As filed with the Securities and Exchange Commission on January 21, 2004
                                                                                                            Registration No. 333-100347

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                                              SECURITIES AND EXCHANGE COMMISSION
                                                    Washington, D.C. 20549

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                                                   Post-Effective Amendment No. Four

                                                                  To
                                                               Form S-11
                                                        Registration Statement
                                                                 Under
                                                The Securities Act of 1933, as amended

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

                                                      CNL Center at City Commons
                                                        450 South Orange Avenue
                                                        Orlando, Florida 32801
                                                       Telephone: (407) 650-1000
                                               (Address of Principal executive offices)

                                                       THOMAS J. HUTCHISON III.
                                                        Chief Executive Officer
                                                      CNL Center at City Commons
                                                        450 South Orange Avenue
                                                        Orlando, Florida 32801
                                                       Telephone: (407) 650-1000
                                                     (Name, Address and Telephone
                                                     Number of Agent for Service)

                                                              COPIES TO:
                                                       JUDITH D. FRYER, ESQUIRE
                                                        Greenberg Traurig, LLP
                                                           Met Life Building
                                                            200 Park Avenue
                                                       New York, New York 10166



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

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

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

                         CNL RETIREMENT PROPERTIES, INC.

                   Supplement No. Four, dated January 21, 2004
                       to Prospectus, dated March 26, 2003




         This Supplement is part of, and should be read in conjunction with, the
Prospectus dated March 26, 2003. This Supplement  replaces all prior Supplements
to the  Prospectus.  Capitalized  terms  used in this  Supplement  have the same
meaning as in the Prospectus unless otherwise stated herein.

         Information as to proposed Properties for which the Company has entered
into  initial  commitments  to acquire  and the  number and types of  Properties
acquired by the Company are presented as of January 5, 2004,  and all references
to  commitments  and  Property  acquisitions  should  be read  in that  context.
Proposed Properties for which the Company receives initial commitments,  as well
as Property acquisitions that occur after January 5, 2004, will be reported in a
subsequent Supplement.


                               RECENT DEVELOPMENTS

         The following table sets forth the type,  location and acquisition date
for each of the  Properties  acquired by the Company  between  March 1, 2003 and
January 5, 2004.


                    Location                            Date
                                                      Acquired
-------------------------------------------------    -----------

Balmoral
     Palm Harbor, FL                                  07/08/03
Brighton Gardens by Sunrise
     Colorado Springs, CO                             03/27/03
     Denver, CO                                       03/27/03
     Lakewood, CO                                     03/27/03
     Edgewood, KY                                     03/28/03
     Greenville, SC                                   03/28/03
     Northridge, CA                                   03/28/03
     Rancho Mirage, CA                                03/28/03
     Salt Lake City, UT                               03/28/03
     Yorba Linda, CA                                  03/28/03
     Saddle River, NJ                                 03/31/03
     Atlanta, GA                                      08/29/03
     Columbia, MD                                     08/29/03
     Dayton, OH                                       08/29/03
     Florham Park, NJ                                 08/29/03
     Greensboro, NC                                   08/29/03
     Plymouth, MI                                     08/29/03
     Omaha, NE                                        08/29/03
     Prairie Village, KS                              08/29/03
     Rockville, MD                                    08/29/03
     St. Charles, IL                                  08/29/03
     Tampa, FL                                        08/29/03
     Westlake, OH                                     08/29/03
     West Orange, NJ                                  08/29/03
     Wheaton, IL                                      08/29/03
Dogwood Forest
     Dunwoody, GA                                     11/25/03
EdenBrook
     Alpharetta, GA                                   11/25/03
     Houston, TX                                      11/25/03
     Plano, TX                                        11/25/03
     Woodlands, TX                                    11/25/03
     Charleston, SC                                   11/25/03
     Huntsville, AL                                   11/25/03
     Jacksonville, FL                                 11/25/03
     Tallahassee, FL                                  11/25/03
     Middletown, KY                                   11/25/03
     Atlanta, GA (Buckhead)                           11/25/03
     Atlanta, GA (Dunwoody)                           11/25/03
EdenGardens
     Aiken, SC                                        11/25/03
     Columbia, SC                                     11/25/03
     Greenwood, SC                                    11/25/03
     Rock Hill, SC                                    11/25/03
     Arlington, TX                                    11/25/03
     Kingwood, TX                                     11/25/03
     Concord, NC                                      11/25/03
     Gainesville, FL                                  11/25/03
     Marietta, GA                                     11/25/03
     Roswell, GA                                      11/25/03
     Atlanta, GA                                      11/25/03
EdenTerrace Properties
     Arlington, TX                                    11/25/03
     Kingwood, TX                                     11/25/03
     Middletown, KY                                   11/25/03
Fairfax by Sunrise
     Fort Belvoir, VA                                 03/28/03
GreenTree
     Mt. Vernon, IL                                   09/05/03
     Indianapolis, IN                                 09/05/03
     West Lafayette, IN                               09/05/03
     Indianapolis, IN (Ft. Benjamin Harrison)         09/11/03
Sunrise MapleRidge
     Palm Springs, CA                                 03/28/03
Quadrangle by Sunrise
     Haverford, PA                                    03/28/03
Somerby
     Birmingham, AL                                   08/25/03
     Huntsville, AL                                   08/25/03
Sunrise
     Annapolis, MD                                    03/31/03
     Pikesville, MD                                   03/31/03
     Arlington, VA                                    09/30/03
     Arlington, VA (Bluemont Park)                    09/30/03
     Brooklyn, NY                                     09/30/03
     Brooklyn, NY (Sheepshead Bay)                    09/30/03
     Falls Church, VA                                 09/30/03
     Farmington Hills, MI                             09/30/03
     Frederick, MD                                    09/30/03
     Leesburg, VA                                     09/30/03
     Mercer Island, WA                                09/30/03
     Poland, OH                                       09/30/03
     Raleigh, NC                                      09/30/03
     Sterling, VA                                     09/30/03
     Beverly Hills, CA (1)                            09/30/03
     Cresskill, NJ (1)                                09/30/03
     Edmonds, WA (1)                                  09/30/03
     Lilburn, GA (1)                                  09/30/03
     Madison, NJ (1)                                  09/30/03
Land only
     Warminster, PA                                   06/02/03
     Hingham, MA                                      12/01/03

               (1) This Property is being developed.

         The Balmoral  Assisted  Living  Community  located in Palm Harbor is an
independent  living/assisted  living  community  which  opened  in July 1996 and
includes 44 independent  living units and 55 assisted  living units or units for
residents with Alzheimer's or related memory disorders.

         The Brighton Gardens  Properties  located in each of Colorado  Springs,
Denver, Lakewood,  Greenville,  Northridge, Rancho Mirage, Salt Lake City, Yorba
Linda, Omaha, Prairie Village,  Rockville and Tampa are assisted  living/skilled
nursing  Properties  which opened  between  September 1996 and January 2002, and
each Property  includes  between 60 and 101 assisted living units and between 25
and 44 units for residents with Alzheimer's and related memory  disorders.  Each
Property also includes  between 28 and 30 skilled  nursing  units.  The Brighton
Gardens Properties located in each of Edgewood, Saddle River, Atlanta, Columbia,
Dayton, Florham Park, Greensboro,  Plymouth, St. Charles,  Westlake, West Orange
and Wheaton are assisted living  Properties  which opened between April 1998 and
April 2000, and each Property  includes  between 65 and 98 assisted living units
and between 16 and 39 units for residents  with  Alzheimer's  and related memory
disorders.

         The Dogwood Forest  Property is an assisted living facility that opened
in June 2000.  The Property  includes 55 assisted  living units and 11 units for
residents with Alzheimer's and related memory disorders.  It is anticipated that
the facility will convert eight units from assisted  living units to Alzheimer's
and related  memory  disorder  units.  This will bring the  configuration  to 47
assisted  living units and 19 units for residents with  Alzheimer's  and related
memory disorders.

         The  EdenBrook  and   EdenGardens   Properties   are  assisted   living
Properties,  which opened  between  August 1993 and June 2001, and each Property
includes  between  36 and 65  assisted  living  units  and  up to 35  units  for
residents  with  Alzheimer's  and  related  memory  disorders.  The  EdenTerrace
Properties are independent living Properties, which opened between December 2000
and June 2001, and each Property includes between 120 and 140 independent living
units.

         The Fairfax  Property is a continuing care  retirement  community which
opened in July 1989 and includes 382 independent  living units and cottages,  45
assisted living units and 40 skilled nursing units.

         The GreenTree  Properties are assisted living  Properties  which opened
between March 1998 and March 2001,  and each Property  includes  either 58 or 59
assisted living units.

         The  MapleRidge of Palm Springs is an assisted  living  Property  which
opened in December  1999 and includes 56 assisted  living units and 28 units for
residents with Alzheimer's and related memory disorders.

         The Quadrangle Property is a continuing care retirement community which
opened in May 1989 and includes 349  independent  living units and cottages,  90
assisted  living units,  25 units for  residents  with  Alzheimer's  and related
memory disorders and 72 skilled nursing units.




         The  Somerby  Properties  located  in  Birmingham  and  Huntsville  are
independent  living/assisted  living  Properties which opened in April 1999. The
Birmingham  Property  includes 240 independent  living units, 84 assisted living
units and 28 units for residents with Alzheimer's and related memory  disorders.
The Huntsville  Property  includes 138 independent  living units and 48 assisted
living units.

         The  Sunrise  Properties  located  in  each of  Annapolis,  Pikesville,
Arlington,  Brooklyn,  Brooklyn-Sheepshead Bay, Falls Church,  Farmington Hills,
Frederick,  Mercer Island,  Poland,  and Raleigh are assisted living  Properties
which opened between January 1989 and February 2002, and each Property  includes
between  29 and 88  assisted  living  units  and  between  16 and 38  units  for
residents with  Alzheimer's and related memory  disorders.  The Sunrise Property
located in Leesburg,  Virginia is an assisted  living  Property  which opened in
January  1984 and  includes 38 assisted  living  units.  The Sunrise  Properties
located  in  each  of  Arlington-Bluemont  Park  and  Sterling  are  independent
living/assisted  living  Properties which opened between May 1990 and July 1992,
and each Property includes between 52 and 128 independent living units,  between
37  and  47  assisted  living  units  and up to ten  units  for  residents  with
Alzheimer's and related memory disorders.

         The Sunrise Properties to be located in each of Beverly Hills, Edmonds,
Lilburn and Madison are  expected  to be  assisted  living  Properties  and each
Property  is expected to include  between 35 and 64  assisted  living  units and
between  16 and 23 units for  residents  with  Alzheimer's  and  related  memory
disorders. The remaining Sunrise Property located in Cresskill is expected to be
an  independent  living/assisted  living  Property and is expected to include 77
independent  living units,  60 assisted  living units and 21 units for residents
with Alzheimer's and related memory disorders.

         The  Ann's  Choice  Continuing  Care  Retirement   Community  is  being
constructed  on the  parcel of land  located  in  Warminster,  Pennsylvania.  In
addition,  the  Linden  Ponds  Continuing  Care  Retirement  Community  is being
constructed on the parcel of land located in Hingham, Massachusetts. The Company
will not own these  facilities.  The facilities will be owned by a subsidiary of
Erickson  Retirement  Communities,  LLC  ("Erickson"),  to which the Company has
leased the land.

         As of January 5, 2004, the Company owned  interests in 119  Properties.
In addition,  the Company has  commitments to acquire 23 additional  Properties.
Substantially all of the Properties owned by the Company, and the Properties for
which  the  Company  has  commitments  to  acquire,  are or will be  leased on a
long-term,   triple-net  basis  and  are  managed  by  Operators  of  retirement
facilities. Of the 119 Properties owned by the Company as of January 5, 2004, 93
are operated by Sunrise Senior Living Services,  Inc., a wholly owned subsidiary
of Sunrise Senior Living, Inc. (formerly known as Sunrise Assisted Living, Inc.)
("Sunrise").  Sunrise  (SRZ)  is  a  NYSE  listed  company.  Additionally,  five
Properties  owned by the  Company as of January 5, 2004 are being  developed  by
Sunrise Development, Inc., a wholly owned subsidiary of Sunrise. Upon completion
of each  development,  the Property  will be operated by Sunrise  Senior  Living
Services, Inc.

         In a press  release  dated March 31,  2003,  Sunrise  announced  it had
acquired all of the outstanding  stock of Marriott Senior Living Services,  Inc.
When the stock sale was completed,  the 41 long-term management agreements which
the  Company's  tenants had entered into with Marriott  Senior Living  Services,
Inc. were assumed by Sunrise Senior Living Services,  Inc.;  therefore,  Sunrise
Senior Living Services,  Inc. now operates all of the Company's  Properties that
were previously  operated by Marriott Senior Living Services,  Inc. In addition,
Sunrise  agreed to assume an obligation  to the Company  under a guarantee  from
Marriott International,  Inc. relating to one of these Properties. Subsequent to
Sunrise's assumption of the long-term management  agreements which the Company's
tenants had entered into with Marriott Senior Living  Services,  Inc., the names
of certain Properties owned by the Company were changed in the following manner:
all of the Company's  Marriott  MapleRidge  Properties  are now known as Sunrise
Assisted Living Properties.  Additionally, all of the Company's Brighton Gardens
by  Marriott  Properties  are now known as  Brighton  Gardens by Sunrise  Senior
Living Services, Inc. Properties.

         The Board of Directors declared  Distributions of $0.0589,  $0.0589 and
$0.0592  per Share to  stockholders  of  record on  October  1,  November  1 and
December  1,  2003,  respectively,  which were paid by  December  31,  2003.  In
addition,   the  Board  of  Directors  declared   Distributions  of  $0.0592  to
stockholders of record on January 1, 2004, payable by March 31, 2004.


                                  THE OFFERINGS

GENERAL

         As of January 5, 2004, the Company had received subscriptions from this
offering for 89.9 million Shares totalling $899 million in Gross Proceeds. As of
January 5, 2004,  the  Company  had  received  aggregate  subscriptions  for 151
million Shares  totalling $1.5 billion in gross proceeds,  including 1.1 million
Shares ($10.9 million) issued pursuant to the Reinvestment  Plan, from its Prior
Offerings and this offering.  As of January 5, 2004, net proceeds to the Company
from its offerings of Shares and capital  contributions from the Advisor,  after
deduction of selling  commissions,  the  marketing  support  fee, due  diligence
expense  reimbursements and organizational and offering expenses,  totalled $1.4
billion. The Company used $1 billion of net offering proceeds,  $71.4 million in
advances  relating  to its  line of  credit  and  $282.4  million  in  Permanent
Financing,  as well as the  assumption  of $88.5  million in bonds  payable,  to
invest $1.5 billion in 119  retirement  Properties.  As of January 5, 2004,  the
Company had repaid $51.4 million in advances relating to its line of credit, had
paid $89.5 million in  Acquisition  Fees and  Acquisition  Expenses and had used
$1.6  million to redeem  0.2  million  Shares of Common  Stock,  leaving  $205.4
million available to invest in Properties or Mortgage Loans.


                                  RISK FACTORS

COMPANY-RELATED RISKS

         We will be subject to conflicts of interest.

         The following paragraphs update and replace the sixth paragraph on page
14 of the Prospectus:

                  We may invest with affiliates of the advisor. We may invest in
joint ventures with other programs  sponsored by the advisor or its  affiliates.
The Board of Directors,  including the independent  directors,  must approve the
transaction,   but  the  advisor's   recommendation   may  be  affected  by  its
relationship  with one or more of the co-venturers and may be more beneficial to
the other programs than to us. The advisor or its  affiliates  from time to time
may acquire  properties on a temporary  basis with the intention of subsequently
transferring the properties to one or more programs  sponsored by CNL. Conflicts
may arise in connection with such transactions.

                  Affiliates of the advisor have a financial interest in certain
tenants.  For  properties  that we lease to tenants in which  affiliates  of the
advisor  have  financial  or other  interests,  we are less  likely to evict the
tenant for defaulting under the lease. Minor defaults may continue for some time
before the advisor or Board of Directors,  including the independent  directors,
resolves  to evict the  tenant,  and the  advisor's  recommendation  may be more
beneficial to other entities than to the Company.

REAL ESTATE AND OTHER INVESTMENT RISKS

         Retirement Facilities.

         The  following   paragraph   updates  and  replaces  the  corresponding
paragraph on page 18 of the Prospectus:

         We will not control the management of our properties.  Our tenants will
be responsible for maintenance and other day-to-day management of the properties
either  directly or by  entering  into  operating  agreements  with  third-party
operators.  Because  our  revenues  will  largely be  derived  from  rents,  our
financial  condition will be dependent on the ability of third-party  tenants or
operators  that we do not control to operate the  properties  successfully.  The
tenant's  ability to satisfy  the lease  obligations  depends  primarily  on the
property's  operating  results.  We intend to enter into leasing agreements with
tenants  having  substantial  prior  experience  in the  operation of retirement
facilities or medical office  buildings and walk-in clinics or who contract with
third-party operators having the same qualifications. However, we may enter into
leasing  agreements with newly-formed  tenants that have limited  experience but
whose  principals and officers have  substantial  experience in the operation of
retirement  facilities or medical office buildings and walk-in  clinics.  If our
tenants  or   third-party   operators  are  unable  to  operate  the  properties
successfully,  they may not be able to pay their  rent,  which  could  adversely
affect our financial condition.


                             MANAGEMENT COMPENSATION

         For  information  concerning  compensation  paid to the Advisor and its
Affiliates, see "Certain Relationships and Related Transactions."


                                    BUSINESS

GENERAL

         The  following  table updates and replaces the  corresponding  table on
page 46 of the Prospectus.

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

                 Years of Age                        Percentage
              ------------------                   --------------

                    65-69                              8.1%

                    70-74                              10.5%

                    75-79                              16.9%

                     80+                               34.9%


Source:  U.S. Census Bureau, 1997 data

         The  following   paragraph   updates  and  replaces  the  corresponding
paragraph on page 46 of the Prospectus.

         According  to the  Centers  for  Medicare & Medicaid  Services  and the
National Health Statistics  Group, the health care industry  represents 14.3% of
the United  States' gross  domestic  product  ("GDP") with over $1.6 trillion in
annual  expenditures.  The Health Care  Financing  Administration  expects  this
figure  to rise to over 16% of the GDP by 2011,  with  $2.8  trillion  in annual
expenditures. According to the Health Care Financing Administration, U.S. health
care  construction  expenditures  are  estimated  to be $23  billion in 2003 and
growing. With regard to housing for seniors,  there are three major contributors
to growth and the  attraction of capital,  according to the National  Investment
Conference for the Senior Living and Long Term Care Industries in 1996. They are
(i)  demographics,  (ii) the  limited  supply  of new  product,  and  (iii)  the
investment  community's  increased  understanding  of the industry.  The Company
believes the growth in demand and facilities will continue for at least 50 years
due to the  favorable  demographics,  the  increase in public  awareness  of the
industry,  the  preference  of seniors for obtaining  care in  non-institutional
settings and the cost savings realized in a non-institutional environment.

         The  following  table updates and replaces the  corresponding  table on
page 47 of the Prospectus.

    Estimate of Resident Demand for Seniors' Housing Categories - Private Pay
                             Thousands of Residents

   Base               Independent Living             Assisted Living            Skilled Nursing
------------         ---------------------          ------------------         ------------------
   2000                      637                           511                        671
   2010                      751                           592                        773
   2020                      991                           720                        964
   2030                     1,389                         1,004                      1,309

Source:   The  Case  for  Investing  in  Seniors   Housing  and  Long  Term-Care
          Properties,  prepared for the National  Investment  Conference for the
          Senior Living and Long-Term Care Industries, Copyright 2001





PROPERTY ACQUISITIONS

         The  following  information  should  be read in  conjunction  with  the
"Business  --  Property  Acquisitions"  section  beginning  on  page  50 of  the
Prospectus.

         Summit  Portfolio  Properties.  On March 27, 2003, the Company acquired
the Brighton Gardens of Colorado Springs located in Colorado  Springs,  Colorado
(the "Colorado Springs Property") for $16,120,000 from Senior Living of Colorado
Springs,  LLC; the Brighton  Gardens of Denver located in Denver,  Colorado (the
"Denver  Property") for $17,480,000  from Senior Living of Denver,  LLC; and the
Brighton  Gardens of  Lakewood  located in  Lakewood,  Colorado  (the  "Lakewood
Property")  for  $18,400,000  from Senior Living of Lakewood,  LLC. The Colorado
Springs,  Denver and  Lakewood  Properties  are  hereinafter  referred to as the
"Summit Portfolio  Properties."  These three Properties are operated and managed
by Sunrise Senior Living Services, Inc.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements with Senior Living of Colorado Springs, LLC, Senior Living of Denver,
LLC and  Senior  Living of  Lakewood,  LLC,  subsidiaries  of Summit  Companies,
Incorporated, relating to these three Properties. The general terms of the lease
agreements are described in "Business --  Description  of Property  Leases." The
principal features of the lease agreements are as follows:

         o The initial term of each lease expires on March 27, 2018.

         o Minimum annual rent as set forth in the leases is as follows:

                                                               Minimum
                              Property                      Annual Rent
                 -----------------------------------      ----------------

                 Colorado Springs Property                  $1,576,765
                 Denver Property                             1,707,670
                 Lakewood Property                           1,796,210

 o         Minimum  annual rent will increase by 0.375% in the second lease year
           and by 2.5%  beginning  in the third lease year,  and each lease year
           thereafter.

 o         At the end of the  initial  lease  terms,  the  tenant  will have two
           consecutive renewal options of five years each.

 o         In addition to minimum rent, the leases require additional rent in an
           amount  equal  to  the  difference   between  14%  of  the  Company's
           investment  basis in the  Properties  and minimum  rent  payable each
           lease year. The additional  rent is payable on a monthly basis to the
           extent net operating  cash flow from the  Properties is available and
           does not accumulate beyond each lease year.


o          On behalf of the tenants of these three Properties,  the Operator has
           established FF&E Reserve funds which will be used for the replacement
           and renewal of  furniture,  fixtures  and  equipment  relating to the
           three  Properties.  Deposits to the FF&E  Reserve are made every four
           weeks,  and the amount of the deposits  are based on a percentage  of
           gross  revenues,  as  determined  by factors  such as the age of each
           Property. Deposits to the FF&E Reserve are 1.5% of gross revenues for
           the first lease year;  2% of gross  revenues for the second and third
           lease years;  3% of gross revenues for the fourth through  thirteenth
           lease years;  3.5% of gross revenues for the  fourteenth  lease year;
           and 4% of gross revenues for the fifteenth  lease year.  Funds in the
           FF&E  Reserve  relating  to these  three  Properties  are held by the
           tenant.

o          The leases for the Summit Portfolio Properties contain pooling terms,
           meaning that net operating  profits with respect to these  Properties
           are combined for the purpose of funding rental  payments and the FF&E
           Reserve. In addition, the leases contain cross-default terms, meaning
           that if the  tenant of any of the three  Properties  defaults  on its
           obligations  under its lease,  the  Company  will have the ability to
           pursue  its  remedies  under the  leases  with  respect  to all three
           Properties,  regardless of whether the tenant of any such Property is
           in default under its lease.

o          Base management fees payable to Sunrise Senior Living Services,  Inc.
           for the operation of the three  Properties  are 7% of gross  revenues
           throughout the term of the leases. Rent payments due under the leases
           are subordinate to the payment of base management fees.

         The approximate  federal income tax basis of the depreciable portion of
the three Summit Portfolio Properties is as follows:

                   Colorado Springs Property                $16,400,000
                   Denver Property                           17,900,000
                   Lakewood Property                         17,900,000

         On March 27,  2003,  in  connection  with the  purchase  of the  Summit
Portfolio  Properties,  the Company obtained  Permanent  Financing  comprised of
three loans in the aggregate amount of $26 million. The loans bear interest at a
variable  rate  based on  30-day  LIBOR  plus 325  basis  points  with a minimum
interest rate of 5% per annum. The loans require monthly  principal and interest
payments  through  March 31,  2005,  with the unpaid  principal  balance and all
accrued  interest due at that time. The loans have certain  financial  covenants
typically found in commercial  loans.  The financial  covenants are based on the
combined operations of the Summit Portfolio  Properties.  In connection with the
loans,  the  Company  incurred  loan  fees and  closing  costs of  approximately
$352,000. The loans are cross-collateralized and cross-defaulted.

         The Colorado  Springs  Property,  which opened in October  1999, is the
Brighton Gardens of Colorado Springs located in Colorado Springs,  Colorado. The
Colorado  Springs  Property  includes 90  assisted  living  units,  25 units for
residents with  Alzheimer's and related memory  disorders and 28 skilled nursing
units.  The  Operator  provides   assistance  to  residents  with  daily  living
activities  such as  bathing,  dressing  and  medication  reminders,  as well as
medical monitoring.  Amenities include common dining and living areas,  activity
areas,  a library and a hair salon.  The Property is located three miles west of
downtown Colorado Springs,  Colorado.  Other senior living facilities located in
proximity to the Colorado Springs Property include NBA Village at Skyline,  Life
Care Campus of Colorado  Springs,  Sunrise  Assisted Living -- University  Park,
Sterling House of Broadmoor,  Wynwood of Colorado  Springs,  Union Printer Home,
Namaste Alzheimer's Center and Clare Bridge of Colorado Springs.

         The Denver  Property,  which opened in September  1996, is the Brighton
Gardens of Denver located in Denver,  Colorado.  The Denver Property includes 90
assisted  living units,  25 units for  residents  with  Alzheimer's  and related
memory disorders and 28 skilled nursing units. The Operator provides  assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication  reminders,  as well as medical monitoring.  Amenities include common
dining and  living  areas,  activity  areas,  a library  and a hair  salon.  The
Property is located eight miles southeast of downtown  Denver,  Colorado.  Other
senior living  facilities  located in proximity to the Denver  Property  include
Caley Ridge, EPOCH Assisted Living of Denver,  Heritage Club of Denver,  Sunrise
at Cherry Creek, Sunrise Assisted Living at Orchard and Wellspring.

         The Lakewood  Property,  which opened in October  1999, is the Brighton
Gardens of Lakewood located in Denver,  Colorado. The Lakewood Property includes
90 assisted  living units,  25 units for residents with  Alzheimer's and related
memory disorders and 28 skilled nursing units. The Operator provides  assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication  reminders,  as well as medical monitoring.  Amenities include common
dining and  living  areas,  activity  areas,  a library  and a hair  salon.  The
Property is located ten miles west of downtown  Denver,  Colorado.  Other senior
living facilities  located in proximity to the Lakewood Property include the Inn
at Lakewood, Heritage Club of Lakewood and Sunrise at Pinehurst.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facilities have been operational are as follows:

                                                                                         Revenue          Revenue
                                                                         Average       per Occupied         per
                                                                        Occupancy          Unit          Available
          Property                  Location              Year            Rate                              Unit
 ---------------------------  ----------------------  -------------    ------------    -------------    -------------

 Colorado Springs Property    Colorado Springs, CO           *1999          20.7%          $ 115.27           $23.87
                                                            **2000          64.9%            108.68            70.53
                                                            **2001          77.7%            113.60            88.27
                                                            **2002          86.3%            117.93           101.73
                                                           ***2003          93.4%            131.84           123.10

                                                                                         Revenue          Revenue
                                                                         Average       per Occupied         per
                                                                        Occupancy          Unit          Available
          Property                  Location              Year            Rate                              Unit
 ---------------------------  ----------------------  -------------    ------------    -------------    -------------

 Denver Property              Denver, CO                    **1999          93.4%            $98.54           $92.05
                                                            **2000          89.8%            109.78            98.62
                                                            **2001          88.2%            123.57           109.04
                                                            **2002          97.6%            125.62           122.58
                                                           ***2003          94.1%            137.09           128.95

 Lakewood Property            Lakewood, CO                   *1999          38.8%           $134.21          $ 52.09
                                                            **2000          71.0%            107.93            76.59
                                                            **2001          80.5%            127.03           102.23
                                                            **2002          93.0%            127.92           118.95
                                                           ***2003          94.8%            142.74           135.35

*   Data for the Colorado Springs and Lakewood Properties represents the period
    October 1, 1999 through December 31, 1999.
**  Data  for  1999,  2000,  2001  and  2002  represents  information  for  each
    applicable fiscal year.
*** Data for 2003  represents  the period  January 4, 2003 through  November 30,
    2003.


         Additional  Marriott  Portfolio Two Properties.  On March 28, 2003, the
Company acquired nine Properties from Marriott Senior Living Services,  Inc. and
its affiliates for an aggregate  purchase  price of  approximately  $166 million
plus the assumption of approximately $88.5 million in life care bonds payable to
certain residents of two of the Properties.  The Properties and related purchase
prices include the Brighton  Gardens of Edgewood  located in Edgewood,  Kentucky
(the "Edgewood  Property") for  $2,654,632;  the Brighton  Gardens of Greenville
located  in  Greenville,   South  Carolina  (the   "Greenville   Property")  for
$4,132,969; the Brighton Gardens of Northridge located in Northridge, California
(the  "Northridge  Property") for  $14,735,846;  the Brighton  Gardens of Rancho
Mirage located in Rancho Mirage,  California (the "Rancho Mirage  Property") for
$13,833,657;  the Brighton  Gardens of Salt Lake City located in Salt Lake City,
Utah (the "Salt Lake City Property") for  $15,028,664;  the Brighton  Gardens of
Yorba Linda located in Yorba Linda,  California (the "Yorba Linda Property") for
$13,483,926;  the MapleRidge of Palm Springs located in Palm Springs, California
(the "Palm  Springs  Property")  for  $2,653,469;  the  Fairfax  located in Fort
Belvoir,  Virginia  (the  "Fort  Belvoir  Property")  for  $39,421,527  plus the
assumption of $37,551,865 in life care bonds payable; and the Quadrangle located
in Haverford,  Pennsylvania (the "Haverford  Property") for $60,118,719 plus the
assumption of $50,958,830 in life care bonds payable. The Edgewood,  Greenville,
Northridge,  Rancho  Mirage,  Salt Lake City,  Yorba Linda,  Palm Springs,  Fort
Belvoir and Haverford  Properties are hereinafter referred to as the "Additional
Marriott Portfolio Two Properties." The nine Properties are operated and managed
by Sunrise Senior Living Services, Inc.


         The Company as lessor,  has entered into  long-term,  triple-net  lease
agreements with Eight Pack Management  Corp.,  Eleven Pack Management  Corp. and
Marriott  Continuing  Care,  LLC relating to these nine  Properties.  Eight Pack
Management  Corp.  is the tenant of two of these  Properties,  the  Orland  Park
Property  and  six  of  the  Marriott  Portfolio  Two  Properties.  Eleven  Pack
Management Corp. is the tenant of five of these Properties and the remaining six
Marriott Portfolio Two Properties. HRA Management Corporation, the tenant of the
Marriott Portfolio One Properties;  One Pack Management Corp., the tenant of the
Saddle River Property;  Balmoral Tenant  Services,  Inc., the tenant of the Palm
Harbor  Property;  Twenty  Pack  Management  Corp.,  the  tenant of the  Sunrise
Portfolio Four Properties and the Additional  Sunrise Portfolio Four Properties;
Harborchase  of  Gainesville,  Inc.,  Harborchase  of  Jacksonville,   Inc.  and
Harborchase  of  Tallahassee,  Inc.,  the tenants of the EdenCare  Portfolio One
Properties;  and Twenty Two Pack  Management  Corp.,  the tenant of the EdenCare
Portfolio Two Properties,  as described below, are also affiliates of Eight Pack
Management  Corp. and Eleven Pack Management Corp. Each of these companies is an
"HRA Affiliated  Company" and the ten companies are collectively  referred to as
the "HRA Affiliated  Companies." The HRA Affiliated Companies are, collectively,
the  tenants of 69 of the 119  Properties  owned by the Company as of January 5,
2004.  The  HRA  Affiliated  Companies  are  thinly  capitalized,  newly  formed
corporations which are affiliates of Harbor Retirement  Associates,  LLC ("HRA")
and are affiliated  with the Advisor.  HRA is a developer and operator of senior
living products and services. The principals of HRA, Timothy S. Smick and Daniel
Simmons,  have more than 50 years of combined  experience in the seniors housing
industry.  Mr. Smick served as a director of the Company until February 13, 2002
and Mr.  Simmons  was an officer of the Company  until  early 2000.  The general
terms of the lease  agreements  are  described in the section of the  Prospectus
entitled "Business -- Description of Property Leases."

         The  principal  features  of  the  lease  agreements  with  Eight  Pack
Management  Corp.  relating to the Salt Lake City and Yorba Linda Properties are
as follows:

o The initial term of each lease expires on March 28, 2018.

o Minimum annual rent as set forth in the leases is as follows:

                                                      Minimum
                     Property                       Annual Rent
            ----------------------------    ----------------------------

         Salt Lake City Property                  $1,555,842
         Yorba Linda Property                      1,395,923

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year, and each lease year thereafter.

o        At the  end of the  initial  lease  terms  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        In addition to minimum rent, the leases require  additional  rent in an
         amount equal to the difference between 14% of the Company's  investment
         basis in the  Properties  and minimum rent payable each lease year. The
         additional  rent is  payable  on a  monthly  basis  to the  extent  net
         operating  cash  flow from the  Properties  is  available  and does not
         accumulate beyond each lease year.


o        Financial  statements that present the historical  operating results of
         these  Properties are included in Financial  Information  commencing on
         page F-1 of this Prospectus  Supplement,  as the Marriott Senior Living
         Services Nine  Communities,  for the quarters  ended March 28, 2003 and
         March 22, 2002,  and the fiscal years ended  January 3, 2003,  December
         28, 2001 and December 29, 2000.

o        On behalf  of the  tenant of these two  Properties,  the  Operator  has
         established  FF&E Reserve funds which will be used for the  replacement
         and renewal of furniture,  fixtures and  equipment  relating to the two
         Properties. Deposits to the FF&E Reserve are made every four weeks, and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined by factors such as the age of each Property.  Deposits to
         the FF&E Reserve for the Salt Lake City and Yorba Linda  Properties are
         2% of gross revenues for the first and second lease years;  3% of gross
         revenues for the third  through  fourteenth  lease  years;  and 3.5% of
         gross  revenues each lease year  thereafter.  Funds in the FF&E Reserve
         relating to these two Properties are held by the Company.

o        The leases for the Salt Lake City and Yorba Linda Properties as well as
         the Hoffman Estates, Tulsa, Hemet, Plymouth, Willoughby and Little Rock
         Properties  previously  acquired by the Company  and  described  in the
         section of the Prospectus entitled "Business-- Property  Acquisitions--
         Marriott Portfolio Two Properties" contain pooling terms,  meaning that
         net  operating  profits  with  respect to these  eight  Properties  are
         combined  for the  purpose  of  funding  rental  payments  and the FF&E
         Reserve. In addition,  the leases contain  cross-default terms, meaning
         that if the  tenant  of any of the  eight  Properties  defaults  on its
         obligations  under  any of these  leases,  the  Company  will  have the
         ability to pursue its  remedies  under the leases with respect to these
         eight Properties, regardless of whether the tenant of any such Property
         is in default under its lease.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for  the  operation  of the two  Properties  are 6% of  gross  revenues
         throughout  the term of the leases.  Rent payments due under the leases
         are subordinate to the payment of base management fees.

         The  principal  features  of the  lease  agreements  with  Eleven  Pack
Management Corp. relating to the Edgewood, Greenville, Northridge, Rancho Mirage
and Palm Springs Properties are as follows:




o        The initial term of each lease expires on March 28, 2018.

o        Minimum annual rent as set forth in the leases is as follows:

                                                   Minimum
                  Property                       Annual Rent
         ----------------------------    ----------------------------

         Edgewood Property                       $   234,022
         Greenville Property                         364,347
         Northridge Property                       1,299,057
         Rancho Mirage Property                    1,219,523
         Palm Springs Property                       233,920

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year, and each lease year thereafter.

o        At the  end of the  initial  lease  terms  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        In addition to minimum rent, the leases require  additional  rent in an
         amount equal to the difference between 14% of the Company's  investment
         basis in the  Properties  and minimum rent payable each lease year. The
         additional  rent is  payable  on a  monthly  basis  to the  extent  net
         operating  cash  flow from the  Properties  is  available  and does not
         accumulate beyond each lease year.

o        Financial  statements that present the historical  operating results of
         these  Properties are included in Financial  Information  commencing on
         page F-1 of this Prospectus  Supplement,  as the Marriott Senior Living
         Services Nine  Communities,  for the quarters  ended March 28, 2003 and
         March 22, 2002,  and the fiscal years ended  January 3, 2003,  December
         28, 2001 and December 29, 2000.

o        On behalf of the  tenant of these five  Properties,  the  Operator  has
         established an FF&E Reserve which will be used for the  replacement and
         renewal of  furniture,  fixtures  and  equipment  relating  to the five
         Properties. Deposits to the FF&E Reserve are made every four weeks, and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined by factors such as the age of each Property.  Deposits to
         the  FF&E  Reserve  for the  Edgewood,  Greenville  and  Rancho  Mirage
         Properties  are 2% of gross  revenues  for the first and  second  lease
         years;  3% of gross  revenues for the third  through  fourteenth  lease
         years; and 3.5% of gross revenues each lease year thereafter.  Deposits
         to the  FF&E  Reserve  for  the  Northridge  Property  are 2% of  gross
         revenues  for the first  through  third  lease  years;  and 3% of gross
         revenues each lease year  thereafter.  Deposits to the FF&E Reserve for
         the Palm Springs  Property are 2% of gross revenues for the first lease
         year;  3% of gross  revenues for the second  through  thirteenth  lease
         years; and 3.5% of gross revenues each lease year thereafter.  Funds in
         the FF&E  Reserve  relating  to these five  Properties  are held by the
         Company.

o        The leases for the Edgewood, Greenville,  Northridge, Rancho Mirage and
         Palm Springs  Properties as well as the Bellevue,  Oklahoma City, Santa
         Rosa,  Atlanta,  Lynnwood  and  Snohomish  Properties  described in the
         section of the Prospectus  entitled "Business -- Property  Acquisitions
         -- Marriott  Portfolio Two Properties"  contain pooling terms,  meaning
         that net  operating  profits  with respect to these 11  Properties  are
         combined  for the  purpose  of  funding  rental  payments  and the FF&E
         Reserve. In addition,  the leases contain  cross-default terms, meaning
         that  if  the  tenant  of any of  the  11  Properties  defaults  on its
         obligations  under  any of these  leases,  the  Company  will  have the
         ability to pursue its  remedies  under the leases with respect to these
         11 Properties, regardless of whether the tenant of any such Property is
         in default under its lease.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for the  operation  of the five  Properties  are 6% of  gross  revenues
         throughout  the term of the leases.  Rent payments due under the leases
         are subordinate to the payment of base management fees.






         The principal features of the lease agreements with Marriott Continuing
Care,  LLC, a subsidiary of Sunrise,  relating to the Fort Belvoir and Haverford
Properties are as follows:

o        The initial term of each lease expires on March 28, 2018.

o           Minimum annual rent as set forth in the leases is as follows:

                                                   Minimum
                  Property                       Annual Rent
         ----------------------------    ----------------------------

         Fort Belvoir Property                  $  4,099,134
         Haverford Property                        6,234,763

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year, and each lease year thereafter.

o        At the  end of the  initial  lease  terms  the  tenant  will  have  two
         consecutive  renewal  options.  The first renewal term is for ten years
         and the second renewal term is for five years.

o        After  payment  of  minimum  rent,  and to the  extent  not used to pay
         minimum  rent,  the  leases  require   additional  rent  equal  to  the
         non-refundable  components of partially  refundable  entrance fees. The
         additional  rent is payable on an annual basis and does not  accumulate
         beyond each lease year.

o        Financial  statements that present the historical  operating results of
         these  Properties are included in Financial  Information  commencing on
         page F-1 of this Prospectus  Supplement,  as the Marriott Senior Living
         Services Nine  Communities,  for the quarters  ended March 28, 2003 and
         March 22, 2002,  and the fiscal years ended  January 3, 2003,  December
         28, 2001 and December 29, 2000.

o        On behalf  of the  tenant of these two  Properties,  the  Operator  has
         established an FF&E Reserve which will be used for the  replacement and
         renewal  of  furniture,  fixtures  and  equipment  relating  to the two
         Properties. Deposits to the FF&E Reserve are made every four weeks, and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined by factors such as the age of each Property.  Deposits to
         the FF&E Reserve for the Fort Belvoir and Haverford  Properties  are 5%
         of gross revenues each lease year  throughout the lease term.  Funds in
         the FF&E  Reserve  relating  to these  two  Properties  are held by the
         Company.

         The approximate  federal income tax basis of the depreciable portion of
the nine Additional Marriott Portfolio Two Properties is as follows:

                Edgewood                        $ 2,000,000
                Greenville                        4,100,000
                Northridge                       12,100,000
                Rancho Mirage                    12,900,000
                Palm Springs                      2,000,000
                Salt Lake City                   15,500,000
                Yorba Linda                      11,900,000
                Fort Belvoir                     62,200,000
                Haverford                        93,000,000

         In connection with the acquisition of the Additional Marriott Portfolio
Two  Properties,  the  Company  borrowed  approximately  $71  million on its $85
million revolving line of credit. For information  regarding the line of credit,
see the section of the Prospectus entitled "Business -- Borrowing."

         In addition,  in  connection  with the purchase of the Fort Belvoir and
Haverford  Properties,  the  Company  assumed  approximately  $88.5  million  in
non-interest  bearing bonds payable to certain residents of the Fort Belvoir and
Haverford  facilities.  The Company will issue new bonds to future  residents of
these facilities, and the proceeds will be used to retire the existing bonds.

         The  Edgewood  Property,  which  opened in April 2000,  is the Brighton
Gardens of  Edgewood  located  in  Edgewood,  Kentucky.  The  Edgewood  Property
includes 93 assisted  living units and 26 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities  include a main dining room,  recreation room, a chapel, a hair salon,
lounge  areas and  resident  laundry  rooms.  The  Property  is located 14 miles
southwest  of downtown  Cincinnati,  Ohio and is within five miles of a hospital
and retail and dining areas. Other senior living facilities located in proximity
to the Edgewood  Property  include Atria Summit  Hills,  Colonial  Gardens,  St.
Charles, Carmel Manor, Atria and Madonna Manor.

         The Greenville Property,  which opened in January 2000, is the Brighton
Gardens of Greenville  located in  Greenville,  South  Carolina.  The Greenville
Property  includes  94  assisted  living  units,  25 units  for  residents  with
Alzheimer's  and related  memory  disorders and 28 skilled  nursing  units.  The
Operator  provides  assistance to residents with daily living activities such as
bathing,  dressing  and  medication  reminders,  as well as medical  monitoring.
Amenities  include a main dining room, a recreation  room, a hair salon,  lounge
areas and  resident  laundry  rooms.  The Property is located five miles west of
downtown Greenville and is within three miles of retail and dining areas.

         The Northridge Property,  which opened in January 2002, is the Brighton
Gardens of Northridge located in Northridge, California. The Northridge Property
includes 90 assisted living units,  25 units for residents with  Alzheimer's and
related memory  disorders and 28 skilled  nursing units.  The Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and medication  reminders,  as well as medical  monitoring.  Amenities include a
main dining  room, a  recreation  room, a hair salon,  lounge areas and resident
laundry  rooms.  The  Property is located 26 miles  northwest  of  downtown  Los
Angeles  and is within four miles of a  hospital,  and retail and dining  areas.
Other senior living facilities  located in proximity to the Northridge  Property
include a Sunrise  Assisted  Living,  Aegis of  Granada  Hills,  Summerville  at
Chatsworth, Graceville by Le Foyer and Country Villa.

         The Rancho Mirage Property,  which opened in June 2000, is the Brighton
Gardens of Rancho Mirage located in Rancho Mirage, California. The Rancho Mirage
Property  includes  90  assisted  living  units,  26 units  for  residents  with
Alzheimer's  and related  memory  disorders and 28 skilled  nursing  units.  The
Operator  provides  assistance to residents with daily living activities such as
bathing,  dressing  and  medication  reminders,  as well as medical  monitoring.
Amenities  include  dining rooms,  recreation  rooms,  activity  rooms, a salon,
lounge areas, a swimming pool and jacuzzi,  and laundry  rooms.  The Property is
located  120 miles east of  downtown  Los  Angeles and is near retail and dining
areas,  and  across  the  street  from a medical  center.  Other  senior  living
facilities  located  in  proximity  to the  Rancho  Mirage  Property  include  a
MapleRidge,  Mirage Inn, Hacienda DeMonterey,  Villa at Palm Desert,  Wellington
Place and Inner Image.

         The Palm  Springs  Property,  which  opened in  December  1999,  is the
MapleRidge of Palm Springs located in Palm Springs, California. The Palm Springs
Property  includes  56 assisted  living  units and 28 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders. Amenities include a common living room and dining rooms. The Property
is located 110 miles east of downtown  Los  Angeles in a  residential  area less
than a mile from retail and dining  areas,  and within  three miles of a medical
center. In addition to the Company's Rancho Mirage Property, other senior living
facilities  located in proximity to the Palm Springs  Property  include  Windsor
Court, The Hallmark,  Villa at Palm Desert,  Wellington  Place,  Inner Image and
AMDAL Residential Care.

         The Salt  Lake  City  Property,  which  opened  in April  2000,  is the
Brighton  Gardens of Salt Lake City  located in Salt Lake City,  Utah.  The Salt
Lake City Property  includes 98 assisted  living  units,  25 units for residents
with  Alzheimer's and related memory disorders and 28 skilled nursing units. The
Operator  provides  assistance to residents with daily living activities such as
bathing,  dressing  and  medication  reminders,  as well as medical  monitoring.
Amenities  include a main dining room, a recreation  room, a hair salon,  lounge
areas and  resident  laundry  rooms.  The  Property  is located in the  downtown
district of Salt Lake City and is less than one mile from a medical center,  and
retail and dining areas.  Other senior living facilities located in proximity to
the Salt Lake City Property include Parklane,  St. Joseph's Villa, The Wentworth
at East Millcreek, Silverado and Cordia Senior Residence.

         The Yorba Linda  Property,  which opened in July 2000,  is the Brighton
Gardens of Yorba  Linda  located in Yorba  Linda,  California.  The Yorba  Linda
Property  includes  90  assisted  living  units,  25 units  for  residents  with
Alzheimer's  and related  memory  disorders and 28 skilled  nursing  units.  The
Operator  provides  assistance to residents with daily living activities such as
bathing,  dressing  and  medication  reminders,  as well as medical  monitoring.
Amenities  include  dining rooms,  recreation  rooms,  activity  rooms, a salon,
lounge areas, a swimming pool and jacuzzi,  and laundry  rooms.  The Property is
located 36 miles east of  downtown  Los  Angeles  and is near  retail and dining
areas,  and  within  two  miles  from a  medical  center.  Other  senior  living
facilities  located in proximity to the Yorba Linda Property  include Park Vista
at Morningside,  Avalon at Bradford  Square,  Nohl Ranch Inn, Canyon Hills Club,
Prestige Assisted Living and Fullerton Gardens.

         The Fort Belvoir Property, which opened in July 1989, is the Fairfax by
Marriott,  a continuing  care  retirement  community,  located in Fort  Belvoir,
Virginia.  The Fort Belvoir Property  includes 382 independent  living units and
cottages,  45 assisted living units and 40 skilled  nursing units.  The Operator
provides  assistance to residents with daily living  activities such as bathing,
dressing and  medication  reminders,  as well as medical  monitoring.  Amenities
include common dining and living areas,  activity rooms, an indoor swimming pool
and spa, a tennis court, and barber and beauty shops. The Property is located 19
miles southwest of Washington, D.C. and is within two miles of retail and dining
areas,  and within  five miles of a hospital.  Other  senior  living  facilities
located in proximity  to the Fort Belvoir  Property  include  Falcon's  Landing,
Vinson Hall and Knollwood.

         The Haverford Property,  which opened in May 1989, is the Quadrangle by
Marriott,  a  continuing  care  retirement  community,   located  in  Haverford,
Pennsylvania.  The Haverford  Property includes 349 independent living units, 90
assisted  living units,  25 units for  residents  with  Alzheimer's  and related
memory disorders and 72 skilled nursing units. The Operator provides  assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication  reminders,  as well as medical monitoring.  Amenities include common
dining and living areas,  activity  rooms, a swimming pool, hot tub and spa, and
barber and beauty shops.  The Property is located ten miles west of Philadelphia
and is within five miles of retail and dining  areas,  and within three miles of
three  hospitals.  Other senior  living  facilities  located in proximity to the
Haverford  Property include Beaumont at Bryn Mawr,  Waverly Heights and Dunwoody
Village.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facilities have been operational are as follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location             Year            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

Edgewood Property           Edgewood, KY                **2000         21.1%            $ 109.25          $ 23.07
                                                         **2001         37.5%              106.55            39.92
                                                         **2002         34.2%              105.41            36.01
                                                        ***2003        45.2%                95.51            43.21

 Greenville Property         Greenville, SC              **2000         35.1%              $99.46          $ 34.94
                                                         **2001         60.2%              103.62            62.41
                                                         **2002         68.8%              109.46            75.25
                                                        ***2003         71.5%              124.50            89.03

 Northridge Property         Northridge, CA              **2002         53.3%            $ 141.23           $75.27
                                                        ***2003         80.1%              177.10           141.88

 Rancho Mirage Property      Rancho Mirage, CA           **2000         25.5%            $ 149.90           $38.23
                                                         **2001         45.4%              134.52            61.09
                                                         **2002         67.5%              149.27           100.77
                                                        ***2003         76.0%              164.60           125.08

 Palm Springs Property       Palm Springs, CA            **2000         22.8%            $ 108.09           $24.68
                                                         **2001         41.3%              105.80            43.72
                                                         **2002         67.9%               99.56            67.63
                                                        ***2003         84.1%               95.83            80.55

 Salt Lake City Property     Salt Lake City, UT          **2000         53.7%            $ 104.65           $56.24
                                                         **2001         75.2%              110.60            83.13
                                                         **2002         84.3%              114.19            96.20
                                                        ***2003         85.1%              125.77           107.08

                                                                      Average          Revenue          Revenue
                                                                     Occupancy       per Occupied     per Available
         Property                 Location             Year            Rate              Unit             Unit
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Yorba Linda Property        Yorba Linda, CA             **2000         29.7%            $ 122.99           $36.51
                                                         **2001         58.6%              126.37            74.07
                                                         **2002         71.5%              142.45           101.86
                                                        ***2003         71.2%              162.57           115.76

 Fort Belvoir Property       Fort Belvoir, VA             *1999         97.2%            $ 101.71           $98.88
                                                         **2000         95.9%              105.25           100.89
                                                         **2001         97.1%              108.17           105.07
                                                         **2002         98.7%              112.75           111.32
                                                        ***2003         96.6%               98.09            94.72

 Haverford Property          Haverford, PA                *1999         95.9%            $ 118.03         $ 113.15
                                                         **2000         98.0%              124.83           122.35
                                                         **2001         98.0%              134.04           131.36
                                                         **2002         99.7%              142.81           142.38
                                                        ***2003         96.5%              124.79           120.46


*   Data for 1999  represents the period  November 1, 1999 through  December 30,
    1999.

**  Data for 2000,  2001 and 2002  represents  information  for each  applicable
    fiscal year.

*** Data for 2003  represents  the period  January 4, 2003 through  November 30,
    2003.

         Prime Care  Portfolio Two  Properties.  On March 31, 2003,  the Company
acquired two  Properties  from Prime Care Eight,  LLC for an aggregate  purchase
price of approximately $22.6 million. The Properties and related purchase prices
include the Sunrise of Annapolis located in Annapolis,  Maryland (the "Annapolis
Property") for $13,294,253 and the Sunrise of Pikesville  located in Pikesville,
Maryland  (the  "Pikesville   Property")  for  $9,340,855.   The  Annapolis  and
Pikesville  Properties are hereinafter  referred to as the "Prime Care Portfolio
Two Properties." These two Properties are operated and managed by Sunrise Senior
Living Services, Inc.

         The Company, as lessor, has entered into a long-term,  triple-net lease
agreement  with Prime Care  Eight,  LLC  relating to these two  Properties.  The
general  terms of the  lease  agreement  are  described  in the  section  of the
Prospectus  entitled "Business -- Description of Property Leases." The principal
features of the lease agreement are as follows:

o        The term of the lease expires on March 31, 2038.

o        Minimum annual rent as set forth in the lease is as follows:

                                                  Minimum
                    Property                    Annual Rent
         --------------------------------     -----------------

         Annapolis Property                      $1,465,099
         Pikesville Property                      1,029,413

o        Minimum annual rent will increase by 2.5% beginning January 1, 2004 and
         each lease year thereafter until the end of the 28th lease year.

o        In addition to minimum rent, the lease requires  additional  rent which
         will be payable based on various  predetermined  dollar amounts derived
         from achieving specific  percentage  occupancy levels beginning January
         1, 2004.

o        Based on the  Company's  due  diligence  and  underwriting  procedures,
         management anticipates that the net operating income generated from the
         Properties  together with an aggregate $0.5 million tenant guarantee to
         fund any operating  shortfalls  related to the two  Properties  will be
         sufficient  to fund amounts due under the terms and  conditions  of the
         direct financing lease. As of January 5, 2004, the remaining balance of
         the guarantee was $0.2 million.

o        On behalf  of the  tenant of these two  Properties,  the  Operator  has
         established  FF&E Reserve funds which will be used for the  replacement
         and renewal of the  furniture,  fixtures and equipment  relating to the
         Prime Care  Portfolio  Two  Properties.  Monthly  deposits  to the FF&E
         Reserve are as follows:  1.5% of gross  revenues for the years 2003 and
         2004; 2% of gross revenues for the years 2005 through 2008; and 2.5% of
         gross  revenues  every  year  thereafter.  Funds  in the  FF&E  Reserve
         relating to these two Properties are held by the tenant.

o        The lease for the two Properties  contains pooling terms,  meaning that
         net operating  profits with respect to both Properties are combined for
         the  purpose  of  funding  rental  payments  and the FF&E  Reserve.  In
         addition,  the lease contains  cross-default terms, meaning that if the
         tenant defaults on its obligations under the lease for either Property,
         the  Company  will have the  ability to pursue its  remedies  under the
         lease with respect to both Properties, regardless of whether the tenant
         is in default under the lease, with respect to the other Property.

o        The  lease  contains  provisions  that  allow  the  lessee  to elect to
         purchase  the  Properties  at the end of the term  for a  predetermined
         amount.  The lease also  permits  the  Company to require the lessee to
         purchase  the  Properties  at the end of the  lease  term  for the same
         predetermined  amount. This lease is being treated as a financing lease
         for both financial reporting and tax accounting purposes.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for  the  operation  of the  two  Properties  are  6% of  net  revenues
         throughout the term of the lease.  One-half of the base  management fee
         is payable as an  operating  expense of the  Property  and minimum rent
         payments due under the lease are  subordinate  to such base  management
         fee. The remaining 3% base management fee is subordinate to the payment
         of minimum annual rent, a tenant administrative fee, the funding of the
         FF&  Reserve  and the  replenishment  of any  amounts  drawn under the
         $500,000 tenant guarantee  discussed above.  Unpaid  subordinated  base
         management fees will accrue without interest.

         On March 31, 2003,  in  connection  with the purchase of the Prime Care
Portfolio Two  Properties,  the Company assumed  approximately  $20.6 million of
Permanent Financing which is secured by the Prime Care Portfolio Two Properties.
The loan bears interest at a fixed rate of 7.83% per annum and requires  monthly
principal and interest  payments  through October 2008 with all unpaid principal
and interest due at that time. In connection with the loan, the Company incurred
assumption fees and other loan costs of approximately $226,800.

         The Annapolis  Property,  which opened in November 1995, is the Sunrise
of Annapolis located in Annapolis,  Maryland. The Annapolis Property includes 50
assisted  living units and 22 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include common dining and living areas, activity areas and a beauty/barber shop.
The Property is located 26 miles  southeast of  Baltimore.  Other senior  living
facilities  located in  proximity to the  Annapolis  Property  include  Manresa,
Annapolitan, Heartlands and Sunrise of Severna Park.

         The  Pikesville  Property,  which opened in May 1996, is the Sunrise of
Pikesville located in Pikesville,  Maryland. The Pikesville Property includes 61
assisted  living units and 18 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include common dining and living areas, activity areas and a beauty/barber shop.
The Property is located 11 miles from  downtown  Baltimore.  Other senior living
facilities located in proximity to the Pikesville Property include  Springhouse,
Arden Courts, Brighton Gardens of Pikesville and Atrium Village.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per available  unit (per diem) for the  facilities  for the past
five years and for the period  January 1, 2003  through  August 31,  2003 are as
follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location             Year            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

Annapolis Property          Annapolis, MD                 1998         97.6%            $ 136.78         $ 133.03
                                                           1999         95.0%              139.82           133.03
                                                           2000         96.9%              141.90           137.48
                                                           2001         97.0%              144.59           141.08
                                                           2002         97.1%              150.44           145.74
                                                          *2003         96.8%              159.95           154.75

 Pikesville Property         Pikesville, MD                1998         91.4%            $ 134.99         $ 123.17
                                                           1999         90.0%              137.65           123.71
                                                           2000         88.4%              132.75           117.34
                                                           2001         92.0%              131.00           120.22
                                                           2002         88.0%              136.07           119.13
                                                          *2003         84.5%              141.06           119.25

*        Data for 2003  represents the period  January 1, 2003 through  November
         30, 2003.

         Brighton  Gardens  located in Saddle  River,  New Jersey.  On March 31,
2003, the Company acquired the Brighton Gardens assisted living Property located
in Saddle River,  New Jersey (the "Saddle River  Property") for $12,750,000 from
Circle  Housing  Limited  Partnership.  The  Property is operated and managed by
Sunrise Senior Living Services,  Inc. The Company, as lessor, has entered into a
long-term  lease  agreement  with One Pack  Management  Corp.  relating  to this
Property.  One Pack Management Corp., an HRA Affiliated Company, is described in
further  detail in "Business -- Property  Acquisitions  --  Additional  Marriott
Portfolio Two  Properties,"  above. The general terms of the lease agreement are
described in the section of the Prospectus  entitled "Business -- Description of
Property Leases." The principal features of the lease agreement are as follows:

o        The initial term of the lease expires on March 31, 2018.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        The lease  requires  minimum  annual rent of  $1,321,352  for the first
         lease year with increases of 3% each lease year thereafter.

o        In addition to minimum rent, the lease requires  additional  rent in an
         amount equal to the difference between 14% of the Company's  investment
         basis in the  Properties  and minimum rent payable each lease year. The
         additional  rent is  payable  on a  monthly  basis  to the  extent  net
         operating  cash  flow from the  Properties  is  available  and does not
         accumulate beyond each lease year.

o        On behalf of the tenant of the Saddle River Property,  the Operator has
         established an FF&E Reserve fund which will be used for the replacement
         and renewal of the  furniture,  fixtures and equipment  relating to the
         Property.  Deposits to the FF&E Reserve are made every four weeks,  and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined  by factors such as the age of the Property.  Deposits to
         the FF&E Reserve for the Saddle River Property are 2% of gross revenues
         for the first and second  lease  years;  3% of gross  revenues  for the
         third through  twelfth lease years;  and 3.5% of gross  revenues  every
         lease  year  thereafter.  Funds in the FF&E  Reserve  relating  to this
         Property are held by the Company.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for the operation of the Saddle River Property are 6% of gross revenues
         throughout the term of the lease. Rent payments due under the lease are
         subordinate to the payment of base management fees.

         The approximate  federal income tax basis of the depreciable portion of
the Saddle River Property is $11,500,000.

         The Saddle River Property,  which opened in September 1998, includes 90
assisted  living units and 22 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas,  a library and a hair
salon. The Property is located 26 miles north of downtown  Newark.  Other senior
living  facilities  located in proximity to the Saddle  River  Property  include
Brighton  Gardens of Paramus,  Van Dyk Park  Place,  Longview  Assisted  Living,
Allendale Community for Mature Living and Sunrise of Woodcliff Lake.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facility has been operational are as follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location             Year            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Saddle River Property       Saddle River, NJ             *1999         62.6%             $122.60           $76.79
                                                          *2000         72.2%              129.89            93.82
                                                          *2001         66.2%              141.32            93.30
                                                          *2002         62.8%              141.83            89.04
                                                         **2003         66.6%              145.00            96.53

*  Data for 1999, 2000, 2001 and 2002 represents information for each applicable
   fiscal year.
** Data for 2003  represents  the period  January 4, 2003  through  November 30,
   2003.

         Ann's  Choice   Continuing   Care  Retirement   Community   located  in
Warminster, Pennsylvania. On June 2, 2003, the Company acquired a parcel of land
located in Warminster, Pennsylvania, upon which the Ann's Choice Continuing Care
Retirement Community is being constructed (the "Warminster Property").  The land
was purchased from Warminster Campus, L.P., a Maryland limited partnership,  for
$19,500,000.  The  Ann's  Choice  Continuing  Care  Retirement  Community,  once
construction  is  completed,  is expected to include  1,542  independent  living
apartments, 128 assisted living units and 190 skilled nursing units. The Company
will not own the buildings and improvements. The buildings and improvements will
be owned by Warminster Campus,  L.P. The Company,  as lessor, has entered into a
long-term,  triple-net lease agreement with Warminster Campus,  L.P. relating to
the land. The general terms of the lease  agreement are described in the section
of the Prospectus  entitled  "Business --  Description of Property  Leases." The
principal features of the lease are as follows:

o        The initial land lease expires on June 2, 2013.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease  requires  minimum  annual rent of  $2,925,000  for the first
         through fifth lease years, $3,900,000 for the sixth through tenth lease
         years and $4,680,000 for the eleventh and all subsequent lease years.

o        A security deposit equal to $1,462,350 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        The tenant will have the option to purchase the land  subsequent to May
         30, 2007 for $19,500,000.

o        The  Company's  lease  payments  are  subordinate  to a first  mortgage
         construction  loan entered into by Erickson to fund the  development of
         the Ann's Choice Continuing Care Retirement Community.

         Balmoral Assisted Living Community located in Palm Harbor,  Florida. On
July 8, 2003,  the Company  acquired  the  Balmoral  Assisted  Living  Community
located in Palm Harbor,  Florida (the "Palm Harbor  Property")  for  $12,175,000
from Senior Lifestyle Balmoral Limited Partnership. The Property is operated and
managed by Harbor Balmoral  Management,  LLC, an affiliate of the HRA Affiliated
Companies.  The Company,  as lessor,  has entered  into a long-term,  triple-net
lease agreement with Balmoral Tenant Services, Inc. relating to this Property.

Balmoral  Tenant  Services,  Inc., an HRA  Affiliated  Company,  is described in
further  detail in "Business -- Property  Acquisitions  --  Additional  Marriott
Portfolio Two  Properties,"  above. The general terms of the lease agreement are
described in the section of the Prospectus  entitled "Business -- Description of
Property Leases." The principal features of the lease are as follows:

o        The initial term of the lease expires on July 7, 2018.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        The lease  requires  minimum  annual rent of  $1,171,109  for the first
         lease  year,  with  increases  of  2.5%  each  lease  year  thereafter.
         Commencing  on the  fourth  lease  year,  and every  four  lease  years
         thereafter,  minimum rent shall be reset to the greater of (a) the fair
         market  value of the Property  multiplied  by 10.25% or (b) 2.5% of the
         prior lease year's minimum rent.

o        The tenant has  established  FF&E Reserve  funds which will be used for
         the  replacement  and  renewal of  furniture,  fixtures  and  equipment
         relating to the  Property.  Deposits to the FF&E  Reserve are made on a
         monthly basis, and the amount of the deposits are based on a percentage
         of gross  revenues,  as  determined  by factors  such as the age of the
         Property. Deposits to the FF&E Reserve are equal to the greater of $500
         per unit or 2% of gross  revenues  during  the first and  second  lease
         years;  2.5% for the third through  fifth lease years;  and 3% of gross
         revenues each lease year thereafter. Funds in the FF&E Reserve are held
         by the tenant.

o        Base management fees payable to Harbor Balmoral Management, LLC for the
         operation of the Property are 5% of gross  revenues for each lease year
         until  such  time  that the  Property  achieves  certain  predetermined
         operating  performance  thresholds,  at which time the base  management
         fees  will  increase  to 6% of  gross  revenues  for  each  lease  year
         thereafter.  Rent payments due under the lease are  subordinate  to the
         payment of base management fees.

         The approximate  federal income tax basis of the depreciable portion of
the Palm Harbor Property is $12,100,000.

         The Palm  Harbor  Property,  which  opened in July  1996,  includes  44
independent  living units and 55 assisted  living  units or units for  residents
with  Alzheimer's  or related memory  disorders.  This  fluctuates  according to
resident needs. The Operator provides  assistance to residents with daily living
activities such as bathing, dressing and medication reminders. Amenities include
common  dining  and  living  areas,  an  activity  room,  a lounge  area,  and a
barber/beauty shop. The Property is located  approximately 20 miles northwest of
downtown Tampa, Florida, and is within six miles of two hospitals.  Other senior
living facilities located in proximity to the Palm Harbor Property include Coral
Oaks, Arden Courts, Beckett Lake Lodge, Merrill Gardens and Freedom Inn.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facility has been operational are as follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location             Year            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

Palm Harbor Property        Palm Harbor, FL              *1999         94.4%             $ 76.84           $72.53
                                                          *2000         98.1%               84.69            83.11
                                                          *2001         96.3%               90.18            86.81
                                                          *2002         97.2%               99.92            97.12
                                                         **2003         96.9%              101.91            98.73

*  Data for 1999, 2000, 2001 and 2002 represents information for each applicable
   fiscal year.
** Data for 2003  represents  the period  January 4, 2003  through  November 30,
   2003.

         ARC  Somerby  Portfolio  Properties.  On August 25,  2003,  the Company
acquired two  Properties  from Daniel Senior  Living,  L.L.C.  ("Daniel") for an
aggregate  purchase price of  $73,260,000.  The Properties and related  purchase
prices  include the Somerby at University  Park located in  Birmingham,  Alabama
(the "Birmingham

Property") for $50,427,000 and the Somerby at Jones Farm in Huntsville,  Alabama
(the  "Huntsville  Property")  for  $22,833,000.  The  Birmingham and Huntsville
Properties  are   hereinafter   referred  to  as  the  "ARC  Somerby   Portfolio
Properties."   These  two  Properties  are  operated  and  managed  by  American
Retirement Corporation ("ARC").

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements  with  a  wholly  owned  subsidiary  of ARC  relating  to  these  two
Properties.  The general  terms of the lease  agreements  are  described  in the
section of the Prospectus  entitled "Business - Description of Property Leases."
The principal features of the lease agreements are as follows:

o        The initial term of each lease expires on August 31, 2018.

o        Minimum annual rent as set forth in each lease is as follows:

                                                                 Minimum
                                 Property                      Annual Rent
                    -----------------------------------      ----------------

                    Birmingham Property                         $4,816,996
                    Huntsville Property                          2,144,768

o        Minimum annual rent will increase by 2.5% beginning in the second lease
         year through the ninth lease year. Beginning with the tenth lease year,
         minimum  annual rent will increase to $6,795,625 and $2,991,702 for the
         Birmingham Property and the Huntsville Property, respectively, and will
         increase by 2.5% each lease year thereafter.

o        At the end of the  initial  lease  terms,  the  tenant  will  have  two
         consecutive renewal options of ten years each.  Commencing on the start
         of each renewal  option,  the minimum  annual rent will increase to the
         greater of (i) the prior lease year's  minimum annual rent plus 2.5% or
         (ii) the fair market  value of the Property  multiplied  by the current
         lease year's lease rate.

o        In addition to minimum rent,  the leases  require  additional  rent for
         years one  through  nine  which will be  payable  quarterly  based on a
         percentage of gross  revenues.  The additional rent for both Properties
         is equal to 0.25% of gross  revenues for the first lease year,  0.5% of
         gross  revenues for the second lease year,  0.75% of gross revenues for
         the third  through  sixth lease years and 1% of gross  revenues for the
         seventh  through ninth lease years.  No additional  rent is due for the
         tenth lease year and thereafter.

o        The tenant has  established  FF&E Reserve  funds which will be used for
         the  replacement  and  renewal of  furniture,  fixtures  and  equipment
         relating to each  Property.  Deposits to the FF&E Reserve are made on a
         monthly  basis and are equal to $500 per unit per year.  The reserve is
         held in the following  manner:  the Company will hold $200 per unit per
         year and Federal Home Loan Mortgage  Corporation,  the mortgage lender,
         will hold $300 per unit per year.

o        ARC has guaranteed the tenant's obligations under each lease throughout
         the  duration of the lease,  including  the  payment of minimum  annual
         rent.

o        The  leases  for  the  ARC   Somerby   Portfolio   Properties   contain
         cross-default  terms,  meaning  that if the  tenant of either  Property
         defaults on its obligations  under its lease, the Company will have the
         ability to pursue its  remedies  under the leases with  respect to both
         Properties.

o        The tenant will have the option to purchase the Properties  until March
         31, 2012 for a predetermined  purchase price based on the amount of the
         Company's  initial  investment plus a percentage of the increase in the
         fair  market  value  of  the  Properties  at the  time  the  option  is
         exercised.

         In connection with the acquisition of these two Properties, the Company
may be required to make  additional  payments (the "Earnout  Amount") if certain
earnout  provisions  are achieved by an earnout  date.  The  calculation  of the
Earnout  Amount  considers  the  net  operating  income  of each  Property,  the
Company's  initial  investment  in the Property and the fair market value of the
Property.  In the event an Earnout Amount becomes payable,  the respective lease
will be amended and annual minimum rent will increase accordingly.  Simultaneous
with the sale of the two Properties to the Company, ARC and Daniel, the original
developer and seller,  entered into  agreements  whereby ARC remains  liable for
certain  buyout  obligations  to Daniel.  The Earnout  Amount and net  operating
profits  from the  Properties,  after the  payment  of minimum  annual  rent and
certain  other  operating  expenses for the  Properties,  will be used by ARC to
satisfy  these  obligations.  In the event that ARC has not satisfied its buyout
obligations  to Daniel by the end of the fifth lease year,  Daniel has the right
to acquire the membership interests of the tenant.

         The approximate  federal income tax basis of the depreciable portion of
the two ARC Somerby Portfolio Properties is as follows:

                   Birmingham Property                      $50,900,000
                   Huntsville Property                       23,900,000

         On August 25, 2003, in connection  with the purchase of the ARC Somerby
Portfolio Properties,  the Company obtained Permanent Financing comprised of two
loans in the aggregate amount of $50,400,000. The loans bear interest at a fixed
rate of 5.79%. The loans require monthly principal and interest payments through
September 2012 with all unpaid principal and interest due at that time. The loan
provisions  allow the Company to extend the loans for one additional year with a
variable interest rate based on a LIBOR index. In connection with the loans, the
Company incurred loan costs of approximately $651,700.

         The Birmingham Property,  which opened in April 1999, is the Somerby at
University Park located in Birmingham, Alabama. The Birmingham Property includes
240  independent  living  units,  84  assisted  living  units  and 28 units  for
residents with Alzheimer's and related memory  disorders.  The Operator provides
assistance to residents with daily living  activities such as bathing,  dressing
and  medication  reminders,  as well as medical  monitoring.  Amenities  include
common dining and living areas,  activity areas, a chapel,  a library and a hair
salon. The Property is located six miles south of downtown Birmingham,  Alabama.
Other senior living facilities  located in proximity to the Birmingham  Property
include Mount Royal Towers,  The Oaks on Parkwood,  Chateau  Vestavia,  Galleria
Woods, Town Village Vestavia Hills and Park at Riverchase.

         The Huntsville Property,  which opened in April 1999, is the Somerby at
Jones Farm located in Huntsville,  Alabama. The Huntsville Property includes 138
independent  living units and 48 assisted  living units.  The Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and  medication  reminders,  as well as medical  monitoring.  Amenities  include
common dining and living areas,  activity areas, a chapel,  a library and a hair
salon.  The  Property is located  six miles  southeast  of downtown  Huntsville,
Alabama.  Other senior living facilities  located in proximity to the Huntsville
Property include The Village at Wyndham Park,  Morningside  Assisted Living, The
Madison Village and Chateau Vestivia.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facilities have been operational are as follows:
                                                                                         Revenue          Revenue
                                                                         Average       per Occupied         per
                                                                        Occupancy          Unit          Available
          Property                  Location             Year *           Rate                              Unit
 ---------------------------  ----------------------  -------------    ------------    -------------    -------------

 Birmingham Property          Birmingham, AL                **1999          42.4%           $ 72.82       $  30.90
                                                              2000          71.3%             85.62          61.01
                                                              2001          87.9%             88.02          77.34
                                                              2002          76.3%             93.94          71.69
                                                           ***2003          87.0%             93.29          80.98

 Huntsville Property          Huntsville, AL                **1999          43.2%            $65.51       $  28.29
                                                              2000          75.4%             79.32          59.78
                                                              2001          88.4%             89.19          78.85
                                                              2002          80.1%             92.62          74.20
                                                           ***2003          94.0%             88.12          82.88

*   Data represents  information for each applicable  fiscal year,  unless noted
    otherwise.
**  Data for 1999 represents the period May 1, 1999 through December 31, 1999.
*** Data for 2003  represents  the period  January 1, 2003 through  November 30,
    2003.

         Sunrise  Portfolio  Three  Properties.  On August 29, 2003, the Company
acquired 14  Properties  from  several  wholly  owned  subsidiaries  of Marriott
International,  Inc.  for an  aggregate  purchase  price  of  $184,500,000.  The
Properties  and related  purchase  prices include  Brighton  Gardens of Columbia
located in Columbia,  Maryland (the "Columbia  Property") for  $10,608,522;  the
Brighton Gardens of Dunwoody located in Atlanta,  Georgia (the "Atlanta-Dunwoody
Property")  for  $11,687,355;  the  Brighton  Gardens of Florham Park located in
Florham Park,  New Jersey (the "Florham Park  Property")  for  $16,811,811;  the
Brighton  Gardens of  Greensboro  located in  Greensboro,  North  Carolina  (the
"Greensboro  Property")  for  $14,564,243;  the Brighton  Gardens of  Northville
located in Plymouth,  Michigan (the "Plymouth  Property") for  $14,630,771;  the
Brighton Gardens of Omaha located in Omaha,  Nebraska (the "Omaha Property") for
$11,200,170; the Brighton Gardens of Prairie Village located in Prairie Village,
Kansas,  (the "Prairie Village Property") for $18,077,466;  the Brighton Gardens
of St. Charles located in St. Charles,  Illinois,  (the "St. Charles  Property")
for $15,326,548;  the Brighton  Gardens of Tampa located in Tampa,  Florida (the
"Tampa Property") for $5,403,590; the Brighton Gardens of Tuckerman Lane located
in Rockville,  Maryland (the "Rockville Property") for $20,631,891; the Brighton
Gardens of Washington  Township located in Dayton,  Ohio (the "Dayton Property")
for $5,010,602;  the Brighton Gardens of Westlake located in Westlake, Ohio (the
"Westlake  Property")  for  $10,338,814;  the  Brighton  Gardens of West  Orange
located in West Orange, New Jersey (the "West Orange Property") for $15,464,169;
and the Brighton  Gardens of Wheaton located in Wheaton,  Illinois (the "Wheaton
Property") for $14,744,048.  These 14 Properties are hereinafter  referred to as
the "Sunrise Portfolio Three Properties" and are operated and managed by Sunrise
Senior Living Services, Inc.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements  with  Solomon  Holdings I - The  Triangle,  LLC relating to these 14
Properties. Solomon Holdings I - The Triangle, LLC is a newly formed corporation
which is a wholly  owned  subsidiary  of Solomon  Senior  Living  Holdings,  LLC
("Solomon").  Solomon  is a leading  provider  of  senior  living  products  and
services, including operations,  development, marketing, consulting services and
asset management.  The principals of Solomon collectively have over 150 years of
experience  in  the  seniors  housing  industry.   Solomon's  chairman  was  the
co-founder of two of the industry's leading trade  associations,  as well as the
founder of the nation's 12th largest assisted living provider. The general terms
of the lease agreements are described in the section of the Prospectus  entitled
"Business - Description of Property Leases." The principal features of the lease
agreements are as follows:

o        The initial term of each lease expires on April 30, 2025.

o        Minimum annual rent as set forth in the leases is as follows:

                                                                 Minimum Annual Rent
                                         --------------------------------------------------------------------
                                           August 29
                                            through
                                          December 31,
                 Property                     2003               2004             2005              2006
         -------------------------       ---------------     -------------    -------------     -------------
         Columbia Property                    $319,422        $1,042,088       $1,095,529        $1,175,689
         Atlanta-Dunwoody
            Property                           351,906         1,148,063        1,206,939         1,295,251
         Florham Park Property                 506,203         1,651,445        1,736,135         1,863,169
         Greensboro Property                   438,529         1,430,664        1,504,031         1,614,082
         Plymouth Property                     440,532         1,437,199        1,510,901         1,621,455
         Omaha Property                        337,237         1,100,207        1,156,628         1,241,259
         Prairie Village Property              544,312         1,775,772        1,866,837         2,003,435
         St. Charles Property                  461,482         1,505,546        1,582,753         1,698,565
         Tampa Property                        162,702           530,801          558,022           598,853
         Rockville Property                    621,226         2,026,696        2,130,630         2,286,529
         Dayton Property                       150,869           492,198          517,439           555,300
         Westlake Property                     311,302         1,015,595        1,067,676         1,145,799
         West Orange Property                  465,626         1,519,065        1,596,965         1,713,817
         Wheaton Property                      443,943         1,448,326        1,522,599         1,634,009

o        Minimum  annual rent will increase by 3% beginning  January 1, 2007 and
         each calendar year thereafter.

o        At the end of the  initial  lease  terms,  the  tenants  will  have one
         renewal option of ten years.

o        Financial  statements that present the historical  operating results of
         these  Properties are included in Financial  Information  commencing on
         page F-1 of this  Prospectus  Supplement,  as the Sunrise Senior Living
         Services Fourteen  Communities,  for the six months ended June 30, 2003
         and 2002, and the year ended December 31, 2002.

o        On  behalf of the  tenant  of these 14  Properties,  the  Operator  has
         established an FF&E Reserve which will be used for the  replacement and
         renewal  of  furniture,  fixtures  and  equipment  relating  to  the 14
         Properties.  Deposits to the FF&E Reserve are made on a monthly  basis,
         and the  amount  of the  deposits  are based on a  percentage  of gross
         revenues,  as determined  by factors such as the age of each  Property.
         Deposits  into  the  FF&E  Reserve  for  the  Sunrise  Portfolio  Three
         Properties  are 2% from August 29, 2003 through  calendar year 2007, 3%
         for calendar  years 2008 through 2019 and 3.5% for each  calendar  year
         thereafter.  Funds in the FF&E Reserve  relating to these 14 Properties
         are held by the Company.

o        The leases for the Sunrise  Portfolio Three Properties  contain pooling
         terms,  meaning  that net  operating  profits  with respect to these 14
         Properties are combined for the purpose of funding rental  payments and
         the FF&E Reserve.

         The approximate  federal income tax basis of the depreciable portion of
the 14 Sunrise Portfolio Three Properties is as follows:

                Columbia                        $ 9,800,000
                Atlanta-Dunwoody                 10,200,000
                Florham Park                     15,800,000
                Greensboro                       13,600,000
                Plymouth                         13,900,000
                Omaha                            10,600,000
                Prairie Village                  17,100,000
                St. Charles                      13,300,000
                Tampa                             4,100,000
                Rockville                        18,600,000
                Dayton                            4,400,000
                Westlake                          9,400,000
                West Orange                      14,100,000
                Wheaton                          12,800,000

         In  connection  with the  acquisition  of the Sunrise  Portfolio  Three
Properties,  the  Company  borrowed a total of  $92,500,000  under  subordinated
mortgage notes  collateralized by the 14 Properties,  payable to the seller. The
seller remains liable for existing first mortgage notes collateralized by the 14
Properties.  The seller  has  agreed to  indemnify  the  Company  for any claims
against the Properties under the first mortgage notes. The subordinated mortgage
notes have initial terms of seven years with an interest rate of 5.13% for 2003,
5.38% for 2004,  6.06% for 2005,  and increases 3% of the prior year's per annum
interest  rate each  calendar  year  thereafter  to maturity.  The loan requires
interest only payments  through  calendar year 2005 with  principal and interest
payments due  thereafter  until  maturity on August 28, 2010.  At the end of the
initial loan terms,  the Company has three  consecutive  renewal options of five
years each with terms similar to the initial loan terms.

         The  Columbia  Property,  which  opened in April 1998,  is the Brighton
Gardens of  Columbia  located  in  Columbia,  Maryland.  The  Columbia  Property
includes 72 assisted  living units and 16 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library and
a hair salon. The Property is located 17 miles southwest of downtown  Baltimore,
Maryland.  Other senior living  facilities  located in proximity to the Columbia
Property  include  Sunrise of  Columbia,  Morningside  House of  Ellicott  City,
Morningside House of Laurel and Harmony Hall.

         The  Atlanta-Dunwoody  Property,  which  opened in March  1999,  is the
Brighton  Gardens of  Dunwoody  located  in  Atlanta,  GA. The  Atlanta-Dunwoody
Property  includes  90 assisted  living  units and 23 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders. Amenities include common dining and living areas,

activity  areas,  a library and a hair salon.  The  Property is located 16 miles
north of downtown Atlanta,  Georgia.  Other senior living facilities  located in
proximity to the Atlanta-Dunwoody Property include Sunrise of Huntcliff, Merrill
Gardens and Waterford Gardens.

         The  Florham  Park  Property,  which  opened in  January  1999,  is the
Brighton  Gardens of Florham  Park  located in Florham  Park,  New  Jersey.  The
Florham  Park  Property  includes  74  assisted  living  units  and 36 units for
residents with Alzheimer's and related memory  disorders.  The Operator provides
assistance to residents with daily living  activities such as bathing,  dressing
and  medication  reminders.  Amenities  include  common dining and living areas,
activity  areas,  a library and a hair salon.  The  Property is located 16 miles
west of downtown Newark,  New Jersey.  Other senior living facilities located in
proximity to the Florham Park Property include Castle Senior Living,  Sunrise of
Morris Plains, Spring Meadows and Kessler Village.

         The  Greensboro  Property,  which  opened in May 1998,  is the Brighton
Gardens of Greensboro  located in  Greensboro,  North  Carolina.  The Greensboro
Property  includes  90 assisted  living  units and 25 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library  and a hair  salon.  The  Property  is located 6 miles west of  downtown
Greensboro,  North Carolina. Other senior living facilities located in proximity
to the  Greensboro  Property  include  Morningview  at Irving Park,  Lovalton at
Greensboro,  Verra Springs at Heritage Greens, the Arboretum at Heritage Greens,
Oakdale Heights, Greensboro Manor and Greensboro Place.

         The Plymouth  Property,  which opened in November 1998, is the Brighton
Gardens of  Northville  located in Plymouth,  Michigan.  The  Plymouth  Property
includes 82 assisted  living units and 24 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library and
a hair  salon.  The  Property  is located 25 miles east of  downtown  Ann Arbor,
Michigan and 25 miles west of downtown  Detroit,  Michigan.  Other senior living
facilities  located  in  proximity  to the  Plymouth  Property  include  Atterra
Wynwood,   Sunrise  of  Northville,   Independence  Village,   Marquette  House,
Waltonwood of Canton, Arden Courts and Addington Place.

         The Omaha Property,  which opened in June 1999, is the Brighton Gardens
of Omaha located in Omaha,  Nebraska.  The Omaha  Property  includes 60 assisted
living  units,  42 units for  residents  with  Alzheimer's  and  related  memory
disorders and 30 skilled  nursing  units.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders,  as well as medical  monitoring.  Amenities include common dining and
living  areas,  activity  areas,  a library  and a hair salon.  The  Property is
located  seven miles west of  downtown  Omaha,  Nebraska.  Other  senior  living
facilities  located in proximity to the Omaha Property  include  Parson's House,
Silvercrest, Brookstone and Montclair Nursing Home.

         The  Prairie  Village  Property,  which  opened in April  1999,  is the
Brighton  Gardens of Prairie Village  located in Prairie  Village,  Kansas.  The
Prairie  Village  Property  includes  82  assisted  living  units,  25 units for
residents with  Alzheimer's and related memory  disorders and 28 skilled nursing
units.  The  Operator  provides   assistance  to  residents  with  daily  living
activities  such as  bathing,  dressing  and  medication  reminders,  as well as
medical monitoring.  Amenities include common dining and living areas,  activity
areas,  a library and a hair salon.  The  Property is located ten miles south of
downtown  Kansas  City,  Kansas.  Other  senior  living  facilities  located  in
proximity  to the Prairie  Village  Property  include  Aberdeen  Village,  Epoch
Assisted Living, Mission Springs, Village Shalom and Alterra Clare Bridge.

         The St.  Charles  Property,  which opened in May 1999,  is the Brighton
Gardens  of St.  Charles  located  in St.  Charles,  Illinois.  The St.  Charles
Property  includes  82 assisted  living  units and 24 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library  and a hair  salon.  The  Property  is located 38 miles west of downtown
Chicago,  Illinois.  Other senior living facilities  located in proximity to the
St. Charles Property include Oak Crest, The Holmstad and Provena Fox Knoll.

         The Tampa Property,  which opened in July 1999, is the Brighton Gardens
of Tampa  located in Tampa,  Florida.  The Tampa  Property  includes 61 assisted
living  units,  44 units for  residents  with  Alzheimer's  and  related  memory
disorders and 28 skilled  nursing  units.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders,  as well as medical  monitoring.  Amenities include common dining and
living  areas,  activity  areas,  a library  and a hair salon.  The  Property is
located  16  miles  north  of  downtown  Tampa,  Florida.  Other  senior  living
facilities located in proximity to the Tampa Property include Southerland Place,
Park Place of Carrollwood, Arden Courts, Lakeshore Villas and HCR Manor Care.

         The  Rockville  Property,  which opened in April 1998,  is the Brighton
Gardens of Tuckerman Lane located in Rockville, Maryland. The Rockville Property
includes 101 assisted  living units and 25 skilled  nursing units.  The Operator
provides  assistance to residents with daily living  activities such as bathing,
dressing and  medication  reminders,  as well as medical  monitoring.  Amenities
include  common dining and living areas,  activity  areas,  a library and a hair
salon.  The Property is located 12 miles northwest of downtown  Washington,  DC.
Other senior living  facilities  located in proximity to the Rockville  Property
include Summerville Assisted Living,  Sunrise of Rockville,  Brighton Gardens of
Friendship Heights, Kensington Park, Bedford Court and Springhouse.

         The Dayton  Property,  which opened in November  1998,  is the Brighton
Gardens of Washington  Township  located in Dayton,  Ohio.  The Dayton  Property
includes 65 assisted  living units and 39 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library and
a hair salon. The Property is located nine miles south of downtown Dayton, Ohio.
Other senior  living  facilities  located in  proximity  to the Dayton  Property
include Outlook Pointe, Sunrise of Oakwood, Bethany Lutheran Village, The Suites
at Walnut Creek and Sterling House of Centerville.

         The Westlake  Property,  which opened in January  1999, is the Brighton
Gardens of Westlake located in Westlake, Ohio. The Westlake Property includes 65
assisted  living units and 39 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas,  a library and a hair
salon. The Property is located 16 miles west of downtown Cleveland,  Ohio. Other
senior living  facilities  located in proximity to the Westlake Property include
Devon Oaks,  Sunrise of Rocky River,  Westlake  Village,  Belvedere of Westlake,
Wellington Place, Arden Courts and Kemner House.

         The West  Orange  Property,  which  opened  in  December  1998,  is the
Brighton  Gardens of West Orange  located in West Orange,  New Jersey.  The West
Orange  Property  includes 90 assisted  living units and 22 units for  residents
with Alzheimer's and related memory disorders.  The Operator provides assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication reminders. Amenities include common dining and living areas, activity
areas, a library and a hair salon.  The Property is located nine miles northwest
of downtown  Newark,  New Jersey.  Other  senior  living  facilities  located in
proximity to the West Orange Property include Sunrise at West Essex,  Alterra of
West Orange, Spring Meadows and Winchester Gardens.

         The  Wheaton  Property,  which  opened in July  1998,  is the  Brighton
Gardens of Wheaton located in Wheaton,  Illinois.  The Wheaton Property includes
98 assisted living units and 21 units for residents with Alzheimer's and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas,  a library and a hair
salon.  The  Property  is located 26 miles west of downtown  Chicago,  Illinois.
Other senior  living  facilities  located in  proximity to the Wheaton  Property
include Sunrise of Naperville,  Sunrise of Glen Ellyn,  Westbridge at Wyndemere,
Belmont Village and Spring Meadows of Naperville.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 1999 through the
most recent  reported  period for the Company during which the  facilities  have
been operational are as follows:
                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year *           Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

Columbia Property           Columbia, MD                  1999        19.7%              $106.77          $ 20.94
                                                           2000        48.2%               102.49            49.23
                                                           2001        55.8%               112.07            62.14
                                                           2002        73.0%               115.63            83.57
                                                        ***2003        71.2%               115.38            82.18


                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year*            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Atlanta-Dunwoody            Atlanta, GA                 **1999        39.4%              $105.12           $41.13
   Property                                                2000        75.2%                97.87            73.19
                                                           2001        90.9%               103.83            94.80
                                                           2002        81.4%               111.49            91.13
                                                        ***2003        77.0%               111.72            86.03

 Florham Park Property       Florham Park, NJ            **1999        33.1%              $120.44           $39.80
                                                           2000        59.4%               130.18            76.98
                                                           2001        72.8%               135.38            98.04
                                                           2002        69.2%               139.63            97.03
                                                        ***2003        66.0%               147.44            97.34

 Greensboro Property         Greensboro, NC                1999        66.5%               $91.58           $60.52
                                                           2000        89.3%                94.61            84.74
                                                           2001        86.2%               105.29            80.57
                                                           2002        72.5%               115.38            83.28
                                                        ***2003        75.6%               124.53            94.18

 Plymouth Property           Plymouth, MI                  1999        42.2%              $111.08           $47.21
                                                           2000        65.3%               113.71            73.91
                                                           2001     81.3%                  119.97            97.97
                                                           2002        82.2%               122.38           100.96
                                                        ***2003        78.8%               127.09           100.15

 Omaha Property              Omaha, NE                   **1999        27.0%              $120.93           $32.78
                                                           2000        54.3%               112.01            60.73
                                                           2001        66.9%               111.49            74.78
                                                           2002        87.3%               103.73            90.61
                                                        ***2003        95.9%               107.83           103.41

 Prairie Village Property    Prairie Village, KS         **1999        50.4%              $101.65           $51.40
                                                           2000        84.7%               106.25            90.06
                                                           2001        89.3%               114.23           101.69
                                                           2002        89.7%               120.42           107.94
                                                        ***2003        91.2%               125.64           114.59

 St. Charles Property        St. Charles, IL             **1999        38.1%              $118.12           $45.28
                                                           2000     81.5%                  108.04            88.23
                                                           2001        89.2%               113.68           101.36
                                                           2002        89.0%               115.07           102.61
                                                        ***2003        82.9%               118.78            98.48

 Tampa Property              Tampa, FL                   **1999        25.2%              $112.47           $28.48
                                                           2000        68.1%               110.72            75.49
                                                           2001        79.7%               117.42            93.31
                                                           2002        81.4%               117.34            95.24
                                                        ***2003        71.3%               144.14           102.83

 Rockville Property          Rockville, MD                 1999        71.9%              $125.53           $90.17
                                                           2000        86.7%               138.18           119.69
                                                           2001        94.0%               137.56           128.84
                                                           2002        93.9%               147.16           137.83
                                                        ***2003        93.7%               167.09           156.61

 Dayton Property             Dayton, OH                    1999        39.3%              $104.28           $40.84
                                                           2000        64.0%               100.68            64.60
                                                           2001        70.9%               108.57            77.14
                                                           2002        82.8%               101.34            83.75
                                                        ***2003        83.1%                94.98            78.93

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year*            Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Westlake Property           Westlake, OH                  1999        29.0%              $103.33           $30.14
                                                           2000        67.3%                99.25            66.99
                                                           2001        75.7%               101.60            77.05
                                                           2002        70.1%               105.06            74.06
                                                        ***2003        64.1%               109.42            70.16

 West Orange Property        West Orange, NJ               1999        49.5%              $117.91          $ 57.94
                                                           2000        83.5%               121.33           101.46
                                                           2001        89.0%               136.78           121.45
                                                           2002        83.9%               141.48           118.31
                                                        ***2003        83.7%               139.75           117.01

 Wheaton Property            Wheaton, IL                   1999        59.1%              $109.79          $ 65.16
                                                           2000        93.5%               113.80           106.40
                                                           2001        93.1%               118.14           110.45
                                                           2002        81.1%               125.56           100.04
                                                        ***2003        69.9%               121.29            84.80

*        Data represents  information for each  applicable  fiscal year,  unless
         noted otherwise.
**       Data for the  Atlanta-Dunwoody  Property represents the period March 1,
         1999  through  December 31,  1999;  data for the Florham Park  Property
         represents the period January 5, 1999 through  December 31, 1999;  data
         for the Omaha  Property  represents  the period June 23,  1999  through
         December 31, 1999; data for the Prairie Village Property represents the
         period  April 1,  1999  through  December  31,  1999;  data for the St.
         Charles  Property  represents the period May 29, 1999 through  December
         31, 1999;  and data for the Tampa  Property  represents the period July
         29, 1999 through December 31, 1999.
***      Data for 2003  represents the period  January 4, 2003 through  November
         30, 2003.

         GreenTree Portfolio Properties.  On September 5 and September 11, 2003,
the Company  acquired  three  Properties  and one Property,  respectively,  from
affiliates  of  Greenwalt   Corporation  for  an  aggregate  purchase  price  of
$22,956,000. The Properties and related purchase prices include the GreenTree at
Mt. Vernon  located in Mt.  Vernon,  Illinois (the "Mt.  Vernon  Property")  for
$7,300,000,  the  GreenTree  at  Post  located  in  Indianapolis,  Indiana  (the
"Indianapolis-Post  Property") for  $5,100,000,  the GreenTree at West Lafayette
located  in  West  Lafayette,   Indiana  (the  "West  Lafayette  Property")  for
$5,456,000 and the GreenTree at Ft. Benjamin  Harrison  located in Indianapolis,
Indiana (the "Indianapolis-Ft.  Benjamin Harrison Property") for $5,100,000. The
Mt.  Vernon,  Indianapolis-Post,  West Lafayette and  Indianapolis-Ft.  Benjamin
Harrison  Properties are  hereinafter  referred to as the  "GreenTree  Portfolio
Properties."  These four  Properties are operated and managed by an affiliate of
CateredLife Communities, Inc., which is an affiliate of Greenwalt Corporation.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements with four, newly-formed companies,  which are affiliates of Greenwalt
Corporation,  relating to these four Properties.  The general terms of the lease
agreements are described in the section of the Prospectus  entitled  "Business -
Description of Property Leases." The principal  features of the lease agreements
are as follows:

o        The initial term of each lease expires on September 30, 2018.

o        Minimum annual rent as set forth in the leases is as follows:

                                                                 Minimum
                                 Property                      Annual Rent
                    -----------------------------------      ----------------
                    Indianapolis-Post Property                   $540,855
                    Mt. Vernon Property                           774,165
                    West Lafayette Property                       578,609
                    Indianapolis-Ft. Benjamin
                       Harrison Property                          540,855

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year and each year thereafter.

o        At the end of the  initial  lease  terms,  the  tenants  will  have two
         consecutive renewal options of five years each. Commencing on the start
         of each renewal  option,  the minimum  annual rent will increase to the
         greater of (i) the prior lease  year's  minimum  annual rent plus 3% or
         (ii) the fair market value of the Property multiplied by 10.5%.

o        The tenants have established FF&E Reserve funds, which will be used for
         the  replacement  and  renewal of  furniture,  fixtures  and  equipment
         relating to the Properties.  Deposits to the FF&E Reserve are made on a
         monthly  basis  and are  equal  to the  greater  of $500  per  year per
         licensed bed or 1% of gross revenues  through the second lease year; 2%
         of gross  revenues for the third through  fifth lease years;  and 3% of
         gross revenues each lease year thereafter.

o        Security  deposits  have been  retained by the Company as security  for
         each of the tenant's obligations under the leases as follows:

                                                                Security
                                 Property                        Deposit
                    -----------------------------------      ----------------

                    Indianapolis-Post Property                  $211,765
                    Mt. Vernon Property                          286,275
                    West Lafayette Property                      213,961
                    Indianapolis-Ft. Benjamin
                        Harrison Property                        200,000

o        The leases for the GreenTree Portfolio Properties contain cross-default
         terms,  meaning that if the tenant of any of these Properties  defaults
         on its obligations  under its lease,  the Company will have the ability
         to pursue  its  remedies  under the  leases  with  respect  to all four
         Properties,  regardless  of  whether  the  tenant  of any of the  other
         Properties is in default under its lease.

o        The Company has committed to fund, for the Indianapolis-Post  Property,
         the Mt. Vernon Property and the West Lafayette Property,  an additional
         $1,950,000  (an aggregate of  $5,850,000)  for the  construction  of 25
         additional  units for each  Property.  This  additional  amount will be
         advanced  to the  tenants in monthly  installments  during a  six-month
         period  and will bear  interest  at the prime  rate,  as  published  by
         Wachovia  Bank,  plus  2%.  Upon the  earlier  of six  months  from the
         commencement  of construction  or the completion of  construction,  the
         amounts advanced to the tenants will be added to the lease basis at the
         then current lease rates.

         The approximate  federal income tax basis of the depreciable portion of
the four GreenTree Portfolio Properties is as follows:

                   Indianapolis-Post Property                $5,100,000
                   Mt. Vernon Property                        7,000,000
                   West Lafayette Property                    5,200,000
                   Indianapolis-Ft. Benjamin
                       Harrison Property                      4,900,000

         The  Indianapolis-Post  Property,  which  opened in March 1998,  is the
GreenTree  at Post  located  in  Indianapolis,  Indiana.  The  Indianapolis-Post
Property includes 58 assisted living units. The Operator provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
game room, a library and a hair salon. The Property is located ten miles east of
downtown Indianapolis,  Indiana, and is four miles from a hospital,  near retail
and  dining  areas  and  adjacent  to a  medical  office.  Other  senior  living
facilities  located  in  proximity  to the  Indianapolis-Post  Property  include
Rosewalk at Lutherwood, Atria Heritage, Covington East and Autumn Glenn.

         The  Mt.  Vernon  Property,  which  opened  in  February  2001,  is the
GreenTree at Mt. Vernon located in Mt. Vernon, Illinois. The Mt. Vernon Property
includes 58 assisted living units. The Operator provides assistance to residents
with daily living activities such as bathing, dressing and medication reminders.
Amenities include common dining and living areas, activity areas, a game room, a
library and a hair salon.  The Property is located 80 miles east of downtown St.
Louis,  Missouri,  and is two miles from a hospital,  near doctors'  offices and
adjacent to retail and dining areas.  Another senior living facility  located in
proximity to the Mt. Vernon Property is the Mt. Vernon Countryside Manor.

         The  West  Lafayette  Property,  which  opened  in March  2001,  is the
GreenTree  at West  Lafayette  located  in West  Lafayette,  Indiana.  The  West
Lafayette  Property  includes 59 assisted  living units.  The Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and  medication  reminders.  Amenities  include  common dining and living areas,
activity areas, a game room, a library and a hair salon. The Property is located
60 miles northwest of downtown Indianapolis,  Indiana, and is within three miles
of a hospital  and within one mile of retail  and  dining  areas.  Other  senior
living  facilities  located in proximity to the West Lafayette  Property include
Rosewalk Commons, Westminster Village and University Place.

         The  Indianapolis-Ft.  Benjamin  Harrison  Property,  which  opened  in
November  1999,  is  the  GreenTree  at  Ft.   Benjamin   Harrison   located  in
Indianapolis, Indiana. The Indianapolis-Ft.  Benjamin Harrison Property includes
58 assisted  living units.  The Operator  provides  assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas, activity areas, a game room, a
library and a hair salon. The Property is located 13 miles northeast of downtown
Indianapolis,  Indiana,  and is five miles from two  hospitals  and  adjacent to
retail and dining areas.  Other senior living facilities located in proximity to
the  Indianapolis-Ft.  Benjamin Harrison  Property include Berkshire  Castleton,
Sunrise at Fall  Creek,  Millers  Castleton,  Clearwater  Commons  and Hearth at
Windermere.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 1999 through the
most recently  reported  period for the Company during which the facilities have
been operational are as follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year *           Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

Indianapolis-Post Property  Indianapolis, IN              1999        80.0%               $61.70          $ 49.36
                                                           2000        83.7%                69.05            57.79
                                                           2001        81.3%                73.98            60.15
                                                           2002        84.8%                73.64            62.45
                                                       ****2003        89.7%                73.82            66.19

 Mt. Vernon Property         Mt. Vernon, IL             ***2001        25.5%               $80.53           $20.83
                                                           2002        67.0%                78.08            52.50
                                                       ****2003        94.8%                82.83            78.55

 West Lafayette Property     West Lafayette, IN         ***2001        54.3%               $70.13           $38.04
                                                           2002        98.0%                71.10            69.90
                                                       ****2003       100.0%                76.89            76.89

 Indianapolis-Ft.
   Benjamin      Harrison                                **1999        18.5%               $87.25           $16.55
   Property                  Indianapolis, IN
                                                           2000        52.7%                69.17            36.97
                                                           2001        81.0%                71.11            57.63
                                                           2002        89.0%                72.44            64.94
                                                       ****2003        86.2%                75.75            65.31

*        Data represents  information for each  applicable  fiscal year,  unless
         noted otherwise.
**       Data represents the period November 1, 1999 through December 31, 1999.
***      Data for the Mt. Vernon  Property  represents  the period March 1, 2001
         through  December  31,  2001 and data for the West  Lafayette  Property
         represents the period April 3, 2001 through December 31, 2001.
****     Data for 2003  represents the period  January 1, 2003 through  November
         30, 2003.

         Sunrise  Portfolio Four Properties.  On September 30, 2003, the Company
acquired 12 Properties from several wholly owned  subsidiaries of Sunrise Senior
Living, Inc. for an aggregate purchase price of $149,276,672. The Properties and
related  purchase  prices  include  Sunrise of Arlington  located in  Arlington,
Virginia (the "Arlington Property") for $7,084,655; the Sunrise at Bluemont Park
located in Arlington,  Virginia (the  "Arlington-Bluemont  Park  Property")  for
$28,039,268;  the Sunrise at  Countryside  located in  Sterling,  Virginia  (the
"Sterling  Property")  for  $14,668,229;  the Sunrise of Falls Church located in
Falls Church, Virginia (the "Falls Church Property") for $8,681,197; the Sunrise
at North Farmington Hills located in Farmington Hills, Michigan (the "Farmington
Hills Property") for $9,379,684;  the Sunrise of Frederick located in Frederick,
Maryland (the  "Frederick  Property")  for  $6,885,087;  the Sunrise of Leesburg
located in Leesburg,  Virginia (the  "Leesburg  Property") for  $2,095,461;  the
Sunrise of Mercer  Island  located in Mercer  Island,  Washington  (the  "Mercer
Island Property") for $7,783,142; the Sunrise of Mill Basin located in Brooklyn,
New York (the  "Brooklyn-Mill  Basin Property") for $24,147,697;  the Sunrise of
Poland  located in Poland,  Ohio (the "Poland  Property")  for  $8,581,413;  the
Sunrise of Raleigh located in Raleigh,  North Carolina (the "Raleigh  Property")
for $6,286,384;  and the Sunrise of Sheepshead Bay located in Brooklyn, New York
(the  "Brooklyn-Sheepshead  Bay Property") for $25,644,455.  These 12 Properties
are hereinafter  referred to as the "Sunrise  Portfolio Four Properties" and are
operated  and  managed by Sunrise  Senior  Living  Services,  Inc.  The  Sunrise
Portfolio Four  Properties  were  purchased in  conjunction  with the Additional
Sunrise Portfolio Four Properties described below.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements  with Twenty Pack Management  Corp.  relating to these 12 Properties.
Twenty Pack Management Corp., an HRA Affiliated Company, is described in further
detail in "Business -- Property  Acquisitions -- Additional  Marriott  Portfolio
Two Properties,"  above. The general terms of the lease agreements are described
in the section of the  Prospectus  entitled  "Business - Description of Property
Leases." The principal features of the lease agreements are as follows:

o        The initial term of each lease expires on September 30, 2018.

o        At the end of the  initial  lease  terms,  the  tenant  will  have five
         consecutive renewal options of five years each.

o        Minimum  annual  rent is  adjustable  based upon the cost of debt and a
         minimum return to the Company.  Minimum rent consists of a fixed return
         on the cash investment in each Property (10.0% in the first lease year;
         10.75% in the second lease year;  11.0% for the third lease year; 11.5%
         for the  fourth  lease  year and will  increase  by 3% each  lease year
         thereafter)  and an amount  based on the debt  service  payment  on the
         related  debt.  It is expected  that the Company will obtain  Permanent
         Financing in the amount of $74.6 million on the Sunrise  Portfolio Four
         Properties  during the first  quarter of 2004.  Commencing on the lease
         commencement date until January 1, 2004,  aggregate minimum annual rent
         for the Sunrise  Portfolio Four Properties was $12,390,000.  Commencing
         January  1,  2004,  minimum  annual  rent  increased  to  approximately
         $15,018,000 until such time Permanent  Financing is obtained.  Upon the
         Company  obtaining  Permanent  Financing,  minimum  annual rent will be
         adjusted to an amount equal to the debt service  payment related to the
         Permanent  Financing plus a fixed return on the cash investment in each
         Property,  as described above.  Commencing in the sixth lease year, and
         every third lease year  thereafter,  minimum rent shall be reset to the
         greater  of (a)  the  fair  market  value  of the  Property  determined
         pursuant to a formula  multiplied  by 9.5% or (b) 3% of the prior lease
         year's minimum rent.

o        In addition to minimum annual rent, the leases require  additional rent
         in an amount equal to the  difference  between  13.5% of the  Company's
         cash  investment  basis in the  Properties  and the  portion of minimum
         annual rent related to the Company's cash investment basis payable each
         lease  year.  For  purposes of the  additional  rent  calculation,  the
         Company's  cash  investment  basis  equals  the  sum of the  Property's
         purchase price plus closing costs less Permanent  Financing  related to
         such Property.  The additional  rent is payable on a quarterly basis to
         the extent net operating cash flow from the Properties is available and
         does not accumulate beyond each lease year.

o        On behalf of the tenant of the Sunrise  Portfolio Four Properties,  the
         Operator has  established  an FF&E  Reserve  which will be used for the
         replacement and renewal of furniture,  fixtures and equipment  relating
         to the 12  Properties.  Deposits  to the  FF&E  Reserve  are  made on a
         monthly  basis and are equal to $750 per unit for the first  lease year
         and increase each lease year thereafter by an amount that is based on a
         percentage  determined  by a consumer  price  index.  Funds in the FF&E
         Reserve relating to these 12 Properties are held by the Company.

o        The leases for the Sunrise  Portfolio Four  Properties  contain pooling
         terms,  meaning that net operating  profits with respect to the Sunrise
         Portfolio  Four  Properties  are  combined  for the  purpose of funding
         rental payments and the FF&E Reserve.  In addition,  the leases contain
         cross-default terms, meaning that if the

         tenant of any of the 12 Properties  defaults on its  obligations  under
         its lease,  the Company  will have the  ability to pursue its  remedies
         under the leases  with  respect  to all 12  Properties,  regardless  of
         whether the tenant of any of the other  Properties  is in default under
         its lease.

o        Sunrise has  guaranteed  minimum  annual rent and the FF&E Reserve from
         the lease  commencement dates until the latter of (i) 30 months or (ii)
         18 months after development is completed on the Properties  included in
         the Additional  Sunrise  Portfolio Four Properties,  as described below
         (hereinafter referred to as the "Final Development Date").

         The approximate  federal income tax basis of the depreciable portion of
the Sunrise Portfolio Four Properties is as follows:

                Arlington                               $6,400,000
                Arlington-Bluemont Park                 26,100,000
                Sterling                                13,200,000
                Falls Church                             7,600,000
                Farmington Hills                         8,800,000
                Frederick                                7,200,000
                Leesburg                                 1,800,000
                Mercer Island                            7,300,000
                Brooklyn-Mill Basin                     22,800,000
                Poland                                   8,300,000
                Raleigh                                  6,200,000
                Brooklyn-Sheepshead Bay                 22,600,000

         In  connection  with the  acquisition  of the  Sunrise  Portfolio  Four
Properties,  the Company  expects to borrow  approximately  $70,000,000  under a
mortgage note  collateralized by the Sunrise  Portfolio Four Properties,  from a
commercial  lender.  It is expected  that the note will have an initial  term of
seven years with a fixed interest rate that will be based on a percentage amount
above the seven-year U.S. Treasury rate at the time the loan is funded (expected
to be  between  5.75% and  6.75%).  It is  expected  that the loan will  require
interest  only  payments  for the first two years with  principal  and  interest
payments due thereafter until maturity.

         The Arlington Property, which opened in January 1989, is the Sunrise of
Arlington  located in Arlington,  Virginia.  The Arlington  Property includes 29
assisted  living units and 18 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include common dining and living areas, a private dining area,  activity  areas,
paved  walkways  and garden  areas.  The  Property is located five miles west of
downtown Washington, D.C. Other senior living facilities located in proximity to
the Arlington  Property  include Sunrise of Falls Church and Sunrise at Bluemont
Park,  which  are  also  Properties  included  in  the  Sunrise  Portfolio  Four
Properties.

         The Arlington-Bluemont Park Property,  which opened in May 1990, is the
Sunrise at Bluemont Park located in Arlington,  Virginia. The Arlington-Bluemont
Park Property  includes 128  independent  living units, 37 assisted living units
and 10 units for residents with  Alzheimer's and related memory  disorders.  The
Operator  provides  assistance to residents with daily living activities such as
bathing, dressing and medication reminders.  Amenities include common dining and
living areas, a private dining area,  activity areas,  paved walkways and garden
areas. The Property is located 26 miles northwest of downtown  Washington,  D.C.
Other senior living  facilities  located in proximity to the  Arlington-Bluemont
Property  include  Sunrise of Arlington and Sunrise of Falls  Church,  which are
also Properties included in the Sunrise Portfolio Four Properties.

         The Sterling  Property,  which  opened in July 1992,  is the Sunrise at
Countryside  located in Sterling,  Virginia.  The Sterling  Property includes 52
independent  living units and 46 assisted  living units.  The Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and medication  reminders.  Amenities  include common dining and living areas, a
private  dining area,  activity  areas,  paved  walkways and garden  areas.  The
Property is located 26 miles northwest of downtown Washington, D.C. Other senior
living  facilities  located in proximity to the Sterling Property include Monroe
House, Mirror Ridge and Morningside House.

         The Falls Church  Property,  which opened in March 1993, is the Sunrise
of Falls Church  located in Falls Church,  Virginia.  The Falls Church  Property
includes 36 assisted  living units and 18 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities  include common dining and living areas, a private dining area,  paved
walkways and garden areas.  The Property is located eight miles west of downtown
Washington,  D.C.  Other senior  living  facilities  located in proximity to the
Falls Church Property include Sunrise at Bluemont Park and Sunrise of Arlington,
which are also Properties included in the Sunrise Portfolio Four Properties.

         The Farmington  Hills  Property,  which opened in December 1999, is the
Sunrise at North Farmington  Hills located in Farmington  Hills,  Michigan.  The
Farmington  Hills  Property  includes 40 assisted  living units and 29 units for
residents with Alzheimer's and related memory  disorders.  The Operator provides
assistance to residents with daily living  activities such as bathing,  dressing
and  medication  reminders.  Amenities  include  common dining and living areas,
private dining area, paved walkways and garden areas. The Property is located 25
miles northwest of downtown  Detroit,  Michigan.  Other senior living facilities
located in proximity to the  Farmington  Hills  Property  include  Waltonwood of
Royal Oak, Fountains of Franklin,  Botsford Commons,  Regent Street,  Alterra of
Farmington Hills and Arden Courts.

         The Frederick  Property,  which opened in February 1992, is the Sunrise
of Frederick located in Frederick,  Maryland. The Frederick Property includes 38
assisted  living units and 22 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas, a private dining area
and a hair salon.  The Property is located one mile west of downtown  Frederick,
Maryland.  Other senior living facilities  located in proximity to the Frederick
Property include Tranquility,  Somerford House, Heartfields, Country Meadows and
Edenton.

         The Leesburg Property,  which opened in January 1984, is the Sunrise of
Leesburg  located in  Leesburg,  Virginia.  The  Leesburg  Property  includes 38
assisted living units. The Operator provides  assistance to residents with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common  dining and living  areas,  a front  porch and a sun porch.  The
Property is located 40 miles northwest of downtown Washington, D.C. Other senior
living  facilities  located  in  proximity  to  the  Leesburg  Property  include
Morningside and Meadowglen.

         The  Mercer  Island  Property,  which  opened in October  1990,  is the
Sunrise of Mercer Island located in Mercer Island, Washington. The Mercer Island
Property  includes  34 assisted  living  units and 16 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities  include  common dining and living areas, a private dining
area,  activity areas,  paved walkways and garden areas. The Property is located
six miles east of downtown  Seattle,  Washington.  In addition to the  Company's
Brighton  Gardens  of  Bellevue,  other  senior  living  facilities  located  in
proximity to the Mercer Island Property  include  Sunrise of Bellevue,  Fairland
Terrace, Admiral Heights, Aegis of Kirkland and Robinswood Pointe.

         The Brooklyn-Mill Basin Property, which opened in February 2002, is the
Sunrise of Mill Basin located in Brooklyn,  New York.  The  Brooklyn-Mill  Basin
Property  includes  75 assisted  living  units and 38 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities  include several common living areas, a common and private
dining area, a private  outdoor  covered dining area, an activity area,  several
screened porches,  several patios and an outside gazebo. The Property is located
in the center of Brooklyn,  New York. Other senior living facilities  located in
proximity  to the  Brooklyn-Mill  Basin  Property  include  Palm  Beach Home and
Sunrise of Sheepshead Bay, which is also included in the Sunrise  Portfolio Four
Properties.

         The Poland Property, which opened in May 1999, is the Sunrise of Poland
located in Poland,  Ohio. The Poland Property  includes 48 assisted living units
and 19 units for residents with  Alzheimer's and related memory  disorders.  The
Operator  provides  assistance to residents with daily living activities such as
bathing, dressing and medication reminders.  Amenities include common dining and
living areas, a private dining area,  activity areas,  paved walkways and garden
areas. The Property is located seven miles south of downtown  Youngstown,  Ohio.
Other senior  living  facilities  located in  proximity  to the Poland  Property
include Alterra Clare Bridge, Manor at the Meadows (also know as Shepherd of the
Valley), Marian Living Center, Glen Ellen and The Commons.

         The Raleigh Property,  which opened in February 1996, is the Sunrise of
Raleigh located in Raleigh,  North Carolina.  The Raleigh  Property  includes 37
assisted  living units and 35 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include common dining and living areas, a private dining area,  activity  areas,
paved walkways and garden areas.  The Property is located seven miles  northwest
of downtown Raleigh,  North Carolina.  Other senior living facilities located in
proximity  to the Raleigh  Property  include  Magnolia  Glen,  Oakleaf  Village,
Woodland Terrace, Morningside and Heartfields.

         The  Brooklyn-Sheepshead  Bay Property,  which opened in March 2000, is
the  Sunrise  of   Sheepshead   Bay   located  in   Brooklyn,   New  York.   The
Brooklyn-Sheepshead  Bay Property includes 88 assisted living units and 23 units
for  residents  with  Alzheimer's  and related  memory  disorders.  The Operator
provides  assistance to residents with daily living  activities such as bathing,
dressing and medication  reminders.  Amenities  include  several common areas, a
living room, two main dining areas, a living area,  activity areas, and screened
porches and patios.  The  Property  is located  directly  across the street from
Sheepshead Bay in Brooklyn,  New York. Other senior living facilities located in
proximity to the  Brooklyn-Sheepshead  Bay Property  include Palm Beach Home and
Sunrise of Mill Basin,  which is also  included in the  Sunrise  Portfolio  Four
Properties.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 1999 through the
most recent  reported  period for the Company during which the  facilities  have
been operational are as follows:

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year *           Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Arlington Property          Arlington, VA                 1999       95.9%             $136.12          $130.50
                                                           2000       91.4%              151.78           138.69
                                                           2001       81.4%              155.50           126.54
                                                           2002       85.3%              150.57           128.38
                                                      *****2003       79.1%              166.57           131.81

 Arlington-Bluemont Park     Arlington, VA                 1999       95.3%             $111.06          $105.80
   Property                                                2000       92.7%              117.37           108.79
                                                           2001       89.7%              116.15           104.13
                                                           2002       85.9%              122.95           105.57
                                                      *****2003       85.0%              128.34           109.06

 Sterling Property           Sterling, VA                  1999       96.7%             $105.32          $101.87
                                                           2000       98.0%              111.97           109.69
                                                           2001       93.6%              117.12           109.62
                                                           2002       94.0%              124.25           116.84
                                                      *****2003       93.5%              129.83           121.32

 Falls Church Property       Falls Church, VA              1999      100.0%             $152.47          $152.47
                                                           2000      100.0%              157.59           157.59
                                                           2001       94.9%              162.76           154.48
                                                           2002       88.3%              168.97           149.16
                                                      *****2003       82.9%              178.04           147.56

 Farmington Hills            Farmington Hills,           **1999       40.0%              $82.77           $33.11
   Property                    MI                          2000       43.3%              148.09            64.06
                                                           2001     78.5%                140.93           110.61
                                                           2002       79.0%              139.78           110.48
                                                      *****2003       75.6%              150.35           113.63

 Frederick Property          Frederick, MD                 1999       90.9%             $128.32          $116.64
                                                           2000       95.3%              140.88           134.29
                                                           2001       90.8%              136.68           124.08
                                                           2002       89.4%              141.22           126.21
                                                      *****2003       89.5%              147.26           131.78

 Leesburg Property           Leesburg, VA                  1999      100.0%             $103.89          $103.89
                                                           2000       97.9%              106.20           103.94
                                                           2001       93.1%              112.92           105.12
                                                           2002       85.7%              122.80           105.28
                                                      *****2003       84.0%              131.73           110.65

                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year *           Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------

 Mercer Island Property      Mercer Island, WA             1999       93.9%             $129.20          $121.32
                                                           2000     95.5%                135.38           129.23
                                                           2001       90.1%              145.77           131.34
                                                           2002       90.2%              162.45           146.53
                                                      *****2003       91.0%              172.41           156.92

 Brooklyn-Mill Basin         Brooklyn, NY              ****2002       24.6%             $163.70          $ 40.29
   Property                                           *****2003       48.6%              148.37            72.13

 Poland Property             Poland, OH                  **1999       57.8%             $101.17           $58.47
                                                           2000       80.2%              116.86            93.66
                                                           2001       93.5%              122.55           114.53
                                                           2002       94.8%              128.84           122.15
                                                      *****2003       85.1%              134.42           114.35

 Raleigh Property            Raleigh, NC                   1999       96.5%             $132.20          $127.57
                                                           2000       93.7%              141.12           132.20
                                                           2001       93.9%              141.90           133.28
                                                           2002       92.7%              151.25           140.17
                                                      *****2003       94.0%              154.24           145.06

 Brooklyn-Sheepshead         Brooklyn, NY               ***2000       27.9%             $180.55           $50.41
   Bay Property                                            2001       46.6%              152.86            71.20
                                                           2002       69.5%              143.01            99.34
                                                      *****2003       84.2%              151.41           127.49

*        Data represents  information for each  applicable  fiscal year,  unless
         noted otherwise.
**       Data for the Farmington  Hills Property  represents the period December
         6, 1999 through  December 31,  1999;  and data for the Poland  Property
         represents the period May 14, 1999 through December 31, 1999.
***      Data  represents  the period March 27, 2000 through  December 31, 2000.
         **** Data represents the period  February 2, 2002 through  December 31,
         2002. ***** Data for 2003 represents the period January 1, 2003 through
         November 30, 2003.

         Additional  Sunrise  Portfolio Four Properties.  On September 30, 2003,
the Company also acquired five Properties in various stages of development  from
several wholly owned  subsidiaries of Sunrise for an aggregate purchase price of
$29,551,989.  The Properties  and related  purchase  prices  include  Sunrise of
Beverly  Hills  located  in  Beverly  Hills,   California  (the  "Beverly  Hills
Property") for $6,581,576;  the Sunrise of Cresskill  located in Cresskill,  New
Jersey (the "Cresskill Property") for $6,444,584; the Sunrise of Edmonds located
in Edmonds,  Washington (the "Edmonds Property") for $2,496,510;  the Sunrise at
Five Forks located in Lilburn,  Georgia (the "Lilburn Property") for $9,925,123;
and the  Sunrise  of Madison  located  in  Madison,  New  Jersey  (the  "Madison
Property") for $4,104,196.  These five Properties are hereinafter referred to as
the  "Additional  Sunrise  Portfolio Four  Properties."  The Additional  Sunrise
Portfolio  Four  Properties  were  purchased  in  conjunction  with the  Sunrise
Portfolio Four Properties described above.

         In connection with the acquisition of the Additional  Sunrise Portfolio
Four  Properties,  the  Company  has  entered  into  five  development  services
agreements with Sunrise Development, Inc., a wholly owned subsidiary of Sunrise,
which  provides  for  construction  of the  Properties.  Sunrise has  guaranteed
development  costs  exceeding  an  aggregate  amount  of  $111,693,428.  Sunrise
Development,  Inc. will be entitled to an incentive development fee equal to 25%
of the aggregate  savings below the aggregate  estimated costs of  $111,693,428.
The maximum cost to the Company with  respect to the Beverly  Hills,  Cresskill,
Edmonds,  Lilburn and Madison  Properties  (including  the purchase price of the
land,  development  costs, and development fees payable to Sunrise  Development,
Inc.) will not exceed the amounts set forth below:

                                                                            Estimated Final
    Property                                Estimated Cost                  Completion Date
    --------                                --------------                  ---------------
    Beverly Hills Property                    $29,679,188                       May 2005
    Cresskill Property                         38,831,533                    December 2004
    Edmonds Property                           13,751,040                     October 2004
    Lilburn Property                           13,014,881          Construction completed December 2003
    Madison Property                           16,416,786                     November 2004
                                         ----------------------
                                             $111,693,428
                                         ======================

         The Company obtained  construction loans totalling $83.1 million from a
commercial  lender,  which  are  collateralized  by the five  Properties.  As of
January 5, 2004, the Company had borrowed  approximately  $7.6 million under the
construction  loans. The loans have a term of three years with variable interest
rates that require  interest only payments until  maturity.  The Company has and
will continue to capitalize the interest  payments as  development  costs of the
Properties during the construction phase of each project.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements with Twenty Pack Management Corp.  relating to the Additional Sunrise
Portfolio  Four  Properties.  Twenty Pack  Management  Corp.,  an HRA Affiliated
Company, is described in further detail in "Business -- Property Acquisitions --
Additional  Marriott Portfolio Two Properties,"  above. The general terms of the
lease  agreements  are  described  in the  section  of the  Prospectus  entitled
"Business --  Description  of Property  Leases." The  principal  features of the
lease agreements are as follows:

o        The initial term of each lease expires on September 30, 2018.

o        At the end of the  initial  lease  terms,  the  tenant  will  have five
         consecutive renewal options of five years each.

o        From the lease commencement date to the Final Development Date, minimum
         annual  rent  is  based  upon a  fixed  return  on the  Company's  cash
         investment  in each  Property.  The fixed  return is 10.0% in the first
         lease year;  10.75% in the second lease year; 11.0% for the third lease
         year;  11.5% for the  fourth  lease year and will  increase  by 3% each
         lease year thereafter.  The Company's  aggregate cash investment in the
         five  Properties is  $27,923,357,  or 25% of the estimated  development
         costs.  On the Final  Development  Date,  minimum  annual  rent will be
         adjusted based upon the cost of anticipated Permanent Financing and the
         then  current  lease  rate on the  Company's  cash  investment  amount.
         Commencing  in the  sixth  lease  year,  and  every  third  lease  year
         thereafter,  minimum rent shall be reset to the greater of (a) the fair
         market  value  of  the  Property   determined  pursuant  to  a  formula
         multiplied by 9.5% or (b) 3% of the prior lease year's minimum rent.

o        Commencing on the Final Development Date, the leases require additional
         rent  in an  amount  equal  to  the  difference  between  13.5%  of the
         Company's  cash  investment  basis in the Properties and the portion of
         minimum  annual rent related to the  Company's  cash  investment  basis
         payable  each  lease  year.  For  purposes  of  the   additional   rent
         calculation,  the Company's cash investment basis equals the sum of the
         Property's purchase price plus closing costs and additional development
         costs less Permanent  Financing.  The  additional  rent is payable on a
         quarterly  basis  to the  extent  net  operating  cash  flow  from  the
         Properties is available and does not accumulate beyond each lease year.

o        Commencing on the Final  Development  Date, the Operator,  on behalf of
         the tenant of the Additional  Sunrise  Portfolio Four Properties,  will
         establish an FF&E Reserve  which will be used for the  replacement  and
         renewal of furniture, fixtures and equipment relating to the Additional
         Sunrise Portfolio Four Properties. Deposits to the FF&E Reserve will be
         made on a  monthly  basis  and are equal to $750 per unit for the first
         lease year and increase each lease year thereafter by an amount that is
         based on a percentage  determined by a consumer  price index.  Funds in
         the FF&E Reserve  relating to the  Additional  Sunrise  Portfolio  Four
         Properties will be held by the Company.

o        Commencing on the Final Development Date, the leases for the Additional
         Sunrise  Portfolio Four Properties will contain pooling terms,  meaning
         that net  operating  profits  with  respect to the  Additional  Sunrise
         Portfolio Four  Properties  will be combined for the purpose of funding
         rental payments and the FF&E Reserve.

o        Sunrise has  guaranteed  minimum  annual rent and the FF&E Reserve from
         the lease  commencement dates until the latter of (i) 30 months or (ii)
         18 months after the Final Development Date.

         The Company will not commence the  depreciation  of assets with respect
to the Additional  Sunrise Portfolio Four Properties until the Final Development
Date.

         The Beverly Hills Property, which is currently in the development stage
and is  scheduled  to open in May 2005,  will be the  Sunrise of Beverly  Hills,
located in Beverly Hills, California.  The Beverly Hills Property is expected to
include 64 assisted living units and 16 units for residents with Alzheimer's and
related memory disorders. The Operator will provide assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities  will include  common living and dining areas,  a private dining area,
activity  areas,  paved walkways and garden areas.  The Property will be located
approximately  12 miles west of downtown Los Angeles,  California.  Other senior
living  facilities  located in proximity to the Beverly Hills  Property  include
Bridgeport at Beverly  Hills,  Stanford  House,  Westwood  Plaza,  Country Villa
Terrace and Westwood Horizons.

         The Cresskill  Property,  which is currently under  construction and is
scheduled to open in December 2004, will be the Sunrise of Cresskill, located in
Cresskill,  New  Jersey.  The  Cresskill  Property  is  expected  to  include 77
independent  living units,  60 assisted  living units and 21 units for residents
with  Alzheimer's  and related  memory  disorders.  The  Operator  will  provide
assistance to residents with daily living  activities such as bathing,  dressing
and medication reminders. Amenities will include common living and dining areas,
porches,  sunrooms,  laundry  facilities and a hair salon.  The Property will be
located  approximately  ten miles from Teaneck,  New Jersey and approximately 20
miles from downtown New York City. The only other senior living facility located
in proximity to the Cresskill  Property is the Classic Residence of Hyatt, which
is an independent living facility.

         The Edmonds  Property,  which is currently in the development stage and
is scheduled to open October  2004,  will be the Sunrise of Edmonds,  located in
Edmonds,  Washington.  The  Edmonds  Property is expected to include 35 assisted
living units and 23 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator will provide  assistance to residents with daily living
activities such as bathing,  dressing and medication  reminders.  Amenities will
include common living and dining areas, a private dining area,  activity  areas,
paved walkways and garden areas.  The Property will be located  approximately 16
miles north of downtown  Seattle,  Washington.  Other senior  living  facilities
located in proximity to the Edmonds  Property  include  Rosewood Court,  Edmonds
Landing, Mountlake Terrace Plaza, Edmonds Retirement Inn and Aegis of Shoreline.

         The Lilburn Property,  which opened in December 2003, is the Sunrise at
Five  Forks,  located in Lilburn,  Georgia.  The  Lilburn  Property  includes 52
assisted  living units and 17 units for residents with  Alzheimer's  and related
memory disorders.  The Operator will provide  assistance to residents with daily
living activities such as bathing, dressing and medication reminders.  Amenities
will  include  common  living  and  dining  areas,  porches,  sunrooms,  laundry
facilities  and a hair  salon.  The  Property is located 15 miles  northeast  of
downtown Atlanta,  Georgia.  Other senior living facilities located in proximity
to the Lilburn Property include Atria of Lawrenceville,  The Bridge and Winthrop
of Tucker.

         The Madison  Property,  which is currently  under  construction  and is
scheduled to open in November 2004,  will be the Sunrise of Madison,  located in
Madison,  New Jersey.  The  Madison  Property is expected to include 52 assisted
living units and 20 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator will provide  assistance to residents with daily living
activities such as bathing,  dressing and medication  reminders.  Amenities will
include common living and dining areas,  porches,  sunrooms,  laundry facilities
and a hair  salon.  The  Property  will be located  approximately  16 miles from
Newark  Liberty  International  Airport.  In addition to the Company's  Brighton
Gardens of Florham Park, other senior living facilities  located in proximity to
the  Madison  Property  include  a  Care  One  facility  scheduled  to  open  at
approximately the same time as the Madison Property.

         Dogwood Forest of Dunwoody.  On November 25, 2003, the Company acquired
the Dogwood  Forest of Dunwoody  located in  Dunwoody,  Georgia  (the  "Dunwoody
Property") from 7400 Peachtree  Dunwoody Rd., LLC, DBA Dogwood Forest - Dunwoody
for a purchase price of  $5,500,000.  This Property is managed by Sunrise Senior
Living Services, Inc.

         The Company, as lessor, has entered into a long-term,  triple-net lease
agreement  with  Solomon  Holdings  II - Dogwood  Forest,  LLC,  a wholly  owned
subsidiary  of  Solomon.  Solomon  is the  parent  company  of the tenant of the
Sunrise  Portfolio Three  Properties  described in the section of the Prospectus
Supplement entitled "Business - Property Acquisitions." The general terms of the
lease  agreement  are  described  in  the  section  of the  Prospectus  entitled
"Business - Description of Property Leases." The principal features of the lease
agreement are as follows:

o        The initial term of the lease expires on November 25, 2018.

o        The lease requires minimum annual rent of $527,568 and $633,961 for the
         first and second lease  years,  respectively,  and will  increase by 3%
         each  lease year  thereafter.  Beginning  in the fourth  lease year and
         every 36 months thereafter, the minimum annual rent will be adjusted to
         the greater of (i) the Company's  investment  in the Dunwoody  Property
         plus 75% of the increase in the fair market value  multiplied  by 10.5%
         or (ii) the prior year's rent increased by 3%.

o        At the end of the initial lease term,  the tenant will have one renewal
         option of ten years.  Commencing on the date of the renewal option, the
         minimum  annual rent will  increase to the greater of (i) the Company's
         investment  in the  Dunwoody  Property  plus 75% of the increase in the
         fair market  value  multiplied  by 10.5% or (ii) the prior  year's rent
         increased by 3%.

o        The tenant has  established an FF&E Reserve fund which will be used for
         the  replacement  and  renewal of  furniture,  fixtures  and  equipment
         relating to the  Property.  Deposits to the FF&E  Reserve are made on a
         monthly  basis  and  total  $500  per unit for the  first  lease  year,
         increasing by 3% each lease year thereafter.  Funds in the FF&E Reserve
         relating to this property are held by the Company.

o        In addition to the purchase price, the Company has funded an additional
         $203,000 to convert eight existing assisted living units to Alzheimer's
         and related memory disorder units, to buyout existing  equipment leases
         and to provide funds for additional capital  improvements.  This amount
         is included in the basis by which minimum rent is calculated.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for the operation of the Property equal 5% of gross revenues throughout
         the  term  of  the  lease.  Rent  payments  due  under  the  lease  are
         subordinate to the payment of base management fees.

         In  connection  with the  acquisition  of the  Dunwoody  Property,  the
Company may be required to make an additional payment (the "Earnout Amount") not
to exceed  $750,000 if certain  earnout  provisions are achieved by November 25,
2006. The calculation of the Earnout Amount  considers the net operating  income
of the Property,  the  Company's  investment in the Property and the fair market
value of the Property. In the event an Earnout Amount becomes payable, the lease
basis will be amended and annual minimum rent will increase accordingly.

         The approximate  federal income tax basis of the depreciable portion of
the Dunwoody Property is $5.3 million.

         The Dunwoody Property, which opened in June 2000, is the Dogwood Forest
of Dunwoody,  an assisted living  facility,  located in Dunwoody,  Georgia.  The
Dunwoody  Property  includes 55 assisted living units and 11 units for residents
with  Alzheimer's  and related memory  disorders.  The tenant intends to convert
eight  units from  assisted  living  units to  Alzheimer's  and  related  memory
disorder units.  This will bring the  configuration  to 47 assisted living units
and 19 units for residents with  Alzheimer's and related memory  disorders.  The
Operator  provides  assistance to residents with daily living activities such as
bathing, dressing and medication reminders.  Amenities include common dining and
living  areas,  activity  areas,  a private  dining area and garden  areas.  The
Property is located 15 miles north of downtown Atlanta,  Georgia. In addition to
the Company's Brighton Gardens of Dunwoody,  EdenBrook of Dunwoody, EdenBrook of
Buckhead  and  EdenGardens  of Sandy  Springs,  other senior  living  facilities
located in proximity to the  Dunwoody  Property  include  Atria  Johnson  Ferry,
Cypress Court-Sandy Springs,  Cypress Gardens - SS, Hearthstone of Marietta, The
Mann House,  Merrill  Gardens of Dunwoody,  Renaissance  of Peachtree,  Savannah
Court of Marietta, Sunrise at Huntcliff, Sunrise of Dunwoody, Waterford Gardens,
and Winthrop at Buckhead.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 2000 through the
most recent  reported  period for the Company during which the facility has been
operational are as follows:

                                                                                         Revenue          Revenue
                                                                         Average       per Occupied         per
                                                                        Occupancy          Unit          Available
          Property                  Location             Year *           Rate                              Unit
 ---------------------------  ----------------------  -------------    ------------    -------------    -------------
 Dunwoody Property            Dunwoody, GA                  **2000          29.0%            $48.66           $14.11
                                                              2001          31.0%            100.54            31.17
                                                              2002          55.2%             81.03            44.71
                                                           ***2003          69.5%             95.71            66.47

*   Data represents  information for each applicable  fiscal year,  unless noted
    otherwise.
**  Data for 2000  represents  the period  August 1, 2000  through  December 31,
    2000.
*** Data for 2003  represents  the period  January 1, 2003  through  October 31,
    2003.

         EdenCare  Portfolio One  Properties.  On November 25, 2003, the Company
acquired  three   Properties   from  EdenCare  Senior  Living   Services,   L.P.
("EdenCare") for an aggregate purchase price of $27,000,000.  The Properties and
related  purchase  prices include the EdenGardens of Gainesville in Gainesville,
Florida  (the   "Gainesville   Property")  for  $8,000,000;   the  EdenBrook  of
Jacksonville  in  Jacksonville,   Florida  (the  "Jacksonville   Property")  for
$7,000,000  and the  EdenBrook  of  Tallahassee  in  Tallahassee,  Florida  (the
"Tallahassee Property") for $12,000,000.  These three Properties are hereinafter
referred to as the  "EdenCare  Portfolio  One  Properties"  and are operated and
managed by affiliates of HRA.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements with Harborchase of Gainesville,  Inc.,  Harborchase of Jacksonville,
Inc. and Harborchase of Tallahassee, Inc., all affiliates of HRA and hereinafter
referred to as the "EdenCare  Portfolio  One  Tenants,"  relating to these three
Properties.  Each of  these  entities  is a  thinly  capitalized,  newly  formed
corporation  affiliated  with the  Advisor.  The HRA  Affiliated  Companies  are
described in further detail in the section of the Prospectus Supplement entitled
"Business  --  Property   Acquisitions  --  Additional  Marriott  Portfolio  Two
Properties."  The general  terms of the lease  agreements  are  described in the
section of the Prospectus entitled "Business -- Description of Property Leases."
The principal features of the lease agreements are as follows:

o        The initial term of each lease expires on November 30, 2018.

o        Minimum annual rent as set forth in each lease is as follows:

                                                                 Minimum
                                 Property                      Annual Rent
                    -----------------------------------      ----------------

                    Gainesville Property                       $   859,231
                    Jacksonville Property                          751,827
                    Tallahassee Property                         1,288,846

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year and each lease year thereafter. Beginning in the fourth lease year
         and  every 36  months  thereafter,  the  minimum  annual  rent  will be
         adjusted to the greater of (i) the fair  market  value of the  Property
         multiplied by 10.5% or (ii) the prior year's  minimum rent increased by
         3%.

o        At the end of the  initial  lease  terms,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        In addition to minimum annual rent, the leases require  additional rent
         in an  amount  equal to the lessor of (i) the excess of (A) 15% of the Company's investment basis in the
         Properties and (B) minimum annual rent payable each lease year plus, for lease periods beginning after the
         first thirty-six months of the lease, one and one-half percent (1.5%) of the gross revenues of the Properties,
         or $22,222.00 (subject to adjustment each lease year), whichever is lower, and (ii) the funds required to
         be  paid to the tenant by the manager of the property, reduced by (A) the minimum annual rent amount, (B)
         payments to the FF&E Reserve, and (C) one and one-half percent (1.5%) of the gross revenues of the
         Properties, or $22,222.00 (subject to adjustment each lease year), whichever is lower.

o        The tenant has  established  an FF&E Reserve which will be used for the
         replacement and renewal of furniture,  fixtures and equipment  relating
         to the three  Properties.  Deposits  to the FF&E  Reserve are made on a
         monthly  basis  and are equal to the  greater  of (i) $500 per unit per
         year or (ii) 2% of gross receipts for the first and second lease years,
         2.5% of gross  receipts for the third  through fifth lease years and 3%
         of gross  receipts  for each lease year  thereafter.  Funds in the FF&E
         Reserve relating to these three Properties are held by the Company.

o        The leases for the EdenCare  Portfolio One Properties  contain  pooling
         terms,  meaning that net operating profits with respect to the EdenCare
         Portfolio One Properties are combined for the purpose of funding rental
         payments  and  the  FF&E  Reserve.  In  addition,  the  leases  contain
         cross-default  terms,  meaning  that if the  tenant of any of the three
         Properties  defaults on its  obligations  under its lease,  the Company
         will have the  ability to pursue  its  remedies  under the leases  with
         respect to all three  Properties,  regardless  of whether the tenant of
         any of the other Properties is in default under its lease.

o        Base management  fees payable to Harbor  Gainesville  Management,  LLC,
         Harbor Jacksonville Management,  LLC and Harbor Tallahassee Management,
         LLC for  the  operation  of the  three  Properties  equal  6% of  gross
         revenues throughout the term of the leases. Rent payments due under the
         leases are subordinate to the payment of base management fees.

         The approximate  federal income tax basis of the depreciable portion of
the EdenCare Portfolio One Properties is as follows:

                Gainesville                            $ 8,100,000
                Jacksonville                             6,400,000
                Tallahassee                             12,100,000

         The  Gainesville   Property,   which  opened  in  April  2000,  is  the
EdenGardens of Gainesville  located in  Gainesville,  Florida.  The  Gainesville
Property  includes  41 assisted  living  units and 28 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library, a garden room, a hobby room, a wellness center, a hair salon and a spa.
The Property is located eight miles west of downtown  Gainesville.  Other senior
living  facilities  located in proximity  to the  Gainesville  Property  include
Alterra Sterling House, High Springs, Park Place and Rose Court - Azalea.

         The  Jacksonville  Property,  which  opened in  December  1999,  is the
EdenBrook of Jacksonville  located in  Jacksonville,  Florida.  The Jacksonville
Property  includes  52 assisted  living  units and 28 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library,  a tea room, a garden room, a hobby room, a chapel/theater,  a wellness
center,  a hair  salon and a spa.  The  Property  is  located  15 miles  east of
downtown  Jacksonville.  Other senior living facilities  located in proximity to
the  Jacksonville  Property  include  Alterra Clare Bridge,  Broadview,  Alterra
Sterling House, Saint Augustine, and Woodmont.

         The  Tallahassee  Property,  which  opened  in  December  1999,  is the
EdenBrook  of  Tallahassee  located in  Tallahassee,  Florida.  The  Tallahassee
Property  includes  56 assisted  living  units and 28 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library,  a tea room, a garden room, a hobby room, a chapel/theater,  a wellness
center,  a hair salon and a spa.  The  Property is located  three miles north of
downtown Tallahassee. Other senior living facilities located in proximity to the
Tallahassee  Property  include  Alterra  Sterling  House of  Tallahassee,  Saint
Augustine Plantation and Woodmont.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 2000 through the
most recent  reported  period for the Company during which the  facilities  have
been operational are as follows:


                                                                                       Revenue          Revenue
                                                                      Average        per Occupied    per Available
                                                                     Occupancy           Unit            Unit
         Property                 Location            Year *           Rate
 --------------------------  --------------------  -------------   --------------    -------------   --------------
 Gainesville Property        Gainesville, FL             **2000        64.2%            $ 78.96          $ 50.69
                                                           2001        84.1%             109.43            92.03
                                                           2002        92.8%             109.43           102.01
                                                        ***2003        95.7%             111.69           106.89

 Jacksonville Property       Jacksonville, FL              2000        56.9%            $ 77.28          $ 43.97
                                                           2001        76.3%             100.77            76.89
                                                           2002        89.4%             103.80            92.80
                                                        ***2003        91.9%             110.58           101.62

 Tallahassee Property        Tallahassee, FL               2000        64.3%            $ 84.92          $ 54.61
                                                           2001        94.1%             100.15            94.24
                                                           2002        96.4%             110.71           106.72
                                                        ***2003        93.5%             121.79           113.87


*   Data represents  information for each applicable  fiscal year,  unless noted
    otherwise.
**  Data represents the period April 3, 2000 through December 31, 2000.
*** Data for 2003  represents  the period  January 1, 2003  through  October 31,
    2003.

         EdenCare  Portfolio Two  Properties.  On November 25, 2003, the Company
also acquired 22 additional  Properties from EdenCare for an aggregate  purchase
price of  $171,755,000.  The Properties and related  purchase prices include the
EdenBrook of Champions located in Houston,  Texas (the "Champions Property") for
$11,818,000;  the  EdenGardens  of Arlington  located in  Arlington,  Texas (the
"EdenGardens  Arlington Property") for $8,666,000;  the EdenTerrace of Arlington
located  in  Arlington,   Texas  (the  "EdenTerrace   Arlington  Property")  for
$8,075,000;  the  EdenGardens  of  Kingwood  located  in  Kingwood,  Texas  (the
"EdenGardens  Kingwood  Property") for  $8,666,000;  the EdenTerrace of Kingwood
located  in  Kingwood,   Texas  (the   "EdenTerrace   Kingwood   Property")  for
$10,829,000;  the  EdenBrook  of Plano  located  in  Plano,  Texas  (the  "Plano
Property")  for  $12,211,000;  the  EdenBrook  of The  Woodlands  located in The
Woodlands, Texas (the "Woodlands Property") for $13,590,000;  the EdenGardens of
Concord  located  in  Concord,  North  Carolina  (the  "Concord  Property")  for
$3,841,000;  the EdenBrook of Charleston  located in Charleston,  South Carolina
(the "Charleston Property") for $9,060,000;  the EdenGardens of Aiken located in
Aiken, South Carolina (the "Aiken Property") for $7,386,000;  the EdenGardens of
Rock Hill located in Rock Hill,  South  Carolina (the "Rock Hill  Property") for
$6,894,000; the EdenGardens of Columbia located in Columbia, South Carolina (the
"Columbia  Property") for $4,235,000;  the  EdenGardens of Greenwood  located in
Greenwood,  South  Carolina  (the  "Greenwood  Property")  for  $4,432,000;  the
EdenBrook of Buckhead located in Atlanta,  Georgia (the "Buckhead Property") for
$7,583,000;  the EdenBrook of  Alpharetta  located in  Alpharetta,  Georgia (the
"Alpharetta  Property")  for  $6,894,000;  the EdenBrook of Dunwoody  located in
Atlanta,  Georgia  (the  "EdenBrook  Dunwoody  Property")  for  $4,825,000;  the
EdenGardens of Roswell located in Roswell,  Georgia (the "Roswell Property") for
$2,364,000;  the  EdenGardens  of Marietta  located in  Marietta,  Georgia  (the
"Marietta Property") for $4,825,000; the EdenGardens of Sandy Springs located in
Atlanta, Georgia (the "Sandy Springs Property") for $3,250,000; the EdenBrook of
Louisville located in Middletown, Kentucky (the "EdenBrook Louisville Property")
for $10,537,000;  the EdenTerrace of Louisville located in Middletown,  Kentucky
(the "EdenTerrace  Louisville  Property") for $12,517,000;  and the EdenBrook of
Huntsville  located in  Huntsville,  Alabama  (the  "Huntsville  Property")  for
$9,257,000.  These 22 Properties  are  hereinafter  referred to as the "EdenCare
Portfolio Two  Properties" and are operated and managed by Sunrise Senior Living
Services,   Inc.  The  EdenCare  Portfolio  Two  Properties  were  purchased  in
conjunction with the EdenCare Portfolio One Properties described above.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements  with  Twenty  Two  Pack  Management  Corp.   relating  to  these  22
Properties.  Twenty Two Pack  Management  Corp.  is an affiliate of the EdenCare
Portfolio One Tenants described above and the HRA Affiliated Companies described
in the  section  of the  Prospectus  Supplement  entitled  "Business  - Property
Acquisitions -- Additional  Marriott Portfolio Two Properties."  Twenty Two Pack
Management Corp. is a thinly  capitalized,  newly formed corporation  affiliated
with the Advisor. The general terms of the lease agreements are described in the
section of the Prospectus  entitled "Business - Description of Property Leases."
The principal features of the lease agreements are as follows:

o        The initial term of each lease expires on November 30, 2018.

o        At the end of the  initial  lease  terms,  the  tenant  will  have four
         consecutive renewal options of five years each.

o        Minimum annual rent as set forth in each lease is as follows:

                                                                 Minimum Annual Rent

                                                  ---------------------------------------------------
                                                  1st Lease Year       2nd Lease         3rd Lease
                       Property                       Year                Year             Year
         -------------------------------------    ---------------     -------------    --------------
         Aiken Property                               $ 713,246         $ 750,786        $ 796,583
         Alpharetta Property                            665,697           700,733          743,478
         Buckhead Property                              732,266           770,807          817,826
         Champions Property                           1,141,194         1,201,257        1,274,553
         Charleston Property                            874,915           920,964          977,142
         Columbia Property                              408,928           430,450          456,708
         Concord Property                               370,888           390,409          414,223
         EdenBrook Dunwoody Property                    465,988           490,513          520,435
         EdenBrook Louisville Property                1,017,565         1,071,121        1,136,459
         EdenGardens Arlington Property                 836,876           880,922          934,658
         EdenGardens Kingwood Property                  836,876           880,922          934,658
         EdenTerrace Arlington Property                 779,816           820,859          870,931
         EdenTerrace Kingwood Property                1,045,720         1,100,758        1,167,905
         EdenTerrace Louisville Property              1,208,779         1,272,399        1,350,015
         Greenwood Property                             427,948           450,471          477,950
         Huntsville Property                            893,935           940,985          998,385
         Marietta Property                              465,988           490,513          520,435
         Plano Property                               1,179,234         1,241,299        1,317,018
         Rock Hill Property                             665,697           700,733          743,478
         Roswell Property                               228,239           240,251          254,907
         Sandy Springs Property                         313,828           330,346          350,497
         Woodlands Property                           1,312,373         1,381,445        1,465,714

o        Commencing in the fourth lease year,  minimum annual rent will increase
         to the greater of (i) the fair market value of the Property  determined
         pursuant to a formula multiplied by 9.5% (the "FMV Adjustment") or (ii)
         the prior year's  minimum rent increased by 3%. Once the FMV Adjustment
         has occurred,  minimum rent will only be adjusted by the FMV Adjustment
         method every three years and only if such  adjustment will result in an
         increase of minimum rent.

o        In addition to minimum annual rent, the leases require  additional rent
         in an  amount  equal to the lessor of (i) the excess of (A) 15% of the Company's investment basis in the
         Properties and (B) minimum annual rent payable each lease year plus, for lease periods beginning after the
         first thirty-six months of the lease, one and one-half percent (1.5%) of the gross revenues of the Properties,
         or $22,222.00 (subject to adjustment each lease year), whichever is lower, and (ii) the funds required to
         be  paid to the tenant by the manager of the property, reduced by (A) the minimum annual rent amount, (B)
         payments to the FF&E Reserve, and (C) one and one-half percent (1.5%) of the gross revenues of the
         Properties, or $22,222.00 (subject to adjustment each lease year), whichever is lower.

o        The tenant of the EdenCare  Portfolio Two Properties has established an
         FF&E  Reserve  which will be used for the  replacement  and  renewal of
         furniture,  fixtures  and  equipment  relating  to the  22  Properties.
         Deposits to the FF&E Reserve are made on a monthly  basis and are equal
         to $500 per unit for the first lease year and increase  each lease year
         thereafter  by an amount that is based on a percentage  determined by a
         consumer  price index.  Funds in the FF&E Reserve  relating to these 22
         Properties are held by the Company.

o        The leases for the EdenCare  Portfolio Two Properties  contain  pooling
         terms,  meaning that net operating profits with respect to the EdenCare
         Portfolio Two Properties are combined for the purpose of funding rental
         payments and the FF&E Reserve.

o        Base  management fees payable to Sunrise Senior Living  Services,  Inc.
         for the  operations  of the 22  Properties  equal 7% of gross  revenues
         throughout  the term of the leases.  Rent payments due under the leases
         are  subordinate  to the payment of 5% of gross  revenues  for the base
         management fees.

o        EdenCare has  established a $5.5 million  escrow account for use by the
         tenant  in the  event  that net  operating  income  from  the  EdenCare
         Portfolio Two Properties is  insufficient to fully pay minimum rent and
         FF&E  Reserve  payments due under the leases.  The  EdenCare  guarantee
         terminates  at the end of the fifth lease year.  In  addition,  Sunrise
         Senior Living Services,  Inc. has guaranteed the tenant's obligation to
         pay minimum rent and FF&E Reserve payments due under the leases up to a
         maximum of $5 million  which will  terminate  upon the  earlier of: (i)
         such time as Sunrise Senior Living Services, Inc.'s cumulative payments
         under the guarantee aggregate $5 million or (ii) such time that the net
         operating income from the EdenCare  Portfolio Two Properties  equals or
         exceeds  minimum  rent due under the  leases by 25% for a  trailing  12
         month period.  Sunrise Senior Living Services,  Inc. is not required to
         commence  its  guarantee  until  such  time as the  funds are no longer
         available from the EdenCare escrow account.  As of January 5, 2004, the
         amount available in the EdenCare escrow account was $5.5 million.

         In connection with the EdenCare Portfolio Two Properties, at the end of
the third lease year the  Company may be required to fund an Earnout  Amount not
to exceed $2 million if the Properties  achieve  certain  operating  performance
thresholds. In the event an Earnout Amount becomes payable, the respective lease
basis will be amended and minimum annual rent will increase accordingly.

         The approximate  federal income tax basis of the depreciable portion of
the Additional EdenCare Portfolio One Properties is as follows:

                       Property                         Federal Tax Basis
        ----------------------------------------      ---------------------

        Aiken Property                                           $7,400,000
        Alpharetta Property                                       6,600,000
        Buckhead Property                                         7,200,000
        Champions Property                                       12,000,000
        Charleston Property                                       9,100,000
        Columbia Property                                         4,200,000
        Concord Property                                          3,700,000
        EdenBrook Dunwoody Property                              4,800,000
        EdenBrook Louisville Property                            10,500,000
        EdenGardens Arlington Property                            8,800,000
        EdenGardens Kingwood Property                             8,700,000
        EdenTerrace Arlington Property                            7,900,000
        EdenTerrace Kingwood Property                            10,900,000
        EdenTerrace Louisville Property                          12,300,000
        Greenwood Property                                        4,400,000
        Huntsville Property                                       9,200,000
        Marietta Property                                         4,600,000
        Plano Property                                           12,400,000
        Rock Hill Property                                        7,100,000
        Roswell Property                                          2,100,000
        Sandy Springs Property                                    2,900,000
        Woodlands Property                                       14,000,000

         In connection with the acquisition of the Aiken, Alpharetta,  Buckhead,
Charleston,  EdenBrook Louisville,  EdenTerrace  Louisville,  Plano and Woodland
Properties, the Company obtained Permanent Financing comprised of seven loans in
the aggregate amount of $45,000,000. The loans bear interest at a rate of 30-day
LIBOR plus 260 to 300 basis points and require monthly payments of interest only
for the first year.  Commencing  December  1, 2004,  the loan  requires  monthly
principal and interest  payments  thereafter  through  November  2006,  with all
unpaid  principal and interest due at that time.  In connection  with the loans,
the Company incurred loan costs of $250,000. In addition, in connection with the
acquisition of the Concord Property,  the Company assumed Permanent Financing in
the amount of approximately $2,445,000.  The loan bears interest at a fixed rate
of 8.375% and requires monthly


principal  and interest  payments  until  maturity in November  2038.  Also,  in
connection with the acquisition of the EdenBrook Dunwoody Property,  the Company
assumed Permanent Financing in the amount of approximately $4,685,000.  The loan
bears  interest  at a fixed rate of 8.25% and  requires  monthly  principal  and
interest payments until maturity in March 2038.

         The Champions Property,  which opened in June 2000, is the EdenBrook of
Champions located in Houston, Texas. The Champions Property includes 56 assisted
living units and 28 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
common  dining and living areas,  activity  areas,  a library,  a garden room, a
hobby room, a wellness  center,  a hair salon and a spa. The Property is located
22 miles northwest of downtown Houston.  Other senior living facilities  located
in proximity to the Champions  Property  include Atria  Cypresswood,  Hampton at
Willowbook,  Hampton at Cypress Station, Hearthstone at Cypress Fair, Park Place
of Cypress Fair and Silverado Cypresswood.

         The EdenGardens  Arlington  Property,  which opened in October 2000, is
the  EdenGardens  of Arlington  located in  Arlington,  Texas.  The  EdenGardens
Arlington  Property includes 52 assisted living units and 22 units for residents
with Alzheimer's and related memory disorders.  The Operator provides assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication reminders. Amenities include common dining and living areas, activity
areas, a library,  a hobby room, a hair salon and a spa. The Property is located
six miles  southwest  of downtown  Arlington.  Other  senior  living  facilities
located in proximity to the  EdenGardens  Arlington  Property  include  Arkansas
House, Broadway Plaza at Pecan Park, Hearthstone at Arlington and Meadow View.

         The EdenTerrace  Arlington Property,  which opened in December 2000, is
the  EdenTerrace  of Arlington  located in  Arlington,  Texas.  The  EdenTerrace
Arlington  Property  includes 140 independent  living units.  Amenities  include
common  dining and living  areas,  activity  areas,  a hobby room, a theater,  a
wellness  center,  a hair salon and a spa.  The  Property  is located  six miles
southwest of downtown  Arlington.  Other  senior  living  facilities  located in
proximity to the EdenTerrace  Arlington Property include the Arbrook,  Arlington
Plaza, Fox Run Estates, Town Village Arlington, and the Waterford at Pantego.

         The  EdenGardens  Kingwood  Property,  which opened in May 2001, is the
EdenGardens of Kingwood  located in Kingwood,  Texas.  The EdenGardens  Kingwood
Property  includes  42 assisted  living  units and 28 units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library, a garden room, a hobby room, a wellness center, a hair salon and a spa.
The  Property is located 23 miles  northeast of downtown  Houston.  Other senior
living  facilities  located in proximity to the  EdenGardens  Kingwood  Property
include Atria Kingwood, The Rosemont and Silverado-Kingwood.

         The EdenTerrace  Kingwood Property,  which opened in April 2001, is the
EdenTerrace of Kingwood  located in Kingwood,  Texas.  The EdenTerrace  Kingwood
Property includes 120 independent living units.  Amenities include common dining
and living areas, activity areas, a library, a hobby room, a theater, a wellness
center,  a hair salon and a spa. The  Property is located 23 miles  northeast of
downtown  Houston.  Other senior living  facilities  located in proximity to the
EdenTerrace  Kingwood  Property  include  Carriage  Inn,  The  Forum,  Greatwood
Retirement, The Heritage and The Terrace.

         The Plano  Property,  which  opened in June 2000,  is the  EdenBrook of
Plano located in Plano,  Texas.  The Plano Property  includes 38 assisted living
units and 35 units for residents with Alzheimer's and related memory  disorders.
The Operator provides  assistance to residents with daily living activities such
as bathing,  dressing and medication reminders.  Amenities include common dining
and living  areas,  activity  areas,  a library,  a garden room, a hobby room, a
wellness  center, a hair salon and a spa. The Property is located 20 miles north
of downtown Dallas.  Other senior living facilities  located in proximity to the
Plano  Property  include Active Care,  Autumn  Leaves,  Collin Oaks and Colonial
Lodge of Plano.

         The Woodlands  Property,  which opened in August 2000, is the EdenBrook
of The  Woodlands  located  in The  Woodlands,  Texas.  The  Woodlands  Property
includes 65 assisted  living units and 28 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas, activity areas, a library,
a garden room, a hobby room, a wellness  center, a hair salon
and a spa.  The  Property is located 29 miles north of downtown  Houston.  Other
senior living facilities  located in proximity to the Woodlands Property include
Hampton at Cypress Station,  Hearthstone at Rivershire,  Silverado Senior Living
and Forum at the Woodlands.

         The Concord Property,  which opened in June 1998, is the EdenGardens of
Concord located in Concord,  North Carolina.  The Concord  Property  includes 56
assisted living units. The Operator provides  assistance to residents with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas,  a hobby room, a hair
salon  and a spa.  The  Property  is  located  26 miles  northeast  of  downtown
Charlotte.  Other senior living  facilities  located in proximity to the Concord
Property include Carillon, Concord Place and Morningside.

         The Charleston Property, which opened in January 2000, is the EdenBrook
of Charleston  located in Charleston,  South Carolina.  The Charleston  Property
includes 56 assisted  living units and 28 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library,  a
garden  room,  a hobby  room,  a wellness  center,  a hair salon and a spa.  The
Property is located nine miles west of downtown Charleston.  Other senior living
facilities  located in proximity to the Charleston  Property  include Oak Haven,
Oakdale Heights, Spring Arbor and Trinity Mission.

         The Aiken  Property,  which opened in March 1995, is the EdenGardens of
Aiken located in Aiken, South Carolina.  The Aiken Property includes 47 assisted
living units and 24 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
common  dining and living areas,  activity  areas,  a library,  a garden room, a
hobby room, a wellness  center,  a hair salon and a spa. The Property is located
61 miles southwest of downtown Columbia.  Other senior living facilities located
in proximity to the Aiken Property include  Cumberland  Hills,  Hitchcock House,
Shadow Oaks and Trinity Lutheran.

         The Rock Hill Property,  which opened in April 1996, is the EdenGardens
of Rock Hill  located  in Rock  Hill,  South  Carolina.  The Rock Hill  Property
includes 48 assisted  living units and 24 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library,  a
garden  room,  a hobby  room,  a wellness  center,  a hair salon and a spa.  The
Property is located 25 miles  southwest of downtown  Charlotte,  North Carolina.
Other senior  living  facilities  located in proximity to the Rock Hill Property
include  Alterra-Sterling  House of Rock Hill,  Morningside of Rock Hill, Spring
Arbor of Rock Hill,  Westminster Towers, Lake Wylie Assisted Living and Oak Pond
Manor.

         The  Columbia   Property,   which  opened  in  December  1996,  is  the
EdenGardens  of Columbia  located in  Columbia,  South  Carolina.  The  Columbia
Property  includes 38 assisted  living  units and ten units for  residents  with
Alzheimer's and related memory disorders.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library,  a hobby room,  a hair salon and a spa.  The  Property is located  nine
miles northwest of downtown Columbia.  Other senior living facilities located in
proximity to the Columbia Property include Alterra Sterling House of Habison and
Habison Hall.

         The  Greenwood  Property,   which  opened  in  December  1996,  is  the
EdenGardens of Greenwood  facility  located in Greenwood,  South  Carolina.  The
Greenwood  Property includes 36 assisted living units and 12 units for residents
with Alzheimer's and related memory disorders.  The Operator provides assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication reminders. Amenities include common dining and living areas, activity
areas, a library,  a hobby room, a hair salon and a spa. The Property is located
74 miles west of downtown  Columbia.  Other senior living facilities  located in
proximity to the Greenwood  Property  include  Sterling House of Greenwood,  The
Bayberry of Greenwood, Morningside of Greenwood, Ashley House and Wesley Commons
Assisted Living Special Care.

         The Buckhead  Property,  which opened in June 2000, is the EdenBrook of
Buckhead located in Atlanta, Georgia. The Buckhead Property includes 47 assisted
living units and 26 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
common  dining and living areas,  activity  areas,  a library,  a garden room, a
hobby room, a wellness  center,  a hair salon and a spa. The Property is located
12 miles  north of downtown  Atlanta.  In  addition  to the  Company's  Brighton
Gardens  of  Buckhead,  Brighton  Gardens  of  Dunwoody  and  Dogwood  Forest of
Dunwoody,  other senior living  facilities  located in proximity to the Buckhead
Property include Atria Buckhead, Campbell Stone, The Mann House, Merrill Gardens
of  Dunwoody,  Renaissance  of  Peachtree,  Sunrise  of  Buckhead,  Winthrop  at
Buckhead, and EdenGardens of Sandy Springs and EdenBrook of Dunwoody,  which are
both also included in the EdenCare Portfolio Two Properties.

         The Alpharetta  Property,  which opened in April 2000, is the EdenBrook
of Alpharetta located in Alpharetta,  Georgia.  The Alpharetta Property includes
48 assisted living units and 24 units for residents with Alzheimer's and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include  common dining and living areas,  activity  areas,  a library,  a garden
room, a hobby room, a wellness  center,  a hair salon and a spa. The Property is
located 23 miles north of  downtown  Atlanta.  Other  senior  living  facilities
located in proximity to the  Alpharetta  Property  include  Cohen Home,  Dogwood
Forest -  Alpharetta,  Ivy Hall  North,  Ivy Hall at St.  Ives,  Sunrise at Ivey
Ridge,  Tapestry  House,  Chambrel at Roswell,  Epoch,  Hearthstone  of Roswell,
Merrill Gardens, The Veranda and EdenGardens of Roswell,  which is also included
in the EdenCare Portfolio Two Properties.

         The EdenBrook  Dunwoody  Property,  which opened in August 1998, is the
EdenBrook  of  Dunwoody  located in Atlanta,  Georgia.  The  EdenBrook  Dunwoody
Property includes 57 assisted living units. The Operator provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
library, a garden room, a hobby room, a wellness center, a hair salon and a spa.
The Property is located 16 miles north of downtown  Atlanta.  In addition to the
Company's  Brighton  Gardens of Dunwoody and Dogwood  Forest of Dunwoody,  other
senior living facilities located in proximity to the EdenBrook Dunwoody Property
include Atria Johnson Ferry, Cypress Court-Sandy Springs,  Cypress Gardens - SS,
Hearthstone  of  Marietta,   The  Mann  House,   Merrill  Gardens  of  Dunwoody,
Renaissance  of  Peachtree,  Savannah  Court of Marietta,  Sunrise at Huntcliff,
Sunrise of Dunwoody,  Waterford Gardens,  Winthrop at Buckhead, and EdenBrook of
Buckhead and  EdenGardens of Sandy Springs,  which are both also included in the
EdenCare Portfolio Two Properties.

         The Roswell Property, which opened in December 1994, is the EdenGardens
of Roswell  located in  Roswell,  Georgia.  The  Roswell  Property  includes  42
assisted living units. The Operator provides  assistance to residents with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include common dining and living areas,  activity areas, a hair salon and a spa.
The  Property is located 25 miles  northeast of downtown  Atlanta.  Other senior
living  facilities  located in proximity to the Roswell  Property  include Cohen
Home, Country Gardens,  Cypress Court, Cypress Gardens,  Hearthstone of Roswell,
Ivy Hall North, Merrill Gardens,  Plantation South, Sunrise of Dunwoody, Sunrise
of Huntcliff, Sunrise at Ivey Ridge, Tapestry House and EdenBrook of Alpharetta,
which is also included in the EdenCare Portfolio Two Properties.

         The  Marietta   Property,   which  opened  in  December  1998,  is  the
EdenGardens  of Marietta  located in Marietta,  Georgia.  The Marietta  Property
includes 49 assisted living units and 7 units for residents with Alzheimer's and
related memory  disorders.  The Operator  provides  assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library,  a
garden  room,  a hobby  room,  a wellness  center,  a hair salon and a spa.  The
Property is located 19 miles northwest of downtown Atlanta.  Other senior living
facilities located in proximity to the Marietta Property include Atherton Place,
Atria Johnson Ferry, Azalea Manor,  Hearthstone Personal Care, Heritage of Sandy
Plains, Savannah Court of Marietta,  Shoreham at Marietta,  Sunrise of East Cobb
and Wynwood Retirement.

         The  Sandy  Springs  Property,  which  opened in  August  1993,  is the
EdenGardens  of Sandy  Springs  located in Atlanta,  Georgia.  The Sandy Springs
Property includes 55 assisted living units. The Operator provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities include common dining and living areas,  activity areas, a
garden  room,  a hobby  room,  a wellness  center,  a hair salon and a spa.  The
Property  is located 14 miles  north of  downtown  Atlanta.  In  addition to the
Company's Brighton Gardens of Dunwoody, Brighton Gardens of Buckhead and Dogwood
Forest of Dunwoody,  other senior living facilities  located in proximity to the
Sandy Springs Property include Atria Buckhead,  The Mann House,  Merrill Gardens
of Dunwoody, Plantation South of Dunwoody,  Renaissance of Peachtree, Sunrise of
Buckhead,  Sunrise of Dunwoody,  Waterford  Gardens,  Winthrop at Buckhead,  and
EdenBrook of Buckhead and EdenBrook of Dunwoody, which are both also included in
the EdenCare Portfolio Two Properties.

         The EdenBrook  Louisville  Property,  which opened in June 2001, is the
EdenBrook  of  Louisville  located  in  Middletown,   Kentucky.   The  EdenBrook
Louisville Property includes 56 assisted living units and 28 units for residents
with Alzheimer's and related memory disorders.  The Operator provides assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication reminders. Amenities include common dining and living areas, activity
areas, a library,  a garden room, a hobby room, a wellness  center, a hair salon
and a spa. The Property is located 14 miles east of downtown  Louisville.  Other
senior  living  facilities  located in  proximity  to the  EdenBrook  Louisville
Property include Atria Stoney Brook,  Belmont  Village,  Pine Tree Villa and The
Forum of Brookside.

         The EdenTerrace Louisville Property,  which opened in June 2001, is the
EdenTerrace  of Louisville  located in  Middletown,  Kentucky.  The  EdenTerrace
Louisville  Property  includes 120 independent  living units.  Amenities include
common dining and living areas,  activity areas, a library,  a theater,  a hobby
room,  a wellness  center,  a hair salon and a spa.  The  Property is located 14
miles east of downtown  Louisville.  Other senior living  facilities  located in
proximity to the EdenTerrace Louisville Property include Brownsboro Park, Oxmoor
Lodge and The Forum at Brookside.

         The  Huntsville  Property,  which  opened  in  February  2001,  is  the
EdenBrook of Huntsville located in Huntsville,  Alabama. The Huntsville Property
includes 58 assisted  living units and 30 units for residents  with  Alzheimer's
and related memory disorders. The Operator provides assistance to residents with
daily living  activities  such as bathing,  dressing and  medication  reminders.
Amenities include common dining and living areas,  activity areas, a library,  a
garden  room,  a hobby  room,  a wellness  center,  a hair salon and a spa.  The
Property is located three miles south of downtown Huntsville. In addition to the
Company's  Somerby at Jones Farm,  other  senior  living  facilities  located in
proximity  to  the  Huntsville   Property   include  Atria  Weatherly   Springs,
Hearthstone at Byrd Springs and Greystone Retirement Community.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods 1999 through the
most recent  reported  period for the Company during which the  facilities  have
been operational are as follows:

                                                                                         Revenue          Revenue
                                                                        Average        per Occupied         per
                                                                       Occupancy           Unit          Available
          Property                   Location            Year *           Rate                              Unit
 ----------------------------  ----------------------  ------------   -------------    -------------    -------------
 Aiken Property                Aiken, SC                      1999       74.0%             $78.27           $57.92
                                                              2000       58.5%             100.50            58.79
                                                              2001       60.6%             102.91            62.36
                                                              2002       93.0%              88.79            82.57
                                                          ****2003       90.9%             103.63            94.20

 Alpharetta Property           Alpharetta, GA               **2000       69.4%             $79.49           $55.16
                                                              2001       59.7%             122.37            73.06
                                                              2002       84.7%              71.54            60.60
                                                          ****2003       87.5%              89.51            78.32

 Buckhead Property             Atlanta, GA                  **2000       35.4%             $73.39           $25.98
                                                              2001       40.3%             106.49            42.92
                                                              2002       69.9%              77.04            53.85
                                                          ****2003       67.1%             102.77            68.96

 Champions Property            Houston, TX                  **2000       46.4%             $59.71           $27.71
                                                              2001       63.1%              94.10            59.38
                                                              2002       78.0%              99.97            77.98
                                                          ****2003       79.2%             106.47            84.33

 Charleston Property           Charleston, SC               **2000       66.9%             $62.14           $41.57
                                                              2001        97.0%             94.00            91.18
                                                              2002       81.0%             112.87            91.43
                                                          ****2003       86.9%             102.68            89.23

 Columbia Property             Columbia, SC                   1999       76.3%             $93.16           $71.68
                                                              2000       82.3%             104.50            86.01
                                                              2001       91.7%             120.56           110.56
                                                              2002       76.0%             121.06            92.01
                                                          ****2003       82.3%             109.13            89.82

 Concord Property              Concord, NC                    1999        65.8%            $58.04           $38.19
                                                              2000       82.1%              87.82            72.10
                                                              2001       83.9%             106.00            88.94
                                                              2002       90.2%              98.27            88.64
                                                          ****2003       83.0%             105.45            87.53

 EdenBrook Dunwoody            Atlanta, GA                    1999        55.6%           $102.97           $57.25
   Property                                                   2000        63.2%            109.10            68.95
                                                              2001       80.7%              99.80            80.54
                                                              2002       98.3%              92.90            91.32
                                                          ****2003       93.0%             114.23           106.23

 EdenBrook Louisville          Middletown, KY              ***2001       22.0%             $71.63           $15.76
   Property                                                   2002       59.5%              67.94            40.42
                                                          ****2003       76.8%              98.98            76.02

 EdenGardens Arlington         Arlington, TX                **2000       25.0%             $92.83           $23.21
   Property                                                   2001       60.1%              69.58            41.81
                                                              2002       92.6%              86.98            80.54
                                                          ****2003       88.5%             102.25            90.49

 EdenGardens                   Kingwood, TX                ***2001       35.7%             $71.19           $25.41
   Kingwood Property                                          2002       82.9%              70.14            58.15
                                                          ****2003       87.1%             105.63            92.01

 EdenTerrace Arlington         Arlington, TX                **2000        7.1%             $35.37           $ 2.51
   Property                                                   2001       24.3%              39.55             9.61
                                                              2002       42.9%              46.47            19.93
                                                          ****2003       52.1%              54.00            28.13

 EdenTerrace                   Kingwood, TX                ***2001       30.0%             $51.01           $15.30
   Kingwood Property                                          2002       70.0%              45.54            31.88
                                                          ****2003       85.7%              60.28            51.66

 EdenTerrace Louisville        Louisville, KY              ***2001       25.0%             $39.25           $ 9.81
   Property                                                   2002       61.7%              45.88            28.31
                                                          ****2003       77.5%              63.59            49.28

 Greenwood Property            Greenwood, SC                  1999       91.8%             $98.16           $90.11
                                                              2000       92.7%             103.38            95.83
                                                              2001       81.3%             107.96            87.77
                                                              2002       80.2%             104.02            83.42
                                                          ****2003       56.3%             122.95            69.22

 Huntsville Property           Huntsville, AL              ***2001       58.5%             $74.96           $43.85
                                                              2002       61.4%              99.24            60.93
                                                          ****2003       64.8%             105.54            68.39

 Marietta Property             Marietta, GA                   1999       45.3%             $73.00           $33.07
                                                              2000       77.7%              87.44            67.94
                                                              2001       64.3%             116.17            74.69
                                                              2002       67.9%             103.91            70.55
                                                          ****2003       86.6%              96.23            83.34

 Plano Property                Plano, TX                    **2000       36.3%             $74.45           $27.03
                                                              2001       75.3%              97.28            73.25
                                                              2002       93.2%             116.33           108.42
                                                          ****2003       82.9%             146.84           121.73

 Rock Hill Property            Rock Hill, SC                  1999       93.6%             $69.86           $65.39
                                                              2000       63.9%             114.99            73.48
                                                              2001       63.9%             122.26            78.13
                                                              2002       64.6%             113.10            73.06
                                                          ****2003       61.1%             106.67            65.18

 Roswell Property              Roswell, GA                    1999       62.8%            $107.28           $67.37
                                                              2000       64.3%             113.88            73.22
                                                              2001       44.1%             155.96            68.78
                                                              2002       50.0%              88.93            44.47
                                                          ****2003       42.9%              96.96            41.59

 Sandy Springs Property        Sandy Springs, GA              1999       67.0%             $88.82           $59.51
                                                              2000       99.1%              75.65            74.97
                                                              2001       42.7%             175.43            74.91
                                                              2002       34.6%              90.68            31.37
                                                          ****2003       36.4%              67.46            24.55

 Woodlands Property            The Woodlands, TX            **2000       35.5%             $79.77           $28.32
                                                              2001       55.9%              90.63            50.66
                                                              2002       70.4%             115.13            81.05
                                                          ****2003       62.9%             120.87            76.03

*   Data represents  information for each applicable  fiscal year,  unless noted
    otherwise.

**  Data for the Alpharetta Property represents the period April 5, 2000 through
    December 31, 2000; data for the Buckhead Property represents the period June
    1,  2000  through  December  31,  2000;  data  for  the  Champions  Property
    represents the period June 5, 2000 through  December 31, 2000;  data for the
    Charleston  Property represents the period January 16, 2000 through December
    31, 2000; data for the EdenGardens  Arlington Property represents the period
    October  23,  2000  through  December  31,  2000;  data for the  EdenTerrace
    Arlington  Property  represents the period December 4, 2000 through December
    31, 2000;  data for the Plano  Property  represents  the period June 1, 2000
    through  December 31, 2000; and data for the Woodlands  Property  represents
    the period August 17, 2000 through December 31, 2000.

*** Data for the EdenBrook  Louisville  Property  represents the period June 30,
    2001 through December 31, 2001; data for the EdenGardens  Kingwood  Property
    represents the period May 21, 2001 through  December 31, 2001;  data for the
    EdenTerrace  Kingwood Property  represents the period April 16, 2001 through
    December 31, 2001; data for the EdenTerrace  Louisville  Property represents
    the  period  June 15,  2001  through  December  31,  2001;  and data for the
    Huntsville Property represents the period February 12, 2001 through December
    31, 2001.

****Data for 2003  represents  the period  January 1, 2003 through  November 30,
    2003.

         Linden Ponds Continuing Care Retirement  Community  located in Hingham,
Massachusetts.  On  December  1,  2003,  the  Company  acquired a parcel of land
located in Hingham,  Massachusetts,  upon which the Linden Ponds Continuing Care
Retirement Community is being constructed (the "Hingham Property"). The land was
purchased  from  Hingham  Campus  LLC, a wholly  owned  subsidiary  of  Erickson
Retirement Communities,  LLC, for $19,700,000.  The Linden Ponds Continuing Care
Retirement  Community,  once  construction is completed,  is expected to include
1,747 independent  living  apartments,  96 assisted living units and 192 skilled
nursing  units.  The Company will not own the  buildings and  improvements.  The
buildings and improvements will be owned by Hingham Campus LLC. The Company,  as
lessor,  has entered into a long-term,  triple-net  lease agreement with Hingham
Campus LLC relating to the land.  The general  terms of the lease  agreement are
described in the section of the Prospectus  entitled "Business -- Description of
Property Leases." The principal features of the lease are as follows:

o        The initial land lease expires on November 30, 2013.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease  requires  minimum  annual rent of  $2,955,000  for the first
         through  fifth  lease  years and will  increase  by 3% each  lease year
         thereafter.

o        A security deposit equal to $1,477,500 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        The tenant has the option to  purchase  the land  during the lease term
         for a purchase price that is based on the date of such purchase  option
         and other  attributes  including  the amount of the  Company's  initial
         investment,  and a percentage of the increase in consumer price indices
         and/or  the fair  market  value of the land at the time the  option  is
         exercised.

o        Lease  payments  to the  Company are  subordinate  to a first  mortgage
         construction  loan entered into by Erickson to fund the  development of
         the Linden Ponds Continuing Care Retirement Community.

RETIREMENT COMMUNITY BRANDS

         The  following   paragraph   updates  and  replaces  the  corresponding
paragraph on page 77 of the Prospectus.

         Erickson  Brands.  Erickson  currently  has 11 large  scale  retirement
communities in various stages of development located in Maryland, Massachusetts,
Michigan,  New Jersey,  Pennsylvania  and Virginia.  Brooksby  Village,  Fox Run
Village  and Ann's  Choice are three of  Erickson's  communities.  In 2002,  the
American Seniors Housing Association ranked Erickson  Retirement  Communities as
the nation's eleventh largest manager of seniors' housing.

         The  following  information  should  be read in  conjunction  with  the
"Business -- Retirement  Community  Brands" section  beginning on page 76 of the
Prospectus.

         Sunrise  Brand.  Sunrise  is one of the  nation's  oldest  and  largest
providers of assisted living services.  Independent  living services and skilled
nursing  services are also offered at some  communities.  According to Sunrise's
2002  Annual  Report,  as of December  31,  2002,  Sunrise and its  subsidiaries
operated 209  residences in the United  States,  Canada and the United  Kingdom,
with a combined resident capacity of more than 16,000. In addition, more than 24
properties with a resident  capacity of 2,055 were under  construction.  In 2001
and 2002, the American Seniors Housing  Association  ranked Sunrise as the sixth
largest seniors' housing operator in the country.

         In a press  release  dated March 31,  2003,  Sunrise  announced  it had
acquired all of the outstanding  stock of Marriott Senior Living Services,  Inc.
Upon the closing of this  transaction,  Sunrise,  or its  subsidiaries,  assumed
management of an additional 126 properties with a resident capacity of more than
23,000,  including  41  properties  owned by the  Company as of March 31,  2003.
Sunrise (SRZ) is a NYSE listed company.

         GreenTree  Catered  Living for Seniors  Brand.  According  to Greenwalt
Corporation,  after  thirty  years in the business of  commercial,  retail,  and
industrial  development and construction as Greenfield Builders,  the principals
of the  Greenwalt  Corporation  recognized  a growing  need for  quality  senior
housing  and  built  the  first  GreenTree  Community  in  Greenfield,  Indiana,
establishing  the  GreenTree  Catered  Living  for  Seniors  concept.  Under the
umbrella of Greenwalt  Corporation,  they also formed  CateredLife  Communities,
Inc.,  which  manages each of the  GreenTree  Communities,  as well as Greenwalt
Design,  which is responsible for the complete interior design and furnishing of
the  facilities.  GreenTree  Catered Living for Seniors  provides a well-rounded
housing option for the senior  resident  wishing to combine  retirement with any
level of assisted living they may require.  Each GreenTree  Community is staffed
twenty-four  hours a day, so  residents  have the  security of knowing  that the
well-trained staff will be there to assist them when needed. As of September 16,
2003, there were eight GreenTree Assisted Living Facilities, with a total of 465
units in operation, all managed by CateredLife Communities, Inc.

         EdenCare Brand. Prior to the Company's purchase of substantially all of
the  operating  assets of EdenCare  on November  25,  2003,  EdenCare  owned and
operated  senior  housing  communities  located in  Alabama,  Florida,  Georgia,
Kentucky,  North Carolina,  South Carolina and Texas. EdenCare offered two types
of assisted living  communities:  EdenBrook and  EdenGardens.  Both  communities
provide all of EdenCare's services and amenities.  EdenTerrace is an independent
living community designed to be a full service senior living campus,  which also
offers assisted living and memory care.  EdenCare  communities have four primary
programs,  which include pet therapy,  aromatherapy,  life  enrichment  and fine
dining.

PENDING INVESTMENTS

         As of January 5, 2004,  the Company had initial  commitments to acquire
23 additional  Properties for an aggregate  purchase price of approximately $589
million. The 23 Properties are one Sunrise Property (in Santa Rosa, California),
two  Courtyard  Manor  Properties  (one in each of  Auburn  Hills  and  Sterling
Heights,  Michigan)  and 20  Horizon  Bay  Properties  (one in  each of  Hoover,
Alabama; Sun City, Arizona;  Fresno and Sun City, California;  Niles and Olympia
Fields, Illinois;  Cumberland,  East Providence,  Greenwich,  Smithfield,  South
Kingstown,  Tiverton and Warwick,  Rhode Island;  Dallas, Texas; and Largo, Palm
Beach Gardens,  Sarasota and West Palm Beach, Florida; and two in Boynton Beach,
Florida).  The Sunrise  Property  will be acquired from an affiliate of Sunrise,
the  Courtyard  Manor  Auburn  Hills  Property  will be acquired  from  Westgate
Properties of Auburn Hills,  LTD., the Courtyard Manor Sterling Heights Property
will be acquired from WSH, LLC and Courtyard  Manor of Sterling  Heights,  Inc.,
and the 20 Horizon Bay  Properties  will be acquired  from  affiliates  of WHSLH
Realty,   L.L.C.   (affiliated   with  Whitehall   Street  Real  Estate  Limited
Partnerships,  Goldman,  Sachs & Co. and Senior Lifestyle  Contribution Company,
L.L.C.).  The  acquisition  of  each  of  these  Properties  is  subject  to the
fulfillment of certain conditions.  There can be no assurance that any or all of
the  conditions  will be satisfied or, if  satisfied,  that one or more of these
Properties  will be acquired by the Company.  If  acquired,  the leases of these
Properties  are  expected  to be entered  into on  substantially  the same terms
described in the section of the Prospectus  entitled "Business -- Description of
Property Leases." In order to acquire these Properties,  the Company must obtain
additional funds through the receipt of additional offering proceeds and/or debt
financing.  The Company  plans to assume  Permanent  Financing of  approximately
$274.5  million in connection  with 17 of these  Properties  and plans to obtain
Permanent  Financing of  approximately  $4.6 million in  connection  with one of
these Properties.

         Leases.  Set forth below are summarized  terms expected to apply to the
leases for each of the  Properties.  More  detailed  information  relating  to a
Property  and its related  lease will be  provided at such time,  if any, as the
Property is acquired.


                                         Estimated Purchase   Lease Term and            Minimum Annual                   Percentage
           Property                           Price           Renewal Options                Rent                           Rent
--------------------------------------   ------------------   -------------------     ---------------------------------  -----------
Sunrise of Santa Rosa (1) (2)                 $9,279,900      15 years; five                   (3)                             (4)
Santa Rosa, California                                        five-year renewal
(the "Santa Rosa Property")                                   options
Existing retirement facility

Carrington Pointe (5) (6) (7)                 $28,667,000     15 years; two           $2,216,000 for the first lease year;      N/A
Fresno, California                                            five-year renewal       $2,462,000 for the second lease
(the "Fresno Property")                                       options                 year; $2,694,000 for the third lease
Existing retirement facility                                                          year; $2,780,000 for the fourth
                                                                                      lease year; 2,896,000
                                                                                      for the fifth lease year;
                                                                                      with increases of 3% each
                                                                                      lease year thereafter (12)

Cherry Hills Club (5) (6) (7)                 $24,581,000     15 years; two           $1,900,000 for the first lease year;      N/A
Sun City, California                                          five-year renewal       $2,111,000 for the second lease
(the "Sun City California Property")                          options                 year; $2,310,000 for the third lease
Existing retirement facility                                                          year; $2,384,000 for the fourth
                                                                                      lease year; $2,483,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

East Bay Manor (5) (6) (7)                    $13,107,000     15 years; two           $1,013,000 for the first lease year;      N/A
East Providence, Rhode Island                                 five-year renewal       $1,126,000 for the second lease
(the "East Providence Property")                              options                 year; $1,232,000 for the third lease
Existing retirement facility                                                          year; $1,271,000 for the fourth
                                                                                      lease year; $1,324,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

Emerald Bay Manor (5) (6) (8)                 $19,142,000     15 years; two           $1,479,000 for the first lease year;      N/A
Cumberland, Rhode Island                                      five-year renewal       $1,644,000 for the second lease
(the "Cumberland Property")                                   options                 year; $1,799,000 for the third lease
Existing retirement facility                                                          year; $1,857,000 for the fourth
                                                                                      lease year; $1,934,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter (12)

Greenwich Bay Manor (5) (6) (7)               $11,289,000     15  years; two          $873,000 for the first lease year;        N/A
Greenwich, Rhode Island                                       five-year renewal       $969,000 for the second lease year;
(the "Greenwich Property")                                    options                 $1,061,000 for the third lease year;
Existing retirement facility                                                          $1,095,000 for the fourth lease
                                                                                      year; $1,141,000 for the fifth lease
                                                                                      year; with increases of 3% each
                                                                                      lease year thereafter (12)

The Heritage Palmeras (5) (6) (9)             $46,181,000     15 years; two           $3,569,000 for the first lease year;      N/A
Sun City, Arizona                                             five-year renewal       $3,966,000 for the second lease
(the "Sun City Arizona Property")                             options                 year; $4,339,000 for the third lease
Existing retirement facility                                                          year; $4,479,000 for the fourth
                                                                                      lease year; $4,666,000 for
                                                                                      the fifth lease year; with increases
                                                                                      of 3% each lease year thereafter (12)

Heron's Run (5) (6)                           $2,139,000      15 years; two           $165,000 for the first lease year;        N/A
West Palm Beach, Florida                                      five-year renewal       $184,000 for the second lease year;
(the "West Palm Beach Property")                              options                 $201,000 for the third lease year;
Existing retirement facility                                                          $207,000 for the fourth lease year;
                                                                                      $216,000 for the fifth lease year;
                                                                                      with increases of 3% each lease year
                                                                                      thereafter (12)

Manor at Newport Place (5) (6) (9)            $46,054,000     15 years; two           $3,560,000 for the first lease year;      N/A
Boynton Beach, Florida                                        five-year renewal       $3,955,000 for the second lease
(the "Boynton Beach Manor Property")                          options                 year; $4,327,000 for the third lease
Existing retirement facility                                                          year; $4,467,000 for the fourth
                                                                                      lease year; $4,653,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter (12)

The Park at Golf Mill (5) (6) (9)             $59,820,000     15 years; two           $4,623,000 for the first lease year;      N/A
Niles, Illinois                                               five-year renewal       $5,137,000 for the second lease
(the "Niles Property")                                        options                 year; $5,621,000 for the third lease
Existing retirement facility                                                          year; $5,802,000 for the fourth
                                                                                      lease year; $6,044,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

North Manor Bay (5) (6) (10)                  $19,401,000     15 years; two           $1,499,000 for the first lease year;      N/A
Smithfield, Rhode Island                                      five-year renewal       $1,666,000 for the second lease
(the "Smithfield Property")                                   options                 year; $1,823,000 for the third lease
Existing retirement facility                                                          year; $1,882,000 for the fourth
                                                                                      lease year; $1,960,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

The Park at Olympia Fields (5) (6) (7)        $41,294,000     15 years; two           $3,192,000 for the first lease year;      N/A
Olympia Fields, Illinois                                      five-year renewal       $3,546,000 for the second lease
(the "Olympia Fields Property")                               options                 year; $3,880,000 for the third lease
Existing retirement facility                                                          year; $4,005,000 for the fourth
                                                                                      lease year; $4,172,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

Pinecrest Place (5) (6) (11)                  $60,265,000     15 years; two           $4,658,000 for the first lease year;      N/A
Largo, Florida                                                five-year renewal       $5,175,000 for the second lease
(the "Largo Property")                                        options                 year; $5,663,000 for the third lease
Existing retirement facility                                                          year; $5,845,000 for the fourth
                                                                                      lease year; $6,089,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

The Park at Riverchase (5) (6)                $7,184,000      15 years; two           $555,000 for the first lease year;        N/A
Hoover, Alabama                                               five-year renewal      $617,000 for the second lease year;
(the "Hoover Property")                                       options                 $675,000 for the third lease year;
Existing retirement facility                                                          $697,000 for the fourth lease year;
                                                                                      $726,000 for the fifth lease year;
                                                                                      with increases of 3% each lease
                                                                                      year  thereafter (12)

The Pointe at Newport Place (5) (6) (9)       $7,159,000      15 years; two           $553,000 for the first lease year;        N/A
Boynton Beach, Florida                                        five-year renewal       $615,000 for the second lease year;
(the "Boynton Beach Pointe Property")                         options                 $673,000 for the third lease year;
Existing retirement facility                                                          $694,000 for the fourth lease year;
                                                                                      $723,000 for the fifth lease year;
                                                                                      with increases of 3% each lease year
                                                                                      thereafter (12)

Prosperity Oaks (5) (6) (9)                   $63,708,000     15 years; two           $4,924,000 for the first lease year;      N/A
Palm Beach Gardens, Florida                                   five-year renewal       $5,471,000 for the second lease
(the "Palm Beach Gardens Property")                           options                 year; $5,986,000 for the third lease
Existing retirement facility                                                          year; $6,179,000 for the fourth
                                                                                      lease year; $6,437,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

Sakonnet Bay Manor (5) (6)                    $24,679,000     15 years; two           $1,907,000 for the first lease year;      N/A
Tiverton, Rhode Island                                        five-year renewal       $2,119,000 for the second lease
(the "Tiverton Property")                                     options                 year; $2,319,000 for the third lease
Existing retirement facility                                                          year; $2,394,000 for the fourth
                                                                                      lease year; $2,493,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

South Bay Manor (5) (6) (10)                  $16,860,000     15 years; two           $1,303,000 for the first lease year;      N/A
South Kingstown, Rhode Island                                 five-year renewal       $1,448,000 for the second lease
(the "South Kingstown Property")                              options                 year; $1,584,000 for the third lease
Existing retirement facility                                                          year; $1,635,000 for the fourth
                                                                                      lease year; $1,703,000
                                                                                      for the fifth lease year; with
                                                                                      increases of 3% each lease year
                                                                                      thereafter(12)

Treemont Retirement Community (5) (6) (10)    $19,792,000     15 years; two           $1,530,000 for the first lease year;      N/A
Dallas, Texas                                                 five-year renewal       $1,700,000 for the second lease
(the "Dallas Property")                                       options                 year; $1,860,000 for the third lease
Existing retirement facility                                                          year; $1,920,000 for the fourth
                                                                                      lease year; $2,000,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

Waterside Retirement Estates (5) (6) (7)      $33,720,000     15 years; two           $2,606,000 for the first lease year;      N/A
Sarasota, Florida                                             five-year renewal       $2,896,000 for the second lease
(the "Sarasota Property")                                     options                 year; $3,168,000 for the third lease
Existing retirement facility                                                          year; $3,271,000 for the fourth
                                                                                      lease year; $3,407,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

West Bay Manor (5) (6) (7)                    $16,958,000     15 years; two           $1,311,000 for the first lease year;      N/A
Warwick, Rhode Island                                         five-year renewal       $1,456,000 for the second lease
(the "Warwick Property")                                      options                 year; $1,593,000 for the third lease
Existing retirement facility                                                          year; $1,645,000 for the fourth
                                                                                      lease year; $1,713,000 for the
                                                                                      fifth lease year; with increases
                                                                                      of 3% each lease year thereafter
                                                                                      (12)

Courtyard Manor at Auburn Hills (13) (14)     $9,100,000      15 years; two ten-year  $905,000 for the first lease year;    To be
Auburn Hills, Michigan                                        renewal options         with increases of 3% each lease year  deter-
(the "Auburn Hills Property")                                                         thereafter (12) (15)                  mined
Existing retirement facility                                                                                                prior to
                                                                                                                            closing

Courtyard Manor at Sterling Heights (13) (14) $8,700,000      15 years; two ten-year  $865,000 for the first lease year;    To be
Sterling Heights, Michigan                                    renewal options         with increases of 3% each lease year  deter-
(the "Sterling Heights Property")                                                     thereafter (12) (15)                  mined
Existing retirement facility                                                                                                prior to
                                                                                                                            closing

------------------------
FOOTNOTES:

(1)      It is  expected  that this  Property  will be  operated  and managed by
         Sunrise Senior Living Services, Inc.

(2)      The  lease  for  this  Property  is  expected  to be with  Twenty  Pack
         Management  Corp.,  which is the tenant of the Sunrise  Portfolio  Four
         Properties  and  the  Additional   Sunrise  Portfolio  Four  Properties
         described in the "Property  Acquisitions"  section  above.  Twenty Pack
         Management  Corp. is an affiliate of HRA. The HRA Affiliated  Companies
         are  described  in  further  detail in the  section  of the  Prospectus
         Supplement  entitled  "Business -- Property  Acquisitions -- Additional
         Marriott  Portfolio Two Properties." The leases for this Property,  the
         Sunrise Portfolio Four Properties and the Additional  Sunrise Portfolio
         Four  Properties  contain or are  expected  to contain  pooling  terms,
         meaning  that the net  operating  profits  with  respect  to all of the
         Properties are combined for the purpose of funding rental  payments due
         under each lease.

(3)      Minimum annual rent is expected to be adjustable based upon the cost of
         debt and the Company's cash investment in the Property.  The lease rate
         on the Company's cash  investment is expected to be the following:  10%
         in the first lease year;  10.75% for the second lease year; 11% for the
         third  lease year;  11.5% for the fourth  lease year and is expected to
         increase  by 3% each  lease year  thereafter.  The  Company  expects to
         obtain  Permanent  Financing   totalling   approximately  $4.6  million
         relating to the Santa Rosa  Property  and the lease rate related to the
         debt portion of the Company's  investment in the Property will be equal
         to the fixed interest rate on the anticipated loan.

(4)      It is expected that  additional rent will be payable in an amount equal
         to the difference  between 13.5% of the Company's cash investment basis
         in the Santa Rosa  Property and minimum  annual rent payable each lease
         year until  minimum  annual rent exceeds  13.5% of the  Company's  cash
         investment basis. For purposes of the additional rent calculation,  the
         Company's  cash  investment  basis  equals  the  sum of the  Property's
         purchase  price plus  closing  costs,  less  Permanent  Financing.  The
         additional  rent is expected to be payable on a quarterly  basis to the
         extent net operating  cash flow from the Property is available and will
         not accumulate beyond each lease year.

(5)      It is expected that the Fresno,  Sun City California,  East Providence,
         Cumberland, Greenwich, Sun City Arizona, West Palm Beach, Boynton Beach
         Manor, Niles, Smithfield,  Olympia Fields, Largo, Hoover, Boynton Beach
         Pointe, Palm Beach Gardens, Tiverton, South Kingstown, Dallas, Sarasota
         and Warwick  Properties,  hereinafter  referred to as the  "Horizon Bay
         Portfolio One Properties,"  will be operated and managed by Horizon Bay
         Management, L.L.C.

(6)      The leases for the Horizon Bay Portfolio One Properties are expected to
         be with  affiliates  of WHSLH  Realty,  L.L.C.  The  leases  for  these
         Properties  are  expected to contain  pooling  terms,  meaning that net
         operating  profits with respect to all of the  Properties  are combined
         for the purpose of rental payments due under each lease.

(7)      In connection with the acquisition of the Fresno,  Sun City California,
         East  Providence,  Greenwich,  Olympia  Fields,  Sarasota  and  Warwick
         Properties,  the Company plans to assume approximately $82.2 million in
         debt from the current  owners.  It is expected  that the loan will bear
         interest at a LIBOR based rate and will require  interest only payments
         through maturity in May 2008. It is expected that the loan will contain
         a conversion  feature  which will allow the Company to convert the loan
         to a fixed interest loan for a five, seven or ten year term. The leases
         for these Properties are expected to be cross-defaulted.

(8)      In connection  with the  acquisition  of the Cumberland  Property,  the
         Company  plans to assume  approximately  $10.4 million in debt from the
         current  owner.  It is  expected  that the loan will bear  interest  at
         30-day  LIBOR plus 370 basis  points  and will  require  interest  only
         payments through January 2005. Commencing February 2005, it is expected
         that the loan will require  monthly  principal  and  interest  payments
         thereafter  through June 2008,  with all unpaid  principal and interest
         due at that time.  It is expected  that the loan will require a minimum
         interest rate of 5.95%.

(9)      In connection  with the  acquisition  of the Sun City Arizona,  Boynton
         Beach  Manor,  Niles,  Boynton  Beach  Pointe  and Palm  Beach  Gardens
         Properties, the Company plans to assume approximately $110.4 million in
         debt from the current  owners.  It is expected  that the loan will bear
         interest at a LIBOR based rate and will require  interest only payments
         through  maturity in November  2005.  It is expected that the loan will
         contain a  conversion  feature  which will allow the Company to convert
         the loan to a fixed  interest loan for a five,  seven or ten year term.
         The leases for these Properties are expected to be cross-defaulted.

(10)     In connection  with the acquisition of the Smithfield  Property,  South
         Kingstown   and  Dallas   Properties,   the  Company  plans  to  assume
         approximately  $38.3  million  in debt from the  current  owner.  It is
         expected  that the loan will bear  interest  at 30-day  LIBOR  plus 370
         basis points,  with a minimum  interest rate of 5.95%, and will require
         interest only payments through July 2004.  Commencing August 2004 it is
         expected  that the loan will  require  monthly  principal  and interest
         payments  through June 2008, with all unpaid principal and interest due
         at that time.

(11)     In connection with the  acquisition of the Largo Property,  the Company
         plans to assume  approximately  $33.2  million in debt from the current
         owner with a fixed  interest  rate of 8.17%.  The loan is  expected  to
         require  monthly  principal and interest  payments  through April 2008,
         with all unpaid principal and interest due at that time.

(12)     Based on estimated purchase price.

(13)     It is expected that the Auburn Hills and Sterling  Heights  Properties,
         hereinafter   referred  to  as  the  "Courtyard   Manor  Portfolio  One
         Properties," will be operated and managed by affiliates of HRA. Each of
         these Operators will be a thinly capitalized,  newly formed corporation
         affiliated with the Advisor. The HRA Affiliated Companies are described
         in further detail in the section of the Prospectus  Supplement entitled
         "Business -- Property Acquisitions -- Additional Marriott Portfolio Two
         Properties."

(14)     The  leases  for the  Courtyard  Manor  Portfolio  One  Properties  are
         expected to be with affiliates of HRA. The HRA Affiliated Companies are
         described in further detail in the section of the Prospectus Supplement
         entitled  "Business -- Property  Acquisitions  --  Additional  Marriott
         Portfolio   Two   Properties."   These   leases  are   expected  to  be
         cross-defaulted.  In  addition,  the  leases for these  Properties  are
         expected to contain  pooling terms,  meaning that net operating  profit
         with  respect to the two  Properties  are  combined  for the purpose of
         rental payments due under each lease.

(15)     It is expected  that  beginning  in the fourth  lease year and every 36
         months  thereafter,  the  minimum  annual  rent is  expected  to be the
         greater of (i) the fair  market  value of the  Property  multiplied  by
         10.5% or (ii) the prior year's rent increased by 3%.

         Santa Rosa Property. The Santa Rosa Property, which opened in May 1996,
is the Sunrise of Santa Rosa, an independent  living facility,  located in Santa
Rosa, California. The Santa Rosa Property includes 120 independent living units.
The  Property is located two miles  north of  downtown  Santa Rosa,  California,
which is 55 miles north of San Francisco.

         Fresno  Property.  The Fresno  Property,  which opened in 1989,  is the
Carrington Pointe, an independent  living/assisted  living facility,  located in
Fresno, California. The Fresno Property includes 99 independent living units and
73 assisted  living  units.  The Property is located ten miles north of downtown
Fresno, California.

         Sun City Property. The Sun City Property,  which opened in 1987, is the
Cherry Hills Club, an independent  living/assisted  living facility,  located in
Sun City,  California.  The Sun City Property  includes 124  independent  living
units and 57 assisted  living  units.  The  Property is located one mile west of
downtown Sun City, California.

         East Providence Property. The East Providence Property, which opened in
1993, is the East Bay Manor,  an independent  living/assisted  living  facility,
located in East Providence,  Rhode Island. The East Providence Property includes
61  independent  living  units and 40 assisted  living  units.  The  Property is
located seven miles southeast of downtown Providence, Rhode Island.

         Cumberland Property. The Cumberland Property,  which opened in 1999, is
the Emerald Bay Manor,  an independent  living/assisted  living/skilled  nursing
facility, located in Cumberland,  Rhode Island. The Cumberland Property includes
54 independent  living units,  54 assisted  living units and 30 skilled  nursing
units.  The  Property is located ten miles east of  downtown  Providence,  Rhode
Island.

         Greenwich Property.  The Greenwich  Property,  which opened in 1982, is
the Greenwich Bay Manor, an independent living/assisted living facility, located
in Greenwich,  Rhode  Island.  The Greenwich  Property  includes 69  independent
living  units and 36 assisted  living  units.  The  Property is located 15 miles
south of downtown Providence, Rhode Island.

         Sun City Property. The Sun City Property,  which opened in 1996, is The
Heritage Palmeras, an independent  living/assisted  living facility,  located in
Sun City,  Arizona.  The Sun City Property includes 186 independent living units
and 25 assisted  living  units.  The  Property is located 12 miles  northwest of
downtown Phoenix, Arizona.

         West Palm Beach Property. The West Palm Beach Property, which opened in
1995, is the Heron's Run, an independent  living facility,  located in West Palm
Beach,  Florida.  The West Palm Beach Property  includes 34  independent  living
units.  The Property is located ten miles southwest of downtown West Palm Beach,
Florida.

         Boynton Beach Manor Property.  The Boynton Beach Manor Property,  which
opened in 1993, is the Manor at Newport Place, an independent  living  facility,
located in Boynton Beach, Florida. The Boynton Beach Manor Property includes 224
independent  living  units.  The  Property is located  three miles  northwest of
downtown Boynton Beach, Florida.

         Niles Property.  The Niles Property,  which opened in 1989, is The Park
at Golf Mill, an independent living facility,  located in Niles,  Illinois.  The
Niles Property  includes 290 independent  living units.  The Property is located
ten miles northwest of downtown Chicago, Illinois.

         Smithfield Property. The Smithfield Property,  which opened in 1991, is
the North  Manor Bay,  an  independent  living/assisted  living/skilled  nursing
facility, located in Smithfield,  Rhode Island. The Smithfield Property includes
65 independent  living units,  11 assisted  living units and 60 skilled  nursing
units. The Property is located 13 miles northwest of downtown Providence,  Rhode
Island.

         Olympia Fields Property.  The Olympia Fields Property,  which opened in
1999,  is The Park at Olympia  Fields,  an  independent  living/assisted  living
facility,  located in Olympia  Fields,  Illinois.  The Olympia  Fields  Property
includes 184 independent living units and 25 assisted living units. The Property
is located 26 miles southwest of downtown Chicago, Illinois.

         Largo  Property.  The Largo  Property,  which  opened  in 1986,  is the
Pinecrest  Place, an independent  living/assisted  living  facility,  located in
Largo,  Florida. The Largo Property includes 388 independent living units and 47
assisted living units.  The Property is located 20 miles west of downtown Tampa,
Florida.

         Hoover Property. The Hover Property,  which opened in 1989, is The Park
at  Riverchase,  an  independent  living/assisted  living  facility,  located in
Hoover,  Alabama.  The Hoover Property includes 35 independent  living units, 49
assisted  living units and 26 units for residents with  Alzheimer's  and related
memory disorders. The Property is located 13 miles south of downtown Birmingham,
Alabama.

         Boynton Beach Pointe Property. The Boynton Beach Pointe Property, which
opened in 1998, is The Pointe at Newport  Place,  an assisted  living  facility,
located in Boynton Beach, Florida. The Boynton Beach Pointe Property includes 69
assisted  living units and 14 units for residents with  Alzheimer's  and related
memory  disorders.  The  Property is located  three miles  northwest of downtown
Boynton Beach, Florida.

         Palm Beach Gardens  Property.  The Palm Beach Gardens  Property,  which
opened in 1987, is the Prosperity  Oaks, an independent  living/assisted  living
facility,  located  in Palm  Beach  Gardens,  Florida.  The Palm  Beach  Gardens
Property includes 195 independent living units, 100 assisted living units and 26
units for residents with Alzheimer's and related memory disorders.  The Property
is located six miles northeast of downtown Palm Beach Gardens, Florida.

         Tiverton Property. The Tiverton Property,  which opened in 1997, is the
Sakonnet  Bay  Manor,  an  independent  living/assisted  living/skilled  nursing
facility,  located in Tiverton,  Rhode Island. The Tiverton Property includes 95
independent living units, 48 assisted living units and 27 skilled nursing units.
The Property is located 20 miles southeast of downtown Providence, Rhode Island.

         South Kingstown Property. The South Kingstown Property, which opened in
1988, is the South Bay Manor, an independent  living/skilled  nursing  facility,
located in South Kingstown,  Rhode Island. The South Kingstown Property includes
66  independent  living  units and 42 skilled  nursing  units.  The  Property is
located 30 miles southwest of downtown Providence, Rhode Island.

         Dallas  Property.  The Dallas  Property,  which opened in 1974,  is the
Treemont  Retirement  Community,  an  independent  living  facility,  located in
Dallas,  Texas. The Dallas Property  includes 250 independent  living units. The
Property is located 10 miles north of downtown Dallas, Texas.

         Sarasota Property. The Sarasota Property,  which opened in 1980, is the
Waterside  Retirement Estates, an independent  living/assisted  living facility,
located in Sarasota,  Florida.  The Sarasota  Property  includes 133 independent
living  units and 36 assisted  living  units.  The Property is located six miles
southeast of downtown Sarasota, Florida.

         Warwick Property.  The Warwick  Property,  which opened in 1972, is the
West Bay Manor,  an  independent  living/assisted  living  facility,  located in
Warwick, Rhode Island. The Warwick Property includes 97 independent living units
and 46 assisted  living  units.  The  Property  is located  eight miles south of
downtown Providence, Rhode Island.

         Auburn  Hills  Property.  The Auburn  Hills  Property,  which opened in
October  1994,  is the  Courtyard  Manor at Auburn  Hills,  an  assisted  living
facility,  located in Auburn Hills, Michigan. The Auburn Hills Property includes
76 units for  residents  with  Alzheimer's  and related  memory  disorders.  The
Property is located 20 miles northwest of downtown Detroit, Michigan.

         Sterling Heights Property. The Sterling Heights Property,  which opened
in November 1997, is the Courtyard Manor at Sterling Heights, an assisted living
facility,  located in Sterling Heights,  Michigan. The Sterling Heights Property
includes 80 units for residents with  Alzheimer's and related memory  disorders.
The Property is located 20 miles northeast of downtown Detroit, Michigan.

RETIREMENT COMMUNITY BRANDS FOR PENDING INVESTMENTS

         Horizon  Bay  Brand.  Horizon  Bay  operates  over  20  senior  housing
communities located in Alabama, Arizona, California, Florida, Georgia, Illinois,
Rhode  Island  and  Texas.  Horizon  Bay offers  several  types of  communities,
including continuum of care retirement,  independent living and assisted living.
Horizon Bay  communities  have three primary  programs,  which include  wellness
services, a LiveWell!  Program and harbor courts, which is a separate and secure
living area dedicated to the special needs of the memory impaired.

         Courtyard  Manor Brand.  Courtyard Manor operates four locations in the
greater metropolitan area surrounding Detroit,  Michigan. Each facility has four
homes, which accommodate 20 residents and provides a continuum of care for needs
ranging from independent living to advanced Alzheimer's.

BORROWING

         The  following  information  should  be read in  conjunction  with  the
"Business -- Borrowing" section beginning on page 95 of the Prospectus.

         On March 27,  2003,  in  connection  with the  purchase  of the  Summit
Portfolio  Properties,  the Company obtained  Permanent  Financing  comprised of
three loans in the aggregate amount of $26 million. The loans bear interest at a
variable  rate  based on  30-day  LIBOR  plus 325  basis  points  with a minimum
interest rate of 5% per annum. The loans require monthly  principal and interest
payments  through  March 31,  2005,  with the unpaid  principal  balance and all
accrued  interest due at that time. The loans have certain  financial  covenants
typically found in commercial  loans.  The financial  covenants are based on the
combined operations of the Summit Portfolio  Properties.  In connection with the
loans,  the  Company  incurred  loan  fees and  closing  costs of  approximately
$352,000. The loans are cross-collateralized and cross-defaulted.

         On March 28, 2003, in connection with the acquisition of the Additional
Marriott  Portfolio  Two  Properties,  the Company  borrowed  approximately  $71
million on its $85 million  revolving line of credit.  As of September 30, 2003,
the Company  repaid  approximately  $51 million on its revolving line of credit.
For information  regarding the line of credit, see the section of the Prospectus
entitled "Business -- Borrowing."

         In addition,  in connection with this acquisition,  the Company assumed
approximately  $88.5  million in  non-interest  bearing bonds payable to certain
residents of the Fort Belvoir and Haverford  facilities.  The Company will issue
new bonds to future residents of these facilities, and the proceeds will be used
to retire the existing bonds.

         On March 31, 2003,  in  connection  with the purchase of the Prime Care
Portfolio Two  Properties,  the Company assumed  approximately  $20.6 million of
Permanent Financing which is secured by the Prime Care Portfolio Two Properties.
The loan bears interest at a fixed rate of 7.83% per annum and requires  monthly
principal and interest  payments  through October 2008 with all unpaid principal
and interest due at that time. In connection with the loan, the Company incurred
assumption fees and other loan costs of approximately $226,800.

         On August 25, 2003, in connection  with the purchase of the ARC Somerby
Portfolio Properties,  the Company obtained Permanent Financing comprised of two
loans in the  aggregate  amount of $50.4  million.  The loans bear interest at a
fixed rate of 5.79%. The loans require monthly  principal and interest  payments
through  September 2012 with all unpaid principal and interest due at that time.
The loan  provisions  allow the  Company to extend the loans for one  additional
year with a variable  interest rate based on a LIBOR index.  In connection  with
the loans, the Company incurred loan costs of approximately $651,700.

         On August 29, 2003, in connection  with the  acquisition of the Sunrise
Portfolio Three Properties,  the Company borrowed a total of $92.5 million under
subordinated mortgage notes collateralized by the 14 Properties,  payable to the
seller.   The  seller   remains   liable  for  existing   first  mortgage  notes
collateralized  by the 14  Properties.  The seller has agreed to  indemnify  the
Company for any claims  against the Properties  under the first mortgage  notes.
The  subordinated  mortgage  notes  have  initial  terms of seven  years with an
interest rate of 5.13% for 2003,  5.38% for 2004,  6.06% for 2005, and increases
3% of the prior year's per annum interest rate each calendar year  thereafter to
maturity.  The loan requires  interest only payments  through calendar year 2005
with principal and interest payments due thereafter until maturity on August 28,
2010.  At the end of the initial loan terms,  the Company has three  consecutive
renewal options of five years each with terms similar to the initial loan terms.

         On September 9, 2003, the Company entered into a six-month, $50 million
credit  facility  agreement that has a 120-day  funding option with a commercial
lender. The loan may be extended for two additional  three-month periods and may
be used to fund the acquisition and development of Properties and investments in
Mortgage  Loans and other  permitted  investments.  During the initial term, the
loan will bear interest at a variable rate, as selected by the Company, equal to
LIBOR plus 300 basis  points or the higher of (i) the bank's prime rate plus 100
basis  points or (ii) the  Federal  Funds  rate plus 150 basis  points,  payable
monthly,  and will require  monthly  principal  payments of $2.5  million  until
maturity.  As of January 5, 2004, there were no amounts  outstanding  under this
loan.

         On October 3, 2003, the Company entered into an initial commitment with
a  commercial  lender for a $130  million  mortgage  loan  collateralized  by 22
Properties owned by the Company. The loan is expected to have a 5-year term with
a fixed  interest  rate of 5.79%.  The Company  expects to close on the mortgage
loan in the first  quarter of 2004.  The  closing of this loan is subject to the
fulfillment of certain conditions.  There is no assurance that any or all of the
conditions  will be satisfied or, if  satisfied,  that the loan will contain the
same terms as stated above.

         On October 23, 2003, the Company obtained an $8.9 million  construction
loan relating to one of the Company's Properties that is under construction. The
loan requires  interest only payments at a variable rate of LIBOR plus a premium
that ranges from 225 basis points to 275 basis  points  based on the  Property's
occupancy levels,  until maturity on November 26, 2006 with all unpaid principal
and interest due at that time.  Concurrent  with the loan  closing,  the Company
drew $6 million to fund construction costs.

         On November 17, 2003,  the Company  entered into an initial  commitment
with a commercial lender for a $79.3 million mortgage loan  collateralized by 12
Properties  owned by the  Company  and one  Property  for which the  Company has
entered  into an initial  commitment  to  acquire.  The loan will have a term of
seven years and will bear  interest at a rate of 5.96% per annum.  The loan will
require  monthly  interest  only  payments  for the first 24 months with monthly
payments of principal and interest due thereafter  until  maturity.  The Company
expects to close the mortgage  loan in the first  quarter of 2004.  In the event
the Company does not acquire the Santa Rosa Property,  as described in "Business
- Pending  Investments,"  above, the aggregate principal amount of the loan will
be decreased by $4.6 million.

         On November 25, 2003, the Company  obtained a $45 million loan relating
to seven of the Company's  Properties included within the EdenCare Portfolio Two
Properties.  The loans bear  interest at a rate of 30-day  LIBOR plus 260 to 300
basis points and require  monthly  payments of interest only for the first year.
Commencing  December 1, 2004, the loan requires  monthly  principal and interest
payments  thereafter  through  November  2006,  with all  unpaid  principal  and
interest due at that time.

         In addition,  on November 25, 2003,  the Company  obtained a $2,445,000
loan relating to the Concord  Property.  The loan bears interest at a fixed rate
of 8.375% and requires monthly principal and interest payments until maturity in
November 2038.

         On November 25,  2003,  the Company  also  obtained a  $4,685,000  loan
relating to the EdenBrook Dunwoody Property.  The loan bears interest at a fixed
rate of 8.25%  and  requires  monthly  principal  and  interest  payments  until
maturity in March 2038.

         On December 2, 2003, the Company  obtained four  construction  loans in
the  aggregate  amount  of  $74.2  million  relating  to four  of the  Company's
Properties  that are in  various  stages  of  construction.  The  loan  requires
interest  only  payments at a variable  rate of LIBOR plus a premium that ranges
from 225 basis  points to 275 basis  points  based on the  Property's  occupancy
levels,  until  maturity on  November  26,  2006 with all unpaid  principal  and
interest  due at that  time.  The  Company  had not drawn  any  funds  under the
construction loans as of January 5, 2004.

                             SELECTED FINANCIAL DATA

         The following  table sets forth certain  financial  information for the
Company,   and  should  be  read  in  conjunction   with  the  section  entitled
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations"  and  the  Financial  Information  commencing  on  page  F-1 of this
Prospectus  Supplement and the Prospectus (amounts in thousands except per Share
data).  This table  updates and replaces the "Selected  Financial  Data" section
beginning on page 98 of the Prospectus.



                                    Nine Months Ended
                                      September 30,                                 Year Ended December 31,
                              -------------------------------  ------------------------------------------------------------------
                                     2003             2002            2002          2001          2000       1999 (1)     1998 (1)
                              --------------  ---------------  ------------- ------------- ------------- -----------  -----------
  Revenues                         $ 59,220          $ 9,700        $18,852       $ 1,900       $ 1,085        $ 86        $  --
  Net earnings (loss) (2)(3)         37,231            5,039         11,372           916           225         (28 )         --
  Cash flows from operating
     activities                      37,091            9,181         16,785         2,173         1,096          13           --
  Cash flows used in investing
     activities                    (807,601 )       (223,953 )     (358,090 )     (22,931 )     (14,429 )        --           --
  Cash flows provided by
     (used in) financing
     activities                     779,558          236,896        355,384        47,301         8,766       4,731         (200 )
  Cash distributions
     declared and paid (4)           37,311            8,236         14,379         1,507           502          50           --
  Earnings (loss) per Share
     (Basic and Diluted)               0.50             0.30           0.52          0.38          0.27       (0.07 )         --
  Funds from operations (5)          47,074            7,150         14,610         1,440           528         (28 )         --
  Cash distributions
     declared and paid per Share       0.53             0.52           0.70          0.70          0.58        0.13           --
  Weighted average number of
  Shares outstanding (6):
       (Basic and Diluted)           74,175           16,932         22,035         2,391           846         413           --

                                      September 30,                                      December 31,
                              -------------------------------  ------------------------------------------------------------------
                                  2003             2002            2002          2001          2000         1999         1998
                              --------------  ---------------  ------------- ------------- ------------- -----------  -----------
  Total assets                   $1,379,297         $323,496       $441,765       $64,447       $14,689      $5,089        $ 977
  Total mortgages payable           223,382           45,409         45,327            --            --          --           --
  Total bonds payable                90,631               --             --            --            --          --           --
  Total stockholders' equity      1,031,357          263,661        389,795        60,910         9,204       3,292          200

(1)      No operations  commenced until the Company  received  minimum  offering
         proceeds  of $2,500 and funds  were  released  from  escrow on July 14,
         1999.  The Company did not acquire its first  Property  until April 20,
         2000;  therefore,  revenues  for  the  year  ended  December  31,  1999
         consisted  only of interest  income on funds held in  interest  bearing
         accounts pending investment in a Property.

(2)      Net loss for the year ended  December 31, 1999 is primarily  the result
         of a  deduction  of $35 in  organizational  costs  in  accordance  with
         generally accepted accounting principles ("GAAP").

(3)      To the extent that Operating  Expenses  payable or  reimbursable by the
         Company in any Expense Year exceed the 2%/25%  Guidelines (the "Expense
         Cap"), the Advisor shall reimburse the Company within 60 days after the
         end of the  Expense  Year the  amount  by  which  the  total  Operating
         Expenses paid or incurred by the Company exceed the Expense Cap. During
         the Expense Year ended September 30, 2003,  Operating  Expenses did not
         exceed the Expense  Cap.  During the years ended  December 31, 2001 and
         2000, the Advisor  reimbursed the Company $145 and $214,  respectively,
         in Operating Expenses. No such amounts were reimbursed in 2002 or 1999.

(4)      Cash distributions are declared by the Board of Directors and generally
         are based on various factors, including cash available from operations.
         For the nine months ended  September  30, 2003 and 2002,  and the years
         ended December 31, 2002,  2001, 2000 and 1999,  approximately  0%, 39%,
         21%, 39%, 55% and 100%, respectively, of cash Distributions represent a
         return of capital in accordance with GAAP. Cash  Distributions  treated
         as a return of  capital on a GAAP  basis  represent  the amount of cash
         Distributions in

         excess  of net  earnings  on a GAAP  basis,  including  deductions  for
         depreciation  expense.  The Company has not treated  such  amounts as a
         return of capital for purposes of calculating  Invested Capital and the
         Stockholders' 8% Return.

(5)      Management  considers funds from operations ("FFO") to be an indicative
         measure  of  operating  performance  due to the  significant  effect of
         depreciation of real estate assets on net earnings. FFO is based on the
         revised  definition  adopted by the Board of  Governors of the National
         Association  of Real Estate  Investment  Trusts  ("NAREIT") and as used
         herein,   means  net  earnings  determined  in  accordance  with  GAAP,
         excluding  gains  or  losses  from  debt  restructuring  and  sales  of
         property,  plus depreciation and amortization of real estate assets and
         after adjustments for  unconsolidated  partnerships and joint ventures.
         (Net earnings  determined in accordance  with GAAP includes the noncash
         effect of  straight-lining  rent increases  throughout the lease terms.
         This  straight-lining  is  a  GAAP  convention  requiring  real  estate
         companies to report  rental  revenue based on the average rent per year
         over the life of the leases. During the nine months ended September 30,
         2003 and 2002,  and the years ended  December 31, 2002,  2001 and 2000,
         net earnings included  approximately $5,500, $800, $1,375, $77 and $21,
         respectively,  of these  amounts.  No such amounts  were earned  during
         1999.) FFO was developed by NAREIT as a relative measure of performance
         and   liquidity  of  an  equity  REIT  in  order  to   recognize   that
         income-producing  real estate  historically  has not depreciated on the
         basis determined under GAAP.  However,  FFO (i) does not represent cash
         generated from operating activities  determined in accordance with GAAP
         (which, unlike FFO, generally reflects all cash effects of transactions
         and other events that enter into the  determination  of net  earnings),
         (ii) is not necessarily  indicative of cash flow available to fund cash
         needs and (iii)  should  not be  considered  as an  alternative  to net
         earnings  determined  in  accordance  with GAAP as an indication of the
         Company's  operating  performance,  or  to  cash  flow  from  operating
         activities  determined in  accordance  with GAAP as a measure of either
         liquidity  or the  Company's  ability  to  make  distributions.  FFO as
         presented  may  not  be  comparable  to  amounts  calculated  by  other
         companies.   Accordingly,   the  Company  believes  that  in  order  to
         facilitate  a  clear  understanding  of  the  consolidated   historical
         operating  results  of  the  Company,   FFO  should  be  considered  in
         conjunction  with the Company's net earnings and cash flows as reported
         in  the  accompanying   consolidated  financial  statements  and  notes
         thereto. See the Financial Information commencing on page F-1.

         The following is a  reconciliation  of net earnings to FFO for the nine
         months ended  September 30, 2003 and 2002, and the years ended December
         31, 2002, 2001, 2000 and 1999:

                                               Nine Months Ended
                                                 September 30,                          Year ended December 31,
                                         ------------------------------
                                             2003             2002           2002          2001           2000         1999
                                         -------------    -------------    ----------    ----------    ---------     ---------
         Net earnings                          $37,231           $5,039       $11,372          $916         $225          $(28 )
           Adjustments:
             Effect of unconsolidated
               subsidiaries                        195               86           150            --           --            --
             Effect of minority
               interest                             --             (140 )        (234 )          --           --            --
             Depreciation of real
               estate assets                     9,648            2,165         3,322           524          303            --
                                         -------------    -------------    ----------    ----------    ---------     ---------
         FFO                                   $47,074           $7,150       $14,610        $1,440         $528          $(28 )
                                         =============    =============    ==========    ==========    =========     =========

         Weighted average shares                74,175           16,932        22,035         2,391          846           413
                                         =============    =============    ==========    ==========    =========     =========

(6)      The weighted  average number of Shares  outstanding  for the year ended
         December  31,   1999,   is  based  upon  the  period  the  Company  was
         operational.


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

         The  following  information  should  be read in  conjunction  with  the
"Management's  Discussion  and  Analysis of Financial  Condition  and Results of
Operations" section beginning on page 99 of the Prospectus.


INTRODUCTION

         The Company

         CNL Retirement  Properties,  Inc. is a corporation  which was organized
pursuant to the laws of the State of Maryland on December  22, 1997 and operates
for  federal  income  tax  purposes  as  a  REIT.  Various  other  wholly  owned
subsidiaries  of the Company  have been and will be formed in the future for the
purpose of acquiring and owning Properties.

