10-Q 1 if3-jun02.txt CNL INCOME FUND III, LTD. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 (X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT of 1934 For the quarterly period ended June 30, 2002 -------------------------------------------------------------------------- OR ( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE ACT of 1934 For the transition period from ___________________ to _______________________ Commission file number 0-16850 --------------------------------------- CNL Income Fund III, Ltd. ----------------------------------------------------------------------------- (Exact name of registrant as specified in its charter) Florida 59-2809460 ------------------------------------ ------------------------------ (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 450 South Orange Avenue Orlando, Florida 32801 ------------------------------------ ------------------------------ (Address of principal executive offices) (Zip Code) Registrant's telephone number (including area code) (407) 540-2000 ------------------------------ Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No _____ CONTENTS Page Part I. Item 1. Financial Statements: Condensed Balance Sheets 1 Condensed Statements of Income 2 Condensed Statements of Partners' Capital 3 Condensed Statements of Cash Flows 4 Notes to Condensed Financial Statements 5-7 Item 2. Management's Discussion and Analysis of Financial Condition and Results of Operations 8-11 Item 3. Quantitative and Qualitative Disclosures About Market Risk 11 Part II. Other Information 12-13 CNL INCOME FUND III, LTD. (A Florida Limited Partnership) CONDENSED BALANCE SHEETS

See accompanying notes to condensed financial statements. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF INCOME

See accompanying notes to condensed financial statements. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF PARTNERS' CAPITAL

See accompanying notes to condensed financial statements. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) CONDENSED STATEMENTS OF CASH FLOWS

See accompanying notes to condensed financial statements. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 1. Basis of Presentation: --------------------- The accompanying unaudited condensed financial statements have been prepared in accordance with the instructions to Form 10-Q and do not include all of the information and note disclosures required by generally accepted accounting principles. The financial statements reflect all adjustments, consisting of normal recurring adjustments, which are, in the opinion of management, necessary to a fair statement of the results for the interim periods presented. Operating results for the quarter and six months ended June 30, 2002 may not be indicative of the results that may be expected for the year ending December 31, 2002. Amounts as of December 31, 2001, included in the financial statements have been derived from audited financial statements as of that date. These unaudited financial statements should be read in conjunction with the financial statements and notes thereto included in Form 10-K of CNL Income Fund III, Ltd. (the "Partnership") for the year ended December 31, 2001. The Partnership accounts for its 69.07% interest in Tuscawilla Joint Venture using the consolidation method. Minority interests represents the minority joint venture partners' proportionate share of the equity in the Partnership's consolidated joint venture. All significant intercompany accounts and transactions have been eliminated. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The 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 if the disposal activity was initiated subsequent to the adoption of the Standard. 2. Reclassification: ---------------- Certain items in the prior year's financial statements have been reclassified to conform to 2002 presentation. These reclassifications had no effect on total partners' capital or net income. 3. Land and Buildings on Operating Leases: -------------------------------------- During the six months ended June 30, 2002, the Partnership established a provision for write-down of assets of $46,356 relating to its property in Fayetteville, North Carolina. In January, the tenant of this property, Houlihan's, Inc., filed for bankruptcy and rejected the one lease it had with the Partnership. The provision represented the difference between the carrying value of the property and its fair value. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 3. Land and Buildings on Operating Leases - Continued: -------------------------------------------------- In May 2002, the Partnership sold the property in Montgomery, Alabama, the building portion of which is classified as a direct financing lease (see Note 4), to an unrelated third party for $400,000. The Partnership received net sales proceeds of approximately $398,300 (consisting of approximately $78,300 in cash and $320,000 in the form of a promissory note, see Note 5) resulting in a loss of $9,945 during the quarter and six months ended June 30, 2002. In connection with the sale, the Partnership incurred a deferred, subordinated, real estate disposition fee of $12,000 (see Note 7). This property was identified for sale as of December 31, 2001. In June 2002, the Partnership established a provision for write-down of assets of $76,649 relating to its property in Altus, Oklahoma, the lease for which is scheduled to expire in October 2002. The provision represented the difference between the carrying value of the property and its fair value. 