Company  may  retain a portion of any  advance  until
satisfactory  completion of the project.  The  certification  generally  must be
supported by color photographs showing the construction work completed as of the
date of  inspection.  The total  amount of the funds  advanced to the  developer
(including  the purchase  price of the land plus closing costs and certain other
costs) generally will not exceed the maximum amount specified in the development
agreement.  Such maximum  amount will be based on the Company's  estimate of the
costs of such construction or renovation.

         In some cases,  construction  or renovation will be required before the
Company has acquired the Property. In this situation,  the Company may have made
a  deposit  on the  Property  in cash or by  means of a letter  of  credit.  The
renovation  or  construction  may be made by an Affiliate or a third party.  The
Company  may  permit the  proposed  developer  to arrange  for a bank or another
lender,  including  an  Affiliate,  to  provide  construction  financing  to the
developer. In such cases, the lender may seek assurance from the Company that it
has  sufficient  funds to pay to the developer  the full  purchase  price of the
Property upon completion of the  construction  or renovation.  In the event that
the  Company  segregates  funds as  assurance  to the  lender of its  ability to
purchase the Property, the funds will

                                                       -52-

<PAGE>



remain the  property  of the  Company,  and the lender  will have no rights with
respect to such funds upon any default by the  developer  under the  development
agreement or under the loan agreement with such lender, or if the closing of the
purchase of the  Property by the Company  does not occur for any reason,  unless
the transaction is supported by a letter of credit in favor of the lender.

         Under  the  development  agreement,  the  developer  generally  will be
obligated  to  complete  the   construction   or   renovation  of  the  building
improvements  within a specified period of time from the date of the development
agreement,  which  generally  will  be  between  eight  to  12  months.  If  the
construction  or renovation is not completed  within that time and the developer
fails to remedy this default  within 10 days after notice from the Company,  the
Company will have the option to grant the developer  additional time to complete
the  construction,  to take over  construction  or  renovation  of the  building
improvements,  or  to  terminate  the  development  agreement  and  require  the
developer  to  purchase  the  Property  at a price  equal  to the sum of (i) the
Company's  purchase price of the land,  including all fees,  costs, and expenses
paid by the Company in connection  with its purchase of the land, (ii) all fees,
costs,  and  expenses  disbursed  by the  Company  pursuant  to the  development
agreement for construction of the building improvements, and (iii) the Company's
"construction  financing  costs."  The  "construction  financing  costs"  of the
Company is an amount equal to a return,  at the annual  percentage  rate used in
calculating the minimum annual rent under the lease, on all Company payments and
disbursements described in clauses (i) and (ii) above.

         The Company also generally will enter into an  indemnification  and put
agreement  (the  "Indemnity  Agreement")  with  the  developer.   The  Indemnity
Agreement  will  provide for  certain  additional  rights to the Company  unless
certain conditions are met. In general, these conditions are (i) the developer's
acquisition  of  all  permits,  approvals,  and  consents  necessary  to  permit
commencement of construction or renovation of the building improvements within a
specified period of time after the date of the Indemnity Agreement (normally, 60
days),  or (ii) the completion of  construction or renovation of the building as
evidenced  by the issuance of a  certificate  of  occupancy,  within a specified
period of time after the date of the Indemnity Agreement. If such conditions are
not met, the Company will have the right to grant the developer  additional time
to satisfy the  conditions  or to require the developer to purchase the Property
from the Company at a purchase price equal to the total amount  disbursed by the
Company in connection with the acquisition and construction or renovation of the
Property (including closing costs), plus an amount equal to the return described
in item (iii) of the preceding  paragraph.  Failure of the developer to purchase
the Property from the Company upon demand by the Company under the circumstances
specified  above will  entitle the Company to declare the  developer  in default
under the lease and to declare each  guarantor in default under any guarantee of
the developer's obligations to the Company.

         In certain  situations where construction or renovation is required for
a Property,  the Company will pay a negotiated maximum amount upon completion of
construction  or renovation  rather than  providing  financing to the developer,
with  such  amount  to  be  based  on  the  developer's  actual  costs  of  such
construction or renovation.

         Affiliates  of the Company also may provide  construction  financing to
the  developer  of a Property.  In addition,  the Company may  purchase  from an
Affiliate of the Company a Property  that has been  constructed  or renovated by
the Affiliate. Any fees paid to Affiliates of the Company in connection with the
financing, construction or renovation of a Property acquired by the Company will
be considered  Acquisition Fees and will be subject to approval by a majority of
the Board of Directors,  including a majority of the Independent Directors,  not
otherwise  interested in the  transaction.  See  "Management  Compensation"  and
"Conflicts of Interest - Certain Conflict Resolution  Procedures." Any such fees
will be included in the cost of the Property and, therefore, will be included in
the calculation of base rent.

         In all  situations  where  construction  or renovation of a Property is
required,  the Company also will have the right to review the developer's books,
records,  and  agreements  during and following  completion of  construction  to
verify actual costs.

         Interim Acquisitions.  The Affiliates of the Advisor regularly may have
opportunities  to acquire  properties of a type suitable for  acquisition by the
Company as a result of their relationships with various operators. See "General"
above. These acquisitions often must be made within a relatively short period of
time,  occasionally  at a time  when  the  Company  may be  unable  to make  the
acquisition.  In  an  effort  to  address  these  situations  and  preserve  the
acquisition  opportunities of the Company (and other Affiliates of the Advisor),
the Advisor and its  Affiliates  maintain  lines of credit  which enable them to
acquire these  properties on an interim basis and  temporarily  own them for the
purpose of facilitating their acquisition by the Company (or other entities with
which the  Company is  affiliated).  At such time as a Property  acquired  on an
interim basis is determined to be suitable for  acquisition by the Company,  the
interim  owner of the  Property  will sell its  interest in the  Property to the
Company at a price  equal to the  lesser of its cost  (which  includes  carrying
costs and, in instances  in which an Affiliate of the Company has provided  real
estate  brokerage  services  in  connection  with the  initial  purchase  of the
Property,  indirectly  includes  fees paid to an  Affiliate  of the  Company) to
purchase  such  interest in the  Property  or the  Property's  appraised  value,
provided that a majority of Directors,  including a majority of the  Independent
Directors, determine that the acquisition is fair and reasonable to the Company.
See "Conflicts of Interest - Certain Conflict Resolution Procedures." Appraisals
of Properties acquired from such interim owners will be obtained in all cases.

         Acquisition Services. Acquisition services performed by the Advisor may
include,  but are not limited to, site  selection  and/or  approval;  review and
selection of tenants and negotiation of lease agreements and related  documents;
monitoring Property

                                                       -53-

<PAGE>



acquisitions;  and the processing of all final  documents  and/or  procedures to
complete the acquisition of Properties and the  commencement of tenant occupancy
and lease payments.

         The Company will pay the Advisor a fee of 4.5% of the Total Proceeds as
Acquisition  Fees. See "Management  Compensation."  The total of all Acquisition
Fees and Acquisition Expenses shall be reasonable and shall not exceed an amount
equal to 6% of the Real Estate  Asset  Value of a Property,  or in the case of a
Mortgage  Loan,  6% of the funds  advanced,  unless a  majority  of the Board of
Directors,  including a majority of the  Independent  Directors,  not  otherwise
interested in the transaction approves fees in excess of these limits subject to
a  determination  that the  transaction is  commercially  competitive,  fair and
reasonable  to the  Company.  The total of all  Acquisition  Fees payable to all
persons or  entities  will not exceed the  compensation  customarily  charged in
arm's-length  transactions by others  rendering  similar  services as an ongoing
activity  in  the  same  geographical  location  and  for  comparable  types  of
properties.

         The Advisor engages counsel to perform legal services, and such counsel
also  may  provide  legal  services  to  the  Company  in  connection  with  the
acquisition of Properties. The legal fees payable to such counsel by the Company
will not exceed those generally charged for similar services.

STANDARDS FOR INVESTMENT IN PROPERTIES

         Selection  of  Operators of Health Care  Facilities.  The  selection of
operators of Health Care Facilities by the Advisor,  as approved by the Board of
Directors, will be based on a number of factors which may include: an evaluation
of the  operations  of their health care  facilities,  the number of health care
facilities operated,  the relationship of average revenue per available unit (or
bed) to the average capital cost per unit (or bed) for each health care facility
operated,  the relative competitive position among the same types of health care
facilities offering similar services, market penetration, the relative financial
success of the operator in the geographic area in which the Property is located,
overall  historical  financial  performance of the operator,  and the management
capability of the operator.  The operators of the Health Care Facilities are not
expected to be affiliated with the Advisor, the Company or any Affiliate.

         Selection of  Properties.  In making  investments  in  Properties,  the
Advisor will consider  relevant real property and financial  factors,  including
the condition, use, and location of the Property, income-producing capacity, and
the prospects for long-term appreciation. The Company will obtain an independent
appraisal  for each  Property  it  purchases.  The proper  location,  design and
amenities are important to the success of a Property.

         In selecting specific Properties, the Advisor, as approved by the Board
of Directors, will apply the following minimum standards.

         1.  Each  Property  will be in what  the  Advisor  believes  is a prime
location for that type of Property.

         2. Base (or  minimum)  annual  rent will  provide a  specified  minimum
return on the Company's cost of purchasing  and, if  applicable,  developing the
Property,  and the  lease  also  will  generally  provide  for  automatic  fixed
increases in base rent at specified  times during the lease term or increases in
the base rent based on increases in consumer  price indices over the term of the
lease.

         3.       The initial lease term typically will be at least 10 to
20 years.

         4. In general,  the Company will not acquire a Property if the Board of
Directors,  including a majority of the Independent  Directors,  determines that
the  acquisition  would  adversely  affect the  Company in terms of  geographic,
property type or chain diversification.



                                                       -54-

<PAGE>



DESCRIPTION OF PROPERTIES

         Although  the  Advisor  has  not  yet  selected  any   Properties   for
investment,  it is expected  that any  Properties  purchased by the Company will
conform  generally to the following  specifications  of size,  cost, and type of
land and buildings.  The Company  anticipates  acquiring  Properties  related to
Health  Care  Facilities  which may  include,  but will not be  limited  to, the
following types:

         Congregate   Living   Facilities.   Congregate  living  facilities  are
primarily apartment buildings which contain a significant amount of common space
to accommodate  dining,  recreation,  activities and other support  services for
senior  citizens.  These  properties range in size from 100 to 500 units with an
average size of approximately  225 units.  Units include studios and one and two
bedrooms  ranging  in size  from 450  square  feet to over  1,500  square  feet.
Residents  generally  pay a base rent for their  housing  which  includes a meal
program.  In  addition,  a menu of other  services is provided at an  additional
charge.  The  cost  of  congregate  living  facilities   generally  ranges  from
$10,000,000 to $30,000,000.

         Assisted  Living  Facilities.  Assisted  living  facilities  provide  a
special combination of housing, supportive services, personalized assistance and
health  care to their  residents  in a manner  which is  designed  to respond to
individual  needs.  These facilities  offer a lower-cost  alternative to skilled
nursing facilities for those who do not require intensive nursing care. Industry
standards suggest that a person is suitable for an assisted living facility when
he or she  needs  assistance  with  three or fewer  activities  of daily  living
("ADLs")  on a daily  basis.  ADLs  are  activities  such as  eating,  dressing,
walking,  bathing,  and bathroom use.  Assisted  living  facilities also provide
assistance  with  instrumental  activities  of daily living  ("IADLs"),  such as
shopping,  telephone  use and money  management.  The level of care  provided by
assisted  living  facilities has increased in recent years.  With an increase in
demand for the lower-cost services they provide, assisted living

                                                       -55-

<PAGE>



facilities  have  begun to provide  care for an  increasing  number of  physical
disabilities,  certain  non-ambulatory  conditions  and early stages of specific
diseases,  such as Alzheimer's disease, where intensive medical treatment is not
required.

         Current industry practice generally is to build  freestanding  assisted
living facilities with an average of between 40 and 100 units, depending on such
factors as market forces,  site  constraints  and program  orientation.  Current
economics  place the size of the private  living space of a unit in the range of
300 gross square feet for an efficiency  unit to 750 square feet for a large one
bedroom unit. Units are typically  private,  allowing residents the same general
level of control  over their  units as  residents  of a rental  apartment  would
typically  have.  Common areas on the most recently  developed  assisted  living
facilities  may total as much as 30 to 40 percent of the gross square footage of
a  facility.  The cost of  assisted  living  facilities  generally  ranges  from
$8,000,000 to $15,000,000.

         Skilled   Nursing   Facilities.   In  addition   to   housing,   meals,
transportation,  housekeeping,  ADL and IADL care,  skilled  nursing  facilities
provide  comprehensive  nursing and long term care to their  residents.  Skilled
nursing facilities  accommodate persons who require varying levels of care. Many
skilled  nursing  facilities  are capable of serving  residents  with  intensive
needs.  Some skilled nursing  facilities  specialize in certain types of disease
care,  such as  Alzheimer's  or Dementia  care. The cost of the care provided in
skilled  nursing  facilities  is among the most  expensive  in the  senior  care
segment of the health care industry, providing potential for substantial revenue
generation.  Based on discussions  with  executives  with senior  living/housing
firms  and  studies  performed  by  health  care  industry  associations,  Price
Waterhouse, in a 1996 study it developed for institutional investors,  estimated
that the total  monthly  cost per  resident  of a skilled  nursing  facility  is
between  $2,880  and  $4,000.  According  to a 1997 study  developed  by NatWest
Securities  for  certain of its  investors,  the high demand for beds in skilled
nursing facilities,  along with a restricted supply of new beds, has resulted in
high occupancy  rates and minimal  skilled  nursing  facility lease and mortgage
default rates.

         Skilled  nursing  facilities are also generally  freestanding,  but are
typically  more  institutional  in nature,  allowing for efficient  cleaning and
sterilization. The rooms in skilled nursing facilities are equipped with patient
monitoring  devices  and  emergency  call  systems.  Oxygen  systems may also be
present.  Both multiple  floor and single floor  designs are common.  Individual
rooms in skilled  nursing  facilities  may be as small as 100 square feet,  with
common areas varying greatly in size.  Skilled nursing  facilities  historically
have been located in close proximity to hospitals to facilitate doctors' visits.
Today,  the location of these  facilities  is less  important  where  rotational
visiting  systems are in place and where more highly skilled  nursing staffs are
responsible  for  functions  that used to be  handled  by  doctors.  The cost of
skilled nursing facilities generally ranges from $5,000,000 to $10,000,000.

         Continuing Care Retirement  Communities.  Congregate  living facilities
sometimes have assisted  living and/or skilled  nursing  facilities  attached or
adjacent to their locations.  When this occurs,  the projects are often referred
to as continuing  care  retirement  communities  or life care  communities.  The
intent of continuing care retirement  communities or life care communities is to
provide a continuum of care to the residents.  In other words,  as residents age
and their  health  care  needs  increase,  they can  receive  the care they need
without  having to move away from the  "community"  which has become their home.
Continuing care retirement  communities  typically  operate on a fee-for-service
basis and the units are rented on a monthly basis to residents,  while life care
centers generally charge an entrance fee that is partially refundable and covers
the cost of all of the residents' health care-related  services,  plus a monthly
maintenance   fee.   Continuing  care  retirement   communities  and  life  care
communities are the most expensive  seniors' housing  accommodations  today with
prices  for  each  facility   generally   ranging  from   $40,000,000   to  over
$100,000,000.

         Medical Office Buildings.  Medical office buildings,  including walk-in
clinics, are conventional office buildings with additional plumbing,  mechanical
and  electrical  service  amenities,  which  facilitate  physicians  and medical
delivery  companies  in the  practice  of medicine  and  delivery of health care
services.  These  facilities  can range in size from 3,000 square feet  (walk-in
clinic)  up to  100,000  square  feet  (medical  office  building),  with  costs
generally  ranging  from  $1,000,000  to  $10,000,000.  It is common for medical
office  buildings to be located in close proximity to hospitals where physicians
have   practice   privileges.   Walk-in   clinics   are   normally   placed   in
retail/commercial locations to make accessibility convenient for patients and to
provide medical services in areas which are not close or convenient to hospitals
and larger physician practices.

         Either before or after construction or renovation, the Properties to be
acquired  by the  Company  will  be one of a  Health  Care  Facility  operator's
approved  designs.  Prior  to  purchase  of all  Properties,  other  than  those
purchased prior to completion of  construction,  the Company will receive a copy
of the certificate of occupancy issued by the local building  inspector or other
governmental authority and all other governmental  certificates or permits which
permit the use of the Property as a Health Care  Facility,  and shall  receive a
certificate from the operator of the Health Care Facility to the effect that (i)
the Property is  operational  and in compliance  with all required  governmental
permits and  certificates and (ii) the Property is in compliance with all of the
Health Care Facility  operator's  requirements,  including,  but not limited to,
building  plans and  specifications  approved by the operator.  The Company also
will receive a  certificate  of occupancy  and all other  required  governmental
permits or certificates  for each Property for which  construction  has not been
completed at the time of purchase,  prior to the Company's  payment of the final
installment of the purchase price for the Property.

         Generally,  Properties  to be acquired by the Company  will  consist of
both land and  building,  although  in a number of cases the Company may acquire
only the land underlying the building

                                                       -56-

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with the building owned by the tenant or a third party, and also may acquire the
building only with the land owned by a third party.  In general,  the Properties
will be  freestanding  and  surrounded by paved  parking areas and  landscaping.
Although,  buildings  may be suitable  for  conversion  to various  uses through
modifications,  some  Properties  may not be  economically  convertible to other
uses.

         A tenant generally will be required by the lease agreement to make such
capital  expenditures  as may be  reasonably  necessary to refurbish  buildings,
premises,  signs,  and  equipment  and maintain  the  leasehold in a manner that
allows operation for its intended purpose.  These capital expenditures generally
will be paid by the tenant during the term of the lease.

DESCRIPTION OF PROPERTY LEASES

         The terms and  conditions of any lease entered into by the Company with
regard to a Property  may vary from those  described  below.  The Advisor in all
cases will use its best  efforts to obtain  terms at least as favorable as those
described   below.  If  the  Board  of  Directors   determines,   based  on  the
recommendation  of the Advisor,  that the terms of an acquisition and lease of a
Property, taken as a whole, are favorable to the Company, the Board of Directors
may, in its sole  discretion,  cause the Company to enter into leases with terms
which are  substantially  different than the terms described  below, but only to
the extent  consistent with the Company's  objective of qualifying as a REIT. In
making such  determination,  the Advisor will  consider such factors as the type
and location of the Property,  the  creditworthiness of the tenant, the purchase
price of the  Property,  the  prior  performance  of the  tenant,  and the prior
business  experience of  management of the Company and the Company's  Affiliates
with the operator.

         General. In general, the leases are expected to be "triple-net" leases,
which means that the tenants  generally will be required to pay for all repairs,
maintenance,  property taxes, utilities, and insurance. The tenants also will be
required to pay for special  assessments,  sales and use taxes,  and the cost of
any renovations permitted under the leases. The Company will be the lessor under
each lease except in certain circumstances in which it may be a party to a Joint
Venture which will own the Property.  In those cases, the Joint Venture,  rather
than the  Company,  will be lessor,  and all  references  in this section to the
Company as lessor  therefore  should be read  accordingly.  See  "Joint  Venture
Arrangements" below.

         Term of Leases.  It presently is anticipated  that  Properties  will be
leased for an initial term of 10 to 20 years with up to four,  five-year renewal
options.  The minimum  rental  payment  under the renewal  option  generally  is
expected  to be greater  than that due for the final  lease year of the  initial
term of the lease.  Upon  termination  of the lease,  the tenant will  surrender
possession of the Property to the Company,  together with any improvements  made
to the  Property  during the term of the lease,  except that for  Properties  in
which the Company owns only the building and not the underlying  land, the owner
of the land may assume ownership of the building.

         Computation  of Lease  Payments.  During the initial term of the lease,
the tenant  will pay the  Company,  as lessor,  minimum  annual  rent equal to a
specified   percentage  of  the  Company's  cost  of  purchasing  the  Property.
Typically,  the leases will provide for automatic fixed increases in the minimum
annual rent or increases  in the base rent based on increases in consumer  price
indices at predetermined  intervals during the term of the lease. In the case of
acquisition of Properties that are to be constructed or renovated  pursuant to a
development  agreement,  the  Company's  costs of  purchasing  the Property will
include the purchase price of the land,  including all fees, costs, and expenses
paid by the Company in connection  with its purchase of the land,  and all fees,
costs,  and  expenses  disbursed  by the  Company for  construction  of building
improvements.  See "Site  Selection and Acquisition of Properties - Construction
and Renovation" above.

         In the case of  Properties in which the Company owns only the building,
the Company will  structure its leases to have  recovered its  investment in the
building by the expiration of the lease.

         Assignment and Sublease.  In general,  it is expected that no lease may
be assigned or subleased  without the Company's prior written consent (which may
not be unreasonably withheld). A tenant may, however, assign or sublease a lease
to its  corporate  affiliate  or  subsidiary  or to its  successor  by merger or
acquisition,  if such  assignee or subtenant  agrees to operate the same type of
Health Care Facility on the premises, but only to the extent consistent with the
Company's  objective of qualifying as a REIT.  The leases will set forth certain
factors  (such as the financial  condition of the proposed  tenant or subtenant)
that are deemed to be a reasonable basis for the Company's refusal to consent to
an  assignment  or sublease.  In addition,  the Company may refuse to permit any
assignment  or  sublease   that  would   jeopardize   the  Company's   continued
qualification as a REIT. The original tenant generally will remain fully liable,
however, for the performance of all tenant obligations under the lease following
any such  assignment or sublease unless the Company agrees in writing to release
the original tenant from its lease obligations.

         Alterations  to  Premises.  A tenant  generally  will  have the  right,
without  the prior  written  consent  of the  Company  and at the  tenant's  own
expense,  to make certain  improvements,  alterations  or  modifications  to the
Property. Under certain leases, the tenant, at its own expense, may make certain
immaterial  structural  improvements  (with a cost of up to $10,000) without the
prior  consent of the Company.  Certain  leases may require the tenant to post a
payment  and  performance  bond for any  structural  alterations  with a cost in
excess of a specified amount.

         Right of Tenant to  Purchase.  It is  anticipated  that if the  Company
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party,  the tenant of that Property will have the right to purchase the Property
for the same price,  and on the same terms and  conditions,  as contained in the
offer. In

                                                       -57-

<PAGE>



certain  cases,  the tenant also may have a right to purchase the Property seven
to 20 years  after  commencement  of the lease at a purchase  price equal to the
greater  of (i) the  Property's  appraised  value  at the  time of the  tenant's
purchase, or (ii) a specified amount,  generally equal to the Company's purchase
price of the Property, plus a predetermined  percentage (generally,  15% to 20%)
of  such   purchase   price.   See   "Federal   Income  Tax   Considerations   -
Characterization of Leases."

         Substitution  of  Properties.  Under  certain  leases,  the tenant of a
Property,  at its own expense and with the Company's prior written consent,  may
be entitled to operate  another  form of  approved  Health Care  Facility on the
Property as long as such approved Health Care Facility has an operating  history
which  reflects an ability to generate  gross  revenues  and  potential  revenue
growth equal to or greater than that  experienced by the tenant in operating the
original Health Care Facility.

         In  addition,  it is  anticipated  that  certain  Property  leases will
provide the tenant with the right,  to the extent  consistent with the Company's
objective of qualifying as a REIT, to offer the substitution of another property
selected by the tenant in the event that the tenant  determines  that the Health
Care  Facility  has  become  uneconomic  (other  than as a result of an  insured
casualty loss or condemnation)  for the tenant's  continued use and occupancy in
its business  operation and the tenant's  board of directors  has  determined to
close  and   discontinue   use  of  the  Health  Care  Facility.   The  tenant's
determination that a Health Care Facility has become uneconomic is to be made in
good faith based on the tenant's  reasonable  business  judgment after comparing
the  results  of  operations  of the  Health  Care  Facility  to the  results of
operations at the majority of other health care  facilities then operated by the
tenant. If either

                                                       -58-

<PAGE>



of these events occurs,  the tenant will have the right to offer the Company the
opportunity  to exchange  the Property for another  property  (the  "Substituted
Property")  with a total  cost  for  land and  improvements  thereon  (including
overhead,  construction interest, and other related charges) equal to or greater
than the cost of the Property to the Company.

         Generally,  the  Company  will have 30 days  following  receipt  of the
tenant's  offer for exchange of the Property to accept or reject such offer.  In
the event that the Company requests an appraisal of the Substituted Property, it
will have at least ten days  following  receipt  of the  appraisal  to accept or
reject the  offer.  If the  Company  accepts  such  offer,  (i) the  Substituted
Property  will be  exchanged  for the  Property in a  transaction  designed  and
intended to qualify as a "like-kind exchange" within the meaning of section 1031
of the Internal  Revenue  Code of 1986,  as amended (the "Code") with respect to
the  Company and (ii) the lease of the  Property  will be amended to (a) provide
for minimum rent in an amount equal to the sum  determined  by  multiplying  the
cost of the Substituted  Property by the Property lease rate and (b) provide for
lease  renewal  options  sufficient  to permit the  tenant,  at its  option,  to
continue its occupancy of the Substituted  Property a specified  number of years
from the date on which the exchange is made. The Company will pay the tenant the
excess,  if any, of the cost of the  Substituted  Property  over the cost of the
Property.  If the substitution  does not take place within a specified period of
time  after  the  tenant  makes  the  offer to  exchange  the  Property  for the
Substituted Property, either party thereafter will have the right not to proceed
with the substitution.  If the Company rejects the Substituted  Property offered
by the  tenant,  the  tenant  is  generally  required  to offer  at least  three
additional alternative properties for the Company's acceptance or rejection.  If
the Company  rejects all  Substituted  Properties  offered to it pursuant to the
lease, or otherwise fails or refuses to consummate a substitution for any reason
other than the  tenant's  failure to fulfill  the  conditions  precedent  to the
exchange,  then the tenant will be entitled to  terminate  the lease on the date
scheduled for such  exchange by  purchasing  the Property from the Company for a
price equal to the then-fair market value of the Property.

         Neither  the  tenant  nor  any  of  its  subsidiaries,   licensees,  or
sublicensees  or any  other  affiliate  will be  permitted  to use the  original
Property  as a health care  facility  or other  business of the same type for at
least one year after the closing of the original Property.  In addition,  in the
event the  tenant or any of its  affiliates  sells the  Property  within  twelve
months after the Company  acquires the  Substituted  Property,  the Company will
receive,  to the extent  consistent  with its objective of qualifying as a REIT,
from the proceeds of the sale the amount by which the selling  price exceeds the
cost of the Property to the Company.

         Insurance, Taxes, Maintenance,  and Repairs. Tenants of Properties will
be required,  under the terms of the leases, to maintain, for the benefit of the
Company and the tenant,  insurance  that is  commercially  reasonable  given the
size, location and nature of the Property. All tenants, other than those tenants
with a substantial net worth,  generally also will be required to obtain "rental
value"  or  "business  interruption"  insurance  to  cover  losses  due  to  the
occurrence of an insured event for a specified  period,  generally six to twelve
months.  Additionally,  all  tenants  will be  required  to  maintain  liability
coverage,  including,  where applicable,  professional  liability insurance.  In
general, no lease will be entered into unless, in the opinion of the Advisor, as
approved  by the  Board  of  Directors,  the  insurance  required  by the  lease
adequately insures the Property.

         The leases are  expected  to require  that the tenant pay all taxes and
assessments, maintenance, repair, utility, and insurance costs applicable to the
real estate and  permanent  improvements.  Tenants  will be required to maintain
such  Properties  in good  order and  repair.  Such  tenants  generally  will be
required to maintain the Property and repair any damage to the Property,  except
damage  occurring  during  the last 24 to 48 months  of the lease  term (as such
lease term may be  extended),  which in the  opinion of the tenant  renders  the
Property unsuitable for occupancy,  in which case the tenant will have the right
instead to pay the insurance proceeds to the Company and terminate the lease.

         The tenant  generally  will be required  to repair the  Property in the
event that less than a material portion of the Property (for example,  more than
20% of the  building  or more  than  40% of the  land) is taken  for  public  or
quasi-public use. The Company's leases generally will provide that, in the event
of any  condemnation  of the  Property  that  does not give rise to an option to
terminate the lease or in the event of any condemnation  which does give rise to
an option to terminate  the lease and the tenant  elects not to  terminate,  the
Company will remit to the tenant the award from such condemnation and the tenant
will be  required to repair and  restore  the  Property.  To the extent that the
award  exceeds the estimated  costs of restoring or repairing the Property,  the
tenant is required  to deposit  such excess  amount  with the  Company.  Until a
specified time (generally,  ten days) after the tenant has restored the premises
and all improvements  thereon to the same condition as existed immediately prior
to  such  condemnation   insofar  as  is  reasonably   possible,   a  "just  and
proportionate" amount of the minimum annual rent will be abated from the date of
such  condemnation.  In  addition,  the  minimum  annual rent will be reduced in
proportion to the reduction in the then rental value of the premises or the fair
market value of the  premises  after the  condemnation  in  comparison  with the
rental value or fair market value prior to such condemnation.



                                                       -59-

<PAGE>



         Events of Default.  The leases  generally  are expected to provide that
the following events,  among others,  will constitute a default under the lease:
(i) the  insolvency or  bankruptcy  of the tenant,  provided that the tenant may
have the right,  under certain  circumstances,  to cure such  default,  (ii) the
failure of the tenant to make  timely  payment of rent or other  charges due and
payable under the lease,  if such failure  continues  for a specified  period of
time (generally, five to 30 days) after notice from the Company of such failure,
(iii) the  failure  of the  tenant to comply  with any of its other  obligations
under the

                                                       -60-

<PAGE>



lease (for example,  the discontinuance of operations of the leased Property) if
such failure  continues  for a specified  period of time  (generally,  ten to 45
days),  (iv) in cases where the  Company  enters  into a  development  agreement
relating to the  construction  or renovation of a building,  a default under the
development agreement or the Indemnity Agreement or the failure to establish the
minimum annual rent at the end of the development period, (v) in cases where the
Company has entered into other leases with the same tenant, a default under such
lease, (vi) loss of licensure,  (vii) loss of Medicare or Medicaid Certification
and (viii) the forced  removal of more than a specified  number of patients as a
result of  deficiencies  in the care provided at, or physical  condition of, the
facility.

         Upon default by the tenant,  the Company  generally will have the right
under the lease and under  most  state laws to evict the  tenant,  re-lease  the
Property to others,  and hold the tenant  responsible  for any deficiency in the
minimum lease payments. Similarly, if the Company determined not to re-lease the
Property, it could sell the Property.  (Unless required to do so by the lease or
its  investment  objectives,  however,  the Company  does not intend to sell any
Property prior to five to ten years after the  commencement of the lease on such
Property.  See "Right of Tenant to  Purchase"  above.) In the event that a lease
requires the tenant to make a security deposit,  the Company will have the right
under the lease to apply the  security  deposit,  upon  default  by the  tenant,
towards any payments due from the defaulting tenant. In general, the tenant will
remain  liable for all amounts due under the lease to the extent not paid from a
security deposit or by a new tenant.

         In the event that a tenant defaults under a lease with the Company, the
Company either will attempt to locate a replacement operator or will discontinue
operation  of the Health Care  Facility,  the latter of which would  require the
Company or the  defaulting  operator to arrange  for an orderly  transfer of the
residents to another  qualified  health care facility.  The Company will have no
obligation  to operate  the Health Care  Facilities  and no operator of a Health
Care Facility will be obligated to permit the Company or a replacement  operator
to operate the Health Care Facility.

JOINT VENTURE ARRANGEMENTS

         The  Company  may  enter  into a Joint  Venture  to own and  operate  a
Property with various  unaffiliated  persons or entities or with another program
formed by the principals of the Company or the Advisor or their Affiliates, if a
majority of the Directors,  including a majority of the  Independent  Directors,
not otherwise interested in the transaction determine that the investment in the
Joint  Venture is fair and  reasonable to the Company and on  substantially  the
same  terms  and  conditions  as  those to be  received  by the  co-venturer  or
co-venturers. The Company may take more or less than a 50% interest in any Joint
Venture, subject to obtaining the requisite approval of the Directors. See "Risk
Factors - Real  Estate  and  Financing  Risks  Impasse or  Conflicts  with Joint
Venture Partner."

         Under the terms of each Joint Venture agreement, it is anticipated that
the Company and each joint venture partner would be jointly and severally liable
for all debts, obligations,  and other liabilities of the Joint Venture, and the
Company and each joint  venture  partner would have the power to bind each other
with any actions they take within the scope of the Joint Venture's business.  In
addition,  it is expected that the Advisor or its Affiliates will be entitled to
reimbursement,  at cost,  for actual  expenses  incurred  by the  Advisor or its
Affiliates  on behalf of the  Joint  Venture.  Joint  Ventures  entered  into to
purchase and hold a Property for investment  generally will have an initial term
of 10 to 20 years  (generally the same term as the initial term of the lease for
the Property in which the Joint Venture  invests),  and, after the expiration of
the initial term, will continue in existence from year to year unless terminated
at the  option of either  joint  venturer  or unless  terminated  by an event of
dissolution.  Events of dissolution will include the bankruptcy,  insolvency, or
termination of any co-venturer, sale of the Property owned by the Joint Venture,
mutual  agreement of the Company and its joint  venture  partner to dissolve the
Joint Venture,  and the  expiration of the term of the Joint Venture.  The Joint
Venture  agreement  typically  will  restrict each  venturer's  ability to sell,
transfer,  or assign its joint venture  interest  without first  offering it for
sale to its co-venturer.  In addition, in any Joint Venture with another program
sponsored by the Advisor or its Affiliates,  where such arrangements are entered
into for the purpose of purchasing and holding Properties for investment, in the
event that one party  desires to sell the  Property and the other party does not
desire to sell,  either party will have the right to trigger  dissolution of the
Joint Venture by sending a notice to the other party.  The notice will establish
the price and terms for the sale or  purchase of the other  party's  interest in
the Joint Venture to the other party. The Joint Venture agreement will grant the
receiving party the right to elect either to purchase the other party's interest
on the terms set forth in the notice or to sell its own interest on such terms.

         The following  paragraphs  describe the allocations  and  distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Company and its co-venturer each have a 50% ownership interest. In any
other case,  the  allocations  and  distributions  are expected to be similar to
those  described  below,  except that  allocations and  distributions  which are
described  below as being made 50% to each  co-venturer  will instead be made in
proportion to each co-venturer's respective ownership interest.

         Under the terms of each joint venture agreement,  operating profits and
losses  generally  will be allocated 50% to each  co-venturer.  Profits from the
sale or other  disposition of Joint Venture  property first will be allocated to
any  co-venturers  with negative  capital account balances in proportion to such
balances  until such capital  accounts  equal zero,  and  thereafter 50% to each
co-venturer.  Similarly,  losses  from the sale or  other  disposition  of Joint
Venture property first will be allocated to joint venture partners with positive
capital  account  balances in  proportion  to such  balances  until such capital
accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any
other provisions in the Joint Venture agreement, income,

                                                       -61-

<PAGE>



gain,  loss, and  deductions  with respect to any  contributed  property will be
shared in a manner which takes into account the  variation  between the basis of
such  property  and  its  fair  market  value  at the  time of  contribution  in
accordance with section 704(c) of the Code.

         Net cash flow from  operations of the Joint Venture  generally  will be
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 50% to each joint venture partner.

         In order that the allocations of Joint Venture income,  gain, loss, and
deduction  provided in Joint  Venture  agreements  may be respected  for federal
income tax purposes,  it is expected  that any Joint Venture  agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or  deductions  to the extent  such  allocation  would cause or increase an
"Adjusted  Capital  Account  Deficit,"  and (iii) will  require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury  Regulation  ss.1.704-1(b)(2)(iv)  and (b) that  distributions  of
proceeds  from the  liquidation  of a partner's  interest  in the Joint  Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance.  See "Federal
Income Tax Considerations - Investment in Joint Ventures."

         Prior  to  entering  into  any  Joint  Venture   arrangement  with  any
unaffiliated  co-venturer (or the principals of any  unaffiliated  co-venturer),
the Company  will  confirm  that such person or entity has  demonstrated  to the
satisfaction of the Company that requisite financial qualifications are met.

         The Company may acquire Properties from time to time by entering into a
limited  partnership  with  sellers  of such  Properties  pursuant  to which the
seller, as owner,  would receive  partnership  interests  convertible at a later
date into Common Stock of the Company.  The Company would be the general partner
of such a partnership.  This structure would enable a property owner to transfer
property without  incurring  immediate tax liability,  and therefore could allow
the Company to acquire Properties on more favorable terms than otherwise.

MORTGAGE LOANS

         The Company may provide  Mortgage Loans to operators of the Health Care
Facilities to enable them to acquire the land, buildings and land, or buildings.
The Mortgage Loans will be secured by such property.

         Generally,  management  believes the  interest  rate and terms of these
transactions will be substantially  the same as those of the Company's  Property
leases.  The borrower will be responsible  for all of the expenses of owning the
property, as with the "triple-net" leases,  including expenses for insurance and
repairs and  maintenance.  Management  expects the Mortgage  Loans will be fully
amortizing  loans over a period of 10 to 20 years  (generally,  the same term as
the  initial  term of the  Property  leases),  with  payments of  principal  and
interest due monthly. In addition,  management expects the interest rate charged
under the terms of the Mortgage Loan will be fixed over the term of the loan and
generally will be comparable to, or slightly lower than,  lease rates charged to
tenants for the Properties.

         The Company may combine  leasing and  financing  in  connection  with a
Property.  For example, it may make a Mortgage Loan with respect to the building
and lease the  underlying  land to the  borrower.  Management  believes that the
combined  leasing and financing  structure  provides the benefit of allowing the
Company  to  receive,  on a  fixed  income  basis,  the  return  of its  initial
investment in each financed building,  which is generally a depreciating  asset,
plus interest. At the same time, the Company retains ownership of the underlying
land, which may appreciate in value, thus providing an opportunity for a capital
gain on the sale of the land.  In such cases,  in which the borrower is also the
tenant under a Property lease for the underlying  land, if the borrower does not
elect to exercise its purchase option to acquire the Property under the terms of
the lease,  the building  and  improvements  on the Property  will revert to the
Company at the end of term of the lease,  including any renewal periods.  If the
borrower  does  elect to  exercise  its  purchase  option  as the  tenant of the
underlying  land,  the  Company  will  generally  have the option of selling the
Property  at the  greater  of  fair  market  value  or  cost  plus  a  specified
percentage.

         The  Company  will not make or  invest  in  Mortgage  Loans  unless  an
appraisal is obtained concerning the property that secures the Mortgage Loan. In
cases in which the majority of the  Independent  Directors so determine,  and in
all cases in which  the  Mortgage  Loan  involves  the  Advisor,  Directors,  or
Affiliates,   such  appraisal  must  be  obtained  from  an  independent  expert
concerning the underlying  property.  Such appraisal  shall be maintained in the
Company's records for at least five years, and shall be available for inspection
and duplication by any stockholder.  In addition to the appraisal, a mortgagee's
or owner's  title  insurance  policy or  commitment  as to the  priority  of the
mortgage or condition of the title must be obtained.

         Management  believes  that the criteria for  investing in such Mortgage
Loans are substantially the same as those involved in the Company's  investments
in Properties; therefore, the Company will use the same underwriting criteria as
described  above in "Business - Standards  for  Investment  in  Properties."  In
addition,  the  Company  will not make or  invest in  Mortgage  Loans on any one
property  if the  aggregate  amount of all  mortgage  loans  outstanding  on the
property,  including  the loans of the Company,  would exceed an amount equal to
85% of the appraised  value of the property as  determined  by appraisal  unless
substantial  justification  exists because of the presence of other underwriting
criteria.  In no event shall mortgage  indebtedness  on any property exceed such
property's  appraised  value.  For purposes of this  limitation,  the  aggregate
amount of all mortgage

                                                       -62-

<PAGE>



loans  outstanding  on the property,  including the loans of the Company,  shall
include  all  interest  (excluding  contingent  participation  in income  and/or
appreciation in value of the mortgaged  property),  the current payment of which
may be deferred pursuant to the terms of such loans, to the extent that deferred
interest on each loan exceeds 5% per annum of the principal balance of the loan.

         Further, the Company will not make or invest in any Mortgage Loans that
are  subordinate to any mortgage,  other  indebtedness or equity interest of the
Advisor,  the  Directors,  or Affiliates of the Company.  The Company  currently
expects  to  provide  Mortgage  Loans  in  the  aggregate  principal  amount  of
approximately 5% to 10% of the Company's total assets.

MANAGEMENT SERVICES

         The Advisor will provide  management  services relating to the Company,
the  Properties,  the Mortgage  Loans,  and the Secured  Equipment Lease program
pursuant  to an  Advisory  Agreement  between  it and the  Company.  Under  this
agreement,  the  Advisor  will be  responsible  for  assisting  the  Company  in
negotiating  leases,  Mortgage Loans and Secured  Equipment  Leases,  collecting
rental,  Mortgage Loan and Secured  Equipment  Lease  payments,  inspecting  the
Properties  and the  tenants'  books  and  records,  and  responding  to  tenant
inquiries and notices.  The Advisor also will provide information to the Company
about the status of the leases, the Properties,  the Mortgage Loans, the Line of
Credit,  the Permanent  Financing and the Secured  Equipment Leases. In exchange
for these  services,  the Advisor will be entitled to receive  certain fees from
the Company.  For supervision of the Properties and Mortgage Loans,  the Advisor
will receive the Asset Management Fee, which,  generally,  is payable monthly in
an  amount  equal to  one-twelfth  of .60% of Real  Estate  Asset  Value and the
outstanding  principal  amount  of the  Mortgage  Loans,  as of  the  end of the
preceding  month. For negotiating  Secured  Equipment Leases and supervising the
Secured  Equipment Lease program,  the Advisor will receive,  upon entering into
each lease, a Secured Equipment Lease Servicing Fee, payable out of the proceeds
of the borrowings, equal to 2% of the purchase price of the Equipment subject to
each Secured Equipment Lease. See "Management Compensation."

BORROWING

         The  Company  will  borrow  money to acquire  Assets and to pay certain
related fees.  The Company  intends to encumber  Assets in  connection  with the
borrowing.  The Company plans to obtain a revolving Line of Credit  initially in
an amount  up to  $45,000,000,  and may,  in  addition,  also  obtain  Permanent
Financing. The Line of Credit may be increased at the discretion of the Board of
Directors and may be repaid with proceeds of the  offering,  working  capital or
Permanent  Financing.  The Line of Credit and  Permanent  Financing are the only
source of funds for making Secured  Equipment  Leases and for paying the Secured
Equipment   Lease   Servicing  Fee.  The  Company  has  engaged  in  preliminary
discussions with potential lenders but has not yet received a commitment for the
Line of Credit or any  Permanent  Financing  and there is no assurance  that the
Company  will  obtain  the  Line  of  Credit  or  any  Permanent   Financing  on
satisfactory terms.



                                                       -63-

<PAGE>



         Management  believes  that any financing  obtained  during the offering
period  will allow the  Company to make  investments  in Assets that the Company
otherwise  would be  forced  to delay  until it  raised a  sufficient  amount of
proceeds  from the sale of Shares.  By  eliminating  this delay the Company will
also eliminate the risk that these  investments will no longer be available,  or
the terms of the investment will be less favorable,  when the Company has raised
sufficient  offering  proceeds.  Alternatively,  Affiliates of the Advisor could
make such  investments,  pending  receipt by the Company of sufficient  offering
proceeds,  in order to preserve the  investment  opportunities  for the Company.
However,  Assets  acquired  by the  Company in this  manner  would be subject to
closing  costs  both  on  the  original  purchase  by the  Affiliate  and on the
subsequent purchase by the Company,  which would increase the amount of expenses
associated  with the  acquisition  of Assets and  reduce the amount of  offering
proceeds  available  for  investment  in  income-producing  assets.   Management
believes  that the use of  borrowings  will  enable  the  Company  to  reduce or
eliminate  the  instances in which the Company will be required to pay duplicate
closing costs, which may be substantial in certain states.

         Similarly,  management believes that the borrowings,  if obtained, will
benefit the Company by allowing it to take advantage of its ability to borrow at
favorable  interest  rates.  Specifically,  the Company intends to structure the
terms of any financing so that the lease rates for  Properties  acquired and the
interest  rates for Mortgage  Loans and Secured  Equipment  Leases made with the
loan  proceeds will exceed the interest  rate payable on the  financing.  To the
extent that the Company is able to structure the  financing on these terms,  the
Company will increase its net revenues.  In addition,  the use of financing will
increase  the  diversification  of the  Company's  portfolio  by  allowing it to
acquire more Assets than would be possible  using only the Gross  Proceeds  from
the offering.

         As a result of existing relationships between Affiliates of the Advisor
and certain  financing  sources,  the Company may have the opportunity to obtain
financing at more  favorable  interest  rates than the Company  could  otherwise
obtain. In connection with any financing  obtained by the Company as a result of
any  such  relationship,  the  Company  will pay a loan  origination  fee to the
Affiliate. In addition, certain lenders may require, as a condition of providing
financing  to the  Company,  that the  Affiliate  with  which the  lender has an
existing relationship act as a loan servicing agent. In connection with any such
arrangement the Company will pay a loan servicing fee to the Affiliate. Any loan
origination  fee or loan  servicing  fee paid to an  Affiliate of the Company is
subject to the  approval by a majority of the Board of  Directors  (including  a
majority  of  the  Independent   Directors)  not  otherwise  interested  in  the
transaction  as fair  and  reasonable  to the  Company  and on  terms  not  less
favorable to the Company than those  available from  unaffiliated  third parties
and not less favorable than those

                                                       -64-

<PAGE>



available from the Advisor or its Affiliates in transactions  with  unaffiliated
third parties.   See  "Conflicts  of  Interest  -  Certain  Conflict  Resolution
Procedures."

   
         The  Company may also borrow  funds for the purpose of  preserving  its
status as a REIT. For example, the Company may borrow to the extent necessary to
permit the Company to make Distributions required in order to enable the Company
to qualify as a REIT for federal income tax purposes;  however, the Company will
not borrow for the purpose of  returning  Invested  Capital to the  stockholders
unless necessary to eliminate  corporate-level tax to the Company. The aggregate
borrowing of the Company, secured and unsecured, shall be reasonable in relation
to Net Assets of the Company and shall be reviewed by the Board of  Directors at
least  quarterly.  The Board of  Directors  anticipates  that the Line of Credit
initially will be in the amount of $45,000,000 and that the aggregate  amount of
the  Permanent  Financing  will not exceed 30% of the  Company's  total  assets.
However, in accordance with the Company's Articles of Incorporation, the maximum
amount of  borrowing  in  relation  to Net Assets  shall not exceed  300% of Net
Assets.
    

SALE OF PROPERTIES, MORTGAGE LOANS AND SECURED EQUIPMENT LEASES

         For the first five to ten years after the commencement of the offering,
the Company intends,  to the extent  consistent with the Company's  objective of
qualifying as a REIT, to reinvest in additional Properties or Mortgage Loans any
proceeds of the Sale of a Property or a Mortgage  Loan that are not  required to
be  distributed to  stockholders  in order to preserve the Company's REIT status
for federal  income tax  purposes.  The  Company  may also use such  proceeds to
reduce its outstanding  indebtedness.  Similarly,  and to the extent  consistent
with REIT qualification,  the Company plans to use the proceeds of the Sale of a
Secured  Equipment  Lease to fund additional  Secured  Equipment  Leases,  or to
reduce its outstanding indebtedness on the borrowings. At or prior to the end of
such  ten-year  period  (December  31,  2008),  the  Company  intends to provide
stockholders of the Company with liquidity of their investment,  either in whole
or in part, through Listing (although liquidity cannot be assured thereby) or by
commencing  the orderly Sale of the Company's  assets.  If Listing  occurs,  the
Company  intends to use any Net Sales Proceeds not required to be distributed to
stockholders in order to preserve the Company's  status as a REIT to reinvest in
additional  Properties,  Mortgage Loans and Secured Equipment Leases or to repay
outstanding  indebtedness.  If Listing does not occur within ten years after the
commencement of the offering, the Company

                                                       -65-

<PAGE>



thereafter will undertake the orderly liquidation of the Company and the Sale of
the Company's assets and will distribute any Net Sales Proceeds to stockholders.
In  addition,  the  Company  will not sell any  assets if such Sale would not be
consistent with the Company's objective of qualifying as a REIT.

         In deciding the precise timing and terms of Property Sales, the Advisor
will consider  factors such as national and local market  conditions,  potential
capital  appreciation,  cash flows, and federal income tax  considerations.  The
terms of certain leases,  however, may require the Company to sell a Property at
an earlier time if the tenant  exercises its option to purchase a Property after
a specified  portion of the lease term has elapsed.  See "Business - Description
of Leases - Right of Tenant to Purchase." The Company will have 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
tenants.  In connection with Sales of Properties by the Company,  purchase money
obligations may be taken by the Company as part payment of the sales price.  The
terms of payment will be affected by custom in the area in which the Property is
located and by prevailing economic conditions.  When a purchase money obligation
is  accepted  in lieu of cash  upon the Sale of a  Property,  the  Company  will
continue to have a mortgage on the Property and the proceeds of the Sale will be
realized over a period of years rather than at closing of the Sale.

         The Company does not anticipate  selling the Secured  Equipment  Leases
prior to  expiration  of the lease  term,  except in the event that the  Company
undertakes orderly liquidation of its assets. In addition,  the Company does not
anticipate  selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building  improvements  which  secure  the  Mortgage  Loan  and the  Sale of the
Property occurs, or (ii) the Company undertakes an orderly Sale of its assets.

COMPETITION

         The Company  anticipates  that it will compete  with other REITs,  real
estate partnerships,  health care providers and other investors,  including, but
not limited to banks and  insurance  companies,  many of which will have greater
financial resources than the Company, in the acquisition,  leasing and financing
of  Health  Care  Facilities.  Further,  non-profit  entities  are  particularly
attracted to investments in senior care  facilities  because of their ability to
finance  acquisitions  through  the  issuance  of  tax-exempt  bonds,  providing
non-profit  entities  with a  relatively  lower cost of capital as  compared  to
for-profit  purchasers.  In addition,  in certain states health care  facilities
owned  by  non-profit  entities  are  exempt  from  taxes on real  property.  As
profitability  increases  for investors in health care  Properties,  competition
among investors likely will become increasingly intense.

REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES

         The Mortgage Loan and Secured  Equipment  Lease programs may be subject
to regulation  by federal,  state and local  authorities  and subject to various
laws and judicial and administrative decisions imposing various requirements and
restrictions,   including  among  other  things,   regulating   credit  granting
activities,  establishing maximum interest rates and finance charges,  requiring
disclosures  to  customers,   governing   secured   transactions,   and  setting
collection,   repossession  and  claims  handling  procedures  and  other  trade
practices.  In addition,  certain states have enacted legislation  requiring the
licensing of mortgage bankers or other lenders and these requirements may affect
the  Company's  ability to effectuate  its Mortgage  Loan and Secured  Equipment
Lease program. Commencement of operations in these or other jurisdictions may be
dependent upon a finding of financial  responsibility,  character and fitness of
the Company.  The Company may determine not to make Mortgage Loans or enter into
Secured  Equipment  Leases in any  jurisdiction in which it believes the Company
has not complied in all material respects with applicable requirements.


                     MANAGEMENT'S DISCUSSION AND ANALYSIS OF
                       FINANCIAL CONDITION OF THE COMPANY

         The Company  has been formed  recently  and has no  operating  history.
Since leases generally will be entered into on a "triple-net" basis, the Company
does not expect,  although it has the right, to maintain a reserve for operating
expenses. The Company's Properties,  Mortgage Loans and Secured Equipment Leases
will not be  readily  marketable  and their  values may be  affected  by general
market conditions.  Nevertheless,  management believes that capital and revenues
of the Company will be sufficient to fund the Company's anticipated investments,
proposed operations, and cash Distributions to the stockholders.



                                                       -66-

<PAGE>



         Until the Company sells a minimum of 250,000 Shares  ($2,500,000),  all
proceeds of the offering of its Shares will be held in escrow. After the sale of
the minimum  number of Shares of the Company,  the proceeds will be deposited in
the Company's general accounts, and, thereafter, the Company intends to commence
its acquisition of suitable Properties and its investment in Mortgage Loans.

         Pending investment in suitable  Properties and Mortgage Loans,  Company
funds will be invested in short-term,  highly liquid U.S. Government  securities
or in other  short-term,  highly liquid  investments with appropriate  safety of
principal.  In  addition,  it is  anticipated  that the  proceeds of the Line of
Credit and Permanent  Financing  will be obtained from lenders from time to time
as funds are needed to purchase  Assets.  Management  anticipates that after the
Company has invested in Assets,  Company  revenues  sufficient  to pay operating
expenses,  provide cash  Distributions to the stockholders and service debt will
be  derived  from the lease and  mortgage  payments  paid to the  Company by the
tenants and borrowers.

         The Company's primary investment  objectives are to preserve,  protect,
and enhance the Company's assets while (i) making

                                                       -67-

<PAGE>



distributions  commencing  in the  initial  year  of  Company  operations;  (ii)
obtaining  fixed income  through the receipt of base rent,  and  increasing  the
Company's income (and distributions) and providing  protection against inflation
through  automatic  fixed  increases  in base rent or increases in the base rent
based on increases in consumer  price indices,  over the term of the lease,  and
obtaining  fixed income  through the receipt of payments from Mortgage Loans and
Secured Equipment Leases; (iii) qualifying and remaining qualified as a REIT for
federal income tax purposes; and (iv) providing stockholders of the Company with
liquidity of their investment within five to ten years after commencement of the
offering,  either  in  whole  or in  part,  through  (a)  Listing,  or  (b)  the
commencement of the orderly Sale of the Company's  assets,  and  distribution of
the proceeds  thereof  (outside the ordinary  course of business and  consistent
with its objective of qualifying as a REIT).

LIQUIDITY AND CAPITAL RESOURCES

   
         The Company will use Net Offering  Proceeds  (Gross  Proceeds less fees
and expenses of the offering)  from this offering to purchase  Properties and to
invest in Mortgage Loans. See "Investment Objectives and Policies." In addition,
the Company intends to borrow money to acquire Assets and to pay certain related
fees. The Company  intends to encumber Assets in connection with such borrowing.
The Company plans to obtain a revolving Line of Credit initially in an amount up
to $45,000,000,  and may, in addition, also obtain Permanent Financing. The Line
of Credit may be increased at the  discretion  of the Board of Directors and may
be repaid  with  offering  proceeds,  working  capital or  Permanent  Financing.
Although the Board of Directors  anticipates  that the Line of Credit  initially
will be in the amount of $45,000,000  and the aggregate  amount of any Permanent
Financing shall not exceed 30% of the Company's total assets, the maximum amount
the Company  may borrow is 300% of the  Company's  Net  Assets.  The Company has
engaged  in  preliminary  discussions  with  potential  lenders  but has not yet
received a  commitment  for the Line of Credit or any  Permanent  Financing  and
there is no  assurance  that the  Company  will obtain the Line of Credit or any
Permanent Financing on satisfactory terms.
    

         As of the date of this Prospectus, the Company had not entered into any
arrangements creating a reasonable probability that a Property would be acquired
by the Company or that a particular  Mortgage  Loan or Secured  Equipment  Lease
would be  funded.  The number of  Properties  to be  acquired  and the number of
Mortgage  Loans to be invested in by the Company  will depend upon the amount of
Net  Offering  Proceeds  available  and the amount of funds  borrowed to acquire
Properties and make Mortgage Loans. The number of Secured Equipment Leases to be
offered  is  currently  undetermined,  but the  Company  will  fund the  Secured
Equipment  Leases  with  the  proceeds  from  the Line of  Credit  or  Permanent
Financing,  and the Company has  undertaken,  consistent  with its  objective of
qualifying as a REIT for federal  income tax purposes,  to ensure that the value
of the Secured Equipment  Leases,  in the aggregate,  will not exceed 25% of the
Company's total assets and that the value of the Secured  Equipment  Leases to a
single  lessee,  in the  aggregate,  will not exceed 5% of the  Company's  total
assets.   Management  is  not  aware  of  any  material  trends,   favorable  or
unfavorable,  in either  capital  resources  or the outlook for  long-term  cash
generation,  nor does management expect any material changes in the availability
and relative cost of such capital  resources,  other than as referred to in this
Prospectus.

         Management  expects that the cash to be generated from  operations will
be adequate to pay operating expenses and to make Distributions to stockholders.

RESULTS OF OPERATIONS

         As of the initial date of this  Prospectus,  no significant  operations
had commenced  because the Company was in its  development  stage. No operations
will commence  until such time as the Company has sold at least  250,000  Shares
($2,500,000).  Management  is not  aware of any known  trends or  uncertainties,
other than national  economic  conditions,  which may  reasonably be expected to
have a material impact, favorable or unfavorable, on revenues or income from the
acquisition  and  operations  of real  properties,  other than those  Properties
referred to in this Prospectus.

         The  Advisor  of  the  Company  is in  the  process  of  assessing  and
addressing  the impact of the year 2000 on its computer  package  software.  The
hardware and built-in  software used by the Advisor are believed to be year 2000
compliant.  Accordingly,  the Company does not expect this matter to  materially
impact how it conducts business or its future results of operations or financial
position.

         There  currently  are  no  material  changes  being  considered  in the
objectives and policies of the Company as set forth in this Prospectus.


                                   MANAGEMENT

GENERAL

         The Company will operate under the direction of the Board of Directors,
the members of which are accountable to the Company as fiduciaries.  As required
by  applicable  regulations,  a  majority  of the  Independent  Directors  and a
majority  of  the   Directors   have  reviewed  and  ratified  the  Articles  of
Incorporation and have adopted the Bylaws.

         The Company  currently  has five  Directors;  it may have no fewer than
three  Directors and no more than 15.  Directors will be elected  annually,  and
each Director will hold office until the next annual meeting of  stockholders or
until his  successor has been duly elected and  qualified.  There is no limit on
the  number of times that a Director  may be  elected  to office.  Although  the
number of Directors may be increased or decreased as discussed above, a decrease
shall not have the effect of shortening the term of any incumbent Director.

                                                       -68-

<PAGE>




         Any  Director may resign at any time and may be removed with or without
cause by the  stockholders  upon the affirmative  vote of at least a majority of
all the Shares  outstanding  and  entitled to vote at a meeting  called for this
purpose.  The notice of such meeting shall indicate that the purpose,  or one of
the purposes, of such meeting is to determine if a Director shall be removed.

FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS

         The Board of  Directors  will be  responsible  for the  management  and
control of the affairs of the  Company;  however,  the Board of  Directors  will
retain  the  Advisor  to  manage  the  Company's   day-to-day  affairs  and  the
acquisition and  disposition of  investments,  subject to the supervision of the
Board of Directors.

         The  Directors  are not  required  to devote  all of their  time to the
Company and are only required to devote such of their time to the affairs of the
Company as their duties  require.  The Board of Directors will meet quarterly in
person or by telephone, or more frequently if necessary. It is not expected that
the Directors will be required to devote a substantial  portion of their time to
discharge  their  duties as  directors.  Consequently,  in the exercise of their
fiduciary  responsibilities,  the Directors will rely heavily on the Advisor. In
this regard,  the Advisor,  in addition to the Directors,  will have a fiduciary
duty to the Company.

         The  Directors  will  establish  written  policies on  investments  and
borrowings   and  will  monitor  the   administrative   procedures,   investment
operations,  and  performance of the Company and the Advisor to assure that such
policies are in the best interest of the stockholders  and are fulfilled.  Until
modified by the  Directors,  the Company will follow the policies on investments
set forth in this Prospectus. See "Investment Objectives and Policies."

         The  Independent  Directors are  responsible for reviewing the fees and
expenses  of the  Company at least  annually  or with  sufficient  frequency  to
determine  that the total fees and  expenses of the Company  are  reasonable  in
light of the Company's investment  performance,  Net Assets, Net Income, and the
fees and  expenses  of other  comparable  unaffiliated  real  estate  investment
trusts. For purposes of this  determination,  Net Assets are the Company's total
assets  (other  than   intangibles),   calculated   at  cost  before   deducting
depreciation or other non-cash reserves, less total liabilities, and computed at
least quarterly on a basis  consistently  applied.  Such  determination  will be
reflected in the minutes of the meetings of the Board of Directors. In addition,
a  majority  of the  Independent  Directors  and a  majority  of  Directors  not
otherwise  interested in the transaction  must approve each transaction with the
Advisor or its  Affiliates.  The Board of Directors also will be responsible for
reviewing and evaluating the  performance of the Advisor before entering into or
renewing an advisory agreement.  The Independent  Directors shall determine from
time to time and at least annually that  compensation  to be paid to the Advisor
is  reasonable in relation to the nature and quality of services to be performed
and shall supervise the performance of the Advisor and the compensation  paid to
it by the Company to determine that the provisions of the Advisory Agreement are
being carried out. Specifically, the Independent Directors will consider factors
such as the  amount  of the fee paid to the  Advisor  in  relation  to the size,
composition  and  performance of the Company's  investments,  the success of the
Advisor in generating  appropriate  investment  opportunities,  rates charged to
other  comparable  REITs and other  investors  by  advisors  performing  similar
services, additional revenues realized by the Advisor and its Affiliates through
their  relationship  with the Company,  whether paid by the Company or by others
with whom the  Company  does  business,  the  quality  and extent of service and
advice furnished by the Advisor,  the performance of the investment portfolio of
the  Company  and the quality of the  portfolio  of the Company  relative to the
investments  generated  by the  Advisor  for its own  account.  Such  review and
evaluation  will be  reflected  in the  minutes of the  meetings of the Board of
Directors.  The Board of Directors  shall  determine that any successor  Advisor
possesses sufficient qualifications to (i) perform the advisory function for the
Company and (ii) justify the compensation  provided for in its contract with the
Company.

         The  liability  of the  officers and  Directors  while  serving in such
capacity  is  limited in  accordance  with the  Articles  of  Incorporation  and
applicable  law.  See  "Summary of the  Articles of  Incorporation  and Bylaws -
Limitation of Director and Officer Liability."

DIRECTORS AND EXECUTIVE OFFICERS

         The Directors and executive officers of the Company are listed below:

      Name               Age       Position with the Company
      ----               ---       -------------------------
   
James M. Seneff, Jr.     52        Director, Chairman of the Board, and
                                     Chief Executive Officer
Robert A. Bourne         51        Director and President
David W. Dunbar          46        Independent Director
Timothy S. Smick         46        Independent Director
Edward A. Moses          56        Independent Director
Daniel L. Simmons        45        Executive Vice President
Curtis B. McWilliams     43        Executive Vice President
Jeanne A. Wall           40        Executive Vice President
Lynn E. Rose             49        Secretary and Treasurer
    

         James M.  Seneff,  Jr.  Director,  Chairman  of the  Board,  and  Chief
Executive  Officer.  Mr. Seneff  currently holds the position of Chairman of the
Board,  Chief Executive Officer and director of CNL Health Care Advisors,  Inc.,
the  Advisor to the  Company.  Mr.  Seneff also serves as Chairman of the Board,
Chief Executive  Officer and a director of CNL American  Properties  Fund, Inc.,
CNL Hospitality Properties,  Inc. (formerly CNL American Realty Fund, Inc.), CNL
Fund Advisors, Inc. and CNL Real Estate Advisors, Inc. Mr. Seneff is a principal
stockholder  of CNL Group,  Inc., a  diversified  real estate  company,  and has
served as its Chairman of the Board of Directors,  director, and Chief Executive
Officer

                                                       -69-

<PAGE>



since its  formation  in 1980.  CNL Group,  Inc.  is the  parent  company of CNL
Securities Corp.,  which is acting as the Managing Dealer in this offering,  CNL
Investment Company, CNL Health Care Advisors,  Inc., CNL Fund Advisors, Inc. and
CNL Real Estate Advisors,  Inc. Mr. Seneff has been Chairman of the Board, Chief
Executive  Officer and a director of CNL Securities Corp. since its formation in
1979.  Mr.  Seneff also has held the  position  of Chairman of the Board,  Chief
Executive  Officer,  President  and a  director  of CNL  Management  Company,  a
registered investment advisor,  since its formation in 1976, has served as Chief
Executive  Officer,  Chairman  of the Board  and a  director  of CNL  Investment
Company, and Chief Executive Officer and Chairman of the Board of Commercial Net
Lease Realty, Inc. since 1992, served as Chief Executive Officer and Chairman of
the Board of CNL Realty  Advisors,  Inc. from its inception in 1991 through 1997
at which time such company merged with  Commercial  Net Lease Realty,  Inc., and
has held the position of Chief  Executive  Officer,  Chairman of the Board and a
director of CNL Institutional  Advisors,  Inc., a registered investment advisor,
since its inception in 1990. 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.  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 joint venturer in over 100
real estate ventures involved in the financing,  acquisition,  construction, and
rental of restaurants,  office buildings, apartment complexes, hotels, and other
real  estate.  Included  in these real  estate  ventures  are  approximately  65
privately offered real estate limited  partnerships  with investment  objectives
similar  to one or more of the  Company's  investment  objectives,  in which Mr.
Seneff,  directly  or through an  affiliated  entity,  serves or has served as a
general partner. Mr. Seneff received his degree in Business  Administration from
Florida State University in 1968.

     Robert A. Bourne.  Director and President.  Mr. Bourne  currently holds the
position  of  President  and  director of CNL Health Care  Advisors,  Inc.,  the
Advisor to the Company.  Mr.  Bourne also serves as President  and a director of
CNL American  Properties  Fund, Inc., CNL Hospitality  Properties,  Inc. and CNL
Real Estate  Advisors,  Inc.  Mr.  Bourne  currently  holds the position of Vice
Chairman of the Board of Directors, director and Treasurer of CNL Fund Advisors,
Inc. Mr. Bourne served as President of CNL Fund Advisors,  Inc. from the date of
its inception through October 1997. Mr. Bourne is President and Treasurer of CNL
Group, Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp. (the Managing Dealer of this offering), President, Treasurer, a
director  and a  registered  principal  of CNL  Investment  Company,  and  Chief
Investment  Officer,  a director and  Treasurer of CNL  Institutional  Advisors,
Inc., a registered  investment  advisor.  Mr.  Bourne served as President of CNL
Institutional  Advisors,  Inc. from the date of its  inception  through June 30,
1997.  Mr.  Bourne served as President and a director from July 1992 to February
1996,  served as Secretary  and Treasurer  from  February 1996 through  December
1997,  and has served as Vice Chairman of the Board of Directors  since February
1996, of Commercial  Net Lease  Realty,  Inc. In addition,  Mr. Bourne served as
President of CNL Realty Advisors, Inc. from 1991 to February 1996, and served as
a director of CNL Realty Advisors,  Inc. from 1991 through December 1997, and as
Treasurer  and Vice Chairman from February 1996 through 1997, at which time such
Company  merged with  Commercial  Net Lease Realty,  Inc. Upon  graduation  from
Florida State University in 1970,  where he received a B.A. in Accounting,  with
honors,  Mr. Bourne worked as a certified public  accountant and, from September
1971 through  December 1978 was employed by Coopers & Lybrand,  Certified Public
Accountants,  where he held the position of tax manager  beginning in 1975. From
January 1979 until June 1982, Mr. Bourne was a partner in the accounting firm of
Cross & Bourne and from July 1982  through  January 1987 he was a partner in the
accounting  firm of  Bourne & Rose,  P.A.,  Certified  Public  Accountants.  Mr.
Bourne,  who joined CNL Securities  Corp. in 1979, has participated as a general
partner or joint  venturer  in over 100 real  estate  ventures  involved  in the
financing,   acquisition,   construction,  and  rental  of  restaurants,  office
buildings, apartment complexes, hotels, and other real estate. Included in these
real estate ventures are  approximately 64 privately offered real estate limited
partnerships with investment  objectives similar to one or more of the Company's
investment  objectives,  in which Mr. Bourne,  directly or through an affiliated
entity, serves or has served as a general partner.
   
     Daniel  L.  Simmons.  Executive  Vice  President.  Mr.  Simmons  serves  as
Executive Vice  President of CNL Health Care Advisors,  Inc., the Advisor to the
Company.  Since 1993, Mr. Simmons has served as a consultant to The  Celebration
Company,  a subsidiary of The Walt Disney Company,  regarding  seniors'  housing
issues.  From November 1997 to June 1998,  Mr. Simmons served as a consultant to
CNL Group,  Inc.,  providing  advice on issues  regarding  health care  property
development and management.  From 1984 to 1993, Mr. Simmons was a co-founder and
partner  in the  Johnson  Simmons  Company,  where he was  responsible  for site
acquisition,  design,  development,  financing and regulatory  matters for three
continuing  care   communities.   Mr.  Simmons  was  also  responsible  for  the
development,  financing  and  operations  associated  with  the  restaurant  and
commercial  properties  divisions  of the Johnson  Simmons  Company.  During his
tenure,  Johnson  Simmons  Company  developed  and  managed  over 1,100 units of
seniors' housing and a 240-bed skilled nursing facility,  held in excess of $100
million in assets,  and employed more than 1,200 people.  From 1983 to 1984, Mr.
Simmons served as director of development for Cadem Corporation, a subsidiary of
National  Medical  Enterprises.  At Cadem, he was responsible for site,  design,
development and regulatory issues for proposed  seniors' housing projects.  From
1982 to 1983,  Mr.  Simmons  served as vice  president  of  Southern  Management
Services  Corporation,   where  he  was  responsible  for  the  development  and
operations of seniors' housing, assisted living, and skilled nursing facilities.
He was also responsible for all regulatory issues with the State of

                                                       -70-

<PAGE>



Florida,  Department  of  Insurance,  and the  current  Agency for  Health  Care
Administration  regarding  the  licensing  and  regulation  of  continuing  care
retirement  communities,  nursing  homes and  assisted  living  facilities.  Mr.
Simmons  attended  Florida State  University and the University of South Florida
and  was a  founding  member  of  the  National  Association  of  Senior  Living
Industries.
    
         Curtis B. McWilliams.  Executive Vice President.  Mr. McWilliams serves
as Executive Vice  President of CNL Health Care  Advisors,  Inc., the Advisor to
the Company.  Mr.  McWilliams joined CNL Group, Inc. in April 1997 and currently
serves as an Executive Vice President.  In addition,  Mr.  McWilliams  serves as
President  of CNL Fund  Advisors,  Inc.,  as  Executive  Vice  President  of CNL
American Properties Fund, Inc., and as President of CNL Financial Services, Inc.
and certain other  subsidiaries  of CNL Group,  Inc. From September 1983 through
March 1997, Mr.  McWilliams was employed by Merrill Lynch.  From January 1991 to
August 1996,  Mr.  McWilliams was a managing  director in the corporate  banking
group of Merrill Lynch's investment banking division. During this time, he was a
senior relationship manager with Merrill Lynch and as such was responsible for a
number of the firm's  larger  corporate  relationships.  From  February  1990 to
February 1993, he also served as co-head of one of the Industrial Banking Groups
within  Merrill  Lynch's  investment  banking  division  and had  administrative
responsibility  for a group of bankers and client  relationships,  including the
firm's  transportation  group. From September 1996 to March 1997, Mr. McWilliams
served as Chairman of Merrill Lynch's Private Advisory Services.  Mr. McWilliams
received a B.S.E. in Chemical  Engineering from Princeton University in 1977 and
a Masters of Business  Administration  with a concentration  in finance from the
University of Chicago in 1983.

         Jeanne A. Wall. Executive Vice President.  Ms. Wall serves as Executive
Vice  President of CNL Health Care  Advisors,  Inc., the Advisor to the Company.
Ms. Wall is also Executive Vice President of CNL American Properties Fund, Inc.,
CNL Hospitality  Properties,  Inc., CNL Fund Advisors,  Inc. and CNL Real Estate
Advisors,  Inc. Ms. Wall has served as Chief Operating Officer of CNL Investment
Company  and of CNL  Securities  Corp.  since  November  1994 and has  served as
Executive Vice President of CNL Investment  Company since January 1991. In 1984,
Ms. Wall joined CNL Securities  Corp. In 1985, Ms. Wall became Vice President of
CNL  Securities  Corp.,  in 1987 she became a Senior Vice  President and in July
1997,  she became  Executive  Vice  President of CNL  Securities  Corp.  In this
capacity,  Ms. Wall serves as national marketing and sales director and oversees
the national marketing plan for the CNL investment  programs.  In addition,  Ms.
Wall  oversees  product  development,  partnership  administration  and investor
services for programs  offered  through  participating  brokers,  and  corporate
communications  for CNL Group, Inc. and Affiliates.  Ms. Wall also has served as
Senior  Vice  President  of  CNL  Institutional  Advisors,  Inc.,  a  registered
investment advisor, from 1990 to 1993, as Vice President of CNL Realty Advisors,
Inc.  from  its  inception  in  1991  through  1997,  and as Vice  President  of
Commercial Net Lease Realty,  Inc. from 1992 through 1997. Ms. Wall holds a B.A.
in Business  Administration from Linfield College and is a registered  principal
of CNL Securities  Corp. Ms. Wall currently  serves as a trustee on the Board of
the  Investment  Program  Association  and on the Direct  Participation  Program
committee for the National Association of Securities Dealers.

         Lynn E. Rose.  Secretary and  Treasurer.  Ms. Rose serves as Secretary,
Treasurer and a director of CNL Health Care  Advisors,  Inc., the Advisor to the
Company.  Ms. Rose is also  Secretary and  Treasurer of CNL American  Properties
Fund, Inc. and CNL Hospitality Properties, Inc. and is Secretary,  Treasurer and
a director of CNL Real Estate Advisors,  Inc. Ms. Rose serves as Secretary and a
director of CNL Fund  Advisors,  Inc.  Ms. Rose served as  Treasurer of CNL Fund
Advisors, Inc. from the date of its inception through June 30, 1997. Ms. Rose, a
certified public  accountant,  has served as Secretary of CNL Group,  Inc. since
1987, as Chief Financial  Officer of CNL Group,  Inc.,  since December 1993, and
served as  Controller  of CNL Group,  Inc.  from 1987 until  December  1993.  In
addition,  Ms. Rose has served as Chief  Financial  Officer and Secretary of CNL
Securities  Corp.  since July 1994. She has served as Chief  Operating  Officer,
Vice  President and Secretary of CNL Corporate  Services,  Inc.  since  November
1994. Ms. Rose also has served as Chief  Financial  Officer and Secretary of CNL
Institutional  Advisors,  Inc.  since its  inception in 1990, as Secretary and a
director of CNL Realty  Advisors,  Inc. from its inception in 1991 through 1997,
and as Treasurer of CNL Realty  Advisors,  Inc.  from 1991 to February  1996. In
addition,  Ms. Rose served as Secretary and  Treasurer of  Commercial  Net Lease
Realty,  Inc.  from 1992 to February  1996.  Ms. Rose also  currently  serves as
Secretary for  approximately 50 additional  corporations.  Ms. Rose oversees the
management information services,  administration,  legal compliance, accounting,
tenant  compliance,  and reporting for over 250  corporations,  partnerships and
joint  ventures.  Prior to joining  CNL,  Ms. Rose was a partner  with Robert A.
Bourne  in the  accounting  firm  of  Bourne  &  Rose,  P.A.,  Certified  Public
Accountants.  Ms. Rose holds a B.A. in Sociology  from the University of Central
Florida and is a registered financial and operations principal of CNL Securities
Corp. She was licensed as a certified public accountant in 1979.
   
         David W. Dunbar.  Independent  Director.  Mr. Dunbar serves as chairman
and chief executive  officer of Peoples Bank,  which he organized and founded in
1996.  Mr.  Dunbar is also a member of the boards of  directors  of Morton Plant
Mease Health Care, Inc., an 841-bed, not-for-profit hospital, Morton Plant Mease
Hospital Foundation and North Bay Hospital, a 122-bed facility. In addition, Mr.
Dunbar  serves  as a  member  of the  Florida  Elections  Commission,  the  body
responsible for investigating and holding hearings  regarding alleged violations
of Florida's  campaign  finance  laws.  During 1994 and 1995,  Mr.  Dunbar was a
member of the board of directors and an executive officer of Peoples State Bank.
Mr.  Dunbar was the chief  executive  officer of Republic Bank from 1991 through
1993. From 1988 through 1991, Mr. Dunbar developed commercial and medical office
buildings  and,  through a financial  consulting  company he  founded,  provided
specialized  lending services for real estate development  clients,  specialized
construction  litigation support for national insurance  companies and strategic
planning services for institutional clients. In

                                                       -71-

<PAGE>



1990,  Mr.  Dunbar was the chief  executive  officer,  developer  and owner of a
60,000  square foot medical  office  building  located on the campus of Memorial
Hospital in Tampa,  Florida.  In addition,  in 1990,  Mr.  Dunbar  served as the
Governor's  appointee  to the  State  of  Florida  Taxation  and  Budget  Reform
Commission, a 25 member, blue ribbon commission established to review, study and
make  appropriate  recommendations  for  changes to state tax laws.  Mr.  Dunbar
received  a degree  in  finance  from  Florida  State  University.  He is also a
graduate of the American Bankers Association  National Commercial Lending School
at the  University  of  Oklahoma  and the  School  of  Banking  of the  South at
Louisiana State University.



                                                       -72-

<PAGE>



         Timothy S. Smick.  Independent  Director.  From 1996  through  February
1998, Mr. Smick served as chief operating officer,  executive vice president and
a member of the board of directors of Sunrise Assisted Living,  Inc., one of the
nation's  leading  providers  of  assisted  living  care  for  seniors  with  68
communities located in 13 states. In addition,  Mr. Smick served as president of
Sunrise  Management  Inc., a wholly owned subsidiary of Sunrise Assisted Living,
Inc.  During 1995,  Mr. Smick served as a senior  housing  consultant to LaSalle
Advisory,  Ltd., a pension fund advisory  company.  From 1985 through 1994,  Mr.
Smick was chairman and chief executive  officer of PersonaCare,  Inc., a company
he co-founded that provided sub-acute,  skilled nursing and assisted living care
with 12 facilities in six states.  Mr. Smick's  health care industry  experience
also includes serving as the regional  operations director for Manor Healthcare,
Inc.,  a division of  ManorCare,  Inc.,  and as  operations  director for Allied
Health and Management,  Inc. Prior to co-founding  PersonaCare,  Inc., Mr. Smick
was a partner in Duncan & Smick, a commercial real estate  development firm. Mr.
Smick  received a B.A. in English  from  Wheaton  College  and pursued  graduate
studies at Loyola College.

         Edward A. Moses.  Independent Director. Mr. Moses has served as dean of
the Roy E. Crummer  Graduate  School of Business at Rollins  College since 1994,
and as a professor and NationsBank professor of finance since 1989. As dean, Mr.
Moses is presently  establishing a comprehensive  program of executive education
for health care  management at the Roy E. Crummer  Graduate  School of Business.
From 1985 to 1989 he served as dean and  professor of finance at the  University
of North Florida. He has also served in academic and administrative positions at
the University of Tulsa,  Georgia State University and the University of Central
Florida.  Mr. Moses has written six textbooks in the fields of  investments  and
corporate finance as well as numerous articles in leading business journals . He
has held offices in a number of professional organizations,  including president
of the Southern  Finance and Eastern Finance  Associations , served on the Board
of the Southern Business Administration Association,  and served as a consultant
for major  banks as well as a number of  Fortune  500  companies.  He  currently
serves as a faculty member in the Graduate  School of Banking at Louisiana State
University.  Mr. Moses received a B.S. in Accounting  from the Wharton School at
the University of Pennsylvania in 1965 and a Masters of Business  Administration
(1967) and Ph.D. in finance from the University of Georgia in 1971.
    

INDEPENDENT DIRECTORS

         Under  the  Articles  of  Incorporation,  a  majority  of the  Board of
Directors must consist of Independent Directors,  except for a period of 90 days
after  the  death,  removal  or  resignation  of an  Independent  Director.  The
Independent   Directors  shall  nominate   replacements  for  vacancies  in  the
Independent  Director  positions.  An Independent  Director may not, directly or
indirectly  (including  through a member  of his  immediately  family),  own any
interest  in,  be  employed  by,  have  any  present  business  or  professional
relationship  with,  serve as an  officer  or  director  of the  Advisor  or its
Affiliates,  or serve as a director  of more than three REITs  organized  by the
Advisor  or its  Affiliates.  Except  to  carry  out the  responsibilities  of a
Director,  an  Independent  Director may not perform  material  services for the
Company.

COMMITTEES OF THE BOARD OF DIRECTORS

     The  Company  has a  standing  Audit  Committee,  the  members of which are
selected by the full Board of Directors  each year.  The Audit  Committee  makes
recommendations  to the  Board of  Directors  in  accordance  with  those of the
independent accountants of the Company. The Board of Directors shall review with
such  accounting  firm the scope of the audit and the  results of the audit upon
its completion.

     At such time,  if any,  as the  Shares are listed on a national  securities
exchange  or  over-the-counter  market,  the  Company  will form a  Compensation
Committee,  the members of which will be selected by the full Board of Directors
each year.

     At least a majority of the members of each committee of the Company's Board
of Directors must be Independent Directors.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

     Each  Director is entitled to receive  $6,000  annually  for serving on the
Board of Directors,  as well as fees of $750 per meeting attended ($375 for each
telephonic  meeting in which the  Director  participates),  including  committee
meetings.  No executive  officer or Director of the Company has received a bonus
from the Company.  The Company will not pay any compensation to the officers and
Directors  of the  Company  who also  serve as  officers  and  directors  of the
Advisor.



                                                       -73-

<PAGE>



MANAGEMENT COMPENSATION

     For a description of the types,  recipients,  methods of  computation,  and
estimated  amounts  of all  compensation,  fees,  and  distributions  to be paid
directly or indirectly by the Company to the Advisor, Managing Dealer, and their
Affiliates, see "Management Compensation."


                     THE ADVISOR AND THE ADVISORY AGREEMENT

THE ADVISOR

     CNL Health Care Advisors,  Inc. is a Florida corporation  organized in July
1997 to provide management,  advisory and administrative  services.  The Company
entered into the Advisory  Agreement  with the Advisor  effective September  15,
1998. CNL Health Care Advisors, Inc., as Advisor, has a fiduciary responsibility
to the Company and the stockholders.

     The directors and officers of the Advisor are as follows:

          James M. Seneff, Jr.        Chairman of the Board, Chief Executive
                                        Officer, and Director
          Robert A. Bourne            President and Director
          Daniel L. Simmons           Executive Vice President
          Curtis B. McWilliams        Executive Vice President
          Jeanne A. Wall              Executive Vice President
          Lynn E. Rose                Secretary, Treasurer and Director

     The backgrounds of these  individuals are described above under "Management
- - Directors and Executive Officers."

     The Advisor employs  personnel,  in addition to the directors and executive
officers listed above,  who have extensive  experience in selecting and managing
properties,  although such  personnel  have limited  experience in selecting and
managing Health Care Facilities.

     The Advisor  currently owns 20,000 shares of Common Stock.  The Advisor may
not sell these shares of Common Stock while the Advisory Agreement is in effect,
although  the  Advisor  may  transfer  such  shares to  Affiliates.  Neither the
Advisor,  a Director,  or any Affiliate may vote or consent on matters submitted
to the stockholders regarding removal of the Advisor,  Directors or any of their
Affiliates,  or  any  transaction  between  the  Company  and  any of  them.  In
determining  the  requisite  percentage  in interest  of shares of Common  Stock
necessary to approve a matter on which the Advisor, Directors, and any Affiliate
may not vote or consent, any shares owned by any of them will not be included.

THE ADVISORY AGREEMENT

     Under the terms of the Advisory  Agreement,  the Advisor has responsibility
for  the  day-to-day  operations  of  the  Company,  administers  the  Company's
bookkeeping  and  accounting  functions,  serves as the Company's  consultant in
connection with policy  decisions to be made by the Board of Directors,  manages
the Company's  Properties and Mortgage Loans,  administers the Company's Secured
Equipment  Lease  program and renders  other  services as the Board of Directors
deems  appropriate.  The Advisor is subject to the  supervision of the Company's
Board of Directors and has only such functions as are delegated to it.

     The Company  will  reimburse  the Advisor for all of the costs it incurs in
connection  with the  services it provides to the  Company,  including,  but not
limited  to: (i)  Organizational  and  Offering  Expenses,  which are defined to
include  expenses  attributable  to  preparing  the  documents  relating to this
offering,  the formation and  organization of the Company,  qualification of the
Shares for sale in the states,  escrow  arrangements,  filing fees and  expenses
attributable  to selling  the  Shares,  (ii)  Selling  Commissions,  advertising
expenses,  expense  reimbursements,  and legal and  accounting  fees,  (iii) the
actual  cost of goods  and  materials  used by the  Company  and  obtained  from
entities not  affiliated  with the  Advisor,  including  brokerage  fees paid in
connection  with  the  purchase  and  sale of  securities,  (iv)  administrative
services (including personnel costs;  provided,  however,  that no reimbursement
shall be made for costs of personnel to the extent that such  personnel  perform
services in transactions  for which the Advisor  receives a separate fee, at the
lesser of actual cost or 90% of the  competitive  rate  charged by  unaffiliated
persons providing  similar goods and services in the same geographic  location),
(v) Acquisition  Expenses,  which are defined to include expenses related to the
selection and acquisition of Properties,  for goods and services provided by the
Advisor at the lesser of actual cost or 90% of the  competitive  rate charged by
unaffiliated persons providing similar goods and services in the same geographic
location),  and (vi) expenses  related to negotiating and servicing the Mortgage
Loans and Secured Equipment Leases.

     The  Company  shall not  reimburse  the  Advisor  at the end of any  fiscal
quarter  Operating  Expenses that, in the four consecutive  fiscal quarters then
ended (the "Expense  Year") exceed the greater of 2% of Average  Invested Assets
or 25% of Net Income (the  "2%/25%  Guidelines")  for such year.  Within 60 days
after the end of any fiscal  quarter of the Company  for which  total  Operating
Expenses for the Expense Year exceed the 2%/25%  Guidelines,  the Advisor  shall
reimburse the Company the amount by which the total  Operating  Expenses paid or
incurred by the Company exceed the 2%/25% Guidelines.

     The Company will not reimburse the Advisor or its  Affiliates  for services
for which the Advisor or its Affiliates are entitled to compensation in the form
of a separate fee.

   
     Pursuant to the Advisory Agreement, the Advisor is entitled to receive fees
and  reimbursements,  as listed in "Management  Compensation." The incentive fee
payable to the Advisor if Listing occurs (the "Subordinated  Incentive Fee") may
be paid,  at the option of the  Company,  in cash,  in Shares,  by delivery of a
promissory  note  payable to the Advisor,  or by any  combination  thereof.  The
Subordinated  Incentive Fee is an amount equal to 10% of the amount by which (i)
the market value of the Company, measured by taking the average closing price or
average of bid and asked  prices,  as the case may be,  over a period of 30 days
during which the Shares are traded,  with such period  beginning  180 days after
Listing (the "Market Value"),  plus the total Distributions paid to Stockholders
from the Company's inception until the date of Listing,  exceeds (ii) the sum of
(A) 100% of Invested Capital and (B) the total Distributions required to be paid
to the  Stockholders in order to pay the  Stockholders' 8% Return from inception
through the date the Market Value is determined.  The Subordinated Incentive Fee
will be reduced by the amount of any prior payment to the Advisor of a deferred

                                                       -75-

<PAGE>



subordinated share of Net Sales Proceeds from Sales of assets of the Company. In
the  event  the  Subordinated  Incentive  Fee is paid to the  Advisor  following
Listing,   no  Performance  Fee  (defined  as  the  fee  payable  under  certain
circumstances if certain  performance  standards are met, such circumstances and
standards being described  below) will be paid to the Advisor under the Advisory
Agreement  nor will any  additional  share of Net Sales  Proceeds be paid to the
Advisor.
    
     The total of all Acquisition  Fees and any Acquisition  Expenses payable to
the  Advisor  and its  Affiliates  shall be  reasonable  and shall not exceed an
amount equal to 6% of the Real Estate Asset Value of a Property,  or in the case
of a Mortgage Loan, 6% of the funds advanced,  unless a majority of the Board of
Directors,  including  a majority of the  Independent  Directors  not  otherwise
interested in the transaction,  approves fees in excess of this limit subject to
a  determination  that the  transaction is  commercially  competitive,  fair and
reasonable to the Company.  The Acquisition  Fees payable in connection with the
selection or  acquisition  of any Property  shall be reduced to the extent that,
and if necessary to limit, the total  compensation  paid to all persons involved
in the  acquisition  of such  Property  to the  amount  customarily  charged  in
arm's-length  transactions  by  other  persons  or  entities  rendering  similar
services as an ongoing public activity in the same geographical location and for
comparable types of Properties,  and to the extent that other  acquisition fees,
finder's fees, real estate commissions, or other similar fees or commissions are
paid by any person in connection with the transaction.

     If the Advisor or a CNL Affiliate performs services that are outside of the
scope of the  Advisory  Agreement,  compensation  is at such  rates  and in such
amounts as are agreed to by the Advisor  and the  Independent  Directors  of the
Company.

     Further,  if  Listing  occurs,  the  Company  automatically  will  become a
perpetual life entity.  At such time, the Company and the Advisor will negotiate
in good faith a fee structure  appropriate  for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating a
new fee structure,  the Independent  Directors shall consider all of the factors
they deem relevant.  These are expected to include,  but will not necessarily be
limited to: (i) the amount of the  advisory  fee in relation to the asset value,
composition,  and profitability of the Company's portfolio;  (ii) the success of
the Advisor in generating  opportunities that meet the investment  objectives of
the Company;  (iii) the rates charged to other REITs and to investors other than
REITs by advisors  that perform the same or similar  services;  (iv)  additional
revenues realized by the Advisor and its Affiliates  through their  relationship
with  the  Company,  including  loan  administration,   underwriting  or  broker
commissions,  servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company  does  business;  (v) the quality
and extent of service and advice furnished by the Advisor;  (vi) the performance
of the investment  portfolio of the Company,  including income,  conservation or
appreciation of capital,  and number and frequency of problem  investments;  and
(vii) the quality of the  Property,  Mortgage Loan and Secured  Equipment  Lease
portfolio of the Company in  relationship  to the  investments  generated by the
Advisor for its own account. The Board of Directors, including a majority of the
Independent  Directors,  may  not  approve  a new  fee  structure  that,  in its
judgment, is more favorable to the Advisor than the current fee structure.

     The  Advisory  Agreement,  which was entered  into by the Company  with the
unanimous  approval  of  the  Board  of  Directors,  including  the  Independent
Directors, expires one year after the date of execution, on September 15,  1999,
subject to successive  one-year renewals upon mutual consent of the parties.  In
the event that a new Advisor is retained,  the previous  Advisor will  cooperate
with the Company and the  Directors in effecting  an orderly  transition  of the
advisory  functions.  The  Board  of  Directors  (including  a  majority  of the
Independent   Directors)   shall  approve  a  successor   Advisor  only  upon  a
determination  that the Advisor possesses  sufficient  qualifications to perform
the advisory  functions for the Company and that the compensation to be received
by the new Advisor pursuant to the new Advisory Agreement is justified.

     The Advisory Agreement may be terminated without cause or penalty by either
party, or by the mutual consent of the parties (by a majority of the Independent
Directors of the Company or a majority of the  directors of the Advisor,  as the
case may be),  upon 60 days' prior  written  notice.  At that time,  the Advisor
shall be  entitled  to receive  the  Performance  Fee if  performance  standards
satisfactory  to a majority of the Board of  Directors,  including a majority of
the Independent  Directors,  when compared to (a) the performance of the Advisor
in comparison with its  performance for other entities,  and (b) the performance
of other  advisors  for  similar  entities,  have been met.  If Listing  has not
occurred, the Performance Fee, if any, shall equal 10% of the amount, if any, by
which  (i) the  appraised  value of the  assets  of the  Company  on the date of
termination of the Advisory Agreement (the "Termination  Date"), less the amount
of all  indebtedness  secured  by the  assets  of the  Company,  plus the  total
Distributions  made to  stockholders  from the Company's  inception  through the
Termination  Date,  exceeds  (ii)  Invested  Capital plus an amount equal to the
Stockholders' 8% Return from inception through the Termination Date. The Advisor
shall be entitled to receive  all  accrued but unpaid  compensation  and expense
reimbursements in cash within 30 days of the Termination Date. All other amounts
payable to the Advisor in the event of a  termination  shall be  evidenced  by a
promissory  note and shall be payable  from time to time.  The  Performance  Fee
shall be paid in 12 equal quarterly  installments without interest on the unpaid
balance, provided, however, that no payment will be made in any quarter in which
such payment would jeopardize the Company's REIT status,  in which case any such
payment or  payments  will be delayed  until the next  quarter in which  payment
would not jeopardize REIT status.  Notwithstanding the preceding  sentence,  any
amounts  which  may be  deemed  payable  at the date the  obligation  to pay the
Performance  Fee is incurred which relate to the  appreciation  of the Company's
assets shall be an amount which provides  compensation to the terminated Advisor
only for that portion of the holding  period for the  respective  assets  during
which such terminated Advisor provided services to the Company.

                                                       -76-

<PAGE>



If Listing occurs,  the Performance Fee, if any,  payable  thereafter will be as
negotiated  between  the  Company  and the  Advisor.  The  Advisor  shall not be
entitled to payment of the Performance  Fee in the event the Advisory  Agreement
is  terminated  because of failure of the Company and the Advisor to establish a
fee structure  appropriate for a perpetual-life  entity at such time, if any, as
the Shares become listed on a national  securities  exchange or over-the-counter
market. The Performance Fee, to the extent payable at the time of Listing,  will
not be paid in the event that the Subordinated Incentive Fee is paid.

