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Filed pursuant to Rule 424 (b)(3)
Registration No. 333-31437
CPA LOGO WPCAREY LOGO
CORPORATE PROPERTY ASSOCIATES 14
INCORPORATED
A Real Estate Investment Trust Offering a
Maximum of $300,000,000 in Shares
$10.00 per Share
Minimum Investment:
250 Shares
200 Shares for IRAs and Keogh Plans
(Minimum Investment may be higher in certain states)
Corporate Property Associates 14 Incorporated (the "Company") intends to
qualify as a real estate investment trust ("REIT") under federal tax laws. This
Prospectus describes an investment in the Shares of the Company. The Company may
sell as much as $300,000,000 in Shares.
The Company was incorporated as a Maryland corporation in June 1997. The
Company was formed for the purpose of primarily engaging in the business of
investing in and owning industrial and commercial real property. Carey Property
Advisors L.P. (the "Advisor") will manage the Company's business.
The Company intends to use investors' money together with borrowed money to
purchase industrial and commercial real estate properties ("Properties").
Generally, Properties will be leased to one tenant deemed to be creditworthy by
the Company's advisor under a lease that will in most cases require the tenant
to pay all of the costs of maintenance, insurance and real estate taxes.
Approximately 86% of the total amount of the money raised in the Offering is
expected to be used to purchase this type of real estate, and the balance is
expected to be used for working capital, fees and expenses.
Purchasing the Company's Shares involves certain risks. Investors should be
aware that:
-- Market Risks Associated With Real Estate Investments. There are market
risks associated with investments in real estate, including the potential
for a decrease in the value of the Properties and a decrease in
distributions to Shareholders.
-- Possible Reduction In Rate Of Distribution Due To Tenant Bankruptcy.
There is a potential for a reduction in the Company's cash flow and its
rate of distributions to Shareholders in the event that a tenant becomes
subject to bankruptcy proceedings or otherwise fails to fulfill its
monetary obligations to the Company. Certain tenants of prior Corporate
Property Associates programs have become subject to bankruptcy
proceedings or have failed to fulfill their monetary obligations to these
prior programs.
-- Shareholder Sale Of Shares At Less Than $10 Per Share. If a Shareholder
must sell his or her Shares in the near future, it is likely that a
Shareholder will have to sell them for less than $10 per Share.
-- Conflicts of Interest. Conflicts of interest may arise in connection with
the determination by the Advisor of whether to buy, hold or sell
properly. Such decisions may effect the amount of fees to be received by
the Advisor and the amount of distributions to Shareholders.
SEE THE "RISK FACTORS" SECTION BEGINNING ON PAGE 11 OF THIS PROSPECTUS FOR A
COMPLETE DISCUSSION OF THE RISKS ASSOCIATED WITH AN INVESTMENT IN THE COMPANY.
AN INVESTMENT IN THE SHARES INVOLVES A HIGH DEGREE OF RISK.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS TO
THE CONTRARY AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR CERTAINTY
OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY FLOW FROM AN
INVESTMENT IN THE COMPANY IS NOT PERMITTED.
DEFINED TERMS CONTAINED IN THE PROSPECTUS ARE LISTED IN THE GLOSSARY
BEGINNING ON PAGE 98. AN ORGANIZATIONAL CHART OF THE COMPANY IS ON PAGE 36.
THESE SECURITIES HAVE NOT BEEN APPROVED OR DISAPPROVED BY THE SECURITIES AND
EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION NOR HAS THE SECURITIES
AND EXCHANGE COMMISSION OR ANY STATE SECURITIES COMMISSION PASSED UPON THE
ACCURACY OR ADEQUACY OF THIS PROSPECTUS. ANY REPRESENTATION TO THE CONTRARY IS A
CRIMINAL OFFENSE.
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 UNLAWFUL.
<TABLE>
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PRICE SELLING PROCEEDS TO
TO PUBLIC COMMISSION(1) COMPANY(2)
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<S> <C> <C> <C>
Per Share..................................... $ 10 $ 0.65 $ 9.35
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Total Maximum................................. $300,000,000 $19,500,000 $280,500,000
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</TABLE>
(footnotes on following page)
CAREY FINANCIAL CORPORATION
The date of this Prospectus is August 18, 1998.
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Footnotes for outside front cover page:
(1) The Company will pay certain fees and expense reimbursements to the Sales
Agent and Selected Dealers in addition to the Selling Commission. See "The
Offering" section of this Prospectus for a complete description of the
amount and terms of such fees and expense reimbursements.
(2) Proceeds calculated before deducting certain Organization and Offering
Expenses (excluding Selling Commissions) payable by the Company, which
expenses are estimated to be approximately $12,000,000 if 30,000,000 Shares
are sold. To the extent all Organization and Offering Expenses (excluding
selling commissions and fees paid or expenses reimbursed to the Selected
Dealers) exceed 3.5% of the Gross Offering Proceeds, the excess expenses
will be paid by Advisor. See "The Offering".
The money accepted by the Sales Agent and Selected Dealers from the sale of
Shares will be promptly deposited into an interest bearing escrow account at The
United States Trust Company of New York. The interest earned in this account
will be paid to Investors. Money will be transferred from the escrow account to
the Company from time to time. Investors who have purchased Shares will become
Shareholders when their funds are transferred from the escrow account to the
Company's account. The Company may sell its Shares until they have all been
sold, unless it decides to stop selling them sooner. See "Terms of the Offering"
and "The Offering -- Escrow Arrangements."
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TABLE OF CONTENTS
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SUBMISSION
PAGE #
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Prospectus Summary.......................................... 4
Risk Factors................................................ 11
Terms of the Offering....................................... 20
Estimated Use of Proceeds................................... 22
Management Compensation..................................... 24
Conflicts of Interest....................................... 33
Prior Offerings by Affiliates............................... 37
Management.................................................. 41
Directors and Executive Officers of the Company........ 43
The Advisor............................................ 46
Directors and Principal Officers of Carey Fiduciary
Advisors, Inc. ....................................... 46
Shareholdings.......................................... 48
Management Decisions................................... 49
Limited Liability and Indemnification of Directors,
Officers, Employees And Other Agents.................. 49
The Advisory Agreement................................. 50
Investment Procedures, Objectives and Policies.............. 52
Investment Procedures.................................. 52
Investment Objectives.................................. 54
Types of Investments................................... 56
Use of Borrowing....................................... 60
Other Investment Policies.............................. 62
General........................................... 62
Holding Period for Investments and Application of
Proceeds of Sales or Refinancings.................. 62
Investment Limitations................................. 63
Change in Investment Objectives and Limitations........ 64
Holders of Shares of the Company............................ 64
Management Discussion and Analysis of Financial Condition... 65
Description of Properties................................... 67
United States Federal Income Tax Aspects.................... 75
State and Local Taxes....................................... 84
ERISA Considerations........................................ 85
Description of Shares....................................... 88
General Description of Shares.......................... 88
Meetings and Special Voting Requirements............... 89
Restriction on Ownership of Shares..................... 90
Dividends.............................................. 90
Repurchase of Shares................................... 91
Redemption of Shares................................... 91
Restrictions on Roll-up Transactions................... 93
Transfer Agent......................................... 93
The Offering................................................ 94
Escrow Arrangements.................................... 96
Reports to Shareholders..................................... 97
Legal Opinions.............................................. 97
Experts..................................................... 97
Sales Literature............................................ 98
Further Information......................................... 98
Glossary.................................................... 98
Financial Statements........................................ F-1
Prior Performance Tables -- Exhibit A....................... A-1
Specimen CPA(R):14 Order Form -- Exhibit B.................. B-1
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PROSPECTUS SUMMARY
The following summary is qualified in its entirety by the more detailed
information included elsewhere in this Prospectus. The more detailed information
following this summary is set forth in the same order as the topics appearing in
this summary. Investors are encouraged to read this Prospectus for a complete
explanation of an investment in the Company. Defined terms contained in the
Prospectus are listed in the Glossary beginning on Page 98. An organizational
chart of the Company is on Page 36.
RISK FACTORS
An investment in the Company has many risks. The "Risk Factors" section of
this Prospectus contains a detailed discussion of the most important risks.
Please refer to the "Risk Factors" section for a more detailed discussion of the
risks summarized below:
-- The risk of the Company having only a few investments and, therefore,
not being diversified. Less diversification may increase the potential
impact of any investment which performs below expectations and may cause
a decrease in distributors to Shareholders.
-- Risks of investing in real estate that is subject to mortgage debt,
including the risk that a lender can foreclose on Properties on which it
holds a mortgage if the Company does not repay the mortgage loan or
comply with other requirements of the mortgage which may effect
distributions to Shareholders.
-- Risks of investing in real estate occupied by a single tenant, the
credit of which is subject to change. Certain tenants of prior CPA(R)
Programs have become subject to bankruptcy proceedings or have failed to
fulfill their monetary obligations to the affected programs. Four of the
twelve prior CPA(R) Programs have had to reduce the rate of
distributions to their partners as a result of bankruptcy filings by
tenants. The distribution rate of one of the programs exceeded the rate
in effect before the reductions when that program was consolidated.
-- The risk that an investor will not be able to sell his investment
because there will be no organized market for the Shares, and the risk
that, if a Shareholder does sell his Shares in the near future, it is
likely that he will have to sell them for less than $10 per Share.
-- Risk of exercise by Shareholders of certain voting rights, including the
right to elect the Board and the right to amend the Company's governing
documents, which may be exercised by Shareholders holding a majority of
the Shares even if holders of 49% of the Shares object. The Company's
investment objectives cannot be changed without the approval of the
Shareholders holding a majority of the Shares but the Board may change
the techniques used by the Company to achieve the objectives without
Shareholder approval.
-- The risk of not being able to find suitable investments for the Company
may impact the Company's ability to achieve its investment objectives
and may effect the amount of distributions to Shareholders.
-- The risk that purchasers of Shares will not have an opportunity to
evaluate the terms of the transaction of relevant economic or financial
data affecting the investments to be acquired by the Company except for
properties the Company has acquired or indicates that it intends to
acquire in a supplement to this Prospectus.
-- Risk of conflicts of interest which may arise in connection with the
determination by the Advisor of whether to buy, hold or sell property as
such decisions may effect the amount of fees to be received by the
Advisor and may effect the amount of distributions to Shareholders.
-- Reliance on the Advisor and the Board, which together will exercise all
management rights subject only to the ability of the Shareholders to
elect the Board.
-- Management and their Affiliates will receive significant amounts of
compensation for services rendered to the Company which may effect
distributions to Shareholders.
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-- The risk that the future value of real estate cannot be predicted and
that Investors cannot be sure that they will get their capital back.
-- Dependence on tenants. In leases with single tenants, the financial
failure of a tenant could result in the termination of its lease with
the Company which, in turn, might cause a reduction of the cash flow of
the Company and/or decrease the value of the property leased to such
tenant which may effect distributions to Shareholders.
-- Risks of the Company not qualifying as a real estate investment trust
may impact the Company's ability to achieve its investment objectives
and may effect the amount of distributions to Shareholders.
TERMS OF THE OFFERING
The Company is offering its shares on a "best efforts" basis, which means
that no one is guaranteeing how much capital will be raised. The Company may
sell as much as $300,000,000 in Shares in this Offering.
Investors must satisfy certain financial requirements in order to purchase
Shares. Please refer to the section of this Prospectus entitled "Terms of the
Offering" for a detailed explanation of these requirements.
ESTIMATED USE OF PROCEEDS
The money raised in this Offering will be combined with borrowed money to
purchase real estate and to pay all of the Company's expenses. Approximately 86%
of the money raised in the Offering is expected to be invested in real estate
and the rest will be used for working capital and to pay expenses and fees to
the sponsor of the Offering and other entities. A detailed breakdown of the
Company's estimates of the use of the capital raised in the Offering is provided
in the "Estimated Use of Proceeds" section of this Prospectus.
MANAGEMENT COMPENSATION
Carey Property Advisors L.P. is the Company's Advisor. The Advisor will
manage the business of the Company under the direction of the board of directors
of the Company (the "Board"). The Company will pay the Advisor and certain
Affiliated companies certain fees for these services and will reimburse the
Advisor for certain expenses. Outlined below are the most significant items of
compensation.
-- For identifying, structuring and arranging the financing for real estate
acquisitions, the Advisor or its Affiliates will be paid Acquisition
Fees not to exceed in the aggregate 2.5% of the total purchase price of
all Properties purchased by the Company. With respect to each such
Property, the Advisor or its Affiliates will also be paid a fee (the
"Subordinated Acquisition Fee") which, when aggregated with all other
Subordinated Acquisition Fees, shall not exceed 2.0% of the total
purchase price of all Properties purchased by the Company, together with
interest on the unpaid portion of such Acquisition Fee at the rate of 6%
per annum from the date of acquisition of such Property until such
portion is paid. Such Acquisition Fee and accrued interest is payable in
equal annual installments on January 1 of each of the eight calendar
years following the first anniversary of the date such Property was
purchased. The portion of any Subordinated Acquisition Fee payable in
any year, and interest thereon, shall accrue but will be withheld by the
Company for such year unless Shareholders are paid dividends
("Dividends") at a cumulative non-compounded return of at least 6% per
year. Any such withheld portion of such Acquisition Fee and interest
shall be payable in the year following the year for which Shareholders
are paid Dividends at a cumulative non-compounded return of at least 6%
per year.
-- The Advisor will be paid an annual fee, payable on a monthly basis, for
services rendered under the Advisory Agreement for asset management
services (the "Asset Management Fee") of 0.5% of the Company's Average
Invested Assets (generally, the total amount invested in real estate).
The Advisor will also be paid quarterly a subordinated fee (the
"Performance Fee") at the annual rate of 0.5% of the Company's Average
Invested Assets, which fee will accrue but will be withheld by the
Company for any quarter through which the Company has not achieved a
Cumulative Rate of Cash
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Flow from Operations of at least 7% per year through such quarter. The
Performance Fee is payable, either in cash or in restricted stock of the
Company at the option of the Advisor (the "Option Decision"), such
initial Option Decision must be made prior to satisfaction of the
subordination condition and, thereafter, the Option Decision must be
made by the Advisor prior to receipt of the Performance Fee. Any such
withheld Performance Fee shall be payable at the end of the quarter
through which the Company achieves the Cumulative Rate of Cash Flow from
Operations. Performance Fees will start to accrue at the earlier of (1)
the first full fiscal quarter during which the Cumulative Rate of Cash
Flow from Operations of 7% is first achieved, or (2) the first full
fiscal quarter after the end of the Selling Period.
-- The Advisor will be paid 15% of any appreciation in the value of the
real estate when the Company sells a Property. This fee will be paid
only after the Company has returned all of the money invested by
Shareholders plus a cumulative non-compounded return of 6% per year.
There are many additional conditions and restrictions on the payment of
fees to the Advisor. There are also a number of other smaller items of
compensation and expense reimbursement that the Advisor and its affiliates may
receive during the life of the Company. For a more complete explanation of the
fees and expenses and an estimate of the dollar amount of these payments, please
see the "Management Compensation" section of this Prospectus.
CONFLICTS OF INTEREST
The Advisor will have certain conflicts of interest in its management of
the Company. These conflicts will arise primarily from the involvement of the
Advisor and its affiliates in other activities that may conflict with those of
the Company. The directors of the Company that are independent of the Advisor
are responsible for monitoring the Advisor's activities and must approve all of
the Advisor's actions that involve a potential conflict. The "Conflicts of
Interests" section of this Prospectus more fully explains the significant
conflicts of interests.
PRIOR OFFERINGS BY AFFILIATES
The Advisor and its Affiliates manage the Company and manage four existing
real estate investment programs, each using (or at one time using) a derivative
of the name "Corporate Property Associates" ("CPA(R)", collectively, the
"CPA(R)Programs"), that together have purchased properties over the past 19
years costing in excess of $1.4 billion. The CPA(R) Programs own real estate
that is similar to the real estate that the Company intends to purchase. A
narrative discussion of the performance of the CPA(R) Programs can be found in
the section of this Prospectus entitled "Prior Offerings by Affiliates." Exhibit
A of this Prospectus includes tables that provide certain statistical
information as well as information on the performance of the CPA(R) Programs.
MANAGEMENT
The Board will oversee the management of the Company. The Board will
consist of a minimum of three directors. A majority of the directors will be
independent of the Advisor and will have responsibility for reviewing the
performance of the Advisor. The directors will be elected to the Board annually
by the Shareholders.
The Company has retained the Advisor to manage the Company and to select
the Company's real estate investments. All investment decisions made by the
Advisor must be approved unanimously by the Advisor's investment committee (the
"Investment Committee"). The following people serve on the Investment Committee:
-- George E. Stoddard, Chairman, was formerly responsible for the direct
corporate investments of The Equitable Life Assurance Society of the
United States and has been involved with the CPA(R) Programs for over 19
years;
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-- Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman, Director
and Chief Investment Officer of the Prudential Insurance Company of
America and had responsibility for Prudential's investment portfolio;
and
-- Dr. Lawrence R. Klein, a member of the Investment Committee, won the
Nobel Prize in economics in 1980 and is Benjamin Franklin Professor
Emeritus at the University of Pennsylvania.
For the background of the individuals responsible for the management of the
Company and a more detailed description of the responsibilities of the Advisor,
please see the "Management" section of this Prospectus. For more information on
fees payable to the Advisor or its Affiliates, please see the "Management
Compensation" section of this Prospectus.
Both the Company and the Advisor have offices at 50 Rockefeller Plaza, New
York, New York 10020, (212) 492-1100.
INVESTMENT PROCEDURES, OBJECTIVES AND POLICIES
The Company's investment objectives are:
-- TO PAY QUARTERLY DIVIDENDS AT AN INCREASING RATE THAT FOR TAXABLE
SHAREHOLDERS MAY BE PARTIALLY FREE FROM CURRENT TAXATION. The Company's
dividend rate is calculated by dividing the Company's quarterly cash
dividend from operations by the amount raised in the offering less
amounts returned to Investors from the sale of Properties and Cash from
Financings. Although the cash amount of a dividend may go down during
the life of the Company, the dividend rate may continue to increase. If
the total amount received by the Company from the sale of Properties is
less than the total amount invested in the Company, a portion of the
dividends paid by the Company will represent a return of the money
originally invested in the Company and not a return on the investment.
There can be no assurance that the Company will pay regular dividends or
that the dividend rate will increase. The quarterly rate of increases of
prior CPA(R) Programs has generally ranged from .01% to .25% with an
average quarterly increase of .02%. While prior CPA(R) Programs have
occasionally used working capital to pay a portion of certain dividends,
cash flows from operating activities have generally exceeded dividends
paid.
-- TO INVEST IN A PORTFOLIO OF REAL ESTATE THAT WILL INCREASE IN VALUE. An
individual investing directly in real estate would not have to pay the
organization and offering expenses expected to be paid by the Company
(approximately 10% to 10.50% of the Gross Offering Proceeds). Therefore,
the Company must realize a greater level of operating income from,
and/or appreciation in the value of, its real estate in order for an
investor to realize the same return he would realize if he invested
directly in, and operated, the real estate purchased by the Company. Of
the 77 Properties sold as of December 31, 1997 by the CPA(R) Programs,
all but 29 of such Properties were sold for consideration equal to or in
excess of the applicable CPA(R) Program's total investment in such
Properties, including acquisition costs. The net gain realized from the
sale of these 77 Properties by the CPA(R) Programs has been in excess of
$9,677,000 on total equity invested of approximately $90,523,000. This
net gain figure does not take into account organization and offering
expenses which averaged 12% of the Gross Offering Proceeds for prior
CPA(R) Programs. Please see the "Prior Performance by Affiliates" and
the Appendix A for a complete discussion of the prior performance of the
CPA(R) Programs.
-- TO INCREASE THE COMPANY'S EQUITY IN ITS REAL ESTATE BY MAKING REGULAR
MORTGAGE PRINCIPAL PAYMENTS. The Company will realize its objective of
increasing its equity in its Properties by making regular mortgage
principal payments from income generated from the Properties only if
Properties are sold by the Company for an amount equal to or greater
than the original equity investment plus the remaining mortgage balance.
The average annual mortgage amortization for the CPA(R) Programs was
$14,471,000 in 1997.
The Company will seek to achieve these objectives by investing in
industrial and commercial properties. The amount of money raised by the Company
in the Offering and borrowed from lenders will affect the number of Properties
the Company will be able to purchase. The more Properties the Company
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purchases, the more diversified it will be and the less it will be affected by
any single Property that does not perform as expected.
In most cases, at the time a Property is purchased by the Company, it will
be leased to a single corporate tenant. Sometimes, the tenant will also be the
seller of the Property and will have occupied the Property before it is
purchased by the Company. The Investment Committee will evaluate the financial
strength or creditworthiness of each of the Company's tenants. The Company's
leases will in most cases require the tenants to pay all of the Property's
maintenance, insurance and real estate tax costs.
Generally, the Company will borrow a portion of the purchase price of a
Property. The Company will seek to borrow about 60%, but not more than 75%, of
the total appraised value of all Properties it purchases. The percentage
borrowed by the Company for any particular Property purchased may be more or
less than 75%. Higher amounts of borrowing will require higher mortgage payments
and may have an adverse effect on the Company's ability to profit from its
investment in the Property. The Company generally will borrow money on a
non-recourse basis which means that if the Company is unwilling or unable to
repay such borrowed money, the lender will be permitted to foreclose only on the
Property or Properties purchased with the borrowed money. This protects the
remainder of the Properties should one Property not perform as expected.
The Company may also lend money or design a transaction in a manner that
will be treated legally as a loan by the Company. If an entity that borrows from
the Company is unable to repay the money it has borrowed, the Company will be
able to foreclose on real estate owned by the borrower. While the Company does
not expect loans to make up a significant portion of its investment portfolio,
no limit has been placed on the amount of the Company's funds which may be
invested in loans. The Company expects that all loans made will be secured by
real property.
While the Company intends to hold each Property it acquires for an extended
period of time, circumstances may require the early sale of certain Property. In
such an event, the Company may reinvest proceeds from the sales of Properties.
The Company may also reinvest proceeds of the sales of Properties in the event
the shares are listed on a national securities exchange or are included for
quotation on Nasdaq. If the Shares are not listed, the Properties are expected
to be liquidated beginning five to ten years after the net proceeds of the
Offering are substantially invested.
The Company's investment objectives cannot be changed without the approval
of the Shareholders holding a majority of the Shares. While the Company intends
to achieve its objectives primarily by purchasing single-tenant, net leased
property, the Company's investment policies may vary as new techniques develop.
The techniques used by the Company to achieve its objectives may, with some
limitations, be changed by the Board (including a majority of the Independent
Directors) without the approval of the Shareholders. Any such change may affect
the types of non-real estate short term investments in which the Company invests
during the interim periods in which capital is not fully invested in Properties.
DESCRIPTION OF PROPERTIES
The Company has purchased interests in Properties. Please refer to the
"Description of Properties" section of this Prospectus for a description of such
Properties. The Advisor is evaluating additional potential Property
acquisitions. When it appears likely that the Company will purchase one or more
additional Properties, a description of such Properties will be made available
to all potential Investors in a document called a supplement. Investors should
not assume that transactions described in a supplement will necessarily be
completed. It is possible that after the supplement is distributed, the Company
or the seller will decide not to complete the sale.
INCOME TAX ASPECTS
The section of this Prospectus entitled "United States Federal Income Tax
Aspects" includes a discussion of the federal income tax issues which may be
important to investors. The section also includes a
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discussion of the many rules the Company will have to follow in order to be
treated as a REIT. The Company must be treated as a REIT in order to avoid
paying federal income taxes on dividends paid to Shareholders.
ERISA CONSIDERATIONS
The section of this Prospectus entitled "ERISA Considerations" describes
the effect the purchase of Shares will have on retirement plans subject to the
Employee Retirement Income Security Act of 1974, as amended ("ERISA"). ERISA is
a federal law that regulates the operation of certain tax-advantaged retirement
plans. Any retirement plan trustee or individual considering purchasing Shares
for a retirement plan should read this section very carefully.
DESCRIPTION OF SHARES
General
The Company will not issue stock certificates. A Shareholder's investment
will be recorded on the books of the Company. A Shareholder wishing to transfer
his or her Shares will be required to send only an executed form to the Company.
The Company will provide the required form upon request. The Company expects to
pay dividends quarterly. The Board will determine the amount of any dividends to
be paid by the Company.
Shareholder Voting Rights and Limitations
A meeting of Shareholders will be held each year for the election of
directors. Other business matters may be presented at the annual meeting or at
special Shareholder meetings. Shareholders are entitled to one vote for each
Share owned on all matters that must be voted on by Shareholders, including the
election of directors. Shareholders who are in the minority on questions
presented for Shareholder vote at a duly held meeting at which a quorum is
present will be bound by the decision of the majority on the question voted
upon.
Shareholder approval is required under Maryland law and the Company's
Articles of Incorporation and bylaws (the "Organizational Documents") for
certain types of transactions and corporate action. Generally, the
Organizational Documents may be amended upon a vote of Shareholders holding a
majority of the Shares, although the amendment of certain provisions requires
higher than a majority vote. Shareholders holding a majority of the Shares must
approve a merger or a sale or other disposition of substantially all of the
Company's assets other than in the ordinary course of business. Shareholders
objecting to the terms of a merger, sale or other disposition of substantially
all of Company's assets have the right to petition a court for the appraisal and
payment of the fair value of their Shares in certain instances. Shareholders
holding a majority of the Shares are required to approve the voluntary
dissolution of the Company.
Limitation on Share Ownership
The Articles of Incorporation of the Company (the "Articles of
Incorporation") restrict ownership by one Person of more than 9.8% of the
outstanding Shares. See "Description of Shares -- Restriction on Ownership of
Shares." These restrictions are designed to facilitate compliance with certain
Share accumulation restrictions imposed on REITs by the Internal Revenue Code of
1986, as amended (the "Code").
For a more complete description of the Shares, including certain
limitations on the ownership of Shares, please refer to the "Description of
Shares" section of this Prospectus.
THE OFFERING
The section of this Prospectus called "The Offering" describes the manner
in which the Company will sell its Shares and the fees and expenses the Company
will pay in connection with the Offering. This section also describes discounts
available to Investors who are interested in investing more than $250,000 in the
Company and to Investors of certain CPA(R) Programs upon the occurrence of
certain events.
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GLOSSARY
Words in this Prospectus that are capitalized are defined in the "Glossary"
section. In order to make this Prospectus easier to read, a simplified
definition of certain capitalized words has been provided. These simplified
definitions do not convey all of the intricacies of the defined word and
Investors are encouraged to refer to the "Glossary" section for the complete
definition.
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RISK FACTORS
An investment in the Company involves various risk factors, including risk
factors related to investing in real estate, risk factors related to investing
in a corporation, tax risks and other general investment risks. In addition to
the factors set forth elsewhere herein, prospective Investors should consider
the following:
Risk of Lack of Diversification. The Offering will be closed with Gross
Offering Proceeds of not more than $300,000,000. The potential profitability of
the Company and the amount of distributions payable to Shareholders could be
affected by the amount of funds from the Offering at its disposal. Furthermore,
there can be no assurance that the Company will be able to achieve its leverage
objective of borrowing approximately 60% of the aggregate purchase price of all
Properties purchased. The Company may be unable to obtain mortgage financing on
commercially attractive terms because of the decreased number of commercial
banks making mortgage loans secured by commercial real property generally and,
more specifically, loans secured by single-tenant net-leased commercial real
property of the type in which the Company intends to invest. There can be no
assurance that lending sources will continue to make loans on commercially
attractive terms. The CPA(R) Programs have had leverage goals similar to the
Company's (i.e., 60%) but have achieved leverage of approximately 55%. If the
Company is unable to attain its leverage objective because financing is
difficult or costly to obtain, the Company may be limited to investing in fewer
Properties.
The investment of a smaller sum of money may result in the acquisition of
fewer Properties and, accordingly, less diversification of the Company's real
estate portfolio than the investment of a larger sum in a greater number of
Properties. Lack of diversification will increase the potential adverse effect
on the Company and the Shareholders of a single under-performing investment.
Risks of Real Property Investments. Real property investments are subject
to varying degrees of risk. Real estate values are affected by changes in the
general economic climate, local conditions such as an oversupply of space or
reduction in demand for real estate in the area and competition from other
available space. Real estate values are also affected by such factors as
government regulations and changes in zoning or tax laws, interest rate levels,
the availability of financing and potential liability under environmental and
other laws. These factors may cause the Properties to decrease in value and may
make it difficult for the Company to sell Properties. See "Investment
Procedures, Objectives and Policies."
Dependence on Tenants. In leases with single tenants, the financial failure
of a tenant could result in the termination of its lease with the Company which,
in turn, might cause a reduction of the cash flow of the Company and/or decrease
the value of the Property leased to such tenant. If a tenant defaults on its
lease payments to the Company, the Company would lose the net cash flow from
such tenant, but might be able to use cash generated from other Properties to
meet the mortgage payments, if any, on such Property in order to prevent a
foreclosure. If a lease is terminated, there can be no assurance that the
Company will be able to lease the Property for the rent previously received or
sell the Property without incurring a loss. The Company could also experience
delays in enforcing its rights against tenants. Certain CPA(R) Programs have
experienced adverse developments including the filing by tenants for protection
from creditors under Chapter 11 of Title 11 of the United States Code, as
amended (the "Bankruptcy Code") and involvement in litigation. Four CPA(R)
Programs had to reduce the rate of distributions to their partners as a result
of adverse developments involving tenants. See "Prior Offerings by Affiliates."
In addition, the Company may enter into or acquire net leases with tenants
for Properties that are specially suited to the particular needs of a tenant.
Any such Property may require renovations or lease payment concessions in order
to lease it to another tenant if the current lease is terminated or not renewed.
The Company may also have difficulty selling a special purpose Property to a
party other than the tenant for which the Property was designed. The inability
to re-lease or sell a specially suited Property may cause a reduction in the
value of the Shares and a decrease in distributions to Shareholders.
Lack of Liquidity of Shares. Shareholders may not be able to sell their
Shares promptly at a desired price; therefore, the Shares should be considered
as a long-term investment only. Currently there is no public market for the
Shares. The Company may apply to list the Shares for trading on a national
securities
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exchange or include them for quotation on Nasdaq if the Board (including a
majority of the Independent Directors) deems such listing or quotation to be in
the best interests of the Shareholders. However, there can be no assurance that
the Company will apply to have the Shares listed or included for quotation, that
any such application will be made before the passage of a significant period of
time, that any application will be accepted or, even if accepted, that a public
market will develop. In any event, it is unlikely that the Company will apply to
have the Shares listed or included for quotation before the proceeds of the
Offering are fully invested. In the event the Shares are listed, Shareholders
may be able to sell their Shares only through the national securities exchange
on which the Shares are listed or through Nasdaq. There can be no assurance that
the price a Shareholder would receive in a sale on an exchange or on Nasdaq will
be representative of the value of the Properties owned by the Company or that it
will equal or exceed the amount a Shareholder paid for the Shares. Historically,
shares of real estate companies have traded at a discount to their proportionate
interest in the appraised value of the issuer's underlying assets.
If the Board decides to list the Shares, the business of the Company may
continue indefinitely and the Company may reinvest the proceeds of the sale of
Properties, instead of distributing such proceeds to the Shareholders. In that
case, the Shareholders would be totally dependent upon the securities market for
the return of their initial investment in the Company.
Risk of Conflicts of Interest. The Advisor will have certain conflicts of
interest in its management of the Company. These conflicts will arise primarily
from the involvement of the Advisor and its Affiliates in activities that may
conflict with those of the Company. These activities may include (i) receipt of
commissions, fees and other compensation by the Advisor and its Affiliates for
property purchases, leases sales and financing for the Company (ii) non-arms
length agreements between the Company and the Advisor or any of its Affiliates,
and (iii) purchases and loans from Affiliates, subject to the Company's
investment procedures, objectives and policies of the Company. Any such
activities may impact the amount of fees to be received by the Advisor and/or
its Affiliates and may effect the amount of distributions to Shareholders.
Risk of Unspecified Investment of Proceeds of the Offering. The Company's
ability to achieve its stated investment objectives and to pay dividends depends
upon the performance of the Advisor in the acquisition of investments for the
Company. In general, Shareholders will have no opportunity to evaluate the
transaction terms and other relevant economic or financial data concerning
investments to be made by the Company, other than those described herein. There
can be no assurance that (i) acquired Properties will be desirable
income-producing properties; or, (ii) desirable income-producing properties will
be available on economically attractive terms. There can be no assurance that
any Properties which may be acquired will be desirable income-producing
properties or will increase in value, or that desirable income-producing
properties will be available or can be acquired on economically attractive
terms.
Reliance on Management. Investors will be relying entirely on the
management ability of the Advisor and on the oversight of the Board.
Shareholders have no right or power to take part in the management of the
Company, except through the exercise of their shareholder voting rights. Thus,
no prospective Investor should purchase any of the Shares offered hereby, unless
the prospective Investor is willing to entrust all aspects of the management of
the Company to the Advisor and the Board. See "Management" for a discussion of
the experience of the directors and officers in real estate investments. Also
see "Conflicts of Interests" for a discussion of the possible realization by the
Advisor and its Affiliates of substantial commissions, fees, compensation and
other income and for a discussion of various other conflicts of interest.
Restrictions on Transfer of Shares. The Articles of Incorporation restrict
ownership of more than 9.8% of the outstanding Shares by one Person. See
"Description of Shares -- Restriction on Ownership of Shares." These
restrictions may discourage a Change of Control of the Company and may deter
individuals or entities from making tender offers for Shares, which offers might
be financially attractive to Shareholders or which may cause a change in the
management of the Company.
Shareholders' Votes. Shareholders may take certain actions, including
approving most amendments to the Articles of Incorporation and Bylaws, by a vote
of a majority of the Shares voted. Certain provisions
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designed to preserve the Company's status as a REIT cannot be amended without a
"supermajority" vote of 66 2/3% of the Shares entitled to vote. All actions
taken, if approved by the holders of the requisite number of Shares at a duly
held meeting at which a quorum is present, would be binding on all Shareholders
whether or not a Shareholder agrees to such action. Certain of these provisions
may discourage or make it more difficult for a Person to acquire control of the
Company or to effect a change in the operation of the Company. The Board has the
power to cause the issuance of additional Shares without obtaining Shareholder
approval.
Limited Liability of Officers and Directors. The Articles of Incorporation
provide that a director's liability to the Company for monetary damages will be
limited. In addition, the Company is obligated under the Articles of
Incorporation and Bylaws to indemnify its directors and officers and may
indemnify its employees and other agents against certain liabilities incurred in
connection with their service in such capacities. The Company will execute
indemnification agreements with each director which will indemnify the directors
against any such liabilities they incur. Each of these measures could reduce the
legal remedies available to the Company and the Shareholders against such
individuals. See "Management -- Limited Liability and Indemnification of
Directors, Officers, Employees and Other Agents."
Necessity for Updating Registration Statement. In order for the Company to
purchase Shares pursuant to the redemption provisions described in this
Prospectus (see "Description of Shares -- Redemption of Shares"), the Company
may be required to maintain an effective Registration Statement with the
Commission. An updated Registration Statement is required to include updated
general and financial information contained in this Prospectus. This obligation
could result in substantial expense to the Company. Although the Company intends
to maintain an effective Registration Statement, there can be no assurance that
the Company will maintain an effective Registration Statement. If the Company
does not maintain a current Registration Statement, the Company may not be able
to redeem Shares.
Bankruptcy of Tenants. The financial failure of a tenant could cause the
tenant to become the subject of bankruptcy proceedings. Under bankruptcy law, a
tenant has the option of continuing or terminating any unexpired lease. If the
tenant continues its lease with the Company, the tenant must cure all defaults
under the lease and provide the Company with adequate assurance of its future
performance under the lease. If the tenant terminates the lease, the Company's
claim for breach of the lease (absent collateral securing the claim) would be
treated as a general unsecured claim. The amount of the claim would be capped at
the amount owed for unpaid pre-petition lease payments unrelated to the
termination, plus the greater of one year's lease payments or 15% of the
remaining lease payments payable under the lease (but not to exceed the amount
of three years' lease payments). The termination of the lease may cause a
reduction in the value of the Shares and a decrease in distributions to
Shareholders.
Although the Company believes that each of its net lease transactions will
be a "true lease" for purposes of bankruptcy law, depending on the terms of the
lease transaction, including the length of the lease and terms providing for the
repurchase of a Property by the tenant, it is possible that a bankruptcy court
could recharacterize a net lease transaction as a secured lending transaction.
If a transaction were recharacterized as a secured lending transaction, the
Company would not be treated as the owner of the Property, but might have
certain additional rights as a secured creditor.
Risks Associated with Borrowing. Most of the Company's acquisitions of
Properties will be made by borrowing a portion of the purchase price and
securing the loan with a mortgage on such Property. Although the use of leverage
may increase the Company's rate of return on its investments and allow the
Company to make more investments than it otherwise could, it presents an element
of risk in the event that the cash flow from lease payments on its Properties
are insufficient to meet its debt payment obligations. Certain loans may not be
fully paid by the time the net leases (not including renewal periods) on
applicable Properties expire. If a tenant does not renew its lease with respect
to any Property, the Company may not have sufficient cash flow to make the
required debt payments with respect to such Property unless it is able to
re-lease such Property. If the Company does not make its debt payments as
required, a lender could foreclose on the Property or Properties securing such
debt, and the Company could lose part or all of its
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investment in such Properties which in turn could cause a reduction in the value
of the Shares and/or distributions paid to Shareholders.
Lenders to the Company may seek to impose restrictions on future
borrowings, distributions and operating policies of the Company. It is not
possible to ascertain in advance what restrictions may be imposed. As of the
date of this Prospectus, the Company had not created or assumed any indebtedness
for borrowed money. In connection with a mortgage loan with respect to any
Property, the lender may also seek to include as an event of default or an event
requiring the immediate prepayment of the loan the termination or replacement of
the Advisor. See "Investment Procedures, Objectives and Policies -- Use of
Borrowing."
Risk of Balloon Payment Obligations. The Company intends to finance the
acquisition of some Properties in part with debt obligations that will provide
for the repayment of principal, in whole or in part, in a lump-sum or "balloon"
payment at maturity. The ability of the Company to make a balloon payment at
maturity may be dependent on the Company's ability to obtain adequate
refinancing of the balloon payment at such time or to sell the Property, both of
which are dependent on economic conditions in general and the value of the
Property in particular at such time. There is no assurance that the Company will
be able to refinance the balloon payment or that the terms of any new loan will
be as favorable as the prior loan. If the Company is unable to refinance the
balloon payment, the Company may be forced to sell the Property securing payment
thereof (or another Property). There is no assurance that the proceeds of any
such sale would be sufficient to make the balloon payment. Any such refinancing
or sale may affect the rate of return to Shareholders and such sale may affect
the projected time of disposition of the Company's assets. To the extent that
Properties are subject to balloon mortgages, the Company's objective of
increasing equity through the reduction of mortgage debt on such Properties may
be more difficult to achieve. See "Investment Procedures, Objectives and
Policies."
Delay in Investment in Real Estate. The return on an investment in the
Company will depend, in part, on how quickly the Company is able to locate and
acquire suitable Properties. The Company's acquisition of a proposed Property
could be delayed by an inability to obtain financing as a result of either the
unattractiveness of financial or other terms of such financing or the lack of
lenders providing financing on any terms. A decline in the interest rates on
long-term corporate debt securities and by an increase in corporate liquidity
may slow investment as potential tenants may prefer to raise capital by issuing
debt securities or using cash rather than entering into net lease transactions.
Changes to tax laws and changes to laws affecting corporate acquisitions and
reorganizations may also reduce the number of Properties the Company can
purchase. There can be no assurance that the equity raised by the Company in
this Offering will be fully committed to Property investments in a timely
manner. See "United States Federal Income Tax Aspects -- Requirements for
Qualification as a REIT." Prior to acquiring Properties, the Company's capital
will be invested generally in U.S. government securities, certificates of
deposit from financial institutions having a net worth of at least $100,000,000
or other short-term investments that are easily convertible into cash
("Permitted Temporary Investments"). See "Investment Procedures, Objectives and
Policies." The rate of return on Permitted Temporary Investments may be less
than the returns from investments in Properties which would cause any
distributions to Shareholders to be reduced. Permitted Temporary Investments are
generally interest rate sensitive financial instruments and their value
generally will decrease if market interest rates increase. Thus, if the Company
sells its interest in such securities when interest rates are higher than at the
time when the securities initially were acquired, the Company would likely
receive less in such a sale than the amount it initially paid. Furthermore,
prior to the acquisition of Properties, the Company may not be able to qualify
as a REIT and may not be entitled to depreciation and other deductions.
Competition for Investments. In connection with the making of investments,
the Company may experience significant competition from banks, insurance
companies, savings and loan associations, mortgage bankers, pension funds,
limited partnerships, other REITs and other entities with objectives similar to
those of the Company (including certain Affiliates of the Company) and which
have greater financial resources or experience. See "Conflicts of Interest." An
increase in the availability of funds for real estate investment may increase
competition in the making of investments and may reduce the yields
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available to the Company. Competition for investments could reduce the return
which the Company might otherwise be able to obtain and thereby reduce any
distributions payable to Shareholders.
Risk of Purchasing Property in Connection With Acquisitions,
Recapitalizations and Other Financial Restructurings. A portion of Property
acquisitions are expected to be made in connection with acquisitions,
recapitalizations and other financial restructurings. In some of these
transactions, an acquiring entity may purchase all or substantially all of the
stock or assets of a company, and the acquired company or its successor may
become obligated on the substantial loans necessary to finance the acquisition.
The Company may act as one of several sources of financing by purchasing real
property from the seller or buyer of the subject company and net-leasing it to
such company or its successor in interest (the lessee) or by making Loans to
such entities secured by real estate. The lessee or borrower typically will have
substantially greater debt and a substantially lower net worth than the company
had prior to the transaction. Consequently, the lessee or borrower may be
particularly vulnerable to adverse conditions in its business or industry,
adverse economic conditions generally and increases in interest rates, which
increases may directly or indirectly result in higher payments under the debt
portion of the lessee's lease with the Company and higher debt service payments
under the lessee's loans. In addition, the lessee's payment of rent and debt
service may prevent the lessee from investing in new equipment and from devoting
resources to research and development or making other expenditures which are
necessary to keep the lessee competitive in its industry. Furthermore, if the
lessee or borrower has new management, it will be more difficult for the Advisor
to determine the likelihood of the lessee's or borrower's being successful in
its business and of being able to pay rents throughout the term of a lease with
the Company.
Risks Related to Making Loans. The Advisor may structure a Company
investment as a Loan. All Loans are subject to some degree of risk, including
the risk of a default by the borrower on the Loan which could require the
Company to foreclose on the Property in order to protect its investment. Under
certain circumstances, the Company may not be able to foreclose on a Property
subject to a Loan, and therefore, may be unable to acquire an equity interest in
the Property. The borrower's ability to make Loan payments and the amount the
Company may realize after a default will be dependent upon the risks generally
associated with mortgage lending including, without limitation, general or local
economic conditions, neighborhood property values, interest rates, real estate
tax rates, other operating expenses, the supply of and demand for properties of
the type involved, the inability of the borrower to obtain or maintain full
occupancy of the property, zoning laws, rent control laws, other governmental
rules and fiscal policies and acts of God. Additionally, the principal amount of
Loans made by the Company generally will be repaid, in whole or part, in
lump-sum "balloon" payments. Accordingly, the borrower's ability to make such
payment may be dependent upon its ability to obtain refinancing. See "Investment
Procedures, Objectives and Policies." In the case of a leasehold Loan, a default
under the lease could result in the loss of the Company's investment, unless the
Company has the right and ability to cure such default. A default by a borrower
could reduce the value of the Shares and any distributions payable to
Shareholders.
As described under "Investment Procedures, Objectives and Policies," the
Company may make some Loans which provide for, in addition to payments of base
interest, payment of a portion of the rental increases and/or the appreciation
of the Property securing repayment of the Loan (the "Underlying Real Property"),
or options to acquire an equity interest in the Underlying Real Property. See
"United States Federal Income Tax Aspects -- Requirements for Qualification as a
REIT." Loans of this type are called "participating loans" or "participations."
In seeking such participations, the Company may, in some cases, accept a lower
base rent or interest rate than that available in non-participating Loans or
leases in order to obtain such a participation and the potentially greater
benefit that could result from such portion of the increased value of the
Underlying Real Property. The value of any participation which the Company may
be able to obtain will depend upon future increases in either revenues or the
value of the Underlying Real Property and on the factors inherent in any real
estate investment, as described above. Accordingly, there can be no assurance
that any amounts will be realized from the Company's participations. The Company
does not anticipate that the amounts it will receive from any participations
will be significant in the early years of any investment.
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It is also possible that, as a result of the Company's interest in the
rents or proceeds from a sale, financing or refinancing, a court in a bankruptcy
or similar proceeding may treat the Company as a partner or joint venturer with
the borrower or lessee, and the Company, accordingly, would lose the priority
its security interest would otherwise have given it in such situation.
Risks of Joint Ventures. The Company may participate in joint ventures with
non-affiliated Persons. See "Investment Procedures, Objectives and Policies." An
investment by the Company in a joint venture which owns properties, rather than
the Company investing directly in such properties, may involve certain risks,
including the possibility that the Company's joint venture partner may become
bankrupt, may have economic or business interests or goals which are
inconsistent with the business interests or goals of the Company, or may be in a
position to take action contrary to the instructions or the requests of the
Company or contrary to the Company's policies or objectives. Actions by the
Company's joint venture partner might, among other things, result in subjecting
property owned by the joint venture to liabilities in excess of those
contemplated by the terms of the joint venture agreement, expose the Company to
liabilities of the joint venture in excess of its proportionate share of such
liabilities, or have other adverse consequences for the Company. In a case where
the joint venturers each own a 50% interest in a venture, they may not be able
to agree on matters relating to the properties owned by the venture. Although
each joint venturer will have a right of first refusal to purchase the other
venturer's interest in a property if a sale thereof is desired, the joint
venturer may not have sufficient resources to exercise its right of first
refusal.
The Company also may from time-to-time participate jointly with
publicly-registered investment programs or other entities sponsored by the
Advisor or one of its Affiliates in investments as tenants-in-common or in some
other joint venture arrangement. The risks of such joint ownership may be
similar to those mentioned above for joint ventures and, in the case of a
tenancy-in-common, each co-tenant normally has the right, if an unresolvable
dispute arises, to seek partition of the property, which partition might
decrease the value of each portion of the divided property. The Company or the
Advisor may also experience difficulty in enforcing the rights of the Company in
a joint venture with an Affiliate due to the fiduciary obligation the Advisor or
the Board may owe to the other partner in such joint venture.
Potential Environmental Liabilities. Under various Federal and state
environmental laws, current or former owners of real estate may be required to
investigate and clean up hazardous or toxic substances or petroleum product
releases at such property, or may be held liable to governmental entities or to
third parties for property damage and for investigation and clean up costs
incurred by such parties in connection with the contamination. Such laws
typically impose clean-up responsibility and liability without regard to whether
the owner knew of or caused the presence of the contamination, and the liability
under such laws has been interpreted to be joint and several unless the harm is
divisible and there is a reasonable basis for allocation of responsibility. The
Company will generally seek to include a provision in its leases providing that
the tenant is responsible for all environmental liabilities and for compliance
with environmental regulation. Such a provision, however, does not eliminate the
Company's statutory liability or preclude claims against the Company by
governmental authorities or persons who are not parties to the lease. The
Company's leases may also provide a basis for the Company to recover from the
tenant damages or costs for which the Company has been found liable. The cost of
an investigation and clean up of site contamination can be substantial, and the
fact that the property is or has been contaminated, even if remediated, may
adversely affect the value of the property and the owner's ability to sell or
lease the property or to borrow using the property as collateral. In addition,
some environmental laws create a lien on the contaminated site in favor of the
government for damages and cost that it incurs in connection with the
contamination, and certain state and environmental laws provide that such lien
has priority over all other encumbrances on the property or that a lien can be
imposed on any other property owned by the liable party. Finally, the owner of a
site may be subject to common law claims by third parties based on damages and
costs resulting from the environmental contamination emanating from the site.
Other Federal, state and local laws and regulations govern the removal or
encapsulation of asbestos-containing material when such material is in poor
condition in the event of building, remodeling, renovation or demolition. Still
other Federal, state and local statutes and regulations may require the removal
or upgrade of underground storage tanks that are out of service or are out of
compliance. In addition, Federal,
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state and local laws, regulations and ordinances may impose prohibitions,
limitations and operational standards on, or require permits and approvals in
connection with, the discharge of waste, wastewater and other water pollutants,
the emission of air pollutants, the operation of air polluting equipment, the
generation and management of materials classified as hazardous waste and
workplace health and safety. Non-compliance with environmental or health and
safety requirements may also result in the need to cease or alter operations at
a property, which could affect the financial health of a tenant and its ability
to make lease payments. Furthermore, if there is a violation of such a
requirement in connection with the tenant's operations, it is possible that the
Company, as the owner of the property, could be held accountable by governmental
authorities for such violation and could be required to correct the violation.
Any costs incurred by the Company for environmental liabilities could cause a
reduction in the value of the Shares and a reduction in any distributions
payable to Shareholders.
Risk of Providing Financing to Purchasers of Company's Properties. The
Company may find it necessary or desirable to provide financing to purchasers of
Properties it wishes to sell. This financing may cause any intended liquidation
of the Company to be delayed beyond the time of the disposition of Properties
and until such time as any loans are repaid or sold. The Company may find it
necessary to provide financing in circumstances where lenders are not willing to
make loans secured by commercial real estate or may find it desirable where a
purchaser is willing to pay a higher price for the Property than it would
without the financing. See "Risks Related to Making Loans" above for a
discussion of the risks associated generally with making loans.
Risk of Incurring Uninsured Losses. The Company typically will require
tenants to maintain liability and casualty insurance of the kind that is
customarily obtained for similar properties. However, certain disaster-type
insurance (covering events of a catastrophic nature, such as earthquakes) may
not be available or may only be available at rates that, in the opinion of the
Advisor, are prohibitive. In the event that an uninsured disaster should occur,
or in the event a tenant does not maintain the required insurance and a loss
occurs, the Company could suffer a loss of the capital invested in, as well as
anticipated profits from, the damaged or destroyed Property. If the loss
involves a liability claim, the loss may extend to the other assets of the
Company or the subsidiary that owns the Property affected by the loss.
Casualty and Condemnation Related to Lease Terminations. The leases of
Properties may permit the tenant to terminate its lease in the event of a
substantial casualty or a taking by eminent domain of a substantial portion of a
Property. Should these events occur, the Company generally will be compensated
by insurance proceeds in the case of insured casualties or a condemnation award
in the case of a taking by eminent domain. There can be no assurance that any
such insurance proceeds or condemnation award will equal the value of the
Property or the Company's investment in the Property. Any such lease termination
could adversely affect the Company's cash flow and the diversification of its
net lease investments.
Risk of Investment in Real Property Located Outside the United States. The
Company has the authority to invest proceeds of the Offering in Property located
outside the United States. Such investments may be affected by factors peculiar
to the laws of the jurisdiction in which such Property is located, including but
not limited to, land use and zoning laws, environmental laws, laws relating to
the foreign ownership of property and laws relating to the ability of foreign
persons or corporations to remove profits earned from activities within such
country to the person's or corporation's country of origin. These laws may
expose the Company to risks that are different from and in addition to those
commonly found in the United States. In addition, such foreign investments could
be subject to the risks of adverse market conditions due to changes in national
or local economic conditions, changes in interest rates and in the availability,
cost and terms of mortgage funds resulting from varying national economic
policies, changes in real estate and other tax rates and other operating
expenses in particular countries and changing governmental rules and policies.
Accounting for Net Lease Transactions. Under certain accounting standards,
leases are classified for financial reporting purposes as either capital leases
or operating leases, with capital leases required to appear as assets and
liabilities on a lessee's balance sheet. Transactions in which the Company
acquires a deed to a Property may or may not be recognized as a sale for
financial reporting purposes due to the
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inclusion of certain provisions in the lease of the Property. These accounting
standards might make sale-leaseback transactions less desirable for the
seller-tenant that wants to treat a sale-leaseback with the Company as an
operating lease and, therefore, might reduce the prospective number of
Properties available to the Company for net lease investment.
Risk of Ground Leases. In certain transactions, the Company's interest in
the land constituting part of the Property may be acquired by means of a
long-term ground lease from the tenant or an unrelated third party. The
Company's continued quiet enjoyment and possession of the land as lessee could
be affected adversely by challenges resulting from the ground lessor's financial
failure. Furthermore, the Company's interest in a Property may be acquired by
acquiring the interest as a ground sublessee under a ground sublease. The
Company's continued quiet enjoyment and possession of the land could be
adversely affected in the event the original ground lessee, from whom the
Company's interest would arise, defaulted on its obligations under the original
ground lease. This could reduce the value of such Property and therefore the
value of the Shares.
TAX RISKS
Risk of Failure to Maintain REIT Status. The Company intends to conduct
its operations to enable it to qualify as and be taxed as a REIT. If the Company
qualifies as a REIT, it will be entitled to a deduction for dividends paid to
Shareholders and, therefore, will not be required to pay federal income tax on
any income it distributes to the Shareholders. The Company will be required to
pay federal income tax on income it retains or reinvests, certain income or gain
with respect to Foreclosure Property (generally Property the Company acquires as
a result of a default by a borrower or tenant with respect to which it files an
election with the IRS), income from Prohibited Transactions (generally, sales of
certain property held primarily for sale to customers in the ordinary course of
business), and if the Company fails certain prescribed income tests, the amount
of income by which such tests were failed. Additionally, the Company may be
required to pay an alternative minimum tax and/or an excise tax. See "United
States Federal Income Tax Aspects -- Taxation of the Company."
In order to qualify as a REIT, the Company must satisfy certain highly
technical requirements. Failure to satisfy these qualification requirements
would prevent the Company's qualification as a REIT, in which case the Company
would be taxable as a corporation. In addition, should the Company have
difficulties locating suitable Properties and investing the proceeds of the
Offering within one year of receipt, the Company could be disqualified as a
REIT, could be subject to tax or could be delayed in qualifying as a REIT. See
"United States Federal Income Tax Aspects -- Requirements for Qualification as a
REIT and "United States Federal Income Tax Aspects -- Statement of Stock
Ownership." To avoid such disqualification or delay, the Company may temporarily
invest all or a portion of the proceeds in other types of assets that generate
qualifying REIT income. See "Investment Procedures, Objectives and Policies."
To qualify as a REIT, the Company is required to distribute its
Distributable REIT Taxable Income (generally, 95% of its taxable income less its
net capital gains). See "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT -- Distribution
Requirement." If in any year, the Company fails to distribute its Distributable
REIT Taxable Income, it would not qualify as a REIT and would be taxed as a
corporation unless the failure results from an adjustment by the IRS to its REIT
Taxable Income. In that event, the Company could satisfy the distribution
requirement by distributing the amount of the adjustment. It is possible that
the Company could be required to borrow funds or liquidate a portion of its
investments in order to pay its expenses, make the required distributions to
Shareholders, or satisfy its tax liabilities. There can be no assurance that
such funds will be available to the extent, and at the time, required by the
Company to maintain its REIT status. See "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT."
If the Company were to be taxed as a corporation, the Company would not be
permitted to deduct an amount equal to the dividends paid to Shareholders and
any payment of tax by the Company could substantially reduce the funds available
for distribution to Shareholders or for reinvestment. In that event, a portion
of Dividends may be a return of capital and Shareholders may be entitled to a
refund of taxes paid
18
<PAGE> 19
on Dividends. To the extent that Dividends had been made in anticipation of the
Company's qualification as a REIT, the Company might be required to borrow
additional funds or to liquidate certain of its investments in order to pay the
applicable tax. Moreover, should the Company's election to be taxed as a REIT be
terminated or voluntarily revoked, the Company may not be able to elect to be
treated as a REIT until the fifth taxable year following the termination of its
election unless it satisfies certain conditions. See "United States Federal
Income Tax Aspects -- Termination of REIT Status."
Changes in Tax Laws. The discussions of the federal income tax aspects of
the Offering are based on current law, including the Code, the Regulations
issued thereunder, certain administrative interpretations thereof and court
decisions. Consequently, future events (including those arising from legislative
and administrative proposals that are or in the future may be under
consideration) that modify or otherwise affect those provisions may result in
treatment for federal income tax purposes of the Company and the Shareholders
that is materially and adversely different from that described in this
Prospectus, both for taxable years arising before and after such events. There
is no assurance that future legislation and administrative interpretations will
not be retroactive in effect.
OTHER INVESTMENT RISKS
Risk of Insufficient Working Capital. There can be no assurance that the
Company will have sufficient working capital. A deficiency of working capital
might be caused by a decrease in gross revenues, by an increase in expenses, by
an uninsured casualty to a Property or by other unanticipated events. There is
no assurance that the Company will be able to borrow money for working capital
purposes. Loan covenants and other restrictions included in the Company's
financing agreements relating to the acquisition of Properties may restrict the
Company's ability to borrow for such purposes or its ability to draw funds from
working capital reserves. The lack of working capital may make the Company
unable to pay certain expenses or loan payments which could result in a default
under certain loans.
Investment by Pension or Profit-Sharing Trusts, Keoghs or IRAs. In
considering an investment in the Company of the assets of a pension, profit
sharing, 401(k), Keogh or other retirement plan or IRA ("Benefit Plans"), a
fiduciary with respect to such a Benefit Plan should consider, among other
things, (i) whether the investment is consistent with applicable provisions of
ERISA or the Code, (ii) whether the investment will produce unrelated business
taxable income, as defined in Section 512 of the Code ("UBTI"), to the Benefit
Plan, and (iii) the need to value the assets of the Benefit Plan annually.
In certain circumstances, the assets of the Company could be considered
assets of Benefit Plans subject to ERISA and Section 4975 of the Code. If that
were the case, certain contemplated transactions between the Company and the
Advisor and its Affiliates might be considered "prohibited transactions" under
the Code and ERISA. The parties engaging in such transactions could become
subject to penalties and excise taxes. Additionally, the Advisor could be
considered a fiduciary under ERISA, subject to the conditions, restrictions and
prohibitions of Part 4 of Title I of ERISA and the fiduciaries for each
investing Benefit Plan could be considered to have made an improper delegation
of fiduciary responsibilities to the Advisor. IRAs also could be said to have
permitted an improper commingling of IRA assets with other assets.