4. Net Investment in Direct Financing Leases: ----------------------------------------- In January 2002, the tenant of the property in Canton Township, Ohio, filed for bankruptcy, and in February 2002, rejected the one lease it had with the Partnership. As a result, the Partnership reclassified the asset to land and buildings on operating leases and recorded the reclassified asset at the lower of original cost, present fair value, or present carrying amount. No loss on termination of direct financing lease was recorded. In May 2002, the Partnership sold the property in Montgomery, Alabama to an unrelated third party (see Note 3). In connection with the sale, the gross investment (minimum lease payments receivable and the estimated residual value) and unearned income relating to the building were removed from the accounts and the loss from the sale of the property was reflected in income. 5. Mortgage Note Receivable: -------------------------- In connection with the sale of its property in Montgomery, Alabama, the Partnership accepted a promissory note in the principal sum of $320,000, collateralized by a mortgage on the property (see Note 3). The promissory note bears interest at a rate of ten percent per annum for the first year, twelve percent per annum for the second year and fourteen percent per annum for the third year. The payments are being collected in monthly installments of $1,333 plus any accrued interest, with a balloon payment of $273,333, due in June 2005. In addition, if the borrower does not pay off the promissory note, a loan fee of one percent, two percent and three percent of the outstanding principal balance as of May 31, 2003, 2004, and 2005, respectively will be due. 6. Investment in Joint Ventures: ---------------------------- In January 2002, Titusville Joint Venture, in which the Partnership owned a 73.4% interest, sold its property, which had been vacant since 1997, to an unrelated third party for $180,000 and received net sales proceeds of approximately $165,600, resulting in a gain of approximately $4,900 to the joint venture. The Partnership and the joint venture partner dissolved the joint venture and the Partnership received approximately $106,500 representing its pro rata share of the joint venture's liquidating distribution. No gain or loss was recorded relating to the dissolution of the joint venture. CNL INCOME FUND III, LTD. (A Florida Limited Partnership) NOTES TO CONDENSED FINANCIAL STATEMENTS Quarters and Six Months Ended June 30, 2002 and 2001 7. Related Party Transaction: -------------------------- An affiliate of the Partnership is entitled to receive a deferred, subordinated real estate disposition fee, payable upon the sale of one or more properties, based on the lesser of one-half of a competitive real estate commission or three percent of the sales price if the Advisor provides a substantial amount of services in connection with the sales. However, if the net sales proceeds are reinvested in a replacement property, no such real estate disposition fees will be incurred until such replacement property is sold and the net sales proceeds are distributed. The payment of the real estate disposition fee is subordinated to the receipt by the limited partners of their aggregate, cumulative 10% Preferred Return, plus their adjusted capital contributions. During the six months ended June 30, 2002, the Partnership incurred a deferred, subordinated real estate disposition fee of $12,000 as a result of the Partnership's sale of the property in Montgomery, Alabama. 8. Concentration of Credit Risk: ---------------------------- The following schedule presents total rental revenues from individual lessees, each representing more than 10% of the Partnership's total rental revenues (including the Partnership's share of rental revenues from joint ventures and the properties held as tenants-in-common with affiliates of the general partners) for each of the periods ended June 30: 2002 2001 --------------- --------------- IHOP Properties, Inc. $ 139,814 $ 140,095 Golden Corral Corp. 84,866 161,019 In addition, the following schedule presents total rental revenues from individual restaurant chains, each representing more than 10% of the Partnership's total rental revenues (including the Partnership's share of rental revenues from joint ventures and the properties held as tenants-in-common with affiliates of the general partners) for each of the periods ended June 30: 2002 2001 -------------- ------------- Golden Corral Family Steakhouse Restaurants $ 139,855 $ 284,604 IHOP 139,814 140,095 KFC 135,318 125,137 Taco Bell 86,334 N/A Pizza Hut 82,256 N/A The information denoted by N/A indicates that for each period presented, the chains did not represent more than 10% of the Partnership's total rental and earned income. Although the Partnership's properties are geographically diverse throughout the United States and the Partnership's lessees operate a variety of restaurant concepts, default by any one of these lessees or restaurant chains will significantly impact the results of operations of the Partnership if the Partnership is not able to re-lease the properties in a timely manner. