Registration No. 33-90998
As filed with the Securities and Exchange Commission on November 27, 1996
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. FIVE
TO
FORM S-11
REGISTRATION STATEMENT
UNDER
THE SECURITIES ACT OF 1933, AS AMENDED
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CNL INCOME FUND XVII, LTD. and CNL INCOME FUND XVIII, LTD.
(Exact Name of Registrant as Specified in Charter)
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ROBERT A. BOURNE
400 East South Street, Suite 500 400 E. South Street, Suite 500
Orlando, Florida 32801 Orlando, Florida 32801
Telephone: (407) 422-1574 Telephone: (407) 422-1574
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(Address of principal executive offices) (Name and address of agent for service)
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COPIES TO:
KENNETH C. WRIGHT, ESQUIRE
Baker & Hostetler
200 South Orange Avenue, Suite 2300
Orlando, Florida 32801
Telephone: (407) 649-4001
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CNL INCOME FUND XVII, LTD.
AND
CNL INCOME FUND XVIII, LTD.
Supplement No. 4, dated November 27, 1996
to Prospectus, dated August 11, 1995
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated August 11, 1995. This Supplement replaces all prior Supplements
to the Prospectus. Capitalized terms used in this Supplement have the same
meaning as in the Prospectus unless otherwise stated herein.
THE OFFERING
SUBSCRIPTION PROCEDURES
The offering of Units of CNL Income Fund XVIII, Ltd. ("CNL XVIII")
commenced on September 20, 1996. As of October 11, 1996, CNL XVIII had received
aggregate subscription proceeds of $1,733,131, which exceeded the minimum
offering amount of $1,500,000, and $1,517,431 of the funds (which excluded all
funds received from New York and Pennsylvania investors) were released from
escrow. As of November 15, 1996, CNL XVIII had received total subscription
proceeds of $4,686,463 from 222 limited partners, and all funds received from
New York and Pennsylvania investors had been released from escrow. Up to
3,500,000 Units ($35,000,000) of CNL XVIII will be offered for sale to the
public.
All subscriptions are for the purchase of Units of CNL XVIII. Offers
are no longer being made nor are the General Partners accepting subscriptions
for Units of CNL XVII. THE ACQUISITION OF UNITS OF ONE PARTNERSHIP WILL NOT
ENTITLE THE INVESTOR TO ANY OWNERSHIP INTEREST IN THE OTHER PARTNERSHIP OR ITS
PROPERTIES.
BUSINESS
PROPERTY ACQUISITIONS
As of November 15, 1996, CNL XVIII had acquired no Properties, and no
commitments have been issued by CNL XVIII to acquire any Properties.
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PROSPECTUS
CNL INCOME FUND XVIII, LTD.
(Florida Limited Partnership)
Minimum Purchase -- 250 Units ($2,500)
100 Units ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL INCOME FUND XVIII, LTD. ("CNL XVIII" or the "Partnership") is a
Florida limited partnership, which has been formed to acquire existing
restaurant properties, as well as properties upon which restaurants are to be
constructed (collectively, the "Properties"), to be leased primarily to
operators of national and regional fast-food, family-style, and casual dining
restaurant chains. The Partnership may sell up to 3,500,000 Units for a maximum
of $35,000,000 in gross offering proceeds. Units of CNL XVIII are being offered
subsequent to the sale of units of CNL Income Fund XVII, Ltd. ("CNL XVII"), but
as part of the same aggregate offering. All units of CNL XVII have been sold.
The Partnership is not a mutual fund or any other type of investment company
within the meaning of the Investment Company Act of 1940, and is not subject to
regulation thereunder.
There are significant risks associated with an investment in the
Partnership (see "Risk Factors" at page 8 of this Prospectus), including the
following:
o The Partnership currently owns no Properties, and investors,
therefore, will not have the opportunity to evaluate the Properties
that the Partnership will acquire.
o The Partnership will rely on the General Partners with respect to all
investment decisions.
o Both the number of Properties that the Partnership will acquire, and
the diversification of its investments, will be reduced to the extent
that the total proceeds of the Offering are less than $35,000,000.
o Investors who must sell their Units are unlikely to be able to sell
them quickly because there will be no public market for the Units.
o Market and economic conditions that the Partnership cannot control
will affect the value of the Properties and the amount of cash that
the Partnership receives from the lessees of its Properties.
o Under certain circumstances, the General Partners may determine to
reinvest the Net Sales Proceeds of Properties into other Properties,
which proceeds would be otherwise distributable to the Partners.
o The General Partners and their affiliates will perform services for
the Partnership in connection with the Offering, the selection and
acquisition of the Partnership's Properties, and the operation of the
Partnership, and will receive substantial compensation from the
Partnership in consideration of these services.
o The General Partners are or will be engaged in other activities that
will result in potential conflicts of interest.
THE PARTNERSHIP'S PRIMARY INVESTMENT OBJECTIVES are to preserve,
protect, and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year of Partnership operations in amounts that exceed
current taxable income (due to the fact that depreciation deductions
attributable to the Properties reduce taxable income even though depreciation is
not a cash expenditure); (ii) an anticipated minimum level of income through the
long-term rental of Properties to selected operators of certain national and
regional fast-food, family-style, and casual dining restaurant chains; (iii)
additional income and protection against inflation by participation in certain
restaurant gross sales through the receipt of percentage rent payments and,
typically, automatic increases in the minimum annual rent; and (iv) capital
appreciation through the potential increase in value of the Properties. There
can be no assurance that these objectives will be met. Distributions in excess
of net income of the Partnership may constitute a return of capital. The
Partnership intends to meet these objectives by purchasing carefully selected
restaurant properties and leasing them on a "triple-net" basis (which means that
the lessee will be responsible for paying the cost of all repairs, maintenance,
property taxes, and insurance) to creditworthy operators of certain national or
regional fast-food, family-style, and casual dining restaurant chains under
leases requiring the lessee to pay both base annual rent and a percentage rent
based on gross sales. See "Business--Site Selection and Acquisition of
Properties," "Business--Description of Leases," and "Investment Objectives and
Policies" for a more complete description of the manner in which the structure
of the Partnership's business will facilitate the Partnership's ability to meet
its investment objectives.
This Prospectus describes an investment in Units of limited partnership
interest in the Partnership, which will use investors' money to purchase the
Properties. Of the proceeds from the sale of Units received by the Partnership,
approximately 83.5% (in the event proceeds of approximately $35,000,000 are
raised) will be used to acquire Properties, and approximately 8.5% will be paid
in fees and expense reimbursements to Affiliates of the General Partners for
their services and as reimbursement for Organizational and Offering Expenses
incurred on behalf of the Partnership; and the balance will be reallowed to
Soliciting Dealers or retained by the Managing Dealer, which is an Affiliate of
the General Partner, as selling commissions.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE ATTORNEY GENERAL
OF THE STATE OF NEW JERSEY OR THE BUREAU OF SECURITIES OF THE STATE OF NEW
JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL. 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.
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Price to Selling Proceeds to
Public Commissions(1) Partnership(2)
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Per Unit ....................................... $ 10.00 $ 0.85 $ 9.15
- ------------------------------------------------------------------------------------------------------------------------------
Total Minimum................................... $ 1,500,000 $ 127,500 $ 1,372,500
- ------------------------------------------------------------------------------------------------------------------------------
Total Maximum ................................ $ 35,000,000 $2,975,000 (3) $ 32,025,000 (3)
==============================================================================================================================
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See Footnotes Following Page
[Prospectus Dated December __, 1996]
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(Cover Page Continued From Previous Page)
Footnotes:
(1) CNL Securities Corp. (the "Managing Dealer") will receive Selling
Commissions of 8.5% on sales of Units, subject to reduction in certain
circumstances. The Managing Dealer, which is an Affiliate of the
General Partners, may engage other broker-dealers that are members of
the National Association of Securities Dealers, Inc. to sell Units and
reallow to them commissions of up to 8% with respect to Units which
they sell. The amounts indicated for Selling Commissions assume that
reduced Selling Commissions are not paid in connection with the
purchase of any Units and do not include a 0.5% due diligence expense
reimbursement fee payable to the Managing Dealer, all or a portion of
which may be reallowed to Soliciting Dealers. See "The Offering--Plan
of Distribution" for a discussion of the circumstances under which
reduced Selling Commissions may be paid and a description of the due
diligence expense reimbursement fee payable to the Managing Dealer.
(2) Before deducting organizational and offering expenses of the
Partnership (excluding Selling Commissions and the due diligence
expense reimbursement fee) estimated to be 3% of gross offering
proceeds computed at $10.00 per Unit sold ("Gross Proceeds") on the
sale of 150,000 Units and 2.5% of Gross Proceeds on the sale of
3,500,000 Units. The General Partners will pay all organizational and
offering expenses which exceed 3% of the Gross Proceeds.
-----------------------------------------------------
All subscription funds for Units of the Partnership will be deposited
in an interest-bearing escrow account with SouthTrust Asset Management Company
of Florida, N.A., which will act as the escrow agent for this Offering . The
Offering commenced on September 20, 1996. As of October 11, 1996, the
Partnership had received aggregate subscriptions for 173,313 Units, representing
$1,733,131 in aggregate subscription proceeds from unaffiliated Limited Partners
(which exceeded the minimum offering amount of $1,500,000) and $1,517,431 of the
funds were released from escrow (which excluded all funds received from New York
and Pennsylvania investors). As of November 15, 1996, the Partnership had sold
468,646 Units, representing $4,686,463 of capital contributed by unaffiliated
Limited Partners and all funds received from New York and Pennsylvania investors
had been released from escrow. As the escrow conditions have been satisfied, all
further proceeds from the sale of Units will be available to the Partnership .
The General Partners have elected to extend this Offering to a date not later
than August 11, 1997.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE PARTNERSHIP SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY
REPRESENTATIONS TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE
AMOUNT OR CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE
WHICH MAY FLOW FROM AN INVESTMENT IN THIS PARTNERSHIP IS PROHIBITED.
The Units of limited partnership interest in the Partnership are
subject to restrictions on transferability. See "Summary of Partnership
Agreement--Restrictions on Transferability of Units" for a discussion of such
restrictions.
See the "Reports to Limited Partners" section of this Prospectus for a
discussion of the reports to be furnished to Limited Partners. Prospective
investors are encouraged to read the entire Prospectus, which contains a copy of
the form of Amended and Restated Agreement of Limited Partnership.
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ii
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TABLE OF CONTENTS
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Page
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CNL INCOME FUND XVIII, LTD..............................................................................................
SUMMARY OF THE OFFERING.................................................................................................
CNL INCOME FUND XVIII, LTD.....................................................................................
RISK FACTORS ..................................................................................................
ESTIMATED USE OF PROCEEDS......................................................................................
MANAGEMENT COMPENSATION........................................................................................
CONFLICTS OF INTEREST..........................................................................................
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN......................................................................
BUSINESS (PURCHASE AND SALE OF PROPERTIES).....................................................................
MANAGEMENT ..................................................................................................
MANAGING DEALER................................................................................................
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES.......................................................
ALLOCATIONS AND DISTRIBUTIONS..................................................................................
SUMMARY OF PARTNERSHIP AGREEMENT...............................................................................
FEDERAL INCOME TAX CONSIDERATIONS..............................................................................
THE OFFERING ..................................................................................................
DEFINITIONS ..................................................................................................
RISK FACTORS............................................................................................................
INVESTMENT RISKS...............................................................................................
Reliance on General Partners for Management of Partnership..............................................................
Risk of Payment of Management Compensation........................................................
Possible Lack of Diversification..................................................................
Lack of Market for Units..........................................................................
Significant Restrictions on Transferability of Units..............................................
Risks Associated With Management of Joint Ventures................................................
Lack of Control of Property Management............................................................
Potential Liability of Limited Partners...........................................................
Risks for Qualified Plan Investors................................................................
Limited Resources of General Partners.............................................................
Conflicts of Interest.............................................................................
Risks Associated with a Minority Interest in a Partnership........................................
REAL ESTATE RISKS..............................................................................................
Risks Related to an Unspecified Property Offering.................................................
Risks of Real Property Investments................................................................
Risks of Lessee Defaults Resulting in Property Vacancies..........................................
Risks of Uninsured Losses.........................................................................
Risks of Adverse Trends in Restaurant Industry....................................................
Possible Delays in Investment.....................................................................
Risks Resulting From Competition..................................................................
Possible Environmental Liabilities................................................................
Risks of Acquiring Properties Under Construction..................................................
Risks of Joint Investment in Properties...........................................................
Risks Relating to Future Disposition of Properties................................................
FEDERAL INCOME TAX RISKS.......................................................................................
Risks of Loss of Partnership Status...............................................................
Risks of Partnership Characterization as a Publicly Traded Partnership............................
Risks Relating to Allocations of Income, Gain, Loss, and Deduction................................
Risks Relating to Disallowance of Deduction of Certain Fees and
Expenses by the Partnership. ..................................................................
Risks of Recharacterization of Leases and Limited Availability of Depreciation....................
Risks of Loss of Passive Activity Income..........................................................
Risks Relating to Taxation of Undistributed Revenues..............................................
Risks Relating to Creation of Unrelated Business Taxable Income...................................
Risks of Taxable Gain on Sale of a Limited Partner's Partnership Interest.........................
Risks of Applicability of Alternative Minimum Tax.................................................
Audit Risks, Interest, and Penalties..............................................................
Risks of Possible Federal Income Tax Legislation or Administrative Changes........................
Effects of State and Local Taxation...............................................................
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE..............................................................................
SUITABILITY STANDARDS..........................................................................................
HOW TO SUBSCRIBE...............................................................................................
ESTIMATED USE OF PROCEEDS...............................................................................................
MANAGEMENT COMPENSATION.................................................................................................
NONSUBORDINATED PAYMENTS.......................................................................................
PAYMENTS SUBORDINATED TO MINIMUM RETURN TO LIMITED PARTNERS....................................................
CONFLICTS OF INTEREST...................................................................................................
PRIOR AND FUTURE PROGRAMS...................................................................................
ACQUISITION OF PROPERTIES...................................................................................
iii
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TABLE OF CONTENTS (continued)
Page
ALLOCATION OF PROPERTIES BETWEEN CNL XVII AND CNL XVIII........................................................
SALES OF PROPERTIES............................................................................................
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM....................................................................
COMPETITION FOR MANAGEMENT TIME................................................................................
COMPENSATION OF GENERAL PARTNERS AND AFFILIATES................................................................
RELATIONSHIP WITH MANAGING DEALER..............................................................................
LEGAL REPRESENTATION...........................................................................................
CERTAIN CONFLICT RESOLUTION PROCEDURES.........................................................................
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS........................................................................
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN...............................................................................
GENERAL ..................................................................................................
INVESTMENT OF DISTRIBUTIONS....................................................................................
PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF UNITS............................................................
REPORTS TO PARTICIPANTS........................................................................................
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION.............................................................
FEDERAL INCOME TAX CONSIDERATIONS..............................................................................
AMENDMENTS AND TERMINATION.....................................................................................
CAPITALIZATION..........................................................................................................
BUSINESS ...............................................................................................................
GENERAL ..................................................................................................
SITE SELECTION AND ACQUISITION OF PROPERTIES...................................................................
General. ........................................................................................
Construction and Renovation.......................................................................
Interim Acquisitions..............................................................................
Acquisition Services..............................................................................
STANDARDS FOR INVESTMENT.......................................................................................
Selection of Restaurant Chains....................................................................
Selection of Properties and Lessees...............................................................
DESCRIPTION OF PROPERTIES......................................................................................
Land. ...........................................................................................
Buildings. ......................................................................................
DESCRIPTION OF LEASES..........................................................................................
General. .........................................................................................
Term of Leases. .................................................................................
Computation of Lease Payments.....................................................................
Assignment and Sublease...........................................................................
Alterations to Premises...........................................................................
Right of Lessee to Purchase.......................................................................
Substitution of Properties. .....................................................................
Special Conditions................................................................................
Insurance, Taxes, Maintenance, and Repairs........................................................
Events of Default.................................................................................
JOINT VENTURE/CO-TENANCY ARRANGEMENTS..........................................................................
MANAGEMENT SERVICES............................................................................................
FINANCING ..................................................................................................
SALE OF PROPERTIES.............................................................................................
REGULATION ..................................................................................................
COMPETITION ..................................................................................................
SELECTED FINANCIAL DATA.................................................................................................
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION
OF THE PARTNERSHIP.....................................................................................................
GENERAL ..................................................................................................
LIQUIDITY AND CAPITAL RESOURCES................................................................................
RESULTS OF OPERATIONS..........................................................................................
MANAGEMENT..............................................................................................................
INDIVIDUAL GENERAL PARTNERS....................................................................................
CORPORATE GENERAL PARTNER......................................................................................
CNL FUND ADVISORS, INC.........................................................................................
CNL GROUP, INC.................................................................................................
NET WORTH OF GENERAL PARTNERS..................................................................................
REMOVAL OF GENERAL PARTNERS....................................................................................
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES................................................................
INVESTMENT OBJECTIVES AND POLICIES......................................................................................
GENERAL ..................................................................................................
CERTAIN INVESTMENT LIMITATIONS.................................................................................
INVESTMENT IN PROPERTIES.......................................................................................
USE OF PROCEEDS PRIOR TO INVESTMENT IN PROPERTIES..............................................................
BORROWING POLICIES.............................................................................................
ALLOCATIONS AND DISTRIBUTIONS...........................................................................................
DISTRIBUTIONS OF NET CASH FLOW................................................................................
DISTRIBUTIONS OF NET SALES PROCEEDS............................................................................
iv
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TABLE OF CONTENTS (continued)
Page
ALLOCATION OF NET INCOME AND NET LOSS........................................................................
ALLOCATION OF GAIN ON SALE...................................................................................
ALLOCATION OF LOSS ON SALE...................................................................................
SUMMARY OF PARTNERSHIP AGREEMENT......................................................................................
MANAGEMENT OF THE PARTNERSHIP................................................................................
LIABILITY OF THE LIMITED PARTNERS TO THIRD PARTIES...........................................................
MEETINGS AND VOTING RIGHTS...................................................................................
RESTRICTIONS ON TRANSFERABILITY OF UNITS.....................................................................
DISSOLUTION AND LIQUIDATION..................................................................................
INDEMNIFICATION..............................................................................................
NONEXCLUSIVE DUTIES..........................................................................................
POWER OF ATTORNEY............................................................................................
PROHIBITIONS ON "ROLL-UP" TRANSACTIONS.......................................................................
APPLICABLE LAW...............................................................................................
FEDERAL INCOME TAX CONSIDERATIONS.....................................................................................
GENERAL......................................................................................................
CHANGES IN THE TAX LAW.......................................................................................
OPINION OF COUNSEL...........................................................................................
PARTNERSHIP STATUS...........................................................................................
INVESTMENT IN JOINT VENTURES................................................................................
CO-TENANCY ARRANGEMENTS......................................................................................
PUBLICLY TRADED PARTNERSHIPS.................................................................................
TAXATION OF THE LIMITED PARTNERS.............................................................................
QUALIFIED PLAN INVESTORS.....................................................................................
ALLOCATIONS OF INCOME, GAIN, LOSS, AND DEDUCTION.............................................................
ALLOCATIONS TO NEWLY ADMITTED PARTNER OR TRANSFEREE..........................................................
DISTRIBUTION REINVESTMENT PLAN...............................................................................
CHARACTERIZATION OF LEASES...................................................................................
BASES OF INTERESTS HELD BY LIMITED PARTNERS..................................................................
BASIS, AT- RISK, AND PASSIVE ACTIVITY LIMITATIONS ON DEDUCTION OF LOSSES.....................................
PASSIVE ACTIVITY INCOME......................................................................................
CASH DISTRIBUTIONS TO LIMITED PARTNERS.......................................................................
DEPRECIATION OF THE FEE PROPERTIES...........................................................................
SYNDICATION AND ORGANIZATIONAL EXPENSES......................................................................
TAX TREATMENT OF CERTAIN FEES................................................................................
SALE OF THE PROPERTIES.......................................................................................
SALE OF LIMITED PARTNERSHIP INTERESTS BY THE LIMITED PARTNERS................................................
LIQUIDATION OF THE PARTNERSHIP...............................................................................
SPECIAL BASIS ADJUSTMENTS....................................................................................
CAPITAL GAINS AND LOSSES.....................................................................................
DEDUCTIBILITY OF INTEREST....................................................................................
ALTERNATIVE MINIMUM TAX......................................................................................
INTEREST ON UNDERPAYMENT OF TAXES............................................................................
ACCURACY-RELATED PENALTIES...................................................................................
TAX RETURN, TAX INFORMATION, AND AUDITS......................................................................
STATE AND LOCAL TAXES........................................................................................
REPORTS TO LIMITED PARTNERS...........................................................................................
THE OFFERING..........................................................................................................
GENERAL ................................................................................................
PLAN OF DISTRIBUTION.........................................................................................
SUBSCRIPTION PROCEDURES......................................................................................
ESCROW ARRANGEMENTS..........................................................................................
INVESTMENT BY QUALIFIED RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS..................................
General Considerations..........................................................................
Prohibited Transactions.........................................................................
Plan Asset Rules................................................................................
Potential Consequences of Treatment as Plan Assets..............................................
DETERMINATION OF OFFERING PRICE..............................................................................
SUPPLEMENTAL SALES MATERIAL...........................................................................................
LEGAL OPINIONS........................................................................................................
EXPERTS .............................................................................................................
ADDITIONAL INFORMATION................................................................................................
DEFINITIONS...........................................................................................................
v
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TABLE OF CONTENTS (continued)
Page
Form of Amended and Restated Agreement of Limited Partnership................................................ Exhibit A
Financial Information........................................................................................ Exhibit B
Prior Performance Tables..................................................................................... Exhibit C
Distribution Reinvestment Plan............................................................................... Exhibit D
Form of Subscription Agreement............................................................................... Exhibit E
vi
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CNL INCOME FUND XVIII, LTD.
CNL Income Fund XVIII, Ltd. ("CNL XVIII" or the "Partnership") is a
Florida limited partnership which has been formed to acquire existing restaurant
properties, as well as properties upon which restaurants are to be constructed
(collectively, the "Properties"), to be leased primarily to operators of
national and regional fast-food, family-style, and casual dining restaurant
chains.
In general, CNL XVIII will acquire Properties following such time as
substantially all of the net offering proceeds available to CNL Income Fund
XVII, Ltd. ("CNL XVII"), a prior public program that has investment objectives
and an investment structure similar to those of CNL XVIII, have been invested or
committed for investment. Properties will be acquired by CNL XVIII until the net
Offering proceeds available to it have been fully invested or committed
investment. If the General Partners determine that a Property is not suitable
for CNL XVII, however, the General Partners may cause CNL XVIII to acquire the
Property at a time when CNL XVII has uncommitted net offering proceeds. The
General Partners will determine the suitability of a particular Property for CNL
XVII based on such factors as the amount of the proposed investment, the amount
of funds available to CNL XVII, the effect of the acquisition on the
diversification of the investments of CNL XVII and on the diversification of the
lessees of its Properties (which also may affect the need for CNL XVII to
prepare or produce audited financial statements for a Property or a lessee), and
the anticipated cash flow of CNL XVII and CNL XVIII.
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL INVESTORS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE PARTNERSHIP. THE FOLLOWING
SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS.
CNL INCOME FUND XVIII, LTD.
CNL Income Fund XVIII, Ltd. ("CNL XVIII" or the "Partnership") is a
Florida limited partnership, whose address is 400 East South Street, Suite 500,
Orlando, Florida 32801, telephone (407) 422-1574 or toll free (800) 522-3863.
The Partnership is an all-cash income fund that intends to acquire
existing restaurant properties, as well as properties upon which restaurants are
to be constructed (collectively, the "Properties"), to be leased to operators of
selected national and regional restaurant chains, primarily fast-food,
family-style, and casual dining chains (the "Restaurant Chains"). See "Business"
for a description of the types of Restaurant Chains that may be selected by the
General Partners. See "Conflicts of Interest--Allocation of Properties Between
CNL XVII and CNL XVIII" for a description of the relative order in which CNL
XVII and CNL XVIII will acquire Properties. The leases of the Properties
typically will provide for payment of base annual rents with scheduled increases
and percentage rents based on gross sales. All leases will be on a "triple-net"
basis, which means that the lessee will be responsible for all repairs,
maintenance, property taxes, and insurance.
RISK FACTORS
The "Risk Factors" section discusses in detail the more important risks
associated with an investment in the Partnership, including risks associated
with an investment in real estate such as the Properties, risks associated with
an investment in a limited partnership such as the Partnership, and tax risks.
These risks include:
o Risks related to the fact that, because the Partnership currently owns no
Properties, investors will not have the opportunity to evaluate the
Properties that the Partnership will acquire.
o Risks of reduced diversification in the Partnership's investment if the
Partnership raises less than $3,500,000 from sales of Units.
o Risks that investors who must sell their Units will not be able to sell
them quickly because there will be no public market for the Units.
o Market risks associated with investments in real estate, which means that
both the amount of cash the Partnership will receive from tenants and
lessees and the future value of its Properties cannot be predicted.
o Risks of default by tenants or lessees resulting in decreased income.
o Risks relating to the fact that the General Partners and their Affiliates,
who will perform services for the Partnership in connection with the
Offering, the selection and acquisition of the Partnership's Properties,
and the operation of the Partnership, will receive substantial compensation
from the Partnership in consideration of these services.
o Reliance on the General Partners, who will have full responsibility for the
day-to-day management of the Partnership.
1
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o Risks relating to the fact that Limited Partners owning a majority of the
Units may vote to take certain actions, such as amending of the Partnership
Agreement to change the investment objectives of the Partnership.
ESTIMATED USE OF PROCEEDS
The Partnership will use the proceeds of the sale of its Units to
acquire Properties and to pay expenses relating to the organization of the
Partnership and the sale of the Units. If only 500,000 Units ($5,000,000) are
sold, however, the Partnership will acquire approximately four Properties. The
Partnership will acquire approximately 32 Properties if it sells 3,500,000 Units
($35,000,000) based on an estimated average purchase price of $900,000 per
Property. The General Partners have estimated the average purchase price based
on their past experience in acquiring similar properties and in light of current
market conditions, although prices of Properties may be higher or lower. See
"Estimated Use of Proceeds" and "Business" for a more detailed description of
the anticipated use of Partnership funds.