     The Advisor has the right to assign the Advisory  Agreement to an Affiliate
subject to approval by the Independent Directors of the Company. The Company has
the  right to assign  the  Advisory  Agreement  to any  successor  to all of its
assets, rights, and obligations.

     The  Advisor  will not be  liable to the  Company  or its  stockholders  or
others, except by reason of acts constituting bad faith, fraud,  misconduct,  or
negligence, and will not be responsible for any action of the Board of Directors
in following or  declining to follow any advice or  recommendation  given by it.
The  Company  has  agreed to  indemnify  the  Advisor  with  respect  to acts or
omissions  of the Advisor  undertaken  in good  faith,  in  accordance  with the
foregoing  standards  and  pursuant to the  authority  set forth in the Advisory
Agreement.  Any indemnification  made to the Advisor may be made only out of the
net assets of the Company and not from stockholders.


                          PRIOR PERFORMANCE INFORMATION

     The  information  presented  in  this  section  represents  the  historical
experience  of certain real estate  programs  organized by certain  officers and
directors of the Advisor. PRIOR PUBLIC PROGRAMS HAVE INVESTED ONLY IN RESTAURANT
PROPERTIES  AND HAVE NOT  INVESTED IN HEALTH CARE  FACILITIES.  INVESTORS IN THE
COMPANY SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE  RETURNS, IF ANY, COMPARABLE
TO THOSE  EXPERIENCED  BY INVESTORS  IN SUCH PRIOR PUBLIC REAL ESTATE  PROGRAMS.
INVESTORS  WHO  PURCHASE  SHARES IN THE  COMPANY  WILL NOT  THEREBY  ACQUIRE ANY
OWNERSHIP  INTEREST IN ANY  PARTNERSHIPS  OR CORPORATIONS TO WHICH THE FOLLOWING
INFORMATION RELATES.



                                                       -77-

<PAGE>



     Two  Directors of the Company,  Robert A. Bourne and James M. Seneff,  Jr.,
individually  or with others  have served as general  partners of 88 and 89 real
estate limited partnerships, respectively, including the 18 publicly offered CNL
Income  Fund  partnerships,  and as  directors  and  officers  of  CNL  American
Properties Fund, Inc. and CNL Hospitality  Properties,  Inc. listed in the table
below. None of these limited  partnerships or unlisted REITs has been audited by
the IRS. Of course,  there is no guarantee that the Company will not be audited.
Based on an analysis of the  operating  results of the prior  programs,  Messrs.
Bourne and Seneff  believe that each of such  programs has met or is meeting its
principal investment objectives in a timely manner.

     CNL Realty  Corporation,  which was organized as a Florida  corporation  in
November  1985 and whose  sole  stockholders  are  Messrs.  Bourne  and  Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 18 CNL Income Fund limited  partnerships,  all
of which were organized to invest in fast-food, family-style and, in the case of
two of the partnerships, casual dining restaurant properties and have investment
objectives  similar to those of the  Company.  Messrs.  Bourne  and Seneff  also
currently serve as directors and officers of CNL American  Properties Fund, Inc.
and CNL Hospitality  Properties,  Inc.,  unlisted public REITs,  which also were
organized to invest in  fast-food,  family-style  and casual  dining  restaurant
properties,  mortgage  loans  and  secured  equipment  leases  (and  also  hotel
properties  in the  case of CNL  Hospitality  Properties,  and  have  investment
objectives  similar  to  those  of the  Company.  As of June  30,  1998,  the 18
partnerships   and  the  two  unlisted  public  REITs  had  raised  a  total  of
$1,153,278,381  from a total of  73,754  investors,  and had  invested  in 1,033
fast-food,  family-style and casual dining restaurant properties. None of the 18
public partnerships or the two unlisted public REITs has invested in Health Care
Facilities.  Certain  additional  information  relating  to  the  offerings  and
investment  history of the 18 public  partnerships  and the two unlisted  public
REITs is set forth below.
<TABLE>
<CAPTION>

                                                                                        Number of           Date 90% of Net
                                                                                         Limited            Proceeds Fully
                            Maximum                                                    Partnership            Invested or
Name of                     Offering                                                    Units or             Committed to
Entity                      Amount (1)                   Date Closed                   Shares Sold          Investment (2)
- ------                      ----------                   -----------                   -----------          --------------
<S> <C>
CNL Income                  $15,000,000                  December 31, 1986                 30,000       December 1986
Fund, Ltd.                  (30,000 units)

CNL                         $25,000,000                  August 21, 1987                   50,000       November 1987
Income                      (50,000 units)
Fund II, Ltd.

CNL                         $25,000,000                  April 29, 1988                    50,000       June 1988
Income                      (50,000 units)
Fund III, Ltd.

CNL Income                  $30,000,000                  December 6, 1988                  60,000       February 1989
Fund IV, Ltd.               (60,000 units)

CNL                         $25,000,000                  June 7, 1989                      50,000       December 1989
Income                      (50,000 units)
Fund V, Ltd.



                                      -78-

<PAGE>


CNL Income
Fund VI, Ltd.               $35,000,000                  January 19, 1990                  70,000       May 1990
                            (70,000 units)

CNL Income                  $30,000,000                  August 1, 1990                 30,000,000      January 1991
Fund VII, Ltd.              (30,000,000 units)

CNL Income                  $35,000,000                  March 7, 1991                 35,000,000       September 1991
Fund VIII, Ltd.             (35,000,000 units)

CNL Income                  $35,000,000                  September 6, 1991              3,500,000       November 1991
Fund IX, Ltd.               (3,500,000 units)

CNL                         $40,000,000                  April 22, 1992                 4,000,000       June 1992
Income                      (4,000,000 units)
Fund X, Ltd.

CNL Income                  $40,000,000                  October 8, 1992                4,000,000       September 1992
Fund XI, Ltd.               (4,000,000 units)

CNL Income                  $45,000,000                  April 15, 1993                 4,500,000       July 1993
Fund XII, Ltd.              (4,500,000 units)

CNL Income                  $40,000,000                  September 13, 1993             4,000,000       August 1993
Fund XIII, Ltd.             (4,000,000 units)


                                      -79-

<PAGE>





CNL Income                  $45,000,000                  March 23, 1994                 4,500,000       May 1994
Fund XIV, Ltd.              (4,500,000 units)

CNL Income                  $40,000,000                  September 22, 1994             4,000,000       December 1994
Fund XV, Ltd.               (4,000,000 units)

CNL                         $45,000,000                  July 18, 1995                  4,500,000       August 1995
Income                      (4,500,000 units)
Fund XVI, Ltd.

CNL Income                  $30,000,000                  October 10, 1996               3,000,000       December 1996
Fund XVII, Ltd.             (3,000,000 units)

CNL                         $35,000,000                  February 6, 1998               3,500,000       December 1997
Income                      (3,500,000 units)
Fund XVIII, Ltd

CNL                         $745,000,000                           (3)                     (3)                    (3)
American                    (74,500,000 shares)
Properties Fund, Inc.

CNL Hospitality             $165,000,000                           (4)                     (4)                    (4)
Properties, Inc.            (16,500,000 shares)

</TABLE>


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

(1)      The amount stated includes the exercise by the general partners of each
         partnership  of their option to increase by $5,000,000 the maximum size
         of the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
         Income Fund III,  Ltd.,  CNL Income Fund IV, Ltd.,  CNL Income Fund VI,
         Ltd.,  CNL Income Fund VIII,  Ltd., CNL Income Fund X, Ltd., CNL Income
         Fund XII,  Ltd.,  CNL Income Fund XIV,  Ltd., CNL Income Fund XVI, Ltd.
         and CNL Income Fund XVIII, Ltd.

(2)      For a description of the property  acquisitions by these programs,  see
         the table set forth on the following page.

(3)      In April  1995,  CNL  American  Properties  Fund,  Inc.,  commenced  an
         offering   of  a  maximum  of   15,000,000   shares  of  common   stock
         ($150,000,000),  excluding 1,500,000 shares ($15,000,000)  available to
         investors  participating in the reinvestment plan. On February 6, 1997,
         the initial  offering  closed upon receipt of  subscriptions  totalling
         $150,591,765  (15,059,177  shares),  including $591,765 (59,177 shares)
         through the  reinvestment  plan.  Following  completion  of the initial
         offering  on February  6, 1997,  CNL  American  Properties  Fund,  Inc.
         commenced  a  subsequent  offering  (the  "1997  Offering  ")  of up to
         27,500,000 shares ($275,000,000) of common stock. On March 2, 1998, the
         1997   Offering   closed  upon  receipt  of   subscriptions   totalling
         $251,872,648   (25,187,265  shares),   including  $1,8872,648  (187,265
         shares) through the reinvestment plan. Following completion of the 1997
         Offering on March 2, 1998, CNL American Properties Fund, Inc. commenced
         a subsequent offering (the "1998 Offering ") of up to 34,500,000 shares
         ($345,000,000)  of common  stock.  As of June 30,  1998,  CNL  American
         Properties Fund, Inc. had received subscriptions totalling $111,880,063
         (11,188,006 shares),  including $1,828,291 (182,829 shares) through the
         reinvestment  plan,  from  the  1998  Offering.  As of such  date,  CNL
         American Properties Fund, Inc. had purchased 320 properties.

(4)      Effective July 9, 1997, CNL Hospitality Properties,  Inc. (formerly CNL
         American  Realty Fund,  Inc.) commenced an offering of up to 16,500,000
         shares of  ($165,000,000)  of common  stock.  As of June 30, 1998,  CNL
         Hospitality  Properties,  Inc.  had  received  subscriptions  totalling
         $23,578,169  (2,357,817 shares),  including $9,704 (970 shares) through
         the  reinvestment  plan. As of such date, CNL  Hospitality  Properties,
         Inc. had not purchased any properties.

         As of June 30, 1998,  Mr.  Seneff and Mr.  Bourne,  directly or through
affiliated  entities,  also had served as joint general partners of 69 nonpublic
real estate  limited  partnerships.  The  offerings  of 68 of these 69 nonpublic
limited  partnerships  had terminated as of June 30, 1998. These 68 partnerships
raised  a  total  of  $170,327,353  from  approximately  4,241  investors,   and
purchased,  directly  or  through  participation  in a joint  venture or limited
partnership, interests in a total of 206 projects as of June 30, 1998. These 206
projects  consist of 19 apartment  projects  (comprising 10% of the total amount
raised by all 68 partnerships),  13 office buildings (comprising 5% of the total
amount raised by all 68 partnerships),  159 fast-food,  family-style,  or casual
dining restaurant property and business investments (comprising 68% of the total
amount raised by all 68 partnerships),  one condominium  development (comprising
 .5% of the total amount raised by all 68 partnerships), four hotels/motels

                                                       -80-

<PAGE>



(comprising  5% of the  total  amount  raised  by all  68  partnerships),  eight
commercial/retail  properties  (comprising 11% of the total amount raised by all
68  partnerships),  and two tracts of undeveloped  land  (comprising  .5% of the
total amount raised

                                                       -81-

<PAGE>



by all 68  partnerships).  The offering of the one remaining  nonpublic  limited
partnership  (offering  totalling  $15,000,000) had raised  $13,637,500 from 263
investors  (approximately  90.91% of the total  offering  amount) as of June 30,
1998.

         Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional  nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased,  through  participation  in a
limited  partnership,  one apartment building located in Georgia with a purchase
price of $1,712,000.

         Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional  nonpublic real estate limited  partnerships which raised a total
of  $240,000  from 12  investors  and  purchased  two office  buildings  with an
aggregate  purchase price of $928,390.  Both of the office buildings are located
in Florida.

         Of the 89 real estate limited  partnerships  whose offerings had closed
as of June 30, 1998 (including 18 CNL Income Fund limited partnerships) in which
Mr.  Seneff  and/or Mr.  Bourne serve or have served as general  partners in the
past,  38 invested in  restaurant  properties  leased on a  "triple-net"  basis,
including  seven  which  also  invested  in  franchised   restaurant  businesses
(accounting  for  approximately  93% of the total  amount  raised by all 89 real
estate limited partnerships).

         The  following  table sets forth  summary  information,  as of June 30,
1998, regarding property acquisitions by the 18 limited partnerships and the two
unlisted  REITs  that,  either  individually  or  through  a  joint  venture  or
partnership  arrangement,  have  investment  objectives  similar to those of the
Company.

<TABLE>
<CAPTION>

Name of                Type of                                             Method of          Type of
Entity                Property                 Location                    Financing          Program
- ------                --------                 --------                    ---------          -------
<S> <C>
   
CNL Income          22 fast-food or          AL, AZ, CA, FL,               All cash            Public          
Fund, Ltd.          family-style             GA, LA, MD, OK,
                    restaurants              PA, TX, VA, WA


CNL Income          49 fast-food or          AL, AZ, CO, FL,               All cash            Public
Fund II, Ltd.       family-style             GA, IL, IN, KS, LA,
                    restaurants              MI, MN, MO, NC,
                                             NM, OH, TN, TX,
                                             WA, WY

CNL Income          37 fast-food or          AZ, CA, CO, FL,               All cash            Public
Fund III, Ltd.      family-style             GA, IA, IL, IN, KS,
                    restaurants              KY, MD, MI, MN,
                                             MO, NC, NE, OK,
                                             TX

CNL Income          45 fast-food or          AL, DC, FL, GA,               All cash            Public
Fund IV, Ltd.       family-style             IL, IN, KS, MA,
                    restaurants              MD, MI, MS, NC,
                                             OH, PA, TN, TX,
                                             VA

CNL Income          35 fast-food or          AZ, FL, GA, IL, IN,           All cash            Public
Fund V, Ltd.        family-style             MI, NH, NY, OH,
                    restaurants              SC, TN, TX, UT, WA

    


                                      -82-

<PAGE>

Name of                Type of                                             Method of          Type of
Entity                Property                 Location                    Financing          Program
- ------                --------                 --------                    ---------          -------
   
CNL Income          55 fast-food or          AR, AZ, FL, GA,               All cash            Public
Fund VI, Ltd.       family-style             IL, IN, KS, MA,
                    restaurants              MI, MN, NC, NE,
                                             NM, NY, OH, OK,
                                             PA, TN, TX, VA,
                                             WA, WY

CNL Income          49 fast-food or          AZ, CO, FL, GA,               All cash            Public
Fund VII, Ltd.      family-style             IN, LA, MI, MN,
                    restaurants              NC, OH, SC, TN,
                                             TX, UT, WA
    

CNL Income          42 fast-food or          AZ, FL, IN, LA,               All cash            Public
Fund VIII, Ltd.     family-style             MI, MN, NC, NY,
                    restaurants              OH, TN, TX, VA

CNL Income          43 fast-food or          AL, CO, FL, GA,               All cash            Public
Fund IX, Ltd.       family-style             IL, IN, LA, MI,
                    restaurants              MN, MS, NC, NH,
                                             NY, OH, SC, TN,
                                             TX

                                      -83-

<PAGE>

Name of                Type of                                             Method of          Type of
Entity                Property                 Location                    Financing          Program
- ------                --------                 --------                    ---------          -------
 
CNL Income          51 fast-food or          AL, CA, CO, FL,               All cash            Public
Fund X, Ltd.        family-style             ID, IL, LA, MI,
                    restaurants              MO, MT, NC, NH,
                                             NM, NY, OH, PA,
                                             SC, TN, TX

CNL Income          40 fast-food or          AL, AZ, CA, CO,               All cash            Public
Fund XI, Ltd.       family-style             CT, FL, KS, LA,
                    restaurants              MA, MI, MS, NC,
                                             NH, NM, OH, OK,
                                             PA, SC, TX, VA,
                                             WA

CNL Income          49 fast-food or          AL, AZ, CA, FL,               All cash            Public
Fund XII, Ltd.      family-style             GA, LA, MO, MS,
                    restaurants              NC, MN, OH, SC,
                                             TN, TX, WA

CNL Income          50 fast-food or          AL, AR, AZ, CA,               All cash            Public
Fund XIII, Ltd.     family-style             CO, FL, GA, IN,
                    restaurants              KS, LA, MD, NC,
                                             OH, PA, SC, TN,
                                             TX, VA

CNL Income          64 fast-food or          AL, AZ, CO, FL,               All cash            Public
Fund XIV, Ltd.      family-style             GA, KS, LA, MN,
                    restaurants              MO, MS, NC, NJ,
                                             NV, OH, SC, TN,
                                             TX, VA


                                      -84-

<PAGE>


Name of                Type of                                             Method of          Type of
Entity                Property                 Location                    Financing          Program
- ------                --------                 --------                    ---------          -------

CNL Income          55 fast-food or          AL, CA, FL, GA,               All cash            Public
Fund XV, Ltd.       family-style             KS, KY, MN, MO,
                    restaurants              MS, NC, NJ, NM,
                                             OH, OK, PA, SC,
                                             TN, TX, VA

CNL Income          47 fast-food or          AZ, CA, CO, DC,               All cash            Public
Fund XVI, Ltd.      family-style             FL, GA, ID, IN, KS,
                    restaurants              MN, MO, NC, NM,
                                             NV, OH, TN, TX,
                                             UT, WI

CNL Income          29 fast-food or          CA, FL, GA, IL, IN,           All cash            Public
Fund XVII, Ltd.     family-style             MI, NC, NV, OH,
                    restaurants              SC, TN, TX

CNL Income          23 fast-food or          AZ, CA, FL, GA,               All cash            Public
Fund XVIII, Ltd.    family-style             IL, KY, MD, MN,
                    restaurants              NC, NV, NY, OH,
                                             TN, TX    

CNL American        320 fast-food,           AL, AZ, CA, CO,               All cash            Public
Properties Fund,    family-style, or         CT, DE, FL, GA,
Inc.                casual dining            IA, ID, IL, IN, KS,
                    restaurants              KY, MD, MI, MN,
                                             MO, NC, NE, NJ,
                                             NM, NV, NY, OH,
                                             OK, OR, PA, RI,
                                             SC, TN, TX, UT,
                                             VA, WA, WI, WV

CNL Hospitality          (1)                       (1)                        (1)           Public REIT
Properties, Inc.

</TABLE>

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

(1)      As of June 30, 1998, CNL Hospitality Properties,  Inc. had not acquired
         any properties.

         A more detailed  description of the acquisitions by real estate limited
partnerships  and the two unlisted REITs sponsored by Messrs.  Bourne and Seneff
is set  forth  in  prior  performance  Table  VI,  included  in  Part  II of the
registration  statement  filed with the Securities  and Exchange  Commission for
this offering.  A copy of Table VI is available to stockholders from the Company
upon  request,  free of charge.  In addition,  upon request to the Company,  the
Company will provide, without charge, a copy of the most recent Annual Report on
Form 10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd.,  CNL Income Fund II, Ltd.,  CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd.,  CNL Income Fund V, Ltd.,  CNL Income Fund VI, Ltd.,  CNL Income Fund VII,
Ltd.,  CNL Income Fund VIII,  Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd.,  CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL Income Fund XVI,
Ltd.,  CNL Income Fund XVII,  Ltd.,  CNL Income Fund XVIII,  Ltd.,  CNL American
Properties  Fund, Inc. and CNL Hospitality  Properties,  Inc. as well as a copy,
for a reasonable fee, of the exhibits filed with such reports.

         In order to provide potential purchasers of Shares in the

                                                       -85-

<PAGE>



Company with  information to enable them to evaluate the prior experience of the
Messrs.   Seneff  and  Bourne  as  general   partners  of  real  estate  limited
partnerships and as directors and officers of the two unlisted REITs,  including
those set forth in the foregoing table,  certain financial and other information
concerning those limited partnerships and the two unlisted REITs with investment
objectives  similar to one or more of the  Company's  investment  objectives  is
provided in the Prior  Performance  Tables  included as Appendix C.  Information
about the  previous  public  partnerships,  the  offerings of which became fully
subscribed  between  January  1993  and  December  1997,  is  included  therein.
Potential  stockholders are encouraged to examine the Prior  Performance  Tables
attached as  Appendix C (in Table  III),  which  include  information  as to the
operating  results of these prior  partnerships,  for more detailed  information
concerning the experience of Messrs. Seneff and Bourne.


                       INVESTMENT OBJECTIVES AND POLICIES

GENERAL

         The Company's primary investment  objectives are to preserve,  protect,
and enhance the Company's  assets while (i) making  Distributions  commencing in
the initial year of Company operations;  (ii) obtaining fixed income through the
receipt of base rent, and increasing  the Company's  income (and  Distributions)
and providing  protection against inflation through automatic fixed increases in
base rent or increases in base rent based on increases in consumer price indices
over the terms of the leases,  and obtaining fixed income through the receipt of
payments on Mortgage Loans and Secured  Equipment  Leases;  (iii) qualifying and
remaining  qualified  as a REIT  for  federal  income  tax  purposes;  and  (iv)
providing stockholders of the Company with liquidity of their investment, either
in  whole  or in  part,  within  five to ten  years  after  commencement  of the
offering,  through (a)  Listing,  or, (b) if Listing  does not occur  within ten
years after  commencement of the offering  (December 31, 2008), the commencement
of  orderly  Sales of the  Company's  assets,  outside  the  ordinary  course of
business  and  consistent  with  its  objective  of  qualifying  as a REIT,  and
distribution  of the proceeds  thereof.  The sheltering  from tax of income from
other  sources is not an objective of the Company.  If the Company is successful
in achieving its investment and operating  objectives,  the stockholders  (other
than tax-exempt  entities) are likely to recognize  taxable income in each year.
While  there is no order of priority  intended  in the listing of the  Company's
objectives,  stockholders should realize that the ability of the Company to meet
these objectives may be severely  handicapped by any lack of  diversification of
the Company's investments and the terms of the leases.

         The  Company  intends to meet its  objectives  through  its  investment
policies of (i)  purchasing  carefully  selected,  well-located  Properties  and
leasing  them on a  "triple-net"  basis  (which  means that the  tenant  will be
responsible for paying the cost of all repairs, maintenance, property taxes, and
insurance) to operators of Health Care Facilities under leases generally

                                                       -86-

<PAGE>



requiring the tenant to pay base annual rental with automatic fixed increases in
base rent or increases in base rent based on increases in consumer price indices
over the term of the  lease,  and  (ii)  offering  Mortgage  Loans  and  Secured
Equipment Leases to operators of Health Care Facilities.

         In accordance  with its  investment  policies,  the Company  intends to
invest in Properties whose tenants are operators of Health Care Facilities to be
selected by the Company,  based upon  recommendations  by the Advisor.  Although
there is no limit on the number of properties of a particular operator of Health
Care Facilities  which the Company may acquire,  the Company  currently does not
expect to acquire a Property if the Board of Directors,  including a majority of
the  Independent  Directors,  determines  that the  acquisition  would adversely
affect  the   Company   in  terms  of   geographic,   property   type  or  chain
diversification.  Potential  Mortgage Loan borrowers and Secured Equipment Lease
lessees or borrowers  will  similarly  be  operators  of Health Care  Facilities
selected by the Company,  following the Advisor's  recommendations.  The Company
has  undertaken,  consistent  with its  objective  of  qualifying  as a REIT for
federal income tax purposes,  to ensure that the value of all Secured  Equipment
Leases,  in the  aggregate,  will not exceed 25% of the Company's  total assets,
while  Secured  Equipment  Leases  to any  single  lessee  or  borrower,  in the
aggregate, will not exceed 5% of the Company's total assets. It is intended that
investments  will be made in Properties,  Mortgage  Loans and Secured  Equipment
Leases in various locations in an attempt to achieve diversification and thereby
minimize the effect of changes in local  economic  conditions  and certain other
risks.  The extent of such  diversification,  however,  depends in part upon the
amount  raised in the  offering  and the purchase  price of each  Property.  See
"Estimated Use of Proceeds" and "Risk Factors - Investment Risks - Possible Lack
of Diversification."  For a more complete description of the manner in which the
structure of the Company's  business,  including its investment  policies,  will
facilitate  the  Company's  ability  to  meet  its  investment  objectives,  See
"Business."

         The investment objectives of the Company may not be changed without the
approval of stockholders  owning a majority of the shares of outstanding  Common
Stock. The Bylaws of the Company require the Independent Directors to review the
Company's  investment  policies at least annually to determine that the policies
are in the best interests of the stockholders.  The  determination  shall be set
forth in the  minutes  of the Board of  Directors  along with the basis for such
determination. The Directors (including a majority of the Independent Directors)
have the right,  without a stockholder  vote, to alter the Company's  investment
policies  but  only to the  extent  consistent  with  the  Company's  investment
objectives and investment  limitations.  See "Certain  Investment  Limitations,"
below.

CERTAIN INVESTMENT LIMITATIONS

         In addition to other investment  restrictions  imposed by the Directors
from time to time,  consistent  with the Company's  objective of qualifying as a
REIT,  the Articles of  Incorporation  or the Bylaws  provide for the  following
limitations on the

                                                       -87-

<PAGE>



Company's investments.

         1. Not more than 10% of the Company's total assets shall be invested in
unimproved  real property or mortgage  loans on unimproved  real  property.  For
purposes of this  paragraph,  "unimproved  real  property"  does not include any
Property  under  construction,  under  contract for  development  or planned for
development within one year.

         2. The Company  shall not invest in  commodities  or  commodity  future
contracts.  This  limitation  is not intended to apply to interest rate futures,
when used solely for hedging purposes.

         3. The Company  shall not invest in or make  Mortgage  Loans  unless an
appraisal is obtained concerning the underlying property.  Mortgage indebtedness
on any property shall not exceed such  property's  appraised  value. In cases in
which a majority of  Independent  Directors  so  determine,  and in all cases in
which the Mortgage Loan involves the Advisor,  Directors,  or  Affiliates,  such
appraisal must be obtained from an independent  expert concerning the underlying
property.  Such  appraisal  shall be maintained in the Company's  records for at
least five years,  and shall be available for inspection and  duplication by any
stockholder.  In addition  to the  appraisal,  a  mortgagee's  or owner's  title
insurance  policy or  commitment as to the priority of the mortgage or condition
of the title  must be  obtained.  The  Company  may not  invest  in real  estate
contracts of sale otherwise known as land sale contracts.

         4. The  Company  may not make or invest in  Mortgage  Loans,  including
construction  loans, on any one Property if the aggregate amount of all mortgage
loans  outstanding  on the Property,  including the loans of the Company,  would
exceed  an  amount  equal  to 85% of the  appraised  value  of the  Property  as
determined by appraisal unless substantial  justification  exists because of the
presence of other underwriting  criteria.  For purposes of this subsection,  the
"aggregate amount of all mortgage loans  outstanding on the Property,  including
the loans of the  Company"  shall  include all  interest  (excluding  contingent
participation in income and/or appreciation in value of the mortgaged property),
the  current  payment  of which may be  deferred  pursuant  to the terms of such
loans, to the extent that deferred interest on each loan exceeds 5% per annum of
the principal balance of the loan.

         5. The Company may not invest in  indebtedness  ("Junior Debt") secured
by a  mortgage  on real  property  which  is  subordinate  to the  lien or other
indebtedness  ("Senior Debt"), except where the amount of such Junior Debt, plus
the outstanding  amount of the Senior Debt, does not exceed 90% of the appraised
value of such property,  if after giving effect  thereto,  the value of all such
investments  of the Company (as shown on the books of the Company in  accordance
with generally accepted accounting  principles after all reasonable reserves but
before  provision for  depreciation)  would not then exceed 25% of the Company's
Net Assets.  The value of all  investments  in Junior Debt of the Company  which
does not meet the aforementioned requirements is

                                                       -88-

<PAGE>



limited to 10% of the Company's  tangible  assets (which is included  within the
25% limitation).



                                                       -89-

<PAGE>



         6. The  Company  may not engage in any short  sale,  or  borrow,  on an
unsecured basis, if such borrowing will result in an asset coverage of less than
300%, except that such borrowing  limitation shall not apply to a first mortgage
trust. "Asset coverage",  for the purpose of this section, means the ratio which
the  value  of  the  total  assets  of  an  issuer,  less  all  liabilities  and
indebtedness  except  indebtedness  for  unsecured  borrowings,   bears  to  the
aggregate amount of all unsecured borrowings of such issuer.

   
         7. The Company may not incur any indebtedness  which would result in an
aggregate amount of Leverage in excess of 300% of Net Assets.
    

         8. The  Company may not make or invest in any  mortgage  loans that are
subordinate  to any  mortgage,  other  indebtedness  or equity  interest  of the
Advisor, the Directors, or Affiliates of the Company.

         9. The Company will not invest in equity  securities  unless a majority
of the Directors  (including a majority of Independent  Directors) not otherwise
interested  in  such   transaction   approve  the  transaction  as  being  fair,
competitive, and commercially reasonable and determine that the transaction will
not jeopardize the Company's  ability to qualify and remain qualified as a REIT.
Investments in entities affiliated with the Advisor, a Director, the Company, or
Affiliates thereof are subject to the restrictions on joint venture investments.
In addition,  the Company shall not invest in any security of any entity holding
investments  or engaging in activities  prohibited by the Company's  Articles of
Incorporation.

         10. The Company will not issue (i) equity securities  redeemable solely
at the option of the holder (except that  stockholders may offer their Shares to
the Company as described  under  "Redemption of Shares,");  (ii) debt securities
unless the  historical  debt service  coverage (in the most  recently  completed
fiscal  year),  as adjusted for known  charges,  is  sufficient  to service that
higher level of debt properly; (iii) Shares on a deferred payment basis or under
similar arrangements;  (iv) non-voting or assessable securities; or (v) options,
warrants,  or similar evidences of a right to buy its securities  (collectively,
"Options") unless (1) issued to all of its stockholders  ratably, (2) as part of
a financing  arrangement,  or (3) as part of a stock  option plan  available  to
Directors, officers, or employees of the Company or the Advisor. Options may not
be issued to the Advisor,  Directors or any Affiliate thereof except on the same
terms as such Options are sold to the general public,  provided that the Company
may issue Options to persons other than the Advisor,  Directors or any Affiliate
thereof at exercise prices not less than the fair market value of the underlying
securities on the date of grant and for  consideration  that, in the judgment of
the  Independent  Directors,  has a market value not less than the value of such
Option on the date of grant. Options issuable to the Advisor, Directors or any

                                                       -90-

<PAGE>



Affiliate thereof shall not exceed 10% of the outstanding  Shares on the date of
grant.

         11. A majority of the Directors shall authorize the consideration to be
paid for each  Property,  based on the fair market value of the  Property.  If a
majority of the Independent Directors determine,  or if the Property is acquired
from the Advisor,  a Director,  or  Affiliates  thereof,  such fair market value
shall  be  determined  by an  independent  expert  selected  by the  Independent
Directors.

         12.  The  Company  will  not  engage  in  underwriting  or  the  agency
distribution  of  securities  issued by others or in  trading,  as  compared  to
investment activities.

         13. The Company will not invest in real estate contracts of sale unless
such contracts of sale are in recordable form and appropriately  recorded in the
chain of title.

         14. The Company  will not invest in any foreign  currency or bullion or
engage in short sales.

         15. The Company will not issue senior  securities except notes to banks
and other lenders and preferred shares.

         16. The Company will not make loans to the Advisor or its Affiliates.

         17.  The  Company  will  not  operate  so  as to  be  classified  as an
"investment company" under the Investment Company Act of 1940, as amended.



                                                       -91-

<PAGE>



         18. The Company will not make any investment that the Company  believes
will be inconsistent with its objective of qualifying as a REIT.

         The foregoing limitations may not be modified or eliminated without the
approval of a majority of the shares of outstanding Common Stock.

         Except as set forth above or elsewhere in this Prospectus,  the Company
does not intend to issue senior  securities;  borrow money;  make loans to other
persons; invest in the securities of other issuers for the purpose of exercising
control; underwrite securities of other issuers; engage in the purchase and sale
(or  turnover)  of  investments;  offer  securities  in exchange  for  property,
repurchase or otherwise reacquire its shares or other securities; or make annual
or other  reports to security  holders.  The Company  evaluates  investments  in
Mortgage  Loans on an  individual  basis and does not have a  standard  turnover
policy with respect to such investments.



                                                       -92-

<PAGE>

                               DISTRIBUTION POLICY

GENERAL

         In order to qualify as a REIT for federal  income tax  purposes,  among
other  things,  the  Company  must make  distributions  each  taxable  year (not
including  any return of capital for federal  income tax  purposes)  equal to at
least 95% of its real estate investment trust taxable income, although the Board
of  Directors,  in its  discretion,  may increase  that  percentage  as it deems
appropriate.  See "Federal Income Tax  Considerations  Taxation of the Company -
Distribution  Requirements."  The  declaration  of  Distributions  is within the
discretion   of  the  Board  of  Directors   and  depends  upon  the   Company's
distributable funds, current and projected cash requirements, tax considerations
and other factors.

DISTRIBUTIONS

         The Company intends to make regular  Distributions to stockholders.  To
the extent  consistent with the Company's  objective of qualifying as a REIT, it
is  anticipated  that the first  Distributions  will be paid not later  than the
close of the first full  calendar  quarter after the first release of funds from
escrow to the Company.  Distributions will be made to those stockholders who are
stockholders as of the record date selected by the Directors. Distributions will
be declared  monthly  during the offering  period,  declared  monthly during any
subsequent  offering,  paid on a quarterly basis during an offering period,  and
declared and paid  quarterly  thereafter.  The Company is required to distribute
annually  at least 95% of its real estate  investment  trust  taxable  income to
maintain its objective of qualifying as a REIT.  Generally,  income  distributed
will not be taxable to the Company under federal  income tax laws if the Company
complies with the provisions  relating to  qualification  as a REIT. If the cash
available to the Company is insufficient to pay such Distributions,  the Company
may obtain the necessary funds by borrowing,  issuing new securities, or selling
Assets.  These methods of obtaining funds could affect future  Distributions  by
increasing  operating  costs. To the extent that  Distributions  to stockholders
exceed  earnings and  profits,  such  amounts  constitute  a return  capital for
federal  income  tax  purposes,  although  such  Distributions  will not  reduce
stockholders'  aggregate  Invested  Capital.  Distributions in kind shall not be
permitted,   except  for   distributions  of  readily   marketable   securities;
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the  liquidation of its assets in accordance with
the terms of the Articles of Incorporation; or distributions of in-kind property
as long as the Directors  (i) advise each  stockholder  of the risks  associated
with direct ownership of the property;  (ii) offer each stockholder the election
of  receiving  in-kind  property  distributions;  and (iii)  distribute  in-kind
property only to those stockholders who accept the Directors' offer.

         Distributions  will  be  made  at  the  discretion  of  the  Directors,
depending  primarily on net cash from  operations  (which includes cash received
from  tenants  except  to the  extent  that  such  cash  represents  a return of
principal  in regard to the lease of a Property  consisting  of  building  only,
distributions from joint ventures, and interest income from lessees of Equipment
and  borrowers  under  Mortgage  Loans,  less  expenses  paid)  and the  general
financial condition of the Company, subject to the

                                                       -93-

<PAGE>



obligation of the Directors to cause the Company to qualify and remain qualified
as a REIT for  federal  income tax  purposes.  The  Company  intends to increase
Distributions in accordance with increases in net cash from operations.

                                 SUMMARY OF THE
                      ARTICLES OF INCORPORATION AND BYLAWS

GENERAL

         The Company is organized as a  corporation  under the laws of the State
of Maryland. As a Maryland corporation,  the Company is governed by the Maryland
General  Corporation Law. Maryland corporate law deals with a variety of matters
regarding  Maryland   corporations,   including   liabilities  of  the  Company,
stockholders,  directors,  and  officers,  the  amendment  of  the  Articles  of
Incorporation,  and mergers of a Maryland corporation with other entities. Since
many matters are not addressed by Maryland  corporate law, it is customary for a
Maryland corporation to address these matters through provisions in its Articles
of Incorporation.

         The  Articles of  Incorporation  and the Bylaws of the Company  contain
certain  provisions  that could make it more difficult to acquire control of the
Company  by  means of a tender  offer,  a proxy  contest,  or  otherwise.  These
provisions  are  expected  to  discourage  certain  types of  coercive  takeover
practices  and  inadequate  takeover  bids and to encourage  persons  seeking to
acquire  control of the Company to negotiate  first with its Board of Directors.
The  Company  believes  that  these  provisions  increase  the  likelihood  that
proposals  initially will be on more attractive  terms than would be the case in
their absence and facilitate negotiations which may result in improvement of the
terms of an initial offer.

         The  Articles  of  Incorporation  also  permit  Listing by the Board of
Directors after completion or termination of this offering.

         The discussion below sets forth material  provisions of governing laws,
instruments  and  guidelines  applicable  to  the  Company.  For  more  complete
provisions,  reference  is made to the  Maryland  General  Corporation  Law, the
guidelines for REITs published by the North American  Securities  Administrators
Association and the Company's Articles of Incorporation and Bylaws.

DESCRIPTION OF CAPITAL STOCK

         General.  The Company has authorized a total of  206,000,000  shares of
capital stock,  consisting of 100,000,000 shares of Common Stock, $.01 par value
per  share,  3,000,000  shares  of  Preferred  Stock  ("Preferred  Stock"),  and
103,000,000 additional shares of excess stock ("Excess Shares"),  $.01 par value
per share.  Of the  103,000,000  Excess  Shares,  100,000,000  are  issuable  in
exchange for Common Stock and  3,000,000  are issuable in exchange for Preferred
Stock as described below at  "Restriction  of Ownership." The Company  currently
has 20,000 shares of Common Stock outstanding and no Preferred Stock or

                                                       -94-

<PAGE>



Excess  Shares  outstanding.  The Board of Directors  may determine to engage in
future  offerings  of Common  Stock of up to the number of  unissued  authorized
shares of Common Stock available.

         The Company will not issue share  certificates  except to  stockholders
who make a written request to the Company. Each stockholder's investment will be
recorded  on  the  books  of  the  Company,   and  information   concerning  the
restrictions  and rights  attributable  to Shares (whether in connection with an
initial issuance or a transfer) will be sent to the stockholder receiving Shares
in connection  with an issuance or transfer.  A stockholder  wishing to transfer
his or her Shares will be required to send only an executed form to the Company,
and the Company will provide the required form upon a stockholder's request. The
executed  form and any other  required  documentation  must be  received  by the
Company  at least  one  calendar  month  prior  to the  last day of the  current
quarter. Subject to restrictions in the Articles of Incorporation,  transfers of
Shares shall be effective,  and the  transferee of the Shares will be recognized
as the  holder of such  Shares as of the first day of the  following  quarter on
which the Company receives properly executed documentation. Stockholders who are
residents of New York may not transfer fewer than 250 shares at any time.



                                                       -95-

<PAGE>



         Stockholders  have no  preemptive  rights to purchase or subscribe  for
securities  that the Company may issue  subsequently.  Each Share is entitled to
one vote per  Share,  and  Shares  do not have  cumulative  voting  rights.  The
Stockholders are entitled to Distributions in such amounts as may be declared by
the Board of Directors from time to time out of funds legally available for such
payments and, in the event of liquidation, to share ratably in any assets of the
Company remaining after payment in full of all creditors.

         All of the Shares offered  hereby will be fully paid and  nonassessable
when issued.

         The  Articles of  Incorporation  authorize  the Board of  Directors  to
designate and issue from time to time one or more classes or series of Preferred
Shares without  stockholder  approval.  The Board of Directors may determine the
relative  rights,  preferences,  and  privileges  of each  class  or  series  of
Preferred Stock so issued. The issuance of Preferred Shares shall be approved by
a majority  of the  Independent  Directors  who do not have any  interest in the
transactions  and  who  have  access,  at the  expense  of the  Company,  to the
Company's or independent  legal counsel.  Because the Board of Directors has the
power to  establish  the  preferences  and  rights  of each  class or  series of
Preferred  Stock,  it may afford the holders of any series or class of Preferred
Stock preferences,  powers, and rights senior to the rights of holders of Common
Stock;  however,  the voting rights for each share of Preferred  Stock shall not
exceed  voting rights which bear the same  relationship  to the voting rights of
the Shares as the consideration  paid to the Company for each share of Preferred
Stock  bears to the book  value of the  Shares on the date  that such  Preferred
Stock is  issued.  The  issuance  of  Preferred  Stock  could have the effect of
delaying  or  preventing  a change  in  control  of the  Company.  The  Board of
Directors has no present

                                                       -96-

<PAGE>



plans to issue any Preferred Stock.

         Similarly,  the  voting  rights per share of equity  securities  of the
Company (other than the publicly held equity  securities of the Company) sold in
a private  offering  shall not  exceed  the  voting  rights  which bear the same
relationship to the voting rights of the publicly held equity  securities as the
consideration paid to the Company for each privately offered Company share bears
to the book value of each outstanding  publicly held equity security.  The Board
of Directors currently has no plans to offer equity securities of the Company in
a private offering.

         For a description of the  characteristics  of the Excess Shares,  which
differ from Common Stock and Preferred Stock in a number of respects,  including
voting and economic rights, see "Restriction of Ownership," below.

         Soliciting  Dealer Warrants.  The Company has agreed to issue and sell,
as part of an overall  compensation  package,  Soliciting Dealer Warrants to the
Managing Dealer,  whereby one warrant to purchase one share of Common Stock will
be issued for every 25 Shares sold by the Managing  Dealer.  The Managing Dealer
has agreed to pay the Company $0.0008 for each Soliciting Dealer Warrant.  These
warrants will be issued on a quarterly  basis  commencing 60 days after the date
on which the Shares are first sold pursuant to this  offering.  All or a portion
of the Soliciting  Dealer  Warrants may be reallowed to Soliciting  Dealers with
prior written approval from, and in the sole discretion of, the Managing Dealer,
except where  prohibited by either federal or state securities laws. The Company
will not  issue  Soliciting  Dealer  Warrants  to the  Managing  Dealer  and the
Managing Dealer will not transfer Soliciting Dealer Warrants, in connection with
the sale of Shares to residents of Minnesota or Texas.

         The holder of a Soliciting  Dealer Warrant will be entitled to purchase
one share of Common  Stock from the  Company  at a price of $12.00  (120% of the
current public  offering price per Share) during the Exercise  Period;  provided
however that Soliciting  Dealer Warrants will not be exercisable  until one year
from the  date of  issuance.  Holders  of  Soliciting  Dealer  Warrants  may not
exercise  the  Soliciting  Dealer  Warrants  to the extent such  exercise  would
jeopardize the Company's status as a REIT under the Code.

         The terms of the  Soliciting  Dealer  Warrants,  including the exercise
price  and the  number  and  type of  securities  issuable  upon  exercise  of a
Soliciting Dealer Warrant and the number of such warrants may be adjusted in the
event   of   stock   dividends,    certain   subdivisions,    combinations   and
reclassification  of shares of Common Stock or the issuance to  stockholders  of
rights, options or warrants entitling them to purchase shares of Common Stock or
securities  convertible into shares of Common Stock. The terms of the Soliciting
Dealer Warrants also may be adjusted if the Company engages in certain merger or
consolidation  transactions  or if all  or  substantially  all of the  Company's
assets are sold.  Soliciting  Dealer Warrants are not transferable or assignable
except by the Managing

                                                       -97-

<PAGE>



Dealer, the Soliciting Dealers,  their successors in interest, or to individuals
who are  both  officers  and  directors  of such a  person.  Exercise  of  these
Soliciting Dealer Warrants will be under the terms and conditions  detailed this
Prospectus  and in the Warrant  Purchase  Agreement,  which is an exhibit to the
Registration Statement.

         As  holders  of  Soliciting  Dealer  Warrants,  persons do not have the
rights of stockholders,  may not vote on Company matters and are not entitled to
receive Distributions until such time as such warrants are exercised.

         The  Company  anticipates  that it will  value  the  Soliciting  Dealer
Warrants using an option pricing model in accordance with the guidance  provided
in  Statement  of  Financial  Accounting  Standards  No.  123,  "Accounting  for
Stock-Based  Compensation."  The option  pricing model that the Company will use
will take into  consideration the following  factors:  (i) the exercise price of
the Soliciting Dealer Warrants;  (ii) the expected life of the Soliciting Dealer
Warrants;  (iii) the  price of the  Shares;  (iv)  expected  Distributions  with
respect to the Shares;  (v) the risk-free interest rate for the expected term of
the Soliciting Dealer Warrants and, to the extent applicable,  (vi) the expected
volatility of the Shares.  Any difference between the fair value of a Soliciting
Dealer Warrant and the purchase price of the Soliciting Dealer Warrants would be
reflected in the  financial  statements of the Company as a charge to capital in
excess of par value related to stock issuance costs, with a corresponding credit
to equity relating to the issuance of the Soliciting Dealer Warrants.

BOARD OF DIRECTORS

         The Articles of  Incorporation  provide that the number of Directors of
the Company  cannot be less than three nor more than 15. A majority of the Board
of Directors  will be  Independent  Directors.  See  "Management  -  Independent
Directors."  Each Director,  other than a Director elected to fill the unexpired
term of  another  Director,  will be elected  at each  annual  meeting or at any
special meeting of the  stockholders  called for that purpose,  by a majority of
the shares of Common  Stock  present in person or by proxy and entitled to vote.
Independent  Directors  will  nominate  replacements  for  vacancies  among  the
Independent Directors.  Under the Articles of Incorporation,  the term of office
for  each  Director  will  be  one  year,   expiring  each  annual   meeting  of
stockholders;  however,  nothing in the  Articles of  Incorporation  prohibits a
director  from being  reelected by the  stockholders.  The Directors may not (a)
amend  the  Articles  of  Incorporation,  except  for  amendments  which  do not
adversely  affect the rights,  preferences and privileges of  stockholders;  (b)
sell all or substantially all of the Company's assets other than in the ordinary
course of business or in connection with liquidation and dissolution;  (c) cause
the merger or other  reorganization of the Company; or (d) dissolve or liquidate
the Company, other than before the initial investment in property. The Directors
may  establish  such  committees  as they deem  appropriate  (provided  that the
majority of the members of each committee are Independent Directors).

                                                       -98-

<PAGE>




STOCKHOLDER MEETINGS

         An annual  meeting  will be held for the purpose of electing  Directors
and for the  transaction  of such other business as may come before the meeting,
and will be held not less than 30 days  after  delivery  of the  annual  report.
Under the Company's  Bylaws,  a special meeting of stockholders may be called by
the chief executive officer,  a majority of the Directors,  or a majority of the
Independent Directors. Special meetings of the stockholders also shall be called
by an officer of the Company upon the written request of stockholders holding in
the aggregate not less than 10% of the outstanding Common Stock entitled to vote
at such meeting. Upon receipt of such a written request,  either in person or by
mail, stating the purpose or purposes of the meeting,  the Company shall provide
all  stockholders,  within ten days of receipt of the written  request,  written
notice,  either in person or by mail, of a meeting and its purpose. Such meeting
will be held not less than  fifteen nor more than sixty days after  distribution
of the  notice,  at a time and place  specified  in the  request,  or if none is
specified, at a time and place convenient to stockholders.

         At any meeting of  stockholders,  each  stockholder  is entitled to one
vote per share of Common Stock owned of record on the applicable record date. In
general, the presence in person or by proxy of 50% of the shares of Common Stock
then outstanding shall constitute a quorum,  and the majority vote of the shares
of  Common  Stock  present  in  person or by proxy  will be  binding  on all the
stockholders of the Company.

ADVANCE NOTICE FOR STOCKHOLDER NOMINATIONS FOR
DIRECTORS AND PROPOSALS OF NEW BUSINESS

         The Bylaws of the Company  require notice at least 60 days and not more
than 90 days before the  anniversary of the prior annual meeting of stockholders
in order for a  stockholder  to (a)  nominate a  Director,  or (b)  propose  new
business  other than pursuant to the notice of the meeting or by or on behalf of
the Directors.  The Bylaws  contain a similar  notice  requirement in connection
with  nominations for Directors at a special meeting of stockholders  called for
the purpose of electing one or more  Directors.  Accordingly,  failure to comply
with the notice provisions will make stockholders  unable to nominate  Directors
or propose new business.

AMENDMENTS TO THE ARTICLES OF INCORPORATION

         Pursuant to the Company's Articles of Incorporation,  the Directors can
amend the Articles of Incorporation  by a two-thirds  majority from time to time
if necessary in order to qualify initially or in order to continue to qualify as
a REIT.  Except as set forth above, the Articles of Incorporation may be amended
only by the  affirmative  vote of a majority,  and,  in some cases a  two-thirds
majority,  of the shares of Common Stock  outstanding  and entitled to vote. The
stockholders  may vote to amend the  Articles  of  Incorporation,  terminate  or
dissolve  the  Company or remove one or more  Directors  without  necessity  for
concurrence by the Board of Directors.

                                                       -99-

<PAGE>


MERGERS, COMBINATIONS, AND SALE OF ASSETS

         A  merger,   combination,   sale,  or  other   disposition  of  all  or
substantially  all of the Company's  assets other than in the ordinary course of
business  must be  approved  by the  Directors  and a majority  of the shares of
Common Stock outstanding and entitled to vote. In addition, any such transaction
involving  an Affiliate of the Company or the Advisor also must be approved by a
majority of the Directors  (including a majority of the  Independent  Directors)
not  otherwise  interested  in such  transaction  as fair and  reasonable to the
Company and on terms and conditions not less favorable to the Company than those
available from unaffiliated third parties.

         The  Maryland  Business  Combinations  Statute  provides  that  certain
business combinations (including mergers, consolidations, share exchanges or, in
certain  circumstances,  asset  transfers or issuances or  reclassifications  of
equity   securities)   between  a  Maryland   corporation  and  any  person  who
beneficially owns 10% or more of the voting power of such  corporation's  shares
or an affiliate of such  corporation who, at any time within the two-year period
prior to the date in question,  was the  beneficial  owner of 10% or more of the
voting  power of the  then-outstanding  voting  shares of such  corporation  (an
"Interested Stockholder") or an affiliate thereof, are prohibited for five years
after  the most  recent  date on which  the  Interested  Stockholder  became  an
Interested  Stockholder.  Thereafter,  any  such  business  combination  must be
recommended  by the board of directors of such  corporation  and approved by the
affirmative vote of at least (i) 80% of the votes entitled to be cast by holders
of outstanding  shares of voting stock of the corporation and (ii) two-thirds of
the votes  entitled to be cast by holders of voting  shares of such  corporation
other than shares held by the  Interested  Stockholder  with whom (or with whose
affiliate)  the  business  combination  is to be effected,  unless,  among other
conditions,  the corporation's  common stockholders  receive a minimum price (as
determined  by statute)  for their shares and the  consideration  is received in
cash or in the same form as previously  paid by the Interested  Stockholder  for
its shares.

         Section  2.8  of  the  Articles  of  Incorporation  provides  that  the
prohibitions and restrictions  set forth in the Maryland  Business  Combinations
Statute are inapplicable to any business combination between the Company and any
person.  Consequently,  business combinations between the Company and Interested
Stockholders  can be  effected  upon the  affirmative  vote of a majority of the
outstanding Shares entitled to vote thereon and do not require the approval of a
supermajority of the outstanding Shares held by disinterested stockholders.

CONTROL SHARE ACQUISITIONS

         The Maryland  Control Share  Acquisition  Statute provides that control
shares of a Maryland corporation acquired in a control share acquisition have no
voting rights except to the extent approved by a vote of two thirds of the votes
entitled to be cast

                                                       -100-

<PAGE>



on the matter, excluding shares owned by the acquiror, officers or directors who
are employees of the corporation. Control Shares are shares which, if aggregated
with all other shares of the corporation previously acquired by the acquiror, or
in respect of which the  acquiror is able to exercise or direct the  exercise of
voting power (except solely by virtue of a revocable  proxy),  would entitle the
acquiror to exercise  voting  power in electing  directors  of such  corporation
within one of the following  ranges of voting  power:  (i) one-fifth or more but
less than one-third, (ii) one-third or more but less than a majority, or (iii) a
majority or more of all voting power.  Control  Shares do not include shares the
acquiring person is entitled to vote as a result of having  previously  obtained
stockholder  approval.  A control share  acquisition  means the  acquisition  of
control shares, subject to certain exceptions.

         Section 2.9 of the Articles of Incorporation provides that the Maryland
Control  Share  Acquisition  Statute  is  inapplicable  to  any  acquisition  of
securities of the Company by any person.  Consequently,  in instances  where the
Board of Directors  otherwise  waives or modifies  restrictions  relating to the
ownership  and transfer of securities  of the Company or such  restrictions  are
otherwise  removed,  control  shares of the  Company  will have  voting  rights,
without  having to obtain the  approval of a  supermajority  of the  outstanding
Shares eligible to vote thereon.

TERMINATION OF THE COMPANY AND REIT STATUS

         The Articles of Incorporation provide for the voluntary termination and
dissolution of the Company by the  affirmative  vote of a majority of the shares
of Common Stock  outstanding  and entitled to vote at a meeting  called for that
purpose. In addition,  the Articles of Incorporation  permit the stockholders to
terminate  the  status  of the  Company  as a REIT  under  the Code  only by the
affirmative  vote of the  holders  of a majority  of the shares of Common  Stock
outstanding and entitled to vote.

         Under the Articles of  Incorporation,  the Company  automatically  will
terminate and dissolve on December 31, 2008,  unless  Listing  occurs,  in which
event the Company automatically will become a perpetual life entity.

RESTRICTION OF OWNERSHIP

         To  qualify as a REIT under the Code (i) not more than 50% of the value
of the REIT's outstanding stock may be owned,  directly or indirectly  (applying
certain attribution rules), by five or fewer individuals (as defined in the Code
to include  certain  entities)  during the last half of a taxable year, (ii) the
REIT's stock must be  beneficially  owned (without  reference to any attribution
rules) by 100 or more  persons  during at least 335 days of a taxable year of 12
months  or during a  proportionate  part of a shorter  taxable  year;  and (iii)
certain  other   requirements  must  be  satisfied.   See  "Federal  Income  Tax
Considerations - Taxation of the Company."

         To ensure that the Company satisfies these  requirements,  the Articles
of Incorporation restrict the direct or indirect

                                                       -101-

<PAGE>



ownership  (applying  certain  attribution  rules) of shares of Common Stock and
Preferred Stock by any Person (as defined in the Articles of  Incorporation)  to
no more than 9.8% of the outstanding  shares of such Common Stock or 9.8% of any
series of Preferred  Shares (the "Ownership  Limit").  However,  the Articles of
Incorporation provide that this Ownership Limit may be modified, either entirely
or  with  respect  to one  or  more  Persons,  by a vote  of a  majority  of the
Directors,  if such  modification  does not jeopardize the Company's status as a
REIT.  As a condition of such  modification,  the Board of Directors may require
opinions of counsel  satisfactory to it and/or an undertaking from the applicant
with respect to preserving the status of the Company as a REIT.

         It is the  responsibility of each Person (as defined in the Articles of
Incorporation)  owning (or deemed to own) more than 5% of the outstanding shares
of Common Stock or any series of outstanding Preferred Stock to give the Company
written notice of such ownership. In addition, to the extent deemed necessary by
the  Directors,  the Company can demand  that each  stockholder  disclose to the
Company in writing all  information  regarding the Beneficial  and  Constructive
Ownership  (as such terms are defined in the Articles of  Incorporation)  of the
Common Stock and Preferred Stock.

         If the  ownership,  transfer  or  acquisition  of  shares  of Common or
Preferred Stock, or change in capital structure of the Company or other event or
transaction would result in (i) any Person owning (applying certain  attribution
rules) Common Stock or Preferred  Stock in excess of the Ownership  Limit,  (ii)
fewer than 100 Persons  owning the Common Stock and Preferred  Stock,  (iii) the
Company being  "closely  held" within the meaning of section 856(h) of the Code,
or (iv) the Company  failing  any of the gross  income  requirements  of section
856(c)  of the  Code  or  otherwise  failing  to  qualify  as a REIT,  then  the
ownership,  transfer,  or acquisition,  or change in capital  structure or other
event  or  transaction  that  would  have  such  effect  will  be void as to the
purported  transferee or owner,  and the purported  transferee or owner will not
have or acquire any rights to the Common Stock and/or  Preferred  Stock,  as the
case may be, to the  extent  required  to avoid such a result.  Common  Stock or
Preferred  Stock owned,  transferred  or proposed to be transferred in excess of
the Ownership Limit or which would otherwise  jeopardize the Company's status as
a REIT will  automatically  be  converted to Excess  Shares.  A holder of Excess
Shares is not entitled to Distributions,  voting rights, and other benefits with
respect to such shares except for the right to payment of the purchase price for
the shares (or, in the case of a devise or gift or similar  event which  results
in the  issuance of Excess  Shares,  the fair  market  value at the time of such
devise  or  gift  or  event)  and  the  right  to  certain   distributions  upon
liquidation.  Any Distribution paid to a proposed transferee or holder of Excess
Shares  shall be repaid to the  Company  upon  demand.  Excess  Shares  shall be
subject to repurchase by the Company at its election.  The purchase price of any
Excess  Shares  shall be  equal  to the  lesser  of (a) the  price  paid in such
purported  transaction  (or,  in the case of a devise or gift or  similar  event
resulting in the issuance of Excess Shares, the

                                                       -102-

<PAGE>



fair market value at the time of such devise or gift or event),  or (b) the fair
market  value of such  Shares on the date on which the  Company or its  designee
determines  to  exercise  its  repurchase  right.  If  the  foregoing   transfer
restrictions  are  determined  to be void or  invalid  by  virtue  of any  legal
decision,  statute,  rule or  regulation,  then the purported  transferee of any
Excess Shares may be deemed,  at the option of the Company,  to have acted as an
agent on behalf of the Company in acquiring  such Excess Shares and to hold such
Excess Shares on behalf of the Company.

         For purposes of the Articles of Incorporation,  the term "Person" shall
mean an individual,  corporation,  partnership, estate, trust (including a trust
qualified  under Section 401(a) or 501(c)(17) of the Code), a portion of a trust
permanently  set aside to be used  exclusively  for the  purposes  described  in
Section 642(c) of the Code,  association,  private foundation within the meaning
of Section 509(a) of the Code,  joint stock company or other entity,  or a group
as that term is used for purposes of Section 13(d)(3) of the Securities Exchange
Act of 1934,  as amended;  but does not  include  (i) CNL Health Care  Advisors,
Inc.,  during the period  ending on December  31, 1998,  or (ii) an  underwriter
which  participated  in a public  offering  of Shares for a period of sixty (60)
days following the purchase by such underwriter of Shares therein, provided that
the foregoing exclusions shall apply only if the ownership of such Shares by CNL
Health Care Advisors, Inc. or an underwriter would not cause the Company to fail
to qualify as a REIT by reason of being  "closely  held"  within the  meaning of
Section 856(a) of the code or otherwise  cause the Company to fail to qualify as
a REIT.

RESPONSIBILITY OF DIRECTORS

         Directors serve in a fiduciary capacity and shall have a fiduciary duty
to the stockholders of the Company, which duty shall include a duty to supervise
the  relationship of the Company with the Advisor.  See "Management -- Fiduciary
Responsibilities of the Board of Directors."

LIMITATION OF LIABILITY AND INDEMNIFICATION

         Pursuant  to  Maryland  corporate  law and the  Company's  Articles  of
Incorporation,  the Company is required to indemnify and hold harmless a present
or former Director,  officer,  Advisor,  or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities  reasonably  incurred by the Indemnitee
in connection  with or by reason of any act or omission  performed or omitted to
be  performed  on behalf of the  Company  while a  Director,  officer,  Advisor,
Affiliate,  employee,  or  agent  and  in  such  capacity,  provided,  that  the
Indemnitee has determined,  in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the  Indemnitee if: (i) the loss or liability was
the result of negligence or  misconduct,  or if the Indemnitee is an Independent
Director,  the loss or liability  was the result of gross  negligence or willful
misconduct,  (ii) the act or omission was material to the loss or liability  and
was committed in bad faith or was the result of

                                                       -103-

<PAGE>



active or  deliberate  dishonesty,  (iii) the  Indemnitee  actually  received an
improper personal benefit in money,  property, or services,  (iv) in the case of
any criminal proceeding, the Indemnitee had reasonable cause to believe that the
act or omission was  unlawful,  or (v) in a proceeding by or in the right of the
Company, the Indemnitee shall have been adjudged to be liable to the Company. In
addition, the Company will not provide indemnification for any loss or liability
arising from an alleged violation of federal or state securities laws unless one
or more of the  following  conditions  are met:  (i) there has been a successful
adjudication  on the  merits of each  count  involving  alleged  securities  law
violations as to the particular Indemnitee; (ii) such claims have been dismissed
with  prejudice  on the merits by a court of  competent  jurisdiction  as to the
particular  Indemnitee;  or (iii) a court of competent  jurisdiction  approves a
settlement  of the  claims  against  a  particular  Indemnitee  and  finds  that
indemnification  of the settlement and the related costs should be made, and the
court  considering  the  request  for  indemnification  has been  advised of the
position of the Securities and Exchange Commission and of the published position
of any state securities  regulatory authority in which securities of the Company
were offered or sold as to  indemnification  for violations of securities  laws.
Pursuant  to its  Articles of  Incorporation,  the Company is required to pay or
reimburse reasonable expenses incurred by a present or former Director, officer,
Advisor or Affiliate and may pay or reimburse  reasonable  expenses  incurred by
any other  Indemnitee  in advance of final  disposition  of a proceeding  if the
following are  satisfied:  (i) the Indemnitee was made a party to the proceeding
by reasons of his or her service as a  Director,  officer,  Advisor,  Affiliate,
employee or agent of the Company,  (ii) the Indemnitee provides the Company with
written  affirmation  of his or her good faith belief that he or she has met the
standard of conduct necessary for  indemnification  by the Company as authorized
by the Articles of Incorporation, (iii) the Indemnitee provides the Company with
a written  agreement  to repay the amount  paid or  reimbursed  by the  Company,
together with the applicable legal rate of interest thereon, if it is ultimately
determined  that the  Indemnitee  did not comply with the requisite  standard of
conduct, and (iv) the legal proceeding was initiated by a third party who is not
a  stockholder  or,  if by a  stockholder  of the  Company  acting in his or her
capacity as such, a court of competent  jurisdiction  approves such advancement.
The   Company's   Articles   of   Incorporation   further   provide   that   any
indemnification,  payment,  or  reimbursement  of the expenses  permitted by the
Articles of Incorporation will be furnished in accordance with the procedures in
Section 2-418 of the Maryland General Corporation Law.

         Any  indemnification may be paid only out of Net Assets of the Company,
and no portion may be recoverable from the stockholders.

         There  are  certain  defenses  under  Maryland  law  available  to  the
Directors, officers and the Advisor in the event of a stockholder action against
them. One such defense is the "business  judgment rule." A Director,  officer or
the Advisor can argue that he or she performed the action giving rise to the

                                                       -104-

<PAGE>



stockholder's action in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company,  and with such care as an ordinarily
prudent person in a like position  would have used under similar  circumstances.
The  Directors,   officers  and  the  Advisor  are  also  entitled  to  rely  on
information,  opinions,  reports  or  records  prepared  by  experts  (including
accountants, consultants, counsel, etc.) who were selected with reasonable care.
However,  the  Directors,  officers  and the Advisor may not invoke the business
judgment rule to further limit the rights of the  stockholders to access records
as provided in the Articles of Incorporation.

         The Company will enter into indemnification agreements with each of the
Company's officers and Directors.  The indemnification  agreements will require,
among other things, that the Company indemnify its officers and Directors to the
fullest  extent  permitted by law, and advance to the officers and Directors all
related expenses, subject to reimbursement if it is subsequently determined that
indemnification  is not  permitted.  In accordance  with these  agreements,  the
Company must indemnify and advance all expenses  reasonably incurred by officers
and  Directors  seeking  to  enforce  their  rights  under  the  indemnification
agreements.  The  Company  also must  cover  officers  and  Directors  under the
Company's   directors'  and  officers'  liability   insurance.   Although  these
indemnification  agreements  offer  substantially  the same  scope  of  coverage
afforded by the indemnification  provisions in the Articles of Incorporation and
the Bylaws,  it provides  greater  assurance  to  Directors  and  officers  that
indemnification  will be available  because these  contracts  cannot be modified
unilaterally by the Board of Directors or by the stockholders.

REMOVAL OF DIRECTORS

         Under the  Articles  of  Incorporation,  a  Director  may  resign or be
removed  with or without  cause by the  affirmative  vote of a  majority  of the
capital stock of the Company outstanding and entitled to vote.

INSPECTION OF BOOKS AND RECORDS

         The Advisor will keep,  or cause to be kept,  on behalf of the Company,
full and true books of account on an accrual basis of accounting,  in accordance
with generally  accepted  accounting  principles.  All of such books of account,
together with all other records of the Company, including a copy of the Articles
of Incorporation and any amendments thereto,  will at all times be maintained at
the  principal  office  of  the  Company,   and  will  be  open  to  inspection,
examination,  and, for a reasonable  charge,  duplication upon reasonable notice
and during normal business hours by a stockholder or his agent.

         As a part of its books and records,  the Company  will  maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses  and  telephone  numbers  and  the  number  of  Shares  held  by  each
stockholder.  Such  list  shall be  updated  at  least  quarterly  and  shall be
available for inspection at the Company's home office by a stockholder or his

                                                       -105-

<PAGE>



or her designated agent upon such stockholder's request. Such list also shall be
mailed to any stockholder  requesting the list within 10 days of a request.  The
copy of the stockholder  list shall be printed in  alphabetical  order, on white
paper, and in readily readable type size that is not smaller than 10-point type.
The Company may impose a reasonable  charge for expenses incurred in reproducing
such list. The list may not be sold or used for commercial purposes.

         If the Advisor or  Directors  neglect or refuse to exhibit,  produce or
mail a copy of the stockholder list as requested,  the Advisor and the Directors
shall be liable to any stockholder  requesting the list for the costs, including
attorneys'  fees,  incurred by that stockholder for compelling the production of
the  stockholder  list. It shall be a defense that the actual purpose and reason
for the  requests for  inspection  or for a copy of the  stockholder  list is to
secure such list of stockholders or other information for the purpose of selling
such list or copies thereof, or of using the same for a commercial purpose other
than in the interest of the applicant as a  stockholder  relative to the affairs
of  the  Company.  The  Company  may  require  the  stockholder  requesting  the
stockholder  list to represent  that the list is not  requested for a commercial
purpose  unrelated to the  stockholder's  interest in the Company.  The remedies
provided by the Articles of Incorporation to stockholders  requesting  copies of
the  stockholder  list are in  addition  to, and do not in any way limit,  other
remedies available to stockholders under federal law, or the law of any state.

RESTRICTIONS ON "ROLL-UP" TRANSACTIONS

         In connection with a proposed  Roll-Up  Transaction,  which, in general
terms, is any transaction  involving the  acquisition,  merger,  conversion,  or
consolidation,  directly  or  indirectly,  of the  Company  and the  issuance of
securities of a Roll-Up  Entity that would be created or would survive after the
successful completion of the Roll-Up Transaction, an appraisal of all Properties
shall  be  obtained  from an  Independent  Expert.  In order  to  qualify  as an
Independent  Expert  for this  purpose(s),  the  person or entity  shall have no
material current or prior business or personal  relationship with the Advisor or
Directors  and shall be  engaged  to a  substantial  extent in the  business  of
rendering  opinions  regarding  the  value of  assets  of the  type  held by the
Company.  The  Properties  shall be  appraised on a  consistent  basis,  and the
appraisal shall be based on the evaluation of all relevant information and shall
indicate  the  value of the  Properties  as of a date  immediately  prior to the
announcement of the proposed Roll-Up Transaction.  The appraisal shall assume an
orderly  liquidation  of  Properties  over a 12-month  period.  The terms of the
engagement of such Independent Expert shall clearly state that the engagement is
for  the  benefit  of  the  Company  and  the  stockholders.  A  summary  of the
independent  appraisal,  indicating  all  material  assumptions  underlying  the
appraisal,  shall be included in a report to  stockholders  in connection with a
proposed Roll-Up Transaction. In connection with a proposed Roll-Up Transaction,
the person  sponsoring the Roll-Up  Transaction  shall offer to stockholders who
vote against the proposal the choice of:

                                                       -106-

<PAGE>




         (i)      accepting the securities of the Roll-Up Entity offered
in the proposed Roll-Up Transaction; or

         (ii)     one of the following:

                  (A) remaining stockholders of the Company and preserving their
         interests   therein  on  the  same  terms  and  conditions  as  existed
         previously; or



                                                       -107-

<PAGE>



                  (B) receiving cash in an amount equal to the stockholder's pro
         rata share of the appraised value of the net assets of the Company.

         The Company is prohibited from  participating  in any proposed  Roll-Up
Transaction:

         (i) which would result in the  stockholders  having democracy rights in
the Roll-Up Entity that are less than those  provided in the Company's  Articles
of  Incorporation,  Sections  8.1,  8.2,  8.4,  8.5,  8.6 and 9.1 and  described
elsewhere in this Prospectus,  including rights with respect to the election and
removal of Directors, annual reports, annual and special meetings,  amendment of
the Articles of Incorporation, and dissolution of the Company.
 (See "Description of Capital Stock" and "Stockholder Meetings,"
above);

         (ii)  which  includes  provisions  that  would  operate  as a  material
impediment to, or frustration of, the accumulation of shares by any purchaser of
the securities of the Roll-Up Entity (except to the minimum extent  necessary to
preserve the tax status of the Roll-Up Entity), or which would limit the ability
of an investor to exercise the voting  rights of its  securities  of the Roll-Up
Entity on the basis of the number of shares held by that investor;

         (iii) in which  investor's  rights to access of records of the  Roll-Up
Entity will be less than those provided in Sections 8.5 and 8.6 of the Company's
Articles of  Incorporation  and described in  "Inspection of Books and Records,"
above; or

         (iv) in which  any of the  costs of the  Roll-Up  Transaction  would be
borne  by the  Company  if  the  Roll-Up  Transaction  is  not  approved  by the
stockholders.


                        FEDERAL INCOME TAX CONSIDERATIONS

INTRODUCTION

         The  following  is  a  summary  of  the  material  federal  income  tax
consequences of the ownership of Shares of the Company, prepared by Shaw Pittman
Potts &  Trowbridge,  as  Counsel.  This  discussion  is based  upon  the  laws,
regulations,  and reported judicial and administrative  rulings and decisions in
effect as of the date of this  Prospectus,  all of which are  subject to change,
retroactively or prospectively, and to possibly differing interpretations.  This
discussion does not purport to deal with

                                                       -108-

<PAGE>



the federal  income or other tax  consequences  applicable  to all  investors in
light  of  their  particular  investment  or  other  circumstances,  or  to  all
categories  of  investors,  some  of  whom  may  be  subject  to  special  rules
(including,   for  example,   insurance  companies,   tax-exempt  organizations,
financial institutions, broker-dealers, foreign corporations and persons who are
not citizens or residents of the United States). No ruling on the federal, state
or local tax considerations  relevant to the operation of the Company, or to the
purchase,  ownership or disposition  of the Shares,  has been requested from the
Internal  Revenue  Service (the "IRS" or the  "Service") or other tax authority.
Counsel has rendered certain opinions  discussed herein and believes that if the
Service were to challenge the conclusions of Counsel,  such  conclusions  should
prevail in court. However, opinions of counsel are not binding on the Service or
on the courts,  and no assurance  can be given that the  conclusions  reached by
Counsel would be sustained in court.  Prospective investors should consult their
own tax advisors in determining the federal, state, local, foreign and other tax
consequences to them of the purchase, ownership and disposition of the Shares of
the Company,  the tax treatment of a REIT and the effect of potential changes in
applicable tax laws.

TAXATION OF THE COMPANY

         General. The Company expects to elect to be taxed as a REIT for federal
income tax  purposes,  as  defined  in  Sections  856  through  860 of the Code,
commencing with its taxable year ending December 31, 1998. The Company  believes
that it will be  organized  and will operate in such a manner as to qualify as a
REIT,  and the Company  intends to continue to operate in such a manner,  but no
assurance  can be given  that it will  operate  in a manner so as to  qualify or
remain  qualified as a REIT. The provisions of the Code  pertaining to REITs are
highly  technical  and  complex.  Accordingly,  this summary is qualified in its
entirety  by  the  applicable  Code  sections,   rules  and  regulations  issued
thereunder, and administrative and judicial interpretations thereof.

         If the Company  qualifies for taxation as a REIT, it generally will not
be subject to federal  corporate  income tax on its net income that is currently
distributed to holders of Shares.  This treatment  substantially  eliminates the
"double  taxation"  (at the  corporate and  stockholder  levels) that  generally
results  from an  investment  in a  corporation.  However,  the Company  will be
subject to federal income tax in the following circumstances. First, the Company
will be taxed  at  regular  corporate  rates on any  undistributed  real  estate
investment  trust taxable  income,  including  undistributed  net capital gains.
Second,  under  certain  circumstances,  the  Company  may  be  subject  to  the
alternative  minimum tax on its items of tax  preference.  Third, if the Company
has net  income  from  foreclosure  property,  it will be subject to tax on such
income at the highest corporate rate.  Foreclosure property generally means real
property (and any personal  property  incident to such real  property)  which is
acquired  as a result of a  default  either  on a lease of such  property  or on
indebtedness   which  such  property  secured  and  with  respect  to  which  an
appropriate election is made. Fourth, if the Company has net income derived from

                                                       -109-

<PAGE>



prohibited transactions, such income will be subject to a 100% tax. A prohibited
transaction  generally  includes a sale or other  disposition of property (other
than  foreclosure  property) that is held primarily for sale to customers in the
ordinary  course of business.  Fifth,  if the Company should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), but has
nonetheless  maintained  its  qualification  as a  REIT  because  certain  other
requirements  have been met,  it will be subject to a 100% tax on the net income
attributable  to the greater of the amount by which the Company fails the 75% or
95% test.  Sixth, if, during each calendar year, the Company fails to distribute
at least the sum of (i) 85% of its real estate  investment trust ordinary income
for such year;  (ii) 95% of its real estate  investment  trust  capital gain net
income for such year;  and (iii) any  undistributed  taxable  income  from prior
periods,  the  Company  will be subject to a 4% excise tax on the excess of such
required distribution over the amounts actually distributed.

         If the  Company  fails to  qualify as a REIT for any  taxable  year and
certain relief  provisions do not apply,  the Company will be subject to federal
income tax (including alternative minimum tax) as an ordinary corporation on its
taxable  income at regular  corporate  rates without any deduction or adjustment
for distributions to holders of Shares. To the extent that the Company would, as
a consequence, be subject to tax liability for any such taxable year, the amount
of cash available for  satisfaction of its  liabilities and for  distribution to
holders  of Shares  would be  reduced.  Distributions  made to holders of Shares
generally  would be taxable  as  ordinary  income to the  extent of current  and
accumulated earnings and profits and, subject to certain  limitations,  would be
eligible for the corporate  dividends  received  deduction,  but there can be no
assurance  that any such  Distributions  would be made. The Company would not be
eligible to elect REIT status for the four taxable  years after the taxable year
it failed to  qualify  as a REIT,  unless  its  failure  to  qualify  was due to
reasonable  cause and not willful  neglect and certain other  requirements  were
satisfied.

         Opinion of Counsel.  Based upon representations made by officers of the
Company  with  respect to  relevant  factual  matters,  upon the  existing  Code
provisions,  rules and regulations  promulgated  thereunder  (including proposed
regulations) and reported administrative and judicial  interpretations  thereof,
upon Counsel's  independent  review of such documents as Counsel deemed relevant
in the  circumstances  and upon the assumption  that the Company will operate in
the manner described in this  Prospectus,  Counsel has advised the Company that,
in its opinion,  commencing with the Company's  taxable year ending December 31,
1998,  the Company will be organized in  conformity  with the  requirements  for
qualification  as a REIT,  and the Company's  proposed  method of operation will
enable  it to meet the  requirements  for  qualification  as a REIT.  It must be
emphasized,  however, that the Company's ability to qualify and remain qualified
as a REIT is dependent upon actual  operating  results and future actions by and
events involving the Company and others,  and no assurance can be given that the
actual results of the Company's operations and future actions  and  events  will
enable  the  Company  to  satisfy  in  any  given  year  the  requirements   for
qualification and taxation as a REIT.

                                                       -110-

<PAGE>




         Requirements  for  Qualification  as a REIT.  As  discussed  more fully
below, the Code defines a REIT as a corporation,  trust or association (i) which
is managed by one or more trustees or directors;  (ii) the beneficial  ownership
of which is evidenced by transferable shares, or by transferable certificates of
beneficial interest;  (iii) which would be taxable, but for Sections 856 through
860 of the Code,  as a domestic  corporation;  (iv) which is neither a financial
institution nor an insurance company;  (v) the beneficial  ownership of which is
held  (without  reference to any rules of  attribution)  by 100 or more persons;
(vi) which is not  closely  held as defined in section  856(h) of the Code;  and
(vii) which meets  certain  other tests  regarding  the nature of its assets and
income and the amount of its distributions.

         In the case of a REIT  which is a partner  in a  partnership,  Treasury
Regulations  provide that the REIT will be deemed to own its proportionate share
of the assets of the partnership and will be deemed to be entitled to the income
of the partnership attributable to such share. In addition, the assets and gross
income (as defined in the Code) of the partnership  attributed to the REIT shall
retain the same  character  as in the hands of the  partnership  for purposes of
Section 856 of the Code,  including  satisfying  the gross  income tests and the
asset tests  described  below.  Thus, the Company's  proportionate  share of the
assets,  liabilities  and items of income of any Joint Venture,  as described in
"Business -- Joint Venture Arrangements," will be treated as assets, liabilities
and items of income of the Company for  purposes of applying the asset and gross
income tests described herein.

         Ownership Tests. The ownership requirements for qualification as a REIT
are that (i)  during  the last  half of each  taxable  year not more than 50% in
value of the REIT's  outstanding  shares may be owned,  directly  or  indirectly
(applying certain  attribution  rules), by five or fewer individuals (or certain
entities  as  defined  in  the  Code)  and  (ii)  there  must  be at  least  100
stockholders  (without  reference to any attribution rules) on at least 335 days
of such  12-month  taxable  year (or a  proportionate  number of days of a short
taxable year). These two requirements do not apply to the first taxable year for
which an  election  is made to be  treated  as a REIT.  In  order to meet  these
requirements for subsequent taxable years, or to otherwise obtain,  maintain, or
reestablish REIT status,  the Articles of Incorporation  generally  prohibit any
person or entity from  actually,  constructively  or  beneficially  acquiring or
owning (applying  certain  attribution  rules) more than 9.8% of the outstanding
Common Stock or 9.8% of any series of outstanding  Preferred Stock.  Among other
provisions,  the  Articles of  Incorporation  empower the Board of  Directors to
redeem,  at its option, a sufficient  number of Shares to bring the ownership of
Shares  of the  Company  in  conformity  with  these  requirements  or to assure
continued conformity with such requirements.


                                                       -111-

<PAGE>


         Under the Articles of Incorporation, each holder of Shares is required,
upon demand,  to disclose to the Board of Directors in writing such  information
with respect to actual,  constructive  or beneficial  ownership of Shares of the
Company as the Board of Directors  deems  necessary to comply with provisions of
the  Code  applicable  to the  Company  or the  provisions  of the  Articles  of
Incorporation,  or the requirements of any other  appropriate  taxing authority.
Certain Treasury  regulations govern the method by which the Company is required
to  demonstrate  compliance  with these  stock  ownership  requirements  and the
failure to satisfy such  regulations  could cause the Company to fail to qualify
as a REIT.  The  Company  has  represented  that it expects to meet these  stock
ownership  requirements for each taxable year and it will be able to demonstrate
its compliance with these requirements.

         Asset Tests.  At the end of each quarter of a REIT's  taxable  year, at
least 75% of the value of its total assets must consist of "real estate assets,"
cash and cash items (including  receivables) and certain government  securities.
The balance of a REIT's assets  generally may be invested  without  restriction,
except that holdings of securities not within the 75% class of assets  generally
must not,  with  respect  to any  issuer,  exceed 5% of the value of the  REIT's
assets or 10% of the  issuer's  outstanding  voting  securities.  The term "real
estate assets" includes real property, interests in real property, leaseholds of
land or  improvements  thereon,  and mortgages on the foregoing and any property
attributable  to the  temporary  investment  of new  capital  (but  only if such
property  is  stock  or a debt  instrument  and  only  for the  one-year  period
beginning  on the date the REIT  receives  such  capital).  When a  mortgage  is
secured by both real property and other property, it is considered to constitute
a mortgage on real  property to the extent of the fair market  value of the real
property  when the REIT is  committed  to make  the loan  (or,  in the case of a
construction  loan, the reasonably  estimated cost of construction).  Initially,
the bulk of the Company's  assets will be real  property.  However,  the Company
will also hold the Secured Equipment Leases. Counsel is of the opinion, based on
certain assumptions,  that the Secured Equipment Leases will be treated as loans
secured by personal  property  for federal  income tax  purposes.  See  "Federal
Income Tax  Considerations  Characterization  of the Secured Equipment  Leases."
Therefore,  the  Secured  Equipment  Leases  will not  qualify  as "real  estate
assets."  However,  the Company has represented  that at the end of each quarter
the value of the Secured Equipment  Leases,  together with any personal property
owned by the  Company,  will in the  aggregate  represent  less  than 25% of the
Company's  total  assets  and that the  value of the  Secured  Equipment  Leases
entered  into with any  particular  tenant  will  represent  less than 5% of the
Company's  total assets.  No independent  appraisals will be acquired to support
this   representation,   and  Counsel,  in  rendering  its  opinion  as  to  the
qualification  of the Company as a REIT,  is relying on the  conclusions  of the
Company and its senior management as to the relative values of its assets. There
can be no  assurance  however,  that the IRS may not contend that either (i) the
value of the Secured Equipment Leases

                                                       -112-

<PAGE>



entered into with any particular tenant represents more than 5% of the Company's
total assets, or (ii) the value of the Secured  Equipment Leases,  together with
any personal  property owned by the Company,  exceeds 25% of the Company's total
assets.

         As indicated in "Business - Joint  Venture  Arrangements,"  the Company
may  participate  in Joint  Ventures.  If a Joint Venture were  classified,  for
federal income tax purposes,  as an association  taxable as a corporation rather
than as a partnership,  the Company's  ownership of a 10% or greater interest in
the Joint Venture would cause the Company to fail to meet the  requirement  that
it not own 10% or more of an issuer's voting securities.  However, Counsel is of
the  opinion,  based on  certain  assumptions,  that  any  Joint  Ventures  will
constitute partnerships for federal income tax purposes. See "Federal Income Tax
Considerations - Investment in Joint Ventures."

         Income Tests.  A REIT also must meet two separate tests with respect to
its sources of gross income for each taxable year.

         (a) The 75 Percent and 95 Percent Tests. In general,  at least 75% of a
REIT's  gross  income  for each  taxable  year  must be from  "rents  from  real
property," interest on obligations secured by mortgages on real property,  gains
from the sale or other  disposition  of real property and certain other sources,
including   "qualified   temporary   investment  income."  For  these  purposes,
"qualified  temporary  investment income" means any income (i) attributable to a
stock or debt  instrument  purchased  with the proceeds  received by the REIT in
exchange for stock (or certificates of beneficial  interest) in such REIT (other
than amounts  received  pursuant to a  distribution  reinvestment  plan) or in a
public offering of debt  obligations  with a maturity of at least five years and
(ii) received or accrued  during the one-year  period  beginning on the date the
REIT receives such capital. In addition,  a REIT must derive at least 95% of its
gross income for each taxable year from any  combination  of the items of income
which qualify under the 75% test,  from  dividends and interest,  and from gains
from the sale, exchange or other disposition of certain stock and securities.

         Initially,  the bulk of the Company's income will be derived from rents
with respect to the Properties.  Rents from  Properties  received by the Company
qualify as "rents  from real  property"  in  satisfying  these two tests only if
several  conditions  are met.  First,  the rent must not be based in whole or in
part, directly or indirectly,  on the income or profits of any person. An amount
received or accrued  generally  will not be  excluded  from the term "rents from
real  property"  solely  by  reason  of  being  based on a fixed  percentage  or
percentages of receipts or sales.  Second, the Code provides that rents received
from a tenant will not qualify as "rents from real  property" if the REIT,  or a
direct  or  indirect  owner  of 10%  or  more  of the  REIT  owns,  directly  or
constructively, 10% or more of such tenant (a "Related Party Tenant"). Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent  received  under the lease,  then
the portion of rent  attributable to such personal  property will not qualify as
"rents from real property." Finally, for rents to

                                                       -113-

<PAGE>



qualify as "rents  from real  property,"  a REIT  generally  must not operate or
manage  the  property  or  furnish  or render  services  to the  tenants of such
property,  other  than  through  an  independent  contractor  from whom the REIT
derives no revenue,  except that a REIT may directly  perform services which are
"usually or  customarily  rendered" in  connection  with the rental of space for
occupancy,  other than  services  which are  considered  to be  rendered  to the
occupant of the property.  However, a REIT is currently  permitted to earn up to
one   percent   of   its   gross   income   from   tenants,   determined   on  a
property-by-property  basis,  by furnishing  services that are  noncustomary  or
provided  directly to the tenants,  without causing the rental income to fail to
qualify as rents from real property.

         The  Company  has  represented  with  respect  to  its  leasing  of the
Properties  that it will not (i) charge rent for any  Property  that is based in
whole or in part on the income or  profits  of any  person  (except by reason of
being based on a percentage or  percentages  of receipts or sales,  as described
above);  (ii) charge rent that will be attributable  to personal  property in an
amount greater than 15% of the total rent received  under the applicable  lease;
(iii) directly perform  services  considered to be rendered to the occupant of a
Property  or which are not  usually or  customarily  furnished  or  rendered  in
connection with the rental of real property; or (iv) enter into any lease with a
Related Party Tenant.  Specifically,  the Company  expects that virtually all of
its income will be derived  from  leases of the type  described  in  "Business -
Description  of Leases,"  and it does not expect such leases to generate  income
that would not qualify as rents from real  property  for purposes of the 75% and
95% income tests.



                                                       -114-

<PAGE>



         In addition,  the Company will be paid interest on the Mortgage  Loans.
All interest  income  qualifies  under the 95% gross income test.  If a Mortgage
Loan is secured by both real property and other property, all the interest on it
will  nevertheless  qualify under the 75% gross income test if the amount of the
loan did not exceed the fair  market  value of the real  property at the time of
the loan  commitment.  The Company has represented  that this will always be the
case.  Therefore,  in the  opinion of  Counsel,  income  generated  through  the
Company's  investments  in Mortgage  Loans will be treated as qualifying  income
under the 75% gross income test.

         The Company will also receive  payments  under the terms of the Secured
Equipment  Leases.  Although the Secured  Equipment Leases will be structured as
leases or loans, Counsel is of the opinion that, subject to certain assumptions,
they will be treated as loans  secured by personal  property for federal  income
tax purposes.  See "Federal Income Tax  Considerations  Characterization  of the
Secured Equipment  Leases." If the Secured Equipment Leases are treated as loans
secured by personal  property for federal  income tax purposes then, the portion
of the payments under the terms of the Secured  Equipment  Leases that represent
interest,  rather than a return of capital for federal income tax purposes, will
not satisfy the 75% gross  income test  (although  it will satisfy the 95% gross
income test). The Company believes, however, that the aggregate amount of such

                                                       -115-

<PAGE>



non-qualifying  income  will not  cause the  Company  to  exceed  the  limits on
non-qualifying income under the 75% gross income test.

         If, contrary to the opinion of Counsel,  the Secured  Equipment  Leases
are treated as true leases,  rather than as loans  secured by personal  property
for federal  income tax  purposes,  the payments  under the terms of the Secured
Equipment  Leases would be treated as rents from personal  property.  Rents from
personal  property will satisfy either the 75% or 95% gross income tests if they
are  received  in  connection  with a  lease  of  real  property  and  the  rent
attributable  to the  personal  property  does not  exceed 15% of the total rent
received  from the  tenant  in  connection  with the  lease.  However,  if rents
attributable  to personal  property exceed 15% of the total rent received from a
particular  tenant,  then the portion of the total rent attributable to personal
property will not satisfy either the 75% or 95% gross income tests.

         If, notwithstanding the above, the Company fails to satisfy one or both
of the 75% or 95% tests for any taxable  year, it may still qualify as a REIT if
(i) such failure is due to  reasonable  cause and not willful  neglect;  (ii) it
reports the nature and amount of each item of its income on a schedule  attached
to its tax  return  for such  year;  and (iii) the  reporting  of any  incorrect
information is not due to fraud with intent to evade tax. However, even if these
three  requirements  are met and the Company is not  disqualified  as a REIT,  a
penalty  tax would be imposed by  reference  to the amount by which the  Company
failed the 75% or 95% test (whichever amount is greater).

         (b) The  Impact of  Default  Under the  Secured  Equipment  Leases.  In
applying the gross income tests to the Company,  it is necessary to consider the
impact that a default  under one or more of the Secured  Equipment  Leases would
have on the Company's ability to satisfy such tests. A default under one or more
of the Secured Equipment Leases would result in the Company directly holding the
Equipment securing such leases for federal income tax purposes.  In the event of
a default, the Company may choose to either lease or sell such Equipment.

         However,  any income  resulting  from a rental or sale of Equipment not
incidental  to the rental or sale of real  property  would not qualify under the
75% and 95% gross income tests. In addition,  in certain  circumstances,  income
derived from a sale or other  disposition of Equipment  could be considered "net
income from  prohibited  transactions,"  subject to a 100% tax. The Company does
not,  however,  anticipate  that its income from the rental or sale of Equipment
would be material in any taxable year.

         Distribution  Requirements.  A REIT must distribute to its stockholders
for each taxable year ordinary  income  dividends in an amount equal to at least
(a) 95% of the sum of (i) its "real  estate  investment  trust  taxable  income"
(before  deduction of dividends  paid and excluding  any net capital  gains) and
(ii) the excess of net income  from  foreclosure  property  over the tax on such
income,  minus (b) certain excess non-cash income.  Real estate investment trust
taxable income generally is the taxable

                                                       -116-

<PAGE>



income of a REIT  computed as if it were an ordinary  corporation,  with certain
adjustments. Distributions must be made in the taxable year to which they relate
or, if declared  before the timely filing of the REIT's tax return for such year
and  paid  not  later  than  the  first  regular  dividend  payment  after  such
declaration, in the following taxable year.



                                                       -117-

<PAGE>



         The Company has represented  that it intends to make  Distributions  to
stockholders  that will be sufficient to meet the 95% distribution  requirement.
Under some circumstances,  however, it is possible that the Company may not have
sufficient  funds from its operations to make cash  Distributions to satisfy the
95%  distribution  requirement.  For  example,  in the event of the  default  or
financial  failure  of one or more  tenants or  lessees,  the  Company  might be
required to continue to accrue rent for some period of time under federal income
tax  principles  even though the Company  would not  currently be receiving  the
corresponding amounts of cash.  Similarly,  under federal income tax principles,
the Company might not be entitled to deduct  certain  expenses at the time those
expenses are incurred.  In either case,  the Company's cash available for making
Distributions   might  not  be  sufficient  to  satisfy  the  95%   distribution
requirement.  If the cash available to the Company is insufficient,  the Company
might raise cash in order to make the Distributions by borrowing funds,  issuing
new  securities  or selling  assets.  If the Company  ultimately  were unable to
satisfy  the 95%  distribution  requirement,  it would fail to qualify as a REIT
and,  as a  result,  would be  subject  to  federal  income  tax as an  ordinary
corporation without any deduction or adjustment for dividends paid to holders of
the Shares. If the Company fails to satisfy the 95% distribution requirement, as
a result of an  adjustment  to its tax  returns by the  Service,  under  certain
circumstances,  it may be able to rectify  its  failure by paying a  "deficiency
dividend"  (plus a penalty and interest)  within 90 days after such  adjustment.
This  deficiency  dividend  will be included  in the  Company's  deductions  for
dividends paid for the taxable year affected by such  adjustment.  However,  the
deduction  for a  deficiency  dividend  will  be  denied,  if  any  part  of the
adjustment  resulting in the deficiency is  attributable to fraud with intent to
evade tax or to willful failure to timely file an income tax return.

TAXATION OF STOCKHOLDERS

         Taxable  Domestic  Stockholders.  For any  taxable  year in  which  the
Company qualifies as a REIT for federal income tax purposes,  Distributions made
by the Company to its  stockholders  that are United States persons  (generally,
any person other than a nonresident alien individual,  a foreign trust or estate
or a foreign  partnership  or  corporation)  generally will be taxed as ordinary
income.  Amounts  received  by such  United  States  persons  that are  properly
designated as capital gain  dividends by the Company  generally will be taxed as
long-term  capital gain,  without regard to the period for which such person has
held its Shares,  to the extent that they do not exceed the Company's actual net
capital gain for the taxable  year.  Corporate  stockholders  may be required to
treat up to 20% of certain  capital  gains  dividends as ordinary  income.  Such
ordinary income

                                                       -118-

<PAGE>



and capital gain are not eligible for the dividends  received  deduction allowed
to corporations. In addition, the Company may elect to retain and pay income tax
on its long-term capital gains. If the Company so elects,  each stockholder will
take  into  income  the  stockholder's  share of the  retained  capital  gain as
long-term   capital   gain  and  will  receive  a  credit  or  refund  for  that
stockholder's  share  of the  tax  paid by the  Company.  The  stockholder  will
increase the basis of such stockholder's  share by an amount equal to the excess
of the retained capital gain included in the  stockholder's  income over the tax
deemed paid by such stockholder.  Distributions to such United States persons in
excess of the  Company's  current or  accumulated  earnings  and profits will be
considered  first a tax-free  return of capital for federal income tax purposes,
reducing the tax basis of each stockholder's Shares, and then, to the extent the
Distribution  exceeds each stockholder's basis, a gain realized from the sale of
Shares.  The Company  will notify each  stockholder  as to the  portions of each
Distribution which, in its judgment, constitute ordinary income, capital gain or
return of capital for federal income tax purposes.  Any Distribution that is (i)
declared by the Company in October,  November or December of any  calendar  year
and payable to  stockholders  of record on a  specified  date in such months and
(ii)  actually paid by the Company in January of the  following  year,  shall be
deemed to have been received by each stockholder on December 31 of such calendar
year and, as a result, will be includable in gross income of the stockholder for
the taxable year which  includes  such  December 31.  Stockholders  who elect to
participate in the Reinvestment  Plan will be treated as if they received a cash
Distribution  from the Company and then  applied such  Distribution  to purchase
Shares in the Reinvestment Plan. Stockholders may not deduct on their income tax
returns any net operating or net capital losses of the Company.