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS OF OPERATIONS CNL Income Fund III, Ltd. (the "Partnership") is a Florida limited partnership that was organized on June 1, 1987 to acquire for cash, either directly or through joint venture arrangements, both newly constructed and existing restaurant properties, as well as land upon which restaurants were to be constructed (the "Properties"), which are leased primarily to operators of selected national and regional fast-food restaurant chains. The leases generally are triple-net leases, with the lessees responsible for all repairs and maintenance, property taxes, insurance and utilities. As of June 30, 2001, the Partnership owned 20 Properties directly and seven Properties indirectly through joint venture or tenancy in common arrangements. As of June 30, 2002, the Partnership owned 17 Properties directly and six Properties indirectly through joint venture or tenancy in common arrangements. Capital Resources The Partnership's primary source of capital for the six months ended June 30, 2002 and 2001, was cash from operating activities (which includes cash received from tenants, distributions from joint ventures, and interest and other income received, less cash paid for expenses). Cash from operating activities was $618,661 and $845,168 for the six months ended June 30, 2002 and 2001, respectively. The decrease in cash from operating activities for the six months ended June 30, 2002, as compared to the same period of 2001 was primarily a result of changes in the Partnership's income and expenses, as described below. Other sources and uses of capital included the following during the six months ended June 30, 2002. In January 2002, Titusville Joint Venture, in which the Partnership owned a 73.40% interest, sold its Property, which had been vacant since 1997, to an unrelated third party for $180,000 and received net sales proceeds of approximately $165,600 resulting in a gain of approximately $4,900 to the joint venture. The Partnership and the joint venture partner dissolved the joint venture in accordance with the joint venture agreement and the Partnership received approximately $106,500 representing its pro rata share of the joint venture's liquidating distribution. No gain or loss was recorded relating to the dissolution of the joint venture. The Partnership distributed the liquidation proceeds as a special distribution to the limited partners, as described below. In May 2002, the Partnership sold its Property in Montgomery, Alabama to an unrelated third party for $400,000 and received net sales proceeds of approximately $398,300 (consisting of approximately $78,300 in cash and $320,000 in the form of a promissory note) resulting in a loss of $9,945 during the quarter and six months ended June 30, 2002. The promissory note bears interest at a rate of ten percent per annum for the first year, twelve percent per annum for the second year, and fourteen percent per annum for the third year. The payments are being collected in monthly installments of $1,333 plus any accrued interest, with a balloon payment of $273,333, due in June 2005. In addition, a loan fee of one percent, two percent and three percent of the outstanding principal balance as of May 31, 2003, 2004, and 2005, respectively is due. This Property was identified for sale as of December 31, 2001. In connection with the sale, the Partnership incurred a deferred, subordinated real estate disposition fee of $12,000. Payment of the real estate disposition fee is subordinated to the receipt by the limited partners of their aggregate, cumulative 10% Preferred Return, plus their adjusted capital contributions. The Partnership used these sales proceeds to pay liabilities of the Partnership. The Partnership distributed amounts sufficient to enable the limited partners to pay federal and state income taxes, if any (at a level reasonably assumed by the general partners), resulting from the sale. Currently, rental income from the Partnership's Properties and any net sales proceeds from the sales of Properties are invested in money market accounts or other short-term, highly liquid investments such as demand deposit accounts at commercial banks, money market accounts and certificates of deposit with less than a 90-day maturity date, pending the Partnership's use of such funds to pay Partnership expenses or to make distributions to the partners. At June 30, 2002, the Partnership had $607,122 invested in such short-term investments, as compared to $1,242,931 at December 31, 2001. The decrease in cash and cash equivalents at June 30, 2002 was primarily due to the fact that during the six months ended June 30, 2002, the Partnership used the net sales proceeds that were held at December 31, 2001 to pay a special distribution to the limited partners. The funds remaining at June 30, 2002, after payment distributions and other liabilities, will be used to meet the Partnership's working capital needs. Short Term Liquidity The Partnership's short-term liquidity requirements consist primarily of the operating expenses of the Partnership. The Partnership's investment strategy of acquiring Properties for cash and leasing them under triple-net leases to operators who generally meet specified financial standards minimizes the Partnership's operating expenses. The general partners believe that the leases will continue to generate cash flow in excess of operating expenses. The general partners have the right, but not the obligation, to make additional capital contributions if they deem it appropriate in connection with the operations of the Partnership. The Partnership generally distributes cash from operations remaining after the payment of operating expenses of the Partnership, to the extent that the general partners determine that such funds are available for distribution. Based on current and anticipated future cash from operations, and for the six months ended June 30, 2002, the net sales proceeds from the 2001 sale of the Property in Washington, Illinois and the liquidating distribution