MANAGEMENT COMPENSATION
The General Partners, the Managing Dealer, and other Affiliates of the
General Partners will receive compensation for services they will perform for
the Partnership and also will receive expense reimbursements from the
Partnership for expenses they pay on behalf of the Partnership. The following
paragraphs summarize the more significant items of compensation.
In connection with the formation of the Partnership and the Offering of
the Units, the Managing Dealer will receive Selling Commissions of 8.5% (a
maximum of $2,975,000 if 3,500,000 Units are sold), and a due diligence expense
reimbursement fee of 0.5% (a maximum of $175,000 if 3,500,000 Units are sold),
of the total amount raised from the sale of Units, computed at $10.00 per Unit
sold ("Gross Proceeds"). The Managing Dealer in turn may reallow Selling
Commissions of up to 8% on Units sold, and all or a portion of the 0.5% due
diligence expense reimbursement fee to certain Soliciting Dealers, who are not
Affiliates of the General Partners.
For identifying the Properties and assisting the General Partners in
structuring the terms of the acquisition and leases of the Properties, CNL Fund
Advisors, Inc. will receive Acquisition Fees of 4.5% of Gross Proceeds (a
maximum of $1,575,000 if 3,500,000 Units are sold) from the sale of Units.
For managing the Properties, CNL Fund Advisors, Inc. will be entitled
to receive an annual Management Fee of 1% of gross revenues that the Partnership
earns from the Properties.
CNL Fund Advisors, Inc. may receive a disposition fee of 3% of the
gross sales price of one or more Properties for providing substantial services
in connection with the Sale of one or more such Properties, but only after such
time, if any, that the Limited Partners have received the Limited Partner's 8%
Return, plus the return of their aggregate Invested Capital Contributions. See
"Summary of the Offering--Allocations and Distributions."
With respect to distributions of Net Cash Flow, the General Partners
will receive a 5% distribution of cash as described below in "Summary of the
Offering--Allocations and Distributions," but only after such time, if any, as
the Limited Partners have received at least their Limited Partners' 8% Return
for the related year, calculated at the time of such cash distribution.
Additionally, the General Partners will receive a subordinated share of Net
Sales Proceeds upon the Sale of a Property in an amount equal to 5% of Net Sales
Proceeds as described below in "Summary of the Offering--Allocations and
Distributions," but only after such time, if any, as the Limited Partners have
received at least their Limited Partners' 8% Return, plus a return of their
investment in the Partnership.
Payment of certain fees is subject to conditions and restrictions. The
General Partners and their Affiliates also may receive reimbursement for
out-of-pocket expenses that they incur on behalf of the Partnership during its
term, subject to certain limitations. See "Management Compensation" for a
complete description.
CONFLICTS OF INTEREST
The General Partners and their Affiliates will experience conflicts of
interest in their management of the Partnership. These arise principally from
their involvement in other activities that may conflict with those of the
Partnership and include matters related to (i) allocation of properties and
management time and services between the Partnership and various partnerships
and other entities, (ii) the timing and terms of the sale of a Property, (iii)
investments with Affiliates of the General Partners, (iv) compensation of the
General Partners and their Affiliates, (v) the Partnership's relationship with
the Managing Dealer, which is an Affiliate of the General Partners, and (vi) the
fact that the Partnership's securities and tax counsel also serves as securities
and tax counsel for certain Affiliates of the General Partners, and that neither
the Partnership nor the Limited Partners will have separate counsel. The
"Conflicts of Interest" section discusses in more detail the more significant of
these potential conflicts of interest, as well as the procedures the General
Partners have established to resolve a number of these potential conflicts.
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SUMMARY OF DISTRIBUTION REINVESTMENT PLAN
The Partnership has established a distribution reinvestment plan (the
"Distribution Reinvestment Plan") pursuant to which Limited Partners who
purchase Units in the initial Offering (other than residents of the State of
California) may elect to have their cash distributions from the Partnership
automatically reinvested in Units. Prior to termination of the Offering, the
cash distributions will be reinvested in Units at the public Offering price of
$10.00 per Unit. Thereafter, the distributions will be reinvested in Units
purchased from Limited Partners, to the extent Units are available for purchase,
on the terms specified in the Distribution Reinvestment Plan. See "Summary of
Distribution Reinvestment Plan," "Federal Income Tax
Considerations--Distribution Reinvestment Plan," and the Distribution
Reinvestment Plan accompanying this Prospectus as Exhibit D for more specific
information about the Distribution Reinvestment Plan.
BUSINESS (PURCHASE AND SALE OF PROPERTIES)
The nature of the Properties which the Partnership intends to purchase
and lease is described in the section entitled "Business." The Properties, which
typically will be freestanding and will be located across the United States,
will be leased on a "triple-net" basis to creditworthy operators of the
Restaurant Chains. See "Business--Standards for Investment--Selection of
Properties and Lessees". The Properties may consist of both land and building,
the land underlying the building with the building owned by the tenant or a
third party, or the building only with the land owned by a third party. The
Properties will be purchased for cash and will not be encumbered by any liens.
As of the date of this Prospectus, the Partnership had not entered into any
arrangements that create a reasonable probability that the Partnership will
purchase any Properties. The General Partners have undertaken to supplement this
Prospectus during the Offering period to describe the acquisition of Properties
at such time as the General Partners believe that a reasonable probability
exists that a Property will be acquired by the Partnership. Based upon the
General Partners' experience and acquisition methods, a reasonable probability
that the Partnership will acquire a Property normally will occur as of the date
on which (i) a commitment letter is executed by a proposed lessee, (ii) a
satisfactory credit underwriting for the proposed lessee has been completed, and
(iii) a satisfactory site inspection has been completed. See
"Business--General."
In general, CNL XVIII will acquire Properties following such time as
substantially all of the net offering proceeds available to CNL XVII have been
invested or committed for investment. Properties will be acquired by CNL XVIII
until the net Offering proceeds available to it have been fully invested or
committed for investment. If the General Partners determine that a Property is
not suitable for CNL XVII, however, the General Partners may cause CNL XVIII to
acquire the Property at a time when CNL XVII has uncommitted net offering
proceeds. The General Partners will determine the suitability of a particular
Property for CNL XVII based on such factors as the amount of the proposed
investment, the amount of funds available to CNL XVII, the effect of the
acquisition on the diversification of the investments of CNL XVII and on the
diversification of the lessees of its Properties (which also may affect the need
for CNL XVII to prepare or produce audited financial statements for a Property
or a lessee), and the anticipated cash flow of CNL XVII and CNL XVIII. If an
investment opportunity that is suitable for both CNL XVII and XVIII becomes
available before CNL XVII has invested or committed substantially all of its
funds to investment, and both CNL XVII and CNL XVIII have sufficient uninvested
funds to make the investment, then the entity which has had the longest period
of time elapse since it was offered an investment opportunity will be first
offered the investment opportunity. See "Conflicts of Interest--Allocation of
Properties Between CNL XVII and CNL XVIII," "Conflicts of Interest--Acquisition
of Properties" and Items 5 and 6 of "Conflicts of Interest--Certain Conflict
Resolution Procedures" for a more detailed discussion of allocations of
Properties between CNL XVII and CNL XVIII and between CNL XVIII and other prior
or subsequently formed public and private entities with which the General
Partners or their Affiliates are affiliated that have similar investment
objectives as CNL XVIII. See also "Prior Performance of the General Partners and
Affiliates" for information regarding the status of the investment program of
CNL XVII.
Proceeds designated for investment in Properties temporarily may be
invested in short-term, highly liquid investments with appropriate safety of
principal.
The Partnership intends to sell the Properties for cash within 7 to 12
years after their acquisition or as soon thereafter as market conditions permit,
at which time the Partnership will be dissolved. See "Business--Sale of
Properties" for a description of the distribution of proceeds of the Sale of a
Property.
MANAGEMENT
The General Partners are Robert A. Bourne, James M. Seneff, Jr., and
CNL Realty Corporation, a Florida corporation. The address of the General
Partners is 400 East South Street, Suite 500, Orlando, Florida 32801, telephone
(407) 422-1574. The General Partners will manage the affairs of the Partnership,
and the Limited Partners will not participate in the management of the
Partnership. See "Management" for a description of the business background of
the General Partners and Affiliates.
MANAGING DEALER
The Partnership has engaged CNL Securities Corp., an Affiliate of the
General Partners, to act as Managing Dealer with respect to the Offering. The
individual General Partners are officers, directors, and registered principals
of the Managing Dealer. The Units are being offered by the Managing Dealer on a
"best efforts" basis, which means that the Managing Dealer is not required to
take and pay for any Units and no one is guaranteeing that any minimum number of
Units will be sold. The Managing Dealer is not prohibited from acting in any
capacity in connection with the offer and sale of securities offered by entities
that may have investment objectives similar to those of the Partnership and is
expected to participate in other offerings sponsored by one or more of the
General Partners. See "Conflicts of Interest--Relationship with the Managing
Dealer."
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ADVISOR
An Affiliate of the General Partners, CNL Fund Advisors, Inc., will
provide certain advisory and property management services in connection with the
Partnership and its Properties. CNL Fund Advisors, Inc. is a wholly owned
subsidiary of CNL Group, Inc., and was organized to perform the property
acquisition, property management, and other services described herein. See
"Business--Management Services" for a description of the services that CNL Fund
Advisors, Inc. will provide.
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES
The "Prior Performance of the General Partners and Affiliates" section
of this Prospectus contains a narrative discussion of the public and private
real estate limited partnerships and a real estate investment trust sponsored by
the General Partners and their Affiliates during the past ten years. These
include the 17 existing CNL Income Fund limited partnerships and a real estate
investment trust, CNL American Properties Fund, Inc., which, as of September 30,
1996, had purchased 735 fast-food, family-style, and casual dining restaurant
properties similar to those to be acquired by the Partnership. Based on an
analysis of the operating results of the 85 investor real estate limited
partnerships in which Messrs. Bourne and Seneff have served, individually or
with others, as general partners and the real estate investment trust in which
they serve as officers and directors, the General Partners believe that each of
such programs has met, or currently is in the process of meeting, its principal
investment objectives. Certain statistical data relating to the 17 prior CNL
Income Fund limited partnerships with investment objectives similar to those of
the Partnership, are contained in Exhibit C--Prior Performance Tables.
INVESTMENT OBJECTIVES AND POLICIES
The Partnership's primary investment objectives are to preserve,
protect, and enhance the Partnership capital, while providing (i) cash
distributions commencing in the initial year of Partnership operations in
amounts that exceed current taxable income (due to the fact that depreciation
deductions attributable to the Properties reduce taxable income even though
depreciation is not a cash expenditure); (ii) an anticipated minimum level of
income through the long-term rental of Properties to selected operators of
certain national and regional fast-food, family-style, and casual dining
restaurant chains; (iii) additional income and protection against inflation by
participation in certain restaurant gross sales through the receipt of
percentage rent payments and, typically, automatic increases in the minimum
annual rent; and (iv) capital appreciation through the potential increase in
value of the Properties. The Partnership intends to meet these objectives by
purchasing carefully selected restaurant properties and leasing them on a
"triple-net" basis (which means that the lessee will be responsible for paying
the cost of all repairs, maintenance, property taxes, and insurance) to
creditworthy operators of certain national or regional fast-food, family-style,
and casual dining restaurant chains under leases requiring the lessee to pay
both base annual rent and a percentage rent based on gross sales. See
"Business--Site Selection and Acquisition of Properties," "Business--Description
of Leases," and "Investment Objectives and Policies" for a more complete
description of the manner in which the structure of the Partnership's business
will facilitate the Partnership's ability to meet its investment objectives. The
Partnership's investment policies are set forth in the Partnership Agreement and
cannot be changed except by amendment of the Partnership Agreement which
requires the approval of the Limited Partners. There can be no assurance that
these objectives will be met.
ALLOCATIONS AND DISTRIBUTIONS
Distributions to the Limited Partners of the Partnership are expected
to commence in the fourth quarter of 1996 and will be paid quarterly thereafter.
There can be no assurance, however, as to the date on which distributions will
commence or the amount of any distributions. In addition, Limited Partners who
purchase a minimum of 500 Units ($5,000) have the option upon subscription to
elect, for a fee, to receive distributions, paid in arrears, on a monthly basis.
In the future, the General Partners, in their sole discretion, may elect to pay
distributions to all Limited Partners on a monthly basis. See "Allocations and
Distributions--Distributions of Net Cash Flow" for a description of the timing
and anticipated amount of any such distributions.
Net Cash Flow for any fiscal year (which, in general terms, means the
Partnership's cash receipts from operations, other than proceeds of a Sale, less
its cash expenses, including the 1% Management Fee to CNL Fund Advisors, Inc.)
will be distributed 95% to the Limited Partners and 5% to the General Partners.
However, the General Partners will not receive their 5% share of Net Cash Flow
for any year until the Limited Partners have received aggregate distributions in
an amount equal to 8% of their Invested Capital Contributions, computed on an
annual, noncumulative, noncompounded basis for the related year. In general, the
Limited Partners' investment in the Partnership is the amount of cash they
contributed to the Partnership reduced by certain prior cash distributions to
the Limited Partners from the Sale of a Property.
Net Sales Proceeds (which, in general, means the cash the Partnership
receives from the Sale of a Property or its interest in a Property less expenses
related to the Sale) will be distributed to the Limited Partners, to the extent
of available cash after creation of any reserves, in an amount sufficient to
provide them with aggregate distributions in an amount equal to 8% of their
Invested Capital Contributions, computed on an annual, cumulative, noncompounded
basis, plus a return of their investment in the Partnership. The General
Partners then will receive a return of their investment in the Partnership and,
to the extent previously subordinated and unpaid, an amount equal to 5% of
Partnership distributions of Net Cash Flow. Any remaining Net Sales Proceeds
will be distributed 95% to the Limited Partners and 5% to the General Partners.
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After payment of the 1% Management Fee to CNL Fund Advisors, Inc. (see
"Summary of the Offering--Management Compensation" for a brief description of
this fee), the Limited Partners' 8% Return (as described in the two preceding
paragraphs) will be payable to the extent of available Net Cash Flow and Net
Sales Proceeds. Payment of the Limited Partners' 8% Return, therefore, is
subject to available Net Cash Flow and Net Sales Proceeds and is not guaranteed.
Generally, all allocations of tax items are made among the Partners in
accordance with their relative interest in the Partnership or their allocable
share of cash distributions from the Partnership, except that 99% of the total
depreciation and amortization deductions are specially allocated to the Limited
Partners who are not exempt from federal income tax; provided, however,
notwithstanding the foregoing, the interest of the General Partners in each
material item of Partnership income, gain, loss, deduction, and credit will be
equal to at least 1% of each such item at all times during the existence of the
Partnership.
The Partnership generally expects to elect to use straight-line cost
recovery (depreciation) for the depreciable portion of its Properties. A portion
of the Properties will constitute tax-exempt use property and must be
depreciated over a period equal to or exceeding 40 years. In order to reduce the
Partnership's administrative costs, the Partnership intends to depreciate the
remainder of its depreciable real property on the same basis.
For a more detailed description of the allocations and distributions to
be made to the Limited Partners, see "Allocations and Distributions."
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership's limited partnership agreement (the "Partnership
Agreement") governs the relationship between the Limited Partners and the
General Partners. Please refer to the "Summary of Partnership Agreement" section
for more detailed information concerning the terms of the Partnership Agreement,
including:
o Meetings and Voting Rights: Subject to certain limitations, Limited
Partners holding a majority of Units may vote to (i) amend or terminate
contracts for services or goods between the Partnership and the General
Partners, (ii) remove the General Partners and elect substitute General
Partners, (iii) approve or disapprove the Sale of all or substantially all
of the Partnership's Properties unless the Sale is made in accordance with
the Partnership's purposes (including the Sale of Properties within 7 to 12
years after their acquisition or as soon thereafter as market conditions
permit); (iv) amend the Partnership Agreement, (v) change the investment
objectives of the Partnership, or (vi) dissolve the Partnership. Limited
Partners who do not vote with the majority in interest of the Limited
Partners nonetheless will be bound by the majority vote.
o Restrictions on Transferability of Units: The Units will be transferable,
but only with the consent of the General Partners upon application on forms
provided by the General Partners, who may withhold their consent to any
transfer that could cause or contribute to the characterization of the
Partnership as a "publicly traded partnership" (in general, a partnership
with frequent transfers of its Units), or otherwise adversely affect the
Partnership's tax status. It is not anticipated that a public market for
the Units will develop.
o Indemnification: The Partnership will indemnify the General Partners and
their Affiliates who perform services for the Partnership against all
losses and expenses incurred by them as a result of actions the General
Partners determined in good faith were in the best interests of the
Partnership, except for any liability arising out of misconduct,
negligence, or breach of fiduciary duty to the Limited Partners or the
Partnership.
o Fiscal Year and Termination: The Partnership's fiscal year is the calendar
year. The Partnership Agreement provides that the Partnership will
terminate on December 31, 2025, unless sooner terminated pursuant to any
provision of the Partnership Agreement. See "Summary of Partnership
Agreement--Dissolution and Liquidation" for a more complete description of
dissolution events.
All statements made here or elsewhere in this Prospectus are qualified
in their entirety by reference to the copy of the form of the Partnership
Agreement attached hereto as Exhibit A.
FEDERAL INCOME TAX CONSIDERATIONS
The "Federal Income Tax Considerations" section of this Prospectus
discusses the material tax issues relevant to an investment in the Partnership
and the legal opinions that the Partnership will receive relating to tax matters
from Baker & Hostetler, as tax counsel for the Partnership.
In general, the material federal income tax issues, as to which the
Partnership has received an opinion from its tax counsel, are (i) the tax status
of the Partnership and any Joint Ventures; (ii) the likelihood that the
Partnership will not be treated as a publicly traded partnership under the
publicly traded partnership rules; (iii) the likelihood that income of the
Partnership will not constitute unrelated business taxable income to investing
qualified pension, profit-sharing, and stock bonus plans and IRAs; (iv) the
likelihood that allocations of tax items from the Partnership to a Limited
Partner (and from any Joint Ventures to the Partnership) will be respected; (v)
the likelihood that the Partnership (and any Joint Ventures) will be treated as
the owner of the Properties and will be entitled to claim depreciation
deductions associated with such ownership; and (vi) whether, and to what extent,
net income of the Partnership will constitute net income from a passive
activity. Subject to the conditions described in more detail in "Federal Income
Tax Considerations--Opinion of Counsel," the Partnership has received a
favorable opinion from its tax counsel on each of these matters. Until the
Partnership has acquired and leased all of its Properties, however, it is
impossible to opine on certain material income tax issues which, along with the
listed opinions, are discussed in detail in "Federal Income Tax Considerations."
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THE OFFERING
The Offering commenced on September 20, 1996. A maximum of $35,000,000
of limited partnership interests in the Partnership are being offered in Units
of $10.00 each. As of October 11, 1996, the Partnership had received aggregate
subscriptions for 173,313 Units, representing $1,733,131 in aggregate
subscription proceeds from Limited Partners and $1,517,431 of the funds were
released from escrow (which excluded all funds received from New York and
Pennsylvania investors). As of November 15, 1996, the Partnership had sold
468,646 Units, representing $4,686,463 of capital contributed by Limited
Partners and all funds received from New York and Pennsylvania investors had
been released from escrow. The General Partners have elected to extend the
Offering to a date not later than August 11, 1997.
The Units are being offered by the Managing Dealer and other registered
broker-dealers (the "Soliciting Dealers") on a "best efforts" basis, which means
that no one is guaranteeing that any minimum number of Units will be sold. All
of the General Partners are Affiliates of the Managing Dealer. See "The
Offering--Plan of Distribution."
A minimum investment of 250 Units ($2,500) by each investor is
required, except for tax-qualified plans (such as employee pension plans or
IRAs), for which the minimum investment is 100 Units ($1,000), Iowa tax-exempt
investors, who must make a minimum investment of 300 Units ($3,000), Minnesota
IRAs, for which the minimum investment is 200 Units ($2,000), and Nebraska
investors, who must make a minimum investment of 500 Units ($5,000). In
addition, an investor may elect to receive monthly distributions only if the
investor makes a minimum investment of 500 Units ($5,000). See "Suitability
Standards and How to Subscribe."
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and investors therefore should
review the "Definitions" section for a more complete understanding.
RISK FACTORS
The purchase of Units involves risks and therefore is suitable only for
persons who understand the possible consequences of an investment in the
Partnership and who are able to bear the risk of loss of their investment. The
acquisition of Units in CNL XVIII will not give the investor any ownership
interest in CNL XVII or its Properties and, consequently, the risks associated
with an investment in CNL XVIII may not apply to an investment in CNL XVII.
Prospective investors should carefully consider the following risks in
conjunction with the information set forth elsewhere in this Prospectus.
INVESTMENT RISKS
Reliance on General Partners for Management of Partnership. All
decisions with respect to the management of the Partnership will be made
exclusively by the General Partners . The Limited Partners will have no right or
power to take part in the management of the Partnership except through the
exercise of their voting rights and will be relying almost entirely on the
General Partners with respect to the management of the Partnership and the
operation of its business. Thus, no prospective investor should purchase any of
the Units offered hereby unless the prospective investor is willing to entrust
all aspects of the management of the Partnership and the operation of its
business to the General Partners. The General Partners may be removed under
certain conditions set forth in the Partnership Agreement but only subject to
payment for their interest in the residual value of Partnership assets and
release from all guarantees and other obligations incurred as General Partners.
See "Summary of Partnership Agreement" for a summary description of these voting
and removal rights. See "Management" and "Prior Performance of the General
Partners and Affiliates" for a summary of the General Partners' experience in
real estate investment and management of limited partnerships formed to acquire
restaurant properties, apartments, and office buildings, as well as in direct
management of apartments and office parks.
Risks of Payment of Management Compensation. The General Partners and
their Affiliates will perform services for the Partnership in connection with
the offer and sale of Units, the selection and acquisition of the Partnership's
Properties, and the operation of the Partnership, and will receive substantial
compensation from the Partnership in consideration of these services. In
connection with the Offering, Affiliates of the General Partners will receive
between 5% and 13.5% of the Gross Proceeds as fees (depending on the portion of
Selling Commissions and the due diligence expense reimbursement fee reallowed to
Soliciting Dealers) and a maximum of 3% of the Gross Proceeds as reimbursement
of Organizational and Offering Expenses and 0.5% in Acquisition Expenses that
they incur on behalf of the Partnership in connection with the Offering. The
Partnership may pay a substantial portion of these initial fees and expenses and
other compensation and expense reimbursements payable to the General Partners
and their Affiliates in consideration of the services which they will render to
the Partnership prior to making distributions to the Limited Partners. Such
payments could reduce the amount of cash available for investment in Properties
and for initial distributions to the Limited Partners. See "Management
Compensation" for a more complete description of expense reimbursements and fees
to be paid to the General Partners and their Affiliates in connection with their
services to the Partnership.
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Possible Lack of Diversification. There can be no assurance that the
Partnership will obtain Capital Contributions equal to the maximum number of its
Units. The potential profitability of the Partnership and its ability to
diversify its investments, both geographically and by type of restaurant
Properties purchased, will be limited by the amount of funds at its disposal.
For example, if Gross Proceeds total $5,000,000, the Partnership will be able to
acquire approximately four Properties and therefore will not achieve maximum
diversification of its investments.
Lack of Market for Units. The Partnership is under no obligation to
repurchase Units from a Limited Partner, and it is not anticipated that there
will be a public market for the Units. It therefore may be difficult to sell
Units quickly. This investment is designed for investors with no need for
liquidity in this investment. See "Suitability Standards and How to
Subscribe--Suitability Standards." The Partnership has established a
Distribution Reinvestment Plan which, on behalf of Participants in the
Distribution Reinvestment Plan, will repurchase Units from Limited Partners who
desire to sell their Units to the extent of available funds and subject to
certain additional limitations. There of course can be no assurance that the
funds available through the Plan will be sufficient to permit the purchase of
all of the Units for which the General Partners receive repurchase requests. See
"Summary of Distribution Reinvestment Plan."
Significant Restrictions on Transferability of Units. Because the
classification of the Partnership as a "publicly traded partnership" would
significantly decrease the value of the Units, the General Partners intend to
exercise fully their right to prohibit transfers of Units under circumstances
that could cause the Partnership to be so classified. An assignee of Units may
be substituted as a Limited Partner only with the consent of the General
Partners, using assignment forms required by the General Partners, which could
affect the resale value of the Units. See "Summary of Partnership
Agreement--Restrictions on Transferability of Units." Accordingly, there can be
no assurance that Limited Partners will be able to liquidate their investments
in the event of an emergency. Therefore, Units should be purchased only for
long-term investment.
Risks Associated With Management of Joint Ventures. In the event that
the Partnership enters into a Joint Venture with an unaffiliated party to
purchase a Property, the Joint Venture or general partnership agreement will
provide that the Partnership will have management control of the Joint Venture.
Such agreement, however, may be ineffective as to a third party who has no
notice of the agreement, and the Partnership therefore may be unable to control
fully the activities of any such Joint Venture in which it participates. In the
event that the Partnership enters into a Joint Venture with another program
sponsored by the General Partners, the Partnership will not have sole management
control of the Joint Venture.
Lack of Control of Property Management. The Partnership uses
"triple-net" leases and, therefore, day-to-day management of the Properties will
be the responsibility of the tenants of the Properties. The Partnership has not
yet entered into any arrangement with specific lessees and does not intend to do
so until such time as one or more Properties suitable for purchase by the
Partnership have been identified. In general, the Partnership intends to enter
into leasing agreements only with lessees having substantial prior experience in
the restaurant industry, but there can be no assurance that the Partnership will
be able to make such arrangements because the Partnership had not entered into
any arrangements that create a reasonable probability that the Partnership will
purchase any Properties as of the date of this Prospectus.