The Company has obtained an opinion of Reed Smith Shaw & McClay LLP (which
opinion is based on the facts and assumptions described in this Prospectus, on
the Articles of Incorporation and on certain representations) that the assets of
the Company should not be treated under current ERISA law and regulations as
plan assets of a Benefit Plan which purchases Shares. The opinion is not binding
on the IRS or on the Department of Labor.
There can be no assurance that the objective of preventing the assets of
the Company from being deemed, for purposes of ERISA and the Code, plan assets
of those Benefit Plans which purchase Shares will be attained. Even if the
Company complies with such regulations and the assets of the Company are not
considered plan assets, a prohibited transaction could occur if the Company,
CFA, any Selected Dealer, the Escrow Agent or any of their Affiliates is a
fiduciary (within the meaning of ERISA) with respect to the purchase by a
Benefit Plan. Thus, unless an administrative or statutory exemption applies,
Shares should
19
<PAGE> 20
not be purchased if any of the above Persons referred to in the immediately
preceding sentence is a fiduciary (within the meaning of ERISA) with respect to
such purchase.
Plans subject to ERISA and the Code and other exempt organizations are
urged to pay particular attention to the sections of this Prospectus entitled
"United States Federal Income Tax Aspects -- Taxation of Tax -- Exempt Entities"
and "ERISA Considerations" before purchasing Shares.
Dilution. Because Investors will pay the same price per Share during the
Offering whether they acquire their shares before or after the Company has made
investments, the value of Shares acquired by Shareholders will be diluted upon
purchase of the Shares by Shareholders purchasing Shares subsequently if
investments previously acquired by the Company have appreciated in value.
Conversely, if investments previously acquired by the Company have depreciated
in value, the value of the Shares purchased by a Shareholder later in the
Offering will be diluted immediately upon the purchase of the Shares. The Board
may authorize the issuance of Shares in addition to Shares issued pursuant to
the Offering or may issue other types of securities, thereby resulting in
possible dilution of the equity of the Shareholders.
TERMS OF THE OFFERING
A maximum of 30,000,000 Shares are being offered to the public on a "best
efforts" basis by the Sales Agent and Selected Dealers (which means that no one
is guaranteeing the amount of capital that will be raised). The Company has sold
5,533,702 Shares in this offering as of June 30, 1998. The price of the Shares
is $10 per Share (which price has been determined arbitrarily), subject to
certain discounts. See "The Offering." The minimum subscription is 250 Shares
(200 Shares for an Individual Retirement Account ("IRA") or a Self-Employed
Retirement Plan ("Keogh Plan") except for Iowa tax-exempt Investors who must
make a minimum investment of 250 Shares). Payment in full is due on transmittal
of an order by an Investor or by such investor's authorized representative.
Payments will be deposited promptly in an interest-bearing escrow account
maintained with the United States Trust Company of New York (the "Escrow Agent")
until such funds are released as described below. Such funds will be held in
trust for the benefit of Investors to be used for the purposes set forth in this
Prospectus. Orders must be accepted or rejected by the Company within 30 days of
their receipt. An investor whose order for Shares has been accepted by the
Company has no right to withdraw his investment. See "The Offering." The
acceptance of orders by the Company imposes no obligation on the Company to
issue Shares. The Sales Agent and the Selected Dealers may not complete a sale
of Shares to an Investor until at least five business days after the date the
Investor receives a copy of this Prospectus. Each Investor will be sent a
confirmation of his or her purchase.
Shares will be issued periodically (but not less often than quarterly), as
agreed between the Company and the Sales Agent, until the termination of the
Offering. Investors will receive the proportionate share of interest earned on
their funds for the period such funds are held in escrow. All such interest
earned on the escrowed funds will be paid to Shareholders within 15 days of each
issuance of Shares. The Offering will terminate at the time all Shares being
offered are sold, unless sooner terminated by the Company. See "The
Offering -- Escrow Arrangements."
The Company has established suitability standards for initial Shareholders
and subsequent transferees. These suitability standards require that a
Shareholder have either (i) a net worth of at least $150,000 or (ii) a gross
annual income of at least $45,000 and a net worth of at least $45,000. Missouri
residents must have either (i) a net worth of at least $250,000 or (ii) a gross
annual income of $75,000 and a net worth of at least $75,000. Arizona and North
Carolina residents must have either (i) a minimum net worth of at least $225,000
or (ii) a taxable income of at least $60,000 and a net worth of at least
$60,000. A Michigan or Pennsylvania resident's investment in the Company may not
exceed 10% of such resident's net worth. An Ohio resident's investment may not
exceed 10% of such resident's liquid net worth. Computations of net worth for
purposes of each of the above suitability standards exclude the value of a
Shareholder's home, furnishings and automobiles. In the case of sales to
fiduciary accounts, the foregoing standards must be met by the fiduciary
account, by the Person who directly or indirectly supplied the funds for the
purchase of the Shares or by the beneficiary of the account. These suitability
standards are intended to ensure that, given
20
<PAGE> 21
the long-term nature of an investment in the Company, the Company's investment
objectives and the relative illiquidity of the Shares, a purchase of Shares is
an appropriate investment for certain Investors. Each Selected Dealer must make
every reasonable effort to determine that the purchase of Shares is a suitable
and appropriate investment for each Shareholder based on information provided by
the Shareholder regarding the Shareholder's financial situation and investment
objectives. Each Selected Dealer shall maintain records of the information used
to determine that an investment in the Shares is suitable and appropriate for a
shareholder. Each Selected Dealer will maintain these records for at least six
years.
21
<PAGE> 22
ESTIMATED USE OF PROCEEDS
The following table presents information about how the money raised in the
Offering will be used. Information is provided assuming the minimum and maximum
number of Shares are sold. Many of the numbers in the table are estimates
because all expenses cannot be determined precisely at this time. The actual use
of the capital raised by the Company is likely to be different than the figures
presented in the table. The Company expects that approximately 86% of the money
invested by Shareholders will be used to buy real estate, while the remaining
14% will be used for working capital and to pay expenses and fees, including the
payment of fees to and expenses of certain Affiliates of the Sponsor of the
Company.
<TABLE>
<CAPTION>
MINIMUM OFFERING MAXIMUM OFFERING
SALE OF 1,500,000 SHARES SALE OF 30,000,000 SHARES
----------------------------- ------------------------------
PERCENT OF PERCENT OF
PUBLIC OFFERING PUBLIC OFFERING
AMOUNT PROCEEDS AMOUNT PROCEEDS
------ --------------- ------ ---------------
<S> <C> <C> <C> <C>
Public Offering Proceeds................. $15,000,000 100.00% $300,000,000 100.00%
----------- ------ ------------ ------
Less Offering Expenses:
Selling Commissions(1)................. 975,000 6.50% 19,500,000 6.50%
Other Organization and Offering
Expenses(2)......................... 600,000 4.00% 10,500,000 3.50%
----------- ------ ------------ ------
Total Offering Expenses.................. 1,575,000 10.50% 30,000,000 10.00%
----------- ------ ------------ ------
Amount of Public Offering Proceeds
Available for Investment............... $13,425,000 89.50% $270,000,000 90.00%
=========== ====== ============ ======
*Acquisition Fees(3)..................... 330,000 2.20% 6,637,500 2.21%
Acquisition Expenses(4).................. 75,000 0.50% 1,500,000 0.50%
Working Capital Reserve.................. 150,000 1.00% 3,000,000 1.00%
----------- ------ ------------ ------
Total Proceeds to be Invested in Real
Estate................................. $12,870,000 85.80% $258,862,500 86.29%
=========== ====== ============ ======
</TABLE>
- ---------------
* Subordinated Acquisition Fees, which are intended to be paid from the
Company's funds from operations and not from proceeds of the Offering, have
not been included in the table. Subordinated Acquisition Fees (excluding
interest thereon), will not exceed 2% of the aggregate purchase price of the
properties. Assuming the Company does not borrow money to purchase
Properties, the Subordinated Acquisition Fees will not exceed $264,000
(1.76% of the Public Offering Proceeds), in the event the Minimum Offering
is achieved, or $5,310,000 (1.77% of the Public Offering Proceeds), in the
event the Maximum Offering is achieved, which fees, with respect to any
Property, are payable in equal amounts over an eight year period following
the acquisition of a Property, assuming the Preferred Return has been paid.
Other terms of the Subordinated Acquisition Fees are described in the
"Management Compensation" section of this Prospectus.
(1) The Company will pay a selling commission of $0.65 per Share sold (except
that no commission will be paid with respect to any Shares sold to the
Advisor, its Affiliates, the Selected Dealers or any of their employees for
their own accounts). Such selling commissions will be reduced in the event
of volume discounts as further described in "The Offering."
(2) Other Organization and Offering Expenses represent all expenses incurred in
connection with the formation, qualification and registration of the Company
and in marketing and distributing the Shares under applicable federal and
state law, and any other expenses actually incurred and directly related to
the offering and sale of the Shares, except selling commissions. In no event
shall the total underwriting compensation to be paid to the Sales Agent and
Selected Dealers in connection with the Offering, including selling
commissions and expense reimbursements, exceed 10% of the Gross Offering
Proceeds, except that an additional 0.50% of gross proceeds from sales made
by the Sales Agent and each Selected Dealer may be paid for bona fide due
diligence expenses. To the extent all Organization and Offering Expenses
(excluding selling commissions, and any fees paid and expenses reimbursed to
22
<PAGE> 23
the Selected Dealers or paid on behalf of the Selected Dealers) exceed 3.5%
of the Gross Offering Proceeds, the excess will be paid by the Advisor with
no recourse by or reimbursement to the Advisor. See "Management
Compensation." See "The Offering" for a complete description of the fees and
expense reimbursements payable to the Sales Agent and the Selected Dealers.
(3) Acquisition Fees include all fees and commissions paid by any party to any
party in connection with the purchase, development or construction of
Properties and any related mortgage financing, except any Development Fee or
Construction Fee paid to a Person who is not an Affiliate of the Company in
connection with the actual development and construction of a project after
the Company's acquisition of the land. See "Glossary" for complete
definitions of "Acquisition Fees," "Development Fee" and "Construction Fee."
Acquisition Fees do not include Acquisition Expenses. For purposes of the
table only, Subordinated Acquisition Fees have not been included as part of
Acquisition Fees because such fees will be paid from funds from operations
of the Company. The presentation in the table is based on the assumption
that the Company will not borrow any money to purchase Properties. Although
it is assumed that all the foregoing fees will be paid by the sellers of
Property, sellers generally fix the selling price at a level sufficient to
cover the cost of any Acquisition Fee so that, in effect, the Company, as
purchaser, will bear such fee as part of the purchase price. The Company
will not purchase any Property that has a Total Property Cost (generally,
the sum of the costs of purchasing, developing, constructing and improving
the Property plus the Acquisition Fees paid in connection with such
Property) in excess of such Property's appraised value. See "Management
Compensation" for a complete description of the terms, conditions and
limitations of the payment of fees to the Advisor and its Affiliates.
(4) Acquisition Expenses represent an estimate of all expenses related to the
selection and acquisition of Properties by the Company, whether or not such
Properties are acquired, including but not limited to legal fees and
expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on Property not acquired, accounting fees and
expenses, title insurance and miscellaneous expenses. Acquisition Expenses
do not include Acquisition Fees.
23
<PAGE> 24
MANAGEMENT COMPENSATION
The following table sets forth the type and, to the extent possible,
estimates of the amounts of all fees, compensation, income, distributions and
other payments that the Advisor and its Affiliates will or may receive in
connection with the Offering and the operation of the Company. Such payments
initially will result from non-arm's-length bargaining. See "Conflicts of
Interest."
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
ORGANIZATION AND OFFERING STAGE
Advisor and its Affiliates Reimbursement for Organization and The actual amounts to be paid will
Offering Expenses, including depend upon the actual amount of
identified wholesaling expenses Organization and Offering Expenses
incurred on behalf of the Company; incurred by the Advisor and its
provided, however, that if the Affiliates in connection with this
aggregate of all Organization and Offering which is not determinable at
Offering Expenses (excluding selling this time. Such expenses are
commissions, and any fees paid or estimated to be $675,000 if 1,500,000
expenses reimbursed to the Selected Shares are sold and are estimated to
Dealers) or paid on behalf of the be $12,000,000 if 30,000,000 Shares
Selected Dealers exceeds 3.5% of the are sold.
Gross Offering Proceeds, the Advisor
will be responsible for the excess.
Sales Agent Selling commissions equal to $0.65 The estimated amount payable to the
per Share sold. The Sales Agent may, Sales Agent is $900,000 if 1,500,000
in turn, reallow a selling commission Shares are sold and $18,000,000 if
of up to $0.60 per share of such 30,000,000 Shares are sold in this
commissions to Selected Dealers. Offering, a portion of which will be
reallowed to the Selected Dealers.
ACQUISITION STAGE
Advisor or its Affiliates Interest on loans made to the The actual amount of loans made to
Company. On short-term loans, the the Company by the Advisor or its
interest rate will be the lesser of Affiliates is not determinable at
(i) 1% above the prime rate of this time. Accordingly, the actual
interest charged from time to time by amount of interest payable to the
The Bank of New York and (ii) the Advisor and its Affiliates, if any,
rate that would be charged to the is not determinable at this time.
Company by unrelated lending insti-
tutions on comparable loans for the
same purpose in the locality of the
Property. See "Conflicts of Interest"
and "Investment Objectives and
Policies."
</TABLE>
24
<PAGE> 25
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor or its Affiliates Acquisition Fees (other than The actual amount to be paid to the
Subordinated Acquisition Fees). Total Advisor and its Affiliates will
Acquisition Fees (which include real depend upon the aggregate Total
estate brokerage fees, mortgage Property Cost of the Properties,
placement fees, lease-up fees and which in turn is dependent upon the
transaction structuring fees), other Gross Offering Proceeds and the
than Subordinated Acquisition Fees, amount of mortgage financing used by
payable by either sellers of Property the Company in acquiring the
or the Company may not exceed 2.5% of Properties, and accordingly is not
the aggregate purchase price of the determinable at this time. If the
Properties. (1)(2) Properties acquired from the proceeds
of this Offering are 60% leveraged,
such Acquisition Fees payable to the
Advisor or its Affiliates are
estimated to be approximately
$825,000 if 1,500,000 Shares are sold
and approximately $16,594,000 if
30,000,000 Shares are sold. See
"Conflicts of Interest."
</TABLE>
25
<PAGE> 26
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor or its Affiliates Subordinated Acquisition Fees. Total The actual amount to be paid to the
Subordinated Acquisition Fees payable Advisor and its Affiliates will
by either the sellers of Properties depend upon the aggregate Total
or the Company may not exceed 2.0% of Property Cost of the Properties
the aggregate purchase price of the acquired with the proceeds of this
Properties and, with respect to each Offering, which in turn is dependent
Property, are payable in equal annual upon the Gross Offering Proceeds of
installments on January 1 of each of this Offering and the amount of
the eight calendar years commencing mortgage financing used by the
with January 1 following the first Company in acquiring the Properties,
anniversary of the date such Property and accordingly is not determinable
was purchased. The unpaid portion of at this time. If the Properties
the Subordinated Acquisition Fee with acquired with the proceeds of this
respect to any Property will bear Offering are 60% leveraged,
interest at the rate of 6% per annum Subordinated Acquisition Fees payable
from the date of acquisition of such to the Advisor or its Affiliates by
Property until such portion is paid. sellers of Properties are estimated
Such accrued interest is payable on to be approximately $660,000 if
the date of each annual installment 1,500,000 Shares are sold and
of such fees. The Company's portion approximately $13,275,000 if
of the Subordinated Acquisition Fee 30,000,000 Shares are sold. See
payable in any year, and accrued "Conflicts of Interest."
interest thereon, will be
subordinated to the Preferred Return.
All Subordinated Acquisition Fees,
and accrued interest thereon, shall
become due and payable at such time
the Shares become listed for trading
on a national securities exchange or
included for quotation on Nasdaq.
(1)(2)
</TABLE>
26
<PAGE> 27
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
OPERATIONAL STAGE
Advisor and its Affiliates Reimbursement for Company expenses Not determinable at this time.
incurred in connection with the
administration of the Company. The
amounts of any such reimbursement
will not exceed amounts which would
be paid to non-affiliated third par-
ties in the same locality for sim-
ilar products. The Operating Expenses
of the Company may not exceed the
2%/25% Guidelines in any 12-month
period. To the extent that the
Company incurs Operating Expenses in
excess of the 2%/25% Guidelines and
the Independent Directors find that
such excess expenses were the result
of unusual and nonrecurring factors,
the Advisor may be reimbursed in
future years for the full amount of
such excess expenses, or any portion
thereof, but only to the extent such
reimbursement would not cause the
Company's Operating Expenses to
exceed the 2%/25% Guidelines in any
such year.
Advisor Asset Management Fee, payable monthly If the maximum number of Shares is
in an amount equal to one-twelfth of sold and the Company achieves its
0.5% of the Average Invested Assets borrowing goal of 60%, Average
for the preceding month. The Asset Invested Assets as a result of this
Management Fee must fall within the Offering would be approximately
2%/25% Guidelines. Payment of the $663,750,000 and the annual Asset
Asset Management Fee will be deferred Management Fee on such assets would
if the Operating Expenses of the be approximately $3,319,000.
Company exceed the 2%/25% Guidelines.
(2)(3)(4)(5)
</TABLE>
27
<PAGE> 28
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor Performance Fee, payable in cash or If the maximum number of Shares is
restricted stock at the option of the sold and the Company achieves its
Advisor, calculated monthly on the borrowing goal of 60%, Average
basis of one-twelfth of 0.5% of the Invested Assets as a result of this
Average Invested Assets for the Offering would be approximately
preceding month, payable quarterly. $663,750,000 and the annual
Payment of this Fee for any quarter Performance Fee on such assets would
will be subordinated to the be approximately $3,319,000.
cumulative rate of cash flow from
operations. The Performance Fee must
fall within the 2%/25% Guidelines.
Payment of this Fee will also be
deferred if the Operating Expenses of
the Company exceed the 2%/25%
Guidelines. (2)(3)(4)(5)(6)
Advisor Loan Refinancing Fee. Fees payable by The actual amount to be paid to the
either the tenant of a Property or Advisor will depend upon the
the Company may not exceed 1% of the aggregate amount of the refinancing
principal amount of any refinancing obtained by the Company.
obtained by the Company for which the
Advisor renders substantial services
and for which no fees are paid to a
third party. The Loan Refinancing Fee
will be payable only if (i) the new
loan is approved by the Independent
Directors as being in the best
interests of the Company, (ii)
payment of the fee is approved by a
majority of the Independent
Directors, and (iii) the terms of the
new loan represent an improvement
over the terms of the refinanced
loan, the new loan materially
increases the total debt secured by a
particular Property, or the maturity
date of the refinanced loan (which
must have had an initial term of five
years or more) is less than one year
from the date of the refinancing. See
"Conflicts of Interest."
</TABLE>
28
<PAGE> 29
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
LIQUIDATION STAGE
Advisor or its Affiliates Subordinated Disposition Fee in an Not determinable at this time.
amount equal to the lesser of (i) 50%
of the Competitive Real Estate
Commission and (ii) 3% of the
Contract Sales Price of a Property
(if the Advisor or an Affiliate
provides a substantial amount of
services in the sale of a Property).
The Subordinated Disposition Fee
shall be deferred until Share-
holders have received total Divi-
dends equal to 100% of Initial
Investor Capital plus a 6% Cu-
mulative Return commencing with the
Initial Closing Date. To the extent
that the Subordinated Disposition Fee
is not currently paid by the Company
because of the foregoing limita-
tion, the unpaid commissions will be
accrued and paid at such time as the
limitation has been satisfied. The
total real estate commissions paid to
all Persons by the Company shall not
exceed an amount equal to the lesser
of (i) 6% of the Contract Sales Price
of a Property or (ii) the Competitive
Real Estate Commission.
Advisor and its Affiliates Subordinated Incentive Fee shall be The actual amount to be received will
payable in an amount equal to 15% of depend upon the results of the
the balance from Cash from Sales and Company's operations and the amounts
Financings remaining after the received upon the sale or other
Shareholders have received div- disposition of the Properties and are
idends totaling 100% of Initial not determinable at this time.
Investor Capital plus the Preferred
Return. (7)
</TABLE>
29
<PAGE> 30
<TABLE>
<CAPTION>
Entity Receiving Form and Method
Compensation of Compensation Estimated Amount
- ---------------------------------------------------------------------------------------------------------------------
<S> <C> <C>
Advisor and its Affiliates Termination Fee shall be payable in Not determinable at this time.
an amount equal to 15% of the amount,
if any, by which (i) the appraised
value of the Properties on the date
of termination of the Advisory Agree-
ment (the "Termination Date") less
amounts of all indebtedness secured
by such properties, exceeds (ii) the
total of the Initial Invested Capital
on the Final Closing Date plus an
amount equal to the Preferred Return
through the Termination Date reduced
by the total Dividends paid by the
Company from its inception through
the Termination Date. (5)
</TABLE>
- ---------------
(1) The total Acquisition Fees (not including Subordinated Acquisition Fees)
payable to the Advisor and its Affiliates or paid by the Company may not
exceed 2.5% of the aggregate Total Property Cost of all Properties purchased
by the Company with the proceeds of this Offering unless a majority of the
Board (including a majority of the Independent Directors) not otherwise
interested in any transaction approve such excess as being commercially
competitive, fair and reasonable to the Company. The total of all
Acquisition Fees (including Subordinated Acquisition Fees and interest
thereon) and Acquisition Expenses paid by the Company shall be reasonable
and shall not exceed an amount equal to 6% of the aggregate Contract
Purchase Price of all properties purchased by the Company with the proceeds
of this Offering, unless a majority of the directors (including a majority
of the Independent Directors) not otherwise interested in any transaction
approves fees in excess of this limit as being commercially competitive,
fair and reasonable to the Company.
(2) The Company's objective is to achieve total borrowings of approximately 60%
of the purchase price of all Properties. The CPA(R) Programs have had
similar leverage goals but have achieved leverage of only approximately 55%.
The actual leverage percentage achieved by the Company will impact the
amount of Acquisition Fees earned by the Advisor because such fees are based
primarily on the total dollars invested in Properties and the amount
available for such investment will be affected by the amount of the
Company's total borrowings (i.e., the higher the leverage percentage, the
more funds available for investment in Properties). If the maximum Offering
of 30,000,000 Shares is sold and the Properties are 75% leveraged,
Acquisition Fees (not including Subordinated Acquisition Fees) payable to
the Advisor or its Affiliates as a result of this Offering (assuming an
aggregate Total Property Cost of all Properties of approximately $1,062,000)
are estimated to be approximately $26,550,000 and Subordinated Acquisition
Fees are estimated to be approximately $21,240,000. The Company does not
expect its Properties to be 75% leveraged. The advisory agreement between
the Company and the Advisor (the "Advisory Agreement") provides that the
Advisor will not earn Acquisition Fees or Subordinated Acquisition Fees on
the reinvestment of proceeds from the sale or refinancing of Properties,
unless the Shares are publicly-traded or are expected to be publicly-traded.
(3) There are currently no specific arrangements for the provision of Property
management services to the Company by the Advisor. Such services shall be
provided by the Advisor or an Affiliate only if a Property becomes vacant or
requires more active management than contemplated at the time such Property
is acquired. However, if the Advisor deems such services to be necessary in
order to preserve the value of the Property, the Advisor or its Affiliates,
with the approval of the Board (including a
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majority of the Independent Directors), may provide such services. The
maximum property management fee which may be paid to the Advisor or an
Affiliate will be 6% of gross revenues from commercial Properties (plus
reimbursed expenses), where such entity performs property management and
leasing, re-leasing and leasing related services, or 3% of gross revenues,
where such entity provides only property management services. In the case of
industrial and commercial Properties which are leased for ten or more years
on a triple net lease basis, the maximum property management fee from such
leases shall be 1% of the Company's gross revenues over the term of each
lease plus a one-time leasing fee of 3% of the total base rents payable for
the first five years of the lease term payable in five equal annual
installments. In no event may the property management fees paid to the
Advisor or its Affiliates exceed the usual and customary amounts charged for
similar services in the same geographic region.
(4) If at any time the Shares become listed on a national securities exchange or
included for quotation on Nasdaq, the Company and the Advisor will negotiate
in good faith a fee structure appropriate for an entity with a perpetual
life. A majority of the Independent Directors must approve the new fee
structure negotiated with the Advisor. In negotiating a new fee structure,
the Independent Directors shall consider all of the factors they deem
relevant, including but not limited to: (a) the size of the advisory fee in
relation to the size, composition and profitability of the Company's
portfolio; (b) the success of the Advisor in generating opportunities that
meet the investment objectives of the Company; (c) the rates charged to
other REITs and to investors other than REITs by Advisors performing similar
services; (d) 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; (e) the quality and extent of service and advice furnished by
the Advisor; (f) the performance of the investment portfolio of the Company,
including income, conservation or appreciation of capital, frequency of
problem investments and competence in dealing with distress situations; and
(g) the quality of the portfolio of the Company in relationship to the
investments generated by the Advisor for its own account. The Board,
including a majority of the Independent Directors, may not approve a new fee
structure that is, in its judgment, more favorable to the Advisor than the
current fee structure.
(5) Following the termination of the Advisory Agreement by the Company, the
Advisor shall be entitled to receive payment of any earned but unpaid
compensation and expense reimbursements, including Organization and Offering
Expenses and Subordinated Acquisition Fees, Asset Management Fees,
Performance Fees, Loan Refinancing Fees and Subordinated Disposition Fees
accrued as of such date. If the Advisory Agreement is terminated (i) in
connection with a Change of Control of the Company, (ii) by the Company for
any reason other than Cause (as defined in "Management -- The Advisory
Agreement") or (iii) by the Advisor for Good Reason (as defined in
"Management -- The Advisory Agreement"), the Advisor also shall be entitled
to the payment of the Termination Fee and any Subordinated Acquisition Fees
that have not accrued. The Advisor shall be entitled to receive all accrued
but unpaid compensation and expense reimbursements in cash within 30 days of
the effective date of the termination. 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 Termination Fee shall be
paid in 12 equal quarterly installments with interest on the unpaid balance.
Notwithstanding the preceding sentence, any amounts which may be deemed
payable at the date the obligation to pay the Termination Fee is incurred
which relate to the appreciation of the Properties (a) shall be an amount
which provides compensation to the terminated Advisor only for that portion
of the holding period for the respective Properties during which such
terminated Advisor provided services to the Company, (b) shall not be due
and payable until the Property to which such fees relate is sold or
refinanced, and (c) shall not bear interest until the Property to which such
fees relate is sold or refinanced. The Advisor shall not be entitled to
payment of the Termination 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 in the event the
Shares are listed on a national securities exchange or are included for
quotation on Nasdaq.
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(6) The Advisor may choose to take the Performance Fee in cash or restricted
Shares of the Company. For purposes of calculating the value per Share of
restricted stock given in satisfaction of the Performance Fee, if such
payment in stock is elected by the Advisor, the price per Share shall be (i)
the Net Asset Value per Share as determined by the most recent appraisal
performed by an independent third party or, if an appraisal has not yet been
performed, (ii) $10 per Share. Such restricted stock will vest ratably over
a period of five years and is non-transferable during this vesting period.
(7) In the event the Shares are listed on a national securities exchange or
included for quotation on Nasdaq, the Advisor shall be paid the Subordinated
Incentive Fee in an amount equal to 12% of the excess (the "Excess Return")
of (A) the sum (the "Hypothetical Return") of (i) the market value of the
Company, measured by taking the average closing price or bid and asked
price, as the case may be, over a period, beginning 180 days after listing
of the Shares, of 30 days during which the Shares are traded (the "Market
Value") plus (ii) the total of the Dividends paid to Shareholders from the
Initial Closing Date until the date the Shares are listed or included for
quotation over (B) the sum of (i) 100% of Initial Investor Capital and (ii)
the total amount of the cash flow from operations required in order to pay
the Preferred Return through the date the Market Value is determined. The
Subordinated Incentive Fee shall be increased to 13% if the Hypothetical
Return is an amount sufficient to return to investors 100% of Initial
Investor Capital plus a cumulative cash flow from operations of 7% or more
but less than 8%; 14% if the Hypothetical Return is an amount sufficient to
return 100% of Initial Investor Capital plus a cumulative cash flow from
operations of 8% or more but less than 9%; and 15% if the Hypothetical
Return is an amount sufficient to return 100% of Initial Investor Capital
plus a cumulative cash flow from operations of 9% or more. The Cumulative
Return shall be measured from the Initial Closing Date through the last day
on which the Market Value is determined. The Subordinated Incentive Fee may
only be paid if the average closing price of the Shares over any consecutive
three-month period ending within 24 months of the date of listing is
sufficient, when added to Dividends previously paid from the Initial Closing
Date through the end of such three-month period, to return 100% of Initial
Investor Capital plus a 6% Cumulative Return from the Initial Closing Date
through the last day of such three-month period. The Company shall have the
option to pay such fee in the form of cash, a promissory note or any
combination thereof. In the event the Subordinated Incentive Fee is paid to
the Advisor as a result of the listing of the Shares, no Termination Fee
will be paid to the Advisor if the Advisory Agreement is terminated after
such listing.
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CONFLICTS OF INTEREST
Various conflicts of interest may arise in the operation of the Company's
business. The Independent Directors will determine the manner in which the
Company will participate in any transaction, will have an obligation to function
on behalf of the Company in all situations in which a conflict of interest may
arise and will have a fiduciary obligation to act on behalf of the Shareholders.
Possible conflicts of interest include the following:
Receipt of Commissions, Fees and Other Compensation by the Advisor and its
Affiliates. A transaction involving the purchase, financing, lease and sale of
any Property by the Company may result in the immediate realization by the
Advisor and its Affiliates of substantial commissions, fees, compensation and
other income. Subject to the Advisory Agreement, the Advisor has discretion with
respect to all decisions relating to any such transaction, except to the extent
such transaction involves Affiliates of the Advisor or relates to the making or
purchasing of any Loans on behalf of the Company, in which case such transaction
must be approved by a majority of the Independent Directors. 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, as such determination could
impact the timing and amount of fees payable to the Advisor. The Company may
purchase, sell or finance Properties through certain Affiliates of the Advisor
engaged in the real estate brokerage business or through other Affiliates of the
Company.
Non-Arm's-Length Agreements. Except as otherwise provided below, all
agreements and arrangements, including those relating to compensation, between
the Company and the Advisor or any of its Affiliates will not be the result of
arm's-length negotiations. Certain provisions of the bylaws of the Company (the
"Bylaws"), however, target generally potential conflicts which might otherwise
result from such agreements and arrangements by, among other things, requiring
that compensation to the Advisor and its Affiliates be approved by a majority of
the Independent Directors and that terms of future transactions with Affiliates
be no less favorable to the Company than terms which could be obtained from
unaffiliated entities providing similar services as an ongoing activity in the
same geographical location. The initial Independent Directors were selected by
the Sponsor.
Purchases and Loans from Affiliates. The Company may purchase Properties
from Affiliates of the Advisor if such purchase is consistent with the
investment procedures, objectives and policies of the Company and if certain
other conditions are met. See "Investment Procedures, Objectives and Policies."
The Company also may borrow funds from the Advisor or its Affiliates (a) if, at
any time when proceeds of the Offering are being held by the Escrow Agent, the
Company does not have sufficient funds to provide the equity portion of a
particular investment and (b) to provide the debt portion of a particular
investment if (i) the Company is unable to obtain a permanent loan at such time
or, in the judgment of the Board, it is not in the best interest of the Company
to obtain a permanent loan at the interest rates then prevailing and (ii) the
Board has reason to believe that the Company will be able to obtain a permanent
loan on or prior to the end of the loan term provided by the Advisor or such
Affiliate. See "Investment Procedures, Objectives and Policies." The Company may
borrow funds on a short-term basis from the Advisor or its Affiliates.
The Company may not invest in other REITs advised or managed, directly or
through Affiliates, by the Sponsor, its subsidiaries or William P. Carey and
with respect to which the Sponsor, its subsidiaries or William P. Carey receive
separate fees, and will not sell Properties to the Sponsor, the Advisor or any
director or any of their respective Affiliates, except in the case of an
exercise of a right of first refusal by an affiliated joint venture partner.
Every transaction entered into between the Company and the Advisor or its
Affiliates is subject to an inherent conflict of interest. The Board may
encounter conflicts of interest in enforcing rights of the Company against any
Affiliate in the event of a default by or disagreement with such Affiliate or in
invoking powers, rights or options pursuant to any agreement between the Company
and such Affiliates. Each transaction between the Company and the Advisor or any
of its Affiliates must be approved by a majority of the Independent Directors
who are otherwise disinterested in the transaction as being fair and reasonable
to the Company and on terms and conditions no less favorable to the Company than
those available from unaffiliated third parties.
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Competition with the Company from Affiliates of the Advisor in the
Purchase, Sale, Lease and Operation of Properties. W.P. Carey & Co., Inc. ("W.P.
Carey & Co.") specializes in providing lease financing services to major
corporations and, therefore, may be in competition with the Company with respect
to Properties, potential purchasers, sellers and lessees of Properties, and
mortgage financing for Properties. W.P. Carey & Co., its subsidiaries and
William P. Carey currently manage or advise public and private real estate
investment partnerships and REITs whose investment and rate of return objectives
are substantially similar to those of the Company. In addition, they expect to
manage or advise, directly or through Affiliates, additional REITs, public and
private investment partnerships and other investment entities.
The CPA(R) Programs have investment policies similar to those of the
Company and, therefore, may be in competition with the Company for Properties,
potential purchasers, sellers and lessees of Properties, and mortgage financing
for Properties. Affiliates of the Advisor intend to offer interests in other
REITs, partnerships or public or private investment entities, some of which may
have similar investment objectives as the Company and may be in a position to
acquire Properties at the same time as the Company. Affiliates of the Advisor
may have an ownership interest in such other REITS.
The Advisor will use best efforts to present suitable investments to the
Company consistent with the investment procedures, objectives and policies of
the Company. However, the Advisor is not restricted from advising or managing
other entities, any of which may have investment objectives similar to those of
the Company. If the Advisor or any of its Affiliates is presented with a
potential investment in a Property which might be made by more than one
investment entity which it advises or manages, the decision as to the
suitability of such Property for investment by a particular entity will be based
upon a review of the investment portfolio of each such entity and upon factors
such as cash flow from the Property, the effect of the acquisition thereof on
the diversification of each entity's portfolio, rental payments during any
renewal period, the estimated income tax effects of the purchase on each entity,
the amount of equity required to make the investment, the policies of each
entity relating to leverage, the funds of each entity available for investment,
the length of time such funds have been available for investment and the manner
in which the potential investment can be structured by each entity.
Consideration will be given to joint ownership (e.g., tenancy-in-common or joint
venture arrangement) of a particular Property determined to be suitable for more
than one investment entity in order to achieve diversification of each entity's
portfolio and efficient completion of an entity's portfolio. In such joint
ownership, the investment of each entity will be on substantially similar terms
and conditions, compensation to the organizer of each investment entity will be
similar and each investment entity will have a right of first refusal to
purchase the interest of the other if a sale of that interest is contemplated.
See "Risk Factors -- Real Estate Investment Risks -- Risks of Joint Ventures."
To the extent that a particular Property might be determined to be suitable for
more than one investment entity, priority generally will be given to the
investment entity having uninvested funds for the longest period of time. It is
the responsibility of the directors (including the Independent Directors) to
insure that the method used to allocate transactions is applied fairly to the
Company.
Adjacent Properties. Although it is not expected to occur, if the Advisor
or any of its Affiliates acquires Properties that are adjacent to those of the
Company, the value of such Properties may be enhanced by the interests of the
Company. It also is possible that such Properties could be in competition with
those of the Company for prospective tenants.
Competition with the Company from Affiliates of the Advisor for the Time
and Services of Officers and Directors. The Company will depend on the Board and
the Advisor for the operation of the Company and for the acquisition, operation
and disposition of its investments. Most officers of Carey Fiduciary Advisors,
Inc. ("CFA"), the general partner of the Advisor, are also officers, directors
and/or employees of W.P. Carey & Co. The Manager of Carey Diversified LLC is an
Affiliate of the Advisor, and CFA is the general partner of the Advisor to
CPA(R):10, CIP(R) and CPA(R):12. The Advisor serves in the same advisory
capacity for CPA(R):10, CIP(R) and CPA(R):12. The Advisor has entered into the
Advisory Agreement with the Company pursuant to which it will perform certain
functions relating to the investment of the Company's funds and the day-to-day
management of the Company. See "Management -- The Advisory Agreement." Certain
officers of Affiliates of the Advisor will be performing similar services for
the CPA(R) Programs and
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may perform such services for REITs, partnerships or other investment entities
offered or managed in the future by Affiliates of the Advisor. CFA, the Advisor
and their Affiliates will devote such time to the affairs of the Company as
they, within their sole discretion, exercised in good faith, determine to be
necessary for the benefit of the Company and the Shareholders. See "Management."
Neither the Sales Agent, the Advisor nor any of their Affiliates are restricted
in any manner as a result of their connection with the Company and the Offering
from acting as general partner, advisor, underwriter, selling agent or
broker-dealer in public or private offerings of securities in REITs, real estate
partnerships or other entities which may have objectives similar to those of the
Company and which are sponsored by Affiliated or non-Affiliated Persons.
Affiliated Sales Agent. The Sales Agent, a subsidiary of W.P. Carey & Co.
and an Affiliate of the Advisor, will receive a selling commission for each
Share sold by it (except for sales made to the Advisor, its employees or its
Affiliates) and Annual Servicing Fees with respect to Shares held by its
clients, and will receive reimbursement for certain expenses. See "The
Offering."
Common Counsel. Reed Smith Shaw & McClay LLP, counsel for the Company in
connection with the Offering, is also counsel to the Advisor, the Sales Agent
and various Affiliates, including the CPA(R) Programs and W.P. Carey & Co. In
the event any legal controversy arises in which the interests of the Company
appear to be in conflict with those of the Advisor, the Sales Agent or their
Affiliates, other counsel will be retained for one or more parties.
Advisor's and Selected Dealers' Ownership Interest in the Company. For the
purpose of providing the initial capitalization of the Company, the Advisor has
acquired 20,000 Shares. If the maximum number of Shares are sold in the
Offering, the Advisor will own approximately 0.07% of the Shares. The Advisor
and its Affiliates and employees, and the Selected Dealers and their employees
are not restricted from acquiring Shares and may purchase an unlimited number of
Shares on the same terms and conditions as the Shareholders except that such
purchases shall be net of commissions. In addition, if the Advisor purchases
additional Shares for investment, the Advisor could own a percentage of Shares
greater than such amounts. Any Shares owned by the Advisor or the Affiliates of
the Advisor can be expected to be voted in the Advisor's interest in matters
requiring the approval of the holders of a majority of the Shares and any other
matter submitted to a vote of the Shareholders. There are instances in which
Shares held by the Advisor, the Company's directors or their Affiliates will not
be permitted to vote. See "Management" and "Shareholders" sections of this
Prospectus for further details.
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The following chart shows the relationship among the Advisor, its general
partner, its Affiliates and the Company. See "Management."
[WILLIAM P. CAREY ORGANIZATIONAL CHART]
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PRIOR OFFERINGS BY AFFILIATES
THE INFORMATION IN THIS SECTION AND THE TABLES REFERENCED HEREIN SHOULD NOT
BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE COMPANY. IN
ADDITION, THE INCLUSION OF THE TABLES REFERENCED HEREIN AS EXHIBITS TO THIS
PROSPECTUS DOES NOT IMPLY OR INDICATE IN ANY MANNER THAT THE COMPANY WILL MAKE
INVESTMENTS COMPARABLE TO THOSE REFLECTED IN SUCH TABLES WITH RESPECT TO CASH
FLOW, TAXABLE INCOME OR OTHER FACTORS, NOR DOES IT IMPLY OR INDICATE THAT
PURCHASERS OF SHARES WILL EXPERIENCE RETURNS COMPARABLE TO THOSE EXPERIENCED BY
INVESTORS IN THE REAL ESTATE PROGRAMS REFERRED TO IN SUCH TABLES. SHAREHOLDERS
WHO PURCHASE SHARES IN THE COMPANY WILL NOT HAVE ANY OWNERSHIP INTEREST IN ANY
OF SUCH REAL ESTATE PROGRAMS (UNLESS THEY ARE ALSO INVESTORS IN THOSE REAL
ESTATE PROGRAMS).
Affiliates of the Advisor have organized Corporate Property Associates, a
California limited partnership ("CPA(R):1"), Corporate Property Associates 2, a
California limited partnership ("CPA(R):2"), Corporate Property Associates 3, a
California limited partnership ("CPA(R):3"), Corporate Property Associates 4, a
California limited partnership ("CPA(R):4"), Corporate Property Associates 5, a
California limited partnership ("CPA(R):5"), Corporate Property Associates 6, a
California limited partnership ("CPA(R):6"), Corporate Property Associates 7, a
California limited partnership ("CPA(R):7"), Corporate Property Associates 8,
L.P., a Delaware limited partnership ("CPA(R):8"), Corporate Property Associates
9, L.P., a Delaware limited partnership ("CPA(R):9"), Corporate Property
Associates 10 Incorporated, a Maryland corporation ("CPA(R):10"), Carey
Institutional Properties Incorporated, a Maryland corporation ("CIP(R)"), and
Corporate Property Associates 12 Incorporated, a Maryland corporation
("CPA(R):12") (collectively, the "CPA(R) Programs") during the past 19 years and
continue to serve as their general partners or advisor. The primary investment
objectives of the CPA(R) Programs are similar to those of the Company. The
CPA(R) Partnerships have been consolidated with Carey Diversified LLC ("CD"), a
limited liability company managed by affiliates of the Advisor. The CPA(R)
Partnerships are no longer operated as independent entities.
As of December 31, 1997, the CPA(R) Programs had raised a total of
approximately $930,192,943 from approximately 52,850 investors. Through that
date, the CPA(R) Programs had purchased a total of 416 properties, at an
aggregate purchase price of approximately $1,545,616,000 (including capitalized
costs of approximately $37,592,000), which consists of equity investments of
approximately $744,156,000 and mortgage financing of approximately $801,461,000.
All of the properties purchased are industrial or commercial properties. Of the
properties owned (on the basis of purchase price, including additional
capitalized costs) as of December 31, 1997: 42% are manufacturing plants; 22%
are distribution centers and warehouses; 17% are office buildings and research
facilities; 10% are retail stores and 4% are hotels and restaurants. Of the
properties currently owned by the CPA(R)Programs: 108 are located in the
Midwest(1) 96 are located in the Southwest(2); 75 are located in the Pacific
coast states (3); 62 are located in the Northeast (4); 58 are located in the
Southeast(5); 13 are located in the Mountain states(6); and 4 are located in
Europe. Additionally, the CPA(R) Programs have raised approximately $42,000,000
through sales to institutional investors.
When acquired by the CPA(R) Programs, approximately 21.62% of the
properties had newly constructed buildings and approximately 78.38% had
previously constructed buildings (percentage determined on the
- ---------------
(1) The following states comprise the Midwest Region: IA, IL, IN, KS, KY,
MI, MN, MO, NE, OH, WI.
(2) The following states comprise the Southwest Region: AR, AZ, LA, NM, OK,
TX.
(3) The following states comprise the Pacific Coast Region: AK, CA, NV, WA.
(4) The following states comprise the Northeast Region: CT, DE, MA, MD, NH,
NJ, NY, PA, RI, VT.
(5) The following states comprise the Southeast Region: AL, FL, GA, MS, NC,
SC, TN, VA.
(6) The following states comprise the Mountain Region: CO, UT.
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basis of purchase price, including additional capitalized costs). Substantially
all of the properties were fully constructed when purchased by the CPA(R)
Programs. When purchased by the CPA(R) Programs, all of the properties were
single-tenant commercial, industrial and governmental real property (or
interests therein). The CPA(R) Programs have made no loans or participating
loans and have entered into 30 joint ventures with affiliated programs (23% of
all transactions entered into by the CPA(R) Programs). More detailed information
with respect to investments by the CPA(R) Programs is separately presented in
tabular form for the CPA(R) Programs in Exhibit 99 to Part II of the
Registration Statement. Upon written request to the Director of Investor
Relations, 50 Rockefeller Plaza, NY, NY 10020, (800) 972-2739, the Company will
provide, at no fee, copies of such Exhibit.
The CPA(R) Programs have had similar leverage goals to that of the Company
(60% of Total Property Cost of all properties purchased) but on average have
achieved leverage of approximately 55%. For fully invested CPA(R) Programs, the
approximate percentage of leverage achieved was as follows: CPA(R):1 -- 59%;
CPA(R):2 -- 56%; CPA(R):3 -- 53%; CPA(R):4 -- 54%; CPA(R):5 -- 57%;
CPA(R):6 -- 58%; CPA(R):7 -- 54%; CPA(R):8 -- 54%; CPA(R):9 -- 60%;
CPA(R):10 -- 63%; CIP(R) -- 56%; and CPA(R):12 -- 40%.
Sixty-eight complete properties and unimproved portions of nine other
properties purchased by the CPA(R) Programs had been sold as of December 31,
1997. All but 29 of such properties were sold for consideration equal to or in
excess of the applicable CPA(R) Program's total investment in such properties,
including acquisition costs. The properties sold were originally purchased for a
total purchase price of approximately $208,013,000 and an initial equity
investment of approximately $90,523,000. Approximately $214,053,000 was received
from the sale of these properties (plus approximately $1,906,000 in additional
consideration received in connection with such sales) while net proceeds
received (after expenses and the repayment of mortgages) were approximately
$121,971,000. No purchase money obligations were received by the Company in
connection with the sale of such properties. More detailed information with
respect to the properties sold by the CPA(R) Programs between January 1, 1994
and December 31, 1997 is presented in tabular form in Table V (Sales or
Dispositions of Properties) in Exhibit A to this Prospectus.
The CPA(R) Programs have adopted investment policies which are designed to
reduce the risk of occurrence of adverse business developments as well as to
mitigate the effects of any adverse business development. In selecting
investments, factors such as the creditworthiness of a tenant, the condition and
use of the property, and geographic and industry diversification are considered
in order to reduce the risk of adverse business developments to the CPA(R)
Programs. As part of the property selection process, the CPA(R) Programs often
attempt to select properties which are necessary to the operations of a tenant
so that, in the event that such tenant undergoes a reorganization due to
bankruptcy, the lease provisions are less likely to be modified. In addition, in
order to minimize their exposure, the CPA(R) Programs also attempt to utilize
nonrecourse mortgage financing.
Certain CPA(R) Programs have experienced adverse business developments
which have included the filing by certain tenants for protection from creditors
under the Bankruptcy Code, the vacating of facilities by a tenant at the end of
an initial lease term, and litigation with tenants involving lease defaults and
sales of properties. These developments have caused a reduction in cash flow
and/or an increase in administrative expenses of the affected CPA(R) Programs
for certain periods of time, but, with four exceptions described below, have not
caused the affected CPA(R) Programs to reduce their rate of distributions to
partners. See Table III (Operating Results of Prior Programs) in Exhibit A to
this Prospectus for overall results of operations of the affected CPA(R)
Programs.
The general partners of the affected CPA(R) Programs have undertaken a
number of measures to mitigate the adverse effects of certain adverse business
developments, such as re-leasing properties vacated by initial tenants;
refinancing mortgage loans and restructuring terms of existing mortgage loans;
restructuring lease terms; selling properties; and, in the case of litigation,
vigorously defending the interests of affected CPA(R) Programs and, where
appropriate, settling litigation. Of the approximately 150 tenants with which
the CPA(R) Programs have entered into leases, 15 have subsequently sought
protection from creditors in bankruptcy. Properties formerly leased to nine of
these tenants have been re-leased or sold. Four other
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tenants have affirmed their leases and the leases of the remaining two tenants
are currently the subject of negotiations described below.
Most CPA(R) Programs in which adverse developments have occurred have been
able to meet their obligations and maintain distributions to their partners,
primarily as a result of the efforts of the general partners described above and
below and the existence of a working capital reserve established at the
inception of each CPA(R) Program. Although several CPA(R) Programs have
experienced the types of adverse business developments described above, only
four CPA(R) Programs, CPA(R):1, CPA(R):5, CPA(R):7 and CPA(R):10 have had to
reduce the rate of distributions to their partners as a result of adverse
developments. The adverse developments which were primarily responsible for
causing these reductions in the rate of distributions are, in the case of
CPA(R):1, the bankruptcy filing by Storage Technology, in the case of CPA(R):5
the sale of two properties and in the case of CPA(R):7, the bankruptcy filings
of Yellow Front Stores, Inc. and NV Ryan L.P. The reductions in distribution
rates in each of CPA(R):1, CPA(R):5 and CPA(R):7 were followed by increases in
the distribution rates. The distribution rate of CPA(R):7 exceeded the rate in
effect before the reductions when it was merged with CD while the distribution
rate of CPA(R):1 and CPA(R):5 had not reached the rate in effect before the
reduction at the time of the merger.
Most of the adverse developments which have occurred have been resolved.
These include the filings for protection from creditors under the Bankruptcy
Code by the following tenants of the following CPA(R) Programs: Saxon
Industries, Inc. (CPA(R):1 and CPA(R):2); Storage Technology Corporation
(CPA(R):1); The Leslie Fay Company (CPA(R):3); Knudsen Corporation (CPA(R):3 and
CPA(R):4); Gulf Consolidated Services, Inc. (CPA(R):4); Three Guys Inc. Ltd.
(CPA(R):4); Williams Hand Tool, Inc. (CPA(R):5); American Trim Products Inc.
(CPA(R):5); Yellow Front Stores, Inc. (CPA(R):7); NVRyan L.P. (CPA(R):7,
CPA(R):8 and CPA(R):9); Harvest Food, Inc. (CPA(R):10 and CIP(R)); and
SportsTown, Inc. (CIP(R)). The management of these programs has addressed these
bankruptcies primarily by re-leasing the properties to new tenants or by
restructuring the original leases at a reduced rental. Certain of the properties
have been sold at a loss or transferred in exchange for a release of the related
mortgage debt. In the case of the bankruptcy filing by Saxon Industries, Inc.,
however, its two leases were affirmed in bankruptcy. In the case of the
bankruptcy filing by Knudsen Corporation, seven of the eight properties which
had been leased to Knudsen Corporation were sold at a gain, generating more than
enough cash to retire the entire mortgage debt on all eight properties. The
remaining property was leased to a new tenant. In addition, as a result of
vigorous litigation efforts pursued by the general partners, certain programs
have been awarded substantial awards from bankruptcy settlements. CPA(R):1
received a settlement of cash and securities with a market value of
approximately $2.5 million in connection with the Storage Technology Corporation
bankruptcy. CPA(R):7 and CPA(R):8 were paid a restructuring fee of $2.6 million
in exchange for amending certain leases and CPA(R):9 received approximately
$456,000, in each case in connection with settlement of bankruptcy claims
against NVRyan L.P.
In May 1995, CPA(R):3 reached a settlement resolving all outstanding issues
in its dispute with Leslie Fay and National Union (the "Settlement Agreement").
In June 1995, the Settlement Agreement was approved by the Bankruptcy Court. As
a result of this settlement, the Partnership received a total of $18,839,749 for
the termination of Leslie Fay's interest in the property and $2,000,000 in
exchange for the sale of the property. The Partnership made a special
distribution of $50.00 per Unit in July, 1992 and $120 in October 1995 and has
not yet determined how it will use the remaining proceeds of the settlement with
Leslie Fay and National Union and the sale of the property.
New Valley has agreed to affirm two of its three leases with CPA(R):2 and
CPA(R):3. New Valley ceased paying rent on the disaffirmed lease, for a property
in Moorestown, New Jersey, in August 1991. Rent income on the disaffirmed lease
represented approximately 8.73% and 9.06% of the lease revenues for CPA(R):2 and
CPA(R):3, respectively in 1994.
In June 1996, Harvest Foods, Inc. ("Harvest") filed a voluntary bankruptcy
petition and, in March 1997, the Bankruptcy Court approved Harvest's motion to
disaffirm the master lease. Under its ruling, the Bankruptcy Court allowed the
CPA(R):10 and CIP(R) to establish its unsecured claim for lease rejection
39
<PAGE> 40
damages at $10,000,000 and ordered Harvest to pay $150,000 in full satisfaction
and settlement of any post-petition obligation for real estate taxes. Harvest
subsequently vacated the properties.
On March 15, 1997, CPA(R):10 and CIP(R) entered into a net lease with The
Kroger Co. for two supermarkets in Conway and North Little Rock, Arkansas.
CPA(R):10 and CIP(R) also entered into net leases with Affiliated Foods
Southwest, Inc. for two stores in Hope and Little Rock, Arkansas. CPA(R):10 and
CIP(R) are currently evaluating various offers for the lease or purchase of the
vacated properties and are continuing their efforts to remarket the properties.
On June 24, 1997, CPA(R):10 and CIP(R) entered into a transaction whereby
each purchased a 50% participation in the first priority mortgage loan
collateralized by the 15 properties formerly leased to Harvest. The mortgage
loan, which has an outstanding balance of $8,554,894, was purchased for
$7,700,000. CPA(R):10 and CIP(R) have entered into negotiations with the holder
of a subordinated mortgage loan of $2,995,180 in an attempt to reach a
settlement for the payoff of the loan. The holder of the subordinated mortgage
loan is an affiliate of Harvest.
Additional information concerning the CPA(R) Programs is set forth in
tabular form in Exhibit A to this Prospectus. See "Experience in Raising and
Investing Funds" in Table I; "Compensation to Sponsor" in Table II; "Operating
Results of Prior Programs" in Table III; "Results of Completed Programs" in
Table IV and "Sales or Dispositions of Properties" in Table V. In addition, upon
written request to the Director of Investor Relations, 50 Rockefeller Plaza, New
York, NY 10020, (800) 972-2739, the Company will provide, at no fee, the most
recent annual report (on Form 10-K) filed by any of the CPA(R) Programs and, at
a reasonable fee, the exhibits to such annual report.
40
<PAGE> 41
MANAGEMENT
The Company will operate under the direction of the Board, the members of
which are accountable to the Company and its Shareholders as fiduciaries. 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 Board will be responsible for the management and control of the affairs of
the Company; however, the Board will retain the Advisor to manage the Company's
day-to-day affairs and the acquisition and disposition of investments, subject
to the Board's supervision. The Company currently has seven directors; it must
have at least three and may have no more than nine directors.
A majority of the Board must be comprised of Independent Directors, except
for a period of 90 days after the death, removal or resignation of an
Independent Director. 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 material business or professional relationship with, or
serve as an officer or director of, the Sponsor, the Advisor or any of their
Affiliates, except that an Independent Director may serve as a director, officer
or trustee for not more than two other REITs organized by the Sponsor or advised
by the Advisor. Except to carry out the responsibilities of director, an
Independent Director may not perform material services for the Company. Three of
the directors are Affiliates of the Advisor and four are Independent Directors.
All of the initial directors were recommended by the Sponsor. Proposed
transactions are often discussed before being brought to a final Board of
Director's vote. During these discussions, Independent Directors often offer
ideas for ways in which deals can be changed to make them acceptable and these
suggestions are taken into consideration on structuring transactions. No
Independent Director of any prior CPA(R) Program has ever voted against a
property acquisition recommendation on a final vote. Each director will hold
office until the next annual meeting of Shareholders or until his successor has
been duly elected and qualified. 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 Shareholders upon the affirmative vote of at least a majority of
all the votes entitled to be cast at a meeting called for the purpose of such
proposed removal. The notice of such meeting shall indicate that the purpose, or
one of the purposes, of such meeting is to determine if the director shall be
removed. The term "cause" as used in this context is a term used in the Maryland
Corporation and Association Code. This code does not include a definition of
this term and Maryland case law suggests that the term be defined on a case by
case basis. The effect for Investors of the Maryland Code's lack of definition
is the Company cannot provide Investors with a definition for "cause." As a
result of this uncertainty, Investors may not know what actions by a director
may be grounds for removal.
Unless filled by a vote of the Shareholders as permitted by Maryland law, a
vacancy created by an increase in the number of directors or the death,
resignation, removal, adjudicated incompetence or other incapacity of a director
shall be filled by a vote of a majority of the remaining directors and, (a) in
the case of a director who is not an Independent Director (an "Affiliated
Director"), by a vote of a majority of the remaining Affiliated Directors, or
(b) in the case of an Independent Director, by a vote of a majority of the
remaining Independent Directors (unless, in the case of clause (a) or (b), there
are no remaining Affiliated Directors or Independent Directors, as the case may
be, to so fill a vacancy, in which case a majority vote of the remaining
directors shall be sufficient). If at any time there shall be no Independent or
Affiliated Directors in office, successor directors shall be elected by the
Shareholders. Each director will be bound by the Articles of Incorporation and
the Bylaws.
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 directors will meet quarterly 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 be relying heavily on the Advisor. The Board is empowered to fix the
compensation of all officers that it selects and may pay remuneration to
directors for services rendered to the Company in any other capacity. Initially,
the Company intends to pay to each Independent Director a quarterly fee of
$2,750 and a meeting fee of $1,000 per meeting. It is estimated that the
aggregate compensation payable to the Independent Directors as a group for the
first full fiscal year of the Company
41
<PAGE> 42
will be approximately $60,000. The Company will not pay any compensation to the
officers or directors of the Company who also serve as officers or directors of
the Advisor.
The general investment and borrowing policies of the Company are set forth
in this Prospectus. The directors shall establish further written policies on
investments and borrowings and shall 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 Shareholders and are
fulfilled. Until modified by the directors, the Company shall follow the
policies on investments and borrowings set forth in this Prospectus.
The Board is also responsible for reviewing the fees and expenses of the
Company on at least an annual basis and with sufficient frequency to determine
that the expenses incurred are in the best interests of the Shareholders. In
addition, a majority of the Independent Directors and a majority of directors
not otherwise interested in the transaction must approve all transactions with
the Advisor or its Affiliates (other than other publicly-registered entities, in
which case only the allocation of interests in such transaction must be approved
by the Independent Directors). The Independent Directors also will be
responsible for reviewing the performance of the Advisor and determining that
compensation to be paid to the Advisor is reasonable in relation to the nature
and quality of services to be performed and 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 REITs and other investors by advisers 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.
Neither the directors nor their Affiliates will vote or consent to the
voting of Shares they now own or hereafter acquire on matters submitted to the
shareholders regarding either (i) the removal of the Advisor, any director or
any Affiliate; or (ii) any transaction between the Company and the Advisor, any
director or any Affiliate.