received from Titusville Joint Venture, the Partnership declared distributions to limited partners of $1,350,000 and $875,000 for the six months ended June 30, 2002 and 2001, respectively, ($375,000 and $437,500 for the quarters ended June 30, 2002 and 2001, respectively). This represents distributions of $27.00 and $17.50 per unit for the six months ended June 30, 2002 and 2001, respectively, ($7.50 and $8.75 per unit for each applicable quarter). Distributions for the six months ended June 30, 2002 included a special distribution of $600,000 as a result of the distribution of the net sales proceeds from the 2001 sale of the Property in Washington, Illinois and the liquidating distribution received from Titusville Joint Venture. This special distribution was effectively a return of a portion of the limited partners' investment, although, in accordance with the Partnership agreement, it was applied to the limited partner's unpaid cumulative 10% Preferred Return. As a result of the sale of several Properties in 2002 and 2001, the Partnership's total revenue was reduced and is expected to remain reduced in subsequent periods, while the majority of the Partnership's operating expenses remained and are expected to remain fixed. Therefore, distributions of net cash flow were adjusted commencing during the quarter ended March 31, 2002. No distributions were made to the general partners for the quarters and six months ended June 30, 2002 and 2001. No amounts distributed to the limited partners for the six months ended June 30, 2002 and 2001 are required to be or have been treated by the Partnership as a return of capital for purposes of calculating the limited partners' return on their adjusted capital contributions. The Partnership intends to continue to make distributions of cash available for distribution to the limited partners on a quarterly basis. Total liabilities of the Partnership, including distributions payable, were $543,405 at June 30, 2002, as compared to $595,264 at December 31, 2001. The decrease in liabilities at June 30, 2002 was primarily due to a decrease in distributions payable to the limited partners at June 30, 2002, as described above. The general partners believe that the Partnership has sufficient cash on hand to meet its current working capital needs. Long-Term Liquidity The Partnership has no long-term debt or other long-term liquidity requirements. Results of Operations Total rental revenues were $613,198 for the six months ended June 30, 2002, as compared to $814,071 for the six months ended June 30, 2001, of which $292,900 and $408,539 were earned during the second quarter of 2002 and 2001, respectively. Rental revenues decreased during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, partially as a result of the sales of several Properties during 2001 and 2002. Rental revenues are expected to remain at reduced amounts due to the fact that the Partnership used the majority of these net sales proceeds to pay liabilities of the Partnership and to make distributions to the limited partners. The decrease in rental revenues during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was also partially due to the fact that in 2002, two of the Partnership's tenants, Paragon of Michigan, Inc. and Houlihan's, Inc. filed for bankruptcy, ceased rental payments and rejected the one lease each had with the Partnership. As a result of the rejected leases, the Partnership stopped recording rental revenue relating to these Properties. The Partnership will not recognize any rental revenues from these vacant Properties until the Properties are re-leased or sold, and the proceeds are reinvested in additional Properties. The lost revenues resulting from the rejected leases will have an adverse effect on the results of operations of the Partnership if the Partnership is unable to re-lease the Properties in a timely manner. The general partners are currently seeking a replacement tenant for the vacant Properties. During the six months ended June 30, 2002 and 2001, the Partnership also earned $32,506 and $87,897, respectively, in contingent rental income, of which $5,486 and $77,516 was earned during the quarters ended June 30 2002 and 2001, respectively. The decrease in contingent rental income was primarily a result of a decrease in gross sales of certain restaurant Properties with leases requiring the payment of contingent rental income. During the six months ended June 30, 2002, two lessees of the Partnership, Golden Corral Corporation, and IHOP Properties, Inc., each contributed more than 10% of the Partnership's total rental revenues (including rental revenues from the Partnership's consolidated joint venture and the Partnership's share of rental revenues from Properties owned by unconsolidated joint ventures and Properties owned with affiliates of the general partners as tenants-in-common). It is anticipated that, based on the minimum rental payments required by the leases, IHOP Properties, Inc. will continue to contribute more than 10% of the Partnership's total rental revenues. In addition, five restaurant chains, Golden Corral Family Steakhouse Restaurants ("Golden Corral"), IHOP, KFC, Taco Bell, and Pizza Hut, each accounted for more than 10% of the Partnership's total rental revenues, (including rental revenues from the Partnership's consolidated joint venture and the Partnership's share of the rental revenues from Properties owned by unconsolidated joint ventures and Properties owned with affiliates of the general partners as tenants-in-common). It is anticipated that these five restaurant