Potential Liability of Limited Partners. The Limited Partners'
liability, in general, will be limited to the amount they agree to contribute to
the capital of the Partnership plus their share of any undistributed profits and
assets. If, however, Limited Partners participate in the control of the business
of the Partnership, or permit their names to be used in the conduct of the
Partnership's business, they may become personally liable as general partners
for the Partnership's obligations. The nature of the activities constituting
"control" which are required to impose such liability on a Limited Partner is
not altogether clear. In certain cases, however, the exercise by a Limited
Partner of voting rights granted in the Partnership Agreement could be deemed to
constitute management control. Further, in the event the Partnership is unable
to meet its obligations, the Limited Partners, under applicable law, could be
obligated to (i) return, with interest, any cash wrongfully distributed which
represents a return of their Capital Contributions and (ii) repay, with
interest, any cash distributed to them which represents a return of their
Capital Contributions, pro rata in accordance with their Partnership Interests
as may required to discharge liabilities of the Partnership to creditors who
extended credit or whose claims arose during the period the returned Capital
Contributions were held by the Partnership. See Exhibit A--Form of Amended and
Restated Agreement of Limited Partnership and "Summary of Partnership
Agreement--Liability of the Limited Partners to Third Parties."
Risks for Qualified Plan Investors. The assets of the Partnership will
not constitute plan assets if, for example, the Units qualify as "publicly
offered" securities within the meaning of U.S. Department of Labor Regulations,
or if the Partnership is deemed to be an "operating company" under such
regulations. If the assets of the Partnership were deemed to be "plan assets"
under ERISA (i) it is not clear that the exemptions from the "prohibited
transaction" rules under ERISA would be available for the Partnership's
transactions, and (ii) the prudence standards of ERISA would apply to
investments made by the Partnership (and might not be met). ERISA makes plan
fiduciaries personally responsible for any losses resulting to the plan from any
breach of fiduciary duty and the Code imposes nondeductible excise taxes on
prohibited transactions. The Partnership has not requested an opinion of Counsel
regarding whether or not the assets of the Partnership would constitute "plan
assets" under ERISA. See "The Offering--Investment by Qualified Plans and
Individual Retirement Accounts."
Limited Resources of General Partners. The corporate General Partner
has only nominal capitalization. The individual General Partners are general
partners in other partnerships and have certain contingent liabilities or may
incur additional liabilities in connection therewith. Should some of these
liabilities become actual, the net worth of the General Partners could be
impaired. If the net worth of the General Partners decreases significantly, the
General Partners may be unable to perform their obligations under the
Partnership Agreement and may have to devote time and attention to claims
related to such liabilities. See "Business--Financing" for a description of the
limitations on Partnership borrowing and "Management--Net Worth of General
Partners" for a description of the assets that secure the majority of the loans
relating to these contingent liabilities.
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Conflicts of Interest. The Partnership will be subject to conflicts of
interest arising out of its relationship to the General Partners and their
Affiliates with respect to the acquisition, leasing and sale of properties,
joint investment with other public programs sponsored by the General Partners,
allocation by the General Partners and their Affiliates of management time
between the business of the Partnership and some or all of the 17 other CNL
Income Funds and certain programs intended to qualify as real estate investment
trusts, as to each of which the General Partners and their Affiliates have
management responsibilities, and compensation of the General Partners and
Affiliates for the services which they will provide to the Partnership. In
addition to the Partnership, the General Partners and their Affiliates have
organized and currently manage numerous other real estate investment programs
and plan to organize and manage other real estate investment programs in the
future. Some of these programs may have investment objectives similar or
identical to those of the Partnership and may acquire, operate, lease and manage
fast-food, family-style, and casual dining restaurants, including restaurants
suitable for the Partnership. The General Partners have adopted certain conflict
of interest resolution procedures and restrictions related to the allocation of
properties between investment programs, including the Partnership, however, any
such conflict could result in the acquisition by other programs of properties
which are more desirable or valuable to those of the Partnership which could
adversely affect gross revenues of the Partnership. See "Conflicts of Interest--
Prior and Future Programs" and "Conflicts of Interest--Acquisition of
Properties."
Other conflicts of interest between the Partnership and other
affiliated investment programs may arise in the leasing and sale of properties.
The leasing and operation of properties owned by other programs which are
located in the vicinity of Properties owned by the Partnership could adversely
affect the gross revenues of the Partnership. Additionally, in the unlikely
event that the Partnership and an affiliated investment program attempted at the
same time to sell similar properties in the same vicinity, the Partnership and
affiliated program potentially could compete for the same purchaser which
adversely affect the sales price for the Property or the timing of the sale of
the Property. See "Conflicts of Interest--Sale of Properties."
The Partnership may invest in Joint Venture and Co-Tenancy Arrangements
with other public programs sponsored by the General Partners. A conflict of
interest between the Partnership and another public program as co-venturers or
co- tenants could potentially result in an impasse with respect to Joint Venture
and Co-Tenancy Arrangement decisions because neither party will control the
Joint Venture or Co-Tenancy Arrangement. Such an impasse could adversely affect
the revenues to the Partnership derived from the Joint Venture or Co-Tenancy
Arrangement. In order to reduce to the extent possible the potential conflicts
of interest between the Partnership and other public investment programs in
Joint Ventures and Co-Tenancy Arrangements, the General Partners have adopted
certain conditions and requirements which must be met prior to the Partnership
entering into a Joint Venture or Co-Tenancy Arrangement with another program.
See "Conflicts of Interest--Joint Investment with an Affiliated Program."
Conflicts of interest may also arise in connection with the allocation
of management time the General Partners and their Affiliates will devote to the
Partnership and its business and the compensation of the General Partners and
their Affiliates for services which they will provide to the Partnership. The
General Partners and their Affiliates currently are engaged, and in the future
will engage, in the management and operation of other investment programs and
business ventures. The General Partners and their Affiliates will devote only so
much of their time to the business of the Partnership as they, in their
judgment, determine is reasonably necessary. Especially during periods of
intense activity in other programs and ventures, such a conflict could result in
the devotion by the General Partners and their Affiliates of less time and
resources to the Partnership and its business. See "Conflicts of
Interest--Competition for Management Time."
The General Partners and their Affiliates will be engaged to perform
various services for the Partnership and will receive fees and compensation for
such services. None of the agreements for such services are the result of
arm's-length negotiations which creates the potential opportunity for the
payment of compensation in excess of that permitted by the Partnership Agreement
for the services provided and the engagement of less qualified parties to
perform such services. The General Partners believe, however, that the terms of
such arrangements are reasonable and no less favorable than those which could be
obtained from unaffiliated entities. Certain of these conflicts may be
alleviated due to the opportunity for the Limited Partners to vote to terminate
contracts with Affiliates of the General Partners and take other actions to
protect their interests. See "Conflicts of Interest--Compensation of General
Partners and Affiliates" and "Conflicts of Interest--Certain Conflict Resolution
Procedures."
Risks Associated with a Minority Interest in a Partnership. Limited
Partners in the Partnership have certain limited voting rights. A vote of the
majority in interest of the Limited Partners (without regard to any limited
partnership interests owned by the General Partners and their Affiliates) is
sufficient to take certain significant Partnership actions, such as (i)
termination of contracts for goods and services between the Partnership and the
General Partners or their Affiliates; (ii) removal of one or more of the General
Partners and election of substitute General Partner(s); (iii) amendment of the
Partnership Agreement (such as changing the investment objectives of the
Partnership); and (iv) dissolution of the Partnership. Limited Partners who take
a minority position will be bound by the vote of a majority of the Limited
Partners entitled to vote on such matters.
REAL ESTATE RISKS
Risks Related to an Unspecified Property Offering. The Partnership has
established certain criteria for evaluating Restaurant Chains, particular
Properties and the operators of the Properties proposed for investment by the
Partnership. See "Business--Standards for Investment" and "Business--General"
for a description of these criteria and the types of Properties in which the
Partnership intends to invest. Because the Partnership, as of the date of this
Prospectus, has not entered into any arrangements that create a reasonable
probability that the Partnership will purchase any Properties, this is an
unspecified property Offering, and prospective investors therefore have no
information to assist them in evaluating the merits of any Property to be
purchased or developed by the Partnership. There is no limit on the number of
restaurant Properties of a particular Restaurant Chain which the Partnership may
acquire, although the General Partners currently do not anticipate that the
Partnership will invest more than 25% of its Gross Proceeds in Properties of any
one Restaurant Chain.
No assurance can be given that the Partnership will be successful in
obtaining suitable investments on financially attractive terms or that, if
investments are made, the objectives of the Partnership will be achieved. There
also can be no assurance that all of the Properties will operate profitably or
that defaults will not occur. See "Management" and "Prior Performance of the
General Partners and Affiliates," however, for a description of the prior real
estate experience of the General Partners.
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Risks of Real Property Investments. The value of leased restaurants
such as those to be acquired by the Partnership, the ability of the lessees to
pay rent on a timely basis, and the amount of the rent, may be adversely
affected by certain changes in general or local economic or market conditions,
increased costs of energy or food products, increased costs and shortages of
labor, competitive factors, fuel shortages, quality of restaurant management,
the ability of a Restaurant Chain to fulfill any obligations to operators of its
restaurants, limited alternative uses for the building, changing consumer
habits, condemnation or uninsured losses, changing demographics, changing
traffic patterns, inability to remodel outmoded restaurants as required by the
franchise or lease agreement, voluntary termination by a lessee of its
obligations under a lease, and other factors. Neither the Partnership nor the
General Partners can control these factors.
Risks of Lessee Defaults Resulting in Property Vacancies. Each Property
will have a single lessee, and lessees may lease more than one Property. Events
such as the default or financial failure of a lessee therefore could cause one
or more Properties to become vacant under certain circumstances. Vacancies would
reduce the cash receipts of the Partnership and, at least until the Partnership
is able to re-lease any such Properties, could decrease their ultimate resale
value. The value of the Partnership's Properties will depend principally upon
the value of the leases of the Properties. Minor defaults by a lessee may
continue for some time before the General Partners determine that it is in the
interest of the Partnership to evict that lessee.
If a Property becomes vacant, the Partnership may be unable either to
re-lease the Property for the rent due under the prior lease or to re-lease the
Property without incurring additional expenditures relating to the Property. The
Partnership could experience delays in enforcing its rights against, and
collecting rents (and, under certain circumstances, real estate taxes and
insurance costs) due from, a defaulting lessee.
The Partnership will not be a party to any franchise agreement between
a Restaurant Chain and a lessee, and such agreement could therefore be modified
or canceled without notice to, or the prior consent of, the Partnership. In that
event, the lessee could be required to cease its operations at a Property,
although the lessee's obligation to pay rent to the Partnership would continue.
Before operations at the Property could resume, however, the Partnership would
be required to locate a new lessee acceptable to a Restaurant Chain.
The inability of lessees to make lease payments as a result of any of
these factors could result in a decrease in the amount of cash available for
distribution to the Limited Partners.
Risks of Uninsured Losses. The General Partners require the lessee to
obtain insurance to cover casualty risks, and the General Partners generally
will require that lessees other than those with a substantial net worth obtain
"rental value" or "business interruption" insurance. See "Business--Description
of Leases--Insurance, Taxes, Maintenance, and Repairs." If, however, the
Partnership, as lessor, incurs any liability which is not fully covered by
insurance, the Partnership would be liable for such amounts, and returns to the
Limited Partners could be reduced.
Risks of Adverse Trends in Restaurant Industry. The success of the
future operations of fast-food, family-style, and casual dining segments will
depend largely on their ability to adapt to dominant industry trends, including
greater competitive pressures, increased consolidation of the leading restaurant
chains, industry overbuilding, dependence on consumer spending patterns and
changing demographics, the introduction of new concepts and menu items,
availability of labor, levels of food prices, and general economic conditions.
See "Business--General" for a description of current trends in the industry. The
success of a particular Restaurant Chain concept, the Restaurant Chain's ability
to fulfill any obligations to operators of its restaurants, and trends in the
fast-food, family-style, and casual dining segments of the restaurant industry
will affect the income that the Partnership derives from restaurants which are
part of such Restaurant Chain.
Possible Delays in Investment. The Partnership Agreement provides that
the Offering proceeds may remain uninvested for up to one year after termination
of the Offering, although it is expected that substantially all net Offering
proceeds will be invested prior to the end of such period. See "Prior
Performance of the General Partners and Affiliates" for a summary description of
the investment experience of the General Partners in prior CNL Income Fund
Partnerships (as defined hereinbelow), which is not necessarily indicative of
the rate at which the proceeds of this Offering will be invested.
An extended Offering period, the inability of the General Partners to
find suitable Properties, or the inability of a prior public program formed by
the General Partners that currently is in the process of acquiring fast-food,
family-style, and casual dining restaurant properties to substantially complete
its acquisition program prior to the time that the Partnership has funds
available to invest in Properties may result in delays in investment of
Partnership funds in real estate and in the receipt of a return from real
property investments.
Revenues received by the Partnership pending investment in Properties
will be limited to the rates of return available on short-term, highly liquid
investments with appropriate safety of principal. These rates of return, which
affect the amount of cash available for distribution to the Limited Partners,
are expected to be lower than the Partnership would receive under its restaurant
leases. Further, any funds of the Partnership required to be invested in
Properties that have not been invested in Properties or reserved within one year
after the termination of the Offering, will be distributed pro rata to the then
Limited Partners of the Partnership in accordance with the provisions of Article
7.8 of the Partnership Agreement.
Risks Resulting From Competition. The Partnership will compete with
other entities, including Affiliates, for the acquisition of restaurant sites
and completed restaurants. See "Conflicts of Interest--Prior and Future
Programs." In addition, the restaurant business is highly competitive, and it is
anticipated that any restaurant Property acquired by the Partnership will
compete with other restaurants in the vicinity. The extent to which the
Partnership will be entitled to receive rent in excess of the base rent for the
Properties will depend in part on the ability of the lessees to compete
successfully with other restaurants in the vicinity. In addition, the
Partnership will compete with other financing sources for suitable lessees and
properties.
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Possible Environmental Liabilities. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean-up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
at the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to
satisfactory Phase I environmental assessments, which generally involve
inspection of site conditions without invasive testing such as sampling or
analysis of soil, groundwater or other media or conditions, or satisfactory
Phase II environmental assessments, which generally involve testing of soil,
groundwater or other media and conditions. A Phase I or Phase II environmental
assessment may be determined by the General Partners to be satisfactory if a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has agreed in writing to indemnify the Partnership.
There can be no assurance, however, that any seller will be able to pay under an
indemnity obtained by the Partnership. Further, no assurances can be given that
all environmental liabilities have been identified or that no prior owner,
operator or current occupant has created an environmental condition not known to
the Partnership. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the Properties will not be
affected by tenants and occupants of the Properties, by the condition of land or
operations in the vicinity of the Properties (such as the presence of
underground storage tanks), or by third parties unrelated to the Partnership.
Risks of Acquiring Properties Under Construction. Generally, the
Partnership intends to acquire sites on which a particular restaurant is to be
built as well as existing restaurants (including restaurants which require
renovation). To the extent that the Partnership acquires property on which
improvements are to be constructed or completed or renovations are to be made,
the Partnership may be subject to certain risks in connection with the
developer's ability to control construction costs, and the timing of completion
of construction, or to build in conformity with plans, specifications, and
timetables. The Partnership's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Partnership generally will have the right to require the
lessee to repurchase the Property that is under development at a preestablished
price designed to reimburse the Partnership for all costs incurred by the
Partnership in connection with the acquisition and development of the Property.
There can be no assurance, however, that under such circumstances, the lessee
will have sufficient funds to fulfill its obligations. See "Business--Site
Selection and Acquisition of Properties."
Risks of Joint Investment in Properties. In the event that the
Partnership enters into a Joint Venture or Co-Tenancy Arrangement with another
program formed by the General Partners, there will be a potential risk of
impasse in certain joint venture or co-tenancy decisions since the approval of
each program is required for certain decisions. In any Joint Venture or
Co-Tenancy Arrangement with an affiliated program, however, the Partnership will
have the right to buy the other co- venturer's or co-tenant's interest or to
sell its own interest on specified terms and conditions in the event of an
impasse regarding a Sale. Under such circumstances, it is possible that neither
party will have the funds necessary to consummate the transaction. See
"Business--Joint Venture/Co-Tenancy Arrangements." CNL XVII and CNL XVIII have
the right to, and may, enter into joint venture and co-tenancy arrangements with
each other.
Investments in Joint Ventures or Co-Tenancy Arrangements may involve
the risk that the Partnership's co-venturer or co-tenant may have economic or
business interests or goals which, at a particular time, are inconsistent with
the interests or goals of the Partnership, that such co-venturer or co-tenant
may be in a position to take action contrary to the Partnership's instructions,
requests, policies or objectives, or that such co-venturer or co-tenant might
become bankrupt. Among other things, actions by a co-venturer or co-tenant might
subject property owned pursuant to the Co-Tenancy Arrangement or by the Joint
Venture to liabilities in excess of those contemplated by the terms of the
tenancy agreement or joint venture agreement or to other adverse consequences.
Risks Relating to Future Disposition of Properties. The General
Partners intend to sell the Properties within 7 to 12 years after their
acquisition or as soon thereafter as market conditions permit. There can be no
assurance that the Partnership will be able to sell its Properties so as to
return a Limited Partner's Invested Capital Contribution or to generate a profit
for the Limited Partners. Investors will receive a return of their Invested
Capital Contributions in the aggregate upon disposition of the Properties only
if the Properties are sold for more than such Invested Capital Contributions. In
the event that a purchase money obligation is taken in part payment of the sales
price of a Property, the proceeds of the Sale will be realized over a period of
years. Additionally, the General Partners may determine that it is in the best
interest of the Partnership to reinvest Net Sales Proceeds in Properties under
circumstances described in "Business--Sale of Properties," rather than
distribute such proceeds to the partners.
The General Partners may not be able to control the timing of Sales due
to market conditions or the fact that certain lessees are expected to have the
right to purchase the Property from the Partnership, commencing a specified
number of years after the date of the lease. The leases also generally provide
the lessee with a right of first refusal on any proposed Sale of the Property
leased by that lessee, which could affect the value and marketability of any
Properties subject to these provisions. See "Business--Description of
Leases--Right of Lessee to Purchase." A lessee will have no obligation to
purchase the restaurant it leases.
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FEDERAL INCOME TAX RISKS
The purchase of Units involves certain potential tax risks and tax
consequences which are discussed briefly below. This discussion is based upon
the Code, effective and proposed administrative regulations, judicial decisions,
published and private rulings, and procedural announcements issued by the
Treasury Department. All these authorities are subject to amendment or change
that may be applied retroactively and in a manner that is adverse to the
Partnership and the Limited Partners. The Partnership will not seek any rulings
from the Internal Revenue Service (the "IRS") regarding any of the tax issues
discussed herein, but will instead rely on opinions of Counsel, which are not
binding on the IRS or the courts and are based upon the representations and
assumptions referred to therein and are conditioned upon the existence of
certain facts. Currently, Counsel for the Partnership is Baker & Hostetler. For
a more complete discussion of the tax risks and tax consequences associated with
an investment in Units, see "Federal Income Tax Considerations."
Risks of Loss of Partnership Status. Counsel has opined that, for
federal income tax purposes, the Partnership and the Joint Ventures more likely
than not will be treated as partnerships for federal income tax purposes. If
either the Partnership or any Joint Venture were to be reclassified as an
association taxable as a corporation, it would be taxable on its net income (at
rates up to 35%) and all items of its income, gain, loss, deduction, and credit
would be reflected only on its tax returns and would not be passed through to
the Limited Partners. Distributions by a partnership treated as an association
would be ordinary dividend income to the extent of its earnings and profits, and
the payment of these dividends would not be deductible by the partnership. See
"Federal Income Tax Considerations--Partnership Status."
Risks of Partnership Characterization as a Publicly Traded Partnership.
Based on representations by the General Partners and Managing Dealer regarding
their compliance with certain safe harbors provided by the IRS, Counsel has
opined that it is more likely than not that the Partnership will not be treated
as a "publicly traded partnership" for federal income tax purposes.
Classification of the Partnership as a "publicly traded partnership" could
result in (i) taxation of the Partnership as a corporation and (ii) application
of the passive activity loss rules in a manner that could adversely affect the
Limited Partners. See "Federal Income Tax Considerations--Publicly Traded
Partnerships," "Federal Income Tax Considerations--Qualified Plan Investors,"
and "Federal Income Tax Considerations--Basis, At-Risk and Passive Activity
Limitations on Deduction of Losses."
Risks Relating to Allocations of Income, Gain, Loss, and Deduction. The
Partnership Agreement provides (and any joint venture agreement will provide)
for the allocation of income, gain, loss, and deduction. Counsel has opined that
(i) all material allocations to the Partners of income and gain set forth in the
Partnership Agreement (and in the joint venture agreements) more likely than not
will be treated as having substantial economic effect or otherwise will be
treated as being in accordance with the interests of the Partners in the
Partnership (or the interests of the partners in the joint venture) and (ii) all
material allocations set forth in the Partnership Agreement (and in the joint
venture agreements) of deductions, losses, and credits more likely than not will
have substantial economic effect or will be otherwise treated as being in
accordance with the interests of the Partners in the Partnership (or the
interests of the partners in the joint venture) to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreases in such
balance. The rules regarding partnership allocations are complex, and no
assurance can be given that the IRS will not successfully challenge the
allocations in the Partnership Agreement (or any joint venture agreement) and
reallocate items of income, gain, loss, or deduction in a manner which reduces
the anticipated tax benefits or increases the income allocable to the Limited
Partners. See "Federal Income Tax Considerations--Allocations of Income, Gain,
Loss, and Deduction."
The Partnership Agreement generally allocates depreciation deductions
99% to the Taxable Limited Partners and 1% to the General Partners. As a
consequence, the Tax-Exempt Limited Partners will be allocated a greater amount
of Net Income during the course of the Partnership, which will give the
Tax-Exempt Limited Partners a larger Capital Account balance with respect to
each Unit owned by them than the Taxable Limited Partners will have with respect
to each of their Units. The Partnership Agreement provides that liquidating
distributions to the Partners will be made in accordance with positive Capital
Account balances, and there is a risk that, upon liquidation, there will be
insufficient Gain or Loss to eliminate such disparity.
The extent to which the special allocation of depreciation deductions
to the Taxable Limited Partners will shelter cash distributions from current
taxation will depend upon a number of factors, including the percentage of total
Units owned by Tax-Exempt Limited Partners and the Partnership's holding period
for the Properties. It is possible that Taxable Limited Partners could receive
allocations of depreciation deductions that would reduce their respective
Capital Accounts to zero, at which point future distributions of cash flow would
not be sheltered from current taxation. See "Federal Income Tax
Considerations--Allocations of Income, Gain, Loss, and Deduction."
Risks Relating to Disallowance of Deduction of Certain Fees and
Expenses by the Partnership. There can be no assurance that the deduction by the
Partnership of some or all fees and expenses will not be challenged or
disallowed by the IRS. If such challenge is successful, it could result in
reduced tax losses or increased profits without a corresponding increase in Net
Cash Flow to a Limited Partner in the years in which such deductions were
allowed.
Risks of Recharacterization of Leases and Limited Availability of
Depreciation. The Partnership is subject to the risk that its leases may be
treated as conditional sales or financing arrangements rather than true leases
for federal income tax purposes. Counsel has opined that, assuming that (i) the
Fee Properties (generally, Properties where the Partnership owns the related
real property and building located thereon) are leased on substantially the
terms and conditions described in "Business--Description of Leases," except that
any lessee purchase options are exercisable only at an amount equal to or in
excess of the Fee Properties' then fair market values (determined by appraisal
or otherwise), and (ii) as is represented by the General Partners, the residual
values of the Fee Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the cost of
such Fee Properties, and the remaining useful lives of the Fee Properties after
the end of their lease terms (including all renewal periods) may reasonably be
expected to be at least 20% of the Fee Properties' useful lives at the beginning
of their lease terms, it is more likely than not that the Partnership (or Joint
Venture) will be treated as the owner of the Fee Properties for federal income
tax purposes, and will be entitled to claim depreciation and other tax benefits
associated with such ownership.
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The General Partners may negotiate a lease that meets the criteria
described above except that it provides the lessee with an option to purchase
the leased Fee Property at an amount determined by a formula which looks to
various measures of value contained in an independent appraisal of the leased
Fee Property. Counsel cannot opine (either favorably or unfavorably) whether the
Partnership (or any Joint Venture) will more likely than not be the owner of any
Fee Property subject to a lease containing such a purchase option and counsel
cannot opine with respect to the tax consequences associated with Leasehold
Properties (generally, those Properties in which the Partnership acquires only
the building with the land owned by a third party and the Partnership's interest
in such land, as lessee, being represented by a ground lease). With respect to
such Fee Properties, however, Counsel has opined that the Partnership (and any
Joint Venture) will have a reasonable basis for taking the position that it is
the owner, provided, as the General Partners have represented will be the case,
that the exercise price of a lessee purchase option is determined by a formula
which looks to various measures of value contained in an independent appraisal
of the leased Fee Property, and the General Partners believe that such formula
will approximate, or bear a reasonable relationship to, the fair market value of
the Fee Property at the time of the option's exercise. Additionally, the General
Partners anticipate that substantially all of the Properties acquired by the
Partnership will be Fee Properties.
For federal income tax purposes, lease characterization is made on a
property-by-property basis, based on an analysis of all the facts and
circumstances relating to a particular lease, and there can be no assurance that
the tax characterization of a lease will not be successfully challenged by the
IRS. If the Partnership (or the Joint Venture) were held not to be the owner of
Fee Properties for federal income tax purposes, there could be substantial
adverse consequences to the Limited Partners, including disallowance of
deductions for depreciation and characterization of Partnership income as
portfolio income under the passive activity loss rules. See "Federal Income Tax
Considerations--Characterization of Leases."