         The  Company  acquires  Properties  related  to  seniors'  housing  and
retirement  facilities  ("Retirement  Facilities")  primarily located across the
United  States of America.  The  Retirement  Facilities  may include  congregate
living,  assisted  living  and  skilled  nursing  facilities,   continuing  care
retirement  communities and life care communities,  specialty  clinics,  medical
office  buildings  and walk-in  clinics and similar types of health care related
facilities.  The  Properties are generally  leased on a long-term,  "triple-net"
basis to  Operators of  Retirement  Facilities  or to other  tenants that engage
third  party  managers.  Under the  Company's  triple-net  leases,  the  tenants
generally are responsible for repairs,  maintenance,  property taxes,  utilities
and  insurance as well as the payment of rent.  The tenants'  ability to satisfy
the lease obligations depends primarily on the Properties' operating results. In
addition,   with  respect  to  certain  Properties,   various  forms  of  credit
enhancements,  such as corporate  guarantees and security  deposits,  secure the
tenants' obligations. The Company selects its Properties for investment based on
a credit  underwriting  process  designed  to  identify  those  Properties  that
management believes will be able to fund such lease obligations.


         The Company may  provide  Mortgage  Loans to  Operators  of  Retirement
Facilities  secured by real estate owned by the  borrower.  However,  because it
prefers  to focus on  investing  in  Properties,  which  have the  potential  to
appreciate,  the  Company  currently  expects to provide  Mortgage  Loans in the
aggregate  principal  amount  of no more  than 5 percent  to 10  percent  of the
Company's total assets. The Company expects that the interest rates and terms of
the Mortgage Loans will be similar to those of its leases.  The Company also may
provide Secured Equipment Leases. The aggregate  outstanding principal amount of
Secured  Equipment  Leases is not expected to exceed 10 percent of the Company's
total assets. In addition, the Company, through subsidiaries, may invest up to a
maximum of 5% of total  assets in equity  interests in  businesses  that provide
services to or are otherwise ancillary to the retirement  industry.  The Company
has  retained  CNL  Retirement  Corp.  as its  Advisor  to  provide  management,
acquisition, advisory and administrative services.

LIQUIDITY AND CAPITAL RESOURCES

         Common Stock Offerings

         In 1998, the Company  registered  its Initial  Offering of Common Stock
and in connection with the Initial Offering,  the Company received  subscription
proceeds of $9.7 million (971,898 Shares).  Following termination of the Initial
Offering on September 18, 2000, the Company commenced its second public offering
(the "2000 Offering").  On May 24, 2002, the Company completed its 2000 Offering
from which it received  subscription  proceeds  of $155  million  (15.5  million
Shares).  Immediately following the completion of the 2000 Offering, the Company
commenced its third public  offering  (the "2002  Offering") of up to 45 million
Shares of Common Stock ($450 million).  On April 3, 2003, the Company  completed
its 2002 Offering from which it received  subscription  proceeds of $450 million
(45 million Shares), and immediately  commenced this offering of Common Stock of
up to 175 million  additional Shares ($1.75 billion).  Of the 175 million Shares
of  Common  Stock  offered,  up to 25  million  are  available  to  stockholders
purchasing Shares through the Reinvestment Plan.

         On July 30, 2003,  the Company filed a  registration  statement on Form
S-11 with the Securities and Exchange Commission in connection with the proposed
sale by the Company of up to 400 million  Shares of Common Stock ($4 billion) in
an offering  expected to commence  immediately  following the completion of this
offering (the "2004 Offering").  Of the 400 million Shares of Common Stock to be
offered,  up to 50 million Shares will be available to  stockholders  purchasing
Shares  through  the  Reinvestment  Plan.  Until  such  time,  if  any,  as  the
stockholders  approve an increase in the number of  authorized  Shares of Common
Stock of the Company, the 2004 Offering will be limited to 213 million Shares.

         From its  formation in December 1997 through  September  30, 2003,  the
Company had received an initial $200,000 (20,000 Shares)  contribution  from the
Advisor  and  subscription  proceeds of $1.1  billion  (114.7  million  Shares),
including $5.5 million  (547,733  Shares) through the  Reinvestment  Plan. As of
September 30, 2003,  net proceeds to the Company from its offering of Shares and
capital  contributions  from  the  Advisor,   after  the  deduction  of  selling
commissions, the marketing support fee, due diligence expense reimbursements and
organizational and offering expenses,  totalled  approximately $1 billion. As of
September 30, 2003,  the Company had used  approximately  $843.8  million of net
offering  proceeds,  $224 million of loan proceeds from Permanent  Financing and
$71.4  million of proceeds  from its  revolving  line of credit,  as well as the
assumption  of $88.5  million  in bonds  payable  to invest  approximately  $1.2
billion in 92  Properties  located  in 27 states  (see  "Property  Acquisitions"
below).  As of  September  30,  2003,  the Company had repaid  $51.4  million in
advances  relating to its  revolving  line of credit,  had paid $73.4 million in
Acquisition Fees and Acquisition  Expenses,  and had paid $1.1 million to redeem
120,325 Shares of Common Stock,  leaving  approximately  $60.1 million available
for investment in Properties,  Mortgage Loans and other  permitted  investments.
The Company  believes that the net proceeds  received from this offering and any
additional  offerings  will  enable  the  Company to  continue  to grow and take
advantage  of  acquisition  opportunities  until  such  time,  if any,  that the
Company's Shares are Listed.  Under the Company's Articles of Incorporation,  if
the Company  does not List by December  31,  2008,  it will  commence an orderly
liquidation  of  its  Assets  and  the  distribution  of  net  proceeds  to  its
stockholders.

         During the period October 1, 2003 through  January 5, 2004, the Company
received  additional  net  offering  proceeds  of $329.6  million and had $205.4
million  available  for  investment  in  Properties,  Mortgage  Loans  and other
permitted investments.  See "Business -- Property Acquisitions" and "Business --
Pending  Investment" for a description of the Properties owned by the Company or
Properties  the Company has entered  into initial  commitments  to acquire as of
January 5, 2004.

         The Company expects to use any uninvested net offering  proceeds,  plus
any additional net offering  proceeds from this offering and future offerings to
purchase  additional  Properties,  and to a lesser extent, to invest in Mortgage
Loans and other  permitted  investments.  In  addition,  the Company  intends to
borrow  money to acquire  Assets and to pay certain  related  fees.  The Company
intends to encumber Assets in connection  with such  borrowing.  The Company has
obtained a two-year $85 million  revolving line of credit that may be amended to
allow the line of credit to be increased  by $40  million.  The Company has also
obtained  Permanent  Financing.  The  line of  credit  may be  increased  at the
discretion of the Board of Directors  and may be repaid with offering  proceeds,
proceeds from the sale of Assets, working capital or Permanent Financing.  Based
on current  policy,  the  aggregate  amount of any  Permanent  Financing  is not
expected to exceed 40% of the Company's total assets. This policy may be changed
by the Company's Board of Directors;  however,  in accordance with the Company's
Articles of Incorporation,  the maximum amount the Company may borrow is 300% of
the Company's  Net Assets.  The number of Properties to be acquired and Mortgage
Loans and other  permitted  investments  in which the  Company  may invest  will
depend upon the amount of net offering  proceeds and loan proceeds  available to
the Company.

         Redemptions

         The Company has a redemption  plan under which the Company may elect to
redeem  Shares,  subject  to  certain  conditions  and  limitations.  Under  the
redemption plan, prior to such time, if any, as Listing occurs,  any stockholder
who has held Shares for at least one year may  present all or any portion  equal
to at  least 25  percent  of their  Shares  to the  Company  for  redemption  in
accordance   with  the  procedures   outlined  in  the  redemption   plan.  Upon
presentation,  the Company  may, at its  option,  redeem the Shares,  subject to
certain conditions and limitations. However, at no time during a 12-month period
may the number of Shares  redeemed by the Company exceed 5 percent of the number
of Shares of the  Company's  outstanding  Common  Stock at the  beginning of the
12-month period.  During the nine months ended September 30, 2003, 76,288 Shares
were redeemed at $9.20 per Share (for a total of $700,000) and retired.

         Property Acquisitions and Investments

         As of January 5, 2004, the Company had acquired 119 Properties  located
in 27 states for an aggregate  purchase  price of  approximately  $1.4  billion,
including six Properties in various stages of development. With the exception of
one  Property  under  development,  the  Company,  as lessor,  has entered  into
long-term lease  agreements  relating to the Properties.  Upon completion of the
development,  the Company expects to enter into a long-term lease agreement with
an Operator of the Retirement  Facility to operate and manage the Property.  The
leases are on a triple-net lease basis,  meaning the tenants are required to pay
all repairs,  maintenance,  property taxes, utilities and insurance.  Generally,
the tenants are also required to make capital  expenditures as may be reasonably
necessary to refurbish buildings, premises, signs and equipment and maintain the
leasehold in a manner that allows operation for its intended purpose.

         Eighty-seven of the Properties owned as of January 5, 2004, are subject
to  operating  leases and  generally  provide  for an  initial  term of 15 years
(expiring between 2015 and 2018). The operating leases generally provide options
that allow the tenants to renew the leases from 5 to 20 successive years subject
to the same terms and conditions as the initial  leases.  The leases provide for
minimum base annual rent payments,  generally  payable in monthly  installments.
The leases  provide that the minimum base rent  required  under the terms of the
leases will increase at predetermined  intervals  (typically on an annual basis)
during  the terms of the  leases.  In  addition  to  minimum  annual  base rent,
substantially  all  tenants  are subject to  contingent  rent if the  Properties
achieve specified  operating  performance  thresholds.  The amount of contingent
rent  payable  is based on  factors  such as  percentage  of gross  revenues  or
occupancy rates of the  Properties.  The majority of the leases also provide for
the tenant to fund, in addition to its lease payments, an FF&E Reserve fund. The
tenant deposits funds into the FF&E Reserve account and periodically  uses these
funds to cover the cost of the replacement,  renewal and additions to furniture,
fixtures and equipment.  The Company may be responsible for capital expenditures
or  repairs  in  excess of the  amounts  in the  reserve  fund,  and the  tenant
generally will be responsible for replenishing the reserve fund and for paying a
specified  return on the amount of capital  expenditures  or repairs paid for by
the Company in excess of amounts in the reserve fund.

         To mitigate  credit risk,  certain  operating  leases are combined into
portfolios that contain  cross-default terms, meaning that if a tenant of any of
the Properties in a portfolio  defaults on its obligations  under its lease, the
Company  may pursue  its  remedies  under the lease  with  respect to any of the
Properties  in the  portfolio  ("Cross-Default").  In addition,  certain  leases
contain terms whereby the net operating profits of a portfolio of Properties are
combined  for the  purpose  of  funding  rental  payments  due under  each lease
("Pooling").  For certain  Properties,  the Company has also  required  security
deposits,  guarantees  from the tenant's  parent company or additional  types of
income  support.  Guarantees  or other  forms of  credit  support  may be deemed
necessary by the Company if a Property  was recently  opened and is still in the
process of achieving a stable  occupancy  rate, in which case the Property would
not be able to generate minimum rent until reaching occupancy stabilization.  In
order to  determine  the  amount of the  guarantee  that would be needed to fund
minimum rent,  the Company  develops  estimates of future cash flow available to
the  tenant to pay  minimum  rent  based on rent  rolls and an  analysis  of the
surrounding real estate market,  including demographic  information and industry
standards,  to predict operating expenses.  The Company's estimates are based on
assumptions  and there can be no assurances as to what actual  amounts will need
to be paid under the guarantees.

         Thirty-one of the  Properties  owned as of January 5, 2004, are subject
to  direct  financing  leases  and have  terms  that  range  from 10 to 35 years
(expiring  between  2013 and 2038).  The leases  provide for minimum base annual
rent payments payable in monthly  installments.  Lease payments relating to four
direct  financing  leases with a carrying value of $77.7 million are subordinate
to  first  mortgage  construction  loans  entered  into by the  tenants  to fund
development costs related to the Properties. The leases provide that the minimum
base rent required under the terms of the leases will increase at  predetermined
intervals,  generally  on an annual  basis,  during the terms of the leases.  In
addition to minimum  annual base rent,  certain leases are subject to contingent
rent if the Properties achieve specified operating performance  thresholds based
on the Properties'  occupancy rates.  Certain leases also provide for the tenant
to fund, in addition to its lease  payments,  an FF&E Reserve fund. All property
purchased  with the funds from the FF&E  Reserve will remain the property of the
tenants.  The direct financing leases contain  provisions that allow each lessee
to elect to  purchase  the  Property  during or at the end of the lease term for
amounts based on the Company's initial investment amount and certain leases also
permit the Company to require each lessee to purchase the Property at the end of
the lease term for the same amount.  Certain  leases have been combined into two
portfolios  of  Properties  and  contain  Cross-Default  and Pooling  terms.  In
addition, an affiliate of the tenants of these two portfolios has guaranteed the
tenants' obligations to pay minimum rent due under the leases up to an aggregate
maximum of  $2,500,000.  As of January 5, 2004, the remaining  amount  available
under the guarantees was approximately $200,000.

         The remaining Property owned as of January 5, 2004, is a parcel of land
currently in a  pre-construction  phase with planned  development for a seniors'
housing  complex.  Upon  completion of the  development,  the Company expects to
enter into a  long-term  lease  agreement  with an  Operator  of the  Retirement
Facility to operate and manage the Property.

         Ninety-three  of the 119 Properties  owned by the Company as of January
5, 2004, are operated and managed by Sunrise Senior Living  Services,  Inc. (see
the "Results of  Operations  -- Major  Operators  and Tenants"  section  below).
Additionally,  five  Properties  owned by the  Company as of January 5, 2004 are
being  developed by Sunrise  Development,  Inc., a wholly  owned  subsidiary  of
Sunrise. Upon completion of each development,  each Property will be operated by
Sunrise  Senior Living  Services,  Inc.  Four  additional  Operators  manage the
remaining Properties owned by the Company as of January 5, 2004.

         Borrowings

         Line of Credit.  In March 2003,  the Company  replaced its existing $25
million  line of credit with a two-year,  $85 million  revolving  line of credit
that may be  amended  to allow  the line of credit  to be  increased  up to $125
million.   Eleven   Properties   with  an  aggregate   cost  of  $115.2  million
collateralize the $85 million revolving line of credit;  however, the collateral
provided  by these 11  Properties  only  allows the  Company to draw up to $71.4
million  under the  revolving  line of credit.  The Company would be required to
pledge  additional  Properties as  collateral to fully  maximize the $85 million
liquidity  available  under the revolving line of credit.  This credit  facility
requires  monthly  payments of  interest  only at LIBOR plus a  percentage  that
fluctuates until maturity,  depending on the Company's  aggregate amount of debt
outstanding in relation to the Company's total assets, and has several covenants
typically found in revolving loan facilities,  including covenants to maintain a
minimum  net  worth  and  minimum  collateral  value.  The  Company  may use the
revolving line of credit to fund acquisitions,  pay fees, make distributions and
fund working capital for general business  purposes.  Periodically,  the Company
expects to repay amounts drawn under the revolving  line of credit with proceeds
received  from  equity  offerings,  Permanent  Financing,  the sale of assets or
working  capital.  In March 2003, the Company borrowed $71.4 million on the line
of credit to acquire  several  Properties  described in  "Liquidity  and Capital
Resources - Property Acquisitions" above. As of January 5, 2004, the Company had
an outstanding  balance of $20 million on the line of credit. In connection with
the $85 million revolving line of credit,  the Company has incurred $1.9 million
in loan fees and costs.

         Permanent  Financing.  In  connection  with  the  acquisition  of three
Properties on March 27, 2003, the Company obtained Permanent Financing comprised
of three loans in the aggregate  amount of $26 million.  The loans bear interest
at a variable  rate based on 30-day  LIBOR plus 325 basis  points with a minimum
interest rate of 5 percent per annum.  The loans require  monthly  principal and
interest payments through March 31, 2005, with the unpaid principal balances and
all  accrued  interest  due at that  time.  The  loans  have  certain  financial
covenants which are typically  found in commercial  loans and which are based on
the combined  operations of the three Properties.  In connection with the loans,
the Company incurred loan fees and closing costs of approximately  $0.4 million.
These loans are cross-collateralized and cross-defaulted.

         In  connection  with the purchase of two  Properties on March 31, 2003,
the Company  assumed a mortgage in the amount of $20.6  million  that matures in
October 2008.  The mortgage  bears  interest at a fixed rate of 7.83 percent per
annum and requires monthly principal and interest  payments.  In connection with
the  loan,  the  Company  incurred  assumption  fees  and  other  loan  costs of
approximately $0.2 million.

         In connection  with the purchase of two  Properties on August 25, 2003,
the Company obtained Permanent Financing comprised of two loans in the aggregate
amount  of $50.4  million.  The  loans  bear  interest  at a fixed  rate of 5.79
percent.  The loans  require  monthly  principal and interest  payments  through
September 1, 2012 with all unpaid  principal and interest due at that time.  The
loan  provisions  allow the Company to extend the loans for one additional  year
with a variable  interest rate based on a LIBOR index.  In  connection  with the
loans, the Company incurred loan costs of approximately $0.7 million.

         In connection with the acquisition of 14 Properties on August 29, 3003,
the Company borrowed a total of $92.5 million under subordinated  mortgage notes
collateralized by the 14 Properties,  payable to the seller.  The seller remains
liable for existing first mortgage  notes  collateralized  by the 14 Properties.
The  seller has agreed to  indemnify  the  Company  for any claims  against  the
Properties under the first mortgage notes. The subordinated  mortgage notes have
initial terms of seven years with an interest rate of 5.13% for 2003,  5.38% for
2004,  6.06% for 2005, and the interest rate increases by 3% of the prior year's
per annum interest rate each calendar year thereafter to a maximum rate of 7.25%
to maturity.  Interest on the loan is recorded using the effective interest rate
of 5.60%.  The loan requires  interest only payments  through calendar year 2005
with principal and interest  payments due thereafter until maturity on September
30,  2010.  At the  end  of the  initial  loan  terms,  the  Company  has  three
consecutive renewal options of five years each with terms similar to the initial
loan terms.

         On August 29, 2003, the Company paid off a mortgage with an outstanding
balance of approximately $12.6 million using proceeds from this offering.

         On September 9, 2003, the Company entered into a six-month, $50 million
credit  facility  agreement that has a 120-day  funding option with a commercial
lender. The loan may be extended for two additional  three-month periods and may
be used to fund the acquisition and development of Properties and investments in
Mortgage  Loans and other  permitted  investments.  During the initial term, the
loan will bear interest at a variable rate, as selected by

the  Company,  equal to LIBOR  plus 300 basis  points  or the  higher of (i) the
bank's prime rate plus 100 basis points or (ii) the Federal  Funds rate plus 150
basis points,  payable monthly,  and will require monthly principal  payments of
$2.5  million  until  maturity.  As of January  5,  2004,  there were no amounts
outstanding under this loan.

         As of  September  30, 2003,  the Company had 22 Mortgage  Loans with an
aggregate outstanding balance of approximately $223.4 million  collateralized by
27 Properties.

         On October 3, 2003, the Company entered into an initial commitment with
a  commercial  lender for a $130  million  Mortgage  Loan  collateralized  by 22
Properties owned by the Company. The loan is expected to have a 5-year term with
a fixed interest rate of 5.79%.  The Company expects to close on the loan in the
first quarter of 2004. The closing of this loan is subject to the fulfillment of
certain conditions. There is no assurance that any or all of the conditions will
be  satisfied  or, if  satisfied,  that the loan will  contain the same terms as
stated above.

         On October 23, 2003, the Company obtained an $8.9 million  construction
loan related to one of the Company's Properties that is under construction.  The
loan requires  interest only payments at a variable rate of LIBOR plus a premium
that ranges from 225 basis points to 275 basis  points  based on the  Property's
occupancy  levels until maturity on December 31, 2005.  Concurrent with the loan
closing, the Company drew $6 million to fund construction costs.

         On November 17, 2003,  the Company  entered into an initial  commitment
with a commercial lender for a $79.3 million mortgage loan  collateralized by 12
Properties  owned by the  Company  and one  Property  for which the  Company has
entered  into an initial  commitment  to  acquire.  The loan will have a term of
seven years and will bear  interest at a rate of 5.96% per annum.  The loan will
require  monthly  interest  only  payments  for the first 24 months with monthly
payments of principal and interest due thereafter  until  maturity.  The Company
expects to close the mortgage  loan in the first  quarter of 2004.  In the event
the Company does not acquire the Santa Rosa Property,  as described in "Business
-  Pending  Investment,"  the  aggregate  principal  amount  of the loan will be
lowered by $4.6 million.

         On November 25, 2003, the Company  obtained a $45 million loan relating
to seven of the Company's  Properties included within the EdenCare Portfolio Two
Properties.  The loans bear  interest at a rate of 30-day  LIBOR plus 260 to 300
basis points and require  monthly  payments of interest only for the first year.
Commencing  December 1, 2004, the loan requires  monthly  principal and interest
payments  thereafter  through  November  2006,  with all  unpaid  principal  and
interest due at that time.

         In addition,  on November 25, 2003,  the Company  obtained a $2,445,000
loan relating to the Concord  Property.  The loan bears interest at a fixed rate
of 8.375% and requires monthly principal and interest payments until maturity in
November 2038.

         On November 25,  2003,  the Company  also  obtained a  $4,685,000  loan
relating to the EdenBrook Dunwoody Property.  The loan bears interest at a fixed
rate of 8.25%  and  requires  monthly  principal  and  interest  payments  until
maturity in March 2038.

         On December 2, 2003, the Company  obtained four  construction  loans in
the  aggregate  amount  of  $74.2  million  relating  to four  of the  Company's
Properties  that are in  various  stages  of  construction.  The  loan  requires
interest  only  payments at a variable  rate of LIBOR plus a premium that ranges
from 225 basis  points to 275 basis  points  based on the  Property's  occupancy
levels,  until  maturity on  November  26,  2006 with all unpaid  principal  and
interest  due at that  time.  The  Company  did not draw  any  funds  under  the
construction loans at closing.

         Bonds  Payable.  In connection  with the  acquisition of two continuing
care  retirement  communities  ("CCRC's")  in March 2003,  the  Company  assumed
approximately  $88.5 million in non-interest  bearing life care bonds payable to
certain  residents of the two Retirement  Facilities.  Generally,  the bonds are
refundable  to a  resident  upon  the  resident  moving  out of the CCRC or to a
resident's  estate upon the resident's  death. In some instances,  the bonds are
not  refundable  until  the  unit  has  been  successfully  remarketed  to a new
resident.  The Company  issues new bonds to new  residents  of these  Retirement
Facilities,  and the proceeds from the new bonds are used to retire the existing
bonds. As of September 30, 2003, the bonds payable had an outstanding balance of
approximately $90.6 million.

         Contractual Obligations and Commitments

         The following table presents the Company's contractual cash obligations
and related payment periods as of September 30, 2003 (in thousands):

Contractual Cash Obligations           Less than        2-3 Years
                                         1 Year                           4-5 Years       Thereafter         Total
----------------------------------    -------------    -------------    -------------    ------------    --------------
Mortgages payable                             $388          $28,794         $40,979         $153,221          $223,382
Revolving line of credit                        --           20,000             --               --             20,000
Refundable life care bonds (1)                  --               --             --            90,631             90,631
Refundable tenant security
  deposits                                      --               --             --             7,977             7,977
                                      -------------    -------------    -------------    ------------    --------------
Total Contractual Cash
   Obligations                                $388          $48,794         $40,979         $251,829           $341,990
                                      =============    =============    =============    ============    ==============

     (1) It is expected that the proceeds from the issuance of new bonds will be
         used to retire the existing bonds;  therefore,  bond redemptions do not
         create a current net cash obligation for the Company.

         The following table presents the Company's  commitments,  contingencies
and  guarantees  and related  expiration  periods as of  September  30, 2003 (in
thousands):

 Commitments, Contingencies and       Less than                        4-5 Years
           Guarantees                   1 Year         2-3 Years                      Thereafter         Total
---------------------------------    -------------    ------------    ------------    ------------    -------------
Guarantee of unsecured
   promissory note of
   unconsolidated
   subsidiary (1)                             $ --         $ 2,471           $  --          $   --          $2,471
Earnout provisions (2)                       1,934           9,900              --              --          11,834
Capital improvements to
   investments Properties                    9,585              --              --              --           9,585
Pending investments (3)                     14,780                                                          14,780
                                     -------------    ------------    ------------    ------------    -------------
Total Commitments,
      Contingencies and
      Guarantees                           $26,299         $12,371           $  --          $   --         $38,670
                                     =============    ============    ============    ============    =============

     (1) In connection with the acquisition of a 10 percent limited  partnership
         interest in CNL Plaza,  Ltd., the Company  severally  guaranteed  16.67
         percent, or $2.6 million, of a $15.5 million unsecured  promissory note
         of the limited  partnership  that  matures  November  30,  2004.  As of
         September 30, 2003,  the unsecured  promissory  note had an outstanding
         balance  of  approximately  $14.8  million.  The  Company  has not been
         required to fund any  amounts  under this  guarantee.  In the event the
         Company is required to fund  amounts  under the  guarantee,  management
         believes that such amounts would be recoverable  either from operations
         of the related asset or proceeds upon liquidation.

     (2) In connection with the acquisition of seven Properties, the Company may
         be required  to make  additional  payments  (the  "Earnout  Amount") if
         certain  earnout  provisions  are achieved by the earnout date for each
         Property. The calculation of the Earnout Amount generally considers the
         net operating income for the Property, the Company's initial investment
         in the  Property  and the fair value of the  Property.  In the event an
         Earnout Amount is due, the respective  lease will be amended and annual
         minimum rent will increase accordingly.  Earnout Amounts related to two
         Properties  are  subject  to future  values and  events,  which are not
         quantifiable  at  September  30, 2003 and are not included in the table
         above.

     (3) As of September 30, 2003,  the Company had  commitments  to acquire two
         Properties located in two states, subject to the fulfillment of certain
         conditions.

         Pending Investments

         As of  January 5,  2004,  the  Company  had  commitments  to acquire 23
additional  Properties  located  in  eight  states.  The  anticipated  aggregate
purchase  price is  approximately  $589  million,  and the  acquisition  of each
Property is subject to the fulfillment of certain conditions.  The Company plans
to assume Permanent Financing of approximately $274.5 million in connection with
17 of these Properties and plans to obtain Permanent  Financing of approximately
$4.6  million  in  connection  with one of  these  Properties.  Of the  proposed
Properties for which the Company has entered into initial commitments to acquire
as of January 5, 2004, 20 Properties  are expected to be operated by Horizon Bay
Management,  L.L.C., two Properties are expected to be operated by affiliates of
HRA and one  Property  is  expected  to be  operated  by Sunrise  Senior  Living
Services,  Inc. The HRA Affiliated  Companies are described in further detail in
the  section  of  the  Prospectus  Supplement  entitled  "Business  --  Property
Acquisitions -- Additional  Marriott  Portfolio Two Properties." There can be no
assurance that these transactions will be consummated.

         Market Risk

         Approximately  27 percent of the  Company's  mortgage  loans payable at
September 30, 2003, were subject to variable interest rates, adjusted monthly or
quarterly,  as described  in the  "Borrowings"  section  above.  Therefore,  the
Company is exposed to market  changes in interest  rates.  To mitigate  interest
rate risk, the Company can pay down the mortgages with offering  proceeds should
interest rates rise substantially.

         The  Company  may also be  subjected  to  interest  rate  risk  through
outstanding  balances  on its  variable  rate line of credit.  The  Company  may
mitigate  this risk by paying  down its line of credit  from  offering  proceeds
should  interest  rates  rise   substantially.   The  Company  had  $20  million
outstanding on its variable rate line of credit at September 30, 2003.

         Management  estimates that a one-percentage  point increase in interest
rates for the nine months  ended  September  30,  2003,  would have  resulted in
additional interest costs of approximately  $300,000.  This sensitivity analysis
contains certain simplifying  assumptions (for example, it does not consider the
impact of changes in prepayment risk or credit spread risk). Therefore, although
it gives an indication of the Company's  exposure to interest rate change, it is
not intended to predict  future  results and the Company's  actual  results will
likely vary.

         Cash and Cash Equivalents

         Until  Properties  are acquired or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid investments which management believes to
have appropriate  safety of principal.  This investment  strategy  provides high
liquidity in order to  facilitate  the  Company's  use of these funds to acquire
Properties,  fund Mortgage  Loans and invest in other  permitted  investments at
such time as  Properties  suitable for  acquisition  are located or  appropriate
opportunities to fund Mortgage Loans develop. At September 30, 2003, the Company
had $49.8  million  invested  in such  short-term  investments  as  compared  to
approximately  $40.8  million at December 31,  2002.  The increase in the amount
invested  in  short-term   investments   was  primarily   attributable   to  the
subscription  proceeds  received  from the sale of Shares during the nine months
ended September 30, 2003, partially offset by the purchase of 55 Properties. The
funds remaining at September 30, 2003,  along with additional  funds expected to
be  received  from  the  sale of  Shares,  will be used  primarily  to  purchase
additional Properties, to make Mortgage Loans or other permitted investments, to
pay  Offering  Expenses  and  Acquisition  Expenses,  to  pay  Distributions  to
stockholders, to meet other Company expenses and, in management's discretion, to
create cash reserves.

         Notes and Other Receivables

         The Company's notes and other  receivables  balance increased from $3.2
million at December  31, 2002 to $10.2  million as of September  30,  2003.  The
increase was primarily  due to an increase in rental  revenues  receivable  from
$0.8 million at December  31, 2002 to $9.8  million at  September  30, 2003 as a
result  of an  increase  in the  number of  Properties  from 37 to 92 as of each
respective date. Lease agreements  relating to 46 of the Company's 92 Properties
owned as of  September  30, 2003,  provide for the tenants to pay their  monthly
rent  payments  earned under the lease  agreements  one month in arrears.  As of
January 5, 2004,  management believes the receivable balance as of September 30,
2003 is collectible.  The increase in rental  revenues  receivable was partially
offset by the  repayment of a $2 million loan the Company had made to the seller
of two Properties.  Prior to the Company's  purchase of the two Properties,  the
Company loaned the seller $2 million to extinguish debt at a discounted  amount,
making the purchase of the Properties  economically viable. The Company acquired
the two Properties on March 31, 2003, and the note was repaid at that time.

         Loan Costs

         The  Company's net loan costs  increased  from $1.2 million at December
31, 2002 to $4.1  million as of September  30, 2003,  as a result of the Company
borrowing $168.9 million in the form of 19 new Mortgage Loans, the assumption of
a $20.6 million  Mortgage Loan and a new $85 million  revolving  line of credit.
The increase is partially  offset by loan cost  amortization of $800,000 for the
nine months ended September 30, 2003.

         Lease Intangible Costs

         In connection with the acquisition of Properties that are subject to an
operating  lease,  the Company  allocates the amount  associated  with having an
in-place lease at the date of acquisition  to a lease  intangible  asset that is
amortized over the initial term of the lease (generally 15 years). The Company's
net lease  intangible  costs increased from $6.9 million at December 31, 2002 to
$21.2 million at September  30, 2003,  as a result of the Company  purchasing 39
Properties  that are subject to  operating  leases  during the nine months ended
September 30, 2003. The increase is partially  offset by lease  intangible  cost
amortization of $0.6 million for the nine months ended September 30, 2003.

         Liquidity Requirements

         During the nine months ended September 30, 2003 and 2002, and the years
ended  December  31,  2002,  2001 and  2000,  the  Company  generated  cash from
operating  activities  (which  includes cash received from tenants and interest,
less cash paid for operating  expenses) of $36.4  million,  $9.2 million,  $16.8
million, $2.2 million and $1.2 million,  respectively. For the nine months ended
September  30, 2003 and 2002,  and the years ended  December 31, 2002,  2001 and
2000, cash from operating activities included security deposits of $3.1 million,
$3.5 million,  $3.5 million,  $810,030 and  $553,956,  respectively,  which were
received from  tenants.  Management  expects the Company to meet its  short-term
liquidity  requirements,  other than for Offering Expenses,  the acquisition and
development  of  Properties,  and the  investment  in  Mortgage  Loans and other
permitted  investments,  through  cash flow  provided by  operating  activities.
Management  believes  that cash flow  provided by operating  activities  will be
sufficient to fund normal  recurring  operating  expenses,  regular debt service
requirements and Distributions to stockholders. To the extent that the Company's
cash flow  provided  by  operating  activities  is not  sufficient  to meet such
short-term  liquidity  requirements  as a result,  for  example,  of  unforeseen
expenses  due  to  the  tenants  defaulting  under  the  terms  of  their  lease
agreements, the Company will use borrowings under its line of credit. Management
expects  the  Company  to meet  its  other  short-term  liquidity  requirements,
including  payment of Offering  Expenses,  the  acquisition  and  development of
Properties,   and  the  investment  in  Mortgage   Loans  and  other   permitted
investments,  with proceeds from its  offerings,  additional  advances under its
revolving line of credit and Permanent Financing. Management expects the Company
to meet its  long-term  liquidity  requirements  through  short-  or  long-term,
unsecured or secured debt financing or equity financing.

         Properties  are  generally  leased on a  long-term,  triple-net  basis,
meaning the tenants are required to pay repairs and maintenance, property taxes,
insurance and utilities. Generally, the tenants are also required to maintain an
FF&E reserve account which is used to fund expenditures to refurbish  buildings,
premises  and  equipment  to  maintain  the  leasehold  in a manner  that allows
operation  for its intended  purpose.  In the event that the FF&E reserve is not
sufficient,  the Company may make fixed  asset  expenditures,  in which case the
annual minimum rent will be increased.  Management does not believe that working
capital or additional FF&E reserves are necessary as of September 30, 2003.

         Management  believes  that its  Properties  are  adequately  covered by
insurance.  In  addition,  the Advisor has  obtained  contingent  liability  and
property  coverage for the Company.  This insurance policy is intended to reduce
the  Company's  exposure in the event a tenant's  insurance  policy lapses or is
insufficient to cover a claim relating to the Property.

         Distributions

         The  Company  declared  and  paid  Distributions  to  its  stockholders
totalling  $37.3 million and $8.2 million during the nine months ended September
30,  2003 and 2002,  respectively,  using cash from  operating  activities  from
current and prior periods. In addition,  during the quarters ended September 30,
2003 and December 31, 2003, the Company  declared and paid  Distributions to its
stockholders totalling approximately $16.6 million and $22.5

million,  respectively.  These Distributions were paid by September 30, 2003 and
December  31,  2003,  respectively.  On January 1, 2004,  the  Company  declared
Distributions   to   stockholders   of  record  on  January  1,  2004  totalling
approximately $8.9 million, or $0.0592 per Share, payable by March 31, 2004.

         For the nine months ended September 30, 2003 and 2002, approximately 80
percent  and  50  percent,   respectively,  of  the  Distributions  received  by
stockholders  were considered to be ordinary income and approximately 20 percent
and 50 percent,  respectively,  were  considered a return of capital for federal
income tax purposes.  No amounts distributed to stockholders for the nine months
ended  September 30, 2003 and 2002,  were required to be or have been treated by
the Company as a return of capital for purposes of calculating the Stockholders'
8% Return on Invested  Capital.  Generally the Company is required to distribute
annually 90% of its real estate  investment trust taxable income. In determining
the  amount  of  Distributions,  management  considers  the  amount of cash from
operations,  funds from  operations  and the general  economic  condition of the
Company.  The  Company  intends to  continue  to declare  Distributions  of cash
available  for such  purpose to the  stockholders  on a monthly  basis,  payable
monthly or quarterly.

         Related Party Transactions

         Certain  Directors  and officers of the Company hold similar  positions
with the  Advisor,  the  parent of the  Advisor  and the  Managing  Dealer,  CNL
Securities  Corp.  A  Director  of the  Company  indirectly  owns a  controlling
interest  in the  parent  of the  Advisor.  These  affiliates  receive  fees and
compensation in connection with the offerings and Permanent  Financing,  and the
acquisition, management and sale of the assets of the Company.

         CNL Securities  Corp.  receives  Selling  Commissions  amounting to 7.5
percent  of the total  amount  raised  from the sale of Shares for  services  in
connection with this offering and the Company's Prior Offerings. During the nine
months ended  September  30, 2003,  the Company  incurred  $53.3 million of such
fees, the majority of which were reallowed to other broker-dealers.

         In addition,  CNL  Securities  Corp. is entitled to receive a marketing
support  fee equal to 0.5  percent of the total  amount  raised from the sale of
Shares in  connection  with this  offering and the  Company's  Prior  Offerings.
During the nine months ended  September  30,  2003,  the Company  incurred  $3.6
million  of  such  fees,   the  majority  of  which  were   reallowed  to  other
broker-dealers.

         CNL Securities  Corp.  will also receive,  in connection  with the 2000
Offering,  a soliciting  dealer  servicing  fee payable  annually by the Company
beginning on December 31, 2003, until such time, if any, as the Company's common
stock is Listed, in the amount equal to 0.2 percent of the aggregate  investment
of stockholders who purchased Shares in the 2000 Offering.  CNL Securities Corp.
in turn may reallow all or a portion of such fees to  soliciting  dealers  whose
clients  hold Shares on such date.  As of September  30, 2003,  no such fees had
been incurred.

         The Advisor  receives  Acquisition  Fees for  services  in  identifying
Properties and structuring the terms of their leases and Mortgage Loans equal to
4.5 percent of Total Proceeds.  In addition,  if there is a Listing, the Advisor
will receive an Acquisition  Fee equal to 4.5 percent of amounts  outstanding on
the line of credit,  if any, at the time of the Listing.  During the nine months
ended  September  30, 2003,  the Company  incurred  $40.9  million of such fees,
including $8.9 million of Acquisition Fees on Permanent Financing. Such fees are
included in other assets prior to being allocated to individual Properties.

         The Company and the Advisor  have  entered  into an Advisory  Agreement
pursuant  to which the  Advisor  receives  a  monthly  Asset  Management  Fee of
one-twelfth  of 0.6 percent of the  Company's  Real  Estate  Asset Value and the
outstanding  principal  balance  of  any  Mortgage  Loan  as of  the  end of the
preceding  month.  During the nine months ended  September 30, 2003, the Company
incurred $2.6 million of such fees.

         The Company incurs operating  expenses relating to its  administration.
Pursuant to the Advisory  Agreement,  the Advisor is required to  reimburse  the
Company the amount by which the total Operating Expenses paid or incurred by the
Company exceed in any four consecutive  fiscal quarters (the "Expense Year") the
greater of 2 percent of average invested assets or 25 percent of net income (the
"Expense  Cap").  Operating  Expenses for the Expense Years ended  September 30,
2003 and 2002, did not exceed the Expense Cap.

         CNL Capital Corp., an Affiliate of the Advisor, is a non-voting Class C
member of Century Capital  Markets,  LLC ("CCM").  CCM made the arrangements for
the $23.5  million  commercial  paper loan  described  in Note 7 to the  Interim
Unaudited Condensed Consolidated Financial Statements of the Company included in
the Financial Information  commencing on page F-1. Prior to August 18, 2003, the
monthly  interest  payments  due  under the loan  included  a margin of 30 basis
points  payable  to CCM for the  monthly  services  it  provides  related to the
administration  of the loan.  From its  origination in June 2002, the loan was a
commercial  paper backed loan with an interest rate at the commercial paper rate
as  determined by market demand plus a margin of 1.86 percent that was inclusive
of liquidity fees and  administrative  costs. CCM was paid $0.2 million and $0.1
million during the nine months ended September 30, 2003 and 2002,  respectively,
related  to these  services.  On August  18,  2003,  the loan  converted  from a
commercial paper loan to a direct loan with a third party commercial lender. The
direct loan bears  interest at 30-day LIBOR plus 262 basis points with  interest
payable monthly.

         The Company maintains bank accounts in a bank in which certain officers
and Directors of the Company serve as directors and are stockholders. The amount
deposited with this bank was $15.9 million at September 30, 2003.

         On May 30,  2002,  the  Company  acquired a 10%  interest  in a limited
partnership,  CNL Plaza,  Ltd., that owns an office building located in Orlando,
Florida,  in which the  Advisor  and its  Affiliates  lease  office  space.  The
remaining interest in the limited  partnership is owned by several Affiliates of
the  Advisor.  During the nine months  ended  September  30,  2003,  the Company
received $89,000 in distributions from the partnership.

         In March 2003,  the  Advisor's  parent  company  purchased a 30 percent
voting membership  interest in a limited liability company,  which is affiliated
with eight of the Company's tenants that lease 69 of the 119 Properties that the
Company had  acquired  as of January 5, 2004.  In  addition,  six of these eight
tenants  contributed  34.6 percent of total rental income from operating  leases
and earned income from  investments in direct  financing  leases during the nine
months ended September 30, 2003.

         The Advisor and its Affiliates provide various administrative  services
to the Company,  including  services related to accounting;  financial,  tax and
regulatory compliance reporting;  stockholder  Distributions and reporting;  due
diligence  and  marketing;  and  investor  relations  (including  administrative
services in  connection  with the  offerings).  The expenses  incurred for these
services were  classified as follows for the nine months ended  September 30 (in
thousands):


                                                                         2003                 2002
                                                                     -------------        -------------
      Stock issuance costs                                                $ 3,442               $ 2,068
      Investment Properties on operating leases and other
      assets                                                                   --                    20
      General operating and administrative expenses                           941                   351
                                                                     -------------        -------------
                                                                          $ 4,383               $ 2,439
                                                                     =============        =============

         Amounts  due  to  related  parties   consisted  of  the  following  (in
         thousands) at:

                                                                       September 30,            December 31,
                                                                            2003                    2002
                                                                     -----------------        ----------------
      Due to the Advisor and its Affiliates:
        Expenditures incurred for offering expenses on behalf
           of the Company                                                     $   173                 $   1
        Accounting and administrative services                                    220                    76
        Acquisition Fees and miscellaneous Acquisition
        Expenses                                                                  436                   126
                                                                     -----------------        ----------------
                                                                                  829                   203
                                                                     -----------------        ----------------

      Due to CNL Securities Corp.:
        Commissions                                                               451                   145
        Marketing support fees and due diligence expense
           reimbursements                                                          45                    --
                                                                     -----------------        ----------------
                                                                                  496                   145
                                                                     -----------------        ----------------
                                                                             $  1,325                $  348
                                                                     =================        ================

         Other

         Management  is  not  aware  of  any  material   trends,   favorable  or
unfavorable,  in either  capital  resources  or the outlook for  long-term  cash
generation,  nor does management expect any material changes in the availability
and relative cost of such capital resources. As offering proceeds continue to be
invested,  management expects that the cash to be generated from operations will
be adequate to pay operating expenses and to make Distributions to stockholders.

         Critical Accounting Policies

         The  Company's  leases  are  accounted  for  under  the  provisions  of
Statement of Accounting Standard No. 13, "Accounting for Leases" ("FAS 13"), and
have been accounted for as either operating  leases or direct financing  leases.
FAS 13 requires management to estimate the economic life of the leased property,
the residual value of the leased property and the present value of minimum lease
payments to be received from the tenant.  In addition,  management  assumes that
all  payments  to be  received  under its  leases  are  collectible.  Changes in
management's estimates or assumption regarding  collectibility of lease payments
could  result in a change in  accounting  for the lease at the  inception of the
lease.

         Acquisition Fees and miscellaneous  acquisition costs that are directly
identifiable with Properties that are probable of being acquired are capitalized
and included in other assets.  Upon  purchase of a Property,  the fees and costs
directly  identifiable  with that Property are  reclassified to land,  building,
equipment and lease  intangibles or to investment in direct financing leases. In
the event a Property is not acquired or its acquisition is no longer  considered
probable, costs directly related to the Property will be charged to expense.

         Management reviews its Properties and loans for impairment or potential
loss as events or circumstances  indicate that the carrying amount of the assets
may not be recoverable.  Management  compares the estimated future  undiscounted
cash flows, including the residual value of the Property or collateral, with the
carrying cost of the individual  asset.  If impairment is indicated,  the assets
are adjusted to the estimated fair value.

RESULTS OF OPERATIONS

         Revenues

         At September 30, 2003,  the Company  owned 92 Properties  located in 27
states, including six Properties in various stages of development.  Sixty-one of
the  Properties  are subject to operating  leases and  generally  provide for an
initial term of 15 years (expiring  between 2015 and 2018). The operating leases
generally  provide  options that allow the tenants to renew the leases from 5 to
25  successive  years  subject to the same terms and  conditions  as the initial
leases.  Thirty of the  Properties are subject to direct  financing  leases with
terms ranging from 10 years or 35 years  (expiring  between 2013 and 2038).  The
remaining  Property is a parcel of land  currently in a  pre-construction  phase
with planned  development  for a Retirement  Facility.  Upon  completion  of the
development,  the Company expects to enter into a long-term lease agreement with
an operator of the Retirement Facility to operate and manage the Property.

         The Property  leases  provide for minimum  annual base rent,  generally
payable in monthly  installments.  In  addition,  the  leases  provide  that the
minimum   annual  base  rent   required   under  the  leases  will  increase  at
pre-determined  intervals (generally on an annual basis). In addition to minimum
annual base rent,  certain  leases  require the  payment of  contingent  rent if
certain  operating  performance or occupancy rate thresholds,  as defined in the
lease  agreements,  are  achieved by the  Properties.  For the nine months ended
September 30, 2003 and 2002,  the Company earned $56.6 million and $8.2 million,
respectively,  in rental income from its Properties  under operating  leases and
earned  income from its  Properties  subject to direct  financing  leases ($24.4
million and $3.9 million of which was earned during the quarters ended September
30, 2003 and 2002, respectively).  The Company also earned $1.5 million and $0.1
million in FF&E reserve  income during the nine months ended  September 30, 2003
and 2002,  respectively ($0.6 million and $69,000 of which was earned during the
quarters  ended  September  30, 2003 and 2002,  respectively).  The  increase in
rental and FF&E  reserve  income  was due to the  Company  owning 92  Properties
during the nine months  ended  September  30, 2003 as compared to 22  Properties
during the nine months ended  September  30, 2002.  Because 55  Properties  were
owned  for only a  portion  of the nine  months  ended  September  30,  2003 and
additional  Property  acquisitions  are  expected to occur,  rental  income from
operating  leases,  earned income from direct  financing leases and FF&E reserve
income are expected to increase in subsequent periods.

         During the nine months ended  September 30, 2003 and 2002,  the Company
also earned $1.1 million and $1.3 million, respectively, in interest income from
investments  in money  market  accounts  and  other  short-term,  highly  liquid
investments  ($0.5  million  and $0.8  million  of which was  earned  during the
quarters ended September 30, 2003 and 2002, respectively).  Although the average
amount invested in short-term investments increased during the nine months ended
September  30, 2003,  as compared to the nine months ended  September  30, 2002,
interest  income  decreased  due to a decrease in interest  rates  earned on the
short-term  investments.  Interest income is expected to increase as the Company
invests offering  proceeds  received in the future in highly liquid  investments
pending  investment in Properties and Mortgage Loans.  However,  as net offering
proceeds  are  used to  invest  in  Properties  and  make  Mortgage  Loans,  the
percentage  of the Company's  total  revenues  earned from interest  income from
investments  in  money  market  accounts  or other  short  term,  highly  liquid
investments is expected to decrease.  Interest income related to notes and other
receivables for the nine months ended September 30, 2003, was approximately $0.1
million.

         The following  unaudited  condensed pro forma information  assumes that
the  Properties  owned as of September 30, 2003,  were owned on January 1, 2002.
Additionally,  it assumes  that the effect of the sale of the  Company's  common
stock and  assumption  or issuance of mortgage  debt had  occurred on January 1,
2002, (in thousands):

                                                    For the Nine Months ended
                                                          September 30,
                                              ---------------------------------
                                                     2003               2002
                                              ---------------------------------
Revenues                                       $    103,111        $  100,903
Expenses                                             41,837            38,298
Net earnings                                         61,303            62,770
Basic and diluted earnings per share                   0.57              0.63

Weighted average number of common shares
outstanding - basic and diluted                     107,246            99,561


         Major Operators and Tenants

         At September  30, 2003,  70 of the 92  Properties  owned by the Company
were operated by Sunrise Senior Living Services, Inc., a wholly owned subsidiary
of Sunrise Senior Living,  Inc., formerly known as Sunrise Assisted Living, Inc.
("Sunrise").  The 70  Properties  include  41  Properties  that were  previously
operated by Marriott Senior Living Services, Inc. In a press release dated March
31, 2003,  Sunrise  announced it had  acquired all of the  outstanding  stock of
Marriott  Senior Living  Services,  Inc. When the stock sale was completed,  the
long-term  management  agreements,  which the Company's tenants had entered into
with  Marriott  Senior Living  Services,  Inc.,  were assumed by Sunrise  Senior
Living Services,  Inc. Additionally,  five Properties owned by the Company as of
September 30, 2003 are being  developed by Sunrise  Development,  Inc., a wholly
owned subsidiary of Sunrise. Upon completion of each development,  each Property
will be  operated  by Sunrise  Senior  Living  Services,  Inc.  Four  additional
operators  manage  the  remaining  17  Properties  owned  by the  Company  as of
September 30, 2003.

         Ninety-one of the Company's  Properties owned as of September 30, 2003,
are leased to 12 tenants,  five of which individually  contributed  between 10 %
and 21 % (an  aggregate of 67.8 %) of the  Company's  total  rental  income from
operating  leases and earned  income from direct  financing  leases for the nine
months ended September 30, 2003. The remaining  Property owned by the Company as
of  September  30, 2003,  is a parcel of land on which a retirement  facility is
being constructed.

         To mitigate  credit risk,  certain leases are combined into  portfolios
that  contain  cross-default  terms,  meaning  that  if a  tenant  of any of the
Properties in the portfolio  defaults on its  obligations  under its lease,  the
Company  may pursue  its  remedies  under the lease  with  respect to any of the
Properties  in the  portfolio.  In addition,  certain  portfolios  contain terms
whereby the net operating profits of the Properties are combined for the purpose
of funding rental  payments due under each lease.  In addition,  as of September
30,  2003,  the  Company had  approximately  $8.0  million in security  deposits
related to certain Properties as well as the guarantees described below.

         In  connection  with five  Properties  previously  operated by Marriott
Senior  Living  Services,  Inc.,  Marriott  International,  Inc.,  with  certain
limitations, remains as guarantor of the tenant's obligation to pay minimum rent
due under the  leases up to a maximum  of $5.9  million.  As of January 5, 2004,
Marriott International, Inc.'s remaining guarantee is $2.4 million.

         Marriott International,  Inc. had also guaranteed a tenant's obligation
to pay  minimum  rent due  under a lease for a  Property  formerly  operated  by
Marriott Senior Living  Services,  Inc., up to a maximum of $2.8 million.  As of
January  5,  2004,  Sunrise  Senior  Living  Services,  Inc.  had  assumed  this
obligation and remains liable for the guarantee balance of $0.7 million.

         An affiliate of Prime Care Properties,  LLC has guaranteed the tenants'
obligations  to pay  minimum  rent due under 11  leases up to a maximum  of $2.0
million.  As of  December  1, 2003,  the  guarantee  had been fully  drawn,  and
therefore,  the  guarantee  is no longer in effect.  An  affiliate of Prime Care
Properties, LLC has also guaranteed two tenants' obligations to pay minimum rent
due under an additional lease up to a maximum of $0.5 million.  As of January 5,
2004,  an  affiliate  of Prime  Care  Properties,  LLC  remained  liable for the
remaining guarantee balance of $0.2 million.

         In connection  with the purchase of five Properties that are in various
stages of  development  and are being  developed by Sunrise  Development,  Inc.,
Sunrise Senior Living Services,  Inc. has guaranteed the tenants' obligations to
pay  minimum  rent and the FF&E  reserve  due under the leases  from the date of
acquisition  until the latter of (i) 30 months or (ii) 18 months after the final
development date.

         In connection with eight Properties leased to wholly owned subsidiaries
of American Retirement  Corporation ("ARC"), ARC has unconditionally  guaranteed
all of the tenants'  obligations  under the terms of the leases,  including  the
payment of minimum rent.

         Although the Company acquires  Properties located in various states and
regions and  carefully  screens its tenants in order to reduce risks of default,
failure  of  these  tenants,   their  guarantors  or  the  Sunrise  brand  would
significantly  impact the results of operations  of the Company.  It is expected
that the  percentage  of total rental income  contributed  by these tenants will
decrease as additional Properties are acquired and leased to diversified tenants
during subsequent periods.

         Expenses

         Operating  expenses  were $22.0  million and $4.4  million for the nine
months ended  September 30, 2003 and 2002,  respectively  ($9.8 million and $2.1
million for the  quarters  ended  September  30,  2003 and 2002,  respectively).
Operating expenses for the nine months ended September 30, 2003,  increased as a
result of the Company  incurring asset  management fees,  general  operating and
administrative  expenses and depreciation  and amortization  expense relating to
the Company  owning 55  additional  Properties.  In addition,  interest  expense
increased for the quarter and nine months ended  September 30, 2003, as a result
of the Company  increasing the average amount of debt outstanding as compared to
the same period in the prior year,  offset  partially  by a decrease in interest
rates.  The dollar  amount of operating  expenses is expected to increase as the
Company  acquires  additional  Properties,  invests in Mortgage  Loans,  obtains
permanent  financing and draws funds on its revolving  line of credit.  However,
general  and  administrative  expenses as a  percentage  of total  revenues  are
expected to decrease as the Company acquires  additional  Properties and invests
in Mortgage Loans.

         New Accounting Standards

         In January 2003,  the Financial  Accounting  Standards  Board  ("FASB")
issued  FASB  Interpretation  No.  46 ("FIN  46"),  "Consolidation  of  Variable
Interest  Entities," to expand upon and strengthen  existing accounting guidance
that  addresses  when a company  should  include  the  assets,  liabilities  and
activities of another entity in its financial  statements.  To improve financial
reporting by companies  involved with variable  interest entities (more commonly
referred to as special-purpose entities or off-balance sheet structures), FIN 46
requires that a variable  interest  entity be  consolidated by a company if that
company  is  subject  to a  majority  risk of loss  from the  variable  interest
entity's  activities or entitled to receive a majority of the entity's  residual
returns or both. The consolidation

requirements of FIN 46 apply  immediately to variable  interest entities created
after  January 31,  2003,  and as a result of a revision to FIN 46 (FIN 46-R) to
older entities which are non-special  purpose  entities in the first fiscal year
or interim period  beginning  after March 15, 2004. The  consolidation  of these
entities,  if  required,  is not  expected to have a  significant  effect on the
Company's financial position nor results of operations.

         In  May  2003,  the  FASB  issued  Statement  of  Financial  Accounting
Standards No. 150 ("SFAS 150")  "Accounting  for Certain  Financial  Instruments
with  Characteristics  of both  Liabilities  and Equity."  SFAS 150  establishes
standards  for  how  an  issuer   classifies  and  measures  certain   financial
instruments  with  characteristics  of both  liabilities  and  equity.  SFAS 150
requires  issuers to classify certain  financial  instruments as liabilities (or
assets  in some  circumstances)  that  previously  were  classified  as  equity.
Financial  instruments  covered by SFAS 150 include shares that are  mandatorily
redeemable,   and  other  financial  instruments  that  contain  obligations  to
repurchase  outstanding shares or contain  conditional  obligations that require
settlement by issuance of a variable number of that issuer's shares. SFAS 150 is
effective for financial instruments entered into or modified after May 31, 2003,
and  otherwise  is  effective  at the  beginning  of the  first  interim  period
beginning  after  September 15, 2003,  except for the provisions  related to the
mandatorily redeemable  non-controlling interests. On October 29, 2003, the FASB
delayed the effective date of the  implementation  of the provisions that relate
to the mandatorily redeemable  non-controlling  interests.  The Company does not
expect  the  adoption  of this  statement  to have a  significant  impact on the
financial position or results of operations of the Company.

STATEMENT REGARDING FORWARD LOOKING INFORMATION

         The preceding  information contains  forward-looking  statements within
the  meaning of Section  27A of the  Securities  Act of 1933,  as  amended,  and
Section 21E of the Securities Exchange Act of 1934, as amended. These statements
are generally  characterized by the use of terms such as "believe," "expect" and
"may."  Although the Company  believes that the  expectations  reflected in such
forward-looking statements are based upon reasonable assumptions,  the Company's
actual   results   could  differ   materially   from  those  set  forth  in  the
forward-looking  statements.  Certain factors that might cause such a difference
include the following: changes in general economic conditions,  changes in local
and national real estate  conditions,  availability  of capital from  borrowings
under the Company's line of credit,  continued availability of proceeds from the
Company's  current  offering,  the  ability of the  Company to obtain  Permanent
Financing  on  satisfactory  terms,  the  ability of the  Company to continue to
locate suitable  tenants for its Properties and borrowers for its Mortgage Loans
and Secured Equipment  Leases,  and the ability of tenants and borrowers to make
payments under their  respective  leases,  Mortgage  Loans or Secured  Equipment
Leases.  Given these  uncertainties,  readers are  cautioned  not to place undue
reliance on such statements.


                                   MANAGEMENT

DIRECTORS AND EXECUTIVE OFFICERS

         The  following   information  updates  the  corresponding   information
beginning on page 112 of the Prospectus.

         Effective as of August 1, 2003, James M. Seneff,  Jr. resigned as Chief
Executive Officer of the Company and the Advisor.  Mr. Seneff continues to serve
as Chairman of the Board of the Company and the Advisor. In addition,  effective
August 1, 2003,  Thomas J. Hutchison III, who serves as President of the Company
as well as President and director of the Advisor,  was appointed Chief Executive
Officer of the Company and the  Advisor.  In  addition,  effective  September 5,
2003,  James M.  Seneff,  Jr.  resigned  as  co-Chief  Executive  Officer of CNL
Restaurant  Properties,  Inc. (formerly CNL American Properties Fund, Inc.). Mr.
Seneff continues to serve as Chairman of the Board of CNL Restaurant Properties,
Inc.

         Effective  August 1, 2003 and September 9, 2003,  Stuart J. Beebe,  who
serves as Chief Financial Officer of the Company and the Advisor,  was appointed
Executive Vice President of the Company and the Advisor, respectively.

         Effective  September 9, 2003, Phillip M. Anderson,  who serves as Chief
Operating  Officer and Executive  Vice President of the Company as well as Chief
Operating Officer of the Advisor,  was appointed Executive Vice President of the
Advisor.

         The following information should be read in conjunction with
"Management - Directors and Executive Officers" section beginning on page 112 of
the Prospectus.

         Effective July 1, 2003,  Marcel Verbaas was appointed Chief  Investment
Officer of the Company and the Advisor. In addition, effective September 9, 2003
and September 12, 2003, Mr.  Verbaas was appointed  Senior Vice President of the
Advisor and the Company, respectively.

         The following  biography is inserted following the paragraph  beginning
on page 114 of the Prospectus.

         Marcel Verbaas,  age 34, serves as Chief Investment  Officer and Senior
Vice President.  Mr. Verbaas also serves as Chief Investment  Officer and Senior
Vice President of CNL Retirement Corp., the Advisor to the Company.  Mr. Verbaas
previously  served as Senior Vice  President of Structured  Investments  for CNL
Hospitality  Corp. from August 2000 through July 2003.  Prior to joining CNL, he
served  as  director  of  corporate   finance  for  Stormont  Trice  Development
Corporation,  a private hotel development company with substantial  expertise in
public-private  ventures,  from July 1998 to August 2000.  His  responsibilities
included the  negotiation  of all debt and equity  investments  for  development
projects, as well as the analysis of development and acquisition  opportunities.
Mr. Verbaas  acquired  extensive real estate finance  expertise  through various
originations  and  underwriting  positions  with  GE  Capital  Corp.  and  Ocwen
Financial Corp.  During his tenure at Ocwen Financial  Corp., he assisted in the
formation of its affiliated REIT. While he originated, structured and underwrote
transactions  in all types of  commercial  real estate,  Mr.  Verbaas  primarily
focused on providing  financing  in the  hospitality  industry.  A native of The
Netherlands,  Mr. Verbaas received a master's degree in business  economics from
Erasmus University of Rotterdam, The Netherlands.

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

         The  following   paragraph   updates  and  replaces  the  corresponding
paragraph on page 116 of the Prospectus.

         Each  Director is entitled to receive  $12,000  annually for serving on
the Board of  Directors,  as well as fees of $1,000 per  meeting of the Board of
Directors  attended ($500 for each telephonic  meeting of the Board of Directors
in which the Director participates). Each Director is entitled to receive $1,000
(or  $1,500,  in the case of the  Chairman  of the  Audit  Committee)  per Audit
Committee  meeting attended or telephonic  Audit Committee  meeting in which the
Director  participates.  In addition,  each Director is entitled to receive $750
(or $1,000,  in the case of the  chairman of any  committee)  per meeting of any
other committee of the Board of Directors  attended or telephonic meeting of any
such committee in which the Director participates. Directors that are members of
a special  committee  are entitled to receive fees of $1,000 per day for service
as  representatives  of such special committee in lieu of the above compensation
(to the extent that such  Directors  devote in excess of three hours on such day
to  matters  relating  to such  special  committee).  In  addition  to the above
compensation, the Chairman of the Audit Committee shall be entitled to receive a
fee of $1,500 per meeting attended or telephonic  meeting in which such Chairman
participates with the Company's  independent  accountants as a representative of
the Audit  Committee.  The Company will not pay any compensation to the officers
and  Directors  of the Company who also serve as officers  and  directors of the
Advisor.


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS

         The  following  information  should  be read in  conjunction  with  the
"Certain  Relationships and Related  Transactions" section beginning on page 119
of the Prospectus.

         The  Managing  Dealer  is  entitled  to  receive  Selling   Commissions
amounting to 7.5% of the total  amount  raised from the sale of Shares of Common
Stock for services in  connection  with the  offering of Shares.  For the period
January 1, 2003  through  January 5, 2004,  the Company  incurred  approximately
$80.3  million  of such  fees in  connection  with  the 2002  Offering  and this
offering, the majority of which has been or will be paid by CNL Securities Corp.
as commissions to other broker-dealers.

         In  addition,  the  Managing  Dealer is entitled to receive a marketing
support  fee equal to 0.5% of the total  amount  raised  from the sale of Shares
from the 2002 Offering and this offering. For the period January 1, 2003 through
January 5, 2004, the Company incurred approximately $5.4 million of such fees in
connection  with the 2002 Offering and this offering,  the majority of which has
been or will be reallowed to other broker-dealers.

         The  Advisor is entitled to receive  Acquisition  Fees for  services in
identifying  the Properties and  structuring  the terms of the  acquisition  and
leases of the Properties and  structuring  the terms of the Mortgage Loans equal
to 4.5% of Total Proceeds.  During the period January 1, 2003 through January 5,
2004,  the  Company  incurred  approximately  $48.2  million  of  such  fees  in
connection  with the 2002  Offering  and this  offering.  Additionally,  for the
period January 1, 2003 through January 5, 2004, the Company incurred Acquisition
Fees totalling  approximately  $11.3 million as a result of Permanent  Financing
used to acquire certain Properties.

         The Company and the Advisor  have  entered  into an Advisory  Agreement
pursuant  to which the  Advisor  receives  a  monthly  Asset  Management  Fee of
one-twelfth  of  0.60%  of  the  Company's  Real  Estate  Asset  Value  and  the
outstanding  principal  balance  of any  Mortgage  Loans  as of  the  end of the
preceding  month.  The Asset Management Fee, which will not exceed fees that are
competitive for similar  services in the same geographic area, may or may not be
taken,  in  whole  or in part as to any  year,  in the  sole  discretion  of the
Advisor.  All or any  portion  of the Asset  Management  Fee not taken as to any
fiscal year shall be deferred  without  interest  and may be taken in such other
fiscal  year as the  Advisor  shall  determine.  During  the nine  months  ended
September 30, 2003 the Company incurred approximately $2.6 million of such fees.

         The Company incurs  operating  expenses  which,  in general,  are those
expenses relating to administration of the Company on an ongoing basis. Pursuant
to the Advisory Agreement  described above, the Advisor is required to reimburse
the Company the amount by which the total Operating Expenses paid or incurred by
the Company exceed,  in any Expense Year, the greater of 2% of Average  Invested
Assets or 25% of Net Income.  During the Expense Year ended  September 30, 2003,
the Company's Operating Expenses did not exceed the Expense Cap.

         The Advisor and its Affiliates provide various administrative  services
to the Company,  including  services related to accounting;  financial,  tax and
regulatory compliance reporting;  stockholder  distributions and reporting;  due
diligence  and  marketing;  and  investor  relations  (including  administrative
services in connection with the offering of Shares) on a day-to-day  basis.  For
the nine months ended  September 30, 2003,  the Company  incurred  approximately
$4.4  million  for these  services,  approximately  $3.4  million  of such costs
represented  stock  issuance  costs and  approximately  $1  million  represented
general operating and administrative expenses.

         The Company maintains bank accounts in a bank in which certain officers
and Directors of the Company serve as directors and are stockholders. The amount
deposited with this bank was approximately $12.4 million at January 5, 2004.

         In  conjunction  with a loan  related to the  purchase  of the  Sunrise
Portfolio One Properties, the Company engaged Century Capital Markets LLC to act
as its Structuring  Agent.  In connection with this loan, the Structuring  Agent
was paid  structuring  fees equal to 2% of the loan.  Prior to August 18,  2003,
interest  due under the loan was  payable  monthly  and  included a margin of 30
basis points payable to the Structuring  Agent for monthly services  provided by
the Structuring  Agent related to the  administration of the loan. On August 18,
2003, the loan was converted from a commercial  paper loan to a direct loan with
a third party  lender.  The direct loan bears  interest at 30-day LIBOR plus 262
basis points with interest  payable  monthly.  As of January 5, 2004,  the joint
venture had paid the  Structuring  Agent  approximately  $907,000 in structuring
fees and interest. Of this amount, structuring fees totalling $470,400 have been
capitalized as loan costs. CNL Capital Corp., an Affiliate of the Advisor,  is a
non-voting Class C member of Century Capital Markets, LLC.

         On May 30,  2002,  the  Company  acquired a 10%  interest  in a limited
partnership  that owns a building in which the Advisor and its Affiliates  lease
office space. The Company's  equity  investment in the partnership was $300,000.
The remaining interest in the limited partnership is owned by several Affiliates
of the  Advisor.  The  Company  periodically  receives  distributions  from  the
partnership.  During the nine  months  ended  September  30,  2003,  the Company
received  approximately  $89,000  in  distributions  from  the  partnership.  In
connection  with this  acquisition,  the Company has  severally  guaranteed  its
16.67%  share,  or  approximately  $2.6 million,  of a $15.5  million  unsecured
promissory note of the limited partnership that matures November 30, 2004. As of
September 30, 2003, the unsecured  promissory note had an outstanding balance of
approximately  $14.8  million.  The  Company  has not been  required to fund any
amounts under this guarantee.

         In March 2003,  the  Advisor's  parent  company  purchased a 30 percent
voting membership  interest in a limited liability company,  which is affiliated
with eight of the Company's tenants that lease 69 of the 119 Properties that the
Company had  acquired  as of January 5, 2004.  In  addition,  six of these eight
tenants  contributed  34.6 percent of total rental income from operating  leases
and earned income from  investments in direct  financing  leases during the nine
months ended September 30, 2003.

                         PRIOR PERFORMANCE INFORMATION

         The  following   paragraph   updates  and  replaces  the  corresponding
paragraph on page 122 of the Prospectus.

         Mr.  Seneff  and Mr.  Bourne  are  also the  sole  stockholders  of DRR
Partners, Inc., the corporate general partner of a nonpublic real estate limited
partnership organized to invest in a hotel resort in Arizona. As of December 31,
2002,  the  partnership  had raised  $27.5  million from 267  investors  and had
invested approximately $25.1 million in the resort, which opened on November 30,
2002.

         The  following  table  updates  and  replaces  the table and  footnotes
beginning on page 123 of the Prospectus.

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

CNL Income Fund II,        50 fast-food or          AL, AZ, CO, FL, GA,              All cash            Public
Ltd.                       family-style             IL, IN, KS, LA, MI,
                           restaurants              MN, MO, NC, NM, OH,
                                                    TN, TX, WA, WY

CNL Income Fund            40 fast-food or          AL, AZ, CA, CO, FL,              All cash            Public
III, Ltd.                  family-style             GA, IA, IL, IN, KS,
                           restaurants              KY, MD, MI, MN, MO,
                                                    NC, NE, OK, TX

CNL Income Fund IV,        47 fast-food or          AL, DC, FL, GA, IL,              All cash            Public
Ltd.                       family-style             IN, KS, MA, MD, MI,
                           restaurants              MS, NC, OH, PA, TN,
                                                    TX, VA

CNL Income Fund V,         36 fast-food or          AZ, FL, GA, IL, IN,              All cash            Public
Ltd.                       family-style             MI, NH, NY, OH, SC,
                           restaurants              TN, TX, UT, WA

CNL Income Fund VI,        66 fast-food or          AR, AZ, CA, FL, GA,              All cash            Public
Ltd.                       family-style             ID, IL, IN, KS, MA,
                           restaurants              MD, MI, MN, NC, NE,
                                                    NM, NY, OH, OK, PA,
                                                    TN, TX, VA, WA, WY

CNL Income Fund            59 fast-food or          AL, AZ, CO, FL, GA,              All cash            Public
VII, Ltd.                  family-style             IN, LA, MI, MN, NC,
                           restaurants              NE, OH, PA, SC, TN,
                                                    TX, UT, WA

CNL Income Fund            55 fast-food or          AZ, CO, FL, IL, IN,              All cash            Public
VIII, Ltd.                 family-style             LA, MI, MN, NC, NY,
                           restaurants              OH, OR, TN, TX, VA, WI

CNL Income Fund IX,        55 fast-food or          AL, CA, CO, FL, GA,              All cash            Public
Ltd.                       family-style             IL, IN, LA, MD, MI,
                           restaurants              MN, MS, NC, NH, NY,
                                                    OH, SC, TN, TX

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

CNL Income Fund X,         59 fast-food or          AL, AZ, CA, CO, FL,              All cash            Public
Ltd.                       family-style             ID, IL, IN, LA, MI,
                           restaurants              MO, MT, NC, NE, NH,
                                                    NM, NY, OH, PA, SC,
                                                    TN, TX, WA

CNL Income Fund XI,        48 fast-food or          AL, AZ, CA, CO, CT,              All cash            Public
Ltd.                       family-style             FL, KS, LA, MA, MI,
                           restaurants              MS, NC, NH, NM, OH,
                                                    OK, PA, SC, TX, VA, WA

CNL Income Fund            58 fast-food or          AL, AZ, CA, CO, FL,              All cash            Public
XII, Ltd.                  family-style             GA, IA, IN, LA, MO,
                           restaurants              MS, NC, NM, OH, SC,
                                                    TN, TX, WA

CNL Income Fund            53 fast-food or          AL, AR, AZ, CA, CO,              All cash            Public
XIII, Ltd.                 family-style             FL, GA, IN, KS, LA,
                           restaurants              MD, MO, NC, OH, PA,
                                                    SC, TN, TX, VA

CNL Income Fund            71 fast-food or          AL, AZ, CO, FL, GA,              All cash            Public
XIV, Ltd.                  family-style             IL, KS, LA, MN, MO,
                           restaurants              MS, NC, NJ, NV, OH,
                                                    SC, TN, TX, VA

CNL Income Fund XV,        61 fast-food or          AL, CA, FL, GA, KS,              All cash            Public
Ltd.                       family-style             KY, MN, MO, MS, NC,
                           restaurants              NJ, NM, OH, OK, PA,
                                                    SC, TN, TX, VA

CNL Income Fund            54 fast-food or          AZ, CA, CO, DC, FL,              All cash            Public
XVI, Ltd.                  family-style             GA, ID, IN, KS, LA,
                           restaurants              MN, MO, NC, NM, NV,
                                                    OH, PA, TN, TX, UT, WI

CNL Income Fund            39 fast-food,            CA, FL, GA, IL, IN,              All cash            Public
XVII, Ltd.                 family-style or          MD, MI, NC, NE, NV,
                           casual-dining            OH, SC, TN, TX, WA, WI
                           restaurants

CNL Income Fund            30 fast-food,            AZ, CA, CO, FL, GA,              All cash            Public
XVIII, Ltd.                family-style or          IL, KY, MD, MN, NC,
                           casual-dining            NV, NY, OH, PA, TN,
                           restaurants              TX, VA


      Name of                    Type of                                            Method of            Type of
       Entity                   Property                   Location                 Financing            Program
       ------                   --------                   --------                 ---------            -------
CNL Restaurant             1,118 fast-food,         AL, AR, AZ, CA, CO,                (1)             Public REIT
Properties, Inc.           family-style or          CT, DE, FL, GA, IA,
                           casual-dining            ID, IL, IN, KS, KY,
                           restaurants              LA, MD, MI, MN, MO,
                                                    MS, NC, NE, NH, NJ,
                                                    NM, NV, NY, OH, OK,
                                                    OR, PA, RI, SC, TN,
                                                    TX, UT, VA, WA, WI, WV

CNL Hospitality            55 limited               AZ, CA, CO, CT, FL,                (2)             Public REIT
Properties, Inc.           service, extended        GA, HI, KS, MA, MD,
                           stay or full             ME, MI, NC, NJ, NV,
                           service hotels           OR, PA, TX, UT, VA, WA
---------------------

(1)    As of  March  31,  1999,  all of CNL  Restaurant  Properties,  Inc.  (the
       "Restaurant  Properties REIT") net offering proceeds had been invested or
       committed for investment in properties and mortgage loans. Since April 1,
       1999, the Restaurant  Properties REIT has used proceeds from its lines of
       credit and other borrowing to acquire and develop  properties and to fund
       mortgage loans and secured equipment leases.

(2)    As of December 31, 2002,  approximately  42.95% of the assets acquired by
       the  Hospitality  Properties REIT had been funded using debt. The balance
       was acquired using proceeds from the Hospitality Properties REIT's equity
       offerings.


                               DISTRIBUTION POLICY

DISTRIBUTIONS

         The following  information updates and replaces the table and footnotes
on page 129 of the Prospectus.

         The  following   table  presents  total   Distributions   declared  and
Distributions per Share:

                                                             Quarter
                                   ----------------------------------------------------------------
                                      First           Second            Third            Fourth            Year
                                  -------------    ------------    --------------    -------------    --------------
   2003:
   Total Distributions               $8,689,021     $12,030,462       $16,591,206      $22,495,081       $59,805,770
   declared
   Distributions per Share               0.1767          0.1767            0.1767           0.1770            0.7071

   2002:
   Total Distributions               $1,552,403      $2,588,596        $4,096,013       $ 6,142,465      $14,379,477
   declared
   Distributions per Share               0.1749          0.1749            0.1749           0.1755            0.7002

   2001:
   Total Distributions                 $219,887        $247,922          $312,583         $726,930        $1,507,322
   declared
   Distributions per Share               0.1749          0.1749            0.1749           0.1749            0.6996

   2000:
   Total Distributions                  $43,593        $108,932          $160,911         $188,642          $502,078
   declared
   Distributions per Share               0.0750          0.1537            0.1749           0.1749            0.5785

   1999:
   Total Distributions                 (2)              (2)               $16,460          $33,944           $50,404
   declared
   Distributions per Share             (2)              (2)                0.0500           0.0750            0.1250

(1)      In  January  2004,  the  Company   declared   Distributions   totalling
         $8,884,638  (representing $0.0592 per Share) payable by March 31, 2004.
         Distributions for the 12-month period ended December 31, 2003 represent
         an historical return of 7.071%.

(2)      For the period  December 22, 1997 (date of inception)  through July 13,
         1999,  the  Company  did  not  make  any  cash  distributions   because
         operations had not commenced.

(3)      For the nine months ended  September 30, 2003, the years ended December
         31,  2002,  2001 and  2000,  and the  period  July 13,  1999  (the date
         operations  of  the  Company  commenced)  through  December  31,  1999,
         approximately  80%,  65%,  65%,  54%  and  100%,  respectively,  of the
         Distributions  declared and paid were  considered to be ordinary income
         and  approximately  20%,  35%,  35% , 46%  and 0%,  respectively,  were
         considered  a return of capital for  federal  income tax  purposes.  No
         amounts  distributed  to  stockholders  for the periods  presented  are
         required to be or have been treated by the Company as return of capital
         for purposes of  calculating  the  Stockholders'  8% Return on Invested
         Capital.  Due to the fact that the Company had not yet  acquired all of
         its  Properties and was still in the offering stage as of September 30,
         2003,  the  characterization  of  Distributions  for federal income tax
         purposes  is  not   necessarily   considered   by   management   to  be
         representative  of the  characterization  of  Distributions  in  future
         periods.  In  addition,  the  characterization  for federal  income tax
         purposes of Distributions  declared for the nine months ended September
         30, 2003, may not be indicative of the results that may be expected for
         the year ended December 31, 2003.

(4)      Cash distributions are declared by the Board of Directors and generally
         are based on various factors, including cash available from operations.
         For the nine  months  ended  September  30,  2003,  and the years ended
         December 31, 2002, 2001, 2000 and 1999, approximately 0%, 21%, 39%, 55%
         and 100%,  respectively,  of cash  distributions  represent a return of
         capital in accordance with GAAP. Cash distributions treated as a return
         of capital on a GAAP basis  represent the amount of cash  distributions
         in excess of net  earnings on a GAAP basis,  including  deductions  for
         depreciation  expense.  The Company has not treated  such  amounts as a
         return of capital for purposes of calculating  Invested Capital and the
         Stockholders' 8% Return.

(5)      Distributions  declared and paid for the years ended December 31, 2002,
         2001 and 2000,  represent  a  distribution  rate of 7%, 7% and  5.785%,
         respectively, of Invested Capital.

         The  Company  intends to  continue  to make  regular  Distributions  to
stockholders.   Distributions  will  be  made  to  those  stockholders  who  are
stockholders  as of the record  date  selected  by the  Directors.  The Board of
Directors  currently  declares  Distributions on a monthly basis using the first
day of the month as the  record  date.  In order for an  investor  to  receive a
Distribution,  they  must be a  stockholder  of record  as of the  record  date.
Therefore,  newly admitted  investors,  or investors  redeeming or  transferring
Shares,  will not  receive a  Distribution  for a record  date that they are not
considered  a  stockholder  of record.  Currently,  Distributions  are  declared
monthly and paid quarterly, unless a stockholder elects to receive Distributions
monthly,   as  described  below,   during  the  offering  period.  In  addition,
Distributions  are expected to be declared monthly and paid quarterly during any
subsequent offering, and declared and paid quarterly thereafter. However, in the
future,  the Board of  Directors,  in its  discretion,  may determine to declare
Distributions on a another basis during the offering period.


                        FEDERAL INCOME TAX CONSIDERATIONS

TAXATION OF STOCKHOLDERS

         Taxable Domestic Stockholders.

         The following paragraph is inserted following the fifth paragraph under
the heading  "Federal Income Tax  Considerations  -- Taxation of Stockholders --
Taxable Domestic Stockholders" on page 144 of the Prospectus.

         Recently enacted tax legislation lowers the maximum individual tax rate
on capital gains and "qualified  dividend income" to 15%. Capital gains on sales
of Company  Shares by  individuals  and  "capital  gain"  dividends  received by
individuals  will be eligible  for the reduced 15% rate (except to the extent of
the portion of capital gain dividend  attributable to depreciation  recapture on
sales  of real  property  which  will  continue  to be  taxed at a rate of 25%).
Ordinary  dividend  distributions  made  by  the  Company  will  be  treated  as
"qualified  dividend  income" and  eligible for the 15% maximum rate only to the
extent  attributable to taxable income of the Company on which a corporate level
tax has been  imposed,  e.g.  dividend  income  received by the  Company  from a
non-REIT U.S. "C"-corporation  including a TRS, income of the Company subject to
a  "built-in-gains"  tax in the prior taxable year (net of the taxes paid by the
Company on such income), and taxable income retained by the Company in the prior
taxable  year (net of the taxes paid by the Company on such  income).  Generally
the  Company  does not elect to retain  taxable  income in excess of the  amount
required to be distributed for REIT qualification purposes. EXPERTS

         The following paragraph is inserted following the third paragraph under
the heading "Experts" on page 156 of the Prospectus.

         The combined  financial  statements of Marriott  Senior Living Services
Nine  Communities at January 3, 2003,  December 28, 2001, and December 29, 2000,
and for each of the three  fiscal  years in the  period  ended  January 3, 2003,
included in this  Prospectus  Supplement  and  Registration  Statement have been
audited by Ernst & Young LLP, independent auditors, as set forth in their report
thereon  appearing  elsewhere  herein,  and are  included in reliance  upon such
report  given  on the  authority  of  such  firm  as  experts  in  auditing  and
accounting.

         The combined  financial  statements of Sunrise  Senior Living  Services
Fourteen Communities at December 31, 2002 and for the year then ended,  included
in this Prospectus  Supplement and  Registration  Statement have been audited by
Ernst & Young, LLP, independent  auditors,  as set forth in their report thereon
appearing  elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in auditing and accounting.

         The  combined  financial  statements  of Sunrise  Senior  Living,  Inc.
Sixteen  Communities at December 31, 2002 and for the year then ended,  included
in this Prospectus  Supplement and  Registration  Statement have been audited by
Ernst & Young LLP,  independent  auditors,  as set forth in their report thereon
appearing  elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in auditing and accounting.

         The  consolidated   financial  statements  of  EdenCare  Senior  Living
Services,  L.P.  at December  31, 2002 and for the year then ended,  included in
this Prospectus Supplement and Registration Statement have been audited by Ernst
& Young  LLP,  independent  auditors,  as set  forth  in  their  report  thereon
appearing  elsewhere herein, and are included in reliance upon such report given
on the authority of such firm as experts in auditing and accounting.

         The combined  financial  statements  of Horizon Bay Senior  Communities
Twenty  Communities  as of December 31, 2002 and 2001 and for each of the
three years in the period ended December 31, 2002  included in this  Prospectus
Supplement have been so included in reliance on the
reports of PricewaterhouseCoopers LLP, independent certified public accountants,
given on the authority of said firm as experts in auditing and accounting.

INDEX TO FINANCIAL STATEMENTS

CNL RETIREMENT PROPERTIES, INC.

	Page
Pro Forma Consolidated Financial Information (unaudited):
Pro Forma Consolidated Balance Sheet as of September 30, 2003	F-2
Pro Forma Consolidated Statement of Earnings for the nine months ended September 30, 2003	F-3
Pro Forma Consolidated Statement of Earnings for the year ended December 31, 2002	F-4
Notes to Pro Forma Consolidated Financial Statements for the nine months ended September 30,
2003 and the year ended December 31, 2002	F-5
Interim Unaudited Condensed Consolidated Financial Statements as recently filed in
CNL Retirement Properties, Inc.'s September 30, 2003 Form 10-Q:
Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002	F-12
Condensed Consolidated Statements of Earnings for the quarters and nine months ended
September 30, 2003 and 2002	F-13
Condensed Consolidated Statements of Stockholders' Equity for the ninex months ended
September 30, 2003 and the year ended December 31, 2002	F-14
Condensed Consolidated Statements of Cash Flows for the nine months ended September 30,
2003 and 2002	F-15
Notes to Condensed Consolidated Financial Statements for the nine months ended
September 30, 2003 and 2002	F-16

                                             PRO FORMA CONSOLIDATED FINANCIAL INFORMATION

The following Unaudited Pro Forma Consolidated  Balance Sheet of CNL Retirement  Properties,  Inc. and its subsidiaries (the "Company")
gives effect to (i) the receipt of  $363,473,000  in gross  offering  proceeds  from the sale of 36,347,300  additional  shares for the
period  October 1, 2003  through  January 5,  2004,  the  accrual of related  offering  expenses,  acquisition  fees and  miscellaneous
acquisition  expenses,  borrowings of $405,993,000 under mortgage notes payable and (ii) the application of such funds and cash on hand
as of September 30, 2003, to purchase 50  Properties,  all as reflected in the pro forma  adjustments  described in the related  notes.
The Unaudited Pro Forma  Consolidated  Balance Sheet as of September 30, 2003, has been adjusted to give effect to the  transactions in
(i) and (ii) above as if they had occurred on September 30, 2003.

The Unaudited Pro Forma  Consolidated  Statements of Earnings for the nine months ended  September 30, 2003 and the year ended December
31, 2002,  include the historical  operating results of the Properties  described in (ii) above, as well as 92 properties  purchased by
the Company prior to September 30, 2003, from the date of their  acquisition (or for the pending  acquisition,  from the date it became
probable of being  acquired)  plus  operating  results  from (A) the later of (i) the date the  Properties  became  operational  by the
previous  owners or (ii)  January 1, 2002,  to (B) the  earlier of (i) the date the  Properties  were  acquired  by (or for the pending
acquisition,  became  probable of being  acquired  by) the Company or (ii) the end of the pro forma  period  presented  (the "Pro Forma
Period").

This pro forma consolidated  financial  information is presented for informational  purposes only and does not purport to be indicative
of the Company's  financial  results or condition if the various events and transactions  reflected herein had occurred on the dates or
been in effect during the periods indicated.  This pro forma consolidated  financial  information should not be viewed as indicative of
the Company's financial results or conditions in the future.




                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                            UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                                          SEPTEMBER 30, 2003
                                                 (in thousands, except per share data)

                                                                                     Pro Forma
                          ASSETS                               Historical           Adjustments               Pro Forma
                                                             ----------------     ----------------          ---------------
Investment Properties:

    Accounted for using the operating method, net                    $ 872,128          $ 813,627     (b)         $1,685,755
    Accounted for using the direct financing method (e)                395,632             20,740     (b)            416,372
Cash and cash equivalents                                               49,848            363,473     (a)              2,092
                                                                                         (485,485  )  (b)
                                                                                            1,477     (d)
                                                                                           72,779     (f)
Restricted cash                                                         12,314                  -                     12,314
Notes and other receivables                                             10,195                  -                     10,195
Investment in unconsolidated subsidiary                                     86                  -                         86
Loan costs, net                                                          4,057              3,798     (b)              9,721
                                                                                            1,866     (f)
Lease intangible costs, net (c)                                         21,181             24,111     (c)             45,292
Accrued rental income                                                    6,764                  -                      6,764
Other assets                                                             7,092             16,356     (a)              3,322
                                                                                           21,958     (b)
                                                                                          (45,443  )  (b)
                                                                                            3,359     (f)
                                                                     ---------          ---------                  ---------
                                                                    $1,379,297          $ 812,616                 $2,191,913
                                                                     =========          =========                  =========

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
    Mortgages payable                                                 $223,382          $ 331,348     (b)            629,375
                                                                                           74,645     (f)
    Bonds payable                                                       90,631                  -                     90,631
    Line of credit                                                      20,000                  -                     20,000
    Due to related parties                                               1,325             45,434     (a)             65,029
                                                                                           14,911     (b)
                                                                                            3,359     (f)
    Accounts payable and accrued expenses                                4,625              7,047     (b)             11,672
    Security deposits                                                    7,977              1,477     (d)              9,454
                                                                     ---------          ---------                  ---------
           Total liabilities                                           347,940            478,221                    826,161
                                                                     ---------          ---------                  ---------

Stockholders' equity:
    Preferred stock, without par value.
       Authorized and unissued 3,000 shares                                  -
    Excess shares, $0.01 par value per share.
       Authorized and unissued 103,000 shares                                -
    Common stock, $0.01 par value per share.
       Authorized 450,000 shares; issued 115,294 and
       outstanding 115,174 shares; issued 151,641 and
       outstanding 151,521 shares, as adjusted                           1,152                363     (a)              1,515
    Capital in excess of par value                                   1,034,240            363,110     (a)          1,368,272
                                                                                          (29,078  )  (a)
    Accumulated distributions in excess of net earnings                 (4,035)                 -                     (4,035)
                                                                     ---------          ---------                  ---------
           Total stockholders' equity                                1,031,357            334,395                  1,365,752
                                                                     ---------          ---------                  ---------
                                                                    $1,379,297           $812,616                 $2,191,913
                                                                     =========          =========                  =========

                           See accompanying notes to unaudited pro forma consolidated financial statements.


                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                        UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
                                                 NINE MONTHS ENDED SEPTEMBER 30, 2003
                                                 (in thousands, except per share data)

                                                                                   Pro Forma
                                                          Historical              Adjustments              Pro Forma
                                                        ---------------          --------------          --------------

Revenues:
    Rental income from operating leases                        $36,973                 $92,773     (1)        $129,746
    Earned income from direct financing leases (2)              19,623                  20,150     (1)          39,773
    Contingent rent                                                 45                       -                      45
    FF&E reserve income                                      1,468                   3,211     (3)           4,679
    Interest and other income                                    1,111                  (1,060 )   (4)              51
                                                        ---------------          --------------          --------------
                                                                59,220                 115,074                 174,294
                                                        ---------------          --------------          --------------
Expenses:
    Interest                                                     5,245                  19,619     (5)          24,864
    General operating and administrative                         3,531                       -                   3,531
    Property expenses                                               26                       -                      26
    Asset management fees to related party                       2,626                   6,008     (6)           8,634
    Depreciation and amortization                               10,589                  23,928     (7)          34,517
                                                        ---------------          --------------          --------------
                                                                22,017                  49,555                  71,572
                                                        ---------------          --------------          --------------

Earnings Before Equity in Earnings of
    Unconsolidated Subsidiary                                   37,203                  65,519                 102,722

Equity in Earnings of Unconsolidated Subsidiary                     28                       -                      28
                                                        ---------------          --------------          --------------

Net Earnings                                                   $37,231                 $65,519                $102,750
                                                        ===============          ==============          ==============

Net Earnings Per Share of Common Stock
    (Basic and Diluted) (9)                                    $  0.50                                           $0.69
                                                        ===============                                  ==============

Weighted Average Number of Shares of Common
    Stock Outstanding (Basic and Diluted) (9)                   74,175                                         149,601
                                                        ===============                                  ==============




                           See accompanying notes to unaudited pro forma consolidated financial statements.


                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                        UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
                                                     YEAR ENDED DECEMBER 31, 2002
                                                 (in thousands, except per share data)

                                                                                Pro Forma
                                                        Historical             Adjustments              Pro Forma
                                                       -------------          ---------------         --------------

Revenues:
     Rental income from operating leases                    $13,258                 $161,336    (1)        $174,594
     Earned income from direct financing leases (2)           3,520                   47,267    (1)          50,787
     Contingent rent                                              8                        -                      8
     FF&E reserve income                                    153                    5,429    (3)           5,582
     Interest and other income                                1,913                   (1,722 )  (4)             191
                                                       -------------          ---------------         --------------
                                                             18,852                  212,310                231,162
                                                       -------------          ---------------         --------------
Expenses:
     Interest                                                 1,409                   32,628    (5)          34,037
     General operating and administrative                     1,389                        -                  1,389
     Property expenses                                           23                        -                     23
     Asset management fees to related party                     771                   10,214    (6)          10,985
     Depreciation and amortization                            3,461                   42,350    (7)          45,811
                                                       -------------          ---------------         --------------
                                                              7,053                   85,192                 92,245
                                                       -------------          ---------------         --------------

Earnings Before Equity in Earnings of
     Unconsolidated Subsidiary and Minority Interest
     in Earnings of Consolidated Joint Ventures              11,799                  127,118                138,917

Equity in Earnings of Unconsolidated Subsidiary                   5                        -                      5

Minority Interest in Earnings of Consolidated
     Joint Ventures                                            (433 )                    433    (8)               -
                                                       -------------          ---------------         --------------

Net Earnings                                                $11,371                 $127,551               $138,922
                                                       =============          ===============         ==============

Net Earnings Per Share of Common
     Stock (Basic and Diluted) (9)                          $  0.52                                          $  .93
                                                       =============                                  ==============


Weighted Average Number of Shares of Common
     Stock Outstanding (Basic and Diluted) (9)               22,035                                         149,594
                                                       =============                                  ==============

                           See accompanying notes to unaudited pro forma consolidated financial statements.


                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Balance Sheet:

(a)      Represents  gross  proceeds of $363,473 from the sale of 36,347 shares  during the period  October 1, 2003 through  January 5,
         2004, and the accrual of $45,434 for (i) related  acquisition  fees of $16,356 (4.5% of gross proceeds) which are reflected in
         other assets,  (ii) selling  commissions of $27,261 (7.5% of gross proceeds) and (iii) marketing  support fees of $1,817 (0.5%
         of gross proceeds) which have been netted against stockholders' equity.

(b)      Represents  the use of $485,485 of cash and cash  equivalents  and  borrowings of $331,348 under mortgage notes payable (i) to
         purchase 50 properties for $813,035,  and (ii) to pay loan costs of $3,798,  and the accrual of acquisition  fees on permanent
         financing  (4.5% of permanent  financing) of $14,911 and $7,047 in  miscellaneous  acquisition  costs  incurred in conjunction
         with the purchase of the properties.  Also represents the  reclassification of $45,443 in miscellaneous  acquisition costs and
         acquisition  fees to  properties  subject  to  operating  leases  and lease  intangible  costs  (see Note (c)  below)  and the
         reclassification  of $1,040 in  miscellaneous  acquisition  costs and acquisition  fees to net investment in direct  financing
         leases.

                                                                                      Acquisition
                                                                                       Fees and
                                                                                        Closing
                                                                                         Costs
                                                                                     Allocated to          Total
                                                                 Purchase Price       Investment
                                                                 ---------------     --------------     -------------

       Dogwood Forest of Dunwoody in Dunwoody, GA                       $ 5,500              $ 456           $ 5,956
       EdenCare Portfolio One Properties                                 27,000              1,778            28,778
       EdenCare Portfolio Two Properties                                171,755             10,147           181,902
       Sunrise of Santa Rosa in Santa Rosa, CA                            9,280                538             9,818
       Horizon Bay Portfolio One Properties                             562,000             30,130           592,130
       Courtyard Manor Portfolio One Properties                          17,800              1,354            19,154
                                                                 ---------------     --------------     -------------
            Properties subject to operating leases                      793,335             44,403           837,738
                                                                 ---------------     --------------     -------------


       Linden Ponds Continuing Care Retirement Community in
           Hingham, MA                                                   19,700              1,040            20,740
                                                                 ---------------     --------------     -------------
            Investment in direct financing leases                        19,700              1,040            20,740
                                                                 ---------------     --------------     -------------

                                                                      $ 813,035          $ 45,443          $858,478
                                                                      =========          ========          ========

(c)      The Company allocates the amount associated with having an in-place lease at the date of acquisition to a lease intangible
         asset that is amortized on a straight-line basis over the initial term of the lease (generally 15 years).

(d)      Represents a security deposit in the amount of $1,477 received from the lessee in conjunction with the acquisition of the
         Linden Ponds Continuing Care Retirement Community.

(e)      In accordance with generally accepted accounting principles, leases in which the present value of future minimum lease
         payments equals or exceeds 90 percent of the value of the related properties are treated as direct financing leases rather
         than as properties on operating leases.  The direct financing leases have initial terms ranging from 10 to 35 years and
         certain leases contain provisions that allow the lessees to elect to purchase the properties during or at the end of the
         lease term for amounts based on the Company's initial investment amount.  Certain leases also permit the Company to require
         the lessees to purchase the properties at the end of the lease term for the Company's initial investment amount.  The
         categorization of the leases has no effect on the rental payments due under the leases.


                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statements of Balance Sheet - Continued:

(f)      In connection with Sunrise  Portfolio Four  Properties,  the Company has entered into an initial  commitment with a commercial
         lender for a $74,645  mortgage loan  collateralized  by the 12  Properties.  The loan will have a term of seven years and will
         bear  interest at a rate of 5.96% per annum.  The loan will require  monthly  interest  only payments for the first 24 months,
         with monthly  payments of principal and interest due thereafter  until  maturity.  The Company  expects to incur loan costs of
         $1,866, which would be deducted from the loan proceeds, and acquisition fees on permanent financing of $3,359.

Unaudited Pro Forma Consolidated Statements of Earnings:

(1)      Represents  adjustment to rental income from the operating  leases and earned income from the direct  financing leases for the
         properties  acquired,  and for the  pending  acquisition  expected  to be  acquired,  by the  Company  as of  January  5, 2004
         (collectively, the "Pro Forma Property'' or "Pro Forma Properties'') for the Pro Forma Period.

         The following  presents the actual date the Pro Forma  Properties were acquired or made probable by the Company as compared to
         January 1, 2002, the date the Pro Forma  Properties were treated as becoming  operational as a rental property for purposes of
         the Pro Forma Consolidated Statement of Earnings as well as the related adjustments for the Pro Forma Periods.
                                                                                                                  Pro Forma
                                                                                              Pro Forma        Adjustment for
                                                                                            Adjustment for     the Nine Months
                                                                                            the Year Ended          Ended
                                                Date Acquired/Probable      Purchase         December 31,       September 30,
                                                    by the Company            Price              2002               2003
                                               -------------------------    -----------    ---------------    ----------------
Properties subject to operating leases:
Acquired:
Holley Court Terrace in Oak Park, IL           February 11, 2002               $18,469               $  238              $    -
Homewood Residence in Coconut Creek, FL        February 11, 2002                 9,688                  110                   -
Heritage Club in Greenwood Village, CO         March 22, 2002                   17,865                  496                   -
Marriott Portfolio One Properties (a)          May 16 & 17, 2002                58,800                2,217                   -
Homewood Residence in Nashville, TN            November 1, 2002                  8,958                  882                   -
Marriott Portfolio Two Properties              December 20, 2002                89,359               10,051                   -
Summit Portfolio Properties                    March 27, 2003                   52,000                6,152               1,455
Additional Marriott Portfolio Two Properties
                                               March 28, 2003                  254,575               20,562               4,759
Brighton Gardens of Saddle River, NJ           March 31, 2003                   12,750                1,639                 405
Balmoral Assisted Living Community in Palm
    Harbor, FL                                 July 8, 2003                     12,175                1,213                 629
ARC Somerby Portfolio Properties               August 25, 2003                  73,260                8,771               5,683
GreenTree Portfolio Properties                 September 5 & 11, 2003           22,956                3,019               2,046
Sunrise Portfolio Four Properties              September 30, 2003              149,277               13,605               9,800
Additional Sunrise Portfolio Four Properties   September 30, 2003               29,552                    -                   -
Dogwood Forest of Dunwoody in Dunwoody, GA     November 25, 2003                 5,500                  757                 568
EdenCare Portfolio One Properties              November 25, 2003                27,000                3,595               2,697
EdenCare Portfolio Two Properties              November 25, 2003               171,755               21,557              16,167
Probable:
Sunrise of Santa Rosa in Santa Rosa, CA        September 16, 2003                9,280                  814                 610
Horizon Bay Portfolio One Properties           January 5, 2004                 562,000               63,469              46,312
Courtyard Manor Portfolio One Properties       January 5, 2004                  17,800                2,189               1,642
                                                                            -----------    ---------------    ----------------
                                                                            $ 1,603,019           $ 161,336            $ 92,773
                                                                            ===========    ===============    ================





                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                             FOR NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statements of Earnings - Continued:

                                                                                                                  Pro Forma
                                                                                              Pro Forma        Adjustment for
                                                                                            Adjustment for     the Nine Months
                                                                                            the Year Ended          Ended
                                                Date Acquired/Probable by     Purchase       December 31,       September 30,
                                                      the Company              Price             2002                2003
                                               -------------------------     -----------    --------------     ---------------
Investment in direct financing leases:
Acquired:
Prime Care Portfolio Properties                September 30, 2002              $105,250            $ 10,561               $   -
Brooksby Village in Peabody, MA                October 10, 2002                  17,384               2,237                   -
Fox Run Village in Novi, MI                    February 28, 2003                 17,000               2,566                 420
Prime Care Portfolio Two Properties            March 31, 2003                    22,635               2,934                 744
Ann's Choice Continuing Care Retirement
    Community in Warminster, PA                June 2, 2003                      19,500               3,122               1,338
Sunrise Portfolio Three Properties             August 29, 2003                  184,500              22,810              15,401
Linden Ponds Continuing Care Retirement
    Community in Hingham, MA                   December 1, 2003                  19,700               3,037               2,247
                                                                             -----------    --------------     ---------------
                                                                               $385,969            $ 47,267            $ 20,150
                                                                             ===========    ==============     ===============

         (a) Prior to December 20, 2002,  the Marriott  Portfolio One  Properties  were owned through a  consolidated  joint venture (the
         "Joint  Venture")  in which the Company  owned a 76.75  percent  interest.  On December 20, 2002,  the Company  purchased  the
         remaining 23.25 percent minority interest for $8,500.  See Note (8).

         The adjustment to rental income from operating  leases for the year ended December 31, 2002,  includes  $2,217 relating to the
         Marriott  Portfolio One  Properties.  If the operating cash flows of the Marriott  Portfolio One Properties are not sufficient
         to fund rental payments due under the lease agreements,  amounts are required to be funded by Marriott International,  Inc. or
         its  subsidiaries  under the terms of a limited  rental  payment  guarantee  arrangement.  The pro forma  adjustment to rental
         income from operating  leases for the year ended December 31, 2002,  includes  assumed  funding amounts under the guarantee of
         $1,381 based on the actual  historical  operating  cash flows of the Marriott  Portfolio One  Properties  during the Pro Forma
         Periods.

         Certain leases provide for the payment of percentage rent in addition to base rental income;  however,  no percentage rent was
         due under the  leases for the Pro Forma  Properties  during the  period  the  Company  was  assumed to have held the Pro Forma
         Properties.

(2)      See Note (e) under "Unaudited Pro Forma Consolidated Balance Sheet" above.

(3)      Represents  adjustments  to reserve  funds,  which will be used for the  replacement  and renewal of  furniture,  fixtures and
         equipment  relating to certain  Properties  (the "FF&E  Reserve").  The funds in the FF&E Reserve and all  property  purchased
         with funds from the FF&E Reserve will be paid, granted and assigned to the Company.

(4)      Represents  adjustment  to interest  income due to the decrease in the amount of cash  available  for  investment  in interest
         bearing  accounts  after the  purchase  of the Pro Forma  Properties.  The pro forma  adjustment  is based  upon the fact that
         interest  income from interest  bearing  accounts was earned at a rate of  approximately  two percent per annum by the Company
         during the nine months ended September 30, 2003 and the year ended December 31, 2002.



                                                      CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                           FOR THE NINE MONTHS ENDED SEPTEMBER 30, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statements of Earnings - Continued:

(5)      Represents adjustment to interest expense for mortgage loans for the Pro Forma Period based on the following terms:

                                                                                      Pro Forma
                                                                                     Adjustment         Pro Forma
                                                                                    for the Year       Adjustment for
                                                                                        Ended         the Nine Months
                                  Mortgage                                          December 31,      Ended September
                                     Loan                Interest Rate                  2002              30, 2003
                                  -----------     -----------------------------     --------------    -----------------
     Holley Court Terrace in         $12,974      Floating at 350 basis                $    90           $        -
     Oak Park, IL, maturing                       points over the 30-day
     October 2003                                 LIBOR, with a LIBOR floor
                                                  of 3.50.  If 30-day LIBOR
                                                  falls below 2.60, interest
                                                  rate will be 30-day LIBOR
                                                  plus 440 basis points.
                                                  During the Pro Forma
                                                  Period, the interest rate
                                                  varied from 6.23% to 6.28%.

     Marriott                         23,520      Floating at 186 basis                    381                    -
     Portfolio One                                points over the rate of
     Properties maturing                          commercial paper graded A1
     June 2007                                    by Standard & Poors or F1
                                                  by Fitch IBCA.  During the
                                                  Pro Forma Period, the
                                                  interest rate varied from
                                                  2.63% to 3.81%.

     Heritage Club in                  9,100      6.50%, with principal and                386                    -
     Greenwood Village, CO,                       interest payable monthly.
     maturing December 2006

     Prime Care Portfolio             20,635      7.83%, with principal and              1,413                  359
     Two Properties maturing                      interest payable monthly.
     October 2008

     Revolving line of                20,000      Floating at 250 basis                    859                  159
     credit secured by Prime                      points over the 30-day
     Care Portfolio                               LIBOR.  During the Pro
     Properties, maturing                         Forma Period, the interest
     March 2005                                   rate varied from 3.88% to
                                                  4.38%.

     Summit Portfolio                 26,000      Floating at 325 basis                  1,308                  318
     Properties, maturing                         points over the 30-day
     March 2005                                   LIBOR with a minimum
                                                  interest rate of 5% and
                                                  principal and interest
                                                  payable monthly.  During
                                                  the Pro Forma Period, the
                                                  interest rate varied from
                                                  5.0% to 5.13%.



                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                             FOR THE NINE MONTHS ENDED SEPTEMBER, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:

                                                                                      Pro Forma          Pro Forma
                                                                                     Adjustment        Adjustment for
                                                                                    for the Year      the Nine Months
                                                                                        Ended         Ended September
                                  Mortgage                                          December 31,          30, 2003
                                     Loan                Interest Rate                  2002
                                  -----------     -----------------------------     --------------    -----------------
     ARC Somerby Portfolio           $50,400      5.79% with principal and                  $2,655        $ 1,848
     Properties, maturing                         interest payable monthly.
     June 2013

     Sunrise Portfolio Three          92,500      5.13% the first year, 5.38%                5,180          3,406
     Properties, maturing                         the second year, 6.06% the
     July 2010                                    third year with 3%
                                                  increases to the per annum
                                                  rate each calendar year
                                                  thereafter to a maximum of
                                                  7.25% (effective rate of
                                                  interest is 5.60%) to
                                                  maturity.  Monthly interest
                                                  only payments through 2005
                                                  with principal and interest
                                                  payable monthly for the
                                                  remaining term of the loan.

     Sunrise Portfolio Four           79,285      Fixed interest rate of                     4,725          3,544
     Properties and the                           5.96%.  Monthly interest
     Santa Rosa Property,                         only payments for first two
     maturing seven years                         years with principal and
     from funding date                            interest payable monthly
                                                  for the remaining term of
                                                  the loan.

     EdenCare Portfolio Two           45,000      Floating at 260 to 300                     1,996          1,295
     Properties, maturing                         basis points over the
     November 2006                                30-day LIBOR rate.  During
                                                  the Pro Forma Period, the
                                                  interest rate varied from
                                                  3.70% to 4.88%.

     EdenCare Portfolio Two            2,445      8.375%, with principal and                   204            152
     Properties, maturing                         interest payable monthly.
     November 2038

     EdenCare Portfolio Two            4,685      8.25%, with principal and                    386            288
     Properties, maturing                         interest payable monthly.
     March 2038

     Horizon Bay Portfolio           110,445      Floating at 90 basis points                2,933          1,760
     One Properties,                              over the 30-day LIBOR and
     maturing November 2005                       interest only payable
                                                  monthly.  During the Pro
                                                  Forma Period, the interest
                                                  rate varied from 2.0% to
                                                  2.78%.


                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                             FOR THE NINE MONTHS ENDED SEPTEMBER, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:

                                                                                      Pro Forma
                                                                                     Adjustment          Pro Forma
                                                                                    for the Year       Adjustment for
                                  Mortgage                                              Ended         the Nine Months
                                     Loan                Interest Rate              December 31,      Ended September
                                                                                        2002              30, 2003
                                  -----------     -----------------------------     --------------    -----------------

     Horizon Bay Portfolio           $82,235      Floating at 104 basis                    $ 2,299       $  1,397
     One Properties,                              points over the 30-day
     maturing May 2008                            LIBOR and interest only
                                                  payable monthly.  During
                                                  the Pro Forma Period, the
                                                  interest rate varied from
                                                  2.14% to 2.92%.

     Horizon Bay Portfolio            38,340      Floating at 370 basis                      2,281          1,710
     One Properties,                              points over the 30-day
     maturing May 2008                            LIBOR with a minimum
                                                  interest rate of 5.95%.
                                                  Monthly interest only
                                                  payments through July 2004
                                                  with principal and interest
                                                  payable monthly for the
                                                  remaining term of the
                                                  loan.  During the Pro Forma
                                                  Period, the interest rate
                                                  was 5.95%.

     Horizon Bay Portfolio            33,187      8.17 % with principal and                  2,691          1,987
     One Properties,                              interest payable monthly.
     maturing April 2008

     Horizon Bay Portfolio            10,370      Floating at 370 basis                        617            460
     One Properties,                              points over the 30-day
     maturing May 2008                            LIBOR with a minimum
                                                  interest rate of 5.95%.
                                                  Monthly interest only
                                                  payments through January
                                                  2005 with principal and
                                                  interest payable monthly
                                                  for the remaining term of
                                                  the loan.  During the Pro
                                                  Forma Period, the interest
                                                  rate was 5.95%.

                                                                                    --------------    -----------------
                                                                                           $30,404        $18,683
                                                                                    ==============    =================

         In addition,  loan cost  amortization  was $936 and $2,224 for the nine months ended  September  30, 2003,  and the year ended
         December 31, 2002,  respectively.  Loan costs are amortized using the straight line method (which  approximates  the effective
         interest method) over the life of the loan.

         If the interest  rates on variable rate loans would have  increased by 0.125% during the Pro Forma  Period,  interest  expense
         would have  increased  by $347 and $619 for the nine months  ended  September  30, 2003 and the year ended  December 31, 2002,
         respectively.




                                                    CNL RETIREMENT PROPERTIES, INC.
                                                           AND SUBSIDIARIES
                                               NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                                                         FINANCIAL STATEMENTS
                                             FOR THE NINE MONTHS ENDED SEPTEMBER, 2003 AND
                                THE YEAR ENDED December 31, 2002 (in thousands, except per share data)

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:

(6)      Represents  increase  in  asset  management  fees  relating  to the Pro  Forma  Properties  for the Pro  Forma  Period.  Asset
         management fees are equal to 0.60% per year of the Company's Real Estate Asset Value as defined in the Company's prospectus.

(7)      Represents  increase in depreciation  expense of the buildings and the furniture,  fixture and equipment  ("FF&E") portions of
         the Pro Forma  Properties  accounted  for as operating  leases using the  straight-line  method of $22,268 and $39,361 for the
         nine months  ended  September  30,  2003,  and the year ended  December 31, 2002,  respectively.  The  buildings  and FF&E are
         depreciated  over useful lives of 40 and seven years,  respectively.  Also represents  amortization of lease  intangible costs
         of $1,660 and $2,989 for the nine  months  ended  September  30,  2003 and the year ended  December  31,  2002,  respectively,
         related  to the  amounts  associated  with  having  in-place  leases  at the date of each  Property's  acquisition  to a lease
         intangible asset that is amortized on a straight-line basis over the initial term of the lease (generally 15 years).

         The following presents the amount of land,  building and FF&E for each of the Pro Forma Properties  accounted for as operating
         leases:

                                                                       Land          Building      FF&E
                                                                     ----------     -----------    ---------
                Holley Court Terrace in Oak Park, IL                    $2,144        $ 16,302        $ 447
                Homewood Residence in Coconut Creek, FL                  1,683           7,634          559
                Heritage Club in Greenwood Village, CO                   1,965          17,263          942
                Marriott Portfolio One Properties                        6,022          52,944        1,530
                Homewood Residence in Nashville, TN                        464           8,020          631
                Marriott Portfolio Two Properties                       16,201          71,761        4,714
                Additional Marriott Portfolio Two Properties            50,817         200,815        9,410
                Summit Portfolio Properties                              3,230          50,210        1,085
                Brighton Gardens in Saddle River, NJ                     2,156          10,458          511
                Balmoral Assisted Living Community in Palm Harbor, FL    1,002          11,134          376
                ARC Somerby Portfolio Properties                         3,404          68,946        3,199
                GreenTree Portfolio Properties                           1,298          21,824          380
                Sunrise Portfolio Four Properties                       16,755         130,456        7,546
                Additional Sunrise Portfolio Four Properties            10,057               -            -
                Sunrise of Santa Rosa in Santa Rosa, CA                  2,508           6,738          345
                Dogwood Forest of Dunwoody in Dunwoody, GA                 855           4,884            -
                EdenCare Portfolio One Properties                        2,216          24,616          953
                EdenCare Portfolio Two Properties                       10,982         158,187        6,854
                Horizon Bay Portfolio One Properties                    38,784         530,914        6,329
                Courtyard Manor Portfolio One Properties                 2,852          15,212          398

(8)      Represents  adjustment  to minority  interest for the purchase of the 23.25  percent  minority  interest in a Joint Venture in
         which the Company initially owned a 76.75% interest.

(9)      Historical  earnings per share were calculated  based upon the weighted  average number of shares of common stock  outstanding
         during the nine  months  ended  September  30,  2003 and the year ended  December  31,  2002.  As a result of receipt of gross
         proceeds  from the sale of shares during the period  October 1, 2003 through  January 5, 2004, as described in Note (a) above,
         which were  available  to acquire the Pro Forma  Properties  described  in Note (b) above,  pro forma  earnings per share were
         calculated based upon the weighted average number of shares of common stock  outstanding,  as adjusted for the subsequent sale
         of shares,  during the nine months ended September 30, 2003 and the year ended  December 31,  2002 needed to fund the purchase
         of the Pro Forma Properties.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED BALANCE SHEETS
(UNAUDITED)
(in thousands)

	September 30,		December 31,
ASSETS	2003		2002
Investment properties:
Accounted for using the operating method, net	$    872,128		$ 247,241
Accounted for using the direct financing method	395,632		134,382
Cash and cash equivalents	49,848		40,800
Restricted cash	12,314		1,685
Notes and other receivables	10,195		3,192
Investment in unconsolidated subsidiary	86		154
Loan costs, less accumulated amortization of $941 and $89	4,057		1,220
Lease intangible costs, less accumulated amortization of $917 and $273	21,181		6,898
Accrued rental income	6,764		1,218
Other assets	7,092		4,975
	$ 1,379,297		$ 441,765
LIABILITIES AND STOCKHOLDERS' EQUITY
Liabilities:
Mortgages payable	$    223,382		$   45,327
Bonds payable	90,631		—
Line of credit	20,000		—
Due to related parties	1,325		348
Accounts payable and accrued expenses	4,625		1,337
Security deposits	7,977		4,867
Rent paid in advance	—		91
Total liabilities	347,940		51,970
Commitments and contingencies (Note 8)
Stockholders' equity:
Preferred stock, without par value
Authorized and unissued 3,000 shares	—		—
Excess shares, $.01 par value per share
Authorized and unissued 103,000 shares	—		—
Common stock, $.01 par value per share
Authorized 450,000 and 100,000 shares, respectively,
issued 115,294 and 44,255 shares, respectively,
outstanding 115,174 and 44,211 shares, respectively	1,152		442
Capital in excess of par value	1,034,240		393,308
Accumulated distributions in excess of net earnings	(4,035	)	(3,955	)
Total stockholders' equity	1,031,357		389,795
	$ 1,379,297		$ 441,765

        See accompanying notes to condensed consolidated financial statements.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF EARNINGS
(UNAUDITED)
(in thousands, except per share data)

	Quarter			Nine Months
	Ended September 30,			Ended September 30,
	2003	2002		2003	2002
Revenues:
Rental income from operating leases	$15,587	$   3,814		$36,973	$   8,192
Earned income from direct financing leases	8,854	39		19,623	39
Interest income from mortgage loan receivable	—	23		—	23
Contingent rent	18	4		45	4
FF&E reserve income	611	69		1,468	102
Interest and other income	516	778		1,111	1,340
	25,586	4,727		59,220	9,700
Expenses:
Interest and loan cost amortization	2,556	509		5,245	928
General operating and administrative	1,350	328		3,531	878
Property expenses	7	20		26	20
Asset management fees to related party	1,121	190		2,626	398
Depreciation and amortization	4,747	1,005		10,589	2,170
	9,781	2,052		22,017	4,394
Earnings Before Equity in Earnings of Unconsolidated
Subsidiary and Minority Interest	15,805	2,675		37,203	5,306
Equity in Earnings of Unconsolidated Subsidiary	9	8		28	5
Minority Interest	—	(174	)	—	(272	)
Net Earnings	$15,814	$   2,509		$37,231	$   5,039
Net Earnings Per Share of Common Stock
(Basic and Diluted)	$    0.16	$     0.10		$    0.50	$     0.30
Weighted Average Number of Shares of
Common Stock Outstanding (Basic and Diluted)	98,567	24,999		74,175	16,932

        See accompanying notes to condensed consolidated financial statements.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF STOCKHOLDERS’ EQUITY
Nine Months Ended September 30, 2003 and Year Ended December 31, 2002
(UNAUDITED)
(in thousands, except per share data)

	Common stock					Capital in			Accumulated distributions
	Number of shares			Par Value		excess of par value			in excess of net earnings			Total
Balance at December 31, 2001		7,134		$	71	$	61,786		$	(947	)	$	60,910
Subscriptions received for common
stock through public offerings and
distribution reinvestment plan		37,114			371		370,764			—			371,135
Stock issuance costs		—			—		(38,899	)		—			(38,899	)
Retirement of common stock		(37	)		—		(343	)		—			(343	)
Net earnings		—			—		—			11,372			11,372
Distributions declared and paid
($0.7002 per share)		—			—		—			(14,380	)		(14,380	)
Balance at December 31, 2002		44,211			442		393,308			(3,955	)		389,795
Subscriptions received for common
stock through public offerings and
distribution reinvestment plan		71,039			710		709,683			—			710,393
Stock issuance costs		—			—		(68,050	)		—			(68,050	)
Retirement of common stock		(76	)		—		(701	)		—			(701	)
Net earnings		—			—		—			37,231			37,231
Distributions declared and paid
($.5297 per share)		—			—		—			(37,311	)		(37,311	)
Balance at September 30, 2003		115,174		$	1,152	$	1,034,240		$	(4,035	)	$	1,031,357

        See accompanying notes to condensed consolidated financial statements.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
CONDENSED CONSOLIDATED STATEMENTS OF CASH FLOWS
(UNAUDITED)
(in thousands)

	Nine Months Ended September 30,
	2003			2002
Increase (decrease) in cash and cash equivalents:
Net cash provided by operating activities	$	37,091		$	9,181
Investing activities:
Investment in land, buildings and equipment on
operating leases		(507,796	)		(93,623	)
Investment in direct financing leases		(221,428	)		(109,720	)
Investment in lease intangibles		(14,928	)		(7,170	)
Investment in mortgage loans receivable		—			(1,870	)
Collection of note receivable		2,000			—
Investment in note receivable		—			(2,384	)
Investment in unconsolidated subsidiary		—			(372	)
Distributions received from unconsolidated subsidiary		89			73
Payment of acquisition fees and costs		(54,909	)		(8,124	)
Increase in restricted cash		(10,629	)		(763	)
Net cash used in investing activities		(807,601	)		(223,953	)
Financing activities:
Proceeds from borrowings on mortgages payable		168,900			32,620
Principal payments on mortgages payable		(11,480	)		(185	)
Payment of loan costs		(3,689	)		(885	)
Proceeds from borrowings on line of credit		71,370			—
Repayments on line of credit		(51,370	)		—
Proceeds from life care bonds		4,521			—
Repayment of life care bonds		(3,655	)		—
Contributions received from minority interest		—			8,500
Distributions to minority interest		—			(221	)
Subscriptions received from stockholders		710,393			231,061
Payment of stock issuance costs		(67,527	)		(25,728	)
Distributions to stockholders		(37,311	)		(8,236	)
Retirement of common stock		(594	)		(30	)
Net cash provided by financing activities		779,558			236,896
Net increase in cash and cash equivalents		9,048			22,124
Cash and cash equivalents at beginning of period		40,800			26,721
Cash and cash equivalents at end of period	$	49,848		$	48,845
Supplemental schedule of non-cash
investing and financing activities:
Mortgage assumed on property purchased	$	20,635		$	12,974
Bonds assumed on property purchased	$	88,511		$	—

        See accompanying notes to condensed consolidated financial statements.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

1. Summary of Significant Accounting Policies:

Organization – CNL Retirement Properties, Inc. is a corporation, which was organized pursuant to the laws of the State of Maryland on December 22, 1997. Various other wholly owned subsidiaries of CNL Retirement Properties, Inc. have been or will be formed in the future for the purpose of acquiring and owning real estate. The term “Company” includes CNL Retirement Properties, Inc. and its subsidiaries. The Company operates for federal income tax purposes as a real estate investment trust (“REIT”).

The Company acquires investment properties (the “Property” or “Properties”) related to health care and seniors’ housing facilities primarily located across the United States of America. The Properties may include congregate living, assisted living and skilled nursing facilities, continuing care retirement communities and life care communities, medical office buildings and walk-in clinics and similar types of health care related facilities. The Company may provide mortgage financing (“Mortgage Loans”) in the aggregate principal amount of approximately 5 to 10 percent of the Company’s total assets and may offer furniture, fixture and equipment financing (“Secured Equipment Leases”) to operators of retirement and medical Properties. The Company has retained CNL Retirement Corp. (the “Advisor”) as its advisor to provide management, acquisition, advisory and administrative services.

Basis of Presentation –The accompanying unaudited condensed consolidated financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America for interim financial information and with the instructions to Form 10-Q. Accordingly, they do not include all of the information and note disclosures required by accounting principles generally accepted in the United States of America for complete financial statements. The condensed consolidated financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary for a fair statement of the results for the interim periods presented. Operating results for the nine months ended September 30, 2003, may not be indicative of the results that may be expected for the year ending December 31, 2003. Amounts included in the financial statements as of December 31, 2002, have been derived from audited financial statements as of that date.

These unaudited condensed consolidated financial statements should be read in conjunction with the financial statements and notes thereto included in the Company’s Report on Form 10-K for the year ended December 31, 2002. The accompanying unaudited condensed consolidated financial statements include the accounts of CNL Retirement Properties, Inc. and its wholly owned subsidiaries. All significant intercompany balances and transactions have been eliminated.

Lease Intangibles – In connection with the acquisition of a Property that is subject to an operating lease, the Company allocates the cost associated with having an in-place lease at the date of acquisition to a lease intangible asset that is amortized on a straight-line basis over the initial term of the lease (generally 15 years).

Bonds Payable – In connection with the acquisition of two continuing care retirement communities (“CCRC’s”), the Company assumed non-interest bearing life care bonds payable to certain residents of the CCRC’s. Generally, the bonds are refundable to a resident upon the resident moving out of the CCRC or to a resident’s estate upon the resident’s death. In some instances, the bonds are not refundable until the unit has been successfully remarketed to a new resident. The Company issues new bonds to new residents and the proceeds received from the issuance of the new bonds are used to retire the existing bonds. As the maturity of these obligations is not determinable, interest is not imputed on these obligations.

Asset Impairment –Management reviews its Properties and Mortgage Loans for impairment or potential loss as events or circumstances indicate that the carrying amount of the assets may not be recoverable. Management compares the estimated future undiscounted cash flows, including the residual value of the Property or collateral, with the carrying cost of the individual asset. If impairment is indicated, the assets are adjusted to the estimated fair value.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

1. Summary of Significant Accounting Policies – Continued:

New Accounting Standards– In January 2003, the Financial Accounting Standards Board (“FASB”) issued FASB Interpretation No. 46 (“FIN 46”), “Consolidation of Variable Interest Entities,” to expand upon and strengthen existing accounting guidance that addresses when a company should consolidate the assets, liabilities and activities of another entity in its financial statements. To improve financial reporting by companies involved with variable interest entities (more commonly referred to as special-purpose entities or off-balance sheet structures), FIN 46 requires that a variable interest entity be consolidated by a company if that company is subject to a majority risk of loss from the variable interest entity’s activities or entitled to receive a majority of the entity’s residual returns or both. The consolidation requirements of FIN 46 apply immediately to variable interest entities created after January 31, 2003 and to older entities in the first fiscal year or interim period ending after December 15, 2003. The consolidation of these entities, if required, is not expected to have a significant effect on the Company’s financial position or results of operations.

In May 2003, the FASB issued Statement of Financial Accounting Standard No. 150 (“SFAS 150”), “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” SFAS 150 establishes standards for how an issuer classifies and measures certain financial instruments with characteristics of both liabilities and equity. SFAS 150 requires issuers to classify certain financial instruments as liabilities (or assets in some circumstances) that previously were classified as equity. Financial instruments covered by SFAS 150 include shares that are mandatorily redeemable, and other financial instruments that contain obligations to repurchase outstanding shares or contain conditional obligations that require settlement by issuance of a variable number of that issuer’s shares. SFAS 150 is effective for financial instruments entered into or modified after May 31, 2003, and otherwise is effective at the beginning of the first interim period beginning after September 15, 2003, except for the provisions related to mandatorily redeemable non-controlling interests with finite lives. On October 29, 2003, the FASB delayed the effective date for the implementation of the provisions that relate to mandatorily redeemable non-controlling interests with finite lives. The Company does not expect the adoption of this statement to have a significant impact on the financial position or results of operations of the Company.

Reclassification –Certain amounts in the 2002 consolidated financial statements have been reclassified to conform to the 2003 presentation. These reclassifications had no effect on stockholders’ equity or net earnings.

2. Public Offerings:

From its formation in December 1997 through April 3, 2003, the Company completed three public offerings of common stock pursuant to which it received subscription proceeds of $614.7 million (61.5 million shares) (collectively, the “Prior Offerings”). Immediately following the completion of the third public offering on April 3, 2003, the Company commenced a fourth public offering of up to 175 million shares of common stock ($1.75 billion) (the “2003 Offering”). Of the 175 million shares of common stock offered, up to 25 million are available to stockholders purchasing shares through the reinvestment plan. The price per share and other terms of the 2003 Offering, including the percentage of gross proceeds payable (i) to the managing dealer for selling commissions and expenses in connection with the offering and (ii) to the Advisor for acquisition fees, are substantially the same as for the Company’s Prior Offerings. As of September 30, 2003, the Company had received total subscription proceeds from its Prior Offerings and the 2003 Offering of $1.2 billion (115.3 million shares), including $5.5 million (0.5 million shares) through the reinvestment plan.

On July 30, 2003, the Company filed a registration statement on Form S-11 with the Securities and Exchange Commission for the proposed sale by the Company of up to 400 million shares of common stock ($4.0 billion) in an offering expected to commence immediately following the completion of the Company’s 2003 Offering. Of the 400 million shares of common stock expected to be offered, up to 50 million shares are expected to be available to stockholders purchasing shares through the reinvestment plan. The Board of Directors has approved a resolution to amend the Articles of Incorporation to increase the number of authorized shares of common stock from 450 million to one billion. The Board of Directors expects to submit this matter to the stockholders for approval at the 2004 annual meeting. Until such time, if any, that the shareholders approve an increase in the number of authorized shares of common stock of the Company, the proposed offering will be limited to 213 million shares.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

3. Investment Properties:

Investment Properties Acquired– During the nine months ended September 30, 2003, the Company acquired 55 Properties for an aggregate purchase price of $853.5 million. The Properties were recorded at cost which was allocated between (i) land, building and equipment, based on fair value using appraisal data and (ii) lease intangible costs.

The following unaudited condensed pro forma information assumes that the Properties owned as of September 30, 2003, were owned on January 1, 2002. Additionally, it assumes that the effect of the sale of the Company’s common stock and assumption or issuance of mortgage debt had occurred on January 1, 2002, (in thousands):

	For the Nine Months ended September 30,
	2003		2002
Revenues	$	103,111	$	100,903
Expenses		41,837		38,298
Net earnings		61,303		62,770
Basic and diluted earnings per share		0.57		0.63
Weighted average number of common shares
outstanding - basic and diluted		107,246		99,561

Accounted for Using the Operating Method – As of September 30, 2003, the Company owned 56 Properties that are subject to operating leases. In addition, the Company owned six Properties in various stages of development, five of which are subject to operating leases and one of which is expected to be subject to an operating lease upon completion. Properties accounted for using the operating method consisted of the following at (in thousands):

	September 30,           2003			December 31, 2002
Land	$	127,205		$	34,967
Buildings		698,922			203,993
Equipment		33,368			11,024
		859,495			249,984
Less accumulated depreciation		(13,796	)		(4,148	)
		845,699			245,836
Construction in progress		26,429			1,405
	$	872,128		$	247,241

Operating leases generally have initial terms of 15 years and provide options that allow the tenants to renew the leases from 5 to 25 successive years subject to the same terms and conditions as the initial leases.

The leases provide for minimum and contingent rent and generally require minimum annual rents to increase at predetermined intervals during the lease terms. Increases in lease revenues are recognized on a straight-line basis over the initial terms of the leases commencing on the date the Property was placed in service. For the nine months ended September 30, 2003 and 2002, the Company recognized $5.5 million and $0.8 million, respectively ($1.7 million and $0.4 million of which was recognized during the quarters ended September 30, 2003 and 2002, respectively), from straight-lining lease revenues over current contractually due amounts. These amounts are included in rental income from operating leases in the accompanying consolidated statements of earnings.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

3. Investment Properties - Continued:

Remaining future minimum lease payments contractually due under noncancellable operating leases at September 30, 2003 are as follows (in thousands):

2003	$	15,366
2004		68,031
2005		69,761
2006		71,288
2007		73,465
Thereafter		766,164
	$	1,064,075

Since the leases are renewable at the option of the tenants, 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 rents, which may be received on certain leases if the Properties achieve specified operating performance thresholds. The amount of contingent rent payable is based on factors such as a percentage of the tenants’ gross revenues or occupancy rates. The Company defers recognition of contingent rental income until the thresholds requiring such payments in accordance with the lease terms are met.

Accounted for Using the Direct Financing Method – As of September 30, 2003, the Company owned 30 Properties that are subject to long-term leases that have been classified as direct financing leases. The components of net investment in direct financing leases consisted of the following at (in thousands):

	September 30,            2003			December 31, 2002
Minimum lease payments receivable	$	1,477,437		$	739,784
Estimated residual values		379,308			127,104
Less unearned income		(1,461,113	)		(732,506	)
Net investment in direct financing leases	$	395,632		$	134,382

Direct financing leases have initial terms that range from 10 to 35 years and provide for minimum annual rent. Lease payments relating to three direct financing leases with a carrying value of $58.0 million are subordinate to first mortgage construction loans entered into by the tenants to fund development costs related to the Properties. Certain leases contain provisions that allow the tenants to elect to purchase the Properties at the end of the lease terms for the Company’s aggregate initial investment amount plus adjustments, if any, as defined in the lease agreements. Certain leases also permit the Company to require the tenants to purchase the Properties at the end of the lease terms for the same amount.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

3. Investment Properties – Continued:

Remaining future minimum lease payments to be received on direct financing leases at September 30, 2003, are as follows (in thousands):

2003	$	9,627
2004		40,661
2005		41,922
2006		43,644
2007		44,630
Thereafter		1,296,953
	$	1,477,437

The above table does not include any amounts for contingent rents that may be received on certain leases based on a percentage of gross revenues if the Properties achieve specified occupancy rates.

For the quarter and nine months ended September 30, 2003, the Company recognized $18,000 and $45,000, respectively, in contingent rent related to its investment Properties. The Company recognized $4,000 in contingent rent during the quarter and nine months ended September 30, 2002.

4. Restricted Cash:

Restricted cash at September 30, 2003 and December 31, 2002, included $2.5 million and $3.2 million, respectively, of FF&E reserves and restricted security deposits. In addition, the balance at September 30, 2003, includes $9.8 million held in escrow to fund the acquisition of a Property pending certain regulatory approvals.

5. Notes and Other Receivables:

Notes and other receivables included the following at (in thousands):

	September 30, 2003		December 31, 2002
Rental revenues receivable	$	8,503	$	809
Life care bond proceeds receivable		1,255		—
Other receivables		437		345
Note receivable		—		2,000
Accrued interest receivable		—		38
	$	10,195	$	3,192

6. Other Assets:

Other assets as of September 30, 2003 and December 31, 2002, were $7.1 million and $5.0 million, respectively, and consisted of miscellaneous prepaid expenses and miscellaneous acquisition costs that will be capitalized to land, buildings, equipment, lease intangible costs or investment in direct financing leases upon the purchase of Properties.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

7. Indebtedness:

Mortgages payable and the net book value (“NBV”) of the associated collateral consisted of the following at (in thousands):

	September 30, 2003				December 31, 2002
	Mortgage Payable		NBV		Mortgage Payable		NBV
Mortgage payable, bearing interest at a variable
rate that ranged from 30-day LIBOR plus 350 basis
points to 8.00 percent, was paid in full on August
29, 2003	$	—	$	—	$	12,743	$	18,013
Three mortgages payable, each bearing interest at
30-day LIBOR plus 325 basis points, with a minimum
interest rate of 5.00 percent (5.00 percent at
September 30, 2003), with monthly principal and
interest payments, maturing March 31, 2005		25,786		54,098		—		—
Mortgage payable, bearing interest at 90-day LIBOR
plus 390 basis points, with a minimum interest rate
of 6.50 percent (6.50 percent at September 30,
2003), with monthly principal and interest
payments, maturing August 31, 2007		10,850		19,464		9,064		19,870
Mortgage payable, bearing interest at 262 basis
points over the 30-day LIBOR (3.74 percent at
September 30, 2003), with monthly payments of
interest only, maturing September 7, 2007		23,520		59,298		23,520		60,381
Mortgage payable, bearing interest at 7.83 percent,
with monthly principal and interest payments,
maturing October 2, 2008		20,401		25,827		—		—
Fourteen mortgages payable, each bearing interest
at 5.13 percent until December 31, 2003, with rates
increasing annually to a maximum of 7.25 percent
Interest on the loan is recorded using the
effective interest rate of 5.60 percent. Interest
only payments to December 31, 2005 and principal
and interest payments thereafter until maturity on
September 30, 2010		92,500		194,072		—		—
Two mortgages payable, each bearing interest at
5.79 percent, with monthly principal and interest
payments, maturing September 1, 2012		50,325		75,740		—		—
	$	223,382	$	428,499	$	45,327	$	98,264

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

7. Indebtedness - Continued:

The following is a schedule of contractually due amounts for all mortgages payable at September 30, 2003 (in thousands):

2003	$	388
2004		2,072
2005		26,722
2006		3,491
2007		37,488
Thereafter		153,221
Total	$	223,382

On March 28, 2003, in connection with the purchase of two CCRC Properties, the Company assumed approximately $88.5 million in non-interest bearing life care bonds payable to certain residents of the two Properties. During the quarter ended September 30, 2003, the tenant of the two CCRC’s retired certain existing bonds and issued additional bonds to new residents on behalf of the Company. At September 30, 2003, approximately $90.6 million was outstanding in bonds payable. In addition, in accordance with the lease agreements relating to these two Properties, the Company has committed to fund capital improvements up to an aggregate amount of $6.3 million, and as of September 30, 2003, the Company had funded $2.6 million.

The Company has a revolving line of credit (the “Revolving LOC”) to fund the acquisition and development of Properties and investments in Mortgage Loans and other permitted investments. Under the terms of the Revolving LOC, the Company is entitled to receive cash advances of up to $85.0 million for a two-year period expiring March 16, 2005. The Revolving LOC requires payment of interest only at LIBOR plus a percentage that fluctuates depending on the Company’s aggregate amount of debt outstanding in relation to the Company’s total assets, until maturity, and is collateralized by certain Properties with a carrying value of approximately $117.7 million. The Revolving LOC contains provisions that allow the facility to be increased up to $125.0 million upon the Company pledging additional Properties as collateral. This facility has several covenants typically found in revolving loan facilities, including covenants to maintain a minimum net worth and minimum collateral value. At September 30, 2003, $20.0 million was outstanding under the Revolving LOC at an interest rate of 3.74 percent.

On September 9, 2003, the Company entered into a six-month, $50.0 million credit facility agreement that has a 120-day funding option with a commercial lender. The loan may be extended for two additional three-month periods and may be used to fund the acquisition and development of Properties and investments in Mortgage Loans and other permitted investments. During the initial term, the loan will bear interest at a variable rate, as selected by the Company, equal to LIBOR plus 300 basis points or the higher of (i) the bank’s prime rate plus 100 basis points or (ii) the Federal Funds rate plus 150 basis points, payable monthly, and will require monthly principal payments of $2.5 million until maturity. As of September 30, 2003, there were no amounts outstanding under this loan.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

8. Commitments and Contingencies:

The following table presents the Company’s commitments, contingencies and guarantees and related expiration periods as of September 30, 2003 (in thousands):

Commitments, Contingencies and Guarantees	Less than      1 Year	2-3 Years	4-5 Years	Thereafter	Total
Guarantee of unsecured
promissory note of
unconsolidated
subsidiary (1)	$       —	$  2,471	$              —	$                 —	$    2,471
Earnout provisions (2)	1,934	9,900	—	—	11,834
Capital improvements
to investment
Properties	9,585	—	—	—	9,585
Pending investments (3)	14,780	—	—	—	14,780
Total Commitments,
Contingencies and
Guarantees	$26,299	$12,371	$              —	$                 —	$38,670

(1) In connection with the acquisition of a 10 percent limited partnership interest in CNL Plaza, Ltd., the Company severally guaranteed 16.67 percent, or $2.6 million, of a $15.5 million unsecured promissory note of the limited partnership that matures November 30, 2004. As of September 30, 2003, the unsecured promissory note had an outstanding balance of approximately $14.8 million. The Company has not been required to fund any amounts under this guarantee. In the event the Company is required to fund amounts under the guarantee, management believes that such amounts would be recoverable either from operations of the related asset or proceeds upon liquidation.

(2) In connection with the acquisition of seven Properties, the Company may be required to make additional payments (the “Earnout Amount”) if certain earnout provisions are achieved by the earnout date for each Property. The calculation of the Earnout Amount generally considers the net operating income for the Property, the Company’s initial investment in the Property and the fair value of the Property. In the event an Earnout Amount is due, the respective lease will be amended and annual minimum rent will increase accordingly. Earnout Amounts related to two Properties are subject to future values and events that are not quantifiable at September 30, 2003, and are not included in the table above.

(3) As of September 30, 2003, the Company had commitments to acquire two Properties located in two states, subject to the fulfillment of certain conditions.

9. Redemption of Shares:

The Company has a redemption plan under which the Company may elect to redeem shares, subject to certain conditions and limitations. Under the redemption plan, prior to such time, if any, as listing occurs, any stockholder who has held shares for at least one year may present all or any portion equal to at least 25 percent of their shares to the Company for redemption in accordance with the procedures outlined in the redemption plan. Upon presentation, the Company may, at its option, redeem the shares, subject to certain conditions and limitations. However, at no time during a 12-month period may the number of shares redeemed by the Company exceed 5 percent of the number of shares of the Company’s outstanding common stock at the beginning of such 12-month period. During the nine months ended September 30, 2003, and the year ended December 31, 2002, 76,288 and 37,306 shares, respectively of common stock were redeemed for $0.7 million and $0.3 million ($9.20 per share), respectively, and retired from shares outstanding of common stock.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

10. Stock Issuance Costs:

The Company has incurred offering expenses, including selling commissions, marketing support fees and due diligence expense reimbursements, filing fees, and legal, accounting, printing and escrow fees, which have been deducted from the gross proceeds of the offerings. Offering expenses together with selling commissions, marketing support fees, and due diligence expense reimbursements will not exceed 13 percent of the proceeds raised in connection with the Company’s offerings. During the nine months ended September 30, 2003 and the year ended December 31, 2002, the Company incurred $68.0 million and $38.9 million, respectively, in offering costs, including $56.8 million and $29.7 million, respectively, in selling commissions, marketing support fees and due diligence expense reimbursements. These amounts are treated as stock issuance costs and charged to stockholders’ equity.

11. Distributions:

For the nine months ended September 30, 2003 and September 30, 2002, approximately 80 percent and 50 percent of the distributions paid to stockholders were considered ordinary income and approximately 20 percent and 50 percent, respectively, were considered a return of capital for federal income tax purposes. No amounts distributed to stockholders for the nine months ended September 30, 2003, are required to be or have been treated by the Company as a return of capital for purposes of calculating the stockholders’ return on their invested capital. The characterization for tax purposes of distributions declared for the nine months ended September 30, 2003, may not be indicative of the characterization of distributions that may be expected for the year ending December 31, 2003.

12. Related Party Arrangements:

Certain directors and officers of the Company hold similar positions with the Advisor, the parent of the Advisor and the managing dealer of the Company’s public offerings, CNL Securities Corp. (“CNL Securities”). A director of the Company owns a controlling interest in the parent of the Advisor. These affiliates receive fees and compensation in connection with the offerings, permanent financing, and the acquisition, management and sale of the assets of the Company.

CNL Securities receives selling commissions amounting to 7.5 percent of the total amount raised from the sale of shares for services in connection with its Prior Offerings and the 2003 Offering. During the nine months ended September 30, 2003 and 2002, the Company incurred $53.3 million and $17.3 million, respectively, of such fees, the majority of which were reallowed to other broker-dealers.

In addition, CNL Securities is entitled to receive a marketing support fee equal to 0.5 percent of the total amount raised from the sale of shares from its Prior Offerings and the 2003 Offering. During the nine months ended September 30, 2003 and 2002, the Company incurred $3.6 million and $1.3 million, respectively, of such fees, the majority of which were reallowed to other broker-dealers.

CNL Securities will also receive, in connection with one of the Company’s Prior Offerings, a soliciting dealer servicing fee payable annually by the Company beginning on December 31, 2003, until such time, if any, as the Company’s common stock is listed on a national securities or over-the-counter market in the amount equal to 0.2 percent of the aggregate investment of stockholders who purchased shares in the applicable offering. CNL Securities in turn may reallow all or a portion of such fees to soliciting dealers whose clients hold shares on such date. As of September 30, 2003, no such fees had been incurred.

The Advisor receives acquisition fees for services in identifying Properties and structuring the terms of the leases and Mortgage Loans equal to 4.5 percent of gross proceeds of the offerings and loan proceeds from permanent financing, excluding that portion of the permanent financing used to finance Secured Equipment Leases. In addition, the Advisor will receive an acquisition fee equal to 4.5 percent of amounts outstanding on the line of credit, if any, at the time of listing of the Company’s common stock on a national securities exchange or over-the-counter market. During the nine months ended September 30, 2003 and 2002, the Company incurred $40.9 million and $12.4 million, respectively, of such fees, including $8.9 million and $2.1 million, respectively, of acquisition fees on permanent financing. These fees are included in other assets in the accompanying balance sheets prior to being allocated to individual Properties or lease intangible costs.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

12. Related Party Arrangements – Continued:

The Company and the Advisor have entered into an advisory agreement pursuant to which the Advisor receives a monthly asset management fee of one-twelfth of 0.60 percent of the Company’s real estate asset value and the outstanding principal balance of any Mortgage Loan as of the end of the preceding month. During the nine months ended September 30, 2003 and 2002, the Company incurred $2.6 million and $0.4 million, respectively, of these fees.

The Company incurs operating expenses relating to its administration. Pursuant to the advisory agreement, the Advisor is required to reimburse the Company the amount by which the total operating expenses paid or incurred by the Company exceeds in any four consecutive fiscal quarters (the “Expense Year”) the greater of 2 percent of average invested assets or 25 percent of net income (the “Expense Cap”). Operating expenses for the Expense Years ended September 30, 2003 and 2002 did not exceed the Expense Cap.

CNL Capital Corp., an affiliate of the Advisor, is a non-voting Class C member of Century Capital Markets, LLC (“CCM”). CCM made the arrangements for the $23.5 million loan described in Note 7. Prior to August 18, 2003, the monthly interest payments due under the loan included a margin of 30 basis points payable to CCM for the monthly services it provides related to the administration of the loan. From its origination in June 2002, the loan was a commercial paper backed loan with an interest rate at the commercial paper rate, as determined by market demand, plus a margin of 1.86 percent that was inclusive of liquidity fees and administrative costs. CCM was paid $0.2 million and $0.1 million during the nine months ended September 30, 2003 and 2002, respectively, related to these services. On August 18, 2003, the loan converted from a commercial paper loan to a direct loan with a third party commercial lender. The direct loan bears interest at 30-day LIBOR plus 262 basis points with interest payable monthly.

The Company maintains bank accounts in a bank in which certain officers and directors of the Company serve as directors and are stockholders. The amounts deposited with this bank were $15.9 million and $5.7 million at September 30, 2003, and December 31, 2002, respectively.

The Company owns a 10 percent interest in a limited partnership, CNL Plaza, Ltd., that owns an office building located in Orlando, Florida, in which the Advisor and its affiliates lease office space. The remaining interest in the limited partnership is owned by several affiliates of the Advisor. The Company periodically receives distributions from the partnership. During each of the nine months ended September 30, 2003 and 2002, the Company received $89,000 in distributions from the partnership.

In March 2003, the Advisor’s parent company purchased a 30 percent voting membership interest in a limited liability company, which is affiliated with six of the Company’s tenants that leased 45 of the Company’s 92 Properties as of September 30, 2003. These six tenants contributed 34.6 percent of total rental income from operating leases and earned income from investments in direct financing leases for the nine months ended September 30, 2003.

The Advisor and its affiliates provide various administrative services to the Company, including services related to accounting; financial, tax and regulatory compliance reporting; stockholder distributions and reporting; due diligence and marketing; and investor relations (including administrative services in connection with the offerings). The expenses incurred for these services were classified as follows for the nine months ended September 30, (in thousands):

	2003	2002
Stock issuance costs	$3,442	$2,068
Investment properties on operating leases and other
assets	—	20
General operating and administrative expenses	941	351
	$4,383	$2,439

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

12. Related Party Arrangements - Continued:

Amounts due to related parties consisted of the following at (in thousands):

	September 30, 2003		December 31, 2002
Due to the Advisor and its affiliates:
Expenditures incurred for offering expenses on behalf
of the Company	$	173	$	1
Accounting and administrative services		220		76
Acquisition fees and miscellaneous acquisition costs		436		126
		829		203
Due to CNL Securities:
Selling commissions		451		145
Marketing support fees and due diligence expense
reimbursements		45		--
		496		145
	$	1,325	$	348

13. Concentration of Credit Risk:

At September 30, 2003, 70 of the 92 Properties owned by the Company were operated by Sunrise Senior Living Services, Inc., a wholly owned subsidiary of Sunrise Senior Living, Inc., formerly known as Sunrise Assisted Living, Inc. (“Sunrise”). The 70 Properties include 41 Properties that were previously operated by Marriott Senior Living Services, Inc. In a press release dated March 31, 2003, Sunrise announced it had acquired all of the outstanding stock of Marriott Senior Living Services, Inc. When the stock sale was completed, the long-term management agreements, which the Company’s tenants had entered into with Marriott Senior Living Services, Inc., were assumed by Sunrise Senior Living Services, Inc. Additionally, five Properties owned by the Company as of September 30, 2003, are being developed by Sunrise Development, Inc., a wholly owned subsidiary of Sunrise. Upon completion of each development, each Property will be operated by Sunrise Senior Living Services, Inc. Four additional operators manage the remaining 17 Properties owned by the Company as of September 30, 2003.

Ninety-one of the Company’s Properties owned as of September 30, 2003, are leased to 12 tenants, five of which individually contributed between 10 percent and 21 percent (an aggregate of 67.8 percent) of the Company’s total rental income from operating leases and earned income from direct financing leases for the nine months ended September 30, 2003. The remaining Property owned by the Company as of September 30, 2003, is a parcel of land on which a retirement facility is being constructed.

To mitigate credit risk, certain leases are combined into portfolios that contain cross-default terms, meaning that if a tenant of any of the Properties in the portfolio defaults on its obligations under its lease, the Company may pursue its remedies under the lease with respect to any of the Properties in the portfolio. In addition, certain portfolios contain terms whereby the net operating profits of the Properties are combined for the purpose of funding rental payments due under each lease. In addition, as of September 30, 2003, the Company had $8.0 million in security deposits related to certain Properties as well as the guarantees described below.

In connection with five Properties previously operated by Marriott Senior Living Services, Inc., Marriott International, Inc, with certain limitations, remains as guarantor of the tenant’s obligation to pay minimum rent due under the leases up to a maximum of $5.9 million. As of September 30, 2003, Marriott International, Inc.‘s remaining guarantee is $3.2 million. Marriott International, Inc. had also guaranteed a tenant’s obligation to pay minimum rent due under a lease for a Property formerly operated by Marriott Senior Living Services, Inc., up to a maximum of $2.8 million. As of September 30, 2003, Sunrise Senior Living Services, Inc. had assumed this obligation and remains liable for the guarantee balance of $0.8 million.

CNL RETIREMENT PROPERTIES, INC.
AND SUBSIDIARIES
NOTES TO CONDENSED CONSOLIDATED FINANCIAL STATEMENTS – CONTINUED
(UNAUDITED)
Nine Months Ended September 30, 2003 and 2002

13. Concentration of Credit Risk – Continued:

An affiliate of Prime Care Properties, LLC (“Prime Care”) has guaranteed the tenants’ obligations to pay minimum rent due under 11 leases up to a maximum of $2.0 million. As of September 30, 2003, the remaining guarantee balance was $0.3 million. An affiliate of Prime Care has also guaranteed two tenants’ obligations to pay minimum rent due under an additional lease up to a maximum of $0.5 million. As of September 30, 2003, the affiliate of Prime Care remained liable for the remaining guarantee balance of $0.3 million.

In connection with the purchase of five Properties that are being developed by Sunrise Development, Inc., Sunrise Senior Living Services, Inc. has guaranteed the tenants’ obligations to pay minimum rent due under the leases from the date of acquisition until the later of (i) 30 months or (ii) 18 months after the final development date.

In connection with eight Properties leased to wholly owned subsidiaries of American Retirement Corporation (“ARC”), ARC has unconditionally guaranteed all of the tenants’ obligations under the terms of the leases, including the payment of minimum rent.

Although the Company acquires Properties located in various states and regions and carefully screens its tenants in order to reduce risks of default, failure of these tenants, their guarantors or the Sunrise brand would significantly impact the results of operations of the Company. It is expected that the percentage of total rental income contributed by these tenants will decrease as additional Properties are acquired and leased to diversified tenants during subsequent periods.

14. Subsequent Events:

On October 3, 2003, the Company entered into an initial commitment with a commercial lender for a $130.0 million mortgage loan collateralized by 22 Properties owned by the Company as of September 30, 2003. Prior to loan closing, the Company will select a 5 or 7-year term. A fixed interest rate will be determined one week prior to closing based on a U.S. Treasury rate plus a premium that ranges from 225 basis points to 330 basis points. The Company expects to close on the loan in the fourth quarter of 2003.

On October 9, 2003, the Company entered into an initial commitment with a commercial bank for an $8.0 million mortgage loan collateralized by a Property owned by the Company as of September 30, 2003. Prior to loan closing, the Company will select either a 5-year term with a fixed interest rate of 6.125 percent or a 7-year term with a fixed interest rate of 6.625 percent. The Company expects to close on the loan in the fourth quarter of 2003. An independent director of the Company serves as chairman and chief executive officer of this commercial bank.

On October 23, 2003, the Company obtained an $8.9 million construction loan related to one of the Company’s Properties that is under construction. The loan requires interest only payments at a variable rate of LIBOR plus a premium that ranges from 225 basis points to 275 basis points based on the Property’s occupancy levels until maturity on December 31, 2005. Concurrent with the loan closing, the Company drew $6.0 million to fund construction costs.

In October 2003, the Company entered into initial commitments to acquire 25 additional Properties for an aggregate purchase price of $198.1 million. The acquisition of these Properties is subject to the fulfillment of certain conditions. There can be no assurance that any or all of the conditions will be satisfied or, if satisfied, that one or more of these Properties will be acquired by the Company. The Company plans to obtain permanent financing of approximately $52.1 million in connection with the acquisition of ten of these Properties.

During the period October 1, 2003 through November 10, 2003, the Company received subscription proceeds for an additional 14.4 million shares ($143.5 million) of common stock.

On October 1, 2003 and November 1, 2003, the Company declared distributions of $0.0589 per share of common stock (totaling $6.8 million and $7.5 million, respectively), payable by December 31, 2003, to stockholders of record on October 1, 2003 and November 1, 2003, respectively.

                       INDEX TO OTHER FINANCIAL STATEMENTS

The following financial  information is filed as part of this report as a result
of the Company  acquiring nine related  Properties  from Marriott  Senior Living
Services,  Inc. The Company does not own any interest in the  operations  of the
communities.  For  information on the  Properties and the long-term,  triple-net
leases which the Company has or expects to enter into, see "Business -- Property
Acquisitions."

Marriott Senior Living Services Nine Communities
     (Includes the Edgewood, Fairfax, Greenville, Northridge, Palm Springs, Quadrangle, Rancho Mirage,
     Salt Lake City and Yorba Linda Properties)                                                                        F-30



The following financial information is filed as part of this report as a result of the Company acquiring 14 related
Properties from several wholly owned subsidiaries of Marriott International, Inc.  The Company does not own any interest
in the operations of the communities.  For information on the Properties and the long-term, triple-net leases which the
Company has entered into, see "Business — Property Acquisitions."

Sunrise Senior Living Services Fourteen Communities
     (Includes the Columbia, Atlanta-Dunwoody, Florham Park, Greensboro, Plymouth, Omaha, Prairie
     Village, St. Charles, Tampa, Rockville, Dayton, Westlake, West Orange and Wheaton Properties)                     F-42


The following financial information is filed as part of this report as a result of the Company acquiring 12 related Properties
(totalling 15 communities) from several wholly owned subsidiaries of Sunrise Senior Living, Inc.  The Company does not own any
interest in the operations of the communities.  For information on the Properties and the long-term, triple-net leases which the
Company has entered into, see "Business - Property Acquisitions."

Sunrise Senior Living, Inc. Sixteen Communities
     (Includes the Arlington, Arlington-Bluemont Park, Sterling (Countryside), Falls Church,
     Farmington Hills, Frederick, Leesburg, Mercer Island, Brooklyn-Mill Basin, Poland, Raleigh and
     Brooklyn-Sheepshead Bay Properties, as well as the Santa Rosa Property for which the Company
     has an initial commitment to acquire)                                                                             F-52


The following financial information is filed as part of this report as a result of the Company acquiring 25 related Properties from
EdenCare Senior Living Services, L.P.  The Company does not own any interest in the operations of the communities.  For information
on the Properties and the long-term, triple-net leases which the Company has entered into, see "Business - Property Acquisitions."

EdenCare Senior Living Services, L.P.
     (Includes the Gainesville, Jacksonville, Tallahassee, Aiken, Alpharetta, Buckhead, Champions, Charleston, Columbia, Concord,
     EdenBrook Dunwoody, EdenBrook Louisville, EdenGardens Arlington, EdenGardens Kingwood, EdenTerrace Arlington, EdenTerrace
     Kingwood, EdenTerrace Louisville, Greenwood, Huntsville, Marietta, Plano, Rock Hill, Roswell, Sandy Springs and Woodlands
     Properties)                                                                                                       F-65


The following financial information is filed as part of this report as a result of the Company entering into an initial commitment to
acquire 20 related Properties from affiliates of WHSLH Realty, L.L.C.  The Company will not own any interest in the operations of the
communities.  For information on the Properties and the long-term, triple-net leases which the Company expects to enter into, see
"Business - Pending Investments."

Horizon Bay Senior Communities Twenty Communities
     (Includes the Hoover, Sun City (Arizona), Fresno, Sun City (California), Niles, Olympia Fields, Cumberland, East Providence,
     Greenwich, Smithfield, South Kingston, Tiverton, Warwick, Dallas, Largo, Palm Beach Gardens, Sarasota and West Palm Beach
     Properties and the two Boynton Beach Properties)                                                                  F-90


                                                 INDEX TO OTHER FINANCIAL INFORMATION


The  following  summarized  financial  information  is filed as part of this  report  as a result  of  Sunrise Senior Living, Inc.
(formerly Sunrise  Assisted  Living,  Inc.)("Sunrise")  managing and operating  several of the Properties  owned by the Company as of
January 5, 2004.  The  summarized  financial information  presented  for Sunrise as of December 31, 2002 and December 31, 2001,  and
for each of the three years ended  December 31, 2002,  was obtained from the Form 10-K filed by Sunrise with the  Securities
and Exchange  Commission  for the year ended December 31, 2002.  The  summarized  financial  information  presented for Sunrise
as of September 30, 2003 was obtained from the Form 10-Q filed by Sunrise with the Securities and Exchange Commission for the nine
months ended September 30, 2003.

Sunrise Senior Living, Inc.:

     Selected Financial Data for the nine months ended September 30, 2003 and the years ended
     December 31, 2002, 2001 and 2000                                                                                  F-106

MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES

Combined Financial Statements

Fiscal Years ended January 3, 2003, December 28, 2001 and December 29, 2000 With
Report of Independent Auditors

Contents

Report of Independent Auditors...........................................................................F-31

Unaudited Combined Statements of Operations for the twelve
     weeks ended March 28, 2003 and March 22, 2002.......................................................F-32

Combined Statements of Operations for the fiscal years ended
     January 3, 2003, December 28, 2001 and December 29, 2000............................................F-33

Combined Balance Sheets as of March 28, 2003 (unaudited),
     January 3, 2003 and December 28, 2001...............................................................F-34

Unaudited Combined Statements of Cash Flows for the twelve
     weeks ended March 28, 2003 and March 22, 2002.......................................................F-35

Combined Statements of Cash Flows for the fiscal years ended
     January 3, 2003, December 28, 2001 and December 29, 2000............................................F-36

Combined Statement of Equity for the twelve weeks ended March 28, 2003
     (unaudited) and the fiscal years ended
     January 3, 2003, December 28, 2001 and December 29, 2000............................................F-37

Notes to Combined Statements.............................................................................F-38



                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
CNL Retirement Properties, Inc.

    We  have  audited  the  accompanying  combined  balance  sheets of  Marriott
Senior Living  Services Nine  Communities (as defined) as of January 3, 2003 and
December 28, 2001 and the related combined statements of operations, equity, and
cash flows for each of the three  fiscal  years in the period  ended  January 3,
2003.  These financial  statements are the  responsibility  of the management of
Marriott  Senior  Living  Services,  Inc.  Our  responsibility  is to express an
opinion on these financial statements based on our audits.

    We conducted our audits in  accordance  with  auditing  standards  generally
accepted in the United States.  Those standards require that we plan and perform
an 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 combined  financial  position of Marriott Senior
Living  Services Nine  Communities,  as of January 3, 2003 and December 28, 2001
and the results of their  operations  and their cash flows for each of the three
fiscal years in the period ended January 3, 2003, in conformity  with accounting
principles generally accepted in the United States.



                                                       /s/ Ernst & Young LLP
McLean, Virginia
March 28, 2003








                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                        COMBINED STATEMENTS OF OPERATIONS
              Twelve Weeks Ended March 28, 2003 and March 22, 2002
                                 (in thousands)
                                   (unaudited)

                                                                Twelve weeks ended
                                                       --------------------------------------
                                                         March 28, 2003     March 22, 2002
                                                       ------------------- ------------------
     REVENUES

       Resident fees................................... $        19,080     $        16,720
                                                       ------------------- ------------------

     EXPENSES
       Community operating expenses....................          14,127              12,432
       Depreciation and amortization...................           1,874               1,982
       General and administrative......................             954                 836
       Facilities development and pre-opening..........               -                 178
       Provision for doubtful accounts.................              57                  56
                                                       ------------------- ------------------
                                                                 17,012              15,484
                                                       ------------------- ------------------
     INCOME BEFORE INCOME TAXES  ......................           2,068               1,236
       Provision for income taxes......................             807                 482
                                                       ------------------- ------------------
     NET INCOME  ...................................... $         1,261     $           754
                                                       =================== ==================




                   See Notes To Combined Financial Statements




                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                        COMBINED STATEMENTS OF OPERATIONS
   Fiscal Years Ended January 3, 2003, December 28, 2001 and December 29, 2000
                                 (in thousands)

                                                                   2002                2001                2000
                                                           --------------------- ------------------  ------------------

     REVENUES
       Resident fees.......................................   $      77,239        $     63,940       $      47,376
                                                           --------------------- ------------------ -------------------

     EXPENSES


       Community operating expenses........................          57,101              47,701              33,917
       Depreciation and amortization.......................           8,706               7,953               6,452
       General and administrative..........................           3,862               3,197               2,369
       Facilities development and pre-opening..............             180                 907               3,373
       Provision for doubtful accounts.....................             286                 175                  79
                                                           --------------------- ------------------ -------------------
                                                                     70,135              59,933              46,190
                                                           --------------------- ------------------ -------------------
     INCOME BEFORE INCOME TAXES                                       7,104               4,007               1,186
       Provision  for income taxes.........................           2,771               1,563                 462
                                                           --------------------- ------------------ -------------------
     NET INCOME   ........................................    $       4,333        $      2,444       $         724
                                                           ===================== ================== ===================


                   See Notes To Combined Financial Statements






                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                             COMBINED BALANCE SHEETS
              March 28, 2003, January 3, 2003 and December 28, 2001
                                 (in thousands)

                                                               March 28, 2003            January 3, 2003         December 28, 2001
                                                            ----------------------    ----------------------    -------------------
                                                                   (unaudited)
                          ASSETS
Current assets
   Cash and equivalents  .................................  $         1,117                 $  424                   $  1,018
   Inventories, at lower of average cost or market  ......              419                    390                        335
   Accounts receivable, net of an allowance of $390,
     $348 and $307, respectively..........................            2,381                  3,583                      2,568
   Other  ................................................              621                    327                        347
                                                              -----------------    -------------------           ------------------
     Total current assets                                             4,538                  4,724                      4,268
                                                              -----------------    -------------------           ------------------


Property and equipment, net ..............................          214,290                213,646                    220,051
Other  ...................................................            2,081                  2,000                      1,290
                                                              -----------------    -------------------           ------------------
     Total assets                                            $      220,909           $    220,370                 $  225,609
                                                             ==================    ===================           ==================

                  LIABILITIES AND EQUITY

Current liabilities

   Accounts payable  .....................................  $         2,175           $         2,143                   $  1,265
   Accrued payroll and benefits  .........................            2,380                     2,926                      2,842
   Current maturities of lifecare bonds..................             8,620                     8,620                      8,669
   Current portion of deferred revenue from
     nonrefundable lifecare fees..........................            9,347                     9,162                      8,025
   Other accrued expenses.................................            2,082                     2,243                      2,230
                                                             ------------------     -------------------         ------------------
     Total current liabilities                                       24,604                    25,094                     23,031
                                                             ------------------     -------------------         ------------------

Lifecare bonds............................................           79,080                    79,459                     80,114
Deferred revenue from nonrefundable lifecare fees.........           17,516                    17,099                     15,875
Security deposits.........................................              116                       133                        166
                                                             ------------------   -------------------            ------------------
     Total liabilities....................................          121,316                   121,785                    119,186


Equity....................................................            99,593                   98,585                    106,423
                                                             ------------------   -------------------            ------------------
Total liabilities and equity..............................   $       220,909           $      220,370                 $  225,609
                                                             ==================   ===================            ==================

                   See Notes To Combined Financial Statements




                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                        COMBINED STATEMENTS OF CASH FLOWS
              Twelve Weeks Ended March 28, 2003 and March 22, 2002
                                 (in thousands)
                                   (unaudited)
                                                                              Twelve weeks ended
                                                                   -----------------------------------------
                                                                    March 28, 2003         March 22, 2002
                                                                   ------------------    -------------------

OPERATING ACTIVITIES
   Net income .............................................        $      1,261          $        754
   Adjustments to reconcile to cash provided by operations:
     Provision for doubtful accounts  .....................                  57                    56
     Depreciation and amortization  .......................               1,874                 1,982
   Working capital changes:
     Accounts receivable  .................................               1,145                   640
     Inventories...........................................                 (29)                  (13)
     Other assets  ........................................                (375)                  319
     Accounts payable and accrued expenses.................                (675)                  300
     Security deposits ....................................                 (17)                  (11)
     Deferred revenue .....................................                 602                   603
                                                                   --------------        ----------------
   Net cash provided by operating activities  .............               3,843                 4,630
                                                                   --------------        ----------------

INVESTING ACTIVITIES
   Capital expenditures  ..................................              (2,518)                 (833)
                                                                   --------------        ----------------
   Net cash used in investing activities  .................              (2,518)                 (833)
                                                                   --------------        ----------------

FINANCING ACTIVITIES
   Repayments of lifecare bonds, net.......................                (379)                 (598)
   Net repayments to Marriott Senior Living
     Services, Inc.........................................                (253)               (2,866)
                                                                   --------------        ----------------
   Net cash used in financing activities  .................                (632)               (3,464)
                                                                   --------------        ----------------

INCREASE IN CASH AND CASH EQUIVALENTS  ....................                 693                   333
CASH AND EQUIVALENTS, beginning of period  ................                 424                 1,018
                                                                   --------------        ----------------
CASH AND EQUIVALENTS, end of period  ......................        $      1,117          $      1,351
                                                                   ==============        ================


                   See Notes To Combined Financial Statements





                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                        COMBINED STATEMENTS OF CASH FLOWS
       Fiscal Years Ended January 3, 2003, December 28, 2001 and December
                            29, 2000 (in thousands)


                                                                        2002                2001               2000
                                                                   ---------------     ---------------    ---------------

OPERATING ACTIVITIES
   Net income .............................................        $      4,333        $      2,444       $       724
   Adjustments to reconcile to cash provided by operations:
     Provision for doubtful accounts  .....................                 286                 175                79
     Depreciation and amortization  .......................               8,706               7,953             6,452
   Working capital changes:
     Accounts receivable  .................................              (1,301)               (438)             (512)
     Inventories...........................................                 (55)                 71               (44)
     Other assets  ........................................                (690)                359             1,162
     Accounts payable and accrued expenses.................                 975                 927               (12)
     Security deposits ....................................                 (33)               (131)               21
     Deferred revenue from nonrefundable fees..............               2,361                 170               506
                                                                       -----------        ------------      ------------
   Net cash provided by operating activities  .............              14,582              11,530             8,376
                                                                       -----------        ------------      ------------

INVESTING ACTIVITIES
   Capital expenditures....................................              (2,301)            (16,032)          (27,451)
                                                                       -----------        ------------       ------------
   Net cash used in investing activities  .................              (2,301)            (16,032)          (27,451)
                                                                       -----------        ------------       ------------

FINANCING ACTIVITIES
   (Repayments of ) proceeds from lifecare bonds, net......                (704)               (114)            1,442
   Net (repayments to) advances from Marriott Senior Living
        Services, Inc......................................             (12,171)              4,256            18,266
                                                                       -----------        ------------       ------------
   Net cash (used in) provided by financing activities  ...             (12,875)              4,142            19,708
                                                                       -----------        ------------       ------------

(DECREASE) INCREASE IN CASH AND
   EQUIVALENTS  ...........................................                (594)               (360)              633
CASH AND EQUIVALENTS, beginning of year  ..................               1,018               1,378               745
                                                                       -----------       ------------        ------------
CASH AND EQUIVALENTS, end of year  ........................            $    424           $   1,018          $  1,378
                                                                       ===========       ============        ============


                   See Notes To Combined Financial Statements




                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                          COMBINED STATEMENT OF EQUITY
             March 28, 2003, January 3, 2003, December 28, 2001 and
                                December 29, 2000
                                 (in thousands)



                                                                 Equity
--------------------------------------------------------------------------------
 Balance, January 1, 2000...............................      $        80,733
 Net income ............................................                  724
 Net advances from Marriott Senior Living Services, Inc.               18,266
 -------------------------------------------------------------------------------
 Balance, December 29, 2000 ............................               99,723
 Net income  ...........................................                2,444
 Net advances from Marriott Senior Living Services, Inc.                4,256
 -------------------------------------------------------------------------------
 Balance, December 28, 2001.............................              106,423
 Net income.............................................                4,333
 Net repayments to Marriott Senior Living Services, Inc.              (12,171)
 -------------------------------------------------------------------------------
 Balance, January 3,  2003..............................               98,585
 Net income (unaudited).................................                1,261
 Net repayments to Marriott Senior Living Services, Inc.
  (unaudited)...........................................                 (253)
 -------------------------------------------------------------------------------
 Balance, March 28, 2003 (unaudited)....................      $        99,593
 ===============================================================================



                   See Notes To Combined Financial Statements





                MARRIOTT SENIOR LIVING SERVICES NINE COMMUNITIES
                          NOTES TO COMBINED STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

    Marriott  Senior  Living  Services,  Inc.  ("MSLS"  or  the  "Company"),   a
wholly-owned  subsidiary of Marriott  International,  Inc.  ("MI") prior to MI's
sale of the stock of MSLS to Sunrise  Senior  Living,  Inc.  on March 28,  2003,
operates independent  full-service and assisted living senior living communities
and  provides  related  senior  care  services.   Most  communities  are  rental
communities  with  monthly  rates  that  depend on the  amenities  and  services
provided.  The  services  provided by MSLS are  generally  not covered by health
insurance and,  therefore,  monthly fees are generally payable by the residents,
their family, or another responsible party.

    The combined financial statements present the financial position, results of
operations,  and cash flows associated with nine communities  owned by MSLS (the
"Communities").  These communities were sold to CNL Retirement Properties,  Inc.
("CNL") on March 28, 2003 for approximately $167,564,000.

    All material  intercompany  transactions  and balances  between  Communities
included  in these  combined  financial  statements  have been  eliminated.  The
Communities are as follows:

Edgewood                                Quadrangle
Fairfax                                 Rancho Mirage
Greenville                              Salt Lake City
Northridge                              Yorba Linda
Palm Springs

    Through March 28, 2003, the Communities  utilized MI's  centralized  systems
for cash  management,  payroll,  purchasing and  distribution,  employee benefit
plans,  insurance and administrative  services.  As a result,  substantially all
cash  received by the  Communities  was  deposited in and  commingled  with MI's
general corporate funds.  Similarly,  operating expenses,  including salaries as
the Communities do not have any employees,  capital  expenditures and other cash
requirements of the properties  were paid by MI and charged to the  Communities.
General and  administrative  expenses were  allocated by MI to MSLS,  which were
then allocated to the Communities. In the opinion of management, the methods for
allocating costs were reasonable.

Use of Estimates

    The  preparation  of financial  statements  in  conformity  with  accounting
principles  generally accepted in the United States requires  management to make
estimates  and  assumptions  that  affect  the  reported  amounts  of assets and
liabilities as of the date of the financial statements,  the reported amounts of
sales and expenses during the reporting period and the disclosures of contingent
liabilities. Accordingly, ultimate results could differ from those estimates.

Interim Period Financial Statements

    The interim statements have been prepared without audit. Certain information
and footnote  disclosures normally included in financial statements presented in
accordance with accounting  principles  generally  accepted in the United States
have been condensed or omitted.  MSLS believes the disclosures made are adequate
to make the interim financial information presented not misleading.

    In the opinion of management,  the accompanying  interim  statements reflect
all adjustments (which include only normal recurring  adjustments)  necessary to
present  fairly the financial  position of the  Communities as of March 28, 2003
and the results of operations and cash flows associated for the 12 weeks periods
ended March 28, 2003 and March 22,  2002.  Interim  results are not  necessarily
indicative  of fiscal  year  performance  because  of  seasonal  and  short-term
variations.



Fiscal Year

    The fiscal year ends on the Friday  nearest to December  31. The 2002 fiscal
year includes 53 weeks, while the 2001 and 2000 fiscal years include 52 weeks.

Revenue Recognition

    Resident fees are generated  primarily from monthly  charges for independent
living units and assisted  living suites and related senior care  services.  The
revenues are recognized monthly based on the terms of the residents' agreements.
Advance  payments  received for  services  are  deferred  until the services are
provided. Resident fee revenue includes ancillary revenue, which is generated on
a "fee for  service"  basis  for  supplemental  items  requested  by  residents.
Ancillary revenue, including health care services, is recognized as the services
are provided.

Continuing Care Agreements

    Residents of certain  communities (the "Lifecare  Communities") are required
to sign a continuing  care  agreement  ("Care  Agreement")  with MSLS.  The Care
Agreements  stipulate,  among  other  things,  the  amount of all entry fees and
monthly fees, the type of residential unit being provided, and MSLS's obligation
to provide both health care and non-health care services. In addition,  the Care
Agreements provide MSLS with the right to increase future monthly fees. The Care
Agreements are terminated upon the receipt of a written  termination notice from
the resident or the death of the resident. The Care Agreements are guaranteed by
MI.

    When  the  present  value  of  estimated  costs to be  incurred  under  Care
Agreements  exceeds estimated  revenues,  the present value of such excess costs
are accrued currently.  The calculation assumes a future increase in the monthly
revenue commensurate with the monthly cost. The calculation currently results in
an expected  positive net present value cash flow and, as such, no liability has
been recorded in the accompanying combined financial statements.

    The components of the entry fees for Lifecare Communities are as follows:

    a. Lifecare  Bonds - This  component  is  refundable  to the resident or the
       resident's estate upon termination or cancellation of the Care Agreement.
       Lifecare  Bonds are  non-interest  bearing and,  depending on the type of
       plan,  are equal to either  100,  95, 90 or 50 percent of the total entry
       fee less any additional  occupant  lifecare fee. As these obligations are
       considered   security   deposits,   interest  is  not  imputed  on  these
       obligations in accordance with APB 21.

    b. Lifecare Fee - This component is nonrefundable and equals the total entry
       fee less the component described in a.

Deferred Revenue from Nonrefundable Lifecare Fees

    The nonrefundable  portion of the entry fees as discussed above are deferred
and recognized as revenue over the actuarially  expected term of each resident's
contract,  which  is  generally  over  7  to  9  years.  Deferred  revenue  from
nonrefundable  fees totaled  $26,261,000  and $23,900,000 at January 3, 2003 and
December 28, 2001, respectively.

Future Healthcare Services

    Certain  resident  and  admission  agreements  entitle  residents to receive
limited  health care services up to defined  maximums.  A portion of the monthly
fees from  residents  entitled to these  services is deferred and  recognized as
revenue as the related health care services are provided.

Contractual Adjustments

    A portion of the revenue is attributable to patients whose bills are paid by
Medicare or Medicaid under contractual  arrangements.  In 1999, Medicare changed
from finalizing  reimbursed covered costs through retroactive  adjustments based
on agency  reviews  to a  Prospective  Payment  System  ("PPS")  for most of the
Communities.  This eliminated the need for provisions for estimated Medicare and
Medicaid  settlements.  There are no receivables for estimated third-party payor
settlements at January 3, 2003 or December 28, 2001.

Comprehensive Income

    There are no items of other comprehensive  income in any period presented in
these financial statements.

Cash and Equivalents

    All highly  liquid  investments  with a maturity of three  months or less at
date of purchase are considered to be cash equivalents.

Allowance for Doubtful Accounts

    The Communities  record an allowance for doubtful accounts when a receivable
is deemed uncollectible.

Valuation of Long-Lived Assets

    The carrying values of long-lived assets are reviewed when events or changes
in  circumstances  indicate  that the  carrying  amount  of an asset  may not be
recoverable.  If an asset is  expected  to  generate  cash  flows  less than the
asset's  carrying value at the lowest level of  identifiable  cash flows, a loss
for the  difference  between the asset's  carrying  amount and its fair value is
recognized.

New Accounting Standards

    The Communities adopted SFAS 144, "Accounting for the Impairment or Disposal
of Long-Lived Assets" in the first quarter of 2002. The adoption of SFAS 144 did
not have a material financial statement impact.

PROPERTY AND EQUIPMENT

                                                                               2002                 2001
                                                                         ------------------   ------------------
                                                                                     (in thousands)

Land  .................................................................  $       27,973       $       27,915
Building improvements  ................................................         226,616              224,690
Furniture and equipment  ..............................................          20,403               22,505
Construction in progress   ............................................               2                  827
                                                                         ------------------   ------------------
                                                                                274,994              275,937
 Less:  accumulated depreciation and amortization  ....................          61,348               55,886
                                                                         ------------------   ------------------
                                                                         $      213,646       $      220,051
                                                                         ==================   ==================

    Property and equipment are recorded at cost,  including  interest,  rent and
real  estate  taxes  incurred  during  development  and  construction.  Interest
allocated by MSLS and capitalized as a cost of property and equipment was $ 0 in
2002 and  $1,046,000 in 2001.  The cost of  improvements  that extend the useful
life of property and equipment are  capitalized  when incurred.  All repairs and
maintenance  costs are expensed as incurred.  Depreciation is computed using the
straight-line  method over the  estimated  useful lives of the assets  (three to
forty years).

OTHER ASSETS

    Included  in other  long-term  assets are cash escrow  reserves  for working
capital,  which are required by various states.  These  restricted cash amounts,
which are held in segregated  accounts,  totaled $1,998,000 and $1,289,000 as of
January 3, 2003 and December 28, 2001.

INCOME TAXES

    The  Communities  are owned by MSLS, but do not constitute all of the assets
of MSLS. These financial  statements have been prepared  assuming the properties
were the only  assets of a  stand-alone  C-  corporation  taxed at a 35% federal
income  tax rate and an  assumed  4% state  income  tax rate  (net of a  federal
benefit).

FAIR VALUE OF FINANCIAL INSTRUMENTS

    The fair values of current assets and current  liabilities are assumed to be
equal to their  reported  carrying  amounts.  Valuations  for lifecare bonds are
determined based on the expected future payments  discounted at estimated market
rates, adjusted, as applicable,  for the existence of guarantees by MI. Lifecare
bonds are  repaid  when  tenants  die or move out.  The  average  lifecare  bond
maturity was assumed to be 8 years based on mortality tables.  The fair value of
Lifecare  bonds was estimated to be  $65,267,000  and  $60,413,000 at January 3,
2003 and December 28, 2001, respectively.

CONTINGENT LIABILITIES

    MSLS,  as well as MI and other  subsidiaries  of MI,  are named  parties  to
pending  legal  proceedings  in the  ordinary  course  of  business,  which,  in
management's  opinion,  will not have a  material  impact on the  results of the
Communities.

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES

Combined Financial Statements

Year ended December 31, 2002
With Report of Independent Auditors

Contents
Report of Independent Auditors	F-43
Combined Statements of Operations for the six months ended
June 30, 2003 and 2002 (unaudited)	F-44
Combined Statements of Operations for the year ended December 31, 2002	F-45
Combined Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002	F-46
Combined Statements of Cash Flows for the six months ended
June 30, 2003 and 2002 (unaudited)	F-47
Combined Statements of Cash Flows for the year ended December 31, 2002	F-48
Notes to Combined Statements	F-49

REPORT OF INDEPENDENT AUDITORS

Board of Directors
CNL Retirement Properties, Inc.

        We have audited the accompanying combined balance sheet of Sunrise Senior Living Services Fourteen Communities (as defined) as of December 31, 2002 and the related combined statements of operations and cash flows for the year then ended. These financial statements are the responsibility of the management of CNL Retirement Properties, Inc. Our responsibility is to express an opinion on these financial statements based on our audit.

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

        In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial position of Sunrise Senior Living Services Fourteen Communities at December 31, 2002 and the combined results of their operations and their cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

/s/ Ernst & Young LLP

McLean, Virginia
October 14, 2003

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
COMBINED STATEMENTS OF OPERATIONS
Six Months Ended June 30, 2003 and 2002
(in thousands)
(unaudited)

	Six months ended
	June 30, 2003		June 30, 2002
REVENUES
Resident fees	$	32,403	$	33,780
EXPENSES
Community operating expenses		21,387		22,700
General and administrative		3,784		2,776
Real estate taxes		1,297		1,253
Rent expense, net of guarantor's fundings		5,790		7,033
Provision for doubtful accounts		145		18
		32,403		33,780
INCOME BEFORE INCOME TAXES		-		-
Provision for income taxes		-		-
NET INCOME	$	-	$	-

See Notes To Combined Financial Statements

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
COMBINED STATEMENT OF OPERATIONS
Year Ended December 31, 2002
(in thousands)

REVENUES
Resident fees	$	67,788
EXPENSES
Community operating expenses		46,502
General and administrative		5,584
Real estate taxes		2,495
Rent expense, net of guarantor's fundings		12,923
Provision for doubtful accounts		284
		67,788
INCOME BEFORE INCOME TAXES		-
Provision for income taxes		-
NET INCOME	$	-

See Notes To Combined Financial Statements

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
COMBINED BALANCE SHEETS
June 30, 2003 and December 31, 2002
(in thousands)

	June 30, 2003		December 31, 2002
	(unaudited)
ASSETS
Current assets
Cash and cash equivalents	$	2,324	$	522
Restricted cash		523		509
Inventories, at lower of average cost or market		224		231
Accounts receivable, net of an allowance of $402
and $424, respectively		1,330		1,985
Due from Manager		1,312		3,428
Prepaid expenses		6		46
Total current assets		5,719		6,721
Other		223		139
Total assets	$	5,942	$	6,860
LIABILITIES AND COMMUNITIES’ EQUITY
Current liabilities
Due to Landlord	$	2,513	$	2,010
Accrued payroll and benefits		1,717		1,893
Accrued real estate taxes		990		736
Accounts payable and other accrued expenses		494		1,865
Total current liabilities		5,714		6,504
Security deposits		228		356
Total liabilities		5,942		6,860
Communities’ equity		-		-
Total liabilities and Communities’ equity	$	5,942	$	6,860

See Notes To Combined Financial Statements

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
COMBINED STATEMENTS OF CASH FLOWS
Six Months Ended June 30, 2003 and June 30, 2002
(in thousands)
(unaudited)

	Six months ended
	June 30, 2003			June 30, 2002
OPERATING ACTIVITIES
Net income	$	-		$	-
Adjustments to reconcile to cash provided by operations:
Provision for doubtful accounts		145			18
Working capital changes:
Restricted cash		(14	)		(76	)
Accounts receivable		510			311
Inventories		7			11
Due from Manager		2,116			537
Other assets		(44	)		(127	)
Accounts payable and accrued expenses		(1,293	)		179
Due to Landlord		503			211
Security deposits		(128	)		(42	)
Net cash provided by operating activities		1,802			1,022
Net cash provided by investing activities		-			-
Net cash provided by financing activities		-			-
INCREASE IN CASH AND CASH EQUIVALENTS		1,802			1,022
CASH AND CASH EQUIVALENTS, beginning of period		522			737
CASH AND CASH EQUIVALENTS, end of period	$	2,324		$	1,759

See Notes To Combined Financial Statements

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
COMBINED STATEMENT OF CASH FLOWS
Year Ended December 31, 2002
(in thousands)

OPERATING ACTIVITIES
Net income	$	-
Adjustments to reconcile to cash used in operations:
Provision for doubtful accounts		284
Working capital changes:
Restricted cash		122
Accounts receivable		(1,158	)
Inventories		6
Due from manager		(476	)
Other assets		(138	)
Accounts payable and accrued expenses		146
Due to Landlord		1,069
Security deposits		(70	)
Net cash used in operating activities		(215	)
Net cash used in investing activities		-
Net cash used in financing activities		-
DECREASE IN CASH AND CASH EQUIVALENTS		(215	)
CASH AND CASH EQUIVALENTS, beginning of year		737
CASH AND CASH EQUIVALENTS, end of year	$	522

See Notes To Combined Financial Statements

SUNRISE SENIOR LIVING SERVICES FOURTEEN COMMUNITIES
NOTES TO COMBINED STATEMENTS

1. ORGANIZATION AND NATURE OF BUSINESS

        The Sunrise Senior Living Services Fourteen Communities (the “Communities”) consists of fourteen assisted living retirement communities. The Communities were developed by Marriott Senior Living Services, Inc. (“MSLS”) between 1997 and 1999 as Brighton Gardens by Marriott facilities. In April 2000, the Communities were sold to a third-party purchaser who then leased the Communities to Senior Care Associates, LLC (the “Tenant”). On January 2, 2003, Marriott International, Inc. (“MI”) purchased 100% of the ownership interests in various limited liability companies that owned the Communities (collectively, the “Landlords”). Prior to March 28, 2003, MSLS was a wholly-owned subsidiary of MI and operated and managed the fourteen Communities. On March 28, 2003, MI sold the stock of MSLS to Sunrise Senior Living, Inc. (“Sunrise”). Upon MI’s sale of stock to Sunrise, Sunrise Senior Living Services, Inc., a wholly-owned subsidiary of Sunrise, assumed operations of the Communities. Additionally, the Brighton Gardens by Marriott brand was changed to a Sunrise brand. On August 29, 2003, the Communities were sold to CNL Retirement Properties, Inc. (“CNL”).

        The Communities are rental communities with monthly rates that depend on the amenities and services provided. The services provided by the operators are generally not covered by health insurance and, therefore, monthly fees are generally payable by the residents, their family, or another responsible party. The fourteen Communities and their locations are as follows:

Sunrise of Columbia	Columbia, Maryland
Sunrise of Dunwoody	Atlanta, Georgia
Sunrise of Florham Park	Florham Park, New Jersey
Sunrise of Greensboro	Greensboro, North Carolina
Sunrise of Northville	Plymouth, Michigan
Sunrise of Omaha	Omaha, Nebraska
Sunrise of Prairie Village	Prairie Village, Kansas
Sunrise of St. Charles	St. Charles, Illinois
Sunrise of Tampa	Tampa, Florida
Sunrise of Tuckerman Lane	Rockville, Maryland
Sunrise of Washington Township	Dayton, Ohio
Sunrise of Westlake	Westlake, Ohio
Sunrise of West Orange	West Orange, New Jersey
Sunrise of Wheaton	Wheaton, Illinois

2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

        The combined financial statements have been prepared to present the combined financial position, results of operations, and cash flows of the Communities and are presented for the purpose of complying with the Securities and Exchange Commission’s rules and regulations regarding acquired businesses and properties. The Communities are operated under leasing structures, which were treated as operating leases for financial reporting purposes (see Note 3). The combined financial statements reflect the combined operations of the fourteen Communities.

        Prior to March 28, 2003, the Communities utilized MI’s centralized systems for cash management, payroll, purchasing and distribution, employee benefit plans, insurance and administrative services. As a result, substantially all cash received by the Communities was deposited in and commingled with MI’s general corporate funds. Similarly, operating expenses, including salaries, as the Communities do not have any employees, capital expenditures and other cash requirements of the properties were paid by MI and charged to the Communities. MI allocated general and administrative expenses to MSLS, which were then allocated to the Communities. Upon MI’s sale of MSLS stock to Sunrise on March 28,2003, Sunrise assumed operations of the Communities. In the opinion of management, the methods for allocating costs were reasonable. Net amounts due from the operators as a result of centralized processing and accounting are recorded as Due from Manager. Management fees incurred were $4,740,000 for the year ended December 31, 2002 and $2,261,000 and $2,330,000 for the six months ended June 30, 2003 and 2002, respectively.

Use of Estimates

        The preparation of financial statements in conformity with accounting principles generally accepted in the United States of America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities as of the date of the financial statements, the reported amounts of sales and expenses during the reporting period and the disclosures of contingent liabilities. Accordingly, ultimate results could differ from those estimates.

Interim Period Financial Statements

        The interim statements have been prepared without audit. Certain information and footnote disclosures normally included in financial statements presented in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted. The Communities’ management believes the disclosures made are adequate to make the interim financial information presented not misleading.

        In the opinion of management, the accompanying interim statements reflect all adjustments (which include only normal recurring adjustments) necessary to present fairly the financial position of the Communities as of June 30, 2003 and the results of operations and cash flows associated for the six months ended June 30, 2003 and 2002. Interim results are not necessarily indicative of fiscal year performance because of short-term variations.

Revenue Recognition

        Resident fees are generated primarily from monthly charges assisted living units and related senior care services. The revenues are recognized monthly based on the terms of the residents’ agreements. Advance payments received for services are deferred until the services are provided. Resident fee revenue includes ancillary revenue, which is generated on a “fee for service” basis for supplemental items requested by residents. Ancillary revenue, including health care services, is recognized as the services are provided.

Comprehensive Income

        There are no items of other comprehensive income in any period presented in these financial statements.

Cash and Equivalents

        All highly liquid investments with a maturity of three months or less at date of purchase are considered to be cash equivalents.

Allowance for Doubtful Accounts

        The Communities record an allowance for doubtful accounts when a receivable is deemed uncollectible.

Communities’ Equity

        In accordance with the provisions of certain credit enhancement agreements between MI, the Landlords and the Tenant, MI has guaranteed the Tenant’s obligations under the lease agreements described in Note 3, including the payment of minimum annual rent and other operating expenses. The Communities operated at a breakeven level due to MI funding net operating shortfalls during the year ended December 31, 2002, and the six months ended June 30, 2003 and 2002. There were no contributions or distributions made by the Tenant during any period presented.

3. LEASES

        The Communities are operated under leasing structures, which are treated as operating leases for financial reporting purposes. The leases have initial terms of 25 years and provide for minimum annual rent in an aggregate amount of approximately $19,140,000 throughout the term of the leases. In accordance with provisions of the leases and certain credit enhancement agreements between MI, the Landlords and the Tenant, MI guaranteed the Tenant’s obligations to pay minimum rent due under the leases. During the year ended December 31, 2002, and the six months ended June 30, 2003 and 2002, MI funded approximately $6,217,000, $3,780,000 and $2,537,000, respectively, to the Landlords for payment of minimum annual rent. MI’s fundings have not been reflected in the accompanying combined financial statements as the credit enhancement agreements were terminated on August 29, 2003 as part of MI’s sale of the Communities to CNL and MI’s fundings were not repaid.

4. RESTRICTED CASH

        Included in restricted cash are resident security deposits, which are held in segregated accounts as required by various states, and reserves for the replacement of furniture, fixtures and equipment (“FF&E”), as required by provisions of the lease agreements. As of June 30, 2003 and December 31, 2002, restricted cash amounts related to resident security deposits were approximately $197,000 and $316,000, respectively, and deposits held in an FF&E reserve totaled approximately $326,000 and $193,000, respectively.

5. INCOME TAXES

        The Communities operated at a breakeven level for the year ended December 31, 2002 and the six months ended June 30, 2003 and 2002. Additionally, there are no temporary differences. Therefore, no provision or benefit for income taxes has been recorded.

6. COMMITMENTS AND CONTINGENCIES

        The Communities are subject to various legal proceedings and claims that arise in the ordinary course of business. In the opinion of management, the ultimate liability with respect to those proceedings and claims will not materially affect the combined financial position, operations, or liquidity of the Communities.

7. SUBSEQUENT EVENT

        On August 29, 2003, CNL purchased the fourteen Communities from MI and simultaneously amended and restated the existing lease agreements, which were assumed by a new tenant, Solomon Holdings I – The Triangle, LLC. The leases were modified to reflect new economic terms, such as minimum annual rent and required FF&E reserves, for this transaction. In addition, MI was released of its obligation to guarantee minimum annual rent.

As a result of this transaction, the Communities’ aggregate future minimum lease payments due under the leases are as follows (in thousands):

2003	$    5,555
2004	18,124
2005	19,053
2006	20,447
2007	21,061
Thereafter	484,014
	$568,254

SUNRISE SENIOR LIVING, INC. SIXTEEN COMMUNITIES

Combined Financial Statements

Year ended December 31, 2002
With Report of Independent Auditors




Contents

Report of Independent Auditors......................................................................F-53

Combined Financial Statements

Combined Balance Sheets as of September 30, 2003 (unaudited) and December
     31, 2002.......................................................................................F-54

Combined Statements of Operations for the nine months ended September 30,
     2003 (unaudited) and for the year ended December 31, 2002......................................F-55

Combined Statements of Changes in Partners' Capital for the nine months ended
     September 30, 2003 (unaudited) and for the year ended December 31, 2002........................F-56

Combined Statements of Cash Flows for the nine months ended September 30,
     2003 (unaudited) and for the year ended December 31, 2002......................................F-57

Notes to Combined Financial Statements..............................................................F-58









                                               Report of Independent Auditors

Board of Directors
Sunrise Senior Living, Inc.

We have audited the accompanying combined balance sheet as of December 31, 2002 of Sunrise Senior Living, Inc. Sixteen
Communities (as defined in Note 1), and the related combined statements of operations, changes in partners' capital, and
cash flows for the year then ended. These financial statements are the responsibility of Sunrise Senior Living, Inc.'s
management. Our responsibility is to express an opinion on these financial statements based on our audit.

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

In our opinion, the financial statements referred to above present fairly, in all material respects, the combined financial
position at December 31, 2002 of Sunrise Senior Living, Inc. Sixteen Communities (as defined in Note 1), and the combined
results of their operations and their cash flows for the year then ended, in conformity with accounting principles
generally accepted in the United States.

                                                                        /s/Ernst & Young LLP

McLean, Virginia
December 5, 2003




                                       Sunrise Senior Living, Inc. Sixteen Communities

                                                   Combined Balance Sheets


                                                                           September 30,       December 31,
                                                                               2003                2002
                                                                        ----------------------------------------
                                                                         (Unaudited)

Assets held for sale:
Current assets:
   Cash and cash equivalents                                             $      2,387,687    $      1,941,527
   Accounts receivable, less allowance of $218,691 and $266,750,
     respectively                                                                 981,726             686,431
   Notes receivable - affiliate                                                         -           1,162,638
   Prepaid expenses and other current assets                                      137,165             261,521
                                                                        ----------------------------------------
Total current assets                                                            3,506,578           4,052,117

Property and equipment, net                                                   137,484,549         130,509,819
Restricted cash                                                                   759,987             464,385
Deferred financing costs, less accumulated amortization of $1,318,100
  and $997,702, respectively                                                      290,518             425,632
Pre-rental costs, less accumulated amortization of  $2,526,258 and
  $2,259,609, respectively                                                              -             226,127
                                                                        ----------------------------------------
Total assets                                                                 $142,041,632    $    135,678,080
                                                                        ========================================

Liabilities held for sale and partners' capital
Current liabilities:
   Accounts payable and accrued expenses                                 $        774,027    $        899,695
   Net payables to affiliates                                                   7,641,017           7,713,462
   Deferred revenue                                                                74,533              90,034
   Current maturities of long-term debt                                        78,602,525          17,457,437
   Other current liabilities                                                        5,273               5,484
                                                                        ----------------------------------------
Total current liabilities                                                      87,097,375          26,166,112

Long-term debt, less current maturities                                        28,229,086          90,062,210
                                                                        ----------------------------------------
Total liabilities                                                             115,326,461         116,228,322

Partners' capital                                                              26,715,171          19,449,758
                                                                        ----------------------------------------
Total liabilities and partners' capital                                      $142,041,632        $135,678,080
                                                                        ========================================


See accompanying notes.





                                       Sunrise Senior Living, Inc. Sixteen Communities

                                              Combined Statements of Operations


                                                                   Nine months ended         Year ended
                                                                     September 30,          December 31,
                                                                         2003                   2002
                                                               ---------------------------------------------
                                                                      (Unaudited)
Operating revenues:
   Resident fees                                                $     32,849,111          $     40,884,441

Operating expenses:
   Labor                                                              10,483,740                13,507,340
   Food                                                                1,733,841                 2,111,404
   General and administrative                                          9,371,609                10,654,664
   Management fees                                                     2,535,806                 3,307,306
   Depreciation and amortization                                         266,649                 4,783,460
                                                               ---------------------------------------------
                                                                      24,391,645                34,364,174
                                                               ---------------------------------------------
Income from operations                                                 8,457,466                 6,520,267

Other income (expense):
   Interest income                                                        75,874                   129,540
   Interest expense                                                   (4,760,650)               (7,222,198)
                                                               ---------------------------------------------
                                                                      (4,684,776)               (7,092,658)
                                                               ---------------------------------------------
Net income (loss)                                               $      3,772,690          $       (572,391)
                                                               =============================================


See accompanying notes.



                                       Sunrise Senior Living, Inc. Sixteen Communities

                                     Combined Statements of Changes in Partners' Capital


                                                                   Nine months ended         Year ended
                                                                     September 30,          December 31,
                                                                         2003                   2002
                                                               ----------------------------------------------
                                                                       (Unaudited)

Partners' capital, beginning of year                             $   19,449,758            $20,022,149
   Net income (loss)                                                  3,772,690               (572,391)
   Buyout of minority partner's interest, net                         3,492,723                      -
                                                               ----------------------------------------------
Partners' capital, end of year                                   $   26,715,171            $19,449,758
                                                               ==============================================


See accompanying notes.



                                       Sunrise Senior Living, Inc. Sixteen Communities

                                              Combined Statements of Cash Flows


                                                                        Nine months ended            Year ended
                                                                          September 30,             December 31,
                                                                               2003                     2002
                                                                    ----------------------------------------------
                                                                            (Unaudited)
Operating activities
Net income (loss)                                                        $    3,772,690             $     (572,391)
Adjustments to reconcile net income (loss) to net cash provided by
  (used in) operating activities:
   Provision for bad debts                                                      122,417                    106,667
   Depreciation and amortization                                                266,649                  4,783,460
   Amortization of financing costs                                              320,398                    374,072
   Accrued interest on note receivable - affiliate                                    -                    (90,000)
   Changes in operating assets and liabilities:
     Accounts receivable                                                       (417,712)                   (96,170)
     Prepaid expenses and other current assets                                  124,356                   (190,177)
     Accounts payable and accrued expenses                                     (125,668)                (1,037,097)
     Net payables to affiliates                                                 (72,445)                (7,322,711)
     Deferred revenue                                                           (15,501)                   (47,954)
     Other current liabilities                                                     (211)                     1,227
                                                                    ----------------------------------------------
Net cash provided by (used in) operating activities                           3,974,973                 (4,091,074)
                                                                    ----------------------------------------------

Investing activities
Increase in restricted cash                                                    (295,602)                  (100,436)
Investment in property and equipment                                         (2,431,807)                (4,437,104)
Pre-rental costs paid                                                           (40,522)                  (333,686)
                                                                    ----------------------------------------------
Net cash used in investing activities                                        (2,767,931)                (4,871,226)
                                                                    ----------------------------------------------

Financing activities
Financing costs paid                                                           (185,284)                  (378,875)
Repayment of long-term debt                                                  (4,783,981)               (16,874,019)
Additional borrowings under long-term debt                                    4,095,945                 25,201,721
Repayments from notes receivable - affiliate                                    112,438                          -
                                                                    ----------------------------------------------
Net cash (used in) provided by financing activities                            (760,882)                 7,948,827
                                                                    ----------------------------------------------
Net increase (decrease) in cash and cash equivalents                            446,160                 (1,013,473)

Cash and cash equivalents at beginning of year                                1,941,527                  2,955,000
                                                                    ----------------------------------------------
Cash and cash equivalents at end of year                                 $    2,387,687             $    1,941,527
                                                                    ==============================================


See accompanying notes.




                                       Sunrise Senior Living, Inc. Sixteen Communities

                                           Notes to Combined Financial Statements

1. Organization

Sunrise Senior Living, Inc. (formerly Sunrise Assisted Living, Inc.) ("SALI") is a provider of senior living services.
Senior living services include providing a residence, meals, and nonmedical assistance to elderly residents for a monthly
fee. The services provided by SALI are generally not covered by health insurance and, therefore, monthly fees are generally
payable by the residents, their families, or another responsible party.

The Sunrise Senior Living, Inc. Sixteen Communities include the combined financial statements associated with sixteen
communities owned by affiliates of SALI (the "Communities").  The Communities were sold to CNL Retirement Properties Inc.
("CNL") on September 30, 2003 (see Note 7). The Communities are included in the following legal entities, as described below:

ADG on Sheepshead Bay, L.L.C.
Atlantic-Sunrise, L.L.C.
Sunrise Assisted Living Limited Partnership
Sunrise Assisted Living Limited Partnership VIII
Sunrise Farmington Hills Assisted Living, L.L.C.
Sunrise Poland Assisted Living, L.L.C.
Sunrise Raleigh Assisted Living, L.L.C.

ADG on Sheepshead Bay, L.L.C. was formed November 16, 1998 under the laws of the State of New York and will terminate on
December 31, 2098.  ADG on Sheepshead Bay, L.L.C. owns and operates the Sheepshead Bay assisted living facility.

Atlantic-Sunrise, L.L.C. was formed January 19, 1999 and began operations on January 28, 1999 under the laws of the State
of New York and will terminate on December 31, 2098.  Atlantic-Sunrise, L.L.C. owns and operates the Mill Basin facility.

Sunrise Assisted Living Limited Partnership ("SALLP") was formed May 5, 1994 under the laws of the Commonwealth of Virginia
and began operations on June 8, 1994 and will terminate on January 1, 2044.  SALLP operates fifteen assisted living and
independent facilities in the Commonwealth of Virginia, Maryland, Florida, and Washington.  The following communities under
SALLP are included in these combined financial statements: Arlington, Bluemont Park, Countryside, Falls Church, Frederick,
Leesburg, and Mercer Island.  Bluemont Park and Countryside represent three and two communities, respectively.

Sunrise Assisted Living Limited Partnership VIII was formed October 19, 1995 under the laws of the State of California and
will terminate on October 1, 2045.  Sunrise Assisted Living Limited Partnership VIII owns and operates the Santa Rosa
facility.




1. Organization (continued)

Sunrise Farmington Hills Assisted Living, L.L.C. was formed July 8, 1999 under the laws of the State of Michigan and will
terminate on December 31, 2099.  Sunrise Farmington Hills Assisted Living, L.L.C. owns and operates the Farmington Hills
North facility.

Sunrise Poland Assisted Living, L.L.C. was formed December 22, 1997 under the laws of the State of Ohio and will terminate
on December 31, 2099.  Sunrise Poland Assisted Living, L.L.C. owns and operates the Poland facility.

Sunrise Raleigh Assisted Living, L.L.C. was formed October 22, 1996 under the laws of the State of North Carolina and will
terminate upon dissolution of the L.L.C. agreement or terms of the agreement or by operation of law. Sunrise Raleigh
Assisted Living, L.L.C. owns and operates the Raleigh facility.

Sunrise Senior Living Management, Inc. (previously Sunrise Assisted Living Management Inc.) (SALMI), a wholly owned
subsidiary of SALI, is the manager of the Communities (see Note 4).

All material intercompany transactions and balances between the Communities included in these combined financial statements
have been eliminated.

As of and for the nine months ended September 30, 2003, the assets and liabilities associated with the Communities were
classified as held for sale by SALI due to their intention to sell the Communities within the year.  As such, no
depreciation was recorded on the property and equipment from January 1, 2003 through September 30, 2003.  The December 31,
2002 combined balance sheet has presented all assets and liabilities as held for sale in accordance with Statement of
Financial Accounting Standards No. 144, Accounting for the Impairment or Disposal of Long-Lived Assets.

2. Significant Accounting Policies

Use of Estimates

The preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.



2. Significant Accounting Policies (continued)

Interim Period Financial Statements

The interim statements have been prepared without audit. Certain information and footnote disclosures normally included in
financial statements in accordance with accounting principles generally accepted in the United States have been condensed
or omitted. The Communities believe the disclosures made are adequate to make the interim financial information presented
not misleading.

In the opinion of management, the accompanying interim statements reflect all adjustments (which include only normal
recurring adjustments) necessary to present fairly the financial position of the Communities as of September 30, 2003, and
the results of operations and cash flows associated with the nine-month period ended September 30, 2003. Interim results
are not necessarily indicative of fiscal year performance because of short-term variations.

Cash and Cash Equivalents

The Communities consider all investments purchased with an original maturity of three months or less to be cash
equivalents.

Allowance for Doubtful Accounts

The Communities provide an allowance for doubtful accounts on their outstanding receivables based on their collection
history.

Property and Equipment

Property and equipment are recorded at cost or stepped up value (see Note 6). Maintenance and repairs are charged to
expense as incurred. Depreciation is computed using the straight-line method over the estimated useful lives of the related
assets. Property and equipment are reviewed for impairment whenever events or circumstances indicate that the asset's
undiscounted expected cash flows are not sufficient to recover its carrying amount. The Communities measure an impairment
loss by comparing the fair value of the asset to its carrying amount. Fair value of an asset is calculated as the present
value of expected future cash flows. Based on management's estimation process, no impairment losses were recorded as of
December 31, 2002.

2. Significant Accounting Policies (continued)

Deferred Financing Costs

Costs incurred in connection with obtaining permanent financing for community-owned facilities have been deferred and
amortized over the term of the financing.

Pre-rental Costs

Costs incurred to initially rent facilities are capitalized and amortized over 12 months.  All other pre-rental costs are
expensed as incurred.

Revenue Recognition

Operating revenue consists of resident fee revenue, including resident community fees. Generally, resident community fees
are received from potential residents upon occupancy. Resident community fees are recognized as income over the first 90
days of the resident's stay and are ratably refundable if the prospective resident does not move into the property or moves
out of the property within 90 days. All other resident fee revenue is recognized when services are rendered. Agreements
with residents are for a term of one year and are cancelable by residents with 30 days' written notice.

Contingent Liabilities

The Communities are named parties to pending legal proceedings in the ordinary course of business, which, in management's
opinion will not have a material impact on the results of the Communities.

Fair Value of Financial Instruments

The carrying value of cash and cash equivalents and long-term debt approximate their fair values at September 30, 2003
(unaudited) and December 31, 2002.

Income Taxes

The Communities are treated as a Partnership for income tax purposes. Accordingly, no provision for income taxes has been
included in the accompanying financial statements, as all attributes of income and loss pass through pro rata to the
partners on their respective income tax returns in accordance with the limited partnership or Limited Liability Company
agreement.





3. Property and Equipment

Property and equipment consist of the following:

                                              Asset Lives       September 30, 2003     December 31, 2002
                                         -------------------------------------------------------------------
                                                                    (Unaudited)
Land and improvements                            10-15 years    $     24,127,327     $     24,052,969
Buildings and improvements                          40 years         127,203,404          121,625,455
Furniture and equipment                           3-10 years          15,264,633           13,942,210
                                                               ---------------------------------------------
                                                                     166,595,364          159,620,634
Less: accumulated depreciation                                       (29,110,815)         (29,110,815)
                                                               ---------------------------------------------
                                                                $    137,484,549         $130,509,819
                                                               =============================================

Depreciation expense was $0 and $4,279,503 for the nine months ended September 30, 2003 (unaudited) and for the year ended
December 31, 2002, respectively. No depreciation was recorded for the nine months ended September 30, 2003, as the property
and equipment was held for sale.

4. Affiliate Transactions

Management Services

The Communities have entered into a management agreement (the "Agreement") with SALMI to manage the Communities. The
Agreement provides for management fees to be paid monthly, based on a percentage of each of the Communities' gross
operating revenues.

Note Receivable

In January 1999, Sheepshead Bay, in which SALI has a controlling interest, accepted a $500,000 promissory note ("ADG Note")
from a minority partner. The ADG Note accrues interest at 10% per annum, which is due annually beginning February 22, 2000.
The principal balance plus accrued and unpaid interest is due on February 22, 2009. This note and accrued interest was
included as consideration for the buyout of the minority partner's interest on September 29, 2003 (see Note 6).

In 2001, Mill Basin, in which SALI has a controlling interest, accepted a $500,000 promissory note ("AMB Note") from a
minority partner. The AMB Note accrues interest at 8% per annum, which is due annually beginning March 2002. The principal
balance plus accrued interest and unpaid interest were due in March 2010.

This note and accrued interest was included as consideration for the buyout of the minority partner's interest on September
29, 2003 (see Note 6).




4. Affiliate Transactions (continued)

Receivables and Payables

The Communities have net payables due to SALMI and affiliates of $7,641,017 and $7,713,462 at September 30, 2003
(unaudited) and December 31, 2002, respectively, as a result of management services.

5. Long -Term Debt

Long-term debt consists of the following:

                                               September 30, 2003   December 31, 2002
                                               ----------------------------------------
                                                  (Unaudited)
Multi-property blanket first mortgage           $    59,947,562       $  60,534,206
Revolving credit facilities                           4,760,000           4,760,000
Line of credit                                                -           4,036,000
Other mortgages and notes payable                    42,124,049          38,189,441
                                               ----------------------------------------
                                                $   106,831,611       $ 107,519,647
Current maturities                                  (78,602,525)        (17,457,437)
                                               ----------------------------------------
                                                $    28,229,086       $  90,062,210
                                               ========================================

SALI entered into a multi-property blanket first mortgage in June 1994 that is collateralized by a blanket first mortgage
on all assets of SALLP, consisting of 10 properties. In May 2001, SALI modified its multi-property blanket first mortgage
to extend the maturity date from May 31, 2001 to May 31, 2004 at a fixed rate of interest equal to 8.20%.

In December 2001, SALI entered into an approximately $4.8 million revolving credit facility collateralized by the Raleigh
Community. The revolving credit facility matures in November 2006, subject to a five-year extension and accrues interest at
LIBOR plus 1.2% (2.32% at September 30, 2003 (unaudited) and 2.58% at December 2002).

At December 31, 2002, the Farmington Hills Community is collateral for approximately $4.0 million of debt under a line of
credit associated with a subsidiary of SALI. This debt accrues interest at LIBOR plus 2.0% and is due in June 2004. The
debt was repaid in January of 2003 when the Farmington Hills Community obtained debt of $4.1 million, as described below.



5. Long -Term Debt (continued)

The other mortgages and notes payable relate to four properties: Santa Rosa, Mill Basin, Sheepshead Bay, and Farmington
Hills, whereby outstanding balances are collaterized by the total assets of the respective property. Payments of principal
and interest are made monthly. Variable interest rates range from LIBOR plus 2.0% to 2.5% (3.12% at September 30, 2003 and
3.88% at December 2002) or the prime rate (4.00% at September 30, 2003 and 4.25% at December 31, 2002). Fixed rate debt is
at 6.875%.

The Sheepshead Bay Community had debt with another lender of $16.0 million that was repaid in June 2002. The debt accrued
interest at LIBOR plus 1.80%. In conjunction with the repayment, the Community recorded additional interest expense for the
unamortized financing costs of approximately $75,000 during the year ended December 31, 2002.

Interest paid totaled $4,482,075 and $6,640,187 for the nine months ended September 30, 2003 (unaudited) and the year ended
December 31, 2002, respectively. Interest capitalized for the year ended December 31, 2002 was approximately $180,000.

Restricted cash consists of real estate tax escrows, operating reserves and capital reserves related to the Communities'
debt agreements and resident deposits.

6. Partner's Capital (Unaudited)

On September 29, 2003, an affiliate of SALI purchased the minority partner's interest of $0.8 million in the Mill Basin and
Sheepshead Bay Communities for approximately $4.3 million in cash and the forgiveness of approximately $1.0 million of the
note receivable from affiliate. As a result of the repurchase, property and equipment related to these two communities were
stepped up to fair value by approximately $4.5 million, based on the market value of the recapitalized communities. This
transaction is considered a non-cash transaction in the combined statement of cash flows as no cash was used by the
Communities to consummate the repurchase of minority interests.

7. Subsequent Events (Unaudited)

On September 30, 2003, SALI completed the sale of its 100 percent interest in the Communities to CNL for an aggregate
purchase price of $158 million. SALI will continue to operate the Communities under long-term management contracts.

EDENCARE SENIOR LIVING SERVICES, L.P.

Consolidated Financial Statements

Year ended December 31, 2002
With Report of Independent Auditors




Contents

Pro Forma Consolidated Financial Statements (unaudited)

Pro Forma Consolidated Balance Sheet as of September 30, 2003........................................F-67

Pro Forma Consolidated Statement of Operations for the nine months ended September 30, 2003..........F-68

Pro Forma Consolidated Statement of Operations for the year ended December 31, 2002..................F-69


Report of Independent Auditors.......................................................................F-70

Consolidated Financial Statements

Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002...............F-71

Consolidated Statements of Operations for the nine months ended September 30,
     2003 and 2002 (unaudited) and for the year ended December 31, 2002..............................F-72

Consolidated Statements of Partners' Deficit for the nine months ended
     September 30, 2003 (unaudited) and for the year ended December 31, 2002.........................F-73

Consolidated Statements of Cash Flows for the nine months ended September 30,
     2003 and 2002 (unaudited) and for the year ended December 31, 2002..............................F-74

Notes to Consolidated Financial Statements...........................................................F-75



                                             PRO FORMA CONSOLIDATED FINANCIAL INFORMATION



On November 25, 2003,  the Company  acquired  substantially  all of the  operating  assets of EdenCare  Senior  Living  Services,  L.P.
("EdenCare").  These  Properties are described as the EdenCare  Portfolio One  Properties and the EdenCare  Portfolio Two Properties in
the "Business - Property  Acquisitions"  section of this Prospectus  Supplement.  The audited financial  statements of EdenCare for the
year ended December 31, 2002 are included following the Unaudited Pro Forma  Consolidated  Financial  Statements.  As of September 30,
2003 and December 31, 2002,  EdenCare's assets included one and two Properties,  respectively,  that were not purchased by the Company.
The following  Unaudited Pro Forma  Consolidated  Balance Sheet of EdenCare as of September 30, 2003 gives effect to the elimination of
the Property not purchased by the Company.

The  Unaudited  Pro Forma  Consolidated  Statements  of  Operations  for the nine months  ended  September  30, 2003 and the year ended
December 31, 2002,  give effect to the  elimination  of the revenues  and expenses of the  operating  assets of EdenCare  that were not
purchased by the Company.

This pro forma financial  information is presented for informational  purposes only and does not purport to be indicative of EdenCare's
financial  results or condition if the various  events and  transactions  reflected  herein had occurred on the dates or been in effect
during the periods  indicated.  This pro forma  financial  information  should not be viewed as indicative  of the Company's  financial
results or conditions in the future.


                                                 EDENCARE SENIOR LIVING SERVICES, L.P.
                                            UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                                          SEPTEMBER 30, 2003




                                                                                     Pro Forma
                                                               Historical           Adjustments          Pro Forma
                                                             ----------------     ----------------    ----------------
                          ASSETS

Current assets:
    Cash and cash equivalents                                      $ 1,763,522          $  (514,542)        $ 1,248,980
       Accounts receivable, net                                        188,227              (12,621)            175,606
    Funds held in escrow                                             3,254,723             (103,831)          3,150,892
    Prepaid expenses and other current assets                          105,693              (15,637)             90,056
                                                             ----------------     ----------------    ----------------
Total current assets                                                 5,312,165             (646,631)          4,665,534

Property and equipment, net of accumulated depreciation of
    $20,372,653                                                    167,305,000          (10,001,336)        157,303,664

Deferred financing costs, less accumulated amortization of
    $4,288,095                                                         674,849                   -              674,849
                                                             ----------------     ----------------    ----------------
                                                                  $173,292,014        $ (10,647,967)      $ 162,644,047
                                                             ================     ================    ================

LIABILITIES AND PARTNERS' DEFICIT

Current liabilities:
    Trade accounts payable and accrued expenses                    $ 6,285,434         $ (1,355,694)        $ 4,929,740
    Accrued interest                                                14,280,041             (176,485)         14,103,556
    Current maturities of long-term debt                           149,787,930              (69,569)        149,718,361
                                                             ----------------     ----------------    ----------------
Total current liabilities                                          170,353,405           (1,601,748)        168,751,657

Long-term debt, less current maturities                             23,687,769           (8,189,917)         15,497,852

Minority interest                                                    1,111,317                    -           1,111,317

Partners' deficit                                                  (21,860,477)            (856,302)        (22,716,779)
                                                             ----------------     ----------------    ----------------
                                                                 $ 173,292,014          (10,647,967)      $ 162,644,047
                                                             ================     ================    ================

                           See accompanying notes to unaudited pro forma consolidated financial statements.



                                                 EDENCARE SENIOR LIVING SERVICES, L.P.
                                       UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                                 NINE MONTHS ENDED SEPTEMBER 30, 2003


                                                                              Pro Forma
                                                          Historical         Adjustments          Pro Forma
                                                        ---------------     ---------------     ---------------

Operating revenue:
    Resident fees                                         $ 42,518,198        $ (2,267,130 )      $ 40,251,068
    Management services income and consulting revenues         132,750            (132,750 )                 -
                                                        ---------------     ---------------     ---------------
Total operating revenue                                     42,650,948          (2,399,880 )        40,251,068

Operating expenses:
    Community operating expenses                            31,589,164          (1,833,823 )        29,755,341
    General and administrative expenses                      3,392,371                   -           3,392,371
    Depreciation and amortization                            5,103,469            (274,944 )         4,828,525
                                                        ---------------     ---------------     ---------------
Total operating expenses                                    40,085,004          (2,108,767 )        37,976,237
                                                        ---------------     ---------------     ---------------

    Income from operations                                   2,565,944            (291,113 )         2,274,831

Other income (expense):
    Investment income                                           26,417                   -              26,417
    Gain on disposal of subsidiaries                           192,320            (192,320 )                 -
    Interest expense, net of amounts capitalized            (8,552,950 )           564,494          (7,988,456 )
                                                        ---------------     ---------------     ---------------
Total other expense                                         (8,334,213 )           372,174          (7,962,039 )

Minority interest in income of consolidated limited
    partnerships                                               (43,913 )                 -             (43,913 )
                                                        ---------------     ---------------     ---------------

Net loss                                                  $ (5,812,182 )        $   81,061        $ (5,731,121 )
                                                        ===============     ===============     ===============



                           See accompanying notes to unaudited pro forma consolidated financial statements.

                                                 EDENCARE SENIOR LIVING SERVICES, L.P.
                                       UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF OPERATIONS
                                                     YEAR ENDED DECEMBER 31, 2002



                                                                               Pro Forma
                                                         Historical           Adjustments          Pro Forma
                                                       ----------------     ----------------    ----------------

Operating revenue:
    Resident fees                                         $ 51,288,313         $ (4,303,881 )      $ 46,984,432
    Management services income and consulting revenues         247,303             (230,003 )            17,300
                                                       ----------------     ----------------    ----------------
Total operating revenue                                     51,535,616           (4,533,884 )        47,001,732

Operating expenses:
    Community operating expenses                            41,368,473           (3,364,880 )        38,003,593
    General and administrative expenses                      4,721,949                    -           4,721,949
    Depreciation and amortization                            7,096,480             (482,652 )         6,613,828
                                                       ----------------     ----------------    ----------------
Total operating expenses                                    53,186,902           (3,847,532 )        49,339,370
                                                       ----------------     ----------------    ----------------

    Loss from operations                                    (1,651,286 )           (686,352 )        (2,337,638 )

Other income (expense):
    Investment income                                           52,105                    -              52,105
    Gain on disposal of subsidiaries                           858,506                    -             858,506
    Interest expense, net of amounts capitalized           (12,723,747 )            899,741         (11,824,006 )
                                                       ----------------     ----------------    ----------------
Total other expense                                        (11,813,136 )            899,741         (10,913,395 )

Minority interest in losses of consolidated limited
    partnerships                                                20,498                    -              20,498
                                                       ----------------     ----------------    ----------------

Net loss                                                 $ (13,443,924 )         $  213,389       $ (13,230,535 )
                                                       ================     ================    ================


                           See accompanying notes to unaudited pro forma consolidated financial statements.


                                                    Report of Independent Auditors

Board of Directors
EdenCare Senior Living Services, L.P.

We have audited the  accompanying  consolidated  balance sheet of EdenCare  Senior Living  Services,  L.P.  (the  "Partnership")  as of
December 31,  2002, and the related  consolidated  statements of operations,  partners' deficit and cash flows for the year then ended.
These financial  statements are the  responsibility of the  Partnership's  management.  Our  responsibility is to express an opinion on
these financial statements based on our audit.

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

In our opinion,  the financial  statements  referred to above present fairly,  in all material  respects,  the  consolidated  financial
position of EdenCare Senior Living  Services,  L.P. as of  December 31, 2002,  and the  consolidated  results of its operations and its
cash flows for the year then ended in conformity with accounting principles generally accepted in the United States.

                                                                       /s/Ernst & Young LLP
Atlanta, Georgia
April 11, 2003



                                                 EdenCare Senior Living Services, L.P.

                                                      Consolidated Balance Sheets


                                                                    September 30,         December 31,
                                                                        2003                  2002
                                                                --------------------------------------------
                                                                     (Unaudited)
Assets
Current assets:
   Cash and cash equivalents                                           $1,763,522            $1,898,916
   Accounts receivable, net of allowance for doubtful accounts            188,227               300,862
     of $112,653 at December 31, 2002
   Funds held in escrow                                                 3,254,723             2,588,903
   Prepaid expenses and other current assets                              105,693               806,199
                                                                --------------------------------------------
 Total current assets                                                   5,312,165             5,594,880

 Property and equipment, net of accumulated depreciation              167,305,000           174,850,650

Deferred financing costs, less accumulated amortization
  of $3,528,546 at December 31, 2002                                      674,849             1,360,360
                                                                --------------------------------------------
                                                                     $173,292,014          $181,805,890
                                                                ============================================

Liabilities and partners' deficit
Current liabilities:
   Trade accounts payable                                                $872,793            $1,171,303
   Accrued interest                                                    14,280,041            11,164,274
   Accrued salaries and benefits                                        1,422,045             1,741,424
   Accrued property taxes                                               1,585,653             1,036,918
   Accrued insurance                                                    1,005,610             1,567,355
   Other accruals                                                       1,399,333             2,778,274
   Current maturities of long-term debt                               149,787,930             1,246,164
                                                                --------------------------------------------
Total current liabilities                                             170,353,405            20,705,712

Long-term debt, less current maturities                                23,687,769           176,081,069
Minority interests                                                      1,111,317             1,067,404

Partners' deficit                                                     (21,860,477)          (16,048,295)
                                                                --------------------------------------------
                                                                     $173,292,014          $181,805,890
                                                                ============================================

See accompanying notes.



                                                 EdenCare Senior Living Services, L.P.

                                                 Consolidated Statements of Operations


                                                              Nine Months ended September 30,          Year ended
                                                                                                      December 31,
                                                                  2003                2002                2002
                                                          -------------------------------------------------------------
                                                              (Unaudited)          (Unaudited)

 Operating revenue:
   Resident fees                                                $ 42,518,198         $ 37,709,752        $ 51,288,313
   Management services income and
     consulting revenues                                             132,750              167,002             247,303
                                                          -------------------------------------------------------------
 Total operating revenue                                          42,650,948           37,876,754          51,535,616

 Operating expenses:
   Community operating expenses                                   31,589,164           30,631,452          41,368,473
   General and administrative expenses                             3,392,371            3,372,376           4,721,949
   Depreciation and amortization                                   5,103,469            5,054,570           7,096,480
                                                          -------------------------------------------------------------
 Total operating expenses                                         40,085,004           39,058,398          53,186,902
                                                          -------------------------------------------------------------
   Income (Loss) from operations                                   2,565,944           (1,181,644)         (1,651,286)

 Other income (expense):
   Investment income                                                  26,417               48,712              52,105
   Gain on disposal of subsidiaries                                  192,320              858,506             858,506
   Interest expense, net of amounts capitalized                   (8,552,950)          (9,614,336)        (12,723,747)
                                                          -------------------------------------------------------------
 Total other expense                                              (8,334,213)          (8,707,118)        (11,813,136)

 Minority interest in (income) losses of consolidated
   limited partnerships                                              (43,913)              17,124              20,498
                                                          -------------------------------------------------------------
 Net loss                                                       $ (5,812,182)        $ (9,871,638)       $(13,443,924)
                                                          =============================================================



See accompanying notes.



                                                 EdenCare Senior Living Services, L.P.

                                             Consolidated Statements of Partners' Deficit



Balance at January 1, 2002                               $  (3,817,896)
   Capital contribution                                         338,999
   Other comprehensive                                          874,526
   Net loss                                                 (13,443,924)
                                                     ---------------------
Balance at December 31, 2002                               (16,048,295)
   Net loss (Unaudited)                                      (5,812,182)
                                                     ---------------------
Balance at September 30, 2003 (Unaudited)                $ (21,860,477)
                                                     =====================



See accompanying notes.


                                                 EdenCare Senior Living Services, L.P.

                                                 Consolidated Statements of Cash Flows


                                                                  Nine Months ended September 30,         Year ended
                                                                                                         December 31,
                                                                      2003                2002               2002
                                                               ----------------------------------------------------------
                                                                   (Unaudited)        (Unaudited)
Operating activities
Net loss                                                            $ (5,812,182)        $(9,871,638)      $(13,443,924)
Adjustment to reconcile net loss to net cash used in
   operating activities:
     Depreciation and amortization                                     5,103,469           5,054,570          7,096,480
     Minority interests                                                   43,913             (17,124)           (20,498)
     Net change in fair value of interest rate collar                          -             874,526            874,526
     Changes in operating assets and liabilities:
       Accounts receivable                                               112,635             (96,553)           (13,522)
       Prepaid expenses, security deposits and other assets              700,506             381,564                868

       Accounts payable and accrued expenses                           1,105,927           1,380,822          4,826,501
                                                               ----------------------------------------------------------
Net cash provided by (used in) operating activities                    1,254,268          (2,293,833)          (679,569)

Investing activities
Disposition of property and equipment                                  3,902,714             385,289            297,126
Purchases of and additions to property and equipment                    (571,686)           (426,657)          (568,876)
                                                               ----------------------------------------------------------
Net cash provided by (used in) investing activities                    3,331,028             (41,368)          (271,750)

Financing activities
Capital contributions by partners                                              -             338,999            338,999
Proceeds from long-term debt borrowings                                        -           1,018,397          1,018,397
Long-term debt payments                                               (3,851,534)           (421,565)          (562,087)
Redemptions of funds held in escrow                                     (665,820)            142,745            142,745
Payment of deferred financing costs                                     (203,336)                  -           (115,228)
                                                               ----------------------------------------------------------
Net cash provided by (used in) financing activities                   (4,720,690)          1,078,576            822,826
                                                               ----------------------------------------------------------
Decrease in cash                                                        (135,394)         (1,256,625)          (128,493)
Cash and cash equivalents at beginning of year                         1,898,916           2,027,409          2,027,409
                                                               ----------------------------------------------------------
Cash and cash equivalents at end of year                        $      1,763,522    $        770,784   $      1,898,916
                                                               ==========================================================

Supplemental cash flow information
 Cash paid for interest, net of amount capitalized              $      5,437,000    $      6,351,000   $      8,201,000
                                                               ==========================================================

See accompanying notes.