chains, each will continue to account for more than 10% of total rental revenues to which the Partnership is entitled under the terms of the leases. Any failure of these lessees or any of these restaurant chains could materially affect the Partnership's income, if the Partnership is not able to re-lease these Properties in a timely manner. During the six months ended June 30, 2002 and 2001, the Partnership earned $102,559 and $69,233, respectively, attributable to net income earned by unconsolidated joint ventures, $51,929 and $20,012 of which was earned during the quarters ended June 30, 2002 and 2001. Net income earned by unconsolidated joint ventures was lower during the quarter and six months ended June 30, 2001, as compared to the same periods of 2002 primarily due to the fact that during the quarter and six months ended June 30, 2001, Titusville Joint Venture (in which the Partnership owns a 73.4% interest) recorded a provision for write-down of assets of approximately $38,300. The Property owned by the joint venture became vacant during 1997. Titusville Joint Venture had previously recorded a provision for write-down of assets relating to this Property. The increase in the provision during 2001 represented the difference between the Property's carrying value and its fair value. In January 2002, Titusville Joint Venture sold its property, to an unrelated third party for $180,000 and received net sales proceeds of approximately $165,600 resulting in a gain of approximately $4,900 to the joint venture. The Partnership and the joint venture partner dissolved the joint venture in accordance with the joint venture agreement and the Partnership received approximately $106,500 representing its pro rata share of the joint venture's liquidating distribution. No gain or loss was recorded relating to the dissolution of the joint venture. The Partnership used these proceeds to pay liabilities of the Partnership and make distributions, as described above in "Capital Resources." Operating expenses, including depreciation expense and provision for write-down of assets, were $421,685 and $294,521 for the six months ended June 30, 2002 and 2001, respectively, of which $218,055 and $132,374 was incurred during the quarters ended June 30, 2002 and 2001. The increase in operating expenses during the quarter and six months ended June 30, 2002, as compared to the same periods of 2001, was partially due to the fact that during the six months ended 2002, the Partnership recorded a provision for write-down of assets of $46,356 relating to the Property in Fayetteville, North Carolina. The provision represented the difference between the carrying value of the Property and its fair value. In January, the tenant of this property, Houlihan's, Inc., filed for bankruptcy and rejected the one lease it had with the Partnership, as described above. In addition, during the quarter ended June 30, 2002, the Partnership recorded a provision for write-down of assets of $79,649 relating to the Property in Altus, Oklahoma, the lease for which is scheduled to expire in October 2002. The provision represented the difference between the carrying value of the Property and its fair value. The increase in operating expenses during the six months ended June 30, 2002, as compared to the same period of 2001, was partially offset by a decrease in the costs incurred for administrative expenses for servicing the Partnership and its Properties and a decrease in depreciation expense as a result of the sales of two Properties during 2001. The increase in operating expenses was also partially due to the fact that the Partnership incurred Property expenses, such as legal fees, real estate taxes, insurance, and maintenance relating to the two vacant Properties, the leases for which were rejected, as described above. The general partners anticipate that the Partnership will continue to incur these expenses related to the vacant Properties until such time as the Partnership executes a new lease for the Properties or until the Partnership sells the Properties and the sales proceeds are reinvested in additional Properties. The general partners are currently seeking new tenants for the vacant Properties. In addition, the increase in operating expenses during the six months ended June 30, 2002, was partially due to an increase in the amount of state tax expense relating to certain states in which the Partnership conducts business. Effective January 1, 2002, the Partnership adopted Statement of Financial Accounting Standards No. 144 "Accounting for the Impairment or Disposal of Long-Lived Assets." This statement requires that a long-lived asset be tested for recoverability whenever events or changes in circumstances indicate that its carrying amount may not be recoverable. The carrying amount of a long-lived asset is not recoverable if it exceeds the sum of the undiscounted cash flows expected to result from the use and eventual disposition of the asset. The assessment is based on the carrying amount of the asset at the date it is tested for recoverability. An impairment loss is recognized when the carrying amount of a long-lived asset exceeds its fair value. If an impairment is recognized, the adjusted carrying amount of a long-lived asset is its new cost basis. The 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 if the disposal activity was initiated subsequent to the adoption of the Standard. Item 3. Quantitative and Qualitative Disclosures About Market Risk During the six months ended June 30, 2002, the Partnership accepted a promissory note in connection with the