42
<PAGE> 43
DIRECTORS AND EXECUTIVE OFFICERS OF THE COMPANY
The directors and executive officers of the Company are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
William P. Carey........................... Chairman of the Board and Director
Barclay G. Jones III....................... President and Director
George E. Stoddard......................... Senior Executive Vice President and
Director
William Ruder.............................. Director*
Charles Townsend........................... Director*
Warren Wintrub............................. Director*
Thomas Zacharias........................... Director*
Steven M. Berzin........................... Executive Vice President and Chief
Financial Officer
Claude Fernandez........................... Executive Vice President and Chief
Administration Officer
Gordon F. Dugan............................ Executive Vice President
Debra E. Bigler............................ Senior Vice President and Regional Director
H. Augustus Carey.......................... Senior Vice President and Secretary
Ted G. Lagreid............................. Senior Vice President and Regional Director
Anthony S. Mohl............................ Senior Vice President -- Property
Management
John J. Park............................... Senior Vice President -- Finance and
Treasurer
Michael D. Roberts......................... Senior Vice President and Controller
Gordon J. Whiting.......................... Senior Vice President
</TABLE>
- ---------------
* Independent Director
The following is a biographical summary of the experience of the Directors
and executive officers of the Company:
William P. Carey, age 68, elected Chairman in June 1997, has been active in
lease financing since 1959 and a specialist in net leasing of corporate real
estate property since 1964. Before founding W.P. Carey & Co., Inc. in 1973, he
served as Chairman of the Executive Committee of Hubbard, Westervelt & Mottelay
(now Merrill Lynch Hubbard), head of Real Estate and Equipment Financing at
Loeb, Rhoades & Co. (now Lehman Brothers) and head of Real Estate and Private
Placements, Director of Corporate Finance and Vice Chairman of the Investment
Banking Board of duPont Glore Forgan Inc. A graduate of the University of
Pennsylvania's Wharton School, Mr. Carey served as a Governor of the National
Association of Real Estate Investment Trusts ("NAREIT"). He currently serves on
the boards of The Johns Hopkins University and its School of Advanced
International Studies and as Chairman of the Boards of Trustees of the St. Elmo
Foundation and the W.P. Carey Foundation. He founded the Visiting Committee to
the Economics Department of the University of Pennsylvania and co-founded with
Dr. Lawrence Klein the Economics Research Institute at that university. With Sir
John Templeton, he helped to establish the program in management education at
Oxford University. Mr. Carey also serves as Chairman of the Board and Chief
Executive Officer of CPA(R):10, CIP(R), CPA(R):12 and CD. Mr. Carey is an uncle
of H. Augustus Carey.
George E. Stoddard, age 81, elected to the Board of Directors in June 1997,
was until 1979 officer-in-charge of the Direct Placement Department of The
Equitable Life Assurance Society of the United States ("Equitable"), with
responsibility for all activities related to Equitable's portfolio of corporate
investments acquired through direct negotiation. Mr. Stoddard was associated
with Equitable for over 30 years. He holds an A.B. degree from Brigham Young
University, an M.B.A. from Harvard Business School and an
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<PAGE> 44
LL.B. from Fordham University Law School. Mr. Stoddard also serves as a Managing
Director of W.P. Carey & Co.
Barclay G. Jones III, age 38, appointed Executive Vice President and
elected Director in June 1997, is also an Executive Vice President and Managing
Director of W.P. Carey & Co. Mr. Jones joined W.P. Carey & Co. as Assistant to
the President in July 1982 after his graduation from the Wharton School of the
University of Pennsylvania where he majored in Finance and Economics. Mr. Jones
has served as a director of W.P. Carey & Co. since April 1992 and is a director
of the Wharton School Club of New York. Mr Jones is a director of CD.
William Ruder, age 74, elected Director in June 1997, is Chairman of the
Board of William Ruder Incorporated, a consulting firm founded in 1981. From
1948 to 1981, Mr. Ruder was in partnership with David Finn at the firm of Ruder
& Finn, an international public relations company. He is a former Assistant
Secretary of Commerce of the United States and is on the board of directors of
the United Nations Association of the United States of America, Junior
Achievement and the Council of Economic Priorities. He is a member of the Board
of Overseers of the Wharton School of the University of Pennsylvania and has
also served as a consultant to the Communications Advisory Board to the White
House Press Secretary, the Committee for Economic Development and the Office of
Overseas Schools for the U.S. State Department. Mr. Ruder is a Tobe Lecturer at
Harvard Graduate School of Business and is associated with several other
businesses, civic and cultural organizations. He received a B.S.S. degree from
the City College of New York. Mr. Ruder served as a director of W.P. Carey & Co.
from 1987 to 1990. Mr. Ruder is a director of CPA(R):10 and CPA(R):12.
Charles C. Townsend, Jr., age 70, elected Director in June 1997, currently
is an Advisory Director of Morgan Stanley & Co., having held such position since
1979. Mr. Townsend was a Partner and a Managing Director of Morgan Stanley & Co.
from 1963 to 1978 and served as Chairman of Morgan Stanley Realty Corporation
from 1977 to 1982. Mr. Townsend holds a B.S.E.E. from Princeton University and
an M.B.A. from Harvard University. Mr. Townsend is a director of CIP(R) and CD.
Warren G. Wintrub, age 62, elected Director in June 1997, retired in 1992
from Coopers & Lybrand after 35 years. Mr. Wintrub was elected a partner in
Coopers & Lybrand in 1963 and specialized in tax matters and served on that
firm's Executive Committee from 1976 to 1988 and as a Chairman of its Retirement
Committee from 1979 to 1992. Mr. Wintrub holds a B.S. degree from Ohio State
University and an LL.B. from Harvard Law School. He currently serves as a
director of Chromcraft Revington, Inc. and Getty Petroleum Co. Mr. Wintrub is a
director of CPA(R):10 and CIP(R).
Thomas E. Zacharias, age 44, elected Director in June 1997, is currently
Vice President of Corporate Property Investors and has held this position since
1986. Corporate Property Investors, a party which is unaffiliated with
CPA(R):14, is one of the largest equity-oriented REITS in the U.S. with
approximately $4.4 billion under management. Prior to joining Corporate Property
Investors in 1981, Mr. Zacharias was Project Director for the New York State
Urban Development Corporation from 1980-1981, and served as the Assistant to the
Chief Operating Officer from 1979-1980. Mr. Zacharias received his undergraduate
degree, magna cum laude, from Princeton University in 1976 and a Master of
Public and Private Management from the Yale School of Management in 1979. Mr.
Zacharias formerly served as a Director of U.S. Prime Properties Inc. Mr.
Zacharias is a director of CIP(R) and CPA(R):12.
Steven M. Berzin, age 47, was elected Executive Vice President, Chief
Financial Officer and Chief Legal Officer of the Company and a Managing Director
of W.P. Carey & Co. in July 1997. From 1993 to 1997, Mr. Berzin was Vice
President -- Business Development of General Electric Capital Corporation in the
office of the Executive Vice President and, more recently, in the office of the
President, where he was responsible for business development activities and
acquisitions. From 1985 to 1992, Mr. Berzin held various positions with
Financial Guaranty Insurance Company, the last two being Managing Director,
Corporate Development, and Senior Vice President and Chief Financial Officer.
Mr. Berzin was associated with the law firm of Cravath, Swaine & Moore from 1977
to 1985 and from 1976 to 1977, he served as law clerk to the Honorable Anthony
M. Kennedy, then a U.S. Circuit Court Judge. Mr. Berzin received a B.A. and an
M.A. in Applied Mathematics from Harvard University, a B.A. in Jurisprudence and
an M.A. from Oxford University and a J.D. from Harvard Law School. Mr. Berzin is
a director of CD.
44
<PAGE> 45
Claude Fernandez, age 46, elected Executive Vice President and Chief
Administrative Officer in June 1997, joined W.P. Carey & Co. as Assistant
Controller in March 1983, was elected Controller in July 1983, Vice President in
April 1986 and is now a Managing Director, Executive Vice President and Chief
Administrative Officer. Prior to joining W.P. Carey & Co., Mr. Fernandez was
associated with Coldwell Banker, Inc. in New York for two years and with Arthur
Andersen & Co. in New York for over three years. Mr. Fernandez, a Certified
Public Accountant, received his B.S. degree in accounting from New York
University in 1975 and his M.B.A. in Finance from Columbia University Graduate
School of Business in 1981.
Gordon F. DuGan, age 32, elected Executive Vice President in June 1997, was
elected Managing Director of W.P. Carey & Co. in June 1997. Having originally
joined W.P. Carey & Co. in 1988 and until September 1995 a Senior Vice President
in the Acquisitions Department of W.P. Carey & Co., Mr. DuGan rejoined W.P.
Carey as Deputy Head of Acquisitions in February 1997. Prior to rejoining W.P.
Carey & Co., he served as Chief Financial Officer of Superconducting Core
Technologies, a Colorado wireless communications equipment manufacturer from
October 1995 until February 1997. Mr. DuGan received his B.S. degree in Finance
from the University of Pennsylvania. Mr. DuGan is a director of CD.
Debra E. Bigler, age 45, elected Senior Vice President in June 1997, became
Vice President and Marketing Director of W.P. Carey & Co. in July 1991 and a
First Vice President in October 1995. A regional marketing director responsible
for investor services in the south and south central United States, Ms. Bigler
joined W.P. Carey & Co. in March 1989 as Assistant Marketing Director. Ms.
Bigler was employed as a Marketing Associate with E.F. Hutton & Company Inc.
from July 1980 to January 1989.
H. Augustus Carey, age 41, elected Senior Vice President in June 1997,
returned to W.P. Carey & Co. as a Vice President in August 1988 and was elected
First Vice President in April 1992, Senior Vice President in October 1995 and
Managing Director in January 1996. Mr. Carey previously worked for W.P. Carey &
Co. from 1979 to 1981 as Assistant to the President. From 1984 to 1987, Mr.
Carey served as a loan officer in the North American Department of Kleinwort
Benson Limited in London, England. He received his A.B. in Asian Studies from
Amherst College in 1979 and a M.Phil. in Management Studies from Oxford
University in 1984. He is the nephew of William P. Carey.
Ted G. Lagreid, age 46, elected Senior Vice President in June 1997, joined
W.P. Carey & Co. in 1994 and became a First Vice President in October 1995. Mr.
Lagreid is a regional marketing director responsible for investor services in
the western United States. Prior to joining the firm, from July 1993 through
October 1994, he was employed by the Shurgard Capital Group then from January
1991 to July 1993, for SunAmerica where he was an executive in its mutual funds
group. He earned an A.B. from the University of Washington, received an M.P.A.
from the University of Puget Sound and then spent eight years in the City of
Seattle's Department of Community Development. Mr. Lagreid was a commissioner of
the City of Oakland, California, having served on its Community and Economic
Development Advisory Commission.
Anthony S. Mohl, age 36, became a Senior Vice President in June 1997. Mr.
Mohl joined W.P. Carey & Co. as Assistant to the President in September 1987
after receiving an M.B.A. from the Columbia University Graduate School of
Business and became a Second Vice President in January 1990 and a Vice President
in April 1992. Mr. Mohl was employed as an analyst in the strategic planning
group of Kurt Salmon Associates after receiving an undergraduate degree from
Wesleyan University.
John J. Park, age 33, elected Senior Vice President in June 1997, became a
First Vice President of W.P. Carey & Co. in April 1993 and Senior Vice President
in October 1995. Mr. Park joined W.P. Carey & Co. as an Investment Analyst in
December 1987 and became a Vice President in July 1991. Mr. Park received his
undergraduate degree from the Massachusetts Institute of Technology in 1986 and
an M.B.A. from New York University in 1991.
Michael D. Roberts, age 46, elected Senior Vice President in June 1997,
joined W.P. Carey & Co. in April 1989 as a Second Vice President and Assistant
Controller and was named Vice President and Controller in October 1989 and First
Vice President in July 1990. From August 1980 to February 1983 and from
September 1983 to April 1989, he was employed by Coopers & Lybrand and held the
position of Audit Manager at the time of his departure. A Certified Public
Accountant, Mr. Roberts received his undergraduate degree from Brandeis
University and his M.B.A. from Northeastern University.
45
<PAGE> 46
Gordon J. Whiting, age 32, elected Senior Vice President of W.P. Carey &
Co., Inc. in April, 1998. Mr. Whiting joined W.P. Carey & Co., Inc. in September
1994, as a Second Vice President after receiving an M.B.A. from the Columbia
University Graduate School of Business, where he concentrated in finance. Mr.
Whiting was elected a Vice President of W.P. Carey & Co., Inc. in October 1995
and a First Vice President in April 1997. Mr. Whiting founded an import/export
company based in Hong Kong after receiving a B.S. in Business Management and
Marketing from Cornell University.
Certain of the directors and officers of the Company act as directors or
officers of the general partners of other CPA(R) Programs and may own
partnership interests in such CPA(R) Programs.
THE ADVISOR
Carey Property Advisors L.P. (the "Advisor") will serve as the Advisor to
the Company. The general partner of the Advisor is Carey Fiduciary Advisors,
Inc. ("CFA"), a Pennsylvania corporation wholly-owned by William P. Carey. The
Company has entered into an advisory agreement with the Advisor (the "Advisory
Agreement") pursuant to which the Advisor will manage the Company's day-to-day
affairs and will monitor the Company's assets and income so that the Company
will comply with the REIT provisions of the Code. This may include the purchase
or disposition of investments of the Company as well as the structuring of the
receipt of income from these investments. The Advisor and its Affiliates will
receive certain fees and compensation from the Offering, the investment of the
proceeds therefrom and the management and disposition of the Company's assets.
See "Management Compensation."
CFA is authorized to issue 5,000 shares of common stock, $0.01 par value,
1,000 of which are outstanding. All of CFA's outstanding shares of stock are
owned by William P. Carey. As of December 31, 1996, CFA had total assets of
$473,905 and shareholder's equity of $432,143.
W.P. Carey & Co. is a private company that specializes in arranging private
financing for major corporations, principally net lease financings of real
property, and the officers of W.P. Carey & Co. have an extensive background in
this area. Properties financed with the assistance of W.P. Carey & Co. have
included office buildings, manufacturing plants, distribution and retail
facilities, warehouses, movie theaters and hotels.
DIRECTORS AND PRINCIPAL OFFICERS OF CAREY FIDUCIARY ADVISORS, INC.
The directors and principal officers of CFA are as follows:
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
William P. Carey................. Chairman of the Board and Director
Barclay G. Jones III............. President and Director
George E. Stoddard............... Chairman of the Investment Committee and Director
Frank J. Hoenemeyer.............. Vice Chairman of the Investment Committee and Director
Lawrence R. Klein................ Chairman of the Economic Policy Committee and Director
Steven M. Berzin................. Executive Vice President, Chief Financial Officer and
Chief Legal Officer
Claude Fernandez................. Executive Vice President and Chief Administrative Officer
Gordon F. DuGan.................. Executive Vice President
H. Augustus Carey................ Senior Vice President and Secretary
Anthony S. Mohl.................. Senior Vice President -- Property Management
John J. Park..................... Senior Vice President -- Acquisitions and Treasurer
Debra E. Bigler.................. Senior Vice President and Regional Director
Ted G. Lagreid................... Senior Vice President and Regional Director
Michael D. Roberts............... Senior Vice President and Controller
Gordon J. Whiting................ Senior Vice President -- Acquisitions
</TABLE>
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<PAGE> 47
<TABLE>
<CAPTION>
NAME OFFICE
---- ------
<S> <C>
David W. Marvin.................. First Vice President and Regional Director
W. Sean Sovak.................... First Vice President
Edward V. LaPuma................. First Vice President
David S. Eberle.................. Vice President and Regional Director
Mary Ann Kelly................... Vice President and Regional Director
Anne R. Coolidge................. Vice President
Susan C. Hyde.................... Vice President
Robert C. Kehoe.................. Vice President
David G. Termine................. Vice President
Matthew B. Walley................ Vice President
</TABLE>
The following is a biographical summary of the experience of the directors
and executive officers of CFA:
Information regarding Messrs. W. P. Carey, Stoddard, Jones, Berzin, DuGan,
Fernandez, Roberts, H. A. Carey, Park, Mohl, Lagreid, Roberts, Whiting and Ms.
Bigler is set forth under "Management -- Directors and Principal Officers of the
Company."
Frank J. Hoenemeyer, age 77, elected Vice Chairman of the Investment
Committee and Director in May 1992, was Vice Chairman, Director and Chief
Investment Officer of The Prudential Insurance Company of America until his
retirement in November 1984. As Chief Investment Officer he was responsible for
all of Prudential's investments in stocks, bonds, private placements, leveraged
buyouts, venture capital, real estate ownership and mortgages. Mr. Hoenemeyer
was graduated with a B.S. in Economics from Xavier University, Cincinnati, Ohio
and an M.B.A. from the Wharton School of the University of Pennsylvania, and
joined Prudential in 1947. Under his direction as Chief Investment Officer,
Prudential built the world's largest real estate and securities investment
portfolio (valued at over $200 billion in 1989) and became a leader in
investments including the purchase and development of real estate, leveraged
buyouts and venture capital. Mr. Hoenemeyer serves on the Boards of American
International Group and Mitsui Trust Bank (U.S.A.) and is formerly a director of
Corporate Property Investors, a $3 billion private real estate investment trust.
He has also been active in community affairs and at present is Chairman of the
Turrell Fund and a Trustee and Chairman of the Finance Committee of the Robert
Wood Johnson Foundation.
Dr. Lawrence R. Klein, age 77, is the Benjamin Franklin Professor Emeritus
of Economics and Finance at the University of Pennsylvania and its Wharton
School, having joined the faculty of the University in 1958. He is a holder of
earned degrees from the University of California at Berkeley and the
Massachusetts Institute of Technology and has been awarded the Alfred Nobel
Memorial Prize in Economic Sciences as well as a number of honorary degrees.
Founder of Wharton Econometric Forecasting Associates, Inc., Dr. Klein has been
counselor to various corporations, governments and government agencies,
including the Federal Reserve Board and the President's Council of Economic
Advisers. Dr. Klein joined W.P. Carey & Co. in 1984 as Chairman of the Economic
Policy Committee and as a director.
David S. Eberle, age 32, joined W.P. Carey & Co., Inc. in May 1995 as Vice
President and Regional Director for the Midwest region. Previous to joining W.P.
Carey he was Manager, Wholesale Sales for Bowen Real Estate Group from November
1994 through May 1995. From November 1992 through November 1995 Mr. Eberle was
Managing Director of all West Coast region of Vesnor Inc. Mr. Eberle received
his B.S. in Management from St. John's University.
Mary Ann Kelly, age 38, joined W.P. Carey & Co. in 1995 as a Vice President
and regional marketing director for the mountain states area. From March 1993
through October 1994 Ms. Kelly was employed by Related Capital Company as a
regional director in the southeastern United States. From December 1989 through
February 1993 Ms. Kelly was a Regional Marketing Representative, Northeast, for
Phoenix Leasing. Ms. Kelly received her B.B.A. from Hofstra University where she
concentrated in International Business.
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David W. Marvin, age 44, became a First Vice President of W.P. Carey & Co.
in April, 1998. Mr. Marvin joined W.P. Carey & Co. in 1995 as a Vice President
regional marketing director for the northeastern United States. Previously he
spent 15 years at Prudential-Bache and Kidder-Peabody, as well as was a national
director of sales with Cigna Corporation. Mr. Marvin received his B.A. from the
University of Massachusetts at Amherst.
W. Sean Sovak, age 26, a First Vice President, joined W.P. Carey & Co. as
Assistant to the Chairman in 1994. He was appointed to First Vice President in
April 1998. Mr. Sovak was graduated summa cum laude from the University of
Pennsylvania's Wharton School, where he concentrated in Finance.
Edward V. LaPuma, age 25, became a First Vice President of W.P. Carey & Co.
in April, 1998. Mr. LaPuma joined W.P. Carey & Co. as an Assistant to the
Chairman in July 1995, became a Second Vice President in July 1996 and a Vice
President and Research Officer in April 1997. A graduate of the University of
Pennsylvania, Mr. LaPuma received a B.A. in Global Economic Strategies from The
College of Arts and Sciences and a B.S. in Economics with a concentration in
Finance from the Wharton School.
Anne R. Coolidge, age 29, a Vice President, joined W.P. Carey & Co. in 1993
as Assistant to the Chairman and was elected a Vice President in April 1998. Ms.
Coolidge received an A.B. from Harvard College magna cum laude and an M.B.A.
from Columbia University's Graduate School of Business.
Susan C. Hyde, age 30, is a Vice President and a Director of Investor
Relations of W.P. Carey & Co. Ms. Hyde joined W.P. Carey & Co. in 1990, became a
Second Vice President in April 1995 and a Vice President in April 1997. Ms. Hyde
graduated from Villanova University in 1990 where she received a B.S. degree in
Business Administration with a concentration in marketing and a B.A. degree in
English.
Robert Kehoe, age 38, a Vice President of W.P. Carey & Co., joined W.P.
Carey & Co. as a Senior Accountant in 1987. Mr. Kehoe became a Second Vice
President of W.P. Carey & Co. in April 1992 and a Vice President in July 1997.
Prior to joining W.P. Carey & Co., Mr. Kehoe was associated with Deloitte
Haskins & Sells for three years and was Manager of Financial Controls at CBS
Educational and Professional Publishing for two years. Mr. Kehoe received his
B.S. degree in Accounting from Manhattan College in 1982 and his M.B.A. from
Pace University in 1993.
David G. Termine, age 39, a Vice President, joined W.P. Carey & Co. in
1991. Earlier, he held a similar position at Lepereq Capital Partners (The LCP
Group) and was Assistant Controller for Lazard Realty Corp., a subsidiary of
Lazard Freres & Co. After receiving a B.S. in Accounting from Brooklyn College,
Mr. Termine started his career in public accounting, working for diverse real
estate clients, notably Rudin Management Co.
Matthew B. Walley, age 33, Vice President and Director of Corporate
Communications, worked for W.P. Carey & Co. at the beginning of his career and
returned to the firm in 1996. He was elected a Vice President in April 1998.
Prior to rejoining, he served as a member of the institutional fixed income
department of Paine Webber in London, where he had responsibility for
Institutional clients and European central banks. In addition, he worked at
Unilever, implementing strategic marketing in London, Amsterdam, Toronto and New
York. He holds an M.A. from Oxford University and an M.B.A. from New York
University's Stern School of Business.
The principal officers of CFA and the offices to which they have been
elected substantially are the same as those for the Company. All of the officers
and directors of CFA have been elected to serve until the next annual meeting of
CFA to be held in 1999.
SHAREHOLDINGS
The Advisor currently owns 20,000 Shares, which constitutes 0.36% of the
outstanding Shares as of June 30, 1998. The Advisor may not sell any of these
Shares during the period it serves as the advisor to the Company. Furthermore,
any resale of the 20,000 Shares that the Advisor currently owns and the resale
of any Shares which may be acquired by Affiliates of the Company are subject to
the provisions of Rule 144 promulgated under the Securities Act of 1933, as
amended (the "Securities Act"), which rule limits the
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number of shares that may be sold at any one time and the manner of such resale.
Although the Advisor is not prohibited from acquiring additional Shares, the
Advisor has no options or warrants to acquire any additional Shares and has no
current plans to acquire additional Shares. There is no limitation on the
ability of the Advisor or its Affiliates to resell any Shares they may acquire
in the future. If 30,000,000 Shares are sold, the Advisor will own less than
0.07% of the Shares. The Advisor has agreed to abstain from voting any Shares it
now owns or hereafter acquires in any vote for the election of directors or any
vote regarding the approval or termination of any contract with the Advisor or
any of its Affiliates.
MANAGEMENT DECISIONS
All of the activities of the Advisor will be managed by CFA. The primary
responsibility for the selection of Company investments and the negotiation for
such investments will reside in William P. Carey, George E. Stoddard, Barclay G.
Jones III and Gordon F. DuGan, all of whom are officers or directors of CFA.
Each potential Company investment will be submitted for review to the Investment
Committee. George E. Stoddard, Chairman, Frank J. Hoenemeyer and Lawrence R.
Klein currently serve as members of the Investment Committee. The board of
directors of CFA (the "CFA Board") has empowered the Investment Committee to
authorize and approve Company investments on behalf of CFA between meetings of
the CFA Board, provided that the members of the committee agree unanimously on
the action to be taken. However, the CFA Board retains ultimate authority to
authorize and approve Company investments on behalf of the Advisor and may make
such investments on behalf of the Company without the approval of, and
irrespective of any adverse recommendation by, the Investment Committee or any
other Person, except the Board of the Company.
LIMITED LIABILITY AND INDEMNIFICATION OF DIRECTORS, OFFICERS, EMPLOYEES AND
OTHER AGENTS
The Company maintains a directors and officers liability insurance policy.
The Organizational Documents limit the personal liability of the Company's
directors and officers for monetary damages to the fullest extent permitted
under current Maryland law and provide that a director or officer may be
indemnified to the fullest extent required or permitted by Maryland law.
Maryland law allows directors and officers to be indemnified against judgments,
penalties, fines, settlements, and expenses actually incurred in a proceeding
unless the following can be established: (a) the act or omission of the director
or officer was material to the cause of action adjudicated in the proceeding,
and was committed in bad faith or was the result of active and deliberate
dishonesty; (b) the director or officer actually received an improper personal
benefit in money, property or services; or (c) with respect to any criminal
proceeding, the director or officer had reasonable cause to believe his act or
omission was unlawful. Such indemnification or any agreement to hold harmless is
recoverable only out of the assets of the Company and not from the Shareholders.
Indemnification could reduce the legal remedies available to the Company and the
Shareholders against such indemnified individuals.
This provision does not reduce the exposure of directors and officers to
liability under Federal or state securities laws, nor does it limit the
Shareholder's ability to obtain injunctive relief or other equitable remedies
for a violation of a director's or an officer's duties to the Company or its
Shareholders, although such equitable remedies may not be an effective remedy in
certain circumstances.
Notwithstanding the foregoing, the directors, the Advisor and their
Affiliates will be indemnified by the Company for losses arising from the
operation of the Company only if all of the following conditions are met: (a)
the directors, the Advisor or their Affiliates have determined, in good faith,
that the course of conduct which caused the loss or liability was in the best
interests of the Company; (b) the directors, the Advisor or their Affiliates
were acting on behalf of or performing services for the Company; (c) such
liability or loss was not the result of negligence or misconduct by the
directors, the Advisor or their Affiliates; and (d) such indemnification or
agreement to hold harmless is recoverable only out of the Company's net assets
and not from its stockholders. The Sponsor has separately agreed to indemnify
the Independent Directors against all liabilities and expenses and to advance
expenses arising out of each Independent Director's activities on behalf of the
Company to the extent such activities satisfy the Maryland law standards for
indemnification.
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In addition to any indemnification to which directors and officers shall be
entitled pursuant to the General Corporation Law of Maryland, the Organizational
Documents provide that the Company shall indemnify other employees and agents to
such extent as shall be authorized by the Directors, whether they are serving
the Company or, at the Company's request, any other entity. The Company has
agreed to indemnify and hold harmless the Advisor and its Affiliates performing
services for the Company from certain claims and liabilities arising out of the
performance of its obligations under the Advisory Agreement. As a result, the
Company and its Shareholders may be entitled to a more limited right of action
than they would otherwise have if these indemnification rights were not included
in the Advisory Agreement.
The general effect to investors of any statute, charter, provision, bylaw,
contract or other arrangement under which any controlling person, director or
officer of the Company is insured or indemnified against liability when acting
on the Company's behalf is a potential reduction in distributions due to the
Company's payment of premiums associated with directors and officers insurance.
In addition, such indemnification could reduce the legal remedies available to
the Company and the shareholders against the Officers and Directors.
The Commission takes the position that indemnification against liabilities
arising under the Securities Act is against public policy and unenforceable.
Indemnification of the directors, officers, the Advisor or their Affiliates will
not be allowed for certain liabilities arising from or out of a violation of
state or Federal securities laws. Indemnification will be allowed for
settlements and related expenses of lawsuits alleging securities laws violations
and for expenses incurred in successfully defending such lawsuits, provided that
a court either (a) approves the settlement and finds that indemnification of the
settlement and related costs should be made or (b) there has been a dismissal
with prejudice or a successful adjudication on the merits of each count
involving alleged securities law violations as to the particular indemnitee and
a court approves such indemnification.
THE ADVISORY AGREEMENT
Many of the services to be performed by the Advisor and its Affiliates in
managing the day-to-day activities of the Company are summarized below. This
summary is provided to illustrate the material functions which the Advisor and
its Affiliates will perform for the Company and it is not intended to include
all of the services which may be provided by third parties to the Company.
Under the terms of the Advisory Agreement, the Advisor undertakes to use
its best efforts to present to the Company investment opportunities consistent
with the investment policies and objectives of the Company as adopted by the
Board. In its performance of this undertaking, the Advisor, either directly or
indirectly by engaging an Affiliate, shall (at all times subject to the
continuing and exclusive authority of the Board over the management of the
Company and to compliance with the Organizational Documents):
(i) find, present and recommend to the Company a continuing series of
real estate investment opportunities consistent with the Company's
investment policies and objectives;
(ii) provide advice to, and act on behalf of, the Company with respect
to the acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments;
(iii) make investments on behalf of the Company in compliance with the
investment Procedures, Objectives and Policies of the Company;
(iv) take such action and obtain such services as may be necessary to
effectuate the acquisition, financing, refinancing, holding, leasing and
disposition of real estate investments; and
(v) provide day-to-day management of business activities of the
Company and such other administrative services for the Company as may be
requested by the Board.
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The Board has authorized the Advisor to make investments in any Property on
behalf of the Company without the approval of the Board if the following
conditions are satisfied:
(a) the Advisor must obtain an appraisal for the Property indicating
that the Total Property Cost of the Property does not exceed the appraised
value of the Property; and
(b) the Advisor must provide the Company with a representation that
the Property, in conjunction with the Company's other investments and
proposed investments, is reasonably expected to fulfill the Company's
investment procedures, objectives and policies as established by the Board
and then in effect.
The term of the Advisory Agreement ends on December 31, 1998 and thereafter
will be automatically renewed for successive one-year periods unless either
party shall give the other party notice of non-renewal not less than 60 days
before the end of any such period. Additionally, the Advisory Agreement may be
terminated (a) immediately by the Company for "Cause" or upon the bankruptcy of
the Advisor or a material breach of the Advisory Agreement by the Advisor, (b)
without Cause by a majority of the Independent Directors or Shareholders upon 60
days' notice, or (c) immediately with Good Reason by the Advisor. "Good Reason"
is defined in the Advisory Agreement to mean either (i) any failure to obtain a
satisfactory agreement from any successor to the Company to assume and agree to
perform the Company's obligations under the Advisory Agreement or (ii) any
material breach of the Advisory Agreement of any nature whatsoever by the
Company. "Cause" is defined in the Advisory Agreement to mean fraud, criminal
conduct, willful misconduct or willful or negligent breach of fiduciary duty by
the Advisor or a breach of the Advisory Agreement by the Advisor.
The Advisor and its Affiliates expect to engage in other business ventures
and, as such, their resources will not be dedicated exclusively to the business
of the Company. However, pursuant to the Advisory Agreement, the Advisor must
devote sufficient resources to the administration of the Company to discharge
its obligations. The Advisory Agreement is not assignable or transferable by
either party without the consent of the other party, except that the Advisor may
assign the Advisory Agreement to an Affiliate that has a net worth of $5,000,000
or more or for whom the Sponsor agrees to guarantee its obligations to the
Company and either the Advisor or the Company may assign or transfer the
Agreement to a successor entity.
The Advisor may not make any Loans on behalf of the Company without the
prior approval of a majority of the Independent Directors. The actual terms and
conditions of transactions involving investments in Properties shall be
determined in the sole discretion of the Advisor, subject at all times to
compliance with the foregoing requirements. The Advisor shall notify the Board
of all proposed transactions before such transactions are completed.
Certain types of transactions require the prior approval of the Board,
including a majority of the Independent Directors, including the following: (i)
investments in Properties in respect of which the requirements specified above
have not been satisfied, (ii) investments made through joint venture
arrangements with Affiliates of the Advisor, (iii) investments which are not
contemplated by the terms of this Prospectus, (iv) transactions that present
issues which involve conflicts of interest for the Advisor (other than conflicts
involving the payment of fees or the reimbursement of expenses), (v) investments
in equity securities (other than warrants acquired in connection with net lease
transactions) and (vi) the lease of assets to the Sponsor, any director or the
Advisor.
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) Organization and Offering Expenses, which are defined to include
expenses attributable to preparing the Registration Statement, formation and
organization of the Company, qualification of the Shares for sale in the states,
escrow arrangements, Commission and NASD filing fees and expenses attributable
to selling the Shares (including, but not limited to, selling commissions,
advertising expenses, expense reimbursement, counsel and accounting fees), (ii)
the annual cost of goods and materials used by the Company and obtained from
entities not affiliated with the Sponsor, including brokerage fees paid in
connection with the purchase and sale of securities, (iii) administrative
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services (including personnel costs, provided, however, that no reimbursement
shall be made for costs of personnel to the extent that such personnel are used
in transactions for which the Advisor receives a separate fee), (iv) rent,
depreciation, leasehold improvement costs, utilities or other administrative
items generally constituting the Advisor's overhead and (v) Acquisition
Expenses, which are defined to include expenses related to the selection and
acquisition of Properties.
The Advisor shall reimburse the Company at least annually for the amount by
which Operating Expenses of the Company exceed the 2%/25% Guidelines (2% of
Average Invested Assets or 25% of Net Income). To the extent that Operating
Expenses payable or reimbursable by the Company exceed the 2%/25% Guidelines and
the Independent Directors determine that such excess expenses were justified
based on unusual and nonrecurring factors which they deem sufficient, the
Advisor may be reimbursed in future years for the full amount of such excess
expenses, or any portion thereof, but only to the extent such reimbursement
would not cause the Company's Operating Expenses to exceed the 2%/25% Guidelines
in any such year. Within 60 days after the end of any fiscal quarter of the
Company for which total Operating Expenses (for the 12 months then ended) exceed
the 2%/25% Guidelines, there shall be sent to the Shareholders a written
disclosure of such fact, together with an explanation of the factors the
Independent Directors considered in arriving at the conclusion that such excess
expenses were justified.
The Advisor or its Affiliates will be paid certain fees in connection with
services provided to the Company. See "Management Compensation." In the event
the Advisory Agreement is not renewed by the Company or is terminated without
Cause by the Company or with Good Reason by the Advisor, the Advisor will be
paid all accrued and unpaid fees and expense reimbursements, any unaccrued
Subordinated Acquisition Fees and in certain circumstances will also be paid a
Termination Fee. See "Management Compensation." 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.
INVESTMENT PROCEDURES, OBJECTIVES AND POLICIES
INVESTMENT PROCEDURES
The business of the Company is to invest primarily in single-tenant
commercial, industrial and governmental real property (or interests therein),
either existing or under construction or development, and personal and mixed
property connected therewith. Generally, properties will be net leased to
entities deemed creditworthy by the Advisor, including governmental units, under
leases which will be full recourse obligations of such tenants or their
Affiliates.
TRANSACTION ORIGINATION
In analyzing potential acquisitions, the Advisor reviews and structures
many aspects of a transaction, including the tenant, the real estate and the
lease to determine whether a potential acquisition can be structured to satisfy
the Company's acquisition criteria. The aspects of a transaction which are
reviewed and structured by the Advisor include the following:
-- Tenant Evaluation. The Advisor subjects each potential tenant to an
extensive evaluation of its credit, management, position within its
industry, operating history and profitability. The Advisor seeks tenants
it believes will have stable or improving credit. By leasing properties
to such tenants, the Company can generally charge rent that is higher
than the rent charged to tenants with recognized credit and thereby
enhance its current return from such properties as compared with
properties leased to companies whose credit potential has already been
recognized by the market. Furthermore, if a tenant's credit does
improve, the value of the Company's properties leased to such tenant
will likely increase (if all other factors affecting value remain
unchanged). The Advisor may also seek to enhance the likelihood of a
tenant's lease obligations being satisfied, such as through a letter of
credit or a guaranty of lease obligations from the tenant's corporate
parent. Such credit enhancement provides the Company with additional
financial security.
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-- Leases with Increasing Rent. The Advisor seeks to include clauses in
its leases that provide for increases in rent over the term of the
leases. These increases are generally tied to increases in certain
indices such as the consumer price index; in the case of retail stores,
participation in gross sales above a stated level; mandated rental
increases on specific dates; and by other methods that may not have been
in existence or contemplated by the Company as of the date of this
Prospectus. The Advisor seeks to avoid entering into leases that provide
for contractual reductions in rents during their primary term.
-- Properties Important to Tenant Operations. The Advisor generally seeks
to acquire properties with operations that are essential or important to
the ongoing operations of the tenant. The Advisor believes that such
properties provide better protection in the event a tenant files for
bankruptcy, since leases on properties essential or important to the
operations of a bankrupt tenant are less likely to be rejected, and
thereby terminated, by a bankrupt tenant. The Advisor also seeks to
assess the income, cash flow and profitability of the business conducted
at the property so that, if the tenant is unable to operate its
business, the Company can either continue operating the business
conducted at the property or re-lease the property to another entity in
the industry which can operate the property profitably.
-- Lease Provisions that Enhance and Protect Value. When appropriate, the
Advisor attempts to include provisions in its leases that require its
consent to certain tenant activity or require the tenant to satisfy
certain operating tests. These provisions include, for example,
operational and financial covenants of the tenant, prohibitions on a
change in control of the tenant and indemnification from the tenant
against environmental and other contingent liabilities. Including these
provisions in its leases protects the Company's investment from changes
in the operating and financial characteristics of a tenant that may
impact its ability to satisfy its obligations to the Company or could
reduce the value of the Company's properties.
-- Diversification. The Advisor will attempt to diversify the Company's
portfolio of Properties to avoid dependence on any one particular
tenant, type of facility, geographic location and tenant industry. By
diversifying its portfolio, the Advisor reduces the adverse effect on
the Company of a single under-performing investment or a downturn in any
particular industry.
The Advisor employs a variety of other strategies in connection with its
acquisitions. These strategies include attempting to obtain equity enhancements
in connection with transactions. Typically such equity enhancements involve
warrants to purchase stock of the tenant to which the Property is leased or the
stock of the parent of the tenant. If the value of the stock exceeds the
exercise price of the warrant, equity enhancements helps the Company to achieve
its goal of increasing funds available for the payment of Dividends. The
Advisor's practices include performing evaluations of the physical condition of
Properties and performing environmental surveys in an attempt to determine
potential environmental liabilities associated with a property prior to its
acquisition. In certain circumstances, the Company grants to the tenant a right
to purchase the Property leased by the tenant, in which cases, the option
purchase price is generally the greater of the Contract Purchase Price and the
fair market value of the Property.
ACQUISITION AND UNDERWRITING PROCESS
The Advisor's Acquisition and Asset Management Department has the primary
responsibility for the origination and negotiation of acquisitions of
Properties. Members of this Department will identify potential acquisitions and
conduct negotiations with sellers and tenants. Members of the Acquisition and
Asset Management Department generally structure the terms of any financing that
the Company may use to acquire a Property.
As a transaction is structured, it is evaluated by the Chairman of the
Advisor's Investment Committee, with respect to the potential tenant's credit,
business prospects, position within its industry and other characteristics
important to the long-term value of the property and the capability of the
tenant to meet its lease obligations. Before a Property is acquired, the
transaction is reviewed by the Advisor's Investment Committee to ensure that it
satisfies the Company's investment criteria. Aspects of the transaction that are
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typically reviewed by the Investment Committee include the expected financial
returns, the creditworthiness of the tenant, the real estate characteristics and
the lease terms.
The Investment Committee is not directly involved in originating or
negotiating potential acquisitions, but instead functions as a separate and
final step in the acquisition process. The Advisor places special emphasis on
having experienced individuals serve on its Investment Committee and does not
invest in a transaction unless it is approved by the Investment Committee.
The Company believes that the Investment Committee review process gives it
a unique competitive advantage over other net lease companies because of the
substantial experience and perspective that the Investment Committee has in
evaluating the blend of corporate credit, real estate and lease terms that
combine to make an acceptable risk.
The following people serve on the Investment Committee:
-- George E. Stoddard, Chairman, was formerly responsible for the direct
corporate investments of The Equitable Life Assurance Society of the
United States and has been involved with the CPA(R) Programs for over 19
years.
-- Frank J. Hoenemeyer, Vice Chairman, was formerly Vice Chairman, Director
and Chief Investment Officer of The Prudential Insurance Company of
America. As Chief Investment Officer, Mr. Hoenemeyer was responsible for
all of Prudential's investments, including stocks, bonds, private
placements, real estate and mortgages.
-- Lawrence R. Klein is the Benjamin Franklin Professor of Economics
Emeritus at the University of Pennsylvania and its Wharton School. Dr.
Klein has been awarded the Alfred Nobel Memorial Prize in Economic
Sciences and currently advises various governments and government
agencies.
Each Property purchased by the Company will be appraised by an Independent
Appraiser and the Company will not purchase any Property that has a Total
Property Cost (the purchase price of the Property plus all Acquisition Fees)
which is in excess of its appraised value. Such appraisals may take into
consideration, among other things, the terms and conditions of the particular
lease transaction, the quality of the lessee's credit and the conditions of the
credit markets at the time the lease transaction is negotiated. The appraised
value may be greater than the construction cost or the replacement cost of a
Property, and the actual sale price of a Property if sold by the Company may be
greater or less than the appraised value.
INVESTMENT OBJECTIVES
The Company's objectives are:
-- TO PAY QUARTERLY DIVIDENDS AT AN INCREASING RATE THAT FOR TAXABLE
SHAREHOLDERS MAY BE PARTIALLY FREE FROM CURRENT TAXATION. The Company's
Dividend rate is calculated by dividing the Company's quarterly cash
Dividend from operations by the amount raised in the Offering less
amounts returned to investors from the sale of Properties and Cash from
Financings. Although the cash amount of a Dividend may go down during
the life of the Company, the Dividend rate may continue to increase. If
the total amount received by the Company from the sale of its Properties
is less than the total amount invested in the Company, a portion of the
Dividends paid by the Company will represent a return of the money
originally invested in the Company and not a return on the investment.
There can be no assurance that the Company will pay regular dividends or
that the Dividend rate will increase. The quarterly rate of increases of
prior CPA(R) Programs has generally ranged from .01% to .25% with an
average quarterly increase of .02%. While prior CPA(R) Programs have
occasionally used working capital to pay a portion of certain Dividends,
cash flows from operating activities have generally exceeded Dividends
paid. See "Dividends."
-- TO PURCHASE A PORTFOLIO OF REAL ESTATE THAT WILL INCREASE IN VALUE. An
individual investing directly in real estate would not have to pay the
organization and offering expenses expected to be paid by the Company
(approximately 10% to 10.50% of the Gross Offering Proceeds). Therefore,
the Company must realize a greater level of operating income from,
and/or appreciation in the value of,
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its real estate in order for an Investor to realize the same return he
would realize if he invested directly in, and operated, the real estate
purchased by the Company. Of the 77 properties sold by the CPA(R)
Programs, all but 29 of such properties were sold for consideration
equal to or in excess of the applicable CPA(R) Program's total
investment in such properties, including acquisition costs. The net gain
realized from the sale of these 77 properties by the CPA(R) Programs has
been in excess of $9,677,000 on total equity invested of approximately
$90,523,000. This net gain figure does not take into account
organization and offering expenses which averaged 12% of the Gross
Offering Proceeds for prior CPA(R) Programs. Please see "Prior
Performance by Affiliates" and Appendix A for a complete discussion of
the prior performance of the CPA(R) Programs.
-- TO INCREASE THE COMPANY'S EQUITY IN ITS REAL ESTATE BY MAKING REGULAR
MORTGAGE PRINCIPAL PAYMENTS. The Company will realize its objective of
increasing its equity in its Properties by making regular mortgage
principal payments from income generated from the Properties only if
Properties are sold by the Company for an amount equal to or greater
than the original equity investment plus the remaining mortgage balance.
The annual mortgage amortization for the CPA(R) Programs was $14,471,000
in 1997.
There can be no assurance that all or any of these objectives will be
achieved or that all of these objectives will be achieved with respect to each
Property. See "Prior Offerings by Affiliates" for a description of the CPA(R)
Programs' experience in making investments similar to the investment objectives
of the Company. See "Risk Factors" for a description of risks associated with
the Company's investments. The Company also may make Loans on income-producing
Properties, which Loans may have some form of equity participation.
The primary investment objectives of the CPA(R) Programs are similar to
those of the Company. The CPA(R) Programs have not been fully liquidated so it
is not possible to fully determine whether or not the CPA(R) Programs have
satisfied the objective of purchasing real estate that will increase in value.
All but four of the CPA(R) Programs have paid quarterly dividends at an
increasing rate since their inception. The increases have been between .01% and
4% on an annual basis in any quarter in which there has been an increase, with
the majority of increases ranging between .01% and .05%. Only CPA(R):1,
CPA(R):5, CPA(R):7 and CPA(R):10 have had to reduce their distribution rates as
a result of certain adverse developments described in "Prior Offerings by
Affiliates" and the resulting reduction of cash flow. The distribution rate of
CPA(R):7 exceeded the rate in effect before the reduction at the time of its
consolidation with CD.
In making Property investments, the Advisor will consider such relevant
real estate and financial factors as:
-- creditworthiness of a tenant,
-- safety of principal,
-- income and cash flow expected to be generated by a particular Property,
-- terms of proposed leases, including any provision for periodic rent
increases,
-- importance of the Property to a tenant,
-- profitability of activities conducted at the Property,
-- prospects for possible long-term appreciation,
-- condition and use of the Property,
-- location of the Property,
-- current appraised value of the Property,
-- prospects for long-range liquidity,
-- geographic and industry diversification, and
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-- relation of the Property to the Company's portfolio.
In evaluating a possible investment by the Company, the creditworthiness of a
tenant generally will be a more significant factor than the value of the
Property absent the lease with such tenant. While the Advisor will select
tenants it believes are creditworthy, tenants will not be required to meet any
minimum rating established by an independent credit rating agency. The Advisor's
and the Investment Committee's standards for determining whether a particular
tenant is creditworthy vary in accordance with a variety of factors relating to
specific prospective tenants. The creditworthiness of a tenant is determined on
a tenant by tenant, case by case basis. Therefore, general standards for
creditworthiness cannot be applied.
TYPES OF INVESTMENTS
The Company may make investments in several types of properties or other
real estate related investments. The Advisor will be responsible for the
selection of properties for the Company, subject in some cases to the approval
of the Board. See "Management." While investments may be made in various types
of property, the Advisor intends to make substantially all the Company's
investments in income-producing property which is, upon acquisition, improved or
being developed or which is being or will be developed within a reasonable
period after its acquisition. Investments will not be restricted as to
geographical areas, but it is expected that most of the investments will be made
within the United States. See "Risk Factors -- Real Estate Investment
Risks -- Risks of Investment in Real Property Located Outside the United
States." With the exception of proposed investments described in a supplement to
this Prospectus, prospective Investors will not be able to evaluate the merits
of the Company's Investments or the terms of any dispositions. See "Risk
Factors -- Corporate Investment Risks -- Reliance on Management."
Investments in Properties
The Company will invest primarily in Properties that are leased to one
tenant deemed creditworthy by the Advisor. In most cases, each lease will
require the tenant to pay all of the costs of maintenance, insurance and real
estate taxes.
It is anticipated that many of the Properties purchased by the Company will
be acquired from entities that simultaneously will lease the Properties from the
Company. Such sale-leaseback transactions provide the lessee company with a
source of capital as an alternative to other financing sources such as
borrowing, mortgaging real property, issuing bonds or selling shares of common
stock. The prospects for the seller/ lessee's enterprise and the financial
strength of the seller/lessee will be important aspects of the sale and
leaseback of a Property, particularly a Property specifically suited to the
needs of the lessee. The Advisor will examine the financial statements of the
lessee, if available, to evaluate the financial capability of the lessee and its
ability to perform the terms of the purchase and leaseback agreement and, where
appropriate, will examine the available operating results of Properties to
determine whether or not projected rental levels are likely to be met. Whether a
prospective tenant of the Company is creditworthy will be determined by the
Advisor or the Board. Creditworthy does not necessarily mean "investment grade."
It is also anticipated that some of the Company's sale-leasebacks will be
in conjunction with acquisitions, recapitalizations and other financial
restructurings. In some of these transactions, the acquiring entities typically
purchase all or substantially all of the stock or assets of a company, and the
acquired company or its successor in interest becomes obligated on the
substantial loans necessary to finance the acquisition. The Company may act as
one of several sources of financing for such transactions by purchasing real
property from the seller of the subject company and net leasing it to such
company or its successor in interest (the lessee). See "Risk Factors -- Real
Estate Investment Risks -- Risk of Purchasing Property in Connection with
Acquisitions, Recapitalizations and Other Financial Restructurings."
No more than 20% of the net proceeds derived from the Offering will be
applied to the purchase of land where the Company's purchase is exclusive of the
buildings and improvements thereon or to be constructed thereon. In the event
the Company purchases Property exclusive of the buildings and improvements
thereon (where such buildings and improvements are owned by unaffiliated
parties) and such land is
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securing a mortgage loan to the building owner, the Company may have to make
mortgage payments in order to prevent a default under such mortgage and the
foreclosure of the fee interest.
The Company intends to exercise due diligence to discover potential
environmental liabilities prior to the acquisition of any Property, although
there can be no assurance that hazardous substances or wastes (as defined by
present or future Federal or state laws or regulations) will not be discovered
on the Property. See "Risk Factors -- Real Estate Investment Risks -- Potential
Environmental Liabilities." The Company will also consider factors peculiar to
the laws of foreign countries, in addition to the risk normally associated with
real property investments, when considering an investment located outside the
United States. See "Risk Factors -- Real Estate Investment Risks -- Risk of
Investment in Real Property located Outside the United States."
In selecting properties in which to make investments, the Advisor will
consider the extent to which a particular property may generate depreciation.
Depreciation deductions may reduce income generated by the Company which may
enable the Company to pay Dividends which are partially free from current
taxation. The Company will depreciate its real Properties for tax purposes on a
straight line basis over a 40-year period, except where the Code requires a
different depreciation period, as it may with respect to Property leased to
governments and to foreign lessees. See "United States Federal Income Tax
Aspects."
The Advisor may structure certain lease transactions so that such leases
will not be recognized as leases for Federal income tax purposes. To the extent
a lease is not considered a lease for Federal income tax purposes, the Company
would not be able to depreciate the Property subject to such a lease and may
lose certain other tax benefits. See "United States Federal Income Tax
Aspects -- Sale-Leaseback Transactions." In structuring such lease transactions,
the Advisor will attempt to obtain additional consideration from the tenant to
compensate the Company for any lost tax benefits; however, there can be no
assurance that any such additional consideration will be received or, if
received, that it will be sufficient to fully compensate the Company for lost
tax benefits.
Investments in Loans
The Advisor may structure a Company investment as a Loan in situations in
which a standard net lease transaction would have an adverse impact on the
seller of a Property or otherwise would be inappropriate for the Company. The
Advisor would attempt to structure any such Loan in a manner that would provide
the Company with an economic return similar to that which the Company could
expect to receive had the investment been structured as a net lease transaction.
Any transaction structured as a Loan must otherwise meet the Company's
investment criteria. The directors (including a majority of the Independent
Directors) must approve any transaction structured as a Loan.
Some of the Loans made, purchased or otherwise acquired by the Company, in
addition to providing for base interest at a fixed or variable rate, may be
combined with provisions permitting the Company to participate in the economic
benefits of any increase in the gross revenues of the Underlying Real Property
(the property securing repayment of the Loan), usually above a base amount which
may be subject to adjustment upon an increase in real estate taxes, increase in
lease revenue or other events including, but not limited to increases in lease
revenue and/or any increase in the value of the Underlying Real Property as
though the Company were an equity owner of a portion of the Property. In
addition, it is possible that the participations may take other forms where
available or deemed appropriate. See "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT." The forms and extent of
the participations to be received by the Company will vary with each transaction
depending on such factors as the equity investment, if any, of the borrower,
credit support provided by the borrower, the interest rate on the Company's
Loans and the anticipated and actual cash flow from the Underlying Real
Property. The Company's Loans may include first mortgage Loans, leasehold
mortgage Loans and conventional mortgage Loans without equity enhancements.
Loans are not expected to comprise a significant portion of the Company's
portfolio. The amount of interest which may be charged by the Company on its
Loans may be limited by state usury laws. The Company will, however, prior to
investing in a Loan, obtain an opinion of counsel that its participation in a
Loan will not result in such Loan's being made at a usurious interest rate.
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The Loans will be secured by various types of real property as well as
personal or mixed property connected therewith. The Loans generally will be
secured by property with a demonstrable income-producing potential. In
determining whether to make Loans, the Advisor will analyze relevant property
and financial factors which in some cases may include such factors as the
condition and use of the subject property, its income-producing capacity and the
quality, experience and creditworthiness of the owner of the property.
The Company anticipates that its Loans will either (i) include provisions
permitting the Company to cause the entire unpaid principal amount to become due
within 15 years or (ii) be fully amortized within such period. The Company's
mortgage activity may consist of the origination of Loans or the purchase of
existing Loans. The Company may make both long-term and short-term Loans. The
Company will not make or invest in Loans that are subordinate to any mortgage
held by the Sponsor, the Advisor, the directors or their Affiliates.
The Company will require that a mortgagee's title insurance policy or
commitment as to the lien priority of a mortgage or the condition of title be
obtained. The Company will receive independent appraisals for Underlying Real
Property, which shall be maintained in the Company's records for at least five
years and shall be available for inspection and duplication by any Shareholder
at the Company's offices, 50 Rockefeller Plaza, New York, NY 10020. However, the
Advisor generally will rely on its own independent analysis and not exclusively
on such appraisals in determining whether to make a particular Loan. 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 Company will not make Loans
where the amount advanced by the Company plus the amount of any existing Loans
that are equal or senior to the Company's Loan exceeds 100% of the appraised
value of the Underlying Real Property. See "United States Federal Income Tax
Aspects -- Sale-Leaseback Transactions." In making Loans that exceed 85% of the
appraised value of any Underlying Real Property, the Advisor will consider such
additional underwriting criteria as the net worth of the borrower, the
borrower's credit rating, if any, the anticipated cash flow of the borrower, any
additional collateral provided by the borrower and other factors the Advisor
deems appropriate. See "Risk Factors -- Real Estate Investment Risks -- Risk
Related to Making Loans."
Joint Ventures and Wholly-Owned Subsidiaries
The Company may enter into joint ventures or general partnerships and other
participations with real estate developers, owners and others (but not involving
the Advisor or its Affiliates except as discussed below) for the purpose of
obtaining an equity interest in a particular Property or Properties in
accordance with the Company's investment policies. Such investments permit the
Company to own interests in large Properties without unduly restricting
diversification and, therefore, add flexibility in structuring the Company's
portfolio. The Company will not enter into a joint venture to make an investment
that it would not be permitted to make on its own. In making such equity
investments with third parties, the Company is prohibited from participating
with non-Affiliates unless it acquires a controlling interest in such
investment. A "controlling interest" is defined in the Bylaws to mean an equity
interest possessing the power to direct or cause the direction of the management
and policies of the joint venture or general partnership. The Bylaws provide
that in transactions in which both non-affiliated entities and Affiliates of the
Company are participants, a controlling interest is determined by aggregating
the equity interests of the Company and any Affiliate participating in the
transaction, provided the Affiliate has investment objectives substantially
similar to those of the Company. See "Risk Factors -- Real Estate Investment
Risks -- Risks of Joint Ventures."
The Company may from time to time participate jointly with publicly
registered investment programs or other entities sponsored or managed by the
Advisor or one of its Affiliates in investments as tenants-in-common or in some
other joint venture arrangement. Joint ventures with such affiliated programs
will be permitted only if (i) a majority of the directors (including a majority
of the Independent Directors) not otherwise interested in such transaction
approve the transaction as being fair and reasonable to the Company, (ii) the
affiliated program or entity makes its investment on substantially the same
terms and conditions as the Company, and (iii) the Company and the affiliated
program or entity each have a right of
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first refusal to purchase the investment if the other program wishes to sell the
investment. It is not likely that the Company will have money available to
exercise this right of first refusal and the Company has made no determination
as to whether it would borrow funds or liquidate assets in order to exercise any
option. The Company will not otherwise participate in joint investments with the
Advisor or its Affiliates. The cost of structuring joint investments will be
shared ratably by the participating Investors and the Company.
The Company may form additional wholly-owned subsidiary corporations to
purchase Properties in some jurisdictions where the acquisition of Properties
through the use of such an entity would have a beneficial effect on the
Company's taxable income for state tax purposes or for other reasons deemed by
the Advisor to be beneficial to the Company. Such subsidiary corporations would
be formed for the sole purpose of acquiring a specific Property or Properties
located in one or more states and would have organizational documents (a) that
are substantially similar to the Organizational Documents of the Company, (b)
that comply with all applicable NASAA Guidelines, and (c) that comply with the
applicable terms and conditions set forth in this Prospectus. The Company may
make loans to its wholly-owned subsidiaries and guaranty the obligations of such
subsidiaries.
Other Investments
The Company also may invest up to 10% of the net proceeds of the Offering
in unimproved or non-income-producing real property and in Equity Interests
(except that investment in Equity Interests in the aggregate shall not exceed 5%
of the net proceeds of the Offering). "Equity Interests" are defined generally
to mean stock, warrants or other rights to purchase the stock of, or other
interests in, a tenant of a Property, an entity to which the Company makes a
loan or a parent or controlling Person of a borrower or tenant. The Company will
invest in unimproved or non-income-producing Property which the Advisor believes
will appreciate in value or the acquisition of which will increase the value of
an adjoining or neighboring properties of the Company. There can be no
assurance, however, that such expectations will be realized. The Company
anticipates that most Equity Interests will be "restricted securities" as
defined in Rule 144 promulgated under the Securities Act. Under this rule, the
Company may be prohibited from reselling restricted securities without
limitation until it has fully paid for and held the securities for three years.
The issuer of Equity Interests in which the Company invests may never register
such interests under the Securities Act. Whether an issuer registers its
securities under such Act may depend on the success of its operations.
The Company will exercise warrants or other rights to purchase stock only
if the value of the stock at the time such rights are exercised exceeds the
exercise price. Payment of the exercise price shall not be deemed an investment
subject to the above described limitations. The Company may borrow funds to pay
the exercise price on warrants or other rights or may pay such exercise price
from funds held for working capital and then repay the loan or replenish the
working capital upon the sale of the securities or interests purchased. The
Company may not pay Dividends out of the proceeds of the sale of such interests
until any funds borrowed to purchase such interest have been fully repaid. The
Advisor will invest in Equity Interests which the Advisor believes will
appreciate in value. There can be no assurance, however, that such expectation
will be realized.