                                                 EdenCare Senior Living Services, L.P.

                                              Notes to Consolidated Financial Statements

                                                           December 31, 2002

                                                 EdenCare Senior Living Services, L.P.

                                        Notes to Consolidated Financial Statements (continued)







1. Interim Period Financial Statements

The interim statements have been prepared without audit.  Certain information and footnote  disclosures  normally included in financial
statements  presented in accordance with accounting  principles generally accepted in the United States have been condensed or omitted.
Management believes the disclosures made are adequate to make the interim financial information presented not misleading.

In the opinion of management,  the  accompanying  interim  statements  reflect all  adjustments  (which  include only normal  recurring
adjustments)  necessary  to present  fairly the  financial  position of the  Partnership  as of  September 30,  2003 and the results of
operations  and cash  flows  associated  for the nine  month  periods  ended  September 30,  2003 and  2002.  Interim  results  are not
necessarily indicative of fiscal year performance because of seasonal and short-term variations.

2. Organization

EdenCare Senior Living Services,  L.P. (the  "Partnership")  was organized in December 1996  for the purpose of developing,  purchasing
and managing  assisted  living,  independent  and special care  communities  throughout the United  States.  Assisted  living  services
provide a residence,  meals and nonmedical  assistance to elderly  residents for a monthly fee. The  Partnership's  services  generally
are not covered by health  insurance.  Accordingly,  monthly fees for assisted  living and other services are generally  payable by the
residents,  their  families or other  responsible  parties.  The  Partnership  generally  does not require any  collateral  or security
interest from the residents.

The Partnership was capitalized and commenced  operations in January 1997.  On August 28,  1998, the Partnership  agreement was amended
and restated to create a new class of equity  whereby the ownership  structure  was divided into Class A Equity (the  original  capital
partners)  and Class B Equity.  On  November 6, 2001,  the  Partnership  agreement  was further  amended and  restated to create  three
additional  classes of equity  whereby the  ownership  structure  was divided  between  Class A, Class B, Class C,  Class D and Class E
Equity.


2. Organization (continued)

The Partnership's  ownership structure is composed of Class A Equity (32.3%),  Class B Equity (10.2%), Class C Equity (50%) and Class E
Equity (7.5%).  The Class A Equity ownership  structure is as follows:  General Partner- Assisted Living Capital  Partners,  L.P. (60%)
and Limited Partners-  JMI/Greystar Realty Partners,  L.P. (11%), CFP, L.P. (8%) and Manager Assisted Living Partners,  L.P. (21%). The
Class B Equity  ownership  structure is as follows (all Limited  Partners):  ESLS Investment LTD., an Ohio L.L.C.  (80%),  CFP/Assisted
Living Partnership,  L.P. (10%) and JMI/Greystar  Assisted Living Partners,  L.P. (10%). The Class C Equity is wholly owned by EdenCare
Investment  Group,  LLC, an investment  holding company owned by CFP/Assisted  Living Partners,  L.P.  (44.6%),  JMI/Greystar  Assisted
Living Partners,  L.P. (49.1%),  ESLS Investment LTD., an Ohio L.L.C. (4.8%) and certain members of the Partnership's senior management
(1.5%).  The Class D Equity is wholly owned by Assisted  Living Capital  Partners,  L.P. The Class E Equity is wholly owned by EdenCare
Management, L.P.

The  Partnership  expires at the earlier of August 26, 2098 or one of the following  dissolution  events:(1) the  determination  of the
management  committee to dissolve the  Partnership;  (2) the  withdrawal or retirement  from the  Partnership  by the General  Partner;
(3) the disposition of all or substantially all of the Partnership's  property and the determination by the management committee not to
continue  acquisition  and  development of projects;  (4) the  adjudication  of Partnership  bankruptcy or (5) the filing for relief or
reorganization  in bankruptcy.  The General Partner may not withdraw from the  Partnership  without the prior written consent of all of
the Limited  Partners,  and a Limited  Partner may not  voluntarily  withdraw from the  Partnership  without the consent of the General
Partner.

Losses are allocated first to the Partners in proportion to their  respective  capital account balances to the extent thereof and based
upon the type of partnership  units held, and next, to the General Partner to the extent future  allocations of net losses to a limited
partner would cause such limited partner to have a capital account  deficit.  Under the Class A Equity  agreement,  the General Partner
made total capital  contributions of $20,000,000.  Under the Class B Equity  agreement,  the Class B Equity Limited Partners made total
capital  contributions  of  $25,000,000.  Under the Class C Equity  agreement,  The Class C Equity Limited  Partners made total capital
contributions  of $5,502,000.  Under the Class D Equity  agreement,  the General Partner  converted  $5,426,190 of unpaid principal and
accrued  interest owed by the  Partnership  to the General  Partner  under a promissory  note into Class D Equity during the year ended
December 31, 2002. Under the Class E Equity agreement, the Class E Equity limited partners made total capital contributions of $999.

2. Organization (continued)

The  Partnership's  financial  statements have been prepared  assuming that the Partnership will continue to meet its obligations.  The
Partnership  has  incurred  losses  from  operations  and  maintains  an  accumulated  deficit at December  31,  2002 of  approximately
$16,048,000.  The financial  statements do not include any adjustments to the  recoverability  and  classification  of liabilities that
might be necessary should the Partnership be unable to continue as a going concern.

The  Partnership's  continuation  is  dependent  on its  ability  to  generate  sufficient  cash  flows and  profitability  to meet its
obligations  on a timely  basis and comply  with debt  obligations.  The  Partnership  believes  its cash flows and  profitability  are
affected by the general  trends in the assisted  living  industry and by the  individual  factors at a community  level that  determine
profitability,  such as occupancy level,  expense  controls,  and availability of qualified  staff,  among others.  The Partnership has
instituted  plans at each  operating  unit that are designed to increase  profitability  and cash flow from  operations  during  future
periods.  The Partnership  expects that these plans,  as well as corporate  initiatives,  will facilitate  improvements in the business
operations.  However,  the Partnership  cannot assure future  increased  profitability  and cash flows. The Partnership also intends to
refinance or seek new  financing for certain of its debt  obligations  which become due in 2004.  There can be no  assurances  that the
Partnership will be successful in obtaining additional financing.

3. Significant Accounting Policies

Business and Consolidation

The Partnership develops, owns and operates 27 assisted living,  independent and special care communities located in Alabama,  Florida,
Kentucky,  Georgia,  North Carolina,  South Carolina and Texas. In addition,  the Partnership  manages two assisted living  communities
located in Georgia and South Carolina.

The consolidated  financial  statements  include wholly and majority owned  subsidiaries  that manage,  own and develop assisted living
communities  organized as limited  partnerships whose limited  partnership  interests are directly owned and whose general  partnership
interest is directly or  indirectly  owned by the  Partnership.  All  significant  intercompany  transactions  and  accounts  have been
eliminated.




3. Significant Accounting Policies (continued)

Revenue Recognition

Operating  revenues consist of resident fee revenue and management  services  income.  Resident fee revenue is recognized when services
are rendered.  Agreements  with  residents are for a term of one year and are  cancelable by the  Partnership  or residents with thirty
days notice.  Management  services  income is comprised of revenue from  management  contracts and revenue from  consulting  contracts.
Revenue from  management  contracts is  recognized in the month in which it is earned in  accordance  with the terms of the  management
contracts.  Revenue from consulting contracts is recognized over the term of the respective consulting contracts.

Property and  equipment  are  recorded at the lower of cost or fair value if  indicators  of  impairment  exist as described  below and
include  interest and property  taxes  capitalized  during the  construction  period,  as well as other costs  directly  related to the
development  and  construction  of  communities.  Internal  costs  related to the  purchase of  existing  communities  are  expensed as
incurred.  Maintenance  and repairs are charged to expense as incurred.  Depreciation  is computed  once the asset is placed in service
using the  straight-line  method over the estimated useful lives ranging from three to ten years for furniture and equipment,  15 years
for building improvements and forty years for buildings.

Property and Equipment

Effective January 1, 2002, the Partnership  adopted Statement of Financial  Accounting  Standards No. 144 ("SFAS 144"),  Accounting for
the  Impairment or Disposal of Long-Lived  Assets.  SFAS 144  supercedes  Statement of Financial  Accounting  Standards  No. 121 ("SFAS
121"),  Accounting for the Impairment of Long-Lived Assets and for Long-Lived Assets to be Disposed Of. The adoption of SFAS 144 had no
effect on the Partnership's  results of operations.  The Partnership  records impairment losses on long-lived assets used in operations
when events or  circumstances  indicate that the assets may be impaired and the  undiscounted  cash flows  estimated to be generated by
those assets are less than the net book value of those  assets.  If the carrying  amount  exceeds the expected  future cash flows,  the
Partnership measures the amount of impairment by comparing the book value of the asset to its fair value.


3. Significant Accounting Policies (continued)

Deferred Financing Costs

Deferred  financing costs consist of loan costs,  fees and other expenses  incurred in connection with obtaining  various financing for
Partnership-owned  communities.  Such  costs  have been  deferred  and are  amortized  over the term of the loan  using  the  effective
interest method.

Cash and Cash Equivalents

The  Partnership  considers  all highly liquid  investments  with a maturity of three months or less at the date of purchase to be cash
equivalents.

Income Taxes

The Partnership was formed as a limited  partnership;  accordingly,  the results of its operations are to be included in the income tax
returns of the  partners.  Thus,  no income  taxes are  provided in the  consolidated  financial  statements  of the  Partnership.  The
Partnership's  corporate  subsidiaries  are subject to income taxes.  Income taxes are provided using the liability  method.  Under the
liability  method,  deferred tax assets and  liabilities  are recognized for the future tax  consequences  attributable  to differences
between the  financial  statement  carrying  amounts of existing  assets and  liabilities  and their  respective  tax basis  (temporary
differences).  The  Partnership's  corporate  subsidiaries  did not have income for financial  reporting or income tax purposes for the
year ended December 31, 2002, and losses for financial reporting and income tax purposes were insignificant.

Use of Estimates

The  preparation of financial  statements in conformity  with generally  accepted  accounting  principles  requires  management to make
estimates and assumptions that affect the amounts reported in the financial  statements and  accompanying  notes.  Actual results could
differ from those estimates.



3. Significant Accounting Policies (continued)

Concentrations of Credit Risk

Financial  instruments that potentially  subject the Partnership to significant  concentrations  of credit risk consist  principally of
cash,  funds  held in escrow,  accounts  receivable,  and  long-term  debt.  Concentrations  of credit  risk with  respect to  accounts
receivable  are  limited  due to the large  number of  residents  comprising  the  Partnership's  resident  base.  The  majority of the
Partnership's long-term debt and related funds held in escrow are through a limited number of financial institutions.

Recent Accounting Pronouncements

In April 2002, the FASB issued  Statement of Financial  Accounting  Standards No. 145,  Rescission of FASB Statements No. 4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical  Corrections  ("SFAS 145").  SFAS 145 rescinds SFAS No. 4, Reporting Gains and Losses
from  Extinguishment of Debt. As a result,  gains and losses from  extinguishment  of debt should be classified as extraordinary  items
only if they meet the  criteria  in APB No.  30.  SFAS No.  44,  Accounting  for  Intangible  Assets of Motor  Carriers,  was issued to
establish  accounting  requirements  for the effects of  transition to the  provisions of the Motor Carrier Act of 1980.  Because those
transitions  have  been  completed,  SFAS No.  44 is no  longer  necessary.  SFAS  No.  64,  Extinguishments  of Debt  Made to  Satisfy
Sinking-Fund  Requirements,  amended SFAS No. 4, and is no longer necessary because SFAS No. 4 has been rescinded. SFAS 145 amends SFAS
No. 13, Accounting for Leases, to eliminate an inconsistency  between the required  accounting for sale-leaseback  transactions and the
required  accounting for certain lease  modifications that have economic effects that are similar to sale-leaseback  transactions.  The
provisions  of SFAS 145  related to the  recision  of SFAS No. 4 will be applied in fiscal  years  beginning  after May 15,  2002.  The
provisions of SFAS No. 145 related to SFAS No. 13 are effective for transactions  occurring after May 15, 2002, with early  application
encouraged.  All other  provisions  of SFAS 145 are  effective for  financial  statements  issued on or after May 15, 2002,  with early
application encouraged. The adoption of SFAS 145 did not have a material impact on the Partnership's financial statements.



3. Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

In July 2002,  the FASB issued  Statement of Financial  Accounting  Standards No. 146,  Accounting  for Costs  Associated  with Exit or
Disposal  Activities ("SFAS 146").  SFAS 146  addresses  financial  accounting and reporting for costs associated with exit or disposal
activities and supercedes Emerging Issues Task Force Issue No. 94-3,  Liability  Recognition for Certain Employee  Termination Benefits
and Other Costs to Exit an Activity  (including  Certain Costs Incurred in a  Restructuring).  SFAS 146 requires that a liability for a
cost associated  with an exit or disposal  activity be recognized when the cost is incurred rather than when a plan of exit or disposal
is committed to. The provisions of this statement are effective for exit or disposal  activities that are initiated after  December 31,
2002. The Partnership does not expect there to be a material impact on its consolidated financial position,  results of operations,  or
cash flows as a result of adopting this accounting standard.

In November 2002, the FASB issued Interpretation No. 45, Guarantor's Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect Guarantees of Indebtedness of Others.  This  interpretation  will significantly  change current practice in the accounting for
and disclosure of guarantees.  Guarantees  meeting the  characteristics  described in the  Interpretation  are required to be initially
recorded at fair value,  which is different  from the general  current  practice of recording a liability  only when a loss is probable
and reasonably estimable.  The interpretation's  initial recognition and initial measurement provisions are applicable on a prospective
basis to guarantees  issued or modified after December 31, 2002. The  interpretation  also requires a guarantor to make significant new
disclosures  for virtually all  guarantees  even if the  likelihood of the  guarantor's  having to make payments under the guarantee is
remote. The interpretation's disclosure requirements are effective for the Partnership's 2002 financial statements.




3. Significant Accounting Policies (continued)

Recent Accounting Pronouncements (continued)

In January 2003, the FASB issued  Interpretation No. 46,  Consolidation of Variable Interest Entities.  This interpretation  requires a
variable  interest  entity to be  consolidated  by a company if that  company  is  subject  to a majority  of the risk of loss from the
variable  interest  entity's  activities or entitled to receive a majority of the entity's  residual returns or both. The consolidation
requirements of this  interpretation  apply to variable interest entities created after January 31, 2003 and apply to existing variable
interest  entities in years  beginning  after June 15,  2003.  The  Partnership  does not expect  there to be a material  impact on its
financial position, results of operations or cash flows as a result of adopting this accounting standard.

Advertising Costs

Advertising costs are expensed as incurred. Advertising expenses were approximately $1,813,000 for the year ended December 31, 2002.

4. Funds Held in Escrow

Funds held in escrow consist of operating  deficit and working capital  reserve funds under certain  mortgage note  arrangements  which
are  available to satisfy  current  obligations  relating to the operating  and working  capital needs of certain of the  Partnership's
assisted  living  communities.  In addition,  the  Partnership is required under certain  mortgages  payable to escrow funds to satisfy
current  property tax  obligations of certain of the  Partnership's  assisted  living  communities.  Funds held in escrow also contains
funds held for insurance  programs in certain  states.  The Partnership has invested such funds in money market accounts and government
backed insured deposits.


5. Property and Equipment

Property and equipment consist of the following at December 31, 2002:

                                                                                 2002
                                                                         ---------------------

Land                                                                          $  15,379,000
Buildings and building improvements                                             162,550,000
Furniture and equipment                                                          13,742,000
                                                                         ---------------------
                                                                                191,671,000
Less accumulated depreciation                                                   (16,820,000)
                                                                         ---------------------
                                                                               $174,851,000
                                                                         =====================

6. Joint Ventures

The  Partnership  maintains a joint  venture  agreement  with a third party.  The joint  venture is  structured as single asset limited
partnership  whereby the third party has joint  ownership  with the  Partnership.  The  Partnership  holds a 50%  interest in its joint
venture  (in  Georgia)  and the  operating  results of the joint  venture  are  included in the  Partnership's  consolidated  financial
statements.

7. Disposition

In May 2002, the Partnership  divested an assisted living  community  located in Georgia.  In conjunction  with this  transaction,  the
Partnership  received  gross sale proceeds of $2,975,000  and recorded a net gain on disposal of assets in the amount of  approximately
$859,000. The Partnership repaid the related mortgage note from gross sales proceeds in the amount of approximately $1,750,000.




8. Long-Term Debt

Long-term debt at December 31, 2002 is summarized as follows:

Mortgage notes payable in installments which include interest
   based on LIBOR plus 2.5% to 3.0% with monthly principal and
   accrued interest payments ranging from $14,000 to $21,000(a)        $  18,038,000

HUD guaranteed mortgage notes payable in installments which
   include interest ranging from 8.25% to 8.55% with monthly
   principal and accrued interest payments ranging from
   $18,000 to $66,000 (b)
                                                                          15,477,000

Construction loans bearing interest based on LIBOR plus 2.4%
   to 3.0% with monthly interest payments ranging from $18,000
   to $56,000 (c)                                                        122,616,000

Loans bearing interest at 15% to 17%, final maturities in 2004
   (d)                                                                    16,550,000

Loans bearing interest at 18% due in full July 30, 2004 (e)
                                                                           3,646,000

Unsecured note payable bearing interest at 9% payable in
   monthly installments, principal due in full January 1, 2004
                                                                           1,000,000
                                                                   --------------------
                                                                         177,327,000
Less current portion of notes payable and long-term debt
                                                                          (1,246,000)
                                                                   --------------------
                                                                        $176,081,000
                                                                   ====================

(a)  Mortgages  payable for assisted  living  communities  acquired  are  collateralized  by the  majority of assets of the  respective
     communities.  Principal  payments are due in accordance with a 25-year  amortization  schedule with remaining unpaid principal and
     interest due January 1, 2004.



8. Long-Term Debt (continued)

     The mortgages  contain  provisions  whereby  certain  operating  deficit  reserves are held in escrow and are available to satisfy
     obligations  relating to the operating and working  capital needs of certain of the assisted living  communities  covered by these
     mortgage notes. In addition,  the mortgage notes require certain amounts to be escrowed  monthly to satisfy  current  property tax
     obligations of the communities.

(b)  HUD guaranteed  mortgages payable for three assisted living  communities.  Principal payments are due in accordance with a 40-year
     amortization schedule.

     The mortgages  contain  provisions  whereby  certain  operating  deficit  reserves are held in escrow and are available to satisfy
     obligations  relating to the operating and working  capital needs of certain of the assisted living  communities  covered by these
     mortgage notes. In addition,  the mortgage notes require  certain amounts to be escrowed  monthly to satisfy current  property tax
     obligations of the communities.

(c)  Construction loans payable for assisted living,  independent living and special care communities.  The loans are collateralized by
     the majority of assets of the  respective  communities.  The loans bear interest  based on LIBOR plus 2.4% to 3.0%.  The loans are
     due from January 1, 2004 with extension options to August 31, 2004 upon attainment of certain financial ratios.

     The construction  loans contain  provisions  whereby certain  operating  deficit reserves  are held in escrow and are available to
     satisfy  obligations  relating to the operating and working capital needs of certain of the assisted living communities covered by
     these loans. In addition,  the construction  loans require certain amounts to be escrowed  monthly to satisfy current property tax
     obligations of the communities.

     The aggregate  proceeds  available  under the loans are  approximately  $123,000,000  of which  $122,616,000  had been drawn as of
     December  31,  2002.  The loans  include  proceeds  available  to fund cash  operating  losses of the  communities  subsequent  to
     completion of construction.  These operating loss fundings are drawn on a monthly basis in arrears.


8. Long-Term Debt (continued)

(d)  The Partnership  maintains an agreement with Prudential Real Estate  Investors  whereby its Strategic  Performance Fund - II, Inc.
     had agreed to provide financing up to an aggregate of $20,000,000 for general corporate purposes.

     The property-specific  financing is fully cross-defaulted and  cross-collateralized.  The loans are designed to approximate 10% of
     the total  development  costs of the  related  assisted  living or  independent  communities  and are  subordinate  to the primary
     mortgages at the communities.

     The loans bear  interest  at an annual base rate of 10%.  Upon  maturity,  the  Partnership  will be  required to make  additional
     interest  payments  based upon the  lender's  stated  internal  rate of return (15% - 17%).  Base  interest is payable  monthly in
     arrears with the additional  interest  component being due in full upon maturity of the loan. The loans mature at the same date as
     the primary  mortgage at each  community.  The loans  provide for the deferral of base rate interest  until  certain  consolidated
     Partnership cash flow and liquidity measurements are attained.

(e)  The Partnership  maintains an agreement with Rockbridge  Capital,  Inc. to provide  financing up to an aggregate of $3,794,314
     for general corporate  purposes.  The  property-specific  financing is guaranteed by the Partnership and is fully  cross-defaulted
     and cross-collateralized.

     The loans bear  interest a base annual rate of 10%. Of the  aggregate  loan  amount,  $696,044  was  reserved to be drawn for base
     interest  payments.  At December 31, 2002,  this reserved  amount had been fully drawn.  Upon maturity,  the  Partnership  will be
     required to make  additional  interest  payments based upon the lender's  stated  internal rate of return (18%).  Base interest is
     payable  monthly in arrears  (if there is  available  cash flow) with the  additional  interest  component  being due in full upon
     maturity of the loan.  The loans mature on January 1, 2004.



8. Long-Term Debt (continued)

Approximate principal maturities of the long-term debt as of December 31, 2002 are as follows:

       2003                                   $      1,246,000
       2004                                        153,051,000
       2005                                          7,953,000
       2006                                            155,000
       2007                                            168,000
       Thereafter                                   14,754,000
                                          ---------------------
                                                  $177,327,000
                                          =====================

In 2000, the Partnership  entered into two three-year  accreting interest rate collars having notional principal amounts of $19,247,148
and  $12,753,170  with a  Strategic  Performance  Fund - II as a result of a  provision  of the  Partnership's  1998  credit  agreement
requiring the Partnership to maintain a form of interest rate  protection.  The collars  qualified as a cash flow hedge under Statement
of Financial  Accounting  Standards No. 133,  Accounting for Derivative  Instruments and Hedging  Activities  ("SFAS 133").  The collar
agreements  included a 30 day settlement  provision for which the Partnership  made payments to the financial  institution in instances
in which 30-day LIBOR dropped  below a floor of 6.0 % (accreting  floor  beginning at 5.25% and 5.375% in year one,  5.75% in year two,
6.0% in year three) or received  payments from the financial  institution  in instances  where the 30-day LIBOR exceeded the designated
rate ceiling of 8.59%.  The interest  rate collars  expired in July and August of 2002,  and the related  liabilities  of $874,526 were
reversed through comprehensive income at the expiration dates.

9. Commitments and Contingencies

The  Partnership  leases certain office  equipment and vehicles.  The majority of the leases are for a term of 36 months.  In addition,
the  Partnership  leases its  corporate  office  facility  under a 60-month  lease with a third party.  Rent expense  under such leases
during the year ended December 31, 2002 totaled approximately $444,000.



9. Commitments and Contingencies (continued)

Future minimum rental commitments for these noncancelable operating leases are as follows in each of the years ended December 31:

        2003                                      $433,000
        2004                                       232,000
        2005                                       183,000
        2006                                        27,000

The  Partnership  is involved  from time to time in various legal  proceedings  incident to the normal  conduct of its business.  Based
upon  communication with legal counsel,  in the opinion of management,  the disposition of all such proceedings is not expected to have
a material adverse effect on the Partnership's financial position, results of its operations or cash flows.

The Partnership has established a liability  insurance trust related to assisted living and independent  living  communities in certain
states.  Reserves  relating to the  insurance  trust are  included in funds held in escrow and accrued  insurance  in the  accompanying
consolidated balance sheet.

10. 401(k) Savings Plan

The Partnership has a 401(k) Savings Plan (the "Plan")  covering all eligible  employees.  Employee  contributions to the Plan are made
at predetermined  rates elected by the employee,  up to 15 percent of the employee's  salary.  Additionally,  the Partnership may elect
to match a portion of the employee's  contribution.  The Partnership made  contributions  of approximately  $41,000 to the Plan for the
year ended December 31, 2002.



11. Comprehensive Loss

The components of comprehensive loss are as follows for the year ended December 31, 2002:

Net loss                                                             $(13,443,924)
Net change in fair value of interest rate collar                          874,526
                                                                ---------------------
Comprehensive loss                                                   $(12,569,398)
                                                                =====================

12. Subsequent Events

In March 2003, the Partnership  divested an assisted living community located in North Carolina.  In conjunction with this transaction,
the Partnership  received gross sale proceeds of $3,995,000.  The Partnership  repaid the related  mortgage note from gross proceeds of
the sale in the amount of approximately $3,179,000.





HORIZON BAY SENIOR COMMUNITIES TWENTY COMMUNITIES

Combined Financial Statements

Year ended December 31, 2002
With Report of Independent Auditors




Contents

Report of Independent Auditors......................................................................F-91

Combined Financial Statements

Combined Balance Sheets as of September 30, 2003 (unaudited) and December
     31, 2002 and 2001..............................................................................F-92

Combined Statements of Operations for the nine months ended September 30,
     2003 and 2002 (unaudited) and for the twelve months ended December 31, 2002,
     2001 and 2000..................................................................................F-93

Combined Statements of Equity for the nine months ended
     September 30, 2003 (unaudited) and for the tweleve months ended
     December 31, 2002, 2001 and 2000...............................................................F-94

Combined Statements of Cash Flows for the nine months ended September 30,
     2003 and 2002 (unaudited) and for the twelve months ended December 31, 2002, 2001 and 2000.....F-95

Notes to Combined Financial Statements..............................................................F-97





                                                    Report of Independent Auditors


Board of Directors and Shareholders
CNL Retirement Properties, Inc.

In our opinion, the accompanying combined balance sheets and the related combined statements of operations, of changes in equity and
of cash flows present fairly, in all material respects, the financial position of Horizon Bay Senior Communities Twenty Communities
(the "Communities"), as defined in Note 1, at December 31, 2002 and 2001, and the results of their operations and their cash flows
for each of the three years in the period ended December 31, 2002 in conformity with accounting principles generally accepted in the
United States of America.  These financial statements are the responsibility of the Communities' management; our responsibility is to
express an opinion on these financial statements based on our audits.  We conducted our audits of these statements in accordance with
auditing standards generally accepted in the United States of America, which require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material misstatement.  An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement presentation.  We believe that our audits
provide a reasonable basis for our opinion.

As discussed in Note 2 to the financial statements, the Company adopted the provisions of Statement of Financial Accounting Standards No. 144, Accounting
for the Impairment or Disposal of Long-Lived Assets.


March 13, 2003 except for Notes 4 and 8,
  as to which the date is May 16, 2003





Horizon Bay Senior Communities Twenty Communities
Combined Balance Sheets
As of September 30, 2003 (Unaudited) and December 31, 2002 and 2001
---------------------------------------------------------------------------------------------------------------------------------------




ASSETS                                                             2003               2002              2001
                                                                (unaudited)
                                                            ---------------------------------------------------------
Current assets:
 Cash and cash equivalents                                         $  4,117,216      $  3,071,653       $  2,116,678
  Accounts receivable, net                                            1,271,114         1,284,394          1,338,146
  Prepaid expenses and other current assets                             641,274           527,206          2,754,586

                                                            ---------------------------------------------------------
                          Total current assets                        6,029,604         4,883,253         6,209,410


Restricted assets:
  Life care contract minimum liquid reserve fund                      2,009,397         2,001,731          1,970,478
  Tenant security deposits, restricted cash                           1,192,113         1,561,440          1,840,124
  Debt reserve fund and other deposits                                7,542,287         6,700,998          4,164,467

                                                            ---------------------------------------------------------
                          Total restriced assets                     10,743,797        10,264,169          7,975,069

Property, plant and equipment, net                                  396,232,070       393,817,130        383,062,514
Deferred financing fees, net                                          3,318,936         2,648,679          3,926,887
                                                            ---------------------------------------------------------
                           Total assets                            $416,324,407      $411,613,231       $401,173,880
                                                            =========================================================

LIABILITIES and EQUITY
Current liabilities:
  Accounts payable                                                 $  2,866,981      $  5,064,788       $  2,388,938
  Accrued wages and payroll expenses                                  2,078,356         1,856,495          1,407,070
  Other accrued expenses and prepaid rent                               375,505         2,560,696          1,249,578
  Accrued real estate and property taxes                              4,523,649         2,262,474          3,137,697
  Reserve for workers' compensation                                     210,236           500,000            500,000
  Reserve for general and professional liability                      3,237,497         2,000,000          2,000,000
  Current portion of long-term debt                                   7,357,589         8,303,880          1,998,139

                                                            ---------------------------------------------------------
              Total current liabilities                              20,649,813        22,548,333         12,681,422

Long-term debt, net of current portion                              287,935,435       272,019,095        281,458,745
Refundable security deposits                                            964,375         1,382,515          1,947,883
Refundable deposits                                                   2,197,693         2,732,054          3,076,684
Unearned entrance fees                                                1,742,669         1,863,068          2,263,533

                                                            ---------------------------------------------------------
              Total liabilities                                     313,489,985       300,545,065        301,428,267

Commitments and contingencies

Equity                                                              102,834,422       111,068,166         99,745,613

                                                            ---------------------------------------------------------
              Total liabilities and equity                         $416,324,407      $411,613,231       $401,173,880
                                                            ---------------------------------------------------------

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


Horizon Bay Senior Communities Twenty Communities
Combined Statements of Operations
For the Periods Indicated
---------------------------------------------------------------------------------------------------------------------------------------
                                                                       (unaudited)
                                                         For the Nine Months Ended September 30,           For the Twelve Months Ended December 31,
                                                     ------------------------------------------------ ----------------------------------------------------
                                                              2003                    2002                   2002             2001            2000
                                                     ------------------------------------------------ ----------------------------------------------------
Revenues:
    Monthly service and earned entrance fees                 $   77,444,361          $   76,209,503       $ 101,652,757    $ 93,839,612     $ 87,851,555
     Other                                                        1,178,990               1,222,955           1,536,213       2,286,721        1,432,533

                                                     ------------------------------------------------ ----------------------------------------------------
    Total revenues                                               78,623,351             77,432,458        103,188,970       96,126,333        89,284,088

                                                     ------------------------------------------------ ----------------------------------------------------
Expenses:
     Community operations                                        46,374,044              43,679,754          59,153,208      57,324,633       52,631,239
     Management fees and other related costs                      3,723,226               3,678,356           4,905,488       4,590,377        4,037,202
     Real estate taxes                                            3,265,286               3,250,343           4,270,261       3,766,789        3,796,498
     Depreciation and amortization                                9,022,615               8,850,099          11,826,181      11,393,367       11,455,307
     Start-up and organization cost                                       -                       -                   -               -          810,711
     Impairment of value on operating properties                          -               6,000,000           6,000,000         307,643                -
                                                     ------------------------------------------------ ----------------------------------------------------
                 Total expenses                                  62,385,171              65,458,552          86,155,138      77,382,809       72,730,957

                                                     ------------------------------------------------ ----------------------------------------------------
Operating income                                                 16,238,180              11,973,906          17,033,832      18,743,524       16,553,131

Other income (expense):
     Loss on early retirement of debt                          -                       -                   -                           -        (532,863)
     Interest income                                                 23,374                  68,472              86,124         198,662          497,630
     Interest expense                                           (11,957,990)            (13,573,804)        (18,168,101)    (20,920,014)     (24,393,593)

                                                     ------------------------------------------------ ----------------------------------------------------
     Income (loss)                                                4,303,564              (1,531,426)          (1,048,145)     (1,977,828)      (7,875,695)


                                                     ------------------------------------------------ ----------------------------------------------------
     Net income (loss)                                        $   4,303,564           $   (1,531,426)       $ (1,048,145)    $(1,977,828)     $(7,875,695)
                                                     ------------------------------------------------ ----------------------------------------------------

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


Horizon Bay Senior Communities Twenty Communities
Combined Statements of Equity
For the Periods Indicated
---------------------------------------------------------------------------------------------------------------------------------------
Balance at December 31, 1999                                                                 $     119,369,529

  Net repayment to WHSLC                                                                           (20,881,215)

      Net loss                                                                                      (7,875,695)

                                                                                            ----------------------
Balance at December 31, 2000                                                                        90,612,619

  Net advances from WHSLC                                                                           11,110,822

      Net loss                                                                                      (1,977,828)

                                                                                            ----------------------
Balance at December 31, 2001                                                                        99,745,613

  Net advances from WHSLC                                                                           12,370,698

      Net loss                                                                                      (1,048,145)

                                                                                            ----------------------
Balance at December 31, 2002                                                                       111,068,166

  Net repayment to WHSLC (unaudited)                                                               (12,537,308)

      Net income (unaudited)                                                                         4,303,564

                                                                                            ----------------------
Balance at September 30, 2003 (unaudited)                                                    $     102,834,422
                                                                                            ======================


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



Horizon Bay Senior Communities Twenty Communities
Combined Statements of Cash Flows
For the Periods Indicated
---------------------------------------------------------------------------------------------------------------------------------------
                                                                          (unaudited)
                                                                  For the Nine Months Ended
                                                                        September 30,                    For the Twelve Months Ended December 31,
                                                              -----------------------------------  -----------------------------------------------------
                                                                     2003             2002                2002             2001             2000
                                                              -----------------------------------  -----------------------------------------------------

Cash flows from operating activities:
  Net income (loss)                                              $4,303,564       $(1,531,426)         $(1,048,145)     $(1,977,828)    $(7,875,695)
  Adjustments and other changes to reconcile net
    income (loss) to net cash provided by operating
    activities - increase (decrease) in cash:
        Depreciation & amortization                               9,022,615        8,850,099          11,826,181       11,393,367      11,455,307
        Amortization of financing fees                            2,893,478        1,171,007           1,546,332        1,439,803         828,349
        Minority interest in partnership loss                             -                -                   -                -        (151,905)
        Early retirement of debt                                          -                -                   -                -         532,863
        Impairment of value on operating properties                       -                -           6,000,000          307,643               -
        Accounts receivable, net                                     13,280          561,442              53,752         (115,659)       (393,926)
        Prepaids and other current assets                          (114,068)       1,832,209           2,227,380       (1,436,627)       (881,201)
        Unearned entrance fees                                     (120,398)        (168,504)           (400,465)       1,412,058      (1,945,716)
        Accounts payable and other current liabilities           (1,899,962)         449,564           3,561,170         (225,348)     (1,422,117)
        Reserve for workers' compensation                          (289,764)               -                   -         (162,282)              -
        Reserve for general and professional liability            1,237,497                -                   -        2,000,000               -
        Refundable security deposits                               (418,140)         291,141            (565,368)        (613,006)        (58,623)

                                                              -----------------------------------  -----------------------------------------------------
         Net cash provided by operating activities               14,628,102       17,455,532          23,200,837       12,022,121          87,336

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

Cash flows from investing activities:
  Purchase of property and equipment, including in progress     (11,437,556)     (17,823,183)        (28,580,797)      (4,062,904)    (38,762,906)
  Increase (decrease) in restricted assets                         (479,628)      (2,496,955)         (2,289,100)        (320,696)       (639,107)
  Capital contribution to partnerships                                    -                -                   -                -       4,558,993

                                                             -------------------------------------------------------------------------------------------
   Net cash used in investing activities                        (11,917,184)     (20,320,138)        (30,869,897)      (4,383,600)    (34,843,020)

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

Cash flows from financing activities:
  Net increase (decrease) in amounts due to/from WHSLC          (12,537,308)       6,744,351          12,370,698       11,110,822     (20,881,215)
  Proceeds from notes payable and long term debt                120,575,000                -                   -       12,000,000     121,487,000
  Repayment of notes payable and long term debt                (105,604,951)      (2,107,206)         (3,133,909)      (4,494,097)    (88,999,650)
  Payment of deferred financing fees                             (3,563,735)        (240,815)           (268,124)        (447,820)     (3,809,750)
  Refunds of deposits and entrance fees                            (534,361)        (251,531)           (344,630)        (684,157)       (131,685)
  Unsecured accounts receivable from third parties                        -                -                   -      (25,643,644)     25,277,676

                                                              -----------------------------------  -----------------------------------------------------
         Net cash provided by (used in) financing activities      (1,665,355)        4,144,799          8,624,035       (8,158,896)     32,942,376

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

Horizon Bay Senior Communities Twenty Communities
Combined Statements of Cash Flows, continued
---------------------------------------------------------------------------------------------------------------------------------------

 Increase (decrease) in cash and cash equivalents                 1,045,563        1,280,193             954,975         (520,375)     (1,813,308)
 Cash and cash equivalents, beginning of period                   3,071,653        2,116,678           2,116,678        2,637,053       4,450,361

                                                             -------------------------------------------------------------------------------------------
 Cash and cash equivalents, end of period                     $   4,117,216       $3,396,871        $  3,071,653       $2,116,678      $2,637,053

                                                             ===========================================================================================
 Interest paid, including amounts capitalized of $0 , $0
    and $526,832 in 2002, 2001 and 2000, respectively.                                              $ 16,088,560      $ 19,469,265    $ 23,565,244
                                                                                                 =======================================================

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

Horizon Bay Senior Communities Twenty Communities
Notes to Combined Financial Statements
---------------------------------------------------------------------------------------------------------------------------------------


1.       Organization and Nature of Business

         The Horizon Bay Senior Communities Twenty Communities (the "Communities") consists of twenty primarily independent living
         communities owned by WHSLC Realty, L.L.C. (WHSLC) and WHSLH Realty, L.L.C. (WHSLH).

         WHSLC was formed July 31, 1997 as a limited liability company pursuant to the Delaware Limited Liability Company Act.  The
         Members of WHSLC are WHSLH (affiliated with Whitehall Street Real Estate Limited Partnerships and Goldman,
         Sachs & Co.) and Senior Lifestyle Contribution Company, L.L.C.  WHSLC was established to acquire and hold, directly or
         indirectly through one or more subsidiaries, equity interests in congregate, assisted living and nursing home properties.

         The Communities are rental communities with monthly rates that depend on the amenities and services provided.  The services
         provided by the operators are generally not covered by health or other insurance and, therefore, monthly fees are generally
         payable by the resident, their family or another responsible party.  The twenty communities are as follows:  Carrington
         Point, Cherry Hills Club, East Bay Manor, Emerald Bay Manor, Greenwich Bay Manor, Heritage Palmeras, Heron's Run, Newport
         Place, North Bay Manor, Pinecrest Place, Prosperity Oaks, Sakonnet Bay Manor, South Bay Manor, The Park at Golf Mill, The
         Park at Olympia Fields, The Park at Riverchase, The Pointe at Newport Place, Treemont Retirement Community, Waterside
         Retirement Estates, and West Bay Manor.

         WHSLC has entered into an agreement to sell the Communities to CNL Retirement Properties, Inc. (CNL)
         for approximately $562,000,000.

2.       Significant Accounting Policies

         Basis of Presentation
         The combined financial statements have been prepared to present the combined financial position, results of operations, and
         cash flows of the Communities and are presented for the purpose of complying with the Securities and Exchange Commission's
         rules and regulations regarding acquired businesses and properties.  The Communities will be operated under leasing
         structures between CNL and WHSLC and/or its affiliates.The combined financial statements reflect the combined net assets and
         operations of the Communities. All significant intercompany transactions and balances within the Communities have been eliminated.

         Interim Period Financial Statements
         The interim statements have been prepared without audit.  Certain information and footnote disclosures normally included in
         financial statements presented in accordance with accounting principles generally accepted in the United States of America
         have been condensed or omitted.  The Communities' management believes the disclosures made are adequate to make the interim
         financial information presented not misleading.

         In the opinion of management, the accompanying interim statements reflect all adjustments (which include only normal
         recurring adjustments) necessary to present fairly the financial position of the Communities as of September 30, 2003 and
         the results of operations and cash flows for the nine months ended September 30, 2003 and 2002.  Interim results are not
         necessarily indicative of fiscal year performance because of seasonal and short-term variations.

         Use of Estimates
         The preparation of financial statements in conformity with accounting principles generally accepted in the United States of
         America requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities and
         disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues
         and expenses during the reporting period.  Actual results could differ from those estimates, and the difference could be
         material.

         Revenue Recognition
         Operating revenue consists primarily of monthly services and earned entrance fees, including resident community fees and ancillary
         fees.  Resident and ancillary fees are
         recognized when services are rendered.  Agreements with residents are generally for a term of one year and are cancelable by
         residents with thirty days notice.  In addition, the Communities have one facility that offers life care contracts whereby
         the residents pay an entrance fee upon move-in, as well as a monthly rental payment.

         Allowance for Doubtful Accounts
         The Communities record an allowance for doubtful accounts when a receivable is deemed uncollectible.

         Property and Equipment
         Property and equipment are recorded at cost and include interest and property taxes capitalized on long-term construction
         projects during the construction period, as well as other costs directly related to the development and construction of
         facilities.  Maintenance and repairs are charged to expense as incurred.  Depreciation is computed using the straight-line
         method over the estimated useful lives of the related assets, which range from 3 to 30 years.  Property and equipment of the
         Communities are reviewed for impairment whenever events or circumstances indicate that the asset's undiscounted expected
         cash flows are not sufficient to recover its carrying amount.  The Communities measure an impairment loss by comparing the
         fair value of the asset to its carrying amount.  Fair value is determined by utilizing the discounted cash flow method.

         Construction in progress includes direct costs related to acquisition, development and construction of facilities.

         Deferred Financing Costs
         Costs incurred in connection with obtaining permanent financing for Communities-owned facilities have been deferred and
         amortized on a straight-line basis over the term of the related financing, which approximates
         the effective interest method.  These costs include loan origination fees, legal
         fees, rate cap fees and other cost directly related to obtaining the financing.  The amortization of these costs is included
         in interest expense.

         Organization and Start-Up Costs
         The Communities expense the costs of start-up activities, including organization and advertising costs, as incurred.

         Income Taxes
         No provision (benefit) for income taxes is provided on the net income (loss) of the Communities' limited liability companies
         or partnerships since it is reported by the members or partners on their respective income tax returns.

         Cash and Cash Equivalents
         Cash and cash equivalents consist of life care contract minimum liquid reserve funds, bank demand deposits and highly liquid
         instruments with maturities of three months or less when purchased.

         Restricted Assets
         Restricted assets include debt service reserve funds under loan agreements, tenant
         security deposits, escrow for real estate taxes, and cash that is the collateral for issued letters of credit (see note 7).

         Change in Accounting Policy
         On January 1, 2002, the Communities adopted SFAS No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets,"
         which addresses financial accounting for the impairment or disposal of long-lived assets, primarily property and equipment.

         Obligation to Provide Future Services
         The Communities annually calculate the present value of the net cost of future services and use of facilities to be provided
         to current residents and compare that amount with the balance of deferred revenue from unearned entrance fees.  If the
         present value of the net cost of future services and use of facilities exceeds the deferred revenue from entrance fees, a
         liability is recorded (obligation to provide future services and use of facilities) with a corresponding charge to income.
         The present value of the net cost of future services and uses of facilities does not exceed the revenue anticipated, and
         therefore, no future service obligation is recorded at December 31, 2002 or 2001.

         Disclosures about Fair Value of Financial Instruments
         The carrying amounts of cash, accounts receivable, prepaid expenses and other current assets, other assets, accounts
         payable, refundable security deposits and accrued expenses approximate fair value because of the short-term maturity of
         these instruments.The carrying amounts of refundable deposits may not approximate fair value since these liabilities are not
         short-term in nature.  However, since these liabilities do not have specified maturity dates, management believes it is not
         practicable to determine their fair value.

         Based on the borrowing rates currently available to the Communities' debt with similar terms, management believes that the
         carrying value of notes payable and long-term debt approximates the fair value of the debt.  Additionally, a significant
         portion of the Communities' debt bears interest at variable rates.

         Advertising
         All costs associated with advertising and promoting the property are expensed in the year incurred.  Advertising expense was
         approximately $1,300,000 for the years ended December 31, 2002, 2001 and 2000.




3.       Property and Equipment

         Property and equipment at December 31, 2002 and 2001 consists of the following:

                                                                              2002              2001
         Land and improvements                                           $  34,653,913     $  34,619,030
         Buildings and improvements                                        369,605,904       372,281,443
         Equipment and leasehold improvements                               15,593,975        14,924,488
         Construction in progress                                           25,858,000         1,309,566
                                                                         ---------------   ---------------
                                                                           445,711,792       423,134,527
         Less:  accumulated depreciation                                   (51,894,662)      (40,072,013)
                                                                         ---------------   ---------------
                                                                         $ 393,817,130     $ 383,062,514
                                                                         ---------------   ---------------


         In 2002 and 2001, the Communities recognized impairments on two of its properties due to declining occupancy levels.
         To recognize the impairments, the Communities reduced the carrying value of buildings by $6,000,000 and $307,643 in
         2002 and 2001, respectively.

4.       Long-Term Debt

         Long-term debt at December 31, 2002 and 2001 is as follows:

                                                                                     2002               2001

             DMBS plus 90 basis points (approximately 2.2% and 1.77% at
             December 31, 2002 and 2001, respectively) master credit facility
             payable to a mortgage corporation and subject to $163,000,000
             revolving credit facility, of which $112,287,000 has been drawn
             by the Communities.  Due in October 2005.  Collateralized by the
             real estate of the underlying facilities.  Cross-defaulted with
             two other WHSLC affiliates' loans in the master credit facility    $ 112,287,000      $ 112,287,000

             LIBOR plus 2.50%, at a minimum of 7.45% (7.45% at December 31,
             2002 and 2001) mortgage notes payable to bank.  Final payment
             due on April 14, 2003 with a subsequent two-year term option.
             Collateralized by the real estate of the underlying facilities
             and partially guaranteed by the Communities.  Cross-defaulted
             with the Communities' other loans with the same bank (see Note
             8).                                                                   54,883,627        58,548,548





                                                                                     2002               2001
             LIBOR plus 4%, at a minimum of 8% at December 31, 2002; master
             credit facility payable to a mortgage corporation and subject to
             $55,000,000 non-revolving construction and mini-perm facility;
             final payment due March 31, 2005.  Collateralized by the real
             estate of the underlying facilities and cross-defaulted with the
             Communities' other obligations with the same mortgage
             corporation (see Note 8).                                             22,590,545        23,086,119

             8.17% mortgage note payable in monthly installments of $283,042
             including interest; final payment due April 15, 2005.  The
             mortgage is collateralized by the real estate of one facility.
             The note is guaranteed by WHSLC up to $10 million.                    33,786,550        34,314,876

             LIBOR plus 2.35% (approximately 3.7% and 4.22% at December 31,
             2002 and 2001, respectively) mortgage note payable to bank;
             final payment due September 30, 2003.  The mortgage is
             collateralized by the real estate of two facilities (See note 9).      6,977,154         9,145,931

             7.875% mortgage note, payable in monthly installments of $95,900
             including interest; final payment due in December 2038.  The
             mortgage is collateralized by the real estate of one facility.        24,169,451        24,268,512

             8% mortgage note, payable in monthly installments of $64,605
             including interest; final payment due in June 2030.  The
             mortgage is collateralized by the real estate of one facility
             (see Note 8).                                                          7,143,620         7,206,880

             10.125% mortgage note, payable in monthly installments of
             $58,600 including interest; final payment due in March 2033.
             The mortgage is collateralized by the real estate of one
             facility (see Note 8).                                                 6,615,028         6,644,018






                                                                                     2002               2001
                                                                                ----------------   ---------------
             LIBOR plus 4$, at a minimum of 7.5% (7.5% at December 31, 2002
             and 2001) promissory note payable to a bank in monthly
             installments of $10,000, final payment due October 31, 2005.
             The note is collateralized by real estate, fixed assets, and
             accounts receivable at one facility (see Note 8).                     11,870,000         7,955,000
                                                                                ----------------   ---------------

                                                                                 280,322,975       283,456,884
             Less current portion                                                 (8,303,880)        (1,998,139)
                                                                                ----------------   ---------------
                                                                                 $272,019,095       $281,458,745


         As of December 31, 2002, the Communities were not in compliance with the net operating income and occupancy requirements at
         one of its properties.  The related loan has a scheduled maturity date of September 30, 2003, and is classified as a current liability
         at December 31, 2002.

         Scheduled principal payments on long-term debt, as of December 31, 2002, after consideration of the refinancings discussed
         in Note 8, are as follows:

            Year ending December 31,
            2003                                                                         $     8,303,880
            2004                                                                               1,457,578
            2005                                                                             179,964,567
            2006                                                                                 291,518
            2007                                                                                 316,826
            Subsequent to 2007                                                                89,988,606
                                                                                         ----------------
                                                                                            $280,332,975
                                                                                         ================

         The Communities entered into various interest rate cap transactions to limit interest rate exposure with financial
         institutions.  The effective dates on these transactions ranged from March 22, 1999 to March 9, 2000 and the termination
         dates ranged from February 28, 2002 to October 1, 2003.  The fair value of the interest rate cap agreements at December 31,
         2002 was $0.  Changes in value of the cap are recorded in income.

5.       Related Party Transactions

         Pursuant to various management agreements, the Communities pay management fees to Horizon Bay Management, L.L.C., ("Horizon
         Bay") which is owned 100% by WHSLH Realty, L.L.C.  The amounts incurred for management fees were $4,905,488; $4,590,377; and
         $4,081,467 for the years ended December 31, 2002, 2001 and 2000, respectively.  Management fees range from 4% to 5.5% of net
         revenue of the operating entities.

         The Communities routinely borrow and repay amounts to WHSLC on an uncollateralized and non-interest bearing basis.  Such
         amounts relate to operational activities, property and equipment expenditures and cash management purposes.  The Communities
         owed a net amount of $12,370,698 and $11,110,822 as of December 31, 2002 and 2001,
         respectively, and were due a net amount of $20,881,215 at December 31, 2000.  In conjunction with the aforementioned
         transaction between CNL and WHSLC, such amounts outstanding at the end
         of 2002, 2001 and 2000 have been reclassified to equity in the accompanying financial statements.

6.       Commitments and Contingencies

         Renovations
         As of December 31, 2002, the Communities had not completed the renovation of several of its facilities.  These renovation
         costs have been included in construction in progress and are approximately $25,739,000 (Note 9).

         Condominium Interests and Shared Service Agreements
         Two of the Communities' facilities are condominiums and the Communities own an interest in these condominiums.  The
         Communities own and operate the assisted living and congregate care portions of these buildings, and the other owner owns
         and operates the skilled nursing portion of the facilities.  In addition, the two owners of the condominiums have entered
         into certain contracts whereby one party provides certain services including housekeeping, dietary and laundry.  These
         contracts can be canceled by the Communities upon twelve months written notice and upon the sale, lease or other transfer of
         the Communities' interest in the facility.

         Asserted and Unasserted Claims
         The Communities are involved in various claims and legal proceedings of a routine nature.  Claims have been assessed against
         the Communities by various claimants.  The claims are in various stages of processing and some may ultimately be brought to
         trial.  There are no known incidents occurring through December 31, 2002 that may result in the assertion of additional
         claims, however, other claims may be asserted arising from services provided to residents and patients in the past.  While
         it is possible that settlement of asserted claims and claims which may be assessed in the future could result in liabilities
         in excess of amounts provided by insurance, management believes that the excess liability, if any, will not materially
         affect the consolidated financial position or results of operations and cash flows of the Communities at December 31, 2002.

         Letters of Credit
         In connection with the operation of certain facilities, the Communities are required to maintain letters of credit amounting
         to $800,000 at December 31, 2002.  See Note 7 for letters of credit related to insurance programs.

7.       Insurance

         The Communities carry various insurance coverages from commercial carriers.  Some of the policies provide for a deductible
         amount.  Losses related to deductible amounts are accrued based upon the Communities' estimates of the aggregate liability
         for claims incurred using certain actuarial assumptions and based on prior Communities experience.  The Communities'
         insurance programs consist of the following:

         Workers' Compensation Insurance Program
         The Communities have a pre-funded, incurred retro program which does not include any self-insurance provisions.  The prior
         self-funded program has continued to process and pay outstanding claims relative to incidents which occurred prior to
         December 1, 2000.  The Communities have estimated claims liability  incurred but not reported of approximately $500,000
        as of December 31, 2002 and 2001.

         General Liability and Professional Malpractice Insurance
         Effective January 1, 2001, the Communities' general and professional liability insurance coverages were converted from a
         guaranty cost with no deductible to a claims-made policy.  All valid claims incurred prior to January 1, 2001 will be the
         responsibility of the insurance company and the Communities will not have any exposure.  Under the Communities' claims-made
         policy, valid claims at each location are limited to $1,000,000 per occurrence with a $3,000,000 limit per location and a
         $15,000,000 aggregate policy limit.  The Communities' deductible for valid claims under the claims-made policy range from
         $100,000 to $5,000,000 per occurrence.  The Communities had an estimated claims liability including an accrual for incurred
         but not reported claims of approximately $2,000,000 as of December 31, 2002 and 2001.

         Employee Health Benefits Program
         Effective December 1, 2001 the Communities converted their self-insured health plan to a fully-insured health
         and welfare plan which provides benefits to eligible employees.

         The Communities are contingently liable to insurance carriers under general and professional and workers' compensation
         programs and have provided cash collateralized letters of credit aggregating $2,135,000 and $800,000 as of
         December 31, 2002 and 2001, respectively.

8.       Subsequent Events

         Subsequent to December 31, 2002, the Communities refinanced several of its loan agreements with two financial institutions.

         The new loan balances are as follows:

             DMBS plus 104 basis points (approximately 2.3% at April 28, 2003) master credit facility payable to a mortgage corporation
             and subject to $74,000,000 revolving credit facility.  The note which is due May 2008 is collateralized by the real estate
             of the underlying facilities (Note 9).

             LIBOR plus 3.7%, at a minimum of 5.95% (5.95% at May 16, 2003) master credit facility payable to a mortgage corporation and
             subject to $46,500,000 credit facility.  The note which is due May 2008 is collateralized by the real estate of the
             underlying facilities (Note 9).

9.       Subsequent Event (Unaudited)

         As of December 31, 2002 the Communities were not in compliance with certain debt covenants for one property (Note 4).  The
         applicable loan was refinanced in November 2003.

         Subsequent to May 16, 2003, the Communities refinanced the amounts described in Note 8, as follows:

             DMBS plus 104 basis points (approximately 2.2% at December 10, 2003, the date of the refinancing) master credit facility
             payable to a mortgage corporation and subject to a $82,235,000 revolving credit facility.  This was an increase of
             $8,235,000 to an existing facility.  The note, which is due May 2008,
             is collateralized by the real estate of the underlying facilities.

             LIBOR plus 3.7%, at a minimum of 5.95% (5.95% at December 24, 2003, the date of the refinancing) master credit facility
             payable to a mortgage corporation and subject to a $56,900,000 credit facility.  This was an increase
             of $10,400,000 to an existing facility.  The note, which is due May 2008, is
             collateralized by the real estate of the underlying facilities.

         Remaining renovation commitments completed in 2003 were approximately $13,000,000.


                                                      Sunrise Senior Living, Inc.
                                                 (formerly Sunrise Assisted Living, Inc.)
                                                        Selected Financial Data
                                                 (in Thousands, except per share data)





Consolidated Balance Sheet Data:

                                                  September 30,           December 31,           December 31,
                                                     2003                   2002                    2001
                                                 -------------           ------------           -------------

Current assets                                      $ 293,771               $254,386               $ 117,477
Noncurrent assets                                     758,362                861,765               1,060,138
Current liabilities                                   207,786                114,747                  78,674
Noncurrent liabilities                                366,156                533,725                 685,789
Minority interests                                      1,420                  1,861                   2,451
Stockholders' equity                                  476,770                465,818                 410,701



Consolidated Statements of Income Data:

                                                  Nine Months Ended         Year Ended          Year Ended           Year Ended
                                                   September 30,           December 31,        December 31,        December 31,
                                                        2003                   2002                2001                2000
                                               -----------------------    ---------------     ----------------    ----------------

Revenues                                                $824,535                $505,912            $428,219            $344,786

Costs and expenses (including income
   tax expense and extraordinary items)                  736,321                 394,164             322,779             264,276
                                                    ------------           -------------       -------------        ------------

Net income                                              $ 46,754                $ 54,661            $ 49,101             $24,278
                                                    ============           =============       =============        ============

Basic earnings per share                                  $ 2.16                  $ 2.44             $  2.25             $  1.12
                                                    ============           =============       =============        ============

Diluted earnings per share                                $ 1.96                  $ 2.23             $  2.08             $  1.10
                                                    ============           =============       =============        ============





                                   ADDENDUM TO
                                   APPENDIX B

                            PRIOR PERFORMANCE TABLES


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

The Prior Performance  Tables in this addendum update
and  replace  Appendix  B to  the  prospectus,  dated
March 26, 2003.

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













                                   APPENDIX B

                            PRIOR PERFORMANCE TABLES


         The information in this Appendix B contains certain relevant summary
information concerning certain prior public programs (the "Prior Public
Programs") (collectively, the "Sponsor") sponsored by two of the Company's
principals and their Affiliates which were formed to invest in restaurant
properties leased on a triple-net basis to operators of national and regional
fast-food and family-style restaurant chains, or in the case of CNL Hospitality
Properties, Inc., to invest in hotel properties. No Prior Public Programs
sponsored by the Company's Affiliates have invested in retirement properties
leased on a triple-net basis.

         A more detailed description of the acquisitions by the Prior Public
Programs is set forth in Part II of the registration statement filed with the
Securities and Exchange Commission for this Offering and is available from the
Company upon request, without charge. In addition, upon request to the Company,
the Company will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
CNL Restaurant Properties, Inc., and CNL Hospitality Properties, Inc. as well as
a copy, for a reasonable fee, of the exhibits filed with such reports.

         The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in properties.

         STOCKHOLDERS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE COMPANY WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. STOCKHOLDERS SHOULD NOTE THAT, BY
ACQUIRING SHARES IN THE COMPANY, THEY WILL NOT BE ACQUIRING ANY INTEREST IN ANY
PRIOR PUBLIC PROGRAMS.

DESCRIPTION OF TABLES

         The following Tables are included herein:

                  Table I - Experience in Raising and Investing Funds

                  Table II - Compensation to Sponsor

                  Table III - Operating Results of Prior Programs

                  Table V - Sales or Disposal of Properties

         Unless otherwise indicated in the Tables, all information contained in
the Tables is as of December 31, 2002. The following is a brief description of
the Tables:

         TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS

         Table I presents information on a percentage basis showing the
experience of the Sponsor in raising and investing funds for the Prior Public
Programs, the offerings of which became fully subscribed between January 1998
and December 2002.

         The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.

                                      B-1


         TABLE II - COMPENSATION TO SPONSOR

         Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the Sponsor of the Prior Public
Programs.

         The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to the Sponsor in connection with the Prior
Public Programs, the offerings of which became fully subscribed between January
1998 and December 2002. The Table also shows the amounts paid to the Sponsor
from cash generated from operations and from cash generated from sales or
refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending December 31, 2002.

         TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS

         Table III presents a summary of operating results for the period from
inception through December 31, 2002, of the Prior Public Programs, the offerings
of which became fully subscribed between January 1998 and December 2002.

         The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of an investing or financing nature.
These items include proceeds from capital contributions of investors and
disbursements made from these sources of funds, such as syndication (or stock
issuance) and organizational costs, acquisition of the properties and other
costs which are related more to the organization of the entity and the
acquisition of properties than to the actual operations of the entities.

         The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.

         TABLE IV - RESULTS OF COMPLETED PROGRAMS

         Table IV is omitted from this Appendix B because none of the Prior
Public Programs have completed operations (meaning they no longer hold
properties).

         TABLE V - SALES OR DISPOSAL OF PROPERTIES

         Table V provides information regarding the sale or disposal of
properties owned by two of the Prior Public Programs between January 2000 and
December 2002.

         The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.

                                      B-2


                                     TABLE I
                    EXPERIENCE IN RAISING AND INVESTING FUNDS

                                                                    CNL Hospitality
                                                                       Properties,
                                                                           Inc.
                                                                    ----------------
                                                                    (Notes 1 and 2)

Dollar amount offered                                               $    875,071,625
                                                                    ================
Dollar amount raised                                                           100.0%
                                                                    ----------------
Less offering expenses:

   Selling commissions and discounts                                            (7.5)
   Organizational expenses                                                      (3.0)
   Marketing support and due diligence
     expense reimbursement fees
     (includes amounts reallowed to
     unaffiliated entities)                                                     (0.5)
                                                                    ----------------
                                                                               (11.0)
                                                                    ----------------
Reserve for operations                                                            --
                                                                    ----------------
Percent available for investment                                                89.0%
                                                                    ================
Acquisition costs:

   Cash down payment                                                            84.5%
   Acquisition fees paid to affiliates                                           4.5
   Loan costs                                                                     --
                                                                    ----------------
Total acquisition costs                                                         89.0%
                                                                    ================

Percent leveraged (mortgage financing
   divided by total acquisition costs)                                          33.8%

Date offering began                                                 7/09/97, 6/17/99
                                                                         and 9/14/00

Length of offering (in months)                                        23, 15 and 20,
                                                                        respectively

Months to invest 90% of amount
   available for investment measured
   from date of offering                                              29, 16 and 22,
                                                                        respectively

Note 1:           Pursuant to a Registration Statement on Form S-11 under the
                  Securities Act of 1933, as amended, effective July 9, 1997,
                  CNL Hospitality Properties, Inc. (the "Hospitality Properties
                  REIT") registered for sale $165,000,000 of shares of common
                  stock (the "CHP Initial Offering"), including $15,000,000
                  available only to stockholders participating in the company's
                  reinvestment plan. The CHP Initial Offering commenced
                  September 11, 1997, and upon completion of the CHP Initial
                  Offering on June 17, 1999 had received $150,072,637
                  (15,007,264 shares), including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan. Pursuant to a Registration
                  Statement on Form S-11 under the Securities Act of 1933, as
                  amended, effective June 4, 1999, the Hospitality Properties
                  REIT registered for sale up to $275,000,000 of shares of
                  common stock (the "1999 Offering"). The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the CHP Initial Offering on June 17, 1999, and upon
                  completion of the 1999 Offering on September 14, 2000, the
                  company had received approximately $275,000,000, including
                  $965,194 (96,520 shares) issued pursuant to the reinvestment
                  plan. Pursuant to a Registration Statement on Form S-11 under
                  the Securities Act of 1933, as amended, effective May 23,
                  2000, the Hospitality Properties REIT registered for sale up
                  to $450,000,000 of shares of common stock (the "2000
                  Offering"). The 2000 Offering of the Hospitality Properties
                  REIT commenced following the completion of the 1999 Offering
                  on September 14, 2000, and upon completion of the 2000
                  Offering on September 14, 2000, the Company received
                  approximately $450,000,000, including $3,375,474 (337,547
                  shares) issues pursuant to the reinvestment plan. Pursuant to
                  a Registration Statement on Form S-11 under the Securities Act
                  of 1933, as amended, effective April 1, 2002, the Hospitality
                  Properties REIT registered for the sale up to $450,000,000 of
                  shares of common stock (the "2002 Offering"). As of December
                  31, 2002, the Hospitality Properties REIT had received
                  subscription proceeds of $392,749,677 (39,274,968 shares) from
                  its 2002 Offering, including $3,225,431 (322,543 shares)
                  issued pursuant to the reinvestment plan.

Note 2:           The amounts shown represent the combined results of the CHP
                  Initial Offering, 1999 and the 2000 Offering only, due to the
                  fact that the 2002 Offering was not yet fully subscribed at
                  December 31, 2002.

                  Past performance is not necessarily indicative of future
                  performance.

                                      B-3

                                    TABLE II
                            COMPENSATION TO SPONSOR

                                                                   CNL Hospitality
                                                                      Properties,
                                                                         Inc.                   Other Programs
                                                                 -------------------            --------------
                                                                    (Notes 2 and 3)                (Note 1)
Date offering commenced                                             7/9/97, 6/17/99,
                                                                 9/15/00 and 4/22/02               (Note 1)

Dollar amount raised                                                  $1,267,821,302               (Note 1)
                                                                 ===================            ==============
Amount paid to sponsor from proceeds
   of offering:
     Selling commissions and discounts                                    93,481,635
     Real estate commissions                                                      --
     Acquisition fees                                                     55,816,065
     Marketing support and due diligence
       expense reimbursement fees
       (includes amounts reallowed to
       unaffiliated entities)                                              6,128,567
                                                                 -------------------            --------------
Total amount paid to sponsor                                             155,426,267               (Note 1)
                                                                 ===================            ==============
Dollar amount of cash generated from (used in)
   operations before deducting payments
   to sponsor:
     2002                                                                 78,164,925               167,271,966
     2001                                                                 57,356,723               101,478,002
     2000                                                                 45,528,919              (103,119,307)
     1999                                                                 13,348,795                        NA
     1998                                                                  2,985,455                        NA
     1997                                                                     29,358                        NA
     1996                                                                         --
     1995                                                                         --
     1994                                                                         --
     1993                                                                         --
Amount paid to sponsor from operations
   (administrative, accounting and
   management fees):
     2002                                                                  7,824,672                 7,333,973
     2001                                                                  4,418,759                 8,241,644
     2000                                                                  1,878,358                 5,489,273
     1999                                                                    458,634                        NA
     1998                                                                    208,490                        NA
     1997                                                                      6,889                        NA
     1996                                                                         --
     1995                                                                         --
     1994                                                                         --
     1993                                                                         --
Dollar amount of property sales and
   refinancing before deducting payments to
   sponsor:
     Cash                                                                         --               433,519,616
     Notes                                                                        --                        --
Amount paid to sponsors from property
   sales and refinancing:
     Real estate commissions                                                      --                        --
     Incentive fees                                                               --                        --
     Other  (Notes 3 and 4)                                               28,888,985                 4,480,309

Note 1:           Other Programs in the table above includes prior public
                  programs sponsored by CNL whose offerings were fully
                  subscribed prior to January 1, 2000. This column present
                  payments to the sponsor during the three years ended December
                  31, 2002 by the CNL Income Funds (18 limited partnerships) and
                  CNL Restaurant Properties, Inc. (the "Restaurant Properties
                  REIT"), a REIT, all of which invested in triple-net leased
                  restaurant properties. A total of approximately $1.36 billion
                  was raised from 1986 to 1999 for these programs.

Note 2:           Pursuant to a Registration Statement on Form S-11 under the
                  Securities Act of 1933, as amended, effective July 9, 1997,
                  CNL Hospitality Properties, Inc. (the "Hospitality Properties
                  REIT") registered for sale $165,000,000 of shares of common
                  stock (the "CHP Initial Offering"), including $15,000,000
                  available only to stockholders participating in the company's
                  reinvestment plan. The CHP Initial Offering commenced
                  September 11, 1997, and upon completion of the CHP Initial
                  Offering on June 17, 1999 had received $150,072,637
                  (15,007,264 shares), including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan. Pursuant to a Registration
                  Statement on Form S-11 under the Securities Act of 1933, as
                  amended, effective June 4, 1999, the Hospitality Properties
                  REIT registered for sale up to $275,000,000 of shares of
                  common stock (the "1999 Offering"). The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the CHP Initial Offering on June 17, 1999, and upon
                  completion of the 1999 Offering on September 14, 2000,

     Past performance is not necessarily indicative of future performance.

                                      B-4


TABLE II - COMPENSATION TO SPONSOR - CONTINUED

Note 2            the company had received $274,998,988, including $965,194
  (Continued:)    (96,520 shares) issued pursuant to the reinvestment plan.
                  Pursuant to a Registration Statement on Form S-11 under the
                  Securities Act of 1933, as amended, effective May 23, 2000,
                  the Hospitality Properties REIT registered for sale up to
                  $450,000,000 of shares of common stock (the "2000 Offering").
                  The 2000 Offering of the Hospitality Properties REIT commenced
                  following the completion of the 1999 Offering on September 14,
                  2000 and upon completion of the 2000 Offering on September 14,
                  2000, the company had received $450,000,000, including
                  $3,375,474 (337,547 shares) issued pursuant to the
                  reinvestment plan. Pursuant to a Registration Statement on
                  Form S-11 under the Securities Act of 1933, as amended,
                  effective April 1, 2002, the Hospitality Properties REIT
                  registered for sale up to $450,000,000 of shares of common
                  stock (the "2002 Offering"). As of December 31, 2002, the
                  Hospitality Properties REIT had received subscription proceeds
                  of $392,749,677 (39,274,968 shares) from its 2002 Offering,
                  including $3,225,431 (322,543 shares) issued pursuant to the
                  reinvestment plan. The amounts shown represent the combined
                  results of the CHP Initial Offering, the 1999 Offering, the
                  2000 Offering and the 2002 Offering, including subscription
                  proceeds issued pursuant to the reinvestment plan as of
                  December 31, 2002.

Note 3:           CNL Hospitality Corp., the advisor of the Hospitality
                  Properties REIT, is entitled to receive acquisition fees for
                  services relating to identifying the properties, structuring
                  the terms of the acquisition and leases of the properties and
                  structuring the terms of the mortgage loans equal to 4.5% of
                  the gross proceeds of the offerings, loan proceeds from
                  permanent financing and the line of credit that are used to
                  acquire properties, but excluding amounts used to finance
                  secured equipment leases. During the years ended December 31,
                  2002, 2001 and 2000, the Hospitality Properties REIT paid the
                  advisor approximately $7.5 million, $8.8 million and $8.0
                  million, respectively, related to the permanent financing for
                  properties directly or indirectly owned by the Hospitality
                  Properties REIT. These acquisition fees were not paid using
                  proceeds from the offerings. The advisor of the Hospitality
                  Properties REIT is also entitled to receive fees in connection
                  with the development, construction or renovation of a
                  property, generally equal to 4% of project costs. During the
                  years ended December 31, 2002 and 2001, the Hospitality
                  Properties REIT paid the advisor $1,895,579 and $2,107,404,
                  respectively, relating to these fees.

Note 4:           During the years ended December 31, 2000, 2001 and 2002,
                  the Restaurant Properties REIT (included in "Other Programs")
                  incurred $1,493,436, $1,493,436 and $1,493,437, respectively,
                  of soliciting dealer servicing fees payable to the sponsor,
                  and during the years ended December 31, 2002 and 2001, the
                  Hospitality Properties REIT incurred $293,000 and $293,002,
                  respectively, in soliciting dealer servicing fees payable to
                  the sponsor.

Note 5:           In connection with its 1999 Offering, the Hospitality
                  Properties REIT had agreed to issue and sell soliciting dealer
                  warrants ("Soliciting Dealer Warrants") to CNL Securities
                  Corp. The price for each warrant was $0.0008 and one warrant
                  was issued for every 25 shares sold by the managing dealer.
                  The holder of a Soliciting Dealer Warrant is entitled to
                  purchase one share of common stock from the Hospitality
                  Properties REIT at a price of $12.00 during the five year
                  period commencing the date the 1999 Offering began. No
                  Soliciting Dealer Warrants, however, will be exercisable until
                  one year from the date of issuance. During the year ended
                  December 31, 2000, the Hospitality Properties REIT issued
                  960,900 Soliciting Dealer Warrants to CNL Securities Corp.

     Past performance is not necessarily indicative of future performance.

                                      B-5

                                  TABLE III
               Operating Results of Prior Programs CNL RESTAURANT
                                PROPERTIES, INC.
                                                                                                        1997
                                                     1994            1995              1996           (Notes 2
                                                   (Note 1)        (Note 23)        (Note 23)         and 23)
                                                 -----------     -----------      ------------     ------------
Continuing Operations:
  Gross revenue (Note 24)                            $    --       $ 539,776        $4,363,456     $ 15,516,102
  Equity in earnings of unconsolidated
    joint venture                                         --              --                --               --
  Gain (loss) on sale of assets (Notes 7,
    15, 18, 21 and 23)                                    --              --                --               --
  Provision for losses on assets (Notes 12,
    14, 17 and 23)                                        --              --                --               --
  Sale of real estate (Notes 23 and 24)                   --              --                --               --
  Interest income                                         --         119,355         1,843,228        3,941,831
  Less:  Operating expenses (Note 23)                     --        (186,145)         (908,924)      (2,066,962)
         Transaction costs                                --              --                --               --
         Loss on investment in securities                 --              --                --               --
         Provision for loss on mortgage
           notes held for sale                            --              --                --               --
         Provision for loss on mortgage,
           equipment and other notes
           receivables                                    --              --                --               --
         Interest expense (Note 23)                       --              --                --               --
         Cost of real estate sold (Notes 23
           and 24)                                        --              --                --               --
         Depreciation and amortization
           (Note 23)                                      --        (104,131)         (521,871)      (1,795,062)
         Loss on termination of cash flow
           hedge accounting                               --              --                --               --
         Advisor acquisition expense
           (Note 16)                                      --              --                --               --
         Minority interest in (income)/loss
           of consolidated joint ventures                 --             (76)          (29,927)         (31,453)
Discontinued Operations:
  Earnings/(loss) from discontinued
    operations, net (Note 23)                             --              --                --               --
  Gain on disposal of discontinued
    operations, net (Note 23)                             --              --                --               --
Cumulative effect of accounting change                    --              --                --               --
                                                 -----------     -----------      ------------    -------------
Net income (loss) - GAAP basis                            --         368,779         4,745,962       15,564,456
                                                 ===========     ===========      ============    =============
Taxable income
  -  from operations (Note 8)                             --         379,935         4,894,262       15,727,311
                                                 ===========     ===========      ============    =============
  -  from gain (loss) on sale (Notes 7, 15,
       18 and 21)                                         --              --                --          (41,115)
                                                 ===========     ===========      ============    =============
Cash generated from (used in) operations
  (Notes 4 and 5)                                         --         498,459         5,482,540       17,076,214
Cash generated from sales (Notes 7, 15, 18
  and 21)                                                 --              --                --        6,289,236
Cash generated from refinancing                           --              --                --               --
                                                 -----------     -----------      ------------    -------------
Cash generated from (used in) operations,
  sales and refinancing                                   --         498,459         5,482,540       23,365,450
Less: Cash distributions to investors (Note 9)
      -  from operating cash flow (Note 4)                --        (498,459)       (5,439,404)     (16,854,297)
      -  from sale of properties                          --              --                --               --
      -  from cash flow from prior period                 --              --                --               --
      -  from return of capital (Note 10)                 --        (136,827)               --               --
                                                 -----------     -----------      ------------    -------------
Cash generated (deficiency) after cash
  distributions                                           --        (136,827)           43,136        6,511,153
Special items (not including sales of real
  estate and refinancing):
      Subscriptions received from
        stockholders                                      --      38,454,158       100,792,991      222,482,560
      Sale of common stock to CNL Fund
        Advisors, Inc.                               200,000              --                --               --
      Retirement of shares of common stock
        (Note 13)                                         --              --                --               --
      Contributions from minority interest
        of consolidated joint venture                     --         200,000            97,419               --
      Distributions to minority interest                  --              --           (39,121)         (34,020)
      Payment of stock issuance costs
        (Note 20)                                        (19)     (3,680,704)       (8,486,188)     (19,542,862)
      Acquisition of land and buildings on
        operating leases (Note 4)                         --     (18,835,969)      (36,104,148)    (143,542,667)
      Investment in direct financing leases
        (Note 4)                                          --      (1,364,960)      (13,372,621)     (39,155,974)

     Past performance is not necessarily indicative of future performance.

                                      B-6

    1998             1999            2000             2001             2002
  (Notes 3         (Notes 3        (Notes 3         (Notes 3         (Notes 3
   and 23)          and 23)         and 23)         and 23)           and 23)
-------------   -------------   -------------   --------------    -------------
$  29,560,219   $  55,511,625   $  86,558,213   $  107,560,301    $  99,358,298

       16,018          97,307          97,559        1,106,775          921,453

           --      (1,851,838)       (721,230)      (1,136,997)        (347,179)

     (269,149)     (6,198,447)     (2,214,159)     (16,900,116)      (8,639,377)
           --              --              --      105,645,379      189,425,562
    8,984,546      13,335,146      29,794,446       48,699,202       40,882,800
   (3,493,160)    (12,047,844)    (28,550,472)     (33,479,222)     (37,889,123)
           --      (6,798,803)    (10,315,116)              --               --
           --              --      (5,347,659)        (121,675)              --

           --              --      (6,854,932)      (5,070,213)      (5,368,261)

           --              --      (1,804,000)     (28,199,674)      (3,098,660)
           --      (8,346,585)    (46,944,260)     (68,371,033)     (58,780,246)

           --              --              --      (97,586,970)    (175,184,763)

   (3,658,617)     (9,554,319)    (16,401,286)     (18,213,287)     (13,732,875)

           --              --              --       (8,060,600)              --

           --     (76,333,516)             --               --               --

      (30,156)        (41,678)      1,023,730         (242,030)      (1,133,798)

    1,042,707       2,391,618       4,606,330       (6,240,436)      (1,892,409)

           --              --              --               --       11,068,271
           --              --              --       (3,840,902)              --
-------------   -------------   -------------   --------------    -------------
   32,152,408     (49,837,334)      2,927,163      (24,451,498)      35,589,693
=============   =============   =============   ==============    =============

   33,553,390      58,152,473      28,881,542       22,681,442        3,205,385
=============   =============   =============   ==============    =============

     (149,948)       (789,861)     (2,696,079)      (9,518,197)     (10,831,314)
=============   =============   =============   ==============    =============

   39,116,275     307,261,214    (155,961,649)      48,203,362      111,493,558

    2,385,941       5,302,433      12,833,063       11,207,122       67,043,108
           --              --              --               --               --
-------------   -------------   -------------   --------------    -------------
   41,502,216     312,563,647    (143,128,586)      59,410,484      178,536,666

  (39,116,275)    (60,078,825)             --      (48,203,362)     (67,990,684)
           --              --              --               --               --
     (265,053)             --     (66,329,582)     (18,263,335)              --
      (67,821)             --              --               --               --
-------------   -------------   -------------   --------------    -------------
    2,053,067     252,484,822    (209,458,168)      (7,056,213)     110,545,982

  385,523,966         210,736              --        3,691,600        9,750,000

           --              --              --               --               --

     (639,528)        (50,891)             --               --           (4,709)

           --         740,621          39,922               --               --
      (34,073)        (66,763)       (146,601)        (234,002)        (242,788)

  (34,579,650)       (737,190)     (1,493,436)      (1,493,436)      (1,493,437)

 (200,101,667)   (286,411,210)   (160,901,355)     (26,051,869)      (7,211,699)

  (47,115,435)    (63,663,720)    (15,368,629)              --               --

     Past performance is not necessarily indicative of future performance.

                                      B-7


TABLE III - CNL RESTAURANT PROPERTIES, INC. (continued)

                                                   1994                                       1997
                                                 (Note 1)       1995           1996         (Note 2)
                                                 --------    ----------    -----------    -----------
      Proceeds from sales of equipment direct
        financing leases                               --            --             --        962,274
      Proceeds from sale of consolidated
        partnership interest (Note 19)                 --            --             --             --
      Proceeds from sale of securities                 --            --             --             --
      Proceeds from borrowing from affiliate
        (Note 22)                                      --            --             --             --
      Investment in joint venture                      --            --             --             --
      Increase in restricted cash                      --            --             --             --
      Purchase of other investments (Note 4)           --            --             --             --
      Investment in mortgage, equipment and
        other notes receivable (Note 4)                --            --    (13,547,264)   (16,923,383)
      Collections on mortgage, equipment and
        other notes receivable (Note 4)                --            --        133,850        250,732
      Redemption of (investment in)
        certificates of deposit                        --            --             --     (2,000,000)
      Proceeds from the issuance of bonds              --            --             --             --
      Payment on bonds                                 --            --             --             --
      Proceeds from borrowing on credit
        facility, note payable and subordinated
        note payable                                   --            --      3,666,896     19,721,804
      Payment on credit facility and note
        payable                                        --            --       (145,080)   (20,784,577)
      Reimbursement of organization,
        acquisition, and deferred offering and
        stock issuance costs paid on behalf of
        CNL Restaurant Properties, Inc.
        by related parties                       (199,036)   (2,500,056)      (939,798)    (2,857,352)
      Decrease (increase) in intangibles and
        other assets                                   --      (628,142)    (1,103,896)            --
      Proceeds from borrowings on mortgage
        warehouse facilities                           --            --             --             --
      Payments on mortgage warehouse
        facilities                                     --            --             --             --
      Payments of loan and bond issuance costs         --            --             --             --
      Other                                            --            --        (54,533)        49,001
                                                 --------    ----------    -----------    -----------
Cash generated (deficiency) after cash
  distributions and special items                     945    11,507,500     30,941,643      5,136,689
                                                 ========    ==========    ===========    ===========

TAX AND DISTRIBUTION DATA PER
    $1,000 INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Notes 9 and 11)
    -  from operations (Notes 8 and 25)                --            20             61             67
                                                 ========    ==========    ===========    ===========
    -  from recapture                                  --            --             --             --
                                                 ========    ==========    ===========    ===========
Capital gain (loss) (Notes 7, 15, 18 and 21)           --            --             --             --
                                                 ========    ==========    ===========    ===========

Cash distributions to investors:
    Source (on GAAP basis):
    -  from investment income                          --            19             59             66
    -  from capital gain                               --            --             --             --
    -  from investment income from prior               --            --             --             --
       period
    -  from return of capital (Note 10)                --            14              8              6
                                                 --------    ----------    -----------    -----------
Total distributions on GAAP basis (Note 11):           --            33             67             72
                                                 ========    ==========    ===========    ===========
   Source (on cash basis):
    -  from sales                                      --            --             --             --
    -  from refinancing                                --            --             --             --
    -  from operations (Note 4)                        --            26             67             72
    -  from cash flow from prior period                --            --             --             --
    -  from return of capital (Note 10)                --             7             --             --
                                                 --------    ----------    -----------    -----------
Total distributions on cash basis (Note 11)            --            33             67             72
                                                 ========    ==========    ===========    ===========
Total cash distributions as a percentage
    of original $1,000 investment (Note 6)           0.00%         5.34%          7.06%          7.45%
Total cumulative cash distributions per
    $1,000 investment from inception                   --            33            100            172
Amount (in percentage terms) remaining
    invested in program properties at the end
    of each year (period) presented (original
    total acquisition cost of properties
    retained, divided by original total
    acquisition cost of all properties in
    program) (Notes 7, 15, 18 and 21)                N/A            100%           100%           100%
      Past performance is not necessarily indicative of future performance.

                                      B-8

     1998             1999            2000            2001           2002
   (Notes 3         (Notes 3        (Notes 3        (Notes 3       (Notes 3
   and 23)          and 23)          and 23)        and 23)         and 23)
-----------      -----------    ------------    ------------    -------------
         --        2,252,766       1,848,664       1,451,456          41,500

         --               --       1,187,238              --              --
         --               --       7,720,997         982,050              --

         --               --              --       8,708,400      11,750,000
   (974,696)        (187,452)             --         (10,000)       (664,867)
         --               --      (1,875,838)     (9,055,564)      6,357,321
(16,083,055)              --      (2,831,779)             --              --

(10,724,398)     (31,004,345)    (11,130,607)    (11,457,682)     (6,606,837)

  1,555,623        3,894,067       8,334,231       9,325,173      14,967,959

         --        2,000,000              --              --              --
         --               --     280,906,000     177,222,667              --
         --               --      (2,422,469)    (10,065,808)    (16,557,295)

  7,692,040      439,941,245     397,538,000      63,948,887     249,333,516

     (8,039)     (61,580,289)   (586,425,008)   (159,590,370)    (90,858,385)

 (4,574,925)      (1,492,310)             --              --              --

 (6,281,069)      (1,862,036)       (377,755)             --              --

         --       27,101,067     301,227,438     325,264,212     189,901,470

         --     (352,808,966)     (7,718,739)   (358,859,850)   (474,312,483)
         --       (5,947,397)    (20,891,532)     (9,633,523)        (22,557)
    (95,101)              --              --              --              --
-----------      -----------    ------------    ------------    ------------
 75,613,060      (77,188,245)    (22,239,426)     (2,913,872)     (5,327,309)
===========      ===========    ============    ============    ============

         63               73              30              15              --
===========      ===========    ============    ============    ============
         --               --              --              --              --
===========      ===========    ============    ============    ============
         --               --              --              --              --
===========      ===========    ============    ============    ============
         60               --               3              --              40
         --               --              --              --              --
         --               --              --              --              --
         14               76              73              76              36
-----------      -----------    ------------    ------------    ------------
         74               76              76              76              76
===========      ===========    ============    ============    ============
         --               --              --              --              --
         --               --              --              --              --
         73               76              --              55              76
          1               --              76              21              --
         --               --              --              --              --
-----------      -----------    ------------    ------------    ------------
         74               76              76              76              76
===========      ===========    ============    ============    ============
      7.625%           7.625%          7.625%          7.625%          7.625%

        246              322             398             474             550

        100%             100%            100%            100%            100%
     Past performance is not necessarily indicative of future performance.

                                      B-9

TABLE III - CNL RESTAURANT PROPERTIES, INC. (continued)

Note 1:           Pursuant to a Registration Statement on Form S-11 under the
                  Securities Act of 1933, as amended, effective March 29, 1995,
                  CNL Restaurant Properties, Inc. (formerly CNL American
                  Properties Fund, Inc. (the "Restaurant Properties REIT")
                  registered for sale $165,000,000 of shares of common stock
                  (the "Initial Offering"), including $15,000,000 available only
                  to stockholders participating in the company's reinvestment
                  plan. The Initial Offering of the Restaurant Properties REIT
                  commenced April 19, 1995, and upon completion of the Initial
                  Offering on February 6, 1997, had received subscription
                  proceeds of $150,591,765 (7,529,588 shares), including
                  $591,765 (29,588 shares) issued pursuant to the reinvestment
                  plan. Pursuant to a Registration Statement on Form S-11 under
                  the Securities Act of 1933, as amended, effective January 31,
                  1997, the Restaurant Properties REIT registered for sale
                  $275,000,000 of shares of common stock (the "1997 Offering"),
                  including $25,000,000 available only to stockholders
                  participating in the company's reinvestment plan. The 1997
                  Offering of the Restaurant Properties REIT commenced following
                  the completion of the Initial Offering on February 6, 1997,
                  and upon completion of the 1997 Offering on March 2, 1998, had
                  received subscription proceeds of $251,872,648 (12,593,633
                  shares), including $1,872,648 (93,632 shares) issued pursuant
                  to the reinvestment plan. Pursuant to a Registration Statement
                  on Form S-11 under the Securities Act of 1933, as amended,
                  effective May 12, 1998, the Restaurant Properties REIT
                  registered for sale $345,000,000 of shares of common stock
                  (the "1998 Offering"). The 1998 Offering of the Restaurant
                  Properties REIT commenced following the completion of the 1997
                  Offering on March 2, 1998. As of January 31, 1999, the
                  Restaurant Properties REIT had received subscriptions
                  totalling approximately $345,000,000 (17,250,000 shares), from
                  the 1998 Offering, including $3,107,848 (155,393 shares)
                  issued pursuant to the company's reinvestment plan. The 1998
                  Offering became fully subscribed in December 1998 and proceeds
                  from the last subscriptions were received in January 1999.
                  Activities through June 1, 1995, were devoted to organization
                  of the Restaurant Properties REIT and operations had not
                  begun.

Note 2:           The amounts shown represent the combined results of the
                  Initial Offering and the 1997 Offering.

Note 3:           The amounts shown represent the combined results of the
                  Initial Offering, 1997 Offering and 1998 Offering.

Note 4:           Cash generated from operations from inception through
                  September 1999 included cash received from tenants, less cash
                  paid for expenses, plus interest received. In September 1999,
                  the Restaurant Properties REIT acquired two companies which
                  make and service mortgage loans and securitize portions of
                  loans. Effective with these acquisitions, the Restaurant
                  Properties REIT classifies its investments in and collections
                  of mortgage loans held for sale, proceeds from sale of
                  mortgage loans held for sale, proceeds from securitization
                  transactions, acquisition in and proceeds from real estate
                  held for sale and purchases of other investments held for sale
                  as operating activities in its financial statements. The
                  Restaurant Properties REIT continues to classify investments
                  in mortgage loans, investments in land and buildings,
                  investments in direct financing leases and other investments
                  intended to be held as investments as investing activities in
                  its financial statements.

Note 5:           Cash generated from operations per this table agrees to
                  cash generated from operations per the statement of cash flows
                  included in the financial statements of the Restaurant
                  Properties REIT.

Note 6:           Total cash distributions as a percentage of original $1,000
                  investment are calculated based on actual distributions
                  declared for the period.

Note 7:           In May 1997 and July 1997, the Restaurant Properties REIT
                  sold four properties and one property, respectively, to a
                  tenant for $5,254,083 and $1,035,153, respectively, which was
                  equal to the carrying value of the properties at the time of
                  sale. In May and July 1998, the Restaurant Properties REIT
                  sold two and one properties, respectively, to third parties
                  for $1,605,154 and $1,152,262, respectively (and received net
                  sales proceeds of approximately $1,233,700 and $629,435,
                  respectively, after deduction of construction costs incurred
                  but not paid by the Restaurant Properties REIT as of the date
                  of the sale), which approximated the carrying value of the
                  properties at the time of sale. As a result, no gain or loss
                  was recognized for financial reporting purposes.

Note 8:           Taxable income presented is before the dividends paid
                  deduction.

Note 9:           For the years ended December 31, 2002, 2001, 2000, 1999,
                  1998, 1997, 1996 and 1995, 0%, 21%, 40%, 97%, 84.87%, 93.33%,
                  90.25% and 59.82%, respectively, of the distributions received
                  by stockholders were considered to be ordinary income and
                  100%, 79%, 60%, 15%, 15.13%, 6.67%, 9.75% and 40.18%,
                  respectively, were considered a return of capital for federal
                  income tax purposes. No amounts distributed to stockholders
                  for the years ended December 31, 2002, 2001, 2000, 1999, 1998,
                  1997, 1996 and 1995 are required to be or have been treated by
                  the company as a return of capital for purposes of calculating
                  the stockholders' return on their invested capital.

Note 10:          Cash distributions presented above as a return of capital
                  on a GAAP basis represent the amount of cash distributions in
                  excess of accumulated net income on a GAAP basis. Accumulated
                  net income (loss) includes deductions for depreciation and
                  amortization expense and income from certain non-cash items.
                  This amount is not required to be presented as a return of
                  capital except for purposes of this table, and the Restaurant
                  Properties REIT has not treated this amount as a return of
                  capital for any other purpose. During the year ended December
                  31, 1999, accumulated net loss included a non-cash deduction
                  for the advisor acquisition expense of $76.3 million (see Note
                  16). During the year ended December 31, 2001, the Restaurant
                  Properties REIT recorded non-cash provisions for loan losses
                  of $28.2 million due to financial difficulties of a borrower.

      Past performance is not necessarily indicative of future performance.

                                      B-10
TABLE III - CNL RESTAURANT PROPERTIES, INC. (continued)

Note 11:          Tax and distribution data and total distributions on GAAP
                  basis were computed based on the weighted average dollars
                  outstanding during each period presented.

Note 12:          During the year ended December 31, 1998, the Restaurant
                  Properties REIT recorded provisions for losses on land and
                  buildings in the amount of $269,149 for financial reporting
                  purposes relating to two Shoney's properties and two Boston
                  Market properties. The tenants of these properties experienced
                  financial difficulties and ceased payment of rents under the
                  terms of their lease agreements. The allowances represent the
                  difference between the carrying value of the properties at
                  December 31, 1998 and the estimated net realizable value for
                  these properties.

Note 13:          In October 1998, the Board of Directors of the Restaurant
                  Properties REIT elected to implement the Restaurant Properties
                  REIT's redemption plan. Under the redemption plan, the
                  Restaurant Properties REIT elected to redeem shares, subject
                  to certain conditions and limitations. During the year ended
                  December 31, 1998, 69,514 shares were redeemed at $9.20 per
                  share ($639,528) and retired from shares outstanding of common
                  stock. During 1999, as a result of the stockholders approving
                  a one-for-two reverse stock split of common stock, the
                  Restaurant Properties REIT agreed to redeem fractional shares
                  (2,545 shares). During 2002, the Restaurant Properties REIT
                  retired 325 shares of common stock.

Note 14:          During the year ended December 31, 1999, the Restaurant
                  Properties REIT recorded provisions for losses on buildings in
                  the amount of $6,198,447 for financial reporting purposes
                  relating to several properties. The tenants of these
                  properties experienced financial difficulties and ceased
                  payment of rents under the terms of their lease agreements.
                  The allowances represent the difference between the carrying
                  value of the properties at December 31, 1999 and the estimated
                  net realizable value for these properties.

Note 15:          During the year ended December 31, 1999, the Restaurant
                  Properties REIT sold six properties and received aggregate net
                  sales proceeds of $5,302,433, which resulted in a total
                  aggregate loss of $781,192 for financial reporting purposes.
                  The Restaurant Properties REIT reinvested the proceeds from
                  the sale of properties in additional properties. In addition,
                  the Restaurant Properties REIT recorded a loss on
                  securitization of $1,070,646 for financial reporting purposes.

Note 16:          On September 1, 1999, the Restaurant Properties REIT
                  issued 6,150,000 shares of common stock to affiliates of the
                  Restaurant Properties REIT to acquire its external advisor and
                  two companies which make and service mortgage loans and
                  securitize portions of loans. The Restaurant Properties REIT
                  recorded an advisor acquisition expense of $76,333,516
                  relating to the acquisition of the external advisor, which
                  represented the excess purchase price over the net assets
                  acquired.

Note 17:          During the year ended December 31, 2000, 2001 and 2002,
                  the Restaurant Properties REIT recorded provision for losses
                  on land, buildings, and direct financing leases in the amount
                  of $2,214,159, $16,900,116 and $8,639,377, respectively, for
                  financial reporting purposes relating to several properties.
                  The tenants of these properties experienced financial
                  difficulties and/or ceased payment of rents under the terms of
                  their lease agreements. The allowances represent the
                  difference between the carrying value of the properties at
                  December 31, 2000, 2001 and 2002, respectively, and the
                  estimated net realizable value for these properties.

Note 18:          During the year ended December 31, 2000, the Restaurant
                  Properties REIT sold fifteen properties for aggregate net
                  sales proceeds of $12,833,063, which resulted in total
                  aggregate losses of $732,334 for financial reporting purposes
                  (after deduction of construction costs incurred but not paid
                  by the Restaurant Properties REIT as of the date of the sale).

Note 19:          During the year ended December 31, 2000, the Restaurant
                  Properties REIT received $1,187,238 for the sale of
                  consolidated partnership interests.

Note 20:          An affiliate of the Restaurant Properties REIT is entitled
                  to receive, in connection with each common stock offering, a
                  soliciting dealer servicing fee payable annually by the
                  Restaurant Properties REIT beginning on December 31 of the
                  year following the year in which each offering terminated in
                  the amount of 0.20% of the stockholders' investment in the
                  Restaurant Properties REIT in connection with such offering.
                  An affiliate of the Restaurant Properties REIT in turn, may
                  reallow all or a portion of such fee to broker-dealers whose
                  clients purchased shares in such offering and held shares on
                  such date. During the years ended December 31, 1998, 1999,
                  2000, 2001 and 2002 the Restaurant Properties REIT incurred
                  $300,206, $1,493,437, $1,493,436, $1,493,436 and $1,493,437 of
                  such fees, respectively, which were paid in January 1999,
                  2000, 2001, 2002 and 2003, respectively.

Note 21:          During the year ended December 31, 2001 and 2002, the
                  Restaurant Properties REIT sold several properties held for
                  investment for aggregate net sales proceeds of $11,207,122 and
                  $67,043,108, which resulted in total aggregate losses of
                  $1,136,997 and $347,179 for financial reporting purposes. In
                  addition, during the year ended December 31, 2001, the
                  Restaurant Properties REIT began acquiring certain properties
                  with the intent of selling them to third parties.

Note 22:          During the year ended December 31, 2001, an affiliate of
                  the Restaurant Properties REIT advanced $6.0 million to the
                  Restaurant Properties REIT in the form of a demand balloon
                  promissory note. The note is uncollateralized, bears interest
                  at LIBOR plus 2.5 percent with interest payments and
                  outstanding principal due upon demand. During the year ended
                  December 31, 2001, the Restaurant

     Past performance is not necessarily indicative of future performance.
                                      B-11

TABLE III - CNL RESTAURANT PROPERTIES, INC. (continued)

Note 22
(Continued):      Properties REIT converted the outstanding principal balance
                  plus accrued interest under the advances into shares of
                  Restaurant Properties REIT stock. As of December 31, 2001, the
                  affiliate had advanced an additional $2.7 million to the
                  Restaurant Properties REIT under the same terms of the
                  previous advances. During 2002, the affiliate advanced $7.5
                  million to the Restaurant Properties REIT and subsequently
                  converted the outstanding balances plus accrued interest under
                  the advances, into shares of Restaurant Properties REIT stock.
                  As of December 31, 2002, the affiliate had advanced an
                  additional $4.25 million to the Restaurant Properties REIT
                  under the same terms as the previous advances.

Note 23:          Effective January 1, 2002, the Restaurant Properties REIT
                  adopted Statement of Financial Accounting Standards No. 144
                  "Accounting for the Impairment or Disposal of Long-Lived
                  Assets" ("FASB #144"). This statement requires that a long
                  lived asset be tested for recoverability whenever events or
                  changes in circumstances indicate that its carrying amount may
                  not be recoverable. In addition, the statement also requires
                  that the results of operations of a component of an entity
                  that either has been disposed of or is classified as held for
                  sale be reported as a discontinued operation, for components
                  designated on or after the effective date. As a result of the
                  adoption of FASB #144, the operating results and the related
                  gains/(losses) from the sale of all properties designated for
                  sale effective January 1, 2002 have been classified as
                  discontinued operations. The results of operations for these
                  properties have been restated and reclassified to discontinued
                  operations for each of the years ended December 31, 1998,
                  1999, 2000 and 2001 to conform to the 2002 presentation. The
                  results of operations for these properties for the years ended
                  December 31, 1994, 1995, 1996 and 1997 have not been restated
                  or reclassified to conform to the 2002 presentation.

Note 24:          Starting in 2001, the Restaurant Properties REIT began
                  designating certain properties as held for sale and began
                  selling these properties to private investors as an
                  alternative to retaining the properties as a long term
                  investment. The accounting for these properties differs from
                  that of similar properties without this designation as the
                  Restaurant Properties REIT does not record depreciation on
                  these properties for financial reporting purposes. All
                  properties designated through December 31, 2001 as held for
                  sale reflect the gross sales proceeds received from the sale
                  as a revenue line item. The related cost of the properties are
                  reflected in a cost of real estate sold expense line item. All
                  properties designated as held for sale subsequent to December
                  31, 2001 are presented as discontinued operations (see Note
                  23).

Note 25:          For the year ended December 31, 2002, 100% of the
                  distributions to stockholders were deemed return of capital
                  for federal income tax purposes.

      Past performance is not necessarily indicative of future performance.
                                      B-12

                                    TABLE III
                       Operating Results of Prior Programs
                        CNL HOSPITALITY PROPERTIES, INC.

                                                            1996          1997                          1999
                                                          (Note 1)      (Note 1)        1998          (Note 2)
                                                         ---------   -----------   ------------    ------------
Gross revenue                                            $      --   $        --   $  1,316,599    $  4,230,995
Dividend income (Note 10)                                       --            --             --       2,753,506
Interest and other income                                       --        46,071        638,862       3,693,004
Less: Operating expenses                                        --       (22,386)      (257,646)       (802,755)
      Interest expense                                          --            --       (350,322)       (248,094)
      Depreciation and amortization                             --          (833)      (388,554)     (1,267,868)
      Equity in loss of unconsolidated
         subsidiary after deduction of
         preferred stock dividends (Note 10)                    --            --             --        (778,466)
       Minority interest                                        --            --             --         (64,334)
                                                         ---------   -----------   ------------    ------------
Net income - GAAP basis                                         --        22,852        958,939       7,515,988
                                                         =========   ===========   ============    ============
Taxable income
    -  from operations (Note 6)                                 --        46,071        609,304       7,613,284
                                                         =========   ===========   ============    ============
    -  from gain (loss) on sale                                 --            --             --              --
                                                         =========   ===========   ============    ============
Cash generated from operations (Notes
    3 and 4)                                                    --        22,469      2,776,965      12,890,161
Less: Cash distributions to investors (Note 7)
      -  from operating cash flow                               --       (22,469)    (1,168,145)    (10,765,881)
      -  from sale of properties                                --            --             --              --
      -  from cash flow from prior period                       --            --             --              --
      -  from return of capital (Note 8)                        --        (7,307)            --              --
                                                         ---------   -----------   ------------    ------------
Cash generated (deficiency) after cash
    distributions                                               --        (7,307)     1,608,820       2,124,280
Special items (not including sales of real
    estate and refinancing):
      Subscriptions received from
       stockholders                                             --    11,325,402     31,693,678     245,938,907
      Sale of common stock to CNL
       Hospitality Corp. (formerly CNL
       Hospitality Advisors, Inc.)                         200,000            --             --              --
      Proceeds from mortgage loans and other
       notes payable                                            --            --             --              --
      Contribution from minority interest                       --            --             --       7,150,000
      Distributions to holders of minority
       interest                                                 --            --             --              --
      Stock issuance costs                                (197,916)   (1,979,371)    (3,948,669)    (26,472,318)
      Acquisition of land, buildings and
       equipment                                                --            --    (28,752,549)    (85,089,887)
      Investment in unconsolidated subsidiary                   --            --             --     (39,879,638)
      Deposit on property and other investments                 --            --             --              --
      Acquisition of additional interest CNL
       Hotel Investors, Inc.                                    --            --             --              --
      Redemption of (investment in) certificate of
       deposit                                                  --            --     (5,000,000)             --
      Increase in restricted cash                               --            --        (82,407)       (193,223)
      Proceeds of borrowing on line of credit                   --            --      9,600,000              --
      Payment on mortgage loans and line of credit              --            --             --      (9,600,000)
      Payment of other notes                                    --            --             --              --
      Payment of loan costs                                     --            --        (91,262)        (47,334)
      Decrease (increase) in intangibles and
       other assets                                             --      (463,470)      (676,026)     (5,068,727)
      Retirement of shares of common stock                      --            --             --        (118,542)
      Due from related parties - offering expenses              --            --             --              --
      Other                                                     --        (7,500)         7,500              --
                                                         ---------   -----------   ------------    ------------
Cash generated (deficiency) after cash
    distributions and special items                          2,084     8,867,754      4,359,085      88,743,518
                                                         =========   ===========   ============    ============
TAX AND DISTRIBUTION DATA PER
    $1,000 INVESTED (Note 5)
Federal income tax results:
Ordinary income (loss) (Note 9)
    -  from operations (Note 6)                                 --             7             25              48
                                                         =========   ===========   ============    ============
    -  from recapture                                           --            --             --              --
                                                         =========   ===========   ============    ============
Capital gain (loss) (Note 7)                                    --            --             --              --
                                                         =========   ===========   ============    ============
      Past performance is not necessarily indicative of future performance.

                                      B-13

     2000            2001             2002
   (Note 2)        (Note 2)         (Note 2)
 ------------    ------------     ------------
$  26,681,838   $  67,968,306    $ 142,581,972
    2,780,063              --               --
    6,637,318       3,494,238       13,826,308
   (3,311,988)     (9,491,248)     (77,963,736)
   (2,383,449)    (14,653,011)     (18,330,110)
   (7,830,456)    (19,748,697)     (27,875,955)

     (386,627)     (7,092,674)     (16,164,591)
   (1,516,237)     (1,148,538)        (263,647)
-------------   -------------    -------------
   20,670,462      19,328,376       15,810,241
=============   =============    =============

   14,507,032      16,938,386       24,804,256
=============   =============    =============
           --              --               --
=============   =============    =============

   43,650,561      52,937,964       70,340,253

  (28,082,275)    (48,409,660)     (74,217,458)
           --              --               --
           --              --               --
           --              --               --
 ------------   -------------    -------------
   15,568,286       4,528,304       (3,877,205)

  203,684,044     286,068,626      489,110,645

           --              --               --

  102,081,950      37,989,731       40,070,000
           --              --               --

  (10,217,828)     (2,896,299)        (413,664)
  (24,808,156)    (34,723,430)     (51,639,836)

 (310,711,912)   (117,233,515)    (307,447,324)
  (10,174,209)   (129,032,824)     (95,025,712)
           --              --      (10,300,407)

  (17,872,573)    (32,884,119)              --

    5,000,000              --               --
   (2,988,082)     (5,229,734)     (10,328,235)
           --       7,500,000       16,578,832
           --      (1,171,444)      (1,748,331)
           --              --      (26,606,636)
   (1,342,713)     (2,953,874)      (2,169,338)

    2,510,090     (11,610,690)     (29,643,305)
   (2,503,484)     (2,312,634)      (2,391,110)
           --      (1,410,900)              --
           --              --               --
-------------   -------------    -------------
  (51,774,587)     (5,372,802)       4,168,374
 ============   =============    =============

           38              26               25
 ============   =============    =============
           --              --               --
 ============   =============    =============
           --              --               --
 ============   =============    =============

      Past performance is not necessarily indicative of future performance.

                                      B-14

TABLE III - CNL HOSPITALITY PROPERTIES, INC. (continued)

                                                           1996             1997                               1999
                                                         (Note 1)         (Note 1)            1998           (Note 2)
                                                         --------         --------          -------          --------
Cash distributions to investors
    Source (on GAAP basis)
    -  from investment income                                  --                3               40                47
    -  from capital gain                                       --               --               --                --
    -  from investment income from
       prior period                                            --               --               --                --
    -  from return of capital (Note 8)                         --                1                9                21
                                                         --------         --------          -------          --------
Total distributions on GAAP basis (Note 9)                     --                4               49                68
   Source (on cash basis)                                ========         ========          =======          ========

    -  from sales                                              --               --               --                --
    -  from refinancing                                        --               --               --                --
    -  from operations                                         --                3               49                68
    -  from cash flow from prior period                        --               --               --                --
    -  from return of capital (Note 8)                         --                1               --                --
                                                         --------         --------          -------          --------
Total distributions on cash basis (Note 9)                     --                4               49                68
                                                         ========         ========          =======          ========
Total cash distributions as a percentage
    of original $1,000 investment (Notes
    5 and 11)                                               N/A               3.00%            4.67%             7.19%
Total cumulative cash distributions per
    $1,000 investment from inception                        N/A                  4               53               121
Amount (in percentage terms) remaining
    invested in program properties at the
    end of each year (period) presented
    (original total acquisition cost of
    properties retained, divided by original
    total acquisition cost of all properties
    in program)                                             N/A              N/A                100%              100%


Note 1:           Pursuant to a Registration Statement on Form S-11 under the
                  Securities Act of 1933, as amended, effective July 9, 1997,
                  CNL Hospitality Properties, Inc. (the "Hospitality Properties
                  REIT") registered for sale $165,000,000 of shares of common
                  stock (the "CHP Initial Offering"), including $15,000,000
                  available only to stockholders participating in the company's
                  reinvestment plan. The CHP Initial Offering commenced
                  September 11, 1997, and upon completion of the CHP Initial
                  Offering on June 17, 1999 had received $150,072,637
                  (15,007,264 shares), including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan. Pursuant to a Registration
                  Statement on Form S-11 under the Securities Act of 1933, as
                  amended, effective June 4, 1999, the Hospitality Properties
                  REIT registered for sale up to $275,000,000 of shares of
                  common stock (the "1999 Offering"). The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the CHP Initial Offering on June 17, 1999, and upon
                  completion of the 1999 Offering on September 14, 2000, the
                  company had received $274,998,988, including $965,194 (96,520
                  shares) issued pursuant to the reinvestment plan. Pursuant to
                  a Registration Statement on Form S-11 under the Securities Act
                  of 1933, as amended, effective May 23, 2000, the Hospitality
                  Properties REIT registered for sale up to $450,000,000 of
                  shares of common stock (the "2000 Offering"). The 2000
                  Offering of the Hospitality Properties REIT commenced
                  following the completion of the 1999 Offering on September 14,
                  2000 and upon completion of the 2000 Offering on September 14,
                  2000, the company had received $450,000,000, including
                  $3,375,474 (337,547 shares) issued pursuant to the
                  reinvestment plan. Pursuant to a Registration Statement on
                  Form S-11 under the Securities Act of 1933, as amended,
                  effective April 1, 2002, the Hospitality Properties REIT
                  registered for sale up to $450,000,000 of shares of common
                  stock (the "2002 Offering"). As of December 31, 2002, the
                  Hospitality Properties REIT had received subscription proceeds
                  of $392,749,677 (39,274,968 shares) from its 2002 Offering,
                  including $3,225,431 (322,543 shares) issued pursuant to the
                  reinvestment plan. The amounts shown represent the combined
                  results of the CHP Initial Offering, the 1999 Offering, the
                  2000 Offering and the 2002 Offering, including subscription
                  proceeds issued pursuant to the reinvestment plan as of
                  December 31, 2002.

Note 2:           The amounts shown represent the combined results of the
                  Initial Offering, the 1999 Offering, the 2000 Offering and the
                  2002 Offering, as applicable.

Note 3:           Cash generated from operations includes cash received from
                  tenants and dividend, interest and other income, less cash
                  paid for operating expenses.

Note 4:           Cash generated from operations per this table agrees to
                  cash generated from operations per the statement of cash flows
                  included in the consolidated financial statements of the
                  Hospitality Properties REIT.

Note 5:           Total cash distributions as a percentage of original $1,000
                  investment are calculated based on actual distributions
                  declared for the period.

      Past performance is not necessarily indicative of future performance.

                                      B-15

  2000        2001        2002
(Note 2)    (Note 2)    (Note 2)
--------    --------    --------
    53          30         16
    --          --         --

    --          --         --
    20          45         60
------      ------      -----

    73          75         76
======      ======      =====
    --          --         --
    --          --         --
    73          75         76
    --          --         --
    --          --         --
------      ------      -----
    73          75         76
======      ======      =====

  7.38%      7.688%      7.75%

   194         269        345

   100%        100%       100%


Note 6:           Taxable income presented is before the dividends paid
                  deduction.

Note 7:           For the years ended December 31, 2002, 2001, 2000, 1999,
                  1998 and 1997, approximately 51%, 52%, 63%, 75%, 76% and 100%,
                  respectively, of the distributions received by stockholders
                  were considered to be ordinary income and approximately 49%,
                  48%, 37%, 25%, 24% and 0%, respectively, were considered a
                  return of capital for federal income tax purposes. No amounts
                  distributed to stockholders for the years ended December 31,
                  2002, 2001, 2000, 1999, 1998 and 1997 are required to be or
                  have been treated by the company as a return of capital for
                  purposes of calculating the stockholders' return on their
                  invested capital.

Note 8:           Cash distributions presented above as a return of capital
                  on a GAAP basis represent the amount of cash distributions in
                  excess of accumulated net income on a GAAP basis. Accumulated
                  net income includes deductions for depreciation and
                  amortization expense and income from certain non-cash items.
                  In addition, cash distributions presented as a return of
                  capital on a cash basis represents the amount of cash
                  distributions in excess of cash generated from operating cash
                  flow and excess cash flows from prior periods. These amounts
                  have not been treated as a return of capital for purposes of
                  calculating the amount of stockholders' invested capital.

Note 9:           Tax and distribution data and total distributions on GAAP
                  basis were computed based on the weighted average shares
                  outstanding during each period presented.

Note 10:          In February 1999, the company executed a series of
                  agreements with Five Arrows Realty Securities II, L.L.C. to
                  jointly own a real estate investment trust, CNL Hotel
                  Investors, Inc., for the purpose of acquiring seven hotels.
                  During the years ended December 31, 2000 and 1999, the company
                  recorded $2,780,063 and $2,753,506, respectively, in dividend
                  income and $386,627 and $778,466, respectively, in an equity
                  in loss after deduction of preferred stock dividends,
                  resulting in net earnings of $2,393,436 and $1,975,040,
                  respectively, attributable to this investment. In October
                  2000, the company purchased an additional interest in CNL
                  Hotel Investors, Inc., which resulted in a majority ownership
                  interest and the consolidation of CNL Hotel Investors, Inc. As
                  such, no dividend income was recognized for the years ended
                  after December 31, 2001.

Note 11:          Certain data for columns representing less than 12 months
                  have been annualized.

      Past performance is not necessarily indicative of future performance.

                                      B-16

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                             Selling Price, Net of
                                                                                       Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired     Sale     of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================

CNL Income Fund, Ltd.:
   Popeye's -
      Merritt Island, FL (2)           12/31/86   09/13/00        676,503          --           --          --          676,503
   Golden Corral -
      Salisbury, MD (2) (11)           12/04/86   11/30/00        665,001          --           --          --          665,001
   Wendy's -
      Mesquite, TX (2)                 09/29/86   02/20/02      1,064,259          --           --          --        1,064,259
   Burger King -
      Orlando, FL (30)                 11/12/86   06/18/02        613,553          --           --          --          613,553

CNL Income Fund II, Ltd.:
   KFC -
      Jacksonville, FL (2)             09/01/87   06/15/00        601,400          --           --          --          601,400
   Popeye's -
      Sanford, FL (2)                  06/28/87   09/13/00        631,359          --           --          --          631,359
   Popeye's -
      Altamonte Springs, FL (2)        02/11/87   09/13/00        494,052          --           --          --          494,052
   Popeye's -
      Apopka, FL (2)                   01/19/88   09/13/00        615,618          --           --          --          615,618
   IHOP -
      Peoria, AZ (20)                  11/18/99   08/27/01        836,160          --           --          --          836,160
   KFC -
      Bay City, TX (2)                 12/18/87   09/10/01        548,874          --           --          --          548,874
   Burger King -
      San Antonio, TX (2)              05/15/87   06/26/02        747,510          --           --          --          747,510
   Denny's -
      Casper, WY (2) (38)              09/15/87   08/09/02        346,252          --           --          --          346,252
   Denny's -
      Rock Springs, WY (2)             09/18/87   08/09/02        204,659          --           --          --          204,659
   Golden Corral -
      Tomball, TX                      05/13/87   10/10/02        458,175          --           --          --          458,175
   Golden Corral -
      Pineville, LA                    06/18/97   12/18/02        262,425          --           --          --          262,425

CNL Income Fund III, Ltd.:
   Popeye's -
      Plant City, FL                   04/12/88   09/13/00        507,365          --           --          --          507,365
   Golden Corral -
      Washington, IL (2) (3)           11/20/87   11/29/01        586,132          --           --          --          586,132
   Golden Corral -
      Schereville, IN (2) (23)         11/19/87   09/11/01        810,550          --           --          --          810,550
   Po' Folks -
      Titusville, FL (28)              10/30/87   01/09/02        121,558          --           --          --          121,558
   Burger King -
      Montgomery, AL (2) (36)          01/28/99   05/17/02         78,294          --      320,000          --          398,294
   Golden Corral -
      Altus, OK (2)                    10/14/87   09/27/02        307,785          --           --          --          307,785
   Red Oak Steakhouse -
      Canton Township, MI (2)(37)      08/18/88   09/30/02        106,315          --      640,000          --          746,315


                                                 Cost of Properties
                                                Including Closing and
                                                     Soft Costs
                                      -------------------------------------
                                                                                  Excess
                                                      Total                    (deficiency)
                                                 acquisition cost,             of property
                                      Original       capital                  operating cash
                                      mortgage    improvements                receipts over
                                      financing    closing and                     cash
            Property                     (7)      soft costs (1)     Total   expenditures (19)
==============================================================================================

CNL Income Fund, Ltd.:
   Popeye's -
      Merritt Island, FL (2)             --           518,409       518,409         909,409
   Golden Corral -
      Salisbury, MD (2) (11)             --           741,900       741,900       1,326,574
   Wendy's -
      Mesquite, TX (2)                   --           848,000       848,000       1,351,586
   Burger King -
      Orlando, FL (30)                   --           487,500       487,500         911,938

CNL Income Fund II, Ltd.:
   KFC -
      Jacksonville, FL (2)               --           441,000       441,000         715,685
   Popeye's -
      Sanford, FL (2)                    --           560,000       560,000         850,322
   Popeye's -
      Altamonte Springs, FL (2)          --           426,568       426,568         684,445
   Popeye's -
      Apopka, FL (2)                     --           545,561       545,561         794,039
   IHOP -
      Peoria, AZ (20)                    --           764,975       764,975         125,468
   KFC -
      Bay City, TX (2)                   --           446,827       446,827         767,761
   Burger King -
      San Antonio, TX (2)                --           703,500       703,500       1,251,201
   Denny's -
      Casper, WY (2) (38)                --           566,700       566,700         872,849
   Denny's -
      Rock Springs, WY (2)               --           667,900       667,900         928,587
   Golden Corral -
      Tomball, TX                        --           807,583       807,583       1,434,457
   Golden Corral -
      Pineville, LA                      --           645,400       645,400       1,115,813

CNL Income Fund III, Ltd.:
   Popeye's -
      Plant City, FL                     --           606,409       606,409         616,913
   Golden Corral -
      Washington, IL (2) (3)             --           690,500       690,500       1,083,951
   Golden Corral -
      Schereville, IN (2) (23)           --           694,100       694,100       1,053,524
   Po' Folks -
      Titusville, FL (28)                --           714,117       714,117         166,684
   Burger King -
      Montgomery, AL (2) (36)            --           941,358       941,358         261,836
   Golden Corral -
      Altus, OK (2)                      --           557,900       557,900         920,131
   Red Oak Steakhouse -
      Canton Township, MI (2)(37)        --           924,921       924,921       1,309,270

      Past performance is not necessarily indicative of future performance.

                                      B-17

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                     Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund IV, Ltd.:
   Wendy's
      Detroit, MI (2)                  10/21/88   06/29/00      1,056,475           --         --           --        1,056,475
   Shoney's -
      Temple Terrace, FL (2)           06/27/89   07/06/00      1,293,286           --         --           --        1,293,286
   Shoney's -
      Punta Gorda, FL (2)              02/02/89   07/06/00      1,060,297           --         --           --        1,060,297
   Big Boy -
      Topeka, KS (2)                   12/22/88   11/20/00        496,362           --         --           --          496,362
   Taqueria Jalisco -
      Corpus Christi, TX (2)           04/01/91   06/19/01        390,000           --         --           --          390,000
   Bellissimos Family Restaurant -
      Palm Bay, FL                     01/10/89   08/17/01        289,894           --         --           --          289,894
   Po' Folks -
      Titusville, FL (28)              10/30/87   01/09/02         44,052           --         --           --           44,052

CNL Income Fund V, Ltd.:
   Hardee's -
       Belding, MI                     03/08/89   03/03/00        124,346           --         --           --          124,346
   Denny's -
       Daleville, IN (2)               02/06/89   03/02/01        300,386           --         --           --          300,386
   Denny's -
       Huron, OH (2) (6)               05/19/89   01/15/02        260,956           --         --           --          260,956
   Market Street Buffet and
Bakery -
       West Lebanon, NH (2)            07/10/89   01/17/02        654,530           --         --           --          654,530
   Taco Bell -
       Bountiful, UT (2)               08/17/89   01/28/02      1,039,998           --         --           --        1,039,998
   Burger King -
       Lawrenceville, GA (2)           06/27/89   06/20/02        847,000           --         --           --          847,000

CNL Income Fund VI, Ltd.:
   Popeye's -
      Jacksonville, FL                 04/30/90   09/13/00        478,062           --         --           --          478,062
   Popeye's -
      Tallahassee, FL                  04/30/90   09/13/00        619,696           --         --           --          619,696
   Popeye's -
      Jacksonville, FL                 04/30/90   09/13/00        523,672           --         --           --          523,672
   Popeye's -
      Jacksonville, FL                 04/30/90   09/13/00        450,418           --         --           --          450,418
     Captain D's -
      Chester, PA (4)                  02/09/90   05/22/01         83,000           --         --           --           83,000
   IHOP -
      Dublin, CA (14)                  11/12/99   06/28/01      1,274,672           --         --           --        1,274,672
   IHOP -
      Round Rock, TX (21)              10/27/99   10/05/01      1,163,216           --         --           --        1,163,216
   Denny's -
      Cheyenne, WY                     12/19/89   12/21/01        290,800           --         --           --          290,800
   KFC -
      Caro, MI (35)                    04/02/90   11/15/02        396,840           --         --           --          396,840

                                                    Cost of Properties
                                                   Including Closing and
                                                        Soft Costs
                                         ---------------------------------------
                                                                                       Excess
                                                         Total                      (deficiency)
                                                    acquisition cost,               of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                  receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Income Fund IV, Ltd.:
   Wendy's
      Detroit, MI (2)                        --           614,500        614,500       1,038,530
   Shoney's -
      Temple Terrace, FL (2)                 --         1,155,705      1,155,705       1,496,453
   Shoney's -
      Punta Gorda, FL (2)                    --           947,500        947,500       1,271,574
   Big Boy -
      Topeka, KS (2)                         --           708,800        708,800         878,942
   Taqueria Jalisco -
      Corpus Christi, TX (2)                 --           622,310        622,310         331,788
   Bellissimos Family Restaurant -
       Palm Bay, FL                          --         1,070,822      1,070,822       1,250,729
   Po' Folks -
       Titusville, FL (28)                   --           258,795        258,795          60,406

CNL Income Fund V, Ltd.:
   Hardee's -
       Belding, MI                           --           630,432        630,432         250,715
   Denny's -
       Daleville, IN (2)                     --           547,600        547,600         589,375
   Denny's -
       Huron, OH (2) (6)                     --           448,100        448,100         764,529
   Market Street Buffet and
Bakery -
       West Lebanon, NH (2)                  --         1,159,990      1,159,990         (29,353)
   Taco Bell -
       Bountiful, UT (2)                     --           614,249        614,249       1,053,833
   Burger King -
       Lawrenceville, GA (2)                 --           797,778        797,778       1,290,366

CNL Income Fund VI, Ltd.:
   Popeye's -
      Jacksonville, FL                       --           406,477        406,477         491,262
   Popeye's -
      Tallahassee, FL                        --           488,817        488,817         658,801
   Popeye's -
      Jacksonville, FL                       --           423,591        423,591         530,389
   Popeye's -
      Jacksonville, FL                       --           383,089        383,089         454,566
   Captain D's -
      Chester, PA (4)                        --           550,000        550,000         786,617
   IHOP -
      Dublin, CA (14)                        --         1,166,160      1,166,160         175,195
   IHOP -
      Round Rock, TX (21)                    --         1,076,103      1,076,103         192,394
   Denny's -
      Cheyenne, WY                           --           765,500        765,500       1,058,493
   KFC -
      Caro, MI (35)                          --           348,855        348,855         651,265

      Past performance is not necessarily indicative of future performance.

                                      B-18

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                    Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund VII, Ltd.:
   Shoney's
      Pueblo, CO                        08/21/90  06/20/00      1,005,000          --           --          --        1,005,000
   Popeye's -
      Lake City, FL                     04/30/90  09/13/00        598,959          --           --          --          598,959
   Popeye's -
      Jacksonville, FL                  04/30/90  09/13/00        417,581          --           --          --          417,581
   Popeye's -
      Jacksonville, FL                  04/30/90  09/13/00        494,680          --           --          --          494,680
   Popeye's -
      Brunswick, GA                     04/30/90  09/13/00        535,947          --           --          --          535,947
   Popeye's -
      Jacksonville, FL                  04/30/90  09/13/00        345,168          --           --          --          345,168
   KFC -
      Friendswood, TX                   06/13/90  12/14/00        725,000          --           --          --          725,000
   Church's -
      Daytona Beach, FL (22)            01/16/91  11/27/01        213,482          --      103,581          --          317,063
   Church's
      Gainesville, FL                   01/16/91  11/29/01        182,750          --           --          --          182,750
   Johnnies -
      Saddlebrook, FL                   04/04/90  12/21/01        698,050          --           --          --          698,050
   Burger King -
      Columbus, OH (31)                 09/27/91  06/03/02        218,833          --           --          --          218,833
   Burger King -
      Pontiac, MI (31)                  09/27/91  06/27/02        130,073          --           --          --          130,073
   Jack in the Box -
      Mansfield, TX (34)                03/20/97  08/23/02        799,084          --           --          --          799,084

CNL Income Fund VIII, Ltd.:
   Shoney's -
      Bayonet Point, FL                 06/12/91  07/06/00      1,135,380          --           --          --        1,135,380
   Shoney's -
      Brooksville, FL                   02/18/91  07/06/00        940,013          --           --          --          940,013
   Shoney's -
      Sun City, FL                      03/04/91  07/06/00      1,327,317          --           --          --        1,327,317
   Popeye's -
      Jacksonville, FL                  09/28/90  09/13/00        420,006          --           --          --          420,006
   Golden Corral -
      Middleburg Heights, OH (12)       05/31/96  03/21/01        236,740          --           --          --          236,740
   Quincy's -
      Statesville, NC                   10/10/91  05/25/01        877,000          --           --          --          877,000
   Burger King -
      Baseball City, FL                 06/18/91  05/02/02      1,184,559          --           --          --        1,184,559
   Burger King -
      Columbus, OH (31)                 09/27/91  06/03/02        447,392          --           --          --          447,392
   Burger King -
      Pontiac, MI (31)                  09/27/91  06/27/02        265,926          --           --          --          265,926
   Bakers Square -
      Libertyville, IL (33)             08/31/00  09/05/02      1,076,041          --           --           --       1,076,041

                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Income Fund VII, Ltd.:
   Shoney's
      Pueblo, CO                           --          961,582         961,582       984,472
   Popeye's -
      Lake City, FL                        --          485,455         485,455       641,608
   Popeye's -
      Jacksonville, FL                     --          376,323         376,323       452,824
   Popeye's -
      Jacksonville, FL                     --          384,936         384,936       515,888
   Popeye's -
      Brunswick, GA                        --          468,797         468,797       574,076
   Popeye's -
      Jacksonville, FL                     --          340,429         340,429       407,175
   KFC -
      Friendswood, TX                      --          485,951         485,951       671,580
   Church's -
      Daytona Beach, FL (22)               --          318,188         318,188       396,488
   Church's
      Gainesville, FL                      --          183,872         183,872       239,254
   Johnnies -
      Saddlebrook, FL                      --        1,100,000       1,100,000     1,324,170
   Burger King -
      Columbus, OH (31)                    --          167,259         167,259       190,438
   Burger King -
      Pontiac, MI (31)                     --          211,050         211,050       238,235
   Jack in the Box -
      Mansfield, TX (34)                   --          617,155         617,155       351,952

CNL Income Fund VIII, Ltd.:
   Shoney's -
      Bayonet Point, FL                    --          924,646         924,646     1,040,086
   Shoney's -
      Brooksville, FL                      --          816,355         816,355       961,418
   Shoney's -
      Sun City, FL                         --        1,055,820       1,055,820     1,238,581
   Popeye's -
      Jacksonville, FL                     --          352,445         352,445       401,169
   Golden Corral -
      Middleburg Heights, OH (12)          --          236,740         236,740       127,155
   Quincy's -
      Statesville, NC                      --          893,422         893,422       997,232
   Burger King -
      Baseball City, FL                    --          873,857         873,857     1,096,005
   Burger King -
      Columbus, OH (31)                    --          341,952         341,952       389,340
   Burger King -
      Pontiac, MI (31)                     --          431,480         431,480       487,058
   Bakers Square -
      Libertyville, IL (33)                --          960,000         960,000       187,961

      Past performance is not necessarily indicative of future performance.

                                      B-19

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                     Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund IX, Ltd.:
   Perkins -
      Williamsville, NY                12/20/91   05/15/00        693,350          --           --           --         693,350
   Denny's -
      Alliance, OH (16)                01/22/92   11/30/00             --          --      200,000           --         200,000
   Denny's -
      Blufton, OH (17)                 10/11/91   11/30/00             --          --      300,000           --         300,000
   IHOP -
      Dublin, CA (14)                  11/12/99   06/28/01        424,891          --           --           --         424,891
   Shoney's -
      Bedford, IN                      07/09/91   07/31/01        900,110          --           --           --         900,110
   Shell's Seafood Restaurant -
      Copley Township, OH              12/17/91   11/28/01      1,086,143          --           --           --       1,086,143
   Hardee's -
      Greenville, SC                   10/21/91   05/03/02        976,798          --           --           --         976,798
   Burger King -
      Greensboro, NC (29)              03/30/92   05/16/02        571,744          --           --           --         571,744
   Burger King -
      Columbus, OH (31)                09/27/91   06/03/02        549,515          --           --           --         549,515
   Burger King -
      Ashland, NH (32)                 06/29/92   06/03/02        402,545          --           --           --         402,545
   Burger King -
      Pontiac, MI (31)                 09/27/91   06/27/02        326,626          --           --           --         326,626
   Shoney's -
      Huntsville, AL                   10/04/91   08/20/02        951,528          --           --           --         951,528
   Bakers Square -
      Libertyville, IL (33)            08/31/00   09/05/02        554,324          --           --           --         554,324
   Hardee's -
      Farragut, TN                     10/09/91   12/18/02        886,300          --           --           --         886,300

CNL Income Fund X, Ltd.:
   Perkins -
      Lancaster, NY                    12/20/91   12/28/00        749,675          --           --           --         749,675
   IHOP -
      Peoria, AZ (20)                  11/18/99   08/27/01        905,840          --           --           --         905,840
   Jack in the Box -
      San Marcos, TX                   03/03/99   04/23/02      1,161,055          --           --           --       1,161,055
   Burger King  -
      Greensboro, NC (29)              03/30/92   05/16/02        571,744          --           --           --         571,744
   Burger King -
      Ashland, NH (32)                 06/29/92   06/03/02        154,802          --           --           --         154,802
   Perkins -
      Ft. Pierce, FL                   02/04/92   12/20/02        329,175          --           --           --         329,175

CNL Income Fund XI, Ltd.:
   IHOP -
      Round Rock, TX (21)              10/27/99   10/05/01        347,454          --           --           --         347,454
   Quincy's -
      Sebring, FL                      09/29/92   11/21/01      1,029,000          --           --           --       1,029,000

                                                    Cost of Properties
                                                   Including Closing and
                                                        Soft Costs
                                         ---------------------------------------
                                                                                       Excess
                                                         Total                      (deficiency)
                                                    acquisition cost,               of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                  receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Income Fund IX, Ltd.:
   Perkins -
      Williamsville, NY                     --           981,482         981,482      692,535
   Denny's -
      Alliance, OH (16)                     --           553,137         553,137      614,999
   Denny's -
      Blufton, OH (17)                      --           642,000         642,000      739,292
   IHOP -
      Dublin, CA (14)                       --           388,720         388,720       58,398
   Shoney's -
      Bedford, IN                           --           754,028         754,028      991,085
   Shell's Seafood Restaurant -
      Copley Township, OH                   --           870,713         870,713      692,662
   Hardee's -
      Greenville, SC                        --           760,405         760,405      957,261
   Burger King -
      Greensboro, NC (29)                   --           460,989         460,989      479,360
   Burger King -
      Columbus, OH (31)                     --           420,008         420,008      478,210
   Burger King -
      Ashland, NH (32)                      --           325,018         325,018      322,154
   Burger King -
      Pontiac, MI (31)                      --           529,969         529,969      598,234
   Shoney's -
      Huntsville, AL                        --           763,901         763,901    1,050,434
   Bakers Square -
      Libertyville, IL (33)                 --           494,545         494,545       96,829
   Hardee's -
      Farragut, TN                          --           707,025         707,025      940,825

CNL Income Fund X, Ltd.:
   Perkins -
      Lancaster, NY                         --         1,111,111       1,111,111      706,575
   IHOP -
      Peoria, AZ (20)                       --           828,723         828,723      135,923
   Jack in the Box -
      San Marcos, TX                        --         1,020,829       1,020,829      288,292
   Burger King  -
      Greensboro, NC (29)                   --           460,989         460,989      479,360
   Burger King -
       Ashland, NH (32)                     --           124,989         124,989      123,887
   Perkins -
       Ft. Pierce, FL                       --         1,002,337       1,002,337      623,996

CNL Income Fund XI, Ltd.:
   IHOP -
      Round Rock, TX (21)                   --           321,434         321,434       57,468
   Quincy's -
      Sebring, FL                           --         1,054,550       1,054,550    1,111,338

      Past performance is not necessarily indicative of future performance.
                                      B-20

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                   Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund XI, Ltd.
(Continued):
   Burger King -
      Columbus, OH                     09/01/92   06/03/02        901,125         --          --            --          901,125
   Burger King -
      Ashland, NH (32)                 06/29/92   06/03/02        915,559         --          --            --          915,559
   Burger King -
      East Detroit, MI                 06/29/92   06/20/02        833,247         --          --            --          833,247

CNL Income Fund XII, Ltd.:
   Denny's -
      Cleveland, TN                    12/23/92   03/03/00        797,227         --          --            --          797,227
   Shoney's -
      Bradenton, FL                    03/22/93   07/06/00      1,227,907         --          --            --        1,227,907
   Golden Corral -
      Middleburg Heights, OH (12)      05/31/96   03/21/01      1,663,260         --          --            --        1,663,260
   Jack in the Box -
      Rialto, CA                       01/15/93   09/28/01      1,382,365         --          --            --        1,382,365
   Johnnies -
      Winter Haven, FL                 08/09/93   10/02/01      1,090,297         --          --            --        1,090,297
   Jack in the Box -
      Arlington, TX                    01/15/93   04/23/02      1,248,205         --          --            --        1,248,205
   Burger King -
      Valdosta, GA                     08/24/93   08/30/02        623,661         --          --            --          623,661

CNL Income Fund XIII, Ltd.:
   Quincy's -
      Mount Airy, NC                   07/30/93   04/09/01        947,000         --          --            --          947,000
   Burger King -
      Dayton, OH                       07/30/93   06/03/02      1,049,863         --          --            --        1,049,863
   Lion's Choice -
      Overland Park, KS (5)            12/16/93   08/12/02      1,242,050         --          --            --        1,242,050

CNL Income Fund XIV, Ltd.:
   East Side Mario's -
      Columbus, OH                     11/10/94   09/22/00      1,631,946         --          --            --        1,631,946
   Golden Corral -
      Paris, TX (13)                   07/26/96   05/25/01        400,000         --          --            --          400,000
   Razzleberries -
      Las Vegas, NV                    07/08/94   02/01/02      1,143,753         --          --            --        1,143,753
   Long John Silver's -
      Laurens, SC                      03/25/94   08/05/02        155,249         --          --            --          155,249
   Golden Corral -
      Greeley, CO                      12/13/94   09/25/02      1,306,595         --          --            --        1,306,595
   Checker's -
      Merriam, KS                      03/31/94   11/07/02        323,175         --          --            --          323,175


                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Income Fund XI, Ltd.
(Continued):
   Burger King -
       Columbus, OH                       --           714,413         714,413       798,711
   Burger King -
       Ashland, NH (32)                   --           739,228         739,228       732,715
   Burger King -
       East Detroit, MI                   --           761,501         761,501       779,593

CNL Income Fund XII, Ltd.:
   Denny's -
      Cleveland, TN                       --           622,863         622,863       530,741
   Shoney's -
      Bradenton, FL                       --         1,000,000       1,000,000       898,776
   Golden Corral -
      Middleburg Heights, OH (12)         --         1,663,260       1,663,260       893,350
   Jack in the Box -
      Rialto, CA                          --         1,033,072       1,033,072       936,833
   Johnnies -
      Winter Haven, FL                    --         1,172,608       1,172,608     1,117,762
   Jack in the Box -
      Arlington, TX                       --           966,466         966,466       937,794
   Burger King -
      Valdosta, GA                        --           510,432         510,432       648,558

CNL Income Fund XIII, Ltd.:
   Quincy's -
      Mount Airy, NC                      --           968,134         968,134       755,601
   Burger King -
      Dayton, OH                          --           905,717         905,717     1,032,534
   Lion's Choice -
      Overland Park, KS (5)               --         1,029,449       1,029,449       964,561

CNL Income Fund XIV, Ltd.:
   East Side Mario's -
      Columbus, OH                        --         1,631,946       1,631,946     1,103,012
   Golden Corral -
      Paris, TX (13)                      --           501,276         501,276       255,146
   Razzleberries -
      Las Vegas, NV                       --         1,006,514       1,006,514       631,310
   Long John Silver's -
      Laurens, SC                         --           448,796         448,796       257,444
   Golden Corral -
      Greeley, CO                         --         1,184,810       1,184,810     1,015,365
   Checker's -
      Merriam, KS                         --           284,609         284,609       269,328
      Past performance is not necessarily indicative of future performance.

                                      B-21
                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                    Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund XV, Ltd.:
   Long John Silver's
      Lexington, NC                    10/22/94   01/12/00         562,130         --           --         --           562,130
   Quincy's -
      Greer, SC (15)                   06/13/94   04/06/01         233,000         --      467,000         --           700,000
   Jack in the Box -
      Woodland Hills, CA               07/29/94   04/19/01       1,253,728         --           --         --         1,253,728
   Golden Corral -
      Paris, TX (13)                   07/26/96   05/25/01         400,000         --           --         --           400,000
   Jack in the Box -
      Altadena, CA                     07/29/94   10/04/01         937,250         --           --         --           937,250
   Jack in the Box -
      Redlands, CA                     07/29/94   02/15/02       1,300,882         --           --         --         1,300,882
   Long John Silver's -
      Medina, OH                       10/05/94   09/30/02         395,205         --           --         --           395,205
   Checker's -
      Stratford, NJ                    05/27/94   12/27/02         350,802         --           --         --           350,802

CNL Income Fund XVI, Ltd.:
   Boston Market -
      Columbia Heights, MN             12/18/95   09/29/00         575,777         --           --         --           575,777
   Denny's -
      Marana, AZ                       02/13/95   03/30/01       1,145,045         --           --         --         1,145,045
   Boston Market -
      St. Cloud, MN                    09/15/95   11/28/01         647,365         --           --         --           647,365
   Big Boy -
      Las Vegas, NV                    05/31/95   12/11/01       1,059,264         --           --         --         1,059,264
   Denny's -
      Mesquite, TX                     08/31/95   03/28/02         448,675         --           --         --           448,675
   Jack in the Box -
      Rancho Cordova, CA               10/31/94   06/04/02       1,325,054         --           --         --         1,325,054
   Denny's -
      Bucyrus, OH (26)                 06/08/95   08/07/02         144,915         --           --         --           144,915

CNL Income Fund XVII, Ltd.:
   Popeye's -
      Warner Robins, GA                11/04/96   09/13/00         607,361         --           --         --           607,361
   Boston Market -
      Long Beach, CA                   12/05/96   10/17/00         529,633         --           --         --           529,633
   Boston Market -
      Houston, TX                      06/19/96   01/19/01         782,648         --           --         --           782,648
   Mr. Fable's -
      Kentwood, MI                     09/05/95   06/21/01         681,300         --           --         --           681,300
   Boston Market -
      Inglewood, CA                    07/24/96   09/06/01         298,300         --           --         --           298,300
   Jack in the Box -
      El Dorado, CA                    09/26/96   09/25/01       1,510,463         --           --         --         1,510,463
     Denny's -
          Mesquite, NV                 04/25/96   03/29/02         771,800         --           --         --           771,800

                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Income Fund XV, Ltd.:
   Long John Silver's
      Lexington, NC                       --           646,203         646,203       234,243
   Quincy's -
      Greer, SC (15)                      --           946,933         946,933       649,756
   Jack in the Box -
      Woodland Hills, CA                  --           939,806         939,806       648,254
   Golden Corral -
      Paris, TX (13)                      --           501,276         501,276       255,146
   Jack in the Box -
      Altadena, CA                        --           709,812         709,812       528,007
   Jack in the Box -
      Redlands, CA                        --           973,020         973,020       758,150
   Long John Silver's -
      Medina, OH                          --           812,056         812,056       285,620
   Checker's -
      Stratford, NJ                       --           287,391         287,391       271,787

CNL Income Fund XVI, Ltd.:
   Boston Market -
      Columbia Heights, MN                --           939,972         939,972       226,734
   Denny's -
      Marana, AZ                          --           719,234         719,234       587,377
   Boston Market -
      St. Cloud, MN                       --         1,075,093       1,075,093       502,978
   Big Boy -
      Las Vegas, NV                       --         1,160,553       1,160,553       476,249
   Denny's -
      Mesquite, TX                        --           987,353         987,353       480,530
   Jack in the Box -
      Rancho Cordova, CA                  --           900,290         900,290       705,521
   Denny's -
      Bucyrus, OH (26)                    --           540,000         540,000       385,051

CNL Income Fund XVII, Ltd.:
   Popeye's -
      Warner Robins, GA                   --           563,148         563,148       257,018
   Boston Market -
      Long Beach, CA                      --           832,280         832,280       156,091
   Boston Market -
      Houston, TX                         --           812,696         812,696       323,963
   Mr. Fable's -
      Kentwood, MI                        --           855,609         855,609       272,268
   Boston Market -
      Inglewood, CA                       --           857,488         857,488       196,478
   Jack in the Box -
      El Dorado, CA                       --         1,097,220       1,097,220       581,924
   Denny's -
      Mesquite, NV                        --         1,186,460       1,186,460       494,461

      Past performance is not necessarily indicative of future performance.

                                      B-22

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Income Fund XVII, Ltd.
     (Continued):
   Wendy's -
      Knoxville, TN                    07/30/96   05/31/02      1,045,425          --         --            --        1,045,425
   Bakers Square -
      Wilmette, IL                     01/31/00   06/27/02      1,682,371          --         --            --        1,682,371
   Jack in the Box -
      Mansfield, TX (34)               03/20/97   08/23/02        212,415          --         --            --          212,415

CNL Income Fund XVIII, Ltd.:
   Boston Market -
      Timonium, MD                     07/13/97   06/29/01        848,550          --         --            --          848,550
   Jack in the Box -
      Henderson, NV                    06/30/97   07/12/01      1,278,046          --         --            --        1,278,046
   IHOP -
      Santa Rosa, CA                   05/21/97   12/28/01      1,664,829          --         --            --        1,664,829
   On the Border -
      San Antonio, TX                  09/02/97   05/08/02        470,304          --         --            --          470,304
   Boston Market -
      San Antonio, TX                  08/18/97   05/29/02        481,325          --         --            --          481,325
   Boston Market -
      Raleigh, NC (27)                 01/23/97   08/07/02        714,050          --         --            --          714,050

CNL Restaurant Properties, Inc.:
   Golden Corral -
      Waldorf, MD (9) (10)             04/05/99   01/03/00      2,501,175          --         --            --        2,501,175
   Jack in the Box -
      Los Angeles, CA                  06/30/95   02/18/00      1,516,800          --         --            --        1,516,800
   Golden Corral -
      Dublin, GA                       08/07/98   05/01/00      1,323,205          --         --            --        1,323,205
   Boston Market -
      San Antonio, TX                  04/30/97   05/02/00        517,495          --         --            --          517,495
   Boston Market -
      Corvallis, OR                    07/09/96   06/20/00        717,019          --         --            --          717,019
   Big Boy -
      St. Louis, MO                    01/19/99   06/28/00      1,463,050          --         --            --        1,463,050
   Ground Round -
      Nanuet, NY                       12/02/97   06/30/00        964,825          --         --            --          964,825
   Big Boy -
      Jefferson City, MO               01/19/99   06/30/00        905,250          --         --            --          905,250
   Big Boy -
      Alton, IL                        01/19/99   06/30/00        905,250          --         --            --          905,250
   Boston Market -
      Liberty, MO                      08/18/97   09/13/00        538,800          --         --            --          538,800
   Mr. Fables -
      Grand Rapids, MI                 03/19/96   09/26/00        722,100          --         --            --          722,100
   Pizza Hut -
      Dover, OH                        05/01/97   11/08/00        112,917          --         --            --          112,917
   Big Boy -
      St. Joseph, MO                   04/27/99   11/27/00        646,550          --         --            --          646,550

                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Income Fund XVII, Ltd.
(Continued):
   Wendy's -
      Knoxville, TN                       --           783,748         783,748       484,686
   Bakers Square -
      Wilmette, IL                        --         1,627,273       1,627,273       380,572
   Jack in the Box -
      Mansfield, TX (34)                  --           164,054         164,054        93,557

CNL Income Fund XVIII, Ltd.:
   Boston Market -
      Timonium, MD                        --         1,140,100       1,140,100       302,665
   Jack in the Box -
      Henderson, NV                       --         1,067,175       1,067,175       494,105
   IHOP -
      Santa Rosa, CA                      --         1,286,364       1,286,364       598,179
   On the Border -
      San Antonio, TX                     --         1,225,163       1,225,163       190,705
   Boston Market -
      San Antonio, TX                     --           857,595         857,595         9,631
    Boston Market -
      Raleigh, NC (27)                    --         1,225,686       1,225,686       511,581

CNL Restaurant Properties, Inc.:
   Golden Corral -
      Waldorf, MD (9) (10)                --         2,430,686       2,430,686            --
   Jack in the Box -
      Los Angeles, CA                     --         1,119,567       1,119,567       549,658
   Golden Corral -
      Dublin, GA                          --         1,272,765       1,272,765       190,590
   Boston Market -
      San Antonio, TX                     --           757,069         757,069        66,889
   Boston Market -
      Corvallis, OR                       --           925,427         925,427       312,232
   Big Boy -
      St. Louis, MO                       --         1,345,100       1,345,100        65,420
   Ground Round -
      Nanuet, NY                          --           927,273         927,273       245,426
   Big Boy -
      Jefferson City, MO                  --         1,113,383       1,113,383        68,389
   Big Boy -
      Alton, IL                           --         1,012,254       1,012,254        41,032
   Boston Market -
      Liberty, MO                         --           765,530         765,530        84,802
   Mr. Fables -
      Grand Rapids, MI                    --           816,264         816,264       270,873
   Pizza Hut -
      Dover, OH                           --           233,896         233,896        86,601
   Big Boy -
      St. Joseph, MO                      --           885,883         885,883        35,138

      Past performance is not necessarily indicative of future performance.

                                      B-23

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Boston Market -
      Baltimore, MD                    08/19/97   12/14/00         668,753         --         --           --           668,753
   Boston Market -
      Stafford, TX                     07/02/97   12/15/00         881,674         --         --           --           881,674
   Big Boy -
      Guadalupe, AZ                    04/16/97   03/23/01         883,685         --         --           --           883,685
   Tumbleweed's -
      Nashville, TN                    08/01/97   04/20/01         525,050         --         --           --           525,050
   Boston Market -
      Vacaville, CA                    05/06/97   05/08/01       1,064,430         --         --           --         1,064,430
   Big Boy -
      Independence, MO                 01/19/99   05/22/01         524,513         --         --           --           524,513
   Big Boy -
      Belleville, IL (9)               02/26/99   06/13/01         375,000         --         --           --           375,000
   Tumbleweeds -
      Clarksville, TN                  02/10/98   06/15/01         803,050         --         --           --           803,050
   Big Boy -
      Grandview, MO                    02/26/99   06/29/01         516,235         --         --           --           516,235
   Pizza Hut -
      Toledo, OH                       12/05/96   06/29/01         148,528         --         --           --           148,528
   Shoney's -
      Indian Harbor Beach, FL          01/24/97   08/13/01         457,016         --         --           --           457,016
   Black-eyed Pea -
      Wichita, KS                      10/01/97   08/15/01         300,000         --         --           --           300,000
   Tumbleweed Southwest Mesquite
      Grill & Bar
      Hermitage, TN                    02/10/98   09/24/01         871,496         --         --           --           871,496
   Tumbleweed Southwest Mesquite
      Grill & Bar
      Cookeville, TN                   08/01/97   09/26/01         844,905         --         --           --           844,905
   Big Boy -
      Granite City, IL                 01/19/99   09/28/01         595,148         --         --           --           595,148
   Big Boy -
      Taylor, MI                       08/19/99   10/16/01         887,731         --         --           --           887,731
   Boston Market -
      Cedar Park, TX                   04/02/97   10/31/01         875,000         --         --           --           875,000
   Shoney's -
      Phoenix, AZ                      03/24/98   11/26/01         399,285         --         --           --           399,285
   Burger King -
      Atlanta, GA                      06/09/98   12/21/01         418,050         --         --           --           418,050
   Barbwires Steakhouse -
      Lawrence, KS                     08/01/97   12/28/01         718,000         --         --           --           718,000
   Boston Market -
      Jessup, MD                       05/06/97   02/19/02         324,343         --         --           --           324,343
   Black-eyed Pea -
      Herndon, VA                      07/14/98   02/22/02         815,875         --         --           --           815,875
   TGI Friday's -
      El Paso, TX                      08/14/98   03/19/02       1,594,729         --         --           --         1,549,729


                                                    Cost of Properties
                                                   Including Closing and
                                                        Soft Costs
                                         ---------------------------------------
                                                                                       Excess
                                                         Total                      (deficiency)
                                                    acquisition cost,               of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                  receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Boston Market -
      Baltimore, MD                          --        1,378,051       1,378,051      472,895
   Boston Market -
      Stafford, TX                           --        1,077,979       1,077,979      372,102
   Big Boy -
      Guadalupe, AZ                          --        1,706,768       1,706,768      140,439
   Tumbleweed's -
      Nashville, TN                          --        1,308,411       1,308,411      362,588
   Boston Market -
      Vacaville, CA                          --        1,437,474       1,437,474      358,396
   Big Boy -
      Independence, MO                       --        1,253,699       1,253,699       65,156
   Big Boy -
      Belleville, IL (9)                     --          761,074         761,074      (17,597)
   Tumbleweeds -
      Clarksville, TN                        --        1,440,247       1,440,247      229,692
   Big Boy -
      Grandview, MO                          --          962,290         962,290       36,150
   Pizza Hut -
      Toledo, OH                             --          328,381         328,381      (21,742)
   Shoney's -
      Indian Harbor Beach, FL                --          693,304         693,304       68,946
   Black-eyed Pea -
      Wichita, KS                            --          660,748         660,748      305,701
   Tumbleweed Southwest Mesquite
      Grill & Bar
      Hermitage, TN                          --        1,410,719       1,410,719      191,005
   Tumbleweed Southwest Mesquite
      Grill & Bar
      Cookeville, TN                         --        1,471,963       1,471,963      386,178
   Big Boy -
      Granite City, IL                       --        1,037,579       1,037,579       10,800
   Big Boy -
      Taylor, MI                             --        1,227,132       1,227,132       61,898
   Boston Market -
      Cedar Park, TX                         --          827,223         827,223       71,386
   Shoney's -
      Phoenix, AZ                            --          482,368         482,368      (91,021)
   Burger King -
      Atlanta, GA                            --          926,261         926,261      227,653
   Barbwires Steakhouse -
      Lawrence, KS                           --        1,448,598       1,448,598      179,747
   Boston Market -
      Jessup, MD                             --        1,243,060       1,243,060      107,266
   Black-eyed Pea -
      Herndon, VA                            --        1,279,118       1,279,118      354,530
   TGI Friday's -
      El Paso, TX                            --        1,602,944       1,602,944      577,055

      Past performance is not necessarily indicative of future performance.

                                      B-24


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                    Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Big Boy -
      Las Vegas, NV                    08/20/97   04/19/02        981,540          --          --          --           981,540
   Big Boy -
      Overland Park, KS                02/26/99   04/26/02        577,580          --          --          --           577,580
   Burger King -
      Tappahannock, VA                 03/16/99   05/16/02      1,089,779          --          --          --         1,089,779
   Burger King -
      Prattville, AL                   01/28/99   05/17/02        497,867          --          --          --           497,867
   Burger King -
      Tuskegee, AL                     01/28/99   05/17/02        397,867          --          --          --           397,867
   Burger King -
      Montgomery, AL                   01/28/99   05/17/02        797,867          --          --          --           797,867
   Burger King -
      Montgomery, AL                   01/28/99   05/17/02        397,867          --          --          --           397,867
   Black-eyed Pea -
      McKinney, TX                     12/30/98   05/31/02      1,149,064          --          --          --         1,149,064
   Black-eyed Pea -
      Forestville, MD                  10/01/97   06/01/02             --          --          --          --                --
   Burger King -
      Coon Rapids, MN                  03/16/99   06/03/02      1,078,973          --          --          --         1,078,973
   Burger King -
      Rochester, NH                    03/16/99   06/03/02      1,193,284          --          --          --         1,193,284
   Burger King -
      Columbus, OH                     03/16/99   06/03/02        950,938          --          --          --           950,938
   Burger King -
      Asheboro, NC                     03/16/99   06/03/02      1,513,213          --          --          --         1,513,213
   Hardee's -
      Gulf Shores, AL                  03/16/99   06/13/02        904,861          --          --          --           904,861
   Steak & Ale -
      Palm Harbor, FL                  06/16/98   06/14/02      1,241,943          --          --          --         1,241,943
   Burger King -
      Lancaster, OH                    03/16/99   06/14/02      1,321,822          --          --          --         1,321,822
   Burger King -
      John's Island, SC                03/16/99   06/14/02      1,289,282          --          --          --         1,289,282
   IHOP -
      Elk Grove, CA                    08/20/97   06/17/02      2,085,346          --          --          --         2,085,346
   Hardee's -
      Tusculum, TN                     03/16/99   06/17/02        653,460          --          --          --           653,460
   Pollo Tropical -
      Miami, FL                        09/22/98   06/20/02      1,302,936          --          --          --         1,302,936
   Burger King -
      St. Paul, MN                     03/16/99   06/26/02        849,273          --          --          --           849,273
   Texas Roadhouse -
      Joilet, IL                       02/25/00   06/27/02      1,940,745          --          --          --         1,940,745
   Black-eyed Pea -
      Phoenix, AZ                      09/30/97   06/28/02        281,000          --          --          --           281,000

                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Big Boy -
      Las Vegas, NV                       --          1,658,000      1,658,000      114,934
   Big Boy -
      Overland Park, KS                   --          1,037,383      1,037,383       (7,476)
   Burger King -
      Tappahannock, VA                    --            857,826        857,826      285,470
   Burger King -
      Prattville, AL                      --          1,018,519      1,018,519      285,895
   Burger King -
      Tuskegee, AL                        --            972,222        972,222      267,501
   Burger King -
      Montgomery, AL                      --          1,296,296      1,296,296      362,395
   Burger King -
      Montgomery, AL                      --          1,018,519      1,018,519      289,495
   Black-eyed Pea -
      McKinney, TX                        --          1,644,856      1,644,856      304,736
   Black-eyed Pea -
      Forestville, MD                     --            643,925        643,925      477,253
   Burger King -
      Coon Rapids, MN                     --            844,815        844,815      288,892
   Burger King -
      Rochester, NH                       --            963,499        963,499      318,314
   Burger King -
      Columbus, OH                        --            744,585        744,585      257,877
   Burger King -
      Asheboro, NC                        --          1,228,831      1,228,831      436,666
   Hardee's -
      Gulf Shores, AL                     --            914,337        914,337      320,113
   Steak & Ale -
      Palm Harbor, FL                     --          1,232,558      1,232,558      504,926
   Burger King -
      Lancaster, OH                       --            799,195        799,195      364,070
   Burger King -
      John's Island, SC                   --          1,077,802      1,077,802      367,639
   IHOP -
      Elk Grove, CA                       --          1,540,356      1,540,356      751,308
   Hardee's -
      Tusculum, TN                        --            666,045        666,045      233,604
   Pollo Tropical -
      Miami, FL                           --          1,318,182      1,318,182      392,816
   Burger King -
      St. Paul, MN                        --            747,713        747,713      271,528
   Texas Roadhouse -
      Joilet, IL                          --          1,745,014      1,745,014      384,473
   Black-eyed Pea -
      Phoenix, AZ                         --            641,371        641,371      265,557


      Past performance is not necessarily indicative of future performance.

                                      B-25

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                   Selling Price, Net of
                                                                             Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Black-eyed Pea -
      Mesa, AZ                         09/30/97   06/28/02      1,710,000         --          --            --        1,710,000
   Black-eyed Pea
      Phoenix, AZ                      09/30/97   06/28/02        425,000         --          --            --          425,000
   Black-eyed Pea
      Tucson, AZ                       09/30/97   06/28/02        234,000         --          --            --          234,000
   Steak & Ale Restaurant -
      Austin, TX                       06/16/98   07/02/02      1,437,468         --          --            --        1,437,468
   Jack in the Box -
      Fresno, CA                       05/22/98   07/18/02      1,244,289         --          --            --        1,244,289
   Black-eyed Pea
      Phoenix, AZ                      09/30/97   07/19/02        580,000         --          --            --          580,000
   Jack in the Box -
      Austin, TX                       10/05/99   07/22/02      1,384,759         --          --            --        1,384,759
   Black-eyed Pea -
      Albuquerque, NM                  01/00/00   07/26/02             --         --          --            --               --
   Big Boy -
      St. Clairsville, OH              12/18/98   07/29/02        339,300         --          --            --          339,300
   Jack in the Box -
      Fort Worth, TX                   01/11/00   08/05/02      1,141,653         --          --            --        1,141,653
   Jack in the Box -
      Menlo Park, CA                   12/30/99   08/22/02      1,772,360         --          --            --        1,772,360
   Arby's -
      Lawrenceville, GA                02/08/00   08/26/02      1,422,750         --          --            --        1,422,750
   Darry's -
      Louisville, KY                   06/11/97   08/28/02      1,840,800         --          --            --        1,840,800
   Black-eyed Pea -
      Killeen, TX                      12/18/98   09/05/02      1,133,800         --          --            --        1,133,800
   IHOP -
      Fairfax, VA                      06/18/97   09/06/02      2,268,911         --          --            --        2,268,911
   Black eyed Pea -
      Oklahoma City, OK                03/26/97   09/10/02        475,000         --          --            --          475,000
   Arby's -
      Circleville, OH                  09/09/99   09/10/02        993,900         --          --            --          993,900
   Black eyed Pea -
      Waco, TX                         10/01/97   09/13/02         70,000         --          --            --           70,000
   Hardee's -
      Iuka, MS                         03/16/99   09/18/02        594,413         --          --            --          594,413
   Hardee's -
      Warrior, AL                      03/16/99   09/18/02        667,050         --          --            --          667,050
   Hardee's -
      Horn Lake, MS                    03/16/99   09/20/02        818,263         --          --            --          818,263
   Jack in the Box -
      Corning, CA                      09/17/99   09/24/02      1,266,556         --          --            --        1,266,556
   Bennigan's -
      Batavia, IL                      10/21/99   09/25/02      2,595,121         --          --            --        2,595,121


                                                  Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                     Excess
                                                       Total                      (deficiency)
                                                  acquisition cost,               of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                  receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Black-eyed Pea -
      Mesa, AZ                            --          1,600,000      1,600,000       522,239
   Black-eyed Pea
      Phoenix, AZ                         --            641,254        641,254       282,585
   Black-eyed Pea
      Tucson, AZ                          --            641,871        641,871       251,809
   Steak & Ale Restaurant -
      Austin, TX                          --          1,372,093      1,372,093       568,339
   Jack in the Box -
      Fresno, CA                          --            972,841        972,841       394,246
   Black-eyed Pea
      Phoenix, AZ                         --            645,471        645,471       207,379
   Jack in the Box -
      Austin, TX                          --          1,289,945      1,289,945       299,499
   Black-eyed Pea -
      Albuquerque, NM                     --            666,355        666,355       238,206
   Big Boy -
      St. Clairsville, OH                 --          1,144,209      1,144,209       169,976
   Jack in the Box -
      Fort Worth, TX                      --          1,062,145      1,062,145       223,450
   Jack in the Box -
      Menlo Park, CA                      --          1,546,740      1,546,740       368,611
   Arby's -
      Lawrenceville, GA                   --          1,374,986      1,374,986       314,054
   Darry's -
      Louisville, KY                      --          1,481,448      1,481,448       514,069
   Black-eyed Pea -
      Killeen, TX                         --          1,386,948      1,386,948       257,250
   IHOP -
      Fairfax, VA                         --          1,709,091      1,709,091       906,669
   Black eyed Pea -
      Oklahoma City, OK                   --            617,022        617,022       268,734
   Arby's -
      Circleville, OH                     --            925,329        925,329       237,321
   Black eyed Pea -
      Waco, TX                            --            661,682        661,682       280,179
   Hardee's -
      Iuka, MS                            --            616,476        616,476       233,121
   Hardee's -
      Warrior, AL                         --            627,937        627,937       238,440
   Hardee's -
      Horn Lake, MS                       --            833,058        833,058       319,101
   Jack in the Box -
      Corning, CA                         --          1,158,524      1,158,524       314,769
   Bennigan's -
      Batavia, IL                         --          2,429,907      2,429,907       729,536

      Past performance is not necessarily indicative of future performance.

                                      B-26


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                             ------------------------------------------------------------------
                                                                                           Purchase
                                                                                Mortgage     money     Adjustments
                                                                                 balance   mortgage   resulting from
                                         Date     Date of    Cash received net   at time  taken back  application of
            Property                   Acquired    Sale      of closing costs    of sale  by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Shoney's -
      Titusville, FL                   03/31/02   09/26/02         686,200         --         --           --           686,200
   Pollo Tropical -
      Sunrise, FL                      09/30/98   09/26/02       1,457,533         --         --           --         1,457,533
   Hardee's -
      Biscoe, NC                       03/16/99   09/27/02         564,984         --         --           --           564,984
   Black-eyed Pea -
      Bedford, TX                      03/26/97   09/30/02         921,175         --         --           --           921,175
   Black-eyed Pea -
      Norman, OK                       11/09/98   09/30/02       1,091,708         --         --           --         1,091,708
   Black-eyed Pea -
      Mesa, AZ                         11/30/98   09/30/02       1,325,500         --         --           --         1,325,000
   Hardee's -
      Aynor, SC                        03/16/99   09/30/02         586,189         --         --           --           586,189
   Denny's
      McKinney, TX                     06/05/96   10/02/02         600,000         --         --           --           600,000
   Black-eyed Pea -
      Scottsdale, AZ                   04/17/97   10/02/02              --         --         --           --                --
   Arby's
      Renton, WA                       09/14/99   10/18/02       1,406,197         --         --           --         1,406,197
   Pizza-Hut -
      Belle, WV                        05/17/96   10/21/02          47,500         --         --           --            47,500
   Pizza Hut -
      Collinsville, IL                 04/02/97   10/25/02         801,953         --         --           --           801,953
   Burger King -
      Tampa, FL                        08/19/99   10/28/02         770,306         --         --           --           770,306
   Big Boy -
      O'Fallon, MO                     01/19/99   10/31/02         679,925         --         --           --           679,925
   Golden Corral -
      Hopkinsville, KY                 02/19/97   11/07/02         924,057         --         --           --           924,057
   Denny's -
      Santee, SC                       03/16/99   11/21/02         583,000         --         --           --           583,000
   Jack in the Box -
      Los Angeles, CA                  01/04/99   12/10/02       1,793,802         --         --           --         1,793,802
   Hardee's
      Columbia, TN                     03/16/99   12/12/02         859,259         --         --           --           859,259
   Golden Corral -
      Olathe, KS                       10/02/97   12/19/02       1,751,760         --         --           --         1,751,760
   Darryl's -
      Hampton, VA                      06/11/97   12/19/02         871,290         --         --           --           871,290
   Jack in the Box -
      Humble, TX                       02/03/97   12/20/02       1,265,506         --         --           --         1,265,506
   Hardee's -
      Chalkville, AL                   03/16/99   12/20/02         680,428         --         --           --           680,428
   TGI Friday's -
      Lakeland, FL                     07/20/99   12/20/02         834,234         --         --           --           834,234


                                                   Cost of Properties
                                                 Including Closing and
                                                      Soft Costs
                                       ---------------------------------------
                                                                                      Excess
                                                       Total                       (deficiency)
                                                  acquisition cost,                of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                   receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Shoney's -
      Titusville, FL                      --                --              --       (82,318)
   Pollo Tropical -
      Sunrise, FL                         --         1,454,545       1,454,545       527,258
   Hardee's -
      Biscoe, NC                          --           522,853         522,853       199,708
   Black-eyed Pea -
      Bedford, TX                         --           620,336         620,336       224,003
   Black-eyed Pea -
      Norman, OK                          --         1,429,799       1,429,799       335,124
   Black-eyed Pea -
      Mesa, AZ                            --         1,677,152       1,677,152       228,704
   Hardee's -
      Aynor, SC                           --           546,022         546,022       209,884
   Denny's
      McKinney, TX                        --         1,014,221       1,014,221       484,416
   Black-eyed Pea -
      Scottsdale, AZ                      --           769,863         769,863       (31,203)
   Arby's
      Renton, WA                          --         1,286,545       1,286,545       261,304
   Pizza-Hut -
      Belle, WV                           --            47,485          47,485        13,301
   Pizza Hut -
      Collinsville, IL                    --           795,476         795,476       (55,653)
   Burger King -
      Tampa, FL                           --         1,057,404       1,057,404         5,224
   Big Boy -
      O'Fallon, MO                        --         1,017,250       1,017,250       (54,647)
   Golden Corral -
      Hopkinsville, KY                    --         1,260,576       1,260,576       255,379
   Denny's -
      Santee, SC                          --           678,340         678,340       251,554
   Jack in the Box -
      Los Angeles, CA                     --         1,575,414       1,575,414       591,448
   Hardee's
      Columbia, TN                        --           787,764         787,764       319,094
   Golden Corral -
      Olathe, KS                          --         1,577,340       1,577,340       791,627
   Darryl's -
      Hampton, VA                         --         1,203,391       1,203,391       595,216
   Jack in the Box -
      Humble, TX                          --           932,112         932,112       566,284
   Hardee's -
      Chalkville, AL                      --           608,445         608,445       248,876
   TGI Friday's -
      Lakeland, FL                        --         1,711,517       1,711,517        85,755

      Past performance is not necessarily indicative of future performance.

                                      B-27


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Pollo Tropical -
      Miami, FL                        09/22/98   12/23/02     1,079,144              --      --            --        1,079,144
   Golden Corral -
      Universal City, TX               08/04/95   12/30/02       959,975              --      --            --          959,975

CNL Restaurant Property Services,
 Inc. (18):
   Black Angus -
      Boise, ID                        08/14/00   02/20/01     1,776,590              --      --            --        1,776,590
   Jack in the Box -
      Murietta, CA                     04/13/97   02/23/01     1,129,320              --      --            --        1,129,320
   Arby's -
      Kendallville, IN                 07/10/96   04/06/01       792,940              --      --            --          792,940
   Black Angus -
      Folsom, CA                       12/04/00   04/24/01     2,581,569              --      --            --        2,581,569
   Jack in the Box -
      Kingsburg, CA                    04/10/97   06/11/01     1,169,090              --      --            --        1,168,840
   Jack in the Box -
      Garland, TX                      09/27/97   07/26/01     1,085,654              --      --            --        1,085,654

CNL Restaurant Investors Properties,
 LLC (18):
   Arby's -
      Atlanta, GA                      12/07/00   03/30/01       214,900       1,212,813      --            --        1,427,713
   Arby's -
      Peoria, AZ                       03/03/01   04/19/01       154,871       1,200,463      --            --        1,355,335
   Arby's -
      Baxter, MN                       02/20/01   05/31/01        66,351         892,834      --            --          959,185
   Arby's -
      Eagan, MN                        02/20/01   06/29/01       106,348         880,945      --            --          987,293
   Arby's -
      St. Louis Park, MN               02/20/01   06/29/01       119,843         941,178      --            --        1,061,022
   Arby's -
      Willmar, MN                      02/20/01   07/18/01        44,507         704,324      --            --          748,831
   Arby's -
      Pooler, GA                       09/01/00   07/31/01       109,662       1,212,893      --            --        1,322,555
   Arby's -
      White Bear Township, MN          02/20/01   08/07/01        84,441         955,346      --            --        1,039,787
   Arby's -
      Coon Rapids, MN                  02/20/01   08/28/01       168,982       1,281,068      --            --        1,450,050
   Arby's -
      Eden Prairie, MN                 02/20/01   09/07/01       107,288         936,215      --            --        1,043,503
   Arby's -
      Carmel, IN                       10/13/00   09/26/01       142,925       1,297,484      --            --        1,440,409
   Arby's -
      Winston Salem, NC                04/01/01   10/03/01       123,645       1,090,250      --            --        1,213,895

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        ----------------------------------------
                                                                                        Excess
                                                         Total                       (deficiency)
                                                    acquisition cost,                of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                   receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Restaurant Properties, Inc.
   (Continued):
   Pollo Tropical -
      Miami, FL                                 --     1,227,273       1,227,273       402,650
   Golden Corral -
      Universal City, TX                        --       994,152         994,152       747,387

CNL Restaurant Property Services,
 Inc. (18):
   Black Angus -
      Boise, ID                                 --     1,534,238       1,534,238       120,971
   Jack in the Box -
      Murietta, CA                              --       952,485         952,485       377,385
   Arby's -
      Kendallville, IN                          --       739,628         739,628       421,717
   Black Angus -
      Folsom, CA                                --     2,166,867       2,166,867       146,487
   Jack in the Box -
      Kingsburg, CA                             --     1,001,073       1,001,073       428,186
   Jack in the Box -
      Garland, TX                               --       936,119         936,119       367,842

CNL Restaurant Investors Properties,
 LLC (18):
   Arby's -
      Atlanta, GA                        1,212,813            --       1,212,813        60,359
   Arby's -
      Peoria, AZ                         1,200,463            --       1,200,463        40,467
   Arby's -
      Baxter, MN                           893,855            --         893,855        26,023
   Arby's -
      Eagan, MN                            882,968            --         882,968        33,246
   Arby's -
      St. Louis Park, MN                   943,340            --         943,340        35,241
   Arby's -
      Willmar, MN                          707,592            --         707,592        41,253
   Arby's -
      Pooler, GA                         1,223,108            --       1,223,108       117,724
   Arby's -
      White Bear Township, MN              960,915            --         960,915       148,790
   Arby's -
      Coon Rapids, MN                    1,288,536            --       1,288,536        90,298
   Arby's -
      Eden Prairie, MN                     942,798            --         942,798        51,912
   Arby's -
      Carmel, IN                         1,308,411            --       1,308,411       131,560
   Arby's -
      Winston Salem, NC                  1,098,081            --       1,098,081        58,269

      Past performance is not necessarily indicative of future performance.

                                      B-28

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================

CNL Restaurant Investors Properties,
   LLC (18)
   (Continued):
   Arby's -
      Carrboro, NC                     11/16/00   10/11/01        155,473      1,111,725      --            --        1,267,198
   Arby's -
      Cottage Grove, MN                02/02/01   11/27/01         61,878        703,412      --            --          765,290
   Arby's -
      Minnetonka, MN                   02/02/01   12/13/01        120,202        907,130      --            --        1,027,332
   Arby's -
      Maple Grove, MN                  02/02/01   12/14/01        150,455      1,176,200      --            --        1,326,655
   Arby's -
      Plymouth, MN                     02/02/01   12/21/01        100,063        846,616      --            --          946,679
   Arby's -
      Plymouth, MN                     02/02/01   12/21/01        120,817        899,893      --            --        1,020,710
   Arby's -
      New Castle, PA                   09/21/00   12/28/01         70,999      1,074,459      --            --        1,145,458
   Arby's -
      Oak Park Heights, MN             02/20/01   02/08/02        968,599        860,199      --            --        1,828,798
   Arby's -
      Greenwood, IN                    09/07/01   02/21/02      1,157,535      1,051,402      --            --        2,208,937
   Arby's -
      Hudson, WI                       02/20/01   03/06/02      1,091,160        949,356      --            --        2,040,516
   Arby's -
      Wauseon, OH                      04/10/01   03/11/02        801,488        700,080      --            --        1,501,568
   Arby's -
      St. Paul, MN                     02/20/01   03/21/02        801,651        713,993      --            --        1,515,644
   Arby's -
      Richfield, MN                    02/20/01   04/03/02      1,155,650      1,035,063      --            --        2,190,713
   Arby's -
      Crystal, MN                      02/20/01   04/17/02      1,059,550        945,740      --            --        2,005,290
   Arby's -
      Hopkins, MN                      02/20/01   04/26/02        920,326        829,399      --            --        1,749,725
   Arby's =
      Rochester, MN                    02/20/01   05/02/02        919,488        817,845      --            --        1,737,333
   Arby's -
      Apple Valley, MN                 02/20/01   05/17/02      1,493,264      1,315,159      --            --        2,808,423
   Arby's -
      Pell City, AL                    09/18/01   06/21/02      1,039,537        936,662      --            --        1,976,199
   Arby's -
      East Huntington, PA              09/01/01   07/15/02      1,256,360      1,103,332      --            --        2,359,692
   Arby's -
      Florence, AL                     10/01/01   08/22/02      1,358,100      1,182,056      --            --        2,540,156
   Arby's -
      Troy, AL                         09/21/01   08/22/02      1,055,313        920,681      --            --        1,975,994
   Arby's -
      Muskegon, MI                     11/15/01   08/29/02      1,439,390      1,255,825      --            --        2,695,215


                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        ----------------------------------------
                                                                                        Excess
                                                         Total                       (deficiency)
                                                    acquisition cost,                of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                   receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Restaurant Investors Properties,
   LLC (18)
   (Continued):
   Arby's -
      Carrboro, NC                       1,123,886        --           1,123,886      106,362
   Arby's -
      Cottage Grove, MN                    710,074        --             710,074       63,567
   Arby's -
      Minnetonka, MN                       916,844        --             916,844       78,525
   Arby's -
      Maple Grove, MN                    1,188,796        --           1,188,796      102,167
   Arby's -
      Plymouth, MN                         855,682        --             855,682       75,302
   Arby's -
      Plymouth, MN                         909,529        --             909,529       80,041
   Arby's -
      New Castle, PA                     1,088,971        --           1,088,971      145,107
   Arby's -
      Oak Park Heights, MN                 870,487        --             870,487       10,593
   Arby's -
      Greenwood, IN                      1,051,402        --           1,051,402          330
   Arby's -
      Hudson, WI                           963,121        --             963,121       15,707
   Arby's -
      Wauseon, OH                          704,249        --             704,249        7,174
   Arby's -
      St. Paul, MN                         724,346        --             724,346        9,604
   Arby's -
      Richfield, MN                      1,051,406        --           1,051,406       16,798
   Arby's -
      Crystal, MN                          960,672        --             960,672       15,913
   Arby's -
      Hopkins, MN                          842,495        --             842,495       14,275
   Arby's =
      Rochester, MN                        831,824        --             831,824       15,757
   Arby's -
      Apple Valley, MN                   1,337,639        --           1,337,639       23,636
   Arby's -
      Pell City, AL                        938,824        --             938,824        2,860
   Arby's -
      East Huntington, PA                1,115,401        --           1,115,401       18,068
   Arby's -
      Florence, AL                       1,196,262        --           1,196,262       17,628
   Arby's -
      Troy, AL                             931,745        --             931,745       10,910
   Arby's -
      Muskegon, MI                       1,261,682        --           1,261,682        6,545

      Past performance is not necessarily indicative of future performance.

                                      B-29


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                     Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Restaurant Investors Properties,
 LLC (18) (Continued):
   Arby's -
      Greenville, MI                   07/25/02   10/31/02     1,270,860       1,074,766      --            --        2,345,626
   Arby's -
      Cullman, AL                      09/05/01   11/13/02     1,169,087         993,620      --            --        2,162,707
   Arby's -
      Evansville, IN                   04/01/02   11/15/02     1,247,229       1,080,328      --            --        2,327,557
   Arby's -
      Youngstown, OH                   04/10/02   11/27/02     1,012,310         903,118      --            --        1,915,428
   Arby's -
      Union City, TN                   09/04/02   12/30/02     1,366,005       1,158,879      --            --        2,524,884

CNL Funding 2001-A, LP (18):
   Jack in the Box -
      Surprise, AZ                     09/25/00   01/19/01       159,023       1,379,621      --            --        1,538,644
   Jack in the Box -
      Baton Rouge, LA                  07/06/00   01/31/01         9,972       1,473,571      --            --        1,483,542
   Jack in the Box -
      Burley, ID                       09/22/00   01/31/01            --         951,027      --            --          951,027
   Jack in the Box -
      Las Vegas, NV                    10/01/00   01/03/01       254,521       1,615,000      --            --        1,869,521
   Jack in the Box -
      Peoria, AZ                       09/15/00   03/08/01       112,352       1,247,170      --            --        1,359,522
   Jack in the Box -
      Cleburne, TX                     09/21/00   01/31/01         4,598       1,118,539      --            --        1,123,137
   Jack in the Box -
      Fresno, CA                       09/15/00   04/26/01       129,458         950,196      --            --        1,079,653
   Jack in the Box -
      Bakersfield, CA                  09/19/00   03/27/01        80,199         973,493      --            --        1,053,692
   Pizza Hut -
      Miami, FL                        10/06/00   06/29/01        69,130         588,593      --            --          657,723
   IHOP -
      Hiram, GA                        10/12/00   04/16/01        97,519       1,432,800      --            --        1,530,319
   IHOP -
      Jacksonville, NC                 10/12/00   06/25/01        47,442       1,367,919      --            --        1,415,361
   IHOP -
      Pueblo, CO                       10/12/00   06/19/01        91,901       1,296,394      --            --        1,388,295
   Jack in the Box -
      Bermuda Dunes, CA                03/28/01   06/29/01       210,654       1,256,197      --            --        1,466,851
   Jack in the Box -
      Manteca, CA                      05/14/01   06/11/01       236,673       1,432,260      --            --        1,668,934
   Jack in the Box -
      Austin, TX (9)                   07/20/00   05/25/01            --         550,587      --            --          550,587

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        ----------------------------------------
                                                                                        Excess
                                                         Total                       (deficiency)
                                                    acquisition cost,                of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                   receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Restaurant Investors Properties,
 LLC (18)
   (Continued): Arby's -
      Greenville, MI                     1,074,766      --             1,074,766        (198)
   Arby's -
      Cullman, AL                        1,001,853      --             1,001,853       8,373
   Arby's -
      Evansville, IN                     1,089,280      --             1,089,280      26,999
   Arby's -
      Youngstown, OH                       909,500      --               909,500       8,019
   Arby's -
      Union City, TN                     1,158,879      --             1,158,879      (2,918)

CNL Funding 2001-A, LP (18):
   Jack in the Box -
      Surprise, AZ                       1,379,621      --             1,379,621      49,506
   Jack in the Box -
      Baton Rouge, LA                    1,483,542      --             1,483,542      80,121
   Jack in the Box -
      Burley, ID                           951,027      --               951,027      41,109
   Jack in the Box -
      Las Vegas, NV                      1,615,000      --             1,615,000      62,903
   Jack in the Box -
      Peoria, AZ                         1,254,037      --             1,254,037      53,180
   Jack in the Box -
      Cleburne, TX                       1,123,137      --             1,123,137      38,489
   Jack in the Box -
      Fresno, CA                           958,117      --               958,117      56,075
   Jack in the Box -
      Bakersfield, CA                      978,854      --               978,854      45,750
   Pizza Hut -
      Miami, FL                            589,199      --               589,199      44,786
   IHOP -
      Hiram, GA                          1,438,400      --             1,438,400      70,497
   IHOP -
      Jacksonville, NC                   1,371,599      --             1,371,599      92,458
   IHOP -
      Pueblo, CO                         1,303,550      --             1,303,550      85,560
   Jack in the Box -
      Bermuda Dunes, CA                  1,259,276      --             1,259,276      32,187
   Jack in the Box -
      Manteca, CA                        1,432,260      --             1,432,260      10,937
   Jack in the Box -
      Austin, TX (9)                       550,587      --               550,587          --

      Past performance is not necessarily indicative of future performance.

                                      B-30


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            -------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Littleton, CO                    12/28/00   07/20/01       141,982       1,860,395      --            --        2,002,377
   IHOP -
      Oklahoma City, OK                10/12/00   07/26/01       165,306       1,831,346      --            --        1,996,652
   Baker's Square -
      Anaheim, CA                      05/14/01   07/26/01       306,267       1,576,144      --            --        1,882,411
   Arby's -
      Southington, CT                  07/21/00   07/27/01       125,178         908,371      --            --        1,033,549
   Vicorp Village Inn -
      Scottsdale, AZ                   05/14/01   07/30/01       151,366         999,284      --            --        1,150,650
   IHOP -
      Shreveport, LA                   10/12/00   08/03/01        87,476       1,450,490      --            --        1,537,966
   Baker's Square -
      Rohnert Park, CA                 05/14/01   08/06/01       246,540       1,270,898      --            --        1,517,438
   Village Inn -
      Aurora, CO                       05/14/01   08/08/01        40,903       1,543,233      --            --        1,584,136
   Village Inn -
      Denver, CO                       05/14/01   08/08/01       142,900         880,551      --            --        1,023,451
   IHOP -
      Huntsville, AL                   10/12/00   08/14/01        97,307       1,593,307      --            --        1,690,614
   Ruby Tuesday's -
      Orlando, FL                      05/30/00   08/17/01       156,571       1,598,221      --            --        1,754,792
   Pizza Hut -
      Miami, FL                        10/06/00   08/17/01        84,357         646,698      --            --          731,055
   IHOP -
      Statesboro, GA                   10/12/00   08/21/01        68,915       1,072,888      --            --        1,141,803
   Village Inn -
      Tempe, AZ                        05/14/01   08/24/01       149,028       1,043,952      --            --        1,192,980
   IHOP -
      San Antonio, TX                  12/28/00   08/27/01        76,227       1,594,606      --            --        1,670,833
   Jack in the Box -
      Coppell, TX                      03/28/01   08/29/01       170,623       1,608,077      --            --        1,778,700
   Village Inn -
      Denver, CO                       05/14/01   08/30/01       168,884       1,270,898      --            --        1,439,782
   TGI Friday's -
      Roseville, CA                    03/12/01   08/31/01       109,946       2,931,613      --            --        3,041,559
   Pizza Hut -
      Pembroke Pines, FL               10/06/00   08/31/01        52,912         397,968      --            --          450,880
   Village Inn -
      Ogden, UT                        05/14/01   09/18/01       146,763         907,784      --            --        1,054,547
   Pizza Hut -
      Key Largo, FL                    10/06/00   09/20/01        73,845         578,862      --            --          652,707
   Baker's Square -
      Hoffman Estates, IL              05/14/01   09/20/01       151,812       1,089,341      --            --        1,241,153
   Village Inn -
      Broomfield, CO                   05/14/01   09/20/01       184,629       1,134,730      --            --        1,319,359

                                                 Cost of Properties
                                                Including Closing and
                                                     Soft Costs
                                       ---------------------------------------
                                                                                      Excess
                                                       Total                       (deficiency)
                                                  acquisition cost,                of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                   receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Littleton, CO                    1,869,159         --          1,869,159        90,731
   IHOP -
      Oklahoma City, OK                1,842,950         --          1,842,950       126,315
   Baker's Square -
      Anaheim, CA                      1,577,273         --          1,577,273        34,744
   Arby's -
      Southington, CT                    909,091         --            909,091        95,881
   Vicorp Village Inn -
      Scottsdale, AZ                   1,000,000         --          1,000,000        26,369
   IHOP -
      Shreveport, LA                   1,460,875         --          1,460,875       112,077
   Baker's Square -
      Rohnert Park, CA                 1,272,727         --          1,272,727        31,889
   Village Inn -
      Aurora, CO                       1,545,456         --          1,545,456        40,127
   Village Inn -
      Denver, CO                         881,818         --            881,818        28,503
   IHOP -
      Huntsville, AL                   1,604,715         --          1,604,715       128,194
   Ruby Tuesday's -
      Orlando, FL                      1,611,142         --          1,611,142       193,571
   Pizza Hut -
      Miami, FL                          650,000         --            650,000        70,642
   IHOP -
      Statesboro, GA                   1,078,800         --          1,078,800        94,429
   Village Inn -
      Tempe, AZ                        1,045,455         --          1,045,455        32,022
   IHOP -
      San Antonio, TX                  1,603,687         --          1,603,687        89,761
   Jack in the Box -
      Coppell, TX                      1,616,034         --          1,616,034        67,526
   Village Inn -
      Denver, CO                       1,272,727         --          1,272,727        33,045
   TGI Friday's -
      Roseville, CA                    2,949,827         --          2,949,827       141,497
   Pizza Hut -
      Pembroke Pines, FL                 400,000         --            400,000        37,304
   Village Inn -
      Ogden, UT                          909,091         --            909,091        34,339
   Pizza Hut -
      Key Largo, FL                      581,818         --            581,818        57,260
   Baker's Square -
      Hoffman Estates, IL              1,090,909         --          1,090,909        41,867
   Village Inn -
      Broomfield, CO                   1,136,364         --          1,136,364        43,611

      Past performance is not necessarily indicative of future performance.

                                      B-31


                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Harrisonburg, VA                 12/28/01   09/21/01      129,619        1,426,704      --          --          1,556,323
   Pizza Hut -
      Miami, FL                        10/06/00   09/21/01       95,727          710,011      --          --            805,738
   Jack in the Box -
      The Colony, TX                   09/15/00   09/28/01       86,043        1,313,521      --          --          1,399,564
   IHOP -
      Birmingham, AL                   10/12/00   10/12/01      178,092        1,362,594      --          --          1,540,686
   Village Inn -
      Naperville, IL                   05/14/01   10/24/01      155,181        1,019,762      --          --          1,174,943
   Village Inn -
      Tucson, AZ                       05/14/01   10/25/01      178,784        1,133,069      --          --          1,311,853
   RT -
      Las Vegas, NV                    07/17/00   11/05/01      199,079        1,785,377      --          --          1,984,456
   Jack in the Box -
      Charlotte, NC                    08/28/00   11/08/01       62,882        1,282,493      --          --          1,345,375
   Bakers Square -
      Rolling Meadows, FL              05/14/01   11/27/01      123,563          928,427      --          --          1,051,990
   TGIF Friday's -
      Albuquerque, NM                  01/08/01   12/14/01      137,493        2,401,376      --          --          2,538,869
   Bakers Square -
      Blaine, MN                       05/14/01   12/20/01        5,880        1,335,029      --          --          1,340,909
   Village Inn -
      Omaha, NE                        05/14/01   12/21/01      147,260        1,185,687      --          --          1,332,947
   Village Inn -
      Lincoln, NE                      05/14/01   12/19/01      148,006        1,040,870      --          --          1,188,876
   IHOP -
      Macon, GA                        12/28/00   12/10/01       28,518        1,246,710      --          --          1,275,228
   Bakers Square -
      Elk Grove, IL                    05/14/01   12/21/01      134,250          995,615      --          --          1,129,865
   Bakers Square -
      Gurnee, IL                       05/14/01   12/03/01      268,799        1,855,464      --          --          2,124,263
   Taco Cabana -
      Plugerville, TX                  12/29/00   12/05/01       30,596        1,444,219      --          --          1,474,815
   Taco Cabana -
      Pasadena, TX                     12/29/00   12/05/01       20,240          955,406      --          --            975,646
   Taco Cabana -
      Austin, TX                       12/29/00   12/05/01       24,947        1,177,594      --          --          1,202,541
   Taco Cabana -
      Houston, TX #177                 02/29/00   12/05/01       19,769          933,188      --          --            952,957
   Taco Cabana -
      Houston, TX #144                 12/29/00   12/05/01       29,653        1,399,782      --          --          1,429,435
   Taco Cabana -
      San Antonio, TX                  12/29/00   12/14/01       23,534        1,110,938      --          --          1,134,472
   Taco Cabana -
      Houston, TX                      12/29/00   12/14/01       28,242        1,333,125      --          --          1,361,367

                                                 Cost of properties
                                                Including Closing and
                                                     Soft Costs
                                       ---------------------------------------
                                                                                      Excess
                                                       Total                       (deficiency)
                                                  acquisition cost,                of property
                                       Original       capital                    operating cash
                                       mortgage    improvements                   receipts over
                                       financing    closing and                       cash
            Property                      (7)      soft costs (1)      Total    expenditures (19)
=================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Harrisonburg, VA                 1,434,579        --           1,434,579        99,922
   Pizza Hut -
      Miami, FL                          713,636        --             713,636        58,013
   Jack in the Box -
      The Colony, TX                   1,332,122        --           1,332,122       131,045
   IHOP -
      Birmingham, AL                   1,370,975        --           1,370,975       135,065
   Village Inn -
      Naperville, IL                   1,022,727        --           1,022,727        42,657
   Village Inn -
      Tucson, AZ                       1,136,364        --           1,136,364        47,518
   RT -
      Las Vegas, NV                    1,800,000        --           1,800,000        55,017
   Jack in the Box -
      Charlotte, NC                    1,308,411        --           1,308,411       146,378
   Bakers Square -
      Rolling Meadows, FL                931,818        --             931,818        47,329
   TGIF Friday's -
      Albuquerque, NM                  2,430,996        --           2,430,996       141,808
   Bakers Square -
      Blaine, MN                       1,340,909        --           1,340,909        80,287
   Village Inn -
      Omaha, NE                        1,190,909        --           1,190,909        71,306
   Village Inn -
      Lincoln, NE                      1,045,455        --           1,045,455        62,597
   IHOP -
      Macon, GA                        1,258,065        --           1,258,065       109,912
   Bakers Square -
      Elk Grove, IL                    1,000,000        --           1,000,000        59,875
   Bakers Square -
      Gurnee, IL                       1,863,636        --           1,863,636       111,586
   Taco Cabana -
      Plugerville, TX                  1,474,815        --           1,474,815       131,766
   Taco Cabana -
      Pasadena, TX                       975,646        --             975,646        87,168
   Taco Cabana -
      Austin, TX                       1,202,541        --           1,202,541       107,440
   Taco Cabana -
      Houston, TX #177                   952,957        --             952,957        85,140
   Taco Cabana -
      Houston, TX #144                 1,429,435        --           1,429,435       127,711
   Taco Cabana -
      San Antonio, TX                  1,134,472        --           1,134,472       101,358
   Taco Cabana -
      Houston, TX                      1,361,367        --           1,361,367       121,630

      Past performance is not necessarily indicative of future performance.
                                      B-32

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                     Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Taco Cabana -
      Houston, TX                      12/29/00   01/04/02     1,179,851       1,153,066      --            --        2,332,917
   Taco Cabana -
      Austin, TX                       12/29/00   01/04/02     1,107,245       1,082,108      --            --        2,189,353
   Bakers Square -
      Normal, IL                       05/14/01   01/09/02     1,658,260       1,469,683      --            --        3,127,943
   IHOP -
      Nacogdoches, TX                  12/28/00   01/18/02     1,494,210       1,388,437      --            --        2,882,647
   IHOP -
      McAllen, TX                      12/28/00   02/15/02     1,548,521       1,427,813      --            --        2,976,334
   Pizza Hut -
      Dania, FL                        10/06/00   2/19/02        333,812         292,892      --            --          626,704
   Jack in the Box -
      Plano, TX                        09/25/01   02/26/02     1,867,493       1,719,706      --            --        3,587,199
   IHOP -
      Kennewick, WA                    12/20/01   02/27/02     1,779,334       1,626,400      --            --        3,405,734
   Jack in the Box -
      Stephenville, TX                 03/28/01   02/28/02     1,508,567       1,344,498      --            --        2,853,065
   Village Inn -
      Coralville, IA                   05/14/01   02/28/02     1,230,046       1,070,921      --            --        2,300,967
   Taco Cabana -
      San Antonio, TX                  12/29/00   03/05/02     1,247,920       1,214,659      --            --        2,462,579
   Jack in the Box -
      San Antonio, TX                  09/26/01   03/06/02     1,578,322       1,442,978      --            --        3,021,300
   Krystal -
      Rincon, GA                       09/15/00   03/11/02     1,072,800       1,015,712      --            --        2,088,512
   Village Inn -
      Davenport, IA                    05/14/01   03/15/02     1,401,481       1,219,097      --            --        2,620,578
   Jack in the Box
      Katy, TX                         09/25/01   03/18/02     1,499,170       1,376,098      --            --        2,875,268
   IHOP -
      Albuquerque, NM                  10/29/01   03/19/02     1,821,676       1,660,447      --            --        3,482,123
   IHOP -
      Lafayette, LA                    12/28/00   03/19/02     1,636,540       1,548,629      --            --        3,185,169
   Jack in the Box -
      Round Rock, TX                   09/19/00   03/20/02     1,361,104       1,226,470      --            --        2,587,574
   Jack in the Box -
      Concord, NC                      07/07/00   03/22/02     1,422,410       1,296,102      --            --        2,718,512
   Jack in the Box -
      Cedar Hill, TX                   12/20/01   03/22/02     1,509,211       1,388,773      --            --        2,897,984
   IHOP -
      Brownsville, TX                  12/28/00   03/28/02     1,544,680       1,456,628      --            --        3,001,308
   IHOP -
      San Marco, TX                    12/20/01   03/28/02     1,665,800       1,509,200      --            --        3,175,000
   Bakers Square -
      Maple Grove, MN                  05/14/01   03/29/02     1,554,629       1,354,552      --            --        2,909,181

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        ----------------------------------------
                                                                                        Excess
                                                         Total                       (deficiency)
                                                    acquisition cost,                of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                   receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Taco Cabana -
      Houston, TX                        1,179,852         --          1,179,852        26,766
   Taco Cabana -
      Austin, TX                         1,107,246         --          1,107,246        25,119
   Bakers Square -
      Normal, IL                         1,477,273         --          1,477,273         6,796
   IHOP -
      Nacogdoches, TX                    1,401,869         --          1,401,869        15,380
   IHOP -
      McAllen, TX                        1,443,318         --          1,443,318        18,025
   Pizza Hut -
      Dania, FL                            295,455         --            295,455         5,279
   Jack in the Box -
      Plano, TX                          1,728,972         --          1,728,972        14,854
   IHOP -
      Kennewick, WA                      1,627,500         --          1,627,500         2,842
   Jack in the Box -
      Stephenville, TX                   1,361,617         --          1,361,617        19,729
   Village Inn -
      Coralville, IA                     1,077,273         --          1,077,273         8,156
   Taco Cabana -
      San Antonio, TX                    1,247,920         --          1,247,920        34,289
   Jack in the Box -
      San Antonio, TX                    1,456,085         --          1,456,085        11,979
   Krystal -
      Rincon, GA                         1,028,215         --          1,028,215        21,369
   Village Inn -
      Davenport, IA                      1,227,273         --          1,227,273         8,905
   Jack in the Box
      Katy, TX                           1,385,410         --          1,385,410        12,373
   IHOP -
      Albuquerque, NM                    1,664,998         --          1,664,998         4,653
   IHOP -
      Lafayette, LA                      1,566,820         --          1,566,820        20,424
   Jack in the Box -
      Round Rock, TX                     1,257,009         --          1,257,009        40,447
   Jack in the Box -
      Concord, NC                        1,331,738         --          1,331,738        46,935
   Jack in the Box -
      Cedar Hill, TX                     1,392,479         --          1,392,479         5,497
   IHOP -
      Brownsville, TX                    1,471,963         --          1,471,963        18,921
   IHOP -
      San Marco, TX                      1,511,250         --          1,511,250         2,990
   Bakers Square -
      Maple Grove, MN                    1,363,636         --          1,363,636        10,198

      Past performance is not necessarily indicative of future performance.


                                      B-33

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                     Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------

                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Ammon, ID                        12/28/00   04/05/02     1,516,968       1,433,491      --            --        2,950,459
   Home Town Buffet -
      Visalia, CA                      12/28/01   04/10/02     2,739,205       2,409,694      --            --        5,148,899
   TB/KFC
      Gun Barrel City, TX              10/31/00   04/19/02       952,006         922,295      --            --        1,874,301
   Tahoe Joes
      Roseville, CA                    12/28/01   04/23/02     3,380,332       2,965,855      --            --        6,346,187
   Old Country Buffet
      Glendale, AZ                     12/28/01   04/25/02     2,065,108       1,818,524      --            --        3,883,632
   Home Town Buffet
      Temecula, CA                     12/28/01   04/26/02     2,299,308       2,000,577      --            --        4,299,884
   Village Inn
      Johnston, IA                     05/14/01   04/29/02       933,565         812,100      --            --        1,745,665
   Old Country Buffet
      Woodbury, MN                     12/28/01   04/29/02     1,792,378       1,600,461      --            --        3,392,839
   Bakers Square -
      Orland Park, IL                  05/14/01   04/30/02     2,232,482       1,940,017      --            --        4,172,499
   Pizza-Hut
      Oakland Park, FL                 10/06/00   05/03/02       735,910         652,145      --            --        1,388,055
   Jack in the Box
      Magnolia, TX                     08/30/01   05/03/02     1,347,135       1,245,406      --            --        2,592,541
   IHOP -
      Westminister, CO                 12/20/01   05/03/02     2,060,953       1,831,730      --            --        3,892,683
   Jack in the Box -
      Baton Rouge, LA                  12/20/01   05/03/02     1,591,284       1,405,359      --            --        2,996,643
   Village Inn
      Roy, UT                          05/14/01   05/06/02     1,075,575         933,183      --            --        2,008,758
   Home Town Buffet -
      Loma Linda, CA                   12/28/01   05/07/02     3,493,621       3,046,175      --            --        6,539,796
   Home Town Buffet -
      Champaign, IL                    12/28/01   05/08/02     1,964,259       1,768,682      --            --        3,732,941
   Jack in the Box -
      Baytown, TX                      09/19/00   05/10/02     1,249,196       1,141,081      --            --        2,390,277
   IHOP -
      Norman, OK                       10/12/00   05/13/02     1,773,886       1,554,570      --            --        3,328,456
   IHOP -
      Rockford, IL                     12/20/01   05/15/02     1,794,561       1,646,238      --            --        3,440,799
   Rio Bravo -
      Fayetteville, AR                 06/29/00   05/17/02     1,318,381       1,171,240      --            --        2,489,621
   Bakers Square -
      Onalaska, WI                     05/14/01   05/17/02     1,043,860         924,167      --            --        1,968,027
   Ruby Tuesday -
      University Place, WA             08/23/00   05/31/02     1,707,844       1,574,504      --            --        3,282,348
   Pizza Hut -
      Pembroke Pines, FL               10/06/00   05/31/02       380,495         359,803      --            --          740,298

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        ----------------------------------------
                                                                                        Excess
                                                         Total                       (deficiency)
                                                    acquisition cost,                of property
                                         Original       capital                    operating cash
                                         mortgage    improvements                   receipts over
                                         financing    closing and                       cash
            Property                        (7)      soft costs (1)      Total    expenditures (19)
===================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   IHOP -
      Ammon, ID                          1,451,613         --          1,451,613        19,833
   Home Town Buffet -
      Visalia, CA                        2,409,000         --          2,409,000          (773)
   TB/KFC
      Gun Barrel City, TX                  931,818         --            931,818        17,313
   Tahoe Joes
      Roseville, CA                      2,965,000         --          2,965,000        (1,077)
   Old Country Buffet
      Glendale, AZ                       1,818,000         --          1,818,000        (1,856)
   Home Town Buffet
      Temecula, CA                       2,000,000         --          2,000,000          (746)
   Village Inn
      Johnston, IA                         818,182         --            818,182         6,761
   Old Country Buffet
      Woodbury, MN                       1,600,000         --          1,600,000          (612)
   Bakers Square -
      Orland Park, IL                    1,954,545         --          1,954,545        16,742
   Pizza-Hut
      Oakland Park, FL                     659,091         --            659,091         6,512
   Jack in the Box
      Magnolia, TX                       1,260,198         --          1,260,198        13,660
   IHOP -
      Westminister, CO                   1,836,750         --          1,836,750         5,100
   Jack in the Box -
      Baton Rouge, LA                    1,412,154         --          1,412,154         7,539
   Village Inn
      Roy, UT                              940,909         --            940,909         8,152
   Home Town Buffet -
      Loma Linda, CA                     3,045,000         --          3,045,000          (619)
   Home Town Buffet -
      Champaign, IL                      1,768,000         --          1,768,000          (848)
   Jack in the Box -
      Baytown, TX                        1,173,149         --          1,173,149        40,830
   IHOP -
      Norman, OK                         1,577,745         --          1,577,745        51,274
   IHOP -
      Rockford, IL                       1,650,750         --          1,650,750         5,243
   Rio Bravo -
      Fayetteville, AR                   1,200,000         --          1,200,000        39,827
   Bakers Square -
      Onalaska, WI                         931,818         --            931,818         8,241
   Ruby Tuesday -
      University Place, WA               1,590,909         --          1,590,909        40,555
   Pizza Hut -
      Pembroke Pines, FL                   363,636         --            363,636        13,021

      Past performance is not necessarily indicative of future performance.

                                      B-34

                                    TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Pizza Hut -
      N. Miami, FL                     10/06/00   05/31/02        282,519        267,154      --            --          549,673
   Bakers Square -
      Rochester, MN                    05/14/01   05/31/02      1,525,200      1,352,440      --            --        2,877,640
   Bakers Square -
      Stillwater, MN                   05/14/01   05/31/02      1,133,136        991,789      --            --        2,124,925
   Home Town Buffet -
      Louisville, KY                   12/28/01   05/31/02      1,700,470      1,500,579      --            --        3,201,049
   Old Country Buffet -
      Mesa, AZ                         12/28/01   06/03/02      2,421,648      2,115,024      --            --        4,536,672
   IHOP -
      Shreveport, LA                   10/12/00   06/04/02      1,850,808      1,643,127      --            --        3,493,935
   IHOP -
      Jonesboro, AR                    10/12/00   06/05/02      1,480,800      1,328,505      --            --        2,809,305
   Taco Cabana -
      Dallas, Texas                    12/29/00   06/06/02      1,021,026        987,667      --            --        2,008,693
   HomeTown Buffet -
      Oklahoma City, OK #737           12/28/01   06/13/02      1,592,205      1,455,705      --            --        3,047,910
   HomeTown Buffet -
      Oklahoma City, OK                12/28/01   06/13/02      2,160,510      1,955,947      --            --        4,116,457
   Jack in the Box -
      Corsicana, TX                    06/30/00   06/14/02      1,153,488      1,083,639      --            --        2,237,127
   Ruby Tuesday
      Port Lucie, FL                   06/06/00   06/14/02      1,702,571      1,583,384      --            --        3,285,955
   Bakers Square -
      Bradley, IL                      05/14/01   06/20/02      1,765,990      1,509,030      --            --        3,275,020
   IHOP -
      Evansville, IN                   03/29/02   06/20/02      1,635,890      1,469,696      --            --        3,105,586
   IHOP -
      Buford, GA                       03/29/02   06/20/02      1,892,911      1,679,961      --            --        3,572,872
   Taco Cabana -
      San Antonio, TX #107             12/29/00   06/26/02        887,111        921,822      --            --        1,808,933
   Taco Cabana -
      Universal City, TX               12/29/00   06/26/02      1,034,963      1,075,459      --            --        2,110,422
   Taco Cabana -
      Austin, TX                       12/29/00   06/26/02      1,394,031      1,448,578      --            --        2,842,609
   Taco Cabana -
      San Antonio, TX #130             12/29/00   06/26/02      1,330,666      1,382,733      --            --        2,713,399
   Taco Cabana -
      Dallas, TX #136                  12/29/00   06/26/02      1,136,347      1,180,810      --            --        2,317,157
   Taco Cabana -
      Houston, TX #143                 12/29/00   06/26/02      1,203,936      1,251,044      --            --        2,454,980
   Taco Cabana -
      San Antonio, TX #158             12/29/00   06/26/02      1,275,750      1,325,668      --            --        2,601,418
   Taco Cabana -
      Schertz, TX                      12/29/00   06/26/02      1,030,738      1,071,069      --            --        2,101,807

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        -----------------------------------------
                                                                                          Excess
                                                         Total                         (deficiency)
                                                    acquisition cost,                  of property
                                         Original       capital                      operating cash
                                         mortgage    improvements                     receipts over
                                         financing    closing and                         cash
            Property                        (7)      soft costs (1)      Total      expenditures (19)
=====================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Pizza Hut -
      N. Miami, FL                         270,000         --             270,000        5,191
   Bakers Square -
      Rochester, MN                      1,363,636         --           1,363,636       12,750
   Bakers Square -
      Stillwater, MN                     1,000,000         --           1,000,000        9,350
   Home Town Buffet -
      Louisville, KY                     1,500,000         --           1,500,000         (726)
   Old Country Buffet -
      Mesa, AZ                           2,114,000         --          2,1114,000       (1,045)
   IHOP -
      Shreveport, LA                     1,663,150         --           1,663,150       33,799
   IHOP -
      Jonesboro, AR                      1,348,500         --           1,348,500       56,238
   Taco Cabana -
      Dallas, Texas                      1,021,026         --           1,021,026       27,228
   HomeTown Buffet -
      Oklahoma City, OK #737             1,455,000         --           1,455,000       (1,031)
   HomeTown Buffet -
      Oklahoma City, OK                  1,955,000         --           1,955,000         (767)
   Jack in the Box -
      Corsicana, TX                      1,118,650         --           1,118,650       52,045
   Ruby Tuesday
      Port Lucie, FL                     1,607,399         --           1,607,399       12,328
   Bakers Square -
      Bradley, IL                        1,522,727         --           1,522,727       15,133
   IHOP -
      Evansville, IN                     1,471,963         --           1,471,963        2,753
   IHOP -
      Buford, GA                         1,682,243         --           1,682,243        2,729
   Taco Cabana -
      San Antonio, TX #107                 952,957         --             952,957       33,569
   Taco Cabana -
      Universal City, TX                 1,111,783         --           1,111,783       39,164
   Taco Cabana -
      Austin, TX                         1,497,504         --           1,497,504       52,752
   Taco Cabana -
      San Antonio, TX #130               1,429,436         --           1,429,436       50,354
   Taco Cabana -
      Dallas, TX #136                    1,220,693         --           1,220,693       38,129
   Taco Cabana -
      Houston, TX #143                   1,293,299         --           1,293,299       45,558
   Taco Cabana -
      San Antonio, TX #158               1,370,443         --           1,370,443       76,694
   Taco Cabana -
      Schertz, TX                        1,107,246         --           1,107,246       39,004

      Past performance is not necessarily indicative of future performance.

                                      B-35

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                    Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Taco Cabana -
      Houston, TX                      12/29/00   06/26/02     1,351,748       1,404,681      --           --         2,756,429
   Taco Cabana -
      Houston, TX #174                 12/29/00   06/26/02       908,233         943,770      --           --         1,852,003
   Taco Cabana -
      Katy, TX                         12/29/00   06/26/02     1,030,738       1,071,069      --           --         2,101,807
   Taco Cabana -
      Arlington, TX                    12/29/00   06/26/02       992,719       1,031,563      --           --         2,024,282
   Taco Cabana -
      Houston, TX #241                 12/29/00   06/26/02     1,269,414       1,319,084      --           --         2,588,498
   Taco Cabana -
      Denton, TX                       12/29/00   06/26/02     1,136,347       1,180,810      --           --         2,317,157
   Baker Square -
      Bolingbrook, IL                  05/14/01   06/28/02     1,911,305       1,621,644      --           --         3,532,949
   IHOP -
      Harlingen, TX                    09/28/01   06/28/02     1,780,269       1,611,009      --           --         3,391,278
   Old Country Buffet -
      Madison, WI                      12/28/01   06/28/02     2,325,120       2,092,013      --           --         4,417,133
   HomeTown Buffet -
      Wichita, KS                      12/28/01   06/28/02     2,225,704       2,000,969      --           --         4,226,673
   Old Country Buffet -
      Mechanicsburg, PA                12/28/01   06/28/02     1,972,429       1,818,880      --           --         3,791,309
   IHOP -
      Rocky Mount, NC                  10/12/00   06/28/02     1,578,350       1,504,517      --           --         3,082,867
   JIB -
      Hickory, NC                      03/28/01   06/28/02     1,651,770       1,455,112      --           --         3,106,882
   HomeTown Buffet -
      Louisville, KY                   12/28/01   06/28/02     1,258,853       1,145,554      --           --         2,404,407
   Old Country Buffet -
      Franklin, OH                     12/28/01   06/28/02     1,448,568       1,318,638      --           --         2,767,206
   Pizza Hut -
      El Reno, OK                      01/18/02   06/28/02       419,270         367,573      --           --           786,843
   Bakers Square -
      Mt. Prospect, IL                 05/14/01   07/02/02     2,192,978       1,914,440      --           --         4,107,418
   Old Country Buffet -
      Onalaska, WI                     12/28/01   07/10/02     1,602,511       1,455,705      --           --         3,058,216
   Pizza Hut -
      Taylor, TX                       01/25/02   07/11/02       295,390         251,186      --           --           546,576
   IHOP -
      Cathedral City, CA               03/29/02   07/18/02     1,759,896       1,506,263      --           --         3,266,159
   Jack in the Box -
      Shelby, NC                       09/19/00   07/19/02     1,413,282       1,282,602      --           --         2,695,884
   Jack in the Box -
      Simpsonville, SC                 09/26/01   07/19/02     1,587,630       1,485,174      --           --         3,072,804
   Old Country Buffet -
      Cincinnati, OH                   12/28/01   07/22/02     1,116,247         975,569      --           --         2,091,816

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        -----------------------------------------
                                                                                          Excess
                                                         Total                         (deficiency)
                                                    acquisition cost,                  of property
                                         Original       capital                      operating cash
                                         mortgage    improvements                     receipts over
                                         financing    closing and                         cash
            Property                        (7)      soft costs (1)      Total      expenditures (19)
=====================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Taco Cabana -
      Houston, TX                        1,452,125       --            1,452,125         51,153
   Taco Cabana -
      Houston, TX #174                     975,647       --              975,647         34,369
   Taco Cabana -
      Katy, TX                           1,107,246       --            1,107,246         21,178
   Taco Cabana -
      Arlington, TX                      1,066,404       --            1,066,404         28,981
   Taco Cabana -
      Houston, TX #241                   1,363,637       --            1,363,637         48,036
   Taco Cabana -
      Denton, TX                         1,220,693       --            1,220,693         43,001
   Baker Square -
      Bolingbrook, IL                    1,636,364       --            1,636,364         16,147
   IHOP -
      Harlingen, TX                      1,619,998       --            1,619,998         (1,134)
   Old Country Buffet -
      Madison, WI                        2,091,000       --            2,091,000         (1,199)
   HomeTown Buffet -
      Wichita, KS                        2,000,000       --            2,000,000         (1,147)
   Old Country Buffet -
      Mechanicsburg, PA                  1,818,000       --            1,818,000         (1,523)
   IHOP -
      Rocky Mount, NC                    1,528,300       --            1,528,300         33,625
   JIB -
      Hickory, NC                        1,481,564       --            1,481,564         28,329
   HomeTown Buffet -
      Louisville, KY                     1,145,000       --            1,145,000           (660)
   Old Country Buffet -
      Franklin, OH                       1,318,000       --            1,318,000           (760)
   Pizza Hut -
      El Reno, OK                          368,764       --              368,764          1,591
   Bakers Square -
      Mt. Prospect, IL                   1,931,818       --            1,931,818         19,310
   Old Country Buffet -
      Onalaska, WI                       1,455,000       --            1,455,000         (1,020)
   Pizza Hut -
      Taylor, TX                           252,000       --              252,000          1,112
   IHOP -
      Cathedral City, CA                 1,509,346       --            1,509,346          3,182
   Jack in the Box -
      Shelby, NC                         1,322,836       --            1,322,836         50,638
   Jack in the Box -
      Simpsonville, SC                   1,503,608       --            1,503,608         21,487
   Old Country Buffet -
      Cincinnati, OH                       975,000       --              975,000           (821)

      Past performance is not necessarily indicative of future performance.

                                      B-36

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                     Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            -------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   OCB -
      Bourbonnais, IL                  12/28/01   07/23/02     1,401,789       1,273,743      --            --        2,675,532
   HomeTown Buffet -
      Rockford, IL                     12/28/01   07/23/02     2,534,814       2,274,326      --            --        4,809,140
   Pizza-Hut -
      Belton, TX                       01/25/02   07/24/02       724,812         615,776      --            --        1,340,588
   IHOP -
      Covington, LA                    03/29/02   07/26/02     1,939,187       1,716,670      --            --        3,655,857
   IHOP -
      Flourissant, MO                  03/29/02   07/30/02     1,699,850       1,548,233      --            --        3,248,083
   Jack in the Box -
      Rock Hill, SC                    09/15/00   08/05/02     1,250,338       1,143,510      --            --        2,393,848
   Jack in the Box -
      Greer, SC                        09/25/01   08/05/02     1,565,361       1,454,109      --            --        3,019,470
   Jack in the Box -
      Conroe, TX                       09/15/00   08/09/02     1,556,376       1,412,719      --            --        2,969,095
   Pizza Hut -
      Waco, TX (Baylor)                01/18/02   08/13/02       649,092         550,444      --            --        1,199,536
   Jack in the Box -
      Greenville, SC                   09/25/01   08/16/02     1,647,054       1,530,054      --            --        3,177,108
   Bakers Square -
      Eau Claire, WI                   05/14/01   08/20/02     1,359,362       1,169,094      --            --        2,528,456
   Bakers Square -
      Springfield, IL                  05/14/01   08/20/02     1,230,330       1,079,164      --            --        2,309,494
   Old Country Buffet -
      Mankato, MN                      12/28/01   08/20/02     1,816,605       1,637,118      --            --        3,453,723
   Jack in the Box -
      Baton Rouge, LA                  08/23/00   08/22/02     1,207,920       1,127,994      --            --        2,335,914
   TB/KFC -
      Center, TX                       10/31/00   08/30/02       868,185         852,554      --            --        1,720,739
   IHOP -
      Shawnee, OK                      12/20/01   08/30/02     1,579,070       1,434,527      --            --        3,013,597
   HomeTown Buffet -
      Medford, OR                      02/15/02   09/05/02     2,800,571       2,410,406      --            --        5,210,977
   HomeTown Buffet -
      Manchester, CT                   12/28/01   09/13/02     1,945,681       1,774,390      --            --        3,720,071
   Jack in the Box -
      Kilgore, TX                      06/27/02   09/18/02     1,188,992       1,093,811      --            --        2,282,803
   IHOP -
      Bristol, VA                      12/28/00   09/20/02     1,432,612       1,350,001      --            --        2,782,613
   Bakers Square -
      Akron, OH                        05/14/01   09/27/02     1,501,502       1,257,883      --            --        2,759,385
   Texas Roadhouse -
      Peoria, IL                       06/25/02   09/30/02     2,550,000       2,127,261      --            --        4,677,261
   Jack in the Box -
      Mesa, AZ                         06/27/02   10/04/02     1,678,254       1,475,706      --            --        3,153,960

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        -----------------------------------------
                                                                                          Excess
                                                         Total                         (deficiency)
                                                    acquisition cost,                  of property
                                         Original       capital                      operating cash
                                         mortgage    improvements                     receipts over
                                         financing    closing and                         cash
            Property                        (7)      soft costs (1)      Total      expenditures (19)
=====================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   OCB -
      Bourbonnais, IL                    1,273,000       --            1,273,000        (1,087)
   HomeTown Buffet -
      Rockford, IL                       2,273,000       --            2,273,000        (1,941)
   Pizza-Hut -
      Belton, TX                           618,282       --              618,282         2,875
   IHOP -
      Covington, LA                      1,720,183       --            1,720,183         2,971
   IHOP -
      Flourissant, MO                    1,551,402       --            1,551,402         3,922
   Jack in the Box -
      Rock Hill, SC                      1,181,275       --            1,181,275        46,288
   Jack in the Box -
      Greer, SC                          1,474,257       --            1,474,257        22,417
   Jack in the Box -
      Conroe, TX                         1,459,375       --            1,459,375        57,750
   Pizza Hut -
      Waco, TX (Baylor)                    553,145       --              553,145         3,009
   Jack in the Box -
      Greenville, SC                     1,551,255       --            1,551,255        24,584
   Bakers Square -
      Eau Claire, WI                     1,181,818       --            1,181,818        13,617
   Bakers Square -
      Springfield, IL                    1,090,909       --            1,090,909        12,569
   Old Country Buffet -
      Mankato, MN                        1,636,000       --            1,636,000        (1,503)
   Jack in the Box -
      Baton Rouge, LA                    1,167,135       --            1,167,135        48,323
   TB/KFC -
      Center, TX                           863,636       --              863,636        10,412
   IHOP -
      Shawnee, OK                        1,441,500       --            1,441,500         7,947
   HomeTown Buffet -
      Medford, OR                        2,409,000       --            2,409,000        (2,071)
   HomeTown Buffet -
      Manchester, CT                     1,773,000       --            1,773,000        (1,469)
   Jack in the Box -
      Kilgore, TX                        1,097,200       --            1,097,200         4,625
   IHOP -
      Bristol, VA                        1,373,272       --            1,373,272        25,525
   Bakers Square -
      Akron, OH                          1,272,727       --            1,272,727        16,331
   Texas Roadhouse -
      Peoria, IL                         2,134,177       --            2,134,177        10,527
   Jack in the Box -
      Mesa, AZ                           1,482,598       --            1,482,598         7,435

      Past performance is not necessarily indicative of future performance.

                                      B-37

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                     Selling Price, Net of
                                                                              Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
================================================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Pizza Hut -
      Rockmart, GA                     01/18/02   11/06/02        432,906        366,030      --           --           798,936
   Ruby Tuesday -
      Angola, IN                       07/01/01   11/08/02      1,499,694      1,415,770      --           --         2,915,464
   Krystals -
      Pelham, AL                       09/15/00   11/14/02      1,013,642        910,619      --           --         1,924,261
   HomeTown Buffets -
      Hilliard, OH                     12/28/01   11/22/02      1,816,424      1,615,595      --           --         3,432,019
   IHOP -
      Enid, OK                         09/28/01   12/05/02      1,537,046      1,323,224      --           --         2,860,270
   IHOP -
      Kansas City, MO                  03/29/02   12/05/02      1,719,949      1,500,970      --           --         3,220,919
   Perkins -
      Millington, TN                   05/24/02   12/06/02      1,274,829      1,111,111      --           --         2,385,940
   Perkins -
      Mankato, MN                      09/13/02   12/10/02      1,373,747      1,193,299      --           --         2,567,046
   Ruby Tuesday -
      Island Park, NY                  02/27/01   12/18/02      1,882,592      1,782,108      --           --         3,664,700
   Pizza Hut -
      Woodville, TX                    01/18/02   12/19/02        392,396        351,085      --           --           743,481
   Krystals -
      Trenton, GA                      09/15/00   12/20/02      1,027,940        896,970      --           --         1,924,910

CNL Funding 2002-A, LP (18):
   Jack in the Box -
      Marana, AZ                       05/15/01   08/17/01        163,730      1,076,685      --           --         1,240,414
   Jack in the Box -
      St. George, UT                   07/12/01   12/04/01        231,916      1,580,962      --           --         1,812,878
   Jack in the Box -
      Pumpkin Center, CA               08/30/02   11/09/01        128,563      1,206,531      --           --         1,335,094
   Black Angus -
      Las Vegas, NV                    10/11/01   11/19/01        545,658      2,675,155      --           --         3,220,813
   Jack in the Box -
      Harrington, TX                   05/31/01   11/29/01        144,639      1,280,652      --           --         1,430,291
   Black Angus -
      Phoenix, AZ                      08/02/01   03/29/02      2,271,337      1,962,499      --           --         4,233,836
   Black Angus -
      Goodyear, AZ                     07/23/01   05/01/02      2,161,317      1,855,849      --           --         4,017,166
   Jack in the Box -
      Charlotte, NC                    08/30/01   06/14/02      1,603,500      1,450,809      --           --         3,054,309
   Jack in the Box -
      Baton Rouge, LA                  08/30/01   07/12/02      1,225,654      1,145,280      --           --         2,370,934
   Jack in the Box -
      Lake Zurich, IL                  09/26/01   12/20/02      2,655,920      2,215,642      --           --         4,871,562
   Bennigans -
      Killeen, TX                      08/07/01   12/30/02      2,182,142      1,897,117      --           --         4,079,259

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        -----------------------------------------
                                                                                          Excess
                                                         Total                         (deficiency)
                                                    acquisition cost,                  of property
                                         Original       capital                      operating cash
                                         mortgage    improvements                     receipts over
                                         financing    closing and                         cash
            Property                        (7)      soft costs (1)      Total      expenditures (19)
=====================================================================================================
CNL Funding 2001-A, LP (18)
   (Continued):
   Pizza Hut -
      Rockmart, GA                         368,764         --            368,764         2,914
   Ruby Tuesday -
      Angola, IN                         1,426,713         --          1,426,713        29,521
   Krystals -
      Pelham, AL                           928,108         --            928,108        26,012
   HomeTown Buffets -
      Hilliard, OH                       1,614,000         --          1,614,000        (1,717)
   IHOP -
      Enid, OK                           1,336,499         --          1,336,499         4,742
   IHOP -
      Kansas City, MO                    1,509,346         --          1,509,346         8,575
   Perkins -
      Millington, TN                     1,111,111         --          1,111,111           756
   Perkins -
      Mankato, MN                        1,193,299         --          1,193,299         1,108
   Ruby Tuesday -
      Island Park, NY                    1,800,000         --          1,800,000        21,046
   Pizza Hut -
      Woodville, TX                        354,013         --            354,013         3,077
   Krystals -
      Trenton, GA                          915,294         --            915,294        26,769

CNL Funding 2002-A, LP (18):
   Jack in the Box -
      Marana, AZ                         1,078,143         --          1,078,143        27,638
   Jack in the Box -
      St. George, UT                     1,588,785         --          1,588,785        62,317
   Jack in the Box -
      Pumpkin Center, CA                 1,210,280         --          1,210,280        22,265
   Black Angus -
      Las Vegas, NV                      2,675,155         --          2,675,155        31,169
   Jack in the Box -
      Harrington, TX                     1,285,047         --          1,285,047        68,509
   Black Angus -
      Phoenix, AZ                        1,967,245         --          1,967,245        13,445
   Black Angus -
      Goodyear, AZ                       1,862,193         --          1,862,193        11,485
   Jack in the Box -
      Charlotte, NC                      1,467,708         --          1,467,708        17,149
   Jack in the Box -
      Baton Rouge, LA                    1,160,007         --          1,160,007        16,487
   Jack in the Box -
      Lake Zurich, IL                    2,246,512         --          2,246,512        39,380
   Bennigans -
      Killeen, TX                        1,925,583         --          1,925,583        31,785

      Past performance is not necessarily indicative of future performance.
                                      B-38

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                      Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Net Lease Investors, LP (18):
   JIB -
      Arlington, TX (8)                09/25/02   09/25/02     1,096,799              --      --            --        1,096,799
   Burger King -
      Jackson, MI (8)                  09/25/02   09/25/02       958,464              --      --            --          958,464
   IHOP -
      Buffalo Grove, IL (8)            09/25/02   09/25/02     1,591,656              --      --            --        1,591,656
   Arby's-Lee's
      Summit, MO (8)                   09/25/02   09/25/02       956,778              --      --            --          956,778
   Krispy Kreme -
      Clive, IA (8)                    09/25/02   09/25/02       719,193              --      --            --          719,193
   Boston Market
      Eden Prairie, MN (8)             09/25/02   09/25/02     1,096,256              --      --            --        1,096,256
   Denny's -
      Glenwood Springs, CO             09/25/02   09/30/02       795,710         724,289      --            --        1,519,999
   JIB -
      Apple Valley, CA                 09/25/02   10/29/02     1,321,825       1,125,979      --            --        2,447,804
   Jack in the Box -
      Calexico, CA                     09/25/02   11/08/02     1,648,680       1,380,933      --            --        3,029,613
   IHOP -
      Smyrna, GA                       09/25/02   11/15/02     1,745,706       1,487,570      --            --        3,233,276
   IHOP -
      Las Vegas, NV                    09/25/02   11/19/02     1,757,708       1,532,903      --            --        3,290,611
   Arby's -
      Lafayette, IN                    09/25/02   11/21/02     1,375,742       1,233,489      --            --        2,609,231
   JIB -
      Pomona, CA                       09/25/02   12/06/02     1,487,290       1,256,692      --            --        2,743,982
   IHOP -
      Bend, OR                         09/25/02   12/10/02     1,531,730       1,335,109      --            --        2,866,839
   JIB -
      Woodinville, WA                  09/25/02   12/12/02     1,655,360       1,416,445      --            --        3,071,805
   IHOP -
      Chico, CA                        09/25/02   12/16/02     1,941,672       1,704,094      --            --        3,645,766
   IHOP -
      Phoenix, AZ                      09/25/02   12/16/02     1,678,713       1,421,205      --            --        3,099,918
   Denny's -
      Grand Prairie, TX                09/25/02   12/18/02       808,300         641,605      --            --        1,449,905
   JIB -
      Stockton, CA                     09/25/02   12/19/02     1,318,360       1,194,990      --            --        2,513,350
   JIB -
      Altadena, CA                     09/25/02   12/19/02     1,807,332       1,568,973      --            --        3,376,305
   IHOP -
      Madera, CA                       09/25/02   12/20/02     1,738,750       1,517,381      --            --        3,256,131
   JIB -
      Los Angeles, CA                  09/25/02   12/20/02     1,722,484       1,440,875      --            --        3,163,359
   Stone Grill -
      Henderson, NV                    09/25/02   12/20/02       444,977         315,790      --            --          760,767

                                                 Cost of Properties
                                                Including Closing and
                                                     Soft Costs
                                       ---------------------------------------
                                                                                        Excess
                                                       Total                         (deficiency)
                                                  acquisition cost,                  of property
                                       Original       capital                      operating cash
                                       mortgage    improvements                     receipts over
                                       financing    closing and                         cash
            Property                      (7)      soft costs (1)      Total      expenditures (19)
===================================================================================================
CNL Net Lease Investors, LP (18):
   JIB -
      Arlington, TX (8)                       --     1,096,799       1,096,799           --
   Burger King -
      Jackson, MI (8)                         --       958,464         958,464           --
   IHOP -
      Buffalo Grove, IL (8)                   --     1,591,656       1,591,656           --
   Arby's-Lee's
      Summit, MO (8)                          --       956,778         956,778           --
   Krispy Kreme -
      Clive, IA (8)                           --       719,193         719,193           --
   Boston Market
      Eden Prairie, MN (8)                    --     1,096,256       1,096,256           --
   Denny's -
      Glenwood Springs, CO               724,289            --         724,289       (2,560)
   JIB -
      Apple Valley, CA                 1,125,979            --       1,125,979         (390)
   Jack in the Box -
      Calexico, CA                     1,380,873            --       1,380,873         (431)
   IHOP -
      Smyrna, GA                       1,487,640            --       1,487,640         (255)
   IHOP -
      Las Vegas, NV                    1,533,114            --       1,533,114            4
   Arby's -
      Lafayette, IN                    1,234,521            --       1,234,521        1,632
   JIB -
      Pomona, CA                       1,256,583            --       1,256,583         (501)
   IHOP -
      Bend, OR                         1,334,916            --       1,334,916         (674)
   JIB -
      Woodinville, WA                  1,416,512            --       1,416,512         (421)
   IHOP -
      Chico, CA                        1,706,088            --       1,706,088        2,084
   IHOP -
      Phoenix, AZ                      1,422,679            --       1,422,679        1,492
   Denny's -
      Grand Prairie, TX                  643,812            --         643,812      (17,570)
   JIB -
      Stockton, CA                     1,195,358            --       1,195,358           44
   JIB -
      Altadena, CA                     1,569,349            --       1,569,349         (104)
   IHOP -
      Madera, CA                       1,517,799            --       1,517,799          (23)
   JIB -
      Los Angeles, CA                  1,441,506            --       1,441,506          319
   Stone Grill -
      Henderson, NV                      316,876            --         316,876         (501)

      Past performance is not necessarily indicative of future performance.

