UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1997
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-16824
CNL INCOME FUND II, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2733859
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund II, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 13, 1986. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on January 2, 1987, the
Partnership offered for sale up to $25,000,000 in limited partnership interests
(the "Units") (50,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on August 21, 1987, as of which date the maximum offering
proceeds of $25,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totalled
$22,300,178, and were used to acquire, either directly or indirectly through
joint venture arrangements, 39 Properties. During the year ended December 31,
1993, the Partnership sold its Property in Salisbury, North Carolina, and
reinvested the majority of the net sales proceeds in a Jack in the Box Property
in Lubbock, Texas. The remaining net sales proceeds were used to distribute to
limited partners amounts sufficient to pay state and federal income taxes, to
pay Partnership expenses and to meet other working capital needs of the
Partnership. During the year ended December 31, 1994, the Partnership sold two
of its Properties in Graham, Texas, and Medina, Ohio, and reinvested the net
sales proceeds in two Checkers Properties, consisting of only land, located in
Fayetteville and Atlanta, Georgia, and a Kenny Rogers Roasters Property in
Arvada, Colorado, which is owned as tenants-in-common with an affiliate of the
General Partners. During the year ended December 31, 1997, the Partnership sold
its Properties in Eagan, Minnesota; Jacksonville, Florida; Farmington Hills
(10-mile Road), Michigan; Farmington Hills (12-mile Road), Michigan; Plant City,
Florida; Mathis, Texas and Avon Park, Florida and reinvested a portion of these
net sales proceeds in a Property in Mesa, Arizona, a Property in Smithfield,
North Carolina and a Property in Vancouver, Washington, all of which are owned
as tenants-in-common with affiliates of the General Partners. In addition,
during 1997, Show Low Joint Venture, in which the Partnership owns a 64 percent
interest, sold its Property in Show Low, Arizona to the tenant and reinvested
the net sales proceeds in a Property in Greensboro, North Carolina. As a result
of the above transactions, as of December 31, 1997, the Partnership owned 36
Properties, including interests in three Properties owned by joint ventures in
which the Partnership is a co-venturer and four Properties owned with affiliates
as tenants-in-common. The lessee of the two Properties consisting of only land
owns the buildings currently on the land and has the right, if not in default
under the lease, to remove the buildings from the land at the end of the lease
terms. In January 1998, the Partnership reinvested the net sales proceeds from
the 1997 sales of the Properties in Jacksonville, Florida and Mathis, Texas in a
Property in Overland Park, Kansas, and a Property in Memphis, Tennessee, as
tenants-in-common with affiliates of the General Partners. The Properties are
leased on a triple-net basis with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of the
remaining Properties commencing seven to 15 years after their acquisition. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
1
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Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from four to 20 years (the average being 16 years), and
expire between 1999 and 2016. The leases are on a triple-net basis, with the
lessee generally responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $8,100 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
Generally, the leases of the Properties provide for two to four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original cost of the Property, after a specified portion of the
lease term has elapsed. Additionally, certain leases provide the lessee an
option to purchase up to a 49 percent joint venture interest in the Property,
after a specified portion of the lease term has elapsed, at an option purchase
price similar to those described above multiplied by the percentage interest in
the Property with respect to which the option is being exercised. A limited
number of leases provide for a purchase option price which is computed pursuant
to a formula based on various measures of value contained in an independent
appraisal of the Property.
The leases also generally provide that, in the event the Partnership
wishes to sell the Property subject to a particular lease, the Partnership must
first offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
During the year ended December 31, 1997, the Partnership reinvested net
sales proceeds from the sales of its Properties in Eagan, Minnesota, Farmington
Hills (10-mile Road), Michigan and Plant City, Florida in a Property in Mesa,
Arizona, a Property in Smithfield, North Carolina and a Property in Vancouver,
Washington, all of which are owned as tenants-in-common with affiliates of the
General Partners. The lease terms for these Properties are substantially the
same as the Partnership's other leases as described above in the first three
paragraphs of this section.
In January 1998, the Partnership reinvested the net sales proceeds from
the 1997 sales of the Properties in Jacksonville, Florida and Mathis, Texas in a
Property in Overland Park, Kansas, and a Property in Memphis, Tennessee, as
tenants-in-common with affiliates of the General Partners. The lease terms for
these Properties are substantially the same as the Partnership's other leases as
described above in the first three paragraphs of this section.
Major Tenants
During 1997, two lessees of the Partnership, Golden Corral Corporation
and Restaurant Management Services, Inc., each contributed more than ten percent
of the Partnership's total rental income (including the Partnership's share of
the rental income from three Properties owned by joint ventures and four
Properties owned with affiliates as tenants-in-common). As of December 31, 1997,
Golden Corral Corporation was the lessee under leases relating to six
restaurants and Restaurant Management Services, Inc. was the lessee under leases
relating to four restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, Golden Corral Corporation will continue
to contribute more than ten percent of the Partnership's total rental income in
1998 and subsequent years. In addition, four Restaurant Chains, Golden Corral
Family Steakhouse Restaurants ("Golden Corral"), KFC, Popeyes Famous Fried
Chicken Restaurants ("Popeyes") and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than ten percent of the Partnership's total
rental income in 1997 (including the Partnership's share of the rental income
from three Properties owned by joint ventures and four Properties owned with
affiliates as tenants-in-common). In subsequent years, it is anticipated that
these four Restaurant Chains each will continue to account for more than ten
percent of the total rental income to which the Partnership is entitled under
the terms of its leases. Any failure of these lessees or Restaurant Chains could
materially affect the Partnership's income. As of December 31, 1997, no single
tenant or group of affiliated tenants
2
<PAGE>
leased Properties with an aggregate carrying value, excluding acquisition fees
and certain acquisition expenses, in excess of 20 percent of the total assets of
the Partnership.
Joint Venture Arrangements
The Partnership has entered into three separate joint venture
arrangements, Kirkman Road Joint Venture, Holland Joint Venture and Show Low
Joint Venture, to purchase and hold three Properties through such joint
ventures. Each joint venture arrangement provides for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in proportion to each partner's percentage interest in the joint
venture. The Partnership and its joint venture partners are also jointly and
severally liable for all debts, obligations and other liabilities of the joint
venture.
Each joint venture has an initial term of approximately 20 years
(generally the same term as the initial term of the lease for the Property in
which the joint venture invested), and after the expiration of the initial term,
continues in existence from year to year unless terminated at the option of any
joint venture partner or by an event of dissolution. Events of dissolution
include the bankruptcy, insolvency or termination of any joint venturer, sale of
the Property owned by the joint venture and mutual agreement of the Partnership
and its joint venture partner or partners to dissolve the joint venture.
The Partnership has management control of Kirkman Road Joint Venture
and shares management control equally with affiliates of the General Partners
for Holland Joint Venture and Show Low Joint Venture. The joint venture
agreements restrict each venturer's ability to sell, transfer or assign its
joint venture interest without first offering it for sale to its joint venture
partner or partners, either upon such terms and conditions as to which the
venturers may agree or, in the event the venturers cannot agree, on the same
terms and conditions as any offer from a third party to purchase such joint
venture interest.
Net cash flow from operations of Kirkman Road Joint Venture, Holland
Joint Venture and Show Low Joint Venture is distributed 50 percent, 49 percent
and 64 percent, respectively, to the Partnership and the balance is distributed
to each other joint venture partner in accordance with its percentage interest
in the joint venture. Any liquidation proceeds, after paying joint venture debts
and liabilities and funding reserves for contingent liabilities, will be
distributed first to the joint venture partners with positive capital account
balances in proportion to such balances until such balances equal zero, and
thereafter in proportion to each joint venture partner's percentage interest in
the joint venture.
In addition to the above joint venture agreements, in September 1994,
the Partnership entered into an agreement to hold a Property as
tenants-in-common with an affiliate of the General Partners. The agreement
provides for the Partnership and the affiliate to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
The Partnership owns a 33.87% interest in this Property.
In addition, during the year ended December 31, 1997, the Partnership
entered into three separate agreements to hold a Property in Mesa, Arizona, a
Property in Smithfield, North Carolina and a Property in Vancouver, Washington,
as tenants-in-common with affiliates of the General Partners. The agreements
provide for the Partnership and the affiliates to share in the profits and
losses of the Properties in proportion to each co-venturer's percentage
interest. The Partnership owns a 57.77%, 47% and 37.01% interest, in these
Properties in Mesa, Arizona; Smithfield, North Carolina and Vancouver,
Washington, respectively.
In addition, in January 1998, the Partnership entered into two
agreements to hold an IHOP Property in Overland Park, Kansas and an IHOP
Property in Memphis, Tennessee, as tenants-in-common, with affiliates of the
General Partners. The agreements provide for the Partnership and the affiliates
to share in the profits and losses of the Property and net cash flow from the
Property, in proportion to each co-venturer's percentage interest. The
Partnership owns a 39.42% and a 13.38% interest in the Properties in Overland
Park, Kansas and Memphis, Tennessee, respectively.