         Upon  the  sale  or  other  disposition  of  the  Company's  Shares,  a
stockholder  generally  will  recognize  capital  gain  or  loss  equal  to  the
difference  between the amount realized on the sale or other disposition and the
adjusted basis of the Shares involved in the transaction. Such gain or loss will
be long-term capital gain or loss if, at the time of sale or other  disposition,
the Shares  involved  have been held for more than one year.  In addition,  if a
stockholder

                                                       -119-

<PAGE>



receives a capital  gain  dividend  with respect to Shares which he has held for
six months or less at the time of sale or other disposition, any loss recognized
by the  stockholder  will be treated as long-term  capital loss to the extent of
the amount of the capital gain  dividend  that was treated as long-term  capital
gain.

   
         Generally,  the  redemption  of Shares by the  Company  will  result in
recognition  of  ordinary  income  by the  stockholder  unless  the  stockholder
completely  terminates  or  substantially  reduces  his or her  interest  in the
Company.  A redemption of Shares for cash will be treated as a distribution that
is taxable as a dividend to the extent of the Company's  current or  accumulated
earnings and profits at the time of the redemption under Section 302 of the Code
unless  the  redemption  (a)  results  in  a  "complete   termination"   of  the
stockholder's  interest in the Company under Section  302(b)(3) of the Code, (b)
is  "substantially  disproportionate"  with  respect  to the  stockholder  under
Section  302(b)(2)  of the  Code,  or (c) is "not  essentially  equivalent  to a
dividend" with respect to the stockholder  under Section  302(b)(1) of the Code.
Under  Code  Section   302(b)(2)  a  redemption  is  considered   "substantially
disproportionate" if the percentage of the voting stock of the corporation owned
by a stockholder immediately after the redemption is less than eighty percent of
the percentage of the voting stock of the corporation  owned by such stockholder
immediately before the redemption.  In determining whether the redemption is not
treated as a dividend,  Shares considered to be owned by a stockholder by reason
of certain constructive ownership rules set forth in Section 318 of the Code, as
well as  Shares  actually  owned,  must  generally  be  taken  into  account.  A
distribution to a stockholder will be "not essentially equivalent to a dividend"
if its results in a "meaningful  reduction" in the stockholder's interest in the
Company.  The Service has published a ruling  indicating that a redemption which
results in a reduction in the  proportionate  interest in a corporation  (taking
into  account the Section 318  constructive  ownership  rules) of a  stockholder
whose  relative  stock  interest is minimal (an  interest of less than 1% should
satisfy this  requirement)  and who exercises no control over the  corporation's
affairs should be treated as being "not essentially equivalent to a dividend."
    

         If the  redemption is not treated as a dividend,  the redemption of the
Shares  for cash will  result in taxable  gain or loss  equal to the  difference
between  the  amount of cash  received  and the  stockholder's  tax basis in the
Shares  redeemed.  Such gain or loss would be capital gain or loss if the Shares
were held as a capital asset and would be long-term  capital gain or loss if the
holding period for the Shares exceeds one year.

         The Company  will report to its U.S.  stockholders  and the Service the
amount of dividends  paid or treated as paid during each calendar  year, and the
amount  of  tax  withheld,  if  any.  Under  the  backup  withholding  rules,  a
stockholder may be subject to backup withholding at the rate of 31% with respect
to  dividends  paid  unless  such holder (a) is a  corporation  or comes  within
certain other exempt  categories and, when required,  demonstrates  this fact or
(b) provides a taxpayer identification

                                                       -120-

<PAGE>



number,  certifies  as to no loss of  exemption  from  backup  withholding,  and
otherwise complies with applicable requirements of the backup withholding rules.
A  stockholder  that  does not  provide  the  Company  with a  correct  taxpayer
identification  number may also be subject to penalties  imposed by the Service.
Any amount paid to the Service as backup  withholding will be creditable against
the stockholder's income tax liability. In addition, the Company may be required
to withhold a portion of capital gain dividends to any  stockholders who fail to
certify  their  non-foreign  status to the Company.  See "Foreign  Stockholders"
below.

         The  state  and local  income  tax  treatment  of the  Company  and its
stockholders  may not  conform to the  federal  income tax  treatment  described
above.  As a result,  stockholders  should consult their own tax advisors for an
explanation of how other state and local tax laws would affect their  investment
in Shares.

         Tax-Exempt Stockholders. Dividends paid by the Company to a stockholder
that is a tax-exempt  entity generally will not constitute  "unrelated  business
taxable income" ("UBTI") as defined in Section 512(a) of the Code, provided that
the  tax-exempt  entity has not  financed  the  acquisition  of its Shares  with
"acquisition  indebtedness" within the meaning of Section 514(c) of the Code and
the Shares are not  otherwise  used in an  unrelated  trade or  business  of the
tax-exempt entity.

         Notwithstanding the foregoing, qualified trusts that hold more than 10%
(by  value) of the shares of certain  REITs may be  required  to treat a certain
percentage of such REIT's  distributions  as UBTI. This  requirement  will apply
only if (i) treating  qualified trusts holding REIT shares as individuals  would
result in a determination  that the REIT is "closely held" within the meaning of
Section  856(h)(1)  of the Code and  (ii)  the REIT is  "predominantly  held" by
qualified trusts. A REIT is predominantly  held if either (i) a single qualified
trust  holds  more than 25% by value of the REIT  interests  or (ii) one or more
qualified trusts, each owning more than 10% by value of the REIT interests, hold
in the aggregate more than 50% of the REIT interests. The percentage of any REIT
dividend  treated  as UBTI is equal to the  ratio of (a) the UBTI  earned by the
REIT (treating the REIT as if it were a qualified trust and therefore subject to
tax on UBTI) to (b) the total gross income (less certain associated expenses) of
the  REIT.  A de  minimis  exception  applies  where  the ratio set forth in the
preceding sentence is less than 5% for any year. For these purposes, a qualified
trust is any trust  described in Section  401(a) of the Code and exempt from tax
under Section 501(a) of the Code. The restrictions on ownership of Shares in the
Articles of Incorporation will prevent  application of the provisions treating a
portion of REIT distributions as UBTI to tax-exempt  entities  purchasing Shares
in the Company,  absent a waiver of the  restrictions by the Board of Directors.
See  "Summary  of the  Articles of  Incorporation  and Bylaws -  Restriction  of
Ownership."

         Assuming  that there is no waiver of the  restrictions  on ownership of
Shares in the Articles of Incorporation  and that a tax-exempt  stockholder does
not finance the acquisition of its

                                                       -121-

<PAGE>



Shares with "acquisition  indebtedness"  within the meaning of Section 514(c) of
the Code or otherwise use its Shares in an unrelated  trade or business,  in the
opinion  of  Counsel  the  distributions  of the  Company  with  respect to such
tax-exempt stockholder will not constitute UBTI.

         The tax  discussion of  distributions  by qualified  retirement  plans,
IRAs,  Keogh  plans and other  tax-exempt  entities  is beyond the scope of this
discussion,  and such entities  should consult their tax adviser  regarding such
questions.

         Foreign Stockholders.  The rules governing United States federal income
taxation  of  nonresident  alien  individuals,  foreign  corporations,   foreign
participants   and   other   foreign   stockholders   (collectively,   "Non-U.S.
Stockholders")  are complex,  and no attempt will be made herein to provide more
than a summary of such rules. The following  discussion  assumes that the income
from  investment  in the  Shares  will  not be  effectively  connected  with the
Non-U.S. Stockholders' conduct of a United States trade or business. Prospective
Non-U.S.  Stockholders  should  consult with their own tax advisors to determine
the impact of  federal,  state and local laws with  regard to an  investment  in
Shares,  including any reporting  requirements.  Non-U.S.  Stockholders  will be
admitted as stockholders with the approval of the Advisor.

         Distributions that are not attributable to gain from sales or exchanges
by the Company of United  States real property  interests and not  designated by
the Company as capital gain  dividends  will be treated as dividends of ordinary
income to the extent that they are made out of current and accumulated  earnings
and  profits of the  Company.  Such  dividends  ordinarily  will be subject to a
withholding  tax equal to 30% of the gross  amount  of the  dividend,  unless an
applicable  tax treaty  reduces  or  eliminates  that tax. A number of U.S.  tax
treaties that reduce the rate of withholding  tax on corporate  dividends do not
reduce,  or  reduce  to a lesser  extent,  the rate of  withholding  applied  to
dividends  from a REIT. The Company  expects to withhold U.S.  income tax at the
rate of 30% on the gross  amount of any such  distributions  paid to a  Non-U.S.
Stockholder unless (i) a lower treaty rate applies (and, with regard to payments
on or after January 1, 1999,  the Non-U.S.  Stockholder  files IRS Form W-8 with
the  Company  and,  if the Shares are not  traded on an  established  securities
market,  acquires a  taxpayer  identification  number  from the IRS) or (ii) the
Non-U.S.  Stockholder files an IRS Form 4224 (or, with respect to payments on or
after  January 1, 1999,  files IRS Form W-8 with the  Company)  with the Company
claiming that the distribution is effectively connected income. Distributions in
excess of the Company's current and accumulated earnings and profits will not be
taxable to a  stockholder  to the  extent  that such  distributions  paid do not
exceed the adjusted basis of the  stockholder's  Shares,  but rather will reduce
the adjusted basis of such Shares. To the extent that distributions in excess of
current and  accumulated  earnings and profits  exceed the  adjusted  basis of a
Non-U.S.  Stockholders'  Shares,  such  distributions  will  give  rise  to  tax
liability if the Non-U.S.  Stockholder  would otherwise be subject to tax on any
gain from the sale or  disposition  of the Shares,  as  described  below.  If it
cannot be determined at the time a distribution is paid whether or not such

                                                       -122-

<PAGE>



distribution will be in excess of current and accumulated  earnings and profits,
the distributions  will be subject to withholding at the rate of 30%. However, a
Non-U.S.  Stockholder  may seek a refund of such  amounts  from the IRS if it is
subsequently  determined that such  distribution  was, in fact, in excess of the
Company's current and accumulated earnings and profits.  Beginning with payments
made on or after

                                                       -123-

<PAGE>



January 1, 1999,  the  Company  will be  permitted,  but not  required,  to make
reasonable  estimates  of the extent to which  distributions  exceed  current or
accumulated  earnings and profits.  Such distributions will generally be subject
to a 10%  withholding  tax,  which may be refunded to the extent they exceed the
stockholder's  actual U.S. tax liability,  provided the required  information is
furnished to the IRS.

         For any year in which the Company  qualifies  as a REIT,  distributions
that are  attributable  to gain from sales or exchanges by the Company of United
States real property interests will be taxed to a Non-U.S. Stockholder under the
provisions  of the  Foreign  Investment  in Real  Property  Tax Act of 1980,  as
amended ("FIRPTA").  Under FIRPTA, distributions attributable to gain from sales
of United States real property interests are taxed to a Non-U.S.  Stockholder as
if such gain were effectively connected with a United States business.  Non-U.S.
Stockholders  would thus be taxed at the normal capital gain rates applicable to
U.S. Stockholders  (subject to applicable  alternative minimum tax and a special
alternative  minimum tax in the case of nonresident  alien  individuals).  Also,
distributions  subject to FIRPTA may be subject to a 30% branch  profits  tax in
the hands of a foreign corporate stockholder not entitled to treaty exemption or
rate reduction.  The Company is required by applicable  Treasury  Regulations to
withhold 35% of any  distribution  that could be  designated by the Company as a
capital  gain  dividend.   This  amount  is  creditable   against  the  Non-U.S.
Stockholder's FIRPTA tax liability.

         Gain  recognized  by a  Non-U.S.  Stockholder  upon  a sale  of  Shares
generally  will not be taxed  under  FIRPTA if the  Company  is a  "domestically
controlled  REIT,"  defined  generally  as a REIT in which at all times during a
specified  testing  period less than 50% in value of the stock was held directly
or indirectly by foreign persons.  It is currently  anticipated that the Company
will be a  "domestically  controlled  REIT," and in such case the sale of Shares
would not be subject to  taxation  under  FIRPTA.  However,  gain not subject to
FIRPTA  nonetheless will be taxable to a Non-U.S.  Stockholder if (i) investment
in  the  Shares  is  treated  as  "effectively   connected"  with  the  Non-U.S.
Stockholders'  U.S.  trade or business,  or (ii) the Non-U.S.  Stockholder  is a
nonresident  alien  individual who was present in the United States for 183 days
or  more  during  the  taxable  year  and  certain  other  conditions  are  met.
Effectively  connected gain realized by a foreign  corporate  shareholder may be
subject to an additional 30% branch profits tax,  subject to possible  exemption
or rate  reduction  under an applicable  tax treaty.  If the gain on the sale of
Shares were to be subject to taxation  under  FIRPTA,  the Non-U.S.  Stockholder
would be subject to the same treatment as U.S. Stockholders with respect to such
gain (subject to applicable  alternative  minimum tax and a special  alternative
minimum tax in the case of nonresident alien individuals),  and the purchaser of
the Shares  would be required  to  withhold  and remit to the Service 10% of the
purchase price.

                                                       -124-

<PAGE>

STATE AND LOCAL TAXES

         The  Company  and its  shareholders  may be  subject to state and local
taxes in various  states and  localities in which it or they transact  business,
own property,  or reside.  The tax treatment of the Company and the stockholders
in such jurisdictions may differ from the federal income tax treatment described
above.  Consequently,  prospective  stockholders  should  consult  their own tax
advisors  regarding the effect of state and local tax laws upon an investment in
the Common Stock of the Company.

CHARACTERIZATION OF PROPERTY LEASES

         The Company will  purchase both new and existing  Properties  and lease
them to  operators  of Health  Care  Facilities  pursuant  to leases of the type
described in  "Business -  Description  of Property  Leases." The ability of the
Company  to  claim  certain  tax  benefits  associated  with  ownership  of  the
Properties,  such as  depreciation,  depends on a  determination  that the lease
transactions  engaged in by the Company are true leases, under which the Company
is the owner of the leased Property for federal income tax purposes, rather than
a conditional sale of the Property or a financing  transaction.  A determination
by the Service that the Company is not the owner of the  Properties  for federal
income tax purposes may have adverse  consequences  to the Company,  such as the
denying of the  Company's  depreciation  deductions.  Moreover,  a denial of the
Company's  depreciation  deductions  could  result in a  determination  that the
Company's  Distributions  to stockholders  were  insufficient to satisfy the 95%
distribution  requirement for  qualification  as a REIT.  However,  as discussed
above,  if the Company has  sufficient  cash,  it may be able to remedy any past
failure  to  satisfy  the  distribution  requirements  by  paying a  "deficiency
dividend" (plus a penalty and interest). See "Distribution Requirements," above.
 Furthermore,  in the event that the Company were determined not to be the owner
of a particular Property,  in the opinion of Counsel the income that the Company
would receive pursuant to the  recharacterized  lease would constitute  interest
qualifying  under the 95% and 75% gross income tests by reason of being interest
on an obligation secured by a mortgage on an interest in real property,  because
the legal  ownership  structure of such  Property will have the effect of making
the building serve as collateral for the debt obligation.

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

         While certain  characteristics  of the leases anticipated to be entered
into  by  the  Company  suggest  the  Company  might  not be  the  owner  of the
Properties,  such as the fact  that  such  leases  are  "triple-net"  leases,  a
substantial number of other

                                                       -125-

<PAGE>



characteristics  indicate  the bona  fide  nature  of such  leases  and that the
Company will be the owner of the  Properties.  For  example,  under the types of
leases described in "Business  Description of Property Leases," the Company will
bear the risk of  substantial  loss in the  value of the  Properties,  since the
Company will acquire its interests in the Properties with an equity  investment,
rather than with nonrecourse indebtedness. Further, the Company, rather than the
tenant, will benefit from any appreciation in the Properties,  since the Company
will have the right at any time to sell or transfer its  Properties,  subject to
the  tenant's  right to  purchase  the  property  at a price  not less  than the
Property's fair market value (determined by appraisal or otherwise).

         Other factors that are consistent  with the ownership of the Properties
by the  Company  are (i) the  tenants  are liable for  repairs and to return the
Properties in reasonably good condition;  (ii) insurance  proceeds generally are
to be used to restore the Properties  and, to the extent not so used,  belong to
the  Company;  (iii) the tenants  agree to  subordinate  their  interests in the
Properties to the lien of any first  mortgage upon delivery of a  nondisturbance
agreement and agree to attorn to the purchaser  upon any  foreclosure  sale; and
(iv) based on the Company's representation that the Properties can reasonably be
expected to have at the end of their lease terms  (generally  a maximum of 30 to
40  years)  a fair  market  value of at least  20% of the  Company's  cost and a
remaining  useful life of at least 20% of their useful lives at the beginning of
the leases,  the Company has not  relinquished the Properties to the tenants for
their entire useful lives, but has retained a significant  residual  interest in
them. Moreover, the Company will not be primarily dependent upon tax benefits in
order to realize a reasonable return on its investments.

         Concerning  the Properties for which the Company owns the buildings and
the  underlying  land, on the basis of the  foregoing,  assuming (i) the Company
leases the Properties on substantially  the same terms and conditions  described
in  "Business  --  Description  of Leases,"  and (ii) as is  represented  by the
Company,  the residual value of the Properties  remaining after the end of their
lease terms  (including all renewal periods) may reasonably be expected to be at
least 20% of the Company's  cost of such  Properties,  and the remaining  useful
lives of the  Properties  after  the end of their  lease  terms  (including  all
renewal  periods)  may  reasonably  be  expected  to  be at  least  20%  of  the
Properties'  useful  lives at the  beginning  of their  lease  terms,  it is the
opinion  of  Counsel  that  the  Company  will be  treated  as the  owner of the
Properties  for  federal  income  tax  purposes  and will be  entitled  to claim
depreciation and other tax benefits associated with such ownership.  In the case
of Properties  for which the Company does not own the underlying  land,  Counsel
cannot opine that such transactions will be characterized as leases.

CHARACTERIZATION OF SECURED EQUIPMENT LEASES

         The Company will purchase Equipment and lease it to operators of Health
Care Facilities pursuant to leases of the

                                                       -126-

<PAGE>



type described in "Business - General." The ability of the Company to qualify as
a REIT  depends  on a  determination  that  the  Secured  Equipment  Leases  are
financing  arrangements,  under  which  the  lessees  acquire  ownership  of the
Equipment for federal income tax purposes.  If the Secured  Equipment Leases are
instead treated as true leases,  the Company may be unable to satisfy the income
tests for REIT qualification.  See "Federal Income Tax Considerations - Taxation
of the Company - Income Tests."



                                                       -127-

<PAGE>



         While certain  characteristics  of the Secured  Equipment  Leases to be
entered into by the Company  suggest that the Company  retains  ownership of the
Equipment,  such as the fact that  certain of the Secured  Equipment  Leases are
structured  as leases,  with the Company  retaining  title to the  Equipment,  a
substantial number of other characteristics  indicate that the Secured Equipment
Leases are  financing  arrangements  and that the  lessees are the owners of the
Equipment  for federal  income tax  purposes.  For  example,  under the types of
Secured  Equipment Leases described in "Business - General," the lease term will
equal or exceed the useful life of the  Equipment,  and the lessee will have the
option to purchase the Equipment at the end of the lease term for a nominal sum.
Moreover,  under the terms of the Secured Equipment Leases,  the Company and the
lessees will each agree to treat the Secured  Equipment  Leases as loans secured
by personal property, rather than leases, for tax purposes.

         On the  basis of the  foregoing,  assuming  (i) the  Secured  Equipment
Leases are made on  substantially  the same terms and  conditions  described  in
"Business  -  General,"  and (ii) as  represented  by the  Company,  each of the
Secured Equipment Leases will have a term that equals or exceeds the useful life
of the  Equipment  subject to the lease,  it is the opinion of Counsel  that the
Company will not be treated as the owner of the Equipment that is subject to the
Secured  Equipment  Leases for federal  income tax purposes and that the Company
will be able to treat the Secured  Equipment Leases as loans secured by personal
property.  Counsel's  opinion that the Company  will be organized in  conformity
with the  requirements  for  qualification  as a REIT is based,  in part, on the
assumption  that  each of the  Secured  Equipment  Leases  will  conform  to the
conditions outlined in clauses (i) and (ii) of the preceding sentence.

INVESTMENT IN JOINT VENTURES

         As indicated in "Business -- Joint Venture  Arrangements,"  the Company
may participate in Joint Ventures which own and lease Properties.  Assuming that
the Joint  Ventures  have the  characteristics  described  in  "Business - Joint
Venture  Arrangements,"  and are  operated  in the same  manner that the Company
operates with respect to Properties that it owns directly,  it is the opinion of
Counsel that (i) the Joint Ventures will be treated as partnerships,  as defined
in Sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations,  and that the Company will be subject to tax as a partner pursuant
to Sections 701-761 of the Code and (ii) all material allocations to the Company
of income,  gain, loss and deduction as provided in the Joint Venture agreements
and as discussed in the Prospectus will be respected under Section

                                                       -128-

<PAGE>



704(b)  of the Code.  The  Company  has  represented  that it will not  become a
participant in any Joint Venture unless the Company has first obtained advice of
Counsel that the Joint Venture will  constitute a partnership for federal income
tax  purposes  and that the  allocations  to the Company  contained in the Joint
Venture agreement will be respected.

         If,  contrary  to the opinion of Counsel,  a Joint  Venture  were to be
treated as an association taxable as a corporation, the Company would be treated
as a stockholder  for tax purposes and would not be treated as owning a pro rata
share of the Joint  Venture's  assets.  In  addition,  the  items of income  and
deduction of the Joint Venture  would not pass through to the Company.  Instead,
the Joint Venture  would be required to pay income tax at regular  corporate tax
rates  on its  net  income,  and  distributions  to  partners  would  constitute
dividends that would not be deductible in computing the Joint Venture's  taxable
income.  Moreover,  a  determination  that  a  Joint  Venture  is  taxable  as a
corporation  could  cause the  Company  to fail to satisfy  the asset  tests for
qualification as a REIT. See "Asset Tests" and "Income Tests," above.


                             REPORTS TO STOCKHOLDERS

         The Company  will  furnish  each  stockholder  with its audited  annual
report  within 120 days  following  the close of each fiscal year.  These annual
reports  will  contain the  following:  (i)  financial  statements,  including a
balance sheet,  statement of operations,  statement of stockholders' equity, and
statement  of  cash  flows,  prepared  in  accordance  with  generally  accepted
accounting principles which are audited and reported on by independent certified
public  accountants;  (ii) the ratio of the costs of raising  capital during the
period to the capital  raised;  (iii) the aggregate  amount of advisory fees and
the aggregate  amount of other fees paid to the Advisor and any Affiliate of the
Advisor by the Company and including fees or charges paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company;  (iv)
the  Operating  Expenses of the Company,  stated as a percentage  of the Average
Invested  Assets (the average of the  aggregate  book value of the assets of the
Company,  for a specified period,  invested,  directly or indirectly,  in equity
interests in and loans secured by real estate,  before reserves for depreciation
or bad debts or other similar non-cash reserves,  computed by taking the average
of such values at the end of each month  during such period) and as a percentage
of its Net Income; (v) a report from the Independent Directors that the policies
being followed by the Company are in the best interest of its  stockholders  and
the basis for such determination; (vi) separately stated, full disclosure of all
material terms,  factors and circumstances  surrounding any and all transactions
involving the Company, Directors, Advisor and any Affiliate thereof occurring in
the year for which the  annual  report is made,  and the  Independent  Directors
shall be  specifically  charged with a duty to examine and comment in the report
on  the  fairness  of  such  transactions;   and  (vii)   Distributions  to  the
stockholders for the period, identifying the source of such Distributions and if
such information is not

                                                       -129-

<PAGE>



available at the time of the distribution, a written explanation of the relevant
circumstances  will  accompany the  Distributions  (with the statement as to the
source of  Distributions to be sent to stockholders not later than 60 days after
the end of the fiscal year in which the distribution was made).

         Within 75 days  following the close of each Company  fiscal year,  each
stockholder  that is a Qualified Plan will be furnished with an annual statement
of Share valuation to enable it to file annual reports required by ERISA as they
relate to its investment in the Company.  The statement will report an estimated
value of each Share, prior to the termination of the offering,  of $10 per Share
and,  after the  termination  of the offering,  based on (i)  appraisal  updates
performed by the Company  based on a review of the existing  appraisal and lease
of each  Property,  focusing  on a  re-examination  of the  capitalization  rate
applied to the rental stream to be derived from that Property; and (ii) a review
of the  outstanding  Mortgage Loans and Secured  Equipment  Leases focusing on a
determination of present value by a re-examination  of the  capitalization  rate
applied to the stream of payments due under the terms of each  Mortgage Loan and
Secured Equipment  Leases.  The Company may elect to deliver such reports to all
stockholders.  Stockholders  will  not be  forwarded  copies  of  appraisals  or
updates. In providing such reports to stockholders,  neither the Company nor its
Affiliates thereby make any warranty,  guarantee, or representation that (i) the
stockholders  or the  Company,  upon  liquidation,  will  actually  realize  the
estimated value per Share, or (ii) the  stockholders  will realize the estimated
net asset value if they attempt to sell their Shares.

         If the Company is required by the  Securities  Exchange Act of 1934, as
amended,  to file quarterly reports with the Securities and Exchange  Commission
on Form 10-Q,  stockholders  will be furnished with a summary of the information
contained  in each  such  report  within 60 days  after  the end of each  fiscal
quarter.  Such summary  information  generally  will include a balance  sheet, a
quarterly  statement  of income,  and a statement  of cash flows,  and any other
pertinent  information  regarding  the  Company  and its  activities  during the
quarter.  Stockholders  also may receive a copy of any Form 10-Q upon request to
the  Company.  If the  Company  is  not  subject  to  this  filing  requirement,
stockholders  will be furnished  with a semi-annual  report within 60 days after
each six-month period  containing  information  similar to that contained in the
quarterly report but applicable to such six-month period.

         Stockholders and their duly authorized  representatives are entitled to
inspect and copy, at their expense,  the books and records of the Company at all
times  during  regular  business  hours,  upon  reasonable  prior  notice to the
Company,   at  the  location  where  such  reports  are  kept  by  the  Company.
Stockholders,  upon request and at their  expense,  may obtain full  information
regarding  the  financial  condition  of the  Company,  a copy of the  Company's
federal,  state,  and local  income  tax  returns  for each  fiscal  year of the
Company, and, subject to certain confidentiality requirements, a list containing
the name, address, and Shares held by each stockholder.

                                                       -130-

<PAGE>




         The fiscal year of the Company will be the calendar year.

         The Company's  federal tax return (and any applicable  state income tax
returns) will be prepared by the accountants  regularly retained by the Company.
Appropriate tax information will be submitted to the stockholders within 30 days
following the end of each fiscal year of the Company. A specific  reconciliation
between  GAAP  and  income  tax   information   will  not  be  provided  to  the
stockholders;  however,  such  reconciling  information will be available in the
office of the Company for inspection and review by any interested stockholder.


                                  THE OFFERING

GENERAL

         A minimum of 250,000  Shares  ($2,500,000)  and a maximum of 15,000,000
Shares ($150,000,000) are being offered at a purchase price of $10.00 per share.
In  addition,   the  Company  has   registered  an  additional   500,000  Shares
($5,000,000)  available  only  to  stockholders  who  receive  a  copy  of  this
Prospectus  and  who  elect  to  participate  in  the  Reinvestment   Plan.  Any
participation in such plan by a person who becomes a stockholder  otherwise than
by  participating  in this offering will require  solicitation  under a separate
prospectus.  See  "Summary of  Reinvestment  Plan." The Board of  Directors  may
determine  to engage in future  offerings of Common Stock of up to the number of
unissued  authorized shares of Common Stock available  following  termination of
this offering.

         A minimum  investment of 250 Shares ($2,500) is required.  IRAs,  Keogh
plans,  and pension plans must make a minimum  investment of at least 100 Shares
($1,000). For Minnesota investors,  IRAs and qualified plans must make a minimum
investment of 200 Shares  ($2,000) and, for Iowa  investors,  IRAs and qualified
plans must make a minimum  investment of 250 Shares  ($2,500).  Any investor who
makes  the  required  minimum  investment  may  purchase  additional  Shares  in
increments  of one  Share.  See  "The  Offering  -  General,"  "The  Offering  -
Subscription Procedures," and "Summary of Reinvestment Plan."

         No  Shares  will  be  sold  and  the  offering  will  terminate  unless
subscriptions for at least 250,000 Shares ($2,500,000) have been obtained within
one year after the date of this Prospectus.  If such minimum amount is sold, the
Company  may,  in  its  sole  discretion,   and  without  prior  notice  to  the
subscribers,  elect  to  extend  the  offering  for  up to one  additional  year
thereafter (in states that permit such an extension).  Until  subscription funds
for the Company total $2,500,000, the funds will be held in escrow by SouthTrust
Asset  Management  Company of Florida,  N.A., and interest  earned on such funds
will accrue to the benefit of subscribers.  Pursuant to the  requirements of the
Commissioner  of Securities  of the State of  Pennsylvania,  subscriptions  from
Pennsylvania  residents  may  not  be  released  from  escrow,  or  included  in
determining  whether the  $2,500,000  minimum for the Company has been  reached,
until subscriptions for

                                                       -131-

<PAGE>



Shares  totalling  at least  $7,775,000  have been  received  from all  sources.
Subscription  amounts  with all  interest due will be returned in the event that
subscriptions  aggregating $2,500,000 are not received within one year after the
commencement of the offering.

PLAN OF DISTRIBUTION

         The Shares  will be offered  to the  public on a "best  efforts"  basis
(which means that no one is  guaranteeing  that any minimum amount will be sold)
through the Soliciting Dealers,  who will be members of the National Association
of Securities  Dealers,  Inc.  (the "NASD") or other persons or entities  exempt
from broker-dealer registration, and the Managing Dealer. The Soliciting Dealers
will use their best efforts during the offering period to find eligible  persons
who desire to subscribe for the purchase of Shares from the Company.  Both James
M. Seneff,  Jr. and Robert A. Bourne are Affiliates  and licensed  principals of
the Managing Dealer, and the Advisor is an Affiliate of the Managing Dealer.

         Prior to a  subscriber's  admission  to the  Company as a  stockholder,
funds paid by such  subscriber will be deposited in an  interest-bearing  escrow
account with SouthTrust Asset Management  Company of Florida,  N.A. The Company,
within 30 days after the date a subscriber is admitted to the Company,  will pay
to such subscriber the interest (generally calculated on a daily basis) actually
earned on such subscriber's  funds.  After the initial admission of stockholders
to the Company in connection with the sale of at least 250,000 Shares,  interest
will be payable only to those  subscribers  whose funds have been held in escrow
by such bank for at least 20 days.  Stockholders  otherwise  are not entitled to
interest  earned on  Company  funds or to  receive  interest  on their  Invested
Capital. See "Escrow Arrangements" below.

         Subject to the provisions  for reduced  Selling  Commissions  described
below,  the Company  will pay the  Managing  Dealer an  aggregate of 7.5% of the
Gross Proceeds as Selling Commissions. The Managing Dealer shall reallow fees of
up to 7% to the  Soliciting  Dealers  with  respect to Shares  sold by them.  In
addition,  the Company will pay the Managing Dealer, as an expense allowance,  a
marketing support and due diligence  expense  reimbursement fee equal to 0.5% of
Gross  Proceeds.  All or any  portion  of  this  fee  may  be  reallowed  to any
Soliciting  Dealer  with  the  prior  written  approval  from,  and in the  sole
discretion  of,  the  Managing  Dealer,  based on such  factors as the number of
Shares  sold  by  such  Soliciting  Dealer,  the  assistance,  if  any,  of such
Soliciting  Dealer  in  marketing  the  offering,  and bona  fide due  diligence
expenses  incurred.  The  Company  also will  issue to the  Managing  Dealer,  a
Soliciting  Dealer  Warrant to purchase  one share of Common  Stock for every 25
Shares sold, to be exercised,  if at all, during the Exercise Period, at a price
of $12.00 per share.  The Managing Dealer may, in its sole  discretion,  reallow
all or any part of such Soliciting Dealer Warrant to certain Soliciting Dealers,
unless  prohibited  by  federal  or state  securities  laws.  Soliciting  Dealer
Warrants  will  not be  exercisable  until  one  year  from  date  of  issuance.
Soliciting

                                                       -132-

<PAGE>



Dealer  Warrants  are not  transferable  or  assignable  except by the  Managing
Dealer, the Soliciting Dealers, their successors in interest, or individuals who
are both  officers and  directors of such a person.  See "Summary of Articles of
Incorporation  and Bylaws -- Description  of Capital Stock -- Soliciting  Dealer
Warrants."  Stockholders who elect to participate in the Reinvestment  Plan will
be charged Selling  Commissions and the marketing  support and due diligence fee
on Shares  purchased  for their  accounts  on the same  basis as  investors  who
purchase Shares in the offering. See "Summary of Reinvestment Plan."

         A registered  principal or  representative  of the Managing Dealer or a
Soliciting  Dealer,  employees,  officers,  and  Directors  of the  Company,  or
employees,  officers and directors of the Advisor,  any of their  Affiliates and
any Plan established exclusively for the benefit of such persons or entities may
purchase Shares net of 7%  commissions,  at a per Share purchase price of $9.30.
Clients of an investment adviser registered under the Investment Advisers Act of
1940,  as amended,  who have been  advised by such  adviser on an ongoing  basis
regarding  investments other than in the Company,  and who are not being charged
by such  adviser  or its  Affiliates,  through  the  payment of  commissions  or
otherwise,  for the  advice  rendered  by such  adviser in  connection  with the
purchase  of the  Shares,  may  purchase  the Shares net of 7%  commissions.  In
addition,  Soliciting  Dealers that have a  contractual  arrangement  with their
clients  for the  payment of fees which is  consistent  with  accepting  Selling
Commissions,  in their  sole  discretion,  may elect not to accept  any  Selling
Commissions  offered by the Company  for Shares  that they sell.  In that event,
such Shares shall be sold to the investor net of all Selling  Commissions,  at a
per Share purchase price of $9.30.  In connection  with the purchases of certain
minimum numbers of Shares, the amount of Selling  Commissions  otherwise payable
to the  Managing  Dealer or a Soliciting  Dealer shall be reduced in  accordance
with the following schedule:
<TABLE>
<CAPTION>


                                       Purchase Price for               Reallowed Commissions on Sales
                                       Incremental Share in          per Share on Total Sale for Increment
          Dollar Amount                  Volume Discount                Share in Volume Discount Range
       of Shares Purchased               Range Per Share             Percent                 Dollar Amount
       -------------------             --------------------          -------                 -------------
<S> <C>
       $10 --      $250,000                  $10.00                    7.0%                      $0.70
   250,010 --       500,000                    9.85                    5.5%                       0.55
   500,010 --       750,000                    9.70                    4.0%                       0.40
   750,010 --     1,000,000                    9.60                    3.0%                       0.30
 1,000,010 --     5,000,000                    9.50                    2.0%                       0.20

</TABLE>

         Selling  Commissions  for  purchases of $5,000,000 or more will, in the
sole  discretion of the Managing  Dealer,  be reduced to $0.15 per Share or less
but in no event will the proceeds to the Company be less than $9.25 per Share.

                                                       -133-

<PAGE>




         For example,  if an investor  purchases  100,000  Shares,  the investor
could pay as little as $978,750 rather than $1,000,000 for the Shares,  in which
event the Selling Commissions on the sale of such Shares would be $53,750 ($0.54
per  Share).  The net  proceeds  to the  Company  will not be  affected  by such
discounts.

         Subscriptions may be combined for the purpose of determining the volume
discounts in the case of  subscriptions  made by any  "purchaser,"  provided all
such  Shares are  purchased  through the same  Soliciting  Dealer or through the
Managing  Dealer.  The  volume  discount  will be  prorated  among the  separate
subscribers  considered to be a single "purchaser." Shares purchased pursuant to
the Reinvestment  Plan on behalf of a Participant in the Reinvestment  Plan will
not  be  combined  with  other  subscriptions  for  Shares  by the  investor  in
determining the

                                                       -134-

<PAGE>



volume  discount  to which  such  investor  may be  entitled.  See  "Summary  of
Reinvestment  Plan." Further  subscriptions  for Shares will not be combined for
purposes of the volume discount in the case of  subscriptions by any "purchaser"
who subscribes  for  additional  Shares  subsequent to the  purchaser's  initial
purchase
of Shares.

         Any  request  to  combine  more than one  subscription  must be made in
writing in a form  satisfactory  to the Company and must set forth the basis for
such request.  Any such request will be subject to  verification by the Managing
Dealer that all of such  subscriptions  were made by a single  "purchaser." If a
"purchaser"  does not reduce the per Share purchase  price,  the excess purchase
price over the discounted purchase price will be returned to the actual separate
subscribers for Shares.

         For  purposes of such volume  discounts,  "purchaser"  includes  (i) an
individual,  his or her  spouse,  and their  children  under the age of 21,  who
purchase  the Shares for his or her or their own  accounts,  and all  pension or
trust  funds   established  by  each  such   individual;   (ii)  a  corporation,
partnership,  association,  joint-stock  company,  trust fund,  or any organized
group of  persons,  whether  incorporated  or not  (provided  that the  entities
described  in this  clause  (ii) must have  been in  existence  for at least six
months  before  purchasing  the  Shares  and must have  formed  such group for a
purpose  other than to purchase the Shares at a discount);  (iii) an  employee's
trust, pension,  profit-sharing,  or other employee benefit plan qualified under
Section 401 of the Code; and (iv) all pension,  trust, or other funds maintained
by a given bank. In addition, the Company, in its sole discretion, may aggregate
and combine  separate  subscriptions  for Shares  received  during the  offering
period  from  (i) the  Managing  Dealer  or the  same  Soliciting  Dealer,  (ii)
investors whose accounts are managed by a single investment  adviser  registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank,  insurance  company,  trust company,  or other entity exercises
discretionary   investment   responsibility,   or  (iv)  a  single  corporation,
partnership,  trust  association,  or other organized group of persons,  whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation,  partnership,  trust association, or group. Except as provided
in this paragraph, subscriptions will not be cumulated, combined, or aggregated.

         Any reduction in commissions  will reduce the effective  purchase price
per Share to the investor  involved but will not alter the net proceeds  payable
to the Company as a result of such sale.  All  investors  will be deemed to have
contributed the same amount per Share to the Company whether or not the investor
receives a discount.  Accordingly, for purposes of Distributions,  investors who
pay reduced  commissions will receive higher returns on their investments in the
Company as compared to investors who do not pay reduced commissions.

         In connection with the sale of Shares, certain registered principals or
representatives  of the Managing  Dealer may perform  wholesaling  functions for
which they will receive compensation

                                                       -135-

<PAGE>



payable  by the  Managing  Dealer in an  aggregate  amount  not in excess of one
percent of Gross Proceeds. The first 0.5% of Gross Proceeds of any such fee will
be paid  from the 7.5% of Gross  Proceeds  payable  to the  Managing  Dealer  as
Selling Commissions. In addition, the Advisor and its Affiliates,  including the
Managing Dealer and its registered principals or representatives,  may incur due
diligence fees and other expenses,  including expenses related to sales seminars
and wholesaling activities, a portion of which may be paid by the Company.

         In addition, stockholders may agree with their participating Soliciting
Dealer and the  Managing  Dealer to have Selling  Commissions  relating to their
Shares  paid  over  a  seven-year  period  pursuant  to  a  deferred  commission
arrangement  (the  "Deferred  Commission  Option").  Stockholders  electing  the
Deferred  Commission  Option  will be required to pay a total of $9.40 per Share
purchased upon subscription, rather than $10.00 per Share, with respect to which
$0.15 per Share will be payable as Selling  Commissions  due upon  subscription,
$0.10 of which may be reallowed to the Soliciting Dealer by the Managing Dealer.
For each of the six years following such subscription on a date to be determined
by the Managing Dealer,  $0.10 per Share will be paid by the Company as deferred
Selling  Commissions  with  respect  to Shares  sold  pursuant  to the  Deferred
Commission  Option,  which  amounts  will  be  deducted  from  and  paid  out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting  Dealer by the Managing Dealer.  The net proceeds
to the Company will not be affected by the  election of the Deferred  Commission
Option.  Under this arrangement,  a stockholder electing the Deferred Commission
Option will pay a 1% Selling  Commission  per year  thereafter  for the next six
years which will be deducted  from and paid by the Company out of  distributions
otherwise payable to such stockholder.  At such time, if any, as Listing occurs,
the Company shall have the right to require the  acceleration of all outstanding
payment  obligations  under the  Deferred  Commission  Option.  All such Selling
Commissions will be paid to the Managing Dealer,  whereby a total of up to 7% of
such Selling Commissions may be reallowed to the Soliciting Dealer.

         The  Company or its  Affiliates  also may provide  incentive  items for
registered  representatives  of the Managing Dealer and the Soliciting  Dealers,
which in no event shall exceed an aggregate of $100 per annum per  participating
salesperson.   In  the  event  other   incentives  are  provided  to  registered
representatives of the Managing Dealer or the Soliciting  Dealers,  they will be
paid only in cash, and such payments will be made only to the Managing Dealer or
the Soliciting Dealers rather than to their registered representatives. Any such
sales  incentive  program must first have been submitted for review by the NASD,
and must comply with Rule 2710(c)(6)(B)(xii).  Costs incurred in connection with
such  sales  incentive  programs,  if  any,  will  be  considered   underwriting
compensation. See "Estimated Use of Proceeds."

         The Company will also reimburse the Managing  Dealer and the Soliciting
Dealers for bona fide due diligence expenses and certain expenses as incurred in
connection with the offering.


                                                       -136-

<PAGE>



         The total amount of underwriting  compensation,  including  commissions
and  reimbursement  of expenses,  paid in connection  with the offering will not
exceed 10.5% of Gross Proceeds.

         The Managing Dealer and the Soliciting Dealers severally will indemnify
the Company and its  officers  and  Directors,  the Advisor and its officers and
directors  and  their  Affiliates,   against  certain   liabilities,   including
liabilities under the Securities Act of 1933.

SUBSCRIPTION PROCEDURES

         Procedures  Applicable  to All  Subscriptions.  In  order  to  purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription  for  Shares  must  be  accompanied  by cash or  check  payable  to
"SouthTrust Asset Management Company of Florida,  N.A., Escrow Agent" (or to the
Company after  subscription  funds are released  from escrow),  in the amount of
$10.00 per Share. See "Escrow Arrangements" below.
 Certain Soliciting Dealers who have "net capital," as defined in the applicable
federal securities regulations, of $250,000 or more may instruct their customers
to make their checks for Shares for which they have subscribed  payable directly
to the Soliciting Dealer. In such case, the Soliciting Dealer will issue a check
made  payable to the order of the Escrow Agent for the  aggregate  amount of the
subscription proceeds.

         Each subscription will be accepted or rejected by the Company within 30
days after its receipt,  and no sale of Shares shall be completed until at least
five  business  days after the date on which the  subscriber  receives a copy of
this  Prospectus.  If a subscription is rejected,  the funds will be returned to
the  subscriber  within  ten  business  days  after the date of such  rejection,
without interest and without deduction.  A form of the Subscription Agreement is
set forth as Appendix D to this Prospectus. The subscription price of each Share
is payable in full upon execution of the  Subscription  Agreement.  A subscriber
whose  subscription  is  accepted  shall  be sent a  confirmation  of his or her
purchase.

         The Advisor and each  Soliciting  Dealer who sells  Shares on behalf of
the Company have the responsibility to make every reasonable effort to determine
that  the  purchase  of  Shares  is  appropriate  for an  investor  and that the
requisite suitability  standards are met. See "Suitability  Standards and How to
Subscribe  --  Suitability   Standards."  In  making  this  determination,   the
Soliciting Dealers will rely on relevant  information  provided by the investor,
including   information  as  to  the  investor's  age,  investment   objectives,
investment   experience,   income,  net  worth,   financial   situation,   other
investments, and any other pertinent information.  Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.

         The Advisor and each  Soliciting  Dealer shall maintain  records of the
information  used to determine  that an investment in the Shares is suitable and
appropriate  for an  investor.  The Advisor  and each  Soliciting  Dealer  shall
maintain these records for at least six years.

                                                       -137-

<PAGE>


         Subscription  payments will be released from escrow  promptly after the
receipt  by the  Company  of  subscriptions  for a  minimum  of  250,000  Shares
(excluding subscriptions of Pennsylvania investors). Persons whose subscriptions
are accepted  prior to the release of such payments from escrow will be admitted
as  stockholders  within 15 days after such  release  of  payments.  Thereafter,
subscribers  will be admitted as stockholders not later than the last day of the
calendar month following acceptance of their subscriptions.

         Procedures Applicable to Non-Telephonic  Orders. Each Soliciting Dealer
receiving a  subscriber's  check made  payable  solely to the bank escrow  agent
(where,  pursuant to such Soliciting Dealer's internal  supervisory  procedures,
internal  supervisory  review must be  conducted  at the same  location at which
subscription  documents and checks are received from subscribers),  will deliver
such  checks to the  Managing  Dealer no later than the close of business of the
first business day after receipt of the subscription documents by the Soliciting
Dealer  except  that,  in any case in which the  Soliciting  Dealer  maintains a
branch  office,  and,  pursuant to a Soliciting  Dealer's  internal  supervisory
procedures,  final  internal  supervisory  review is  conducted  at a  different
location,  the branch office shall transmit the subscription documents and check
to the Soliciting  Dealer  conducting  such internal  supervisory  review by the
close of business  on the first  business  day  following  their  receipt by the
branch office and the Soliciting Dealer shall review the subscription  documents
and  subscriber's  check to ensure their proper  execution and form and, if they
are  acceptable,  transmit  the  check to the  Managing  Dealer  by the close of
business on the first business day after the check is received by the Soliciting
Dealer.  The Managing  Dealer will  transmit the check to the Escrow Agent by no
later than the close of  business on the first  business  day after the check is
received from the Soliciting Dealer.

         Procedures Applicable to Telephonic Orders.  Certain Soliciting Dealers
may  permit  investors  to  subscribe  for  Shares  by  telephonic  order to the
Soliciting  Dealer.  There are no additional  fees  associated  with  telephonic
orders.  Subscribers who wish to subscribe for Shares by telephonic order to the
Soliciting Dealer may complete the telephonic order either by delivering a check
in the amount necessary to purchase the Shares to be covered by the subscription
agreement to the Soliciting  Dealer or by authorizing  the Soliciting  Dealer to
pay the  purchase  price  for  the  Shares  to be  covered  by the  subscription
agreement from funds available in an account maintained by the Soliciting Dealer
on behalf of the  subscriber.  A  subscriber  must  specifically  authorize  the
registered  representative  and  branch  manager  to  execute  the  subscription
agreement  on behalf of the  subscriber  and must already have made or agreed to
make payment for the Shares covered by the subscription agreement.

         To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms,  then
such  firms  shall,  subject to Rule  15c2-4  promulgated  under the  Securities
Exchange Act of

                                                       -138-

<PAGE>



1934, either (i) upon receipt of an executed subscription agreement or direction
to execute a  subscription  agreement  on behalf of a  customer,  to forward the
offering price for the Shares covered by the subscription agreement on or before
the close of business of the first  business day following  receipt or execution
of a subscription  agreement by such firms to the Managing  Dealer (except that,
in any case in which the  Soliciting  Dealer  maintains  a branch  office,  and,
pursuant  to  a  Soliciting  Dealer's  internal  supervisory  procedures,  final
internal  supervisory  review is conducted at a different  location,  the branch
office shall transmit the subscription  documents and subscriber's  check to the
Soliciting  Dealer conducting such internal  supervisory  review by the close of
business on the first business day following  their receipt by the branch office
and  the  Soliciting   Dealer  shall  review  the  subscription   documents  and
subscriber's  check to ensure their proper  execution  and form and, if they are
acceptable,  transmit the check to the Managing  Dealer by the close of business
on the first business day after the check is received by the Soliciting Dealer),
or (ii) to solicit  indications  of interest in which event (a) such  Soliciting
Dealers must subsequently  contact the customer  indicating  interest to confirm
the  interest  and give  instructions  to  execute  and  return  a  subscription
agreement or to receive  authorization to execute the subscription  agreement on
the customer's behalf, (b) such Soliciting Dealers must mail  acknowledgments of
receipt of orders to each  customer  confirming  interest  on the  business  day
following such confirmation,  (c) such Soliciting Dealers must debit accounts of
such customers on the fifth business day (the "debit date") following receipt of
the  confirmation  referred  to in (a),  and (d) such  Soliciting  Dealers  must
forward funds to the Managing  Dealer in accordance  with the  procedures and on
the schedule set forth in clause (i) of this sentence.  If the procedure in (ii)
is adopted,  subscribers'  funds are not required to be in their  accounts until
the debit date. The Managing  Dealer will transmit the check to the Escrow Agent
by no later than the close of business on the first business day after the check
is received from the Soliciting Dealer.

         Investors,   however,  who  are  residents  of  Florida,  Iowa,  Maine,
Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New Mexico,
North  Carolina,  Ohio,  Oregon,  South Dakota,  Tennessee,  or Washington  must
complete and sign the  Subscription  Agreement in order to subscribe  for Shares
and,  therefore,  may not subscribe for Shares by telephone.  Representatives of
Soliciting  Dealers who accept  telephonic  orders will execute the Subscription
Agreement  on behalf of  investors  who place such  orders.  All  investors  who
telephonically  subscribe for Shares will receive,  with  confirmation  of their
subscription, a second copy of the Prospectus.

         Residents  of  California,   Oklahoma,  and  Texas  who  telephonically
subscribe  for Shares will have the right to rescind such  subscriptions  within
ten days from receipt of the  confirmation.  Such  investors  who do not rescind
their subscriptions  within such ten-day period shall be deemed to have assented
to all of the terms and conditions of the Subscription Agreement.


                                                       -139-

<PAGE>

         Additional Subscription Procedures. Investors who have questions or who
wish  to  place  orders  for  Shares  by  telephone  or to  participate  in  the
Reinvestment  Plan should contact their Soliciting  Dealer.  Certain  Soliciting
Dealers  do  not  permit  telephonic   subscriptions  or  participation  in  the
Reinvestment Plan. See "Summary of Reinvestment  Plan." The form of Subscription
Agreement  for  certain   Soliciting   Dealers  who  do  not  permit  telephonic
subscriptions or  participation  in the Reinvestment  Plan differs slightly from
the form attached  hereto as Appendix D, primarily in that it will eliminate one
or both of these options.

         Investors  who wish to  establish  an IRA for the purpose of  investing
solely  in Shares  may do so by  completing,  in  addition  to the  Subscription
Agreement,  the special IRA account form attached hereto as a part of Appendix D
appointing  Franklin  Bank,  N.A.,  an  unaffiliated  bank,  to act as their IRA
custodian.  The custodian  will not have the authority to vote any of the Shares
held  in an  IRA  except  in  accordance  with  written  instructions  from  the
beneficiary  of the IRA,  although  it will  hold the  Shares  on  behalf of the
beneficiary and make  distributions  and, at the direction and in the discretion
of the  beneficiary,  investments  in  Shares or in other  securities  issued by
Affiliates of the Advisor.  The custodian will not have authority at any time to
make  investments  through  any such IRA on  behalf  of the  beneficiary  if the
investments do not constitute Shares or other securities issued by Affiliates of
the  Advisor.  The  investors  will not be required to pay any initial or annual
fees in connection with any such IRA. The fees for  establishing and maintaining
all such  IRAs  will be paid by the  Advisor  initially  and  annually  up to an
aggregate amount of $5,000, and by the Company above such amount.

ESCROW ARRANGEMENTS

   
         Subscription  proceeds  will be  received in trust and  deposited  in a
separate account with SouthTrust Asset Management Company of Florida,  N.A. (the
"Bank").  No Shares will be sold by the Company,  no commissions or fees will be
paid by it, and the initial  admission of investors of the Company will not take
place  unless  subscriptions  have been  accepted  for at least  250,000  Shares
($2,500,000) and subscription  funds from investors who place telephonic  orders
have been on  deposit  with the Bank for at least 15 days from the date  written
confirmation is mailed to the investor by the Managing Dealer.  If subscriptions
for at least  $2,500,000 have not been received,  accepted,  and paid for within
one year from the initial date of this  Prospectus,  all funds  received will be
promptly  repaid  in full,  with  any  interest  earned  thereon.  In  addition,
California , Florida and Iowa investors only will have the right, as provided in
the attached form of  Subscription  Agreement,  to withdraw  their  subscription
funds if  subscribers  for at least  $2,500,000  have not been  accepted  by the
Company  within six months  after the initial  date of this  Prospectus  and the
Company elects at that time not to terminate the offering.
    

         The Escrow  Agreement  between the Company and the Bank  provides  that
escrowed funds will be invested by the Bank in an interest-bearing  account with
the power of investment in

                                                       -140-

<PAGE>



short-term,   highly  liquid   securities  issued  or  guaranteed  by  the  U.S.
Government,  other  investments  permitted  under Rule 15c2-4 of the  Securities
Exchange Act of 1934, as amended, or, upon receipt of subscription  proceeds for
at least 250,000  Shares  (provided that  subscription  funds from investors who
place  telephonic  orders  have  been on  deposit  with the Bank for at least 15
days), in other short-term, highly liquid investments with appropriate safety of
principal.  Such subscription funds will be released periodically (at least once
per month) upon admission of stockholders to the Company.

         The interest,  if any, earned on  subscription  proceeds prior to their
release from escrow,  within 30 days after the date a subscriber  is admitted to
the Company as a stockholder,  will be distributed to each subscriber. After the
initial  admission of stockholders to the Company in connection with the sale of
at least  250,000  Shares,  interest  will be payable only to those  subscribers
whose  funds  have  been  held in  escrow  by the  Bank  for at  least  20 days.
Stockholders  will not otherwise be entitled to interest earned on Company funds
or to receive interest on their Invested Capital.



                                                       -141-

<PAGE>



ERISA CONSIDERATIONS

         The following is a summary of material considerations arising under the
Employee  Retirement  Income Security Act of 1974, as amended  ("ERISA") and the
prohibited  transaction  provisions  of  Section  4975 of the  Code  that may be
relevant to prospective investors. This discussion does not purport to deal with
all aspects of ERISA or the Code that may be relevant to particular investors in
light of their particular circumstances.

         A  PROSPECTIVE  INVESTOR  THAT IS AN EMPLOYEE  BENEFIT  PLAN SUBJECT TO
ERISA, A TAX-QUALIFIED  RETIREMENT PLAN, AN IRA, OR A GOVERNMENTAL,  CHURCH,  OR
OTHER PLAN THAT IS EXEMPT FROM ERISA IS ADVISED TO CONSULT ITS OWN LEGAL ADVISOR
REGARDING THE SPECIFIC  CONSIDERATIONS  ARISING UNDER  APPLICABLE  PROVISIONS OF
ERISA, THE CODE, AND STATE LAW WITH RESPECT TO THE PURCHASE,  OWNERSHIP, OR SALE
OF THE SHARES BY SUCH PLAN OR IRA.

         Fiduciary Duties and Prohibited Transactions. A fiduciary of a pension,
profit-sharing,  retirement or other employee  benefit plan subject to ERISA (an
"ERISA Plan") should consider the fiduciary standards under ERISA in the context
of the ERISA Plan's particular circumstances before authorizing an investment of
any portion of the ERISA Plan's  assets in the Common Stock.  Accordingly,  such
fiduciary   should   consider   (i)  whether  the   investment   satisfies   the
diversification  requirements of Section 404(a)(1)(C) of ERISA; (ii) whether the
investment is in accordance  with the  documents and  instruments  governing the
ERISA Plan as  required  by Section  404(a)(1)(D)  of ERISA;  (iii)  whether the
investment is prudent under Section  404(a)(1)(B) of ERISA; and (iv) whether the
investment  is  solely  in the  interests  of the ERISA  Plan  participants  and
beneficiaries and for the exclusive  purpose of providing  benefits to the ERISA
Plan  participants and  beneficiaries  and defraying  reasonable  administrative
expenses of the ERISA Plan as required by Section 404(a)(1)(A) of ERISA.


                                                       -142-

<PAGE>



         In addition to the imposition of fiduciary standards, ERISA and Section
4975 of the Code prohibit a wide range of transactions between an ERISA Plan, an
IRA,  or certain  other  plans  (collectively,  a "Plan")  and  persons who have
certain  specified  relationships  to the Plan ("parties in interest" within the
meaning of ERISA and  "disqualified  persons"  within the  meaning of the Code).
Thus, a Plan  fiduciary or person making an investment  decision for a Plan also
should consider  whether the acquisition or the continued  holding of the Shares
might constitute or give rise to a direct or indirect prohibited transaction.

         Plan Assets.  The  prohibited  transaction  rules of ERISA and the Code
apply  to  transactions  with a Plan  and also to  transactions  with the  "plan
assets" of the Plan. The "plan assets" of a Plan include the Plan's  interest in
an entity in which the Plan invests and, in certain circumstances, the assets of
the entity in which the Plan holds such interest.  The term "plan assets" is not
specifically  defined in ERISA or the Code,  nor, as of the date hereof,  has it
been interpreted definitively by the courts in litigation. On November 13, 1986,
the  United  States  Department  of Labor,  the  governmental  agency  primarily
responsible  for  administering  ERISA,  adopted  a final  regulation  (the "DOL
Regulation")  setting out the standards it will apply in determining  whether an
equity  investment  in an  entity  will  cause  the  assets  of such  entity  to
constitute "plan assets." The DOL Regulation  applies for purposes of both ERISA
and Section 4975 of the Code.

         Under the DOL  Regulation,  if a Plan acquires an equity interest in an
entity,  which equity interest is not a "publicly-offered  security," the Plan's
assets  generally  would  include  both the  equity  interest  and an  undivided
interest in each of the entity's  underlying  assets  unless  certain  specified
exceptions apply. The DOL Regulation  defines a  publicly-offered  security as a
security  that is "widely  held,"  "freely  transferable,"  and either part of a
class of securities  registered  under Section 12(b) or 12(g) of the  Securities
Exchange Act of 1934, as amended (the  "Exchange  Act"),  or sold pursuant to an
effective   registration  statement  under  the  Securities  Act  (provided  the
securities are  registered  under the Exchange Act within 120 days after the end
of the fiscal year of the issuer during which the offering occurred). The Shares
are being sold in an offering  registered  under the  Securities Act of 1933, as
amended,  and will be  registered  within the relevant time period under Section
12(b) of the Exchange Act.



                                                       -143-

<PAGE>



         The DOL Regulation provides that a security is "widely held" only if it
is  part  of a class  of  securities  that  is  owned  by 100 or more  investors
independent  of the issuer and of one another.  However,  a class of  securities
will not fail to be "widely  held"  solely  because  the  number of  independent
investors  falls below 100 subsequent to the initial public offering as a result
of events  beyond the  issuer's  control.  The Company  expects the Shares to be
"widely held" upon completion of the offering.

         The  DOL  Regulation  provides  that  whether  a  security  is  "freely
transferable" is a factual question to be determined on

                                                       -144-

<PAGE>



the  basis of all the  relevant  facts  and  circumstances.  The DOL  Regulation
further  provides  that  when a  security  is part of an  offering  in which the
minimum  investment  is  $10,000  or less,  as is the case with  this  offering,
certain restrictions  ordinarily will not affect,  alone or in combination,  the
finding that such securities are freely transferable.  The Company believes that
the restrictions  imposed under the Articles of Incorporation on the transfer of
the Common Stock are limited to  restrictions  on transfer  generally  permitted
under the DOL  Regulation  and are not  likely to result in the  failure  of the
Common  Stock to be "freely  transferable."  See  "Summary  of the  Articles  of
Incorporation  and Bylaws -- Restriction on Ownership."  The DOL Regulation only
establishes a  presumption  in favor of a finding of free  transferability  and,
therefore,  no assurance can be given that the  Department of Labor and the U.S.
Treasury  Department  would not reach a contrary  conclusion with respect to the
Common Stock.

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

DETERMINATION OF OFFERING PRICE

         The offering  price per Share was  determined by the Company based upon
the estimated costs of investing in the Properties and the Mortgage  Loans,  the
fees to be paid to the  Advisor  and its  Affiliates,  as well as fees to  third
parties, and the expenses of this offering.


                           SUPPLEMENTAL SALES MATERIAL

         Shares are being offered only through this  Prospectus.  In addition to
this Prospectus,  the Company may use certain sales materials in connection with
this  offering,  although only when  accompanied  or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been approved
in writing by the Company. As of the date of this Prospectus,  it is anticipated
that the following  sales  material will be authorized for use by the Company in
connection  with  this  offering:  (i)  a  brochure  entitled  CNL  Health  Care
Properties,  Inc.;  (ii) a fact sheet  describing  the  general  features of the
Company;  (iii) a cover  letter  transmitting  the  Prospectus;  (iv) a  summary
description  of the offering;  (v) a slide  presentation;  (vi) broker  updates;
(vii) an audio  cassette  presentation;  (viii)  a video  presentation;  (ix) an
electronic  media  presentation;  (x) a cd-rom  presentation;  (xi) a script for
telephonic marketing;  (xii) seminar advertisements and invitations;  and (xiii)
certain third-party articles. All such materials will be used only by registered
broker-dealers  that are members of the NASD.  The  Company  also may respond to
specific questions from Soliciting Dealers and prospective investors. Additional
materials  relating to the offering may be made available to Soliciting  Dealers
for their internal use.



                                                       -145-

<PAGE>



                                 LEGAL OPINIONS

         The  legality of the shares being  offered  hereby has been passed upon
for the Company by Shaw Pittman Potts & Trowbridge.  Statements made under "Risk
Factors -- Tax Risks" and "Federal Income Tax Considerations" have been reviewed
by Shaw  Pittman  Potts &  Trowbridge,  who have given their  opinion  that such
statements  as to matters  of law are  correct in all  material  respects.  Shaw
Pittman Potts & Trowbridge  serves as securities  and tax counsel to the Company
and to the Advisor and certain of their Affiliates.  Certain members of the firm
have invested in prior  programs  sponsored by the  Affiliates of the Company in
aggregate  amounts  which do not exceed one percent of the  amounts  sold by any
such program, and members of the firm also may invest in the Company.


                                     EXPERTS

         The audited balance sheet and statement of stockholder's  equity of the
Company as of December 31, 1997,  and for the period  December 22, 1997 (date of
inception)  through December 31, 1997,  included in this  Prospectus,  have been
included  herein  in  reliance  on the  report  of  PricewaterhouseCoopers  LLP,
independent  accountants,  given on the  authority  of that firm as  experts  in
accounting and auditing.


                             ADDITIONAL INFORMATION

         A  Registration  Statement  has  been  filed  with the  Securities  and
Exchange  Commission  with  respect  to  the  securities  offered  hereby.  This
Prospectus  does not  contain  all  information  set  forth in the  Registration
Statement,  certain parts of which are omitted in accordance  with the rules and
regulations of the Commission. Statements contained in this Prospectus as to the
contents of any document are  necessarily  summaries of such  documents,  and in
each  instance  reference is made to the copy of such  documents  filed with the
Commission,  each  such  statement  being  qualified  in all  respects  by  such
reference.  For  further  information  regarding  the  Company  and the  Shares,
reference is hereby made to the  Registration  Statement and to the exhibits and
schedules filed or incorporated as a part thereof which may be obtained from the
principal office of the Commission in Washington,  D.C., upon payment of the fee
prescribed  by the  Commission,  or  examined  at the  principal  office  of the
Commission  without  charge.  The  Commission  maintains  a Web site  located at
http://www.sec.gov.  that contains information  regarding  registrants that file
electronically with the Commission.


                                   DEFINITIONS

         "Acquisition  Expenses"  means  any and all  expenses  incurred  by the
Company,  the  Advisor,  or any  Affiliate  of  either  in  connection  with the
selection or  acquisition  of any  Property or the making of any Mortgage  Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel

                                                       -146-

<PAGE>



and communication expenses,  costs of appraisals,  nonrefundable option payments
on property not acquired, accounting fees and expenses, and title insurance.

         "Acquisition Fees" means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any person or entity to any other person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in  connection  with making or  investing in Mortgage  Loans or the
purchase,   development  or  construction  of  a  Property,  including,  without
limitation, real estate commissions,  acquisition fees, finder's fees, selection
fees,  Development  Fees,   Construction  Fees,  nonrecurring  management  fees,
consulting  fees,  loan  fees,  points,  or any other fees or  commissions  of a
similar nature. Excluded shall be development fees and construction fees paid to
any person or entity not  affiliated  with the  Advisor in  connection  with the
actual development and construction of any Property.

         "ADLs" means  activities  of daily  living,  such as eating,  dressing,
walking, bathing and bathroom use.

         "Advisor" means CNL Health Care Advisors,  Inc., a Florida corporation,
any  successor  advisor  to the  Company,  or any  person or entity to which CNL
Health Care Advisors, Inc. or any successor advisors subcontracts  substantially
all of its functions.

         "Advisory  Agreement" means the Advisory  Agreement between the Company
and the  Advisor,  pursuant to which the Advisor  will act as the advisor to the
Company and provide specified services to the Company.

         "Affiliate"  means  (i) any  person or entity  directly  or  indirectly
through one or more intermediaries  controlling,  controlled by, or under common
control with  another  person or entity;  (ii) any person or entity  directly or
indirectly owning,  controlling, or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of another person or entity;  (iii)
any officer, director, partner, or trustee of such person or entity; (iv) any

                                                       -147-

<PAGE>



person ten percent  (10%) or more of whose  outstanding  voting  securities  are
directly or indirectly  owned,  controlled or held,  with power to vote, by such
other  person;  and (v) if such other person or entity is an officer,  director,
partner,  or trustee of a person or entity,  the person or entity for which such
person or entity acts in any such capacity.

         "Articles of Incorporation" means the Articles of Incorporation, as the
same may be amended from time to time, of the Company.

         "Asset  Management  Fee"  means  the fee  payable  to the  Advisor  for
day-to-day  professional  management services in connection with the Company and
its  investments  in  Properties  and  Mortgage  Loans  pursuant to the Advisory
Agreement.

         "Assets" means Properties, Mortgage Loans and Secured
Equipment Leases, collectively.

         "Average Invested Assets" means, for a specified period, the average of
the  aggregate  book value of the assets of the  Company  invested,  directly or
indirectly,  in equity  interests  in and loans  secured by real  estate  before
reserves  for  depreciation  or bad debts or other  similar  non-cash  reserves,
computed by taking the  average of such  values at the end of each month  during
such period.

         "Bank" means  SouthTrust  Asset  Management  Company of Florida,  N.A.,
escrow agent for the offering.

         "Board of Directors" means the Directors of the Company.

         "Bylaws" means the bylaws of the Company.

         "Certificate  of Need  Laws"  means  laws  enacted  by  certain  states
requiring  a health  care  corporation  to  apply  and to be  approved  prior to
establishing or modifying a health care facility.

         "CNL" means CNL Group,  Inc., the parent company of the Advisor and the
Managing Dealer.

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

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

         "Competitive  Real Estate  Commission" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable,  customary,
and  competitive in light of the size,  type, and location of the property.  The
total of all real  estate  commissions  paid by the  Company to all  persons and
entities  (including the subordinated real estate disposition fee payable to the
Advisor) in connection with any Sale of one or more of the Company's  Properties
shall not exceed the lesser of (i) a Competitive Real Estate  Commission or (ii)
six percent of the gross sales price of the Property or Properties.

         "Construction Fee" means a fee or other renumeration for

                                                       -148-

<PAGE>



acting  as  a  general  contractor  and/or  construction  manager  to  construct
improvements,  supervise  and  coordinate  projects or provide  major repairs or
rehabilitation on a Property.

         "Counsel" means tax counsel to the Company.

         "Deferred  Commission Option" means an agreement between a stockholder,
the  participating  Soliciting  Dealer and the  Managing  Dealer to have Selling
Commissions  paid over a seven year period as described in "The  Offering - Plan
of Distribution."

         "Development  Fee" means a fee for such  activities as negotiating  and
approving  plans and  undertaking  to assist in obtaining  zoning and  necessary
variances and necessary  financing for a specific Property,  either initially or
at a later date.

         "Director" means a member of the Board of Directors of the
Company.

         "Distributions"  means any  distributions of money or other property by
the Company to owners of shares of Common Stock,  including  distributions  that
may constitute a return of capital for federal income tax purposes.

         "Equipment" means the furniture,  fixtures and equipment used at Health
Care Facilities by operators of Health Care Facilities.

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

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

         "Excess Shares" means the excess shares  exchanged for shares of Common
Stock or  Preferred  Stock,  as the case may be,  transferred  or proposed to be
transferred in excess of the Ownership Limit or which would otherwise jeopardize
the Company's status as a REIT under the Code.

         "Front-End  Fees" means fees and expenses  paid by any person or entity
to any  person  or entity  for any  services  rendered  in  connection  with the
organization  of the Company and  investing in  Properties  and Mortgage  Loans,
including  Selling  Commissions,  marketing  support and due  diligence  expense
reimbursement fees,  Organizational and Offering Expenses,  Acquisition Expenses
and  Acquisition  Fees paid out of Gross  Proceeds,  and any other similar fees,
however  designated.  During the term of the Company,  Front-End  Fees shall not
exceed 20% of Gross Proceeds.

         "Gross Proceeds" means the aggregate  purchase price of all Shares sold
for the  account of the Company  through the  offering,  without  deduction  for
Selling Commissions,  volume discounts,  the marketing support and due diligence
expense reimbursement fee or Organization and Offering Expenses. For the purpose
of computing Gross  Proceeds,  the purchase price of any Share for which reduced
Selling  Commissions  are paid to the  Managing  Dealer or a  Soliciting  Dealer
(where net  proceeds to the Company are not  reduced)  shall be deemed to be the
full offering price, currently $10.00.

                                                       -149-

<PAGE>




         "Health Care Facilities" means facilities at which health care services
are provided, including, but not limited to, congregate living, assisted living,
and skilled nursing facilities,  continuing care retirement communities and life
care communities, and medical office buildings and walk-in clinics.

         "IADLs"  means  instrumental   activities  of  daily  living,  such  as
shopping, telephone use and money management.

         "Independent  Director" means a Director who is not and within the last
two years has not been  directly or  indirectly  associated  with the Advisor by
virtue of (i)  ownership of an interest in the Advisor or its  Affiliates,  (ii)
employment  by the  Advisor or its  Affiliates,  (iii)  service as an officer or
director of the Advisor or its  Affiliates,  (iv) the  performance  of services,
other than as a Director,  for the Company, (v) service as a director or trustee
of more than three real estate investment trusts advised by the Advisor, or (vi)
maintenance of a material business or professional relationship with the Advisor
or any of its Affiliates.  An indirect  relationship shall include circumstances
in  which  a  Director's  spouse,  parents,  children,   siblings,  mothers-  or
fathers-in-law or sons- or  daughters-in-law,  or brothers- or sisters-in-law is
or has been associated with the Advisor, any of its affiliates,  or the Company.
A business or  professional  relationship  is  considered  material if the gross
revenue  derived by the Director from the Advisor and  Affiliates  exceeds 5% of
either the  Director's  annual gross revenue during either of the last two years
or the Director's net worth on a fair market value basis.

         "Independent  Expert" means a person or entity with no material current
or prior business or personal relationship with the Advisor or the Directors and
who is engaged to a  substantial  extent in the business of  rendering  opinions
regarding the value of assets of the type held by the Company.

         "Invested Capital" means the amount calculated by multiplying the total
number of shares of Common Stock  purchased by  stockholders by the issue price,
reduced by the portion of any  Distribution  that is  attributable  to Net Sales
Proceeds and by any amounts paid by the Company to repurchase shares pursuant to
the plan for redemption of shares.

         "IRA" means an Individual Retirement Account.

         "IRS" means the Internal Revenue Service.

         "Joint  Ventures"  means  the  joint  venture  or  general  partnership
arrangements  in which the Company is a co-venturer or general partner which are
established to acquire Properties.

         "Leverage"  means the aggregate  amount of  indebtedness of the Company
for money borrowed  (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.

                                                       -150-

<PAGE>


         "Line of Credit"  means a line of credit  initially  in an amount up to
$45,000,000,  the proceeds of which will be used to acquire  Properties and make
Mortgage  Loans and Secured  Equipment  Leases and to pay the Secured  Equipment
Lease  Servicing  Fee.  The Line of Credit may be in addition  to any  Permanent
Financing.

         "Listing"  means the  listing  of the  shares  of  Common  Stock of the
Company on a national securities exchange or over-the-counter market.

         "Managing  Dealer"  means CNL  Securities  Corp.,  an  Affiliate of the
Advisor,  or such other  person or entity  selected by the Board of Directors to
act as the managing dealer for the offering. CNL Securities Corp. is a member of
the National Association of Securities Dealers, Inc.

         "Mortgage Loans" means, in connection with mortgage  financing provided
by the Company,  notes or other evidences of  indebtedness or obligations  which
are secured or collateralized by real estate owned by the borrower.

         "Net  Assets"  means  the  total  assets  of the  Company  (other  than
intangibles) at cost before  deducting  depreciation or other non-cash  reserves
less  total  liabilities,  calculated  quarterly  by  the  Company,  on a  basis
consistently applied.

         "Net Income"  means for any period,  the total  revenues  applicable to
such  period,  less the  total  expenses  applicable  to such  period  excluding
additions to reserves for  depreciation,  bad debts,  or other similar  non-cash
reserves;  provided,  however,  Net Income for  purposes  of  calculating  total
allowable Operating Expenses (as defined herein) shall exclude the gain from the
sale of the Company's Assets.

         "Net  Offering   Proceeds"   means  Gross  Proceeds  less  (i)  Selling
Commissions,  (ii) Organizational and Offering Expenses, and (iii) the marketing
support and due diligence expense reimbursement fee.

         "Net Sales Proceeds"  means, in the case of a transaction  described in
clause (i)(A) of the  definition of Sale,  the proceeds of any such  transaction
less the amount of all real estate  commissions  and  closing  costs paid by the
Company.  In the  case of a  transaction  described  in  clause  (i)(B)  of such
definition,  Net Sales Proceeds means the proceeds of any such  transaction less
the amount of any legal and other selling  expenses  incurred in connection with
such  transaction.  In the case of a  transaction  described in clause (i)(C) of
such  definition,  Net Sales Proceeds means the proceeds of any such transaction
actually  distributed  to the Company from the Joint  Venture.  In the case of a
transaction  or  series  of  transactions  described  in  clause  (i)(D)  of the
definition  of  Sale,  Net  Sales  Proceeds  means  the  proceeds  of  any  such
transaction  less the amount of all  commissions  and closing  costs paid by the
Company. In the case of a transaction described in clause (ii) of the definition
of Sale, Net Sales Proceeds means the proceeds of such  transaction or series of
transactions  less all amounts  generated  thereby and reinvested in one or more
Properties  within 180 days  thereafter  and less the amount of any real  estate
commissions, closing costs, and legal and other selling expenses incurred by

                                                       -151-

<PAGE>



or allocated to the Company in  connection  with such  transaction  or series of
transactions. Net Sales Proceeds shall also include, in the case of any lease of
a Property  consisting  of a building  only,  any  Mortgage  Loan or any Secured
Equipment Lease, any amounts from tenants, borrowers or lessees that the Company
determines,  in its discretion,  to be economically  equivalent to proceeds of a
Sale. Net Sales Proceeds shall not include,  as determined by the Company in its
sole  discretion,  any amounts  reinvested in one or more  Properties,  Mortgage
Loans or Secured  Equipment Leases,  to repay  outstanding  indebtedness,  or to
establish reserves.



                                                       -152-

<PAGE>



         "Operating  Expenses"  includes all costs and expenses  incurred by the
Company, as determined under generally accepted accounting principles,  which in
any way are  related to the  operation  of the  Company or to Company  business,
including (a) advisory fees, (b) the Asset  Management  Fee, (c) the Performance
Fee, and (d) the  Subordinated  Incentive Fee, but excluding (i) the expenses of
raising capital such as  Organizational  and Offering  Expenses,  legal,  audit,
accounting,  underwriting,  brokerage,  listing,  registration,  and other fees,
printing  and other such  expenses,  and tax  incurred  in  connection  with the
issuance, distribution,  transfer, registration, and Listing of the Shares, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization, and bad debt reserves, (v) the Advisor's subordinated 10% share of
Net Sales  Proceeds,  (vi) the Secured  Equipment Lease Servicing Fee, and (vii)
Acquisition Fees and Acquisition  Expenses,  real estate commissions on the sale
of property and other expenses  connected with the  acquisition and ownership of
real estate  interests,  mortgage loans, or other property (such as the costs of
foreclosure,  insurance  premiums,  legal  services,  maintenance,  repair,  and
improvement of property).

         "Organizational  and  Offering  Expenses"  means  any and all costs and
expenses, other than Selling Commissions, the Soliciting Dealer Warrants and the
0.5% marketing support and due diligence  expense  reimbursement fee incurred by
the  Company,  the Advisor or any  Affiliate  of either in  connection  with the
formation,  qualification, and registration of the Company and the marketing and
distribution of Shares,  including,  without limitation,  the following:  legal,
accounting,  and escrow fees; printing,  amending,  supplementing,  mailing, and
distributing  costs;  filing,  registration,  and qualification  fees and taxes;
telegraph and  telephone  costs;  and all  advertising  and marketing  expenses,
including the costs related to investor and  broker-dealer  sales meetings.  The
Organizational  and Offering Expenses paid by the Company in connection with the
formation  of the  Company,  together  with the 7.5%  Selling  Commissions,  the
Soliciting  Dealer  Warrants and the 0.5%  marketing  support and due  diligence
expense  reimbursement  fee  incurred  by the Company  will not exceed  thirteen
percent (13%) of the proceeds raised in connection with this offering.

         "Ownership  Limit"  means,  with  respect to shares of Common Stock and
Preferred Stock, the percent  limitation placed on the ownership of Common Stock
and  Preferred  Stock  by  any  one  Person  (as  defined  in  the  Articles  of
Incorporation). As of the initial

                                                       -153-

<PAGE>



date of this Prospectus,  the Ownership Limit is 9.8% of the outstanding  Common
Stock and 9.8% of the outstanding Preferred Stock.

         "Participants" means those stockholders who elect to participate in the
Reinvestment Plan.

         "Performance  Fee" means the fee payable to the Advisor  under  certain
circumstances   if  certain   performance   standards  have  been  met  and  the
Subordinated Incentive Fee has not been paid.

         "Permanent  Financing"  means financing (i) to acquire Assets,  (ii) to
pay the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent  Financing,  excluding  amounts to fund Secured  Equipment  Leases, as
Acquisition  Fees,  and (iv) to  refinance  outstanding  amounts  on the Line of
Credit.  Permanent  Financing may be in addition to any borrowing under the Line
of Credit.

         "Plan" means ERISA Plans,  IRAs,  Keogh plans,  stock bonus plans,  and
certain other plans.

         "Preferred  Stock" means any class or series of preferred  stock of the
Company  that may be issued in  accordance  with the  terms of the  Articles  of
Incorporation and applicable law.

         "Properties"  means (i) the real  properties,  including  the buildings
located  thereon (ii) the real  properties  only, or (iii) the  buildings  only,
which are  acquired by the Company,  either  directly or through  joint  venture
arrangements or other partnerships.

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

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

         "Real Estate Asset Value" means the amount  actually  paid or allocated
to  the  purchase,  development,  construction  or  improvement  of a  Property,
exclusive of Acquisition Fees and Acquisition Expenses.

         "Reinvestment  Agent" or "Agent"  means the  independent  agent,  which
currently is MMS Escrow and  Transfer  Agency,  Inc.,  for  Participants  in the
Reinvestment Plan.

         "Reinvestment  Plan" means the Reinvestment  Plan, in the form attached
hereto as Appendix A.

         "Reinvestment  Proceeds" means net proceeds  available from the sale of
Shares  under  the  Reinvestment   Plan  to  redeem  Shares  or,  under  certain
circumstances, to invest in additional Properties or Mortgage Loans.


                                                       -154-

<PAGE>



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

         "Related  Party  Tenant"  means a  related  party  tenant,  as  defined
pursuant to Section 856(d)(2)(B) of the Code.

         "Roll-Up  Entity" means a partnership,  real estate  investment  trust,
corporation,  trust,  or similar  entity that would be created or would  survive
after the successful completion of a proposed Roll-Up Transaction.

         "Roll-Up  Transaction"  means a transaction  involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include:  (i)
a  transaction  involving  securities  of the Company that have been listed on a
national securities  exchange or the National  Association of Securities Dealers
Automated  Quotation  National  Market System for at least 12 months;  or (ii) a
transaction involving the conversion to corporate, trust, or association form of
only the  Company  if, as a  consequence  of the  transaction,  there will be no
significant  adverse change in stockholder  voting rights, the term of existence
of the Company, compensation to the Advisor, or the investment objectives of the
Company.

         "Sale" (i) means any transaction or series of transactions whereby: (A)
the Company sells, grants, transfers,  conveys, or relinquishes its ownership of
any Property or portion thereof,  including the lease of any Property consisting
of the building only, and including any event with respect to any Property which
gives rise to a significant amount of insurance proceeds or condemnation awards;
(B) the Company sells, grants, transfers, conveys, or relinquishes its ownership
of all or substantially  all of the interest of the Company in any Joint Venture
in which it is a  co-venturer  or  partner;  (C) any Joint  Venture in which the
Company as a  co-venturer  or partner  sells,  grants,  transfers,  conveys,  or
relinquishes  its  ownership of any Property or portion  thereof,  including any
event with  respect to any  Property  which  gives rise to  insurance  claims or
condemnation awards or, (D) the Company sells,  grants,  conveys or relinquishes
its interest in any Mortgage Loan or Secured Equipment Lease or portion thereof,
including any event with respect to any Mortgage Loan or Secured Equipment Lease
which  gives  rise to a  significant  amount of  insurance  proceeds  or similar
awards,  but (ii) shall not include any  transaction  or series of  transactions
specified in clause (i)(A), (i)(B) or (i)(C) above in which the proceeds of such
transaction or series of  transactions  are reinvested in one or more Properties
within 180 days thereafter.

         "Secured Equipment Leases" means the Equipment financing made available
by the  Company to  operators  of Health Care  Facilities  pursuant to which the
Company will finance, through loans or direct financing leases, the Equipment.

         "Secured  Equipment  Lease  Servicing Fee" means the fee payable to the
Advisor by the  Company out of the  proceeds of the Line of Credit or  Permanent
Financing for negotiating  Secured  Equipment Leases and supervising the Secured
Equipment Lease

                                                       -155-

<PAGE>



program  equal to 2% of the  purchase  price of the  Equipment  subject  to each
Secured Equipment Lease and paid upon entering into such lease or loan.

         "Selling   Commissions"  means  any  and  all  commissions  payable  to
underwriters,  managing dealers, or other  broker-dealers in connection with the
sale of Shares as described in the Prospectus,  including,  without  limitation,
commissions payable to CNL Securities Corp.

         "Shares" means the up to 15,500,000 shares of Common Stock
of the Company to be sold in the offering.

         "Soliciting Dealers" means those broker-dealers that are members of the
National  Association  of  Securities  Dealers,  Inc.,  or that are exempt  from
broker-dealer  registration,  and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.

         "Soliciting  Dealer  Warrants"  means warrants to purchase one share of
Common Stock of the Company for every 25 Shares sold through the offering, which
are issuable to the Managing  Dealer (all or a portion of which may be reallowed
to  Soliciting  Dealers,  with  prior  written  approval  from,  and in the sole
discretion  of, at the  Managing  Dealer)  and are to be  exercised  during  the
Exercise Period, at a price of $12.00 per share.

         "Sponsor"  means any Person  directly  or  indirectly  instrumental  in
organizing,  wholly or in part,  the  Company or any  person  who will  control,
manage or  participate  in the  management of the Company,  and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent  property  manager of Company  assets,  and whose only
compensation is as such. Sponsor does not include independent third parties such
as attorneys,  accountants,  and  underwriters  whose only  compensation  is for
professional services. A Person may also be deemed a Sponsor of the Company by:

         a.       taking the initiative, directly or indirectly, in
                  founding or organizing the business or enterprise of
                  the Company, either alone or in conjunction with one or
                  more other Persons;

         b.       receiving a material participation in the Company in
                  connection with the founding or organizing of the
                  business of the Company, in consideration of services
                  or property, or both services and property;

         c.       having a substantial number of relationships and
                  contacts with the Company;

         d.       possessing significant rights to control Company
                  Properties;

         e.       receiving fees for providing services to the Company
                  which are paid on a basis that is not customary in the
                  industry;

         f.       or providing goods or services to the Company on a basis which
                  was not negotiated at arms length with the Company.

                                                       -156-

<PAGE>


         "Stockholder" shall mean a registered holder of the Company's Shares.

         "Stockholders'  8%  Return," as of each date,  shall mean an  aggregate
amount  equal to an 8%  cumulative,  noncompounded,  annual  return on  Invested
Capital.

         "Subscription  Agreement" means the Subscription  Agreement,  in one of
the forms attached hereto as Appendix D.

         "Subordinated Incentive Fee" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.

         "Termination  Date"  means  the  date of  termination  of the  Advisory
Agreement.

         "Total  Proceeds"  means Gross  Proceeds,  loan proceeds from Permanent
Financing and amounts  outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.

         "Triple-Net  Lease" means a Property lease pursuant to which the tenant
is responsible for property costs associated with ongoing operations,  including
repairs, maintenance, property taxes, utilities and insurance.

         "Unimproved  Real Property"  means Property in which the Company has an
equity  interest  that is not acquired  for the purpose of  producing  rental or
other operating  income,  that has no development or construction in process and
for which no development or construction is planned,  in good faith, to commence
within one year.

                                                       -157-

<PAGE>


<PAGE>



                                   APPENDIX A

                                     FORM OF
                                REINVESTMENT PLAN


<PAGE>



                                     FORM OF
                                REINVESTMENT PLAN



         CNL  HEALTH  CARE  PROPERTIES,   INC.,  a  Maryland   corporation  (the
"Company"),  pursuant to its Articles of  Incorporation,  adopted a Reinvestment
Plan (the "Reinvestment Plan") on the terms and conditions set forth below.

         1. Reinvestment of Distributions.  MMS Securities, Inc., the agent (the
"Reinvestment  Agent") for participants (the "Participants") in the Reinvestment
Plan,  will receive all cash  distributions  made by the Company with respect to
shares of common stock of the Company (the "Shares")  owned by each  Participant
(collectively,  the  "Distributions").  The  Reinvestment  Agent will apply such
Distributions as follows:

              (a) At any  period  during  which the  Company  is making a public
         offering of Shares, the Reinvestment Agent will invest Distributions in
         Shares acquired from the managing dealer or  participating  brokers for
         the  offering  at the  public  offering  price per Share.  During  such
         period,  commissions  and the  marketing  support and due diligence fee
         equal to 0.5% of the total amount raised from sale of the Shares may be
         reallowed  to the  broker  who made the  initial  sale of Shares to the
         Participant at the same rate as for initial purchases.

              (b) If no public offering of Shares is ongoing,  the  Reinvestment
         Agent will purchase Shares from any additional shares which the Company
         elects to register with the  Securities  and Exchange  Commission  (the
         "SEC") for the  Reinvestment  Plan,  at a per Share  price equal to the
         fair market value of the Shares  determined by (i) quarterly  appraisal
         updates  performed  by the  Company  based on a review of the  existing
         appraisal and lease of each Property,  focusing on a re-examination  of
         the capitalization rate applied to the rental stream to be derived from
         that Property;  and (ii) a review of the outstanding Mortgage Loans and
         Secured  Equipment  Leases focusing on a determination of present value
         by a re-examination of the capitalization rate applied to the stream of
         payments  due  under  the  terms  of each  Mortgage  Loan  and  Secured
         Equipment Lease. The capitalization  rate used by the Company and, as a
         result,  the price per Share paid by Participants  in the  Reinvestment
         Plan prior to Listing  will be  determined  by the  Advisor in its sole
         discretion.  The factors  that the Advisor  will use to  determine  the
         capitalization rate include (i) its experience in selecting,  acquiring
         and managing properties similar to the Properties;  (ii) an examination
         of the conditions in the market; and (iii)  capitalization rates in use
         by  private  appraisers,  to the  extent  that the  Advisor  deems such
         factors  appropriate,  as well as any other  factors  that the  Advisor
         deems  relevant  or  appropriate  in  making  its  determination.   The
         Company's  internal  accountants  will  then  convert  the most  recent
         quarterly balance sheet of the Company from a "GAAP" balance sheet to a
         "fair market  value"  balance  sheet.  Based on the "fair market value"
         balance sheet, the internal  accountants will then assume a sale of the
         Company's  assets and the liquidation of the Company in accordance with
         its   constitutive   documents  and  applicable  law  and  compute  the
         appropriate  method of distributing the cash available after payment of
         reasonable  liquidation  expenses,  including  closing costs  typically
         associated  with the sale of assets and shared by the buyer and seller,
         and the creation of  reasonable  reserves to provide for the payment of
         any  contingent  liabilities.  Upon listing of the Shares on a national
         securities exchange or over-the-counter  market, the Reinvestment Agent
         may purchase  Shares  either  through such market or directly  from the
         Company   pursuant  to  a  registration   statement   relating  to  the
         Reinvestment  Plan,  in either  case at a per Share  price equal to the
         then-prevailing  market  price on the national  securities  exchange or
         over-the-counter  market on which the  Shares are listed at the date of
         purchase by the  Reinvestment  Agent. In the event that,  after Listing
         occurs,   the  Reinvestment   Agent  purchases  Shares  on  a  national
         securities  exchange or  over-the-counter  market  through a registered
         broker-dealer,  the  amount to be  reinvested  shall be  reduced by any
         brokerage commissions charged by such registered broker-dealer.  In the
         event that such  registered  broker-dealer  charges  reduced  brokerage
         commissions, additional funds in the amount of any such reduction shall
         be left available for the purchase of Shares.

              (c) For each Participant,  the Reinvestment  Agent will maintain a
         record which shall  reflect for each fiscal  quarter the  Distributions
         received by the Reinvestment  Agent on behalf of such Participant.  The
         Reinvestment  Agent will use the aggregate  amount of  Distributions to
         all Participants for each fiscal quarter

                                                        A-1

<PAGE>



         to purchase  Shares for the  Participants.  If the aggregate  amount of
         Distributions  to Participants  exceeds the amount required to purchase
         all Shares then  available for purchase,  the  Reinvestment  Agent will
         purchase   all   available   Shares  and  will  return  all   remaining
         Distributions  to the  Participants  within 30 days after the date such
         Distributions  are made. The purchased  Shares will be allocated  among
         the  Participants  based on the portion of the aggregate  Distributions
         received by the Reinvestment  Agent on behalf of each  Participant,  as
         reflected in the records  maintained  by the  Reinvestment  Agent.  The
         ownership of the Shares  purchased  pursuant to the  Reinvestment  Plan
         shall be reflected on the books of the Company.

              (d) Distributions  shall be invested by the Reinvestment  Agent in
         Shares  promptly  following  the  payment  date  with  respect  to such
         Distributions to the extent Shares are available.  If sufficient Shares
         are not  available,  Distributions  shall be  invested on behalf of the
         Participants in one or more interest-bearing accounts in Franklin Bank,
         N.A.,  Southfield,  Michigan, or in another commercial bank approved by
         the Company which is located in the  continental  United States and has
         assets  of at  least  $100,000,000,  until  Shares  are  available  for
         purchase,  provided that any Distributions  that have not been invested
         in  Shares  within 30 days  after  such  Distributions  are made by the
         Company shall be returned to Participants.

              (e) The allocation of Shares among  Participants may result in the
         ownership of fractional Shares, computed to four decimal places.

              (f)  Distributions  attributable to Shares  purchased on behalf of
         the Participants  pursuant to the Reinvestment  Plan will be reinvested
         in additional Shares in accordance with the terms hereof.

              (g) No  certificates  will be issued to a  Participant  for Shares
         purchased  on behalf of the  Participant  pursuant to the  Reinvestment
         Plan  except  to  Participants  who  make  a  written  request  to  the
         Reinvestment Agent.  Participants in the Reinvestment Plan will receive
         statements of account in accordance with Paragraph 7 below.

         2. Election to  Participate.  Any  stockholder  who  participates  in a
public  offering  of Shares  and who has  received a copy of the  related  final
prospectus included in the Company's  registration  statement filed with the SEC
may elect to participate in and purchase Shares through the Reinvestment Plan at
any time by  written  notice to the  Company  and  would  not need to  receive a
separate  prospectus  relating  solely to the  Reinvestment  Plan.  A person who
becomes a stockholder  otherwise than by  participating  in a public offering of
Shares may purchase Shares through the Reinvestment Plan only after receipt of a
separate prospectus  relating solely to the Reinvestment Plan.  Participation in
the  Reinvestment  Plan will  commence  with the next  Distribution  made  after
receipt of the Participant's notice,  provided it is received more than ten days
prior to the last day of the  fiscal  month or  quarter,  as the case may be, to
which such Distribution relates.  Subject to the preceding sentence,  regardless
of the date of such  election,  a shareholder  will become a Participant  in the
Reinvestment  Plan  effective  on the first day of the  fiscal  month  (prior to
termination of the offering of Shares) or fiscal  quarter (after  termination of
the offering of Shares) following such election,  and the election will apply to
all  Distributions  attributable to the fiscal quarter or month (as the case may
be) in which the shareholder  makes such written  election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter. A Participant
who has  terminated  his  participation  in the  Reinvestment  Plan  pursuant to
Paragraph 11 will be allowed to participate in the Reinvestment  Plan again upon
receipt of a current version of a final prospectus  relating to participation in
the  Reinvestment  Plan which  contains,  at a minimum,  the following:  (i) the
minimum  investment  amount;  (ii) the type or source of  proceeds  which may be
invested; and (iii) the tax consequences of the reinvestment to the Participant,
by notifying the Reinvestment Agent and completing any required forms.