                                      B-39

                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                       Selling Price, Net of
                                                                               Closing Costs and GAAP Adjustments
                                                            ------------------------------------------------------------------
                                                                                           Purchase
                                                                               Mortgage      money     Adjustments
                                                                                balance    mortgage   resulting from
                                         Date     Date of   Cash received net   at time   taken back  application of
            Property                   Acquired    Sale     of closing costs    of sale   by program       GAAP         Total
===============================================================================================================================
CNL Net Lease Investors, LP (18)
(Continued):
   JIB -
      Veradale, WA                     09/25/02   12/20/02      1,584,962      1,432,938      --            --        3,017,900
   Denny's -
      Tulsa, OK                        09/25/02   12/23/02        198,995         87,719      --            --          286,714
   Chipolte Mexican Grill -
      Redlands, CA                     09/25/02   12/26/02      1,131,950        947,782      --            --        2,079,732
   Arby's -
      Boise, ID                        09/25/02   12/27/02      1,024,456        880,157      --            --        1,904,613
   IHOP -
      Las Vegas, NV - 752              09/25/02   12/30/02      1,956,162      1,654,627      --            --        3,610,789
   IHOP -
      Chesapeake, VA                   09/25/02   12/30/02      1,820,540      1,596,258      --            --        3,416,798
   JIB -
      Sacramento, CA                   09/25/02   12/31/02      1,351,820      1,230,480      --            --        2,582,300
   JIB -
      Delano, CA                       09/25/02   12/31/02      1,411,817      1,193,558      --            --        2,605,375

CNL Franchise Network, LP (24)
   Applebees -
      Salinas, CA                      02/10/97   04/26/02      2,049,350             --      --            --        2,649,350
   Fazoli's -
      Cordova, TN (25)                 12/28/01   06/28/02        638,052             --      --            --          638,052
   Fazoli's -
      Collierville, TN (25)            12/23/99   08/08/02        667,882             --      --            --          667,882

                                                   Cost of Properties
                                                  Including Closing and
                                                       Soft Costs
                                        -----------------------------------------
                                                                                          Excess
                                                         Total                         (deficiency)
                                                    acquisition cost,                  of property
                                         Original       capital                      operating cash
                                         mortgage    improvements                     receipts over
                                         financing    closing and                         cash
            Property                        (7)      soft costs (1)      Total      expenditures (19)
=====================================================================================================
CNL Net Lease Investors, LP (18)
(Continued):
   JIB -
      Veradale, WA                       1,434,470              --     1,434,470         1,591
   Denny's -
      Tulsa, OK                             88,021              --        88,021        (8,056)
   Chipolte Mexican Grill -
      Redlands, CA                         948,249              --       948,249           229
   Arby's -
      Boise, ID                            879,752              --       879,752        (1,105)
   IHOP -
      Las Vegas, NV - 752                1,654,674              --     1,654,674          (737)
   IHOP -
      Chesapeake, VA                     1,595,915              --     1,595,915        (1,328)
   JIB -
      Sacramento, CA                     1,230,859              --     1,230,859           (85)
   JIB -
      Delano, CA                         1,193,846              --     1,193,846          (125)

CNL Franchise Network, LP (24)
   Applebees -
      Salinas, CA                               --       1,748,118     1,496,871            --
   Fazoli's -
      Cordova, TN (25)                          --         501,969       501,969            --
   Fazoli's -
      Collierville, TN (25)                     --         621,070            --          (207)


(1)  Amounts shown do not include pro rata share of original offering costs or
     acquisition fees.

(2)  Closing costs deducted from net sales proceeds do not include deferred,
     subordinated real estate disposition fees payable to CNL Fund Advisors,
     Inc. or its affiliates.

(3)  Excess (deficiency) of property operating cash receipts over cash
     expenditures includes $20,000 of lease termination income.

(4)  Excess (deficiency) of property operating cash receipts over cash
     expenditures includes $175,000 of lease termination income.

(5)  Cash received net of closing costs includes $147,750 of lease termination
     income.

(6)  Excess (deficiency) of property operating cash receipts over cash
     expenditures includes $52,676 of lease termination income.

(7)  Original mortgage financing was obtained for less than 100 percent of the
     total cost of the properties.

(8)  Each property was sold to one of the CNL Income Funds, which are Prior
     Public Programs and affiliates of the Chairman and Vice Chairman of the
     Board of Directors of CNL Restaurant Properties, Inc. The CNL Net Lease
     Investors, LP sold the properties at the net carrying value of the
     property, therefore, no gain or loss was recognized on the sale.

(9)  This property was being constructed and was sold prior to completion of
     construction.

(10) Cash received net of closing costs includes $1,551,800 in construction
     costs incurred but not paid by CNL Restaurant Properties, Inc. as of the
     closing date, which were deducted from the actual net sales proceeds
     received by CNL Restaurant Properties, Inc.

(11) Cash received net of closing costs includes $35,863 received as a lease
     termination fee.

(12) CNL Income Fund VIII, Ltd. owned a 12.46 percent interest and CNL Income
     Fund XII, Ltd. owned an 87.54 percent interest in this joint venture. The
     amounts presented for CNL Income Fund VIII, Ltd. and CNL Income Fund XII,
     Ltd. represent each partnership's percentage interest in the property owned
     by Middleburg Joint Venture.

      Past performance is not necessarily indicative of future performance.

                                      B-40

(13) CNL Income Fund XIV, Ltd. owned a 50 percent interest and CNL Income Fund
     XV, Ltd. owned a 50 percent interest in this joint venture. The amounts
     presented for CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd.
     represent each partnership's percentage interest in the property owned by
     Woodridge Joint Venture.

(14) CNL Income Fund VI, Ltd. owned a 75 percent interest and CNL Income Fund
     IX, Ltd. owned a 25 percent interest in the property in Dublin, California.
     The amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund IX,
     Ltd. represent each partnership percentage interest in the property.

(15) Amount shown is face value and does not represent discounted current value.
     The mortgage note bore interest at a rate of ten percent per annum. The
     borrower prepaid the mortgage note in full in November 2001.

(16) Amount shown is face value and does not represent discounted current value.
     The mortgage note bears interest at a rate of nine percent per annum and
     provides for 96 equal monthly payments of principal and interest and a
     balloon payment of $123,102 in December 2008.

(17) Amount shown is face value and does not represent discounted current value.
     The mortgage note bears interest at a rate of nine percent per annum and
     provides for 96 equal monthly payments of principal and interest and a
     balloon payment of $184,652 in December 2008.

(18) Information in this table includes properties sold by CNL Restaurant
     Property Services, Inc., CNL Restaurant Investors Properties, LLC, CNL
     Funding 2001-A, LP, CNL Funding 2002 - A LP and CNL Net Lease Investors LP,
     subsidiaries of CNL Restaurant Properties, Inc., which were formed for the
     purpose of originating mortgage loans and net leases with the intent to
     sell or securitize.

(19) Amounts in this table do not include costs incurred in the administration
     of the partnership or company, as applicable, not related to the operation
     of properties.

(20) CNL Income Fund II, Ltd. owned a 48 percent interest and CNL Income Fund X,
     Ltd. owned a 52 percent interest in this joint venture. The amounts
     presented for CNL Income Fund II, Ltd. and CNL Income Fund X, Ltd.
     represent each partnership's percentage interest owned by Peoria Joint
     Venture.

(21) CNL Income Fund VI, Ltd. owned a 77 percent interest and CNL Income Fund
     XI, Ltd. owned a 23 percent interest in the property in Round Rock, Texas.
     The amounts presented for CNL Income Fund VI, Ltd. and CNL Income Fund XI,
     Ltd. represent each partnership's percentage interest in the property.

(22) Amount shown is face value and does not represent discounted current value.
     The mortgage note bears interest at a rate of 12.34 percent per annum and
     principal and interest payments are due by November 28, 2004.

(23) Cash received net of closing costs includes $60,000 received as a lease
     termination fee.

(24) Information in this table includes properties sold by CNL Financial
     Services, LP and CNL Franchise Network, LP, subsidiaries of CNL Restaurant
     Properties, Inc.

(25) The property was obtained through foreclosure of a loan and the basis of
     the property was the net realizable value of the foreclosed loan.

(26) Excess (deficiency) of property operating cash receipts over cash
     expenditures includes $31,215 of lease termination income.

(27) Excess (deficiency) of property operating cash receipts over cash
     expenditures includes $100,000 of lease termination income.

(28) CNL Income Fund III, Ltd. owned a 73.4 percent interest and CNL Income Fund
     IV, Ltd. owned a 26.6 percent interest in this joint venture. The amounts
     presented for CNL Income Fund III, Ltd. and CNL Income Fund, IV, Ltd.
     represent each partnership's percentage interest in the property owned by
     Titusville Joint Venture.

(29) CNL Income Fund IX, Ltd. and CNL Income Fund X, Ltd. each owned a 50
     percent interest in this joint venture. The amounts presented for CNL
     Income Fund IX, Ltd. and CNL Income Fund, X, Ltd. represent each
     partnership's percentage interest in the property owned by CNL Restaurant
     Investments III.

(30) CNL Income Fund, Ltd. owned a 50 percent interest in this joint venture.
     The amounts presented represent the partnership's percentage interest in
     the property owned by Sand Lake Road Joint Venture. A third party owned the
     remaining 50 percent interest in this joint venture.

(31) CNL Income Fund VII, Ltd. owned an 18 percent interest, CNL Income Fund
     VIII, Ltd. owned a 36.8 percent interest and CNL Income Fund IX, Ltd. owned
     a 45.2 percent interest in this joint venture. The amounts presented for
     CNL Income Fund VII, Ltd., CNL Income Fund, VIII, Ltd. and CNL Income Fund
     IX, Ltd. represent each partnership's percentage interest in the property
     owned by CNL Restaurant Investments II.

(32) CNL Income Fund IX, Ltd. owned a 27.33 percent interest, CNL Income Fund X,
     Ltd. owned a 10.51 percent interest and CNL Income fund XI, Ltd. owned a
     62.16 percent interest in this joint venture. The amounts presented for CNL
     Income Fund IX, Ltd., CNL Income Fund, X, Ltd. and CNL Income Fund XI, Ltd.
     represent each partnership's percentage interest in the property owned by
     Ashland Joint Venture.

(33) CNL Income Fund VIII, Ltd. owned a 66 percent interest and CNL Income Fund
     IX, Ltd. owned a 34 percent interest in the property owned by this tenancy
     in common. The amounts presented for CNL Income Fund VIII, Ltd. and CNL
     Income Fund, IX, Ltd. represent each partnership's percentage interest in
     the property owned by CNL VIII & IX Tenants in Common.

(34) CNL Income Fund VII, Ltd. owned a 79 percent interest and CNL Income Fund
     XVII, Ltd. owned a 21 percent interest in this joint venture. The amounts
     presented for CNL Income Fund VII, Ltd. and CNL Income Fund, XVII, Ltd.
     represent each partnership's percentage interest in the property owned by
     CNL Mansfield Joint Venture.

(35) CNL Income Fund VI, Ltd. owned a 66.14 percent interest in this joint
     venture. The amounts presented represent the partnership's percentage
     interest in the property owned by Caro Joint Venture. A third party owned
     the remaining 33.86 percent interest in this joint venture.

(36) Amount shown is face value and does not represent discounted current value.
     The mortgage note bore interest at a rate of 10 percent per annum and
     provided for 35 equal monthly payments of principal and interest. The
     borrower prepaid the mortgage note in full in August 2002.

(37) Amount shown is face value and does not represent discounted current value.
     The mortgage note bore interest at a rate of 10.5 percent per annum. In
     December 2002, the Partnership negotiated for an early payoff at a reduced
     amount and received a balloon payment which included $606,800 of the
     outstanding principal balance.

(38) Cash received net of closing costs includes $232,578 of insurance proceeds
     received after the building was destroyed by fire.

      Past performance is not necessarily indicative of future performance.


                                      B-41

                                                                [LOGO]
Prospectus
CNL RETIREMENT PROPERTIES, INC.
175,000,000 Shares of Common Stock

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

         Of the 175,000,000 shares of common stock that we have registered, we
are offering 150,000,000 shares to investors who meet our suitability standards
and up to 25,000,000 shares to participants in our reinvestment plan.

         We are qualified and operated for federal income tax purposes as a real
estate investment trust.




         An investment in our shares involves significant risks. See "Risk
Factors" beginning on page 12 for a discussion of material risks that you should
consider before you invest in the common stock being sold with this Prospectus,
including:


o        We intend to use the proceeds from the offering to acquire additional
         properties, so you will not have the opportunity to evaluate all the
         properties that will be in our portfolio.
o        Both the number of properties that we will acquire and the
         diversification of our investments will be reduced to the extent that
         the total proceeds of the offering are less than $1.5 billion. This
         will leave us exposed to a potential adverse effect from an
         underperforming tenant or an underperforming facility type.
o        We rely on CNL Retirement Corp., our advisor, subject to approval by
         the Board of Directors, with respect to all investment decisions.
o        Some of the officers of CNL Retirement Corp. and its affiliates are or
         will be engaged in other activities that will result in conflicts of
         interest with the services that CNL Retirement Corp. will provide to
         us. Those officers could take actions that are more favorable to other
         entities than to us. The resolution of conflicts in favor of other
         entities could have a negative impact on our financial performance.
o        There is currently no public trading market for the shares, and there
         is no assurance that one will develop. If the shares are not listed on
         a national securities exchange or over-the-counter market by December
         31, 2008, we will sell our assets and distribute the proceeds.
o        We are subject to risks arising out of government regulation of the
         health care industry, which may reduce the value of our investments and
         the amount of revenues we receive from tenants. Some of our tenants may
         be dependent upon government reimbursements and other tenants may be
         dependent on their success in attracting seniors with sufficient
         independent means to pay for the tenants' services.
o        We may, without the approval of a majority of our independent
         directors, incur debt totalling up to 300% of the value of our net
         assets, including debt to make distributions to stockholders in order
         to maintain our status as a real estate investment trust, or a REIT. If
         we are unable to meet our debt service obligations, we may lose our
         investment in any properties that secure underlying indebtedness on
         which we have defaulted.
o        If we do not remain qualified as a REIT for federal income tax
         purposes, we could be subject to taxation on our income at regular
         corporate rates, which would reduce the amount of funds available for
         distributions to stockholders.
o        We expect to pay substantial fees to some of our affiliates and
         estimate that 8% of the proceeds from the sale of shares will be paid
         in fees and expenses to our affiliates for services and as
         reimbursement for offering- and acquisition-related expenses incurred
         on our behalf. We will not have as much of the offering proceeds to
         purchase properties and make mortgage loans as a result of such
         payments. Of the proceeds from the sale of shares, we will use 85% to
         acquire properties and to make mortgage loans.
o        As of date of this Prospectus, we are subject to risks due to lack of
         diversification because the majority of the Company's properties are
         either Marriott-branded or American Retirement Corporation-branded
         communities and all of the properties are leased to only six tenants.

                                                                                                          Total
                                                                                    Per Share            Maximum
                                                                                   ------------     ------------------
  Public Offering Price..................................................            $10.00          $1,750,000,000
  Selling Commissions....................................................            $ 0.75          $  131,250,000
  Proceeds to the Company................................................            $ 9.25          $1,618,750,000

.........Neither the Securities and Exchange Commission nor any state securities commission has approved or
disapproved of these securities or passed upon the adequacy or accuracy of this Prospectus.  In addition, the
Attorney General of the State of New York has not passed on or endorsed the merits of this offering.  Any
representation to the contrary is a criminal offense.



                                               CNL SECURITIES CORP.
                                                  March 26, 2003





o        The managing dealer, CNL Securities Corp., is our affiliate. The
         managing dealer is not required to sell any specific number or dollar
         amount of shares but will use its best efforts to sell the shares.
o        This offering will end no later than March 26, 2004, unless we
         elect to extend it to a date no later than March 26, 2005 in states
         that permit us to make this extension.


         No one is authorized to make any statements about the offering
different from those that appear in this Prospectus. This Prospectus is not an
offer to sell these securities and it is not soliciting an offer to buy these
securities in any state where the offer or sale is not permitted. We will only
accept subscriptions from people who meet the suitability standards described in
this Prospectus. You should also be aware that the description of the Company
contained in this Prospectus was accurate on February 28, 2003 but may no longer
be accurate. We will amend or supplement this Prospectus, however, if there is a
material change in the affairs of the Company.


         No one may make forecasts or predictions in connection with this
offering concerning the future performance of an investment in the shares.



                                TABLE OF CONTENTS


TABLE OF CONTENTS ii
Questions and Answers About CNL Retirement
     Properties, Inc.'s Public
Offering...........................................................................................................1
PROSPECTUS SUMMARY.................................................................................................5
     CNL Retirement Properties, Inc................................................................................5
     Our Business..................................................................................................5
     Risk Factors..................................................................................................5
     Our REIT Status...............................................................................................7
     Our Management and Conflicts of Interest......................................................................7
     Our Affiliates................................................................................................8
     Our Investment Objectives.....................................................................................8
     Management Compensation.......................................................................................8
     The Offering .................................................................................................10
RISK FACTORS.......................................................................................................11
     Offering-Related Risks........................................................................................11
         This is an unspecified property offering..................................................................11
              You cannot evaluate properties that we have
                  not yet acquired or identified for acquisition...................................................11
              We cannot assure you that we will obtain suitable investments........................................11
              The managing dealer has not made an independent review of the Company or the Prospectus..............11
              There is no limitation on the number of properties of a particular facility type which
                  we may acquire...................................................................................11
              You will have no opportunity to evaluate procedures for resolving conflicts of interest..............11
              You cannot evaluate secured equipment leases in which we have not yet entered or that we
                  have not yet identified..........................................................................12
         There may be delays in investing the proceeds of this offering............................................12
         The sale of shares by stockholders could be difficult.....................................................12
     Company-Related Risks.........................................................................................12
         We have limited operating history.........................................................................12
         Our management has limited experience with investments in
              retirement properties................................................................................12
         We are dependent on the advisor...........................................................................12
         We will be subject to conflicts of interest...............................................................13
              We will experience competition for properties........................................................13
              There will be competing demands on our officers and directors........................................13
              The timing of sales and acquisitions may favor the advisor...........................................13
              Our properties may be developed by affiliates........................................................13
              We may invest with affiliates of the advisor.........................................................13
              There is no separate counsel for the Company, our affiliates and investors...........................13
     Real Estate and Other Investment Risks........................................................................13
         Possible lack of diversification increases the risk of investment.........................................13

         Inability to continue to satisfy debt obligations by the tenant/operator of six of our properties
              may adversely affect our results of operations.......................................................14

         We may rely on credit enhancements to our leases for minimum rent payments................................14
         We do not have control over market and business conditions................................................14
         Adverse trends in the health care and seniors' housing industry may impact our properties.................14
         RetirementFacilities......................................................................................14
              Some of our tenants and borrowers must attract senior citizens with ability to pay...................14
              Failure to comply with government regulations could negatively affect our tenants and
                 borrowers.........................................................................................15
              Our properties may not be readily adaptable to other uses............................................15
              Our tenants and borrowers may rely on government reimbursement.......................................15
              Cost control and other health care reform measures may reduce reimbursements to our tenants
                 and borrowers.....................................................................................16
              Certificate of Need laws may impose investment barriers for us.......................................16
              Privacy, administrative simplification and other health care provider laws...........................16
         We will not control the management of our properties......................................................16
         We may not control the joint ventures in which we enter...................................................17
         Joint venture partners may have different interests than we have..........................................17
         It may be difficult for us to exit a joint venture after an impasse.......................................17
         We may not have control over properties under construction................................................17
         We will have no economic interest in ground lease properties..............................................17
         Multiple property leases or mortgage loans with individual tenants or borrowers increase our risks........17
         It may be difficult to re-lease our properties............................................................18
         We cannot control the sale of some properties.............................................................18
         The liquidation of our assets may be delayed..............................................................18
         Risks of Mortgage Lending.................................................................................18
              Our mortgage loans may be impacted by unfavorable real estate market conditions......................18
              Our mortgage loans will be subject to interest rate fluctuations.....................................18
              Delays in liquidating defaulted mortgage loans could reduce our investment returns...................18
              Returns on our mortgage loans may be limited by regulations..........................................18
         Risks of Secured Equipment Leasing........................................................................19
              Our collateral may be inadequate to secure leases....................................................19
              Returns on our secured equipment leases may be limited by regulations................................19
         Our properties may be subject to environmental liabilities................................................19
     Financing Risks...............................................................................................19
         We have obtained long-term financing and may require additional financing in the future...................19
         Anticipated borrowing creates risks.......................................................................19
         We can borrow money to make distributions.................................................................20
     Miscellaneous Risks...........................................................................................20
         Our properties may be unable to compete successfully......................................................20
         Inflation could adversely affect our investment returns...................................................20
         We may not have adequate insurance........................................................................20
         Possible effect of ERISA..................................................................................21
         Our governing documents may discourage takeovers..........................................................21
         Our stockholders are subject to ownership limits..........................................................21
         Majority stockholder vote may discourage changes of control...............................................21
         Investors in our Company may experience dilution..........................................................21
         The Board of Directors can take many actions without stockholder approval.................................21
         We will rely on the advisor and Board of Directors to manage the Company..................................22
         Our officers and directors have limited liability.........................................................22
     Tax Risks.....................................................................................................22
         We will be subject to increased taxation if we fail to qualify as a REIT for federal income tax purposes..22
         Our leases may be recharacterized as financings which would eliminate depreciation deductions on
              our properties.......................................................................................22
         Excessive non-real estate asset values may jeopardize our REIT status.....................................23
         We may have to borrow funds or sell assets to meet our distribution requirements..........................23
         Ownership limits may discourage a change in control.......................................................23
         We may be subject to other tax liabilities................................................................23
         Changes in tax laws may prevent us from qualifying as a REIT..............................................23
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE.........................................................................24
     Suitability Standards.........................................................................................24
     How to Subscribe..............................................................................................25
ESTIMATED USE OF PROCEEDS..........................................................................................26
MANAGEMENT COMPENSATION............................................................................................27
CONFLICTS OF INTEREST..............................................................................................33
     Prior and Future Programs.....................................................................................34
     Competition to Acquire Properties and Invest in Mortgage Loans................................................34
     Sales of Properties...........................................................................................35
     Development of Properties.....................................................................................35
     Joint Investment With An Affiliated Program...................................................................35
     Competition for Management Time...............................................................................36
     Compensation of the Advisor...................................................................................36
     Relationship with Managing Dealer.............................................................................36
     Legal Representation..........................................................................................36
     Certain Conflict Resolution Procedures........................................................................37
SUMMARY OF REINVESTMENT PLAN.......................................................................................38
     General.......................................................................................................38
     Investment of Distributions...................................................................................39
     Participant Accounts, Fees and Allocation of Shares...........................................................39
     Reports to Participants.......................................................................................40
     Election to Participate or Terminate Participation............................................................40
     Federal Income Tax Considerations.............................................................................41
     Amendments and Termination....................................................................................41
REDEMPTION OF SHARES...............................................................................................41
BUSINESS ..........................................................................................................43
     General.......................................................................................................43
     Industry Performance..........................................................................................43
     Investment of Offering Proceeds...............................................................................46
     Property Acquisitions.........................................................................................48

     Retirement Community Brands...................................................................................62
     Pending Investments...........................................................................................62
     Retirement Community Brands for Pending Investments...........................................................67

     Site Selection and Acquisition of Properties..................................................................67
     Standards for Investment in Properties........................................................................70
     Description of Properties.....................................................................................71
     Description of Property Leases................................................................................72
     Joint Venture Arrangements....................................................................................76
     Mortgage Loans and Other Loans................................................................................77
     Management Services...........................................................................................78

     Borrowing.....................................................................................................78
     Sale of Properties, Mortgage Loans and Secured Equipment Leases...............................................80
     Competition...................................................................................................81
     Regulation of Mortgage Loans and Secured Equipment Leases.....................................................81
SELECTED FINANCIAL DATA............................................................................................82
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS..............................83
     Introduction..................................................................................................83
     Liquidity and Capital Resources...............................................................................84
     Results of Operations.........................................................................................89
MANAGEMENT    .....................................................................................................94
     General.......................................................................................................94
     Fiduciary Responsibility of the Board of Directors............................................................94
     Directors and Executive Officers..............................................................................95
     Independent Directors.........................................................................................99
     Committees of the Board of Directors..........................................................................99
     Compensation of Directors and Executive Officers..............................................................99
     Management Compensation.......................................................................................99
THE ADVISOR AND THE ADVISORY AGREEMENT.............................................................................99
     The Advisor...................................................................................................99
     The Advisory Agreement........................................................................................100
CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS.....................................................................102
PRIOR PERFORMANCE INFORMATION......................................................................................103
INVESTMENT OBJECTIVES AND POLICIES.................................................................................109
     General.......................................................................................................109
     Certain Investment Limitations................................................................................110
DISTRIBUTION POLICY................................................................................................112
     General.......................................................................................................112
     Distributions.................................................................................................112
SUMMARY OF THE ARTICLES OF INCORPORATION AND BYLAWS................................................................114
     General.......................................................................................................114
     Description of CapitalStock...................................................................................114
     Board of Directors............................................................................................116
     Stockholder Meetings..........................................................................................116
     Advance Notice for Stockholder Nominations for Directors and Proposals of New Business........................116
     Amendments to the Articles of Incorporation...................................................................116
     Mergers, Combinations and Sale of Assets......................................................................117
     Control Share Acquisitions....................................................................................117
     Termination of the Company and REIT Status....................................................................117
     Restriction of Ownership......................................................................................118
     Responsibility of Directors...................................................................................119
     Limitation of Liability and Indemnification...................................................................119
     Removal of Directors..........................................................................................120
     Inspection of Books and Records...............................................................................120
     Restrictions on "Roll-Up" Transactions........................................................................120
FEDERAL INCOME TAX CONSIDERATIONS..................................................................................121
     Introduction..................................................................................................121
     Taxation of the Company.......................................................................................122
     Taxation of Stockholders......................................................................................126
     State and Local Taxes.........................................................................................129
     Characterization of Property Leases...........................................................................129
     Characterization of Secured Equipment Leases..................................................................130
     Investment in Joint Ventures..................................................................................131
REPORTS TO STOCKHOLDERS............................................................................................131
THE OFFERING.......................................................................................................132
     General.......................................................................................................132
     Plan of Distribution..........................................................................................133
     Subscription Procedures.......................................................................................136
     Escrow Arrangements...........................................................................................137
     ERISA Considerations..........................................................................................138
     Determination of Offering Price...............................................................................139
SUPPLEMENTAL SALES MATERIAL........................................................................................139
LEGAL OPINIONS.....................................................................................................139
EXPERTS............................................................................................................139
ADDITIONAL INFORMATION.............................................................................................140
DEFINITIONS........................................................................................................140

Financial Information.........................................................................................F-1
Form of Reinvestment Plan..............................................................................Appendix A
Prior Performance Tables...............................................................................Appendix B
Subscription Agreement.................................................................................Appendix C
Statement of Estimated Taxable Operating Results
     Before Dividends Paid Deduction...................................................................Appendix D



                           Questions and Answers About
                CNL Retirement Properties, Inc.'s Public Offering


Q:     What is CNL Retirement Properties, Inc.?


A:     The Company is a real estate investment trust, or a REIT, that was formed
       in 1997 to acquire  properties and lease them on a long-term,  triple-net
       basis. The properties may include congregate living,  assisted living and
       skilled nursing  facilities,  continuing care retirement  communities and
       life care communities,  and medical office buildings and walk-in clinics,
       and similar  types of healthcare  related  facilities.  In addition,  the
       Company may provide mortgage financing loans and secured equipment leases
       to operators.

       As of February 28, 2003, the Company had invested in 38 retirement
       properties, located in 17 states, and had commitments to acquire 14
       additional properties.  As of December 31, 2002, the Company had total
       assets of over $441 million.

Q:     What is a REIT?

A:     In general, a REIT is a company that:

       o combines the capital of many investors to acquire or provide  financing
       for real estate,

       o  offers  benefits  of  a  diversified   portfolio  under   professional
       management,

       o typically is not subject to federal  corporate  income taxes on its net
       income,  provided  certain income tax  requirements  are satisfied.  This
       treatment  substantially  eliminates the "double  taxation"  (taxation at
       both the corporate and  stockholder  levels) that generally  results from
       investments in a corporation, and

       o must pay  distributions  to  investors  of at least 90% of its  taxable
       income.

Q:     What kind of offering is this?

A:     We are  offering  up to  150,000,000  shares of  common  stock on a "best
       efforts" basis. In addition,  we are offering up to 25,000,000  shares of
       common stock to investors  who want to  participate  in our  reinvestment
       plan.

Q:     How does a "best efforts" offering work?

A:     When shares are offered to the public on a "best efforts"  basis,  we are
       not  guaranteeing  that any minimum number of shares will be sold. If you
       choose  to  purchase  stock  in  this  offering,  you  will  fill  out  a
       Subscription  Agreement,  like the one  attached  to this  Prospectus  as
       Appendix  C,  and pay for the  shares  at the  time  you  subscribe.  The
       purchase  price  will  be  placed  into  escrow  with  SouthTrust   Bank.
       SouthTrust will hold your funds,  along with those of other  subscribers,
       in an interest-bearing account until such time as you are admitted by the
       Company as a stockholder.  Generally, we admit stockholders no later than
       the  last  day  of  the  calendar  month  following  acceptance  of  your
       subscription.

Q:     How long will the offering last?

A:     This  offering  will not last beyond March 26, 2004,  unless we decide to
       extend the  offering  until not later than March 26,  2005,  in any state
       that allows us to extend the offering.

Q:     Who can buy shares?

A:     Anyone who receives  this  Prospectus  can buy shares  provided that they
       have  a  net  worth  (not  including   home,   furnishings  and  personal
       automobiles)  of at least  $45,000  and annual  gross  income of at least
       $45,000;  or, a net worth (not including  home,  furnishings and personal
       automobiles) of at least $150,000. However, these minimum levels may vary
       from  state to state,  so you  should  carefully  read the more  detailed
       description in the "Suitability Standards" section of this Prospectus.


Q:     Are there any risks involved in an investment in the shares?

A:     An investment in our shares involves  significant  risks. You should read
       the "Risk  Factors"  section for a discussion of material  risks that you
       should  consider  before you invest in the common  stock  being sold with
       this Prospectus, including the following:

o      We intend to use the proceeds from the offering to acquire additional
       properties, so you will not have the opportunity to evaluate all the
       properties that will be in our portfolio.
o      Both the number of properties that we will acquire and the
       diversification of our investments will be reduced to the extent that the
       total proceeds of the offering are less than $1.5 billion. This will
       leave us exposed to a potential adverse effect from an underperforming
       tenant or an underperforming facility type.
o      We rely on CNL Retirement Corp., the Company's advisor, subject to
       approval by the Company's board of directors, with respect to all
       investment decisions.
o      Some of the officers of CNL Retirement Corp. and its affiliates are or
       will be engaged in other activities that will result in conflicts of
       interest with the services that CNL Retirement Corp. will provide to us.
       Those officers could take actions that are more favorable to other
       entities than to us. The resolution of conflicts in favor of other
       entities could have a negative impact on our financial performance. For a
       discussion of additional conflicts, see the "Conflicts of Interest"
       section of this Prospectus.
o      There is currently no public trading market for the shares, and there is
       no assurance that one will develop. If the shares are not listed on a
       national securities exchange or over-the-counter market by December 31,
       2008, we will sell our assets and distribute the proceeds.
o      We are subject to risks arising out of government regulation of the
       health care industry, which may reduce the value of our investments and
       the amount of revenues we receive from tenants. Some of our tenants may
       be dependent upon government reimbursements and other tenants may be
       dependent on their success in attracting seniors with sufficient
       independent means to pay for the tenants' services.
o      We may, without the approval of a majority of our independent directors,
       incur debt totalling up to 300% of the value of our net assets, including
       debt to make distributions to stockholders in order to maintain our
       status as a real estate investment trust, or a REIT. If we are unable to
       meet our debt service obligations, we may lose our investment in any
       properties that secure underlying indebtedness on which we have
       defaulted.
o      If we do not remain qualified as a REIT for federal income tax purposes,
       we could be subject to taxation on our income at regular corporate rates,
       which would reduce the amount of funds available for distributions to
       stockholders.
o      We expect to pay substantial fees to some of our affiliates and estimate
       that 8% of the proceeds from the sale of shares will be paid in fees and
       expenses to our affiliates for services and as reimbursement for
       offering- and acquisition-related expenses incurred on our behalf. We
       will not have as much of the offering proceeds to purchase properties and
       make mortgage loans as a result of such payments. Of the proceeds from
       the sale of shares, we will use 85% to acquire properties and to make
       mortgage loans.
o      As of date of this Prospectus, we are subject to risks due to lack of
       diversification because the majority of the Company's properties are
       either Marriott-branded or American Retirement Corporation-branded
       communities and all of the properties are leased to only six tenants.

Q:     Is there any minimum required investment?

A:     Yes.  Generally,  individuals  must initially  invest at least $2,500 and
       IRA,  Keogh or other  qualified  plans  must  initially  invest  at least
       $1,000. Thereafter, you may purchase additional shares in $10 increments.
       However, these minimum investment levels may vary from state to state, so
       you should  carefully  read the more detailed  description of the minimum
       investment  requirements  appearing later in the "Suitability  Standards"
       section of this Prospectus.

Q:     After I subscribe for shares, can I change my mind and withdraw my money?

A:     Once  you  have   subscribed   for  shares  and  we  have  deposited  the
       subscription  price with  SouthTrust,  your  subscription is irrevocable,
       unless the Company elects to permit you to revoke your subscription.

Q:     If I buy shares in the offering, how can I sell them?

A:     At the time you purchase  shares,  they will not be listed for trading on
       any national securities exchange or over-the-counter  market. In fact, we
       expect  that there will not be any public  market for the shares when you
       purchase  them,  and we  cannot be sure if one will  ever  develop.  As a
       result, you may find that if you wish to sell your shares, you may not be
       able to do so  promptly  or at a  price  equal  to or  greater  than  the
       offering price.



       We  anticipate  listing the shares on a national  securities  exchange or
       over-the-counter  market  within  six years  after  commencement  of this
       offering,  if market  conditions are  favorable.  Listing does not assure
       liquidity.  If we have not listed  the  shares on a  national  securities
       exchange or over-the-counter market by December 31, 2008, we plan to sell
       the  properties  and  other  assets  and  return  the  proceeds  from the
       liquidation to our stockholders through distributions.

       Beginning one year after you purchase  your shares from the Company,  you
       may ask us to redeem at least 25% of the shares you own.  The  redemption
       procedures are described in the  "Redemption  of Shares"  section of this
       Prospectus.  As a  result,  if a  public  market  for  the  shares  never
       develops,  you may be able to redeem your shares  through the  redemption
       plan beginning one year from the date on which you purchased your shares,
       provided we have sufficient funds available. If we have not listed and we
       liquidate our assets,  you will receive  proceeds through the liquidation
       process.


       If we list the  shares,  we  expect  that  you will be able to sell  your
       shares in the same manner as other listed stocks.

Q:     What will you do with the proceeds from this offering?


A:     We plan to use 85% of the proceeds to purchase  additional  properties
       and to make mortgage loans, 8% to pay fees and expenses to affiliates for
       their services and as reimbursement  of offering and  acquisition-related
       expenses,  and the  remaining  proceeds  to pay  other  expenses  of this
       offering.  The  payment  of these  fees  will not  reduce  your  invested
       capital.  Your initial invested capital amount will be $10 per share. For
       a  discussion  of the  determination  of the  offering  price,  see  "The
       Offering -- Determination of Offering Price" section of the Prospectus.


       Until we invest the proceeds in real estate  assets,  we will invest them
       in short-term,  highly liquid investments.  These short-term  investments
       will not earn as high a return as we  expect  to earn on our real  estate
       investments,  and we cannot predict how long it will be before we will be
       able to fully invest the proceeds in real estate.

       Assuming 150,000,000 shares are sold in this offering, we expect to have
       an additional $1.275 billion of net offering proceeds available for
       investment in properties and mortgage loans and in excess of $2.7 billion
       in total assets.

Q:     What types of properties will you invest in?

A:     We intend to purchase primarily  assisted living  facilities,  medical
       office  buildings  and walk-in  clinics.  In  addition,  we may  purchase
       congregate living facilities, skilled nursing facilities, continuing care
       retirement  communities,  life  care  communities  and  similar  types of
       healthcare related facilities.

Q:     What are the terms of your leases?


A:     The  leases we have  entered  into to date,  and the  leases we expect to
       enter into in the  future,  are  long-term  (meaning  generally  10 to 20
       years,   plus  renewal  options  for  an  additional  10  to  20  years),
       "triple-net" leases. "Triple-net" means that the tenant, not the Company,
       is  generally  responsible  for  repairs,  maintenance,  property  taxes,
       utilities,  and  insurance.  Under our  leases,  the  tenant  must pay us
       minimum base rent on a monthly basis. In addition,  our leases  generally
       will provide for automatic  fixed increases in the base rent or increases
       in the  base  rent  based on  increases  in  consumer  price  indices  at
       predetermined intervals during the term of the lease.

Q:     What investments have you made so far?

A:     As of February 28, 2003, we have  purchased,  directly or indirectly,  38
       retirement  properties,  all  of  which  are,  or,  with  respect  to one
       construction  property,  will  be,  leased  to  tenants  on a  long-term,
       triple-net  basis.  These properties are located in 17 states and include
       brands such as Brighton Gardens(R) by Marriott(R), Homewood Residence and
       Marriott(R) MapleRidge(R).

Q:     What is the experience of the Company's officers and directors?

A:     Our management team has extensive previous  experience  investing in real
       estate on a triple-net  basis. In addition,  our Chief Operating  Officer
       has extensive previous experience investing in retirement properties. Our
       directors are listed below:

       o James M. Seneff,  Jr. -- Founder,  Chairman and Chief Executive Officer
       of CNL  Holdings,  Inc. and its  subsidiaries  with more than 25 years of
       real estate experience. CNL and the entities it has established have more
       than $5.3  billion in assets,  representing  interests  in  approximately
       1,850 properties and approximately 1,000 mortgage loans in 49 states.


       o Robert A. Bourne-- President and Treasurer of CNL Financial Group, Inc.
       with  over 20  years  of  real  estate  experience  involving  net  lease
       financing.

       o David W. Dunbar -- Founder,  Chairman  and Chief  Executive  Officer of
       Peoples Florida Banking Corporation,  with over 15 years of experience in
       the health care industry.

       o James W. Duncan, Jr.-- Former co-Chairman and President of PersonaCare,
       Inc., a company that  provided  sub-acute,  skilled  nursing and assisted
       living care with 12 facilities in six states.

       o Dr. Edward A. Moses -- Bank of America  professor of finance and former
       dean of the Roy E. Crummer Graduate School of Business at Rollins College
       with over 25 years academic and business consulting experience.

Q:     How will you choose which investments to make?

A:     We have hired CNL  Retirement  Corp. as our advisor.  The advisor has the
       authority,  subject to the approval of our directors,  to make all of the
       Company's investment decisions.

Q:     Is the advisor independent of the Company?

A:     No. Some of our  directors  and all of our  officers  are  directors  and
       officers of the  advisor.  The  conflicts of interest the Company and the
       advisor  face are  discussed  under the heading  "Conflicts  of Interest"
       later in this Prospectus.


Q:     What  are the fees  that the  Company  will  pay to the  advisor  and its
       affiliates in connection with this offering?

A:     We will pay the  advisor,  CNL  Securities  Corp.  (which is the managing
       dealer  for  this   offering)   and  other   affiliates  of  the  advisor
       compensation  for  services  they  will  perform  for us.  We  will  also
       reimburse them for expenses they pay on our behalf. The Company estimates
       that  85% of the  gross  proceeds  from  this  offering  will  be used to
       purchase  properties  and  make  other  investments  and of the  balance,
       approximately  8% of the  gross  proceeds  will be used to pay  fees  and
       expenses to affiliates and 7% will be used to pay selling  commissions to
       broker  dealers in connection  with this  offering.  During the operating
       stage,  the advisor will also receive a monthly asset  management  fee of
       one-twelfth  of 0.60% of an amount equal to the total amount  invested in
       properties  and mortgage loans as of the end of the preceding  month.  In
       connection  with  the  sale  of  properties,  we  will  pay  the  advisor
       subordinated fees after stockholders have received distributions equal to
       their invested capital plus an 8% return on such capital.  A subordinated
       real estate disposition fee will equal no more than 3% of the gross sales
       price of the properties. The advisor will also receive a subordinated 10%
       share of the net sales  proceeds from the sale of properties or different
       subordinated  fees if the Company  chooses to list its  securities  under
       certain  circumstances  or the contract  with the advisor is  terminated.
       Please see the "Management Compensation" section of this Prospectus for a
       detailed discussion of compensation.


Q:     If I buy shares, will I receive distributions and, if so, how often?

A:     Historically,  we have paid cash  distributions  every  quarter since our
       operations commenced.

       We  intend  to  continue  to make  quarterly  cash  distributions  to our
       stockholders.   The  Board  of   Directors   determines   the  amount  of
       distributions.   The   amount   typically   depends   on  the  amount  of
       distributable  funds,  current  and  projected  cash  requirements,   tax
       considerations and other factors.  However,  in order to remain qualified
       as a REIT, we must make  distributions  equal to at least 90% of our REIT
       taxable income each year.

Q:     Are distributions I receive taxable?

A:     Yes.  Generally,  distributions  that  you  receive  will  be  considered
       ordinary  income to the  extent  they are from  current  and  accumulated
       earnings and profits. In addition,  because  depreciation expense reduces
       taxable  income but does not reduce cash available for  distribution,  we
       expect a  portion  of your  distributions  will be  considered  return of
       capital  for tax  purposes.  These  amounts  will not be  subject  to tax
       immediately  but will  instead  reduce the tax basis of your  investment.
       This in effect defers a portion of your tax until your investment is sold
       or the Company is liquidated,  at which time the gain will, generally, be
       taxable  as  capital  gains.   However,   because  each   investor's  tax
       implications are different, we suggest you consult with your tax advisor.

Q:     When will I get my tax information?

A:     Your Form 1099 tax information will be mailed by January 31 of each year.

Q:     Do you have a reinvestment plan where I can reinvest my distributions in
       additional shares?

A:     Yes. We have  adopted a  reinvestment  plan in which some  investors  can
       reinvest their distributions in additional shares. For information on how
       to  participate  in our  reinvestment  plan,  see  the  section  of  this
       Prospectus entitled "Summary of Reinvestment Plan."


                       Who Can Help Answer Your Questions?
       If you have more questions about the offering or if you would like
                additional copies of this Prospectus, you should
                   contact your registered representative or:

                              CNL Sales Department
                              Post Office Box 4920
                           Orlando, Florida 32802-4920
                                 (800) 522-3863
                                 (407) 650-1000




                               PROSPECTUS SUMMARY

         This summary highlights selected  information from this Prospectus.  It
is not  complete  and may not  contain  all of the  information  that you should
consider before investing in our common stock. To understand the offering fully,
you should  read this  entire  Prospectus  carefully,  including  the  documents
attached as appendices.


                         CNL RETIREMENT PROPERTIES, INC.


         CNL Retirement  Properties,  Inc.,  which we sometimes  refer to as the
"Company," is a Maryland corporation which is qualified and operated for federal
income tax purposes as a real estate investment trust, or a REIT. On December 2,
1999,  the  Company  formed CNL  Retirement  Partners,  LP, a  Delaware  limited
partnership.  CNL  Retirement GP Corp.  and CNL  Retirement LP Corp.  are wholly
owned  subsidiaries  of the Company  and are the  general  and limited  partner,
respectively,  of CNL Retirement Partners,  LP. Properties acquired are expected
to be held by CNL Retirement  Partners,  LP or wholly owned  subsidiaries of CNL
Retirement  Partners,  LP and, as a result,  owned by the Company  through  such
entities.  Four  corporations,  which  are  wholly  owned  subsidiaries  of  CNL
Retirement Properties, Inc., have been formed to serve as the general partner of
various  other wholly owned  subsidiaries  which have been or will be formed for
the purpose of acquiring  future  properties.  The term  "Company"  includes CNL
Retirement  Properties,  Inc., CNL Retirement GP Corp., CNL Retirement LP Corp.,
CNL Retirement Partners, LP, and each of their subsidiaries.  Our address is CNL
Center at City Commons, 450 South Orange Avenue, Orlando, Florida 32801, and our
telephone number is (407) 650-1000 or toll free (800) 522-3863.


OUR BUSINESS

         Our Company acquires  properties located across the United States which
it leases to tenants on a  long-term,  "triple-net"  basis.  This means that the
tenant generally will be responsible for repairs,  maintenance,  property taxes,
utilities and insurance.  The properties may include congregate living, assisted
living and skilled nursing  facilities,  continuing care retirement  communities
and life care  communities,  medical office buildings and walk-in  clinics,  and
similar  types of  healthcare  related  facilities.  We expect to structure  the
leases to provide for payment of base annual rent with periodic  increases  over
the terms of the leases. We may also offer mortgage financing,  and, to a lesser
extent,  furniture,  fixtures and equipment  financing through secured equipment
leases as loans or  direct  financing  leases,  to  operators.  You can read the
section of this Prospectus under the caption "Business" for a description of the
properties we currently  own, our pending  investments,  the types of properties
that  may be  selected  by our  advisor,  CNL  Retirement  Corp.,  the  property
selection and  acquisition  processes  and the nature of the mortgage  loans and
secured equipment leases.


         We have and will continue to borrow money to acquire  properties,  make
mortgage  loans,  enter into secured  equipment  leases and pay certain fees and
intend to encumber properties in connection with the borrowing. We have obtained
a line of credit  and  anticipate  obtaining  additional  lines of  credit.  The
Company  anticipates that the aggregate amount of any lines of credit will be up
to $125,000,000;  however, the Board of Directors may increase the amount we can
borrow  under  lines of credit.  We may repay the line of credit  with  offering
proceeds,  proceeds  from the  sale of  assets,  working  capital  or  permanent
financing.  The  Company has also  obtained  permanent  financing.  The Board of
Directors  anticipates that we will obtain  additional  permanent  financing and
that the  aggregate  amount of that  financing  will not exceed 40% of our total
assets. The line of credit and permanent financing are the only sources of funds
for making secured equipment leases.


         Under our Articles of  Incorporation,  the Company  will  automatically
terminate  and dissolve on December 31, 2008,  unless the shares of common stock
of the Company, including the shares offered by this Prospectus, are listed on a
national securities exchange or over-the-counter market before that date. If the
shares are listed,  the  Company  automatically  will  become a  perpetual  life
entity.  If we are not listed by  December  31,  2008,  we will sell our assets,
distribute  the net sales proceeds to  stockholders  and limit our activities to
those  related to the Company's  orderly  liquidation,  unless the  stockholders
owning a majority of the shares elect to amend the Articles of  Incorporation to
extend the duration of the Company.

RISK FACTORS

         An  investment  in our  Company  is subject to  significant  risks.  We
summarize  some of the more  important  risks below. A more detailed list of the
risk factors is found in the "Risk  Factors"  section,  which begins on page 12.
You should  read and  understand  all of the risk  factors  before  making  your
decision to invest.


o        As of February 28, 2003, we owned, directly or indirectly, 38
         properties, and had commitments to acquire 14 additional properties, so
         you will not have the opportunity to evaluate all the properties that
         will be in our portfolio.


o        We rely on the advisor, which, subject to approval by the Board of
         Directors, has responsibility for the management of our Company and our
         investments.

o        The advisor and its affiliates are or will be engaged in other
         activities that will result in potential conflicts of interest with the
         services that the advisor and affiliates will provide to us. Those
         officers could take actions that are more favorable to other entities
         than to us. The resolution of conflicts in favor of other entities
         could have a negative impact on our financial performance.

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

o        We may make investments that will not appreciate in value over time,
         such as building only properties, with the land owned by a third-party,
         and mortgage loans.

o        If you must sell your shares, you will not be able to sell them quickly
         because it is not anticipated that there will be a public market for
         the shares in the near term, and there can be no assurance that listing
         will occur.

o        In the future, if we do not obtain additional permanent financing, we
         may not be able to acquire as many properties or make as many mortgage
         loans or secured equipment leases as we anticipated, which could limit
         the diversification of our investments and our ability to achieve our
         investment objectives.

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


o        As of date of this Prospectus, we are subject to risks due to lack of
         diversification because the majority of the Company's properties are
         either Marriott-branded or American Retirement Corporation-branded
         communities and all of the properties are leased to only six tenants,
         some of whom are thinly capitalized.


o        We cannot predict the amount of revenues we will receive from tenants
         and borrowers.

o        We may, without the approval of a majority of the independent
         directors, incur debt totalling up to 300% of the value of our net
         assets, as defined in the glossary, including debt to make
         distributions to stockholders in order to maintain our status as a
         REIT. We cannot assure you that we will be able to meet our debt
         service obligations, including interest costs which may be substantial.

o        In connection with any borrowing, we may mortgage or pledge our assets,
         which would put us at risk of losing the assets if we are unable to pay
         our debts.

o        If our tenants or borrowers default, we will have less income with
         which to make distributions.

o        The vote of stockholders owning at least a majority but less than all
         of the shares of common stock will bind all of the stockholders as to
         matters such as the amendment of the Company's governing documents. A
         majority of the stockholders present at a meeting at which a quorum is
         present may bind all of the stockholders as to the election of
         directors.

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

o        We may not remain qualified as a REIT for federal income tax purposes,
         which would subject us to federal income tax on our taxable income at
         regular corporate rates, and reduce the amount of funds available for
         paying distributions to you as a stockholder.

o        We expect to pay substantial fees to affiliates and estimate that 8% of
         the proceeds from the sale of shares will be paid in fees and expenses
         to affiliates for services and as reimbursement for offering- and
         acquisition-related expenses incurred on our behalf. The amount of
         proceeds that will be available to purchase properties and to make
         mortgage loans will be decreased as a result of such payments.

OUR REIT STATUS

         We made an election to be taxed as a REIT  beginning  our taxable  year
ending  December 31, 1999.  As a REIT,  we generally  are not subject to federal
income tax on income that we distribute to our stockholders.  Under the Internal
Revenue Code of 1986, as amended,  REITs are subject to numerous  organizational
and operational  requirements,  including a requirement  that they distribute at
least 90% of their taxable income,  as figured on an annual basis. If we fail to
qualify for taxation as a REIT in any year,  our income will be taxed at regular
corporate  rates,  and we may not be able to qualify for treatment as a REIT for
that year and the next four  years.  Even if we  qualify  as a REIT for  federal
income tax purposes, we may be subject to some federal, state and local taxes on
some of our income and  property  and to federal  income and excise taxes on our
undistributed income.

OUR MANAGEMENT AND CONFLICTS OF INTEREST

         We  have   retained   the  advisor  to  provide  us  with   management,
acquisition,  advisory and administrative  services. The members of our Board of
Directors  oversee the management of the Company.  The majority of the directors
are  independent  of the  advisor  and have  responsibility  for  reviewing  its
performance. The directors are elected annually to the Board of Directors by the
stockholders.

         All of the  executive  officers  and  directors of the advisor also are
officers or  directors of the Company.  The advisor has  responsibility  for (i)
selecting the properties  that we will acquire,  formulating  and evaluating the
terms of each proposed  acquisition,  and arranging for the  acquisition  of the
property by the Company;  (ii) identifying  potential tenants for the properties
and potential borrowers for the mortgage loans, and formulating,  evaluating and
negotiating the terms of each lease of a property and each mortgage loan;  (iii)
locating and  identifying  potential  lessees and  formulating,  evaluating  and
negotiating the terms of each secured  equipment lease; and (iv) negotiating the
terms  of any  borrowing  by the  Company,  including  lines of  credit  and any
long-term,  permanent  financing.  All of the advisor's  actions relating to the
Company are subject to approval by the Board of Directors.  The advisor also has
the  authority,  subject to approval  by a majority  of the Board of  Directors,
including a majority of the independent directors,  to select assets for sale by
the Company in keeping with the Company's investment  objectives and based on an
analysis of  economic  conditions  both  nationally  and in the  vicinity of the
assets being considered for sale.

         You can  read  the  sections  of this  Prospectus  under  the  captions
"Management"  and "The Advisor and The Advisory  Agreement" for a description of
the business background of the individuals responsible for the management of the
Company  and the  advisor,  as well as for a  description  of the  services  the
advisor will provide.

         Some of our officers and directors,  who are also officers or directors
of the advisor,  may experience conflicts of interest in their management of the
Company. These arise principally from their involvement in other activities that
may conflict with our business and interests,  including  matters related to (i)
allocation of new investments  and management  time and services  between us and
various other  entities,  (ii) the timing and terms of the investment in or sale
of an asset, (iii) development of our properties by affiliates, (iv) investments
with  affiliates  of the advisor,  (v)  compensation  to the  advisor,  (vi) our
relationship  with  the  managing  dealer,  CNL  Securities  Corp.,  which is an
affiliate of the Company and the advisor, and (vii) the fact that our securities
and tax  counsel  also  serves as  securities  and tax  counsel  for some of our
affiliates, and that neither the Company nor the stockholders will have separate
counsel.  The "Conflicts of Interest"  section of this  Prospectus  discusses in
more detail the more  significant of these potential  conflicts of interest,  as
well as the procedures  that have been  established to resolve a number of these
potential conflicts.

OUR AFFILIATES


         The "Prior Performance Information" section of this Prospectus contains
a narrative  discussion of the public and private real estate programs sponsored
by our affiliates and affiliates of the advisor in the past, including 18 public
limited  partnerships  and two unlisted  public REITs.  As of December 31, 2002,
these  entities,  which  invest in  properties  that are leased  primarily  on a
"triple-net" basis or leased to taxable REIT subsidiaries,  but do not invest in
retirement  properties,  had purchased,  directly or  indirectly,  approximately
1,900 fast-food,  family-style,  and casual-dining  restaurant properties and 56
hotel  properties.  Based on an analysis of the operating results of the 90 real
estate  limited  partnerships  and  two  unlisted  public  REITs  in  which  our
principals  have served,  individually  or with others, as general partners or
officers and directors, we believe that each of these  entities  has met,  or is
in the  process of  meeting, its  principal investment  objectives.  Statistical
data  relating  to  certain  of the public limited partnerships and the unlisted
REITs are contained in Appendix B -- PriorPerformance Tables.


OUR INVESTMENT OBJECTIVES

         Our Company's primary investment objectives are to preserve, protect,
and enhance our assets, while:

         o     making distributions.

         o     obtaining fixed income through the receipt of base rent and
               payments on mortgage loans and secured equipment leases, and
               increasing our income (and distributions) and providing
               protection against inflation through automatic increases in base
               rent or increases in the base rent based on increases in consumer
               price indices over the terms of the leases.

         o     remaining qualified as a REIT for federal income tax purposes.

         o     providing you with liquidity for your investment within six years
               after commencement of this offering, either through (i) listing
               our shares on a national securities exchange or over-the-counter
               market or (ii) if listing does not occur within six years after
               commencement of the offering, selling our assets and distributing
               the proceeds.

         You can  read  the  sections  of this  Prospectus  under  the  captions
"Business -- General," "Business -- Investment of Offering Proceeds,"  "Business
-- Site Selection and  Acquisition of  Properties,"  "Business -- Description of
Property  Leases" and  "Investment  Objectives and Policies" for a more complete
description of the manner in which the structure of our business facilitates our
ability to meet our investment objectives.

MANAGEMENT COMPENSATION

         We will pay the advisor,  CNL Securities  Corp.  (which is the managing
dealer for this offering),  and other affiliates of the advisor compensation for
services they will perform for us. We will also reimburse them for expenses they
pay on our behalf. The following paragraphs summarize the more significant items
of compensation and reimbursement.  See "Management Compensation" for a complete
description.

         Offering Stage.


                Selling  Commissions,  Marketing  Support Fee and Due  Diligence
Expense  Reimbursements.  The  Company  will  pay the  managing  dealer  selling
commissions of 7.5% (a maximum of $112,500,000  if 150,000,000  shares are sold)
and a marketing  support  fee of 0.5% (a maximum of  $7,500,000  if  150,000,000
shares are sold). The managing dealer in turn may pass along selling commissions
of up to 7% on shares sold by other soliciting dealers,  and all or a portion of
the marketing support fee it receives to soliciting dealers who agree to provide
the managing dealer with certain marketing assistance and who are not affiliates
of the Company. The Company will also reimburse bona fide due diligence expenses
of the soliciting  dealers that are not affiliates of the Company,  in an amount
equal to 0.125% on shares sold by them (up to $1,875,000 if  150,000,000  shares
are sold).


         Acquisition Stage.

                Acquisition  Fees.  The Company will pay the advisor a fee equal
to 4.5% of the total  proceeds of this  offering,  loan proceeds from  permanent
financing and amounts  outstanding on the line of credit, if any, at the time of
listing  ($67,500,000  if  150,000,000  shares are sold and up to an  additional
$22,500,000 if permanent  financing  equals  $500,000,000)  for  identifying the
properties,  structuring  the  terms  of  the  acquisition  and  leases  of  the
properties  and  structuring  the terms of the mortgage  loans.  Amounts used to
finance secured equipment leases will not be used to calculate acquisition fees.

         Operational Stage.

                Asset Management Fee. The Company will pay the advisor a monthly
asset  management  fee of  one-twelfth  of 0.60% of an amount equal to the total
amount invested in the properties (exclusive of acquisition fees and acquisition
expenses) plus the total outstanding principal amounts of the mortgage loans, as
of the end of the  preceding  month,  for managing the  properties  and mortgage
loans.

                Secured  Equipment Lease Servicing Fee. The Company will pay the
advisor a one-time  secured  equipment lease servicing fee of 2% of the purchase
price of the  equipment  that is the  subject of a secured  equipment  lease for
negotiating secured equipment leases and supervising the secured equipment lease
program.

         Operational or Liquidation Stage.

         We will not pay the following fees until we have paid  distributions to
stockholders equal to the sum of an aggregate, annual, cumulative, noncompounded
8% return on their  invested  capital plus 100% of the  stockholders'  aggregate
invested capital,  which is what we mean when we call a fee  "subordinated."  In
general,  we calculate the  stockholders'  invested  capital by multiplying  the
number of  shares  owned by  stockholders  by the  offering  price per share and
reducing  the  product  by  the  portion  of all  prior  distributions  paid  to
stockholders  from  the  sale of our  assets  and by any  amounts  paid by us to
repurchase shares under the redemption plan.

                Deferred,  Subordinated Real Estate Disposition Fee. The Company
may pay the  advisor  a real  estate  disposition  fee  equal to the  lesser  of
one-half of a competitive real estate  commission or 3% of the gross sales price
of the property for providing  substantial  services in connection with the sale
of any of its properties.  You can read the section of this Prospectus under the
caption "The Advisor and the Advisory  Agreement -- The Advisory  Agreement"  if
you want more information about real estate  disposition fees that we may pay to
the advisor.

                Deferred, Subordinated Share of Net Sales Proceeds from the Sale
of Assets. The Company will pay to the advisor a deferred, subordinated share of
net sales  proceeds from the sale of assets of the Company in an amount equal to
10% of net sales proceeds.


                The  Company's  obligation  to pay some fees may be  subject  to
conditions and  restrictions  or may change in some  instances.  The Company may
reimburse the advisor and its  affiliates for  out-of-pocket  expenses that they
incur on behalf of the  Company,  subject to  certain  expense  limitations.  In
addition,  the Company may pay the advisor  and its  affiliates  a  subordinated
incentive fee if listing of the Company's common stock on a national  securities
exchange  or  over-the-counter  market  other  than the Pink  Sheets and the OTC
Bulletin Board occurs.





THE OFFERING

Offering Size............................   o    Maximum-- $1,750,000,000
                                            o    $1,500,000,000 of common stock to be offered to investors meeting
                                                 certain suitability standards and up to $250,000,000 of common stock
                                                 available to investors who purchased their shares in this offering or
                                                 one of the prior offerings and who choose to participate in our
                                                 reinvestment plan.  The sale of approximately 137,000,000 of the
                                                 175,000,000 shares is subject to approval by the stockholders of a
                                                 proposal to increase the number of authorized shares of the Company.
                                                 You can read the section of the Prospectus under the caption "Summary
                                                 of the Articles of Incorporation and Bylaws-- Description of Capital
                                                 Stock" for a description of authorized shares.  Until such time, if
                                                 any, as the stockholders approve an increase in the number of
                                                 authorized shares, this offering will be limited to approximately
                                                 38,000,000 shares, up to 3,800,000 of which will be available to
                                                 stockholders purchasing pursuant to the reinvestment plan.

Minimum Investments......................   o    Individuals-- $2,500-- Additional shares may be purchased in ten
                                                 dollar increments.
                                            o    IRA, Keogh and other qualified
                                                 plans -- $1,000 -- Additional
                                                 shares may be purchased in ten
                                                 dollar increments.


                                                 (Note:  The amounts apply to most potential investors, but
                                                 minimum investments may vary from state to state.  Please see
                                                 "The Offering" section, which begins on page 149).

Suitability Standards....................   o    Net worth (not including home, furnishings and personal
                                                 automobiles) of at least $45,000 and annual gross income of at
                                                 least $45,000; or
                                            o    Net worth (not including home,
                                                 furnishings and personal
                                                 automobiles) of at least
                                                 $150,000.

                                                 (Note:  Suitability standards may vary from state to state.
                                                 Please see the "Suitability Standards and How to Subscribe"
                                                 section, which begins on page 25).

Duration and Listing.....................   Anticipated to be within six years from the commencement of this
                                            offering, if market conditions are favorable.  If the shares are
                                            listed on a national securities exchange or over-the-counter market,
                                            our Company will become a perpetual life entity, and we will then
                                            reinvest proceeds from the sale of assets.


Distribution Policy......................   Consistent with our objective of qualifying as a REIT, we expect to
                                            continue to pay quarterly distributions and distribute at least 90%
                                            of our REIT taxable income.

Our Advisor..............................   CNL Retirement Corp. will administer the day-to-day operations of our
                                            Company and select our Company's real estate investments, mortgage
                                            loans and secured equipment leases, subject to the approval of our
                                            directors.

Estimated Use of Proceeds................   o    85%-- To acquire properties and make mortgage loans
                                            o    8%-- To pay fees and expenses to affiliates for their services
                                                 and as reimbursement of offering and acquisition-related expenses

                                            o    7%-- To pay selling commissions to soliciting dealers in
                                                 connection with the offering


Our Reinvestment Plan....................   We have adopted a reinvestment plan which will allow some
                                            stockholders to have the full amount of their distributions
                                            reinvested in additional shares that may be available.  We have
                                            registered 25,000,000 shares of our common stock for this purpose.
                                            See the "Summary of Reinvestment Plan" and the "Federal Income Tax
                                            Considerations-- Taxation of Stockholders" sections and the Form of
                                            Reinvestment Plan accompanying this Prospectus as Appendix A for more
                                            specific information about the reinvestment plan.



                                  RISK FACTORS

         An investment in our shares involves significant risks and therefore is
suitable only for persons who understand those risks and their  consequences and
who are able to bear the risk of loss of their  investment.  You should consider
the following risks in addition to other information set forth elsewhere in this
Prospectus before making your investment decision.

         We also  caution  you that  this  Prospectus  contains  forward-looking
statements.  Such  statements  can be identified  by the use of  forward-looking
terminology  such  as  "may,"  "will,"   "expect,"   "anticipate,"   "estimate,"
"continue" or other  similar  words.  Although we believe that our  expectations
reflected in the forward-looking statements are based on reasonable assumptions,
these  expectations  may not prove to be correct.  Important  factors that could
cause our actual results to differ materially from the expectations reflected in
these  forward-looking  statements  include  those set forth  below,  as well as
general economic,  business and market conditions,  changes in federal and local
laws and regulations and increased competitive pressures.

OFFERING-RELATED RISKS

         This is an unspecified property offering.


                You cannot evaluate  properties that we have not yet acquired or
identified for acquisition.  We have established certain criteria for evaluating
particular  properties  and the tenants and operators of the properties in which
we  may  invest.   We  have  not  set  fixed  minimum   standards   relating  to
creditworthiness of tenants and therefore the Board of Directors has flexibility
in assessing  potential  tenants.  As of February 28,  2003,  we have  acquired,
directly  or  indirectly,  38  retirement  properties,  and  have  entered  into
commitments  to acquire 14  additional  properties.  The  acquisition  of the 14
properties is subject to the fulfillment of certain  conditions and there can be
no  assurance  that  any or all of the  conditions  will  be  satisfied  or,  if
satisfied, that one or more of these properties will be acquired by the Company.
You can read the  sections of this  Prospectus  under the  captions  "Business--
Property Acquisitions" and "Business-- Pending Investments" for a description of
these properties.  Accordingly, this is an unspecified property offering, and as
a prospective investor,  you have no information to assist you in evaluating the
merits of any additional properties to be purchased or developed by the Company.
In  addition,  the Board of Directors  may approve  future  equity  offerings or
obtain additional financing, the proceeds of which may be invested in additional
properties;  therefore,  you will not have an opportunity to evaluate all of the
properties  that will be in our  portfolio.  You can read the  sections  of this
Prospectus under the captions "Business--  General,"  "Business--  Investment of
Offering  Proceeds," and "Business--  Standards for Investment in Properties" if
you want more  information  about the  types of  properties  in which we plan to
invest and our criteria for evaluating properties.


                We cannot assure you that we will obtain  suitable  investments.
We cannot be sure that we will be successful in obtaining  suitable  investments
on financially attractive terms or that, if we make investments,  our objectives
will be achieved. If we are unable to find suitable  investments,  our financial
condition and ability to pay distributions could be adversely affected.

                The managing  dealer has not made an  independent  review of the
Company or the  Prospectus.  The managing  dealer,  CNL Securities  Corp., is an
affiliate of the Company and will not make an independent  review of the Company
or the  offering.  Accordingly,  you do not have the  benefit of an  independent
review of the terms of this offering.

                There  is  no  limitation  on  the  number  of  properties  of a
particular  facility type which we may acquire.  There is no limit on the number
of properties of a particular facility type which we may acquire, and we are not
obligated to invest in more than one type of facility.  The Board of  Directors,
however,  including a majority  of the  independent  directors,  will review our
properties and potential  investments  in terms of geographic,  facility type or
tenant and operator diversification.

                You  will  have  no  opportunity  to  evaluate   procedures  for
resolving conflicts of interest. The advisor or its affiliates from time to time
may acquire  properties on a temporary  basis with the intention of subsequently
transferring  the  properties to one or more programs  sponsored by CNL. We have
adopted  guidelines  to  minimize  such  conflicts  which you can  review in the
section of this  Prospectus  captioned  "Conflicts of Interest--  Competition to
Acquire  Properties  and  Invest  in  Mortgage  Loans."  You  will  not have the
opportunity  to evaluate  the manner in which these  conflicts  of interest  are
resolved.

                You cannot evaluate  secured  equipment  leases in which we have
not yet  entered  or that we have not yet  identified.  We have not yet made any
arrangements to enter into a secured  equipment lease.  Therefore,  you will not
have any  information  with which to evaluate any individual  secured  equipment
lease or the secured  equipment  lease program in general.  We cannot assure you
that we will be successful in choosing suitable operators who will fulfill their
obligations  under secured equipment leases or that we will be able to negotiate
secured equipment leases on favorable terms.

         There may be delays in investing the proceeds of this offering.  We may
delay  investing  the proceeds of this offering for up to the later of two years
from the  commencement  of this  offering or one year after  termination  of the
offering;  although, we expect to invest substantially all net offering proceeds
by the end of that period. The "Prior Performance  Information" section provides
a summary description of the investment  experience of affiliates of the advisor
in prior CNL programs,  but you should be aware that previous  experience is not
necessarily  indicative  of the rate at which the proceeds of this offering will
be invested.


         We may delay  investing the proceeds from this offering,  and therefore
delay the receipt of any returns from such investments,  due to the inability of
the advisor to find suitable properties or mortgage loans for investment.  Until
we invest in  properties  or make  mortgage  loans,  our  investment  returns on
offering  proceeds  will  be  limited  to  the  rates  of  return  available  on
short-term,  highly  liquid  investments  that  provide  appropriate  safety  of
principal.  We expect  these  rates of return,  which  affect the amount of cash
available  to make  distributions  to  stockholders,  to be lower  than we would
receive for property investments or mortgage loans.  Further, if we are required
to invest any funds in properties  and mortgage loans and we have not done so or
reserved those funds for Company purposes within the later of two years from the
initial  date of this  Prospectus,  or one year  after the  termination  of this
offering,  we will distribute the remaining  funds,  including  accrued interest
which  has not been  previously  distributed,  pro rata to the  persons  who are
stockholders of the Company at that time.


         The sale of shares by stockholders could be difficult.  Currently there
is no public  market for the  shares,  so  stockholders  may not be able to sell
their  shares  promptly  at a desired  price.  Therefore,  you  should  consider
purchasing the shares as a long-term  investment only. We do not know if we will
ever  apply  to  list  our  shares  on  a  national   securities   exchange   or
over-the-counter  market, or, if we do apply for listing,  when such application
would be made or whether it would be  accepted.  If our  shares are  listed,  we
cannot  assure you a public  trading  market  will  develop.  In any event,  the
Articles of Incorporation  provide that we will not apply for listing before the
completion or termination of this offering.  We cannot assure you that the price
you  would   receive  in  a  sale  on  a   national   securities   exchange   or
over-the-counter  market would be  representative  of the value of the assets we
own or that it would equal or exceed the amount you paid for the shares.

COMPANY-RELATED RISKS

         We have limited operating  history.  As of the date of this Prospectus,
we have acquired,  directly or indirectly, 38 retirement properties and prior to
July 13, 1999, the date our operations  commenced,  had no previous  performance
history.  As a result,  you  cannot be sure how the  Company  will be  operated,
whether it will pursue the  objectives  described in this  Prospectus  or how it
will perform financially.

         Our management has limited  experience  with  investments in retirement
properties.  None of the prior programs organized by our affiliates has invested
in  retirement  properties.  While  certain of our  directors  and officers have
experience in investing in retirement properties,  the lack of experience of the
majority  of  our  management  team  and  the  advisor  and  its  affiliates  in
purchasing,  leasing and selling retirement  properties may adversely affect our
results of operations.

         We are  dependent on the advisor.  The advisor,  subject to approval by
the Board of Directors,  is responsible for our daily management,  including all
acquisitions,  dispositions and financings.  The Board of Directors may fire the
advisor,  with or without cause,  but only subject to payment and release of the
advisor from all guarantees and other obligations incurred as advisor, which are
referenced  in the  "Management  Compensation"  section of this  Prospectus.  We
cannot be sure that the advisor will achieve our objectives or that the Board of
Directors  will be able to act quickly to remove the advisor if it deems removal
necessary.  As a result, it is possible that we would be managed for some period
by a company that was not acting in our best interests or not capable of helping
us achieve our objectives.

         We will be subject to conflicts of interest.

         We  will  be  subject  to  conflicts  of  interest  arising  out of our
relationships  with the  advisor  and its  affiliates,  including  the  material
conflicts  discussed  below.  The  "Conflicts  of Interest"  section  provides a
further  discussion of the conflicts of interest  between us and the advisor and
its  affiliates  and our  policies  to reduce  or  eliminate  certain  potential
conflicts.

                We will experience  competition  for properties.  The advisor or
its  affiliates  from time to time may acquire  properties on a temporary  basis
with the  intention  of  subsequently  transferring  the  properties  to us. The
selection of properties to be transferred by the advisor to us may be subject to
conflicts of  interest.  We cannot be sure that the advisor will act in our best
interests when deciding  whether to allocate any particular  property to us. You
will not have the opportunity to evaluate the manner in which these conflicts of
interest are resolved before making your investment.

                There will be competing  demands on our officers and  directors.
Our  directors  and  some of our  officers,  and the  directors  and some of the
officers of the advisor have management  responsibilities  for other  companies,
including  companies  that may in the future invest in some of the same types of
assets in which we may invest.  For this reason,  these  officers and  directors
will share their management time and services among those companies and us, will
not devote all of their  attention  to us and could take  actions  that are more
favorable to the other companies than to us.

                The timing of sales and acquisitions may favor the advisor.  The
advisor  may  immediately  realize  substantial  commissions,   fees  and  other
compensation  as a result of any  investment  in or sale of an asset by us.  Our
Board of Directors  must approve any  investments  and sales,  but the advisor's
recommendation  to the Board may be influenced by the impact of the  transaction
on the advisor's  compensation.  The agreements  between us and the advisor were
not the result of arm's-length  negotiations.  As a result,  the advisor may not
always act in the Company's best  interests,  which could  adversely  affect our
results of operations.

                Our properties may be developed by affiliates.  Properties  that
we acquire may require  development prior to use by a tenant. Our affiliates may
serve as developer and if so, the affiliates  would receive the  development fee
that  would  otherwise  be paid  to an  unaffiliated  developer.  The  Board  of
Directors,  including  the  independent  directors,  must  approve  employing an
affiliate of ours to serve as a  developer.  There is a risk,  however,  that we
would acquire  properties  that require  development so that an affiliate  would
receive the development fee.

                We may invest with  affiliates of the advisor.  We may invest in
joint ventures with another program  sponsored by the advisor or its affiliates.
The Board of Directors,  including the independent  directors,  must approve the
transaction,   but  the  advisor's   recommendation   may  be  affected  by  its
relationship  with one or more of the co-venturers and may be more beneficial to
the other programs than to us.

                There is no separate counsel for the Company, our affiliates and
investors.  We may have  interests  that  conflict  with  yours and those of our
affiliates, but none of us has the benefit of separate counsel.

REAL ESTATE AND OTHER INVESTMENT RISKS


         Possible  lack of  diversification  increases  the risk of  investment.
There is no limit on the number of properties of a particular brand which we may
acquire.  The  Board of  Directors,  including  a  majority  of the  independent
directors,  will review the Company's  properties  and potential  investments in
terms of geographic and brand diversification. The Company's 36 properties owned
as of December  31,  2002,  excluding  one parcel of land on which a  retirement
facility is  expected to be  constructed,  are leased to six  tenants,  three of
which contributed approximately 42%, 22%, and 21% of total rental income for the
year ended December 31, 2002. In addition, as of February 28, 2003, the majority
of the Company's properties were either  Marriott-branded or American Retirement
Corporation-branded  properties. Because of this concentration,  there is a risk
that any adverse developments affecting the tenants, or Marriott  International,
Inc. or American  Retirement  Corporation could materially  adversely affect our
revenues (thereby  affecting our ability to make distributions to stockholders).
On December 30, 2002,  Marriott  International,  Inc.  entered into a definitive
agreement with Sunrise Assisted Living,  Inc. to purchase all of the outstanding
stock of Marriott Senior Living Services,  Inc. For more information relating to
this  proposed  transaction,  see  "Business --  Retirement  Community  Brands."
Although the  Company's  38  properties  are located in 17 states,  13.2% of the
properties  are  located in Florida  and 10.5% are  located  in  California.  In
addition, nine of the 14 pending acquisitions are expected to be leased to three
of the existing  tenants,  and four of the  properties are located in California
and three are located in Colorado.  The majority of the Company's Properties are
either assisted living  facilities or assisted living  facilities with units for
residents  with  Alzheimer's  and related  memory  disorders.  Depending  on the
purchase price of each property,  we may not be able to achieve  diversification
by  tenant,  facility  type or  geographic  location.  Lack  of  diversification
increases the potential adverse effect on us of a single underperforming tenant,
an underperforming facility type or a depressed geographic region.

         Inability   to   continue   to   satisfy   debt   obligations   by  the
tenant/operator  of six of our  properties  may adversely  affect our results of
operations.  As of December 31, 2002, American Retirement Corporation,  which we
refer to as  "ARC,"  was the  parent  company  of the  tenants  to six of our 37
properties.  ARC also operates the properties and is obligated to fund shortfall
reserves relating to the properties.  According to its December 31, 2001 audited
financial statements, ARC had significant debt obligations that matured in 2002,
as well as a net working  capital  deficit as a result of such  maturities,  and
significant  lease  obligations.  At December 31, 2001,  ARC's cash balances and
internally  developed  cash were not  sufficient to satisfy its  scheduled  debt
maturities  in 2002.  Since the latter  part of 2001,  ARC had been  executing a
refinancing plan that included the consummation of  sale-leaseback  transactions
and various other refinancing and capital-raising transactions to repay debt and
fund  related  reserve and escrow  requirements.  On  September  30,  2002,  ARC
announced that it had  successfully  completed the  refinancing of all debt that
was due in 2002 and  2003.  According  to  ARC's  Form  10-K for the year  ended
December 31, 2002,  ARC reported that although they had  successfully  completed
their refinancing  plan, they remain highly leveraged with a substantial  amount
of debt and lease obligations,  and they had increased interest and lease costs.
As a part of the refinancings, ARC has replaced a significant amount of mortgage
debt with debt having higher  interest  rates or higher lease costs,  increasing
ARC's estimated annual debt and lease payments from prior periods. If ARC is not
able to meet its  future  debt  obligations  and/or its  ability to operate  the
properties  became  impaired,  we would need to obtain a new tenant and operator
for the  properties  and our results of  operations  could be affected if we are
unable to do so within a brief time period. In addition, if these properties are
unable to  generate  sufficient  cash flow to make lease  payments  and ARC or a
replacement  tenant is unable to fund lease payments,  the Company's  results of
operations would also be affected. As we acquire additional properties that will
be leased to different  tenants,  the effect on our results of operations caused
by any failure by ARC to continue to meet its obligations should diminish. As of
February  19,  2003,  ARC  had met all of its  obligations  relating  to the six
properties.


         We may rely on credit  enhancements  to our  leases  for  minimum  rent
payments. Our leases may have credit enhancement provisions,  such as guarantees
or shortfall reserves provided by a third-party tenant or operator. These credit
enhancement  provisions may terminate at either a specific time during the lease
term or once net operating  income of the property  exceeds a specified  amount.
These  provisions  may also have  limits  on the  overall  amount of the  credit
enhancement. After the termination of a credit enhancement, or in the event that
the maximum limit of a credit  enhancement  is reached,  we may only look to the
tenant to make  lease  payments.  In the  event  that a credit  enhancement  has
expired or the maximum limit has been  reached,  or in the event that a provider
of a credit  enhancement  is  unable to meet its  obligations,  our  results  of
operations could be adversely  affected if our properties are unable to generate
sufficient  funds from  operations to meet minimum rent payments and the tenants
do not otherwise have the resources to make the rent payments.


         We do not have control over market and business conditions.  Changes in
general  or local  economic  or market  conditions,  increased  costs of energy,
increased costs of insurance,  increased costs of products,  increased costs and
shortages of labor, competitive factors, fuel shortages,  quality of management,
the  ability  of an  operator  or tenant to  fulfill  its  obligations,  limited
alternative uses for the building,  changing  consumer  habits,  condemnation or
uninsured  losses,  changing  demographics,   changing  government  regulations,
inability to remodel  outmoded  buildings as required by the  franchise or lease
agreement,  voluntary  termination by a tenant of its obligations under a lease,
bankruptcy  of a tenant or borrower,  and other  factors  beyond our control may
reduce the value of properties that we currently own or those that we acquire in
the future,  the ability of tenants to pay rent on a timely basis, the amount of
the rent and the ability of borrowers to make mortgage loan payments on time. If
tenants  are  unable to make  lease  payments  or  borrowers  are unable to make
mortgage loan payments as a result of any of these  factors,  cash  available to
make distributions to our stockholders may be reduced.


         Adverse  trends in the health care and  seniors'  housing  industry may
impact our properties.  The success of our properties will depend largely on the
property  operators'  ability to adapt to dominant trends in the health care and
seniors' housing industry,  including greater competitive  pressures,  increased
consolidation,  industry overbuilding, increased regulation and reform, changing
demographics,   availability  of  labor,   price  levels  and  general  economic
conditions. The "Business -- General" section includes a description of the size
and nature of the health care and seniors'  housing  industry and current trends
in this industry. If operators of our properties are unable to adapt to dominant
trends in the health care and seniors'  housing  industry,  our income and funds
available for distribution could be adversely impacted.

         Retirement Facilities.

                Some of our tenants and borrowers must attract  senior  citizens
with ability to pay. Some of the  properties  which we intend to own or finance,
in particular,  assisted living and  independent  living  facilities,  depend on
their  ability  to  attract  senior  citizens  with the  ability  to pay for the
services  they  receive.  While a portion of the fees  payable by  residents  of
retirement  facilities may be reimbursed by government and private payors,  many
are  substantially  dependent on the ability of the residents and their families
to pay directly. In addition, some payors, such as Medicare, limit the number of
days for which payment will be made in some  settings,  such as skilled  nursing
facilities, and all payors limit the types of services for which payment will be
made  and/or the amount paid for each  particular  service.  Inflation  or other
circumstances  could  affect the ability of residents to continue to pay for the
services  they  receive.  Although  we do not  anticipate  that  base  lease and
mortgage  loan  payments  will be  linked to the fees or rates  received  by the
operators,  certain leases and mortgage loans may provide that we will receive a
percentage  of the  fees or rates  charged  by the  operator  to  residents.  If
residents  of  retirement  facilities  are  unable  to  pay  fees  owed  to  the
facilities' operators, the tenants could be adversely affected and may be unable
to make base lease and loan payments.  This could have a material adverse impact
on the amount of lease and loan payments we receive in excess of base amounts.

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

         Because this area of the law currently is subject to intense  scrutiny,
additional  laws and  regulations  may be enacted or adopted that could  require
changes in the design of the properties  and certain  operations of our tenants,
Operators and borrowers. For example, a tenant's or Operator's loss of licensure
or Medicare/Medicaid  certification could result in our having to obtain another
tenant or Operator for the affected property.  In addition, a tenant or Operator
may be required to make  significant  modifications  to the property and may not
have the financial ability to do so. We cannot assure you that we could contract
with another  tenant or Operator on a timely basis or on acceptable  terms.  Our
failure to do so could  have an adverse  effect on our  financial  condition  or
results of operations.

                Our  properties  may not be readily  adaptable to other uses. We
anticipate  that some of the  properties  in which we will invest may be special
purpose properties that could not be readily converted into general residential,
retail or office use. Transfers of operations of retirement facilities often are
subject to  regulatory  approvals  not required for  transfers of other types of
commercial  operations  and  other  types  of  real  estate.  Therefore,  if the
operation  of any of our  properties  becomes  unprofitable  for its  tenant  or
operator due to competition,  age of improvements or other factors such that the
tenant becomes unable to meet its obligations  under the lease,  the liquidation
value of the  property may be  substantially  less than would be the case if the
property  were  readily  adaptable  to other uses.  The  receipt of  liquidation
proceeds could be delayed by the approval  process of any state agency necessary
for the transfer of the property.  Should any of these events occur,  our income
and funds available for distribution could be reduced.

                Our tenants and borrowers may rely on government  reimbursement.
Our  tenants  and  borrowers,   particularly  those  operating  skilled  nursing
facilities,   may  derive  a   significant   portion  of  their   revenues  from
governmentally funded programs,  such as Medicaid and Medicare.  Although, we do
not anticipate that lease and mortgage loan payments will be linked to the level
of  government  reimbursement  received  by the  operators,  to the extent  that
changes in government  funding  programs  adversely  affect the operators or the
revenues  received by those  operators,  such changes could adversely affect the
ability of the  tenants to make lease and loan  payments to us and/or the amount
of such payments if and to the extent they are based on gross revenues.  Failure
of the  tenants and  borrowers  to make their  lease and loan  payments,  and/or
reductions in such payments,  would have a direct and material adverse effect on
our operations.

         Medicaid,  which is a medical  assistance  program for persons with few
assets and minimal  income  operated  by  individual  states with the  financial
participation  of the  federal  government,  provides  a  significant  source of
revenue  for  skilled  nursing  facilities.  The method of  reimbursement  under
Medicaid  varies from state to state,  but is typically based on per diem or per
diagnosis  rates.  The Medicaid  program is subject to change and is affected by
state  and  federal  budget  shortfalls  and  funding   restrictions  which  may
materially decrease rates of payment or delay payment. We cannot assure you that
Medicaid payments will remain constant or be sufficient to cover costs allocable
to Medicaid  patients.  While Medicare,  the federal health program for the aged
and some  chronically  disabled  individuals,  is not  anticipated to be a major
source of revenue for the types of  retirement  facilities in which we expect to
invest or make mortgage  loans,  we have reserved the right to invest in or make
mortgage loans to other types of retirement  facilities  that are  substantially
dependent on Medicare funding.  Like the Medicaid program,  the Medicare program
is highly  regulated and subject to frequent and  substantial  changes,  many of
which may  result in  reduced  levels of payment  for a  substantial  portion of
health care  services.  In addition to pressures  from  providers of  government
reimbursement,  we may experience  pressures  from private payors  attempting to
control health care costs, and reimbursement  from private payors eventually may
decrease to levels approaching those of government payors.

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

                Certificate of Need laws may impose investment  barriers for us.
Some states regulate the supply of some types of retirement facilities,  such as
skilled nursing  facilities,  through Certificate of Need laws. A Certificate of
Need  typically  is a  written  statement  issued by a state  regulatory  agency
evidencing  a  community's  need for a new,  converted,  expanded  or  otherwise
significantly  modified  retirement  facility  or  service  which  is  regulated
pursuant to the state's  statutes.  These  restrictions  may create  barriers to
entry  or  expansion  and may  limit  the  availability  of  properties  for our
acquisition  or  development.  In addition,  we may invest in  properties  which
cannot be replaced if they become obsolete  unless such  replacement is approved
or exempt under a Certificate of Need law.

                Privacy,  administrative  simplification  and other  health care
provider  laws.  The health care  industry  has come under  pressure to maintain
confidentiality  of patients medical records and to simplify the  administrative
paperwork by following standard transaction and transmission requirements.

         Under the Health Insurance  Portability and  Accountability Act (HIPAA)
of 1996,  the U.S.  Department of Health and Human  Service (HHS)  published the
Standards for Privacy of  Individually  Identifiable  Information  Final Rule in
December  2000.  Some of our tenants may be  categorized as heath care providers
and/or  operators of  facilities  and will need to comply with those rules on or
before April 14,  2003.  In addition,  beginning  October 16, 2002,  health care
providers who submit  electronic claims to Medicare must comply with HHS's rules
promulgated under HIPAA's  administrative  simplification  provisions  governing
standard transaction and transmission regulations. In addition, this law permits
states to enact more stringent  requirements that protect the privacy of medical
records.  We cannot predict or assess whether there may be broader laws or rules
enacted or what final costs and requirements will be imposed upon our tenants.


         We will not control the management of our properties.  Our tenants will
be responsible for maintenance and other day-to-day management of the properties
either  directly or by  entering  into  operating  agreements  with  third-party
operators.  Because  our  revenues  will  largely be  derived  from  rents,  our
financial  condition will be dependent on the ability of third-party  tenants or
operators  that we do not control to operate  the  properties  successfully.  We
intend to enter into leasing  agreements  only with tenants  having  substantial
prior  experience in the operation of  retirement  facilities or medical  office
buildings and walk-in clinics or who contract with third-party  operators having
the same  qualifications.  While our previous  property  acquisitions and the 14
properties identified as probable acquisitions as of February 28, 2003 meet that
criterion,  there  can be no  assurance  that we  will  be  able  to  make  such
arrangements on other transactions.  If our tenants or third-party operators are
unable to operate the properties successfully, they may not be able to pay their
rent, which could adversely affect our financial condition.


         We  may  not  control  the  joint  ventures  in  which  we  enter.  Our
independent  directors  must  approve all joint  venture or general  partnership
arrangements  in which we enter.  Subject to that approval,  we may enter into a
joint venture with an unaffiliated  party to purchase a property,  and the joint
venture or  general  partnership  agreement  relating  to that joint  venture or
partnership  may  provide  that we will  share  management  control of the joint
venture with the  unaffiliated  party. In the event the joint venture or general
partnership  agreement provides that we will have sole management control of the
joint  venture,  the agreement may be ineffective as to a third party who has no
notice of the  agreement,  and we therefore  may be unable to control  fully the
activities of the joint  venture.  If we enter into a joint venture with another
program  sponsored by an affiliate,  we do not anticipate that we will have sole
management control of the joint venture.

         Joint  venture  partners  may have  different  interests  than we have.
Investments in joint  ventures  involve the risk that our  co-venturer  may have
economic or  business  interests  or goals  which,  at a  particular  time,  are
inconsistent  with our  interests  or goals,  that the  co-venturer  may be in a
position to take  action  contrary to our  instructions,  requests,  policies or
objectives, or that the co-venturer may experience financial difficulties. Among
other things, actions by a co-venturer might subject property owned by the joint
venture to liabilities in excess of those contemplated by the terms of the joint
venture  agreement  or to other  adverse  consequences.  If we do not have  full
control over a joint venture,  the value of our  investment  will be affected to
some extent by a third party that may have different goals and capabilities than
ours. As a result,  joint  ownership of  investments  may  adversely  affect our
returns on the investments and,  therefore,  cash available for distributions to
our stockholders may be reduced.

         It may be difficult for us to exit a joint venture after an impasse. In
our joint  ventures,  there  will be a  potential  risk of impasse in some joint
venture  decisions since our approval and the approval of each  co-venturer will
be required for some decisions. In any joint venture with an affiliated program,
however,  we may have the right to buy the other  co-venturer's  interest  or to
sell our own  interest  on  specified  terms and  conditions  in the event of an
impasse  regarding  a sale.  In the event of an  impasse,  it is  possible  that
neither  party  will  have the funds  necessary  to  complete  the  buy-out.  In
addition,  we may experience  difficulty in locating a third-party purchaser for
our joint  venture  interest  and in  obtaining a  favorable  sale price for the
interest.  As a  result,  it is  possible  that we may  not be able to exit  the
relationship if an impasse develops. You can read the section of this Prospectus
under the caption  "Business  -- Joint  Venture  Arrangements"  if you want more
information  about the terms that our joint venture  arrangements  are likely to
include.

         We may not have control over properties under  construction.  We intend
to acquire sites on which a property that we will own will be built,  as well as
sites  which  have  existing  properties  (including  properties  which  require
renovation).  If we acquire a property for development or renovation,  we may be
subject  to  risks  in  connection   with  a  developer's   ability  to  control
construction costs and the timing of completion of construction or a developer's
ability to build in conformity with plans,  specifications  and timetables.  Our
agreements with a developer will provide  safeguards  designed to minimize these
risks.  In the event of a default by a  developer,  we  generally  will have the
right to require the tenant to purchase the property  that is under  development
at a  pre-established  price  designed to reimburse us for all  acquisition  and
development  costs.  We  cannot be sure,  however,  that the  tenants  will have
sufficient funds to fulfill their obligations  under these  agreements.  You can
read  the  section  of this  Prospectus  under  the  caption  "Business  -- Site
Selection and  Acquisition  of Properties"  if you want more  information  about
property development and renovation.

         We will have no economic  interest in ground  lease  properties.  If we
invest in ground lease properties, we will not own, or have a leasehold interest
in, the underlying land,  unless we enter into an assignment or other agreement.
Therefore,  with  respect to ground lease  properties,  the Company will have no
economic  interest in the land or building at the expiration of the lease on the
underlying land;  although,  we generally will retain partial  ownership of, and
will have the right to remove any equipment that we may own in the building.  As
a result,  though we will share in the income stream derived from the lease,  we
will not share in any increase in value of the land  associated  with any ground
lease property.

         Multiple  property leases or mortgage loans with individual  tenants or
borrowers   increase  our  risks.  The  value  of  our  properties  will  depend
principally upon the value of the leases of the properties.  Minor defaults by a
tenant or  borrower  may  continue  for some time before the advisor or Board of
Directors determines that it is in our interest to evict the tenant or foreclose
on the property of the borrower.  Tenants may lease more than one property,  and
borrowers may enter into more than one mortgage loan. As a result,  a default by
or the  financial  failure  of a tenant or  borrower  could  cause more than one
property to become vacant or more than one loan to become  nonperforming in some
circumstances.  Vacancies  would reduce our cash receipts and could decrease the
properties' resale value until we are able to re-lease the affected properties.

         It may be difficult to re-lease our properties. If a tenant vacates a
property, we may be unable either to re-lease the property for the rent due
under the prior lease or to re-lease the property without incurring additional
expenditures relating to the property. In addition, we could experience delays
in enforcing our rights against, and collecting rents (and, in some cases, real
estate taxes and insurance costs) due from, a defaulting tenant. Any delay we
experience in re-leasing a property or difficulty in re-leasing at acceptable
rates may reduce cash available to make distributions to our stockholders.

         We cannot control the sale of some  properties.  We expect to give some
tenants the right, but not the obligation,  to purchase their properties from us
beginning  a specified  number of years after the date of the lease.  The leases
also  generally  will  provide the tenant  with a right of first  refusal on any
proposed sale  provisions.  These policies may lessen the ability of the advisor
and the Board of  Directors  to freely  control  the sale of the  property.  See
"Business -- Description of Property Leases -- Right of Tenant to Purchase."


         The  liquidation  of our assets may be  delayed.  If our shares are not
listed on a national securities exchange or over-the-counter  market by December
31,  2008,  we are  obligated  under our Articles of  Incorporation  to sell our
assets and distribute the net sales proceeds to stockholders, and we will engage
only in activities related to our orderly  liquidation,  unless our stockholders
elect  otherwise.  Neither the advisor nor the Board of Directors may be able to
control  the timing of the sale of our assets due to market  conditions,  and we
cannot  assure  you that we will be able to sell our  assets so as to return our
stockholders'   aggregate  invested  capital,  to  generate  a  profit  for  the
stockholders or to fully satisfy our debt obligations.  Because a portion of the
offering  price from the sale of shares is used by the  Company to pay  expenses
and fees and the full offering price is not invested in properties, we will only
return all of our stockholders' invested capital if we sell the properties for a
sufficient  amount in  excess of their  original  purchase  price.  If we take a
purchase money  obligation in partial  payment of the sales price of a property,
we will  realize the proceeds of the sale over a period of years.  Further,  any
intended  liquidation  of our Company may be delayed beyond the time of the sale
of all of the properties  until all mortgage loans and secured  equipment leases
expire or are sold,  because we plan to enter into mortgage  loans with terms of
10 to 20 years and secured equipment leases with terms of seven years, and those
obligations may not expire before all of the properties are sold.


         Risks of Mortgage Lending.

                Our mortgage  loans may be impacted by  unfavorable  real estate
market conditions.  If we make mortgage loans, we will be at risk of defaults on
those loans caused by many  conditions  beyond our control,  including local and
other economic conditions affecting real estate values and interest rate levels.
We do not know whether the values of the properties  securing the mortgage loans
will remain at the levels  existing on the dates of  origination of the mortgage
loans. If the values of the underlying  properties  drop, our risk will increase
and the values of our interests may decrease.

                Our   mortgage   loans  will  be  subject   to   interest   rate
fluctuations. If we invest in fixed-rate,  long-term mortgage loans and interest
rates  rise,  the  mortgage  loans will yield a return  lower than  then-current
market rates. If interest rates decrease,  we will be adversely  affected to the
extent that mortgage loans are prepaid,  because we will not be able to make new
loans at the previously higher interest rate.

                Delays in liquidating  defaulted mortgage loans could reduce our
investment  returns.  If there are defaults under our mortgage loans, we may not
be able to repossess and sell the underlying  properties quickly.  The resulting
time delay could reduce the value of our investment in the defaulted  loans.  An
action to  foreclose  on a mortgaged  property  securing a loan is  regulated by
state  statutes  and rules and is subject to many of the delays and  expenses of
other lawsuits if the defendant raises defenses or  counterclaims.  In the event
of default by a mortgagor,  these  restrictions,  among other things, may impede
our ability to foreclose on or sell the mortgaged property or to obtain proceeds
sufficient to repay all amounts due to us on the loan.

                Returns on our mortgage loans may be limited by regulations. The
mortgage  loans may also be subject to  regulation  by federal,  state and local
authorities  and  subject  to  various  laws  and  judicial  and  administrative
decisions.  We may determine not to make mortgage loans in any  jurisdiction  in
which we believe we have not complied in all material  respects with  applicable
requirements.  If we decide not to make mortgage loans in several jurisdictions,
it could reduce the amount of income we would receive.

         Risks of Secured Equipment Leasing.

                Our collateral may be inadequate to secure leases.  In the event
that a lessee defaults on a secured  equipment lease, we may not be able to sell
the  subject  equipment  at a price  that would  enable us to recover  our costs
associated  with the equipment.  If we cannot recover our costs, it could affect
our results of operations.

                Returns  on our  secured  equipment  leases  may be  limited  by
regulations.  The  secured  equipment  lease  program  may  also be  subject  to
regulation by federal,  state and local  authorities and subject to various laws
and judicial and administrative  decisions.  We may determine not to operate the
secured  equipment lease program in any jurisdiction in which we believe we have
not complied in all material respects with applicable requirements. If we decide
not to operate the secured equipment lease program in several jurisdictions,  it
could reduce the amount of income we would receive.

                The section of this  Prospectus  captioned  "Risk Factors -- Tax
Risks"  discusses  certain federal income tax risks  associated with the secured
equipment lease program.

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


         All of our properties will be acquired subject to satisfactory  Phase I
environmental  assessments,  which  generally  involve  the  inspection  of site
conditions  without  invasive  testing  such as  sampling  or  analysis of soil,
groundwater or other media or conditions; or satisfactory Phase II environmental
assessments,  which generally involve the testing of soil,  groundwater or other
media and conditions.  The Board of Directors and the advisor may determine that
we will  acquire  a  property  in  which a Phase  I or  Phase  II  environmental
assessment indicates that a problem exists and has not been resolved at the time
the property is acquired, provided that (i) the seller has (a) agreed in writing
to  indemnify  us  and/or  (b)  established  in  escrow  cash  funds  equal to a
predetermined  amount greater than the estimated costs to remediate the problem;
or (ii) the Company has negotiated other comparable arrangements,  including but
not limited to a reduction in the purchase  price.  We cannot be sure,  however,
that any  seller  will be able to pay under an  indemnity  we obtain or that the
amount in escrow will be sufficient to pay all remediation  costs.  Further,  we
cannot be sure that all  environmental  liabilities have been identified or that
no prior  owner,  operator  or current  occupant  has  created an  environmental
condition  not known to us.  Moreover,  we cannot be sure that (i) future  laws,
ordinances or regulations will not impose any material  environmental  liability
or (ii)  the  current  environmental  condition  of our  properties  will not be
affected by tenants and occupants of the properties, by the condition of land or
operations  in  the  vicinity  of  the  properties  (such  as  the  presence  of
underground  storage tanks), or by third parties unrelated to us.  Environmental
liabilities  that we may incur  could  have an adverse  effect on our  financial
condition or results of operations.


FINANCING RISKS

         We  have  obtained  long-term  financing  and  may  require  additional
financing in the future.  We have obtained  long-term  financing  with regard to
some of our  properties;  however,  we  cannot  be sure  that we will be able to
obtain future  long-term  financing on  satisfactory  terms. If we do not obtain
additional  long-term  financing in the future, we may not be able to acquire as
many properties or make as many loans and leases as we anticipated,  which could
limit the further  diversification of our investments and our ability to achieve
our investment objectives.


         Anticipated  borrowing  creates  risks.  We may borrow money to acquire
assets, to preserve our status as a REIT or for other corporate purposes. We may
mortgage  or put a lien on one or more of our  assets  in  connection  with  any
borrowing.  The Company  anticipates  that we will obtain one or more  revolving
lines of credit up to $125,000,000  to provide  financing for the acquisition of
assets,  although  the Board could  determine  to borrow a greater  amount.  The
Company  had  previously   obtained  a  revolving  line  of  credit  for  up  to
$25,000,000.  On March 17, 2003, we replaced the $25,000,000 line of credit with
a new  two-year,  $85,000,000  revolving  line of credit  that may be amended to
allow the line of credit to be increased by  $40,000,000.  We may repay the line
of credit using equity offering proceeds, including proceeds from this offering,
proceeds  from the sale of  assets,  working  capital  or  permanent  financing.
Initially,  we expect to repay any amounts  borrowed under the line of credit as
we receive additional  offering  proceeds.  If we do not receive enough offering
proceeds to repay the amounts due under the line of credit, we will need to seek
additional equity or debt financing.  We may also obtain  additional  long-term,
permanent  financing.  We may not borrow more than 300% of our net assets. As of
February  28,  2003,  the Company had  obtained  permanent  financing  totalling
approximately $45,600,000. Borrowing may be risky if the cash flow from our real
estate and other  investments is insufficient to meet our debt  obligations.  In
addition,  our lenders  may seek to impose  restrictions  on future  borrowings,
distributions  and  operating  policies.  If we  mortgage  or  pledge  assets as
collateral  and we cannot meet our debt  obligations,  the lender could take the
collateral,  and we would  lose both the asset and the  income we were  deriving
from it. We are not limited on the amount of assets we may use as  security  for
the repayment of indebtedness.  See "Business -- Borrowing" for a description of
the line of credit and  permanent  financing  the  Company  has  obtained  as of
February 28, 2003.


         We can  borrow  money to make  distributions.  We may  borrow  money as
necessary or advisable  to assure that we maintain our  qualification  as a REIT
for federal income tax purposes.  In such an event, it is possible that we could
make distributions in excess of our earnings and profits and, accordingly,  that
the  distributions  could  constitute a return of capital for federal income tax
purposes,  although such distributions would not reduce stockholders'  aggregate
invested capital.

MISCELLANEOUS RISKS

         Our  properties  may be unable to compete  successfully.  We anticipate
that we will  compete with other REITs,  real estate  partnerships,  health care
providers  and  other  investors,  including,  but not  limited  to,  banks  and
insurance companies, many of which will have greater financial resources, in the
acquisition,  leasing and  financing  of  properties.  We may also  compete with
affiliates for mortgage loans and borrowers.  Further,  non-profit  entities are
particularly  attracted to investments in retirement facilities because of their
ability to finance  acquisitions  through  the  issuance  of  tax-exempt  bonds,
providing  non-profit  entities  with a  relatively  lower  cost of  capital  as
compared to  for-profit  purchasers.  In addition,  in some  states,  retirement
facilities owned by non-profit  entities are exempt from taxes on real property.
We cannot be sure we will be able to identify  suitable  investments  or that we
will be able to consummate investments on commercially reasonable terms.

         In addition,  the health care  industry is highly  competitive,  and we
anticipate  that any property we acquire will compete with other  facilities  in
the  vicinity.  We cannot  assure you that our  tenants  will be able to compete
effectively  in any market that they enter.  Our  tenants'  inability to compete
successfully would have a negative impact on our financial condition and results
of operations.  In addition,  due to the highly competitive  environment,  it is
possible  that the  markets  in which we acquire  properties  will be subject to
over-building.

         Inflation could adversely affect our investment returns.  Inflation may
decrease the value of some of our investments.  For example,  a substantial rise
in  inflation  over the term of an  investment  in  mortgage  loans and  secured
equipment leases may reduce the actual return on those  investments,  if they do
not otherwise provide for adjustments based upon inflation. Inflation could also
reduce the value of our  investments in properties if the inflation rate is high
enough that percentage rent and automatic  increases in base rent do not keep up
with inflation.

         We may not have  adequate  insurance.  An  uninsured  loss or a loss in
excess of insured  limits could have a material  adverse impact on our operating
results and cash flows and  returns to the  stockholders  could be reduced.  The
section  entitled  "Business --  Description  of Property  Leases --  Insurance,
Taxes, Maintenance and Repairs" describes the types of insurance that the leases
of the  properties  will require the tenant to obtain.  Certain types of losses,
such  as  from  terrorist  attacks,  however,  may be  either  uninsurable,  too
difficult to obtain or too expensive to justify insuring  against.  Furthermore,
an  insurance  provider  could  elect to deny or limit  coverage  under a claim.
Should an uninsured loss or a loss in excess of insured  limits occur,  we could
lose all or a portion of the capital we have invested in a property,  as well as
the anticipated future revenue from the property. Therefore, if we, as landlord,
incur any liability which is not fully covered by insurance,  we would be liable
for the uninsured amounts,  cash available for distributions to stockholders may
be reduced and the value of our assets may decrease significantly.  In addition,
in such an event, we might  nevertheless  remain obligated for any mortgage debt
or other financial obligations related to the property.

         Possible  effect of  ERISA.  We  believe  that our  assets  will not be
deemed,  under the Employee  Retirement Income Security Act of 1974, as amended,
to be "plan assets" of any plan that invests in the shares, although we have not
requested an opinion of counsel to that effect.  If our assets were deemed to be
"plan  assets"  under  ERISA (i) it is not clear  that the  exemptions  from the
"prohibited   transaction"   rules  under  ERISA  would  be  available  for  our
transactions  and (ii)  the  prudence  standards  of  ERISA  would  apply to our
investments  (and might not be met).  ERISA  makes plan  fiduciaries  personally
responsible  for any losses  resulting  to the plan from any breach of fiduciary
duty  and the  Internal  Revenue  Code  imposes  nondeductible  excise  taxes on
prohibited transactions.  If such excise taxes were imposed on us, the amount of
funds available for us to make distributions to stockholders would be reduced.

         Our governing  documents may discourage  takeovers.  Some provisions of
our Articles of  Incorporation,  including the ownership  limitations,  transfer
restrictions  and ability to issue  preferential  preferred  stock, may have the
effect of preventing, delaying or discouraging takeovers of our Company by third
parties.  Some other provisions of the Articles of Incorporation which exempt us
from the  application of Maryland's  Business  Combinations  Statute and Control
Share  Acquisition  Statute,  may have the effect of  facilitating  (i) business
combinations between us and beneficial owners of 10% or more of the voting power
of our outstanding voting stock and (ii) the acquisition by any person of shares
entitled to exercise or direct the  exercise of 20% or more of our total  voting
power.  Because  we  will  not be  subject  to the  provisions  of the  Business
Combinations  Statute and the Control Share Acquisition  Statute, it may be more
difficult for our  stockholders to prevent or delay business  combinations  with
large stockholders or acquisitions of substantial blocks of voting power by such
stockholders  or other  persons,  should the ownership  restrictions  be waived,
modified or completely  removed.  Such business  combinations or acquisitions of
voting  power  could  cause us to fail to  qualify  as a REIT.  You can read the
sections of this Prospectus  under the captions "Risk Factors -- Tax Risks -- We
will be  subject  to  increased  taxation  if we fail to  qualify  as a REIT for
federal income tax purposes," "Risk Factors -- Tax Risks -- Ownership limits may
discourage a change in control,"  "Summary of the Articles of Incorporation  and
Bylaws --  General,"  "Summary of the  Articles of  Incorporation  and Bylaws --
Mergers,  Combinations  and  Sale  of  Assets,"  "Summary  of  the  Articles  of
Incorporation  and Bylaws -- Control  Share  Acquisitions"  and  "Summary of the
Articles of  Incorporation  and Bylaws --  Restriction of Ownership" if you want
more information about ownership  limitations and transfer  restrictions and the
effect of business  combinations  and acquisitions of large amounts of our stock
on our REIT status.

         Our  stockholders  are subject to  ownership  limits.  The  Articles of
Incorporation  generally restrict ownership of more than 9.8% of the outstanding
common stock or 9.8% of any series of outstanding preferred stock by one person.
If the ownership,  transfer,  acquisition  or change in our corporate  structure
would  jeopardize  our REIT status,  that  ownership,  transfer,  acquisition or
change in our corporate structure would be void as to the intended transferee or
owner and the intended  transferee or owner would not have or acquire any rights
to the common stock.

         Majority   stockholder   vote  may   discourage   changes  of  control.
Stockholders  may take  some  actions,  including  approving  amendments  to the
Articles  of  Incorporation  and  Bylaws,  by a vote of a majority of the shares
outstanding  and entitled to vote. If approved by the holders of the appropriate
number of shares, all actions taken would be binding on all of our stockholders.
Some of these  provisions  may  discourage or make it more difficult for another
party to acquire control of us or to effect a change in our operations.

         Investors in our Company may experience dilution.  Stockholders have no
preemptive  rights. If we (i) commence a subsequent public offering of shares or
securities  convertible into shares or (ii) otherwise issue  additional  shares,
investors  purchasing  shares in this offering who do not  participate in future
stock  issuances  will  experience  dilution in the  percentage  of their equity
investment in our Company.  This is the fourth offering being  undertaken by the
Company.  Although the Board of Directors has not yet determined whether it will
engage in future  offerings or other issuances of shares,  it may do so if it is
determined  to be in  our  best  interests.  See  "Summary  of the  Articles  of
Incorporation  and Bylaws --  Description of Capital Stock" and "The Offering --
Plan of Distribution."

         The  Board of  Directors  can take  many  actions  without  stockholder
approval.   The  Board  of  Directors  has  overall  authority  to  conduct  our
operations.  This authority includes significant  flexibility.  For example, the
Board of Directors can (i) list our stock on a national  securities  exchange or
over-the-counter market without obtaining stockholder approval; (ii) prevent the
ownership, transfer and/or accumulation of shares in order to protect our status
as a REIT or for any  other  reason  deemed to be in the best  interests  of the
stockholders;  (iii)  issue  additional  shares  without  obtaining  stockholder
approval,  which  could  dilute  your  ownership;   (iv)  change  the  advisor's
compensation,  and employ and compensate affiliates;  (v) direct our investments
toward  investments  that will not appreciate  over time,  such as building only
properties,  with the land owned by a third party,  and mortgage loans; and (vi)
establish and change minimum creditworthiness standards with respect to tenants.
Any of these actions could reduce the value of our assets without giving you, as
a stockholder, the right to vote.

         We will rely on the  advisor  and  Board of  Directors  to  manage  the
Company.  If you  invest in the  Company,  you will be relying  entirely  on the
management  ability  of the  advisor  and  on the  oversight  of  our  Board  of
Directors. You will have no right or power to take part in the management of our
Company, except through the exercise of your voting rights. Thus, you should not
purchase any of the shares offered by this Prospectus  unless you are willing to
entrust all aspects of our management to the advisor and the Board of Directors.

         Our officers and  directors  have  limited  liability.  The Articles of
Incorporation  and Bylaws  provide that an officer or  director's  liability for
monetary  damages to us,  our  stockholders  or third  parties  may be  limited.
Generally,  we are obligated under the Articles of Incorporation  and the Bylaws
to indemnify our officers and directors against certain liabilities  incurred in
connection with their services. We have executed indemnification agreements with
each officer and  director  and agreed to indemnify  the officer or director for
any such liabilities  that he or she incurs.  These  indemnification  agreements
could limit our ability and the ability of our  stockholders to effectively take
action against our directors and officers  arising from their service to us. You
can read the  section  of this  Prospectus  under the  caption  "Summary  of the
Articles  of   Incorporation   and  Bylaws  --   Limitation   of  Liability  and
Indemnification"  for more information about the indemnification of our officers
and directors.

TAX RISKS


         We will be subject  to  increased  taxation  if we fail to qualify as a
REIT for federal income tax purposes. Our management believes that we operate in
a manner  that  enables us to meet the  requirements  for  qualification  and to
remain qualified as a REIT for federal income tax purposes.  A REIT generally is
not  taxed at the  federal  corporate  level on  income  it  distributes  to its
stockholders,  as long as it  distributes  annually  at least 90% of its taxable
income to its stockholders. We have not requested, and do not plan to request, a
ruling from the Internal  Revenue  Service  that we qualify as a REIT.  We have,
however, received an opinion from our tax counsel,  Greenberg Traurig, LLP, that
we met the  requirements  for  qualification  as a REIT for each of our  taxable
years ending through  December 31, 2002 and that our  ownership,  operations and
assets will permit us to  continue  such  qualification  in  subsequent  taxable
years.


         You should be aware that  opinions  of counsel  are not  binding on the
Internal Revenue Service or on any court. Furthermore, the conclusions stated in
the opinion are conditioned on, and our continued  qualification  as a REIT will
depend on, our management meeting various  requirements,  which are discussed in
more detail under the heading "Federal Income Tax  Considerations -- Taxation of
the Company -- Requirements for Qualification as a REIT."

         If we fail to qualify as a REIT, we would be subject to federal  income
tax at regular corporate rates. In addition to these taxes, we may be subject to
the federal  alternative  minimum  tax.  Unless we are  entitled to relief under
specific statutory provisions, we could not elect to be taxed as a REIT for four
taxable years following the year during which we were  disqualified.  Therefore,
if we lose our REIT status,  the funds  available for  distribution to you, as a
stockholder, would be reduced substantially for each of the years involved.

         Our leases may be  recharacterized  as financings which would eliminate
depreciation deductions on our properties.  Our tax counsel,  Greenberg Traurig,
LLP,  is of the  opinion,  based upon  certain  assumptions,  that the leases of
properties  where we would own the underlying land would  constitute  leases for
federal  income  tax  purposes,  except  with  respect to leases  structured  as
"financing  leases" which would  constitute  financings  for federal  income tax
purposes.  However,  with  respect  to  properties  where we  would  not own the
underlying land, Greenberg Traurig, LLP may be unable to render this opinion. If
the lease of a  property  does not  constitute  a lease for  federal  income tax
purposes,  it will be  treated as a  financing  arrangement.  In the  opinion of
Greenberg  Traurig,  LLP, the income  derived from such a financing  arrangement
would  satisfy  the 75% and the 95% gross  income  tests for REIT  qualification
because  it  would  be  considered  to be  interest  on a loan  secured  by real
property.  Nevertheless,  the  recharacterization of a lease in this fashion may
have  adverse  tax  consequences  for us,  in  particular  that we would  not be
entitled to claim depreciation deductions with respect to the property (although
we should be entitled to treat part of the payments we would  receive  under the
arrangement as the repayment of principal). In such event, in some taxable years
our taxable income,  and the corresponding  obligation to distribute 90% of such
income,  would be  increased.  With respect to leases  structured  as "financing
leases," we will  report  income  received as interest  income and will not take
depreciation  deductions  related  to the real  property.  Any  increase  in our
distribution  requirements  may  limit  our  ability  to  invest  in  additional
properties and to make additional mortgage loans.

         Excessive  non-real estate asset values may jeopardize our REIT status.
In order to  qualify  as a REIT,  at least 75% of the value of our  assets  must
consist of investments in real estate, investments in other REITs, cash and cash
equivalents,  and government securities.  Our secured equipment leases would not
be considered real estate assets for federal income tax purposes. Therefore, the
value of the secured equipment leases,  together with any other property that is
not  considered  a real  estate  asset for  federal  income tax  purposes,  must
represent in the aggregate less than 25% of our total assets.

         In addition,  under federal  income tax law, we may not own  securities
in, or make secured  equipment  loans to, any one company  (other than a REIT, a
qualified  REIT  subsidiary  or a taxable REIT  subsidiary)  which  represent in
excess of 10% of the voting  securities or 10% of the value of all securities of
any one company, or which have, in the aggregate, a value in excess of 5% of our
total  assets,  and we may  not  own  securities  of one or  more  taxable  REIT
subsidiaries which have, in the aggregate, a value in excess of 20% of our total
assets.  For federal income tax purposes,  the secured equipment leases would be
considered  loans which are not secured by an  interest  in real  property.  The
value of the secured  equipment  leases entered into with any particular  tenant
under a lease or entered into with any particular borrower under a loan must not
represent  in excess of 5% of our total  assets  and,  except  with  respect  to
secured  equipment  leases  which  provide for fixed  "rent" or  payments  which
represent a percentage of the tenant's gross income and fixed timing of all such
payments as well as repayment of the financed amount ("Straight Debt"), must not
represent in excess of 10% of the value of the tenant's total  securities.  Each
of the secured equipment leases will be structured as Straight Debt.
         The  25%,  20%,  10% and 5%  tests  are  determined  at the end of each
calendar  quarter.  If we fail to meet any such test at the end of any  calendar
quarter, we will cease to qualify as a REIT.

         We may have to borrow  funds or sell  assets  to meet our  distribution
requirements.  Subject  to some  adjustments  that are  unique to REITs,  a REIT
generally  must  distribute  90% of its  taxable  income.  For  the  purpose  of
determining  taxable  income,  we may be required to accrue  interest,  rent and
other  items  treated  as  earned  for tax  purposes  but  that we have  not yet
received.  In  addition,  we may be required  not to accrue as expenses  for tax
purposes  some items  which  actually  have been paid or some of our  deductions
might be disallowed by the Internal Revenue Service.  As a result, we could have
taxable income in excess of cash available for distribution.  If this occurs, we
may have to borrow  funds or  liquidate  some of our assets in order to meet the
distribution requirement applicable to a REIT.

         Ownership limits may discourage a change in control. For the purpose of
protecting our REIT status,  our Articles of  Incorporation  generally limit the
ownership by any single stockholder of any class of our capital stock, including
common stock, to 9.8% of the outstanding shares of that class. The Articles also
prohibit  anyone from buying  shares if the purchase  would result in our losing
our REIT status. For example, we would lose our REIT status if we had fewer than
100 different  stockholders or if five or fewer  stockholders,  applying certain
broad  attribution  rules of the Internal Revenue Code, owned 50% or more of our
common stock. These  restrictions may discourage a change in control,  deter any
attractive  tender offers for our common stock or limit the  opportunity for you
or other  stockholders to receive a premium for your common stock in the event a
stockholder is making  purchases of shares of common stock in order to acquire a
block of shares.

         We may be  subject  to other tax  liabilities.  Even if we qualify as a
REIT, we may be subject to some federal, state and local taxes on our income and
property that could reduce operating cash flow.

         Changes in tax laws may  prevent us from  qualifying  as a REIT.  As we
have  previously  described,  we are  treated as a REIT for  federal  income tax
purposes. However, this treatment is based on the tax laws that are currently in
effect.  We are unable to predict any future  changes in the tax laws that would
adversely affect our status as a REIT. If there is a change in the tax laws that
prevents us from  qualifying as a REIT or that requires  REITs  generally to pay
corporate  level  income  taxes,  we may not be able to make the  same  level of
distributions to our stockholders.


                SUITABILITY STANDARDS AND HOW TO SUBSCRIBE

SUITABILITY STANDARDS

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


         California,  Iowa, Maine,  Michigan,  Missouri,  Ohio, and Pennsylvania
have established  suitability  standards different from those established by the
Company,  and Shares will be sold only to investors in those states who meet the
special suitability standards set forth below.

         CALIFORNIA AND MICHIGAN -- The investor has either (i) a net worth (not
including home, furnishings and personal automobiles) of at least $60,000 and an
annual  gross  income of at least  $60,000,  or (ii) a net worth (not  including
home, furnishings and personal automobiles) of at least $225,000.


         IOWA  --  The  investor  has  (i)  a net  worth  (not  including  home,
furnishings,  and  personal  automobiles)  of at least ten times the  investor's
investment in the Company;  and (ii) either (a) a net worth (not including home,
furnishings  and personal  automobiles)  of at least $50,000 and an annual gross
income of at least $50,000, or (b) a net worth (not including home,  furnishings
and personal automobiles) of at least $200,000.

         Maine -- The investor has either (i) a net worth (not  including  home,
furnishings  and personal  automobiles)  of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (not including home, furnishings
and personal automobiles) of at least $200,000.

         MISSOURI,  Ohio and  Pennsylvania  -- The  investor has (i) a net worth
(not including home, furnishings and personal automobiles) of at least ten times
the investor's  investment in the Company;  and (ii) either (a) a net worth (not
including home, furnishings and personal automobiles) of at least $45,000 and an
annual gross income of at least $45,000, or (b) a net worth (not including home,
furnishings and personal automobiles) of at least $150,000.

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

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

         In  purchasing  Shares,  custodians  or trustees  of  employee  pension
benefit  plans or IRAs may be subject  to the  fiduciary  duties  imposed by the
Employee  Retirement  Income Security Act of 1974 ("ERISA") or other  applicable
laws and to the  prohibited  transaction  rules  prescribed by ERISA and related
provisions of the Internal  Revenue Code of 1986,  as amended (the "Code").  See
"The Offering -- ERISA Considerations." In addition, prior to purchasing Shares,
the trustee or  custodian of an employee  pension  benefit plan or an IRA should
determine  that such an  investment  would be  permissible  under the  governing
instruments  of  such  plan or  account  and  applicable  law.  For  information
regarding   "unrelated   business  taxable  income,"  see  "Federal  Income  Tax
Considerations -- Taxation of Stockholders -- Tax-Exempt Stockholders."

         In order to ensure  adherence to the  suitability  standards  described
above,  requisite  suitability  standards  must  be  met,  as set  forth  in the
Subscription  Agreement in the form attached  hereto as Appendix C. In addition,
soliciting dealers,  broker-dealers that are members of the National Association
of  Securities  Dealers,  Inc.  or  other  entities  exempt  from  broker-dealer
registration  (collectively,  the "Soliciting Dealers"),  who are engaged by CNL
Securities Corp. (the "Managing Dealer") to sell Shares, have the responsibility
to make every  reasonable  effort to determine  that the purchase of Shares is a
suitable  and   appropriate   investment   for  an  investor.   In  making  this
determination, the Soliciting Dealers will rely on relevant information provided
by the investor,  including  information  as to the investor's  age,  investment
objectives, investment experience, income, net worth, financial situation, other
investments,   and  any  other  pertinent  information.  See  "The  Offering  --
Subscription Procedures." Executed Subscription Agreements will be maintained in
the Company's records for six years.

HOW TO SUBSCRIBE

         An investor who meets the  suitability  standards  described  above may
subscribe for Shares by completing and executing the Subscription  Agreement and
delivering  it to a  Soliciting  Dealer,  together  with a check  for  the  full
purchase price of the Shares subscribed for, payable to "SouthTrust Bank, Escrow
Agent."  See "The  Offering  --  Subscription  Procedures."  Certain  Soliciting
Dealers who have "net capital," as defined in the applicable  federal securities
regulations,  of $250,000 or more may  instruct  their  customers  to make their
checks for Shares subscribed for payable directly to the Soliciting Dealer. Care
should  be taken to  ensure  that  the  Subscription  Agreement  is  filled  out
correctly and completely. Partnerships, individual fiduciaries signing on behalf
of trusts,  estates,  and in other capacities,  and persons signing on behalf of
corporations  and  corporate  trustees  may be  required  to  obtain  additional
documents  from  Soliciting  Dealers.  Any  subscription  may be rejected by the
Company in whole or in part,  regardless  of whether  the  subscriber  meets the
minimum suitability standards.

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

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


                            ESTIMATED USE OF PROCEEDS

         The table set forth below summarizes  certain  information  relating to
the  anticipated  use  of  offering  proceeds  by  the  Company,  assuming  that
150,000,000  Shares are sold.  The Company  estimates that 85% of gross offering
proceeds  computed  at $10 per share  sold  ("Gross  Proceeds")  will be used to
purchase  properties  (the  "Properties")  and make  mortgage  loans  ("Mortgage
Loans"),  and 8% of Gross  Proceeds  will be used to pay fees  and  expenses  to
affiliates of the Company ("Affiliates") for their services and as reimbursement
for  offering   expenses   ("Offering   Expenses")  and   acquisition   expenses
("Acquisition  Expenses") incurred on behalf of the Company; the balance will be
used to pay other expenses of the offering.  While the estimated use of proceeds
set forth in the table below is believed to be reasonable,  this table should be
viewed only as an estimate of the use of proceeds that may be achieved.

                                                                                         Maximum Offering (1)
                                                                                    -------------------------------

                                                                                        Amount           Percent
                                                                                    ---------------    ------------

GROSS PROCEEDS TO THE COMPANY (2).....................................              $1,500,000,000        100.000%
Less:
    Selling Commissions to CNL Securities Corp. (2)...................                 112,500,000          7.500%
    Marketing Support Fee to CNL Securities Corp. (2).................                   7,500,000          0.500%
    Due Diligence Reimbursements to CNL
       Securities Corp.(2)............................................                   1,875,000          0.125%
    Offering Expenses (3).............................................                  28,125,000          1.875%
                                                                                    ---------------    ------------

NET PROCEEDS TO THE COMPANY...........................................               1,350,000,000         90.000%
Less:
    Acquisition Fees to the Advisor (4)...............................                  67,500,000          4.500%
    Acquisition Expenses (5)..........................................                   7,500,000          0.500%
    Initial Working Capital Reserve (6)...............................                           -              -
                                                                                    ---------------    ------------

CASH AVAILABLE FOR PURCHASE OF PROPERTIES
    AND THE MAKING OF MORTGAGE LOANS BY
    THE COMPANY (7)...................................................               $1,275,000,000         85.000%
                                                                                    ===============    ============

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

FOOTNOTES:

(1)    Excludes  25,000,000 Shares that may be sold pursuant to the Reinvestment
       Plan.


(2)    Gross  Proceeds of the offering are  calculated as if all Shares are sold
       at $10.00 per Share and do not take into account any reduction in selling
       commissions  ("Selling  Commissions").  See  "The  Offering  --  Plan  of
       Distribution" for a description of the circumstances  under which Selling
       Commissions may be reduced,  including commission discounts available for
       purchases by  registered  representatives  or  principals of the Managing
       Dealer or Soliciting Dealers,  certain directors and officers and certain
       investment  advisers.  Selling  Commissions are calculated  assuming that
       reduced  commissions  are not paid in connection with the purchase of any
       Shares. The Shares are being offered to the public through CNL Securities
       Corp.,  which will receive  Selling  Commissions  of 7.5% on all sales of
       Shares  and  will act as  Managing  Dealer.  The  Managing  Dealer  is an
       Affiliate  of  the  Advisor.  Other  broker-dealers  may  be  engaged  as
       Soliciting Dealers to sell Shares and be reallowed Selling Commissions of
       up to 7%,  with  respect  to Shares  which  they  sell.  In  addition,  a
       marketing  support fee of 0.5% with  respect to the Shares they sell will
       be reallowed to Soliciting Dealers who agree to provide certain marketing
       support  services  and  due  diligence  expense   reimbursements  may  be
       reallowed to Soliciting  Dealers as reimbursement  for bona fide expenses
       incurred in connection with due diligence activities,  with prior written
       approval  from  the  Managing  Dealer.  See  "The  Offering  --  Plan  of
       Distribution" for a more complete description of these items.


(3)    Offering Expenses include legal,  accounting,  printing,  escrow, filing,
       registration,  qualification,  and other  expenses of the offering of the
       Shares,  but exclude Selling  Commissions,  the marketing support fee and
       due diligence expense  reimbursements.  The Offering Expenses paid by the
       Company together with the 7.5% Selling Commissions, the marketing support
       fee and due diligence expense reimbursements incurred by the Company will
       not exceed 13% of the proceeds raised in connection with this offering.

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

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

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


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


                             MANAGEMENT COMPENSATION

         This section  presents the types,  recipients,  methods of computation,
and  estimated   amounts  of  all   compensation,   fees,   reimbursements   and
distributions  to be paid  directly or  indirectly by the Company to the Advisor
and its Affiliates,  exclusive of any  distributions to which the Advisor or its
Affiliates  may be entitled by reason of their  purchase and ownership of Shares
in  connection  with this  offering.  The table  excludes  estimated  amounts of
compensation  relating to any Shares  issued  under the  Company's  Reinvestment
Plan. For information  concerning  compensation and fees paid to the Advisor and
its  Affiliates,  see  "Certain  Relationships  and Related  Transactions."  For
information  concerning loan  origination and loan servicing fees, see "Business
-- Borrowing." For  information  concerning  compensation to the Directors,  see
"Management."


         A maximum of 150,000,000 Shares  ($1,500,000,000)  may be sold, subject
to approval  by the  stockholders  of an  increase  in the number of  authorized
Shares.  See "Summary of the Articles of Incorporation and Bylaws -- Description
of Capital Stock." An additional  25,000,000  Shares may be sold to stockholders
who  receive a copy of this  Prospectus  and who  purchase  Shares  through  the
Reinvestment  Plan.  Prior to the  conclusion  of this  offering,  if any of the
25,000,000  Shares  remain  after  meeting  anticipated  obligations  under  the
Reinvestment  Plan,  the Company may decide to sell a portion of these Shares in
this offering.  If the  stockholders do not approve an increase in the number of
authorized  Shares,  a  maximum  of  38,000,000  Shares  may be sold,  including
3,800,000 Shares that may be sold pursuant to the Reinvestment Plan.

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



---------------------------- ------------------------------------------------------------------- -----------------------------
          Type of                                     Method of Computation                                    Estimated
       Compensation                                                                                          Maximum Amount
       and Recipient

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

                                                          Offering Stage

----------------------------  -------------------------------------------------------------------  -----------------------------
Selling Commissions to          Selling Commissions of 7.5% per Share on all Shares sold, subject   $112,500,000 if 150,000,000
Managing Dealer and             to reduction under certain circumstances as described in "The       Shares are sold.
Soliciting Dealers              Offering-- Plan of Distribution."  Soliciting Dealers may be
                                reallowed Selling Commissions of up to 7% with respect to Shares
                                they sell.

----------------------------  -------------------------------------------------------------------  -----------------------------
Due diligence expense           Expense allowance equal to 0.125% of Gross proceeds to be used      Up to $1,875,000 if
reimbursements to               by the Managing Dealer to reimburse Soliciting Dealers for bona     150,000,000 Shares are
Managing Dealer and             fide due dilligence expenses.                                       sold.
Soliciting Dealers
----------------------------  -------------------------------------------------------------------  -----------------------------
Marketing support fee to        Marketing support fee of 0.5% of Gross Proceeds to the Managing     $7,500,000 if 150,000,000
Managing Dealer and             Dealer, which will be reallowed to Soliciting Dealers who agree     Shares are sold.
Soliciting Dealers              to provide certain marketing support services in the marketing of
                                the offering pursuant to executed agreements with the Managing
                                Dealer.

----------------------------  -------------------------------------------------------------------  -----------------------------
Reimbursement to the            Actual expenses incurred.  The Offering Expenses paid by the        Actual amount is not
Advisor and its                 Company, together with the 7.5% Selling Commissions, the            determinable at this time,
Affiliates for Offering         marketing support fee and due diligence expense reimbursements      but is estimated to be
Expenses                        incurred by the Company will not exceed 13% of the proceeds         $28,125,000 if 150,000,000
                                raised in connection with this offering.                            Shares are sold.

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

                                                        Acquisition Stage

----------------------------  -------------------------------------------------------------------  -----------------------------
Acquisition Fee to the          4.5% of Gross Proceeds, loan proceeds from permanent financing      $67,500,000 if 150,000,000
Advisor                         ("Permanent Financing") and amounts outstanding on the line of      Shares are sold plus
                                credit, if any, at the time of listing the Company's Common         $22,500,000 if Permanent
                                Common Stock on a national securities exchange or                   Financing equals
                                over-the-counter market ("Listing"), but excluding loan proceeds    $500,000,000.
                                used to finance secured equipment leases (collectively, "Total
                                Proceeds") payable to the Advisor as Acquisition Fees.

----------------------------  ------------------------------------------------------------------- -----------------------------
Other Acquisition Fees          Any fees paid to Affiliates of the Advisor in connection with the   Amount is not determinable
to Affiliates of the            financing, development, construction or renovation of a Property.   at this time.
Advisor                         Such fees are in addition to 4.5% of Total Proceeds payable to
                                the Advisor as Acquisition Fees, and payment of such fees will
                                be subject to approval by the Board of Directors, including a
                                majority of the Directors who are independent of the Advisor
                                (the "Independent Directors"), not otherwise interested in the
                                transaction.

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




----------------------------  -------------------------------------------------------------------  -----------------------------
          Type of                                     Method of Computation                                      Estimated
       Compensation                                                                                            Maximum Amount
       and Recipient

----------------------------  -------------------------------------------------------------------  -----------------------------
Reimbursement of                Reimbursement to the Advisor and its Affiliates for expenses        Acquisition Expenses, which
Acquisition Expenses to         actually incurred.                                                  are based on a number of
the Advisor and its                                                                                 factors, including the
Affiliates                      The total of all Acquisition Fees and any Acquisition Expenses      purchase price of the
                                payable to the Advisor and its Affiliates shall be reasonable and   Properties, are not
                                shall not exceed an amount equal to 6% of the Real Estate Asset     determinable at this time.
                                Value of a Property, or in the case of a Mortgage Loan, 6% of the
                                funds advanced, unless a majority of the Board of Directors,
                                including a majority of the Independent Directors not otherwise
                                interested in the transaction, approves fees in excess of this
                                limit subject to a determination that the transaction is
                                commercially competitive, fair and reasonable to the Company.
                                Acquisition Fees shall be reduced to the extent that, and if
                                necessary to limit, the total compensation paid to all persons
                                involved in the acquisition of any Property to the amount
                                customarily charged in arm's-length transactions by other persons
                                or entities rendering similar services as an ongoing public
                                activity in the same geographical location and for comparable
                                types of Properties, and to the extent that other acquisition
                                fees, finder's fees, real estate commissions, or other similar
                                fees or commissions are paid by any person in connection with the
                                transaction.  "Real Estate Asset Value" means the amount actually
                                paid or allocated to the purchase, development, construction or
                                improvement of a Property, exclusive of Acquisition Fees and
                                Acquisition Expenses.

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

                                                        Operational Stage

----------------------------  -------------------------------------------------------------------  -----------------------------
Asset Management Fee to         A monthly Asset Management Fee in an amount equal to one-twelfth    Amount is not determinable
the Advisor                     of 0.60% of the Company's Real Estate Asset Value and the           at this time.  The amount
                                outstanding principal amount of any Mortgage Loans, as of the end   of the Asset Management Fee
                                of the preceding month.  Specifically, Real Estate Asset Value      will depend upon, among
                                equals the amount invested in the Properties wholly owned by the    other things, the cost of
                                Company, determined on the basis of cost, plus, in the case of      the Properties and the
                                Properties owned by any joint venture or partnership in which the   amount invested in Mortgage
                                Company is a co-venturer or partner ("Joint Venture"), the          Loans.
                                portion of the cost of such Properties paid by the Company,
                                exclusive of Acquisition Fees and Acquisition Expenses.  The
                                Asset Management Fee, which will not exceed fees which are
                                competitive for similar services in the same geographic area,
                                may or may not be taken, in whole or in part as to any year, in
                                the sole discretion of the Advisor.  All or any portion of the
                                Asset Management Fee not taken as to any fiscal year shall be
                                deferred without interest and may be taken in such other fiscal
                                year as the Advisor shall determine.

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





----------------------------  -------------------------------------------------------------------  -----------------------------
          Type of                                     Method of Computation                                      Estimated
       Compensation                                                                                            Maximum Amount
       and Recipient

----------------------------  -------------------------------------------------------------------  -----------------------------
Reimbursement to the            Operating Expenses (which, in general, are those expenses           Amount is not determinable
Advisor and Affiliates for      relating to administration of the Company on an ongoing basis)      at this time.
operating expenses              will be reimbursed by the Company.  To the extent that Operating
                                Expenses payable or reimbursable by the Company, in any four
                                consecutive fiscal quarters (the "Expense Year"), exceed the
                                greater of 2% of Average Invested Assets or 25% of Net Income
                                (the "2%/25% Guidelines"), the Advisor shall reimburse the
                                Company within 60 days after the end of the Expense Year the
                                amount by which the total Operating Expenses paid or incurred by
                                the Company exceed the 2%/25% Guidelines. "Average Invested
                                Assets" means, for a specified period, the average of the
                                aggregate book value of the assets of the Company invested,
                                directly or indirectly, in equity interests in and loans
                                secured by real estate before reserves for depreciation or
                                bad debts or other similar non-cash reserves, computed by taking
                                the average of such values at the end of each month during such
                                period. "Net Income" means for any period, the total revenues
                                applicable to such period, less the total expenses applicable to
                                such period excluding additions to reserves for depreciation, bad
                                debts, or other similar non-cash reserves; provided, however, Net
                                Income for purposes of calculating total allowable Operating
                                Expenses shall exclude the gain from the sale of the Company's
                                assets.

----------------------------  -------------------------------------------------------------------  -----------------------------
Deferred, subordinated         A deferred, subordinated real estate disposition fee, payable upon    Amount is not determinable
real estate disposition        the Sale of one or more Properties, in an amount equal to the  (i)    at this time. The amount of
fee payable to the             lesser of one-half of a Competitive Real Estate Commission, or (ii)   this fee, if it becomes
Advisor from a Sale or         3% of the sales price of such Property or Properties.  Payment of     payable, will depend upon
Sales of a Property not        such fee shall be made only if the Advisor provides a substantial     the price at which
in liquidation of the          amount of services in connection with the Sale of a Property or       Properties are sold.
Company                        Properties and shall be subordinated to receipt by the
                               stockholders of Distributions equal to the sum of (i) their
                               aggregate Stockholders' 8% Return (as defined below) and (ii)
                               their aggregate invested capital ("Invested Capital"). In general,
                               Invested Capital is the amount of cash paid by the stockholders
                               to the Company for their Shares, reduced by certain prior
                               Distributions to the stockholders from the Sale of assets. If, at
                               the time of a Sale, payment of the disposition fee is deferred
                               because the subordination conditions have not been satisfied,
                               then the disposition fee shall be paid at such later time as the
                               subordination conditions are satisfied. Upon Listing, if the
                               Advisor has accrued but not been paid such real estate disposition
                               fee, then for purposes of determining whether the subordination
                               conditions have been satisfied, stockholders will be deemed to have
                               received a Distribution in the amount equal to the product of the
                               total number of Shares of Common Stock outstanding and the average
                               closing price of the Shares over a period, beginning 180 days after
                               Listing, of 30 days during which the Shares are traded.
                               "Stockholders' 8% Return," as of each date, means an aggregate amount
                               equal to an 8% cumulative, noncompounded, annual return on Invested
                               Capital.

--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
Subordinated incentive         At such time, if any, as Listing occurs (other than on the Pink          Amount is not determinable
fee payable to the             Sheets on the OTC Bulletin Board), the Advisor shall be paid              at this time.
Advisor at such time, if       the subordinated incentive fee ("Subordinated Incentive Fee") in an
any, as Listing occurs         amount equal to 10% of the amount by which (i) the market value of
                               the Company (as defined below) plus the total Distributions made to
                               stockholders from the Company's inception until
                               the date of Listing exceeds (ii) the sum of (A)
                               100% of Invested Capital and (B) the total
                               Distributions required to be made to the
                               stockholders in order to pay the Stockholders' 8%
                               Return from inception through the date the market
                               value is determined. For purposes of calculating
                               the Subordinated Incentive Fee, the market value
                               of the Company shall be the average closing price
                               or average of bid and asked price, as the case
                               may be, over a period of 30 days during which the
                               Shares are traded with such period beginning 180
                               days after Listing. The Subordinated Incentive
                               Fee will be reduced by the amount of any prior
                               payment to the Advisor of a deferred,
                               subordinated share of Net Sales Proceeds from
                               Sales of assets of the Company.


--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
Deferred, subordinated         A deferred, subordinated share equal to 10% of Net Sales Proceeds        Amount is not determinable
share of Net Sales             from Sales of assets of the Company payable after receipt by the         at this time.
Proceeds from Sales of         stockholders of Distributions equal to the sum of (i) the
assets of the Company not      Stockholders' 8% Return and (ii) 100% of Invested Capital.
in liquidation of the          Following Listing, no share of Net Sales Proceeds will be paid to
Company payable to the         the Advisor.
Advisor

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





--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
         Type of
       Compensation                                                                                               Estimated
      and Recipient                                   Method of Computation                                     Maximum Amount

--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
Performance Fee payable        Upon termination of the Advisory Agreement, if Listing has not           Amount is not determinable
to the Advisor                 occurred and the Advisor has met applicable performance standards,       at this time.
                               the Advisor shall be paid the Performance Fee in
                               the amount equal to 10% of the amount by which
                               (i) the appraised value of the Company's assets
                               on the date of termination of the Advisory
                               Agreement (the "Termination Date"), less any
                               indebtedness secured by such assets, plus total
                               Distributions paid to stockholders from the
                               Company's inception through the Termination Date,
                               exceeds (ii) the sum of 100% of Invested Capital
                               plus an amount equal to the Stockholders' 8%
                               Return from inception through the Termination
                               Date. The Performance Fee, to the extent payable
                               at the time of Listing, will not be payable in
                               the event the Subordinated Incentive Fee is paid.

--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
---------------------------- -- -------------------------------------------------------------------  -----------------------------
Secured Equipment Lease         A fee paid to the Advisor out of the proceeds of the revolving       Amount is not determinable
Servicing Fee to the            line of credit (the "Line of Credit") or Permanent Financing for     at this time.
Advisor                         negotiating furniture, fixtures and equipment ("Equipment") loans
                                or  direct   financing   leases  (the   "Secured
                                Equipment  Leases") and  supervising the Secured
                                Equipment  Lease  program  equal  to 2%  of  the
                                purchase price of the Equipment  subject to each
                                Secured  Equipment  Lease and paid upon entering
                                into such  lease.  No other fees will be payable
                                in connection  with the Secured  Equipment Lease
                                program.

---------------------------- -- -------------------------------------------------------------------  -----------------------------
Reimbursement to the            Repayment by the Company of actual expenses incurred.                Amount is not determinable
Advisor and Affiliates for                                                                           at this time.
Secured Equipment Lease
servicing expenses

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

                                                        Liquidation Stage

--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
Deferred, subordinated         A deferred, subordinated real estate disposition fee, payable upon       Amount is not determinable
real estate disposition        Sale of one or more Properties, in an amount equal to the lesser of      at this time. The amount of
fee payable to the             (i) one-half of a Competitive Real Estate Commission, or (ii) 3% of      this fee, if it becomes
Advisor from a Sale or         the sales price of such Property or Properties. Payment of such          payable, will depend upon
Sales in liquidation of        fee shall be made only if the Advisor provides a substantial amount      the price at which
the Company                    of services in connection with the Sale of a Property or Properties      Properties are sold.
                               and shall be subordinated to receipt by the
                               stockholders of Distributions equal to the sum of
                               (i) their aggregate Stockholders' 8% Return and
                               (ii) their aggregate Invested Capital. If, at the
                               time of a Sale, payment of the disposition fee
                               is deferred because the subordination conditions
                               have not been satisfied, then the disposition fee
                               shall be paid at such later time as the
                               subordination conditions are satisfied.

--------------------------- -- --------------------------------------------------------------------- -- ---------------------------
Deferred, subordinated         A deferred, subordinated share equal to 10% of Net Sales Proceeds        Amount is not determinable
share of Net Sales             from Sales of assets of the Company payable after receipt by the         at this time.
Proceeds from Sales of         stockholders of Distributions equal to the sum of (i) the
assets of the Company in       Stockholders' 8% Return and (ii) 100% of Invested Capital.
liquidation of the             Following Listing, no share of Net Sales Proceeds will be paid to
Company payable to the         the Advisor.
Advisor

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




                              CONFLICTS OF INTEREST

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

         The following chart indicates the relationship between the Company, the
Advisor and CNL Holdings, Inc., including its Affiliates that will provide
services to the Company.

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

Capital Markets:                                        Retail Properties:
   CNL Capital Markets, Inc. (2)                          Commercial Net Lease Realty, Inc. (9)
     CNL Investment Company
       CNL Securities Corp. (3)                         Restaurant Properties:
     CNL Institutional Advisors, Inc.                     CNL American Properties Fund, Inc. (10)

Administrative Services:                                Hospitality Properties:
   CNL Shared Services, Inc. (4)                          CNL Hospitality Properties, Inc. (6)

Real Estate Services:                                   Retirement Properties:
   CNL Real Estate Services, Inc. (5)                     CNL Retirement Properties, Inc. (11)
     CNL Hospitality Corp. (6)
       CNL Hotel Development Company                    Financial Services:
     CNL Retirement Corp. (7)                             CNL Finance, Inc.
       CNL Retirement Development Corp. (8)                  CNL Capital Corp.
     CNL Realty & Development Corp.
     CNL Asset Management, Inc.
     CNL Corporate Venture, Inc.
     CNL Plaza Venture, Inc.


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

(1)      CNL Holdings,  Inc. is the parent company of CNL Financial Group,  Inc.
         and its  Affiliates.  James M. Seneff,  Jr.,  Chairman of the Board and
         Chief  Executive  Officer of the Company,  shares  ownership and voting
         control of CNL Holdings, Inc. with Dayle L. Seneff, his wife.

(2)      CNL Capital Markets, Inc. is a wholly owned subsidiary of CNL Financial
         Group, Inc. and is the parent company of CNL Investment Company.

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

(4)      CNL Shared Services, Inc. is a wholly owned subsidiary of CNL Holdings,
         Inc.,  and  together  with  other  Affiliates  provides  administrative
         services for various CNL entities, including the Company.

(5)      CNL Real  Estate  Services,  Inc.,  a wholly  owned  subsidiary  of CNL
         Financial Group,  Inc., is the parent company of CNL Hospitality Corp.,
         CNL  Retirement  Corp.,  CNL Realty & Development  Corp.  and CNL Asset
         Management, Inc.


(6)      CNL Hospitality  Properties,  Inc. is a public, unlisted REIT. James M.
         Seneff,  Jr.  holds the  positions  of co-Chief  Executive  Officer and
         Chairman  of the Board,  and Robert A.  Bourne  holds the  position  of
         Treasurer of CNL Hospitality Properties,  Inc. CNL Hospitality Corp., a
         majority owned subsidiary of CNL Real Estate Services,  Inc.,  provides
         management and advisory  services to CNL Hospitality  Properties,  Inc.
         pursuant to an advisory agreement.


(7)      CNL  Retirement  Corp.,  a wholly owned  subsidiary  of CNL Real Estate
         Services,  Inc.,  provides  management  and  advisory  services  to the
         Company pursuant to the Advisory Agreement.

(8)      CNL Retirement  Development  Corp. is a wholly owned  subsidiary of CNL
         Retirement Corp., the Advisor to the Company.

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

(10)     CNL  American  Properties  Fund,  Inc.  is  a  public,  unlisted  REIT.
         Effective  September 1, 1999,  CNL Fund  Advisors,  Inc., CNL Financial
         Services,  Inc., CNL Financial Corp. and CNL American  Properties Fund,
         Inc.  merged,  at which time CNL American  Properties Fund, Inc. became
         self advised.  James M. Seneff,  Jr. continues to hold the positions of
         Chairman of the Board and  co-Chief  Executive  Officer,  and Robert A.
         Bourne  continues to hold the position of Vice Chairman of the Board of
         CNL American Properties Fund, Inc.

(11)     CNL Retirement  Properties,  Inc., the Company,  is a public,  unlisted
         REIT. James M. Seneff, Jr. holds the positions of Chairman of the Board
         and Chief Executive  Officer,  and Robert A. Bourne holds the positions
         of Vice Chairman of the Board and Treasurer of the Company.

PRIOR AND FUTURE PROGRAMS

         In the past,  Affiliates of the Advisor have  organized  over 100 other
real estate  investments.  In addition,  they  currently  have other real estate
holdings, and in the future expect to form, offer interests in, and manage other
real estate programs in addition to the Company, and make additional real estate
investments.  Although no Affiliate  of the Advisor  currently  owns,  operates,
leases or manages properties that would be suitable for the Company, future real
estate  programs  may  involve  Affiliates  of the  Advisor  in  the  ownership,
financing, operation, leasing, and management of properties that may be suitable
for the Company.

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

COMPETITION TO ACQUIRE PROPERTIES AND INVEST IN MORTGAGE LOANS

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

         In an effort to address these  situations and preserve the  acquisition
and investment  opportunities for the Company (and other entities with which the
Advisor  or its  Affiliates  are  affiliated),  Affiliates  of the  Advisor  may
maintain  lines of  credit  which  enable  them to  acquire  properties  or make
mortgage  loans  on an  interim  basis  and  subsequently  transfer  them to the
Company.  In the event  Affiliates  acquire such  properties,  these  properties
and/or  mortgage  loans  generally  will be  purchased  from  Affiliates  of the
Advisor,  at their cost or  carrying  value,  by one or more  existing or future
public or private programs formed by Affiliates of the Advisor. The selection of
properties  to be  transferred  by the  Advisor to the Company may be subject to
conflicts of interest.  The Company  cannot be sure that the Advisor will act in
its best interests when deciding whether to allocate any particular  property to
it.  Investors  will not have the  opportunity  to evaluate  the manner in which
these conflicts of interest are resolved before making their investment.

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

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

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

SALES OF PROPERTIES

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

DEVELOPMENT OF PROPERTIES

         A conflict could arise in connection  with the Advisor's  determination
as to whether to acquire  Properties which require  development.  Affiliates may
serve as the developer and if so, the Affiliates  would receive the  development
fee that would  otherwise  be paid to an  unaffiliated  developer.  The Board of
Directors,  including  the  independent  directors,  must  approve  employing an
Affiliate of ours to serve as a  developer.  There is a risk,  however,  that we
would acquire  Properties  that require  development so that an Affiliate  would
receive the development fee.

JOINT INVESTMENT WITH AN AFFILIATED PROGRAM

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

COMPETITION FOR MANAGEMENT TIME

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

COMPENSATION OF THE ADVISOR

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

RELATIONSHIP WITH MANAGING DEALER

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

LEGAL REPRESENTATION

         Greenberg  Traurig,  LLP, which serves as securities and tax counsel to
the  Company in this  offering,  also serves as  securities  and tax counsel for
certain of its Affiliates,  including other real estate programs,  in connection
with other matters.  Members of the firm of Greenberg Traurig, LLP may invest in
the Company,  but do not hold any substantial  interest in the Company. The firm
is,  however,  a tenant in an office  building in which the  Company  owns a 10%
interest.  Neither the Company nor the stockholders  will have separate counsel.
In the event any controversy  arises  following the termination of this offering
in which the interests of the Company appear to be in conflict with those of the
Advisor  or its  Affiliates,  other  counsel  may be  retained  for  one or both
parties.

CERTAIN CONFLICT RESOLUTION PROCEDURES

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

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

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

         3. The Company will not make loans to the Sponsor,  Advisor,  Directors
or any Affiliates thereof, except (A) mortgage loans subject to the restrictions
governing  mortgage  loans  in the  Articles  of  Incorporation  (including  the
requirement to obtain an appraisal from an independent  expert) or (B) to wholly
owned  subsidiaries  of the Company.  Any loans to the Company by the Advisor or
its  Affiliates  must be approved by a majority of the  Directors  (including  a
majority  of  the  Independent  Directors)  not  otherwise  interested  in  such
transaction  as fair,  competitive,  and  commercially  reasonable,  and no less
favorable to the Company than comparable loans between unaffiliated  parties. It
is  anticipated  that  the  Advisor  or its  Affiliates  shall  be  entitled  to
reimbursement,  at cost,  for actual  expenses  incurred  by the  Advisor or its
Affiliates on behalf of the Company or Joint  Ventures in which the Company is a
co-venturer,  subject to the 2%/25% Guidelines (2% of Average Invested Assets or
25% of Net Income)  described  under "The Advisor and the Advisory  Agreement --
The Advisory Agreement."

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

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

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

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


                          SUMMARY OF REINVESTMENT PLAN


         The Company has adopted the  Reinvestment  Plan  pursuant to which some
stockholders may elect to have the full amount of their cash  Distributions from
the Company  reinvested in additional  Shares of the Company.  Stockholders  who
elect to receive monthly  Distributions  may not participate in the Reinvestment
Plan. Each  prospective  investor who wishes to participate in the  Reinvestment
Plan should consult with such investor's  Soliciting Dealer as to the Soliciting
Dealer's  position  regarding   participation  in  the  Reinvestment  Plan.  The
following  discussion  summarizes the principal terms of the Reinvestment  Plan.
The Reinvestment Plan is attached hereto as Appendix A.

GENERAL

         An independent  agent (the  "Reinvestment  Agent"),  which currently is
Bank of New York,  will act on behalf of the  participants  in the  Reinvestment
Plan  (the  "Participants").  The  Reinvestment  Agent  at  all  times  will  be
registered or exempt from  registration as a  broker-dealer  with the Securities
and Exchange Commission (the "Commission") and each state securities commission.
At any time that the Company is engaged in an offering,  including  the offering
described  herein,   the  Reinvestment   Agent  will  invest  all  Distributions
attributable  to Shares  owned by  Participants  in Shares of the Company at the
public  offering price per Share,  which  currently is $10.00 per Share.  At any
time that the  Company is not engaged in an  offering,  and until  Listing,  the
price per Share will be determined by (i) quarterly  appraisal updates performed
by the Company  based on a review of the  existing  appraisal  and lease of each
Property, focusing on a re-examination of the capitalization rate applied to the
rental  stream  to be  derived  from  that  Property;  and (ii) a review  of the
outstanding   Mortgage  Loans  and  Secured   Equipment  Leases  focusing  on  a
determination of present value by a re-examination  of the  capitalization  rate
applied to the stream of payments due under the terms of each  Mortgage Loan and
Secured Equipment Lease. The  capitalization  rate used by the Company and, as a
result,  the price per Share paid by the Participants in the  Reinvestment  Plan
prior to Listing will be determined by the Advisor in its sole  discretion.  The
factors that the Advisor will use to determine the  capitalization  rate include
(i) its experience in selecting,  acquiring and managing  properties  similar to
the Properties;  (ii) an examination of the conditions in the market;  and (iii)
capitalization  rates  in use by  private  appraisers,  to the  extent  that the
Advisor  deems such factors  appropriate,  as well as any other factors that the
Advisor deems relevant or appropriate in making its determination. The Company's
internal  accountants will then convert the most recent quarterly  balance sheet
of the Company  from a "GAAP"  balance  sheet to a "fair market  value"  balance
sheet. Based on the "fair market value" balance sheet, the internal  accountants
will then  assume a Sale of the  Company's  assets  and the  liquidation  of the
Company in accordance  with its  constitutive  documents and  applicable law and
compute the appropriate  method of distributing the cash available after payment
of reasonable liquidation expenses, including closing costs typically associated
with the sale of assets and shared by the buyer and seller,  and the creation of
reasonable  reserves to provide for the payment of any  contingent  liabilities.
All  Shares  available  for  purchase  under the  Reinvestment  Plan  either are
registered  pursuant  to  this  Prospectus  or  will  be  registered  under  the
Securities  Act of 1933  through a separate  prospectus  relating  solely to the
Reinvestment Plan. Until this offering has terminated,  Shares will be available
for  purchase  out of the  additional  25,000,000  Shares  registered  with  the
Commission  in  connection  with this  offering.  See "The  Offering  -- Plan of
Distribution." After the offering has terminated,  Shares will be available from
any  additional  Shares which the Company elects to register with the Commission
for the Reinvestment  Plan. The Reinvestment Plan may be amended or supplemented
by an  agreement  between  the  Reinvestment  Agent and the Company at any time,
including,  but not limited to, an amendment to the  Reinvestment  Plan to add a
voluntary cash contribution feature or to substitute a new Reinvestment Agent to
act as agent for the  Participants  or to  increase  the  administrative  charge
payable to the Reinvestment  Agent, by mailing an appropriate notice at least 30
days prior to the effective date thereof to each  Participant at his or her last
address of record;  provided,  that any such  amendment  must be  approved  by a
majority  of the  Independent  Directors  of the  Company  and by any  necessary
regulatory   authorities.   Such   amendment  or  supplement   shall  be  deemed
conclusively  accepted by each Participant  except those  Participants from whom
the Company receives  written notice of termination  prior to the effective date
thereof.


         Stockholders   who  have  received  a  copy  of  this   Prospectus  and
participate  in this offering can elect to  participate  in and purchase  Shares
through  the  Reinvestment  Plan at any time and  would  not need to  receive  a
separate  prospectus  relating  solely to the  Reinvestment  Plan.  A person who
becomes a stockholder  otherwise than by  participating  in this  offering,  the
initial public offering (the "Initial  Offering"),  the 2000 offering (the "2000
Offering")  or the 2002  offering  (the "2002  Offering"),  may purchase  Shares
through  the  Reinvestment  Plan only after such  person  receives  the  current
prospectus or a separate prospectus relating solely to the Reinvestment Plan.

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

INVESTMENT OF DISTRIBUTIONS

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

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

PARTICIPANT ACCOUNTS, FEES AND ALLOCATION OF SHARES

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

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

         Subject to the provisions of the Articles of Incorporation  relating to
certain  restrictions  on and the effective  dates of transfer,  Shares acquired
pursuant  to the  Reinvestment  Plan will  entitle the  Participant  to the same
rights  and  to be  treated  in  the  same  manner  as  those  purchased  by the
Participants  in the  offering.  Accordingly,  the Company will pay the Managing
Dealer Selling Commissions of 7.5% (subject to reduction under the circumstances
provided under "The Offering -- Plan of Distribution"),  a marketing support fee
of 0.5% and due diligence expense  reimbursements  equal to 0.125%,  and, in the
event that  proceeds of the sale of Shares are used to acquire  Properties or to
invest in Mortgage Loans,  Acquisition Fees of 4.5% of the purchase price of the
Shares sold  pursuant to the  Reinvestment  Plan.  As a result,  aggregate  fees
payable to Affiliates  of the Company will total  between  8.125% and 12.625% of
the proceeds of reinvested Distributions, up to 7.625% of which may be reallowed
to Soliciting Dealers.

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

REPORTS TO PARTICIPANTS


         Within 60 days after the end of each fiscal quarter,  the  Reinvestment
Agent will mail to each  Participant  a statement of account  describing,  as to
such Participant, the Distributions reinvested during the quarter, the number of
Shares  purchased  during the  quarter,  the per Share  purchase  price for such
Shares,  the total  administrative  charge paid by the Company on behalf of each
Participant (see "Summary of Reinvestment Plan -- Participant Accounts, Fees and
Allocation of Shares" above), and the total number of Shares purchased on behalf
of the  Participant  pursuant to the  Reinvestment  Plan.  If the Company is not
engaged in an  offering  and until such time,  if any,  as Listing  occurs,  the
statement  of account  also will report the most recent fair market value of the
Shares,  determined as described  above.  See "Summary of  Reinvestment  Plan --
General" above.


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

ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION

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


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


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

FEDERAL INCOME TAX CONSIDERATIONS

         Stockholders  subject to federal  taxation who elect to  participate in
the Reinvestment Plan will incur a tax liability for Distributions  allocated to
them even though they have elected not to receive  their  Distributions  in cash
but rather to have their  Distributions  held pursuant to the Reinvestment Plan.
Specifically,  stockholders  will  be  treated  as if  they  have  received  the
Distribution  from the Company and then  applied such  Distribution  to purchase
Shares in the  Reinvestment  Plan. A stockholder  designating a Distribution for
reinvestment will be taxed on the amount of such Distribution as ordinary income
to the extent such  Distribution  is from  current or  accumulated  earnings and
profits,  unless the Company has designated all or a portion of the Distribution
as a capital  gain  dividend.  In such  case,  such  designated  portion  of the
Distribution will be taxed as long-term capital gain.

AMENDMENTS AND TERMINATION

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


                              REDEMPTION OF SHARES

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

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

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


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


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

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

         A  stockholder  may present  fewer than all of his or her Shares to the
Company for redemption, provided, however, that (i) the minimum number of Shares
which  must be  presented  for  redemption  shall be at least  25% of his or her
Shares,  and (ii) if such stockholder  retains any Shares, he or she must retain
at least  $2,500  worth of Shares based on the current  offering  price  ($1,000
worth of Shares based on the current  offering  price for an IRA,  Keogh Plan or
pension plan).

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


                                BUSINESS

GENERAL


         The Company is a Maryland  corporation  that was  organized on December
22, 1997. On December 2, 1999, the Company formed CNL Retirement Partners, LP, a
Delaware limited partnership  ("Retirement  Partners").  CNL Retirement GP Corp.
and CNL Retirement LP Corp. are wholly owned subsidiaries of the Company and are
the  general  and  limited  partner,   respectively,   of  Retirement  Partners.
Properties  acquired  are expected to be held by  Retirement  Partners or wholly
owned subsidiaries of Retirement Partners and, as a result, owned by the Company
through such entities. Four corporations, which are wholly owned subsidiaries of
the Company,  have been formed to serve as the general  partner of various other
wholly owned  subsidiaries  which have been or will be formed for the purpose of
acquiring  future  Properties.   The  term  "Company"  includes  CNL  Retirement
Properties,  Inc.,  CNL  Retirement  GP Corp.,  CNL  Retirement  LP  Corp.,  CNL
Retirement Partners, LP, and each of their subsidiaries.

         The Company was formed primarily to acquire  Properties  located across
the United States. The Properties may include congregate living, assisted living
and skilled nursing facilities,  continuing care retirement communities and life
care  communities,  medical office  buildings and walk-in  clinics,  and similar
types of  healthcare  related  facilities.  The  Properties  will be leased on a
long-term (generally,  10 to 20 years, plus renewal options for an additional 10
to 20 years for  operating  leases  or 35 years in the case of direct  financing
leases),  "triple-net"  basis to  tenants,  who in some  cases  will also be the
Operator of the Property.  "Triple-net"  means that the tenant generally will be
responsible for repairs, maintenance,  property taxes, utilities, and insurance,
in addition to the payment of rent.  The  lessees'  ability to satisfy the lease
obligations depends primarily on the Properties  operating results. In addition,
with respect to certain Properties,  various forms of credit enhancements,  such
as corporate guarantees,  secure the lessees'  obligations.  The Company selects
its Properties for investment based on a credit underwriting process designed to
identify those  Properties  that  management  believes will be able to fund such
lease  obligations.  The Properties  may consist of land and building,  the land
underlying  the building with the building owned by the tenant or a third party,
or the  building  only with the land owned by a third  party.  The  Company  may
provide  Mortgage  Loans  to  Operators  secured  by real  estate  owned  by the
Operators.  To a lesser  extent,  the Company may also offer  Secured  Equipment
Leases to Operators pursuant to which the Company will finance, through loans or
direct financing leases, the Equipment.


         The  Properties,  which  typically  will be  freestanding  and  will be
located  across the United  States,  will be leased to  tenants  and  managed by
Operators to be selected by the Advisor and approved by the Board of  Directors.
Each  Property  acquisition  and Mortgage Loan will be submitted to the Board of
Directors  for approval.  The Company has not  specified  any  percentage of Net
Offering  Proceeds to be  invested in any  particular  type of  Property.  It is
anticipated  that the Properties will be leased to tenants that are national and
regional  Operators  or to tenants  that  contract  with  selected  national and
regional Operators to manage the Properties. Properties purchased by the Company
are expected to be leased under  arrangements  generally  requiring  base annual
rent equal to a specified  percentage  of the  Company's  cost of  purchasing  a
particular  Property  with (i)  automatic  fixed  increases in base rent or (ii)
increases in the base rent based on increases in consumer  price  indices,  over
the term of the lease.  See  "Business  --  Description  of  Property  Leases --
Computation of Lease Payments," below.


         The  Operator  of  each  of the  Properties  will  be the  tenant  or a
third-party Operator with whom the tenant has contracted.  Therefore, throughout
this  Prospectus,  references to an Operator may be to a tenant that is also the
Operator or to a third-party Operator with whom the tenant has contracted.


INDUSTRY PERFORMANCE

         The Company  believes  that  demographic  trends are  significant  when
looking at the  potential  for future  growth in the health care  industry.  For
2003,  the U.S.  Census  Bureau  projects  that there will be over 35.6  million
Americans  over  the age of 65,  representing  approximately  12.6%  of the U.S.
population  or about one in eight  Americans.  Today's baby boomers  (those born
between 1946 and 1964) will begin reaching age 65 as early as 2011. According to
the U.S.  Census  Bureau,  baby  boomers age 65 and older will grow in number to
approximately 75 million by the year 2035. More than half of these seniors, 38.6
million,  will be age 75 and older.  In  addition,  the  elderly  population  is
projected to more than double  between now and the year 2050, to 82 million.  As
illustrated  below,  most of this growth is expected to occur  between  2010 and
2030 when the  number of  elderly  is  projected  to grow by an  average of 2.8%
annually.
                                           Elderly Population Estimates

                                Over 85                       Over 75                        Over 65
       Date                 Population (000)              Population (000)              Population (000)
-------------------     -------------------------     -------------------------     --------------------------

   July 1, 2000                  4,312                         16,647                        34,835
   July 1, 2005                  4,968                         17,911                        36,370
   July 1, 2010                  5,786                         18,561                        39,715
   July 1, 2015                  6,396                         19,652                        45,959
   July 1, 2020                  6,763                         22,271                        53,733
   July 1, 2025                  7,441                         27,039                        62,641
   July 1, 2030                  8,931                         32,598                        70,319
   July 1, 2035                  11,486                        38,602                        74,774
   July 1, 2040                  14,284                        43,274                        77,177
   July 1, 2045                  17,220                        45,268                        79,142
   July 1, 2050                  19,352                        45,984                        81,999

         Source:  U.S. Census Bureau


         Seniors 75 and over are projected to be one of the most rapidly growing
elderly age groups.  Between now and 2030,  this group is expected to grow 182%.
During the same period of time,  the entire  population  of the United States is
expected to grow 47%. In addition to the growth in the number of elderly people,
life expectancies are increasing.  According to the Administration on Aging 2002
Profile of Older Americans,  individuals  reaching age 65 in 2000 had an average
life expectancy of an additional 17.9 years.

                                              Life Expectancy Trends
                                               at Age 65 (in years)

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

1965               12.9           16.3                  1997*            15.6           19.2
1980               14.0           18.4                  1998**           15.7           19.2
1985               14.4           18.6                  1999**           15.7           19.3
1990               15.0           19.0                  2000**           15.8           19.3
1991               15.1           19.1                  2005**           16.1           19.4
1992               15.2           19.2                  2010**           16.3           19.5
1993               15.1           19.0                  2015**           16.5           19.7
1994               15.3           19.0                  2020**           16.7           19.9
1995               15.3           19.0                  2025**           16.9           20.1
1996*              15.8           19.1                  2030**           17.1           20.4

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

         Based on information from the Economic and Statistic  Administration of
the U.S.  Department of Commerce,  management  believes that all of these trends
suggest that as more people live to the oldest ages,  there may also be more who
face chronic,  limiting  illnesses or  conditions.  These  conditions  result in
people  becoming  dependent on others for help in performing  the  activities of
daily living.  According to the  Administration on Aging,  nearly one quarter of
all  seniors  over age 65 have  health  problems  severe  enough to limit  their
ability to perform one or more  activities  of daily  living.  The U.S.  General
Accounting Office anticipates that the number of older people needing assistance
with  activities  of daily  living will  increase to 14 million by 2020,  from 7
million in 1994.


           Percent of Persons Needing Assistance with
                Activities of Daily Living (ADLs)
           Years of Age                        Percentage
        ------------------                   --------------

              65-69                              8.1%

              70-74                              10.5%

              75-79                              16.9%

                85+                              34.9%


Source:  U.S. Census Bureau, 1996 data

         According to the Alzheimer's Association,  some of those people needing
assistance  on a daily  basis are  those  coping  with  Alzheimer's  disease.  A
progressive,  degenerative disease of the brain, Alzheimer's disease is the most
common form of dementia.  Approximately  four million  Americans  will face this
disease,  including one in ten persons over 65 and nearly half of those over 85.
Unless a cure or prevention is found, Alzheimer's disease is projected to impact
14 million seniors by 2050.

         In addition  to an aging  population,  according  to 2001 data from the
U.S.  Census  Bureau,  a significant  segment of the elderly  population has the
financial  resources to afford retirement  facilities,  with people age 55 to 64
making a mean household  income of $63,523 per year.  The mean household  income
for those age 65 and over is more than $40,000 per year. In addition,  according
to 2001 data from the U.S.  Census Bureau,  24% of those age 65 and over have an
annual  income in excess of  $50,000.  According  to  statistics  cited from Age
Power:  How the 21st  Century Will Be Ruled by the New Old, men and women now in
their  50s and  older  control  80% of all the  money  in U.S.  savings-and-loan
institutions  and  represent  $66 of every $100  invested  in the stock  market.
Individuals age 50 and over currently earn  approximately  $2 trillion in annual
income,  control  more than $7 trillion  in wealth and own 77% of the  financial
assets in America.


         America's  seniors  are also  preparing  for their  future  health care
needs.  They  currently  purchase  more than 90% of  long-term  care  insurance,
representing $800 million in premiums,  a figure growing 23% each year. American
families are also exploring  current and future health care needs.  An estimated
22 million households are involved in elder care, a number that has tripled over
the past decade and is expected to double in the next two decades.  According to
an April 2000  Newsweek  article,  more than 62% of  today's  baby  boomers  are
concerned about care for an aging parent or relative.

         More than 70% of working-age Americans believe a comfortable retirement
is a fundamental  part of the American  dream,  according to Age Power:  How the
21st  Century  Will Be Ruled by the New Old.  To  adequately  prepare for future
retirement  needs,  it is estimated that the baby boom  generation  will need to
have saved at least $1 million  per  household  to  maintain  their  standard of
living.

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


         According  to the  Centers  for  Medicare & Medicaid  Services  and the
National Health Statistics  Group, the health care industry  represents 14.3% of
the United  States' gross  domestic  product  ("GDP") with over $1.6 trillion in
annual  expenditures.  The Health Care  Financing  Administration  expects  this
figure to rise to over 1.6% of the GDP by 2011,  with  $2.8  trillion  in annual
expenditures. According to the Health Care Financing Administration, U.S. health
care  construction  expenditures  are  estimated  to be $23  billion in 2003 and
growing. With regard to housing for seniors,  there are three major contributors
to growth and the  attraction of capital,  according to the National  Investment
Conference for the Senior Living and Long Term Care Industries in 1996. They are
(i)  demographics,  (ii) the  limited  supply  of new  product,  and  (iii)  the
investment  community's  increased  understanding  of the industry.  The Company
believes the growth in demand and facilities will continue at least 50 years due
to the favorable demographics, the increase in public awareness of the industry,
the preference of seniors for obtaining care in  non-institutional  settings and
the cost savings realized in a non-institutional environment.
                     Estimate of Resident Demand for Seniors' Housing Categories - Private Pay

                                              Thousands of Residents

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

   2000                      637                           511                        671
   2010                      751                           592                        773
   2020                      991                           720                        964
   2030                     1,389                         1,004                      1,309

Source:   The State of Seniors Housing 2001, prepared for the National Investment Conference for the
          Senior Living and Long-Term Care Industries, Revised 2001

INVESTMENT OF OFFERING PROCEEDS

         The Company  intends to  capitalize on the growing real estate needs in
the  seniors'  housing  and  health  care  industries   primarily  by  acquiring
Properties  and  leasing  them to tenants on a  long-term  (generally,  10 to 20
years,  plus  renewal  options for an  additional  10 to 20 years for  operating
leases or 35 years in the case of direct financing leases),  "triple-net" basis.
The  Properties  that the Company will acquire and lease are expected to include
one or more of the following types:


o        Seniors' Housing,  Which Includes Congregate Living and Assisted Living
         Facilities.  Congregate  living  communities  offer a lifestyle choice,
         including residential  accommodations with access to services,  such as
         housekeeping,  transportation,  dining and social activities, for those
         who  wish to  maintain  their  lifestyles  independently.  The  fastest
         growing segment of the seniors'  housing  industry is assisted  living.
         While skilled nursing facilities focus on more intensive care, assisted
         living facilities provide housing for seniors that need assistance with
         activities of daily living, such as grooming,  dressing,  bathing,  and
         eating.  Assisted living facilities provide accommodations with limited
         health  care  available  when  needed but do not have an  institutional
         feel.  Certain assisted living  facilities are also now specializing in
         meeting the needs of  Alzheimer's  and dementia  patients  prior to the
         time that their  condition  warrants a nursing home setting or, in some
         instances,  in competition  with what would  otherwise be provided in a
         nursing home  setting.  According to the U.S.  Department of Health and
         Human  Services,  at least 15%,  and  possibly  as much as 70%,  of the
         patients in nursing  homes could more  appropriately  be cared for in a
         less  institutional  and more  cost  effective  setting.  In  addition,
         seniors'  housing   facilities   include   continuing  care  retirement
         communities  and life care  communities  which  provide a full range of
         long-term  care  services in one location,  such as congregate  living,
         assisted living and skilled nursing facilities and home health care.

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

o        Skilled  Nursing   Facilities.   Skilled  nursing   facilities  provide
         extensive  skilled  nursing,  post-acute  care and other long-term care
         services  to  patients   that  may  require  full  time  medical  care,
         medication monitoring, ventilation and intravenous therapies, sub-acute
         care,  and  Alzheimer's/dementia  care.  Throughout  much of the United
         States,  the supply of new skilled nursing facilities can be limited by
         complex   Certificate   of  Need  laws  or  similar   state   licensing
         regulations.  As a result,  the supply of skilled nursing facilities is
         growing very slowly.  Demand for skilled  nursing  facilities is coming
         from a  rapidly  growing  population  over 75  years  of  age,  and the
         discharge  of patients  from  hospitals  to skilled  nursing  units for
         extended care benefits. Some states have eliminated Certificate of Need
         laws allowing the market to address the issue of supply and demand.  If
         trends such as this continue,  it is probable that new skilled  nursing
         facilities  will be constructed to meet the demand,  thereby  providing
         potential development and investment opportunities for the Company.
                                      Continuum of long-term care facilities*

  Retirement/Congregate
          Living                    Assisted Living            Skilled Nursing Facility         Acute Care Hospitals
---------------------------    ---------------------------     --------------------------    ---------------------------

Informal concierge,            24-hour supervision,            24-hour medical care and      Short-term acute medical
emergency call system,         personal assistance as          protective oversight,         care
housekeeping &                 needed, emergency               medication management,
main-tenance, some group       response system, social         emergency response
activities, food service       activities, housekeeping        system, 3 meals per day,
and transportation             and maintenance, 3 meals        assistance with ADLs
                               per day, transportation,
                               assistance with
                               medication and shopping

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

         Legg Mason Wood Walker, Inc. in its industry analysis,  Health Facility
REITs  Substantial  Growth Ahead  (December  15,  1997),  estimated the value of
health  care  facilities  in the United  States to be $584  billion.  Management
believes,  based on historical costs of property owned by publicly traded health
care REITs, only a small portion of facilities in the United States are owned by
REITs.  Management  believes  that this fact,  coupled with the industry  trends
previously  discussed,  provides a significant  investment  opportunity  for the
Company.  Demographic  trends may vary  depending on the  properties and regions
selected for investment.  The success of the future  operations of the Company's
Properties will depend largely on each tenant and Operator's ability to adapt to
dominant  trends in the  industry  in each  specific  region,  including,  among
others,  greater  competitive  pressures,  increased  consolidation and changing
demographics.  There can be no  assurance  that the tenants or  Operators of the
Company's Properties will be able to adapt to such trends.

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


         Management  expects  to  acquire  Properties  in  part  with a view  to
diversification  among  facility  type  and in the  geographic  location  of the
Properties.  There are no  restrictions  on the types of Properties in which the
Company may invest.  In addition,  there are no  restrictions  on the geographic
area or areas  within  the United  States in which  Properties  acquired  by the
Company may be located.  The Properties  owned by the Company as of February 28,
2003, were located in 17 states and it is anticipated that additional Properties
acquired  by the  Company  in the future  will be located in various  geographic
areas. Although the Properties are located in 17 states, 13.2% of the Properties
are located in Florida and 10.5% are located in  California.  In  addition,  the
majority of the Company's  Properties are either assisted  living  facilities or
assisted living facilities with units for residents with Alzheimer's and related
memory disorders.


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

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


         The Company has borrowed  and will  continue to borrow money to acquire
Properties,  Mortgage  Loans and Secured  Equipment  Leases  (collectively,  the
"Assets") and to pay certain  fees.  The Company  intends to encumber  Assets in
connection with the borrowing. The Company has obtained a line of credit and may
obtain lines of credit aggregating up to $125,000,000. The line of credit may be
increased at the  discretion  of the Board of  Directors  and may be repaid with
offering  proceeds,  proceeds  from  the  sale of  Assets,  working  capital  or
Permanent  Financing.  The Company has also obtained  Permanent  Financing.  The
Board of  Directors  anticipates  that the  aggregate  amount  of any  Permanent
Financing will not exceed 40% of the Company's total assets.  In any event,  the
Company's total borrowings will be limited to 300% of Net Assets.  The Permanent
Financing  may be used to acquire  Assets and pay a fee of 4.5% of any Permanent
Financing,  excluding  amounts to fund Secured  Equipment Leases, as Acquisition
Fees, to the Advisor for identifying  the  Properties,  structuring the terms of
the  acquisition  and leases of the Properties and  structuring the terms of the
Mortgage Loans.  The line of credit and Permanent  Financing are the only source
of funds  for  making  Secured  Equipment  Leases  and for  paying  the  Secured
Equipment  Lease  Servicing  Fee to the  Advisor.  The  Company  had  previously
obtained a revolving  line of credit for up to  $25,000,000.  On March 17, 2003,
the  Company  replaced  the  $25,000,000  line of  credit  with a new  two-year,
$85,000,000  revolving  line of credit  that may be amended to allow the line of
credit to be increased by $40,000,000.  As of February 28, 2003, no amounts were
outstanding on the line of credit. The Company had obtained Permanent  Financing
totalling  approximately  $45,600,000  to  finance  the  acquisition  of various
Properties.  See "Business -- Borrowing" for a description of the revolving line
of credit and  Permanent  Financing  the Company had obtained as of February 28,
2003.

         As of  February  28,  2003,  the  Company  had  acquired,  directly  or
indirectly,  38 retirement  Properties and had initial commitments to acquire 14
additional Properties. As of February 28, 2003, the Company had not entered into
any  arrangements  that create a  reasonable  probability  that the Company will
enter into any Mortgage Loan or Secured Equipment Lease.


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


         Based  generally on the amount  invested or committed for investment in
the 52 Properties  that the Company had either  acquired or committed to acquire
as of  February  28,  2003 and current  market  conditions,  the Company and the
Advisor have estimated an average  investment of $5,000,000 to  $15,000,000  per
Property.  In certain  cases,  the Company may become a  co-venturer  in a Joint
Venture that will own the Property.  In each such case,  the  Company's  cost to
purchase an interest in such Property will be less than the total purchase price
and the Company  therefore will be able to acquire interests in a greater number
of  Properties.  In addition,  the Board of Directors may determine to engage in
future offerings of common stock, the proceeds of which could be used to acquire
additional  Properties  or make Mortgage  Loans.  The Company may also borrow to
acquire Properties.  See "Business -- Borrowing."  Management estimates that 10%
to 15% of the Company's  investment will be for the cost of land, 80% to 85% for
the cost of  building  and 5% to 10% for the  cost of  furniture,  fixtures  and
equipment.  See "Business -- Joint Venture Arrangements" below and "Risk Factors
-- Real Estate and Other  Investment  Risks -- Possible lack of  diversification
increases  the risk of  investment."  Management  cannot  estimate the number of
Mortgage  Loans that may be entered  into.  The Company may also borrow money to
make Mortgage Loans.


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

PROPERTY ACQUISITIONS


         Brighton Gardens by Marriott located in Orland Park, Illinois. On April
20, 2000,  the Company  acquired a Brighton  Gardens  assisted  living  Property
located in Orland Park,  Illinois (the "Orland Park  Property") for  $13,848,900
from Marriott Senior Living Services,  Inc. The Company,  as lessor,  previously
entered  into  a  long-term  lease  agreement  with  a  subsidiary  of  Marriott
International,  Inc. relating to this Property.  On December 20, 2002, the lease
was terminated and the Company simultaneously entered into a new long-term lease
agreement with Eight Pack Management Corp. under substantially the same terms as
the previous lease.  This  transaction  was consummated in conjunction  with the
Company's purchase of the Marriott  Portfolio Two Properties,  as defined below.
The  general  terms  of the  lease  agreement  are  described  in  "Business  --
Description  of Property  Leases."  The  principal  features of the lease are as
follows:

o        The initial term of the lease expires on December 20, 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        The lease  requires  minimum  annual rent of  $1,419,512  for the first
         lease year with increases of 3% each lease year thereafter.

o        In addition to minimum annual rent, the lease requires  additional rent
         in an  amount  equal to the  difference  between  14% of the  Company's
         investment  basis in the Property and minimum  annual rent payable each
         lease year until  minimum  annual  rent  exceeds  14% of the  Company's
         investment basis. For purposes of the additional rent calculation,  the
         Company's  investment  basis equals  $13,512,473.  The additional  rent
         accrues and is payable every four weeks. Any unpaid  additional rent is
         subject to interest at the prime rate,  as published by The Wall Street
         Journal, plus 1%.


o        A security  deposit  equal to $553,956 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        The tenant has  established  a reserve  fund which will be used for the
         replacement and renewal of furniture,  fixtures and equipment  relating
         to the assisted living Property (the "FF&E  Reserve").  Deposits to the
         FF&E Reserve are made every four weeks as follows: 1% of gross receipts
         for the first through  fourth lease year; 2% of gross  receipts for the
         fifth through  eighth lease year;  and 3% of gross receipts every lease
         year thereafter.


o        Marriott International, Inc. has, with certain limitations,  guaranteed
         the tenant's  obligation to pay minimum rent and percentage  rent under
         the lease. The guarantee is limited to $2,769,780 and terminates on the
         earlier  of the end of the fifth  lease year or at such time as the net
         operating  income from the Property  exceeds minimum rent due under the
         lease by 25% for any trailing 12-month period. As of February 28, 2003,
         Marriott International,  Inc. had funded $1,773,599 of the guarantee to
         pay minimum rent due under the lease,  leaving a balance of $996,181 to
         apply to future  rent  payments  as  necessary  prior to the end of the
         fifth lease year. According to the Company's  estimates,  the guarantee
         will last for the full five year term and will be  sufficient  to allow
         the Company to receive the minimum rent during this period.


o        The  Orland  Park  Property  is  operated  by  Marriott  Senior  Living
         Services,  Inc. In accordance with an operating  agreement  between the
         tenant and Marriott  Senior  Living  Services,  Inc.,  Marriott  Senior
         Living Services, Inc. is entitled to receive base management fees based
         on  predetermined  percentages  of gross  revenues as well as incentive
         management fees based on net operating  profits  throughout the term of
         the lease.

         The federal income tax basis of the  depreciable  portion of the Orland
Park Property is approximately $12.6 million.

         The Orland Park  Property,  which opened in October 1999, is a Brighton
Gardens by Marriott located in Orland Park,  Illinois.  The Orland Park Property
includes 65 assisted  living units and 37 units for residents  with  Alzheimer's
and related  memory  disorders.  The  Operator is an affiliate of the tenant and
provides  assistance to residents with daily living  activities such as bathing,
dressing and medication  reminders.  Amenities  include a common activities room
and dining room, a private dining area,  library and garden. The assisted living
community,  which is located  southwest of Chicago,  is approximately  six miles
from two medical  facilities,  Palos Community Hospital and Oak Forest Community
Hospital,  and less than two  miles  from the  Orland  Square  Shopping  Center.
According to a report  published by Project  Market  Decision  and  Claritas,  a
research and data collection firm, the greater Chicago area is the third largest
seniors  market in the country with more than 263,800  seniors age 75 and older.
The number of seniors in the ten-mile area  surrounding the Property is expected
to grow by 11% between 1999 and 2004. Other senior living facilities  located in
proximity to the Orland Park  Property  include  Victorian  Village,  Sunrise of
Palos Park,  Peace Memorial Village and Arden Courts of Manor Drive. The average
occupancy  rate,  the revenue per  occupied  unit (per diem) and the revenue per
available unit (per diem) for the period the assisted  living  facility has been
operational are as follows:
                                     Orland Park Property
                   ---------------------------------------------------------

                      Average            Revenue               Revenue
                     Occupancy         per Occupied         per Available
     Year              Rate                Unit                 Unit
---------------    --------------     ---------------      ----------------

         *1999        23.30%                 $118.11          $  33.08
          2000        52.50%                  114.30             66.85
          2001        77.50%                  134.01            103.85

        **2002        81.80%                  120.83             98.79
       ***2003        91.50%                  121.86            111.53

     * Data for 1999 represents the period October 11, 1999 through December 31,
        1999.
    ** Data for 2002 represents the period December 29, 2001 through
        January 3, 2003.
   *** Data for 2003 represents the period January 4, 2003 through January 31, 2003.

         The  Property,  which  opened  in  October  1999,  has not yet  reached
stabilization;  therefore,  the results presented above may not be indicative of
its long-term operating potential.

         Eight Pack Management Corp., the tenant of the Orland Park Property and
six of the Marriott Portfolio Two Properties,  HRA Management  Corporation,  the
tenant of the Marriott  Portfolio  One  Properties,  and Eleven Pack  Management
Corp.,  the tenant of the remaining six Marriott  Portfolio Two Properties,  are
thinly capitalized, newly formed affiliated corporations. The principals of such
corporations  are Timothy S. Smick and Daniel  Simmons.  Mr.  Smick  served as a
director of the Company until  February 13, 2002 and Mr.  Simmons was an officer
of the Company until early 2000.

         Broadway Plaza at Pecan Park located in Arlington,  Texas.  On November
9, 2001, the Company  acquired the Broadway Plaza at Pecan Park assisted  living
Property located in Arlington,  Texas (the "Arlington Property") for $10,578,750
from American Retirement Corporation. The Company, as lessor, has entered into a
long-term lease agreement with a subsidiary of American  Retirement  Corporation
relating  to this  Property.  The  general  terms  of the  lease  agreement  are
described  in  "Business  --  Description  of Property  Leases."  The  principal
features of the lease are as follows:

o        The initial term of the lease expires on November 30, 2016.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease  requires  minimum  annual rent of  $1,084,322  for the first
         lease year with increases of 2% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross  revenues in excess of the  "Arlington  Baseline  Gross
         Revenues."  The Arlington  Baseline Gross Revenues will be the prior 12
         months  total  revenue for the period  ending on the earlier of (i) the
         36th  month of the  lease,  or (ii) the  month  in which  the  facility
         achieves  average  occupancy  of 93%  for  four  consecutive  quarters.
         Percentage rents will be net of any minimum base rent increases.

o        A security  deposit  equal to $423,150 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        American Retirement Corporation has guaranteed the tenant's obligations
         under  the  lease  throughout  the  duration  of the  lease.  Since the
         guarantee is unlimited,  the Company  estimates that the guarantee will
         be sufficient to fund any future  operating  shortfalls for the term of
         the lease. See "Risk Factors - Real Estate and Other Investment  Risks"
         for  a  discussion  of  American  Retirement  Corporation's  2002  debt
         maturities.

o        In  addition  to the  guarantee,  American  Retirement  Corporation  is
         required  to  maintain  a "Tenant  Reserve"  which was  established  at
         $545,000 at closing. The balance in the reserve is subject to quarterly
         changes  based  on  proforma  budgets  for the  following  four  fiscal
         quarters.  The reserve will  terminate  the later of (i) when  "Minimum
         Rent Coverage" of 1.1 is achieved for four consecutive fiscal quarters,
         commencing  with the quarter  ending March 31,  2002,  or (ii) June 30,
         2003.  Minimum Rent Coverage  equals the total cash available for lease
         payments  during  each  successive  period of four  consecutive  fiscal
         quarters divided by the total minimum rent paid during such period.


o        The lease for this Property contains  cross-default  terms with respect
         to the leases for the Boca Raton,  Oak Park,  Coconut Creek,  Greenwood
         Village and Nashville  Properties  described below, meaning that if the
         tenant of any of these Properties defaults on its obligations under its
         leases,  the Company will have the ability to pursue its remedies under
         the  leases  with  respect  to any of these  Properties  regardless  of
         whether  the tenant of any such  Property  is under  default  under its
         lease.


o        The Company and the tenant of the  Property  have also  entered into an
         agreement,  whereby,  the  Property  may be divided into two parcels of
         land,  the developed  land that  includes the building and  surrounding
         grounds (approximately 4.4 acres) and an adjacent parcel of undeveloped
         land  (approximately  2.8 acres).  The tenant of the  Property  has the
         option to purchase the undeveloped  parcel of land for $1. The purchase
         option expires in 2011 and the Company may buy out the purchase  option
         at any time prior to its expiration for $600,000, the fair market value
         of the  undeveloped  land at  acquisition.  Development  of the land is
         subject to certain  limitations imposed by the Company. At December 31,
         2002,  the Company had assigned no value to the  undeveloped  parcel of
         land. In the event that the Company buys out the tenant's  option,  the
         option payment and closing costs will be recorded at that time.

         In connection with the acquisition of this Property, the Company may be
required to make an  additional  payment  (the  "Arlington  Earnout  Amount") if
certain  earnout  provisions  are  achieved by October 31, 2004.  The  Arlington
Earnout Amount is equal to the lesser of: (i) the adjusted net operating  income
of the Property (over the 12 months  preceding  October 31, 2004,  adjusted,  if
necessary,  to reflect  net  operating  income  that  would be derived  from the
Property at a 93% occupancy rate) multiplied by 8.52, less the Company's initial
investment in the Property  (meaning the  acquisition  and  transactional  costs
incurred  by the Company in  purchasing  the  Property  and  subsequent  amounts
incurred by the Company with respect to the Property); (ii) 20% of the Company's
investment  in the  Property;  or  (iii)  94% of the  fair  market  value of the
Property,  less the Company's investment in the Property.  At such time that the
Arlington Earnout Amount becomes payable,  the lease will be amended to increase
the annual minimum rent for any such amount payable.

         The  federal  income  tax  basis  of the  depreciable  portion  for the
Arlington Property is approximately $9.8 million.

         The  Arlington  Property,  which  opened in August  2000,  includes  80
assisted  living units and 15 units for residents with  Alzheimer's  and related
memory  disorders.  The  tenant  is the  Operator  and  provides  assistance  to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Built in a park-like  setting,  the facility's  amenities  include a
common activities room and dining room, a library and professionally  maintained
gardens.  The  Property  is located in a suburb  between  Dallas and Fort Worth,
Texas. Between 1990 and 2000, the number of seniors 55 and older in the ten-mile
area  surrounding  the  Arlington  Property  has  grown by more  than 43% and is
expected  to grow by 34% between  2000 and 2005.  Currently,  more than  138,000
seniors live in the Arlington area and, of those 65 and older, approximately 20%
are no longer able to manage  activities of daily living. Of area seniors 75 and
older, close to one third experience limitations with self care. The Property is
less than six miles from three hospitals and is within two miles of two shopping
districts.  Other senior living facilities located in proximity to the Arlington
Property  include Alterra Clare Bridge of Arlington,  Arlington Villa Retirement
Community,  Edengardens  - Bedford and  Hearthstone  at  Arlington.  The average
occupancy  rate,  the revenue per  occupied  unit (per diem) and the revenue per
available unit (per diem) for the period the assisted  living  facility has been
operational are as follows:
                                                          Arlington Property
                                       ----------------------------------------------------------
                                           Average           Revenue per            Revenue
                                          Occupancy            Occupied          per Available
                       Year                 Rate                 Unit                Unit*
               -------------------     ----------------    -----------------    -----------------

                        **2000               8.20%              $105.25             $15.14
                          2001              51.80%                93.66              48.61

                          2002              74.64%                88.80              66.28
                       ***2003              77.32%                93.33              72.16

     * The second assisted living building (40 units) did not open for residents
        until April 27, 2001.
    ** Data for 2000 represents the period August 15, 2000 through December 31, 2000.
   *** Data for 2003 represents the period January 1, 2003 through January 31, 2003.


         The Company  believes  that the results  achieved by the  Property,  as
shown  in the  table  above,  are  not  indicative  of its  long-term  operating
potential as the Property opened in August 2000.

         Homewood  Residence of Boca Raton  located in Boca Raton,  Florida.  On
November 9, 2001,  the Company  acquired  the  Homewood  Residence of Boca Raton
assisted  living  Property  located in Boca  Raton,  Florida  (the  "Boca  Raton
Property") for $9,672,000 from American Retirement Corporation.  The Company, as
lessor,  has  entered  into a  long-term  lease  agreement  with a wholly  owned
subsidiary of American  Retirement  Corporation  relating to this Property.  The
general terms of the lease  agreement are described in "Business --  Description
of Property Leases." The principal features of the lease are as follows:

o        The initial term of the lease expires on November 30, 2016.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease requires  minimum annual rent of $991,380 for the first lease
         year with increases of 2% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross  revenues in excess of the "Boca Raton  Baseline  Gross
         Revenues."  The Boca Raton Baseline Gross Revenues will be the prior 12
         months  total  revenue for the period  ending on the earlier of (i) the
         36th  month of the  lease,  or (ii) the  month  in which  the  facility
         achieves  average  occupancy  of 93%  for  four  consecutive  quarters.
         Percentage rents will be net of any minimum base rent increases.

o        A security  deposit  equal to $386,880 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        American Retirement Corporation has guaranteed the tenant's obligations
         under  the  lease  throughout  the  duration  of the  lease.  Since the
         guarantee is unlimited,  the Company  estimates that the guarantee will
         be sufficient to fund any future  operating  shortfalls for the term of
         lease. See "Risk Factors - Real Estate and Other Investment  Risks" for
         a discussion of American Retirement Corporation's 2002 debt maturities.

o        In  addition  to the  guarantee,  American  Retirement  Corporation  is
         required  to  maintain  a "Tenant  Reserve"  which was  established  at
         $210,000 at closing. The balance in the reserve is subject to quarterly
         changes  based  on  proforma  budgets  for the  following  four  fiscal
         quarters.  The reserve will  terminate  the later of (i) when  "Minimum
         Rent Coverage" of 1.1 is achieved for four consecutive fiscal quarters,
         commencing  with the quarter  ending March 31,  2002,  or (ii) June 30,
         2003.  Minimum Rent Coverage  equals the total cash available for lease
         payments  during  each  successive  period of four  consecutive  fiscal
         quarters divided by the total minimum rent paid during such period.


o        The lease for this Property contains  cross-default  terms with respect
         to the leases for the Arlington,  Oak Park,  Coconut  Creek,  Greenwood
         Village   and   Nashville   Properties.    See   "Business--   Property
         Acquisitions--  Broadway  Plaza at Pecan  Park  located  in  Arlington,
         Texas" above. In connection with the acquisition of this Property,  the
         Company may be required to make an additional  payment (the "Boca Raton
         Earnout  Amount") if certain earnout  provisions are achieved by August
         31, 2004.  The Boca Raton Earnout Amount is equal to the lesser of: (i)
         the adjusted net operating  income of the Property  (over the 12 months
         preceding  August 31,  2004,  adjusted,  if  necessary,  to reflect net
         operating  income  that would be  derived  from the  Property  at a 93%
         occupancy  rate)  multiplied  by  8.52,  less  the  Company's   initial
         investment in the Property  (meaning the acquisition and  transactional
         costs incurred by the Company in purchasing the Property and subsequent
         amounts incurred by the Company with respect to the Property); (ii) 20%
         of the Company's  investment in the Property;  or (iii) 94% of the fair
         market value of the  Property,  less the  Company's  investment  in the
         Property.  At such  time that the Boca  Raton  Earnout  Amount  becomes
         payable,  the lease will be amended to increase the annual minimum rent
         for any such amount payable.


         The federal  income tax basis of the  depreciable  portion for the Boca
Raton Property is approximately $9 million.

         The Boca Raton  Property,  which  opened in October  2000,  includes 59
assisted  living units and 13 units for residents with  Alzheimer's  and related
memory  disorders.  The  tenant  is the  Operator  and  provides  assistance  to
residents with daily living activities such as bathing,  dressing and medication
reminders. Amenities include a common activities room and dining room, a library
and professionally  maintained gardens. The Property is located approximately 20
miles north of Fort  Lauderdale,  Florida.  Between 1990 and 2000, the number of
seniors 55 and older in the ten-mile area  surrounding  the Boca Raton  Property
has grown nearly 22% and is expected to grow by 20% between 2000 and 2005.  More
than 205,000  seniors  reside in the Boca Raton area and, of those 75 and older,
approximately 23% are no longer able to manage  activities of daily living.  The
Property  is within  eight miles of two  hospitals  and is less than seven miles
from shopping areas.  Other senior living facilities located in proximity to the
Boca Raton Property  include  Avante  Terrace,  Brighton  Gardens of Boca Raton,
Elysium of Boca Raton, Inn at Casa Del Mar and The Sunrise Atrium of Boca Raton.
The average  occupancy  rate,  the revenue per occupied  unit (per diem) and the
revenue  per  available  unit (per  diem) for the  period  the  assisted  living
facility has been operational are as follows:
                                                          Boca Raton Property
                                       ----------------------------------------------------------
                                           Average           Revenue per            Revenue
                                          Occupancy            Occupied          per Available
                      Year                  Rate                 Unit                 Unit
               -------------------     ----------------    -----------------    -----------------

                       *2000               23.80%              $ 93.80              $28.62
                        2001               47.70%                86.86               41.14

                        2002               84.16%                92.81               78.11
                      **2003               89.87%               104.35               93.78

     *   Data for 2000 represents the period October 1, 2000 through December 31, 2000.
    **   Data for 2003 represents the period January 1, 2003 through January 31, 2003.


         The Company  believes  that the results  achieved by the  Property,  as
shown  in the  table  above,  are  not  indicative  of its  long-term  operating
potential as the Property opened in October 2000.

         Holley Court  Terrace  located in Oak Park,  Illinois.  On February 11,
2002, the Company acquired the Holley Court Terrace  independent living Property
located in Oak Park,  Illinois (the "Oak Park  Property") for  $18,469,275  from
American  Retirement  Corporation.  The Company,  as lessor,  has entered into a
long-term lease agreement with a subsidiary of American  Retirement  Corporation
relating  to this  Property.  The  general  terms  of the  lease  agreement  are
described  in  "Business  --  Description  of Property  Leases."  The  principal
features of the lease are as follows:

o        The initial term of the lease expires on February 11, 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease  requires  minimum  annual rent of  $1,846,928  for the first
         lease year with increases of 1% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross  revenues  in excess of the "Oak  Park  Baseline  Gross
         Revenues."  The Oak Park  Baseline  Gross  Revenues  will  equal  gross
         revenues  earned  during the second 12 months of the lease.  Percentage
         rents will be net of any minimum base rent increases.

o        A security  deposit  equal to $460,950 has been retained by the Company
         as security for the tenant's obligations under the lease. An additional
         deposit  equal to  $277,821,  representing  funds on  deposit  with the
         lender, was assigned to the Company.

o        American Retirement Corporation has guaranteed the tenant's obligations
         under  the  lease  throughout  the  duration  of the  lease.  Since the
         guarantee is unlimited,  the Company  estimates that the guarantee will
         be sufficient to fund any future  operating  shortfalls for the term of
         the lease. See "Risk Factors - Real Estate and Other Investment  Risks"
         for  a  discussion  of  American  Retirement  Corporation's  2002  debt
         maturities.

o        The lease for this Property contains  cross-default  terms with respect
         to the leases for the Arlington,  Boca Raton, Coconut Creek,  Greenwood
         Village  and   Nashville   Properties.   See   "Business   --  Property
         Acquisitions  --  Broadway  Plaza at Pecan Park  located in  Arlington,
         Texas" above.

         The federal income tax basis of the depreciable portion of the Oak Park
Property is approximately $17.2 million.

         On February 11, 2002, the Company assumed approximately  $13,000,000 of
Permanent  Financing  relating  to the Oak Park  Property  which is secured by a
mortgage on the  Property.  The loan bears  interest at a variable  rate ranging
from  6.28% to 8.00% per annum  and  requires  monthly  principal  and  interest
payments through October 2003 with all unpaid principal and interest due at that
time. In  connection  with the loan,  the Company  incurred  assumption  fees of
approximately $16,200.

         The Oak Park  Property,  which  opened in May 1992,  is operated by the
tenant and includes 161  independent  living units and 17 assisted living units.
Amenities  include a common  activities  room and dining  room,  a  library,  an
exercise  room,  a recreation  room and a  beauty/barber  shop.  The Property is
located  in a suburb  west of  Chicago  and is less  than five  miles  from four
hospitals  and near  shopping  districts.  The number of seniors in the ten-mile
area  surrounding  the Oak Park Property is expected to grow by 17% between 2001
and 2006.  Other senior living  facilities  located in proximity to the Oak Park
Property include  Bethlehem Woods, The British Home,  Gardenhouse of Maywood and
Plymouth Place.  The average  occupancy rate, the revenue per occupied unit (per
diem) and the  revenue  per  available  unit (per diem) for the most recent five
year period the independent living facility has been operational are as follows:
                                                           Oak Park Property
                                       ----------------------------------------------------------
                                           Average           Revenue per            Revenue
                                          Occupancy            Occupied          per Available
                      Year                  Rate                 Unit                 Unit
               -------------------     ----------------    -----------------    -----------------

                       1997                91.60%               $77.76               $74.29
                       1998                96.30%                84.66                81.53
                       1999                97.60%                80.19                78.24
                       2000                98.90%                84.51                83.61
                       2001                98.80%                80.01                79.04

                       2002                96.67%                82.02                78.55
                      *2003                94.65%                84.16                76.05

     *   Data for 2003 represents the period January 1, 2003 through January 31, 2003.


         Homewood Residence of Coconut Creek located in Coconut Creek,  Florida.
On February 11,  2002,  the Company  acquired the Homewood  Residence of Coconut
Creek assisted living Property  located in Coconut Creek,  Florida (the "Coconut
Creek  Property")  for  $9,687,563  from American  Retirement  Corporation.  The
Company,  as  lessor,  has  entered  into a  long-term  lease  agreement  with a
subsidiary of American  Retirement  Corporation  relating to this Property.  The
general terms of the lease  agreement are described in "Business --  Description
of Property Leases." The principal features of the lease are as follows:

o        The initial term of the lease expires on February 11, 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease requires  minimum annual rent of $968,756 for the first lease
         year with increases of 2% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross revenues in excess of the "Coconut Creek Baseline Gross
         Revenues."  The Coconut Creek Baseline Gross Revenues will be the prior
         12 months total  revenue for the period ending on the 36th month of the
         lease. Percentage rents will be net of any minimum base rent increases.

o        A security  deposit  equal to $387,503 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        American Retirement Corporation has guaranteed the tenant's obligations
         under  the  lease  throughout  the  duration  of the  lease.  Since the
         guarantee is unlimited,  the Company  estimates that the guarantee will
         be sufficient to fund any future  operating  shortfalls for the term of
         the lease. See "Risk Factors - Real Estate and Other Investment  Risks"
         for  a  discussion  of  American  Retirement  Corporation's  2002  debt
         maturities.

o        In  addition  to the  guarantee,  American  Retirement  Corporation  is
         required  to  maintain  a "Tenant  Reserve"  which was  established  at
         $262,500 at closing. The balance in the reserve is subject to quarterly
         changes  based  on  proforma  budgets  for the  following  four  fiscal
         quarters.  The reserve will  terminate  the later of (i) when  "Minimum
         Rent Coverage" of 1.1 is achieved for four consecutive fiscal quarters,
         commencing  with the quarter ending June 30, 2002, or (ii) February 29,
         2004.  Minimum Rent Coverage  equals the total cash available for lease
         payments  during  each  successive  period of four  consecutive  fiscal
         quarters divided by the total minimum rent paid during such period.

o        The lease for this Property contains  cross-default  terms with respect
         to the  leases  for the  Arlington,  Boca  Raton,  Oak Park,  Greenwood
         Village  and   Nashville   Properties.   See   "Business   --  Property
         Acquisitions  --  Broadway  Plaza at Pecan Park  located in  Arlington,
         Texas" above.

         In connection with the acquisition of this Property, the Company may be
required to make an additional  payment (the "Coconut Creek Earnout  Amount") if
certain  earnout  provisions  are achieved by March 31, 2005.  The Coconut Creek
Earnout Amount is equal to the lesser of: (i) the adjusted net operating  income
of the  Property  (over the 12 months  preceding  March 31, 2005,  adjusted,  if
necessary,  to reflect  net  operating  income  that  would be derived  from the
Property at a 93% occupancy  rate) divided by 8.57,  less the Company's  initial
investment in the Property  (meaning the  acquisition  and  transactional  costs
incurred  by the Company in  purchasing  the  Property  and  subsequent  amounts
incurred by the Company with respect to the Property); (ii) 20% of the Company's
investment  in the  Property;  or  (iii)  94% of the  fair  market  value of the
Property,  less the Company's investment in the Property.  At such time that the
Coconut  Creek  Earnout  Amount  becomes  payable,  the lease will be amended to
increase the annual minimum rent for any such amount payable.

         The federal income tax basis of the depreciable  portion of the Coconut
Creek Property is approximately $8.5 million.

         The Coconut Creek Property,  which opened in February 2000, includes 80
assisted  living units and 14 units for residents with  Alzheimer's  and related
memory  disorders.  The  tenant  is the  Operator  and  provides  assistance  to
residents with daily living activities such as bathing,  dressing and medication
reminders.  Amenities  include  a common  activities  room and  dining  room,  a
library,  a  beauty/barber  shop,  an emergency  call system and  professionally
maintained grounds. The Property is located approximately 14 miles north of Fort
Lauderdale,  Florida. The Property is within three miles of two hospitals and is
near  shopping  areas and a park.  The number of seniors  in the  ten-mile  area
surrounding  the Coconut Creek  Property is expected to grow by 16% between 2001
and 2006. In addition to the Company's  Homewood  Residence of Boca Raton, other
senior  living  facilities  located in proximity to the Coconut  Creek  Property
include Brighton Gardens of Boca Raton,  Chancellor Park of Deer Creek, Concorde
Retirement Community, The Forum at Deer Creek, Park Regency, The Renaissance and
Seasons.  The average  occupancy  rate, the revenue per occupied unit (per diem)
and the revenue per available unit (per diem) for the period the assisted living
facility has been operational are as follows:
                                                        Coconut Creek Property
                                       ----------------------------------------------------------
                                           Average           Revenue per            Revenue
                                          Occupancy            Occupied          per Available
                      Year                  Rate                 Unit                 Unit
               -------------------     ----------------    -----------------    -----------------

                       *2000               28.20%               $79.87               $22.52
                        2001               71.30%                77.11                53.93

                        2002               65.31%                90.82                59.37
                      **2003               65.96%                88.10                58.12

     * Data for 2000 represents the period February 14, 2000 through December
        31, 2000.
    ** Data for 2003 represents the period January 1, 2003 through
        January 31, 2003.


         The Company  believes  that the results  achieved by the  Property,  as
shown  in the  table  above,  are  not  indicative  of its  long-term  operating
potential as the Property opened in February 2000.

         Heritage  Club at  Greenwood  Village  located  in  Greenwood  Village,
Colorado. On March 22, 2002, the Company acquired the Heritage Club at Greenwood
Village assisted  living/skilled  nursing Property located in Greenwood Village,
Colorado  (the  "Greenwood  Village  Property")  for  $17,865,375  from American
Retirement  Corporation.  The Company,  as lessor,  has entered into a long-term
lease  agreement  with  a  wholly  owned   subsidiary  of  American   Retirement
Corporation relating to this Property.  The general terms of the lease agreement
are  described in "Business --  Description  of Property  Leases." The principal
features of the lease are as follows:

o        The initial term of the lease expires on March 31, 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease requires minimum annual rent of  $1,786,537.50  for the first
         lease year with increases of 2% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross revenues in excess of the "Greenwood  Village  Baseline
         Gross Revenues." The Greenwood  Village Baseline Gross Revenues will be
         the prior 12 months  total  revenue  for the period  ending on the 36th
         month of the lease.  Percentage  rents will be net of any minimum  base
         rent increases.

o        A security deposit equal to $714,615 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        American  Retirement  Corporation  has  guaranteed  all of the tenant's
         obligations under the lease throughout the duration of the lease. Since
         the guarantee is unlimited,  the Company  estimates  that the guarantee
         will be sufficient to fund any future operating shortfalls for the term
         of the lease.  See "Risk  Factors - Real  Estate  and Other  Investment
         Risks" for a discussion of American Retirement  Corporation's 2002 debt
         maturities.

o        In  addition  to the  guarantee,  American  Retirement  Corporation  is
         required  to  maintain  a "Tenant  Reserve"  which was  established  at
         $197,817 at closing.  The reserve will  terminate the later of (i) when
         "Minimum Rent Coverage" of 1.1 is achieved for four consecutive  fiscal
         quarters,  commencing  with the quarter  ending June 30, 2002,  or (ii)
         March 21, 2004.  Minimum Rent Coverage  equals the total cash available
         for lease payments  during each successive  period of four  consecutive
         fiscal  quarters  divided by the total  minimum  rent paid  during such
         period.


o        The lease for this Property contains  cross-default  terms with respect
         to the leases for the Arlington,  Boca Raton,  Oak Park,  Coconut Creek
         and Nashville  Properties.  See "Business -- Property  Acquisitions  --
         Broadway Plaza at Pecan Park located in Arlington, Texas" above.


         In connection with the acquisition of this Property, the Company may be
required to make  additional  payments (the  "Greenwood  Village Initial Earnout
Amount" and the  "Greenwood  Village Final Earnout  Amount") if certain  earnout
provisions are achieved. The Greenwood Village Initial Earnout Amount was funded
on August 20, 2002, in the amount of $1,775,000  based on the Greenwood  Village
Property  performing at a level sufficient to satisfy the requirements under the
terms of the earnout agreement. In accordance with the Greenwood Village Initial
Earnout  Amount  funding,  the lease was amended to increase the annual  minimum
rent for the amount paid. The Greenwood Village Final Earnout Amount will be the
lesser of: (i) the lesser of a) the actual net operating income for the Property
for the 12 month  period  ending  April  1,  2005,  after a  charge  of 5% for a
management fee, or b) that same amount as calculated as if the average occupancy
for that period had been 93%  multiplied by 8.567,  less the Company's  original
investment and the Greenwood  Village Initial Earnout Amount;  (ii)  $23,580,000
less the Company's original investment and the Greenwood Village Initial Earnout
Amount or (iii) 94% of the fair market  value of the  Property,  less the sum of
the Company's  investment and the Greenwood  Village Initial Earnout Amount.  At
such time that the Greenwood  Village Final Earnout Amount becomes payable,  the
lease will be amended to increase  the annual  minimum  rent for any such amount
paid.

         The  federal  income  tax  basis  of  the  depreciable  portion  of the
Greenwood Village Property is approximately $17 million.

         On  August  8,  2002,  the  Company   entered  into  a  commitment  for
$11,000,000 of Permanent  Financing  relating to the Greenwood  Village Property
which is secured by a mortgage on the Property.  On August 29, 2002, the Company
obtained an advance  totalling  $9,100,000 with a possible future advance in the
amount of $1,900,000 subject to certain operating  performance  thresholds being
achieved by the Greenwood  Village Property prior to February 27, 2004. The loan
bears  interest at a variable  rate based on 90-day  LIBOR plus 3.90% per annum,
reset monthly,  but in no event shall the interest rate be less than 6.50%.  The
loan requires monthly  principal and interest  payments through August 31, 2007,
with all unpaid  principal and interest due at that time. In connection with the
loan, the Company  incurred loan  commitment fees of $191,000 with an additional
fee of $19,000 due upon funding of the additional advance.

         The Greenwood Village Property, which opened in November 1999, includes
75 assisted  living units,  13 units for residents with  Alzheimer's and related
memory  disorders,  and 90 skilled nursing units. The tenant is the Operator and
provides  assistance to residents with daily living  activities such as bathing,
dressing  and  medication  reminders  as well as medical  monitoring.  Amenities
include a common  activities  room and dining room, a library,  a  beauty/barber
shop and professionally  maintained grounds. The Property is located in a suburb
southeast  of Denver and is less than ten miles from two  hospitals  and is near
shopping  and  dining  areas.  The  number  of  seniors  in  the  ten-mile  area
surrounding  the Greenwood  Village  Property is expected to grow by 29% between
2001 and 2006.  Other  senior  living  facilities  located in  proximity  to the
Greenwood  Village Property include Marriott,  Mariner and Sunrise.  The average
occupancy  rate,  the revenue per  occupied  unit (per diem) and the revenue per
available  unit (per diem) for the period the  assisted  living/skilled  nursing
facility has been operational are as follows:
                                    Greenwood Village Property
                  ---------------------------------------------------------

                     Average            Revenue               Revenue
                    Occupancy         per Occupied         per Available
    Year              Rate                Unit                 Unit
-------------     --------------     ---------------      ----------------

       *1999         27.50%             $  82.41             $  18.54
        2000         50.10%               111.08                55.60
        2001         86.50%               143.75               124.30

        2002         92.39%               167.07               154.35
      **2003         95.16%               173.44               165.05

     * Data for 1999 represents the period November 1, 1999 through December 31,
    1999.
    ** Data for 2003 represents the period January 1, 2003 through January
    31, 2003.

         Marriott  Portfolio  One  Properties.  On May 16,  2002,  the  Company,
through a joint venture in which it owned a 76.75% equity interest  acquired the
Brighton Gardens of Camarillo  located in Camarillo,  California (the "Camarillo
Property")  for  $18,694,698  from Marriott  Senior Living  Services,  Inc.; the
Brighton Gardens of Towson located in Towson,  Maryland (the "Towson  Property")
for $14,452,319 from VSC, Inc.; the Marriott  MapleRidge of Dartmouth located in
Dartmouth,  Massachusetts (the "Dartmouth  Property") for $9,488,304 from MSLS -
MapleRidge,  Inc.;  and the Marriott  MapleRidge  of Laguna Creek located in Elk
Grove,  California  (the  "Elk  Grove  Property")  for  $8,054,110  from  MSLS -
MapleRidge,  Inc. In addition,  on May 17, 2002, the joint venture  acquired the
Marriott MapleRidge of Clayton located in Clayton, Ohio (the "Clayton Property")
for $8,110,569 from MSLS - MapleRidge,  Inc. The Camarillo,  Towson,  Dartmouth,
Elk Grove and Clayton  Properties are  hereinafter  referred to as the "Marriott
Portfolio One  Properties."  The purchase  price for the Marriott  Portfolio One
Properties was determined based on a capitalization  of estimated rental income,
was  negotiated  on an arms length  basis and was  supported  by an  independent
appraisal.  A description of the Company's methodology for determining cash flow
estimates available to make rental payments to the joint venture can be found in
the discussion of the historical  financial  statements below. The joint venture
borrowed  approximately  $23.5  million of the aggregate  purchase  price of the
Marriott  Portfolio  One  Properties  with a commercial  paper backed loan.  The
sellers of the Marriott  Portfolio  One  Properties  are  affiliates of Marriott
International,  Inc.  Marriott  Senior  Living  Services,  Inc.,  a wholly owned
subsidiary of Marriott  International,  Inc., owned the minority interest in the
joint venture and is the Operator of the Marriott  Portfolio One Properties.  On
December 20, 2002, the Company purchased Marriott Senior Living Services, Inc.'s
23.25% minority interest for $8,500,000.

         The Company, as lessor, leased the Marriott Portfolio One Properties on
a triple-net basis,  pursuant to five separate,  long-term lease agreements with
HRA Management  Corporation.  HRA Management Corporation is described in further
detail in "Business  -- Property  Acquisitions  -- Brighton  Gardens by Marriott
located in Orland Park, Illinois," above. Because of these lease agreements, the
Company  is not  receiving  its return by  investing  in the  operations  of the
Marriott Portfolio One Properties,  but will instead receive payments of rent in
its role as lessor of the Marriott  Portfolio One Properties.  The general terms
of the lease  agreements  are described in "Business --  Description of Property
Leases." The principal features of the leases are as follows:


o        The initial term of each lease expires in May 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of ten years each.


o        Minimum  annual  rent  for the  first  through  fifth  lease  years  is
         adjustable  based  upon the cost of debt and a  minimum  return  to the
         Company.  Minimum  annual rent is expected to range from  $5,489,589 to
         $6,312,789  per year  during the first  five  years of the lease  term.
         Minimum rent consists of a fixed return on the cash  investment in each
         Property  and a floating  amount that varies  according to the interest
         rate on related  debt.  The leases do not provide for any fixed  annual
         rent escalations during the initial term.

o        In addition to minimum rent, the leases require  percentage  rent equal
         to 10% of gross  revenues in excess of the "Baseline  Gross  Revenues,"
         payable commencing in the sixth lease year. The Baseline Gross Revenues
         will equal total revenues for the fifth lease year.

o        The  tenant  of  the  five  Marriott   Portfolio  One   Properties  has
         established  FF&E Reserve funds which will be used for the  replacement
         and  renewal of  furniture,  fixtures  and  equipment  relating  to the
         Marriott  Portfolio  One  Properties.  Deposits to the FF&E Reserve are
         made every four weeks as follows:  1% of gross  receipts  for the first
         lease year;  2% of gross  receipts for the second  through  fifth lease
         years; 3% of gross receipts for the sixth through 17th lease years; and
         3.5% of gross receipts every lease year thereafter.

o        Marriott International,  Inc. and Marriott Senior Living Services, Inc.
         had, with certain  limitations,  jointly and severally  guaranteed  the
         tenant's obligation to pay minimum rent under the leases. Subsequent to
         the   Company's   purchase   of   the   minority   interest,   Marriott
         International,  Inc. and Marriott Senior Living  Services,  Inc. remain
         liable  for the  remaining  guarantee  available  to pay  the  tenant's
         minimum rent obligations under the leases. The guarantee  terminates on
         the  earlier of the end of the fifth  lease year or at such time as the
         net operating income from the Marriott  Portfolio  Properties equals or
         exceeds  minimum  rent due  under the  leases  by 25% for any  trailing
         12-month  period.  As of February 28, 2003, the amount  available under
         the guarantee is  approximately  $4,700,000.  Net operating income from
         all of the Marriott  Portfolio One  Properties is pooled in determining
         whether the Marriott Portfolio One Properties'  aggregate net operating
         income exceeds the aggregate  minimum rent due under the leases by 25%.
         In order to determine the amount of the guarantee  that would be needed
         to fund  minimum  rent,  the Company  developed  estimates of cash flow
         available to the tenant to pay minimum rent,  as described  below under
         the discussion relating to the historical  financial  statements.  As a
         result of this analysis,  the Company estimates that the guarantee will
         be  used  to  fund  approximately  $1,189,000,   $1,065,000,  $924,000,
         $903,000  and  $1,174,000,  respectively,  of the minimum base rent due
         during  the first  five  years of the lease  term.  The  balance of the
         guarantee  will be paid into a reserve  to be used,  if  necessary,  in
         future  periods.  Thus,  according  to  the  Company's  estimates,  the
         guarantee  will last for the full five year term and will be sufficient
         to allow the Company to receive the  minimum  rent during this  period.
         For  this  reason,   and  based  on  its  estimate  of  when  occupancy
         stabilization  would be reached,  the  Company  agreed to accept a five
         year limited guarantee.  However,  the Company's estimates are based on
         assumptions  and there can be no assurances  as to what actual  amounts
         will need to be paid under the guarantee.

o        In  addition,  the leases for the  Marriott  Portfolio  One  Properties
         contain cross-default terms, meaning that if the tenant of the Marriott
         Portfolio One Properties defaults on its obligations under any of these
         leases,  the Company will have the ability to pursue its remedies under
         the  leases  with  respect  to  all  of  the  Marriott   Portfolio  One
         Properties, regardless of whether the tenant of any such Property is in
         default under its lease.

         The approximate  federal income tax basis of the depreciable portion of
the five Marriott Portfolio One Properties is as follows:

                   Camarillo Property                $17,300,000
                   Towson Property                    14,600,000
                   Clayton Property                    7,800,000
                   Dartmouth Property                  9,200,000
                   Elk Grove Property                  7,700,000

         Prior to December 20,  2002,  at which time the Company  purchased  the
minority  interest in the joint  venture from Marriott  Senior Living  Services,
Inc., both the Company and Marriott Senior Living  Services,  Inc. shared in the
costs and benefits of the joint venture in proportion to their percentage equity
interest. In addition, pursuant to the terms of the operating agreements between
the tenant and Marriott  Senior  Living  Services,  Inc.,  as  compensation  for
providing services, Marriott Senior Living Services, Inc. receives the following
fees from the pool of operating profits in the following order of priority:  (i)
a base management fee equal to 6% of gross revenues, to be paid prior to payment
of minimum rent to the Company;  (ii) incentive fees equal to $6,077,098  plus a
10%  return  thereon;  and  (iii)  incentive  fees  equal  to  20% to 50% of the
remaining  operating  profit.  Remaining  operating  profit is calculated  after
payment of the foregoing  amounts,  and the payment of (a) an administration fee
equal to .83% of gross  revenues  (which is paid to the tenant after  payment of
the base management fee to Marriott Senior Living Services, Inc. and the minimum
rent to the  Company) and (b) any  percentage  rent which is paid to the Company
after Marriott Senior Living  Services,  Inc.  receives its incentive fees under
(ii) above. The remaining operating profit, if any, is shared between the tenant
and Marriott Senior Living Services, Inc.


         The Camarillo Property, which opened in June 2000, includes 90 assisted
living  units,  24 units for  residents  with  Alzheimer's  and  related  memory
disorders,  and 28 skilled nursing units.  The Operator  provides  assistance to
residents with daily living activities such as bathing,  dressing and medication
reminders as well as medical  monitoring.  Amenities include a common activities
room and dining room, a private dining area, a  beauty/barber  shop, a TV parlor
and a family visitation room. The Property is located in a suburb of Los Angeles
and is within ten miles of two hospitals and is adjacent to shopping areas.  The
number of seniors in the ten-mile area  surrounding  the  Camarillo  Property is
expected to grow by 19.5% between 2001 and 2006. Other senior living  facilities
located in proximity to the Camarillo  Property  include Aegis Assisted  Living,
Almavia of Camarillo,  Camarillo Convalescent Hospital, Hillcrest Inn, Villa Los
Posas and Wilshire Retirement Center.