Risks of Loss of Passive Activity Income. If the Partnership is
successful in achieving its investment and operating objectives, the Limited
Partners (other than tax-exempt entities) are likely to recognize taxable income
from the Partnership in each year. Counsel has opined that, assuming the Fee
Properties are acquired, operated, and leased in the manner described in this
Prospectus, and further assuming that 30% or more of the unadjusted basis of
each Fee Property is subject to the allowance for depreciation, it is more
likely than not that an individual Limited Partner's share of the Partnership's
net income from Fee Properties will be net income from a "passive activity," as
defined in section 469 of the Code, which generally can be offset by a Limited
Partner's net losses and credits from other passive activities. This opinion
does not apply to the income that is attributable to (i) the investment of
Partnership funds in liquid investments, such as certificates of deposit or
money market funds, prior to the purchase of Properties or distribution of Net
Cash Flow to the Partners, (ii) the investment, in interest-bearing accounts or
otherwise, of amounts held as working capital, security deposits, or in reserve,
or amounts held pursuant to the Reinvestment Plan, (iii) Properties with respect
to which the Partnership (or any Joint Venture) is determined not to be the
owner (see "Characterization of Leases and Availability of Depreciation" above),
or (iv) Properties acquired by the Partnership comprised of land only. Such
income will constitute, for purposes of section 469, portfolio income which
cannot be offset by losses from passive activities. The Treasury Department has
been given broad authority to issue regulations defining income that does not
constitute passive activity income, and no assurance can be given that future
regulations promulgated under section 469 will not treat Partnership income as
income that is not from a passive activity. See "Federal Income Tax
Considerations--Publicly Traded Partnerships" and "Federal Income Tax
Considerations--Basis, At-Risk, and Passive Activity Limitations on Deduction of
Losses."
Risks Relating to Taxation of Undistributed Revenues. In any year in
which the Partnership reports income in excess of expenses, the Limited Partners
will be required to report their allocable shares of such income on their
personal income tax returns even though they may have received total cash
distributions less than the amount of reportable income or even the resultant
federal income tax. For example, Limited Partners who participate in the
Distribution Reinvestment Plan will be allocated their shares of Partnership Net
Income and Gain (including Net Income and Gain attributable to Units acquired
pursuant to the Distribution Reinvestment Plan) even though such Partners may
receive no cash distributions from the Partnership. See "Federal Income Tax
Considerations--Distribution Reinvestment Plan."
Risks Relating to Creation of Unrelated Business Taxable Income. A
Tax-Exempt Limited Partner (such as an employee pension benefit plan or an IRA)
may be subject to tax to the extent that income from the Partnership is treated
as unrelated business taxable income ("UBTI"). Counsel has opined that, assuming
(i) the Properties are owned and leased in the manner described in
"Business--Description of Leases," (ii) neither the Partnership nor any Joint
Venture owns and leases personal property, borrows money, or is treated as a
dealer with respect to the Properties, and (iii) income from the lease of
improved Leasehold Property is itself considered income from the rental of real
Property, it is more likely than not that the income of the Partnership will not
constitute UBTI. The General Partners do not currently intend (although they
have the right) to cause the Partnership to borrow funds or own and lease
personal property. In the event the Partnership borrows funds or leases personal
property, the General Partners have represented that they will use reasonable
efforts to do so in a manner that does not cause Partnership income to be
treated as UBTI. Moreover, there is no intention to operate the Partnership or
any Joint Venture in a manner such that it would be treated as a dealer in real
property. See "Federal Income Tax Considerations--Qualified Plan Investors" and
"Federal Income Tax Considerations--Sale of the Properties."
Risks of Taxable Gain on Sale of a Limited Partner's Partnership
Interest. Upon the sale or other taxable disposition by a Limited Partner of all
or a portion of his or her interest in the Partnership, he or she will realize
taxable income to the extent that (for federal income tax purposes) the
consideration he or she receives upon the sale of his or her interest exceeds
his or her tax basis in his or her interest in the Partnership. However, such
sale may not result in cash proceeds sufficient to pay the tax obligations
arising from such sale.
Risks of Applicability of Alternative Minimum Tax. The application of
the alternative minimum tax to Limited Partners could reduce certain tax
benefits associated with the purchase of Interests in the Partnership. The
effect of the alternative minimum tax upon Limited Partners depends on each
Limited Partner's particular overall tax situation, and the Limited Partners
should consult with their tax advisers regarding the possible application of
this tax.
12
<PAGE>
Audit Risks, Interest, and Penalties. The federal income tax returns of
the Partnership and Joint Ventures may be audited by the IRS, which could result
in an audit by the IRS of the federal income tax returns of the Limited Partners
and adjustments of items both related and unrelated to the Partnership. There
are also procedures pertaining to audits of partnership tax returns which, to an
extent, may reduce the control that an individual partner can have over
proceedings concerning any proposed adjustment of partnership tax items by the
IRS. If, in connection with an audit of the Partnership's tax return, it is
finally determined that a Partner has underpaid tax, such Partner would be
required to pay the amount of the underpayment plus interest on the underpayment
and certain penalties from the date the tax originally was due. See "Federal
Income Tax Considerations--Interest on Underpayment of Taxes" and "Federal
Income Tax Considerations--Accuracy--Related Penalties."
Risks of Possible Federal Income Tax Legislation or Administrative
Changes. Prospective Limited Partners should recognize that the present federal
income tax treatment of an investment in a limited partnership may be modified
by legislative, administrative or judicial action at any time, and that any such
action may affect investments previously made. Changes in federal income tax
laws have been proposed in the past and may be proposed again, which, if
enacted, would adversely affect investments in partnerships. Further, the rules
dealing with federal income taxation are constantly under review by the IRS
resulting in revisions of its regulations and revised interpretations of
established concepts. In addition, the General Partners understand that the IRS
is paying increased attention to the proper application of tax laws to
partnerships, including limited partnerships.
Effects of State and Local Taxation. The state in which a Limited
Partner is a resident may impose an income tax upon the Limited Partner's share
of the taxable income of the Partnership. Furthermore, states in which the
Partnership will own property generally impose income taxes upon each partner's
share of a partnership's taxable income considered allocable to such states.
Differences may exist between federal income tax laws and state and local income
tax laws. The Partnership may be required to withhold state taxes from
distributions to Limited Partners in certain instances. Prospective Limited
Partners are urged to consult with their own tax advisers with respect to state
and local income taxation.
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13
<PAGE>
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Units offered hereby are suitable only as a long-term investment
for persons of adequate financial means who have no need for liquidity in this
investment. There is not expected to be any public market for the Units, which
means that it may be difficult to sell Units. See "Summary of Partnership
Agreement--Restrictions on Transferability of Units" for a description of the
transfer requirements. As a result, the Partnership has established suitability
standards which require investors to have either (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000.
Iowa, Maine, Missouri, New Hampshire, North Carolina, Ohio, and
Pennsylvania have established suitability standards different from those
established by the Partnership, and Units will be sold only to investors in
those states who represent in writing that they meet the special suitability
standards set forth below.
IOWA AND OHIO -- The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten (10) times the investor's
investment in the Partnership, and (ii) either (a) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (b) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000.
MISSOURI AND NORTH CAROLINA -- The investor has either (i) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $60,000
and an annual gross income of at least $60,000, or (ii) a net worth (exclusive
of home, furnishings, and personal automobiles) of at least $225,000.
MAINE -- The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
NEW HAMPSHIRE -- The investor has either (i) a net worth (exclusive a
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $250,000.
PENNSYLVANIA -- The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten times the investor's
investment in the Partnership, and (ii) either (a) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (b) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000. Because the minimum
Offering of Units of the Partnership is less than $4,000,000, Pennsylvania
investors are cautioned to evaluate carefully the Partnership's ability to fully
accomplish its stated objectives and to inquire as to the current dollar volume
of the Partnership's subscription proceeds.
The foregoing suitability standards must be met by the investor who
purchases the Units. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their Units only to persons who meet similar standards, and the Partnership may
require certain assurances that such standards are met. Investors should read
carefully the requirements in connection with resales of Units as set forth in
Article Fourteen of the Partnership Agreement and as summarized under "Summary
of Partnership Agreement--Restrictions on Transferability of Units."
In purchasing Units, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties imposed by the Employee
Retirement Income Security Act of 1974 ("ERISA") or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Internal Revenue Code. See "Federal Income Tax Considerations--Qualified
Plan Investors" and "The Offering." In addition, prior to purchasing Units, the
trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. For information
regarding "unrelated business taxable income," see "Federal Income Tax
Considerations--Qualified Plan Investors."
In order to insure adherence to the suitability standards described
above, requisite suitability standards must be met, as set forth in the
Subscription Agreement in the form attached hereto as Exhibit E. In addition,
Soliciting Dealers who sell Units have the responsibility to make every
reasonable effort to determine that the purchase of Units is a suitable and
appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See "The
Offering--Subscription Procedures." Executed Subscription Agreements will be
maintained in the Partnership's records for the term of the Partnership.
14
<PAGE>
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Units by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Units subscribed for, payable to "SouthTrust Asset
Management Company of Florida, N.A., Escrow Agent." See "The
Offering--Subscription Procedures." Certain Soliciting Dealers who have "net
capital," as defined in the applicable federal securities regulations, of
$250,000 or more may instruct their customers to make their checks for Units
subscribed for payable directly to the Soliciting Dealer. Care should be taken
to ensure that the Subscription Agreement is filled out correctly and
completely. Partnerships, individual fiduciaries signing on behalf of trusts,
estates, and in other capacities, and persons signing on behalf of corporations
and corporate trustees may be required to obtain additional documents from
Soliciting Dealers. Any subscription may be rejected by the General Partners in
whole or in part, regardless of whether the subscriber meets the minimum
suitability standards.
Certain Soliciting Dealers may permit investors who meet the
suitability standards described above to subscribe for Units by telephonic order
to the Soliciting Dealer. This procedure may not be available in certain states.
See "The Offering--Subscription Procedures" and "The Offering--Plan of
Distribution."
A minimum investment of 250 Units ($2,500) is required, although
investors who wish to receive monthly distributions must make a minimum
investment of 500 Units ($5,000). IRAs, Keogh plans, and pension plans must make
a minimum investment of at least 100 Units ($1,000), except for Iowa tax-exempt
investors who must make a minimum investment of 300 Units ($3,000). For
Minnesota investors only, IRAs must make a minimum investment of 200 Units
($2,000). In addition, Nebraska investors must make a minimum investment of 500
Units ($5,000). Any investor who makes the required minimum investment may
purchase additional Units in increments of one Unit. Maine investors, however,
may not purchase additional Units in amounts less than the applicable minimum
investment except at the time of the initial subscription or with respect to
Units purchased pursuant to the Distribution Reinvestment Plan. See "The
Offering--General," "The Offering--Subscription Procedures," and "Summary of
Distribution Reinvestment Plan."
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15
<PAGE>
ESTIMATED USE OF PROCEEDS
The table set forth below summarizes certain information relating to
the anticipated use of Offering proceeds by the Partnership, assuming that no
more than 500,000 Units are sold (468,646 Units had been sold as of November 15,
1996) and assuming 3,500,000 Units are sold. While the estimated use of proceeds
set forth in this table is believed to be reasonable, this table should be
viewed only as an estimate of the use of proceeds that may be achieved.
</TABLE>
<TABLE>
<CAPTION>
Offering of 500,000 Units(1) Maximum Offering
----------------------------- ----------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C>
GROSS PROCEEDS TO THE PARTNERSHIP (2) ............... $5,000,000 100.0% $35,000,000 100.0%
Less:
Selling Commissions to CNL
Securities Corp. (2) .......................... 425,000 8.5% 2,975,000 8.5%
Due Diligence Expense Reimbursement Fee to
CNL Securities Corp. (2) ...................... 25,000 0.5% 175,000 0.5%
Organizational and Offering Expenses (3) ......... 150,000 3.0% 875,000 2.5%
--------- ------ ---------- -----
NET PROCEEDS TO THE PARTNERSHIP ..................... 4,400,000 88.0% 30,975,000 88.5%
Less:
Acquisition Fees to CNL Fund Advisors, Inc.(4) ... 225,000 4.5% 1,575,000 4.5%
Acquisition Expenses (5) ......................... 25,000 0.5% 175,000 0.5%
Initial Working Capital Reserve .................. (6) (6)
CASH PAYMENT FOR PURCHASE OF PROPERTIES
BY THE PARTNERSHIP................................ $4,150,000 83.0% $29,225,000 83.5%
=========== ====== =========== ======
</TABLE>
- ---------------------------
FOOTNOTES:
(1) Does not include the purchase of 5,000 Units ($50,000) to be made by
the General Partners for investment. The General Partners may, but are
not required to, purchase for investment up to an additional 15,000
Units ($150,000) of the Partnership.
(2) Gross Proceeds of the Offering are calculated as if all Units are sold
at $10.00 per Unit and do not take into account any reduction in
Selling Commissions. See "The Offering--Plan of Distribution" for a
description of commission discounts available for certain large volume
purchases of Units and for purchases by registered representatives or
principals of the Managing Dealer or Soliciting Dealers. Selling
Commissions are calculated assuming that reduced commissions are not
paid in connection with the purchase of any Units. The Units are being
offered to the public through CNL Securities Corp., which will receive
Selling Commissions of 8.5% on all sales of Units and will act as
Managing Dealer. The Managing Dealer is an Affiliate of the General
Partners. Other broker-dealers may be engaged as Soliciting Dealers to
sell Units and reallowed Selling Commissions of up to 8% with respect
to Units which they sell. In addition, all or a portion of the due
diligence expense reimbursement fee may be reallowed to certain
Soliciting Dealers for expenses incurred by them in selling the Units,
including reimbursement for bona fide expenses incurred in connection
with due diligence activities. See "The Offering--Plan of
Distribution" for a more complete description of this fee.
(3) Organizational and Offering Expenses include legal, accounting,
printing, escrow, filing, registration, qualification, and other
expenses of the organization of the Partnership and the Offering of
the Units, but exclude Selling Commissions and the due diligence
expense reimbursement fee. The General Partners will pay all
Organizational and Offering Expenses which exceed 3% of Gross Proceeds
received from the sale of the Units.
(4) Acquisition Fees include all fees and commissions paid by the
Partnership to any person or entity in connection with the selection
or acquisition of any Property, including Acquisition Fees to
nonaffiliates. Acquisition Fees do not include Acquisition Expenses.
(5) Represents that portion of Acquisition Expenses that are neither
reimbursed to the Partnership nor included in the purchase price of
the Properties, and on which rent is not received, but does not
include certain Acquisition Expenses associated with Property
acquisitions that are part of the purchase price of the Properties,
that are included in the basis of the Properties, and on which rent is
received. Acquisition Expenses include any and all expenses incurred
by the Partnership, any General Partner, or any Affiliate of any
General Partner in connection with the selection or acquisition of any
Property, whether or not acquired, including, without limitation,
legal fees and expenses, travel and communication expenses, costs of
appraisals, nonrefundable option payments on property not acquired,
accounting fees and expenses, taxes, and title insurance, but exclude
Acquisition Fees. The portion of Acquisition Expenses that is
attributable to the seller of the Properties and part of the purchase
price of the Properties is anticipated to range between 1% and 2% of
Gross Proceeds.
(6) Because leases will be on a "triple-net" basis, it is not anticipated
that a permanent reserve for maintenance and repairs will be
established. However, to the extent that the Partnership has
insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to 1% of the
Offering proceeds available to the Partnership for maintenance and
repairs. The General Partners also may, but are not required to,
establish reserves from Offering proceeds, operating funds, and the
available proceeds of any Sales of Properties.
16
<PAGE>
MANAGEMENT COMPENSATION
The tables below summarize the types, recipients, methods of
computation, and estimated amounts of all compensation, fees, and distributions
to be paid directly or indirectly by the Partnership to the General Partners and
their Affiliates, exclusive of any distributions to which the General Partners
or their Affiliates may be entitled by reason of their purchase and ownership of
Units. The following arrangements for compensation and fees to the General
Partners and their Affiliates were not determined by arm's-length negotiations.
See "Conflicts of Interest."
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation and fees payable to the
General Partners and their Affiliates by the Partnership are not subordinated to
minimum returns to the Limited Partners:
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
Organizational Stage
<S> <C>
Selling Commissions to Managing Selling Commissions of 8.5% per $2,975,000 if 3,500,000 Units
Dealer and Soliciting Dealers Unit on all Units sold, subject sold $51,574 at September 30,
to reduction for volume 1996
purchases and purchases by
registered representatives and
principals of the Managing
Dealer or a Soliciting Dealer
(as described in "The
Offering--Plan of
Distribution"). Soliciting
Dealers may be reallowed Selling
Commissions of up to 8% with
respect to Units they sell.
Due Diligence expense reimburse- Expense allowance of 0.5% of Gross $175,000 if 3,500,000 Units sold
ment fee to Managing Dealer Proceeds to the Managing Dealer, $ 3,034 at September 30, 1996
all or a portion of which may be
reallowed to Soliciting Dealers.
The Managing Dealer will pay all
sums attributable to bona fide
due diligence expenses from
this fee.
Reimbursement to General Actual expenses incurred, except Amount is not determinable at this
Partners and their that the General Partners will pay time, but will not exceed 3% of
Affiliates for Organizational all such expenses in excess of 3% Gross Proceeds ($ 875,000 if
and Offering Expenses of Gross Proceeds. 3,500,000 Units sold).
Acquisition Stage
Acquisition Fees to CNL Fund 4.5% of the aggregate Capital $1,575,000 if 3,500,000 Units sold
Advisors, Inc. and reimburse- Contributions of the Limited $ 27,304 at September 30, 1996
ment of Acquisition Expenses Partners, payable to CNL Fund
to the General Partners and their Advisors, Inc. as Acquisition Fees,
Affiliates plus reimbursement to the General
Partners and their Affiliates for Acquisition Expenses, which are based on a
expenses actually incurred. number of factors, including the purchase
Acquisition Fees and Acquisition price of the Properties, are not determinable
Expenses are subject to reduction at this time.
or return in certain circumstances.
See Exhibit A--Form of Amended and
Restated Agreement of Limited
Partnership, Article 7.5.
</TABLE>
(1) Compensation and fees that are calculated with reference to the
number of Units sold, the Gross Proceeds, or the Capital
Contributions of Limited Partners will be paid by the Partnership
based on the number of Units sold on behalf of the Partnership,
the aggregate Gross Proceeds available to the Partnership, or the
Capital Contributions of Limited Partners to the Partnership,
respectively. A maximum of 3,500,000 Units ($35,000,000) of the
Partnership may be sold . There is no item of compensation and no
fee that can be paid to the General Partners or their Affiliates
under more than one category.
17
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
<S> <C>
Operational Stage
Annual Management Fee to The Management Fee represents 1% of Amount is not determinable at this time.
CNL Fund Advisors, Inc. the gross revenues (excluding noncash The amount of the Management Fee will
lease accounting adjustments) that the depend upon the revenues received from
Partnership earns from its Properties. the Partnership's Properties. No Management
Specifically, the Management Fee Fees had been incurred by the Partnership as
equals 1% of the sum of such gross of September 30, 1996.
revenues derived from Properties
wholly owned by the Partnership, plus,
in the case of Properties owned by any
Joint Venture or partnership in which
the Partnership is a co-venturer or
partner, 1% of the Partnership's
allocable share of such gross
revenues. The Management Fee, which
will not exceed fees which are
competitive for similar services in
the same geographic area, may or may
not be taken, in whole or in part as
to any year, in the sole discretion of
CNL Fund Advisors, Inc. All or any
portion of the Management Fee not
taken as to any fiscal year shall be
deferred without interest and may be
taken in such other fiscal year as CNL
Fund Advisors, Inc. shall determine.
Reimbursement to CNL Fund Operating expenses (which, in general, Amount is not determinable at this time.
Advisors, Inc. and Affiliates are those expenses relating to
for operating expenses administration of the Partnership on
an ongoing basis) will be reimbursed
at lower of cost or 90% of the
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Reimbursement of such expenses is
subject to certain conditions set
forth in the Partnership Agreement.
See Exhibit A--Form of Amended and
Restated Agreement of Limited
Partnership, Articles 8.1 and 10.1.
Share of Partnership
Distributions and
Liquidation Stage
See "Payments Subordinated to
Minimum Return to Limited Partners"
on following page.
</TABLE>
(1) Compensation and fees that are calculated with reference to the
number of Units sold, the Gross Proceeds, or the Capital
Contributions of Limited Partners will be paid by the Partnership
based on the number of Units sold on behalf of the Partnership,
the aggregate Gross Proceeds available to the Partnership, or the
Capital Contributions of Limited Partners to the Partnership,
respectively. A maximum of 3,500,000 Units ($35,000,000) of the
Partnership may be sold . There is no item of compensation and no
fee that can be paid to the General Partners or their Affiliates
under more than one category.
18
<PAGE>
PAYMENTS SUBORDINATED TO MINIMUM RETURN TO LIMITED PARTNERS(2)
The following aggregate amounts of compensation, fees, and
distributions payable to the General Partners and their Affiliates by the
Partnership will be payable only after specified distributions have been made to
the Limited Partners, as set forth below.
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
<S> <C>
Operational Stage
Deferred, subordinated real estate A deferred, subordinated real Amount is not determinable at this time.
disposition fee payable to CNL estate disposition fee, payable The amount of this fee, if it becomes
Fund Advisors, Inc. from a Sale upon Sale of one or more payable, will depend upon the price at
or Sales not in liquidation of Properties, in an amount equal to which Properties are sold. No amounts
the Partnership the lesser of (i) one-half of a had been paid or accrued at September 30,
Competitive Real Estate Commission, 1996.
or (ii) 3% of the price of such
Property or Properties. Payment of
such fee shall be made only if CNL
Fund Advisors, Inc. provides a
substantial amount of services in
connection with the Sale of a
Property or Properties and shall be
subordinated to receipt by the
Limited Partners of an amount equal
to the sum of (i) their aggregate
Limited Partners' 8% Return and
(ii) their aggregate Invested
Capital Contributions. In general,
a Limited Partner's Invested
Capital Contribution is the amount
of cash contributed by the Limited
Partner to the Partnership reduced
by certain prior capital
distributions to the Limited
Partner from the Sale of one or
more Properties. If, at the time of
a Sale, payment of the disposition
fee is deferred because the
subordination conditions have not
been satisfied at that time, then
the disposition fee shall be paid
at such later time as the
subordination conditions are
satisfied.
</TABLE>
(1) Compensation and fees that are calculated with reference to the
number of Units sold, the Gross Proceeds, or the Capital
Contributions of Limited Partners will be paid by the Partnership
based on the number of Units sold on behalf of the Partnership,
the aggregate Gross Proceeds available to the Partnership, or the
Capital Contributions of Limited Partners to the Partnership,
respectively. A maximum of 3,500,000 Units ($35,000,000) of the
Partnership may be sold. There is no item of compensation and no
fee that can be paid to the General Partners or their Affiliates
under more than one category.
(2) The payments described in this subsection are subordinated to
payment to the Limited Partners of (i) their aggregate Limited
Partners' 8% Return (in general, an amount equal to a 8% annual,
noncompounded return on their Invested Capital Contribute payable
from cash available after operating expenses and the Management
Fee to CNL Fund Advisors, Inc. are paid and any reserves are
created, and (ii) in the case of the real estate disposition fee
and the General Partners' share of Net Sale Proceeds, their
aggregate Limited Partners' 8% Return, calculated at the time of
any such Sale, plus an amount equal to their aggregate Invested
Capital Contributions. In general, the Limited Partners' Invested
Capital Contributions are the amount of cash they contributed to
the Partnership reduced by certain prior capital distributions to
the Limited Partners from the Sale of a Property.
19
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
<S> <C>
Deferred, Subordinated
Share of
Partnership Distributions
General Partners' deferred, A deferred, subordinated share equal to Amount is not determinable at this time.
subordinated share of Net 5% Partnership distributions of Net Actual amounts depend upon the results of
Cash Flow of Cash Flow, subordinated to receipt by operations of the Partnership and the
the Limited Partners of their Properties. No amounts had been paid or
aggregate, noncumulative Limited accrued at September 30, 1996.
Partners' 8% Return for the related
year. See "Allocations and
Distributions."
General Partners' deferred, A deferred, subordinated share Amount is not determinable at
subordinated share of Net equal to 5% of Partnership this time. No amounts had been paid or
Sales Proceeds from a Sale distributions of such Net Sales accrued at September 30, 1996.
or Sales not in liquidation Proceeds, subordinated to receipt
of the Partnership by the Limited Partners of an
amount equal to the sum of (i)
their aggregate, cumulative
Limited Partners' 8% Return, and
(ii) their aggregate Invested
Capital Contributions (and to
receipt by the General Partners
of their Capital Contributions
and their share of distributions
of Net Cash Flow, to the extent
not previously distributed to
them). See "Allocations and
Distributions."
Liquidation Stage
Subordinated real estate dis- See "Operational Stage" above for a Amount is not determinable at this time.
position fee payable to CNL description of this fee. The amount of this fee, if it becomes
Fund Advisors, Inc. from a Sale payable, will depend upon the price at
or Sales in liquidation of which Properties are sold.
the Partnership
General Partners' subordinated See "Deferred, Subordinated Share Amount is not determinable at this time.
share of Net Sales Proceeds of Partnership Distributions"
from a Sale or Sales in above for a description of this
liquidation of the Partnership share of distributions.
</TABLE>
(1) Compensation and fees that are calculated with reference to
the number of Units sold, the Gross Proceeds, or the Capital
Contributions of Limited Partners will be paid by the
Partnership based on the number of Units sold on behalf of the
Partnership, the aggregate Gross Proceeds available to the
Partnership, or the Capital Contributions of Limited Partners
to the Partnership, respectively. A maximum of 3,500,000 Units
($35,000,000) of the Partnership may be sold . There is no
item of compensation and no fee that can be paid to the
General Partners or their Affiliates under more than one
category.
20
<PAGE>
CONFLICTS OF INTEREST
The Partnership will be subject to various conflicts of interest
arising out of its relationship to the General Partners and their Affiliates, as
described below.