The Company will not invest in real estate contracts of sale unless such
contracts of sale are in recordable form and are appropriately recorded in the
applicable chain of title, provided, however, that in no event shall investments
in such contracts exceed 1% of total assets.
There can be no assurance as to when the Company's capital may be fully
invested in Properties. See "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT." Pending such investment,
the balance of the proceeds of the Offering will be invested in Permitted
Temporary Investments, which are defined to mean short-term U.S. Government
securities, bank certificates of deposit and other short-term liquid
investments. To maintain its REIT status, the Company also may invest in
securities that qualify as "real estate assets" and produce qualifying income
under the REIT Provisions of the Code. The Company expects that such securities
will consist primarily of shares issued by other REITs and mortgage-backed
securities guaranteed by GNMA, FNMA or FHLMC. Any investments in other
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REITs in which the Sponsor, Advisor or any director is an Affiliate must be
approved as being fair and reasonable by a majority of the directors (including
a majority of the Independent Directors) who are not otherwise interested in the
transaction. If all the proceeds derived from the Offering are not invested or
committed to be invested by the Company prior to the expiration of the later of
twenty-four months after the date of this Prospectus or one year after the
termination of the Offering, then the proceeds not so invested or committed
will, promptly after the expiration of such period, be distributed pro rata to
the Shareholders as a return of capital, without any deductions for
Organizational and Offering Expenses or Acquisition Expenses. For the purpose of
the foregoing provision, funds will be deemed to have been committed to
investment within such period and will not be returned to Shareholders to the
extent written agreements in principle have been executed at any time prior to
the expiration of such period, regardless of whether such investments are
consummated, and also to the extent any funds have been reserved to make
contingent payments in connection with any Property, regardless of whether any
such payments are made.
If at any time the character of the Company's investments would cause the
Company to be deemed an "investment company" for purposes of the Investment
Company Act of 1940, the Company shall take such action as is necessary in order
to ensure that the Company is not deemed to be such an "investment company." The
Advisor will continually review the Company's investment activity to attempt to
ensure that the Company does not come within the application of the Investment
Company Act of 1940. Among other things, they will attempt to monitor the
proportion of the Company's portfolio which is placed in various investments so
that the Company does not come within the definition of an investment company
under such Act. The Company has been advised by counsel that if it is operated
in accordance with the description of its proposed business in this Prospectus,
it will not be deemed an "investment company" for purposes of the Investment
Company Act of 1940.
The Company's working capital and other reserves will be invested in
Permitted Temporary Investments. The Advisor will evaluate such factors as the
relative risks and rate of return, the Company's cash needs and other
appropriate considerations when making short-term investments on behalf of the
Company. The rate of return of Permitted Temporary Investments may be less than
or greater than would be obtainable from real estate investments.
The Company may purchase Property from the Sponsor, the Advisor, the
directors or their Affiliates only if: (i) a majority of the Independent
Directors and a majority of the directors who otherwise are not interested in
the transaction approve such transaction as being fair and reasonable to the
Company, (ii) the Property was acquired by such Sponsor, Advisor, director or
Affiliate for the purpose of facilitating its purchase by the Company,
facilitating the borrowing of money or the obtaining of financing for the
Company or any other purpose related to the business of the Company, (iii) the
Property is purchased by the Company for a price no greater than the cost to
such Affiliate (provided, however, that such price may be greater than the cost
to such Affiliate, but in no event more than the appraised value, if such
Affiliate has taken significant action or has made an additional investment with
regard to the Property after its purchase which action or investment has
increased the value of the Property), and (iv) there is no adverse difference in
the interest rates of the loans secured by the Property at the time acquired by
such Sponsor, Advisor, director or Affiliate and at the time purchased by the
Company nor any other detriment arising out of such transaction to the Company.
The Company will receive all profits or losses from any Property held on an
interim basis by the Sponsor, Advisor, director or Affiliate thereof (other than
an Affiliate that is a public program or entity).
The Company will not sell Properties to the Sponsor, the Advisor, a
director or any Affiliate of any of the foregoing except pursuant to the
exercise of a right of first refusal by an affiliated joint venture partner.
USE OF BORROWING
While one of the Company's investment objectives will be diversification,
the number of different Properties the Company can acquire will be affected by
the amount of funds available to it. Since the Company may have up to a maximum
of $300,000,000 in Gross Offering Proceeds, the full extent of the Company's
actual operations cannot be determined at this time. The Company's goal, subject
to the
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availability of mortgage financing, is to borrow approximately 60% of the
purchase price of all Properties but there is no limit on borrowings on
individual Properties.
The ability of the Company to increase its diversification through
borrowing could be adversely impacted by the reduced availability of financing
secured by commercial real estate generally and specifically by single-tenant
net-leased real property, whether due to fewer financing sources, such as
commercial banks and insurance companies, or due to the reduced lending activity
by those sources continuing in that line of business. When interest rates on
mortgage loans are high or financing is otherwise unavailable on a timely basis,
the Company may purchase certain Properties for cash with the intention of
obtaining a mortgage loan for a portion of the purchase price at a later time if
and when interest rates fall. While the number of lenders making loans secured
by commercial real estate has decreased in recent years, the CPA(R) Programs
have not encountered significant difficulty in obtaining mortgage financing from
institutional lenders such as insurance companies to replace financing which
previously might have been obtained from commercial banks or savings and loans.
However, there can be no assurance that the Company will be able to achieve its
borrowing objective.
There is no limitation on the amount the Company may invest in any single
improved Property or on the amount the Company can borrow for the purchase of
any Property. Aggregate borrowings as of the time that the net proceeds of the
Offering have been fully invested and at the time of each subsequent borrowing
may not exceed 75% of the value of all Properties unless such excess is approved
by a majority of the Independent Directors and disclosed to Shareholders in the
next quarterly report of the Company, along with the reason for such excess. For
purposes of determining the maximum allowable amounts of indebtedness, "value"
means the lesser of (i) the total appraised value of the Properties as reflected
in the most recently obtained appraisal for each Property or (ii) the total
value of the assets of the Company as reflected in the most recently completed
Valuation.
It is expected that, by operating on a leveraged basis, the Company will
have more funds available and, therefore, will make more investments than would
otherwise be possible, resulting in a more diversified portfolio. Although the
Company's liability for the repayment of indebtedness is expected to be limited
to the value of the Property securing such liability and the rents or profits
derived therefrom, leveraging increases risks to the Company because mortgage
principal and interest payments as well as other fixed charges must be paid in
order to prevent foreclosure on such Properties by mortgagees regardless of the
generation of income by Properties. See "Risk Factors -- Real Estate Investment
Risks -- Risks Associated with Borrowing." To the extent that the Company does
not obtain mortgage loans on its Properties, its ability to acquire additional
Properties will be restricted. The Advisor will use its best efforts to obtain
financing on the most favorable terms available to the Company. Lenders may have
recourse to other assets of the Company in certain limited circumstances not
related to the repayment of the indebtedness.
Lenders may also seek to include in the terms of mortgage loans provisions
making the termination or replacement of the Advisor an event of default or an
event requiring the immediate repayment of the full outstanding balance of the
loan. The Company will not agree to the inclusion of such provisions and will
attempt to negotiate loan terms allowing the Company to replace or terminate the
Advisor if such action is ordered by the Board. Such replacement or termination
may, however, require the prior consent of the mortgage lenders.
The Advisor will refinance Properties during the term of a loan only in
limited circumstances, such as when a decline in interest rates makes it
profitable to prepay an existing mortgage, when an existing mortgage matures or
if an attractive investment becomes available and the proceeds from the
refinancing can be used to purchase such investment. The benefits of such
refinancing may include an increased cash flow resulting from reduced debt
service requirements, an increase in distributions from proceeds of such
refinancing, if any, and/or an increase in property ownership if some
refinancing proceeds are reinvested in real estate.
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OTHER INVESTMENT POLICIES
General
If at any time the Company does not have sufficient funds to provide that
portion of the Total Property Cost of any Property normally paid out of Offering
proceeds but would have sufficient funds if it could use the Offering proceeds
being held in escrow, funds may be borrowed from Affiliates of the Advisor or
from third parties on a short-term basis. Any such financing obtained from the
Advisor or its Affiliates may not have terms less advantageous to the Company
than those available from independent third parties and may not require a
prepayment charge or penalty. The interest rate charged on any such financing
obtained from the Advisor or its Affiliates will be equal to the lesser of 1%
above the prime rate of interest announced by The Bank of New York or the rate
that would be charged to the Company by unrelated lending institutions on
comparable loans for the same purpose. See "Conflicts of Interest -- Purchases
and Loans from Affiliates." The Company may assign, as security for borrowings
made from third parties, its right to receive up to 85% of the Offering proceeds
being held in escrow (excluding interest and amounts held on behalf of qualified
plans and IRAs). See "The Offering -- Escrow Arrangements."
At any time, subject to the approval of a majority of the Independent
Directors, the Company may borrow funds from Affiliates of either the Advisor or
third parties on a short-term basis sufficient to provide the portion of the
Total Property Cost of any Property not paid with net Offering proceeds (i.e.,
the debt portion) if (i) the Company is unable to obtain a permanent loan or, in
the judgment of the Company or the Advisor, it is not in the best interests of
the Company to obtain a permanent loan at the interest rates then prevailing and
(ii) the Advisor has reason to believe that the Company will be able to obtain a
permanent loan on or prior to the end of the loan term. Such short-term loans
may be fully or partially amortized, may provide for the payment of interest
only during the term of the loan or may provide for the payment of principal and
interest only upon maturity. In addition, such loans may be secured by a first
or junior mortgage on the Property to be acquired or by a pledge of or security
interest in the Offering proceeds that are being held in escrow which are to be
received from the sale of Shares by the Company. Any short-term loan from
Affiliates of the Advisor will bear interest at a rate equal to the lesser of 1%
above the prime rate of interest charged by The Bank of New York or the rate
that would be charged to the Company by unrelated lending institutions on
comparable loans for the same purpose in the locality of the Property. See
"Conflicts of Interest -- Loans from Affiliates."
Holding Period for Investments and Application of Proceeds of Sales or
Refinancings
The Company intends to hold each Property it acquires (including Properties
and partnership interests held by wholly-owned subsidiaries and Properties owned
by joint ventures in which the Company has an interest) for an extended period.
However, certain circumstances might arise which could result in the early sale
of certain Properties. A Property may be sold before the end of the expected
holding period of such Property if (i) the lessee has involuntarily liquidated,
(ii) in the judgment of the Advisor, the value of a Property might decline
radically, (iii) an opportunity has arisen to improve other Properties (e.g., to
buy property adjacent to or abutting another Property owned by the Company),
(iv) the Company can increase cash flow through the disposition of the Property,
(v) the lessee is in default under the lease or (vi) in the judgment of the
Company or the Advisor, the sale of the Property is in the best interests of the
Company. The Advisor may receive real estate commissions on the sale of a
Property.
The determination of whether a particular Property should be sold or
otherwise disposed of will be made after consideration of relevant factors,
including prevailing economic conditions, with a view to achieving maximum
capital appreciation for the Company. No assurance can be given that the
foregoing objective will be realized. Also, the sales price of a Property which
is net leased will be determined in large part by the amount of rent payable
under such lease. However, to the extent that the seller of a Property to the
Company has a repurchase option at a formula price, the Company may be limited
in its realization of any appreciation by the option price. In connection with
sales of Properties by the Company, purchase money obligations (i.e., the
Company would "lend" the purchaser a portion of the purchase price by allowing
the purchaser to pay less than the full purchase price in cash) may be taken by
the Company as
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partial or full payment. In such instances, the Company's taxable income may
exceed the cash received in such sale. See "United States Federal Income Tax
Aspects -- Taxation of the Company" and "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT -- Distribution
Requirement." The terms of payment to be accorded by the Company will be
affected by custom in the area in which the Property being sold is located and
the then prevailing economic conditions. To the extent that the Company receives
purchase money mortgages rather than cash in connection with sales of
Properties, there may be a delay in making distributions to Shareholders. A
decision to provide financing to such purchasers would be made after an
investigation into and consideration of the same factors regarding the
purchaser, such as creditworthiness and likelihood of future financial
stability, as are undertaken when the Company considers a net lease transaction.
See "United States Federal Income Tax Aspects -- Taxation of the Company."
If the Company's Shares are not listed for trading on a national securities
exchange or included for quotation on Nasdaq (which listing or inclusion for
quotation must be approved by the directors, a majority of the Independent
Directors and the CFA Board), the Properties generally will be liquidated
beginning five to ten years after the net proceeds of the Offering are
substantially invested. In making the decision to apply for listing of the
Shares, the Board will try to determine whether listing the Shares or
liquidating the Company will result in greater value for the Shareholders. It
cannot be determined at this time the circumstances, if any, under which the
Directors will agree to list the Shares. Such a listing is not likely to occur
during the first several years of the Company's existence. CPA(R):10, CIP(R) and
CPA(R):12 have listing provisions similar to provisions for the listing of the
CPA(R):14 shares and as of the date of the Prospectus none of them have listed
their shares. Even if the Shares are not so listed or included for quotation,
the Company is under no obligation to liquidate its portfolio within such period
since the precise timing will depend on real estate and financial markets,
economic conditions of the areas in which the Properties are located and Federal
income tax effects on Shareholders which may prevail in the future. Furthermore,
there can be no assurance that the Company will be able to liquidate its
portfolio and it should be noted that the Company will continue in existence
until all Properties are sold and its other assets are liquidated.
The Company continually may reinvest the proceeds of Property sales in
investments that it or the Advisor believes will satisfy the Company's
investment policies; provided, however, that if the Shares are not listed for
trading on a national securities exchange or included for quotation on Nasdaq,
the Company will cease reinvesting its capital beginning five years after the
proceeds from the Offering are fully invested unless the directors (including a
majority of the Independent Directors) determine that, in light of the Company's
expected life at any given time, it is deemed to be in the best interest of the
Shareholders to reinvest Cash from Sales and Financings. See "United States
Federal Income Tax Aspects -- Taxation of the Company."
INVESTMENT LIMITATIONS
Numerous limitations are placed on the manner in which the Company may
invest its funds. These limitations cannot be changed unless the Bylaws are
amended, which requires the approval of the Shareholders. Unless the Bylaws are
amended, the Company will not:
-- invest in commodities or commodity futures contracts, such limitation
not being applicable to futures contracts when used solely for the
purpose of hedging in connection with the Company's ordinary business of
investing in real estate assets and mortgages,
-- invest in contracts for the sale of real estate unless such contract is
in recordable form and is appropriately recorded in the chain of title
(provided, however, that in no event shall investments in such contracts
exceed 1% of the total assets of the Company),
-- engage in any short sale or borrow on an unsecured basis, if such
borrowing will result in asset coverage of less than 300%. "Asset
coverage," for the purpose of this clause means the ratio which the
value of the total assets of the Company, less all liabilities and
indebtedness for unsecured borrowings, bears to the aggregate amount of
all unsecured borrowings of the Company,
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<PAGE> 64
-- make investments in Unimproved Real Property or indebtedness secured by
a deed of trust or mortgage loans on Unimproved Real Property in excess
of 10% of the total assets of the Company. "Unimproved Real Property"
means property which has the following three characteristics: (i) an
equity interest in property which was not acquired for the purpose of
producing rental or other operating income, (ii) no development or
construction is in process on such property, and (iii) no development or
construction on such property is planned in good faith to commence on
such property within one year of acquisition,
-- issue equity securities on a deferred payment basis or other similar
arrangement,
-- issue debt securities in the absence of adequate cash flow to cover debt
service,
-- issue equity securities which are non-voting or assessable,
-- issue "redeemable securities" as defined in Section 2(a)(32) of the
Investment Company Act of 1940,
-- grant warrants and/or options to purchase Shares to the Advisor,
directors or Affiliates thereof except on the same terms as such options
or warrants are sold to the general public and the amount of such
options or warrants does not exceed an amount equal to 10% of the
outstanding Shares on the date of grant of such warrants and options,
-- engage in trading, as compared with investment activities, or engage in
the business of underwriting or the agency distribution of securities
issued by other Persons,
-- invest more than 5% of the value of its assets in the securities of any
one issuer if such investment would cause the Company to fail to qualify
as a REIT,
-- invest in securities representing more than 10% of the outstanding
voting securities of any one issuer if such investment would cause the
Company to fail to qualify as a REIT,
-- acquire securities in any company holding investments or engaging in
activities prohibited in the foregoing clauses,
-- lend money to or lease Property to or from the Advisor or its
Affiliates,
-- sell Property to the Sponsor, the Advisor, a director or any Affiliate
of any of the foregoing,
-- offer Shares in exchange for Property,
-- make or invest in mortgage loans that are subordinate to any mortgage or
equity interest of the Advisor, directors, Sponsor or Affiliates of the
Company, or
-- make loans where the amount advanced by the Company plus the amount of
any existing loans that are equal or senior to the Company's loan
exceeds 100% of the appraised value of the property.
CHANGE IN INVESTMENT OBJECTIVES AND LIMITATIONS
The Bylaws require that the Independent Directors review the Company's
investment policies at least annually to determine that the policies being
followed by the Company are in the best interest of the Shareholders. Each such
determination and the basis therefor shall be set forth in the minutes of the
Company. The methods of implementing the Company's investment policies also may
vary as new investment techniques are developed. The methods of implementing the
investment Procedures, Objectives and Policies of the Company, except as
otherwise provided in the Organizational Documents, may be altered by a majority
of the directors (including a majority of the Independent Directors) without the
approval of the Shareholders.
HOLDERS OF SHARES OF THE COMPANY
As of June 30, 1998, 5,533,702 Shares have been issued by the Company, of
which 20,000 Shares are held by the Advisor.
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<PAGE> 65
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION AND RESULTS OF OPERATIONS
The Company was formed in June 1997 for the purpose of investing in net
lease commercial and industrial real estate. A maximum of 30,000,000 shares of
common stock are being offered to the public on a "best efforts" basis at a
price of $10 per share. As of June 30, 1998, the Company had issued 5,533,702
shares pursuant to the public offering of common stock. Other than the costs
related to the offering and establishing a working capital reserve to satisfy
liquidity requirements, the net proceeds will be used, along with limited
recourse mortgage debt, to acquire properties. It is anticipated that
approximately 86% of the money raised in the offering will be used to purchase
real estate.
Generally, a property will be leased to one tenant deemed to be
creditworthy by the Company under a lease that in most cases requires such
tenant to pay all costs of operating the property, such as insurance,
maintenance and repairs and real estate taxes. As of June 30, 1998, the
Company's investment activities were comprised of the purchase of a property in
Daleville, Indiana for approximately $7,539,000 net leased to Burlington Motor
Carriers, Inc. and funding of $3,182,000 of construction costs pursuant to its
commitment with Corporate Property Associates 12 Incorporated ("CPA(R):12"), an
affiliate, to increase its equity interest in a limited liability company owned
by the Company and CPA(R):12. The limited liability company is constructing a
building to be occupied by and currently leased to Etec Systems, Inc. at a
property where Etec leases existing facilities from CPA(R):12. The total cost of
the Etec project is expected to amount to $52,356,000 of which $30,000,000 will
be financed by a limited recourse mortgage loan. The Company's equity commitment
to the Etec project is approximately $11,175,000. Its commitment to the project,
however, is limited to no more than 10% of the proceeds of the offering.
Since June 30, 1998, the Company has used $21,480,000 to purchase a retail
property in Torrance, California subject to an existing net lease with Best Buy
Co., Inc. and land in San Clemente, California upon which the Company is
constructing a build-to-suit facility for Metagenics Incorporated.
The Company's investment objectives are to pay quarterly dividends at an
increasing rate, use the net proceeds of the offering and limited recourse
mortgage debt to invest in a diversified portfolio of real estate that will
increase in value and to increase the Company's equity in real estate by making
regular principal payments on its limited recourse mortgage debt. In addition,
in structuring lease transactions, the Company will attempt to negotiate grants
of common stock warrants in order to realize benefits of appreciation that may
occur if the credit rating of a tenant improves or the tenant completes an
initial public offering of common stock. The Company received a grant of
warrants to purchase common stock in connection with structuring its transaction
with Burlington Motor Carriers. The shares covered by such grant represent 1.5%
of the fully diluted shares of Burlington Motor Carriers.
The Company's net income for the three-month and six-month periods ended
June 30, 1998 was primarily due to interest income earned on uninvested cash.
The results of operation are not indicative of future results as the objective
of the Company is to invest the proceeds of its offering in real estate and only
to maintain cash balances at levels deemed to be sufficient for working capital
needs. Accordingly, as cash is used to purchase real estate, interest income is
expected to lessen as a component of total revenues. As the Company's assets
increase, general and administrative and property expenses will also increase.
Interest expense will be a significant component of operating expenses as
mortgage loans are obtained.
Under generally accepted accounting principles, no income or expense is
recognized on projects under construction, so that no current income is being
recognized on the investment in Etec even though a lease is in effect. Etec is
currently paying monthly installments on the funds advanced during the
build-to-suit construction period, however, the cash flow received from that
investment is recorded as a reduction of investment rather than income. Upon
completion of construction, annual cash flow (rents less mortgage debt service)
from the Etec and Metagenics investments, assuming the Company funds the maximum
commitments on these two projects, is expected to be $2,500,000. Annual cash
flow from the leases with Burlington Motor Carriers and Best Buy will be
$2,534,000.
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In June 1997, the Financial Accounting Standards Board ("FASB") issued
Statement of Financial Accounting Standard ("SFAS") No. 131, "Disclosure about
Segments of an Enterprise and Related Information". SFAS No. 131 establishes
accounting standards for the way that public business enterprises report
selected information about operating segments in interim financial reports
issued to shareholders. It also establishes standards for related disclosures
about products, geographic area and major customers. The statement is effective
for financial periods beginning after December 15, 1997, however, SFAS No. 131
does not need to be applied to interim financial statements in 1998. In June
1998, the FASB issued SFAS No. 133, "Accounting for Derivative Instruments and
Hedging Activities". SFAS No. 133 establishes accounting and reporting standards
for derivative instruments, including certain derivative instruments embedded in
other contracts and for hedging activities. It requires that an entity recognize
all derivatives as either assets or liabilities in the statement of financial
position and measure those instruments at fair value. SFAS No. 133 is effective
for all quarters of fiscal years beginning after June 15, 1999. The Company is
currently evaluating the impact, if any, of SFAS No. 131 and SFAS No. 133.
The Company's Advisor has responsibility for maintaining the Company's
books and records. An affiliate of the Advisor services the computer systems
used for maintaining such books and records. In its preliminary assessment of
Year 2000 issues, the affiliate believes that such issues will not have a
material effect on the Company's operations, however, such assessment has not
been completed. The Company relies on its bank and transfer agent for certain
computer-related services and has initiated discussions to determine whether
they are addressing Year 2000 issues that may affect the Company.
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DESCRIPTION OF PROPERTIES
In addition to the Properties described below, the Advisor is evaluating
various additional potential Property acquisitions and is engaging in
discussions with sellers regarding the purchase of Properties for the Company.
During the continuation of the Offering, and at such time during the
negotiations of a potential Property acquisition when the Advisor believes a
reasonable probability exists that such Property will be acquired by the
Company, this Prospectus will be supplemented to disclose such potential
Property acquisition. Based on the Advisor's experience and acquisition methods,
this generally will occur upon the signing of a legally binding purchase
agreement or after the execution of a letter of intent to purchase a Property
and the obtaining of a commitment for financing, but may occur before or after
such events depending on the particular circumstances surrounding each potential
acquisition. Any such supplement to this Prospectus will set forth available
data with respect to the acquisition including the proposed terms of the
purchase, a description of the Property to be acquired, and other information
considered appropriate for an understanding of the transaction. Further data
will be made available after any acquisition has been consummated during the
Offering also by means of a supplement to this Prospectus. See "Reports to
Shareholders" for a description of other reports to Shareholders which will
describe Property acquisitions.
IT SHOULD BE UNDERSTOOD THAT THE INITIAL DISCLOSURE IN THIS PROSPECTUS OR A
SUPPLEMENT OF ANY POTENTIAL ACQUISITION CANNOT BE RELIED UPON AS AN ASSURANCE
THAT THE COMPANY ULTIMATELY WILL CONSUMMATE SUCH POTENTIAL ACQUISITION OR THAT
THE INFORMATION PROVIDED CONCERNING THE POTENTIAL ACQUISITION WILL NOT CHANGE
BETWEEN THE DATE OF THIS PROSPECTUS OR SUCH SUPPLEMENT AND ACTUAL PURCHASE.
As of July 31, 1998, the Company, through certain subsidiaries and
partnerships, holds fee simple title to four Properties.
PROPERTY LEASED TO ETEC SYSTEMS, INC.
General
On February 3, 1998, a limited liability company (the "LLC"), in which
Corporate Property Associates 12 Incorporated ("CPA(R):12") and Corporate
Property Associates 14 Incorporated (the "Company") are the sole members, agreed
to construct for Etec Systems, Inc. ("Etec") a 129,000 square foot manufacturing
facility located on a parcel of land in Hayward, California (the "Etec
Facility").
Concurrently with the agreement to construct the Etec Facilities by the
Company, the LLC entered into a net lease (the "Etec Lease") and Construction
Agency Agreement with Etec for the Etec Facility. Under the Construction Agency
Agreement, Etec will supervise and manage the construction, installation, and
completion of the Etec Facility. After completion of the construction, the Etec
Facility is expected to be suitable and adequate for the uses for which it was
intended. The cost of the Etec Facility will be depreciated for tax purposes
over a 40-year period on a straight line basis.
CPA(R):12 has a 99.99% interest in the LLC and the Company has a .001%
interest. The Company has an option to purchase up to a 49.99% interest in the
LLC. CPA(R):12 has the right to require the Company to purchase an interest in
the LLC of up to 49.99%, but in no event will the Company be required to invest
in excess of 10% of the Gross Offering Proceeds in the LLC.
The Etec Facility is part of a larger campus of buildings occupied by Etec.
The remainder of the campus (the "Additional Facilities") is owned outright by
CPA(R):12 and the Company will not obtain an interest in those properties
through an investment in the LLC.
PURCHASE TERMS
The Company's share of the cost of constructing the Etec Facility,
including the Acquisition Fee payable to an Affiliate of the Advisor, will not
exceed approximately $24,037,000, an amount less than the leased fee appraised
value of the Etec Facility. The LLC is obligated to pay an Acquisition Fee of
$601,974
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to W.P. Carey & Co., Inc., an Affiliate of the Advisor for the Company's share
of the investment. The Advisor will receive a Subordinated Acquisition Fee of
$60,089, payable in each of the next eight years, but only if the Company
satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
General
The Etec Lease is absolutely net and bondable and in normal financeable
form. Etec will pay maintenance, insurance, taxes and all other expenses
associated with the operation and maintenance of the Etec Facility, except for
the Etec Subsidiary's debt service and income taxes. In the opinion of
management of the Company, the Etec Facility will be adequately covered by
insurance.
Term
The remaining initial term of the Etec Lease expires on May 31, 2004,
followed by three five-year renewal terms and one eighth-month renewal term
(each, an "Extended Term") which may be exercised at the option of Etec.
Rent
The initial annual rent ("Basic Rent") for the Etec Facility is (a) to and
including June 1, 1999, an amount equal to the product of (a) the LIBOR then in
effect stated on an annual basis divided by 12 plus 150 basis points, and (b)
commencing on July 1, 1999, monthly payments equal to the equal monthly
amortization payment required to pay the cost of the Etec Facility (exclusive of
the Acquisition Fee) in full over the remainder of the initial term assuming an
interest rate of 7.98% per annum. Additionally, the Etec Lease provides that on
March 1, 2001, March 1, 2004, March 1, 2007, March 1, 2010 and March 1, 2013 the
Basic Rent then in effect will be increased to reflect percentage increases in
the Consumer Price Index over the prior three years capped at 12% for each such
three-year period.
Right of First Refusal
The Etec Lease provides Etec with certain rights of first refusal to
purchase the Etec Facility together with the Additional Facilities. If the
Company receives an offer between June 1, 2007 and May 31, 2008 for a price
equal to the greater of fair market value of the Etec Facility and the CPA(R):12
Facilities or the final cost of the Etec Facility and the CPA(R):12 Facilities
plus the applicable prepayment premium reduced by principally payments on the
Note, Etec shall have the right to match such offer.
Description of Financing
The Company is seeking financing from Teachers Insurance and Annuity
Association of America for a 15 year $30,000,000 mortgage loan (the "Loan") at
an initial rate of interest of 6.96% per annum. The Loan shall require the
payment of principal and interest based upon an amortization schedule of not
less than 20 years.
Description of Etec Systems
Etec is a leading producer of electric beam and laser lithography
equipment. These systems are used in the manufacturing of masks for
semiconductor manufacturing industry. Etec's shareholders include DuPont, IBM,
Perkin Elmer, Grumman, and Micron Technology. Financial Statements of Etec
System are
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on file with the Securities and Exchange Commission. The following is a summary
of selected financial data for Etec System for the last three years:
<TABLE>
<CAPTION>
YEAR ENDED JULY 31,
-------------------------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF OPERATIONS DATA:
Revenue............................... $ 240,914 $ 145,645 $ 82,916
Cost of revenue....................... 124,287 80,042 47,619
Gross profit.......................... 116,627 65,603 35,297
Operating expenses.................... 66,186 44,940 23,894
Net income............................ $ 34,439 $ 36,861 $ 9,936
</TABLE>
<TABLE>
<CAPTION>
AS OF JULY 31,
-------------------------------------------------------
1997 1996 1995
---- ---- ----
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Cash.................................. $ 55,975 $ 44,472 $ 23,638
Working Capital....................... 156,303 111,199 23,215
Total Assets.......................... 287,543 208,871 85,984
Long-term debt, less current
portion............................. -- 6,667 16,866
Accumulated deficit................... (1,045) (35,484) (71,267)
Total stockholders' (deficit)
equity.............................. $ 197,641 $ 115,877 $ (67,415)
</TABLE>
PROPERTY LEASED TO BURLINGTON MOTOR CARRIERS INC.
General
On June 30, 1998, Corporate Property Associates 14 Incorporated (the
"Company"), through a wholly-owned subsidiary (the "Burlington Subsidiary"),
purchased from Burlington Motor Carriers Inc. ("Burlington") an office and
maintenance facility (the "Burlington Facility"). The Burlington Facility,
containing approximately 63,700 square feet, is located in Daleville, Indiana.
The Burlington Facility is suitable and adequate for use as office and
maintenance facility. The cost of the Burlington Facility will be depreciated
for tax purposes over a 40-year period on a straight-line basis.
Concurrently with the acquisition of the Burlington Facility by the
Burlington Subsidiary, the Burlington Subsidiary entered into a net lease (the
"Burlington Lease") with Burlington for the Burlington Facility. Material terms
of the Burlington Lease are described below.
PURCHASE TERMS
The cost to the Company of acquiring the Burlington Facility, including the
Acquisition Fee payable to an Affiliate of the Advisor, was $7,539,267, an
amount less than the leased fee Appraised Value of the Burlington Facility. The
Company paid an Acquisition Fee of $188,482 to W. P. Carey & Co., Inc., an
Affiliate of the Advisor. The Advisor will receive a Subordinated Acquisition
fee of $18,848, payable each of the next eight years, but only if the Company
satisfies the Preferred Return.
WARRANTS
The Burlington Subsidiary was issued a warrant to purchase 4,666.9 shares
of the common stock of Burlington at the price of $100 per share.
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DESCRIPTION OF THE LEASE
General
The Burlington Lease is absolutely net and bondable and in normal
financeable form. Burlington will pay maintenance, insurance, taxes and all
other expenses associated with the operation and maintenance of the Burlington
Facility, except for the Burlington Subsidiary's debt service and income taxes.
In the opinion of management of the Company, the Burlington Facility is
adequately covered by insurance.
Term
The initial term (the "Initial Term") of the Burlington Lease is twenty
years, followed by two five-year renewal terms (each, an "Extended Term") at the
option of Burlington.
Rent
The initial annual rent ("Basic Rent") under the Burlington Lease is
$792,000 payable quarterly in advance in equal installments of $198,000.
Additionally, the Burlington Lease provides that at the end of the second year
of the Initial Term and at the end of each additional second year of the Initial
Term and Extended Term, the annual rent for each of the next two years of the
term will be adjusted by a formula that would increase the annual rent by the
cumulative increase in the Consumer Price Index over the immediately preceding
two years, but not in excess of 6.09% for any such two year period.
DESCRIPTION OF FINANCING
The Company is currently seeking mortgage financing for the Burlington
Facility.
DESCRIPTION OF BURLINGTON
Burlington Motor Carriers, Inc. was incorporated on November 7, 1998 and
operates as a common carrier providing truck load services throughout the
continental United States, to and from Mexico and certain provinces in Canada.
The following is a summary of selected financial data for Burlington for
the last two years:
<TABLE>
<CAPTION>
PERIOD
NOVEMBER 7, 1997
YEAR ENDED THROUGH
DECEMBER 31, 1997 DECEMBER 31, 1996
----------------- -----------------
(IN THOUSANDS)
<S> <C> <C>
STATEMENTS OF OPERATIONS
Operating Revenue................................. $201,118 $ 4,908
Total Operating Expenses.......................... 193,680 5,205
Operating Income (loss)........................... 7,438 (297)
Net loss.......................................... $ (547) $(1,650)
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
--------------------------------------
1997 1996
---- ----
(IN THOUSANDS, EXCEPT PER SHARE DATA)
<S> <C> <C>
BALANCE SHEET DATA
Cash.............................................. $ 1,177 $ 1,378
Receivables....................................... 24,677 19,104
Total Assets...................................... 29,978 27,878
Long Term Debt.................................... 68,438 68,186
Total Stockholders' Equity........................ $ 27,262 $27,809
</TABLE>
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PROPERTY LEASED TO METAGENICS INCORPORATED
DESCRIPTION OF THE PROPERTY
General
On July 29, 1998, the Company acquired from Rancho San Clemente Partners,
L.P. certain property containing approximately 9 acres of land located in San
Clemente, California (the "Metagenics Land") upon which the Company will
construct an office facility containing approximately 133,600 square feet (the
"Metagenics Facility"). The Metagenics Facility will be suitable and adequate
for its intended uses. The Company formed a subsidiary (the "Metagenics
Subsidiary") to take title to the Metagenics Facility. The cost of the
Metagenics Facility will be depreciated for tax purposes over a 40-year period
on a straight-line basis.
Concurrently with the acquisition of the Metagenics Facility, (i) Lowe
Enterprises Commercial Group ("Lowe") assigned all its rights title to and
interest in the lease (the "Metagenics Lease") to the Metagenics Subsidiary,
(ii) the Metagenics Subsidiary entered into a Construction Agreement with Lowe
pursuant to which Lowe will construct the Metagenics Facility, and (iii) Lowe
entered into a Guaranty of Completion of the Metagenics Facility for the benefit
of the Metagenics Subsidiary and the Company. Material terms of the Metagenics
Lease are described below.
PURCHASE TERMS
The cost of acquiring the Metagenics Land and constructing the Metagenics
Facility, including the Acquisition Fee payable to an Affiliate of the Advisor,
is not anticipated to exceed $11,500,000, an amount less than the leased fee
Appraised Value of the Metagenics Facility. The Company paid an Acquisition Fee
of $287,500 to W.P. Carey & Co., Inc., an Affiliate of the Advisor. The Advisor
will receive a Subordinated Acquisition fee of $28,750, payable each of the next
eight years, but only if the Company satisfies the Preferred Return.
DESCRIPTION OF THE LEASE
General
The Metagenics Lease is triple net. Metagenics Incorporated ("Metagenics")
will pay maintenance, insurance, taxes and all other expenses associated with
the operation and maintenance of the Metagenics Facility, except for the
Metagenics Subsidiary's debt service and income taxes.
Term
The initial term (the "Initial Term") as defined in the Metagenics Lease
commenced on May 27, 1998 and shall continue until substantial completion of the
Metagenics Facility as defined in the Metagenics Lease. The primary term
("Primary Term") of the Metagenics Lease is 12 years, commencing upon the
expiration of the Initial Term, followed by two, five year renewal terms at the
option of Metagenics (each, a "Renewal Term").
Rent
The annual rent during the Initial Term under the Metagenics Lease is nine
percent (9%) per annum on amounts advanced by or on behalf of the Metagenics
Term Subsidiary for the cost of construction. The annual rent during the Primary
Term ("Basic Rent") under the Metagenics Lease is an amount equal to 11% of the
cost of construction. The Basic Rent shall be increased annually by 3.5%.
DESCRIPTION OF FINANCING
The Company is currently seeking mortgage financing for the Metagenics
Facility.
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DESCRIPTION OF METAGENICS
Metagenics is a formulator and distributor of specialty nutritional
supplements for resale by licensed health care practitioners, health and natural
products retailers, and other specialty retailers.
The following is a summary of selected financial data for Metagenics over
the last two years:
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
STATEMENT OF INCOME ---- ----
<S> <C> <C>
Total Revenue................................... $28,355,402 $25,258,789
Cost of Goods Sold.............................. 12,870,785 11,677,832
Total Operating Expenses........................ 14,441,681 13,169,512
Net Income...................................... $1,008,192 $ 273,361
</TABLE>
<TABLE>
<CAPTION>
YEAR ENDED DECEMBER 31,
---------------------------
1997 1996
BALANCE SHEET DATA ---- ----
<S> <C> <C>
Cash............................................ $ 67,872 $ 25,463
Accounts Receivable............................. 2,808,634 2,384,943
Total Assets.................................... 8,667,446 7,678,250
Long Term Debt.................................. 3,401,963 229,329
Total Stockholders Equity....................... $2,826,324 $2,165,199
</TABLE>
PROPERTY LEASED TO BEST BUY CO. INC.
DESCRIPTION OF PROPERTY
General
On July 27, 1998, the Company, though a wholly-owned subsidiary (the "Best
Buy Subsidiary"), purchased from Merchandising Development U.S.A. ("MDUSA") a
retail facility (the "Best Buy Property"). The Best Buy Property, containing a
102,470 square foot retail facility, is located in Torrance, California. The
Best Buy Property is suitable and adequate for use as a retail facility.
Concurrently with the acquisition of the Best Buy Property, the Best Buy
Subsidiary assumed the net lease with Best Buy Co. Inc ("Best Buy") (the "Best
Buy Lease"). The Best Buy Subsidiary also assumed the net lease with R.P. Jones,
Inc. d/b/a Parnelli's Tire & Auto Service No. 1 ("Parnelli") (the "Parnelli
Lease"), (collectively, the "Leases"). Material terms of the Leases are
described below.
PURCHASE TERMS
The cost to the Company of acquiring the Best Buy Property, including the
Acquisition Fee payable to an Affiliate of the Advisor, was $21,480,000, an
amount less than the leased fee Appraised Value of the Property. The Company
paid an Acquisition Fee of $490,392 to W.P. Carey & Co., Inc., an Affiliate of
the Advisor. The Advisor will receive a Subordinated Acquisition fee of $48,951,
payable each of the next eight years, but only if the Company satisfies the
Preferred Return.
DESCRIPTION OF THE LEASES
General
The Leases are absolutely net and bondable and in normal financeable form.
Best Buy and Parnelli will pay maintenance, insurance, taxes and all other
expenses associated with the operation and maintenance of the Best Buy Property,
except for the Best Buy Subsidiary's debt service and income taxes. In the
opinion of management of the Company, the Best Buy Property is adequately
covered by insurance.
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<PAGE> 73
Term
The initial term of the Best Buy Lease is ten years, followed by two
five-year renewal terms at the option of Best Buy.
The Parnelli Lease expires December 31, 1998.
Rent
The initial annual rent ("Basic Rent") under the Best Buy Lease is
$1,741,990 payable monthly in advance in equal installments of $145,166.
Additionally, the Best Buy Lease provides that at the end of the fifth year of
the initial term, the annual rent for each of the five years of the first
renewal term will be $1,946,930 payable in advance in monthly installments of
$162,244. The annual rent for the second renewal term will be $2,151,870,
payable in advance in monthly installments of $179,323.
The Basic Rent under the Parnelli Lease is $33,540 payable monthly in
advance in equal installments of $2,795, plus 3% of gross sales made each
calendar quarter, less amount of Basic Rent paid during such quarter, less real
property taxes and assessments made during such calendar quarter.
ASSUMPTION OF SUBLEASE
The Best Buy Lease includes a sublease agreement (the "Office Max
Sublease") between Best Buy and Office Max Inc. ("Office Max"). The initial term
(the "Initial Term") of the Office Max Sublease is approximately nine years,
followed by one five-year renewal term at the option of Office Max. The initial
annual rent ("Basic Rent") under the Office Max Sublease is $560,880 payable
monthly in advance in equal installments of $46,740. Additionally, the Office
Max Sublease provides that at the end of the fourth year of the Initial Term,
the annual rent for each of the next five years of the Initial Term will be
$632,880 payable in advance in monthly installments of $52,740. Thereafter,
Office Max has an option for an Extended Term, at an annual rent of $704,880,
payable in advance in monthly installments of $58,740.
DESCRIPTION OF BEST BUY
Best Buy is the nation's largest volume specialty retailer of name brand
consumer electronics, home office equipment, entertainment software and
appliances.
Financial statements for Best Buy are on file with the Securities and
Exchange Commission. The following is a summary of selected financial data for
Best Buy for the last three years:
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------------------
FEBRUARY 28, 1998 MARCH 1, 1997 MARCH 2, 1996(1)
----------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
STATEMENT OF EARNINGS:
Revenues........................... $8,358,212 $7,770,683 $7,217,448
Gross Profit....................... 1,332,138 1,058,881 936,571
Selling general and administrative
expenses......................... 1,145,280 1,005,675 813,988
Operating income................... 186,858 53,206 122,583
Earnings before cumulative effect
of accounting change............. 94,453 1,748 48,019
Net earnings....................... $ 94,453 $ 1,748 $ 48,019
</TABLE>
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<PAGE> 74
<TABLE>
<CAPTION>
FOR THE FISCAL YEAR ENDED
------------------------------------------------------
FEBRUARY 28, 1998 MARCH 1, 1997 MARCH 2, 1996(1)
----------------- ------------- ----------------
(IN THOUSANDS)
<S> <C> <C> <C>
BALANCE SHEET DATA:
Working capital.................... $ 676,601 $ 567,456 $ 586,841
Total assets....................... 2,056,346 1,734,307 1,890,832
Long-term debt, including current
portion.......................... 225,322 238,016 229,855
Convertible preferred securities... 229,854 230,000 230,000
Shareholders' equity............... 557,746 438,315 431,614
</TABLE>
- ---------------
(1) Fiscal year 1996 contains 53 weeks. All other periods contain 52 weeks.
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<PAGE> 75
UNITED STATES FEDERAL INCOME TAX ASPECTS
The following discussion is a summary of the material Federal income tax
considerations and the opinion of counsel that may be relevant to prospective
Shareholders and does not purport to be an analysis of all aspects of Federal,
state, local and foreign tax law that may affect a Shareholder's investment in
the Company.
The following discussion is based on the Code, existing laws and
administrative regulations (the "Regulations"), judicial decisions,
administrative rulings and practice, all of which are subject to change
retroactively or prospectively and to possibly different interpretations. The
Company also may be subject to state and local taxes in jurisdictions in which
the Company is deemed to be doing business or in which it owns Property or other
interests.
Shareholders could be subject to state and local taxes in their
jurisdiction of residence. See "State and Local Taxes." This analysis is not
intended as a comprehensive discussion of state or local tax issues or as a
substitute for careful tax planning, and prospective Shareholders are urged to
consult their own tax advisors, attorneys or accountants with specific reference
to their own tax situation and potential changes in the applicable law. See
"Risk Factors -- Tax Risks -- REIT Status for Tax Purposes."
The following discussion generally is directed to the Federal income tax
treatment of a United States resident individual. Separate sections herein
describe in summary form the Federal income tax treatment of certain other
classes of potential investors including IRAs, Keogh Plans, pension and profit
sharing trusts and other tax-exempt entities and non-resident alien and foreign
Shareholders. A separate section also describes in summary form the state and
local tax consequences to the Company and its Shareholders. BECAUSE THE TAX
IMPLICATIONS OF AN INVESTMENT IN THE COMPANY MAY VARY DEPENDING ON THE
PARTICULAR FACTS AND CIRCUMSTANCES AFFECTING EACH PROSPECTIVE INVESTOR, EACH
PROSPECTIVE INVESTOR SHOULD SATISFY HIMSELF OR HERSELF AS TO THE INCOME AND
OTHER TAX CONSIDERATIONS AND CONSEQUENCES OF HIS INVESTING IN THE COMPANY BY
CONSULTING HIS OWN TAX ADVISOR BEFORE BECOMING A SHAREHOLDER.
OPINION OF COUNSEL
The Company intends to conduct its operations in a manner that will permit
it to qualify and elect to be treated as a REIT for Federal income tax purposes
for no later than its first taxable year in which the Initial Closing Date
occurs and for each taxable year thereafter. The Company has not requested a
ruling from the IRS as to the qualification of the Company as a REIT. The
Company, however, has obtained an opinion consisting of Exhibit 8.1, the tax
opinion and this subsection, Opinion of Counsel, from Reed Smith Shaw & McClay
LLP on the material Federal income tax consequences that, for Federal income tax
purposes, based on current law or interpretations thereof, (i) the Company will
qualify as a REIT provided the Company is operated in the manner described in
this Prospectus and in accordance with the representations set forth in this
Prospectus and satisfies the Share ownership tests described below, and (ii)
based on Revenue Ruling 66-109, 1966-1 C.B. 151, distributions will not
constitute UBTI to a Shareholder that is a tax-exempt entity (such as a pension
plan, IRA or charitable remainder trust) that is required to account for UBTI
even if the Company owns debt financed property as that term is defined in the
Code, provided that (i) such Shareholder does not incur any "acquisition
indebtedness" with respect to its Shares and (ii) the Company is not a
pension-held REIT as defined by the Code. See "United States Federal Income Tax
Aspects Taxation of Tax-Exempt Entities." Each prospective Investor should note
that the opinions described herein represent only Counsel's best legal judgment
as to the most likely outcome if relevant issues were litigated by the IRS and
have no binding effect or official status of any kind. Thus, in the absence of a
ruling from the IRS, there can be no assurance that the IRS will not challenge
any of Counsel's opinions. Reed Smith Shaw & McClay LLP will not review the
Company's compliance with the requirements for qualification as a REIT on a
continuing basis and although the Board and the Advisor intend to cause the
Company to operate in a manner that will enable it to comply with the REIT
Provisions, there can be no certainty that such intention will be realized. If
the IRS successfully challenges
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<PAGE> 76
the tax status of the Company as a REIT, many, if not all, of the tax benefits
discussed herein available to entities qualifying as REITs would not be
available to the Company or its Shareholders.
TAXATION OF THE COMPANY
For any taxable year in which the Company qualifies as a REIT, it generally
will not be subject to Federal income tax on that portion of its taxable income
that is distributed to Shareholders except certain income or gain with respect
to Foreclosure Property (generally, property the Company acquires or reenters as
a result of a default by a borrower or tenant with respect to which it files an
election with the IRS), which will be taxed at the highest corporate rate. See
"Income Tax Aspects -- Requirements for Qualification as a REIT." If the Company
were to fail to qualify as a REIT, it would be taxed at rates applicable to
corporations on all its income, whether or not distributed to its Shareholders.
Moreover, generally, the Code would not require the Company to make any
distributions. Even if it qualifies as a REIT, the Company will be taxed at
corporate rates on the portion of its taxable income that it does not distribute
to the Shareholders, such as taxable income retained as nondeductible reserves.
See "United States Federal Income Tax Aspects -- Requirements for Qualification
as a REIT -- Income Tests" and "United States Federal Income Tax
Aspects -- Disposition of Properties."
In addition, regardless of distributions to Shareholders, if the Company
fails certain tests for qualification as a REIT or engages in Prohibited
Transactions (generally, sales of certain property held by the Company for sale
to customers in the ordinary course of its trade or business), it may retain its
REIT status but be required to pay certain taxes. See "United States Federal
Income Tax Aspects -- Requirements for Qualification as a REIT -- Income Tests"
and "United States Federal Income Tax Aspects -- Disposition of Properties."
The Company also will be subject to the alternative minimum tax. Since the
Company will elect to depreciate its Properties pursuant to the alternate
depreciation system, unless it recognizes gain using the installment method, it
should not realize tax preferences or adjustments subject to the alternative
minimum tax. Section 59(d) of the Code authorizes the Department of the Treasury
to issue Regulations allocating items of tax preference between a REIT and its
stockholders. Such Regulations have not yet been issued.
In addition to the tax on any undistributed income, the Company, generally,
also will be subject to a 4% excise tax on the amount, if any, by which the sum
of (i) 85% of its REIT ordinary income (as defined in Section 4981 of the Code),
(ii) 95% of any net capital gain and (iii) any undistributed taxable income from
prior years, exceeds the amount actually distributed by the Company to its
Shareholders during the calendar year or declared as a Dividend during the
calendar year (if distributed during the following January). In order to satisfy
this timing requirement, the Company intends to make its fourth quarter
distribution within 31, rather than 45, days after the close of the fourth
calendar quarter and will declare such Dividend before the end of the quarter in
order to avoid imposition of the excise tax. See "United States Federal Income
Tax Aspects -- Taxation of Taxable Domestic Shareholders." Imposition of any tax
on the Company (including excise taxes) would reduce the amount of cash
available for distribution to Shareholders.
REQUIREMENTS FOR QUALIFICATION AS A REIT
In order to qualify as a REIT, the Company must elect to be taxed as a REIT
and satisfy a variety of complex tests relating to its organization, structure,
Share ownership, assets, income and distributions, as well as record keeping
requirements. Those tests are summarized below. See also "United States Federal
Income Tax Aspects -- Statement of Stock Ownership."
Organizational and Structural Requirements and Share Ownership Tests. In
order to qualify for taxation as a REIT under the Code, the Company (i) must be
a domestic corporation (or certain other forms of organization); (ii) must be
managed by one or more trustees or directors; (iii) must have transferable
shares; (iv) cannot be a financial institution or an insurance company; (v) must
have at least 100 Shareholders for at least 335 days of each taxable year of 12
months (or proportionate part of any taxable year of less than 12 months) after
its first taxable year; and (vi) must not be closely held. The
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<PAGE> 77
Company will be closely held only if five or fewer individuals or certain
tax-exempt entities own, directly or indirectly, more than 50% (by value) of its
Shares at any time during the last half of the taxable year of the Company after
its first taxable year. However, for purposes of the closely-held test, the Code
generally permits a look through for tax-exempt entities subject to the five or
fewer rule to the beneficiaries of such entity to determine if the REIT is
closely held if the REIT is a pension-held REIT. However, if a tax-exempt
Shareholder owns more than 25 percent of the Company or one or more such
Shareholders, each of whom own at least 10 percent of the Company, in the
aggregate own more than 50 percent of the Company, such Shareholder(s) may be
required to treat all or a portion of their dividends from the Company as UBTI.
See "Taxation of Tax-Exempt Entities."
As a Maryland corporation, the Company satisfies the first requirement. In
addition, the Company will be managed by a board of directors, has transferable
Shares and does not intend to operate as a financial institution or insurance
company. Additionally, the Company intends to have more than 100 Shareholders.
Furthermore, the Company may refuse to sell or transfer Shares in the Company to
any Person if the sale or transfer would jeopardize the Company's ability to
satisfy the REIT ownership requirements; however, there can be no assurance that
such a refusal to transfer will be effective. Based on the foregoing, the
Company should satisfy the organizational and structural requirements as well as
the Share ownership tests.
Asset Tests. At the close of each calendar quarter of each taxable year,
the Company must satisfy asset tests set forth in the Code (the "Asset Tests").
At least 75% of the value of the Company's total assets must consist of: (i)
"real estate assets" including real property or interests in real property and
interests in mortgages on real property, shares in other qualifying REITs,
interests in REMICs, certain options and "new capital investments," (ii) cash
and cash items (including receivables arising in the ordinary course of the
Company's operations), and (iii) government securities. A "new capital
investment" is a debt instrument or stock but only for the one-year period
beginning on the date the Company receives such capital.
Additionally, at the end of each calendar quarter, not more than 25% of the
value of the Company's total assets may consist of securities (other than those
includible under the 75% test). Also, no more than 5% of the value of the
Company's assets may consist of the securities of any one issuer, and the
Company may not own more than 10% of the outstanding voting securities of any
one issuer. However, property owned through a "qualified REIT subsidiary" (i.e.,
a corporation that is wholly owned by the REIT throughout the entire existence
of the corporation), is treated as property owned directly by the REIT for
Federal income tax purposes.
The Company must satisfy the Asset Tests at the end of each quarter.
However, a mere change in the market value of the Company's assets alone will
not affect the Company's status as a REIT. Additionally, if, as of the close of
a calendar quarter, the Company fails to satisfy the Asset Tests, it will be
treated as if it had satisfied the Asset Tests at the end of such quarter if it
satisfies the Asset Tests within 30 days after the close of such quarter.
Income Tests. To qualify and maintain its status as a REIT, the Company
must satisfy three distinct income-based tests with respect to the sources of
its income for each taxable year; the "75% Income Test" and the "95% Income
Test."
75% Income Test and 95% Income Test. The 75% Income Test requires that at
least 75% of the Company's gross income (excluding gross income from Prohibited
Transactions, i.e. generally, sales of certain property held primarily for sale
to customers in the ordinary course of business) be derived from: (i) "rents
from real property;" (ii) interest on obligations secured by mortgages on real
property or on interests in real property (other than interest based in whole or
in part on the income or profits unless such interest is based on gross sales or
receipts) and income derived from the ownership of interests in a REMIC; (iii)
gain from the sale or other disposition (other than in a Prohibited Transaction)
of REIT shares or of a real estate asset; (iv) dividends or other distributions
on shares in other REITs; (v) abatements and refunds of taxes on real property;
(vi) income and gain from the sale or other disposition of Foreclosure Property;
(vii) amounts (other than amounts the determination of which
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depend, in whole or in part, on the income or profits of any person or entity)
received or accrued as consideration for entering into agreements to make loans
secured by mortgages on real property (e.g. commitment fees) or to purchase or
lease real property (including interests in mortgages on real property); and
(viii) qualified temporary investment income, for example, income from "new
capital investments" (as defined above).
Rents received by the Company for Properties will qualify as "rents from
real property" for purposes of the 75% Income Test if the following requirements
are satisfied:
(i) Generally, the amount of rent received must not be based on the
income or profits of a tenant but may be based on a fixed percentage of a
tenant's gross receipts or sales;
(ii) The Company may not own, actually or constructively, a 10% or
greater interest in a tenant;
(iii) The Company does not furnish or render certain services to the
tenants of such Property, other than through an independent contractor, as
defined by the Code, from whom it does not derive income. Because
Properties are expected to be leased under net leases, the Company is not
expected to furnish or render any services to tenants. For tax years
beginning after August 5, 1997, the date of enactment or the 1997 Tax Act,
the Company may furnish a de minimis amount of service (as defined by the
Code). The Company currently intends to engage an Affiliate of the Advisor
as an independent contractor for any Property that is no longer operated by
the tenant as a consequence of a lease default or termination; and
(iv) Rent attributable to personal property leased in connection with
a lease of real property may not exceed 15% of the total rent received
under the lease. For this purpose, rent is attributable to real and
personal property in proportion to the relative adjusted tax bases of such
property.
If the Company acquires ownership of Property by reason of the default of a
borrower on a loan or possession of Property by reason of a tenant default, if
the Property qualifies and the Company elects to treat it as Foreclosure
Property, the income from the Property will qualify under the 75% Income Test
and the 95% Income Test notwithstanding its failure to satisfy the foregoing
requirements for two years, or if extended for good cause, up to a total of five
years. In that event, the Company must satisfy a number of complex rules, one of
which is a requirement that it operate the Property through an independent
contractor. The Company will be subject to tax on that portion of its net income
from Foreclosure Property that does not otherwise qualify under the 75% Income
Test.
In addition to deriving 75% of its gross income from the sources described
above, the 95% Income Test requires that at least an additional 20% of the
Company's gross income (excluding income from Prohibited Transactions) must be
derived from those items described in the 75% Income Test, as well as dividends
or interest from any source, and gains from the sale or other disposition of
stock and securities.
Prior to the making of any investments in Properties, the Company may
satisfy the 75% Income Test and the 95% Income Test by investing in liquid
assets such as government securities or certificates of deposit, but earnings
from those types of assets are qualifying income under the 75% Income Test only
for one year from the receipt of proceeds from the Offering. Accordingly, to the
extent that Offering proceeds have not been invested in Properties prior to the
expiration of this one-year period, in order to satisfy the 75% Income Test, the
Company may invest such Offering proceeds in less liquid investments such as
mortgage-backed securities guaranteed by GNMA, FHMA, or FHLMC, maturing mortgage
loans purchased from mortgage lenders or shares in other REITs. The Company
expects to receive proceeds from the Offering in a series of closings and to
trace such proceeds for purposes of determining the one-year period for "new
capital investments." No rulings or Regulations have been issued under the
provisions of the Code governing "new capital investments," so that there can be
no assurance that the IRS will agree with this method of calculation. In the
unlikely event that the Company has difficulties in investing its Offering
proceeds in Properties or other assets generating income qualifying under the
75% Income Test within this one-year period, the time when the Company is able
to qualify as a REIT could be delayed, and the Company might not qualify as a
REIT during its first or second years of operation.
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If the Company fails to satisfy either the 75% Income Test or 95% Income
Test during a taxable year, it will be subject to a 100% tax on the greater of
the amount by which it fails either the 75% Income Test or the 95% Income Test.
However, it still may qualify as a REIT in such year if: (i) it reports the
source and nature of each item of its gross income in its Federal income tax
return for such year; (ii) the inclusion of any incorrect information in its
return is not due to fraud with intent to evade tax; and (iii) the failure to
meet such tests is due to reasonable cause and not to willful neglect.
For purposes of the foregoing asset and income tests, if the Company
invests as a partner in a partnership or in a qualified REIT subsidiary, it will
be deemed to own its proportionate share of the partnership's or subsidiary's
assets and will take into account its proportionate share of the partnership's
or its subsidiary's income items and such income items will retain the same
character (e.g., rent, gain from "dealer property," (i.e., property held
primarily for sale to customers in the ordinary course of the holder's business,
etc.)) they had at the partnership or subsidiary level. Except for amounts
received with respect to certain investments in cash reserves, the Company
anticipates that substantially all of its gross income will be derived from (i)
rents from its Properties, (ii) income from mortgage-backed securities, (iii)
income from "new capital investments" (as defined above), (iv) gains from the
disposition of Properties held for four years or more, (v) gains from the
disposition of securities and (vi) income from other qualified real estate
assets. Consequently, while the Company expects to satisfy the income tests, no
assurance can be given in this regard.