3
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Property Management
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
acted as manager of the Partnership's Properties pursuant to a property
management agreement with the Partnership through September 30, 1995. Under this
agreement, CNL Income Fund Advisors, Inc. was responsible for collecting rental
payments, inspecting the Properties and the tenants' books and records,
assisting the Partnership in responding to tenant inquiries and notices and
providing information to the Partnership about the status of the leases and the
Properties. CNL Income Fund Advisors, Inc. also assisted the General Partners in
negotiating the leases. For these services, the Partnership had agreed to pay
CNL Income Fund Advisors, Inc. an annual fee of one-half of one percent of
Partnership assets (valued at cost) under management, not to exceed the lesser
of one percent of gross rental revenues or competitive fees for comparable
services. Under the property management agreement, the property management fee
is subordinated to receipt by the Limited Partners of an aggregate, ten percent,
noncumulative, noncompounded annual return on their adjusted capital
contributions (the "10% Preferred Return"), calculated in accordance with the
Partnership's limited partnership agreement (the "Partnership Agreement"). In
any year in which the Limited Partners have not received the 10% Preferred
Return, no property management fee will be paid.
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the property management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
property management agreement, including the payment of fees, as described
above, remain unchanged.
The property management agreement continues until the Partnership no
longer owns an interest in any Properties unless terminated at an earlier date
upon 60 days' prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned, either directly or
through joint venture arrangements, 36 Properties located in 15 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 11,500
to 86,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
4
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Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
buildings located on the two Checkers Properties are owned by the tenant while
the land parcels are owned by the Partnership. The buildings generally are
rectangular and are constructed from various combinations of stucco, steel,
wood, brick and tile. The sizes of the buildings owned by the Partnership range
from approximately 1,300 to 9,900 square feet. All buildings on Properties
acquired by the Partnership are freestanding and surrounded by paved parking
areas. Buildings are suitable for conversion to various uses, although
modifications may be required prior to use for other than restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of the leases with each of the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases six Golden Corral restaurants. The
initial term of each lease is 15 years (expiring between 2002 and 2012) and the
average minimum base annual rent is approximately $91,800 (ranging from
approximately $56,200 to $152,700).
Restaurant Management Services, Inc. leases four Popeyes restaurants.
The initial term of each lease is from 12 to 20 years (expiring between 2000 and
2008) and the average minimum base annual rent is approximately $57,100 (ranging
from approximately $50,400 to $64,400).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 13, 1998, there were 2,213 holders of record of the Units.
There is no public trading market for the Units and it is not anticipated that a
public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. The price paid for any
Unit transferred pursuant to the Plan has been $475 per Unit. The price to be
paid for any Unit transferred other than pursuant to the Plan is subject to
negotiation by the purchaser and the selling Limited Partner. The Partnership
will not redeem or repurchase Units.
5
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The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
------------------------------ ----------------------
<S> <C>
High Low Average High Low Average
First Quarter $500 $465 $478 $475 $470 $472
Second Quarter 500 411 447 500 400 473
Third Quarter 500 424 464 447 388 417
Fourth Quarter 475 450 461 475 392 436
</TABLE>
(1) A total of 477 and 505 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1997 and 1996, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For each of the years ended December 31, 1997 and 1996, the Partnership
declared cash distributions of $2,376,000 to the Limited Partners. The General
Partners expect to distribute some or all of the net sales proceeds from the
sale of one of the Properties in Farmington Hills, Michigan and from the
Property in Avon Park, Florida, to the Limited Partners. In deciding whether to
sell Properties, the General Partners will consider factors such as potential
capital appreciation, net cash flow, and federal income tax considerations. The
reduced number of Properties for which the Partnership receives rental payments,
as well as ongoing operations, is expected to reduce the Partnership's revenues.
The decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, is expected to result
in a decrease in cash distributions to the Limited Partners during 1998.
Distributions of $594,000 were declared at the close of each of the
Partnership's calendar quarters during 1997 and 1996 to the Limited Partners. No
amounts distributed to partners for the years ended December 31, 1997 and 1996,
are required to be or have been treated by the Partnership as a return of
capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. No distributions have been made to the General
Partners to date.
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------- ------------- ------------- ------------- ---------
<S> <C>
Year ended December 31:
Revenues (1) $ 2,547,854 $ 2,455,884 $ 2,455,754 $ 2,323,678 $ 2,390,534
Net income (2)3,639,880 1,866,961 1,838,517 1,925,517 1,850,532
Cash distributions
declared (3) 2,376,000 2,376,000 2,376,000 2,376,000 2,438,500
Net income per Unit (2) 72.18 36.97 36.40 38.14 36.65
Cash distributions
declared per Unit (3) 47.52 47.52 47.52 47.52 48.77
At December 31:
Total assets $19,959,059 $18,617,318 $19,110,615 $19,736,258 $20,073,496
Partners' capital 19,201,649 17,937,769 18,446,808 18,984,291 19,273,774
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 1997, 1994 and 1993,
includes $1,476,124, $70,554 and $161,025, respectively, from gain on
sale of land and buildings. In addition, net income for the year ended
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December 31, 1994, includes $29,904 from a loss on sale of land and
building. Net income for the years ended December 31, 1997 and 1994
also includes lease termination income of $214,000 and $198,482,
respectively, recognized by the Partnership in connection with
consideration the Partnership received for releasing the former tenants
from their obligations under the terms of the leases of three of the
Properties sold.
(3) Distributions for the year ended December 31, 1993, include a special
distribution of $62,500 to the Limited Partners, which primarily
represented percentage rents collected during the respective years.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 13, 1986, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are triple-net leases, with the lessees responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of December 31, 1997,
the Partnership owned 36 Properties, either directly or indirectly through joint
venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $2,157,912, $2,347,731
and $2,168,367 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations during 1997, as compared to
1996, is primarily a result of changes in the Partnership's working capital, and
the increase in cash from operations during 1996, as compared to 1995, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below, and as a result of changes in the Partnership's working
capital. Cash from operations was also affected by the following transactions
during the years ended December 31, 1997, 1996 and 1995.
In 1993, the Partnership accepted a promissory note from the tenant of
two Properties in Farmington Hills, Michigan, whereby $61,987, which had been
included in receivables for past due rents, was converted to a loan receivable.
The loan, which was non-interest bearing, was being collected in 48 monthly
installments with collections commencing January 1993. The receivable was
collected in full during 1996.
In March 1996, the Partnership accepted a promissory note from the
former tenant of the Property in Gainesville, Texas, in the amount of $96,502,
representing past due rental and other amounts that had been included in
receivables and for which the Partnership had established an allowance for
doubtful accounts, and real estate taxes previously recorded as an expense by
the Partnership. Payments are due in 60 monthly installments of $2,156,
including interest at a rate of 11 percent per annum, commencing on June 1,
1996. Due to the uncertainty of the collectibility of this note, the Partnership
established an allowance for doubtful accounts and is recognizing income as
collected. During 1997, the Partnership collected and recognized as income
approximately $18,100 relating to this promissory note. As of December 31, 1997
and 1996, the balances in the allowance for doubtful accounts relating to this
promissory note were $74,590 and $92,987, respectively, including accrued
interest of $2,654 and $3,493, respectively.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
In November 1995, the Partnership entered into a new lease for the
Property in Lombard, Illinois. In connection therewith, the Partnership incurred
approximately $40,600 in renovation costs which were paid during
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the years ended December 31, 1996 and 1997. Additional renovation costs of
$25,000 were funded by the tenant, in accordance with the terms of the lease.
The renovations were completed in November 1996 and rental payments commenced in
July 1997, in accordance with the terms of the lease.
In January 1996, the Partnership entered into a promissory note with
the corporate General Partner for a loan in the amount of $26,300 in connection
with the operations of the Partnership. The loan, which was uncollateralized and
bore interest at a rate of prime plus 0.25% per annum was due on demand. The
Partnership repaid the loan in full, along with approximately $200 in interest,
to the corporate General Partner. In addition, in 1996, the Partnership entered
into various promissory notes with the corporate General Partner for loans
totalling $177,600 in connection with the operations of the Partnership. The
loans were uncollateralized, non-interest bearing and due on demand. As of
December 31, 1996, the Partnership had repaid the loans in full to the corporate
General Partner. In addition, in 1997, the Partnership entered into various
promissory notes with the corporate General Partner for loans totalling $721,000
in connection with the operations of the Partnership. The loans were
uncollateralized, non-interest bearing and due on demand. As of December 31,
1997, the Partnership had repaid the loans in full to the corporate General
Partner.
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 64 percent interest, sold its Property to the tenant for $970,000, resulting
in a gain to the joint venture of approximately $360,000 for financial reporting
purposes. The Property was originally contributed to Show Low Joint Venture in
July 1990 and had a total cost of approximately $663,500, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the joint venture sold
the Property for approximately $306,500 in excess of its original purchase
price. In June 1997, Show Low Joint Venture reinvested $782,413 of the net sales
proceeds in a Darryl's Property in Greensboro, North Carolina. As of December
31, 1997, the Partnership had received approximately $124,400 representing a
return of capital for its pro-rata share of the uninvested net sales proceeds.
The Partnership used these amounts to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners.
During 1997, the Partnership sold its Property in Eagan, Minnesota, to
the tenant, for $668,033 and received net sales proceeds of $665,882, of which
$42,000 were in the form of a promissory note, resulting in a gain of $158,251
for financial reporting purposes. This Property was originally acquired by the
Partnership in August 1987 and had a cost of approximately $601,100, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Property for approximately $64,800 in excess of its
original purchase price. In October 1997, the Partnership reinvested the net
cash sales proceeds of approximately $623,900 in a Property in Mesa, Arizona, as
tenants-in-common with an affiliate of the General Partners. In connection
therewith, the Partnership and its affiliate entered into an agreement whereby
each co-venturer will share in the profits and losses of the Property in
proportion to each co-venturer's interest. The Partnership owns a 57.77%
interest in the Property. The Partnership will distribute amounts sufficient to
enable the Limited Partners to pay federal and state income taxes, if any (at a
level reasonably assumed by the General Partners), resulting from the sale.