The following chart indicates the relationship between the General
Partners and those Affiliates that will provide services to the Partnership.
<TABLE>
<CAPTION>
<S> <C>
================================= ==============================
| James M. Seneff, Jr. | | Robert A. Bourne |
| (General Partner) | | (General Partner) |
---------------- | | | |
| 100% ================================= ==============================
| | |
| | |
-------------------------------- | |
| CNL Group, Inc.(1) | 50% | | 50%
-------------------------------- | |
| | | |
| | | |
100% | | 100% | |
--------------------------------- ---------------------------------- ===================================
| CNL Fund | | | | |
| Advisors, Inc. | | CNL Securities Corp. | | CNL Realty |
| (Property Advisory and | | (Managing Dealer) | | Corporation |
| Management Services) | | | | (General Partner) |
--------------------------------- ----------------------------------- ===================================
</TABLE>
(1) Mr. Seneff shares ownership and voting control of CNL Group, Inc. with
Dayle L. Seneff, his wife.
PRIOR AND FUTURE PROGRAMS
The General Partners and their Affiliates in the past have organized
other real estate programs, currently have other real estate holdings, and in
the future expect to form, offer interests in, and manage other real estate
programs in addition to the Partnership, and make additional real estate
investments. Some of these involve and will involve the General Partners and
their Affiliates in the ownership, operation, leasing, and management of
fast-food, family-style, and casual dining restaurants, including restaurants
that may be suitable for the Partnership.
Certain of these affiliated public or private real estate programs
invest or may invest solely in fast-food, family-style, and casual dining
restaurants, and may purchase properties concurrently with the Partnership.
Further, such programs may lease fast-food, family-style, and casual dining
restaurant properties to operators who also lease or operate certain of the
Partnership's Properties. These properties, if located in the vicinity of, or
adjacent to, Properties acquired by the Partnership, may affect the Properties'
gross revenues. Such conflicts between the Partnership and affiliated programs
may affect the value of the Partnership's investments as well as its Net Income.
The General Partners believe that they have established guidelines to minimize
such conflicts. See "Certain Conflict Resolution Procedures" below.
An Affiliate of the General Partners currently is purchasing restaurant
properties for a private investor program that was organized to purchase, lease
and/or finance fast-food, family-style, and casual dining restaurant properties,
including furniture, fixtures, equipment and start-up costs associated
therewith. Such program generally will purchase restaurant properties or an
interest therein only when furniture, fixtures, equipment and start-up costs
also will be supplied by the program.
ACQUISITION OF PROPERTIES
The General Partners and their Affiliates regularly have opportunities
to acquire restaurant properties of a type suitable for acquisition by the
Partnership as a result of their existing relationships and past experience with
various fast-food, family-style, and casual dining restaurant chains and their
franchisees. See "Business--General." A purchaser who wishes to acquire one or
more of these properties must do so within a relatively short period of time,
occasionally at a time when the Partnership (due to insufficient funds, for
example) may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities for the Partnership (and other entities with which the General
Partners are affiliated), the General Partners or their Affiliates maintain
lines of credit which enable them to acquire these restaurant properties on an
interim basis. Typically, no more than 10 to 15 restaurant properties are
temporarily owned by the General Partners or their Affiliates on this interim
basis at any particular time. These restaurant properties generally will be
purchased from the General Partners or their Affiliates, at their cost, by one
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or more existing or future public or private programs formed by the General
Partners or their Affiliates, potentially including the Partnership.
The General Partners and their Affiliates could experience potential
conflicts due to their ongoing business relationships with operators of
Restaurant Chains. Although unlikely, such conflicts could adversely affect the
negotiation by the General Partners of the purchase price and other terms of the
acquisition of a Property, as well as the terms of the lease of a Property .
The General Partners or their Affiliates also may be subject to
potential conflicts of interest in determining which partnership will acquire a
particular property which could result in the acquisition by other partnerships
of properties appropriate for investment by the Partnership. Such a conflict
could possibly result in the acquisition of properties by other partnerships
which are more desirable or valuable than those of the Partnership which could
adversely affect gross revenues of the Partnership. In an effort to establish
standards for resolving these potential conflicts, the General Partners have
agreed to the guidelines set forth below under "Allocations of Properties
Between CNL XVII and CNL XVIII" and "Certain Conflict Resolution Procedures,"
and in Article 11.4 of the Partnership Agreement. The General Partners have a
fiduciary obligation to act in the best interest of both the Limited Partners
and the investors in other programs with investment objectives that are similar
to those of the Partnership and will use their best efforts to assure that the
Partnership will be treated as favorably as any such other program. See
"Fiduciary Responsibility of the General Partners."
The individual General Partners are directors of Commercial Net Lease
Realty, Inc., a Maryland corporation, and CNL American Properties Fund, Inc., a
separate Maryland corporation, both of which are intended to qualify as real
estate investment trusts for federal income tax purposes (collectively, the
"REITs"). The individual General Partners also are officers of the REITs and
officers and directors of CNL Realty Advisors, Inc. and CNL Fund Advisors, Inc.,
the advisors to Commercial Net Lease Realty, Inc. and CNL American Properties
Fund, Inc., respectively. The REITs, subject to compliance with the provisions
relating to qualification as real estate investment trusts under the Code, have
authority to invest in all types of real property, similar to those to be
acquired by the Partnership, although both have the authority, unlike the
Partnership, to leverage the properties so acquired under certain circumstances
and, in the case of CNL American Properties Fund, Inc., to provide furniture,
fixture and equipment financing. At such time, if any, as either of these
entities wishes to acquire a restaurant property that also would be suitable for
acquisition by the Partnership, a conflict of interest could develop in
determining whether the Partnership or one of the REITs should acquire the
property. Such a conflict could possibly result in the acquisition of properties
by the REITs which are more desirable or valuable than those of the Partnership
which could adversely affect gross revenues of the Partnership. The General
Partners have a fiduciary duty to act in the best interest of the Limited
Partners, and the individual General Partners, as two of the directors of both
REITs, have a fiduciary duty to act in the best interest of the REITs, and each
will use his best efforts to assure that the Partnership will be treated as
favorably as the REITs in determining which entity will acquire a particular
property. See "Fiduciary Responsibility of the General Partners." Despite the
General Partners' best efforts to assure that the Partnership will be treated as
favorably as the REITs, however, it is possible that properties acquired by the
REITs could acquire certain properties of a higher quality than to those
acquired by the Partnership which could result in greater returns for investors
in the REITs.
ALLOCATION OF PROPERTIES BETWEEN CNL XVII AND CNL XVIII
CNL XVII, which offered its units as part of the aggregate offering by
CNL XVII and CNL XVIII (of which this Offering is a part), but prior to the
offer by CNL XVIII of its Units, and CNL XVIII each will acquire its own
separate portfolio of Properties. In selecting Properties for acquisition by
either CNL XVII or CNL XVIII, the General Partners will consider the factors
discussed throughout this Prospectus, with particular emphasis on those
described in the sections entitled "Business--General," "Business--Site
Selection and Acquisition of Properties," "Business--Standards for Investment,"
and "Investment Objectives and Policies."
CNL XVII and CNL XVIII could compete with each other for suitable
Properties to the extent, if any, that both partnerships have funds available
for investment in Properties at a particular time. Such a conflict could
possibly result in the acquisition of properties by CNL XVII which are more
desirable or valuable than those of the Partnership which could adversely affect
gross revenues of the Partnership. Accordingly, the General Partners have
instituted certain procedures (described below), in addition to those procedures
described in "Certain Conflict Resolution Procedures" below for resolution of
potential conflicts between the Partnership and the General Partners or other
Affiliates.
In general, CNL XVIII will acquire Properties following such time as
substantially all of the net offering proceeds available to CNL XVII have been
invested or committed for investment. Thereafter, Properties will be acquired by
CNL XVIII until the net Offering proceeds available to it have been fully
invested or committed for investment. If the General Partners determine that a
Property is not suitable for CNL XVII, however, the General Partners may cause
CNL XVIII to acquire the Property at a time when CNL XVII has uncommitted net
offering proceeds. The General Partners will determine the suitability of a
particular Property for CNL XVII based on such factors as the amount of the
proposed investment, the amount of funds available to CNL XVII, the effect of
the acquisition on the diversification of the investments of CNL XVII and on the
diversification of the lessees of its Properties (which also may affect the need
for CNL XVII to prepare or produce audited financial statements for a Property
or a lessee), and the anticipated cash flow of CNL XVII and CNL XVIII.
In addition to the factors listed above, the General Partners intend to
apply two additional standards if necessary or advisable in order to resolve
potential conflicts relating to allocations of Properties between CNL XVII and
CNL XVIII.
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First, the Partnership generally will not acquire a Property if, as a result,
more than 20% of its Gross Proceeds would be invested in Properties that would
be leased to a single lessee or a group of affiliated lessees. Second, the
General Partners expect that the Partnership's Properties will be located in
various states and regions throughout the United States and, in general, the
Partnership will not acquire a Property if, as a result, more than 30% of its
Gross Proceeds would be invested in Properties located in a single state. The
General Partners have undertaken to supplement this Prospectus during the
Offering period to disclose the acquisition of a Property at such time as the
General Partners believe that a reasonable probability exists that the Property
will be acquired by the Partnership.
As of November 15, 1996, CNL XVII had purchased 22 properties,
including one property as tenants-in-common with an Affiliate of the General
Partners, for an aggregate of approximately $22,500,000. As of November 15,
1996, approximately 85% of the net offering proceeds available to CNL XVII had
been invested or committed for investment in properties.
SALES OF PROPERTIES
A conflict also could arise in connection with the General Partners'
determination as to whether or not to sell a Property, since the interests of
the General Partners and the Limited Partners are likely to differ as a result
of their distinct financial and tax positions and the compensation to which the
General Partners or their Affiliates may be entitled upon the Sale of a
Property. See "Management Compensation" for a description of these compensation
arrangements. This conflict could result in a disposition of a Property at a
time and pursuant to terms which may be less favorable to the Limited Partners.
However, the General Partners have a fiduciary obligation to act in the best
interests of the Limited Partner and will use their best efforts to do so. In
the unlikely event that the Partnership and another program managed by the
General Partners attempted to sell similar properties at the same time, a
conflict could arise since the two programs potentially could compete with each
other for a suitable purchaser. Such a conflict may adversely affect the sales
price for the Property or the timing of the sale of the Property which in turn
could delay or reduce distributions to the Limited Partners. In order to resolve
this potential conflict, the General Partners have agreed not to sell any of the
Partnership's Properties contemporaneously with a property owned by another
program managed by the General Partners if the two properties are part of the
same Restaurant Chain and are within a three-mile radius of each other, unless
the General Partners are able to locate a suitable purchaser for each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Partnership may invest in Joint Ventures and Co-Tenancy
Arrangements with another public program sponsored by the General Partners whose
securities were, are, or will be offered to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended, to
purchase and hold Properties for investment if all of the following conditions
are met: (i) the two programs have substantially identical investment
objectives, (ii) there are no duplicate management or other fees, (iii)
compensation to the General Partners and their Affiliates is substantially the
same in each program, (iv) each program has a right of first refusal to buy the
Property held in the Joint Venture or Co-Tenancy Arrangement, at the Property's
fair market value as determined by an independent appraisal, if the other
program has the right to sell such Property, and (v) each program's investment
is on substantially the same terms and conditions. There may be a potential risk
of impasse in Joint Venture or Co-Tenancy Arrangement decisions since neither
program will control the Joint Venture or Co-Tenancy Arrangement. Although
either program will have the effective right to buy the Property from the
co-venturer or co-tenant by purchasing the co-venturer's or co-tenant's interest
in the Joint Venture or Co-Tenancy Arrangement, it may not have the resources to
do so at the time of the sale.
COMPETITION FOR MANAGEMENT TIME
The General Partners and their Affiliates currently are engaged, and in
the future will engage, in the management of other business entities and
properties and in other business activities. They will devote only as much of
their time to the business of the Partnership as they, in their judgment,
determine is reasonably required. The General Partners and their Affiliates may
experience conflicts of interest in allocating management time, services, and
functions among the various existing partnerships in which one or more of them
serve as general partners (including the Partnership and 17 other public
partnerships with investment objectives similar to those of the Partnership),
any investor programs (public or private) which the General Partners or their
Affiliates may organize in the future, and any other business ventures in which
the General Partners or their Affiliates are or may become involved. Especially
during periods of intense activity in other programs and ventures, such a
conflict could possibly result in the devotion by the General Partners and their
Affiliates of less time and resources to the Partnership and the operation of
its business.
COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
The General Partners and their Affiliates will be engaged to perform
various services for the Partnership and will receive fees and compensation for
such services. None of the agreements for such services are the result of arm's-
length negotiations which creates the potential opportunity for the payment of
compensation in excess of that permitted by the Partnership Agreement for the
services provided and the engagement of less qualified parties to perform such
services. The General Partners believe, however, that the terms of such
arrangements are reasonable and no less favorable than those which could be
obtained from unaffiliated entities. The timing and nature of these fees and
compensation could create a conflict between the interests of the General
Partners and those of the Limited Partners in connection with the engagement
of CNL Fund Advisors, Inc. as manager of the Partnership's Properties or the
proposed disposition of one or more Properties. See "Management Compensation."
Certain of these conflicts may be alleviated in part due to the opportunity for
the Limited Partners to vote to terminate contracts with Affiliates of the
General Partners and take other actions to protect their interests. See
"Conflicts of Interest--Certain Conflict Resolution Procedures."
RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the
General Partners. The individual General Partners are officers, directors, and
registered principals of the Managing Dealer. This relationship may create
conflicts in connection with the fulfillment by the Managing Dealer of its due
diligence obligations under the federal securities laws. Although the Managing
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Dealer will examine the information in the Prospectus for accuracy and
completeness, the Managing Dealer is an Affiliate of the General Partners and
will not make an independent review of the Partnership and the Offering.
Accordingly, the investors do not have the benefit of such independent review.
Certain of the Soliciting Dealers have made, or are expected to make, their own
independent due diligence investigations. The Managing Dealer is not prohibited
from acting in any capacity in connection with the offer and sale of securities
offered by entities that may have investment objectives similar to those of the
Partnership and is expected to participate in other offerings sponsored by one
or more of the General Partners.
LEGAL REPRESENTATION
Baker & Hostetler, which serves as securities counsel to the
Partnership in this Offering, also serves as securities counsel for the General
Partners and certain of their Affiliates, including other real estate programs,
in connection with other matters. Neither the Partnership nor the Limited
Partners will have separate counsel. In the event any controversy arises
following the termination of this Offering in which the interests of the
Partnership appear to be in conflict with those of the General Partners or their
Affiliates, other counsel may be retained for one or both parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of
interest, the Partnership Agreement contains a number of restrictions relating
to (i) transactions between the Partnership and the General Partners or their
Affiliates, (ii) certain future partnership offerings, and (iii) allocation of
restaurant properties among certain affiliated partnerships. These restrictions
include, among others, the following:
1. No goods or services will be provided by the General Partners or
their Affiliates to the Partnership except for transactions in which the General
Partners or their Affiliates provide goods or services to the Partnership in
accordance with the Partnership Agreement or under extraordinary circumstances
and in accordance with additional conditions. All transactions between the
Partnership and the General Partners or their Affiliates for the provision of
goods or services to the Partnership, other than those specifically provided for
in the Partnership Agreement, must be evidenced by written agreements which may
be terminated without penalty, upon 60 days' prior written notice, by vote of
Limited Partners holding a majority of the outstanding Units. In addition, the
terms of such agreements will be comparable to the terms available from
unrelated parties, and the compensation payable thereunder shall be limited to:
(i) the actual cost to the General Partners and their Affiliates of all goods,
materials, and services used for or by the Partnership, which are necessary to
the prudent operation of the Partnership and are obtained from entities
unaffiliated with the General Partners or their Affiliates; and (ii) the lower
of the actual cost of administrative services performed by the General Partners
or their Affiliates which are reasonably necessary to the prudent operation of
the Partnership, or 90% of the amount charged by independent parties for
comparable services in the same geographic area.
2. Reimbursement of the General Partners or their Affiliates for
operating expenses of the Partnership is limited to (i) the cost to the General
Partners or their Affiliates of goods, materials, and services obtainable from
unaffiliated parties which are necessary for the prudent operation of the
Partnership, and (ii) the lower of the actual cost of administrative services
performed by the General Partners or their Affiliates which, in the opinion of
the General Partners, are necessary to the prudent operation of the Partnership,
or 90% of the amount charged by independent parties for comparable services in
the same geographic area.
3. The Partnership will not purchase or lease Properties in which the
General Partners or their Affiliates have an interest, except that the General
Partners or their Affiliates, subject to certain limitations, may purchase and
temporarily own Properties for the purpose of facilitating the acquisition of
such Properties by the Partnership. The Partnership will not sell or lease
Properties to the General Partners or their Affiliates.
4. The Partnership will not make any loans to the General Partners or
their Affiliates. The General Partners and their Affiliates will not make loans
to the Partnership, or to Joint Ventures in which the Partnership is a
co-venturer, for the purchase of Properties. The Partnership may, but does not
expect to, borrow for other purposes. Interest and fees on any amounts loaned to
the Partnership by the General Partners or their Affiliates for other purposes
will not exceed those charged for comparable loans. The General Partners or
their Affiliates shall be entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their Affiliates on behalf of the
Partnership or Joint Venture.
5. Until completion of this Offering, the General Partners and their
Affiliates will not offer or sell interests in any public limited partnership
program that has investment objectives and structure similar to those of the
Partnership and that intends to invest on a non-leveraged basis primarily in a
diversified portfolio of existing restaurant properties (as well as properties
upon which restaurants are to be constructed) to be leased on a "triple-net"
basis to operators of national and regional fast-food, family-style, and casual
dining Restaurant Chains. The General Partners also will not purchase property
for any such subsequently formed public investor program that has investment
objectives and structure similar to the Partnership and that intends to invest
on a non-leveraged basis primarily in a diversified portfolio of existing
restaurant properties (as well as properties upon which restaurants are to be
constructed) to be leased on a "triple-net" basis to operators of national and
regional fast-food, family-style, and casual dining Restaurant Chains until
substantially all (generally, 80%) of the funds available for investment (net
Offering proceeds) by the Partnership have been invested or committed for
investment. For purposes of the preceding sentence only, funds are deemed to
have been committed for investment to the extent written agreements in principle
or letters of understanding are executed and in effect at any time, whether or
not any such investment is consummated, and also to the extent any funds have
been reserved to make contingent payments in connection with any Property,
whether or not any such payments are made. The General Partners also agreed to
these standards in connection with the offerings and investments of the 17 prior
CNL Income Funds, all of which have invested or committed for investment
substantially all of their funds. See "Prior Performance of the General Partners
and Affiliates" for certain information regarding the status of the investment
program of CNL XVII.
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However, the General Partners or their Affiliates in the future may offer
interests in one or more private investor programs organized to purchase and
lease fast-food, family-style, and casual dining restaurants on a "triple-net"
basis. An Affiliate of the General Partners currently is purchasing restaurant
properties for a private investor program which has investment objectives that
are not similar to those of the Partnership, but that was organized to purchase
and lease, on a "triple-net" basis, fast-food, family- style, and casual dining
restaurant properties, as well as the furniture, fixtures and equipment located
at such properties and the initial capital required to commence operations at
such properties. Additionally, CNL American Properties Fund, Inc., a corporation
intended to qualify as a real estate investment trust, which is an Affiliate of
the General Partners, is currently offering shares to the public pursuant to a
separate prospectus in order to raise funds for the purchase of restaurant
properties similar to those intended to be purchased by the Partnership.
Further, Commercial Net Lease Realty, Inc., a real estate investment trust which
is an Affiliate of the General Partners, but which has investment objectives
which are not similar to those of the Partnership, owns certain restaurant
properties and may purchase in the future additional restaurant properties which
are similar to those intended to be purchased by the Partnership. Because each
of the Affiliates described above have either investment objectives which differ
from those of the Partnership, or structure which differs from that of the
Partnership and/or may purchase, on a leveraged basis, restaurant properties
similar to those intended to be purchased by the Partnership, the allocation of
future restaurant property acquisitions among such entities and the Partnership
will occur pursuant to Conflict Resolutions Procedure No. 6 set forth below.
6. The General Partners have agreed that in the event that a public or
private entity (other than the Partnership) with which the General Partners or
their Affiliates are affiliated intends to invest in restaurant properties
similar to the type intended to be purchased by the Partnership to be leased on
a "triple-net" basis to operators of national and regional fast-food,
family-style, and casual dining Restaurant Chains, and an investment opportunity
for such a restaurant property becomes available which is suitable for such
entity and the Partnership and for which both entities have sufficient
uninvested funds, then the entity which has had the longest period of time
elapse since it was offered an investment opportunity for such a restaurant
property will first be offered the investment opportunity. An investment
opportunity will not be considered suitable for a program if the provisions of
Item 5 above could not be satisfied if the program were to make the acquisition.
In determining whether or not an investment opportunity is suitable for more
than one program, the General Partners and their Affiliates will examine such
factors, among others, as the cash requirements of each program, the effect of
the acquisition both on diversification of each program's investments by types
of restaurants and geographic area, and on diversification of the lessees of its
properties (which also may affect the need for one of the programs to prepare or
produce audited financial statements for a property or a lessee), the
anticipated cash flow of each program, the size of the investment, the amount of
funds available to each program, and the length of time such funds have been
available for investment. If a subsequent development, such as a delay in the
closing of a property or a delay in the construction of a property, causes any
such investment, in the opinion of the General Partners, to be more appropriate
for an entity other than the entity which committed to make the investment,
however, the General Partners have the right to cause an affiliated program to
make the investment.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
The General Partners are accountable to the Partnership as fiduciaries
and consequently must exercise good faith and integrity in handling Partnership
affairs. Under Florida law, each Limited Partner will have the right to bring an
action on behalf of the Partnership (a derivative action) to recover a judgment
in the Partnership's favor, including an action against a General Partner for
breach of his or its fiduciary duties. This right is available if the General
Partners who have authority to bring such an action have refused to bring the
action or if an effort to cause the General Partners to bring the action is not
likely to succeed. In addition, a breach of fiduciary duties by a General
Partner may give the Limited Partners the right to institute a class action on
behalf of themselves and other similarly situated Limited Partners or to seek
relief under federal or state securities laws.
By statute, a general partner of a Florida limited partnership has the
same liabilities to the partnership and the partners as a partner in a
partnership without limited partners. In any action alleging a breach of the
fiduciary duties of the General Partners to either the Limited Partners or the
Partnership, it therefore is not anticipated that the General Partners will be
able to assert as a defense the so-called "business judgment rule," which
creates a presumption that the actions of directors of corporations on behalf of
the corporation are reasonable. This is a rapidly developing and changing area
of the law, however, and Limited Partners who have questions concerning the
duties or defenses of the General Partners should consult with their counsel.
The Partnership Agreement provides that the General Partners, as well
as any of their Affiliates (including certain officers and directors of the
corporate General Partner or any of the Affiliates of the General Partners) who
performs services for the Partnership within the scope of the General Partners'
authority, will not be liable to the Partnership or the Limited Partners for any
act or omission performed or omitted by them in good faith, but only for
misconduct, negligence, or breach of fiduciary duty to the Limited Partners or
the Partnership. The Partnership Agreement also provides that such persons will
be indemnified by the Partnership for any loss, damage or expenses, including
attorneys' fees and costs payable by such persons, that they may incur in
connection with an action, suit, or proceeding to which the person is or was a
party by reason of the fact that such person was a General Partner or Affiliate
of a General Partner if the General Partners determined in good faith that the
course of conduct which caused the loss or damage was in the best interests of
the Partnership, except indemnification shall not be available for conduct that
constitutes misconduct, negligence, or breach of fiduciary duty to the Limited
Partners. Thus, the Limited Partners may have a more limited right of action
than would be the case absent such provision.
Notwithstanding the foregoing, however, the Partnership will not
indemnify a General Partner or Affiliate, or any person acting as a
broker-dealer, for any loss, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless the following
conditions are met: (i) there has been a successful adjudication on the merits
of each count involving an alleged securities law violation as to the particular
indemnitee, (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular indemnitee, or (iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
related costs should be made provided the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
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Commission and the position of the securities regulatory authorities of those
states in which the plaintiffs claim they were offered and sold Units as to
indemnification for violations of securities laws. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933, as amended, is contrary to public policy and
therefore unenforceable.
The Partnership Agreement also provides that the Partnership may make
advances to the General Partners and their Affiliates (including certain
officers and directors of the corporate General Partner or any of the Affiliates
of the General Partners) for legal expenses and costs incurred as a result of
legal action if (i) the legal action relates to the performance of duties or
services on behalf of the Partnership, (ii) the action is not initiated by a
Limited Partner, or (if the action is initiated by a Limited Partner) a court of
competent jurisdiction specifically approves such advance, and (iii) the General
Partners or their Affiliates agree to repay such advance, together with interest
at the rate of prime plus one percent, to the Partnership if they are determined
not to be entitled to indemnification by the Partnership.
Indemnification will be payable only from insurance policies which
insure the General Partners against some or all of such losses, damages, and
expenses (not currently including federal securities laws claims), and to the
extent not covered by insurance policies, from Partnership assets.
Indemnification will not be payable from personal assets of the Limited
Partners.
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN
The Partnership has adopted the Distribution Reinvestment Plan pursuant
to which Limited Partners who purchase Units in the initial Offering may elect
to have the full amount of their cash distributions from the Partnership
reinvested in additional Units of the Partnership. California residents and
Limited Partners who elect to receive monthly distributions, which will be paid
in arrears, may not participate in the Distribution Reinvestment Plan. Neither
the General Partners nor their Affiliates will sell any Units held by them as
Limited Partners pursuant to the provisions of the Distribution Reinvestment
Plan. In addition, certain Soliciting Dealers may not offer their clients the
opportunity to participate in the Distribution Reinvestment Plan. Each
prospective investor who wishes to participate in the Distribution Reinvestment
Plan should consult with the investor's Soliciting Dealer as to the Soliciting
Dealer's position regarding participation in the Distribution Reinvestment Plan.