Distribution Requirement. In order to maintain its status as a REIT, the
Company must satisfy the "95% Distribution Test." The 95% Distribution Test
requires, generally, that the Company distribute to the Shareholders its
Distributable REIT Taxable Income (generally, 95% of its taxable income less its
net capital gains). The 95% Distribution Test is based on the Company's REIT
Taxable Income rather than its available cash. As a result, while the Company
expects to satisfy this requirement, its ability to make the required
distributions may be impaired if it has insufficient cash flow or otherwise has
excessive noncash income or nondeductible expenditures. Furthermore, if after
the close of a taxable year, the IRS successfully adjusts the income of the
Company (e.g., challenges a deduction taken by the Company), the 95%
Distribution Test may be determined not to have been satisfied in such a year.
In such a case, the Company may elect to make a deficiency dividend in order to
satisfy the 95% Distribution Test. See "United States Federal Income Tax
Aspects -- Sale-Leaseback Transactions."
In computing its REIT Taxable Income, the Company expects to use the
accrual method of accounting and depreciate depreciable Property under the
alternative depreciation system. The Company is required to file an annual
Federal income tax return, which, like other corporate returns, is subject to
IRS examination. Because the tax law requires the Company to make many judgments
regarding the proper treatment of a transaction or an item of income or
deduction, it is possible that the IRS will challenge positions taken by the
Company in computing its REIT Taxable Income and its distributions. Issues could
arise, for example, with respect to the allocation of the purchase price of
Properties between depreciable or amortizable assets and nondepreciable or
non-amortizable assets such as land and the current deductibility of fees paid
to the Advisor or its Affiliates. Were the IRS to challenge successfully the
Company's characterization of a transaction or determination of its REIT Taxable
Income, the Company could be found not to have satisfied a requirement for
qualification as a REIT and mitigation provisions might not apply. See "United
States Federal Income Tax Aspects -- Sale-Leaseback Transactions." If, as a
result of a challenge, the Company is determined not to have satisfied the 95%
Distribution Test, it would be disqualified as a REIT (unless it were to pay a
deficiency dividend and pay interest and a penalty) as provided by the Code. A
deficiency dividend cannot be used to satisfy the 95% Distribution Test if the
failure to meet such test was not due to a later adjustment to the Company's
income by the IRS.
For purposes of the 95% Distribution Test, dividends include not only
dividends paid during the taxable year but also dividends that are declared
before the due date of the Company's tax return for the taxable year (including
extensions) and are paid within 12 months of the end of such taxable year and no
later than the Company's next regular distribution payment. However, see "United
States Federal Income Tax Aspects -- Taxation of the Company" for discussion of
an excise tax provision that could require the Company to distribute its fourth
quarter dividend in each year on or before January 31 of the following year
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and see "United States Federal Income Tax Aspects -- Taxation of Taxable
Domestic Shareholders" for a discussion of how taxable Shareholders are taxed on
distributions.
TERMINATION OF REIT STATUS
The Company intends to satisfy all of the qualification tests and
requirements for it to be treated as a REIT for Federal income tax purposes.
However, if it fails to meet one or more of them and such failure is not
mitigated, its election to be a REIT will terminate, effective for the year of
such failure and all succeeding years. However, if (i) the Company did not
willfully fail to file a timely return with respect to the termination taxable
year, (ii) inclusion of any incorrect information in such return was not due to
fraud with intent to evade tax and (iii) the Company establishes that failure to
meet the requirements was due to reasonable cause and not to willful neglect,
the Company could elect again to be taxed as a REIT, if it so qualified, for the
first taxable year after its election terminated provided that it had no
undistributed earnings and profits. Furthermore, while the Company has no
intention of doing so, it may revoke its election voluntarily. Except as
discussed above, in the event of a termination of the Company's election to be
taxed as a REIT, a new election may not be made by the Company for any taxable
year prior to the fifth taxable year following the year of termination.
If the Company were to reelect to qualify as a REIT after its election
terminated for any reason, in the tax year immediately prior to its reelection,
it would be required to include in its income any "net built-in gain" and pay
corporate level income tax on such amount. Net built-in gain is the excess of
aggregate gains (including income items) over aggregate losses that would have
been realized had the Company sold all of its assets. Alternatively, the Company
could elect to treat its net built-in gains similarly to the way certain S
corporations treat net built-in gains, i.e., any net built-in gain recognized
over the ten-year period after the election would be subject to tax at the
corporate level. The President of the United States has submitted proposed
legislation to Congress that would eliminate the ability of S corporations and
REITs, the fair market value of which exceeds $5,000,000, from taking advantage
of the 10 year period.
SALE-LEASEBACK TRANSACTIONS
Many of the Company's investments are and will be in the form of
sale-leaseback transactions wherein the Company either will (i) purchase
Property free of encumbrances, net lease such Property back to the seller and
obtain separate mortgage financing or (ii) purchase Property subject to a
mortgage and an existing net lease. In most instances, depending on the economic
terms of the transaction, the Company will be treated for Federal income tax
purposes as either the owner of the Property or the holder of a debt secured by
the Property. The Company does not expect to request an opinion of counsel
concerning the status of any leases of Properties as true leases for Federal
income tax purposes.
The IRS may take the position that certain sale-leaseback transactions the
Company will treat as true leases are not true leases for Federal income tax
purposes but are, instead, financing arrangements or loans or the Company may
structure certain sale-leaseback transactions as such. In such event, for
purposes of the Asset Test and the 75% Income Test, each such loan likely would
be viewed as secured by real property to the extent of the fair market value of
the Underlying Real Property. It is expected that, for this purpose, the fair
market value of the Underlying Real Property would be determined without taking
into account the Company's lease. If a sale-leaseback transaction were
successfully so recharacterized, the Company might fail to satisfy the Asset
Tests or the Income Tests and consequently lose its REIT status effective with
the year of recharacterization or the amount of the Company's REIT Taxable
Income could be affected. As a consequence, the Company's Distributable REIT
Taxable Income could be determined to be greater than the amount reported by the
Company, and, therefore, the Company potentially could have failed the 95%
Distribution Test. See "United States Federal Income Tax Aspects -- Requirements
for Qualification as a REIT -- Distribution Requirement."
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DISPOSITION OF PROPERTIES
Gain or loss realized by the Company upon the disposition of any Property
acquired by the Company will be treated as capital gain or loss except to the
extent (i) of depreciation recapture, if any, with respect to any personal
Property sold, (ii) in the year of sale, the Company realized a net loss on the
sale of depreciable property which is real estate used in its trade or business,
(iii) the Company has net unrecaptured Code Section 1231 losses, or (iv) the
Property sold is dealer property (as defined above). If the Company disposes of
real property in a Prohibited Transaction: (a) any gains recognized by the
Company upon the disposition of the real property may be subject to a 100% tax
on resulting net income except insofar as the Company satisfies certain
statutory safe harbors. Moreover, depending on the composition of the Company's
total gross income, the Company could fail one or more of the income tests for
qualification as a REIT. Under existing law, whether a Property is held
primarily for sale to customers in the ordinary course of business must be
determined from all the facts and circumstances then surrounding the particular
Property and sale in question. The Company intends to hold all Property for
investment purposes and to make such occasional dispositions thereof as in the
opinion of the Board and the Advisor are consistent with the Company's
investment objectives and in compliance with all the rules discussed above
governing the qualification of the Company for REIT status. Accordingly, the
Company does not anticipate that it will be treated as a "dealer" with respect
to any of its assets. There can be no assurance, however, that the IRS will not
take a contrary position.
Additionally, the Code provides that sales that meet the following
requirements will not be Prohibited Transactions even if the Property sold was
held primarily for sale to customers in the ordinary course of the REIT's trade
or business: (i) the Company held the Property for four or more years, (ii)
expenditures made by the Company during the prior four-year period includible in
the basis for the Property do not exceed 30% of the net sales price of the
Property, (iii) either (a) during the Company's tax year, the Company does not
make more than seven sales of Properties (other than Foreclosure Property) or
(b) the aggregate adjusted tax basis of Properties (other than Foreclosure
Property) sold during the tax year does not exceed 10% of the aggregate basis of
all of the Company's assets as of the beginning of its tax year, (iv) if the
Property sold consists of land or improvements which is not Foreclosure
Property, the Company held the Property for four or more years for production of
rental income, and (v) if (iii)(a) is not satisfied, substantially all of the
marketing and development expenditures made with respect to the Property were
made through an independent contractor. See "United States Federal Income Tax
Aspects -- Requirements for Qualification as a REIT -- Income Tests." For
purposes of requirement (iii)(a), a sale of more than one Property to one buyer
as part of one transaction is treated as one sale.
TAXATION OF TAXABLE DOMESTIC SHAREHOLDERS
As long as the Company qualifies as a REIT, distributions from the Company
(other than distributions designated as capital gain dividends) will be taxable
to Shareholders who are not tax-exempt entities as ordinary income to the extent
of the earnings and profits of the Company. Any Dividend declared by the Company
in October, November or December of any year payable to Shareholders of record
on a date in such month will be treated as if it were received by the
Shareholders on December 31, provided such Dividend actually is paid by January
31, of the following year. Consequently, any such Dividend will be taxable to a
Shareholder in such Shareholder's taxable year including December 31. (It is
possible that any portion of a Dividend made to a Shareholder after December 31
not from current or accumulated earnings and profits would be treated as a
distribution by the Company in the year it is actually made. Accordingly, if the
Company has sufficient earnings and profits in the year in which such Dividend
actually is paid, no portion of such Dividend would be a return of capital
distribution.) Dividends paid to such Shareholders will not constitute passive
activity income (such income, therefore, will not be subject to reduction by
losses from passive activities of a Shareholder who is subject to the passive
activity loss rules). Such distributions, however, will be considered investment
income, which may be offset by investment expense deductions. Dividends from the
Company that are designated as capital gains dividends by the Company will be
taxed as long-term capital gain to taxable Shareholders to the extent that they
do not exceed the Company's actual net capital gain for the taxable year. A
Shareholder that is a corporation may be required to treat up
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to 20% of any such capital gains dividend as ordinary income. Such
distributions, whether characterized as ordinary income or as capital gains, are
not eligible for the 70% dividends received deduction for corporations.
Shareholders are not permitted to deduct any net losses of the Company.
For tax years beginning after August 5, 1997, the Company may elect to
retain its net long term capital gains and pay tax on such gains. If the Company
makes such an election, each Shareholder will include in his income his share of
the Company's undistributed gain as designated by the Company and each
Shareholder will be deemed to have paid his proportionate share of the tax paid
on such gain by the Company. The Shareholders basis for his shares will be
increased by his share of the undistributed gain.
A Dividend that is not designated as a capital gains Dividend and that is
in excess of the Company's current or accumulated earnings and profits is
treated as a return of capital to a Shareholder and reduces the tax basis of the
Shareholder's Shares (but not below zero). Any such distribution in excess of
the tax basis of a Shareholder's Shares is taxable to any such Shareholder who
is not a tax-exempt entity as gain realized from the sale of the Shares.
TAXATION OF DISPOSITION OF SHARES OF THE COMPANY
In general, any gain or loss realized upon a taxable disposition of Shares
of the Company by a Shareholder who is not a dealer in securities will be
treated as long-term capital gain or loss if the Shares have been held for more
than 18 months, mid term gain if the shares are held for more than 12 months but
not more than 18 months and as short-term capital gain or loss if the Shares
have been held for 12 months or less. If, however, the Shareholders have
received any capital gains Dividends with respect to such Shares, any loss
realized upon a taxable disposition of Shares held for six months or less, to
the extent of such capital gains dividends received with respect to such Shares,
will be treated as long-term capital loss. Also, the IRS is authorized to issue
regulations that would pass through a proportionate share of the Company's
depreciation subjecting gain attributable to such depreciation to tax of a 25
percent rate. Pursuant to the Internal Revenue Services Restructuring and Reform
Act of 1998 which was enacted on July 22, 1998; for taxable year ending after
December 31, 1997, any gain or loss realized upon a taxable disposition of
Shares of the Company held for more than 12 months by an individual Shareholder,
who is not a dealer in securities, will be long-term capital gain.
TAXATION OF TAX-EXEMPT ENTITIES
In general, a Shareholder that is a tax-exempt entity and not subject to
tax on its investment income will not be subject to tax on distributions from
the Company. In Revenue Ruling 66-106, 1966-1 C.B. 151, the IRS ruled that
amounts distributed as dividends by a REIT do not constitute UBTI when received
by a qualified plan. Based on that ruling, Counsel has opined that, regardless
whether the Company incurs indebtedness in connection with the acquisition of
Properties, distributions paid by the Company to a Shareholder that is a
tax-exempt entity will not be treated as UBTI, provided that (i) the tax-exempt
entity has not financed the acquisition of its Shares with "acquisition
indebtedness" within the meaning of the Code and the Shares otherwise are not
used in an unrelated trade or business of the tax-exempt entity and (ii) the
Company is not a pension-held REIT. This opinion applies to a Shareholder that
is an organization that qualifies under Code Section 401(a), an IRA or any other
tax-exempt organization that would compute UBTI, if any, in accordance with Code
Section 512(a)(1). However, if the Company is a pension-held REIT and a
tax-exempt Shareholder owns more than 10 percent of the Company, such
Shareholder will be required to recognize as UBTI that percentage of the
dividends that it receives from the Company as is equal to the percentage of the
Company's gross income that would be UBTI to the Company if the Company were a
tax-exempt entity required to recognize UBTI. A REIT is a pension-held REIT if
at least one qualified trust holds more than 25 percent of the value of the
REIT's shares or one or more qualified trusts, each of whom own more than 10
percent of the REIT's shares, hold more than 50 percent of the value of the
REIT's shares. A tax-exempt Shareholder also should be aware that Congress
currently is examining the taxation of investment income received by tax-exempt
entities including the treatment of income received by such entities from REITs
and other pass-through entities and is considering whether to
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treat income derived from a REIT as UBTI to the extent that the REIT has
incurred debt to acquire its assets. The Congressional committee conducting this
examination has not yet concluded its study.
For social clubs, voluntary employee benefit associations, supplemental
unemployment benefit trusts and qualified group legal services plans exempt from
Federal income taxation under Code Sections 501(c)(7), (c)(9), (c)(17) and
(c)(20), respectively, income from an investment in the Company will constitute
UBTI unless the organization is able to deduct amounts set aside or placed in
reserve for certain purposes so as to offset the UBTI generated by its
investment in the Company. Such prospective Shareholders should consult their
own tax advisors concerning these "set aside" and reserve requirements.
FOREIGN SHAREHOLDERS
The rules governing United States Federal income taxation of nonresident
alien individuals, foreign corporations, foreign partnerships and other foreign
Shareholders are complex and no attempt will be made herein to provide more than
a summary of such rules. Prospective foreign Shareholders should consult with
their own tax advisors to determine the impact of United States Federal, state
and local income tax laws with regard to an investment in Shares.
A nonresident shareholder of a REIT generally is not considered to be
engaged in a trade or business through a permanent establishment in the United
States by reason of his ownership of shares in the REIT. The taxation of
Dividends will depend generally upon whether the Dividends are attributable to
ordinary income or capital gain. To the extent the Dividends are attributable to
ordinary income, they will be treated as dividend income to the extent of the
earnings and profits of the Company and will be subject to a withholding tax
equal to 30% of the gross amount of the Dividends, unless (i) an applicable tax
treaty between the United States and the country of residence for tax purposes
of the foreign Shareholder reduces or eliminates that tax or (ii) the foreign
Shareholder is independently engaged in a United States trade or business and
the Dividends received from the Company are effectively connected with that
trade or business. The Company expects to withhold United States income tax at
the rate of 30% on the gross amount of any such distributions made to a foreign
Shareholder unless (i) a lower treaty rate applies and the Shareholder files IRS
Form 1001 or (ii) the Shareholder files an IRS Form 4224 with the Company
claiming that the distribution is effectively connected income. Ordinary income
Dividends in excess of the Company's earnings and profits will be treated as a
nontaxable return of capital to the extent of the foreign Shareholder's cost of
his Shares, with any additional amounts treated as amounts received in exchange
for his Shares.
Capital gains Dividends paid to a foreign Shareholder will be taxed to such
foreign Shareholder under the provisions of the Foreign Investment in Real
Property Tax Act of 1980 ("FIRPTA"). Under FIRPTA, these distributions, to the
extent attributable to U.S. real property interests, are taxed to foreign
Shareholders as effectively connected with a United States business, thereby
subjecting such gain to United States income tax (at a rate of not less than 21%
in the case of foreign individuals). The Company is required by applicable
Temporary Regulations, to withhold 34% of any distribution designated or that
could be designated by the Company as a capital gains dividend. Also, capital
gains dividends (net of the amount of regular income tax) may be subject to a
30% branch profits tax in the hands of a foreign corporate Shareholder not
entitled to treaty exemption from the branch profits tax.
Gain recognized by a foreign Shareholder upon a sale of Shares generally
will not be subject to FIRPTA taxation and withholding rules provided the
Company is a domestically controlled REIT (i.e., a REIT that is owned less than
50% by foreign Persons during a specified testing period). Such gain, however,
would be taxable to a foreign Shareholder if (i) the gain is effectively
connected with the foreign Shareholder's United States trade or business or (ii)
the foreign Shareholder is an individual who is physically present in the United
States for 183 days or more during the taxable year and has a tax home in the
United States.
Unless an applicable estate tax treaty provides otherwise, Shares owned by
a nonresident alien decedent will be included in his estate for purposes of the
United States Estate tax. Tax is imposed at progressive rates.
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UNITED STATES REPORTING REQUIREMENTS
The Company is required to file an information return with the IRS setting
forth the name, address and Taxpayer Identification Number of the payee of
dividends from the Company (whether the payee is a nominee or is the actual
beneficial owner).
BACKUP WITHHOLDING
The Company will report to its domestic Shareholders and to the IRS the
amount of Dividends paid during each calendar year, and the amount of tax
withheld, if any, with respect thereto. Under the backup withholding rules, a
Shareholder may be subject to backup withholding at the rate of 31% with respect
to Dividends paid unless such Shareholder (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 Shareholder that does not
provide the Company with its correct Taxpayer Identification Number may also be
subject to penalties imposed by the IRS. Any amount paid as backup withholding
will be creditable against the Shareholder's income tax liability. In addition,
the Company may be required to withhold a portion of capital gain distributions
made to any Shareholders who fail to certify their non-foreign status to the
Company. See "Taxation of Foreign Shareholders."
STATEMENT OF STOCK OWNERSHIP
The Company is required to demand annual written statements from the record
holders of designated percentages of its Shares disclosing the actual owners of
the Shares. Any record Shareholder who, upon request by the Company, does not
provide the Company with required information concerning actual ownership of the
Shares is required to include certain specified information relating thereto in
his Federal income tax return. The Company also must maintain, within the
Internal Revenue District in which it is required to file its Federal income tax
return, permanent records showing the information it has received as to the
actual ownership of such Shares and a list of those persons failing or refusing
to comply with such demand.
STATE AND LOCAL TAXES
The Company and its Shareholders may be subject to state and/or local
taxation in various jurisdictions, including those in which it or they transact
business or reside. The state and local tax treatment of the Company and its
Shareholders may differ substantially from the Federal income tax treatment
described in this summary. CONSEQUENTLY, EACH PROSPECTIVE INVESTOR SHOULD
CONSULT WITH HIS OWN TAX ADVISOR WITH REGARD TO THE STATE AND LOCAL TAX
CONSEQUENCES OF AN INVESTMENT IN THE COMPANY.
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ERISA CONSIDERATIONS
The following is a summary of certain non-tax considerations associated
with an investment in the Company by a qualified plan, Keogh Plan or an IRA.
This summary is based on provisions of ERISA and the Code, as amended through
the date of this Prospectus, and relevant regulations and opinions issued by the
Department of Labor. No assurance can be given that legislative or
administrative changes or court decisions may not be forthcoming which would
significantly modify the statements expressed herein. Any such changes may or
may not apply to transactions entered into prior to the date of their enactment.
In considering an investment in the Company of the assets of an employee
benefit plan subject to ERISA, such as a profit-sharing, 401(k), or a pension
plan, or of any other retirement plan or account subject to Section 4975 of the
Code such as an IRA or Keogh Plan (collectively, "Benefit Plans"), a fiduciary,
taking into account the facts and circumstances of such Benefit Plan, should
consider, among other matters, (i) whether the investment is consistent with the
applicable provisions of ERISA and the Code, (ii) whether the investment will
produce UBTI to the Benefit Plan (see "United States Federal Income Tax
Aspects -- Taxation of Tax-Exempt Entities") and (iii) the need to value the
assets of the Benefit Plan annually.
Under ERISA, a plan fiduciary's responsibilities include the duty (i) to
act solely in the interest of plan participants and beneficiaries and for the
exclusive purpose of providing benefits to them, as well as defraying reasonable
expenses of plan administration; (ii) to invest plan assets prudently; (iii) to
diversify the investments of the plan unless it is clearly prudent not to do so;
and (iv) to comply with plan documents insofar as they are consistent with
ERISA. ERISA also requires that the assets of an employee benefit plan be held
in trust and that the trustee (or a duly authorized investment manager) have
exclusive authority and discretion to manage and control the assets of the plan.
In addition, Section 406 of ERISA and Section 4975 of the Code prohibit
certain transactions involving assets of a Benefit Plan and any "party in
interest" or "disqualified person" with respect to that Benefit Plan. These
transactions are prohibited regardless of how beneficial they may be for the
Benefit Plan. The prohibited transactions include the sale, exchange or leasing
of property, the lending of money or the extension of credit between a Benefit
Plan and a party in interest or disqualified person, and the transfer to, or use
by, or for the benefit of, a party in interest, or disqualified person, of any
assets of a Benefit Plan. A fiduciary of a Benefit Plan also is prohibited from
engaging in self-dealing, acting for a person who has an interest adverse to the
plan (other than in the case of most IRAs and some Keogh Plans), or receiving
any consideration for its own account from a party dealing with the plan in a
transaction involving plan assets.
Furthermore, Section 408 of the Code states that assets of an IRA trust may
not be commingled with other property except in a common trust fund or common
investment fund.
PLAN ASSETS
Neither ERISA nor the Code define the term "plan assets." However, on
November 13, 1986, the Department of Labor published a final regulation
describing what constitutes the assets of a Benefit Plan when it invests in
certain kinds of entities (29 C.F.R. Section 2510.3-101, the "Regulation"). The
Regulation was generally effective as of March 13, 1987. As discussed below, the
Company has received an opinion of counsel that, under the final regulations
issued by the Department of Labor, the assets of the Company should not be
deemed to be "plan assets" if Benefit Plans invest in Shares, assuming certain
conditions set forth in the opinion are satisfied.
Under the Regulation, the assets of corporations, partnerships, or other
entities in which a Benefit Plan makes an equity investment will be deemed to be
assets of the Benefit Plan unless the entity satisfies at least one of the
exceptions to this general rule. The Regulation provides as one such exception
that the underlying assets of entities such as the Company will not be treated
as assets of a Benefit Plan if the interest the Benefit Plan acquires is a
"publicly-offered security." A publicly-offered security must be (i) "freely
transferable," (ii) part of a class of securities that is owned by 100 or more
persons who are independent of the issuer and one another, and (iii) sold as
part of a public offering registered under the
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Securities Act and be part of a class of securities registered under the
Securities Exchange Act of 1934, as amended (the "Exchange Act"), within a
specified time period.
The Shares are being sold as part of an offering of securities to the
public pursuant to an effective registration statement under the Securities Act
and the Company has represented that the Shares will be part of a class
registered under the Exchange Act within the specified time frames. Any Shares
purchased, therefore, should satisfy the third criterion of the publicly offered
exemption.
The Company has over 100 shareholders. Thus, the second criterion of the
publicly offered exception will be satisfied.
Whether a security is freely transferable depends upon the particular facts
and circumstances. The Shares will be subject to restrictions intended to ensure
that the Company continues to qualify for Federal income tax treatment as a
REIT. According to the Regulation, where the minimum investment in a public
offering of securities is $10,000 or less, the presence of a restriction on
transferability intended to prohibit transfers which would result in a
termination or reclassification of the entity for state or Federal tax purposes
will not ordinarily affect a determination that such securities are freely
transferable. The minimum investment in Shares is less than $10,000. Thus, the
restrictions imposed to maintain the Company's status as a REIT should not cause
the Shares to not be freely transferable.
The Company has obtained an opinion from counsel that the Shares should
constitute "publicly-offered securities" and that the underlying assets of the
Company should not be considered plan assets under the Regulation assuming the
Offering takes place as described in this Prospectus.
In the event that the underlying assets of the Company were treated by the
Department of Labor as assets of a Benefit Plan, the management of the Company
would be treated as fiduciaries with respect to Benefit Plan Shareholders and
the prohibited transaction restrictions of ERISA and the Code would apply to any
transaction involving management and assets of the Company, unless an
administrative or statutory exemption under ERISA applies. Such restrictions
could, for example, require that the Company avoid transactions with entities
that are affiliated with the Company or its Affiliates or restructure its
activities in order to obtain an exemption from the prohibited transaction
restrictions. Alternatively, the Company might provide Benefit Plan Shareholders
with the opportunity to sell their Shares to the Company or the Company might
dissolve or terminate.
If the underlying assets of the Company were treated as assets of a Benefit
Plan, the investment in the Company also might constitute an improper delegation
of fiduciary responsibility to the Advisor and expose the fiduciary of the plan
to co-fiduciary liability under ERISA for any breach by the Advisor of its ERISA
fiduciary duties. Finally, an investment by an IRA in the Company might result
in an impermissible commingling of plan assets with other property.
If a prohibited transaction were to occur, the Code imposes an excise tax
equal to five percent of the amount involved and authorizes the IRS to impose an
additional 100% excise tax if the prohibited transaction is not "corrected."
Such taxes would be imposed on any disqualified person who participates in the
prohibited transaction. In addition, the Advisor and possibly other fiduciaries
of Benefit Plan Shareholders subject to ERISA who permitted such prohibited
transaction to occur or who otherwise breached their fiduciary responsibilities
would be required to restore to the plan any profits realized by these
fiduciaries as a result of the transaction or breach, and make good to the plan
any losses incurred by the plan as a result of such transaction or breach. With
respect to an IRA that invests in the Company, the occurrence of a prohibited
transaction involving the individual who established the IRA, or his or her
beneficiary, would cause the IRA to lose its tax-exempt status under Section
408(e)(2) of the Code.
In the opinion of counsel, as discussed above, the assets of the Company
should not constitute plan assets following an investment in Shares by Benefit
Plans. Accordingly, the problems discussed in the preceding three paragraphs are
not expected to arise.
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OTHER PROHIBITED TRANSACTIONS
Regardless of whether the Shares qualify for the "publicly-offered
security" exception of the Regulation, a prohibited transaction could occur if
the Company, CFA, any Selected Dealer, the Escrow Agent or any of their
Affiliates is a fiduciary (within the meaning of Section 3(21)) of ERISA with
respect to the purchase of the Shares. Accordingly, unless an administrative or
statutory exemption applies, Shares should not be purchased by a Benefit Plan to
which any of the above Persons is a fiduciary with respect to the purchase. A
Person is a fiduciary to a plan under Section 3(21) of ERISA if, among other
things, the Person has discretionary authority or control with respect to plan
assets or provides investment advice for a fee with respect to such assets.
Under a regulation issued by the Department of Labor, a Person would be deemed
to be providing investment advice if such Person renders advice as to the
advisability of investing in Shares and that Person regularly provides
investment advice to the plan pursuant to a mutual agreement or understanding
(written or otherwise) that (i) such advice will serve as the primary basis for
investment decisions and (ii) such advice will be individualized for the plan
based on its particular needs.
INVESTMENT IN ESCROW ACCOUNT
The Escrow Agent will establish two separate escrow accounts. Benefit Plan
funds will be deposited in one account while funds from all other investors will
be deposited in another account. Pending issuance of the Shares to a Benefit
Plan, the Escrow Agent will invest Benefit Plan funds in a money market account
maintained by the Escrow Agent. On the Initial Closing Date and each closing
date thereafter, the funds paid by each Benefit Plan will be released from the
Benefit Plan escrow account and exchanged for the applicable number of Shares.
Any interest earned by that account prior to any such closing date will be paid
to the investing Benefit Plan.
In considering an investment in the Company, a plan fiduciary should
consider whether the escrow account arrangement as well as the ultimate
investment in the Company would be consistent with fiduciary standards
applicable to that Benefit Plan.
ANNUAL VALUATION
A fiduciary of an employee benefit plan subject to ERISA is required to
determine annually the fair market value of each asset of the plan as of the end
of the plan's fiscal year and to file an Annual Return/Report on Form 5500
reflecting that value. When no fair market value of a particular asset is
available, the fiduciary is to make a good faith determination of that asset's
"fair market value" assuming an orderly liquidation at the time the
determination is made. In addition, a trustee or custodian of an IRA must
provide an IRA participant with a statement of the value of the IRA each year.
In discharging its obligation to value assets of a plan, a fiduciary subject to
ERISA must act consistently with the relevant provisions of the plan and the
general fiduciary standards of ERISA.
Unless and until the Shares are listed on a national securities exchange or
are included for quotation on Nasdaq, it is not expected that a public market
for the Shares will develop. To date, neither the IRS nor the Department of
Labor has promulgated regulations specifying how a plan fiduciary should
determine the "fair market value" of the Shares under those circumstances,
namely when the fair market value of the Shares is not determined in the
marketplace. Therefore, to assist fiduciaries in fulfilling their valuation and
annual reporting responsibilities with respect to ownership of Shares, the
directors intend to provide reports of the directors' annual determinations of
the current value of the Company's net assets per outstanding Share to those
fiduciaries (including IRA trustees and custodians) who identify themselves to
the directors as such and request the reports. Prior to and for the year ending
December 31, 2002, the directors intend to use the offering price of Shares as
the per Share net asset value. Thereafter, beginning with the year 2003, the
value of the Properties and other assets of the Company will be based on a
Valuation. Such Valuation may be, but is not required to be, performed by
Independent Appraisers.
The directors anticipate that they will provide annual reports of such
determinations (i) to IRA trustees and custodians not later than January 15 of
each year, and (ii) to other qualified plan trustees and custodians within 75
days after the end of each calendar year. Each determination may be based upon
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valuation information available as of October 31 of the preceding year, updated
for any material changes occurring between October 31 and December 31 of such
year.
The directors intend to revise these valuation procedures to conform with
any relevant guidelines that the IRS or the Department of Labor may hereafter
issue. Meanwhile, there can be no assurance (i) that such value could or will
actually be realized by the Company or by Shareholders upon liquidation (in part
because appraisal or estimated value do not necessarily indicate the price at
which assets could be sold and because no attempt will be made to estimate the
expenses of selling any assets of the Company), (ii) that Shareholders could
realize such value if they were to attempt to sell their Shares, or (iii) that
such value would comply with the ERISA or IRA requirements described above.
DESCRIPTION OF SHARES
The following description of the Shares does not purport to be complete but
contains a summary of portions of the Articles of Incorporation and is qualified
in its entirety by reference to the Articles of Incorporation.
GENERAL DESCRIPTION OF SHARES
The Company is authorized to issue 60,000,000 Shares, each Share having a
par value of $.001. Each Share is entitled to participate equally in Dividends
when and as declared by the directors and in the distribution of assets of the
Company upon liquidation. Each Share is entitled to one vote and will be fully
paid and non-assessable by the Company upon issuance and payment therefor.
Shares, other than Excess Shares, which are defined in the Organizational
Documents to mean Shares held by an investor in excess of 9.8% of the total
number of Shares issued and outstanding at the time such Shares are acquired,
are not subject to redemption by the Company. The Shares have no preemptive
rights which rights are intended to insure that a Shareholder maintains the same
ownership interest (on a percentage basis) before and after the issuance of
additional securities by the Company or cumulative voting rights (which are
intended to increase the ability of smaller groups of Shareholders to elect
directors). The Company currently does not intend to issue any securities other
than the Shares discussed in this Prospectus, although it may do so at any time.
The Company has the authority at the discretion of the directors (including a
majority of the Independent Directors) to authorize the listing, issuance and
sale of the Shares on a national securities exchange or on Nasdaq. In addition,
the Company has the authority to issue shares of any class or securities
convertible into shares of any class or classes, to classify or to reclassify
any unissued stock by setting or changing the preferences, conversion or other
rights, voting powers, restrictions, limitations as to dividends, qualifications
and terms and conditions of redemption of such stock, all as determined by the
directors.
The Company may apply to list the Shares for trading on a national
securities exchange or to include them for quotation on Nasdaq unless the Board
of Directors (including a majority of the Independent Directors) deems such
listing or quotation not to be in the best interest of the Shareholders. There
can be no assurance that any such application will be accepted. If the Shares
are not listed or included for quotation, the Properties generally will be
liquidated beginning five to ten years after the net proceeds of the Offering
are substantially invested. In making the decision to apply for listing of the
Shares, the Board will try to determine whether listing the Shares or
liquidating the Company will result in greater value for the Shareholders. Even
if the Shares are not so listed or included for quotation, the Company is under
no obligation to liquidate its portfolio within such period since the precise
timing will depend on real estate and financial markets, economic conditions of
the areas in which the Properties are located and Federal income tax effects on
Shareholders which may prevail in the future. Furthermore, there can be no
assurance that the Company will be able to liquidate its portfolio and it should
be noted that the Company will continue its existence until all of its
Properties are sold and its other assets are liquidated.
The Company will not issue certificates. Shares will be held in
"uncertificated" form which will (a) eliminate the physical handling and
safekeeping responsibilities inherent in owning transferable stock certificates,
and (b) eliminate the need to return a duly executed stock certificate to the
transfer agent to effect a transfer. Transfers can be effected simply by mailing
a duly executed stock power to the Company.
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Upon the issuance of its Shares, the Company shall send to each Shareholder a
written statement which will include all information that is required to be
written upon stock certificates under Maryland law.
MEETINGS AND SPECIAL VOTING REQUIREMENTS
An annual meeting of the Shareholders will be held each year, not fewer
than 30 days after delivery of the Annual Report of the Company. Special
meetings of Shareholders may be called only upon the request of a majority of
the directors, a majority of the Independent Directors, the Chairman, the
President or upon the written request of Shareholders entitled to cast at least
10% of all the votes entitled to be cast at such meeting. In general, the
presence in person or by proxy of a majority of the outstanding Shares,
exclusive of Excess Shares, shall constitute a quorum. Generally, the
affirmative vote of a majority of the votes entitled to be voted at a meeting at
which a quorum is present is necessary to take Shareholder action, except that a
plurality of all votes cast at such a meeting is sufficient to elect a director.
The Company's Charter may be amended by a majority of the Board of
Directors (including a majority of the Independent Directors) and approval of a
majority of the Company's stockholders at a duly held meeting at which a quorum
is present. Charter amendments affecting the provisions on indemnification of
directors and officers, limitation of personal liability of directors and
officers, and limitation on ownership of shares of the Company, must be approved
by a vote of two-thirds of the Company's Stockholders. In general, the Company's
Bylaws may be amended by a majority vote of the Company's stockholders. The
Ownership Limit may only be amended by a two-thirds majority vote of all
outstanding Shares. Any amendment to the Bylaws that would reduce the priority
of payment or the amount payable to the Shareholders upon liquidation of the
Company or that would diminish or eliminate any voting rights require the
approval of a two-thirds majority of Shares entitled to vote. Shareholders may,
by the affirmative vote of a majority of the Shareholders entitled to vote on
such matter, elect to remove a director from the Board or dissolve the Company.
Shareholders do not have the ability to vote to replace the Advisor or to select
a new investment adviser.
The affirmative vote of a majority of all Shares entitled to be cast is
required to approve any merger or sale of substantially all of the assets of the
Company other than in the ordinary course of business. The term "substantially
all" as used in this context is a term used in the Maryland Corporation and
Association Code. This Code does not include a definition of this term and
Maryland case law suggests that the term be defined on a case by case basis. The
effect for investors of the Maryland Code's lack of definition is the Company
cannot provide investors with a definition for "substantially all" and therefore
shareholders will not know whether a sale of assets will constitute a sale of
substantially all of the assets or whether or not they will have the right to
approve such sale. Shareholders objecting to the approval of any merger or sale
of assets are permitted under Maryland law to petition a court for the appraisal
and payment of the fair value of their Shares. In such an appraisal proceeding,
the court appoints appraisers who attempt to determine the fair value of the
stock as of the date of the shareholder vote on the merger or sale of assets.
The appraisers' report is considered by the court which (i) makes the final
determination of the fair value to be paid to the Shareholder and (ii) decides
whether the award of interest from the date of the merger or sale of assets and
costs of the proceeding are to be awarded to the dissenting Shareholder.
Shareholders are entitled to receive a copy of the Company's Shareholder
list upon request provided that the requesting Shareholder represents to the
Company that the list will not be used to pursue commercial interests. The list
provided by the Company will include the name, address and telephone number (if
available) of, and number of Shares owned by, each Shareholder and will be in
alphabetical order, on white paper and in easily readable type size and will be
sent within ten days of the receipt by the Company of the request (or five days
if the Shareholder first requests a copy of the representation and returns it to
the Company within 30 days). A Shareholder requesting a list will be required to
pay the Company's reasonable cost of postage and duplication. The Company will
pay the costs incurred and any actual damages suffered by a Shareholder who must
compel the production of a list and is successful. Any Shareholder who breaches
the terms of the representation provided to the Company will be liable to the
Company for any costs or damages resulting from such breach. The list will be
updated at least quarterly to reflect changes in the information contained
therein.
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The rights of Shareholders described above are in addition to and do not
adversely affect rights provided to investors under Rule 14a-7 promulgated under
the Exchange Act, which provides that, upon request of investors and the payment
of the expenses of the distribution, the Company is required to distribute
certain materials to Shareholders in the context of the solicitation of proxies
for voting on matters presented to Shareholders, or, at the option of the
Company, provide requesting Shareholders with a copy of the list of Shareholders
so that the requesting Shareholders may make the distribution themselves.
RESTRICTION ON OWNERSHIP OF SHARES
In order for the Company to qualify as a REIT, not more than 50% of its
outstanding Shares may be owned by any five or fewer individuals (including
certain tax-exempt entities) during the last half of each taxable year of the
Company, and the outstanding Shares must be owned by 100 or more Persons
independent of the Company and each other during at least 335 days of a 12-month
taxable year or during a proportionate part of a shorter taxable year for which
an election to be treated as a REIT is made. The Company, therefore, may
prohibit certain acquisitions and transfers of Shares so as to facilitate the
Company's continued qualification as a REIT under the Code. However, there can
be no assurance that such prohibition will be effective.
The Articles of Incorporation, in order to assist the Board in preserving
the Company's status as a REIT, contain an Ownership Limit which prohibits any
Person or group of Persons from acquiring, directly or indirectly, Beneficial
Ownership of more than 9.8% of the outstanding Shares. Shares owned by a Person
or a group of Persons in excess of the Ownership Limit are deemed "Excess
Shares." Shares owned by a Person who individually owns of record less than 9.8%
of outstanding Shares may nevertheless be Excess Shares if such Person is deemed
part of a group for purposes of this restriction.
The Articles of Incorporation stipulate that any purported issuance or
transfer of Shares shall be valid only with respect to those Shares that do not
result in the transferee-Shareholder owning Shares in excess of the Ownership
Limit. If the transferee-Shareholder acquires Excess Shares, such Person is
considered to have acted as an agent for the Company and holds such Excess
Shares on behalf of the ultimate Shareholder.
The Ownership Limit does not apply to offerors which, in accordance with
applicable Federal and state securities laws, make a cash tender offer, where at
least 85% of the outstanding Shares (not including Shares or subsequently issued
securities convertible into common stock which are held by the tender offeror
and/or any "affiliates" or "associates" thereof within the meaning of the
Exchange Act) are duly tendered and accepted pursuant to the cash tender offer.
The Ownership Limit also does not apply to the underwriter in a public offering
of the Shares. The Ownership Limit does not apply to a Person or Persons which
the directors so exempt from the Ownership Limit upon appropriate assurances
that the Company's qualification as a REIT is not jeopardized.
If the Company has 2,000 or more stockholders, all Persons who own 5% or
more of the outstanding Shares (or 1% or more if the Company has more than 200
but fewer than 2,000 Shareholders) during any taxable year will be asked by the
Company to deliver a statement or affidavit setting forth the number of Shares
Beneficially Owned, directly or indirectly, by such Persons. See "United States
Federal Income Tax Aspects -- Statement of Stock Ownership."
DIVIDENDS
The Company intends to declare Dividends before each issuance of Shares
during the Offering and on a quarterly basis. Dividends will be paid to
investors who are Shareholders as of the record date selected by the directors.
Dividends will be paid on a quarterly basis regardless of the frequency with
which such Dividends are declared. The Company is required to distribute
annually its Distributable REIT Taxable Income to comply with the REIT
Provisions. Generally, income distributed as Dividends will not be taxable to
the Company under Federal income tax laws unless the Company fails to comply
with the REIT Provisions.
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Dividends will be paid at the discretion of the directors, in accordance
with the earnings, cash flow and general financial condition of the Company. The
directors' discretion will be directed, in substantial part, by their obligation
to cause the Company to comply with the REIT Provisions. Because the Company may
receive income from interest or rents at various times during its fiscal year,
Dividends may not reflect income earned by the Company in that particular
Dividend period but may be made in anticipation of cash flow which the Company
expects to receive during a later quarter and may be made in advance of actual
receipt in an attempt to make distributions relatively uniform. The Company can
borrow to make distributions if the borrowing is necessary to maintain the
Company's REIT status or if the borrowing is part of a liquidation strategy to
partially or completely liquidate investments in Properties by borrowing against
those Properties.
The Company is not prohibited from distributing its own securities in lieu
of making cash distributions to Shareholders, provided that such securities
distributed to Shareholders are readily marketable. Shareholders who receive
marketable securities in lieu of cash distributions may incur transaction
expenses in liquidating such securities.
REPURCHASE OF SHARES
The Company has the authority to redeem Excess Shares immediately upon
becoming aware of existence of such Excess Shares or after giving the Person in
whose hands such Shares are Excess Shares 30 days to transfer such Excess Shares
to a Person whose ownership of such Shares would not exceed the Ownership Limit
and, therefore, would no longer be considered Excess Shares. The price paid upon
redemption by the Company shall be the lesser of the price paid for such Excess
Shares by the Shareholder in whose possession the redeemed Shares were formerly
Excess Shares or the fair market value of the Excess Shares. The Company may
purchase Excess Shares or otherwise repurchase Shares if such repurchase does
not impair the capital or operations of the Company.
The Sponsor, Advisor and their Affiliates may not receive a fee on the
purchase of Shares by the Company.
REDEMPTION OF SHARES
After the termination of the Offering and prior to such time, if any, as
the Shares are listed on a national securities market, any stockholder (other
than the Advisor) that has held his or her Shares for at least one year may
present all or any portion of such stockholder's Shares to the Company for
redemption at any time, in accordance with the procedures outlined herein. At
such time, the Company may, at its option, subject to the conditions described
below, redeem such Shares presented for redemption for cash to the extent it has
sufficient funds available, as determined by the Board of Directors in its sole
discretion. There is no assurance that there will be sufficient funds available
for redemption and, accordingly, a stockholder's Shares may not be redeemed. In
addition, the Advisor will assist with the identification of prospective
third-party buyers.
The Board of Directors will determine on a quarterly basis whether the
Company has sufficient excess cash to repurchase Shares. Shareholders may offer
Shares to the Company for purchase and the Company
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will purchase the offered Shares if it has sufficient cash. The Company will
impose a surrender charge on repurchased shares in accordance with the following
schedule:
<TABLE>
<CAPTION>
HOLDING PERIOD
OF SHARES SURRENDER CHARGE
-------------- ----------------
<S> <C>
1-3 years.......................................... 12% of Net Asset Value
4 years............................................ 11% of Net Asset Value
5 years............................................ 10% of Net Asset Value
6 years............................................ 9% of Net Asset Value
7 years............................................ 8% of Net Asset Value
8 years............................................ 7% of Net Asset Value
9 years............................................ 6% of Net Asset Value
10 years........................................... 5% of Net Asset Value
11 years or more................................... 4% of Net Asset Value
</TABLE>
The Net Asset Value, for purposes of calculating the purchase price, shall
be $10 per share until the Company begins having appraisals performed by an
independent third party as of December 31, 1999, at which time the Net Asset
Value will be as determined by such appraiser. The Board of Directors reserves
the right to adjust the Net Asset Value on a quarterly basis to account for
significant capital transactions.
If the Company has sufficient funds to purchase some but not all of the shares
offered, the Shareholders holding their Shares for the longest amount of time
will be given priority. The Company will only be able to repurchase shares if it
maintains a currently effective registration statement. While the Company
intends to maintain an effective registration statement, there can be no
assurance that it will be able to do so. Furthermore, there can be no assurance
that the Company will have sufficient funds to repurchase any 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 Company. Within 30 days
following the Company's receipt of the stockholder's request, the Company will
forward to such stockholder the documents necessary to effect the redemption,
including any signature guarantee the Company may require. Any redemption to be
completed by the Company will be completed for a calendar quarter provided that
the Company 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 to redeem
such Shares. The effective date of any redemption will be the last date during a
quarter during which the Company receives the properly completed redemption
documents. As a result, the Company anticipates that, assuming sufficient funds,
the effective date of redemptions will be no later than thirty days after the
quarterly determination of the availability of funds.
A stockholder may present fewer than all his or her Shares to the Company
for redemption, provided, however, that if such stockholder retains any Shares,
he or she must retain at least 250 Shares (200 Shares for an IRA, Keogh Plan or
pension plan). Shares transferred by reason of death will be deemed to have been
held from the time the Shares were first acquired.
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; or
(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
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REIT under the Code. For a discussion of the tax treatment of such redemptions,
see "United States Federal Income Tax Considerations -- Taxation of
Stockholders."
RESTRICTIONS ON ROLL-UP TRANSACTIONS
In connection with any proposed transaction (as further defined in "The
Glossary," a "Roll-up Transaction") involving the acquisition, merger,
conversion or consolidation, directly or indirectly, of the Company and the
issuance of securities of an entity (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 a competent Independent
Appraiser. 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 the Independent Appraiser shall clearly state that the engagement
is for the benefit of the Company and the Shareholders. A summary of the
appraisal, indicating all material assumptions underlying the appraisal, shall
be included in a report to Shareholders 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 Shareholders who vote "no" on
the proposal the choice of:
(i) accepting the securities of a Roll-up Entity offered in the
proposed Roll-up Transaction; or
(ii) one of the following:
(A) remaining as Shareholders 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 Shareholder'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:
(a) which would result in the Shareholders having democracy rights in
a Roll-up Entity that are less than those provided in the Bylaws 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 "Management," "Reports to Shareholders" and "Description
of Shares;"
(b) which includes provisions that would operate to materially impede
or frustrate 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;
(c) in which investor's rights to access of records of the Roll-up
Entity will be less than those provided in the section of this Prospectus
entitled "Description of Shares -- Meetings and Special Voting
Requirements;" or
(d) 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
Shareholders.
TRANSFER AGENT
The transfer agent and registrar for the Shares will be
Resource/Phoenix(R). The transfer agent's address is 2401 Kerner Boulevard, San
Rafael, California 94901-5529, and its phone number is 888-241-3737.
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THE OFFERING
Subject to the conditions set forth in this Prospectus and in accordance
with the terms and conditions of the Sales Agency Agreement, the Company is
offering to the public through the Sales Agent and Selected Dealers, on a best
efforts basis, a maximum of $300,000,000 of Shares of common stock consisting of
30,000,000 Shares priced at $10 per Share. The minimum subscription is 250
Shares or $2,500 (200 Shares or $2,000 for an IRA or a Keogh Plan except for
Iowa tax exempt investors which must make a minimum investment of 250 Shares or
$2,500). See "Terms of the Offering." The Sales Agent and American Express
Financial Services, Inc. are expected to sell a significant number of Shares.
The Sales Agent will receive a selling commission in an amount equal to
$0.65 per Share, whether sold directly by it or by one of the Selected Dealers,
all of whom must be members in good standing of the NASD. The Sales Agent may,
in turn, reallow up to $0.60 per share of such selling commissions to Selected
Dealers for Shares they sell. The Company also will reimburse the Sales Agent
for the amount of any Selected Dealer Fee paid to Selected Dealers, which Fee
may not exceed 1% of the price of each Share sold by the Selected Dealer. The
Sales Agent has agreed to pay a Selected Dealer Fee of 1% to all Selected
Dealers and the Sales Agent will receive a Selected Dealer Fee of 1% for Shares
sold directly by the Sales Agent. In addition, the Sales Agents or Selected
Dealers, in their sole discretion, may elect not to accept any selling
commission offered by the Company for Shares that they sell. In that event, such
Shares shall be sold to the investor net of all selling commissions, at a price
per share of $9.35. The Company has agreed to indemnify the Sales Agent and
Selected Dealers against certain liabilities, including liabilities under the
Securities Act.
The Company will offer a reduced Share purchase price to "single
purchasers" on orders of more than $250,000 and selling commissions paid to the
Sales Agent and Selected Dealers will be reduced by the amount of the Share
purchase price discount. The Share purchase price will be reduced for each
incremental Share purchased in the total volume ranges set forth in the table
below. Such reduced Share purchase price will not affect the amount received by
the Company for investment. The following table sets forth the reduced Share
purchase price and selling commissions payable to the Sales Agent:
<TABLE>
<CAPTION>
PURCHASE PRICE
PER SHARE FOR SELLING COMMISSION
INCREMENTAL PER SHARE
SHARE IN ON TOTAL SALE FOR
VOLUME INCREMENTAL SHARE IN
FOR A "SINGLE PURCHASER" DISCOUNT RANGE VOLUME DISCOUNT RANGE
------------------------ -------------- ---------------------
<S> <C> <C>
$ 2,000--$ 250,000 $10.00 $0.65
250,001-- 500,000 9.85 0.50
500,001-- 750,000 9.70 0.35
750,001-- 1,000,000 9.60 0.25
1,000,001-- 5,000,000 9.50 0.15
</TABLE>
Selling commissions for purchases of $5,000,000 or more will, in the sole
discretion of the Company, be reduced to $0.10 per Share or less but in no event
will the proceeds to the Company be less than $9.35 per Share. Selling
Commissions paid will in all cases be the same for the same level of sales. In
the event of a sale of $5,000,000 or more, the Company will supplement this
Prospectus to include (i) the aggregate amount of the sale, (ii) the price per
Share paid by the purchaser and (iii) a statement that other investors wishing
to purchase at least the amount described in (i) will pay no more per Share than
the initial purchaser. The Initial Investor Capital will be calculated on the
basis of $10 per Share, regardless of the price actually paid pursuant to such
reduced Share purchase prices.
Orders may be combined for the purpose of determining the total commissions
payable with respect to applications made by a "single purchaser." The amount of
total commissions thus computed will be apportioned pro rata among the
individual orders on the basis of the respective amounts of the orders being
combined. As used herein, the term "single purchaser" will include (i) any
Person or entity, or Persons or entities, acquiring Shares as joint purchasers,
(ii) all profit-sharing, pension and other retirement trusts maintained by a
given corporation, partnership or other entity, (iii) all funds and foundations
maintained
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by a given corporation, partnership or other entity, (iv) all profit-sharing,
pension and other retirement trusts and all funds or foundations over which a
designated bank or other trustee, person or entity (except an investment adviser
registered under the Investment Advisers Act of 1940) exercises discretionary
authority with respect to an investment in the Company, and (v) all clients of
an investment adviser registered under the Investment Advisers Act of 1940 who
have been advised by such adviser on an ongoing basis regarding investments
other than in the Company, and who have been advised by such adviser regarding
an investment in the Company.
In the event a single purchaser described in categories (ii) through (v)
above wishes to have its orders so combined, such a purchaser will be required
to request such treatment in writing to the Company, which request must set
forth the basis for such discount and identify the orders to be combined. Any
such request will be subject to the verification by the Company that all of such
orders were made by a single purchaser.
Orders also may be combined for the purpose of determining the commissions
payable in the case of orders by any purchaser described in category (i) through
(v) above who, subsequent to its initial purchase of Shares, orders additional
Shares. In such event, the commission payable with respect to the subsequent
purchase of Shares will equal the commission per Share which would have been
payable in accordance with the commission schedule set forth above if all
purchases had been made simultaneously. Any reduction of the 6% selling
commission otherwise payable to the Sales Agent or a Selected Dealer will be
credited to the purchaser as additional whole Shares. Unless investors indicate
that orders are to be combined and provide all other requested information, the
Company cannot be held responsible for failing to combine orders properly.
The Advisor, its Affiliates and their employees and the Selected Dealers
and their employees may purchase Shares net of selling commissions and the
Company will pay no selling commissions on such Shares. Any purchases by the
Advisor, its Affiliates and their employees and the Selected Dealers and their
employees will be for investment purposes only and not with the intent to resell
such Shares. There is no limit on the number of Shares such persons may
purchase. There is no limit on the number of Shares purchased by Affiliates of
the Advisor and their employees and the Selected Dealers and their employees.
Any resale of the 20,000 Shares currently owned by the Advisor or Shares it or
Affiliates of the Company may purchase are subject to Rule 144 promulgated under
the Securities Act, which limits the number of Shares which may be resold at any
one time and the manner of such resale.
The Sales Agent will receive reimbursement from the Company for its
identified expenses and for identified expenses of Selected Dealers reimbursed
by the Sales Agent, including the costs of any sales and information meetings of
the employees of the Sales Agent and the Selected Dealers (to the extent the
Sales Agent reimburses the Selected Dealers for such expenses) relating to the
Offering. Subject to the satisfactory completion of any regulatory reviews and
examinations which may be required, the rules of the NASD and the prior review
and approval by the NASD and the Sales Agent, the Selected Dealers (as
appropriate), the Company, the Advisor or any of their Affiliates may establish
sales incentive programs for associated Persons of the Sales Agent or Selected
Dealers or may reimburse the Sales Agent and Selected Dealers for sales
incentive programs established by them. Sales incentives will be deemed to be
additional underwriting compensation. Sales incentives will not be paid in cash
and the aggregate value of the non-cash incentives paid by the Company and the
Advisor directly to associated Persons during the Offering will not exceed $100
per year.
The Sales Agent or other entities will provide wholesaling services to the
Company. All entities performing wholesaling activities will be required to be
properly licensed to engage in the securities business. These services will
include developing and preparing sales material, conducting broker/dealer
seminars, holding informational meetings and providing information and answering
any questions concerning the Offering. The Company will reimburse the Sales
Agent for its identified expenses incurred in coordinating wholesaling
activities, including, but not limited to (i) travel and entertainment expenses,
(ii) compensation of employees of the Sales Agent in connection with wholesaling
activities, (iii) expenses incurred in coordinating broker-dealer seminars and
meetings, and (iv) wholesaling fees and wholesaling expense reimbursements paid
to the Sales Agent or other entities.
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In no event shall the total underwriting compensation to be paid to the
Sales Agent and Selected Dealers from any source in connection with the
Offering, including selling commissions, certain expense reimbursements and
payments to the Sales Agent and Selected Dealers for the wholesaling services
referred to above, exceed 10% of the Gross Offering Proceeds of the Offering
(plus 0.5% for bona fide due diligence expenses). The total wholesaling expenses
will not exceed 3% of the Gross Offering Proceeds. The Company and the Sales
Agent will monitor the payment of all fees and expense reimbursements, including
the Servicing Fees, to assure that this limit is not exceeded.
In the event all Organization and Offering Expenses, other than selling
commissions, and fees paid and expenses reimbursed to or paid on behalf of the
Selected Dealers, exceed 3.5% of the Gross Offering Proceeds, the excess will be
paid by the Advisor with no recourse by or reimbursement to the Advisor.
Every prospective investor desiring to purchase Shares will be required to
comply with the procedures for ordering Shares imposed by the Company, the Sales
Agent and the Selected Dealer from whom such investor intends to purchase
Shares. The Sales Agent and certain Selected Dealers will require an Order Form,
a specimen of which is attached to this Prospectus, to be completed and
delivered together with a check payable to the Escrow Agent for the aggregate
purchase price of the Shares ordered. (Residents of Iowa, Maine, Massachusetts,
Minnesota, Michigan, Missouri, Nebraska, and North Carolina must complete and
execute an Order Form.). Selected Dealers will submit such checks directly to
the Escrow Agent by noon of the business day following receipt. Certain Selected
Dealers may offer investors alternate procedures for purchasing Shares. Under
the alternative procedures, the investor must maintain an account with such
Selected Dealers or open such an account at no charge. An investor may then
purchase Shares by contacting his or her broker and indicating the amount of his
or her desired investment in Shares. If the investor has not already received a
copy of this Prospectus, the Sales Agent or Selected Dealer will forward a copy
of this Prospectus to the investor. The Sales Agent or Selected Dealer will
notify the investor that the full amount of the purchase price payment must be
in the investor's account by a specified settlement date, which shall occur
within five business days after such notice to the investor. An investor's
account will be debited by the amount of the investment on the settlement date.
For investors in all jurisdictions, by noon of the next business day following
the date funds are debited, the funds debited from the investor's account will
be sent to the Escrow Agent for deposit in the escrow account established by the
Company for the Offering. In addition, investors may be able to direct that any
distributions paid by the Company be invested directly into a mutual fund. Prior
to the settlement date, the investor may withdraw his order by notifying his
broker at the Sales Agent or such Selected Dealer.
On or after the settlement date, investors will have no right to withdraw
any funds submitted to the Escrow Agent during the Offering period. The Company
has the unconditional right in its sole discretion to accept or reject any order
or any part thereof within 30 days of receipt of such order. If the Company
rejects any order or any part thereof, it will notify the investor in writing
thereof and arrange for the Escrow Agent to promptly return to the investor the
entire purchase price or portion thereof which was rejected, along with any
interest earned thereon. Shares will be evidenced on the books and records of
the Company, which will include a list of Shareholders' names, addresses and
number of Shares owned. An investor will not receive a Share certificate or
other evidence of his interest in the Company unless the Shares are listed on a
national securities exchange or included for quotation on Nasdaq and then only
if requested by the Shareholder.