In connection with the sale during 1997 of its Property in Eagan,
Minnesota, the Partnership accepted a promissory note in the principal sum of
$42,000. The promissory note bears interest at a rate of 10.50% per annum, is
collateralized by personal property and is being collected in 18 monthly
installments of interest only and thereafter, the entire principal balance shall
become due. As of December 31, 1997, the mortgage note receivable was $42,734,
including accrued interest of $734.
In addition, during 1997, the Partnership sold its Properties in
Jacksonville, Plant City and Avon Park, Florida; its Property in Mathis, Texas
and two Properties in Farmington Hills, Michigan to third parties for aggregate
sales prices of $4,162,006 and received aggregate net sales proceeds (net of
$18,430, which represents amounts due to the former tenant for prorated rents)
of $4,035,196, resulting in aggregate gains of $1,317,873 for financial
reporting purposes. These six Properties were originally acquired by the
Partnership during 1987 and had aggregate costs of approximately $3,338,800,
excluding acquisition fees and miscellaneous acquisition expenses; therefore,
the Partnership sold these six Properties for approximately $714,400, in the
aggregate, in excess of their original aggregate purchase prices. During 1997,
the Partnership reinvested approximately $1,512,400 of these net sales proceeds
in a Property in Vancouver, Washington, and a Property in Smithfield, North
Carolina, as tenants-in-common with affiliates of the General Partners. As of
December 31, 1997, remaining net sales proceeds from five of the six Properties
of $2,470,175, including accrued interest of $12,505, were being held in
interest bearing escrow
8
<PAGE>
accounts. In January 1998, the Partnership reinvested a portion of the net sales
proceeds in a Property in Overland Park, Kansas, and a Property in Memphis,
Tennessee, as tenants-in-common with affiliates of the General Partners. The
General Partners believe that some of the sales transactions, or portions
thereof, relating to the sales of these six Properties and the reinvestment of
some of the net sales proceeds in additional Properties will qualify as
like-kind exchange transactions for federal income tax purposes. However, the
Partnership will distribute amounts sufficient to enable the Limited Partners to
pay federal and state income taxes, if any (at a level reasonably assumed by the
General Partners), resulting from these sales. The Partnership intends to
distribute the remaining net sales proceeds to the Limited Partners. In
connection with the sale of both of the Farmington Hills, Michigan Properties,
the Partnership also received $214,000 as a lease termination fee from the
former tenant in consideration of the Partnership's releasing the tenant from
its obligation under the terms of the leases.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowing from the General Partners, however, the
Partnership may borrow, in the discretion of the General Partners, for the
purpose of maintaining the operations and paying liabilities of the Partnership
including quarterly distributions. The Partnership will not borrow for the
purpose of returning capital to the Limited Partners. The Partnership will not
encumber any of the Properties in connection with any borrowing or advances. The
Partnership also will not borrow under circumstances which would make the
Limited Partners liable to creditors of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1997, the Partnership had
$470,194 invested in such short-term investments, as compared to $318,756 at
December 31, 1996. The funds remaining at December 31, 1997, will be used for
the payment of distributions and other liabilities.
During 1997, 1996 and 1995, affiliates of the General Partners incurred
on behalf of the Partnership $68,555, $103,909 and $95,036, respectively, for
certain operating expenses. As of December 31, 1997 and 1996, the Partnership
owed $126,284 and $45,078, respectively, to affiliates for such amounts and
accounting and administrative services. Amounts payable to other parties,
including distributions payable, decreased to $605,826 at December 31, 1997,
from $642,163 at December 31, 1996. Liabilities at December 31, 1997, to the
extent they exceed cash and cash equivalents at December 31, 1997, will be paid
from future cash from operations, from proceeds from sales of Properties as
described above, from collections of amounts received in accordance with the
agreement relating to past due rents described above, and, in the event the
General Partners elect to make additional contributions or loans to the
Partnership, from future General Partner contributions or loans.
Based primarily on current and anticipated future cash from
operations,the return of capital from Show Low Joint Venture, a portion of the
proceeds received from the sale of Properties as described above, and loans
received from the General Partners, the Partnership declared distributions to
the Limited Partners of $2,376,000 for each of the years ended December 31,
1997, 1996 and 1995. This represents distributions of $47.52 per Unit for each
of the years ended December 31, 1997, 1996 and 1995. The General Partners expect
to distribute some or all of the net sales proceeds form the sale of one of the
Properties in Farmington Hills, Michigan and from the Property in Avon Park,
Florida, to the Limited Partners. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow, and federal income tax considerations. The reduced number of
Properties for which the Partnership receives rental payments, as well as
ongoing operations, is expected to reduce the Partnership's revenues. The
decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, is expected to result
in a decrease in cash distributions to the Limited Partners during 1998. No
amounts distributed or to be distributed to the Limited Partners for the years
ended December 31, 1997, 1996 and 1995, are required to be treated by the
Partnership as a return of capital for purposes of calculating the Limited
Partners' return on their adjusted capital contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the Limited Partners on a quarterly basis.
9
<PAGE>
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.
Results of Operations
During 1995, 1996 and 1997, the Partnership owned and leased 36 wholly
owned Properties (including seven Properties, one in each of Eagan, Minnesota,
which was sold in June 1997, Jacksonville, Florida, which was sold in September
1997, Plant City, Florida, which was sold in October 1997, Mathis, Texas and
Avon Park, Florida which were sold in December 1997 and two Properties in
Farmington Hills, Michigan, which were sold in October 1997). In addition,
during 1995, 1996 and 1997, the Partnership was a co-venturer in three separate
joint ventures that each owned and leased one Property, and during 1995 and
1996, the Partnership and an affiliate owned and leased one Property as
tenants-in-common. During 1997, the Partnership owned and leased four Properties
with affiliates as tenants-in-common. As of December 31, 1997, the Partnership
owned, either directly, as tenants-in-common with affiliates, or through joint
venture arrangements, 36 Properties, which are, in general, subject to long-term
triple-net leases. The leases of the Properties provide for minimum base annual
rental amounts (payable in monthly installments) ranging from approximately
$8,100 to $222,800. Generally, the leases provide for percentage rent based on
sales in excess of a specified amount to be paid annually. In addition, certain
leases provide for increases in the annual base rent during the lease term. For
further description of the Partnership's leases and Properties, see Item 1.
Business - Leases and Item 2. Properties, respectively.
During the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $2,024,119, $2,224,500 and $2,207,971, respectively, in
rental income from the Partnership's wholly owned Properties described above.
Rental income for 1997, as compared to 1996, decreased approximately $218,900
primarily as the result of the sales during 1997 of the two Properties in
Farmington Hills, Michigan and the Properties in Plant City, Florida; Mathis,
Texas; Jacksonville, Florida; Eagan, Michigan and Avon Park, Florida. The
decrease in rental income was partially offset by an increase of approximately
$12,200 during 1997 due to the fact that rental payments began in July 1997
under the new lease for the Property in Lombard, Illinois, as described above in
"Liquidity and Capital Resources." Rental income earned from wholly owned
Properties is expected to decrease during 1998 as a result of the Partnership
reinvesting the net sales proceeds in Properties held as tenants-in-common with
affiliates of the General Partners, and distributing net sales proceeds to the
Limited Partners, as described above in "Liquidity and Capital Resources."
During the years ended December 31, 1997, 1996 and 1995, the
Partnership also earned $68,920, $79,313 and $70,159, respectively, in
contingent rental income. The decrease in contingent rental income for 1997, as
compared to 1996, is primarily due to the sales of several Properties, the
leases of which required the payment of contingent rental income. Contingent
rental income for the year ended December 31, 1996, as compared to 1995,
increased primarily as a result of an increase in gross sales of certain
restaurant Properties that are subject to leases requiring the payment of
contingent rental income.
For the years ended December 31, 1997, 1996 and 1995 , the Partnership
also earned $389,915, $130,996 and $153,677, respectively, attributable to net
income earned by joint ventures in which the Partnership is a co-venturer. The
increase in net income earned by joint ventures is primarily attributable to the
fact that Show Low
10
<PAGE>
Joint Venture, in which the Partnership owns a 64 percent interest, recognized a
gain of approximately $360,000 for financial reporting purposes as a result of
the sale of its Property in January 1997, as described above in "Liquidity and
Capital Resources." Show Low Joint Venture reinvested the majority of the net
sales proceeds in an additional Property in June 1997. In addition, the increase
in net income earned by joint ventures during 1997, as compared to 1996, is
attributable to the fact that during 1997, the Partnership acquired an interest
in a Property in Mesa, Arizona, a Property in Smithfield, North Carolina and a
Property in Vancouver, Washington, all of which are owned with affiliates as
tenants-in-common, as described above in "Liquidity and Capital Resources." The
increase in net income earned by joint ventures during 1997, as compared to
1996, and the decrease in net income earned by joint ventures during 1996, as
compared to 1995, is primarily a result of a the fact that during 1996, the
former tenant of the Property in Arvada, Colorado,owned with an affiliate as
tenants-in-common, defaulted under the terms of its lease. The Partnership and
the affiliate, as tenants-in-common, entered into a new lease for this Property
with a new tenant during 1996.