Persons not purchasing Units in the initial Offering who want to participate in
the Distribution Reinvestment Plan must receive a separate prospectus relating
solely to the Distribution Reinvestment Plan. The following discussion
summarizes the principal terms of the Distribution Reinvestment Plan. The
Distribution Reinvestment Plan is attached hereto as Exhibit D.
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Escrow and Transfer Agency, Inc., will act on behalf of the participants in the
Distribution Reinvestment Plan (the "Participants"). Prior to the time that the
Offering terminates, the Distribution Reinvestment Agent will invest all cash
distributions attributable to Units owned by Participants in Units of the
Partnership at the public offering price per Unit, or $10.00 per Unit. Until the
Offering has terminated, Participants will be charged Selling Commissions on
Units purchased for their accounts on the same basis as other investors
purchasing in the Offering. See "The Offering--Plan of Distribution."
Accordingly, the Partnership will pay the Managing Dealer, which is an affiliate
of the General Partners, Selling Commissions of 8.5% (subject to reduction under
the circumstances provided under "The Offering--Plan of Distribution") and a due
diligence fee of 0.5%. CNL Fund Advisors, Inc., which is an affiliate of the
General Partners, will receive Acquisition Fees of 4.5% of the purchase price of
the Units sold pursuant to the Distribution Reinvestment Plan until the
termination of the Offering. Affiliates of the General Partners will receive
between 5% and 13.5% of the Gross Proceeds as fees (depending on the portion of
the Selling Commissions and the due diligence expense reimbursement fee
reallowed to Soliciting Dealers) and a maximum of 3% of the Gross Proceeds as
reimbursement of Organizational and Offering Expenses and 0.5% in Acquisition
Expenses that they incur on behalf of the Partnership in connection with the
Offering. No additional fees will be charged with respect to Units purchased
under the Distribution Reinvestment Plan other than those paid with respect to a
purchase of Units in the Offering, except for the nominal administrative charge
to each Participant of the lesser of $2.50 or 5%, with a minimum charge of
$0.50, of the reinvestment amount per quarter. All Units available for purchase
under the Distribution Reinvestment Plan either are registered pursuant to this
Prospectus or, if necessary, will be registered under the Securities Act of
1933, as amended, through a separate prospectus relating solely to the
Distribution Reinvestment Plan. After the Offering has terminated, the
Reinvestment Agent will reinvest the distributions in Units of the Partnership
purchased from Limited Partners to the extent Units are available for purchase
and subject, in all cases, to the General Partners' good faith judgment that
such purchases will not cause the Partnership to be considered a "publicly
traded partnership" under the Code. See "Federal Income Tax
Considerations--Publicly Traded Partnerships." Selling Commissions will not be
paid on Units purchased pursuant to the Distribution Reinvestment Plan after the
Offering has terminated.
Outstanding Units will be purchased from Limited Partners at a price
that is competitive with prevailing market prices and on such other terms as the
Reinvestment Agent shall determine. It is not anticipated that there will be a
market for the Units. See "Risk Factors--Investment Risks--Lack of Market for
Units." Accordingly, in determining the "market price" of the Units for this
purpose, it is expected that the purchase price for Units purchased from Limited
Partners will be determined by reference to the following factors, as well as
any others deemed relevant or appropriate by the Reinvestment Agent: (i) the
price at which Units have been purchased from Limited Partners, either pursuant
to the Distribution Reinvestment Plan or outside of the Distribution
Reinvestment Plan (to the extent the Partnership has information regarding the
prices paid for Units purchased outside the Distribution Reinvestment Plan),
(ii) the annual statement of Unit valuation provided to certain Limited Partners
(see "Reports to Limited Partners"), and (iii) the price at which Limited
Partners are willing to sell their Units. Units purchased during any particular
period of time therefore may be purchased at varying prices.
26
<PAGE>
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly
following the payment date with respect to such distributions, to purchase Units
on behalf of the Participants from the Partnership (prior to the time that all
Units of the Partnership are sold) or from Limited Partners who wish to sell
their Units (after such time) to the extent such Units are available. If
sufficient Units are not available, the distributions will be held in one or
more interest-bearing accounts until Units are available for purchase. Any such
funds that have not been invested in Units within 30 days after receipt by the
Reinvestment Agent and, in any event, by the end of the fiscal quarter in which
they are received, will be paid to the Participants, however. The interest
earned on such accounts will be paid to the Partnership to the extent necessary
to pay for any administrative expenses relating to the costs of the Plan and any
excess remaining thereafter shall be distributed, in its entirety, to the
General Partners.
At this time, Participants will not have the option to make voluntary
contributions to the Distribution Reinvestment Plan to purchase Units in excess
of the amount of Units that can be purchased with their cash distributions. The
General Partners reserve the right, however, to amend the Distribution
Reinvestment Plan in the future to permit voluntary contributions to the
Distribution Reinvestment Plan by Participants.
PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF UNITS
For each Participant, the Reinvestment Agent will maintain an account
which shall reflect for each fiscal quarter the distributions received by the
Reinvestment Agent on behalf of such Participant. A Participant's account shall
be reduced as purchases of Units are made on behalf of such Participant. At the
end of each fiscal quarter, the Reinvestment Agent shall disburse to each
Participant an amount equal to the balance in such Participant's account. The
Partnership shall be responsible for all administrative charges and expenses
charged by the Reinvestment Agent. Any interest earned on such accounts will be
paid to the Partnership to defray certain costs relating to the Distribution
Reinvestment Plan and any excess will be distributed to the General Partners.
The administrative charge to each Participant for each fiscal quarter will be
the lesser of 5% of the amount reinvested for the Participant or $2.50, with a
minimum charge of $0.50. The maximum annual charge is $10.00.
Each Participant during a fiscal quarter will acquire and own a pro
rata portion of each Unit acquired pursuant to the Distribution Reinvestment
Plan during such quarter, based on the amount in the Participant's account at
the time the Unit is acquired. The ownership of the Units shall be reflected on
the books of the Partnership and in each Partner's Capital Account. Subject to
the provisions in Article Fourteen of the Partnership Agreement relating to
certain restrictions on and the effective dates of transfer, Units acquired
pursuant to the Distribution Reinvestment Plan will entitle the Participant to
the same rights and be treated in the same manner as those purchased by the
Participants in the Offering.
The allocation of Units among Participants may result in the ownership
of fractional Units, computed to four decimal places.
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the distributions received during the quarter, the number of
Units purchased during the quarter, the per Unit purchase price for such Units,
the total administrative charge to each Participant (see "Participant Accounts,
Fees, and Allocation of Units" above), and the total Units purchased on behalf
of the Participant pursuant to the Reinvestment Plan.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Limited Partners of the Partnership may become Participants in the
Distribution Reinvestment Plan by making a written election to participate on
their Subscription Agreements at the time they subscribe for Units. No Limited
Partner, however, who is a resident of the State of California is eligible to
become a Participant in the Distribution Reinvestment Plan. Any other Limited
Partner who has not previously elected to participate in the Distribution
Reinvestment Plan may so elect at any time by written notice to the General
Partners of such Limited Partner's desire to participate in the Distribution
Reinvestment Plan. Participation in the Distribution Reinvestment Plan will
commence with the next distribution payable after receipt of the Participant's
notice, provided it is received at least ten days prior to the last day of the
fiscal quarter to which such distribution relates. Subject to the preceding
sentence, the election to participate in the Distribution Reinvestment Plan,
whether made upon subscription or subsequently, will apply to all distributions
attributable to the fiscal quarter in which the Limited Partner made such
written election to participate in the Distribution Reinvestment Plan and to all
fiscal quarters thereafter. Participants will be able to terminate their
participation in the Distribution Reinvestment Plan at any time without penalty
by delivering ten days' written notice to the General Partners.
The General Partners reserve the right to prohibit Qualified Plans from
participating in the Distribution Reinvestment Plan if such participation would
cause the underlying assets of the Partnership to constitute "plan assets" of
Qualified Plans. See "The Offering--Investment by Qualified Plans and Individual
Retirement Accounts."
FEDERAL INCOME TAX CONSIDERATIONS
Taxable Limited Partners who elect to participate in the Distribution
Reinvestment Plan may incur a tax liability for Partnership income and gain
allocated to them even though they have elected not to receive their
distributions in cash but rather to have their distributions held pursuant to
the Distribution Reinvestment Plan. For a discussion of the federal income tax
consequences of participation in the Distribution Reinvestment Plan, see
"Federal Income Tax Considerations--Distribution Reinvestment Plan."
27
<PAGE>
AMENDMENTS AND TERMINATION
The Partnership reserves the right to amend any aspect of the
Distribution Reinvestment Plan, provided that notice of the amendment is sent to
Participants at least 30 days prior to the effective date thereof. The
Partnership also reserves the right to terminate the Distribution Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.
CAPITALIZATION
The capitalization of the Partnership, assuming the sale of 3,500,000
Units of the Partnership in the aggregate (after deduction of $4,025,000 for
Selling Commissions, due diligence expense reimbursement fee, and estimated
Organizational and Offering Expenses), is set forth below.
Maximum
3,500,000
Units
General Partners' Capital Contributions ....................$ 1,000
Limited Partnership Units ($10.00 per Unit) ................30,975,000
------------
Total ............................................$30,976,000
BUSINESS
GENERAL
The Partnership intends to purchase existing fast-food, family-style,
and casual dining restaurant Properties, including land and buildings, as well
as Properties upon which such restaurants are to be constructed, the land
underlying the restaurant building, with the building owned by the lessee or a
third party, and the building only with the land owned by a third party. The
Properties, which typically will be freestanding and will be located across the
United States, will be leased on a "triple-net" basis to creditworthy operators
of certain national and regional fast-food, family-style, and casual dining
Restaurant Chains to be selected by the General Partners. Properties purchased
by the Partnership are expected to be leased under arrangements requiring base
annual rent equal to a specified percentage of the Partnership's cost of
purchasing a particular Property, with automatic rent increases, as well as
percentage rent based on gross sales. See "Description of Leases--Computation of
Lease Payments" below.
It is expected that the Partnership will invest in Properties of
selected Restaurant Chains that are national and regional restaurant chains,
primarily fast-food, family-style, and casual dining chains. Fast-food
restaurants feature quality food and quick service, which often includes
drive-through service, and offer a variety of menu items such as hamburgers,
steaks, seafood, chili, pizza, pasta dishes, chicken, hot and cold sandwiches,
and salads. Family-style restaurants feature services that generally are
associated with full-service restaurants, such as full table service,
cooked-to-order foods, but at more moderate prices and three meal a day service.
The casual-dining segment features a variety of popular contemporary foods, full
table service, moderate prices, and surroundings that are appealing to families.
The casual-dining segment of the restaurant industry, like the family-style
segment, features services that generally are associated with the full-service
restaurant category. According to forecasts appearing in the January 1, 1996
issue of Restaurants and Institutions, it is projected that the casual dining
segment of full-service restaurant sales will experience 4.1% real growth in
sales this year, with sales predicted to reach $46 billion. The top 15 casual
dining chains have a total of 4,539 restaurants throughout the United States.
The restaurant industry is one of the largest industries in the United
States in volume of sales and number of employees (approximately 9 million
persons) and includes fast-food outlets, cafeterias, lunchrooms, convenience
stores, family-style restaurants, full-service restaurants, and contract and
industrial feeders. By the year 2000, food service sales are expected to exceed
$392 billion. Industry publications project that restaurant industry sales will
increase from $173.7 billion in 1985 to $313 billion in 1996. Restaurant
industry sales for 1995 are projected to be $298 billion. In 1995, nominal
growth, which is comprised of real growth and inflationary growth, was 5.2% and
is estimated to be 5.0% in 1996. Real growth of the restaurant industry in 1995
was 2.3%, and industry analysts currently estimate that the restaurant industry
will achieve 2.4% real growth in 1996; however, according to the National
Restaurant Association, fast-food restaurants should outpace the industry
average for real growth, with a projected 4.2% increase over 1995. Sales in this
segment of the restaurant industry are projected to be $100.2 billion for 1996.
The Partnership will invest in the fast-food, family-style, and casual
dining segments of the restaurant industry, the most rapidly growing segments in
recent years. According to the National Restaurant Association, 51% of adults
eat at a quick-service restaurant and 42% of adults patronize a
moderately-priced family restaurant at least once each week. In addition, the
National Restaurant Association indicates that Americans spend approximately 44
cents of every food dollar on dining away from home. Surveys published in
Restaurant Business indicate that families with children choose quick-service
restaurants four out of every five times they dine out. Additionally, according
to The Wall Street Journal (May 11, 1992) the average American spends $19,791 on
fast-food in a lifetime. Further, according to Nation's Restaurant News, the 100
largest restaurant chains are posting an average of 7.2% growth in their
systemwide sales figures for 1995. Casual-theme dining concepts are among the
chains showing the strongest growth. In 1995, the sandwich segment experienced
sales growth of 6.98% over 1994 figures, and, the casual dining segment
experienced systemwide sales growth of 12.99% in 1995. The General Partners
believe that these growth trends will continue, particularly in the fast-food,
family-style, and casual dining segments of the industry, and the Partnership
28
<PAGE>
will have the opportunity to participate in these segments through the ownership
of Properties leased to operators of fast-food, family-style, and casual dining
Restaurant Chains.
The fast-food, family-style, and casual dining segments of the
restaurant industry have demonstrated their ability to adapt to changes in
consumer preferences, such as health and dietary issues, decreases in the
disposable income of consumers, and environmental awareness, through various
innovative techniques, including special value pricing and promotions, increased
advertising, menu changes featuring low-calorie, low-cholesterol menu items, and
new packaging and energy conservation techniques.
The table set forth below provides information with respect to
Restaurant Chains in which Affiliates of the General Partners (consisting of a
listed public REIT, an unlisted public REIT, 17 public partnerships and 7
private partnerships) have invested, as of September 30, 1996:
<TABLE>
<CAPTION>
Approximate Aggregate
Dollars Invested Percentage of Number of
Restaurant Chain by Affiliates Dollars Invested Prior Programs
<S> <C>
Golden Corral $119,305,000 16.8% 25
Burger King 96,468,000 13.6% 24
Denny's 90,327,000 12.7% 20
Jack in the Box 67,501,000 9.5% 14
Hardee's 58,599,000 8.2% 13
Shoney's 33,517,000 4.7% 12
Long John Silver's 32,029,000 4.5% 6
Wendy's 28,705,000 4.0% 15
TGI Friday's 21,508,000 3.0% 8
Checkers 21,263,000 3.0% 7
Perkins 16,311,000 2.3% 9
Boston Market 14,501,000 2.0% 3
Pizza Hut 13,916,000 2.0% 8
KFC 13,642,000 1.9% 10
Popeyes 9,990,000 1.4% 8
Taco Bell 6,428,000 0.9% 5
Kenny Rogers Roasters 4,065,000 0.6% 4
Arby's 3,997,000 0.6% 3
Ponderosa 3,210,000 0.5% 3
</TABLE>
The General Partners intend to structure the Partnership's investments
to allow it to participate, to the maximum extent possible, in any sales growth
in these industry segments, as reflected in the Properties that it owns. The
Partnership therefore intends to structure all of its leases with percentage
rent requirements which are based on gross sales of the particular restaurant.
Gross sales may increase even absent real growth because increases in the
restaurant's costs are passed on to the consumers through increased prices, and
increased prices are reflected in gross sales. In an effort to provide regular
cash flow to the Partnership, the Partnership's leases also will provide a
minimum level of rent that is payable regardless of the amount of gross sales at
a particular Property. The Partnership also will endeavor to maximize growth and
minimize risks associated with ownership and leasing of real estate that
operates in these industry segments through careful selection and screening of
its lessees (as described in "Standards for Investment" below) in order to
reduce risks of tenant default; monitoring statistics relating to restaurant
chains and continuing to develop relationships in the industry; and acquisition
of Properties for all cash, with no debt or liens relating to the Properties, in
order to reduce certain risks associated with investment in real estate. See
"Standards for Investment" below for a description of the standards which the
General Partners will employ in selecting Restaurant Chains and particular
restaurant Properties within a Restaurant Chain for investment.
The General Partners expect to acquire Properties in part with a view
to diversification among Restaurant Chains and the geographic location of the
Properties. There are no restrictions on the geographic area or areas within the
United States in which Properties acquired by the Partnership may be located. It
is anticipated that, as in the prior public programs sponsored by the General
Partners (which have invested in fast-food, family-style, and casual dining
restaurant properties located in the District of Columbia and an aggregate of 43
states in all regions of the United States), the Properties acquired by the
Partnership will be located in various states and regions within the United
States. As of the date of this Prospectus, the Partnership had not entered into
any arrangements that create a reasonable probability that the Partnership will
purchase any Property, nor had any restaurant Properties definitively been
selected for acquisition by the Partnership.
While the Partnership may acquire both Fee Properties and Leasehold
Properties, the General Partners anticipate that substantially all of the
Properties acquired by the Partnership will be Fee Properties.
The General Partners believe that freestanding, "triple-net" leased
restaurant properties of the type in which the Partnership will invest are
attractive to tenants because freestanding properties typically offer high
visibility to passing traffic, ease of access from a busy thoroughfare, tenant
control over the site to set hours of operation and maintenance standards and
distinctive building designs conducive to customer name recognition.
The General Partners have undertaken to supplement this Prospectus
during the Offering period to disclose the acquisition of Properties at such
time as the General Partners believe that a reasonable probability exists that
<PAGE>
29
any such Property will be acquired by the Partnership. Based upon the General
Partners' experience and acquisition methods, this normally will occur as of the
date on which (i) a commitment letter is executed by a proposed lessee, (ii) a
satisfactory credit underwriting for the proposed lessee has been completed, and
(iii) a satisfactory site inspection has been completed. The initial disclosure
of any proposed acquisition, however, cannot be relied upon as an assurance that
the Partnership ultimately will consummate such proposed acquisition or that the
information provided concerning the proposed acquisition will not change between
the date of such supplement and the actual purchase.
It is estimated that the Partnership will purchase approximately 32
Properties, assuming that 3,500,000 Units of the Partnership are sold, based on
an estimated average purchase price of $900,000 per Property. The General
Partners have estimated the average purchase price based on their past
experience in acquiring similar properties and in light of current market
conditions. Generally, acquisition of a restaurant Property involves an
investment in land and building of approximately $400,000 to $1,500,000,
although higher or lower figures for individual Properties are possible. If
500,000 Units are sold ($5,000,000 in Gross Proceeds), the Partnership will be
able to purchase approximately four Properties. In certain cases, the
Partnership may become a co-venturer or general partner in a Joint Venture or
general partnership that will own the Property. In each such case, the
Partnership's cost to purchase an interest in such Property will be less than
the total purchase price and the Partnership therefore will be able to acquire
interests in a greater number of Properties. In cases where the Partnership
acquires both land and building, the General Partners estimate that
approximately 30% to 50% of the Partnership's investment in a Property generally
will be for the cost of land, and 50% to 70% generally will be for the cost of
the building. See "Joint Venture Arrangements" below and "Risk
Factors--Investment Risks--Possible Lack of Diversification."
SITE SELECTION AND ACQUISITION OF PROPERTIES
General. It is anticipated that the Restaurant Chains selected by the
General Partners will have full-time staffs engaged in site selection and
evaluation. All new sites must be approved by the Restaurant Chains. The
Restaurant Chains generally conduct or require the submission of studies which
typically include such factors as traffic patterns, population trends,
commercial and industrial development, office and institutional development,
residential development, per capita or household median income, per capita or
household median age, and other factors. The Restaurant Chains also will review
and approve all proposed lessees and restaurant sites. The Restaurant Chains or
the operators are expected to make their site evaluations and analyses, as well
as financial information regarding proposed lessees, available to CNL Fund
Advisors, Inc.
The Partnership will elect to purchase and lease Properties based
principally on an examination and evaluation by CNL Fund Advisors, Inc. of the
potential value of the site, the financial condition and business history of the
proposed lessee, the demographics of the area in which the restaurant Property
is located or to be located, the proposed purchase price and proposed lease
terms, geographic and market diversification, and potential sales expected to be
generated by the restaurant. In addition, the potential lessee must meet at
least the minimum standards established by a Restaurant Chain for its operators.
CNL Fund Advisors, Inc. also performs an independent break-even analysis of the
potential profitability of a restaurant property using historical data and other
data developed by CNL Fund Advisors, Inc. and provided by the Restaurant Chains.
Although the Restaurant Chains that are selected by the General
Partners will have approved each lessee and each Property, CNL Fund Advisors,
Inc. will exercise its own judgment as to, and will be solely responsible for,
the ultimate selection of both lessees and Properties. Therefore, some of the
properties approved by a Restaurant Chain may not be purchased by the
Partnership.
In each Property acquisition, it is anticipated that CNL Fund Advisors,
Inc. will negotiate the land and building lease agreement with the lessee. In
certain instances, CNL Fund Advisors, Inc. may negotiate an assignment of an
existing lease, in which case the terms of the lease may vary substantially from
the Partnership's standard lease terms, if the General Partners, based on the
recommendation of CNL Fund Advisors, Inc., determine that the terms of an
acquisition and lease of a Property, taken as a whole, are favorable to the
Partnership. It is expected that the structure of the long-term "triple- net"
lease agreements, which provide for monthly rental payments plus a percentage of
gross sales, will increase the value of the land and buildings and provide an
inflation hedge. See "Description of Leases" below for a discussion of the
anticipated terms of the Partnership's leases. In connection with a Property
acquisition, it also is anticipated that a lessee will provide at its own
expense all furniture, fixtures, and equipment (such as deep fryers, grills,
refrigerators, and freezers) necessary to operate the Partnership's Property as
a restaurant. A lessee either pays cash or obtains a loan from a third party to
purchase such items. If the lessee obtains such a loan, the lessee will own this
personal property subject to the lessee's obligations under its loan. In the
experience of the General Partners, there may be rare circumstances in which a
lessee defaults under such a loan, in which event the lender may attempt to
remove the personal property from the building, resulting in the Property
becoming inoperable as a restaurant until new furniture, fixtures, and/or
equipment can be purchased and installed. In order to prevent repossession of
this personal property by the lender, and only on an interim basis in order to
preserve the value of a Property, the General Partners may elect to use
Partnership reserves to purchase the personal property from the lender,
generally at a discount from the remaining unpaid balance under the lessee's
loan. The Partnership then would expect to resell the personal property to a new
lessee in connection with the transfer of the lease to that lessee.
Some lease agreements will be negotiated to provide the lessee with the
opportunity to purchase the Property under certain conditions, generally either
at the greater of fair market value or 120% of the original purchase price. In
addition, tenants will be offered a right of first refusal to purchase the
Property in the event an offer is received from a third party to purchase the
Property and the General Partners intend to accept such offer. Certain leases
may provide the lessee with the right to purchase the Property at a purchase
price which looks to various measures of value contained in an independent
appraisal of the Property. See "Sale of Properties" below and "Federal Income
Tax Considerations--Characterization of Leases."
The purchase of each Fee Property will be supported by an appraisal of
the real estate prepared by an independent appraiser. CNL Fund Advisors, Inc.,
however, will rely on its own independent analysis and not on such appraisals in
determining whether or not to acquire a particular Property. The purchase price
of each such Property, plus any Acquisition Fees paid by the Partnership in
connection with such purchase, will not exceed the Property's appraised value.
30
<PAGE>
(In connection with the acquisition of a Property which is to be constructed or
renovated, the comparison of the purchase price and the appraised value of such
Property ordinarily will be based on the "when constructed" price and value of
such Property.) It should be noted that appraisals are estimates of value and
should not be relied upon as measures of true worth or realizable value. Each
appraisal will be maintained in the Partnership's records for at least five
years and will be available for inspection and duplication by any Partner.
The titles to Properties purchased by the Partnership will be insured
by appropriate title insurance policies and/or abstract opinions consistent with
normal practices in the jurisdictions in which the Properties are located.
Construction and Renovation. In some cases, construction or renovation
will be required after the purchase contract has been entered into, but before
the total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated, the Partnership generally
will enter into a development agreement with the lessee pursuant to which the
Partnership will advance funds to the lessee to meet construction or renovation
costs as they are incurred. The lessee will act as the project developer, will
enter into all construction contracts, and will arrange for and coordinate all
aspects of the construction or renovation of the restaurant improvements. The
lessee will be responsible for the construction or renovation of the restaurant
improvements, although it may employ co-developers or sub-agents in fulfilling
its responsibilities under the development agreement. Generally, all general
contractors performing work in connection with such restaurant improvements must
provide a payment and performance bond or other satisfactory form of guarantee
of performance. All construction and renovation will be performed or supervised
by persons or entities acceptable to the General Partners. The Partnership will
be obligated to make, as construction or renovation costs are incurred, the
remaining payments due as part of the purchase price for the Properties,
provided that the construction or renovation conforms to definitive plans,
specifications, and costs approved by the General Partners and embodied in the
construction contract.
Under the terms of the development agreement, the Partnership generally
will advance its funds on a monthly basis to meet construction draw requests of
the lessee. The Partnership, in general, only will advance its funds to meet the
lessee's draw requests upon receipt of an inspection report and a certification
of draw requests from an inspecting architect or engineer suitable to the
Partnership, and the Partnership may retain a portion of any advance until
satisfactory completion of the project. The certification must be supported by
color photographs showing the construction work completed as of the date of
inspection. The total amount of the funds advanced to the lessee (including the
purchase price of the land plus closing costs and certain other costs) generally
will not exceed the maximum amount specified in the development agreement. Such
maximum amount will be based on the Partnership's estimate of the costs of such
construction or renovation. Initially, the calculation of minimum annual rent
will be based on such estimated amount; however, once the actual cost is known,
the minimum annual rent will be increased or reduced accordingly and the
Partnership or the lessee, as the case may be, will promptly refund or remit to
the other an amount equal to any excess rent paid or any underpayment of rent
due.