ESCROW ARRANGEMENTS
All funds received by the Sales Agent and Selected Dealers from orders for
Shares will be placed promptly in an interest-bearing escrow account with the
Escrow Agent at the Company's expense until such funds are released as described
below. Separate escrow accounts will be established for Benefit Plan funds and
all other funds. Payment for Shares are to be sent to the Escrow Agent at The
United States Trust Company of New York, 114 West 47th Street, New York, New
York 10036-1532, Attention: Pat Stermer. Such funds will be held in trust for
the benefit of investors to be used for the purposes set forth in this
Prospectus. The Escrow Agent will be given the right to invest non-Benefit Plan
funds in United States government securities, certificates of deposit or other
time or demand deposits of commercial banks which
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have a net worth of at least $100,000,000 or in which such certificates or
deposits are fully insured by any Federal or state government agency. Benefit
Plan funds will be invested in a money market account maintained by the Escrow
Agent. The interest, if any, earned on escrow funds prior to the transmittal of
such proceeds to the Company will not become part of the Company's capital.
Instead, within 15 days following each issuance of Shares, the Company will
cause the Escrow Agent to make distributions to Shareholders of all interest
earned on their escrowed funds used to purchase the Shares. The Company may, as
security for borrowings made from third parties, assign its right to receive up
to 85% of the funds then held in escrow (not including funds held on behalf of
Benefit Plans).
Funds received by the Company from prospective investors will continue to
be placed in escrow during the Offering and the Company will issue additional
Shares periodically (but not less often than quarterly) as agreed between the
Company and the Sales Agent. The Offering will terminate at the time all Shares
being offered are sold or unsold shares are withdrawn from registration by order
of the Board, but in no case later than November 10, 1999.
REPORTS TO SHAREHOLDERS
The Company intends to provide periodic reports to Shareholders regarding
the operations of the Company over the course of the year. Financial information
contained in all reports to Shareholders will be prepared on the accrual basis
of accounting in accordance with generally accepted accounting principles. Tax
information will be mailed to the Shareholders within 31 days following the
close of each fiscal year. The Company's annual report, which will include
financial statements audited and reported upon by independent public
accountants, will be furnished within 120 days following the close of each
fiscal year. The annual financial statements will contain or be accompanied by a
complete statement of any transactions with the Sponsor, Advisor or its
Affiliates and of compensation and fees paid or payable by the Company to the
Advisor and its Affiliates. The Annual Report will also contain a report from
the Independent Directors that the policies being followed by the Company are in
the best interests of the Shareholders and the basis therefor. Summary
information regarding the quarterly financial results of the Company will be
furnished to Shareholders on a quarterly basis.
Investors have the right under applicable Federal and Maryland laws to
obtain information about the Company and, at their expense, may obtain a list of
names and addresses of all of the Shareholders. See "Description of
Shares -- Meetings and Special Voting Requirements." Shareholders also have the
right to inspect and duplicate the Company's appraisal records. In the event
that the Commission promulgates rules and/or in the event that the applicable
NASAA Guidelines are amended so that, taking such changes into account, the
Company's reporting requirements are reduced, the Company may cease preparing
and filing certain of the aforementioned reports if the directors determine such
action to be in the best interests of the Company and if such cessation is in
compliance with the rules and regulations of the Commission and the NASAA
Guidelines, both as then amended.
LEGAL OPINIONS
Certain legal matters, including the legality of the Shares, will be passed
upon for the Company by Reed Smith Shaw & McClay LLP, 2500 One Liberty Place,
Philadelphia, Pennsylvania 19103. Reed Smith Shaw & McClay LLP will rely as to
all matters of Maryland law on an opinion of Piper & Marbury L.L.P., Baltimore,
Maryland.
EXPERTS
The balance sheet of the Company as of December 31, 1997, included in this
Prospectus, has been included herein in reliance on the report of Coopers &
Lybrand L.L.P, independent accountants, given on the authority of that firm as
experts in accounting and auditing.
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SALES LITERATURE
In addition to and apart from this Prospectus, the Company will use certain
sales material in connection with the Offering. This material includes an
investor sales promotion brochure, prospecting letters or mailers and seminar
invitations, media advertising inviting seminar attendance, a brochure
describing the Investment Committee, a presentation using a computer, reprints
of articles about the Company or the net lease or sale-leaseback industry, fact
sheets describing Company acquisitions, a slide presentation and studies of the
prior performance of entities managed by the Advisor and its Affiliates as well
as other net lease investment programs. In some jurisdictions such sales
material will not be available. Other than as described herein, the Company has
not authorized the use of other sales material. The Offering is made only by
means of this Prospectus. Although the information contained in such material
does not conflict with any of the information contained in this Prospectus, such
material does not purport to be complete and should not be considered as a part
of this Prospectus or the Registration Statement of which this Prospectus is a
part, or as incorporated in this Prospectus or said Registration Statement by
reference, or as forming the basis of the Offering.
FURTHER INFORMATION
This Prospectus does not contain all the information set forth in the
Registration Statement and the Exhibits relating thereto which the Company has
filed with the Commission, Washington, D.C., under the Securities Act, and to
which reference is hereby made. Copies of the Exhibits and all reports filed by
the Registrant are on file at the offices of the Commission in Washington, D.C.
and its regional offices and may be obtained, upon payment of the fee prescribed
by the Commission, or may be examined without charge at the Public Reference
Section of the Commission, Washington, D.C. 20549, the Commission's Northwest
Regional office, 7 World Trade Center, Suite 1300, New York, NY 10048, the
Commission's Midwest Regional Office, Citicorp Center, 500 West Madison Street,
Suite 1400, Chicago, IL 60611-2511 or the Commission's Web Site:
http://www.sec.gov.
All summaries contained herein of documents which are filed as Exhibits to
the Registration Statement are qualified in their entirety by this reference to
those Exhibits. The Company has not knowingly made any untrue statement of a
material fact or omitted to state any fact required to be stated in the
Registration Statement, including this Prospectus, or necessary to make the
statements therein not misleading.
GLOSSARY
As used in this Prospectus, the following terms have the definitions
hereinafter indicated:
Acquisition Expenses. Those expenses, including but not limited to legal
fees and expenses, travel and communications expenses, costs of appraisals,
non-refundable option payments on property not acquired, accounting fees and
expenses, title insurance, and miscellaneous expenses related to selection and
acquisition of properties, whether or not acquired. Acquisition Expenses shall
not include Acquisition Fees.
Acquisition Fees. The total of all fees and commissions (including any
interest thereon) paid by any party to any party in connection with the
purchase, development or construction of Properties or the making or investing
in mortgage loans by the Company. A Development Fee or a Construction Fee paid
to a Person not affiliated with the Sponsor in connection with the actual
development or construction of a project after acquisition of the Property by
the Company shall not be deemed an Acquisition Fee. Included in the computation
of such fees or commissions shall be any real estate commission, selection fee,
development fee or construction fee (other than as described above), or any fee
of a similar nature, however designated. Acquisition Fees include Subordinated
Acquisition Fees. Acquisition Fees shall not include Acquisition Expenses.
Adjusted Investor Capital. As of any date, the Initial Investor Capital
for such date reduced by any distributions on or prior to such date deemed by
the Board to be from Cash from Sales and Financings, but only to the extent such
distributions exceed the amount necessary to satisfy any accrued but unpaid
portion
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of the Preferred Return not satisfied by distributions of cash generated from
operations through the date Cash from Sales or Financings are distributed by the
Company.
Advisor. Carey Property Advisors or any Person appointed or employed by or
who contracts with the Company under the provisions of Article VII of the
Bylaws, and who is responsible for the day-to-day management of the Company,
including any Person to which the Advisor subcontracts substantially all such
functions.
Advisory Agreement. The Advisory Agreement between the Company and the
Advisor pursuant to which the Advisor will act as the advisor and administrator
of the Company.
Affiliated Director. A director who is not an Independent Director.
Affiliate. An Affiliate of another Person shall mean (i) any Person
directly or indirectly owning, controlling, or holding, with power to vote ten
percent or more of the outstanding voting securities of such other Person, (ii)
any Person ten percent or more of whose outstanding voting securities are
directly or indirectly owned, controlled, or held, with power to vote, by such
other Person, (iii) any Person directly or indirectly controlling, controlled
by, or under common control with such other Person, (iv) any executive officer,
director, trustee or general partner of such other Person, or (v) any legal
entity for which such Person acts as an executive officer, director, trustee or
general partner.
Articles of Incorporation. Articles of Incorporation of the Company under
the General Corporation Law of Maryland, as amended from time to time, pursuant
to which the Company is organized.
Asset Management Fee. Fee paid to the Advisor for asset management
services rendered under the Advisory Agreement.
Average Invested Assets. For a specified period, the average of the
aggregate book value of the assets of the Company invested, directly or
indirectly, in Properties and in 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.
Bankruptcy Code. Title 11 of the United States Code, as amended.
Beneficial Ownership, Beneficially Own or Beneficial Owner of
Shares. Ownership of such Shares for purposes of part II, subchapter M of the
Code, including the attribution of ownership provisions of Section 542 and 544
of the Code, or if, under Rule 13d-3 of the Exchange Act, such Person would be
deemed to have beneficial ownership of such Shares.
Benefit Plan. An IRA, Keogh Plan or employee benefit plan subject to Title
I of ERISA or Section 4975 of the Code.
Board or Board of Directors. The Board of Directors of the Company.
Bylaws. The Bylaws of the Company.
Cash from Financings. Net cash proceeds realized by the Company from the
financing of the Company's properties or the refinancing of any Company
indebtedness.
Cash from Sales. Net cash proceeds realized by the Company from the sale,
exchange or other disposition of any of its assets after deduction of all
expenses incurred in connection therewith. Cash from Sales shall not include
Cash from Financings.
Cash from Sales and Financings. The total sum of Cash from Sales and Cash
from Financings.
CD. Carey Diversified LLC, a limited liability company organized under the
laws of Delaware.
CFA. Carey Fiduciary Advisors, Inc., a Pennsylvania corporation, which is
the general partner of the Advisor.
Change of Control. A change of control of the Company of such a nature
that it would be required to be reported in response to the disclosure
requirements of Schedule 14A of Regulation 14A promulgated
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under the Exchange Act, as enacted and in force on the date hereof, whether or
not the Company is then subject to such reporting requirements; provided,
however, that, without limitation, a Change of Control shall be deemed to have
occurred if: (i) any "person" (as that term is defined in Section 13(d) of the
Exchange Act, as enacted and in force on the date hereof) is or becomes the
Beneficial Owner of securities of the Company representing 8.5% or more of the
combined voting power of the Company's securities then outstanding; (ii) there
occurs a merger, consolidation or other reorganization of the Company which is
not approved by the Board of Directors; (iii) there occurs a sale, exchange,
transfer or other disposition of substantially all of the assets of the Company
to another entity, which disposition is not approved by the Board of Directors;
or (iv) there occurs a contested proxy solicitation of the Shareholders of the
Company that results in the contesting party electing candidates to a majority
of the Board of Directors' positions next up for election.
CIP(R). Carey Institutional Properties Incorporated, formerly Corporate
Property Associates 11 Incorporated, a corporation organized under the laws of
the State of Maryland.
Code. Internal Revenue Code of 1986, as amended.
Commission. The Securities and Exchange Commission.
Company. Corporate Property Associates 14 Incorporated, a corporation
organized under the laws of the State of Maryland.
Competitive Real Estate Commission. The real estate or brokerage
commission paid in a competitive market for the purchase or sale of a property
that is reasonable, customary and competitive in light of the size, type and
location of the property.
Construction Fee. A fee or other remuneration for acting as general
contractor and/or construction manager to construct improvements, supervise and
coordinate projects or to provide major repairs or rehabilitation on a Property.
Contract Purchase Price. The amount actually paid for or allocated (as of
the date of purchase) to the purchase, development, construction or improvement
of a Property, exclusive of Acquisition Fees and Acquisition Expenses.
Contract Sales Price. The total consideration received by the Company from
the sale of a Property of the Company.
Counsel. Reed Smith Shaw & McClay LLP.
CPA(R):10. Corporate Property Associates 10 Incorporated, a corporation
organized under the laws of the State of Maryland.
CPA(R):12. Corporate Property Associates 12 Incorporated, a corporation
organized under the laws of the State of Maryland.
CPA(R):14. The Company.
CPA(R) Programs. Corporate Property Associates, a California limited
partnership, Corporate Property Associates 2, a California limited partnership,
Corporate Property Associates 3, a California limited partnership, Corporate
Property Associates 4, a California limited partnership, Corporate Property
Associates 5, a California limited partnership, Corporate Property Associates
6 -- a California limited partnership, Corporate Property Associates 7 -- a
California limited partnership, Corporate Property Associates 8, L.P., a
Delaware limited partnership Corporate Property Associates 9, L.P., a Delaware
limited partnership, Corporate Property Associates 10 Incorporated, a Maryland
corporation, Carey Institutional Properties Incorporated, a Maryland
corporation, Corporate Property Associates 12 Incorporated, a Maryland
corporation, Carey Diversified LLC, a Delaware limited liability company, and
any other real estate limited partnerships or REITs sponsored by W.P. Carey &
Co. or Affiliates with investment objectives substantially similar to the
Company.
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Cumulative Rate of Cash Flow from Operations. For the period for which the
calculation is being made, the percentage resulting from dividing (i) the total
cash flow from operations (as determined in accordance with GAAP and as
reflected on the Company's Statement of Cash Flow during such period, by (ii)
the product of (a) the average Adjusted Investor Capital for such period
(calculated on a daily basis), and (b) the number of years (including fractions
thereof) elapsed during such period.
Cumulative Return. For the period for which the calculation is being made,
the percentage resulting from dividing (i) the total Dividends paid on each
Dividend payment date during such period (not including Dividends paid out of
Cash from Sales and Financings), by (ii) the product of (a) the average Adjusted
Investor Capital for such period (calculated on a daily basis), and (b) the
number of years (including fractions thereof) elapsed during such period.
Development Fee. A fee for the packaging of a Property including
negotiating and approving plans, and undertaking to assist in obtaining zoning
and necessary variances and necessary financing for the specific Property,
either initially or at a later date.
Distributable REIT Taxable Income. An amount equal to or greater than (i)
the sum of 95% of: (a) the REIT Taxable Income for the taxable year (determined
without regard to the deduction for dividends paid and by excluding any net
capital gain), and (b) the excess of the net income from Foreclosure Property
over the tax imposed on such income less (ii) any Excess Noncash Income.
Dividends. Dividends declared by the Board.
Equity Interest. The stock of or other interests in, or warrants or other
rights to purchase the stock of or other interests in, any entity that has
borrowed money from the Company or that is a tenant of the Company or that is a
parent or controlling Person of any such borrower or tenant.
ERISA. Employee Retirement Income Security Act of 1974, as amended.
Escrow Agent. The United States Trust Company of New York, or any other
banking institution permitted to serve as escrow agent under Rule 15c2-4 of the
Exchange Act.
Excess Noncash Income. (i) Income includable under Section 467 of the Code
and (ii) gain from a purported like-kind exchange of property which is
determined to be taxable, but only to the extent that it exceeds 5% of REIT
Taxable Income.
Excess Shares. Any Shares in excess of the Ownership Limit.
Exchange Act. The Securities Exchange Act of 1934, as amended.
FHLMC. The Federal Home Loan Mortgage Corporation or Freddie Mac.
Final Closing Date. The last date on which purchasers of Shares offered
pursuant to this Prospectus are issued such Shares.
FNMA. The Federal National Mortgage Association or Fannie Mae.
Foreclosure Property. Real property (or any interest in real property) and
any personal property incident thereto, which is acquired or reduced to
possession by the Company as a result of a bid in foreclosure, or by agreement
or legal process, following a default (or where a default was imminent) on a
lease of the property or on an indebtedness secured by such property (other than
indebtedness arising upon the sale of dealer property which was not itself
Foreclosure Property) which the Company elects to treat as foreclosure property
under the Code for a period of two years, unless such period is extended with
the permission of the IRS.
GNMA. The Government National Mortgage Association or Ginnie Mae.
Gross Offering Proceeds. The aggregate purchase price of Shares sold in
the Offering.
Independent Appraiser. A qualified appraiser of real estate, as determined
by the Board, who is not affiliated, directly or indirectly with the Company,
the Advisor or affiliates of the Company or the Advisor.
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Membership in a nationally recognized appraisal society such as the American
Institute of Real Estate Appraisers or the Society of Real Estate Appraisers
shall be conclusive evidence of such qualification.
Independent Director. A director of the Company who is not associated and
has not been associated within the last two years, directly or indirectly, with
the Sponsor or the Advisor of the Company. A director shall be deemed to be
associated with the Sponsor or the Advisor if he or she (i) owns an interest in
or, (ii) is employed by or, (iii) is an officer or director, of the Sponsor,
Advisor or any of their Affiliates or, (iv) performs services other than as a
director for the Company or (v) is a director for more than three REITs
organized by the Sponsor or Advised the Advisor or (vi) has a material business
or professional relationship with the Sponsor, Advisor, or any of their
Affiliates. For the purposes of determining whether or not the business or
professional relationship is material, the gross revenue derived by the
prospective independent director from the Sponsor and Advisor and Affiliates
shall be deemed per se if it exceeds 5% of the prospective independent
director's (i) annual gross revenue derived from all sources during either of
the last two years or (ii) net worth on a fair market value basis. An indirect
relationship shall include circumstances in which a director's spouse, parents,
children, siblings, mothers- or fathers-in-law, sons- or daughters-in-law, or
brothers- or sisters-in-law is or has been associated with the Sponsor, the
Advisor, any of their Affiliates or the Company.
Individual. Any natural person and those organizations treated as natural
persons in Section 542(a) of the Code.
Initial Closing Date. The first date on which purchasers of Shares offered
pursuant to this Prospectus are issued such Shares, which shall be no later than
12 months after the date of this Prospectus.
Initial Investor Capital. The total amount of capital invested from time
to time by Shareholders (computed at the rate of $10 per Share for every Share
including those Shares for which reduced selling commissions were paid in
connection with their purchase from the Company). Upon completion of the
Offering, the Initial Investor Capital shall be equal to the Gross Offering
Proceeds.
IRA. An individual retirement account described in Section 408(a) of the
Code or an individual retirement annuity described in Section 408(b) of the
Code.
IRS. The Internal Revenue Service.
Keogh Plan. A retirement benefit plan covering a person with net earnings
from self-employment, also known as an H.R.10 plan.
Leverage. The aggregate amount of indebtedness of the Company for money
borrowed (including purchase money mortgage loans) outstanding at any time, both
secured and unsecured.
Loan Refinancing Fee. Fee paid to the Advisor for substantial services
rendered in connection with certain qualifying refinancings of Property.
Loans. The notes and other evidences of indebtedness or obligations
acquired or entered into by the Company as lender which are secured or
collateralized by personal property, or fee or leasehold interests in real
estate or other assets, including but not limited to first or subordinate
mortgage loans, construction loans, development loans, loans secured by capital
stock or any other assets or form of equity interest and any other type of loan
or financial arrangement, such as providing or arranging for letters of credit,
providing guarantees of obligations to third parties or providing commitments
for loans. The term "Loans" shall not include leases which are not recognized as
leases for Federal income tax reporting purposes.
NASAA Guidelines. The Real Estate Investment Trust Guidelines of the North
American Securities Administrators Association, Inc.
NASD. The National Association of Securities Dealers, Inc.
Nasdaq. The national automated quotation system operated by the NASD.
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Net Assets. The total assets of the Company (other than intangibles) at
cost before deducting depreciation or other non-cash reserves less total
liabilities, calculated at least quarterly on a basis consistently applied.
Net Income. For any period, the total revenues applicable to such period,
less the total expenses applicable to such period excluding additions to
reserves for depreciation, bad debts or other similar non-cash reserves;
provided, however, Net Income for purposes of calculating total allowable
Operating Expenses shall exclude the gain from the sale of the Company's assets.
Net Lease. Lease in which provision is made for the lessee to pay, in
addition to rent, the taxes, insurance and maintenance charges.
Offering. The offering of Shares pursuant to this Prospectus.
Operating Expenses. All operating, general and administrative expenses
paid or incurred by the Company, as determined under generally accepted
accounting principles, except the following: (i) interest and discounts and
other cost of borrowed money; (ii) taxes (including state and Federal income
tax, property taxes and assessments, franchise taxes and taxes of any other
nature); (iii) expenses of raising capital, including selling commissions
payable on the sale of Shares or other securities of the Company, Organization
and Offering Expenses, printing, engraving, and other expenses, and taxes
incurred in connection with the issuance, distribution, transfer, registration
and stock exchange listing of the Company's Shares and securities; (iv) expenses
connected with the acquisition, disposition, ownership and operation of real
estate interests, mortgage loans, or other property, including the costs of
foreclosure, insurance premiums, legal services, brokerage and sales
commissions, maintenance, repair and improvement of property; (v) the
Acquisition Fee or Subordinated Disposition Fee payable to the Advisor or any
other party; and (vi) non-cash items, such as depreciation, amortization,
depletion, and additions to reserves for depreciation, amortization, depletion,
losses and bad debts. Notwithstanding anything herein to the contrary, Operating
Expenses shall include the Asset Management Fee, the Performance Fee and the
Loan Refinancing Fee.
Organization and Offering Expenses. Those expenses payable by the Company
in connection with the formation, qualification and registration of the Company
and in marketing and distributing Shares, including, but not limited to, (i) the
preparing, printing, filing and delivery of the Registration Statement and this
Prospectus (including any amendments thereof or supplements thereto) and the
preparing and printing of contractual agreements between the Company and the
Sales Agent and the Selected Dealers (including copies thereof), (ii) the
preparing and printing of the Articles of Incorporation and Bylaws, solicitation
material and related documents and the filing and/or recording of such documents
necessary to comply with the laws of the State of Maryland for the formation of
a corporation and thereafter for the continued good standing of a corporation,
(iii) the qualification or registration of the Shares under state securities or
"Blue Sky" laws, (iv) any escrow arrangements, including any compensation to an
escrow agent, (v) the filing fees payable to the Commission and to the NASD,
(vi) reimbursement for the reasonable and identifiable out-of-pocket expenses of
the Sales Agent and the Selected Dealers, including the cost of their counsel,
(vii) the fees of the Company's counsel and independent public accountants,
(viii) all advertising expenses incurred in connection with the Offering,
including the cost of all sales literature and the costs related to investor and
broker-dealer sales and information meetings and marketing incentive programs,
and (ix) selling commissions, marketing fees, incentive fees, wholesaling fees
and fees and expenses incurred in connection with the sale of the Shares.
Organizational Documents. The Articles of Incorporation and the Bylaws.
Ownership Limit. With respect to Shares, the percent limitation placed on
the ownership of Shares by any one Person. At the date of this Prospectus, such
limit is 9.8% of the outstanding Shares.
Performance Fee. Fee paid to the Advisor for asset management services
rendered under the Advisory Agreement. Such fee is payable in cash or restricted
stock of the Company at the election of the Advisor on a subordinated basis
pursuant to the Advisory Agreement.
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Permitted Temporary Investments. United States government securities,
certificates of deposit or other time or demand deposits of commercial banks,
savings banks, savings and loan associations or similar institutions which have
a net worth of at least $100,000,000 or in which such certificates or deposits
are fully insured by any Federal or state government agency, United States
dollar deposits in foreign branches of banks which have a net worth of at least
$100,000,000, bank repurchase agreements covering securities of the United
States government or governmental agencies, commercial paper, bankers
acceptances, public money market funds or other similar short-term highly liquid
investments.
Person. An Individual, corporation, partnership, joint venture,
association, company, trust, bank or other entity or any government or any
agency and political subdivision of a government.
Preferred Return. A Cumulative Return of 6% computed from the Initial
Closing Date through the date as of which such amount is being calculated.
Prohibited Transaction. A sale of assets held by the Company primarily for
sale to customers in the ordinary course of business other than (i) Foreclosure
Property and (ii) certain dispositions of real estate assets which satisfy
Section 857(b)(6)(C) of the Code.
Property or Properties. The Company's partial or entire interest in real
property (including leasehold interests) and personal or mixed property
connected therewith.
Prospectus. This prospectus pursuant to which the Company is offering up
to 30,000,000 Shares, as the same may at any time and from time to time be
amended or supplemented.
Registration Statement. The Registration Statement on Form S-11 of which
this Prospectus is a part.
REIT. A real estate investment trust, as defined in Sections 856-860 of
the Code.
REIT Provisions of the Code or REIT Provisions. Parts II and III of
Subchapter M of Chapter 1 of the Code or successor statutes, and regulations and
rulings promulgated thereunder.
REIT Taxable Income. The taxable income of a REIT, adjusted as follows:
(i) the deduction for dividends received allowable to corporations under
Sections 241 through 247, 249 and 250 of the Code is not allowed; (ii) the
deduction for dividends paid under Section 561 of the Code is allowed, but is
computed without regard to that portion of such deduction attributable to net
income from Foreclosure Property; (iii) taxable income is computed without
regard to Section 443(b) of the Code relating to the computation of tax upon the
change of an annual accounting period; (iv) net income from Foreclosure Property
that is not qualified REIT income without regard to the foreclosure property
provisions of the Code is excluded; (v) the tax imposed for failing the 75%
Income Test and/or the 95% Income Test is deducted; and (vi) income derived from
Prohibited Transactions is excluded.
REMIC. A Real Estate Mortgage Income Conduit, as defined in Section 860D
of the Code.
Roll-up Transaction. 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 for at least 12
months listed on a national securities exchange or included for quotation on
Nasdaq National Market System (NMS); 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
any of the following: Shareholder voting rights; the term of existence of the
Company; compensation to the Sponsor or Advisor; or the investment objectives of
the Company.
Roll-up Entity. A partnership, real estate investment trust, corporation,
trust or similar entity that would be created or would survive after the
successful completion of the proposed Roll-up Transaction.
Sales Agent. Carey Financial Corporation.
Securities Act. The Securities Act of 1933, as amended.
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Selected Dealer Fee. A due diligence and management fee payable to the
Sales Agent or Selected Dealers by the Company (through the Sales Agent) of up
to 1% of the price of each Share sold by those Selected Dealers to which the
Sales Agent agrees to pay such due diligence and management fee.
Selected Dealers. Broker-dealers who are members of the NASD and who have
executed a Selected Dealer Agreement with the Sales Agent in whom the Selected
Dealers agree to participate with the Sales Agent in the Offering.
Selling Period. Period in which the Company is engaged selling the
Company's 60,000,000 authorized shares.
Shareholders. Those Persons who at any particular time are shown as
holders of record of Shares on the books and records of the Company.
Shares. All of the shares of common stock of the Company, $.001 par value,
and all other shares of common stock of the Company issued in this or any
subsequent Offering.
Sponsor. W.P. Carey & Co., Inc. and any other person directly or
indirectly instrumental in organizing, wholly or in part, the Company or any
person who will manage or participate in the management of the Company, and any
Affiliate of any such person. Sponsor does not include a person whose only
relationship to the Company is as that of an independent property manager and
whose only compensation is as such. Sponsor also does not include wholly
independent third parties such as attorneys, accountants and underwriters whose
only compensation is for professional services.
Subordinated Acquisition Fee. An Acquisition Fee (including any interest
thereon) payable on a subordinated installment basis pursuant to the Advisory
Agreement.
Subordinated Disposition Fee. Fee paid to the Advisor or an Affiliate
under the Advisory Agreement for property disposition services.
Subordinated Incentive Fee. Fee paid to the Advisor pursuant to the
Advisory Agreement under the circumstances described therein upon the
disposition of Property.
Termination Fee. An amount equal to 15% of the amount, if any, by which
(i) the appraised value of the Properties on the date of termination of the
Advisory Agreement (the "Termination Date"), less the amount of all indebtedness
secured by such Properties, exceeds (ii) the total of the Initial Investor
Capital on the Final Closing Date plus an amount equal to the Preferred Return
through the Termination Date reduced by the total Dividends paid by the Company
from its inception through the Termination Date.
Total Property Cost. With regard to any Property, an amount equal to the
sum of the Contract Purchase Price of such Property plus the Acquisition Fees
paid in connection with such Property.
2%/25% Guidelines. The requirement that, in any 12-month period, the
Operating Expenses not exceed the greater of 2% of the Company's Average
Invested Assets during such 12-month period or 25% of the Company's Net Income
over the same 12-month period.
UBTI. Unrelated business taxable income as defined in Section 512 of the
Code.
Underlying Real Property. The property serving as collateral for any Loan.
Unimproved Real Property. Property which has the following three
characteristics: (i) an equity interest in property which was not acquired for
the purpose of producing rental or other operating income, (ii) no development
or construction is in process on such property, and (iii) no development or
construction on such property is planned in good faith to commence on such
property within one year.
Valuation. An estimate of value of the assets of the Company as determined
by a Person approved by the Independent Directors, which Person shall be
independent of the Company and the Advisor.
W.P. Carey & Co. W.P. Carey & Co., Inc., the Sponsor.
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REPORT OF INDEPENDENT ACCOUNTANTS
To the Board of Directors of
Corporate Property Associates 14 Incorporated:
We have audited the accompanying balance sheet of Corporate Property
Associates 14 Incorporated as of December 31, 1997, and the related statements
of operations, shareholders' equity and cash flows for the period from inception
(June 4, 1997) to December 31, 1997. These financial statements are the
responsibility of Carey Property Advisors, a Pennsylvania limited partnership
(the "Advisor"). Our responsibility is to express an opinion on these financial
statements based on our audit.
We conducted our audit in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by the
Advisor, as well as evaluating the overall financial statement presentation. We
believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly,
in all material respects, the financial position of Corporate Property
Associates 14 Incorporated as of December 31, 1997, and the results of its
operations and its cash flows for the period from inception (June 4, 1997) to
December 31, 1997, in conformity with generally accepted accounting principles.
/s/ COOPERS & LYBRAND L.L.P.
New York, New York
April 13, 1998
F-1
<PAGE> 107
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
BALANCE SHEET
DECEMBER 31, 1997
<TABLE>
<S> <C>
ASSETS:
Cash and cash equivalents................................... $200,000
--------
Total assets................................................ $200,000
========
LIABILITIES:
Accounts payable to affiliates.............................. $ 4,255
Accounts payable and accrued expenses....................... 8,000
--------
Total liabilities........................................... 12,255
--------
Commitments and contingencies
SHAREHOLDERS' EQUITY:
Common stock, $.001 par value; authorized, 40,000,000
shares; issued and outstanding, 20,000 shares at December
31, 1997.................................................. 20
Additional paid-in capital.................................. 199,980
Accumulated loss............................................ (12,255)
--------
Total shareholders' equity.................................. 187,745
--------
Total liabilities and shareholders' equity.................. $200,000
========
</TABLE>
STATEMENT OF OPERATIONS
FOR THE PERIOD FROM INCEPTION (JUNE 4, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Revenues:................................................... $ --
--------
Expenses:
General and administrative.................................. 12,255
--------
Net loss.................................................. $(12,255)
========
Basic loss per share........................................ $ (.61)
========
Weighted average shares outstanding -- basic................ 20,000
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-2
<PAGE> 108
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
STATEMENT OF SHAREHOLDERS' EQUITY
FOR THE PERIOD FROM INCEPTION (JUNE 4, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
ADDITIONAL
COMMON PAID-IN ACCUMULATED
STOCK CAPITAL LOSS TOTAL
------ ---------- ----------- --------
<S> <C> <C> <C> <C>
20,000 Shares issued $.001 Par, at $10 per share.... $20 $199,980 $200,000
Net loss............................................ $ 12,255 (12,255)
--- -------- -------- --------
Balance at December 31, 1997........................ $20 $199,980 $(12,255) $187,745
=== ======== ======== ========
</TABLE>
STATEMENT OF CASH FLOWS
FOR THE PERIOD FROM INCEPTION (JUNE 4, 1997) TO DECEMBER 31, 1997
<TABLE>
<CAPTION>
1997
--------
<S> <C>
Cash flows from operating activities:
Net loss.................................................. $(12,255)
Adjustments to reconcile net loss to net cash provided by
operating activities:
Increase in accounts payable and accrued expenses...... 8,000
Increase in accounts payable to affiliates............. 4,255
--------
Net cash provided by operating activities............ --
--------
Cash flows from financing activities:
Proceeds from stock issuance.............................. 200,000
--------
Net cash provided by financing activities............ 200,000
--------
Net increase in cash and cash equivalents............ 200,000
Cash and cash equivalents, beginning of period.............. --
--------
Cash and cash equivalents, end of period............... $200,000
========
</TABLE>
The accompanying notes are an integral part of the financial statements.
F-3
<PAGE> 109
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO FINANCIAL STATEMENTS
1. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES:
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 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. The most significant estimates will relate to the assessment
of recoverability of real estate assets. Actual results could differ from those
estimates.
The assessment of the recoverability of long-lived assets, including
residual interests of real estate assets, will be based on projections of
undiscounted cash flows over the life of such assets. In the event that such
cash flows are insufficient, the assets will be adjusted to their estimated fair
value.
Real Estate Leased to Others:
Corporate Property Associates 14 Incorporated (the "Company") intends to
lease real estate to others on a net lease basis, whereby the tenant is
generally responsible for all operating expenses relating to the property,
including property taxes, insurance, maintenance, repairs, renewals and
improvements.
The leases will be accounted for under the operating and direct financing
methods.
Operating method -- Real estate is recorded at cost, revenue is recognized
on a straight-line basis over the terms of the lease and expenses (including
depreciation) are charged to operations as incurred.
Direct financing method -- Leases accounted for under the direct financing
method are recorded at their net investment. Unearned income is deferred and
amortized to income over the lease terms so as to produce a constant periodic
rate of return on the Company's net investment in the lease.
Depreciation will be computed using the straight-line method over the
estimated useful lives of the properties -- 40 years.
For properties under construction, interest charges will be capitalized
rather than expensed and rentals received will be recorded as a reduction of
capitalized project (i.e., construction) costs in accordance with Statement of
Financial Standard No. 67.
Cash Equivalents:
The Company considers all short-term, highly liquid investments that are
both readily convertible to cash and have a maturity of generally three months
or less at the time of purchase to be cash equivalents. Items classified as cash
equivalents include commercial paper and money market funds. At December 31,
1997, the Company's cash and cash equivalents were held in the custody of one
financial institution.
Offering Costs:
Costs incurred in connection with the raising of capital through the sale
of common stock will be charged to shareholders' equity upon the issuance of
shares to shareholders.
Earnings Per Share:
In February 1997, the Financial Accounting Standards Board issued Statement
of Financial Accounting Standards No. 128 "Earnings Per Share" ("SFAS No. 128")
which establishes standards for computing and presenting earnings per share. The
adoption of SFAS No. 128 had no impact on the Company's financial statements
because the Company has a simple capital structure, that is, one with only
common
F-4
<PAGE> 110
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
stock outstanding. As a result, the Company has presented basic per-share
amounts presented in the accompanying statement of operations.
Federal Income Taxes:
The Company did not elect to qualify as a real estate investment trust
("REIT") for the year ended December 31, 1997 under the Internal Revenue Code of
1986. The Company intends to elect to qualify as a REIT for 1998. The Company
should not be subject to Federal income taxes in future years, provided it
distributes at least 95% of its REIT taxable income to its shareholders and
meets other conditions necessary to retain REIT status.
2. ORGANIZATION AND OFFERING:
The Company was formed on June 4, 1997 under the General Corporation Law of
Maryland for the purpose of engaging in the business of investing in and owning
industrial and commercial real estate. Subject to certain restrictions and
limitations, the business of the Company is managed by Carey Property Advisors,
a Pennsylvania limited partnership (the "Advisor").
A maximum of 30,000,000 Shares are being offered to the public on a "best
efforts" basis by Carey Financial Corporation ("Carey Financial") and other
selected dealers at a price of $10 per Share. Sale of the Shares to the public
commenced on December 11, 1997. On April 3, 1998, 2,651,661 Shares were issued
for $26,495,178, net of discounts.
On June 30, 1997, the Advisor purchased 20,000 shares of common stock
("Shares") for $200,000 and became the initial shareholder of the Company.
3. TRANSACTIONS WITH RELATED PARTIES:
The Company has entered into an advisory agreement with the Advisor
pursuant to which the Advisor performs certain services for the Company
including the identification, evaluation, negotiation, purchase and disposition
of property, the day-to-day management of the Company and the performance of
certain administrative services. The Advisor and certain affiliates will receive
substantial fees and compensation in connection with the offering and the
operation of the Company as described in the Prospectus of the Company.
In the future, real property may be acquired by limited partnerships, REITs
or other entities formed by affiliates of the Company and, accordingly,
transactions with related parties may arise between the Company and affiliated
entities.
The Company's asset management and performance fees payable to the Advisor
are each one-half of 1% per annum of Average Invested Assets, as defined in the
Prospectus. Until Shareholders have received a cumulative dividend return of 6%,
the Advisor will not be entitled to receive the performance fee. At such time as
the Advisor is entitled to receive the performance fee, the Advisor will have
the option of receiving such fee in cash or restricted shares of the Company.
General and administrative expense reimbursement consists primarily of the
actual cost of personnel, needed in providing administrative services, necessary
to the prudent operation of the Company. No fees or reimbursements were incurred
in 1997.
The Advisor shall reimburse the Company at least annually for the amount by
which operating expenses of the Company exceed the 2%/25% Guidelines (2% of
Average Invested Assets or 25% of net income) as defined in the Prospectus. To
the extent that operating expenses payable or reimbursable by the Company exceed
the 2%/25% Guidelines and the independent directors find that such expenses were
justified based on such unusual and nonrecurring factors which they deem
sufficient, the Advisor may be reimbursed in future years for the full amount or
any portion of such excess expenses, but only to the extent
F-5
<PAGE> 111
CORPORATE PROPERTY ASSOCIATES 14 INCORPORATED
NOTES TO FINANCIAL STATEMENTS -- (CONTINUED)
such reimbursement would not cause the Company's operating expenses to exceed
the 2%/25% Guidelines in any such year.
Fees are payable for services provided by the Advisor to the Company
relating to the identification, evaluation, negotiation, financing and purchase
of properties. A portion of such fees will be deferred and payable in annual
installments with each installment equal to .25% of the purchase price of the
properties over no less than eight years following the first anniversary of the
date a property was purchased. Payment of such fees is subject to the 2%/25%
Guidelines.
4. COMMITMENTS AND CONTINGENCIES:
The Company will be liable for certain expenses of the offering (the
"Offering") described in the Prospectus of the Company, including but not
limited to filing, legal, accounting, printing and escrow fees, which are to be
deducted from the gross proceeds of the Offering and are presently estimated to
aggregate a maximum of $10,500,000 assuming the sale of 30,000,000 Shares. The
Company will also be liable for selling commissions of up to $0.65 (6.5%) per
Share sold except for any Shares sold to the Advisor, its Affiliates, the
selected dealers or any of their employees for their own accounts. The Company
will pay a selected dealer fee not to exceed 1% of the price of each Share sold
by the selected dealer. The Company will reimburse Carey Financial for expenses
(including fees and expenses of its counsel) and for the costs of sales,
wholesaling services and information meetings of Carey Financial's employees
relating to the Offering. To the extent, if any, that all organization and
offering expenses, excluding selling commissions, and any fees paid and expenses
reimbursed to the selected dealers or paid on behalf of the selected dealers,
exceed 3.5% of the gross proceeds of the Offering, such excess will be paid by
the Advisor with no recourse to or reimbursement by the Company.
5. SUBSEQUENT EVENT:
In February 1995, Corporate Property Associates 12 Incorporated
("CPA(R):12"), an affiliate, purchased property in Heyward, California and
entered into a net lease with Etec Systems, Inc. ("Etec"). In February 1998,
CPA(R):12 entered into a series of transactions that included the contribution
of the Etec properties to a limited liability company, ET LLC, entering into a
commitment and construction agency agreement to fund additional improvements
(the "Project II Improvements") of up to $52,356,000 and amending the Etec
lease. On April 3, 1998, ET LLC received a commitment for $45,000,000 of limited
recourse financing on the Etec properties.
Under the ET LLC limited liability company agreement, CPA(R):12 and the
Company will initially have 99.99% and .01% interests, respectively, in the
Project II Improvements with the Company having the commitment to increase its
interests in the Project II Improvements to 49.99%. Such increase in the
Company's equity interest in ET LLC, however, is limited to 10% of the gross
offering proceeds of the Offering.
The Etec lease, as amended, has an initial term through May 2014 with three
five-year renewal terms at Etec's option. After completion of the Project II
Improvements, assuming that the entire funding commitment is needed, annual rent
applicable to the Project II Improvements will be approximately $5,727,000 with
increases every three years based on increases in the Consumer Price Index.
6. ACCOUNTING PRONOUNCEMENTS:
In June 1997, the Financial Accounting Standards Board issued Statement of
Financial Accounting Standards ("SFAS") No. 130, "Reporting Comprehensive
Income." SFAS No. 130 establishes standards for reporting and display of
comprehensive income and its components (revenues, expenses, gains and losses)
in full set general purpose financial statements. SFAS No. 130 is required to be
adopted in 1998. The Company is currently evaluating the impact, if any, of SFAS
No. 130.
F-6
<PAGE> 112
EXHIBIT A
PRIOR PERFORMANCE TABLES
The information presented in the following tables represents the historical
experience of the CPA(R) Programs for which the Affiliates of the Advisor of the
Company serve as general partners and the record of CPA(R) Programs in meeting
their investment objectives. These tables should be carefully reviewed by a
potential investor in considering an investment in the Company. These tables are
as follows:
Table I -- Experience in Raising and Investing Funds (on a percentage
basis)
Table II -- Compensation to Sponsor
Table III -- Operating Results of Prior Programs
Table V -- Sales or Dispositions of Properties
PERSONS WHO PURCHASE SHARES IN THE COMPANY WILL NOT THEREBY ACQUIRE ANY
OWNERSHIP INTEREST IN ANY OF THE CPA(R) PROGRAMS TO WHICH THESE TABLES RELATE.
IT SHOULD NOT BE ASSUMED THAT INVESTORS IN THE COMPANY WILL EXPERIENCE RESULTS
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN THE CPA(R) PROGRAMS. SEE "PRIOR
OFFERINGS BY AFFILIATES" ELSEWHERE IN THIS PROSPECTUS.
The investment objectives of the Company and CPA(R) Programs are similar.
Additional information regarding prior public CPA(R) Programs can be
obtained from the Advisor by written request to the Director of Investor
Relations, 5 Rockefeller Plaza, New York, NY 10020, (800) 972-2739, for a copy
of the most recent Annual Report filed on Form 10-K with the SEC or a copy of
Table VI -- Acquisition of Real Properties by Prior Public Programs included in
Part II of the Registration Statement to which this Prospectus relates, free of
charge.
The following terms used throughout the Prior Performance Tables are
defined below:
"Total acquisition cost" means the original mortgage financing at date
of purpose, cash payments (equity), and prepaid items and fees related to
purchase of property.
"GAAP" means generally accepted accounting principles.
"Cash generated from operations" means the excess or deficiency of
partnership operating cash receipts including interest on short-term
investments over partnership operating case expenditures.
A-1
<PAGE> 113
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS AS OF DECEMBER 31, 1997
ON A PERCENTAGE BASIS
Table I includes information showing how investors' funds have been dealt
with in Prior Programs, the offerings of which have closed since January 1,
1994, particularly focusing on the percentage of the amount raised available for
investment (or total acquisition cost), the percentage of leverage used in
purchasing properties and the time frame for raising and investing funds. THE
INFORMATION IN THIS TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE
PERFORMANCE OF THE COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS
WILL NOT HAVE ANY OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE
CPA(R) PROGRAMS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS
FOR INVESTMENT BY SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):10 CIP(R) CPA:12
--------- ------ ------
<S> <C> <C> <C>
Dollar amount offered (net of discounts and
individual general partner contributions)....... $72,049,908 $141,590,601 $282,740,030
Dollar amount raised.............................. 100% 100% 100%
Less offering expenses:
Selling commissions............................. 6.82% 6.94% 5.79%
Organization expenses........................... 7.17% 5.31% 4.20%
Reserves (working capital)........................ 1.00% 1.00% 1.00%
Percent available for investment in real estate... 85.01% 86.75% 89.01%
Acquisition costs:
Cash down payments.............................. 71.12% 77.44% 60.67%
Other costs capitalized......................... 0.82% 0.24% 1.75%
Acquisition fees................................ 10.05% 9.03% 5.18%
Total acquisition costs (includes debt
financing)................................... 220.44% 195.99% 109.32%
Percent leverage (mortgage financing divided by
total acquisition costs)........................ 63% 56%(1) 38%(1)
Date offering began............................... 6/20/90(2) 8/19/91(3) 2/18/94(4)
Length of offering (in months).................... 12 mos. 24 mos. 43 mos.
Months to invest 90% of amount available for
investment (from beginning of offering)......... 30 mos. 31 mos. N/A(5)
</TABLE>
FOOTNOTES
(1) Does not represent fully invested portfolio. Leverage percentage is
applicable only to initial property acquisitions.
(2) Remaining shares withdrawn 8/14/91.
(3) Remaining shares withdrawn 11/4/93.
(4) Remainings shares withdrawn 3/14/96, includes a second offering which
commenced 2/2/96.
(5) Program has not reached investment of 90% of amount available for
investment.
A-2
<PAGE> 114
TABLE II
COMPENSATION TO SPONSOR AS OF DECEMBER 31, 1997
Table II provides information as to Prior Programs that will enable an
investor to understand the significance of compensation paid to the sponsor and
its affiliates, as well as to understand how the compensation is spread over the
cycle of the programs. The information presented below is for compensation paid
since January 1, 1995. THE INFORMATION PRESENTED IN THIS TABLE SHOULD NOT BE
CONSIDERED AS INDICATIVE OF THE COMPENSATION WHICH WILL BE RECEIVED BY THE
ADVISOR AND AFFILIATES OF THE ADVISOR. THE COMPENSATION PAYABLE TO THE GENERAL
PARTNERS AND AFFILIATES OF THE CPA(R) PARTNERSHIPS DIFFERS FROM THE ENTITLEMENT
AND ALLOCATION OF COMPENSATION TO THE ADVISOR AND AFFILIATES OF THE ADVISOR. SEE
"MANAGEMENT COMPENSATION" AND "ESTIMATED USE OF PROCEEDS". PURCHASERS OF SHARES
OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY OWNERSHIP IN THE CPA(R) PROGRAMS.
<TABLE>
<CAPTION>
CPA(R):1-
CPA(R):10 CIP(R) CPA(R):12
--------- ------ ---------
<S> <C> <C> <C>
Date offering(s) commenced........................ 1/16/79-6/20/90 8/19/91 2/18/94
2/2/96
Dollar amount raised (net of discounts and
individual general partner contributions)....... $472,763,521 $141,590,601 $282,740,030
Amount paid to sponsor from proceeds of offering:
Underwriting fees...............................
Acquisition fees-real estate commissions and
mortgage placement fees(1)................... 930,000 3,221,556 14,643,362
Other Fees
Dollar amount of cash generated from operations
before deducting payments to sponsor............ 200,060,964 56,059,949 38,101,480
Amount paid to sponsor from operations:
Property management, leasing and asset
management fees(2)........................... 7,069,355 10,272,024 4,250,310
Reimbursements(2)............................... 4,895,829 2,479,593 2,487,388
Other (cash distributions to General
Partners)(2).................................... 7,854,838 -- --
Dollar amount of property sales and re-financing
before deducting payments to sponsor(2)......... 117,592,951 31,599,220 8,375,000
Amount paid to sponsor from property sales and
refinancing.....................................
</TABLE>
FOOTNOTES
(1) Represents acquisition fees paid to sponsor and its affiliates from January
1, 1995 through December 31, 1997
(2) Represents actual performance or payments for the period from January 1,
1995 through December 31, 1997.
A-3
<PAGE> 115
TABLE III (1 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase
of Prior Programs, the offerings of which have been closed since December 31,
1979. This Table is designed to provide the investor with information on the
financial operations of such Prior Programs. The results shown in this Table are
in all cases for years ended December 31. THE INFORMATION PRESENTED IN THIS
TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):1
------------------------------------------------------------------------------
1979 1980 1981 1982 1983 1984
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues..................................... $2,636,185 $3,843,588 $4,427,993 $4,376,655 $4,322,546 $4,331,105
Profit (loss) on sale of properties................ N/A N/A N/A N/A 22,180(1) N/A
Extraordinary charge on extinguishment of debt.....
Write-down of property............................. N/A N/A N/A N/A N/A N/A
Less:
Operating expenses................................ 160,387 252,758 238,058 181,922 169,613 145,516
Interest expense.................................. 1,415,410 1,895,624 2,409,242 2,386,388 2,328,716 2,300,677
Depreciation...................................... 821,484 1,275,778 1,275,792 1,275,792 1,275,792 1,272,999
Net income (loss) GAAP Basis....................... 238,904 419,428 504,901 532,553 570,605 611,913
Taxable income (Loss):
-- from operations................................ 392,689 219,214 (108,663) (158,919) (173,788) (72,288)
-- from gain (loss) on sale....................... 0 0 0 0 22,180(1) 0
Cash generated from operations(6).................. 985,982 1,512,434 1,504,769 1,500,263 1,438,191 1,481,113
Cash proceeds from sales........................... 0 0 0 0 60,335(1) 0
Cash generated from refinancing.................... 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing....................................... 985,982 1,512,434 1,504,769 1,500,263 1,498,526 1,481,113
Less Cash distribution to investors................
-- from operating cash flow(7).................... 591,479 1,480,000 1,501,819 1,504,648 1,504,646 1,504,646
-- from sales and refinancing..................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distribution...................................... 394,503 32,434 2,950 (4,385) (6,120) (23,533)
Less special items................................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items................... 394,503 32,434 2,950 (4,385) (6,120) (23,533)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)............................ $23.65 $10.85 $(5.38) $(7.87) $(8.60) $(3.58)
Capital gain (loss)............................... 0 0 0 0 1.10 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.............................. 14.39 20.76 24.99 26.36 27.15 30.29
-- Return of capital.............................. 21.23 52.50 49.35 48.12 47.33 44.19
Source (on cash basis):
-- Sales.......................................... 0 0 0 0 0 0
-- Refinancing.................................... 0 0 0 0 0 0
-- Operations..................................... 35.62 73.26 74.34 74.48 74.48 74.48
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table (original total acquisition
cost of properties retained divided by original
total acquisition cost of all properties in
program).......................................... N/A 100% 100% 100% 100% 100%
<CAPTION>
CPA(R):1
-----------------------------------------------------------------
1985 1986 1987 1988 1989
---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues..................................... $4,187,199 $3,513,411 $6,584,410 $4,487,838 $4,167,975
Profit (loss) on sale of properties................ N/A (38,915)(2) N/A N/A (231,288)(3)
Extraordinary charge on extinguishment of debt.....
Write-down of property............................. N/A N/A N/A N/A 300,000(4)
Less:
Operating expenses................................ 276,287 630,225 766,707 811,685 418,278
Interest expense.................................. 2,254,996 2,296,520 2,320,731 2,339,046 1,916,134
Depreciation...................................... 1,266,962 1,507,133 1,520,842 1,318,492 1,159,216
Net income (loss) GAAP Basis....................... 388,954 (959,382) 1,976,130 18,615 143,059
Taxable income (Loss):
-- from operations................................ (49,859) (1,135,524) (125,052) 482,093 1,175,040
-- from gain (loss) on sale....................... 0 (38,915)(2) 0 0 (538,771)(3)
Cash generated from operations(6).................. 1,221,045 736,214 1,078,838 1,908,203 1,964,408
Cash proceeds from sales........................... 0 500,000(2) 0 0 0
Cash generated from refinancing.................... 0 0 0 0 0
Cash generated from operations, sales and
refinancing....................................... 1,221,045 1,238,214 1,078,838 1,908,203 1,964,408
Less Cash distribution to investors................
-- from operating cash flow(7).................... 1,504,646 1,055,354 1,063,838 1,074,748 1,092,527
-- from sales and refinancing..................... 0 0 0 0 0
Cash generated (deficiency) after cash
distribution...................................... (283,601) 180,860 15,000 23,455 871,881
Less special items................................. 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items................... (283,601) 180,860 15,000 23,455 871,881
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)............................ $(2.47) $(56.21) $(6.19) $23.86 $58.16
Capital gain (loss)............................... 0 (1.92) 0 0 (26.67)
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.............................. 19.25 0 52.66 53.20 7.08
-- Return of capital.............................. 55.23 52.24 0 0 47.00
Source (on cash basis):
-- Sales.......................................... 0 0 0 0 0
-- Refinancing.................................... 0 0 0 0 0
-- Operations..................................... 74.48 52.24 52.66 53.20 54.08
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table (original total acquisition
cost of properties retained divided by original
total acquisition cost of all properties in
program).......................................... 100% 98.75% 98.75% 98.75% 83.14%
<CAPTION>
CPA(R):1
------------------------------------------------------------------------------
1990 1991 1992 1993 1994 1995
---------- ---------- ---------- ---------- ---------- ----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues..................................... $4,162,465 $4,093,556 $4,102,112 $4,418,370 $4,480,460 $4,830,618
Profit (loss) on sale of properties................ N/A (13,296)(5) N/A N/A N/A N/A
Extraordinary charge on extinguishment of debt.....
Write-down of property............................. N/A N/A N/A N/A N/A N/A
Less:
Operating expenses................................ 411,712 298,435 302,200 465,548 666,955 374,238
Interest expense.................................. 1,840,553 1,750,596 1,682,798 1,672,658 1,598,614 1,524,837
Depreciation...................................... 1,044,720 1,041,634 1,059,255 1,120,162 1,106,712 1,089,758
Net income (loss) GAAP Basis....................... 865,480 989,595 1,057,059 1,160,002 1,108,179 1,841,695
Taxable income (Loss):
-- from operations................................ 1,199,289 852,971 812,956 1,098,352 930,049 1,841,051
-- from gain (loss) on sale....................... 0 52,204(5) 0 0 0 0
Cash generated from operations(6).................. 1,901,459 2,062,138 2,046,299 2,291,177 2,216,472 2,666,179
Cash proceeds from sales........................... 0 160,000(5) 0 0 0 0
Cash generated from refinancing.................... 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing....................................... 1,901,459 2,222,138 2,046,299 2,291,177 2,216,472 2,666,179
Less Cash distribution to investors................
-- from operating cash flow(7).................... 1,162,424 1,226,667 1,242,828 1,258,990 1,269,699 1,313,535
-- from sales and refinancing..................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distribution...................................... 739,035 995,471 803,471 1,032,187 946,773 1,352,644
Less special items................................. 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items................... 739,035 995,471 803,471 1,032,187 946,773 1,352,644
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)............................ $59.36 $42.22 $40.24 $54.37 $46.04 $91.13
Capital gain (loss)............................... 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.............................. 42.84 48.98 52.36 57.42 54.85 65.02
-- Return of capital.............................. 14.70 11.74 9.16 4.90 8.00 0
Source (on cash basis):
-- Sales.......................................... 0 0 0 0 0 0
-- Refinancing.................................... 0 0 0 0 0 0
-- Operations..................................... 57.54 60.72 61.52 62.32 62.85 65.02
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table (original total acquisition
cost of properties retained divided by original
total acquisition cost of all properties in
program).......................................... 83.14% 82.74% 82.74% 82.74% 82.74% 82.74%
<CAPTION>
CPA(R):1
--------------------------
1996 1997
---------- ----------
<S> <C> <C>
Gross Revenues..................................... $4,589,145 $4,825,055
Profit (loss) on sale of properties................ (22,871)(5) 607,861(7)
Extraordinary charge on extinguishment of debt..... (255,438)(6) --
Write-down of property............................. N/A
Less:
Operating expenses................................ 388,484 1,104,473
Interest expense.................................. 1,280,995 1,062,706
Depreciation...................................... 969,570 905,816
Net income (loss) GAAP Basis....................... 1,671,787 2,359,921
Taxable income (Loss):
-- from operations................................ 1,540,197 2,256,416
-- from gain (loss) on sale....................... 153,615 630,826
Cash generated from operations(6).................. 2,826,531 2,820,490
Cash proceeds from sales........................... 355,958 1,042,200
Cash generated from refinancing.................... 0 0
Cash generated from operations, sales and
refinancing....................................... 3,182,489 3,862,690
Less Cash distribution to investors................
-- from operating cash flow(7).................... 1,417,554 1,977,926
-- from sales and refinancing..................... 0
Cash generated (deficiency) after cash
distribution...................................... 1,764,935 1,884,764
Less special items................................. 0 0
Cash generated (deficiency) after cash
distributions and special items................... 1,764,935 1,884,764
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)............................ $76.24 111.69
Capital gain (loss)............................... 7.60 31.23
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.............................. 70.17 97.91
-- Return of capital.............................. 0 0
Source (on cash basis):
-- Sales.......................................... 0 0
-- Refinancing.................................... 0 0
-- Operations..................................... 70.17 97.91
Amount (in percentage terms) remaining invested in
program properties at the end of the last year
reported in the Table (original total acquisition
cost of properties retained divided by original
total acquisition cost of all properties in
program).......................................... 82.46% 81.44%
</TABLE>
A-4
<PAGE> 116
TABLE III (2 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):2
---------------------------------------------------------------------------
1980 1981 1982 1983 1984 1985
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues............................. $1,658,322 $4,092,794 $6,422,836 $9,793,731 $9,895,531 $9,960,370
Profit on sale of properties............... N/A N/A N/A N/A N/A N/A
Extraordinary charge on extinguishment of
debt...................................... N/A N/A N/A N/A N/A N/A
Write-down of property.....................