         The Towson  Property,  which opened in June 2000,  includes 66 assisted
living units and 23 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing,  medication reminders, health and wellness
assessments,  emergency  call response and scheduled  transportation.  Amenities
include a common  activities  room and dining  room,  a private  dining  area, a
beauty/barber  shop, a family  visitation  room, a wellness center and a laundry
room.  The Property is located in a suburb of Baltimore and is within four miles
of three  hospitals and is adjacent to shopping and dining areas.  The number of
seniors in the ten-mile area surrounding the Towson Property is expected to grow
by 12.4%  between  2001 and 2006.  Other  senior  living  facilities  located in
proximity  to the  Towson  Property  include  Arden  Courts,  Catered  Living of
Cockville,  HeartHomes  at  Lutherville,  Morningside  House of  Satyr  Hill and
Sunrise Assisted Living of Towson.

         The Clayton Property,  which opened in March 2000, includes 42 assisted
living units and 42 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
a common  activities  room and dining room,  a recreation  center and a wellness
center.  The Property is located  northwest of downtown Dayton and is within ten
miles of four hospitals,  a mall and other shopping areas. The number of seniors
in the ten-mile  area  surrounding  the Clayton  Property is expected to grow by
14.9% between 2001 and 2006. Other senior living facilities located in proximity
to the Clayton Property include Alterra Sterling House of Englewood,  The Gables
Assisted Living, Hearth & Home Assisted Living and Sunrise of Englewood.

         The  Dartmouth  Property,  which opened in November  1999,  includes 58
assisted  living units and 28 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a common  activities  room and dining room,  a  recreation  center and a
wellness  center.  The  Property is located 30 miles east of  Providence,  Rhode
Island and 60 miles south of Boston,  Massachusetts,  and is within two miles of
two hospitals  and is near the  Dartmouth  Mall and other  shopping  areas.  The
number of seniors in the ten-mile area  surrounding  the  Dartmouth  Property is
expected to grow by 13.8% between 2001 and 2006. Other senior living  facilities
located in proximity to the Dartmouth Property include Alden Place,  Heritage at
Dartmouth and The Inn at Clifton.

         The Elk Grove  Property,  which opened in September  1999,  includes 56
assisted  living units and 28 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a common  activities  room and dining room,  a  recreation  center and a
wellness center. The Property is located in a suburb of Sacramento and is within
four miles of three hospitals and is adjacent to shopping and dining areas.  The
number of seniors in the ten-mile  area  surrounding  the Elk Grove  Property is
expected to grow by 20.3% between 2001 and 2006. Other senior living  facilities
located in proximity to the Elk Grove Property include Aegis of Carmichael,  The
Grand Court Sacramento, Primrose Sacramento and Regency Place.

         The average  occupancy rate, the cash from operations,  the revenue per
occupied unit (per diem) and the revenue per  available  unit (per diem) for the
periods the facilities have been operational are as follows:


                                                         Average          Cash From         Revenue          Revenue
                                                        Occupancy        Operations*      per Occupied    per Available
      Property            Location          Year           Rate        (in thousands)         Unit            Unit
 --------------------  ----------------  ------------  -------------   ----------------  ---------------  --------------

 Camarillo Property    Camarillo, CA         ***2000       48.90%             $(304 )        $121.53          $49.97
                                                2001       82.20%             1,030           128.55          105.71
                                            ****2002       79.04%             1,509           136.42          110.14
                                           *****2003       78.80%               130           139.54          111.72

 Towson Property       Towson, MD            ***2000       44.60%             $(310 )        $141.83          $63.20
                                                2001       70.70%               460           131.67           93.15
                                            ****2002       79.54%             1,173           133.63          108.06
                                           *****2003       90.30%               129           144.66          130.64

 Clayton Property      Clayton, OH           ***2000       31.50%             $(558 )        $107.00          $33.68
                                                2001       61.10%              (159 )          98.06           59.96
                                            ****2002       62.25%              (145 )         107.13           67.72
                                           *****2003      53.60%                (25 )         113.85           60.99

 Dartmouth Property    Dartmouth, MA          **1999       11.20%             $(149 )        $180.68          $20.28
                                             ***2000       50.70%              (113 )         110.36           55.90
                                                2001       82.30%               688           115.55           95.13
                                            ****2002       71.86%               475           122.62           89.86
                                           *****2003      64.50%                 10           121.34           78.26

 Elk Grove Property    Elk Grove, CA          **1999       12.10%             $(295 )        $136.22          $16.46
                                             ***2000       47.40%              (351 )          97.30           46.16
                                                2001       72.40%               211            99.72           72.24
                                            ****2002       95.41%               706           101.72           98.62
                                           *****2003      111.90%                81           101.67          113.78


*        Based on information provided by Marriott International, Inc. from its
         departmental operating statements which presented a modified EBITDA
         (rather than net income or loss) based on its own internal expense
         allocation system for certain items.

**       Data for the Dartmouth Property represents the period November 15, 1999
         through December 31, 1999 and data for the Elk Grove Property
         represents the period September 22, 1999 through December 31, 1999.

***      Data for the Camarillo Property represents the period June 12, 2000
         through December 29, 2000, data for the Towson Property represents the
         period June 1, 2000 through December 29, 2000 and data for the Clayton
         Property represents the period March 7, 2000 through December 29, 2000.


****     Data for 2002 represents the period December 29, 2001 through January 3, 2003.

*****    Data for 2003 represents the period January 4, 2003 through January 31, 2003.

         Historical   financial   statements  for  the  Marriott  Portfolio  One
Properties  have not been  presented  because the Company  does not believe that
they are meaningful or relevant.  As indicated above, the Marriott Portfolio One
Properties  were  recently  opened  and the  majority  of them are  still in the
process of achieving  stable  occupancy  rates.  The Company  estimated that the
Marriott  Portfolio One  Properties  would not be able to generate  minimum rent
until the Marriott  Portfolio One  Properties  stabilized at  approximately  91%
occupancy.  The Company  also does not  believe  that the  historical  financial
statements are relevant to predicting  future  operating  results because of the
internal  expenses  incurred  by the  seller  and the  difference  in the future
operating  structure  from that  which was in place  when the  seller  owned the
Marriott  Portfolio One  Properties.  Consequently  their  historical  operating
results are not  considered  by the  Company to be  indicative  of the  tenant's
ability to generate the funds necessary to meet its obligations under the leases
with the Company in the future.  The Company's decision to make an investment in
the  Marriott  Portfolio  One  Properties  was not  based  on  their  historical
operating performance.  The Company's investment decision was based on estimates
of future  cash flows  available  for rental  payments  from the tenant that the
Company  developed,  based on rent rolls and an analysis of the surrounding real
estate market,  including certain demographic information and industry standards
to predict  operating  costs.  The Company's  estimates  assumed  achievement of
certain  occupancy levels based on this information and were prepared using cost
factors that are consistent with the terms of the operating agreements that will
be  in  place  under  the  Marriott  Portfolio  One  Properties'  new  ownership
structure.  The Company believes that the methodology and underlying assumptions
used were reasonable and appropriate.

         In  connection  with  the  purchase  of  the  Marriott   Portfolio  One
Properties,  the  Company  borrowed  $23,520,000  in  the  form  of a  five-year
commercial  paper backed loan secured by the Marriott  Portfolio One  Properties
with  an  interest  rate of 123  basis  points  over  commercial  paper  rate as
determined by market demand, which approximates 30-day LIBOR per annum. The loan
is funded from proceeds  received from the sale of 30-day  commercial paper. The
commercial paper is re-marketed  every 30 days upon maturity.  The Company has a
liquidity  facility  in  place  in  the  event  that  the  marketing  effort  is
unsuccessful.  The liquidity  agent has provided a liquidity  facility for up to
102  percent  of  the  outstanding  loan  balance.   In  conjunction  with  this
transaction,  the  Company  engaged  Century  Capital  Markets LLC to act as its
structuring  agent (the  "Structuring  Agent").  As of February  28,  2003,  the
Company had paid the  Structuring  Agent  approximately  $644,900 in structuring
fees and  interest.  CNL  Capital  Corp.,  an  Affiliate  of the  Advisor,  is a
non-voting Class C member of Century Capital Markets LLC.

         Prime Care  Portfolio  Properties.  On September 30, 2002,  the Company
acquired  the  Brighton  Gardens of Buckhead  located in Atlanta,  Georgia  (the
"Atlanta-Buckhead  Property") for $7,654,546 from Prime Care Two, LLC;  Brighton
Gardens of Brentwood located in Brentwood,  Tennessee (the "Brentwood Property")
for  $6,349,794  from Prime Care Two,  LLC;  the  Brighton  Gardens of Charlotte
located in Charlotte,  North Carolina (the "Charlotte  Property") for $3,218,389
from Prime Care One, LLC; the Brighton Gardens of Friendship  Heights located in
Chevy Chase,  Maryland (the "Chevy Chase  Property") for $19,310,331  from Prime
Care One, LLC; the Brighton  Gardens of Middletown  located in  Middletown,  New
Jersey (the "Middletown Property") for $11,481,818 from Prime Care Two, LLC; the
Brighton  Gardens of  Mountainside  located  in  Mountainside,  New Jersey  (the
"Mountainside  Property") for $12,438,636 from Prime Care One, LLC; the Brighton
Gardens  of Naples  located in  Naples,  Florida  (the  "Naples  Property")  for
$8,002,479 from Prime Care Two, LLC; the Brighton  Gardens of Raleigh located in
Raleigh,  North Carolina (the "Raleigh Property") for $9,655,165 from Prime Care
Two, LLC; the Brighton Gardens of Stamford located in Stamford, Connecticut (the
"Stamford  Property")  for  $13,569,421  from Prime Care Two,  LLC; the Brighton
Gardens  of Venice  located in  Venice,  Florida  (the  "Venice  Property")  for
$6,523,760 from Prime Care One, LLC; and the Brighton  Gardens of  Winston-Salem
located in  Winston-Salem,  North  Carolina (the  "Winston-Salem  Property") for
$7,045,661 from Prime Care Two, LLC. The Atlanta-Buckhead, Brentwood, Charlotte,
Chevy Chase, Middletown,  Mountainside,  Naples, Raleigh,  Stamford,  Venice and
Winston-Salem  Properties  are  hereinafter  referred  to  as  the  "Prime  Care
Portfolio  Properties." These 11 Properties are operated and managed by Marriott
Senior Living Services, Inc.

         The Company, as lessor, has entered into a long-term,  triple-net lease
agreement  with Prime Care One, LLC and Prime Care Two, LLC relating to these 11
Properties.  The general terms of the lease agreement are described in "Business
-- Description of Property  Leases." The principal  features of the lease are as
follows:

o The lease expires on September 30, 2037.

o The minimum amount of annual rent as set forth in the leases is as follows:
                                                  Minimum
                    Property                    Annual Rent
         --------------------------------     -----------------

         Atlanta-Buckhead Property             $   837,862
         Brentwood Property                        695,044
         Charlotte Property                        352,283
         Chevy Chase Property                    2,166,197
         Middletown Property                     1,361,793
         Mountainside Property                   1,466,525
         Naples Property                           613,446
         Raleigh Property                        1,056,848
         Stamford Property                       1,485,300
         Venice Property                           714,087
         Winston-Salem Property                    771,214

o        Minimum annual rent will increase by 2.5% beginning January 1, 2004 and
         each lease year thereafter until the end of the 29th lease year.

o        In addition to minimum rent, the lease requires  additional  rent which
         will be payable based on various  predetermined  dollar amounts derived
         from achieving specific  percentage  occupancy levels beginning January
         1, 2004.

o        Audited  financial  statements  that present the  historical  operating
         results of these  Properties are included in the Financial  Information
         commencing  on page F-1, as Prime Care One, LLC and PC1, LLC, and Prime
         Care Two, LLC and PC2,  LLC, for the years ended  December 31, 2002 and
         2001,  and Prime Care One  Portfolio  and Prime Care Two,  LLC, for the
         years ended  December 31, 2001,  2000 and 1999.  Based on the Company's
         due diligence and underwriting procedures,  management anticipates that
         the net operating income generated from the Properties together with an
         aggregate  $2,000,000 tenant guarantee to fund any operating shortfalls
         related to the 11  Properties  will be  sufficient  to fund amounts due
         under the terms and conditions of the direct financing lease.

o        The tenants of these 11 Properties have  established FF&E Reserve funds
         which will be used for the  replacement  and renewal of the  furniture,
         fixtures and equipment relating to the Prime Care Portfolio Properties.
         Deposits to the FF&E Reserve are made every four weeks as follows:  the
         greater of 2% of gross  revenues or $350 per bed per annum  through the
         third lease year;  3% of gross  revenues for the fourth  through  tenth
         lease years;  and 3.5% of gross revenues  every lease year  thereafter.
         Funds in the FF&E  Reserve  relating  to  these 11  Properties  are the
         property of the tenants.

o        The lease for the 11 Properties  contains  pooling terms,  meaning that
         net operating  profits with respect to all 11  Properties  are combined
         for the purpose of funding  rental  payments and the FF&E  Reserve.  In
         addition,  the lease contains  cross-default terms, meaning that if the
         tenant of any of the 11 Properties  defaults on its  obligations  under
         the lease,  the Company  will have the  ability to pursue its  remedies
         under  the lease  with  respect  to all 11  Properties,  regardless  of
         whether the tenant of any such Property is in default under the lease.

o        The  lease  contains  provisions  that  allow the  lessees  to elect to
         purchase  the  Properties  at the end of the term  for a  predetermined
         amount.  The lease also  permits  the Company to require the lessees to
         purchase  the  Properties  at the end of the  lease  term  for the same
         predetermined  amount. This lease is being treated as a financing lease
         for both financial reporting and tax accounting purposes.

o        The tenants of these 11  Properties  pay base  management  fees,  which
         includes an  administrative  fee, to Marriott  Senior Living  Services,
         Inc. for the  operation of the 11  Properties  as follows:  5% of gross
         revenues  through the 2007 fiscal year,  5.5% of gross revenues for the
         2008 fiscal year through the 2012 fiscal year, and 6% of gross revenues
         for the remainder of the lease term.  Notwithstanding the foregoing, in
         the event certain operating profit thresholds are achieved prior to the
         2013 lease year, the base management fees will  automatically  increase
         to 6% of gross  revenues and remain at such level for the  remainder of
         the lease term. Marriott Senior Living Services,  Inc. is also entitled
         to incentive  management fees up to 15% of operating  profit  remaining
         after payment of minimum annual rent and a tenant  administration  fee.
         Rent  payments  due under the lease are  subordinate  to the payment of
         base management fees.

         The Atlanta-Buckhead  Property,  which opened in January 1998, includes
90 assisted living units and 22 units for residents with Alzheimer's and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms, a library and a beauty/barber  shop. The Property is located in Buckhead,
in  northern  Atlanta,  Georgia.  Other  senior  living  facilities  located  in
proximity to the Atlanta-Buckhead Property include Atria of Buckhead and Sunrise
of Buckhead.

         The  Brentwood  Property,  which opened in December  1997,  includes 90
assisted  living units and 23 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  The  Property is located 10 miles
south of downtown  Nashville,  Tennessee.  In addition to the Company's Homewood
Residence at Brookmont Terrace Property,  other senior living facilities located
in  proximity  to  the  Brentwood  Property  include  Belmont  Village,   Benton
House/Beacon  Pointe,  Carestone  at  Brentwood,  Morningside  of  Franklin  and
Southerland Place.

         The Charlotte Property,  which opened in May 1997, includes 90 assisted
living units and 25 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
a main living room with a fireplace,  country kitchens and screened  porches,  a
restaurant-style  main dining room and a private dining area,  activity rooms, a
library and a  beauty/barber  shop.  Other senior living  facilities  located in
proximity to the Charlotte Property include Alterra Clare Bridge, Carolina House
of  Charlotte,  Elmcroft,  The Place at South Park,  Sunrise of Eastover and The
Village at Carolina Place.

         The Chevy Chase  Property,  which opened in January 1997,  includes 108
assisted  living units and 24 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library  and a  beauty/barber  shop.  The  Property  is  located  in a
northwestern suburb of Washington D.C. Other senior living facilities located in
proximity to the Chevy Chase Property include Kensington Park Retirement, Sibley
Grand Oaks, Springhouse at Westwood and Summerville at Potomac.

         The Middletown  Property,  which opened in December  1997,  includes 98
assisted  living units and 25 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  The  Property is located 30 miles
southeast of Newark,  New Jersey.  Other  senior  living  facilities  located in
proximity to the Middletown  Property include Sunrise of Marlboro,  The Sycamore
and The Willows at Holmdel.

         The Mountainside  Property,  which opened in January 1997,  includes 98
assisted  living units and 21 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  The  Property is located 12 miles
southwest of downtown Newark, New Jersey. Other senior living facilities located
in proximity to the Mountainside Property include Atria of Cranford,  Chelsea at
Fanwood, Spring Meadows, Sunrise of Westfield and Watchung Ridge.

         The  Naples  Property,  which  opened in  February  1998,  includes  93
assisted  living  units and 40 skilled  nursing  units.  The  Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and medication  reminders,  as well as medical  monitoring.  Amenities include a
main living room with a fireplace,  country  kitchens and  screened  porches,  a
restaurant-style  main dining room and a private dining area,  activity rooms, a
library and a  beauty/barber  shop.  Other senior living  facilities  located in
proximity to the Naples Property  include Homewood  Assisted Living,  The Inn at
Aston  Gardens,  Merrill  Gardens,  Orchid  Terrace at Moorings Park and Windsor
Place.

         The Raleigh  Property,  which  opened in  September  1997,  includes 90
assisted  living units and 23 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms, a library and beauty/barber  shop. Other senior living facilities located
in proximity to the Raleigh  Property include  Heartfields at Cary,  Manorhouse,
Oakleaf Village, Sunrise of Raleigh and Woodland Terrace.

         The  Stamford  Property,  which  opened in December  1997,  includes 90
assisted  living units and 24 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  Other  senior  living  facilities
located in proximity to the Stamford  Property  include  Atria Town Center,  The
Osborn, Sunrise of Stamford and Westfield Court.

         The Venice  Property,  which  opened in  December  1996,  includes  102
assisted  living  units and 27 skilled  nursing  units.  The  Operator  provides
assistance to residents with daily living  activities such as bathing,  dressing
and medication  reminders,  as well as medical  monitoring.  Amenities include a
main living room with a fireplace,  country  kitchens and  screened  porches,  a
restaurant-style  main dining room and a private dining area,  activity rooms, a
library  and a  beauty/barber  shop.  The  Property is located 20 miles south of
Sarasota,  Florida.  Other senior living facilities  located in proximity to the
Venice Property  include Alterra  Sterling House,  Aspen Bella Vita, Bon Secours
Place at Healthpark, Park Place, and Village on the Isle.

         The  Winston-Salem  Property,  which  opened in June 1997,  includes 90
assisted  living units and 23 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  Other  senior  living  facilities
located in proximity to the Winston-Salem Property include Alterra Clare Bridge,
Clemmons Village II, Elms at Tanglewood, Homestead Hills and Polo Ridge.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue  per  available  unit (per diem) for the periods the  facilities
have been operational are as follows:

                                                                                                            Revenue
                                                                           Average        Revenue per         per
                                                                          Occupancy         Occupied        Available
         Property                      Location              Year           Rate              Unit             Unit
----------------------------    -----------------------    ----------   --------------    -------------     -----------

Atlanta-Buckhead Property       Atlanta, GA                     1998       22.61%          $   98.83         $   21.21
                                                                1999       53.91%             100.59             54.23
                                                                2000       77.39%              99.60             77.09
                                                                2001       81.74%             108.75             88.89
                                                               *2002       79.19%             110.53             88.50
                                                              **2003       73.90%             109.34             80.85

Brentwood Property              Brentwood, TN                   1998       45.22%          $   91.27         $   41.27
                                                                1999       60.87%              97.19             59.16
                                                                2000       71.30%              97.65             69.63
                                                                2001       67.83%             101.50             68.84
                                                               *2002       72.90%             101.46             73.94
                                                              **2003       73.20%              98.71             72.22

Charlotte Property              Charlotte, NC                   1998       84.35%          $   92.37         $   77.91
                                                                1999       76.52%              96.54             73.88
                                                                2000       66.09%              98.55             65.13
                                                                2001       74.78%             102.12             76.37
                                                               *2002       77.30%              99.22             76.70
                                                              **2003       82.10%              99.57             82.59

Chevy Chase Property            Chevy Chase, MD                 1998       81.82%          $  125.51         $  102.69
                                                                1999       93.94%             126.11            118.47
                                                                2000       90.15%             136.01            122.62
                                                                2001       91.67%             143.78            131.80
                                                               *2002       93.30%             149.93            139.87
                                                              **2003       90.90%             152.78            138.93

Middletown Property             Middletown, NJ                  1998       52.17%          $  107.31         $   55.99
                                                                1999       73.91%             119.79             88.54
                                                                2000       75.65%             124.46             94.16
                                                                2001       86.96%             132.89            115.56
                                                               *2002       77.50%             135.21            104.80
                                                              **2003       76.20%             138.23            105.90

Mountainside Property           Mountainside, NJ                1998       88.62%          $  113.19         $  100.31
                                                                1999       81.30%             113.18             92.02
                                                                2000       84.55%             123.61            104.52
                                                                2001       81.30%             134.57            109.41
                                                               *2002       73.40%             138.63            101.75
                                                              **2003       70.40%             129.13             90.96


                                                                                                            Revenue
                                                                           Average        Revenue per         per
                                                                          Occupancy         Occupied        Available
         Property                      Location              Year           Rate              Unit             Unit
----------------------------    -----------------------    ----------   --------------    -------------     -----------

Naples Property                 Naples, FL                      1998       42.11%          $  102.26         $   43.06
                                                                1999       71.43%             113.04             80.74
                                                                2000       90.98%             110.05            100.12
                                                                2001       87.22%             112.75             98.34
                                                               *2002       76.70%             113.87             87.30
                                                              **2003       59.40%             122.05             72.46

Raleigh Property                Raleigh, NC                     1998       86.09%          $   87.81         $   75.59
                                                                1999       90.43%              94.22             85.21
                                                                2000       96.52%             105.64            101.96
                                                                2001       98.26%             110.47            108.55
                                                               *2002       96.40%             114.48            110.30
                                                              **2003       99.80%             115.60            115.38

Stamford Property               Stamford, CT                    1998       45.22%          $  126.79         $   57.33
                                                                1999       76.52%             132.38            101.30
                                                                2000       76.52%             134.30            102.77
                                                                2001       64.35%             138.63             89.20
                                                               *2002       72.10%             153.46            110.71
                                                              **2003       94.30%             151.19            142.64

Venice Property                 Venice, FL                      1998       90.48%          $  112.11         $  101.43
                                                                1999       88.44%             103.35             91.40
                                                                2000       87.76%             107.67             94.51
                                                                2001       86.39%             128.86            111.33
                                                               *2002       87.07%             116.17            101.08
                                                              **2003       87.10%             126.73            110.35

Winston-Salem Property          Winston Salem, NC               1998       63.48%          $   85.28         $   54.14
                                                                1999       85.22%              84.56             72.06
                                                                2000       89.57%              90.33             80.90
                                                                2001       84.35%              97.79             82.48
                                                               *2002       91.50%              98.66             90.95
                                                              **2003       95.30%             102.00             99.03

*        Data for 2002 represents the period January 1, 2002 through January 3, 2003.
**       Data for 2003 represents the period January 4, 2003 through January 31, 2003.

         The  Prime  Care  Portfolio  Properties  serve  as  collateral  for the
Company's two-year,  $85 million revolving line of credit described in "Business
-- Borrowing," below.

         Brooksby  Village  Continuing  Care  Retirement  Community  located  in
Peabody,  Massachusetts.  On October 10, 2002, the Company  acquired a parcel of
land  located  in  Peabody,  Massachusetts,  upon  which  the  Brooksby  Village
Continuing  Care  Retirement   Community  is  being  constructed  (the  "Peabody
Property").  The land was  purchased  from Peabody  Campus,  LLC, a wholly owned
subsidiary  of  Erickson  Retirement  Communities,  LLC,  for  $17,383,784.  The
Brooksby  Village  Continuing Care Retirement  Community,  once  construction is
completed,  is expected to include  1,355  independent  living  apartments,  196
assisted  living units and 160 skilled  nursing units.  The Company will not own
the buildings and improvements.  The buildings and improvements will be owned by
Peabody  Campus,  LLC.  The  Company,  as lessor,  has entered into a long-term,
triple-net  lease agreement with Peabody  Campus,  LLC relating to the land. The
general terms of the lease  agreement are described in "Business --  Description
of Property Leases." The principal features of the lease are as follows:

o        The initial land lease expires on April 10, 2033.

o        The lease  requires  minimum  annual rent of  $2,607,568  for the first
         through  fifth  lease  years  with  increases  of 3%  each  lease  year
         thereafter,  except as follows:  in the 11th, 16th, 21st and 26th lease
         years,  minimum  annual  rent will  increase  to the greater of (i) the
         prior lease year's minimum annual rent plus 3% or (ii)  $2,607,568 plus
         the  percentage  increase in the fair market value of the Property over
         the previous ten lease  years,  in the case of the 11th lease year,  or
         over the  previous  five lease years in the case of the 16th,  21st and
         26th lease years.

o        A security deposit equal to $1,303,784 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        The tenant will have the option to  purchase  the land during the lease
         term  for a  predetermined  purchase  price  based  on the date of such
         purchase  option  and  other  attributes  including  the  amount of the
         Company's  initial  investment,  consumer price indices and/or the fair
         market value of the land at the time the option is exercised.

o        The Company's  lease  payments are  subordinate  to the bond  financing
         secured by Erickson to complete the development of the Brooksby Village
         Continuing Care Retirement Community.

         Homewood   Residence  at  Brookmont   Terrace   located  in  Nashville,
Tennessee.  On November 1, 2002, the Company acquired the Homewood  Residence at
Brookmont Terrace assisted living Property located in Nashville,  Tennessee (the
"Nashville  Property")  for  $8,957,850  from ARC. The Company,  as lessor,  has
entered  into a  long-term,  triple-net  lease  agreement  with a  wholly  owned
subsidiary  of ARC  relating to this  Property.  The general  terms of the lease
agreement are  described in "Business --  Description  of Property  Leases." The
principal features of the lease are as follows:

o        The initial term of the lease expires on October 31, 2017.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease requires  minimum annual rent of $918,180 for the first lease
         year with increases of 2% each lease year thereafter.

o        In addition to minimum rent, the lease requires  percentage  rent equal
         to 10% of gross  revenues in excess of the  "Nashville  Baseline  Gross
         Revenues."  The Nashville  Baseline Gross Revenues will be the prior 12
         months  total  revenue for the period  ending on the earlier of (i) the
         36th  month of the  lease,  or (ii) the  month  in which  the  facility
         achieves average  occupancy of 93% for the prior 12 months.  Percentage
         rents will be net of any minimum base rent increases.

o        A security  deposit  equal to $358,314 has been retained by the Company
         as security for the tenant's  obligations under the lease. The security
         deposit will remain in place until the expiration of the lease.

o        ARC has  guaranteed  all of the  tenant's  obligations  under the lease
         throughout the duration of the lease. Since the guarantee is unlimited,
         the Company estimates that the guarantee will be sufficient to fund any
         future operating shortfalls for the term of the lease.

o        The lease for this Property contains  cross-default  terms with respect
         to the leases for the Arlington,  Boca Raton,  Oak Park,  Coconut Creek
         and Greenwood Village Properties,  meaning that if the tenant of any of
         these  Properties  defaults on its  obligations  under its leases,  the
         Company will have the ability to pursue its  remedies  under the leases
         with  respect to any of these  Properties,  regardless  of whether  the
         tenant of any such Property is otherwise in default under its lease.

         In connection with the acquisition of this Property, the Company may be
required to make an  additional  payment  (the  "Nashville  Earnout  Amount") if
certain  earnout  provisions  are  achieved  by the end of the 30th month of the
lease  term.  The  Nashville  Earnout  Amount is equal to the lesser of: (i) the
lesser of (a) the actual net  operating  income for the 12-month  period  ending
April  30,  2005,  or (b) that  same  amount  as  calculated  as if the  average
occupancy  for that  period  had been 93%;  the  lesser of (a) or (b) then being
divided by 1.10 and the resulting number then being divided by the current lease
rate, then subtracting from such number the Company's initial  investment in the
Property;  (ii) 20% of the Company's  initial  investment  in the Property;  and
(iii) 94% of the fair market value of the Property,  less the Company's  initial
investment  in the  Property.  At such time that the  Nashville  Earnout  Amount
becomes payable, the lease will be amended to increase the basis by which annual
minimum rent is calculated.

         The  federal  income  tax  basis  of  the  depreciable  portion  of the
Nashville Property is approximately $8.5 million.

         The Nashville Property,  which opened in May 2000, includes 62 assisted
living units and 30 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
a common  activities  room,  dining room and sun room,  a beauty  shop,  covered
porches,  patios and a courtyard  area.  The  Property  is located in  southwest
Nashville,  Tennessee,  less  than  five  miles  from St.  Thomas  Hospital.  In
addition, the Nashville Property is within 15 miles of five additional hospitals
and is near shopping and dining areas. Between 2002 and 2006, the age and income
qualified  population  within a five-mile  radius of the  Nashville  Property is
expected  to increase  by 17.75%.  Other  senior  living  facilities  located in
proximity to the Nashville  Property  include Barton House,  Belmont  Village of
Green  Hills,  Mary  Queen of the  Angels  and The  Waterford,  which  was under
construction  at the time the  Nashville  Property  was  acquired.  The  average
occupancy  rate,  the revenue per  occupied  unit (per diem) and the revenue per
available unit (per diem) for the period the assisted  living  facility has been
operational are as follows:
                                      Nashville Property
                  --------------------------------------------------------

                     Average            Revenue               Revenue
                    Occupancy         per Occupied         per Available
    Year              Rate                Unit                 Unit
-------------     --------------     ---------------      ----------------

       *2000         17.00%              $150.09               $24.45
        2001         62.00%                84.40                57.52
        2002         73.46%                93.52                68.70
      **2003         80.04%                93.21                74.60

     * Data for 2000 represents the period May 15, 2000 through December 31,
        2000.
    ** Data for 2003 represents the period January 1, 2003 through January
        31, 2003.

         Marriott  Portfolio Two  Properties.  On December 20, 2002, the Company
acquired 12  Properties  from  Marriott  Senior  Living  Services,  Inc. and its
affiliates for an aggregate  purchase price of  $89,358,632.  The Properties and
related  purchase  prices  include  Brighton  Gardens  of  Bellevue  located  in
Bellevue,  Washington (the "Bellevue  Property") for  $10,201,606;  the Brighton
Gardens of Hoffman  Estates located in Hoffman  Estates,  Illinois (the "Hoffman
Estates Property") for $7,543,752; the Brighton Gardens of Oklahoma City located
in Oklahoma City,  Oklahoma (the "Oklahoma City Property") for  $3,646,636;  the
Brighton  Gardens of Santa Rosa  located in Santa Rosa,  California  (the "Santa
Rosa Property") for $16,748,552; the Brighton Gardens of Tulsa located in Tulsa,
Oklahoma (the "Tulsa Property") for $4,684,167;  the Brighton Gardens of Vinings
located in  Atlanta,  Georgia  (the  "Atlanta  Property")  for  $7,374,428;  the
Marriott  Hearthside of Lynnwood located in Lynnwood,  Washington (the "Lynnwood
Property")  for  $6,300,000;  the Marriott  Hearthside  of Snohomish  located in
Snohomish,  Washington (the "Snohomish  Property") for $8,600,000;  the Marriott
MapleRidge  of Hemet located in Hemet,  California  (the "Hemet  Property")  for
$4,109,688;   the  Marriott   MapleRidge   of  Plymouth   located  in  Plymouth,
Massachusetts (the "Plymouth Property") for $4,580,387;  the Marriott MapleRidge
of  Willoughby  located in  Willoughby,  Ohio (the  "Willoughby  Property")  for
$4,930,498;  and the Marriott  Pleasant Hills  Retirement  Community  located in
Little  Rock,  Arkansas  (the  "Little  Rock  Property")  for  $10,638,918.  The
Bellevue,  Hoffman Estates, Oklahoma City, Santa Rosa, Tulsa, Atlanta, Lynnwood,
Snohomish,  Hemet,  Plymouth,  Willoughby  and  Pleasant  Hills  Properties  are
hereinafter  referred to as the "Marriott  Portfolio Two  Properties."  These 12
Properties are operated and managed by Marriott Senior Living Services, Inc.

         The Company,  as lessor,  has entered into long-term,  triple-net lease
agreements  with Eight Pack Management  Corp. and Eleven Pack  Management  Corp.
relating to these 12  Properties.  Eight Pack  Management  Corp. and Eleven Pack
Management  Corp.  are  described  in  further  detail in  "Business--  Property
Acquisitions--  Brighton Gardens by Marriott located in Orland Park,  Illinois,"
above.  The general terms of the lease  agreements are described in "Business --
Description of Property Leases." The principal  features of the lease agreements
with Eight Pack Management Corp. relating to the Hoffman Estates,  Tulsa, Hemet,
Plymouth, Willoughby and Little Rock Properties are as follows:

o        The initial term of each lease expires on December 20, 2017.

o        The minimum annual rent as set forth in the leases is as follows:

                                                  Minimum
                 Property                       Annual Rent
        ----------------------------    ----------------------------

         Hoffman Estates Property                 $  780,967
         Tulsa Property                              484,928
         Hemet Property                              425,455
         Plymouth Property                           474,185
         Willoughby Property                         510,430
         Little Rock Property                      1,101,394

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year, and each lease year thereafter.

o        At the end of the  initial  lease  terms,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        In addition to minimum annual rent, the leases require  additional rent
         in an  amount  equal to the  difference  between  14% of the  Company's
         investment basis in the Properties and minimum annual rent payable each
         lease year until  minimum  annual  rent  exceeds  14% of the  Company's
         investment basis. For purposes of the additional rent calculation,  the
         Company's  investment  basis  equals  the  product  of  the  Property's
         purchase price times 1.01.  The additional  rent accrues and is payable
         every four weeks. Any unpaid  additional rent is subject to interest at
         the prime rate, as published by The Wall Street Journal, plus 1%.

o        On behalf  of the  tenant of these six  Properties,  the  Operator  has
         established  FF&E Reserve funds which will be used for the  replacement
         and renewal of furniture,  fixtures and  equipment  relating to the six
         Properties. Deposits to the FF&E Reserve are made every four weeks, and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined by factors such as the age of each Property.  Deposits to
         the FF&E Reserve for the Hoffman Estates,  Tulsa,  Hemet and Willoughby
         Properties  are 2% of gross  revenues  for the first and  second  lease
         years;  3% of gross  revenues for the third  through  fourteenth  lease
         years; and 3.5% of gross revenues each lease year thereafter.  Deposits
         to the FF&E Reserve for the Plymouth  Property are 2% of gross revenues
         for the first through third lease years;  3% of gross  revenues for the
         fourth through  fifteenth lease years;  and 3.5% of gross revenues each
         lease year thereafter. Deposits to the FF&E Reserve for the Little Rock
         Property are 3.5% of gross  revenues  throughout the term of the lease.
         Funds in the FF&E Reserve  relating to these six Properties are held by
         the Company.

o        The leases for the Hoffman Estates, Tulsa, Hemet, Plymouth, Willoughby
         and Little Rock Properties contain pooling terms, meaning that net
         operating profits with respect to these six Properties are combined for
         the purpose of funding rental payments and the FF&E Reserve. In
         addition, the leases contain cross-default terms, meaning that if the
         tenant of any of the six Properties defaults on its obligations under
         any of these leases, the Company will have the ability to pursue its
         remedies under the leases with respect to these six Properties,
         regardless of whether the tenant of any such Property is in default
         under its lease.

o        Base management fees payable to Marriott Senior Living  Services,  Inc.
         for  the  operation  of the six  Properties  are 6% of  gross  revenues
         throughout  the term of the leases.  Rent payments due under the leases
         are subordinate to the payment of base management fees. Notwithstanding
         the  foregoing,  in the  event net  operating  profits  are  available,
         Marriott  Senior  Living  Services,  Inc.  is also  entitled to receive
         incentive  management  fees up to 2% of gross revenues  remaining after
         payment of minimum  annual  rent and a tenant  administrative  fee.  In
         addition,  Marriott Senior Living Services,  Inc. is entitled to 50% of
         operating  profits  remaining after payment of (i) minimum annual rent,
         (ii) a tenant administration fee, (iii) the 2% incentive management fee
         described above and (iv) additional rent due under the leases.

         The principal features of the lease agreements with Eleven Pack
Management Corp. relating to the Bellevue, Oklahoma City, Santa Rosa, Atlanta,
Lynnwood and Snohomish Properties are as follows:

o        The initial term of each lease expires on December 20, 2017.

o        Minimum annual rent as set forth in the leases is as follows:

                                                  Minimum
                 Property                       Annual Rent
        ----------------------------    ----------------------------

         Bellevue Property                        $  899,335
         Oklahoma City Property                      321,474
         Santa Rosa Property                       1,476,490
         Atlanta Property                            650,102
         Lynnwood Property                           555,384
         Snohomish Property                          758,144

o        Minimum  annual rent will  increase by 3% beginning in the second lease
         year, and each lease year thereafter.

o        At the end of the  initial  lease  terms,  the  tenant  will  have  two
         consecutive renewal options of ten years each.

o        In addition to minimum annual rent, the leases require  additional rent
         in an  amount  equal to the  difference  between  14% of the  Company's
         investment basis in the Properties and minimum annual rent payable each
         lease  year.  For  purposes of the  additional  rent  calculation,  the
         Company's  investment  basis  equals  the  product  of  the  Property's
         purchase price times 1.0075. The additional rent accrues and is payable
         every four weeks. Any unpaid  additional rent is subject to interest at
         the prime rate, as published by The Wall Street Journal, plus 1%.

o        On behalf  of the  tenant of these six  Properties,  the  Operator  has
         established an FF&E Reserve which will be used for the  replacement and
         renewal  of  furniture,  fixtures  and  equipment  relating  to the six
         Properties. Deposits to the FF&E Reserve are made every four weeks, and
         the amount of the deposits are based on a percentage of gross revenues,
         as determined by factors such as the age of each Property.  Deposits to
         the FF&E Reserve for the Bellevue, Oklahoma City and Atlanta Properties
         are 2% of gross  revenues for the first and second  lease years;  3% of
         gross revenues for the third through  fourteenth  lease years; and 3.5%
         of gross  revenues  each lease year  thereafter.  Deposits  to the FF&E
         Reserve for the Santa Rosa  Property  are 2% of gross  revenues for the
         first  through third lease years;  3% of gross  revenues for the fourth
         through  fifteenth  lease years;  and 3.5% of gross revenues each lease
         year thereafter. Deposits to the FF&E Reserve for the Lynnwood Property
         are 3% of gross  revenues for the first through  fourth lease years and
         3.5% of gross revenues each lease year thereafter. Deposits to the FF&E
         Reserve for the  Snohomish  Property  are 3% of gross  revenues for the
         first through  eighth lease years and 3.5% of gross revenues each lease
         year  thereafter.  Funds  in the FF&E  Reserve  relating  to these  six
         Properties are held by the Company.

o        The  leases for the  Bellevue,  Oklahoma  City,  Santa  Rosa,  Atlanta,
         Lynnwood and Snohomish  Properties contain pooling terms,  meaning that
         net operating profits with respect to these six Properties are combined
         for the purpose of funding  rental  payments and the FF&E  Reserve.  In
         addition,  the leases contain  cross-default terms, meaning that if the
         tenant of any of the six Properties  defaults on its obligations  under
         any of these  leases,  the Company  will have the ability to pursue its
         remedies  under  the  leases  with  respect  to these  six  Properties,
         regardless  of whether  the tenant of any such  Property  is in default
         under its lease.

o        Base management fees payable to Marriott Senior Living  Services,  Inc.
         for  the  operation  of the six  Properties  are 6% of  gross  revenues
         throughout  the term of the leases.  Rent payments due under the leases
         are subordinate to the payment of base management fees. Notwithstanding
         the  foregoing,  in the  event net  operating  profits  are  available,
         Marriott  Senior  Living  Services,  Inc.  is also  entitled to receive
         incentive  management  fees up to 2% of gross revenues  remaining after
         payment of minimum  annual  rent and a tenant  administrative  fee.  In
         addition,  Marriott Senior Living Services,  Inc. is entitled to 50% of
         operating  profits  remaining after payment of (i) minimum annual rent,
         (ii) a tenant administration fee, (iii) the 2% incentive management fee
         described above and (iv) additional rent due under the leases.

         The  Bellevue  Property,  which  opened in November  1999,  includes 90
assisted  living units and 27 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms, a library and a beauty/barber shop. The Property is located 13 miles east
of downtown  Seattle,  Washington.  Other senior  living  facilities  located in
proximity to the Bellevue Property include Robinswood Pointe,  Sterling Park and
Sunrise of Bellevue.

         The Hoffman Estates Property,  which opened in December 1999,  includes
73 assisted living units and 47 units for residents with Alzheimer's and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  The  Property is located 30 miles
northwest  of Chicago,  Illinois.  Other  senior  living  facilities  located in
proximity  to the  Hoffman  Estates  Property  include  Sunrise  of  Schaumburg,
Devonshire of Hoffman Estates and Friendship Village.

         The Oklahoma  City  Property,  which  opened in June 1999,  includes 94
assisted  living units and 24 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms,  a library and a  beauty/barber  shop.  The  Property is located 14 miles
north of downtown  Oklahoma  City,  Oklahoma.  Other  senior  living  facilities
located in proximity to the Oklahoma City Property include St. Ann's, Manchester
House, Canterbury and HearthStone.

         The Santa Rosa  Property,  which opened in December  2000,  includes 92
assisted  living units,  25 units for  residents  with  Alzheimer's  and related
memory disorders and 45 skilled nursing units. The Operator provides  assistance
to  residents  with  daily  living  activities  such as  bathing,  dressing  and
medication  reminders,  as well as medical monitoring.  Amenities include a main
living  room  with  a  fireplace,  country  kitchens  and  screened  porches,  a
restaurant-style  main dining room and a private dining area,  activity rooms, a
library  and a  beauty/barber  shop.  The  Property is located 58 miles north of
downtown San Francisco,  California, is near retail and dining areas and is less
than five miles from two medical centers. Other senior living facilities located
in  proximity  to the  Santa  Rosa  Property  include  Sunrise  of  Santa  Rosa,
Chancellor Place, Avalon, and Springfield Place.

         The Tulsa  Property,  which  opened in May 1999,  includes  94 assisted
living units and 26 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
a main living room with a fireplace,  country kitchens and screened  porches,  a
restaurant-style  main dining room and a private dining area,  activity rooms, a
library and a beauty/barber shop. The Property is located six miles southeast of
downtown Tulsa, Oklahoma. Other senior living facilities located in proximity to
the Tulsa Property include Ambassador's  Courtyard,  The Parke,  Sterling House,
Alzheimer Center of Tulsa and Southern Hills.

         The Atlanta  Property,  which  opened in  September  1999,  includes 90
assisted  living units and 26 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living  room with a  fireplace,  country  kitchens  and  screened
porches, a restaurant-style main dining room and a private dining area, activity
rooms, a library and a  beauty/barber  shop. The Property is located in a suburb
12 miles  northwest of downtown  Atlanta,  Georgia,  and is less than five miles
from four  hospitals  and retail and dining  areas.  In addition to the Brighton
Gardens of Buckhead  which the  Company  currently  owns,  other  senior  living
facilities  located in proximity to the Atlanta Property include Woodland Ridge,
Sunrise, Carestone, Savannah Court and Atria.

         The  Lynnwood  Property,  which  opened in  August  1989,  includes  48
assisted  living units and 24 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living room with a fireplace, covered porches, a restaurant-style
main dining  room,  activity  rooms and a library.  The Property is located in a
suburb of Seattle, Washington, located 17 miles north of downtown Seattle. Other
senior living  facilities  located in proximity to the Lynnwood Property include
Seabrook, Merrill Gardens, Chateau Pacific, Brighton Court and Scribner Gardens.

         The  Snohomish  Property,  which  opened  in March  1993,  includes  56
assisted  living units and 28 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living room with a fireplace, covered porches, a restaurant-style
main dining  room,  activity  rooms and a library.  The Property is located in a
suburb of Seattle,  Washington,  located 32 miles northeast of downtown Seattle.
Other senior living  facilities  located in proximity to the Snohomish  Property
include Merrill Gardens,  Ashley Pointe,  Washington  Oakes,  Windsor Pointe and
Everett Plaza.

         The  Hemet  Property,  which  opened in  September  1999,  includes  56
assisted  living units and 28 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living room with a fireplace, covered porches, a restaurant-style
main  dining  room,  activity  rooms and a  library.  The  Property  is  located
approximately  90 miles  southeast of downtown Los  Angeles,  California.  Other
senior  living  facilities  located in proximity to the Hemet  Property  include
Sunwest  Village,  The Village,  Valley  Christian  Home,  Parkside  Gardens and
Strathaven Assisted Living.

         The Plymouth Property,  which opened in June 2000, includes 56 assisted
living units and 28 units for  residents  with  Alzheimer's  and related  memory
disorders.  The Operator  provides  assistance  to  residents  with daily living
activities such as bathing, dressing and medication reminders. Amenities include
a main living room with a fireplace,  covered porches, a  restaurant-style  main
dining room, activity rooms and a library. The Property is located approximately
42 miles  southeast  of downtown  Boston,  Massachusetts.  Other  senior  living
facilities  located in  proximity  to the  Plymouth  Property  include  Plymouth
Crossing, Silver Lake Commons and Village of Duxbury.

         The Willoughby  Property,  which opened in December  1999,  includes 56
assisted  living units and 28 units for residents with  Alzheimer's  and related
memory  disorders.  The Operator  provides  assistance  to residents  with daily
living activities such as bathing, dressing and medication reminders.  Amenities
include a main living room with a fireplace, covered porches, a restaurant-style
main dining  room,  activity  rooms and a library.  The Property is located in a
suburb of Cleveland,  Ohio,  located 18 miles  northeast of downtown  Cleveland.
Other senior living facilities  located in proximity to the Willoughby  Property
include  Homewood  Residence at Richmond  Heights,  Governor's  Village,  Salida
Woods, Summerville at Mentor and the Fairways.

         The Little Rock  Property,  which opened in January 1984,  includes 144
independent  living units and 19 assisted  living units.  The Operator  provides
activities,  scheduled  transportation and dining plans to individual residents.
In addition,  the Operator provides assistance with daily living activities such
as bathing,  dressing and medication reminders to the assisted living residents.
Amenities include a main living room, screened porches, a restaurant-style  main
dining room and a private dining area, activity rooms, a library, security and a
beauty/barber  shop. The Property is located eight miles west of downtown Little
Rock,  Arkansas.  Other  senior  living  facilities  located in proximity to the
Little Rock Property include Andover Place, Good Shepherd, and Parkway Village.

         The average  occupancy  rate,  the revenue per occupied unit (per diem)
and the revenue per  available  unit (per diem) for the periods  during the past
five years the facilities have been operational are as follows:
                                                                                Revenue          Revenue
                                                                Average       per Occupied         per
                                                               Occupancy          Unit          Available
         Property                 Location          Year         Rate                              Unit
 --------------------------  --------------------  --------   ------------    -------------    -------------

 Bellevue Property           Bellevue, WA              *1999          9.4%            $129.77         $ 12.05
                                                        2000         40.2%             125.54           50.51
                                                        2001         60.7%             124.72           75.72
                                                      **2002         58.8%             123.26           73.86
                                                     ***2003         68.0%             110.76           75.30

 Hoffman Estates Property    Hoffman Estates, IL        2000         56.6%            $110.08          $ 2.29
                                                        2001         74.1%             115.49           85.63
                                                      **2002         83.4%             117.59           99.99
                                                     ***2003         84.2%             118.89          100.06

 Oklahoma City Property      Oklahoma City, OK         *1999         30.4%             $87.68          $26.66
                                                        2000         57.5%              84.12           48.36
                                                        2001         67.4%              81.16           54.71
                                                      **2002         77.2%              78.01           61.36
                                                     ***2003         81.9%              73.46           60.15

 Santa Rosa Property         Santa Rosa, CA             2001         63.6%            $129.72          $82.51
                                                      **2002         85.6%             132.27          115.43
                                                     ***2003         89.1%             134.19          119.60

 Tulsa Property              Tulsa, OK                 *1999         27.2%            $100.27          $27.29
                                                        2000         65.4%              87.20           57.01
                                                        2001         73.1%              84.43           61.72
                                                      **2002         91.5%              85.18           79.46
                                                     ***2003         96.8%              85.92           83.19

 Atlanta Property            Atlanta, GA               *1999         16.2%            $110.82          $18.00
                                                        2000         48.2%              96.37           46.45
                                                        2001         57.3%             104.14           59.64
                                                      **2002         59.0%             107.19           64.43
                                                     ***2003         56.3%             119.98           67.60

 Lynnwood Property           Lynnwood, WA               1999        104.3%             $76.32          $79.64
                                                        2000         97.3%              88.24           85.89
                                                        2001         95.7%              95.40           91.33
                                                      **2002         96.6%             101.82          100.24
                                                     ***2003         98.3%             107.66          105.85


                                                                                  Revenue         Revenue
                                                                 Average       per Occupied         per
                                                                Occupancy          Unit          Available
         Property                 Location           Year         Rate                              Unit
 --------------------------  --------------------  ---------   ------------    --------------   -------------

 Snohomish Property          Snohomish, WA             1999         42.0%            $186.54          $78.31
                                                       2000         85.9%              87.49           75.16
                                                       2001         81.7%             100.36           81.99
                                                     **2002         86.9%             103.39           91.61
                                                    ***2003         87.0%             107.37           93.40

 Hemet Property              Hemet, CA                *1999         11.2%            $148.16          $16.61
                                                       2000         44.9%              90.04           40.40
                                                       2001         78.1%              95.34           74.51
                                                     **2002         83.2%              99.50           84.35
                                                    ***2003         68.3%             107.20           73.25

 Plymouth Property           Plymouth, MA             *2000         33.8%            $106.09        $  35.90
                                                       2001         69.8%             108.74           75.90
                                                     **2002         87.7%             115.87          103.54
                                                    ***2003        102.6%             121.66          124.81

 Willoughby Property         Willoughby, OH           *1999          8.8%            $216.00          $18.92
                                                       2000         62.5%              95.57           59.76
                                                       2001         85.5%              96.71           82.72
                                                     **2002         84.5%             104.77           90.25
                                                    ***2003         98.6%             106.99           95.90

 Little Rock Property        Little Rock, AR           1998         93.4%             $44.49          $41.56
                                                       1999         94.3%              46.18           43.56
                                                       2000         94.7%              48.64           46.07
                                                       2001         95.5%              52.68           50.32
                                                     **2002         96.8%              55.15           54.43
                                                    ***2003         97.7%              54.19           52.94

* Data for the Bellevue Property represents the months of November through
December 1999, data for the Oklahoma City Property represents the months of June
through December 1999, data for the Tulsa Property represents the months of May
through December 1999, data for the Atlanta Property represents the months of
September through December 1999, data for the Hemet Property represents the
months of September through December 1999, data for the Plymouth Property
represents the months of June through December 2000 and data for the Willoughby
Property represents the month of December 1999.

** Data for 2002 represents the period December 29, 2001 through January 3,
        2003.
*** Data for 2003 represents the period January 4, 2003 through January
        31, 2003.

         Fox Run Village  Continuing Care Retirement  Community located in Novi,
Michigan. On February 28, 2003, the Company acquired a parcel of land located in
Novi,  Michigan,  upon  which the Fox Run  Village  Continuing  Care  Retirement
Community is being  constructed  (the "Novi  Property").  The land was purchased
from  Novi  Campus,  LLC,  a wholly  owned  subsidiary  of  Erickson  Retirement
Communities,   LLC,  for  $17,000,000.  The  Fox  Run  Village  Continuing  Care
Retirement  Community,  once  construction is completed,  is expected to include
1,497 independent living  apartments,  128 assisted living units and 190 skilled
nursing  units.  The Company will not own the  buildings and  improvements.  The
buildings and improvements  will be owned by Novi Campus,  LLC. The Company,  as
lessor,  has entered  into a long-term,  triple-net  lease  agreement  with Novi
Campus,  LLC relating to the land. The general terms of the lease  agreement are
described  in  "Business  --  Description  of Property  Leases."  The  principal
features of the lease are as follows:

o        The initial land lease expires on February 28, 2013.

o        At the  end of the  initial  lease  term,  the  tenant  will  have  two
         consecutive renewal options of five years each.

o        The lease  requires  minimum  annual rent of  $2,560,000  for the first
         through  fifth  lease  years  with  increases  of 3%  each  lease  year
         thereafter.

o        A security deposit equal to $1,275,000 has been retained by the Company
         as security for the tenant's obligations under the lease.

o        The tenant will have the option to  purchase  the land during the lease
         term  for a  predetermined  purchase  price  based  on the date of such
         purchase  option  and  other  attributes  including  the  amount of the
         Company's  initial  investment,  consumer price indices and/or the fair
         market value of the land at the time the option is exercised.

o        The  Company's  lease  payments  are  subordinate  to a first  mortgage
         construction  loan held by Erickson to fund the  development of the Fox
         Run Village Continuing Care Retirement Community.


         In addition to the above  acquisitions,  on May 30,  2002,  the Company
acquired a 10% interest in a limited  partnership  that owns an office  building
located in  Orlando,  Florida,  in which the Advisor  and its  Affiliates  lease
office space. The Company's  equity  investment in the partnership was $300,000.
The Company's share in the limited partnership's  distributions is equivalent to
its equity interest in the limited  partnership.  The remaining  interest in the
limited partnership is owned by several Affiliates of the Advisor. In connection
with this acquisition, the Company has severally guaranteed its 16.67% share, or
approximately $2.6 million, of a $15.5 million unsecured  promissory note of the
limited partnership.


RETIREMENT COMMUNITY BRANDS

         Marriott Brands. According to Marriott International,  Inc.'s 2002 Form
10-K, Marriott Senior Living Services,  Inc., which is a wholly owned subsidiary
of Marriott International,  Inc., operates 87 assisted senior living communities
principally  under  the names  "Brighton  Gardens  by  Marriott"  and  "Marriott
MapleRidge," and 42 independent living communities. Brighton Gardens by Marriott
is a quality-tier assisted living concept which generally has 90 assisted living
suites, and in certain locations,  30 to 45 nursing beds in a community. In some
communities,   separate  on-site  centers  also  provide  specialized  care  for
residents  with  Alzheimer's  or  other   memory-related   disorders.   Marriott
MapleRidge  assisted  living  communities  consist  of a cluster of six or seven
14-room cottages which offer residents a smaller scale, more intimate setting at
a moderate price. The independent  full-service  senior living communities offer
both independent living apartments and personal assistance units for seniors and
most also offer  licensed  nursing  care.  The  communities  are  designed  in a
comfortable,  home-like  setting and provide residents with a sense of community
through a variety of  activities,  restaurant-style  dining,  on-site  security,
weekly   housekeeping   and  scheduled   transportation.   The  communities  are
distinguished by an innovative wellness program that enables residents to remain
as independent as possible for as long as possible, while providing a personally
tailored program of services and care. The majority of the Company's  Properties
are Marriott brand Properties.

         According to Marriott  International,  Inc.'s 2002 Form 10-K,  Marriott
International,  Inc. has decided to exit the senior living services business and
sell its remaining  related  properties in 2003. On December 30, 2002,  Marriott
International,  Inc.  entered  into a  definitive  agreement  to sell all of the
outstanding  stock of Marriott Senior Living Services,  Inc. to Sunrise Assisted
Living,  Inc. The stock purchase is expected to be completed in late March 2003.
When the sale of  Marriott  Senior  Living  Services,  Inc.'s  stock to  Sunrise
Assisted Living, Inc. is completed, it is expected that the long-term management
agreements in which the Company's tenants have entered into with Marriott Senior
Living  Services,  Inc.  will be assumed by Sunrise  Assisted  Living,  Inc.  to
operate 29 of the 38 Properties that the Company has acquired as of February 28,
2003, that are currently  operated by Marriott Senior Living  Services,  Inc. In
addition,  Sunrise Assisted Living, Inc. has agreed to assume the obligations to
the Company under the guarantees from Marriott International,  Inc. and Marriott
Senior  Living  Services,  Inc.  upon  its  purchase  of the  stock.  Additional
information   regarding   Sunrise  Assisted   Living,   Inc.  can  be  found  at
http://www.sec.gov. In regards to 12 of the 14 proposed Properties for which the
Company has entered into initial commitments to acquire as of February 28, 2003,
it is expected that until the sale of the stock to Sunrise Assisted Living, Inc.
is  completed,   Marriott  Senior  Living  Services,  Inc.  will  operate  these
Properties.   There  can  by  no  assurance  that  these  transactions  will  be
consummated.

         American Retirement Corporation Brands. American Retirement Corporation
operates in two business segments: retirement centers and free-standing assisted
living  facilities.  According to American  Retirement  Corporation's  2002 Form
10-K, American Retirement Corporation operates 65 senior living facilities.  The
retirement  centers  consist  of  32  continuing  care  retirement   communities
("CCRCs").  The assisted living facilities consist of 33 facilities that provide
assisted  living and  specialized  care such as Alzheimer's  and memory enhanced
programs, the majority of which began operations during 1999 and 2000. The newer
facilities are operated under the Homewood  Residence brand. The communities are
designed in a comfortable,  home-like setting and provide residents with a sense
of community through a variety of activities,  restaurant-style  dining, on-site
security,  weekly  housekeeping  and scheduled  transportation.  The communities
promote an  environment  that  enables  residents  to remain as  independent  as
possible for as long as possible,  while providing a personally tailored program
of services and care.  For the past three years,  the American  Seniors  Housing
Association,  a seniors' housing trade association,  ranked American  Retirement
Corporation as one of the nation's top ten largest managers of seniors' housing.
See "Risk Factors -- Real Estate and Other Investment Risks" for a discussion of
American Retirement Corporation's 2002 debt maturities.

         Erickson Brands. Erickson Retirement Communities currently has 11 large
scale  retirement  communities  in  various  stages of  development  located  in
Maryland,  Massachusetts,  Michigan,  New  Jersey,  Pennsylvania  and  Virginia.
Brooksby Village and Fox Run Village are two of Erickson's communities. In 2002,
the American Seniors Housing Association ranked Erickson Retirement  Communities
as the nation's eleventh largest manager of seniors' housing.

PENDING INVESTMENTS

         As of February 28, 2003, the Company had initial commitments to acquire
14 additional Properties for an aggregate purchase price of approximately $333.7
million.  The 14 Properties are nine Brighton Gardens Properties (one in each of
Edgewood, Kentucky;  Greenville, South Carolina;  Northridge,  Rancho Mirage and
Yorba Linda,  California;  Colorado Springs, Denver and Lakewood,  Colorado; and
Salt Lake City,  Utah),  the Fairfax  Property (in Fort  Belvoir,  Virginia),  a
MapleRidge Property (in Palm Springs,  California),  the Quadrangle Property (in
Haverford,  Pennsylvania)  and two Sunrise  Properties (one in each of Annapolis
and  Pikesville,  Maryland).  The two Sunrise  Properties  will be acquired from
Prime Care Eight,  LLC.  Six of the  Brighton  Gardens  Properties,  the Fairfax
Property,  the MapleRidge  Property and the Quadrangle Property will be acquired
from Marriott Senior Living Services,  Inc. and its affiliates and the remaining
three  Brighton  Gardens  will be  acquired  from  Summit  Companies,  Inc.  The
acquisition of each of these Properties is subject to the fulfillment of certain
conditions.  There can be no assurance that the acquisition of these  Properties
will be consummated or, if consummated,  that they will be acquired on the terms
described below. If acquired,  the leases of these Properties are expected to be
entered into on generally the same terms  described in "Business --  Description
of Property  Leases." In order to acquire  these  Properties,  the Company  must
obtain  additional  funds  through the receipt of additional  offering  proceeds
and/or  debt  financing.  The Company  plans to assume  Permanent  Financing  of
approximately  $46.6 million in connection with the acquisition of five of these
Properties.  The  Company  also plans to borrow up to $85 million in a revolving
line of credit for the acquisition of nine of these Properties. In addition, the
Company  anticipates that it will assume the obligations of approximately  $88.8
million in  non-interest  bearing  bonds  payable to  certain  residents  of the
Fairfax and the Quadrangle Properties.

         Leases.  Set forth below are summarized  terms expected to apply to the
leases for each of the 14 Properties. There is no assurance that the leases will
be entered into on the terms described below. More detailed information relating
to a Property  and its related  lease will be provided at such time,  if any, as
the Property is acquired.


                                          Estimated Purchase        Lease Term and            Minimum Annual
              Property                         Price               Renewal Options               Rent                Percentage Rent
-------------------------------------    ------------------  ----------------------   ---------------------------  -----------------

Brighton Gardens of Edgewood (1)(2)(3)         $2,654,631     15 years; two ten-year     $232,280 for the first            (12)
Edgewood, KY                                                  renewal options            lease year; increases by
(the "Edgewood Property")                                                                3% each lease year
Existing retirement facility                                                             thereafter (4)

Brighton Gardens of Greenville (1)(2)(3)       $4,132,969     15 years; two ten-year     $361,635 for the first            (12)
Greenville, SC                                                renewal options            lease year; increases by
(the "Greenville Property")                                                              3% each lease year
Existing retirement facility                                                             thereafter (4)

Brighton Gardens of Northridge (1)(2)(3)      $14,735,846     15 years; two ten-year     $1,289,387 for the first          (12)
Northridge, CA                                                renewal options            lease year; increases by
(the "Northridge Property")                                                              3% each lease year
Existing retirement facility                                                             thereafter (4)

Brighton Gardens of Rancho Mirage (1)(2)(3)   $13,833,657     15 years; two ten-year     $1,210,445 for the first          (12)
Rancho Mirage, CA                                             renewal options            lease year; increases by
(the "Rancho Mirage Property")                                                           3% each lease year
Existing retirement facility                                                             thereafter (4)

Brighton Gardens of Salt Lake City (1)(3)(5)  $15,028,664     15 years; two ten-year     $1,540,438 for the first          (13)
Salt Lake City, UT                                            renewal options            lease year; increases by
(the "Salt Lake City Property")                                                          3% each lease year
Existing retirement facility                                                             thereafter (4)

Brighton Gardens of Yorba Linda (1)(3)(5)     $13,483,926     15 years; two ten-year     $1,382,102 for the first          (13)
Yorba Linda, CA                                               renewal options            lease year; increases by
(the "Yorba Linda Property")                                                             3% each lease year
Existing retirement facility                                                             thereafter (4)

Fairfax (1)(3)(6)(7)                         $81,027,486      15 years; two ten-year     $4,373,622 for the first          (12)
Fort Belvoir, VA                                              renewal options            lease year; increases by
(the "Fort Belvoir Property")                                                            3% each lease year
Existing retirement facility                                                             thereafter (4)

MapleRidge of Palm Springs (1)(2)(3)           $2,653,469     15 years; two ten-year     $232,179 for the first            (12)
Palm Springs, CA                                              renewal options            lease year; increases by
(the "Palm Springs Property")                                                            3% each lease year
Existing retirement facility                                                             thereafter (4)




                                         Estimated Purchase         Lease Term and           Minimum Annual
           Property                            Price                Renewal Options               Rent             Percentage Rent
-----------------------------------    ----------------------     ---------------------     ---------------------     --------------

Quadrangle (1)(3)(6)(7)                         $111,521,719       15 years; two ten-year     $6,262,619 for the first          (12)
Haverford, PA                                                      renewal options            lease year; increases by
(the "Haverford Property")                                                                    3% each lease year
Existing retirement facility                                                                  thereafter (4)

Sunrise of Annapolis (8)(9)(10)(11)             $12,500,000            35 years               $1,400,000; increases by          (14)
Annapolis, MD                                                                                 2.5% beginning January 1,
(the "Annapolis Property")                                                                    2004 and each lease year
Existing retirement facility                                                                  thereafter (4)

Sunrise of Pikesville (8)(9)(10)(11)            $10,100,000            35 years               $1,131,000; increases by          (14)
Pikesville, MD                                                                                2.5% beginning January 1,
(the "Pikesville Property")                                                                   2004 and each lease year
Existing retirement facility                                                                  thereafter (4)

Brighton Gardens of Colorado
Springs(1)(15)(16)                              $16,220,000        15 years; two five-year   $1,561,175 in the first            (12)
Colorado Springs, CO                                               renewal options           lease year; $1,612,000 in
(the "Colorado Springs Property")                                                            the second lease year;
Existing retirement facility                                                                 increases by 2.5% each
                                                                                             lease year thereafter (4)

Brighton Gardens of Denver (1)(15)(16)            17,580,000       15 years; two five-year   $1,692,075 in the first            (12)
Denver, CO                                                         renewal options           lease year; $1,748,000 in
(the "Denver Property")                                                                      the second lease year;
Existing retirement facility                                                                 increases by 2.5% each
                                                                                             lease year thereafter (4)

Brighton Gardens of Lakewood (1)(15)(16)         $18,538,000       15 years; two five-year   $1,784,283 in the first            (12)
Lakewood, CO                                                       renewal options           lease year; $1,840,000 in
(the "Lakewood Property")                                                                    the second lease year;
Existing retirement facility                                                                 increases by 2.5% each
                                                                                             lease year thereafter (4)


------------------------
FOOTNOTES:

(1)      It is  expected  that this  Property  will be  operated  and managed by
         Marriott  Senior Living  Services,  Inc.;  however,  see the discussion
         regarding Sunrise Assisted Living, Inc.'s expected purchase of Marriott
         Senior  Living  Services,  Inc.'s  outstanding  stock in  "Business  --
         Retirement Community Brands" above.

(2)      The leases for the Edgewood, Greenville,  Northridge, Rancho Mirage and
         Palm Springs  Properties are expected to be with Eleven Pack Management
         Corp., as lessee, which is the tenant for the Bellevue,  Oklahoma City,
         Santa  Rosa,  Atlanta,  Lynnwood  and  Snohomish  Properties  that  are
         currently  owned  by the  Company.  These  leases  are  expected  to be
         cross-collateralized  and cross-defaulted.  In addition, the leases for
         these  Properties are expected to contain  pooling terms,  meaning that
         net  operating  profits  with  respect  to all of  the  Properties  are
         combined  for the  purpose of funding  rental  payments  due under each
         lease.

(3)      In  connection  with  the  acquisition  of  the  Edgewood,  Greenville,
         Northridge,  Rancho Mirage,  Salt Lake City, Yorba Linda, Fort Belvoir,
         Palm Springs and Haverford Properties, the Company obtained a two-year,
         $85 million revolving line of credit which is secured by the Prime Care
         Portfolio  Properties.  The line of credit will bear interest at 30-day
         LIBOR plus 250 basis  points.  Interest  only  payments will be payable
         monthly.

(4)      Based on estimated purchase price.

(5)      The  leases  for the Salt  Lake  City and Yorba  Linda  Properties  are
         expected to be with Eight Pack Management  Corp.,  as lessee,  which is
         the tenant for the Hoffman Estates, Tulsa, Hemet, Plymouth,  Willoughby
         and Little Rock Properties currently owned by the Company. These leases
         are  expected  to  be  cross-collateralized  and  cross-defaulted.   In
         addition,  the  leases for these  Properties  are  expected  to contain
         pooling terms,  meaning that net operating  profits with respect to all
         of the  Properties  are  combined  for the  purpose of  funding  rental
         payments due under each lease.

(6)      The leases for the Fort Belvoir and Haverford  Properties  are expected
         to be with the same unaffiliated  lessee. The leases are expected to be
         cross-collateralized  and cross-defaulted.  In addition, the leases for
         these two  Properties are expected to contain  pooling  terms,  meaning
         that net operating profits with respect to both Properties are combined
         for the purpose of funding rental payments due under each lease.

(7)      It is expected  that the Company  will  assume the  obligations  of the
         current  owner of the  Fort  Belvoir  and  Haverford  Properties  under
         non-interest  bearing  bonds  payable  to certain  retirement  facility
         residents in the principal amount of $88,781,000. The proceeds from new
         bonds issued by the Company, will be used to retire the existing bonds.

(8)      The leases for the Annapolis and Pikesville  Properties are expected to
         be with the same  unaffiliated  lessee.  The  leases  are  expected  to
         contain  provisions  that  allow the  lessee to elect to  purchase  the
         Properties  at the end of the  term  for a  predetermined  amount.  The
         leases are expected to also permit the Company to require the lessee to
         purchase  the  Properties  at the end of the  lease  terms for the same
         predetermined  amount.  The  leases  are  expected  to  be  treated  as
         financing  leases  for  both  financial  reporting  and tax  accounting
         purposes.

(9)      It is  expected  that this  Property  will be  operated  and managed by
         Sunrise Assisted Living, Inc.

(10)     It is expected  that the Company  will  assume the  obligations  of the
         current  owner  of the  Annapolis  and  Pikesville  Properties  under a
         mortgage note secured by the Properties payable to a commercial bank in
         the  principal  amount of $20.6  million with an interest rate of 7.83%
         per annum.  The loan requires monthly  principal and interest  payments
         through October 2008 with all unpaid principal and interest due at that
         time.

(11)     Audited  financial  statements  that present the  historical  operating
         results of these  Properties are included in the Financial  Information
         commencing  on page F-1 as Prime Care Eight,  LLC.  The purchase of the
         Properties by the Company is subject to  acceptance by the  Properties'
         current  lender  of the  Company's  assumption  of the  existing  first
         mortgage debt secured by the Properties as well as certain  concessions
         from others.

(12)     It is expected that the lease will require additional rent in an amount
         equal to the difference  between 14% of the Company's  investment basis
         in the  Property and minimum  annual rent payable each lease year.  For
         purposes of the additional rent calculation,  the Company's  investment
         basis equals the product of the Property's purchase price times 1.0075.

(13)     It is expected that the lease will require additional rent in an amount
         equal to the difference  between 14% of the Company's  investment basis
         in the Property  and minimum  annual rent payable each lease year until
         minimum annual rent exceeds 14% of the Company's  investment basis. For
         purposes of the additional rent calculation,  the Company's  investment
         basis equals the product of the Property's purchase price times 1.01.

(14)     It is expected  that  percentage  rent will be payable based on various
         predetermined  percentages  of  the  facilities'  gross  revenues  with
         respect to achieving certain average annual occupancy level thresholds.

(15)     The leases for the Colorado Springs, Denver and Lakewood Properties are
         expected to be with Summit Companies, Inc., as lessee. These leases are
         expected to be cross-collateralized  and cross-defaulted.  In addition,
         the leases for these  Properties are expected to contain pooling terms,
         meaning that net operating  profits with respect to all  Properties are
         combined  for the  purpose of funding  rental  payments  due under each
         lease.

(16)     In connection with the acquisition of the Colorado Springs,  Denver and
         Lakewood  Properties,  the Company  plans to borrow $26 million under a
         two-year mortgage loan collateralized by these three Properties.  It is
         expected  that the loan will bear  interest  at a rate of 30-day  LIBOR
         plus 325 basis  points,  with a minimum  interest  rate of 5%, and will
         require monthly principal and interest payments.

         Edgewood Property.  The Edgewood Property,  which opened in April 2000,
is the Brighton Gardens of Edgewood located in Edgewood,  Kentucky. The Edgewood
Property  includes  93 assisted  living  units and 26 units for  residents  with
Alzheimer's  and  related  memory  disorders.  The  Property is located 14 miles
southwest  of downtown  Cincinnati,  Ohio and is within five miles of a hospital
and retail and dining areas.

         Greenville Property.  The Greenville Property,  which opened in January
2000,  is the  Brighton  Gardens  of  Greenville  located in  Greenville,  South
Carolina.  The Greenville  Property  includes 94 assisted living units, 25 units
for  residents  with  Alzheimer's  and related  memory  disorders and 45 skilled
nursing  units.  The Property is located in east  Greenville and is within three
miles of retail and dining areas.

         Northridge Property. The Northridge Property,  which opened in December
2001, is the Brighton Gardens of Northridge  located in Northridge,  California.
The  Northridge  Property  includes  90  assisted  living  units,  25 units  for
residents with  Alzheimer's and related memory  disorders and 45 skilled nursing
units.  The  Property  is  located  in a  northwestern  suburb  of Los  Angeles,
California,  near San Fernando.  The Property is within four miles of a hospital
and retail and dining areas.

         Rancho Mirage  Property.  The Rancho Mirage  Property,  which opened in
November  2000,  is the  Brighton  Gardens  of Rancho  Mirage  located in Rancho
Mirage,  California.  The Rancho  Mirage  Property  includes 90 assisted  living
units, 26 units for residents with  Alzheimer's and related memory disorders and
45 skilled  nursing units.  The Property is located near retail and dining areas
and is across the street from a medical center.

         Salt Lake City Property.  The Salt Lake City Property,  which opened in
April 2000, is the Brighton Gardens of Salt Lake City located in Salt Lake City,
Utah. The Salt Lake City Property  includes 98 assisted  living units,  25 units
for  residents  with  Alzheimer's  and related  memory  disorders and 45 skilled
nursing  units.  The Property is located on the  outskirts of downtown Salt Lake
City and is less than one mile from a  medical  center  and  retail  and  dining
areas.

         Yorba Linda Property.  The Yorba Linda  Property,  which opened in July
2000, is the Brighton Gardens of Yorba Linda located in Yorba Linda, California.
The Yorba  Linda  Property  includes  90  assisted  living  units,  25 units for
residents with  Alzheimer's and related memory  disorders and 45 skilled nursing
units.  The  Property  is  located  in a  southeastern  suburb  of Los  Angeles,
California,  and is near  retail  and  dining  areas and within two miles from a
medical center.

         Fort Belvoir Property. The Fort Belvoir Property,  which opened in July
1989,  is the Fairfax by  Marriott,  a  continuing  care  retirement  community,
located in Fort  Belvoir,  Virginia.  The Fort  Belvoir  Property  includes  382
independent living units, 45 assisted living units and 60 skilled nursing units.
The  Property is located in northern  Virginia and is within two miles of retail
and dining areas and within five miles of a hospital.

         Palm  Springs  Property.  The Palm  Springs  Property,  which opened in
December  1999,  is the  MapleRidge  of Palm  Springs  located in Palm  Springs,
California.  The Palm Springs Property  includes 56 assisted living units and 28
units for residents with Alzheimer's and related memory disorders.  The Property
is located in a  residential  area less than a mile from retail and dining areas
and is within three miles of a medical center.

         Haverford Property. The Haverford Property,  which opened in June 1989,
is the Quadrangle by Marriott, a continuing care retirement  community,  located
in Haverford,  Pennsylvania.  The Haverford  Property  includes 349  independent
living units, 90 assisted living units, 25 units for residents with  Alzheimer's
and related  memory  disorders  and 78 skilled  nursing  units.  The Property is
located outside Philadelphia,  Pennsylvania,  and is within five miles of retail
and dining areas and is within three miles of three hospitals.

         Annapolis Property.  The Annapolis  Property,  which opened in November
1995, is the Sunrise of Annapolis located in Annapolis,  Maryland. The Annapolis
Property  includes  50 assisted  living  units and 22 units for  residents  with
Alzheimer's and related memory  disorders.  The Property is located southeast of
Baltimore, Maryland.

         Pikesville Property. The Pikesville Property, which opened in May 1996,
is the Sunrise of Pikesville  located in  Pikesville,  Maryland.  The Pikesville
Property  includes  61 assisted  living  units and 18 units for  residents  with
Alzheimer's and related memory disorders.  The Property is located in a northern
suburb of Baltimore, Maryland.

         Colorado Springs Property. The Colorado Springs Property,  which opened
in October 1999, is the Brighton Gardens of Colorado Springs located in Colorado
Springs,  Colorado.  The Colorado Springs  Property  includes 90 assisted living
units, 25 units for residents with  Alzheimer's and related memory disorders and
28 skilled  nursing  units.  The  Property  is located  two miles from  downtown
Colorado Springs, Colorado.

         Denver Property. The Denver Property,  which opened in October 1999, is
the Brighton Gardens of Denver located in Denver,  Colorado. The Denver Property
includes 90 assisted living units,  25 units for residents with  Alzheimer's and
related memory  disorders and 28 skilled nursing units.  The Property is located
nine miles from downtown Denver, Colorado.

         Lakewood Property. The Lakewood Property,  which opened in August 1996,
is the Brighton  Gardens of Lakewood located in Denver,  Colorado.  The Lakewood
Property  includes  90  assisted  living  units,  25 units  for  residents  with
Alzheimer's  and related  memory  disorders and 28 skilled  nursing  units.  The
Property is located five miles west of downtown Denver, Colorado.

RETIREMENT COMMUNITY BRANDS FOR PENDING INVESTMENTS

         Sunrise Brand.  Sunrise  Assisted  Living,  Inc. is one of the nation's
oldest and largest  providers  of assisted  living  services.  The  prototypical
Sunrise  facilities  resemble a Victorian  mansion and generally have between 70
and 90 beds of  assisted  living and  specialized  care for people  with  memory
disorders.  According to Sunrise  Assisted  Living,  Inc.'s 2001 Annual  Report,
Sunrise  Assisted  Living,  Inc.  operates 186  residences in the United States,
Canada and the United Kingdom,  with a combined  resident  capacity of more than
14,700. As of December 31, 2001, Sunrise Assisted Living, Inc. had 22 additional
communities under construction and another 38 communities in some other stage of
development.  In 2001 and 2002, the American Seniors Housing  Association ranked
Sunrise Assisted Living,  Inc. as the sixth largest seniors' housing operator in
the country.

         In a press release dated December 30, 2002,  Sunrise  Assisted  Living,
Inc.  announced  it  had  entered  into a  definitive  agreement  with  Marriott
International,  Inc. to acquire all of the outstanding  stock of Marriott Senior
Living  Services,  Inc.  There can be no assurance that the sale of the Marriott
Senior Living  Services,  Inc. stock to Sunrise  Assisted  Living,  Inc. will be
consummated.  For more  information  regarding  this  proposed  transaction  see
"Business-- Retirement Community Brands".


SITE SELECTION AND ACQUISITION OF PROPERTIES

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

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

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

         In each Property  acquisition,  it is anticipated that the Advisor will
negotiate the lease agreement with the tenant. In certain instances, the Advisor
may negotiate an assignment of an existing lease, in which case the terms of the
lease may vary  substantially  from the Company's  standard lease terms,  if the
Board of Directors, based on the recommendation of the Advisor,  determines that
the terms of an  acquisition  and  lease of a  Property,  taken as a whole,  are
favorable to the Company.  It is expected that the  structure of the  long-term,
"triple-net"  lease  agreements,  which may provide for monthly rental  payments
with automatic  fixed increases in base rent at specified times during the lease
terms or increases in the base rent based on increases in consumer price indices
over the term of the  leases,  will  increase  the value of the  Properties  and
provide an inflation  hedge.  See "Business -- Description  of Property  Leases"
below for a discussion of the anticipated terms of the Company's leases.

         Some lease agreements will be negotiated to provide the tenant with the
opportunity to purchase the Property under certain conditions,  generally either
at a price  not  less  than  fair  market  value  (determined  by  appraisal  or
otherwise)  or through a right of first  refusal to purchase  the  Property.  In
either  case,  the lease  agreements  will  provide that the tenant may exercise
these  rights only to the extent  consistent  with the  Company's  objective  of
qualifying as a REIT.  See "Business -- Sale of  Properties,  Mortgage Loans and
Secured  Equipment  Leases"  below and  "Federal  Income Tax  Considerations  --
Characterization of Property Leases."


         The  consideration  paid  for each  Property  will be based on its fair
market  value.  A majority of the  Independent  Directors  may choose in certain
circumstances  to retain an  Independent  Expert to  determine  such fair market
value.  The Advisor  will rely on its own  independent  analyses in  determining
whether or not to recommend that the Company acquire a particular Property.  (In
connection with the acquisition of a Property that has recently been or is to be
constructed or renovated,  any appraised value of such Property  ordinarily will
be based on the "stabilized  value" of such  Property.) The stabilized  value is
the value at the point which the  Property has reached its  stabilized  level of
competitiveness at which it is expected to operate over the long term. It should
be noted that appraisals are estimates of value and should not be relied upon as
measures of true worth or realizable value.


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

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

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

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

         In some cases,  construction  or renovation will be required before the
Company has acquired the Property. In this situation,  the Company may have made
a  deposit  on the  Property  in cash or by  means of a letter  of  credit.  The
renovation  or  construction  may be made by an Affiliate or a third party.  The
Company  may  permit the  proposed  developer  to arrange  for a bank or another
lender,  including  an  Affiliate,  to  provide  construction  financing  to the
developer. In such cases, the lender may seek assurance from the Company that it
has  sufficient  funds to pay to the developer  the full  purchase  price of the
Property upon completion of the  construction  or renovation.  In the event that
the  Company  segregates  funds as  assurance  to the  lender of its  ability to
purchase the  Property,  the funds will remain the property of the Company,  and
the lender  will have no rights  with  respect to such funds upon any default by
the developer under the  development  agreement or under the loan agreement with
such  lender,  or if the closing of the  purchase of the Property by the Company
does not occur for any reason,  unless the  transaction is supported by a letter
of credit in favor of the lender. In lieu of a third-party  lender,  the Company
may provide the construction financing to the developer. Such construction loans
will be secured by the Property and generally will be outstanding  for less than
five years. Construction loans will be subject to the restrictions applicable to
all Mortgage Loans on the amounts which may be lent to borrowers.  See "Business
-- Mortgage Loans and Other Loans."

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

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

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

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

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

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

         Acquisition Services. Acquisition services performed by the Advisor may
include,  but are not limited to, site  selection  and/or  approval;  review and
selection of tenants and  Operators  and  negotiation  of lease  agreements  and
related documents;  monitoring Property acquisitions;  and the processing of all
final documents and/or  procedures to complete the acquisition of Properties and
the commencement of tenant occupancy and lease payments.

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

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

STANDARDS FOR INVESTMENT IN PROPERTIES

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

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

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

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

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

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

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

DESCRIPTION OF PROPERTIES

         The Advisor  expects that any Properties  purchased by the Company will
conform  generally to the following  specifications  of size,  cost, and type of
land and  buildings.  The Company  anticipates  acquiring  Properties  which may
include, but will not be limited to, the following types:

         Congregate   Living   Facilities.   Congregate  living  facilities  are
primarily apartment buildings which contain a significant amount of common space
to accommodate  dining,  recreation,  activities and other support  services for
senior citizens.  These properties range in size from 100 to 500 units,  with an
average size of approximately  225 units.  Units include studios and one and two
bedrooms  ranging  in size  from 450  square  feet to over  1,500  square  feet.
Residents  generally pay a base rent for their  housing,  which  includes a meal
program.  In  addition,  a menu of other  services is provided at an  additional
charge.  The  cost  of  congregate  living  facilities   generally  ranges  from
$10,000,000 to $40,000,000.

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

         Current industry practice generally is to build  freestanding  assisted
living facilities with an average of between 40 and 100 units, depending on such
factors as market forces,  site  constraints  and program  orientation.  Current
economics  place the size of the private  living space of a unit in the range of
300 gross square feet for an efficiency  unit to 750 square feet for a large one
bedroom unit. Units are typically  private,  allowing residents the same general
level of control  over their  units as  residents  of a rental  apartment  would
typically  have.  Common areas on the most recently  developed  assisted  living
facilities  may total as much as 30 to 40 percent of the gross square footage of
a  facility.  The cost of  assisted  living  facilities  generally  ranges  from
$8,000,000 to $20,000,000.

         Skilled   Nursing   Facilities.   In  addition   to   housing,   meals,
transportation,  housekeeping,  ADL and IADL care,  skilled  nursing  facilities
provide  comprehensive  nursing and long term care to their  residents.  Skilled
nursing facilities  accommodate persons who require varying levels of care. Many
skilled  nursing  facilities  are capable of serving  residents  with  intensive
needs.  Some skilled nursing  facilities  specialize in certain types of disease
care,  such as  Alzheimer's  or Dementia  care. The cost of the care provided in
skilled  nursing  facilities  is among the most  expensive  in the  senior  care
segment of the health care industry, providing potential for substantial revenue
generation.  Based on discussions  with  executives  with senior  living/housing
firms  and   studies   performed   by   health   care   industry   associations,
PricewaterhouseCoopers  LLP and the National  Investment Center for the Seniors'
Housing and Care  Industries,  in a 2001 update to a 1996 study it developed for
institutional investors, estimated that the total monthly cost per resident of a
skilled nursing facility is between $2,800 and $4,000. According to a 1997 study
developed by NatWest  Securities for certain of its  investors,  the high demand
for beds in skilled nursing  facilities,  along with a restricted  supply of new
beds, has resulted in high occupancy rates and minimal skilled nursing  facility
lease and mortgage default rates.

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

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

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

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

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

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

DESCRIPTION OF PROPERTY LEASES

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


         Financing  Leases.  Certain  of  the  Company's  transactions  will  be
sale-leaseback  transactions  by which the Company will acquire fee simple title
to the Property and lease the Property to the tenants pursuant to a "triple-net"
lease  which will  provide the tenant  with the right to take  depreciation  and
treat rent payments as interest  payments.  Therefore,  for state,  real estate,
commercial law, bankruptcy and Federal,  state and local income tax purposes the
lease is considered a financing  arrangement and preserves ownership of the land
and improvements in the lessee (a "Financing Lease").


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


         Term of Leases. It presently is anticipated that, except in the case of
a Financing  Lease,  Properties  will be leased for an initial  term of 10 to 20
years with up to four, five-year renewal options.  Financing Leases are expected
to have initial terms of 15 to 35 years,  without  renewals.  The minimum rental
payment under the renewal  option  generally is expected to be greater than that
due for the final  lease year of the  initial  term of the lease.  Except in the
case of a  Financing  Lease,  upon  termination  of the lease,  the tenant  will
surrender  possession  of  the  Property  to  the  Company,  together  with  any
improvements made to the Property during the term of the lease,  except that for
Properties  in which the Company owns only the  building and not the  underlying
land,  the  owner of the land may  assume  ownership  of the  building.  Under a
Financing Lease, the tenant is required,  at the lessor's election,  to purchase
the  Property at the end of the lease term,  or, at the tenant's  election,  may
purchase the Property at the end of the lease term, in each instance, at a price
equal to the  unamortized  purchase  price paid by the  Company  to acquire  fee
simple  title to the  Property,  as  adjusted  (increased)  by the amount of any
accrued and unpaid rent and increases in the lease rate (the "Lease Basis").

         Computation  of Lease  Payments.  During the initial term of the lease,
the tenant  will pay the  Company,  as lessor,  minimum  annual  rent equal to a
specified  percentage of the  Company's  cost of  purchasing  the Property.  The
leases may provide for automatic  fixed  increases in the minimum annual rent or
increases  in the base rent based on  increases  in  consumer  price  indices at
predetermined  intervals during the term of the lease. In the case of Properties
that are to be constructed or renovated pursuant to a development agreement, the
Company's  costs of purchasing  the Property will include the purchase  price of
the land,  including  all fees,  costs,  and  expenses  paid by the  Company  in
connection  with its  purchase of the land,  and all fees,  costs,  and expenses
disbursed  by  the  Company  for  construction  of  building  improvements.  See
"Business -- Site Selection and  Acquisition of Properties --  Construction  and
Renovation"  above.  With a Financing Lease,  fixed rent payments are based upon
the product of the agreed  upon rate of return  multiplied  by the Lease  Basis.
Fixed rent may increase  annually based upon annual increases in the lease rate.
The lease rate is intended to provide the Company with a desired rate of return.
In addition to this minimum rent, the tenant may be responsible  for the payment
of additional  rent,  which is based upon a percentage of the gross  revenues of
the Property.


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

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

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


         Right of Tenant to  Purchase.  It is  anticipated  that if the  Company
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party,  the tenant of that Property will have the right to purchase the Property
for the same price,  and on the same terms and  conditions,  as contained in the
offer.  In certain  cases,  the  tenant  also may have a right to  purchase  the
Property seven to 20 years after  commencement  of the lease at a purchase price
equal to the greater of (i) the  Property's  appraised  value at the time of the
tenant's purchase, or (ii) a specified amount,  generally equal to the Company's
purchase price of the Property, plus a predetermined percentage of such purchase
price. See "Federal Income Tax  Considerations --  Characterization  of Property
Leases." With a Financing  Lease, the Company cannot sell the Property except in
circumstances  where  the  tenant  is  not  in  compliance  with  the  operating
agreement, or the Company determines, based upon an opinion of counsel, that the
operation  or occupancy of the Property may result in the failure of the Company
to qualify as a REIT or which may  jeopardize  receipt  of "good  income"  under
Section  856(d) of the Code or "interest"  for purposes of Section 856(f) of the
Code.  The  Company  also has the right to require  the tenant to  purchase  the
Property in the event of a material  casualty or condemnation,  or at the end of
the term.  The purchase  price in each  instance is equal to the adjusted  Lease
Basis.


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

         In  addition,  it is  anticipated  that  certain  Property  leases will
provide the tenant with the right,  to the extent  consistent with the Company's
objective of qualifying as a REIT, to offer the substitution of another property
selected by the tenant in the event that the tenant determines that the facility
has become  uneconomic  (other than as a result of an insured  casualty  loss or
condemnation)  for the  tenant's  continued  use and  occupancy  in its business
operation  and the  tenant's  board of  directors  has  determined  to close and
discontinue use of the facility.  The tenant's determination that a facility has
become  uneconomic is to be made in good faith based on the tenant's  reasonable
business  judgment after  comparing the results of operations of the facility to
the results of operations at the majority of other  facilities  then operated by
the tenant. If either of these events occurs,  the tenant will have the right to
offer the Company the opportunity to exchange the Property for another  property
(the "Substituted Property") with a total cost for land and improvements thereon
(including overhead,  construction interest, and other related charges) equal to
or greater than the cost of the Property to the Company.

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

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

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

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

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

         Events of Default.  The leases  generally  are expected to provide that
the following events,  among others,  will constitute a default under the lease:
(i) the  insolvency or  bankruptcy  of the tenant,  provided that the tenant may
have the right,  under certain  circumstances,  to cure such  default,  (ii) the
failure of the tenant to make  timely  payment of rent or other  charges due and
payable under the lease,  if such failure  continues  for a specified  period of
time (generally, five to 30 days) after notice from the Company of such failure,
(iii) the  failure  of the  tenant to comply  with any of its other  obligations
under the lease (for  example,  the  discontinuance  of operations of the leased
Property) if such failure  continues for a specified  period of time (generally,
ten to 45 days),  (iv) in cases  where the  Company  enters  into a  development
agreement  relating to the  construction or renovation of a building,  a default
under the  development  agreement or the  Indemnity  Agreement or the failure to
establish the minimum annual rent at the end of the development  period,  (v) in
cases where the Company has entered into other  leases with the same  tenant,  a
default  under such  lease,  (vi) loss of  licensure,  (vii) loss of Medicare or
Medicaid  Certification  and (viii) the forced  removal of more than a specified
number of  patients  as a result of  deficiencies  in the care  provided  at, or
physical condition of, the facility.

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

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

JOINT VENTURE ARRANGEMENTS

         The  Company may enter into a Joint  Venture to  purchase  and hold for
investment  a Property  with  various  unaffiliated  persons or entities or with
another  program formed by the principals of the Company or the Advisor or their
Affiliates,  if a  majority  of  the  Directors,  including  a  majority  of the
Independent  Directors,  not otherwise  interested in the transaction  determine
that the  investment in the Joint Venture is fair and  reasonable to the Company
and on  substantially  the same terms and  conditions as those to be received by
the  co-venturer or  co-venturers.  The Company may take more or less than a 50%
interest in any Joint  Venture,  subject to obtaining the requisite  approval of
the Directors. See "Risk Factors -- Real Estate and Other Investment Risks -- We
may not control the joint  ventures in which we enter" and "Risk Factors -- Real
Estate and Other  Investment Risks -- It may be difficult for us to exit a joint
venture after an impasse."

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

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

         Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each co-venturer. Profits from the
sale or other disposition of Joint Venture property first will be allocated to
any co-venturers with negative capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
co-venturer. Similarly, losses from the sale or other disposition of Joint
Venture property first will be allocated to joint venture partners with positive
capital account balances in proportion to such balances until such capital
accounts equal zero, and thereafter 50% to each co-venturer. Notwithstanding any
other provisions in the Joint Venture agreement, income, gain, loss, and
deductions with respect to any contributed property will be shared in a manner
which takes into account the variation between the basis of such property and
its fair market value at the time of contribution in accordance with section
704(c) of the Code.

         Net cash flow from  operations of the Joint Venture  generally  will be
distributed 50% to each joint venture partner. Any liquidation  proceeds,  after
paying joint venture debts and liabilities  and funding  reserves for contingent
liabilities,  will be  distributed  first to the  joint  venture  partners  with
positive  capital  account  balances in proportion  to such balances  until such
balances  equal  zero,  and  thereafter  50%  to  each  joint  venture  partner.
Nevertheless,  there  may be some  transactions  in  which  the  Company  gets a
preferred  return  so that it  receives  distributions  before  the  co-venturer
receives its distributions; and in some of these situations, the co-venturer may
then get a larger share of the  remaining  proceeds.  In addition,  there may be
some  transactions in which the co-venturer  gets a preferred  return so that it
receives  distributions  before the Company receives its  distributions;  and in
some of these  situations,  the  Company  may  then  get a  larger  share of the
remaining proceeds.

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

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

         The Company may acquire Properties from time to time by issuing limited
partnership units in Retirement  Partners to sellers of such Properties pursuant
to which the seller, as owner, would receive partnership  interests  convertible
at a later date into Common Stock of the Company.  CNL  Retirement GP Corp. is a
wholly owned  subsidiary of the Company and is the general partner of Retirement
Partners.  This structure  enables a property owner to transfer property without
incurring  immediate  tax  liability,  and  therefore  may allow the  Company to
acquire Properties on more favorable terms than otherwise.

MORTGAGE LOANS AND OTHER LOANS

         The Company may provide  Mortgage  Loans to Operators to enable them to
acquire the land,  buildings and land, or buildings.  The Mortgage Loans will be
secured by such property.

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

         For a  discussion  of the  construction  loans  which  the  Company  is
permitted to make, see "Business -- Site Selection and Acquisition of Properties
-- Construction and Renovation," above.

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

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

         The  Company  may also  provide  loans to  entities in which it owns an
interest. Such loans may be secured by, among other things, the interests in the
entity held by co-venturers.

         Management  believes that the criteria for investing in Mortgage  Loans
are  substantially  the same as those  involved in the Company's  investments in
Properties;  therefore,  the Company will use the same underwriting  criteria as
described  above in "Business -- Standards  for  Investment in  Properties."  In
addition,  the Company will not make or invest in Mortgage  Loans or other loans
on any one property if the aggregate amount of all mortgage loans outstanding on
the property,  including the loans of the Company,  would exceed an amount equal
to 85% of the appraised value of the property as determined by appraisal  unless
substantial  justification  exists because of the presence of other underwriting
criteria,  such as, in some  instances,  a  Financing  Lease.  In no event shall
mortgage  indebtedness on any property exceed such property's  appraised  value.
For purposes of this  limitation,  the  aggregate  amount of all mortgage  loans
outstanding on the property,  including the loans of the Company,  shall include
all interest (excluding  contingent  participation in income and/or appreciation
in value  of the  mortgaged  property),  the  current  payment  of which  may be
deferred  pursuant  to the terms of such  loans,  to the  extent  that  deferred
interest on each loan exceeds 5% per annum of the principal balance of the loan.

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


         On August 12,  2002,  the  Company  originated  a Mortgage  Loan in the
principal  amount of $1,870,000  secured by a mortgage on a parcel of land owned
by a joint  venture in which the Company  acquired a 99%  interested on December
20,  2002.  The  Mortgage  Loan bears  interest at 9.35% per annum and  requires
monthly  payments of interest  only.  The Mortgage  Loan matures on December 31,
2006, at which time all unpaid  principal  and interest is due. The land,  which
contains  approximately  39.8 acres  located  in Vero  Beach,  Florida,  will be
developed  into  a  retirement   community  that  is  expected  to  include  252
independent  living  units  and  52  duplex  villas.   Upon  completion  of  the
development,  the  Company  anticipates  that it will  enter  into a  long-term,
triple-net lease agreement  related to this Property with a retirement  facility
Operator.


MANAGEMENT SERVICES

         The Advisor provides management  services relating to the Company,  the
Properties, the Mortgage Loans, and the Secured Equipment Lease program pursuant
to an Advisory Agreement between it and the Company.  Under this agreement,  the
Advisor is responsible for assisting the Company in negotiating leases, Mortgage
Loans and Secured Equipment Leases, collecting rental, Mortgage Loan and Secured
Equipment  Lease  payments,  inspecting  the  Properties  and  the  tenants'  or
Operators'  books and records,  and responding to tenant  inquiries and notices.
The Advisor also  provides  information  to the Company  about the status of the
leases,  the Properties,  the Mortgage Loans, the Line of Credit,  the Permanent
Financing and the Secured Equipment Leases. In exchange for these services,  the
Advisor is entitled to receive certain fees from the Company. For supervision of
the Properties and Mortgage  Loans,  the Advisor  receives the Asset  Management
Fee, which,  generally,  is payable monthly in an amount equal to one-twelfth of
0.60% of Real Estate  Asset Value and the  outstanding  principal  amount of the
Mortgage Loans, as of the end of the preceding  month.  For negotiating  Secured
Equipment  Leases and  supervising  the Secured  Equipment  Lease  program,  the
Advisor will receive,  upon entering into each lease, a Secured  Equipment Lease
Servicing Fee payable out of the proceeds of the  borrowings  equal to 2% of the
purchase price of the Equipment  subject to each Secured  Equipment  Lease.  See
"Management Compensation."

BORROWING


         The Company has and will continue to borrow money to acquire Assets and
to pay  certain  related  fees.  The  Company  has and  intends in the future to
encumber  Assets in connection  with the  borrowing.  The Company has obtained a
revolving line of credit and may obtain  additional lines of credit  aggregating
up to $125,000,000. The line of credit may be increased at the discretion of the
Board of Directors and may be repaid with offering  proceeds,  proceeds from the
sale of Assets,  working  capital or Permanent  Financing.  The Company also has
obtained Permanent Financing and may obtain additional Permanent Financing.  The
line of credit and  Permanent  Financing are the only source of funds for making
Secured  Equipment  Leases and for paying the Secured  Equipment Lease Servicing
Fee.

         The Company had  previously  obtained a revolving line of credit for up
to $25,000,000.  On March 17, 2003, the Company replaced the $25,000,000 line of
credit with a new  two-year,  $85,000,000  revolving  line of credit that may be
amended  to allow the line of  credit to be  increased  by  $40,000,000.  Eleven
Properties  with an aggregate cost of  $115,200,000  are mortgaged to secure the
$85,000,000  revolving line of credit.  The credit facility  requires payment of
interest only at LIBOR plus a premium until  maturity and has several  covenants
typically found in revolving loan facilities,  including covenants to maintain a
minimum net worth and  minimum  collateral  value.  In  connection  with the new
revolving  line of credit,  the Company has incurred loan fees and closing costs
of $214,691 as of March 17, 2003.

         On February 11, 2002, the Company assumed approximately  $13,000,000 of
Permanent  Financing  relating  to the Oak Park  Property  which is secured by a
mortgage  on the Oak  Park  Property  as  described  in  "Business  --  Property
Acquisitions."  The loan  bears  interest  at a  floating  rate of (i) 350 basis
points over the 30-day  LIBOR if LIBOR is over 2.6% or (ii) 440 basis  points of
the 30-day  LIBOR if LIBOR is under  2.6%,  not to exceed 8%. The loan  requires
monthly  principal and interest  payments  through  October 2003 with all unpaid
principal  and  interest  due at that time.  In  connection  with the loan,  the
Company incurred assumption fees of approximately $16,200.

         On June 7,  2002,  in  connection  with the  purchase  of the  Marriott
Portfolio One  Properties,  the Company  borrowed  $23,520,000  in the form of a
five-year  commercial  paper  backed  loan  secured  by the  Properties  with an
interest  rate of 123 basis points over  commercial  paper rate as determined by
market demand,  which approximates  30-day LIBOR per annum.  Interest is payable
monthly with principal due when the commercial  paper loan matures.  The loan is
funded from proceeds  received  from the sale of 30-day  commercial  paper.  The
commercial paper is re-marketed  every 30 days upon maturity.  The Company has a
liquidity  facility  in  place  in  the  event  that  the  marketing  effort  is
unsuccessful.  The liquidity  agent has provided a liquidity  facility for up to
102% of the outstanding loan balance.  In connection with this loan, the Company
incurred structuring fees equal to 2% of the loan. The monthly interest payments
due under  the loan  include a margin of 30 basis  points  for  monthly  service
provided by the Structuring Agent related to the  administration of the loan. In
connection  with the loan,  the Company  incurred loan fees and closing costs of
$539,215.

         On  August  8,  2002,  the  Company   entered  into  a  commitment  for
$11,000,000 of Permanent  Financing  relating to the Greenwood  Village Property
which is secured by a mortgage on the Property.  On August 29, 2002, the Company
obtained an advance  totalling  $9,100,000 with a possible future advance in the
amount of $1,900,000 subject to certain operating  performance  thresholds being
achieved by the Greenwood  Village Property prior to February 27, 2004. The loan
bears  interest at a variable  rate based on 90-day  LIBOR plus 3.90% per annum,
but in no event shall the interest  rate be less than 6.50%.  The loan  requires
monthly principal and interest payments through August 31, 2007, with all unpaid
principal  and  interest  due at that time.  In  connection  with the loan,  the
Company  incurred loan fees and closing costs of $329,933 with an additional fee
of $19,000 due upon funding of the additional advance.

         The Company  intends to obtain  additional  borrowings  relating to the
acquisition of its pending  investments.  See "Business -- Pending  Investments"
for a description of the anticipated borrowings.


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

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

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


         The  Company may also borrow  funds for the purpose of  preserving  its
status as a REIT. For example, the Company may borrow to the extent necessary to
permit the Company to make Distributions required in order to enable the Company
to qualify as a REIT for federal income tax purposes;  however, the Company will
not borrow for the purpose of  returning  Invested  Capital to the  stockholders
unless necessary to eliminate corporate level tax to the Company.  The aggregate
borrowing of the Company, secured and unsecured, shall be reasonable in relation
to Net Assets of the Company and shall be reviewed by the Board of  Directors at
least quarterly.  The Company has replaced its $25,000,000 line of credit with a
new line of credit, described above. The Board of Directors anticipates that the
aggregate  amounts of any lines of credit will be up to  $125,000,000;  however,
the line of credit may be increased at the discretion of the Board of Directors.
In addition, the Board of Directors anticipates that the aggregate amount of the
Permanent Financing will not exceed 40% of the Company's total assets.  However,
in accordance with the Company's  Articles of Incorporation,  the maximum amount
of borrowing in relation to Net Assets, shall not exceed 300% of Net Assets.


SALE OF PROPERTIES, MORTGAGE LOANS AND SECURED EQUIPMENT LEASES

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

         In deciding the precise timing and terms of Property Sales, the Advisor
will consider  factors such as national and local market  conditions,  potential
capital  appreciation,  cash flows, and federal income tax  considerations.  The
terms of certain leases,  however, may require the Company to sell a Property at
an earlier time if the tenant  exercises its option to purchase a Property after
a specified portion of the lease term has elapsed.  See "Business -- Description
of Property  Leases -- Right of Tenant to  Purchase."  The Company  will have no
obligation  to sell all or any  portion of a Property  at any  particular  time,
except as may be required  under  property  or joint  venture  purchase  options
granted to certain tenants,  joint venture partners or Operators.  In connection
with Sales of Properties by the Company, purchase money obligations may be taken
by the Company as part payment of the sales price.  The terms of payment will be
affected  by  custom  in the  area in  which  the  Property  is  located  and by
prevailing economic conditions.  When a purchase money obligation is accepted in
lieu of cash upon the Sale of a Property,  the Company  will  continue to have a
mortgage on the Property  and the  proceeds of the Sale will be realized  over a
period of years rather than at closing of the Sale.

         The Company does not anticipate  selling the Secured  Equipment  Leases
prior to  expiration  of the lease  term,  except in the event that the  Company
undertakes orderly liquidation of its assets. In addition,  the Company does not
anticipate  selling any Mortgage Loans prior to the expiration of the loan term,
except in the event (i) the Company owns the Property (land only) underlying the
building  improvements  which  secure  the  Mortgage  Loan  and the  Sale of the
Property occurs,  or (ii) the Company  undertakes an orderly Sale of its Assets.
The Company will not sell any Assets if such Sale would not be  consistent  with
the Company's objective of qualifying as a REIT.

COMPETITION

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

REGULATION OF MORTGAGE LOANS AND SECURED EQUIPMENT LEASES

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


                                              SELECTED FINANCIAL DATA

         The following table sets forth certain financial information for the
Company, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Information commencing on page F-1.

                                                                           Year Ended December 31,
                                                    ----------------------------------------------------------------------
                                                       2002           2001           2000         1999 (1)     1998 (1)
                                                    ------------  -------------  -------------  ------------- ------------

  Revenues                                          $18,852,028     $1,899,619    $ 1,084,730       $ 86,231        $  --
  Net earnings (loss) (2)(3)                         11,371,856        915,965        224,778        (28,390 )         --
  Cash flows from operating activities               16,784,763      2,173,379      1,096,019         12,851           --
  Cash flows used in investing activities          (358,090,103)   (22,931,469)   (14,428,703)            --           --
  Cash flows provided by (used in) financing
       activities                                   355,384,104     47,301,313      8,766,346      4,731,279     (199,908)
  Cash distributions declared (4)                    14,379,477      1,507,322        502,078         50,404           --
  Earnings (loss) per Share (Basic and Diluted)            0.52           0.38           0.27          (0.07)          --
  Funds from operations (5)                          14,609,538      1,439,908        527,962        (28,390)          --
  Cash distributions declared per Share                    0.70           0.70           0.58           0.13           --
  Weighted average number of
       Shares outstanding (6): (Basic and Diluted)   22,034,955      2,391,072        845,833        412,713           --

                                                                                December 31,
                                                    ----------------------------------------------------------------------
                                                        2002          2001           2000          1999          1998
                                                    ------------- -------------  -------------  ------------  ------------

  Total assets                                      $441,765,453   $64,446,889    $14,688,560    $5,088,560      $976,579
  Total mortgages payable                             45,326,677            --             --            --            --
  Total stockholders' equity                         389,795,024    60,910,042      9,203,548     3,292,137       200,000

(1)      No operations  commenced until the Company  received  minimum  offering
         proceeds of $2,500,000  and funds were released from escrow on July 14,
         1999.  The Company did not acquire its first  Property  until April 20,
         2000;  therefore,  revenues  for  the  year  ended  December  31,  1999
         consisted  only of interest  income on funds held in  interest  bearing
         accounts pending investment in a Property.

(2)      Net loss for the year ended  December 31, 1999 is primarily  the result
         of a deduction of $35,000 in  organizational  costs in accordance  with
         generally accepted accounting principles ("GAAP").

(3)      To the extent that Operating  Expenses  payable or  reimbursable by the
         Company in any Expense Year exceed the 2%/25%  Guidelines (the "Expense
         Cap"), the Advisor shall reimburse the Company within 60 days after the
         end of the  Expense  Year the  amount  by  which  the  total  Operating
         Expenses paid or incurred by the Company exceed the Expense Cap. During
         the years ended December 31, 2001 and 2000, the Advisor  reimbursed the
         Company $145,015 and $213,886,  respectively, in Operating Expenses. No
         such amounts were reimbursed in 2002 or 1999.

(4)      Cash distributions are declared by the Board of Directors and generally
         are based on various factors, including cash available from operations.
         For  the  years  ended  December  31,  2002,   2001,   2000  and  1999,
         approximately   21%,   39%,  55%  and  100%,   respectively,   of  cash
         distributions  represent a return of capital in  accordance  with GAAP.
         Cash  distributions  treated  as a return of  capital  on a GAAP  basis
         represent the amount of cash distributions in excess of net earnings on
         a GAAP  basis,  including  deductions  for  depreciation  expense.  The
         Company  has not  treated  such  amounts  as a return  of  capital  for
         purposes  of  calculating  Invested  Capital and the  Stockholders'  8%
         Return.

(5)      Management  considers funds from operations ("FFO") to be an indicative
         measure  of  operating  performance  due to the  significant  effect of
         depreciation of real estate assets on net earnings. FFO is based on the
         revised  definition  adopted by the Board of  Governors of the National
         Association  of Real Estate  Investment  Trusts  ("NAREIT") and as used
         herein,   means  net  earnings  determined  in  accordance  with  GAAP,
         excluding  gains  or  losses  from  debt  restructuring  and  sales  of
         property,  plus depreciation and amortization of real estate assets and
         after adjustments for  unconsolidated  partnerships and joint ventures.
         (Net earnings  determined in accordance  with GAAP includes the noncash
         effect of  straight-lining  rent increases  throughout the lease terms.
         This  straight-lining  is  a  GAAP  convention  requiring  real  estate
         companies to report  rental  revenue based on the average rent per year
         over the life of the leases.  During the years ended December 31, 2002,
         2001 and 2000, net earnings included,  $1,374,665, $76,665 and $21,128,
         respectively,  of these  amounts.  No such amounts  were earned  during
         1999.) FFO was developed by NAREIT as a relative measure of performance
         and   liquidity  of  an  equity  REIT  in  order  to   recognize   that
         income-producing  real estate  historically  has not depreciated on the
         basis determined under GAAP.  However,  FFO (i) does not represent cash
         generated from operating activities  determined in accordance with GAAP
         (which, unlike FFO, generally reflects all cash effects of transactions
         and other events that enter into the  determination  of net  earnings),
         (ii) is not necessarily  indicative of cash flow available to fund cash
         needs and (iii)  should  not be  considered  as an  alternative  to net
         earnings  determined  in  accordance  with GAAP as an indication of the
         Company's  operating  performance,  or  to  cash  flow  from  operating
         activities  determined in  accordance  with GAAP as a measure of either
         liquidity  or the  Company's  ability  to  make  distributions.  FFO as
         presented  may  not  be  comparable  to  amounts  calculated  by  other
         companies.   Accordingly,   the  Company  believes  that  in  order  to
         facilitate  a  clear  understanding  of  the  consolidated   historical
         operating  results  of  the  Company,   FFO  should  be  considered  in
         conjunction  with the Company's net earnings and cash flows as reported
         in  the  accompanying   consolidated  financial  statements  and  notes
         thereto. See the Financial Information commencing on page F-1.

         The following is a reconciliation of net earnings to FFO for the years
         ended December 31, 2002, 2001, 2000 and 1999:

                                                                          Year ended December 31,
                                                        2002              2001               2000             1999
                                                    --------------   ---------------    --------------    -------------

             Net earnings                              $11,371,856         $915,965          $224,778         $(28,390)
                 Adjustments:
                    Effect of unconsolidated
                      subsidiaries                         149,801               --                --               --

                    Effect of minority interest           (233,691)              --                --               --

                    Depreciation of real estate
                      assets                             3,321,572          523,943            303,184              --
                                                    --------------   ---------------    --------------    -------------

             FFO                                       $14,609,538       $1,439,908           $527,962        $(28,390)
                                                    ==============   ===============    ==============    =============

             Weighted average shares:                   22,034,955        2,391,072            845,833         412,713
                                                    ==============   ===============    ==============    =============
(6)      The weighted  average number of Shares  outstanding  for the year ended
         December 31, 1999 is based upon the
         period the Company was operational.

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

         This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933, as amended, and Section 21E of the
Securities  Exchange Act of 1934,  as amended.  These  statements  generally are
characterized  by the use of  terms  such as  "believe,"  "expect,"  and  "may."
Although  the  Company  believes  that  the   expectations   reflected  in  such
forward-looking statements are based upon reasonable assumptions,  the Company's
actual   results   could  differ   materially   from  those  set  forth  in  the
forward-looking  statements.  Certain factors that might cause such a difference
include the following:  changes in general economic conditions,  changes in real
estate  conditions,  the  availability  of  capital  from  borrowings  under the
Company's line of credit,  continued availability of proceeds from the Company's
offerings,  the ability of the Company to obtain additional  Permanent Financing
on  satisfactory  terms,  the  ability of the  Company to  continue  to identify
suitable investments,  the ability of the Company to continue to locate suitable
tenants for its  Properties  and  borrowers  for its Mortgage  Loans and Secured
Equipment Leases, and the ability of such tenants and borrowers to make payments
under their respective leases, Mortgage Loans or Secured Equipment Leases. Given
these  uncertainties,  readers are cautioned not to place undue reliance on such
statements.

INTRODUCTION

         The Company

         The Company was formed to acquire  Properties located across the United
States.  The  Properties  may include  congregate  living,  assisted  living and
skilled nursing facilities, continuing care retirement communities and life care
communities,  medical office buildings and walk-in clinics, and similar types of
healthcare  related  facilities.  The  Properties  are  leased  on a  long-term,
"triple-net"  basis. The Company may also provide Mortgage Loans to Operators in
the aggregate principal amount of approximately 5% to 10% of the Company's total
assets.  The Company also may offer Secured  Equipment Leases to Operators.  The
aggregate principal amount of Secured Equipment Leases is not expected to exceed
10% of total assets.

LIQUIDITY AND CAPITAL RESOURCES

         Common Stock Offerings

         In 1998,  the  Company  registered  its  Initial  Offering of Shares of
Common Stock and in connection with the Initial  Offering,  the Company received
subscription  proceeds of $9,718,974 (971,898 Shares).  Following termination of
the Initial  Offering on September  18,  2000,  the Company  commenced  its 2000
Offering. On May 24, 2002, the Company completed its 2000 Offering from which it
received subscription proceeds of $155,000,000 (15,500,000 Shares).  Immediately
following the  completion of the 2000 Offering,  the Company  commenced its 2002
Offering   of  up  to  an   additional   45,000,000   Shares  of  Common   Stock
($450,000,000).

         As  of  December   31,  2002,   the  Company  had  received   aggregate
subscription proceeds of $442,346,060 (44,234,603 Shares),  including $1,208,302
(120,830 Shares) through its Reinvestment  Plan, from its Initial Offering,  the
2000 Offering and the 2002 Offering (the "Prior  Offerings")  and  contributions
from the Advisor.  As of December 31, 2002, net proceeds to the Company from its
offerings of Shares and capital contributions from the Advisor,  after deduction
of selling  commissions,  the  marketing  support  fee,  due  diligence  expense
reimbursements and offering expenses totalled  approximately  $392,300,000.  The
Company  used  approximately  $319,000,000  of the  net  offering  proceeds  and
approximately   $45,600,000   of  loan  proceeds  to  invest  in  37  retirement
Properties.  As of  December  31,  2002,  the  Company  had  paid  approximately
$32,500,000  in  Acquisition   Fees  and  Acquisition   Expenses  and  had  used
approximately  $400,000  to  redeem  44,037  Shares  of  Common  Stock,  leaving
approximately  $40,400,000  available for  investment in Properties and Mortgage
Loans.

         During the period  January  1, 2003  through  February  28,  2003,  the
Company received  additional net offering proceeds of approximately  $90,700,000
and had  approximately  $113,200,000  available for investment in Properties and
Mortgage Loans. See "Business -- Property Acquisitions" and "Business -- Pending
Investments"  for a  description  of the  Properties  owned  by the  Company  or
Properties  the Company has entered  into initial  commitments  to acquire as of
February 28, 2003.

         The Company expects to use any uninvested net offering  proceeds,  plus
any  additional  net  offering  proceeds  from the sale of Shares  from the 2002
Offering and this  offering to purchase  additional  Properties  and to a lesser
extent, to invest in Mortgage Loans. In addition,  the Company intends to borrow
money to acquire Assets and to pay certain  related fees. The Company intends to
encumber Assets in connection  with such  borrowing.  The Company has obtained a
$25,000,000  revolving line of credit which it anticipates  replacing with a new
line of credit,  as described  below.  The Company has also  obtained  Permanent
Financing. The line of credit may be increased at the discretion of the Board of
Directors  and may be repaid with offering  proceeds,  proceeds from the sale of
Assets,  working  capital  or  Permanent  Financing.   The  Board  of  Directors
anticipates that the aggregate amount of any Permanent Financing will not exceed
40% of the Company's total assets.  The maximum amount the Company may borrow is
300% of the  Company's  Net Assets.  The number of Properties to be acquired and
Mortgage  Loans in which the  Company  may invest will depend upon the amount of
net offering proceeds and loan proceeds available to the Company.

         Management does not anticipate that an escalation of the current crisis
in the Middle  East will have a direct  effect on the health  care and  seniors'
housing industries.  However, Marriott International,  Inc., which has extensive
investments in the hospitality industry, guarantees, within certain limitations,
the obligations of the tenants of six of the Company's Properties to pay minimum
rent under the leases for the Properties. To the extent that business or leisure
travel  is  substantially  reduced  for a  lengthy  period  of  time  due  to an
escalation  of  the  crisis  in  the  Middle  East,  the  business  of  Marriott
International,  Inc. may be affected.  Management  does not  anticipate  that an
escalation  of the  current  crisis in the Middle  East will have a  significant
effect on the  Company's  ability to raise  capital in equity  offerings.  Gross
offering  proceeds  during the year ended  December 31, 2002 exceeded  levels of
previous years.  Management  expects that future  offering  proceeds and amounts
available  under the  Company's  line of credit will be  sufficient  to meet the
Company's capital requirements.

         Redemptions

         In  October  1998,  the Board of  Directors  elected to  implement  the
Company's  redemption  plan.  Under the redemption  plan, the Company elected to
redeem Shares,  subject to certain conditions and limitations.  During the years
ended  December  31,  2002,  2001 and 2000,  37,306,  3,415  and  3,316  Shares,
respectively,  were redeemed at $9.20 per Share for a total of $343,212, $31,420
and $30,508,  respectively, and retired from Shares outstanding of Common Stock.
No Shares were redeemed prior to 2000.

         Property Acquisitions and Investments

         At December 31, 2002,  the Company  owned 37  Properties  located in 16
states,  including  one  Property  in  a  pre-construction  phase  with  planned
development for a seniors' housing complex.  Upon completion of the development,
the Company expects to enter into a long-term  agreement with an Operator of the
retirement facility to operate and manage the Property.  The Company, as lessor,
has entered into long-term lease  agreements  relating to the other  Properties.
The leases are on a  triple-net  basis,  meaning the tenants are required to pay
all repairs,  maintenance,  property taxes, utilities and insurance.  Generally,
the tenants are also required to make capital  expenditures as may be reasonably
necessary to refurbish buildings, premises, signs and equipment and maintain the
leasehold in a manner that allows operation for its intended purpose.

         On February 28, 2003, the Company  acquired a parcel of land upon which
a seniors'  housing complex is being  constructed.  The Company will not own the
facility.  The  facility  will be owned by a subsidiary  of Erickson  Retirement
Communities, LLC.

         During the year ended  December  31,  2002,  the  Company  acquired  22
Properties for an aggregate purchase price of $222.3 million that are subject to
operating  leases,  each of which  generally  provide for an initial  term of 15
years.  Substantially all of the operating leases provide options that allow the
tenants to renew the leases from 5 to 20  successive  years  subject to the same
terms and  conditions  as the  initial  leases.  The leases  provide for minimum
annual base rent, generally payable in monthly installments.  The leases provide
that the minimum base rent required  under the terms of the leases will increase
at  predetermined  intervals  (typically on an annual basis) during the terms of
the leases.  In addition to minimum annual base rent,  substantially all tenants
are subject to  contingent  rent  computed as a percentage of gross sales of the
Properties.  The majority of the leases also provide for the tenant to fund,  in
addition to its lease payment,  an FF&E Reserve fund. The tenant  deposits funds
into the FF&E  Reserve  account and  periodically  uses these funds to cover the
cost of the  replacement,  renewal and  additions  to  furniture,  fixtures  and
equipment.  Substantially all of the operating leases contain  cross-default and
pooling terms.  The Properties are operated and managed by ARC,  Marriott Senior
Living Services, Inc. or Erickson Retirement Communities, LLC.

         In conjunction  with the purchase of five of the Properties  subject to
operating leases,  Marriott  International,  Inc. has, with certain limitations,
guaranteed  the tenant's  obligation to pay minimum rent due under the leases up
to a maximum of  $5,880,000.  As of February  28,  2003,  the  remaining  amount
available under the limited guarantee was $4,705,842.

         On September 30, 2002,  the Company  acquired 11 Properties  located in
seven states through a direct  financing  transaction  with two  subsidiaries of
Prime Care for  $105,250,000  plus closing costs and a working capital  advance.
The  Company,  as lessor,  entered into 35-year  lease  agreements  that require
aggregate minimum annual rent of $11,520,600  through December 31, 2003, and 2.5
percent  annual  increases  thereafter.  In addition to minimum rent, the leases
require  additional  rent,  which is based on a percentage of the tenants' gross
revenues.  The leases also provide for the tenants to fund, in addition to their
lease payments, an FF&E Reserve fund. All property purchased with the funds from
the FF&E Reserve will remain the  property of the  tenants.  The leases  contain
provisions  that allow the lessees to purchase the  Properties at the end of the
lease  terms for the  Company's  investment  amount.  The leases also permit the
Company to require  the  lessees to purchase  the  Properties  at the end of the
lease  terms  for the same  amount.  The  leases  of the 11  Properties  contain
cross-default  and pooling terms.  In addition,  an affiliate of the tenants has
guaranteed the tenants'  obligations to pay minimum rent due under the leases up
to a maximum of  $2,000,000.  As of February  28,  2003,  the  remaining  amount
available under the guarantee was $1,691,659. The 11 Properties are operated and
managed by Marriott Senior Living Services, Inc.

         In connection  with the  acquisition of seven  Properties,  the Company
obtained three  permanent  loans totalling $45.3 million secured by mortgages on
the Properties. See "Borrowings" below.

         In a press release dated December 30, 2002,  Sunrise  Assisted  Living,
Inc.  announced  it  had  entered  into a  definitive  agreement  with  Marriott
International,  Inc. to acquire all of the outstanding  stock of Marriott Senior
Living Services,  Inc. When the sale of Marriott Senior Living Services,  Inc.'s
stock to Sunrise  Assisted  Living,  Inc. is completed,  it is expected that the
long-term management agreements in which the Company's tenants have entered into
with Marriott Senior Living  Services,  Inc. will be assumed by Sunrise Assisted
Living,  Inc.  to operate all of the  Company's  Properties  that are  currently
operated by Marriott  Senior  Living  Services,  Inc. In regards to 12 of the 14
proposed  Properties for which the Company has entered into initial  commitments
to acquire as of February  28, 2003,  it is expected  that until the sale of the
Marriott Senior Living Services,  Inc.'s stock to Sunrise Assisted Living,  Inc.
is  completed,   Marriott  Senior  Living  Services,  Inc.  will  operate  these
Properties.  Sunrise Assisted Living,  Inc. has agreed to assume the obligations
to the Company  under the  guarantees  from  Marriott  International,  Inc.  and
Marriott  Senior  Living  Services,  Inc.  upon its purchase of Marriott  Senior
Living Services, Inc.'s stock. Additional information regarding Sunrise Assisted
Living, Inc. can be found at http://www.sec.gov.  There can be no assurance that
these transactions will be consummated.

         On May 30,  2002,  the  Company  acquired a 10%  interest  in a limited
partnership,  CNL Plaza,  Ltd., that owns an office building located in Orlando,
Florida,  in which the  Advisor  and its  Affiliates  lease  office  space.  The
Company's  original  equity  investment in the  partnership  was  $300,000.  The
Company's  share  in the  limited  partnership's  distributions  is equal to its
equity interest in the limited  partnership.  During the year ended December 31,
2002, the Company received $190,922 in distributions  from the partnership.  The
remaining interest in the limited  partnership is owned by several Affiliates of
the Advisor.  In  connection  with this  acquisition,  the Company has severally
guaranteed its 16.67% share, or approximately  $2.6 million,  of a $15.5 million
unsecured promissory note of the limited partnership.

         On August 12,  2002,  the  Company  originated  a Mortgage  Loan in the
principal  amount of  $1,870,000  secured  by a parcel of land  owned by a joint
venture in which the Company  acquired a 99% interest on December 20, 2002.  The
loan bears interest at 9.35% per annum and requires monthly payments of interest
only. The loan matures on December 31, 2006, at which time all unpaid  principal
and interest is due.  The land,  which  contains  approximately  39.8 acres,  is
expected to be developed into a retirement  community.  The Company had incurred
approximately $1.4 million in pre-development costs as of December 31, 2002.

         Borrowings

         In February  2002, the Company  assumed a mortgage of $12,974,397  that
matures on  October 2, 2003,  in  conjunction  with the  purchase  of a Property
located in Oak Park, Illinois. The mortgage bears interest at a floating rate of
(i) 350 basis  points  over the  30-day  LIBOR if LIBOR is over 2.6% or (ii) 440
basis points over the 30-day LIBOR if LIBOR is under 2.6%,  not to exceed 8%. As
of December  31, 2002,  the  interest  rate was 5.84%.  In  accordance  with the
provisions of the  mortgage,  the Company has placed  $277,821 in escrow,  which
represents  three months of debt service related to the mortgage.  In connection
with the loan, the Company  incurred  assumptions fees of $16,156 that are being
amortized  over  the  remaining  term  of  the  loan.  The  Company  anticipates
refinancing the loan prior to its maturity date;  however,  if such financing is
not available,  the Company expects to have adequate offering proceeds available
to repay this debt.

         In  connection  with  the  purchase  of five  Properties,  the  Company
borrowed  $23,520,000  in June 2002 in the form of commercial  paper backed loan
secured by these five Properties. The loan is funded from proceeds received from
the sale of 30-day  commercial  paper. The commercial paper is re-marketed every
30 days upon  maturity.  The Company  has a  liquidity  facility in place in the
event that the  re-marketing  effort is  unsuccessful.  The liquidity  agent has
provided a liquidity  facility for up to 102% of the  outstanding  loan balance.
Interest is payable  monthly with principal due when the  commercial  paper loan
matures on June 6,  2007.  The  commercial  paper  loan  bears  interest  at the
commercial  paper rate as  determined by market demand (1.51% as of December 31,
2002)  plus a  margin  of  1.23%,  which  is  inclusive  of  liquidity  fees and
administrative  costs.  As of  December  31,  2002,  the  commercial  paper loan
interest rate was 2.74%. In connection with the loan, the Company  incurred loan
fees and closing costs of $539,215 that are being amortized over the term of the
loan.

         On  August  8,  2002,  the  Company   entered  into  a  commitment  for
$11,000,000 of Permanent  Financing  relating to the Greenwood  Village Property
which is secured by a mortgage on the Property.  On August 29, 2002, the Company
obtained an advance  totalling  $9,100,000 with a possible future advance in the
amount of $1,900,000 subject to certain operating  performance  thresholds being
achieved by the Greenwood  Village Property prior to February 27, 2004. The loan
bears  interest at a variable  rate based on 90-day  LIBOR plus 3.90% per annum,
but in no event shall the interest  rate be less than 6.50%.  As of December 31,
2002,  the interest  rate was 6.50%.  The loan  requires  monthly  principal and
interest  payments  through  August  31,  2007,  with all unpaid  principal  and
interest due at that time. In connection with the loan, as of December 31, 2002,
the Company  incurred loan commitment fees and closing costs of $329,933 with an
additional fee of $19,000 due upon funding of the additional advance.

         The Company had  previously  obtained a $25 million line of credit.  On
March 17, 2003,  the Company  replaced the $25 million line of credit with a new
two-year,  $85 million revolving line of credit that may be amended to allow the
line of  credit  to be  increased  by $40  million.  Eleven  Properties  with an
aggregate  cost of  $115.2  million  are  mortgaged  to secure  the $85  million
revolving line of credit. This credit facility requires payment of interest only
at LIBOR plus a premium until maturity and has several covenants typically found
in  revolving  loan  facilities,  including  covenants to maintain a minimum net
worth and minimum  collateral  value.  The Company may use the revolving line of
credit to fund  acquisitions,  pay fees and fund  working  capital  for  general
business  purposes.  Periodically,  the Company  expects to repay  amounts drawn
under the revolving line of credit with proceeds received from equity offerings,
Permanent  Financing,  the sale of assets or working capital. In connection with
the new revolving line of credit, the Company has incurred loan fees and closing
costs of $214,691 as of March 17, 2003.

         Contractual Obligations and Commitments

         The following table presents the Company's contractual cash obligations
and related payment periods as of December 31, 2002:
                                       Less than
  Contractual Cash obligations          1 Year          2-3 Years       4-5 Years        Thereafter         Total
---------------------------------    --------------    -----------    --------------    -------------   --------------
Mortgages payable                      $12,896,864       $338,599       $32,091,214       $       --      $45,326,677
Refundable tenant security
     deposits                                   --             --                --        4,866,973        4,866,973
                                     --------------    -----------    --------------    -------------   --------------
Total Contractual Cash
     Obligations                       $12,896,864       $338,599       $32,091,214       $4,866,973      $50,193,650
                                     ==============    ===========    ==============    =============   ==============

         The following table presents the Company's commitments, contingencies
and guarantees and related expiration periods as of December 31, 2002:


    Commitments, Contingencies           Less than
          and Guarantees                  1 Year           2-3 Years       4-5 Years    Thereafter         Total
-----------------------------------    --------------    -------------    -----------   -----------    ---------------
Guarantee of unsecured
     promissory note of
     unconsolidated subsidiary           $         --       $2,583,333         $  --         $  --        $ 2,583,333
Earnout provisions (1)                             --       11,834,233            --            --         11,834,233
Pending investments (2)                   298,700,000               --            --            --        298,700,000
                                       --------------    -------------    -----------   -----------    ---------------
Total Commitments,
     Contingencies and Guarantees        $298,700,000      $14,417,566         $  --         $  --       $313,117,566
                                       ==============    =============    ===========   ===========    ===============

(1)      In connection with the acquisition of five Properties,  the Company may
         be required  to make  additional  payments  (the  "Earnout  Amount") if
         certain  earnout  provisions  are achieved by the earnout date for each
         Property. The calculation of the Earnout Amount generally considers the
         net operating income for the Property, the Company's initial investment
         in the  Property  and the fair value of the  Property.  In the event an
         Earnout  Amount is due,  the lease will be amended  and annual  minimum
         rent will increase accordingly.

(2)      See "Pending Investments" section below for a description of Properties
         for which the Company  had  commitments  to acquire as of February  28,
         2003.

         Market Risk

         All of the Company's  mortgage loans payable at December 31, 2002, were
subject to variable interest rates, adjusted monthly or quarterly,  as described
in the "Borrowings" section above.  Therefore,  the Company is exposed to market
changes in interest rates.  To mitigate  interest rate risk, the Company can pay
down  the  mortgages  with  offering   proceeds   should   interest  rates  rise
substantially.

         The Company has  mitigated its exposure to variable  interest  rates on
its  commercial  paper loan by providing  fluctuating  lease  payments under the
leases for the  Properties  securing the loan as a result of changes in periodic
interest  rates due under the  commercial  paper  loan.  The loan is funded from
proceeds received from the sale of 30-day commercial paper. The commercial paper
is  re-marketed  every 30 days upon  maturity.  The  Company has  mitigated  its
exposure to liquidity  risk by obtaining a liquidity  facility  that  guarantees
proceeds in the event that the marketing effort is unsuccessful.

         The  Company  may also be  subjected  to  interest  rate  risk  through
outstanding  balances  on its  variable  rate line of credit.  The  Company  may
mitigate  this risk by paying  down its line of credit  from  offering  proceeds
should interest rates rise  substantially.  There were no amounts outstanding on
the variable rate line of credit at December 31, 2002.

         Management  estimates that a one-percentage  point increase in interest
rates for the year ended  December 31, 2002,  would have  resulted in additional
interest costs of approximately  $263,612.  This sensitivity  analysis  contains
certain simplifying assumptions (for example, it does not consider the impact of
changes in prepayment risk or credit spread risk). Therefore,  although it gives
an  indication  of the  Company's  exposure to interest  rate change,  it is not
intended to predict future results and the Company's  actual results will likely
vary.

         Pending Investments

         As of February  28,  2003,  the Company had  commitments  to acquire 14
additional  Properties  located  in  eight  states.  The  anticipated  aggregate
purchase price is  approximately  $333.7  million,  and the  acquisition of each
Property is subject to the fulfillment of certain conditions.  The Company plans
to assume Permanent  Financing of approximately $46.6 million in connection with
the acquisition of five Properties and to draw  approximately $75 million on its
new $85 million  revolving  line of credit for the  acquisition of nine of these
Properties. In addition, the Company anticipates that it will assume obligations
of approximately $88.8 million in non-interest  bearing bonds payable to certain
residents  of  two of  the  Properties.  In  regards  to 12 of  the 14  proposed
Properties for which the Company has entered into initial commitments to acquire
as of February  28,  2003,  it is expected  that until the sale of the  Marriott
Senior  Living  Services,  Inc.'s  stock to Sunrise  Assisted  Living,  Inc.  is
completed,  Marriott Senior Living Services, Inc. will operate these Properties.
It is expected that Sunrise Assisted Living, Inc. will operate the remaining two
proposed  Properties.  There can be no assurance that these transactions will be
consummated.

         Cash and Cash Equivalents

         Until Properties are acquired,  or Mortgage Loans are entered into, Net
Offering Proceeds are held in short-term (defined as investments with a maturity
of three months or less), highly liquid  investments,  which management believes
to have appropriate safety of principal such as overnight repurchase agreements,
certificates  of  deposit  and money  market  funds.  This  investment  strategy
provides high  liquidity in order to facilitate the Company's use of these funds
to acquire  Properties at such time as Properties  suitable for  acquisition are
located or to fund  Mortgage  Loans.  At  December  31,  2002,  the  Company had
$40,799,871  invested in such short-term  investments as compared to $26,721,107
at  December  31,  2001.  The  increase  in the amount  invested  in  short-term
investments  primarily  reflects  proceeds received from the sale of Shares from
the 2000 Offering and the 2002 Offering during the year ended December 31, 2002,
offset by the  purchase of 33  Properties.  The funds  remaining at December 31,
2002,  along with  additional  funds  expected to be  received  from the sale of
Shares and amounts  received  from tenants,  will be used  primarily to purchase
additional  Properties,  to make Mortgage  Loans,  to pay Offering  Expenses and
Acquisition  Expenses,  to pay  Distributions  to  stockholders,  to meet  other
Company expenses and, in management's discretion, to create cash reserves.

         Notes and Other Receivables

         The  Company's  notes  and other  receivables  balance  increased  from
$180,163 at December  31,  2001 to  $3,192,203  as of  December  31,  2002.  The
increase is  primarily  due to a $2 million  loan to an  affiliate of one of the
Company's  lessees  relating to the  anticipated  acquisition  of two additional
Properties.  As of December 31, 2002,  the Company had an initial  commitment to
purchase two additional  Properties located in Maryland for approximately  $22.6
million.  In connection with this anticipated  purchase,  the Company loaned the
seller $2 million to pay off debt at a discounted amount, making the purchase of
the Properties economically viable. The note bears interest at 15% per annum and
matures  March 31,  2003.  As security  for this note,  the seller has pledged a
membership  interest  in  its  company.  Additionally,  certain  members  of the
seller's company guaranteed the note.

         Other amounts included in the Company's accounts  receivable balance as
of December 31, 2002, include normal operating receivables such as rent payments
due under the Company's long-term lease agreements and other receivables.  As of
February 28, 2003,  management  believes accounts  receivable as of December 31,
2002 are fully collectible.

         Liquidity Requirements

         During the years ended  December 31, 2002,  2001 and 2000,  the Company
generated  cash from  operating  activities  (which  includes cash received from
tenants and  interest,  less cash paid for operating  expenses) of  $16,784,763,
$2,173,379 and $1,096,019,  respectively. For the years ended December 31, 2002,
2001 and 2000,  cash from operating  activities  included  security  deposits of
$3,502,987,  $810,030  and  $553,956,  respectively,  which were  received  from
tenants.  Management  expects  the  Company  to meet  its  short-term  liquidity
requirements,  other than for Offering Expenses, the acquisition and development
of  Properties,  and the  investment  in Mortgage  Loans and  Secured  Equipment
Leases, through cash flow provided by operating activities.  Management believes
that cash flow  provided by  operating  activities  will be  sufficient  to fund
normal  recurring  operating  expenses,  regular debt service  requirements  and
Distributions  to  stockholders.  To the  extent  that the  Company's  cash flow
provided by  operating  activities  is not  sufficient  to meet such  short-term
liquidity requirements as a result, for example, of unforeseen expenses due to a
tenant  defaulting under the terms of its lease  agreement,  the Company may use
borrowings under its line of credit.  Management expects the Company to meet its
other short-term liquidity requirements, including payment of Offering Expenses,
the acquisition  and  development of Properties,  and the investment in Mortgage
Loans and Secured Equipment Leases, with proceeds from its offerings, additional
advances under its proposed line of credit and Permanent  Financing.  Management
expects the Company to meet its long-term liquidity  requirements through short-
or long-term, unsecured or secured debt financing or equity financing.

         An  FF&E  Reserve  fund  has  been   established  in  accordance   with
substantially all of the lease  agreements.  In accordance with such agreements,
the  tenants  deposit  funds  into  the  restricted  FF&E  Reserve  account  and
periodically use these funds to cover the cost of the  replacement,  renewal and
additions to furniture,  fixtures and equipment.  With respect to the Properties
subject  to  operating  leases,  generally  all funds in the FF&E  Reserve,  all
interest earned on the funds and all property purchased with funds from the FF&E
Reserve are and will remain the property of the Company. However, six Properties
subject to operating  leases include FF&E Reserve accounts which will be held by
each tenant until the end of the lease term at which time all property purchased
with funds from the FF&E  Reserve  accounts  will  become  the  property  of the
Company.  The Properties subject to direct financing leases include FF&E Reserve
accounts that are held by each tenant.  All property  purchased  with funds from
the FF&E Reserve accounts will remain the property of the tenants.  In the event
that the FF&E Reserve is not sufficient to maintain the Property in good working
condition and repair,  the Company may make fixed asset  expenditures,  in which
case annual rent will be increased.  For the years ended December 31, 2002, 2001
and 2000,  revenue relating to the FF&E Reserve totalled  $153,454,  $39,199 and
$19,672,  respectively. Due to the fact that the Company's Properties are leased
on a  long-term,  triple-net  basis,  meaning the  tenants  are  required to pay
repairs and  maintenance,  property taxes,  insurance and utilities,  management
does not believe that other working capital reserves are necessary at this time.
However,  management may maintain additional cash required to meet the Company's
working  capital needs.  Management  believes that the Company's  Properties are
adequately  covered  by  insurance.   In  addition,  the  Advisor  has  obtained
contingent  liability  and property  coverage for the  Company.  This  insurance
policy is  intended  to reduce the  Company's  exposure  in the event a tenant's
insurance  policy  lapses or is  insufficient  to cover a claim  relating to the
Property.

         Distributions

         The  Company  declared  and  paid  Distributions  to  its  stockholders
totalling  $14,379,477,  $1,507,322 and $502,078 during the years ended December
31, 2002, 2001 and 2000, respectively. In addition, on January 1 and February 1,
2003, the Company declared Distributions of $0.0589 per Share to stockholders of
record on January 1 and  February  1, 2003,  respectively,  payable by March 31,
2003.

         For the years ended  December  31, 2002,  2001 and 2000,  approximately
65%, 65% and 54%,  respectively,  of the Distributions  received by stockholders
were  considered  to be  ordinary  income and  approximately  35%,  35% and 46%,
respectively,  were  considered  a return of  capital  for  federal  income  tax
purposes.  No amounts  distributed to stockholders  for the years ended December
31,  2002,  2001,  and 2000,  were  required  to be or have been  treated by the
Company as a return of capital for purposes of calculating the  Stockholders' 8%
Return on Invested  Capital.  Generally  the  Company is required to  distribute
annually 90% of its real estate  investment trust taxable income. In determining
the  amount  of  Distributions,  management  considers  the  amount of cash from
operations,  funds from  operations  and the general  economic  condition of the
Company.  The  Company  intends to  continue  to declare  Distributions  of cash
available  for such  purpose to the  stockholders  on a monthly  basis,  payable
quarterly.

         Related Party Transactions

         Certain  Directors  and officers of the Company hold similar  positions
with the Advisor and the Managing Dealer,  CNL Securities Corp. These affiliates
receive  fees  and  compensation  in  connection  with  the  offerings,  and the
acquisition, management and sale of the assets of the Company.

         CNL Securities Corp. receives Selling Commissions  amounting to 7.5% of
the total amount raised from the sale of Shares for services in connection  with
the  offerings,  a  substantial  portion  of  which  has been or will be paid as
commissions to other  broker-dealers.  During the years ended December 31, 2002,
2001 and 2000,  the  Company  incurred  $27,835,104,  $4,463,981  and  $486,846,
respectively, of which $26,341,693,  $4,175,827 and $437,940,  respectively, was
or will be paid by CNL Securities Corp. as commissions to other broker-dealers.

         In addition,  CNL  Securities  Corp.  receives a marketing  support fee
equal to 0.5% of the  total  amount  raised  from the sale of  Shares,  all or a
portion  of which may be  reallowed  to other  broker-dealers.  During the years
ended  December  31,  2002,  2001 and 2000,  the  Company  incurred  $1,855,674,
$297,599  and  $32,456,  respectively,  the  majority  of  which  was or will be
reallowed to other broker-dealers.

         CNL Securities  Corp.  will also receive,  in connection  with the 2000
Offering,  a soliciting  dealer  servicing  fee payable  annually by the Company
beginning  on December 31,  2003,  in an amount equal to 0.20% of the  aggregate
investment  of  stockholders  who  purchased  shares in the 2000  Offering.  CNL
Securities Corp. in turn may reallow all or a portion of such fees to soliciting
dealers whose clients hold shares on such date. As of December 31, 2002, no such
fees had been incurred.

         The Advisor  receives  Acquisition  Fees for  services  in  identifying
Properties and structuring the terms of the Company's  leases and Mortgage Loans
equal to 4.5% of Total Proceeds. In addition, if there is a Listing, the Company
will  receive an  Acquisition  Fee of 4.5% of amounts  outstanding  on a line of
credit, if any, at the time of the Listing.  During the years ended December 31,
2002, 2001 and 2000, the Company incurred $18,736,538,  $2,676,430 and $292,108,
respectively,  of such fees.  These fees are  included in other  assets prior to
being allocated to individual Properties.

         The Company and the Advisor  have  entered  into an Advisory  Agreement
pursuant  to which the  Advisor  receives  a  monthly  Asset  Management  Fee of
one-twelfth  of  0.60%  of  the  Company's  Real  Estate  Asset  Value  and  the
outstanding  principal  balance  of any  Mortgage  Loans  as of  the  end of the
preceding  month.  During the years ended December 31, 2002,  2001 and 2000, the
Company incurred $770,756, $93,219 and $55,396, respectively, of such fees.

         During the years ended  December  31, 2002,  2001 and 2000,  Affiliates
incurred  on  behalf  of  the  Company  $5,613,049,  $1,626,405,  and  $387,704,
respectively,   for  certain  Offering   Expenses  and  due  diligence   expense
reimbursements.  In addition, during the years ended December 31, 2002, 2001 and
2000,  Affiliates  incurred  on behalf of the  Company  $451,238,  $353,852  and
$112,961,  respectively, for certain Acquisition Expenses and $565,013, $206,211
and $157,878,  respectively,  for certain Operating Expenses. As of December 31,
2002  and  2001,   the  Company  owed   Affiliates   $347,786  and   $1,772,807,
respectively,  for such  amounts  and unpaid fees and  administrative  expenses.
Offering  Expenses paid by the Company  together with Selling  Commissions,  the
marketing support fee and due diligence expense  reimbursements  incurred by the
Company  will not  exceed  13% of the  proceeds  raised in  connection  with the
offerings.

         The Company incurs operating  expenses relating to its  administration.
Pursuant to the Advisory  Agreement,  the Advisor is required to  reimburse  the
Company the amount by which the total Operating Expenses paid or incurred by the
Company in any Expense Year exceeds the Expense  Cap.  During the Expense  Years
ended June 30, 2001 and June 30, 2000,  operating  expenses exceeded the Expense
Cap by $145,015 and $213,886,  respectively;  therefore,  the Advisor reimbursed
the  Company  such  amounts  in  accordance  with the  Advisory  Agreement.  The
Company's Operating Expenses did not exceed the Expense Cap in any other Expense
Years during the years ended December 31, 2002, 2001 and 2000.

         CNL Capital Corp., an Affiliate of the Advisor, is a non-voting Class C
member of Century Capital  Markets,  LLC ("CCM").  CCM made the arrangements for
the  $23,520,000  commercial  paper  loan  described  in Note 7 to the  Notes to
Consolidated  Financial  Statements  of the Company  included  in the  Financial
Information  commencing  on  page  F-1.  CCM  was  paid  a  2%  structuring  fee
($470,000),  which was  recorded as deferred  loan costs and is being  amortized
over the term of the loan. In addition,  the monthly  interest payment due under
the  commercial  paper loan includes a margin of 30 basis points  payable to CCM
for the  monthly  services  it  provides  related to the  administration  of the
commercial paper loan.

         The Company maintains bank accounts in a bank in which certain officers
and Directors of the Company  serve as  directors,  and in which an Affiliate of
the Advisor and certain executive officers of the Company are stockholders.  The
amounts  deposited with this bank were $5,740,852 and $3,000,000 at December 31,
2002 and 2001, respectively.

         On May 30,  2002,  the  Company  acquired a 10%  interest  in a limited
partnership,  CNL Plaza,  Ltd., that owns an office building located in Orlando,
Florida,  in which the  Advisor  and its  Affiliates  lease  office  space.  The
remaining interest in the limited  partnership is owned by several Affiliates of
the  Advisor.  During the year ended  December 31,  2002,  the Company  received
$190,922 in distributions from the partnership.

         Other

         Management  is  not  aware  of  any  material   trends,   favorable  or
unfavorable,  in either  capital  resources  or the outlook for  long-term  cash
generation,  nor does management expect any material changes in the availability
and relative cost of such capital  resources,  other than as referred to in this
Prospectus.  Management  expects that the cash to be generated  from  operations
will  be  adequate  to pay  operating  expenses  and to  make  Distributions  to
stockholders.

         Critical Accounting Policies

         The  Company's  leases  are  accounted  for  under  the  provisions  of
Statement of Financial  Accounting  Standards  No. 13,  "Accounting  for Leases"
("FAS 13"),  and have been  accounted for as either  operating  leases or direct
financing  leases.  FAS 13 requires  management to estimate the economic life of
the leased  property,  the residual value of the leased property and the present
value of minimum  lease  payments to be received  from the tenant.  In addition,
management  has assumed  that all  payments to be received  under its leases are
collectible.   Changes  in  management's   estimates  or  assumption   regarding
collectibility  of lease payments could result in a change in accounting for the
lease at the inception of the lease.

         Acquisition Fees and miscellaneous acquisition costs that are directly
identifiable with Properties that are probable of being acquired are capitalized
and included in other assets. Upon the purchase of a Property, the fees and
costs directly identifiable with that Property are reclassified to land,
building and equipment. In the event a Property is not acquired or its
acquisition is no longer considered probable, costs directly related to the
Property will be charged to expense.

RESULTS OF OPERATIONS

      Comparison of the year ended December 31, 2002 and December 31, 2001

         Net earning for the year ended  December 31, 2002 totalled  $11,371,856
or $0.52 per Share of Common Stock. This compares to net earnings of $915,965 or
$0.38 per  Share of Common  Stock  for the  corresponding  period in 2001.  This
increase  in net  earnings  per  Share  is the  result  of the  various  factors
described below.

         As of December  31, 2002 and 2001,  the  Company  owned 37  Properties,
including one Property under  development,  and three Properties,  respectively.
The Company has entered into long-term,  triple-net lease agreements relating to
36 and three of these  Properties  in 2002 and 2001,  respectively.  The  leases
provide for minimum annual base rent generally payable in monthly  installments.
The leases also require  minimum annual base rents to increase at  predetermined
intervals during the lease terms. In addition to annual base rent, substantially
all of  the  leases  require  the  payment  of  contingent  rent  computed  as a
percentage of gross revenues of the Property above specified thresholds.

         For the years  ended  December  31, 2002 and 2001,  the Company  earned
$16,777,611 and $1,725,018,  respectively,  in rental income from its Properties
under operating  leases and earned income from its Properties  subject to direct
financing  leases.  The Company also earned $153,454 and $39,199 in FF&E Reserve
income  during the years ended  December  31, 2002 and 2001,  respectively.  The
increase  in rental and FF&E  Reserve  income was due to the  Company  owning 36
Properties  subject  to lease  agreements  during the year  ended  December  31,
2002,as  compared to three  Properties  during the year ended December 31, 2001.
Because the majority of the Properties were owned for only a portion of 2002 and
additional  Property  acquisitions are expected to occur,  results of operations
are not  expected to be  indicative  of future  periods  and rental  income from
operating  leases,  earned income from direct  financing leases and FF&E Reserve
income are expected to increase in subsequent periods.

         Of  the  36  Properties  subject  to  lease  agreements,  35  of  these
Properties  are leased to  affiliates or wholly owned  subsidiaries  of ARC, HRA
Management  Corporation or Prime Care Properties,  LLC and contributed  95.6% of
the Company's  total rental income during the year ended  December 31, 2002. Six
of these  Properties  are  operated  under the ARC brand and 29  Properties  are
operated by Marriott  Senior  Living  Services,  Inc., a subsidiary  of Marriott
International,  Inc. To mitigate  credit risk,  certain leases are combined into
portfolios that contain cross-default and pooling terms. For certain Properties,
the Company has also required  security  deposits,  guarantees from the tenant's
parent  company or  additional  cash  reserve  accounts to be held at the tenant
level.  Although the Company acquires  Properties  located in various states and
regions  and  carefully  screens its tenants in order to reduce risk of default,
failure of these lessees,  their  guarantors or the ARC or Marriott brand chains
would  significantly  impact the results of  operations  of the  Company.  It is
expected that the percentage of total rental income contributed by these lessees
will decrease as additional  Properties  are acquired and leased to  diversified
tenants during subsequent periods

         During the years ended  December  31, 2002 and 2001,  the Company  also
earned   $1,913,205  and  $135,402,   respectively,   in  interest  income  from
investments  in money  market  accounts  and  other  short-term,  highly  liquid
investments.  Interest income increased during the year ended December 31, 2002,
as compared to the year ended  December  31, 2001,  due to the Company  having a
larger amount of offering proceeds  temporarily invested pending the acquisition
of  Properties.  As net offering  proceeds are used to invest in Properties  and
make Mortgage Loans,  the percentage of the Company's total revenues earned from
interest income from  investments in money market accounts or other  short-term,
highly liquid  investments is expected to decrease.  Included in interest income
for the year ended  December 31, 2002,  was  approximately  $191,200 in interest
income related to notes receivable.

         Operating  expenses,  including  interest  expense and depreciation and
amortization  expense, were $7,052,564 and $983,654 for the years ended December
31,  2002 and  2001,  respectively  (37.4%  and  51.8%,  respectively,  of total
revenues). The increase in operating expenses during the year ended December 31,
2002,  as compared to 2001,  was the result of the Company  owning 37 Properties
during the 2002 compared to the three Properties in 2001. Additionally, interest
expense  increased  from  $105,056  for the  year  ended  December  31,  2001 to
$1,408,611  for the year ended  December  31,  2002,  as a result of the Company
entering into additional borrowing in 2002.

         Pursuant  to  the  Advisory  Agreement,  the  Advisor  is  required  to
reimburse  the  Company  the amount by which total  Operating  Expenses  paid or
incurred by the Company exceed in any four consecutive quarters the Expense Cap.
During the four quarters ended June 30, 2001, the Company's  Operating  Expenses
totalled $439,456,  exceeding the Expense Cap by $145,015; therefore the Advisor
reimbursed  the Company such amount in accordance  with the Advisory  Agreement.
The  Company's  Operating  Expenses did not exceed the Expense Cap for any other
Expense Years during the years ended December 31, 2002 and 2001.

         The dollar amount of operating  expenses is expected to increase as the
Company acquires additional  Properties and invests in Mortgage Loans.  However,
general operating and administrative  expenses as a percentage of total revenues
is  expected  to decrease as the  Company  acquires  additional  Properties  and
invests in Mortgage Loans.

         In May 2002, a joint venture in which the Company owned a 76.75% equity
interest,  purchased five Properties. The 23.25% minority interest in this joint
venture was held by Marriott  Senior Living  Services,  Inc.  until December 20,
2002, when the Company purchased the 23.25% minority interest. Prior to December
20, 2002,  each joint  venture  partner  shared in the costs and benefits of the
joint venture in  proportion to its  percentage  equity  interest.  The minority
interest in earnings of the consolidated joint venture was $433,012 for the year
ended December 31, 2002.

        Comparison of the year ended December 31, 2001 to the year ended
         December 31, 2000

         As of December 31, 2001 and 2000,  the Company  owned three  Properties
and one Property, respectively, consisting of land, buildings and equipment, and
had  entered  into  long-term,  triple-net  lease  agreements  relating to these
Properties.  The leases  provide  for  minimum  annual  base rent  ranging  from
approximately  $991,000 to  $1,350,000,  which is  generally  payable in monthly
installments.  In  addition,  the leases also  provide that the annual base rent
required under the terms of the leases will increase at predetermined intervals.
In addition  to annual base rent,  tenants  pay  contingent  rent  computed as a
percentage  of gross sales of the Property.  The Company's  lease for the Orland
Park  Property  also required the  establishment  of an FF&E  Reserve.  The FF&E
Reserve established for the Orland Park Property has been reported as additional
rent for the years ended December 31, 2001 and 2000.

         During the years ended  December 31, 2001 and 2000,  the Company earned
rental income from operating  leases and FF&E Reserve  revenue of $1,764,217 and
$981,672, respectively. The increase in rental income and FF&E Reserve income is
due to the Company  owning three  Properties  during the year ended December 31,
2001,  as compared to one Property  during the year ended  December 31, 2000. In
addition,  the  Orland  Park  Property  was owned  for only a  portion  of 2000,
compared to a full year in 2001.

         During the years ended  December 31, 2001 and 2000,  the Company earned
$135,402 and $103,058,  respectively,  in interest  income from  investments  in
money market accounts and other short-term,  highly liquid investments and other
income.  The  increase  in  interest  income was  primarily  attributable  to an
increase in the dollar amount invested in short-term, liquid investments and the
period of time the funds were  invested  pending  investment in  Properties,  as
compared to 2000.

         Operating  expenses,  including  interest  expense and depreciation and
amortization  expense,  were $983,654 and $859,952 for the years ended  December
31, 2001 and 2000,  respectively.  The increase in operating expenses during the
year ended  December 31, 2001, as compared to 2000,  was partially the result of
the Company  owning three  Properties  during 2001,  compared to one Property in
2000. Additionally, general operating and administrative expenses increased as a
result of Company growth.  Interest expense decreased from $367,374 for the year
ended  December 31, 2000 to $105,056 for the year ended  December 31, 2001.  The
decrease in interest  expense was a result of the Company  repaying  the amounts
outstanding under its line of credit during the year ended December 31, 2001.

         Pursuant  to  the  Advisory  Agreement,  the  Advisor  is  required  to
reimburse the Company the amount by which the total  Operating  Expenses paid or
incurred  exceed the Expense Cap in an Expense  Year.  During the Expense  Years
ended June 30, 2001 and 2000, the Company's Operating Expenses totalled $439,456
and $287,084, respectively,  exceeding the Expense Cap by $145,015 and $213,886,
respectively;  therefore, the Advisor has reimbursed the Company such amounts in
accordance with the Advisory Agreement. The Company's Operating Expenses did not
exceed  the  Expense  Cap in any other  Expense  Years  during  the years  ended
December 31, 2001 and 2000.

         New Accounting Standards

         In April 2002, the Financial Accounting Standards Board ("FASB") issued
FASB  statement  No.  145,  "Rescission  of  FASB  Statement  No.  4, 44 and 64,
Amendment of FASB Statement No. 13, and Technical  Corrections."  This statement
rescinds FASB Statement No. 4, "Reporting  Gains and Losses from  Extinguishment
of  Debt,"  and  an  amendment  of  that  Statement,   FASB  Statement  No.  64,
"Extinguishments  of  Debt  Made to  Satisfy  Sinking-Fund  Requirements."  This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." This statement amends FASB Statement No. 13, "Accounting for
Leases," to  eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.   This  statement   also  amends  other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe their applicability  under changed  conditions.  The provisions of this
statement  related to the  rescission of FASB  Statement No. 4 are applicable in
fiscal years  beginning  after May 15, 2002.  The  provisions of this  statement
related to FASB Statement No. 13 are effective for transactions  occurring after
May 15, 2002. All other provisions of this statement are effective for financial
statements issued on or after May 15, 2002. The provisions of this statement are
not expected to have a significant  impact on the financial  position or results
of operations of the Company.

         In July 2002, the FASB issued FASB Statement No. 146,  "Accounting  for
Costs  Associated  with Exit or Disposal  Activities."  The  statement  requires
companies to recognize costs  associated  with exit or disposal  activities when
they are incurred rather than at the date of a commitment to an exit or disposal
plan. Examples of costs covered by the statement include lease termination costs
and certain  employee  severance costs that are associated with a restructuring,
discontinued operations,  plant closing, or other exit or disposal activity. The
statement  is to  be  applied  prospectively  to  exit  or  disposal  activities
initiated  after  December  31,  2002.  The  adoption of this  statement  is not
expected to have a significant  impact on the  financial  position or results of
operations of the Company.

         In November 2002,  FASB issued FASB  Interpretation  No. 45 ("FIN 45"),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect   Guarantees  of  Indebtedness   of  Others".   FIN  45  clarifies  the
requirements  relating to a guarantor's  accounting  for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee,  the guarantor  must  recognize a liability for the fair value of the
obligation  it assumes under that  guarantee.  FIN 45's  provisions  for initial
recognition  and  measurement  are  to be  applied  on a  prospective  basis  to
guarantees  issued or modified after  December 31, 2002. The Company's  previous
accounting for  guarantees  issued prior to January 1, 2003, are not required to
be revised or restated to reflect the effect of the  recognition and measurement
provisions of FIN 45.

         In January  2003,  FASB issued FASB  Interpretation  No. 46 ("FIN 46"),
"Consolidation  of Variable  Interest  Entities"  to expand upon and  strengthen
existing  accounting  guidance that  addresses when a company should include the
assets,   liabilities   and  activities  of  another  entity  in  its  financial
statements.  To improve financial  reporting by companies involved with variable
interest  entities (more  commonly  referred to as  special-purpose  entities or
off-balance sheet  structures),  FIN 46 requires that a variable interest entity
be considered by a company if that company is subject to a majority risk of loss
from the variable interest entity's activities or entitled to receive a majority
of the entity's  residual returns or both. Prior to FIN 46, a company  generally
included  another entity in its  consolidated  financial  statements  only if it
controlled  the entity  through  voting  interests.  Consolidation  of  variable
interest  entities will provide more complete  information  about the resources,
obligations,   risks  and  opportunities  of  the  consolidated   company.   The
consolidation  requirements  of FIN 46 apply  immediately  to variable  interest
entities  created  after  January 31, 2003,  and to older  entities in the first
fiscal year or interim period  beginning after June 15, 2003. As of December 31,
2002,  the  Company did not have any  entities  that would be  characterized  as
variable  interest  entities under FIN 46. As of February 28, 2003, an Affiliate
is considering a transaction  that when  consummated  could result in a variable
interest  entity which could  necessitate  consolidating  the  operations of the
Properties currently leased to HRA Management Corporation, Eight Pack Management
Corp. and Eleven Pack Management Corp.

         Other

         The Company has  elected,  pursuant to Internal  Revenue  Code  Section
856(c)(1),  to be taxed as a REIT under Sections 856 through 860 of the Internal
Revenue  Code of 1986,  as amended,  and  related  regulations.  As a REIT,  for
federal  income  tax  purposes,  the  Company  generally  will not be subject to
federal  income tax on income that it distributes  to its  stockholders.  If the
Company  fails to qualify as a REIT in any taxable  year,  it will be subject to
federal income tax on its taxable income at regular corporate rates and will not
be permitted to qualify for treatment as a REIT for federal  income tax purposes
for four years  following the year during which  qualification  is lost. Such an
event could materially affect the Company's net earnings.  However,  the Company
believes  that it is  organized  and operates in such a manner as to qualify for
treatment as a REIT for the years ended  December 31,  2002,  2001 and 2000.  In
addition, the Company intends to continue to operate the Company so as to remain
qualified and a REIT for federal income tax purposes.


         The Company's  current  leases are, and it is  anticipated  that future
leases  will be,  triple-net  leases  and  contain  provisions  that  management
believes  will mitigate the effect of inflation.  Such  provisions  will include
clauses  requiring the payment of  percentage  rent based on certain gross 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 gross
sales  volumes  due to  inflation  and real  sales  growth  should  result in an
increase in rental income over time.  Continued inflation also may cause capital
appreciation  of  the  Company's  Properties.  Inflation  and  changing  prices,
however,  also may have an adverse  impact on the sales of the Properties and on
potential capital appreciation of the Properties.

         Management of the Company currently knows of no trends that will have a
material  adverse  effect  on  liquidity,   capital   resources  or  results  of
operations.



                                   MANAGEMENT

GENERAL

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

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

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

FIDUCIARY RESPONSIBILITY OF THE BOARD OF DIRECTORS

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

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

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

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

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

DIRECTORS AND EXECUTIVE OFFICERS

         The Directors and executive officers of the Company are listed below:
           Name                   Age         Position with the Company
----------------------------     -------      ---------------------------------------------------------------

James M. Seneff, Jr.               56         Director, Chairman of the Board and Chief Executive Officer
Robert A. Bourne                   55         Director, Vice Chairman of the Board and Treasurer
David W. Dunbar                    50         Independent Director
James W. Duncan, Jr.               50         Independent Director
Edward A. Moses                    60         Independent Director
Thomas J. Hutchison III            61         President
Phillip M. Anderson, Jr.           43         Chief Operating Officer and Executive Vice President
Stuart J. Beebe                    44         Chief Financial Officer

Lynn E. Rose                       54         Secretary

         James  M.  Seneff,  Jr.  Director,  Chairman  of the  Board  and  Chief
Executive  Officer.  Mr.  Seneff also is a  director,  Chairman of the Board and
Chief Executive Officer of CNL Retirement Corp., the Advisor to the Company. Mr.
Seneff is a principal  stockholder of CNL Holdings,  Inc., the parent company of
CNL Financial Group, Inc., a diversified real estate company,  and has served as
a director,  Chairman of the Board and Chief Executive  Officer of CNL Financial
Group,  Inc. and its  subsidiaries  since CNL's formation in 1973. CNL Financial
Group,  Inc.  is the parent  company,  either  directly  or  indirectly  through
subsidiaries,  of CNL Real Estate  Services,  Inc.,  CNL Retirement  Corp.,  CNL
Capital  Markets,  Inc., CNL Investment  Company and CNL Securities  Corp.,  the
Managing Dealer in this offering.  CNL and the entities it has established  have
more than $5.3 billion in assets, representing interests in approximately 1, 850
properties and approximately  1,000 mortgage loans in 49 states. Mr. Seneff also
serves as a director,  Chairman of the Board and co-Chief  Executive  Officer of
CNL  Hospitality  Properties,  Inc., a public,  unlisted real estate  investment
trust,  and  serves as a  director,  Chairman  of the Board and Chief  Executive
Officer of CNL Hospitality Corp., its advisor, and CNL Hotel Investors,  Inc., a
real estate investment trust majority owned by CNL Hospitality Properties,  Inc.
Since 1992, Mr. Seneff has served as a director, Chairman of the Board and Chief
Executive  Officer of Commercial  Net Lease  Realty,  Inc., a public real estate
investment trust that is listed on the New York Stock Exchange.  In addition, he
has served as a director  and  Chairman  of the Board since  inception  in 1994,
served as Chief  Executive  Officer from 1994 through  August 1999 and currently
serves as co-Chief  Executive  Officer of CNL American  Properties Fund, Inc., a
public,  unlisted real estate  investment trust. Mr. Seneff has also served as a
director,  Chairman of the Board and Chief  Executive  Officer of CNL Securities
Corp.  since 1979;  CNL  Investment  Company since 1990;  and CNL  Institutional
Advisors,  a registered  investment  advisor for pension plans,  since 1990. Mr.
Seneff  formerly  served as a director of First Union  National Bank of Florida,
N.A., and currently  serves as the Chairman of the Board of CNLBank.  Mr. Seneff
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  is Florida's  principal
investment  advisory and money management  agency and oversees the investment of
more than $60 billion of retirement  funds.  Mr.  Seneff  received his degree in
Business Administration from Florida State University in 1968.

         Robert A. Bourne.  Director,  Vice Chairman of the Board and Treasurer.
Mr.  Bourne also serves as a director,  Vice Chairman of the Board and Treasurer
of CNL Retirement  Corp.,  the Advisor to the Company.  Mr. Bourne served as the
President  of the Company and the Advisor from 1998 and 1997,  respectively,  to
June 2002.  Mr.  Bourne is also the  President  and  Treasurer of CNL  Financial
Group, Inc.; Treasurer of CNL Hospitality  Properties,  Inc., a public, unlisted
real estate investment trust; as well as, a director, Vice Chairman of the Board
and Treasurer of CNL Hospitality  Corp.,  its advisor,  and CNL Hotel Investors,
Inc.,  a  real  estate  investment  trust  majority  owned  by  CNL  Hospitality
Properties,  Inc. Mr. Bourne served as President of CNL Hospitality  Properties,
Inc. and CNL Hospitality  Corp. from 1997 to June 2002,  served as a director of
CNL  Hospitality  Properties,  Inc.  from 1996 to February  2003,  and served as
President of CNL Hotel  Investors,  Inc. from 1999 to July 2002. Mr. Bourne also
serves as a director of CNLBank.  He serves as a director  and Vice  Chairman of
the Board of Commercial Net Lease Realty, Inc., a public, real estate investment
trust listed on the New York Stock Exchange. Mr. Bourne has served as a director
since inception in 1994,  President from 1994 through  February 1999,  Treasurer
from  February  1999 through  August 1999,  and Vice Chairman of the Board since
February 1999, of CNL American  Properties Fund,  Inc., a public,  unlisted real
estate  investment  trust.  Mr. Bourne also serves as a director,  President and
Treasurer for various  affiliates of CNL Financial  Group,  Inc.,  including CNL
Investment Company, CNL Securities Corp., the Managing Dealer for this offering,
and CNL  Institutional  Advisors,  Inc.,  a  registered  investment  advisor for
pension  plans.  As President  of CNL  Financial  Group,  Inc.,  Mr.  Bourne has
overseen  CNL's  real  estate  and  capital  markets  activities  including  the
investment  of  over $2  billion  in  equity  and  the  financing,  acquisition,
construction and leasing of restaurants,  office buildings, apartment complexes,
hotels, retirement properties and other real estate. Mr. Bourne began his career
as a certified public accountant employed by Coopers & Lybrand, Certified Public
Accountants,  from 1971  through  1978,  where he attained  the  position of tax
manager in 1975.  Mr. Bourne  graduated  from Florida  State  University in 1970
where he received a B.A. in Accounting, with honors.


         David W. Dunbar.  Independent  Director.  Mr. Dunbar serves as chairman
and chief  executive  officer of Peoples  Florida  Banking  Corporation  and its
subsidiaries, Peoples Bank and Southern Mortgage Corporation, which he organized
and founded in 1996. Mr. Dunbar is also a member of the board of trustees of Bay
Care Health  System,  an alliance of ten  non-profit  hospitals in the Tampa Bay
area, as well as chairman of the board of directors of Morton Plant Mease Health
Care,  Inc.,  an 841-bed,  not-for-profit  hospital  system in Pinellas  County,
Florida.  He is a former member of the board of directors of North Bay Hospital,
a 122-bed facility and a former member of the board of directors of Morton Plant
Mease Foundation.  During 1994 and 1995, Mr. Dunbar was a member of the board of
directors  and an executive  officer of Peoples  State Bank.  Mr. Dunbar was the
chief  executive  officer of Republic  Bank from 1981 through 1988 and from 1991
through  1993.  From 1988 through  1991,  Mr. Dunbar  developed  commercial  and
medical office buildings and, through a financial consulting company he founded,
provided  specialized  lending  services  for real estate  development  clients,
specialized construction litigation support for national insurance companies and
strategic planning services for institutional  clients.  In 1990, Mr. Dunbar was
the chief executive officer, developer and owner of a 60,000 square-foot medical
office building  located on the campus of Memorial  Hospital in Tampa,  Florida.
Mr. Dunbar previously  served as a member of the Florida  Elections  Commission,
the body responsible for  investigating  and holding hearings  regarding alleged
violations of Florida's  campaign finance laws. In addition,  from 1990 to 2000,
Mr. Dunbar served as the Governor's  appointee to the State of Florida  Taxation
and Budget Reform Commission, a 25 member, blue ribbon commission established to
review,  study and make  appropriate  recommendations  for  changes to state tax
laws.  Mr.  Dunbar  began  his  professional   career  with  Southeast   Banking
Corporation  in Miami,  from 1975  through  1981,  serving  as a  regional  vice
president of commercial  mortgage lending.  Mr. Dunbar received a B.S. degree in
Finance from Florida State University in 1975. He is also a 1977 graduate of the
American  Bankers   Association   National  Commercial  Lending  School  at  the
University of Oklahoma and a 1982 graduate of the School of Banking of the South
at Louisiana State University.

         James W. Duncan, Jr. Independent Director.  Mr. Duncan is the president
of NavTrak,  Inc.,  a mobile data and asset  tracking  company  that  provides a
web-based system to track vehicles in commercial fleets. From 1994 through 2000,
Mr.  Duncan  served  as the  president  of The  Latrobe  Group,  LLC,  a private
investment company. In addition, from 1994 through 2001, Mr. Duncan was a member
of  the  board  of  governors  for  Opportunity   International,   a  non-profit
organization  that  provides  entrepreneurs  with access to capital and business
training to start and expand  small  businesses.  From 1985  through  1994,  Mr.
Duncan  was  co-chairman  and  president  of  PersonaCare,  Inc.,  a company  he
co-founded  that provided  sub-acute,  skilled  nursing and assisted living care
with 12  facilities  located in six states.  Prior to  co-founding  PersonaCare,
Inc.,  Mr.  Duncan was a partner in Duncan & Smick,  a  commercial  real  estate
development  firm. Mr. Duncan  received a B.A. in Economics from Wheaton College
in 1974 and a J.D. from the University of Maryland School of Law in 1978.

         Edward A. Moses.  Independent Director. Dr. Moses served as dean of the
Roy E. Crummer Graduate School of Business at Rollins College from 1994 to 2000,
and has served as a professor and the Bank of America professor of finance since
1989.  As dean,  Dr.  Moses  established  a  comprehensive  program of executive
education for health care  management at the Roy E. Crummer  Graduate  School of
Business.  From 1985 to 1989 he served as dean and  professor  of finance at the
University of North Florida.  He has also served in academic and  administrative
positions  at  the  University  of  Tulsa,  Georgia  State  University  and  the
University of Central Florida. Dr. Moses has written six textbooks in the fields
of  investments  and corporate  finance as well as numerous  articles in leading
business   journals.   He  has  held   offices  in  a  number  of   professional
organizations,  including  president of the Southern Finance and Eastern Finance
Associations,  served  on the  board  of the  Southern  Business  Administration
Association,  and served as a consultant  for major banks as well as a number of
Fortune 500 companies.  He currently  serves as a faculty member in the Graduate
School of Banking at Louisiana State University, and is a member of the board of
directors of HTE, Inc. Dr. Moses received a B.S. in Accounting  from the Wharton
School at the  University of  Pennsylvania  in 1965 and an M.B.A.  in 1967 and a
Ph.D. in Finance from the University of Georgia in 1971.


         Thomas J.  Hutchison  III.  President.  Mr.  Hutchison  also  serves as
President and a director of CNL  Retirement  Corp.,  the Advisor of the Company.
From 2000 to June 2002, Mr.  Hutchison served as Executive Vice President of the
Company and the Advisor.  Mr.  Hutchison serves as President and Chief Operating
Officer of CNL Real Estate  Services,  Inc.,  which is the parent company of CNL
Retirement  Corp. and CNL Hospitality  Corp. He also serves as the President and
Chief  Operating  Officer of CNL Realty &  Development  Corp.  In addition,  Mr.
Hutchison serves as President and co-Chief  Executive Officer of CNL Hospitality
Properties, Inc. and President, co-Chief Executive Officer and a director of CNL
Hospitality  Corp.,  its  advisor.  He also  serves  as  President  of CNL Hotel
Investors,   Inc.,  a  real  estate  investment  trust  majority  owned  by  CNL
Hospitality  Properties,  Inc. From 2000 to June 2002, Mr.  Hutchison  served as
Executive Vice President of CNL Hospitality Properties, Inc. and CNL Hospitality
Corp. He served as Executive  Vice President of CNL Hotel  Investors,  Inc. from
2000 to July 2002. Mr.  Hutchison  joined CNL Financial  Group,  Inc. in January
2000 with more than 30 years of senior  management and consulting  experience in
the real estate development and services industries.  He currently serves on the
board  of  directors  of  Restore  Orlando,  a  nonprofit   community  volunteer
organization.  Prior to joining CNL, Mr.  Hutchison  was  president and owner of
numerous real estate services and development  companies.  From 1995 to 2000, he
was chairman and chief executive  officer of Atlantic Realty Services,  Inc. and
TJH Development Corporation.  Since 1990, he has fulfilled a number of long-term
consulting  assignments for large  corporations,  including managing a number of
large  international  joint ventures.  From 1990 to 1991, Mr.  Hutchison was the
court-appointed  president and chief  executive  officer of General  Development
Corporation,  a real estate community development company,  where he assumed the
day-to-day   management  of  the  $2.6  billion   NYSE-listed  company  entering
reorganization.  From 1986 to 1990,  he was the  chairman  and  chief  executive
officer  of a number of real  estate-related  companies  engaged  in the  master
planning  and land  acquisition  of forty  residential,  industrial  and  office
development  projects.  From 1978 to 1986,  Mr.  Hutchison was the president and
chief  executive  officer  of  Murdock   Development   Corporation  and  Murdock
Investment  Corporation,  as well as Murdock's nine service  divisions.  In this
capacity,  he managed an average of $350 million of new development per year for
over nine years. Additionally, he expanded the commercial real estate activities
to a national  basis,  and  established  both a new extended care division and a
hotel division that grew to 14 properties.  Mr. Hutchison was educated at Purdue
University and the University of Maryland Business School.

         Phillip M.  Anderson,  Jr. Chief  Operating  Officer and Executive Vice
President.  Mr.  Anderson  joined CNL  Retirement  Corp.  in January 1999 and is
responsible for the planning and  implementation of CNL's interest in the health
care industry investments, including acquisitions, development, project analysis
and due diligence.  He also currently  serves as the Chief Operating  Officer of
both  CNL  Retirement  Corp.,  the  Company's  Advisor,  and of  CNL  Retirement
Development  Corp.  From 1987 through 1998, Mr. Anderson was employed by Classic
Residence by Hyatt.  Classic  Residence by Hyatt  ("Classic") is affiliated with
Hyatt Hotels and Chicago's Pritzker family. Classic acquires, develops, owns and
operates  seniors'  housing,  assisted  living,  skilled nursing and Alzheimer's
facilities  throughout the United States. Mr. Anderson's  responsibilities  grew
from  overseeing  construction  of Classic's  first  properties to acquiring and
developing new properties.  After assuming responsibility for acquisitions,  Mr.
Anderson  doubled the number of senior living  apartments/beds  ("units") in the
portfolio  by adding  over 1,200  units.  In  addition,  the  development  of an
additional  1,000  units of  seniors'  housing  commenced  under Mr.  Anderson's
direction.  Mr. Anderson also served on Classic's  Executive  Committee  charged
with the  responsibility  of monitoring  performance of existing  properties and
development  projects.  Mr.  Anderson has been a member of the  American  Senior
Housing  Association  since 1994 and currently serves on the executive board and
insurance committee.  In addition, Mr. Anderson serves on the board of directors
of the National  Investment  Center for Senior  Housing and Care  Industries and
also serves as an advisory board member to Westminister  Retirement Communities,
a not-for-profit operator of continuing care communities.  He graduated from the
Georgia  Institute  of  Technology  in 1982,  where he  received a B.S. in Civil
Engineering, with honors.


         Stuart J. Beebe.  Chief  Financial  Officer.  Mr.  Beebe also serves as
Chief Financial Officer of CNL Retirement Corp., the Advisor to the Company. Mr.
Beebe  oversees all financial  accounting and reporting  matters  related to the
Companies' activities. He also works closely with other senior management in the
development and execution of the Companies' business strategy.  Prior to joining
CNL in December of 1997, Mr. Beebe spent 15 years with Lincoln Property Company,
one of the largest, privately held, commercial real estate firms in the country.
As senior vice president,  Mr. Beebe oversaw the operations of Lincoln's Florida
Region, with a direct focus on development and acquisition  activities.  He also
participated  in the  daily  administration  of all real  estate  assets  in the
region,  including  project  financing and  construction,  leasing and marketing
activities,  property and asset  management  and  dispositions.  Before  joining
Lincoln,  Mr.  Beebe  worked  for  KPMG  Peat  Marwick  as  a  Certified  Public
Accountant,  specializing  in the real  estate,  banking and  natural  resources
industries.  Mr. Beebe received a B.A. in Accounting  from Baylor  University in
1981. He is a Certified  Public  Accountant and a Licensed Real Estate Broker in
the State of Florida. He is also an active member of the National Association of
Real Estate  Investment  Trust(R) the National  Association of Industrial Office
Properties and the Urban Land Institute.

         Lynn E. Rose.  Secretary.  Ms. Rose served as  Treasurer of the Company
from 1998  through  August  2001.  Ms.  Rose also  serves  as  Secretary  of CNL
Retirement  Corp.,  the  Advisor  to  the  Company,  and  as  Secretary  of  the
subsidiaries of the Company.  Ms. Rose served as Treasurer and a director of CNL
Retirement  Corp.  from 1997  through  June 2001.  Ms. Rose is  Secretary of CNL
Hospitality  Properties,  Inc., a public, unlisted real estate investment trust,
and serves as Secretary of its subsidiaries. Ms. Rose served as Treasurer of CNL
Hospitality Properties,  Inc. from 1996 through September 2001. In addition, she
serves as  Secretary  of CNL  Hospitality  Corp.,  its  advisor,  and  served as
Treasurer  and a director  from 1997 through June 2001.  Ms. Rose also serves as
Secretary of CNL Hotel Investors,  Inc., a real estate investment trust majority
owned by CNL  Hospitality  Properties,  Inc.,  and served as Treasurer from 1999
through June 2001. Ms. Rose served as Secretary of CNL American Properties Fund,
Inc., a public,  unlisted real estate investment trust, from 1994 through August
1999,  and served as Treasurer  from 1994  through  February  1999.  Ms. Rose, a
certified  public  accountant,  has served as Secretary of CNL Financial  Group,
Inc.  since  1987,  its  Controller  from 1987 to 1993 and its  Chief  Financial
Officer from 1993 to present.  She also serves as Secretary of the  subsidiaries
of CNL Financial  Group,  Inc. and holds other offices in the  subsidiaries.  In
addition,  she serves as Secretary for approximately 75 additional  corporations
affiliated with CNL Financial  Group,  Inc. and its  subsidiaries.  Ms. Rose has
served as Chief Financial  Officer and Secretary of CNL Securities  Corp.  since
July 1994.  Ms. Rose  oversees  the tax  compliance  for over 500  corporations,
partnerships and joint ventures,  and the accounting and financial reporting for
CNL Holdings,  Inc. and its  subsidiaries.  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.

INDEPENDENT DIRECTORS

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

COMMITTEES OF THE BOARD OF DIRECTORS

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

         At such  time,  as  necessary,  the  Company  will form a  Compensation
Committee,  the members of which will be selected by the full Board of Directors
each year.

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

COMPENSATION OF DIRECTORS AND EXECUTIVE OFFICERS

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

MANAGEMENT COMPENSATION

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


                     THE ADVISOR AND THE ADVISORY AGREEMENT

THE ADVISOR

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

         The directors and executive officers of the Advisor are as follows:

             James M. Seneff, Jr.              Chairman of the Board, Chief
                                                 Executive Officer, and Director
             Robert A. Bourne                  Vice Chairman of the Board,
                                                 Treasurer and Director
             Thomas J. Hutchison III           President and Director
             Phillip M. Anderson, Jr.          Chief Operating Officer
             Stuart J. Beebe                   Chief Financial Officer
             Lynn E. Rose                      Secretary

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

         Management  anticipates that any transaction by which the Company would
become self-advised would be submitted to the stockholders for approval.

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

THE ADVISORY AGREEMENT

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

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

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

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


         Pursuant to the Advisory Agreement,  the Advisor is entitled to receive
fees  and   reimbursements,   as  listed  in  "Management   Compensation."   The
Subordinated Incentive Fee payable to the Advisor under certain circumstances if
Listing occurs may be paid, at the option of the Company, in cash, in Shares, by
delivery of a  promissory  note payable to the  Advisor,  or by any  combination
thereof. The Subordinated  Incentive Fee is an amount equal to 10% of the amount
by which (i) the market  value of the  Company,  measured  by taking the average
closing  price or average of bid and asked  prices,  as the case may be,  over a
period of 30 days during which the Shares are traded, with such period beginning
180 days after Listing (the "Market Value"),  plus the total  Distributions paid
to stockholders from the Company's inception until the date of Listing,  exceeds
(ii) the sum of (A) 100% of  Invested  Capital  and (B) the total  Distributions
required to be paid to the  stockholders  in order to pay the  Stockholders'  8%
Return from  inception  through  the date the Market  Value is  determined.  The
Subordinated Incentive Fee will be reduced by the amount of any prior payment to
the Advisor of a deferred subordinated share of Net Sales Proceeds from Sales of
Assets of the Company.  In the event the  Subordinated  Incentive Fee is paid to
the Advisor  following  Listing,  no Performance Fee (defined as the fee payable
under  certain  circumstances  if certain  performance  standards  are met, such
circumstances  and standards being described  below) will be paid to the Advisor
under the Advisory Agreement nor will any additional share of Net Sales Proceeds
be paid to the  Advisor.  The  Subordinated  Incentive  Fee  will not be paid if
Listing occurs on the Pink Sheets or the OTC Bulletin Board.


         The total of all Acquisition Fees and any Acquisition  Expenses payable
to the Advisor and its  Affiliates  shall be reasonable  and shall not exceed an
amount equal to 6% of the Real Estate Asset Value of a Property,  or in the case
of a Mortgage Loan, 6% of the funds advanced,  unless a majority of the Board of
Directors,  including  a majority of the  Independent  Directors  not  otherwise
interested in the transaction,  approves fees in excess of this limit subject to
a  determination  that the  transaction is  commercially  competitive,  fair and
reasonable to the Company.  The Acquisition  Fees payable in connection with the
selection or  acquisition  of any Property  shall be reduced to the extent that,
and if necessary to limit, the total  compensation  paid to all persons involved
in the  acquisition  of such  Property  to the  amount  customarily  charged  in
arm's-length  transactions  by  other  persons  or  entities  rendering  similar
services as an ongoing public activity in the same geographical location and for
comparable types of Properties,  and to the extent that other  acquisition fees,
finder's fees, real estate commissions, or other similar fees or commissions are
paid by any person in connection with the transaction.

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

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

         The Advisory Agreement,  which was entered into by the Company with the
unanimous  approval  of  the  Board  of  Directors,  including  the  Independent
Directors,  expires one year after the date of execution,  subject to successive
one-year  renewals  upon mutual  consent of the  parties.  The current  Advisory
Agreement  expires on May 13, 2003. In the event that a new Advisor is retained,
the  previous  Advisor  will  cooperate  with the Company and the  Directors  in
effecting  an  orderly  transition  of the  advisory  functions.  The  Board  of
Directors  (including a majority of the Independent  Directors)  shall approve a
successor  Advisor  only  upon  a  determination   that  the  Advisor  possesses
sufficient  qualifications to perform the advisory functions for the Company and
that the  compensation  to be received  by the new  Advisor  pursuant to the new
Advisory Agreement is justified.


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


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

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


                 CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS


         The  Managing  Dealer  is  entitled  to  receive  Selling   Commissions
amounting to 7.5% of the total  amount  raised from the sale of Shares of Common
Stock for  services in  connection  with the offering of Shares,  a  substantial
portion of which may be paid as  commissions  to other  broker-dealers.  For the
year ended December 31, 2002, the Company incurred approximately  $27,800,000 of
such fees in connection  with the 2000 Offering and the 2002 Offering,  of which
approximately  $26,300,000  was paid by CNL  Securities  Corp. as commissions to
other  broker-dealers.  In addition,  during the period  January 1, 2003 through
February 28, 2003, the Company incurred approximately $7,700,000 of such fees in
connection  with the 2002  Offering,  the  majority of which has been or will be
paid by CNL Securities Corp. as commissions to other broker-dealers.

         In  addition,  the  Managing  Dealer is entitled to receive a marketing
support  fee equal to 0.5% of the total  amount  raised  from the sale of Shares
from the 2000 Offering and the 2002  Offering,  all or a portion of which may be
reallowed to other  broker-dealers.  For the year ended  December 31, 2002,  the
Company  incurred  approximately  $1,900,000 of such fees in connection with the
2000  Offering and the 2002  Offering,  the majority of which were  reallowed to
other  broker-dealers.  In addition,  during the period  January 1, 2003 through
February 28, 2003, the Company incurred  approximately  $500,000 of such fees in
connection  with the 2002  Offering,  the  majority of which has been or will be
reallowed to other broker-dealers.

         CNL Securities  Corp.  will also receive,  in connection  with the 2000
Offering,  a soliciting  dealer  servicing  fee payable  annually by the Company
beginning on December  31, 2003 in the amount of 0.20% of Invested  Capital from
the 2000 Offering.  CNL Securities Corp. in turn may reallow all or a portion of
such fees to  Soliciting  Dealers  whose clients hold Shares on such date. As of
December 31, 2002, no such fees had been incurred.

         The  Advisor is entitled to receive  Acquisition  Fees for  services in
identifying  the Properties and  structuring  the terms of the  acquisition  and
leases of the Properties and  structuring  the terms of the Mortgage Loans equal
to 4.5% of Total  Proceeds.  For the year ended  December 31, 2002,  the Company
incurred  approximately  $18,700,000  of such fees in  connection  with the 2000
Offering and the 2002 Offering.  In addition,  during the period January 1, 2003
through February 28, 2003, the Company incurred approximately $4,600,000 of such
fees in connection with the 2002 Offering.  Additionally,  during the year ended
December 31, 2002, the Company incurred Acquisition Fees totalling approximately
$2,100,000  as a result of  Permanent  Financing  used to  acquire  the  certain
Properties.

         The Company and the Advisor  have  entered  into an Advisory  Agreement
pursuant  to which the  Advisor  receives  a  monthly  Asset  Management  Fee of
one-twelfth  of  0.60%  of  the  Company's  Real  Estate  Asset  Value  and  the
outstanding  principal  balance  of any  Mortgage  Loans  as of  the  end of the
preceding  month. The Asset Management Fee, which will not exceed fees which are
competitive for similar  services in the same geographic area, may or may not be
taken,  in  whole  or in part as to any  year,  in the  sole  discretion  of the
Advisor.  All or any  portion  of the Asset  Management  Fee not taken as to any
fiscal year shall be deferred  without  interest  and may be taken in such other
fiscal year as the Advisor shall  determine.  During the year ended December 31,
2002 the Company incurred approximately $800,000 of such fees.

         The Company incurs  operating  expenses  which,  in general,  are those
expenses relating to administration of the Company on an ongoing basis. Pursuant
to the Advisory Agreement  described above, the Advisor is required to reimburse
the Company the amount by which the total Operating Expenses paid or incurred by
the Company exceed,  in any Expense Year, the greater of 2% of Average  Invested
Assets or 25% of Net  Income.  During  the year ended  December  31,  2002,  the
Company's Operating Expenses did not exceed the Expense Cap.

         The Advisor and its Affiliates provide various administrative  services
to the Company,  including  services related to accounting;  financial,  tax and
regulatory compliance reporting;  stockholder  distributions and reporting;  due
diligence  and  marketing;  and  investor  relations  (including  administrative
services in connection with the offering of Shares) on a day-to-day  basis.  For
the year ended December 31, 2002, the Company incurred approximately  $3,500,000
for these services,  approximately  $2,900,000 of such costs  represented  stock
issuance costs, approximately $25,000 represented  acquisition-related costs and
approximately   $600,000   represented   general  operating  and  administrative
expenses, including costs related to preparing and distributing reports required
by the Securities and Exchange Commission.

         The Company maintains bank accounts in a bank in which certain officers
and  Directors  of the Company  serve as  directors  and are  stockholders.  The
amounts deposited with this bank at February 28, 2003 and December 31, 2002 were
approximately $5,500,000 and approximately $5,700,000,  respectively.  The terms
and  conditions  offered by this bank are  similar  and  competitive  with terms
offered by unrelated banks.

         In  conjunction  with a loan  related to the  purchase of the  Marriott
Portfolio One Properties, the Company engaged Century Capital Markets LLC to act
as its Structuring  Agent.  In connection with this loan, the Structuring  Agent
was paid structuring  fees equal to 2% of the loan.  Interest due under the loan
is  payable  monthly  and  includes a margin of 30 basis  points  payable to the
Structuring Agent for monthly services provided by the Structuring Agent related
to the  administration  of the loan. As of February 28, 2003,  the joint venture
had paid the Structuring  Agent  approximately  $645,000 in structuring fees and
interest.  Of  this  amount,  structuring  fees  totalling  $470,400  have  been
capitalized as loan costs. CNL Capital Corp., an Affiliate of the Advisor,  is a
non-voting Class C member of Century Capital Markets LLC.

         On May 30,  2002,  the  Company  acquired a 10%  interest  in a limited
partnership  that owns a building in which the Advisor and its Affiliates  lease
office space. The Company's  equity  investment in the partnership was $300,000.
The Company's share in the limited  partnership's  distributions is equal to its
equity interest in the limited  partnership.  During the year ended December 31,
2002, the Company received $190,922 in distributions  from the partnership.  The
remaining interest in the limited  partnership is owned by several Affiliates of
the Advisor.  In  connection  with this  acquisition,  the Company has severally
guaranteed its 16.67% share, or approximately  $2.6 million,  of a $15.5 million
unsecured promissory note of the limited partnership.



                          PRIOR PERFORMANCE INFORMATION

         The  information  presented in this section  represents  the historical
experience  of certain real estate  programs  organized by certain  officers and
directors of the Advisor. Prior public programs have invested only in restaurant
properties and hotel properties and have not invested in retirement  properties.
Investors in the Company should not assume that they will experience returns, if
any,  comparable  to those  experienced  by  investors in such prior public real
estate  programs.  Investors  who purchase  Shares will not thereby  acquire any
ownership  interest in any  partnerships  or corporations to which the following
information relates.

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


         CNL Realty Corporation, which was organized as a Florida corporation in
November  1985 and whose  sole  stockholders  are  Messrs.  Seneff  and  Bourne,
currently serves as the corporate general partner with Messrs. Seneff and Bourne
as individual general partners of 18 CNL Income Fund limited  partnerships,  all
of which were organized to invest in fast-food,  family-style and in the case of
two of the partnerships,  casual-dining restaurant properties.  In addition, Mr.
Seneff  currently  serves as a director and an officer and Mr. Bourne  currently
serves as a director of CNL American  Properties  Fund, Inc., an unlisted public
REIT organized to invest in fast-food, family-style and casual-dining restaurant
properties,  mortgage loans and secured  equipment  leases.  Messrs.  Seneff and
Bourne  also  currently  serve as  directors  and  officers  of CNL  Hospitality
Properties   Inc.,  an  unlisted  public  REIT  organized  to  invest  in  hotel
properties,  mortgage loans and secured equipment  leases.  Both of the unlisted
public REITs have investment  objectives similar to those of the Company.  As of
December 31, 2002, the 18  partnerships  and the two unlisted REITs had raised a
total  of  approximately  $2.8  billion  from a total of  approximately  124,000
investors,  and owned,  directly or indirectly,  approximately  1,900 fast-food,
family-style and casual-dining  restaurant properties,  and 56 hotel properties.
None of the 18 public partnerships or the two unlisted public REITs has invested
in  retirement  properties.  Certain  additional  information  relating  to  the
offerings  and  investment  history  of the 18 public  partnerships  and the two
unlisted public REITs is set forth below.





                                                                                      Number of           Date 90% of Net
                                                                                       Limited             Proceeds Fully
                             Maximum                                                 Partnership            Invested or
Name of                      Offering                                                  Units or             Committed to
Entity                       Amount (1)                   Date Closed                Shares Sold           Investment (2)
------                       ----------                   -----------                -----------           --------------

CNL Income                   $15,000,000                  December 31, 1986             30,000             December 1986
Fund, Ltd.                   (30,000 units)

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



                                                                                       Number of           Date 90% of Net
                                                                                        Limited             Proceeds Fully
                             Maximum                                                  Partnership            Invested or
Name of                      Offering                                                  Units or              Committed to
Entity                       Amount (1)                   Date Closed                 Shares Sold           Investment (2)
------                       ----------                   -----------                 -----------           --------------

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

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

CNL American                 $747,464,413                 January 20, 1999 (3)      37,373,221 (3)         February 1999 (3)
Properties Fund, Inc.        (37,373,221 shares)


CNL Hospitality              $1,325,072,637                        (4)                    (4)                    (4)
Properties, Inc.             (132,507,264 shares)



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

(1)      The amount stated includes the exercise by the general partners of each
         partnership  of their option to increase by $5,000,000 the maximum size
         of the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
         Income Fund III,  Ltd.,  CNL Income Fund IV, Ltd.,  CNL Income Fund VI,
         Ltd.,  CNL Income Fund VIII,  Ltd., CNL Income Fund X, Ltd., CNL Income
         Fund XII,  Ltd.,  CNL Income Fund XIV,  Ltd., CNL Income Fund XVI, Ltd.
         and CNL Income Fund XVIII,  Ltd.  The number of shares of common  stock
         for CNL American  Properties  Fund, Inc. ("APF") reflects a one-for-two
         reverse stock split, which was effective on June 3, 1999.

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

(3)      In April 1995,  APF  commenced  an offering of a maximum of  16,500,000
         shares of common stock ($165,000,000). On February 6, 1997, the initial
         offering closed upon receipt of  subscriptions  totalling  $150,591,765
         (15,059,177  shares),  including  $591,765  (59,177 shares) through the
         reinvestment  plan.  Following  completion  of the initial  offering on
         February  6, 1997,  APF  commenced  a  subsequent  offering  (the "1997
         Offering") of up to 27,500,000  shares  ($275,000,000) of common stock.
         On  March  2,  1998,   the  1997   Offering   closed  upon  receipt  of
         subscriptions  totalling  $251,872,648  (25,187,265 shares),  including
         $1,872,648  (187,265 shares) through the reinvestment  plan.  Following
         completion  of the 1997  Offering  on March 2, 1998,  APF  commenced  a
         subsequent  offering (the "1998  Offering") of up to 34,500,000  shares
         ($345,000,000)  of common  stock.  As of  December  31,  1998,  APF had
         received  subscriptions  totalling  $345,000,000  (34,500,000  shares),
         including  $3,107,848  (310,785 shares) through the reinvestment  plan,
         from the 1998 Offering.  The 1998 Offering closed in January 1999, upon
         receipt of the proceeds  from the last  subscriptions.  As of March 31,
         1999,   net  proceeds  to  APF  from  its  three   offerings   totalled
         $670,151,200  and all of such amount had been invested or committed for
         investment in properties and mortgage loans.


(4)      Effective  July  9,  1997,  CNL  Hospitality   Properties,   Inc.  (the
         "Hospitality   Properties   REIT")  commenced  an  offering  of  up  to
         16,500,000 shares ($165,000,000) of common stock. On June 17, 1999, the
         initial  offering  closed  upon  receipt  of  subscriptions   totalling
         $150,072,637  (15,007,264  shares),  including  $72,637  (7,264 shares)
         through the  reinvestment  plan.  Following  completion  of the initial
         offering on June 17, 1999, the Hospitality  Properties REIT commenced a
         subsequent  offering (the "1999  Offering") of up to 27,500,000  shares
         ($275,000,000)  of  common  stock.  On  September  14,  2000,  the 1999
         Offering closed upon receipt of subscriptions  totalling  approximately
         $275,000,000.   Following  the  completion  of  the  1999  Offering  on
         September  14,  2000,  the  Hospitality  Properties  REIT  commenced  a
         subsequent  offering (the "2000  Offering") of up to 45,000,000  shares
         ($450,000,000)  of common stock.  On April 22, 2002,  the 2000 Offering
         closed upon receipt of subscriptions totalling $450,000,000.  Following
         the completion of the 2000 Offering,  the  Hospitality  Properties REIT
         commenced  a  subsequent  offering  (the  "2002  Offering")  of  up  to
         45,000,000 shares  ($450,000,000) of common stock. On February 4, 2003,
         the 2002  Offering  closed  upon  receipt  of  subscriptions  totalling
         $450,000,000.  Following  the  completion  of the  2002  Offering,  the
         Hospitality  Properties REIT commenced a subsequent offering (the "2003
         Offering")  of up to  175,000,000  shares  ($1,750,000,000)  of  common
         stock.  As of December 31, 2002, the  Hospitality  Properties  REIT had
         received subscriptions  totalling  $1,267,821,302  (126,782,130 shares)
         from its public offerings.  As of such date, the Hospitality Properties
         REIT  owned   interests  in  56  properties,   including  one  property
         consisting of land only.

         Mr.  Seneff  and Mr.  Bourne  are  also the  sole  stockholders  of DRR
Partners, Inc., the corporate general partner of a nonpublic real estate limited
partnership organized to invest in a hotel resort in Arizona. As of December 31,
2001,  the  partnership  had raised  $27.5  million from 267  investors  and had
invested  approximately $8.8 million in the resort, which opened on November 30,
2002.

         As of December 31, 2002, Mr. Seneff and Mr. Bourne, directly or through
affiliated  entities,  also had served as joint general partners of 69 nonpublic
real estate  limited  partnerships.  The  offerings of all of these 69 nonpublic
limited   partnerships  had  terminated  as  of  December  31,  2002.  These  69
partnerships  raised a total of $185,927,353 from approximately 4,600 investors,
and purchased,  directly or through  participation in a joint venture or limited
partnership, interests in a total of 304 projects as of December 31, 2002. These
304 projects consist of 19 apartment projects (comprising 9% of the total amount
raised by all 69 partnerships),  12 office buildings (comprising 4% of the total
amount  raised  by  all  69  partnerships),  238  fast-food,   family-style,  or
casual-dining  restaurant properties and business investments (comprising 70% of
the total amount raised by all 69  partnerships),  one  condominium  development
(comprising  0.5% of the  total  amount  raised  by all 69  partnerships),  four
hotels/motels (comprising 4% of the total amount raised by all 69 partnerships),
28  commercial/retail  properties  (comprising 12% of the total amount raised by
all 69 partnerships), and two tracts of undeveloped land (comprising 0.5% of the
total amount raised by all 69 partnerships).


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

         Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional  nonpublic real estate limited partnership program which raised a
total of $600,000 from 37 investors and purchased,  through  participation  in a
limited  partnership,  one apartment building located in Georgia with a purchase
price of $1,712,000.

         Of the 90 real estate limited  partnerships  whose offerings had closed
as of December 31, 2001 (including 18 CNL Income Fund limited  partnerships)  in
which Mr. Seneff  and/or Mr. Bourne serve or have served as general  partners in
the past, 39 invested in restaurant  properties leased on a "triple-net"  basis,
including  eight  which  also  invested  in  franchised   restaurant  businesses
(accounting  for  approximately  93% of the total  amount  raised by all 90 real
estate limited partnerships).


         In addition to the real estate limited partnerships described above, in
2002, a limited partnership in which Mr. Seneff and Mr. Bourne serve as officers
and  stockholders of the corporate  general partner,  raised  $2,500,000 from 68
investors and entered into a mortgage  loan,  as the lender,  with an affiliated
limited partnership.

         The following table sets forth summary information,  as of December 31,
2002, regarding property acquisitions by the 18 limited partnerships and the two
unlisted REITs.
      Name of                    Type of                                            Method of            Type of
       Entity                   Property                    Location                Financing            Program
     -----------            --------------           -------------------          -----------           --------
CNL Income Fund,           22 fast-food or           AL, AZ, CA, FL, GA,             All cash            Public
Ltd.                       family-style              LA, MD, OK, PA, TX,
                           restaurants               VA, WA

CNL Income Fund II,        50 fast-food or           AL, AZ, CO, FL, GA,             All cash            Public
Ltd.                       family-style              IL, IN, KS, LA, MI,
                           restaurants               MN, MO, NC, NM, OH,
                                                     TN, TX, WA, WY

CNL Income Fund            40 fast-food or           AL, AZ, CA, CO, FL,             All cash            Public
III, Ltd.                  family-style              GA, IA, IL, IN, KS,
                           restaurants               KY, MD, MI, MN, MO,
                                                     NC, NE, OK, TX

CNL Income Fund IV,        47 fast-food or           AL, DC, FL, GA, IL,             All cash            Public
Ltd.                       family-style              IN, KS, MA, MD, MI,
                           restaurants               MS, NC, OH, PA, TN,
                                                     TX, VA



      Name of                    Type of                                            Method of            Type of
       Entity                   Property                    Location                Financing            Program
       ------                   --------                    --------                ---------            -------
CNL Income Fund V,         36 fast-food or           AZ, FL, GA, IL, IN,             All cash            Public
Ltd.                       family-style              MI, NH, NY, OH, SC,
                           restaurants               TN, TX, UT, WA

CNL Income Fund VI,        66 fast-food or           AR, AZ, CA, FL, GA,             All cash            Public
Ltd.                       family-style              ID, IL, IN, KS, MA,
                           restaurants               MD, MI, MN, NC, NE,
                                                     NM, NY, OH, OK, PA,
                                                     TN, TX, VA, WA, WY

CNL Income Fund            59 fast-food or           AL, AZ, CO, FL, GA,             All cash            Public
VII, Ltd.                  family-style              IN, LA, MI, MN, NC,
                           restaurants               NE, OH, PA, SC, TN,
                                                     TX, UT, WA

CNL Income Fund            54 fast-food or           AZ, CO, FL, IL, IN,             All cash            Public
VIII, Ltd.                 family-style              LA, MI, MN, NC, NY,
                           restaurants               OH, OR, TN, TX, VA

CNL Income Fund IX,        54 fast-food or           AL, CA, CO, FL, GA,             All cash            Public
Ltd.                       family-style              IL, IN, LA, MD, MI,
                           restaurants               MN, MS, NC, NH, NY,
                                                     OH, SC, TN, TX

CNL Income Fund X,         59 fast-food or           AL, AZ, CA, CO, FL,             All cash            Public
Ltd.                       family-style              ID, IL, IN, LA, MI,
                           restaurants               MO, MT, NC, NE, NH,
                                                     NM, NY, OH, PA, SC,
                                                     TN, TX, WA

CNL Income Fund XI,        48 fast-food or           AL, AZ, CA, CO, CT,             All cash            Public
Ltd.                       family-style              FL, KS, LA, MA, MI,
                           restaurants               MS, NC, NH, NM, OH,
                                                     OK, PA, SC, TX, VA, WA

CNL Income Fund            58 fast-food or           AL, AZ, CA, CO, FL,             All cash            Public
XII, Ltd.                  family-style              GA, IA, IN, LA, MO,
                           restaurants               MS, NC, NM, OH, SC,
                                                     TN, TX, WA

CNL Income Fund            53 fast-food or           AL, AR, AZ, CA, CO,             All cash            Public
XIII, Ltd.                 family-style              FL, GA, IN, KS, LA,
                           restaurants               MD, MO, NC, OH, PA,
                                                     SC, TN, TX, VA


      Name of                    Type of                                            Method of            Type of
       Entity                   Property                    Location                Financing            Program
   -------------           -----------------         -------------------           ----------           --------
CNL Income Fund            72 fast-food or           AL, AZ, CO, FL, GA,             All cash            Public
XIV, Ltd.                  family-style              IL, KS, LA, MN, MO,
                           restaurants               MS, NC, NJ, NV, OH,
                                                     SC, TN, TX, VA

CNL Income und XV,         61 fast-food or           AL, CA, FL, GA, KS,             All cash            Public
Ltd.                       family-style              KY, MN, MO, MS, NC,
                           restaurants               NJ, NM, OH, OK, PA,
                                                     SC, TN, TX, VA

CNL Income Fund            53 fast-food or           AZ, CA, CO, DC, FL,             All cash            Public
XVI, Ltd.                  family-style              GA, ID, IN, KS, LA,
                           restaurants               MN, MO, NC, NM, NV,
                                                     OH, PA, TN, TX, UT, WI

CNL Income Fund            39 fast-food,             CA, FL, GA, IL, IN,             All cash            Public
XVII, Ltd.                 family-style or           MD, MI, NC, NE, NV,
                           casual-dining             OH, SC, TN, TX, WA, WI
                           restaurants

CNL Income Fund            30 fast-food,             AZ, CA, CO, FL, GA,             All cash            Public
XVIII, Ltd.                family-style or           IL, KY, MD, MN, NC,
                           casual-dining             NV, NY, OH, PA, TN,
                           restaurants               TX, VA

CNL American               1,118 fast-food,          AL, AR, AZ, CA, CO,               (1)             Public REIT
Properties Fund,           family-style or           CT, DE, FL, GA, IA,
Inc.                       casual-dining             ID, IL, IN, KS, KY,
                           restaurants               LA, MD, MI, MN, MO,
                                                     MS, NC, NE, NH, NJ,
                                                     NM, NV, NY, OH, OK,
                                                     OR, PA, RI, SC, TN,
                                                     TX, UT, VA, WA, WI, WV

CNL Hospitality            55 limited                AZ, CA, CO, CT, FL,               (2)             Public REIT
Properties, Inc.           service, extended         GA, HI, KS, MA, MD,
                           stay or full              ME, MI, NC, NJ, NV,
                           service hotels            OR, PA, TX, UT, VA, WA


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

(1)      As of March 31,  1999,  all of APF's  net  offering  proceeds  had been
         invested or committed for investment in properties and mortgage  loans.
         Since April 1, 1999, APF has used proceeds from its lines of credit and
         other borrowing to acquire and develop  properties and to fund mortgage
         loans and secured equipment leases.


(2)      As of December 31, 2002, approximately 42.95% of the assets acquired by
         the Hospitality Properties REIT had been funded using debt. The balance
         was acquired  using  proceeds  from the  Hospitality  Properties  REITs
         equity offerings.


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


         In order to provide potential  purchasers of Shares in the Company with
information  to enable  them to  evaluate  the prior  experience  of the Messrs.
Seneff and Bourne as general partners of real estate limited partnerships and as
directors and officers of the two unlisted  REITs,  including those set forth in
the foregoing table,  certain financial and other  information  concerning those
limited  partnerships  and the two  unlisted  REITs with  investment  objectives
similar to one or more of the Company's  investment  objectives,  is provided in
the Prior  Performance  Tables  included as Appendix  B.  Information  about the
previous public programs, the offerings of which became fully subscribed between
January 1998 and December 2002, is included therein.  Potential stockholders are
encouraged to examine the Prior  Performance  Tables  attached as Appendix B (in
Table III), which include information as to the operating results of these prior
programs,  for more detailed  information  concerning  the experience of Messrs.
Seneff and Bourne.



                       INVESTMENT OBJECTIVES AND POLICIES

GENERAL

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

         The  Company  intends to meet its  objectives  through  its  investment
policies of (i)  purchasing  carefully  selected,  well-located  Properties  and
leasing  them on a  "triple-net"  basis  (which  means that the  tenant  will be
responsible for paying the cost of all repairs, maintenance, property taxes, and
insurance)  to tenants under leases  generally  requiring the tenant to pay base
annual rental with automatic  fixed  increases in base rent or increases in base
rent based on  increases in consumer  price  indices over the term of the lease,
and (ii) offering Mortgage Loans and Secured Equipment Leases to Operators.


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


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

CERTAIN INVESTMENT LIMITATIONS

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

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

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

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

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

         5. The Company may not invest in  indebtedness  ("Junior Debt") secured
by a  mortgage  on real  property  which  is  subordinate  to the  lien or other
indebtedness  ("Senior Debt"), except where the amount of such Junior Debt, plus
the outstanding  amount of the Senior Debt, does not exceed 90% of the appraised
value of such property,  if after giving effect  thereto,  the value of all such
investments  of the Company (as shown on the books of the Company in  accordance
with generally accepted accounting  principles after all reasonable reserves but
before  provision for  depreciation)  would not then exceed 25% of the Company's
Net Assets.  The value of all  investments  in Junior Debt of the Company  which
does not meet the aforementioned requirements is limited to 10% of the Company's
tangible assets (which is included within the 25% limitation).




         6. The  Company  may not engage in any short  sale,  or  borrow,  on an
unsecured basis, if such borrowing will result in an asset coverage of less than
300%, except that such borrowing  limitation shall not apply to a first mortgage
trust. "Asset cover0age," for the purpose of this section, means the ratio which
the  value  of  the  total  assets  of  an  issuer,  less  all  liabilities  and
indebtedness  except  indebtedness  for  unsecured  borrowings,   bears  to  the
aggregate amount of all unsecured borrowings of such issuer.

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

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

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


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


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

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

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

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

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

         16. The Company  will not make loans to the Advisor or its  Affiliates,
except (A) mortgage loans subject to the restrictions  governing  mortgage loans
in the  Articles  of  Incorporation  (including  the  requirement  to  obtain an
appraisal from an independent expert) or (B) to wholly owned subsidiaries of the
Company.

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

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

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

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


                               DISTRIBUTION POLICY

GENERAL

         In order to qualify as a REIT for federal  income tax  purposes,  among
other  things,  the  Company  must make  distributions  each  taxable  year (not
including  any return of capital for federal  income tax  purposes)  equal to at
least 90% of its real estate investment trust taxable income, although the Board
of  Directors,  in its  discretion,  may increase  that  percentage  as it deems
appropriate.  See "Federal Income Tax  Considerations -- Taxation of the Company
-- Distribution  Requirements."  The declaration of  Distributions is within the
discretion   of  the  Board  of  Directors   and  depends  upon  the   Company's
distributable funds, current and projected cash requirements, tax considerations
and other factors.

DISTRIBUTIONS

         The following table presents total Distributions and Distributions per
Share:
                                                              Quarter
                                   --------------------------------------------------------------
                                      First           Second           Third           Fourth            Year
                                   -------------    ------------    -------------    ------------    --------------

   2002:
   Total Distributions               $1,552,344      $2,586,745       $4,097,267      $6,143,121       $14,379,477
   declared
   Distributions per Share               0.1749          0.1749           0.1749          0.1755            0.7002


   2001:
   Total Distributions                 $219,887        $247,922         $312,583        $726,930        $1,507,322
   declared
   Distributions per Share               0.1749          0.1749           0.1749          0.1749            0.6996

   2000:
   Total Distributions                  $43,593        $108,932         $160,911        $188,642          $502,078
   declared
   Distributions per Share               0.0750          0.1537           0.1749          0.1749            0.5785

   1999:
   Total Distributions                 (2)              (2)              $16,460         $33,944           $50,404
   declared
   Distributions per Share             (2)              (2)               0.0500          0.0750            0.1250



(1)      In January  and  February  2003,  the  Company  declared  Distributions
         totalling $2,604,002 and $2,878,892, respectively (representing $0.0589
         per Share), payable by March 31, 2003.


(2)      For the period  December 22, 1997 (date of inception)  through July 13,
         1999,  the  Company  did  not  make  any  cash  distributions   because
         operations had not commenced.


(3)      For the years ended  December 31, 2002,  2001 and 2000,  and the period
         July 13, 1999 (the date  operations of the Company  commenced)  through
         December 31, 1999,  approximately 65%, 65%, 54% and 100%, respectively,
         of the  Distributions  declared and paid were considered to be ordinary
         income  and for the  years  ended  December  31,  2002,  2001 and 2000,
         approximately 35%, 35% and 46%, respectively,  were considered a return
         of capital for federal income tax purposes.  No amounts  distributed to
         stockholders for the periods  presented are required to be or have been
         treated by the Company as return of capital for purposes of calculating
         the Stockholders' 8% Return on Invested  Capital.  Due to the fact that
         the Company had not yet acquired all of its Properties and was still in
         the offering  stage as of December 31, 2002,  the  characterization  of
         Distributions  for  federal  income  tax  purposes  is not  necessarily
         considered by management to be representative  of the  characterization
         of Distributions in future periods.

(4)      Cash distributions are declared by the Board of Directors and generally
         are based on various factors, including cash available from operations.
         For  the  years  ended  December  31,  2002,   2001,   2000  and  1999,
         approximately   21%,   39%,  55%  and  100%,   respectively,   of  cash
         distributions  represent a return of capital in  accordance  with GAAP.
         Cash  distributions  treated  as a return of  capital  on a GAAP  basis
         represent the amount of cash distributions in excess of net earnings on
         a GAAP  basis,  including  deductions  for  depreciation  expense.  The
         Company  has not  treated  such  amounts  as a return  of  capital  for
         purposes  of  calculating  Invested  Capital and the  Stockholders'  8%
         Return.

(5)      Distributions  declared and paid for the years ended December 31, 2002,
         2001 and 2000,  represent  a  distribution  rate of 7%, 7% and  5.785%,
         respectively, of Invested Capital.


         The  Company  intends to  continue  to make  regular  Distributions  to
stockholders.   Distributions  will  be  made  to  those  stockholders  who  are
stockholders  as of  the  record  date  selected  by the  Directors.  Currently,
Distributions  are declared  monthly and paid  quarterly,  unless a  stockholder
elects to receive Distributions monthly, as described below, during the offering
period. In addition,  Distributions are expected to be declared monthly and paid
quarterly  during any  subsequent  offering,  and  declared  and paid  quarterly
thereafter.  However, in the future, the Board of Directors,  in its discretion,
may  determine  to declare  Distributions  on a daily basis  during the offering
period.

         Distributions   may  be  payable   monthly  by  the   election  of  the
stockholder. A stockholder may elect to receive monthly Distributions by written
notice to the Company upon subscription,  or, thereafter, upon at least 10 days'
prior  written  notice to the Company,  with any such  election  made  following
subscription  to be effective  as of the  beginning  of the  following  calendar
quarter.  Absent  such an  election,  stockholders  will  receive  Distributions
quarterly. In any quarter,  stockholders may terminate their election to receive
Distributions  monthly  rather than  quarterly by written notice to the Company,
which  termination  will  be  effective  as of the  beginning  of the  following
calendar quarter. The Board of Directors, in its sole discretion,  in the future
may elect to pay Distributions solely on a quarterly basis.



         The  Company  may,  in the future,  charge  stockholders  who elect the
monthly distribution option an annual  administrative fee, designed to cover the
additional postage and handling associated with the more frequent Distributions.
The Company may elect to charge such fee upon written notice to each stockholder
who properly has elected to receive monthly  Distributions,  with such notice to
be given at least 30 days prior to the  beginning of the  calendar  quarter that
includes the first month to which the new fee will apply.

         Stockholders  who elect the  monthly  Distribution  option  will not be
eligible to participate in the Reinvestment  Plan, unless the Board of Directors
elects  to make  Distributions  to all  stockholders  on a  monthly  basis.  See
"Summary of Reinvestment Plan."

         The Company is required to distribute annually at least 90% of its real
estate  investment  trust taxable income to maintain its objective of qualifying
as a REIT.  Generally,  income  distributed  will not be taxable to the  Company
under  federal  income  tax laws if the  Company  complies  with the  provisions
relating to  qualification  as a REIT.  If the cash  available to the Company is
insufficient  to pay such  Distributions,  the Company may obtain the  necessary
funds by borrowing,  issuing new securities or selling Assets.  These methods of
obtaining funds could affect future Distributions by increasing operating costs.
To the extent that  Distributions  to stockholders  exceed earnings and profits,
such  amounts  constitute a return of capital for federal  income tax  purposes,
although such Distributions  might not reduce  stockholders'  aggregate Invested
Capital.  Distributions in kind shall not be permitted, except for distributions
of readily  marketable  securities;  distributions of beneficial  interests in a
liquidating  trust  established  for  the  dissolution  of the  Company  and the
liquidation  of its  assets  in  accordance  with the terms of the  Articles  of
Incorporation; or distributions of in-kind property, as long as, with respect to
in-kind  property,  the Board of Directors (i) advises each  stockholder  of the
risks  associated  with  direct  ownership  of the  property;  (ii)  offers each
stockholder the election of receiving in-kind property distributions;  and (iii)
distributes   in-kind  property  only  to  those  stockholders  who  accept  the
Directors' offer.

         Distributions  will  be  made  at  the  discretion  of  the  Directors,
depending  primarily on net cash from  operations  (which includes cash received
from  tenants  except  to the  extent  that  such  cash  represents  a return of
principal  in regard to the lease of a Property  consisting  of  building  only,
distributions from joint ventures, and interest income from lessees of Equipment
and  borrowers  under  Mortgage  Loans,  less  expenses  paid)  and the  general
financial  condition of the Company,  subject to the obligation of the Directors
to cause the  Company to  qualify  and remain  qualified  as a REIT for  federal
income tax purposes. The Company intends to increase Distributions in accordance
with increases in net cash from operations.


                                 SUMMARY OF THE
                      ARTICLES OF INCORPORATION AND BYLAWS

GENERAL

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

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

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

         The discussion below sets forth material  provisions of governing laws,
instruments  and  guidelines  applicable  to  the  Company.  For  more  complete
provisions,  reference is made to the Maryland  General  Corporation Law and the
Company's Articles of Incorporation and Bylaws.

DESCRIPTION OF CAPITAL STOCK


         General.  The Company has authorized a total of  206,000,000  shares of
capital stock, consisting of 100,000,000 Shares of Common Stock, $0.01 par value
per  Share,  3,000,000  shares  of  Preferred  Stock  ("Preferred  Stock"),  and
103,000,000 additional shares of excess stock ("Excess Shares"), $0.01 par value
per share.  Of the  103,000,000  Excess  Shares,  100,000,000  are  issuable  in
exchange for Common Stock and  3,000,000  are issuable in exchange for Preferred
Stock as described below at "Summary of the Articles of Incorporation and Bylaws
--  Restriction  of  Ownership."  As of  February  28,  2003,  the  Company  had
54,420,931 Shares of Common Stock outstanding (including 20,000 Shares issued to
the Advisor prior to the commencement of the Initial Offering and 120,830 Shares
issued  pursuant  to the  Reinvestment  Plan) and no  Preferred  Stock or Excess
Shares outstanding.


         The Board of Directors  has approved a resolution to amend the Articles
of  Incorporation  to increase the number of  authorized  Shares of Common Stock
from 100,000,000 to 450,000,000. Pursuant to the Articles of Incorporation, this
amendment  must be approved by the  affirmative  vote of the holders of not less
than a majority of the Shares of Common Stock  outstanding  and entitled to vote
thereon.   The  Board  of  Directors  expects  to  submit  this  matter  to  the
stockholders  for  approval  at the 2003 annual  meeting.  In the event that the
increase in the number of authorized Shares is not approved by the stockholders,
this offering will be limited to up to 38,000,000  Shares. In the event that the
increase in the number of  authorized  Shares is  approved by the  stockholders,
this  offering  will be for up to  175,000,000  Shares.  See "The  Offering." In
addition,  if the increase in the number of authorized Shares is approved by the
stockholders, the Board of Directors may determine to engage in future offerings
of Common  Stock of up to the  number of  unissued  authorized  Shares of Common
Stock  available  following the  termination of this  offering,  and may, in the
future,  seek to increase the number of authorized Shares, if it determines that
such action is in the best interest of the Company.

         The Company will not issue share  certificates  except to  stockholders
who make a written request to the Company. Each stockholder's investment will be
recorded  on  the  books  of  the  Company,   and  information   concerning  the
restrictions  and rights  attributable  to Shares (whether in connection with an
initial issuance or a transfer) will be sent to the stockholder receiving Shares
in connection  with an issuance or transfer.  A stockholder  wishing to transfer
his or her Shares will be required to send only an executed form to the Company,
and the Company will provide the required form upon a stockholder's request. The
executed  form and any other  required  documentation  must be  received  by the
Company on or before the 15th of the month for the transfer to be effective  the
following  month.  Subject to  restrictions  in the  Articles of  Incorporation,
transfers of Shares shall be effective, and the transferee of the Shares will be
recognized  as the  holder of such  Shares as of the first day of the  following
month  on  which  the  Company   receives   properly   executed   documentation.
Stockholders  who are  residents  of New York may not  transfer  fewer  than 250
Shares at any time.

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

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

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

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

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

BOARD OF DIRECTORS

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

STOCKHOLDER MEETINGS

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

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

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

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

AMENDMENTS TO THE ARTICLES OF INCORPORATION

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

MERGERS, COMBINATIONS AND SALE OF ASSETS

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

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

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

CONTROL SHARE ACQUISITIONS

         The Maryland  Control Share  Acquisition  Statute provides that control
shares of a Maryland corporation acquired in a control share acquisition have no
voting rights except to the extent approved by a vote of two-thirds of the votes
entitled  to be cast on the  matter,  excluding  shares  owned by the  acquiror,
officers or directors who are employees of the  corporation.  Control Shares are
shares which, if aggregated with all other shares of the corporation  previously
acquired  by the  acquiror,  or in  respect  of which  the  acquiror  is able to
exercise or direct the  exercise of voting power  (except  solely by virtue of a
revocable  proxy),  would  entitle  the  acquiror to  exercise  voting  power in
electing  directors of such  corporation  within one of the following  ranges of
voting power:  (i) one-fifth or more but less than one-third,  (ii) one-third or
more but less than a majority,  or (iii) a majority or more of all voting power.
Control Shares do not include shares the acquiring person is entitled to vote as
a result of having previously  obtained  stockholder  approval.  A control share
acquisition  means  the  acquisition  of  control  shares,  subject  to  certain
exceptions.

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

TERMINATION OF THE COMPANY AND REIT STATUS

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

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

RESTRICTION OF OWNERSHIP

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

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

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

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

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

RESPONSIBILITY OF DIRECTORS

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

LIMITATION OF LIABILITY AND INDEMNIFICATION

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

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

         There  are  certain  defenses  under  Maryland  law  available  to  the
Directors, officers and the Advisor in the event of a stockholder action against
them. One such defense is the "business  judgment rule." A Director,  officer or
the Advisor  can argue that he or she  performed  the action  giving rise to the
stockholder's action in good faith and in a manner he or she reasonably believed
to be in the best interests of the Company,  and with such care as an ordinarily
prudent person in a like position  would have used under similar  circumstances.
The  Directors,   officers  and  the  Advisor  are  also  entitled  to  rely  on
information,  opinions,  reports  or  records  prepared  by  experts  (including
accountants, consultants, counsel, etc.) who were selected with reasonable care.
However,  the  Directors,  officers  and the Advisor may not invoke the business
judgment rule to further limit the rights of the  stockholders to access records
as provided in the Articles of Incorporation.

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

REMOVAL OF DIRECTORS

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

INSPECTION OF BOOKS AND RECORDS

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

         As a part of its books and records,  the Company  will  maintain at its
principal office an alphabetical list of names of stockholders, along with their
addresses  and  telephone  numbers  and  the  number  of  Shares  held  by  each
stockholder.  Such  list  shall be  updated  at  least  quarterly  and  shall be
available for inspection at the Company's home office by a stockholder or his or
her designated agent upon such  stockholder's  request.  Such list also shall be
mailed to any stockholder  requesting the list within 10 days of a request.  The
copy of the stockholder  list shall be printed in  alphabetical  order, on white
paper, and in readily readable type size that is not smaller than 10-point type.
The Company may impose a reasonable  charge for expenses incurred in reproducing
such list. The list may not be sold or used for commercial purposes.