In certain cases in which the Partnership intends to purchase a
Property upon completion of construction or renovation of that Property, the
Partnership may permit the proposed lessee to arrange for a bank or another
lender to provide construction financing to the lessee. In such cases, the
lender may seek assurance from the Partnership that it has sufficient funds to
pay to the lessee the full purchase price of the Property upon completion of the
construction or renovation. In the event that the Partnership segregates funds
as assurance to the lender of its ability to purchase the Property, the funds
will remain the property of the Partnership, and the lender will have no rights
with respect to such funds upon any default by the lessee under the development
agreement or under the loan agreement with such lender, or if the closing of the
purchase of the Property by the Partnership does not occur for any reason.
Under the development agreement, the lessee generally will be obligated
to complete the construction or renovation of the restaurant improvements within
120 to 180 days from the date of the development agreement. If the construction
or renovation is not completed within that time and the lessee fails to remedy
this default within 10 days after notice from the Partnership, the Partnership
will have the option to grant the lessee additional time to complete the
construction, to take over construction or renovation of the restaurant
improvements, or to terminate the development agreement and require the lessee
to purchase the Property at a price equal to the sum of (i) the Partnership's
purchase price of the land, including all fees, costs, and expenses paid by the
Partnership in connection with its purchase of the land, (ii) all fees, costs,
and expenses disbursed by the Partnership pursuant to the development agreement
for construction of the restaurant improvements, and (iii) the Partnership's
"construction financing costs." The "construction financing costs" of the
Partnership is an amount equal to a return, at the annual percentage rate used
in calculating the minimum annual rent under the lease, on all Partnership
payments and disbursements described in clauses (i) and (ii) above.
The Partnership also generally will enter into an indemnification and
put agreement (the "Indemnity Agreement") with the lessee and any guarantor of
the obligations of the lessee under the lease in connection with the acquisition
of Properties to be constructed or renovated. The Indemnity Agreement will
provide for certain additional rights to the Partnership unless certain
conditions are met. In general, these conditions are (i) the lessee's
acquisition of all permits, approvals, and consents necessary to permit
commencement of construction or renovation of the restaurant within a specified
period of time after the date of the Indemnity Agreement (normally, 60 days), or
(ii) the completion of construction or renovation of the restaurant as evidenced
by the issuance of a certificate of occupancy, within a specified period of time
(generally, 120 to 150 days) after the date of the Indemnity Agreement. If such
conditions are not met, the Partnership will have the right to grant the lessee
additional time to satisfy the conditions or to require the lessee to purchase
the Property from the Partnership at a purchase price equal to the total amount
disbursed by the Partnership in connection with the acquisition and construction
or renovation of the Property (including closing costs), plus an amount equal to
the return described in item (iii) of the preceding paragraph. Failure of the
lessee to purchase the Property from the Partnership upon demand by the
Partnership under the circumstances specified above will entitle the Partnership
to declare the lessee in default under the lease and to declare each guarantor
in default under any guarantee of the lessee's obligations to the Partnership.
In general, if the Partnership acquires Properties which are to be
constructed or renovated, payment by the lessee of all amounts due to the
Partnership and performance by the lessee under the lease, the development
agreement, and the related documents will be guaranteed unconditionally by
individuals with substantial net worth on behalf of the lessee.
31
<PAGE>
In certain situations where construction or renovation is required for
a restaurant Property, the Partnership will pay a negotiated maximum amount upon
completion of construction or renovation rather than providing financing to the
lessee, with such amount to be based on the lessee's actual costs of such
construction or renovation.
In all situations where construction or renovation of a restaurant
Property is required, the Partnership also will have the right to review the
lessee's books, records, and agreements during and following completion of
construction to verify actual costs.
Interim Acquisitions. The General Partners and their Affiliates
regularly have opportunities to acquire restaurant properties of a type suitable
for acquisition by the Partnership as a result of their existing relationships
and past experience with various fast-food, family-style, and casual dining
Restaurant Chains and restaurant operators. See "General" above. These
acquisitions often must be made within a relatively short period of time,
occasionally at a time when the Partnership may be unable to make the
acquisition. In an effort to address these situations and preserve the
acquisition opportunities of the Partnership (and other entities with which the
General Partners are affiliated), the General Partners or their Affiliates
maintain lines of credit which enable them to acquire these restaurant
properties on an interim basis and temporarily own them for the purpose of
facilitating their acquisition by the ultimate owner. At such time as a Property
acquired on an interim basis is determined to be suitable for acquisition by the
Partnership, the interim owner of the Property will sell its interest in the
Property to the Partnership at a price no greater than its cost (including
carrying costs) to purchase such interest in the Property, provided, however,
that the Property must be purchased by the Partnership within 12 months from the
date it was acquired by the interim owner. In the case of any such acquisition
by the Partnership, all income, expenses, profits, and losses generated by or
associated with the Properties so acquired shall be treated as belonging to the
Partnership from the date of acquisition of such Properties by the General
Partners or their Affiliates.
Acquisition Services. Acquisition services performed by CNL Fund
Advisors, Inc. may include, but are not limited to, site selection and/or
approval; review and selection of lessees and negotiation of lease agreements
and related documents; monitoring Property acquisitions until completion of the
Partnership's acquisitions of Properties; and the processing of all final
documents and/or procedures to complete the acquisition of Properties and the
commencement of lessee occupancy and lease payments.
The Partnership will pay CNL Fund Advisors, Inc. an Acquisition Fee not
to exceed 4.5% of the aggregate Capital Contributions of the Limited Partners to
the Partnership. See "Management Compensation." The total of all Acquisition
Fees payable to all persons or entities will not exceed the compensation
customarily charged in arm's-length transactions by others rendering similar
services as an ongoing activity in the same geographical location and for
comparable property.
CNL Fund Advisors, Inc. engages counsel to perform legal services, and
such counsel also may provide legal services to the Partnership in connection
with the acquisition of Properties. The legal fees payable to such counsel by
the Partnership will not exceed those generally charged for similar services.
STANDARDS FOR INVESTMENT
Selection of Restaurant Chains. The selection of Restaurant Chains by
CNL Fund Advisors, Inc. and the General Partners will be based on an evaluation
of the operations of restaurants in the Restaurant Chain, the number of
restaurants operated throughout the Restaurant Chain's system, the relationship
of average restaurant gross sales to the average capital costs of a restaurant,
the Restaurant Chain's relative competitive position among the same type of
restaurants offering similar types of food, name recognition, and market
penetration. The Restaurant Chains will not be affiliated with the General
Partners, CNL Fund Advisors, Inc., or the Partnership. Prior partnerships or
joint ventures sponsored by one or more of the General Partners, however, have
owned one or more restaurant properties in certain of these Restaurant Chains.
Selection of Properties and Lessees. In making investments in
Properties, the General Partners and CNL Fund Advisors, Inc. will consider
relevant real property and financial factors, including the condition, use, and
location of the Property, income-producing capacity, the prospects for long-term
appreciation, the relative success of the Restaurant Chain in the geographic
area in which the Property is located, and the management capability and
financial condition of the lessee. The Partnership will obtain an independent
appraisal for each Property it purchases. In selecting lessees, the General
Partners and CNL Fund Advisors, Inc. will consider the prior experience of the
lessee in the restaurant industry, the net worth of the lessee, past operating
results of other restaurants currently or previously operated by the lessee, and
the lessee's prior experience in managing restaurants within a particular
Restaurant Chain.
In selecting specific Properties within a particular Restaurant Chain
and in selecting lessees for the Partnership's Properties, CNL Fund Advisors,
Inc. will apply the following minimum standards.
1. Each Property will be in what the General Partners believe is a
prime business location.
2. Base (or minimum) annual rent will provide a specified minimum
return on the Partnership's cost of purchasing and, if applicable, developing
the restaurant Property, and the lease typically also will provide for automatic
increases in base rent at specified times during the lease term and for payment
of percentage rent based on gross sales.
3. The initial lease term typically will be at least 15 to 20 years.
4. The Partnership will reserve the right to approve or reject any
lessee and restaurant site selected by a Restaurant Chain.
5. In evaluating prospective tenants, the Partnership will examine,
among other factors, the lessee's ranking in its market segment, trends in per
store sales, overall changes in consumer preferences, and the lessee's ability
to adapt to changes in market and competitive conditions, the lessee's
historical financial performance, and its current financial condition.
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6. In general, the Partnership will not acquire a Property, if, as a
result, more than 25% of its Gross Proceeds would be invested in Properties of a
single Restaurant Chain or if more than 30% of its Gross Proceeds would be
invested in Properties in a single state.
DESCRIPTION OF PROPERTIES
Although the General Partners have not yet selected any Properties for
investment, based on their past experience and knowledge of the fast-food,
family-style, and casual dining restaurant industry, it is expected that any
Properties purchased by the Partnership will conform generally to the following
specifications of size, cost, and type of land and buildings. These
specifications may vary substantially if the Partnership invests in any
full-service restaurant Properties.
Land. Lot sizes generally range from 25,000 to 65,000 square feet
depending upon building size and local demographic factors. Restaurants located
on land within shopping centers will be freestanding and may be located on
smaller parcels if sufficient common parking is available. Restaurant sites
purchased by the Partnership will be in locations zoned for commercial use which
have been reviewed for traffic patterns and volume of traffic. There is
substantial competition for quality sites; accordingly, land costs may be high
and are generally expected to range from $150,000 to $700,000, although the cost
of the land for particular Properties may be higher or lower in some cases.
Buildings. Either before or after construction or renovation, the
restaurant Properties to be acquired by the Partnership will be one of a
Restaurant Chain's approved designs. Prior to purchase of all restaurant
Properties other than those purchased prior to completion of construction, CNL
Fund Advisors, Inc. will receive a copy of the certificate of occupancy issued
by the local building inspector or other governmental authority which permits
the use of the Property as a restaurant, and shall receive a certificate from
the Restaurant Chain to the effect that (i) the Property is operational and (ii)
the Property and the lessee are in compliance with all of the Restaurant Chain's
requirements, including, but not limited to, building plans and specifications
approved by the Restaurant Chain. CNL Fund Advisors, Inc. also will receive a
certificate of occupancy for each restaurant for which construction has not been
completed at the time of purchase, prior to the Partnership's payment of the
final installment of the purchase price for the restaurant Property.
The restaurant buildings generally will be rectangular and constructed
from various combinations of stucco, steel, wood, brick, and tile. Building
sizes generally will range from 2,500 to 6,500 square feet, with the larger
restaurants having greater seating and equipment areas. Building and site
preparation costs vary depending upon the size of the building and the site and
the area in which the restaurant Property is located. It is estimated that
building and site preparation costs generally will range from $250,000 to
$800,000 for each restaurant Property.
Generally, Properties to be acquired will consist of both land and
building, although in a number of cases the Partnership may acquire only the
land underlying the restaurant building with the building owned by a tenant or a
third party, and also may acquire the building only with the land owned by a
third party. In general, the Properties to be acquired by the Partnership will
be freestanding and surrounded by paved parking areas. Buildings are suitable
for conversion to various uses, although modifications will be required prior to
use for other than restaurant operations.
A lessee generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish restaurant
buildings, premises, signs, and equipment so as to comply with the lessee's
obligations under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures will be paid by the
lessee during the term of the lease.
DESCRIPTION OF LEASES
The terms and conditions of any lease entered into by the Partnership
with regard to a restaurant Property may vary from those described below. CNL
Fund Advisors, Inc. in all cases will use its best efforts to obtain terms at
least as favorable as those described below. If the General Partners determine,
based on the recommendation of CNL Fund Advisors, Inc., that the terms of an
acquisition and lease of a Property, taken as a whole, are favorable to the
Partnership, they may, in their sole discretion, cause the Partnership to enter
into leases with terms which are substantially different than the terms
described below. In making such determination, the General Partners will
consider such factors as the type and location of the restaurant, the
creditworthiness of the lessee, the purchase price of the Property, the prior
performance of the lessee, and the prior business experience of the principals
of CNL Fund Advisors, Inc., its Affiliates, or the General Partners with a
Restaurant Chain or restaurant operator.
General. In general, the leases are expected to be "triple-net" leases,
which means that the lessees will be required to pay all repairs, maintenance,
property taxes, and insurance. The lessees also will be required to pay for
utilities and the cost of any renovations permitted under the leases. The
Partnership will be the lessor under each lease except in certain circumstances
in which it may be a party to a Joint Venture or Co-Tenancy Arrangement which
will own the Property. In those cases, the Joint Venture, rather than the
Partnership, will be the lessor, and all references in this section to the
Partnership as lessor therefore should be read accordingly. See "Joint
Venture/Co-Tenancy Arrangements" below.
Term of Leases. It presently is anticipated that restaurant Properties
will be leased on a "triple-net" basis for an initial term of either 15 or 20
years with up to four, five-year renewal options. The minimum rental payment
under the renewal option generally is expected to be greater than that due for
the final lease year of the initial term of the lease. Upon termination of the
lease, the lessee will surrender possession of the Property to the Partnership,
together with any improvements made to the Property during the term of the
lease.
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Computation of Lease Payments. During the initial term of the lease,
the lessee will pay the Partnership, as lessor, minimum annual rent equal to a
specified percentage of the Partnership's cost of purchasing the restaurant
Property. Generally, the leases provide for the escalation of the minimum annual
rent at predetermined intervals during the term of the lease. In the case of
acquisition of Properties that are to be constructed or renovated pursuant to a
development agreement, the Partnership's costs of purchasing the Property will
include the purchase price of the land, including all fees, costs, and expenses
paid by the Partnership in connection with its purchase of the land, and all
fees, costs, and expenses disbursed by the Partnership for construction of
restaurant improvements. See "Site Selection and Acquisition of
Properties--Construction and Renovation" above.
In addition to minimum annual rent, the lessee will pay the Partnership
"percentage rent." Percentage rent is computed as a percentage of the restaurant
gross sales at a particular Property. The leases generally will provide that
percentage rent will commence in the first lease year in which gross sales
exceed a specified amount. Certain leases, however, may provide that percentage
rent is to be paid quarterly beginning at the end of the first two years of the
lease and each succeeding quarter thereafter to the extent the restaurant gross
sales in that quarter exceed the average quarterly gross sales during the first
two lease years. Gross sales include sales of all products and services of the
restaurant, excluding sales taxes, tips paid to serving people, and sales from
vending machines.
Assignment and Sublease. In general, it is expected that no lease may
be assigned or subleased without the Partner- ship's prior written consent
(which may not be unreasonably withheld) except to a tenant's corporate
franchisor, corporate affiliate or subsidiary, a successor by merger or
acquisition, or, in certain cases, another franchisee, if such assignee or
sublessee agrees to operate the same type of restaurant on the premises. The
leases set forth certain factors (such as the financial condition of the
proposed lessee or subtenant) that are deemed to be a reasonable basis for the
Partnership's refusal to consent to an assignment or sublease. The original
lessee generally will remain fully liable, however, for the performance of all
lessee obligations under the lease following any such assignment or sublease
unless the Partnership agrees in writing to release the original lessee from its
lease obligations.
Alterations to Premises. A lessee generally will have the right,
without the prior consent of the Partnership and at the lessee's own expense, to
make certain immaterial structural modifications to the restaurant building and
improvements (with a cost of up to $10,000) or, with the Partnership's prior
written consent and at the lessee's own expense, to make material structural
modifications that may include demolishing and rebuilding the restaurant. Under
certain leases, the lessee, at its own expense, may make any type of alterations
to the leased premises without the Partnership's consent but must provide the
Partnership with plans of any proposed structural modifications at least 30 days
before construction of the alterations commences. Certain leases may require the
lessee to post a payment and performance bond for any structural alterations
with a cost in excess of a certain amount.
Right of Lessee to Purchase. It is anticipated that if the Partnership
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party, the lessee of that Property will have the right to purchase the Property
for the same price, and on the same terms and conditions, as contained in the
offer. In certain cases, the lessee also may have a right to purchase the
Property 7 to 20 years after commencement of the lease at a purchase price equal
to the greater of (i) the Property's appraised value at the time of the lessee's
purchase, or (ii) a specified amount, generally equal to the Partnership's
purchase price of the Property, plus a predetermined percentage (generally, 20%)
of such purchase price. Alternatively, a limited number of leases may provide
for a purchase option price which is computed pursuant to a formula that looks
to various measures of value contained in an independent appraisal of the
Property. The General Partners will negotiate only such formulae that they
expect will result in reasonable approximations of the fair market value of the
Property at the time the option is exercised. See "Federal Income Tax
Considerations--Characterization of Leases."
Substitution of Properties. Under certain leases, the lessee, at its
own expense, is entitled to operate another form of approved restaurant on the
Property as long as such approved restaurant has an operating history which
reflects an ability to generate gross sales and potential sales growth equal to
or greater than that experienced by the lessee in operating the original
restaurant.
In addition, the General Partners anticipate that certain leases will
provide the lessee with the right to offer the substitution of another national
or regional fast-food, family-style, or casual dining restaurant property
selected by the lessee in the event that (i) the Property that is the subject of
the lease is not producing percentage rent pursuant to the terms of the lease,
and (ii) the lessee determines that the Property has become uneconomic (other
than as a result of an insured casualty loss or condemnation) for the lessee's
continued use and occupancy in its business operation and the lessee's Board of
Directors has determined to close and discontinue use of the Property. The
lessee's determination that a Property has become uneconomic is to be made in
good faith based on the lessee's reasonable business judgment after comparing
the results of operations of the Property to the results of operations at the
majority of other properties then operated by the lessee. If either of these
events occurs, the lessee will have the right to offer the Partnership the
opportunity to exchange the Property for another national or regional fast-food,
family-style, or casual-dining restaurant property (the "Substituted Property")
with a total cost for land and improvements thereon (including overhead,
construction interest, and other related charges) equal to or greater than the
cost of the Property to the Partnership.
Generally, the Partnership will have 30 days following receipt of the
lessee's offer for exchange of the Property to accept or reject such offer. In
the event that the Partnership requests an appraisal of the Substituted
Property, it will have at least ten days following receipt of the appraisal to
accept or reject the offer. If the Partnership accepts such offer, (i) the
Substituted Property will be exchanged for the Property in a transaction
designed and intended to qualify as a "like-kind exchange" within the meaning of
section 1031 of the Code with respect to the Partnership and (ii) the lease of
the Property will be amended to (a) provide for minimum rent in an amount equal
to the sum determined by multiplying the cost of the Substituted Property by the
Property lease rate and (b) provide for the number of five-year lease renewal
options sufficient to permit the lessee, at its option, to continue its
occupancy of the Substituted Property for up to 35 years from the date on which
the exchange is made. The Partnership will pay the lessee the difference, if
any, between the cost of the Property and the cost of the Substituted Property.
If the substitution does not take place within a specified period of time after
the lessee makes the offer to exchange the Property for the Substituted
Property, either party thereafter will have the right not to proceed with the
substitution. If the Partnership rejects the Substituted Property offered by the
lessee, the lessee is required to offer at least three additional alternative
properties for the Partnership's acceptance or rejection. If the Partnership
rejects all Substituted Properties offered to it pursuant to the lease, or
otherwise fails or refuses to consummate a
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substitution for any reason other than the lessee's failure to fulfill the
conditions precedent to the exchange, then the lessee will be entitled to
terminate the lease on the date scheduled for such exchange by purchasing the
Property from the Partnership for a price equal to the cost of the Property to
the Partnership.
Neither the lessee nor any of its subsidiaries, licensees,
concessionaires, or sublicensees or any other affiliate will be permitted to use
the original Property as a restaurant of the same type and style for at least
one year after the closing of the original Property. In addition, in the event
the lessee or any of its affiliates sells the Property within twelve months
after the Partnership acquires the Substituted Property, the Partnership will
receive from the proceeds of the sale the amount by which the selling price
exceeds the cost of the Property to the Partnership.
The foregoing paragraphs provide the terms by which substituted
properties are requested by and provided to lessees of the Partnership's
Properties. However, such descriptions are for those leases generally entered
into between the Partnership and the lessees of the Partnership's Properties.
Variation to the foregoing terms will be provided in leases between the
Partnership and (i) Checker's Drive-in Restaurant ("Checker's") and (ii) Golden
Corral restaurant Properties.
In the event the Partnership acquires one or more Golden Corral
restaurant properties, the General Partners anticipate that the leases entered
into between the Partnership, as lessor, and Golden Corral Corporation, as
lessee, will provide that if a Golden Corral restaurant Property is not
producing percentage rent and the lessee determines, in good faith, that the
restaurant has become uneconomic and unsuitable the lessee may choose any one of
the following three alternatives: (i) to cancel the lease during the sixth,
seventh or eighth lease year upon 90 days prior written notice accompanied by a
cancellation fee equal to 30 times one month's minimum annual rent if canceled
in year six, or 24 times one month's minimum annual rent if canceled in years
seven or eight; (ii) to purchase the Property during the sixth, seventh, or
eighth lease year for a purchase price, net of closing costs, payable to the
Partnership equal to 120% of the purchase price paid by the Partnership for the
Property; or (iii) to substitute the Property for another Golden Corral
restaurant property at any time during the initial term of the lease on the same
terms as those described above for substitution of other restaurant properties.
In the event the Partnership acquires one or more Checker's Properties,
the General Partners anticipate that the leases entered into between the
Partnership, as lessor, and Checker's, as lessee, will provide that if a
Checker's restaurant Property is not adequate or profitable and the lessee
determines in its reasonable business discretion, exercising good faith, that
such restaurant Property is, in fact, inadequate or unprofitable, the tenant, at
any time, may provide written notice to the Partnership of its request for a
substitute property in which to operate a Checker's. The substitute property
shall be subject to the approval of the Partnership, which approval must not be
unreasonably withheld or delayed. The terms of the related lease for such
substitute property will be identical to the lease for the original Property.
The lessee is required to pay all costs associated with the closing on the
exchange of the original Property and the substitute property. If the
Partnership rejects all substitute properties submitted by lessee, then the
lessee may, at its option, provide written notice to the Partnership of its
intention to purchase the original Property. If so elected, the purchase price
shall be the greater of (i) the fair-market value of the original Property as of
the date of the lessee's written notice, as determined by an appraisal of the
property by an independent appraiser, or (ii) the initial cost of the Property
paid by the Partnership plus 20%. At no time will the Partnership be required to
offer the lessee an alternate site for a substitute property. However, as noted,
the Partnership may not reject any substitute properties presented to the
Partnership by the lessee unless such rejections are reasonable.
Special Conditions. Certain leases may provide that the Partnership
will not be permitted to own or operate, directly or indirectly, another
restaurant Property of the same or similar type as the leased Property that is
or will be located within a specified distance of the leased Property.
Insurance, Taxes, Maintenance, and Repairs. All of the leases are
expected to require that the lessee pay all taxes and assessments, maintenance,
repair, utility, and insurance costs applicable to the real estate and permanent
improvements.
Lessees will be required to maintain all Properties in good order and repair.
Lessees generally will be required, under the terms of the leases, to
maintain, for the benefit of the Partnership and the lessee, casualty insurance
in an amount not less than the full replacement value of the building and other
permanent improvements (or a percent of such value in the case of certain
leases, but in no case less than 90%), as well as liability insurance, generally
in an amount not less than $2,000,000 for each location and event. All lessees,
other than those lessees with a substantial net worth, generally also will be
required to obtain "rental value" or "business interruption" insurance to cover
losses due to the occurrence of an insured event for a specified period,
generally six to twelve months. In general, no lease will be entered into
unless, in the opinion of CNL Fund Advisors, Inc., the insurance required by the
lease adequately insures the Property.
The lessees generally will be required to maintain the Property and
repair any damage to the Property, except damage occurring during the last 24
months of the lease term (as extended), which in the opinion of the lessee
renders the Property unsuitable for occupancy, in which case the lessee will
have the right instead to pay the insurance proceeds to the Partnership and
terminate the lease.
The lessee generally will be required to repair the Property in the
event that less than a material portion of the Property (for example, more than
20% of the building or more than 40% of the land) is taken for public or
quasi-public use. The Partnership's leases generally will provide that, in the
event of any condemnation of the Property that does not give rise to an option
to terminate the lease or in the event of any condemnation which does give rise
to an option to terminate the lease and the lessee elects not to terminate, the
Partnership will remit to the lessee the award from such condemnation and the
lessee will be required to repair and restore the Property. To the extent that
the award exceeds the estimated costs of restoring or repairing the Property,
the lessee is required to deposit such excess amount with the Partnership. Until
a specified time (generally, ten days) after the lessee has restored the
premises and all improvements thereon to the same condition as existed
immediately prior to such condemnation insofar as is reasonably possible, a
"just and proportionate" amount of the minimum annual rent will be abated from
the date of such condemnation.
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In addition, the minimum annual rent will be reduced in proportion to the
reduction in the then rental value of the premises or the fair market value of
the premises after the condemnation in comparison with the rental value or fair
market value prior to such condemnation.
Events of Default. The leases generally are expected to provide that
the following events, among others, will constitute a default under the lease:
(i) the insolvency or bankruptcy of the lessee, provided that the lessee may
have the right, under certain circumstances, to cure such default, (ii) the
failure of the lessee to make timely payment of rent or other charges due and
payable under the lease, if such failure continues for a specified period of
time (generally, five to 30 days) after notice from the Partnership of such
failure, (iii) the failure of the lessee to comply with any of its other
obligations under the lease (for example, the discontinuance of operations of
the leased restaurant Property) if such failure continues for a specified period
of time (generally, ten to 45 days), (iv) a default under or termination of the
franchise agreement between the lessee and its franchisor, (v) in cases where
the Partnership enters into a development agreement relating to the construction
or renovation of a restaurant, a default under the development agreement or the
Indemnity Agreement or the failure to establish the minimum annual rent at the
end of the development period, and (vi) in cases where the Partnership has
entered into other leases with the same lessee, a default under such lease.