During at least one of the years ended December 31, 1997, 1996 and
1995, two of the Partnership's lessees, Golden Corral Corporation and Restaurant
Management Services, Inc., each contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of rental
income from three Properties owned by joint ventures and four Properties owned
with affiliates as tenants-in-common). As of December 31, 1997, Golden Corral
Corporation was the lessee under leases relating to six restaurants and
Restaurant Management Services, Inc. was the lessee under leases relating to
four restaurants. It is anticipated that, based on the minimum annual rental
payments required by the leases, Golden Corral Corporation will continue to
contribute more than ten percent of the Partnership's total rental income during
1998 and subsequent years. In addition, during at least one of the three years
ending December 31, 1997, 1996 and 1995, five Restaurant Chains, Golden Corral,
Popeyes, KFC, Denny's and Wendy's, each accounted for more than ten percent of
the Partnership's total rental income (including the Partnership's share of the
rental income from three Properties owned by joint ventures and four Properties
owned with affiliates as tenants-in-common). In subsequent years, it is
anticipated that Golden Corral, Popeyes, KFC and Wendy's each will continue to
account for more than ten percent of the total rental income to which the
Partnership is entitled under the terms of its leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $598,098, $588,923 and $617,237 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses during 1997, as
compared to 1996, is partially due to the fact that the Partnership recorded bad
debt expense for past due rental amounts relating to the Property in Eagan,
Minnesota, due to financial difficulties of the tenant. This Property was sold
in June 1997, as described above in "Liquidity and Capital Resources." The
increase in operating expenses during 1997, as compared to 1996, was also
attributable to, and the decrease in operating expenses during 1996, as compared
to 1995, was partially offset by, an increase in accounting and administrative
expenses associated with operating the Partnership and its Properties.
The increase in operating expenses during 1997, as compared to 1996,
was partially offset by a decrease in depreciation expense which resulted from
the sale of the seven Properties during 1997, as described above in "Liquidity
and Capital Resources." The decrease in operating expenses during 1996, as
compared to 1995, was primarily a result of the fact that during 1995, the
Partnership expensed the balance of unamortized lease costs totalling
approximately $35,600, relating to the original lease for the Property in
Gainesville, Texas, following the termination of such lease during the year
ended December 31, 1995.
As a result of the sales of the two Properties in Farmington Hills,
Michigan and the Properties in Eagan, Minnesota; Jacksonville, Florida; Plant
City, Florida; Mathis, Texas and Avon Park, Florida, as described above in
"Liquidity and Capital Resources," the Partnership recognized gains totalling
$1,476,124 during the year ended December 31, 1997, for financial reporting
purposes. In addition, in connection with the sale of the Properties in
Farmington Hills, Michigan, the Partnership also received $214,000 as a lease
termination fee from the former tenant in consideration of the Partnership's
releasing the tenant from its obligation under the terms of the leases. No such
transactions occurred during the years ended December 31, 1996 and 1995.
11
<PAGE>
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, are, in general,
triple-net leases and contain provisions that the General Partners believe
mitigate the adverse effect of inflation. Such provisions include clauses
requiring the payment of percentage rent based on certain restaurant sales above
a specified level and/or automatic increases in base rent at specified times
during the term of the lease. Management expects that increases in restaurant
sales volumes due to inflation and real sales growth should result in an
increase in rental income (for certain Properties) over time. Continued
inflation also may cause capital appreciation of the Partnership's Properties.
Inflation and changing prices, however, also may have an adverse impact on the
sales of the restaurants and on potential capital appreciation of the
Properties.
Item 8. Financial Statements and Supplementary Data
12
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 14
Financial Statements:
Balance Sheets 15
Statements of Income 16
Statements of Partners' Capital 17
Statements of Cash Flows 18
Notes to Financial Statements 20
13
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund II, Ltd.
We have audited the financial statements and the financial statement schedules
of CNL Income Fund II, Ltd. (a Florida limited partnership) listed in Item 14(a)
of this Form 10-K. These financial statements and financial statement schedules
are the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free 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 audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund II, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand, L.L.P.
- ---------------------------------
Orlando, Florida
February 2, 1998
14
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------ ----------- -------
Land and buildings on operating
leases, less accumulated
depreciation $13,164,568 $16,803,789
Investment in joint ventures 3,568,155 1,314,386
Mortgage note receivable 42,734 -
Cash and cash equivalents 470,194 318,756
Restricted cash 2,470,175 -
Receivables, less allowance for
doubtful accounts of $83,254
and $126,036 80,577 99,185
Prepaid expenses 5,510 4,819
Lease costs, less accumulated
amortization of $11,520 and
$7,537 9,043 13,026
Accrued rental income 148,103 117,357
----------- -----------
$19,959,059 $18,671,318
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 7,170 $ 12,188
Accrued construction costs payable - 29,526
Accrued and escrowed real estate
taxes payable 4,656 6,449
Distributions payable 594,000 594,000
Due to related parties 126,284 45,078
Rents paid in advance and deposits 25,300 46,308
----------- -----------
Total liabilities 757,410 733,549
Partners' capital 19,201,649 17,937,769
----------- -----------
$19,959,059 $18,671,318
=========== ===========
See accompanying notes to financial statements.
15
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---------- ---------- -------
<S> <C>
Revenues:
Rental income from operating
leases $2,024,119 $2,224,500 $2,207,971
Contingent rental income 68,920 79,313 70,159
Interest and other income 64,900 21,075 23,947
---------- ---------- ----------
2,157,939 2,324,888 2,302,077
---------- ---------- ----------
Expenses:
General operating and admini-
strative 137,924 131,628 121,317
Professional services 21,576 26,634 25,161
Bad debt expense 27,965 - 4,745
Real estate taxes 410 4,647 3,588
State and other taxes 10,403 4,255 5,633
Depreciation and amortization 399,820 421,759 456,793
---------- ---------- ----------
598,098 588,923 617,237
---------- ---------- ----------
Income Before Equity in Earnings
of Joint Ventures, Gain on Sale
of Land and Buildings and
Lease Termination Income 1,559,841 1,735,965 1,684,840
Equity in Earnings of Joint
Ventures 389,915 130,996 153,677
Gain on Sale of Land and Buildings 1,476,124 - -
Lease Termination Income 214,000 - -
---------- ---------- ---------
Net Income $3,639,880 $1,866,961 $1,838,517
========== ========== ==========
Allocation of Net Income:
General partners $ 30,736 $ 18,670 $ 18,385
Limited partners 3,609,144 1,848,291 1,820,132
---------- ---------- ----------
$3,639,880 $1,866,961 $1,838,517
========== ========== ==========
Net Income Per Limited Partner
Unit $ 72.18 $ 36.97 $ 36.40
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 50,000 50,000 50,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- --------
<S> <C>
Balance, December 31, 1994 $162,000 $143,320 $25,000,000 $(17,941,377) $14,310,170 $(2,689,822) $18,984,291
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,385 - - 1,820,132 - 1,838,517
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 162,000 161,705 25,000,000 (20,317,377) 16,130,302 (2,689,822) 18,446,808
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 18,670 - - 1,848,291 - 1,866,961
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 162,000 180,375 25,000,000 (22,693,377) 17,978,593 (2,689,822) 17,937,769
Distributions to limited
partners ($47.52 per
limited partner unit) - - - (2,376,000) - - (2,376,000)
Net income - 30,736 - - 3,609,144 - 3,639,880
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 $162,000 $211,111 $25,000,000 $(25,069,377) $21,587,737 $(2,689,822) $19,201,649
======== ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 2,054,519 $ 2,295,531 $ 2,198,821
Distributions from joint
ventures 147,995 164,718 181,908
Cash paid for expenses (80,744) (130,042) (229,879)
Interest received 36,142 17,524 17,517
----------- ----------- -----------
Net cash provided by
operating activities 2,157,912 2,347,731 2,168,367
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of land
and buildings 4,659,078 - -
Proceeds received from
tenant in connection with
termination of leases 214,000 - -
Additions to land and
buildings on operating
leases (29,526) (11,107) (4,323)
Investment in joint ventures (2,136,289) - (121)
Return of capital from
joint venture 124,440 - -
Decrease (increase) in
restricted cash (2,457,670) 25,000 (25,000)
Payment of lease costs (4,507) (1,930) (12,426)
Other - (25,000) 25,000
----------- ----------- -----------
Net cash provided by
(used in) investing
activities 369,526 (13,037) (16,870)
----------- ----------- -----------
Cash Flows from Financing
Activities:
Proceeds from loans from
corporate general partner 721,000 203,900 -
Repayment of loans from
corporate general partner (721,000) (203,900) -
Distributions to limited
partners (2,376,000) (2,376,000) (2,376,000)
----------- ----------- -----------
Net cash used in
financing activities (2,376,000) (2,376,000) (2,376,000)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 151,438 (41,306) (224,503)
Cash and Cash Equivalents at
Beginning of Year 318,756 360,062 584,565
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 470,194 $ 318,756 $ 360,062
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Reconciliation of Net Income
to Net Cash Provided by
Operating Activities:
Net income $ 3,639,880 $ 1,866,961 $ 1,838,517
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 395,837 417,776 417,614
Amortization 3,983 3,983 39,179
Gain on sale of land and
buildings (1,476,124) - -
Lease termination income (214,000) - -
Equity in earnings of joint
ventures, net of distri-
butions (241,920) 33,722 28,231
Decrease (increase) in
receivables 23,799 (8,803) (1,075)
Increase in prepaid
expenses (691) (1,570) (2,211)
Increase in accrued rental
income (30,746) (33,234) (34,086)
Decrease in other assets - 1,750 -
Increase (decrease) in
accounts payable and
accrued expenses (2,304) 4,014 (21,043)
Increase (decrease) in
due to related parties 81,206 35,824 (65,627)
Increase (decrease) in
rents paid in advance
and deposits (21,008) 27,308 (31,132)
----------- ----------- -----------
Total adjustments (1,481,968) 480,770 329,850
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,157,912 $ 2,347,731 $ 2,168,367
=========== =========== ===========
Supplemental Schedule of Non-Cash
Investing and Financing
Activities:
Mortgage note accepted as
consideration in sale of
land and building $ 42,000 $ - $ -
=========== =========== ==========
Distributions declared and
unpaid at December 31 $ 594,000 $ 594,000 $ 594,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund II, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
The general partners of the Partnership are CNL Realty Corporation (the
"Corporate General Partner"), James M. Seneff, Jr. and Robert A.