         3.  Distribution  of  Funds.  In  making  purchases  for  Participants'
accounts,  the Reinvestment  Agent may commingle  Distributions  attributable to
Shares owned by Participants in the Reinvestment Plan.

         4.  Proxy  Solicitation.  The  Reinvestment  Agent will  distribute  to
Participants proxy  solicitation  material received by it from the Company which
is attributable to Shares held in the Reinvestment  Plan. The Reinvestment Agent
will  vote  any  Shares  that it  holds  for the  account  of a  Participant  in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s)  representing the Company  covering Shares  registered in the
Participant's  name,  such  proxy  will be  deemed to be an  instruction  to the
Reinvestment Agent to vote the full Shares

                                                        A-2

<PAGE>



in the  Participant's  account in like manner.  If a Participant does not direct
the Reinvestment  Agent as to how the Shares should be voted and does not give a
proxy  to  person(s)   representing  the  Company  covering  these  Shares,  the
Reinvestment Agent will not vote said Shares.

         5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any  responsibility  or  liability  as to the value of the  Company's
Shares,  any change in the value of the Shares  acquired  for the  Participant's
account, or the rate of return earned on, or the value of, the  interest-bearing
accounts,  in which  Distributions  are  invested.  Neither  the Company nor the
Reinvestment  Agent shall be liable for any act done in good  faith,  or for any
good  faith  omission  to act,  including,  without  limitation,  any  claims of
liability  (a)  arising  out  of  the  failure  to  terminate  a   Participant's
participation in the Reinvestment  Plan upon such  Participant's  death prior to
receipt of notice in writing  of such death and the  expiration  of 15 days from
the date of  receipt  of such  notice  and (b) with  respect to the time and the
prices at which Shares are  purchased  for a  Participant.  Notwithstanding  the
foregoing,  liability  under the  federal  securities  laws  cannot  be  waived.
Similarly,  the Company and the Reinvestment Agent have been advised that in the
opinion of  certain  state  securities  commissioners,  indemnification  is also
considered contrary to public policy and therefore unenforceable.

         6.   Suitability.

              (a)  Within  60 days  prior to the end of each  fiscal  year,  CNL
         Securities Corp. ("CSC"), will mail to each Participant a participation
         agreement (the  "Participation  Agreement"),  in which the  Participant
         will be required to represent that there has been no material change in
         the   Participant's   financial   condition   and   confirm   that  the
         representations  made by the Participant in the Subscription  Agreement
         (a form of which shall be attached to the Participation  Agreement) are
         true and correct as of the date of the Participation Agreement,  except
         as  noted  in the  Participation  Agreement  or the  attached  form  of
         Subscription Agreement.

              (b) Each  Participant  will be  required  to return  the  executed
         Participation  Agreement  to CSC within 30 days after  receipt.  In the
         event  that a  Participant  fails  to  respond  to CSC  or  return  the
         completed Participation Agreement on or before the fifteenth (15th) day
         after  the  beginning  of the  fiscal  year  following  receipt  of the
         Participation Agreement,  the Participant's  Distribution for the first
         fiscal  quarter of that year will be sent  directly to the  Participant
         and no Shares will be purchased on behalf of the  Participant  for that
         fiscal  quarter  and,   subject  to  (c)  below,  any  fiscal  quarters
         thereafter, until CSC receives an executed Participation Agreement from
         the Participant.

              (c) If a  Participant  fails to return the executed  Participation
         Agreement to CSC prior to the end of the second fiscal  quarter for any
         year of the Participant's  participation in the Reinvestment  Plan, the
         Participant's   participation  in  the   Reinvestment   Plan  shall  be
         terminated in accordance with Paragraph 11 below.

              (d) Each  Participant  shall notify CSC in the event that,  at any
         time during his  participation in the  Reinvestment  Plan, there is any
         material change in the Participant's  financial condition or inaccuracy
         of any representation under the Subscription Agreement.

              (e) For  purposes of this  Paragraph  6, a material  change  shall
         include any anticipated or actual decrease in net worth or annual gross
         income  or any other  change  in  circumstances  that  would  cause the
         Participant to fail to meet the suitability  standards set forth in the
         Company's Prospectus.

         7. Reports to Participants. Within 60 days after the end of each fiscal
quarter,  the  Reinvestment  Agent will mail to each  Participant a statement of
account describing,  as to such Participant,  the Distributions  received during
the quarter,  the number of Shares purchased  during the quarter,  the per Share
purchase  price  for  such  Shares,  the  total  administrative  charge  to such
Participant,  and the  total  Shares  purchased  on  behalf  of the  Participant
pursuant  to the  Reinvestment  Plan.  Each  statement  shall  also  advise  the
Participant  that, in accordance  with Paragraph 6(d) hereof,  he is required to
notify  CSC in the event  that  there is any  material  change in his  financial
condition or if any  representation  under the  Subscription  Agreement  becomes
inaccurate.  Tax information for income earned on Shares under the  Reinvestment
Plan will be sent to each participant by the Company or the  Reinvestment  Agent
at least annually.

                                                        A-3

<PAGE>




         8. Administrative Charges,  Commissions, and Plan Expenses. The Company
shall be responsible for all administrative  charges and expenses charged by the
Reinvestment  Agent.  The  administrative  charge for each  Participant for each
fiscal  quarter  shall be the  lesser  of 5% of the  amount  reinvested  for the
Participant  or $2.50,  with a minimum  charge of $.50.  Any interest  earned on
Distributions  will be paid to the  Company  to  defray  costs  relating  to the
Reinvestment  Plan.  Additionally,  in connection with any Shares purchased from
the Company both prior to and after the  termination of a public offering of the
Shares,  the Company  will pay to CSC selling  commissions  of 7.5%, a marketing
support and due diligence  expense  reimbursement  fee of .5%, and, in the event
that proceeds of the sale of Shares pursuant to the  Reinvestment  Plan are used
to acquire  Properties  or to invest in Mortgage  Loans,  will pay to CNL Health
Care Advisors, Inc. acquisition fees of 4.5% of the purchase price of the Shares
sold pursuant to the Reinvestment Plan.

         9. No Drawing.  No  Participant  shall have any right to draw checks or
drafts  against  his  account  or  give  instructions  to  the  Company  or  the
Reinvestment Agent except as expressly provided herein.

         10.  Taxes.   Taxable  Participants  may  incur  a  tax  liability  for
Distributions made with respect to such Participant's  Shares,  even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.

         11.  Termination.

              (a)  A  Participant  may  terminate  his   participation   in  the
         Reinvestment  Plan at any time by written notice to the Company.  To be
         effective  for any  Distribution,  such  notice must be received by the
         Company at least ten business  days prior to the last day of the fiscal
         month or quarter to which such Distribution relates.

              (b)  The  Company  or  the  Reinvestment  Agent  may  terminate  a
         Participant's  individual  participation in the Reinvestment  Plan, and
         the Company may terminate the  Reinvestment  Plan itself at any time by
         ten days'  prior  written  notice  mailed to a  Participant,  or to all
         Participants,  as the case may be, at the address or addresses shown on
         their account or such more recent address as a Participant  may furnish
         to the Company in writing.

              (c) After termination of the Reinvestment Plan or termination of a
         Participant's  participation in the Reinvestment Plan, the Reinvestment
         Agent  will send to each  Participant  (i) a  statement  of  account in
         accordance with Paragraph 7 hereof, and (ii) a check for (a) the amount
         of any  Distributions in the  Participant's  account that have not been
         reinvested  in  Shares,  and (b) the  value  of any  fractional  Shares
         standing to the credit of a  Participant's  account based on the market
         price of the Shares. The record books of the Company will be revised to
         reflect the  ownership of record of the  Participant's  full Shares and
         any  future   Distributions  made  after  the  effective  date  of  the
         termination will be sent directly to the former Participant.

         12. Notice. Any notice or other communication  required or permitted to
be given by any  provision  of this  Reinvestment  Plan shall be in writing  and
addressed to Investor Services Department,  CNL Securities Corp., 400 East South
Street, Orlando,  Florida 32801, if to the Company, or to MMS Securities,  Inc.,
1845 Maxwell,  Suite 101,  Troy,  Michigan  48084-4510,  if to the  Reinvestment
Agent,  or such other  addresses as may be  specified  by written  notice to all
Participants.  Notices to a Participant may be given by letter  addressed to the
Participant at the Participant's  last address of record with the Company.  Each
Participant  shall  notify  the  Company  promptly  in  writing of any change of
address.

         13.  Amendment.  The terms and conditions of this Reinvestment Plan may
be amended or supplemented by an agreement  between the  Reinvestment  Agent and
the  Company  at any time,  including  but not  limited to an  amendment  to the
Reinvestment Plan to add a voluntary cash contribution  feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative   charge  payable  to  the  Reinvestment  Agent,  by  mailing  an
appropriate  notice at least 30 days prior to the effective date thereof to each
Participant  at his last address of record;  provided,  that any such  amendment
must be approved by a majority of the Independent Directors of the Company. Such
amendment  or  supplement  shall  be  deemed   conclusively   accepted  by  each
Participant  except those  Participants  from whom the Company  receives written
notice of termination prior to the effective date thereof.

                                                        A-4

<PAGE>


         14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S  ELECTION
TO  PARTICIPATE  IN THE  REINVESTMENT  PLAN SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF FLORIDA;  PROVIDED,  HOWEVER,  THAT CAUSES OF ACTION FOR  VIOLATIONS OF
FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 14.

                                                        A-5

<PAGE>



                                   APPENDIX B

                              FINANCIAL INFORMATION


<PAGE>



                          INDEX TO FINANCIAL STATEMENTS


                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)



                                                                  Page
                                                                  ----


Report of Independent Accountants                                   B-2
Financial Statements:
   
         Balance Sheets at  June 30, 1998 (unaudited)
           and December 31, 1997                                    B-3
         Statements of Stockholder's Equity for the
           six months ended  June 30, 1998 (unaudited)
           and the period December 22, 1997 (date of
           inception) through December 31, 1997                     B-4
         Notes to Financial Statements                              B-5
    
                                       B-1

<PAGE>



                        REPORT OF INDEPENDENT ACCOUNTANTS




To the Board of Directors
CNL Health Care Properties, Inc.


         We have  audited  the  accompanying  balance  sheet of CNL Health  Care
Properties,  Inc. (a development stage company) as of December 31, 1997, and the
related statement of stockholder's equity for the period December 22, 1997 (date
of inception)  through  December 31, 1997.  These  financial  statements are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audit.

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

         In our opinion,  the  financial  statements  referred to above  present
fairly,  in all material  respects,  the  financial  position of CNL Health Care
Properties,  Inc.  as of December  31,  1997,  and the changes in  stockholder's
equity for the period December 22, 1997 (date of inception) through December 31,
1997 in conformity with generally accepted accounting principles.



/s/ Coopers & Lybrand L.L.P.


Orlando, Florida
January 20, 1998

                                       B-2

<PAGE>



                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)

                                 BALANCE SHEETS


              ASSETS
   
                                                   June 30,
                                                     1998           December 31,
                                                  (Unaudited)           1997
                                                  -----------       ------------


Cash                                               $     77           $200,000
Deferred offering costs                             468,739             80,330
                                                 ----------           --------
                                                   $468,816           $280,330
                                                 ==========           ========

      LIABILITIES AND STOCKHOLDER'S EQUITY

Accrued offering costs:
  Due to CNL Health Care Advisors, Inc.            $250,566           $ 58,600
  Due to others                                      18,250             21,730
                                                 ----------           --------
                                                    268,816             80,330
                                                 ----------           --------
Stockholder's equity:
  Common stock, $.01 par value; 100,000
    shares authorized, 20,000 shares
    issued and outstanding                              200                200
  Capital in excess of par value                    199,800            199,800
                                                   --------           --------
                                                    200,000            200,000
                                                   --------           --------

                                                   $468,816           $280,330
                                                 ==========           ========
    









                 See accompanying notes to financial statements.

                                       B-3

<PAGE>



                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)

                       STATEMENTS OF STOCKHOLDER'S EQUITY

   
                       Six Months Ended June 30, 1998 and
    
                      December 22, 1997 (Date of Inception)
                            through December 31, 1997
<TABLE>
<CAPTION>


                                            Common stock                  Capital in
                                       Number            Par              excess of
                                      of shares         value             par value           Total
                                      ---------         -----             ----------          -----
<S> <C>
Balance, December 22, 1997
  (Date of Inception)                        -         $     -              $     -         $     -

Cash received from sale
  of common stock to
  CNL Health Care Advisors, Inc.         20,000             200              199,800         200,000
                                       --------        --------             --------        --------

Balance at December 31, 1997             20,000             200              199,800         200,000

Cash received from sale
  of common stock                            -               -                    -               -
                                       --------        --------             --------        -------

   
Balance at June 30, 1998                 20,000        $    200             $199,800        $200,000
                                       ========        ========             ========        ========
    


</TABLE>





                 See accompanying notes to financial statements.

                                       B-4

<PAGE>



                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)

                          NOTES TO FINANCIAL STATEMENTS

   
                       Six Months Ended June 30, 1998 and
    
                      December 22, 1997 (Date of Inception)
                            through December 31, 1997


1.       Organization:

         CNL Health Care  Properties,  Inc.  (the  "Company")  was  organized in
         Maryland  on  December  22,  1997.  The  Company   intends  to  file  a
         registration  statement on Form S-11 with the  Securities  and Exchange
         Commission  with  respect  to a public  offering  (the  "Offering")  of
         15,500,000  shares of common stock. A maximum of 15,000,000  shares may
         be sold.  In  addition,  the Company  plans to  register an  additional
         500,000 shares which will be available only to  stockholders  who elect
         to participate in the Company's  reinvestment  plan (the  "Reinvestment
         Plan") (Note 3). In  addition,  the Company  plans to register  600,000
         shares  issuable upon the exercise of warrants  granted to the managing
         dealer of the offering.

         The Company intends to use the proceeds from its public offering, after
         deducting   offering   expenses,   primarily  to  acquire  real  estate
         properties  (the  "Properties")  related  to health  care and  seniors'
         housing  facilities (the "Health Care  Facilities")  located across the
         United  States.  The Health  Care  Facilities  may  include  congregate
         living, assisted living and skilled nursing facilities, continuing care
         retirement  communities and life care  communities,  and medical office
         buildings  and  walk-in  clinics.  The  Company  may  provide  mortgage
         financing (the "Mortgage Loans") to operators of Health Care Facilities
         in the aggregate  principal  amount of  approximately  5% to 10% of the
         Company's total assets.  The Company also may offer furniture,  fixture
         and equipment  financing  ("Secured  Equipment Leases") to operators of
         Health Care  Facilities.  Secured  Equipment Leases will be funded from
         the proceeds of a loan in an amount up to ten percent of the  Company's
         total assets which the Company intends to obtain.

         The Company is in the development stage and has not begun operations.

2.       Income Taxes:

         The  Company  intends to make an  election to be taxed as a real estate
         investment  trust  ("REIT")  under  Sections  856  through  860  of the
         Internal  Revenue Code commencing with its taxable year ending December
         31, 1998. If the Company  qualifies for taxation as a REIT, the Company
         generally  will not be subject to federal  corporate  income tax to the
         extent it distributes its REIT taxable income to its  stockholders,  so
         long as it distributes at least 95 percent of its REIT taxable income.

                                       B-5

<PAGE>



                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

   
                       Six Months Ended June 30, 1998 and
    
                      December 22, 1997 (Date of Inception)
                            through December 31, 1997


2.       Income Taxes - Continued:

         REITs are subject to a number of other  organizational  and operational
         requirements.  Even if the Company qualifies for taxation as a REIT, it
         may be  subject  to  certain  state and local  taxes on its  income and
         property,  and  federal  income and excise  taxes on its  undistributed
         income.

3.       Reinvestment Plan:

         The Company  has  established  a  Reinvestment  Plan  pursuant to which
         stockholders   may  elect  to  have  the  full  amount  of  their  cash
         distributions  from the  Company  reinvested  in  additional  shares of
         common stock of the Company.

         The  Offering  includes  500,000  shares of common  stock for  purchase
         through the Reinvestment Plan.

4.       Deferred Offering Costs:

         The Company has and will  continue to incur certain costs in connection
         with the Offering, including filing fees, legal, accounting,  marketing
         and  printing  costs and escrow fees,  which will be deducted  from the
         gross  proceeds of the Offering.  Certain  preliminary  costs  incurred
         prior to raising capital have been and will be advanced by an affiliate
         of the Company.

5.       Capitalization:

   
         At June 30, 1998 and December 31, 1997,  the Company was  authorized to
         issue  100,000  shares of common  stock,  all of one class,  with a par
         value of $.01 per share.  The  Company  plans to amend the  Articles of
         Incorporation  to increase  the  authorized  number of shares of common
         stock and to authorize the issuance of two additional classes of stock,
         preferred stock and excess stock, to accomplish the Offering.
    

6.       Concentration of Credit Risk:

         At December 31, 1997,  the Company had cash on deposit in one financial
         institution in excess of federally insured levels; however, the Company
         has not  experienced  any losses in such  account.  The Company  limits
         investments  of cash  investments to financial  institutions  with high
         credit standing;  therefore,  the Company believes it is not exposed to
         any significant credit risk on cash.

                                       B-6

<PAGE>


                        CNL HEALTH CARE PROPERTIES, INC.
                   (A Development Stage Maryland Corporation)

                    NOTES TO FINANCIAL STATEMENTS - CONTINUED

   
                       Six Months Ended June 30, 1998 and
    
                      December 22, 1997 (Date of Inception)
                            through December 31, 1997


7.       Related Party Arrangements:

         Certain  affiliates of the Company,  including those  described  below,
         will receive fees and compensation in connection with the Offering, and
         the acquisition, management, and sale of the assets of the Company.

         In connection with the formation of the Company and the offering of the
         shares,  the  managing  dealer of the  Offering,  an  affiliate  of the
         Company,  will  receive  selling  commissions  of 7.5% and a  marketing
         support and due diligence  expense  reimbursement  of 0.5% of the total
         amount  raised  from the sale of shares,  computed  at $10.00 per share
         sold. Up to 7% of the  commissions  on shares sold and all or a portion
         of the 0.5% marketing support and due diligence  expense  reimbursement
         fee  may be  reallowed  to  certain  soliciting  dealers  who  are  not
         affiliates of the Company, with prior written approval from, and in the
         sole discretion of, the managing dealer.

         In addition, the Company has agreed to issue and sell soliciting dealer
         warrants  ("Soliciting  Dealer  Warrants") to the managing dealer.  The
         price for each  warrant  will be $0.0008 and one warrant will be issued
         for every 25 shares sold by the  managing  dealer.  All or a portion of
         the Soliciting  Dealer Warrants may be reallowed to soliciting  dealers
         with prior written  approval  from,  and in the sole  discretion of the
         managing  dealer,  except where  prohibited by either  federal or state
         securities  laws.  The holder of a  Soliciting  Dealer  Warrant will be
         entitled  to purchase  one share of common  stock from the Company at a
         price of $12.00  during the five year period  commencing  with the date
         the offering begins.  No Soliciting  Dealer Warrant,  however,  will be
         exercisable until one year from the date of issuance.
   
         Amounts due to CNL Health Care Advisors,  Inc., the sole stockholder of
         the  Company,  totalling  $250,566  at  June  30,  1998,  consisted  of
         expenditures  incurred  on  behalf  of  the  Company  of  $193,750  and
         administrative services in connection with the offering of $66,816.
    


                                       B-7

<PAGE>


                                  APPENDIX C

                           PRIOR PERFORMANCE TABLES

<PAGE>

                                  APPENDIX C

                           PRIOR PERFORMANCE TABLES

      The information in this Appendix C contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and President
of the Company) and their Affiliates (the "Prior Public Programs") which were
formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains,
or in the case of CNL Hospitality Properties, Inc. (formerly CNL American Realty
Fund, Inc.), to invest in restaurant properties and hotel properties. No Prior
Public Programs sponsored by the Company's Affiliates have invested in health
care facilities leased on a triple-net basis to operators of the health care
facilities.

      A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
CNL American Properties Fund, Inc., and CNL Hospitality Properties, Inc. as well
as a copy, for a reasonable fee, of the exhibits filed with such reports.

      The investment objectives of the Prior Public Programs generally include
preservation and protection of capital, the potential for increased income and
protection against inflation, and potential for capital appreciation, all
through investment in restaurant properties, or in the case of CNL Hospitality
Properties, Inc., through investment in restaurant properties and hotel
properties. In addition, the investment objectives of the Prior Public Programs
included making partially tax-sheltered distributions.

      STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.

Description of Tables

      The following Tables are included herein:

            Table I - Experience in Raising and Investing Funds

            Table II - Compensation to Sponsor

            Table III - Operating Results of Prior Programs

            Table V - Sales or Disposal of Properties

      Unless otherwise indicated in the Tables, all information contained in the
Tables is as of June 30, 1998. The following is a brief description of the
Tables:



                                     C-1
<PAGE>

      Table I - Experience in Raising and Investing Funds

      Table I presents information on a percentage basis showing the experience
of two of the principals of the Company and their Affiliates in raising and
investing funds for the Prior Public Programs, the offerings of which became
fully subscribed between July 1993 and June 1998.

      The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.

      Table II - Compensation to Sponsor

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

      The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between July 1993 and June 1998. The Table also
shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending June 30, 1998.

      Table III - Operating Results of Prior Programs

      Table III presents a summary of operating results for the period from
inception through June 30, 1998, of the Prior Public Programs, the offerings of
which became fully subscribed between July 1993 and June 1998.

      The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of a partnership nature. These items
include proceeds from capital contributions of limited partners and
disbursements made from these sources of funds, such as syndication and
organizational costs, acquisition of the properties and other costs which are
related more to the organization of the partnership and the acquisition of
properties than to the actual operations of the partnerships.

      The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.

      Table IV - Results of Completed Programs

      Table IV is omitted from this Appendix C because none of the directors of
the Company or their Affiliates has been involved in completed public programs
which made investments similar to those of the Company.

      Table V - Sales or Disposal of Properties

      Table V provides information regarding the sale or disposal of properties
owned by the Prior Public Programs between July 1993 and June 1998.

      This Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.

                                     C-2

<PAGE>



                                    TABLE I
                   EXPERIENCE IN RAISING AND INVESTING FUNDS


<TABLE>
<CAPTION>


                                 CNL Income    CNL Income      CNL Income   CNL Income
                                  Fund XIII,     Fund XIV,       Fund XV,     Fund XVI,
                                     Ltd.          Ltd.            Ltd.        Ltd.
                                     ----          ----           ----         ----
<S> <C>

Dollar amount offered            $40,000,000    $45,000,000   $40,000,000 $45,000,000
                                 ===========    ===========   =========== ===========

Dollar amount raised                   100.0%         100.0%        100.0%      100.0%
                                 -----------    -----------   ----------- -----------
Less offering expenses:

  Selling commissions
    and discounts                       (8.5)          (8.5)        (8.5)        (8.5)
  Organizational expenses               (3.0)          (3.0)        (3.0)        (3.0)
  Marketing support and
    due diligence expense
    reimbursement fees
    (includes amounts
    reallowed to
    unaffiliated
    entities)                          (0.5)           (0.5)        (0.5)        (0.5)
                                 -----------    -----------   ----------- -----------
                                      (12.0)          (12.0)       (12.0)       (12.0)
                                 -----------    -----------   ----------- -----------
Reserve for operations                  --             --             --          --
                                 -----------    -----------   ----------- -----------
Percent available for
  investment                           88.0%           88.0%        88.0%        88.0%
                                 ===========    ===========   =========== ===========

Acquisition costs:
  Cash down payment                    82.5%           82.5%        82.5%        82.5%
  Acquisition fees paid
    to affiliates                       5.5             5.5          5.5          5.5
  Loan costs                            --              --           --           --
                                 -----------    -----------   ----------- -----------
Total acquisition costs                88.0%           88.0%        88.0%        88.0%
                                 ===========    ===========   =========== ===========

Percent leveraged
  (mortgage financing
  divided by total
  acquisition costs)                   --               --            --          --

Date offering began                 3/31/93         8/27/93      2/23/94      9/02/94

Length of offering
  (in months)                             5               6            6           9

Months to invest 90% of
  amount available for
  investment measured
  from date of offering                  10              11           10          11
</TABLE>
Note 1 Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective March 29, 1995, CNL American
       Properties Fund, Inc. ("APF") registered for sale $165,000,000 of shares
       of common stock (the "Initial Offering"), including $15,000,000 available
       only to stockholders participating in the company's reinvestment plan.
       The Initial Offering of APF commenced April 19, 1995, and upon completion
       of the Initial Offering on February 6, 1997, had received subscription
       proceeds of $150,591,765 (15,059,177 shares), including $591,765 (59,177
       shares) issued pursuant to the reinvestment plan. Pursuant to a
       Registration Statement on Form S-11 under the Securities Act of 1933, as
       amended, effective January 31, 1997, APF registered for sale $275,000,000
       of shares of common stock (the "1997 Offering"), including $25,000,000
       available only to stockholders participating in the company's
       reinvestment plan. The 1997 Offering of APF commenced following the
       completion of the Initial Offering on February 6, 1997, and upon
       completion of the 1997 Offering on March 2, 1998, had received
       subscription proceeds of $251,872,648 (25,187,265 shares), including
       $1,872,648 (187,265 shares) issued pursuant to the reinvestment plan.
       Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective May 12, 1998, APF registered for sale
       $345,000,000 of shares of common stock (the "1998 Offering"), including
       $20,000,000 available only to stockholders participating in the company's
       reinvestment plan. The 1998 Offering of APF commenced following the
       completion of the 1997 Offering on March 2, 1998. As of June 30, 1998,
       APF had received subscriptions totalling $111,835,687 from the 1998
       Offering, including $1,823,518 issued pursuant to the company's
       reinvestment plan.


                                     C-3

<PAGE>







<TABLE>
<CAPTION>


                                CNL American   CNL Income   CNL Income   CNL Hospitality
                              Properties Fund,  Fund XVII,  Fund XVIII,   Properties,
                                    Inc.          Ltd.        Ltd.           Inc.
                                    ----          ----        ----           ----
                                  (Note 1)                                 (Note 2)
<S> <C>
Dollar amount offered          $400,000,000     $30,000,000  $35,000,000
                               ============     ===========  ===========   

Dollar amount raised                  100.0%          100.0%       100.0%
                                 -----------    -----------   ----------- 

Less offering expenses:

  Selling commissions
    and discounts                      (7.5)           (8.5)       (8.5)
  Organizational expenses              (3.0)           (3.0)       (3.0)
  Marketing support and
    due diligence expense
    reimbursement fees
    (includes amounts
    reallowed to
    unaffiliated
    entities)                          (0.5)           (0.5)       (0.5)
                                 -----------    -----------   ----------- 
                                      (11.0)          (12.0)      (12.0)
                                 -----------    -----------   ----------- 
Reserve for operations                  --             --          --
                                 -----------    -----------   ----------- 
Percent available for
  investment                           89.0%           88.0%        88.0%
                                 ==========     ===========   ==========
Acquisition costs:

  Cash down payment                   84.5%            83.5%       83.5%
  Acquisition fees paid
    to affiliates                      4.5              4.5         4.5
  Loan costs                            --              --          --
                                 -----------    -----------   ----------- 

Total acquisition costs               89.0%            88.0%       88.0%
                               ============     ===========  ===========   
Percent leveraged
  (mortgage financing
  divided by total
  acquisition costs)                   --               --          --

Date offering began             4/19/95 and         9/02/95     9/20/96
                                    2/06/97
Length of offering
  (in months)                     22 and 13              12          17

Months to invest 90% of
  amount available for
  investment measured
  from date of offering           23 and 16              15          17
</TABLE>
Note 2 Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective July 9, 1997, CNL Hospitality
       Properties, Inc. registered for sale $165,000,000 of shares of common
       stock, including $15,000,000 available only to stockholders participating
       in the company's reinvestment plan. The offering of shares of CNL
       Hospitality Properties, Inc. commenced July 9, 1997.


                                     C-4

<PAGE>



                                   TABLE II
                            COMPENSATION TO SPONSOR


<TABLE>
<CAPTION>


                                 CNL Income    CNL Income       CNL Income      CNL Income
                                  Fund XIII,     Fund XIV,        Fund XV,        Fund XVI,
                                    Ltd.           Ltd.            Ltd.            Ltd.
                                    ----           ----           ----            ----
<S> <C>
Date offering commenced           3/31/93       8/27/93           2/23/94         9/02/94
Dollar amount raised            $40,000,000   $45,000,000       $40,000,000     $45,000,000
                               ============   ===========       ===========     ===========
Amount paid to sponsor from
  proceeds of offering:
    Selling commissions and
      discounts                   3,400,000     3,825,000         3,400,000       3,825,000
    Real estate commissions           -          -                 -               -
    Acquisition fees              2,200,000     2,475,000         2,200,000       2,475,000
    Marketing support and
      due diligence expense
      reimbursement fees
      (includes amounts
      reallowed to
      unaffiliated entities)        200,000      225,000           200,000         225,000
                              -------------   -----------       -----------     -----------
Total amount paid to sponsor      5,800,000    6,525,000         5,800,000       6,525,000
                               ============   ===========       ===========     ===========
Dollar amount of cash generated
  from operations before
  deducting payments to
  sponsor:
    1998 (6 months)               1,782,788    1,898,767          1,755,734       1,969,826
    1997                          3,395,200    3,734,726          3,419,967       3,909,781
    1996                          3,494,528    3,841,163          3,557,073       3,911,609
    1995                          3,482,461    3,823,939          3,361,477       2,619,840
    1994                          3,232,046    2,897,432          1,154,454         212,171
    1993                          1,148,550      329,957              -               -
Amount paid to sponsor from
  operations (administrative,
  accounting and
  management fees):
    1998 (6 months)                  48,887       53,039             44,829          47,605
    1997                            121,643      128,536            113,372         129,357
    1996                            126,947      134,867            122,391         157,883
    1995                            103,083      114,095            122,107         138,445
    1994                             83,046       84,801             37,620           7,023
    1993                             27,003        8,220              -                 -
Dollar amount of property
sales and refinancing before
deducting payments to sponsor:
    Cash (Note 3)                 1,769,260    4,770,015          3,312,297       1,385,384
    Notes                              -           -                -                 -
Amount paid to sponsors
  from property sales and
  refinancing:
    Real estate commissions            -           -                -                 -
    Incentive fees                     -           -                -                 -
    Other (Note 2)                     -           -                -                 -
</TABLE>
Note 1 Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective March 29, 1995, CNL American
       Properties Fund, Inc. ("APF") registered for sale $165,000,000 of shares
       of common stock (the "Initial Offering"), including $15,000,000 available
       only to stockholders participating in the company's reinvestment plan.
       The Initial Offering of APF commenced April 19, 1995, and upon completion
       of the Initial Offering on February 6, 1997, had received subscription
       proceeds of $150,591,765 (15,059,177 shares), including $591,765 (59,177
       shares) issued pursuant to the reinvestment plan. Pursuant to a
       Registration Statement on Form S-11 under the Securities Act of 1933, as
       amended, effective January 31, 1997, APF registered for sale $275,000,000
       of shares of common stock (the "1997 Offering"), including $25,000,000
       available only to stockholders participating in the company's
       reinvestment plan. The 1997 Offering of APF commenced following the
       completion of the Initial Offering on February 6, 1997, and upon
       completion of the 1997 Offering on March 2, 1998, had received
       subscription proceeds of $251,872,648 (25,187,265 shares), including
       $1,872,648 (187,265 shares) issued pursuant to the reinvestment plan.
       Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective May 12, 1998, APF registered for sale
       $345,000,000 of shares of common stock (the "1998 Offering"), including
       $20,000,000 available only to stockholders participating in the company's
       reinvestment plan. The 1998 Offering of APF commenced following the
       completion of the 1997 Offering on March 2, 1998. As of June 30, 1998,
       APF had received subscriptions totalling $111,835,687 from the 1998
       Offering, including $1,823,518 issued pursuant to the company's
       reinvestment plan. The amounts shown represent the combined results of
       the Initial Offering, the 1997 Offering and the 1998 Offering as of June
       30, 1998, including shares issued pursuant to the company's reinvestment
       plans.

Note 2 For negotiating secured equipment leases and supervising the secured
       equipment lease program, APF is entitled to receive a one-time secured
       equipment lease servicing fee of two percent of the purchase price of the
       equipment that is the subject of a secured equipment lease. During the
       six months ended June 30, 1998 and the years ended December 31, 1997 and
       1996, APF incurred $36,899, $366,865 and $70,070, respectively, in
       secured equipment lease servicing fees.

                                     C-5

<PAGE>



<TABLE>
<CAPTION>

                                               CNL American        CNL Income          CNL Income     CNL Hospitality
                                             Properties Fund,      Fund XVII,          Fund XVIII,      Properties,
                                                   Inc.               Ltd.                 Ltd.             Inc.
                                                   ----               ----                 ----             ----
                                                 (Note 1)                                                (Note 4)
                                          
<S> <C>
Date offering commenced                     4/19/95 and 2/06/97     9/02/95                9/20/96
Dollar amount raised                           $514,300,100     $30,000,000            $35,000,000
                                               ============     ===========            ===========
Amount paid to sponsor from
  proceeds of offering:
    Selling commissions and
      discounts                                  38,572,508       2,550,000              2,975,000
    Real estate commissions                           -                -                     -
    Acquisition fees                             23,143,505       1,350,000              1,575,000
    Marketing support and
      due diligence expense
      reimbursement fees
      (includes amounts
      reallowed to
      unaffiliated entities)                      2,571,501         150,000                175,000
                                                 ----------       ---------              ---------
Total amount paid to sponsor                     64,287,514       4,050,000              4,725,000
                                                 ==========       =========              =========
Dollar amount of cash generated
  from operations before
  deducting payments to
  sponsor:
    1998 (6 months)                              17,846,454     1,315,440                1,517,300
    1997                                         18,514,122     2,611,191                1,459,963
    1996                                          6,096,045     1,340,159                   30,126
    1995                                            594,425        11,671                     -
    1994                                                 -             -                      -
    1993                                                 -             -                      -
Amount paid to sponsor from
  operations (administrative,
  accounting and
  management fees):
    1998 (6 months)                               1,245,501        41,356                   58,088
    1997                                          1,437,908       116,077                   98,207
    1996                                            613,505       107,211                    2,980
    1995                                             95,966         2,659                      -
    1994                                                 -             -                       -
    1993                                                 -             -                       -
Dollar amount of property
sales and refinancing before
deducting payments to sponsor:
    Cash (Note 3)                                 7,894,390            -                       -
    Notes                                                -             -                       -
Amount paid to sponsors
  from property sales and
  refinancing:
    Real estate commissions                              -            -                        -
    Incentive fees                                       -            -                        -
    Other (Note 2)                                       -            -                        -
</TABLE>
Note 3 Excludes properties sold and substituted with replacement properties, as
       permitted under the terms of the lease agreements.

Note 4 Pursuant to a Registration Statement on Form S-11 under the Securities
       Act of 1933, as amended, effective July 9, 1997, CNL Hospitality
       Properties, Inc. registered for sale $165,000,000 of shares of common
       stock, including $15,000,000 available only to stockholders participating
       in the company's reinvestment plan. The offering of shares of CNL
       Hospitality Properties, Inc. commenced September 11, 1997. As of June 30,
       1998, CNL Hospitality Properties, Inc. had sold 2,357,817 shares,
       representing subscription proceeds of $23,578,169 from the offering,
       including 970 shares ($9,704) through the reinvestment plan. From the
       commencement of the offering through June 30, 1998, total selling
       commissions and discounts were $1,768,371, marketing support and due
       diligence expense reimbursement fees were $117,891, and acquisition fees
       were $1,061,023, for a total amount paid to sponsor of $2,947,285. CNL
       Hospitality Properties, Inc. had cash generated from operations for the
       period October 15, 1997 (the date funds were originally released from
       escrow) through June 30, 1998, of $232,921. CNL Hospitality Properties,
       Inc. made payments of $82,971 to the sponsor from operations for this
       period.

                                     C-6


<PAGE>



                                    TABLE III
                     Operating Results of Prior Programs CNL
                             INCOME FUND XIII, LTD.

<TABLE>
<CAPTION>




                                                             1992
                                                          (Note 1)         1993            1994            1995
                                                        ------------  ------------    ------------    -------------
<S> <C>

Gross revenue                                        $          0    $    966,564    $  3,558,447    $  3,806,944
Equity in earnings of joint ventures                            0           1,305          43,386          98,520
Profit (loss) from sale of properties
  (Notes 4, 5 and 6)                                            0               0               0         (29,560)
Interest income                                                 0         181,568          77,379          51,410
Less: Operating expenses                                        0         (59,390)       (183,311)       (214,705)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0        (148,170)       (378,269)       (393,435)
                                                     ------------    ------------    ------------    ------------

Net income - GAAP basis                                         0         941,877       3,117,632       3,319,174
                                                     ============     ============    ============    ============
                                        
Taxable income

  - from operations                                             0         978,535       2,703,252       2,920,859
                                                     ============    ============    ============    ============
  - from gain (loss) on sale                                    0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                               0       1,121,547       3,149,000       3,379,378
Cash generated from sales (Notes 4, 5 and 6)                    0               0               0         286,411
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0       1,121,547       3,149,000       3,665,789
Less: Cash distributions to investors
  (Note 7)
    - from operating cash flow                                  0        (528,364)     (2,800,004)     (3,350,014)
    - from sale of properties                                   0               0               0               0
    - from cash flow from prior period                          0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after
  cash distributions                                            0         593,183         348,996         315,775
Special items (not including sales
  and refinancing):
    Limited partners' capital
      contributions                                             0      40,000,000               0               0
    General partners' capital
      contributions                                         1,000               0               0               0
    Syndication costs                                           0      (3,932,017)           (181)              0
    Acquisition of land and buildings                           0     (19,691,630)     (5,764,308)       (336,116)
    Investment in direct financing leases                       0      (6,760,624)     (1,365,075)              0
    Investment in joint ventures                                0        (314,998)       (545,139)       (140,052)
    Increase (decrease) in restricted cash                      0               0               0               0
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XIII, Ltd. by related parties                             0        (799,980)        (25,036)         (3,074)
    Increase in other assets                                    0        (454,909)          9,226               0
    Loan to tenant                                              0               0               0               0
    Collections on loan to tenant                               0               0               0               0
    Other                                                       0               0               0             954
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash

  distributions and special items                           1,000       8,639,025      (7,341,517)       (162,513)
                                                     ============    ============    ============    ============

TAX AND DISTRIBUTION DATA PER
  $1,000 INVESTED
Federal income tax results:
Ordinary income (loss)

  - from operations                                             0              33              67              72
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss) (Notes 4, 5 and 6)                          0               0               0               0
                                                     ============    ============    ============    ============

</TABLE>
                                      C-7



<PAGE>




<TABLE>
<CAPTION>
                                                                                               
                                                                                 6 months      
                                                  1996              1997           1998        
                                              ------------     ------------   --------------   
<S> <C>                                              
Gross revenue                                 $  3,685,280    $  3,654,128   $  1,488,274
Equity in earnings of joint ventures                60,654         150,417        121,482
Profit (loss) from sale of properties        
  (Notes 4, 5 and 6)                                82,855         (48,538)             0
Interest income                                     49,820          27,925         22,448
Less: Operating expenses                          (253,360)       (354,206)      (122,065)
      Interest expense                                   0               0              0
      Depreciation and amortization               (393,434)       (394,099)      (196,413)
                                              ------------    ------------   ------------
Net income - GAAP basis                          3,231,815       3,035,627      1,313,726
                                              ============    ============   ============
                                             
Taxable income                                   2,972,159       2,470,268      1,512,381
                                              ============    ============   ============
  - from operations                                      0          (9,715)             0
                                              ============    ============   ============
  - from gain (loss) on sale                 
                                             
                                                 3,367,581       3,273,557      1,733,901
Cash generated from operations                     550,000         932,849              0
  (Notes 2 and 3)                                        0               0              0
Cash generated from sales (Notes 4, 5 and 6)  ------------    ------------   ------------
Cash generated from refinancing              
                                                 3,917,581       4,206,406      1,733,901
Cash generated from operations, sales        
  and refinancing                            
Less: Cash distributions to investors           (3,367,581)     (3,273,557)    (1,700,004)
  (Note 7)                                               0               0              0
    - from operating cash flow                     (32,427)       (126,451)             0
    - from sale of properties                 ------------    ------------   ------------
    - from cash flow from prior period       
                                                   517,573         806,398         33,897
Cash generated (deficiency) after
  cash distributions                         
Special items (not including sales           
  and refinancing):                                      0               0              0
    Limited partners' capital                
      contributions                                      0               0              0
    General partners' capital                            0               0              0
      contributions                                      0               0              0
    Syndication costs                                    0               0              0
    Acquisition of land and buildings                    0      (1,482,849)             0
    Investment in direct financing leases         (550,000)        550,000              0
    Investment in joint ventures             
    Increase (decrease) in restricted cash   
    Reimbursement of organization,           
      syndication and acquisition costs                  0               0              0
      paid on behalf of CNL Income Fund                  0               0              0
      XIII, Ltd. by related parties                      0        (196,980)             0
    Increase in other assets                             0         127,843              0
    Loan to tenant                                       0               0              0
    Collections on loan to tenant             ------------    ------------   ------------
    Other
Cash generated (deficiency) after cash                                              
    distributions and special items                (32,427)       (195,588)        33,897
                                              ============    ============   ============            
                                             
                                             
TAX AND DISTRIBUTION DATA PER                
  $1,000 INVESTED                             
Federal income tax results:                   
Ordinary income (loss)                                                                  
                                                 
  - from operations                                     74              61             37                               
                                              ============    ============   ============     
  - from recapture                                       0               0              0     
                                              ============    ============   ============                                      
Capital gain (loss) (Notes 4, 5 and 6)                   0               0              0     
                                              ============    ============   ============    
                                                
</TABLE>   



                                      C-8
<PAGE>
                                  

TABLE III - CNL INCOME FUND XIII, LTD. (continued)


<TABLE>
<CAPTION>



                                                           1992
                                                         (Note 1)          1993            1994            1995
                                                      ------------    ------------    ------------    -------------
<S> <C>
Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                                      0              18              70              82
  - from capital gain                                           0               0               0               0
  - from investment income from prior
      period                                                    0               0               0               2
  - from return of capital                                      0               0               0               0
                                                     ------------     ------------    ------------    ------------

Total distributions on GAAP basis (Note 7)                      0              18              70              84
                                                     ============    ============    ============    ============
  Source (on cash basis)
  - from sales                                                  0               0               0               0
  - from refinancing                                            0               0               0               0
  - from operations                                             0              18              70              84
  - from cash flow from prior period                            0               0               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on cash basis (Note 7)                      0              18              70              84
                                                     ============    ============    ============    ============

Total cash distributions as a percentage  
  of original $1,000 investment (Note 8)                     0.00%           5.33%           7.56%           8.44%
Total cumulative cash distributions per
  $1,000 investment from inception                              0              18              88             172
Amount (in percentage terms) remaining
  invested in program properties at the end 
  of each year (period) presented (original 
  total acquisition cost of properties 
  retained, divided by original total 
  acquisition cost of all properties
  in program) (Notes 4, 5 and 6)                              N/A             100%            100%            100%

</TABLE>




Note 1:       The registration statement relating to the offering of Units by
              CNL Income Fund XIII, Ltd. became effective on March 17, 1993.
              Activities through April 15, 1993, were devoted to organization of
              the partnership and operations had not begun.
Note 2:       Cash generated from operations includes cash received from
              tenants, plus distributions from joint ventures, less cash paid
              for expenses, plus interest received.
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL Income Fund XIII, Ltd.
Note 4:       During 1995, the partnership sold one of its properties to a
              tenant for its original purchase price, excluding acquisition fees
              and miscellaneous acquisition expenses. The net sales proceeds
              were used to acquire an additional property. As a result of this
              transaction, the partnership recognized a loss for financial
              reporting purposes of $29,560 primarily due to acquisition fees
              and miscellaneous acquisition expenses the partnership had
              allocated to the property and due to the accrued rental income
              relating to future scheduled rent increases that the partnership
              had recorded and reversed at the time of sale.
Note 5:       In November 1996, CNL Income Fund XIII, Ltd. sold one of its
              properties and received net sales proceeds of $550,000, resulting
              in a gain of $82,855 for financial reporting purposes. In January
              1997, the partnership reinvested the net sales proceeds in an
              additional property as tenants-in-common with an affiliate of the
              general partners.
Note 6:       In October 1997, the partnership sold one of its properties and
              received net sales proceeds of $932,849, resulting in a loss of
              $48,538 for financial reporting purposes. In December 1997, the
              partnership reinvested the net sales proceeds in an additional
              property as tenants-in-common with affiliates of the general
              partners.
Note 7:       As a result of the partnership's change in investor services
              agents in 1993, distributions are now declared at the end of each
              quarter and paid in the following quarter. Since this table
              generally presents distributions on a cash basis (rather than
              amounts declared), distributions on a cash basis for 1993 only
              reflect payments for three quarters. Distributions declared for
              the quarters ended December 31, 1993, 1994, 1995, 1996 and 1997,
              are reflected in the 1994, 1995, 1996, 1997 and 1998 columns,
              respectively, for distributions on a cash basis due to the
              payment of such distributions in January 1994, 1995, 1996, 1997
              and 1998, respectively. As a result of 1994, 1995, 1996, 1997 and
              1998 distributions being presented on a cash basis, distributions
              declared and unpaid as of December 31, 1994, 1995, 1996, 1997 and
              June 30, 1998, are not included in the 1994, 1995, 1996, 1997 and
              1998 totals, respectively.
Note 8:       Total cash distributions as a percentage of original $1,000 
              investment are calculated based on actual distributions declared 
              for the period.  (See Note 7 above)
Note 9:       Certain data for columns representing less than 12 months have 
              been annualized.


                                      C-9

<PAGE>




<TABLE>
<CAPTION>

                                                                                                    
                                                                                         6 months
                                                          1996            1997             1998     
                                                      ------------    ------------   -------------  
<S> <C>                                     
Cash distributions to investors                                                                      
  Source (on GAAP basis)                                    78              75             33        
  - from investment income                                   2               0              0        
  - from capital gain                                                                                
  - from investment income from prior                        5              10              4        
      period                                                 0               0              6        
  - from return of capital                        ------------    ------------   ------------        
                                                                                                     
                                                            85              85             43        
Total distributions on GAAP basis (Note 7)        ============    ============   ============        
                                                                                                     
  Source (on cash basis)                                                                             
  - from sales                                               0               0              0        
  - from refinancing                                         0               0              0        
  - from operations                                         84              82             43        
  - from cash flow from prior period                         1               3              0        
                                                  ------------    ------------   ------------        
Total distributions on cash basis (Note 7)                  85              85             43        
                                                  ============    ============   ============        
Total cash distributions as a percentage                                                             
  of original $1,000 investment (Note 8)                                                             
Total cumulative cash distributions per                   8.50%           8.50%          8.50%       
  $1,000 investment from inception                                                                   
Amount (in percentage terms) remaining                     257             342            385        
  invested in program properties at the end                                                          
  of each year (period) presented (original                                                          
  total acquisition cost of properties                                                               
  retained, divided by original total                                                                
  acquisition cost of all properties                                                                 
  in program) (Notes 4, 5 and 6)                                                                     
                                                           100%             99%           100%       
</TABLE>  

                                                       
                                                       
                                      C-10       

<PAGE>



                                    TABLE III
                     Operating Results of Prior Programs CNL
                              INCOME FUND XIV, LTD.

<TABLE>
<CAPTION>




                                                             1992
                                                          (Note 1)        1993            1994            1995
                                                        ------------ ------------    ------------    ------------
<S> <C>

Gross revenue                                        $          0    $    256,234    $  3,135,716    $  4,017,266
Equity in earnings of joint ventures                            0           1,305          35,480         338,717
Profit (Loss) from sale of properties
  (Notes 4, 5, 6 and 7)                                         0               0               0         (66,518)
Interest income                                                 0          27,874         200,499          50,724
Less: Operating expenses                                        0         (14,049)       (181,980)       (248,840)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0         (28,918)       (257,640)       (340,112)
                                                     ------------    ------------    ------------    ------------

Net income - GAAP basis                                         0         242,446       2,932,075       3,751,237
                                                     ============    ============    ============    ============

Taxable income
  - from operations                                             0         278,845       2,482,240       3,162,165
                                                     ============    ============    ============    ============
  - from gain (loss) on sale                                    0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                               0         321,737       2,812,631       3,709,844
Cash generated from sales (Notes 4, 6,
  7 and 8)                                                      0               0               0         696,012
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0         321,737       2,812,631       4,405,856
Less: Cash distributions to investors
  (Note 5)
    - from operating cash flow                                  0          (9,050)     (2,229,952)     (3,543,751)
    - from sale of properties                                   0               0               0               0
    - from cash flow from prior period                          0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                                 0         312,687         582,679         862,105
Special items (not including sales and
  refinancing):
    Limited partners' capital
      contributions                                             0      28,785,100      16,214,900               0
    General partners' capital
      contributions                                         1,000               0               0               0
    Syndication costs                                           0      (2,771,892)     (1,618,477)              0
    Acquisition of land and buildings                           0     (13,758,004)    (11,859,237)       (964,073)
    Investment in direct financing leases                       0      (4,187,268)     (5,561,748)        (75,352)
    Investment in joint ventures                                0        (315,209)     (1,561,988)     (1,087,218)
    Return of capital from joint venture                        0               0               0               0
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XIV, Ltd. by related parties                              0        (706,215)       (376,738)           (577)
    Increase in other assets                                    0        (444,267)              0               0
    Increase in restricted cash                                 0               0               0               0
    Other                                                       0               0               0           5,530
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions and special items                           1,000       6,914,932      (4,180,609)     (1,259,585)
                                                     ============    ============    ============    ============

TAX AND DISTRIBUTION DATA PER
  $1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
  - from operations                                             0              16              56              70
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss) (Notes 4, 6, 7 and 8)                       0               0               0               0
                                                     ============    ============    ============    ============
</TABLE>


                                      C-11

<PAGE>



<TABLE>
<CAPTION>

                                                                                  6 months          
                                                    1996            1997             1998          
                                                ------------    ------------   -------------       
                                                 

<S> <C>                                         
                                                
Gross revenue                                    $  3,999,813    $  3,918,582   $  1,626,212
Equity in earnings of joint ventures                  459,137         309,879        164,631
Profit (Loss) from sale of properties           
  (Notes 4, 5, 6 and 7)                                     0               0        112,206
Interest income                                        44,089          40,232         42,434
Less: Operating expenses                             (246,621)       (262,592)      (140,356)
      Interest expense                                      0               0              0
      Depreciation and amortization                  (340,089)       (340,161)      (170,106)
                                                 ------------    ------------   ------------
Net income - GAAP basis                             3,916,329       3,665,940      1,635,021
                                                 ============    ============   ============
                                                
Taxable income                                   
  - from operations                                 3,236,329       3,048,675      1,742,143   
                                                 ============    ============   ============   
  - from gain (loss) on sale                                0          47,256         33,783   
                                                 ============    ============   ============   
                                                 
Cash generated from operations                   
  (Notes 2 and 3)                                   3,706,296       3,606,190      1,845,728                            
Cash generated from sales (Notes 4, 6,                                                        
  7 and 8)                                                  0               0      1,250,140  
Cash generated from refinancing                             0               0              0  
                                                 ------------    ------------   ------------  
Cash generated from operations, sales                                                         
  and refinancing                                   3,706,296       3,606,190      3,095,868  
Less: Cash distributions to investors                                                         
  (Note 5)                                                                                    
    - from operating cash flow                     (3,706,296)     (3,606,190)    (1,845,728) 
    - from sale of properties                               0               0              0  
    - from cash flow from prior period                 (6,226)       (106,330)       (10,532) 
                                                 ------------    ------------   ------------  
Cash generated (deficiency) after cash                                                        
  distributions                                        (6,226)       (106,330)     1,239,608  
Special items (not including sales and                                                        
  refinancing):                                                                               
    Limited partners' capital                                                                 
      contributions                                         0               0              0  
    General partners' capital                                                                 
      contributions                                         0               0              0  
    Syndication costs                                       0               0              0  
    Acquisition of land and buildings                       0               0              0  
    Investment in direct financing leases                   0               0              0  
    Investment in joint ventures                       (7,500)       (121,855)      (310,097) 
    Return of capital from joint venture                    0          51,950              0  
    Reimbursement of organization,                                                            
      syndication and acquisition costs                                                       
      paid on behalf of CNL Income Fund                                                       
      XIV, Ltd. by related parties                          0               0              0  
    Increase in other assets                                0               0              0  
    Increase in restricted cash                             0               0       (193,654) 
    Other                                                   0               0              0  
                                                 ------------    ------------   ------------  
Cash generated (deficiency) after cash                                                        
  distributions and special items                     (13,726)       (176,235)       735,857  
                                                 ============    ============   ============  
TAX AND DISTRIBUTION DATA PER                                                                 
  $1,000 INVESTED                                                                             
Federal income tax results:                                                                   
Ordinary income (loss)                                                                        
  - from operations                                        71              67             38  
                                                 ============    ============   ============  
  - from recapture                                          0               0              0  
                                                 ============    ============   ============  
Capital gain (loss) (Notes 4, 6, 7 and 8)                   0               1              1  
                                                 ============    ============   ============  
</TABLE>                                         
                                                 
                                      C-12

<PAGE>



TABLE III - CNL INCOME FUND XIV, LTD. (continued)


<TABLE>
<CAPTION>



                                                         1992
                                                       (Note 1)          1993            1994             1995
                                                     ------------    ------------    ------------    -------------
<S> <C>

Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                                      0               1              51              79
  - from capital gain                                           0               0               0               0
  - from return of capital                                      0               0               0               0
  - from investment income from prior
      period                                                    0               0               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on GAAP basis (Note 5)                      0               1              51              79
                                                     ============    ============    ============    ============
  Source (on cash basis)
  - from sales                                                  0               0               0               0
  - from operations                                             0               1              51              79
  - from cash flow from prior period                            0               0               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on cash basis (Note 5)                      0               1              51              79
                                                     ============    ============    ============    ============
Total cash distributions as a percentage of
  original $1,000 investment (Note 9)                        0.00%           4.50%           6.50%           8.06%
Total cumulative cash distributions
  per $1,000 investment from inception                          0               1              52             131
Amount (in percentage terms) remaining invest-
  ed in program properties at the end of each 
  year (period) presented (original total 
  acquisition cost of properties retained, 
  divided by original total acquisition 
  cost of all properties in program) 
  (Notes 4, 6, 7 and 8)                                       N/A            100%            100%            100%


</TABLE>

Note 1:       Pursuant to a registration statement on Form S-11 under the 
              Securities Act of 1933, as amended, CNL Income Fund XIV, Ltd. 
              ("CNL XIV") and CNL Income Fund XIII, Ltd. each registered for 
              sale $40,000,000 units of limited partnership interests ("Units").
              The offering of Units of CNL Income Fund XIII, Ltd. commenced
              March 17, 1993. Pursuant to the registration statement, CNL XIV
              could not commence until the offering of Units of CNL Income Fund
              XIII, Ltd. was terminated. CNL Income Fund XIII, Ltd. terminated
              its offering of Units on August 26, 1993, at which time the
              maximum offering proceeds of $40,000,000 had been received. Upon
              the termination of the offering of Units of CNL Income Fund XIII,
              Ltd., CNL XIV commenced its offering of Units. Activities through
              September 13, 1993, were devoted to organization of the
              partnership and operations had not begun.
Note 2:       Cash generated from operations includes cash received from
              tenants, plus distributions from joint ventures, less cash paid
              for expenses, plus interest received.
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL Income Fund XIV, Ltd.
Note 4:       During 1995, the partnership sold two of its properties to a
              tenant for its original purchase price, excluding acquisition fees
              and miscellaneous acquisition expenses. The net sales proceeds
              were used to acquire two additional properties. As a result of
              these transactions, the partnership recognized a loss for
              financial reporting purposes of $66,518 primarily due to
              acquisition fees and miscellaneous acquisition expenses the
              partnership had allocated to the property and due to the accrued
              rental income relating to future scheduled rent increases that the
              partnership had recorded and reversed at the time of sale. In
              addition, during 1996, Wood-Ridge Real Estate Joint Venture, in
              which the partnership owns a 50% interest, sold its two properties
              to the tenant and recognized a gain of approximately $261,100 for
              financial reporting purposes. As a result, the partnership's pro
              rata share of such gain of approximately $130,550 is included in
              equity in earnings of unconsolidated joint ventures for 1996.
Note 5:       As a result of the partnership's change in investor services
              agents in 1993, distributions are now declared at the end of each
              quarter and paid in the following quarter. Since this table
              generally presents distributions on a cash basis (rather than
              amounts declared), distributions on a cash basis for 1993 only
              reflect payments for three quarters. Distributions declared for
              the quarters ended December 31, 1993, 1994, 1995, 1996 and 1997,
              are reflected in the 1994, 1995, 1996, 1997 and 1998 columns,
              respectively, for distributions on a cash basis due to the payment
              of such distributions in January 1994, 1995, 1996, 1997 and 1998,
              respectively. As a result of 1994, 1995, 1996, 1997 and 1998
              distributions being presented on a cash basis, distributions
              declared and unpaid as of December 31, 1994, 1995, 1996, 1997 and
              June 30, 1998 are not included in the 1994, 1995, 1996, 1997 and
              1998 totals, respectively.
Note 6:       In January 1998, the partnership sold its property in Madison, 
              Alabama, to a third party for $740,000 and received net sales
              proceeds of $696,486. Due to the fact that during 1997 the
              partnership wrote off $13,314 in accrued rental income (non-cash
              accounting adjustments relating to the straight-lining of future
              scheduled rent increases over the lease term in accordance with
              generally accepted accounting principles), no gain or loss was
              incurred for financial reporting purposes in January 1998 relating
              to this sale. In April 1998, the partnership reinvested a portion
              of the net sales proceeds from the sale of the property in
              Madison, Alabama in Melbourne Joint Venture, with an affiliate of
              the partnership which has the same general partners. The
              partnership intends to use the remaining proceeds to invest in an
              additional property or for other partnership purposes.
Note 7:       In January 1998, the partnership sold one of its properties in
              Richmond, Virginia for $512,462 and received net sales proceeds of
              $512,246, resulting in a gain of $70,798 for financial reporting
              purposes. The partnership intends to reinvest the net sales
              proceeds from the sale of the property in Richmond, Virginia in an
              additional property.
Note 8:       In April 1998, the partnership reached an agreement to accept
              $360,000 for the property in Riviera Beach, Florida, which was
              taken through a right of way taking in December 1997. The
              partnership had received preliminary sales proceeds of $318,592 as
              of December 31, 1997. Upon agreement and receipt of the final
              sales price of $360,000, the partnership recognized a gain of
              $41,408 for financial reporting purposes. The partnership intends
              to reinvest the net sales proceeds from the sale of this property
              in an additional property.
Note 9:       Total cash distributions as a percentage of original $1,000 
              investment are calculated based on actual distributions declared
              for the period. (See Note 5 above)
Note 10:      Certain data for columns representing less than 12 months have 
              been annualized.


                                      C-13

<PAGE>



<TABLE>
<CAPTION>

                                                                                       6 months  
                                                          1996            1997           1998    
                                                      ------------    ------------   ------------  


<S> <C>                                        
                                               
Cash distributions to investors                
  Source (on GAAP basis)                       
  - from investment income                                     83              81             36
  - from capital gain                                           0               0              0      
  - from return of capital                                      0               0              0      
  - from investment income from prior                                                                 
      period                                                    0               2              5      
                                                     ------------    ------------   ------------      
Total distributions on GAAP basis (Note 5)                     83              83             41      
                                                     ============    ============   ============      
  Source (on cash basis)                                                                              
  - from sales                                                  0               0              0      
  - from operations                                            83              81             41      
  - from cash flow from prior period                            0               2              0      
                                                     ------------    ------------   ------------      
Total distributions on cash basis (Note 5)                     83              83             41      
                                                     ============    ============   ============      
Total cash distributions as a percentage of                                                           
  original $1,000 investment (Note 9)                        8.25%           8.25%          8.25%                      
Total cumulative cash distributions                                                                
  per $1,000 investment from inception                        214             297            338   
Amount (in percentage terms) remaining invest-                                                     
  ed in program properties at the end of each                                                      
  year (period) presented (original total                                                          
  acquisition cost of properties retained,                        
  divided by original total acquisition                                                            
  cost of all properties in program)                                                               
  (Notes 4, 6, 7 and 8)                                       100%            100%           100%               
  

</TABLE>
       

                                      C-14
<PAGE>                                                        
                                                    


                                    TABLE III
                     Operating Results of Prior Programs CNL
                              INCOME FUND XV, LTD.

<TABLE>
<CAPTION>




                                                         1993
                                                       (Note 1)          1994            1995            1996
                                                     ------------    ------------    ------------    ------------

<S> <C>

Gross revenue                                        $          0    $  1,143,586    $  3,546,320    $  3,632,699
Equity in earnings of joint ventures                            0           8,372         280,606         392,862
Profit (Loss) from sale of properties
  (Note 4)                                                      0               0         (71,023)              0
Interest income                                                 0         167,734          88,059          43,049
Less: Operating expenses                                        0         (62,926)       (228,319)       (235,319)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0         (70,848)       (243,175)       (248,232)
                                                     ------------    ------------    ------------    ------------
Net income - GAAP basis                                         0       1,185,918       3,372,468       3,585,059
                                                     ============    ============    ============    ============

Taxable income
  - from operations                                             0       1,026,715       2,861,912       2,954,318
                                                     ============    ============    ============    ============
  - from gain on sale                                           0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                               0       1,116,834       3,239,370       3,434,682
Cash generated from sales (Note 4)                              0               0         811,706               0
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0       1,116,834       4,051,076       3,434,682
Less: Cash distributions to investors
  (Notes 5, 6 and 8)
    - from operating cash flow                                  0        (635,944)     (2,650,003)     (3,200,000)
    - from sale of properties                                   0               0               0               0
    - from cash flow from prior period                          0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                                 0         480,890       1,401,073         234,682
Special items (not including sales and
  refinancing):
    Limited partners' capital contri-
      butions                                                   0      40,000,000               0               0
    General partners' capital contri-
      butions                                               1,000               0               0               0
    Syndication costs                                           0      (3,892,003)              0               0
    Acquisition of land and buildings                           0     (22,152,379)     (1,625,601)              0
    Investment in direct financing
      leases                                                    0      (6,792,806)     (2,412,973)              0
    Investment in joint ventures                                0      (1,564,762)       (720,552)       (129,939)
    Return of capital from joint venture                        0               0               0               0
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XV, Ltd. by related parties                               0      (1,098,197)        (23,507)              0
    Increase in other assets                                    0        (187,757)              0               0
    Other                                                     (38)         (6,118)         25,150               0
                                                     ------------    ------------    ------------    ------------

Cash generated (deficiency) after cash
  distributions and special items                             962       4,786,868      (3,356,410)        104,743
                                                     ============    ============    ============    ============
TAX AND DISTRIBUTION DATA PER $1,000
  INVESTED
Federal income tax results:
Ordinary income (loss)
  - from operations                                             0              33              71              73
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss) (Note 4)                                    0               0               0               0
                                                     ============    ============    ============    ============

</TABLE>


                                      C-15

<PAGE>




<TABLE>
<CAPTION>




                                                                           
                                                                  6 months 
                                                    1997            1998   
                                                ------------    -----------   
<S> <C>                                              
Gross revenue                                 $  3,622,123    $  1,498,779
Equity in earnings of joint ventures               239,249         120,294   
Profit (Loss) from sale of properties                                        
  (Note 4)                                               0               0                             
Interest income                                     46,642          33,275   
Less: Operating expenses                          (224,761)       (128,176)  
      Interest expense                                   0               0   
      Depreciation and amortization               (248,348)       (124,200)  
                                                ------------    ----------- 
Net income - GAAP basis                          3,434,905       1,399,972   
                                                ============    ===========                     
                                             
Taxable income                               
  - from operations                              2,856,893       1,492,168                               
                                                ============    =========== 
  - from gain on sale                               47,256               0                                                          
                                                ============    ===========                             
                                                
Cash generated from operations               
  (Notes 2 and 3)                                3,306,595       1,710,905                    
Cash generated from sales (Note 4)                       0               0   
Cash generated from refinancing                          0               0   
                                                ------------    -----------                             
Cash generated from operations, sales              
  and refinancing                                3,306,595       1,710,905                             
Less: Cash distributions to investors                                        
  (Notes 5, 6 and 8)                             
    - from operating cash flow                  (3,280,000)     (1,710,905)  
    - from sale of properties                            0               0   
    - from cash flow from prior period                   0         (89,095)                              
                                                ------------   -------------      
Cash generated (deficiency) after cash                                       
  distributions                                     26,595         (89,095)                         
Special items (not including sales and                                       
  refinancing):                              
    Limited partners' capital contri-        
      butions                                            0               0    
    General partners' capital contri-                                         
      butions                                            0               0    
    Syndication costs                                    0               0    
    Acquisition of land and buildings                    0               0    
    Investment in direct financing                                            
      leases                                             0               0    
    Investment in joint ventures                         0        (207,986)   
    Return of capital from joint venture            51,950               0    
    Reimbursement of organization,                                            
      syndication and acquisition costs                                       
      paid on behalf of CNL Income Fund                                       
      XV, Ltd. by related parties                        0               0    
    Increase in other assets                             0               0    
    Other                                                0               0    
                                              ------------    ------------    
                                                                              
Cash generated (deficiency) after cash                                        
  distributions and special items                   78,545        (297,081)   
                                                                              
TAX AND DISTRIBUTION DATA PER $1,000                                          
  INVESTED                                                                    
Federal income tax results:                                                   
Ordinary income (loss)                        
  - from operations                                     71              37                                                        
                                              ============    ============                                    
  - from recapture                                       0               0      
                                              ============    ============      
Capital gain (loss) (Note 4)                             1               0      
                                              ============    ============                                      

</TABLE>



                                      C-16    
                                                          
<PAGE>                                            
  



                                          

TABLE III - CNL INCOME FUND XV, LTD. (continued)



<TABLE>
<CAPTION>


                                                         1993
                                                       (Note 1)          1994            1995            1996
                                                     ------------    ------------    ------------    -----------
<S> <C>

Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                                      0              21              66              80
  - from capital gain                                           0               0               0               0
  - from investment income from prior
      period                                                    0               0               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on GAAP basis (Note 5)                      0              21              66              80
                                                     ============    ============    ============    ============
  Source (on cash basis)
  - from sales                                                  0               0               0               0
  - from refinancing                                            0               0               0               0
  - from operations                                             0              21              66              80
  - from investment income from prior period                    0               0               0               0
                                                     ------------    ------------    ------------    ------------

Total distributions on cash basis (Note 5)                      0              21              66              80
                                                     ============    ============    ============    ============
Total cash distributions as a percentage
  of original $1,000 investment (Notes 6,
  7 and 8).                                                  0.00%            5.00%          7.25%           8.20%
Total cumulative cash distributions per
  $1,000 investment from inception                              0               21             87             167
Amount (in percentage terms) remaining
  invested in program properties at the end 
  of each year (period) presented (original 
  total acquisition cost of properties 
  retained, divided by original total 
  acquisition cost of all properties
  in program) (Note 4)                                        N/A             100%           100%            100%

</TABLE>




Note 1        The registration statement relating to this offering of Units of 
              CNL Income Fund XV, Ltd. became effective February 23, 1994.
              Activities through March 23, 1994, were devoted to organization of
              the partnership and operations had not begun.
Note 2:       Cash generated from operations includes cash received from 
              tenants, plus distributions from joint venture, less cash paid for
              expenses, plus interest received.
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL Income Fund XV, Ltd.
Note 4:       During 1995, the partnership sold three of its properties to a 
              tenant for its original purchase price, excluding acquisition fees
              and miscellaneous acquisition expenses. The majority of the net
              sales proceeds were used to acquire additional properties. As a
              result of these transactions, the partnership recognized a loss
              for financial reporting purposes of $71,023 primarily due to
              acquisition fees and miscellaneous acquisition expenses the
              partnership had allocated to the three properties and due to the
              accrued rental income relating to future scheduled rent increases
              that the partnership had recorded and reversed at the time of
              sale. In addition, during 1996, Wood-Ridge Real Estate Joint
              Venture, in which the partnership owns a 50% interest, sold its
              two properties to the tenant and recognized a gain of
              approximately $261,100 for financial reporting purposes. As a
              result, the partnership's pro rata share of such gain of
              approximately $130,550 is included in equity in earnings of
              unconsolidated joint ventures for 1996.
Note 5:       Distributions declared for the quarters ended December 31, 1994, 
              1995, 1996 and 1997 are reflected in the 1995, 1996, 1997 and 1998
              columns, respectively, due to the payment of such distributions in
              January 1995, 1996, 1997 and 1998, respectively. As a result of
              distributions being presented on a cash basis, distributions
              declared and unpaid as of December 31, 1994, 1995, 1996, 1997 and
              June 30, 1998 are not included in the 1994, 1995, 1996, 1997 and
              1998 totals, respectively.
Note 6:       On December 31, 1996, CNL Income Fund XV, Ltd. declared a special
              distribution of cumulative excess operating reserves equal to .20%
              of the total invested capital. Accordingly, the total yield for
              1996 was 8.20%
Note 7:       Total cash distributions as a percentage of original $1,000 
              investment are calculated based on actual distributions declared
              for the period. (See Note 5 above)
Note 8:       Cash distributions for 1998 include an additional amount equal to 
              0.50% of invested capital which was earned in 1997 or prior years,
              but declared payable in the first quarter of 1998
Note 9:       Certain data for columns representing less than 12 months have 
              been annualized.



                                      C-17
<PAGE>




<TABLE>
<CAPTION>




                                                                      6 months   
                                                       1997              1998     
                                                   ------------    ------------   
                                              
<S> <C>


Cash distributions to investors             
  Source (on GAAP basis)                    
  - from investment income                                  82              35                     
  - from capital gain                                        0               0         
  - from investment income from prior                                                  
      period                                                 0              10      
                                                  ------------    ------------         
Total distributions on GAAP basis (Note 5)                  82              45         
                                                  ============    ============         
  Source (on cash basis)                                                               
  - from sales                                               0               0 
  - from refinancing                                         0               0         
  - from operations                                         82              43         
  - from investment income from prior period                 0               2         
                                                  ------------    ------------   
Total distributions on cash basis (Note 5)             
                                                            82              45         
Total cash distributions as a percentage          ============    ============         
  of original $1,000 investment (Notes 6,                                              
  7 and 8).                                               8.00%           8.50%                              
Total cumulative cash distributions per                                                                             
  $1,000 investment from inception                         249             294         
Amount (in percentage terms) remaining                                                 
  invested in program properties at the end                                            
  of each year (period) presented (original                                            
  total acquisition cost of properties                                                 
  retained, divided by original total                                   
  acquisition cost of all properties                                                   
  in program) (Note 4)                                    100%             100% 
                                                          
  

</TABLE>
                                                        
                                                       
                                                
                                      C-18
<PAGE>



                                    TABLE III
                     Operating Results of Prior Programs CNL
                              INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>




                                                         1993
                                                       (Note 1)          1994            1995            1996
                                                     ------------    ------------    ------------    ------------
<S> <C>

Gross revenue                                        $          0    $    186,257    $  2,702,504    $  4,343,390
Equity in earnings from joint venture                           0               0               0          19,668
Profit from sale of properties (Notes 4
  and 5)                                                        0               0               0         124,305
Interest income                                                 0          21,478         321,137          75,160
Less: Operating expenses                                        0         (10,700)       (274,595)       (261,878)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0          (9,458)       (318,205)       (552,447)
                                                     ------------    ------------    ------------    ------------
Net income - GAAP basis                                         0         187,577       2,430,841       3,748,198
                                                     ============    ============    ============    ============

Taxable income
  - from operations                                             0         189,864       2,139,382       3,239,830
                                                     ============    ============    ============    ============
  - from gain on sale (Notes 4 and 5)                           0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                               0         205,148       2,481,395       3,753,726
Cash generated from sales (Notes 4 and 5)                       0               0               0         775,000
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0         205,148       2,481,395       4,528,726
Less: Cash distributions to investors
  (Note 6)
    - from operating cash flow                                  0          (2,845)     (1,798,921)     (3,431,251)
    - from sale of properties                                   0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                                 0         202,303         682,474       1,097,475
Special items (not including sales and
  refinancing):
    Limited partners' capital contri-
      butions                                                   0      20,174,172      24,825,828               0
    General partners' capital contri-
      butions                                               1,000               0               0               0
    Syndication costs                                           0      (1,929,465)     (2,452,743)              0
    Acquisition of land and buildings                           0     (13,170,132)    (16,012,458)     (2,355,627)
    Investment in direct financing
      leases                                                    0        (975,853)     (5,595,236)       (405,937)
    Investment in joint ventures                                0               0               0        (775,000)
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XVI, Ltd. by related parties                              0        (854,154)       (405,569)         (2,494)
    Increase in other assets                                    0        (443,625)        (58,720)              0
    Increase (decrease) in restricted cash                      0               0               0               0
    Reimbursement from developer of
      construction costs                                        0               0               0               0
    Other                                                     (36)        (20,714)         20,714               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash

  distributions and special items                             964       2,982,532       1,004,290      (2,441,583)
                                                     ============    ============    ============    ============
TAX AND DISTRIBUTION DATA PER $1,000

  INVESTED
Federal income tax results:
Ordinary income (loss)
  - from operations                                             0              17              53              71
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss) (Notes 4 and 5)                             0               0               0               0
                                                     ============    ============    ============    ============

</TABLE>


                                      C-19

<PAGE>


<TABLE>
<CAPTION>

                                                               6 months      
                                                 1997            1998        
                                             ------------    -------------
<S> <C>
                                            

Gross revenue                               $  4,308,853    $  1,987,937
Equity in earnings from joint venture             73,507          64,956
Profit from sale of properties (Notes 4    
  and 5)                                          41,148               0
Interest income                                   73,634          34,195
Less: Operating expenses                        (272,932)       (132,020)
      Interest expense                                 0               0              
      Depreciation and amortization             (563,883)       (268,997)
                                             ------------    ------------
Net income - GAAP basis                        3,660,327       1,686,071
                                             ============    ============
                                            
Taxable income                              
  - from operations                            3,178,911       1,629,897 
                                             ============    ============
  - from gain on sale (Notes 4 and 5)             64,912               0       
                                             ============    ============
                                            
Cash generated from operations              
  (Notes 2 and 3)                              3,780,424       1,922,221               
Cash generated from sales (Notes 4 and 5)        610,384               0               
Cash generated from refinancing                        0               0               
                                             ------------    ------------               
Cash generated from operations, sales                                                   
  and refinancing                              4,390,808       1,922,221 
Less: Cash distributions to investors                                                   
  (Note 6)                                                                              
    - from operating cash flow                (3,600,000)     (1,890,000)              
    - from sale of properties                          0               0               
                                            --------------  -------------              
Cash generated (deficiency) after cash                     
  distributions                                  790,808          32,221                                            
Special items (not including sales and                                                  
  refinancing):                                                                         
    Limited partners' capital contri-        
      butions                                          0               0               
    General partners' capital contri-                                                   
      butions                                          0               0               
    Syndication costs                                  0               0               
    Acquisition of land and buildings            (23,501)              0               
    Investment in direct financing                                                      
      leases                                     (29,257)        (31,504)     
    Investment in joint ventures                       0        (607,896)              
    Reimbursement of organization,                                                     
      syndication and acquisition costs                                                
      paid on behalf of CNL Income Fund                                                
      XVI, Ltd. by related parties                     0               0 
    Increase in other assets                           0               0               
    Increase (decrease) in restricted cash      (610,384)        610,384               
    Reimbursement from developer of                                                    
      construction costs                               0         161,204               
    Other                                              0               0               
                                           --------------  -------------                                             
Cash generated (deficiency) after cash                                                 
  distributions and special items                127,666         164,409               
                                           ==============  =============
                                                                                       
TAX AND DISTRIBUTION DATA PER $1,000                                                                                   
  INVESTED                                             
Federal income tax results:                            
Ordinary income (loss)                                 
  - from operations                                   70              36                                       
                                           ============== ==============               
  - from recapture                                     0               0               
                                           =============  ==============                                                
Capital gain (loss) (Notes 4 and 5)                    1               0                                                
                                           =============  ==============     

</TABLE>
                          


                                      C-20
 

 <PAGE>
                                           
                              

TABLE III - CNL INCOME FUND XVI, LTD. (continued)



<TABLE>
<CAPTION>

                                                         1993
                                                       (Note 1)          1994            1995            1996
                                                     ------------    ------------    ------------    ------------

<S> <C>
Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                                      0               1              45              76
  - from capital gain                                           0               0               0               0
  - from investment income from

      prior period                                              0               0               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on GAAP basis (Note 6)                      0               1              45              76
                                                     ============    ============    ============    ============
  Source (on cash basis)
  - from sales                                                  0               0               0               0
  - from refinancing                                            0               0               0               0
  - from operations                                             0               1              45              76
                                                     ------------    ------------    ------------    ------------

Total distributions on cash basis (Note 6)                      0               1              45              76
                                                     ============    ============    ============    ============
Total cash distributions as a percentage
  of original $1,000 investment (Notes 7
  and 8)                                                     0.00%           4.50%           6.00%           7.88%
Total cumulative cash distributions per
  $1,000 investment from inception                              0               1              46             122
Amount (in percentage terms) remaining
  invested in program properties at the 
  end of each year (period) presented
  (original total acquisition cost of 
  properties retained, divided by original
  total acquisition cost of all properties
  in program) (Notes 4 and 5)                                 N/A            100%            100%            100%

</TABLE>




Note 1:       Pursuant to a registration statement on Form S-11 under the 
              Securities Act of 1933, as amended, CNL Income Fund XVI, Ltd.
              ("CNL XVI") and CNL Income Fund XV, Ltd. each registered for sale
              $40,000,000 units of limited partnership interests ("Units"). The
              offering of Units of CNL Income Fund XV, Ltd. commenced February
              23, 1994. Pursuant to the registration statement, CNL XVI could
              not commence until the offering of Units of CNL Income Fund XV,
              Ltd. was terminated. CNL Income Fund XV, Ltd. terminated its
              offering of Units on September 1, 1994, at which time the maximum
              offering proceeds of $40,000,000 had been received. Upon the
              termination of the offering of Units of CNL Income Fund XV, Ltd.,
              CNL XVI commenced its offering of Units. Activities through
              September 22, 1994, were devoted to organization of the
              partnership and operations had not begun.
Note 2:       Cash generated from operations includes cash received from 
              tenants, less cash paid for expenses, plus interest received. 
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL Income Fund XVI, Ltd.
Note 4:       In April 1996, CNL Income Fund XVI, Ltd. sold one of its 
              properties and received net sales proceeds of $775,000, resulting
              in a gain of $124,305 for financial reporting purposes. In October
              1996, the partnership reinvested the net sales proceeds in an
              additional property as tenants-in-common with an affiliate of the
              general partners.
Note 5:       In March 1997, CNL Income Fund XVI, Ltd. sold one of its
              properties and received net sales proceeds of $610,384, resulting
              in a gain of $41,148 for financial reporting purposes. In January
              1998, the partnership reinvested the net sales proceeds in an
              additional property as tenants-in-common with affiliates of the
              general partners. 
Note 6:       Distributions declared for the quarters ended December 31, 1994,  
              1995, 1996 and 1997 are reflected in the 1995, 1996, 1997 and 1998
              columns, respectively, due to the payment of such distributions in
              January 1995, 1996, 1997 and 1998, respectively. As a result of
              distributions being presented on a cash basis, distributions
              declared and unpaid as of December 31, 1994, 1995, 1996, 1997 and
              June 30, 1998 are not included in the 1994, 1995, 1996, 1997 and
              1998 totals, respectively.
Note 7:       Cash distributions for 1998 include an additional amount equal to 
              0.20% of invested capital which was earned in 1997 but declared
              payable in the first quarter of 1998.
Note 8:       Total cash distributions as a percentage of original $1,000
              investment are calculated based on actual distributions declared 
              for the period.  (See Note 6 above)
Note 9:       Certain data for columns representing less than 12 months have 
              been annualized.



                                      C-21

<PAGE>





<TABLE>
<CAPTION>



                                                                                  
                                                                 6 months         
                                                  1997             1998           
                                              ------------    ------------        
<S> <C>                                           



Cash distributions to investors             
  Source (on GAAP basis)              
  - from investment income            
  - from capital gain                                  80              37       
  - from investment income from                         0               0       
      prior period                                      0               5
                                             ------------    ------------
                                                       80              42
Total distributions on GAAP basis (Note 6)   ============    ============
                                            
  Source (on cash basis)                    
  - from sales                                          0               0
  - from refinancing                                    0               0
  - from operations                                    80              42
                                             ------------    ------------
Total distributions on cash basis (Note 6)             80              42
                                             ============    ============
Total cash distributions as a percentage    
  of original $1,000 investment (Notes 7    
  and 8)                                            8.00%           8.20%   
Total cumulative cash distributions per                                      
  $1,000 investment from inception                   202             244    
Amount (in percentage terms) remaining                                       
  invested in program properties at the                                     
  end of each year (period) presented                                       
  (original total acquisition cost of                                       
  properties retained, divided by original                                  
  total acquisition cost of all properties                                  
  in program) (Notes 4 and 5)                        100%            100%   


</TABLE>

                                             

                                      C-22

<PAGE>



                           TABLE III Operating Results
                         of Prior Programs CNL AMERICAN
                              PROPERTIES FUND, INC.

<TABLE>
<CAPTION>




                                                         1994                                            1997
                                                       (Note 1)          1995            1996          (Note 2)
                                                     ------------    ------------    ------------    ----------

<S> <C>

Gross revenue                                        $          0    $    539,776    $  4,363,456    $ 15,516,102
Interest income                                                 0         119,355       1,843,228       3,941,831
Less: Operating expenses                                        0        (186,145)       (908,924)     (2,066,962)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0        (104,131)       (521,871)     (1,795,062)
      Minority interest in income of
        consolidated joint venture                              0             (76)        (29,927)        (31,453)
                                                     ------------    ------------    ------------    ------------

Net income - GAAP basis                                         0         368,779       4,745,962      15,564,456
                                                     ============    ============    ============    ============

Taxable income
  - from operations (Note 8)                                    0         379,935       4,894,262      15,727,311
                                                     ============    ============    ============    ============
  - from gain (loss) on sale                                    0               0               0         (41,115)
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 4 and 5)                                               0         498,459       5,482,540      17,076,214
Cash generated from sales (Note 7)                              0               0               0       6,289,236
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0         498,459       5,482,540      23,365,450
Less: Cash distributions to investors (Note 9)
    - from operating cash flow                                  0        (498,459)     (5,439,404)    (16,854,297)
    - from sale of properties                                   0               0               0               0
    - from return of capital (Note 10)                          0        (136,827)              0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                                 0        (136,827)         43,136       6,511,153
Special items (not including sales of
  real estate and refinancing):
    Subscriptions received from
      stockholders                                              0      38,454,158     100,792,991     222,482,560
    Sale of common stock to CNL Fund
      Advisors, Inc.                                      200,000               0               0               0
    Contributions from minority interest                        0         200,000          97,419               0
    Distributions to holder of minority
      interest                                                  0               0         (39,121)        (34,020)
    Stock issuance costs                                      (19)     (3,680,704)     (8,486,188)    (19,542,862)
    Acquisition of land and buildings                           0     (18,835,969)    (36,104,148)   (143,542,667)
    Investment in direct financing
      leases                                                    0      (1,364,960)    (13,372,621)    (39,155,974)
    Proceeds from sale of equipment direct
      financing leases                                          0               0               0         962,274
    Investment in joint venture                                 0               0               0               0
    Investment in mortgage notes
      receivable                                                0               0     (13,547,264)     (4,401,982)
    Collections on mortgage notes
      receivable                                                0               0         133,850         250,732
    Investment in notes receivable                              0               0               0     (12,521,401)
    Collections on notes receivable                             0               0               0               0
    Investment in certificate of deposit                        0               0               0      (2,000,000)
    Proceeds of borrowing on line of
      credit                                                    0               0       3,666,896      19,721,804
    Payment on line of credit                                   0               0        (145,080)    (20,784,577)
    Reimbursement of organization, acquisition, 
      and deferred offering and stock issuance 
      costs paid on behalf of CNL American 
      Properties Fund, Inc. by related parties           (199,036)     (2,500,056)       (939,798)     (2,857,352)
    Increase in other assets                                    0        (628,142)     (1,103,896)              0
    Other                                                       0               0         (54,333)         49,001
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions and special items                             945      11,507,500      30,941,643       5,136,689
                                                     ============    ============    ============    ============
TAX AND DISTRIBUTION DATA PER $1,000
  INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Note 11)
  - from operations (Note 8)                                    0              20              61              67
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss)                                             0               0               0               0
                                                     ============    ============    ============    ============
</TABLE>

                                      C-23

<PAGE>



<TABLE>
<CAPTION>




                                                        6 months      
                                                          1998        
                                                        (Note 3)      
                                                     --------------   
<S> <C>                                                     
Gross revenue                                        $ 13,829,348
Interest income                                         3,799,730
Less: Operating expenses                               (1,949,398)
      Interest expense                                          0
      Depreciation and amortization                    (1,648,827)
      Minority interest in income of                
        consolidated joint venture                        (15,380)
                                                     --------------
Net income - GAAP basis                                14,015,473                            
                                                     ==============
                                                      
Taxable income                                                             
  - from operations (Note 8)                           13,876,482
                                                     ==============
  - from gain (loss) on sale                             (108,690)
                                                     ============== 
Cash generated from operations                       
  (Notes 4 and 5)                                     16,600,953  
Cash generated from sales (Note 7)                     1,233,679   
Cash generated from refinancing                                0   
                                                     ---------------
Cash generated from operations, sales                 
  and refinancing                                     17,834,632                
Less: Cash distributions to investors (Note 9)       
    - from operating cash flow                       (15,992,806)  
    - from sale of properties                                  0   
    - from return of capital (Note 10)                         0                 
                                                     ---------------
Cash generated (deficiency) after cash                
  distributions                                        1,841,826                
Special items (not including sales of                                          
  real estate and refinancing):                      
    Subscriptions received from                      
      stockholders                                   152,570,391
    Sale of common stock to CNL Fund                                
      Advisors, Inc.                                           0    
    Contributions from minority interest                       0    
    Distributions to holder of minority                             
      interest                                           (16,956)   
    Stock issuance costs                             (13,840,339)   
    Acquisition of land and buildings                (36,742,586)   
    Investment in direct financing                                  
      leases                                         (71,360,700)
    Proceeds from sale of equipment direct                          
      financing leases                                         0    
    Investment in joint venture                         (112,847)   
    Investment in mortgage notes                                    
      receivable                                               0
    Collections on mortgage notes                                   
      receivable                                         147,051    
    Investment in notes receivable                    (2,903,600)   
    Collections on notes receivable                      666,633    
    Investment in certificate of deposit                       0    
    Proceeds of borrowing on line of                                
      credit                                           2,979,403    
    Payment on line of credit                                  0    
    Reimbursement of organization, acquisition,                     
      and deferred offering and stock issuance                      
      costs paid on behalf of CNL American                          
      Properties Fund, Inc. by related parties        (2,570,126)                 
    Increase in other assets                          (1,845,005)   
    Other                                                (30,842)   
                                                    --------------
Cash generated (deficiency) after cash                              
  distributions and special items                     28,782,303                
                                                    ==============
TAX AND DISTRIBUTION DATA PER $1,000                                
  INVESTED (Note 6)                                                 
Federal income tax results:                                                            
Ordinary income (loss) (Note 11)                                    
  - from operations (Note 8)                                  32    
                                                    ============== 
  - from recapture                                             0    
                                                    ============== 
Capital gain (loss)                                            0                
                                                    ==============                      
</TABLE>
                                                    
                                                                 
                                                                  
                                      C-24
                                                                  
<PAGE>                                              


                      TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
                                                    
                                            

<TABLE>
<CAPTION>


                                                         1994                                            1997
                                                       (Note 1)          1995            1996          (Note 2)
                                                     ------------    ------------    ------------    ----------
<S> <C>

Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                                      0              19              59              66
  - from capital gain                                           0               0               0               0
  - from investment income from
      prior period                                              0               0               0               0
  - from return of capital (Note 10)                            0              14               8               6
                                                     ------------    ------------    ------------    ------------

Total distributions on GAAP basis (Note 11)                     0              33              67              72
                                                     ============    ============    ============    ============
  Source (on cash basis)
  - from sales                                                  0               0               0               0
  - from refinancing                                            0               0               0               0
  - from operations                                             0              26              67              72
  - from return of capital (Note 10)                            0               7               0               0
                                                     ------------    ------------    ------------    ------------
Total distributions on cash basis (Note 11)                     0              33              67              72
                                                     ============    ============    ============    ============
Total cash distributions as a percentage

  of original $1,000 investment (Note 6 and 9)               0.00%           5.34%           7.06%           7.45%
Total cumulative cash distributions per
  $1,000 investment from inception                              0              33             100             172
Amount (in percentage terms) remaining
  invested in program properties at the end of 
  each year (period) presented (original total 
  acquisition cost of properties retained, 
  divided by original total acquisition cost 
  of all properties in program) (Note 7)                       N/A            100%            100%            100%

</TABLE>


Note 1:       Pursuant to a Registration Statement on Form S-11 under the
              Securities Act of 1933, as amended, effective March 29, 1995, CNL
              American Properties Fund, Inc. ("APF") registered for sale
              $165,000,000 of shares of common stock (the "Initial Offering"),
              including $15,000,000 available only to stockholders participating
              in the company's reinvestment plan. The Initial Offering of APF
              commenced April 19, 1995, and upon completion of the Initial
              Offering on February 6, 1997, had received subscription proceeds
              of $150,591,765 (15,059,177 shares), including $591,765 (59,177
              shares) issued pursuant to the reinvestment plan. Pursuant to a
              Registration Statement on Form S-11 under the Securities Act of
              1933, as amended, effective January 31, 1997, APF registered for
              sale $275,000,000 of shares of common stock (the "1997 Offering"),
              including $25,000,000 available only to stockholders participating
              in the company's reinvestment plan. The 1997 Offering of APF
              commenced following the completion of the Initial Offering on
              February 6, 1997, and upon completion of the 1997 Offering on
              March 2, 1998, had received subscription proceeds of $251,872,648
              (25,187,265 shares), including $1,872,648 (187,265 shares) issued
              pursuant to the reinvestment plan. Pursuant to a Registration
              Statement on Form S-11 under the Securities Act of 1933, as
              amended, effective May 12, 1998, APF registered for sale
              $345,000,000 of shares of common stock (the "1998 Offering"),
              including $20,000,000 available only to stockholders participating
              in the company's reinvestment plan. The 1998 Offering of APF
              commenced following the completion of the 1997 Offering on March
              2, 1998. As of June 30, 1998, APF had received subscriptions
              totalling $111,835,687 from the 1998 Offering, including
              $1,823,518 issued pursuant to the company's reinvestment plan.
              Activities through June 1, 1995, were devoted to organization of
              APF and operations had not begun.
Note 2:       The amounts shown represent the combined results of the Initial 
              Offering and the 1997 Offering. Note 3: The amounts shown
              represent the combined results of the Initial Offering, 1997
              Offering and 1998 Offering.
Note 4:       Cash generated from operations includes cash received from
              tenants, less cash paid for expenses, plus interest received.
Note 5:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of APF.
Note 6:       Total cash distributions as a percentage of original $1,000
              investment are calculated based on actual distributions declared
              for the period.
Note 7:       In May 1997 and July 1997, APF sold four properties and one
              property, respectively, to a tenant for $5,254,083 and $1,035,153,
              respectively, which was equal to the carrying value of the
              properties at the time of sale. In May 1998, APF sold two
              properties to third parties for $1,605,154 (and received net sales
              proceeds of approximately $1,233,700 after deduction of
              construction costs incurred but not paid by APF as of the date of
              the sale) which approximated the carrying value of the properties
              at the time of sale. As a result, no gain or loss was recognized
              for financial reporting purposes. The company reinvested the
              proceeds from the sale of properties in additional properties.
Note 8:       Taxable income presented is before the dividends paid deduction.
Note 9:       For the six months ended June 30, 1998 and the years ended
              December 31, 1997, 1996 and 1995, 86.37%, 93.33%, 90.25% and
              59.82%, respectively, of the distributions received by
              stockholders were considered to be ordinary income and 13.63%,
              6.67%, 9.75% and 40.18%, respectively, were considered a return of
              capital for federal income tax purposes. No amounts distributed to
              stockholders for the six months ended June 30, 1998 and the years
              ended December 31, 1997, 1996 and 1995 are required to be or have
              been treated by the company as a return of capital for purposes of
              calculating the stockholders' return on their invested capital.