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

RESTRICTIONS ON "ROLL-UP" TRANSACTIONS

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

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

         (ii)     one of the following:

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

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

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

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

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

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

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


                        FEDERAL INCOME TAX CONSIDERATIONS

INTRODUCTION

         The  following  is  a  summary  of  the  material  federal  income  tax
consequences  of the  ownership of Shares of the Company,  prepared by Greenberg
Traurig, LLP, as Counsel.  This discussion is based upon the laws,  regulations,
and reported judicial and  administrative  rulings and decisions in effect as of
the date of this Prospectus,  all of which are subject to change,  retroactively
or prospectively,  and to possibly  differing  interpretations.  This discussion
does not  purport  to deal with the  federal  income  or other tax  consequences
applicable  to all  investors in light of their  particular  investment or other
circumstances, or to all categories of investors, some of whom may be subject to
special  rules  (including,   for  example,   insurance  companies,   tax-exempt
organizations, financial institutions,  broker-dealers, foreign corporations and
persons who are not citizens or residents  of the United  States).  No ruling on
the federal, state or local tax considerations  relevant to the operation of the
Company,  or to the purchase,  ownership or disposition of the Shares,  has been
requested  from the Internal  Revenue  Service (the "IRS" or the  "Service")  or
other tax authority.  Counsel has rendered certain opinions discussed herein and
believes that if the Service were to challenge the conclusions of Counsel,  such
conclusions  should  prevail in court.  However,  opinions  of  counsel  are not
binding on the Service or on the courts,  and no assurance can be given that the
conclusions  reached  by  Counsel  would  be  sustained  in  court.  Prospective
investors  should  consult  their own tax advisors in  determining  the federal,
state,  local,  foreign  and other  tax  consequences  to them of the  purchase,
ownership and  disposition of the Shares of the Company,  the tax treatment of a
REIT and the effect of potential changes in applicable tax laws.

TAXATION OF THE COMPANY

         General.  The  Company  has  elected to be taxed as a REIT for  federal
income tax  purposes,  as  defined  in  Sections  856  through  860 of the Code,
commencing with its taxable year ending December 31, 1999. The Company  believes
that it is organized  and will operate in such a manner as to qualify as a REIT,
and the  Company  intends  to  continue  to  operate  in such a  manner,  but no
assurance  can be given  that it will  operate  in a manner so as to  qualify or
remain  qualified as a REIT. The provisions of the Code  pertaining to REITs are
highly  technical  and  complex.  Accordingly,  this summary is qualified in its
entirety  by  the  applicable  Code  sections,   rules  and  regulations  issued
thereunder, and administrative and judicial interpretations thereof.

         If the Company  qualifies for taxation as a REIT, it generally will not
be subject to federal  corporate  income tax on its net income that is currently
distributed to holders of Shares.  This treatment  substantially  eliminates the
"double  taxation"  (at the  corporate and  stockholder  levels) that  generally
results  from an  investment  in a  corporation.  However,  the Company  will be
subject to federal income tax in the following circumstances. First, the Company
will be taxed  at  regular  corporate  rates on any  undistributed  real  estate
investment  trust taxable  income,  including  undistributed  net capital gains.
Second,  under  certain  circumstances,  the  Company  may  be  subject  to  the
alternative  minimum tax on its items of tax  preference.  Third, if the Company
has net  income  from  foreclosure  property,  it will be subject to tax on such
income at the highest corporate rate.  Foreclosure property generally means real
property (and any personal  property  incident to such real  property)  which is
acquired  as a result of a  default  either  on a lease of such  property  or on
indebtedness   which  such  property  secured  and  with  respect  to  which  an
appropriate election is made. Fourth, if the Company has net income derived from
prohibited transactions, such income will be subject to a 100% tax. A prohibited
transaction  generally  includes a sale or other  disposition of property (other
than  foreclosure  property) that is held primarily for sale to customers in the
ordinary  course of business.  Fifth,  if the Company should fail to satisfy the
75% gross income test or the 95% gross income test (as discussed below), but has
nonetheless  maintained  its  qualification  as a  REIT  because  certain  other
requirements  have been met,  it will be subject to a 100% tax on the net income
attributable  to the greater of the amount by which the Company fails the 75% or
95% test.  Sixth, if, during each calendar year, the Company fails to distribute
at least the sum of (i) 85% of its real estate  investment trust ordinary income
for such year;  (ii) 95% of its real estate  investment  trust  capital gain net
income for such year;  and (iii) any  undistributed  taxable  income  from prior
periods,  the  Company  will be subject to a 4% excise tax on the excess of such
required  distribution over the amounts actually  distributed.  Seventh,  if the
Company  acquires any asset from a C corporation  (i.e. a corporation  generally
subject to full corporate  level tax) in a transaction in which the basis of the
asset in the  Company's  hands is  determined  by  reference to the basis of the
asset (or any other property) in the hands of the C corporation, and the Company
recognizes  gain on the  disposition  of such asset  during the  10-year  period
beginning on the date on which such asset was acquired by the Company,  then, to
the extent of such  property's  "built-in  gain" (the  excess of the fair market
value  of such  property  at the time of  acquisition  by the  Company  over the
adjusted  basis in the property at such time),  such gain will be subject to tax
at the highest regular corporate rate applicable.  The rule described above with
respect to the  recognition  of  "built-in  gain" will apply  assuming  that the
Company makes an election  pursuant to Section  1.337(d)-5T(b)  of the Temporary
Regulations upon its acquisition of an asset from a C corporation.

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

         Opinion of Counsel.  Based upon representations made by officers of the
Company  with  respect to  relevant  factual  matters,  upon the  existing  Code
provisions,  rules and regulations  promulgated  thereunder  (including proposed
regulations) and reported administrative and judicial  interpretations  thereof,
upon Counsel's  independent  review of such documents as Counsel deemed relevant
in the  circumstances  and upon the assumption  that the Company will operate in
the manner described in this  Prospectus,  Counsel has advised the Company that,
in its opinion,  the Company  qualified as a REIT under the Code for the taxable
years ending  through  December 31, 2002, the Company is organized in conformity
with the  requirements for  qualification as a REIT, and the Company's  proposed
method of  operation  will enable it to continue  to meet the  requirements  for
qualification  as a REIT.  It must be  emphasized,  however,  that the Company's
ability to qualify  and remain  qualified  as a REIT is  dependent  upon  actual
operating  results and future  actions by and events  involving  the Company and
others,  and no assurance can be given that the actual  results of the Company's
operations  and future  actions and events will enable the Company to satisfy in
any given year the requirements for qualification and taxation as a REIT.

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

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

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

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

         Asset Tests.  At the end of each quarter of a REIT's  taxable  year, at
least 75% of the value of its total  assets (the "75% Asset  Test") must consist
of "real estate assets," cash and cash items (including receivables) and certain
government securities.  The balance of a REIT's assets generally may be invested
without restriction, except that holdings of securities not within the 75% class
of assets generally must not, with respect to any issuer, exceed 5% of the value
of the  REIT's  assets  or 10% of the  value or  voting  power  of the  issuer's
outstanding  securities.  The term "real estate assets"  includes real property,
interests in real  property,  leaseholds of land or  improvements  thereon,  and
mortgages  on the  foregoing  and any  property  attributable  to the  temporary
investment  of new  capital  (but  only  if such  property  is  stock  or a debt
instrument  and  only for the  one-year  period  beginning  on the date the REIT
receives  such  capital).  When a mortgage is secured by both real  property and
other  property,  it is  considered to constitute a mortgage on real property to
the  extent  of the fair  market  value of the  real  property  when the REIT is
committed  to make  the  loan  (or,  in the  case of a  construction  loan,  the
reasonably estimated cost of construction).

         Initially, the bulk of the Company's assets will be direct and indirect
interests  in real  property.  However,  the Company  will also hold the Secured
Equipment Leases. Counsel is of the opinion, based on certain assumptions,  that
the  Secured  Equipment  Leases  will be  treated as loans  secured by  personal
property for federal income tax purposes. See "Federal Income Tax Considerations
--  Characterization  of  Secured  Equipment  Leases."  Therefore,  the  Secured
Equipment Leases will not qualify as "real estate assets." However,  the Company
has  represented  that at the end of each  quarter  the sum of the  value of the
Secured  Equipment  Leases,  together  with any personal  property  owned by the
Company plus the value of all other Company  assets not  qualifying  for the 75%
Asset Test, will in the aggregate represent less than 25% of the Company's total
assets and that the value of the Secured  Equipment Leases entered into with any
particular  Operator will represent less than 5% of the Company's  total assets.
No independent  appraisals will be acquired to support this representation,  and
Counsel,  in rendering its opinion as to the  qualification  of the Company as a
REIT, is relying on the conclusions of the Company and its senior  management as
to the relative values of its assets.  There can be no assurance  however,  that
the IRS may not  contend  that  either  (i) the value of the  Secured  Equipment
Leases entered into with any particular  Operator represents more than 5% of the
Company's  total  assets,  or (ii) the value of the  Secured  Equipment  Leases,
together with any personal  property or other  property owned by the Company not
qualifying for the 75% Asset Test, exceeds 25% of the Company's total assets.

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

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

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

         Initially,  the bulk of the Company's income will be derived from rents
with respect to the Properties.  Rents from  Properties  received by the Company
qualify as "rents  from real  property"  in  satisfying  these two tests only if
several  conditions  are met.  First,  the rent must not be based in whole or in
part, directly or indirectly,  on the income or profits of any person.  However,
an amount  received  or accrued  generally  will not be  excluded  from the term
"rents from real property" solely by reason of being based on a fixed percentage
or  percentages  of  receipts or sales.  Second,  the Code  provides  that rents
received  from a tenant will not qualify as "rents  from real  property"  if the
REIT, or a direct or indirect owner of 10% or more of the REIT owns, directly or
constructively, 10% or more of such tenant (a "Related Party Tenant"). Third, if
rent attributable to personal property leased in connection with a lease of real
property is greater than 15% of the total rent  received  under the lease,  then
the portion of rent  attributable to such personal  property will not qualify as
"rents from real  property."  Finally,  for rents to qualify as "rents from real
property," a REIT  generally  must not operate or manage the property or furnish
or render  services  to the  tenants of such  property,  other  than  through an
independent contractor from whom the REIT derives no revenue, except that a REIT
may directly  perform  services which are "usually or  customarily  rendered" in
connection with the rental of space for occupancy, other than services which are
considered  to be rendered to the occupant of the property.  However,  a REIT is
currently  permitted to earn up to one percent of its gross income from tenants,
determined on a  property-by-property  basis,  by  furnishing  services that are
noncustomary  or provided  directly to the tenants,  without  causing the rental
income to fail to qualify as rents from real property.

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

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

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

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

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

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

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

         Distribution  Requirements.  A REIT must distribute to its stockholders
for each taxable year ordinary  income  dividends in an amount equal to at least
(a) 90% of the sum of (i) its "real  estate  investment  trust  taxable  income"
(before  deduction of dividends  paid and excluding  any net capital  gains) and
(ii) the excess of net income  from  foreclosure  property  over the tax on such
income,  minus (b) certain excess non-cash income.  Real estate investment trust
taxable income  generally is the taxable income of a REIT computed as if it were
an ordinary corporation, with certain adjustments. Distributions must be made in
the taxable year to which they relate or, if declared  before the timely  filing
of the REIT's tax return for such year and paid not later than the first regular
dividend payment after such declaration, in the following taxable year.

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

TAXATION OF STOCKHOLDERS

         Taxable  Domestic  Stockholders.  For any  taxable  year in  which  the
Company qualifies as a REIT for federal income tax purposes,  Distributions made
by the Company to its  stockholders  that are United States persons  (generally,
any person other than a nonresident alien individual,  a foreign trust or estate
or a foreign  partnership  or  corporation)  generally will be taxed as ordinary
income.  Amounts  received  by such  United  States  persons  that are  properly
designated as capital gain  dividends by the Company  generally will be taxed as
long-term  capital gain,  without regard to the period for which such person has
held its Shares,  to the extent that they do not exceed the Company's actual net
capital gain for the taxable  year.  Corporate  stockholders  may be required to
treat up to 20% of certain  capital  gains  dividends as ordinary  income.  Such
ordinary  income and capital gain are not eligible  for the  dividends  received
deduction allowed to corporations.  In addition, the Company may elect to retain
and pay income tax on its  long-term  capital  gains.  If the Company so elects,
each stockholder will take into income the  stockholder's  share of the retained
capital gain as  long-term  capital gain and will receive a credit or refund for
that  stockholder's  share of the tax paid by the Company.  The stockholder will
increase the basis of such stockholder's  share by an amount equal to the excess
of the retained capital gain included in the  stockholder's  income over the tax
deemed paid by such stockholder.  Distributions to such United States persons in
excess of the  Company's  current or  accumulated  earnings  and profits will be
considered  first a tax-free  return of capital for federal income tax purposes,
reducing the tax basis of each stockholder's Shares, and then, to the extent the
Distribution  exceeds each stockholder's basis, a gain realized from the sale of
Shares.  The Company  will notify each  stockholder  as to the  portions of each
Distribution which, in its judgment, constitute ordinary income, capital gain or
return of capital for federal income tax purposes.  Any Distribution that is (i)
declared by the Company in October,  November or December of any  calendar  year
and payable to  stockholders  of record on a  specified  date in such months and
(ii)  actually paid by the Company in January of the  following  year,  shall be
deemed to have been received by each stockholder on December 31 of such calendar
year and, as a result, will be includable in gross income of the stockholder for
the taxable year which  includes  such  December 31.  Stockholders  who elect to
participate in the Reinvestment  Plan will be treated as if they received a cash
Distribution  from the Company and then  applied such  Distribution  to purchase
Shares in the Reinvestment Plan. Stockholders may not deduct on their income tax
returns any net operating or net capital losses of the Company.

         Upon  the  sale  or  other  disposition  of  the  Company's  Shares,  a
stockholder  generally  will  recognize  capital  gain  or  loss  equal  to  the
difference  between the amount realized on the sale or other disposition and the
adjusted basis of the Shares involved in the transaction. Such gain or loss will
be a  long-term  capital  gain  or  loss  if,  at the  time  of  sale  or  other
disposition,  the  Shares  involved  have been  held for more than one year.  In
addition,  if a  stockholder  receives a capital gain  dividend  with respect to
Shares  which he has held  for six  months  or less at the time of sale or other
disposition, any loss recognized by the stockholder will be treated as long-term
capital loss to the extent of the amount of the capital gain  dividend  that was
treated as long-term capital gain.

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

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

         The Company  will report to its U.S.  stockholders  and the Service the
amount of dividends  paid or treated as paid during each calendar  year, and the
amount  of  tax  withheld,  if  any.  Under  the  backup  withholding  rules,  a
stockholder may be subject to backup withholding at the rate of 31% with respect
to  dividends  paid  unless  such holder (a) is a  corporation  or comes  within
certain other exempt  categories and, when required,  demonstrates  this fact or
(b)  provides  a  taxpayer  identification  number,  certifies  as to no loss of
exemption  from backup  withholding,  and  otherwise  complies  with  applicable
requirements  of the  backup  withholding  rules.  A  stockholder  that does not
provide the Company with a correct  taxpayer  identification  number may also be
subject to penalties  imposed by the Service.  Any amount paid to the Service as
backup  withholding  will be  creditable  against the  stockholder's  income tax
liability.  In  addition,  the  Company may be required to withhold a portion of
capital gain dividends to any stockholders who fail to certify their non-foreign
status to the Company.  See "Federal  Income Tax  Considerations  -- Taxation of
Stockholders -- Foreign Stockholders" below.

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

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

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

         Assuming  that there is no waiver of the  restrictions  on ownership of
Shares in the Articles of Incorporation  and that a tax-exempt  stockholder does
not finance the acquisition of its Shares with "acquisition indebtedness" within
the  meaning of  Section  514(c) of the Code or  otherwise  use its Shares in an
unrelated trade or business, in the opinion of Counsel, the distributions of the
Company with respect to such tax-exempt stockholder will not constitute UBTI.

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

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


         Distributions that are not attributable to gain from sales or exchanges
by the Company of United  States real property  interests and not  designated by
the Company as capital gain  dividends  will be treated as dividends of ordinary
income to the extent that they are made out of current and accumulated  earnings
and  profits of the  Company.  Such  dividends  ordinarily  will be subject to a
withholding  tax equal to 30% of the gross  amount  of the  dividend,  unless an
applicable  tax treaty  reduces  or  eliminates  that tax. A number of U.S.  tax
treaties that reduce the rate of withholding  tax on corporate  dividends do not
reduce,  or  reduce  to a lesser  extent,  the rate of  withholding  applied  to
distributions  from a REIT. The Company  expects to withhold U.S.  income tax at
the rate of 30% on the gross amount of any such distributions paid to a Non-U.S.
Stockholder unless (i) a lower treaty rate applies (and, with regard to payments
on or after January 1, 2002, the Non-U.S. Stockholder files IRS Form W-8BEN with
the  Company  and,  if the Shares are not  traded on an  established  securities
market,  acquires a  taxpayer  identification  number  from the IRS) or (ii) the
Non-U.S.  Stockholder  files an IRS Form W-8ECI (or, with respect to payments on
or after  January 1, 2002,  files IRS Form  W-8BEN  with the  Company)  with the
Company  claiming  that  the  distribution  is  effectively   connected  income.
Distributions  in excess of the Company's  current and accumulated  earnings and
profits  will  not  be  taxable  to  a  stockholder  to  the  extent  that  such
distributions paid do not exceed the adjusted basis of the stockholder's Shares,
but rather will reduce the  adjusted  basis of such  Shares.  To the extent that
distributions  in excess of current and accumulated  earnings and profits exceed
the adjusted basis of a Non-U.S.  Stockholders'  Shares, such distributions will
give rise to tax  liability  if the  Non-U.S.  Stockholder  would  otherwise  be
subject  to tax on any gain  from  the sale or  disposition  of the  Shares,  as
described  below.  If it cannot be determined at the time a distribution is paid
whether or not such  distribution  will be in excess of current and  accumulated
earnings and profits,  the  distributions  will be subject to withholding at the
rate of 30%. However,  a Non-U.S.  Stockholder may seek a refund of such amounts
from the IRS if it is  subsequently  determined that such  distribution  was, in
fact, in excess of the Company's  current and accumulated  earnings and profits.
Beginning  with payments  made on or after January 1, 1999,  the Company will be
permitted, but not required, to make reasonable estimates of the extent to which
distributions  exceed  current  or  accumulated   earnings  and  profits.   Such
distributions  will generally be subject to a 10% withholding  tax, which may be
refunded to the extent they exceed the stockholder's  actual U.S. tax liability,
provided the required information is furnished to the IRS.


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

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

STATE AND LOCAL TAXES

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

CHARACTERIZATION OF PROPERTY LEASES

         The Company will  purchase both new and existing  Properties  and lease
them to  tenants  pursuant  to  leases of the type  described  in  "Business  --
Description of Property Leases." The ability of the Company to claim certain tax
benefits  associated  with ownership of the  Properties,  such as  depreciation,
depends on a determination that the lease transactions engaged in by the Company
are true leases, under which the Company is the owner of the leased Property for
federal income tax purposes, rather than a conditional sale of the Property or a
financing  transaction.  A determination  by the Service that the Company is not
the owner of the  Properties  for federal  income tax  purposes may have adverse
consequences to the Company,  such as the denying of the Company's  depreciation
deductions.  Moreover, a denial of the Company's  depreciation  deductions could
result in a determination that the Company's  Distributions to stockholders were
insufficient to satisfy the 90% distribution  requirement for qualification as a
REIT. However, as discussed above, if the Company has sufficient cash, it may be
able to remedy any past  failure to satisfy  the  distribution  requirements  by
paying a  "deficiency  dividend"  (plus a penalty and  interest).  See  "Federal
Income  Tax   Considerations   --  Taxation  of  the  Company  --   Distribution
Requirements," above. Furthermore,  in the event that the Company was determined
not to be the owner of a  particular  Property,  in the  opinion of Counsel  the
income that the Company  would  receive  pursuant to the  recharacterized  lease
would constitute interest qualifying under the 95% and 75% gross income tests by
reason of being  interest on an obligation  secured by a mortgage on an interest
in real property,  because the legal  ownership  structure of such Property will
have  the  effect  of  making  the  building  serve as  collateral  for the debt
obligation.

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

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

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

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

CHARACTERIZATION OF SECURED EQUIPMENT LEASES

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

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

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

INVESTMENT IN JOINT VENTURES

         As indicated in "Business -- Joint Venture  Arrangements,"  the Company
may participate in Joint Ventures which own and lease Properties.  Assuming that
the Joint  Ventures  have the  characteristics  described  in "Business -- Joint
Venture  Arrangements,"  and are  operated  in the same  manner that the Company
operates with respect to Properties that it owns directly,  it is the opinion of
Counsel that (i) the Joint Ventures will be treated as partnerships,  as defined
in Sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations,  and that the Company will be subject to tax as a partner pursuant
to Sections 701-761 of the Code and (ii) all material allocations to the Company
of income,  gain, loss and deduction as provided in the Joint Venture agreements
and as discussed in the Prospectus will be respected under Section 704(b) of the
Code. The Company has  represented  that it will not become a participant in any
Joint Venture unless the Company has first  obtained  advice of Counsel that the
Joint Venture will  constitute a partnership for federal income tax purposes and
that the  allocations  to the Company  contained in the Joint Venture  agreement
will be respected.

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


                             REPORTS TO STOCKHOLDERS

         The Company  will  furnish  each  stockholder  with its audited  annual
report  within 120 days  following  the close of each fiscal year.  These annual
reports  will  contain the  following:  (i)  financial  statements,  including a
balance sheet,  statement of operations,  statement of stockholders' equity, and
statement  of  cash  flows,  prepared  in  accordance  with  generally  accepted
accounting principles which are audited and reported on by independent certified
public  accountants;  (ii) the ratio of the costs of raising  capital during the
period to the capital  raised;  (iii) the aggregate  amount of advisory fees and
the aggregate  amount of other fees paid to the Advisor and any Affiliate of the
Advisor by the Company and including fees or charges paid to the Advisor and any
Affiliate of the Advisor by third parties doing business with the Company;  (iv)
the  Operating  Expenses of the Company,  stated as a percentage  of the Average
Invested  Assets (the average of the  aggregate  book value of the assets of the
Company,  for a specified period,  invested,  directly or indirectly,  in equity
interests in and loans secured by real estate,  before reserves for depreciation
or bad debts or other similar non-cash reserves,  computed by taking the average
of such values at the end of each month  during such period) and as a percentage
of its Net Income; (v) a report from the Independent Directors that the policies
being followed by the Company are in the best interest of its  stockholders  and
the basis for such determination; (vi) separately stated, full disclosure of all
material terms,  factors and circumstances  surrounding any and all transactions
involving the Company, Directors, Advisor and any Affiliate thereof occurring in
the year for which the  annual  report is made,  and the  Independent  Directors
shall be  specifically  charged with a duty to examine and comment in the report
on  the  fairness  of  such  transactions;   and  (vii)   Distributions  to  the
stockholders for the period, identifying the source of such Distributions and if
such  information  is not available at the time of the  distribution,  a written
explanation of the relevant circumstances will accompany the Distributions (with
the statement as to the source of  Distributions  to be sent to stockholders not
later than 60 days after the end of the  fiscal  year in which the  distribution
was made).

         Within 75 days  following the close of each Company  fiscal year,  each
stockholder  that is a Qualified Plan will be furnished with an annual statement
of Share valuation to enable it to file annual reports required by ERISA as they
relate to its investment in the Company. For any period during which the Company
is making a public  offering of Shares,  the statement  will report an estimated
value of each Share at the public  offering  price per Share,  which  during the
term of this offering is $10.00 per Share. If no public offering is ongoing, and
until Listing, the statement will report an estimated value of each Share, based
on (i)  appraisal  updates  performed  by the  Company  based on a review of the
existing  appraisal and lease of each Property,  focusing on a re-examination of
the  capitalization  rate  applied to the rental  stream to be derived from that
Property;  and (ii) a review  of the  outstanding  Mortgage  Loans  and  Secured
Equipment   Leases   focusing  on  a   determination   of  present  value  by  a
re-examination of the capitalization  rate applied to the stream of payments due
under the terms of each Mortgage Loan and Secured  Equipment  Lease. The Company
may elect to deliver such reports to all stockholders.  Stockholders will not be
forwarded  copies of  appraisals  or  updates.  In  providing  such  reports  to
stockholders,  neither the Company nor its Affiliates thereby make any warranty,
guarantee,  or  representation  that (i) the  stockholders or the Company,  upon
liquidation,  will actually  realize the estimated  value per Share, or (ii) the
stockholders  will realize the estimated net asset value if they attempt to sell
their Shares.

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

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

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

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




                                  THE OFFERING

GENERAL


         A maximum of 175,000,000 Shares ($1,750,000,000) are being offered at a
purchase price of $10.00 per Share,  with the sale of 137,000,000 of such Shares
subject to approval by the  stockholders  of a resolution to increase the number
of  authorized  Shares  of  the  Company.   See  "Summary  of  the  Articles  of
Incorporation  and Bylaws --  Description  of Capital  Stock."  Included  in the
175,000,000  Shares  offered,  the  Company  has  registered  25,000,000  Shares
($250,000,000)  available to stockholders  purchasing Shares in this offering or
to stockholders  who purchased Shares in one of the Prior Offerings who elect to
participate in the  Reinvestment  Plan and who receive a copy of this Prospectus
or a separate  prospectus for the Reinvestment  Plan. Prior to the conclusion of
this offering,  if any of the 25,000,000 Shares remain after meeting anticipated
obligations  under the  Reinvestment  Plan,  the  Company  may  decide to sell a
portion  of these  Shares in this  offering.  Until such  time,  if any,  as the
stockholders  approve an  increase  in the  number of  authorized  Shares,  this
offering will be limited to 38,000,000 Shares  ($380,000,000),  3,800,000 Shares
($38,000,000) of which will be available to stockholders  purchasing pursuant to
the Reinvestment  Plan. Any participation in such plan by a person who becomes a
stockholder  otherwise  than by  participating  in this  offering  will  require
solicitation  under this  Prospectus or a separate  prospectus.  See "Summary of
Reinvestment  Plan." The Board of  Directors  may  determine to engage in future
offerings of Common Stock of up to the number of unissued  authorized  Shares of
Common Stock available following termination of this offering.


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

PLAN OF DISTRIBUTION

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

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


         Subject to the provisions  for reduced  Selling  Commissions  described
below,  the Company  will pay the  Managing  Dealer an  aggregate of 7.5% of the
Gross Proceeds as Selling Commissions.  The Managing Dealer will reallow fees of
up to 7% to the  Soliciting  Dealers  with  respect to Shares  sold by them.  In
addition,  the Company will pay the Managing Dealer an amount equal to 0.125% of
Gross Proceeds to be used by the Managing Dealer to reimburse Soliciting Dealers
for bona fide due diligence  expenses,  such  reimbursement to be paid following
submission of invoices  supporting  such expenses.  The Company will also pay to
the  Managing  Dealer an amount  equal to 0.5% of Gross  Proceeds as a marketing
support fee.  This fee will be reallowed to any  Soliciting  Dealer which enters
into a marketing  support fee agreement  with the Managing  Dealer,  pursuant to
which such Soliciting Dealer agrees to provide the marketing  assistance in this
offering  required under the marketing  support fee agreement,  including  using
their  internal  marketing  support  personnel to assist the  Managing  Dealer's
marketing team and using their internal marketing communication tools to promote
the Company. Stockholders who elect to participate in the Reinvestment Plan will
be charged  Selling  Commissions,  the  marketing  support fee and due diligence
reimbursements  on Shares  purchased  for their  accounts  on the same  basis as
investors who purchase  Shares in this  offering.  See "Summary of  Reinvestment
Plan."

         A registered  principal or  representative  of the Managing Dealer or a
Soliciting  Dealer,  employees,  officers,  and  Directors  of the  Company,  or
employees,  officers and directors of the Advisor,  any of their  Affiliates and
any Plan established exclusively for the benefit of such persons or entities may
purchase Shares net of 7%  commissions,  at a per Share purchase price of $9.30.
Clients of an investment  adviser  registered under (i) the Investment  Advisers
Act of 1940, as amended, and (ii) applicable state securities laws in the states
where the client resides and who have been advised by such adviser on an ongoing
basis  regarding  investments  other than in the Company,  and who are not being
charged by such adviser or its Affiliates, through the payment of commissions or
otherwise,  for the  advice  rendered  by such  adviser in  connection  with the
purchase  of the  Shares,  may  purchase  the Shares net of 7%  commissions.  In
addition,  Soliciting  Dealers that have a  contractual  arrangement  with their
clients for the payment of fees which is inconsistent with accepting commissions
may elect not to accept any  commissions  offered by the Company for Shares that
they sell.  In that event,  such Shares  shall be sold to the investor net of 7%
commissions,  at a per Share  purchase  price of $9.30.  In connection  with the
purchases  of  certain  minimum  numbers of  Shares,  the amount of  commissions
otherwise payable to a Soliciting Dealer shall be reduced in accordance with the
following schedule:
                                                                         Reallowed Commissions on Sales
                                           Purchase Price per            per Incremental Share in Volume
                                          Incremental Share in                   Discount Range
            Number                          Volume Discount             ----------------------------------------
     of Shares Purchased                        Range                    Percent                Dollar Amount
-------------------------------         ----------------------          -----------            -----------------

        1   --       25,000                   $10.00                       7.0%                     $0.70
   25,001   --        50,000                    9.90                       6.0%                      0.60
   50,001   --        75,000                    9.80                       5.0%                      0.50
   75,001   --       100,000                    9.70                       4.0%                      0.40
 100,001    --       250,000                    9.60                       3.0%                      0.30
 250,001    --       500,000                    9.50                       2.0%                      0.20
 Over 500,000                                   9.40                       1.0%                      0.10


         For example,  if an investor  purchases  100,000  Shares,  the investor
could pay as little as $985,000 rather than $1,000,000 for the Shares,  in which
event the Selling Commissions on the sale of such Shares would be $60,000 ($0.60
per  Share).  The net  proceeds  to the  Company  will not be  affected  by such
discounts.

         Subscriptions may be combined for the purpose of determining the volume
discounts in the case of  subscriptions  made by any  "purchaser,"  provided all
such  Shares are  purchased  through the same  Soliciting  Dealer or through the
Managing  Dealer.  The  volume  discount  will be  prorated  among the  separate
subscribers  considered to be a single "purchaser." Shares purchased pursuant to
the Reinvestment  Plan on behalf of a Participant in the Reinvestment  Plan will
not  be  combined  with  other  subscriptions  for  Shares  by the  investor  in
determining  the volume  discount to which such  investor may be  entitled.  See
"Summary of  Reinvestment  Plan." Further  subscriptions  for Shares will not be
combined for purposes of the volume discount in the case of subscriptions by any
"purchaser" who subscribes for additional  Shares  subsequent to the purchaser's
initial purchase of Shares.

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

         For  purposes of such volume  discounts,  "purchaser"  includes  (i) an
individual,  his or her  spouse,  and their  children  under the age of 21,  who
purchase  the Shares for his or her or their own  accounts,  and all  pension or
trust  funds   established  by  each  such   individual;   (ii)  a  corporation,
partnership,  association,  joint-stock  company,  trust fund,  or any organized
group of  persons,  whether  incorporated  or not  (provided  that the  entities
described  in this  clause  (ii) must have  been in  existence  for at least six
months  before  purchasing  the  Shares  and must have  formed  such group for a
purpose  other than to purchase the Shares at a discount);  (iii) an  employee's
trust, pension,  profit-sharing,  or other employee benefit plan qualified under
Section 401 of the Code; and (iv) all pension,  trust, or other funds maintained
by a given bank. Except as provided in this paragraph, subscriptions will not be
cumulated, combined, or aggregated.

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


Deferred Commission Arrangement.

         In addition, stockholders may agree with their participating Soliciting
Dealer and the  Managing  Dealer to have Selling  Commissions  relating to their
Shares paid over a six-year period pursuant to a deferred commission arrangement
(the "Deferred Commission  Option").  The volume discount will not be applicable
to purchases  with regard to which  stockholders  elect the Deferred  Commission
Option. Stockholders electing the Deferred Commission Option will be required to
pay a total of $9.50 per Share purchased upon  subscription,  rather than $10.00
per  Share,  with  respect  to which  $0.25 per Share will be payable as Selling
Commissions  due  upon  subscription,  $0.20 of which  may be  reallowed  to the
Soliciting  Dealer by the Managing Dealer.  For each of the five years following
such  subscription  (or for such five year  period  commencing  at a later  date
agreed upon by the Managing  Dealer and the  Soliciting  Dealer) on a date to be
determined by the Managing  Dealer,  $0.10 per Share will be paid by the Company
as deferred  Selling  Commissions  with  respect to Shares sold  pursuant to the
Deferred Commission Option,  which amounts will be deducted from and paid out of
distributions otherwise payable to such stockholders holding such Shares and may
be reallowed to the Soliciting  Dealer by the Managing Dealer.  The net proceeds
to the Company will not be affected by the  election of the Deferred  Commission
Option.  Under this arrangement,  a stockholder electing the Deferred Commission
Option will pay a 1% Selling Commission per year thereafter for five years which
will be deducted  from and paid by the Company  out of  distributions  otherwise
payable to such  stockholder.  At such time,  if any,  as  Listing  occurs,  the
Company  shall have the right to require  the  acceleration  of all  outstanding
payment  obligations  under the  Deferred  Commission  Option.  All such Selling
Commissions will be paid to the Managing Dealer,  whereby a total of up to 7% of
such Selling Commissions may be reallowed to the Soliciting Dealer. The Deferred
Commission Option is not available to California investors.

Sales Incentives.


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


Other Compensation.

         In connection with the sale of Shares,  certain  associated  persons of
the  Managing  Dealer  may  perform  wholesaling  functions  for which they will
receive  compensation  in an  aggregate  amount  not in excess of 1.20% of Gross
Proceeds,  of which 0.5% is payable by the  Managing  Dealer (out of the 0.5% it
retains from the Selling  Commissions)  and 0.7% will be paid by CNL  Investment
Company, and not by the Company.

         In addition,  the Company and, to a lesser extent,  its Affiliates will
pay to their  Affiliates,  including  CNL  Investment  Company and the  Managing
Dealer  and its  associated  persons,  for other  expenses  incurred,  including
expenses   related  to  sales   seminars  (in  an  amount   estimated  to  equal
approximately 0.28% of the Gross Proceeds), wholesaling activities (in an amount
estimated to equal approximately 0.54% of the Gross Proceeds) and legal expenses
(in an amount estimated to equal  approximately  0.011% of Gross Proceeds).  The
Company will also reimburse the Soliciting Dealers for certain expenses incurred
in connection with the offering (in an amount  estimated to equal  approximately
0.1% of the Gross Proceeds).


         The total amount of underwriting  compensation,  including  commissions
and  reimbursement  of expenses,  paid in connection  with the offering will not
exceed 10% of Gross  Proceeds,  plus an  additional  0.5% of Gross  Proceeds for
reimbursement  of bona fide due diligence  expenses.  Underwriting  compensation
includes Selling Commissions,  marketing support fees, wholesaling  compensation
and  expense  reimbursements,  expenses  relating to sales  seminars,  and sales
incentives.

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

SUBSCRIPTION PROCEDURES

         Procedures  Applicable  to All  Subscriptions.  In  order  to  purchase
Shares, the subscriber must complete and execute the Subscription Agreement. Any
subscription  for  Shares  must  be  accompanied  by cash or  check  payable  to
"SouthTrust Bank,  Escrow Agent" or to the Company,  in the amount of $10.00 per
Share.  Subscription proceeds will be held in trust for the benefit of investors
until such time as investors are admitted as  stockholders  of the Company.  See
"The Offering -- Escrow Arrangements" below. Certain Soliciting Dealers who have
"net capital," as defined in the applicable federal securities  regulations,  of
$250,000 or more may  instruct  their  customers to make their checks for Shares
for which they have subscribed  payable  directly to the Soliciting  Dealer.  In
such case, the Soliciting Dealer will issue a check made payable to the order of
the Escrow Agent for the aggregate amount of the subscription proceeds.

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

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

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

         Subscribers  will be admitted as  stockholders  not later than the last
day of the calendar month following acceptance of their subscriptions.

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

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

         To the extent that customers of any Soliciting Dealer wish to subscribe
and pay for Shares with funds held by or to be deposited with those firms,  then
such firms shall,  subject to Rule  15c2-4(a)  promulgated  under the Securities
Exchange  Act of 1934,  either  (i) upon  receipt  of an  executed  subscription
agreement  or  direction  to  execute a  subscription  agreement  on behalf of a
customer,  to  forward  the  offering  price  for  the  Shares  covered  by  the
subscription  agreement on or before the close of business of the first business
day following receipt or execution of a subscription  agreement by such firms to
the Managing  Dealer  (except that, in any case in which the  Soliciting  Dealer
maintains a branch  office,  and,  pursuant to a  Soliciting  Dealer's  internal
supervisory  procedures,  final  internal  supervisory  review is conducted at a
different location,  the branch office shall transmit the subscription documents
and  subscriber's  check  to the  Soliciting  Dealer  conducting  such  internal
supervisory  review by the close of business on the first business day following
their  receipt by the branch office and the  Soliciting  Dealer shall review the
subscription  documents and subscriber's  check to ensure their proper execution
and form and, if they are acceptable,  transmit the check to the Managing Dealer
by the close of business on the first  business  day after the check is received
by the Soliciting  Dealer),  or (ii) to solicit indications of interest in which
event  (a) such  Soliciting  Dealers  must  subsequently  contact  the  customer
indicating interest to confirm the interest and give instructions to execute and
return a  subscription  agreement  or to receive  authorization  to execute  the
subscription  agreement on the customer's  behalf,  (b) such Soliciting  Dealers
must mail  acknowledgments  of  receipt  of orders to each  customer  confirming
interest on the business day following such  confirmation,  (c) such  Soliciting
Dealers must debit  accounts of such  customers  on the fifth  business day (the
"debit date") following receipt of the confirmation  referred to in (a), and (d)
such Soliciting  Dealers must forward funds to the Managing Dealer in accordance
with  the  procedures  and on the  schedule  set  forth  in  clause  (i) of this
sentence.  If the  procedure  in (ii) is  adopted,  subscribers'  funds  are not
required to be in their accounts until the debit date. The Managing  Dealer will
transmit the check to the Escrow Agent by no later than the close of business on
the first business day after the check is received from the Soliciting Dealer.


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

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


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

ESCROW ARRANGEMENTS


         The Escrow  Agreement  between  the Company  and  SouthTrust  Bank (the
"Bank")  provides  that  escrowed  funds  will be  invested  by the Bank in bank
accounts,  including  interest-bearing  savings  accounts  and bank money market
accounts,  in short-term  certificates  of deposit issued by a bank,  short-term
securities  directly or  indirectly  issued or  guaranteed  by the United States
Government,  or in other short-term,  highly liquid investments with appropriate
safety of  principal.  Such  subscription  funds will be released to the Company
upon request following the admission of a stockholder to the Company.


         The interest,  if any, earned on subscription  proceeds will be payable
only to those  subscribers  whose funds have been held in escrow by the Bank for
at least 20 days. Stockholders will not otherwise be entitled to interest earned
on Company funds or to receive interest on their Invested Capital.

ERISA CONSIDERATIONS

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

         A  prospective  investor  that is an employee  benefit  plan subject to
ERISA, a tax-qualified  retirement plan, an IRA, or a governmental,  church,  or
other Plan that is exempt from ERISA is advised to consult its own legal advisor
regarding the specific  considerations  arising under  applicable  provisions of
ERISA, the Code, and state law with respect to the purchase,  ownership, or sale
of the Shares by such Plan or IRA.

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

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

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

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

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

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

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

DETERMINATION OF OFFERING PRICE


         The offering  price per Share was  determined by the Company based upon
the estimated costs of investing in the Properties and the Mortgage  Loans,  the
fees to be paid to the  Advisor  and its  Affiliates,  as well as fees to  third
parties,  and the expenses of this  offering.  There is no public market for the
Shares on which to base  market  value.  The Company has sold all of its Shares,
commencing with its Initial Offering, at $10 per Share.



                           SUPPLEMENTAL SALES MATERIAL

         Shares are being offered only through this  Prospectus.  In addition to
this Prospectus,  the Company may use certain sales materials in connection with
this  offering,  although only when  accompanied  or preceded by the delivery of
this Prospectus. No sales material may be used unless it has first been approved
in writing by the Company. As of the date of this Prospectus,  it is anticipated
that the following  sales  material will be authorized for use by the Company in
connection  with  this  offering:   (i)  a  brochure   entitled  CNL  Retirement
Properties,  Inc.;  (ii) a fact sheet  describing  the  general  features of the
Company;  (iii) a cover  letter  transmitting  the  Prospectus;  (iv) a  summary
description  of the offering;  (v) a slide  presentation;  (vi) broker  updates;
(vii) an audio  cassette  presentation;  (viii)  a video  presentation;  (ix) an
electronic  media  presentation;  (x) a cd-rom  presentation;  (xi) a script for
telephonic marketing;  (xii) seminar advertisements and invitations;  and (xiii)
certain third-party articles. All such materials will be used only by registered
broker-dealers  that are members of the NASD and advisers  registered  under the
Investment  Advisers  Act of 1940.  The  Company  also may  respond to  specific
questions  from  Soliciting  Dealers  and  prospective   investors.   Additional
materials  relating to the offering may be made available to Soliciting  Dealers
for their internal use.


                                 LEGAL OPINIONS

         The  legality of the Shares being  offered  hereby has been passed upon
for the Company by Greenberg Traurig,  LLP.  Statements made under "Risk Factors
-- Tax Risks" and  "Federal  Income Tax  Considerations"  have been  reviewed by
Greenberg Traurig,  LLP, who have given their opinion that such statements as to
matters of law are correct in all  material  respects.  Greenberg  Traurig,  LLP
serves as  securities  and tax  counsel to the  Company  and to the  Advisor and
certain of their Affiliates.  Members of the firm may invest in the Company, but
do not hold any substantial  interest in the Company.  The firm is,  however,  a
tenant in an office building in which the Company owns a 10% interest.


                                     EXPERTS


         The  financial  statements  of the Company as of December  31, 2002 and
2001 and for each of the three years in the period ended  December 31, 2002, and
the combined financial statements of American Retirement  Communities  Portfolio
(a group of related properties acquired by CNL Retirement  Properties,  Inc.) as
of December 31, 2001 and 2000 and for the two years then ended, included in this
Prospectus,   have  been  so   included   in   reliance   on  the   reports   of
PricewaterhouseCoopers  LLP, independent certified public accountants,  given on
the authority of said firm as experts in auditing and accounting.

         The financial  statements of Prime Care One Portfolio,  Prime Care Two,
LLC and Prime Care Eight, LLC at December 31, 2001 and 2000, and for each of the
three years in the period ended  December 31, 2001,  and the combined  financial
statements of Prime Care One, LLC and PC1, LLC and combined financial statements
of Prime Care Two, LLC and PC2,  LLC at December  31, 2002 and 2001  included in
this  Prospectus and  Registration  Statement have been audited by Ernst & Young
LLP,  independent  auditors,  as set forth in their  reports  thereon  appearing
elsewhere  herein,  and are included in reliance  upon such reports given on the
authority of such firm as experts in auditing and accounting.

         The combined  financial  statements of Marriott  Senior Living Services
Twenty-One  Communities at December 28, 2001 and December 29, 2000, and for each
of the three  fiscal years in the period  ended  December 28, 2001,  included in
this  Prospectus and  Registration  Statement have been audited by Ernst & Young
LLP,  independent  auditors,  as set  forth in their  report  thereon  appearing
elsewhere  herein,  and are  included in reliance  upon such report given on the
authority of such firm as experts in auditing and accounting.



                             ADDITIONAL INFORMATION

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


                                   DEFINITIONS

         "2000  Offering" means the public offering of the Company of 15,500,000
Shares of Common  Stock,  including  500,000  Shares  available  pursuant to the
Reinvestment  Plan,  which commenced in September 2000 and terminated on May 24,
2002.


         "2002  Offering" means the public offering of the Company of 45,000,000
Shares of Common Stock,  including  5,000,000 Shares  available  pursuant to the
Reinvestment  Plan,  which commenced in May 2002 and is expected to terminate in
March 2003.


         "Acquisition  Expenses"  means  any and all  expenses  incurred  by the
Company,  the  Advisor,  or any  Affiliate  of  either  in  connection  with the
selection or  acquisition  of any  Property or the making of any Mortgage  Loan,
whether or not acquired, including, without limitation, legal fees and expenses,
travel and communication  expenses,  costs of appraisals,  nonrefundable  option
payments on property  not  acquired,  accounting  fees and  expenses,  and title
insurance.

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

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

         "Advisor"  means  CNL  Retirement  Corp.,  a Florida  corporation,  any
successor  advisor  to the  Company,  or any  person  or  entity  to  which  CNL
Retirement Corp. or any successor advisors subcontracts substantially all of its
functions.  The Advisor has responsibility for the day-to-day  operations of the
Company.

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

         "Affiliate"  means  (i) any  person or entity  directly  or  indirectly
through one or more intermediaries  controlling,  controlled by, or under common
control with  another  person or entity;  (ii) any person or entity  directly or
indirectly owning,  controlling, or holding with power to vote ten percent (10%)
or more of the outstanding voting securities of another person or entity;  (iii)
any officer,  director,  partner,  or trustee of such person or entity; (iv) any
person ten percent  (10%) or more of whose  outstanding  voting  securities  are
directly or indirectly  owned,  controlled or held,  with power to vote, by such
other  person;  and (v) if such other person or entity is an officer,  director,
partner,  or trustee of a person or entity,  the person or entity for which such
person or entity acts in any such capacity.

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

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

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

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

         "Bank" means SouthTrust Bank, escrow agent for the offering.

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

         "Bylaws" means the bylaws of the Company.

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

         "CNL" means CNL Holdings,  Inc., the parent company either  directly or
indirectly of the Advisor and the Managing Dealer.

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

         "Common  Stock" means the common stock,  par value $0.01 per share,  of
the Company.

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

         "Construction  Fee" means a fee or other  remuneration  for acting as a
general  contractor  and/or  construction  manager  to  construct  improvements,
supervise and coordinate  projects or provide major repairs or rehabilitation on
a Property.

         "Counsel" means tax counsel to the Company.


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


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

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

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

         "Equipment" means the furniture, fixtures and equipment used at
Retirement Facilities by Operators.

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

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

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

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

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

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

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

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

         "Initial  Investment" means the 20,000 Shares of Common Stock purchased
by the Advisor as part of the Company's initial capitalization.

         "Initial  Offering"  means the initial  offering  of the Company  which
commenced on September 18, 1998 and terminated on September 18, 2000.

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

         "IRA" means an Individual Retirement Account.

         "IRS" means the Internal Revenue Service.

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

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


         "Line of  Credit"  means one or more  lines of  credit in an  aggregate
amount up to  $125,000,000  (or such greater  amount as shall be approved by the
Board of  Directors),  the proceeds of which will be used to acquire  Properties
and make  Mortgage  Loans and  Secured  Equipment  Leases and to pay the Secured
Equipment  Lease  Servicing  Fee.  The Line of Credit may be in  addition to any
Permanent Financing.


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

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

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

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

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

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

         "Net Sales Proceeds"  means, in the case of a transaction  described in
clause (i)(A) of the  definition of Sale,  the proceeds of any such  transaction
less the amount of all real estate  commissions  and  closing  costs paid by the
Company.  In the  case of a  transaction  described  in  clause  (i)(B)  of such
definition,  Net Sales Proceeds means the proceeds of any such  transaction less
the amount of any legal and other selling  expenses  incurred in connection with
such  transaction.  In the case of a  transaction  described in clause (i)(C) of
such  definition,  Net Sales Proceeds means the proceeds of any such transaction
actually  distributed  to the Company from the Joint  Venture.  In the case of a
transaction  or  series  of  transactions  described  in  clause  (i)(D)  of the
definition  of  Sale,  Net  Sales  Proceeds  means  the  proceeds  of  any  such
transaction  less the amount of all  commissions  and closing  costs paid by the
Company. In the case of a transaction described in clause (ii) of the definition
of Sale, Net Sales Proceeds means the proceeds of such  transaction or series of
transactions  less all amounts  generated  thereby and reinvested in one or more
Properties  within 180 days  thereafter  and less the amount of any real  estate
commissions,  closing costs, and legal and other selling expenses incurred by or
allocated  to the  Company  in  connection  with such  transaction  or series of
transactions. Net Sales Proceeds shall also include, in the case of any lease of
a Property  consisting  of a building  only,  any  Mortgage  Loan or any Secured
Equipment Lease, any amounts from tenants, borrowers or lessees that the Company
determines,  in its discretion,  to be economically  equivalent to proceeds of a
Sale. Net Sales Proceeds shall not include,  as determined by the Company in its
sole  discretion,  any amounts  reinvested in one or more  Properties,  Mortgage
Loans or Secured  Equipment Leases,  to repay  outstanding  indebtedness,  or to
establish reserves.

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


         "Operating  Expenses"  includes all costs and expenses  incurred by the
Company, as determined under generally accepted accounting principles,  which in
any way are  related to the  operation  of the  Company or to Company  business,
including  (a)  advisory  fees,  (b) any  soliciting  dealer  servicing  fees in
connection  with  the 2000  Offering,  (c) the  Asset  Management  Fee,  (d) the
Performance Fee, and (e) the  Subordinated  Incentive Fee, but excluding (i) the
expenses of raising capital such as Offering Expenses, legal, audit, accounting,
underwriting,  brokerage,  listing,  registration,  and other fees, printing and
other  such  expenses,  and  tax  incurred  in  connection  with  the  issuance,
distribution,  transfer,  registration, and Listing of the Shares, (ii) interest
payments,   (iii)  taxes,  (iv)  non-cash  expenditures  such  as  depreciation,
amortization, and bad debt reserves, (v) the Advisor's subordinated 10% share of
Net Sales  Proceeds,  (vi) the Secured  Equipment Lease Servicing Fee, and (vii)
Acquisition Fees and Acquisition  Expenses,  real estate commissions on the sale
of property and other expenses  connected with the  acquisition and ownership of
real estate  interests,  mortgage loans, or other property (such as the costs of
foreclosure,  insurance  premiums,  legal  services,  maintenance,  repair,  and
improvement of property).


         "Operators"  means operators of facilities at which seniors' housing or
health care services are  provided,  including,  but not limited to,  congregate
living  facilities,  assisted living  facilities,  skilled  nursing  facilities,
continuing care retirement  communities,  life care communities,  medical office
buildings, walk-in clinics, and similar types of healthcare related facilities.

         "Ownership  Limit"  means,  with  respect to shares of Common Stock and
Preferred Stock, the percent  limitation placed on the ownership of Common Stock
and  Preferred  Stock  by  any  one  Person  (as  defined  in  the  Articles  of
Incorporation).  As of the initial date of this Prospectus,  the Ownership Limit
is 9.8% of the outstanding  Common Stock and 9.8% of the  outstanding  Preferred
Stock.

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

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

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

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

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

         "Prior Offerings" means the prior public offerings of the Company;  the
Initial Offering and the 2000 Offering and the 2002 Offering.

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

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

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

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

         "Reinvestment  Agent" or "Agent"  means the  independent  agent,  which
currently is Bank of New York, for Participants in the Reinvestment Plan.

         "Reinvestment  Plan" means the Reinvestment  Plan, in the form attached
hereto as Appendix A.

         "Reinvestment  Proceeds" means net proceeds  available from the sale of
Shares  under  the  Reinvestment   Plan  to  redeem  Shares  or,  under  certain
circumstances, to invest in additional Properties or Mortgage Loans.

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

         "Related  Party  Tenant"  means a  related  party  tenant,  as  defined
pursuant to Section 856(d)(2)(B) of the Code.

         "Retirement  Partners"  means CNL Retirement  Partners,  LP, a Delaware
limited  partnership.  Properties acquired are expected to be held by Retirement
Partners and, as a result, owned by the Company through Retirement Partners.

         "Roll-Up  Entity" means a partnership,  real estate  investment  trust,
corporation,  trust,  or similar  entity that would be created or would  survive
after the successful completion of a proposed Roll-Up Transaction.

         "Roll-Up  Transaction"  means a transaction  involving the acquisition,
merger, conversion, or consolidation, directly or indirectly, of the Company and
the issuance of securities of a Roll-Up Entity. Such term does not include:  (i)
a  transaction  involving  securities  of the Company that have been listed on a
national securities  exchange or the National  Association of Securities Dealers
Automated  Quotation  National  Market System for at least 12 months;  or (ii) a
transaction involving the conversion to corporate, trust, or association form of
only the  Company  if, as a  consequence  of the  transaction,  there will be no
significant  adverse change in stockholder  voting rights, the term of existence
of the Company, compensation to the Advisor, or the investment objectives of the
Company.

         "Sale" (i) means any transaction or series of transactions whereby: (A)
the Company sells, grants, transfers,  conveys, or relinquishes its ownership of
any Property or portion thereof,  including the lease of any Property consisting
of the building only, and including any event with respect to any Property which
gives rise to a significant amount of insurance proceeds or condemnation awards;
(B) the Company sells, grants, transfers, conveys, or relinquishes its ownership
of all or substantially  all of the interest of the Company in any Joint Venture
in which it is a  co-venturer  or  partner;  (C) any Joint  Venture in which the
Company as a  co-venturer  or partner  sells,  grants,  transfers,  conveys,  or
relinquishes  its  ownership of any Property or portion  thereof,  including any
event with  respect to any  Property  which  gives rise to  insurance  claims or
condemnation awards or, (D) the Company sells,  grants,  conveys or relinquishes
its interest in any Mortgage Loan or Secured Equipment Lease or portion thereof,
including any event with respect to any Mortgage Loan or Secured Equipment Lease
which  gives  rise to a  significant  amount of  insurance  proceeds  or similar
awards,  but (ii) shall not include any  transaction  or series of  transactions
specified in clause (i)(A), (i)(B) or (i)(C) above in which the proceeds of such
transaction or series of  transactions  are reinvested in one or more Properties
within 180 days thereafter.

         "Secured Equipment Leases" means the Equipment financing made available
by the Company to Operators pursuant to which the Company will finance,  through
loans or direct financing leases, the Equipment.

         "Secured  Equipment  Lease  Servicing Fee" means the fee payable to the
Advisor by the  Company out of the  proceeds of the Line of Credit or  Permanent
Financing for negotiating  Secured  Equipment Leases and supervising the Secured
Equipment  Lease  program  equal to 2% of the  purchase  price of the  Equipment
subject to each Secured  Equipment  Lease and paid upon entering into such lease
or loan. No other fees will be payable in connection with the Secured  Equipment
Lease program.

         "Selling   Commissions"  means  any  and  all  commissions  payable  to
underwriters,  managing dealers, or other  broker-dealers in connection with the
sale of Shares as described in the Prospectus,  including,  without  limitation,
commissions payable to CNL Securities Corp.

         "Shares" means the shares of Common Stock of the Company, including the
up to 175,000,000 shares to be sold in this offering.

         "Soliciting Dealers" means those broker-dealers that are members of the
National  Association  of  Securities  Dealers,  Inc.,  or that are exempt  from
broker-dealer  registration,  and that, in either case, enter into participating
broker or other agreements with the Managing Dealer to sell Shares.

         "Sponsor"  means any Person  directly  or  indirectly  instrumental  in
organizing,  wholly or in part,  the  Company or any  person  who will  control,
manage or  participate  in the  management of the Company,  and any Affiliate of
such Person. Not included is any Person whose only relationship with the Company
is that of an independent  property  manager of Company  assets,  and whose only
compensation is as such. Sponsor does not include independent third parties such
as attorneys,  accountants,  and  underwriters  whose only  compensation  is for
professional services. A Person may also be deemed a Sponsor of the Company by:

         a.       taking the initiative,  directly or indirectly, in founding or
                  organizing  the business or enterprise of the Company,  either
                  alone or in conjunction with one or more other Persons;

         b.       receiving   a  material   participation   in  the  Company  in
                  connection  with the founding or organizing of the business of
                  the Company, in consideration of services or property, or both
                  services and property;

         c.       having a substantial number of relationships and contacts with
                  the Company;

         d.       possessing significant rights to control Company Properties;

         e.       receiving fees for providing services to the Company which are
                  paid on a basis that is not customary in the industry; or

         f.       providing  goods or  services  to the Company on a basis which
                  was not negotiated at arm's-length with the Company.

         "Stockholders'  8%  Return" as of each  date,  shall mean an  aggregate
amount  equal to an 8%  cumulative,  noncompounded,  annual  return on  Invested
Capital.

         "Subscription  Agreement" means the Subscription Agreement, in the form
attached hereto as Appendix C.


         "Subordinated Incentive Fee" means the fee payable to the Advisor under
certain circumstances if the Shares are listed on a national securities exchange
or over-the-counter  market. The Subordinated  Incentive Fee will not be paid if
Listing occurs on the Pink Sheets or the OTC Bulletin Board.


         "Termination  Date"  means  the  date of  termination  of the  Advisory
Agreement.

         "Total  Proceeds"  means Gross  Proceeds,  loan proceeds from Permanent
Financing and amounts  outstanding on the Line of Credit, if any, at the time of
Listing, but excluding loan proceeds used to finance Secured Equipment Leases.

         "Triple-Net  Lease"  generally means a Property lease pursuant to which
the tenant is responsible for property costs associated with ongoing operations,
including repairs, maintenance, property taxes, utilities and insurance.

         "Unimproved  Real Property"  means Property in which the Company has an
equity  interest  that is not acquired  for the purpose of  producing  rental or
other operating  income,  that has no development or construction in process and
for which no development or construction is planned,  in good faith, to commence
within one year.

                          INDEX TO FINANCIAL STATEMENTS

                         CNL RETIREMENT PROPERTIES, INC.

                                                                                                         Page
Pro Forma Consolidated Financial Information (unaudited):

     Pro Forma Consolidated Balance Sheet as of December 31, 2002                                        F-3

     Pro Forma Consolidated Statement of Earnings for the year ended December 31, 2002                   F-4

     Notes to Pro Forma Consolidated Financial Statements for the year ended December 31, 2002           F-5

Audited Consolidated Financial Statements as recently filed in CNL Retirement
     Properties, Inc.'s December 31, 2002 Form 10-K:

     Report of Independent Certified Public Accountants                                                  F-12

     Consolidated Balance Sheets as of December 31, 2002 and 2001                                        F-13

     Consolidated Statements of Earnings for the years ended December 31, 2002, 2001 and 2000            F-14

     Consolidated Statements of Stockholders' Equity for the years ended December 31, 2002,
        2001 and 2000                                                                                    F-15

     Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000          F-16

     Notes to Condensed Consolidated Financial Statements for the years ended December 31, 2002,
        2001 and 2000                                                                                    F-18

Financial Statement Schedule:

     Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2002                     F-30

     Notes to Schedule III - Real Estate and Accumulated Depreciation as of December 31, 2002            F-32

                  PRO FORMA CONSOLIDATED FINANCIAL INFORMATION



The following  Unaudited Pro Forma Consolidated  Balance Sheet of CNL Retirement
Properties,  Inc. and its  subsidiaries  (the "Company") gives effect to (i) the
receipt of $102,103,651  in gross offering  proceeds from the sale of 10,210,365
additional  shares for the period January 1, 2003 through February 28, 2003, the
assumption of a $20,600,000 loan under mortgage notes payable, the assumption of
$88,781,000  in  bonds  payable,  borrowings  of  $75,000,000  under  a  secured
revolving  line of credit,  borrowings  of  $26,169,000  under a  mortgage  note
payable  and the  accrual of related  offering  expenses,  acquisition  fees and
miscellaneous  acquisition  expenses and (ii) the  application of such funds and
cash on hand  as of  December  31,  2002,  to  purchase  15  Properties,  all as
reflected  in the pro forma  adjustments  described  in the related  notes.  The
Unaudited Pro Forma Consolidated Balance Sheet as of December 31, 2002, has been
adjusted to give effect to the transactions in (i) and (ii) above as if they had
occurred on December 31, 2002.

The  Unaudited Pro Forma  Consolidated  Statement of Earnings for the year ended
December 31, 2002,  includes the historical  operating results of the Properties
described in (ii) above, as well as 37 properties purchased by the Company prior
to December 31, 2002, from the date of their  acquisition plus operating results
from (A) the  later of (i) the date the  Properties  became  operational  by the
previous  owners or (ii) January 1, 2002, to (B) the earlier of (i) the date the
Properties were acquired by (or for the pending acquisitions, became probable of
being acquired by) the Company or (ii) the end of the pro forma period presented
(the "Pro Forma Period").

This pro forma consolidated financial information is presented for informational
purposes only and does not purport to be  indicative of the Company's  financial
results or condition if the various events and transactions reflected herein had
occurred on the dates or been in effect during the periods  indicated.  This pro
forma consolidated  financial  information should not be viewed as indicative of
the Company's financial results or conditions in the future.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                 UNAUDITED PRO FORMA CONSOLIDATED BALANCE SHEET
                                DECEMBER 31, 2002

                                                                                      Pro Forma
                          ASSETS                                Historical           Adjustments               Pro Forma
                                                             ----------------     ----------------          ---------------

Investment Properties:
     Accounted for using the operating method, net               $272,483,664         $328,410,367   (b)       $617,684,891
                                                                                        16,790,860   (b)
     Accounted for using the direct financing method (c)          115,783,256           22,600,000   (b)        139,889,320
                                                                                         1,506,064   (b)
Cash and cash equivalents                                          40,799,871          102,103,651   (a)          1,171,889
                                                                                      (141,731,633)  (b)
Restricted cash                                                     1,684,684                   --                1,684,684
Notes and other receivables                                         3,192,203                   --                3,192,203
Investment in unconsolidated subsidiary                               154,148                   --                  154,148
Loan costs, net                                                     1,220,108            1,271,266   (b)          2,491,374
Accrued rental income                                               1,472,458                   --                1,472,458
Other assets                                                        4,975,061            4,594,664   (a)          2,962,888
                                                                                        11,690,087   (b)
                                                                                       (18,296,924)  (b)
                                                             ----------------     ----------------          ---------------
                                                                 $441,765,453         $328,938,402             $770,703,855
                                                             ================     ================          ===============

LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
     Line of credit                                           $            --          $75,000,000   (b)        $75,000,000
     Mortgages payable                                             45,326,677           46,769,000   (b)         92,095,677
     Lifecare bonds payable                                                --           88,781,000   (b)         88,781,000
     Due to related parties                                           347,786           12,762,956   (a)         24,800,829
                                                                                        11,690,087   (b)
     Accounts payable and accrued expenses                          1,337,296                   --                1,337,296
     Security deposits                                              4,866,973                   --                4,866,973
     Rents paid in advance                                             91,432                   --                   91,432
                                                             ----------------     ----------------          ---------------
           Total liabilities                                       51,970,164          235,003,043              286,973,207
                                                             ----------------     ----------------          ---------------

Minority interest                                                         265                   --                      265
                                                             ----------------     ----------------          ---------------

Stockholders' equity:
 Preferred stock, without par value.
    Authorized and unissued 3,000,000 shares                            -                   -                       -
 Excess shares, $0.01 par value per share.
    Authorized and unissued 103,000,000 shares                          -                   -                       -
 Common stock, $0.01 par value per share.
    Authorized 100,000,000 shares;
    issued 44,254,603 and outstanding
    44,210,566 shares; issued 54,464,968 and
    outstanding 54,420,931
    shares, as adjusted                                               442,106              102,104   (a)            544,210
 Capital in excess of par value                                   393,307,990          102,001,547   (a)        487,141,245
                                                                                        (8,168,292)  (a)
 Accumulated distributions in excess of net earnings               (3,955,072)                   -               (3,955,072)
                                                             ----------------     ----------------          ---------------
           Total stockholders' equity                             389,795,024           93,935,359              483,730,383
                                                             ----------------     ----------------          ---------------
                                                                 $441,765,453         $328,938,402             $770,703,855
                                                             ================     ================          ===============

See accompanying notes to unaudited pro forma consolidated financial statements.



                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             UNAUDITED PRO FORMA CONSOLIDATED STATEMENT OF EARNINGS
                          YEAR ENDED DECEMBER 31, 2002

                                                                                Pro Forma
                                                        Historical             Adjustments               Pro Forma
                                                       -------------          ---------------           -------------

Revenues:
     Rental income from operating leases                $13,257,739              $47,822,873 (1)         $61,080,612
     Earned income from direct financing leases (2)       3,519,872               13,474,523 (1)          16,994,395
     Contingent rent                                          7,758                       -                    7,758
     FF&E reserve income                                    153,454                1,320,507 (3)           1,473,961
     Interest and other income                            1,913,205               (1,721,591)(4)             191,614
                                                      -------------          ---------------           -------------
                                                         18,852,028               60,896,312              79,748,340
                                                      -------------          ---------------           -------------
Expenses:
     Interest                                             1,408,611                6,807,887 (5)           8,216,498
     General operating and administrative                 1,388,706                       --               1,388,706
     Property expenses                                       23,212                       --                  23,212
     Asset management fees to related party                 770,756                2,929,480 (6)           3,700,236
     Depreciation and amortization                        3,461,279               12,842,456 (7)          16,303,735
                                                      -------------          ---------------           -------------
                                                          7,052,564               22,579,823              29,632,387
                                                      -------------          ---------------           -------------

Earnings Before Equity in Earnings of
     Unconsolidated Subsidiary and Minority Interest
     in Earnings of Consolidated Joint Ventures          11,799,464               38,316,489              50,115,953

Equity in Earnings of Unconsolidated Subsidiary               5,404                       --                   5,404

Minority Interest in Earnings of Consolidated
     Joint Ventures                                        (433,012)                 433,012 (8)                 --
                                                      -------------          ---------------           -------------


Net earnings                                            $11,371,856              $38,749,501             $50,121,357
                                                      =============          ===============           =============

Net Earnings Per Share of Common
     Stock (Basic and Diluted) (9)                         $   0.52                                          $  0.93
                                                      =============                                    =============


Weighted average Number of Shares of Common
     Stock Outstanding (Basic and Diluted) (9)           22,034,955                                       53,706,215
                                                      =============                                    =============
See accompanying notes to unaudited pro forma consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                              FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Balance Sheet:

(a)      Represents  gross proceeds of $102,103,651  from the sale of 10,210,365
         shares during the period January 1, 2003 through February 28, 2003, and
         the accrual of $12,762,956 for related  acquisition  fees of $4,594,664
         (4.5% of gross proceeds)  which are reflected in other assets,  selling
         commissions  of  $7,657,774  (7.5% of  gross  proceeds)  and  marketing
         support  fees of  $510,518  (0.5% of gross  proceeds)  which  have been
         netted against stockholders' equity.

(b)      Represents the use of  $141,731,633 of cash and cash  equivalents,  the
         assumption  of a  $20,600,000  loan  under  a  mortgage  note  payable,
         borrowings of $75,000,000  under a secured revolving line of credit and
         borrowings  of  $26,169,000  under  a  mortgage  note  payable  and the
         assumption of $88,781,000 in non-interest  bonds payable to purchase 15
         properties  for  $351,010,367  to pay loan  costs of  $1,271,266.  Also
         represents the accrual of $5,479,605 of  acquisition  fees on permanent
         financing (4.5% of permanent financing) and $6,210,482 in miscellaneous
         acquisition  costs  incurred in  conjunction  with the  purchase of the
         properties,   the   reclassification  of  $3,946,725  in  miscellaneous
         acquisition  costs and $12,844,135 in acquisition fees to properties on
         operating leases and the  reclassification of $294,704 in miscellaneous
         acquisition  costs and $1,211,360 in acquisition fees to net investment
         in direct financing leases.
                                                                                      Acquisition
                                                                                        Fees and
                                                                                     Closing Costs
                                                                                      Allocated to
                                                                 Purchase Price        Investment            Total
                                                                 ----------------    ---------------     ---------------

         Sunrise in Annapolis, MD                                   $ 12,500,000          $ 843,396        $ 13,343,396
         Sunrise in Pikesville, MD                                    10,100,000            662,668          10,762,668
                                                                 ----------------    ---------------     ---------------
                  Investment in direct financing leases (c)           22,600,000          1,506,064          24,106,064
                                                                 ----------------    ---------------     ---------------

         Brighton Gardens in Edgewood, KY                              2,654,631            142,288           2,796,919
         Brighton Gardens in Greenville, SC                            4,132,969            221,527           4,354,496
         Brighton Gardens in Northridge, CA                           14,735,846            789,841          15,525,687
         Brighton Gardens in Rancho Mirage, CA                        13,833,657            741,484          14,575,141
         Brighton Gardens in Salt Lake City, UT                       15,028,664            949,160          15,977,824
         Brighton Gardens in Yorba Linda, CA                          13,483,926            851,599          14,335,525
         Fairfax in Fort Belvoir, VA                                  81,027,486          3,852,227          84,879,713
         MapleRidge in Palm Springs, CA                                2,653,469            142,227           2,795,696
         Quadrangle in Haverford, PA                                 111,521,719          5,301,990         116,823,709
         Fox Run Village in Novi, MI                                  17,000,000            931,200          17,931,200
         Brighton Gardens in Lakewood, CO                             18,538,000          1,015,597          19,553,597
         Brighton Gardens in Denver, CO                               17,580,000            963,113          18,543,113
         Brighton Gardens in Colorado Springs, CO                     16,220,000            888,607          17,108,607
                                                                 ----------------    ---------------     ---------------

                  Properties subject to operating leases             328,410,367         16,790,860         345,201,227
                                                                 ----------------    ---------------     ---------------

                                                                    $351,010,367        $18,296,924        $369,307,291
                                                                 ================    ===============     ===============


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                              FINANCIAL STATEMENTS
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Balance Sheets - Continued:

(c)      In accordance with generally accepted accounting principles,  leases in
         which the present  value of future  minimum  lease  payments  equals or
         exceeds 90 percent of the value of the related  properties  are treated
         as direct  financing  leases  rather than as  properties  on  operating
         leases.  The direct financing leases have initial terms of 35 years and
         contain  provisions  that allow the  lessees to elect to  purchase  the
         properties  at the end of the  lease  term  for the  Company's  initial
         investment  amount.  The leases  also permit the Company to require the
         lessees to purchase the properties at the end of the lease term for the
         same  amount.  The  categorization  of the  leases has no effect on the
         rental payments due under the leases.

Unaudited Pro Forma Consolidated Statement of Earnings:

(1)      Represents  adjustment to rental  income from the operating  leases and
         earned  income  from the direct  financing  leases  for the  properties
         acquired or  probable to be acquired by the Company as of February  28,
         2003 (collectively, the "Pro Forma Property" or "Pro Forma Properties")
         for the Pro Forma Period.

         The following  presents the actual date the Pro Forma  Properties  were
         acquired by the Company,  or became probable of acquisition in the case
         of the 14 pending  acquisitions as of February 28, 2003, as compared to
         the date the Pro Forma Properties were treated as becoming  operational
         as a  rental  property  for  purposes  of the  Pro  Forma  Consolidated
         Statement of Earnings.
                                                                                       Date the Property
                                                                                             Became
                                                                                        Operational as a
                                                                     Date               Rental Property
                                                             Acquired/Probable by        for Pro Forma           Purchase
                                                                  the Company               Purposes               Price
                                                             ----------------------    -------------------     --------------
     Acquired:
         Properties subject to operating leases:
             Holley Court Terrace in Oak Park, IL            February 11, 2002         January 1, 2002          $18,469,275
             Homewood Residence in Coconut Creek, FL         February 11, 2002         January 1, 2002            9,687,563
             Heritage Club in Greenwood Village, CO          March 22, 2002            January 1, 2002           17,865,375
             Brighton Gardens in Camarillo, CA a             May 16, 2002              January 1, 2002           18,694,698
             Brighton Gardens in Towson, MD a                May 16, 2002              January 1, 2002           14,452,319
             MapleRidge in Clayton, OH a                     May 17, 2002              January 1, 2002            8,110,569
             MapleRidge in Dartmouth, MA a                   May 16, 2002              January 1, 2002            9,488,304
             MapleRidge in Elk Grove, CA a                   May 16, 2002              January 1, 2002            8,054,110
             Brooksby Village in Peabody, MA                 October 10, 2002          January 1, 2002           17,383,784
             Homewood Residence in Nashville, TN             November 1, 2002          January 1, 2002            8,957,850
             Brighton Gardens in Bellevue, WA                December 20, 2002         January 1, 2002           10,201,606
             Brighton Gardens in Hoffman Estates, IL         December 20, 2002         January 1, 2002            7,543,752
             Brighton Gardens in Oklahoma City, OK           December 20, 2002         January 1, 2002            3,646,636
             Brighton Gardens in Santa Rosa, CA              December 20, 2002         January 1, 2002           16,748,552
             Brighton Gardens in Tulsa, OK                   December 20, 2002         January 1, 2002            4,684,167
             Brighton Gardens in Atlanta, GA                 December 20, 2002         January 1, 2002            7,374,428
             Hearthside in Lynnwood, WA                      December 20, 2002         January 1, 2002            6,300,000
             Hearthside in Snohomish, WA                     December 20, 2002         January 1, 2002            8,600,000
             MapleRidge in Hemet, CA                         December 20, 2002         January 1, 2002            4,109,688
             MapleRidge in Plymouth, MA                      December 20, 2002         January 1, 2002            4,580,387
             MapleRidge in Willoughby, OH                    December 20, 2002         January 1, 2002            4,930,498
             Pleasant Hills in Little Rock, AR               December 20, 2002         January 1, 2002           10,638,918
             Fox Run Village in Novi, MI                     February 28, 2003         January 1, 2002           17,000,000


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                        FINANCIAL STATEMENTS - CONTINUED
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
                                                                                       Date the Property
                                                                                             Became
                                                                                        Operational as a
                                                                     Date               Rental Property
                                                             Acquired/Probable by        for Pro Forma           Purchase
                                                                  the Company               Purposes               Price
                                                             ----------------------    -------------------     --------------
     Acquired:
         Investments in direct financing leases:
             Brighton Gardens in Brentwood, TN b             September 30, 2002        January 1, 2002           $6,349,794
             Brighton Gardens in Atlanta, GA b               September 30, 2002        January 1, 2002            7,654,546
             Brighton Gardens in Charlotte, NC b             September 30, 2002        January 1, 2002            3,218,389
             Brighton Gardens in Chevy Chase, MD b           September 30, 2002        January 1, 2002           19,310,331
             Brighton Gardens in Middletown, NJ b            September 30, 2002        January 1, 2002           11,481,818
             Brighton Gardens in Mountainside, N J b         September 30, 2002        January 1, 2002           12,438,636
             Brighton Gardens in Naples, FL b                September 30, 2002        January 1, 2002            8,002,479
             Brighton Gardens in Raleigh, NC b               September 30, 2002        January 1, 2002            9,655,165
             Brighton Gardens in Stamford, CT b              September 30, 2002        January 1, 2002           13,569,421
             Brighton Gardens in Venice, FL b                September 30, 2002        January 1, 2002            6,523,760
             Brighton Gardens in Winston-Salem, NC b         September 30, 2002        January 1, 2002            7,045,661
Probable:
      Properties subject to operating leases:
            Brighton Gardens in Edgewood, KY                 December 6, 2002          January 1, 2002            2,654,631
            Brighton Gardens in Greenville, SC               December 6, 2002          January 1, 2002            4,132,969
            Brighton Gardens in Northridge, CA               December 6, 2002          January 1, 2002           14,735,846
            Brighton Gardens in Rancho Mirage, CA            December 6, 2002          January 1, 2002           13,833,657
            Brighton Gardens in Salt Lake City, UT           December 6, 2002          January 1, 2002           15,028,664
            Brighton Gardens in Yorba Linda, CA              December 6, 2002          January 1, 2002           13,483,926
            Fairfax in Fort Belvoir, VA                      December 6, 2002          January 1, 2002           81,027,486
            MapleRidge in Palm Springs, CA                   December 6, 2002          January 1, 2002            2,653,469
            Quadrangle in Haverford, PA                      December 6, 2002          January 1, 2002          111,521,719
            Brighton Gardens in Colorado Springs, CO c       February 25, 2003         January 1, 2002           16,220,000
            Brighton Gardens in Denver, CO c                 February 25, 2003         January 1, 2002           17,580,000
            Brighton Gardens in Lakewood, CO c               February 25, 2003         January 1, 2002           18,538,000
      Investments in direct financing leases:
            Sunrise in Annapolis, MD                         September 3, 2002         January 1, 2002           12,500,000
            Sunrise in Pikesville, MD                        September 3, 2002         January 1, 2002           10,100,000
         a Prior to December 20, 2002, the properties in Camarillo,  California;
         Towson,  Maryland;  Clayton,  Ohio; Dartmouth,  Massachusetts;  and Elk
         Grove,  California (the "Marriott Portfolio One Properties") were owned
         through a consolidated joint venture (the "Joint Venture") in which the
         Company  owned a 76.75  percent  interest.  On December 20,  2002,  the
         Company  purchased the remaining  23.25 percent  minority  interest for
         $8,500,000. See Note (8).

         b  These  properties  are  referred  to as the  "Prime  Care  Portfolio
         Properties."

         c These properties are referred to as the "Summit Properties."


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                        FINANCIAL STATEMENTS - CONTINUED
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:

         The  adjustment  to rental  income from  operating  leases for the year
         ended December 31, 2002,  includes  $2,216,648 relating to the Marriott
         Portfolio One  Properties.  If the operating cash flows of the Marriott
         Portfolio One Properties are not sufficient to fund rental payments due
         under  the  lease  agreements,  amounts  are  required  to be funded by
         Marriott  International,  Inc. or its subsidiaries under the terms of a
         rental  payment  guarantee  arrangement.  The pro forma  adjustment  to
         rental  income from  operating  leases for the year ended  December 31,
         2002,   includes   assumed  funding  amounts  under  the  guarantee  of
         $1,381,000 based on the actual  historical  operating cash flows of the
         Marriott Portfolio One Properties during the Pro Forma Periods.

         Certain leases  provide for the payment of percentage  rent in addition
         to base rental income;  however,  no percentage  rent was due under the
         leases for the Pro Forma  Properties  during the period the Company was
         assumed to have held the Pro Forma Properties.

(2)      See Note (c) under  "Unaudited  Pro Forma  Consolidated  Balance Sheet"
         above.

(3)      Represents  reserve funds,  which will be used for the  replacement and
         renewal  of  furniture,  fixtures  and  equipment  relating  to certain
         Properties (the "FF&E Reserve").  The funds in the FF&E Reserve and all
         property  purchased  with  funds  from the FF&E  Reserve  will be paid,
         granted and assigned to the Company.

(4)      Represents  adjustment  to interest  income due to the  decrease in the
         amount of cash  available for investment in interest  bearing  accounts
         after  the  purchase  of  the  Pro  Forma  Properties.  The  pro  forma
         adjustment  is based upon the fact that  interest  income from interest
         bearing accounts was earned at a rate of approximately  two percent per
         annum by the Company during the year ended December 31, 2002.

(5)      Represents  adjustment to interest  expense for mortgage  loans for the
         Pro Forma Period based on the following terms:
                                                                                    Pro Forma
                                                                                    Adjustment
                                                                                   for the Year
                                                                                   Ended December
                               Mortgage Loan          Interest Rate                   31, 2002
                               --------------     -----------------------------    ----------------
         Holley Court          $12,974,397        Floating at 350 basis                $89,626
         Terrace in Oak                           points over the 30-day
         Park, IL,                                LIBOR, with a LIBOR
         maturing October                         floor of 3.50.  If
         2003                                     30-day LIBOR falls
                                                  below 2.60, interest
                                                  rate will be 30-day
                                                  LIBOR plus 440 basis points.
                                                  During the Pro Forma Period,
                                                  the interest rate varied from
                                                  6.23% to 6.28%.


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                        FINANCIAL STATEMENTS - CONTINUED
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:


                                                                                  Pro Forma
                                                                                  Adjustment
                                                                                 for the Year
                                                                                Ended December
                                Mortgage Loan            Interest Rate            31, 2002
                               ---------------     ------------------------    -----------------

         Marriott              $23,520,000         Floating at 186 basis           $381,186
         Portfolio One                             points over the rate
         Properties                                of commercial paper
         maturing June                             graded A1 by Standard
         2007                                      & Poors or F1 by Fitch
                                                   IBCA.  During the Pro
                                                   Forma Period, the
                                                   interest rate varied
                                                   from 2.63% to 3.81%.

         Sunrise in            $20,600,000         7.83%, with principal          $1,410,886
         Annapolis and                             and interest payable
         Pikesville, MD,                           monthly.
         maturing
         December 2008

         Heritage Club in      $9,100,000          6.50%, with principal           $386,404
         Greenwood                                 and interest payable
         Village, CO,                              monthly.
         maturing
         December 2006

         Prime Care            $75,000,000         Floating at 250 basis          $3,223,000
         Portfolio                                 points over the 30-day
         Properties,                               LIBOR.  During the Pro
         maturing two                              Forma Period, the
         years from                                interest rate varied
         funding date                              from 3.88% to 4.38%.

         Summit                $26,169,000         Floating at 325 basis          $1,316,785
         Properties,                               points over the 30-day
         maturing two                              LIBOR with a minimum
         years from                                interest rate of 5%
         funding date                              and principal and
                                                   interest payable
                                                   monthly.  During the
                                                   Pro Forma Period, the
                                                   interest rate varied
                                                   from 5.0% to 5.13%
                                                                               -----------------

                                                                                  $6,807,887
                                                                               =================



                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                        FINANCIAL STATEMENTS - CONTINUED
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:

         If the interest  rates on variable  rate loans would have  increased by
         0.125%  during  the Pro  Forma  Period,  interest  expense  would  have
         increased by $189,228 for the year ended December 31, 2002.

(6)      Represents  increase in asset management fees relating to the Pro Forma
         Properties for the Pro Forma Period. Asset management fees are equal to
         0.60% per year of the  Company's  Real Estate Asset Value as defined in
         the Company's prospectus.

(7)      Represents  increase in  depreciation  expense of the buildings and the
         furniture,  fixture and  equipment  ("FF&E")  portions of the Pro Forma
         Properties  accounted for as operating  leases using the  straight-line
         method  of  $11,580,188  for the year  ended  December  31,  2002.  The
         buildings  and FF&E are  depreciated  over useful lives of 40 and seven
         years, respectively.  Also represents amortization of the loan costs of
         $511,826  for the year ended  December 31,  2002,  on related  mortgage
         loans,  amortized  during the Pro Forma Period under the  straight-line
         method (which approximates the effective interest method) over the life
         of the loan.

         The following  presents the amount of land,  building and FF&E for each
         of the Pro Forma Properties accounted for as operating leases:
                                                                  Land             Building            FF&E
                                                            ---------------    ---------------    --------------
         Holley Court Terrace in Oak Park, IL                  $ 2,144,134        $16,918,724          $447,007
         Homewood Residence in Coconut Creek, FL                 1,682,701          7,981,073           559,197
         Heritage Club in Greenwood Village, CO                  1,964,700         17,943,422           942,063
         Brighton Gardens in Camarillo, CA                       2,486,381         16,852,469           541,453
         Brighton Gardens in Towson, MD                            989,914         14,375,847           355,731
         MapleRidge in Clayton, OH                                 813,317          7,656,922           209,314
         MapleRidge in Dartmouth, MA                               920,430          9,028,929           205,663
         MapleRidge in Elk Grove, CA                               811,596          7,571,613           217,689
         Brooksby Village in Peabody, MA                        18,345,033                  -                 -
         Homewood Residence in Nashville, TN                       463,957          8,350,191           631,429
         Brighton Gardens in Bellevue, WA                        2,164,828          8,360,448           502,884
         Brighton Gardens in Hoffman Estates, IL                 1,724,422          5,843,963           512,316
         Brighton Gardens in Oklahoma City, OK                     784,454          2,701,571           444,105
         Brighton Gardens in Santa Rosa, CA                      2,161,222         15,025,466           586,516
         Brighton Gardens in Tulsa, OK                           1,538,284          2,987,889           512,425
         Brighton Gardens in Atlanta, GA                         1,772,658          5,652,512           446,313
         Hearthside in Lynnwood, WA                              1,529,738          5,175,159           124,291
         Hearthside in Snohomish, WA                               645,494          8,559,082           109,911
         MapleRidge in Hemet, CA                                 1,175,581          2,891,964           365,263
         MapleRidge in Plymouth, MA                              1,090,254          3,460,628           393,579
         MapleRidge in Willoughby, OH                            1,090,639          3,886,167           345,981
         Pleasant Hills in Little Rock, AR                         523,295         10,457,948           370,052
         Brighton Gardens in Edgewood, KY                          279,692          2,377,381           139,846
         Brighton Gardens in Greenville, SC                        435,450          3,701,322           217,724
         Brighton Gardens in Northridge, CA                      1,552,568         13,196,834           776,285
         Brighton Gardens in Rancho Mirage, CA                   1,457,514         12,388,870           728,757
         Brighton Gardens in Salt Lake City, UT                  1,597,782         13,581,150           798,892
         Brighton Gardens in Yorba Linda, CA                     1,433,553         12,185,196           716,776
         Fairfax in Fort Belvoir, VA                             4,751,939         77,751,805         2,375,969


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                    NOTES TO UNAUDITED PRO FORMA CONSOLIDATED
                        FINANCIAL STATEMENTS - CONTINUED
                      FOR THE YEAR ENDED December 31, 2002

Unaudited Pro Forma Consolidated Statement of Earnings - Continued:
                                                                 Land              Building              FF&E
                                                            ----------------    ----------------    ---------------

         MapleRidge in Palm Springs, CA                          $  279,570         $ 2,376,341          $ 139,785
         Quadrangle in Haverford, PA                              6,540,303         107,013,254          3,270,152
         Fox Run Village in Novi, MI                             17,931,200                  --                 --
         Brighton Gardens in Colorado Springs, CO                 1,710,861          14,542,316            855,430
         Brighton Gardens in Denver, CO                           1,854,311          15,761,646            927,156
         Brighton Gardens in Lakewood, CO                         1,955,360          16,620,557            977,680
                                                            ----------------    ----------------    ---------------

         Total                                                  $88,603,135        $473,178,659        $20,747,634
                                                            ================    ================    ===============
(8)      Represents  adjustment  to minority  interest  for the  purchase of the
         23.25 percent minority interest in a Joint Venture in which the Company
         initially owned a 76.75% interest.

(9)      Historical  earnings per share were calculated  based upon the weighted
         average  number of shares of common stock  outstanding  during the year
         ended  December 31, 2002. As a result of receipt of gross proceeds from
         the sale of shares during the period  January 1, 2003 through  February
         28,  2003,  as  described  in Note (a) above,  which were  available to
         acquire the Pro Forma Properties described in Note (b) above, pro forma
         earnings  per share were  calculated  based upon the  weighted  average
         number of  shares of common  stock  outstanding,  as  adjusted  for the
         subsequent sale of shares, during the year ended December 31, 2002.









               Report of Independent Certified Public Accountants



To the Board of Directors and Shareholders
CNL Retirement Properties, Inc.


In our  opinion,  the  accompanying  consolidated  balance  sheets  and  related
consolidated  statements of earnings,  of stockholders' equity and of cash flows
present  fairly,  in  all  material  respects,  the  financial  position  of CNL
Retirement Properties,  Inc. and its subsidiaries at December 31, 2002 and 2001,
and the results of their  operations  and their cash flows for each of the three
years in the period ended  December  31, 2002,  in  conformity  with  accounting
principles  generally accepted in the United States of America. In addition,  in
our opinion,  the financial  statement  schedule  listed in the index  appearing
under Item 15(a)(2) presents fairly, in all material  respects,  the information
set  forth  therein  when  read  in  conjunction  with  the  related   financial
statements.  These financial statements and the financial statement schedule are
the responsibility of the Company's management; our responsibility is to express
an opinion on these financial  statements and the financial  statement  schedule
based on our audits.  We conducted our audits of these  statements in accordance
with  auditing  standards  generally  accepted in the United  States of America,
which require that we plan and perform the audit to obtain reasonable  assurance
about whether the financial  statements  are free of material  misstatement.  An
audit includes examining,  on a test basis,  evidence supporting the amounts and
disclosures in the financial  statements,  assessing the  accounting  principles
used and  significant  estimates made by management,  and evaluating the overall
financial  statement  presentation.   We  believe  that  our  audits  provide  a
reasonable basis for our opinion.



/S/ PRICEWATERHOUSECOOPERS LLP

Orlando, Florida
February 19, 2003




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                           CONSOLIDATED BALANCE SHEETS

                                                                                             December 31,
                                                                                 2002                        2001
                                                                            ---------------              --------------

                                ASSETS

Investment Properties:
   Accounted for using the operating method, net                             $ 272,483,664                $ 35,232,568
   Accounted for using the direct financing method                             115,783,256                           -
Cash and cash equivalents                                                       40,799,871                  26,721,107
Restricted cash                                                                  1,684,684                      35,109
Notes and other receivables                                                      3,192,203                     180,163
Investment in unconsolidated subsidiary                                            154,148                           -
Loan costs, less accumulated amortization of $88,650 and $18,981                 1,220,108                      36,936
Accrued rental income                                                            1,472,458                      97,793
Other assets                                                                     4,975,061                   2,143,213
                                                                           ---------------             ---------------

                                                                             $ 441,765,453                $ 64,446,889
                                                                           ===============             ===============

                   LIABILITIES AND STOCKHOLDERS' EQUITY

Liabilities:
    Mortgages payable                                                         $ 45,326,677                      $     -
    Due to related parties                                                         347,786                    1,772,807
    Accounts payable and accrued expenses                                        1,337,296                      294,839
    Security deposits                                                            4,866,973                    1,363,986
    Rent paid in advance                                                            91,432                      105,215
                                                                           ---------------             ----------------
          Total liabilities                                                     51,970,164                    3,536,847
                                                                           ---------------             ----------------

Minority interest                                                                      265                            -
                                                                           ---------------             ----------------

Commitments and Contingencies (Note 13)

Stockholders' equity:
    Preferred stock, without par value.
       Authorized and unissued 3,000,000 shares
Excess shares, $.01 par value per share.
       Authorized and unissued 103,000,000 shares
Common stock, $.01 par value per share.
       Authorized 100,000,000 shares, issued 44,254,603 and 7,141,131
            shares, respectively, outstanding 44,210,566 and 7,134,400
            shares, respectively                                                   442,106                       71,344
    Capital in excess of par value                                             393,307,990                   61,786,149
    Accumulated distributions in excess of net earnings                         (3,955,072)                    (947,451)
                                                                           ---------------              ----------------
          Total stockholders' equity                                           389,795,024                   60,910,042
                                                                           ---------------              ----------------

                                                                             $ 441,765,453                 $  64,446,889
                                                                           ===============              ================

          See accompanying notes to consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                       CONSOLIDATED STATEMENTS OF EARNINGS

                                                                         Year Ended December 31,
                                                               2002                2001                2000
                                                            ------------        ------------       ------------

Revenues:
    Rental income from operating leases                    $ 13,257,7399        $ 1,725,018          $  962,000
    Earned income from direct financing leases                3,519,872                  --                  --
    Contingent rent                                               7,758                  --                  --
    FF&E reserve income                                         153,454              39,199              19,672
    Interest and other income                                 1,913,205             135,402             103,058
                                                          -------------       -------------      --------------

                                                             18,852,028           1,899,619           1,084,730
                                                          -------------       -------------      --------------

Expenses:
    Interest                                                  1,408,611             105,056             367,374
    General operating and administrative                      1,388,706             395,268             340,086
    Property expenses                                            23,212                   -                   -
    Asset management fees to related party                      770,756              93,219              55,396
    Reimbursement of operating expenses
       from related party                                             -            (145,015)           (213,886)
    Depreciation and amortization                             3,461,279             535,126             310,982
                                                          -------------       -------------      --------------
                                                              7,052,564             983,654             859,952
                                                          -------------       -------------      --------------

 Earnings Before Equity in Earnings of
    Unconsolidated Subsidiary and Minority
    Interest in Earnings of Consolidated
    Joint Ventures                                           11,799,464             915,965             224,778

Equity in Earnings of Unconsolidated
     Subsidiary                                                   5,404                  -                  -

Minority Interest in Earnings of
     Consolidated Joint Ventures                               (433,012)                 -                  -
                                                          -------------       -------------      --------------

Net Earnings                                                $11,371,856          $  915,965          $  224,778
                                                          =============       =============      ==============

Net Earnings Per Share of Common
    Stock (Basic and Diluted)                                $     0.52           $    0.38           $    0.27
                                                          =============       =============      ==============

Weighted Average Number of Shares of
    Common Stock Outstanding (Basic
    and Diluted)                                             22,034,955           2,391,072             845,833
                                                          =============       =============      ==============
          See accompanying notes to consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                 CONSOLIDATED STATEMENTS OF STOCKHOLDERS' EQUITY
                  Years Ended December 31, 2002, 2001 and 2000

                                                                                                Accumulated
                                                         Common stock                          distributions
                                                    -----------------------     Capital in          in
                                                      Number         Par        excess of      excess of net
                                                    of shares       value       par value         earnings         Total
                                                    -----------   ----------  -------------   ---------------  -------------


Balance at December 31, 1999                            540,028     $  5,400   $  3,365,531     $    (78,794)  $  3,292,137

   Subscriptions received for common stock
       through public offerings and reinvestment
       plan                                             625,628        6,256      6,250,054                -      6,256,310

   Subscriptions released from escrow                    23,500          235        234,765                -        235,000

   Retirement of common stock                            (3,316)         (33)       (30,475)               -        (30,508)

   Stock issuance costs                                       -            -     (1,027,216)               -     (1,027,216)

   Adjustment to previously accrued stock
      issuance costs                                          -            -        755,125                -        755,125

   Net earnings                                               -            -              -           224,778       224,778

   Distributions declared and paid ($0.5785 per
       share)                                                 -            -              -          (502,078)     (502,078)
                                                    -----------   ----------  -------------   --------------- -------------

Balance at December 31, 2000                          1,185,840       11,858      9,547,784          (356,094)    9,203,548


   Subscriptions received for common stock
       through  public  offering and  reinvestment
       plan                                            5,951,975       59,520     59,460,231                 -     59,519,751

   Retirement of common stock                            (3,415)         (34)       (31,386)                -        (31,420)

   Stock issuance costs                                       -            -     (7,190,480)                -     (7,190,480)

   Net earnings                                               -            -              -           915,965        915,965
   Distributions declared and paid ($0.6996 per
       share)                                                 -            -              -        (1,507,322)    (1,507,322)
                                                    -----------   ----------  -------------   ---------------  -------------

Balance at December 31, 2001                          7,134,400       71,344     61,786,149          (947,451)    60,910,042
   Subscriptions received for common stock
       through  public  offering and  reinvestment
       plan                                          37,113,472      371,135    370,763,581                 -    371,134,716

   Retirement of common stock                           (37,306)       (373)       (342,839)                -       (343,212)

   Stock issuance costs                                       -           -     (38,898,901)                -    (38,898,901)

   Net earnings                                               -           -               -        11,371,856     11,371,856

   Distributions  declared  and paid  ($0.7002 per            -           -               -       (14,379,477)   (14,379,477)
       share)                                       -----------  ----------   -------------   ---------------  -------------

Balance at December 31, 2002                         44,210,566    $442,106    $393,307,990     $  (3,955,072)  $389,795,024
                                                    ===========  ==========   =============   ===============  =============

          See accompanying notes to consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                      CONSOLIDATED STATEMENTS OF CASH FLOWS
                                                                               Year Ended December 31,
                                                                   2002               2001               2000
                                                                -----------       -------------      --------------
Increase (decrease) in cash and cash equivalents:
     Operating activities:
       Net earnings                                             $11,371,856         $   915,965         $   224,778
       Adjustments to reconcile net earnings to
         net cash provided by operating activities:
           Depreciation                                           3,321,572             523,943             303,184
           Amortization                                             139,707              11,183               7,798
           Changes in operating assets and liabilities:
              Receivables                                          (827,287)           (177,691)             (2,472)
              Accrued rental income                              (1,374,665)            (76,665)            (21,128)
              Other assets                                          (36,107)             (5,737)              1,798
              Interest payable                                      114,801             (11,045)             11,045
              Accounts payable and other accrued expenses           484,199              45,469             (14,173)
              Due to related parties                               (331,794)             34,060              29,885
         Security deposits                                        3,502,987             810,030             553,956
         Rent paid in advance                                       (13,783)            103,867               1,348
         Minority interest in income                                433,277                   -                   -
                                                              -------------      --------------     ---------------
                  Net cash provided by operating activities      16,784,763           2,173,379           1,096,019
                                                              -------------      --------------     ---------------

     Investing activities:
       Additions to land, buildings and equipment on
         operating leases                                      (219,929,327)        (20,269,138)       (13,848,900)
       Investment in direct financing leases                   (109,720,000)                  -                  -
       Purchase of minority interest                             (8,500,000)                  -                  -
       Investment in notes receivable                            (2,000,000)                  -                  -
       Investment in unconsolidated subsidiary                     (350,364)                  -                  -
       Distributions received from unconsolidated                                             -                  -
         subsidiaries                                               190,922
       Payment of acquisition costs                             (16,131,759)         (2,644,534)          (562,491)
       Increase in restricted cash                               (1,649,575)            (17,797)           (17,312)
                                                              -------------      --------------     ---------------
                  Net cash used in investing activities        (358,090,103)        (22,931,469)       (14,428,703)
                                                              -------------      --------------     ---------------

     Financing activities:
       Proceeds from borrowings on mortgages payable             32,620,000                   -                  -
       Principal payments on mortgages payable                     (267,720)                  -                  -
       Payment of loan costs                                     (1,308,758)                  -            (55,917)
       Proceeds from line of credit                                       -                   -           8,100,000
       Repayment of borrowings on line of credit                          -          (3,795,000)         (4,305,000)
       Subscriptions received from stockholders                 371,134,716          59,519,751          6,491,310
       Distributions to stockholders                            (14,379,477)         (1,507,322)          (502,078)
       Retirement of common stock                                  (173,839)            (13,020)           (30,508)
       Payment of stock issuance costs                          (40,231,933)         (6,903,096)          (931,461)
       Contributions by minority interest                         8,500,000                   -                  -
       Distributions to minority interest                          (508,885)                  -                  -
                                                              -------------      --------------     ---------------
                  Net cash provided by financing activities     355,384,104          47,301,313          8,766,346
                                                              -------------      --------------     ---------------

Net increase (decrease) in cash and cash equivalents             14,078,764          26,543,223         (4,566,338)
Cash and cash equivalents at beginning of year                   26,721,107             177,884          4,744,222
                                                              -------------      --------------     ---------------

Cash and cash equivalents at end of year                        $40,799,871        $ 26,721,107         $  177,884
                                                              =============      ==============     ===============
          See accompanying notes to consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                CONSOLIDATED STATEMENTS OF CASH FLOWS - CONTINUED

                                                                            Year Ended December 31,
                                                                  2002                 2001               2000
                                                              -------------        -------------       ------------

Supplemental schedule of non-cash investing
      and financing activities:

       Amounts incurred by the Company and paid by
         related parties on behalf of the Company
         and its subsidiaries were as follows:
           Acquisition costs                                 $      451,238       $     353,852      $      112,961
           Stock issuance costs                                   5,613,049            1,626,405            387,704
                                                             --------------       --------------     --------------
                                                             $    6,064,287       $    1,980,257     $      500,665
                                                             ==============       ==============     ==============

       Adjustment to previously accrued stock
         issuance costs                                      $            -       $            -     $      755,125
                                                             ==============       ==============     ==============

       Mortgage assumed on property purchase                 $  12,974,397        $            -     $            -
                                                             ==============       ==============     ==============

Supplemental disclosure of cash flow information:

       Cash paid during the year for interest                $    1,293,810       $      116,101     $      356,329
                                                             ==============       ==============     ==============
          See accompanying notes to consolidated financial statements.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
                   NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
                  Years Ended December 31, 2002, 2001 and 2000

1. Significant Accounting Policies:

Organization  and Nature of  Business - CNL  Retirement  Properties,  Inc.  is a
corporation,  which was organized  pursuant to the laws of the State of Maryland
on December 22, 1997.  CNL  Retirement GP Corp.  and CNL Retirement LP Corp. are
wholly owned subsidiaries of CNL Retirement Properties, Inc., each of which were
organized  pursuant to the laws of the State of Delaware in December  1999.  CNL
Retirement  GP Corp.  and CNL  Retirement  LP Corp.  are the general and limited
partners, respectively, of CNL Retirement Partners, LP. CNL Retirement Partners,
LP is a  Delaware  limited  partnership  formed  in  December  1999.  Properties
acquired are generally expected to be held by CNL Retirement Partners, LP or its
wholly owned subsidiaries and, as a result, owned by CNL Retirement  Properties,
Inc.  through  such  entities.   Four  corporations,   which  are  wholly  owned
subsidiaries  of CNL Retirement  Properties,  Inc., have been formed to serve as
the general partners of various other wholly owned  subsidiaries which have been
or will be formed  for the  purpose of  acquiring  future  properties.  The term
"Company"  includes CNL Retirement  Properties,  Inc. and its subsidiaries,  CNL
Retirement GP Corp.,  CNL Retirement LP Corp., CNL Retirement  Partners,  LP and
each of their subsidiaries. The Company operates for federal income tax purposes
as a real estate investment trust (a "REIT").

The Company  acquires  investment  properties  (the  "Property  or  Properties")
related to health care and seniors' housing facilities located across the United
States.  The  Properties  may include  congregate  living,  assisted  living and
skilled nursing facilities, continuing care retirement communities and life care
communities,  and medical office buildings and walk-in clinics.  The Company may
provide mortgage financing  ("Mortgage Loans") in the aggregate principal amount
of  approximately  5 to 10 percent of the  Company's  total assets and may offer
furniture,  fixture and  equipment  financing  ("Secured  Equipment  Leases") to
operators of  retirement  and medical  Properties.  The Company has retained CNL
Retirement  Corp.  (the  "Advisor")  as  its  advisor  to  provide   management,
acquisition, advisory and administrative services.

Principles of Consolidation - The accompanying consolidated financial statements
include the  accounts of CNL  Retirement  Properties,  Inc.,  each of its wholly
owned  subsidiaries  and an entity in which the Company  owns a 99%  controlling
interest.  All  significant  intercompany  balances and  transactions  have been
eliminated  in  consolidation.  Interests  of  unaffiliated  third  parties  are
reflected  as minority  interest  for less than 100 percent  owned and  majority
controlled entities.

Investment in Unconsolidated Subsidiary - The Company owns a 10 percent interest
in a limited  partnership  that  owns an office  building  located  in  Orlando,
Florida,  in which Advisor and its affiliates  lease office space. The Company's
investment  in the  partnership  is accounted for using the equity method as the
Company has significant influence.

Investment  Properties  and  Lease  Accounting  -  Properties  are  leased  on a
long-term,  triple-net basis to unrelated third parties, whereby the tenants are
generally  responsible  for all  operating  expenses  relating to the  Property,
including  property taxes,  insurance,  maintenance  and repairs.  For the years
ended  December 31, 2002 and 2001,  the Company's  tenants paid  $1,124,997  and
$138,159,  respectively,  in property taxes on behalf of the Company. The leases
are accounted for using either the operating or direct financing method.

         Operating method - Under the operating method, Properties are recorded
         at cost. Revenue is recognized as rents are earned and depreciation is
         charged to operations as incurred. Buildings and equipment are
         depreciated on the straight-line method over their estimated useful
         lives of 40 years and three years to seven years, respectively. 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 is the aggregate difference
         between scheduled rental payments that vary during the lease term and
         minimum rental revenue recognized on a straight-line basis.

         Direct financing method - For leases accounted for as direct financing
         leases, future minimum lease payments are recorded as a receivable. The
         difference between the receivable and the estimated residual values
         less the cost of the Properties has been recorded as unearned income.
         Unearned income is deferred and amortized to income over the lease
         terms to provide a constant rate of return. Investments in direct
         financing leases are presented net of unamortized unearned income.


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

1. Significant Accounting Policies - Continued:

When a Property is sold, the related costs and  accumulated  depreciation,  plus
any accrued  rental  income,  are removed from the accounts and any gain or loss
from  sale is  reflected  in  income.  Management  reviews  its  Properties  for
impairment  whenever  events  or  changes  in  circumstances  indicate  that the
carrying  amount  of the  assets  may  not be  recoverable  through  operations.
Management  determines whether impairment in value has occurred by comparing the
estimated future  undiscounted  cash flows,  including the residual value of the
Property,  with the carrying cost. If an impairment is indicated,  an impairment
charge is recorded, reducing the Property to fair value.

FF&E Reserve Income - A furniture,  fixtures and equipment  ("FF&E") reserve has
been established in accordance with  substantially  all of the lease agreements.
In accordance  with such  agreements,  the tenants deposit funds into restricted
FF&E reserve  accounts and periodically use these funds to cover the cost of the
replacement,  renewal and  additions  to FF&E.  With  respect to the  Properties
subject  to  operating  leases,  generally  all funds in the FF&E  reserve,  all
interest earned on the funds and all property purchased with funds from the FF&E
reserve are and will remain the property of the Company;  therefore, the Company
recognizes the FF&E reserve payments as income upon receipt. FF&E purchased with
FF&E reserve  funds that  improve or extend the useful  lives of the  respective
Properties  are  capitalized.  All other FF&E costs are  reflected  in  property
expenses.  Six  Properties  subject to  operating  leases  include  FF&E reserve
accounts  that will be held by each  tenant  until the end of the lease  term at
which time all property purchased with funds from the FF&E reserve accounts will
become the property of the Company.  The Company has not recognized FF&E reserve
income  related  to these  six  Properties.  The  Properties  subject  to direct
financing  leases include FF&E reserve accounts that are held by each tenant and
all  property  purchased  with  funds  from the FF&E  accounts  will  remain the
property of the  tenants.  Accordingly,  the  Company  does not  recognize  FF&E
reserve income relating to the direct  financing  leases.  In the event that the
FF&E  reserve  is not  sufficient  to  maintain  the  Property  in good  working
condition and repair,  the Company may make fixed asset  expenditures,  in which
case annual rent will be increased.

Cash and Cash  Equivalents  - All highly liquid  investments  with a maturity of
three months or less when purchased are considered  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 in demand deposits at commercial banks and money market
funds  may  exceed  federally  insured  levels;  however,  the  Company  has not
experienced any losses in such accounts.  Management believes the Company is not
exposed to any significant credit risk on cash and cash equivalents.

Loan Costs - Loan costs are  capitalized  and are being amortized over the terms
of the loans using the straight-line  method,  which  approximates the effective
interest method.

Income  Taxes - The  Company  has made an  election  to be taxed as a REIT under
Sections 856 through 860 of the Internal  Revenue Code of 1986, as amended,  and
related  regulations.  The  Company  generally  will not be  subject  to federal
corporate  income taxes on amounts  distributed  to  stockholders,  providing it
distributes  at least 90 percent of its REIT  taxable  income and meets  certain
other  requirements  for  qualifying  as a REIT.  Accordingly,  a provision  for
federal income taxes is not reported in the accompanying  consolidated financial
statements.

Earnings  Per Share - Basic  earnings  per share is  calculated  based  upon net
earnings  (income  available  to common  stockholders)  divided by the  weighted
average number of shares of common stock  outstanding  during the period.  As of
December  31,  2002,  2001 and 2000,  the Company  did not have any  potentially
dilutive common shares.

Reclassifications - Certain items in the prior years' financial  statements have
been  reclassified to conform with the 2002  presentation  including a change in
presentation  of the  statement  of cash flows  from the direct to the  indirect
method.  These  reclassifications  had  no  effect  on  reported  equity  or net
earnings.


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

1. Significant Accounting Policies - Continued:

Use of Estimates - Management has made estimates and assumptions relating to the
reporting of assets and  liabilities  to prepare  these  consolidated  financial
statements in conformity with generally accepted accounting  principles.  Actual
results could differ from those estimates.

New  Accounting  Standards - In April 2002, the Financial  Accounting  Standards
Board ("FASB") issued FASB Statement No. 145, "Rescission of FASB Statements No.
4, 44, and 64,  Amendment of FASB Statement No. 13, and Technical  Corrections."
This statement  rescinds FASB Statement No. 4, "Reporting  Gains and Losses from
Extinguishment of Debt," and an amendment of that Statement,  FASB Statement No.
64,  "Extinguishments of Debt Made to Satisfy  Sinking-Fund  Requirements." This
statement also rescinds FASB Statement No. 44, "Accounting for Intangible Assets
of Motor Carriers." This statement amends FASB Statement No. 13, "Accounting for
Leases," to  eliminate an  inconsistency  between the  required  accounting  for
sale-leaseback  transactions  and the  required  accounting  for  certain  lease
modifications  that have  economic  effects  that are similar to  sale-leaseback
transactions.   This  statement   also  amends  other   existing   authoritative
pronouncements  to make various  technical  corrections,  clarify  meanings,  or
describe their applicability  under changed  conditions.  The provisions of this
statement  related to the  rescission of FASB  Statement No. 4 are applicable in
fiscal years  beginning  after May 15, 2002.  The  provisions of this  statement
related to FASB Statement No. 13 are effective for transactions  occurring after
May 15, 2002. All other provisions of this statement are effective for financial
statements issued on or after May 15, 2002. The provisions of this statement are
not expected to have a significant  impact on the financial  position or results
of operations of the Company.

In July 2002,  the FASB issued FASB  Statement  No. 146,  "Accounting  for Costs
Associated with Exit or Disposal  Activities." The statement  requires companies
to recognize  costs  associated  with exit or disposal  activities when they are
incurred  rather than at the date of a commitment  for an exit or disposal plan.
Examples of costs covered by the statement  include lease  termination costs and
certain  employee  severance  costs that are  associated  with a  restructuring,
discontinued operations,  plant closing, or other exit or disposal activity. The
statement  is to  be  applied  prospectively  to  exit  or  disposal  activities
initiated  after  December  31,  2002.  The  adoption of this  statement  is not
expected to have a significant  impact on the  financial  position or results of
operations of the Company.

In  November  2002,  FASB  issued  FASB   Interpretation   No.  45  ("FIN  45"),
"Guarantor's  Accounting and Disclosure  Requirements for Guarantees,  Including
Indirect   Guarantees  of  Indebtedness   of  Others".   FIN  45  clarifies  the
requirements  relating to a guarantor's  accounting  for, and disclosure of, the
issuance of certain types of guarantees. FIN 45 requires that upon issuance of a
guarantee,  the guarantor  must  recognize a liability for the fair value of the
obligation  it assumes under that  guarantee.  FIN 45's  provisions  for initial
recognition  and  measurement  are  to be  applied  on a  prospective  basis  to
guarantees  issued or modified after  December 31, 2002. The Company's  previous
accounting for guarantees issued prior to January 1, 2003 are not required to be
revised or  restated to reflect the effect of the  recognition  and  measurement
provisions of FIN 45.

In  January  2003,   FASB  issued  FASB   Interpretation   No.  46  ("FIN  46"),
"Consolidation  of Variable  Interest  Entities"  to expand upon and  strengthen
existing  accounting  guidance that  addresses when a company should include the
assets,   liabilities   and  activities  of  another  entity  in  its  financial
statements.  To improve financial  reporting by companies involved with variable
interest  entities (more  commonly  referred to as  special-purpose  entities or
off-balance sheet  structures),  FIN 46 requires that a variable interest entity
be  consolidated  by a company if that company is subject to a majority  risk of
loss from the variable  interest  entity's  activities  or entitled to receive a
majority of the entity's  residual  returns or both.  Prior to FIN 46, a company
generally included another entity in its consolidated  financial statements only
if it controlled the entity through voting interests.  Consolidation of variable
interest  entities will provide more complete  information  about the resources,
obligations,   risks  and  opportunities  of  the  consolidated   company.   The
consolidation  requirements  of FIN 46 apply  immediately  to variable  interest
entities  created  after  January 31, 2003,  and to older  entities in the first
fiscal year or interim period  beginning after June 15, 2003. As of December 31,
2002,  the  Company did not have any  entities  that would be  characterized  as
variable interest entities under FIN 46.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

2. Public Offerings:


On September 18, 2000, the Company  completed its initial offering and commenced
a subsequent offering of up to 15,500,000 shares of common stock  ($155,000,000)
(the  "2000  Offering"),  which  included  up  to  500,000  shares  ($5,000,000)
available  to   stockholders   who  elected  to  participate  in  the  Company's
reinvestment  plan.  On May 24, 2002,  the Company  completed  its 2000 Offering
pursuant to which it received subscription proceeds of $155,000,000  (15,500,000
shares), including $418,670 (41,867 shares) through the reinvestment plan.

Upon the completion of the 2000 Offering,  the Company  commenced an offering of
up to 45,000,000 shares of common stock ($450,000,000) (the "2002 Offering"). Of
the 45,000,000 shares of common stock offered,  up to 5,000,000 are available to
stockholders  purchasing  shares  through the Company's  reinvestment  plan. The
price per share and other terms of the 2002  Offering,  including the percentage
of gross proceeds payable (i) to the managing dealer for selling commissions and
expenses in connection with the offering and (ii) to the Advisor for acquisition
fees,  are  substantially  the same as for the Company's  2000  Offering.  As of
December 31, 2002, the Company had received total subscription proceeds from its
initial public offering, the 2000 Offering and the 2002 Offering of $442,346,060
(44,234,603   shares),   including   $1,208,302  (120,830  shares)  through  the
reinvestment plan.

On October 4, 2002, the Company filed a registration statement on Form S-11 with
the Securities and Exchange  Commission in connection  with the proposed sale by
the  Company  of  up  to   175,000,000   additional   shares  of  common   stock
($1,750,000,000) in an offering expected to commence  immediately  following the
completion  of  the  Company's  2002  Offering  (the  "2003  Offering").  Of the
175,000,000 shares of common stock expected to be offered,  up to 25,000,000 are
expected  to  be  available  to  stockholders   purchasing  shares  through  the
reinvestment  plan. The Board of Directors expects to submit,  for a vote of the
stockholders  at the 2003 annual  meeting,  a proposal to increase the number of
authorized   shares  of  common  stock  of  the  Company  from   100,000,000  to
450,000,000. Until such time, if any, as the stockholders approve an increase in
the  number  of  authorized  shares  of common  stock of the  Company,  the 2003
Offering will be limited to 38,000,000 shares.

3. Investment Properties:

Accounted for Using the Operating  Method - As of December 31, 2002, the Company
owned 25 Properties that are subject to operating leases and a parcel of land in
which a  seniors'  housing  facility  is  being  constructed.  Properties  under
operating leases consisted of the following at December 31:
                                                              2002                      2001
                                                         ----------------          ---------------

           Land                                           $    53,311,856           $    4,649,497
           Buildings                                          210,891,405               29,209,418
           Equipment                                           11,023,962                2,200,780
                                                         ----------------          ---------------
                                                              275,227,225               36,059,695
           Less accumulated depreciation                       (4,148,699)                (827,127)
                                                         ----------------          ---------------
                                                              271,078,526               35,232,568
           Construction in progress                             1,405,138                       --
                                                         ----------------          ---------------

                                                          $   272,483,664           $   35,232,568
                                                         ================          ===============

Operating  leases  generally  have  initial  terms of 15 years and  provide  for
minimum and contingent rent. The operating leases generally provide options that
allow the lessees to renew the leases from 5 to 20  successive  years subject to
the same terms and conditions as the initial leases.

The leases also  require  minimum  annual  rents to  increase  at  predetermined
intervals during the lease terms. Increases in lease revenue are recognized on a
straight-line  basis  over the  terms of the  lease  commencing  on the date the
Property was placed in service.  For the years ended December 31, 2002, 2001 and
2000, the Company recognized $1,374,665,  $76,665 and $21,128,  respectively, of
the  straight-lining  of lease revenues over current  contractually due amounts.
This  amount  is  included  in  rental  income  from  operating  leases  in  the
accompanying consolidated statements of earnings.

                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

3. Investment Properties - Continued:

Future minimum lease payments due under the  noncancellable  operating leases at
December 31, 2002 are as follows:

                 2003                                        $ 24,801,231
                 2004                                          25,216,537
                 2005                                          25,642,909
                 2006                                          26,080,656
                 2007                                          27,012,268
                 Thereafter                                   362,025,974
                                                          ---------------

                                                            $ 490,779,575
                                                          ===============

Since the leases are renewable at the option of the tenants, 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
rents, which may be received on the leases based on a percentage of the tenants'
gross sales. The Company defers recognition of percentage rental income until
the thresholds requiring such payments in accordance with the lease terms are
met.


Accounted for Using the Direct Financing Method - Eleven  Properties  located in
seven states were  purchased  in 2002 and are subject to  long-term  leases that
have  been  classified  as  direct  financing  leases.  The  components  of  net
investment in direct financing leases consisted of the following at December 31,
2002:

  Minimum lease payments receivable                            $626,137,430
  Estimated residual values                                     109,720,000
  Less unearned income                                         (620,074,174)
                                                            ---------------

  Net investment in direct financing leases                    $115,783,256
                                                            ===============

The direct  financing  leases  have  initial  terms of 35 years and  provide for
minimum  and  contingent  rent.  The leases  contain  provisions  that allow the
lessees to elect to purchase  the  Properties  at the end of the lease terms for
the  Company's   aggregate  initial   investment  amount  of  $109,720,000  plus
adjustments,  if any, as defined in the lease agreements. The leases also permit
the Company to require the lessees to purchase the  Properties at the end of the
lease terms for the same amount.

Future  minimum  lease  payments to be received  on direct  financing  leases at
December 31, 2002 are as follows:

                 2003                                             $11,520,600
                 2004                                              11,808,615
                 2005                                              12,103,830
                 2006                                              12,406,426
                 2007                                              12,716,587
                 Thereafter                                       565,581,372
                                                               --------------

                                                                $ 626,137,430
                                                               ==============

The above  table does not  include  any  amounts  for  future  rents that may be
received on the leases based on a percentage of the tenants' gross sales.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

4.       Purchase of Minority Interest:

On December 20, 2002, the Company purchased the 23.25% minority interest held by
Marriott  Senior Living  Services,  Inc. in a joint venture in which the Company
owned the remaining  76.75% equity  interest for  $8,500,000.  In May 2002,  the
joint venture  purchased five  Properties  that are operated by Marriott  Senior
Living  Services,  Inc. Prior to December 20, 2002,  each joint venture  partner
shared in the costs and  benefits  of the joint  venture  in  proportion  to its
percentage equity interest.  In conjunction with the purchase of the Properties,
Marriott  International,  Inc. and Marriott Senior Living  Services,  Inc., with
certain limitations, jointly and severally guaranteed the tenant's obligation to
pay minimum rent to the joint venture under the leases, as described in Note 12.
Subsequent  to  the  Company's  purchase  of  the  minority  interest,  Marriott
International,  Inc. and Marriott Senior Living Services, Inc. remain liable for
the remaining  guarantee  available to pay the tenant's  minimum rent obligation
under the leases. The remaining guarantee at December 31, 2002 was $5,039,125.

If the  purchase of the minority  interest had occurred at the  inception of the
joint  venture,  net income  would have been  $11,804,868  or $0.54 per share of
common stock. There would have been no effect on revenues as reported.

5.       Notes and Other Receivables:

Notes and other receivables include the following at December 31:

                                               2002              2001
                                          -------------      ------------

Rental revenues receivable                 $    809,279       $   180,163
Notes receivable                              2,000,000                 -
Other receivables                               345,424                 -
Accrued interest receivable                      37,500                 -
                                          -------------      ------------
                                           $  3,192,203       $   180,163
                                          =============      ============

Notes  receivable is comprised of a loan to an affiliate of one of the Company's
lessees related to the anticipated  acquisition of additional Properties.  As of
December  31,  2002,  the Company  had an initial  commitment  to  purchase  two
additional Properties for approximately  $22,600,000 as described in Note 13. In
connection  with this  anticipated  purchase,  the  Company  loaned  the  seller
$2,000,000  to pay off debt at a  discounted  amount  making the purchase of the
Properties  economically viable. The note bears interest at 15 percent per annum
and matures March 31, 2003. As security for this note,  the seller has pledged a
membership  interest  in  its  company.  Additionally,  certain  members  of the
seller's company guarantee the note.

As of  February  19,  2003,  the rental  revenues  and other  receivables  as of
December 31, 2002, had been fully collected.

6. Other Assets:

Other assets as of December 31, 2002 and 2001,  were  $4,975,061 and $2,143,213,
respectively,  and consisted of miscellaneous prepaid expenses and miscellaneous
acquisition costs that will be capitalized to land, buildings and equipment upon
the purchase of Properties.

7. Indebtedness:

In February 2002, the Company assumed a mortgage of $12,974,397  that matures on
October 2, 2003,  in  connection  with the purchase of a Property.  The mortgage
bears  interest at a floating rate of (i) 350 basis points over the 30-day LIBOR
if LIBOR is over 2.6 percent or (ii) 440 basis  points over the 30-day  LIBOR if
LIBOR is under 2.6 percent not to exceed 8 percent. As of December 31, 2002, the
interest  rate was 5.84  percent.  In  accordance  with  the  provisions  of the
mortgage,  the Company has placed  $277,821 in escrow,  which  represents  three
months of debt service related to the mortgage. This escrow reserve was included
in restricted cash at December 31, 2002.


                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

7. Indebtedness - Continued:

In  connection  with the  purchase  of five  Properties,  the  Company  borrowed
$23,520,000  in June 2002 in the form of a commercial  paper backed loan secured
by the five Properties.  The loan is funded from proceeds received from the sale
of 30-day  commercial  paper. The commercial paper is re-marketed  every 30 days
upon maturity.  The Company has a liquidity  facility in place in the event that
the  re-marketing  effort  is  unsuccessful.  The  liquidity  agent  provides  a
liquidity  facility  for up to 102  percent  of the  outstanding  loan  balance.
Interest is payable  monthly with principal due when the  commercial  paper loan
matures on June 6,  2007.  The  commercial  paper  loan  bears  interest  at the
commercial  paper  rate as  determined  by market  demand  (1.51  percent  as of
December  31,  2002)  plus a  margin  of 1.23  percent,  which is  inclusive  of
liquidity fees and administrative costs. As of December 31, 2002, the commercial
paper loan interest rate was 2.74 percent.

On August 8, 2002,  the Company  entered into a commitment  for  $11,000,000  of
permanent financing secured by a mortgage on a Property. On August 29, 2002, the
Company obtained an advance  totaling  $9,100,000 with a possible future advance
in the amount of $1,900,000 subject to certain operating performance  thresholds
being  achieved by this  Property  prior to February  27,  2004.  The loan bears
interest at a variable  rate based on 90-day  LIBOR plus 3.90 percent per annum,
but in no event  shall  the  interest  rate be less  than  6.50  percent.  As of
December 31, 2002, the interest rate was 6.50 percent. The loan requires monthly
principal  and  interest  payments  through  August  31,  2007,  with all unpaid
principal and interest due at that time.

The  following  is a schedule of  maturities  for all  long-term  borrowings  at
December 31, 2002:

           2003                                                  $12,896,864
           2004                                                      163,814
           2005                                                      174,785
           2006                                                      186,491
           2007                                                   31,904,723
           Thereafter                                                      -
                                                              --------------
                Total                                            $45,326,677
                                                              ==============

8. Redemption of Shares:

The  Company has a  redemption  plan under which the Company may elect to redeem
shares,  subject to certain  conditions  and  limitations.  Under the redemption
plan,  prior to such time, if any, as listing of the Company's common stock on a
national securities exchange or over-the-counter  market occurs, any stockholder
who has held shares for at least one year may  present all or any portion  equal
to at  least 25  percent  of their  shares  to the  Company  for  redemption  in
accordance   with  the  procedures   outlined  in  the  redemption   plan.  Upon
presentation,  the Company  may, at its  option,  redeem the shares,  subject to
certain conditions and limitations. However, at no time during a 12-month period
may the number of shares  redeemed by the Company exceed 5 percent of the number
of shares of the  Company's  outstanding  common  stock at the  beginning of the
12-month  period.  During the years  ended  December  31,  2002,  2001 and 2000,
37,306, 3,415 and 3,316 shares, respectively,  of common stock were redeemed for
$343,212, $31,420 and $30,508, respectively, and retired.

9. Stock Issuance Costs:

The Company has incurred offering  expenses,  including  commissions,  marketing
support fees,  due diligence  expense  reimbursements,  filing fees,  and legal,
accounting,  printing and escrow fees,  which have been  deducted from the gross
proceeds of the offerings.  Offering expenses together with selling commissions,
marketing support fees and due diligence expense  reimbursements will not exceed
13 percent of the proceeds raised in connection with the 2002 Offering.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

9. Stock Issuance Costs - Continued:

During the years ended December 31, 2002,  2001 and 2000,  the Company  incurred
$39,050,685, $7,190,480 and $1,027,216,  respectively, in offering costs and due
diligence  expense   reimbursements,   including  $29,690,777,   $4,761,580  and
$519,302,  respectively,  in commissions and marketing support fees. All amounts
incurred for the years ended December 31, 2002, 2001 and 2000, have been treated
as stock issuance costs and charged to stockholders' equity.

10. Distributions:

For the years ended December 31, 2002, 2001 and 2000,  approximately 65 percent,
65  percent  and  54  percent,   respectively,  of  the  distributions  paid  to
stockholders were ordinary income and  approximately 35 percent,  35 percent and
46 percent,  respectively,  were  considered a return of capital to stockholders
for federal income tax purposes.  No amounts distributed to the stockholders for
the years ended  December  31, 2002,  2001 and 2000,  are required to be or have
been treated by the Company as a return of capital for  purposes of  calculating
the stockholders' return on their invested capital.

11. Related Party Arrangements:

Certain  directors and officers of the Company hold similar  positions  with the
Advisor  and  the  managing  dealer  of  the  Company's  public  offerings,  CNL
Securities Corp.  These  affiliates  receive fees and compensation in connection
with the offerings,  and the  acquisition,  management and sale of the assets of
the Company.

CNL Securities Corp. receives commissions  amounting to 7.5 percent of the total
amount  raised  from the sale of shares  for  services  in  connection  with the
offerings,  a  substantial  portion  of  which  has  been  or  will  be  paid as
commissions to other  broker-dealers.  During the years ended December 31, 2002,
2001 and 2000,  the  Company  incurred  $27,835,104,  $4,463,981  and  $486,846,
respectively, of which $26,341,693,  $4,175,827 and $437,940,  respectively, was
or will be paid by CNL Securities Corp. as commissions to other broker-dealers.

In addition,  CNL Securities Corp. receives a marketing support fee equal to 0.5
percent of the total amount raised from the sale of shares,  all or a portion of
which may be reallowed to other broker-dealers.  During the years ended December
31, 2002, 2001 and 2000, the Company incurred $1,855,674,  $297,599 and $32,456,
respectively,  the  majority  of  which  was  or  will  be  reallowed  to  other
broker-dealers.

CNL Securities Corp. will also receive, in connection with the 2000 Offering,  a
soliciting  dealer  servicing fee payable  annually by the Company  beginning on
December  31,  2003,  in the  amount  equal  to 0.20  percent  of the  aggregate
investment  of  stockholders  who  purchased  shares in the 2000  Offering.  CNL
Securities Corp. in turn may reallow all or a portion of such fees to soliciting
dealers whose clients hold shares on such date. As of December 31, 2002, no such
fees had been incurred.

The Advisor receives acquisition fees for services in identifying Properties and
structuring the terms of their leases and Mortgage Loans equal to 4.5 percent of
the gross proceeds of the offering and loan proceeds from  permanent  financing,
excluding  that  portion of the  permanent  financing  used to  finance  Secured
Equipment Leases. In addition,  if there is a listing,  the Company will receive
an acquisition fee of 4.5 percent of amounts outstanding on a line of credit, if
any, at the time of listing the Company's common stock on a national  securities
exchange or over-the-counter  market.  During the years ended December 31, 2002,
2001 and 2000,  the  Company  incurred  $18,736,538,  $2,676,430  and  $292,108,
respectively,  of such fees.  These fees are  included in other  assets prior to
being allocated to individual Properties.

The Company and the Advisor have entered into an advisory  agreement pursuant to
which the Advisor receives a monthly asset management fee of one-twelfth of 0.60
percent of the Company's real estate asset value and the  outstanding  principal
balance of any Mortgage  Loan as of the end of the preceding  month.  During the
years ended  December 31, 2002,  2001 and 2000, the Company  incurred  $770,756,
$93,219 and $55,396, respectively, of such fees.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

11. Related Party Arrangements - Continued:

The Company incurs operating expenses relating to its  administration.  Pursuant
to the advisory agreement,  the Advisor is required to reimburse the Company the
amount by which the total  operating  expenses  paid or  incurred by the Company
exceed in any four consecutive  fiscal quarters (the "Expense Year") the greater
of 2 percent  of  average  invested  assets or 25  percent  of net  income  (the
"Expense Cap").  During the Expense Years ended June 30, 2001 and June 30, 2000,
operating   expenses   exceeded  the  Expense  Cap  by  $145,015  and  $213,886,
respectively;  therefore,  the Advisor  reimbursed  the Company  such amounts in
accordance with the advisory agreement. The Company's operating expenses did not
exceed  the  Expense  Cap in any other  Expense  Years  during  the years  ended
December 31, 2002, 2001 and 2000.

CNL Capital Corp., an affiliate of the Advisor,  is a non-voting  Class C member
of Century  Capital  Markets,  LLC ("CCM").  CCM made the  arrangements  for the
$23,520,000  commercial paper loan described in Note 7. CCM was paid a 2 percent
structuring  fee  ($470,400),  which was recorded as deferred  loan costs and is
being  amortized  over the term of the loan. In addition,  the monthly  interest
payment due under the commercial paper loan includes a margin of 30 basis points
payable  to  CCM  for  the  monthly   services   it  provides   related  to  the
administration of the commercial paper loan.

The Company  maintains  bank  accounts in a bank in which  certain  officers and
directors of the Company  serve as  directors,  and in which an affiliate of the
Advisor and certain  executive  officers  of the Company are  stockholders.  The
amounts  deposited with this bank were $5,740,852 and $3,000,000 at December 31,
2002 and 2001, respectively.

On May 30,  2002,  the  Company  acquired  a 10  percent  interest  in a limited
partnership,  CNL Plaza,  Ltd., that owns an office building located in Orlando,
Florida,  in which the  Advisor  and its  affiliates  lease  office  space.  The
remaining interest in the limited  partnership is owned by several affiliates of
the  Advisor.  During the year ended  December 31,  2002,  the Company  received
$190,922 in distributions from the partnership.

The Advisor and its affiliates  provide various  administrative  services to the
Company, including services related to accounting; financial, tax and regulatory
compliance reporting; stockholder distributions and reporting; due diligence and
marketing;   and  investor  relations  (including   administrative  services  in
connection  with the  offerings).  The expenses  incurred for these services are
classified as follows:
                                                                  Years Ended December 31,
                                                           2002             2001             2000
                                                        ------------     ------------     ------------

               Stock issuance costs                     $  2,941,152     $    769,853     $    117,679
               Land, buildings and equipment on
                    operating leases and other
                    assets                                    25,320           37,053           31,370
               General operating and
                    administrative expenses                  565,013          199,726          197,869
                                                        ------------     ------------     ------------
                                                        $  3,531,485     $  1,006,632     $    346,918
                                                        ============     ============     ============

During the years ended December 31, 2002, 2001 and 2000,  affiliates incurred on
behalf of the Company  $5,613,049,  $1,626,405 and $387,704,  respectively,  for
certain offering expenses. In addition, during the years ended December 31, 2002
and 2001,  affiliates  incurred on behalf of the Company  $451,238 and $353,852,
respectively,  for certain  acquisition  expenses  and  $565,013  and  $206,211,
respectively, for certain operating expenses.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

11. Related Party Arrangements - Continued:

Amounts due to related parties at December 31 are as follows:
                                                                            2002               2001
                                                                        ------------       -------------

                   Due to the Advisor and its affiliates:
                        Expenditures incurred for offering
                           expenses
                           on behalf of the Company                        $   1,366         $ 1,328,123
                        Accounting and administrative
                           Services                                           75,944              62,313
                        Acquisition fees and miscellaneous
                           acquisition expenses                              125,366             226,986

                                                                       -------------      --------------
                                                                             202,676           1,617,422
                                                                       -------------      --------------

                   Due to CNL Securities Corp.:
                        Commissions                                          145,110             145,670
                        Marketing support fee and due diligence
                           expense reimbursements                                  -               9,715
                                                                       -------------      --------------
                                                                             145,110             155,385
                                                                       -------------      --------------

                                                                          $  347,786         $ 1,772,807
                                                                       =============      ==============

12. Concentration of Credit Risk:

As of December 31, 2002,  the Company owned 25 Properties in various states that
are  subject to  operating  leases.  The lessees of 24 of these  Properties  are
affiliates  or wholly  owned  subsidiaries  of American  Retirement  Corporation
("ARC") or HRA Management  Corporation  ("HRA") and contributed  74.8 percent of
the Company's  total rental income during the year ended  December 31, 2002. Six
of these  Properties  are  operated  under the ARC brand and 18  Properties  are
operated by Marriott  Senior  Living  Services,  Inc., a subsidiary  of Marriott
International, Inc.

To mitigate  credit risk,  certain  leases are  combined  into  portfolios  that
contain  cross-default  terms, meaning that if a tenant of any of the Properties
in a portfolio  defaults  on its  obligations  under its lease,  the Company may
pursue its remedies under the lease with respect to any of the Properties in the
portfolio.  In  addition,  certain  portfolios  contain  terms  whereby  the net
operating  profits of the  Properties  are  combined  for the purpose of funding
rental payments due under each lease.  For certain  Properties,  the Company has
also required security deposits,  guarantees from the tenant's parent company or
additional cash reserve accounts to be held at the tenant level.

In  connection  with  purchase  of  five  Properties  leased  to  HRA,  Marriott
International, Inc. and Marriott Senior Living Services, Inc. have, with certain
limitations,  guaranteed  the tenant's  obligation to pay minimum rent due under
the leases up to a maximum of $5,880,000.  As of December 31, 2002,  $840,875 of
the guarantee had been used to pay rent leaving a remaining guarantee balance of
$5,039,125.

As of December 31, 2002,  the Company had invested in 11  Properties  located in
seven states through a direct financing transaction with two affiliates of Prime
Care Properties,  LLC. The direct  financing leases  contributed 20.8 percent of
the Company's  total rental income during the year ended  December 31, 2002. The
Properties are operated by Marriott Senior Living Services, Inc. An affiliate of
the tenants has  guaranteed  the  tenants'  obligations  to pay minimum rent due
under the lease up to a maximum of $2,000,000. As of December 31, 2002, $308,341
of the guarantee had been used to pay rent leaving a remaining guarantee balance
of $1,691,659.




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

12. Concentration of Credit Risk - Continued:

Although the Company acquires  Properties  located in various states and regions
and carefully  screens its tenants in order to reduce risks of default,  failure
of these  lessees,  their  guarantors or the ARC or Marriott  brand chains would
significantly  impact the results of operations  of the Company.  It is expected
that the  percentage  of total rental income  contributed  by these lessees will
decrease as additional Properties are acquired and leased to diversified tenants
during subsequent periods.

In a press  release  dated  December 30, 2002,  Sunrise  Assisted  Living,  Inc.
announced   it  had  entered   into  a  definitive   agreement   with   Marriott
International,  Inc. to acquire all of the outstanding  stock of Marriott Senior
Living Services,  Inc. When the sale of Marriott Senior Living Services,  Inc.'s
stock to Sunrise  Assisted  Living,  Inc. is completed,  it is expected that the
long-term management agreements in which the Company's tenants have entered into
with Marriott Senior Living  Services,  Inc. will be assumed by Sunrise Assisted
Living,  Inc.  to operate all of the  Company's  Properties  that are  currently
operated by Marriott Senior Living  Services,  Inc. In regards to nine of the 12
proposed  Properties for which the Company has entered into initial  commitments
to acquire as of February  19, 2003,  it is expected  that until the sale of the
Marriott Senior Living Services,  Inc.'s stock to Sunrise Assisted Living,  Inc.
is  completed,   Marriott  Senior  Living  Services,   Inc  will  operate  these
Properties.   There  can  be  no  assurance  that  these  transactions  will  be
consummated.

13. Commitments and Contingencies:

In  connection  with the  acquisition  of five  Properties,  the  Company may be
required to make additional  payments (the "Earnout  Amount") if certain earnout
provisions  are  achieved  by the  earnout  date (the  "Earnout  Date") for each
Property.  The  calculation  of the Earnout Amount  generally  considers the net
operating  income for the  Property,  the  Company's  initial  investment in the
Property and the fair value of the Property.  In the event an Earnout  Amount is
due,  the  lease  will  be  amended  and  annual   minimum  rent  will  increase
accordingly.  During  the  year  ended  December  31,  2002,  one  Property  was
performing at a level sufficient to satisfy the  requirements  under the earnout
provisions,  and the Company  funded an additional  payment of  $1,775,000.  The
lease was amended to increase the annual minimum rent by $177,500. The remaining
Earnout  Dates  expire over the period  August 2004  through  April 2005 and the
Company  has a maximum  obligation  of  $11,834,233  relating  to the  aggregate
Earnout Amounts.

In connection with the acquisition of a 10 percent limited partnership  interest
in CNL Plaza,  Ltd.,  the Company has severally  guaranteed  16.67  percent,  or
$2,583,333,   of  a  $15,500,000   unsecured  promissory  note  of  the  limited
partnership that matures November 30, 2004. The Company has not been required to
fund any amounts under this  guarantee.  In the event the Company is required to
fund amounts under the guarantee, management believes that such amounts would be
recoverable  either  from  operations  of the  related  asset or  proceeds  upon
liquidation.

As of December 31, 2002,  the Company had a commitment  to obtain a two-year $75
million revolving line of credit.  The $75 million line of credit may be amended
to allow the line of credit to be increased by $50  million.  Eleven  Properties
with an  aggregate  cost of $115.2  million  will be  mortgaged  to  secure  the
revolving line of credit. This facility will require payment of interest only at
LIBOR plus a premium until maturity and has several covenants typically found in
revolving loan facilities,  including  covenants to maintain a minimum net worth
and minimum collateral value.

As of December 31, 2002,  the Company had  commitments  to acquire 12 additional
Properties located in eight states. The anticipated  aggregate purchase price is
approximately $298.7 million, and the acquisition of each Property is subject to
the  fulfillment of certain  conditions.  The Company plans to assume  permanent
financing of  approximately  $20.6 million in connection with the acquisition of
two  Properties  and to draw up to $75 million on a revolving line of credit for
the  acquisition  of  nine  of  these  Properties.   In  addition,  the  Company
anticipates that it will assume  obligations of  approximately  $88.8 million in
non-interest   bearing  bonds  payable  to  certain  residents  of  two  of  the
Properties.  Marriott Senior Living Services, Inc. has committed to operate 9 of
the these Properties, if acquired.







                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             NOTES TO CONSOLIDATED FINANCIAL STATEMENTS - CONTINUED
                  Years Ended December 31, 2002, 2001 and 2000

14. Selected Quarterly Financial Data:

The following table presents  selected  unaudited  quarterly  financial data for
each full quarter during the years ended December 31, 2002 and 2001:
2002 Quarter                        First            Second            Third            Fourth              Year
------------                        -----            ------            -----            ------              ----

Revenues                         $1,667,761        $3,305,669        $4,726,716       $9,151,882         $18,852,028
Net income                          828,604         1,702,338         2,508,526        6,332,388          11,371,856
Earnings per share:
    Basic and Diluted                  0.09              0.11              0.10             0.22                0.52

2001 Quarter                        First            Second            Third            Fourth              Year
------------                        -----            ------            -----            ------              ----

Revenues                          $ 356,362        $ 356,336         $ 382,764        $ 804,157          $1,899,619
Net income                           67,348          211,945           171,842          464,830             915,965
Earnings per share:
    Basic and Diluted                  0.05             0.15              0.09             0.09                0.38


15. Subsequent Events:

During the period  January 1, 2003,  through  February  19,  2003,  the  Company
received  subscription proceeds for an additional 7,826,224 shares ($78,262,237)
of common stock.

On January 1, 2003 and  February  1, 2003,  the Company  declared  distributions
totaling $2,604,002 and $2,878,892,  respectively, or $.0589 per share of common
stock,  payable by March 31, 2003, to  stockholders of record on January 1, 2003
and February 1, 2003, respectively.









                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
             SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2002

    Properties the Company
        has Invested in Under
        Operating Leases:

                                                                                                                Costs Capitalized
                                                                          Initial Costs                    Subsequent to Acquisition
                                                        --------------------------------------------------  ------------------------
                                                                                                                     Carrying
                                      Encumbrances       Land          Buildings       Equipment     Improvements      Costs
                                    --------------- --------------- --------------- --------------- --------------  -------------
    Brighton Gardens by Marriott:
        Orland Park, Illinois        $          -    $   2,162,388    $  11,533,074  $    1,044,018   $          -   $        -
        Camarillo, California           7,477,879        2,486,381       16,852,469         541,453              -            -
        Towson, Maryland                5,780,928          989,914       14,375,847         355,731              -            -
        Hoffman Estates, Illinois               -        1,724,422        5,843,963         512,316              -            -
        Tulsa, Oklahoma                         -        1,538,284        2,987,889         512,425              -            -
        Atlanta, Georgia                        -        1,772,658        5,652,512         446,313              -            -
        Oklahoma City, Oklahoma                 -          784,454        2,701,571         444,105              -            -
        Santa Rosa, California                  -        2,161,222       15,025,466         586,516              -            -
        Bellevue, Washington                    -        2,164,828        8,360,448         502,884              -            -

    MapleRidge by Marriott:
        Laguna Creek, California        3,221,644          811,596        7,571,613         217,689              -            -
        Clayton, Ohio                   3,244,228          813,317        7,656,922         209,314              -            -
        Dartmouth, Massachusetts        3,795,321          920,430        9,028,929         205,663              -            -
        Plymouth, Massachusetts                 -        1,090,254        3,460,628         393,579              -            -
        Cleveland, Ohio                         -        1,090,639        3,886,167         345,981              -            -
        Hemet, California                       -        1,175,581        2,891,964         365,263              -

   Pleasant Hills by Marriott:
        Little Rock, Arkansas                   -          523,295       10,457,948         370,052              -            -

    Hearthside by Marriott:
        Lynnwood, Washington                    -        1,529,738        5,175,159         124,291              -            -
        Snohomish, Washington                   -          645,494        8,559,082         109,911              -            -

    Broadway Plaza:
        Arlington, Texas                        -        1,343,538        9,174,538         602,226              -            -

    Homewood Residence:
        Boca Raton, Florida                     -        1,143,571        8,501,806         554,536              -            -
        Coconut Creek, Florida                  -        1,682,701        7,981,073         559,197              -            -
        Brookmont, Tennessee                    -          463,957        8,350,191         631,429              -            -

    Holley Court Terrace:
        Oak Park, Illinois             12,743,332        2,144,134       16,918,724         447,007              -            -

    Heritage Club:
        Greenwood Village, Colorado     9,063,345        1,964,700       17,943,422         942,063              -            -

    Erickson Retirement Communities:
        Peabody, Massachusetts                  -       18,345,033                -              -               -            -

    Other:
        Vero Beach, Florida                     -        1,839,329                -              -       1,405,138            -
                                   --------------  ---------------   --------------- -------------  --------------  -----------

                                     $ 45,326,677    $  53,311,858     $ 210,891,405  $ 11,023,962    $  1,405,138  $         -
                                  ===============  ===============   =============== =============  ==============  ===========











             Gross Amount at Which Carried
                   at Close of Period
---------------------------------------------------------

                                                             Accumulated    Date of        Date
     Land        Buildings      Equipment        Total      Depreciation   Construction   Acquired
------------   ------------   ------------   ------------   ------------   ------------   --------

$  2,162,388   $ 11,533,074   $  1,044,018   $ 14,739,480   $  1,177,269        1999        4/00
   2,486,381     16,852,469        541,453     19,880,303        312,334        1999        5/02
     989,914     14,375,847        355,731     15,721,492        256,936        1999        5/02
   1,724,422      5,843,963        512,316      8,080,701          9,137        1999       12/02
   1,538,284      2,987,889        512,425      5,038,598          6,163        1999       12/02
   1,772,658      5,652,512        446,313      7,871,483          8,545        1996       12/02
     784,454      2,701,571        444,105      3,930,130          5,458        1999       12/02
   2,161,222     15,025,466        586,516     17,773,204         19,143        2000       12/02
   2,164,828      8,360,448        502,884     11,028,160         11,702        1999       12/02


     811,596      7,571,613        217,689      8,600,898        138,039        1999        5/02
     813,317      7,656,922        209,314      8,679,553        138,031        1999        5/02
     920,430      9,028,929        205,663     10,155,022        159,783        1999        5/02
   1,090,254      3,460,628        393,579      4,944,461          5,948        2000       12/02
   1,090,639      3,886,167        345,981      5,322,787          6,108        1999       12/02
   1,175,581      2,891,964        365,263      4,432,808          5,187        1998       12/02


     523,295     10,457,948        370,052     11,351,295         13,096        1984       12/02


   1,529,738      5,175,159        124,291      6,829,188          6,131        1989       12/02
     645,494      8,559,082        109,911      9,314,487          9,570        1993       12/02


   1,343,538      9,174,538        602,226     11,120,302        361,454        2000       11/01


   1,143,571      8,501,806        554,536     10,199,913        334,064        2000       11/01
   1,682,701      7,981,073        559,197     10,222,971        248,075        2000        2/02
     463,957      8,350,191        631,429      9,445,577         49,825        2000       11/02


   2,144,134     16,918,724        447,007     19,509,865        432,681        1992        2/02


   1,964,700     17,943,422        942,063     20,850,185        434,020        1999        3/02


  18,345,033              -              -     18,345,033              -                   10/02

   3,244,467              -              -      3,244,467              -                    8/02
------------  -------------   ------------   ------------   ------------
$ 54,716,996   $210,891,405   $ 11,023,962   $276,632,363   $  4,148,699
============   ============   ============   ============   ============




                         CNL RETIREMENT PROPERTIES, INC.
                                AND SUBSIDIARIES
        NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
                                December 31, 2002

(a)      Transactions in real estate and accumulated  depreciation  during 2000,
         2001 and 2002 are summarized as follows:
                                                                      Accumulated
                                                        Cost (b) (d) Depreciation
                                                        ------------   ------------

Properties the Company has Invested
   in Under Operating Leases:
     Balance, December 31, 1999                           $        -   $          -
     Acquisitions                                         14,721,092              -
     Depreciation Expense (c)                                      -        303,184
                                                        ------------   ------------

     Balance, December 31, 2000
     Acquisitions                                         14,721,092        303,184
     Depreciation Expense (c)                             21,338,603              -
                                                                   -        523,943
                                                        ------------   ------------

     Balance, December 31, 2001                           36,059,695        827,127
     Acquisitions                                        240,572,668              -
     Depreciation expense (c)                                      -      3,330,399
                                                        ------------   ------------

     Balance, December 31, 2002                         $276,632,363   $  4,157,526
                                                        ============   ============

(b)      As of December 31, 2002,  2001,  and 2000,  the  aggregate  cost of the
         Properties owned by the Company and its subsidiaries for federal income
         tax   purposes   was   $276,489,406,   $36,059,695   and   $14,721,092,
         respectively.  The leases are treated as  operating  leases for federal
         income tax purposes.

(c)      Depreciation expense is computed for buildings and equipment based upon
         estimated lives of 40 and 3 to 7 years, respectively.

(d)      Acquisition fees and miscellaneous expenses of $27,143,799,  $1,941,656
         and $872,192 are included in land, buildings and equipment on operating
         leases at December 31, 2002, 2001 and 2000, respectively.

                      INDEX TO OTHER FINANCIAL INFORMATION

The following summarized financial information is filed as part of this report
as a result of Marriott International, Inc. ("Marriott") guaranteeing lease
payments for the tenant relating to six of the Properties owned, directly or
indirectly, by the Company as of February 28, 2003. The summarized financial
information presented for Marriott as of January 3, 2003 and December 28, 2001,
and for each of the years ended January 3, 2003, December 28, 2001 and December
29, 2000, was obtained from the Form 10-K filed by Marriott with the Securities
and Exchange Commission for the year ended January 3, 2003.
                                                                                                          Page
Marriott International, Inc. and Subsidiaries:

    Selected  Financial  Data for the years ended January 3, 2003,  December 28,
    2001 and December 29, 2000                                                                            F-35


                       INDEX TO OTHER FINANCIAL statements

The following combined financial  information is filed as part of this report as
a result of the acquisition of five related Properties from American  Retirement
Corporation  ("ARC").  The Company does not own any interest in ARC's operations
of the  communities.  For  information  on the  Properties  and  the  long-term,
triple-net  leases  which  the  Company  entered,   see  "Business  --  Property
Acquisitions."

American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.):

    Report of Independent Certified Public Accountants                                                    F-36

    Combined Balance Sheets as of December 31, 2001 and 2000                                              F-37

    Combined Statements of Operations and Changes in Equity for the Years
       Ended December 31, 2001 and 2000                                                                   F-38

    Combined Statements of Cash Flows for the Years Ended December 31, 2001 and 2000                      F-39

    Notes to Combined Financial Statements for the Years Ended December 31, 2001 and 2000                 F-40

    Combining Balance Sheet as of December 31, 2001                                                       F-50

    Combining Statement of Operations and Changes in Equity for the Year Ended
       December 31, 2001                                                                                  F-51

    Combining Statement of Cash Flows for the Year Ended December 31, 2001                                F-52




                 INDEX TO OTHER FINANCIAL STATEMENTS - CONTINUED

The following financial  information is filed as part of this report as a result
of the Company  acquiring  11 related  Properties  from Prime Care One,  LLC and
Prime Care Two,  LLC,  and  entering  into  initial  commitments  to acquire two
related  Properties from Prime Care Eight, LLC (collectively  referred to herein
as  "Prime  Care").  The  Company  does not own any  interest  in  Prime  Care's
operations  of the  communities.  As described in the notes to the  accompanying
financial  statements,  in  connection  with the  Company's  purchase  of the 11
properties  and the  anticipated  purchase of the two  remaining  properties,  a
condition  of the sale was that  the  sales  proceeds  would be used to cure the
existing  defaults and  extinguish  the  outstanding  debts owed to Prime Care's
lenders. For information on the Properties and the long-term,  triple-net leases
which the  Company  has or expects to enter  into,  see  "Business  --  Property
Acquisitions" and "Business -- Pending Investments."
Prime Care One, LLC and PC1, LLC
     (Includes the Venice, Mountainside, Friendship Heights and Charlotte Properties)                      F-53

Prime Care Two, LLC and PC2, LLC
     (Includes the Raleigh, Brentwood, Stamford, Middletown, Buckhead, Naples and Winston-
     Salem Properties)                                                                                     F-71

Prime Care One Portfolio
     (Includes the Venice, Mountainside, Friendship Heights and Charlotte Properties)                      F-88

Prime Care Two, LLC
     (Includes the Raleigh, Brentwood, Stamford, Middletown, Buckhead, Naples and Winston-
     Salem Properties)                                                                                    F-106

Prime Care Eight, LLC
     (Includes the Annapolis and Pikesville Properties)                                                   F-125


The following financial information is filed as part of this report as a result
of the Company acquiring 12 related Properties and entering into initial
commitments to acquire an additional nine related Properties from Marriott
Senior Living Services, Inc. and MSLS-MapleRidge, Inc. The Company does not own
any interest in the operations of the communities. For information on the
Properties and the long-term, triple-net leases which the Company has or expects
to enter into, see "Business -- Property Acquisitions" and "Business -- Pending
Investments."

Marriott Senior Living Services Twenty-One Communities
     (Includes the Bellevue, Edgewood, Greenville, Fairfax, Hoffman Estates, Hemet, Lynnwood,
     Northridge, Oklahoma City, Palm Springs, Pleasant Hills, Plymouth, Quadrangle, Rancho
     Mirage, Salt Lake City, Santa Rosa, Snohomish, Tulsa, Vinings, Willoughby and Yorba Linda
     Properties)                                                                                          F-143



                  Marriott International, Inc. and Subsidiaries
                             Selected Financial Data
                      (in Millions, except per share data)
Consolidated Balance Sheet Data:
                                                               January 3,            December 28,
                                                                  2003                  2001
                                                                ----------            ----------

Current assets                                                  $ 1,744               $ 2,747
Noncurrent assets                                                 6,552                 6,360
Current liabilities                                               2,207                 1,970
Noncurrent liabilities                                            2,516                 3,659
Stockholders' equity                                              3,573                 3,478


Consolidated Statements of Income Data:

                                                    Fiscal Year           Fiscal Year           Fiscal Year
                                                       Ended                 Ended                 Ended
                                                     January 3,           December 28,         December 29,
                                                        2003                  2001                 2000
                                                  -----------------    -------------------    ----------------

Gross revenues                                          $8,441                  $7,786               $7,911
                                                     ==========            ============          ===========

Costs and expenses (including
   income tax expense)                                   8,164                   7,550                7,432
                                                     ==========            ============          ===========

Net income                                               $ 277                   $ 236                $ 479
                                                     ==========            ============          ===========

Basic earnings per share                                 $1.15                   $0.97               $ 1.99
                                                     ==========            ============          ===========

Diluted earnings per share                               $1.10                   $0.92               $ 1.89
                                                     ==========            ============          ===========


Consolidated Statements of Cash Flows Data:

                                                     Fiscal Year           Fiscal Year            Fiscal Year
                                                        Ended                 Ended                  Ended
                                                     January 3,            December 28,          December 29,
                                                        2003                 2001 (1)              2000 (1)
                                                  ------------------    -------------------     ----------------

Cash provided by operating activities                      $ 516                   $ 403                 $ 856
                                                     ===========            ============         =============

Cash provided by investing activities                        317                    (481)               (1,026)
                                                     ===========            ============         =============

Cash (used in) provided by
    financing activities                                $ (1,447)                  $ 564                  $ 21
                                                     ===========            ============         =============

(1) Per Marriott International,  Inc.'s 2002 Form 10-K, prior years amounts have
been reclassified to conform to the 2002 presentation.



               Report of Independent Certified Public Accountants


To the Board of Directors and Shareholders
CNL Retirement Properties, Inc.


In our  opinion,  the  accompanying  combined  balance  sheets  and the  related
combined  statements  of  operations  and  changes  in equity  and of cash flows
present fairly,  in all material  respects,  the financial  position of American
Retirement  Communities Portfolio (a Group of Related Properties Acquired by CNL
Retirement Properties,  Inc.) (the "Communities") at December 31, 2001 and 2000,
and the  results  of their  operations  and their  cash flows for the years then
ended in conformity with accounting  principles generally accepted in the United
States of America.  These  financial  statements are the  responsibility  of the
Communities'  management;  our  responsibility is to express an opinion on these
financial  statements  based  on our  audit.  We  conducted  our  audit of these
statements  in  accordance  with auditing  standards  generally  accepted in the
United  States of America,  which  require that we plan and perform the audit to
obtain reasonable  assurance about whether the financial  statements are free of
material  misstatement.  An audit includes examining,  on a test basis, evidence
supporting the amounts and  disclosures in the financial  statements,  assessing
the accounting principles used and significant estimates made by management, and
evaluating the overall  financial  statement  presentation.  We believe that our
audit provides a reasonable basis for the opinion expressed above.

Our audit was  conducted  for the purpose of forming an opinion on the  combined
financial  statements taken as a whole.  The combining  information is presented
for purposes of additional analysis of the combined financial  statements rather
than to  present  the  results  of  operations  of the  individual  Communities.
However, the combining information has been subjected to the auditing procedures
applied in the audit of the combined  financial  statements and, in our opinion,
is  fairly  stated,  in all  material  respects,  in  relation  to the  combined
financial statements taken as a whole.

/s/ PricewaterhouseCoopers LLP


Orlando, Florida
May 7, 2002


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combined Balance Sheets
December 31, 2001 and 2000
--------------------------------------------------------------------------------
                                                                                    2001                2000
                                                                              -----------------   -----------------
Assets
Current assets:
    Cash                                                                             $ 488,319           $ 673,871
    Accounts receivable, net of allowance for doubtful
      accounts of $188,771 and $87,620                                               1,274,637             612,729
    Prepaid expenses and other                                                         150,921             125,446
                                                                              -----------------   -----------------
             Total current assets                                                    1,913,877           1,412,046
                                                                              -----------------   -----------------

Restricted cash                                                                      1,708,634             525,000
                                                                              -----------------   -----------------

Property and equipment, net                                                         33,183,957             572,314
                                                                              -----------------   -----------------

Other assets:
    Security deposits                                                                  810,030             258,983
    Deferred financing costs, net                                                      218,594                   -
                                                                              -----------------   -----------------
             Total other assets                                                      1,028,624             258,983
                                                                              -----------------   -----------------

             Total assets                                                         $ 37,835,092         $ 2,768,343
                                                                              =================   =================

Liabilities and Equity
Current liabilities:
    Current maturities of long-term debt                                             $ 692,029             $     -
    Accounts payable                                                                   519,267             599,762
    Accrued payroll                                                                    341,458             232,100
    Accrued property tax                                                               923,665             567,673
    Other accrued expenses                                                           1,127,946             236,759
                                                                              -----------------   -----------------
             Total current liabilities                                               3,604,365           1,636,294

Long-term debt, less current maturities                                             32,444,896                   -

Resident deposits                                                                      417,898             436,396
                                                                              -----------------   -----------------
             Total liabilities                                                      36,467,159           2,072,690
                                                                              -----------------   -----------------

Equity                                                                               1,367,933             695,653
                                                                              -----------------   -----------------

             Total liabilities and equity                                         $ 37,835,092         $ 2,768,343
                                                                              =================   =================


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


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combined Statements of Operations and Changes in Equity
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------
                                                                                      2001               2000
                                                                               -----------------  ------------------

Revenue:
    Community resident and health care services                                     $ 17,946,629         $10,232,625
    Interest and other                                                                   319,339              28,249

                                                                               -----------------  ------------------
                Total revenue                                                         18,265,968          10,260,874
                                                                               -----------------  ------------------

Expenses:
    Community operating expenses                                                      15,533,428           9,687,518
    Lease expense                                                                      4,957,887           4,642,644
    Management fees                                                                      794,621             443,922
    Bad debt expense                                                                     101,151                   -
    Interest                                                                             323,949               2,659
    Amortization                                                                          29,499                   -
    Depreciation                                                                         344,687              78,153
                                                                               -----------------  ------------------
                Total expenses                                                        22,085,222          14,854,896
                                                                               -----------------  ------------------

Loss before income taxes                                                              (3,819,254)         (4,594,022)

Income taxes                                                                                   -                   -
                                                                               -----------------  ------------------

Net loss                                                                              (3,819,254)         (4,594,022)

Equity at beginning of year                                                              695,653             706,288

Net contributions from owner/operator                                                  4,491,534           4,583,387
                                                                               -----------------  ------------------

Equity at end of year                                                                $ 1,367,933          $  695,653
                                                                               =================  ==================


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


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combined Statements of Cash Flows
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------
                                                                                       2001                2000
                                                                                 -----------------   -----------------

Cash flows from operating activities:
    Net loss                                                                       $    (3,819,254)    $    (4,594,022)
    Depreciation and amortization                                                          374,186
                                                                                                                78,153
    Changes in assets and liabilities:
      Increase in accounts receivable                                                     (661,908)           (371,211)
      Increase in prepaid expenses and other                                               (25,475)            (64,474)
      (Increase) decrease in security deposits                                            (551,047)                438
      Increase in accounts payable and accrued expenses                                  1,276,042             919,634
      Decrease in resident deposits                                                        (18,498)            (10,986)
                                                                                 -----------------   -----------------
                Net cash used in operating activities                                   (3,425,954)         (4,042,468)
                                                                                 -----------------   -----------------

Cash flows from investing activities:
    Additions to property and equipment                                                (12,630,306)           (378,395)
    Increase in restricted cash                                                         (1,183,634)                  -
                                                                                 -----------------   -----------------
                Net cash used in investing activities                                  (13,813,940)           (378,395)
                                                                                 -----------------   -----------------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                            13,000,000                   -
    Payment of loan costs                                                                 (248,093)                  -
    Payments on long-term debt                                                            (189,099)                  -
    Net contributions from owner/operator                                                4,491,534           4,583,387
                                                                                 -----------------   -----------------
                Net cash provided by financing activities                               17,054,342           4,583,387
                                                                                 -----------------   -----------------

Net (decrease) increase in cash                                                           (185,552)            162,524

Cash at beginning of year                                                                  673,871             511,347
                                                                                 -----------------   -----------------

Cash at end of year                                                                $       488,319     $       673,871
                                                                                 =================   =================


Supplemental disclosures of cash flow information:

    Cash paid during the year for interest                                         $       323,949     $         2,659
                                                                                 =================   =================

    Cash paid during the year for income taxes                                     $             -     $             -
                                                                                 =================   =================

    Non-cash investing and financing activities - Note 3

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


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------


   1.    Organization and Nature of Business:

         The ARC Retirement  Communities Portfolio ("the Communities")  consists
         of five assisted  living/retirement  communities  located in Arlington,
         Texas, Boca Raton, Florida, Oak Park, Illinois,  Coconut Creek, Florida
         and  Greenwood  Village,  Colorado.  The  Communities  are  managed  by
         American Retirement  Corporation  ("ARC"), a national senior living and
         health care  services  provider.  During 2001 and the first  quarter of
         2002,  ARC entered into a series of  transactions  with CNL  Retirement
         Properties,  Inc. ("CNL"),  a real estate investment trust, to sell the
         land,  buildings  and certain  equipment  used in the  operation of the
         Communities  and lease it back on a triple-net  basis.  The leases with
         CNL contain collateralization and other requirements that are generally
         evaluated  on  an  aggregate  basis.   During  2000,   several  of  the
         Communities were in the development stage as summarized below:
                                                                                               Beginning
                                                                                             Annual Minimum
                                                 Commenced            Month Acquired         Lease Payment
                     Property                    Operations               by CNL               Due to CNL
           ------------------------------   ---------------------   --------------------  ---------------------

           Broadway Plaza                       August 2000            November 2001              $  1,084,322
               Arlington, TX

           Homewood Residence                   October 2000           November 2001                   991,380
               Boca Raton, FL

           Holley Court Terrace                  July 1993             February 2002                 1,846,928
               Oak Park, IL

           Homewood Residence                  February 2000           February 2002                   968,756
               Coconut Creek, FL

           Heritage Club                       November 1999            March 2002                   1,786,538
               Greenwood Village, CO
                                                                                         ---------------------
                                                                                                  $  6,677,924
                                                                                         =====================


         In connection with Communities that became  operational during 1999 and
         2000, ARC had previously  entered into various  transactions with third
         parties for their  development.  ARC had also  entered  into  long-term
         leases  with  entities,  including  subsidiaries  of a bank  and a real
         estate investment  trust. Upon completion of the development  projects,
         the real  estate and  equipment  were  leased to ARC or other  entities
         which  then  entered  into  management  contracts  with  ARC for  their
         operation.  Two of these  entities were  affiliated  with a Director of
         ARC. The management  agreements provided ARC with rights of first offer
         to acquire the leasehold interest of the Communities.

American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

2.       Summary of Significant Accounting Policies:

         Basis of Presentation
         The accompanying financial statements have been prepared to present the
         combined financial results of the Communities and are presented for the
         purposes of complying  with the  Securities  and Exchange  Commission's
         rules and regulations regarding acquired businesses and properties.

         The combined financial  statements  reflect the historical  accounts of
         the  Communities  including  allocations of general and  administrative
         expenses from the ARC corporate offices in the form of management fees.
         The management fees,  calculated as a percentage of revenue,  are based
         on  determinations  that  ARC  management  believes  to be  reasonable.
         However,   management   believes   that  the   Communities'   corporate
         administrative  and general  expenses on a  stand-alone  basis may have
         been different had the Communities operated as unaffiliated entities.

         Liquidity
         As described in Note 1, several of the Communities  recently  commenced
         operations  and  consequently  are expected to have cash flow  deficits
         through  a normal  stabilization  period.  In  connection  with the CNL
         sale-leaseback transactions,  ARC has restricted funds in the amount of
         approximately   $3.9  million  to  fund  cash  flow   deficits  at  the
         Communities,  if required.  To the extent  additional funds are needed,
         ARC is  obligated  under the terms of the leases,  to fund the required
         amounts.  In the event ARC,  as  guarantor,  is unable to  fulfill  its
         obligations,  CNL, as lessor,  could support the ongoing  operations of
         the  Communities  and protect its  interest as owner of the  underlying
         real estate.

         Use of Estimates and Assumptions
         The  preparation of financial  statements in conformity with accounting
         principles  generally accepted in the United States of America requires
         management to make estimates and  assumptions  that affect the reported
         amounts of assets and liabilities  and disclosure of contingent  assets
         and liabilities at the date of the financial statements. Estimates also
         affect  the  reported  amounts  of  revenues  and  expenses  during the
         reporting period. Actual amounts could differ from those estimates.

         Recognition of Revenue
         The Communities provide residents with housing and health care services
         through  various types of agreements.  Housing and health care services
         are provided on an annual,  monthly or per-diem basis.  Residents pay a
         monthly  housing  fee,  which  entitles  them  to the  use  of  certain
         amenities and services.  Residents may also elect to obtain  additional
         services,  which are billed on a monthly  basis or as the  services are
         received.  The Communities recognize revenues under these agreements as
         the services are provided.



American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

  2.     Summary of Significant Accounting Policies - Continued:

         Recognition of Revenue - Continued
         Resident  and health  care  revenues  are  reported  at  estimated  net
         realizable amounts from residents,  third-party  payors, and others for
         services rendered,  including estimated  retroactive  adjustments under
         reimbursement   agreements   with   third-party   payors.   Retroactive
         adjustments are accrued on an estimated basis in the period the related
         services  are  rendered  and  adjusted  in  future   periods  as  final
         settlements are determined.

         Restricted Cash
         Restricted  cash includes cash held by lenders under loan agreements in
         escrow for property taxes and property  improvement and cash segregated
         under operating reserve provisions of lease agreements.

         Accounts Receivable
         Accounts  receivable,  net  of  an  allowance  for  doubtful  accounts,
         represent the estimate of the amount that  ultimately  will be realized
         in cash.  ARC  management  reviews the  adequacy of the  allowance  for
         doubtful accounts on an ongoing basis, using historical payment trends,
         analyses  of  receivable  portfolios  by  payor  source  and  aging  of
         receivables,  as  well  as  review  of  specific  accounts,  and  makes
         adjustments to the allowance as necessary.

         Property and Equipment
         Property and  equipment  are recorded at cost and include  interest and
         real estate  capitalized  during the  construction  period,  as well as
         other  costs  directly  related to the  acquisition,  development,  and
         construction.  Depreciation  and  amortization  are computed  using the
         straight-line  method over the  estimated  useful  lives of the related
         assets.  Buildings  and  improvements  are  depreciated  over 40 and 15
         years,  respectively,   and  furniture,   fixtures  and  equipment  are
         depreciated over five to seven years.

         Impairment of Long-Lived Assets
         Long-lived  assets  are  reviewed  for  impairment  whenever  events or
         changes in circumstances  indicate that the carrying amount of an asset
         may not be recoverable. Recoverability of assets to be held and used is
         measured by a comparison of the carrying amount to future  undiscounted
         net cash flows  expected to be  generated  by the asset.  If assets are
         considered to be impaired,  the impairment to be recognized is measured
         by the amount by which the  assets'  carrying  amount  exceeds its fair
         value.

         Deferred Financing Costs
         Deferred  financing costs are being  amortized using the  straight-line
         method,  which  approximates the interest method,  over the term of the
         related debt agreement.
American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

  2.     Summary of Significant Accounting Policies - Continued:

         Income Taxes
         Income taxes are accounted  for under the asset and  liability  method.
         Deferred tax assets and  liabilities  are recognized for the future tax
         consequences   attributable   to  differences   between  the  financial
         statement carrying amounts of existing assets and liabilities and their
         respective tax bases.  Deferred tax assets and liabilities are recorded
         using enacted tax rates expected to apply to taxable income in the year
         in which those  temporary  differences  are expected to be recovered or
         settled.  The effect on deferred tax assets and liabilities of a change
         in tax rates is  recognized  in income in the period that  includes the
         enactment date.

         Insurance
         The Communities are self-insured for workers  compensation claims up to
         certain  limits.  Additional  stop-loss  coverage is purchased to cover
         claims in excess of these limitations. The Communities have established
         reserves for all reported and unpaid  claims and for  estimated  claims
         incurred  but not yet  reported,  based  upon  historical  claims  loss
         experience. The Communities' operator maintains commercial insurance on
         a  claims-made  basis  for  general  and  professional  liability.  The
         operator  also has  professional  liability  coverage with a commercial
         insurance carrier with limits of $5 million for each occurrence and $15
         million  aggregate for potential  losses related to these  matters,  if
         they occur. In addition,  the  Communities  carry primary and secondary
         umbrella  liability  coverage with a $25 million per occurrence  limit.
         The  Communities,  through ARC, carry a mandated crime insurance policy
         with a coverage limit of $1 million.

         Equity
         ARC transfers  excess cash from and makes working capital  advances and
         corporate  allocations  to  the  Communities.  These  advances  include
         amounts to fund  operating  shortfalls.  The  resulting  net balance of
         these  transactions plus the initial  investment in the Communities and
         the  cumulative  equity  (deficit) of the  Communities is classified as
         equity in the balance sheets.

         Concentrations of Credit Risk
         Financial  instruments  that  potentially  subject the  Communities  to
         significant  concentrations of credit risk consist principally of cash,
         accounts   receivable  and   restricted   cash.  The  majority  of  the
         Communities'  cash is in accounts with financial  institutions that ARC
         management  has  determined  to  be  high  quality  institutions.   ARC
         management  believes credit risk related to cash and restricted  assets
         is minimal.  The Communities'  accounts  receivable  consist of monthly
         fees and charges due from residents.



American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

3.       Property and Equipment:

         During 2000 and for the majority of 2001, the Communities were operated
         under various operating lease arrangements (see Notes 1 and 6).

         On September 26, 2001, ARC acquired the land, building and equipment of
         the retirement center in Oak Park,  Illinois previously leased under an
         operating lease. ARC financed this acquisition by entering into a $13.0
         million  mortgage  note. In  connection  with this  acquisition,  land,
         buildings and equipment increased by $12.4 million.

         During  November  2001,  ARC  exercised its option to acquire the land,
         building and equipment used in the operation of the Boca Raton, Florida
         and  Arlington,   Texas   Communities  and   simultaneously   completed
         sale-leaseback  transactions  with CNL under 15-year lease  agreements,
         which contain two five-year renewal options and rights of first refusal
         to repurchase  the leased  assets.  As a result of contingent  earn-out
         agreements,  these leases are accounted  for as financing  transactions
         and accordingly  property and equipment and debt of approximately $20.2
         million are recorded on the balance sheets.

         Property and equipment consists of the following at December 31:
                                                                                  2001              2000
                                                                            -----------------  ----------------

              Land                                                                $3,294,093            $    -
              Building and improvements                                           28,327,404
                                                                                                             -
              Equipment                                                            2,055,869           689,735
              Construction in progress                                                25,949
                                                                                                        57,250
                                                                            -----------------  ----------------
                                                                                  33,703,315           746,985
              Less accumulated depreciation                                         (519,358)         (174,671)
                                                                            -----------------  ----------------

                                                                                 $33,183,957          $572,314
                                                                            =================  ================
American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

4.       Long-Term Debt:
         Long-term debt consists of the following at December 31:

                                                                                  2001                2000
                                                                            -----------------   -----------------

                Sale/leaseback financing payable in monthly
                  installments of $172,975 including interest
                  at 7.63% maturing in 2016                                     $ 20,171,493             $      -

                Mortgage note payable bearing interest at a floating rate equal
                  to three hundred and fifty basis points in excess of the LIBOR
                  rate (6.28% at December 31, 2001). Interest and principal is
                  due monthly with remaining principal and unpaid interest due
                  October 1, 2003. The note is collateralized by certain land,
                  buildings and equipment                                         12,965,432                    -

                                                                            -----------------   -----------------
                Total long-term debt                                              33,136,925                    -

                Less current portion                                                (692,029)                   -

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

                                                                                $ 32,444,896              $     -
                                                                            =================   =================

        The following is a schedule of future maturities of long-term debt as of
        December 31, 2001.
                         2002                                                                 $ 692,029
                         2003                                                                13,303,760
                         2004                                                                   642,537
                         2005                                                                   745,520
                         2006                                                                   929,067
                         Thereafter                                                          16,824,012
                                                                                       -----------------

                                                                                           $ 33,136,925
                                                                                       =================


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

5.       Income Taxes:
        Total income tax expense consists of:

                                                                           2001               2000
                                                                      ----------------  -----------------

                U.S. Federal:
                  Current                                                      $    -             $    -
                  Deferred
                                                                                    -                  -
                                                                      ----------------  -----------------
                          Total U.S. Federal
                                                                                    -                  -
                                                                      ----------------  -----------------

                State:
                  Current
                  Deferred
                                                                                    -                  -
                                                                      ----------------  -----------------
                          Total State
                                                                                    -                  -
                                                                      ----------------  -----------------

                          Total                                                $    -             $    -
                                                                      ================  =================

        The tax effect of temporary differences that give rise to the following
        net deferred tax liability at December 31, 2001 and 2000 consists of:

                                                                                   2001              2000
                                                                             -----------------  ----------------

                Net operating loss carryforwards                                   $1,351,333         $ 242,979
                Valuation allowance                                                (1,351,333)         (242,979)
                                                                             -----------------  ----------------

                         Net deferred tax liability                                $        -         $       -
                                                                             =================  ================


        The following table summarizes the significant differences between the
        U.S. federal statutory tax rate and the Communities' effective tax rate
        for financial statement purposes:

                                                                                   2001               2000
                                                                              ----------------   ----------------

                Statutory tax rate (34%)                                         $ (1,298,546)      $ (1,561,967)
                State income taxes, net of federal benefit                           (116,669)           (18,254)
                Tax losses of nonconsolidated partnerships                            306,861          1,344,564
                Increase in valuation allowance                                     1,108,354            235,657
                                                                              ----------------   ----------------

                         Total                                                   $          -       $          -
                                                                              ================   ================


American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

  5.     Income Taxes - Continued:

         For  the  year  ended  December  31,  2000,  Broadway  Plaza,  Homewood
         Residence  Boca Raton and Holley Court  Terrace were  included in ARC's
         consolidated federal income tax return. For the year ended December 31,
         2001,  Broadway  Plaza,  Homewood  Residence  Boca Raton,  Holley Court
         Terrace and Homewood Residence Greenwood Village were included in ARC's
         consolidated  federal  income  tax  return.  Communities  that were not
         included in ARC's consolidated federal income tax returns were owned by
         partnerships  not  included  in the ARC  consolidated  return.  For the
         financial statement presentation, the separate-return method is used to
         allocate  current  and  deferred  federal  and state tax expense to the
         Communities  as if they were  separate  taxpayers.  No tax  benefit  or
         expense has been  reported  with  respect to the  Communities  owned by
         partnerships not included in the ARC consolidated  return,  since taxes
         on income generated by those partnerships are the responsibility of the
         partners.

         The Communities have tax net operating loss carryovers in the amount of
         $3,556,142,  which expire  beginning in 2020. The Communities  have not
         recorded this potential  deferred tax benefit  because they do not have
         sufficient  historical earnings on which to conclude that they are more
         likely than not to realize a future benefit.



6.       Leases:

         As of December 31, 2001 and 2000,  two and four,  respectively,  of the
         Communities  were operated under leasing  structures which were treated
         as operating  leases for  financial  reporting  purposes and  financing
         leases  for  income  tax  purposes.  These  leases  provided  ARC  with
         termination  rights whereby ARC could  terminate the leases and acquire
         the  assets at  predetermined  amounts in  exchange  for  assuming  the
         lessors' debt, forgiving notes receivable from the lessor, and repaying
         the lessors' equity.  In November 2001, ARC elected to terminate two of
         the leases and simultaneously  entered into a transaction with CNL (see
         Note 3). In February  and March  2002,  ARC  elected to  terminate  two
         additional leases and subsequently  entered into a transaction with CNL
         (see Note 10).

7.       Related Party Transactions:

         ARC performs  management  services for the  Communities  which includes
         certain  corporate  administrative  and general expenses for financial,
         legal,  accounting,  human  resources and  information  systems.  These
         services  are  reflected  as  management   fees  on  the  statement  of
         operations.



American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

8.       Employee Benefit Plans:

         The  Communities'  employees are eligible to  participate  in a defined
         contribution plan established by ARC,  including features under Section
         401(k) of the  Internal  Revenue  Code (the  "Plan").  The Plan permits
         employees  to make  voluntary  contributions  up to  specified  limits.
         Additional  contributions  may be  made  by the  Communities  at  their
         discretion,  that vest ratable over a five-year period. The Communities
         incurred  $17,917 and  $37,541 in expense for the years ended  December
         31, 2001 and 2000, respectively.



9.       Commitments and Contingencies:

         Federal  and  state   governments   regulate  various  aspects  of  the
         Communities'  business.  The  development  and operation of health care
         facilities  and  provision  of health  care  services  are  subject  to
         federal, state, and local licensure, certification, and inspection laws
         that regulate,  among other  matters,  the number of licensed beds, the
         provision of services,  the  distribution of  pharmaceuticals,  billing
         practices and policies,  equipment,  staffing  (including  professional
         licensing),   operating   policies  and  procedures,   fire  prevention
         measures,  environmental  matters,  and  compliance  with  building and
         safety codes.  Failure to comply with these laws and regulations  could
         result  in the  denial  of  reimbursement,  the  imposition  of  fines,
         temporary suspension of admission of new patients,  restrictions on the
         ability to expand  existing  facilities,  and,  in extreme  cases,  the
         revocation of a Community's license or closure.

         The  Communities  are subject to various legal  proceedings  and claims
         that arise in the ordinary  course of its  business.  In the opinion of
         management,  the ultimate  liability with respect to those  proceedings
         and  claims  will  not  materially   affect  the  financial   position,
         operations, or liquidity of the Communities.



10.      Subsequent Events:

         In February and March of 2002,  ARC exercised its right with respect to
         the Coconut Creek, Florida and Greenwood Village, Colorado Communities,
         respectively, operated under leasing arrangements to acquire the leased
         assets and simultaneously entered into sale-leaseback transactions with
         CNL which were accounted for as financings.

         In February of 2002, ARC entered into a sale-leaseback transaction with
         CNL in  connection  with the Holley Court Terrace  Community  purchased
         from a previous  lessor on  September  26, 2001 which will be accounted
         for as an operating lease.



American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Notes to Combined Financial Statements - Continued
Years Ended December 31, 2001 and 2000
--------------------------------------------------------------------------------

  10.   Subsequent Events - Continued:
        As a result of these transactions, these Communities' future minimum
lease payments are as follows:

                         2002                                                               $ 3,866,000
                         2003                                                                 4,661,000
                         2004                                                                 4,735,000
                         2005                                                                 4,811,000
                         2006                                                                 4,888,000
                         Thereafter                                                          54,597,000
                                                                                       -----------------

                                                                                           $ 77,558,000
                                                                                       =================
American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combining Balance Sheet
December 31, 2001
--------------------------------------------------------------------------------
                                                                Properties         Properties
                                                               Acquired by        Acquired by
                                                               CNL in 2001        CNL in 2002          Combined
                                                            -----------------  -----------------  ------------------
Assets
Current assets:
    Cash                                                           $   1,000          $ 487,319           $ 488,319
    Accounts receivable                                               22,972          1,251,665           1,274,637
    Prepaid expenses and other                                        41,194            109,727             150,921
                                                            -----------------  -----------------  ------------------
             Total current assets                                     65,166          1,848,711           1,913,877
                                                            -----------------  -----------------  ------------------

Restricted cash                                                      906,634            802,000           1,708,634
                                                            -----------------  -----------------  ------------------

Property and equipment, net                                       20,301,080         12,882,877          33,183,957
                                                            -----------------  -----------------  ------------------

Other assets:
    Security deposits                                                810,030                  -             810,030
    Deferred financing costs, net                                          -            218,594             218,594

                                                            -----------------  -----------------  ------------------
             Total other assets                                      810,030            218,594           1,028,624
                                                            -----------------  -----------------  ------------------

             Total assets                                       $ 22,082,910       $ 15,752,182        $ 37,835,092
                                                            =================  =================  ==================

Liabilities and Equity
Current liabilities:
    Current maturities of long-term debt                           $ 218,201          $ 473,828           $ 692,029
    Accounts payable                                                  42,825            476,442             519,267
    Accrued expenses                                                 668,071          1,724,998           2,393,069
                                                            -----------------  -----------------  ------------------
             Total current liabilities                               929,097          2,675,268           3,604,365

Long-term debt, less current maturities                           19,953,291         12,491,605          32,444,896
Resident deposits                                                      6,724            411,174             417,898
                                                            -----------------  -----------------  ------------------
             Total liabilities                                    20,889,112         15,578,047          36,467,159
                                                            -----------------  -----------------  ------------------
Equity                                                             1,193,798            174,135           1,367,933
                                                            -----------------  -----------------  ------------------
             Total liabilities and equity                       $ 22,082,910       $ 15,752,182        $ 37,835,092
                                                            =================  =================  ==================




American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combining Statement of Operations and Changes in Equity
Year Ended December 31, 2001
--------------------------------------------------------------------------------
                                                                   Properties         Properties
                                                                  Acquired by         Acquired by
                                                                  CNL in 2001         CNL in 2002          Combined
                                                                -----------------  ------------------  ------------------

Revenue:
    Community resident and health care services                      $ 2,828,364         $15,118,265         $17,946,629
    Interest and other                                                       149             319,190             319,339
                                                                -----------------  ------------------  ------------------
                  Total revenue                                        2,828,513          15,437,455          18,265,968
                                                                -----------------  ------------------  ------------------

Expenses:
    Community operating expenses                                       3,471,456          12,061,972          15,533,428
    Lease expense                                                      1,516,715           3,441,172           4,957,887
    Management fees                                                      141,418             653,203             794,621
    Bad debt expense                                                           -             101,151             101,151
    Interest                                                              94,432             229,517             323,949
    Amortization                                                               -              29,499              29,499
    Depreciation                                                         133,835             210,852             344,687
                                                                -----------------  ------------------  ------------------
                  Total expenses                                       5,357,856          16,727,366          22,085,222
                                                                -----------------  ------------------  ------------------

Loss before income taxes                                              (2,529,343)         (1,289,911)         (3,819,254)

Income taxes                                                                   -                   -                   -
                                                                -----------------  ------------------  ------------------

Net loss                                                              (2,529,343)         (1,289,911)         (3,819,254)

Equity at beginning of year                                              109,651             586,002             695,653

Net contributions from owner/operator                                  3,832,792             658,742           4,491,534
                                                                -----------------  ------------------  ------------------

Equity (deficit) at end of year                                      $ 1,413,100          $  (45,167)        $ 1,367,933
                                                                =================  ==================  ==================

American Retirement Communities Portfolio
(A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)
Combining Statement of Cash Flows
Year Ended December 31, 2001
--------------------------------------------------------------------------------
                                                                     Properties         Properties
                                                                    Acquired by         Acquired by
                                                                    CNL in 2001         CNL in 2002         Combined
                                                                  -----------------  ------------------  ----------------

Cash flows from operating activities:
    Net loss                                                           $(2,529,343)        $(1,289,911)     $(3,819,254)
    Depreciation and amortization                                          133,835             240,351          374,186
    Changes in assets and liabilities:
      (Increase) decrease in accounts receivable                           135,116            (797,024)        (661,908)
      Decrease (increase) in prepaid expenses
        and other assets                                                    19,044             (44,519)         (25,475)
       (Increase) decrease in security deposits                            (810,030)            258,983         (551,047)
      Increase in accounts payable and
        accrued expenses                                                   410,040             866,002        1,276,042
      Increase (decrease) in tenant deposits                                 2,324             (20,822)         (18,498)
                                                                   -----------------  ------------------  ----------------
                 Net cash used in operating activities                  (2,639,014)           (786,940)      (3,425,954)
                                                                  -----------------  ------------------  ----------------

Cash flows from investing activities:
    Additions to property and equipment                                   (133,112)        (12,497,194)     (12,630,306
    Increase in restricted assets                                         (906,634)           (277,000)      (1,183,634)
                                                                  -----------------  ------------------  ----------------
                 Net cash used in investing activities                  (1,039,746)        (12,774,194)     (13,813,940)
                                                                  -----------------  ------------------  ----------------

Cash flows from financing activities:
    Proceeds from issuance of long-term debt                                     -          13,000,000       13,000,000
     Payment of loan costs                                                       -            (248,093)        (248,093)
     Payments on long-term debt                                           (154,532)            (34,567)        (189,099)
    Net contributions from owner/operator                                3,832,792             658,742        4,491,534
                                                                  -----------------  ------------------  ----------------
                 Net cash provided by financing activities               3,678,260          13,376,082       17,054,342
                                                                  -----------------  ------------------  ----------------

Net decrease in cash and cash equivalents                                     (500)           (185,052)        (185,552)


Cash at beginning of year                                                    1,500             672,371          673,871

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

Cash at end of year                                                      $   1,000          $  487,319         $ 488,319
                                                                  =================  ==================  ================


Supplemental disclosures of cash flow information:

    Cash paid during the year for interest                               $  94,432          $  229,517         $ 323,949
                                                                  =================  ==================  ================

    Cash paid during the year for taxes                                    $     -             $     -            $    -
                                                                  =================  ==================  ================



COMBINED FINANCIAL STATEMENTS

Prime Care One, LLC and PC1, LLC

Years Ended December 31, 2002 and 2001 with Report of Independent Auditors




                                    Contents

Report of Independent Auditors...........................................................................F-54

Audited Financial Statements

Combined Balance Sheets..................................................................................F-55
Combined Statements of Operations........................................................................F-56
Combined Statements of Members' Equity (Deficit).........................................................F-57
Combined Statements of Cash Flows........................................................................F-58
Notes to Combined Financial Statements...................................................................F-59





                         Report of Independent Auditors



Board of Managers
Prime Care One, LLC
PC1, LLC
Indianapolis, Indiana

We have audited the combined  balance sheets of the Prime Care One, LLC and PC1,
LLC as of December 31, 2002 and 2001,  and the related  combined  statements  of
operations,  members' equity  (deficit) and cash flows for the years then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the combined financial  statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting  the  amounts and  disclosures  in the  combined  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 combined  financial  statements  referred to above  present
fairly, in all material respects,  the combined financial position of Prime Care
One, LLC and PC1, LLC at December 31, 2002 and 2001, and the combined results of
their  operations  and their cash flows for the years then ended,  in conformity
with accounting principles generally accepted in the United States.

                                                            /s/Ernst & Young LLP

Indianapolis, Indiana
February 28, 2003




                         Prime Care One LLC and PC1, LLC

                             Combined Balance Sheets

                                                                                       December 31
                                                                                2002                   2001
                                                                          ----------------      -----------------

Assets
Current assets:
   Cash and cash equivalents                                                     $  182,973             $  468,304
   Restricted cash                                                                  574,363                      -
   Accounts receivable, less allowance for doubtful accounts
     of $51,847 and $83,998 in 2002 and 2001                                        583,962                416,518
   Current portion of assets limited as to use                                    1,053,334              1,177,639
   Prepaid expenses and other assets                                                253,870                256,134
                                                                           ----------------      -----------------
   Total current assets                                                           2,648,502              2,318,595

Assets limited as to use, net of current portion                                         -                 254,161
Property and equipment, net                                                              -              48,388,566
Property and equipment under capital leases, net                                 36,226,479                      -
Other assets:
   Intangible assets, net of accumulated amortization
     of $313,667 in 2002                                                          5,959,647                      -
   Deferred financing costs, net of accumulated amortization
     of $165,690 and $2,860,376 in 2002 and 2001                                  1,299,933                156,337
                                                                           ----------------      -----------------
Total other assets                                                                7,259,580               156,337
                                                                           ----------------      -----------------
Total assets                                                                   $ 46,134,561           $ 51,117,659
                                                                           ================      =================

Liabilities and Members' Equity (Deficit)
Current liabilities:
   Accounts payable and accrued expenses                                         $  935,528            $ 5,686,736
   Accrued interest                                                                 361,469              5,503,845
   Deferred interest                                                                603,567                      -
   Notes payable                                                                          -             79,800,000
                                                                           ----------------      -----------------
Total current liabilities                                                         1,900,564             90,990,581

Debt service and shortfall advances loan                                                  -              5,900,000
Capital lease obligations                                                        44,753,256                      -
                                                                           ----------------      -----------------
Total liabilities                                                                46,653,820             96,890,581

Members' Equity (Deficit)
Managing member                                                                         100                    100
Holding company                                                                  11,514,687             10,726,257
Retained earnings (deficit)                                                     (12,034,046)           (56,499,279)
                                                                           ----------------      -----------------
Total members' equity (deficit)                                                    (519,259)           (45,772,922)
                                                                           ----------------      -----------------
Total liabilities and members' equity (deficit)                                $ 46,134,561           $ 51,117,659
                                                                           ================      =================

See accompanying notes



                        Prime Care One, LLC and PC1, LLC

                        Combined Statements of Operations

                                                                               Years ended December 31
                                                                              2002                  2001
                                                                         --------------         --------------

Operating revenue:
   Net resident service revenue                                             $21,050,963            $20,333,426
   Other operating revenue                                                       97,708                107,231
                                                                         --------------         --------------
Total operating revenue                                                      21,148,671             20,440,657

Operating expenses:
   Health care and resident services                                          5,329,231              4,902,799
   Activities                                                                   342,891                312,627
   Food service                                                               2,527,469              2,519,105
   Housekeeping and laundry                                                     669,816                694,154
   Plant operations and maintenance                                           1,509,606              1,385,811
   General and administrative                                                 5,749,872              5,348,960
   Depreciation                                                               1,881,454              3,034,838
   Amortization                                                                 479,356                603,343
   Interest                                                                   5,498,912              6,863,328
                                                                         --------------         --------------
Total operating expenses                                                     23,988,607             25,664,965
                                                                         --------------         --------------
                                                                             (2,839,936)            (5,224,308)
                                                                         --------------         --------------
Other income (expense):
   Investment income                                                              2,198                 20,989
   Gain on extinguishment of debt                                            51,548,815                      -
   Loss on sale of property                                                  (4,245,844)                     -
                                                                         --------------         --------------
Total other income (expense)                                                 47,305,169                 20,989

Income (Loss) before extraordinary item                                      44,465,233             (5,203,319)
Extraordinary loss on foreclosure of a facility                                       -            (11,937,045)
                                                                         --------------         --------------

Net income (loss)                                                           $44,465,233           $(17,140,364)
                                                                         ==============         ==============


See accompanying notes




                        Prime Care One, LLC and PC1, LLC

                Combined Statements of Members' Equity (Deficit)

                                                  Managing                   Holding         Retained
                                     Number       Member's      Number      Company's        Earnings
                                     of Units      Equity      of Units       Equity         (Deficit)           Total
                                     --------    -----------   ---------   -------------   --------------    --------------

Balances, January 1, 2001                   1          $ 100          99     $10,726,257     $(39,358,915)     $(28,632,558)
Net loss                                    -              -           -               -      (17,140,364)      (17,140,364)
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 2001                 1            100          99      10,726,257      (56,499,279)      (45,772,922)
Contribution of restricted cash             -              -           -         788,430                -           788,430
Net income                                  -              -           -              -        44,465,233        44,465,233
                                     --------    -----------   ---------   --- ----------   --------------   --------------
Balances, December 31, 2002                 1          $ 100          99     $11,514,687     $(12,034,046)       $ (519,259)
                                     ========    ===========   =========   =============   ==============    ==============

See accompanying notes




                         Prime Care One LLC and PC1, LLC

                        Combined Statements of Cash Flows

                                                                             Years ended December 31
                                                                         2002                       2001
                                                                    ----------------            --------------

Operating activities
Net income (loss)                                                       $ 44,465,233             $ (17,140,364)
Adjustments to reconcile net income (loss) to net cash
provided by (used in) operating activities:
   Extraordinary loss on foreclosure of a facility                                 -                11,937,045
   Gain on extinguishment of debt                                        (51,548,815)                        -
   Loss on sale of property                                                4,245,844                         -
   Depreciation                                                            1,881,454                 3,034,838
   Amortization                                                              479,356                   603,343
   Bad debt expense                                                           32,221                    57,773
   Changes in operating assets and liabilities:
     Accounts receivable                                                    (199,665)                  (74,409)
     Restricted cash                                                        (574,363)                        -
     Estimated third-party payor settlements                                       -                    37,809
     Prepaid expenses and other assets                                         2,264                    33,173
     Accounts payable and accrued expenses                                (1,411,049)                  358,327
     Deferred interest                                                       603,567                         -
     Accrued interest                                                        (11,038)                1,860,149
                                                                    ----------------            --------------
Net cash provided by (used in) operating activities                       (2,034,991)                  707,684

Investing activities
Purchase of property and equipment, net                                     (238,613)                 (135,141)
Proceeds received from transfer of property                               44,753,256                         -
Change in assets limited as to use                                           378,466                  (885,888)
                                                                    ----------------            --------------
Net cash provided by (used in) investing activities                       44,893,105                (1,021,029)

Financing activities
Contribution of restricted cash                                              788,430                         -
Payment of deferred financing costs                                       (1,309,285)                        -
Payment on notes payable                                                 (42,622,594)                        -
Increase in debt service and shortfall advances loan                              -                    473,353
                                                                    ----------------            --------------
Net cash provided by (used in) financing activities                      (43,143,449)                  473,353
                                                                    ----------------            --------------
Net increase (decrease) in cash and cash equivalents                        (285,331)                  160,008
Cash and cash equivalents beginning of year                                  468,304                   308,296
                                                                    ----------------            --------------
Cash and cash equivalents end of year                                     $  182,973                 $ 468,304
                                                                    ================            ==============

Supplemental cash flows information
Interest paid                                                            $ 4,906,383               $ 4,409,129
                                                                    ================            ==============

See accompanying notes


                        Prime Care One, LLC and PC1, LLC

                     Notes to Combined Financial Statements

                                December 31, 2002

1. Organization

Prime Care One, LLC and PC1, LLC (Company) were  organized as limited  liability
companies in February  1997 under the laws of the State of Indiana and commenced
operations in April 1997.  The  financial  statements  have been combined  since
Prime Care One, LLC is owned 99% by PC1, LLC, a special purpose holding company.
The remaining 1% is owned by Prime Care Corporation,  the managing member.  PC1,
LLC is  owned  47.5% by  Prime  Care  Properties,  LLC and  52.5% by an  outside
investor. All significant intercompany transactions have been eliminated.

The Company owned four senior-living  residential facilities  (Facilities) known
as  Brighton   Gardens.   The  Facilities   are  located  in  Venice,   Florida;
Mountainside,  New Jersey;  Friendship Heights,  Maryland; and Charlotte,  North
Carolina.  Prior to  September 4, 2001,  the Company also owned a  senior-living
residential  facility in  Houston,  Texas  (Tanglewood).  The  Facilities  offer
various  combinations  of  assisted  living,  specialized  care  for  Alzheimers
patients and skilled  nursing  services.  The Facilities are managed by Marriott
Senior Living Services, Inc. (MSLS or Operator).

The  Company  and  their  owners  entered  into a  Refinancing  and  Acquisition
Agreement on September 30, 2002 with CNL Retirement Properties,  Inc. (CNL) that
included the  refinancing of the notes payable of the Company.  The  refinancing
took the form of a sale-leaseback with a  financing-capital  lease term from CNL
of 35 years,  with an option to repurchase the Prime Care One, LLC facilities at
the end of the term for a bargain price. (See Note 5).

2. Significant Accounting Policies

Use of Estimates

Preparation of financial  statements  requires  management to make estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Restricted Cash

Restricted  cash  represents  the amount  contributed  per the  Refinancing  and
Acquisition  Agreement,  which  shall  serve  as a lease  guaranty  to fund  any
operating  shortfalls  related to the  properties.  The restricted cash shall be
held in  escrow in an  interest  bearing  account  at CNL Bank  pursuant  to the
Deposit  Account  Pledge  Agreement,  and at CNL's sole  election,  used to fund
payments of minimum rent, property expenses, and the administration fee.

Assets Limited As to Use

Assets limited as to use are cash and miscellaneous cash equivalents held by CNL
Bank under a Cash Management and Pooling  Agreement at December 31, 2002. Assets
limited  as to use at  December  31,  2001  were  cash  and  miscellaneous  cash
equivalents held by a collateral  agent under a Collection  Account Security and
Pledge  Agreement.  Amounts required to meet current  liabilities of the Company
have been classified as current assets. The assets limited as to use are carried
at fair value.  Realized and  unrealized  gains and losses are  reflected in the
combined statements of operations.

Property and Equipment

The initial values of property and equipment established in conjunction with the
refinancing  transaction and the capital lease were recorded at fair value based
upon  appraisals.  Expenditures  for  property  and  equipment  and items  which
substantially  increase the useful lives of existing  assets are  capitalized at
cost. The Company provides for depreciation using the straight-line  method over
the shorter of the  estimated  useful  lives of the assets or the lease term and
includes amortization on capital leases. The assets are depreciated as follows:

                Furnishings and equipment                             5 years
                Buildings                                            30 years





                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Intangible Assets

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 142, Goodwill and Other Intangible  Assets,
effective  for fiscal years  beginning  after  December 15, 2001.  Under the new
rules,  goodwill and intangible  assets deemed to have indefinite  lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement.  Other intangible  assets will continue to be amortized over
their useful lives. The Company adopted the new rules on accounting for goodwill
and other intangible assets on January 1, 2002.

Intangible assets of $6,273,313  established in conjunction with the refinancing
transaction consist of the following: systems and procedures (staffing criteria,
care plans,  outcome  tracking,  billing  procedures,  and other related items);
assembled   workforce;   referral  networks;   and  reputational  capital  (name
recognition).  The intangible  assets are being amortized over a five-year life.
Total  amortization  expense  for 2002 was  $313,667.  Amortization  expense  is
expected to be $1,254,663 per year for 2003-2006 and $940,995 in 2007.

Deferred Financing Costs

Deferred  financing costs at December 31, 2002 represent  costs  associated with
the refinancing  transaction  and are being  amortized  using the  straight-line
method over the term of the lease. The deferred  financing costs at December 31,
2001, relating to the notes payable of the Company,  were fully amortized during
2002.  Total  amortization  expense was $165,690 and $603,343 for 2002 and 2001,
respectively.

Net Resident  Service  Revenue,  Accounts  Receivable and Estimated  Third-Party
Payor Settlements

Resident  service  revenue for  assisted  living is  reported at net  realizable
amounts from  residents for services  rendered.  The residents of the facilities
pay their residency fees on a  month-to-month  basis.  Resident fees for nursing
are reported at the estimated net realizable amounts from residents, third-party
payors, and others for services rendered.  Services rendered to Medicare program
beneficiaries are paid primarily at prospectively determined rates per resident.
These rates vary according to a patient  classification  system that is based on
clinical,  diagnostic,  and other  factors.  Certain  services  are based on fee
schedules.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Net Resident  Service  Revenue,  Accounts  Receivable and Estimated  Third-Party
Payor Settlements (continued)

Prior to January 1, 1999,  net resident  service  revenue  included  retroactive
adjustments,  which were accrued on an estimated basis in the period the related
services were  rendered.  These amounts were adjusted in future periods as final
settlements  were determined.  The Company was reimbursed for cost  reimbursable
items at a tentative rate with final  settlement  determined after submission of
annual cost reports, which are audited by the Medicare fiscal intermediary.  The
Company recorded changes in estimates and received final settlements  related to
prior year cost reports,  which  resulted in an increase in net patient  service
revenue of  approximately  $208,000 in 2001.  At  December  31,  2002,  all cost
reports for 1998 and prior have been settled with the intermediary.

Revenues from the Medicare and Medicaid programs  accounted for approximately 8%
of the  Company's  resident  service  revenue  for 2002 and 2001.  Medicare  and
Medicaid  receivables  accounted  for  approximately  42%  and  65% of  accounts
receivable at December 31, 2002 and 2001, respectively.

Laws and  regulations  governing the Medicare and Medicaid  programs are complex
and subject to  interpretation.  The Company  believes  that it is in compliance
with all  applicable  laws and  regulations  and is not aware of any  pending or
threatened investigations involving allegations and potential wrongdoing.  While
no such  regulatory  inquiries  have been  made,  compliance  with such laws and
regulations can be subject to future  government review and  interpretations  as
well as significant regulatory action including fines, penalties,  and exclusion
from the Medicare and Medicaid programs.

Income Taxes

Taxes  on  the  Company's  income  are  liabilities  of the  Company's  members.
Accordingly,  no  provision  for  income  taxes  has been  included  in  current
operations.  The Company  operates in various  states  that have  differing  tax
requirements.  No provision  has been made,  as amounts of  obligations  are not
material.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


3. Assets Limited As to Use

Assets limited as to use represent cash funds held in accordance with the Cash
Management and Pooling Agreement, as follows:
                                                                                   December 31
                                                                            2002                 2001
                                                                     -------------------- --------------------

Collection account                                                   $              -       $    1,177,639
Furniture, fixtures and equipment reserve account                             343,856              254,161
Cash management account                                                       709,478                    -
                                                                     -------------------- --------------------
                                                                            1,053,334            1,431,800
Less current portion                                                       (1,053,334)          (1,177,639)
                                                                     -------------------- --------------------
                                                                     $              -       $      254,161
                                                                     ==================== ====================

Effective  September  30,  2002,  the  Operator  collects and deposits all gross
revenues (after payment of operating  expenses and the base management fee), and
deposits the FF&E Reserve  Payments,  pursuant to the provisions of the Clearing
Account Agreement and the Cash Management and Pooling Agreement.

The landlord of the properties has established reserve funds, which will be used
for the  replacement  and renewal of  furniture,  fixtures and  equipment of the
properties  (FF&E  Reserve).  Deposits  to the FF&E  Reserve are made every four
weeks as follows:  2% of gross  revenues or $350 per bed,  whichever is greater,
with respect to the period  beginning  on  September  30, 2002 and ending on the
last day of the third full  fiscal  year,  3% of gross  revenues  for the fourth
through  the tenth  lease  years;  and 3.5% of gross  revenues  every lease year
thereafter.  Funds  in the  FF&E  Reserve  relating  to the  properties  are the
property of the tenants.

Prior to September 30, 2002, the assets of the  Collection  account were used to
reimburse the Operator of the Facilities and service the senior and subordinated
debt incurred by the Company.  The Company was in default on paying  interest in
2001 and through September 30, 2002.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


4. Property and Equipment

The Company's property and equipment under capital leases (at December 31, 2002)
and property and equipment owned (at December 31, 2001) are as follows:
                                                                                   December 31
                                                                            2002                  2001
                                                                   ------------------------------------------

Land                                                               $        5,639,202       $        6,903,000
Buildings                                                                  28,874,996               48,356,475
Furnishings and equipment                                                   2,047,127                4,940,502
                                                                   -------------------------------------------
                                                                           36,561,325               60,199,977
Accumulated depreciation                                                     (334,846)             (11,811,411)
                                                                   -------------------------------------------
                                                                   $       36,226,479       $       48,388,566
                                                                   ===========================================

As part of the Refinancing and Acquisition  Agreement  between the Company,  its
owners,  and CNL on  September  30,  2002,  the Company  transferred  all of its
properties to separate limited  partnerships formed by CNL or its affiliates and
CNL acquired all of the rights, title and interest in and to the properties. The
transfer of the properties to CNL resulted in a loss in 2002 of $4,245,844.

The Company then entered into a 35-year  capital  lease with CNL, with an option
to  repurchase  the Prime Care One, LLC  facilities at the end of the term for a
bargain  price.  The initial  values of property and  equipment  established  in
conjunction  with the capital lease at September  30, 2002 were  recorded  based
upon appraisals. The appraised amounts were allocated based upon a proportion of
the appraised amount to the total lease amount by property.

The Tanglewood  facility was sold by the Company's  lender in a foreclosure sale
on September 4, 2001. As a result,  the Company wrote off the carrying  value of
the property and equipment  related to the Tanglewood  facility of  $12,137,045.
The carrying value of the property and equipment less the proceeds received from
foreclosure  of  $200,000  have  been  reflected  as an  extraordinary  loss  on
foreclosure of a facility in the 2001 combined statement of operations.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases

The Company's notes payable and capital leases consists of the following:
                                                                                      December 31
                                                                               2002                 2001
                                                                       ------------------------------------------

Note payable - Payment of  $32,622,594 in September 2002 accepted as
   payment in full by the lender.                                       $               -     $    69,800,000

Subordinated note payable - Paid in full in September 2002.                             -          10,000,000

Capital lease, payable to CNL Retirement PC1 Venice FL, LP, interest at an
   initial rate of 10.5%, interest only payable monthly, with a final maturity
   date of September 30, 2037,
   secured by a lien on property                                                6,800,826                   -

Capital  lease,  payable  to CNL  Retirement  PC1  New  Jersey,  LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                               13,966,909                   -

Capital lease,  payable to CNL Retirement PC1 Friendship Heights MD,
   LP, interest at an initial rate of 10.5%, interest only payable monthly, with
   a final maturity date of September 30, 2037,
   secured by a lien on property                                               20,630,446                   -

Capital lease,  payable to CNL Retirement  PC1 North  Carolina,  LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                                3,355,075                   -
                                                                       ------------------------------------------
                                                                          $    44,753,256           $ 79,800,000
                                                                       ==========================================

The Company was in default on paying interest and principal on the notes payable
at December  31,  2001.  The notes  payable  were  classified  as current in the
accompanying  December 31, 2001 financial  statements.  The unpaid  interest had
been accrued in the  accompanying  combined  financial  statements,  but did not
include amounts for late fees, which were estimated to be $5,445,700 at December
31, 2001.  The notes payable were repaid or partially  forgiven by the lender in
2002.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases (continued)

The  Company  and  their  owners  entered  into a  Refinancing  and  Acquisition
Agreement on September 30, 2002 with CNL Retirement Properties,  Inc. (CNL) that
included  the  refinancing  of the notes  payable of the  Company.  CNL provided
$32,622,594  to Prime Care One, LLC to pay off the existing debt of  $69,800,000
plus accrued  interest of $435,626 and provided  $10,000,000  to PC1, LLC to pay
off its existing debt of $10,000,000,  including accrued interest of $3,484,167.
The former  lender  accepted  the amounts  advanced by CNL as payment in full on
those debts,  including  any accrued  interest to date.  Prime Care One, LLC and
Prime Care Two, LLC also jointly  borrowed  $4,470,000 to pay  transfer,  title,
recording and closing costs of the  transactions.  The refinancing took the form
of a sale-leaseback  with a  financing-capital  lease term from CNL of 35 years,
with an option to  repurchase  the Prime Care One, LLC  facilities at the end of
the term for a predetermined  amount.  The lease also permits CNL to require the
Company to  purchase  the  properties  at the end of the lease term for the same
predetermined amount.

At  September  30, 2002 and  December 31,  2001,  PC1,  LLC had  $7,111,549  and
$6,854,285  outstanding  under  a  Debt  Service  and  Shortfall  Advances  Loan
Agreement.  The amount  included  accrued  interest of $1,211,549  and $954,285,
respectively.  No payments were made during 2002 or 2001 on the Debt Service and
Shortfall  Advances  Loan.  Amounts  due under the Debt  Service  and  Shortfall
Advances Loan were  subordinate to amounts due by PC1, LLC under the subordinate
debt from the  Company's  primary  creditor.  As part of the  above  refinancing
transaction,  the Debt Service and Shortfall Advances Loan with MSLS,  including
accrued interest, was extinguished.  In addition, MSLS agreed to forgive amounts
owed for subordinated  management fees of $1,793,618 and other payables that had
not been funded as of September 30, 2002 of $1,546,449.

The  extinguishment of the notes payables with the lender and the forgiveness of
certain  liabilities  by  MSLS  has  been  reflected  as a gain  on  refinancing
transaction of $51,548,815 in the 2002 combined statement of operations.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases (continued)

The Lease  Agreements  with CNL are interest only and the minimum annual rent is
10.5%  beginning  September  30, 2002 and will  increase by 2.5% times the prior
year's rate beginning January 1, 2004 and each lease year thereafter through the
29th year of the lease.  There is a balloon  payment of the principal  amount of
the lease at the end of the lease term.  The minimum annual rent consists of the
first-tier  minimum  rent  which  is 5% of the  adjusted  lease  basis  and  the
second-tier  minimum rent which is the difference between the (1) adjusted lease
basis  multiplied  by the  adjusted  lease rate for the fiscal  year and (2) the
first-tier  minimum  rent.  In  addition  to minimum  rent,  the lease  requires
additional  rent  which will be payable  based on various  predetermined  dollar
amounts derived from achieving  specific  percentage  occupancy levels beginning
January 1, 2004.

The Company has calculated total lease payments over the life of the lease based
upon the yearly  increases  noted above.  Interest  expense in the  accompanying
combined  statement of  operations  reflects the average lease payment of 16.15%
over the life of the lease. The difference between the average lease payment and
the  actual  lease  payment  has  been  recorded  as  deferred  interest  in the
accompanying combined financial statements.

The lease for the properties contains pooling terms,  meaning that net operating
profits  with  respect to all the  properties  are  combined  for the purpose of
funding  rental  payments  and the  furniture,  fixtures and  equipment  reserve
account. In addition,  the lease contains  cross-default  terms, meaning that if
the tenant of any of the properties defaults on its obligations under the lease,
CNL will have the ability to pursue its remedies under the lease with respect to
all the properties,  regardless of whether the tenant of any such property is in
default under the lease.

There are various  events which  constitute  an event of default under the lease
agreement including failure to pay first-tier minimum rent,  second-tier minimum
rent or  additional  rent when due.  However,  CNL may not  terminate  the Lease
Agreement for non-payment of second-tier minimum rent or additional rent.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


6. Rights of Members

As a limited liability company (LLC), the members are not personally responsible
for the  obligations  of the Company.  Prime Care One,  LLC has two  members:  a
holding company (PC1, LLC) and a managing member (Prime Care  Corporation).  The
day-to-day  management of the Company's  business is exclusively  vested in four
managing  directors.  The managing member elects three of the managing directors
and the limited member of the holding company elects one.

Under  the terms of the  Company's  Operating  Agreement,  certain  actions,  as
defined in the Operating Agreement,  may not be initiated by the Company without
unanimous consent of the members.  These restrictions include issuing additional
membership  units,  obtaining  additional  debt,  purchasing real property,  and
filing for bankruptcy.

7. Related Party Transactions

Prior to September  30, 2002,  the Company paid an  administrative  fee to Prime
Care Properties,  LLC, a limited liability company that is the general member of
PC1,  LLC and whose  members are also  shareholders  of the  Company's  managing
member.  Prime Care Properties,  LLC waived the administrative fees for 2002 and
2001.

Under the terms of the Lease Agreement,  Prime Care  Management,  LLC, a limited
liability company whose members are also shareholders of the Company's  managing
member,  shall be paid $75,000 per year in aggregate from all leased  properties
(including  properties  on Prime Care Two,  LLC) as a first-tier  administration
fee. Prime Care Management, LLC is also entitled to a second-tier administration
fee in the  amount  of  0.5%  of  gross  revenues  from  the  collective  leased
properties  or $250,000 per year,  whichever is greater,  less the amount of the
first-tier administration fee. The second-tier administration fee is subordinate
to the payment of minimum  rent.  Total  administration  fees paid to Prime Care
Management,  LLC in 2002  under  the  Lease  Agreement  by the  Company  totaled
$22,824.




                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


8. Management Fees

Under the terms of the previous operating  agreements for the Facilities,  dated
April 11, 1997,  Marriott  Senior  Living  Services,  Inc.  (MSLS)  operated the
Facilities  on behalf of the  Company.  The Company paid the Operator a base fee
and a central  administrative  services (CAS) fee, which are both based on gross
revenues.  Through  April  2002,  the  base  fee was 5% of  gross  revenues  and
increased to 5.5%  thereafter.  The CAS fee was 2% of gross revenues  throughout
the  term  of the  contract.  The  Company  also  paid an  incentive  fee to the
Operator,  which is 50% of  operating  profit  for each  fiscal  year  after the
Company  has  received  a minimum  operating  profit  amount,  as defined in the
operating agreement. Management fees for 2002 and 2001 under this agreement were
$1,177,486 and $1,110,382,  respectively,  which consists solely of base and CAS
fees.

The Company entered into a new operating agreement with MSLS effective September
30, 2002 with the initial term  expiring in twenty  years.  The term may then be
extended at the Operator's election for each of three successive  periods,  each
period consisting of five years.

Under the new operating agreement,  base management fees payable to MSLS for the
operation of the  properties are as follows:  3% of gross  revenues  through the
2007 fiscal  year,  3.5% of gross  revenues for the 2008 fiscal year through the
2012 fiscal year,  and 4% of gross revenues for the remainder of the lease term.
Notwithstanding the foregoing,  in the event certain operating profit thresholds
are  achieved  prior to the 2013  lease  year,  the base  management  fees  will
automatically  increase to 4% of gross revenues and remain at such level for the
remainder of the lease term. MSLS is also entitled to incentive  management fees
up to 15% of operating profit remaining after payment of minimum annual rent and
a tenant  administration  fee. Rent payments due under the lease are subordinate
to the payment of base management fees.

In addition to base  management  fees,  the  Operator is paid,  as an  operating
expense, the amount of 2% of gross revenues as a central administrative services
(CAS) fee.  The  Operator  must  provide to each of the  retirement  communities
certain central  administrative  services,  which include:  marketing and public
relations  services;  human resources program  development;  information systems
support and development;  and centralized computer payroll services.  Management
fees for the period from September 30, 2002 through December 31, 2002 under this
new agreement were $241,065, which consists solely of base and CAS fees.





                        Prime Care One, LLC and PC1, LLC

               Notes to Combined Financial Statements (continued)


8. Management Fees (continued)

Under the Agreement, management and employees are employees of the Operator. The
majority of all costs are paid by the  Operator  who is then  reimbursed  by the
Company.  Consequently, the majority of accounts payable and accrued expenses at
December 31, 2002 and 2001 reflect amounts due to the Operator.

In a press  release  dated  December 30, 2002,  Sunrise  Assisted  Living,  Inc.
announced   it  had  entered   into  a  definitive   agreement   with   Marriott
International,  Inc. to acquire all of the outstanding  stock of Marriott Senior
Living Services,  Inc. (MSLS).  Under the terms of the Operating Agreements with
MSLS, the Operating  Agreements are  automatically  assumed by Sunrise  Assisted
Living, Inc. (Sunrise) when the sale of MSLS stock to Sunrise is completed.





COMBINED FINANCIAL STATEMENTS

Prime Care Two, LLC and PC2, LLC

Years Ended December 31, 2002 and 2001 with Report of Independent Auditors




                                    Contents

Report of Independent Auditors...........................................................................F-72

Audited Financial Statements

Combined Balance Sheets..................................................................................F-73
Combined Statements of Operations........................................................................F-74
Combined Statements of Members' Equity (Deficit).........................................................F-75
Combined Statements of Cash Flows........................................................................F-76
Notes to Combined Financial Statements...................................................................F-77









                         Report of Independent Auditors

Board of Managers
Prime Care Two, LLC
PC2, LLC
Indianapolis, Indiana

We have audited the combined  balance sheets of Prime Care Two, LLC and PC2, LLC
as of  December  31,  2002 and 2001,  and the  related  combined  statements  of
operations,  members' equity  (deficit) and cash flows for the years then ended.
These financial  statements are the responsibility of the Company's  management.
Our responsibility is to express an opinion on these financial  statements based
on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. 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 combined  financial position of Prime Care Two, LLC
and PC2,  LLC at December 31, 2002 and 2001,  and the combined  results of their
operations  and their cash flows for the years  then  ended in  conformity  with
accounting principles generally accepted in the United States.

                                                           /s/ Ernst & Young LLP

Indianapolis, Indiana
February 28, 2003




                        Prime Care Two, LLC and PC2, LLC

                             Combined Balance Sheets
                                                                                   December 31
                                                                           2002                  2001
                                                                      ----------------      ----------------

Assets
Current assets:
    Cash and cash equivalents                                              $  222,243            $  375,769
    Restricted cash                                                         1,117,297                     -
    Accounts receivable, less allowance for doubtful accounts
       of $115,800 and $180,812 in 2002 and 2001                              827,004               426,040
    Current portion of assets limited as to use                               638,575                     -
    Prepaid expenses and other assets                                         272,028               269,394
                                                                      ----------------      ----------------
Total current assets                                                        3,077,147             1,071,203

Assets limited as to use, net of current portion                                    -                31,024
Property and equipment, net                                                         -            68,940,378
Property and equipment under capital leases, net                           55,668,149                     -
Other assets:
    Intangible assets, net of accumulated amortization
       of $328,214 in 2002                                                  6,236,075                     -
    Deferred financing costs, net of accumulated amortization
       of $497,206 and $2,816,524 in 2002 and 2001                          1,072,182               489,492
                                                                      ----------------      ----------------
Total other assets                                                          7,308,257               489,492
                                                                      ----------------      ----------------
Total assets                                                             $ 66,053,553          $ 70,532,097
                                                                      ================      ================

Liabilities and Members' Equity (Deficit)
Current liabilities:
    Accounts payable and accrued expenses                                 $   710,193           $ 2,890,579
    Accrued interest                                                          524,723             6,202,859
    Deferred interest                                                         876,177                     -
    Notes payable                                                                   -           101,000,000
                                                                      ----------------      ----------------
Total current liabilities                                                   2,111,093           110,093,438

Debt service and shortfall advances loan                                            -             4,000,000
Capital lease obligations                                                  64,966,744                     -
                                                                      ----------------      ----------------
Total liabilities                                                          67,077,837           114,093,438

Members' Equity (Deficit)
Managing member                                                                   100                   100
Holding company                                                            12,708,001            11,746,431
Retained earnings (deficit)                                               (13,732,385)          (55,307,872)
                                                                      ----------------      ----------------
Total members' equity (deficit)                                            (1,024,284)          (43,561,341)
                                                                      ----------------      ----------------
Total liabilities and members' equity (deficit)                          $ 66,053,553          $ 70,532,097
                                                                      ================      ================



See accompanying notes




                        Prime Care Two, LLC and PC2, LLC

                        Combined Statements of Operations

                                                                               Years ended December 31
                                                                              2002                  2001
                                                                        ------------------     ---------------

Operating revenue:
    Net resident service revenue                                              $30,122,341         $27,888,238
    Other operating revenue                                                       122,666             120,478
                                                                        ------------------     ---------------
Total operating revenue                                                        30,245,007          28,008,716


Operating expenses:
    Health care and resident services                                           8,555,086           7,496,096
    Activities                                                                    501,250             468,515
    Food service                                                                3,995,061           3,985,872
    Housekeeping and laundry                                                    1,006,548             878,452
    Plant operations and maintenance                                            2,386,934           2,132,954
    General and administrative                                                  8,943,035           7,873,272
    Depreciation                                                                3,237,264           3,666,576
    Amortization                                                                  825,420             743,014
    Interest                                                                    6,721,909           8,206,865
                                                                        ------------------     ---------------
Total operating expenses                                                       36,172,507          35,451,616
                                                                        ------------------     ---------------
                                                                               (5,927,500)         (7,442,900)
Other income (expense):
    Investment income                                                               1,923               1,036
    Gain on extinguishment of debt                                             51,098,644                   -
    Loss on sale of property                                                   (3,597,580)                  -
                                                                        ------------------     ---------------
Total other income (expense)                                                   47,502,987               1,036
                                                                        ------------------     ---------------

Net income (loss)                                                             $41,575,487         $(7,441,864)
                                                                        ==================     ===============
See accompanying notes



                        Prime Care Two, LLC and PC2, LLC

                Combined Statements of Members' Equity (Deficit)


                                      Number        Managing                   Holding         Retained
                                       of           Member's     Number       Company's        Earnings
                                      Units         Equity      of Units       Equity         (Deficit)           Total
                                     --------    -----------   ---------   -------------   --------------    --------------

Balances, January 1, 2001                   1          $ 100          99     $11,746,431     $(47,866,008)    $(36,119,477)
Net loss                                    -              -           -               -       (7,441,864)      (7,441,864)
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 2001                 1            100          99      11,746,431      (55,307,872)     (43,561,341)
Contribution of restricted cash             -              -           -       1,211,570                -        1,211,570
Distribution to Prime Care
    Properties, LLC                         -              -           -        (250,000)               -         (250,000)
Net income                                  -              -           -               -       41,575,487        41,575,487
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 2002                 1          $ 100          99     $12,708,001     $(13,732,385)     $(1,024,284)
                                     ========    ===========   =========   =============   ==============    ==============



See accompanying notes




                        Prime Care Two, LLC and PC2, LLC

                        Combined Statements of Cash Flows

                                                                             Years ended December 31
                                                                           2002                   2001
                                                                     ------------------     -----------------

Operating activities
Net income (loss)                                                           $41,575,487           $(7,441,864)
Adjustments to reconcile net income (loss) to net cash
    used in operating activities:
    Gain on extinguishment of debt                                          (51,098,644)                    -
    Loss on sale of property                                                  3,597,580                     -
    Depreciation                                                              3,237,264             3,666,576
    Amortization                                                                825,420               743,014
    Bad debt expense                                                            (30,836)               92,641
    Changes in operating assets and liabilities:
       Accounts receivable                                                     (370,128)               59,542
       Restricted cash                                                       (1,117,297)                    -
       Estimated third-party payor settlements                                        -               (15,312)
       Prepaid expenses and other assets                                         (2,634)               34,766
       Accounts payable and accrued expenses                                    168,802              (348,936)
       Deferred interest                                                        876,177                     -
       Accrued interest                                                         448,725             2,550,940
                                                                     ------------------     -----------------
Net cash used in operating activities                                        (1,890,084)            (658,633)

Investing activities
Purchase of property and equipment                                             (126,904)            (139,258)
Proceeds received from transfer of property                                  64,966,744                    -
Change in assets limited as to use                                             (607,551)              30,922
                                                                     ------------------     -----------------
Net cash provided by (used in) investing activities                          64,232,289              (108,336)

Financing activities
Contribution of restricted cash                                               1,211,570                     -
Distribution to Prime Care Properties, LLC                                     (250,000)                    -
Payment of deferred financing costs                                          (1,079,895)                    -
Payment on notes payable                                                    (62,377,406)                    -
Increase in debt service and shortfall advances loan                                  -               359,332
                                                                     ------------------     -----------------
Net cash provided by (used in) financing activities                         (62,495,731)              359,332
                                                                     ------------------     -----------------
Net decrease in cash and cash equivalents                                      (153,526)             (407,637)
Cash and cash equivalents beginning of year                                     375,769               783,406
                                                                     ------------------     -----------------
Cash and cash equivalents end of year                                        $  222,243            $  375,769
                                                                     ==================     =================

Supplemental cash flows information
Interest paid                                                               $(5,397,021)          $ 4,794,123
                                                                     ==================     =================
See accompanying notes


                        Prime Care Two, LLC and PC2, LLC

                     Notes to Combined Financial Statements

                                December 31, 2002

1. Organization

Prime Care Two, LLC and PC2, LLC (Company) were  organized as limited  liability
companies  in May 1997  under the laws of the  State of  Indiana  and  commenced
operations during 1997. The financial  statements have been combined since Prime
Care Two, LLC is owned 99% by PC2, LLC, a special purpose holding  company.  The
remaining 1% is owned by Prime Care 2 Corp.,  the managing  member.  PC2, LLC is
owned 47.5% by Prime Care Properties,  LLC and 52.5% by an outside investor. All
significant intercompany transactions have been eliminated.

The Company owned seven senior-living  residential facilities (Facilities) known
as Brighton  Gardens.  The  Facilities are located in Raleigh,  North  Carolina;
Brentwood, Tennessee; Stamford,  Connecticut;  Middletown, New Jersey; Buckhead,
Georgia;  Naples,  Florida;  and Winston-Salem,  North Carolina.  The Facilities
offer various  combinations of assisted living,  specialized care for Alzheimers
patients and skilled  nursing  services.  The Facilities are managed by Marriott
Senior Living Services, Inc. (MSLS or Operator).