Bourne. Mr. Seneff and Mr. Bourne are also 50 percent shareholders of
the Corporate General Partner. The general partners have responsibility
for managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using the operating method. Under the operating method, land and
building leases are recorded at cost, revenue is recognized as rentals
are earned and depreciation is charged to operations as incurred.
Buildings are depreciated on the straight-line method over their
estimated useful lives of 30 years. When scheduled rentals vary during
the lease term, income is recognized on a straight-line basis so as to
produce a constant periodic rent over the lease term commencing on the
date the property is placed in service.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date.
When the properties are sold, the related cost and accumulated
depreciation plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review the properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred
20
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, a loss will be
recorded for the amount by which the carrying value of the asset
exceeds its fair market value.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and allowance for
uncollectible accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Kirkman
Road Joint Venture, Holland Joint Venture and Show Low Joint Venture,
and the property in Arvada, Colorado, the property in Mesa, Arizona,
the property in Smithfield, North carolina, and the property in
Vancouver, Washington, for which each property is held as
tenants-in-common with affiliates, are accounted for using the equity
method since the Partnership shares control with affiliates which have
the same general partners.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
21
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Lease Costs - Lease incentive costs and brokerage and legal fees
associated with negotiating new leases are amortized over the terms of
the new leases using the straight-line method. When a property is sold
or a lease is terminated, the related lease cost, if any, net of
accumulated amortization is removed from the accounts and charged
against income.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
22
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
2. Leases:
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food restaurants. The leases
are accounted for under the provisions of Statement of Financial
Accounting Standards No. 13, "Accounting for Leases." The leases have
been classified as operating leases. Substantially all leases are for
15 to 20 years and provide for minimum and contingent rentals. In
addition, the tenant generally pays all property taxes and assessments,
fully maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow tenants to renew
the leases for two to four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1997 1996
----------- -------
Land $ 6,608,400 $ 8,052,723
Buildings 9,858,263 12,567,157
----------- -----------
16,466,663 20,619,880
Less accumulated
depreciation (3,302,095) (3,816,091)
----------- -----------
$13,164,568 $16,803,789
=========== ===========
In June 1997, the Partnership sold its property in Eagan, Minnesota, to
the tenant, for $668,033 and received net sales proceeds of $665,882,
of which $42,000 were in the form of a promissory note, resulting in a
gain of $158,251 for financial reporting purposes. This property was
originally acquired by the Partnership in August 1987 and had a cost of
approximately $601,100, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the property for
approximately $64,800 in excess of its original purchase price. In
October 1997, the Partnership used the net sales proceeds to acquire a
property in Mesa, Arizona, as tenants-in-common (see Note 4).
23
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
In addition, during 1997, the Partnership sold its properties in
Jacksonville, Plant City and Avon Park, Florida; its property in
Mathis, Texas and two properties in Farmington Hills, Michigan to third
parties for aggregate sales prices of $4,162,006 and received aggregate
net sales proceeds (net of $18,430, which represents amounts due to the
former tenant for prorated rent) of $4,035,196, resulting in aggregate
gains of $1,317,873 for financial reporting purposes. These six
properties were originally acquired by the Partnership during 1987 and
had aggregate costs of approximately $3,338,800, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership
sold these six properties for approximately $714,400, in the aggregate,
in excess of their original aggregate purchase prices. During 1997, the
Partnership reinvested approximately $1,512,400 of these net sales
proceeds in a property in Vancouver, Washington, and a property in
Smithfield, North Carolina, as tenants-in-common with affiliates of the
General Partners (see Note 4). In January 1998, the Partnership
reinvested a portion of these net sales proceeds in a property in
Overland Park, Kansas, and a property in Memphis, Tennessee, as
tenants-in-common with affiliates of the General Partners (see Note
12). In connection with the sale of both of the Farmington Hills,
Michigan properties, the Partnership also received $214,000 as a lease
termination fee from the former tenant in consideration of the
Partnership's releasing the tenant from its obligation under the terms
of the leases.
Some of the leases provide for escalating guaranteed minimum rents
throughout the lease terms. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 1997, 1996 and 1995, the Partnership
recognized $30,746, $33,234 and $34,086, respectively, of such income.
24
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1997:
1998 $ 1,621,842
1999 1,609,878
2000 1,538,676
2001 1,554,429
2002 1,387,650
Thereafter 6,256,157
-----------
$13,968,632
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of the tenant's gross sales.
4. Investment in Joint Ventures:
The Partnership has a 50 percent interest, a 49 percent interest and a
64 percent interest in the profits and losses of Kirkman Road Joint
Venture, Holland Joint Venture and Show Low Joint Venture,
respectively. The remaining interests in Holland Joint Venture and Show
Low Joint Venture are held by affiliates of the Partnership which have
the same general partners. The Partnership also has a 33.87% interest
in a property in Arvada, Colorado, with an affiliate of the Partnership
that has the same general partners, as tenants-in-common. The
Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with an affiliate.
Amounts relating to its investment are included in investment in joint
ventures.
In January 1997, Show Low Joint Venture, in which the Partnership owns
a 64 percent interest, sold its property to the tenant for $970,000,
resulting in a gain to the joint venture of approximately $360,000 for
financial reporting purposes. The property was originally contributed
to Show Low Joint Venture in July 1990 and had a total cost of
approximately $663,500, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the joint venture sold the property
for approximately $306,500 in excess of its original purchase price.
25
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Investment in Joint Ventures - Continued:
In June 1997, Show Low Joint Venture reinvested $782,413 of the net
sales proceeds in a Darryl's property in Greensboro, North Carolina. As
of December 31, 1997, the Partnership had received approximately
$124,400 representing a return of capital for its pro-rata share of the
uninvested net sales proceeds. As of December 31, 1997, the Partnership
owned a 64 percent interest in the profits and losses of the joint
venture.
In October 1997, the Partnership used the net sales proceeds from the
sale of the property in Eagan, Minnesota (see Note 3) to acquire a
property in Mesa, Arizona, as tenants-in-common with an affiliate of
the general partners. The Partnership accounts for its investment in
this property using the equity method since the Partnership shares
control with an affiliate, and amounts relating to its investment are
included in investment in joint ventures. As of December 31, 1997, the
Partnership owned a 57.77% interest in this property.
In December 1997, the Partnership used the net sales proceeds from the
sale of one of the properties in Farmington Hills, Michigan, to acquire
a property in Smithfield, North Carolina, as tenants-in-common with an
affiliate of the general partners. The Partnership accounts for its
investment in this property using the equity method since the
Partnership shares control with an affiliate, and amounts relating to
its investment are included in investment in joint ventures. As of
December 31, 1997, the Partnership owned a 47 percent interest in this
property.
In addition, in December 1997, the Partnership used the net sales
proceeds from the sale of the property in Plant City, Florida, to
acquire a property in Vancouver, Washington, as tenants-in-common with
affiliates of the general partners. The Partnership accounts for its
investment in this property using the equity method since the
Partnership shares control with affiliates, and amounts relating to its
investment are included in investment in joint ventures. As of December
31, 1997, the Partnership owned a 37.01% interest in this property.
26
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Investment in Joint Ventures - Continued:
Kirkman Road Joint Venture, Holland Joint Venture, Show Low Joint
Venture and the Partnership and affiliates, as tenants-in-common in
four separate tenancy-in-common arrangements, each own and lease one
property to an operator of national fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures and the four properties held as
tenants-in-common with affiliates at December 31:
1997 1996
---------- -------
Land and buildings on
operating leases, less
accumulated depreciation $7,091,781 $2,664,752
Net investment in direct
financing lease 518,399 -
Cash 56,815 21,905
Receivables 4,685 9,980
Accrued rental income 102,913 70,782
Other assets 418 44,263
Liabilities 31,673 28,558
Partners' capital 7,743,338 2,783,124
Revenues 399,579 363,338
Gain on sale of land and
building 360,002 -
Net income 687,021 250,026
The Partnership recognized income totalling $389,915, $130,996 and
$153,677 for the years ended December 31, 1997, 1996 and 1995,
respectively, from these joint ventures and the properties held as
tenants-in-common with affiliates.
5. Mortgage Note Receivable:
In connection with the sale in June 1997 of its property in Eagan,
Minnesota, the Partnership accepted a promissory note in the amount of
$42,000. The promissory note bears interest at a rate of 10.50% per
annum, is collateralized by personal property and is being collected in
18 monthly installments of interest only and thereafter, the entire
principal balance shall become due. As of December 31, 1997, the
mortgage note receivable balance was $42,734, including accrued
interest of $734.