                                      C-25

<PAGE>


<TABLE>
<CAPTION>






                                                   6 months       
                                                     1998         
                                                    (Note 3)      
                                                 -------------    
<S> <C>                                                 

Cash distributions to investors                          
  Source (on GAAP basis)                                 
  - from investment income                           32  
  - from capital gain                                 0        
  - from investment income from                          
      prior period                                    0        
  - from return of capital (Note 10)                  5  
                                                ------------
                                                     37  
                                                ============
Total distributions on GAAP basis (Note 11)                    
                                                               
  Source (on cash basis)                             
  - from sales                                        0      
  - from refinancing                                  0        
  - from operations                                  37                  
  - from return of capital (Note 10)                  0  
                                                ------------
Total distributions on cash basis (Note 11)          37          
                                                ============
Total cash distributions as a percentage                                                 
  of original $1,000 investment (Note 6 and 9)     7.62% 
Total cumulative cash distributions per                       
  $1,000 investment from inception                  209       
Amount (in percentage terms) remaining                   
  invested in program properties at the end of           
  each year (period) presented (original total                 
  acquisition cost of properties retained,               
  divided by original total acquisition cost        
  of all properties in program) (Note 7)            100%
                                                   

</TABLE>




Note 10:      Cash distributions presented above as a return of capital on a
              GAAP basis represent the amount of cash distributions in excess of
              accumulated net income on a GAAP basis. Accumulated net income
              includes deductions for depreciation and amortization expense and
              income from certain non-cash items. This amount is not required to
              be presented as a return of capital except for purposes of this
              table, and APF has not treated this amount as a return of capital
              for any other purpose.
Note 11:      Tax and distribution data and total distributions on GAAP basis
              were computed based on the weighted average shares outstanding
             during each period presented.

                                      C-26

<PAGE>



                                    TABLE III
                     Operating Results of Prior Programs CNL
                             INCOME FUND XVII, LTD.


<TABLE>
<CAPTION>

                                                         1995                                          6 months
                                                       (Note 1)          1996            1997            1998
                                                     ------------    ------------    ------------    -------------
<S> <C>

Gross revenue                                        $          0    $  1,195,263    $  2,643,871    $  1,417,608
Equity in earnings of unconsolidated
  joint ventures                                                0           4,834         100,918          69,785
Interest income                                            12,153         244,406          69,779          24,834
Less: Operating expenses                                   (3,493)       (169,536)       (181,865)        (93,411)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                          (309)       (179,208)       (387,292)       (176,959)
      Minority interest in income of
        consolidated joint venture                                              0         (41,854)        (31,219)
                                                     ------------    ------------    ------------    ------------

Net income - GAAP basis                                     8,351       1,095,759       2,203,557       1,210,638
                                                     ============    ============    ============    ============

Taxable income

  - from operations                                        12,153       1,114,964       2,058,601       1,062,296
                                                     ============    ============    ============    ============
  - from gain on sale                                           0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                           9,012       1,232,948       2,495,114       1,274,084
Cash generated from sales                                       0               0               0               0
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                           9,012       1,232,948       2,495,114       1,274,084
Less: Cash distributions to investors
  (Note 4)
    - from operating cash flow                             (1,199)       (703,681)     (2,177,584)     (1,200,000)
    - from sale of properties                                   0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                             7,813         529,267         317,530          74,084
Special items (not including sales and
  refinancing):
    Limited partners' capital contri-
      butions                                           5,696,921      24,303,079               0               0
    General partners' capital contri-
      butions                                               1,000               0               0               0
    Contributions from minority interest                        0         140,676         278,170               0
    Distribution to holder of minority
      interest                                                  0               0         (41,507)        (24,426)
    Syndication costs                                    (604,348)     (2,407,317)              0               0
    Acquisition of land and buildings                    (332,928)    (19,735,346)     (1,740,491)              0
    Investment in direct financing
      leases                                                    0      (1,784,925)     (1,130,497)              0
    Investment in joint ventures                                0        (201,501)     (1,135,681)       (127,807)
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XVII, Ltd. by related parties                      (347,907)       (326,483)        (25,444)              0
    Increase in other assets                             (221,282)              0               0               0
    Reimbursement from developer of
      construction costs                                        0               0               0         322,897
    Other                                                    (410)            410               0         (16,797)
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions and special items                       4,198,859         517,860      (3,477,920)        227,951
                                                     ============    ============    ============    ============
TAX AND DISTRIBUTION DATA PER $1,000
  INVESTED
Federal income tax results:
Ordinary income (loss)
  - from operations                                            36              37              69              35
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss)                                             0               0               0               0
                                                     ============    ============    ============    ============

</TABLE>
                                      C-27

<PAGE>



TABLE III - CNL INCOME FUND XVII, LTD. (continued)



<TABLE>
<CAPTION>


                                                1995                              6 months                           
                                              (Note 1)            1996              1997                1998         
                                             ------------      ------------      ------------        --------    
<S> <C>    
                                                                                                                  
Cash distributions to investors                                                                                   
  Source (on GAAP basis)                                                                                          
  - from investment income                             4                 23                73             40                    
  - from capital gain                                  0                  0                 0              0                        
  - from investment income from                                                                                   
      prior period                                     0                  0                 0              0              
                                             -----------        ------------      ------------  ------------                      

Total distributions on GAAP basis (Note 4)             0                 23                73             40 
                                             ============      ============       ============  ============
          
  Source (on cash basis)

  - from sales                                         0                  0                 0              0
  - from refinancing                                   0                  0                 0              0
  - from operations                                    4                 23                73             40 
                                             ------------       ------------      ------------  -------------                       
          

Total distributions on cash basis (Note 4)             4                23                 73             40  
                                             ============      ============      ============   =============          
          

Total cash distributions as a percentage
  of original $1,000 investment (Note 5)            5.00%              5.50%           7.625%           8.00 
Total cumulative cash distributions per 
  $1,000 investment from inception                     4                 27              100             140
Amount (in percentage terms) remaining
  invested in program properties at the 
  end of each year (period) presented 
  (original total acquisition cost of 
  properties retained, divided by original
  total acquisition cost of all properties
  in program) (Note 6)                                N/A                98%              100%            99%

</TABLE>


Note 1:       Pursuant to a registration statement on Form S-11 under the 
              Securities Act of 1933, as amended, effective August 11, 1995, CNL
              Income Fund XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII,
              Ltd. each registered for sale $30,000,000 units of limited
              partnership interests ("Units"). The offering of Units of CNL
              Income Fund XVII, Ltd. commenced September 2, 1995. Pursuant to
              the registration statement, CNL XVIII could not commence until the
              offering of Units of CNL Income Fund XVII, Ltd. was terminated.
              CNL Income Fund XVII, Ltd. terminated its offering of Units on
              September 19, 1996, at which time subscriptions for the maximum
              offering proceeds of $30,000,000 had been received. Upon the
              termination of the offering of Units of CNL Income Fund XVII,
              Ltd., CNL XVIII commenced its offering of Units. Activities
              through November 3, 1995, were devoted to organization of the
              partnership and operations had not begun.
Note 2:       Cash generated from operations includes cash received from
              tenants, plus distributions from joint ventures, less cash paid
              for expenses, plus interest received.
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL XVII.
Note 4:       Distributions declared for the quarters ended December 31, 1995, 
              1996 and 1997 are reflected in the 1996, 1997 and 1998
              columns, respectively, due to the payment of such distributions in
              January 1996, 1997 and 1998, respectively. As a result of
              distributions being presented on a cash basis, distributions
              declared and unpaid as of December 31, 1996, 1997 and June 30,
              1998 are not included in the 1996, 1997 and 1998 totals,
              respectively.
Note 5:       Total cash distributions as a percentage of original $1,000
              investment are calculated based on actual distributions declared 
              for the period.  (See Note 4 above)
Note 6:       During 1998, CNL Income Fund XVII, Ltd. received approximately
              $322,900 from the developer of the properties in Aiken, South
              Carolina and Weatherford, Texas. This represents a reimbursement
              from the developer upon final reconciliation of total construction
              costs, to the total construction costs funded by the partnership
              in accordance with the development agreement. The partnership
              intends to reinvest the funds in additional properties.
Note 7:       Certain data for columns representing less than 12 months have 
              been annualized.
                                      C-28

<PAGE>



                                   TABLE III
                     Operating Results of Prior Programs CNL
                             INCOME FUND XVIII, LTD.


<TABLE>
<CAPTION>

                                                         1995                                          6 months
                                                       (Note 1)          1996            1997            1998
                                                     ------------    ------------    ------------    --------

<S> <C>

Gross revenue                                        $          0    $      1,373    $  1,291,416    $  1,447,579
Equity in earnings of joint venture                             0               0               0               0
Interest income                                                 0          30,241         161,826          99,885
Less: Operating expenses                                        0          (3,992)       (156,403)       (103,375)
      Interest expense                                          0               0               0               0
      Depreciation and amortization                             0            (712)       (142,079)       (178,935)
                                                     ------------    ------------    ------------    ------------

Net income - GAAP basis                                         0          26,910       1,154,760       1,265,154
                                                     ============    ============    ============    ============

Taxable income
  - from operations                                             0          30,223       1,318,750       1,206,888
                                                     ============    ============    ============    ============
  - from gain on sale                                           0               0               0               0
                                                     ============    ============    ============    ============

Cash generated from operations
  (Notes 2 and 3)                                               0          27,146       1,361,756       1,459,212
Cash generated from sales                                       0               0               0               0
Cash generated from refinancing                                 0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated from operations, sales
  and refinancing                                               0          27,146       1,361,756       1,459,212
Less: Cash distributions to investors
  (Note 4)
    - from operating cash flow                                  0          (2,138)       (855,957)     (1,112,150)
    - from sale of properties                                   0               0               0               0
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions                                                 0          25,008         505,799         347,062
Special items (not including sales and
  refinancing):
    Limited partners' capital contri-
      butions                                                   0       8,498,815      25,723,944         854,241
    General partners' capital contri-
      butions                                               1,000               0               0               0
    Contributions from minority interest                        0               0               0               0
    Syndication costs                                           0        (845,657)     (2,450,214)       (161,141)
    Acquisition of land and buildings                           0      (1,533,446)    (18,581,999)     (2,219,267)
    Investment in direct financing leases                       0               0      (5,962,087)       (877,348)
    Investment in joint venture                                 0               0               0               0
    Increase in restricted cash                                 0               0               0               0
    Reimbursement of organization,
      syndication and acquisition costs
      paid on behalf of CNL Income Fund
      XVIII, Ltd. by related parties                            0        (497,420)       (396,548)        (35,055)
    Increase in other assets                                    0        (276,848)              0         (48,378)
    Other                                                     (20)           (107)        (66,893)        (10,000)
                                                     ------------    ------------    ------------    ------------
Cash generated (deficiency) after cash
  distributions and special items                             980       5,370,345      (1,227,998)     (2,149,886)
                                                     ============    ============    ============    ============
TAX AND DISTRIBUTION DATA PER $1,000
  INVESTED
Federal income tax results:
Ordinary income (loss)
  - from operations                                             0               6              57              34
                                                     ============    ============    ============    ============
  - from recapture                                              0               0               0               0
                                                     ============    ============    ============    ============
Capital gain (loss)                                             0               0               0               0
                                                     ============    ============    ============    ============
                                      C-29

</TABLE>



<PAGE>



TABLE III - CNL INCOME FUND XVIII, LTD. (continued)


<TABLE>
<CAPTION>



                                                1995                            6 months    
                                             (Note 1)            1996             1997            1998
                                           ------------      ------------     ------------      ---------

<S> <C>

Cash distributions to investors
  Source (on GAAP basis)
  - from investment income                           0                 0              38           32
  - from capital gain                                0                 0               0            0
  - from investment income from prior
      period                                         0                 0               0            0
                                            ------------      ------------      ------------   -----------
Total distributions on GAAP basis (Note 4)           0                 0              38           32 
                                            ============       ============     ============   ===========               
          
  Source (on cash basis)
  - from sales                                       0                 0              0             0
  - from refinancing                                 0                 0              0             0
  - from operations                                  0                 0             38            32
                                            ------------     ------------      ------------    -----------      
          

Total distributions on cash basis (Note 4)           0                 0             38            32  
                                            ============      ============     ============    ===========      

Total cash distributions as a percentage
  of original $1,000 investment from
  inception                                       0.00 %            5.00 %         5.75 %        7.25 %
Total cumulative cash distributions per
  $1,000 investment (Note 5)                         0                 0             38            70
Amount (in percentage terms) remaining
  invested in program properties at the
  end of each year (period) presented
  (original total acquisition cost of 
  properties retained, divided by original
  total acquisition cost of all properties
  in program)                                      N/A                83 %           95 %          99 %

</TABLE>




Note 1:       Pursuant to a registration statement on Form S-11 under the 
              Securities Act of 1933, as amended, effective August 11, 1995, CNL
              Income Fund XVIII, Ltd ("CNL XVIII") and CNL Income Fund XVII,
              Ltd. each registered for sale $30,000,000 units of limited
              partnership interest ("Units"). The offering of Units of CNL
              Income Fund XVII, Ltd. commenced September 2, 1995. Pursuant to
              the registration statement, CNL XVIII could not commence until the
              offering of Units of CNL Income Fund XVII, Ltd. was terminated.
              CNL Income Fund XVII, Ltd. terminated its offering of Units on
              September 19, 1996, at which time the maximum offering proceeds of
              $30,000,000 had been received. Upon the termination of the
              offering of Units of CNL Income Fund XVII, Ltd., CNL XVIII
              commenced its offering of Units. Activities through October 11,
              1996, were devoted to organization of the partnership and
              operations had not begun.
Note 2:       Cash generated from operations includes cash received from
              tenants, less cash paid for expenses, plus interest received.
Note 3:       Cash generated from operations per this table agrees to cash
              generated from operations per the statement of cash flows included
              in the financial statements of CNL XVIII.
Note 4:       Distributions declared for the quarters ended December 1996 and
              1997 are reflected in the 1997 and 1998 columns, respectively, due
              to the payment of such distributions in January 1997 and 1998,
              respectively. As a result of distributions being presented on a
              cash basis, distributions declared and unpaid as of December 31,
              1997 and June 30, 1998 are not included in the 1997 and 1998
              totals, respectively.
Note 5:       Total cash distributions as a percentage of original $1,000 
              investment are calculated based on actual distributions declared
              for the period.  (See Note 4 above)
Note 6:       Certain data for columns representing less than 12 months have
              been annualized.
                                      C-30

<PAGE>






                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

<TABLE>
<CAPTION>


==========================================================================================================================
                                                                                
                                                                                                                          
                                                                                 Selling Price, Net of                    
                                                                         Closing Costs and GAAP Adjustments               
                                                                 ----------------------------------------------------     
                                                                                                                          
                                                                                          Purchase                        
                                                                    Cash                   money     Adjustments          
                                                                  received   Mortgage     mortgage   resulting            
                                                                   net of     balance      taken       from                         
                                        Date       Date of         closing   at time      back by   application           
       Property                        Acquired     Sale           costs     of sale      program     of GAAP     Total   

==========================================================================================================================
 <S> <C>                                                                               

CNL Income Fund, Ltd.:
  Burger King -
    San Dimas, CA (14)                 02/05/87    06/12/92      $1,169,021     0              0         0     $1,169,021 
  Wendy's -
    Fairfield, CA (14)                 07/01/87    10/03/94       1,018,490     0              0         0      1,018,490 
  Wendy's -                                                                                                               
    Casa Grande, AZ                    12/10/86    08/19/97         795,700     0              0         0        795,700 
  Wendy's -                                                                                                               
    North Miami, FL (9)                02/18/86    08/21/97         473,713     0              0         0        473,713 
  Popeye's -                                                                                                              
    Kissimmee, FL (14)                 12/31/86    04/30/98         661,300     0              0         0        661,300 
                                                                                                                          
CNL Income Fund II, Ltd.:                                                                                                 
  Golden Corral -                                                                                                         
    Salisbury, NC                      05/29/87    07/21/93         746,800     0              0         0        746,800 
  Pizza Hut -                                                                                                             
    Graham, TX                         08/24/87    07/28/94         261,628     0              0         0        261,628 
  Golden Corral -                                                                                                         
    Medina, OH (11)                    11/18/87    11/30/94         825,000     0              0         0        825,000 
  Denny's -                                                                                                               
    Show Low, AZ (8)                   05/22/87    01/31/97         620,800     0              0         0        620,800 
  KFC -                                                                                                                   
    Eagan, MN                          06/01/87    06/02/97         623,882     0         42,000         0        665,882 
  KFC -
    Jacksonville, FL                   09/01/87    09/09/97         639,363     0              0         0        639,363 
  Wendy's -                                                                                                               
    Farmington Hills, MI (12)          05/18/87    10/09/97         833,031     0              0         0        833,031 
  Wendy's -                                                                                                               
    Farmington Hills, MI (13)          05/18/87    10/09/97       1,085,259     0              0         0      1,085,259 
  Denny's -                                                                                                               
    Plant City, FL                     11/23/87    10/24/97         910,061     0              0         0        910,061 
  Pizza Hut -                                                                                                             
    Mathis, TX                         12/17/87    12/04/97         297,938     0              0         0        297,938 
  KFC -                                                                                                                   
    Avon Park, FL                      09/02/87    12/10/97         501,975     0              0         0        501,975 
                                                                                                                          
CNL Income Fund III, Ltd.:                                                                                                
  Wendy's -                                                                                                               
    Chicago, IL (14)                   06/02/88    01/10/97         496,418     0              0         0        496,418 
  Perkins -                                                                                                               
    Bradenton, FL                      06/30/88    03/14/97       1,310,001     0              0         0      1,310,001 
  Pizza Hut -                                                                                                             
    Kissimmee, FL                      02/23/88    04/08/97         673,159     0              0         0        673,159 

 

</TABLE>
                                                                                
     
<TABLE>
<CAPTION>


============================================================================================= 
                                 
                                               Cost of Properties
                                               Including Closing and
                                                   Soft Costs
                                  ------------------------------------
                                                                                   Excess
                                                    Total                       (deficiency)
                                                  acquisition                   of property
                                                cost, capital                  operating cash
                                     Original    improvements                   receipts over
                                     mortgage    closing and                       cash
   Property                         financing   soft costs (1)    Total        expenditures
============================================================================================== 
 <S> <C>                         

CNL Income Fund, Ltd.:
  Burger King -
    San Dimas, CA (14)                      0       $955,000   $  955,000       $214,021     
  Wendy's -                                                                                  
    Fairfield, CA (14)                      0        861,500      861,500        156,990     
  Wendy's -                                                                                  
    Casa Grande, AZ                         0        667,255      667,255        128,445     
  Wendy's -                                                                                  
    North Miami, FL (9)                     0        385,000      385,000         88,713     
  Popeye's -                                                                                 
    Kissimmee, FL (14)                      0        475,360      475,360        185,940     
                                                                                             
CNL Income Fund II, Ltd.:                                                                    
  Golden Corral -                                                                            
    Salisbury, NC                           0        642,800      642,800        104,000
  Pizza Hut -                                                                                
    Graham, TX                              0        205,500      205,500         56,128     
  Golden Corral -                                                                            
    Medina, OH (11)                         0        743,000      743,000         82,000     
  Denny's -                                                                                  
    Show Low, AZ (8)                        0        484,185      484,185        136,615     
  KFC -                                                                                      
    Eagan, MN                               0        601,100      601,100         64,782     
  KFC -                                                                                      
    Jacksonville, FL                        0        405,000      405,000        234,363     
  Wendy's -                                                                                  
    Farmington Hills, MI (12)               0        679,000      679,000        154,031     
  Wendy's -                                                                                  
    Farmington Hills, MI (13)               0        887,000      887,000        198,259     
  Denny's -                                                                                  
    Plant City, FL                          0        820,717      820,717         89,344     
  Pizza Hut -                                                                                
    Mathis, TX                              0        202,100      202,100         95,838     
  KFC -                                                                                      
    Avon Park, FL                           0        345,000      345,000        156,975
                                                                                             
CNL Income Fund III, Ltd.:                                                                   
  Wendy's -                                                                                  
    Chicago, IL (14)                        0        591,362      591,362        (94,944)     
  Perkins -                                                                                  
    Bradenton, FL                           0      1,080,500    1,080,500        229,501        
  Pizza Hut -                                                                                
    Kissimmee, FL                           0        474,755      474,755        198,404      
                                                                                                                                    
 

</TABLE>
                                      C-31

<PAGE>                                                                          
                                                                                


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


<TABLE>
<CAPTION>


==========================================================================================================================
                                                                                
                                                                                                                          
                                                                                 Selling Price, Net of                    
                                                                         Closing Costs and GAAP Adjustments               
                                                                 ----------------------------------------------------     
                                                                                                                          
                                                                                          Purchase                        
                                                                    Cash                   money     Adjustments          
                                                                  received   Mortgage     mortgage   resulting            
                                                                   net of     balance      taken       from                         
                                        Date       Date of         closing   at time      back by   application           
          Property                     Acquired     Sale           costs     of sale      program     of GAAP     Total   
==========================================================================================================================
<S> <C>

  Burger King -
    Roswell, GA                        06/08/88    06/20/97       257,981         0        685,000           0     942,981  
  Wendy's -                                                                                                                 
    Mason City, IA                     02/29/88    10/24/97       217,040         0              0           0     217,040  
  Taco Bell -                                                                                                               
    Fernandina Beach, FL (14)          04/09/88    01/15/98       721,655         0              0           0     721,655
  Denny's -                                                                                                                 
    Daytona Beach, FL (14)             07/12/88    01/23/98     1,008,976         0              0           0   1,008,976 
  Wendy's -                                                                                                                 
    Punta Gorda, FL                    02/03/88    02/20/98       665,973         0              0           0     665,973
  Po' Folks -                                                                                                               
    Hagerstown, MD                     06/21/88    06/10/98       788,884         0              0           0     788,884
                                                                                                                            
CNL Income Fund IV, Ltd.:                                                                                                   
  Taco Bell -                                                                                                               
    York, PA                           03/22/89    04/27/94       712,000         0              0           0     712,000
  Burger King -                                                                                                             
    Hastings, MI                       08/12/88    12/15/95       518,650         0              0           0     518,650
  Wendy's -                                                                                                                 
    Tampa, FL                          12/30/88    09/20/96     1,049,550         0              0           0   1,049,550
  Checkers -                                                                                                                
    Douglasville, GA                   12/08/94    11/07/97       380,695         0              0           0     380,695
  Taco Bell -                                                                                                               
    Fort Myers, FL (14)                12/22/88    03/02/98       794,690         0              0           0     794,690
  Denny's -                                                                                                                 
    Union Township, OH (14)            11/01/88    03/31/98       674,135         0              0           0     674,135
                                                                                                                            
CNL Income Fund V, Ltd.:                                                                                                    
  Perkins -                                                                                                                 
    Myrtle Beach, SC (2)               02/28/90    08/25/95             0         0      1,040,000           0   1,040,000
  Ponderosa -                                                                                                               
    St. Cloud, FL (6) (14)             06/01/89    10/24/96        73,713         0      1,057,299           0   1,131,012
  Franklin National Bank -                                                                                                  
    Franklin, TN                       06/26/89    01/07/97       960,741         0              0           0     960,741
  Shoney's -                                                                                                                
    Smyrna, TN                         03/22/89    05/13/97       636,788         0              0           0     636,788
  KFC -                                                                                                                     
    Salem, NH                          05/31/89    09/22/97     1,272,137         0              0           0   1,272,137
  Perkins -                                                                                                                 
    Port St. Lucie, FL                 11/14/89    09/23/97     1,216,750         0              0           0   1,216,750
  Hardee's -                                                                                                                
    Richmond, VA                       02/17/89    11/07/97       397,785         0              0           0     397,785
  Wendy's -                                                                                                                 
    Tampa, FL                          02/16/89    12/29/97       805,175         0              0           0    805,175 
                                                                                                                              
 

</TABLE>


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


<TABLE>
<CAPTION>


============================================================================================= 
                                   
                                               Cost of Properties
                                               Including Closing and
                                                   Soft Costs
                                   -----------------------------------
                                                                                   Excess
                                                    Total                       (deficiency)
                                                  acquisition                   of property
                                                cost, capital                  operating cash
                                     Original    improvements                   receipts over                                     
                                     mortgage    closing and                       cash
     Property                       financing   soft costs (1)    Total        expenditures

============================================================================================== 
<S> <C>

  Burger King -
    Roswell, GA                             0       775,226       775,226        167,755          
  Wendy's -
    Mason City, IA                          0       190,252       190,252         26,788          
  Taco Bell -                                                                                     
    Fernandina Beach, FL (14)               0       559,570       559,570        162,085        
  Denny's -                                                                                       
    Daytona Beach, FL (14)                  0       918,777       918,777         90,799         
  Wendy's -                                                                                       
    Punta Gorda, FL                         0       684,342       684,342        (18,369)       
  Po' Folks -                                                                                     
    Hagerstown, MD                          0       1,188,315   1,188,315       (399,431)      
                                                                                                  
CNL Income Fund IV, Ltd.:                                                                         
  Taco Bell -                                                                                     
    York, PA                                0       616,501       616,501         95,499        
  Burger King -                                                                                   
    Hastings, MI                            0       419,936       419,936         98,714        
  Wendy's -                                                                                       
    Tampa, FL                               0       828,350       828,350        221,200        
  Checkers -                                                                                      
    Douglasville, GA                        0       363,768       363,768         16,927       
  Taco Bell -
    Fort Myers, FL (14)                     0       597,998       597,998        196,692      
  Denny's -                                                                                       
    Union Township, OH (14)                 0       872,850       872,850       (198,715)    
                                                                                                  
CNL Income Fund V, Ltd.:                                                                          
  Perkins -                                                                                       
    Myrtle Beach, SC (2)                    0       986,418       986,418         53,582       
  Ponderosa -                                                                                     
    St. Cloud, FL (6) (14)                  0       996,769       996,769        134,243       
  Franklin National Bank -                                                                        
    Franklin, TN                            0     1,138,164     1,138,164       (177,423)     
  Shoney's -                                                                                      
    Smyrna, TN                              0       554,200       554,200         82,588      
  KFC -                                                                                           
    Salem, NH                               0     1,079,310     1,079,310        192,827      
  Perkins -                                                                                       
    Port St. Lucie, FL                      0     1,203,207     1,203,207         13,543       
  Hardee's -                                                                                      
    Richmond, VA                            0       695,464       695,464       (297,679)  
  Wendy's -
    Tampa, FL                               0       657,800       657,800        147,375      
                                                                                                    
 

</TABLE>
     

                                      C-32
<PAGE>





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


<TABLE>                                                                         
<CAPTION>
                                                                                                                                 
                                                                                                                                 
==========================================================================================================================       
                                                                                                                                    
                                                                                                                                    
                                                                              Selling Price, Net of                                 
                                                                      Closing Costs and GAAP Adjustments                            
                                                              ----------------------------------------------------                  
                                                                                                                                    
                                                                                       Purchase                                     
                                                                 Cash                   money     Adjustments                       
                                                               received   Mortgage     mortgage   resulting                         
                                                                net of     balance      taken       from                            
                                        Date       Date of      closing   at time      back by   application                        
       Property                        Acquired     Sale        costs     of sale      program     of GAAP     Total                
                                                                                                                                    
===========================================================================================================================      
<S> <C>                                                                                                                  

  Denny's -
    Port Orange, FL (14)               07/10/89    01/23/98   1,283,096         0             0         0      1,283,096            
  Shoney's -                                                                                                             
    Tyler, TX                          03/20/89    02/17/98     844,229         0             0         0        894,229      
                                                                                                                         
CNL Income Fund VI, Ltd.:                                                                                                
  Hardee's -                                                                                                             
    Batesville, AR                     11/02/89    05/24/94     791,211         0             0         0        791,211     
  Hardee's -                                                                                                               
    Heber Springs, AR                  02/13/90    05/24/94     638,270         0             0         0        638,270   
  Hardee's -                                                                                                               
    Little Canada, MN                  11/28/89    06/29/95     899,503         0             0         0        899,503    
  Jack in the Box -                                                                                                        
    Dallas, TX                         06/28/94    12/09/96     982,980         0             0         0        982,980    
  Denny's -                                                                                                                
    Show Low, AZ (8)                   05/22/87    01/31/97     349,200         0             0         0        349,200    
  KFC -                                                                                                                    
    Whitehall Township, MI             02/26/90    07/09/97     629,888         0             0         0        629,888   
  Perkins -                                                                                                                
    Naples, FL                         12/26/89    07/09/97   1,487,725         0             0         0      1,487,725     
  Burger King -
    Plattsmouth, NE                    01/19/90    07/18/97     699,400         0             0         0        699,400   
  Shoney's -                                                                                                               
    Venice, FL                         08/03/89    09/17/97   1,206,696         0             0         0      1,206,696     
  Jack in the Box -                                                                                                        
    Yuma, AZ (10)                      07/14/94    10/31/97     510,653         0             0         0        510,653    
  Denny's -                                                                                                                
    Deland, FL                         03/22/90    01/23/98   1,236,97          0             0         0      1,236,97      
  Wendy's -                                                                                                                
    Liverpool, NY                      12/08/89    02/09/98     145,221         0             0         0        145,221  
  Perkin's -                                                                                                               
    Melbourne, FL                      02/03/90    02/12/98     552,910         0             0         0        552,910  
  Hardee's                                                                                                                 
    Bellevue, NE                       05/03/90    06/05/98     900,000         0             0         0        900,000       
                                                                                                                           
CNL Income Fund VII, Ltd.:                                                                                                 
  Taco Bell -                                                                                                              
    Kearns, UT                         06/14/90    05/19/92     700,000         0             0         0        700,000   
  Hardee's -                                                                                                               
    St. Paul, MN                       08/09/90    05/24/94     869,036         0             0         0        869,036   
  Perkins -
    Florence, SC (3)                   08/28/90    08/25/95           0         0     1,160,000         0      1,160,000      
                                                                                                                                    
                                                                                                                                    


</TABLE>


<TABLE>                                                                         
<CAPTION>                                                                       
                                                                                                                                 
                                                                                                                                 
===========================================================================================       
                                                                                                          
                                             Cost of Properties                                           
                                             Including Closing and                                        
                                                 Soft Costs                                               
                                 -----------------------------------                                      
                                                                                 Excess                   
                                                  Total                       (deficiency)
                                                acquisition                   of property                 
                                              cost, capital                  operating cash               
                                   Original    improvements                   receipts over               
                                   mortgage    closing and                       cash                     
       Property                   financing   soft costs (1)    Total        expenditures                 
                                                                                                          
============================================================================================      
<S> <C>                                

  Denny's -
    Port Orange, FL (14)                 0       1,021,000    1,021,000          262,096              
  Shoney's -                                                                            
    Tyler, TX                            0         770,300      770,300           73,929       
                                                                                        
CNL Income Fund VI, Ltd.:                                                               
  Hardee's -                                                                            
    Batesville, AR                       0         605,500      605,500          185,711      
  Hardee's -                                                                                
    Heber Springs, AR                    0         532,893      532,893          105,377    
  Hardee's -
    Little Canada, MN                    0         821,692      821,692           77,811     
  Jack in the Box -                                                                         
    Dallas, TX                           0         964,437      964,437           18,543     
  Denny's -                                                                                 
    Show Low, AZ (8)                     0         272,354      272,354           76,846     
  KFC -                                                                                     
    Whitehall Township, MI               0         725,604      725,604          (95,716)   
  Perkins -                                                                                 
    Naples, FL                           0       1,083,869    1,083,869          403,856      
  Burger King -                                                                             
    Plattsmouth, NE                      0         561,000      561,000          138,400    
  Shoney's -                                                                                
    Venice, FL                           0       1,032,435    1,032,435          174,261      
  Jack in the Box -                                                                         
    Yuma, AZ (10)                        0         448,082      448,082           62,571     
  Denny's -                                                                                 
    Deland, FL                           0       1,000,000    1,000,000          236,971      
  Wendy's -                                                                                 
    Liverpool, NY                        0         341,440      341,440         (196,219)  
  Perkin's -
    Melbourne, FL                        0         692,850      692,850         (139,940)  
  Hardee's                                                                                  
    Bellevue, NE                         0         899,512      899,512              488        
                                                                                            
CNL Income Fund VII, Ltd.:                                                                  
  Taco Bell -                                                                               
    Kearns, UT                           0         560,202      560,202          139,798    
  Hardee's -                                                                                
    St. Paul, MN                         0         742,333      742,333          126,703    
  Perkins -                                                                                 
    Florence, SC (3)                     0       1,084,905    1,084,905           75,095                                            
                                                                                                                                    


</TABLE>

                                      C-33

<PAGE>



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


<TABLE>                                                                         
<CAPTION>                                                                                                                        
                                                                                                                                 
                                                                                                                                 
=========================================================================================================================   
                                                                                                                                    
                                                                                                                                    
                                                                              Selling Price, Net of                                 
                                                                      Closing Costs and GAAP Adjustments                            
                                                              ----------------------------------------------------                  
                                                                                                                                    
                                                                                       Purchase                                     
                                                                 Cash                   money     Adjustments                       
                                                               received   Mortgage     mortgage   resulting
                                                                net of     balance      taken       from                            
                                        Date       Date of      closing   at time      back by   application                        
       Property                        Acquired     Sale        costs     of sale      program     of GAAP     Total                
                                                                                                                                    
=========================================================================================================================   
<S> <C>


  Church's Fried Chicken -
    Jacksonville, FL (4) (14)          04/30/90    12/01/95           0         0       240,000         0        240,000            
  Shoney's -                                                                                                             
    Colorado Springs, CO               07/03/90    07/24/96   1,044,909         0             0         0      1,044,909 
  Hardee's -                                                                                                             
    Hartland, MI                       07/10/90    10/23/96     617,035         0             0         0        617,035 
  Hardee's -                                                                                                             
    Columbus, IN                       09/04/90    05/30/97     223,590         0             0         0        223,590 
  KFC -                                                                                                                  
    Dunnellon, FL                      08/02/90    10/07/97     757,800         0             0         0        757,800 
  Jack in the Box -                                                                                                      
    Yuma, AZ (10)                      07/14/94    10/31/97     471,372         0             0         0        471,372
                                                                                                                         
CNL Income Fund VIII, Ltd.:                                                                                              
  Denny's -                                                                                                              
    Ocoee, FL                          03/16/91    07/31/95   1,184,865         0             0         0      1,184,865 
  Church's Fried Chicken -                                                                                               
    Jacksonville, FL (4) (14)          09/28/90    12/01/95           0         0       240,000         0        240,000 
  Church's Fried Chicken -                                                                                               
    Jacksonville, FL (5) (14)          09/28/90    12/01/95           0         0       220,000         0        220,000 
  Ponderosa -                                                                                                            
    Orlando, FL (6) (14)               12/17/90    10/24/96           0         0     1,353,775         0      1,353,775 
                                                                                                                         
CNL Income Fund IX, Ltd.:                                                                                                
  Burger King -                                                                                                          
    Woodmere, OH (15)                  05/31/91    12/12/96     918,445         0             0         0        918,445   
  Burger King -                                                                                                          
    Alpharetta, GA                     09/20/91    06/30/97   1,053,571         0             0         0      1,053,571 
                                                                                                                         
CNL Income Fund X, Ltd.:                                                                                                 
  Shoney's -                                                                                                             
    Denver, CO                         03/04/92    08/11/95   1,050,186         0             0         0      1,050,186
  Jack in the Box -                                                                                                      
    Freemont, CA                       03/26/92    09/23/97   1,366,550         0             0         0      1,366,550 
  Jack in the Box -                                                                                                      
    Sacramento, CA                     12/19/91    01/20/98   1,234,175         0             0         0      1,234,175 
                                                                                                                         
CNL Income Fund XI, Ltd.:                                                                                                
  Burger King -                                                                                                          
    Philadelphia, PA                   09/29/92    11/07/96   1,044,750         0             0         0      1,044,750 
                                                                                                                         
CNL Income Fund XII, Ltd.:                                                                                               
  Golden Corral -                                                                                                        
    Houston, TX                        12/28/92    04/10/96   1,640,000         0             0         0      1,640,000 
                                                                                                                                    
</TABLE>
     


<TABLE>                                                                         
<CAPTION>                                                                                                                        

                                                                                                                                 
===============================================================================================       
                                                                                                              
                                                 Cost of Properties                                           
                                                 Including Closing and                                        
                                                     Soft Costs                                               
                                     -----------------------------------                                      
                                                                                     Excess                   
                                                      Total                       (deficiency)                
                                                    acquisition                   of property                 
                                                  cost, capital                  operating cash               
                                       Original    improvements                   receipts over               
                                       mortgage    closing and                       cash                     
       Property                       financing   soft costs (1)    Total        expenditures                 
                                                                                                              
================================================================================================      
<S> <C>


  Church's Fried Chicken -
    Jacksonville, FL (4) (14)                 0         233,728      233,720         6,272                     
  Shoney's -                                                                                  
    Colorado Springs, CO                      0         893,739      893,739       151,170     
  Hardee's -                                                                                  
    Hartland, MI                              0         841,642      841,642      (224,607)   
  Hardee's -                                                                                  
    Columbus, IN                              0         219,676      219,676         3,914     
  KFC -                                                                                       
    Dunnellon, FL                             0         546,333      546,333       211,467     
  Jack in the Box -                                                                           
    Yuma, AZ (10)                             0         413,614      413,614        57,758      
                                                                                              
CNL Income Fund VIII, Ltd.:                                                                   
  Denny's -                                                                                   
    Ocoee, FL                                 0         949,199      949,199       235,666     
  Church's Fried Chicken -                                                                    
    Jacksonville, FL (4) (14)                 0         238,153      238,153         1,847       
  Church's Fried Chicken -                                                                    
    Jacksonville, FL (5) (14)                 0         215,845      215,845         4,155       
  Ponderosa -
    Orlando, FL (6) (14)                      0         1,179,210  1,179,210       174,565     
                                                                                              
CNL Income Fund IX, Ltd.:                                                                     
  Burger King -                                                                               
    Woodmere, OH (15)                         0         918,445      918,445             0           
  Burger King -                                                                               
    Alpharetta, GA                            0         713,866      713,866       339,705     
                                                                                               
CNL Income Fund X, Ltd.:                                                                      
  Shoney's -                                                                                  
    Denver, CO                                0         987,679      987,679        62,507      
  Jack in the Box -                                                                           
    Freemont, CA                              0         1,102,766  1,102,766       263,784     
  Jack in the Box -                                                                           
    Sacramento, CA                            0         969,423      969,423       264,752     
                                                                                              
CNL Income Fund XI, Ltd.:                                                                     
  Burger King -                                                                               
    Philadelphia, PA                          0         818,850      818,850       225,900     

CNL Income Fund XII, Ltd.:                                                                    
  Golden Corral -                                                                             
    Houston, TX                               0       1,636,643    1,636,643         3,357       
                                                                                                   
</TABLE>                                                                        


                                      C-34
<PAGE>



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES



<TABLE>                                                                         
<CAPTION>                                                                                                                        

                                                                                                                                 
========================================================================================================================
                                                                                                                                
                                                                                                                                
                                                                              Selling Price, Net of                             
                                                                      Closing Costs and GAAP Adjustments                        
                                                              ----------------------------------------------------              
                                                                                                                                
                                                                                       Purchase                                 
                                                                 Cash                   money     Adjustments                   
                                                               received   Mortgage     mortgage   resulting                     
                                                                net of     balance      taken       from                        
                                        Date       Date of     closing    at time      back by   application                    
       Property                        Acquired     Sale        costs     of sale      program     of GAAP     Total            
                                                                                                                                
========================================================================================================================
<S> <C>

CNL Income Fund XIII, Ltd.:
  Checkers -
    Houston, TX                        03/31/94    04/24/95     286,411        0             0         0        286,411            
  Checkers -                                                                                                               
    Richmond, VA                       03/31/94    11/21/96     550,000        0             0         0        550,000 
  Denny's -                                                                                                             
    Orlando, FL                        09/01/93    10/24/97     932,849        0             0         0        932,849 
                                                                                                                        
CNL Income Fund XIV, Ltd.:                                                                                              
  Checkers -                                                                                                            
    Knoxville, TN                      03/31/94    03/01/95     339,031        0             0         0        339,031  
  Checkers -                                                                                                            
    Dallas, TX                         03/31/94    03/01/95     356,981        0             0         0        356,981 
  TGI Friday's -                                                                                                        
    Woodridge, NJ (7)                  01/01/95    09/27/96   1,753,533        0             0         0      1,753,533 
  Wendy's -                                                                                                             
    Woodridge, NJ (7)                  11/28/94    09/27/96     747,058        0             0         0        747,058 
  Hardee's -                                                                                                            
    Madison, AL                        12/14/93    01/08/98     700,950        0             0         0        700,950 
  Checkers -                                                                                                            
    Richmond, VA (#548)                03/31/94    01/29/98     512,462        0             0         0        512,462 
  Checkers -
    Riviera Beach, FL                  03/31/94    04/14/98     360,000        0             0         0        360,000 
                                                                                                                        
CNL Income Fund XV, Ltd.:                                                                                               
  Checkers -                                                                                                            
    Knoxville, TN                      05/27/94    03/01/95     263,221        0             0         0        263,221   
  Checkers -                                                                                                            
    Leavenworth, KS                    06/22/94    03/01/95     259,600        0             0         0        259,600  
  Checkers -                                                                                                            
    Knoxville, TN                      07/08/94    03/01/95     288,885        0             0         0        288,885   
  TGI Friday's -                                                                                                        
    Woodridge, NJ (7)                  01/01/95    09/27/96   1,753,533        0             0         0      1,753,533 
  Wendy's -                                                                                                             
    Woodridge, NJ (7)                  11/28/94    09/27/96     747,058        0             0         0        747,058 
                                                                                                                        
CNL Income Fund XVI, Ltd.:                                                                                              
  Long John Silver's -                                                                                                  
    Appleton, WI                       06/24/95    04/24/96     775,000        0             0         0        775,000 
  Checker's -                                                                                                           
    Oviedo, FL                         11/14/94    02/28/97     610,384        0             0         0        610,384 
  Boston Market -
    Madison, TN (16)                   05/05/95    05/08/98     774,851        0             0         0        774,851    
                                                                                                                         
                                                                                
</TABLE>

<TABLE>                                                                         
<CAPTION>                                                                                                                        
                                                                                                                                 
                                                                                                                                 
===============================================================================================       
                                                                                                              
                                                 Cost of Properties                                           
                                                 Including Closing and                                        
                                                     Soft Costs                                               
                                     -----------------------------------                                      
                                                                                     Excess                   
                                                      Total                       (deficiency)                
                                                    acquisition                   of property                 
                                                  cost, capital                  operating cash               
                                       Original    improvements                   receipts over
                                       mortgage    closing and                       cash                     
       Property                       financing   soft costs (1)    Total        expenditures                 
                                                                                                              
================================================================================================   
<S> <C>

CNL Income Fund XIII, Ltd.:
  Checkers -
    Houston, TX                              0       286,411        286,411                0                     
  Checkers -                                                                                             
    Richmond, VA                             0       413,288        413,288          136,712       
  Denny's -                                                                                         
    Orlando, FL                              0       934,120        934,120           (1,271)       
                                                                                                    
CNL Income Fund XIV, Ltd.:                                                                          
  Checkers -                                                                                        
    Knoxville, TN                            0       339,031        339,031                0           
  Checkers -                                                                                        
    Dallas, TX                               0       356,981        356,981                0          
  TGI Friday's -
    Woodridge, NJ (7)                        0     1,510,245      1,510,245          243,288      
  Wendy's -                                                                                         
    Woodridge, NJ (7)                        0       672,746        672,746           74,312       
  Hardee's -                                                                                        
    Madison, AL                              0       658,977        658,977           41,973       
  Checkers -                                                                                        
    Richmond, VA (#548)                      0       382,435        382,435          130,027      
  Checkers -                                                                                        
    Riviera Beach, FL                        0       276,409        276,409           83,591        
                                                                                                    
CNL Income Fund XV, Ltd.:                                                                           
  Checkers -                                                                                        
    Knoxville, TN                            0       263,221        263,221                0            
  Checkers -                                                                                        
    Leavenworth, KS                          0       259,600        259,600                0           
  Checkers -                                                                                        
    Knoxville, TN                            0       288,885        288,885                0            
  TGI Friday's -                                                                                    
    Woodridge, NJ (7)                        0     1,510,245      1,510,245          243,288        
  Wendy's -
    Woodridge, NJ (7)                        0       672,746        672,746           74,312        
                                                                                                    
CNL Income Fund XVI, Ltd.:                                                                          
  Long John Silver's -                                                                              
    Appleton, WI                             0       613,838        613,838          161,162     
  Checker's -                                                                                       
    Oviedo, FL                               0       506,311        506,311          104,073      
  Boston Market -                                                                                   
    Madison, TN (16)                         0       774,851        774,851                0             
                                                                                                                                    
                                                                                                                                    
</TABLE>


                                      C-35
<PAGE>



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


<TABLE>                                                                         
<CAPTION>                                                                       
                                                                                                                           
                                                                                                                           
======================================================================================================================
                                                                                                                      
                                                                                                                      
                                                                              Selling Price, Net of                   
                                                                      Closing Costs and GAAP Adjustments              
                                                              ----------------------------------------------------    
                                                                                                                      
                                                                                       Purchase                       
                                                                 Cash                   money     Adjustments         
                                                               received   Mortgage     mortgage   resulting           
                                                                net of     balance      taken       from              
                                        Date       Date of     closing    at time      back by   application          
       Property                        Acquired     Sale        costs     of sale      program     of GAAP     Total
                                                                                                                      
======================================================================================================================
<S> <C>                                                                                                                


  Boston Market -
    Chattanooga, TN (17)               05/05/95    06/16/98     713,386         0          0           0       713,386      
                                                                                                                      
CNL Income Fund XVII, Ltd.:                                                                                           
  Boston Market -                                                                                                     
    Troy, OH (18)                      07/24/96    06/16/98     857,487         0          0           0       857,487
                                                                                                                      
CNL American Properties Fund, Inc.:                                                                                   
  TGI Friday's -                                                                                                      
    Orange, CT                         10/30/95    05/08/97   1,312,799         0          0           0     1,312,799
  TGI Friday's -                                                                                                      
    Hazlet, NJ                         07/15/96    05/08/97   1,324,109         0          0           0     1,324,109
  TGI Friday's -                                                                                                      
    Marlboro, NJ                       08/01/96    05/08/97   1,372,075         0          0           0     1,372,075
  TGI Friday's -
    Hamden, CT                         08/26/96    05/08/97   1,245,100         0          0           0     1,245,100
  Boston Market -                                                                                                     
    Southlake, TX                      07/02/97    07/21/97   1,035,153         0          0           0     1,035,135 
  Boston Market -                                                                                                     
    Franklin, TN (19)                  08/18/95    04/14/98     950,361         0          0           0       950,361
  Boston Market -                                                                                                     
    Grand Island, NE (20)              09/19/95    04/14/98     837,656         0          0           0       837,656
  Burger King -                                                                                                       
    Indian Head Park, IL               04/03/96    05/05/98     674,320         0          0           0       674,320
  Boston Market -                                                                                                     
    Dubuque, IA (21)                   10/04/95    05/08/98     969,159         0          0           0       969,159
  Boston Market -                                                                                                     
    Merced, CA (22)                    10/06/96    05/08/98     930,834         0          0           0       930,834

</TABLE>

                                                                                

<TABLE>                                                                         
<CAPTION>
                                                                                                                           
                                                                                                                           
=============================================================================================    
                                                                                                 
                                                 Cost of Properties                              
                                                 Including Closing and                           
                                                     Soft Costs                                  
                                     -----------------------------------                         
                                                                                   Excess        
                                                      Total                     (deficiency)     
                                                    acquisition                 of property      
                                                  cost, capital                operating cash    
                                       Original    improvements                 receipts over    
                                       mortgage    closing and                     cash          
       Property                       financing   soft costs (1)    Total      expenditures      
                                                                                                 
==============================================================================================   
<S> <C>                                                                                             


  Boston Market -
    Chattanooga, TN (17)                   0         713,386       713,386             0                 
                                                                                               
CNL Income Fund XVII, Ltd.:                                                                    
  Boston Market -                                                                              
    Troy, OH (18)                          0         857,487       857,487             0           
                                                                                                 
CNL American Properties Fund, Inc.:                                                            
  TGI Friday's -                                                                               
    Orange, CT                             0       1,310,980     1,310,980         1,819         
  TGI Friday's -                                                                               
    Hazlet, NJ                             0       1,294,237     1,294,237        29,872       
  TGI Friday's -                                                                               
    Marlboro, NJ                           0       1,324,288     1,324,288        47,787       
  TGI Friday's -                                                                               
    Hamden, CT                             0       1,203,136     1,203,136        41,964       
  Boston Market -                                                                              
    Southlake, TX                          0       1,035,135     1,035,135             0            
  Boston Market -                                                                              
    Franklin, TN (19)                      0         950,361       950,361             0
  Boston Market -                                                                              
    Grand Island, NE (20)                  0         837,656       837,656             0          
  Burger King -                                                                                
    Indian Head Park, IL                   0         670,867       670,867         3,453       
  Boston Market -                                                                              
    Dubuque, IA (21)                       0         969,159       969,159             0         
  Boston Market -                                                                              
    Merced, CA (22)                        0         930,834       930,834             0         
                                                                                          

</TABLE>

                                                                                
(1)  Amounts shown do not include pro rata share of original offering costs or
     acquisition fees.
(2)  Amount shown is face value and does not represent discounted current value.
     The mortgage note bears interest at a rate of 10.25% per annum and provides
     for a balloon payment of $1,006,004 in July 2000.
(3)  Amount shown is face value and does not represent discounted current value
     The mortgage note bears interest at a rate of 10.25% per annum and provides
     for a balloon payment of $1,106,657 in July 2000.
(4)  Amounts shown are face value and do not represent discounted current value.
     Each mortgage note bears interest at a rate of 10.00% per annum and
     provides for a balloon payment of $218,252 in December 2005.
(5)  Amount shown is face value and does not represent discounted current value.
     The mortgage note bears interest at a rate of 10.00% per annum and provides
     for a balloon payment of $200,324 in December 2005.
(6)  Amounts shown are face value and do not represent discounted current value.
     Each mortgage note bears interest at a rate of 10.75% per annum and
     provides for 12 monthly payments of interest only and thereafter, 168 equal
     monthly payments of principal and interest.
(7)  CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
     percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
     properties. The amounts presented for CNL Income Fund XIV, Ltd. and CNL
     Income Fund XV, Ltd. represent each partnership's 50 percent interest in
     the properties owned by Wood-Ridge Real Estate Joint Venture.

                                      C-36

<PAGE>



(8)  CNL Income Fund II, Ltd. owns a 64 percent interest and CNL Income Fund VI,
     Ltd. owns a 36 percent interest in this joint venture. The amounts 
     presented for CNL Income Fund II, Ltd. and CNL Income Fund VI, Ltd.
     represent each partnership's percent interest in the property owned by Show
     Low Joint Venture.
(9)  CNL Income Fund, Ltd. owns a 50 percent interest in this joint venture. The
     amounts presented represent the partnerships percent interest in the
     property owned by Seventh Avenue Joint Venture.  A third party owns the
     remaining 50 percent interest in this joint venture.
(10) CNL Income Fund VI, Ltd. and CNL Income Fund VII, Ltd. own a 52 percent and
     48 percent interest, respectively, in the property in Yuma, Arizona. The
     amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund VII,
     Ltd. represent each partnership's respective interest in the property.
(11) Cash received net of closing costs includes $198,000 received as a lease
     termination fee. 
(12) Cash received net of closing costs includes $93,885 received as a lease 
     termination fee.
(13) Cash received net of closing costs includes $120,115 received as a lease 
     termination fee.
(14) Closing costs deducted from net sales proceeds do not include deferred,
     subordinated real estate disposition fees payable to CNL Fund Advisors or
     its affiliates. 
(15) The Burger King property in Woodmere, Ohio was exchanged on December 12, 
     1996 for a Burger King property in Carrboro, NC at the option of the tenant
     as permitted under the terms of the lease agreement. Due to the exchange, 
     the Burger King property in Carrboro, NC is being leased under the same 
     lease as the Burger King property in Woodmere, OH.
(16) The Boston Market property in Madison, TN was exchanged on May 8, 1998 for
     a Boston Market property in Lawrence, KS at the option of the tenant as
     permitted under the terms of the lease agreement. Due to the exchange, the
     Boston Market property in Lawrence, KS is being leased under the same lease
     as the Boston Market property in Madison, TN.
(17) The Boston Market property in Chattanooga, TN was exchanged on June 16,
     1998 for a Boston Market property in Indianapolis, IN at the option of the
     tenant as permitted under the terms of the lease agreement. Due to the
     exchange, the Boston Market property in Indianapolis, IN is being leased
     under the same lease as the Boston Market property in Chattanooga, TN.
(18) The Boston Market property in Troy, OH was exchanged on June 16, 1998 for a
     Boston Market property in Inglewood, CA at the option of the tenant as
     permitted under the terms of the lease agreement. Due to the exchange, the
     Boston Market property in Inglewood, CA is being leased under the same
     lease as the Boston Market property in Troy, OH.
(19) The Boston Market property in Franklin, TN was exchanged on April 14, 1998
     for a Boston Market property in Glendale, AZ at the option of the tenant as
     permitted under the terms of the lease agreement. Due to the exchange, the
     Boston Market property in Glendale, AZ is being leased under the same terms
     as the Boston Market property in Franklin, TN.
(20) The Boston Market property in Grand Island, NE was exchanged on April 14,
     1998 for a Boston Market property in Warwick, RI at the option of the
     tenant as permitted under the terms of the lease agreement. Due to the
     exchange, the Boston Market property in Warwick, RI is being leased under
     the same terms as the Boston Market property in Grand Island, NE.
(21) The Boston Market property in Dubuque, IA was exchanged on May 8, 1998 for
     a Boston Market property in Columbus, OH at the option of the tenant as
     permitted under the terms of the lease agreement. Due to the exchange, the
     Boston Market property in Columbus, OH is being leased under the same terms
     as the Boston Market property in Dubuque, IA.
(22) Cash received net of closing costs includes $362,949 in construction costs
     incurred but not paid by CNL American Properties Fund, Inc. as of the
     closing date, which were deducted from the actual net sales proceeds
     received by CNL American Properties Fund, Inc.


                                      C-37


                                   APPENDIX D

                             SUBSCRIPTION AGREEMENT


<PAGE>



                        CNL HEALTH CARE PROPERTIES, INC.
- --------------------------------------------------------------------------------




                   Up to 15,500,000 Shares -- $10.00 per Share
                     Minimum Purchase -- 250 Shares ($2,500)
            100 Shares ($1,000) for IRAs, Keogh, and Qualified Plans
               (Minimum purchase may be higher in certain states)





================================================================================
PLEASE READ CAREFULLY this  Subscription  Agreement and the Notices (on the back
of the Agreement)  before  completing  this  document.  TO SUBSCRIBE FOR SHARES,
complete and sign, where  appropriate,  and deliver the Subscription  Agreement,
along with your check, to your Registered  Representative.  YOUR CHECK SHOULD BE
MADE PAYABLE TO:

              SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.

ALL ITEMS ON THE  SUBSCRIPTION  AGREEMENT  MUST BE  COMPLETED  IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
================================================================================





               Overnight Packages:                Regular Mail Packages:
   
            Attn:  Investor Services             Attn:  Investor  Services
              400 E. South Street                   Post Office Box 1033
             Orlando, Florida  32801            Orlando, Florida  32802-1033


                            For Telephone Inquiries:
                              CNL SECURITIES CORP.
                        (407) 650-1000 OR (800) 522-3863
    


<PAGE>





CNL HEALTH CARE PROPERTIES, INC.

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

1.--------------- INVESTMENT ---------------------------------------------------

This subscription is in the amount of $ _____________ for the purchase of ______
Shares ($10.00 per Share).  The  minimum  initial  subscription  is  250  Shares
($2,500); 100 Shares ($1,000) for IRA, Keogh and qualified plan accounts (except
in states with higher minimum purchase requirements).   |_| ADDITIONAL  PURCHASE
|_| REINVESTMENT PLAN - Investor elects to participate in Plan  (See  prospectus
for details.)

2.--------------- SUBSCRIBER INFORMATION ---------------------------------------

Name (1st)                   |_| M |_| F   Date of Birth (MM/DD/YY)
          -----------------                                        -------------
Name (2nd)                   |_| M |_| F   Date of Birth (MM/DD/YY)
          -----------------                                        -------------
Address
       -------------------------------------------------------------------------
City                          State               Zip Code
    -------------------------      --------------          ---------------------

Custodian Account No. Daytime                    Phone # (    )
                             -------------------          ----  ----------------

|_|  U.S. Citizen   |_|  Resident Alien   |_|  Foreign Resident   Country
                                                                         -------
|_|  Check if Subscriber is a U.S. citizen residing outside the U.S.

Income Tax Filing State
                        --------------------------------------------------------
ALL SUBSCRIBERS:  State of Residence of Subscriber/Plan Beneficiary
                  (required)
                            ----------------------------------------------------

Taxpayer Identification Number:  For most individual  taxpayers,  it  is   their
Social Security number.  Note:  If the purchase is in more than one  name,   the
number should be that of the first person listed. For IRAs, Keoghs and qualified
plans,  enter  both  the  Social  Security  number and  the  custodian  taxpayer
identification number.

    Taxpayer ID#        -           Social Security #      -         -
                ------------------                   ------  --------  ---------

3. --------------- INVESTOR MAILING ADDRESS ------------------------------------

For the Subscriber of an IRA, Keogh, or qualified plan to receive  informational
mailings, please complete if different from address in Section 2.

Name
    ----------------------------------------------------------------------------
Address
       -------------------------------------------------------------------------
City                               State                 Zip Code
     -----------------------------       ---------------          --------------
Daytime Phone #(         )
                 -------   ---------------------------

4. --------------- DIRECT DEPOSIT ADDRESS --------------------------------------

Investors  requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the  Company
or Affiliates be responsible for any adverse consequences of direct deposit.

Company
       -------------------------------------------------------------------------
Address
       -------------------------------------------------------------------------
City                               State                Zip Code
    -----------------------------        ------------            ---------------
Account No.                                   Phone #(      )
            --------------------------------          ------  ------------------

5. --------------- FORM OF OWNERSHIP -------------------------------------------

(Select only one)
|_|INDIVIDUAL-one signature required (1)
|_|HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two
   signatures required (15)
|_|TENANTS IN COMMON-two signatures required (9)
|_|TENANTS BY THE ENTIRETY-two signatures required (31)
|_|S-CORPORATION (22)
|_|C-CORPORATION (5)
|_|IRA-custodian signature required (23)
|_|SEP-custodian signature required (38)
|_|TAXABLE TRUST (7)
|_|TAX-EXEMPT TRUST (20)
|_|JOINT TENANTS WITH RIGHT OF SURVIVORSHIP - all parties must sign (8)
|_|A MARRIED PERSON/SEPARATE PROPERTY - one signature required (34)
|_|KEOGH (H.R.10) - trustee signature required (24)
|_|CUSTODIAN - custodian signature required (33)
|_|PARTNERSHIP (3)
|_|NON-PROFIT ORGANIZATION (12)
|_|PENSION PLAN - trustee signature(s) required (19)
|_|PROFIT SHARING PLAN - trustee signature(s) required (27)
|_|CUSTODIAN UGMA-STATE of - custodian signature required (16)
|_|CUSTODIAN UTMA-STATE of - custodian signature required (42)
|_|ESTATE - Personal Representative signature required (13)
|_|REVOCABLE GRANTOR TRUST - grantor signature required (25)
|_|IRREVOCABLE TRUST - trustee signature required (21)

|_|SUBSCRIBER elects to have the Shares covered by this subscription placed in a
   new  sponsored  IRA  account  offered  by  Franklin  Bank  as custodian.  IRA
   documents will be sent to subscriber upon receipt of subscription  documents.
   There  is  no  annual  fee  involved  for  CNL  Health  Care Properties, Inc.
   investments.


<PAGE>




6. -------------- SUBSCRIBER SIGNATURES ----------------------------------------

If the  Subscriber is executing the  Subscriber  Signature  Page, the Subscriber
understands  that, BY EXECUTING THIS  AGREEMENT A SUBSCRIBER  DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES  ACT OF 1933 OR THE SECURITIES  EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:

X                                                                               
  ---------------------------------------------       --------------------------
  Signature of 1st Subscriber                         Date                      

X                                                                           
  ---------------------------------------------       --------------------------
  Signature of 2nd Subscriber                         Date

7. -------------- BROKER/DEALER INFORMATION ------------------------------------

Broker/Dealer NASD Firm Name
                            ----------------------------------------------------
Registered Representative
                         -------------------------------------------------------
Branch Mail Address
                   -------------------------------------------------------------
City                                   State            Zip Code                
    ----------------------------------       ----------          ---------------

|_|  Please check if new address

Phone #(      )                Fax #(      )                |_|  Sold CNL before
        ------  -------------        ------  -------------
Shipping Address
                ----------------------------------------------------------------
City                                   State            Zip Code
    ----------------------------------      -----------          ---------------

|_|     Telephonic Subscriptions (check here): If the Registered  Representative
        and Branch  Manager are executing  the  signature  page on behalf of the
        Subscriber,  both must sign below. Registered Representatives and Branch
        Managers may not sign on behalf of residents  of Florida,  Iowa,  Maine,
        Massachusetts, Michigan, Minnesota, Mississippi, Missouri, Nebraska, New
        Mexico,  North  Carolina,  Ohio,  Oregon,  South  Dakota,  Tennessee  or
        Washington.  [NOTE:  Not to be executed until  Subscriber(s)  has (have)
        acknowledged receipt of final prospectus.] Telephonic  subscriptions may
        not be completed for IRA accounts.
   
|_|     Deferred  Commission Option (check here): The Deferred Commission Option
        means  an   agreement   between   a   stockholder,   the   participating
        Broker/Dealer  and the Managing Dealer to have Selling  Commissions paid
        over a seven  year  period  as  described  in "The  Offering  -- Plan of
        Distribution."   This   option  will  only  be   available   with  prior
        authorization by the Broker/Dealer.
    
|_|     Registered  Investment  Advisor (RIA) (check here):  This  investment is
        made  through the RIA in its  capacity as an RIA and not in its capacity
        as a Registered Representative,  if applicable. If an owner or principal
        or  any  member  of  the  RIA  firm  is  an  NASD  licensed   Registered
        Representative  affiliated with a Broker/Dealer,  the transaction should
        be conducted through that Broker/Dealer, not through the RIA.

        PLEASE READ CAREFULLY THE  REVERSE  SIDE  OF  THIS  SIGNATURE  PAGE  AND
        SUBSCRIPTION AGREEMENT BEFORE COMPLETING

X
  --------------------------------  --------------   ---------------------------
  Principal, Branch Manager or      Date             Print or Type Name of
  Other Authorized Signature                         Person Signing

X
  --------------------------------  --------------   ---------------------------
  Registered Representative/        Date             Print or Type Name of 
  Investment Advisor Signature                       Person Signing

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

 Make check payable to :  SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.,
                          ESCROW AGENT
<TABLE>
<CAPTION>
<S> <C>
 Please remit check and          For overnight delivery, please send to:       For Office Use Only
 subscription document to:
                                 CNL SECURITIES CORP.
   
 CNL SECURITIES CORP.            Attn:  Investor Services                      Sub. #
 Attn:  Investor Services        400 E. South Street                                 -------------
 P. O. Box 1033                  Orlando, FL  32801                            Admit Date
 Orlando, FL  32802-1033         (407)  650- 1000                                        ---------
 (800) 522-3863                  (800) 522-3863                                Amount
                                                                                     -------------
                                                                               Region
                                                                                     -------------
                                                                               RSVP#
                                                                                    --------------
     
</TABLE>

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



<PAGE>





NOTICE TO ALL INVESTORS:

 (a) The purchase of Shares by an IRA, Keogh, or other  tax-qualified  plan does
not, by itself, create the plan.

 (b) The Company, in its sole and absolute discretion,  may accept or reject the
Subscriber's  subscription  which if rejected  will be promptly  returned to the
Subscriber,   without  interest.  Non-U.S.   stockholders  (as  defined  in  the
Prospectus) will be admitted as stockholders with the approval of the Advisor.

 (c) THE SALE OF SHARES  SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED  UNTIL AT
LEAST  FIVE  BUSINESS  DAYS  AFTER  THE DATE  THE  SUBSCRIBER  RECEIVES  A FINAL
PROSPECTUS.  EXCEPT AS PROVIDED IN THIS  NOTICE,  THE NOTICE  BELOW,  AND IN THE
PROSPECTUS,  THE  SUBSCRIBER  WILL NOT BE  ENTITLED  TO REVOKE OR  WITHDRAW  HIS
SUBSCRIPTION.


   
The  subscriber  is asked to refer to the  prospectus  concerning  the  Deferred
Commission  Option  outlined  in "The  Offering -- Plan of  Distribution."  This
option will only be available with prior authorization by the Broker/Dealer .
    



NOTICE TO CALIFORNIA,  FLORIDA AND IOWA RESIDENTS:  California, Florida and Iowa
investors  will  have  the  right  to  withdraw  their   subscription  funds  if
subscriptions  for at least  $2,500,000  have not been  accepted  by the Company
within six months after the initial  offer of Shares of the Company  pursuant to
the Prospectus and the Company elects at that time to extend the offering beyond
such date.  The  Company  will  promptly  notify  California,  Florida  and Iowa
investors if the Company so elects to extend the  offering,  and such  investors
must  exercise  their right to  withdraw  within ten (10) days of such notice by
delivering  written  notice to the Company of their  intention to exercise  such
right.  The  subscription  funds of  withdrawing  California,  Florida  and Iowa
investors will be promptly returned along with such investors' pro rata share of
interest  earned  thereon net of any escrow fees  calculated as set forth in the
Prospectus and the Escrow Agreement.


       
NOTICE TO NORTH  CAROLINA  RESIDENTS:  By signing this  Subscription  Agreement,
North  Carolina  investors  acknowledge  receipt of the Prospectus and represent
that they meet the suitability  standards for North Carolina investors listed in
the Prospectus.



BROKER/DEALER AND FINANCIAL ADVISOR:

By signing this subscription agreement,  the signers certify that they recognize
and have complied with their  obligations  under the NASD's Conduct  Rules,  and
hereby further certify as follows:  (i) a copy of the Prospectus,  including the
Subscription  Agreement  attached  thereto  as  Appendix  D, as  amended  and/or
supplemented  to date,  has been  delivered  to the  Subscriber;  (ii) they have
discussed such investor's  prospective purchase of Shares with such investor and
have advised such investor of all pertinent  facts with regard to the liquidity,
valuation,  and  marketability  of the  Shares;  and (iii) they have  reasonable
grounds to believe that the purchase of Shares is a suitable investment for such
investor,  that such investor meets the suitability standards applicable to such
investor set forth in the Prospectus and related supplements,  if any, that such
investor  is  legally  capable  of  purchasing  such  Shares  and will not be in
violation  of any  laws for  having  engaged  in such  purchase,  and that  such
investor  is in a  financial  position  to enable  such  investor to realize the
benefits  of such an  investment  and to suffer  any loss  that may  occur  with
respect thereto and will maintain  documentation on which the  determination was
based for a period of not less than six years;  (iv) under penalties of perjury,
(a) the information  provided in this Subscription  Agreement to the best of our
knowledge and belief is true, correct, and complete,  including, but not limited
to, the number shown above as the Subscriber's taxpayer  identification  number;
(b) to the best of our  knowledge and belief,  the  Subscriber is not subject to
backup  withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup  withholding  as result of failure to report all
interest  or  dividends  or  the  Internal  Revenue  Service  has  notified  the
subscriber that the Subscriber is no longer subject to backup  withholding under
Section  3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our  knowledge  and belief,  the  Subscriber is not a nonresident
alien,  foreign  corporation,  foreign  trust,  or foreign  estate for U.S.  tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.



<PAGE>



Franklin Bank, N.A.
- --------------------------------------------------------------------------------

         FRANKLIN BANK, N.A., INDIVIDUAL RETIREMENT ACCOUNT APPLICATION

ACCOUNTHOLDER INFORMATION:   NAME ______________________________________________

DISCLAIMER:

         Franklin Bank,  N.A. is a national bank, not associated with CNL Group,
Inc. or any CNL entity. Franklin Bank, N.A. is a custodian for IRAs and will act
in a  custodial  capacity  for  all  beneficial  owners  of  IRAs.  CNL  has  no
affiliation with Franklin Bank, N.A.

         It is not  reasonable  to project  the  growth of your IRA  investments
include  assets other than bank time  deposits or savings  accounts.  Therefore,
your final  account  balance  will depend upon many factors - the amount of your
contributions,  the amount of time the funds are invested,  the earnings  and/or
losses from the investments, expenses incurred such as brokerage commissions and
trustee's  fees and the overall  performance of your  investments.  We expressly
state  that the  growth  in the  value  of your  IRA  cannot  be  guaranteed  or
projected.

SIGNATURES          IMPORTANT:  Please read before signing.
                    I understand the  eligibility  requirements  for the type of
                    IRA  deposit I am making  and I state  that I do  qualify to
                    make the deposit. I understand that the terms and conditions
                    which  apply  to  the  Individual   Retirement  Account  are
                    contained in this  Application and Form 5305A (which will be
                    provided within 10 days of our receipt of this application).
                    I agree  to be  bound  by  those  terms  and  conditions.  I
                    understand  that I will not be required to pay an annual fee
                    as long as all  investments  in this IRA are  sponsored by a
                    CNL entity.  Within seven (7) days from the date I establish
                    the  Individual  Retirement  Account I may revoke it without
                    penalty  by mailing or  delivering  a written  notice to the
                    Custodian.

                    I assume complete responsibility for:

                    1.  Determining  that I am  eligible  for an IRA each year I
                    make a  contribution.
                    2. Insuring that all contributions I  make  are  within  the
                    limits set forth by the tax laws.
                    3. The  tax  consequences  of  any  contribution  (including
                    rollover contributions) and distributions.


           Signature _______________________________________________
                             Accountholder

<TABLE>
<CAPTION>
<S> <C>
                             -----------------------------------------------                    ------------------------------------
                             Authorized Signature Trustee                                        Date
DESIGNATION OF
BENEFICIARY(IES):            I  designate  the  individual(s)  named below as my
                             primary and contingent Beneficiary(ies) of the IRA.
                             I revoke all prior IRA Beneficiary designations, if
                             any, made by me. I understand  that I may change or
                             add  Beneficiaries  at any time by  completing  and
                             delivering  the proper form to the  Custodian.  (If
                             you wish to name more than one Beneficiary,  attach
                             a list of each Beneficiary's  name, social security
                             number, relationship to you and percentage share in
                             this IRA.) If any primary or contingent Beneficiary
                             dies  before  me,  his  or  her  interest  and  the
                             interest  of  his  or  her  heirs  shall  terminate
                             completely,   and  the  percentage   share  of  any
                             remaining  Beneficiary(ies) shall be increased on a
                             pro rata basis.

Primary             The following individual(s) shall be my Primary Beneficiary(ies):
Beneficiary(ies)
                    Name_____________________________________________________________       Social Security #___________________
                    Address__________________________________________________________       Date of Birth__________  Share______
                    _________________________________________________________________       Relationship________________________

Contingent          If  none  of  the  Primary  Beneficiaries  survive  me,  the
Beneficiary (ies)   following individual(s) shall be my Beneficiary(ies):

                    Name_____________________________________________________________        Social Security #___________________
                    Address__________________________________________________________        Date of Birth__________  Share______
                    _________________________________________________________________        Relationship________________________

Spousal Consent
                    I am the spouse of IRA accountholder named above. I agree to
                    my  spouse's  naming of a  primary  Beneficiary  other  than
                    myself.  I  acknowledge  that I  have  received  a fair  and
                    reasonable  disclosure of my spouse's property and financial
                    obligation.  I also  acknowledge  that I shall have no claim
                    whatsoever  against  the  Custodian  for any  payments to my
                    spouse's Beneficiary(ies).



                    _________________________________________________________________         _________________________
                    Spouse's Signature                                                        Date

</TABLE>

- --------------------------------------------------------------------------------
              Custodial Services P.O. Box 7090 Troy, MI 48007-7090
                                 1-800-344-0667


<PAGE>


                               INVESTMENT OPTIONS:

|_|      I would like to receive information regarding mutual fund investments.
|_|      I would like to receive information regarding money market accounts.

Note:  Franklin Bank, N.A. may consider other investment options for  your  IRA.
       Please provide the following information on your options.

Fund Name
         -----------------------------------------------------------------------
Sponsor Name
            --------------------------------------------------------------------
Address
       -------------------------------------------------------------------------
Account No.                                    Telephone #
           -----------------------------------            ----------------------

Registered Representative information:

Registered Representative's Name
                                ------------------------------------------------
Company
       -------------------------------------------------------------------------
Address
       -------------------------------------------------------------------------
Telephone #
           ---------------------------------------------------------------------

<PAGE>



<PAGE>



                                     PART II

                     INFORMATION NOT REQUIRED IN PROSPECTUS


Item 31. Other Expenses of Issuance and Distribution.

                                                                     Amount
                                                                     ------

              SEC registration fee.............................    $    47,849
              NASD filing fee..................................         16,720
              Accounting fees and expenses.....................        100,000*
              Escrow Agent's Fees..............................          5,000*
              Sales and advertising expenses...................      3,000,000*
              Legal fees and expenses..........................        250,000*
              Blue Sky fees and expenses.......................        300,000*
              Printing expenses................................        200,000*
              Miscellaneous....................................        580,431*

                      Total....................................    $ 4,500,000*

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

*      Estimated through completion of the offering, assuming sale of 15,000,000
       shares.


Item 32.      Sales to Special Parties.

              The registrant was capitalized through the purchase by the Advisor
of 20,000 shares of Common Stock for aggregate consideration of $200,000.

Item 33.      Recent Sales of Unregistered Securities.

              See  response  to Item 32.  The  offer  and sale of the  shares is
claimed to be exempt from the  registration  provisions of the Securities Act of
1933, as amended, by virtue of Section 4(2) thereunder.

Item 34.      Indemnification of Directors and Officers.

              Pursuant to Maryland  corporate law and the Company's  Articles of
Incorporation,  the Company is required to indemnify and hold harmless a present
or former Director,  officer,  Advisor,  or Affiliate and may indemnify and hold
harmless a present or former employee or agent of the Company (the "Indemnitee")
against any or all losses or liabilities  reasonably  incurred by the Indemnitee
in connection  with or by reason of any act or omission  performed or omitted to
be  performed  on behalf of the  Company  while a  Director,  officer,  Advisor,
Affiliate,  employee,  or  agent  and  in  such  capacity,  provided,  that  the
Indemnitee has determined,  in good faith, that the act or omission which caused
the loss or liability was in the best interests of the Company. The Company will
not indemnify or hold harmless the  Indemnitee if: (i) the loss or liability was
the result of

                                      II-2

<PAGE>



negligence or misconduct,  or if the Indemnitee is an Independent Director,  the
loss or liability was the result of gross negligence or willful misconduct, (ii)
the act or omission was material to the loss or liability  and was  committed in
bad  faith or was the  result  of active  or  deliberate  dishonesty,  (iii) the
Indemnitee actually received an improper personal benefit in money, property, or
services,  (iv) in the  case of any  criminal  proceeding,  the  Indemnitee  had
reasonable  cause to believe that the act or omission was unlawful,  or (v) in a
proceeding  by or in the right of the Company,  the  Indemnitee  shall have been
adjudged to be liable to the Company. In addition,  the Company will not provide
indemnification  for any loss or liability  arising from an alleged violation of
federal or state securities laws unless one or more of the following  conditions
are met:  (i) there has been a  successful  adjudication  on the  merits of each
count  involving  alleged   securities  law  violations  as  to  the  particular
Indemnitee; (ii) such claims have been dismissed with prejudice on the merits by
a court of competent  jurisdiction as to the particular  Indemnitee;  or (iii) a
court of competent  jurisdiction  approves a settlement of the claims  against a
particular  Indemnitee and finds that  indemnification of the settlement and the
related  costs  should  be made,  and the  court  considering  the  request  for
indemnification  has been advised of the position of the Securities and Exchange
Commission  and of the  published  position of any state  securities  regulatory
authority  in  which  securities  of the  Company  were  offered  or  sold as to
indemnification  for violations of securities laws.  Pursuant to its Articles of
Incorporation,  the Company is required to pay or reimburse  reasonable expenses
incurred by a present or former Director,  officer, Advisor or Affiliate and may
pay or reimburse reasonable expenses incurred by any other Indemnitee in advance
of final  disposition  of a proceeding if the following are  satisfied:  (i) the
Indemnitee  was made a party to the  proceeding by reasons of his or her service
as a Director,  officer, Advisor,  Affiliate,  employee or agent of the Company,
(ii) the Indemnitee  provides the Company with written affirmation of his or her
good faith belief that he or she has met the standard of conduct  necessary  for
indemnification  by the Company as authorized by the Articles of  Incorporation,
(iii) the Indemnitee  provides the Company with a written agreement to repay the
amount paid or reimbursed by the Company,  together  with the  applicable  legal
rate of interest thereon, if it is ultimately determined that the Indemnitee did
not comply with the requisite standard of conduct, and (iv) the legal proceeding
was initiated by a third party who is not a stockholder  or, if by a stockholder
of the  Company  acting in his or her  capacity  as such,  a court of  competent
jurisdiction approves such advancement.  The Company's Articles of Incorporation
further  provide that any  indemnification,  payment,  or  reimbursement  of the
expenses  permitted  by the  Articles  of  Incorporation  will be  furnished  in
accordance  with  the  procedures  in  Section  2-418  of the  Maryland  General
Corporation Law.

              Any  indemnification  may be paid  only out of Net  Assets  of the
Company, and no portion may be recoverable from the stockholders.

              The Company will enter into  indemnification  agreements with each
of the Company's  officers and Directors.  The  indemnification  agreements will
require, among other things, that the Company

                                      II-3

<PAGE>



indemnify its officers and Directors to the fullest extent permitted by law, and
advance  to  the  officers  and  Directors  all  related  expenses,  subject  to
reimbursement  if it is  subsequently  determined  that  indemnification  is not
permitted.  In accordance  with this  agreement,  the Company must indemnify and
advance all expenses incurred by officers and Directors seeking to enforce their
rights  under the  indemnification  agreements.  The  Company  must  also  cover
officers and Directors  under the Company's  directors' and officers'  liability
insurance.

Item 35.      Treatment of Proceeds from Securities Being Registered.

              Not applicable.

Item 36.      Financial Statements and Exhibits.

              Financial Statements:

              The following financial statements are included in the Prospectus.

              (1)     Report of Independent Accountants for CNL Health Care
                      Properties, Inc.

   
              (2)     Balance Sheets of CNL Health Care Properties, Inc. at
                      June 30, 1998 (unaudited) and December 31, 1997

              (3)     Statement  of  Stockholder's  Equity  of CNL  Health  Care
                      Properties,  Inc.  for the six months  ended June 30, 1998
                      (unaudited)  and the  period  December  22,  1997 (date of
                      inception) through December 31, 1997
    

              (4)     Notes to Financial Statements of CNL Health Care
                      Properties, Inc.

              All  Schedules  have been omitted as the required  information  is
inapplicable or is presented in the financial statements or related notes.

              (b)     Exhibits:

   
              1.1     Form of Managing Dealer Agreement (Previously filed.)
    

              1.2     Form of Participating Broker Agreement (Filed herewith.)

              1.3     Form of Warrant Purchase Agreement (Previously filed.)

              3.1     CNL Health Care Properties, Inc. Articles of Incorporation
                      (Previously filed.)

              3.2     Form of CNL  Health  Care  Properties,  Inc.  Amended  and
                      Restated Articles of Incorporation (Filed herewith.)

              3.3     Form  of  CNL  Health   Care   Properties,   Inc.   Bylaws
                      (Previously filed.)

                                      II-4

<PAGE>




              4.1     CNL Health Care Properties, Inc. Articles of Incorporation
                      (Filed  as  Exhibit   3.1  and   incorporated   herein  by
                      reference.)

              4.2     Form of CNL  Health  Care  Properties,  Inc.  Amended  and
                      Restated  Articles of Incorporation  (Filed as Exhibit 3.2
                      and incorporated herein by reference.)

              4.3     Form of CNL Health Care Properties, Inc. Bylaws (Filed as
                      Exhibit 3.3 and incorporated herein by reference.)

              4.4     Form of  Reinvestment  Plan (Included in the Prospectus as
                      Appendix A and incorporated herein by reference.)

   
                5     Opinion  of  Shaw  Pittman  Potts &  Trowbridge  as to the
                      legality of the securities  being registered by CNL Health
                      Care Properties, Inc. (Filed herewith.)

                8     Opinion  of  Shaw  Pittman  Potts &  Trowbridge  regarding
                      certain  material  tax issues  relating to CNL Health Care
                      Properties, Inc. (Filed herewith.)

              10.1    Form  of  Escrow   Agreement   between   CNL  Health  Care
                      Properties, Inc. and SouthTrust Asset Management Company
                      of Florida, N.A. (Filed herewith.)

              10.2    Form of Advisory Agreement (Previously filed.)
    

              10.3    Form of Joint Venture Agreement (Previously filed.)

              10.4    Form of Indemnification and Put Agreement (Previously
                      filed.)

              10.5    Form of Unconditional Guaranty of Payment and Performance
                      (Previously filed.)

              10.6    Form of Purchase Agreement (Previously filed.)

              10.7    Form  of  Lease   Agreement   including   Rent   Addendum,
                      Construction  Addendum and Memorandum of Lease (Previously
                      filed.)

              10.8    Form of  Reinvestment  Plan (Included in the Prospectus as
                      Appendix A and incorporated herein by reference.)
   
              10.9    Form of Indemnification Agreement (Filed herewith.)

              23.1    Consent of  PricewaterhouseCoopers,  LLP, Certified Public
                      Accountants, dated September 9, 1998 (Filed herewith.)

              23.2    Consent of Shaw Pittman  Potts & Trowbridge  (Contained in
                      its  opinions  filed  herewith  as  Exhibits  5  and 8 and
                      incorporated herein by reference.)
    

                                      II-5

<PAGE>




                24    Power of Attorney (See "Signatures.")

              27.1    Financial   Data   Schedule  as  of   December   31,  1997
                      (Previously filed.)

              27.2    Financial Data Schedule as of April 30, 1998 (Previously
                      filed.)

   
              27.3    Financial Data Schedule as of June 30, 1998 (Filed
                      herewith.)
    

Item 37.      Undertakings.

              The registrant undertakes (a) to file any prospectuses required by
Section 10(a)(3) as post-effective  amendments to this  registration  statement,
(b) that, for the purpose of determining  any liability under the Securities Act
of 1933, as amended,  each such  post-effective  amendment may be deemed to be a
new registration  statement relating to the securities offered therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof,  (c) that all post-effective  amendments will comply with
the applicable  forms,  rules and regulations of the Commission in effect at the
time  such  post-effective   amendments  are  filed,  and  (d)  to  remove  from
registration by means of a post-effective  amendment any of the securities being
registered which remain unsold at the termination of the offering.

              The registrant undertakes to send to each stockholder, at least on
an annual basis, a detailed  statement of any  transactions  with the Advisor or
its Affiliates, and of fees, commissions,  compensation, and other benefits paid
or accrued to the  Advisor or its  Affiliates,  for the fiscal  year  completed,
showing the amount paid or accrued to each recipient and the services performed.

              The  registrant  undertakes  to  provide to the  stockholders  the
financial  statements  required  by Form 10-K for the first full  fiscal year of
operations of the Registrant.

              The registrant undertakes to file a sticker supplement pursuant to
Rule  424(c)  under the Act  during  the  distribution  period  describing  each
property  not  identified  in the  Prospectus  at such  time as  there  arises a
reasonable  probability  that such property will be acquired and to  consolidate
all such  stickers  into a  post-effective  amendment  filed at least once every
three  months,  with  the  information  contained  in  such  amendment  provided
simultaneously  to the  existing  stockholders.  Each  sticker  supplement  will
disclose all compensation and fees received by the Advisor and its Affiliates in
connection  with any such  acquisition.  Post-effective  amendments will include
audited financial  statements meeting the requirements of Rule 3-14 or Rule 3-05
of Regulation S-X, as appropriate  based upon the type of property  acquired and
the type of lease to which such  property will be subject,  only for  properties
acquired during the distribution period.


                                      II-6

<PAGE>



              The  registrant  also  undertakes  to file,  after  the end of the
distribution  period,  a current  report on Form 8-K  containing  the  financial
statements and any additional  information required by Rule 3-14 or Rule 3-05 of
Regulation  S-X, as appropriate  based on the type of property  acquired and the
type of lease to which such property will be subject, to reflect each commitment
(i.e.,  the signing of a binding  purchase  agreement) made after the end of the
distribution  period involving the use of 10% or more (on a cumulative basis) of
the net  proceeds of the offering  and to provide the  information  contained in
such  report  to  the   stockholders  at  least  once  each  quarter  after  the
distribution  period of the offering has ended.  The  registrant  undertakes  to
include,  in filings containing  financial  statements of the Company,  separate
audited  financial  statements  for all lessees  leasing one or more  properties
whose cost represents 20% or more of the gross proceeds of the offering.



                                      II-7

<PAGE>



     The undersigned registrant hereby undertakes:

     (1)  To file, during any period in which  offers or sales are being made, a
post-effective amendment to this registration statement:

     (i)  To  include  any  prospectus  required  by Section  10(a)(3)  of   the
Securities Act of 1933;

     (ii) To reflect in the  prospectus  any facts or events  arising  after the
effective date of the registration  statement (or the most recent post-effective
amendment  thereof)  which  individually  or  in  the  aggregate,   represent  a
fundamental  change in the information set forth in the registration  statement.
Notwithstanding the foregoing,  any increase or decrease in volume of securities
offered (if the total dollar value of  securities  offered would not exceed that
which  was  registered)  and any  deviation  from  the  low or  high  end of the
estimated  maximum  offering  range may be reflected  in the form of  prospectus
filed with the  Commission  pursuant  to Rule 424(b) if, in the  aggregate,  the
changes in volume  and price  represent  no more than 20  percent  change in the
maximum  aggregate  offering price set forth in the "Calculation of Registration
Fee" table in the effective registration statement;

     (iii) To  include  any  material  information  with  respect to the plan of
distribution  not  previously  disclosed  in the  registration  statement or any
material change to such information in the registration statement;

     (2) That, for the purpose of determining any liability under the Securities
Act of 1933,  each  such  post-effective  amendment  shall be deemed to be a new
registration  statement  relating to the  securities  offered  therein,  and the
offering of such  securities at that time shall be deemed to be the initial bona
fide offering thereof.

     (3) To remove from registration by means of a post-effective  amendment any
of the securities being registered which remain unsold at the termination of the
offering.

              Insofar as indemnification for liabilities arising under the

                                      II-8

<PAGE>



Securities Act of 1933, as amended, may be permitted to directors, officers, and
controlling persons of the registrant pursuant to the foregoing  provisions,  or
otherwise, the registrant has been advised that in the opinion of the Securities
and  Exchange  Commission  such  indemnification  is  against  public  policy as
expressed in the Act and is, therefore, unenforceable. In the event that a claim
for  indemnification  against  such  liabilities  (other than the payment by the
registrant of expenses incurred or paid by a director,  officer,  or controlling
person of the registrant in the successful defense of any such action,  suit, or
proceeding) is asserted by such  director,  officer,  or  controlling  person in
connection with the securities being registered,  the registrant will, unless in
the opinion of its counsel the matter has been settled by controlling precedent,
submit  to a  court  of  appropriate  jurisdiction  the  question  whether  such
indemnification  by it is against public policy as expressed in the Act and will
be governed by the final adjudication of such issue.

                                      II-9

<PAGE>



                                    TABLE VI
                      ACQUISITION OF PROPERTIES BY PROGRAMS


   
              Table VI presents  information  concerning the acquisition of real
properties  by the public  real estate  limited  partnerships  and the  unlisted
public REITs  sponsored by Affiliates of the Company  through June 30, 1998. The
information  includes  the  gross  leasable  space or  number of units and total
square  feet of units,  dates of  purchase,  locations,  cash down  payment  and
contract  purchase price plus  acquisition  fee. This information is intended to
assist the prospective investor in evaluating the terms involved in acquisitions
by such prior programs.


<PAGE>

                                    TABLE VI
                     ACQUISITIONS OF PROPERTIES BY PROGRAMS


<TABLE>
<CAPTION>


                                     CNL Income           CNL Income           CNL Income           CNL Income
                                       Fund,               Fund II,             Fund III,            Fund IV,
                                        Ltd.                 Ltd.                 Ltd.                 Ltd.
                                     ----------           ----------           ----------           ----------
                                      (Note 2)             (Note 3)             (Note 4)             (Note 5)

<S> <C>
                                                         AL,AZ,CO,FL,         AZ,CA,CO,FL,         AL,DC,FL,GA,
                                                         GA,IL,IN,KS,         GA,IA,IL,IN,         IL,IN,KS,MA,
                                    AL,AZ,CA,FL,         LA,MI,MN,MO,         KS,KY,MD,MI,         MD,MI,MS,NC,
                                    GA,LA,MD,OK,         NC,NM,OH,TN,         MN,MO,NC,NE,         OH,PA,TN,TX,
Locations                           PA,TX,VA,WA          TX,WA,WY             OK,TX                VA

Type of property                     Restaurants          Restaurants          Restaurants          Restaurants

Gross leasable space
  (sq. ft.) or number
  of units and                          22 units             49 units             37 units             45 units
  total square feet
  of units                            80,314 s/f          185,717 s/f          158,819 s/f          159,196 s/f


Dates of purchase                      6/17/86 -             2/11/87-            10/04/87-             6/24/88-
                                        12/31/97              1/13/98               5/1/98             12/31/96


Cash down payment (Note 1)           $13,435,137          $26,654,961          $22,413,070          $27,611,441


Contract purchase price
  plus acquisition fee               $13,361,435          $26,501,721          $22,296,185          $27,506,106


Other cash expenditures
  expensed                                    -                    -                    -                    -


Other cash expenditures
  capitalized                             73,702              153,240              116,885              105,335
                                     -----------          -----------          -----------          -----------

Total acquisition cost
  (Note 1)                           $13,435,137          $26,654,961          $22,413,070          $27,611,441
                                     ===========          ===========          ===========          ===========
</TABLE>



Note 1:  This amount was derived from capital  contributions  or  proceeds  from
         partners  or  stockholders,   respectively,   and  net  sales  proceeds
         reinvested in other properties.

Note 2:  The partnership owns a 50% interest in three  separate  joint  ventures
         which each own a restaurant property. In addition, the partnership owns
         a 12.17% interest in one restaurant property held as  tenants-in-common
         with affiliates.

Note 3:  The partnership owns a 49%, 50% and  64%  interest  in  three  separate
         joint  ventures.  Each joint venture owns one restaurant  property.  In
         addition,  the partnership  owns a 33.87%, a 57.77%, a 47%, a 37.01%, a
         39.42%  and  a  13.38%  interest  in  six  restaurant  properties  held
         separately as tenants-in-common with affiliates.

Note 4:  The  partnership  owns a 73.4%,  69.07% and 46.89%  interest  in  three
         separate  joint  ventures.  Each  joint  venture  owns  one  restaurant
         property.  In addition,  the partnership  owns a 32.77%,  a 9.84% and a
         25.84%  interest in three  restaurant  properties  held  separately  as
         tenants-in-common with affiliates.

Note 5:  The partnership owns a 51%, 26.6%, 57%, 96.1% and  68.87%  interest  in
         five separate  joint  ventures.  Each joint venture owns one restaurant
         property.  In addition,  the partnership  owns a 53.68% interest in one
         restaurant property held as tenants-in-common with affiliates.



<PAGE>



TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)


<TABLE>
<CAPTION>



                                     CNL Income           CNL Income           CNL Income           CNL Income
                                       Fund V,             Fund VI,             Fund VII,           Fund VIII,
                                        Ltd.                 Ltd.                 Ltd.                 Ltd.
                                     ----------           ----------           ----------           ----------
                                      (Note 6)             (Note 7)             (Note 8)             (Note 9)
<S> <C>
                                                         AR,AZ,FL,GA,
                                                         IL,IN,KS,MA,
                                    AZ,FL,GA,IL,         MI,MN,NC,NE,         AZ,CO,FL,GA,
                                    IN,MI,NH,NY,         NM,NY,OH,OK,         IN,LA,MI,MN,         AZ,FL,IN,LA,
                                    OH,SC,TN,TX,         PA,TN,TX,VA,         NC,OH,SC,TN,         MI,MN,NC,NY,
Locations                           UT,WA                WA,WY                TX,UT,WA             OH,TN,TX,VA

Type of property                     Restaurants          Restaurants          Restaurants          Restaurants

Gross leasable space
  (sq. ft.) or number
  of units and                          35 units             55 units             49 units             42 units
  total square feet
  of units                           143,344 s/f          222,003 s/f          184,412 s/f          179,885 s/f


Dates of purchase                       2/06/89-             7/13/89-             3/30/90-             9/13/90-
                                          5/1/98              6/16/98             12/31/97              5/31/96


Cash down payment (Note 1)           $26,329,791          $39,944,526          $30,416,598          $31,985,071


Contract purchase price
  plus acquisition fee               $25,946,991          $39,413,526          $29,745,103          $31,450,507


Other cash expenditures
  expensed                                    -                    -                    -                    -


Other cash expenditures
  capitalized                            382,800              531,000              671,495              534,564
                                     -----------          -----------          -----------          -----------

Total acquisition cost
  (Note 1)                           $26,329,791          $39,944,526          $30,416,598          $31,985,071
                                     ===========          ===========          ===========          ===========

</TABLE>


Note 6:  The  partnership  owns a 43%, 49%, 66.5% and 53.11%  interest  in  four
         separate  joint  ventures.  Each  joint  venture  owns  one  restaurant
         property.  In  addition,  the  partnership  owns a 42.23%  and a 27.78%
         interest   in   two   restaurant    properties   held   separately   as
         tenants-in-common with affiliates.