sale of its Property in Montgomery, Alabama. The general partners believe that the estimated fair value of the mortgage note at June 30, 2002 approximated the outstanding principal amounts. The Partnership is exposed to equity loss in the event of changes in interest rates. The following table presents the expected cash flows of principal that are sensitive to these changes. Mortgage Note Fixed Rate ------------------- 2002 $ 8,000 2003 16,000 2004 16,000 2005 280,000 2006 -- Thereafter -- ------------------- $ 320,000 =================== PART II. OTHER INFORMATION Item 1. Legal Proceedings. Inapplicable. ----------------- Item 2. Changes in Securities. Inapplicable. --------------------- Item 3. Defaults upon Senior Securities. Inapplicable. ------------------------------- Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable. --------------------------------------------------- Item 5. Other Information. Inapplicable. ----------------- Item 6. Exhibits and Reports on Form 8-K. -------------------------------- (a) Exhibits 3.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to the Registration Statement No. 33-15374 on Form S-11 and incorporated herein by reference.) 3.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 4.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-15374 on Form S-11 and incorporated herein by reference.) 4.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 10.2 Assignment of Property Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.) 10.3 Assignment of Property Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.) 10.4 Assignment of Management Agreement from CNL Fund Advisors, Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 10, 2001, and incorporated herein by reference.) 10.5 Assignment of Management Agreement from CNL APF Partners, LP to CNL Restaurants XVIII, Inc. (Filed herewith.) (b) Reports on Form 8-K No reports of Form 8-K were filed during the quarter ended June 30, 2002. SIGNATURES Pursuant to the requirements of the Securities Exchange Act of 1934, as amended, the registrant has duly caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. DATED this 6th day of August, 2002. CNL INCOME FUND III, LTD. By: CNL REALTY CORPORATION General Partner By:/s/ James M. Seneff, Jr. ----------------------------- JAMES M. SENEFF, JR. Chief Executive Officer (Principal Executive Officer) By:/s/ Robert A. Bourne ----------------------------- ROBERT A. BOURNE President and Treasurer (Principal Financial and Accounting Officer) CERTIFICATION OF CHIEF EXECUTIVE OFFICER OF CORPORATE GENERAL PARTNER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, James M. Seneff, Jr., the Chief Executive Officer of CNL Realty Corporation, the corporate general partner of CNL Income Fund III, Ltd. (the "Partnership"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Partnership's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: August 6, 2002 /s/ James M. Seneff, Jr. --------------- ---------------------------------- Name: James M. Seneff, Jr. Title: Chief Executive Officer CERTIFICATION OF CHIEF FINANCIAL OFFICER OF CORPORATE GENERAL PARTNER PURSUANT TO 18 U.S.C. SECTION 1350 AS ADOPTED PURSUANT TO SECTION 906 OF THE SARBANES-OXLEY ACT OF 2002 The undersigned, Robert A. Bourne, the President and Treasurer of CNL Realty Corporation, the corporate general partner of CNL Income Fund III, Ltd. (the "Partnership"), has executed this certification in connection with the filing with the Securities and Exchange Commission of the Partnership's Quarterly Report on Form 10-Q for the period ending June 30, 2002 (the "Report"). The undersigned hereby certifies that: (1) the Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) the information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. Date: August 6, 2002 /s/ Robert A. Bourne ------------------------------ ---------------------------- Name: Robert A. Bourne Title: President and Treasurer EXHIBIT INDEX Exhibit Number (c) Exhibits 3.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.1 to Amendment No. 1 to the Registration Statement No. 33-15374 on Form S-11 and incorporated herein by reference.) 3.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 4.1 Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 4.1 to Amendment No. 1 to Registration Statement No. 33-15374 on Form S-11 and incorporated herein by reference.) 4.2 Amended and Restated Agreement and Certificate of Limited Partnership of CNL Income Fund III, Ltd. (Included as Exhibit 3.2 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 10.1 Property Management Agreement (Included as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on April 5, 1993, and incorporated herein by reference.) 10.2 Assignment of Property Management Agreement from CNL Investment Company to CNL Income Fund Advisors, Inc. (Included as Exhibit 10.2 to Form 10-K filed with the Securities and Exchange Commission on March 30, 1995, and incorporated herein by reference.) 10.3 Assignment of Property Management Agreement from CNL Income Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as Exhibit 10.3 to Form 10-K filed with the Securities and Exchange Commission on April 1, 1996, and incorporated herein by reference.) 10.4 Assignment of Management Agreement from CNL Fund Advisors, Inc. to CNL APF Partners, LP. (Included as Exhibit 10.4 to Form 10-Q filed with the Securities and Exchange Commission on August 10, 2001, and incorporated herein by reference.) 10.5 Assignment of Management Agreement from CNL APF Partners, LP to CNL Restaurants XVIII, Inc. (Filed herewith.)

CNL INCOME FUND III LTD 10-Q