The  Company  and  their  owners  entered  into a  Refinancing  and  Acquisition
Agreement on September 30, 2002 with CNL Retirement Properties,  Inc. (CNL) that
included the  refinancing of the notes payable of the Company.  The  refinancing
took the form of a sale-leaseback with a  financing-capital  lease term from CNL
of 35 years,  with an option to repurchase the Prime Care Two, LLC facilities at
the end of the term for a bargain price. (See Note 5).

2. Significant Accounting Policies

Use of Estimates

Preparation of financial  statements  requires  management to make estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Restricted Cash

Restricted  cash  represents  the amount  contributed  per the  Refinancing  and
Acquisition  Agreement,  which  shall  serve  as a lease  guaranty  to fund  any
operating  shortfalls  related to the  properties.  The restricted cash shall be
held in  escrow in an  interest  bearing  account  at CNL Bank  pursuant  to the
Deposit  Account  Pledge  Agreement,  and at CNL's sole  election,  used to fund
payments of minimum rent, property expenses, and the administration fee.




                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Assets Limited As to Use

Assets limited as to use are cash and miscellaneous cash equivalents held by CNL
Bank under a Cash Management and Pooling  Agreement at December 31, 2002. Assets
limited  as to use at  December  31,  2001  were  cash  and  miscellaneous  cash
equivalents held by a collateral  agent under a Collection  Account Security and
Pledge  Agreement.  Amounts required to meet current  liabilities of the Company
have been classified as current assets. The assets limited as to use are carried
at fair value.  Realized and  unrealized  gains and losses are  reflected in the
combined statements of operations.

Property and Equipment

The initial values of property and equipment established in conjunction with the
refinancing  transaction and the capital lease were recorded at fair value based
upon  appraisals.  Expenditures  for  property  and  equipment  and items  which
substantially  increase the useful lives of existing  assets are  capitalized at
cost. The Company provides for depreciation using the straight-line  method over
the shorter of the  estimated  useful  lives of the assets or the lease term and
includes amortization on capital leases. The assets are depreciated as follows:

                Furnishings and equipment                             5 years
                Buildings                                            30 years

Intangible Assets

In June 2001,  the  Financial  Accounting  Standards  Board issued  Statement of
Financial  Accounting  Standards No. 142, Goodwill and Other Intangible  Assets,
effective  for fiscal years  beginning  after  December 15, 2001.  Under the new
rules,  goodwill and intangible  assets deemed to have indefinite  lives will no
longer be amortized but will be subject to annual impairment tests in accordance
with the Statement.  Other intangible  assets will continue to be amortized over
their useful lives. The Company adopted the new rules on accounting for goodwill
and other intangible assets on January 1, 2002.

Intangible assets of $6,564,289  established in conjunction with the refinancing
transaction consist of the following: systems and procedures (staffing criteria,
care plans,  outcome  tracking,  billing  procedures,  and other related items);
assembled   workforce;   referral  networks;   and  reputational  capital  (name
recognition).  The intangible  assets are being amortized over a five-year life.
Total  amortization  expense  for 2002 was  $328,214.  Amortization  expense  is
expected to be $1,312,858 per year for 2003-2006 and $984,643 in 2007.




                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Deferred Financing Costs

Deferred  financing costs at December 31, 2002 represent  costs  associated with
the refinancing  transaction  and are being  amortized  using the  straight-line
method over the term of the lease. The deferred  financing costs at December 31,
2001, relating to the notes payable of the Company,  were fully amortized during
2002.  Total  amortization  expense was $497,206 and $743,014 for 2002 and 2001,
respectively.

Net Resident  Service  Revenue,  Accounts  Receivable and Estimated  Third-Party
Payor Settlements

Resident  service  revenue for  assisted  living is  reported at net  realizable
amounts from  residents for services  rendered.  The residents of the facilities
pay their residency fees on a  month-to-month  basis.  Resident fees for nursing
are reported at the estimated net realizable amounts from residents, third-party
payors,  and others for services rendered.  Effective January 1, 1999,  services
rendered to Medicare program  beneficiaries  are paid primarily at prospectively
determined  rates  per  resident.  These  rates  vary  according  to  a  patient
classification system that is based on clinical,  diagnostic, and other factors.
Certain services are based on fee schedules.

Revenues from the Medicare and Medicaid programs  accounted for approximately 7%
and  5%  of  the  Company's   resident   service  revenue  for  2002  and  2001,
respectively.  Medicare and Medicaid receivables accounted for approximately 24%
and 43% of accounts receivable at December 31, 2002 and 2001, respectively.

Laws and regulations governing the Medicare and Medicaid programs are complex
and subject to interpretation. The Company believes that it is in compliance
with all applicable laws and regulations and is not aware of any pending or
threatened investigations involving allegations and potential wrongdoing. While
no such regulatory inquiries have been made, compliance with such laws and
regulations can be subject to future government review and interpretations as
well as significant regulatory action including fines, penalties, and exclusion
from the Medicare and Medicaid programs.




                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


2.  Significant Accounting Policies (continued)

Income Taxes

Taxes  on  the  Company's  income  are  liabilities  of the  Company's  members.
Accordingly,  no  provision  for  income  taxes  has been  included  in  current
operations.  The Company  operates in various  states  that have  differing  tax
requirements.  No provision  has been made,  as amounts of  obligations  are not
material.

3. Assets Limited As to Use

Assets limited as to use represent cash funds held in accordance with the Cash
Management and Pooling Agreement, as follows:
                                                                                   December 31
                                                                            2002                 2001
                                                                     -------------------- -------------------

Collection account                                                   $                 -  $                 -

Furniture, fixtures and equipment reserve account                                498,791               31,024
Cash management account                                                          139,784                    -
                                                                     -------------------- -------------------
                                                                                 638,575               31,024
Less current portion                                                            (638,575)                   -
                                                                     -------------------- -------------------
                                                                     $                 -  $            31,024
                                                                     ==================== ===================

Effective  September  30,  2002,  the  Operator  collects and deposits all gross
revenues (after payment of operating  expenses and the base management fee), and
deposits the FF&E Reserve  Payments,  pursuant to the provisions of the Clearing
Account Agreement and the Cash Management and Pooling Agreement.

The landlord of the properties has established reserve funds, which will be used
for the  replacement  and renewal of  furniture,  fixtures and  equipment of the
properties  (FF&E  Reserve).  Deposits  to the FF&E  Reserve are made every four
weeks as follows:  2% of gross  revenues or $350 per bed,  whichever is greater,
with respect to the period  beginning  on  September  30, 2002 and ending on the
last day of the third full  fiscal  year,  3% of gross  revenues  for the fourth
through  the tenth  lease  years;  and 3.5% of gross  revenues  every lease year
thereafter.  Funds  in the  FF&E  Reserve  relating  to the  properties  are the
property of the tenants.





                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


3. Assets Limited As to Use (continued)

Prior to September 30, 2002, the assets of the  Collection  account were used to
reimburse the Operator of the Facilities and service the senior and subordinated
debt incurred by the Company.  The Company was in default on paying  interest in
2001 and through September 30, 2002.

4. Property and Equipment

The Company's property and equipment under capital leases (at December 31, 2002)
and property and equipment owned (at December 31, 2001) are as follows:
                                                                            December 31
                                                                     2002                  2001
                                                            -----------------------------------------

Land                                                        $        9,023,760     $        9,311,040
Buildings                                                           44,322,156             67,600,592
Furnishings and equipment                                            2,830,218              7,637,758
                                                            -----------------------------------------
                                                                    56,176,134             84,549,390
Accumulated depreciation                                              (507,985)           (15,609,012)
                                                            -----------------------------------------
                                                            $       55,668,149      $      68,940,378
                                                            =========================================

As part of the Refinancing and Acquisition  Agreement  between the Company,  its
owners,  and CNL on  September  30,  2002,  the Company  transferred  all of its
properties to separate limited  partnerships formed by CNL or its affiliates and
CNL acquired all of the rights, title and interest in and to the properties. The
transfer of the properties to CNL resulted in a loss in 2002 of $3,597,580.

The Company then entered into a 35-year  capital  lease with CNL, with an option
to  repurchase  the Prime Care Two, LLC  facilities at the end of the term for a
bargain  price.  The initial  values of property and  equipment  established  in
conjunction  with the capital lease at September  30, 2002 were  recorded  based
upon appraisals. The appraised amounts were allocated based upon a proportion of
the appraised amount to the total lease amount by property.





                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases
The Company's notes payable and capital leases consists of the following:
                                                                                     December 31
                                                                               2002               2001
                                                                       --------------------------------------
Note payable - Payment of  $53,377,406 in September 2002 accepted as
   payment in full by the lender.                                       $               -        $ 92,000,000

Subordinated note payable - Paid in full in September 2002.
                                                                                        -           9,000,000
Capital leases, payable to CNL Retirement PC1 North Carolina, LP, interest at an
   initial rate of 10.5%, interest only payable monthly, with a final maturity
   date of September 30, 2037,
   secured by a lien on property                                               17,410,116                   -

Capital  lease,  payable to CNL  Retirement  PC1  Brentwood  TN, LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                                6,619,471                   -

Capital  lease,  payable  to CNL  Retirement  PC1  Stamford  CT, LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                               14,145,719                   -

Capital  lease,  payable  to CNL  Retirement  PC1  New  Jersey,  LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                               12,969,455                   -

Capital  lease,  payable  to CNL  Retirement  PC1  Buckhead  GA, LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                                7,979,636                   -

Capital  lease,  payable  to  CNL  Retirement  PC1  Naples  FL,  LP,
   interest at an initial rate of 10.5%, interest only payable monthly, with a
   final maturity date of September 30, 2037,
   secured by a lien on property                                                5,842,347                   -
                                                                       ------------------------------------------
                                                                          $    64,966,744           $101,000,000
                                                                       ==========================================


                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases (continued)

The Company was in default on paying interest and principal on the notes payable
at December  31,  2001.  The notes  payable  were  classified  as current in the
accompanying  December 31, 2001 combined financial  statements.  The Company was
charged a  termination  fee of $456,491  in 2001,  which has been  reflected  as
additional  interest expense in the 2001 combined  statement of operations.  The
unpaid  interest  had  been  accrued  in  the  accompanying  combined  financial
statements,  but did not include amounts for late fees,  which were estimated to
be $7,410,900  at December 31, 2001.  The notes payable were repaid or partially
forgiven by the lender in 2002.

The  Company  and  their  owners  entered  into a  Refinancing  and  Acquisition
Agreement on September 30, 2002 with CNL Retirement Properties,  Inc. (CNL) that
included  the  refinancing  of the notes  payable of the  Company.  CNL provided
$53,377,406  to Prime Care Two, LLC to pay off the existing debt of  $92,000,000
plus accrued  interest of $2,422,580 and provided  $9,000,000 to PC2, LLC to pay
off its existing debt of $9,000,000,  including  accrued interest of $2,814,250.
The former  lender  accepted  the amounts  advanced by CNL as payment in full on
those debts,  including  any accrued  interest to date.  Prime Care One, LLC and
Prime Care Two, LLC also jointly  borrowed  $4,470,000 to pay  transfer,  title,
recording and closing costs of the  transactions.  The refinancing took the form
of a sale-leaseback  with a  financing-capital  lease term from CNL of 35 years,
with an option to  repurchase  the Prime Care Two, LLC  facilities at the end of
the term for a predetermined  amount.  The lease also permits CNL to require the
Company to  purchase  the  properties  at the end of the lease term for the same
predetermined amount.

At  September  30, 2002 and  December 31,  2001,  PC2,  LLC had  $4,890,023  and
$4,681,873  outstanding  under  a  Debt  Service  and  Shortfall  Advances  Loan
Agreement.  The amount  included  accrued  interest  of $890,023  and  $681,873,
respectively.  No payments were made during 2002 or 2001 on the Debt Service and
Shortfall  Advances  Loan.  Amounts  due under the Debt  Service  and  Shortfall
Advances Loan were  subordinate to amounts due by PC2, LLC under the subordinate
debt from the  Company's  primary  creditor.  As part of the  above  refinancing
transaction,  the Debt Service and Shortfall Advances Loan with MSLS,  including
accrued interest, was extinguished.  In addition, MSLS agreed to forgive amounts
owed for subordinated  management fees of $1,967,464 and other payables that had
not been funded as of September 30, 2002 of $381,733.





                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


5. Notes Payable and Capital Leases (continued)

The  extinguishment of the notes payables with the lender and the forgiveness of
certain  liabilities  by  MSLS  has  been  reflected  as a gain  on  refinancing
transaction of $51,098,643 in the 2002 combined statement of operations.

The Lease  Agreements  with CNL are interest only and the minimum annual rent is
10.5%  beginning  September  30, 2002 and will  increase by 2.5% times the prior
year's rate beginning January 1, 2004 and each lease year thereafter through the
29th year of the lease.  There is a balloon  payment of the principal  amount of
the lease at the end of the lease term.  The minimum annual rent consists of the
first-tier  minimum  rent  which  is 5% of the  adjusted  lease  basis  and  the
second-tier  minimum rent which is the difference between the (1) adjusted lease
basis  multiplied  by the  adjusted  lease rate for the fiscal  year and (2) the
first-tier  minimum  rent.  In  addition  to minimum  rent,  the lease  requires
additional  rent  which will be payable  based on various  predetermined  dollar
amounts derived from achieving  specific  percentage  occupancy levels beginning
January 1, 2004.

The Company has calculated total lease payments over the life of the lease based
upon the yearly  increases  noted above.  Interest  expense in the  accompanying
combined  statement of  operations  reflects the average lease payment of 16.15%
over the life of the lease. The difference between the average lease payment and
the  actual  lease  payment  has  been  recorded  as  deferred  interest  in the
accompanying combined financial statements.

The lease for the properties contains pooling terms,  meaning that net operating
profits  with  respect to all the  properties  are  combined  for the purpose of
funding  rental  payments  and the  furniture,  fixtures and  equipment  reserve
account. In addition,  the lease contains  cross-default  terms, meaning that if
the tenant of any of the properties defaults on its obligations under the lease,
CNL will have the ability to pursue its remedies under the lease with respect to
all the properties,  regardless of whether the tenant of any such property is in
default under the lease.

There are various  events which  constitute  an event of default under the lease
agreement including failure to pay first-tier minimum rent,  second-tier minimum
rent or  additional  rent when due.  However,  CNL may not  terminate  the Lease
Agreement for non-payment of second-tier minimum rent or additional rent.






                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


6. Rights of Members

As a limited liability company (LLC), the members are not personally responsible
for the  obligations  of the Company.  Prime Care Two,  LLC has two  members:  a
holding  company  (PC2,  LLC) and a managing  member  (Prime Care 2 Corp.).  The
day-to-day  management of the Company's  business is exclusively  vested in four
managing  directors.  The managing member elects three of the managing directors
and the limited member of the holding company elects one.

Under  the terms of the  Company's  Operating  Agreement,  certain  actions,  as
defined in the Operating Agreement,  may not be initiated by the Company without
unanimous consent of the members.  These restrictions include issuing additional
membership  units,  obtaining  additional  debt,  purchasing real property,  and
filing for bankruptcy.

7. Related Party Transactions

Prior to September  30, 2002,  the Company paid an  administrative  fee to Prime
Care Properties,  LLC, a limited liability company that is the general member of
PC2,  LLC and whose  members are also  shareholders  of the  Company's  managing
member.  Prime Care  Properties,  LLC was  entitled to receive only $57,200 each
year commencing on January 1, 2000. Total administrative fees paid to Prime Care
Properties,  LLC through September 30, 2002 and for all of 2001 were $42,993 and
$57,200, respectively.

Under the terms of the Lease Agreement,  Prime Care  Management,  LLC, a limited
liability company whose members are also shareholders of the Company's  managing
member,  shall be paid $75,000 per year in aggregate from all leased  properties
(including  properties  of Prime Care One,  LLC) as a first-tier  administration
fee. Prime Care Management, LLC is also entitled to a second-tier administration
fee in the  amount  of  0.5%  of  gross  revenues  from  the  collective  leased
properties  or $250,000 per year,  whichever is greater,  less the amount of the
first-tier administration fee. The second-tier administration fee is subordinate
to the payment of minimum  rent.  Total  administration  fees paid to Prime Care
Management,  LLC in 2002  under  the  Lease  Agreement  by the  Company  totaled
$39,942.





                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


8. Management Fees

Under  the  terms  of the  previous  operating  agreements  for the  Facilities,
Marriott  Senior  Living  Services  operated  the  Facilities  on  behalf of the
Company.  The Company paid the Operator a base fee and a central  administrative
services (CAS) fee, which are both based on gross revenues.  The base fee was 5%
of gross  revenues  and the CAS fee was 2% of gross  revenues.  The Company also
paid an incentive fee to the Operator, which is 25% of operating profit for each
fiscal year after the Company has received a minimum operating profit amount, as
defined in the operating agreement. Management fees for 2002 and 2001 under this
agreement were $1,618,966 and $1,952,380,  respectively, which consist solely of
base and CAS fees.

The Company entered into a new operating agreement with MSLS effective September
30, 2002 with the initial term  expiring in twenty  years.  The term may then be
extended at the Operator's election for each of three successive  periods,  each
period consisting of five years.

Under the new operating agreement,  base management fees payable to MSLS for the
operation of the  properties are as follows:  3% of gross  revenues  through the
2007 fiscal  year,  3.5% of gross  revenues for the 2008 fiscal year through the
2012 fiscal year,  and 4% of gross revenues for the remainder of the lease term.
Notwithstanding the foregoing,  in the event certain operating profit thresholds
are  achieved  prior to the 2013  lease  year,  the base  management  fees  will
automatically  increase to 4% of gross revenues and remain at such level for the
remainder of the lease term. MSLS is also entitled to incentive  management fees
up to 15% of operating profit remaining after payment of minimum annual rent and
a tenant  administration  fee. Rent payments due under the lease are subordinate
to the payment of base management fees.

In addition to base  management  fees,  the  Operator is paid,  as an  operating
expense, the amount of 2% of gross revenues as a central administrative services
(CAS) fee.  The  Operator  must  provide to each of the  retirement  communities
certain central  administrative  services,  which include:  marketing and public
relations  services;  human resources program  development;  information systems
support and development;  and centralized computer payroll services.  Management
fees for the period from September 30, 2002 through December 31, 2002 under this
new agreement were $346,097, which consists solely of base and CAS fees.




                        Prime Care Two, LLC and PC2, LLC

               Notes to Combined Financial Statements (continued)


8. Management Fees (continued)

Under the Agreement, management and employees are employees of the Operator. The
majority of all costs are paid by the  Operator  who is then  reimbursed  by the
Company.  Consequently, the majority of accounts payable and accrued expenses at
December 31, 2002 and 2001 reflect amounts due to the Operator.

In a press  release  dated  December 30, 2002,  Sunrise  Assisted  Living,  Inc.
announced   it  had  entered   into  a  definitive   agreement   with   Marriott
International,  Inc. to acquire all of the outstanding  stock of Marriott Senior
Living Services,  Inc. (MSLS).  Under the terms of the Operating Agreements with
MSLS, the Operating  Agreements are  automatically  assumed by Sunrise  Assisted
Living, Inc. (Sunrise) when the sale of MSLS stock to Sunrise is completed.




                            Prime Care One Portfolio

                     Unaudited Combined Financial Statements




                                    Contents

Unaudited Combined Balance Sheet as of September 30, 2002................................................F-89

Unaudited Combined Statements of Operations and Equity (Deficit)
     for the Nine Months Ended September 30, 2002 and 2001...............................................F-90

Unaudited Combined Statements of Cash Flows for the Nine Months Ended
     September 30, 2002 and 2001.........................................................................F-91

Note to Unaudited Combined Financial Statements..........................................................F-92





                            Prime Care One Portfolio

                        Unaudited Combined Balance Sheet

                                                                                             Unaudited
                                                                                           September 30,
                                                                                                2002
                                                                                          -----------------

       Assets
       Current assets:
          Cash and cash equivalents                                                               $  48,275
          Restricted cash                                                                           788,430
          Accounts receivable, less allowance for doubtful accounts
            of $55,182 as of September 30, 2002                                                     439,038
          Current portion of assets limited as to use                                               342,959
          Prepaid expenses and other assets                                                         338,706
                                                                                          -----------------
       Total current assets                                                                       1,957,408

       Property and equipment, net                                                               36,349,281
       Other assets:
          Intangible assets                                                                       6,273,313
          Deferred financing costs                                                                1,309,285
                                                                                          -----------------
       Total other assets                                                                         7,582,598
                                                                                          -----------------
       Total assets                                                                             $45,889,287
                                                                                          =================

       Liabilities and Members' Equity (Deficit)
       Current liabilities:
          Accounts payable and accrued expenses                                                  $  587,748
          Accrued interest                                                                                -
          Note payable                                                                                    -
                                                                                          -----------------
       Total current liabilities                                                                    587,748

       Capital lease obligation                                                                  44,753,256
                                                                                          -----------------
       Total liabilities                                                                         45,341,004

       Members' Equity (Deficit)
       Managing member                                                                                  100
       Holding company                                                                           11,514,687
       Retained earnings (deficit)                                                              (10,996,504)
                                                                                          -----------------
       Total members' equity                                                                        548,283
                                                                                          -----------------
       Total liabilities and members' equity                                                    $45,889,287
                                                                                          =================


See accompanying note





                            Prime Care One Portfolio

        Unaudited Combined Statements of Operations and Equity (Deficit)

                                                                                    Unaudited
                                                                     For the Nine Months Ended September 30,
                                                                           2002                   2001
                                                                     -----------------      ------------------

Operating Revenue:
   Net resident service revenue                                           $ 15,028,927            $ 14,391,076
   Other operating revenue                                                     731,175                 664,318
                                                                     -----------------      ------------------
Total operating revenue                                                     15,760,102              15,055,394

Operating Expenses:
   Health care and resident services                                         3,924,503               3,560,236
   Activities                                                                  252,937                 219,627
   Food service                                                              1,856,261               1,900,733
   Housekeeping and laundry                                                    496,772                 512,361
   Plant operations and maintenance                                          1,166,923               1,049,040
   General and administrative                                                4,371,742               3,762,180
   Depreciation                                                              1,546,609               1,994,856
   Amortization of loan closing and
      deferred financing costs                                                 156,337                 452,506
   Interest                                                                  2,440,372               4,152,950
                                                                     -----------------      ------------------
Total operating expenses                                                    16,212,456              17,604,489
                                                                     -----------------      ------------------
                                                                              (452,354)             (2,549,095)
                                                                     -----------------      ------------------
Other Income (expense):
   Investment income                                                             1,088                  15,741
   Gain on extinguishment of debt                                           36,853,099                       -
   Loss on sale of property                                                 (4,245,844)                      -
                                                                     -----------------      ------------------
Total other income (expense):                                               32,608,343                  15,741
                                                                     -----------------      ------------------

Net income (loss)                                                           32,155,989              (2,533,354)

Deficit at beginning of period                                             (32,396,136)            (29,643,476)
Contribution of restricted cash                                                788,430                       -
                                                                     -----------------      ------------------
Equity (deficit) at end of period                                           $  548,283            $(32,176,830)
                                                                     =================      ==================



See accompanying note




                            Prime Care One Portfolio

                   Unaudited Combined Statements of Cash Flows

                                                                                    Unaudited
                                                                     For the Nine Months Ended September 30,
                                                                          2002                     2001
                                                                   -------------------      -------------------

Operating Activities
Net income (loss)                                                        $  32,155,989            $  (2,533,354)
Adjustments to reconcile net income (loss) to net cash used
   in operating activities:
   Gain on extinguishment of debt                                          (36,853,099)                       -
   Loss on sale of property                                                  4,245,844                        -
   Depreciation                                                              1,546,609                1,994,856
   Amortization                                                                156,337                  452,506
   Changes in operating assets and liabilities:
     Accounts receivable                                                       (22,520)                  42,582
     Restricted cash                                                          (788,430)                       -
     Prepaid expenses and other assets                                         (82,572)                (155,488)
     Accounts payable and accrued expenses                                  (1,758,921)                (190,344)
     Accrued interest                                                       (1,691,433)                 355,728
                                                                   -------------------      -------------------
Net cash used in operating activities                                       (3,092,196)                (33,514)

Investing Activities
Purchase of property and equipment, net                                        (26,481)                (76,113)
Change in assets limited as to use                                           1,088,841                  312,739
                                                                   -------------------      -------------------
Net cash provided by investing activities                                    1,062,360                  236,626

Financing Activities
Proceeds to refinance note payable                                          44,753,256                       -
Contribution of restricted cash                                                788,430                       -
Payment of deferred financing costs                                         (1,309,285)                      -
Payment on note payable                                                    (42,622,594)                (200,000)
                                                                   -------------------      -------------------
Net cash provided by (used in) financing activities                          1,609,807                 (200,000)
                                                                   -------------------      -------------------

Net increase (decrease) in cash and cash equivalents                          (420,029)                   3,112
Cash and cash equivalents beginning of period                                  468,304                  308,147
                                                                   -------------------      -------------------
Cash and cash equivalents end of period                                    $    48,275              $   311,259
                                                                   ===================      ===================

Supplemental cash flows information
Interest paid                                                             $  4,131,805             $  3,797,222
                                                                   ===================      ===================



See accompanying note




                            Prime Care One Portfolio

                 Note to Unaudited Combined Financial Statements


1. General

The  statements  presented  herein  have been  prepared in  accordance  with the
accounting policies described in the Prime Care One Portfolio Combined Financial
Statements  and  should  be read in  conjunction  with  the  Notes  to  Combined
Financial Statements which appear in that report.

The  statements  for the  nine  months  ended  September  30,  2002 and 2001 are
unaudited; however, in the opinion of management, all adjustments, which include
only  normal  and  recurring  accruals,  have  been made  which  are  considered
necessary to present fairly the operating results and financial position for the
unaudited periods.






                            Prime Care One Portfolio
                  (A Group of Related Properties to be Acquired
                       by CNL Retirement Properties, Inc.)

                          Combined Financial Statements


                  Years ended December 31, 2001, 2000 and 1999



                                    Contents

Report of Independent Auditors...........................................................................F-94

Combined Audited Financial Statements

Combined Balance Sheets..................................................................................F-95
Combined Statements of Operations and Deficit............................................................F-96
Combined Statements of Cash Flows........................................................................F-97
Notes to Combined Financial Statements...................................................................F-98





                         Report of Independent Auditors


To the Board of Directors and Shareholders
CNL Retirement Properties, Inc.

We have audited the combined  balance  sheets of the Prime Care One Portfolio (a
Group of Related Properties to be Acquired by CNL Retirement  Properties,  Inc.)
(the  Company)  as of  December  31,  2001 and 2000,  and the  related  combined
statements of operations  and deficit and cash flows for each of the three years
in the period ended  December  31,  2001.  These  financial  statements  are the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the combined financial  statements
are free of material misstatement. An audit includes examining, on a test basis,
evidence  supporting  the  amounts and  disclosures  in the  combined  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 combined  financial  statements  referred to above  present
fairly, in all material  respects,  the combined financial position of the Prime
Care One  Portfolio at December 31, 2001 and 2000,  and the combined  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2001, in conformity  with  accounting  principles  generally
accepted in the United States.

The accompanying  combined financial  statements have been prepared assuming the
Prime Care One  Portfolio  will  continue  as a going  concern.  The Company has
incurred significant operating losses and is in a deficit position. In addition,
the Company is in default on paying debt  service as  described in Note 5. These
conditions raise  substantial doubt about the Company's ability to continue as a
going concern.  Management's plans in regard to these matters are also described
in Note 8. The combined  financial  statements do not include any adjustments to
reflect the possible future effects on the  recoverability and classification of
assets or the amounts and classification of liabilities that may result from the
outcome of these uncertainties.

                                                            /s/Ernst & Young LLP

Indianapolis, Indiana
February 22, 2002,
except for Note 9 as to
which the date is
September 30, 2002




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

                             Combined Balance Sheets

                                                                                       December 31
                                                                                2001                   2000
                                                                          ----------------      -----------------

Assets
Current assets:
   Cash and cash equivalents                                                     $  468,304             $  308,147
   Accounts receivable, less allowance for doubtful accounts
     of $83,998 and $59,374 in 2001 and 2000                                        416,518                399,882
   Current portion of assets limited as to use                                    1,177,639                279,862
   Inventory                                                                        132,669                123,900
   Prepaid expenses and other assets                                                123,465                153,492
                                                                          -----------------       ----------------
Total current assets                                                              2,318,595              1,265,283

Assets limited as to use, net of current portion                                    254,161                266,050
Property and equipment, net                                                      48,388,566             50,838,508
Other assets:
   Loan closing costs, net of accumulated amortization
     of $1,337,126 and $1,055,533 in 2001 and 2000                                   70,837                352,430
   Deferred financing costs, net of accumulated amortization
     of $1,523,250 and $1,201,500 in 2001 and 2000                                   85,500                407,250
                                                                          -----------------      -----------------

Total other assets                                                                  156,337                759,680
                                                                          -----------------      -----------------
Total assets                                                                   $ 51,117,659           $ 53,129,521
                                                                          =================      =================

Liabilities and Deficit
Current liabilities:
   Accounts payable and accrued expenses                                        $ 5,393,815            $ 5,195,670
   Accrued interest                                                               2,127,059              1,677,327
   Note payable                                                                  69,800,000             70,000,000
                                                                          -----------------      -----------------
Total current liabilities                                                        77,320,874             76,872,997

Advances from PC1, LLC                                                            5,900,000              5,900,000
                                                                          -----------------      -----------------
Total liabilities                                                                83,220,874             82,772,997
Deficit                                                                         (32,103,215)           (29,643,476)
                                                                          -----------------      -----------------
Total liabilities and deficit                                                  $ 51,117,659           $ 53,129,521
                                                                          =================      =================



See accompanying notes




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

                  Combined Statements of Operations and Deficit

                                                                             Years ended December 31
                                                                 2001                    2000                  1999
                                                           -----------------       -----------------      ----------------

Operating revenue:
   Net resident service revenue                                $  20,333,426           $  18,255,477          $ 17,816,606
   Other operating revenue                                           107,231                 149,049                27,352
                                                           -----------------       -----------------      ----------------
Total operating revenue                                           20,440,657              18,404,526            17,843,958

Operating expenses:
   Health care and resident services                               4,902,799               4,513,387             4,081,692
   Activities                                                        312,627                 330,467               301,308
   Food service                                                    2,519,105               2,698,701             2,662,388
   Housekeeping and laundry                                          694,154                 670,373               609,521
   Plant operations and maintenance                                1,385,811               1,353,351             1,264,976
   General and administrative                                      4,933,764               4,989,775             4,760,776
   Depreciation                                                    2,590,224               2,557,531             2,505,380
   Amortization of loan closing and
     deferred financing costs                                        603,343                 603,343               603,342
   Interest                                                        4,979,558               6,453,928             5,639,835
                                                           -----------------       -----------------      ----------------

Total operating expenses                                          22,921,385              24,170,856            22,429,218

                                                           -----------------       -----------------      ----------------
Loss from operations                                              (2,480,728)             (5,766,330)           (4,585,260)
Nonoperating income - investment income                               20,989                  99,080               100,536
                                                           -----------------       -----------------      ----------------
Net loss                                                          (2,459,739)             (5,667,250)           (4,484,724)

Deficit at beginning of year                                     (29,643,476)            (23,528,449)          (17,746,922)
Distributions                                                              -                (447,777)           (1,296,803)
                                                           -----------------       -----------------      ----------------
Deficit at end of year                                         $ (32,103,215)          $ (29,643,476)       $  (23,528,449)
                                                           =================       =================      ================



See accompanying notes




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

                        Combined Statements of Cash Flows

                                                                             Years ended December 31
                                                                 2001                   2000                  1999
                                                           -----------------      -----------------       --------------

Operating activities
Net loss                                                       $  (2,459,739)        $  (5,667,250)        $  (4,484,724)
Adjustments to reconcile net loss to net cash provided
   by (used in) operating activities:
   Depreciation                                                    2,590,224              2,557,531            2,505,380
   Amortization                                                      603,343                603,343              603,342
   Bad debt expense                                                   57,773                 53,596                5,080
   Changes in operating assets and liabilities:
     Accounts receivable                                             (74,409)                76,387              883,030
     Estimated third-party payor settlements                               -                 27,707               18,385
     Inventory                                                        (8,769)                 2,700               40,071
     Prepaid expenses and other assets                                30,027                (65,649)              41,193
     Accounts payable and accrued expenses                           198,145             (6,164,557)           1,766,928
     Accrued interest                                                449,732              1,084,934               92,088
     Deferred entrance fees                                                -                      -              (57,945)
                                                           -----------------      -----------------       --------------
Net cash provided by (used in) operating activities                1,386,327             (7,491,258)           1,412,828

Investing activities
Purchase of property and equipment, net                             (140,282)              (328,195)            (206,301)
Change in assets limited as to use                                  (885,888)             2,381,635              280,338
                                                           -----------------      -----------------       --------------
Net cash provided by (used in) investing activities               (1,026,170)             2,053,440               74,037

Financing activities
Distributions to members                                                   -               (447,777)          (1,296,803)
Payments made on note payable                                       (200,000)                     -                    -
Advances from PC1, LLC                                                     -              5,900,000                    -
                                                           -----------------      -----------------       --------------
Net cash provided by (used in) financing activities                 (200,000)            5,452,223            (1,296,803)
                                                           -----------------      -----------------       --------------
Net increase in cash and cash equivalents                            160,157                 14,405              190,062
Cash and cash equivalents beginning of year                          308,147                293,742              103,680
                                                           -----------------      -----------------       --------------
Cash and cash equivalents end of year                            $   468,304            $   308,147           $  293,742
                                                           =================      =================       ==============

Supplemental cash flows information
Interest paid                                                   $  4,409,129           $  5,368,994          $ 5,547,747
                                                           =================      =================       ==============



See accompanying notes




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

                     Notes to Combined Financial Statements

                                December 31, 2001


1. Organization

The  Prime  Care  One  Portfolio   (Company)   consists  of  four  senior-living
residential  facilities  (Facilities) known as Brighton Gardens.  The Facilities
are located in Venice, Florida;  Mountainside,  New Jersey;  Friendship Heights,
Maryland;   and  Charlotte,   North  Carolina.   The  Facilities  offer  various
combinations of assisted living,  specialized  care for Alzheimers  patients and
skilled nursing  services.  The Facilities are managed by Marriott Senior Living
Services,  Inc.  (MSLS  or  Operator).  The  Facilities  are  part of a group of
senior-living   residential   facilities  to  be  acquired  by  CNL   Retirement
Properties, Inc. as more fully described in Note 9.

The  Company  is part of Prime  Care  One,  LLC,  a  limited  liability  company
organized  in 1997.  Prime  Care One,  LLC is owned 99% by PC1,  LLC,  a special
purpose holding company, and 1% by Prime Care Corporation,  the managing member.
PC1,  LLC is owned  24.24% by Prime Care  Properties,  LLC and 75.76% by outside
investors.

2. Significant Accounting Policies

Basis of Presentation

The accompanying financial statements have been prepared to present the combined
financial  results of the Company and are  presented  for  purposes of complying
with the Securities and Exchange  Commission's  rules and regulations  regarding
acquired businesses and properties.

The combined financial statements reflect the historical accounts of the Company
including all debt and related costs which were cross-collateralized between the
Facilities  and an additional  senior-living  facility not being acquired by CNL
Retirement   Properties,   Inc.  Management  believes  the  Company's  interest,
amortization and general and administrative  expenses on a stand-alone basis may
have been different had the Company operated as unaffiliated entities.

Use of Estimates

Preparation of financial  statements  requires  management to make estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.





                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Assets Limited As to Use

Assets limited as to use are cash and  miscellaneous  cash equivalents held by a
collateral  agent  under a  Collection  Account  Security  and Pledge  Agreement
(Pledge Agreement).  Amounts required to meet current liabilities of the Company
have been classified as current assets. The assets limited as to use are carried
at fair value.  Realized and  unrealized  gains and losses are  reflected in the
statement of operations.

Property and Equipment

Expenditures for property and equipment and items which  substantially  increase
the  useful  lives of  existing  assets are  capitalized  at cost.  The  Company
provides  for  depreciation  using the  straight-line  method over the  expected
estimated useful lives as follows:

                Furnishings and equipment                             5 years
                Buildings                                            30 years

Loan Closing and Deferred Financing Costs

Loan  closing  and  deferred  financing  costs  are  being  amortized  using the
straight-line  method over the term of the debt. Total amortization  expense was
$603,343 in 2001 and 2000 and $603,342 in 1999.

Net Resident  Service  Revenue,  Accounts  Receivable and Estimated  Third-Party
Payor Settlements

Resident  service  revenue for  assisted  living is  reported at net  realizable
amounts from  residents for services  rendered.  The residents of the facilities
pay their residency fees on a  month-to-month  basis.  Resident fees for nursing
are reported at the estimated net realizable amounts from residents, third-party
payors,  and others for services rendered.  Effective January 1, 1999,  services
rendered to Medicare program  beneficiaries  are paid primarily at prospectively
determined  rates  per  resident.  These  rates  vary  according  to  a  patient
classification system that is based on clinical,  diagnostic, and other factors.
Certain services are based on fee schedules.





                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


2. Significant Accounting Policies (continued)

Prior to January 1, 1999,  net resident  service  revenue  included  retroactive
adjustments,  which were accrued on an estimated basis in the period the related
services were  rendered.  These amounts were adjusted in future periods as final
settlements  were determined.  The Company was reimbursed for cost  reimbursable
items at a tentative rate with final  settlement  determined after submission of
annual cost reports, which are audited by the Medicare fiscal intermediary.  The
Company recorded changes in estimates and received final settlements  related to
prior year cost reports,  which  resulted in an increase in net patient  service
revenue of approximately  $198,000 in 2001 and a decrease in net patient service
revenue of  approximately  $412,000 in 2000.  At  December  31,  2001,  all cost
reports for 1998 and prior have been settled with the intermediary.

Revenues from the Medicare and Medicaid programs accounted for approximately 8%,
5% and 6% of the Company's  resident  service  revenue for 2001,  2000 and 1999,
respectively.  Medicare and Medicaid receivables accounted for approximately 65%
and 62% of accounts receivable at December 31, 2001 and 2000, respectively.

Laws and  regulations  governing the Medicare and Medicaid  programs are complex
and subject to  interpretation.  The Company  believes  that it is in compliance
with all  applicable  laws and  regulations  and is not aware of any  pending or
threatened investigations involving allegations and potential wrongdoing.  While
no such  regulatory  inquiries  have been  made,  compliance  with such laws and
regulations can be subject to future  government review and  interpretations  as
well as significant regulatory action including fines, penalties,  and exclusion
from the Medicare and Medicaid programs.

Income Taxes

Taxes on the  Company's  income are  liabilities  of the Prime  Care One,  LLC's
members. Accordingly, no provision for income taxes has been included in current
operations.  The Company  operates in various  states  that have  differing  tax
requirements.




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


3. Assets Limited As to Use

Assets limited as to use represent cash funds held by a collateral agent in
accordance with the Pledge Agreement, as follows:
                                                                                   December 31
                                                                            2001                 2000
                                                                     -------------------- --------------------

Collection account                                                   $          1,177,639        $     279,862
Furniture, fixtures and equipment reserve account                                 254,161              266,050
                                                                     -------------------- --------------------
                                                                                1,431,800              545,912
Less current portion                                                           (1,177,639)            (279,862)
                                                                     -------------------- --------------------
                                                                     $            254,161       $      266,050
                                                                     ==================== ====================

The assets of the  Collection  account are used to reimburse the Operator of the
Facilities  and service  the senior debt  incurred by the Company as well as the
subordinated debt incurred by the holding company.  The Company is in default on
paying interest in 2001 and 2000.  Thus, the lender takes any excess funds after
operating  expenses are paid and puts those funds in their suspense account.  At
December 31, 2001 and 2000, $622,356 and $2,009,013,  respectively,  of interest
payments  were  being  held  in  the  lenders  suspense  account.   The  Company
anticipates  the amounts will  ultimately be applied to pay accrued  interest on
debt, thus accrued interest has been reduced by the corresponding  amount in the
accompanying financial statements at December 31, 2001 and 2000.

4. Property and Equipment

The Company's property and equipment are as follows:
                                                                                   December 31
                                                                            2001                  2000
                                                                   -----------------------------------------

Land                                                               $        6,903,000       $      6,903,000
Buildings                                                                  48,356,475             48,356,475
Furnishings and equipment                                                   4,940,502              4,800,220
                                                                   -----------------------------------------
                                                                           60,199,977             60,059,695
Accumulated depreciation                                                  (11,811,411)           ( 9,221,187)
                                                                   -----------------------------------------
                                                                   $       48,388,566        $    50,838,508
                                                                   =========================================





                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


5. Note Payable

The note payable consists of the following:
                                                                                      December 31
                                                                                2001                2000
                                                                       ----------------------------------------

Note payable - Interest is payable monthly based upon the 30 day LIBOR rate +
   2.75% (4.89% at 12/31/01).  Principal payments until maturity vary based upon
   the  Company's  cash flow with final  payment due July 1, 2000,  by reason of
   acceleration  of the  note  by the  lender.  The  note is  collateralized  by
   substantially all of the Company's assets, including a first mortgage.
                                                                           $ 69,800,000            $ 70,000,000
                                                                       ========================================

The Company is in default on paying  interest  and  principal  on the note as of
December 31, 2001 and 2000.  The note payable has been  classified as current in
the  accompanying  financial  statements,  since  the due  date of the  note was
accelerated  to July 1,  2000.  The  unpaid  interest  has been  accrued  in the
accompanying  financial statements,  but does not include amounts for late fees,
which are  estimated to be  $5,445,700  and  $1,949,000 at December 31, 2001 and
2000, respectively.

Under the terms of the Pledge  Agreement,  the  Company is  required to maintain
certain deposits with a trustee.  Such deposits are included with assets limited
as to use. The Pledge Agreement also includes a number of restrictive  covenants
that limit the  Company's  ability  to incur  additional  debt or  significantly
change the nature of its operations.

6. Related Party Transactions

Under  the terms of the  Company's  Operating  Agreement,  the  Company  pays an
administrative  fee to Prime Care Properties,  LLC, a limited  liability company
that is the general  member of the Company's  holding  company and whose members
are also shareholders of the Company's  managing member.  Prime Care Properties,
LLC waived the administrative fees for 2001, 2000 and 1999.




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


6. Related Party Transactions (continued)

As part of the original  acquisition of the  Facilities,  the Company's  holding
company obtained  additional  subordinated  financing from the Company's primary
creditor of  $10,000,000.  Certain assets limited as to use have been pledged to
service the subordinated  debt and these payments are recorded by the Company as
distributions to the holding  company.  Distributions to the holding company for
debt service  totaled $0,  $447,777 and $1,296,803  during 2001,  2000 and 1999,
respectively.  Even though  there is no  requirement  under any  agreement,  the
Company  will  continue  to make  distributions,  to the  extent  that funds are
available, to the holding company in order for it to fund its debt service.

Prime Care One,  LLC's holding  company has  $5,900,000  available  under a Debt
Service and Shortfall  Advances Loan Agreement  with MSLS.  The holding  company
borrowed the entire amount available during 2000 and advanced this amount,  on a
non-interest  basis, to the Company.  At December 31, 2001 and 2000, the holding
company had $6,854,285 and  $6,380,932  outstanding  under this Debt Service and
Shortfall  Advances Loan  Agreement.  The amount  includes  accrued  interest of
$954,285 and $480,932,  respectively,  which is not charged to the Company. Even
though  there is no  requirement  under any  agreement,  the  Company  will make
payments,  to the extent that funds are  available,  to the  holding  company in
order for it to repay  amounts  borrowed.  No payments were made during 2001 and
2000.  Amounts due by the holding  company  under the Debt Service and Shortfall
Advances Loan are  subordinate  to amounts due by the holding  company under the
subordinate debt from the Company's primary creditor.

7. Management Fees

Under the terms of  operating  agreements  for the  Facilities,  dated April 11,
1997,  Marriott Senior Living Services  operates the Facilities on behalf of the
Company. The initial terms of the agreements expire December 31, 2021 and may be
renewed for five five-year periods at the option of the Operator. The agreements
cannot be  terminated by the Company  without  approval of its lender and may be
subject to a termination fee should approval be granted.




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


7. Management Fees (continued)

The Company pays the Operator a base fee and a central administrative services
(CAS) fee, which are both based on gross revenues. Through April 2002, the base
fee is 5% of gross revenues and will increase to 5.5% thereafter. The CAS fee is
2% of gross revenues throughout the term of the contract. The Company also pays
an incentive fee to the Operator, which is 50% of operating profit for each
fiscal year after the Company has received a minimum operating profit amount, as
defined in the operating agreement. Management fees for 2001, 2000 and 1999 were
$1,425,758, $1,280,698 and $1,239,362, respectively, which consists solely of
base and CAS fees.

Under the Agreement, management and employees are employees of the Operator. The
majority of all costs are paid by the  Operator  who is then  reimbursed  by the
Company.  Consequently, the majority of accounts payable and accrued expenses at
December 31, 2001 and 2000 reflect amounts due to the Operator.

8. Going Concern

The Company has incurred  significant  operating  losses during the years ending
December 31, 2001,  2000 and 1999 and is in a negative  members' equity position
at December 31, 2001 and 2000.  The Company is in default on paying  interest on
their debt during 2001 and 2000.  In  addition,  the  Company has  obtained  all
amounts  available  from their  holding  company's  Debt  Service and  Shortfall
Advances  Loan.  All of these  conditions  raise  substantial  doubt  about  the
Company's ability to continue as a going concern.

Management  intends to negotiate  with the lender to  restructure  the Company's
debt. As of February 22, 2002, no formal plan or agreement has been reached. The
accompanying  financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification  of liabilities that may result from the outcome
of this uncertainty.




                            Prime Care One Portfolio
         (A Group of Related Properties to be Acquired by CNL Retirement
                               Properties, Inc.)

               Notes to Combined Financial Statements (continued)


9. Subsequent Event (Unaudited)

The Company,  together with Prime Care Two, LLC and their owners, entered into a
Refinancing Agreement on September 30, 2002 with CNL Retirement Properties, Inc.
(CNL) that included the  refinancing of the mortgage debt on the four facilities
in the Prime Care One Portfolio. CNL provided $31,392,562 to Prime Care One, LLC
to pay off the existing debt of $69,800,000  plus accrued  interest on the Prime
Care One Portfolio  and  $10,000,000  to PC1, LLC to pay off its existing  debt,
including accrued  interest.  The former lender accepted the amounts advanced by
CNL as payment in full on those debts,  including any accrued  interest to date.
Prime Care One, LLC and Prime Care Two, LLC also jointly borrowed  $4,470,000 to
pay  transfer,  title,  recording  and closing  costs of the  transactions.  The
refinancing took the form of a  sale-leaseback  with a  financing-capital  lease
term from CNL of 35  years,  with an option  to  repurchase  the Prime  Care One
Portfolio at the end of the term for a bargain price.  In addition,  the accrued
subordinated  management fees and debt service advances loans, including accrued
interest, from MSLS have been extinguished.





                               Prime Care Two, LLC

                         Unaudited Financial Statements



                                    Contents

Unaudited Balance Sheet as of September 30, 2002........................................................F-107

Unaudited Statements of Operations for the Nine Months Ended
     September 30, 2002 and 2001........................................................................F-108

Unaudited Statement of Members' Equity (Deficit)........................................................F-109

Unaudited Statements of Cash Flows for the Nine Months Ended
     September 30, 2002 and 2001........................................................................F-110

Note to Unaudited Financial Statements..................................................................F-111





                               Prime Care Two, LLC

                             Unaudited Balance Sheet
                                                                                           Unaudited
                                                                                          September 30
                                                                                              2002
                                                                                        -----------------

         Assets
         Current assets:
             Cash and cash equivalents                                                        $  966,810
             Restricted cash                                                                   1,211,570
             Accounts receivable, less allowance for doubtful accounts
                of $143,079 at September 30, 2002                                                686,116
             Assets limited to use                                                               497,861
             Prepaid expenses and other assets                                                   397,233
                                                                                        -----------------
         Total current assets                                                                  3,759,590

         Property and equipment, net                                                          56,066,843
         Other assets:
             Intangible assets                                                                 6,564,289
             Deferred financing costs                                                          1,079,895
                                                                                        -----------------
         Total other assets                                                                    7,644,184
                                                                                        -----------------
         Total assets                                                                       $ 67,470,617
                                                                                        =================

         Liabilities and Members' Equity (Deficit)
         Current liabilities:
             Accounts payable and accrued expenses                                           $ 1,292,179
             Accrued interest                                                                          -
             Note payable                                                                              -
                                                                                        -----------------
         Total current liabilities                                                             1,292,179

         Capital lease obligation                                                             64,966,744
                                                                                        -----------------
         Total liabilities                                                                    66,258,923

         Members' Equity (Deficit)
         Managing member                                                                             100
         Holding company                                                                      12,708,001
         Retained earnings (deficit)                                                         (11,496,407)
                                                                                        -----------------
         Total members' equity                                                                 1,211,694
                                                                                        -----------------
         Total liabilities and members' equity                                              $ 67,470,617
                                                                                        =================



See accompanying note




                               Prime Care Two, LLC

                       Unaudited Statements of Operations

                                                                            Unaudited
                                                                 Nine months ended September 30
                                                                 2002                      2001
                                                            ----------------         -----------------

Operating revenue:
    Net resident service revenue                                $21,554,819               $20,254,005
    Other operating revenue                                       1,035,717                   721,624
                                                            ----------------         -----------------
Total operating revenue                                          22,590,536                20,975,629


Operating expenses:
    Health care and resident services                             6,248,541                 5,432,462
    Activities                                                      375,067                   339,214
    Food service                                                  2,948,012                 2,990,751
    Housekeeping and laundry                                        753,021                   641,818
    Plant operations and maintenance                              1,766,971                 1,587,489
    General and administrative                                    6,773,790                 5,824,208
    Depreciation                                                  2,729,279                 2,747,433
    Amortization of loan closing and deferred
       financing costs                                              489,492                   495,903
    Interest                                                      3,032,927                 5,288,496
                                                            ----------------         -----------------
Total operating expenses                                         25,117,100                25,347,774
                                                            ----------------         -----------------
                                                                 (2,526,564)               (4,372,145)
Other income (expense):
    Investment income                                                   616                     1,036
    Gain on extinguishment of debt                               38,394,370                         -
    Loss on sale of property                                     (3,597,580)                        -
                                                            ----------------         -----------------
Total other income (expense)                                     34,797,406                     1,036
                                                            ----------------         -----------------

Net income (loss)                                              $ 32,270,842              $ (4,371,109)
                                                            ================         =================


See accompanying note




                               Prime Care Two, LLC

                Unaudited Statement of Members' Equity (Deficit)

                                                    Managing                   Holding          Retained
                                        Number      Member's      Number      Company's         Earnings
                                       of Units      Equity      of Units       Equity         (Deficit)           Total
                                       ---------   -----------   ---------   -------------    -------------    ---------------

Balances, January 1, 2002                      1         $ 100          99     $11,746,431     $(43,767,249)     $ (32,020,718)
Contribution of restricted cash                -             -           -       1,211,570                -          1,211,570
Distribution                                   -             -           -        (250,000)               -           (250,000)
Net income (unaudited)                         -             -           -               -       32,270,842         32,270,842
                                       ---------   -----------   ---------   -------------    -------------    ---------------

Balances, September 30, 2002
(unaudited)                                    1         $ 100          99     $12,708,001     $(11,496,407)      $ 1,211,694
                                       =========   ===========   =========   =============    =============    ===============

See accompanying note




                               Prime Care Two, LLC

                       Unaudited Statements of Cash Flows

                                                                                  Unaudited
                                                                       Nine months ended September 30
                                                                         2002                  2001
                                                                    ----------------      ----------------

Operating activities
Net income (loss)                                                       $ 32,270,842           $(4,371,109)
Adjustments to reconcile net income (loss) to net cash
    used by operating activities:
    Gain on extinguishment of debt                                       (38,394,370)                    -
    Loss on sale of property                                               3,597,580                     -
    Depreciation                                                           2,729,279             2,747,433
    Amortization                                                             489,492               495,903
    Changes in operating assets and liabilities:
       Accounts receivable                                                  (260,076)              (54,259)
       Restricted cash                                                    (1,211,570)                    -
       Estimated third-party payor settlements                                     -               (15,312)
       Prepaid expenses and other assets                                    (127,839)             (347,747)
       Accounts payable and accrued expenses                                  750,797             (204,171)
       Accrued interest                                                   (1,239,656)            1,474,586
                                                                    ----------------      ----------------
Net cash used in operating activities                                     (1,395,521)             (274,676)

Investing activities
Acquisition of property and equipment                                        (17,614)              (97,342)
Change in assets limited as to use                                          (466,837)               30,922
                                                                    ----------------      ----------------
Net cash used in investing activities                                       (484,451)              (66,420)

Financing activities
Proceeds received to refinance note payable                               64,966,744                     -
Contribution of restricted cash                                            1,211,570                     -
Distribution                                                                (250,000)                    -
Payment of deferred financing costs                                       (1,079,895)                    -
Payment on note of payable                                               (62,377,406)                    -
                                                                    ----------------      ----------------
Net cash provided by financing activities                                  2,471,013                     -

Net increase (decrease) in cash and cash equivalents                         591,041              (341,096)
Cash and cash equivalents beginning of period                                375,769               783,406
                                                                    ----------------      ----------------
Cash and cash equivalents end of period                                  $   966,810             $ 442,310
                                                                    ================      ================

Supplemental cash flows information
Interest paid                                                           $  4,272,582           $ 4,471,759
                                                                    ================      ================
See accompanying note




                               Prime Care Two, LLC

                      Note to Unaudited Financial Statement


1. General

The  statements  presented  herein  have been  prepared in  accordance  with the
accounting  policies  described  in the  Prime  Care  Two,  LLC  2001  Financial
Statements  and  should  be read in  conjunction  with the  Notes  to  Financial
Statements which appear in that report.

The  statements  for the  nine  months  ended  September  30,  2002 and 2001 are
unaudited; however, in the opinion of management, all adjustments, which include
only  normal  and  recurring  accruals,  have  been made  which  are  considered
necessary to present fairly the operating results and financial position for the
unaudited periods.




                               Prime Care Two, LLC

                              Financial Statements

                  Years ended December 31, 2001, 2000 and 1999



                                    Contents

Report of Independent Auditors..........................................................................F-113

Audited Financial Statements

Balance Sheets..........................................................................................F-114
Statements of Operations................................................................................F-115
Statements of Members' Equity (Deficit).................................................................F-116
Statements of Cash Flows................................................................................F-117
Notes to Financial Statements...........................................................................F-118






                         Report of Independent Auditors

Board of Managers
Prime Care Two, LLC
Indianapolis, Indiana

We have  audited the balance  sheets of Prime Care Two,  LLC as of December  31,
2001 and  2000,  and the  related  statements  of  operations,  members'  equity
(deficit)  and cash  flows  for each of the  three  years  in the  period  ended
December 31, 2001.  These  financial  statements are the  responsibility  of the
Company's  management.  Our  responsibility  is to  express  an opinion on these
financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. 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 Prime Care Two, LLC at December
31, 2001 and 2000, and the results of their  operations and their cash flows for
each of the three years in the period ended  December 31,  2001,  in  conformity
with accounting principles generally accepted in the United States.

The  accompanying  financial  statements have been prepared  assuming that Prime
Care Two, LLC will continue as a going concern.  As more fully described in Note
9, the  Company  has  incurred  significant  operating  losses and has  negative
members' equity.  In addition,  the Company is in default on paying debt service
as  described  in Note 5. These  conditions  raise  substantial  doubt about the
Company's ability to continue as a going concern.  Management's  plans in regard
to these matters are also  described in Note 9. The financial  statements do not
include  any   adjustments  to  reflect  the  possible  future  effects  on  the
recoverability and classification of assets or the amounts and classification of
liabilities that may result from the outcome of these uncertainties.


                                                           /s/ Ernst & Young LLP
February 22, 2002,
except for Note 10 as to
which the date is
September 30, 2002





                               Prime Care Two, LLC

                                 Balance Sheets
                                                                                   December 31
                                                                           2001                  2000
                                                                      ----------------      ----------------

Assets
Current assets:
    Cash and cash equivalents                                              $   375,769            $  783,406
    Accounts receivable, less allowance for doubtful accounts
       of $180,812 and $140,088 in 2001 and 2000                               426,040               578,223
    Inventory and other assets                                                 269,394               304,160
                                                                      ----------------      ----------------
Total current assets                                                         1,071,203             1,665,789

Assets limited as to use                                                        31,024                61,946
Property and equipment, net                                                 68,940,378            72,467,696
Other assets:
    Loan closing costs, net of accumulated amortization of
       $1,046,079 and $798,876 in 2001 and 2000                                189,937               437,140
    Deferred financing costs, net of accumulated amortization
       of $1,770,445 and $1,356,445 in 2001 and 2000                           299,555               713,555
                                                                      ----------------      ----------------
Total other assets                                                             489,492             1,150,695
                                                                      ----------------      ----------------
Total assets                                                             $  70,532,097          $ 75,346,126
                                                                      ================      ================

Liabilities and Members' Equity (Deficit)
Current liabilities:
    Accounts payable and accrued expenses                                $   2,890,579           $ 3,239,515
    Accrued interest                                                         3,662,236             2,298,796
    Estimated third-party payor settlements                                          -                15,312
    Note payable                                                            92,000,000            92,000,000
                                                                      ----------------      ----------------
Total current liabilities                                                   98,552,815            97,553,623

Advances from PC2, LLC                                                       4,000,000             4,000,000
                                                                      ----------------      ----------------
Total liabilities                                                          102,552,815           101,553,623

Members' Equity (Deficit)
Managing member                                                                    100                   100
Holding company                                                             11,746,431            11,746,431
Deficit                                                                    (43,767,249)          (37,954,028)
                                                                      ----------------      ----------------
Total members' equity (deficit)                                            (32,020,718)          (26,207,497)
                                                                      ----------------      ----------------
Total liabilities and members' equity (deficit)                          $  70,532,097          $ 75,346,126
                                                                      ================      ================


See accompanying notes




                               Prime Care Two, LLC

                            Statements of Operations

                                                                      Years ended December 31
                                                          2001                  2000                  1999
                                                    -----------------     -----------------      ----------------

Operating revenue:
    Net resident service revenue                         $27,888,238           $26,819,493           $23,152,340
    Other operating revenue                                  120,478               140,859                96,765
                                                    -----------------     -----------------      ----------------
Total operating revenue                                   28,008,716            26,960,352            23,249,105


Operating expenses:
    Health care and resident services                      7,496,096             7,126,018             6,246,511
    Activities                                               468,515               509,910               450,154
    Food service                                           3,985,872             4,322,264             4,059,164
    Housekeeping and laundry                                 878,452               903,853               783,735
    Plant operations and maintenance                       2,132,954             2,132,462             1,950,963
    General and administrative                             7,873,272             8,388,079             7,797,319
    Depreciation                                           3,666,576             3,623,736             3,999,939
    Amortization of loan closing and deferred
       financing costs                                       661,203               661,203               661,192
    Interest                                               6,660,033             8,330,625             7,166,499
                                                    -----------------     -----------------      ----------------
Total operating expenses                                  33,822,973            35,998,150            33,115,476
                                                    -----------------     -----------------      ----------------
Loss from operations                                      (5,814,257)           (9,037,798)           (9,866,371)
Nonoperating income - investment income                        1,036                33,477                16,109
                                                    -----------------     -----------------      ----------------
Net loss                                                $ (5,813,221)        $  (9,004,321)        $  (9,850,262)
                                                    =================     =================      ================



See accompanying notes



                               Prime Care Two, LLC

                     Statements of Members' Equity (Deficit)


                                      Number       Managing                   Holding
                                        of          Member's      Number     Company's
                                       Units       Equity      of Units       Equity          Deficit            Total
                                     --------    -----------   ---------   -------------   --------------    --------------

Balances, January 1, 1999                   1          $ 100          99     $13,495,637     $(19,099,445)     $(5,603,708)
Distribution to members                     -              -           -      (1,143,070)               -       (1,143,070)
Net loss                                    -              -           -               -       (9,850,262)      (9,850,262)
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 1999                 1            100          99      12,352,567      (28,949,707)     (16,597,040)
Distribution to members                     -              -           -        (606,136)               -         (606,136)
Net loss                                    -              -           -               -       (9,004,321)      (9,004,321)
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 2000                 1            100          99      11,746,431      (37,954,028)     (26,207,497)
Net loss                                    -              -           -               -       (5,813,221)      (5,813,221)
                                     --------    -----------   ---------   -------------   --------------    --------------
Balances, December 31, 2001                 1          $ 100          99     $11,746,431     $(43,767,249)    $(32,020,718)
                                     ========    ===========   =========   =============   ==============    ==============



See accompanying notes




                               Prime Care Two, LLC

                            Statements of Cash Flows

                                                                            Years ended December 31
                                                               2001                  2000                  1999
                                                          ----------------      ----------------      ----------------

Operating activities
Net loss                                                      $ (5,813,221)         $ (9,004,321)         $(9,850,262)
Adjustments to reconcile net loss to net cash
    used by operating activities:
    Depreciation                                                 3,666,576             3,623,736             3,999,939
    Amortization                                                   661,203               661,203               661,192
    Bad debt expense                                                92,641               237,132                81,605
    Changes in operating assets and liabilities:
       Accounts receivable                                          59,542               185,638              (419,760)
       Estimated third-party payor settlements                     (15,312)              117,261               (85,222)
       Inventory and other assets                                   34,766                37,622               (24,706)
       Accounts payable and accrued expenses                      (348,936)             (210,910)            1,807,338
       Accrued interest                                          1,363,440             1,620,466                40,876
       Deferred revenue                                                  -                     -               (53,397)
                                                          ----------------      ----------------      ----------------
Net cash used by operating activities                             (299,301)           (2,732,173)           (3,842,397)

Investing activities
Acquisition of property and equipment                             (139,258)             (380,628)              (62,783)
Change in assets limited as to use                                  30,922                647,825              212,164
                                                          ----------------      ----------------      ----------------
Net cash provided by (used in) investing activities               (108,336)              267,197               149,381

Financing activities
Advances from PC2, LLC                                                   -             2,822,122             3,835,561
Advances from Marriott Senior Living Services                            -                     -             1,177,878
Distributions to members                                                 -              (606,136)           (1,143,070)
                                                          ----------------      ----------------      ----------------
Net cash provided by financing activities                                -             2,215,986             3,870,369
                                                          ----------------      ----------------      ----------------
Net increase (decrease) in cash and cash equivalents              (407,637)             (248,990)              177,353
Cash and cash equivalents beginning of year                        783,406             1,032,396               855,043
                                                          ----------------      ----------------      ----------------
Cash and cash equivalents end of year                          $   375,769            $  783,406           $ 1,032,396
                                                          ================      ================      ================

Supplemental cash flows information
Interest paid                                                 $  4,794,123           $ 6,659,606           $ 7,147,211
                                                          ================      ================      ================



See accompanying notes




                               Prime Care Two, LLC

                          Notes to Financial Statements

                                December 31, 2001


1. Organization

Prime Care Two, LLC (Company) was  organized as a limited  liability  company in
May 1997 under the laws of the State of Indiana and commenced  operations during
1997. The Company owns seven senior-living  residential facilities  (Facilities)
known as  Brighton  Gardens.  The  Facilities  are  located  in  Raleigh,  North
Carolina; Brentwood, Tennessee; Stamford,  Connecticut;  Middletown, New Jersey;
Buckhead,  Georgia;  Naples,  Florida;  and Winston-Salem,  North Carolina.  The
Facilities offer various  combinations of assisted living,  specialized care for
Alzheimers patients and skilled nursing services.  The Facilities are managed by
Marriott Senior Living Services, Inc. (MSLS or Operator).

The Company is owned 99% by PC2, LLC, a special purpose holding company,  and 1%
by Prime Care 2 Corp.,  the managing  member.  PC2, LLC is owned 24.24% by Prime
Care Properties, LLC and 75.76% by outside investors.

2. Significant Accounting Policies

Use of Estimates

Preparation of financial  statements  requires  management to make estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Assets Limited As to Use

Assets limited as to use are cash and  miscellaneous  cash equivalents held by a
collateral  agent  under a  Collection  Account  Security  and Pledge  Agreement
(Pledge Agreement).  Amounts required to meet current liabilities of the Company
have been classified as current assets. The assets limited as to use are carried
at fair value.  Realized and  unrealized  gains and losses are  reflected in the
statement of operations.






                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


2. Significant Accounting Policies (continued)

Property and Equipment

Expenditures for property and equipment and items which  substantially  increase
the  useful  lives of  existing  assets are  capitalized  at cost.  The  Company
provides  for  depreciation  using the  straight-line  method over the  expected
estimated useful lives as follows:

                Furnishings and equipment                             5 years
                Buildings                                            30 years

Loan Closing and Deferred Financing Costs

Loan  closing  and  deferred  financing  costs  are  being  amortized  using the
straight-line  method over the term of the debt. Total amortization  expense was
$661,203 for 2001 and 2000 and $661,192 for 1999.

Net Resident  Service  Revenue,  Accounts  Receivable and Estimated  Third-Party
Payor Settlements

Resident  service  revenue for  assisted  living is  reported at net  realizable
amounts from  residents for services  rendered.  The residents of the facilities
pay their residency fees on a  month-to-month  basis.  Resident fees for nursing
are reported at the estimated net realizable amounts from residents, third-party
payors,  and others for services rendered.  Effective January 1, 1999,  services
rendered to Medicare program  beneficiaries  are paid primarily at prospectively
determined  rates  per  resident.  These  rates  vary  according  to  a  patient
classification system that is based on clinical,  diagnostic, and other factors.
Certain services are based on fee schedules.

Revenues from the Medicare and Medicaid programs  accounted for approximately 5%
of the  Company's  resident  service  revenue  for both 2001 and 2000 and 3% for
1999. Medicare and Medicaid receivables  accounted for approximately 43% and 23%
of accounts receivable at December 31, 2001 and 2000, respectively.

Laws and  regulations  governing the Medicare and Medicaid  programs are complex
and subject to  interpretation.  The Company  believes  that it is in compliance
with all  applicable  laws and  regulations  and is not aware of any  pending or
threatened investigations involving allegations and potential wrongdoing.  While
no such  regulatory  inquiries  have been  made,  compliance  with such laws and
regulations can be subject to future  government review and  interpretations  as
well as significant regulatory action including fines, penalties,  and exclusion
from the Medicare and Medicaid programs.




                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


2.  Significant Accounting Policies (continued)

Income Taxes

Taxes  on  the  Company's  income  are  liabilities  of the  Company's  members.
Accordingly,  no  provision  for  income  taxes  has been  included  in  current
operations.  The Company  operates in various  states  that have  differing  tax
requirements.

3. Assets Limited As to Use

Assets  limited as to use  represents  cash funds held by a collateral  agent in
accordance with the Pledge Agreement, as follows:
                                                                     December 31
                                                               2001              2000
                                                          ---------------- ----------------
Furniture, fixtures and equipment reserve account                 $ 31,024         $ 61,946
                                                          ================ ================


The assets of the  Collection  account are used to reimburse the Operator of the
Facilities  and service  the senior debt  incurred by the Company as well as the
subordinated debt incurred by the Company's  holding company.  The Company is in
default on paying  interest in 2001 and 2000.  Thus, the lender takes any excess
funds after  operating  expenses are paid and puts those funds in their suspense
account. At December 31, 2001 and 2000,  $233,539 and $2,733,560,  respectively,
of interest payments are being held in the lenders suspense account. The Company
anticipates the amounts will  ultimately be applied to pay the accrued  interest
on the debt, thus accrued interest has been reduced by the corresponding  amount
in the accompanying financial statements at December 31, 2001 and 2000.





                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


4. Property and Equipment

The Company's property and equipment are as follows:
                                                             December 31
                                                      2001                2000
                                              --------------------------------------

Land                                          $        9,311,040   $       9,311,040
Buildings                                             67,600,592          67,600,592
Furnishings and equipment                              7,637,758           7,498,500
                                              --------------------------------------
                                                      84,549,390          84,410,132
Accumulated depreciation                             (15,609,012)        (11,942,436)
                                              --------------------------------------
                                              $       68,940,378    $     72,467,696
                                              ======================================

On March 22, 2000 the  Company,  the  Company's  holding  company,  the managing
member and Marriott  Senior Living  Services (MSLS) entered into a restructuring
agreement and release.  The  agreement  provided  for,  among other things,  the
reduction of the purchase  price by  $7,400,000  with respect to the  properties
originally purchased from MSLS related entities in 1997. The $7,400,000 has been
reflected  as a reduction  in the  December  31,  2000  property  and  equipment
balances.

5. Note Payable

The note payable consists of the following:
                                                                                       December 31
                                                                                2001                 2000
                                                                       -------------------------------------
Note payable - Interest  is payable  monthly  based upon the 30
   day LIBOR rate + 2.50% (4.64% at  12/31/01).  Principal  payments
   are based upon the Company's cash  flow  with  final  payment  due
   September  12,  2002.   The  note  is collateralized  by
   substantially  all of the Company's  assets,  including a
   first mortgage.
                                                                           $  92,000,000       $  92,000,000
                                                                       =====================================

The Company is in default on paying  interest on the note payable as of December
31,  2001 and 2000.  The note  payable  has been  classified  as  current in the
accompanying  financial  statements  even though a Notice of Acceleration of the
debt has not been received from the lender as of the report date.  However,  the
Company  was  charged a  termination  fee of  $456,491  in 2001,  which has been
reflected  as  additional   interest  expense  in  the  combined   statement  of
operations.  The unpaid interest has been accrued in the accompanying  financial
statements,  but does not include amounts for late fees,  which are estimated to
be $7,410,900 and $2,747,000 at December 31, 2001 and 2000, respectively.




                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


5.  Note Payable (continued)

Under the terms of the Pledge  Agreement,  the  Company is  required to maintain
certain deposits with a trustee.  Such deposits are included with assets limited
as to use. The Pledge Agreement also includes a number of restrictive  covenants
that limit the  Company's  ability  to incur  additional  debt or  significantly
change the nature of its operations.

6. Rights of Members

As a limited liability company (LLC), the members are not personally responsible
for the  obligations  of the  Company.  The Company has two  members:  a holding
company (PC2,  LLC) and a managing  member (Prime Care 2 Corp.).  The day-to-day
management  of the  Company's  business is  exclusively  vested in four managing
directors.  The managing  member elects three of the managing  directors and the
Class B members of the holding company elect one.

Under  the terms of the  Company's  Operating  Agreement,  certain  actions,  as
defined in the Operating Agreement,  may not be initiated by the Company without
unanimous  consent of the members until the Company's senior debt is fully paid.
These  restrictions  include  issuing  additional  membership  units,  obtaining
additional debt, purchasing real property, and filing for bankruptcy.

7. Related Party Transactions

Under  the terms of the  Company's  Operating  Agreement,  the  Company  pays an
administrative  fee to Prime Care Properties,  LLC, a limited  liability company
that is the Class A member of the  Company's  holding  company and whose members
are also  shareholders  of the  Company's  managing  member.  Until  Prime  Care
Properties,  LLC is entitled to payments of its administrative fee due under the
Administrative  Agreement on a current basis,  they shall be entitled to receive
only $57,200 each year commencing on January 1, 2000. Total  administrative fees
paid to Prime Care Properties, LLC for 2001 and 2000 were $57,200.

As part of the  acquisition of the  Facilities,  the Company's  holding  company
obtained additional  subordinated  financing from the Company's primary creditor
of $9,000,000. Certain assets limited as to use have been pledged to service the
subordinated   debt  and  these   payments   are  recorded  by  the  Company  as
distributions to the holding  company.  Distributions to the holding company for
debt service  totaled $0,  $606,136 and $1,143,070  during 2001,  2000 and 1999,
respectively.  Even though  there is no  requirement  under any  agreement,  the
Company  will  continue  to make  distributions,  to the  extent  that funds are
available, to the holding company in order for it to fund its debt service.




                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


7.  Related Party Transactions (continued)

The Company's  holding company had borrowed  $7,400,000 under a Debt Service and
Shortfall Advances Loan with MSLS during 1998 and 1999 and subsequently advanced
this amount to the Company.  As discussed in Note 4, the Company,  the Company's
holding  company,  the managing  member and MSLS  entered  into a  restructuring
agreement and release whereby the borrowings of $7,400,000 outstanding under the
existing  Debt Service and  Shortfall  Advances  Loan were used to fund the MSLS
obligation  with  respect to the purchase  price  reduction.  In  addition,  the
agreement revised the Debt Service and Shortfall  Advances Loan to allow for new
borrowings up to $4,000,000. The Company subsequently received advances from the
holding company of $4,000,000  from the new Debt Service and Shortfall  Advances
loan. Even though there is no requirement under any agreement,  the Company will
make payments, to the extent that funds are available, to the holding company to
repay amounts advanced. No payments were made during 2001, 2000 or 1999. Amounts
due by the holding  company under the Debt Service and  Shortfall  Advances Loan
are subordinate to amounts due by the holding company under the subordinate debt
from the Company's primary creditor.

8. Management Fees

Under the terms of operating  agreements  for the  Facilities,  Marriott  Senior
Living  Services  operates the Facilities on behalf of the Company.  The initial
terms of the  agreements  expire  December  31, 2022 and may be renewed for five
five-year  periods  at the  option of the  Operator.  The  agreements  cannot be
terminated by the Company without approval of its lender and may be subject to a
termination fee should approval be granted.

The Company pays the Operator a base fee and a central  administrative  services
(CAS) fee, which are both based on gross revenues.  Through  September 2002, the
base fee is 5% of gross revenues and will increase to 5.5%  thereafter.  The CAS
fee is 2% of gross  revenues  throughout  the term of the contract.  The Company
also pays an incentive fee to the Operator, which is 25% of operating profit for
each  fiscal  year after the Company  has  received a minimum  operating  profit
amount,  as defined in the operating  agreement.  Management fees for 2001, 2000
and 1999 approximated $1,952,000, $1,862,000 and $1,632,000, respectively, which
consist solely of base and CAS fees.

Under the Agreement, management and employees are employees of the Operator. The
majority of all costs are paid by the  Operator  who is then  reimbursed  by the
Company.  Consequently, the majority of accounts payable and accrued expenses at
December 31, 2001 and 2000 reflect amounts due to the Operator.





                               Prime Care Two, LLC

                    Notes to Financial Statements (continued)


9. Going Concern

The Company has incurred  significant  operating  losses during the years ending
December 31, 2001,  2000 and 1999 and is in a negative  members' equity position
at December 31, 2001 and 2000. The Company is currently not generating  positive
cash flow from operations. The Company is in default on paying interest on their
debt during 2001 and 2000.  In  addition,  the Company has  obtained all amounts
available from their holding company's Debt Service and Shortfall Advances Loan.
All of these conditions raise  substantial  doubt about the Company's ability to
continue as a going concern.

Management  intends to negotiate  with the lender to  restructure  the Company's
debt. As of February 22, 2002, no formal plan or agreement has been reached. The
accompanying  financial statements do not include any adjustments to reflect the
possible future effects on the  recoverability  and  classification of assets or
the amounts and  classification  of liabilities that may result from the outcome
of this uncertainty.

10. Subsequent Event (Unaudited)

The Company,  together with Prime Care One, LLC and their owners, entered into a
Refinancing Agreement on September 30, 2002 with CNL Retirement Properties, Inc.
(CNL) that included the refinancing of the seven  facilities owned by Prime Care
Two,  LLC.  CNL  provided  $54,607,438  to Prime  Care  Two,  LLC to pay off its
existing debt of $92,000,000,  plus accrued interest, and $9,000,000 to PC2, LLC
to pay off its existing debt, plus accrued interest.  The former lender accepted
the amounts  advanced by CNL as payment in full on those  debts,  including  any
accrued  interest  to date.  Prime Care One,  LLC and Prime  Care Two,  LLC also
jointly borrowed $4,470,000 to pay transfer,  title, recording and closing costs
of the  transactions.  The refinancing took the form of a sale-leaseback  with a
financing-capital  lease term from CNL of 35 years, with an option to repurchase
the Prime Care Two  facilities  at the end of the term for a bargain  price.  In
addition,  the accrued  subordinated  management fees and debt service  advances
loans, including accrued interest, from MSLS have been extinguished.





                              Prime Care Eight, LLC

                   Unaudited Consolidated Financial Statements



                                    Contents

Unaudited Consolidated Balance Sheet as of September 30, 2002...........................................F-126

Unaudited Consolidated Statements of Operations for the Nine Months Ended
     September 30, 2002 and 2001........................................................................F-127

Unaudited Consolidated Statement of Members' Equity.....................................................F-128

Unaudited Consolidated Statements of Cash Flows for the Nine Months Ended
     September 30, 2002 and 2001........................................................................F-129

Note to Unaudited Consolidated Financial Statements.....................................................F-130





                              Prime Care Eight, LLC

                      Unaudited Consolidated Balance Sheet
                                                                                           Unaudited
                                                                                         September 30,
                                                                                             2002

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

         Assets
         Current assets:
            Cash and cash equivalents                                                         $  544,816
            Accounts receivable, net                                                             200,890
            Assets limited as to use                                                             443,093
            Prepaid expenses and other current assets                                             51,019
                                                                                        ----------------
         Total current assets                                                                  1,239,818

         Property and equipment, net                                                          25,599,750
         Other assets:
            Loan closing costs, net of accumulated amortization
              of $125,767 at September 30, 2002                                                  193,648
            Deferred financing costs, net of accumulated amortization
              of $177,000 at September 30, 2002                                                  265,500
                                                                                        ----------------
         Total other assets                                                                      459,148
                                                                                        ----------------
         Total assets                                                                       $ 27,298,716
                                                                                        ================

         Liabilities and Members' Equity
         Current liabilities:
            Current portion of long-term debt                                                 $  399,702
            Accounts payable and accrued expenses                                              1,920,249
            Accrued interest                                                                     297,996
            Line of credit                                                                       898,244
                                                                                        ----------------
         Total current liabilities                                                             3,516,191

         Long-term debt                                                                       20,437,920
                                                                                        ----------------
         Total liabilities                                                                    23,954,111

         Members' Equity
         Managing member                                                                             100
         Holding company                                                                       5,182,059
         Deficit                                                                              (1,837,554)
                                                                                        ----------------
         Total members' equity                                                                 3,344,605
                                                                                        ----------------
         Total liabilities and members' equity                                              $ 27,298,716
                                                                                        ================

See accompanying note




                              Prime Care Eight, LLC

                 Unaudited Consolidated Statements of Operations


                                                                                      Unaudited
                                                                       For the Nine Months Ended September 30,
                                                                           2002                      2001
                                                                     ------------------       -------------------

Operating revenue:
   Net resident service revenue                                             $ 4,419,699               $ 4,563,086
   Other operating revenue                                                      927,910                   879,326
                                                                     ------------------       -------------------
Total operating revenue                                                       5,347,609                 5,442,412

Operating expenses:
   Resident services                                                          1,080,289                 1,028,668
   Activities                                                                    67,475                    70,719
   Food service                                                                 457,710                   457,368
   Housekeeping and laundry                                                      98,945                   102,673
   Plant operations and maintenance                                             397,814                   384,930
   General and administrative                                                 1,669,948                 1,490,629
   Depreciation                                                                 786,289                   765,429
   Amortization of loan closing and
      deferred financing costs                                                   57,339                    57,339
   Interest                                                                   1,329,011                 1,312,718
                                                                     ------------------       -------------------
Total operating expenses                                                      5,944,820                 5,670,473
                                                                     ------------------       -------------------
Loss from operations                                                           (597,211)                 (228,061)
Nonoperating income - investment income                                           3,289                    12,946
                                                                     ------------------       -------------------
Net loss                                                                    $  (593,922)              $  (215,115)
                                                                     ==================       ===================



See accompanying note




                              Prime Care Eight, LLC

               Unaudited Consolidated Statement of Members' Equity

                                                        Managing                  Holding
                                           Number       Members'     Number      Company's
                                           of Units      Equity      of Units      Equity         Deficit         Total
                                           ---------- -------------- ---------- -------------  --------------- -------------

Balances, December 31, 2001                        1       $    100         99   $ 5,192,059      $(1,243,632)   $3,948,527
Distribution to members                            -              -          -       (10,000)               -       (10,000)
Net loss (Unaudited)                               -              -          -             -         (593,922)     (593,922)
                                           ---------- -------------- ---------- -------------  --------------- -------------
Balances, September 30, 2002 (Unaudited)           1       $    100         99   $ 5,182,059      $(1,837,554)    $3,344,605
                                           ========== ============== ========== =============  =============== =============



See accompanying note




                              Prime Care Eight, LLC

                 Unaudited Consolidated Statements of Cash Flows

                                                                                     Unaudited
                                                                      For the Nine Months Ended September 30,
                                                                           2002                     2001
                                                                     ------------------       -----------------

Operating activities
Net loss                                                                   $   (593,922)           $  (215,115)
Adjustments to reconcile net loss to net cash provided
   by (used in) operating activities:
   Depreciation                                                                 786,289                 765,429
   Amortization                                                                  57,339                  57,339
   Changes in operating assets and liabilities:
     Accounts receivable                                                        (72,019)                (56,646)
     Prepaid expenses and other current assets                                   27,965                   8,565
     Accounts payable and accrued expenses                                      625,957              (1,092,049)
     Accrued interest                                                            78,037                  40,448
                                                                     ------------------       -----------------
Net cash provided by (used in) operating activities                             909,646                (492,029)

Investing Activities
Purchase of property and equipment                                             (186,888)                (35,870)
Decrease (increase) in assets limited as to use                                  61,619                 (22,384)
                                                                     ------------------       -----------------
Net cash used in investing activities                                          (125,269)                (58,254)

Financing activities
Distribution to members                                                         (10,000)               (878,272)
Proceeds from line of credit                                                          -                 399,139
Payments on long-term debt                                                     (278,583)               (257,287)
                                                                     ------------------       -----------------
Net cash used in financing activities                                          (288,583)               (736,420)
                                                                     ------------------       -----------------
Net increase (decrease) in cash and cash equivalents                            495,794              (1,286,703)
Cash and cash equivalents beginning of period                                    49,022               1,342,505
                                                                     ------------------       -----------------
Cash and cash equivalents end of period                                     $   544,816              $   55,802
                                                                     ==================       =================

Supplemental cash flows information
Interest paid                                                              $  1,250,974             $ 1,272,270
                                                                     ==================       =================



See accompanying notes




                              Prime Care Eight, LLC

               Note to Unaudited Consolidated Financial Statements


1. General

The  statements  presented  herein  have been  prepared in  accordance  with the
accounting  policies  described in the Prime Care Eight,  LLC 2001  Consolidated
Financial  Statements  and  should  be read in  conjunction  with  the  Notes to
Consolidated Financial Statements which appear in that report.

The  statements  for the  nine  months  ended  September  30,  2002 and 2001 are
unaudited; however, in the opinion of management, all adjustments, which include
only  normal  and  recurring  accruals,  have  been made  which  are  considered
necessary to present fairly the operating results and financial position for the
unaudited periods.






                              Prime Care Eight, LLC

                        Consolidated Financial Statements

                                   Years ended December 31, 2001, 2000 and 1999



                                    Contents

Report of Independent Auditors..........................................................................F-132

Audited Financial Statements

Consolidated Balance Sheets.............................................................................F-133
Consolidated Statements of Operations...................................................................F-134
Consolidated Statements of Members' Equity..............................................................F-135
Consolidated Statements of Cash Flows...................................................................F-136
Notes to Consolidated Financial Statements..............................................................F-137









                         Report of Independent Auditors

Board of Managers
Prime Care Eight, LLC
Indianapolis, Indiana

We have audited the  consolidated  balance sheets of Prime Care Eight, LLC as of
December  31,  2001  and  2000,  and  the  related  consolidated  statements  of
operations,  members'  equity and cash flows for each of the three  years in the
period  ended   December  31,  2001.   These   financial   statements   are  the
responsibility of the Company's management.  Our responsibility is to express an
opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable  assurance about whether the financial  statements are free
of material misstatement. 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 consolidated  financial statements referred to above present
fairly, in all material respects,  the consolidated  financial position of Prime
Care Eight, LLC at December 31, 2001 and 2000, and the  consolidated  results of
its  operations  and its cash  flows for each of the three  years in the  period
ended  December 31, 2001, in conformity  with  accounting  principles  generally
accepted in the United States.


                                                           /s/ Ernst & Young LLP
March 1, 2002




                              Prime Care Eight, LLC

                           Consolidated Balance Sheets
                                                                                       December 31
                                                                                2001                   2000
                                                                          ----------------      -----------------

Assets
Current assets:
   Cash and cash equivalents                                                     $   49,022            $ 1,342,505
   Accounts receivable, net                                                         128,871                146,365
   Assets limited as to use                                                         504,712                442,525
   Prepaid expenses and other current assets                                         78,984                 35,974
                                                                           ----------------      -----------------
Total current assets                                                                761,589              1,967,369

Property and equipment, net                                                      26,199,151             27,162,027
Other assets:
   Loan closing costs, net of accumulated amortization
     of $101,615 and $69,413 in 2001 and 2000                                       217,800                250,002
   Deferred financing costs, net of accumulated amortization
     of $143,813 and $99,563 in 2001 and 2000                                       298,687                342,937
                                                                           ----------------      -----------------
Total other assets                                                                  516,487                592,939
                                                                           ----------------      -----------------
Total assets                                                                   $ 27,477,227           $ 29,722,335
                                                                           ================      =================

Liabilities and Members' Equity
Current liabilities:
   Current portion of long-term debt                                              $ 376,652             $  347,998
   Accounts payable and accrued expenses                                          1,294,292              2,109,692
   Accrued interest                                                                 219,959                157,794
   Line of credit                                                                   898,244                499,105
                                                                           ----------------      -----------------
Total current liabilities                                                         2,789,147              3,114,589

Long-term debt                                                                   20,739,553             21,116,205
                                                                           ----------------      -----------------
Total liabilities                                                                23,528,700             24,230,794

Members' Equity
Managing member                                                                         100                    100
Holding company                                                                   5,192,059              6,269,900
Deficit                                                                          (1,243,632)              (778,459)
                                                                           ----------------      -----------------
Total members' equity                                                             3,948,527              5,491,541
                                                                           ----------------      -----------------
Total liabilities and members' equity                                          $ 27,477,227           $ 29,722,335
                                                                           ================      =================



See accompanying notes




                              Prime Care Eight, LLC

                      Consolidated Statements of Operations

                                                                            Years ended December 31,
                                                                 2001                    2000                 1999
                                                           -----------------       -----------------      --------------

Operating Revenue:
   Net resident service revenue                                 $  6,090,827            $  5,851,814         $ 6,153,780
   Other operating revenue                                         1,180,350               1,129,802             909,343
                                                           -----------------       -----------------      --------------
Total operating revenue                                            7,271,177               6,981,616           7,063,123

Operating Expenses:
   Health care and resident services                               1,432,618               1,442,486           1,354,266
   Activities                                                        102,422                  91,090              79,203
   Food service                                                      616,359                 603,746             584,988
   Housekeeping and laundry                                          143,168                 128,491             126,162
   Plant operations and maintenance                                  511,177                 468,365             445,159
   General and administrative                                      2,091,340               1,992,242           1,900,890
   Depreciation                                                    1,023,156               1,014,721             999,104
   Amortization of loan closing and
      deferred financing costs                                        76,452                  76,452              74,062
   Interest                                                        1,753,576               1,733,457           1,739,988
                                                           -----------------       -----------------      --------------
Total operating expenses                                           7,750,268               7,551,050           7,303,822

                                                           -----------------       -----------------      --------------
Loss from operations                                                (479,091)              (569,434)            (240,699)
Nonoperating income - investment income                               13,918                  30,829              25,485
                                                           -----------------       -----------------      --------------
Net loss                                                        $   (465,173)          $   (538,605)        $   (215,214)
                                                           =================       =================      ==============



See accompanying notes




                              Prime Care Eight, LLC

                   Consolidated Statements of Members' Equity

                                              Managing                      Holding
                                Number of     Members'      Number of      Company's
                                  Units        Equity         Units          Equity          Deficit          Total
                               ------------ -------------- ------------  --------------   --------------   ------------

Balances, January 1, 1999                 1       $    100           99     $ 8,779,285       $  (24,640)    $8,754,745
Distributions to members                  -              -            -      (1,161,760)               -     (1,161,760)
Net loss                                  -              -            -               -         (215,214)      (215,214)
                               ------------ -------------- ------------  --------------   --------------   ------------
Balances, December 31, 1999               1            100           99       7,617,525         (239,854)     7,377,771
Distributions to members                  -              -            -      (1,347,625)               -     (1,347,625)
Net loss                                  -              -            -               -         (538,605)      (538,605)
                               ------------ -------------- ------------  --------------   --------------   ------------
Balances, December 31, 2000               1            100           99       6,269,900         (778,459)     5,491,541
Distributions to members                  -              -            -      (1,077,841)               -     (1,077,841)
Net loss                                  -              -            -               -         (465,173)      (465,173)
                               ------------ -------------- ------------  --------------   --------------   ------------
Balances, December 31, 2001               1       $    100           99     $ 5,192,059      $(1,243,632)    $3,948,527
                               ============ ============== ============  ==============   ==============   ============



See accompanying notes




                              Prime Care Eight, LLC

                      Consolidated Statements of Cash Flows

                                                                           Years ended December 31
                                                                 2001                 2000                1999
                                                           -----------------    -----------------    ---------------

Operating activities
Net loss                                                        $   (465,173)       $   (538,605)        $  (215,214)
Adjustments to reconcile net loss to net cash provided
   by (used in) operating activities:
   Depreciation                                                    1,023,156            1,014,721            999,104
   Amortization                                                       76,452               76,452             74,062
   Changes in operating assets and liabilities:
     Accounts receivable                                              17,494               27,985            (98,145)
     Prepaid expenses and other current assets                       (43,010)              79,933            (63,823)
     Accounts payable and accrued expenses                          (815,400)           1,524,694            487,941
     Accrued interest                                                 62,165              157,794           (148,864)
                                                           -----------------    -----------------    ---------------
Net cash provided by (used in) operating activities                 (144,316)           2,342,974          1,035,061

Investing activities
Purchase of property and equipment                                   (60,280)             (69,541)           (44,070)
Increase in assets limited as to use                                 (62,187)            (278,727)           188,374
                                                           -----------------    -----------------    ---------------
Net cash provided by (used in) investing activities                 (122,467)            (348,268)          144,304

Financing activities
Distributions to members                                          (1,077,841)          (1,347,625)        (1,161,760)
Proceeds from line of credit                                         399,139              499,105                  -
Payments on long-term debt                                          (347,998)            (293,796)          (320,507)
Payment of loan closing and deferred financing fees                        -                    -            (23,462)
                                                           -----------------    -----------------    ---------------
Net cash used in financing activities                             (1,026,700)          (1,142,316)        (1,505,729)
                                                           -----------------    -----------------    ---------------
Net increase (decrease) in cash and cash equivalents              (1,293,483)             852,390           (326,364)
Cash and cash equivalents beginning of year                        1,342,505              490,115            816,479
                                                           -----------------    -----------------    ---------------
Cash and cash equivalents end of year                            $    49,022         $  1,342,505         $  490,115
                                                           =================    =================    ===============

Supplemental cash flows information
Interest paid                                                   $  1,691,411         $  1,575,663        $ 1,888,852
                                                           =================    =================    ===============
See accompanying notes




                              Prime Care Eight, LLC

                   Notes to Consolidated Financial Statements

                                December 31, 2001


1. Organization

Prime Care Eight, LLC (Company) was organized as a limited  liability company in
1998  under  the laws of the  State  of  Indiana  and  commenced  operations  in
September 1998 when it purchased two senior-living  residential facilities.  The
Company wholly owns two Maryland limited liability companies, Annapolis Assisted
Living,  LLC and  Pikesville  Assisted  Living,  LLC,  the title  holders of the
facilities.  The two senior-living residential facilities (Facilities) are known
as Sunrise  Assisted  Living of  Annapolis  located in  Annapolis,  Maryland and
Sunrise  Assisted  Living of Pikesville  located in  Pikesville,  Maryland.  The
Facilities  offer  assisted  living care for the  elderly.  The  Facilities  are
managed by Sunrise Assisted Living Management, Inc. (Operator).

The consolidated  financial statements include the accounts of Prime Care Eight,
LLC and its two wholly owned limited liability companies.  Intercompany accounts
and transactions have been eliminated in consolidation.

The Company is owned 99% by PC8, LLC, a special purpose holding company,  and 1%
by Prime Care 8 Corp., the managing member. PC8, LLC is owned 100% by Prime Care
Properties, LLC.

2. Significant Accounting Policies

Use of Estimates

Preparation of financial  statements  requires  management to make estimates and
assumptions  that  affect the  reported  amounts of assets and  liabilities  and
disclosure of  contingent  assets and  liabilities  at the date of the financial
statements.  Estimates also affect the reported amounts of revenues and expenses
during the reporting period. Actual results could differ from those estimates.

Assets Limited As to Use

Assets limited as to use are cash and  miscellaneous  cash equivalents held by a
collateral  agent under an agreement with the lender.  Amounts  required to meet
current  liabilities of the Company have been classified as current assets.  The
assets  limited as to use are carried at fair  value.  Realized  and  unrealized
gains and losses are reflected in the statements of operations.





                              Prime Care Eight, LLC

             Notes to Consolidated Financial Statements (continued)


2. Significant Accounting Policies (continued)

Property and Equipment

Expenditures for property and equipment and items which  substantially  increase
the  useful  lives of  existing  assets are  capitalized  at cost.  The  Company
provides  for  depreciation  using the  straight-line  method over the  expected
estimated useful lives as follows:

                Furnishings and equipment                             7 years
                Buildings                                            30 years

Loan Closing and Deferred Financing Costs

Loan  closing  and  deferred  financing  costs  are  being  amortized  using the
straight-line  method over the term of the debt. Total amortization  expense was
$76,452 for the years ended  December 31, 2001 and 2000 and $74,062 for the year
ended December 31, 1999.

Net Resident Service Revenue and Accounts Receivable

Net  resident  service  revenue  is  reported  at net  realizable  amounts  from
residents  for services  rendered.  The  residents of the  Facilities  pay their
residency fees on a month-to-month basis.

Income Taxes

Taxes  on  the  Company's  income  are  liabilities  of the  Company's  members.
Accordingly,  no  provision  for  income  taxes  has been  included  in  current
operations.  The Company  operates in various  states  that have  differing  tax
requirements.  No provision  has been made,  as amounts of  obligations  are not
material.

3. Assets Limited As to Use

Assets  limited as to use  represent  cash funds held by a  collateral  agent in
accordance with the note payable, as follows:
                                                                    December 31
                                                             2001                2000
                                                      ------------------ -------------------

Tax and insurance reserve account                       $        173,718    $        142,240
Replacement reserve account                                       61,223              30,514
Debt service reserve account                                     269,771             269,771
                                                      ------------------ -------------------
                                                        $        504,712    $        442,525
                                                      ================== ===================




                              Prime Care Eight, LLC

             Notes to Consolidated Financial Statements (continued)


4. Property and Equipment

The Company's property and equipment are as follows:
                                                                   December 31
                                                              2001               2000
                                                       ------------------------------------

Land                                                   $    1,854,603           $ 1,854,603
Buildings                                                  26,735,892            26,735,892
Furnishings and equipment                                     896,064               835,784
                                                       ------------------------------------
                                                           29,486,559            29,426,279
Accumulated depreciation                                   (3,287,408)           (2,264,252)
                                                       ------------------------------------
                                                       $   26,199,151          $ 27,162,027
                                                       ====================================

5. Long-Term Debt

Long-term debt consists of the following:

                                                                   December 31
                                                              2001             2000
                                                       ------------------------------------
Note payable - Interest at 7.83%. Interest and
   principal payments due monthly until maturity
   on October 1, 2008. The note is collateralized
   by substantially all of the Company's assets,
   including a first mortgage.                         $    21,116,205         $ 21,464,203
Less current portion                                          (376,652)            (347,998)
                                                       ------------------------------------
                                                       $    20,739,553         $ 21,116,205
                                                       ====================================

Future maturities of long-term debt at December 31, 2001 are as follows:

     2002                                                   $    376,652
     2003                                                        407,665
     2004                                                        436,554
     2005                                                        477,179
     2006                                                        516,470
     Thereafter                                               18,901,685
                                                         ---------------
                                                             $21,116,205
                                                         ===============





                              Prime Care Eight, LLC

             Notes to Consolidated Financial Statements (continued)


5. Long-Term Debt (continued)

The Company entered into a cash management agreement in connection with its note
payable which requires the Company to maintain  certain deposits with a trustee.
Such  deposits are included with assets  limited as to use. The cash  management
agreement  also  includes  a number  of  restrictive  covenants  that  limit the
Company's ability to incur additional debt or significantly change the nature of
its operations.

The Operator  shall  provide a credit  facility to the  Company,  on a revolving
basis,  of up to  $3,000,000  to be  utilized  by the  Company  to  provide  the
Facilities  with  working  capital,  which it may require to fund any  operating
deficits.  However,  the  subordination  agreement  between  the  lender for the
holding  company debt and the Operator  further limits the credit facility to be
used only for debt service on the holding company debt. The amounts available to
the Company under the credit  facility are reduced  quarterly over the five-year
term of the credit  facility,  if certain  financial  conditions  are met. These
conditions  to reduce  the  amount  available  to the  Company  under the credit
facility were not met during 2001, 2000 or 1999. There was $898,244 and $499,105
outstanding   under  the  credit   facility  at  December  31,  2001  and  2000,
respectively.  Outstanding  amounts accrue  interest at LIBOR plus 3.5% (average
rate of 7.72% and 10.20% during 2001 and 2000, respectively).  There was $77,583
and $13,072 in interest  accrued on the credit facility at December 31, 2001 and
2000, respectively. There were no amounts borrowed during 1999.

6. Rights of Members

As a limited liability company (LLC), the members are not personally responsible
for the  obligations  of the  Company.  The Company has two  members:  a holding
company (PC8,  LLC) and a managing  member (Prime Care 8 Corp.).  The day-to-day
management of the Company's  business is  exclusively  vested in three  managing
directors elected by the managing member.

Under the terms of the  Company's  Operating  Agreement  (Operating  Agreement),
certain actions, as defined therein, may not be initiated by the Company without
unanimous  consent of the members until the Company's senior debt is fully paid.
These  restrictions  include  issuing  additional  membership  units,  obtaining
additional debt, purchasing real property, and filing for bankruptcy.




                              Prime Care Eight, LLC

             Notes to Consolidated Financial Statements (continued)


7. Related Party Transactions

Under  the  terms  of the  Operating  Agreement,  the  Company  pays  a  monthly
administrative  fee to Prime Care Properties,  LLC, a limited  liability company
whose members are also shareholders of the Company's managing member. Prime Care
Properties,  LLC is the sole  member of the  Company's  holding  company.  Total
administrative  fees paid to Prime  Care  Properties,  LLC for the  years  ended
December  31,  2001,   2000  and  1999  were   $71,340,   $69,632  and  $71,243,
respectively.

In connection  with the  acquisition of the  Facilities,  the Company's  special
purpose  holding  company  (the Holding  Company)  obtained  financing  from the
Company's  primary  creditor.  The Company is not obligated for the repayment of
that financing,  and none of its assets are subject to any security  interest on
that debt.  The  Holding  Company  then made a  $9,165,000  contribution  to the
Company's capital.  This capital  contribution was used by the Company to fund a
portion of its purchase of the  Facilities.  During the year ended  December 31,
2001,  2000 and 1999, the Company made  distributions  to the Holding Company in
the  amount  of  $997,841,  $1,097,625  and  $1,161,760,   respectively.   These
distributions  were used by the Holding  Company to pay its debt  service on its
financing.  Even though there is no requirement under any agreement, the Company
will continue to make distributions,  to the extent that funds are available, to
the  Holding  Company  in order  for it to fund its debt  service.  The  Holding
Company  debt was due in 2001 and the  Holding  Company is working on  different
options to pay off or refinance the debt.

The Company has $110,009 and $207,333 included with accounts payable and accrued
expenses in the accompanying  consolidated  financial statements at December 31,
2001 and 2000, respectively, relating to resident billings from when the Company
was owned by Sunrise  Assisted Living  (Sunrise).  This amount is expected to be
settled in favor of the Company.




                              Prime Care Eight, LLC

             Notes to Consolidated Financial Statements (continued)


8. Management Fees

Sunrise Assisted Living Management, Inc. manages the Facilities on behalf of the
Company.  The initial term of the operating  agreement  expires on September 30,
2013. The agreement may be renewed for three  additional  successive  periods of
five years  each.  The  Facilities  pay the  Operator  an  operating  fee and an
incentive fee. The operating fee is based on 6% of the total  operating  revenue
of the combined Facilities. The operating fee is payable monthly and one-half of
the fee is  subordinate  to  payments  of  principal  and  interest  on the note
payable.  The  subordinated  management fee payable was $319,470 and $106,775 at
December 31, 2001 2000, respectively,  and is included with accounts payable and
accrued  expenses in the accompanying  consolidated  financial  statements.  The
incentive  fee is equal to 25% of the excess cash flows of the  Facilities.  The
incentive fee shall only be paid annually,  after audit, on the excess cash flow
from the preceding  year.  Total operating fees for the years ended December 31,
2001, 2000 and 1999 were $428,909,  $418,762 and $424,265,  respectively.  There
were no incentive fees payable for the years ended December 31, 2001 and 2000.

9. Subsequent Event (Unaudited)

Prime Care Eight,  LLC and its affiliates  have agreed,  in principle,  to enter
into a Refinancing  Agreement  with CNL Retirement  Properties,  Inc. (CNL) with
respect to the two facilities owned by Prime Care Eight, LLC. Under the two-step
plan,  CNL has advanced  $2,000,000 to an affiliate to  repurchase  the existing
subordinated  debt of PC8, LLC,  including all accrued  interest.  The affiliate
gave CNL a security  interest in that  subordinate  loan.  The principals of the
Company  guaranteed  the  advance.  The  second  step  would  take the form of a
sale-leaseback of the two facilities with a  financing-capital  lease term of 35
years with an option to repurchase the facilities  from CNL at that time.  Prime
Care  Eight,  LLC  would  transfer  to CNL  ownership  of the two  title-holding
subsidiaries.  CNL would assume the existing  first  mortgage debt of Prime Care
Eight, LLC, which,  together with the $2,000,000 advance for the purchase of the
subordinate  loan,  will  constitute  the basis for the repurchase  option.  The
parties  have also  discussed  with  Sunrise its waiver of any claim for accrued
subordinated  management  fees and the Sunrise  line of credit.  There can be no
assurance  that this  transaction  will  occur or will be under  the same  terms
contemplated above.


MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES

Combined Financial Statements

Fiscal Years ended December 28, 2001, December 29, 2000 and December 31, 1999
With Report of Independent Auditors

Contents

Report of Independent Auditors..........................................................................F-144

Unaudited Combined Statements of Operations for the thirty-six
     weeks ended September 6, 2002 and September 7, 2001................................................F-145

Combined Statements of Operations for the fiscal years ended
     December 28, 2001, December 29, 2000 and December 31, 1999.........................................F-146

Combined Balance Sheets as of September 6, 2002 (unaudited),
     December 28, 2001 and December 29, 2000............................................................F-147

Unaudited Combined Statements of Cash Flows for the thirty-six
     weeks ended September 6, 2002 and September 7, 2001................................................F-148

Combined Statements of Cash Flows for the fiscal years ended
     December 28, 2001, December 29, 2000 and December 31, 1999.........................................F-149

Combined Statement of Equity for the thirty-six weeks ended September 6, 2002
     (unaudited) and the fiscal years ended
     December 28, 2001, December 29, 2000 and December 31, 1999.........................................F-150

Notes to Combined Statements............................................................................F-151







                         REPORT OF INDEPENDENT AUDITORS


Board of Directors
Marriott International, Inc.

We have  audited the  accompanying  combined  financial  statements  of Marriott
Senior  Living  Services  Twenty-One  Communities  (as  defined in Note 1) as of
December 28, 2001 and December 29, 2000 and the related  combined  statements of
operations,  equity,  and cash flows for each of the three  fiscal  years in the
period  ended   December  28,  2001.   These   financial   statements   are  the
responsibility  of the management of Marriott  Senior Living  Services,  Inc., a
wholly-owned subsidiary of Marriott International, Inc. Our responsibility is to
express an opinion on these financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted
in the United States.  Those standards require that we plan and perform an 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 combined financial position of Marriott Senior Living
Services Twenty-One Communities,  as of December 28, 2001 and December 29, 2000,
and the results of their  operations  and their cash flows for each of the three
fiscal  years  in the  period  ended  December  28,  2001,  in  conformity  with
accounting principles generally accepted in the United States.


                                    /s/ Ernst & Young LLP

McLean, Virginia
January 9, 2003



             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                        COMBINED STATEMENTS OF OPERATIONS
         Thirty-six Weeks Ended September 6, 2002 and September 7, 2001
                                 (in thousands)
                                   (unaudited)

                                                                                 Thirty-six weeks ended
                                                                          --------------------------------------
                                                                          September 6, 2002   September 7, 2001
                                                                          ------------------- ------------------
     REVENUES

       Resident fees...................................................... $        79,046     $        64,869
                                                                          ------------------- ------------------

     EXPENSES
       Community operating expenses.......................................          59,365              52,481
       Depreciation and amortization......................................           9,086               8,542
       General and administrative.........................................           3,950               3,685
       Facilities development and pre-opening.............................             178                 970
       Provision for doubtful accounts....................................              63                 336
                                                                          ------------------- ------------------
                                                                                    72,642              66,014
                                                                          ------------------- ------------------
     INCOME (LOSS) BEFORE INCOME TAXES  ..................................           6,404              (1,145)
       Provision (benefit) for income taxes...............................           2,498                (447)
                                                                          ------------------- ------------------
     NET INCOME (LOSS)  .................................................. $         3,906     $          (698)
                                                                          =================== ==================




                   See Notes To Combined Financial Statements




             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                        COMBINED STATEMENTS OF OPERATIONS
                      Fiscal Years Ended December 28, 2001,
                         December 29, 2000 and December
                             31, 1999 (in thousands)

                                                                                2001                2000                1999
                                                                        --------------------- ------------------  ------------------

     REVENUES

      Resident fees..................................................     $           97,819     $        70,242    $         48,273
                                                                        --------------------- ------------------ -------------------

     EXPENSES

     Community operating expenses....................................                 75,641              57,185              35,249
     Depreciation and amortization...................................                 12,975              10,849               8,014
     General and administrative......................................                  5,292               3,830               2,293
     Facilities development and pre-opening..........................                  1,207               3,194               2,603
     Provision for doubtful accounts.................................                    309                 261                  44
                                                                        --------------------- ------------------ -------------------

                                                                                      95,424              75,319              48,203
                                                                        --------------------- ------------------ -------------------

     INCOME (LOSS) BEFORE INCOME TAXES                                                 2,395              (5,077)                 70
     Provision (benefit) for income taxes.................................               934              (1,980)                 27
                                                                        --------------------- ------------------ -------------------
     NET INCOME (LOSS)  ..................................................$            1,461     $        (3,097)   $             43
                                                                        ===================== ================== ===================


                   See Notes To Combined Financial Statements

             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                             COMBINED BALANCE SHEETS
           September 6, 2002, December 28, 2001 and December 29, 2000
                                 (in thousands)

                                                                 September 6,             December 28,        December 29,
                                                                     2002                     2001                2000
                                                             --------------------- ---------------------- ---------------------
                                                                   (unaudited)
                          ASSETS
Current assets
   Cash and equivalents  .................................   $        2,511          $       1,176          $   1,246
   Inventories, at lower of average cost or market  ......              481                    430                530
   Accounts receivable, net of an allowance of $418,
    $461 and $295, respectively...........................            3,340                  2,930              2,364
   Other  ................................................                -                     45                 62
                                                             ------------------    -------------------    -----------------
     Total current assets                                             6,332                  4,581              4,202
                                                             ------------------    -------------------    -----------------


Property and equipment , net .............................          327,146                334,637            330,131
Other  ...................................................            2,240                  1,726              1,983
                                                             ------------------    -------------------    -----------------
     Total assets                                            $      335,718           $    340,944         $  336,316
                                                             ==================    ===================    =================

                  LIABILITIES AND EQUITY

Current liabilities
   Accounts payable  .....................................   $        3,280           $      3,116        $    2,324
   Accrued payroll and benefits  .........................            3,661                  3,670             3,411
    Current maturities of lifecare bonds..................            8,312                  8,211             8,013
   Current portion of deferred revenue from
     nonrefundable lifecare fees..........................            4,511                  3,894             3,780
   Other accrued expenses.................................            5,949                  9,940             7,500
                                                             ------------------    -------------------  -----------------
     Total current liabilities                                       25,713                 28,831            25,028
                                                             ------------------    -------------------  -----------------

Lifecare bonds............................................           76,585                 76,485            75,748
Deferred revenue from nonrefundable lifecare fees.........           16,254                 16,498            14,918
Security deposits.........................................            1,163                  1,041             1,182
Other  ...................................................            4,285                  3,884             5,065
                                                                ------------------ ------------------- -----------------
     Total liabilities....................................          124,000                126,739            121,941

Equity                                                              211,718                214,205            214,375
                                                                ------------------ -------------------  -----------------
Total liabilities and equity..............................   $      335,718           $    340,944        $   336,316
                                                                ================== ===================  =================


                   See Notes To Combined Financial Statements




             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                        COMBINED STATEMENTS OF CASH FLOWS
         Thirty-six Weeks Ended September 6, 2002 and September 7, 2001
                                 (in thousands)
                                   (unaudited)
                                                                         Thirty-six weeks ended
                                                                   --------------------------------
                                                                    September 6,     September 7,
                                                                        2002            2001
                                                                   ---------------- ---------------

OPERATING ACTIVITIES
   Net income (loss).......................................        $   3,906        $    (698)
   Adjustments to reconcile to cash provided by operations:
     Provision for doubtful accounts  .....................               63              336
     Depreciation and amortization  .......................            9,086            8,542
   Working capital changes:
     Accounts receivable  .................................             (473)          (1,035)
     Inventories...........................................              (51)              69
     Other assets  ........................................             (469)          (1,653)
     Accounts payable and accrued expenses.................           (3,435)           1,079

     Security deposits ....................................              122             (125)
     Deferred revenue .....................................              373            2,291
                                                                   ------------    ------------
   Net cash provided by nonrefundable activities  .........           9,122            8,806
                                                                   ------------    ------------

INVESTING ACTIVITIES
   Capital expenditures  ..................................          (1,595)         (13,496)
                                                                   ------------    ------------
   Net cash used in investing activities  .................          (1,595)         (13,496)
                                                                   ------------    ------------

FINANCING ACTIVITIES
   Proceeds from lifecare bonds, net.......................             201               72
   Net (repayments to) advances from Marriott Senior Living
     Services, Inc.........................................          (6,393)           4,272
                                                                   ------------    ------------
   Net cash (used in) provided by financing activities  ...          (6,192)           4,344
                                                                   ------------    ------------

INCREASE (DECREASE) IN CASH AND
     CASH EQUIVALENTS  ....................................           1,335             (346)
CASH AND EQUIVALENTS, beginning of period  ................           1,176            1,246
                                                                   ------------    ------------
CASH AND EQUIVALENTS, end of period  ......................        $  2,511         $    900
                                                                   ============    ============


                   See Notes To Combined Financial Statements






             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                        COMBINED STATEMENTS OF CASH FLOWS
                         Fiscal Years Ended December 28,
                           2001, December 29, 2000 and
                              December 31, 1999 (in
                                   thousands)


                                                                        2001                2000          1999
                                                                   ---------------     ------------    ------------

OPERATING ACTIVITIES
   Net income (loss).......................................        $       1,461        $  (3,097)      $   43
   Adjustments to reconcile to cash provided by operations:
     Provision for doubtful accounts  .....................                  309              261           44
     Depreciation and amortization  .......................               12,975           10,849        8,014
   Working capital changes:
     Accounts receivable  .................................                 (875)            (224)       3,032
     Inventories...........................................                  100             (155)         (67)
     Other assets  ........................................                  274            1,531       (3,881)
     Accounts payable and accrued expenses.................                2,310            8,014         (781)
     Security deposits ....................................                 (141)             106          162
     Deferred revenue from nonrefundable fees..............                1,694            1,746        1,381
                                                                       -----------      ------------  -----------
   Net cash provided by operating activities  .............               18,107           19,031        7,947
                                                                       -----------      ------------  -----------

INVESTING ACTIVITIES
   Capital expenditures....................................              (17,481)         (41,072)    (129,633)
                                                                       -----------      ------------  -----------
   Net cash used in investing activities  .................              (17,481)         (41,072)    (129,633)
                                                                       -----------      ------------  -----------

FINANCING ACTIVITIES
   Proceeds from lifecare bonds, net.......................                  935            1,683          284
   Net (repayments to) advances from Marriott Senior Living
        Services, Inc......................................               (1,631)          20,415      120,444
                                                                       -----------      ------------  -----------
   Net cash (used in) provided by financing activities  ...                 (696)          22,098      120,728
                                                                       -----------      ------------  -----------

(DECREASE) INCREASE IN CASH AND EQUIVALENTS  ..............
                                                                             (70)              57         (958)
CASH AND EQUIVALENTS, beginning of year  ..................                1,246            1,189        2,147
                                                                       -----------     ------------   -----------
CASH AND EQUIVALENTS, end of year  ........................             $  1,176         $  1,246     $  1,189
                                                                       ===========     ============   ===========


                   See Notes To Combined Financial Statements




             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                          COMBINED STATEMENT OF EQUITY
                      September 6, 2002, December 28, 2001,
                              December 29, 2000 and
                              December 31, 1999 (in
                                   thousands)



                                                                 Equity
--------------------------------------------------------------------------------
 Balance, January 1, 1999...............................$              76,570
 Net income ............................................                   43
 Net advances from Marriott Senior Living Services,                   120,444
    Inc.......
 -------------------------------------------------------------------------------
 Balance, December 31, 1999 ............................              197,057
 Net loss  .............................................               (3,097)
 Net advances from Marriott Senior Living Services, Inc.               20,415
 -------------------------------------------------------------------------------
 Balance, December 29, 2000.............................              214,375
 Net income.............................................                1,461
 Net repayments to Marriott Senior Living Services, Inc.               (1,631)
 -------------------------------------------------------------------------------
 Balance, December 28, 2001.............................              214,205
 Net income (unaudited).................................                3,906
 Net repayments to Marriott Senior Living Services, Inc.
  (unaudited)...........................................               (6,393)
 -------------------------------------------------------------------------------
 Balance, September 6, 2002 (unaudited).................$             211,718
 ===============================================================================


                   See Notes To Combined Financial Statements







             MARRIOTT SENIOR LIVING SERVICES TWENTY-ONE COMMUNITIES
                          NOTES TO COMBINED STATEMENTS

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Basis of Presentation

Marriott Senior Living Services, Inc. ("MSLS" or the "Company"),  a wholly-owned
subsidiary  of  Marriott   International,   Inc.  ("MI")  operates   independent
full-service and assisted living senior living  communities and provides related
senior care services. Most communities are rental communities with monthly rates
that depend on the amenities  and services  provided.  The services  provided by
MSLS are generally not covered by health insurance and, therefore,  monthly fees
are generally  payable by the residents,  their family,  or another  responsible
party.

The combined  financial  statements present the financial  position,  results of
operations,  and cash flows associated with twenty-one communities owned by MSLS
(the "Communities"). See Subsequent Events.

All material intercompany transactions and balances between Communities included
in these combined financial statements have been eliminated. The Communities are
as follows:

Bellevue                        Northridge                     Salt Lake City
Edgewood                        Oklahoma City                  Santa Rosa
Greenville                      Palm Springs                   Snohomish
Fairfax                         Pleasant Hills                 Tulsa
Hoffman Estates                 Plymouth                       Vinings
Hemet                           Quadrangle                     Willoughby
Lynnwood                        Rancho Mirage                  Yorba Linda

The Communities utilize MI's centralized  systems for cash management,  payroll,
purchasing   and   distribution,   employee   benefit   plans,   insurance   and
administrative  services.  As a result,  substantially  all cash received by the
Communities is deposited in and commingled  with MI's general  corporate  funds.
Similarly, operating expenses, including salaries as the Communities do not have
any  employees,   capital  expenditures  and  other  cash  requirements  of  the
properties  were  paid  by MI  and  charged  to  the  Communities.  General  and
administrative expenses are allocated by MI to MSLS, which are then allocated to
the Communities.  In the opinion of management, the methods for allocating costs
are reasonable.

Use of Estimates

The preparation of financial statements in conformity with accounting principles
generally  accepted in the United States  requires  management to make estimates
and assumptions that affect the reported amounts of assets and liabilities as of
the date of the financial statements, the reported amounts of sales and expenses
during the  reporting  period and the  disclosures  of  contingent  liabilities.
Accordingly, ultimate results could differ from those estimates.

Interim Period Financial Statements

The interim statements have been prepared without audit. Certain information and
footnote  disclosures  normally  included in financial  statements  presented in
accordance with accounting  principles  generally  accepted in the United States
have been condensed or omitted.  MSLS believes the disclosures made are adequate
to make the interim financial information presented not misleading.

In the opinion of management,  the accompanying  interim  statements reflect all
adjustments  (which  include  only normal  recurring  adjustments)  necessary to
present fairly the financial position of the Communities as of September 6, 2002
and the results of operations and cash flows associated for the 36 weeks periods
ended  September  6,  2002  and  September  7,  2001.  Interim  results  are not
necessarily  indicative  of fiscal  year  performance  because of  seasonal  and
short-term variations.

Fiscal Year

The fiscal year ends on the Friday nearest to December 31. All fiscal years
presented include 52 weeks.

Revenue Recognition

Resident  fees are  generated  primarily  from monthly  charges for  independent
living units and assisted  living  suites and related  senior care  services The
revenues are recognized monthly based on the terms of the residents' agreements.
Advance  payments  received for  services  are  deferred  until the services are
provided. Resident fee revenue includes ancillary revenue, which is generated on
a "fee for  service"  basis  for  supplemental  items  requested  by  residents.
Ancillary revenue, including health care services, is recognized as the services
are provided.

Continuing Care Agreements

Residents of certain  communities (the "Lifecare  Communities")  are required to
sign a  continuing  care  agreement  ("Care  Agreement")  with  MSLS.  The  Care
Agreements  stipulate,  among  other  things,  the  amount of all entry fees and
monthly fees, the type of residential unit being provided, and MSLS's obligation
to provide both health care and non-health care services. In addition,  the Care
Agreements provide MSLS with the right to increase future monthly fees. The Care
Agreements are terminated upon the receipt of a written  termination notice from
the resident or the death of the resident. The Care Agreements are guaranteed by
MI.

When the present value of estimated  costs to be incurred under Care  Agreements
exceeds estimated  revenues,  the present value of such excess costs are accrued
currently.  The  calculation  assumes a future  increase in the monthly  revenue
commensurate  with the monthly cost.  The  calculation  currently  results in an
expected  positive net present  value cash flow and, as such,  no liability  has
been recorded in the accompanying combined financial statements.

   The components of the entry fees for Lifecare Communities are as follows:

   a.  Lifecare Bonds - This component is refundable to the resident or the
       resident's estate upon termination or cancellation of the Care Agreement.
       Lifecare Bonds are non-interest bearing and, depending on the type of
       plan, are equal to either 100, 95, 90 or 50 percent of the total entry
       fee less any additional occupant lifecare fee. As these obligations are
       considered security deposits, interest is not imputed on these
       obligations in accordance with APB 21.

   b.  Lifecare Fee - This component is nonrefundable and equals the total entry
       fee less the component described in a.

Deferred Revenue from Nonrefundable Lifecare Fees

The nonrefundable  portion of the entry fees as discussed above are deferred and
recognized  as revenue over the  actuarially  expected  term of each  resident's
contract,  which  is  generally  over  7  to  9  years.  Deferred  revenue  from
nonrefundable fees for leased communities totaled $20,392,000 and $18,698,000 at
December 28, 2001 and December 29, 2000, respectively.

Future Healthcare Services

Certain resident and admission  agreements  entitle residents to receive limited
health care services up to defined maximums.  A portion of the monthly fees from
residents  entitled to these  services is deferred and  recognized as revenue as
the related health care services are provided.





Contractual Adjustments

A portion of the revenue is  attributable  to  patients  whose bills are paid by
Medicare or Medicaid under contractual  arrangements.  In 1999, Medicare changed
from finalizing  reimbursed covered costs through retroactive  adjustments based
on agency  reviews  to a  Prospective  Payment  System  ("PPS")  for most of the
Communities.  This eliminated the need for provisions for estimated Medicare and
Medicaid  settlements.  There are no receivables for estimated third-party payor
settlements at December 28, 2001 or December 29, 2000.

Comprehensive Income

There are no items of other  comprehensive  income in any  period  presented  in
these financial statements.

Cash and Equivalents

All highly liquid investments with a maturity of three months or less at date of
purchase are considered to be cash equivalents.

Allowance for Doubtful Accounts

The Communities record an allowance for doubtful accounts when a receivable is
deemed uncollectible.

Valuation of Long-Lived Assets

The carrying values of long-lived  assets are reviewed when events or changes in
circumstances  indicate  that  the  carrying  amount  of an  asset  may  not  be
recoverable.  If an asset is  expected  to  generate  cash  flows  less than the
asset's  carrying value at the lowest level of  identifiable  cash flows, a loss
for the  difference  between the asset's  carrying  amount and its fair value is
recognized.

New Accounting Standards

The Communities adopted SFAS 144,  "Accounting for the Impairment or Disposal of
Long-Lived  Assets" in the first  quarter of 2002.  The adoption of SFAS 144 did
not have a material financial statement impact.

PROPERTY AND EQUIPMENT

                                                                               2001                 2000
                                                                         ------------------   ------------------
                                                                                     (in thousands)

Land                                                                     $          40,457    $          40,147
Building improvements                                                              325,563              309,764
Furniture and equipment                                                             34,881               29,153
Construction in progress                                                             1,163                5,519
                                                                         ------------------   ------------------
                                                                                   402,064              384,583
Less:  accumulated depreciation and amortization                                    67,427               54,452
                                                                         ------------------   ------------------
                                                                         $         334,637    $         330,131
                                                                         ==================   ==================
Property and equipment are recorded at cost,  including interest,  rent and real
estate taxes incurred during development and construction.  Interest capitalized
as a cost of property and equipment totaled $1,046,000 in 2001 and $4,280,000 in
2000.  The cost of  improvements  that extend the useful  life of  property  and
equipment are capitalized when incurred.  All repairs and maintenance  costs are
expensed as incurred.  Depreciation is computed using the  straight-line  method
over the estimated useful lives of the assets (three to forty years).





OTHER ASSETS

Included in other long-term assets are cash escrow reserves for working capital,
which are required by various states.  These restricted cash amounts,  which are
held in  segregated  accounts,  totaled  $1,289,000  as of December 28, 2001 and
December 29, 2000.

INCOME TAXES

The  Communities  are owned by MSLS,  but do not constitute all of the assets of
MSLS. These financial  statements have been prepared  assuming the properties to
be sold were the only  assets of a  stand-alone  C-  corporation  taxed at a 35%
federal  income  tax rate and an  assumed  4% state  income  tax rate  (net of a
federal benefit).

FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair  values of current  assets and  current  liabilities  are assumed to be
equal to their  reported  carrying  amounts.  Valuations  for lifecare bonds are
determined based on the expected future payments  discounted at estimated market
rates, adjusted, as applicable,  for the existence of guarantees by MI. Lifecare
bonds are  repaid  when  tenants  die or move out.  The  average  lifecare  bond
maturity was assumed to be 8 years based on mortality tables.  The fair value of
Lifecare bonds was estimated to be $56,632,000  and  $56,006,000 at December 28,
2001, and December 29, 2000, respectively.

CONTINGENT LIABILITIES

On July 5,  2002,  MSLS  filed an  action  against  the  general  contractor  in
connection  with the  building of one of the  Communities,  seeking  damages for
breach of  contract  and  negligence  relating  to delays in the  opening of the
Community,  and for numerous  construction  defects.  MSLS is seeking damages in
excess of $4 million.  On August 21, 2002, the general  contractor  answered and
filed a  cross-complaint,  seeking  damages  from MSLS in excess of $1.3M.  MSLS
intends  to  vigorously  defend  against  this  claim,  however at this time the
outcome of both of the  lawsuits  is  uncertain  and MSLS  cannot  estimate  the
potential gain or loss that will ultimately be recorded.

MSLS, as well as MI and other  subsidiaries  of MI, are named parties to pending
legal  proceedings in the ordinary  course of business,  which,  in management's
opinion, will not have a material impact on the results of the Communities.

SUBSEQUENT EVENTS (UNAUDITED)

On  December  20,  2002,  twelve  of the  twenty-one  communities  were sold for
$89,359,000 to CNL Retirement Properties, Inc. (CNL). MSLS will record a pre-tax
loss of approximately  $21,000,000  during the fourth quarter as a result of the
sale.

On December 30, 2002,  MI entered a definitive  agreement to sell the  remaining
nine  communities to CNL. CNL will assume the lifecare bonds associated with the
nine  communities.  The sale of the nine  communities  and the assumption of the
lifecare  bonds  will  result  in an  estimated  pre-tax  gain of  approximately
$36,000,000,  which  will be  recorded  when the  transaction  closes,  which is
estimated to occur in the first quarter of 2003.

                                   APPENDIX A

                                     FORM OF
                                REINVESTMENT PLAN






         CNL  RETIREMENT   PROPERTIES,   INC.,  a  Maryland   corporation   (the
"Company"),  pursuant to its Articles of  Incorporation,  adopted a Reinvestment
Plan (the "Reinvestment Plan") on the terms and conditions set forth below.

         1.  Reinvestment  of  Distributions.  Bank of New York,  the agent (the
"Reinvestment  Agent") for participants (the "Participants") in the Reinvestment
Plan,  will receive all cash  distributions  made by the Company with respect to
shares of common stock of the Company (the "Shares")  owned by each  Participant
(collectively,  the  "Distributions").  The  Reinvestment  Agent will apply such
Distributions as follows:

              (a) At any  period  during  which the  Company  is making a public
         offering of Shares, the Reinvestment Agent will invest Distributions in
         Shares acquired from the managing dealer or  participating  brokers for
         the  offering  at the  public  offering  price per Share.  During  such
         period,  commissions,  the  marketing  support  fee and  due  diligence
         expense  reimbursements  may be  reallowed  to the  broker who made the
         initial  sale of  Shares  to the  Participant  at the same  rate as for
         initial purchases in this offering.

              (b) If no public offering of Shares is ongoing,  the  Reinvestment
         Agent will purchase Shares from any additional shares which the Company
         elects to register with the  Securities  and Exchange  Commission  (the
         "SEC") for the  Reinvestment  Plan,  at a per Share  price equal to the
         fair market value of the Shares  determined by (i) quarterly  appraisal
         updates  performed  by the  Company  based on a review of the  existing
         appraisal and lease of each Property,  focusing on a re-examination  of
         the capitalization rate applied to the rental stream to be derived from
         that Property;  and (ii) a review of the outstanding Mortgage Loans and
         Secured  Equipment  Leases focusing on a determination of present value
         by a re-examination of the capitalization rate applied to the stream of
         payments  due  under  the  terms  of each  Mortgage  Loan  and  Secured
         Equipment Lease. The capitalization  rate used by the Company and, as a
         result,  the price per Share paid by Participants  in the  Reinvestment
         Plan prior to Listing will be determined by CNL Retirement  Corp.  (the
         "Advisor")  in its sole  discretion.  The factors that the Advisor will
         use to determine the capitalization  rate include (i) its experience in
         selecting, acquiring and managing properties similar to the Properties;
         (ii)  an  examination  of the  conditions  in  the  market;  and  (iii)
         capitalization  rates in use by private appraisers,  to the extent that
         the  Advisor  deems  such  factors  appropriate,  as well as any  other
         factors that the Advisor deems  relevant or  appropriate  in making its
         determination. The Company's internal accountants will then convert the
         most  recent  quarterly  balance  sheet  of the  Company  from a "GAAP"
         balance  sheet to a "fair market  value"  balance  sheet.  Based on the
         "fair market value" balance sheet,  the internal  accountants will then
         assume  a sale  of the  Company's  assets  and the  liquidation  of the
         Company in accordance  with its  constitutive  documents and applicable
         law and  compute  the  appropriate  method  of  distributing  the  cash
         available after payment of reasonable  liquidation expenses,  including
         closing costs  typically  associated with the sale of assets and shared
         by the buyer and seller,  and the  creation of  reasonable  reserves to
         provide for the payment of any contingent liabilities.  Upon listing of
         the  Shares  on a  national  securities  exchange  or  over-the-counter
         market,  the Reinvestment Agent may purchase Shares either through such
         market  or  directly  from  the  Company  pursuant  to  a  registration
         statement  relating to the  Reinvestment  Plan, in either case at a per
         Share price equal to the  then-prevailing  market price on the national
         securities exchange or over-the-counter  market on which the Shares are
         listed at the date of purchase by the Reinvestment  Agent. In the event
         that, after Listing occurs,  the Reinvestment Agent purchases Shares on
         a national  securities  exchange or  over-the-counter  market through a
         registered broker-dealer,  the amount to be reinvested shall be reduced
         by any brokerage commissions charged by such registered  broker-dealer.
         In  the  event  that  such  registered  broker-dealer  charges  reduced
         brokerage  commissions,  additional  funds  in the  amount  of any such
         reduction shall be left available for the purchase of Shares.

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

              (d) Distributions  shall be invested by the Reinvestment  Agent in
         Shares  promptly  following  the  payment  date  with  respect  to such
         Distributions to the extent Shares are available.  If sufficient Shares
         are not  available,  Distributions  shall be  invested on behalf of the
         Participants in one or more  interest-bearing  accounts in a commercial
         bank approved by the Company which is located in the continental United
         States  and has  assets  of at least  $100,000,000,  until  Shares  are
         available for purchase,  provided that any Distributions  that have not
         been  invested in Shares  within 30 days after such  Distributions  are
         made by the Company shall be returned to Participants.

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

              (f)  Distributions  attributable to Shares  purchased on behalf of
         the Participants  pursuant to the Reinvestment  Plan will be reinvested
         in additional Shares in accordance with the terms hereof.

              (g) No  certificates  will be issued to a  Participant  for Shares
         purchased  on behalf of the  Participant  pursuant to the  Reinvestment
         Plan  except  to  Participants  who  make  a  written  request  to  the
         Reinvestment Agent.  Participants in the Reinvestment Plan will receive
         statements of account in accordance with Paragraph 7 below.

         2. Election to  Participate.  Any  stockholder  who  participates  in a
public  offering  of Shares  and who has  received a copy of the  related  final
prospectus included in the Company's  registration  statement filed with the SEC
may elect to participate in and purchase Shares through the Reinvestment Plan at
any time by  written  notice to the  Company  and  would  not need to  receive a
separate  prospectus  relating  solely to the  Reinvestment  Plan.  A person who
becomes a stockholder  otherwise than by  participating  in a public offering of
Shares may purchase Shares through the Reinvestment Plan only after receipt of a
separate prospectus  relating solely to the Reinvestment Plan.  Participation in
the  Reinvestment  Plan will  commence  with the next  Distribution  made  after
receipt of the Participant's notice,  provided it is received more than ten days
prior to the last day of the  fiscal  month or  quarter,  as the case may be, to
which such Distribution relates.  Subject to the preceding sentence,  regardless
of the date of such  election,  a stockholder  will become a Participant  in the
Reinvestment  Plan  effective  on the first day of the  fiscal  month  (prior to
termination of the offering of Shares) or fiscal  quarter (after  termination of
the offering of Shares) following such election,  and the election will apply to
all  Distributions  attributable to the fiscal quarter or month (as the case may
be) in which the stockholder  makes such written  election to participate in the
Reinvestment Plan and to all fiscal quarters or months thereafter. A Participant
who has  terminated  his  participation  in the  Reinvestment  Plan  pursuant to
Paragraph 11 will be allowed to participate in the Reinvestment  Plan again upon
receipt of a current version of a final prospectus  relating to participation in
the  Reinvestment  Plan which  contains,  at a minimum,  the following:  (i) the
minimum  investment  amount;  (ii) the type or source of  proceeds  which may be
invested; and (iii) the tax consequences of the reinvestment to the Participant,
by  notifying  the  Reinvestment   Agent  and  completing  any  required  forms.
Stockholders  who elect the  monthly  distribution  option are not  eligible  to
participate in the Reinvestment Plan.

         3.  Distribution  of  Funds.  In  making  purchases  for  Participants'
accounts,  the Reinvestment  Agent may commingle  Distributions  attributable to
Shares owned by Participants in the Reinvestment Plan.

         4.  Proxy  Solicitation.  The  Reinvestment  Agent will  distribute  to
Participants proxy  solicitation  material received by it from the Company which
is attributable to Shares held in the Reinvestment  Plan. The Reinvestment Agent
will  vote  any  Shares  that it  holds  for the  account  of a  Participant  in
accordance with the Participant's written instructions. If a Participant gives a
proxy to person(s)  representing the Company  covering Shares  registered in the
Participant's  name,  such  proxy  will be  deemed to be an  instruction  to the
Reinvestment Agent to vote the full Shares in the Participant's  account in like
manner.  If a Participant does not direct the  Reinvestment  Agent as to how the
Shares should be voted and does not give a proxy to person(s)  representing  the
Company covering these Shares, the Reinvestment Agent will not vote said Shares.

         5. Absence of Liability. Neither the Company nor the Reinvestment Agent
shall have any  responsibility  or  liability  as to the value of the  Company's
Shares,  any change in the value of the Shares  acquired  for the  Participant's
account, or the rate of return earned on, or the value of, the  interest-bearing
accounts,  in which  Distributions  are  invested.  Neither  the Company nor the
Reinvestment  Agent shall be liable for any act done in good  faith,  or for any
good  faith  omission  to act,  including,  without  limitation,  any  claims of
liability  (a)  arising  out  of  the  failure  to  terminate  a   Participant's
participation in the Reinvestment  Plan upon such  Participant's  death prior to
receipt of notice in writing  of such death and the  expiration  of 15 days from
the date of  receipt  of such  notice  and (b) with  respect to the time and the
prices at which Shares are  purchased  for a  Participant.  Notwithstanding  the
foregoing,  liability  under the  federal  securities  laws  cannot  be  waived.
Similarly,  the Company and the Reinvestment Agent have been advised that in the
opinion of  certain  state  securities  commissioners,  indemnification  is also
considered contrary to public policy and therefore unenforceable.

         6.   Suitability.

              (a)  Within  60 days  prior to the end of each  fiscal  year,  CNL
         Securities Corp. ("CSC"), will mail to each Participant a participation
         agreement (the  "Participation  Agreement"),  in which the  Participant
         will be required to represent that there has been no material change in
         the   Participant's   financial   condition   and   confirm   that  the
         representations  made by the Participant in the Subscription  Agreement
         (a form of which shall be attached to the Participation  Agreement) are
         true and correct as of the date of the Participation Agreement,  except
         as  noted  in the  Participation  Agreement  or the  attached  form  of
         Subscription Agreement.

              (b) Each  Participant  will be  required  to return  the  executed
         Participation  Agreement  to CSC within 30 days after  receipt.  In the
         event  that a  Participant  fails  to  respond  to CSC  or  return  the
         completed Participation Agreement on or before the fifteenth (15th) day
         after  the  beginning  of the  fiscal  year  following  receipt  of the
         Participation Agreement,  the Participant's  Distribution for the first
         fiscal  quarter of that year will be sent  directly to the  Participant
         and no Shares will be purchased on behalf of the  Participant  for that
         fiscal  quarter  and,   subject  to  (c)  below,  any  fiscal  quarters
         thereafter, until CSC receives an executed Participation Agreement from
         the Participant.

              (c) If a  Participant  fails to return the executed  Participation
         Agreement to CSC prior to the end of the second fiscal  quarter for any
         year of the Participant's  participation in the Reinvestment  Plan, the
         Participant's   participation  in  the   Reinvestment   Plan  shall  be
         terminated in accordance with Paragraph 11 below.

              (d) Each  Participant  shall notify CSC in the event that,  at any
         time during his  participation in the  Reinvestment  Plan, there is any
         material change in the Participant's  financial condition or inaccuracy
         of any representation under the Subscription Agreement.

              (e) For  purposes of this  Paragraph  6, a material  change  shall
         include any anticipated or actual decrease in net worth or annual gross
         income  or any other  change  in  circumstances  that  would  cause the
         Participant to fail to meet the suitability  standards set forth in the
         Company's Prospectus.

         7. Reports to Participants. Within 60 days after the end of each fiscal
quarter,  the  Reinvestment  Agent will mail to each  Participant a statement of
account describing,  as to such Participant,  the Distributions  received during
the quarter,  the number of Shares purchased  during the quarter,  the per Share
purchase  price  for  such  Shares,  the  total  administrative  charge  to such
Participant,  and the  total  Shares  purchased  on  behalf  of the  Participant
pursuant  to the  Reinvestment  Plan.  Each  statement  shall  also  advise  the
Participant  that, in accordance  with Paragraph 6(d) hereof,  he is required to
notify  CSC in the event  that  there is any  material  change in his  financial
condition or if any  representation  under the  Subscription  Agreement  becomes
inaccurate.  Tax information for income earned on Shares under the  Reinvestment
Plan will be sent to each participant by the Company or the  Reinvestment  Agent
at least annually.


         8. Administrative Charges,  Commissions, and Plan Expenses. The Company
shall be responsible for all administrative  charges and expenses charged by the
Reinvestment  Agent.  The  administrative  charge for each  Participant for each
fiscal  quarter  shall be the  lesser  of 5% of the  amount  reinvested  for the
Participant  or $2.50,  with a minimum charge of $0.50.  Any interest  earned on
Distributions  will be paid to the  Company  to  defray  costs  relating  to the
Reinvestment  Plan.  Additionally,  in connection with any Shares purchased from
the Company both prior to and after the  termination of a public offering of the
Shares,  the Company  will pay to CSC selling  commissions  of 7.5%, a marketing
support fee of 0.5%, due diligence  reimbursements  equal to 0.125%, and, in the
event that proceeds of the sale of Shares pursuant to the Reinvestment  Plan are
used to  acquire  Properties  or to invest in  Mortgage  Loans,  will pay to CNL
Retirement  Corp.  acquisition  fees of 4.5% of the purchase price of the Shares
sold pursuant to the Reinvestment Plan.


         9. No Drawing.  No  Participant  shall have any right to draw checks or
drafts  against  his  account  or  give  instructions  to  the  Company  or  the
Reinvestment Agent except as expressly provided herein.

         10.  Taxes.   Taxable  Participants  may  incur  a  tax  liability  for
Distributions made with respect to such Participant's  Shares,  even though they
have elected not to receive their Distributions in cash but rather to have their
Distributions held in their account under the Reinvestment Plan.

         11.  Termination.

              (a)  A  Participant  may  terminate  his   participation   in  the
         Reinvestment  Plan at any time by written notice to the Company.  To be
         effective  for any  Distribution,  such  notice must be received by the
         Company at least ten business  days prior to the last day of the fiscal
         month or quarter to which such Distribution relates.

              (b)  The  Company  or  the  Reinvestment  Agent  may  terminate  a
         Participant's  individual  participation in the Reinvestment  Plan, and
         the Company may terminate the  Reinvestment  Plan itself at any time by
         ten days'  prior  written  notice  mailed to a  Participant,  or to all
         Participants,  as the case may be, at the address or addresses shown on
         their account or such more recent address as a Participant  may furnish
         to the Company in writing.


              (c) After termination of the Reinvestment Plan or termination of a
         Participant's  participation in the Reinvestment Plan, the Reinvestment
         Agent  will send to each  Participant  (i) a  statement  of  account in
         accordance with Paragraph 7 hereof,  and (ii) a check for the amount of
         any  Distributions  in the  Participant's  account  that  have not been
         reinvested  in Shares.  The record books of the Company will be revised
         to reflect the ownership of record of the Participant's full Shares and
         the  value  of  any  fractional  Shares  standing  to the  credit  of a
         Participant's  account  based on the market  price of the  Shares.  Any
         future  Distributions  made after the effective date of the termination
         will be sent directly to the former Participant.


         12. Notice. Any notice or other communication  required or permitted to
be given by any  provision  of this  Reinvestment  Plan shall be in writing  and
addressed to Investor  Relations  Department,  CNL Securities Corp., Post Office
Box 4920,  Orlando,  Florida  32802-4920,  if to the Company,  or to Bank of New
York, 1845 Maxwell, Suite 101, Troy, Michigan 48084-4510, if to the Reinvestment
Agent,  or such other  addresses as may be  specified  by written  notice to all
Participants.  Notices to a Participant may be given by letter  addressed to the
Participant at the Participant's  last address of record with the Company.  Each
Participant  shall  notify  the  Company  promptly  in  writing of any change of
address.

         13.  Amendment.  The terms and conditions of this Reinvestment Plan may
be amended or supplemented by an agreement  between the  Reinvestment  Agent and
the  Company  at any time,  including  but not  limited to an  amendment  to the
Reinvestment Plan to add a voluntary cash contribution  feature or to substitute
a new Reinvestment Agent to act as agent for the Participants or to increase the
administrative   charge  payable  to  the  Reinvestment  Agent,  by  mailing  an
appropriate  notice at least 30 days prior to the effective date thereof to each
Participant  at his last address of record;  provided,  that any such  amendment
must be approved by a majority of the Independent Directors of the Company. Such
amendment  or  supplement  shall  be  deemed   conclusively   accepted  by  each
Participant  except those  Participants  from whom the Company  receives written
notice of termination prior to the effective date thereof.

         14. Governing Law. THIS REINVESTMENT PLAN AND A PARTICIPANT'S  ELECTION
TO  PARTICIPATE  IN THE  REINVESTMENT  PLAN SHALL BE GOVERNED BY THE LAWS OF THE
STATE OF FLORIDA;  PROVIDED,  HOWEVER,  THAT CAUSES OF ACTION FOR  VIOLATIONS OF
FEDERAL OR STATE SECURITIES LAWS SHALL NOT BE GOVERNED BY THIS SECTION 14.



                                   APPENDIX B

                            PRIOR PERFORMANCE TABLES




                                   APPENDIX B

                            PRIOR PERFORMANCE TABLES

         The information in this Appendix B contains certain relevant summary
information concerning certain prior public programs sponsored by two of the
Company's principals (who also serve as the Chairman of the Board and Treasurer
of the Company) and their Affiliates (the "Prior Public Programs") which were
formed to invest in restaurant properties leased on a triple-net basis to
operators of national and regional fast-food and family-style restaurant chains,
or in the case of CNL Hospitality Properties, Inc., to invest in hotel
properties. No Prior Public Programs sponsored by the Company's Affiliates have
invested in retirement properties leased on a triple-net basis.

         A more detailed  description  of the  acquisitions  by the Prior Public
Programs is set forth in Part II of the  registration  statement  filed with the
Securities  and Exchange  Commission for this Offering and is available from the
Company upon request,  without charge. In addition, upon request to the Company,
the Company  will  provide,  without  charge,  a copy of the most recent  Annual
Report on Form 10-K filed with the  Securities  and Exchange  Commission for CNL
Income Fund,  Ltd.,  CNL Income Fund II, Ltd.,  CNL Income Fund III,  Ltd.,  CNL
Income Fund IV, Ltd.,  CNL Income Fund V, Ltd.,  CNL Income Fund VI,  Ltd.,  CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd.,  CNL Income Fund XI, Ltd.,  CNL Income Fund XII,  Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII,  Ltd.,
CNL American Properties Fund, Inc., and CNL Hospitality Properties, Inc. as well
as a copy, for a reasonable fee, of the exhibits filed with such reports.

         The investment objectives of the Prior Public Programs generally
include preservation and protection of capital, the potential for increased
income and protection against inflation, and potential for capital appreciation,
all through investment in restaurant properties, or in the case of CNL
Hospitality Properties, Inc., through investment in hotel properties. In
addition, the investment objectives of the Prior Public Programs included making
partially tax-sheltered distributions.

         Stockholders should not construe inclusion of the following tables as
implying that the Company will have results comparable to those reflected in
such tables. Distributable cash flow, federal income tax deductions, or other
factors could be substantially different. Stockholders should note that, by
acquiring shares in the Company, they will not be acquiring any interest in any
Prior Public Programs.

Description of Tables

         The following Tables are included herein:

                  Table I - Experience in Raising and Investing Funds

                  Table II - Compensation to Sponsor

                  Table III - Operating Results of Prior Programs

                  Table V - Sales or Disposal of Properties

         Unless otherwise indicated in the Tables, all information contained in
the Tables is as of December 31, 2002. The following is a brief description of
the Tables:

         Table I - Experience in Raising and Investing Funds

         Table I presents information on a percentage basis showing the
experience of two of the principals of the Company and their Affiliates in
raising and investing funds for the Prior Public Programs, the offerings of
which became fully subscribed between January 1998 and December 2002.

         The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.

         Table II - Compensation to Sponsor

         Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to two of the Company's principals and
their Affiliates which sponsored the Prior Public Programs.

         The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to two of the principals of the Company and
their Affiliates in connection with the Prior Public Programs, the offerings of
which became fully subscribed between January 1998 and December 2002. The Table
also shows the amounts paid to two of the principals of the Company and their
Affiliates from cash generated from operations and from cash generated from
sales or refinancing by each of the Prior Public Programs on a cumulative basis
commencing with inception and ending December 31, 2002.

         Table III - Operating Results of Prior Programs

         Table III presents a summary of operating results for the period from
inception through December 31, 2002, of the Prior Public Programs, the offerings
of which became fully subscribed between January 1998 and December 2002.

         The Table includes a summary of income or loss of the Prior Public
Programs, which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Programs, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Programs, but rather are related to items of an investing or financing nature.
These items include proceeds from capital contributions of investors and
disbursements made from these sources of funds, such as syndication (or stock
issuance) and organizational costs, acquisition of the properties and other
costs which are related more to the organization of the entity and the
acquisition of properties than to the actual operations of the entities.

         The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.

         Table IV - Results of Completed Programs

         Table IV is omitted from this Appendix B because none of the Prior
Public Programs have completed operations (meaning they no longer hold
properties).

         Table V - Sales or Disposal of Properties

         Table V provides information regarding the sale or disposal of
properties owned by two of the Prior Public Programs between January 2000 and
December 2002, and for the remaining Prior Public Programs between January 1999
and December 2001. Information regarding the sale or disposal of properties
owned by the remaining Prior Public Programs between January 2000 and December
31, 2002, will be provided in a Post-Effective Amendment to the Registration
Statement once this information is available.

         The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.






                                     TABLE I
                    EXPERIENCE IN RAISING AND INVESTING FUNDS



                                                                CNL American             CNL Hospitality
                                                                 Properties                Properties,
                                                                  Fund, Inc.                    Inc.
                                                               ----------------         -------------------
                                                                  (Note 1)               (Notes 2 and 3)

Dollar amount offered                                             $747,464,420                $875,071,625
                                                               ================         ===================

Dollar amount raised                                                     100.0 %                     100.0 %
                                                               ----------------         -------------------

Less offering expenses:

   Selling commissions and discounts                                      (7.5 )                      (7.5 )
   Organizational expenses                                                (2.2 )                      (3.0 )
   Marketing support and due diligence
     expense reimbursement fees
     (includes amounts reallowed to
     unaffiliated entities)                                               (0.5 )                      (0.5 )
                                                               ----------------         -------------------
                                                                         (10.2 )                     (11.0 )
                                                               ----------------         -------------------
Reserve for operations                                                      --                          --
                                                               ----------------         -------------------

Percent available for investment                                          89.8 %                      89.0 %
                                                               ================         ===================

Acquisition costs:

   Cash down payment                                                      85.3 %                      84.5 %
   Acquisition fees paid to affiliates                                     4.5                         4.5
   Loan costs                                                               --                          --
                                                               ----------------         -------------------

Total acquisition costs                                                   89.8 %                      89.0 %
                                                               ================         ===================

Percent leveraged (mortgage financing
   divided by total acquisition costs)                                (Note 1)                        33.8 %

Date offering began                                                   4/19/95,            7/09/97, 6/17/99
                                                                       2/06/97                 and 9/14/00
                                                                   and 3/02/98

Length of offering (in months)                                   22, 13 and 9,              23, 15 and 20,
                                                                  respectively                respectively

Months to invest 90% of amount
   available for investment measured
   from date of offering                                        23, 16 and 11,              29, 16 and 22,
                                                                  respectively                respectively

Note 1:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities Act of 1933, as amended,  effective March 29, 1995,
                  CNL American Properties Fund, Inc. ("APF") registered for sale
                  $165,000,000  of  shares  of common  stock  (the "APF  Initial
                  Offering"),    including   $15,000,000   available   only   to
                  stockholders participating in the company's reinvestment plan.
                  The APF Initial  Offering  commenced  April 19, 1995, and upon
                  completion  of the APF  Initial  Offering on February 6, 1997,
                  had received subscription proceeds of $150,591,765  (7,529,588
                  shares), including $591,765 (29,588 shares) issued pursuant to
                  the reinvestment plan. Pursuant to a Registration Statement on
                  Form  S-11  under  the  Securities  Act of 1933,  as  amended,
                  effective   January  31,  1997,   APF   registered   for  sale
                  $275,000,000 of shares of common stock (the "1997  Offering"),
                  including   $25,000,000   available   only   to   stockholders
                  participating  in the company's  reinvestment  plan.  The 1997
                  Offering of APF commenced  following the completion of the APF
                  Initial  Offering on February 6, 1997, and upon  completion of
                  the 1997 Offering on March 2, 1998, had received  subscription
                  proceeds  of  $251,872,648   (12,593,633  shares),   including
                  $1,872,648 (93,632 shares) issued pursuant to the reinvestment
                  plan. Pursuant to a Registration  Statement on Form S-11 under
                  the  Securities  Act of 1933,  as amended,  effective  May 12,
                  1998, APF registered for sale $345,000,000 of shares of common
                  stock  (the  "1998  Offering").   The  1998  Offering  of  APF
                  commenced  following  the  completion  of the 1997 Offering on
                  March 2,  1998.  As of  January  31,  1999,  APF had  received
                  subscriptions totalling approximately $345,000,000 (17,250,000
                  shares), from the 1998 Offering, including $3,107,848 (155,393
                  shares) issued  pursuant to the company's  reinvestment  plan.
                  The 1998 Offering became fully subscribed in December 1998 and
                  proceeds from the last  subscriptions were received in January
                  1999.  During  the  offerings,  APF did not  utilize  mortgage
                  financing to acquire properties.

Note 2:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities  Act of 1933, as amended,  effective  July 9, 1997,
                  CNL Hospitality Properties,  Inc. (the "Hospitality Properties
                  REIT")  registered for sale  $165,000,000  of shares of common
                  stock  (the "CHP  Initial  Offering"),  including  $15,000,000
                  available only to stockholders  participating in the company's
                  reinvestment   plan.  The  CHP  Initial   Offering   commenced
                  September 11, 1997, and upon completion of the CHP Initial

     Past performance is not necessarily indicative of future performance.




TABLE I - EXPERIENCE IN RAISING AND INVESTING FUNDS - CONTINUED




Note 2
   (Continued):   Offering   on  June  17,   1999  had   received   $150,072,637
                  (15,007,264  shares),  including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan.  Pursuant to a Registration
                  Statement on Form S-11 under the  Securities  Act of 1933,  as
                  amended,  effective June 4, 1999, the  Hospitality  Properties
                  REIT  registered  for sale up to  $275,000,000  of  shares  of
                  common stock (the "1999  Offering").  The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the  CHP  Initial  Offering  on June  17,  1999,  and  upon
                  completion  of the 1999  Offering on September  14, 2000,  the
                  company had  received  approximately  $275,000,000,  including
                  $965,194  (96,520 shares) issued pursuant to the  reinvestment
                  plan. Pursuant to a Registration  Statement on Form S-11 under
                  the  Securities  Act of 1933,  as amended,  effective  May 23,
                  2000, the  Hospitality  Properties REIT registered for sale up
                  to   $450,000,000   of  shares  of  common  stock  (the  "2000
                  Offering").  The 2000 Offering of the  Hospitality  Properties
                  REIT  commenced  following the completion of the 1999 Offering
                  on  September  14,  2000,  and  upon  completion  of the  2000
                  Offering  on  September   14,  2000,   the  Company   received
                  approximately  $450,000,000,   including  $3,375,474  (337,547
                  shares) issues pursuant to the reinvestment plan.  Pursuant to
                  a Registration Statement on Form S-11 under the Securities Act
                  of 1933, as amended,  effective April 1, 2002, the Hospitality
                  Properties  REIT registered for the sale up to $450,000,000 of
                  shares of common stock (the "2002  Offering").  As of December
                  31,  2002,  the  Hospitality   Properties  REIT  had  received
                  subscription proceeds of $392,749,677 (39,274,968 shares) from
                  its  2002  Offering,  including  $3,225,431  (322,543  shares)
                  issued pursuant to the reinvestment plan.

Note 3:           The amounts shown  represent  the combined  results of the CHP
                  Initial Offering,  1999 and the 2000 Offering only, due to the
                  fact that the 2002  Offering was not yet fully  subscribed  at
                  December 31, 2002.



     Past performance is not necessarily indicative of future performance.

                                    TABLE II
                             COMPENSATION TO SPONSOR

                                                                         CNL American           CNL Hospitality
                                                                       Properties Fund,           Properties,
                                                                             Inc.                    Inc.
                                                                       ------------------     --------------------
                                                                        (Notes 1, 2 and           (Notes 4 and 8)
                                                                              6)
Date offering commenced                                                 4/19/95, 2/06/97         7/9/97, 6/17/99,
                                                                             and 3/02/98      9/15/00 and 4/22/02

Dollar amount raised                                                        $747,464,420           $1,267,821,302
                                                                       ==================     ====================
Amount paid to sponsor from proceeds of offering:
     Selling commissions and discounts                                        56,059,832               93,481,635
     Real estate commissions                                                          --                       --
     Acquisition fees (Note 5 and 8)                                          33,604,618               55,816,065
     Marketing support and due diligence
       expense reimbursement fees
       (includes amounts reallowed to
       unaffiliated entities)                                                  3,737,322                6,128,567
                                                                       ------------------     --------------------
Total amount paid to sponsor                                                  93,401,772              155,426,267
                                                                       ==================     ====================
Dollar amount of cash generated from (used in) operations
  before deducting payments to sponsor:
     2002 (Note 7)                                                           115,447,476               78,164,925
     2001 (Note 7)                                                            52,767,575               57,356,723
     2000 (Note 7)                                                          (152,419,134 )             45,528,919
     1999 (Note 7)                                                           311,630,414               13,348,795
     1998                                                                     42,216,874                2,985,455
     1997                                                                     18,514,122                   29,358
     1996                                                                      6,096,045                       --
     1995                                                                        594,425                       --
     1994                                                                             --                       --
     1993                                                                             --                       --
Amount paid to sponsor from operations (administrative, accounting and
   management fees) (Notes 6 and 9):
     2002                                                                      3,953,918                7,824,672
     2001                                                                      4,564,213                4,418,759
     2000                                                                      3,542,515                1,878,358
     1999                                                                      4,369,200                  458,634
     1998                                                                      3,100,599                  208,490
     1997                                                                      1,437,908                    6,889
     1996                                                                        613,505                       --
     1995                                                                         95,966                       --
     1994                                                                             --                       --
     1993                                                                             --                       --
Dollar amount of property sales and refinancing before deducting
  payments to sponsor:
     Cash (Note 3)                                                           338,009,913                       --
     Notes                                                                            --                       --
Amount paid to sponsors from property sales and refinancing:
     Real estate commissions                                                          --                       --
     Incentive fees                                                                   --                       --
     Other (Note 6)                                                                   --                       --



Note 1:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities Act of 1933, as amended,  effective March 29, 1995,
                  CNL American Properties Fund, Inc. ("APF") registered for sale
                  $165,000,000  of  shares  of common  stock  (the "APF  Initial
                  Offering"),    including   $15,000,000   available   only   to
                  stockholders participating in the company's reinvestment plan.
                  The APF Initial  Offering  commenced  April 19, 1995, and upon
                  completion  of the APF  Initial  Offering on February 6, 1997,
                  had received subscription proceeds of $150,591,765  (7,529,588
                  shares), including $591,765 (29,588 shares) issued pursuant to
                  the reinvestment plan. Pursuant to a Registration Statement on
                  Form  S-11  under  the  Securities  Act of 1933,  as  amended,
                  effective   January  31,  1997,   APF   registered   for  sale
                  $275,000,000 of shares of common stock (the "1997  Offering"),
                  including   $25,000,000   available   only   to   stockholders
                  participating  in the company's  reinvestment  plan.  The 1997
                  Offering of APF commenced  following the completion of the APF
                  Initial  Offering on February 6, 1997, and upon  completion of
                  the 1997 Offering on March 2, 1998, had received  subscription
                  proceeds  of  $251,872,648   (12,593,633  shares),   including
                  $1,872,648 (93,632 shares) issued pursuant to the reinvestment
                  plan. Pursuant to a Registration  Statement on Form S-11 under
                  the  Securities  Act of 1933,  as amended,  effective  May 12,
                  1998, APF registered for sale $345,000,000 of shares of

     Past performance is not necessarily indicative of future performance.



                 TABLE II - COMPENSATION TO SPONSOR - CONTINUED




Note 1
   (Continued):   common stock (the "1998  Offering").  The 1998 Offering of APF
                  commenced  following  the  completion  of the 1997 Offering on
                  March 2,  1998.  As of  January  31,  1999,  APF had  received
                  subscriptions totalling approximately $345,000,000 (17,250,000
                  shares), from the 1998 Offering, including $3,107,848 (155,393
                  shares) issued  pursuant to the company's  reinvestment  plan.
                  The 1998 Offering became fully subscribed in December 1998 and
                  proceeds from the last  subscriptions were received in January
                  1999. The amounts shown represent the combined  results of the
                  APF Initial Offering,  the 1997 Offering and the 1998 Offering
                  as of January 31, 1999,  including  shares issued  pursuant to
                  the company's reinvestment plan.

Note 2:           For negotiating  secured  equipment leases and supervising the
                  secured  equipment lease program,  APF was required to pay its
                  external advisor a one-time secured  equipment lease servicing
                  fee of two percent of the purchase price of the equipment that
                  is the  subject  of a secured  equipment  lease  (see Note 6).
                  During the years ended December 31, 1999, 1998, 1997 and 1996,
                  APF   incurred   $77,317,   $54,998,   $87,665  and   $70,070,
                  respectively, in secured equipment lease servicing fees.

Note 3:           Excludes  properties  sold and  substituted  with  replacement
                  properties,   as  permitted  under  the  terms  of  the  lease
                  agreements.

Note 4:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities  Act of 1933, as amended,  effective  July 9, 1997,
                  CNL Hospitality Properties,  Inc. (the "Hospitality Properties
                  REIT")  registered for sale  $165,000,000  of shares of common
                  stock  (the "CHP  Initial  Offering"),  including  $15,000,000
                  available only to stockholders  participating in the company's
                  reinvestment   plan.  The  CHP  Initial   Offering   commenced
                  September  11, 1997,  and upon  completion  of the CHP Initial
                  Offering   on  June  17,   1999  had   received   $150,072,637
                  (15,007,264  shares),  including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan.  Pursuant to a Registration
                  Statement on Form S-11 under the  Securities  Act of 1933,  as
                  amended,  effective June 4, 1999, the  Hospitality  Properties
                  REIT  registered  for sale up to  $275,000,000  of  shares  of
                  common stock (the "1999  Offering").  The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the  CHP  Initial  Offering  on June  17,  1999,  and  upon
                  completion  of the 1999  Offering on September  14, 2000,  the
                  company had received $274,998,988,  including $965,194 (96,520
                  shares) issued pursuant to the reinvestment plan.  Pursuant to
                  a Registration Statement on Form S-11 under the Securities Act
                  of 1933, as amended,  effective May 23, 2000, the  Hospitality
                  Properties  REIT  registered  for sale up to  $450,000,000  of
                  shares  of  common  stock  (the  "2000  Offering").  The  2000
                  Offering  of  the   Hospitality   Properties   REIT  commenced
                  following the completion of the 1999 Offering on September 14,
                  2000 and upon completion of the 2000 Offering on September 14,
                  2000,  the  company  had  received   $450,000,000,   including
                  $3,375,474   (337,547   shares)   issued   pursuant   to   the
                  reinvestment  plan.  Pursuant to a  Registration  Statement on
                  Form  S-11  under  the  Securities  Act of 1933,  as  amended,
                  effective  April 1,  2002,  the  Hospitality  Properties  REIT
                  registered  for sale up to  $450,000,000  of  shares of common
                  stock (the "2002  Offering").  As of December  31,  2002,  the
                  Hospitality Properties REIT had received subscription proceeds
                  of  $392,749,677  (39,274,968  shares) from its 2002 Offering,
                  including  $3,225,431  (322,543 shares) issued pursuant to the
                  reinvestment  plan.  The amounts shown  represent the combined
                  results of the CHP Initial  Offering,  the 1999 Offering,  the
                  2000 Offering and the 2002  Offering,  including  subscription
                  proceeds  issued  pursuant  to  the  reinvestment  plan  as of
                  December 31, 2002.

Note 5:           In addition to  acquisition  fees paid on gross  proceeds from
                  the offerings,  prior to becoming self advised on September 1,
                  1999, APF also incurred  acquisition fees relating to proceeds
                  from its line of credit to the extent the  proceeds  were used
                  to acquire properties. Such fees were paid using proceeds from
                  the line of  credit,  and as of  December  31,  1999,  APF had
                  incurred $6,175,521 of such fees (see Note 6).

Note 6:           On September 1, 1999,  APF issued  6,150,000  shares of common
                  stock (with an exchange  value of $20 per share) to affiliates
                  of APF to acquire its external advisor and two companies which
                  make and service  mortgage  loans and  securitize  portions of
                  such loans. As a result of the acquisition, APF ceased payment
                  of acquisition fees,  administrative,  accounting,  management
                  and secured  equipment  lease servicing fees. APF continues to
                  outsource  several  functions to  affiliates  such as investor
                  services,   public   relations,    corporate   communications,
                  knowledge  and  technology  management,   and  tax  and  legal
                  compliance.

Note 7:           In September  1999, APF acquired two companies  which make and
                  service  mortgage  loans  and  securitize  portions  of loans.
                  Effective with these acquisitions, APF classifies a portion of
                  its investments in and collections of mortgage loans, proceeds
                  from sale of  mortgage  loans,  proceeds  from  securitization
                  transactions  and purchases of other  investments as operating
                  activities  in  its  financial  statements.   Prior  to  these
                  acquisitions,  these types of transactions  were classified as
                  investing activities in its financial statements.

Note 8:           Generally, the Hospitality Properties REIT pays its affiliates
                  selling  commissions,  a marketing support fee and acquisition
                  fees  equal to 7.5%,  0.5% and  4.5%,  respectively,  of gross
                  proceeds.  Under certain circumstances a portion of these fees
                  may be waived.  In  addition,  the advisor of the  Hospitality
                  Properties  REIT is entitled to receive  acquisition  fees for
                  services  relating to identifying the properties,  structuring
                  the terms of the  acquisition and leases of the properties and
                  structuring the

      Past performance is not necessarily indicative of future performance.




TABLE II - COMPENSATION TO SPONSOR - CONTINUED

                  terms of the mortgage loans equal to 4.5% of the gross
                  proceeds of the offerings, loan proceeds from permanent
                  financing and the line of credit that are used to acquire
                  properties, but excluding amounts used to finance secured
                  equipment leases. During the years ended December 31, 2002,
                  2001 and 2000, the Hospitality Properties REIT paid the
                  advisor approximately $7.5 million, $8.8 million and $8.0
                  million, respectively, related to the permanent financing for
                  properties directly or indirectly owned by the Hospitality
                  Properties REIT. These acquisition fees were not paid using
                  proceeds from the offerings and, therefore, were excluded from
                  this table. The advisor of the Hospitality Properties REIT is
                  also entitled to receive fees in connection with the
                  development, construction or renovation of a property,
                  generally equal to 4% of project costs. During the years ended
                  December 31, 2002 and 2001, the Hospitality Properties REIT
                  paid the advisor $1,895,579 and $2,107,404, respectively,
                  relating to these fees. These amounts were also excluded from
                  this table.

Note 9:           In  addition  to the amount  paid to sponsor  from  operations
                  presented in this table,  during the years ended  December 31,
                  1998,  1999,  2000,  2001 and  2002,  APF  incurred  $300,206,
                  $1,493,437,    $1,493,436,    $1,493,436    and    $1,493,437,
                  respectively,  of soliciting  dealer servicing fees payable to
                  the sponsor,  and during the years ended December 31, 2002 and
                  2001, the Hospitality  Properties  REIT incurred  $293,000 and
                  $293,002,  respectively,  in soliciting  dealer servicing fees
                  payable to the sponsor.

Note 10:          In  connection   with  its  1999  Offering,   the  Hospitality
                  Properties REIT had agreed to issue and sell soliciting dealer
                  warrants  ("Soliciting  Dealer  Warrants")  to CNL  Securities
                  Corp.  The price for each  warrant was $0.0008 and one warrant
                  was issued for every 25 shares  sold by the  managing  dealer.
                  The  holder of a  Soliciting  Dealer  Warrant is  entitled  to
                  purchase  one  share of  common  stock  from  the  Hospitality
                  Properties  REIT at a price of  $12.00  during  the five  year
                  period  commencing  the  date  the  1999  Offering  began.  No
                  Soliciting Dealer Warrants, however, will be exercisable until
                  one year  from the date of  issuance.  During  the year  ended
                  December  31, 2000,  the  Hospitality  Properties  REIT issued
                  960,900 Soliciting Dealer Warrants to CNL Securities Corp.


     Past performance is not necessarily indicative of future performance.



                                    TABLE III
                       Operating Results of Prior Programs
                       CNL AMERICAN PROPERTIES FUND, INC.




                                                                                                                      1997
                                                                        1994          1995            1996          (Notes 2
                                                                      (Note 1)      (Note 23)       (Note 23)       and 23)
                                                                     ------------  ------------    ------------   -------------
Continuing Operations:
Gross revenue (Note 24)                                                   $   --     $ 539,776      $4,363,456    $ 15,516,102
Equity in earnings of unconsolidated joint venture                            --            --              --              --
Gain (loss) on sale of assets (Notes 7, 15, 18, 21 and 23)                    --            --              --              --
Provision for losses on assets (Notes 12, 14, 17 and 23)                      --            --              --              --
Sale of real estate (Notes 23 and 24)                                         --            --              --              --
Interest income                                                               --       119,355       1,843,228       3,941,831
Less:  Operating expenses (Note 23)                                           --      (186,145 )      (908,924 )    (2,066,962 )
       Transaction costs                                                      --            --              --              --
       Loss on investment in securities                                       --            --              --              --
       Provision for loss on mortgage notes held for sale                     --            --              --              --
       Provision for loss on mortgage, equipment and other notes              --            --              --              --
          receivables                                                         --            --              --              --
       Interest expense (Note 23)                                             --            --              --              --
       Cost of real estate sold (Notes 23 and 24)                             --      (104,131 )      (521,871 )    (1,795,062 )
       Depreciation and amortization (Note 23)                                --            --              --              --
       Loss on termination of cash flow hedge accounting                      --            --              --              --
       Advisor acquisition expense (Note 16)
       Minority interest in (income)/loss of consolidated joint               --           (76 )       (29,927 )       (31,453 )
         Ventures

Discontinued Operations:
  Earnings/(loss) from discontinued operations, net (Note 23)                 --            --              --              --
  Gain on disposal of discontinued operations, net (Note 23)                  --            --              --              --

Cummulative effect of accounting change                                       --              --              --             --
                                                                       ------------   ------------   -------------  -------------
Net income (loss) - GAAP basis                                                --       368,779       4,745,962      15,564,456
                                                                       ============   ============   =============  =============
Taxable income
-  from operations (Notes 8 and 25)                                           --       379,935       4,894,262      15,727,311
                                                                       ============  ============    ============   =============
-  from gain (loss) on sale (Notes 7, 15, 18, 21 and 25)                      --            --              --         (41,115 )
                                                                       ============  ============    ============   =============




                          - Intentionally left blank -

        Past performance is not necessarily indicative of future performance.






     1998              1999             2000                2001               2002
   (Notes 3          (Notes 3         (Notes 3            (Notes 3           (Notes 3
   and 23)           and 23)           and 23)            and 23)             and 23)
---------------   ---------------   --------------     ---------------    ----------------

   $29,560,219       $55,511,625     $ 86,558,213        $107,560,301         $99,358,298
        16,018            97,307           97,559           1,106,775             921,453
            --        (1,851,838 )       (721,230 )        (1,136,997 )          (347,179 )
      (269,149 )      (6,198,447 )     (2,214,159 )       (16,900,116 )        (8,639,377 )
            --                --               --         105,645,379         189,425,562
     8,984,546        13,335,146       29,794,446          48,699,202          40,882,800
    (3,493,160 )     (12,047,844 )    (28,550,472 )       (33,479,222 )       (37,889,123 )
            --        (6,798,803 )    (10,315,116 )                --                  --
            --                --       (5,347,659 )          (121,675 )                --
            --                --       (6,854,932          (5,070,213 )        (5,368,261 )
            --                --       (1,804,000 )       (28,199,674 )        (3,098,660 )
            --        (8,346,585 )    (46,944,260 )       (68,371,033 )       (58,780,246 )
            --                --               -- )       (97,586,970 )      (175,184,763 )
    (3,658,617        (9,554,319 )    (16,401,286 )       (18,213,287 )       (13,732,875 )
            -- )              --               --          (8,060,600 )                --
            --       (76,333,516 )             --                  --                  --

       (30,156 )         (41,678 )      1,023,730            (242,030 )        (1,133,798 )

     1,042,707         2,391,618        4,606,330          (6,240,436 )        (1,892,409 )
            --                --               --                  --          11,068,271
            --                --               --          (3,840,902 )                --
---------------   ---------------   --------------     ---------------    ----------------
    32,152,408       (49,837,334 )      2,927,163         (24,451,498 )        35,589,693
===============   ===============   ==============     ===============    ================

    33,553,390        58,152,473       28,881,542          22,681,442            (Note 25 )
===============   ===============   ==============     ===============    ================
      (149,948 )        (789,861 )     (2,696,079 )        (9,518,197 )          (Note 25 )
===============   ===============   ==============     ===============    ================






                          - Intentionally left blank -



         Past performance is not necessarily indicative of future performance.




TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)


                                                                            1994                                          1997
                                                                          (Note 1)        1995            1996          (Note 2)
                                                                         ------------  ------------    ------------   -------------

Cash generated from (used in) operations (Notes 4 and 5)                          --       498,459       5,482,540      17,076,214
Cash generated from sales (Notes 7, 15, 18 and 21)                                --            --              --       6,289,236
Cash generated from refinancing                                                   --            --              --              --
                                                                         ------------  ------------    ------------   -------------
Cash generated from (used in) operations, sales and refinancing                   --       498,459       5,482,540      23,365,450
Less:  Cash distributions to investors (Note 9)
      -  from operating cash flow (Note 4)                                        --      (498,459 )    (5,439,404 )   (16,854,297 )
      -  from sale of properties                                                  --            --              --              --
      -  from cash flow from prior period                                         --            --              --              --
      -  from return of capital (Note 10)                                         --      (136,827 )            --              --
                                                                         ------------  ------------    ------------   -------------
Cash generated (deficiency) after cash distributions                              --      (136,827 )        43,136       6,511,153
Special items (not including sales of real estate and refinancing):
      Subscriptions received from stockholders                                    --    38,454,158     100,792,991     222,482,560
      Sale of common stock to CNL Fund Advisors, Inc.                        200,000            --              --              --
      Retirement of shares of common stock (Note 13)                              --            --              --              --
      Contributions from minority interest of consolidated joint
       venture                                                                    --       200,000          97,419              --
      Distributions to minority interest                                          --            --         (39,121 )       (34,020 )
      Payment of stock issuance costs (Note 20)                                  (19 )  (3,680,704 )    (8,486,188 )   (19,542,862 )
      Acquisition of land and buildings on operating leases (Note 4)              --   (18,835,969 )   (36,104,148 )  (143,542,667 )
      Investment in direct financing leases (Note 4)                              --    (1,364,960 )   (13,372,621 )   (39,155,974 )
      Proceeds from sales of equipment direct financing leases                    --            --              --         962,274
      Proceeds from sale of consolidated partnership interest
       (Note 19)                                                                  --            --              --              --
      Proceeds from sale of securities                                            --            --              --              --
      Proceeds from borrowing from affiliate (Note 22)                            --            --              --              --
      Investment in joint venture                                                 --            --              --              --
      Increase in restricted cash                                                 --            --              --              --
      Purchase of other investments (Note 4)                                      --            --              --              --
      Investment in mortgage, equipment and other notes receivable
        (Note 4)                                                                  --            --     (13,547,264 )   (16,923,383 )

      Collections on mortgage, equipment and other notes receivable
        (Note 4)                                                                  --            --         133,850         250,732

      Redemption of (investment in) certificates of deposit                       --            --              --      (2,000,000 )
      Proceeds from the issuance of bonds                                         --            --              --              --
      Payment on bonds                                                            --            --              --              --
      Proceeds from borrowing on credit facility, note payable
        and subordinated note payable                                             --            --       3,666,896      19,721,804
      Payment on credit facility and note payable                                 --            --        (145,080 )   (20,784,577 )
      Reimbursement of organization, acquisition, and deferred
        offering and stock issuance costs paid on behalf of CNL
        American Properties Fund, Inc. by related parties                   (199,036 )  (2,500,056 )      (939,798 )    (2,857,352 )
      Decrease (increase) in intangibles and other assets                         --      (628,142 )    (1,103,896 )            --
      Proceeds from borrowings on mortgage warehouse facilities                   --            --              --              --
      Payments on mortgage warehouse facilities                                   --            --              --              --
      Payments of loan and bond issuance costs                                    --            --              --              --
      Other                                                                       --            --         (54,533 )        49,001
                                                                         ------------  ------------    ------------   -------------
Cash generated (deficiency) after cash distributions
    and special items                                                            945    11,507,500      30,941,643       5,136,689
                                                                         ============  ============    ============   =============

TAX AND DISTRIBUTION DATA PER
    $1,000 INVESTED (Note 6)
Federal income tax results:
Ordinary income (loss) (Notes 9 and 11)
    -  from operations (Notes 8 and 25)                                           --            20              61              67
                                                                         ============  ============    ============   =============
    -  from recapture (Note 25)                                                   --            --              --              --
                                                                         ============  ============    ============   =============
Capital gain (loss) (Notes 7, 15, 18, 21 and 25)                                  --            --              --              --
                                                                         ============  ============    ============   =============
Cash distributions to investors:
    Source (on GAAP basis):
    -  from investment income                                                     --            19              59              66
    -  from capital gain                                                          --            --              --              --
    -  from investment income from prior
         period                                                                   --            --              --              --
    -  from return of capital (Note 10)                                           --            14               8               6
                                                                         ------------  ------------    ------------   -------------
Total distributions on GAAP basis (Note 11):                                      --            33              67              72
                                                                         ============  ============    ============   =============
   Source (on cash basis):
    -  from sales                                                                 --            --              --              --
    -  from refinancing                                                           --            --              --              --
    -  from operations (Note 4)                                                   --            26              67              72
    -  from cash flow from prior period                                           --            --              --              --
    -  from return of capital (Note 10)                                           --             7              --              --
                                                                         ------------  ------------    ------------   -------------
Total distributions on cash basis (Note 11)                                       --            33              67              72
                                                                         ============  ============    ============   =============



     Past performance is not necessarily indicative of future performance.



     1998              1999             2000                2001               2002
   (Notes 3          (Notes 3         (Notes 3            (Notes 3           (Notes 3
   and 23)           and 23)           and 23)            and 23)             and 23)
---------------   ---------------   --------------     ---------------    ----------------

    39,116,275       307,261,214     (155,961,649 )        48,203,362         111,493,558
     2,385,941         5,302,433       12,833,063          11,207,122          67,043,108
          --                --               --                  --                   --
---------------   ---------------   --------------     ---------------    ----------------
    41,502,216       312,563,647     (143,128,586 )        59,410,484         178,536,666

   (39,116,275 )     (60,078,825 )            --          (48,203,362 )       (67,990,684 )
          --                --                --                 --                   --
      (265,053 )            --        (66,329,582 )       (18,263,335 )               --
       (67,821 )            --                 --                --                   --
---------------   ---------------   --------------     ---------------    ----------------
     2,053,067       252,484,822     (209,458,168 )        (7,056,213 )       110,545,982

   385,523,966           210,736               --           3,691,600           9,750,000
          --                 --                --                --                   --
      (639,528 )         (50,891 )             --                --                (4,709 )

            --           740,621           39,922                --                  --
       (34,073 )         (66,763 )       (146,601 )          (234,002 )          (242,788 )
   (34,579,650 )        (737,190 )     (1,493,436 )        (1,493,436 )        (1,493,437 )
  (200,101,667 )    (286,411,210 )   (160,901,355 )       (26,051,869 )        (7,211,699 )
   (47,115,435 )     (63,663,720 )    (15,368,629 )              --                  --
            --         2,252,766        1,848,664           1,451,456              41,500

            --                --        1,187,238                --                  --
            --                --        7,720,997             982,050                --
            --                --               --           8,708,400          11,750,000
      (974,696 )        (187,452 )             --             (10,000 )          (664,867 )
            --                --       (1,875,838 )        (9,055,564 )         6,357,321
   (16,083,055 )              --       (2,831,779 )                --                  --
   (10,724,398 )     (31,004,345 )    (11,130,607 )       (11,457,682 )        (6,606,837 )
     1,555,623         3,894,067        8,334,231           9,325,173          14,967,959
            --         2,000,000               --                  --                  --
            --                --      280,906,000         177,222,667                  --
            --                --       (2,422,469 )       (10,065,808 )       (16,557,295 )

     7,692,040       439,941,245      397,538,000          63,948,887         249,333,516
        (8,039 )     (61,580,289 )   (586,425,008 )      (159,590,370 )       (90,858,385 )


    (4,574,925 )      (1,492,310 )             --                  --                --
    (6,281,069 )      (1,862,036 )       (377,755 )                --                --
            --        27,101,067      301,227,438         325,264,212         189,901,470
            --      (352,808,966 )     (7,718,739 )      (358,859,850 )      (474,312,483 )
            --        (5,947,397 )    (20,891,532 )        (9,633,523 )           (22,557 )
       (95,101 )              --               --                  --                --
---------------   ---------------   --------------     ---------------    ----------------
    75,613,060       (77,188,245 )    (22,239,426 )        (2,913,872 )        (5,327,309 )
===============   ===============   ==============     ===============    ================


            63                73               30                  15            (Note 25 )
===============   ===============   ==============     ===============    ================
            --                --               --                  --            (Note 25 )
===============   ===============   ==============     ===============    ================
            --                --               --                  --            (Note 25 )
===============   ===============   ==============     ===============    ================


            60                --                3                  --                  40
            --                --               --                  --                  --

            --                --               --                  --                  --
            14                76               73                  76                  36
---------------   ---------------   --------------     ---------------    ----------------
            74                76               76                  76                  76
===============   ===============   ==============     ===============    ================





           --                 --                --                 --                  --
           --                 --                --                 --                  --
            73                76                --                 55                  76
             1                --               76                  21                  --
           --                 --                --                 --                  --
---------------   ---------------   --------------     ---------------    ----------------
            74                76               76                  76                  76
===============   ===============   ==============     ===============    ================


TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)
                                                                           1994                                          1997
                                                                         (Note 1)        1995            1996          (Note 2)
                                                                        ------------  ------------    ------------   -------------

Total cash distributions as a percentage of
    original $1,000 investment (Note 6)                                        0.00 %        5.34 %          7.06 %          7.45 %
Total cumulative cash distributions per
    $1,000 investment from inception                                             --            33             100             172
Amount (in percentage terms) remaining
    invested in program properties at the
    end of each year (period) presented
    (original total acquisition cost of
    properties retained, divided by original
    total acquisition cost of all properties in
    program)  (Notes 7, 15, 18 and 21)                                          N/A           100 %           100 %           100 %


      Past performance is not necessarily indicative of future performance.


     1998              1999             2000                2001               2002
   (Notes 3          (Notes 3         (Notes 3            (Notes 3           (Notes 3
   and 23)           and 23)           and 23)            and 23)             and 23)
---------------   ---------------   --------------     ---------------    ----------------


         7.625 %           7.625 %          7.625 %             7.625 %             7.625 %

           246               322              398                 474                 550






           100 %             100 %            100 %               100 %               100 %


Note 1:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities Act of 1933, as amended,  effective March 29, 1995,
                  CNL American Properties Fund, Inc. ("APF") registered for sale
                  $165,000,000   of  shares  of  common   stock  (the   "Initial
                  Offering"),    including   $15,000,000   available   only   to
                  stockholders participating in the company's reinvestment plan.
                  The Initial Offering of APF commenced April 19, 1995, and upon
                  completion  of the Initial  Offering on February 6, 1997,  had
                  received  subscription  proceeds  of  $150,591,765  (7,529,588
                  shares), including $591,765 (29,588 shares) issued pursuant to
                  the reinvestment plan. Pursuant to a Registration Statement on
                  Form  S-11  under  the  Securities  Act of 1933,  as  amended,
                  effective   January  31,  1997,   APF   registered   for  sale
                  $275,000,000 of shares of common stock (the "1997  Offering"),
                  including   $25,000,000   available   only   to   stockholders
                  participating  in the company's  reinvestment  plan.  The 1997
                  Offering of APF  commenced  following  the  completion  of the
                  Initial  Offering on February 6, 1997, and upon  completion of
                  the 1997 Offering on March 2, 1998, had received  subscription
                  proceeds  of  $251,872,648   (12,593,633  shares),   including
                  $1,872,648 (93,632 shares) issued pursuant to the reinvestment
                  plan. Pursuant to a Registration  Statement on Form S-11 under
                  the  Securities  Act of 1933,  as amended,  effective  May 12,
                  1998, APF registered for sale $345,000,000 of shares of common
                  stock  (the  "1998  Offering").   The  1998  Offering  of  APF
                  commenced  following  the  completion  of the 1997 Offering on
                  March 2,  1998.  As of  January  31,  1999,  APF had  received
                  subscriptions totalling approximately $345,000,000 (17,250,000
                  shares), from the 1998 Offering, including $3,107,848 (155,393
                  shares) issued  pursuant to the company's  reinvestment  plan.
                  The 1998 Offering became fully subscribed in December 1998 and
                  proceeds from the last  subscriptions were received in January
                  1999.  Activities  through  June  1,  1995,  were  devoted  to
                  organization of APF and operations had not begun.

Note 2:           The  amounts  shown  represent  the  combined  results  of the
                  Initial Offering and the 1997 Offering.

Note 3:           The  amounts  shown  represent  the  combined  results  of the
                  Initial Offering, 1997 Offering and 1998 Offering.

Note 4:           Cash  generated  from   operations   from  inception   through
                  September 1999 included cash received from tenants,  less cash
                  paid for expenses,  plus interest received. In September 1999,
                  APF acquired  two  companies  which make and service  mortgage
                  loans and securitize  portions of loans.  Effective with these
                  acquisitions,   APF   classifies   its   investments   in  and
                  collections  of mortgage  loans held for sale,  proceeds  from
                  sale  of  mortgage   loans  held  for  sale,   proceeds   from
                  securitization transactions,  acquisition in and proceeds from
                  real estate held for sale and  purchases of other  investments
                  held  for  sale  as  operating  activities  in  its  financial
                  statements.  APF continues to classify investments in mortgage
                  loans,  investments  in land  and  buildings,  investments  in
                  direct financing leases and other  investments  intended to be
                  held as investments  as investing  activities in its financial
                  statements.

Note 5:           Cash generated from operations per this table agrees to
                  cash generated from operations per the statement of cash flows
                  included in the financial statements of APF.

Note 6:           Total cash  distributions  as a percentage of original  $1,000
                  investment  are  calculated  based  on  actual   distributions
                  declared for the period.

Note 7:           In May 1997 and July 1997,  APF sold four  properties  and one
                  property,   respectively,  to  a  tenant  for  $5,254,083  and
                  $1,035,153,  respectively,  which  was  equal to the  carrying
                  value of the  properties  at the time of sale. In May and July
                  1998, APF sold two and one properties,  respectively, to third
                  parties  for  $1,605,154  and  $1,152,262,  respectively  (and
                  received net sales  proceeds of  approximately  $1,233,700 and
                  $629,435,  respectively, after deduction of construction costs
                  incurred  but  not  paid by APF as of the  date of the  sale),
                  which approximated the carrying value of the properties at the
                  time of sale. As a result,  no gain or loss was recognized for
                  financial reporting purposes.

Note 8:           Taxable   income   presented  is  before  the  dividends  paid
                  deduction.




    Past performance is not necessarily indicative of future performance.





Note 9:           For the years ended December 31, 2002, 2001, 2000, 1999, 1998,
                  1997, 1996 and 1995, 0%, 21%, 40%, 97%, 84.87%, 93.33%, 90.25%
                  and 59.82%,  respectively,  of the  distributions  received by
                  stockholders  were  considered to be ordinary income and 100%,
                  79%, 60%, 15%, 15.13%, 6.67%, 9.75% and 40.18%,  respectively,
                  were  considered  a return of capital for  federal  income tax
                  purposes. No amounts distributed to stockholders for the years
                  ended December 31, 2002,  2001,  2000,  1999, 1998, 1997, 1996
                  and  1995  are  required  to be or have  been  treated  by the
                  company as a return of capital for purposes of calculating the
                  stockholders' return on their invested capital.

Note 10:          Cash distributions presented above as a return of capital on a
                  GAAP  basis  represent  the  amount of cash  distributions  in
                  excess of accumulated net income on a GAAP basis.  Accumulated
                  net income (loss)  includes  deductions for  depreciation  and
                  amortization  expense and income from certain  non-cash items.
                  This  amount is not  required to be  presented  as a return of
                  capital  except for  purposes of this  table,  and APF has not
                  treated  this  amount  as a return  of  capital  for any other
                  purpose.  During the year ended December 31, 1999, accumulated
                  net  loss  included  a  non-cash  deduction  for  the  advisor
                  acquisition expense of $76.3 million (see Note 16). During the
                  year ended  December 31, 2001, the Company  recorded  non-cash
                  provisions  for loan losses of $28.2  million due to financial
                  difficulties of a borrower.

Note 11:          Tax and distribution data and total distributions on GAAP
                  basis were computed based on the weighted average dollars
                  outstanding during each period presented.

Note 12:          During  the  year  ended   December  31,  1998,  APF  recorded
                  provisions  for losses on land and  buildings in the amount of
                  $269,149  for  financial  reporting  purposes  relating to two
                  Shoney's  properties  and two Boston  Market  properties.  The
                  tenants of these properties experienced financial difficulties
                  and  ceased  payment of rents  under the terms of their  lease
                  agreements.  The allowances  represent the difference  between
                  the carrying  value of the properties at December 31, 1998 and
                  the estimated net realizable value for these properties.

Note 13:          In October  1998,  the Board of  Directors  of APF  elected to
                  implement APF's  redemption  plan.  Under the redemption plan,
                  APF elected to redeem  shares,  subject to certain  conditions
                  and  limitations.  During the year ended  December  31,  1998,
                  69,514 shares were redeemed at $9.20 per share  ($639,528) and
                  retired from shares outstanding of common stock.  During 1999,
                  as a  result  of  the  stockholders  approving  a  one-for-two
                  reverse  stock split of common  stock,  the Company  agreed to
                  redeem  fractional  shares (2,545  shares).  During 2002,  the
                  Company retired 325 shares of common stock.

Note 14:          During  the  year  ended   December  31,  1999,  APF  recorded
                  provisions for losses on buildings in the amount of $6,198,447
                  for   financial   reporting   purposes   relating  to  several
                  properties.   The  tenants  of  these  properties  experienced
                  financial  difficulties  and ceased payment of rents under the
                  terms of their lease agreements.  The allowances represent the
                  difference  between the carrying  value of the  properties  at
                  December 31, 1999 and the estimated net  realizable  value for
                  these properties.

Note 15:          During  the  year  ended  December  31,  1999,  APF  sold  six
                  properties  and  received  aggregate  net  sales  proceeds  of
                  $5,302,433,  which  resulted  in a  total  aggregate  loss  of
                  $781,192 for financial reporting purposes.  APF reinvested the
                  proceeds from the sale of properties in additional properties.
                  In  addition,   APF  recorded  a  loss  on  securitization  of
                  $1,070,646 for financial reporting purposes.

Note 16:          On September 1, 1999,  APF issued  6,150,000  shares of common
                  stock to affiliates of APF to acquire its external advisor and
                  two  companies  which  make and  service  mortgage  loans  and
                  securitize   portions  of  loans.   APF  recorded  an  advisor
                  acquisition expense of $76,333,516 relating to the acquisition
                  of the external advisor, which represented the excess purchase
                  price over the net assets acquired.

Note 17:          During the year ended  December 31, 2000,  2001 and 2002,  APF
                  recorded provision for losses on land,  buildings,  and direct
                  financing leases in the amount of $2,214,159,  $16,900,116 and
                  $8,639,377,  respectively,  for financial  reporting  purposes
                  relating   to  several   properties.   The  tenants  of  these
                  properties  experienced  financial  difficulties and/or ceased
                  payment of rents  under the terms of their  lease  agreements.
                  The allowances  represent the difference  between the carrying
                  value of the  properties at December 31, 2000,  2001 and 2002,
                  respectively, and the estimated net realizable value for these
                  properties.

Note 18:          During the year ended  December  31,  2000,  APF sold  fifteen
                  properties  for aggregate net sales  proceeds of  $12,833,063,
                  which  resulted  in total  aggregate  losses of  $732,334  for
                  financial  reporting purposes (after deduction of construction
                  costs  incurred  but  not  paid  by APF as of the  date of the
                  sale).

Note 19:          During  the  year  ended   December  31,  2000,  APF  received
                  $1,187,238 for the sale of consolidated partnership interests.

Note 20:          An affiliate of APF is entitled to receive, in connection with
                  each common stock offering,  a soliciting dealer servicing fee
                  payable  annually by APF  beginning on December 31 of the year
                  following  the year in which each  offering  terminated in the
                  amount  of 0.20%  of the  stockholders'  investment  in APF in
                  connection  with such  offering.  An affiliate of APF in turn,
                  may  reallow  all or a portion  of such fee to  broker-dealers
                  whose  clients  purchased  shares  in such  offering  and held
                  shares on such date. During the years ended December 31, 1998,
                  1999, 2000, 2001 and 2002 APF incurred  $300,206,  $1,493,437,
                  $1,493,436,   $1,493,436   and   $1,493,437   of  such   fees,
                  respectively,  which were paid in January  1999,  2000,  2001,
                  2002 and 2003, respectively.

    Past performance is not necessarily indicative of future performance.




TABLE III - CNL AMERICAN PROPERTIES FUND, INC. (continued)

Note 21:          During the year ended  December  31,  2001 and 2002,  APF sold
                  several properties held for investment for aggregate net sales
                  proceeds of  $11,207,122  and  $67,043,108,  which resulted in
                  total   aggregate   losses  of  $1,136,997  and  $347,179  for
                  financial  reporting  purposes.  In addition,  during the year
                  ended   December  31,  2001,  APF  began   acquiring   certain
                  properties with the intent of selling them to third parties.

Note 22:          During the year ended  December 31, 2001,  an affiliate of APF
                  advanced  $6.0  million to the Company in the form of a demand
                  balloon promissory note. The note is  uncollateralized,  bears
                  interest at LIBOR plus 2.5 percent with interest  payments and
                  outstanding  principal due upon demand.  During the year ended
                  December  31,  2001,  the Company  converted  the  outstanding
                  principal  balance  plus accrued  interest  under the advances
                  into shares of Company  stock.  As of December 31,  2001,  the
                  affiliate  had  advanced  an  additional  $2.7  million to the
                  Company under the same terms of the previous advances.  During
                  2002,  the affiliate  advanced $7.5 million to the Company and
                  subsequently  converted the outstanding  balances plus accrued
                  interest under the advances,  into shares of Company stock. As
                  of December 31, 2002, the affiliate had advanced an additional
                  $4.25  million  to the  Company  under  the same  terms as the
                  previous advances.

Note 23:          Effective  January 1, 2002, the Company  adopted  Statement of
                  Financial  Accounting  Standards No. 144  "Accounting  for the
                  Impairment or Disposal of Long-Lived  Assets"  ("FASB  #144").
                  This statement  requires that a long lived asset be tested for
                  recoverability  whenever  events or changes  in  circumstances
                  indicate that its carrying amount may not be  recoverable.  In
                  addition,  the  statement  also  requires  that the results of
                  operations  of a  component  of an entity that either has been
                  disposed of or is classified as held for sale be reported as a
                  discontinued operation,  for components designated on or after
                  the effective  date. As a result of the adoption of FASB #144,
                  the operating results and the related  gains/(losses) from the
                  sale of all properties  designated for sale effective  January
                  1, 2002 have been classified as discontinued  operations.  The
                  results of operations for these  properties have been restated
                  and  reclassified to  discontinued  operations for each of the
                  years ended December 31, 1998,  1999, 2000 and 2001 to conform
                  to the 2002 presentation.  The results of operations for these
                  properties for the years ended December 31, 1994,  1995,  1996
                  and 1997 have not been restated or  reclassified to conform to
                  the 2002 presentation.

Note 24:          Starting  in  2001,  the  Company  began  designating  certain
                  properties as held for sale and began selling these properties
                  to  private  investors  as an  alternative  to  retaining  the
                  properties as a long term investment. The accounting for these
                  properties  differs  from that of similar  properties  without
                  this  designation as the Company does not record  depreciation
                  on these  properties  for financial  reporting  purposes.  All
                  properties  designated  through  December 31, 2001 as held for
                  sale reflect the gross sales  proceeds  received from the sale
                  as a revenue line item. The related cost of the properties are
                  reflected in a cost of real estate sold expense line item. All
                  properties  designated as held for sale subsequent to December
                  31, 2001 are presented as  discontinued  operations  (see Note
                  23).

Note 25:          This  information is not yet available;  however,  100% of
                  the  distributions  to the  stockholders  for 2002 were deemed
                  return of capital.


         Past performance is not necessarily indicative of future performance.




                                    TABLE III
                       Operating Results of Prior Programs
                        CNL HOSPITALITY PROPERTIES, INC.




                                                          1996            1997                              1999
                                                        (Note 1)        (Note 1)           1998           (Note 2)
                                                      -------------   -------------    --------------   --------------

Gross revenue                                               $   --          $   --       $ 1,316,599      $ 4,230,995
Dividend income (Note 10)                                       --              --                --        2,753,506
Interest and other income                                       --          46,071           638,862        3,693,004
Less:  Operating expenses                                       --         (22,386 )        (257,646 )       (802,755 )
       Interest expense                                         --              --          (350,322 )       (248,094 )
       Depreciation and amortization                            --            (833 )        (388,554 )     (1,267,868 )
       Equity in loss of unconsolidated
         subsidiary after deduction of
         preferred stock dividends (Note 10)                    --              --                --         (778,466 )
       Minority interest                                        --              --                --          (64,334 )
                                                      -------------   -------------    --------------   --------------
Net income - GAAP basis                                         --          22,852           958,939        7,515,988
                                                      =============   =============    ==============   ==============
Taxable income
    -  from operations (Note 6)                                 --          46,071           609,304        7,613,284
                                                      =============   =============    ==============   ==============
    -  from gain (loss) on sale                                 --              --                --               --
                                                      =============   =============    ==============   ==============
Cash generated from operations (Notes
    3 and 4)                                                    --          22,469         2,776,965       12,890,161
Less:  Cash distributions to investors (Note 7)
      -  from operating cash flow                               --         (22,469 )      (1,168,145 )    (10,765,881 )
      -  from sale of properties                                --              --                --               --
      -  from cash flow from prior period                       --              --                --               --
      -  from return of capital (Note 8)                        --          (7,307 )              --               --
                                                      -------------   -------------    --------------   --------------
Cash generated (deficiency) after cash
    distributions                                               --          (7,307 )       1,608,820        2,124,280
Special items (not including sales of real
    estate and refinancing):
      Subscriptions received from
       stockholders                                             --      11,325,402        31,693,678      245,938,907
      Sale of common stock to CNL
       Hospitality Corp. (formerly CNL
       Hospitality Advisors, Inc.)                         200,000              --                --               --
      Proceeds from mortgage loans and other
       notes payable                                            --              --                --               --
      Contribution from minority interest                       --              --                --        7,150,000
      Distributions to holders of minority
       interest                                                 --              --                --               --
      Stock issuance costs                               (197,916)      (1,979,371 )      (3,948,669 )    (26,472,318 )
      Acquisition of land, buildings and
       equipment                                                --              --       (28,752,549 )    (85,089,887 )
      Investment in unconsolidated subsidiary                   --              --                --      (39,879,638 )
      Deposit on property and other investments                 --              --                --               --
      Acquisition of additional interest CNL
       Hotel Investors, Inc.                                    --              --                --               --
      Redemption of (investment in) certificate
       of deposit                                               --              --        (5,000,000 )             --
      Increase in restricted cash                               --              --           (82,407 )       (193,223 )
      Proceeds of borrowing on line of credit                   --              --         9,600,000               --
      Payment on mortgage loans and line of credit              --              --                --       (9,600,000 )
      Payment of other notes                                    --              --                --               --
      Payment of loan costs                                     --              --           (91,262 )        (47,334 )
      Decrease (increase) in intangibles and
        other assets                                            --        (463,470 )        (676,026 )     (5,068,727 )
      Retirement of shares of common stock                      --              --                --         (118,542 )
      Due from related parties - offering expenses              --              --                --               --
      Other                                                     --          (7,500 )           7,500               --
                                                      -------------   -------------    --------------   --------------
Cash generated (deficiency) after cash
    distributions and special items                          2,084       8,867,754         4,359,085       88,743,518
                                                      =============   =============    ==============   ==============
TAX AND DISTRIBUTION DATA PER
    $1,000 INVESTED (Note 5)
Federal income tax results:
Ordinary income (loss) (Note 9)
    -  from operations (Note 6)                                 --               7                25               48
                                                      =============   =============    ==============   ==============
    -  from recapture                                           --              --                --               --
                                                      =============   =============    ==============   ==============
Capital gain (loss) (Note 7)                                    --              --                --               --
                                                      =============   =============    ==============   ==============



       Past performance is not necessarily indicative of future performance.










      2000               2001              2002
    (Note 2)           (Note 2)          (Note 2)
-----------------    --------------   ---------------
                                      ---------------

    $ 26,681,838       $67,968,306      $142,581,972
       2,780,063                --                --
       6,637,318         3,494,238        13,826,308
      (3,311,988 )      (9,491,248 )     (77,963,736 )
      (2,383,449 )     (14,653,011 )     (18,330,110 )
      (7,830,456 )     (19,748,697 )     (27,875,955 )


        (386,627 )      (7,092,674 )     (16,164,591 )
      (1,516,237 )      (1,148,538 )        (263,647 )
-----------------    --------------   ---------------
      20,670,462        19,328,376        15,810,241
=================    ==============   ===============

      14,507,032        16,938,386        24,804,256
=================    ==============   ===============
             --                --                 --
=================    ==============   ===============

      43,650,561        52,937,964        70,340,253

     (28,082,275 )     (48,409,660 )     (74,217,458 )
             --                 --                --
             --                 --                --
             --                 --                --
-----------------    --------------   ---------------

      15,568,286         4,528,304        (3,877,205 )



     203,684,044       286,068,626       489,110,645


            --                 --                 --

     102,081,950        37,989,731        40,070,000
            --                 --                 --

     (10,217,828 )      (2,896,299 )        (413,664 )
     (24,808,156 )     (34,723,430 )     (51,639,836 )

    (310,711,912 )    (117,233,515 )    (307,447,324 )
     (10,174,209 )    (129,032,824 )     (95,025,712 )
              --                --       (10,300,407 )

     (17,872,573 )     (32,884,119 )              --

       5,000,000                --                --
      (2,988,082 )      (5,229,734 )      (9,328,235 )
              --         7,500,000        16,578,832
              --        (1,171,444 )      (1,748,331 )
              --                --       (26,606,636 )
      (1,342,713 )      (2,953,874 )      (2,169,338 )

       2,510,090       (11,610,690 )     (29,643,305 )
      (2,503,484 )      (2,312,634 )      (2,391,110 )
              --        (1,410,900 )              --
              --                --                --
-----------------    --------------   ---------------
     (51,774,587 )      (5,372,802 )       5,168,374
=================    ==============   ===============




              38                26                25
=================    ==============   ===============
              --               --                 --
=================    ==============   ===============
              --               --                 --
=================    ==============   ===============





        Past performance is not necessarily indicative of future performance.

TABLE III - CNL HOSPITALITY PROPERTIES, INC. (continued)




                                                      1996             1997                               1999
                                                    (Note 1)         (Note 1)           1998            (Note 2)
                                                  -------------     ------------    -------------     -------------

Cash distributions to investors
    Source (on GAAP basis)
    -  from investment income                               --                3               40                47
    -  from capital gain                                    --               --               --                --
    -  from investment income from
         prior period                                       --               --               --                --
    -  from return of capital (Note 8)                      --                1                9                21
                                                  -------------     ------------    -------------     -------------

Total distributions on GAAP basis
   (Note 9)                                                 --                4               49                68
                                                  =============     ============    =============     =============
   Source (on cash basis)
    -  from sales                                           --               --               --                --
    -  from refinancing                                     --               --               --                --
    -  from operations                                      --                3               49                68
    -  from cash flow from prior period                     --               --               --                --
    -  from return of capital (Note 8)                      --                1               --                --
                                                                    ------------    -------------     -------------
                                                  -------------
Total distributions on cash basis (Note 9)                  --                4               49                68
                                                  =============     ============    =============     =============
Total cash distributions as a percentage
    of original $1,000 investment (Notes
    5 and 11)                                              N/A             3.00 %           4.67 %            7.19 %
Total cumulative cash distributions per
    $1,000 investment from inception                       N/A                4               53               121
Amount (in percentage terms) remaining
    invested in program properties at the end
    of each year (period) presented
    (original total acquisition cost of
    properties retained, divided by original
    total acquisition cost of all properties
    in program)                                            N/A              N/A              100 %             100 %



Note 1:           Pursuant to a  Registration  Statement  on Form S-11 under the
                  Securities  Act of 1933, as amended,  effective  July 9, 1997,
                  CNL Hospitality Properties,  Inc. (the "Hospitality Properties
                  REIT")  registered for sale  $165,000,000  of shares of common
                  stock  (the "CHP  Initial  Offering"),  including  $15,000,000
                  available only to stockholders  participating in the company's
                  reinvestment   plan.  The  CHP  Initial   Offering   commenced
                  September  11, 1997,  and upon  completion  of the CHP Initial
                  Offering   on  June  17,   1999  had   received   $150,072,637
                  (15,007,264  shares),  including $72,637 (7,264 shares) issued
                  pursuant to the reinvestment plan.  Pursuant to a Registration
                  Statement on Form S-11 under the  Securities  Act of 1933,  as
                  amended,  effective June 4, 1999, the  Hospitality  Properties
                  REIT  registered  for sale up to  $275,000,000  of  shares  of
                  common stock (the "1999  Offering").  The 1999 Offering of the
                  Hospitality Properties REIT commenced following the completion
                  of the  CHP  Initial  Offering  on June  17,  1999,  and  upon
                  completion  of the 1999  Offering on September  14, 2000,  the
                  company had received $274,998,988,  including $965,194 (96,520
                  shares) issued pursuant to the reinvestment plan.  Pursuant to
                  a Registration Statement on Form S-11 under the Securities Act
                  of 1933, as amended,  effective May 23, 2000, the  Hospitality
                  Properties  REIT  registered  for sale up to  $450,000,000  of
                  shares  of  common  stock  (the  "2000  Offering").  The  2000
                  Offering  of  the   Hospitality   Properties   REIT  commenced
                  following the completion of the 1999 Offering on September 14,
                  2000 and upon completion of the 2000 Offering on September 14,
                  2000,  the  company  had  received   $450,000,000,   including
                  $3,375,474   (337,547   shares)   issued   pursuant   to   the
                  reinvestment  plan.  Pursuant to a  Registration  Statement on
                  Form  S-11  under  the  Securities  Act of 1933,  as  amended,
                  effective  April 1,  2002,  the  Hospitality  Properties  REIT
                  registered  for sale up to  $450,000,000  of  shares of common
                  stock (the "2002  Offering").  As of December  31,  2002,  the
                  Hospitality Properties REIT had received subscription proceeds
                  of  $392,749,677  (39,274,968  shares) from its 2002 Offering,
                  including  $3,225,431  (322,543 shares) issued pursuant to the
                  reinvestment  plan.  The amounts shown  represent the combined
                  results of the CHP Initial  Offering,  the 1999 Offering,  the
                  2000 Offering and the 2002  Offering,  including  subscription
                  proceeds  issued  pursuant  to  the  reinvestment  plan  as of
                  December 31, 2002.

Note 2:           The  amounts  shown  represent  the  combined  results  of the
                  Initial Offering, the 1999 Offering, the 2000 Offering and the
                  2002 Offering, as applicable.

Note 3:           Cash  generated  from  operations  includes cash received from
                  tenants and  dividend,  interest and other  income,  less cash
                  paid for operating expenses.

Note 4:           Cash generated  from  operations per this table agrees to cash
                  generated  from  operations  per the  statement  of cash flows
                  included  in  the  consolidated  financial  statements  of the
                  Hospitality Properties REIT.

Note 5:           Total cash  distributions  as a percentage of original  $1,000
                  investment  are  calculated  based  on  actual   distributions
                  declared for the period.

       Past performance is not necessarily indicative of future performance.






     2000             2001             2002
   (Note 2)         (Note 2)         (Note 2)
----------------   ------------    -------------



             53             30               16
            --              --               --

            --              --               --
             20             45               60
----------------   ------------    -------------

             73             75               76
================   ============    =============

            --              --                --
            --              --                --
             73             75               76
            --              --                --
            --              --                --
----------------   ------------    -------------
             73             75               76
================   ============    =============


           7.38 %        7.688 %          7.75%

            194            269              345






            100 %          100 %           100%


Note 6:           Taxable   income   presented  is  before  the  dividends  paid
                  deduction.

Note 7:           For the years ended December 31, 2002,  2001, 2000, 1999, 1998
                  and 1997,  approximately  51%,  52%,  63%,  75%, 76% and 100%,
                  respectively,  of the  distributions  received by stockholders
                  were considered to be ordinary income and  approximately  49%,
                  48%, 37%,  25%, 24% and 0%,  respectively,  were  considered a
                  return of capital for federal income tax purposes.  No amounts
                  distributed to  stockholders  for the years ended December 31,
                  2002,  2001,  2000,  1999, 1998 and 1997 are required to be or
                  have been  treated by the  company as a return of capital  for
                  purposes  of  calculating  the  stockholders'  return on their
                  invested capital.

Note 8:           Cash distributions presented above as a return of capital on a
                  GAAP  basis  represent  the  amount of cash  distributions  in
                  excess of accumulated net income on a GAAP basis.  Accumulated
                  net  income   includes   deductions   for   depreciation   and
                  amortization  expense and income from certain  non-cash items.
                  In  addition,  cash  distributions  presented  as a return  of
                  capital  on  a  cash  basis  represents  the  amount  of  cash
                  distributions  in excess of cash generated from operating cash
                  flow and excess cash flows from prior  periods.  These amounts
                  have not been  treated as a return of capital for  purposes of
                  calculating the amount of stockholders' invested capital.

Note 9:           Tax and  distribution  data and  total  distributions  on GAAP
                  basis  were  computed  based on the  weighted  average  shares
                  outstanding during each period presented.

Note 10:          In February 1999, the company  executed a series of agreements
                  with Five Arrows Realty Securities II, L.L.C. to jointly own a
                  real estate investment  trust, CNL Hotel Investors,  Inc., for
                  the purpose of acquiring seven hotels.  During the years ended
                  December 31, 2000 and 1999,  the company  recorded  $2,780,063
                  and $2,753,506,  respectively, in dividend income and $386,627
                  and  $778,466,  respectively,  in  an  equity  in  loss  after
                  deduction  of  preferred  stock  dividends,  resulting  in net
                  earnings   of   $2,393,436   and   $1,975,040,   respectively,
                  attributable to this investment.  In October 2000, the company
                  purchased an additional interest in CNL Hotel Investors, Inc.,
                  which  resulted  in a  majority  ownership  interest  and  the
                  consolidation  of  CNL  Hotel  Investors,  Inc.  As  such,  no
                  dividend  income  was  recognized  for the years  ended  after
                  December 31, 2001.

Note 11:          Certain data for columns representing less than 12 months have
                  been annualized.

       Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES



                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ==

CNL Income Fund, Ltd.:
   Golden Corral -
     Kent Island, MD (2)(4)       11/20/86     10/15/99      $ 870,457      --          --         --        $  870,457
   Popeye's -
     Merritt Island, FL (2)       12/31/86     09/13/00        676,503      --          --         --           676,503
   Golden Corral -
     Salisbury, MD (2) (11)       12/04/86     11/30/00        665,001      --          --         --           665,001

CNL Income Fund II, Ltd.:
   Golden Corral -
     Columbia, MO                 11/17/87     03/23/99        678,888      --          --         --           678,888
   Little House -
     Littleton, CO                10/07/87     11/05/99        150,000      --          --         --           150,000
   KFC -
     Jacksonville, FL (2)         09/01/87     06/15/00        601,400      --          --         --           601,400
   Popeye's -
     Sanford, FL (2)              06/28/87     09/13/00        631,359      --          --         --           631,359
   Popeye's -
     Altamonte Springs, FL (2)    02/11/87     09/13/00        494,052      --          --         --           494,052
   Popeye's -
     Apopka, FL (2)               01/19/88     09/13/00        615,618      --          --         --           615,618
   IHOP -
     Peoria, AZ (20)              11/18/99     08/27/01        836,160      --          --         --           836,160
   KFC -
     Bay City, TX (2)             12/18/87     09/10/01        532,254      --          --         --           532,254

CNL Income Fund III, Ltd.:
   Perkins -
     Flagstaff, AZ                09/30/88     04/30/99      1,091,193      --          --         --         1,091,193
   Denny's -
     Hagerstown, MD               08/14/88     06/09/99        700,977      --          --         --           700,977
   Popeye's -
     Plant City, FL               04/12/88     09/13/00        507,365      --          --         --           507,365
   Golden Corral -
     Washington, IL (2)           11/20/87     11/29/01        568,453      --          --         --           568,453
   Golden Corral -
     Schereville, IN (2) (23)     11/19/87     09/11/01        787,300      --          --         --           787,300

CNL Income Fund IV, Ltd.:
   Wendy's
     Detroit, MI (2)              10/21/88     06/29/00      1,056,475      --          --         --         1,056,475
   Shoney's -
     Temple Terrace, FL (2)       06/27/89     07/06/00      1,293,286      --          --         --         1,293,286
   Shoney's -
     Punta Gorda, FL (2)          02/02/89     07/06/00      1,060,297      --          --         --         1,060,297
   Big Boy -
     Topeka, KS (2)               12/22/88     11/20/00        496,362      --          --         --           496,362
   Taqueria Jalisco -
     Corpus Christi, TX (2)       04/01/91     06/19/01        378,300      --          --         --           378,300




                                              Cost of Properties
                                             Including Closing and
                                                  Soft Costs
                                     --------------------------------------
                                                                               Excess
                                                    Total                   (deficiency)
                                                 acquisition                 of property
                                     Original       cost,                     operating
                                     mortgage      capital                      cash
                                     financing   improvements               receipts over
         Property                       (7)      closing and      Total         cash
                                                  soft costs                expenditures
                                                     (1)                        (19)
=============================        =========== ============= ============ ==============

CNL Income Fund, Ltd.:
  Golden Corral -
    Kent Island, MD (2)(4)              --       $ 726,600     $  726,600  $ 1,192,641
 Popeye's -
    Merritt Island, FL (2)              --         518,409        518,409      909,409
  Golden Corral -
    Salisbury, MD (2) (11)              --         741,900        741,900    1,326,574

CNL Income Fund II, Ltd.:
  Golden Corral -
    Columbia, MO                        --         511,200        511,200      780,594
  Little House -
    Littleton, CO                       --         330,456        330,456      349,883
  KFC -
    Jacksonville, FL (2)                --         441,000        441,000      715,685
  Popeye's -
    Sanford, FL (2)                     --         560,000        560,000      850,322
  Popeye's -
    Altamonte Springs, FL (2)           --         426,568        426,568      684,445
  Popeye's -
    Apopka, FL (2)                      --         545,561        545,561      794,039
  IHOP -
    Peoria, AZ (20)                     --         764,975        764,975      125,468
  KFC -
    Bay City, TX (2)                    --         446,827        446,827      767,761

CNL Income Fund III, Ltd.:
  Perkins -
    Flagstaff, AZ                       --         993,508        993,508    1,309,570
  Denny's -
    Hagerstown, MD                      --         861,454        861,454    1,065,467
  Popeye's -
    Plant City, FL                      --         606,409        606,409      616,913
  Golden Corral -
    Washington, IL (2)                  --         690,500        690,500    1,063,951
  Golden Corral -
    Schereville, IN (2) (23)            --         694,100        694,100    1,053,524

CNL Income Fund IV, Ltd.:
  Wendy's
    Detroit, MI (2)                     --         614,500        614,500    1,038,530
  Shoney's -
    Temple Terrace, FL (2)              --        1,155,705     1,155,705    1,496,453
  Shoney's -
    Punta Gorda, FL (2)                 --         947,500        947,500    1,271,574
  Big Boy -
    Topeka, KS (2)                      --         708,800        708,800      878,942
  Taqueria Jalisco -
    Corpus Christi, TX (2)              --         622,310        622,310      331,788


 Past performance is not necessarily indicative of future performance.






                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ===

CNL Income Fund IV, Ltd.
(Continued):
   Bellissimos Family
Restaurant -
     Palm Bay, FL                 01/10/89     08/17/01        280,571      --          --         --           280,571

CNL Income Fund V, Ltd.:
   Wendy's -
     Ithaca, NY                   12/07/89     03/29/99        471,248      --          --         --           471,248
   Wendy's -
     Endicott, NY                 12/07/89     03/29/99        642,511      --          --         --           642,511
   Burger King -
     Halls, TN (3)                01/05/90     06/03/99        433,366      --          --         --           433,366
   Hardee's -
     Belding, MI                  03/08/89     03/03/00        124,346      --          --         --           124,346
   Denny's -
     Daleville, IN (2)            02/06/89     03/02/01        300,386      --          --         --           300,386

CNL Income Fund VI, Ltd.:
   Burger King -
     Greeneville, TN              01/05/90     06/03/99      1,059,373      --          --         --         1,059,373
   Burger King -
     Broadway, TN                 01/05/90     06/03/99      1,059,200      --          --         --         1,059,200
   Burger King -
     Sevierville, TN              01/05/90     06/03/99      1,168,298      --          --         --         1,168,298
   Burger King -
     Walker Springs, TN           01/10/90     06/03/99      1,031,274      --          --         --         1,031,274
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        478,062      --          --         --           478,062
   Popeye's -
     Tallahassee, FL              04/30/90     09/13/00        619,696      --          --         --           619,696
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        523,672      --          --         --           523,672
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        450,418      --          --         --           450,418
   Captain D's -
     Chester, PA                  02/09/90     05/22/01         83,000      --          --         --            83,000
   IHOP -
     Dublin, CA (14)              11/12/99     06/28/01      1,274,672      --          --         --         1,274,672
   IHOP -
     Round Rock, TX (21)          10/27/99     10/05/01      1,163,216      --          --         --         1,163,216
   Denny's -
     Cheyenne, WY                 12/19/89     12/21/01        290,800      --          --         --           290,800

CNL Income Fund VII, Ltd.:
   Burger King -
     Maryville, TN                05/04/90     06/03/99      1,059,954      --          --         --         1,059,954
   Burger King -
     Halls, TN (3)                01/05/90     06/03/99        451,054      --          --         --           451,054
   Shoney's
     Pueblo, CO                   08/21/90     06/20/00      1,005,000      --          --         --         1,005,000




                                         Cost of Properties
                                       Including Closing and
                                             Soft Costs
                                -------------------------------------
                                                                         Excess
                                              Total                   (deficiency)
                                           acquisition                 of property
                                Original      cost,                     operating
                                mortgage     capital                      cash
                                financing  improvements               receipts over
          Property                 (7)     closing and      Total         cash
                                            soft costs                expenditures
                                               (1)                        (19)
==============================  ========== ============= ============ ==============

CNL Income Fund IV, Ltd.
(Continued):
   Bellissimos Family
Restaurant -
     Palm Bay, FL                 --        1,070,822     1,070,822    1,250,729

CNL Income Fund V, Ltd.:
   Wendy's -
     Ithaca, NY                   --         471,297        471,297      446,286
   Wendy's -
     Endicott, NY                 --         471,255        471,255      608,495
   Burger King -
     Halls, TN (3)                 --         329,231       329,231      352,853
   Hardee's -
     Belding, MI                   --         630,432       630,432      250,715
   Denny's -
     Daleville, IN (2)             --         547,600       547,600      589,375

CNL Income Fund VI, Ltd.:
   Burger King -
     Greeneville, TN               --         890,240       890,240      950,054
   Burger King -
     Broadway, TN                  --         890,036       890,036      949,821
   Burger King -
     Sevierville, TN               --         890,696       890,696      951,292
   Burger King -
     Walker Springs, TN            --         864,777       864,777      921,429
   Popeye's -
     Jacksonville, FL              --         406,477       406,477      491,262
   Popeye's -
     Tallahassee, FL               --         488,817       488,817      658,801
   Popeye's -
     Jacksonville, FL              --         423,591       423,591      530,389
   Popeye's -
     Jacksonville, FL              --         383,089       383,089      454,566
   Captain D's -
     Chester, PA                   --         550,000       550,000      611,617
   IHOP -
     Dublin, CA (14)               --       1,166,160     1,166,160      175,195
   IHOP -
     Round Rock, TX (21)           --       1,076,103     1,076,103      192,394
   Denny's -
     Cheyenne, WY                  --         765,500       765,500    1,058,493

CNL Income Fund VII, Ltd.:
   Burger King -
     Maryville, TN                 --         890,668       890,668      954,457
   Burger King -
     Halls, TN (3)                 --         342,669       342,669      367,256
   Shoney's
     Pueblo, CO                    --         961,582       961,582      984,472


            Past performance is not necessarily indicative of future performance.