Note 7:  The partnership owns a 3.9%, 14.5%, 36%, 66.14%,  and  a  50%  interest
         in five separate joint ventures. Each joint venture owns one restaurant
         property.  In addition,  the  partnership  owns a 51.67%,  a 17.93%,  a
         23.04%,  a 34.74%,  a 46.2%  and a 85.07%  interest  in six  restaurant
         properties held separately as tenants-in-common with affiliates.

Note 8:  The partnership owns a 51%, 83.3%,  4.79%,  18%, and  79%  interest  in
         five separate joint  ventures.  Four of the joint ventures each own one
         restaurant  property and the other joint  venture  owns six  restaurant
         properties.  In addition,  the partnership  owns a 48.33%,  a 53% and a
         35.64%  interest in three  restaurant  properties  held  separately  as
         tenants-in-common with affiliates.

Note 9:  The partnership  owns a 85.5%,  87.68%,  36.8% and a  12%  interest  in
         four separate joint ventures.  Three of the joint ventures each own one
         restaurant  property and the other joint  venture  owns six  restaurant
         properties.


<PAGE>



TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)



<TABLE>
<CAPTION>


                                     CNL Income           CNL Income           CNL Income           CNL Income
                                      Fund IX,              Fund X,             Fund XI,             Fund XII,
                                        Ltd.                 Ltd.                 Ltd.                 Ltd.
                                     ----------           ----------           -----------          ----------
                                     (Note 10)            (Note 11)            (Note 12)            (Note 13)
<S> <C>
                                                                              AL,AZ,CA,CO,
                                    AL,CO,FL,GA,         AL,CA,CO,FL,         CT,FL,KS,LA,
                                    IL,IN,LA,MI,         ID,IL,LA,MI,         MA,MI,MS,NC,         AL,AZ,CA,FL,
                                    MN,MS,NC,NH,         MO,MT,NC,NH,         NH,NM,OH,OK,         GA,LA,MO,MS,
                                    NY,OH,SC,TN,         NM,NY,OH,PA,         PA,SC,TX,VA,         NC,NM,OH,SC,
Locations                           TX                   SC,TN,TX             WA                   TN,TX,WA

Type of property                     Restaurants          Restaurants          Restaurants          Restaurants

Gross leasable space
  (sq. ft.) or number
  of units and                          43 units             51 units             40 units             49 units
  total square feet
  of units                           185,636 s/f          214,433 s/f          176,062 s/f          206,865 s/f


Dates of purchase                       5/31/91-            10/01/91-             5/18/92-            11/20/92-
                                         7/16/97             12/31/97              1/28/97              5/31/96


Cash down payment (Note 1)           $32,812,908          $37,444,525          $36,245,591          $40,840,795


Contract purchase price
  plus acquisition fee               $32,068,289          $36,735,362          $35,644,633          $40,339,796


Other cash expenditures
  expensed                                    -                    -                    -                    -


Other cash expenditures
  capitalized                            744,619              709,163              600,958              500,999
                                     -----------          -----------          -----------          -----------

Total acquisition cost
  (Note 1)                           $32,812,908          $37,444,525          $36,245,591          $40,840,795
                                     ===========          ===========          ===========          ===========
</TABLE>



Note 10:      The partnership  owns a 50%, 45.2% and  27.3%  interest  in  three
              separate  joint  ventures.  One of the  joint  ventures  owns  one
              restaurant  property  and the  other two  joint  ventures  own six
              restaurant  properties  each. In addition,  the partnership owns a
              67.23%    interest   in   one   restaurant    property   held   as
              tenants-in-common with an affiliate.

Note 11:      The partnership  owns  a 50%, 88.3%,  40.95%  and  10.5%  interest
              in four separate joint  ventures.  Three of the joint ventures own
              one restaurant  property each and the other joint venture owns six
              restaurant properties.  In addition, the partnership owns a 13.37%
              and a 6.69% interest in two restaurant  properties held separately
              as tenants-in-common with affiliates.

Note 12:      The partnership owns a  62.2%,  77.33%,  85%  and  76.6%  interest
              in four  separate  joint  ventures.  Each joint  venture  owns one
              restaurant  property.  In addition,  the partnership  owns a 72.5%
              interest in one restaurant property held as tenants-in-common with
              an affiliate.

Note 13:      The partnership owns a 31.13%, 59.05%,  18.61%  and  88%  interest
              in four  separate  joint  ventures.  Each joint  venture  owns one
              restaurant property.


<PAGE>



TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)



<TABLE>
<CAPTION>


                                     CNL Income           CNL Income           CNL Income           CNL Income
                                     Fund XIII,            Fund XIV,            Fund XV,             Fund XVI,
                                        Ltd.                 Ltd.                 Ltd.                 Ltd.
                                     ----------           ----------           ----------           ----------
                                     (Note 14)            (Note 15)            (Note 16)            (Note 17)

<S> <C>
                                    AL,AR,AZ,CA,         AL,AZ,CO,FL,         AL,CA,FL,GA,         AZ,CA,CO,DC,
                                    CO,FL,GA,IN,         GA,KS,LA,MN,         KS,KY,MN,MO,         FL,GA,ID,IN,
                                    KS,LA,MD,NC,         MO,MS,NC,NJ,         MS,NC,NJ,NM,         KS,MN,MO,NC,
                                    OH,PA,SC,TN,         NV,OH,SC,TN,         OH,OK,PA,SC,         NM,NV,OH,TN,
Locations                           TX,VA                TX,VA                TN,TX,VA             TX,UT,WI

Type of property                     Restaurants          Restaurants          Restaurants          Restaurants

Gross leasable space
  (sq. ft.) or number
  of units and                          50 units             64 units             55 units             47 units
  total square feet
  of units                           167,286 s/f          190,448 s/f          172,379 s/f          180,110 s/f


Dates of purchase                       5/18/93-             9/27/93-             4/28/94-            10/21/94-
                                        12/31/97              4/30/98              6/16/98              6/16/98


Cash down payment (Note 1)           $36,388,084          $42,748,602          $38,446,910          $42,394,592


Contract purchase price
  plus acquisition fee               $36,019,958          $42,321,171          $38,054,069          $42,004,434


Other cash expenditures
  expensed                                    -                    -                    -                    -


Other cash expenditures
  capitalized                            368,126              427,431              392,841              390,158
                                     -----------          -----------          -----------          -----------

Total acquisition cost
  (Note 1)                           $36,388,084          $42,748,602          $38,446,910          $42,394,592
                                     ===========          ===========          ===========          ===========

</TABLE>


Note 14:      The partnership  owns a 50% and a 28%  interest  in  two  separate
              joint ventures.  Each joint venture owns one restaurant  property.
              In addition,  the Partnership owns a 66.13%, a 63.03% and a 47.83%
              interest  in  three  restaurant   properties  held  separately  as
              tenants-in-common with affiliates.

Note 15:      The  partnership  owns a 50%  interest  in  three  separate  joint
              ventures and a 72% and a 39.94%  interest in two additional  joint
              ventures.  Three of the  joint  ventures  each own one  restaurant
              property  and  the  other  joint   venture  owns  six   restaurant
              properties.

Note 16:      The  partnership  owns a 50% interest in  a  joint  venture  which
              owns six restaurant properties.  In addition, the partnership owns
              a 15.02% and a 14.93%  interest in two restaurant  properties held
              as tenants-in-common with affiliates.

Note 17:      The  partnership  owns a 80.27%  and  a  40.42%  interest  in  two
              restaurant properties held as tenants-in-common with affiliates.



<PAGE>


TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)



<TABLE>
<CAPTION>


                                    CNL American            CNL Income           CNL Income
                                  Properties Fund,          Fund XVII,           Fund XVIII,
                                        Inc.                   Ltd.                 Ltd.
                                  ----------------          ----------           -----------
                                      (Note 18)             (Note 19)
<S> <C>
                                    AL,AZ,CA,CO,
                                    CT,DE,FL,GA,
                                    IA,ID,IL,IN,
                                    KS,KY,MD,MI,
                                    MN,MO,NC,NE,
                                    NJ,NM,NV,NY,
                                    OH,OK,OR,PA,                                AZ,CA,FL,GA,
                                    RI,SC,TN,TX,           CA,FL,GA,IL,         IL,KY,MD,MN,
                                    UT,VA,WA,WI,           IN,MI,NC,NV,         NC,NV,NY,OH,
Locations                           WV                     OH,SC,TN,TX          TN,TX

Type of property                     Restaurants            Restaurants          Restaurants

Gross leasable space
  (sq. ft.) or number
  of units and                         320 units               29 units             23 units
  total square feet
  of units                         1,622,754 s/f            119,664 s/f          123,355 s/f


Dates of purchase                      6/30/95 -             12/20/95 -           12/27/96 -
                                         6/17/98                6/16/98             06/16/98


Cash down payment (Note 1)          $357,943,014            $25,525,954          $29,477,274


Contract purchase price
  plus acquisition fee              $356,906,132            $25,490,918          $29,369,572


Other cash expenditures
  expensed                                     -                    -                    -


Other cash expenditures
  capitalized                          1,036,882                 35,036              107,702
                                    ------------            -----------          -----------

Total acquisition cost
  (Note 1)                          $357,943,014            $25,525,954          $29,477,274
                                    ============            ===========          ===========

</TABLE>


Note 18:      CNL American Properties Fund, Inc. owns an  85.47%  and  a  13.11%
              interest in two separate joint ventures.  Each joint venture  owns
              one restaurant property.
Note 19:      The partnership owns an 80%, a 21% and a 60.06% interest in  three
              separate joint ventures. Each joint venture  owns  one  restaurant
              property.  In addition, the partnership owns a 19.73%,  27.5%  and
              36.97% interest in three restaurant properties held separately  as
              tenants-in-common with affiliates.


<PAGE>






                                   SIGNATURES


              Pursuant to the  requirements  of the  Securities Act of 1933, the
registrant certifies that it has reasonable grounds to believe that it meets all
of the  requirements  for filing on Form S-11 and has duly caused this Amendment
No.  3 to  the  Registration  Statement  to be  signed  on  its  behalf  by  the
undersigned,  thereunto  duly  authorized,  in the  City of  Orlando,  State  of
Florida, on September 15, 1998.


                                            CNL HEALTH CARE PROPERTIES, INC.
                                            (Registrant)



                                            By:      /s/ James M. Seneff, Jr.
                                                     James M. Seneff, Jr.
                                                     Chairman of the Board and
                                                     Chief Executive Officer



<PAGE>



                                POWER OF ATTORNEY



     KNOW  ALL  MEN BY  THESE  PRESENTS,  that  each of the  undersigned  hereby
constitutes and appoints  Robert A. Bourne and James M. Seneff,  Jr. and each of
them,  his true and  lawful  attorneys-in-fact  and  agents,  with full power of
substitution  and  resubstitution,  for him and in his name, place and stead, in
any and all  capacities,  with  full  power  to act  alone,  to sign any and all
documents (including both pre- and post-effective  amendments in connection with
the registration  statement),  and to file the same, with all exhibits  thereto,
and all  documents in connection  therewith,  with the  Securities  and Exchange
Commission,  granting unto said  attorneys-in-fact  and agent, and each of them,
full  power  and  authority  to do and  perform  each and  every  act and  thing
requisite and  necessary to be done in and about the  premises,  as fully to all
intents and  purposes as he might or could do in person,  hereby  ratifying  and
confirming  all that said  attorneys-in-fact  and  agents,  or either of them or
their or his  substitutes or substitute,  may lawfully do or cause to be done by
virtue thereof.


<PAGE>




              Pursuant to the  requirements  of the Securities Act of 1933, this
Amendment No. 3 to the  Registration  Statement has been signed by the following
persons in the capacities and on the dates indicated.

<TABLE>
<CAPTION>


Signatures                                 Title                                Date
- ----------                                 -----                                ----
<S> <C>

/s/ James M. Seneff, Jr.           Chairman of the Board and               September 15, 1998
James M. Seneff, Jr.               Chief Executive Officer
                                   (Principal Executive Officer)

/s/ Robert A. Bourne               Director and President                  September 15, 1998
Robert A. Bourne                   (Principal Financial and
                                   Accounting Officer)

/s/ David W. Dunbar                Director                                September 15, 1998
David W. Dunbar

/s/ Timothy S. Smick               Director                                September 15, 1998
Timothy S. Smick

/s/ Edward A. Moses                Director                                September 15, 1998
Edward A. Moses

    
</TABLE>





<PAGE>



                                  EXHIBIT INDEX


  Exhibits

   
     1.1      Form of Managing Dealer Agreement  (Previously filed.)
    

     1.2      Form of Participating Broker Agreement (Filed herewith.)


     1.3      Form of Warrant Purchase Agreement (Previously filed.)

     3.1      CNL  Health  Care  Properties,  Inc.  Articles  of   Incorporation
              (Previously filed.)

     3.2      Form of CNL Health Care  Properties,  Inc.  Amended  and  Restated
              Articles of Incorporation (Filed herewith.)

     3.3      Form  of  CNL  Health  Care Properties,  Inc.  Bylaws  (Previously
              filed.)

     4.1      CNL Health Care Properties, Inc. Articles of Incorporation  (Filed
              as Exhibit 3.1 and incorporated herein by reference.)

     4.2      Form of CNL Health Care  Properties,  Inc.  Amended  and  Restated
              Articles of Incorporation (Filed as Exhibit 3.2  and  incorporated
              herein by reference.)

     4.3      Form of CNL Health Care Properties, Inc. Bylaws (Filed as  Exhibit
              3.3 and incorporated herein by reference.)

     4.4      Form of Reinvestment Plan (Included in the Prospectus as  Appendix
              A and incorporated herein by reference.)

   
     5        Opinion of Shaw Pittman  Potts & Trowbridge  as to the legality of
              the  securities  being  registered by CNL Health Care  Properties,
              Inc. (Filed herewith.)

     8        Opinion  of Shaw  Pittman  Potts &  Trowbridge  regarding  certain
              material tax issues relating to CNL Health Care  Properties,  Inc.
              (Filed herewith.)

     10.1     Form of Escrow Agreement between CNL Health Care Properties,  Inc.
              and SouthTrust  Asset Management  Company of Florida,  N.A. (Filed
              herewith.)

     10.2     Form of Advisory Agreement (Previously filed.)
    

     10.3     Form of Joint Venture Agreement (Previously filed.)

     10.4     Form of Indemnification and Put Agreement (Previously filed.)

     10.5     Form  of   Unconditional   Guaranty  of  Payment  and  Performance
              (Previously filed.)

     10.6     Form of Purchase Agreement (Previously filed.)

     10.7     Form of Lease  Agreement  including  Rent  Addendum,  Construction
              Addendum and Memorandum of Lease (Previously filed.)

     10.8     Form of Reinvestment  Plan (Included in the Prospectus as Appendix
              A and incorporated herein by reference.)
   
     10.9     Form of Indemnification Agreement (Filed herewith.)

     23.1     Consent   of   PricewaterhouseCoopers,   LLP,   Certified   Public
              Accountants, dated September 9, 1998 (Filed herewith.)
    



<PAGE>





   
     23.2     Consent  of Shaw  Pittman  Potts &  Trowbridge  (Contained  in its
              opinions  filed  herewith  as  Exhibits  5 and 8 and  incorporated
              herein by reference.)
    
     24       Power of Attorney (See "Signatures.")


<PAGE>

     27.1     Financial  Data  Schedule  as of  December  31,  1997  (Previously
              filed.)

     27.2     Financial Data Schedule as of April 30, 1998 (Previously filed.)
   
     27.3     Financial Data Schedule as of June 30, 1998 (Filed herewith.)
    


<PAGE>







                                   EXHIBIT 1.2

                     Form of Participating Broker Agreement



<PAGE>



                         PARTICIPATING BROKER AGREEMENT

                        CNL HEALTH CARE PROPERTIES, INC.


         THIS  PARTICIPATING  BROKER  AGREEMENT  (the  "Agreement")  is made and
entered into as of the day  indicated  on Exhibit A attached  hereto and by this
reference   incorporated  herein,   between  CNL  SECURITIES  CORP.,  a  Florida
corporation (the "Managing Dealer"), and the Participating Broker (the "Broker")
identified in Exhibit A hereto.

         WHEREAS,  CNL HEALTH CARE  PROPERTIES,  INC. is a Maryland  corporation
(the "Company"); and

         WHEREAS, the Company proposes to offer and sell up to 15,500,000 shares
of Common Stock of the Company (the "Shares") to the general public, pursuant to
a public  offering (the  "Offering") of the Shares pursuant to a prospectus (the
"Prospectus") filed with the Securities and Exchange Commission ("SEC"); and

         WHEREAS,  the  Managing  Dealer,  which has  heretofore  entered into a
Managing  Dealer  Agreement  with  the  Company  pursuant  to  which it has been
designated  the  managing  dealer to sell and  manage  the sale by others of the
Shares  pursuant  to  the  terms  of  such  agreement  and  the  Offering,  is a
corporation  incorporated  in and  presently  in good  standing  in the State of
Florida, and is presently registered with the Florida Securities  Commission and
with  the  National  Association  of  Securities  Dealers,  Inc.  ("NASD")  as a
securities  broker-dealer  qualified  to offer and sell to members of the public
securities of the type represented by the Shares; and

         WHEREAS,  the Broker is an entity,  as  designated in Exhibit A hereto,
organized and  presently in good  standing in the state or states  designated in
Exhibit A hereto,  presently  registered as a  broker-dealer  with the NASD, and
presently  licensed by the appropriate  regulatory agency of each state in which
it will offer and sell the Shares as a  securities  broker-dealer  qualified  to
offer and sell to members of the public  securities of the type  represented  by
the Shares or exempt from all such registration requirements; and

         WHEREAS, the Company has filed with the SEC a registration statement on
Form S-11, including a preliminary or final prospectus,  for the registration of
the Shares  under the  Securities  Act of 1933,  as amended  (such  registration
statement,  as it may be amended,  and the  prospectus and exhibits on file with
the SEC at the time the registration statement becomes effective,  including any
post-effective amendments or supplements


<PAGE>



to such  registration  statement  or  prospectus  after  the  effective  date of
registration,  being  herein  respectively  referred  to  as  the  "Registration
Statement" and the "Prospectus"); and

         WHEREAS, the offer and sale of the Shares shall be made pursuant to the
terms and  conditions  of the  Registration  Statement and the  Prospectus  and,
further,  pursuant to the terms and conditions of all applicable securities laws
of all states in which the Shares are offered and sold; and

         WHEREAS,  the Managing  Dealer  desires to retain the Broker to use its
best efforts to sell the Shares,  and the Broker is willing and desires to serve
as a  broker  for the  Managing  Dealer  for the  sale of the  Shares  upon  the
following terms and conditions;

         NOW,  THEREFORE,  in  consideration  of  the  premises  and  terms  and
conditions  thereof,  it is agreed between the Managing Dealer and the Broker as
follows.

         1.       Employment.

                  (a) Subject to the terms and conditions  herein set forth, the
Managing  Dealer  hereby  employs the Broker to use its best efforts to sell for
the account of the Company a portion of the Shares described in the Registration
Statement,  as specified  on Exhibit A hereto.  The Broker  hereby  accepts such
employment  and covenants,  warrants and agrees to sell the Shares  according to
all of the terms and conditions of the  Registration  Statement,  all applicable
state and federal laws,  including the Securities  Act of 1933, as amended,  and
any and all regulations and rules  pertaining  thereto,  heretofore or hereafter
issued by the SEC and the NASD.  Neither the Broker nor any other  person  shall
have any  authority  to give any  information  or make  any  representations  in
connection  with any offer or sale of the Shares  other than as contained in the
Prospectus,  as  amended  and  supplemented,   and  as  is  otherwise  expressly
authorized in writing by the Managing Dealer.

                  (b) The Broker shall use its best efforts,  promptly following
receipt of written notice from the Managing  Dealer of the effective date of the
Registration  Statement,  to sell  the  Shares  in such  quantities  and for the
account of Company as shall be agreed between the Broker and the Managing Dealer
and specified on Exhibit A hereto, and to such persons and according to all such
terms as are contained in the  Registration  Statement and the  Prospectus.  The
Broker  shall  comply  with  all  requirements  set  forth  in the  Registration
Statement and the Prospectus. The Broker shall use and distribute, in connection
with the  offer  and sale of the  Shares,  only the  Prospectus  and such  sales
literature and advertising as shall conform in all respects to any  restrictions
of local law and the applicable  requirements  of the Securities Act of 1933, as
amended, and which has been approved in writing by the Company or the Managing

                                                        -2-

<PAGE>



Dealer.  The Managing  Dealer  reserves the right to establish  such  additional
procedures as it may deem necessary to ensure  compliance with the  requirements
of the  Registration  Statement,  and the  Broker  shall  comply  with  all such
additional procedures to the extent that it has received written notice thereof.

                  (c) The Broker shall be permitted to accept  subscriptions for
the Shares by telephone from residents of those states  identified on Schedule A
attached  hereto  and  made a part  hereof  provided  that:  (1) the  registered
representative  and  branch  manager  of the  Broker  execute  the  subscription
agreement on behalf of any investor who subscribes for Shares by telephone;  and
(2) the Broker does not charge any additional fees, including but not limited to
fees  relating  to opening an  account  with the  Broker,  to any  investor  who
telephonically  or orally  subscribes  for Shares.  It is understood  and agreed
between the Managing  Dealer and the Broker that the Managing Dealer may, in its
discretion,  change, modify, add to or delete from the list of states identified
on Schedule A. Any such  modification  shall be effective ten days from the date
written notice to the Broker has been mailed by the Managing Dealer.  The Broker
shall not  execute a  subscription  agreement  on  behalf  of any  investor  who
subscribes  for  Shares by  telephone  unless  such  investor  has  specifically
authorized the registered representative and the branch manager of the Broker to
execute the  subscription  agreement on behalf of such  investor and has made or
agreed  to  make  full  payment  for all  Shares  covered  by such  subscription
agreement. Notwithstanding anything contained herein to the contrary, the Broker
shall have no authority to make  representations  on behalf of an investor or to
initial representations  contained in the subscription agreement on behalf of an
investor.  In connection with telephonic or other oral subscriptions for Shares,
the Broker  represents  and  warrants  as  follows:  (i) that a  Prospectus  was
delivered to the investor  before the investor  made a decision to invest;  (ii)
that  the  investor  meets  the  suitability   requirements  set  forth  in  the
Prospectus;  and (iii) that, in compliance  with the NASD's Conduct  Rules,  the
Broker has  reasonable  grounds to believe that the investment in the Company is
suitable for the investor,  based upon  information  supplied by the investor to
such  Broker.  Further,  the Broker shall  explain to any investor  from a state
identified in the Prospectus as having such additional  requirements,  that: (i)
the investor has the right to rescind such subscription for a period of at least
ten days following the date written  confirmation of the  subscription  has been
received by the investor from the Managing Dealer;  and (ii) unless the investor
rescinds such  subscription  within the applicable  period of time, the investor
shall be bound by the subscription agreement.

                  (d)  Notwithstanding  anything to the  contrary  contained  in
Section 2 of this  Agreement,  in the event that the  Managing  Dealer  pays any
commission  to the Broker  for sale of one or more  Shares,  including,  but not
limited  to,  those  Shares  sold   pursuant  to  a  telephonic  or  other  oral
subscription therefor, where

                                                        -3-

<PAGE>



representatives  of the Broker execute the  subscription  agreement  relating to
such Shares,  and the  subscription is rescinded as to one or more of the Shares
covered by such  subscription,  the  Managing  Dealer  shall  decrease  the next
payment of commissions or other compensation  otherwise payable to the Broker by
the Managing  Dealer under this  Agreement by an amount equal to the  commission
rate established in Section 2 and Exhibit A of this Agreement, multiplied by the
number of Shares as to which the subscription is rescinded. In the event that no
payment of commissions or

                                                        -4-

<PAGE>



other compensation is due to the Broker after such withdrawal occurs, the Broker
shall pay the amount specified in the preceding  sentence to the Managing Dealer
within ten (10) days  following  mailing of notice to the Broker by the Managing
Dealer stating the amount owed as a result of rescinded subscriptions.

                  (e) All  monies  received  for  purchase  of any of the Shares
shall be  forwarded  by the  Broker  to the  Managing  Dealer  for  delivery  to
SouthTrust Asset Management Company of Florida, N.A. (the "Escrow Agent"), where
such monies will be deposited in an escrow  account  established  by the Company
solely for such  subscriptions,  except that, until such time (if any) that such
monies are deliverable to the Company pursuant to the Escrow  Agreement  between
the Company and the Escrow  Agent,  the Broker  shall  return any check not made
payable to "SouthTrust Asset Management Company of Florida,  N.A., Escrow Agent"
directly to the subscriber who submitted the check.  Thereafter,  the Broker may
accept  checks  made  payable  to  either  the  Company  or  the  Escrow  Agent.
Subscriptions will be executed as described in the Registration  Statement or as
directed by the Managing Dealer. The monies shall be deposited or transmitted by
the Broker to the  Managing  Dealer no later than the close of  business  of the
first  business day after receipt of the  subscription  documents by the Broker;
provided,  however,  that if the Broker  maintains a branch  office,  the branch
office shall transmit the subscription  documents and check to the Broker by the
close of business  on the first  business  day  following  their  receipt by the
branch office and the Broker shall review the  subscription  documents and check
to ensure their proper execution and form and, if they are acceptable,  transmit
the check to the Managing  Dealer by the close of business on the first business
day after  their  receipt by the Broker.  Pursuant to the terms of the  Managing
Dealer  Agreement,  the Managing Dealer will transmit the check or monies to the
Escrow  Agent by no later than the close of business on the first  business  day
after the check is received from the Broker.

                  (f) During the full term of this Agreement the Managing Dealer
shall  have full  authority  to take such  action  as it may deem  advisable  in
respect to all matters  pertaining to the  performance  of the Broker under this
Agreement.

                  (g) The Shares  shall be offered  and sold by the Broker  only
where the Shares may be legally  offered and sold,  and only to such  persons in
such states who shall be legally qualified to purchase the Shares.  The Managing
Dealer  shall give the Broker  written  notice at the time of  effectiveness  of
those  states in which the  offering  and sale of Shares may be made,  and shall
amend such notice  thereafter as additional states are added; no Shares shall be
offered or sold in any other states.

                  (h) The Broker shall have no obligation  under this  Agreement
to purchase any of the Shares for its own account.

                  (i)      The Broker will use every reasonable effort to assure
that Shares are sold only to investors who:

                                                        -5-

<PAGE>

                           (1)  meet   the   investor   suitability   standards,
         including the minimum income and net worth standard  established by the
         Company,   and  minimum   purchase   requirements   set  forth  in  the
         Registration Statement;

                           (2) can reasonably  benefit from the Company based on
         the prospective  investor's overall investment objectives and portfolio
         structure;

                           (3)  are  able  to  bear  the  economic  risk  of the
         investment  based  on each  prospective  investor's  overall  financial
         situation; and



                                                        -6-

<PAGE>



                           (4)  have   apparent   understanding   of:   (a)  the
         fundamental risks of the investment;  (b) the risk that the prospective
         investor may lose the entire  investment;  (c) the lack of liquidity of
         the Shares;  (d) the restrictions on transferability of the Shares; (e)
         the background and  qualifications of the officers and directors of CNL
         Health Care Advisors, Inc., the advisor to the Company (the "Advisor");
         and (f) the tax consequences of an investment in the Shares.

                           (5) The Broker will make the determinations  required
         to be made by it pursuant to  subparagraph  (i) based on information it
         has obtained from a prospective investor,  including, at a minimum, but
         not limited to, the prospective  investor's age, investment objectives,
         investment experience,  income, net worth,  financial situation,  other
         investments of the prospective investor, as well as any other pertinent
         factors deemed by the Broker to be relevant.

                  (j) In  addition  to the  complying  with  the  provisions  of
subparagraph  (i) above,  and not in limitation of any other  obligations of the
Broker to  determine  suitability  imposed by state or federal  law,  the Broker
agrees that it will comply fully with all of the  applicable  provisions  of the
NASD's Conduct Rules, and the following provisions:

                           (1) The  Broker  shall  have  reasonable  grounds  to
         believe, based upon information provided by the investor concerning his
         investment  objectives,  other  investments,  financial  situation  and
         needs,  and upon any other  information  known by the Broker,  that (A)
         each  investor  to whom  the  Broker  sells  Shares  is or will be in a
         financial   position   appropriate  to  enable  him  to  realize  to  a
         significant  extent  the  benefits   (including  tax  benefits)  of  an
         investment  in the Shares,  (B) each  investor to whom the Broker sells
         Shares has a fair  market  net worth  sufficient  to sustain  the risks
         inherent in an investment in the Shares  (including  potential loss and
         lack  of  liquidity),  and (C) the  Shares  otherwise  are or will be a
         suitable investment

                                                        -7-

<PAGE>



         for  each  investor  to whom it  sells  Shares,  and the  Broker  shall
         maintain  files  disclosing the basis upon which the  determination  of
         suitability was made;

                           (2) The  Broker  shall not  execute  any  transaction
         involving  the purchase of Shares in a  discretionary  account  without
         prior written approval of the transactions by the investor;

                           (3) The  Broker  shall  have  reasonable  grounds  to
         believe,  based upon the  information  made  available  to it, that all
         material  facts  are   adequately  and  accurately   disclosed  in  the
         Registration Statement and provide a basis for evaluating the Shares;

                           (4)  In  making  the   determination   set  forth  in
         subparagraph   (3)  above,   the  Broker   shall   evaluate   items  of
         compensation, physical properties, tax aspects, financial stability and
         experience  of the sponsor,  conflicts  of interest  and risk  factors,
         appraisals, as well as any other information deemed pertinent by it;

                           (5) If the  Broker  relies  upon the  results  of any
         inquiry  conducted  by another  member of the NASD with  respect to the
         obligations  set forth in  subparagraphs  (3) or (4) above,  the Broker
         shall  have  reasonable  grounds  to  believe  that  such  inquiry  was
         conducted  with due care,  that the  member or  members  conducting  or
         directing the inquiry consented to the disclosure of the results of the
         inquiry  and that the  person  who  participated  in or  conducted  the
         inquiry is not a sponsor or an affiliate of the sponsor of the Company;
         and

                           (6) Prior to executing a purchase  transaction in the
         Shares, the Broker shall have informed the prospective  investor of all
         pertinent  facts  relating to the  liquidity and  marketability  of the
         Shares.

                  (k) The Broker  agrees  that it will  comply  with Rules 2730,
2740 and 2750 of the NASD's Conduct Rules.

                  (l) The Broker agrees to retain in its files,  for a period of
at least six years,  information  which will  establish  that each  purchaser of
Shares falls within the permitted class of investors.

                  (m) The Broker shall not, directly or indirectly, pay or award
any finder's fees, commissions or other compensation to any persons engaged by a
potential  investor for  investment  advice as an  inducement to such advisor to
advise the potential investor to purchase Shares in the Company.

                  (n) The Broker  either (i) shall not  purchase  Shares for its
own account or (ii) shall hold for investment  any Shares  purchased for its own
account.

                                                        -8-

<PAGE>




                  (o)  The  Broker  hereby  confirms  that it is  familiar  with
Securities  Act Release No. 4968 and Rule 15c2-8 under the  Securities  Exchange
Act of 1934, relating to the distribution of preliminary and final prospectuses,
and confirms that it has and will comply therewith.

                  (p)  The  Broker  shall  deliver  a copy  of the  Articles  of
Incorporation of the Company with each Prospectus that is delivered to potential
investors in Mississippi.

                  (q) The Broker shall not in any way  participate in, or effect
the sale or transfer of Shares in  connection  with, a tender offer with respect
to shares of the Company's common stock, whether or not such offer is subject to
Section 14(d)(1) of the Securities Exchange Act of 1934, as amended,  other than
with the written consent of the Company and/or the Managing Dealer.

         2.       Compensation of Broker.

         The  Managing  Dealer  shall pay the Broker,  as  compensation  for all
services to be rendered by the Broker  hereunder,  a commission equal to 7.0% on
sales of Shares by such  Broker,  as set forth in  Exhibit A hereto,  subject to
reduction  as  specified  in this  Section 2 and the  Prospectus.  The  Managing
Dealer,  in its sole discretion,  may reallow to the Broker,  from its marketing
support and due diligence expense reimbursement fee, up to an additional 0.5% on
sales of Shares by such  Broker,  based on such  factors as the number of Shares
sold by the Broker, the assistance of the Broker in marketing the Offering,  and
bona fide due diligence  expenses incurred by the Broker.  Such commission rates
shall remain in effect during the full term of this Agreement  unless  otherwise
changed by a written  agreement  between  the parties  hereto.  A sale of Shares
shall be deemed to be  completed  only  after the  Company  receives  a properly
completed  subscription agreement for Shares from the Broker evidencing the fact
that the investor had received a final  Prospectus for a period of not less than
five full business  days,  together  with payment of the full purchase  price of
each purchased Share from a buyer who satisfies each of the terms and conditions
of the Registration  Statement and Prospectus,  and only after such subscription
agreement has been accepted in writing by the Company.  Such compensation  shall
be payable to the Broker by the  Managing  Dealer after such  acceptance  of the
subscription  agreement;  provided,  however,  that  compensation or commissions
shall not be paid by the Managing Dealer:  (i) other than from funds received as
compensation  or commissions  from the Company for the sale of its Shares;  (ii)
until such time as subscriptions  for a minimum of 250,000 Shares  ($2,500,000),
excluding  subscriptions  from  Pennsylvania  investors,  have been received and
approved by the Company,  and deposited into the escrow account  provided for in
Paragraph  1(e)  hereof;  (iii) until any and all  compensation  or  commissions
payable by the Company to the

                                                        -9-

<PAGE>



Managing  Dealer have been  received  by the  Managing  Dealer;  and (iv) if the
commission  payable to any  broker-dealer or salesman exceeds the amount allowed
by any  regulatory  agency.  The Broker  shall not  reallow any  commissions  to
non-NASD  members.  The  Company  (and  the  Managing  Dealer)  may pay  reduced
commissions or may eliminate  commissions on certain sales of Shares,  including
the reduction or elimination  of  commissions  in accordance  with the following
paragraph of this Section 2. Any such  reduction or  elimination  of commissions
will not, however, change the net proceeds to the Company.



                                                       -10-

<PAGE>



         The Company  also shall  issue to the  Managing  Dealer a warrant  (the
"Soliciting Dealer Warrants") for every 25 Shares sold through the Offering,  up
to a maximum of 600,000  Soliciting  Dealer  Warrants to purchase an  equivalent
number of shares of common stock of the Company.  The Soliciting Dealer Warrants
will be issued  quarterly  commencing 60 days after the date on which the Shares
are first sold  pursuant  to the  Offering.  All or any part of such  Soliciting
Dealer Warrants may be reallowed to certain Brokers with prior written  approval
from, and in the sole  discretion of, the Managing  Dealer unless  prohibited by
federal or state securities  laws. The Company will not issue Soliciting  Dealer
Warrants to the  Managing  Dealer,  and the  Managing  Dealer will not  transfer
Soliciting  Dealer Warrants,  in connection with the sale of Shares to residents
of Minnesota or Texas. Each Soliciting Dealer Warrant will entitle the holder to
purchase  one share of common  stock  from the  Company  for  $12.00  during the
five-year  period  commencing  with the date the Offering  begins (the "Exercise
Period");  provided  however,  that  Soliciting  Dealer  Warrants  will  not  be
exercisable  until one year from the date of  issuance.  Holders  of  Soliciting
Dealer  Warrants may not exercise the Soliciting  Dealer  Warrants to the extent
such exercise  would  jeopardize  the Company's  status as a REIT. No Soliciting
Dealer Warrants will be issued relating to the Shares sold through the Company's
Reinvestment Plan.

         A registered  principal or  representative  of the Managing Dealer or a
Broker,  employees,  officers,  Directors,  and  directors of the Company or the
Advisor,  or any of their  Affiliates  (and the families of any of the foregoing
persons),  and any Plan (as defined in the Prospectus)  established  exclusively
for the benefit of such persons may purchase Shares net of 7% commissions,  at a
per Share purchase price of $9.30. In addition, clients of an investment adviser
registered under the Investment Advisers Act of 1940, as amended,  who have been
advised by such adviser on an ongoing basis regarding  investments other than in
the Company,  and who are not being  charged by such adviser or its  Affiliates,
through the payment of commissions or otherwise, for the advice rendered by such
adviser in connection  with the purchase of the Shares,  may purchase the Shares
net of  commissions.  In addition,  brokers that have a contractual  arrangement
with their  clients for the payment of fees which is consistent  with  accepting
selling  commissions,  in their  sole  discretion,  may elect not to accept  any
selling commissions

                                                       -11-

<PAGE>



offered by the  Company for Shares  that they sell.  In that event,  such Shares
shall be sold to the  investor  net of all selling  commissions,  at a per share
purchase price of $9.30.

         Certain  stockholders may agree with their participating Broker and the
Managing Dealer to have  commissions  relating to their Shares paid over a seven
year  period  pursuant  to a  deferred  commission  arrangement  (the  "Deferred
Commission Option").  Stockholders  electing the Deferred Commission Option will
be  required  to pay a total of $9.40 per  Share  purchased  upon  subscription,
rather  than  $10.00 per Share,  with  respect to which  $0.15 per Share will be
payable as commissions due upon subscription, $0.10 of which may be reallowed to
the Broker by the  Managing  Dealer.  For each of the six years  following  such
subscription on a date to be determined by the Managing Dealer,  $0.10 per Share
will be paid by the Company as deferred  commissions with respect to Shares sold
pursuant to the Deferred Commission Option,  which amounts will be deducted from
and paid out of distributions  otherwise  payable to such  stockholders  holding
such Shares and may be reallowed to the Broker by the Managing  Dealer.  The net
proceeds to the Company  will not be  affected by the  election of the  Deferred
Commission Option.  Under this arrangement,  a stockholder electing the Deferred
Commission  Option will pay a 1% Broker  commission per year  thereafter for the
next six  years  which  will be  deducted  from and paid by the  Company  out of
distributions otherwise payable to such stockholder.  At such time, if any, that
the  Company's  Shares  are  listed  on  a  national   securities   exchange  or
over-the-counter  market,  the  Company  shall  have the  right to  require  the
acceleration  of  all  outstanding   payment   obligations  under  the  Deferred
Commission Option.

         The  Managing  Dealer  shall  pay  the  Broker  commissions  on  Shares
purchased  pursuant  to the  Company's  Reinvestment  Plan on the same  basis as
commissions  paid for Shares  otherwise  purchased  in the  Offering.  No Broker
commissions  will be paid in connection  with shares of common stock issued upon
the exercise of the Soliciting Dealer Warrants.



                                                       -12-

<PAGE>



         3.       Association with Other Dealers.

         It is expressly  understood  between the Managing Dealer and the Broker
that the  Managing  Dealer  may  cooperate  with  other  broker-dealers  who are
registered as broker-dealers  with the NASD and duly licensed by the appropriate
regulatory  agency of each state in which they will offer and sell the Shares or
with broker-dealers exempt from all such registration  requirements.  Such other
participating  broker-dealers  may be employed by the Managing Dealer as brokers
on terms and conditions identical or similar to this Agreement and shall receive
such rates of  commission  as are agreed to between the Managing  Dealer and the
respective other participating  broker-dealers and as are in accordance with the
terms of the  Registration  Statement.  The  Broker  understands  that,  to that
extent, such other participating

                                                       -13-

<PAGE>



broker-dealers shall compete with the Broker in the sale of the
Shares.

         4.       Conditions of the Broker's Obligations.

         The Broker's obligations hereunder are subject, during the full term of
this Agreement and the Offering,  to (a) the  performance by the Managing Dealer
of its obligations hereunder;  and (b) the conditions that: (i) the Registration
Statement shall become and remain  effective;  and (ii) no stop order shall have
been issued suspending the effectiveness of the Offering.

         5.       Conditions to the Managing Dealer's Obligations.

         The  obligations of the Managing Dealer  hereunder are subject,  during
the full term of this Agreement and the Offering, to the conditions that: (a) at
the effective date of the Registration  Statement and thereafter during the term
of this Agreement  while any Shares remain unsold,  the  Registration  Statement
shall  remain in full  force and  effect  authorizing  the offer and sale of the
Shares;  (b) no stop order suspending the effectiveness of the Offering or other
order  restraining  the offer or sale of the Shares  shall have been  issued nor
proceedings  therefor  initiated or threatened by any state regulatory agency or
the SEC;  and (c) the Broker  shall  have  satisfactorily  performed  all of its
obligations hereunder.

         6.       Covenants of the Managing Dealer.

         The Managing Dealer covenants, warrants and represents, during the full
term of this Agreement, that:

                  (a) It shall use its best  efforts to prevent  the sale of the
Shares through persons other than registered NASD broker-dealers.

                  (b) It shall  use its best  efforts  to cause the  Company  to
maintain  the  effectiveness  of the  Registration  Statement  and to file  such
applications  or amendments to the  Registration  Statement as may be reasonably
necessary for that purpose.

                  (c) It shall  advise  the  Broker  whenever  and as soon as it
receives or learns of any order issued by the SEC, any state  regulatory  agency
or  any  other  regulatory  agency  which  suspends  the  effectiveness  of  the
Registration  Statement or prevents the use of the Prospectus or which otherwise
prevents or suspends the offering or sale of the Shares,  or receives  notice of
any proceedings regarding any such order.

                  (d) It shall use its best  efforts to prevent the  issuance of
any order described  herein at subparagraph (c) hereof and to obtain the lifting
of any such order if issued.

                  (e)      It shall give the Broker written notice when the

                                                       -14-

<PAGE>



Registration  Statement  becomes  effective and shall deliver to the Broker such
number of copies of the Prospectus,  and any supplements and amendments thereto,
which are finally approved by the SEC, as the Broker may reasonably  request for
sale of the Shares.

                  (f) It shall promptly notify the Broker of any  post-effective
amendments or supplements to the Registration Statement or Prospectus, and shall
furnish the Broker with copies of any revised  Prospectus and/or supplements and
amendments to the Prospectus.

                  (g) To the extent to which the Managing  Dealer has knowledge,
it shall keep the Broker fully informed of any material development to which the
Company is a party or which concerns the business and condition of the Company.

                  (h) In  conjunction  with the  Company,  it shall use its best
efforts to cause,  at or prior to the time the  Registration  Statement  becomes
effective,  the  qualification  of the  Shares for  offering  and sale under the
securities laws of such states as the Company shall elect.

         7.       Payment of Costs and Expenses.

         The Broker shall pay all costs and expenses incident to the performance
of its obligations under this Agreement, including:

                  (a)      All expenses incident to the preparation, printing
and filing of all advertising originated by it related to the
sale of the Shares; and

                  (b) All other costs and expenses  incurred in connection  with
its sales  efforts  related to the sales of the Shares  which are not  expressly
assumed by the  Company  in its  Managing  Dealer  Agreement  with the  Managing
Dealer.

         8.       Indemnification.

         The Broker agrees to  indemnify,  defend and hold harmless the Company,
its affiliates  and their or its officers,  directors,  trustees,  employees and
agents,  including the Managing  Dealer,  against all losses,  claims,  demands,
liabilities and expenses, joint or several, including reasonable legal and other
expenses  incurred  in  defending  such  claims or  liabilities,  whether or not
resulting  in any  liability  to the Company,  its  affiliates  and their or its
officers,  directors,  trustees,  employees or agents, which they or any of them
may incur  arising out of the offer or sale by the Broker,  or any person acting
on its behalf,  of any Shares  pursuant to this  Agreement if such loss,  claim,
demand,  liability,  or  expense  arises  out of or is based  upon (i) an untrue
statement or alleged  untrue  statement of a material  fact,  or any omission or
alleged  omission  of a material  fact,  other than a  statement,  omission,  or
alleged omission by the Broker

                                                       -15-

<PAGE>



which is also, as the case may be,  contained in or omitted from the  Prospectus
or the  Registration  Statement and which statement or omission was not based on
information  supplied to the Company or the Managing  Dealer by such Broker,  or
(ii) the breach by the Broker, or any person acting on its behalf, of any of the
terms and conditions of this Agreement.  This indemnity  provision shall survive
the termination of this Agreement.

                  (a) The Managing  Dealer agrees to indemnify,  defend and hold
harmless the Broker, its officers, directors,  employees and agents, against all
losses, claims,  demands,  liabilities and expenses,  including reasonable legal
and other expenses incurred in defending such claims or liabilities,  which they
or any of them may incur,  including,  but not limited to, alleged violations of
the Securities Act of 1933, as amended, but only to the extent that such losses,
claims,  demands,  liabilities  and expenses shall arise out of or be based upon
(i) any untrue  statement of a material fact  contained in the Prospectus or the
Registration Statement, as filed and in effect with the SEC, or in any amendment
or supplement thereto, or in any application  prepared or approved in writing by
counsel to the  Company and filed with any state  regulatory  agency in order to
register or qualify the Shares under the securities  laws thereof (the "Blue Sky
applications"),  or (ii) any  omission or alleged  omission  to state  therein a
material  fact  required  to be stated  in the  Prospectus  or the  Registration
Statement or the Blue Sky  applications,  or necessary to make such  statements,
and any part thereof, not misleading; provided, further, that any such untrue

                                                       -16-

<PAGE>



statement,  omission or alleged omission is not based on information included in
any such document which was supplied to the Managing Dealer, the Company, or any
officer of the Company by such Broker.  This indemnity  provision  shall survive
the termination of this Agreement.

                  (b) No indemnifying  party shall be liable under the indemnity
agreements  contained in subparagraphs  (a) and (b) above unless the party to be
indemnified  shall have notified  such  indemnifying  party in writing  promptly
after the summons or other first legal process giving  information of the nature
of the claim  shall  have been  served  upon the  party to be  indemnified,  but
failure to notify an  indemnifying  party of any such claim shall not relieve it
from any  liabilities  which it may have to the  indemnified  party against whom
action is brought other than on account of its indemnity  agreement contained in
subparagraphs  (a) and (b) above. In the case of any such claim, if the party to
be indemnified  notified the indemnifying  party of the commencement  thereof as
aforesaid,  the  indemnifying  party shall be entitled to participate at its own
expense  in the  defense of such  claim.  If it so elects,  in  accordance  with
arrangements  satisfactory to any other  indemnifying party or parties similarly
notified,  the indemnifying party has the option to assume the entire defense of
the claim,  with counsel who shall be satisfactory to such indemnified party and
all other  indemnified  parties who are  defendants  in such  action;  and after
notice  from the  indemnifying  party of its  election  so to assume the defense
thereof  and the  retaining  of such  counsel  by the  indemnifying  party,  the
indemnifying  party  shall  not  be  liable  to  such  indemnified  party  under
subparagraphs  (a) and (b) above for any  legal or other  expenses  subsequently
incurred by such indemnified party in connection with the defense thereof, other
than for the reasonable costs of investigation.

         9.       Term of Agreement.

         This Agreement shall become  effective at 8:00 A.M.  (Eastern  Standard
Time) on the first full business day following the day on which the Registration
Statement  becomes  effective,  or if later, the date on which this Agreement is
executed  by the  Managing  Dealer and the Broker.  The Broker and the  Managing
Dealer  may  each  prevent  this  Agreement  from  becoming  effective,  without
liability to the other,  by written notice before the time this Agreement  would
otherwise become effective. After this Agreement becomes effective, either party
may  terminate it at any time for any reason by giving thirty (30) days' written
notice to the other party;  provided,  however, that this Agreement shall in any
event  automatically  terminate at the first  occurrence of any of the following
events:  (a) the  Registration  Statement for offer and sale of the Shares shall
cease to be effective; (b) the Company shall be terminated;  or (c) the Broker's
license or registration to act as a broker-dealer  shall be revoked or suspended
by  any  federal,  self-regulatory  or  state  agency  and  such  revocation  or
suspension is not cured within ten (10) days

                                                       -17-

<PAGE>



from the date of such occurrence.  In any event,  this Agreement shall be deemed
suspended during any period for which such license is revoked or suspended.

         10.      Notices.

         All notices and communications  hereunder shall be in writing and shall
be deemed to have been given and delivered  when  deposited in the United States
mail,  postage prepaid,  registered or certified mail, to the applicable address
set forth below.

         If sent to the Managing Dealer:

                              CNL SECURITIES CORP.
                              400 East South Street
                              Orlando, Florida 32801
                              Attention: Robert A. Bourne, President

         If  sent  to  the  Broker:   to  the  person whose name and address are
identified in Exhibit A hereto.



                                                       -18-

<PAGE>



         11.      Successors.

         This  Agreement  shall be binding  upon and inure to the benefit of the
parties  hereto,  and shall not be  assigned  or  transferred  by the  Broker by
operation of law or otherwise.

         12.      Miscellaneous.

                  (a) This Agreement  shall be construed in accordance  with the
applicable laws of the State of Florida.

                  (b) Nothing in this Agreement  shall  constitute the Broker as
in association with or in partnership with the Managing  Dealer.  Instead,  this
Agreement  shall only  authorize the Broker to sell the Shares  according to the
terms as expressly set forth herein;  provided,  further,  that the Broker shall
not in any  event  have  any  authority  to act as the  agent or  broker  of the
Managing Dealer except according to the terms expressly set forth herein.

                  (c) This Agreement, including Exhibit A and Schedule A hereto,
embodies the entire understanding  between the parties to the Agreement,  and no
variation,  modification or amendment to this Agreement shall be deemed valid or
effective unless it is in writing and signed by both parties hereto.

                  (d) If any provision of this  Agreement  shall be deemed void,
invalid or  ineffective  for any reason,  the remainder of the  Agreement  shall
remain in full force and effect.

                  (e) This Agreement may be executed in counterpart copies, each
of which shall be deemed an original but all of which together shall  constitute
one and the same instrument comprising this Agreement.

                                                       -19-

<PAGE>




         IN WITNESS  WHEREOF,  the parties have executed  this  Agreement on the
date and year indicated on Exhibit A hereto.

                                                MANAGING DEALER FOR:
BROKER:                                         CNL HEALTH CARE PROPERTIES, INC.

________________________________                CNL SECURITIES CORP.
(Name of Broker)


By:_____________________________                By:_____________________________
Print Name:_____________________                Print Name:_____________________
Title:__________________________                Title:__________________________

Witness:________________________                Witness:________________________


                                      -20-

<PAGE>



                                    EXHIBIT A
                                       TO
                         PARTICIPATING BROKER AGREEMENT
                                       OF
                        CNL HEALTH CARE PROPERTIES, INC.

         This  Exhibit  A is  attached  to  and  made  a part  of  that  certain
Participating Broker Agreement,  dated as of the ___ day of ___________________,
19__,  by  and  between  CNL  SECURITIES   CORP.,   as  Managing   Dealer,   and
__________________________________, as Broker.

1.       Date of Agreement:_____________________________________________________

2.       Identity of Broker:

         Name:__________________________________________________________________

         Firm NASD (CRD) No:____________________________________________________

         Type of Entity_________________________________________________________
                      (To be completed by Broker, e.g., corporation, partnership
                      or sole proprietorship.)

         State Organized in:____________________________________________________
                            (To be completed by Broker)

         Qualified  To Do  Business  and  in  Good  Standing  in  the  Following
         Jurisdictions   (including   your   state   of   organization)   (Note:
         Qualification  to do  business  in  any  jurisdiction  is  generally  a
         requirement  imposed by the  secretary  of state or other  authority of
         jurisdictions  in which you do  business,  and is not  related  to your
         holding a license as a securities  broker-dealer in such jurisdictions.
         Questions  concerning  this  matter  should be  directed to you or your
         legal counsel.):

         _______________________________________________________________________

         _______________________________________________________________________

         _______________________________________________________________________
         (To be completed by Broker)

         Licensed as Broker-Dealer in The Following States:_____________________

         _______________________________________________________________________

         _______________________________________________________________________
         (To be completed by  Broker)

3.       Schedule of Commissions Payable to Participating  Broker (see Section 2
         of Agreement):

          Number of Shares
            Purchased In       Sales Price      As a Percentage
          Individual Order    To Subscriber   of the Sales Price1  Dollar Amount
          ----------------    -------------   -------------------  -------------
              1 or more          $10.00              7.0%              $0.70

_____________________
(1)  Subject to reduction as set forth in Section 2 of the Participating  Broker
     Agreement.

                                   Exhibit A
                                  Page 1 of 3

<PAGE>

4.       Name and Address for Notice Purposes (see Paragraph 10 of Agreement):

         Name:__________________________________________________________________

         Title:_________________________________________________________________

         Company:_______________________________________________________________

         Address:_______________________________________________________________

         City, State and Zip Code:______________________________________________

         Telephone Number (including area code):________________________________

5. Please complete the following for our records:

        (a)      Please name those individuals who hold the following positions:

                 President:_____________________________________________________

                 Due Diligence Officer:_________________________________________

                 Marketing Director:____________________________________________

                 In-House Editor:_______________________________________________

        (b)      Does your company hold national or regional conferences?
                 Yes _____  No _____

                 If so, when?___________________________________________________

                 Who is the coordinator?________________________________________

        (c)      How many  representatives  are  registered  with  your  broker-
                 dealer?________________________________________________________

                 PLEASE ENCLOSE A CURRENT LIST.  ALL INFORMATION WILL BE HELD IN
                 CONFIDENCE.

        (d)      Does your firm publish a newsletter?  Yes _____    No _____

                 What is/are the frequency of the publication(s)?
                 _____ Weekly     _____ Monthly     _____ Quarterly
                 _____ Bi-weekly  _____ Bi-monthly  _____ Other (please specify)

                 PLEASE  PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE  OF
                 THE PUBLICATION IF AVAILABLE.

        (e)      Does your firm have regular internal mailings, or bulk  package
                 mailings to representatives? Yes _____    No _____

                 PLEASE  PLACE CNL ON YOUR MAILING LIST AND PROVIDE A SAMPLE  OF
                 THE PUBLICATION IF AVAILABLE.


                                   Exhibit A
                                  Page 2 of 3

<PAGE>


        (f)      Does  your  firm  have a computerized  electronic mail (E-Mail)
                 system for your representatives? Yes _____    No _____

                 If so, please provide e-mail address:__________________________

        (g)      Website address:_______________________________________________

                 Person responsible:____________________________________________


                                    Exhibit A
                                   Page 3 of 3

<PAGE>



                                   SCHEDULE A
                                       TO
                         PARTICIPATING BROKER AGREEMENT
                                       OF
                        CNL HEALTH CARE PROPERTIES, INC.


                      TELEPHONIC SUBSCRIPTION AUTHORIZATION



         This  Schedule  A is  attached  to  and  made a part  of  that  certain
Participating Broker Agreement, dated as of the ___ day of ____________________,
19__,  by  and  between  CNL  SECURITIES   CORP.,   as  Managing   Dealer,   and
_____________________________________________, as Broker.

         The  list of  states  in  which  the  Broker  is  permitted  to  accept
telephonic  subscriptions  shall be those states identified by Item 2 of Exhibit
A, as amended  from time to time,  to the Broker  Agreement  between the parties
hereto, as states in which the Broker is licensed as a Broker-Dealer, except for
the  following  states  in which  the  Broker is  specifically  prohibited  from
accepting  telephonic  subscriptions:   Florida,  Iowa,  Maine,   Massachusetts,
Michigan,  Minnesota,   Mississippi,   Missouri,  Nebraska,  New  Mexico,  North
Carolina, Ohio, Oregon, South Dakota, Tennessee and Washington.



Initials: ______________   --  CNL SECURITIES CORP.

          ______________   --  PARTICIPATING BROKER


   
                    DEFERRED COMMISSION OPTION AUTHORIZATION


         Authorization is hereby given for registered representatives to select,
at the request of the investor,  the deferred commission option, as explained in
Section 2, paragraph 4 of the Participating Broker Agreement.



Initials: ______________   --  CNL SECURITIES CORP.

          ______________   --  PARTICIPATING BROKER
    

<PAGE>







                                   Exhibit 3.2


                    Form of CNL Health Care Properties, Inc.
                 Amended and Restated Articles of Incorporation



<PAGE>



                      ARTICLES OF AMENDMENT AND RESTATEMENT
                                       OF
                        CNL HEALTH CARE PROPERTIES, INC.


         CNL Health Care  Properties,  Inc., a Maryland  corporation  having its
principal office at 32 South Street, Baltimore, Maryland 21202 (hereinafter, the
"Company"),  hereby  certifies to the Department of Assessments  and Taxation of
the State of Maryland, that:

         FIRST:  The  Company  desires  to amend and  restate  its  articles  of
incorporation as currently in effect.

         SECOND: The provisions of the articles of incorporation, dated December
22, 1997, which are now in effect and as amended hereby,  in accordance with the
Maryland General Corporation Law (the "MGCL"), are as follows.

                              AMENDED AND RESTATED
                            ARTICLES OF INCORPORATION
                                       OF
                        CNL HEALTH CARE PROPERTIES, INC.


                               * * * * * * * * * *


                                    ARTICLE 1

                            THE COMPANY; DEFINITIONS

         SECTION 1.1      Name.  The name of the corporation (the "Company") is:

                        CNL Health Care Properties, Inc.

         So far as may be  practicable,  the  business of the  Company  shall be
conducted and  transacted  under that name,  which name (and the word  "Company"
wherever used in these Articles of Amendment and  Restatement of CNL Health Care
Properties,  Inc. (these "Articles of Incorporation"),  except where the context
otherwise   requires)  shall  refer  to  the  Directors   collectively  but  not
individually  or personally  and shall not refer to the  Stockholders  or to any
officers, employees or agents of the Company or of such Directors.

         Under  circumstances  in which the Directors  determine that the use of
the name "CNL Health Care Properties, Inc." is not practicable, they may use any
other designation or name for the Company.


                                                        -1-

<PAGE>



         SECTION 1.2 Resident Agent.  The name and address of the resident agent
for  service  of  process  of  the  Company  in the  State  of  Maryland  is The
Corporation Trust Incorporated,  32 South Street, Baltimore, Maryland 21202. The
Company  may have such  principal  office  within the State of  Maryland  as the
Directors may from time to time determine.

         The  Company  may also have such other  offices  or places of  business
within or without the State of Maryland as the  Directors  may from time to time
determine.

         SECTION  1.3 Nature of Company.  The Company is a Maryland  corporation
within the meaning of the MGCL.

         SECTION 1.4 Purposes.  The purposes for which the Company is formed are
to conduct any business for which  corporations  may be organized under the laws
of the State of Maryland  including,  but not limited to, the following:  (i) to
acquire, hold, own, develop, construct, improve, maintain, operate, sell, lease,
transfer,  encumber, convey, exchange and otherwise dispose of or deal with real
and personal  property;  (ii) to engage in the  business of offering  furniture,
fixture,  and equipment financing to operators of Health Care Facilities;  (iii)
to engage  in the  business  of  offering  mortgage  financing  secured  by Real
Property; and (iv) to enter into any partnership, joint venture or other similar
arrangement to engage in any of the foregoing.

         SECTION 1.5  Definitions.  As used in these Articles of  Incorporation,
the  following  terms  shall have the  following  meanings  unless  the  context
otherwise  requires  (certain other terms used in Article VII hereof are defined
in Sections 7.2, 7.3, 7.6, and 7.7 hereof):

         "Acquisition  Expenses"  means  any and all  expenses  incurred  by the
Company,  the  Advisor,  or any  Affiliate  of  either  in  connection  with the
selection or  acquisition  of any  Property or the making of any Mortgage  Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communications  expenses,  costs of appraisals,  nonrefundable option
payments on property  not  acquired,  accounting  fees and  expenses,  and title
insurance.

         "Acquisition Fees" means any and all fees and commissions, exclusive of
Acquisition Expenses, paid by any Person or entity to any other Person or entity
(including any fees or commissions paid by or to any Affiliate of the Company or
the Advisor) in  connection  with making or  investing in Mortgage  Loans or the
purchase,   development  or  construction  of  a  Property,  including,  without
limitation, real estate commissions,  acquisition fees, finder's fees, selection
fees,  Development  Fees,   Construction  Fees,  nonrecurring  management  fees,
consulting fees, loan fees,  points,  the Secured Equipment Lease Servicing Fee,
or any  other  fees or  commissions  of a  similar  nature.  Excluded  shall  be
development  fees  and  construction  fees  paid to any  Person  or  entity  not
affiliated  with the  Advisor  in  connection  with the actual  development  and
construction of any Property.



                                                        -2-

<PAGE>



         "Advisor" or "Advisors" means the Person or Persons, if any, appointed,
employed or  contracted  with by the Company  pursuant to Section 4.1 hereof and
responsible for directing or performing the day-to-day  business  affairs of the
Company, including any Person to whom the Advisor subcontracts substantially all
of such functions.

         "Advisory  Agreement"  means the agreement  between the Company and the
Advisor  pursuant  to which the Advisor  will  direct or perform the  day-to-day
business affairs of the Company.

         "Affiliate" or "Affiliated"  means, as to any individual,  corporation,
partnership,  trust or other  association  (other than the Excess Shares Trust),
(i)  any  Person  or  entity   directly  or  indirectly   through  one  or  more
intermediaries controlling,  controlled by, or under common control with another
Person or entity;  (ii) any Person or entity,  directly  or  indirectly  owning,
controlling,  or  holding  with power to vote ten  percent  (10%) or more of the
outstanding  voting  securities of another Person or entity;  (iii) any officer,
director,  partner  or trustee  of such  Person or  entity;  (iv) any Person ten
percent (10%) or more of whose  outstanding  voting  securities  are directly or
indirectly owned,  controlled or held, with power to vote, by such other Person;
and (v) if such other  Person or entity is an  officer,  director,  partner,  or
trustee  of a Person or entity,  the  Person or entity for which such  Person or
entity acts in any such capacity.

         "Asset  Management  Fee"  means  the fee  payable  to the  Advisor  for
day-to-day  professional  management services in connection with the Company and
its  investments  in  Properties,  and Mortgage  Loans  pursuant to the Advisory
Agreement.

         "Assets" means Properties, Mortgage Loans and Secured Equipment Leases,
collectively.

         "Average Invested Assets" means, for a specified period, the average of
the  aggregate  book value of the assets of the  Company  invested,  directly or
indirectly,  in equity  interests  in and loans  secured by real  estate  before
reserves  for  depreciation  or bad debts or other  similar  non-cash  reserves,
computed by taking the  average of such  values at the end of each month  during
such period.

         "Bylaws"  means the  bylaws of the  Company,  as the same are in effect
from time to time.

         "Code" means the Internal Revenue Code of 1986, as amended from time to
time, or any successor  statute thereto.  Reference to any provision of the Code
shall mean such  provision  as in effect  from time to time,  as the same may be
amended,  and any successor  provision thereto, as interpreted by any applicable
regulations as in effect from time to time.

         "Company  Property"  means  any and all  property,  real,  personal  or
otherwise,  tangible  or  intangible,  including  Secured  Equipment  Leases and
Mortgage Loans,  which is transferred or conveyed to the Company  (including all
rents, income,  profits and gains therefrom),  which is owned or held by, or for
the account of, the Company.


                                                        -3-

<PAGE>



         "Competitive  Real Estate  Commission" means a real estate or brokerage
commission for the purchase or sale of property which is reasonable,  customary,
and  competitive in light of the size,  type, and location of the property.  The
total  of all  real  estate  commissions  paid  by the  Company  to all  Persons
(including the subordinated real estate  disposition fee payable to the Advisor)
in connection with any Sale of one or more of the Company's Properties shall not
exceed  the  lesser of (i) a  Competitive  Real  Estate  Commission  or (ii) six
percent (6%) of the gross sales price of the Property or Properties.

         "Construction  Fee" means a fee or other  remuneration  for acting as a
general  contractor  and/or  construction  manager  to  construct  improvements,
supervise and coordinate  projects or provide major repairs or rehabilitation on
a Property.

         "Development  Fee" means a fee for such  activities as negotiating  and
approving  plans and  undertaking  to assist in obtaining  zoning and  necessary
variances and necessary  financing for a specific Property,  either initially or
at a later date.

         "Directors," "Board of Directors" or "Board" means,  collectively,  the
individuals  named in Section  2.4 of these  Amended  and  Restated  Articles of
Incorporation  so long as they continue in office and all other  individuals who
have been duly elected and qualify as Directors of the Company hereunder.

         "Distributions"  means any  distributions  of money or other  property,
pursuant  to  Section  7.2(iv)  hereof,  by the  Company  to owners  of  Shares,
including  distributions  that may  constitute  a return of capital  for federal
income  tax  purposes.  The  Company  will  make  no  distributions  other  than
distributions of money or readily marketable  securities unless the requirements
of Section 7.2(iv) hereof are satisfied.

         "Equipment"  shall mean the  furniture,  fixtures and equipment used at
Health Care Facilities by operators of Health Care Facilities.

         "Equity Shares" means transferable shares of beneficial interest of the
Company of any class or series, including Common Shares or Preferred Shares.

         "Gross Proceeds" means the aggregate  purchase price of all Shares sold
for the account of the  Company,  without  deduction  for  Selling  Commissions,
volume discounts,  the marketing support and due diligence expense reimbursement
fee or Organizational and Offering Expenses.  For the purpose of computing Gross
Proceeds,  the purchase price of any Share for which reduced Selling Commissions
are paid to the Managing  Dealer or a Soliciting  Dealer  (where net proceeds to
the Company are not reduced) shall be deemed to be $10.00.

         "Health Care Facilities" means facilities at which health care services
are provided, including, but not limited to, congregate living, assisted living,
and skilled nursing facilities,  continuing care retirement communities and life
care communities, and medical office buildings and walk-in clinics.

                                                        -4-

<PAGE>




         "Independent Director" means a Director who is not, and within the last
two (2) years has not been,  directly or indirectly  associated with the Advisor
by virtue of (i) ownership of an interest in the Advisor or its Affiliates, (ii)
employment  by the  Advisor or its  Affiliates,  (iii)  service as an officer or
director of the Advisor or its Affiliates,  (iv) performance of services,  other
than as a  Director,  for the  Company,  (v) service as a director or trustee of
more than three (3) real estate  investment  trusts  advised by the Advisor,  or
(vi) maintenance of a material  business or professional  relationship  with the
Advisor  or  any of its  Affiliates.  An  indirect  relationship  shall  include
circumstances  in  which  a  Director's  spouse,  parents,  children,  siblings,
mothers-  or  fathers-in-law,   sons-  or   daughters-in-law   or  brothers-  or
sisters-in-law is or has been associated with the Advisor, any of its Affiliates
or the Company. A business or professional  relationship is considered  material
if the gross  revenue  derived by the Director  from the Advisor and  Affiliates
exceeds five percent (5%) of either the  Director's  annual gross revenue during
either of the last two (2) years or the  Director's  net worth on a fair  market
value basis.

         "Independent  Expert" means a Person or entity with no material current
or prior business or personal relationship with the Advisor or the Directors and
who is engaged to a  substantial  extent in the business of  rendering  opinions
regarding the value of assets of the type held by the Company.

         "Initial Public  Offering" means the offering and sale of Equity Shares
of the Company pursuant to the Company's first effective  registration statement
covering such Common Shares filed under the Securities Act of 1933, as amended.

         "Invested Capital" means the amount calculated by multiplying the total
number of Shares  purchased by Stockholders  by the issue price,  reduced by the
portion of any  Distribution  that is  attributable to Net Sales Proceeds and by
any amounts paid by the Company to repurchase  Shares  pursuant to the Company's
plan for redemption of Shares.

         "Joint  Ventures"  means  those  joint  venture or general  partnership
arrangements  in which the Company is a co-venturer or general partner which are
established to acquire Properties.

         "Leverage"  means the aggregate  amount of  indebtedness of the Company
for money borrowed  (including purchase money mortgage loans) outstanding at any
time, both secured and unsecured.

         "Line of Credit"  means a line of credit  initially  in an amount up to
$45,000,000,  the proceeds of which will be used to acquire  Properties and make
Mortgage Loans and Secured Equipment Leases.

         "Listing"  means the listing of the Shares of the Company on a national
securities exchange or over-the-counter market.



                                                        -5-

<PAGE>



         "Managing  Dealer"  means CNL  Securities  Corp.,  an  Affiliate of the
Advisor,  or such other  Person or entity  selected by the Board of Directors to
act as the managing dealer for the offering. CNL Securities Corp. is a member of
the National Association of Securities Dealers, Inc.

         "MGCL" means the Maryland  General  Corporation Law as contained in the
Corporations and Associations Article of the Annotated Code of Maryland.

         "Mortgage Loans" means, in connection with mortgage  financing provided
by the Company,  notes or other evidences of  indebtedness or obligations  which
are secured or collateralized by real estate owned by the borrowers.

         "Mortgages" means mortgages, deeds of trust or other security interests
on or applicable to Real Property.

         "NASAA REIT Guidelines" means the guidelines for Real Estate Investment
Trusts published by the North American Securities Administrators Association.

         "Net  Assets"  means  the  total  assets  of the  Company  (other  than
intangibles), at cost, before deducting depreciation or other non-cash reserves,
less  total  liabilities,  calculated  quarterly  by  the  Company  on  a  basis
consistently applied.

         "Net Income"  means for any period,  the total  revenues  applicable to
such  period,  less the  total  expenses  applicable  to such  period  excluding
additions  to reserves for  depreciation,  bad debts or other  similar  non-cash
reserves;  provided,  however,  Net Income for  purposes  of  calculating  total
allowable  Operating  Expenses  shall  exclude  the  gain  from  the sale of the
Company's assets.

         "Net Sales  Proceeds"  means in the case of a transaction  described in
clause (i)(A) of the  definition of Sale,  the proceeds of any such  transaction
less the amount of all real estate  commissions  and  closing  costs paid by the
Company.  In the  case of a  transaction  described  in  clause  (i)(B)  of such
definition,  Net Sales Proceeds means the proceeds of any such  transaction less
the amount of any legal and other selling  expenses  incurred in connection with
such  transaction.  In the case of a  transaction  described in clause (i)(C) of
such  definition,  Net Sales Proceeds means the proceeds of any such transaction
actually  distributed  to the Company from the Joint  Venture.  In the case of a
transaction  or  series  of  transactions  described  in  clause  (i)(D)  of the
Definition  of  Sale,  Net  Sales  Proceeds  means  the  proceeds  of  any  such
transaction  less the amount of all  commissions  and closing  costs paid by the
Company. In the case of a transaction described in clause (ii) of the definition
of Sale, Net Sales Proceeds means the proceeds of such  transaction or series of
transactions  less all amounts  generated  thereby and reinvested in one or more
Properties  within one hundred eighty (180) days  thereafter and less the amount
of any real  estate  commissions,  closing  costs,  and legal and other  selling
expenses  incurred  by or  allocated  to the  Company  in  connection  with such
transaction or series of transactions. Net Sales Proceeds shall also include, in
the case of any lease of a Property  consisting of a building only, any Mortgage
Loan or any Secured Equipment Lease, any amounts

                                                        -6-

<PAGE>



from  tenants,  borrowers  or  lessees  that  the  Company  determines,  in  its
discretion,  to be economically  equivalent to the proceeds of a Sale. Net Sales
Proceeds shall not include, as determined by the Company in its sole discretion,
any  amounts  reinvested  in one or more  Properties,  Mortgage  Loans,  Secured
Equipment  Leases or other  assets,  to repay  outstanding  indebtedness,  or to
establish reserves.

         "Operating  Expenses"  mean all  costs  and  expenses  incurred  by the
Company, as determined under generally accepted accounting principles,  which in
any way are  related to the  operation  of the  Company or to Company  business,
including (a) advisory fees, (b) the Asset  Management  Fee, (c) the Performance
Fee, and (d) the  Subordinated  Incentive Fee, but excluding (i) the expenses of
raising capital such as  Organizational  and Offering  Expenses,  legal,  audit,
accounting,  underwriting,  brokerage,  listing,  registration,  and other fees,
printing  and other  such  expenses  and tax  incurred  in  connection  with the
issuance,  distribution,  transfer, registration and Listing of the Shares, (ii)
interest payments, (iii) taxes, (iv) non-cash expenditures such as depreciation,
amortization and bad debt reserves,  (v) the Advisor's  subordinated ten percent
(10%) share of Net Sales  Proceeds,  and (vi)  Acquisition  Fees and Acquisition
Expenses,  real estate  commissions on the Sale of property,  and other expenses
connected with the acquisition and ownership of real estate interests,  mortgage
loans, or other property (such as the costs of foreclosure,  insurance premiums,
legal services, maintenance, repair, and improvement of property).

         "Organizational  and  Offering  Expenses"  means  any and all costs and
expenses, other than Selling Commissions, the Soliciting Dealer Warrants and the
0.5% marketing support and due diligence  expense  reimbursement fee incurred by
the  Company,  the Advisor or any  Affiliate  of either in  connection  with the
formation,  qualification  and registration of the Company and the marketing and
distribution of Shares,  including,  without limitation,  the following:  legal,
accounting  and escrow  fees;  printing,  amending,  supplementing,  mailing and
distributing  costs;  filing,  registration  and  qualification  fees and taxes;
telegraph and  telephone  costs;  and all  advertising  and marketing  expenses,
including the costs related to investor and  broker-dealer  sales meetings.  The
Organizational  and Offering  Expenses  paid by the Company in  connection  with
formation of the Company, together with all Selling Commissions,  the Soliciting
Dealer Warrants and the 0.5% marketing  support and due diligence  reimbursement
fee  incurred by the  Company,  will not exceed  thirteen  percent  (13%) of the
proceeds raised in connection with such offering.

         "Performance  Fee" means the fee payable to the Advisor  under  certain
circumstances   if  certain   performance   standards  have  been  met  and  the
Subordinated Incentive Fee has not been paid.

         "Permanent  Financing"  means financing (i) to acquire Assets,  (ii) to
pay the Secured Equipment Lease Servicing Fee, (iii) to pay a fee of 4.5% of any
Permanent  Financing,  excluding  amounts to fund Secured  Equipment  Leases, as
Acquisition Fees, and (iv) refinance outstanding amounts on the Line of Credit.



                                                        -7-

<PAGE>



         "Person" means an individual,  corporation,  partnership, estate, trust
(including a trust  qualified under Section 401(a) or 501(c)(17) of the Code), a
portion of a trust  permanently set aside for or to be used  exclusively for the
purposes  described  in  Section  642(c)  of  the  Code,  association,   private
foundation within the meaning of Section 509(a) of the Code, joint stock company
or other  entity,  or any  government  or any  agency or  political  subdivision
thereof,  and also includes a group as that term is used for purposes of Section
13(d)(3)  of the  Securities  Exchange  Act of 1934,  as  amended,  but does not
include (i) an  underwriter  that  participates  in a public  offering of Equity
Shares for a period of sixty (60) days  following  the initial  purchase by such
underwriter  of such Equity Shares in such public  offering,  or (ii) CNL Health
Care Advisors,  Inc., during the period ending December 31, 1998,  provided that
the foregoing exclusions shall apply only if the ownership of such Equity Shares
by an underwriter or CNL Health Care Advisors,  Inc. would not cause the Company
to fail to  qualify  as a REIT by  reason of being  "closely  held"  within  the
meaning of Section 856(a) of the Code or otherwise  cause the Company to fail to
qualify as a REIT.

         "Property" or "Properties" means (i) the real properties, including the
buildings located thereon, (ii) the real properties only, or (iii) the buildings
only,  which are  acquired by the  Company,  either  directly  or through  joint
venture arrangements or other partnerships.

         "Prospectus" means the same as that term is defined in Section 2(10) of
the  Securities  Act of 1933,  including a preliminary  prospectus,  an offering
circular as described in Rule 256 of the General Rules and Regulations under the
Securities Act of 1933 or, in the case of an intrastate  offering,  any document
by  whatever  name  known,  utilized  for the  purpose of  offering  and selling
securities to the public.

         "Real Estate Asset Value" or "Contract Purchase Price" means the amount
actually  paid  or  allocated  to the  purchase,  development,  construction  or
improvement  of a  Property,  exclusive  of  Acquisition  Fees  and  Acquisition
Expenses.

         "Real Property" or "Real Estate" means land,  rights in land (including
leasehold interests), and any buildings, structures, improvements,  furnishings,
fixtures and equipment  located on or used in connection with land and rights or
interests in land.

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

         "REIT  Provisions  of the Code" means  Sections  856 through 860 of the
Code and any  successor or other  provisions of the Code relating to real estate
investment  trusts  (including  provisions as to the attribution of ownership of
beneficial interests therein) and the regulations promulgated thereunder.

         "Roll-Up  Entity" means a partnership,  real estate  investment  trust,
corporation,  trust or similar  entity  that  would be created or would  survive
after the successful completion of a proposed Roll-Up Transaction.

                                                        -8-

<PAGE>




         "Roll-Up  Transaction"  means a transaction  involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll- Up Entity. Such term does not include: (i)
a  transaction  involving  securities  of the Company that have been listed on a
national  securities  exchange or included for quotation on the National  Market
System of the National  Association of Securities  Dealers  Automated  Quotation
System for at least 12 months; or (ii) a transaction involving the conversion to
corporate,  trust, or association  form of only the Company if, as a consequence
of the transaction,  there will be no significant  adverse change in Stockholder
voting rights, the term of existence of the Company, compensation to the Advisor
or the investment objectives of the Company.

         "Sale" or "Sales" (i) means any  transaction or series of  transactions
whereby: (A) the Company sells, grants,  transfers,  conveys or relinquishes its
ownership  of any  Property  or  portion  thereof,  including  the  lease of any
Property  consisting of the building  only, and including any event with respect
to any Property which gives rise to a significant  amount of insurance  proceeds
or condemnation  awards; (B) the Company sells,  grants,  transfers,  conveys or
relinquishes  its ownership of all or  substantially  all of the interest of the
Company in any Joint  Venture in which it is a co-venturer  or partner;  (C) any
Joint Venture in which the Company as a co-venturer  or partner  sells,  grants,
transfers,  conveys or  relinquishes  its  ownership  of any Property or portion
thereof,  including  any event with respect to any Property  which gives rise to
insurance  claims or  condemnation  awards;  or (D) the Company  sells,  grants,
conveys,  or relinquishes its interest in any Mortgage Loan,  Secured  Equipment
Lease, or other asset, or portion  thereof,  including any event with respect to
any Mortgage Loan,  Secured Equipment Lease or other asset which gives rise to a
significant  amount of insurance  proceeds or similar awards, but (ii) shall not
include any  transaction or series of  transactions  specified in clause (i)(A),
(i)(B),  or (i)(C) above in which the proceeds of such  transaction or series of
transactions are reinvested in one or more Properties  within one hundred eighty
(180) days thereafter.

         "Secured Equipment Leases" means the Equipment financing made available
by the  Company to  operators  of Health Care  Facilities  pursuant to which the
Company will finance, through loans or direct financing leases, the Equipment.

         "Secured  Equipment  Lease  Servicing Fee" means the fee payable to the
Advisor by the  Company out of the  proceeds of the Line of Credit or  Permanent
Financing for negotiating  Secured  Equipment Leases and supervising the Secured
Equipment  Lease  program  equal to 2% of the  purchase  price of the  Equipment
subject to each Secured  Equipment  Lease and paid upon entering into such lease
or loan.

         "Securities"  means  Equity  Shares,  Excess  Shares,  any other stock,
shares or other  evidences of equity or  beneficial or other  interests,  voting
trust certificates, bonds, debentures, notes or other evidences of indebtedness,
secured or unsecured, convertible,  subordinated or otherwise, or in general any
instruments  commonly known as  "securities"  or any  certificates  of interest,
shares or  participations  in, temporary or interim  certificates  for, receipts
for, guarantees of, or warrants,  options or rights to subscribe to, purchase or
acquire, any of the foregoing.


                                                        -9-

<PAGE>



         "Selling   Commissions"  means  any  and  all  commissions  payable  to
underwriters,  managing dealers, or other  broker-dealers in connection with the
sale of  Shares,  including,  without  limitation,  commissions  payable  to CNL
Securities Corp.

         "Shares"  means the Common  Shares,  as such term is defined in Section
7.2 hereof.

         "Soliciting Dealers" means those broker-dealers that are members of the
National  Association  of  Securities  Dealers,  Inc.,  or that are exempt  from
broker-dealer  registration,  and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.

         "Sponsor"  means any Person  directly  or  indirectly  instrumental  in
organizing,  wholly or in part,  the  Company or any  Person  who will  control,
manage or  participate  in the  management of the Company,  and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent  property  manager of Company  assets,  and whose only
compensation  is as such.  Sponsor  does not include  wholly  independent  third
parties such as attorneys, accountants, and underwriters whose only compensation
is for  professional  services.  A Person  may also be deemed a  Sponsor  of the
Company by:

         a.       taking the initiative,  directly or indirectly, in founding or
                  organizing  the business or enterprise of the Company,  either
                  alone or in conjunction with one or more other Persons;

         b.       receiving   a  material   participation   in  the  Company  in
                  connection  with the founding or organizing of the business of
                  the Company, in consideration of services or property, or both
                  services and property;

         c.       having a substantial number of relationships and contacts with
                  the Company;

         d.       possessing significant rights to control Company properties;

         e.       receiving fees for providing services to the Company which are
                  paid on a basis that is not customary in the industry; or

         f.       providing  goods or  services  to the Company on a basis which
                  was not negotiated at arms length with the Company.

         "Stock  Option  Plan"  means a plan that  provides  for the matters set
forth  in  Rule  260.140.41  of  Section  25140  of  the  Corporations  Code  of
California, as in effect as of the date of these Articles of Incorporation.

         "Stockholders'  8% Return," as of each date,  means an aggregate amount
equal to an eight  percent  (8%)  cumulative,  noncompounded,  annual  return on
Invested Capital.


                                                       -10-

<PAGE>



         "Stockholders"  means the  registered  holders of the Company's  Equity
Shares.

         "Subordinated Incentive Fee" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter market.

         "Successor" means any successor in interest of the Company.

         "Termination  Date"  means  the  date of  termination  of the  Advisory
Agreement.

         "Total Proceeds" means Gross Proceeds plus loan proceeds from Permanent
Financing and amounts  outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.

         "Unimproved  Real Property"  means Property in which the Company has an
equity  interest  that is not acquired  for the purpose of  producing  rental or
other operating  income,  that has no development or construction in process and
for which no development or construction is planned,  in good faith, to commence
within one year.

                                    ARTICLE 2

                               BOARD OF DIRECTORS

         SECTION 2.1 Number.  The number of  Directors  initially  shall be five
(5),  which number may be increased or decreased from time to time by resolution
of the  Directors  then in  office  or by a  majority  vote of the  Stockholders
entitled to vote: provided, however, that the total number of Directors shall be
not fewer than three (3) and not more than fifteen  (15),  subject to the Bylaws
and to any express  rights of any holders of any series of  Preferred  Shares to
elect  additional  directors  under specified  circumstances.  A majority of the
Board of Directors will be Independent  Directors except for a period of 90 days
after the death, removal or resignation of an Independent Director.  Independent
Directors shall nominate  replacements for vacancies in the Independent Director
positions.  No reduction  in the number of Directors  shall cause the removal of
any  Director  from  office  prior to the  expiration  of his term.  Any vacancy
created by an increase in the number of Directors will be filled, at any regular
meeting or at any special meeting of the Directors called for that purpose, by a
majority  of the  Directors.  Any other  vacancy  will be  filled at any  annual
meeting or at any special meeting of the  Stockholders  called for that purpose,
by a majority of the Common Shares present in person or by proxy and entitled to
vote. For the purposes of voting for Directors, each Share of stock may be voted
for as many  individuals  as there are  directors  to be  elected  and for whose
election the Share is entitled to be voted,  or as may  otherwise be required by
the MGCL or other applicable law as in effect from time to time.



                                                       -11-

<PAGE>



         SECTION 2.2  Experience.  A Director  shall have had at least three (3)
years of relevant experience demonstrating the knowledge and experience required
to  successfully  acquire  and manage the type of assets  being  acquired by the
Company. At least one of the Independent Directors shall have three (3) years of
relevant real estate experience.

         SECTION  2.3  Committees.  Subject  to  the  MGCL,  the  Directors  may
establish  such  committees  as they  deem  appropriate,  in  their  discretion,
provided  that the  majority of the members of each  committee  are  Independent
Directors.

         SECTION 2.4 Initial  Board;  Term.  The initial  Directors are James M.
Seneff, Jr., Robert A. Bourne,  David W. Dunbar,  Timothy S. Smick and Edward A.
Moses.  Each Director shall hold office for one (1) year,  until the next annual
meeting of Stockholders and until his successor shall have been duly elected and
shall  have  qualified.  Directors  may be  elected  to an  unlimited  number of
successive terms.

         The names and address of the initial Directors are as follows:

         Name                                        Address
         ----                                        -------

         James M. Seneff, Jr.                        400 E. South Street
                                                     Orlando, Florida 32801

         Robert A. Bourne                            400 E. South Street
                                                     Orlando, Florida 32801

         David W. Dunbar                             400 E. South Street
                                                     Orlando, Florida 32801

         Timothy S. Smick                            400 E. South Street
                                                     Orlando, Florida 32801

         Edward A. Moses                             400 E. South Street
                                                     Orlando, Florida 32801

         SECTION 2.5 Fiduciary  Obligations.  The Directors serve in a fiduciary
capacity to the Company and have a  fiduciary  duty to the  Stockholders  of the
Company,  including a specific  fiduciary duty to supervise the  relationship of
the Company with the Advisor.

   
         SECTION  2.6  Approval  by   Independent   Directors.   A  majority  of
Independent  Directors must approve all matters to which Sections 2.1,  3.2(vii)
and (xii),  3.3, 4.1, 4.2, 4.6, 4.7, 4.8, 4.10,  4.13, 5.2, 5.4 and (xvi),  6.3,
6.4, 8.1, 8.2, 9.2 and 9.4 herein apply.
    



                                                       -12-

<PAGE>



         SECTION 2.7  Resignation,  Removal or Death. Any Director may resign by
written notice to the Board of Directors,  effective upon execution and delivery
to the Company of such written  notice or upon any future date  specified in the
notice.  A Director may be removed  from office with or without  cause only at a
meeting of the Stockholders  called for that purpose, by the affirmative vote of
the  holders of not less than a majority of the Equity  Shares then  outstanding
and entitled to vote,  subject to the rights of any Preferred Shares to vote for
such Directors.  The notice of such meeting shall indicate that the purpose,  or
one of the  purposes,  of such meeting is to  determine if a Director  should be
removed.

         SECTION 2.8 Business  Combination  Statute.  Notwithstanding  any other
provision of these Articles of Incorporation  or any contrary  provision of law,
the Maryland Business Combination  Statute,  found in Title 3, subtitle 6 of the
MGCL, as amended from time to time, or any successor statute thereto,  shall not
apply to any "business combination" (as defined in Section 3-601(e) of the MGCL,
as amended from time to time, or any successor  statute  thereto) of the Company
and any Person.

         SECTION 2.9 Control  Share  Acquisition  Statute.  Notwithstanding  any
other provision of these Articles of Incorporation or any contrary  provision of
law, the Maryland Control Share Acquisition Statute,  found in Title 3, subtitle
7 of the MGCL, as amended from time to time, or any  successor  statute  thereto
shall not apply to any acquisition of Securities of the Company by any Person.

                                    ARTICLE 3

                               POWERS OF DIRECTORS

         SECTION 3.1 General.  Subject to the express  limitations  herein or in
the Bylaws and to the general  standard of care required of directors  under the
MGCL and other applicable law, (i) the business and affairs of the Company shall
be managed  under the direction of the Board of Directors and (ii) the Directors
shall have full,  exclusive and absolute  power,  control and authority over the
Company  Property and over the business of the Company as if they,  in their own
right,  were the sole  owners  thereof,  except as  otherwise  limited  by these
Articles of  Incorporation.  The Directors have established the written policies
on investments  and borrowing set forth in this Article III and Article V hereof
and shall  monitor the  administrative  procedures,  investment  operations  and
performance  of the Company and the  Advisor to assure  that such  policies  are
carried out. The Directors may take any actions that, in their sole judgment and
discretion, are necessary or desirable to conduct the business of the Company. A
majority  of the  Board  of  Directors,  including  a  majority  of  Independent
Directors,  hereby  ratify  these  Articles  of  Incorporation,  which  shall be
construed with a presumption in favor of the grant of power and authority to the
Directors. Any construction of these Articles of Incorporation or determination


                                                       -13-

<PAGE>



made in good  faith by the  Directors  concerning  their  powers  and  authority
hereunder  shall be  conclusive.  The  enumeration  and definition of particular
powers of the Directors  included in this Article III shall in no way be limited
or restricted  by reference to or inference  from the terms of this or any other
provision of these Articles of Incorporation or construed or deemed by inference
or  otherwise  in any manner to exclude or limit the powers  conferred  upon the
Directors under the general laws of the State of Maryland as now or hereafter in
force.

         SECTION 3.2 Specific Powers and Authority.  Subject only to the express
limitations  herein, and in addition to all other powers and authority conferred
by these Articles of Incorporation  or by law, the Directors,  without any vote,
action or consent by the Stockholders,  shall have and may exercise, at any time
or times,  in the name of the Company or on its behalf the following  powers and
authorities:

                  (i) Investments.  Subject to Article V and Section 9.5 hereof,
to invest in, purchase or otherwise acquire and to hold real, personal or mixed,
tangible or  intangible,  property of any kind  wherever  located,  or rights or
interests therein or in connection therewith, all without regard to whether such
property,  interests or rights are authorized by law for the investment of funds
held by  trustees  or other  fiduciaries,  or whether  obligations  the  Company
acquires  have a term greater or lesser than the term of office of the Directors
or the  possible  termination  of the  Company,  for such  consideration  as the
Directors may deem proper (including cash, property of any kind or Securities of
the Company);  provided,  however, that the Directors shall take such actions as
they deem  necessary and desirable to comply with any  requirements  of the MGCL
relating to the types of assets held by the Company.

                  (ii) REIT Qualification.  The Board of Directors shall use its
best  efforts to cause the  Company  and its  Stockholders  to qualify  for U.S.
federal  income tax  treatment in  accordance  with the  provisions  of the Code
applicable  to REITs (as those  terms are  defined in Section  1.5  hereof).  In
furtherance of the foregoing,  the Board of Directors shall use its best efforts
to take such  actions as are  necessary,  and may take such  actions as it deems
desirable  (in its sole  discretion)  to preserve the status of the Company as a
REIT;  provided,  however,  that  in the  event  that  the  Board  of  Directors
determines,  by vote of at least two-thirds  (2/3) of the Directors,  that it no
longer is in the best  interests of the Company to qualify as a REIT,  the Board
of Directors  shall take such actions as are required by the Code,  the MGCL and
other  applicable law, to cause the matter of termination of  qualification as a
REIT to be submitted to a vote of the  Stockholders  of the Company  pursuant to
Section 8.2.

                  (iii) Sale,  Disposition and Use of Company Property.  Subject
to Article V and Sections 9.5 and 10.3 hereof, the Board of Directors shall have
the authority to sell, rent, lease, hire, exchange, release, partition,  assign,
mortgage,  grant security  interests in, encumber,  negotiate,  dedicate,  grant
easements in and options with respect to, convey,  transfer (including transfers
to  entities  wholly or  partially  owned by the  Company or the  Directors)  or
otherwise  dispose of any or all of the  Company  Property  by deeds  (including
deeds  in lieu of  foreclosure  with or  without  consideration),  trust  deeds,
assignments,  bills of sale, transfers, leases, mortgages, financing statements,
security agreements and other instruments for any of such purposes executed

                                                       -14-

<PAGE>



and  delivered  for and on behalf of the Company or the Directors by one or more
of the Directors or by a duly authorized officer,  employee, agent or nominee of
the Company,  on such terms as they deem appropriate;  to give consents and make
contracts  relating to the  Company  Property  and its use or other  property or
matters;  to develop,  improve,  manage,  use,  alter or otherwise deal with the
Company  Property;  and to rent, lease or hire from others property of any kind;
provided,  however,  that the Company may not use or apply land for any purposes
not permitted by applicable law.

   
                  (iv)  Financings.  To borrow  or, in any other  manner,  raise
money for the  purposes  and on the terms they  determine,  which  terms may (i)
include  evidencing  the same by issuance of  Securities of the Company and (ii)
may  have  such  provisions  as  the  Directors  determine;  to  reacquire  such
Securities  of the  Excess  Shares  Trust;  to enter  into  other  contracts  or
obligations on behalf of the Excess Shares Trust; to guarantee, indemnify or act
as surety with respect to payment or  performance  of obligations of any Person;
to mortgage,  pledge,  assign, grant security interests in or otherwise encumber
the Company Property to secure any such Securities of the Company,  contracts or
obligations  (including  guarantees,  indemnifications and suretyships);  and to
renew, modify, release,  compromise,  extend, consolidate or cancel, in whole or
in  part,   any   obligation  to  or  of  the  Company  or  participate  in  any
reorganization of obligors to the Company; provided, however, that the Company's
Leverage, may not exceed 300% of Net Assets.
    

                  (v) Lending.  Subject to the provisions of Section 9.5 hereof,
to lend money or other Company  Property on such terms, for such purposes and to
such Persons as they may determine.

                  (vi) Secured  Equipment  Leases.  To engage in the business of
offering furniture,  fixture, and equipment financing to the operators of Health
Care Facilities,  provided, however, that the Company shall use its best efforts
to ensure that the total value of Secured  Equipment  Leases,  in the  aggregate
will not exceed 25% of the  Company's  total assets and that  Secured  Equipment
Leases to a single lessee or borrower,  in the aggregate,  will not exceed 5% of
the Company's total assets.