Less:
Operating expenses........................ 181,613 291,223 290,558 307,165 346,920 364,373
Interest expense.......................... 197,038 606,089 3,341,880 6,511,201 6,349,960 6,307,664
Depreciation.............................. 14,421 127,460 157,900 154,909 154,909 155,782
Net Income-GAAP Basis...................... 1,265,250 3,068,022 2,632,498 2,820,456 3,043,742 3,132,551
Taxable Income (Loss):
-- from operations........................ 630,885 2,003,000 (9,093) (1,168,795) (885,102) (532,969)
-- from gain on sale...................... 0 0 0 0 0 0
-- from extraordinary charge.............. 0 0 0 0 0 0
Cash generated from operations(3).......... 1,149,636 2,853,883 2,460,169 2,574,532 2,804,385 2,881,848
Cash generated from sales.................. 0 0 0 0 0 0
Cash generated from refinancing............ 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing............................... 1,149,636 2,853,883 2,460,169 2,574,532 2,804,385 2,881,848
Less: Cash distribution to investors:
-- from operating cash flow(4)............ 473,028 2,229,443 2,440,555 2,525,000 2,547,000 2,657,778
-- from sales and refinancing............. 0 0 0 0 0 0
Cash generated after cash distributions and
special items............................. 676,608 624,440 19,614 49,532 257,385 224,070
Less: Special items........................ 0 0 0 0 0 0
Cash generated after cash distributions and
special items............................. 676,608 624,440 19,614 49,532 257,385 224,070
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................... $ 48.95 $ 72.11 $ (.33) $ (42.08) $ (30.78) $ (19.19)
Capital gain (loss)...................... 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income..................... 36.70 80.25 87.86 90.90 91.70 95.68
-- Return of capital..................... 0 0 0 0 0 0
Source (on cash basis):
-- Sales................................. 0 0 0 0 0 0
-- Refinancing........................... 0 0 0 0 0 0
-- Operations............................ 36.70 80.25 87.86 90.90 91.70 95.68
Amount (in percentage terms) remaining
invested in program properties at the end
of the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties
in program)............................... N/A N/A 100% 100% 100% 100%
<CAPTION>
CPA(R):2
------------------------------------------------------------------------------
1986 1987 1988 1989 1990 1991
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues............................. $9,954,236 $9,694,869 $9,754,664 $10,013,889 $9,732,269 $9,756,071
Profit on sale of properties............... 920,577(1) N/A N/A N/A N/A N/A
Extraordinary charge on extinguishment of
debt...................................... (894,945)(2) N/A N/A N/A N/A N/A
Write-down of property.....................
Less:
Operating expenses........................ 393,350 480,635 489,806 540,777 685,927 691,505
Interest expense.......................... 4,916,744 4,204,623 4,074,729 3,856,045 3,771,706 3,595,406
Depreciation.............................. 314,560 475,162 475,162 479,598 480,393 478,388
Net Income-GAAP Basis...................... 4,355,214 4,534,449 4,714,967 5,137,469 4,794,243 4,990,772
Taxable Income (Loss):
-- from operations........................ 260,572 1,604,613 1,997,924 2,600,538 2,461,101 2,874,398
-- from gain on sale...................... 2,035,116(1) 0 0 0 0 0
-- from extraordinary charge.............. (239,948)(2) 0 0 0 0 0
Cash generated from operations(3).......... 4,325,850 5,084,085 5,096,066 5,502,770 5,298,252 5,389,873
Cash generated from sales.................. 5,441,434(1) 0 0 0 0 0
Cash generated from refinancing............ 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing............................... 9,767,234 5,084,085 5,096,066 5,502,770 5,298,252 5,389,873
Less: Cash distribution to investors:
-- from operating cash flow(4)............ 3,691,774 3,435,000 3,506,667 3,645,000 3,773,333 3,832,222
-- from sales and refinancing............. 4,950,000 0 0 0 0 0
Cash generated after cash distributions and
special items............................. 1,125,510 1,649,085 1,589,399 1,857,770 1,524,919 1,557,651
Less: Special items........................ 0 0 0 0 0 0
Cash generated after cash distributions and
special items............................. 1,125,510 1,649,085 1,589,399 1,857,770 1,524,919 1,557,651
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................... $ .73 $ 57.77 $ 71.93 $ 93.62 $ 88.60 $ 103.48
Capital gain (loss)...................... 73.27 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income..................... 156.79 123.66 126.24 131.22 135.84 137.96
-- Return of capital..................... 156.11 0 0 0 0 0
Source (on cash basis):
-- Sales................................. 180.00 0 0 0 0 0
-- Refinancing........................... 0 0 0 0 0 0
-- Operations............................ 132.90 123.66 126.24 131.22 135.84 137.96
Amount (in percentage terms) remaining
invested in program properties at the end
of the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties
in program)............................... 93.24% 93.24% 93.24% 93.24% 93.24% 93.24%
<CAPTION>
CPA(R):2
--------------------------------------------------------------------------------
1992 1993 1994 1995 1996 1997
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues............................. $9,763,695 $ 6,665,727 $5,161,447 $5,185,804 $4,590,963 $4,919,703
Profit on sale of properties............... N/A 8,377,679(5) 23,451(7) N/A N/A N/A
Extraordinary charge on extinguishment of
debt...................................... N/A (520,979)(6) N/A N/A N/A N/A
Write-down of property..................... (841,889)(8) (445,551)(9)
Less:
Operating expenses........................ 983,060 846,569 911,755 718,035 735,018 857,919
Interest expense.......................... 3,337,825 2,142,199 1,593,880 1,351,797 731,843 542,304
Depreciation.............................. 476,279 501,762 501,657 519,891 499,320 519,460
Net Income-GAAP Basis...................... 4,966,531 10,190,008 1,732,055 2,596,081 2,624,782 3,000,020
Taxable Income (Loss):
-- from operations........................ 3,574,899 1,924,220 1,368,123 5,114,606 1,967,557 2,683,925
-- from gain on sale...................... 0 21,777,693 40,237 0 0 0
-- from extraordinary charge.............. 0 0 0 0 0 0
Cash generated from operations(3).......... 5,513,940 3,977,769 2,770,535 6,164,009 2,791,872 3,365,082
Cash generated from sales.................. 0 15,972,862 124,615 0 0 0
Cash generated from refinancing............ 0 0 0 0 0 0
Cash generated from operations, sales and
refinancing............................... 5,513,940 19,950,631 2,895,150 6,164,009 2,791,872 3,365,082
Less: Cash distribution to investors:
-- from operating cash flow(4)............ 3,898,333 2,691,111 1,458,890 1,491,667 2,303,728 2,167,890
-- from sales and refinancing............. 0 14,300,312 0 0 0 0
Cash generated after cash distributions and
special items............................. 1,615,607 2,959,208 1,436,260 4,672,342 488,144 1,197,192
Less: Special items........................ 0 0 0 0 0 0
Cash generated after cash distributions and
special items............................. 1,615,607 2,959,208 1,436,260 4,672,342 488,144 1,197,192
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................... $ 128.70 $ 69.27 $ 49.25 $ 184.46 $ 70.96 $ 96.80
Capital gain (loss)...................... 0 784.00 1.45 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income..................... 140.34 366.84 52.52 53.72 83.09 78.19
-- Return of capital..................... 0 250.04 0.00 0 0 0
Source (on cash basis):
-- Sales................................. 0 520.00 0 0 0 0
-- Refinancing........................... 0 0 0 0 0 0
-- Operations............................ 140.34 96.88 52.52 53.72 83.09 78.19
Amount (in percentage terms) remaining
invested in program properties at the end
of the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties
in program)............................... 93.24% 61.97% 61.65% 61.65% 61.65% 61.65%
</TABLE>
A-5
<PAGE> 117
TABLE III (3 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase or
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):3
--------------------------------------------------------------------------
1981 1982 1983 1984 1985 1986
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.......................... $173,916 $7,746,826 $8,618,753 $8,798,595 $8,792,622 $ 8,720,462
Profit on sale of properties............ N/A N/A N/A N/A N/A 540,765(1)
Extraordinary charges on extinguishment
of debt................................ N/A N/A N/A N/A N/A (1,256,013)(2)
Write-down of property.................. N/A N/A N/A N/A N/A N/A
Other income............................
Less:
Operating expenses..................... 54,011 384,169 369,246 506,660 502,561 496,570
Interest expense....................... 60,855 4,224,538 4,341,435 3,921,936 3,845,445 3,296,710
Depreciation........................... 0 0 0 0 0 20,502
Net Income-GAAP Basis................... 59,050 3,138,119 3,908,072 4,369,999 4,444,615 4,191,432
Taxable Income (Loss):
-- from operations..................... (190,312) (516,798) (194,879) 277,458 375,653 708,829
-- from gain on sale................... 0 0 0 0 0 3,373,025(1)
-- from extraordinary charge........... 0 0 0 0 0 (852,511)(2)
Cash generated from operations(3)....... 41,249 2,698,796 3,523,610 3,979,272 3,995,421 5,009,304
Cash generated from sales............... 0 0 0 0 0 5,302,208(1)
Cash generated from refinancing......... 0 0 0 0 0 0
Cash generated from other............... 0 0 0 0 0 0
Cash generated from operations, sales,
refinancing and other.................. 41,249 2,698,796 3,523,610 3,979,272 3,995,421 10,311,512
Less: Cash distribution to investors:
-- from operating cash flow(4)......... 0 1,906,688 3,388,225 3,787,592 3,889,970 4,125,001
-- from sales and refinancing.......... 0 0 0 0 0 0
-- other............................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 41,249 792,108 135,385 191,680 105,451 6,186,511
Less: Special items..................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 41,249 792,108 135,385 191,680 105,451 6,186,511
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income........................ $ (25.06) $ (19.36) $ (5.79) $ 8.24 $ 11.16 $ (3.21)
Capital gain........................... 0 0 0 0 0 101.19
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income.................. 0 71.42 100.62 112.48 116.52 122.50
-- Return of capital.................. 0 0 0 0 0 0
Source (on cash basis):
-- Sales............................... 0 0 0 0 0 0
-- Refinancing......................... 0 0 0 0 0 0
-- Other............................... 0 0 0 0 0 0
-- Operations.......................... 0 71.42 100.62 112.48 116.52 122.50
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. N/A N/A 100% 100% 100% 84.41%
<CAPTION>
CPA(R):3
----------------------------------------------------------------------------
1987 1988 1989 1990 1991 1992
---- ---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.......................... $ 8,394,566 $8,582,478 $8,774,232 $8,713,691 $8,699,175 $8,478,263
Profit on sale of properties............ N/A N/A N/A N/A N/A N/A
Extraordinary charges on extinguishment
of debt................................ N/A N/A N/A N/A N/A N/A
Write-down of property.................. N/A N/A N/A N/A N/A N/A
Other income............................
Less:
Operating expenses..................... 583,208 568,793 622,281 713,979 855,729 1,533,036
Interest expense....................... 2,459,640 2,376,215 2,332,100 2,184,359 2,073,632 1,936,878
Depreciation........................... 108,357 108,208 108,911 108,434 108,272 108,132
Net Income-GAAP Basis................... 5,243,361 5,529,262 5,710,940 5,706,919 5,631,542 4,900,217
Taxable Income (Loss):
-- from operations..................... 2,492,141 2,938,913 3,240,014 3,295,198 3,439,197 5,452,217
-- from gain on sale................... 0 0 0 0 0 0
-- from extraordinary charge........... 0 0 0 0 0 0
Cash generated from operations(3)....... 5,458,974 5,743,427 5,749,481 5,785,928 5,712,639 5,252,425
Cash generated from sales............... 0 0 0 0 0 0
Cash generated from refinancing......... 0 0 0 0 0 0
Cash generated from other............... 0 0 0 0 0 8,533,614(5)
Cash generated from operations, sales,
refinancing and other.................. 5,458,974 5,743,427 5,749,481 5,785,928 5,712,639 13,786,039
Less: Cash distribution to investors:
-- from operating cash flow(4)......... 4,073,945 3,830,020 4,131,061 4,469,143 4,649,632 4,925,081
-- from sales and refinancing.......... 5,280,000 0 0 0 0 0
-- other............................... 0 0 0 0 0 3,333,333(5)
Cash generated (deficiency) after cash
distributions.......................... (3,894,971) 1,913,407 1,618,420 1,316,785 1,063,007 5,527,625
Less: Special items..................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ (3,894,971) 1,913,407 1,618,420 1,316,785 1,063,007 5,527,625
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income........................ $ 74.01 $ 87.28 $ 96.22 $ 97.86 $ 102.13 $ 161.91
Capital gain........................... 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income.................. 155.71 113.74 122.68 132.72 138.08 145.52
-- Return of capital.................. 123.68 0 0 0 0 100.74
Source (on cash basis):
-- Sales............................... 160.0 0 0 0 0 0
-- Refinancing......................... 0 0 0 0 0 0
-- Other............................... 0 0 0 0 0 100.00(5)
-- Operations.......................... 119.40 113.74 122.68 132.72 138.08 146.26
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. 84.41% 84.41% 84.41% 84.41% 84.41% 84.41%
<CAPTION>
CPA(R):3
-----------------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues.......................... $ 7,554,227 $7,391,852 $7,249,265 $5,730,082 $8,104,707
Profit on sale of properties............ N/A N/A N/A N/A N/A
Extraordinary charges on extinguishment
of debt................................ N/A N/A N/A N/A N/A
Write-down of property.................. (1,302,318)(6) (697,325)(7) (146,184)(8) N/A N/A
Other income............................ 11,499,187(9) N/A N/A
Less:
Operating expenses..................... 1,441,186 1,719,172 1,173,053 1,031,997 1,227,688
Interest expense....................... 1,734,434 1,602,175 1,255,047 75,158 17,744
Depreciation........................... 147,229 158,367 198,590 188,893 215,272
Net Income-GAAP Basis................... 2,929,060 3,214,813 15,975,567 4,434,034 6,644,003
Taxable Income (Loss):
-- from operations..................... 5,504,655 4,461,854 23,951,874 2,988,189 5,502,953
-- from gain on sale................... 0 0 157,910 0
-- from extraordinary charge........... 0 0 0
Cash generated from operations(3)....... 4,387,721 4,647,375 12,917,577 3,906,606 4,587,044
Cash generated from sales............... 0 0 5,435,869(9) 1,853,816(10) 0
Cash generated from refinancing......... 0 0
Cash generated from other............... 2,260,792 2,286,195 0 0 0
Cash generated from operations, sales,
refinancing and other.................. 6,648,513 6,933,570 18,353,446 5,760,422 4,587,044
Less: Cash distribution to investors:
-- from operating cash flow(4)......... 4,606,531 4,656,367 4,722,367 3,319,280 4,214,958
-- from sales and refinancing.......... 0 0 0 0 0
-- other............................... 0 0 8,000,000 0 0
Cash generated (deficiency) after cash
distributions.......................... 2,041,982 2,277,203 5,631,079 2,441,142 372,086
Less: Special items..................... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 2,041,982 2,277,203 5,361,079 2,441,142 372,086
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income........................ $ 163.47 $ 132.50 $ 711.33 $ 88.74 $ 163.42
Capital gain........................... 0 0 0 4.69 0
Cash Distributions to Investors:
Source (on GAAP basis)
-- Investment income.................. 86.98 95.47 376.83 98.57 125.17
-- Return of capital.................. 48.83 41.82 0 0 0
Source (on cash basis):
-- Sales............................... 0 0 0 0 0
-- Refinancing......................... 0 0 0 0 0
-- Other............................... 0 0 0 0 0
-- Operations.......................... 136.80 138.28 140.24 98.57 125.17
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. 84.41% 84.41% 84.41% 68.83% 68.83%
</TABLE>
A-6
<PAGE> 118
TABLE III (4 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):4
-------------------------------------------------------------------------------
1982 1983 1984 1985 1986 1987
-------- ---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues............................... $ 5,916 $7,136,840 $10,976,004 $10,950,473 $10,021,241 $ 8,733,350
Profit on sale of properties................. N/A N/A N/A N/A 1,454,064(1) N/A
Extraordinary gain........................... N/A N/A N/A N/A N/A N/A
Write-down of property....................... N/A N/A N/A N/A (2,266,656)(2) N/A
Extraordinary charge on extinguishment of
debt........................................ N/A N/A N/A N/A N/A N/A
Other........................................ N/A N/A N/A N/A N/A N/A
Less:
Operating expenses.......................... 9,137 274,260 245,150 278,838 529,941 566,780
Interest expense............................ 5,784 3,180,356 5,453,442 5,395,023 5,149,287 4,101,592
Depreciation................................ 1,302 346,155 808,870 828,303 1,059,071 1,628,118
Net Income (Loss)-GAAP Basis................. (10,307) 3,336,069 4,468,542 4,448,309 2,470,350 2,436,860
Taxable Income (Loss):
-- from operations.......................... (2,604) 781,413 (281,447) (98,623) (402,328) (433,637)
-- from gain on sale........................ 0 0 0 0 4,047,994(1) 0
-- from extraordinary charge................ 0 0 0 0 0 0
-- other.................................... 0 0 0 0 0 0
Cash generated from operations(6)............ (3,135) 3,471,621 4,787,836 4,728,701 4,857,156 4,115,421
Cash generated from sales.................... 0 0 0 0 4,483,969(1) 0
Cash generated from refinancing.............. 0 0 0 0 0 0
Cash generated from other.................... 0 0 0 0 0 0
Cash generated from operations, sales,
refinancing and other....................... (3,135) 3,471,621 4,787,836 4,728,701 9,341,125 4,115,421
Less: Cash distribution to investors:
-- from operating cash flow(8).............. 0 2,345,537 4,565,144 4,603,376 4,639,789 4,594,265
-- from sales and refinancing............... 0 0 0 0 0 1,711,359
Cash generated (deficiency) after cash
distributions............................... 0 1,126,084 222,692 125,325 4,701,336 (2,190,203)
Less: Special items.......................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items............. 0 1,126,084 222,692 125,325 4,701,336 (2,190,203)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)...................... $ 0 $ 21.01 $ (6.18) $ (2.17) $ (8.84) $ (9.52)
Other....................................... 0 0 0 0 0 0
Capital gain................................ 0 0 0 0 88.94 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................ 0 63.06 98.18 97.73 54.28 53.53
-- Return of capital........................ 0 0 2.12 3.41 47.66 87.02
Source (on cash basis):
-- Sales.................................... 0 0 0 0 0 40.00
-- Refinancing.............................. 0 0 0 0 0 0
-- Operations............................... 0 63.06 100.30 101.14 101.94 100.55
Amount (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties in
program).................................... N/A N/A 100% 100% 85.20% 85.20%
<CAPTION>
CPA(R):4
---------------------------------------------------------------------
1988 1989 1990 1991 1992
---------- ---------- ----------- ---------- ----------
<S> <C> <C> <C> <C> <C>
Gross Revenues............................... $9,117,527 $9,393,587 $ 9,694,000 $9,653,180 $9,959,144
Profit on sale of properties................. N/A N/A N/A N/A N/A
Extraordinary gain........................... N/A N/A 2,080,304(3) N/A N/A
Write-down of property....................... N/A N/A (2,080,304)(2) N/A N/A
Extraordinary charge on extinguishment of
debt........................................ (160,000)(4) (70,266)(5) N/A N/A N/A
Other........................................ N/A N/A N/A N/A (44,308)(7)
Less:
Operating expenses.......................... 538,523 614,235 752,499 790,950 1,647,627
Interest expense............................ 3,805,805 3,552,960 3,504,016 3,441,293 3,309,359
Depreciation................................ 1,468,317 1,243,008 1,207,776 1,184,801 1,259,693
Net Income (Loss)-GAAP Basis................. 3,144,882 3,913,118 4,229,709 4,236,136 3,698,157
Taxable Income (Loss):
-- from operations.......................... 561,034 1,408,950 1,518,550 1,702,996 1,737,637
-- from gain on sale........................ 0 0 0 0 0
-- from extraordinary charge................ (160,000)(4) (70,266)(5) 0 0 0
-- other.................................... 0 0 0 0 (14,801)(7)
Cash generated from operations(6)............ 4,763,309 5,289,802 5,611,039 5,479,320 5,071,063
Cash generated from sales.................... 0 0 0 0 0
Cash generated from refinancing.............. 0 0 0 0 0
Cash generated from other.................... 0 0 0 0 14,195(7)
Cash generated from operations, sales,
refinancing and other....................... 4,763,309 5,289,802 5,611,039 5,479,320 5,085,258
Less: Cash distribution to investors:
-- from operating cash flow(8).............. 4,522,360 4,564,233 4,627,954 4,729,905 4,819,116
-- from sales and refinancing............... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions............................... 240,949 725,569 983,085 749,415 266,142
Less: Special items.......................... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items............. 240,949 725,569 983,085 749,415 266,142
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)...................... $ 12.33 $ 29.41 $ 33.36 $ 37.42 $ 38.18
Other....................................... 0 0 0 0 (0.33)
Capital gain................................ 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................ 69.10 85.97 92.93 93.07 81.25
-- Return of capital........................ 30.26 14.31 8.75 10.85 24.63
Source (on cash basis):
-- Sales.................................... 0 0 0 0 0
-- Refinancing.............................. 0 0 0 0 0
-- Operations............................... 99.36 100.28 101.68 103.92 105.88
Amount (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties in
program).................................... 85.20% 85.20% 85.20% 85.20% 85.20%
<CAPTION>
CPA(R):4
-------------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues............................... $12,450,374 $11,570,621 $11,896,324 $ 9,322,373(12) $10,225,363
Profit on sale of properties................. N/A N/A 3,330,098(10) N/A N/A
Extraordinary gain........................... 345,000(9) N/A N/A N/A N/A
Write-down of property....................... N/A N/A N/A N/A (2,316,000)(13)
Extraordinary charge on extinguishment of
debt........................................ N/A N/A N/A N/A N/A
Other........................................ N/A N/A N/A 1,118,318(11) 681,316(14)
Less:
Operating expenses.......................... 3,375,359 3,590,081 3,299,454 1,090,215 1,299,302
Interest expense............................ 2,987,868 2,396,017 2,098,857 1,515,248 847,596
Depreciation................................ 1,346,641 1,141,143 1,149,525 921,702 835,836
Net Income (Loss)-GAAP Basis................. 5,085,506 4,443,380 8,678,586 6,913,526 5,607,945
Taxable Income (Loss):
-- from operations.......................... 3,540,526 2,462,537 7,224,511 5,049,765 5,998,404
-- from gain on sale........................ 957,340 0 9,318,375 0 0
-- from extraordinary charge................ 0 0 0 0 0
-- other.................................... 0 0 0 0 0
Cash generated from operations(6)............ 6,231,586 5,772,103 6,099,480 7,167,641 7,465,721
Cash generated from sales.................... 0 0 9,477,492 0 0
Cash generated from refinancing.............. 0 0 0 0 0
Cash generated from other.................... 0 0 0 0 0
Cash generated from operations, sales,
refinancing and other....................... 6,231,586 5,772,103 15,576,972 7,167,641 7,465,721
Less: Cash distribution to investors:
-- from operating cash flow(8).............. 4,854,619 4,878,286 4,780,885 4,452,597 6,727,737
-- from sales and refinancing............... 0 0 4,321,616 0 0
Cash generated (deficiency) after cash
distributions............................... 1,376,967 893,817 6,474,471 2,715,044 737,984
Less: Special items.......................... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items............. 1,376,967 893,817 6,474,471 2,715,044 737,984
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)...................... $ 77.79 $ 54.10 $ 158.73 $ 110.95 $ 131.79
Other....................................... 0 0 0 0 0
Capital gain................................ 21.03 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income........................ 106.66 97.62 190.68 97.83 123.21
-- Return of capital........................ 0 9.56 9.31 0 24.60
Source (on cash basis):
-- Sales.................................... 0 0 0 0 0
-- Refinancing.............................. 0 0 0 0 0
-- Operations............................... 106.66 107.18 105.04 97.83 147.81
Amount (in percentage terms) remaining
invested in program properties at the end of
the last year reported in the Table
(original total acquisition cost of
properties retained divided by original
total acquisition cost of all properties in
program).................................... 85.20% 85.20% 70.68% 70.68% 70.68%
</TABLE>
A-7
<PAGE> 119
TABLE III (5 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):5
--------------------------------------------------------------------------------
1983 1984 1985 1986 1987 1988
-------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.......................... $151,212 $7,692,603 $9,285,385 $12,857,025 $14,405,568 $15,061,441
Other................................... N/A N/A N/A N/A N/A N/A
Profit (loss) on sale or disposition of
properties............................. N/A N/A N/A N/A (457,484)(1) N/A
Extraordinary charge on extinguishment
of debt................................ N/A N/A N/A N/A N/A N/A
Write-down of property.................. N/A N/A N/A (860,000)(4) N/A N/A
Less:
Operating expenses..................... 81,016 195,585 363,490 493,702 1,327,685 758,159
Interest expenses...................... 1,041 1,828,708 3,557,103 6,447,584 7,050,466 6,926,712
Depreciation........................... 0 90,662 890,342 2,300,987 2,506,914 2,637,104
Minority Interest...................... N/A N/A N/A 80,834 165,810 197,354
Net Income-GAAP Basis................... 69,155 5,577,648 4,474,450 2,673,918 2,897,209 4,542,112
Taxable Income (Loss):
-- from operations..................... 83,341 4,180,317 2,173,368 277,783 (1,015,507) 406,029
-- from gain (loss) on sale or
disposition........................... 0 0 0 0 (1,065,808) 0
-- from other.......................... 0 0 0 0 0 0
Cash generated from operations(10)...... 77,254 5,612,247 5,157,259 6,550,334 5,622,209 6,571,710
Cash generated from sales............... 0 0 0 0 500,000(1) 0
Cash generated from refinancing......... 0 0 0 0 0 0
Cash generated from operations, sales
and refinancing........................ 77,254 5,612,247 5,157,259 6,550,334 6,122,209 6,571,710
Less: Cash distribution to investors:
-- from operating cash flow(11)........ 0 5,150,600 5,324,013 5,481,771 5,535,961 5,587,744
-- from sales and refinancing.......... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 77,254 461,647 (166,754) 1,068,563 586,248 983,966
Less: special items.....................
Cash generated (deficiency) after cash
distributions and special items........ 77,254 461,647 (166,754) 1,068,563 586,248 983,966
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 1.38 $ 69.43 $ 36.09 $ 4.61 $ (16.87) $ 6.74
Capital gain (loss).................... 0 0 0 0 (17.69) 0
Other.................................. 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................... 0 85.54 74.31 44.41 48.12 75.43
-- Return of capital................... 0 0 14.11 46.63 43.82 17.37
Source (on cash basis):
-- Sales............................... 0 0 0 0 0 0
-- Refinancing......................... 0 0 0 0 0 0
-- Operations.......................... 0 85.54 88.42 91.04 91.94 92.80
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program.................. N/A N/A N/A N/A N/A 98.51%
<CAPTION>
CPA(R):5
-------------------------------------------------------------------------
1989 1990 1991 1992 1993
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.......................... $15,324,326 $14,912,517 $15,167,339 $18,195,423(8) $18,260,614
Other................................... N/A N/A (103,595)(5) 1,872,534 214,978(12)
Profit (loss) on sale or disposition of
properties............................. 47,319(2) N/A (35,987)(6) (488,795)(9) N/A
Extraordinary charge on extinguishment
of debt................................ N/A (32,714)(3) N/A N/A N/A
Write-down of property.................. N/A N/A (300,000)(7) N/A (323,611)(13)
Less:
Operating expenses..................... 1,305,074 1,503,721 3,354,854 6,111,874 6,417,993
Interest expenses...................... 7,052,901 6,512,534 6,042,335 5,293,044 4,941,889
Depreciation........................... 2,632,299 2,620,793 2,622,033 2,317,013 2,295,887
Minority Interest...................... 17,714 114,721 (174,657) N/A N/A
Net Income-GAAP Basis................... 4,363,657 4,128,034 2,883,192 5,857,231 4,496,212
Taxable Income (Loss):
-- from operations..................... 799,445 857,331 1,077,650 1,530,150 2,039,288
-- from gain (loss) on sale or
disposition........................... 87,421(2) 488,066 (2,674)(6) 871,676 0
-- from other.......................... 0 0 (154,918)(5) 2,617,784(8) 0
Cash generated from operations(10)...... 6,911,989 5,895,617 5,278,070 6,202,200 6,241,041
Cash generated from sales............... 239,362(2) 0 120,000(6) 0 0
Cash generated from refinancing......... 0 0 0 0 0
Cash generated from operations, sales
and refinancing........................ 7,151,351 5,895,617 5,398,070 6,202,200 6,241,041
Less: Cash distribution to investors:
-- from operating cash flow(11)........ 5,635,916 5,684,084 5,732,256 5,780,425 5,828,596
-- from sales and refinancing.......... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 1,515,435 211,533 (334,186) 421,775 412,445
Less: special items..................... 0
Cash generated (deficiency) after cash
distributions and special items........ 1,515,435 211,533 (334,186) 421,775 412,445
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 13.28 $ 14.24 $ 17.90 $ 25.41 $ 33.87
Capital gain (loss).................... 1.45 0 (0.04) 14.48 0
Other.................................. 0 0 0 43.48 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................... 72.47 68.56 47.88 96.00 74.67
-- Return of capital................... 21.13 25.84 47.32 0 22.13
Source (on cash basis):
-- Sales............................... 0 0 0 0 0
-- Refinancing......................... 0 0 0 0 0
-- Operations.......................... 93.60 94.40 95.20 96.00 96.80
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program.................. 98.51% 97.60% 97.45% 94.12% 94.12%
<CAPTION>
CPA(R):5
--------------------------------------------------------------
1994 1995 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues.......................... $18,125,156 $15,768,137 $13,204,966 $ 9,749,000
Other................................... N/A N/A N/A N/A
Profit (loss) on sale or disposition of
properties............................. 1,242,614(14) 614,234(16) 5,284,165(18) 956,829(20)
Extraordinary charge on extinguishment
of debt................................ (117,619)(15) N/A N/A N/A
Write-down of property.................. 0 (1,980,550)(17) (1,300,000)(19) (1,350,000)(21)
Less:
Operating expenses..................... 7,111,014 6,927,470 6,006,397 4,176,004
Interest expenses...................... 4,518,529 3,495,872 2,075,230 1,363,680
Depreciation........................... 2,181,432 2,065,781 1,331,028 1,131,397
Minority Interest...................... N/A N/A N/A N/A
Net Income-GAAP Basis................... 5,439,186 1,912,698 7,776,476 2,685,448
Taxable Income (Loss):
-- from operations..................... 866,115 1,621,566 1,690,288 1,481,174
-- from gain (loss) on sale or
disposition........................... 10,019,470 0 8,338,765 2,927,201
-- from other.......................... 0 0 0 0
Cash generated from operations(10)...... 6,292,833 4,688,070 7,901,310 4,393,646
Cash generated from sales............... 0 1,187,362(16) 8,583,803 0
Cash generated from refinancing......... 0 0 0 0
Cash generated from operations, sales
and refinancing........................ 6,292,833 5,875,432 16,485,113 4,393,646
Less: Cash distribution to investors:
-- from operating cash flow(11)........ 5,862,314 8,054,982 4,456,949 5,175,122
-- from sales and refinancing.......... 0 0 0 792,400(18)
Cash generated (deficiency) after cash
distributions.......................... 430,519 (2,179,550) 12,028,164 (1,573,876)
Less: special items..................... 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 430,519 (2,179,550) 12,028,164 (1,573,876)
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 14.87 $ 26.93 $ 28.07 $ 24.60
Capital gain (loss).................... 166.40 0 141.45 48.61
Other.................................. 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income................... 90.33 31.77 74.02 44.60
-- Return of capital................... 7.03 102.01 0 54.51
Source (on cash basis):
-- Sales............................... 0 0 0 0
-- Refinancing......................... 0 0 0 0
-- Operations.......................... 97.36 133.78 74.02 99.11
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program.................. 92.97% 81.82% 63.06% 46.45%
</TABLE>
A-8
<PAGE> 120
TABLE III (6 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):6
-----------------------------------------------------------------------------------
1985 1986 1987 1988 1989 1990
---------- ---------- ---------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues.......................... $4,200,601 $6,432,252 $9,898,043 $11,197,061 $10,904,247 $11,092,133
Gain on sale............................ 0 0 0 0 0 0
Other................................... 0 0 0 0 0 0
Extraordinary (charge) gain............. 0 0 0 0 0 0
Less:
Operating expenses..................... 215,852 333,030 573,786 558,887 575,222 802,183
Interest expense....................... 792,434 2,111,626 4,736,879 5,416,130 5,388,140 5,269,354
Depreciation........................... 5,709 278,305 1,095,292 1,405,857 1,418,340 1,418,339
Net Income-GAAP Basis................... 3,186,606 3,709,291 3,492,083 3,816,187 3,522,545 3,602,257
Taxable Income:
-- from operations..................... 2,650,283 2,577,849 982,403 1,219,990 1,218,257 1,338,235
-- from gain on sale................... 0 0 0 0 0 0
-- from extraordinary charge........... 0 0 0 0 0 0
-- from other.......................... 0 0 0 0 0 0
Cash generated from operations(4)....... 3,194,889 4,509,489 5,239,285 4,983,579 5,032,548 5,201,952
Cash generated from sales............... 0 0 0 0 0 0
Cash generated from refinancing......... 0 0 0 0 0 0
Cash generated from other............... 0 0 0 0 0 0
Cash generated from operations, sales,
refinancing and other.................. 3,194,889 4,509,489 5,239,285 4,983,579 5,032,548 5,201,952
Less: Cash distribution to investors:
-- from operating cash flow(5)......... 2,422,433 4,274,550 4,154,307 4,198,176 4,247,146 4,316,026
-- from sales and refinancing.......... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 772,456 234,939 1,084,978 785,403 785,402 885,926
Less: Special items.................... 0 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 772,456 234,939 1,084,978 785,403 785,402 885,926
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 51.96 $ 50.54 $ 19.26 $ 23.92 $ 23.88 $ 26.23
Other.................................. 0 0 0 0 0 0
Capital gain........................... 0 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................. 47.49 72.72 68.46 74.81 69.06 70.62
-- Return of capital.................. 0 7.85 12.98 7.49 14.20 13.99
Source (on cash basis):
-- Sales.............................. 0 0 0 0 0 0
-- Refinancing........................ 0 0 0 0 0 0
-- Operations......................... 47.49 80.57 81.44 82.30 83.26 84.61
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. N/A N/A N/A 100% 100% 100%
<CAPTION>
CPA(R):6
-------------------------------------------------------------------------------
1991 1992 1993 1994 1995
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.......................... $11,406,582 $14,177,113 $15,387,180 $15,693,853 $16,737,899
Gain on sale............................ 0 0 0 0 0
Other................................... (55,783)(1) (75,211)(3) N/A N/A N/A
Extraordinary (charge) gain............. (13,559)(2) 0 N/A N/A 2,088,268(6)
Less:
Operating expenses..................... 1,078,174 2,858,645 4,706,491 5,933,070 4,942,528
Interest expense....................... 5,222,844 5,319,971 5,122,703 5,040,589 4,499,692
Depreciation........................... 1,418,968 1,668,951 1,637,678 1,621,029 1,525,011
Net Income-GAAP Basis................... 3,617,254 4,254,335 3,920,308 3,099,165 7,858,936
Taxable Income:
-- from operations..................... 1,831,848 2,227,427 2,091,787 1,156,303 7,871,636
-- from gain on sale................... 0 0 0 0 0
-- from extraordinary charge........... (13,559)(2) 0 0 0 0
-- from other.......................... (250,032)(1) 27,303(3) 0 0 0
Cash generated from operations(4)....... 5,719,005 6,066,705 5,531,994 5,094,336 11,133,036
Cash generated from sales............... 0 0 0 0 0
Cash generated from refinancing......... 870,913 2,414,076 0 0 0
Cash generated from other............... 0 17,008(3) 0 0 0
Cash generated from operations, sales,
refinancing and other.................. 6,589,918 8,497,789 5,531,994 5,094,336 11,133,036
Less: Cash distribution to investors:
-- from operating cash flow(5)......... 4,421,586 4,633,297 4,676,223 4,704,691 4,736,359
-- from sales and refinancing.......... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions.......................... 2,168,332 3,864,492 855,771 389,645 6,396,677
Less: Special items.................... 0 0 0 0 0
Cash generated (deficiency) after cash
distributions and special items........ 2,168,332 3,864,492 855,771 389,645 6,396,677
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 35.65 $ 43.67 $ 41.01 $ 22.67 $ 154.38
Other.................................. 0 0.54 0 0 0
Capital gain........................... 0 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................. 70.91 83.40 76.85 60.76 92.89
-- Return of capital.................. 15.77 7.43 14.82 31.47 0
Source (on cash basis):
-- Sales.............................. 0 0 0 0 0
-- Refinancing........................ 0 0 0 0 0
-- Operations......................... 86.68 90.83 91.67 92.23 92.89
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. 100% 100% 100% 100% 100%
<CAPTION>
CPA(R):6
------------------------------
1996 1997
----------- -----------
<S> <C> <C>
Gross Revenues.......................... $16,537,296 $17,384,088
Gain on sale............................ 70,878(7) N/A
Other................................... N/A N/A
Extraordinary (charge) gain............. N/A N/A
Less:
Operating expenses..................... 4,914,538 5,048,701
Interest expense....................... 4,003,726 3,715,143
Depreciation........................... 1,664,514 1,780,317
Net Income-GAAP Basis................... 6,025,396 6,839,927
Taxable Income:
-- from operations..................... 3,450,345 4,530,411
-- from gain on sale................... 242,713 0
-- from extraordinary charge........... 0 0
-- from other.......................... 0 0
Cash generated from operations(4)....... 7,615,526 8,075,717
Cash generated from sales............... 0 0
Cash generated from refinancing......... 0 0
Cash generated from other............... 0 0
Cash generated from operations, sales,
refinancing and other.................. 7,615,526 8,075,717
Less: Cash distribution to investors:
-- from operating cash flow(5)......... 4,880,911 7,002,505
-- from sales and refinancing..........
Cash generated (deficiency) after cash
distributions.......................... 2,734,615 1,073,212
Less: Special items.................... 0 0
Cash generated (deficiency) after cash
distributions and special items........ 2,734,615 1,073,212
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss)................. $ 67.67 $ 88.85
Other.................................. 0 0
Capital gain........................... 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income.................. 95.72 134.14
-- Return of capital.................. 0 3.19
Source (on cash basis):
-- Sales.............................. 0 0
-- Refinancing........................ 0 0
-- Operations......................... 95.72 137.33
Amount (in percentage terms) remaining
invested in program properties at the
end of the last year reported in the
Table (original total acquisition cost
of properties retained divided by
original total acquisition cost of all
properties in program)................. 99.79% 99.79%
</TABLE>
A-9
<PAGE> 121
TABLE III (7 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase
of Prior Programs, the offerings of which have been closed since December 31,
1979. This Table is designed to provide the investor with information on the
financial operations of such Prior Programs. The results shown in this Table are
in all cases for years ended December 31. THE INFORMATION PRESENTED IN THIS
TABLE SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PARTNERSHIPS. MORTGAGE FINANCING FOR THE CPA(R)
PARTNERSHIPS MAY HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR
INVESTMENT BY SUCH PARTNERSHIPS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY
ALTER CERTAIN OF THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):7
----------------------------------------------------------------
1986 1987 1988 1989 1990
-------- ---------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.............................................. $ 90,399 $4,119,934 $9,066,142 $14,071,843 $13,725,684
Profit (loss) on sale of properties......................... N/A N/A N/A N/A 58,172(1)
Gain on sale of securities.................................. N/A N/A 1,766,185(3) 48,158(3) 69,544(3)
Extraordinary gain charge...................................
Write-down of property...................................... N/A N/A N/A N/A (500,000)(2)
Other....................................................... N/A N/A N/A N/A N/A
Less:
Operating expenses......................................... 46,413 326,846 1,848,463 5,576,552 6,194,008
Interest expense........................................... 22,911 1,389,385 3,479,631 4,657,478 4,718,573
Depreciation............................................... 0 131,567 1,009,247 1,422,116 1,567,896
Net Income-GAAP Basis....................................... 21,075 2,272,136 4,494,986 2,463,855 872,923
Taxable Income (Loss):
-- from operations......................................... (51,877) 1,203,013 1,585,180 1,195,514 3,689
-- from gain (loss) on sales............................... 0 0 1,766,185(3) 48,158(3) 127,716(1)(3)
-- other................................................... 0 0 0 0 0
Cash generated from operations.............................. 1,550,648 1,115,274 4,136,538 3,745,289 3,153,131
Cash generated from sales................................... 0 0 1,766,185(3) 48,158(3) 245,324
Cash generated from refinancing............................. 0 0 0 0 0
Cash generated from other................................... 0 0 0 0 0
Cash generated from operations, sales, refinancing and
other...................................................... 1,550,648 1,115,274 5,902,723 3,793,447 3,398,455
Less: Cash distribution to investors:
-- from operating cash flow(6)............................. 0 1,363,271 3,902,233 3,940,765 3,992,781
-- from sales and refinancing.............................. 0 0 0 0 0
Cash generated (deficiency) after cash distributions........ 1,550,648 (247,997) 2,000,490 (147,318) (594,326)
Less: Special items......................................... 0 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................. 1,550,648 (247,997) 2,000,490 (147,318) (594,326)
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ (4.29) $ 24.98 $ 32.91 $ 24.82 $ .08
Other...................................................... 0 0 0 0 0
Capital gain............................................... 0 0 36.67 1.00 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... 0 60.60 81.02 51.16 18.12
-- Return of capital....................................... 0 0 0 30.66 64.78
Source (on cash basis):
-- Sales................................................... 0 0 0 0 0
-- Refinancing............................................. 0 0 0 0 0
-- Operations.............................................. 0 60.60 81.02 81.82 82.90
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of
all properties in program)............................... N/A N/A N/A 100% 99.86%
<CAPTION>
CPA(R):7
-------------------------------------------------------------
1991 1992 1993 1994
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues.............................................. $13,648,275 $14,502,032 $12,243,029 $13,840,052
Profit (loss) on sale of properties......................... 54,197(4) N/A (552,383)(8) 7,814,474(10)
Gain on sale of securities.................................. N/A N/A N/A N/A
Extraordinary gain charge................................... 879,433(12) (511,503)
Write-down of property...................................... N/A N/A (3,303,228)(9) (641,731)(11)
Other....................................................... N/A (141,723)(5) 435,106(3) 986,155
Less:
Operating expenses......................................... 6,170,575 6,404,695 4,485,628 4,336,235
Interest expense........................................... 4,471,097 4,155,956 3,324,398 3,537,640
Depreciation............................................... 1,607,889 1,616,335 1,647,397 1,619,726
Net Income-GAAP Basis....................................... 1,452,911 2,183,323 244,534 11,993,846
Taxable Income (Loss):
-- from operations......................................... 746,150 1,534,247 11,218,042 2,452,425
-- from gain (loss) on sales............................... 54,197(4) 0 2,093,467 10,460,324
-- other................................................... 0 51,875(5) 283,740 682,500
Cash generated from operations.............................. 3,303,198 4,489,865 4,135,048 5,347,231
Cash generated from sales................................... 183,430(4) 0 283,740 14,662,004
Cash generated from refinancing............................. 978,087 0 1,047,890 700,000
Cash generated from other................................... 0 32,313(5) 3,578 38,281
Cash generated from operations, sales, refinancing and
other...................................................... 4,464,715 4,522,178 5,470,256 20,747,516
Less: Cash distribution to investors:
-- from operating cash flow(6)............................. 3,303,198 3,388,324(7) 2,948,590 3,246,729
-- from sales and refinancing.............................. 503,673 0 0 0
Cash generated (deficiency) after cash distributions........ 657,844 1,133,854 2,521,666 17,500,787
Less: Special items......................................... 0 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................. 657,844 1,133,854 2,521,666 17,500,787
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ 15.49 $ 31.85 $ 232.91 $ 50.92
Other...................................................... 0 1.08 5.89 14.17
Capital gain............................................... 0 0 43.47 217.18
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... 30.17 45.33 5.08 67.41
-- Return of capital....................................... 53.03 20.86 56.14 0
Source (on cash basis):
-- Sales................................................... 0 0 0 0
-- Refinancing............................................. 10.46 0 0 0
-- Operations.............................................. 72.74 66.19 61.22 67.41
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of
all properties in program)............................... 99.70% 99.70% 97.86% 83.50%
<CAPTION>
CPA(R):7
-----------------------------------------------
1995 1996 1997
----------- ----------- -----------
<S> <C> <C> <C>
Gross Revenues.............................................. $12,196,252 $12,731,328 $12,706,396
Profit (loss) on sale of properties......................... 1,019,362(13) 74,729(17) N/A
Gain on sale of securities.................................. 1,323,858(13) N/A N/A
Extraordinary gain charge................................... -- N/A
Write-down of property...................................... (319,685)(14) -- (139,999)(18)
Other....................................................... 111,226(15) (128,879)(15) (128,649)(19)
Less:
Operating expenses......................................... 4,986,585 5,181,249 5,921,214
Interest expense........................................... 2,456,129 1,942,737 1,868,189
Depreciation............................................... 1,361,952 1,154,088 1,213,286
Net Income-GAAP Basis....................................... 5,526,347 4,399,104 3,435,066
Taxable Income (Loss):
-- from operations......................................... 3,451,813 3,856,378 3,268,674
-- from gain (loss) on sales............................... 0 (188,980) (144,260)
-- other................................................... 0 0 0
Cash generated from operations.............................. 5,089,776 5,499,073 4,682,499
Cash generated from sales................................... 1,546,019(13) 617,867(17) 200,000
Cash generated from refinancing............................. -- --
Cash generated from other................................... 31,457(16) 27,761(16) 30,787
Cash generated from operations, sales, refinancing and
other...................................................... 6,667,252 6,144,701 4,913,286
Less: Cash distribution to investors:
-- from operating cash flow(6)............................. 10,434,626 3,483,017 3,751,664
-- from sales and refinancing.............................. 0 0 0
Cash generated (deficiency) after cash distributions........ (3,767,490) 2,661,684 1,161,622
Less: Special items......................................... 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................. (3,767,490) 2,661,684 1,161,622
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ 71.77 $ 80.18 $ 67.95
Other...................................................... 0 0 (3.00)
Capital gain............................................... 0 (4.14) 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... 114.82 91.47 71.42
-- Return of capital....................................... 101.98 0 6.58
Source (on cash basis):
-- Sales................................................... 0 0
-- Refinancing............................................. 0 0
-- Operations.............................................. 216.80 72.42 78.00
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of
all properties in program)............................... 73.82% 73.16% 73.16%
</TABLE>
A-10
<PAGE> 122
TABLE III (8 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):8
------------------------------------------------------------------------------------
1988 1989 1990 1991 1992 1993
---------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C>
Gross Revenues..................... $2,877,969 $11,744,379 $14,120,755 $14,396,115 $15,176,928 $18,060,581
Profit on sale of properties....... N/A N/A N/A 1,736(1) N/A N/A
Other.............................. N/A N/A N/A N/A (51,219)(2) 21,111
Extraordinary charge............... N/A N/A N/A N/A N/A N/A
Less:
Operating expenses................ 322,625 934,022 912,831 1,214,634 2,227,334 4,151,151
Interest expense.................. 939,460 4,871,609 6,917,234 7,095,848 6,943,303 6,737,293
Depreciation...................... 214,618 877,918 1,204,389 1,490,532 1,642,518 1,935,624
Minority Interest................. N/A N/A N/A N/A N/A N/A
Net Income-GAAP Basis.............. 1,401,266 5,060,830 5,086,301 4,596,837 4,312,554 5,257,624
Taxable Income (Loss):
-- from operations................ 1,043,085 3,268,042 2,910,667 2,819,692 3,009,471 5,060,536
-- from gain on sale..............
-- from other..................... 0 0 0 1,736(1) (17,110)(2) 0
-- from extraordinary charge...... 0 0 0 0 0 0
Cash generated from operations..... 1,697,043 5,752,461 6,303,966 6,285,116 6,321,159 8,376,844
Cash generated from sales.......... 0 0 0 7,991(1) 0 0
Cash generated from refinancing.... 0 0 0 0 0 0
Cash generated from other.......... 0 0 0 0 16,408(2) 253,858
Cash generated from operations,
sales, refinancing and other...... 1,697,043 5,752,461 6,303,966 6,293,107 6,337,567 8,630,702
Less: Cash distribution to
investors:
-- from operating cash flow(4).... 728,786 5,575,793 6,165,188 6,225,409 6,285,600 6,327,785
-- from sales and refinancing..... 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions................ 968,257 176,668 138,778 67,698 51,697 2,302,917
Less: Special items................ 0 0 0 0 0 0
Cash generated (deficiency) after
cash distributions and special
items............................. 968,257 176,668 138,778 67,698 51,697 2,302,917
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss).......... $ 16.97 $ 43.41 $ 38.67 $ 37.46 $ 39.98 $ 67.23
Other........................... 0 0 0 0.02(1) (0.23)(2) 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............ 20.91 67.23 67.57 61.07 57.29 69.84
-- Return of capital............ 0 6.84 14.33 21.63 26.21 14.22
Source (on cash basis):
-- Sales........................ 0 0 0 0 0 0
-- Refinancing.................. 0 0 0 0 0 0
-- Operations................... 20.91 74.07 81.90 82.70 83.50 84.06
Amount (in percentage terms)
remaining invested in program
properties at the end of the last
year reported in the Table
(original total acquisition cost
of properties retained divided by
original total acquisition cost of
all properties in program)........ N/A N/A 100% 99.99% 99.99% 99.99%
<CAPTION>
CPA(R):8
-----------------------------------------------------------
1994 1995 1996 1997
----------- ----------- ----------- -----------
<S> <C> <C> <C> <C>
Gross Revenues..................... $18,804,769 $19,886,284 $16,207,400(5) $14,927,898
Profit on sale of properties....... N/A N/A 21,697(6) N/A
Other.............................. 83,736 (62,359)(4) 1,239,400(4) 738,979(7)
Extraordinary charge............... (120,000)(3) N/A N/A N/A
Less:
Operating expenses................ 4,445,083 3,774,470 1,242,655 4,543,266
Interest expense.................. 6,266,275 5,799,127 5,232,928 1,325,929
Depreciation...................... 1,997,946 1,912,503 1,539,737 1,213,286
Minority Interest................. N/A N/A N/A N/A
Net Income-GAAP Basis.............. 5,892,029 8,337,825 9,453,177 7,878,911
Taxable Income (Loss):
-- from operations................ 4,565,116 7,475,178 7,792,097 6,578,096
-- from gain on sale.............. 50,641 0
-- from other..................... 0 0 0 0
-- from extraordinary charge...... 0 0 0 0
Cash generated from operations..... 8,627,436 10,271,234 10,947,671 9,261,145
Cash generated from sales.......... 0 154,499 0
Cash generated from refinancing.... 0 0 0 0
Cash generated from other.......... 289,805 282,992(4) 161,795(4) 366,663
Cash generated from operations,
sales, refinancing and other...... 8,917,241 10,554,226 11,263,965 9,627,808
Less: Cash distribution to
investors:
-- from operating cash flow(4).... 6,357,899 6,413,927 6,549,558 7,357,886
-- from sales and refinancing..... 0 0 0 0
Cash generated (deficiency) after
cash distributions................ 2,559,342 4,140,299 4,714,407 2,269,922
Less: Special items................ 0 0 0 0
Cash generated (deficiency) after
cash distributions and special
items............................. 2,559,342 4,140,299 4,714,407 2,269,922
Tax and Distribution Data Per $1000
Invested
Federal Income Tax Results:
Ordinary income (loss).......... $ 60.64 $ 99.55 $ 103.77 $ 87.60
Other........................... 0 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income............ 78.27 85.34 87.22 97.99
-- Return of capital............ 6.19 0 0 0
Source (on cash basis):
-- Sales........................ 0 0 0 0
-- Refinancing.................. 0 0 0 0
-- Operations................... 84.46 85.34 87.22 97.99
Amount (in percentage terms)
remaining invested in program
properties at the end of the last
year reported in the Table
(original total acquisition cost
of properties retained divided by
original total acquisition cost of
all properties in program)........ 97.69% 97.69% 97.25% 97.25%
</TABLE>
A-11
<PAGE> 123
TABLE III (9 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CPA(R):9
------------------------------------------------------------------
1989 1990 1991 1992 1993
---------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.............. $2,543,943 $10,284,029 $12,514,907 $12,280,669 $12,216,612
Profit on sale of
properties................. N/A N/A 1,731(1) N/A N/A
Other....................... N/A N/A N/A N/A 658,052
Write-down of property......
Extraordinary charge........ N/A N/A N/A N/A N/A
Less:
Operating expenses......... 432,917 808,315 887,820 1,308,664 963,533
Interest expense........... 1,122,585 5,063,322 6,631,202 6,425,597 6,347,577
Depreciation............... 29,901 1,141,461 1,697,599 1,697,599 1,697,599
Minority Interest.......... N/A N/A N/A N/A N/A
Net Income-GAAP Basis....... 958,540 3,270,931 3,300,017 2,848,809 3,865,955
Taxable Income (Loss):
-- from operations......... 710,320 2,624,917 2,816,278 2,612,003 3,316,011
-- from gain on sale.......
-- from other.............. 0 0 1,731(1) 0 0
-- from extraordinary
charge.................... 0 0 0 0 0
Cash generated from
operations................. 1,784,343 3,895,420 5,662,385 5,211,896 5,906,190
Cash generated from sales... 0 0 1,897 0 522,878
Cash generated from
refinancing................ 0 0 0 0 0
Cash generated from other... 0 0 0 0 0
Cash generated from
operations, sales,
refinancing and other...... 1,784,343 3,895,420 5,664,282 5,211,896 6,429,068
Less: Cash distribution to
investors:
-- from operating cash
flow(4)................... 551,330 4,802,863 5,476,956 5,526,795 5,562,850
-- from sales and
refinancing............... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions... 1,233,013 (907,443) 187,326 (314,899) 866,218
Less: Special items......... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items.......... 1,233,013 (907,443) 187,326 (314,899) 866,218
Tax and Distribution Data
Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).... $ 12.64 $ 39.38 $ 42.30 $ 39.24 $ 49.81
Capital gain..............
Other..................... 0 0 0.03(1) 0 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income...... 20.12 49.07 49.57 42.79 58.07
-- Return of capital...... 0 22.98 32.65 40.23 25.49
Source (on cash basis):
-- Sales.................. 0 0 0 0 0
-- Refinancing............ 0 0 0 0 0
-- Operations............. 20.12 72.05 82.22 83.02 83.56
Amount (in percentage terms)
remaining invested in
program properties at the
end of the last year
reported in the Table
(original total acquisition
cost of properties retained
divided by original total
acquisition cost of all
properties in program)..... N/A N/A 99.99% 99.99% 99.99%
<CAPTION>
CPA(R):9 CPA(R):10
------------------------------------------------------- ---------------------------------------
1994 1995 1996 1997 1990 1991 1992
----------- ----------- ----------- ----------- ---------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Gross Revenues.............. $11,612,360 $11,946,610 $12,074,578 $11,986,186 $1,783,676 $11,169,869 $15,889,968
Profit on sale of
properties................. N/A N/A 45,066(11) N/A N/A N/A N/A
Other....................... 669,020 (535,337)(6) 658,416(9) 687,423(9) N/A N/A N/A
Write-down of property...... N/A
Extraordinary charge........ (480,000)(4) N/A N/A N/A N/A (40,818)(2) N/A
Less:
Operating expenses......... 949,925 998,762 564,905 1,415,642 393,287 1,358,840 2,241,255
Interest expense........... 5,726,296 5,525,604 5,360,760 5,121,709 711,223 5,149,717 7,460,861
Depreciation............... 1,697,599 1,697,599 1,677,253 1,450,319 230,176 1,242,512 1,756,126
Minority Interest.......... N/A N/A N/A 0 72,594 492,191 570,880
Net Income-GAAP Basis....... 3,427,560 3,189,308 5,175,142 4,685,939 376,396 2,885,791 3,860,846
Taxable Income (Loss):
-- from operations......... 3,030,197 3,805,214 4,431,434 4,410,918 452,075 2,958,235 3,059,213
-- from gain on sale....... 106,024 (1,037,083)
-- from other.............. 0 0 0 0 0 0 0
-- from extraordinary
charge.................... 0 0 0 0 0 (40,818)(2) 0
Cash generated from
operations................. 5,807,477 5,921,560 6,162,302 6,568,323 496,208 4,881,135 6,071,495
Cash generated from sales... 0 0 324,126(11) 0 0 0 0
Cash generated from
refinancing................ 0 0 0 0 0 0 0
Cash generated from other... 484,044 463,274(7) 388,329(7) 350,364 0 0 0
Cash generated from
operations, sales,
refinancing and other...... 6,291,521 6,384,834 6,874,757 6,918,687 496,208 4,881,135 6,071,495
Less: Cash distribution to
investors:
-- from operating cash
flow(4)................... 5,589,709 5,616,322 5,643,736 6,779,152 0 4,266,821 5,860,479
-- from sales and
refinancing............... 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions... 701,812 768,512 1,231,021 139,535 496,208 614,314 211,016
Less: Special items......... 0 0 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items.......... 701,812 768,512 1,231,021 139,535 496,208 614,314 211,016
Tax and Distribution Data
Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).... $ 45.51 $ 57.16 $ 66.56 $ 66.25 $ 9.38 $ 40.42 $ 42.39
Capital gain.............. 0 (15.58)
Other..................... 0 0 0 0 0 0.00 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income...... 51.48 47.90 77.73 70.38 0 45.13 53.49
-- Return of capital...... 32.48 36.45 7.04 31.44 0 21.60 27.71
Source (on cash basis):
-- Sales.................. 0 0 0 0 0 0 0
-- Refinancing............ 0 0 0 0 0 0 0
-- Operations............. 83.96 84.36 84.77 101.82 0 101.82 81.20
Amount (in percentage terms)
remaining invested in
program properties at the
end of the last year
reported in the Table
(original total acquisition
cost of properties retained
divided by original total
acquisition cost of all
properties in program)..... 99.99% 99.99% 92.90% 92.90% N/A N/A N/A
<CAPTION>
CPA(R):10
----------------------------------------------------------------------
1993 1994 1995 1996 1997
----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C>
Gross Revenues.............. $16,128,694 $16,386,307 $16,131,750 $15,505,748 $14,665,622
Profit on sale of
properties................. N/A 1,177,284(5) N/A 1,051,823(13) (362,038)(14)(16)
Other....................... 1,478,086 1,529,736 1,595,406(9) 1,718,797(9) 1,806,760(9)
Write-down of property...... (7,519,431)(8) (1,753,139)(12) N/A
Extraordinary charge........ N/A (253,902)
Less:
Operating expenses......... 2,511,268 2,894,710 2,887,021 3,030,780 3,850,490(15)
Interest expense........... 8,082,223 8,151,222 8,310,440 7,911,209 3,277,006
Depreciation............... 1,944,589 1,945,769 1,967,631 2,007,557 6,467,266
Minority Interest.......... 587,472 599,839 (1,881,218) 583,283 2,023,890
Net Income-GAAP Basis....... 4,481,228 5,247,885 (1,076,149) 2,990,400 607,472
Taxable Income (Loss):
-- from operations......... 2,697,330 2,618,952 3,778,032 3,529,835 7,585,200
-- from gain on sale....... 129,811 6,100,391
-- from other.............. 0 823,905 0 0
-- from extraordinary
charge.................... 0 0 0 0 0
Cash generated from
operations................. 6,284,822 6,311,466 6,263,624 6,656,840 6,481,196
Cash generated from sales... 0 0 5,122,501(10) 7,781,582(13) 1,480,259(14)
Cash generated from
refinancing................ 0 0 0 0 0
Cash generated from other... 0 0 0 0 0
Cash generated from
operations, sales,
refinancing and other...... 6,284,822 6,311,466 11,386,125 14,438,422 7,961,455
Less: Cash distribution to
investors:
-- from operating cash
flow(4)................... 5,916,386 5,950,669 5,975,481 5,981,514 5,294,000
-- from sales and
refinancing............... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions... 368,436 360,797 5,410,644 8,456,908 2,667,455
Less: Special items......... 0 0 0 0 0
Cash generated (deficiency)
after cash distributions
and special items.......... 368,436 360,797 5,410,644 8,456,908 2,667,455
Tax and Distribution Data
Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss).... $ 37.37 $ 36.29 $ 52.35 $ 48.98 $ 84.65
Capital gain.............. 1.80 0
Other..................... 0 11.42 0 0 0
Cash Distributions to
Investors:
Source (on GAAP basis):
-- Investment income...... 62.09 72.71 (14.93) 41.50 73.46
-- Return of capital...... 19.88 9.74 97.81 41.50 0
Source (on cash basis):
-- Sales.................. 0 0 0 0 0
-- Refinancing............ 0 0 0 0 0
-- Operations............. 81.98 82.45 82.88 83.00 73.46
Amount (in percentage terms)
remaining invested in
program properties at the
end of the last year
reported in the Table
(original total acquisition
cost of properties retained
divided by original total
acquisition cost of all
properties in program)..... 100% 93.93% 93.93% 82.27% 81.45%
</TABLE>
A-12
<PAGE> 124
TABLE III (10 OF 10)
OPERATING RESULTS OF PRIOR PROGRAMS
Table III includes information showing the start-up and operational phase of
Prior Programs, the offerings of which have been closed since December 31, 1979.