27
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
6. Restricted Cash:
As of December 31, 1997, remaining net sales proceeds of $2,470,175
from the sales of several properties (see Note 3) including accrued
interest of $12,505, were being held in interest-bearing escrow
accounts pending the release of funds by the escrow agent to acquire
additional properties on behalf of the Partnership and to distribute
net sales proceeds to the limited partners.
7. Receivables:
In March 1996, the Partnership accepted a promissory note from the
former tenant of the property in Gainesville, Texas, in the amount of
$96,502, representing past due rental and other amounts, which had been
included in receivables and for which the Partnership had established
an allowance for doubtful accounts, and real estate taxes previously
recorded as an expense by the Partnership. Payments are due in 60
monthly installments of $2,156, including interest at a rate of 11
percent per annum, commencing on June 1, 1996. Due to the uncertainty
of the collectibility of this note, the Partnership established an
allowance for doubtful accounts and is recognizing income as collected.
As of December 31, 1997 and 1996, the balances in the allowance for
doubtful accounts of $74,590 and $92,987, respectively, including
accrued interest of $2,654 and $3,493, respectively, represents the
uncollected amounts under this promissory note.
8. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, noncumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
28
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
8. Allocations and Distributions - Continued:
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their cumulative 10%
Preferred Return, plus the return of their adjusted capital
contributions. The general partners will then receive, to the extent
previously subordinated and unpaid, a one percent interest in all prior
distributions of net cash flow and a return of their capital
contributions. Any remaining sales proceeds will be distributed 95
percent to the limited partners and five percent to the general
partners. Any gain from the sale of a property is, in general,
allocated in the same manner as net sales proceeds are distributable.
Any loss from the sale of a property is, in general, allocated first on
a pro rata basis to partners with positive balances in their capital
accounts; and thereafter, 95 percent to the limited partners and five
percent to the general partners.
During each of the years ended December 31, 1997, 1996 and 1995, the
Partnership declared distributions to the limited partners of
$2,376,000. No distributions have been made to the general partners to
date.
29
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1997 1996 1995
---------- ---------- -------
<S> <C>
Net income for
financial reporting
purposes $3,639,880 $1,866,961 $1,838,517
Depreciation for
financial reporting
purposes in excess
of depreciation for
tax reporting
purposes 19,440 20,922 20,840
Gain on sale of land
and buildings for
financial reporting
purposes in excess
of gain for tax
reporting purposes (638,739) - -
Equity in earnings of
joint ventures for
tax reporting purposes
less than equity in
earnings of joint
ventures for financial
reporting purposes (146,161) (1,240) (7,297)
Allowance for
doubtful accounts (42,782) 25,225 2,449
Accrued rental income (30,746) (33,234) (34,086)
Rents paid in advance (21,008) 22,508 (34,132)
---------- ---------- ----------
Net income for
federal income tax
purposes $2,779,884 $1,901,142 $1,786,291
========== ========== ==========
</TABLE>
30
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of
CNL Securities Corp. and CNL Fund Advisors, Inc. James M. Seneff, Jr.
is director and chief executive officer of CNL Securities Corp. and is
director, chairman of the board of directors and chief executive
officer of CNL Fund Advisors, Inc. The other individual general
partner, Robert A. Bourne, is director and president of CNL Securities
Corp., is director, vice chairman of the board of directors and
treasurer of CNL Fund Advisors, Inc. and served as president of CNL
Fund Advisors, Inc through October 1997.
During the years ended December 31, 1997, 1996 and 1995, certain
Affiliates acted as manager of the Partnership's Properties pursuant to
a property management agreement with the Partnership. In connection
therewith, the Partnership agreed to pay Affiliates an annual,
noncumulative, subordinated property management fee of one-half of one
percent of the Partnership assets under management (valued at cost)
annually. The property management fee is limited to one percent of the
sum of gross operating revenues from properties wholly owned by the
Partnership and the Partnership's allocable share of gross operating
revenues from joint ventures and the property held as tenants-in-common
with an affiliate or competitive fees for comparable services. In
addition, these fees will be incurred and will be payable only after
the limited partners receive their aggregate, noncumulative 10%
Preferred Return. Due to the fact that these fees are noncumulative, if
the limited partners do not receive their 10% Preferred Return in any
particular year, no property management fees will be due or payable for
such year. As a result of such threshold no property management fees
were incurred during the years ended December 31, 1997, 1996 and 1995.
Certain Affiliates are also entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if the
Affiliates provide a substantial amount of services in connection with
the sale. However, if the net sales proceeds are reinvested in a
replacement property, no such real estate disposition fees will be
incurred until such
31
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Related Party Transactions - Continued:
replacement property is sold and the net sales proceeds are
distributed. The payment of the real estate disposition fee is
subordinated to receipt by the limited partners of their aggregate,
cumulative 10% Preferred Return, plus their adjusted capital
contributions. No deferred, subordinated real estate disposition fees
have been incurred since inception.
During the years ended December 31, 1997, 1996 and 1995, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $78,139, $79,624 and $81,023
for the years ended December 31, 1997, 1996 and 1995, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1997 1996
-------- ------
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $ 59,608 $ 21,079
Accounting and administrative
services 66,676 23,999
-------- --------
$126,284 $ 45,078
======== ========
During 1997, the Partnership acquired a property in Mesa, Arizona, as
tenants-in-common with an affiliate of the general partners, for a
purchase price of $630,554 from CNL BB Corp., also an affiliate of the
general partners. CNL BB Corp. had purchased and temporarily held title
to this property in order to facilitate the acquisition of the property
by the Partnership. The purchase price paid by the Partnership
represented the Partnership's percent of interest in the costs incurred
by CNL BB Corp. to acquire and carry the property, including closing
costs.
32
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
11. Concentration of Credit Risk:
The following schedule presents total rental income from individual
lessees, each representing more than ten percent of the Partnerships'
total rental income (including the Partner- ship's share of rental
income from joint ventures and the four properties held as
tenants-in-common with affiliates) for at least one of the years ended
December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Corporation $408,333 $403,875 $410,226
Restaurant Management
Services, Inc. 251,480 243,270 243,358
In addition, the following schedule presents total rental income from
individual restaurant chains, each representing more than ten percent
of the Partnership's total rental income (including the Partnership's
share of rental income from joint ventures and four properties held as
tenants-in-common with affiliates) for at least one of the years ended
December 31:
1997 1996 1995
-------- -------- ------
Golden Corral
Family Steakhouse
Restaurants $408,333 $403,875 $410,226
Wendy's Old Fashioned
Hamburger
Restaurants 381,567 421,165 412,949
KFC 278,348 358,463 352,939
Popeyes Famous Fried
Chicken Restaurants 251,480 243,270 243,358
Denny's 221,580 388,050 372,639
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the on-going operations of the lessees.
33
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
12. Subsequent Events:
In January 1998, the Partnership acquired a property in Overland Park,
Kansas, as tenants-in-common with affiliates of the general partners.
In connection therewith, the Partnership contributed approximately
$634,100 for a 39.42% interest in such property. The Partnership will
account for its investment in this property using the equity method
since the Partnership will share control with affiliates.
In addition, in January 1998, the Partnership acquired a property in
Memphis, Tennessee, as tenants-in-common with affiliates of the general
partners. In connection therewith, the Partnership contributed $201,300
for a 13.38% interest in such property. The Partnership will account
for its investment in this property using the equity method since the
Partnership will share control with affiliates.
34
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., and CNL Group, Inc. and
their affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 51, 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 since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which served as the
managing dealer in the Partnership's offering of Units, since its formation in
1979. Mr. Seneff also has held the position of President and a director of CNL
Management Company, a registered investment advisor, since its formation in
1976, has served as Chief Executive Officer and Chairman of the Board of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the
Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., served as Chairman of the
Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as a director, Chairman
of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. In addition, Mr. Seneff has served as a director,
Chairman of the Board and Chief Executive Officer of CNL American Properties
Fund, Inc. since 1994, and has served as a director, Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 1997. 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 office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr. Seneff, directly or through an affiliated entity, serves or has
served as a general partner. Also included are CNL Income Fund, 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. and
CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real
estate limited partnerships with investment objectives similar to those of the
Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff
received his degree in Business Administration from Florida State University in
1968.
35
<PAGE>
Robert A. Bourne, age 50, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer, Vice Chairman of the Board of Directors, 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 and served
as President of CNL Fund Advisors, Inc. from the date of its inception through
October 1997. Mr. Bourne currently serves as Vice Chairman of the Board of
Directors and as Treasurer of CNL Fund Advisors, Inc. Mr. Bourne also has served
as a director since 1992, as President from July 1992 to February 1996, as
Secretary and Treasurer from February 1996 through December 1997, and since
February 1996, served as Vice Chairman of the Board of Directors of Commercial
Net Lease Realty, Inc. In addition, Mr. Bourne has served as a director since
its inception in 1991, as President from 1991 to February 1996, as Secretary
from February 1996 to July 1996, and since February 1996, served as Treasurer
and Vice Chairman of CNL Realty Advisors, Inc. through December 31, 1997, at
which time CNL Realty Advisors, Inc. merged with Commercial Net Lease Realty,
Inc. In addition, Mr. Bourne has served as President and a director of CNL
American Properties Fund, Inc. since 1994, and has served as President and a
director of CNL American Realty Fund, Inc. since 1996 and of CNL Real Estate
Advisors, Inc. since January 1997. 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 office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 64 privately offered real estate limited partnerships
in which Mr. Bourne, directly or through an affiliated entity, serves or has
served as a general partner. Also included are the CNL Income Fund Partnerships,
public real estate limited partnerships with investment objectives similar to
those of the Partnership, in which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
36
<PAGE>
Curtis B. McWilliams, age 42, joined CNL Fund Advisors, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. and as
Executive Vice President of CNL American Properties Fund, Inc. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, 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
clients. 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.