                  (vii)  Issuance of  Securities.  Subject to the  provisions of
Article VII hereof, to create and authorize and direct the issuance (on either a
pro rata or a non-pro rata basis) by the Company, in shares, units or amounts of
one or more types,  series or classes,  of Securities of the Company,  which may
have  such   voting   rights,   dividend   or   interest   rates,   preferences,
subordinations,  conversion  or  redemption  prices or rights;  maturity  dates,
distribution,  exchange,  or liquidation rights or other rights as the Directors
may  determine,  without  vote of or other action by the  Stockholders,  to such
Persons for such consideration,  at such time or times and in such manner and on
such terms as the  Directors  determine,  to list any of the  Securities  of the
Company on any securities exchange;  and to purchase or otherwise acquire, hold,
cancel, reissue, sell and transfer any Securities of the Company.



                                                       -15-

<PAGE>



                  (viii)  Expenses and Taxes.  To pay any  charges,  expenses or
liabilities necessary or desirable, in the sole discretion of the Directors, for
carrying  out the purposes of these  Articles of  Incorporation  and  conducting
business of the Company, including compensation or fees to Directors,  officers,
employees  and  agents  of the  Company,  and to  Persons  contracting  with the
Company, and any taxes, levies, charges and assessments of any kind imposed upon
or  chargeable  against the Company,  the Company  Property or the  Directors in
connection therewith;  and to prepare and file any tax returns, reports or other
documents and take any other  appropriate  action relating to the payment of any
such charges, expenses or liabilities.

                  (ix)  Collection  and  Enforcement.  To  collect,  sue for and
receive money or other property due to the Company;  to consent to extensions of
the time for payment,  or to the renewal,  of any Securities or obligations;  to
engage or to intervene in, prosecute,  defend,  compound,  enforce,  compromise,
release, abandon or adjust any actions, suits,  proceedings,  disputes,  claims,
demands,  security  interests  or things  relating to the  Company,  the Company
Property or the  Company's  affairs;  to exercise  any rights and enter into any
agreements and take any other action  necessary or desirable in connection  with
the foregoing.

                  (x) Deposits. To deposit funds or Securities constituting part
of  the  Company  Property  in  banks,   trust   companies,   savings  and  loan
associations, financial institutions and other depositories, whether or not such
deposits  will draw  interest,  subject to  withdrawal on such terms and in such
manner as the Directors determine.

                  (xi)  Allocation;   Accounts.  To  determine  whether  moneys,
profits or other  assets of the  Company  shall be charged  or  credited  to, or
allocated between, income and capital,  including whether or not to amortize any
premium  or  discount   and  to   determine  in  what  manner  any  expenses  or
disbursements  are to be borne as between income and capital  (regardless of how
such items would normally or otherwise be charged to or allocated between income
and  capital  without  such  determination);  to  treat  any  dividend  or other
distribution on any investment as, or apportion it between,  income and capital;
in  their  discretion  to  provide  reserves  for  depreciation,   amortization,
obsolescence  or other  purposes  in respect  of any  Company  Property  in such
amounts and by such methods as they determine; to determine what constitutes net
earnings,  profits  or  surplus;  to  determine  the method or form in which the
accounts and records of the Company shall be maintained;  and to allocate to the
Stockholders'  equity  account  less  than  all of the  consideration  paid  for
Securities and to allocate the balance to paid-in capital or capital surplus.

                  (xii) Valuation of Property.  To determine the value of all or
any part of the Company  Property and of any services,  Securities,  property or
other  consideration  to be  furnished  to or  acquired by the  Company,  and to
revalue all or any part of the Company  Property,  all in  accordance  with such
appraisals or other information as are reasonable, in their sole judgment.

                  (xiii)  Ownership  and Voting  Powers.  To exercise all of the
rights,  powers,  options and  privileges  pertaining  to the  ownership  of any
Mortgages,  Securities,  Real Estate, Secured Equipment Leases and other Company
Property to the same extent that an individual

                                                       -16-

<PAGE>



owner might,  including without limitation to vote or give any consent,  request
or  notice  or  waive  any  notice,  either  in  person  or by proxy or power of
attorney, which proxies and powers of attorney may be for any general or special
meetings or action, and may include the exercise of discretionary powers.

                  (xiv) Officers,  Etc.; Delegation of Powers. To elect, appoint
or employ such  officers  for the Company  and such  committees  of the Board of
Directors  with such  powers  and duties as the  Directors  may  determine,  the
Company's  Bylaws  provide or the MGCL requires;  to engage,  employ or contract
with and pay  compensation  to any Person  (including  subject  to  Section  9.5
hereof,  any Director and Person who is an Affiliate of any  Director) as agent,
representative,  Advisor,  member of an advisory board,  employee or independent
contractor  (including  advisors,  consultants,   transfer  agents,  registrars,
underwriters,  accountants,  attorneys-at-law,  real estate agents, property and
other  managers,  appraisers,  brokers,  architects,   engineers,   construction
managers,  general  contractors  or  otherwise)  in one or more  capacities,  to
perform such services on such terms as the Directors may determine;  to delegate
to one or more  Directors,  officers  or other  Persons  engaged or  employed as
aforesaid or to committees of Directors or to the Advisor,  the  performance  of
acts or other things (including  granting of consents),  the making of decisions
and the execution of such deeds, contracts, leases or other instruments,  either
in the names of the Company,  the Directors or as their  attorneys or otherwise,
as the Directors may determine;  and to establish  such  committees as they deem
appropriate.

                  (xv) Associations. Subject to Section 9.5 hereof, to cause the
Company  to  enter  into  joint  ventures,   general  or  limited  partnerships,
participation  or  agency   arrangements  or  any  other  lawful   combinations,
relationships or associations of any kind.

                  (xvi) Reorganizations,  Etc. Subject to Sections 10.2 and 10.3
hereof,  to cause to be organized or assist in  organizing  any Person under the
laws of any  jurisdiction  to acquire all or any part of the  Company  Property,
carry on any  business in which the Company  shall have an interest or otherwise
exercise the powers the Directors deem  necessary,  useful or desirable to carry
on the business of the Company or to carry out the  provisions of these Articles
of Incorporation,  to merge or consolidate the Company with any Person; to sell,
rent, lease, hire, convey,  negotiate,  assign,  exchange or transfer all or any
part of the Company Property to or with any Person in exchange for Securities of
such Person or otherwise;  and to lend money to,  subscribe for and purchase the
Securities  of,  and enter  into any  contracts  with,  any  Person in which the
Company holds, or is about to acquire, Securities or any other interests.

                  (xvii)  Insurance.  To  purchase  and pay  for out of  Company
Property insurance  policies insuring the Stockholders,  Company and the Company
Property  against any and all risks,  and insuring the  Directors,  Advisors and
Affiliates of the Company  individually  (each an "Insured")  against all claims
and  liabilities of every nature arising by reason of holding or having held any
such status,  office or position or by reason of any action alleged to have been
taken or omitted by the  Insured in such  capacity,  whether or not the  Company
would have the power to indemnify against such claim or liability, provided that
such insurance be limited to the indemnification permitted by Section 9.2 hereof
in regard to any liability or loss resulting from

                                                       -17-

<PAGE>



negligence,  gross  negligence,  misconduct,  willful  misconduct  or an alleged
violation of federal or state  securities laws.  Nothing  contained herein shall
preclude the Company  from  purchasing  and paying for such types of  insurance,
including extended coverage liability and casualty and workers' compensation, as
would be  customary  for any Person  owning  comparable  assets and engaged in a
similar  business,  or from naming the Insured as an  additional  insured  party
thereunder,  provided that such addition does not add to the premiums payable by
the  Company.  The  Board  of  Directors'  power  to  purchase  and pay for such
insurance  policies shall be limited to policies that comply with all applicable
state laws and the NASAA REIT Guidelines.

                  (xviii)  Distributions.  To declare and pay dividends or other
Distributions to Stockholders, subject to the provisions of Section 7.2 hereof.

                  (xix) Discontinue Operations;  Bankruptcy.  To discontinue the
operations of the Company (subject to Section 10.2 hereof); to petition or apply
for relief under any  provision of federal or state  bankruptcy,  insolvency  or
reorganization  laws or similar  laws for the relief of  debtors;  to permit any
Company  Property to be foreclosed  upon without  raising any legal or equitable
defenses  that may be  available  to the Company or the  Directors  or otherwise
defending or responding to such  foreclosure;  to confess  judgment  against the
Excess Shares Trust (as hereinafter  defined); or to take such other action with
respect to  indebtedness  or other  obligations  of the  Directors,  the Company
Property  or the  Company  as the  Directors,  in such  capacity,  and in  their
discretion may determine.

                  (xx)  Termination  of Status.  To terminate  the status of the
Company as a real estate investment trust under the REIT Provisions of the Code;
provided, however, that the Board of Directors shall take no action to terminate
the Company's status as a real estate investment trust under the REIT Provisions
of the Code until such time as (i) the Board of  Directors  adopts a  resolution
recommending  that the Company  terminate its status as a real estate investment
trust  under  the REIT  Provisions  of the  Code,  (ii) the  Board of  Directors
presents the resolution at an annual or special meeting of the  Stockholders and
(iii) such resolution is approved by the holders of a majority of the issued and
outstanding Common Shares (as defined in Section 7.2(ii) hereof).

                  (xxi) Fiscal  Year.  Subject to the Code,  to adopt,  and from
time to time change, a fiscal year for the Company.

                  (xxii)  Seal.  To adopt and use a seal,  but the use of a seal
shall not be required for the execution of  instruments  or  obligations  of the
Company.

                  (xxiii)  Bylaws.  To  adopt,  implement  and from time to time
alter,  amend or repeal the Bylaws of the Company  relating to the  business and
organization of the Company,  provided that such amendments are not inconsistent
with the provisions of these  Articles of  Incorporation,  and further  provided
that the Directors may not amend the Bylaws,  without the affirmative  vote of a
majority  of the Equity  Shares,  to the extent that such  amendments  adversely
affect the rights, preferences and privileges of Stockholders.


                                                       -18-

<PAGE>



                  (xxiv) Listing  Shares.  To cause the Listing of the Shares at
any time after  completion of the Initial Public  Offering but in no event shall
such Listing occur more than ten (10) years after completion of the offering.

                  (xxv)  Further  Powers.  To do all other  acts and  things and
execute and deliver all  instruments  incident to the foregoing  powers,  and to
exercise all powers which they deem  necessary,  useful or desirable to carry on
the business of the Company or to carry out the  provisions of these Articles of
Incorporation, even if such powers are not specifically provided hereby.

         SECTION 3.3  Determination of Best Interest of Company.  In determining
what is in the best  interest of the  Company,  a Director  shall  consider  the
interests  of the  Stockholders  of the  Company  and,  in his or her  sole  and
absolute discretion,  may consider (i) the interests of the Company's employees,
suppliers,  creditors  and  customers,  (ii) the  economy of the  nation,  (iii)
community and societal  interests,  and (iv) the long-term as well as short-term
interests of the Company and its  Stockholders,  including the possibility  that
these interests may be best served by the continued independence of the Company.

                                    ARTICLE 4

                                     ADVISOR

         SECTION  4.1  Appointment  and  Initial  Investment  of  Advisor.   The
Directors are  responsible  for setting the general  policies of the Company and
for the general  supervision  of its business  conducted  by  officers,  agents,
employees,  advisors or  independent  contractors of the Company.  However,  the
Directors  are not required  personally  to conduct the business of the Company,
and they may  (but  need  not)  appoint,  employ  or  contract  with any  Person
(including a Person Affiliated with any Director) as an Advisor and may grant or
delegate  such  authority  to the  Advisor as the  Directors  may, in their sole
discretion,  deem  necessary or desirable.  The term of retention of any Advisor
shall not exceed one (1) year, although there is no limit to the number of times
that a particular  Advisor may be retained.  The Advisor is the holder of 20,000
Shares,  representing  an initial  investment  of  $200,000.  The Advisor or any
Affiliate  may not sell this  initial  investment  while the  Advisor  remains a
Sponsor but may transfer the 20,000 Shares to other Affiliates.

         SECTION 4.2  Supervision of Advisor.  The Directors  shall evaluate the
performance of the Advisor before entering into or renewing an advisory contract
and the criteria  used in such  evaluation  shall be reflected in the minutes of
meetings of the Board.  The Directors may exercise broad  discretion in allowing
the Advisor to administer and regulate the operations of the Company,  to act as
agent for the Company, to execute documents on behalf of the Company and to make
executive decisions which conform to general policies and principles established
by the Directors.



                                                       -19-

<PAGE>



         The Directors  shall  establish  written  policies on  investments  and
borrowing and shall monitor the administrative procedures, investment operations
and  performance of the Company and the Advisor to assure that such  procedures,
operations  and programs are in the best interests of the  Stockholders  and are
fulfilled.

         The Board of Directors is also  responsible  for reviewing the fees and
expenses  of the  Company at least  annually  or with  sufficient  frequency  to
determine  that  the  expenses  incurred  are  in  the  best  interests  of  the
Stockholders  and each such  determination  shall be reflected in the minutes of
the  meeting  of  the  Board  of  Directors.  In  addition,  a  majority  of the
Independent  Directors and a majority of Directors  not otherwise  interested in
the  transaction   must  approve  each  transaction  with  the  Advisor  or  its
Affiliates. A majority of the Independent Directors also will be responsible for
reviewing the performance of the Advisor and determining that compensation to be
paid to the  Advisor is  reasonable  in  relation  to the nature and  quality of
services to be performed and the investment  performance of the Company and that
the  provisions  of the Advisory  Agreement  are being carried out and each such
determination  shall be  reflected in the minutes of the meeting of the Board of
Directors. Specifically, the Independent Directors will consider factors such as
the Net Assets and Net Income of the Company,  the amount of the fee paid to the
Advisor in relation to the size,  composition  and  performance of the Company's
portfolio,  the success of the Advisor in generating opportunities that meet the
investment  objectives  of the  Company,  rates  charged  to other  REITs and to
investors other than REITs by advisors  performing the same or similar services,
additional  revenues  realized by the Advisor and its  Affiliates  through their
relationship  with the  Company,  whether  paid by the Company or by others with
whom the  Company  does  business,  the quality and extent of service and advice
furnished by the Advisor,  the  performance of the  investment  portfolio of the
Company, including income, conservation or appreciation of capital, frequency of
problem investments and competence in dealing with distress situations,  and the
quality of the portfolio of the Company relative to the investments generated by
the Advisor for its own account. The Independent  Directors also shall determine
whether any successor Advisor possesses sufficient qualifications to perform the
advisory  function for the Company and whether the compensation  provided for in
its contract with the Company is justified.

         SECTION  4.3  Fiduciary  Obligations.   The  Advisor  has  a  fiduciary
responsibility to the Company and to the Stockholders.

         SECTION 4.4 Affiliation and Functions.  The Directors, by resolution or
in the Bylaws, may provide guidelines,  provisions,  or requirements  concerning
the affiliation and functions of the Advisor.

         SECTION 4.5 Termination. Either a majority of the Independent Directors
or the Advisor may terminate  the advisory  contract on sixty (60) days' written
notice without cause or penalty,  and, in such event, the Advisor will cooperate
with the  Company  and the  Directors  in making an  orderly  transition  of the
advisory function.



                                                       -20-

<PAGE>



         SECTION 4.6 Real Estate  Commission  on Sale of  Property.  The Company
shall pay the Advisor a deferred,  subordinated real estate disposition fee upon
Sale of one or more Properties, in an amount equal to the lesser of (i) one-half
(1/2) of a Competitive Real Estate Commission, or (ii) three percent (3%) of the
sales price of such  Property or  Properties.  Payment of such fee shall be made
only if the Advisor provides a substantial amount of services in connection with
the Sale of a Property or Properties and shall be subordinated to receipt by the
Stockholders  of  Distributions   equal  to  the  sum  of  (i)  their  aggregate
Stockholders' 8% Return and (ii) their aggregate  Invested  Capital.  If, at the
time  of a Sale,  payment  of  such  disposition  fee is  deferred  because  the
subordination conditions have not been satisfied, then the disposition fee shall
be paid at such later time as the subordination  conditions are satisfied.  Upon
Listing,  if the  Advisor  has  accrued  but not  been  paid  such  real  estate
disposition  fee,  then for purposes of  determining  whether the  subordination
conditions have been satisfied,  Stockholders  will be deemed to have received a
Distribution  in the amount  equal to the product of the total  number of Shares
outstanding and the average closing price of the Shares over a period, beginning
180 days after Listing, of 30 days during which the Shares are traded.

         SECTION 4.7 Subordinated Share of Net Sales Proceeds. The Company shall
pay the  Advisor a  deferred,  subordinated  share  from  Sales of assets of the
Company, whether or not in liquidation of the Company, equal to 10% of Net Sales
Proceeds payable after receipt by the Stockholders of Distributions equal to the
sum of (i) the  Stockholders'  8%  Return  and (ii)  100% of  Invested  Capital.
Following Listing, no share of Net Sales Proceeds will be paid to the Advisor.

         SECTION 4.8       Incentive Fees.

                  (i) At such time, if any, as Listing occurs, the Advisor shall
be paid the  Subordinated  Incentive Fee in an amount equal to ten percent (10%)
of the amount by which (i) the market  value of the Company  (as defined  below)
plus the total  Distributions paid to Stockholders from the Company's  inception
until the date of Listing exceeds (ii) the sum of (A) one hundred percent (100%)
of Invested Capital and (B) the total  Distributions  required to be paid to the
Stockholders in order to pay the  Stockholders' 8% Return from inception through
the date the  market  value is  determined.  For  purposes  of  calculating  the
Subordinated Incentive Fee, the market value of the Company shall be the average
closing  price or average  of bid and asked  price,  as the case may be,  over a
period of thirty (30) days  during  which the Shares are traded with such period
beginning one hundred eighty (180) days after  Listing.  In the case of multiple
Advisors,  Advisors and any Affiliate  shall be allowed  incentive fees provided
such fees are  distributed  by a  proportional  method  reasonably  designed  to
reflect  the value  added to Company  assets by each  respective  Advisor or any
Affiliate.  The Subordinated  Incentive Fee will be reduced by the amount of any
prior  payment to the  Advisor of a  deferred,  subordinated  share of Net Sales
Proceeds from Sales of assets of the Company.

                  (ii) In no event shall the Company pay a single  Advisor  both
the Subordinated Incentive Fee and the Performance Fee.


                                                       -21-

<PAGE>



                  (iii) In the event that the Company  becomes a perpetual  life
entity,  which will occur if the Shares become  listed on a national  securities
exchange or over-the-counter  market, the Company and the Advisor will negotiate
in good faith a fee structure  appropriate  for an entity with a perpetual life,
subject to approval by a majority of the Independent Directors. In negotiating a
new fee structure,  the Independent  Directors shall consider all of the factors
they deem relevant.  These are expected to include,  but will not necessarily be
limited to: (i) the amount of the  advisory  fee in relation to the asset value,
composition,  and profitability of the Company's portfolio;  (ii) the success of
the Advisor in generating  opportunities that meet the investment  objectives of
the Company;  (iii) the rates charged to other REITs and to investors other than
REITs by Advisors  that perform the same or similar  services;  (iv)  additional
revenues realized by the Advisor and its Affiliates  through their  relationship
with  the  Company,  including  loan  administration,   underwriting  or  broker
commissions,  servicing, engineering, inspection and other fees, whether paid by
the Company or by others with whom the Company  does  business;  (v) the quality
and extent of service and advice furnished by the Advisor;  (vi) the performance
of the investment  portfolio of the Company,  including income,  conservation or
appreciation of capital,  and number and frequency of problem  investments;  and
(vii) the quality of the Property  portfolio of the Company in  relationship  to
the  investments  generated  by the  Advisor for its own  account.  The Board of
Directors,  including a majority of the Independent Directors, may not approve a
new fee structure  that, in its judgment,  is more favorable to the Advisor than
the current fee structure.

         SECTION  4.9  Performance   Fee.  Upon   termination  of  the  Advisory
Agreement,  the  Advisor  shall be  entitled  to  receive a  Performance  Fee if
performance  standards  satisfactory  to a majority  of the Board of  Directors,
including  a majority of the  Independent  Directors,  when  compared to (a) the
performance  of the  Advisor  in  comparison  with  its  performance  for  other
entities;  and (b) the performance of other advisors for similar entities,  have
been met. If Listing has not occurred,  the Performance Fee, if any, shall equal
ten percent (10%) of the amount, if any, by which (i) the appraised value of the
assets  of  the  Company  on  the  Termination  Date,  less  the  amount  of all
indebtedness  secured  by such  assets,  plus the  total  Distributions  paid to
Stockholders from the Company's  inception through the Termination Date, exceeds
(ii) Invested  Capital plus an amount equal to the  Stockholders' 8% Return from
inception through the Termination Date. The Advisor shall be entitled to receive
all accrued but unpaid  compensation and expense  reimbursements  in cash within
thirty  (30) days of the  Termination  Date.  All other  amounts  payable to the
Advisor in the event of a  termination  shall be evidenced by a promissory  note
and shall be payable  from time to time.  The  Performance  Fee shall be paid in
twelve (12) equal quarterly installments without interest on the unpaid balance,
provided,  however,  that no payment  will be made in any  quarter in which such
payment  would  jeopardize  the  Company's  REIT status,  in which case any such
payment or  payments  will be delayed  until the next  quarter in which  payment
would not jeopardize REIT status.  Notwithstanding the preceding  sentence,  any
amounts  which  may be  deemed  payable  at the date the  obligation  to pay the
Performance  Fee is incurred which relate to the  appreciation  of the Company's
assets shall be an amount which provides  compensation to the terminated Advisor
only for that portion of the holding  period for the  respective  assets  during
which such terminated  Advisor provided  services to the Company.  Upon Listing,
the Performance  Fee, if any, payable  thereafter will be as negotiated  between
the

                                                       -22-

<PAGE>



Company and the  Advisor.  The  Advisor  shall not be entitled to payment of the
Performance  Fee in the event the Advisory  Agreement is  terminated  because of
failure of the Company and the Advisor to establish a fee structure  appropriate
for a perpetual-life entity at such time, if any, as the Shares become listed on
a national securities exchange or over-the-counter  market. The Performance Fee,
to the extent payable at the time of Listing, will not be paid in the event that
the Subordinated Incentive Fee is paid.

         SECTION 4.10  Acquisition  Fee and  Acquisition  Expenses.  The Company
shall  pay  the  Advisor  a fee in the  amount  of  4.5% of  Total  Proceeds  as
Acquisition  Fees.  Acquisition Fees shall be reduced to the extent that, and if
necessary to limit, the total  compensation  paid to all persons involved in the
acquisition  of any Property to the amount  customarily  charged in  arms-length
transactions  by other  persons or  entities  rendering  similar  services as an
ongoing  public  activity in the same  geographical  location and for comparable
types of Properties,  and to the extent that other  acquisition  fees,  finder's
fees, real estate commissions,  or other similar fees or commissions are paid by
any person in connection with the  transaction.  The Company shall reimburse the
Advisor  for  Acquisition  Expenses  incurred  in  connection  with the  initial
selection and acquisition of Properties,  provided that  reimbursement  shall be
limited  to the  actual  cost of goods  and  services  used by the  Company  and
obtained from  entities not  affiliated  with the Advisor,  or the lesser of the
actual  cost or 90% of the  competitive  rate  charged by  unaffiliated  persons
providing  similar goods and services in the same geographic  location for goods
or  services  provided  by the  Advisor  or its  Affiliates.  The  total  of all
Acquisition Fees and any Acquisition  Expenses shall be reasonable and shall not
exceed an amount equal to six percent (6%) of the Real Estate Asset Value or the
Contract  Purchase  Price of a Property,  or in the case of a Mortgage Loan, six
percent (6%) of the funds advanced, unless a majority of the Board of Directors,
including a majority of the  Independent  Directors not otherwise  interested in
the  transaction,  approves  fees  in  excess  of  these  limits  subject  to  a
determination  that  the  transaction  is  commercially  competitive,  fair  and
reasonable to the Company.

         SECTION 4.11 Asset  Management Fee. The Company shall pay the Advisor a
monthly Asset  Management  Fee in an amount equal to  one-twelfth of .60% of the
Company's Real Estate Asset Value and the  outstanding  principal  amount of any
Mortgage Loans, as of the end of the preceding month. Specifically,  Real Estate
Asset Value  equals the amount  invested in the  Properties  wholly owned by the
Company,  determined on the basis of cost, plus, in the case of Properties owned
by any Joint Venture or  partnership  in which the Company is a  co-venturer  or
partner,  the  portion  of the  cost of  such  Properties  paid by the  Company,
exclusive of Acquisition  Fees and Acquisition  Expenses.  The Asset  Management
Fee, which will not exceed fees which are  competitive  for similar  services in
the same geographic area, may or may not be taken, in whole or in part as to any
year,  in the sole  discretion  of the Advisor.  All or any portion of the Asset
Management  Fee not  taken  as to any  fiscal  year  shall be  deferred  without
interest  and may be  taken  in such  other  fiscal  year as the  Advisor  shall
determine.



                                                       -23-

<PAGE>



         SECTION 4.12 Secured  Equipment  Lease Servicing Fee. The Company shall
pay the  Advisor a fee out of the  proceeds  of the Line of Credit or  Permanent
Financing for negotiating  Secured  Equipment Leases and supervising the Secured
Equipment  Lease  program  equal to 2% of the  purchase  price of the  Equipment
subject to each Secured  Equipment  Lease and paid upon entering into such lease
or loan.

         SECTION 4.13  Reimbursement for Operating  Expenses.  The Company shall
not  reimburse  the  Advisor  at the end of any  fiscal  quarter  for  Operating
Expenses that, in the four consecutive  fiscal quarters then ended (the "Expense
Year") exceed the greater of 2% of Average  Invested Assets or 25% of Net Income
(the  "2%/25%  Guidelines")  for such year.  Within 60 days after the end of any
fiscal quarter of the Company for which total Operating Expenses for the Expense
Year exceed the 2%/25%  Guidelines,  the Advisor shall reimburse the Company the
amount by which the total  Operating  Expenses  paid or  incurred by the Company
exceed the 2%/25% Guidelines.

                                    ARTICLE 5

                      INVESTMENT OBJECTIVES AND LIMITATIONS

         SECTION 5.1 Investment  Objectives.  The Company's  primary  investment
objectives are to preserve, protect, and enhance the Company's assets; while (i)
making Distributions commencing in the initial year of Company operations;  (ii)
obtaining  fixed income  through the receipt of base rent,  and  increasing  the
Company's income (and Distributions) and providing  protection against inflation
through  automatic  fixed  increases  in base rent or increases in the base rent
based on  increases  in consumer  price  indices  over the term of the lease and
obtaining  fixed  income  through the receipt of payments on Mortgage  Loans and
Secured Equipment Leases; (iii) qualifying and remaining qualified as a REIT for
federal income tax purposes; and (iv) providing Stockholders of the Company with
liquidity  of  their  investment  within  five  (5)  to  ten  (10)  years  after
commencement of the offering,  either in whole or in part,  through (a) Listing,
or, (b) if Listing  does not occur within ten (10) years after  commencement  of
the offering, the commencement of orderly Sales of the Company's assets (outside
the ordinary  course of business and consistent with its objective of qualifying
as a REIT) and distribution of the proceeds thereof.  The sheltering from tax of
income from other sources is not an objective of the Company. Subject to Section
3.2(v) hereof and to the restrictions  set forth herein,  the Directors will use
their best  efforts to conduct the affairs of the Company in such a manner as to
continue  to qualify  the  Company  for the tax  treatment  provided in the REIT
Provisions of the Code;  provided,  however, no Director,  officer,  employee or
agent of the Company  shall be liable for any act or omission  resulting  in the
loss of tax benefits  under the Code,  except to the extent  provided in Section
9.2 hereof.



                                                       -24-

<PAGE>



         SECTION  5.2 Review of  Objectives.  The  Independent  Directors  shall
review the investment  policies of the Company with sufficient  frequency and at
least  annually to determine  that the policies being followed by the Company at
any time are in the best interests of its Stockholders.  Each such determination
and the basis  therefor shall be set forth in the minutes of the meetings of the
Board of Directors.

         SECTION 5.3       Certain Permitted Investments.

                  (i) The Company may invest in  Properties  including,  but not
limited to,  Properties  to be leased to operators of Health Care  Facilities in
various locations across the United States.

                  (ii)  The  Company  may  invest  in  Joint  Ventures  with the
Advisor,  one or more  Directors  or any  Affiliate,  if a majority of Directors
(including a majority of Independent  Directors) not otherwise interested in the
transaction, approve such investment as being fair and reasonable to the Company
and on  substantially  the same terms and  conditions  as those  received by the
other joint venturers.

                  (iii)  The  Company  may  invest  in  equity  securities,  and
Mortgage Loans, if a majority of Directors  (including a majority of Independent
Directors) not otherwise  interested in the transaction  approve such investment
as being fair, competitive and commercially reasonable.

                  (iv)  The  Company  may  offer  Secured  Equipment  Leases  to
operators  of Health  Care  Facilities  provided  that a majority  of  Directors
(including a majority of Independent  Directors)  approve the Secured  Equipment
Leases as being fair, competitive and commercially reasonable.

         SECTION 5.4  Investment  Limitations.  In addition to other  investment
restrictions  imposed by the Directors  from time to time,  consistent  with the
Company's  objective of qualifying as a REIT,  the following  shall apply to the
Company's investments:

                  (i) Not more than 10% of the  Company's  total assets shall be
invested  in  unimproved  real  property or mortgage  loans on  unimproved  real
property.  For purposes of this paragraph,  "unimproved  real property" does not
include any  Property or Real Estate  under  construction,  under  contract  for
development or planned for development within one year.

                  (ii) The Company shall not invest in  commodities or commodity
future  contracts.  This  limitation  is not intended to apply to interest  rate
futures, when used solely for hedging purposes.

                  (iii) The Company shall not invest in or make  mortgage  loans
unless an appraisal is obtained  concerning  the underlying  property.  Mortgage
indebtedness on any property shall not exceed such property's  appraised  value.
In cases in which a majority of Independent  Directors so determine,  and in all
cases in which the mortgage loan involves the Advisor,

                                                       -25-

<PAGE>



Directors,  or Affiliates,  such  appraisal of the  underlying  property must be
obtained from an Independent  Expert.  Such appraisal shall be maintained in the
Company's  records  for at least  five (5)  years  and  shall be  available  for
inspection and duplication by any Stockholder.  In addition to the appraisal,  a
mortgagee's or owner's title  insurance  policy or commitment as to the priority
of the mortgage or condition of the title must be obtained.

                  (iv) The Company  shall not make or invest in mortgage  loans,
including construction loans, on any one (1) property if the aggregate amount of
all mortgage  loans  outstanding  on the  property,  including  the loans of the
Company  would  exceed  an  amount  equal to  eighty-five  percent  (85%) of the
appraised  value of the property as determined by appraisal  unless  substantial
justification exists because of the presence of other underwriting criteria. For
purposes  of this  subsection,  the  "aggregate  amount  of all  mortgage  loans
outstanding  on the Property,  including the loans of the Company" shall include
all interest (excluding  contingent  participation in income and/or appreciation
in value  of the  mortgaged  property),  the  current  payment  of which  may be
deferred  pursuant  to the terms of such  loans,  to the  extent  that  deferred
interest  on each loan  exceeds  five  percent  (5%) per annum of the  principal
balance of the loan.

                  (v) The  Company  shall not  invest in  indebtedness  ("Junior
Debt")  secured by a mortgage on real property  which is subordinate to the lien
or other indebtedness  ("Senior Debt"),  except where such amount of such Junior
Debt,  plus the  outstanding  amount of Senior Debt,  does not exceed 90% of the
appraised value of such property,  if after giving effect thereto,  the value of
all such mortgage  loans of the Company (as shown on the books of the Company in
accordance with generally accepted accounting  principles,  after all reasonable
reserves but before provision for depreciation) would not then exceed 25% of the
Company's Net Assets. The value of all investments in Junior Debt of the Company
which does not meet the  aforementioned  requirements shall be limited to 10% of
the  Company's   tangible  assets  (which  would  be  included  within  the  25%
limitation).

                  (vi) The  Company  shall  not  engage in any  short  sale,  or
borrow,  on an  unsecured  basis,  if such  borrowing  will  result  in an Asset
Coverage of less than 300%,  except  that such  borrowing  limitation  shall not
apply to a first  mortgage  trust.  "Asset  Coverage,"  for the  purpose of this
Section  5.4(vi)  means  the ratio  which  the  value of the total  assets of an
issuer,  less all liabilities and indebtedness except indebtedness for unsecured
borrowings,  bears to the aggregate  amount of all unsecured  borrowings of such
issuer.

                  (vii) The  Company  shall  not make or invest in any  mortgage
loans  that are  subordinate  to any  mortgage,  other  indebtedness  or  equity
interest of the Advisor, the Directors or an Affiliate of the Company.

                  (viii)  The  Company  shall not  invest  in equity  securities
unless  a  majority  of the  Directors  (including  a  majority  of  Independent
Directors) not otherwise  interested in such transaction approve the transaction
as being fair,  competitive and  commercially  reasonable and determine that the
transaction  will not  jeopardize  the  Company's  ability to qualify and remain
qualified as a REIT.  Investments  in entities  affiliated  with the Advisor,  a
Director, the Company

                                                       -26-

<PAGE>



or their Affiliates are subject to restrictions on Joint Venture investments. In
addition,  the Company  shall not invest in any  security of any entity  holding
investments   or  engaging  in  activities   prohibited  by  these  Articles  of
Incorporation.

                  (ix)  The  Company  shall  not  issue  (A)  equity  securities
redeemable  solely at the option of the holder  (except  that  Stockholders  may
offer their Common  Shares to the Company  pursuant to that  certain  redemption
plan adopted or to be adopted by the Board of Directors on terms outlined in the
section  relating  to Common  Shares  entitled  "Redemption  of  Shares"  in the
Company's  Prospectus  relating  to  the  Initial  Public  Offering);  (B)  debt
securities  unless the  historical  debt service  coverage (in the most recently
completed  fiscal year) as adjusted for known  charges is sufficient to properly
service that higher level of debt; (C) Equity Shares on a deferred payment basis
or under similar  arrangements;  (D)  non-voting or assessable  securities;  (E)
options,  warrants,  or  similar  evidences  of a right  to buy  its  securities
(collectively,  "Options") unless (1) issued to all of its Stockholders ratably,
(2) as part of a financing  arrangement,  or (3) as part of a Stock  Option Plan
available  to  Directors,  officers or  employees of the Company or the Advisor.
Options  may not be issued to the  Advisor,  Director or any  Affiliate  thereof
except on the same terms as such Options are sold to the general public. Options
may be issued to persons  other than the  Advisor,  Directors  or any  Affiliate
thereof  but not at  exercise  prices  less  than the fair  market  value of the
underlying securities on the date of grant and not for consideration that in the
judgment of the Independent  Directors has a market value less than the value of
such Option on the date of grant. Options issuable to the Advisor,  Directors or
any Affiliate thereof shall not exceed 10% of the outstanding Shares on the date
of grant.  The voting  rights per share of Equity  Shares of the Company  (other
than the publicly held Equity Shares of the Company) sold in a private  offering
shall not exceed  the voting  rights  which  bear the same  relationship  to the
voting rights of the publicly held Equity  Shares as the  consideration  paid to
the Company for each privately  offered Equity Share of the Company bears to the
book value of each outstanding publicly held Equity Share.

                  (x) The Company  shall not invest in real estate  contracts of
sale unless such  contracts  of sale are in  recordable  form and  appropriately
recorded in the chain of title.

                  (xi)  A  majority  of  the  Directors   shall   authorize  the
consideration  to be paid for each  Property,  based on the fair market value of
the Property.  If a majority of the Independent  Directors determine,  or if the
Property is acquired from the Advisor,  a Director,  or their  Affiliates,  such
fair market value shall be determined by an Independent  Expert  selected by the
Independent Directors.

                  (xii) The  Company  shall not  engage in  underwriting  or the
agency distribution of securities issued by others or in trading, as compared to
investment activities.

                  (xiii) The Company shall not invest in any foreign currency or
bullion or engage in short sales.



                                                       -27-

<PAGE>



                  (xiv) The Company  shall not issue  senior  securities  except
notes to banks and other lenders and Preferred Shares.

   
                  (xv) The aggregate Leverage of the Company shall be reasonable
in  relation  to the Net  Assets of the  Company  and shall be  reviewed  by the
Directors at least quarterly. The maximum amount of such Leverage in relation to
the Net Assets shall not exceed three hundred percent (300%).

                  (xvi) The Company may borrow money from the Advisor,  Director
or any Affiliate thereof, upon a finding by a majority of Directors (including a
majority of Independent  Directors) not otherwise  interested in the transaction
that such transaction is fair,  competitive and  commercially  reasonable and no
less favorable to the Company than loans between  unaffiliated parties under the
same  circumstances.   Notwithstanding  the  foregoing,   the  Advisor  and  its
Affiliates  shall be entitled to  reimbursement,  at cost,  for actual  expenses
incurred  by the  Advisor or its  Affiliates  on behalf of the  Company or Joint
Ventures in which the Company is a  co-venturer,  subject to  subsection  xviii)
below.

                  (xvii)  The Company shall not make loans to the Advisor or its
Affiliates.

                  (xviii) The Company  shall not operate so as to be  classified
as an "investment company" under the Investment Company Act of 1940, as amended.

                  (xix)  The  Company  will  not make  any  investment  that the
Company  believes will be  inconsistent  with its  objectives of qualifying  and
remaining qualified as a REIT.
    

         The foregoing investment  limitations may not be modified or eliminated
without the approval of Stockholders owning a majority of the outstanding Equity
Shares.

                                    ARTICLE 6

                              CONFLICTS OF INTEREST

         SECTION  6.1 Sales and Leases to Company.  The Company may  purchase or
lease a Property or Properties from the Advisor, Director, or any Affiliate upon
a finding by a majority  of  Directors  (including  a  majority  of  Independent
Directors) not otherwise  interested in the transaction that such transaction is
fair and reasonable to the Company and at a price to the Company no greater than
the cost of the asset to such Advisor,  Director or Affiliate,  or, if the price
to the Company is in excess of such cost,  that  substantial  justification  for
such excess exists and such excess is reasonable.  In no event shall the cost of
such asset to the Company exceed its current appraised value.



                                                       -28-

<PAGE>



         SECTION 6.2 Sales and Leases to the Advisor,  Directors or  Affiliates.
An Advisor,  Director or Affiliate  may acquire or lease assets from the Company
if a majority of Directors  (including a majority of Independent  Directors) not
otherwise  interested in the transaction  determine that the transaction is fair
and reasonable to the Company.

         SECTION 6.3       Multiple Programs.

                  (i) Until  completion of the Initial Public Offering of Shares
by the Company,  the Advisor and its Affiliates will not offer or sell interests
in any  subsequently  formed public program that has  investment  objectives and
structure  similar to those of the Company and that intends to (a) invest,  on a
cash  and/or  leveraged  basis,  in  a  diversified  portfolio  of  health  care
properties  to be leased on a  "triple-net"  basis to  operators  of Health Care
Facilities;  (b) offer Mortgage Loans; and (c) offer Secured  Equipment  Leases.
The Advisor  and its  Affiliates  also will not  purchase a property or offer or
invest in a mortgage loan or secured  equipment lease for any such  subsequently
formed public  program that has investment  objectives and structure  similar to
the  Company  and that  intends  to  invest  on a cash  and/or  leveraged  basis
primarily in a diversified portfolio of health care properties to be leased on a
"triple-net"  basis to operators of Health Care Facilities  until  substantially
all (generally, eighty percent (80%)) of the funds available for investment (net
offering proceeds) by the Company have been invested or committed to investment.
(For  purposes of the  preceding  sentence  only,  funds are deemed to have been
committed to investment to the extent written agreements in principle or letters
of understanding are executed and in effect at any time, whether or not any such
investment is  consummated,  and also to the extent any funds have been reserved
to make contingent payments in connection with any Property,  whether or not any
such payments are made). The Advisor or its Affiliates  currently are and in the
future may offer interests in one or more public or private  programs  organized
to  purchase  properties  of the type to be acquired  by the  Company,  to offer
mortgage loans and/or to offer secured equipment leases.

                  (ii) In the  event  that  an  investment  opportunity  becomes
available  which is suitable for both the Company and a public or private entity
with which the Advisor or its  Affiliates are affiliated for which both entities
have  sufficient  uninvested  funds,  then the  entity  which has had the longer
period of time elapse since it was offered an investment  opportunity will first
be offered the investment  opportunity.  An investment  opportunity  will not be
considered  suitable for a program if the requirements of subparagraph (i) above
could  not be  satisfied  if  the  program  were  to  make  the  investment.  In
determining  whether or not an investment  opportunity is suitable for more than
one program,  the Advisor will examine such factors,  among others,  as the cash
requirements  of  each  program,   the  effect  of  the   acquisition   both  on
diversification of each program's investments by types of health care facilities
and  geographic  area, and on  diversification  of the tenants of its properties
(which  also may affect the need for one of the  programs  to prepare or produce
audited financial  statements for a property or a tenant),  the anticipated cash
flow of each program, the size of the investment,  the amount of funds available
to each  program,  and the  length of time such funds  have been  available  for
investment.  If a  subsequent  development,  such as a delay in the closing of a
property  or a  delay  in  the  construction  of a  property,  causes  any  such
investment, in the opinion of the Advisor and its

                                                       -29-

<PAGE>



Affiliates,  to be more  appropriate  for an entity  other than the entity which
committed to make the  investment,  however,  the Advisor has the right to agree
that the other entity affiliated with the Advisor or its Affiliates may make the
investment.

         SECTION 6.4       Other Transactions.

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

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

                                    ARTICLE 7

                                     SHARES

         SECTION 7.1 Authorized Shares.  The beneficial  interest in the Company
shall be divided into Equity Shares. The total number of Equity Shares which the
Company is authorized to issue is two hundred six million  (206,000,000)  shares
of beneficial interest,  consisting of one hundred million  (100,000,000) Common
Shares (as defined and  described  in Section  7.2(ii)  hereof),  three  million
(3,000,000)  Preferred Shares (as defined in Section 7.3 hereof) and one hundred
three  million  (103,000,000)  Excess Shares (as defined in Section 7.7 hereof).
All Shares  shall be fully paid and  nonassessable  when  issued.  Shares may be
issued for such  consideration  as the  Directors  determine  or, if issued as a
result of a Share dividend or Share split, without any consideration.

         SECTION 7.2       Common Shares.

                  (i) Common Shares  Subject to Terms of Preferred  Shares.  The
Common  Shares shall be subject to the express  terms of any series of Preferred
Shares.

                  (ii) Description.  Common Shares (herein so called) shall have
a par value of $.01 per share and shall  entitle the holders to one (1) vote per
share on all matters upon which  Stockholders  are entitled to vote  pursuant to
Section 8.2 hereof,  and shares of a particular  class of issued  Common  Shares
shall have equal dividend, distribution, liquidation and other rights, and shall
have no preference,  cumulative,  preemptive,  appraisal, conversion or exchange
rights.  The Directors may classify or reclassify any unissued  Common Shares by
setting or changing the

                                                       -30-

<PAGE>



number,  designation,  preferences,  conversion or other rights,  voting powers,
restrictions, limitations as to dividends, qualifications or terms or conditions
of redemption  of any such Common  Shares and, in such event,  the Company shall
file for record with the State  Department  of  Assessments  and Taxation of the
State of Maryland  amended articles in substance and form as prescribed by Title
2 of the MGCL.

                  (iii) Distribution  Rights. The holders of Common Shares shall
be entitled  to receive  such  Distributions  as may be declared by the Board of
Directors of the Company out of funds legally available therefor.

                  (iv) Dividend or Distribution  Rights. The Directors from time
to time may declare and pay to Stockholders  such dividends or  Distributions in
cash or other property as the Directors in their discretion shall determine. The
Directors shall endeavor to declare and pay such dividends and  Distributions as
shall be necessary for the Company to qualify as a real estate  investment trust
under the REIT Provisions of the Code;  provided,  however,  Stockholders  shall
have no right to any dividend or  Distribution  unless and until declared by the
Directors.  The exercise of the powers and rights of the  Directors  pursuant to
this section shall be subject to the provisions of any class or series of Equity
Shares at the time  outstanding.  The  receipt  by any  Person in whose name any
Equity  Shares  are  registered  on the  records  of the  Company or by his duly
authorized  agent  shall  be  a  sufficient   discharge  for  all  dividends  or
Distributions  payable or  deliverable in respect of such Equity Shares and from
all liability to see to the application thereof. Distributions in kind shall not
be  permitted,  except  for  distributions  of  readily  marketable  securities;
distributions of beneficial interests in a liquidating trust established for the
dissolution of the Company and the  liquidation of its assets in accordance with
the terms of these  Articles  of  Incorporation;  or  distributions  of  in-kind
property  as long as the  Directors  (i) advise  each  Stockholder  of the risks
associated with direct  ownership of the property;  (ii) offer each  Stockholder
the election of receiving in-kind property  distributions;  and (iii) distribute
in-kind property only to those Stockholders who accept the Directors' offer.

                  (v) Rights Upon Liquidation.  In the event of any voluntary or
involuntary  liquidation,  dissolution or winding up, or any distribution of the
assets of the Company,  the  aggregate  assets  available  for  distribution  to
holders of the Common Shares (including  holders of Excess Shares resulting from
the exchange of Common  Shares  pursuant to Section  7.6(iii)  hereof)  shall be
determined in accordance  with  applicable  law.  Except as provided  below as a
consequence  of the  limitations on  distributions  to holders of Excess Shares,
each holder of Common Shares shall be entitled to receive, ratably with (i) each
other holder of Common  Shares and (ii) each holder of Excess  Shares  resulting
from the  exchange  of Common  Shares,  that  portion of such  aggregate  assets
available for  distribution as the number of the outstanding  Common Shares held
by such holder bears to the total number of outstanding Common Shares and Excess
Shares resulting from the exchange of Common Shares then  outstanding.  Anything
herein to the contrary notwithstanding,  in no event shall the amount payable to
a holder of Excess  Shares  exceed (i) the price per share such  holder paid for
the Common Shares in the purported  Transfer or Acquisition  (as those terms are
defined in Section 7.6(i)) or change in capital  structure or other  transaction
or event that resulted in the Excess Shares or (ii) if the holder did

                                                       -31-

<PAGE>



not give full value for such Excess Shares (as through a gift, a devise or other
event or transaction), a price per share equal to the Market Price (as that term
is defined in Section 7.6(i)) for the Common Shares on the date of the purported
Transfer, Acquisition, change in capital structure or other transaction or event
that resulted in such Excess Shares.  Any amount  available for  distribution in
excess of the  foregoing  limitations  shall be paid  ratably to the  holders of
Common Shares and other holders of Excess Shares  resulting from the exchange of
Common Shares to the extent permitted by the foregoing limitations.

                  (vi)  Voting  Rights.  Except  as may  be  provided  in  these
Articles of  Incorporation,  and  subject to the express  terms of any series of
Preferred  Shares,  the holders of the Common  Shares  shall have the  exclusive
right to vote on all matters (as to which a common Stockholder shall be entitled
to vote pursuant to applicable  law) at all meetings of the  Stockholders of the
Company, and shall be entitled to one (1) vote for each Common Share entitled to
vote at such meeting.

         SECTION  7.3  Preferred  Shares.  The  Directors  are hereby  expressly
granted the authority to authorize from time to time the issuance of one or more
series of Preferred  Shares.  The issuance of Preferred Shares shall be approved
by a majority of the  Independent  Directors  who do not have an interest in the
transaction and who have access, at the expense of the Company, to the Company's
or  independent  legal counsel.  Prior to the issuance of each such series,  the
Board of Directors, by resolution, shall fix the number of shares to be included
in each series,  and the terms,  rights,  restrictions and qualifications of the
shares  of each  series,  however,  the  voting  rights  for  each  share of the
Preferred Shares shall not exceed voting rights which bear the same relationship
to the  voting  rights of the  Common  Shares as the  consideration  paid to the
Company  for each of  Preferred  Shares  bears to the book  value of the  Common
Shares on the date that such Preferred  Shares are issued.  The authority of the
Board of Directors with respect to each series shall include, but not be limited
to, determination of the following:

                  (i)  The  designation  of  the  series,  which   may   be   by
distinguishing number, letter or title.

                  (ii) The  dividend  rate on the shares of the series,  if any,
whether any dividends  shall be cumulative and, if so, from which date or dates,
and the relative  rights of priority,  if any, of payment of dividends on shares
of the series.

                  (iii) The  redemption  rights,  including  conditions  and the
price or prices, if any, for shares of the series.

                  (iv)  The  terms  and  amounts  of any  sinking  fund  for the
purchase or redemption of shares of the series.

                  (v) The rights of the shares of the series in the event of any
voluntary or involuntary  liquidation,  dissolution or winding up of the affairs
of the  Company,  and the  relative  rights of  priority,  if any, of payment of
shares of the series.

                                                       -32-

<PAGE>




                  (vi)  Whether  the shares of the series  shall be  convertible
into shares of any other class or series, or any other security,  of the Company
or any other corporation or other entity,  and, if so, the specification of such
other class or series of such other security,  the conversion price or prices or
rate or rates, any adjustments  thereof,  the date or dates on which such shares
shall be  convertible  and all  other  terms  and  conditions  upon  which  such
conversion may be made.

                  (vii)  Restrictions  on the  issuance  of  shares  of the same
series or of any other class or series.

                  (viii)  The  voting  rights  of the  holders  of shares of the
series subject to the limitations contained in this Section 7.3.

                  (ix) Any other relative rights, preferences and limitations on
that series.

         Subject to the  express  provisions  of any other  series of  Preferred
Shares  then  outstanding,  and  notwithstanding  any other  provision  of these
Articles of Incorporation,  the Board of Directors may increase or decrease (but
not below the number of shares of such  series then  outstanding)  the number of
shares,  or alter the  designation or classify or reclassify any unissued shares
of a particular  series of Preferred  Shares,  by fixing or altering,  in one or
more respects,  from time to time before issuing the shares, the terms,  rights,
restrictions  and  qualifications  of the shares of any such series of Preferred
Shares.

         SECTION  7.4  General  Nature of Shares.  All Shares  shall be personal
property  entitling  the  Stockholders  only to those  rights  provided in these
Articles of Incorporation,  the MGCL or in the resolution  creating any class or
series of Shares.  The legal ownership of the Company  Property and the right to
conduct the business of the Company are vested exclusively in the Directors; the
Stockholders  shall have no interest therein other than the beneficial  interest
in the Company  conferred  by their Shares and shall have no right to compel any
partition,  division,  dividend  or  Distribution  of the  Company or any of the
Company Property.  The death of a Stockholder shall not terminate the Company or
give his  legal  representative  any  rights  against  other  Stockholders,  the
Directors or the Company  Property,  except the right,  exercised in  accordance
with applicable  provisions of the Bylaws,  to require the Company to reflect on
its books the change in  ownership  of the Shares.  Holders of Shares  shall not
have any  preemptive  or other right to purchase or  subscribe  for any class of
securities of the Company which the Company may at any time issue or sell.

         SECTION 7.5 No Issuance Of Share  Certificates.  The Company  shall not
issue share  certificates  except to Stockholders  who make a written request to
the Company.  A Stockholder's  investment  shall be recorded on the books of the
Company.  To transfer his or her Shares a  Stockholder  shall submit an executed
form to the Company,  which form shall be provided by the Company upon  request.
Such transfer  will also be recorded on the books of the Company.  Upon issuance
or transfer of shares, the Company will provide the Stockholder with information
concerning his or her rights with regard to such stock, in a form  substantially
similar to Section  7.6(xii),  and  required by the Bylaws and the MGCL or other
applicable law.

                                                       -33-

<PAGE>




         SECTION 7.6       Restrictions On Ownership and Transfer.

                  (i)  Definitions.  For  purposes of Sections  7.6 and 7.7, the
following terms shall have the following meanings:

         "Acquire" means the acquisition of Beneficial or Constructive Ownership
of Equity Shares by any means,  including,  without limitation,  the exercise of
any rights  under any option,  warrant,  convertible  security,  pledge or other
security interest or similar right to acquire shares,  but shall not include the
acquisition  of any such  rights  unless,  as a result,  the  acquiror  would be
considered a Beneficial  Owner or Constructive  Owner.  The terms "Acquires" and
"Acquisition" shall have correlative meanings.

         "Beneficial  Ownership"  means ownership of Shares by an individual who
would be treated as an owner of such Shares under Section 542(a)(2) of the Code,
either directly or constructively  through the application of Section 544 of the
Code,  as modified by Section  856(h)(1)(B)  of the Code.  For  purposes of this
definition,  the term  "individual"  shall include any  organization,  trust, or
other entity that is treated as an individual for purposes of Section  542(a)(2)
of the Code. The terms "Beneficial Owner," "Beneficially Owns" and "Beneficially
Owned" shall have correlative meanings.

         "Beneficiary"  means  a  beneficiary  of the  Excess  Shares  Trust  as
determined pursuant to Section 7.7(v)(a) hereof.

         "Closing Price" on any day shall mean the last sale price,  regular way
on such day,  or, if no such sale takes  place on that day,  the  average of the
closing  bid and asked  prices,  regular  way, in either case as reported on the
principal  consolidated  transaction reporting system with respect to securities
listed or admitted to trading on the New York Stock Exchange, or if the affected
class or series of Equity  Shares are not so listed or admitted  to trading,  as
reported in the principal consolidated transaction reporting system with respect
to securities listed on the principal national  securities  exchange  (including
the National  Market System of the National  Association of Securities  Dealers,
Inc. Automated Quotation System) on which the affected class or series of Equity
Shares are listed or admitted to trading, or, if the affected class or series of
Equity  Shares are not so listed or admitted to trading,  the last quoted  price
or, if not  quoted,  the  average  of the high bid and low  asked  prices in the
over-the-counter  market, as reported by the National  Association of Securities
Dealers, Inc. Automated Quotation System or, if such system is no longer in use,
the principal  automated quotation system then in use, or, if the affected class
or series of Equity Shares are not so quoted by any such system,  the average of
the closing bid and asked  prices as furnished  by a  professional  market maker
selected  by the Board of  Directors  making a market in the  affected  class or
series of Equity  Shares,  or, if there is no such market  maker or such closing
prices otherwise are not available,  the fair market value of the affected class
or series  of  Equity  Shares  as of such  day,  as  determined  by the Board of
Directors in its discretion.



                                                       -34-

<PAGE>



         "Common  Share  Ownership  Limit"  means,  with  respect  to the Common
Shares,  nine point  eight  percent  (9.8%) of the  outstanding  Common  Shares,
subject to adjustment  pursuant to Section  7.6(x) (but not more than nine point
nine percent (9.9%) of the outstanding Common Shares, as so adjusted) and to the
limitations contained in Section 7.6(xi).

         "Constructive  Ownership"  means ownership of Equity Shares by a person
who  would  be  treated  as  an  owner  of  such  shares,   either  actually  or
constructively,  directly or indirectly,  through the application of Section 318
of the Code, as modified by Section 856(d)(5) thereof.  The terms  "Constructive
Owner,"  "Constructively Owns" and "Constructively Owned" shall have correlative
meanings.

         "Excess  Shares  Trust"  means the trust  created  pursuant  to Section
7.7(i) hereof.

         "Excess  Shares  Trustee"  means the  Company as trustee for the Excess
Shares Trust, and any successor trustee appointed by the Company.

         "Market Price" means,  during the offering,  the price per Equity Share
and thereafter, until the Equity Shares are listed for trading on an exchange or
market,  a price  determined  on the  basis of the  quarterly  valuation  of the
Company's  assets.  Upon  listing of the  Shares,  market  price  shall mean the
average  of the  Closing  Prices  for  the ten  (10)  consecutive  Trading  Days
immediately  preceding  such day (or those days during such ten (10)-day  period
for which Closing Prices are available).

         "Ownership  Limit"  means  the  Common  Share  Ownership  Limit  or the
Preferred Share Ownership Limit, or both, as the context may require.

         "Preferred Share Ownership Limit" means,  with respect to the Preferred
Shares,  nine  point  eight  percent  (9.8%)  of  the  outstanding  Shares  of a
particular  series of  Preferred  Shares of the Company,  subject to  adjustment
pursuant to Section  7.6(x) (but not more than nine point nine percent (9.9%) of
the  outstanding  Preferred  Shares,  as so  adjusted)  and to  the  limitations
contained in this Section 7.6.

         "Purported  Beneficial  Holder"  means,  with  respect  to any event or
transaction  other than a purported  Transfer or  Acquisition  which  results in
Excess Shares,  the Person for whom the applicable  Purported Record Holder held
the Equity  Shares that were,  pursuant to paragraph  (iii) of this Section 7.6,
automatically  exchanged for Excess Shares upon the  occurrence of such event or
transaction. The Purported Beneficial Holder and the Purported Record Holder may
be the same Person.

         "Purported Beneficial  Transferee" means, with respect to any purported
Transfer or Acquisition which results in Excess Shares, the purported beneficial
transferee for whom the Purported  Record  Transferee would have acquired Equity
Shares if such Transfer or  Acquisition  which results in Excess Shares had been
valid  under  Section  7.6(ii).  The  Purported  Beneficial  Transferee  and the
Purported Record Transferee may be the same Person.

                                                       -35-

<PAGE>




         "Purported   Record  Holder"  means,  with  respect  to  any  event  or
transaction  other than a purported  Transfer or  Acquisition  which  results in
Excess  Shares,  the record holder of the Equity  Shares that were,  pursuant to
Section 7.6(iii),  automatically exchanged for Excess Shares upon the occurrence
of such an event or transaction.  The Purported  Record Holder and the Purported
Beneficial Holder may be the same Person.

         "Purported  Record  Transferee"  means,  with respect to any  purported
Transfer or Acquisition which results in Excess Shares, the record holder of the
Equity Shares if such Transfer or Acquisition which results in Excess Shares had
been valid under  Section  7.6(ii).  The  Purported  Record  Transferee  and the
Purported Beneficial Transferee may be the same Person.

         "Restriction  Termination  Date"  means the first day after the date of
the closing of the Initial  Public  Offering on which the Board of  Directors of
the Company  determines,  pursuant to Section  3.2(xxii)  hereof,  that it is no
longer in the best interests of the Company to attempt or continue to qualify as
REIT.

         "Trading  Day" means a day on which the principal  national  securities
exchange on which the  affected  class or series of Equity  Shares are listed or
admitted to trading is open for the  transaction of business or, if the affected
class or series of Equity  Shares are not listed or admitted  to trading,  shall
mean  any day  other  than a  Saturday,  Sunday  or other  day on which  banking
institutions  in the State of New York are  authorized  or  obligated  by law or
executive order to close.

         "Transfer" means any sale, transfer, gift,  hypothecation,  assignment,
devise or other disposition of a direct or indirect interest in Equity Shares or
the right to vote or  receive  dividends  on Equity  Shares  (including  (i) the
granting of any option  (including any option to acquire an option or any series
of such options) or entering into any agreement for the sale,  transfer or other
disposition of Equity Shares or the right to vote or receive dividends on Equity
Shares  or (ii) the  sale,  transfer,  assignment  or other  disposition  of any
securities or rights convertible into or exchangeable for Equity Shares, whether
voluntary or involuntary, of record, constructively or beneficially, and whether
by operation  of law or  otherwise.  The terms  "Transfers,"  "Transferred"  and
"Transferable" shall have correlative meanings.

                  (ii)     Ownership and Transfer Limitations.

                           (a)  Notwithstanding  any  other  provision  of these
                  Articles  of  Incorporation,  except as  provided  in  Section
                  7.6(ix) and Section 7.8,  from the date of the Initial  Public
                  Offering and prior to the  Restriction  Termination  Date,  no
                  Person shall  Beneficially or Constructively Own Equity Shares
                  in excess of the Common or Preferred Share Ownership Limit.

                           (b)  Notwithstanding  any  other  provision  of these
                  Articles  of  Incorporation,  except as  provided  in  Section
                  7.6(ix) and Section 7.8,  from the date of the Initial  Public
                  Offering and prior to the Restriction Termination Date, any

                                                       -36-

<PAGE>



                  Transfer,  Acquisition, change in the capital structure of the
                  Company,  other purported change in Beneficial or Constructive
                  Ownership of Equity Shares or other event or transaction that,
                  if  effective,  would  result in any  Person  Beneficially  or
                  Constructively Owning Equity Shares in excess of the Common or
                  Preferred  Share Ownership Limit shall be void ab initio as to
                  the Transfer,  Acquisition, change in the capital structure of
                  the  Company,   other   purported   change  in  Beneficial  or
                  Constructive  Ownership  or other  event or  transaction  with
                  respect to that number of Equity Shares which would  otherwise
                  be  Beneficially  or  Constructively  Owned by such  Person in
                  excess of the Common or Preferred Share Ownership  Limit,  and
                  none of the  Purported  Beneficial  Transferee,  the Purported
                  Record  Transferee,  the  Purported  Beneficial  Holder or the
                  Purported  Record  Holder  shall  acquire  any  rights in that
                  number of Equity Shares.

                           (c)  Notwithstanding  any  other  provision  of these
                  Articles of  Incorporation,  and except as provided in Section
                  7.8, from the date of the Initial Public Offering and prior to
                  the Restriction  Termination Date, any Transfer,  Acquisition,
                  change  in the  capital  structure  of the  Company,  or other
                  purported  change  in  Beneficial  or  Constructive  Ownership
                  (including  actual  ownership) of Equity Shares or other event
                  or transaction that, if effective,  would result in the Equity
                  Shares  being   actually  owned  by  fewer  than  100  Persons
                  (determined  without  reference  to any rules of  attribution)
                  shall  be  void ab  initio  as to the  Transfer,  Acquisition,
                  change  in  the  capital  structure  of  the  Company,   other
                  purported  change  in  Beneficial  or  Constructive  Ownership
                  (including  actual  ownership)  with respect to that number of
                  Equity   Shares  which   otherwise   would  be  owned  by  the
                  transferee,  and the intended  transferee or subsequent  owner
                  (including a  Beneficial  Owner or  Constructive  Owner) shall
                  acquire no rights in that number of Equity Shares.

                           (d)  Notwithstanding  any  other  provision  of these
                  Articles of Incorporation,  except as provided in Section 7.8,
                  from the date of the Initial Public  Offering and prior to the
                  Restriction  Termination  Date,  any  Transfer,   Acquisition,
                  change  in  the  capital  structure  of  the  Company,   other
                  purported  change in Beneficial or  Constructive  Ownership of
                  Equity  Shares  or  other  event  or   transaction   that,  if
                  effective,  would  cause the  Company  to fail to qualify as a
                  REIT by reason of being  "closely  held" within the meaning of
                  Section   856(h)  of  the  Code  or  otherwise,   directly  or
                  indirectly,  would  cause the  Company to fail to qualify as a
                  REIT shall be void ab initio as to the Transfer,  Acquisition,
                  change  in  the  capital  structure  of  the  Company,   other
                  purported  change in Beneficial or  Constructive  Ownership or
                  other  event or  transaction  with  respect to that  number of
                  Equity  Shares  which  would  cause the Company to be "closely
                  held"  within the  meaning  of  Section  856(h) of the Code or
                  otherwise,  directly or indirectly, would cause the Company to
                  fail to qualify as a REIT, and none of the Purported


                                                       -37-

<PAGE>



                  Beneficial  Transferee,  the Purported Record Transferee,  the
                  Purported  Beneficial  Holder or the  Purported  Record Holder
                  shall acquire any rights in that number of Equity Shares.

                           (e)  Notwithstanding  any  other  provision  of these
                  Articles of Incorporation,  except as provided in Section 7.8,
                  from the date of the Initial Public  Offering and prior to the
                  Restriction  Termination  Date,  any  Transfer,   Acquisition,
                  change in capital structure of the Company, or other purported
                  change  in  Beneficial  or  Constructive  Ownership  of Equity
                  Shares or other event or transaction that, if effective, would
                  (i) cause the Company to own (directly or  Constructively)  an
                  interest in a tenant that is described in Section 856(d)(2)(B)
                  of the Code and (ii) cause the  Company to fail to satisfy any
                  of the gross  income  requirements  of  section  856(c) of the
                  Code, shall be void ab initio as to the Transfer, Acquisition,
                  change in capital  structure of the Company,  other  purported
                  change in Beneficial or Constructive  Ownership or other event
                  or  transaction  with respect to that number of Equity  Shares
                  which would cause the Company to own an interest  (directly or
                  Constructively)  in a  tenant  that is  described  in  Section
                  856(d)(2)(B) of the Code, and none of the Purported Beneficial
                  Transferee,  the Purported  Record  Transferee,  the Purported
                  Beneficial Holder or the Purported Record Holder shall acquire
                  any rights in that number of Equity Shares.

                           (f)  Notwithstanding  any  other  provision  of these
                  Articles of  Incorporation,  any person selling  securities on
                  behalf of the Company in its Initial  Public  Offering may not
                  complete a sale of securities to a Stockholder  until at least
                  five (5) business days after the date the Stockholder receives
                  a  final   Prospectus  and  shall  send  each   Stockholder  a
                  confirmation of his or her purchase.

                  (iii)    Exchange for Excess Shares.

                           (a)  If,   notwithstanding   the   other   provisions
                  contained  in this  Article  VII, at any time from the date of
                  the  Initial  Public  Offering  and  prior to the  Restriction
                  Termination Date, there is a purported Transfer,  Acquisition,
                  change  in  the  capital  structure  of  the  Company,   other
                  purported  change in the Beneficial or Constructive  Ownership
                  of Equity Shares or other event or  transaction  such that any
                  Person would either  Beneficially or Constructively Own Equity
                  Shares in excess of the Common or  Preferred  Share  Ownership
                  Limit,  then, except as otherwise provided in Section 7.6(ix),
                  such Equity  Shares  (rounded  up to the next whole  number of
                  shares) in excess of the Common or Preferred  Share  Ownership
                  Limit  automatically shall be exchanged for an equal number of
                  Excess   Shares  having  terms,   rights,   restrictions   and
                  qualifications  identical  thereto,  except to the extent that
                  this Article VII requires different terms. Such exchange shall
                  be  effective  as of the close of business on the business day
                  next preceding the date


                                                       -38-

<PAGE>



                  of the  purported  Transfer,  Acquisition,  change in  capital
                  structure,   other   change   in   purported   Beneficial   or
                  Constructive   Ownership   of  Shares,   or  other   event  or
                  transaction.

                           (b)  If,   notwithstanding   the   other   provisions
                  contained  in this  Article VII, at any time after the date of
                  the  Initial  Public  Offering  and  prior to the  Restriction
                  Termination Date, there is a purported Transfer,  Acquisition,
                  change  in  the  capital  structure  of  the  Company,   other
                  purported  change in the Beneficial or Constructive  Ownership
                  of  Equity  Shares or other  event or  transaction  which,  if
                  effective,   would  result  in  a  violation  of  any  of  the
                  restrictions  described in subparagraphs (b), (c), (d) and (e)
                  of  paragraph  (ii)  of  this  Section  7.6  or,  directly  or
                  indirectly,  would cause the Company for any reason to fail to
                  qualify as a REIT by reason of being "closely held" within the
                  meaning of Section 856(h) of the Code, or otherwise,  directly
                  or indirectly, would cause the Company to fail to qualify as a
                  REIT,  then the Shares (rounded up to the next whole number of
                  Shares) being  Transferred or which are otherwise  affected by
                  the change in capital  structure or other purported  change in
                  Beneficial or  Constructive  Ownership and which, in any case,
                  would  cause the  Company  to be  "closely  held"  within  the
                  meaning of such Section  856(h) or  otherwise  would cause the
                  Company to fail to qualify  as a REIT  automatically  shall be
                  exchanged  for an equal number of Excess  Shares having terms,
                  rights,  restrictions and  qualifications  identical  thereto,
                  except to the extent that this Article VII requires  different
                  terms.  Such  exchange  shall be  effective as of the close of
                  business  on  the  business  day  prior  to  the  date  of the
                  purported Transfer,  Acquisition, change in capital structure,
                  other purported change in Beneficial or Constructive Ownership
                  or other event or transaction.

                  (iv)  Remedies  For Breach.  If the Board of  Directors or its
designee shall at any time determine in good faith that a Transfer, Acquisition,
change in the  capital  structure  of the Company or other  purported  change in
Beneficial or  Constructive  Ownership or other event or  transaction  has taken
place in violation of Section 7.6(ii) or that a Person intends to Acquire or has
attempted to Acquire  Beneficial or Constructive  Ownership of any Equity Shares
in violation  of this Section 7.6, the Board of Directors or its designee  shall
take such action as it deems advisable to refuse to give effect to or to prevent
such  Transfer,  Acquisition,  change in the capital  structure  of the Company,
other attempt to Acquire  Beneficial or Constructive  Ownership of any Shares or
other event or  transaction,  including,  but not  limited to,  refusing to give
effect thereto on the books of the Company or instituting injunctive proceedings
with respect thereto; provided, however, that any Transfer,  Acquisition, change
in the capital structure of the Company,  attempted Transfer or other attempt to
Acquire Beneficial or Constructive Ownership of any Equity Shares or other event
or  transaction in violation of  subparagraphs  (b), (c), (d) and (e) of Section
7.6(ii)  (as  applicable)   shall  be  void  ab  initio  and  where   applicable
automatically  shall  result in the  exchange  described  in  Section  7.6(iii),
irrespective  of any  action  (or  inaction)  by the Board of  Directors  or its
designee.



                                                       -39-

<PAGE>



                  (v) Notice of Restricted Transfer.  Any Person who acquires or
attempts to Acquire  Beneficial  or  Constructive  Ownership of Equity Shares in
violation of Section 7.6(ii) and any Person who  Beneficially or  Constructively
Owns Excess Shares as a transferee of Equity Shares resulting in an exchange for
Excess Shares, pursuant to Section 7.6(iii), or otherwise shall immediately give
written  notice to the  Company,  or, in the event of a  proposed  or  attempted
Transfer,  Acquisition,  or  purported  change  in  Beneficial  or  Constructive
Ownership,  shall give at least  fifteen (15) days prior  written  notice to the
Company,  of such event and shall  promptly  provide to the  Company  such other
information  as the  Company,  in its sole  discretion,  may request in order to
determine the effect, if any, of such Transfer, attempted Transfer, Acquisition,
Attempted   Acquisition  or  purported  change  in  Beneficial  or  Constructive
Ownership on the Company's status as a REIT.

                  (vi) Owners Required To Provide Information.  From the date of
the Initial Public Offering and prior to the Restriction Termination Date:

                           (a) Every  Beneficial or  Constructive  Owner of more
                  than  five  percent  (5%),  or  such  lower   percentages   as
                  determined pursuant to regulations under the Code or as may be
                  requested by the Board of Directors,  in its sole  discretion,
                  of the  outstanding  shares  of any  class or series of Equity
                  Shares of the Company shall annually, no later than January 31
                  of each  calendar  year,  give  written  notice to the Company
                  stating  (i)  the  name  and  address  of such  Beneficial  or
                  Constructive Owner; (ii) the number of shares of each class or
                  series of Equity Shares Beneficially or Constructively  Owned;
                  and (iii) a description of how such shares are held. Each such
                  Beneficial or Constructive Owner promptly shall provide to the
                  Company such  additional  information  as the Company,  in its
                  sole discretion, may request in order to determine the effect,
                  if any, of such  Beneficial or  Constructive  Ownership on the
                  Company's  status as a REIT and to ensure  compliance with the
                  Common  or   Preferred   Share   Ownership   Limit  and  other
                  restrictions set forth herein.

                           (b) Each Person who is a Beneficial  or  Constructive
                  Owner  of  Equity  Shares  and  each  Person   (including  the
                  Stockholder  of  record)  who is holding  Equity  Shares for a
                  Beneficial or Constructive Owner promptly shall provide to the
                  Company  such   information  as  the  Company,   in  its  sole
                  discretion,  may request in order to determine  the  Company's
                  status  as a REIT,  to  comply  with the  requirements  of any
                  taxing authority or other  governmental  agency,  to determine
                  any such compliance or to ensure compliance with the Common or
                  Preferred  Share Ownership  Limit and other  restrictions  set
                  forth herein.

                  (vii) Remedies Not Limited.  Nothing contained in this Article
VII except  Section 7.8 shall limit scope or  application  of the  provisions of
this Section 7.6, the ability of the Company to implement or enforce  compliance
with the terms  thereof or the  authority  of the Board of Directors to take any
such other  action or actions as it may deem  necessary  or advisable to protect
the  Company  and the  interests  of its  Stockholders  by  preservation  of the
Company's

                                                       -40-

<PAGE>



status as a REIT and to ensure compliance with the Ownership Limit for any class
or series of Equity Shares and other  restrictions set forth herein,  including,
without limitation,  refusal to give effect to a transaction on the books of the
Company.

                  (viii)  Ambiguity.   In  the  case  of  an  ambiguity  in  the
application  of any  of the  provisions  of  this  Section  7.6,  including  any
definition  contained in Sections 1.5 and 7.6(i),  the Board of Directors  shall
have  the  power  and  authority,  in its  sole  discretion,  to  determine  the
application  of the provisions of this Section 7.6 with respect to any situation
based on the facts known to it.

                  (ix)  Exception.  The Board of  Directors,  upon  receipt of a
ruling  from the  Internal  Revenue  Service,  an  opinion  of  counsel or other
evidence satisfactory to the Board of Directors, in its sole discretion, in each
case to the effect that the restrictions contained in subparagraphs (c), (d) and
(e) of Section 7.6(ii) will not be violated, may waive or change, in whole or in
part, the  application  of the Common or Preferred  Share  Ownership  Limit with
respect to any Person.  In connection with any such waiver or change,  the Board
of Directors may require such  representations and undertakings from such Person
or affiliates and may impose such other conditions as the Board deems necessary,
advisable or prudent,  in its sole discretion,  to determine the effect, if any,
of the  proposed  transaction  or ownership  of Equity  Shares on the  Company's
status as a REIT.

                  (x) Increase in Common or  Preferred  Share  Ownership  Limit.
Subject to the limitations  contained in Section 7.6(xi), the Board of Directors
may from time to time increase the Common or Preferred Share Ownership Limit.

                  (xi)     Limitations on Modifications.

                           (a) The  Ownership  Limit  for a class or  series  of
                  Equity Shares may not be increased and no additional ownership
                  limitations  may be created if,  after  giving  effect to such
                  increase  or  creation,  the Company  would be "closely  held"
                  within the  meaning of  Section  856(h) of the Code  (assuming
                  ownership of shares of Equity  Shares by all Persons  equal to
                  the greatest of (A) the actual  ownership,  (B) the Beneficial
                  Ownership  of  Equity  Shares  by  each  Person,  or  (C)  the
                  applicable Ownership Limit with respect to such Person.

                           (b) Prior to any  modification of the Ownership Limit
                  with respect to any Person, the Board of Directors may require
                  such  opinions  of  counsel,   affidavits,   undertakings   or
                  agreements as it may deem necessary,  advisable or prudent, in
                  its sole  discretion,  in order to  determine  or  ensure  the
                  Company's status as a REIT.

                           (c) Neither the Preferred  Share  Ownership Limit nor
                  the  Common  Share  Ownership  Limit  may  be  increased  to a
                  percentage  that is  greater  than  nine  point  nine  percent
                  (9.9%).

                                                       -41-

<PAGE>




                  (xii) Notice to Stockholders  Upon Issuance or Transfer.  Upon
issuance or transfer of Shares,  the Company shall provide the recipient  with a
notice   containing   information   about  the  shares  purchased  or  otherwise
transferred, in lieu of issuance of a share certificate, in a form substantially
similar to the following:

                  "The   securities   issued  or  transferred   are  subject  to
                  restrictions  on  transfer  and  ownership  for the purpose of
                  maintenance   of  the  Company's   status  as  a  real  estate
                  investment  trust (a "REIT") under Sections 856 through 860 of
                  the Internal  Revenue Code of 1986,  as amended (the  "Code").
                  Except as  otherwise  provided  pursuant  to the  Articles  of
                  Incorporation  of the Company,  no Person may (i) Beneficially
                  or  Constructively  Own Common Shares of the Company in excess
                  of 9.8% (or such greater  percent as may be  determined by the
                  Board of Directors of the Company) of the  outstanding  Common
                  Shares;  (ii) Beneficially or Constructively Own shares of any
                  series of Preferred Shares of the Company in excess of 9.8% of
                  the outstanding  shares of such series of Preferred Shares; or
                  (iii)  Beneficially  or  Constructively  Own Common  Shares or
                  Preferred  Shares (of any class or series)  which would result
                  in the Company being  "closely  held" under Section  856(h) of
                  the Code or which otherwise would cause the Company to fail to
                  qualify  as  a  REIT.   Any  Person  who  has   Beneficial  or
                  Constructive Ownership, or who Acquires or attempts to Acquire
                  Beneficial or  Constructive  Ownership of Common Shares and/or
                  Preferred  Shares in excess of the above  limitations  and any
                  Person who Beneficially or  Constructively  Owns Excess Shares
                  as a transferee of Common or Preferred  Shares resulting in an
                  exchange for Excess  Shares (as described  below)  immediately
                  must  notify  the  Company  in  writing  or, in the event of a
                  proposed or  attempted  Transfer or  Acquisition  or purported
                  change in  Beneficial  or  Constructive  Ownership,  must give
                  written  notice to the  Company  at least 15 days prior to the
                  proposed or attempted  transfer,  transaction  or other event.
                  Any Transfer or Acquisition of Common Shares and/or  Preferred
                  Shares  or other  event  which  results  in  violation  of the
                  ownership or transfer  limitations  set forth in the Company's
                  Articles  of  Incorporation  shall be void ab  initio  and the
                  Purported  Beneficial and Record  Transferee shall not have or
                  acquire  any rights in such  Common  Shares  and/or  Preferred
                  Shares. If the transfer and ownership  limitations referred to
                  herein are  violated,  the Common  Shares or Preferred  Shares
                  represented hereby  automatically will be exchanged for Excess
                  Shares to the extent of  violation  of such  limitations,  and
                  such Excess  Shares will be held in trust by the Company,  all
                  as provided by the Articles of  Incorporation  of the Company.
                  All defined terms used in this

                                              -42-

<PAGE>



                  legend have the meanings  identified in the Company's Articles
                  of  Incorporation,  as the same may be  amended  from  time to
                  time, a copy of which, including the restrictions on transfer,
                  will  be  sent  without  charge  to  each  Stockholder  who so
                  requests."

         SECTION 7.7       Excess Shares.

                  (i)  Ownership  In  Trust.   Upon  any   purported   Transfer,
Acquisition,  change in the capital  structure of the Company,  other  purported
change in  Beneficial or  Constructive  Ownership or event or  transaction  that
results in Excess Shares pursuant to Section 7.6(iii),  such Excess Shares shall
be deemed to have been  transferred to the Company,  as Excess Shares Trustee of
an Excess Shares Trust for the benefit of such  Beneficiary or  Beneficiaries to
whom an  interest  in such Excess  Shares may later be  transferred  pursuant to
Section  7.6(v).  Excess Shares so held in trust shall be issued and outstanding
stock of the Company.  The Purported  Record  Transferee  (or  Purported  Record
Holder) shall have no rights in such Excess Shares except the right to designate
a transferee of such Excess Shares upon the terms  specified in Section  7.6(v).
The Purported  Beneficial  Transferee shall have no rights in such Excess Shares
except as provided in Section 7.7(iii) and (v).

                  (ii) Distribution Rights.  Excess Shares shall not be entitled
to any dividends or Distributions (except as provided in Section 7.7(iii)).  Any
dividend or  Distribution  paid prior to the  discovery  by the Company that the
Equity  Shares  have been  exchanged  for Excess  Shares  shall be repaid to the
Company upon demand, and any dividend or Distribution declared but unpaid at the
time of such  discovery  shall be void ab initio  with  respect  to such  Excess
Shares.

                  (iii)    Rights Upon Liquidation.

                           (a)  Except as  provided  below,  in the event of any
                  voluntary or involuntary  liquidation,  dissolution or winding
                  up, or any other  distribution of the assets,  of the Company,
                  each holder of Excess  Shares  resulting  from the exchange of
                  Preferred  Shares of any specified series shall be entitled to
                  receive,  ratably  with each  other  holder  of Excess  Shares
                  resulting from the exchange of Preferred Shares of such series
                  and each  holder  of  Preferred  Shares of such  series,  such
                  accrued  and unpaid  dividends,  liquidation  preferences  and
                  other preferential  payments, if any, as are due to holders of
                  Preferred Shares of such series.  In the event that holders of
                  shares of any  series of  Preferred  Shares  are  entitled  to
                  participate  in the  Company's  distribution  of its  residual
                  assets,  each  holder  of  Excess  Shares  resulting  from the
                  exchange  of  Preferred  Shares  of any such  series  shall be
                  entitled to participate, ratably with (A) each other holder of
                  Excess Shares  resulting from the exchange of Preferred Shares
                  of all series entitled to so  participate;  (B) each holder of
                  Preferred Shares of all series entitled to so participate; and
                  (C) each holder of Common Shares and Excess  Shares  resulting
                  from the exchange of Common Shares (to the extent permitted by
                  Section 7.6(iii) hereof), that portion of the aggregate assets
                  available for distribution (determined

                                                       -43-

<PAGE>



                  in accordance  with applicable law) as the number of shares of
                  such  Excess  Shares  held by such  holder  bears to the total
                  number of (1)  outstanding  Excess Shares  resulting  from the
                  exchange  of  Preferred  Shares of all series  entitled  to so
                  participate;  (2) outstanding  Preferred  Shares of all series
                  entitled to so participate;  and (3) outstanding Common Shares
                  and  Excess  Shares  resulting  from the  exchange  of  Common
                  Shares. The Company,  as holder of the Excess Shares in trust,
                  or, if the  Company  shall have been  dissolved,  any  trustee
                  appointed  by the  Company  prior  to its  dissolution,  shall
                  distribute  ratably to the  Beneficiaries of the Excess Shares
                  Trust, when determined, any such assets received in respect of
                  the Excess Shares in any  liquidation,  dissolution or winding
                  up,  or any  distribution  of  the  assets,  of  the  Company.
                  Anything to the contrary herein  notwithstanding,  in no event
                  shall the amount  payable to a holder  with  respect to Excess
                  Shares  resulting from the exchange of Preferred Shares exceed
                  (A) the price per share  such  holder  paid for the  Preferred
                  Shares  in the  purported  Transfer,  Acquisition,  change  in
                  capital  structure or other transaction or event that resulted
                  in the  Excess  Shares or (B) if the  holder did not give full
                  value for such  Excess  Shares (as  through a gift,  devise or
                  other  event or  transaction),  a price per share equal to the
                  Market Price for the shares of Preferred Shares on the date of
                  the  purported  Transfer,   Acquisition,   change  in  capital
                  structure or other  transaction or event that resulted in such
                  Excess Shares. Any amount available for distribution in excess
                  of the  foregoing  limitations  shall be paid  ratably  to the
                  holders of Preferred  Shares and Excess Shares  resulting from
                  the  exchange of Preferred  Shares to the extent  permitted by
                  the foregoing limitations.

                           (b)  Except as  provided  below,  in the event of any
                  voluntary or involuntary  liquidation,  dissolution or winding
                  up, or any other  distribution of the assets,  of the Company,
                  each holder of Excess  Shares  resulting  from the exchange of
                  Common  Shares shall be entitled to receive,  ratably with (A)
                  each other holder of such Excess Shares and (B) each holder of
                  Common Shares,  that portion of the aggregate assets available
                  for  distribution  to  holders  of  Common  Shares  (including
                  holders of Excess Shares resulting from the exchange of Common
                  Shares pursuant to Section 7.6(iii)), determined in accordance
                  with  applicable law, as the number of such Excess Shares held
                  by such holder bears to the total number of outstanding Common
                  Shares  and  outstanding  Excess  Shares  resulting  from  the
                  exchange of Common Shares then  outstanding.  The Company,  as
                  holder of the Excess Shares in trust, or, if the Company shall
                  have been  dissolved,  any  trustee  appointed  by the Company
                  prior to its  dissolution,  shall  distribute  ratably  to the
                  Beneficiaries of the Excess Shares, when determined,  any such
                  assets  received  in  respect  of  the  Excess  Shares  in any
                  liquidation, dissolution or winding up, or any distribution of
                  the assets,  of the Company.  Anything  herein to the contrary
                  notwithstanding,  in no event  shall the  amount  payable to a
                  holder with respect to Excess  Shares exceed (A) the price per
                  share such holder paid for the Equity  Shares in the purported
                  Transfer,  Acquisition,  change in capital  structure or other
                  transaction or event that resulted in the Excess Shares or (B)
                  if the holder did not

                                                       -44-

<PAGE>



                  give full value for such  Equity  Shares  (as  through a gift,
                  devise or other event or transaction), a price per share equal
                  to the Market  Price for the Equity  Shares on the date of the
                  purported Transfer,  Acquisition,  change in capital structure
                  or other  transaction  or event that  resulted  in such Excess
                  Shares. Any amount available for distribution in excess of the
                  foregoing  limitations shall be paid ratably to the holders of
                  Common Shares and Excess Shares resulting from the exchange of
                  Common  Shares  to  the  extent  permitted  by  the  foregoing
                  limitations.

                  (iv) Voting Rights.  The holders of Excess Shares shall not be
entitled to vote on any matters (except as required by the MGCL).

                  (v)      Restrictions on Transfer; Designation of Beneficiary.

                           (a)  Excess  Shares  shall not be  transferable.  The
                  Purported  Record  Transferee (or Purported Record Holder) may
                  freely  designate a Beneficiary  of its interest in the Excess
                  Shares Trust (representing the number of Excess Shares held by
                  the Excess Shares Trust attributable to the purported Transfer
                  or Acquisition that resulted in the Excess Shares), if (A) the
                  Excess  Shares  held in the Excess  Shares  Trust would not be
                  Excess  Shares  in the hands of such  Beneficiary  and (B) the
                  Purported  Beneficial   Transferee  (or  Purported  Beneficial
                  Holder)  does  not  receive  a  price  for  designating   such
                  Beneficiary  that  reflects a price per share for such  Excess
                  Shares  that  exceeds  (1) the price per share such  Purported
                  Beneficial  Transferee (or Purported  Beneficial  Holder) paid
                  for the Equity Shares in the purported Transfer,  Acquisition,
                  change in capital  structure,  or other  transaction  or event
                  that  resulted  in the Excess  Shares or (2) if the  Purported
                  Beneficial Transferee (or Purported Beneficial Holder) did not
                  give value for such Excess  Shares (as through a gift,  devise
                  or other event or transaction), a price per share equal to the
                  Market  Price  for  the  Equity  Shares  on  the  date  of the
                  purported Transfer,  Acquisition, change in capital structure,
                  or other  transaction  or event  that  resulted  in the Excess
                  Shares. Upon such transfer of an interest in the Excess Shares
                  Trust,  the  corresponding  Excess Shares in the Excess Shares
                  Trust  automatically shall be exchanged for an equal number of
                  Equity Shares  (depending on the type and class of Shares that
                  were originally  exchanged for such Excess  Shares),  and such
                  Equity   Shares  shall  be   transferred   of  record  to  the
                  Beneficiary  of  the  interest  in  the  Excess  Shares  Trust
                  designated by the Purported  Record  Transferee  (or Purported
                  Record  Holder),  as described  above,  if such Equity  Shares
                  would not be Excess  Shares in the hands of such  Beneficiary.
                  Prior to any  transfer of any  interest  in the Excess  Shares
                  Trust,  the Purported  Record  Transferee (or Purported Record
                  Holder) must give advance written notice to the Company of the
                  intended  transfer and the Company must have waived in writing
                  its purchase rights under Section 7.7(vi).



                                                       -45-

<PAGE>



                           (b)  Notwithstanding  the  foregoing,  if a Purported
                  Beneficial   Transferee  (or  Purported   Beneficial   Holder)
                  receives a price for  designating a Beneficiary of an interest
                  in the Excess Shares Trust that exceeds the amounts  allowable
                  under subparagraph (i) of this Section 7.6(v),  such Purported
                  Beneficial  Transferee (or Purported  Beneficial Holder) shall
                  pay, or cause the  Beneficiary  of the  interest in the Excess
                  Shares Trust to pay, such excess in full to the Company.

                           (c) If any of the transfer  restrictions set forth in
                  this  Section  7.6(v),   or  any  application   thereof,   are
                  determined to be void,  invalid or  unenforceable by any court
                  having  jurisdiction  over the  issue,  the  Purported  Record
                  Transferee (or Purported Record Holder) may be deemed,  at the
                  option  of the  Company,  to have  acted  as the  agent of the
                  Company  in  acquiring  the  Excess  Shares  as to which  such
                  restrictions  would  otherwise,  by their terms,  apply and to
                  hold such Excess Shares on behalf of the Company.

                  (vi) Purchase Right in Excess  Shares.  Excess Shares shall be
deemed to have been offered for sale to the Company, or its designee, at a price
per share equal to the lesser of (i) the price per share in the transaction that
created  such  Excess  Shares  (or, in the case of devise or gift or event other
than a Transfer or  Acquisition  which results in the issuance of Excess Shares,
the  Market  Price at the time of such  devise  or gift or  event  other  than a
Transfer or Acquisition which results in the issuance of Excess Shares) and (ii)
the Market Price of the Equity  Shares  exchanged  for such Excess Shares on the
date the  Company,  or its  designee,  accepts  such offer.  The Company and its
assignees  shall have the right to accept such offer for a period of ninety (90)
days  after the later of (i) the date of the  purported  Transfer,  Acquisition,
change in capital  structure  of the  Company,  purported  change in  Beneficial
Ownership or other event or transaction which resulted in such Excess Shares and
(ii) the date on which the Board of  Directors  determines  in good faith that a
Transfer,  Acquisition,  change in capital  structure of the Company,  purported
change in Beneficial or  Constructive  Ownership  resulting in Excess Shares has
occurred,  if the Company does not receive a notice  pursuant to Section 7.6(v),
but in no event later than a permitted  Transfer  pursuant to and in  compliance
with the terms of Section 7.7(v).

                  (vii) Remedies Not Limited.  Nothing contained in this Article
VII except  Section 7.8 shall limit scope or  application  of the  provisions of
this Section 7.7, the ability of the Company to implement or enforce  compliance
with the terms  hereof or the  authority  of the Board of  Directors to take any
such other  action or actions as it may deem  necessary  or advisable to protect
the  Company  and the  interests  of its  Stockholders  by  preservation  of the
Company's  status  as a REIT and to  ensure  compliance  with  applicable  Share
Ownership Limits and the other restrictions set forth herein, including, without
limitation, refusal to give effect to a transaction on the books of the Company.

                  (viii)  Authorization.  At such time as the Board of Directors
authorizes a series of Preferred  Shares pursuant to Section 7.3 of this Article
VII,  without any further or separate  action of the Board of  Directors,  there
shall be deemed to be authorized a series of Excess Shares

                                                       -46-

<PAGE>



consisting of the number of shares included in the series of Preferred Shares so
authorized and having terms, rights,  restrictions and qualifications  identical
thereto,  except to the extent that such Excess Shares are already authorized or
this Article VII requires different terms.

         SECTION 7.8 Settlements. Nothing in Sections 7.6 and 7.7 shall preclude
the settlement of any transaction with respect to the Common Shares entered into
through  the  facilities  of the New  York  Stock  Exchange  or  other  national
securities exchange on which the Common Shares are listed.

         SECTION 7.9  Severability.  If any provision of this Article VII or any
application  of  any  such  provision  is  determined  to be  void,  invalid  or
unenforceable by any court having  jurisdiction over the issue, the validity and
enforceability  of the  remaining  provisions  of this  Article VII shall not be
affected and other  applications of such provision shall be affected only to the
extent necessary to comply with the determination of such court.

         SECTION 7.10 Waiver.  The Company  shall have  authority at any time to
waive the requirements that Excess Shares be issued or be deemed  outstanding in
accordance  with the  provisions of this Article VII if the Company  determines,
based on an opinion of nationally  recognized tax counsel,  that the issuance of
such  Excess  Shares  or the fact  that  such  Excess  Shares  are  deemed to be
outstanding,  would jeopardize the status of the Company as a REIT (as that term
is defined in Section 1.5).

                                    ARTICLE 8

                                  STOCKHOLDERS

         SECTION 8.1 Meetings of Stockholders.  There shall be an annual meeting
of the Stockholders, to be held at such time and place as shall be determined by
or in the manner  prescribed  in the  Bylaws,  at which the  Directors  shall be
elected and any other proper business may be conducted.  The annual meeting will
be held at a  location  convenient  to the  Stockholders,  on a date  which is a
reasonable  period of time following the  distribution  of the Company's  annual
report to Stockholders but not less than thirty (30) days after delivery of such
report.  A majority of  Stockholders  present in person or by proxy at an annual
meeting at which a quorum is present, may, without the necessity for concurrence
by the Directors, vote to elect the Directors. A quorum shall be 50% of the then
outstanding Shares. Special meetings of Stockholders may be called in the manner
provided in the Bylaws,  including at any time by Stockholders  holding,  in the
aggregate,  not less than ten percent  (10%) of the  outstanding  Equity  Shares
entitled to be cast on any issue  proposed to be  considered at any such special
meeting.  If there are no Directors,  the officers of the Company shall promptly
call a special meeting of the Stockholders  entitled to vote for the election of
successor  Directors.  Any  meeting  may  be  adjourned  and  reconvened  as the
Directors determine or as provided by the Bylaws.