This Table is designed to provide the investor with information on the financial
operations of such Prior Programs. The results shown in this Table are in all
cases for years ended December 31. THE INFORMATION PRESENTED IN THIS TABLE
SHOULD NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE
COMPANY. PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY
OWNERSHIP IN THE CPA(R) PROGRAMS. MORTGAGE FINANCING FOR THE CPA(R) PROGRAMS MAY
HEREAFTER OCCUR WHICH WOULD MAKE AVAILABLE ADDITIONAL FUNDS FOR INVESTMENT BY
SUCH PROGRAMS. ANY ADDITIONAL INVESTMENTS COULD SIGNIFICANTLY ALTER CERTAIN OF
THE INFORMATION PRESENTED IN THIS TABLE.
<TABLE>
<CAPTION>
CIP(R)
----------------------------------------------------------------
1991 1992 1993 1994 1995
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues.............................................. $ 92,097 $5,306,275 $17,637,235 $25,958,329 $29,238,322
Profit (loss) on sale of properties......................... NA 1,535,763(2) 0
Other....................................................... 1,478,086 1,613,451 2,800,337(4)
Extraordinary charge........................................ NA NA (401,269)(3)
Write-down of property......................................
Less:
Operating expenses......................................... 207,640 1,638,870 3,456,274 4,490,683 5,654,751
Interest expense........................................... 22,790 1,338,083 6,652,011 11,027,689 13,512,254
Depreciation............................................... 9,799 312,609 1,018,886 1,514,114 2,493,366
Minority Interest.......................................... 0 459,583 748,841
Net Income (Loss) -- GAAP Basis............................. (148,132) 2,016,713 7,990,823 11,615,474 9,228,178
Taxable Income (Loss):
-- from gain on sale.......................................
-- from operations......................................... (148,132) 1,880,687 6,450,406 7,806,855 9,638,818
-- from other.............................................. 0 0 0
-- from extraordinary charge............................... 0 0 0
Cash generated from operations.............................. 73,399 2,913,159 0 12,086,809 13,008,549
Cash generated from sales................................... 0 12,008,853 5,927,217(5)
Cash generated from refinancing............................. 0 160,000
Cash generated from other................................... 0 0 2,003,099(4)
Cash generated from operations, sales, refinancing and
other...................................................... 73,399 0 10,717,806 24,255,662 20,938,865
Less: Cash distribution to investors:
-- from operating cash flow(1)............................. 2,915,819 8,122,156 11,358,858 11,452,669
-- from sales and refinancing.............................. 0 0 0
Cash generated (deficiency) after cash distributions........ 73,399 (2,660) 2,595,650 12,896,804 9,486,196
Less: Special items......................................... 0 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................. 73,399 (2,660) 2,595,650 12,896,804 9,486,196
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ (84.90) $ 29.24 $ 52.14 $ 55.10 $ 68.09
Capital Gain...............................................
Other...................................................... 0 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... 31.35 64.59 80.17 65.19
-- Return of capital....................................... 13.98 1.06 0 15.71
Source (on cash basis):
-- Sales................................................... 0 0 0
-- Refinancing............................................. 0 0 0
-- Operations.............................................. 45.33 65.65 80.17 80.90
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all
properties in program)..................................... N/A N/A N/A N/A N/A
<CAPTION>
CIP(R)
-----------------------------
1996 1997
---- ----
<S> <C> <C>
Gross Revenues.............................................. $32,546,638 $34,247,395
Profit (loss) on sale of properties......................... (7,630)(6) (343,963)(8)(10)
Other....................................................... 3,633,869(4)(7) 3,109,120(4)
Extraordinary charge........................................ (275,000)(3) 427,448(9)
Write-down of property...................................... (1,753,455)
Less:
Operating expenses......................................... 6,022,323 7,942,880
Interest expense........................................... 14,241,203 14,202,295
Depreciation............................................... 2,968,173 3,435,128
Minority Interest.......................................... 766,582 773,317
Net Income (Loss) -- GAAP Basis............................. 10,146,141 11,086,326
Taxable Income (Loss):
-- from gain on sale....................................... 81,144
-- from operations......................................... 10,048,321 11,157,568
-- from other.............................................. 656,796 0
-- from extraordinary charge............................... 0 0
Cash generated from operations.............................. 15,346,178 14,953,605
Cash generated from sales................................... 2,044,260(6) 1,194,272(8)
Cash generated from refinancing............................. -- --
Cash generated from other................................... 835,243(7) --
Cash generated from operations, sales, refinancing and
other...................................................... 18,225,681 16,147,877
Less: Cash distribution to investors:
-- from operating cash flow(1)............................. 12,488,221 13,681,539
-- from sales and refinancing.............................. 0 0
Cash generated (deficiency) after cash distributions........ 5,737,460 2,466,338
Less: Special items......................................... 0 0
Cash generated (deficiency) after cash distributions and
special items.............................................. 5,737,460 2,466,338
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ 63.43 $ 64.87
Capital Gain............................................... 4.15 .47
Other...................................................... 0 0
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... 64.05 64.46
-- Return of capital....................................... 14.79 15.09
Source (on cash basis):
-- Sales................................................... 0 0
-- Refinancing............................................. 0 0
-- Operations.............................................. 78.84 79.55
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all
properties in program)..................................... N/A N/A
<CAPTION>
CPA(R):12
--------------------------------------------------------------
1993 1994 1995 1996 1997
---- ---- ---- ---- ----
<S> <C> <C> <C> <C> <C>
Gross Revenues.............................................. $ 2,558 $465,327 $3,993,647 $11,433,627 $ 25,313,419
Profit (loss) on sale of properties......................... --
Other....................................................... 554,571 1,322,990(11) 2,042,400(11) 2,086,993(11)
Extraordinary charge........................................ --
Write-down of property...................................... --
Less:
Operating expenses......................................... 5,211 900,393 1,551,098 2,792,846 5,074,248
Interest expense........................................... 147,256 1,260,189 3,525,774 6,499,865
Depreciation............................................... 390,307 947,206 3,022,683
Minority Interest..........................................
Net Income (Loss) -- GAAP Basis............................. (2,653) (27,751) 2,115,043 6,210,201 12,803,616
Taxable Income (Loss):
-- from gain on sale....................................... -- 6,900
-- from operations......................................... (2,653) 390,164 2,375,613 5,670,787 15,389,092
-- from other..............................................
-- from extraordinary charge............................... --
Cash generated from operations.............................. 2,807 591,308 3,661,087 7,747,104 19,955,591
Cash generated from sales................................... 1,375,000(11) -- 138,960,203
Cash generated from refinancing.............................
Cash generated from other...................................
Cash generated from operations, sales, refinancing and
other...................................................... 2,807 591,308 5,036,087 7,747,104 158,915,794
Less: Cash distribution to investors:
-- from operating cash flow(1)............................. 2,350,687 6,779,669 15,081,819
-- from sales and refinancing.............................. -- --
Cash generated (deficiency) after cash distributions........ 2,807 591,308 2,685,400 967,435 143,833,975
Less: Special items......................................... --
Cash generated (deficiency) after cash distributions and
special items.............................................. 2,807 591,308 2,685,400 967,435 143,833,975
Tax and Distribution Data Per $1000 Invested
Federal Income Tax Results:
Ordinary income (loss)..................................... $ (.13) $ 14.36 $ 59.14 $ 54.71 $ 54.44
Capital Gain............................................... .02
Other......................................................
Cash Distributions to Investors:
Source (on GAAP basis):
-- Investment income....................................... $ 52.66 $ 59.91 $ 45.30
-- Return of capital....................................... 5.87 5.49 8.06
Source (on cash basis):
-- Sales...................................................
-- Refinancing.............................................
-- Operations.............................................. 58.53 65.40 53.36
Amount (in percentage terms) remaining invested in program
properties at the end of the last year reported in the
Table (original total acquisition cost of properties
retained divided by original total acquisition cost of all
properties in program)..................................... N/A N/A N/A N/A N/A
</TABLE>
A-13
<PAGE> 125
FOOTNOTES TO CPA(R):1
(1) Results from the sale of a one acre portion of the land which was a part of
the property net leased to Varo, Inc. The net proceeds from the sale of this
land were applied to repay a portion of the outstanding principal balance of
the mortgage loan to CPA(R):1 used to finance the acquisition of the
Property.
(2) Results from the sale of 11.37 acres of land which was a part of the
property net leased to the Gap Stores, Inc.
(3) Represents loss on disposition of the 2400 Industrial Lane Property as a
result of the transfer of the Partnership's interest in the Property.
(4) Represents write-down of the 2400 Industrial Lane Property.
(5) Results from the sale of properties net leased to Kobacker Stores, Inc.
(6) Result of refinancing mortgage loan on property leased to the Gap Inc.
(7) Results from the sale of the property net leased to Winn-Dixie Stores, Inc.
(8) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS, No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
(9) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
NOTES TO CPA(R):1
(1) CPA(R):1 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $27.66 and April,
1998 -- $18.00.
FOOTNOTES TO CPA(R):2
(1) Results from the sale of 3,441 square feet of land net leased to G.D. Searle
& Co. and sale of the property net leased to General Refractories Company.
(2) Represents unamortized balance of deferred charges in connection with
refinancing of mortgage loans on properties leased to Heekin Can Inc., Paper
Corporation of America and Gibson Greeting Cards, Inc.
(3) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
(4) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
(5) Results from the sale of properties leased to Heekin Can, Inc.
(6) In connection with the sale of the Heekin properties, CPA(R):2 incurred an
extraordinary charge upon paying off the related mortgage loan.
(7) Results from the sale of property in Hammond, Louisiana leased to G.D.
Searle and Company.
(8) Represents write-down of the Moorestown, N.J. property.
(9) Represents write-down of the Reno, Nevada property.
NOTES TO CPA(R):2
(1) CPA(R):2 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $27.38 and April,
1998 -- $12.94.
FOOTNOTES TO CPA(R):3
(1) Results from the sale of properties net leased to Commodities Corporation
and Knudsen Corporation.
(2) Represents unamortized balance of deferred charges in connection with
refinancing of mortgage loan on property net leased to Gibson Greeting
Cards, Inc. and pay-off of mortgage loan on property net leased to The
Leslie Fay Company.
A-14
<PAGE> 126
(3) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS. No. 95. In
determining Cash from Operations pursuant to the Statement of Cash Flows,
the effects of changes primarily in accrued liabilities, receivables and
other assets are taken into account but other items such as principal
amortization of loans are not included. Cash from operations pursuant to
the Statement of Changes in Financial Position includes the effect of loan
amortization, but excludes the effects of changes in accrued liabilities,
receivables and other assets.
(4) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(5) Represents deposit received from Leslie Fay Co. in the amount of $8,533,614
for partial payment due under a purchase option for property it leases in
Wilkes Barre, Pennsylvania. $3,333,333 of this amount was distributed to
partners in July 1992.
(6) Represents write-down of the Moorestown, N.J. property.
(7) Represents write-down of the Reno, Nevada property.
(8) Represents write-down of the Leslie Fay property to net sales proceeds.
(9) Results of settlement with Leslie Fay.
(10) Represents sales proceeds of property in Wilkes Barre, Pennsylvania.
NOTES TO CPA(R):3
(1) CPA(R):3 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $26.38 and April
1998 -- $25.00.
FOOTNOTES TO CPA(R):4
(1) Results from the sale of properties net leased to Knudsen Corporation.
(2) Represents writedown of Beaumont, Texas property, formerly net leased to
Gulf Consolidated Services, Inc.
(3) Represents gain on restructuring of debt on Beaumont, Texas property
formerly net leased to Gulf Consolidated Services, Inc.
(4) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Simplicity Manufacturing, Inc.
(5) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Brodart Co.
(6) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects
of changes primarily in accrued liabilities, receivables and other assets
are taken into account, but other items such as principal amortization of
loans are not included. Cash from operations pursuant to the Statement of
Changes in Financial Position includes the effect of loan amortization, but
excludes the effects of changes in accrued liabilities, receivables and
other assets.
(7) Represents acquisition of hotel operations for a property formerly leased
to Integra-A Hotel and Restaurant Company.
(8) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(9) Represents extinguishment of debt on the property located in Beaumont,
Texas.
(10) Results from sale of property net leased to Genesco, Inc.
(11) Includes equity income and net hotel operating results for 1996.
(12) Results from the exchange of a hotel property in Kenney, Louisiana for an
investment in American General Hospitality Operating Partnership L.P.
(13) Represents writedown of the property net leased to Simplicity
Manufacturing, Inc.
(14) Represents equity income for 1997.
NOTES TO CPA(R):4
(1) CPA(R):4 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $52.68; April,
1998 -- $24.64 and a liquidating distribution of $120.38.
FOOTNOTES TO CPA(R):5
(1) Represents sale of Buffalo, New York property formerly net leased to
Williams Hand Tool, Inc.
(2) Represents exchange of property net leased to Industrial General
Corporation.
(3) Represents prepayment charge resulting from refinancing of the original
loan for property net leased to Pace Membership Warehouse, Inc.
A-15
<PAGE> 127
(4) Represents write-down of Buffalo, New York property formerly net leased to
Williams Hand Tool, Inc.
(5) Represents acquisition of hotel operations for properties formerly leased
to subsidiaries of Landmark Hotel Corporation.
(6) Results from the sale of a 3.0815 acre parcel of land which was a portion
of the property net leased to Industrial General Corporation.
(7) Represents write-down of Columbus, Georgia property leased to Williams Hand
Tool, Inc.
(8) Represents a gain on release of mortgage escrow funds and related interest
income earned in the escrow reserve accounts for the hotel properties
located in Alpena and Petoskey, Michigan.
(9) Represents disposition of Columbus, Georgia property formerly leased to
Williams Hand Tool, Inc. and sale of a parcel of land in Elyria, Ohio
formerly leased to Industrial General Corporation.
(10) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects
of changes primarily in accrued liabilities, receivables and other assets
are taken into account but other items such as principal amortization of
loans are not included. Cash from operations pursuant to the Statement of
Changes in Financial Position includes the effect of loan amortization, but
excludes the effects of changes in accrued liabilities, receivables and
other assets.
(11) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(12) Results from the settlement and lease termination agreement for the hotel
properties in Michigan.
(13) Represents write-down of the preferred stock investment and the estimated
residual value of the South Boston and Kenbridge, Virginia properties.
(14) Results from sale of the Tampa, Florida and the Forrest City, Arkansas
properties.
(15) Represents the extinguishment of debt on the Tampa, Florida property and
properties located in Gordonsville, Virginia and North Bergen, NJ.
(16) Results from sale of properties in Bold Knob, Arkansas, Ballville, Ohio,
Newburyport, Massachusetts, Gardensville, Virginia and North Bergen, New
Jersey.
(17) Represents the writedown of hotel property in Rapid City, South Dakota and
the property on Elepia, Ohio; and writing off the note receivable and
preferred stock of Rochester Butten Company.
(18) Represents sale of property in Hodgkins, Illinois leased to GATX Logistics,
Inc., property in Helena, Montana and a hotel property in Rapid City, South
Dakota.
(19) Represents write-down of hotel property in Rapid City, South Dakota. A
special distribution of $792,400 was declared and paid in January 1997.
(20) Results from foreclosure on the properties net leased to Arley Merchandise
Corporation.
(21) Represents writedown of properties net leased to Arley Merchandise
Corporation.
NOTES TO CPA(R):5
(1) CPA(R):5 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $20.22 and
April -- $16.68 and a liquidating distribution of $46.48.
FOOTNOTES TO CPA(R):6
(1) Represents acquisition of hotel operations for properties formerly leased to
subsidiaries of Landmark Hotel Corporation.
(2) Represents unamortized balance of deferred charges in connection with the
refinancing of the mortgage loan secured by a property leased to Martin
Marrietta Corporation.
(3) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(4) For the years up to and including 1985, the figures for cash generated from
operations were derived from the Statements of Changes in Financial
Position, whereas for the years after 1985, the figures were derived from
the Statements of Cash Flows in accordance with SFAS No. 95. In determining
Cash from Operations pursuant to the Statement of Cash Flows, the effects of
changes primarily in accrued liabilities, receivables and other assets are
taken into account, but other items such as principal amortization of loans
are not included. Cash from operations pursuant to the Statement of Changes
in Financial Position includes the effect of loan amortization, but excludes
the effects of changes in accrued liabilities, receivables and other assets.
(5) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
A-16
<PAGE> 128
(6) Represents gain on restructuring of debt on the property leased to Anthony's
Manufacturing Company, Inc.
(7) Result from the sale of two properties leased to Autozone, Inc.
NOTES TO CPA(R):6
(1) CPA(R):6 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $43.09 and April,
1998 -- $24.40.
FOOTNOTES TO CPA(R):7
(1) Results from the sale of approximately 10 acres of land which was a portion
of the property net leased to Emb-Tex Corporation.
(2) Represents write-down of 10 properties formerly net leased to Yellow Front
Stores, Inc.
(3) Represents the gain on the sale of securities of Mid-Continent Bottlers,
Inc. and income from equity investments.
(4) Results of the sale of .22 acres of land formerly part of a property
located in Scottsdale, Arizona. See Table V.
(5) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(6)To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations in
prior years that has not previously been distributed.
(7) Includes $200,364 of distributions paid to the Corporate General Partner
attributable to 1991.
(8) Results from sale of properties located in Travelers Rest, South Carolina
and Phoenix, Arizona.
(9) Represents write-down of the Jupiter and Plant City, Florida properties.
(10) Results from sale of properties leased to Mid-Continent, Bottlers, Inc.
(11) Represents write-down of properties located in Fredricksburg, Virginia and
Jefferson, Georgia.
(12) Represents an extraordinary gain upon extinguishment of the Yellow Front
Stores, Inc. loan.
(13) Result of sale of the Jupiter, Florida Property.
(14) Represents writedown of Monte Vista, Colorado property.
(15) Represents earnings from discontinued operations and loss from equity
investments.
(16) Represents cash distributed from equity investments.
(17) Result of sale of property in Denham Springs, Louisiana leased to AutoZone,
Inc. and a property in Monte Vista, Colorado formerly leased to Yellow
Front Stores, Inc.
(18) Represents writedown on properties net leased to Swiss M-Tex, L.P.
(19) Represents equity income for 1997.
NOTES TO CPA(R):7
(1) CPA(R):7 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $5.07 and April,
1998 -- $18.34, and a liquidity distribution of $50.63.
FOOTNOTES TO CPA(R):8
(1) Results from the sale of a parcel of land which was a portion of the
property net leased to Furon Company.
(2) Represents acquisition of hotel operations for property formerly leased to
Integra-A Hotel and Restaurant Company.
(3) Results from the refinancing of property leased to Detroit Diesel
Corporation.
(4) Includes of equity income for 1993, 1994, 1995 and 1996 income (loss) and
hotel operating results for 1996.
(5) Results from the exchange of a hotel property in Kennes, Louisiana for an
investment in American General Hospitality Operating Partnership L.P.
(6) Results from the sale of two properties leased to Furon Company.
(7) Represents equity income for 1997.
NOTES TO CPA(R):8
(1) CPA(R):8 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $10.96 and April,
1998 -- $22.06, and a liquidating distribution of $56.63.
A-17
<PAGE> 129
FOOTNOTES TO CPA(R):9 & CPA(R):10
(1) Results from the sale of a parcel of land which was a portion of the
property net leased to Furon Company.
(2) Represents loan prepayment charge resulting from refinancing of loan
secured by property located in Denton, Texas leased to K mart Corporation.
(3) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(4) Results from the refinancing of property leased to Detroit Diesel
Corporation.
(5) Results from sale of properties leased to Data Documents Inc. and the Pace
Membership Warehouse, Inc.
(6) Represents write-off of investment in Limited Partnership and income from
Equity investments.
(7) Represents cash distributions from Equity investments in excess of income.
(8) Represents write-down of the Stamford, Connecticut property.
(9) Results of Equity investments for 1993, 1994, 1995 and 1996.
(10) Results of sale of Data Documents property.
(11) Results from the sale of two properties leased to Furon Company.
(12) Represents write-down of the Harvest Foods, Inc. properties.
(13) Results from the sale of properties leased to Safeway Stores Incorporated,
Empire of America Realty Credit Corp. and Best Buy Co., Inc.
(14) Results from the sale of Enviro Works, Inc. securities, and the sale of
properties formerly leased to Harvest Foods, Inc.
(15) Results from the transfer of CPA:10's general partnership interest in Hope
Street Connecticut to CPA:9 and the extinguishment of debt on a first
priority mortgage loan on properties formerly leased to Harvest Foods, Inc.
(16) Results include subordinated disposition fees.
NOTES TO CPA(R):9 & CPA(R):10
(1) CPA(R):9 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: December, 1997 -- $18.74 and April,
1998 -- $21.28.
(2) CPA(R):10 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1998 -- $17.61 and April,
1998 -- $17.63.
FOOTNOTES TO CIP(R) & CPA(R):12
(1) To the extent "cash distribution to investors from operating cash flow"
exceeds "cash generated from operations" in any given year, such excess
represents the distribution of cash generated from partnership operations
in prior years that has not previously been distributed.
(2) Results from sale of property leased to Data Documents, Inc.
(3) Result of refinancing mortgage loans on property leased to TBWA Chait/Day.
(4) Results of Equity Investments for 1993, 1994, 1995 and 1996 income (loss)
and cash distributed.
(5) Results of Sale of Data Documents property.
(6) Loss on sale of properties based to Safeway Stores, Incorporated.
(7) Gain on sale of 22,500 Garden Ridge Corporation common stock warrants.
(8) Results of sale of properties formerly leased to Harvest Foods, Inc.
(9) Gain on the extinguishment of debt on a first priority mortgage loan on
properties formerly leased to Harvest Foods, Inc.
(10) Results include subordinated disposition fees.
(11) Results of equity investments income (loss) and cash distributed.
NOTES TO CIP(R) & CPA(R):12
(1) CIP(R) made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1998 -- $20.60; and April,
1998 -- $20.62.
(2) CPA(R):12 made quarterly distributions in the following amounts per $1,000
invested on the dates specified: January, 1998 -- $20.23 and April,
1998 -- $20.25.
A-18
<PAGE> 130
TABLE IV
RESULTS OF COMPLETED PROGRAMS
Table IV provides information on Prior Programs that have completed
operations since January 1, 1993. THE INFORMATION PRESENTED IN THIS TABLE SHOULD
NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE OPERATIONS OF THE COMPANY.
<TABLE>
<CAPTION>
CPA(R):1 CPA(R):2 CPA(R):3 CPA(R):4 CPA(R):5 CPA(R):6 CPA(R):7
----------- ----------- ----------- ----------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Dollar Amount Raised......... $20,000,000 $27,500,000 $33,000,000 $42,784,000 $56,600,000 $47,930,000 $45,274,000
Number of Properties
Purchased.................. 24 19 17 12 36 54 53
Date of Closing of
Offering................... 9/30/79 9/23/80 5/13/82 6/16/83 3/31/84 2/13/85 9/17/87
Date of First Sale of
Property................... 6/6/89 7/15/86 10/22/86 10/22/86 12/31/87 4/28/95 12/3/93
Date of Final Sale of
Property(1)................ 1/1/98 1/1/98 1/1/98 1/1/98 1/1/98 1/1/98 1/1/98
Tax and Distribution Data per
$1000 Investment Through
Federal Income Tax Results:
Ordinary income (loss)... $ 547.51 $ 1,044.25 $ 1,844.85 $ 678.36 $ 300.55 $ 649.69 $ 629.58
-- from operations..... 0.00 0.00 0.00 (0.33) 0.00 0.00 0.00
Capital Gain (loss)...... $ 11.34 $ 858.72 $ 105.88 $ 109.97 $ 354.66 $ 0.00 $ 291.18
-- Other............... $ 0.00 $ 0.00 $ 0.00 $ 0.00 $ 43.48 $ 0.54 $ 21.14
Cash Distributions to
Investors
Source (on Gaap basis)
-- Investment Income..... 765.68 2,069.50 2,115.01 1,405.10 928.11 1,017.83 636.60
-- Return of Capital..... 1,517.49 1,524.35 1,832.07 1,591.09 1,136.70 1,509.79 1,441.83
Source (on Cash basis)
-- Sales................. 1,051.80 1,818.20 1,677.00 1,358.60 734.80 1,380.60 1,107.80
-- Refinancing........... 0.00 0.00 0.00 0.00 0.00 0.00 10.46
-- Operations............ 1,231.37 1,775.65 100.00 1,542.63 1,330.01 1,147.02 941.13
-- Other................. 0.00 0.00 1,935.48 0.00 0.00 0.00 0.00
<CAPTION>
CPA(R):8 CPA(R):9
----------- -----------
<S> <C> <C>
Dollar Amount Raised......... $67,749,000 $59,990,000
Number of Properties
Purchased.................. 47 33
Date of Closing of
Offering................... 6/30/89 4/30/91
Date of First Sale of
Property................... 4/15/94 9/5/96
Date of Final Sale of
Property(1)................ 1/1/98 1/1/98
Tax and Distribution Data per
$1000 Investment Through
Federal Income Tax Results:
Ordinary income (loss)... $ 595.28 $ 418.85
-- from operations..... 0.00 0.00
Capital Gain (loss)...... $ 0.00 $ (15.58)
-- Other............... $ (0.21) $ 0.03
Cash Distributions to
Investors
Source (on Gaap basis)
-- Investment Income..... 692.73 467.11
-- Return of Capital..... 1,480.42 1,281.36
Source (on Cash basis)
-- Sales................. 1,391.00 1,052.60
-- Refinancing........... 0.00 0.00
-- Operations............ 782.15 695.89
-- Other................. 0.00 0.00
</TABLE>
FOOTNOTES
(1) Date of exchange of Partnership units for listed shares of Carey Diversified
LLC.
(2) Assumes $20 value for the shares of Carey Diversified LLC distributed in
connection with the consolidation of the CPA(R) Partnerships.
A-19
<PAGE> 131
TABLE V
SALES OR DISPOSITIONS OF PROPERTIES AS OF DECEMBER 31, 1997
Table V provides information on the sales and dispositions of property held
by Prior Programs since January 1, 1994. THE INFORMATION IN THIS TABLE SHOULD
NOT BE CONSIDERED AS INDICATIVE OF THE POSSIBLE PERFORMANCE OF THE COMPANY.
PURCHASERS OF THE SHARES OFFERED BY THIS PROSPECTUS WILL NOT HAVE ANY OWNERSHIP
IN THE CPA(R) PARTNERSHIPS.
<TABLE>
<CAPTION>
SELLING PRICE NET OF CLOSING COSTS AND GAAP ADJUSTMENTS
-----------------------------------------------------
PURCHASE
CASH MONEY ADJUSTMENTS
RECEIVED MORTGAGE MORTGAGE RESULTING
NET OF BALANCE TAKEN FROM
DATE DATE OF CLOSING AT TIME BACK BY APPLICATION
PROPERTY ACQUIRED SALE COSTS OF SALE PROGRAM OF GAAP
-------- -------- ------- -------- -------- -------- -----------
<S> <C> <C> <C> <C> <C> <C>
G.D. Searle and Co.(1)............................. 5/15/80 1/4/94 $ 124,615 $ 0 0 None
Plant City, Florida(2)............................. 3/31/89 4/15/94 1,200,000 0 0 None
Jefferson, Georgia(3).............................. 3/31/89 8/5/94 844,778 0 0 None
Mid Continental Bottlers, Inc.(4).................. 12/31/86 10/14/94 13,904,680 3,895,320 0 None
Pace Membership Warehouse, Inc.(5)................. 8/12/86 11/10/94 3,639,563 3,290,437 0 None
Pace Membership Warehouse, Inc.(6)................. 12/23/92 11/10/94 3,466,100 3,500,000 0 None
Data Documents, Inc.(7)............................ 3/18/93 11/28/94 7,710,740 7,721,000 0 None
Industrial General Corporation(8).................. 8/30/85 12/30/94 4,062 645,938 0 None
Industrial General Corporation(12)................. 8/30/85 9/14/95 466,961 2,920,401 0 None
Liberty Fabrics of New York(13).................... 1/3/84 12/3/95 5,509,000 3,850,000 0 None
Genesco, Inc.(14).................................. 6/2/83 6/30/95 9,477,492 5,722,508 0 None
Jupiter, Florida(15)............................... 12/11/86 12/20/95 1,546,020 2,602,883 0 None
Leslie Fay Company(16)............................. 4/30/82 1/10/96 14,053,816 0 0 None
Helena, Montana(17)................................ 5/1/85 1/19/96 1,741,261 2,866,324 0 None
Autozone, Inc.(18)................................. 5/2/86 1/26/96 0 627,106 0 None
Safeway Stores, Inc.(19)........................... 12/19/91 1/26/96 4,649,270 0 0 None
& 2/15/96
Autozone, Inc.(20)................................. 8/24/87 2/12/96 431,779 0 0 None
Monte Vista, Colorado(21).......................... 1/29/88 2/14/96 186,090 0 0 None
Empire of America Credit Corp.(22)................. 6/28/91 3/15/96 3,583,013 4,442,872 0 None
GATX Logistics, Inc.(23)........................... 6/7/86 4/9/96 9,428,270 3,208,526 0 None
Best Buy Co. Inc.(24).............................. 10/16/92 5/16/96 1,593,559 1,509,371 0 None
Furon Company(25).................................. 1/29/90 9/9/96 478,626 892,180 0 None
Rapid City, South Dakota(26)....................... 4/24/85 10/1/96 (290,728) 4,505,000 0 None
Kobacker Stores, Inc.(27).......................... 1/17/79 10/17/96 216,451 139,507 0 None
Winn-Dixie Stores, Inc.(28)........................ 12/28/79 8/11/97 1,042,200 0 0 None
Harvest Foods, Inc.(29)............................ 2/21/92 9/3/97 2,388,544 0 0 None
& 9/30/97
Arley Merchandise Corporation(30).................. 7/13/84 11/17/97 0 4,754,940 0 None
Swiss M-Tex, L.P.(31).............................. 8/26/87 11/26/97 200,000 0 0 None
----------- -----------
$87,596,162 $57,094,313 0 --
=========== ===========
<CAPTION>
COST OF PROPERTIES INCLUDING
CLOSING AND SOFT COSTS(11)
SELLING
PRICE NET
OF CLOSING
COSTS AND
GAAP
ADJUSTMENTS
------------ TOTAL
ACQUISITION EXCESS
COST, (DEFICIENCY)
TOTAL CAPITAL OF OPERATING
PROCEEDS ORIGINAL ORIGINAL IMPROVEMENT, RECEIPTS OVER
RECEIVED EQUITY MORTGAGE CLOSING AND CASH
PROPERTY FROM SALE INVESTMENT FINANCING SOFT COSTS EXPENDITURES(9)
-------- --------- ---------- --------- ------------ ---------------
<S> <C> <C> <C> <C> <C>
G.D. Searle and Co.(1)............................. $ 124,615 $ 218,038 $ 0 $ 218,038 $ 249,998
Plant City, Florida(2)............................. 1,200,000 934,075 1,370,064 2,304,139 964,989
Jefferson, Georgia(3).............................. 844,778 893,466 1,310,496 2,203,962 855,611
Mid Continental Bottlers, Inc.(4).................. 17,800,000 4,945,126 5,040,000 9,985,126 10,004,008
Pace Membership Warehouse, Inc.(5)................. 6,930,000 2,433,500 3,400,000 5,833,500 2,485,104
Pace Membership Warehouse, Inc.(6)................. 6,966,100 3,149,314 3,500,000 6,649,314 439,632
Data Documents, Inc.(7)............................ 15,431,740 5,455,634 8,000,000 13,455,634 941,446
Industrial General Corporation(8).................. 650,000 759,902 777,352 1,537,254 1,143,549
Industrial General Corporation(12)................. 3,387,362 3,055,324 3,124,940 6,180,264 4,596,363
Liberty Fabrics of New York(13).................... 9,359,000 2,500,000 4,500,000 7,000,000 6,139,226
Genesco, Inc.(14).................................. 15,200,000 5,102,128 6,600,000 11,702,128 12,865,450
Jupiter, Florida(15)............................... 4,148,903 2,766,322 4,000,000 7,855,572 1,207,991
Leslie Fay Company(16)............................. 14,053,816 4,000,000 5,400,000 9,400,000 17,810,804
Helena, Montana(17)................................ 4,607,585 4,012,908 2,937,500 6,950,408 4,923,483
Autozone, Inc.(18)................................. 627,106 242,508 280,136 522,644 254,234
Safeway Stores, Inc.(19)........................... 4,649,270 5,541,790 0 5,541,790 1,852,277
Autozone, Inc.(20)................................. 431,779 357,050 0 357,050 303,583
Monte Vista, Colorado(21).......................... 186,090 259,422 358,869 618,291 96,429
Empire of America Credit Corp.(22)................. 8,025,885 2,830,000 4,500,000 7,463,792 1,571,108
GATX Logistics, Inc.(23)........................... 12,636,796 8,780,378 3,500,000 12,280,378 16,661,862
Best Buy Co. Inc.(24).............................. 3,102,930 835,000 1,600,000 2,538,839 520,071
Furon Company(25).................................. 1,370,806 618,777 932,240 1,551,017 416,119
Rapid City, South Dakota(26)....................... 4,214,272 3,100,000 6,800,000 10,515,701 3,470,494
Kobacker Stores, Inc.(27).......................... 355,958 166,882 211,949 378,831 209,139
Winn-Dixie Stores, Inc.(28)........................ 1,042,200 1,101,904 0 1,101,904 1,708,409
Harvest Foods, Inc.(29)............................ 2,388,544 1,026,210 1,593,224 2,619,434 509,403
Arley Merchandise Corporation(30).................. 4,754,940 2,808,555 5,000,000 7,808,555 3,241,515
Swiss M-Tex, L.P.(31).............................. 200,000 215,852 277,524 493,510 --(10)
----------- ----------- ----------- ------------ -----------
$144,690,475 $68,110,065 $75,014,294 $145,067,075 $95,442,297
=========== =========== =========== ============ ===========
</TABLE>
A-20
<PAGE> 132
FOOTNOTES
(1) On May 15, 1980, CPA(R):2 purchased an improved property and net leased it
to G.D. Searle and Co. On January 4, 1994 the property was sold for
$124,615, net of closing costs representing a loss of $93,423 over the
$218,038 cost basis of the property.
(2) On March 31, 1989 CPA(R):7 and CPA(R):8 purchased six improved properties
and net leased them to NV Ryan L.P. with 37.037% and 62.963%, respectively.
On April 15, 1994 the Plant City, Florida property was sold for $1,200,000
representing a loss of $1,104,139 over the $2,304,139 cost basis of the
property.
(3) On August 5, 1994 the Jefferson, Georgia property which was formerly leased
to NV Ryan L.P. by CPA(R):7 and CPA(R):8 was sold for $844,778, net of
closing costs representing a loss of $1,359,184 over the $2,203,962 cost
basis of the property.
(4) On December 31, 1986, CPA(R):7 purchased eight improved properties and net
leased them to Mid-Continent Bottlers, Inc. and subsequently transferred
the interest in one property to another tenant. On October 14, 1994, the
remaining seven properties were sold for $17,800,000 representing a gain of
$7,814,874 over the $9,985,126 cost basis of the property.
(5) On August 12, 1986, CPA(R):5 purchased an improved property which was
subsequently leased to Pace Membership Warehouse, Inc. On November 10,
1994, the property was sold for $6,930,000 net of closing costs
representing a gain of $1,096,500 over the $5,833,500 cost basis of the
property.
(6) On December 23, 1992, CPA(R)10 purchased an improved property and net
leased it to Pace Membership Warehouse, Inc. On November 10, 1994, the
property was sold for $6,966,100 net of closing costs, representing a gain
of $316,786 over the $6,649,314 cost basis of the property.
(7) On March 18, 1993 CPA(R):10 and CIP(R) purchased five improved properties
and net leased them to Data Documents, Inc. with 22.22% and 77.78%
interests, respectively. On November 28, 1994, the properties were sold for
$15,431,740 net of closing costs representing a gain of $1,976,706 over the
$13,455,034 cost basis of the property.
(8) On August 30, 1985, CPA(R):5 purchased seven improved properties and net
leased them to Industrial General Corporation. On December 30, 1994, the
Forrest City, Arkansas property was sold for $650,000 net of closing costs,
representing a loss of $887,254 over the $1,537,254 cost basis of the
property.
(9) Operating receipts include rental income from the properties as well as
certain receipts from the settlement of bankruptcy claims, where
applicable. The net excess (deficiency) presented is for the entire period
the property was owned by the applicable Partnership. No amounts are
presented for partial land sales since such amounts are negligible.
(10) The property sold represented only a portion of the property owned by the
partnership and no receipts or expenses have been separately allocated.
(11) The term "soft costs" refers to miscellaneous closing costs such as
accounting fees, legal fees, title insurance costs and survey costs.
(12) On August 30, 1985, CPA(R):5 purchased seven properties and net leased
them to Industrial General Corporation. On September 14, 1995, the Bald
Knob, Belville and Newbury port properties were sold for $3,387,362 net of
closing cost, representing a loss of $2,792,902 over the $6,180,264 cost
basis of the property.
(13) On January 3, 1984, CPA(R):5 purchased properties in Gardensville,
Virginia and in North Bergen, New Jersey and leased them to Liberty
Fabrics. On December 31, 1995, CPA recognized a gain on sale of $2,359,000
in connection with the sale.
(14) On June 2, 1983 CPA(R):4 purchased a property in Allentown, Pennsylvania
and leased it to Genesco, Inc. On June 30, 1995 the property was sold for
$15,200,000 net of closing costs representing a gain of $3,497,872 over
the $11,702,128 costs basis of the property.
A-21
<PAGE> 133
(15) On December 11, 1986 CPA(R):7 purchased a food service facility. On
December 20, 1995 the facility and operations were sold for $4,148,903
representing a loss of $3,706,669 over the $7,855,572 cost basis of the
property.
(16) On April 30, 1993, CPA(R):3 purchased a warehouse property in
Wilkes-Barre, Pennsylvania and leased it to the Leslie Fay Company. On
January 10, 1996 CPA(R):3 sold the property recognizing a gain of
$4,653,816 over the cost basis of the property. Cash received net of
closing cost of $14,303,816, included two lump sum payments of $7,200,000
and $5,000,000 from Leslie Fay in connection with settlement agreement
regarding a purchase option which did not ultimately result in the sale of
the property to Leslie Fay. A third purchased the property for $1,853,816,
net of selling costs.
(17) On May 1, 1985, CPA(R):5 purchased an office building in Helena, Montana
and was assigned an existing net lease with IBM Corporation which
subsequently reduced its occupancy from 100% to 40% leasable space.
CPA(R):5 subsequently leased the remaining space to various other tenants.
On January 19, 1996 CPA(R):5 recognized a loss of $2,342,023 over cost
basis of the property.
(18) On May 2, 1986 CPA(R):6 purchased property in Dalton, Georgia and
Birmingham, Alabama and leased them to Autozone, Inc. On January 26, 1996
and April 26, 1996 the properties were sold for $627,106 net of selling
cost. CPA(R):6 recognized gains on sales over the cost basis of the
properties of $104,462 in connection with sales.
(19) On December 19, 1991, CPA(R):10 and CIP(R) purchased three supermarkets
subject to existing net leases with Safeway Stores, Inc. as
tenants-in-common, each with 50% ownership interests. On January 26, 1996
and February 15, 1996 CPA(R):10 and CIP(R) sold the Glendale, Arizona and
Escondido, California properties, respectively. CPA(R):10 and CIP(R)
recognized a net loss on both sales of $892,250 over the cost basis of the
properties.
(20) On August 28, 1987, CPA(R):7 purchased seven improved properties and net
leased them to Autozone, Inc. On February 12, 1996 the Denham Spring,
Louisiana property and was sold for $431,779 representing a gain of
$74,729 over the $357,050 cost basis of the property.
(21) On January 29, 1988 CPA(R):7 purchased 10 improved properties and net
leased them to Yellow Front Stores, Inc. The Yellow Front lease was
ultimately terminated and the property was released. On February 14, 1996
the Monte Vista, Colorado property was sold for $186,090, net of closings
costs representing a loss of $432,201 over the $618,291 cost basis of the
property.
(22) On June 28, 1991, CPA(R):10 purchased an office building occupied by
Empire of America Realty Credit Corp. ("Empire") for $7,330,000 of which
$4,500,000 was financed by a mortgage loan. On March 15, 1996, CPA(R):10
accepted Empire's purchase offer of $8,500,000 and recognized a net gain
on sale of $562,093 over the original cost of the property.
(23) On June 7, 1985, CPA(R):5 purchased a warehouse property in Hodgkins,
Illinois which was net leased to General Motors Corporation. In November
1993, the General Motors Corporation lease terminated and CPA(R):5 entered
into a new lease with GATX Logistics, Inc. On April 4, 1996, CPA(R):5
recognized a gain on sale of $356,418 over the cost basis of the property.
(24) On October 16, 1992, CPA(R):10 purchased land and a retail store for
$2,435,000 subject to an existing net lease with Sports Town, Inc. Best
Buy Co., Inc. subsequently assumed the lease. CPA(R):10 obtained a
$1,600,000 mortgage loan for this property in September 1993. On May 16,
1996, CPA(R):10 sold the retail store for $3,250,000 and recognized a gain
of $564,091 over the original cost basis of the property.
(25) On January 29, 1990 CPA(R):8 and CPA(R):9 purchased nine properties as
tenants-in-common and leased them to the Furon Company. On September 9,
1996, two properties were sold in Liverpool, Pennsylvania and the other in
Twinsburg, Ohio, CPA(R):8 and 9 recognized a loss of $189,211 over the
cost basis of the two properties.
(26) On April 24, 1985, CPA(R):5 purchased a hotel in Rapid City, South Dakota
which it operated as a Holiday Inn. On October 1, 1996, the hotel property
and its operations were sold for $4,105,000. CPA(R):5 recognized a loss of
$6,301,429 over the cost basis of the property. The mortgage balance at
A-22
<PAGE> 134
the time of sale of $6,800,000 is presented net of sinking fund reserves
of $2,295,000 which were applied as principal payments at the time of
sale. The net cash received on sale was $290,728 less than the amount
necessary to pay the remaining mortgage principal balance.
(27) On January 17, 1979, CPA(R):1 purchased fifteen properties located in
California, Ohio and Indiana and net leased these properties to Kobacker
Stores, Inc. On October 17, 1996, Kobacker exercised options under the
terms of its leases for properties in Eastlake and Cleveland, Ohio to
purchase such properties for stated purchase prices of $165,000 and
$200,000, respectively, resulting in a loss of $22,873 over the cost basis
of the properties.
(28) On December 28, 1979, CPA(R):1 purchased a supermarket in Louisville,
Kentucky and net leased it to Winn-Dixie Stores, Inc. On August 11, 1997,
CPA:1 sold the property and recognized a gain of $607,861.
(29) On February 21, 1992, CPA:(R)10 and CIP(R) purchased as tenants-in-common,
each with undivided 50% ownership interests, 13 supermarkets and two
office buildings and entered into a master lease with Harvest Foods, Inc.
In September 1997, CPA(R):10 and CIP(R) sold three properties and
recognized a gain of $105,131 each.
(30) On July 13, 1984, CPA(R):5 purchased two properties in Sumter and
Columbia, South Carolina and net leased them to Arley Merchandise
Corporation ("Arley"). In July 1997, the Arley lease was terminated by the
Bankruptcy Court in connection with Arley's voluntary petition of
bankruptcy. In May 1997, the lender on the limited recourse mortgage loan
collateralized by the Arley properties made a demand for payment for the
entire outstanding principal balance of the loan of $4,754,940. The lender
initiated a lawsuit for the purpose of foreclosing on the Arley
properties, which CPA(R):5 did not contest. On November 17, 1997, the
ownership of the Arley properties was transferred to the lender and the
loan obligation was canceled. In connection with the foreclosure, CPA(R):5
recognized a gain of $956,829 on the difference between liabilities
forgiven and assets surrendered.
(31) On August 26, 1987, CPA(R):7 purchased properties in Travelers Rest and
Liberty, South Carolina and net leased them to Swiss M-Tex, L.P. On
November 26, 1997, CPA(R):7 sold the Liberty property for $200,000. In
connection with the sale, CPA(R):7 wrote down the Liberty property to an
estimated net realizable value of $200,000 and incurred a charge of
$139,999 on the writedown.
A-23
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EXHIBIT B
[CPA LOGO]
CORPORATE PROPERTY ASSOCIATES 14
INCORPORATED
ORDER FORM
B-1
[SPECIMEN LOGO]
<PAGE> 136
INSTRUCTIONS FOR COMPLETION
OF CPA(R):14 ORDER FORM
INSTRUCTIONS TO INVESTORS
YOU MUST COMPLETE ALL ITEMS AND SIGN THE ORDER FORM IN ITEM 7. INVESTORS ARE
ENCOURAGED TO READ THE PROSPECTUS IN ITS ENTIRETY FOR A COMPLETE EXPLANATION
OF AN INVESTMENT IN THE COMPANY.
Item 1 Check the appropriate box to indicate form of ownership. If the
investor is a Custodian, Corporation, Partnership or Trust, please provide the
additional requested information and/or documents.
Item 2 Indicate the number of shares you are purchasing (250 Shares is the
minimum for investors other than IRAs and KEOGHS; 200 Shares is the minimum for
investors who are IRAs or KEOGHS (250 shares if you are resident of Iowa)) and
the dollar amount of your investment. Check the appropriate box to indicate
whether this is an initial or additional investment and whether the order is to
be combined with that of another investor for the purpose of obtaining a volume
discount available to "single purchasers."
Item 3 Please print name(s) in which Shares are to be registered and
provide address and telephone numbers. Check appropriate box if you are a
non-resident alien, a U.S. citizen residing outside U.S. or subject to back up
withholding (if the latter applies to you, cross out clause (ii) in the
paragraph appearing immediately above Item 1). IRAs and KEOGHs should provide
the taxpayer identification number of the account AND the social security number
of the accountholder. Trusts should provide their taxpayer identification
number. Custodians should provide the minor's social security number. All
individual investors should provide their social security number. Other entities
should provide their taxpayer identification number. If you have an account with
the broker/dealer named on the reverse side of the form, provide your account
number.
Item 4 Provide mailing address of beneficiary of a Trust, IRA or KEOGH if
so desired so that duplicate copies of shareholder reports can be sent to such
beneficiary.
Item 5 Provide dividend payment preference.
Item 6 Print the two-letter abbreviation of your state of residence (if an
IRA or KEOGH, state of residence of beneficiary).
Item 7 You MUST sign the form in Item 7. Signature(s) must be witnessed
and the date of signing must be inserted on the line provided.
AFTER FOLLOWING THE ABOVE INSTRUCTIONS, DETACH THE ORDER FORM ALONG THE
PERFORATION AND RETURN THE ORDER FORM TO THE BROKER WHO SOLICITED YOUR ORDER
TOGETHER WITH A CHECK MADE PAYABLE TO "THE U.S. TRUST COMPANY OF NEW YORK AS
ESCROW AGENT" (OR, INSTEAD OF A CHECK, A REQUEST TO THE BROKER IN THE AMOUNT OF
YOUR ORDER). TRUSTS should furnish a copy of the trust instrument and all
amendments thereto. CORPORATIONS should furnish an appropriate corporation
resolution authorizing the purchase of the Shares. PARTNERSHIPS should furnish a
copy of the partnership agreement.
INSTRUCTIONS TO BROKERS
Please be sure to verify all investor information on the Order Form. YOU
MUST COMPLETE ITEM 8 AND SIGN THE ORDER FORM FOR THE ORDER TO BE ACCEPTED.
Please verify that investors have signed Item 7.
Please send check(s) payable to "The U.S. Trust Company of New York, as
Escrow Agent" and completed Order Form(s) to The U.S. Trust Company of New York,
770 Broadway, 13th Floor, New York, New York 10003, Attention: Barbara Schoemig.
For wiring instructions, contact The U.S. Trust Company of New York at
212-852-1665 prior to wiring funds.
B-2
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<PAGE> 137
CORPORATE PROPERTY ASSOCIATES 14
INCORPORATED
ORDER FORM
The investor named below, under penalties of perjury, certifies that (i) the
number shown under Item 3 on this Order Form 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 APPROPRIATE BOX
IN ITEM 3 BELOW HAS BEEN CHECKED].
<TABLE>
<S> <C>
1. FORM OF OWNERSHIP Mark only one box.
[ ] IRA
[ ] SINGLE PERSON
[ ] KEOGH
[ ] HUSBAND AND WIFE AS COMMUNITY PROPERTY
(In Item 7, both signatures must appear) [ ] PENSION OR PROFIT SHARING PLAN
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP [ ] TRUST (Trust Agreement MUST be enclosed)
(In Item 7, both signatures must appear) ALL SECTIONS MUST BE FILLED IN
Trustee name(s)
------------------------
[ ] TENANTS IN COMMON
Trust date
----------------------
[ ] A MARRIED PERSON SEPARATE PROPERTY (In Item 7, Month Day Year
only one signature must appear)
[ ] For the benefit of
[ ] CUSTODIAN --------------------
Custodian for
------------------------------ [ ] OTHER
Under Uniform Gift to Minors Act of the State
of [ ] ESTATE
---------------
[ ] CORPORATION OR PARTNERSHIP [ ] CHARITABLE REMAINDER TRUST
(Corporate Resolution or Partnership Agreement MUST be
enclosed) [ ] NON-PROFIT ORGANIZATION
</TABLE>
2. PURCHASE INFORMATION
<TABLE>
<S> <C> <C>
No. of Shares--minimum 250 (or Dollar Amount
200 for an IRA or KEOGH) of $
------------------------ ---------------------
Investment
($10 per Share)
</TABLE>
THIS IS AN (CHECK ONE): [ ] INITIAL INVESTMENT [ ] ADDITIONAL INVESTMENT IN
THIS OFFERING
[ ] Check box if the Shares ordered are to be combined with an order of another
investor for the purpose of obtaining volume discounts to "single
purchasers." Name of other investor(s)
- --------------------------------------------------------------------------------
3. INVESTOR INFORMATION Name(s) and address will be recorded exactly as printed
below.
Name
---------------------------------------------------------------------------
Name
of Joint
Investor
-----------------------------------------------------------------------
Address
------------------------------------------------------------------------
------------------------------------------------------------------------
City State Zip Code
---------------------- -------------- ----------------------
Investor Business Phone Number
--------- --------- ------------
[ ] Check box if you are a non-resident alien
[ ] Check box if you are a U.S. citizen
residing outside the U.S.
[ ] Check box if you are subject to
backup withholding
Investor Home Phone Number
--------- --------- ------------
<TABLE>
<S> <C> <C>
- --------------------------------- --------------------------------- ---------------------------------
Investor's Social Security No. Joint Investor's Taxpayer
Social Security No. ID. No.
</TABLE>
Investor's Account Number with Broker Dealer
---------------------------------
(if any)
4. INVESTOR MAILING ADDRESS If you are investing through a Trust, IRA or KEOGH
and want duplicate copies of shareholder reports sent to you, please complete.
Address
----------------------------------------------------------------------
----------------------------------------------------------------------
City State Zip Code
------------------------ ------------- --------------------
Account number (if any) Account name
------------------------ ------------------
(REVERSE SIDE MUST BE SIGNED BY
BROKER AND BY INVESTOR)
DETACH ALONG PERFORATION
<PAGE> 138
5. DIVIDEND PAYMENT OPTIONS: (NON-QUALIFIED PLANS) INVESTORS MAY CHOOSE EITHER
OPTION A OR B.
A. Please indicate the address(es) to which dividends should be mailed.
Dividends may be split on a percentage basis, between a maximum of two (2)
payees.
Destination 1:
Company
--------------------------------------
Address
--------------------------------------
--------------------------------------
City
----------------------------------------
State Zip Code
----------------- ---------------
Account number (if any)
----------------------
Account name
---------------------------------
Destination 2:
Company
----------------------------------------
Address
----------------------------------------
----------------------------------------
City
----------------------------------------
State Zip Code
-------------- ----------------------
Account number (if any)
------------------------
Account name
-----------------------------------
* Percentage amount listed above must equal 100%.
B. AUTOMATIC DEPOSITS--Please include a voided check or savings deposit slip.
I authorize Imperial Bank to initiate variable entries to my checking or savings
account. This authority will remain in effect until I notify the CPA(R):14
Investor Relations Department or Resource/Phoenix, the transfer agent for
CPA(R):14, in writing to cancel in such time as to afford a reasonable
opportunity to act on the cancellation.
Financial Institution Name and Address
-----------------------------------------
Account Type (circle one): Checking Savings Other
Account Number Bank ABA Routing Number
------------------------ ----------------
6. STATE OF RESIDENCE
------
7. SIGNATURE OF INVESTOR(S)
Signature of investor is required.
- ------------------------------
SIGNATURE OF WITNESS
- ------------------------------
SIGNATURE OF INVESTOR
- ------------------------------
DATE
- ------------------------------
SIGNATURE OF WITNESS
SPECIMEN.EPS
- ------------------------------
SIGNATURE OF INVESTOR
- ------------------------------
DATE
8. BROKER/DEALER INFORMATION THE BROKER MUST SIGN BELOW TO COMPLETE ORDER.
BROKER HEREBY WARRANTS THAT IT IS A DULY
LICENSED BROKER AND MAY LAWFULLY SELL SHARES IN
THE STATE DESIGNATED AS THE INVESTOR'S
RESIDENCE.
Licensed Firm Name
--------------------------------------------------------------
Broker Name
---------------------------------------------------------------------
Broker Mailing Address
----------------------------------------------------------
City State Zip Code
---------------------------- ------------- -------------------
Broker Number Telephone Number
-------------------------------- ------------------
The undersigned confirms by his signature that he (i) has reasonable grounds to
believe that the information and representations concerning the investor
identified herein are true, correct and complete in all respects; (ii) has
discussed such investor's prospective purchase of Shares with such investor;
(iii) has advised such investor of all pertinent facts with regard to the
liquidity and marketability of the Shares; (iv) has delivered a current
Prospectus and related supplements, if any, to such investor; and (v) has
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.
------------------------------ ---------------
Broker Signature Date
ALL INVESTOR AND BROKER/DEALER INFORMATION MUST BE COMPLETED OR
REGISTRATION CANNOT BE PROCESSED.
- --------------------------------------------------------------------------------
FOR COMPANY USE ONLY:
2
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TABLE OF CONTENTS
<TABLE>
<CAPTION>
PAGE
----
<S> <C>
Prospectus Summary......................... 4
Risk Factors............................... 11
Terms of the Offering...................... 20
Estimated Use of Proceeds.................. 22
Management Compensation.................... 24
Conflicts of Interest...................... 33
Prior Offerings by Affiliates.............. 37
Management................................. 41
Investment Objectives and Policies......... 52
Holders of Shares of the Company........... 64
Management Discussion and Analysis of
Financial Condition...................... 65
Description of Properties.................. 67
Income Tax Aspects......................... 75
ERISA Considerations....................... 85
Description of Shares...................... 88
Dividends.................................. 90
The Offering............................... 94
Reports to Shareholders.................... 97
Legal Opinions............................. 97
Experts.................................... 97
Sales Literature........................... 98
Further Information........................ 98
Glossary................................... 98
Financial Statements....................... F-1
Prior Performance Tables................... A-1
Specimen CPA(R):14 Order
Form -- Exhibit B........................ B-1
</TABLE>
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
- ------------------------------------------------------------
NO PERSON HAS BEEN AUTHORIZED TO GIVE ANY INFORMATION OR TO MAKE ANY
REPRESENTATION IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS UNLESS
PRECEDED OR ACCOMPANIED BY THIS PROSPECTUS NOR HAS ANY PERSON BEEN AUTHORIZED TO
GIVE ANY INFORMATION OR TO MAKE ANY REPRESENTATION OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS IN CONNECTION WITH THE OFFER CONTAINED IN THIS PROSPECTUS, AND,
IF GIVEN OR MADE, SUCH INFORMATION OR REPRESENTATIONS MUST NOT BE RELIED UPON.
THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN ANY JURISDICTION
TO ANY PERSON TO WHOM IT IS UNLAWFUL TO MAKE SUCH OFFER OR SOLICITATION IN SUCH
JURISDICTION. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE MADE
HEREUNDER SHALL UNDER ANY CIRCUMSTANCES CREATE AN IMPLICATION THAT THERE HAS
BEEN NO CHANGE IN THE AFFAIRS OF THE COMPANY SINCE THE DATE HEREOF. HOWEVER, IF
ANY MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE
DELIVERED, THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
[WPCAREY LOGO]
[CPA LOGO]
CORPORATE PROPERTY
ASSOCIATES 14
Incorporated
A Maximum of 30,000,000 Shares of Common Stock
PROSPECTUS
CAREY FINANCIAL CORPORATION
- ------------------------------------------------------------
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