John T. Walker, age 39, is the Chief Operating Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate Advisors, Inc. Mr. Walker joined CNL Fund Advisors, Inc. in
September 1994, as Senior Vice President, responsible for Research and
Development. From May 1992 to May 1994, he was Executive Vice President for
Finance and Administration and Chief Financial Officer of Z Music, Inc., a cable
television network which was subsequently acquired by Gaylord Entertainment,
where he was responsible for overall financial and administrative management and
planning. From January 1990 through April 1992, Mr. Walker was Chief Financial
Officer of the First Baptist Church in Orlando, Florida. From April 1984 through
December 1989, he was a partner in the accounting firm of Chastang, Ferrell &
Walker, P.A., where he was the partner in charge of audit and consulting
services, and from 1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior
at Price Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest
University with a B.S. in Accountancy and is a certified public accountant.
Lynn E. Rose, age 49, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, 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, served as a director and Secretary of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund
Advisors, Inc. since its inception in 1994 to December 1995, and a director,
Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as
a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since
January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL
American Properties Fund, Inc. since 1994, and has served as Secretary and
Treasurer of CNL American Realty Fund, Inc. since 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 300 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. She was licensed as a certified public accountant in 1979.
37
<PAGE>
Jeanne A. Wall, age 39, 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 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. since its inception in 1991 through 1997, as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American Properties Fund, Inc. since 1994. In addition,
Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors,
Inc. since January 1997 and as Executive Vice President of CNL American Realty
Fund, Inc. since 1996. 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 (NASD).
Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996 and as Chief Financial Officer of
CNL American Properties Fund, Inc. since January 1997. Mr. Shackelford joined
CNL Fund Advisors, Inc. in September 1996. From March 1995 to July 1996, he was
a senior manager in the national office of Price Waterhouse where he was
responsible for advising foreign clients seeking to raise capital and a public
listing in the United States. From August 1992 to March 1995, he served as a
manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and audit senior from
1986 to 1992 in the Orlando, Florida office of Price Waterhouse. Mr. Shackelford
received a B.A. in Accounting, with honors, and a Masters of Business
Administration from Florida State University and is a certified public
accountant.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 13, 1998, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 13, 1998, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the Registrant.
38
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1997, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation Method of For the Year
and Recipient Computation Ended December 31, 1997
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses. at the lower of cost or 90 percent behalf of the Partnership: $68,555
of the prevailing rate at which
comparable services could have Accounting and administrative
been obtained in the same services: $78,139
geographic area. If the General
Partners or their affiliates loan
funds to the Partnership, the
General Partners or their affiliates
will be reimbursed for the interest
and fees charged to them by the
unaffiliated lenders for such loans.
Affiliates of the General Partners
from time to time incur certain
operating expenses on behalf of
the Partnership for which the
Partnership reimburses the
affiliates without interest.
Annual, subordinated property One-half of one percent per year $ - 0 -
management fee to affiliates of Partnership assets under
management (valued at cost),
subordinated to certain minimum returns
to the Limited Partners. The property
management fee will not exceed the
lesser of one percent of gross
operating revenues or competitive fees
for comparable services. Due to the
fact that these fees are non-cumulative
if the Limited Partners do not receive
their 10% Preferred Return in any
particular year no property management
fees will be due or payable for such
year.
==========================================================================================================================
</TABLE>
39
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Amount Incurred
Type of Compensation Method of For the Year
and Recipient Computation Ended December 31, 1997
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
affiliates upon sale of one or more
Properties, in an amount equal to the
lesser of (i) one-half of a competitive
real estate commission, or (ii) three
percent of the sales price of such
Property or Properties. Payment of such
fee shall be made only if affiliates of
the General Partners provides a
substantial amount of services in
connection with the sale of a Property
or Properties and shall be subordinated
to certain minimum returns to the
Limited Partners. However, if the net
sales proceeds are reinvested in a
replacement Property, no such real
estate disposition fee will be incurred
until such replacement Property is sold
and the net sales proceeds are
distributed.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to one percent of
cash flow Partnership distributions of net
cash flow, subordinated to certain
minimum returns to the Limited
Partners.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to five percent of the
sales proceeds from a sale or Partnership distributions of such
sales net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
==========================================================================================================================
</TABLE>
40
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the years ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital for the years ended December
31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1996 and
1995
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1997
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or notes
thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on April 2, 1993, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on April 2, 1993, and incorporated herein by
reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
41
<PAGE>
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc. (Included
as Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996 and incorporated herein
by reference.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant
and CNL Realty Corporation relating to a $26,300 loan.
(Included as Exhibit 10.4 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1997 through December 31, 1997.
42
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1998.
CNL INCOME FUND II, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
==========================================================================================================================
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 30, 1998
- --------------------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 30, 1998
- -------------------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
==========================================================================================================================
</TABLE>
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions Deductions
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---- ----------- ---------- ---------- ---------- ---------- --------- --------
<S> <C>
1995 Allowance for
doubtful
accounts (a) $ 98,362 $ - $44,840(b) $12,391(c) $30,000 $100,811
======== ======= ======= ======= ======= ========
1996 Allowance for
doubtful
accounts (a) $100,811 $ - $64,323(b) $17,832(c) $21,266 $126,036
======== ======= ======= ======= ======= ========
1997 Allowance for
doubtful
accounts (a) $126,036 $ - $ 5,677(b) $30,062(c) $18,397 $ 83,254
======== ======= ======= ======= ======= ========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
F-1
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership has
Invested in:
Burger King Restaurant:
San Antonio, Texas - $ 373,095 $ 384,458 $ - $ -
Checkers Drive-In Restaurants:
Fayetteville, Georgia - 338,735 - - -
Atlanta, Georgia - 317,128 - - -
Denny's Restaurants:
Casper, Wyoming - 184,285 415,181 - -
Rock Springs, Wyoming - 217,448 488,991 - -
Golden Corral Family
Steakhouse Restaurants:
Tomball, Texas - 311,019 529,759 22,330 -
Pineville, Louisiana (e) - 187,961 503,435 - -
Hueytown, Alabama - 258,084 513,853 - -
Nederland, Texas - 327,473 520,701 - -
Columbia, Missouri - 384,911 163,164 - -
Jack in the Box Restaurant:
Lubbock, Texas - 229,198 408,702 - -
KFC Restaurants:
Jacksonville, Florida - 198,735 266,200 - -
Eagan, Minnesota - 202,084 370,247 31,976 -
Bay City, Texas - 162,783 - 305,154 -
Lonestar Steakhouse & Saloon
Restaurant:
Sterling Heights, Michigan (f) - 430,281 - 648,736 -
Pizza Hut Restaurants:
Clayton, New Mexico - 54,093 200,141 - -
Santa Rosa, New Mexico - 75,963 168,204 - -
Childress, Texas - 71,512 145,191 - -
Coleman, Texas - 70,208 141,004 - -
Ponderosa Steakhouse Restaurant:
Scottsburg, Indiana - 208,781 - 518,884 -
Popeyes Famous Fried
Chicken Restaurants:
Altamonte Springs, Florida - 197,959 255,965 - -
Ocala, Florida - 184,512 274,991 - -
Sanford, Florida - 237,243 359,865 - -
Apopka, Florida - 155,041 - 417,209 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 373,095 $ 384,458 $ 757,553 $ 134,560 1987 07/87 (b)
338,735 - 338,735 (d) - 12/94 (d)
317,128 - 317,128 (d) - 12/94 (d)
184,285 415,181 599,466 143,007 1983 09/87 (b)
217,448 488,991 706,439 168,430 1983 09/87 (b)
311,019 552,089 863,108 195,085 1987 05/87 (b)
187,961 503,435 691,396 177,601 1987 06/87 (b)
258,084 513,853 771,937 181,276 1987 06/87 (b)
327,473 520,701 848,174 180,799 1987 08/87 (b)
384,911 163,164 548,075 55,294 1987 11/87 (b)
229,198 408,702 637,900 60,391 1993 07/93 (b)
198,735 266,200 464,935 91,691 1983 09/87 (b)
202,084 402,223 604,307 137,426 1987 10/87 (b)
162,783 305,154 467,937 102,565 1987 12/87 (b)
430,281 648,736 1,079,017 212,641 1988 08/87 (b)
54,093 200,141 254,234 69,493 1986 08/87 (b)
75,963 168,204 244,167 58,404 1986 08/87 (b)
71,512 145,191 216,703 50,414 1974 08/87 (b)
70,208 141,004 211,212 47,393 1977 12/87 (b)
208,781 518,884 727,665 170,079 1988 10/87 (b)