                                                       -47-

<PAGE>



         SECTION 8.2 Voting Rights of Stockholders. Subject to the provisions of
any class or series of Shares then  outstanding and the mandatory  provisions of
any applicable laws or regulations,  the Stockholders  shall be entitled to vote
only on the following matters;  (a) election or removal of Directors as provided
in  Sections  8.1,  2.4 and 2.7  hereof;  (b)  amendment  of these  Articles  of
Incorporation as provided in Section 10.1 hereof; (c) termination of the Company
as  provided  in Section  11.2  hereof;  (d)  reorganization  of the  Company as
provided in Section  10.2  hereof;  (e) merger,  consolidation  or sale or other
disposition of all or substantially all of the Company Property,  as provided in
Section 10.3  hereof;  and (f)  termination  of the  Company's  status as a real
estate  investment  trust under the REIT  Provisions of the Code, as provided in
Section  3.2(xxii)  hereof.  The  Stockholders  may  terminate the status of the
Company  as a  REIT  under  the  Code  by a vote  of a  majority  of the  Shares
outstanding and entitled to vote. Except with respect to the foregoing  matters,
no action  taken by the  Stockholders  at any meeting  shall in any way bind the
Directors.

         SECTION 8.3 Voting Limitations on Shares held by the Advisor, Directors
and Affiliates.  With respect to Shares owned by the Advisor, the Directors,  or
any of their  Affiliates,  neither the Advisor,  nor the  Directors,  nor any of
their  Affiliates may vote or consent on matters  submitted to the  Stockholders
regarding  the removal of the Advisor,  Directors or any of their  Affiliates or
any  transaction  between  the  Company  and any of  them.  In  determining  the
requisite  percentage  in  interest of Shares  necessary  to approve a matter on
which  the  Advisor,  Directors  and any of  their  Affiliates  may not  vote or
consent, any Shares owned by any of them shall not be included.

         SECTION  8.4  Stockholder  Action to be Taken by  Meeting.  Any  action
required or  permitted  to be taken by the  Stockholders  of the Company must be
effected  at a duly  called  annual or special  meeting of  Stockholders  of the
Company and may not be effected by any consent in writing of such Stockholders.

         SECTION 8.5 Right of  Inspection.  Any  Stockholder  and any designated
representative  thereof shall be permitted  access to all records of the Company
at all reasonable  times,  and may inspect and copy any of them for a reasonable
charge.  Inspection  of the  Company  books and  records by the office or agency
administering  the  securities  laws of a  jurisdiction  shall be provided  upon
reasonable notice and during normal business hours.

         SECTION 8.6 Access to  Stockholder  List. An  alphabetical  list of the
names, addresses and telephone numbers of the Stockholders of the Company, along
with the number of Shares held by each of them (the "Stockholder  List"),  shall
be  maintained  as part of the books and  records  of the  Company  and shall be
available for  inspection by any  Stockholder  or the  Stockholder's  designated
agent at the home office of the Company upon the request of the Stockholder. The
Stockholder  List shall be updated at least  quarterly to reflect changes in the
information  contained  therein.  A copy of such  list  shall be  mailed  to any
Stockholder so requesting  within ten (10) days of the request.  The copy of the
Stockholder List shall be printed in alphabetical  order, on white paper, and in
a readily  readable  type size (in no event  smaller than  10-point  type).  The
Company may impose a reasonable charge for expenses incurred in

                                                       -48-

<PAGE>



reproduction  pursuant to the Stockholder  request.  A Stockholder may request a
copy of the Stockholder List in connection  with,  without  limitation,  matters
relating to Stockholders'  voting rights, and the exercise of Stockholder rights
under federal proxy laws.

         If the Advisor or  Directors  neglect or refuse to exhibit,  produce or
mail a copy of the Stockholder List as requested,  the Advisor and the Directors
shall be liable to any Stockholder  requesting the list for the costs, including
attorneys'  fees,  incurred by that Stockholder for compelling the production of
the  Stockholder  List,  and for actual damages  suffered by any  Stockholder by
reason of such refusal or neglect. It shall be a defense that the actual purpose
and reason for the requests for inspection or for a copy of the Stockholder List
is to secure such list of Stockholders  or other  information for the purpose of
selling  such list or  copies  thereof,  or of using  the same for a  commercial
purpose other than in the interest of the applicant as a Stockholder relative to
the affairs of the Company.  The Company may require the Stockholder  requesting
the  Stockholder  List  to  represent  that  the  list  is not  requested  for a
commercial purpose unrelated to the Stockholder's  interest in the Company.  The
remedies provided hereunder to Stockholders requesting copies of the Stockholder
List  are in  addition,  to and  shall  not in any  way  limit,  other  remedies
available to Stockholders under federal law, or the laws of any state.

         SECTION  8.7  Reports.   The  Directors,   including  the   Independent
Directors, shall take reasonable steps to insure that the Company shall cause to
be prepared  and mailed or  delivered  to each  Stockholder  as of a record date
after  the end of the  fiscal  year  and each  holder  of  other  publicly  held
securities of the Company  within one hundred twenty (120) days after the end of
the fiscal year to which it relates an annual report for each fiscal year ending
after the initial  public  offering of its securities  which shall include:  (i)
financial  statements  prepared in accordance with generally accepted accounting
principles  which are audited and reported on by  independent  certified  public
accountants; (ii) the ratio of the costs of raising capital during the period to
the  capital  raised;  (iii)  the  aggregate  amount  of  advisory  fees and the
aggregate  amount of other fees paid to the  Advisor  and any  Affiliate  of the
Advisor by the Company and including fees or changes paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company;  (iv)
the  Operating  Expenses  of the  Company,  stated as a  percentage  of  Average
Invested  Assets and as a  percentage  of its Net Income;  (v) a report from the
Independent Directors that the policies being followed by the Company are in the
best interests of its  Stockholders and the basis for such  determination;  (vi)
separately  stated,  full  disclosure  of  all  material  terms,   factors,  and
circumstances  surrounding  any  and all  transactions  involving  the  Company,
Directors,  Advisors and any Affiliate  thereof  occurring in the year for which
the annual report is made, and the  Independent  Directors shall be specifically
charged with a duty to examine and comment in the report on the fairness of such
transactions;  and  (vii)  Distributions  to the  Stockholders  for the  period,
identifying  the source of such  Distributions,  and if such  information is not
available at the time of the distribution, a written explanation of the relevant
circumstances  will  accompany the  Distributions  (with the statement as to the
source of  Distributions  to be sent to  Stockholders  not later than sixty (60)
days after the end of the fiscal year in which the distribution was made).



                                                       -49-

<PAGE>



                                    ARTICLE 9

         LIABILITY OF STOCKHOLDERS, DIRECTORS, ADVISORS AND AFFILIATES;
                 TRANSACTIONS BETWEEN AFFILIATES AND THE COMPANY

         SECTION 9.1 Limitation of Stockholder  Liability.  No Stockholder shall
be liable for any debt,  claim,  demand,  judgment or obligation of any kind of,
against or with respect to the Company by reason of his being a Stockholder, nor
shall any Stockholder be subject to any personal liability whatsoever,  in tort,
contract or otherwise,  to any Person in connection with the Company Property or
the  affairs of the  Company by reason of his being a  Stockholder.  The Company
shall include a clause in its contracts which provides that  Stockholders  shall
not be personally liable for obligations entered into on behalf of the Company.

         SECTION 9.2       Limitation of Liability and Indemnification.

                  (i) The Company shall  indemnify and hold harmless a Director,
Advisor,  or  Affiliate  (the  "Indemnitee")   against  any  or  all  losses  or
liabilities  reasonably  incurred by the  Indemnitee  in  connection  with or by
reason of any act or omission  performed or omitted to be performed on behalf of
the Company in such capacity,  provided, that the Indemnitee has determined,  in
good faith, that the course of conduct which caused the loss or liability was in
the best  interests  of the  Company.  The Company  shall not  indemnify or hold
harmless  the  Indemnitee  if:  (i) in the case  that the  Indemnitee  is not an
Independent  Director,  the loss or liability  was the result of  negligence  or
misconduct  by the  Indemnitee,  or (ii) in the case that the  Indemnitee  is an
Independent  Director,  the loss or liability was the result of gross negligence
or willful  misconduct by the  Indemnitee.  Any  indemnification  of expenses or
agreement to hold harmless may be paid only out of the Net Assets of the Company
and no portion may be recoverable from the Stockholders.

                  (ii) The  Company  shall not provide  indemnification  for any
loss,  liability  or  expense  arising  from or out of an alleged  violation  of
federal  or  state  securities  laws by  such  party  unless  one or more of the
following  conditions are met: (i) there has been a successful  adjudication  on
the merits of each count involving  alleged  securities law violations as to the
Indemnitee, (ii) such claims have been dismissed with prejudice on the merits by
a court of  competent  jurisdiction  as to the  Indemnitee;  or (iii) a court of
competent   jurisdiction  approves  a  settlement  of  the  claims  against  the
Indemnitee  and finds that  indemnification  of the  settlement  and the related
costs should be made, and the court considering the request for  indemnification
has been advised of the position of the Securities  and Exchange  Commission and
of the published position of any state securities  regulatory authority in which
securities  of the  Company  were  offered  or  sold as to  indemnification  for
violations of securities laws.

                  (iii)  Notwithstanding  anything to the contrary  contained in
the  provisions  of subsection  (i) and (ii) above of this Section,  the Company
shall not indemnify or hold harmless an  Indemnitee if it is  established  that:
(a) the act or omission was material to the loss or liability  and was committed
in bad faith or was the result of active or deliberate dishonesty, (b) the

                                                       -50-

<PAGE>



Indemnitee actually received an improper personal benefit in money, property, or
services,  (c) in the  case  of any  criminal  proceeding,  the  Indemnitee  had
reasonable  cause to believe that the act or omission was unlawful,  or (d) in a
proceeding  by or in the right of the Company,  the  Indemnitee  shall have been
adjudged to be liable to the Company.

                  (iv) The  Directors  may take such action as is  necessary  to
carry out this Section 9.2 and are  expressly  empowered  to adopt,  approve and
amend from time to time  Bylaws,  resolutions  or  contracts  implementing  such
provisions.  No amendment of these Articles of Incorporation or repeal of any of
its provisions  shall limit or eliminate the right of  indemnification  provided
hereunder with respect to acts or omissions occurring prior to such amendment or
repeal.

         SECTION 9.3 Payment of  Expenses.  The Company  shall pay or  reimburse
reasonable  legal expenses and other costs incurred by a Director,  Advisor,  or
Affiliate  in  advance  of  final  disposition  of a  proceeding  if  all of the
following are satisfied:  (i) the  proceeding  relates to acts or omissions with
respect to the performance of duties or services on behalf of the Company,  (ii)
the Indemnitee  provides the Company with written  affirmation of his good faith
belief that he has met the standard of conduct necessary for  indemnification by
the Company as authorized by Section 9.2 hereof,  (iii) the legal proceeding was
initiated by a third party who is not a Stockholder  or, if by a Stockholder  of
the  Company  acting  in his or her  capacity  as  such,  a court  of  competent
jurisdiction  approves such  advancement,  and (iv) the Indemnitee  provides the
Company with a written  agreement to repay the amount paid or  reimbursed by the
Company,  together with the applicable legal rate of interest thereon,  if it is
ultimately  determined  that the  Indemnitee  did not comply with the  requisite
standard of conduct and is not entitled to indemnification.  Any indemnification
payment or  reimbursement  of expenses will be furnished in accordance  with the
procedures in Section 2-418(e) of the Maryland General Corporation Law.

         SECTION 9.4 Express  Exculpatory  Clauses In  Instruments.  Neither the
Stockholders  nor the  Directors,  officers,  employees or agents of the Company
shall be liable  under any  written  instrument  creating an  obligation  of the
Company by reason of their being Stockholders, Directors, officers, employees or
agents of the Company, and all Persons shall look solely to the Company Property
for the payment of any claim under or for the  performance  of that  instrument.
The omission of the foregoing exculpatory language from any instrument shall not
affect the validity or  enforceability  of such  instrument and shall not render
any Stockholder,  Director,  officer, employee or agent liable thereunder to any
third party,  nor shall the  Directors or any officer,  employee or agent of the
Company be liable to anyone as a result of such omission.

         SECTION 9.5 Transactions with Affiliates.  The Company shall not engage
in  transactions  with any  Affiliates,  except  to the  extent  that  each such
transaction has, after disclosure of such affiliation, been approved or ratified
by the affirmative vote of a majority of the Directors  (including a majority of
the  Independent  Directors) not Affiliated  with the person who is party to the
transaction and:


                                                       -51-

<PAGE>



                  (i)      The transaction is fair and reasonable to the Company
and its Stockholders.

                  (ii) The terms of such  transaction  are at least as favorable
as the terms of any comparable  transactions  made on an  arms-length  basis and
known to the Directors.

                  (iii)  The  total  consideration  is  not  in  excess  of  the
appraised value of the property being acquired, if an acquisition is involved.

                  (iv) Payments to the Advisor, its Affiliates and the Directors
for services  rendered in a capacity  other than that as Advisor or Director may
only be made upon a determination that:

                           (a) The  compensation  is  not  in  excess  of  their
                  compensation paid for any comparable services; and

                           (b) The  compensation is not greater than the charges
                  for  comparable   services   available  from  others  who  are
                  competent and not Affiliated with any of the parties involved.

         Transactions between the Company and its Affiliates are further subject
to any  express  restrictions  in these  Articles  of  Incorporation  (including
Article IV and  Section  7.7) or adopted  by the  Directors  in the Bylaws or by
resolution,  and further subject to the disclosure and ratification requirements
of MGCL Section 2-419 and other applicable law.

                                   ARTICLE 10

                     AMENDMENT; REORGANIZATION; MERGER, ETC.

         SECTION 10.1  Amendment.

                  (i) These Articles of  Incorporation  may be amended,  without
the necessity for concurrence by the Directors,  by the affirmative  vote of the
holders of not less than a majority of the Equity  Shares then  outstanding  and
entitled to vote  thereon,  except that (1) no amendment may be made which would
change any  rights  with  respect to any  outstanding  class of  securities,  by
reducing the amount  payable  thereon upon  liquidation,  or by  diminishing  or
eliminating any voting rights  pertaining  thereto;  and (2) Section 10.2 hereof
and this  Section  10.1 shall not be amended  (or any other  provision  of these
Articles  of  Incorporation  be amended or any  provision  of these  Articles of
Incorporation  be added that would have the effect of amending  such  sections),
without the  affirmative  vote of the holders of two-thirds  (2/3) of the Equity
Shares then outstanding and entitled to vote thereon.



                                                       -52-

<PAGE>



                  (ii) The  Directors,  by a  two-thirds  (2/3) vote,  may amend
provisions of these Articles of Incorporation  from time to time as necessary to
enable the Company to qualify as a real estate  investment  trust under the REIT
Provisions of the Code.  With the exception of the foregoing,  the Directors may
not amend these Articles of Incorporation.

                  (iii) An amendment to these  Articles of  Incorporation  shall
become effective as provided in Section 12.5.

                  (iv) These Articles of Incorporation may not be amended except
as provided in this Section 10.1.

         SECTION 10.2 Reorganization.  Subject to the provisions of any class or
series of Equity Shares at the time  outstanding,  the Directors  shall have the
power (i) to cause the  organization  of a  corporation,  association,  trust or
other organization to take over the Company Property and to carry on the affairs
of the Company, or (ii) merge the Company into, or sell, convey and transfer the
Company Property to any such corporation,  association, trust or organization in
exchange  for  Securities  thereof  or  beneficial  interests  therein,  and the
assumption by the  transferee of the  liabilities  of the Company,  and upon the
occurrence  of  (i) or  (ii)  above  terminate  the  Company  and  deliver  such
Securities or beneficial  interests ratably among the Stockholders  according to
the  respective  rights of the class or  series of Equity  Shares  held by them;
provided,  however,  that any such action shall have been approved, at a meeting
of the  Stockholders  called for that purpose,  by the  affirmative  vote of the
holders of not less than a majority of the Equity  Shares then  outstanding  and
entitled to vote thereon.

         SECTION 10.3 Merger, Consolidation or Sale of Company Property. Subject
to  the  provisions  of any  class  or  series  of  Equity  Shares  at the  time
outstanding,  the  Directors  shall have the power to (i) merge the Company into
another entity, (ii) consolidate the Company with one (1) or more other entities
into a new entity;  (iii) sell or otherwise  dispose of all or substantially all
of the Company Property;  or (iv) dissolve or liquidate the Company,  other than
before the initial investment in Company Property;  provided, however, that such
action shall have been  approved,  at a meeting of the  Stockholders  called for
that purpose, by the affirmative vote of the holders of not less than a majority
of the Equity Shares then  outstanding  and entitled to vote  thereon.  Any such
transaction  involving  an  Affiliate of the Company or the Advisor also must be
approved by a majority of the Directors (including a majority of the Independent
Directors) not otherwise  interested in such  transaction as fair and reasonable
to the Company and on terms and  conditions  not less  favorable  to the Company
than those available from unaffiliated third parties.

         In connection with any proposed Roll-Up Transaction,  which, in general
terms, is any transaction  involving the  acquisition,  merger,  conversion,  or
consolidation,  directly  or  indirectly,  of the  Company  and the  issuance of
securities of a Roll-Up  Entity that would be created or would survive after the
successful completion of the Roll-Up Transaction, an appraisal of all Properties
shall be obtained from an Independent  Expert. The Properties shall be appraised
on a consistent basis, and the appraisal shall be based on the evaluation of all
relevant information and shall

                                                       -53-

<PAGE>



indicate  the  value of the  Properties  as of a date  immediately  prior to the
announcement of the proposed Roll-Up Transaction.  The appraisal shall assume an
orderly  liquidation  of  Properties  over a 12-month  period.  The terms of the
engagement of the Independent  Expert shall clearly state that the engagement is
for the benefit of the Company and the Stockholders. A summary of the appraisal,
indicating all material assumptions underlying the appraisal,  shall be included
in a report to Stockholders in connection with a proposed  Roll-Up  Transaction.
In connection with a proposed  Roll-Up  Transaction,  the person  sponsoring the
Roll-Up  Transaction  shall offer to Stockholders  who vote against the proposed
Roll-Up Transaction the choice of:

                  (i)      accepting the securities of a Roll-Up Entity  offered
in the proposed Roll-Up Transaction; or

                  (ii)     one of the following:

                           (a)  remaining  Stockholders  of  the   Company   and
                  preserving  their  interests  therein  on  the  same terms and
                  conditions as existed previously; or

                           (b)  receiving   cash  in  an  amount  equal  to  the
                  Stockholder's pro rata share of the appraised value of the net
                  assets of the Company.

         The Company is prohibited from  participating  in any proposed  Roll-Up
Transaction:

                  (iii) which would result in the Stockholders  having democracy
rights  in a Roll- Up  Entity  that are less  than the  rights  provided  for in
Sections 8.1, 8.2, 8.4, 8.5, 8.6 and 9.1 of these Articles of Incorporation;

                  (iv)  which  includes  provisions  that  would  operate  as  a
material  impediment to, or frustration  of, the  accumulation  of shares by any
purchaser of the  securities of the Roll-Up Entity (except to the minimum extent
necessary  to  preserve  the tax status of the Roll-Up  Entity),  or which would
limit the ability of an investor to exercise the voting rights of its Securities
of the  Roll-Up  Entity  on the  basis  of the  number  of  Shares  held by that
investor;

                  (v) in which  investor's  rights to access of  records  of the
Roll-Up Entity will be less than those described in Sections 8.5 and 8.6 hereof;
or

                  (vi) in  which  any of the  costs of the  Roll-Up  Transaction
would be borne by the Company if the Roll-Up  Transaction is not approved by the
Stockholders.



                                                       -54-

<PAGE>



                                   ARTICLE 11

                               DURATION OF COMPANY

         SECTION 11.1 The Company  automatically  will terminate and dissolve on
December 31,  2008,  will  undertake  orderly  liquidation  and Sales of Company
assets  and will  distribute  any Net Sales  Proceeds  to  Stockholders,  unless
Listing  occurs,  in which event the Company shall continue  perpetually  unless
dissolved  pursuant  to the  provisions  contained  herein  or  pursuant  to any
applicable provision of the MGCL.

         SECTION  11.2  Dissolution  of the  Company by  Stockholder  Vote.  The
Company may be terminated at any time,  without the necessity for concurrence by
the Board of  Directors,  by the vote or written  consent  of a majority  of the
outstanding Equity Shares.

                                   ARTICLE 12

                                  MISCELLANEOUS

         SECTION  12.1  Governing  Law.  These  Articles  of  Incorporation  are
executed by the  undersigned  Directors  and  delivered in the State of Maryland
with  reference  to the laws  thereof,  and the  rights of all  parties  and the
validity,  construction and effect of every provision hereof shall be subject to
and construed  according to the laws of the State of Maryland  without regard to
conflicts of laws provisions thereof.

         SECTION 12.2 Reliance by Third Parties.  Any certificate shall be final
and  conclusive  as to any  persons  dealing  with the Company if executed by an
individual  who,  according  to the records of the  Company or of any  recording
office in which these Articles of Incorporation  may be recorded,  appears to be
the  Secretary  or an Assistant  Secretary of the Company or a Director,  and if
certifying to: (i) the number or identity of Directors,  officers of the Company
or  Stockholders;  (ii) the due  authorization of the execution of any document;
(iii) the action or vote taken,  and the existence of a quorum,  at a meeting of
the Directors or  Stockholders;  (iv) a copy of the Articles of Incorporation or
of the Bylaws as a true and complete copy as then in force;  (v) an amendment to
these Articles of Incorporation;  (vi) the dissolution of the Company;  or (vii)
the  existence  of any fact or facts which relate to the affairs of the Company.
No purchaser,  lender, transfer agent or other person shall be bound to make any
inquiry  concerning  the validity of any  transaction  purporting  to be made on
behalf  of the  Company  by the  Directors  or by any duly  authorized  officer,
employee or agent of the Company.

         SECTION 12.3  Provisions in Conflict with Law or Regulations.


                  (i) The  provisions  of these  Articles of  Incorporation  are
severable,  and if the Directors  shall  determine  that any one or more of such
provisions  are in  conflict  with the REIT  Provisions  of the  Code,  or other
applicable  federal or state laws, the  conflicting  provisions  shall be deemed
never  to have  constituted  a part of these  Articles  of  Incorporation,  even
without any

                                                       -55-

<PAGE>



amendment of these  Articles of  Incorporation  pursuant to Section 10.1 hereof;
provided,  however, that such determination by the Directors shall not affect or
impair any of the remaining  provisions of these  Articles of  Incorporation  or
render   invalid  or  improper  any  action  taken  or  omitted  prior  to  such
determination.  No Director shall be liable for making or failing to make such a
determination.

                  (ii) If any provision of these Articles of Incorporation shall
be held invalid or unenforceable in any jurisdiction,  such holding shall not in
any manner affect or render invalid or unenforceable such provision in any other
jurisdiction  or any other provision of these Articles of  Incorporation  in any
jurisdiction.

         SECTION 12.4 Construction.  In these Articles of Incorporation,  unless
the  context  otherwise  requires,  words used in the  singular or in the plural
include both the plural and singular and words  denoting any gender include both
genders.  The title and headings of different parts are inserted for convenience
and shall not affect the meaning,  construction  or effect of these  Articles of
Incorporation.  In defining or interpreting the powers and duties of the Company
and  its  Directors  and  officers,   reference  may  be  made,  to  the  extent
appropriate,  to the Code and to  Titles 1  through  3 of the  Corporations  and
Associations  Article of the Annotated  Code of Maryland,  referred to herein as
the "MGCL."

         SECTION  12.5  Recordation.  These  Articles of  Incorporation  and any
amendment  hereto  shall be  filed  for  record  with the  State  Department  of
Assessments  and  Taxation of Maryland and may also be filed or recorded in such
other places as the Directors deem  appropriate,  but failure to file for record
these Articles of Incorporation or any amendment hereto in any office other than
in  the  State  of  Maryland   shall  not  affect  or  impair  the  validity  or
effectiveness  of these Articles of  Incorporation  or any amendment  hereto.  A
restated Articles of Incorporation shall, upon filing, be conclusive evidence of
all  amendments  contained  therein and may thereafter be referred to in lieu of
the original Declaration of Trust and the various amendments thereto.

                               * * * * * * * * * *


         THIRD:  This amendment and restatement of the Articles of Incorporation
of the Company has been  approved by a majority of the Directors and approved by
the Stockholders as required by law.

         FOURTH:  The  Company  currently  has  authority  to issue one  hundred
thousand  (100,000)  shares of capital stock,  all of one class of common stock,
par value $0.01 per share.  The  number,  classes,  par values and  preferences,
rights, powers, restrictions, limitations,  qualifications, terms and conditions
of the shares of capital  stock that the Company  will have  authority  to issue
upon  effectiveness  of  this  amendment  and  restatement  of its  Articles  of
Incorporation  are set  forth in  Article  VII of the  foregoing  amendment  and
restatement of such Articles of Incorporation.


                                                       -56-

<PAGE>


         IN WITNESS  WHEREOF,  these Articles of Amendment and Restatement  have
been  signed  on  this  ___  day of  ______________,  1998,  by the  undersigned
President and Secretary,  each of whom  acknowledges,  under penalty of perjury,
that this document is his or her free act and deed,  and that to the best of his
or her knowledge, information and belief, the matters and facts set forth herein
are true in all material respects.

                                        CNL HEALTH CARE PROPERTIES, INC.


                                        By:       ______________________________
                                        Name:    Robert A. Bourne
                                        Title:   President


                                        Attest:


                                        By:       ______________________________
                                        Name:    Lynn E. Rose
                                        Title:   Secretary


                                                       -57-


   
                         SHAW PITTMAN POTTS & TROWBRIDGE
                               2300 N STREET, N.W.
                           WASHINGTON, D.C. 20037-1128
                             TELEPHONE: 202.663.8000
                                FAX: 202.663.8007



                               September 16, 1998



CNL Health Care Properties, Inc.
400 East South Street
Orlando, Florida 32801

Gentlemen:

         We have  acted as counsel  for CNL  Health  Care  Properties,  Inc.,  a
Maryland  corporation (the  "Company"),  in connection with the registration and
proposed sale of (i) up to 15,500,000 shares of common stock of the Company, par
value  $.01 per  share,  having  a per  share  purchase  price  of  $10.00  (the
"Shares"),  (ii) warrants (the  "Warrants")  to purchase up to 600,000 shares of
common  stock of the  Company,  par value $.01 per share and (iii) up to 600,000
shares of common  stock of the Company,  par value $.01 per share (the  "Warrant
Shares"),  issuable  upon the  exercise of the  Warrants  and the payment of the
purchase  price of $12.00 per share,  in  accordance  with the Warrant  Purchase
Agreement  (the  "Warrant  Purchase  Agreement")  filed  as  Exhibit  1.3 to the
Registration  Statement on Form S-11 (File No. 333-47411) which was filed by the
Company under the Securities Act of 1933 (the "Registration Statement").

         Based  upon an  examination  and  review of such  documents  as we have
deemed necessary,  relevant or appropriate,  and with respect to the issuance of
the Warrants and the Warrant  Shares,  a review of the  provisions  of published
compilations  of the Florida  Business  Corporation Act in effect as of the date
hereof,  we are of the opinion that (i) the Company has the  corporate  power to
issue the Shares,  the Warrants and the Warrant  Shares,  (ii) upon issuance and
delivery as provided in the  Registration  Statement  (and,  with respect to the
Warrant Shares, the Warrant Purchase Agreement),  such Shares and Warrant Shares
will be validly issued, fully paid and nonassessable and (iii) upon issuance and
delivery as provided in the Registration Statement, the Warrants will be validly
issued.

         We hereby  consent to the  filing of this  opinion as an exhibit to the
Registration  Statement  and to the use of our name  under  the  caption  "Legal
Opinions" in the prospectus constituting a part of the Registration Statement.

                                         Very truly yours,


                                         /s/ SHAW PITTMAN POTTS & TROWBRIDGE
                                         SHAW PITTMAN POTTS & TROWBRIDGE
    

<PAGE>





   
                         SHAW PITTMAN POTTS & TROWBRIDGE
                               2300 N STREET, N.W.
                           WASHINGTON, D.C. 20037-1128
                             TELEPHONE: 202.663.8000
                                FAX: 202.663.8007



                               September 16, 1998



CNL Health Care Properties, Inc.
400 East South Street
Orlando, Florida  32801

Ladies and Gentlemen:

         You have requested  certain opinions  regarding the application of U.S.
federal income tax laws to CNL Health Care  Properties,  Inc. (the "Company") in
connection  with  the  registration  statement  on  Form  S-11,  No.  333-47411,
originally  filed with the Securities and Exchange  Commission on March 5, 1998,
and the amendments thereto (the "Registration Statement"). All capitalized terms
used but not otherwise  defined herein shall have the respective  meanings given
them in the prospectus  included in the amendment to the Registration  Statement
filed on or about September 16, 1998.

         In rendering the following  opinions,  we have examined such  statutes,
regulations,  records,  certificates  and other  documents as we have considered
necessary or appropriate as a basis for such opinions,  including the following:
(1)  the  Registration   Statement  (including  all  Exhibits  thereto  and  all
amendments  made  thereto  through  the  date  hereof),   (2)  the  Articles  of
Incorporation of the Company, together with all amendments,  (3) certain written
representations of the Company contained in a letter to us dated on or about the
date  hereof and (4) such  other  documents  or  information  as we have  deemed
necessary to render the opinions  set forth in this  letter.  In our review,  we
have  assumed,  with your  consent,  that the  documents  listed  above  that we
reviewed in proposed form will be executed in  substantially  the same form, all
of the  representations  and statements set forth in such documents are true and
correct, and all of the obligations imposed by any such documents on the parties
thereto,  including  obligations  imposed under the Articles of Incorporation of
the Company,  have been or will be performed  or  satisfied in  accordance  with
their terms. We also have assumed the genuineness of all signatures,  the proper
execution of all documents, the authenticity of all documents submitted to us as
originals,  the conformity to originals of documents  submitted to us as copies,
and the authenticity of the originals from which any copies were made.

         Unless facts material to the opinions expressed herein are specifically
stated to have been independently  established or verified by us, we have relied
as to such facts solely upon the  representations  made by the  Company.  To the
extent that the  representations  of the Company are with respect to matters set
forth in the Code or Treasury Regulations, we have reviewed with the individuals
making such  representations the relevant provisions of the Code, the applicable
Treasury Regulations and published administrative interpretations thereof.
Based upon, and subject to, the foregoing, we are of the opinion as follows:

1.  Commencing  with the Company's  taxable year ending  December 31, 1998,  the
Company will be organized in conformity with the requirements for  qualification
as a REIT, and the Company's proposed method of operation will enable it to meet
the requirements for qualification as a REIT under the Code.

2. The  discussion  of  matters  of law under the  heading  "FEDERAL  INCOME TAX
CONSIDERATIONS"  in the  Registration  Statement  is  accurate  in all  material
respects,   and  such  discussion  fairly  summarizes  the  federal  income  tax
considerations  that are  likely  to be  material  to a holder  of Shares of the
Company.



<PAGE>



3. Assuming that there is no waiver of the  restrictions  on ownership of Shares
in  the  Articles  of  Incorporation  of  the  Company  and  that  a  tax-exempt
stockholder  does not finance the  acquisition  of its Shares with  "acquisition
indebtedness"  within the meaning of Section 524(c) of the Code or otherwise use
its Shares in an unrelated trade or business,  the  distributions of the Company
with  respect  to such  tax-exempt  shareholder  will not  constitute  unrelated
business taxable income as defined in Section 512(a) of the Code.

4.  Assuming (i) the Company  leases the  Properties on  substantially  the same
terms and  conditions  described  in the  "Business --  Description  of Property
Leases" section of the  Registration  Statement,  and (ii) the residual value of
the Properties for which the Company owns the  underlying  land remaining  after
the end of their lease terms  (including all renewal  periods) may reasonably be
expected to be at least 20% of the Company's  cost of such  properties,  and the
remaining  useful  lives  of the  Properties  for  which  the  Company  owns the
underlying land at the end of their lease terms  (including all renewal periods)
may reasonably be expected to be at least 20% of such  properties'  useful lives
at the beginning of their lease terms,  the Company will be treated as the owner
of the  Properties  for which the Company owns the  underlying  land for federal
income tax  purposes  and will be entitled to claim  depreciation  and other tax
benefits associated with such ownership.

5.  Assuming  (i) the  Mortgage  Loans  are  made on the  terms  and  conditions
described  in the  "Business  --  Mortgage  Loans"  section of the  Registration
Statement,  and (ii) the  amount of each loan does not  exceed  the fair  market
value of the  real  property  subject  to the  mortgage  at the time of the loan
commitment,  the income generated through the Company's  investments in Mortgage
Loans will be treated as  qualifying  income  under the 75 percent  gross income
test.

6. Assuming (i) the Secured  Equipment Leases are made on substantially the same
terms and  conditions  described  in the  "Business  -- General"  section of the
Registration Statement,  and (ii) each of the Secured Equipment Leases will have
a term that equals or exceeds the useful  life of the  Equipment  subject to the
lease,  the Company  will not be treated as the owner of the  Equipment  that is
subject to the Secured  Equipment  Leases and the Company  will be able to treat
the Secured  Equipment Leases as loans secured by personal  property for federal
income tax purposes.

7.  Assuming that each Joint  Venture has the  characteristics  described in the
"Business -- Joint Venture Arrangements" section of the Registration  Statement,
and is  operated  in the same manner as the  Company  operates  with  respect to
Properties  that it owns  directly,  (i) the Joint  Ventures  will be treated as
partnerships,  as defined in Sections  7701(a)(2) and 761(a) of the Code and not
as associations taxable as corporations,  and the Company will be subject to tax
as a partner  pursuant  to  Sections  701  through  761 of the Code and (ii) all
material  allocations  to the Company of income,  gain,  loss and  deduction  as
provided in the Joint Venture  Agreements  and as discussed in the  Registration
Statement will be respected under Section 704(b) of the Code.

         For a  discussion  relating  the law to the facts  and  legal  analysis
underlying  the opinions set forth in this letter,  we  incorporate by reference
the discussion of federal income tax issues, which we assisted in preparing,  in
the sections of the Registration Statement under the heading "FEDERAL INCOME TAX
CONSIDERATIONS."

         The  opinions  set forth in this  letter are based on  existing  law as
contained  in the  Internal  Revenue  Code of 1986,  as  amended  (the  "Code"),
Treasury  Regulations   promulgated  thereunder  (including  any  Temporary  and
Proposed  Regulations),  and  interpretations  of the  foregoing by the Internal
Revenue  Service  ("IRS")  and by the courts in effect  (or,  in case of certain
Proposed Regulations,  proposed) as of the date hereof, all of which are subject
to change,  both  retroactively  or  prospectively,  and to  possibly  different
interpretations.  Moreover,  the  Company's  ability  to  achieve  and  maintain
qualification as a REIT depends upon its ability to achieve and maintain certain
diversity of stock ownership  requirements  and, through actual annual operating
results,  certain  requirements under the Code regarding its income,  assets and
distribution  levels. No assurance can be given that the actual ownership of the
Company's  stock and its actual  operating  results  and  distributions  for any
taxable year will satisfy the tests necessary to achieve and maintain its status
as a REIT.  We assume no  obligation  to update the  opinions  set forth in this
letter.  We believe that the conclusions  expressed herein, if challenged by the
IRS, would be sustained in court. Because our positions are not binding upon the
IRS or the courts,  however,  there can be no assurance that contrary  positions
may not be successfully asserted by the IRS.


<PAGE>



         The  foregoing  opinions  are limited to the specific  matters  covered
thereby and should not be interpreted to imply the  undersigned  has offered its
opinion on any other matter.

         We hereby  consent to the use and filing of this  opinion as an exhibit
to the  Registration  Statement and to all references to us in the  Registration
Statement.

                                          Very truly yours,

                                          SHAW, PITTMAN, POTTS & TROWBRIDGE



                                          By:      /s/ Charles B. Temkin
                                                   Charles B. Temkin
    

<PAGE>





                                  Exhibit 10.1

        Form of Escrow Agreement between CNL Health Care Properties, Inc.
            and SouthTrust Asset Management Company of Florida, N.A.


<PAGE>



                                ESCROW AGREEMENT


         THIS  ESCROW  AGREEMENT  (the  "Agreement")  is  dated  this ___ day of
_____________,  1998, by and among CNL HEALTH CARE PROPERTIES,  INC., a Maryland
corporation (the "Company"),  CNL SECURITIES  CORP., a Florida  corporation (the
"Managing  Dealer"),  and SOUTHTRUST ASSET MANAGEMENT  COMPANY OF FLORIDA,  N.A.
(the "Escrow Agent"). This Agreement shall be effective as of the effective date
of the Company's  Registration  Statement filed with the Securities and Exchange
Commission (the "Effective Date").

         WHEREAS,  the  Company  proposes to offer and sell,  on a  best-efforts
basis through the Managing  Dealer and selected  broker-dealers  registered with
the National  Association of Securities  Dealers,  Inc. (the Managing Dealer and
such selected  broker-dealers  are  hereinafter  referred to collectively as the
"Soliciting  Dealers")  up to  15,500,000  shares of common stock of the Company
(the  "Shares")  to  investors  at $10.00 per Share  pursuant to a  registration
statement (the "Registration  Statement") filed with the Securities and Exchange
Commission;

         WHEREAS,  the Company has agreed  that the  subscription  price paid in
cash by subscribers for Shares will be refunded to such subscribers if less than
an  aggregate  of 250,000  Shares of the Company  have been sold (which  250,000
Shares  shall not  include  subscriptions  from  Pennsylvania  investors  unless
subscriptions  for at least  777,500  Shares are received and accepted  from all
investors),  and  payment  therefor  received,  within  one year of the  initial
effective  date of the  Company's  prospectus  (each  date  referred  to  herein
individually as the "Closing Date"); and

         WHEREAS,  the Company and the  Managing  Dealer  desire to establish an
escrow in which funds  received  from  subscribers  will be deposited  until the
Closing Date or such earlier date on which  subscriptions  for at least  250,000
Shares have been received (which 250,000 Shares shall not include  subscriptions
from Pennsylvania investors), and the Escrow Agent is willing to serve as Escrow
Agent upon the terms and conditions herein set forth;

         NOW,  THEREFORE,  in  consideration  of the premises and other good and
valuable  consideration,  the  receipt  and  sufficiency  of  which  are  hereby
acknowledged by the parties, the parties covenant and agree as follows.

         1. Establishment of Escrow Accounts. On or prior to the Effective Date,
the Company and the Managing Dealer shall establish an  interest-bearing  escrow
account with the Escrow Agent,  which escrow  account shall be entitled  "ESCROW
ACCOUNT  FOR THE  BENEFIT OF  SUBSCRIBERS  FOR COMMON  STOCK OF CNL HEALTH  CARE
PROPERTIES,  INC." (the "Escrow  Account").  All monies  deposited in the Escrow
Account are hereinafter referred to as the "Escrowed Funds." The Managing Dealer
will, and will cause selected  broker-dealers  acting as Soliciting  Dealers to,
instruct  subscribers to make checks for  subscriptions  payable to the order of
the Escrow Agent until such time (if any) as the Escrowed Funds are  deliverable
to the Company  pursuant to the  provisions  of Paragraph  5(a) below.  From and
after such time,  checks may be made  payable to either the Escrow  Agent or the
Company.  Any checks received prior to the time, if any, that the Escrowed Funds
are deliverable to the

                                                      --3--


<PAGE>



Company pursuant to the provisions of Paragraph 5(a) below that are made payable
to a party  other than the Escrow  Agent  shall be  returned  to the  Soliciting
Dealer who  submitted  the check.  The  Managing  Dealer may  authorize  certain
Soliciting  Dealers which are  "$250,000  clearing  broker-dealers"  to instruct
their customers to make their checks for Shares  subscribed for payable directly
to the Soliciting  Dealer.  In such case, the Soliciting Dealer will collect the
proceeds of the subscribers'  checks and issue a check made payable to the order
of the Escrow Agent for the aggregate amount of the subscription proceeds.

         2. Deposits into the Escrow Account.  The Managing Dealer will promptly
deliver all monies  received from  subscribers  for the payment of Shares to the
Escrow  Agent  for  deposit  in the  Escrow  Account.  Until  such time that the
Escrowed  Funds are  deliverable  to the Company  pursuant to the  provisions of
Paragraph 5(a) below,  the Managing Dealer also will deliver to the Escrow Agent
a written  account of each sale,  which  account  shall set forth,  among  other
things, the following  information:  (i) the subscriber's name and address, (ii)
the number of Shares purchased by such subscriber, and (iii) the amount paid for
by such subscriber for such Shares.  The Company is aware and understands  that,
during the escrow  period,  it is not entitled to any funds received into escrow
and no amounts  deposited in the Escrow Account shall become the property of the
Company or any other  entity,  or be subject to the debts of the  Company or any
other entity.

         3.       Collection Procedure.

                  (a) The Escrow  Agent is hereby  authorized  to  forward  each
         check for  collection  and,  upon  collection  of the  proceeds of each
         check,  to deposit the  collected  proceeds  in the Escrow  Account or,
         alternatively,  the Escrow  Agent may  telephone  the bank on which the
         check is drawn to confirm that the check has been paid.

                  (b) Any check  returned  unpaid to the Escrow  Agent  shall be
         returned to the  Soliciting  Dealer that  submitted the check.  In such
         cases the Escrow Agent will promptly notify the Company of such return.

                  (c) In the event that (i) the Company rejects any subscription
         for  Shares  or  (ii) an  investor  who has  telephonically  or  orally
         subscribed  for Shares  properly  withdraws  such  subscription  within
         fifteen (15) days from the date written confirmation has been mailed to
         the subscriber, and, in either such event, the Escrow Agent has already
         collected funds for such subscription,  the Escrow Agent shall promptly
         issue a refund  check to the  drawer  of the check  submitted  by or on
         behalf of the  rejected  or  withdrawing  subscriber.  If either of the
         events  specified in the clauses (i) or (ii) of the preceding  sentence
         occur and, in either such event, the Escrow Agent has not yet collected
         funds for such  subscription  but has submitted  the check  relating to
         such subscription for collection, the Escrow Agent shall promptly issue
         a check in the amount of such check to the rejected


                                                      --2--


<PAGE>



         or  withdrawing  subscriber  after the Escrow  Agent has  cleared  such
         funds.  If the Escrow Agent has not yet submitted the check relating to
         the subscription of the rejected or withdrawing subscriber,  the Escrow
         Agent  shall  promptly  remit such check  directly to the drawer of the
         check submitted by or on behalf of the subscriber.

         4. Investment of Escrowed  Funds.  The Escrow Agent,  immediately  upon
receipt  of  each  check   remitted  to  it,   shall   deposit   such  check  in
interest-bearing  savings accounts, in short-term certificates of deposit issued
by a bank, or in other short-term  securities  directly or indirectly  issued or
guaranteed  by the United  States  government,  all as directed by the  Company.
Interest and dividends earned on such investments shall be similarly reinvested.
Following  the  distribution  of  Escrowed  Funds  to the  Company  pursuant  to
Paragraph 5 below,  any funds  remaining in the Escrow Account shall be invested
in bank money  market  funds or other  similar  instruments  as  directed by the
Company.

         5.  Distribution of Escrowed Funds.  The Escrow Agent shall  distribute
the  Escrowed  Funds in the  amounts,  at the  times,  and  upon the  conditions
hereinafter set forth in this Agreement.

                  (a)  Subject to the last  three  sentences  of this  Paragraph
         5(a),  if at any time on or prior to the Closing  Date, an aggregate of
         250,000  Shares of the Company have been sold,  then upon the happening
         of such event, the Escrow Agent shall deliver the Escrowed Funds to the
         Company.  An affidavit or certification  from an officer of the Company
         stating that,  after excluding all Shares covered by the  subscriptions
         described in the last three sentences of this Paragraph  5(a),  250,000
         Shares have been timely sold,  together  with the receipt by the Escrow
         Agent of a minimum of $2,500,000 in cleared funds attributable to sales
         of Shares shall constitute sufficient evidence for the purposes of this
         Agreement  that such event has occurred.  Thereafter,  the Escrow Agent
         shall  release  from the  Escrow  Account  to the  Company  any and all
         Escrowed Funds therein, together with all interest earned thereon, upon
         the written  request of an officer of the Company,  except as expressly
         provided  otherwise in the next three sentences.  First,  subscriptions
         from investors who are Pennsylvania  residents shall not be included in
         determining whether the minimum 250,000 Shares have been sold, and such
         subscription  funds shall not be released  from escrow until the Escrow
         Agent has received  $7,775,000 in Escrowed  Funds  (including any funds
         included in reaching the $2,500,000  minimum)  attributable to sales of
         Shares.  Second,  subscriptions  from investors who have subscribed for
         Shares  orally,  where  representatives  of a  Soliciting  Dealer  have
         executed the Subscription  Agreement  relating to such Shares on behalf
         of the  investor,  shall not be  included  in  determining  whether the
         minimum  250,000  Shares  have  been sold for a period of ten (10) days
         from the date written confirmation has been received by the subscriber,
         provided  that such  subscriptions  shall not be  released  from escrow
         until  the  expiration  of a period  fifteen  (15)  days  from the date
         written confirmation has been mailed to the subscriber relating to such
         subscriptions.  Third,  subscriptions  from  investors  who  received a
         prospectus less than five (5) business days prior to the  determination
         under this subparagraph (a) of the

                                                      --3--


<PAGE>



         number of available  Shares to be released  from escrow as evidenced by
         the date of execution of such investor's  subscription  agreement shall
         not be included in determining  whether the minimum 250,000 Shares have
         been sold.

                  (b) If the  Escrowed  Funds do not, on or prior to the Closing
         Date,  become  deliverable to the Company  pursuant to subparagraph (a)
         above,  the  Escrow  Agent  shall  return  the  Escrowed  Funds  to the
         respective  subscribers  in amounts  equal to the  subscription  amount
         theretofore paid by each of them,  together with interest calculated as
         described  in  Paragraph  6 below and  without  deduction,  penalty  or
         expense to the  subscriber.  The Escrow  Agent shall notify the Company
         and the Managing Dealer of any such return of subscription amounts. The
         purchase money returned to each  subscriber  shall be free and clear of
         any and all claims of the Company or any of its creditors.

   
                  (c) The Escrow Agent shall return to any  California , Florida
         or Iowa investor who properly  withdraws his subscription in accordance
         with the terms set forth in the  Prospectus  the Escrowed Funds of such
         withdrawing  investor,  as the  case  may be,  together  with  interest
         calculated as described in Paragraph 6 below.
    

         6. Distribution of Interest.  If the Escrowed Funds become  deliverable
to subscribers pursuant to Paragraphs 5(b) or 5(c) above, the Escrow Agent shall
compute  and  distribute  to each  investor a pro rata  share of the  investment
earnings of the Escrowed Funds.  Each  subscriber's pro rata share of investment
earnings shall be computed as follows:

                                                     Individual Subscription
                                                     amount  x  days held
                Investment Earnings         x        Total subscription
                                                     amounts  x  days held

Such pro  rata  share  of  investment  earnings  shall  be  distributed  to each
subscriber with the return of their subscription amounts.

         7.       Liability of Escrow Agent.

                  (a) In performing any of its duties under this  Agreement,  or
         upon the claimed  failure to perform its duties  hereunder,  the Escrow
         Agent  shall  not be  liable  to anyone  for any  damages,  losses,  or
         expenses  which it may incur as a result of the Escrow Agent so acting,
         or failing to act; provided,  however, the Escrow Agent shall be liable
         for damages  arising out of its willful  default or  misconduct  or its
         gross  negligence under this Agreement.  Accordingly,  the Escrow Agent
         shall not incur any such liability with respect to (i) any action taken
         or  omitted to be taken in good  faith  upon  advice of its  counsel or
         counsel for the Company  which is given with  respect to any  questions
         relating  to  the  duties  and  responsibilities  of the  Escrow  Agent
         hereunder,  or (ii) any action taken or omitted to be taken in reliance
         upon any document, including any written notice or

                                                      --4--


<PAGE>



         instructions provided for in this Escrow Agreement,  not only as to its
         due execution and to the validity and  effectiveness  of its provisions
         but also as to the  truth and  accuracy  of any  information  contained
         therein,  if the Escrow Agent shall in good faith believe such document
         to be genuine,  to have been signed or presented by a proper  person or
         persons, and to conform with the provisions of this Agreement.

                  (b) The Company  hereby  agrees to indemnify and hold harmless
         the  Escrow  Agent  against  any  and  all  losses,  claims,   damages,
         liabilities and expenses,  including,  without  limitation,  reasonable
         costs of investigation and counsel fees and disbursements  which may be
         incurred  by it  resulting  from any act or  omission  of the  Company;
         provided,  however,  that the Company  shall not  indemnify  the Escrow
         Agent for any losses,  claims,  damages, or expenses arising out of the
         Escrow Agent's willful default,  misconduct,  or gross negligence under
         this Agreement.

                  (c) If a dispute  ensues  between  any of the  parties  hereto
         which, in the opinion of the Escrow Agent, is sufficient to justify its
         doing so,  the  Escrow  Agent  shall be  entitled  to  tender  into the
         registry or custody of any court of competent  jurisdiction,  including
         the Circuit Court of Orange County,  Florida,  all money or property in
         its hands  under the terms of this  Agreement,  and to file such  legal
         proceedings as it deems appropriate,  and shall thereupon be discharged
         from all further duties under this Agreement. Any such legal action may
         be brought in any such court as the Escrow  Agent  shall  determine  to
         have jurisdiction thereof. The Company shall indemnify the Escrow Agent
         against its court  costs and  attorneys'  fees  incurred in filing such
         legal proceedings.

         8.  Inability  to Deliver.  In the event that checks for  subscriptions
delivered to the Escrow Agent by the Company  pursuant to this Agreement are not
cleared through normal banking channels within 120 days after such delivery, the
Escrow  Agent shall  deliver  such  uncleared  checks to the Company  unless the
Escrowed Funds are returned to subscribers  pursuant to Paragraphs  5(b) or 5(c)
above,  in which case the Escrow Agent shall mail such  uncleared  checks to the
subscribers.

         9. Notice. All notices,  requests,  demands and other communications or
deliveries  required or permitted to be given  hereunder shall be in writing and
shall be  deemed  to have  been duly  given if  delivered  personally,  given by
prepaid  telegram or  deposited  for  mailing,  first  class,  postage  prepaid,
registered or certified mail, as follows:

      If to the subscribers for Shares:   To their respective addresses as
                                          specified in their Subscription
                                          Agreements.

      If to the Company:                  400 East South Street
                                          Orlando, Florida  32801
                                          Attention:  Mr. James M. Seneff, Jr.,
                                                      Chairman of the Board

                                                      --5--


<PAGE>




         If to the Managing Dealer:       400 East South Street
                                          Orlando, Florida  32801
                                          Attention:  Mr. Robert A. Bourne,
                                                      President

         If to the Escrow Agent:          SOUTHTRUST ASSET MANAGEMENT
                                          COMPANY OF FLORIDA, N.A.
                                          135 West Central Boulevard, Suite 1200
                                          Orlando, Florida  32801
                                          Attention:  Mr. William Legg

         10.  Fees to Escrow  Agent.  In  consideration  of the  services  to be
provided by the Escrow Agent hereunder,  the Company agrees to pay the following
fees to the Escrow Agent.

                  (a) In the event  that by the  Closing  Date an  aggregate  of
         250,000  Shares have not been sold for the account of the Company,  the
         Company  will pay the Escrow  Agent a fee in an amount equal to $15 per
         investor,  with a  minimum  fee  of  $1,500,  payable  within  30  days
         following the Closing Date.

                  (b) In the event that an aggregate of at least 250,000  Shares
         are sold by the Closing  Date,  the Company will pay the Escrow Agent a
         fee for its services hereunder (the "Escrow Fee"). The Escrow Fee shall
         be $350 for each month or any portion  thereof that the Escrow  Account
         continues  for the Company.  The first payment of the Escrow Fee by the
         Company  shall  be due on the  earlier  of (i) the  date on  which  the
         Escrowed  Funds  become   distributable  to  the  Company  pursuant  to
         Paragraph 5 hereof,  or (ii) six months from the effective date of this
         Agreement;  or (iii)  the  closing  of the  offering  of  Shares in the
         Company.  Subsequent  payments by the Company, if any, shall be due and
         payable no less  frequently  than six-month  intervals while the escrow
         continues  for the  Company.  In no event  shall the total  Escrow Fees
         payable by the Company  pursuant to this Agreement be less than $2,100,
         nor more than $4,200, for any 12-month period. Notwithstanding anything
         contained in this Agreement to the contrary, in no event shall any fee,
         reimbursement for costs and expenses,  indemnification  for any damages
         incurred by the Escrow  Agent,  or monies  whatsoever be paid out of or
         chargeable to the Escrowed Funds in the Escrow Account.

         11.      General.

                  (a) This  Agreement  shall be  governed by and  construed  and
         enforced in accordance with the laws of the State of Florida.

                  (b) The section  headings  contained  herein are for reference
         purposes  only  and  shall  not  in  any  way  affect  the  meaning  or
         interpretation of this Agreement.


                                                      --6--


<PAGE>



                  (c)  This  Agreement  sets  forth  the  entire  agreement  and
         understanding of the parties with regard to this escrow transaction and
         supersedes  all  prior  agreements,   arrangements  and  understandings
         relating to the subject matter hereof.

                  (d) This  Agreement  may be amended,  modified,  superseded or
         cancelled,  and any of the terms or  conditions  hereof  may be waived,
         only by a written  instrument  executed by each party hereto or, in the
         case of a waiver, by the party waiving  compliance.  The failure of any
         party  at any time or times to  require  performance  of any  provision
         hereof  shall in no manner  affect the right at a later time to enforce
         the same.  No waiver in any one or more  instances  by any party of any
         condition,  or of the breach of any term  contained in this  Agreement,
         whether by conduct or  otherwise,  shall be deemed to be, or  construed
         as, a further or continuing  waiver of any such condition or breach, or
         a waiver of any other  condition or of the breach of any other terms of
         this Agreement.

                  (e) This  Agreement may be executed  simultaneously  in two or
         more counterparts,  each of which shall be deemed an original,  but all
         of which together shall constitute one and the same instrument.

                  (f) This  Agreement  shall inure to the benefit of the parties
         hereto and their respective administrators, successors, and assigns.

         12. Representation of the Company. The Company hereby acknowledges that
the status of the Escrow  Agent with  respect to the  offering  of the Shares is
that of agent only for the limited  purposes herein set forth, and hereby agrees
it will not represent or imply that the Escrow  Agent,  by serving as the Escrow
Agent hereunder or otherwise,  has investigated the desirability or advisability
of an  investment in the Shares,  or has  approved,  endorsed or passed upon the
merits of the Shares,  nor shall the Company use the name of the Escrow Agent in
any manner whatsoever in connection with the offer or sale of the Shares,  other
than by  acknowledgement  that it has  agreed to serve as  Escrow  Agent for the
limited purposes herein set forth.

                                                      --7--


<PAGE>



         IN WITNESS WHEREOF, the parties have duly executed this Agreement as of
the date first above written.

                                          "Company"

                                          CNL HEALTH CARE PROPERTIES, INC.


                                          By:   ________________________________
                                                JAMES M. SENEFF, JR.,
                                                Chairman of the Board


                                          "MANAGING DEALER"

                                          CNL SECURITIES CORP.


Attest:_______________________            By:   ________________________________
                                                ROBERT A. BOURNE, President


                                          "ESCROW AGENT"

                                          SOUTHTRUST ASSET MANAGEMENT
                                          COMPANY OF FLORIDA, N.A.


Attest:_______________________            By:    _______________________________
                                          Name:  _______________________________
                                          Title: _______________________________

                                      --8--


<PAGE>




   
                                  EXHIBIT 10.9

                        Form of Indemnification Agreement


<PAGE>



                            INDEMNIFICATION AGREEMENT

         THIS INDEMNIFICATION  AGREEMENT  ("Agreement") is made and entered into
as of the ____ day of September,  1998, by and among CNL Health Care Properties,
Inc., a Maryland corporation (the "Company") and ____________, a director and/or
officer of the Company (the "Indemnitee").

                              W I T N E S S E T H:

         WHEREAS,   the  interpretation  of  ambiguous  statutes,   regulations,
articles of incorporation and bylaws regarding  indemnification of directors and
officers  may be too  uncertain  to provide such  directors  and  officers  with
adequate  notice of the legal,  financial  and other  risks to which they may be
exposed by virtue of their service as such; and

         WHEREAS,  damages sought against  directors and officers in shareholder
or similar  litigation by class action  plaintiffs may be  substantial,  and the
costs of defending  such actions and of judgments in favor of  plaintiffs  or of
settlement  therewith may be prohibitive for individual  directors and officers,
without  regard to the merits of a particular  action and without  regard to the
culpability  of, or the  receipt  of  improper  personal  benefit  by, any named
director or officer to the detriment of the corporation; and

         WHEREAS, the issues in controversy in such litigation usually relate to
the  knowledge,  motives and intent of the  director or officer,  who may be the
only  person  with  firsthand   knowledge  of  essential  facts  or  exculpating
circumstances  who is qualified to testify in his defense  regarding  matters of
such a subjective  nature,  and the long period of time which may elapse  before
final  disposition of such  litigation may impose undue hardship and burden on a
director  or officer or his estate in  launching  and  maintaining  a proper and
adequate defense of himself or his estate against claims for damages; and

         WHEREAS,   the  Company  is  organized   under  the  Maryland   General
Corporation Law (the "MGCL") and Section 2-418 of the MGCL empowers corporations
to  indemnify  and  advance  expenses  of  litigation  to a person  serving as a
director,  officer, employee or agent of a corporation and to persons serving at
the  request  of the  corporation,  while  a  director  of a  corporation,  as a
director,  officer,  partner,  trustee,  employee or agent of another foreign or
domestic  corporation,  partnership,  joint venture,  trust, other enterprise or
employee  benefit  plan,  and  further  provides  that the  indemnification  and
advancement  of  expenses  set  forth  in  said  section,   subject  to  certain
limitations  are not  "exclusive  of any other  rights,  by  indemnification  or
otherwise,  to which a director may be entitled under the charter, the bylaws, a
resolution of stockholders or directors,  an agreement or otherwise,  both as to
action  in an  official  capacity  and as to action in  another  capacity  while
holding such office"; and

         WHEREAS,  the Articles of Incorporation of the Company,  as they may be
amended  or  amended  and  restated   from  time  to  time  (the   "Articles  of
Incorporation"),  provide that the Company  shall  indemnify  and hold  harmless
directors, advisors, or affiliates, as such terms are defined in the Articles of
Incorporation; and




<PAGE>



         WHEREAS,  the Board of  Directors  of the  Company  (the  "Board")  has
concluded  that it is reasonable  and prudent for the Company  contractually  to
obligate  itself to indemnify in a reasonable and adequate manner the Indemnitee
and to  assume  for  itself  maximum  liability  for  expenses  and  damages  in
connection  with claims  lodged  against him for his  decisions and actions as a
director and/or officer of the Company; and

         NOW,  THEREFORE,  in consideration of the foregoing,  and of other good
and valuable consideration, the receipt and sufficiency of which is acknowledged
by each of the parties hereto, the parties agree as follows:

                                        I
                                   DEFINITIONS

         For  purposes of this  Agreement,  the  following  terms shall have the
meanings set forth below:
         A.       "Board" shall mean the Board of Directors of the Company.

         B. "Change in Control" shall mean a change in the ownership or power to
direct the Voting  Securities of the Company or the  acquisition by a person not
affiliated  with the  Company of the  ability to direct  the  management  of the
Company.

         C. "Corporate Status" shall mean the status of a person who is or was a
director or officer of the Company,  or a member of any  committee of the Board,
and the status of a person who,  while a director or officer of the Company,  is
or was serving at the request of the  Company as a  director,  officer,  partner
(including  service as a general partner of any limited  partnership),  trustee,
employee,  or agent of another  foreign or  domestic  corporation,  partnership,
joint venture,  trust, other incorporated or unincorporated entity or enterprise
or employee benefit plan.

         D.  "Disinterested Director" shall mean a director of the  Company  who
neither is nor was a party to the Proceeding in respect of which indemnification
is being sought by the Indemnitee.

         E.  "Expenses"  shall mean without  limitation  expenses of Proceedings
including all attorneys' fees, retainers, court costs, transcript costs, fees of
experts,  investigation  fees and expenses,  accounting and witness fees, travel
expenses,  duplicating  costs,  printing and binding costs,  telephone  charges,
postage,  delivery  service fees and all other  disbursements or expenses of the
types customarily incurred in connection with prosecuting,  defending, preparing
to prosecute or defend, investigating or being or preparing to be a witness in a
Proceeding.

         F. "Good  Faith Act or  Omission"  shall mean an act or omission of the
Indemnitee  reasonably believed by the Indemnitee to be in or not opposed to the
best  interests of the Company and other than (i) one  involving  negligence  or
misconduct,  or, if the  Indemnitee is an  independent  director,  one involving
gross negligence or willful  misconduct;  (ii) one that was material to the loss
or  liability  and that was  committed  in bad  faith or that was the  result of
active


                                                        -2-

<PAGE>



or deliberate dishonesty;  (iii) one from which the Indemnitee actually received
an improper personal benefit in money, property or services; or (iv) in the case
of a criminal  Proceeding,  one as to which the  Indemnitee had cause to believe
his conduct was unlawful.

         G.  "Liabilities"  shall  mean  liabilities  of  any  type  whatsoever,
including,  without limitation, any judgments, fines, excise taxes and penalties
under the Employee Retirement Income Security Act of 1974, as amended, penalties
and amounts paid in settlement  (including all interest,  assessments  and other
charges  paid or payable  in  connection  with or in respect of such  judgments,
fines,  penalties  or  amounts  paid  in  settlement)  in  connection  with  the
investigation,  defense,  settlement  or appeal of any  Proceeding or any claim,
issue or matter therein.

         H. "Proceeding" shall mean any threatened, pending or completed action,
suit,  arbitration,  alternate  dispute  resolution  mechanism,   investigation,
administrative  hearing or any other actual,  threatened or completed proceeding
whether  civil,  criminal,   administrative  or  investigative,  or  any  appeal
therefrom.

         I. "Voting Securities" shall mean any securities of  the  Company  that
are entitled to vote generally in the election of directors.

                                       II
                            TERMINATION OF AGREEMENT

         This Agreement  shall continue  until,  and terminate upon the later to
occur of (i) the death of the Indemnitee;  or (ii) the final  termination of all
Proceedings  (including possible Proceedings) in respect of which the Indemnitee
is granted rights of indemnification or advancement of Expenses hereunder and of
any  proceeding  commenced by the  Indemnitee  regarding the  interpretation  or
enforcement of this Agreement.

                                       III
                        SERVICE BY INDEMNITEE, NOTICE OF
                         PROCEEDINGS, DEFENSE OF CLAIMS

         A. Notice of Proceedings.  The Indemnitee  agrees to notify the Company
promptly in writing  upon being  served with any  summons,  citation,  subpoena,
complaint, indictment,  information or other document relating to any Proceeding
or matter which may be subject to  indemnification  or  advancement  of Expenses
covered hereunder,  but the Indemnitee's omission to so notify the Company shall
not relieve the Company from any liability  which it may have to the  Indemnitee
under this Agreement.

         B. Defense of Claims.  The Company will be entitled to participate,  at
its own expense,  in any Proceeding of which it has notice.  The Company jointly
with any other  indemnifying  party similarly notified of any Proceeding will be
entitled  to  assume  the  defense  of  the  Indemnitee  therein,  with  counsel
reasonably satisfactory to the Indemnitee;  provided,  however, that the Company
shall not be entitled to assume the defense of the  Indemnitee in any Proceeding
if there  has been a Change  in  Control  or if the  Indemnitee  has  reasonably
concluded  that there may be a conflict of interest  between the Company and the
Indemnitee with respect to

                                                        -3-

<PAGE>



such  Proceeding.  The Company will not be liable to the  Indemnitee  under this
Agreement for any Expenses  incurred by the  Indemnitee  in connection  with the
defense of any Proceeding,  other than reasonable  costs of  investigation or as
otherwise provided below, after notice from the Company to the Indemnitee of its
election to assume the defense of the Indemnitee  therein.  The Indemnitee shall
have the right to employ his own  counsel in any such  Proceeding,  but the fees
and  expenses  of such  counsel  incurred  after  notice from the Company of its
assumption  of the defense  thereof  shall be at the  expense of the  Indemnitee
unless (i) the employment of counsel by the  Indemnitee  has been  authorized by
the Company;  (ii) the Indemnitee  shall have reasonably  concluded that counsel
employed by the Company may not  adequately  represent the  Indemnitee and shall
have so  informed  the  Company;  or (iii)  the  Company  shall not in fact have
employed  counsel to assume the defense of the Indemnitee in such  Proceeding or
such counsel shall not, in fact, have assumed such defense or such counsel shall
not be acting, in connection therewith,  with reasonable diligence;  and in each
such case the fees and expenses of the Indemnitee's counsel shall be advanced by
the Company in accordance with this Agreement.

         C. Settlement of Claims. The Company shall not settle any Proceeding in
any manner  which  would  impose any  liability,  penalty or  limitation  on the
Indemnitee  without the written  consent of the Indemnitee;  provided,  however,
that the  Indemnitee  will not  unreasonably  withhold  or delay  consent to any
proposed settlement. The Company shall not be liable to indemnify the Indemnitee
under this  Agreement or otherwise  for any amounts  paid in  settlement  of any
Proceeding  effected by the Indemnitee  without the Company's  written  consent,
which consent shall not be unreasonably withheld or delayed.

                                       IV
                                 INDEMNIFICATION

         A. In General.  Upon the terms and subject to the  conditions set forth
in this Agreement,  the Company shall hold harmless and indemnify the Indemnitee
against any and all  Liabilities  actually  incurred by or for him in connection
with any Proceeding  (whether the Indemnitee is or becomes a party, a witness or
otherwise  is a  participant  in any role) to the  fullest  extent  required  or
permitted by the Articles of  Incorporation  and by applicable  law in effect on
the date hereof and to such greater  extent as applicable law may hereafter from
time to time  permit.  For all matters for which the  Indemnitee  is entitled to
indemnification  under this  Article  IV, the  Indemnitee  shall be  entitled to
advancement of Expenses in accordance with Article V hereof.

         B.  Proceeding  Other  Than  a  Proceeding  by or in the  Right  of the
Company. If the Indemnitee was or is a party or is threatened to be made a party
to any  Proceeding  (whether the  Indemnitee is or becomes a party, a witness or
otherwise is a  participant  in any role) (other than a Proceeding  by or in the
right of the Company) by reason of his Corporate Status, or by reason of alleged
action or inaction by him in any such capacity,  the Company  shall,  subject to
the  limitations set forth in Section IV.F.  below,  hold harmless and indemnify
him  against  any and all  Expenses  and  Liabilities  actually  and  reasonably
incurred by or for the  Indemnitee  in  connection  with the  Proceeding  if the
act(s) or  omission(s)  of the  Indemnitee  giving rise  thereto were Good Faith
Act(s) or Omission(s).



                                                        -4-

<PAGE>



         C. Proceedings by or in the Right of the Company. If the Indemnitee was
or is a party or is threatened to be made a party to any Proceeding (whether the
Indemnitee is or becomes a party, a witness or otherwise is a participant in any
role) by or in the right of the  Company to  procure a judgment  in its favor by
reason of his Corporate Status, or by reason of any action or inaction by him in
any such capacity,  the Company shall,  subject to the  limitations set forth in
Section  IV.F.  below,  hold  harmless  and  indemnify  him  against any and all
Expenses actually  incurred by or for him in connection with the  investigation,
defense, settlement or appeal of such Proceeding if the act(s) or omission(s) of
the  Indemnitee  giving  rise  to the  Proceeding  were  Good  Faith  Act(s)  or
Omission(s);  except that no  indemnification  under this Section IV.C. shall be
made in respect of any claim,  issue or matter as to which the Indemnitee  shall
have  been  finally  adjudged  to be liable  to the  Company,  unless a court of
appropriate jurisdiction (including, but not limited to, the court in which such
Proceeding  was brought)  shall  determine upon  application  that,  despite the
adjudication  of  liability  but in view of all the  circumstances  of the case,
regardless of whether the Indemnitee's  act(s) or omission(s) were found to be a
Good Faith  Act(s) or  Omission(s),  the  Indemnitee  is fairly  and  reasonably
entitled  to  indemnification  for such  Expenses  which such  court  shall deem
proper.

         D.  Indemnification  of a Party Who is  Wholly  or  Partly  Successful.
Notwithstanding  any other provision of this  Agreement,  to the extent that the
Indemnitee is, by reason of the Indemnitee's Corporate Status, a party to and is
successful, on the merits or otherwise, in any Proceeding,  the Indemnitee shall
be indemnified by the Company to the maximum extent  consistent  with applicable
law,  against all Expenses and  Liabilities  actually  incurred by or for him in
connection  therewith.  If the  Indemnitee  is not  wholly  successful  in  such
Proceeding but is successful,  on the merits or otherwise, as to one or more but
less than all claims,  issues or matters in such  Proceeding,  the Company shall
hold harmless and indemnify the Indemnitee to the maximum extent consistent with
applicable  law,  against all Expenses and  Liabilities  actually and reasonably
incurred by or for him in  connection  with each  successfully  resolved  claim,
issue or matter in such  Proceeding.  Resolution of a claim,  issue or matter by
dismissal, with or without prejudice, except as provided in subsection F hereof,
shall be deemed a successful  result as to such claim,  issue or matter, so long
as there has been no  finding  (either  adjudicated  or  pursuant  to Article VI
hereof) that the act(s) or  omission(s)  of the  Indemnitee  giving rise thereto
were not a Good Faith Act(s) or Omission(s).

         E.  Indemnification for Expenses of Witness.  Notwithstanding any other
provision of this Agreement, to the extent that the Indemnitee, by reason of the
Indemnitee's  Corporate Status, has prepared to serve or has served as a witness
in any Proceeding,  or has participated in discovery  proceedings or other trial
preparation,  the Indemnitee shall be held harmless and indemnified  against all
Expenses actually and reasonably incurred by or for him in connection therewith.

         F. Specific  Limitations on  Indemnification.  In addition to the other
limitations set forth in this Article IV, and  notwithstanding  anything in this
Agreement  to the  contrary,  the  Company  shall not be  obligated  under  this
Agreement to make any payment to the Indemnitee for indemnification with respect
to any Proceeding:



                                                        -5-

<PAGE>



                  1.  To  the  extent  that  payment  is  actually  made  to the
         Indemnitee  under  any  insurance  policy  or is made on  behalf of the
         Indemnitee  by or on behalf of the Company  otherwise  than pursuant to
         this Agreement.

                  2. If a court in such  Proceeding  has  entered a judgment  or
         other  adjudication  which is final and has  become  nonappealable  and
         establishes  that a claim of the  Indemnitee  for such  indemnification
         arose from: (i) a breach by the Indemnitee of the Indemnitee's  duty of
         loyalty to the Company or its  shareholders;  (ii) acts or omissions of
         the  Indemnitee  that are not Good Faith Acts or Omissions or which are
         the result of active and deliberate dishonesty; (iii) acts or omissions
         of the Indemnitee  which the Indemnitee had reasonable cause to believe
         were unlawful;  or (iv) a transaction in which the Indemnitee  actually
         received an improper personal benefit in money, property or services.

                  3. If there has been no Change in Control,  for Liabilities in
         connection with Proceedings  settled without the consent of the Company
         which consent, however, shall not be unreasonably withheld.

                  4. For any loss or liability arising from an alleged violation
         of federal or state securities laws unless one or more of the following
         conditions are met: (i) there has been a successful adjudication on the
         merits of each count involving alleged  securities law violations as to
         the Indemnitee,  (ii) such claims have been dismissed with prejudice on
         the merits by a court of competent  jurisdiction  as to the Indemnitee;
         or (iii) a court of competent jurisdiction approves a settlement of the
         claims  against the Indemnitee  and finds that  indemnification  of the
         settlement  and the  related  costs  should  be  made,  and  the  court
         considering  the request for  indemnification  has been  advised of the
         position of the Securities and Exchange Commission and of the published
         position  of  any  state  securities   regulatory  authority  in  which
         securities  of the Company were  offered or sold as to  indemnification
         for violations of securities laws.

                                        V
                             ADVANCEMENT OF EXPENSES

         Notwithstanding any provision to the contrary in Article VI hereof, the
Company shall advance to the  Indemnitee  all Expenses  which,  by reason of the
Indemnitee's  Corporate  Status,  were incurred by or for him in connection with
any Proceeding for which the Indemnitee is entitled to indemnification  pursuant
to Article IV hereof,  in advance of the final  disposition of such  Proceeding,
provided that all of the following are satisfied:  (i) the Indemnitee was made a
party to the proceeding by reason of his service as a director or officer of the
Company,  (ii) the Indemnitee  provides the Company with written  affirmation of
his good faith  belief  that he has met the  standard of conduct  necessary  for
indemnification  by the  Company  pursuant  to  Article  IV  hereof,  (iii)  the
Indemnitee  provides the Company with a written agreement (the "Undertaking") to
repay the amount paid or reimbursed by the Company, together with the applicable
legal  rate  of  interest  thereon,  if it is  ultimately  determined  that  the
Indemnitee did not comply with the requisite  standard of conduct,  and (iv) the
legal  proceeding was initiated by a third party who is not a stockholder of the
Company or, if by a stockholder  of the Company acting in his or her capacity as
such,  a  court  of  competent  jurisdiction  approves  such  advancement.   The
Indemnitee shall be required to execute and submit the Undertaking to repay

                                                        -6-

<PAGE>



Expenses  advanced  in the form of Exhibit A attached  hereto or in such form as
may be  required  under  applicable  law as in effect  at the time of  execution
thereof.  The Undertaking shall reasonably  evidence the Expenses incurred by or
for the Indemnitee and shall contain the written  affirmation by the Indemnitee,
described above, of his good faith belief that the standard of conduct necessary
for indemnification has been met. The Company shall advance such expenses within
five (5) business days after the receipt by the Company of the Undertaking.  The
Indemnitee  hereby agrees to repay any Expenses  advanced  hereunder if it shall
ultimately be determined  that the  Indemnitee is not entitled to be indemnified
against such  Expenses.  Any advances and the  undertaking  to repay pursuant to
this Article V shall be unsecured.

                                       VI
                      PROCEDURE FOR PAYMENT OF LIABILITIES;
                    DETERMINATION OF RIGHT TO INDEMNIFICATION

         A. Procedure for Payment.  To obtain  indemnification  for  Liabilities
under this  Agreement,  the  Indemnitee  shall  submit to the  Company a written
request for  payment,  including  with such  request  such  documentation  as is
reasonably  available to the Indemnitee  and  reasonably  necessary to determine
whether,  and to what extent, the Indemnitee is entitled to indemnification  and
payment hereunder.  The Secretary of the Company,  or such other person as shall
be designated by the Board of Directors,  promptly upon receipt of a request for
indemnification  shall  advise  the  Board of  Directors,  in  writing,  of such
request. Any indemnification  payment due hereunder shall be paid by the Company
no later than five (5) business days  following the  determination,  pursuant to
this Article VI, that such indemnification payment is proper hereunder.

         B. No  Determination  Necessary when the Indemnitee was Successful.  To
the extent the Indemnitee has been  successful,  on the merits or otherwise,  in
defense of any Proceeding referred to in Sections IV.B. or IV.C. above or in the
defense of any claim,  issue or matter  described  therein,  the  Company  shall
indemnify the Indemnitee against Expenses actually and reasonably incurred by or
for  him in  connection  with  the  investigation,  defense  or  appeal  of such
Proceeding.

         C.  Determination  of Good  Faith Act or  Omission.  In the event  that
Section  VI.B.  is  inapplicable,  the  Company  also  shall hold  harmless  and
indemnify the Indemnitee  unless the Company shall prove by clear and convincing
evidence to a forum listed in Section VI.D. below that the act(s) or omission(s)
of the Indemnitee  giving rise to the  Proceeding  were not Good Faith Act(s) or
Omission(s).

         D. Forum for Determination.  The Indemnitee shall be entitled to select
from among the  following  the forums,  in which the  validity of the  Company's
claim  under  Section  VI.C.,  above,  that the  Indemnitee  is not  entitled to
indemnification will be heard:

                  1.       A quorum of the  Board  consisting  of  Disinterested
          Directors;

                  2.       The shareholders of the Company;



                                                        -7-

<PAGE>



                  3. Legal counsel  selected by the  Indemnitee,  subject to the
         approval of the Board, which approval shall not be unreasonably delayed
         or denied,  which  counsel shall make such  determination  in a written
         opinion; or

                  4. A panel of three  arbitrators,  one of whom is  selected by
         the Company, another of whom is selected by the Indemnitee and the last
         of whom is selected jointly by the first two arbitrators so selected.

As soon as  practicable,  and in no event  later  than  thirty  (30) days  after
written  notice of the  Indemnitee's  choice of forum  pursuant to this  Section
VI.D.,  the Company shall,  at its own expense,  submit to the selected forum in
such  manner  as the  Indemnitee  or the  Indemnitee's  counsel  may  reasonably
request,  its claim that the Indemnitee is not entitled to indemnification,  and
the  Company  shall act in the  utmost  good faith to assure  the  Indemnitee  a
complete  opportunity to defend against such claim. The fees and expenses of the
selected  forum  in  connection  with  making  the  determination   contemplated
hereunder shall be paid by the Company.  If the Company shall fail to submit the
matter to the  selected  forum  within  thirty (30) days after the  Indemnitee's
written notice or if the forum so empowered to make the determination shall have
failed to make the  requested  determination  within  thirty (30) days after the
matter has been submitted to it by the Company, the requisite determination that
the  Indemnitee  has the right to  indemnification  shall be deemed to have been
made.

         E. Right to Appeal. Notwithstanding a determination by any forum listed
in Section VI.D.  above that the  Indemnitee is not entitled to  indemnification
with respect to a specific  Proceeding,  the Indemnitee  shall have the right to
apply to the court in which that  Proceeding is or was pending,  or to any other
court of competent  jurisdiction,  for the purpose of enforcing the Indemnitee's
right to  indemnification  pursuant to this Agreement.  Such enforcement  action
shall consider the Indemnitee's  entitlement to indemnification de novo, and the
Indemnitee shall not be prejudiced by reason of a prior  determination  that the
Indemnitee  is not entitled to  indemnification.  The Company shall be precluded
from asserting that the  procedures and  presumptions  of this Agreement are not
valid,  binding and enforceable.  The Company further agrees to stipulate in any
such judicial proceeding that the Company is bound by all the provisions of this
Agreement and is precluded from making any assertion to the contrary.

         F.  Right to Seek  Judicial  Determination.  Notwithstanding  any other
provision of this  Agreement to the contrary,  at any time after sixty (60) days
after a  request  for  indemnification  has been  made to the  Company  (or upon
earlier  receipt of written notice that a request for  indemnification  has been
rejected)  and  before  the  third  (3rd)  anniversary  of the  making  of  such
indemnification  request,  the  Indemnitee  may  petition  a court of  competent
jurisdiction, whether or not the court has jurisdiction over, or is the forum in
which is  pending,  the  Proceeding,  to  determine  whether the  Indemnitee  is
entitled to indemnification  hereunder,  and such court thereupon shall have the
exclusive  authority  to make such  determination,  unless  and until such court
dismisses or otherwise  terminates the  Indemnitee's  action without having made
such  determination.  The  court,  as  petitioned,  shall  make  an  independent
determination   of  whether  the  Indemnitee  is  entitled  to   indemnification
hereunder,  without  regard to any  prior  determination  in any other  forum as
provided hereby.



                                                        -8-

<PAGE>



         G. Expenses under this Agreement.  Notwithstanding  any other provision
in this  Agreement to the contrary,  the Company shall  indemnify the Indemnitee
against all Expenses  incurred by the Indemnitee in connection  with any hearing
or  proceeding  under this Section VI involving the  Indemnitee  and against all
Expenses  incurred by the Indemnitee in connection with any other action between
the Company and the Indemnitee  involving the  interpretation  or enforcement of
the  rights  of the  Indemnitee  under  this  Agreement,  even if it is  finally
determined that the Indemnitee is not entitled to indemnification in whole or in
part hereunder.

                                       VII
                             PRESUMPTIONS AND EFFECT
                             OF CERTAIN PROCEEDINGS

         A.  Burden  of  Proof.  In  making  a  determination  with  respect  to
entitlement  to  indemnification  hereunder,  the  person,  persons,  entity  or
entities making such determination shall presume that the Indemnitee is entitled
to indemnification under this Agreement and the Company shall have the burden of
proof to overcome that presumption.

         B. Effect of Other Proceedings. The termination of any Proceeding or of
any claim, issue or matter therein,  by judgment,  order or settlement shall not
create  a  presumption  that  the  act(s)  or  omission(s)  giving  rise  to the
Proceeding  were not Good Faith Act(s) or  Omission(s).  The  termination of any
Proceeding by conviction,  or upon a plea of nolo contendere, or its equivalent,
or an  entry  of an  order  of  probation  prior  to  judgment,  shall  create a
rebuttable  presumption that the act(s) or omission(s) of the Indemnitee  giving
rise to the Proceeding were not Good Faith Act(s) or Omission(s).

         C.  Reliance  as Safe  Harbor.  For  purposes of any  determination  of
whether any act or omission of the  Indemnitee was a Good Faith Act or Omission,
each act of the Indemnitee shall be deemed to be a Good Faith Act or Omission if
the  Indemnitee's  action is based on the  records or books of  accounts  of the
Company,  including  financial  statements,  or on  information  supplied to the
Indemnitee by the officers of the Company in the course of their  duties,  or on
the advice of legal counsel for the Company or on  information  or records given
or reports made to the Company by an independent  certified public accountant or
by an appraiser or other expert  selected with  reasonable  care by the Company.
The provisions of this Section VII.C.  shall not be deemed to be exclusive or to
limit in any way the other  circumstances  in which the Indemnitee may be deemed
to have met the  applicable  standard of conduct set forth in this  Agreement or
under applicable law.

         D. Actions of Others. The knowledge and/or actions,  or failure to act,
of any director,  officer, agent or employee of the Company shall not be imputed
to the Indemnitee for purposes of determining the right to indemnification under
this Agreement.



                                                        -9-

<PAGE>



                                      VIII
                                    INSURANCE

         In the event that the Company  maintains  officers'  and  directors' or
similar liability insurance to protect itself and any director or officer of the
Company  against any expense,  liability or loss, such insurance shall cover the
Indemnitee to at least the same degree as each other director  and/or officer of
the Company.

                                       IX
                           OBLIGATIONS OF THE COMPANY
                            UPON A CHANGE IN CONTROL

         In the  event of a Change  in  Control,  upon  written  request  of the
Indemnitee the Company shall establish a trust for the benefit of the Indemnitee
hereunder  (a "Trust")  and from time to time,  upon  written  request  from the
Indemnitee,  shall fund the Trust in an amount sufficient to satisfy all amounts
actually  paid  hereunder  as   indemnification   for  Liabilities  or  Expenses
(including those paid in advance) or which the Indemnitee  reasonably determines
and  demonstrates,  from time to time, may be payable by the Company  hereunder.
The amount or amounts to be deposited in the Trust shall be  determined by legal
counsel  selected by the Indemnitee and approved by the Company,  which approval
shall not be  unreasonably  withheld.  The terms of the Trust shall provide that
(i) the Trust shall not be dissolved or the principal  thereof  invaded  without
the  written  consent  of the  Indemnitee;  (ii) the  trustee  of the Trust (the
"Trustee")  shall be selected by the  Indemnitee;  (iii) the Trustee  shall make
advances to the Indemnitee for Expenses  within ten (10) business days following
receipt of a written  request  therefor  (and the  Indemnitee  hereby  agrees to
reimburse the Trust under the circumstances  under which the Indemnitee would be
required to reimburse the Company under Article V hereof; (iv) the Company shall
continue  to fund the Trust  from time to time in  accordance  with its  funding
obligations hereunder;  (v) the Trustee promptly shall pay to the Indemnitee all
amounts as to which indemnification is due under this Agreement; (vi) unless the
Indemnitee  agrees  otherwise in writing,  the Trust for the Indemnitee shall be
kept  separate  from any other trust  established  for any other  person to whom
indemnification  might be due by the Company;  and (vii) all unexpended funds in
the Trust shall revert to the Company upon final, nonappealable determination by
a court of competent  jurisdiction  that the Indemnitee has been  indemnified to
the full extent required under this Agreement.

                                        X
                                NON-EXCLUSIVITY,
                          SUBROGATION AND MISCELLANEOUS

         A. Non-Exclusivity. The rights of the Indemnitee hereunder shall not be
deemed  exclusive of any other rights to which the Indemnitee may at any time be
entitled under any provision of law, the Articles of  Incorporation,  the Bylaws
of the Company, as the same may be in effect from time to time, any agreement, a
vote of  shareholders of the Company or a resolution of directors of the Company
or  otherwise,  and to the extent  that  during the term of this  Agreement  the
rights of the  then-existing  directors  and  officers  of the  Company are more
favorable to such  directors or officers than the rights  currently  provided to
the Indemnitee  under this  Agreement,  the Indemnitee  shall be entitled to the
full benefits of such more favorable rights.

                                                       -10-

<PAGE>



No amendment,  alteration,  rescission or  replacement  of this Agreement or any
provision  hereof  which  would in any way limit the  benefits  and  protections
afforded to an Indemnitee  hereby shall be effective as to such  Indemnitee with
respect  to any  action  or  inaction  by such  Indemnitee  in the  Indemnitee's
Corporate Status prior to such amendment, alteration, rescission or replacement.

         B. Subrogation.  In the event of any payment under this Agreement,  the
Company  shall be  subrogated to the extent of such payment to all of the rights
of recovery of the Indemnitee, who shall execute all documents required and take
all  action  necessary  to  secure  such  rights,  including  execution  of such
documents  as are  necessary to enable the Company to bring suit to enforce such
rights.

         C. Notices.  All notices,  requests,  demands and other  communications
hereunder shall be in writing and shall be deemed to have been duly given (i) if
delivered by hand,  by courier or by telegram and  receipted for by the party to
whom said  notice or other  communication  shall have been  directed at the time
indicated  on such  receipt;  (ii) if by  facsimile  at the  time  shown  on the
confirmation of such facsimile  transmission;  or (iii) if by U.S.  certified or
registered mail, with postage prepaid,  on the third business day after the date
on which it is so mailed:

         If to the Indemnitee, as shown with the Indemnitee's signature below.

         If to the Company to:

                  CNL Health Care Properties, Inc.
                  400 East South Street
                  Orlando, FL  32801
                  Attention:  President
                  Facsimile No. (407)423-2894

or to such other  address as may have been  furnished to the  Indemnitee  by the
Company or to the Company by the Indemnitee, as the case may be.

         D.  Governing  Law.  The  parties  agree that this  Agreement  shall be
governed by, and construed and enforced in accordance with, the substantive laws
of the State of Maryland, without application of the conflict of laws principles
thereof.

         E. Binding Effect. Except as otherwise provided in this Agreement, this
Agreement  shall be binding upon and inure to the benefit of the parties  hereto
and their heirs, executors,  administrators,  successors,  legal representatives
and  permitted  assigns.  The Company  shall  require any  successor or assignee
(whether direct or indirect, by purchase, merger, consolidation or otherwise) to
all or  substantially  all of its  respective  assets or  business,  by  written
agreement  in form and  substance  reasonably  satisfactory  to the  Indemnitee,
expressly  to assume and agree to be bound by and to perform  this  Agreement in
the same  manner and to the same  extent as the  Company  would be  required  to
perform absent such succession or assignment.

         F.  Waiver.  No  termination,  cancellation,  modification,  amendment,
deletion,  addition or other change in this Agreement,  or any provision hereof,
or waiver of any right or remedy  herein,  shall be  effective  for any  purpose
unless specifically set forth in a writing signed by the

                                                       -11-

<PAGE>



party or parties  to be bound  thereby.  The waiver of any right or remedy  with
respect to any  occurrence on one occasion  shall not be deemed a waiver of such
right or remedy with respect to such occurrence on any other occasion.

         G. Entire Agreement.  This Agreement,  constitutes the entire agreement
and  understanding  among the parties  hereto in reference to the subject matter
hereof;  provided,  however,  that the  parties  acknowledge  and agree that the
Amended and Restated Articles of Incorporation of the Company contain provisions
on the subject  matter  hereof and that this  Agreement  is not intended to, and
does not, limit the rights or obligations of the parties hereto pursuant to such
instruments.

         H. Titles.  The titles to the articles and sections  of  this Agreement
are inserted for convenience of reference only and should not be deemed  a  part
hereof or affect the construction or interpretation of any provisions hereof.

         I. Invalidity of Provisions.  Every  provision  of  this  Agreement  is
severable, and the invalidity or unenforceability of any term or provision shall
not effect the validity or enforceability of the remainder of this Agreement.

         J. Pronouns and Plurals.  Whenever the context may require, any pronoun
used in this Agreement shall include the  corresponding  masculine,  feminine or
neuter forms,  and the singular form of nouns,  pronouns and verbs shall include
the plural and vice versa.

         K.  Counterparts.   This  Agreement  may  be  executed  in  two or more
counterparts, each of which shall  be  deemed  an  original,  but  all  of which
together constitute one agreement binding on all the parties hereto.

         IN WITNESS WHEREOF,  the parties hereto have executed this Agreement as
of the day and year first above written.

                                       CNL HEALTH CARE PROPERTIES, INC.

                                       By:    __________________________________
                                       Name:  __________________________________
                                       Title: __________________________________


                                       ________________________, as INDEMNITEE

                                       Name:    ________________________________
                                       Title:   ________________________________
                                       Address: ________________________________
                                       Facsimile No.: __________________________



                                                       -12-

<PAGE>


                                    EXHIBIT A

                 FORM OF UNDERTAKING TO REPAY EXPENSES ADVANCED


The Board of Directors of CNL Health Care
Properties, Inc.

         Re:      Undertaking to Repay Expenses Advanced

Ladies and Gentlemen:

         This   undertaking   is  being   provided   pursuant  to  that  certain
Indemnification  Agreement  dated the ____ day of September,  1998, by and among
CNL  Health  Care   Properties,   Inc.  and  the  undersigned   Indemnitee  (the
"Indemnification Agreement"),  pursuant to which I am entitled to advancement of
expenses in connection  with  [Description  of Proceeding]  (the  "Proceeding").
Terms used herein and not otherwise defined shall have the meanings specified in
the Indemnification Agreement.

         I am subject to the  Proceeding by reason of my Corporate  Status or by
reason of alleged actions or omissions by me in such capacity. During the period
of time to which the  Proceeding  relates I was  _____________________  [name of
office(s) held] of CNL Health Care  Properties,  Inc.  Pursuant to Section IV of
the  Indemnification  Agreement,  the Company is  obligated  to reimburse me for
Expenses  that are actually and  reasonably  incurred by or for me in connection
with the  Proceeding,  provided  that I execute  and  submit to the  Company  an
Undertaking  in which I (i)  undertake to repay any Expenses paid by the Company
on my behalf, together with the applicable legal rate of interest thereon, if it
shall be ultimately  determined that I am not entitled to be indemnified thereby
against  such  Expenses;  (ii)  affirm my good faith  belief that I have met the
standard of conduct necessary for indemnification; and (iii) reasonably evidence
the Expenses incurred by or for me.

[Description of expenses incurred by or for Indemnitee]

         This letter shall constitute my undertaking to repay to the Company any
Expenses  paid by it on my behalf,  together with the  applicable  legal rate of
interest  thereon,  in  connection  with  the  Proceeding  if it  is  ultimately
determined  that I am not  entitled  to be  indemnified  with  respect  to  such
Expenses as set forth  above.  I hereby  affirm my good faith belief that I have
met the standard of conduct necessary for indemnification and that I am entitled
to such indemnification.


                                       ----------------------------------
                                       Signature
                                    

                                       ----------------------------------
                                       Print Name


                                       ----------------------------------
                                       Date
    

<PAGE>





                                  EXHIBIT 23.1

                     Consent of PricewaterhouseCoopers LLP,

                          Certified Public Accountants,

   
                             dated September 9, 1998
    


<PAGE>










                    CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS


We consent to the inclusion in this  registration  statement on Form S-11 of our
report dated  January 20, 1998 on our audit of the  financial  statements of CNL
Health Care Properties,  Inc. We also consent to the reference to our Firm under
the caption "Experts".


/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

   
Orlando, Florida
September 9, 1998
    


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<TABLE> <S> <C>


<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNl Health Care Properties, Inc. at June 30, 1998, and its statement of
stockholder's equity for the six months then ended and is qualified in its
entirety by reference to such financial statements.
</LEGEND>
       
<S>                             <C>
<PERIOD-TYPE>                   6-MOS
<FISCAL-YEAR-END>                          DEC-31-1998
<PERIOD-START>                             JAN-01-1998
<PERIOD-END>                               JUN-30-1998
<CASH>                                              77
<SECURITIES>                                         0
<RECEIVABLES>                                        0
<ALLOWANCES>                                         0
<INVENTORY>                                          0
<CURRENT-ASSETS>                                     0<F1>
<PP&E>                                               0
<DEPRECIATION>                                       0
<TOTAL-ASSETS>                                       0
<CURRENT-LIABILITIES>                                0<F1>
<BONDS>                                              0
                                0
                                          0
<COMMON>                                           200
<OTHER-SE>                                      199800
<TOTAL-LIABILITY-AND-EQUITY>                    468816
<SALES>                                              0
<TOTAL-REVENUES>                                     0
<CGS>                                                0
<TOTAL-COSTS>                                        0
<OTHER-EXPENSES>                                     0
<LOSS-PROVISION>                                     0
<INTEREST-EXPENSE>                                   0
<INCOME-PRETAX>                                      0
<INCOME-TAX>                                         0
<INCOME-CONTINUING>                                  0
<DISCONTINUED>                                       0
<EXTRAORDINARY>                                      0
<CHANGES>                                            0
<NET-INCOME>                                         0
<EPS-PRIMARY>                                        0
<EPS-DILUTED>                                        0
<FN>
<F1>Due to the nature of its industry, CNL Health Care Properties, Inc. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
        





</TABLE>


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