                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ===

CNL Income Fund VII, Ltd.
(Continued):
   Popeye's -
     Lake City, FL                04/30/90     09/13/00        598,959      --          --         --           598,959
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        417,581      --          --         --           417,581
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        494,680      --          --         --           494,680
   Popeye's -
     Brunswick, GA                04/30/90     09/13/00        535,947      --          --         --           535,947
   Popeye's -
     Jacksonville, FL             04/30/90     09/13/00        345,168      --          --         --           345,168
   Kentucky Fried Chicken -
     Friendswood, TX              06/13/90     12/14/00        725,000      --          --         --           725,000
   Church's -
     Daytona Beach, FL (22)       01/16/91      11/27/01       213,482      --       103,581       --           317,063
   Church's
     Gainesville, FL              01/16/91      11/29/01       182,750      --          --         --           182,750
   Johnnies -
     Saddlebrook, FL              04/04/90      12/21/01       698,050      --          --         --           698,050

CNL Income Fund VIII, Ltd.:
   Shoney's -
     Bayonet Point, FL            06/12/91      07/06/00     1,135,380      --          --         --         1,135,380
   Shoney's -
     Brooksville, FL              02/18/91      07/06/00       940,013      --          --         --           940,013
   Shoney's -
     Sun City, FL                 03/04/91      07/06/00     1,327,317      --          --         --         1,327,317
   Popeye's -
     Jacksonville, FL             09/28/90      09/13/00       420,006      --          --         --           420,006
   Golden Corral -
     Middleburg Heights, OH       05/31/96      03/21/01       236,740      --          --         --           236,740
(12)
   Quincy's -
     Statesville, NC              10/10/91      05/25/01       877,000      --          --         --           877,000

CNL Income Fund IX, Ltd.:
   Shoney's -
     Corpus Christi, TX           10/28/91      02/12/99     1,350,000      --          --         --         1,350,000
   Perkins -
     Rochester, NY                12/20/91      03/03/99     1,050,000      --          --         --         1,050,000
   Perkins -
     Williamsville, NY            12/20/91      05/15/00       693,350      --          --         --           693,350
   Denny's -
     Alliance, OH (16)            01/22/92      11/30/00            --      --       200,000       --           200,000
   Denny's -
     Blufton, OH (17)             10/11/91      11/30/00            --      --       300,000       --           300,000
   IHOP -
     Dublin, CA (14)              11/12/99      06/28/01       424,891      --          --         --           424,891






                                         Cost of Properties
                                       Including Closing and
                                             Soft Costs
                                -------------------------------------
                                                                         Excess
                                              Total                   (deficiency)
                                           acquisition                 of property
                                Original      cost,                     operating
                                mortgage     capital                      cash
                                financing  improvements               receipts over
          Property                 (7)     closing and      Total         cash
                                            soft costs                expenditures
                                               (1)                        (19)
==============================  ========== ============= ============ ==============

CNL Income Fund VII, Ltd.
(Continued):
   Popeye's -
     Lake City, FL                 --         485,455       485,455        641,608
   Popeye's -
     Jacksonville, FL              --         376,323       376,323        452,824
   Popeye's -
     Jacksonville, FL              --         384,936       384,936        515,888
   Popeye's -
     Brunswick, GA                 --         468,797       468,797        574,076
   Popeye's -
     Jacksonville, FL              --         340,429       340,429        407,175
   Kentucky Fried Chicken -
     Friendswood, TX               --         485,951       485,951        671,580
   Church's -
     Daytona Beach, FL (22)       --          318,188       318,188        396,488
   Church's
     Gainesville, FL              --          183,872       183,872        239,254
   Johnnies -
     Saddlebrook, FL              --        1,100,000     1,100,000      1,324,170

CNL Income Fund VIII, Ltd.:
   Shoney's -
     Bayonet Point, FL            --          924,646       924,646      1,040,086
   Shoney's -
     Brooksville, FL              --          816,355       816,355        961,418
   Shoney's -
     Sun City, FL                 --        1,055,820     1,055,820      1,238,581
   Popeye's -
     Jacksonville, FL             --          352,445       352,445        401,169
   Golden Corral -
     Middleburg Heights, OH       --          236,740       236,740        127,155
(12)
   Quincy's -
     Statesville, NC              --          893,422       893,422        997,232

CNL Income Fund IX, Ltd.:
   Shoney's -
     Corpus Christi, TX           --        1,224,020     1,224,020      1,061,856
   Perkins -
     Rochester, NY                --        1,064,815     1,064,815        862,189
   Perkins -
     Williamsville, NY            --          981,482       981,482        692,535
   Denny's -
     Alliance, OH (16)            --          553,137       553,137        614,999
   Denny's -
     Blufton, OH (17)             --          642,000       642,000        739,292
   IHOP -
     Dublin, CA (14)              --          388,720       388,720         58,398



        Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ===

CNL Income Fund IX, Ltd.
(Continued):
   Shoney's -
     Bedford, IN                  07/09/91      07/31/01       900,110      --          --         --           900,110
   Shell's Seafood Restaurant -
     Copley Township, OH          12/17/91      11/28/01     1,086,143      --          --         --         1,086,143

CNL Income Fund X, Ltd.:
   Perkins -
     Amherst, NY                  02/26/92      03/03/99     1,150,000      --          --         --         1,150,000
   Shoney's -
     Fort Myers Beach, FL         09/08/95      08/26/99       931,725      --          --         --           931,725
   Perkins -
     Lancaster, NY                12/20/91      12/28/00       749,675      --          --         --           749,675
   IHOP -
     Peoria, AZ (20)              11/18/99      08/27/01       905,840      --          --         --           905,840

CNL Income Fund XI, Ltd.:
   IHOP -
     Round Rock, TX (21)          10/27/99      10/05/01       347,454      --          --         --           347,454
   Quincy's -
     Sebring, FL                  09/29/92      11/21/01     1,029,000      --          --         --         1,029,000

CNL Income Fund XII, Ltd.:
   Long John Silver's -
     Morganton, NC (6)            07/02/93      05/17/99       467,300      --       55,000        --           522,300
   Denny's -
     Cleveland, TN                12/23/92      03/03/00       797,227      --          --         --           797,227
   Shoney's -
     Bradenton, FL                03/22/93      07/06/00     1,227,907      --          --         --         1,227,907
   Golden Corral -
     Middleburg Heights, OH       05/31/96      03/21/01     1,663,260      --          --         --         1,663,260
(12)
   Jack in the Box -
     Rialto, CA                   01/15/93      09/28/01     1,382,365      --          --         --         1,382,365
   Johnnies -
     Winter Haven, FL             08/09/93      10/02/01     1,090,297      --          --         --         1,090,297

CNL Income Fund XIII, Ltd.:
   Jack in the Box -
     Houston, TX                  07/27/93      07/16/99     1,063,318      --          --         --         1,063,318
   Quincy's -
     Mount Airy, NC               07/30/93      04/09/01       947,000      --          --         --           947,000

CNL Income Fund XIV, Ltd.:
   Long John Silver's -
     Stockbridge, GA              03/31/94      05/25/99       696,300      --          --         --           696,300
   Long John Silver's -
     Shelby, NC                   06/22/94      11/12/99       494,178      --          --         --           494,178





                                                  Cost of Properties
                                                Including Closing and
                                                      Soft Costs
                                         -------------------------------------
                                                                                  Excess
                                                       Total                   (deficiency)
                                                    acquisition                 of property
                                         Original      cost,                     operating
                                         mortgage     capital                      cash
                                         financing  improvements               receipts over
          Property                          (7)     closing and      Total         cash
                                                     soft costs                expenditures
                                                        (1)                        (19)
============================== =         ========== ============= ============ ==============

CNL Income Fund IX, Ltd.
(Continued):
   Shoney's -
     Bedford, IN                           --          754,028       754,028        991,085
   Shell's Seafood Restaurant -
     Copley Township, OH                   --          870,713       870,713        692,662

CNL Income Fund X, Ltd.:
   Perkins -
     Amherst, NY                           --        1,141,444     1,141,444        879,529
   Shoney's -
     Fort Myers Beach, FL                  --          931,725       931,725        434,215
   Perkins -
     Lancaster, NY                         --        1,111,111     1,111,111        706,575
   IHOP -
     Peoria, AZ (20)                       --          828,723       828,723        135,923

CNL Income Fund XI, Ltd.:
   IHOP -
     Round Rock, TX (21)                   --          321,434       321,434         57,468
   Quincy's -
     Sebring, FL                           --        1,054,550     1,054,550      1,111,338

CNL Income Fund XII, Ltd.:
   Long John Silver's -
     Morganton, NC (6)                     --          304,002       304,002        333,944
   Denny's -
     Cleveland, TN                         --          622,863       622,863        530,741
   Shoney's -
     Bradenton, FL                         --       1,000,000      1,000,000        898,776
   Golden Corral -
     Middleburg Heights, OH                --       1,663,260      1,663,260        893,350
(12)
   Jack in the Box -
     Rialto, CA                            --       1,033,072      1,033,072        936,833
   Johnnies -
     Winter Haven, FL                      --       1,172,608      1,172,608      1,117,762

CNL Income Fund XIII, Ltd.:
   Jack in the Box -
     Houston, TX                           --         861,321        861,321        521,565
   Quincy's -
     Mount Airy, NC                        --         968,134        968,134        755,601

CNL Income Fund XIV, Ltd.:
   Long John Silver's -
     Stockbridge, GA                       --         738,340        738,340        344,212
   Long John Silver's -
     Shelby, NC                            --         608,611        608,611        263,101




    Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES



                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ===

CNL Income Fund XIV, Ltd.
(Continued):
   Checker's -
     Kansas City, MO              03/31/94      12/10/99       268,450      --          --         --           268,450
   Checker's -
     Houston, TX                  03/31/94      12/15/99       385,673      --          --         --           385,673
   East Side Mario's -
     Columbus, OH                 11/10/94      09/22/00     1,631,946      --          --         --         1,631,946
   Golden Corral -
     Paris, TX (13)               07/26/96      05/25/01       400,000      --          --         --           400,000

CNL Income Fund XV, Ltd.:
   Long John Silver's -
     Gastonia, NC                 07/15/94      11/12/99       631,304      --          --         --           631,304
   Long John Silver's
     Lexington, NC                10/22/94      01/12/00       562,130      --          --         --           562,130
   Quincy's -
     Greer, SC (15)               06/13/94      04/06/01       233,000      --       467,000       --           700,000
   Jack in the Box -
     Woodland Hills, CA           07/29/94      04/19/01     1,253,728      --          --         --         1,253,728
   Golden Corral -
     Paris, TX (13)               07/26/96      05/25/01       400,000      --          --         --           400,000
   Jack in the Box -
     Altadena, CA                 07/29/94      10/04/01       937,250      --          --         --           937,250

CNL Income Fund XVI, Ltd.:
   Boston Market -
     Lawrence, KS                 05/08/98      11/23/99       667,311      --          --         --           667,311
   Boston Market -
     Columbia Heights, MN         12/18/95      09/29/00       575,777      --          --         --           575,777
   Denny's -
     Marana, AZ                   02/13/95      03/30/01     1,145,045      --          --         --         1,145,045
   Boston Market -
     St. Cloud, MN                09/15/95      11/28/01       647,365      --          --         --           647,365
   Big Boy -
     Las Vegas, NV                05/31/95      12/11/01     1,059,264      --          --         --         1,059,264

CNL Income Fund XVII, Ltd.:
   Golden Corral -
     El Cajon, CA (5)             04/29/97      12/02/99     1,675,385      --          --         --         1,675,385
   Popeye's -
     Warner Robins, GA            11/04/96      09/13/00       607,361      --          --         --           607,361
   Boston Market -
     Long Beach, CA               12/05/96      10/17/00       529,633      --          --         --           529,633
   Boston Market -
     Houston, TX                  06/19/96      01/19/01       782,648      --          --         --           782,648



                                                 Cost of Properties
                                               Including Closing and
                                                     Soft Costs
                                        -------------------------------------
                                                                                 Excess
                                                      Total                   (deficiency)
                                                   acquisition                 of property
                                        Original      cost,                     operating
                                        mortgage     capital                      cash
                                        financing  improvements               receipts over
          Property                         (7)     closing and      Total         cash
                                                    soft costs                expenditures
                                                       (1)                        (19)
==============================          ========== ============= ============ ==============

CNL Income Fund XIV, Ltd.
(Continued):
   Checker's -
     Kansas City, MO                      --         209,329        209,329        125,831
   Checker's -
     Houston, TX                          --         311,823        311,823        189,722
   East Side Mario's -
     Columbus, OH                         --       1,631,946      1,631,946      1,103,012
   Golden Corral -
     Paris, TX (13)                       --         501,276        501,276        255,146

CNL Income Fund XV, Ltd.:
   Long John Silver's -
     Gastonia, NC                         --         776,248        776,248        326,627
   Long John Silver's
     Lexington, NC                        --         646,203        646,203        234,243
   Quincy's -
     Greer, SC (15)                       --         946,933        946,933        649,756
   Jack in the Box -
     Woodland Hills, CA                   --         939,806        939,806        648,254
   Golden Corral -
     Paris, TX (13)                       --         501,276        501,276        255,146
   Jack in the Box -
     Altadena, CA                         --         709,812        709,812        528,007

CNL Income Fund XVI, Ltd.:
   Boston Market -
     Lawrence, KS                         --         774,851        774,851          2,893
   Boston Market -
     Columbia Heights, MN                 --         939,972        939,972        226,734
   Denny's -
     Marana, AZ                           --         719,234        719,234        587,377
   Boston Market -
     St. Cloud, MN                        --       1,075,093      1,075,093        502,978
   Big Boy -
     Las Vegas, NV                        --       1,160,553      1,160,553        476,249

CNL Income Fund XVII, Ltd.:
   Golden Corral -
     El Cajon, CA (5)                     --        1,692,994     1,692,994        512,474
   Popeye's -
     Warner Robins, GA                    --          563,148       563,148        257,018
   Boston Market -
     Long Beach, CA                       --          832,280       832,280        156,091
   Boston Market -
     Houston, TX                          --          812,696       812,696        323,963



         Past performance is not necessarily indicative of future performance.





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                              Selling Price, Net of
                                                                        Closing Costs and GAAP Adjustments
                                                          ---------------------------------------------------------------


                                                                                    Purchase
                                                                         Mortgage   money      Adjustments
                                                                          balance   mortgage    resulting
                                   Date        Date of        Cash        at time   taken         from
          Property               Acquired       Sale      received net    of sale   back by    application     Total
                                                           of closing                program     of GAAP
                                                              costs
============================== ============= ============ ============== ========== ========== ============ ============= ===

CNL Income Fund XVII, Ltd.
(Continued):
   Mr. Fablo's -
     Kentwood, MI                 09/05/95      06/21/01       681,300      --          --         --           681,300
   Boston Market -
     Inglewood, CA                07/24/96      09/06/01       298,300      --          --         --           298,300
   Jack in the Box -
     El Dorado, CA                09/26/96      09/25/01     1,510,463      --          --         --         1,510,463

CNL Income Fund XVIII, Ltd.:
   Black Eyed Pea -
     Atlanta, GA                  03/26/97      12/06/99       688,997      --          --         --           688,997
   Boston Market -
     Timonium, MD                 07/13/97      06/29/01       848,550      --          --         --           848,550
   Jack in the Box -
     Henderson, NV                06/30/97      07/12/01     1,278,046      --          --         --         1,278,046
   IHOP -
     Santa Rosa, CA               05/21/97      12/28/01     1,664,829      --          --         --         1,664,829

CNL American Properties Fund,
Inc.:
   Golden Corral -
     Waldorf, MD (9) (10)         04/05/99      01/03/00     2,501,175      --          --         --         2,501,175
   Jack in the Box -
     Los Angeles, CA              06/30/95      02/18/00     1,516,800      --          --         --         1,516,800
   Golden Corral -
     Dublin, GA                   08/07/98      05/01/00     1,323,205      --          --         --         1,323,205
   Boston Market -
     San Antonio, TX              04/30/97      05/02/00       517,495      --          --         --           517,495
   Boston Market -
     Corvallis, OR                07/09/96      06/20/00       717,019      --          --         --           717,019
   Big Boy -
     St. Louis, MO                01/19/99      06/28/00     1,463,050      --          --         --         1,463,050
   Ground Round -
     Nanuet, NY                   12/02/97      06/30/00       964,825      --          --         --           964,825
   Big Boy -
     Jefferson City, MO           01/19/99      06/30/00       905,250      --          --         --           905,250
   Big Boy -
     Alton, IL                    01/19/99      06/30/00       905,250      --          --         --           905,250
   Boston Market -
     Liberty, MO                  08/18/97      09/13/00       538,800      --          --         --           538,800
   Mr. Fables -
     Grand Rapids, MI             03/19/96      09/26/00       722,100      --          --         --           722,100
   Pizza Hut -
     Dover, OH                    05/01/97      11/08/00       112,917      --          --         --           112,917
   Big Boy -
     St. Joseph, MO               04/27/99      11/27/00       646,550      --          --         --           646,550





                                             Cost of Properties
                                           Including Closing and
                                                 Soft Costs
                                    -------------------------------------
                                                                             Excess
                                                  Total                   (deficiency)
                                               acquisition                 of property
                                    Original      cost,                     operating
                                    mortgage     capital                      cash
                                    financing  improvements               receipts over
          Property                     (7)     closing and      Total         cash
                                                soft costs                expenditures
                                                   (1)                        (19)
==============================      ========== ============= ============ ==============

CNL Income Fund XVII, Ltd.
(Continued):
   Mr. Fablo's -
     Kentwood, MI                      --         855,609       855,609        272,268
   Boston Market -
     Inglewood, CA                     --         857,488       857,488        196,478
   Jack in the Box -
     El Dorado, CA                     --       1,097,220     1,097,220        581,924

CNL Income Fund XVIII, Ltd.:
   Black Eyed Pea -
     Atlanta, GA                       --         617,610       617,610        187,183
   Boston Market -
     Timonium, MD                      --       1,140,100     1,140,100        302,665
   Jack in the Box -
     Henderson, NV                     --       1,067,175     1,067,175        494,105
   IHOP -
     Santa Rosa, CA                    --       1,286,364     1,286,364        598,179

CNL American Properties Fund,
Inc.:
   Golden Corral -
     Waldorf, MD (9) (10)              --      2,430,686      2,430,686             --
   Jack in the Box -
     Los Angeles, CA                   --      1,119,567      1,119,567        549,658
   Golden Corral -
     Dublin, GA                        --      1,272,765      1,272,765        190,590
   Boston Market -
     San Antonio, TX                   --        757,069        757,069         66,889
   Boston Market -
     Corvallis, OR                     --        925,427        925,427        312,232
   Big Boy -
     St. Louis, MO                     --      1,345,100      1,345,100         65,420
   Ground Round -
     Nanuet, NY                        --        927,273        927,273        245,426
   Big Boy -
     Jefferson City, MO                --       1,113,383     1,113,383         68,389
   Big Boy -
     Alton, IL                         --       1,012,254     1,012,254         41,032
   Boston Market -
     Liberty, MO                       --         765,530       765,530         84,802
   Mr. Fables -
     Grand Rapids, MI                  --         816,264       816,264        270,873
   Pizza Hut -
     Dover, OH                         --         233,896       233,896         86,601
   Big Boy -
     St. Joseph, MO                    --         885,883       885,883         35,138


      Past performance is not necessarily indicative of future performance.





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL American Properties Fund, Inc.
   (Continued):
   Boston Market -
     Baltimore, MD                    08/19/97     12/14/00       668,753      --           --        --           668,753
   Boston Market -
     Stafford, TX                     07/02/97     12/15/00       881,674      --           --        --           881,674
   Big Boy -
     Guadalupe, AZ                    04/16/97     03/23/01       883,685      --           --        --           883,685
   Tumbleweed's -
     Nashville, TN                    08/01/97     04/20/01       525,050      --           --        --           525,050
   Boston Market -
     Vacaville, CA                    05/06/97     05/08/01     1,064,430      --           --        --         1,064,430
   Big Boy -
     Independence, MO                 01/19/99     05/22/01       524,513      --           --        --           524,513
   Big Boy -
     Belleville, IL (9)               02/26/99     06/13/01       375,000      --           --        --           375,000
   Tumbleweeds -
     Clarksville, TN                  02/10/98     06/15/01       803,050      --           --        --           803,050
   Big Boy -
     Grandview, MO                    02/26/99     06/29/01       516,235      --           --        --           516,235
   Pizza Hut -
     Toledo, OH                       12/05/96     06/29/01       148,528      --           --        --           148,528
   Shoney's -
     Indian Harbor Beach, FL          01/24/97     08/13/01       457,016      --           --        --           457,016
   Black-eyed Pea -
     Wichita, KS                      10/01/97     08/15/01       300,000      --           --        --           300,000
   Tumbleweed Southwest Mesquite
Grill & Bar
     Hermitage, TN                    02/10/98     09/24/01       871,496      --           --        --           871,496
   Tumbleweed Southwest Mesquite
Grill & Bar
     Cookeville, TN                   08/01/97     09/26/01       844,905      --           --        --           844,905
   Big Boy -
     Granite City, IL                 01/19/99     09/28/01       595,148      --           --        --           595,148
   Big Boy -
     Taylor, MI                       08/19/99     10/16/01       887,731      --           --        --           887,731
   Boston Market -
     Cedar Park, TX                   04/02/97     10/31/01       875,000      --           --        --           875,000
   Shoney's -
     Phoenix, AZ                      03/24/98     11/26/01       399,285      --           --        --           399,285
   Burger King -
     Atlanta, GA                      06/09/98     12/21/01       418,050      --           --        --           418,050
   Barbwires Steakhouse -
     Lawrence, KS                     08/01/97     12/28/01       718,000      --           --        --           718,000
   Boston Market -
     Jessup, MD                       05/06/97     02/19/02       324,343      --           --        --           324,343
   Black-eyed Pea -
     Herndon, VA                      07/14/98     02/22/02       815,875      --           --        --           815,875
   TGI Friday's -
     El Paso, TX                      08/14/98     03/19/02     1,594,729      --           --        --         1,549,729



                                                  Cost of Properties
                                                Including Closing and
                                                      Soft Costs
                                         -------------------------------------
                                                                                   Excess
                                                       Total                    (deficiency)
                                                    acquisition                 of property
                                         Original      cost,                   operating cash
                                         mortgage     capital                  receipts over
                                         financing  improvements                    cash
            Property                        (7)     closing and      Total      expenditures
                                                     soft costs                     (19)
                                                        (1)
=================================        ========== ============= ============ ===============

CNL American Properties Fund, Inc
   (Continued):
   Boston Market -
     Baltimore, MD                         --       1,378,051     1,378,051        472,895
   Boston Market -
     Stafford, TX                          --       1,077,979     1,077,979        372,102
   Big Boy -
     Guadalupe, AZ                         --       1,706,768     1,706,768        140,439
   Tumbleweed's -
     Nashville, TN                         --       1,308,411     1,308,411        362,588
   Boston Market -
     Vacaville, CA                         --       1,437,474     1,437,474        358,396
   Big Boy -
     Independence, MO                      --       1,253,699     1,253,699         65,156
   Big Boy -
     Belleville, IL (9)                    --         761,074       761,074        (17,597 )
   Tumbleweeds -
     Clarksville, TN                       --       1,440,247     1,440,247        229,692
   Big Boy -
     Grandview, MO                         --         962,290       962,290         36,150
   Pizza Hut -
     Toledo, OH                            --         328,381       328,381        (21,742 )
   Shoney's -
     Indian Harbor Beach, FL               --         693,304       693,304         68,946
   Black-eyed Pea -
     Wichita, KS                           --         660,748       660,748        305,701
   Tumbleweed Southwest Mesquite
Grill & Bar
     Hermitage, TN                         --       1,410,719     1,410,719        191,005
   Tumbleweed Southwest Mesquite
Grill & Bar
     Cookeville, TN                        --       1,471,963     1,471,963        386,178
   Big Boy -
     Granite City, IL                      --       1,037,579     1,037,579         10,800
   Big Boy -
     Taylor, MI                            --       1,227,132     1,227,132         61,898
   Boston Market -
     Cedar Park, TX                        --         827,223       827,223         71,386
   Shoney's -
     Phoenix, AZ                           --         482,368       482,368        (91,021 )
   Burger King -
     Atlanta, GA                           --         926,261       926,261        227,653
   Barbwires Steakhouse -
     Lawrence, KS                          --       1,448,598     1,448,598        179,747
   Boston Market -
     Jessup, MD                            --       1,243,060     1,243,060        107,266
   Black-eyed Pea -
     Herndon, VA                           --       1,279,118     1,279,118        354,530
   TGI Friday's -
     El Paso, TX                           --       1,602,944     1,602,944        577,055



   Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL American Properties Fund, Inc.
   (Continued):
   Big Boy -
     Las Vegas, NV                    08/20/97     04/19/02       981,540      --           --        --           981,540
   Big Boy -
     Overland Park, KS                02/26/99     04/26/02       577,580      --           --        --           577,580
   Burger King -
     Tappahannock, VA                 03/16/99     05/16/02     1,089,779      --           --        --         1,089,779
   Burger King -
     Prattville, AL                   01/28/99     05/17/02       497,867      --           --        --           497,867
   Burger King -
     Tuskegee, AL                     01/28/99     05/17/02       397,867      --           --        --           397,867
   Burger King -
     Montgomery, AL                   01/28/99     05/17/02       797,867      --           --        --           797,867
   Burger King -
     Montgomery, AL                   01/28/99     05/17/02       397,867      --           --        --           397,867
   Black-eyed Pea -
     McKinney, TX                     12/30/98     05/31/02     1,149,064      --           --        --         1,149,064
   Black-eyed Pea -
     Forestville, MD                  10/01/97     06/01/02            --      --           --        --                --
   Burger King -
     Coon Rapids, MN                  03/16/99     06/03/02     1,078,973      --           --        --         1,078,973
   Burger King -
     Rochester, NH                    03/16/99     06/03/02     1,193,284      --           --        --         1,193,284
   Burger King -
     Columbus, OH                     03/16/99     06/03/02       950,938      --           --        --           950,938
   Burger King -
     Asheboro, NC                     03/16/99     06/03/02     1,513,213      --           --        --         1,513,213
   Hardee's -
     Gulf Shores, AL                  03/16/99     06/13/02       904,861      --           --        --           904,861
   Steak & Ale -
     Palm Harbor, FL                  06/16/98     06/14/02     1,241,943      --           --        --         1,241,943
   Burger King -
     Lancaster, OH                    03/16/99     06/14/02     1,321,822      --           --        --         1,321,822
   Burger King -
     John's Island, SC                03/16/99     06/14/02     1,289,282      --           --        --         1,289,282
   IHOP -
     Elk Grove, CA                    08/20/97     06/17/02     2,085,346      --           --        --         2,085,346
   Hardee's -
     Tusculum, TN                     03/16/99     06/17/02       653,460      --           --        --           653,460
   Pollo Tropical -
     Miami, FL                        09/22/98     06/20/02     1,302,936      --           --        --         1,302,936
   Burger King -
     St. Paul, MN                     03/16/99     06/26/02       849,273      --           --        --           849,273
   Texas Roadhouse -
     Joilet, IL                       02/25/00     06/27/02     1,940,745      --           --        --         1,940,745
   Black-eyed Pea -
     Phoenix, AZ                      09/30/97     06/28/02       281,000      --           --        --           281,000




                                              Cost of Properties
                                            Including Closing and
                                                  Soft Costs
                                     -------------------------------------
                                                                               Excess
                                                   Total                    (deficiency)
                                                acquisition                 of property
                                     Original      cost,                   operating cash
                                     mortgage     capital                  receipts over
                                     financing  improvements                    cash
            Property                    (7)     closing and      Total      expenditures
                                                 soft costs                     (19)
                                                    (1)
=============================        ========== ============= ============ ===============

CNL American Properties Fund,
   (Continued):
   Big Boy -
     Las Vegas, NV                     --       1,658,000     1,658,000        114,934
   Big Boy -
     Overland Park, KS                 --       1,037,383     1,037,383         (7,476 )
   Burger King -
     Tappahannock, VA                  --         857,826       857,826        285,470
   Burger King -
     Prattville, AL                    --       1,018,519     1,018,519        285,895
   Burger King -
     Tuskegee, AL                      --         972,222       972,222        267,501
   Burger King -
     Montgomery, AL                    --       1,296,296     1,296,296        362,395
   Burger King -
     Montgomery, AL                    --       1,018,519     1,018,519        289,495
   Black-eyed Pea -
     McKinney, TX                      --       1,644,856     1,644,856        304,736
   Black-eyed Pea -
     Forestville, MD                   --         643,925       643,925        477,253
   Burger King -
     Coon Rapids, MN                   --         844,815       844,815        288,892
   Burger King -
     Rochester, NH                     --         963,499       963,499        318,314
   Burger King -
     Columbus, OH                      --         744,585       744,585        257,877
   Burger King -
     Asheboro, NC                      --       1,228,831     1,228,831        436,666
   Hardee's -
     Gulf Shores, AL                   --         914,337       914,337        320,113
   Steak & Ale -
     Palm Harbor, FL                   --       1,232,558     1,232,558        504,926
   Burger King -
     Lancaster, OH                     --         799,195       799,195        364,070
   Burger King -
     John's Island, SC                 --       1,077,802     1,077,802        367,639
   IHOP -
     Elk Grove, CA                     --       1,540,356     1,540,356        751,308
   Hardee's -
     Tusculum, TN                      --         666,045       666,045        233,604
   Pollo Tropical -
     Miami, FL                         --       1,318,182     1,318,182        392,816
   Burger King -
     St. Paul, MN                      --         747,713       747,713        271,528
   Texas Roadhouse -
     Joilet, IL                        --       1,745,014     1,745,014        384,473
   Black-eyed Pea -
     Phoenix, AZ                       --         641,371       641,371        265,557



        Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL American Properties Fund, Inc.
   (Continued):
   Black-eyed Pea -
     Mesa, AZ                         09/30/97     06/28/02     1,710,000      --           --        --         1,710,000
   Black-eyed Pea
     Phoenix, AZ                      09/30/97     06/28/02       425,000      --           --        --           425,000
   Black-eyed Pea
     Tucson, AZ                       09/30/97     06/28/02       234,000      --           --        --           234,000
   Steak & Ale Restaurant -
     Austin, TX                       06/16/98     07/02/02     1,437,468      --           --        --         1,437,468
   Jack in the Box -
     Fresno, CA                       05/22/98     07/18/02     1,244,289      --           --        --         1,244,289
   Black-eyed Pea
     Phoenix, AZ                      09/30/97     07/19/02       580,000      --           --        --           580,000
   Jack in the Box -
     Austin, TX                       10/05/99     07/22/02     1,384,759      --           --        --         1,384,759
   Black-eyed Pea -
     Albuquerque, NM                  01/00/00     07/26/02            --      --           --        --                --
   Big Boy -
     St. Clairsville, OH              12/18/98     07/29/02       339,300      --           --        --           339,300
   Jack in the Box -
     Fort Worth, TX                   01/11/00     08/05/02     1,141,653      --           --        --         1,141,653
   Jack in the Box -
     Menlo Park, CA                   12/30/99     08/22/02     1,772,360      --           --        --         1,772,360
   Arby's -
     Lawrenceville, GA                02/08/00     08/26/02     1,422,750      --           --        --         1,422,750
   Darry's -
     Louisville, KY                   06/11/97     08/28/02     1,840,800      --           --        --         1,840,800
   Black-eyed Pea -
     Killeen, TX                      12/18/98     09/05/02     1,133,800      --           --        --         1,133,800
   IHOP -
     Fairfax, VA                      06/18/97     09/06/02     2,268,911      --           --        --         2,268,911
   Black eyed Pea -
     Oklahoma City, OK                03/26/97     09/10/02       475,000      --           --        --           475,000
   Arby's -
     Circleville, OH                  09/09/99     09/10/02       993,900      --           --        --           993,900
   Black eyed Pea -
     Waco, TX                         10/01/97     09/13/02        70,000      --           --        --            70,000
   Hardee's -
     Iuka, MS                         03/16/99     09/18/02       594,413      --           --        --           594,413
   Hardee's
     Warrior, AL                      03/16/99     09/18/02       667,050      --           --        --           667,050
   Hardee's -
     Horn Lake, MS                    03/16/99     09/20/02       818,263      --           --        --           818,263
   Jack in the Box -
     Corning, CA                      09/17/99     09/24/02     1,266,556      --           --        --         1,266,556
   Bennigan's -
     Batavia, IL                      10/21/99     09/25/02     2,595,121      --           --        --         2,595,121


                                             Cost of Properties
                                           Including Closing and
                                                 Soft Costs
                                    -------------------------------------
                                                                              Excess
                                                  Total                    (deficiency)
                                               acquisition                 of property
                                    Original      cost,                   operating cash
                                    mortgage     capital                  receipts over
                                    financing  improvements                    cash
            Property                   (7)     closing and      Total      expenditures
                                                soft costs                     (19)
                                                   (1)
============================        ========== ============= ============ ===============

CNL American Properties Fund
   (Continued):
   Black-eyed Pea -
     Mesa, AZ                         --       1,600,000     1,600,000        522,239
   Black-eyed Pea
     Phoenix, AZ                      --         641,254       641,254        282,585
   Black-eyed Pea
     Tucson, AZ                       --         641,871       641,871        251,809
   Steak & Ale Restaurant -
     Austin, TX                       --       1,372,093     1,372,093        568,339
   Jack in the Box -
     Fresno, CA                       --         972,841       972,841        394,246
   Black-eyed Pea
     Phoenix, AZ                      --         645,471       645,471        207,379
   Jack in the Box -
     Austin, TX                       --       1,289,945     1,289,945        299,499
   Black-eyed Pea -
     Albuquerque, NM                  --         666,355       666,355        238,206
   Big Boy -
     St. Clairsville, OH              --       1,144,209     1,144,209        169,976
   Jack in the Box -
     Fort Worth, TX                   --       1,062,145     1,062,145        223,450
   Jack in the Box -
     Menlo Park, CA                   --       1,546,740     1,546,740        368,611
   Arby's -
     Lawrenceville, GA                --       1,374,986     1,374,986        314,054
   Darry's -
     Louisville, KY                   --       1,481,448     1,481,448        514,069
   Black-eyed Pea -
     Killeen, TX                      --       1,386,948     1,386,948        257,250
   IHOP -
     Fairfax, VA                      --       1,709,091     1,709,091        906,669
   Black eyed Pea -
     Oklahoma City, OK                --         617,022       617,022        268,734
   Arby's -
     Circleville, OH                  --         925,329       925,329        237,321
   Black eyed Pea -
     Waco, TX                         --         661,682       661,682        280,179
   Hardee's -
     Iuka, MS                         --         616,476       616,476        233,121
   Hardee's
     Warrior, AL                      --         627,937       627,937        238,440
   Hardee's -
     Horn Lake, MS                    --         833,058       833,058        319,101
   Jack in the Box -
     Corning, CA                      --       1,158,524     1,158,524        314,769
   Bennigan's -
     Batavia, IL                      --       2,429,907     2,429,907        729,536



    Past performance is not necessarily indicative of future performance.






                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL American Properties Fund, Inc.
   (Continued):
   Shoney's -
     Titusville, FL                   03/31/02     09/26/02       686,200      --           --        --           686,200
   Pollo Tropical -
     Sunrise, FL                      09/30/98     09/26/02     1,457,533      --           --        --         1,457,533
   Hardee's -
     Biscoe, NC                       03/16/99     09/27/02       564,984      --           --        --           564,984
   Black-eyed Pea -
     Bedford, TX                      03/26/97     09/30/02       921,175      --           --        --           921,175
   Black-eyed Pea -
     Norman, OK                       11/09/98     09/30/02     1,091,708      --           --        --         1,091,708
   Black-eyed Pea -
     Mesa, AZ                         11/30/98     09/30/02     1,325,500      --           --        --         1,325,000
   Hardee's -
     Aynor, SC                        03/16/99     09/30/02       586,189      --           --        --           586,189
   Denny's
     McKinney, TX                     06/05/96     10/02/02       600,000      --           --        --           600,000
   Black-eyed Pea -
     Scottsdale, AZ                   04/17/97     10/02/02            --      --           --        --                --
   Arby's
     Renton, WA                       09/14/99     10/18/02     1,406,197      --           --        --         1,406,197
   Pizza-Hut -
     Belle, WV                        05/17/96     10/21/02        47,500      --           --        --            47,500
   Pizza Hut -
     Collinsville, IL                 04/02/97     10/25/02       801,953      --           --        --           801,953
   Burger King -
     Tampa, FL                        08/19/99     10/28/02       770,306      --           --        --           770,306
   Big Boy -
     O'Fallon, MO                     01/19/99     10/31/02       679,925      --           --        --           679,925
   Golden Corral -
     Hopkinsville, KY                 02/19/97     11/07/02       924,057      --           --        --           924,057
   Denny's -
     Santee, SC                       03/16/99     11/21/02       583,000      --           --        --           583,000
   Jack in the Box -
     Los Angeles, CA                  01/04/99     12/10/02     1,793,802      --           --        --         1,793,802
   Hardee's
     Columbia, TN                     03/16/99     12/12/02       859,259      --           --        --           859,259
   Golden Corral -
     Olathe, KS                       10/02/97     12/19/02     1,751,760      --           --        --         1,751,760
   Darryl's -
     Hampton, VA                      06/11/97     12/19/02       871,290      --           --        --           871,290
   Jack in the Box -
     Humble, TX                       02/03/97     12/20/02     1,265,506      --           --        --         1,265,506
   Hardee's -
     Chalkville, AL                   03/16/99     12/20/02       680,428      --           --        --           680,428
   TGI Friday's -
     Lakeland, FL                     07/20/99     12/20/02       834,234      --           --        --           834,234


                                        Cost of Properties
                                      Including Closing and
                                            Soft Costs
                               -------------------------------------
                                                                         Excess
                                             Total                    (deficiency)
                                          acquisition                 of property
                               Original      cost,                   operating cash
                               mortgage     capital                  receipts over
                               financing  improvements                    cash
            Property              (7)     closing and      Total      expenditures
                                           soft costs                     (19)
                                              (1)
============================== ========== ============= ============ ===============

CNL American Properties Fund,
   (Continued):
   Shoney's -
     Titusville, FL              --              --            --        (82,318 )
   Pollo Tropical -
     Sunrise, FL                 --       1,454,545     1,454,545        527,258
   Hardee's -
     Biscoe, NC                  --         522,853       522,853        199,708
   Black-eyed Pea -
     Bedford, TX                 --         620,336       620,336        224,003
   Black-eyed Pea -
     Norman, OK                  --       1,429,799     1,429,799        335,124
   Black-eyed Pea -
     Mesa, AZ                    --       1,677,152     1,677,152        228,704
   Hardee's -
     Aynor, SC                   --         546,022       546,022        209,884
   Denny's
     McKinney, TX                --       1,014,221     1,014,221        484,416
   Black-eyed Pea -
     Scottsdale, AZ              --         769,863       769,863        (31,203 )
   Arby's
     Renton, WA                  --       1,286,545     1,286,545        261,304
   Pizza-Hut -
     Belle, WV                   --          47,485        47,485         13,301
   Pizza Hut -
     Collinsville, IL            --         795,476       795,476        (55,653 )
   Burger King -
     Tampa, FL                   --       1,057,404     1,057,404          5,224
   Big Boy -
     O'Fallon, MO                --       1,017,250     1,017,250        (54,647 )
   Golden Corral -
     Hopkinsville, KY            --       1,260,576     1,260,576        255,379
   Denny's -
     Santee, SC                  --         678,340       678,340        251,554
   Jack in the Box -
     Los Angeles, CA             --       1,575,414     1,575,414        591,448
   Hardee's
     Columbia, TN                --         787,764       787,764        319,094
   Golden Corral -
     Olathe, KS                  --       1,577,340     1,577,340        791,627
   Darryl's -
     Hampton, VA                 --       1,203,391     1,203,391        595,216
   Jack in the Box -
     Humble, TX                  --         932,112       932,112        566,284
   Hardee's -
     Chalkville, AL              --         608,445       608,445        248,876
   TGI Friday's -
     Lakeland, FL                --       1,711,517     1,711,517         85,755


    Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing                 by         of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL American Properties Fund, Inc.
   (Continued):
   Pollo Tropical -
     Miami, FL                        09/22/98     12/23/02     1,079,144      --           --        --         1,079,144
   Golden Corral -
     Universal City, TX               08/04/95     12/30/02       959,975      --           --        --           959,975

CNL Restaurant Property Services,
Inc. (18):
   Black Angus -
     Boise, ID                        08/14/00     02/20/01     1,776,590      --           --        --         1,776,590
   Jack in the Box -
     Murietta, CA                     04/13/97     02/23/01     1,129,320      --           --        --         1,129,320
   Arby's -
     Kendallville, IN                 07/10/96     04/06/01       792,940      --           --        --           792,940
   Black Angus -
     Folsom, CA                       12/04/00     04/24/01     2,581,569      --           --        --         2,581,569
   Jack in the Box -
     Kingsburg, CA                    04/10/97     06/11/01     1,169,090      --           --        --         1,168,840
   Jack in the Box -
     Garland, TX                      09/27/97     07/26/01     1,085,654      --           --        --         1,085,654

CNL Restaurant Investors
  Properties, LLC (18):
   Arby's -
     Atlanta, GA                      12/07/00     03/30/01       214,900    1,212,813      --        --         1,427,713
   Arby's -
     Peoria, AZ                       03/03/01     04/19/01       154,871    1,200,463      --        --         1,355,335
   Arby's -
     Baxter, MN                       02/20/01     05/31/01        66,351    892,834        --        --           959,185
   Arby's -
     Eagan, MN                        02/20/01     06/29/01       106,348    880,945        --        --           987,293
   Arby's -
     St. Louis Park, MN               02/20/01     06/29/01       119,843    941,178        --        --         1,061,022
   Arby's -
     Willmar, MN                      02/20/01     07/18/01        44,507    704,324        --        --           748,831
   Arby's -
     Pooler, GA                       09/01/00     07/31/01       109,662    1,212,893      --        --         1,322,555
   Arby's -
     White Bear Township, MN          02/20/01     08/07/01        84,441    955,346        --        --         1,039,787
   Arby's -
     Coon Rapids, MN                  02/20/01     08/28/01       168,982    1,281,068      --        --         1,450,050
   Arby's -
     Eden Prairie, MN                 02/20/01     09/07/01       107,288    936,215        --        --         1,043,503
   Arby's -
     Carmel, IN                       10/13/00     09/26/01       142,925    1,297,484      --        --         1,440,409
   Arby's -
     Winston Salem, NC                04/01/01     10/03/01       123,645    1,090,250      --        --         1,213,895



                                                         Cost of Properties
                                                       Including Closing and
                                                             Soft Costs
                                                -------------------------------------
                                                                                          Excess
                                                              Total                    (deficiency)
                                                           acquisition                 of property
                                                Original      cost,                   operating cash
                                                mortgage     capital                  receipts over
                                                financing  improvements                    cash
            Property                               (7)     closing and      Total      expenditures
                                                            soft costs                     (19)
                                                               (1)
==================================              ========== ============= ============ ===============

CNL American Properties Fund, Inc.
   (Continued):
   Pollo Tropical -
     Miami, FL                                      --         1,227,273    1,227,273         402,650
   Golden Corral -
     Universal City, TX                             --           994,152      994,152         747,387

CNL Restaurant Property Services,
Inc. (18):
   Black Angus -
     Boise, ID                                      --         1,534,238    1,534,238         120,971
   Jack in the Box -
     Murietta, CA                                   --           952,485      952,485         377,385
   Arby's -
     Kendallville, IN                               --           739,628      739,628         421,717
   Black Angus -
     Folsom, CA                                     --         2,166,867    2,166,867         146,487
   Jack in the Box -
     Kingsburg, CA                                  --         1,001,073    1,001,073         428,186
   Jack in the Box -
     Garland, TX                                    --           936,119      936,119         367,842

CNL Restaurant Investors
  Properties, LLC (18):
   Arby's -
     Atlanta, GA                                 1,212,813       --         1,212,813          60,359
   Arby's -
     Peoria, AZ                                  1,200,463       --         1,200,463          40,467
   Arby's -
     Baxter, MN                                    893,855       --           893,855          26,023
   Arby's -
     Eagan, MN                                     882,968       --           882,968          33,246
   Arby's -
     St. Louis Park, MN                            943,340       --           943,340          35,241
   Arby's -
     Willmar, MN                                   707,592       --           707,592          41,253
   Arby's -
     Pooler, GA                                  1,223,108       --         1,223,108         117,724
   Arby's -
     White Bear Township, MN                       960,915       --           960,915         148,790
   Arby's -
     Coon Rapids, MN                             1,288,536       --         1,288,536          90,298
   Arby's -
     Eden Prairie, MN                              942,798       --           942,798          51,912
   Arby's -
     Carmel, IN                                  1,308,411       --         1,308,411         131,560
   Arby's -
     Winston Salem, NC                           1,098,081       --         1,098,081          58,269



   Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Restaurant Investors
Properties, LLC (18)
   (Continued):
   Arby's -
     Carrboro, NC                     11/16/00     10/11/01       155,473    1,111,725      --        --         1,267,198
   Arby's -
     Cottage Grove, MN                02/02/01     11/27/01        61,878    703,412        --        --           765,290
   Arby's -
     Minnetonka, MN                   02/02/01     12/13/01       120,202    907,130        --        --         1,027,332
   Arby's -
     Maple Grove, MN                  02/02/01     12/14/01       150,455    1,176,200      --        --         1,326,655
   Arby's -
     Plymouth, MN                     02/02/01     12/21/01       100,063    846,616        --        --           946,679
   Arby's -
     Plymouth, MN                     02/02/01     12/21/01       120,817    899,893        --        --         1,020,710
   Arby's -
     New Castle, PA                   09/21/00     12/28/01        70,999    1,074,459      --        --         1,145,458
   Arby's -
     Oak Park Heights, MN             02/20/01     02/08/02      968,599     860,199        --        --         1,828,798
   Arby's -
     Greenwood, IN                    09/07/01     02/21/02    1,157,535    1,051,402       --        --         2,208,937
   Arby's -
     Hudson, WI                       02/20/01     03/06/02    1,091,160     949,356        --        --         2,040,516
   Arby's -
     Wauseon, OH                      04/10/01     03/11/02      801,488     700,080        --        --         1,501,568
   Arby's -
     St. Paul, MN                     02/20/01     03/21/02      801,651     713,993        --        --         1,515,644
   Arby's -
     Richfield, MN                    02/20/01     04/03/02    1,155,650    1,035,063       --        --         2,190,713
   Arby's -
     Crystal, MN                      02/20/01     04/17/02    1,059,550     945,740        --        --         2,005,290
   Arby's -
     Hopkins, MN                      02/20/01     04/26/02      920,326     829,399        --        --         1,749,725
   Arby's =
     Rochester, MN                    02/20/01     05/02/02      919,488     817,845        --        --         1,737,333
   Arby's -
     Apple Valley, MN                 02/20/01     05/17/02    1,493,264    1,315,159       --        --         2,808,423
   Arby's -
     Pell City, AL                    09/18/01     06/21/02    1,039,537     936,662        --        --         1,976,199
   Arby's -
     East Huntington, PA              09/01/01     07/15/02    1,256,360    1,103,332       --        --         2,359,692
   Arby's -
     Florence, AL                     10/01/01     08/22/02    1,358,100    1,182,056       --        --         2,540,156
   Arby's -
     Troy, AL                         09/21/01     08/22/02    1,055,313     920,681        --        --         1,975,994
   Arby's -
     Muskegon, MI                     11/15/01     08/29/02    1,439,390    1,255,825       --        --         2,695,215




                                              Cost of Properties
                                            Including Closing and
                                                  Soft Costs
                                     -------------------------------------
                                                                               Excess
                                                   Total                    (deficiency)
                                                acquisition                 of property
                                     Original      cost,                   operating cash
                                     mortgage     capital                  receipts over
                                     financing  improvements                    cash
            Property                    (7)     closing and      Total      expenditures
                                                 soft costs                     (19)
                                                    (1)
===============================      ========== ============= ============ ===============

CNL Restaurant Investors
Properties, LLC (18)
   (Continued):
   Arby's -
     Carrboro, NC                     1,123,886       --         1,123,886         106,362
   Arby's -
     Cottage Grove, MN                  710,074       --           710,074          63,567
   Arby's -
     Minnetonka, MN                     916,844       --           916,844          78,525
   Arby's -
     Maple Grove, MN                  1,188,796       --         1,188,796         102,167
   Arby's -
     Plymouth, MN                       855,682       --           855,682          75,302
   Arby's -
     Plymouth, MN                       909,529       --           909,529          80,041
   Arby's -
     New Castle, PA                   1,088,971       --         1,088,971         145,107
   Arby's -
     Oak Park Heights, MN               870,487       --           870,487          10,593
   Arby's -
     Greenwood, IN                    1,051,402       --         1,051,402             330
   Arby's -
     Hudson, WI                         963,121       --           963,121          15,707
   Arby's -
     Wauseon, OH                        704,249       --           704,249           7,174
   Arby's -
     St. Paul, MN                       724,346       --           724,346           9,604
   Arby's -
     Richfield, MN                    1,051,406       --         1,051,406          16,798
   Arby's -
     Crystal, MN                        960,672       --           960,672          15,913
   Arby's -
     Hopkins, MN                        842,495       --           842,495          14,275
   Arby's =
     Rochester, MN                      831,824       --           831,824          15,757
   Arby's -
     Apple Valley, MN                 1,337,639       --         1,337,639          23,636
   Arby's -
     Pell City, AL                      938,824       --           938,824           2,860
   Arby's -
     East Huntington, PA              1,115,401       --         1,115,401          18,068
   Arby's -
     Florence, AL                     1,196,262       --         1,196,262          17,628
   Arby's -
     Troy, AL                           931,745       --           931,745          10,910
   Arby's -
     Muskegon, MI                     1,261,682       --         1,261,682           6,545

       Past performance is not necessarily indicative of future performance.





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ==============

CNL Restaurant Investors
Properties, LLC (18)
   (Continued):
   Arby's -
     Greenville, MI                   07/25/02     10/31/02    1,270,860    1,074,766       --        --         2,345,626
   Arby's -
     Cullman, AL                      09/05/01     11/13/02    1,169,087     993,620        --        --         2,162,707
   Arby's -
     Evansville, IN                   04/01/02     11/15/02    1,247,229    1,080,328       --        --         2,327,557
   Arby's -
     Youngstown, OH                   04/10/02     11/27/02    1,012,310     903,118        --        --         1,915,428
   Arby's -
     Union City, TN                   09/04/02     12/30/02    1,366,005    1,158,879       --        --         2,524,884

CNL Funding 2001-A, LP (18):
   Jack in the Box -
     Surprise, AZ                     09/25/00     01/19/01      159,023    1,379,621       --        --         1,538,644
   Jack in the Box -
     Baton Rouge, LA                  07/06/00     01/31/01        9,972    1,473,571       --        --         1,483,542
   Jack in the Box -
     Burley, ID                       09/22/00     01/31/01           --     951,027        --        --           951,027
   Jack in the Box -
     Las Vegas, NV                    10/01/00     01/03/01      254,521    1,615,000       --        --         1,869,521
   Jack in the Box -
     Peoria, AZ                       09/15/00     03/08/01      112,352    1,247,170       --        --         1,359,522
   Jack in the Box -
     Cleburne, TX                     09/21/00     01/31/01        4,598    1,118,539       --        --         1,123,137
   Jack in the Box -
     Fresno, CA                       09/15/00     04/26/01      129,458     950,196        --        --         1,079,653
   Jack in the Box -
     Bakersfield, CA                  09/19/00     03/27/01       80,199     973,493        --        --         1,053,692
   Pizza Hut -
     Miami, FL                        10/06/00     06/29/01       69,130     588,593        --        --           657,723
   IHOP -
     Hiram, GA                        10/12/00     04/16/01       97,519    1,432,800       --        --         1,530,319
   IHOP -
     Jacksonville, NC                 10/12/00     06/25/01       47,442    1,367,919       --        --         1,415,361
   IHOP -
     Pueblo, CO                       10/12/00     06/19/01       91,901    1,296,394       --        --         1,388,295
   Jack in the Box -
     Bermuda Dunes, CA                03/28/01     06/29/01      210,654    1,256,197       --        --         1,466,851
   Jack in the Box -
     Manteca, CA                      05/14/01     06/11/01      236,673    1,432,260       --        --         1,668,934
   Jack in the Box -
     Austin, TX (9)                   07/20/00     05/25/01           --     550,587        --        --           550,587



                                                   Cost of Properties
                                                 Including Closing and
                                                       Soft Costs
                                          -------------------------------------
                                                                                    Excess
                                                        Total                    (deficiency)
                                                     acquisition                 of property
                                          Original      cost,                   operating cash
                                          mortgage     capital                  receipts over
                                          financing  improvements                    cash
            Property                         (7)     closing and      Total      expenditures
                                                      soft costs                     (19)
                                                         (1)
================================       == ========== ============= ============ ===============

CNL Restaurant Investors
Properties, LLC (18)
   (Continued):
   Arby's -
     Greenville, MI                        1,074,766       --         1,074,766            (198 )
   Arby's -
     Cullman, AL                           1,001,853       --         1,001,853           8,373
   Arby's -
     Evansville, IN                        1,089,280       --         1,089,280          26,999
   Arby's -
     Youngstown, OH                          909,500       --           909,500           8,019
   Arby's -
     Union City, TN                        1,158,879       --         1,158,879          (2,918 )

CNL Funding 2001-A, LP (18):
   Jack in the Box -
     Surprise, AZ                          1,379,621       --         1,379,621          49,506
   Jack in the Box -
     Baton Rouge, LA                       1,483,542       --         1,483,542          80,121
   Jack in the Box -
     Burley, ID                              951,027       --           951,027          41,109
   Jack in the Box -
     Las Vegas, NV                         1,615,000       --         1,615,000          62,903
   Jack in the Box -
     Peoria, AZ                            1,254,037       --         1,254,037          53,180
   Jack in the Box -
     Cleburne, TX                          1,123,137       --         1,123,137          38,489
   Jack in the Box -
     Fresno, CA                              958,117       --           958,117          56,075
   Jack in the Box -
     Bakersfield, CA                         978,854       --           978,854          45,750
   Pizza Hut -
     Miami, FL                               589,199       --           589,199          44,786
   IHOP -
     Hiram, GA                             1,438,400       --         1,438,400          70,497
   IHOP -
     Jacksonville, NC                      1,371,599       --         1,371,599          92,458
   IHOP -
     Pueblo, CO                            1,303,550       --         1,303,550          85,560
   Jack in the Box -
     Bermuda Dunes, CA                     1,259,276       --         1,259,276          32,187
   Jack in the Box -
     Manteca, CA                           1,432,260       --         1,432,260          10,937
   Jack in the Box -
     Austin, TX (9)                          550,587       --           550,587              --


    Past performance is not necessarily indicative of future performance.





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES



                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ==============

CNL Funding 2001-A, LP (18)
    (Continued):
   IHOP -
     Littleton, CO                    12/28/00     07/20/01      141,982    1,860,395       --        --         2,002,377
   IHOP -
     Oklahoma City, OK                10/12/00     07/26/01      165,306    1,831,346       --        --         1,996,652
   Baker's Square -
     Anaheim, CA                      05/14/01     07/26/01      306,267    1,576,144       --        --         1,882,411
   Arby's -
     Southington, CT                  07/21/00     07/27/01      125,178     908,371        --        --         1,033,549
   Vicorp Village Inn -
     Scottsdale, AZ                   05/14/01     07/30/01      151,366     999,284        --        --         1,150,650
   IHOP -
     Shreveport, LA                   10/12/00     08/03/01       87,476    1,450,490       --        --         1,537,966
   Baker's Square -
     Rohnert Park, CA                 05/14/01     08/06/01      246,540    1,270,898       --        --         1,517,438
   Village Inn -
     Aurora, CO                       05/14/01     08/08/01       40,903    1,543,233       --        --         1,584,136
   Village Inn -
     Denver, CO                       05/14/01     08/08/01      142,900     880,551        --        --         1,023,451
   IHOP -
     Huntsville, AL                   10/12/00     08/14/01       97,307    1,593,307       --        --         1,690,614
   Ruby Tuesday's -
     Orlando, FL                      05/30/00     08/17/01      156,571    1,598,221       --        --         1,754,792
   Pizza Hut -
     Miami, FL                        10/06/00     08/17/01       84,357     646,698        --        --           731,055
   IHOP -
     Statesboro, GA                   10/12/00     08/21/01       68,915    1,072,888       --        --         1,141,803
   Village Inn -
     Tempe, AZ                        05/14/01     08/24/01      149,028    1,043,952       --        --         1,192,980
   IHOP -
     San Antonio, TX                  12/28/00     08/27/01       76,227    1,594,606       --        --         1,670,833
   Jack in the Box -
     Coppell, TX                      03/28/01     08/29/01      170,623    1,608,077       --        --         1,778,700
   Village Inn -
     Denver, CO                       05/14/01     08/30/01      168,884    1,270,898       --        --         1,439,782
   TGI Friday's -
     Roseville, CA                    03/12/01     08/31/01      109,946    2,931,613       --        --         3,041,559
   Pizza Hut -
     Pembroke Pines, FL               10/06/00     08/31/01       52,912     397,968        --        --           450,880
   Village Inn -
     Ogden, UT                        05/14/01     09/18/01      146,763     907,784        --        --         1,054,547
   Pizza Hut -
     Key Largo, FL                    10/06/00     09/20/01       73,845     578,862        --        --           652,707
   Baker's Square -
     Hoffman Estates, IL              05/14/01     09/20/01      151,812    1,089,341       --        --         1,241,153
   Village Inn -
     Broomfield, CO                   05/14/01     09/20/01      184,629    1,134,730       --        --         1,319,359





                                            Cost of Properties
                                          Including Closing and
                                                Soft Costs
                                   -------------------------------------
                                                                             Excess
                                                 Total                    (deficiency)
                                              acquisition                 of property
                                   Original      cost,                   operating cash
                                   mortgage     capital                  receipts over
                                   financing  improvements                    cash
            Property                  (7)     closing and      Total      expenditures
                                               soft costs                     (19)
                                                  (1)
================================== ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
    (Continued):
   IHOP -
     Littleton, CO                  1,869,159       --         1,869,159          90,731
   IHOP -
     Oklahoma City, OK              1,842,950       --         1,842,950         126,315
   Baker's Square -
     Anaheim, CA                    1,577,273       --         1,577,273          34,744
   Arby's -
     Southington, CT                  909,091       --           909,091          95,881
   Vicorp Village Inn -
     Scottsdale, AZ                 1,000,000       --         1,000,000          26,369
   IHOP -
     Shreveport, LA                 1,460,875       --         1,460,875         112,077
   Baker's Square -
     Rohnert Park, CA               1,272,727       --         1,272,727          31,889
   Village Inn -
     Aurora, CO                     1,545,456       --         1,545,456          40,127
   Village Inn -
     Denver, CO                       881,818       --           881,818          28,503
   IHOP -
     Huntsville, AL                 1,604,715       --         1,604,715         128,194
   Ruby Tuesday's -
     Orlando, FL                    1,611,142       --         1,611,142         193,571
   Pizza Hut -
     Miami, FL                        650,000       --           650,000          70,642
   IHOP -
     Statesboro, GA                 1,078,800       --         1,078,800          94,429
   Village Inn -
     Tempe, AZ                      1,045,455       --         1,045,455          32,022
   IHOP -
     San Antonio, TX                1,603,687       --         1,603,687          89,761
   Jack in the Box -
     Coppell, TX                    1,616,034       --         1,616,034          67,526
   Village Inn -
     Denver, CO                     1,272,727       --         1,272,727          33,045
   TGI Friday's -
     Roseville, CA                  2,949,827       --         2,949,827         141,497
   Pizza Hut -
     Pembroke Pines, FL               400,000       --           400,000          37,304
   Village Inn -
     Ogden, UT                        909,091       --           909,091          34,339
   Pizza Hut -
     Key Largo, FL                    581,818       --           581,818          57,260
   Baker's Square -
     Hoffman Estates, IL            1,090,909       --         1,090,909          41,867
   Village Inn -
     Broomfield, CO                 1,136,364       --         1,136,364          43,611




        Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing                 by         of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Funding 2001-A, LP (18)
  (Continued):
   IHOP -
     Harrisonburg, VA                 12/28/01     09/21/01      129,619    1,426,704       --        --         1,556,323
   Pizza Hut -
     Miami, FL                        10/06/00     09/21/01       95,727     710,011        --        --           805,738
   Jack in the Box -
     The Colony, TX                   09/15/00     09/28/01       86,043    1,313,521       --        --         1,399,564
   IHOP -
     Birmingham, AL                   10/12/00     10/12/01      178,092    1,362,594       --        --         1,540,686
   Village Inn -
     Naperville, IL                   05/14/01     10/24/01      155,181    1,019,762       --        --         1,174,943
   Village Inn -
     Tucson, AZ                       05/14/01     10/25/01      178,784    1,133,069       --        --         1,311,853
   RT -
     Las Vegas, NV                    07/17/00     11/05/01      199,079    1,785,377       --        --         1,984,456
   Jack in the Box -
     Charlotte, NC                    08/28/00     11/08/01       62,882    1,282,493       --        --         1,345,375
   Bakers Square -
     Rolling Meadows, FL              05/14/01     11/27/01      123,563     928,427        --        --         1,051,990
   TGIF Friday's -
     Albuquerque, NM                  01/08/01     12/14/01      137,493    2,401,376       --        --         2,538,869
   Bakers Square -
     Blaine, MN                       05/14/01     12/20/01        5,880    1,335,029       --        --         1,340,909
   Village Inn -
     Omaha, NE                        05/14/01     12/21/01      147,260    1,185,687       --        --         1,332,947
   Village Inn -
     Lincoln, NE                      05/14/01     12/19/01      148,006    1,040,870       --        --         1,188,876
   IHOP -
     Macon, GA                        12/28/00     12/10/01       28,518    1,246,710       --        --         1,275,228
   Bakers Square -
     Elk Grove, IL                    05/14/01     12/21/01      134,250     995,615        --        --         1,129,865
   Bakers Square -
     Gurnee, IL                       05/14/01     12/03/01      268,799    1,855,464       --        --         2,124,263
   Taco Cabana -
     Plugerville, TX                  12/29/00     12/05/01       30,596    1,444,219       --        --         1,474,815
   Taco Cabana -
     Pasadena, TX                     12/29/00     12/05/01       20,240     955,406        --        --           975,646
   Taco Cabana -
     Austin, TX                       12/29/00     12/05/01       24,947    1,177,594       --        --         1,202,541
   Taco Cabana -
     Houston, TX #177                 02/29/00     12/05/01       19,769     933,188        --        --           952,957
   Taco Cabana -
     Houston, TX #144                 12/29/00     12/05/01       29,653    1,399,782       --        --         1,429,435
   Taco Cabana -
     San Antonio, TX                  12/29/00     12/14/01       23,534    1,110,938       --        --         1,134,472
   Taco Cabana -
     Houston, TX                      12/29/00     12/14/01       28,242    1,333,125       --        --         1,361,367




                                            Cost of Properties
                                          Including Closing and
                                                Soft Costs
                                   -------------------------------------
                                                                             Excess
                                                 Total                    (deficiency)
                                              acquisition                 of property
                                   Original      cost,                   operating cash
                                   mortgage     capital                  receipts over
                                   financing  improvements                    cash
            Property                  (7)     closing and      Total      expenditures
                                               soft costs                     (19)
                                                  (1)
================================== ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   IHOP -
     Harrisonburg, VA               1,434,579       --         1,434,579          99,922
   Pizza Hut -
     Miami, FL                        713,636       --           713,636          58,013
   Jack in the Box -
     The Colony, TX                 1,332,122       --         1,332,122         131,045
   IHOP -
     Birmingham, AL                 1,370,975       --         1,370,975         135,065
   Village Inn -
     Naperville, IL                 1,022,727       --         1,022,727          42,657
   Village Inn -
     Tucson, AZ                     1,136,364       --         1,136,364          47,518
   RT -
     Las Vegas, NV                  1,800,000       --         1,800,000          55,017
   Jack in the Box -
     Charlotte, NC                  1,308,411       --         1,308,411         146,378
   Bakers Square -
     Rolling Meadows, FL              931,818       --           931,818          47,329
   TGIF Friday's -
     Albuquerque, NM                2,430,996       --         2,430,996         141,808
   Bakers Square -
     Blaine, MN                     1,340,909       --         1,340,909          80,287
   Village Inn -
     Omaha, NE                      1,190,909       --         1,190,909          71,306
   Village Inn -
     Lincoln, NE                    1,045,455       --         1,045,455          62,597
   IHOP -
     Macon, GA                      1,258,065       --         1,258,065         109,912
   Bakers Square -
     Elk Grove, IL                  1,000,000       --         1,000,000          59,875
   Bakers Square -
     Gurnee, IL                     1,863,636       --         1,863,636         111,586
   Taco Cabana -
     Plugerville, TX                1,474,815       --         1,474,815         131,766
   Taco Cabana -
     Pasadena, TX                     975,646       --           975,646          87,168
   Taco Cabana -
     Austin, TX                     1,202,541       --         1,202,541         107,440
   Taco Cabana -
     Houston, TX #177                 952,957       --           952,957          85,140
   Taco Cabana -
     Houston, TX #144               1,429,435       --         1,429,435         127,711
   Taco Cabana -
     San Antonio, TX                1,134,472       --         1,134,472         101,358
   Taco Cabana -
     Houston, TX                    1,361,367       --         1,361,367         121,630


       Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Funding 2001-A, LP (18)
  (Continued):
   Taco Cabana -
     Houston, TX                      12/29/00     01/04/02    1,179,851    1,153,066       --        --         2,332,917
   Taco Cabana -
     Austin, TX                       12/29/00     01/04/02    1,107,245    1,082,108       --        --         2,189,353
   Bakers Square -
     Normal, IL                       05/14/01     01/09/02    1,658,260    1,469,683       --        --         3,127,943
   IHOP -
     Nacogdoches, TX                  12/28/00     01/18/02    1,494,210    1,388,437       --        --         2,882,647
   IHOP -
     McAllen, TX                      12/28/00     02/15/02    1,548,521    1,427,813       --        --         2,976,334
   Pizza Hut -
     Dania, FL                        10/06/00     2/19/02       333,812     292,892        --        --           626,704
   Jack in the Box -
     Plano, TX                        09/25/01     02/26/02    1,867,493    1,719,706       --        --         3,587,199
   IHOP -
     Kennewick, WA                    12/20/01     02/27/02    1,779,334    1,626,400       --        --         3,405,734
   Jack in the Box -
     Stephenville, TX                 03/28/01     02/28/02    1,508,567    1,344,498       --        --         2,853,065
   Village Inn -
     Coralville, IA                   05/14/01     02/28/02    1,230,046    1,070,921       --        --         2,300,967
   Taco Cabana -
     San Antonio, TX                  12/29/00     03/05/02    1,247,920    1,214,659       --        --         2,462,579
   Jack in the Box -
     San Antonio, TX                  09/26/01     03/06/02    1,578,322    1,442,978       --        --         3,021,300
   Krystal -
     Rincon, GA                       09/15/00     03/11/02    1,072,800    1,015,712       --        --         2,088,512
   Village Inn -
     Davenport, IA                    05/14/01     03/15/02    1,401,481    1,219,097       --        --         2,620,578
   Jack in the Box
     Katy, TX                         09/25/01     03/18/02    1,499,170    1,376,098       --        --         2,875,268
   IHOP -
     Albuquerque, NM                  10/29/01     03/19/02    1,821,676    1,660,447       --        --         3,482,123
   IHOP -
     Lafayette, LA                    12/28/00     03/19/02    1,636,540    1,548,629       --        --         3,185,169
   Jack in the Box -
     Round Rock, TX                   09/19/00     03/20/02    1,361,104    1,226,470       --        --         2,587,574
   Jack in the Box -
     Concord, NC                      07/07/00     03/22/02    1,422,410    1,296,102       --        --         2,718,512
   Jack in the Box -
     Cedar Hill, TX                   12/20/01     03/22/02    1,509,211    1,388,773       --        --         2,897,984
   IHOP -
     Brownsville, TX                  12/28/00     03/28/02    1,544,680    1,456,628       --        --         3,001,308
   IHOP -
     San Marco, TX                    12/20/01     03/28/02    1,665,800    1,509,200       --        --         3,175,000
   Bakers Square -
     Maple Grove, MN                  05/14/01     03/29/02    1,554,629    1,354,552       --        --         2,909,181




                                                Cost of Properties
                                              Including Closing and
                                                    Soft Costs
                                       -------------------------------------
                                                                                 Excess
                                                     Total                    (deficiency)
                                                  acquisition                 of property
                                       Original      cost,                   operating cash
                                       mortgage     capital                  receipts over
                                       financing  improvements                    cash
            Property                      (7)     closing and      Total      expenditures
                                                   soft costs                     (19)
                                                      (1)
================================       ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   Taco Cabana -
     Houston, TX                        1,179,852       --         1,179,852          26,766
   Taco Cabana -
     Austin, TX                         1,107,246       --         1,107,246          25,119
   Bakers Square -
     Normal, IL                         1,477,273       --         1,477,273           6,796
   IHOP -
     Nacogdoches, TX                    1,401,869       --         1,401,869          15,380
   IHOP -
     McAllen, TX                        1,443,318       --         1,443,318          18,025
   Pizza Hut -
     Dania, FL                            295,455       --           295,455           5,279
   Jack in the Box -
     Plano, TX                          1,728,972       --         1,728,972          14,854
   IHOP -
     Kennewick, WA                      1,627,500       --         1,627,500           2,842
   Jack in the Box -
     Stephenville, TX                   1,361,617       --         1,361,617          19,729
   Village Inn -
     Coralville, IA                     1,077,273       --         1,077,273           8,156
   Taco Cabana -
     San Antonio, TX                    1,247,920       --         1,247,920          34,289
   Jack in the Box -
     San Antonio, TX                    1,456,085       --         1,456,085          11,979
   Krystal -
     Rincon, GA                         1,028,215       --         1,028,215          21,369
   Village Inn -
     Davenport, IA                      1,227,273       --         1,227,273           8,905
   Jack in the Box
     Katy, TX                           1,385,410       --         1,385,410          12,373
   IHOP -
     Albuquerque, NM                    1,664,998       --         1,664,998           4,653
   IHOP -
     Lafayette, LA                      1,566,820       --         1,566,820          20,424
   Jack in the Box -
     Round Rock, TX                     1,257,009       --         1,257,009          40,447
   Jack in the Box -
     Concord, NC                        1,331,738       --         1,331,738          46,935
   Jack in the Box -
     Cedar Hill, TX                     1,392,479       --         1,392,479           5,497
   IHOP -
     Brownsville, TX                    1,471,963       --         1,471,963          18,921
   IHOP -
     San Marco, TX                      1,511,250       --         1,511,250           2,990
   Bakers Square -
     Maple Grove, MN                    1,363,636       --         1,363,636          10,198




      Past performance is not necessarily indicative of future performance.




                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES

                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Funding 2001-A, LP (18)
  (Continued):
   IHOP -
     Ammon, ID                        12/28/00     04/05/02    1,516,968    1,433,491       --        --         2,950,459
   Home Town Buffet -
     Visalia, CA                      12/28/01     04/10/02    2,739,205    2,409,694       --        --         5,148,899
   TB/KFC
     Gun Barrel City, TX              10/31/00     04/19/02      952,006     922,295        --        --         1,874,301
   Tahoe Joes
     Roseville, CA                    12/28/01     04/23/02    3,380,332    2,965,855       --        --         6,346,187
   Old Country Buffet
     Glendale, AZ                     12/28/01     04/25/02    2,065,108    1,818,524       --        --         3,883,632
   Home Town Buffet
     Temecula, CA                     12/28/01     04/26/02    2,299,308    2,000,577       --        --         4,299,884
   Village Inn
     Johnston, IA                     05/14/01     04/29/02      933,565     812,100        --        --         1,745,665
   Old Country Buffet
     Woodbury, MN                     12/28/01     04/29/02    1,792,378    1,600,461       --        --         3,392,839
   Bakers Square -
     Orland Park, IL                  05/14/01     04/30/02    2,232,482    1,940,017       --        --         4,172,499
   Pizza-Hut
     Oakland Park, FL                 10/06/00     05/03/02      735,910     652,145        --        --         1,388,055
   Jack in the Box
     Magnolia, TX                     08/30/01     05/03/02    1,347,135    1,245,406       --        --         2,592,541
   IHOP -
     Westminister, CO                 12/20/01     05/03/02    2,060,953    1,831,730       --        --         3,892,683
   Jack in the Box -
     Baton Rouge, LA                  12/20/01     05/03/02    1,591,284    1,405,359       --        --         2,996,643
   Village Inn
     Roy, UT                          05/14/01     05/06/02    1,075,575     933,183        --        --         2,008,758
   Home Town Buffet -
     Loma Linda, CA                   12/28/01     05/07/02    3,493,621    3,046,175       --        --         6,539,796
   Home Town Buffet -
     Champaign, IL                    12/28/01     05/08/02    1,964,259    1,768,682       --        --         3,732,941
   Jack in the Box -
     Baytown, TX                      09/19/00     05/10/02    1,249,196    1,141,081       --        --         2,390,277
   IHOP -
     Norman, OK                       10/12/00     05/13/02    1,773,886    1,554,570       --        --         3,328,456
   IHOP -
     Rockford, IL                     12/20/01     05/15/02    1,794,561    1,646,238       --        --         3,440,799
   Rio Bravo -
     Fayetteville, AR                 06/29/00     05/17/02    1,318,381    1,171,240       --        --         2,489,621
   Bakers Square -
     Onalaska, WI                     05/14/01     05/17/02    1,043,860     924,167        --        --         1,968,027
   Ruby Tuesday -
     University Place, WA             08/23/00     05/31/02    1,707,844    1,574,504       --        --         3,282,348
   Pizza Hut -
     Pembroke Pines, FL               10/06/00     05/31/02      380,495     359,803        --        --           740,298


                                                  Cost of Properties
                                                Including Closing and
                                                      Soft Costs
                                         -------------------------------------
                                                                                   Excess
                                                       Total                    (deficiency)
                                                    acquisition                 of property
                                         Original      cost,                   operating cash
                                         mortgage     capital                  receipts over
                                         financing  improvements                    cash
            Property                        (7)     closing and      Total      expenditures
                                                     soft costs                     (19)
                                                        (1)
==================================       ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   IHOP -
     Ammon, ID                            1,451,613       --         1,451,613          19,833
   Home Town Buffet -
     Visalia, CA                          2,409,000       --         2,409,000            (773 )
   TB/KFC
     Gun Barrel City, TX                    931,818       --           931,818          17,313
   Tahoe Joes
     Roseville, CA                        2,965,000       --         2,965,000          (1,077 )
   Old Country Buffet
     Glendale, AZ                         1,818,000       --         1,818,000          (1,856 )
   Home Town Buffet
     Temecula, CA                         2,000,000       --         2,000,000            (746 )
   Village Inn
     Johnston, IA                           818,182       --           818,182           6,761
   Old Country Buffet
     Woodbury, MN                         1,600,000       --         1,600,000            (612 )
   Bakers Square -
     Orland Park, IL                      1,954,545       --         1,954,545          16,742
   Pizza-Hut
     Oakland Park, FL                       659,091       --           659,091           6,512
   Jack in the Box
     Magnolia, TX                         1,260,198       --         1,260,198          13,660
   IHOP -
     Westminister, CO                     1,836,750       --         1,836,750           5,100
   Jack in the Box -
     Baton Rouge, LA                      1,412,154       --         1,412,154           7,539
   Village Inn
     Roy, UT                                940,909       --           940,909           8,152
   Home Town Buffet -
     Loma Linda, CA                       3,045,000       --         3,045,000            (619 )
   Home Town Buffet -
     Champaign, IL                        1,768,000       --         1,768,000            (848 )
   Jack in the Box -
     Baytown, TX                          1,173,149       --         1,173,149          40,830
   IHOP -
     Norman, OK                           1,577,745       --         1,577,745          51,274
   IHOP -
     Rockford, IL                         1,650,750       --         1,650,750           5,243
   Rio Bravo -
     Fayetteville, AR                     1,200,000       --         1,200,000          39,827
   Bakers Square -
     Onalaska, WI                           931,818       --           931,818           8,241
   Ruby Tuesday -
     University Place, WA                 1,590,909       --         1,590,909          40,555
   Pizza Hut -
     Pembroke Pines, FL                     363,636       --           363,636          13,021


         Past performance is not necessarily indicative of future performance.





                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== =

CNL Funding 2001-A, LP (18)
  (Continued):
   Pizza Hut -
     N. Miami, FL                     10/06/00     05/31/02      282,519     267,154        --        --           549,673
   Bakers Square -
     Rochester, MN                    05/14/01     05/31/02    1,525,200    1,352,440       --        --         2,877,640
   Bakers Square -
     Stillwater, MN                   05/14/01     05/31/02    1,133,136     991,789        --        --         2,124,925
   Home Town Buffet -
     Louisville, KY                   12/28/01     05/31/02    1,700,470    1,500,579       --        --         3,201,049
   Old Country Buffet -
     Mesa, AZ                         12/28/01     06/03/02    2,421,648    2,115,024       --        --         4,536,672
   IHOP -
     Shreveport, LA                   10/12/00     06/04/02    1,850,808    1,643,127       --        --         3,493,935
   IHOP -
     Jonesboro, AR                    10/12/00     06/05/02    1,480,800    1,328,505       --        --         2,809,305
   Taco Cabana -
     Dallas, Texas                    12/29/00     06/06/02    1,021,026     987,667        --        --         2,008,693
   HomeTown Buffet -
     Oklahoma City, OK #737           12/28/01     06/13/02    1,592,205    1,455,705       --        --         3,047,910
   HomeTown Buffet -
     Oklahoma City, OK                12/28/01     06/13/02    2,160,510    1,955,947       --        --         4,116,457
   Jack in the Box -
     Corsicana, TX                    06/30/00     06/14/02    1,153,488    1,083,639       --        --         2,237,127
   Ruby Tuesday
     Port Lucie, FL                   06/06/00     06/14/02    1,702,571    1,583,384       --        --         3,285,955
   Bakers Square -
     Bradley, IL                      05/14/01     06/20/02    1,765,990    1,509,030       --        --         3,275,020
   IHOP -
     Evansville, IN                   03/29/02     06/20/02    1,635,890    1,469,696       --        --         3,105,586
   IHOP -
     Buford, GA                       03/29/02     06/20/02    1,892,911    1,679,961       --        --         3,572,872
   Taco Cabana -
     San Antonio, TX #107             12/29/00     06/26/02      887,111     921,822        --        --         1,808,933
   Taco Cabana -
     Universal City, TX               12/29/00     06/26/02    1,034,963    1,075,459       --        --         2,110,422
   Taco Cabana -
     Austin, TX                       12/29/00     06/26/02    1,394,031    1,448,578       --        --         2,842,609
   Taco Cabana -
     San Antonio, TX #130             12/29/00     06/26/02    1,330,666    1,382,733       --        --         2,713,399
   Taco Cabana -
     Dallas, TX #136                  12/29/00     06/26/02    1,136,347    1,180,810       --        --         2,317,157
   Taco Cabana -
     Houston, TX #143                 12/29/00     06/26/02    1,203,936    1,251,044       --        --         2,454,980
   Taco Cabana -
     San Antonio, TX #158             12/29/00     06/26/02    1,275,750    1,325,668       --        --         2,601,418
   Taco Cabana -
     Schertz, TX                      12/29/00     06/26/02    1,030,738    1,071,069       --        --         2,101,807




                                             Cost of Properties
                                           Including Closing and
                                                 Soft Costs
                                    -------------------------------------
                                                                              Excess
                                                  Total                    (deficiency)
                                               acquisition                 of property
                                    Original      cost,                   operating cash
                                    mortgage     capital                  receipts over
                                    financing  improvements                    cash
            Property                   (7)     closing and      Total      expenditures
                                                soft costs                     (19)
                                                   (1)
=================================== ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   Pizza Hut -
     N. Miami, FL                      270,000       --           270,000           5,191
   Bakers Square -
     Rochester, MN                   1,363,636       --         1,363,636          12,750
   Bakers Square -
     Stillwater, MN                  1,000,000       --         1,000,000           9,350
   Home Town Buffet -
     Louisville, KY                  1,500,000       --         1,500,000            (726 )
   Old Country Buffet -
     Mesa, AZ                        2,114,000       --        2,1114,000          (1,045 )
   IHOP -
     Shreveport, LA                  1,663,150       --         1,663,150          33,799
   IHOP -
     Jonesboro, AR                   1,348,500       --         1,348,500          56,238
   Taco Cabana -
     Dallas, Texas                   1,021,026       --         1,021,026          27,228
   HomeTown Buffet -
     Oklahoma City, OK #737          1,455,000       --         1,455,000          (1,031 )
   HomeTown Buffet -
     Oklahoma City, OK               1,955,000       --         1,955,000            (767 )
   Jack in the Box -
     Corsicana, TX                   1,118,650       --         1,118,650          52,045
   Ruby Tuesday
     Port Lucie, FL                  1,607,399       --         1,607,399          12,328
   Bakers Square -
     Bradley, IL                     1,522,727       --         1,522,727          15,133
   IHOP -
     Evansville, IN                  1,471,963       --         1,471,963           2,753
   IHOP -
     Buford, GA                      1,682,243       --         1,682,243           2,729
   Taco Cabana -
     San Antonio, TX #107              952,957       --           952,957          33,569
   Taco Cabana -
     Universal City, TX              1,111,783       --         1,111,783          39,164
   Taco Cabana -
     Austin, TX                      1,497,504       --         1,497,504          52,752
   Taco Cabana -
     San Antonio, TX #130            1,429,436       --         1,429,436          50,354
   Taco Cabana -
     Dallas, TX #136                 1,220,693       --         1,220,693          38,129
   Taco Cabana -
     Houston, TX #143                1,293,299       --         1,293,299          45,558
   Taco Cabana -
     San Antonio, TX #158            1,370,443       --         1,370,443          76,694
   Taco Cabana -
     Schertz, TX                     1,107,246       --         1,107,246          39,004


   Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== =

CNL Funding 2001-A, LP (18)
  (Continued):
   Taco Cabana -
     Houston, TX                      12/29/00     06/26/02    1,351,748    1,404,681       --        --         2,756,429
   Taco Cabana -
     Houston, TX #174                 12/29/00     06/26/02      908,233     943,770        --        --         1,852,003
   Taco Cabana -
     Katy, TX                         12/29/00     06/26/02    1,030,738    1,071,069       --        --         2,101,807
   Taco Cabana -
     Arlington, TX                    12/29/00     06/26/02      992,719    1,031,563       --        --         2,024,282
   Taco Cabana -
     Houston, TX #241                 12/29/00     06/26/02    1,269,414    1,319,084       --        --         2,588,498
   Taco Cabana -
     Denton, TX                       12/29/00     06/26/02    1,136,347    1,180,810       --        --         2,317,157
   Baker Square -
     Bolingbrook, IL                  05/14/01     06/28/02    1,911,305    1,621,644       --        --         3,532,949
   IHOP -
     Harlingen, TX                    09/28/01     06/28/02    1,780,269    1,611,009       --        --         3,391,278
   Old Country Buffet -
     Madison, WI                      12/28/01     06/28/02    2,325,120    2,092,013       --        --         4,417,133
   HomeTown Buffet -
     Wichita, KS                      12/28/01     06/28/02    2,225,704    2,000,969       --        --         4,226,673
   Old Country Buffet -
     Mechanicsburg, PA                12/28/01     06/28/02    1,972,429    1,818,880       --        --         3,791,309
   IHOP -
     Rocky Mount, NC                  10/12/00     06/28/02    1,578,350    1,504,517       --        --         3,082,867
   JIB -
     Hickory, NC                      03/28/01     06/28/02    1,651,770    1,455,112       --        --         3,106,882
   HomeTown Buffet -
     Louisville, KY                   12/28/01     06/28/02    1,258,853    1,145,554       --        --         2,404,407
   Old Country Buffet -
     Franklin, OH                     12/28/01     06/28/02    1,448,568    1,318,638       --        --         2,767,206
   Pizza Hut -
     El Reno, OK                      01/18/02     06/28/02      419,270     367,573        --        --           786,843
   Bakers Square -
     Mt. Prospect, IL                 05/14/01     07/02/02    2,192,978    1,914,440       --        --         4,107,418
   Old Country Buffet -
     Onalaska, WI                     12/28/01     07/10/02    1,602,511    1,455,705       --        --         3,058,216
   Pizza Hut -
     Taylor, TX                       01/25/02     07/11/02      295,390     251,186        --        --           546,576
   IHOP -
     Cathedral City, CA               03/29/02     07/18/02    1,759,896    1,506,263       --        --         3,266,159
   Jack in the Box -
     Shelby, NC                       09/19/00     07/19/02    1,413,282    1,282,602       --        --         2,695,884
   Jack in the Box -
     Simpsonville, SC                 09/26/01     07/19/02    1,587,630    1,485,174       --        --         3,072,804
   Old Country Buffet -
     Cincinnati, OH                   12/28/01     07/22/02    1,116,247     975,569        --        --         2,091,816



                                            Cost of Properties
                                          Including Closing and
                                                Soft Costs
                                   -------------------------------------
                                                                             Excess
                                                 Total                    (deficiency)
                                              acquisition                 of property
                                   Original      cost,                   operating cash
                                   mortgage     capital                  receipts over
                                   financing  improvements                    cash
            Property                  (7)     closing and      Total      expenditures
                                               soft costs                     (19)
                                                  (1)
================================== ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   Taco Cabana -
     Houston, TX                    1,452,125       --         1,452,125          51,153
   Taco Cabana -
     Houston, TX #174                 975,647       --           975,647          34,369
   Taco Cabana -
     Katy, TX                       1,107,246       --         1,107,246          21,178
   Taco Cabana -
     Arlington, TX                  1,066,404       --         1,066,404          28,981
   Taco Cabana -
     Houston, TX #241               1,363,637       --         1,363,637          48,036
   Taco Cabana -
     Denton, TX                     1,220,693       --         1,220,693          43,001
   Baker Square -
     Bolingbrook, IL                1,636,364       --         1,636,364          16,147
   IHOP -
     Harlingen, TX                  1,619,998       --         1,619,998          (1,134 )
   Old Country Buffet -
     Madison, WI                    2,091,000       --         2,091,000          (1,199 )
   HomeTown Buffet -
     Wichita, KS                    2,000,000       --         2,000,000          (1,147 )
   Old Country Buffet -
     Mechanicsburg, PA              1,818,000       --         1,818,000          (1,523 )
   IHOP -
     Rocky Mount, NC                1,528,300       --         1,528,300          33,625
   JIB -
     Hickory, NC                    1,481,564       --         1,481,564          28,329
   HomeTown Buffet -
     Louisville, KY                 1,145,000       --         1,145,000            (660 )
   Old Country Buffet -
     Franklin, OH                   1,318,000       --         1,318,000            (760 )
   Pizza Hut -
     El Reno, OK                      368,764       --           368,764           1,591
   Bakers Square -
     Mt. Prospect, IL               1,931,818       --         1,931,818          19,310
   Old Country Buffet -
     Onalaska, WI                   1,455,000       --         1,455,000          (1,020 )
   Pizza Hut -
     Taylor, TX                       252,000       --           252,000           1,112
   IHOP -
     Cathedral City, CA             1,509,346       --         1,509,346           3,182
   Jack in the Box -
     Shelby, NC                     1,322,836       --         1,322,836          50,638
   Jack in the Box -
     Simpsonville, SC               1,503,608       --         1,503,608          21,487
   Old Country Buffet -
     Cincinnati, OH                   975,000       --           975,000            (821 )


      Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Funding 2001-A, LP (18)
  (Continued):
   OCB -
     Bourbonnais, IL                  12/28/01     07/23/02    1,401,789    1,273,743       --        --         2,675,532
   HomeTown Buffet -
     Rockford, IL                     12/28/01     07/23/02    2,534,814    2,274,326       --        --         4,809,140
   Pizza-Hut -
     Belton, TX                       01/25/02     07/24/02      724,812     615,776        --        --         1,340,588
   IHOP -
     Covington, LA                    03/29/02     07/26/02    1,939,187    1,716,670       --        --         3,655,857
   IHOP -
     Flourissant, MO                  03/29/02     07/30/02    1,699,850    1,548,233       --        --         3,248,083
   Jack in the Box -
     Rock Hill, SC                    09/15/00     08/05/02    1,250,338    1,143,510       --        --         2,393,848
   Jack in the Box -
     Greer, SC                        09/25/01     08/05/02    1,565,361    1,454,109       --        --         3,019,470
   Jack in the Box -
     Conroe, TX                       09/15/00     08/09/02    1,556,376    1,412,719       --        --         2,969,095
   Pizza Hut -
     Waco, TX (Baylor)                01/18/02     08/13/02      649,092     550,444        --        --         1,199,536
   Jack in the Box -
     Greenville, SC                   09/25/01     08/16/02    1,647,054    1,530,054       --        --         3,177,108
   Bakers Square -
     Eau Claire, WI                   05/14/01     08/20/02    1,359,362    1,169,094       --        --         2,528,456
   Bakers Square -
     Springfield, IL                  05/14/01     08/20/02    1,230,330    1,079,164       --        --         2,309,494
   Old Country Buffet -
     Mankato, MN                      12/28/01     08/20/02    1,816,605    1,637,118       --        --         3,453,723
   Jack in the Box -
     Baton Rouge, LA                  08/23/00     08/22/02    1,207,920    1,127,994       --        --         2,335,914
   TB/KFC -
     Center, TX                       10/31/00     08/30/02      868,185     852,554        --        --         1,720,739
   IHOP -
     Shawnee, OK                      12/20/01     08/30/02    1,579,070    1,434,527       --        --         3,013,597
   HomeTown Buffet -
     Medford, OR                      02/15/02     09/05/02    2,800,571    2,410,406       --        --         5,210,977
   HomeTown Buffet -
     Manchester, CT                   12/28/01     09/13/02    1,945,681    1,774,390       --        --         3,720,071
   Jack in the Box -
     Kilgore, TX                      06/27/02     09/18/02    1,188,992    1,093,811       --        --         2,282,803
   IHOP -
     Bristol, VA                      12/28/00     09/20/02    1,432,612    1,350,001       --        --         2,782,613
   Bakers Square -
     Akron, OH                        05/14/01     09/27/02    1,501,502    1,257,883       --        --         2,759,385
   Texas Roadhouse -
     Peoria, IL                       06/25/02     09/30/02    2,550,000    2,127,261       --        --         4,677,261
   Jack in the Box -
     Mesa, AZ                         06/27/02     10/04/02    1,678,254    1,475,706       --        --         3,153,960



                                          Cost of Properties
                                        Including Closing and
                                              Soft Costs
                                 -------------------------------------
                                                                           Excess
                                               Total                    (deficiency)
                                            acquisition                 of property
                                 Original      cost,                   operating cash
                                 mortgage     capital                  receipts over
                                 financing  improvements                    cash
            Property                (7)     closing and      Total      expenditures
                                             soft costs                     (19)
                                                (1)
=========================================== ============= ============ ===============

CNL Funding 2001-A, LP (18)
  (Continued):
   OCB -
     Bourbonnais, IL              1,273,000       --         1,273,000          (1,087 )
   HomeTown Buffet -
     Rockford, IL                 2,273,000       --         2,273,000          (1,941 )
   Pizza-Hut -
     Belton, TX                     618,282       --           618,282           2,875
   IHOP -
     Covington, LA                1,720,183       --         1,720,183           2,971
   IHOP -
     Flourissant, MO              1,551,402       --         1,551,402           3,922
   Jack in the Box -
     Rock Hill, SC                1,181,275       --         1,181,275          46,288
   Jack in the Box -
     Greer, SC                    1,474,257       --         1,474,257          22,417
   Jack in the Box -
     Conroe, TX                   1,459,375       --         1,459,375          57,750
   Pizza Hut -
     Waco, TX (Baylor)              553,145       --           553,145           3,009
   Jack in the Box -
     Greenville, SC               1,551,255       --         1,551,255          24,584
   Bakers Square -
     Eau Claire, WI               1,181,818       --         1,181,818          13,617
   Bakers Square -
     Springfield, IL              1,090,909       --         1,090,909          12,569
   Old Country Buffet -
     Mankato, MN                  1,636,000       --         1,636,000          (1,503 )
   Jack in the Box -
     Baton Rouge, LA              1,167,135       --         1,167,135          48,323
   TB/KFC -
     Center, TX                     863,636       --           863,636          10,412
   IHOP -
     Shawnee, OK                  1,441,500       --         1,441,500           7,947
   HomeTown Buffet -
     Medford, OR                  2,409,000       --         2,409,000          (2,071 )
   HomeTown Buffet -
     Manchester, CT               1,773,000       --         1,773,000          (1,469 )
   Jack in the Box -
     Kilgore, TX                  1,097,200       --         1,097,200           4,625
   IHOP -
     Bristol, VA                  1,373,272       --         1,373,272          25,525
   Bakers Square -
     Akron, OH                    1,272,727       --         1,272,727          16,331
   Texas Roadhouse -
     Peoria, IL                   2,134,177       --         2,134,177          10,527
   Jack in the Box -
     Mesa, AZ                     1,482,598       --         1,482,598           7,435



       Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Funding 2001-A, LP (18)
 (Continued):
   Pizza Hut -
     Rockmart, GA                     01/18/02     11/06/02      432,906     366,030        --        --           798,936
   Ruby Tuesday -
     Angola, IN                       07/01/01     11/08/02    1,499,694    1,415,770       --        --         2,915,464
   Krystals -
     Pelham, AL                       09/15/00     11/14/02    1,013,642     910,619        --        --         1,924,261
   HomeTown Buffets -
     Hilliard, OH                     12/28/01     11/22/02    1,816,424    1,615,595       --        --         3,432,019
   IHOP -
     Enid, OK                         09/28/01     12/05/02    1,537,046    1,323,224       --        --         2,860,270
   IHOP -
     Kansas City, MO                  03/29/02     12/05/02    1,719,949    1,500,970       --        --         3,220,919
   Perkins -
     Millington, TN                   05/24/02     12/06/02    1,274,829    1,111,111       --        --         2,385,940
   Perkins -
     Mankato, MN                      09/13/02     12/10/02    1,373,747    1,193,299       --        --         2,567,046
   Ruby Tuesday -
     Island Park, NY                  02/27/01     12/18/02    1,882,592    1,782,108       --        --         3,664,700
   Pizza Hut -
     Woodville, TX                    01/18/02     12/19/02      392,396     351,085        --        --           743,481
   Krystals -
     Trenton, GA                      09/15/00     12/20/02    1,027,940     896,970        --        --         1,924,910

CNL Funding 2002-A, LP (18):
   Jack in the Box -
     Marana, AZ                       05/15/01     08/17/01      163,730    1,076,685       --        --         1,240,414
   Jack in the Box -
     St. George, UT                   07/12/01     12/04/01      231,916    1,580,962       --        --         1,812,878
   Jack in the Box -
     Pumpkin Center, CA               08/30/02     11/09/01      128,563    1,206,531       --        --         1,335,094
   Black Angus -
     Las Vegas, NV                    10/11/01     11/19/01      545,658    2,675,155       --        --         3,220,813
   Jack in the Box -
     Harrington, TX                   05/31/01     11/29/01      144,639    1,280,652       --        --         1,430,291
   Black Angus -
     Phoenix, AZ                      08/02/01     03/29/02    2,271,337    1,962,499       --        --         4,233,836
   Black Angus -
     Goodyear, AZ                     07/23/01     05/01/02    2,161,317    1,855,849       --        --         4,017,166
   Jack in the Box -
     Charlotte, NC                    08/30/01     06/14/02    1,603,500    1,450,809       --        --         3,054,309
   Jack in the Box -
     Baton Rouge, LA                  08/30/01     07/12/02    1,225,654    1,145,280       --        --         2,370,934
   Jack in the Box -
     Lake Zurich, IL                  09/26/01     12/20/02    2,655,920    2,215,642       --        --         4,871,562
   Bennigans -
     Killeen, TX                      08/07/01     12/30/02    2,182,142    1,897,117       --        --         4,079,259



                                               Cost of Properties
                                             Including Closing and
                                                   Soft Costs
                                      -------------------------------------
                                                                                Excess
                                                    Total                    (deficiency)
                                                 acquisition                 of property
                                      Original      cost,                   operating cash
                                      mortgage     capital                  receipts over
                                      financing  improvements                    cash
            Property                     (7)     closing and      Total      expenditures
                                                  soft costs                     (19)
                                                     (1)
=================================     ========== ============= ============ ===============

CNL Funding 2001-A, LP (18)
 (Continued):
   Pizza Hut -
     Rockmart, GA                        368,764       --           368,764           2,914
   Ruby Tuesday -
     Angola, IN                        1,426,713       --         1,426,713          29,521
   Krystals -
     Pelham, AL                          928,108       --           928,108          26,012
   HomeTown Buffets -
     Hilliard, OH                      1,614,000       --         1,614,000          (1,717 )
   IHOP -
     Enid, OK                          1,336,499       --         1,336,499           4,742
   IHOP -
     Kansas City, MO                   1,509,346       --         1,509,346           8,575
   Perkins -
     Millington, TN                    1,111,111       --         1,111,111             756
   Perkins -
     Mankato, MN                       1,193,299       --         1,193,299           1,108
   Ruby Tuesday -
     Island Park, NY                   1,800,000       --         1,800,000          21,046
   Pizza Hut -
     Woodville, TX                       354,013       --           354,013           3,077
   Krystals -
     Trenton, GA                         915,294       --           915,294          26,769

CNL Funding 2002-A, LP (18):
   Jack in the Box -
     Marana, AZ                        1,078,143       --         1,078,143          27,638
   Jack in the Box -
     St. George, UT                    1,588,785       --         1,588,785          62,317
   Jack in the Box -
     Pumpkin Center, CA                1,210,280       --         1,210,280          22,265
   Black Angus -
     Las Vegas, NV                     2,675,155       --         2,675,155          31,169
   Jack in the Box -
     Harrington, TX                    1,285,047       --         1,285,047          68,509
   Black Angus -
     Phoenix, AZ                       1,967,245       --         1,967,245          13,445
   Black Angus -
     Goodyear, AZ                      1,862,193       --         1,862,193          11,485
   Jack in the Box -
     Charlotte, NC                     1,467,708       --         1,467,708          17,149
   Jack in the Box -
     Baton Rouge, LA                   1,160,007       --         1,160,007          16,487
   Jack in the Box -
     Lake Zurich, IL                   2,246,512       --         2,246,512          39,380
   Bennigans -
     Killeen, TX                       1,925,583       --         1,925,583          31,785


     Past performance is not necessarily indicative of future performance.



                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== =

CNL Net Lease Investors, LP (18):
   JIB -
     Arlington, TX (8)                09/25/02     09/25/02    1,096,799          --        --        --         1,096,799
   Burger King -
     Jackson, MI (8)                  09/25/02     09/25/02      958,464          --        --        --           958,464
   IHOP -
     Buffalo Grove, IL (8)            09/25/02     09/25/02    1,591,656          --        --        --         1,591,656
   Arby's-Lee's
     Summit, MO (8)                   09/25/02     09/25/02      956,778          --        --        --           956,778
   Krispy Kreme -
     Clive, IA (8)                    09/25/02     09/25/02      719,193          --        --        --           719,193
   Boston Market
     Eden Prairie, MN (8)             09/25/02     09/25/02    1,096,256          --        --        --         1,096,256
   Denny's -
     Glenwood Springs, CO             09/25/02     09/30/02      795,710     724,289        --        --         1,519,999
   JIB -
     Apple Valley, CA                 09/25/02     10/29/02    1,321,825    1,125,979       --        --         2,447,804
   Jack in the Box -
     Calexico, CA                     09/25/02     11/08/02    1,648,680    1,380,933       --        --         3,029,613
   IHOP -
     Smyrna, GA                       09/25/02     11/15/02    1,745,706    1,487,570       --        --         3,233,276
   IHOP -
     Las Vegas, NV                    09/25/02     11/19/02    1,757,708    1,532,903       --        --         3,290,611
   Arby's -
     Lafayette, IN                    09/25/02     11/21/02    1,375,742    1,233,489       --        --         2,609,231
   JIB -
     Pomona, CA                       09/25/02     12/06/02    1,487,290    1,256,692       --        --         2,743,982
   IHOP -
     Bend, OR                         09/25/02     12/10/02    1,531,730    1,335,109       --        --         2,866,839
   JIB -
     Woodinville, WA                  09/25/02     12/12/02    1,655,360    1,416,445       --        --         3,071,805
   IHOP -
     Chico, CA                        09/25/02     12/16/02    1,941,672    1,704,094       --        --         3,645,766
   IHOP -
     Phoenix, AZ                      09/25/02     12/16/02    1,678,713    1,421,205       --        --         3,099,918
   Denny's -
     Grand Prairie, TX                09/25/02     12/18/02      808,300     641,605        --        --         1,449,905
   JIB -
     Stockton, CA                     09/25/02     12/19/02    1,318,360    1,194,990       --        --         2,513,350
   JIB -
     Altadena, CA                     09/25/02     12/19/02    1,807,332    1,568,973       --        --         3,376,305
   IHOP -
     Madera, CA                       09/25/02     12/20/02    1,738,750    1,517,381       --        --         3,256,131
   JIB -
     Los Angeles, CA                  09/25/02     12/20/02    1,722,484    1,440,875       --        --         3,163,359
   Stone Grill -
     Henderson, NV                    09/25/02     12/20/02      444,977     315,790        --        --           760,767




                                          Cost of Properties
                                        Including Closing and
                                              Soft Costs
                                 -------------------------------------
                                                                           Excess
                                               Total                    (deficiency)
                                            acquisition                 of property
                                 Original      cost,                   operating cash
                                 mortgage     capital                  receipts over
                                 financing  improvements                    cash
            Property                (7)     closing and      Total      expenditures
                                             soft costs                     (19)
                                                (1)
================================ ========== ============= ============ ===============

CNL Net Lease Investors, LP (18
   JIB -
     Arlington, TX (8)                   --     1,096,799    1,096,799              --
   Burger King -
     Jackson, MI (8)                     --       958,464      958,464              --
   IHOP -
     Buffalo Grove, IL (8)               --     1,591,656    1,591,656              --
   Arby's-Lee's
     Summit, MO (8)                      --       956,778      956,778              --
   Krispy Kreme -
     Clive, IA (8)                       --       719,193      719,193              --
   Boston Market
     Eden Prairie, MN (8)                --     1,096,256    1,096,256              --
   Denny's -
     Glenwood Springs, CO           724,289       --           724,289          (2,560 )
   JIB -
     Apple Valley, CA             1,125,979       --         1,125,979            (390 )
   Jack in the Box -
     Calexico, CA                 1,380,873       --         1,380,873            (431 )
   IHOP -
     Smyrna, GA                   1,487,640       --         1,487,640            (255 )
   IHOP -
     Las Vegas, NV                1,533,114       --         1,533,114               4
   Arby's -
     Lafayette, IN                1,234,521       --         1,234,521           1,632
   JIB -
     Pomona, CA                   1,256,583       --         1,256,583            (501 )
   IHOP -
     Bend, OR                     1,334,916       --         1,334,916            (674 )
   JIB -
     Woodinville, WA              1,416,512       --         1,416,512            (421 )
   IHOP -
     Chico, CA                    1,706,088       --         1,706,088           2,084
   IHOP -
     Phoenix, AZ                  1,422,679       --         1,422,679           1,492
   Denny's -
     Grand Prairie, TX              643,812       --           643,812         (17,570 )
   JIB -
     Stockton, CA                 1,195,358       --         1,195,358              44
   JIB -
     Altadena, CA                 1,569,349       --         1,569,349            (104 )
   IHOP -
     Madera, CA                   1,517,799       --         1,517,799             (23 )
   JIB -
     Los Angeles, CA              1,441,506       --         1,441,506             319
   Stone Grill -
     Henderson, NV                  316,876       --           316,876            (501 )



        Past performance is not necessarily indicative of future performance.






                                     TABLE V
                        SALES OR DISPOSALS OF PROPERTIES


                                                                                   Selling Price, Net of
                                                                            Closing Costs and GAAP Adjustments
                                                              ----------------------------------------------------------------


                                                                                        Purchase
                                                                             Mortgage   money      Adjustments
                                                                              balance   mortgage    resulting
                                       Date        Date of        Cash        at time   taken         from
            Property                 Acquired       Sale      received net    of sale     back     application      Total
                                                               of closing               by           of GAAP
                                                                  costs                  program
================================== ============= ============ ============== ========== ========== ============ ============== ==

CNL Net Lease Investors, LP (18)
(Continued):
   JIB -
     Veradale, WA                     09/25/02     12/20/02    1,584,962    1,432,938       --        --         3,017,900
   Denny's -
     Tulsa, OK                        09/25/02     12/23/02      198,995      87,719        --        --           286,714
   Chipolte Mexican Grill -
     Redlands, CA                     09/25/02     12/26/02    1,131,950     947,782        --        --         2,079,732
   Arby's -
     Boise, ID                        09/25/02     12/27/02    1,024,456     880,157        --        --         1,904,613
   IHOP -
     Las Vegas, NV - 752              09/25/02     12/30/02    1,956,162    1,654,627       --        --         3,610,789
   IHOP -
     Chesapeake, VA                   09/25/02     12/30/02    1,820,540    1,596,258       --        --         3,416,798
   JIB -
     Sacramento, CA                   09/25/02     12/31/02    1,351,820    1,230,480       --        --         2,582,300
   JIB -
     Delano, CA                       09/25/02     12/31/02    1,411,817    1,193,558       --        --         2,605,375

CNL Franchise Network, LP (24)
   Applebees -
     Salinas, CA                      02/10/97     04/26/02    2,049,350          --        --        --         2,649,350
   Fazoli's -
     Cordova, TN (25)                 12/28/01     06/28/02      638,052          --        --        --           638,052
   Fazoli's -
     Collierville, TN (25)            12/23/99     08/08/02      667,882          --        --        --           667,882


                                             Cost of Properties
                                           Including Closing and
                                                 Soft Costs
                                    -------------------------------------
                                                                              Excess
                                                  Total                    (deficiency)
                                               acquisition                 of property
                                    Original      cost,                   operating cash
                                    mortgage     capital                  receipts over
                                    financing  improvements                    cash
            Property                   (7)     closing and      Total      expenditures
                                                soft costs                     (19)
                                                   (1)
==================================  ========== ============= ============ ===============

CNL Net Lease Investors, LP (18)
(Continued):
   JIB -
     Veradale, WA                    1,434,470       --         1,434,470           1,591
   Denny's -
     Tulsa, OK                          88,021       --            88,021          (8,056 )
   Chipolte Mexican Grill -
     Redlands, CA                      948,249       --           948,249             229
   Arby's -
     Boise, ID                         879,752       --           879,752          (1,105 )
   IHOP -
     Las Vegas, NV - 752             1,654,674       --         1,654,674            (737 )
   IHOP -
     Chesapeake, VA                  1,595,915       --         1,595,915          (1,328 )
   JIB -
     Sacramento, CA                  1,230,859       --         1,230,859             (85 )
   JIB -
     Delano, CA                      1,193,846       --         1,193,846            (125 )

CNL Franchise Network, LP (24)
   Applebees -
     Salinas, CA                            --     1,748,118    1,496,871              --
   Fazoli's -
     Cordova, TN (25)                       --       501,969      501,969              --
   Fazoli's -
     Collierville, TN (25)                  --       621,070           --            (207 )




(1)      Amounts shown do not include pro rata share of original  offering costs
         or acquisition fees.
(2)      Closing costs deducted from net sales proceeds do not include deferred,
         subordinated real estate disposition fees payable to CNL Fund Advisors,
         Inc. or its affiliates.
(3)      CNL Income Fund V, Ltd. owns a 49 percent  interest and CNL Income Fund
         VII, Ltd. owns a 51 percent interest in this joint venture. The amounts
         presented  for CNL Income Fund V, Ltd.  and CNL Income  Fund VII,  Ltd.
         represent each partnership's  percent interest in the property owned by
         Halls Joint Venture.
(4)      Cash received net of closing costs includes $50,000 received as a lease
         termination fee.
(5)      CNL Income Fund XVII,  Ltd. owned an 80 percent  interest in this joint
         venture.  The amounts  presented  represent the  partnership's  percent
         interest in the property owned by El Cajon Joint Venture. A third party
         owned the remaining 20 percent interest in this joint venture.
(6)      Amount shown is face value and does not  represent  discounted  current
         value.  The mortgage  note bore  interest at a rate of 10.25% per annum
         and provides for 60 equal  monthly  payments of principal and interest.
         The borrower prepaid the mortgage note in full in January 2001.
(7)      Original  mortgage  financing was obtained for less than 100 percent of
         the total cost of the properties.
(8)      Each property was sold to one of the CNL Income Funds,  which are Prior
         Public Programs and affiliates of the Chairman and Vice Chairman of the
         Board of Directors of CNL American  Properties  Fund,  Inc. The CNL Net
         Lease  Investors,  LP sold the  properties at the net carrying value of
         the property, therefore, no gain or loss was recognized on the sale.
(9)      This property was being constructed and was sold prior to completion of
         construction.
(10)     Cash received net of closing costs includes  $1,551,800 in construction
         costs incurred but not paid by CNL American Properties Fund, Inc. as of
         the  closing  date,  which  were  deducted  from the  actual  net sales
         proceeds received by CNL American Properties Fund, Inc.
(11)     Cash received net of closing costs include $35,863  received as a lease
         termination fee.
(12)     CNL Income  Fund VIII,  Ltd.  owned a 12.46  percent  interest  and CNL
         Income Fund XII,  Ltd.  owned an 87.54  percent  interest in this joint
         venture.  The amounts  presented for CNL Income Fund VIII, Ltd. and CNL
         Income Fund XII, Ltd. represent each partnership's  percentage interest
         in the property owned by Middleburg Joint Venture.  Past performance is
         not necessarily indicative of future performance.



(13)     CNL Income Fund XIV,  Ltd.  owned a 50 percent  interest and CNL Income
         Fund XV, Ltd. owned a 50 percent  interest in this joint  venture.  The
         amounts presented for CNL Income Fund XIV, Ltd. and CNL Income Fund XV,
         Ltd. represent each partnership's  percentage  interest in the property
         owned by Woodridge Joint Venture.
(14)     CNL Income Fund VI,  Ltd.  owned a 75 percent  interest  and CNL Income
         Fund IX, Ltd.  owned a 25 percent  interest in the  property in Dublin,
         California.  The amounts presented for CNL Income Fund VI, Ltd. and CNL
         Income Fund IX, Ltd. represent each partnership  percentage interest in
         the property.
(15)     Amount shown is face value and does not  represent  discounted  current
         value.  The  mortgage  note bore  interest at a rate of ten percent per
         annum. The borrower prepaid the mortgage note in full in November 2001.
(16)     Amount shown is face value and does not  represent  discounted  current
         value.  The mortgage note bears  interest at a rate of nine percent per
         annum and  provides  for 96 equal  monthly  payments of  principal  and
         interest and a balloon payment of $123,102 in December 2008.
(17)     Amount shown is face value and does not  represent  discounted  current
         value.  The mortgage note bears  interest at a rate of nine percent per
         annum and  provides  for 96 equal  monthly  payments of  principal  and
         interest and a balloon payment of $184,652 in December 2008.
(18)     Information  in this table includes  properties  sold by CNL Restaurant
         Property Services, Inc., CNL Restaurant Investors Properties,  LLC, CNL
         Funding 2001-A, LP, CNL Funding 2002 - A LP and CNL Net Lease Investors
         LP,  subsidiaries of CNL American  Properties  Fund,  Inc.,  which were
         formed for the  purpose of  originating  mortgage  loans and net leases
         with the intent to sell or securitize.
(19)     Amounts  in  this  table  do  not   include   costs   incurred  in  the
         administration  of the  partnership  or  company,  as  applicable,  not
         related to the operation of properties.
(20)     CNL Income Fund II,  Ltd.  owned a 48 percent  interest  and CNL Income
         Fund X, Ltd.  owned a 52 percent  interest in this joint  venture.  The
         amounts  presented  for CNL Income Fund II, Ltd. and CNL Income Fund X,
         Ltd. represent each partnership's  percentage  interest owned by Peoria
         Joint Venture.
(21)     CNL Income Fund VI,  Ltd.  owned a 77 percent  interest  and CNL Income
         Fund XI,  Ltd.  owned a 23 percent  interest  in the  property in Round
         Rock, Texas. The amounts presented for CNL Income Fund VI, Ltd. and CNL
         Income Fund XI, Ltd. represent each partnership's  percentage  interest
         in the property.
(22)     Amount shown is face value and does not  represent  discounted  current
         value.  The mortgage note bears interest at a rate of 12.34 percent per
         annum and principal and interest payments are due by November 28, 2004.
(23)     Cash received net of closing costs includes $60,000 received as a lease
         termination fee.
(24)     Information  in this table  includes  properties  sold by CNL Financial
         Services,  LP  and  CNL  Franchise  Network,  LP,  subsidiaries  of CNL
         American  Properties  Fund, Inc. (25) The property was obtained through
         foreclosure  of a loan  and  the  basis  of the  property  was  the net
         realizable value of the foreclosed loan.

        Past performance is not necessarily indicative of future performance.

                                   APPENDIX C

                             SUBSCRIPTION AGREEMENT




Subscription Agreement                                                 [LOGO]
CNL RETIREMENT PROPERTIES, INC.


1.  _____________   INVESTMENT ______________________________________________________________________________

This is an (check one):  |_| Initial   |_|Additional Investment   |_|  Check this box if you are purchasing these Shares through
                             Investment   in this offering              a  Registered  Investment  Adviser  or net of commission.

Make Investment Check Payable to:  SouthTrust Bank

This subscription is in the amount of $________________ for the purchase of _________ Shares ($10.00 per Share). The minimum
initial subscription is 250 Shares ($2,500); 100 Shares ($1,000) for IRA, Keogh and qualified plan accounts (except in states
with higher minimum purchase requirements).

2.  ______________________  FORM OF OWNERSHIP __________________________________________________

    (Select only one)
    |_|IRA                                            |_| INDIVIDUAL
    |_|SEP/IRA                                        |_| JOINT  TENANTS  WITH RIGHT OF  SURVIVORSHIP  (all parties must sign)
    |_|KEOGH (H.R. 10)                                |_| HUSBAND AND WIFE AS COMMUNITY PROPERTY
    |_|PENSION OR PROFIT SHARING PLAN                     (two signatures required)
       |_|TAXABLE    |_| TAX EXEMPT                   |_| A  MARRIED  PERSON   SEPARATE   PROPERTY  (one  signature required)
    |_|TRUST (include title and signature pages)      |_| TENANTS IN COMMON
       |_|TAXABLE    |_| TAX EXEMPT                   |_| CUSTODIAN FOR ____________________________________________________
    |_|CHARITABLE REMAINDER TRUST                         Under the|_|  UGMA of the State of _______________________________
    |_|NON-PROFIT ORGANIZATION                                     |_|  UTMA of the State of _______________________________
                                                      |_| CORPORATION  OR  PARTNERSHIP   (Corporate  Resolution  or Partnership
                                                          Agreement must be attached)



3. __________________ INVESTOR INFORMATION ___________________________________

Name(s) and address will be recorded exactly as printed below. Please print
name(s) in which Shares are to be registered. Include trust name if
applicable. If IRA or qualified plan, include both investor and custodian
names and Taxpayer ID numbers. Complete the Investor Mailing Address to
receive informational mailings.

______________________________________     ____________________________________
1st Registration Name                      Investor Social Security Number

______________________________________     ____________________________________
2nd Registration Name                      Taxpayer ID Number

______________________________________     ____________________________________
Address                                    Custodian Account Number

______________________________________     ____________________________________
City/State/Zip                             Custodian Phone Number

_______________________________________    ____________________________________
Investor Mailing Address (IRA Accounts)    Investor E-mail Address

______________________________________     ____________________________________
City/State/Zip                             Daytime Phone Number


|_|Check this box if you are a U.S. citizen         |_|Check   this  box  if  you  are  a  U.S.   citizen residing outside the U.S.
|_|Check this box if you are a foreign citizen      |_|Check  this  box  if you  are  subject  to  backup withholding

4. _________________ DISTRIBUTIONS_____________________________________________

Complete this section only to enroll in the Distribution Reinvestment Plan
or to direct distribution payments to a party other than the one indicated
in Section 3. Choose Option a or b. IRA accounts may not direct
distributions without the custodian's approval.
a. |_| DISTRIBUTION REINVESTMENT PLAN (see Prospectus for more details)
b. |_| DIRECT DEPOSIT Please include a voided check. (Non-Custodian Investors
       Only)
I authorize CNL Investment Company or its Agent (collectively, "CNL")
to deposit my distribution to my checking or savings account. This authority
will remain in force until I notify CNL in writing to cancel it. In the
event that CNL deposits funds erroneously into my account, they are
authorized to debit my account for an amount not to exceed the amount of the
erroneous deposit.

Financial Institution  ______________________________________________________

Address _____________________________________________________________________

City/State/Zip ______________________________________________________________

Account Type (check one):  |_|  Checking   |_|  Savings

Account Number _________________ Bank ABA Routing Number _____________________




5.____________________________ SUBSCRIBER SIGNATURES __________________________

TAXPAYER  IDENTIFICATION  NUMBER CONFIRMATION  (required):  The investor signing
below,  under penalties of perjury,  certifies that (i) the number shown on this
subscription  agreement is his correct Taxpayer  Identification Number (or he is
waiting  for a number to be issued to him) and (ii) he is not  subject to backup
withholding  either  because he has not been  notified by the  Internal  Revenue
Service  ("IRS")  that he is  subject  to  backup  withholding  as a result of a
failure to report all interest or dividends, or the IRS has notified him that he
is  no  longer  subject  to  backup  withholding  [NOTE:  CLAUSE  (ii)  IN  THIS
CERTIFICATION  SHOULD BE CROSSED OUT IF THE  WITHHOLDING BOX HAS BEEN CHECKED IN
SECTION 3].

Please separately initial each of the representations  below. Except in the case
of fiduciary accounts,  you may not grant any person a power of attorney to make
such  representations  on your behalf.  In order to induce the Company to accept
this subscription, I hereby represent and warrant to you as follows:

(a)  I have received the Prospectus                  __________      __________
                                                     Initials        Initials


(b)  I have (i) a net worth (not including home, furnishings and personal
     automobiles) of at least $150,000, or (ii) a net worth (as previously
     described) of at least $45,000 and an annual gross income of at least
     $45,000, or that I meet the higher suitability requirements imposed by
     my state of primary residence as set forth in the Prospectus under
     "Suitability Standards and How to Subscribe."

                                                     __________      __________
                                                     Initials        Initials

X _________________________ __________ X_____________________________ _________
  Signature of Investor      Date       Signature of Joint Investor      Date

6.  ____________________________ BROKER INFORMATION __________________________
    The Broker's Financial Advisor must sign below to complete order.  Financial
    Advisor  hereby  warrants  that he is duly  licensed and may  lawfully  sell
    Shares in the state designated as the investor's legal residence.

    Broker/Dealer Name  ______________________________________________________

    Financial Advisor Name  __________________________________________________

    Advisor Mailing Address  _________________________________________________

    City/State/Zip  __________________________________________________________

    Advisor Number_______________________ Telephone Number ___________________

    E-mail Address ______________________ Fax Number _________________________

|_| Telephonic Subscription  |_| Deferred Commission Option        (Please refer to the Prospectus for details.)
                                 (not available to CA investors)

|_| Registered  Investment  Adviser (RIA):  All sales of securities must be made
through  a  Broker/Dealer.  If an RIA has  introduced  a sale,  the sale must be
conducted through (i) the RIA in its capacity as a Registered Representative, if
applicable;  (ii)  a  Registered  Representative  of a  Broker/Dealer  which  is
affiliated  with the RIA,  if  applicable;  or (iii) if  neither  (i) or (ii) is
applicable, an unaffiliated Broker/Dealer.


The  undersigned  confirm  by their  signatures  that  they (i) have  reasonable
grounds to believe  that the  information  and  representations  concerning  the
investor identified herein are true, correct and complete in all respects;  (ii)
have  discussed  such  investor's  prospective  purchase  of  Shares  with  such
investor; (iii) have advised such investor of all pertinent facts with regard to
the liquidity and  marketability  of the Shares;  (iv) have  delivered a current
Prospectus  and  related  supplements,  if any, to such  investor;  and (v) have
reasonable  grounds  to  believe  that the  purchase  of  Shares  is a  suitable
investment for such investor, that such investor meets the suitability standards
applicable to such investor set forth in the Prospectus and related supplements,
if any,  and that such  investor  is in a  financial  position  to  enable  such
investor to realize the  benefits of such an  investment  and to suffer any loss
that may occur with respect thereto.

 X___________________________ _______ X_______________________________  ________
  Financial Advisor Signature  Date    Branch Manager Signature          Date
                                      (If required by Broker/Dealer)

All items on the  Subscription  Agreement  must be  completed  in order for your
subscription to be processed.  Subscribers are encouraged to read the Prospectus
in its entirety for a complete explanation of an investment in the Company.


 Return to: CNL Investor Relations |X| PO Box 1033 |X| Orlando, FL |X| 32802-1033
Overnight Delivery: CNL Investor Relations |X| 450 South Orange Avenue |X| Orlando, FL |X| 32801
 CNL Investor Relations: tel (407) 650-1000 |X| toll-free (866) 650-0650 |X| fax (407) 650-1231

--------------------------------------------------------------------------------
    For Office Use Only****

    Sub.# ___________________ Admit Date ______________  Amount_______________

    Check #__________________ Region __________________  W/S__________Rev. 03/03

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



                                   APPENDIX D

                             STATEMENT OF ESTIMATED
                            TAXABLE OPERATING RESULTS
                         BEFORE DIVIDENDS PAID DEDUCTION


                         CNL RETIREMENT PROPERTIES, INC.
                STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
                         BEFORE DIVIDENDS PAID DEDUCTION
                      OF PROPERTIES ACQUIRED FROM INCEPTION
                            THROUGH FEBRUARY 28, 2003
                For the Year Ended December 31, 2002 (Unaudited)


         The following schedule presents  unaudited  estimated taxable operating
results before dividends paid deduction of each Property acquired by the Company
as of  February  28, 2003 and the  Properties  for which the Company had initial
commitments as of February 28, 2003. The statement presents unaudited  estimated
taxable  operating  results for each  Property as if the  Property  (i) had been
acquired  the  earlier of (a) the actual  date  acquired  by the  Company or (b)
January 1, 2002 and (ii) and been operational  during the period January 1, 2002
through  December  31,  2002.  The  schedule  should  be  read in  light  of the
accompanying footnotes.

         These estimates do not purport to present actual or expected operations
of the Company for any period in the future.  The estimates were prepared on the
basis  described in the  accompanying  notes which should be read in conjunction
herewith.
                                      Brighton Gardens
                                        by Marriott            Broadway Plaza  Homewood Residence Boca Holley Court Terrace
                                      Orland Park (16)         Arlington (12)         Raton (12)         Oak Park (12)
                                  ---------------------     --------------------  ------------------  ------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                        $1,350,268              $1,084,322           $ 991,380         $ 1,846,927

Earned Income (1)                                 -                       -                   -

FF&E Reserve Income (2)                      29,481                       -                   -

Asset Management Fees (3)                   (83,093)                (63,473)            (58,032)           (110,816)

Interest Expense (4)(5)(6)(7)(8)                  -                       -                   -            (932,266)

General and Administrative
    Expenses (9)                           (110,422)                (86,746)            (79,310)           (147,754)
                                      -------------         ---------------       -------------       -------------

Estimated Cash Available from
    Operations                            1,186,234                 934,103             854,038             656,091

Depreciation and Amortization
    Expense (10) (11)                      (624,510)               (454,065)           (440,229)           (704,627)
                                      -------------         ---------------       -------------       -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                        $ 561,724               $ 480,038           $ 413,809           $ (48,536)
                                      =============         ===============       =============       =============

                                 See Footnotes

                                                                                  Brighton Gardens     Brighton Gardens
                                      Homewood Residence        Heritage Club        by Marriott          by Marriott
                                      Coconut Creek (12)   Greenwood Village (12)  Camarillo (13)         Towson (13)
                                    --------------------  ----------------------  ------------------  ------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                          $968,756            $1,786,538          $1,701,799           $1,322,634

Earned Income (1)                                 -                     -                   -

FF&E Reserve Income (2)                           -                     -              63,587               31,387

Asset Management Fees (3)                   (58,125)             (117,842)           (112,168)             (86,714)

Interest Expense (4)(5)(6)(7)(8)                  -                     -            (447,475)            (345,930)

General and Administrative
    Expenses (9)                            (77,500)             (142,923)           (136,144)            (105,811)
                                      -------------       ---------------       -------------        -------------

Estimated Cash Available from
    Operations                              833,131             1,525,773           1,069,599              815,566

Depreciation and Amortization
    Expense (10) (11)                      (402,060)             (840,901)           (755,339)            (620,367)
                                      -------------       ---------------       -------------        -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                         $431,071              $684,872            $314,260             $195,199
                                      =============       ===============       =============        =============

                                 See Footnotes




                                           MapleRidge              MapleRidge           MapleRidge        Brighton Gardens
                                          by Marriott             by Marriott           by Marriott          by Marriott
                                          Clayton (13)           Dartmouth (13)       Elk Grove (13)       Brentwood (14)
                                      --------------------     -------------------   ------------------  --------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                            $755,200                 $878,784           $750,467                $   -

Earned Income (1)                                   -                        -                  -              695,044

FF&E Reserve Income (2)                        18,333                   47,826             22,116                    -

Asset Management Fees (3)                     (48,663)                 (56,930)           (48,325)             (38,099)

Interest Expense (4)(5)(6)(7)(8)             (194,134)                (227,111)          (192,782)            (281,570)

General and Administrative
    Expenses (9)                              (60,416)                 (70,303)           (60,037)             (55,604)
                                        -------------          ---------------      -------------        -------------

Estimated Cash Available from
    Operations                                470,320                  572,266            471,439              319,771

Depreciation and Amortization
    Expense (10) (11)                        (335,148)                (386,831)          (333,616)                   -
                                        -------------          ---------------      -------------        -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $135,172                 $185,435           $137,823             $319,771
                                        =============          ===============      =============        =============

                                 See Footnotes

                                         Brighton Gardens       Brighton Gardens     Brighton Gardens    Brighton Gardens
                                           by Marriott            by Marriott           by Marriott         by Marriott
                                     Atlanta - Buckhead (14)     Charlotte (14)      Chevy Chase (14)     Middletown (14)
                                     -----------------------   ------------------   -----------------  ------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                               $  -                  $   -              $   -              $    -

Earned Income (1)                            837,863                352,283          2,166,197           1,361,793

FF&E Reserve Income (2)                            -                      -                  -                   -

Asset Management Fees (3)                    (45,927)               (19,310)          (115,862)            (68,891)

Interest Expense (4)(5)(6)(7)(8)            (339,427)              (142,714)          (856,282)           (509,141)

General and Administrative
    Expenses (9)                             (67,029)               (28,183)          (173,296)           (108,943)
                                       -------------        ---------------      -------------       -------------

Estimated Cash Available from
    Operations                               385,480                162,076          1,020,757             674,818

Depreciation and Amortization
    Expense (10) (11)                              -                      -                  -                   -
                                       -------------        ---------------      -------------       -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                          $385,480               $162,076         $1,020,757            $674,818
                                       =============        ===============      =============       =============

                                 See Footnotes


                                      Brighton Gardens        Brighton Gardens      Brighton Gardens       Brighton Gardens
                                        by Marriott             by Marriott            by Marriott            by Marriott
                                     Mountainside (14)          Naples (14)           Raleigh (14)           Stamford (14)
                                 ------------------------  --------------------   --------------------  --------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                              $   -                   $   -             $    -              $    -

Earned Income (1)                          1,466,525                 613,446          1,056,848           1,485,300

FF&E Reserve Income (2)                            -                       -                  -                   -

Asset Management Fees (3)                    (74,632)                (48,015)           (57,931)            (81,417)

Interest Expense (4)(5)(6)(7)(8)            (551,569)               (354,856)          (428,141)           (601,712)

General and Administrative
    Expenses (9)                            (117,322)                (49,076)           (84,548)           (118,824)
                                       -------------         ---------------      -------------       -------------

Estimated Cash Available from
    Operations                               723,002                 161,499            486,228             683,347

Depreciation and Amortization
    Expense (10) (11)                              -                       -                  -                   -
                                       -------------         ---------------      -------------       -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                          $723,002               $ 161,499          $ 486,228           $ 683,347
                                       =============         ===============      =============       =============
                                 See Footnotes




                                                                                   Brooksby Village
                                        Brighton Gardens     Brighton Gardens      Continuing Care
                                          by Marriott          by Marriott            Retirement      Homewood Residence
                                          Venice (14)       Winston-Salem (14)      Community (15)      Nashville (12)
                                     --------------------  -------------------  ------------------- --------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                             $    -                 $   -          $2,607,568            $ 918,180

Earned Income (1)                            714,087               771,214                   -                    -

FF&E Reserve Income (2)                            -                     -                   -                    -

Asset Management Fees (3)                    (39,143)              (42,274)           (104,303)             (53,747)

Interest Expense (4)(5)(6)(7)(8)            (289,285)             (312,427)                  -                    -

General and Administrative
    Expenses (9)                             (57,127)              (61,697)           (208,605)             (73,454)
                                       -------------       ---------------       -------------        -------------

Estimated Cash Available from
    Operations                               328,532               354,816           2,294,660              790,979

Depreciation and Amortization
    Expense (10) (11)                              -                     -                   -             (386,464)
                                       -------------       ---------------       -------------        -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                         $ 328,532              $354,816          $2,294,660            $ 404,515
                                       =============       ===============       =============        =============


                                 See Footnotes


                                          Brighton Gardens       Brighton Gardens      Brighton Gardens       Brighton Gardens
                                            by Marriott             by Marriott            by Marriott            by Marriott
                                           Bellevue (16)        Hoffman Estates (17)   Oklahoma City (16)       Santa Rosa (16)
                                     ----------------------     ------------------    ------------------     ---------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                            $ 892,641               $ 773,235            $ 319,081           $1,465,498

Earned Income (1)                                    -                       -                    -                    -

FF&E Reserve Income (2)                         31,972                  37,402               23,899               43,456

Asset Management Fees (3)                      (61,210)                (45,263)            (21,880)             (100,491)

Interest Expense (4)(5)(6)(7)(8)                     -                       -                   -                     -

General and Administrative
    Expenses (9)                               (71,411)                (61,859)            (25,526)             (117,240)
                                         -------------         ---------------       -------------         -------------

Estimated Cash Available from
    Operations                                 791,992                 703,515             295,574             1,291,223

Depreciation and Amortization
    Expense (10) (11)                         (444,300)               (329,898)          (158,818)              (729,432)
                                         -------------         ---------------       -------------         -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $ 347,692               $ 373,617           $ 136,756             $ 561,791
                                         =============         ===============       =============         =============
                                 See Footnotes



                                      Brighton Gardens        Brighton Gardens      Hearthside             Hearthside
                                        by Marriott             by Marriott         By Marriott            by Marriott
                                         Tulsa (17)             Atlanta (16)       Lynnwood (16)         Snohomish (16)
                                   ---------------------    ------------------  --------------------  ---------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                            $480,127              $ 645,262           $ 551,250             $ 752,500

Earned Income (1)                                   -                      -                   -                     -

FF&E Reserve Income (2)                        26,959                 25,181              23,936                25,068

Asset Management Fees (3)                     (28,105)               (44,247)            (37,800)              (51,600)

Interest Expense (4)(5)(6)(7)(8)                    -                      -                   -                     -

General and Administrative
    Expenses (9)                              (38,410)               (51,621)            (44,100)              (60,200)
                                        -------------        ---------------       -------------         -------------

Estimated Cash Available from
    Operations                                440,571                574,575             493,286               665,768

Depreciation and Amortization
    Expense (10) (11)                        (204,844)              (321,170)           (274,377)             (374,547)
                                        -------------        ---------------       -------------         -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $235,727              $ 253,405           $ 218,909             $ 291,221
                                        =============        ===============       =============         =============
                                 See Footnotes



                                           MapleRidge            MapleRidge          MapleRidge         Pleasant Hills
                                          by Marriott           by Marriott          by Marriott          by Marriott
                                           Hemet (17)          Plymouth (17)       Willoughby (17)     Little Rock (17)
                                    ----------------------  -------------------  ------------------- ----------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                          $ 421,243              $ 469,490           $ 505,376             $1,090,489

Earned Income (1)                                  -                      -                   -                      -

FF&E Reserve Income (2)                       22,782                 23,209              25,292                 29,855

Asset Management Fees (3)                    (24,658)               (27,482)            (29,583)               (63,834)

Interest Expense (4)(5)(6)(7)(8)                   -                      -                   -                      -

General and Administrative
    Expenses (9)                             (33,699)               (37,559)            (40,430)               (87,239)
                                       -------------        ---------------       -------------          -------------

Estimated Cash Available from
    Operations                               385,668                427,658             460,655                969,271

Depreciation and Amortization
    Expense (10) (11)                       (179,722)              (200,306)           (215,616)              (465,252)
                                       -------------        ---------------       -------------          -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                         $ 205,946              $ 227,352           $ 245,039              $ 504,019
                                       =============        ===============       =============          =============
                                 See Footnotes


                                        Brighton Gardens         Brighton Gardens      Brighton Gardens    Brighton Gardens
                                          by Marriott              by Marriott            by Marriott         by Marriott
                                         Edgewood (16)           Greenville (16)        Northridge (16)   Rancho Mirage (16)
                                    ------------------------ ---------------------  ------------------   ---------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                            $232,280               $ 361,635           $1,289,387            $1,210,445

Earned Income (1)                                   -                       -                    -

FF&E Reserve Income (2)                        17,293                  37,255                  296                35,801

Asset Management Fees (3)                     (15,928)                (24,798)             (88,415)              (83,002)

Interest Expense (4)(5)(6)(7)(8)                    -                       -                    -                     -

General and Administrative
    Expenses (9)                              (18,582)                (28,931)            (103,151)              (96,836)
                                        -------------         ---------------        -------------         -------------

Estimated Cash Available from
    Operations                                215,063                 345,161            1,098,117             1,066,408

Depreciation and Amortization
    Expense (10) (11)                        (114,419)               (179,999)            (641,775)             (596,255)
                                        -------------         ---------------        -------------         -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $100,644               $ 165,162             $456,342             $ 470,153
                                        =============         ===============        =============         =============
                                 See Footnotes


                                         Brighton Gardens        Brighton Gardens        Fairfax            MapleRidge
                                           by Marriott             by Marriott         by Marriott          by Marriott
                                       Salt Lake City (17)       Yorba Linda (17)    Fort Belvoir (18)    Palm Springs (16)
                                    -----------------------   --------------------  ------------------  ----------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                           $1,540,438             $1,382,102          $ 4,598,507              $232,179

Earned Income (1)                                    -                      -                    -

FF&E Reserve Income (2)                         48,414                 43,136              186,253                13,367

Asset Management Fees (3)                      (90,172)               (80,904)            (256,017)              (15,921)

Interest Expense (4)(5)(6)(7)(8)                     -                      -                    -                     -

General and Administrative
    Expenses (9)                              (123,235)              (110,568)            (367,881)              (18,574)
                                         -------------        ---------------        -------------         -------------

Estimated Cash Available from
    Operations                               1,375,445              1,233,766            4,160,862               211,051

Depreciation and Amortization
    Expense (10) (11)                         (657,221)              (589,668)          (3,302,532)             (115,564)
                                         -------------        ---------------        -------------         -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $ 718,224              $ 644,098            $ 858,330              $ 95,487
                                         =============        ===============        =============         =============

                                 See Footnotes




                                                                 Fox Run Village
                                      Quadrangle                Continuing Care
                                     by Marriott                   Retirement           Sunrise of              Sunrise of
                                    Haverford (18)               Community (15)       Annapolis (19)          Pikesville (19)
                                ------------------------    ----------------------  --------------------   ----------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                          $6,385,438             $2,560,000               $    -                    $ -

Earned Income (1)                                   -                      -            1,312,500              1,060,500

FF&E Reserve Income (2)                       259,164                      -                    -                      -

Asset Management Fees (3)                    (366,592)              (102,000)             (75,000)               (60,600)

Interest Expense (4)(5)(6)(7)(8)                    -                      -             (780,357)              (630,529)

General and Administrative
    Expenses (9)                             (510,835)              (204,800)            (105,000)               (84,840)
                                        -------------        ---------------        -------------          -------------

Estimated Cash Available from
    Operations                              5,767,175              2,253,200              352,143                284,531

Depreciation and Amortization
    Expense (10) (11)                      (4,545,421)                     -               (5,743)                (4,640)
                                        -------------        ---------------        -------------          -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                         $1,221,754             $2,253,200            $ 346,400               $279,891
                                        =============        ===============        =============          =============
                                 See Footnotes



                                       Brighton Gardens         Brighton Gardens       Brighton Gardens
                                         by Marriott              by Marriott             by Marriott        Vero Beach,
                                    Colorado Springs (20)         Denver (20)            Lakewood (20)       Florida (21)
                                    ---------------------     --------------------    ------------------  ------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                          $1,561,175             $1,692,075           $1,784,283              (21)

Earned Income (1)                                   -                      -                    -              (21)

FF&E Reserve Income (2)                             -                      -                    -              (21)

Asset Management Fees (3)                     (97,320)              (105,480)            (111,228)             (21)

Interest Expense (4)(5)(6)(7)(8)             (405,570)              (439,576)            (463,529)             (21)

General and Administrative
    Expenses (9)                             (124,894)              (135,366)            (142,743)             (21)
                                        -------------        ---------------        -------------         -------------

Estimated Cash Available from
    Operations                                933,391              1,011,653            1,066,783              (21)

Depreciation and Amortization
    Expense (10) (11)                        (703,141)              (762,098)            (803,628)             (21)
                                        -------------        ---------------        -------------         -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                           $230,250               $249,555             $263,155              (21)
                                        =============        ===============        =============         =============

                                 See Footnotes


                                                         Total
                                            ---------------------------------
Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction:
Rental Income (1)                                    $50,158,959

Earned Income (1)                                     13,893,600

FF&E Reserve Income (2)                                1,192,720

Asset Management Fees (3)                             (3,743,262)

Interest Expense (4) (5) (6) (7) (8)                  (9,726,383)

General and Administrative
    Expenses (9)                                      (5,126,604)
                                                   -------------

Estimated Cash Available from
    Operations                                        46,649,030

Depreciation and Amortization
    Expense (10) (11)                                (23,204,543)
                                                   -------------

Estimated Taxable Operating
    Results Before Dividends
    Paid Deduction                                   $23,444,487
                                                   =============
                                  See Footnotes

FOOTNOTES:

(1)      Rental income on operating leases and earned income on direct financing
         leases  do not  include  percentage  rents  which  will  become  due if
         specified levels of gross receipts are achieved.

(2)      Reserve  funds  will  be  used  for  the  replacement  and  renewal  of
         furniture,  fixtures and  equipment  related to the  Properties  ("FF&E
         Reserve").  The funds in the FF&E  Reserve and all  property  purchased
         with the funds from the FF&E Reserve will be paid, granted and assigned
         to the Company.  In connection  therewith,  FF&E Reserve income will be
         earned based on a percentage  (determined by factors such as age of the
         Property) of gross revenues and has been estimated  based on historical
         gross revenues.

(3)      The  Properties  will be  managed  pursuant  to an  advisory  agreement
         between the Company and CNL Retirement Corp. (the "Advisor"),  pursuant
         to which the Advisor will receive  monthly asset  management fees in an
         amount equal to  one-twelfth of .60% of the Company's Real Estate Asset
         Value  as of  the  end  of the  preceding  month  as  defined  in  such
         agreement. See "Management Compensation."

(4)      In conjunction with the purchase of the Oak Park Property,  the Company
         assumed  a  mortgage  note  secured  by the Oak  Park  Property  in the
         principal  amount of  $12,974,397  with an interest rate based on LIBOR
         plus 350 basis points,  not to exceed 8.0% per annum. (5) In connection
         with the purchase of the Camarillo,  Towson, Clayton, Dartmouth and Elk
         Grove Properties (the "Marriott Portfolio One Properties"), the Company
         borrowed  $23,520,000  in the form of a  commercial  paper  backed loan
         secured by these five Properties.  The loan bears interest at a rate of
         123 basis points over  commercial  paper rate as  determined  by market
         demand,  which approximates 30-day LIBOR per annum. The loan matures in
         June 2007. (6) The Company is expected to assume the obligations of the
         current  owner  of the  Annapolis  and  Pikesville  Properties  under a
         mortgage note secured by the  Properties.  The principal  amount of the
         loan is $20.6  million  with an interest  rate of 7.83% per annum.  The
         loan requires monthly  principal and interest  payments through October
         2008 with all unpaid  principal and interest due at that time.  (7) The
         Company has obtained a two-year,  $85 million  revolving line of credit
         secured  by  the  Prime  Care  Portfolio  Properties  (see  Prime  Care
         Portfolio  Properties defined in Note 10 below). The Company expects to
         draw $75 million of the line of credit to acquire nine Properties.  The
         facility  requires  payment  of  interest  only at LIBOR plus a premium
         until  maturity.  (8) In  connection  with the purchase of the Colorado
         Springs,  Denver and  Lakewood  Properties,  the Company is expected to
         borrow  approximately $26 million under a two-year mortgage loan. It is
         expected  that the loan will bear  interest  at a rate of 30-day  LIBOR
         plus 325  basis  points,  with a minimum  interest  rate of 5% and will
         require monthly principal and interest payments.

(9)      Estimated  at  8%  of  gross  rental  income,  based  on  the  previous
         experience of an Affiliate of the Advisor with another public REIT.


(10)     The federal tax basis of the  depreciable  portion of each Property and
         the  number  of  years  the  assets  have  been   depreciated   on  the
         straight-line method are as follows:
                                                                                                  Furniture and
                                                                         Buildings                   Fixtures
                                                                       (5-15 years)                 (39 years)
                                                                      --------------             -----------------

         Orland Park Property                                            $11,533,074                  $1,025,630
         Arlington Property                                                9,174,538                     602,226
         Boca Raton Property                                               9,056,342                     554,537
         Oak Park Property                                                16,918,724                     447,007
         Coconut Creek Property                                            7,981,073                     559,197
         Greenwood Village Property                                       17,943,422                     942,063
         Camarillo Property                                               16,852,469                     541,453
         Towson Property                                                  14,375,847                     355,731
         Clayton Property                                                  7,656,922                     209,314
         Dartmouth Property                                                9,028,929                     205,663
         Elk Grove Property                                                7,571,613                     217,689
         Nashville Property                                                8,029,857                     472,345
         Bellevue Property                                                 9,231,564                     543,033
         Hoffman Estates Property                                          6,854,531                     403,208
         Oklahoma City Property                                            3,299,888                     194,110
         Santa Rosa Property                                              15,155,978                     891,529
         Tulsa Property                                                    4,256,207                     250,365
         Atlanta-Buckhead Property                                         6,673,214                     392,542
         Lynnwood Property                                                 5,700,951                     335,350
         Snohomish Property                                                7,782,250                     457,779
         Hemet Property                                                    3,734,214                     219,660
         Plymouth Property                                                 4,161,909                     244,818
         Willoughby Property                                               4,480,033                     263,531
         Little Rock Property                                              9,666,914                     568,642
         Edgewood Property                                                 2,377,381                     139,846
         Greenville Property                                               3,739,976                     219,999
         Northridge Property                                              13,334,656                     784,392
         Rancho Mirage Property                                           12,388,870                     728,757
         Salt Lake City Property                                          13,655,599                     803,271
         Yorba Linda Property                                             12,251,993                     720,705
         Fort Belvoir Property                                            77,751,805                   2,321,684
         Palm Springs Property                                             2,401,157                     141,246
         Haverford Property                                              107,013,254                   3,324,436

(11)     Loan  costs   totalling   $2,154,798  have  been  amortized  under  the
         straight-line method over the term of each loan.


(12)     The leases for the  Arlington,  Boca Raton,  Oak Park,  Coconut  Creek,
         Greenwood Village and Nashville Properties are cross-collateralized and
         cross-defaulted.

(13)     The  lessee  of the  Marriott  Portfolio  One  Properties  is the  same
         unaffiliated   lessee.   The   leases  are   cross-collateralized   and
         cross-defaulted.  In  addition,  the leases  for these five  Properties
         contain pooling terms,  meaning that net operating profits with respect
         to all five  Properties  are combined for the purpose of funding rental
         payments due under each lease ("Pooling").

(14)     The  lessee of the  Brentwood,  Atlanta -  Buckhead,  Charlotte,  Chevy
         Chase, Middletown,  Mountainside, Naples, Raleigh, Stamford, Venice and
         Winston-Salem  Properties (the "Prime Care Portfolio  Properties"),  is
         the same unaffiliated lessee. The leases are  cross-collateralized  and
         cross-defaulted.  In  addition,  the  leases  for  these 11  Properties
         contain Pooling terms.

(15)     The leases for these Properties are land leases only.

(16)     The lessee for the Orland Park,  Bellevue,  Oklahoma City,  Santa Rosa,
         Atlanta, Lynnwood, Snohomish, Edgewood, Greenville,  Northridge, Rancho
         Mirage  and  Palm  Springs  Properties  is  expected  to  be  the  same
         unaffiliated lessee. The leases for the Bellevue,  Oklahoma City, Santa
         Rosa, Atlanta, Lynnwood, Snohomish, Edgewood,  Greenville,  Northridge,
         Rancho  Mirage  and  Palm  Springs   Properties   are  expected  to  be
         cross-collateralized  and cross-defaulted.  In addition, the leases for
         these 11 Properties are expected to contain Pooling terms.

(17)     The leases for the Hoffman Estates, Tulsa, Hemet, Plymouth, Willoughby,
         Little Rock, Salt Lake City and Yorba Linda  Properties are expected to
         be with the same  unaffiliated  lessee.  The leases are  expected to be
         cross-collateralized  and cross-defaulted.  In addition, the leases for
         these eight Properties contain Pooling terms.

(18)     The leases for the Fort Belvoir and Haverford  Properties  are expected
         to be with the same unaffiliated  lessee. The leases are expected to be
         cross-collateralized  and cross-defaulted.  In addition, the leases for
         these two Properties are expected to contain Pooling terms.

(19)     The lessee of the Annapolis and Pikesville Properties is expected to be
         the same unaffiliated lessee.

(20)     The lessee for the Colorado Springs, Denver and Lakewood Properties are
         expected  to be with the  same  unaffiliated  lessee.  The  leases  are
         expected to be  cross-collateralized  and cross defaulted. In addition,
         the leases for these three  Properties are expected to contain  Pooling
         terms.

(21)     The  Vero   Beach,   Florida   Property  is  a  parcel  of  land  in  a
         pre-construction phase with planned development into a seniors' housing
         complex.

PART II

INFORMATION NOT REQUIRED IN PROSPECTUS

Item 36.          Financial Statements and Exhibits.

(a)  Financial Statements:

            The following financial statements are included in this Prospectus Supplement dated January 21, 2004.

(1) Pro Forma Consolidated Balance Sheet as of September 30, 2003

(2) Pro Forma Consolidated Statement of Earnings for the nine months ended September 30, 2003

(3) Pro Forma Consolidated Statement of Earnings for the year ended December 31, 2002

(4) Notes to Pro Forma Consolidated Financial Statements for the nine months ended September 30, 2003 and the year ended December 31, 2002

(5) Condensed Consolidated Balance Sheets as of September 30, 2003 and December 31, 2002

(6) Condensed Consolidated Statements of Earnings for the quarters and nine months ended September 30, 2003 and 2002

(7) Condensed Consolidated Statements of Stockholders’ Equity for the nine months ended September 30, 2003 and the year ended December 31, 2002

(8) Condensed Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002

(9) Notes to Condensed Consolidated Financial Statements for the nine months ended September 30, 2003 and 2002

            Other Financial Statements:

            The following other financial information is included in this Prospectus Supplement.

            Marriott Senior Living Services Nine Communities

(10) Report of Independent Auditors

(11) Unaudited Combined Statements of Operations for the twelve weeks ended March 28, 2003 and March 22, 2002

(12) Combined Statements of Operations for the fiscal years ended January 3, 2003, December 28, 2001 and December 29, 2000

(13) Combined Balance Sheets as of March 28, 2003 (unaudited), January 3, 2003 and December 28, 2001

(14) Unaudited Combined Statements of Cash Flows for the twelve weeks ended March 28, 2003 and March 22, 2002

II-1

(15) Combined Statements of Cash Flows for the fiscal years ended January 3, 2003, December 28, 2001 and December 29, 2000

(16) Combined Statement of Equity for the twelve weeks ended March 28, 2003 (unaudited) and the fiscal years ended January 3, 2003, December 28, 2001 and December 29, 2000

(17) Notes to Combined Statements

           Sunrise Senior Living Services Fourteen Communities

(18) Report of Independent Auditors

(19) Unaudited Combined Statements of Operations for the six months ended June 30, 2003 and 2002

(20) Combined Statements of Operations for the year ended December 31, 2002

(21) Combined Balance Sheets as of June 30, 2003 (unaudited) and December 31, 2002

(22) Unaudited Combined Statements of Cash Flows for the six months ended June 30, 2003 and 2002

(23) Combined Statements of Cash Flows for the year ended December 31, 2002

(24) Combined Statement of Equity for the six months ended June 30, 2003 (unaudited) and the year ended December 31, 2002

(25) Notes to Combined Statements

           Sunrise Senior Living, Inc. Sixteen Communities

(26) Report of Independent Auditors

(27) Combined Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002

(28) Combined Statements of Operations for the nine months ended September 30, 2003 (unaudited) and for the year ended December 31, 2002

(29) Combined Statements of Changes in Partners’ Capital for the nine months ended September 30, 2003 (unaudited) and for the year ended December 31, 2002

(30) Combined Statements of Cash Flows for the nine months ended September 30, 2003 (unaudited) and for the year ended December 31, 2002

(31) Notes to Combined Financial Statements

           EdenCare Senior Living Services, L.P.

(32) Pro Forma Consolidated Balance Sheet as of September 30, 2003

II-2

(33) Pro Forma Consolidated Statement of Operations as of September 30, 2003

(34) Pro Forma Consolidated Statement of Operations as of December 31, 2002

(35) Report of Independent Auditors

(36) Consolidated Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002

(37) Consolidated Statements of Operations for the nine months ended September 30, 2003 and 2002 (unaudited) and for the year ended December 31, 2002

(38) Consolidated Statements of Partners’ Deficit for the nine months ended September 30, 2003 (unaudited) and for the year ended December 31, 2002

(39) Consolidated Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited) and for the year ended December 31, 2002

(40) Notes to Consolidated Financial Statements

           Horizon Bay Senior Communities Twenty Communities

(41) Report of Independent Accountants

(42) Combined Balance Sheets as of September 30, 2003 (unaudited) and December 31, 2002, 2001 and 2000

(43) Combined Statements of Operations for the nine months ended September 30, 2003 and 2002 (unaudited) and for the years ended December 31, 2002. 2001 and 2000

(44) Combined Statements of Equity for the nine months ended September 30, 2003 (unaudited) and for the years ended December 31, 2002, 2001 and 2000

(45) Combined Statements of Cash Flows for the nine months ended September 30, 2003 and 2002 (unaudited) and for the years ended December 31, 2002, 2001 and 2000

(46) Notes to Combined Financial Statements

           Sunrise Assisted Living, Inc.

(47) Summarized financial information presented for Sunrise Assisted Living, Inc. as of September 30, 2003, December 31, 2002 and December 31, 2001, and the nine months ended September 30, 2003 and the years ended December 31, 2002, December 31, 2001 and December 31, 2000

           The following financial statements are included in the Prospectus.

(48) Pro Forma Consolidated Balance Sheet as of December 31, 2002

(49) Pro Forma Consolidated Statement of Earnings for the year ended December 31, 2002

(50) Notes to Pro Forma Consolidated Financial Statements for the year ended December 31, 2002

II-3

(51) Report of Independent Certified Public Accountants for CNL Retirement Properties, Inc.

(52) Consolidated Balance Sheets as of December 31, 2002 and 2001

(53) Consolidated Statements of Earnings for the years ended December 31, 2002, 2001 and 2000

(54) Consolidated Statements of Stockholders’ Equity for the years ended December 31, 2002, 2001 and 2000

(55) Consolidated Statements of Cash Flows for the years ended December 31, 2002, 2001 and 2000

(56) Notes to Consolidated Financial Statements for the years ended December 31, 2002, 2001 and 2000

(57) Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2002

(58) Notes to Schedule III — Real Estate and Accumulated Depreciation as of December 31, 2002

           Other Financial Statements:

           The following other financial information is included in the Prospectus.

           Marriott International, Inc. and Subsidiaries

(59) Summarized financial information presented for Marriott International, Inc. as of January 3, 2003 and December 28, 2001, and the years ended January 3, 2003, December 28, 2001 and December 29, 2000

           The following other financial statements are included in the Prospectus.

           American Retirement Communities Portfolio (A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)

(60) Report of Independent Certified Public Accountants

(61) Combined Balance Sheets as of December 31, 2001 and 2000

(62) Combined Statements of Operations and Changes in Equity for the Years Ended December 31, 2001 and 2000

(63) Combined Statements of Cash Flows for the Years Ended December 31, 2001 and 2000

(64) Notes to Combined Financial Statements for the Years Ended December 31, 2001 and 2000

(65) Combining Balance Sheet as of December 31, 2001

(66) Combining Statement of Operations and Changes in Equity for the Year Ended December 31, 2001

(67) Combining Statement of Cash Flows for the Year Ended December 31, 2001

           Prime Care One, LLC and PC1, LLC

(68) Report of Independent Auditors

(69) Combined Balance Sheets as of December 31, 2002 and 2001

(70) Combined Statements of Operations for the years ended December 31, 2002 and 2001

(71) Combined Statements of Members’ Equity (Deficit) for the years ended December 31, 2002 and 2001

II-4

(72) Combined Statements of Cash Flows for the years ended December 31, 2002 and 2001

(73) Notes to Combined Financial Statements for the years ended December 31, 2002 and 2001

           Prime Care Two, LLC and PC2, LLC

(74) Report of Independent Auditors

(75) Combined Balance Sheets as of December 31, 2002 and 2001

(76) Combined Statements of Operations for the years ended December 31, 2002 and 2001

(77) Combined Statements of Members’ Equity (Deficit) for the years ended December 31, 2002 and 2001

(78) Combined Statements of Cash Flows for the years ended December 31, 2002 and 2001

(79) Notes to Combined Financial Statements for the years ended December 31, 2002 and 2001

           Prime Care One Portfolio (A Group of Related Properties Acquired by CNL Retirement Properties, Inc.)

(80) Unaudited Combined Balance Sheet as of September 30, 2002

(81) Unaudited Combined Statements of Operations and Equity (Deficit) for the nine months ended September 30, 2002 and 2001

(82) Unaudited Combined Statements of Cash Flows for the nine months ended September 30, 2002 and 2001

(83) Note to Unaudited Combined Financial Statements for the nine months ended September 30, 2002 and 2001

(84) Report of Independent Auditors

(85) Combined Balance Sheets as of December 31, 2001 and 2000

(86) Combined Statements of Operations and Deficit for the years ended December 31, 2001, 2000 and 1999

(87) Combined Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

(88) Notes to Combined Financial Statements for the years ended December 31, 2001, 2000 and 1999

           Prime  Care Two, LLC

(89) Unaudited Balance Sheet as of September 30, 2002

(90) Unaudited Statements of Operations for the nine months ended September 30, 2002 and 2001

(91) Unaudited Statement of Members’ Equity (Deficit) for the nine months ended September 30, 2002

(92) Unaudited Statements of Cash Flows for the nine months ended September 30, 2002 and 2001

(93) Note to Unaudited Financial Statements for the nine months ended September 30, 2002 and 2001

(94) Report of Independent Auditors

II-5

(95) Balance Sheets as of December 31, 2001 and 2000

(96) Statements of Operations for the years ended December 31, 2001, 2000 and 1999

(97) Statements of Members’ Equity (Deficit) for the years ended December 31, 2001, 2000 and 1999

(98) Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

(99) Notes to Financial Statements for the years ended December 31, 2001, 2000 and 1999

         Prime Care Eight, LLC

(100) Unaudited Consolidated Balance Sheet as of September 30, 2002

(101) Unaudited Consolidated Statements of Operations for the nine months ended September 30, 2002 and 2001

(102) Unaudited Consolidated Statement of Members’ Equity for the nine months ended September 30, 2002

(103) Unaudited Consolidated Statements of Cash Flows for the nine months ended September 30, 2002 and 2001

(104) Note to Unaudited Consolidated Financial Statements for the nine months ended September 30, 2002 and 2001

(105) Report of Independent Auditors

(106) Consolidated Balance Sheets as of December 31, 2001 and 2000

(107) Consolidated Statements of Operations for the years ended December 31, 2001, 2000 and 1999

(108) Consolidated Statements of Members’ Equity for the years ended December 31, 2001, 2000 and 1999

(109) Consolidated Statements of Cash Flows for the years ended December 31, 2001, 2000 and 1999

(110) Notes to Consolidated Financial Statements for the years ended December 31, 2001, 2000 and 1999

         Marriott Senior Living Services Twenty-One Communities

(111) Report of Independent Auditors

(112) Unaudited Combined Statements of Operations for the thirty-six weeks ended September 6, 2002 and September 7, 2001

(113) Combined Statements of Operations for the fiscal years ended December 28, 2001, December 29, 2000 and December 31, 1999

(114) Combined Balance Sheets as of September 6, 2002 (unaudited), December 28, 2001 and December 29, 2000

(115) Unaudited Combined Statements of Cash Flows for the thirty-six weeks ended September 6, 2002 and September 7, 2001

(116) Combined Statements of Cash Flows for the fiscal years ended December 28, 2001, December 29, 2000 and December 31, 1999

II-6

(117) Combined Statements of Equity for the thirty-six weeks ended September 6, 2002 (unaudited) and the fiscal years ended December 28, 2001, December 29, 2000 and December 31, 1999

(118) Notes to Combined Statements

         All other Schedules have been omitted as the required information is inapplicable or is presented in the financial statements or related notes.

(b) Exhibits:

1.1 Form of Managing Dealer Agreement (Previously filed as Exhibit 1.1 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 (Registration No. 333-100347) filed March 24, 2003 and incorporated herein by reference.)

1.2  Form of Participating Broker Agreement (Previously filed as Exhibit 1.2 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

1.3  Form of Marketing Support Fee Agreement (Previously filed as Exhibit 1.3 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

3.1  Articles of Amendment and Restatement of CNL Retirement Properties, Inc. dated July 28, 2003 (Previously filed as Exhibit 3.8 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-107486) filed July 30, 2003 and incorporated herein by reference.)

3.2 CNL Health Care Properties, Inc. Bylaws (Previously filed as Exhibit 3.2 to the Registrant's Form         10-K filed March 5, 1999 and incorporated herein by reference.)

3.3 Amendment No. 1 to the Bylaws of CNL Health Care Properties, Inc. (Previously filed as Exhibit 3.6 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed March 31, 2000 and incorporated herein by reference.)

3.4 Amendment No. 2 to the Bylaws of CNL Retirement Properties, Inc. (Previously filed as Exhibit 3.7 to Post-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

4.1 Articles of Amendment and Restatement of CNL Retirement Properties, Inc. dated July 28, 2003 (Previously filed as Exhibit 3.8 to the Registrant's Registration Statement on Form S-11 filed July 30, 2003 and incorporated herein by reference.)

4.2 CNL Health Care Properties, Inc. Bylaws (Previously filed as Exhibit 3.2 to the Registrant's Form         10-K filed March 5, 1999 and incorporated herein by reference.)

4.3 Amendment No. 1 to the Bylaws of CNL Health Care Properties, Inc. (Previously filed as Exhibit 3.6 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed March 31, 2000 and incorporated herein by reference.)

4.4 Amendment No. 2 to the Bylaws of CNL Retirement Properties, Inc. (Previously filed as Exhibit 3.7 to Post-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

4.5 Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)

II-7

5  Opinion of Greenberg Traurig, LLP as to the legality of the securities being registered by CNL Retirement Properties, Inc. (Previously filed as Exhibit 5 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

8   Opinion of Greenberg Traurig, LLP regarding certain material tax issues relating to CNL Retirement Properties, Inc. (Previously filed as Exhibit 8 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

10.1  Form of Escrow Agreement between CNL Retirement Properties, Inc. and SouthTrust Bank (Previously filed as Exhibit 10.1 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

10.2   Advisory Agreement, dated as of May 14, 2003, between CNL Retirement Properties, Inc. and CNL Retirement Corp. (Previously filed as Exhibit 10.2 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

10.3  Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.4  Form of Indemnification and Put Agreement (Previously filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.5   Form of Unconditional Guaranty of Payment and Performance (Previously filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.6  Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.7  Form of Lease Agreement including Rent Addendum, Construction Addendum and Memorandum of Lease (Previously filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.8  Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)

10.9  Indemnification Agreement between CNL Health Care Properties, Inc. and Thomas J. Hutchison III dated February 29, 2000. Each of the following directors and/or officers has signed a substantially similar agreement as follows: James M. Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy S. Smick, Edward A. Moses, Jeanne A. Wall and Lynn E. Rose, dated September 15, 1998, Phillip M. Anderson, Jr. dated February 19, 1999, James W. Duncan dated February 22, 2002, and Stuart J. Beebe dated July 15, 2002 (Previously filed as Exhibit 10.2 to the Form 10-Q filed May 3, 2000 and incorporated herein by reference.)

10.10  Agreement of Limited Partnership of CNL Health Care Partners, LP (Previously filed as Exhibit 10.10 to Post-Effective Amendment No. Two to the Registrant’s Registration Statement on Form S-11 filed March 23, 2000 and incorporated herein by reference.)

10.11  Purchase and Sale Agreement between CNL Health Care Partners, LP and Marriott Senior Living Services, Inc., relating to the Brighton Gardens® by Marriott® —Orland Park, Illinois (Previously filed as Exhibit 10.11 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

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10.12  Lease Agreement between CNL Health Care Partners, LP and BG Orland Park, LLC dated April 20, 2000, relating to the Brighton Gardens® by Marriott® — Orland Park, Illinois (Previously filed as Exhibit 10.12 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

10.13  Revolving Line of Credit Agreement with CNL Health Care Properties, Inc., CNL Health Care Partners, LP and Colonial Bank, dated April 20, 2000 (Previously filed as Exhibit 10.13 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

10.14  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Broadway Plaza at Pecan Park — Arlington, Texas (Previously filed as Exhibit 10.14 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.15   Lease Agreement between CNL Retirement — AM/Texas, LP and ARC Pecan Park, L.P. dated November 9, 2001, relating to the Broadway Plaza at Pecan Park — Arlington, Texas (Previously filed as Exhibit 10.15 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.16  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Homewood Residence of Boca Raton — Boca Raton, Florida (Previously filed as Exhibit 10.16 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.17  Lease Agreement between CNL Retirement — AM/Florida, LP and ARC Boca Raton, Inc. dated November 9, 2001, relating to the Homewood Residence of Boca Raton — Boca Raton, Florida (Previously filed as Exhibit 10.17 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.18  Lease Agreement between CNL Retirement Corp. and ARC Holley Court, LLC dated February 11, 2002, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.18 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.19  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and ARC Holley Court, LLC, as Seller, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.19 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.20  Lease Agreement between CNL Retirement — AM/Florida, LP and ARC Coconut Creek, LLC dated February 11, 2002, relating to the Homewood Residence of Coconut Creek —Coconut Creek, Florida (Previously filed as Exhibit 10.20 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.21   Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Homewood Residence of Coconut Creek — Coconut Creek, Florida (Previously filed as Exhibit 10.21 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.22  Lease Agreement between CNL Retirement — AM/Colorado LP and ARC Greenwood Village, Inc. dated March 21, 2002, relating to the Heritage Club at Greenwood Village —Greenwood Village, Colorado (Previously filed as Exhibit 10.22 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 (File No. 333-76538) filed May 10, 2002) and incorporated herein by reference.)

II-9

10.23 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Heritage Club at Greenwood Village - Greenwood Village, Colorado (Previously filed as Exhibit 10.23 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed May 10, 2002 and incorporated herein by reference.)

10.24  Loan Agreement between ARC Holley Court, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.24 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed May 10, 2002 and incorporated herein by reference.)

10.25  Lease Agreement between CNL Retirement Camarillo CA, LP and HRA Management Corporation dated May 16, 2002 relating to the Brighton Gardens of Camarillo — Camarillo, California (Previously filed as Exhibit 10.25 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.26  Lease Agreement between CNL Retirement Towson MD, LP and HRA Management Corporation dated May 16, 2002 relating to the Brighton Gardens of Towson — Towson, Maryland (Previously filed as Exhibit 10.26 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.27  Lease Agreement between CNL Retirement Clayton OH, LP and HRA Management Corporation dated May 17, 2002 relating to the Marriott MapleRidge of Clayton — Clayton, Ohio (Previously filed as Exhibit 10.27 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.28  Lease Agreement between CNL Retirement Dartmouth MA, LP and HRA Management Corporation dated May 16, 2002 relating to the Marriott MapleRidge of Dartmouth — Dartmouth, Massachusetts (Previously filed as Exhibit 10.28 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.29  Lease Agreement between CNL Retirement Laguna Creek CA, LP and HRA Management Corporation dated May 16, 2002 relating to the Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.29 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11filed July 31, 2002 and incorporated herein by reference.)

10.30  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., VCS, Inc. and MSLS — MapleRidge, Inc., as Sellers, Marriott International, Inc. and CNL Retirement MA1, LP, as Purchaser, and HRA Management Corporation, as Tenant, relating to the Brighton Gardens of Camarillo — Camarillo, California; Brighton Gardens of Towson —Towson, Maryland; Marriott MapleRidge of Clayton — Clayton, Ohio; Marriott MapleRidge of Dartmouth — Dartmouth, Massachusetts; and Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.30 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.31  Loan Agreement between Five Pack Retirement 2002, LLC, Lender, and CNL Retirement Clayton OH, LP, CNL Retirement Laguna Creek CA, LP, CNL Retirement Camarillo CA, LP, CNL Retirement Dartmouth MA, LP, CNL Retirement Towson MD, LP, Borrowers, and U.S. Bank, National Association, Collateral Agent, relating to the Brighton Gardens of Camarillo — Camarillo, California; Brighton Gardens of Towson — Towson, Maryland; Marriott MapleRidge of Clayton — Clayton, Ohio; Marriott MapleRidge of Dartmouth —Dartmouth, Massachusetts; and Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.31 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed July 31, 2002 and incorporated herein by reference.)

10.32  Loan Agreement between General Electric Capital Corporation, as Lender, and CNL Retirement — AM/Colorado, LP, as Borrower, dated August 8, 2002, relating to the Heritage Club at Greenwood Village — Greenwood Village, Colorado (Previously filed as Exhibit 10.25 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.33  Mortgage Loan Agreement between CNL Retirement Properties, Inc., as Lender, and DSTS, LLC, as Borrower, dated August 12, 2002, relating to the Vero Beach, Florida land (Previously filed as Exhibit 10.26 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

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10.34  Refinancing and Acquisition Agreement dated September 30, 2002, between CNL Retirement Partners, LP, and Prime Care Properties, LLC, PC1, LLC, PC2, LLC, Prime Care One, LLC, Prime Care Two, LLC and Thomas E. Phillippe, Jr., relating to the Brighton Gardens of Venice — Venice, Florida; Brighton Gardens of Mountainside — Mountainside, New Jersey; Brighton Gardens of Friendship Heights — Chevy Chase, Maryland; Brighton Gardens of Charlotte — Charlotte, North Carolina; Brighton Gardens of Winston-Salem — Winston Salem, North Carolina; Brighton Gardens of Raleigh — Raleigh, North Carolina; Brighton Gardens of Brentwood — Brentwood, Tennessee; Brighton Gardens of Stamford — Stamford, Connecticut; Brighton Gardens of Middleton — Middleton, New Jersey; Brighton Gardens of Buckhead — Atlanta, Georgia; and Brighton Gardens of Naples — Naples, Florida (Previously filed as Exhibit 10.27 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.35  Lease Agreement dated September 30, 2002, between CNL Retirement PC1 Naples FL, LP, CNL Retirement PC1 Venice FL, LP, CNL Retirement PC1 New Jersey, LP, CNL Retirement PC1 Friendship Heights MD, LP, CNL Retirement PC1 North Carolina, LP, CNL Retirement PC1 Stamford CT, LP, CNL Retirement PC1 Buckhead GA, LP and CNL Retirement PC1 Brentwood TN, LP, as Lessors, Prime Care One, LLC and Prime Care Two, LLC, as Lessees, relating to the Brighton Gardens of Venice — Venice, Florida; Brighton Gardens of Mountainside —Mountainside, New Jersey; Brighton Gardens of Friendship Heights — Chevy Chase, Maryland; Brighton Gardens of Charlotte — Charlotte, North Carolina; Brighton Gardens of Winston-Salem — Winston Salem, North Carolina; Brighton Gardens of Raleigh —Raleigh, North Carolina; Brighton Gardens of Brentwood — Brentwood, Tennessee; Brighton Gardens of Stamford — Stamford, Connecticut; Brighton Gardens of Middleton — Middleton, New Jersey; Brighton Gardens of Buckhead — Atlanta, Georgia; and Brighton Gardens of Naples — Naples, Florida (Previously filed as Exhibit 10.28 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.36   Ground Lease Agreement between CNL Retirement ER1, LP and Peabody Campus, LLC dated October 10, 2002, relating to the Brooksby Village Continuing Care Retirement Community — Peabody, Massachusetts (Previously filed as Exhibit 10.36 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.37   Purchase and Sale Agreement between CNL Retirement ER1, LP, as Buyer, and Peabody Campus, LLC, as Seller, relating to the Brooksby Village Continuing Care Retirement Community — Peabody, Massachusetts (Previously filed as Exhibit 10.37 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.38  Lease Agreement between CNL Retirement AM/Tennessee LP and Homewood at Brookmont Terrace, LLC dated October 31, 2002, relating to the Homewood Residence at Brookmont Terrace —Nashville, Tennessee (Previously filed as Exhibit 10.38 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.39   Purchase and Sale Agreement between CNL Retirement Corp., as Buyer, and Homewood at Brookmont Terrace, LLC, as Seller, relating to the Homewood Residence at Brookmont Terrace — Nashville, Tennessee (Previously filed as Exhibit 10.39 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.40  Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Bellevue — Bellevue, Washington (Previously filed as Exhibit 10.40 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.41  Lease Agreement between CNL Retirement MA2 Illinois, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Hoffman Estates —Hoffman Estates, Illinois (Previously filed as Exhibit 10.41 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.42  Lease Agreement between CNL Retirement MA3 Oklahoma, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Oklahoma City — Oklahoma City, Oklahoma (Previously filed as Exhibit 10.42 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

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10.43  Lease Agreement between CNL Retirement MA3 California, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Santa Rosa — Santa Rosa, California (Previously filed as Exhibit 10.43 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.44  Lease Agreement between CNL Retirement MA2 Oklahoma, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Tulsa — Tulsa, Oklahoma (Previously filed as Exhibit 10.44 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.45  Lease Agreement between CNL Retirement MA3 Georgia, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Vinings — Atlanta, Georgia (Previously filed as Exhibit 10.45 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.46  Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Hearthside of Lynnwood — Lynnwood, Washington (Previously filed as Exhibit 10.46 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.47  Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Hearthside of Snohomish — Snohomish, Washington (Previously filed as Exhibit 10.47 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.48  Lease Agreement between CNL Retirement MA2 California, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Hemet — Hemet, California (Previously filed as Exhibit 10.48 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.49  Lease Agreement between CNL Retirement MA2 Massachusetts, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Plymouth — Plymouth, Massachusetts (Previously filed as Exhibit 10.49 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.50  Lease Agreement between CNL Retirement MA2 Ohio, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Willoughby — Willoughby, Ohio (Previously filed as Exhibit 10.50 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.51  Lease Agreement between CNL Retirement MA2 Arkansas, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Pleasant Hills Retirement Community — Little Rock, Arkansas (Previously filed as Exhibit 10.51 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.52  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as Sellers, and CNL Retirement MA2, LP, as Purchaser, CNL Retirement Partners, LP as the Orland Park Owner and Eight Pack Management Corp., as Tenant, relating to the Brighton Gardens of Hoffman Estates —Hoffman Estates, Illinois; Brighton Gardens of Tulsa — Tulsa, Oklahoma; MapleRidge of Hemet — Hemet, California; MapleRidge of Plymouth — Plymouth, Massachusetts; MapleRidge of Willoughby — Willoughby, Ohio and Pleasant Hills Retirement Community — Little Rock, Arkansas (Previously filed as Exhibit 10.52 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

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10.53  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as Sellers, and CNL Retirement MA3, LP, as Purchaser, and Eleven Pack Management Corp., as Tenant, relating to the Brighton Gardens of Bellevue — Bellevue, Washington; Brighton Gardens of Oklahoma City — Oklahoma City, Oklahoma; Brighton Gardens of Santa Rosa — Santa Rosa, California; Brighton Gardens of Vinings — Atlanta, Georgia; Hearthside of Lynnwood — Lynnwood, Washington and Hearthside of Snohomish — Snohomish, Washington (Previously filed as Exhibit 10.53 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.54  Credit Agreement dated as of March 17, 2003 by and among CNL Retirement Partners, LP, as Borrower, CNL Retirement GP Corp., as a Parent and Guarantor, CNL Retirement LP Corp., as a Parent and Guarantor, CNL Retirement Properties, Inc. and each of the other Guarantors, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Sole Lead Arranger and as Book Manager, and the financial institutions party hereto and their assignees under Section 11.7, as Lenders (Previously filed as Exhibit 10.54 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

10.55   Purchase and Sale Agreement between Marriott Continuing Care, LLC, as Sellers, and Marriott International, Inc. and CNL Retirement MA3, LP, as Purchaser, relating to the Fairfax Continuing Care Retirement Community – Fort Belvoir, Virginia and the Quadrangle Continuing Care Retirement Community – Haverford, Pennsylvania. (Previously filed as Exhibit 10.48 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.56  Lease Agreement between CNL Retirement MA3 Virginia, LP and Marriott Continuing Care, LLC dated March 28, 2003, relating to the Fairfax Continuing Care Retirement Community –Fort Belvoir, Virginia. (Previously filed as Exhibit 10.49 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.57  Lease Agreement between CNL Retirement MA3 Pennsylvania, LP and Marriott Continuing Care, LLC dated March 28, 2003, relating to the Quadrangle Continuing Care Retirement Community – Haverford, Pennsylvania. (Previously filed as Exhibit 10.50 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.58  Assumption and Reimbursement Agreement between Marriott International, Inc., as Assignor, Marriott Continuing Care, LLC, as Assignor, CNL Retirement Properties, Inc., as Assignee, CNL Retirement MA3 Pennsylvania, LP, as Assignee, and CNL Retirement MA3 Virginia, LP, as Assignee, dated March 28, 2003. (Previously filed as Exhibit 10.51 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.59  Purchase and Sale Agreement by and among WEC 99C-1, LLC, WEC 99C-2, LLC, WEC 99C-3, LLC, WEC 99C-4, LLC, WEC 99C-5, LLC, WEC 99C-6, LLC, WEC 99C-7, LLC, WEC 99C-8, LLC, WEC 99C-9, LLC, WEC 99C-10, LLC, WEC 99C-11, LLC, WEC 99C-12, LLC, WEC 99C-13, LLC, and WEC 99C-14, LLC, respectively, as Sellers, and CNL Retirement Properties, Inc., as Purchaser dated August 29, 2003. (Previously filed as Exhibit 10.59 to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

10.60  Purchase and Sale Agreement by and among Sunrise Assisted Living Limited Partnership, Sunrise Farmington Hills Assisted Living, L.L.C., Atlantic-Sunrise, LLC, Sunrise Poland Assisted Living, L.L.C., Sunrise Raleigh Assisted Living, LLC, Sunrise Assisted Living Limited Partnership VIII, L.P., and ADG on Sheepshead Bay, LLC, as Seller and CNL Retirement Corp., as Purchaser and Twenty Pack Management Corp., as Tenant dated September 29, 2003. (Previously filed as Exhibit 10.60. to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

10.61  Pooling Agreement by and among Sunrise Senior Living Management, Inc., as Manager and Twenty Pack Management Corp., Sunrise Five Forks Assisted Living, L.L.C., Sunrise Development, Inc. and Sunrise Madison Senior Living, L.L.C., as Owners and CNL Retirement Sun1, LP, CNL Retirement Sun1 Beverly Hills CA, LP, CNL Retirement Sun1 Cresskill NJ, LP, CNL Retirement Sun1 Edmonds WA, LP, CNL Retirement Sun1 Lilburn GA, LP and CNL Retirement Sun1 Madison NJ, LP, as Landlords dated September 30, 2003. (Previously filed as Exhibit 10.61 to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

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23.1  Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accountants, dated January 20, 2004 (Filed herewith.)

23.2  Consent of Greenberg Traurig, LLP (Contained in its opinions previously filed as Exhibits 5 and 8 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

23.3 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.4 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.5 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.6 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.7 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.8 Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accountants, dated January 20, 2004 (Filed herewith.)

24. Power of Attorney (Filed herewith.)

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TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS

        Table VI presents information concerning the acquisition of real properties by the public real estate limited partnerships and the unlisted public REITs sponsored by Affiliates of the Company through December 31, 2002 The information includes the gross leasable space or number of units and total square feet of units, dates of purchase, locations, cash down payment and contract purchase price plus acquisition fee. This information is intended to assist the prospective investor in evaluating the terms involved in acquisitions by such prior programs.

                                    TABLE VI
                     ACQUISITIONS OF PROPERTIES BY PROGRAMS

                                      CNL Income             CNL Income             CNL Income            CNL Income
                                        Fund,                 Fund II,               Fund III,             Fund IV,
                                         Ltd.                   Ltd.                   Ltd.                  Ltd.
                                  ------------------     ------------------     ------------------    ------------------
                                       (Note 2)               (Note 3)               (Note 4)              (Note 5)
Locations                            AL, AZ, CA, FL,        AL, AZ, CO, FL,        AL, AZ, CA, CO,       AL, DC, FL, GA,
                                     GA, LA, MD, OK,        GA, IL, IN, KS,        FL, GA, IA, IL,       IL, IN, KS, MA,
                                     PA, TX, VA, WA         LA, MI, MN, MO,        IN, KS, KY, MD,       MD, MI, MS, NC,
                                                            NC, NM, OH, TN,        MI, MN, MO, NC,       OH, PA, TN, TX,
                                                            TX, WA, WY             NE, OK, TX            VA

Type of property                         Restaurants            Restaurants            Restaurants           Restaurants

Gross leasable space
   (sq. ft.) or number                      22 units               50 units               40 units              47 units
   of units and total
   square feet of units                   80,314 s/f            190,753 s/f            170,944 s/f           166,494 s/f

Dates of purchase                 2/18/86 - 12/31/97     2/11/87 - 11/18/99     2/11/87 - 10/25/99    10/30/87 - 1/19/99

Cash down payment (Note 1)               $13,435,137            $27,417,112            $25,000,031           $28,643,526

Contract purchase price
   plus acquisition fee                  $13,361,435            $27,266,696            $24,891,350           $28,541,500

Other cash expenditures
   expensed                                       --                     --                     --                    --

Other cash expenditures
   capitalized                                73,702                150,416                108,681               102,026
                                  ------------------     ------------------     ------------------    ------------------

Total acquisition cost (Note 1)          $13,435,137            $27,417,112            $25,000,031           $28,643,526
                                  ==================     ==================     ==================    ==================

Note 1:  This amount was derived from capital contributions or proceeds from
         partners or stockholders, respectively, and net sales proceeds
         reinvested in other properties. With respect to CNL American Properties
         Fund, Inc., amounts were also advanced under its line of credit to
         facilitate the acquisition of these properties. With respect to CNL
         Hospitality Properties, Inc. amounts were also advanced under its line
         of credit or through permanent financing to facilitate the acquisition
         of these properties.

Note 2:   The partnership owns a 50% interest in a joint venture which owns a
         restaurant property. In addition, the partnership owns a 12.17%
         interest in one restaurant property held as tenants-in-common with
         affiliates. The partnership previously owned a 50% interest in two
         separate joint ventures which each owned a restaurant property.

Note 3:  The partnership owns a 49%, a 50%, and a 64% interest in three separate
         joint ventures. Each joint venture owns one restaurant property. In
         addition, the partnership owns a 33.87%, a 57.91%, a 47%, a 37.01%, a
         39.39%, and a 13.38% interest in six restaurant properties held
         separately as tenants-in-common with affiliates. The partnership
         previously owned a 48% interest in a joint venture which owned a
         restaurant property. In addition, one of the joint ventures previously
         owned one additional restaurant property.

Note 4:  The partnership owns a 69.07% and a 46.88% interest in two separate
         joint ventures which each own one restaurant property. In addition, the
         partnership owns a 33%, a 9.84%, a 25.87%, and a 20% interest in four
         restaurant properties held separately as tenants-in-common with
         affiliates. The partnership previously owned a 73.4% interest in a
         joint venture which owned a restaurant property.

Note 5:  The partnership owns a 51%, a 57%, a 96.1%, a 68.87%, and a 35.71%
         interest in five separate joint ventures. Each joint venture owns one
         restaurant property. In addition, the partnership owns a 53% and a 76%
         interest in two restaurant properties held as tenants-in-common with
         affiliates. The partnership previously owned a 26.6% interest in a
         joint venture which owned a restaurant property.

TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)

                                     CNL Income             CNL Income            CNL Income            CNL Income
                                      Fund V,                Fund VI,              Fund VII,            Fund VIII,
                                        Ltd.                   Ltd.                  Ltd.                  Ltd.
                                  -----------------      ----------------      ----------------      -----------------
                                       (Note 6)              (Note 7)              (Note 8)               (Note 9)
Locations                           AZ, FL, GA, IL,       AR, AZ, CA, FL,       AL, AZ, CO, FL,        AZ, CO, FL, IL,
                                    IN, MI, NH, NY,       GA, ID, IL, IN,       GA, IN, LA, MI,        IN, LA, MI, MN,
                                    OH, SC, TN, TX,       KS, MA, MD, MI,       MN, NC, NE, OH,        NC, NY, OH, OR,
                                    UT, WA                MN, NC, NE, NM,       PA, SC, TN, TX,        TN, TX, VA, WI
                                                          NY, OH, OK, PA,       UT, WA
                                                          TN, TX, VA, WA,
                                                          WY

Type of property                        Restaurants           Restaurants           Restaurants            Restaurants

Gross leasable space
   (sq. ft.) or number                     36 units              66 units              59 units               55 units
   of units and total
   square feet of units                 149,519 s/f           266,003 s/f           235,628 s/f            244,702 s/f

Dates of purchase                 2/6/89 - 12/14/99      5/1/87 - 6/26/02      1/5/90 - 9/25/02      4/30/90 - 9/25/02

Cash down payment (Note 1)              $26,459,769           $49,719,827           $37,154,958            $41,739,720

Contract purchase price
   plus acquisition fee                 $26,077,897           $49,199,318           $36,488,276            $41,206,994

Other cash expenditures
   expensed                                      --                    --                    --                     --

Other cash expenditures
   capitalized                              381,872               520,509               666,682                532,726
                                  -----------------      ----------------      ----------------      -----------------

Total acquisition cost (Note 1)         $26,459,769           $49,719,827           $37,154,958            $41,739,720
                                  =================      ================      ================      =================

Note 6:  The partnership owns a 43% and a 53.12% interest in two separate joint
         ventures which each own a restaurant property. In addition, the
         partnership owns a 42.09% and a 27.78% interest in two restaurant
         properties held separately as tenants-in-common with affiliates. The
         partnership previously owned a 48.9% and a 66.5% interest in two
         separate joint ventures which each owned a restaurant property.

Note 7:  The partnership owns a 3.9%, a 14.46%, a 36%, a 50%, and a 64.29%
         interest in five separate joint ventures. Each joint venture owns one
         restaurant property. In addition, the partnership owns a 74%, an 18%, a
         23.04%, a 34.74%, a 46.2%, an 85%, a 60%, an 80%, a 14.2%, and a 9.5%
         interest in ten restaurant properties held separately as
         tenants-in-common with affiliates. The partnership previously owned a
         66.14% interest in a joint venture which owned a restaurant property.
         One of the joint ventures previously owned one additional property. In
         addition, the partnership previously owned a 51.67%, a 77%, and a 75%
         interest in three restaurant properties held separately as
         tenants-in-common with affiliates.

Note 8:  The partnership owns an 83.3%, a 4.79%, an 18%, a 79%, a 56%, a 14%, a
         68.75%, and a 36.88% interest in eight separate joint ventures. Six of
         the joint ventures each own one restaurant property and the other joint
         venture owns five restaurant properties. In addition, the partnership
         owns a 71%, a 53%, a 35.64%, and a 43% interest in four restaurant
         properties held separately as tenants-in-common with affiliates. The
         partnership previously owned a 51.1% interest in a joint venture which
         owned a restaurant property. One of the joint ventures previously owned
         one additional restaurant property and one of the joint ventures
         previously owned two additional restaurant properties. In addition, the
         partnership previously owned a 48.33% interest in a restaurant property
         held as tenants-in-common with an affiliate.

Note 9:  The partnership owns an 85.54%, an 87.68%, a 36.8%, a 34%, and a 10%
         interest in five separate joint ventures. Four of the joint ventures
         each own one restaurant property and the other joint venture owns five
         restaurant properties. In addition, the partnership owns a 66%, a
         19.3%, a 10%, and a 17% interest in four restaurant properties held
         separately as tenants-in-common with affiliates. The partnership
         previously owned a 12.46% interest in a joint venture which owned a
         restaurant property. One of the joint ventures previously owned two
         additional restaurant properties. In addition, the partnership
         previously owned a 66% interest in a restaurant property held as
         tenants-in-common with an affiliate.

TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)


                                     CNL Income             CNL Income             CNL Income             CNL Income
                                      Fund IX,                Fund X,               Fund XI,              Fund XII,
                                        Ltd.                    Ltd.                  Ltd.                   Ltd.
                                  -----------------      -----------------      -----------------     -------------------
                                      (Note 10)              (Note 11)              (Note 12)              (Note 13)
Locations                           AL, CA, CO, FL,        AL, AZ, CA, CO,        AL, AZ, CA, CO,         AL, AZ, CA, CO,
                                    GA, IL, IN, LA,        FL, ID, IL, IN,        CT, FL, KS, LA,         FL, GA, IA, IN,
                                    MD, MI, MN, MS,        LA, MI, MO, MT,        MA, MI, MS, NC,         LA, MO, MS, NC,
                                    NC, NH, NY, OH,        NC, NE, NH, NM,        NH, NM, OH, OK,         NM, OH, SC, TN,
                                    SC, TN, TX             NY, OH, PA, SC,        PA, SC, TX, VA,         TX, WA
                                                           TN, TX, WA             WA

Type of property                        Restaurants            Restaurants            Restaurants             Restaurants

Gross leasable space
   (sq. ft.) or number                     55 units               59 units               48 units                58 units
   of units and total
   square feet of units                 242,175 s/f            252,572 s/f            202,269 s/f             244,910 s/f

Dates of purchase                 8/31/90 - 9/25/02      11/5/91 - 6/26/02      5/18/92 - 6/26/02      10/16/92 - 9/25/02

Cash down payment (Note 1)              $41,519,232            $43,899,142            $42,615,776             $49,541,814

Contract purchase price
   plus acquisition fee                 $40,776,871            $43,196,644            $42,020,331             $49,044,383

Other cash expenditures
   expensed                                      --                     --                     --                      --

Other cash expenditures
   capitalized                              742,361                702,498                595,445                 497,431
                                  -----------------      -----------------      -----------------     -------------------

Total acquisition cost (Note 1)         $41,519,232            $43,899,142            $42,615,776             $49,541,814
                                  =================      =================      =================     ===================

Note 10:   The partnership owns a 50%, a 45.2%, a 27.33%, and a 60% interest
           in four separate joint ventures. Two of the joint ventures own one
           restaurant property and the other two joint ventures own five
           restaurant properties each. In addition, the partnership owns a 67%,
           a 29%, a 15%, and a 34% interest in four restaurant properties held
           as tenants-in-common with affiliates. Two of the joint ventures
           previously owned one additional restaurant property each and one of
           the joint ventures owned two additional restaurant properties. In
           addition, the partnership previously owned a 25% and a 34% interest
           in two restaurant properties held separately as tenants-in-common
           with affiliates.

Note 11:   The partnership owns a 50%, an 88.26%, a 40.95%, a 10.51%, a 69.06%,
           and a 10% interest in six separate joint ventures. Five of the joint
           ventures own one restaurant property each and the other joint venture
           owns five restaurant properties. In addition, the partnership owns a
           13%, a 6.69%, and an 81.65% interest in three restaurant properties
           held separately as tenants-in-common with affiliates. The partnership
           previously owned a 52% interest in a joint venture which owned a
           restaurant property. In addition, one of the joint ventures
           previously owned one additional restaurant property.

Note 12:   The partnership owns a 62.16%, a 77.33%, an 85%, a 76.6%, and a 42.8%
           interest in five separate joint ventures. Each joint venture owns one
           restaurant property. In addition, the partnership owns a 72.58%, an
           85.8%, and a 90.5% interest in three restaurant properties held
           separately as tenants-in-common with affiliates. The partnership
           previously owned a 23% interest in a restaurant property held as
           tenants-in-common with an affiliate.

Note 13:   The partnership owns a 31.13%, a 59.05%, an 18.61%, a 27.72%, a 55%,
           and an 80% interest in six separate joint ventures. Each joint
           venture owns one restaurant property. In addition, the partnership
           owns a 57% interest in a restaurant property held as
           tenants-in-common with an affiliate. The partnership previously owned
           an 87.54% interest in a joint venture which owned a restaurant
           property.


TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)


                                     CNL Income             CNL Income             CNL Income             CNL Income
                                     Fund XIII,             Fund XIV,               Fund XV,              Fund XVI,
                                        Ltd.                   Ltd.                   Ltd.                   Ltd.
                                  -----------------      ------------------     -----------------      ------------------
                                      (Note 14)              (Note 15)              (Note 16)               (Note 17)
Locations                           AL, AR, AZ, CA,         AL, AZ, CO, FL,       AL, CA, FL, GA,         AZ, CA, CO, DC,
                                    CO, FL, GA, IN,         GA, IL, KS, LA,       KS, KY, MN, MO,         FL, GA, ID, IN,
                                    KS, LA, MD, MO,         MN, MO, MS, NC,       MS, NC, NJ, NM,         KS, LA, MN, MO,
                                    NC, OH, PA, SC,         NJ, NV, OH, SC,       OH, OK, PA, SC,         NC, NM, NV, OH,
                                    TN, TX, VA              TN, TX, VA            TN, TX, VA              PA, TN, TX, UT,
                                                                                                          WI

Type of property                        Restaurants             Restaurants           Restaurants             Restaurants

Gross leasable space
   (sq. ft.) or number                     53 units                71 units              61 units                54 units
   of units and total
   square feet of units                 183,884 s/f             227,169 s/f           210,121 s/f             209,262 s/f

Dates of purchase                 5/18/93 - 9/25/02      9/27/93 - 12/30/02     4/28/94 - 6/26/02      10/21/94 - 6/26/02

Cash down payment (Note 1)              $39,139,344             $49,758,797           $43,829,560             $47,077,424

Contract purchase price
   plus acquisition fee                 $38,771,218             $49,332,416           $43,439,270             $46,687,961

Other cash expenditures
   expensed                                      --                      --                    --                      --

Other cash expenditures
   capitalized                              368,126                 426,381               390,290                 389,463
                                  -----------------      ------------------     -----------------      ------------------

Total acquisition cost (Note 1)         $39,139,344             $49,758,797           $43,829,560             $47,077,424
                                  =================      ==================     =================      ==================

Note 14:   The partnership owns a 50% and a 27.8% interest in two separate joint
           ventures. Each joint venture owns one restaurant property. In
           addition, the partnership owns a 66.13%, a 63.09%, a 47.83%, and a
           41% interest in four restaurant properties held separately as
           tenants-in-common with affiliates.

Note 15:   The partnership owns a 50% interest in three separate joint ventures
           and a 72.2%, a 39.94%, an 11%, and a 44% interest in four additional
           joint ventures. Six of the joint ventures each own one restaurant
           property and the other joint venture owns five restaurant properties.
           In addition, the partnership owns a 26% interest in a property held
           separately as tenants-in-common with an affiliate. One of the joint
           ventures previously owned three additional properties.

Note 16:   The partnership owns a 50% interest in a joint venture which owns
           five restaurant properties and a 23.62% and a 31.25% interest in two
           separate joint ventures, each of which owns one restaurant property.
           In addition, the partnership owns a 16%, a 15%, and a 59% interest in
           three restaurant properties held as tenants-in-common with
           affiliates. One of the joint ventures previously owned three
           additional properties.

Note 17:   The partnership owns a 32.35%, a 19.72%, and a 21% interest in three
           separate joint ventures which each own one restaurant. In addition,
           the partnership owns an 80.44%, a 40.42%, and an 83% interest in
           three restaurant properties held as tenants-in-common with
           affiliates.


TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)


                                    CNL American             CNL Income             CNL Income          CNL Hospitality
                                  Properties Fund,           Fund XVII,            Fund XVIII,            Properties,
                                        Inc.                    Ltd.                   Ltd.                   Inc.
                                  ------------------     ------------------     ------------------     ------------------
                                      (Note 18)               (Note 19)             (Note 20)               (Note 21)
Locations                            AL, AR, AZ, CA,        CA, FL, GA, IL,        AZ, CA, CO, FL,        AZ, CA, CO, CT,
                                     CO, CT, DE, FL,        IN, MD, MI, NC,        GA, IL, KY, MD,        FL, GA, HI, KS,
                                     GA, IA, ID, IL,        NE, NV, OH, SC,        MN, NC, NV, NY,        MA, MD, MI, MN,
                                     IN, KS, KY, LA,        TN, TX, WA, WI         OH, PA, TN, TX,        NC, NJ, NV, OR,
                                     MD, MI, MN, MO,                               VA                     PA, TX, UT, VA,
                                     MS, NC, NE, NH,                                                      WA
                                     NJ, NM, NV, NY,
                                     OH, OK, OR, PA,
                                     RI, SC, SD, TN,
                                     TX, UT, VA, WA,
                                     WI, WV

Type of property                         Restaurants            Restaurants            Restaurants                 Hotels

Gross leasable space
   (sq. ft.) or number                   1,118 units               39 units               30 units               56 units
   of units and total
   square feet of units                4,968,517 s/f            165,544 s/f            152,527 s/f          8,272,732 s/f

Dates of purchase                 6/30/95 - 12/30/02     12/20/95 - 9/25/02     12/27/96 - 6/26/02     7/31/98 - 12/20/02

Cash down payment (Note 1)            $1,261,498,990            $34,701,715            $35,377,348         $1,861,692,079

Contract purchase price
   plus acquisition fee               $1,259,245,179            $34,635,251            $35,270,361         $1,816,298,831

Other cash expenditures
   expensed                                       --                     --                     --                     --

Other cash expenditures
   capitalized                             2,253,811                 66,464                106,987             45,393,248
                                  ------------------     ------------------     ------------------     ------------------

Total acquisition cost (Note 1)       $1,261,498,990            $34,701,715            $35,377,348         $1,861,692,079
                                  ==================     ==================     ==================     ==================

Note 18:   In May 1998, CNL American Properties Fund, Inc. formed an operating
           partnership, CNL APF Partners, LP, to acquire and hold properties
           subsequent to the formation of CNL APF Partners, LP. CNL American
           Properties Fund, Inc. has a 100% ownership interest in the general
           and limited partners (which are wholly owned subsidiaries) of CNL APF
           Partners, LP. CNL American Properties Fund, Inc. and CNL APF
           Partners, LP own an 85.47%, 59.22% and a 74.57% interest in three
           separate joint ventures, and 80% in six separate joint ventures. Each
           joint venture owns one restaurant property. On June 1, 2000, CNL
           American Properties Fund, Inc. formed CNL Franchise Network, LP and
           transferred certain assets and operations to it in exchange for a
           combined general and limited partnership interest of 84.39%.

Note 19:   The partnership owns a 60.06%, a 30.94%, an 86%, and a 40% interest
           in four separate joint ventures. Each joint venture owns one
           restaurant property. In addition, the partnership owns a 19.56%, a
           27.42%, a 36.91%, a 25%, a 24%, and a 90% interest in six restaurant
           properties held separately as tenants-in-common with affiliates. The
           partnership previously owned an 80% interest in a joint venture which
           owned a restaurant property. In addition, one of the joint ventures
           previously owned one additional property.

Note 20:   The partnership owns a 39.93%, a 57.2% and a 19.78% interest in three
           separate joint ventures. Each joint venture owns one restaurant
           property. In addition, the partnership owns an 80.7% and an 18.35%
           interest in two restaurant properties held as tenants-in-common with
           affiliates.

Note 21:   In June 1998, CNL Hospitality Properties, Inc. formed an operating
           partnership, CNL Hospitality Partners, LP, to acquire and hold its
           interest in properties. CNL Hospitality Properties, Inc. has a 100%
           ownership interest in the general and limited partner (which are
           wholly owned subsidiaries) of CNL Hospitality Partners, LP. CNL
           Hospitality Properties, Inc. has a 100% ownership interest in CNL
           Hotel Investors, Inc. which owns seven hotel properties. In November
           1999, CNL Hospitality Properties, Inc. acquired an 89% interest in
           CNL Philadelphia Annex, LLC (formerly Courtyard Annex, L.L.C.) to own
           and lease one hotel property. In December 2000, CNL Hospitality
           Properties, Inc., through subsidiaries, acquired a 44% interest in
           Desert Ridge Resort Partners, LLC, a joint venture with an affiliate
           of Marriott International, Inc. and a partnership in which an
           affiliate of the advisor is the general partner, which owns one
           resort property. In July 2001, CNL Hospitality Properties, Inc.,
           through


TABLE VI  -  ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)

Note 21
continued: subsidiaries, acquired a 49% interest in WB Resort Partners, L.P., a
           joint venture with an affiliate of Marriott International, Inc. and a
           partnership in which an affiliate of the advisor is the general
           partner, which owns one resort property. In September 2001, CNL
           Hospitality Properties, Inc., through subsidiaries, acquired a 70%
           interest in CNL HHC Partners, LP, a joint venture with Hilton Hotels
           Corporation, which owns four hotel properties. In November 2001, CNL
           Hospitality Properties, Inc., through subsidiaries, acquired an 85%
           interest in CNL IHC Partners, LP, a joint venture with Interstate
           Property Corporation, which owns two hotel properties. In June 2002,
           CNL Hospitality Properties, Inc., through subsidiaries, acquired a
           50% interest in CY-SF Hotel Parent, LP, a joint venture with an
           affiliate of Marriott International, Inc., which owns one hotel. In
           December 2002, CNL Hospitality Properties, through subsidiaries,
           acquired a 75% interest in CNL HHC Partners II, LP, a joint venture
           with Hilton Hotels Corporation which owns two properties.

SIGNATURES

        Pursuant to the requirements of the Securities Act of 1933, the Registrant certifies that it has reasonable grounds to believe that it meets all of the requirements for filing on Form S-11 and has duly caused this Post-Effective Amendment No. Four to the Registration Statement to be signed on its behalf by the undersigned, thereunto duly authorized, in the City of Orlando, State of Florida, on January 21, 2004.

CNL RETIREMENT PROPERTIES, INC.
(Registrant)

BY: /s/ Thomas J. Hutchison, III
——————————————
THOMAS J. HUTCHISON, III
Chief Executive Officer and President

POWER OF ATTORNEY

        KNOW ALL MEN BY THESE PRESENTS, that each of the undersigned hereby constitutes and appoints Thomas J. Hutchison III and Stuart J. Beebe and each of them, his true and lawful attorneys-in-fact and agents, with full power of substitution and resubstitution, for him and in his name, place and stead, in any and all capacities, with full power to act alone, to sign any and all documents (including both pre-and post-effective amendments in connection with the registration statement), and to file the same, with all exhibits thereto, and all documents in connection therewith, with the Securities and Exchange Commission, granting unto said attorneys-in-fact and agent, and each of them, full power and authority to do and perform each and every act and thing requisite and necessary to be done in and about the premises, as fully to all intents and purposes as he might or could do in person, hereby ratifying and confirming all that said attorneys-in-fact and agents, or either of them or their or his substitutes or substitute, may lawfully do or cause to be done by virtue thereof.

        Pursuant to the requirements of the Securities Act of 1933, this Post-Effective Amendment No. Four to the Registration Statement has been signed below by the following persons in the capacities and on the dates indicated.

Signatures	Title	Date
/s/ James M. Seneff, Jr.	Chairman of the Board	January 21, 2004
James M. Seneff, Jr.
/s/ Robert A. Bourne	Vice Chairman of the Board and Treasurer	January 21, 2004
Robert A. Bourne
/s/ Thomas J. Hutchison III	Chief Executive Officer and President	January 21, 2004
Thomas J. Hutchison III	(Principal Executive Officer)
/s/ Stuart J. Beebe	Chief Financial Officer and Executive Vice President	January 21, 2004
Stuart J. Beebe	(Principal Financial and Accounting Officer)
/s/ David W. Dunbar	Independent Director	January 21, 2004
David W. Dunbar
/s/ James W. Duncan, Jr.	Independent Director	January 21, 2004
James W. Duncan, Jr.
/s/ Edward A. Moses	Independent Director	January 21, 2004
Edward A. Moses

EXHIBIT INDEX

Exhibits

1.1 Form of Managing Dealer Agreement (Previously filed as Exhibit 1.1 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 (Registration No. 333-100347) filed March 24, 2003 and incorporated herein by reference.)

1.2  Form of Participating Broker Agreement (Previously filed as Exhibit 1.2 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

1.3  Form of Marketing Support Fee Agreement (Previously filed as Exhibit 1.3 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

3.1  Articles of Amendment and Restatement of CNL Retirement Properties, Inc. dated July 28, 2003 (Previously filed as Exhibit 3.8 to the Registrant’s Registration Statement on Form S-11 (Registration No. 333-107486)filed July 30, 2003 and incorporated herein by reference.)

3.2 CNL Health Care Properties, Inc. Bylaws (Previously filed as Exhibit 3.2 to the Registrant's Form 10-K filed         March 5, 1999 and incorporated herein by reference.)

3.3 Amendment No. 1 to the Bylaws of CNL Health Care Properties, Inc. (Previously filed as Exhibit 3.6 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed March 31, 2000 and incorporated herein by reference.)

3.4 Amendment No. 2 to the Bylaws of CNL Retirement Properties, Inc. (Previously filed as Exhibit 3.7 to Post-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

4.1 Articles of Amendment and Restatement of CNL Retirement Properties, Inc. dated July 28, 2003 (Previously filed as Exhibit 3.8 to the Registrant's Registration Statement on Form S-11 filed July 30, 2003 and incorporated herein by reference.)

4.2 CNL Health Care Properties, Inc. Bylaws (Previously filed as Exhibit 3.2 to the Registrant's Form 10-K filed         March 5, 1999 and incorporated herein by reference.)

4.3 Amendment No. 1 to the Bylaws of CNL Health Care Properties, Inc. (Previously filed as Exhibit 3.6 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed March 31, 2000 and incorporated herein by reference.)

4.4 Amendment No. 2 to the Bylaws of CNL Retirement Properties, Inc. (Previously filed as Exhibit 3.7 to Post-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

4.5 Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)

5  Opinion of Greenberg Traurig, LLP as to the legality of the securities being registered by CNL Retirement Properties, Inc. (Previously filed as Exhibit 5 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

i

s

8  Opinion of Greenberg Traurig, LLP regarding certain material tax issues relating to CNL Retirement Properties, Inc. (Previously filed as Exhibit 8 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

10.1 Form of Escrow Agreement between CNL Retirement Properties, Inc. and SouthTrust Bank (Previously filed as Exhibit 10.1 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11         filed March 24, 2003 and incorporated herein by reference.)

10.2  Advisory Agreement, dated as of May 14, 2003, between CNL Retirement Properties, Inc. and CNL Retirement Corp. (Previously filed as Exhibit 10.2 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed June 25, 2003 and incorporated herein by reference.)

10.3  Form of Joint Venture Agreement (Previously filed as Exhibit 10.3 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.4  Form of Indemnification and Put Agreement (Previously filed as Exhibit 10.4 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.5  Form of Unconditional Guaranty of Payment and Performance (Previously filed as Exhibit 10.5 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.6  Form of Purchase Agreement (Previously filed as Exhibit 10.6 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.7  Form of Lease Agreement including Rent Addendum, Construction Addendum and Memorandum of Lease (Previously filed as Exhibit 10.7 to the Registrant’s Registration Statement on Form S-11 filed March 5, 1998 and incorporated herein by reference.)

10.8 Form of Reinvestment Plan (Included in the Prospectus as Appendix A and incorporated herein by reference.)

10.9 Indemnification Agreement between CNL Health Care Properties, Inc. and Thomas J. Hutchison III dated February 29, 2000. Each of the following directors and/or officers has signed a substantially similar agreement as follows: James M. Seneff, Jr., Robert A. Bourne, David W. Dunbar, Timothy S. Smick, Edward A. Moses, Jeanne A. Wall and Lynn E. Rose, dated September 15, 1998, Phillip M. Anderson, Jr. dated February 19, 1999, James W. Duncan dated February 22, 2002, and Stuart J. Beebe dated July 15, 2002 (Previously filed as Exhibit 10.2 to the Form 10-Q filed May 3, 2000 and incorporated herein by reference.)

10.10  Agreement of Limited Partnership of CNL Health Care Partners, LP (Previously filed as Exhibit 10.10 to Post-Effective Amendment No. Two to the Registrant’s Registration Statement on Form S-11 filed March 23, 2000 and incorporated herein by reference.)

10.11  Purchase and Sale Agreement between CNL Health Care Partners, LP and Marriott Senior Living Services, Inc., relating to the Brighton Gardens® by Marriott® —Orland Park, Illinois (Previously filed as Exhibit 10.11 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

10.12  Lease Agreement between CNL Health Care Partners, LP and BG Orland Park, LLC dated April 20, 2000, relating to the Brighton Gardens® by Marriott® — Orland Park, Illinois (Previously filed as Exhibit 10.12 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

ii

10.13  Revolving Line of Credit Agreement with CNL Health Care Properties, Inc., CNL Health Care Partners, LP and Colonial Bank, dated April 20, 2000 (Previously filed as Exhibit 10.13 to the Registrant’s Registration Statement on Form S-11 filed May 19, 2000 and incorporated herein by reference.)

10.14 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Broadway Plaza at Pecan Park - Arlington, Texas (Previously filed as Exhibit 10.14 to Post-Effective Amendment No. Six to the Registrant's Registration Statement on Form S-11         filed November 29, 2001 and incorporated herein by reference.)

10.15  Lease Agreement between CNL Retirement — AM/Texas, LP and ARC Pecan Park, L.P. dated November 9, 2001, relating to the Broadway Plaza at Pecan Park — Arlington, Texas (Previously filed as Exhibit 10.15 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.16 Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Homewood Residence of Boca Raton - Boca Raton, Florida (Previously filed as Exhibit 10.16 to Post-Effective Amendment No. Six to the Registrant's Registration Statement on         Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.17  Lease Agreement between CNL Retirement — AM/Florida, LP and ARC Boca Raton, Inc. dated November 9, 2001, relating to the Homewood Residence of Boca Raton — Boca Raton, Florida (Previously filed as Exhibit 10.17 to Post-Effective Amendment No. Six to the Registrant’s Registration Statement on Form S-11 filed November 29, 2001 and incorporated herein by reference.)

10.18  Lease Agreement between CNL Retirement Corp. and ARC Holley Court, LLC dated February 11, 2002, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.18 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.19  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and ARC Holley Court, LLC, as Seller, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.19 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.20  Lease Agreement between CNL Retirement — AM/Florida, LP and ARC Coconut Creek, LLC dated February 11, 2002, relating to the Homewood Residence of Coconut Creek —Coconut Creek, Florida (Previously filed as Exhibit 10.20 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.21  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Homewood Residence of Coconut Creek — Coconut Creek, Florida (Previously filed as Exhibit 10.21 to Post-Effective Amendment No. Seven to the Registrant’s Registration Statement on Form S-11 filed February 28, 2002 and incorporated herein by reference.)

10.22  Lease Agreement between CNL Retirement — AM/Colorado LP and ARC Greenwood Village, Inc. dated March 21, 2002, relating to the Heritage Club at Greenwood Village —Greenwood Village, Colorado (Previously filed as Exhibit 10.22 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 (File No. 333-76538) filed May 10, 2002) and incorporated herein by reference.)

iii

10.23  Real Estate Purchase and Sale Contract between CNL Retirement Corp., as Buyer, and American Retirement Corporation, as Seller, relating to the Heritage Club at Greenwood Village — Greenwood Village, Colorado (Previously filed as Exhibit 10.23 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed May 10, 2002 and incorporated herein by reference.)

10.24  Loan Agreement between ARC Holley Court, LLC, as Borrower, and GMAC Commercial Mortgage Corporation, as Lender, relating to the Holley Court Terrace — Oak Park, Illinois (Previously filed as Exhibit 10.24 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed May 10, 2002 and incorporated herein by reference.)

10.25  Lease Agreement between CNL Retirement Camarillo CA, LP and HRA Management Corporation dated May 16, 2002 relating to the Brighton Gardens of Camarillo — Camarillo, California (Previously filed as Exhibit 10.25 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.26  Lease Agreement between CNL Retirement Towson MD, LP and HRA Management Corporation dated May 16, 2002 relating to the Brighton Gardens of Towson — Towson, Maryland (Previously filed as Exhibit 10.26 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.27  Lease Agreement between CNL Retirement Clayton OH, LP and HRA Management Corporation dated May 17, 2002 relating to the Marriott MapleRidge of Clayton — Clayton, Ohio (Previously filed as Exhibit 10.27 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.28  Lease Agreement between CNL Retirement Dartmouth MA, LP and HRA Management Corporation dated May 16, 2002 relating to the Marriott MapleRidge of Dartmouth — Dartmouth, Massachusetts (Previously filed as Exhibit 10.28 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.29  Lease Agreement between CNL Retirement Laguna Creek CA, LP and HRA Management Corporation dated May 16, 2002 relating to the Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.29 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.30  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., VCS, Inc. and MSLS — MapleRidge, Inc., as Sellers, Marriott International, Inc. and CNL Retirement MA1, LP, as Purchaser, and HRA Management Corporation, as Tenant, relating to the Brighton Gardens of Camarillo — Camarillo, California; Brighton Gardens of Towson —Towson, Maryland; Marriott MapleRidge of Clayton — Clayton, Ohio; Marriott MapleRidge of Dartmouth — Dartmouth, Massachusetts; and Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.30 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.31  Loan Agreement between Five Pack Retirement 2002, LLC, Lender, and CNL Retirement Clayton OH, LP, CNL Retirement Laguna Creek CA, LP, CNL Retirement Camarillo CA, LP, CNL Retirement Dartmouth MA, LP, CNL Retirement Towson MD, LP, Borrowers, and U.S. Bank, National Association, Collateral Agent, relating to the Brighton Gardens of Camarillo — Camarillo, California; Brighton Gardens of Towson — Towson, Maryland; Marriott MapleRidge of Clayton — Clayton, Ohio; Marriott MapleRidge of Dartmouth —Dartmouth, Massachusetts; and Marriott MapleRidge of Laguna Creek — Elk Grove, California (Previously filed as Exhibit 10.31 to Post-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 and incorporated herein by reference.)

10.32  Loan Agreement between General Electric Capital Corporation, as Lender, and CNL Retirement — AM/Colorado, LP, as Borrower, dated August 8, 2002, relating to the Heritage Club at Greenwood Village — Greenwood Village, Colorado (Previously filed as Exhibit 10.25 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.33  Mortgage Loan Agreement between CNL Retirement Properties, Inc., as Lender, and DSTS, LLC, as Borrower, dated August 12, 2002, relating to the Vero Beach, Florida land (Previously filed as Exhibit 10.26 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

iv

10.34  Refinancing and Acquisition Agreement dated September 30, 2002, between CNL Retirement Partners, LP, and Prime Care Properties, LLC, PC1, LLC, PC2, LLC, Prime Care One, LLC, Prime Care Two, LLC and Thomas E. Phillippe, Jr., relating to the Brighton Gardens of Venice — Venice, Florida; Brighton Gardens of Mountainside — Mountainside, New Jersey; Brighton Gardens of Friendship Heights — Chevy Chase, Maryland; Brighton Gardens of Charlotte — Charlotte, North Carolina; Brighton Gardens of Winston-Salem — Winston Salem, North Carolina; Brighton Gardens of Raleigh — Raleigh, North Carolina; Brighton Gardens of Brentwood — Brentwood, Tennessee; Brighton Gardens of Stamford — Stamford, Connecticut; Brighton Gardens of Middleton — Middleton, New Jersey; Brighton Gardens of Buckhead — Atlanta, Georgia; and Brighton Gardens of Naples — Naples, Florida (Previously filed as Exhibit 10.27 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.35  Lease Agreement dated September 30, 2002, between CNL Retirement PC1 Naples FL, LP, CNL Retirement PC1 Venice FL, LP, CNL Retirement PC1 New Jersey, LP, CNL Retirement PC1 Friendship Heights MD, LP, CNL Retirement PC1 North Carolina, LP, CNL Retirement PC1 Stamford CT, LP, CNL Retirement PC1 Buckhead GA, LP and CNL Retirement PC1 Brentwood TN, LP, as Lessors, Prime Care One, LLC and Prime Care Two, LLC, as Lessees, relating to the Brighton Gardens of Venice — Venice, Florida; Brighton Gardens of Mountainside —Mountainside, New Jersey; Brighton Gardens of Friendship Heights — Chevy Chase, Maryland; Brighton Gardens of Charlotte — Charlotte, North Carolina; Brighton Gardens of Winston-Salem — Winston Salem, North Carolina; Brighton Gardens of Raleigh —Raleigh, North Carolina; Brighton Gardens of Brentwood — Brentwood, Tennessee; Brighton Gardens of Stamford — Stamford, Connecticut; Brighton Gardens of Middleton — Middleton, New Jersey; Brighton Gardens of Buckhead — Atlanta, Georgia; and Brighton Gardens of Naples — Naples, Florida (Previously filed as Exhibit 10.28 to the Form 10-Q filed November 14, 2002 and incorporated herein by reference.)

10.36  Ground Lease Agreement between CNL Retirement ER1, LP and Peabody Campus, LLC dated October 10, 2002, relating to the Brooksby Village Continuing Care Retirement Community — Peabody, Massachusetts (Previously filed as Exhibit 10.36 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.37  Purchase and Sale Agreement between CNL Retirement ER1, LP, as Buyer, and Peabody Campus, LLC, as Seller, relating to the Brooksby Village Continuing Care Retirement Community — Peabody, Massachusetts (Previously filed as Exhibit 10.37 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.38   Lease Agreement between CNL Retirement AM/Tennessee LP and Homewood at Brookmont Terrace, LLC dated October 31, 2002, relating to the Homewood Residence at Brookmont Terrace —Nashville, Tennessee (Previously filed as Exhibit 10.38 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.39 Purchase and Sale Agreement between CNL Retirement Corp., as Buyer, and Homewood at Brookmont Terrace, LLC, as Seller, relating to the Homewood Residence at Brookmont Terrace - Nashville, Tennessee (Previously filed as Exhibit 10.39 to Post-Effective Amendment No. Four to the Registrant's Registration Statement on Form         S-11 filed February 14, 2003 and incorporated herein by reference.)

10.40  Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Bellevue — Bellevue, Washington (Previously filed as Exhibit 10.40 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.41  Lease Agreement between CNL Retirement MA2 Illinois, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Hoffman Estates —Hoffman Estates, Illinois (Previously filed as Exhibit 10.41 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

v

10.42  Lease Agreement between CNL Retirement MA3 Oklahoma, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Oklahoma City — Oklahoma City, Oklahoma (Previously filed as Exhibit 10.42 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.43  Lease Agreement between CNL Retirement MA3 California, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Santa Rosa — Santa Rosa, California (Previously filed as Exhibit 10.43 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.44  Lease Agreement between CNL Retirement MA2 Oklahoma, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Tulsa — Tulsa, Oklahoma (Previously filed as Exhibit 10.44 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.45  Lease Agreement between CNL Retirement MA3 Georgia, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Brighton Gardens of Vinings — Atlanta, Georgia (Previously filed as Exhibit 10.45 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.46  Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Hearthside of Lynnwood — Lynnwood, Washington (Previously filed as Exhibit 10.46 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.47   Lease Agreement between CNL Retirement MA3 Washington, LP and Eleven Pack Management Corp. dated December 20, 2002, relating to the Hearthside of Snohomish — Snohomish, Washington (Previously filed as Exhibit 10.47 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.48  Lease Agreement between CNL Retirement MA2 California, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Hemet — Hemet, California (Previously filed as Exhibit 10.48 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.49  Lease Agreement between CNL Retirement MA2 Massachusetts, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Plymouth — Plymouth, Massachusetts (Previously filed as Exhibit 10.49 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.50  Lease Agreement between CNL Retirement MA2 Ohio, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the MapleRidge of Willoughby — Willoughby, Ohio (Previously filed as Exhibit 10.50 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

vi

10.51  Lease Agreement between CNL Retirement MA2 Arkansas, LP and Eight Pack Management Corp. dated December 20, 2002, relating to the Pleasant Hills Retirement Community — Little Rock, Arkansas (Previously filed as Exhibit 10.51 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.52  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as Sellers, and CNL Retirement MA2, LP, as Purchaser, CNL Retirement Partners, LP as the Orland Park Owner and Eight Pack Management Corp., as Tenant, relating to the Brighton Gardens of Hoffman Estates —Hoffman Estates, Illinois; Brighton Gardens of Tulsa — Tulsa, Oklahoma; MapleRidge of Hemet — Hemet, California; MapleRidge of Plymouth — Plymouth, Massachusetts; MapleRidge of Willoughby — Willoughby, Ohio and Pleasant Hills Retirement Community — Little Rock, Arkansas (Previously filed as Exhibit 10.52 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.53  Purchase and Sale Agreement between Marriott Senior Living Services, Inc., MSLS-MapleRidge, Inc., and Marriott International, Inc., as Sellers, and CNL Retirement MA3, LP, as Purchaser, and Eleven Pack Management Corp., as Tenant, relating to the Brighton Gardens of Bellevue — Bellevue, Washington; Brighton Gardens of Oklahoma City — Oklahoma City, Oklahoma; Brighton Gardens of Santa Rosa — Santa Rosa, California; Brighton Gardens of Vinings — Atlanta, Georgia; Hearthside of Lynnwood — Lynnwood, Washington and Hearthside of Snohomish — Snohomish, Washington (Previously filed as Exhibit 10.53 to Post-Effective Amendment No. Four to the Registrant’s Registration Statement on Form S-11 filed February 14, 2003 and incorporated herein by reference.)

10.54  Credit Agreement dated as of March 17, 2003 by and among CNL Retirement Partners, LP, as Borrower, CNL Retirement GP Corp., as a Parent and Guarantor, CNL Retirement LP Corp., as a Parent and Guarantor, CNL Retirement Properties, Inc. and each of the other Guarantors, Bank of America, N.A., as Administrative Agent, and Banc of America Securities LLC, as Sole Lead Arranger and as Book Manager, and the financial institutions party hereto and their assignees under Section 11.7, as Lenders (Previously filed as Exhibit 10.54 to Pre-Effective Amendment No. One to the Registrant’s Registration Statement on Form S-11 filed March 24, 2003 and incorporated herein by reference.)

10.55  Purchase and Sale Agreement between Marriott Continuing Care, LLC, as Sellers, and Marriott International, Inc. and CNL Retirement MA3, LP, as Purchaser, relating to the Fairfax Continuing Care Retirement Community – Fort Belvoir, Virginia and the Quadrangle Continuing Care Retirement Community – Haverford, Pennsylvania. (Previously filed as Exhibit 10.48 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.56  Lease Agreement between CNL Retirement MA3 Virginia, LP and Marriott Continuing Care, LLC dated March 28, 2003, relating to the Fairfax Continuing Care Retirement Community –Fort Belvoir, Virginia. (Previously filed as Exhibit 10.49 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.57  Lease Agreement between CNL Retirement MA3 Pennsylvania, LP and Marriott Continuing Care, LLC dated March 28, 2003, relating to the Quadrangle Continuing Care Retirement Community – Haverford, Pennsylvania. (Previously filed as Exhibit 10.50 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

10.58  Assumption and Reimbursement Agreement between Marriott International, Inc., as Assignor, Marriott Continuing Care, LLC, as Assignor, CNL Retirement Properties, Inc., as Assignee, CNL Retirement MA3 Pennsylvania, LP, as Assignee, and CNL Retirement MA3 Virginia, LP, as Assignee, dated March 28, 2003. (Previously filed as Exhibit 10.51 to the Form 10-Q filed May 15, 2003 and incorporated herein by reference.)

vii

10.59  Purchase and Sale Agreement by and among WEC 99C-1, LLC, WEC 99C-2, LLC, WEC 99C-3, LLC, WEC 99C-4, LLC, WEC 99C-5, LLC, WEC 99C-6, LLC, WEC 99C-7, LLC, WEC 99C-8, LLC, WEC 99C-9, LLC, WEC 99C-10, LLC, WEC 99C-11, LLC, WEC 99C-12, LLC, WEC 99C-13, LLC, and WEC 99C-14, LLC, respectively, as Sellers, and CNL Retirement Properties, Inc., as Purchaser dated August 29, 2003. (Previously filed as Exhibit 10.59 to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

10.60  Purchase and Sale Agreement by and among Sunrise Assisted Living Limited Partnership, Sunrise Farmington Hills Assisted Living, L.L.C., Atlantic-Sunrise, LLC, Sunrise Poland Assisted Living, L.L.C., Sunrise Raleigh Assisted Living, LLC, Sunrise Assisted Living Limited Partnership VIII, L.P., and ADG on Sheepshead Bay, LLC, as Seller and CNL Retirement Corp., as Purchaser and Twenty Pack Management Corp. as Tenant dated September 29, 2003. (Previously filed as Exhibit 10.60 to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

10.61  Pooling Agreement by and among Sunrise Senior Living Management, Inc., as Manager and Twenty Pack Management Corp., Sunrise Five Forks Assisted Living, L.L.C., Sunrise Development, Inc. and Sunrise Madison Senior Living, L.L.C., as Owners and CNL Retirement Sun1, LP, CNL Retirement Sun1 Beverly Hills CA, LP, CNL Retirement Sun1 Cresskill NJ, LP, CNL Retirement Sun1 Edmonds WA, LP, CNL Retirement Sun1 Lilburn GA, LP and CNL Retirement Sun1 Madison NJ, LP, as Landlords dated September 30, 2003. (Previously filed as Exhibit 10.61 to Post-Effective Amendment No. Three to the Registrant’s Registration Statement on Form S-11 filed October 21, 2003 and incorporated herein by reference.)

23.1  Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accountants, dated January 20, 2004 (Filed herewith.)

23.2 Consent of Greenberg Traurig, LLP (Contained in its opinions previously filed as Exhibits 5 and 8 to Pre-Effective Amendment No. One to the Registrant's Registration Statement on Form S-11filed March 24, 2003          and incorporated herein by reference.)

23.3 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.4 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.5 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.6 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.7 Consent of Ernst & Young LLP, Independent Auditors, dated January 20, 2004 (Filed herewith.)

23.8  Consent of PricewaterhouseCoopers LLP, Independent Certified Public Accountants, dated January 20, 2004 (Filed herewith.)

24.
Power of Attorney (Filed herewith.)

   EXHIBIT 23.1

Consent of PricewaterhouseCoopers LLP,

Independent Certified Public Accountants,

dated January 20, 2004

CONSENT OF INDEPENDENT CERTIFIED PUBLIC ACCOUNTANTS

We hereby consent to the use in this Post-Effective Amendment No. Four to the Registration Statement on Form S-11 of our report dated February 19, 2003, relating to the financial statements and financial statement schedule of CNL Retirement Properties, Inc., and our report dated May 7, 2002, relating to the combined financial statements of American Retirement Communities Portfolio (a group of related properties acquired by CNL Retirement Properties, Inc.), which appear in such Registration Statement. We also consent to the reference to us under the heading "Experts" in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Orlando, Florida
January 20, 2004

EXHIBIT 23.3

Consent of Ernst & Young LLP,

Independent Auditors,

dated January 20, 2004

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption "Experts" and to the use of our reports dated February 22, 2002, except for Note 9 as to which the date is September 30, 2002; February 22, 2002, except for Note 10 as to which the date is September 30, 2002; and March 1, 2002, with respect to the financial statements of Prime Care One Portfolio (a Group of Related Properties to be Acquired by CNL Retirement Properties, Inc.), Prime Care Two, LLC and Prime Care Eight, LLC, respectively, incorporated by reference in Post-Effective Amendment No. Four to the Form S-11 Registration Statement (Form S-11 No. 333-100347) and included in the related Prospectus of CNL Retirement Properties, Inc.

/s/ Ernst & Young LLP
Ernst & Young LLP

Indianapolis, Indiana
January 20, 2004

EXHIBIT 23.4

Consent of Ernst & Young LLP,

Independent Auditors,

dated January 20, 2004

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated January 9, 2003, with respect to the combined financial statements of Marriott Senior Living Services Twenty-One Communities (a group of related properties acquired by CNL Retirement Properties, Inc.), included in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-100347) and related Prospectus of CNL Retirement Properties, Inc.

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated March 28, 2003, with respect to the combined financial statements of Marriott Senior Living Services Nine Communities (a group of related properties acquired by CNL Retirement Properties, Inc.), included in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-100347) and related Prospectus of CNL Retirement Properties, Inc.

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated October 14, 2003, with respect to the combined financial statements of Sunrise Senior Living Services Fourteen Communities (a group of related properties acquired by CNL Retirement Properties, Inc.), included in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-100347) and related Prospectus of CNL Retirement Properties, Inc.

                                                                                                                                                                                            /s/ Ernst & Young LLP

McLean, Virginia
January 20, 2004

EXHIBIT 23.5

Consent of Ernst & Young LLP,

Independent Auditors,

dated January 20, 2004

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption “Experts” and to the use of our reports dated February 28, 2003, with respect to the combined financial statements of Prime Care One, LLC and PC1, LLC and the combined financial statements of Prime Care Two, LLC and PC2, LLC, incorporated by reference in the Post-Effective Amendment No. Four to the Form S-11 Registration Statement (Form S-11 No. 333-100347) and included in the related Prospectus of CNL Retirement Properties, Inc.

/s/ Ernst & Young LLP
Ernst & Young LLP

Indianapolis, Indiana
January 20, 2004

EXHIBIT 23.6

Consent of Ernst & Young LLP,

Independent Auditors,

dated January 20, 2004

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated December 5, 2003, with respect to the combined financial statements of Sunrise Senior Living, Inc. Sixteen Communities (a group of related properties acquired by CNL Retirement Properties, Inc.), included in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-100347) and related Prospectus of CNL Retirement Properties, Inc.

 
                                                                                                                                                                                                          /s/ Ernst & Young LLP

McLean, Virginia
January 20, 2004

EXHIBIT 23.7

Consent of Ernst & Young LLP,

Independent Auditors,

dated January 20, 2004

CONSENT OF INDEPENDENT AUDITORS

We consent to the reference to our firm under the caption “Experts” and to the use of our report dated April 11, 2003, with respect to the consolidated financial statements of EdenCare Senior Living Services, L.P., included in Post-Effective Amendment No. 4 to the Registration Statement (Form S-11 No. 333-100347) and related Prospectus of CNL Retirement Properties, Inc.

                                                                                                                                                                             /s/ Ernst & Young LLP

Atlanta, Georgia
January 20, 2004

EXHIBIT 23.8

Consent of PricewaterhouseCoopers LLP,

Independent Accountants,

dated January 20, 2004

CONSENT OF INDEPENDENT ACCOUNTANTS

We hereby consent to the use in this Post-Effective Amendment No. Four to the Registration Statement on Form S-11 of our report dated March 13, 2003 except for Notes 4 and 8 which are May 16, 2003, relating to the financial statements of Horizon Bay Senior Communities Twenty Communities, which appear in such Registration Statement. We also consent to the reference to us under the heading “Experts” in such Registration Statement.

/s/ PricewaterhouseCoopers LLP
PricewaterhouseCoopers LLP

Chicago, Illinois
January 20, 2004

GREENBERG TRAURIG, LLP
A LAW PARTNERSHIP INCLUDING PROFESSIONAL CORPORATIONS

Met Life Building
200 Park Avenue
New York, New York 10166
212.801.9330
Facsimile 212.801.6400

January 21, 2004

VIA EDGAR

Securities and Exchange Commission
450 Fifth Street, N.W.
Washington, D.C. 20549

Attn:   Mr. Owen Pinkerton

Re: CNL Retirement Properties, Inc.
Post-Effective Amendment No. Four
to Registration Statement on Form S-11 (No. 333-100347)

Ladies and Gentlemen:

        Attached for filing on behalf of CNL Retirements Properties, Inc. (the “Company”) is Post-Effective Amendment No. Four to the Company’s Registration Statement on Form S-11 (No. 333-100347).

        Please direct any comments or questions regarding this filing to the undersigned at the above address or facsimile number, or if by telephone at (212) 801-9330.

Sincerely,


/s/ Judith D. Fryer
——————————————
Judith D. Fryer