197,959 255,965 453,924 93,143 1987 02/87 (b)
184,512 274,991 459,503 100,066 1987 02/87 (b)
237,243 359,865 597,108 126,952 1987 06/87 (b)
155,041 417,209 572,250 138,490 1988 09/87 (b)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Wendy's Old Fashioned
Hamburger Restaurants:
Gainesville, Texas - 166,302 449,914 - -
Vail, Colorado - 782,609 - 550,346 -
Other:
Oxford, Alabama (g) - 152,567 355,990 - -
Littleton, Colorado (h) - 42,873 310,832 - -
Lombard, Illinois (i) - 85,517 96,207 40,633 -
---------- ----------- ---------- ------
$6,608,400 $ 7,322,995 $2,535,268 $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 50%
Interest:
Pizza Hut Restaurant:
Orlando, Florida - $ 330,568 $ 220,588 $ - $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 49%
Interest:
Denny's Restaurant:
Holland, Michigan - $ 295,987 $ - $ 780,451 $ -
========== =========== ========== ======
Property of Joint Venture in
Which the Partnership has a 64%
Interest:
Darryl's Restaurant:
Greensboro, North Carolina - $ 261,013 $ - $ - $ -
========== =========== ========== ======
Property in Which the Partnership
has a 33.87% Interest as
Tenants-in-Common:
Arby's Restaurant:
Arvada, Colorado (m) - $ 260,439 $ 545,126 $ - $ -
========== =========== ========== ======
Property in Which the Partnership
has a 57.77% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Boston Market Restaurant:
Mesa, Arizona - $ 440,843 $ 650,622 $ - $ -
========== =========== ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
166,302 449,914 616,216 157,470 1986 07/87 (b)
782,609 550,346 1,332,955 191,092 1987 08/87 (b)
152,567 355,990 508,557 117,174 1987 02/88 (b)
42,873 310,832 353,705 106,201 1973 10/87 (b)
85,517 136,840 222,357 34,958 1973 10/87 (b)
---------- ------------ ----------- ----------
$6,608,400 $ 9,858,263 $16,466,663 $3,302,095
========== ============ =========== ==========
$ 330,568 $ 220,588 $ 551,156 $ 75,062 1987 10/87 (b)
========== ============ =========== ==========
$ 295,987 $ 780,451 $ 1,076,438 $ 238,471 1988 10/87 (b)
========== ============ =========== ==========
$ 261,013 (k) $ 261,013 $ - 1987 07/87 (j)
========== =========== ==========
$ 260,439 $ 545,126 $ 805,565 $ 59,541 1994 09/94 (b)
========== ============ =========== ==========
$ 440,843 $ 650,622 $ 1,091,465 $ 4,021 1997 10/97 (b)
========== ============ =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Property in Which the Partnership
has a 47% Interest as Tenants-
in-Common and has Invested in
Under an Operating Lease:
Golden Corral Restaurant:
Smithfield, North Carolina - $ 264,272 $ 1,155,018 $ - $ -
========== =========== ========== ======
Property in Which the Partnership
has a 37.01% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $ 875,659 $ 1,389,366 $ - $ -
========== =========== ========== ======
Property of Joint Venture in Which
the Partnership has a 36% Interest
as Tenants-in-Common and has
Invested in Under a Direct Financing
Lease:
Darryl's Restaurant:
Greensboro, North Carolina - $ - $ - $ 521,400 $ -
========== =========== ========== ======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 264,272 $ 1,155,018 $ 1,419,290 $ 949 1996 12/97 (b)
========== ============ =========== ============
$ 875,659 $ 1,389,366 $ 2,265,025 $ 127 1994 12/97 (b)
========== ============ =========== ============
- (k) (k) (j) 1974 06/97 (j)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during 1997,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
<S> <C>
Properties the Partnership
has Invested in:
Balance, December 31, 1994 $20,578,419 $ 2,980,701
Additional costs
capitalized 828 -
Depreciation expense - 417,614
----------- -----------
Balance, December 31, 1995 20,579,247 3,398,315
Additional costs
capitalized 40,633 -
Depreciation expense - 417,776
----------- -----------
Balance, December 31, 1996 20,619,880 3,816,091
Dispositions (4,153,217) (909,833)
Depreciation expense - 395,837
----------- -----------
Balance, December 31, 1997 $16,466,663 $ 3,302,095
=========== ===========
Property of Joint Venture in
Which the Partnership has a 50%
Interest:
Balance, December 31, 1994 $ 551,156 $ 53,003
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1995 551,156 60,356
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1996 551,156 67,709
Depreciation expense - 7,353
----------- -----------
Balance, December 31, 1997 $ 551,156 $ 75,062
=========== ===========
Property of Joint Venture in Which
the Partnership has a 49%
Interest:
Balance, December 31, 1994 $ 1,076,438 $ 160,426
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1995 1,076,438 186,441
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1996 1,076,438 212,456
Depreciation expense - 26,015
----------- -----------
Balance, December 31, 1997 $ 1,076,438 $ 238,471
=========== ===========
</TABLE>
F-5
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost (c) Depreciation
<S> <C>
Property of Joint Venture in Which
the Partnership has a 64%
Interest:
Balance, December 31, 1994 $ 721,893 $ 127,072
Depreciation expense - 20,847
----------- -----------
Balance, December 31, 1995 721,893 147,919
Depreciation expense - 20,846
----------- -----------
Balance, December 31, 1996 721,893 168,765
Acquisition 261,013 -
Disposition (721,893) (170,478)
Depreciation expense - 1,713
----------- -----------
Balance, December 31, 1997 $ 261,013 $ -
=========== ==========
Property in Which the Partnership
has a 33.87% Interest as
tenants-in-common:
Balance, December 31, 1994 $ 805,565 $ 5,028
Depreciation expense - 18,171
----------- -----------
Balance, December 31, 1995 805,565 23,199
Depreciation expense - 18,171
----------- -----------
Balance, December 31, 1996 805,565 41,370
Depreciation expense - 18,171
----------- -----------
Balance, December 31, 1997 $ 805,565 $ 59,541
=========== ===========
Property in Which the Partnership
has a 57.77% Interest as
Tenants-in-Common and had
Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 1,091,465 -
Depreciation expense - 4,021
----------- -----------
Balance, December 31, 1997 $ 1,091,465 $ 4,021
=========== ===========
</TABLE>
F-6
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost (c) Depreciation
<S> <C>
Property in Which the Partnership
has a 47% Interest as Tenants-
in-Common and had Invested in
Under an Operating Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 1,419,290 -
Depreciation expense - 949
----------- -----------
Balance, December 31, 1997 $ 1,419,290 $ 949
=========== ===========
Property in Which the Partnership
has a 37.01% Interest as
Tenants-in-Common and had
Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ - $ -
Acquisitions 2,265,025 -
Depreciation expense - 127
----------- -----------
Balance, December 31, 1997 $ 2,265,025 $ 127
=========== ===========
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1997, the aggregate cost of the Properties owned
by the Partnership and the joint ventures (including the Property
held as tenants-in-common) for federal income tax purposes was
$16,420,257 and $4,806,629, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(e) The tenant of this Property, Golden Corral Corporation, has subleased
this Property to a local, independent restaurant. Golden Corral
Corporation continues to be responsible for complying with all the
terms of the lease agreement and is continuing to pay rent on this
Property to the Partnership.
(f) The restaurant in Sterling Heights, Michigan, was converted from a
Ponderosa Steakhouse Restaurant to a Lonestar Steakhouse & Saloon
Restaurant in 1994.
(g) The restaurant in Oxford, Alabama, was converted from a KFC
Restaurant to a regional, independent restaurant in 1993.
(h) The restaurant in Littleton, Colorado, was converted from a Taco Bell
restaurant to a local, independent restaurant in 1995.
F-7
<PAGE>
CNL INCOME FUND II, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1996
(i) The restaurant in Lombard, Illinois, was converted from a Taco Bell
restaurant to a Great Clips hair salon in 1996.
(j) For financial reporting purposes, the portion of the lease relating
to the building has been included in net investment in direct
financing leases; therefore, depreciation is not applicable.
(k) For financial reporting purposes, certain components of the lease
relating to the land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components of
this lease are not shown.
(l) During the year ended December 31, 1997, the Partnership and an
affiliate as tenants-in-common, purchase land and building from CNL
BB Corp., an affiliate of the General Partners, for an aggregate cost
of $1,091,465.
(m) The Property was converted from a Kenny Rogers Roasters restaurant to
an Arby's Restaurant during 1996.
F-8
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
3.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 3.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on April 2, 1993, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund II, Ltd.
(Included as Exhibit 4.1 to Amendment No. 1 to Registration
Statement No. 33-10351 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund II, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on April 2, 1993, and incorporated herein by
reference.)
10.1 Property Management Agreement (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission on
April 2, 1993, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc. (Included
as Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10- K filed with the Securities and
Exchange Commission on April 1, 1996 and incorporated herein
by reference.)
10.4 Promissory Note, dated January 16, 1996, among the Registrant
and CNL Realty Corporation relating to a $26,300 loan.
(Included as Exhibit 10.4 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996 and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
i
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial informatino extracted from the balance
sheet of CNL Income Fund II, Ltd. at December 31, 1997, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10-K of CNL Income Fund II, Ltd. for the year ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-01-1997
<CASH> 2,940,369<F2>
<SECURITIES> 0
<RECEIVABLES> 163,831
<ALLOWANCES> 83,254
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,466,663
<DEPRECIATION> 3,302,095
<TOTAL-ASSETS> 19,959,059
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,201,649
<TOTAL-LIABILITY-AND-EQUITY> 19,959,059
<SALES> 0
<TOTAL-REVENUES> 2,157,939
<CGS> 0
<TOTAL-COSTS> 570,133
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 27,965
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 3,639,880
<INCOME-TAX> 0
<INCOME-CONTINUING> 3,639,880
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 3,639,880
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F2>Cash balance includes $2,470,175 in restricted cash.
<F1>Due to the nature of its industry, CNL Income Fund II, Ltd. has an
unclassified balance sheet; therefore no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