Upon default by the lessee, the Partnership will have the right under
the lease and under most state laws to evict the lessee, re-lease the Property
to others, and hold the lessee responsible for any deficiency in the minimum
lease payments. Similarly, if the Partnership determined not to re-lease the
Property, it could sell the Property. (Unless required to do so by the lease,
however, the Partnership does not intend to sell any Property prior to 7 to 12
years after the commencement of the lease on such Property. See "Right of Lessee
to Purchase" above.) In the event that a lease requires the lessee to make a
security deposit (which it is anticipated normally would be equal to two months'
base rent), the Partnership will have the right under the lease to apply the
security deposit, upon default by the lessee, towards any payments due from the
defaulting lessee. In general, the lessee will remain liable for all amounts due
under the lease to the extent not paid from a security deposit or by a new
lessee.
In the event that a lessee defaults under a lease with the Partnership,
the Partnership either will attempt to locate a replacement restaurant operator
acceptable to the Restaurant Chain involved or will discontinue operation of the
restaurant. In lieu of obtaining a replacement restaurant operator, some
Restaurant Chains may have the option and may elect to operate the restaurants
themselves. The Partnership will have no obligation to operate the restaurants,
and no Restaurant Chain will be obligated to permit the Partnership or a
replacement restaurant operator to operate the restaurants.
JOINT VENTURE/CO-TENANCY ARRANGEMENTS
The Partnership may enter into Joint Ventures or Co-Tenancy
Arrangements to own and operate a Property with various unaffiliated persons or
entities, either alone or together with another program formed by the General
Partners and whose securities have been offered to the public pursuant to a
registration statement filed under the Securities Act of 1933, as amended,
provided that the Partnership, alone or together with such affiliated program,
acquires a controlling equity interest in such Joint Venture or Co-Tenancy
property and possesses the power to direct or cause the direction of the
management and policies of such Joint Venture or Co-Tenancy property. In
addition, the Partnership may enter into Joint Ventures or Co-Tenancy
Arrangements with another program formed by the General Partners whose
securities are, or will be offered to the public pursuant to a registration
statement filed under the Securities Act of 1933, as amended, to purchase and
hold one or more Properties if all of the following conditions are met: (i) the
two programs have substantially identical investment objectives, (ii) there are
no duplicate management or other fees, (iii) compensation to the General
Partners and their Affiliates is substantially the same in each program, (iv)
each program has a right of first refusal to buy the Property, at the Property's
fair market value as determined by an independent appraisal, if the other
program has the right to sell the Property held under Co-Tenancy Arrangements or
in the Joint Venture, as the case may be, and (v) each program's investment is
on substantially the same terms and conditions. In the event that the
Partnership enters into Joint Ventures or Co-Tenancy Arrangements with other
programs sponsored by the General Partners, the Partnership may take more or
less than a 50% interest. See "Risk Factors--Real Estate Risks--Joint Investment
in Properties."
The terms and conditions of any Joint Venture or Co-Tenancy agreement
entered into by the Partnership with regard to a restaurant property may vary
from those described below. Under the terms of each joint venture agreement, the
Partnership and each joint venture partner will be jointly and severally liable
for all debts, obligations, and other liabilities of the Joint Venture. In
addition, the General Partners or their Affiliates shall be entitled to
reimbursement, at cost, for actual expenses incurred by the General Partners or
their Affiliates on behalf of the Partnership. Joint Ventures entered into to
purchase and hold a Property for investment generally will have an initial term
of 15 to 20 years (generally the same term as the initial term of the lease for
the Property in which the Joint Venture invests), and, after the expiration of
the initial term, will continue in existence from year to year unless terminated
at the option of either joint venturer or unless terminated by an event of
dissolution. Events of dissolution will include the bankruptcy, insolvency, or
termination of any joint venturer, sale of the Property owned by the Joint
Venture, mutual agreement of the Partnership and its joint venture partner to
dissolve the Joint Venture, and the expiration of the term of the Joint Venture.
The Partnership will have management control of each Joint Venture in which it
participates with an unaffiliated party. The joint venture agreement will
restrict each venturer's ability to sell, transfer, or assign its joint venture
interest without first offering it for sale to its joint venture partner. In
addition, in any Joint Venture with another program sponsored by the General
Partners, where such arrangements are entered into for the purpose of purchasing
and holding Properties for investment, in the event that one party desires to
sell the Property and the other party does not desire to sell, either party will
have the right to trigger dissolution of the Joint Venture by sending a notice
to the other party. The notice will establish the price and terms for the sale
or purchase of the other party's interest in the Joint Venture to the other
party. The joint venture or partnership agreement will grant the receiving party
the right to elect either to purchase the other party's interest on the terms
set forth in the notice or to sell its own interest on such terms.
The following paragraphs describe the allocations and distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Partnership and its joint venture partner each have a 50% ownership
interest. In any other case, the allocations and distributions are expected to
be similar to those described below, except that allocations and distributions
which
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are described below as being made 50% to each joint venture partner will instead
be made in proportion to each joint venture partner's respective ownership
interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each joint venture partner. Profits
from the sale or other disposition of joint venture property first will be
allocated to any joint venture partners with negative capital account balances
in proportion to such balances until such capital accounts equal zero, and
thereafter 50% to each joint venture partner. Similarly, losses from the sale or
other disposition of joint venture property first will be allocated to joint
venture partners with positive capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
joint venture partner. Notwithstanding any other provisions in the joint venture
agreement, income, gain, loss, and deductions with respect to any contributed
property will be shared in a manner which takes into account the variation
between the basis of such property and its fair market value at the time of
contribution in accordance with section 704(c) of the Code.
Net cash flow from operations of the Joint Venture will be distributed
50% to each joint venture partner. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter 50% to each joint venture partner.
In order that the allocations of joint venture income, gain, loss, and
deduction provided in joint venture agreements may be respected for federal
income tax purposes, it is expected that any joint venture agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or deductions to the extent such allocation would cause or increase an
"Adjusted Capital Account Deficit," and (iii) will require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury Regulation ss.1.704-1(b)(2)(iv) and (b) that distributions of
proceeds from the liquidation of a partner's interest in the Joint Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance. See "Federal
Income Tax Considerations--Allocations of Income, Gain, Loss, and Deductions."
Prior to entering into any joint venture or general partnership
arrangement with any unaffiliated co-venturer or general partner (or the
principals of any unaffiliated co-venturer or general partner which is an
entity), the Partnership will confirm that such person or entity either has a
net worth of $1,000,000 or more, or otherwise has demonstrated to the
satisfaction of the General Partners that requisite financial qualifications are
met.
MANAGEMENT SERVICES
CNL Fund Advisors, Inc. will provide management services relating to
the Partnership and its Properties pursuant to a management agreement between it
and the Partnership. Under this agreement, CNL Fund Advisors, Inc. will be
responsible for assisting the Partnership in negotiating leases, collecting
rental payments, inspecting the Properties and the tenants' books and records,
and responding to tenant inquiries and notices. CNL Fund Advisors, Inc. also
will provide information to the Partnership about the status of the leases and
the Properties. In exchange for these services, CNL Fund Advisors, Inc. will be
entitled to receive from the Partnership the Management Fee, which, generally,
is an annual fee equal to 1% of the sum of gross revenues (excluding noncash
lease accounting adjustments) that the Partnership derives from the Properties.
The Management Fee shall be payable monthly on the last day of such month, or
the first business day following the last day of such month. The Management Fee,
which will not exceed fees that are competitive for similar services in the same
geographic area, may be taken or not, in whole or in part as to any year, in the
sole discretion of CNL Fund Advisors, Inc. All or any portion of the Management
Fee not taken as to any fiscal year shall be deferred without interest and may
be taken in such other fiscal year as CNL Fund Advisors, Inc. shall determine.
The agreement continues until the Partnership no longer owns an interest in any
Properties unless terminated at an earlier date upon 60 days' prior notice by
either party.
FINANCING
The Partnership and any general partnership or Joint Venture in which
the Partnership becomes a partner or joint venturer will acquire Properties
without borrowing. The General Partners do not anticipate that the Partnership
will borrow for any reason and do not intend to cause the Partnership to do so.
Subject to certain restrictions on borrowing, however, the Partnership may
borrow funds but will not encumber any of the Properties in connection with any
such borrowing. The Partnership will not borrow for the purpose of returning
capital to the Limited Partners or under arrangements that would make the
Limited Partners liable to creditors of the Partnership. The General Partners
have represented that they will limit the Partnership's outstanding indebtedness
to 3% of the aggregate adjusted tax basis of its Properties and that they will
use their reasonable efforts to structure any borrowing so that it will not
constitute "acquisition indebtedness" (as discussed in "Federal Income Tax
Considerations--Qualified Plan Investors"). In addition, the Partnership will
not borrow unless it first obtains an opinion of counsel that such borrowing
will not constitute acquisition indebtedness. Notwithstanding the foregoing, the
General Partners or their Affiliates shall be entitled to reimbursement, at
cost, for actual expenses incurred by the General Partners or their Affiliates
on behalf of the Partnership.
SALE OF PROPERTIES
The Partnership generally will hold its Properties until the General
Partners determine either that their Sale or other disposition is advantageous
in view of the Partnership's investment objectives, or that such objectives will
not be met. The General Partners intend to sell the Properties 7 to 12 years
after their acquisition or as soon thereafter as market conditions permit. In
deciding whether to sell Properties, the General Partners will consider factors
such as potential capital appreciation, Net Cash Flow, and federal income tax
considerations. See "Federal Income Tax Considerations--Sale of the Properties."
The terms of certain leases, however, may require the Partnership to sell a
Property if the lessee exercises its option to purchase a Property after a
specified portion of the lease term has elapsed. See "Business--Description of
Leases--Right of Lessee to Purchase." The Partnership will have no
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obligation to sell all or any portion of a Property at any particular time,
except as may be required under property or joint venture purchase options
granted to certain lessees.
In connection with any Sale of a Property, the General Partners do not
anticipate that any reinvestment of Net Sales Proceeds in Properties will take
place. Net Sales Proceeds not reinvested in Properties or used to establish
reserves deemed necessary or advisable by the General Partners will be
distributed to the Limited Partners in accordance with the Partnership
Agreement. If the General Partners determine, however, that it is in the
interest of the Partnership to reinvest Net Sales Proceeds in Properties, Net
Sales Proceeds will be reinvested only if sufficient cash also is distributed to
the Partners to pay any state income tax (at a rate reasonably assumed by the
General Partners) and federal income tax (assuming the Limited Partners' income
is taxable at the maximum federal income tax rate then applicable to individuals
for capital gains) created by the disposition. Net Cash Flow will not be
invested in Properties.
In connection with Sales of Properties by the Partnership, purchase
money obligations may be taken by the Partnership as part payment of the sales
price. The terms of payment will be affected by custom in the area in which the
Property is located and by prevailing economic conditions. When a purchase money
obligation is accepted in lieu of cash upon the Sale of a Partnership Property,
the Partnership will continue to have a mortgage on the Property and the
proceeds of the Sale will be realized over a period of years rather than at
closing of the Sale.
REGULATION
Many states regulate the franchise or license relationship between a
lessee/franchisee and a Restaurant Chain. The Partnership will not be, and
neither CNL Fund Advisors, Inc. nor any of the General Partners will be, an
Affiliate of any Restaurant Chain, and they are not currently aware of any
states in which the relationship between the Partnership as lessor and the
lessee will be subjected to those regulations, but it will comply with such
regulations in the future, if so required. Restaurant Chains which franchise
their operations are subject to regulation by the Federal Trade Commission.
COMPETITION
The fast-food, family-style, and casual dining restaurant business is
characterized by intense competition. The Partnership's restaurant Properties
will compete with independently owned restaurants, restaurants which are part of
local or regional chains, and restaurants in other well-known national chains,
including those offering different types of food and service.
In many cases, however, the absence of local competition is considered
more detrimental than the presence of such competition, since many successful
fast-food, family-style, and casual dining restaurants are located in "eating
islands," areas to which people tend to return frequently, and within which they
can diversify their eating habits. Like retail stores clustered in a shopping
center, fast-food, family-style, and casual dining restaurants frequently
experience better operating results when there are other restaurants in the same
area.
The Partnership also will be in competition with other persons and
entities both to locate suitable Properties to acquire and to locate purchasers
for its Properties. The Partnership also will compete with other financing
sources such as banks, mortgage lenders, and sale/leaseback companies for
suitable Properties and tenants.
SELECTED FINANCIAL DATA
The following table sets forth certain financial information for CNL
XVIII, and should be read in conjunction with "Management's Discussion and
Analysis of Financial Condition and Results of Operations" and the Financial
Statements included in Exhibit B to this Prospectus. Revenues, net income, cash
distributions declared, net income per Unit, cash distributions per Unit and
weighted average number of limited partner Units outstanding have not been
presented because as of September 30, 1996, operations had not commenced.
September 30, 1996
(Unaudited) December 31, 1995
Total Assets $542,133 $256,890
Partners' capital 1,000 1,000
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE PARTNERSHIP
GENERAL
The Partnership is a Florida limited partnership that was organized on
February 10, 1995, to acquire Properties for cash, either directly or through
Joint Venture arrangements, to be leased primarily to operators of selected
Restaurant Chains. The leases
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will be "triple-net leases", with the lessee generally responsible for all
repairs and maintenance, property taxes, insurance and utilities. Since leases
will be entered into on a "triple-net" basis, the Partnership does not expect,
although it has the right, to maintain a reserve for operating expenses. The
Partnership's Properties will not be readily marketable and their value may be
affected by general market conditions. Nevertheless, the General Partners
believe that Partnership capital and revenues will be sufficient to fund the
Partnership's anticipated investments, proposed operations, and cash
distributions to the Limited Partners.
On October 11, 1996, the Partnership received the minimum Offering
proceeds of $1,500,000 , and such amounts were released from escrow with the
proceeds being deposited initially in the Partnership's general accounts.
Thereafter, the Partnership intends to commence its acquisition of suitable
Properties. Pending investment in suitable Properties, Partnership funds will be
invested in short-term, highly liquid U.S. Government securities or in other
short-term, highly liquid investments with appropriate safety of principal. The
General Partners anticipate that after the Partnership has invested funds in
Properties, Partnership revenues sufficient to pay operating expenses and
provide cash distributions to the Limited Partners will be derived from the
lease payments paid to the Partnership by the restaurant lessees. As of the date
of this Prospectus, the Partnership has not acquired any Properties and
consequently, has no operating history.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership's sources of liquidity are (i) capital contributions
from General and Limited Partners, (ii) interest earned on short-term
investments prior to the purchase of Properties and distributions of net cash
flow to partners, and (iii) rental payments under leases once Properties are
acquired.
The Offering commenced on September 20, 1996. As of September 30, 1996,
the Partnership had received subscriptions for 60,676 Units, representing
$606,756 in subscription proceeds from Limited Partners which were being held in
escrow until the Partnership received aggregate subscription proceeds of at
least $1,500,000 from the Offering. As of October 11, 1996, the Partnership had
received aggregate subscriptions for 173,313 Units, representing $1,733,131 in
aggregate subscription proceeds from Limited Partners and $1,517,431 of the
funds were released from escrow (which excluded all funds received from New York
and Pennsylvania investors). As of November 15, 1996, the Partnership had sold
468,646 Units, representing $4,686,463 of capital contributed by Limited
Partners and all funds received from New York and Pennsylvania investors had
been released from escrow. Based on the General Partners' experience with 17
prior CNL Income Fund offerings (each of which sold the entire amount of units
offered for purchase), the Partnership anticipates significant additional sales
of Units prior to the termination of the Offering. The General Partners have
elected to extend the Offering to a date not later than August 11, 1997.
At September 30, 1996, and December 31, 1995, the Partnership's total
assets were $542,133 and $256,890, respectively. The increase in total assets
reflects Organizational and Offering Expenses incurred and recorded as deferred
syndication costs and Acquisition Fees recorded as other assets during the nine
months ended September 30, 1996.
The Partnership and any Joint Venture in which the Partnership may
become a partner or co-venturer will acquire the Properties without borrowing.
Properties will be leased on a triple-net basis, meaning that tenants are
generally required to pay all repairs and maintenance, property taxes, insurance
and utilities. Rental payments under the leases are expected to exceed
Partnership operating expenses. For these reasons, no short-term or long-term
liquidity problems currently are anticipated by the General Partners.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who meet specified
financial standards is expected to minimize the Partnership's operating
expenses. During the operational stage, the General Partners believe that the
leases will generate cash flow in excess of operating expenses. Since the leases
are expected generally to have an initial term of 15 to 20 years, with two or
more five-year renewal options, and provide for specified percentage rent in
addition to the annual base rent and, in certain cases, increases in the base
rent or the percentage rent at specified times during the terms of the leases,
it is anticipated that Partnership rental income will increase over time.
Accordingly the General Partners believe that any anticipated decrease in the
Partnership's liquidity in 1996, due to its investment of available net Offering
proceeds in Properties, will not have an adverse effect on the Partnership's
operations in 1996.
During the nine months ended September 30, 1996, Affiliates of the
General Partners incurred on behalf of the Partnership $186,976 for certain
Organizational and Offering Expenses. As of September 30, 1996, the Partnership
owed $478,020 to Affiliates for such amounts , for accounting and administrative
services and for Acquisition Fees. In addition, the Partnership accrued $54,608
due to an Affiliate as of September 30, 1996, for commissions and due diligence
expense reimbursement fees. As of October 31, 1996, the Partnership had
reimbursed the Affiliates all such amounts. The General Partners have agreed to
pay all Organizational and Offering Expenses in excess of three percent of the
gross Offering proceeds.
The Partnership will utilize its net proceeds from its Offering to
purchase Properties. The Partnership expects to acquire Properties entirely for
cash. See "Investment Objectives and Policies." As of November 15, 1996, the
Partnership had not entered into any arrangements creating a reasonable
probability that a Property would be acquired by the Partnership. The number of
Properties to be acquired will depend upon the amount of net Offering proceeds
(Gross Proceeds less fees and expenses of the Offering) available to the
Partnership.
The General Partners expect that the cash to be generated from
operations of all Properties, once they are acquired, will be adequate to pay
operating expenses and provide distributions to partners. Distributions to the
Limited Partners of the Partnership are expected to commence in the fourth
quarter of 1996 and will be paid quarterly thereafter.
Due to anticipated low operating expenses, rental income expected to be
obtained from Properties after they are acquired and the fact that the
Partnership will not enter into a commitment to purchase a Property until
sufficient cash is available for such
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purchase, the General Partners do not believe that working capital reserves will
be necessary at this time. The General Partners have the right to cause the
Partnership to maintain reserves if, in their discretion, they determine such
reserves are required to meet the Partnership's working capital needs.
The General Partners are not aware of any material trends, favorable or
unfavorable, in either capital resources or the outlook for long-term cash
generation, nor do they expect any material changes in the availability and
relative cost of such capital resources, other than as referred to in this
Prospectus.
RESULTS OF OPERATIONS
No significant operations had commenced as of September 30, 1996,
because the Partnership was in its development stage.
As of October 11, 1996, the Partnership had received aggregate
subscription proceeds in excess of the minimum Offering amount of $1,500,000 and
funds were released from escrow, as described above in "Liquidity and Capital
Resources". As of November 15, 1996, the Partnership had sold 468,646 Units,
representing $4,686,463 of capital contributed by Limited Partners, and as of
that date, had acquired no Properties and no commitments had been issued by the
Partnership to acquire any Properties.
The General Partners are not aware of any known trends or
uncertainties, other than national economic conditions, which have had or which
may reasonably be expected to have a material impact, favorable or unfavorable,
on revenues or income from the acquisition and operations of real properties,
other than those referred to in this Prospectus. Once Properties are acquired by
the Partnership, the General Partners expect that the cash to be generated from
operations of all Properties will be adequate to pay operating expenses and
provide distributions to Partners.
There currently are no material changes being considered in the
objectives and policies of the Partnership as set forth in this Prospectus.
MANAGEMENT
The following is a description of the individual General Partners, the
corporate General Partner, CNL Fund Advisors, Inc. (which will provide certain
management services to the Partnership), CNL Group, Inc. (the parent company of
both CNL Fund Advisors, Inc. and the Managing Dealer, CNL Securities Corp.), and
certain employees of CNL Group, Inc. or its subsidiaries.
INDIVIDUAL GENERAL PARTNERS
James M. Seneff, Jr., age 50, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL
Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc.
Mr. Seneff has been a director and registered principal of CNL Securities Corp.,
which serves as the Managing Dealer in the Partnership's offering of Units,
since its formation in 1979. Mr. Seneff also has held the position of President
and a director of CNL Management Company, a registered investment advisor, since
its formation in 1976, has served as Chief Executive Officer and Chairman of the
Board of CNL Investment Company, and Chief Executive Officer and Chairman of the
Board of Commercial Net Lease Realty, Inc. since 1992, has served as the
Chairman of the Board and the Chief Executive Officer of CNL Realty Advisors,
Inc. since its inception in 1991, served as Chairman of the Board and Chief
Executive Officer of CNL Income Fund Advisors, Inc. since its inception in 1994
through December 31, 1995, has served as Chairman of the Board and Chief
Executive Officer of CNL Fund Advisors, Inc. since its inception in 1994, and
has held the position of Chief Executive Officer and a director of CNL
Institutional Advisors, Inc., a registered investment advisor, since its
inception in 1990. In addition, Mr. Seneff has served as Chairman of the Board
and Chief Executive Officer of CNL American Properties Fund, Inc. since 1994.
Mr. Seneff previously served on the Florida State Commission on Ethics and is a
former member and past Chairman of the State of Florida Investment Advisory
Council, which recommends to the Florida Board of Administration investments for
various Florida employee retirement funds. The Florida Board of Administration,
Florida's principal investment advisory and money management agency, oversees
the investment of more than $40 billion of retirement funds. Since 1971, Mr.
Seneff has been active in the acquisition, development and management of real
estate projects and, directly or through an affiliated entity, has served as a
general partner or joint venturer in approximately 111 real estate ventures
involved in the financing, acquisition, construction and rental of office
buildings, apartment complexes, restaurants, hotels and other real estate.
Included in these 111 real estate ventures are approximately 65 privately
offered real estate limited partnerships in which Mr. Seneff, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund
III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund
VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund
IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund
XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income
Fund XV, Ltd., CNL Income Fund XVI, Ltd., and CNL Income Fund XVII, Ltd. (the
"CNL Income Fund Partnerships"), public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Seneff
serves as a general partner. Mr. Seneff received his degree in Business
Administration from Florida State University in 1968. See "Conflicts of
Interest."
Robert A. Bourne, age 49, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.
(the Managing Dealer of the Offering), President and a director of CNL
Investment Company, CNL Fund Advisors, Inc., and prior to its merger with CNL
Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors, Inc.,
and President, Chief Investment Officer and a director of CNL Institutional
Advisors, Inc., a registered investment advisor. Mr. Bourne also has served as a
director since 1992, as President from July 1992 to February 1996, and since
February 1996, as Vice Chairman of the Board of Directors, Secretary and
Treasurer of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has
served as a director since its inception in 1991, as President from 1991 to
February 1996, as Secretary from February 1996 to July 1996,
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and since February 1996, as Treasurer and Vice Chairman of CNL Realty Advisors,
Inc. In addition, Mr. Bourne has served as President and a director of CNL
American Properties Fund, Inc. since 1994. Upon graduation from Florida State
University in 1970, where he received a B.A. in Accounting, with honors, Mr.
Bourne worked as a certified public accountant and, from September 1971 through
December 1978, was employed by Coopers & Lybrand, Certified Public Accountants,
where he held the position of tax manager beginning in 1975. From January 1979
until June 1982, Mr. Bourne was a partner in the accounting firm of Cross &
Bourne and from July 1982 through January 1987, he was a partner in the
accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Mr.
Bourne, who joined CNL Securities Corp. in 1979, has participated as a general
partner or joint venturer in approximately 117 real estate ventures involved in
the financing, acquisition, construction and rental of office buildings,
apartment complexes, restaurants, hotels and other real estate. Included in
these 117 real estate ventures are approximately 64 privately offered real
estate limited partnerships in which Mr. Bourne, directly or through an
affiliated entity, serves or has served as a general partner. Also included are
the CNL Income Fund Partnerships, public real estate limited partnerships with
investment objectives similar to those of the Partnership, in which Mr. Bourne
serves as a general partner. See "Conflicts of Interest."
CORPORATE GENERAL PARTNER
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships. See
Exhibit B--Financial Information, for the most recent audited financial
statements of CNL Realty Corporation.
CNL FUND ADVISORS, INC.
CNL Fund Advisors, Inc., which will provide certain advisory and
property management services in connection with the Partnership and its
Properties, is a corporation organized in 1994 under the laws of the State of
Florida. Its principal office is located at 400 East South Street, Suite 500,
Orlando, Florida 32801. CNL Fund Advisors, Inc. is a wholly owned subsidiary of
CNL Group, Inc., a diversified real estate company, and was organized to perform
the property acquisition, property management, and other services described
herein. With respect to 16 of the 17 prior CNL Income Fund Partnerships, such
services were provided by CNL Income Fund Advisors, Inc., a wholly owned
subsidiary of CNL Group, Inc., which subsidiary was merged into CNL Fund
Advisors, Inc.
CNL GROUP, INC.
CNL Group, Inc., which is the parent company of the Managing Dealer,
CNL Securities Corp., and CNL Fund Advisors, Inc., is a diversified real estate
corporation organized in 1980 under the laws of the State of Florida. Other
subsidiaries and affiliates of CNL Group, Inc. include a property development
and management company, two investment advisory companies, and seven
corporations organized as strategic business units. James M. Seneff, Jr., an
individual General Partner of the Partnership, is the Chairman of the Board,
Chief Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his
wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
John T. Walker, age 37, joined CNL Group, Inc. in September 1994, as
Senior Vice President, responsible for Research and Development. He currently
serves as the Chief Operating Officer and Executive Vice President of CNL Fund
Advisors, Inc. and CNL American Properties Fund, Inc. From May 1992 to May 1994,
he was Executive Vice President for Finance and Administration and Chief
Financial Officer of Z Music, Inc., a cable television network which was
subsequently acquired by Gaylord Entertainment, where he was responsible for
overall financial and administrative management and planning. From January 1990
through April 1992, Mr. Walker was Chief Financial Officer of the First Baptist
Church in Orlando, Florida. From April 1984 through December 1989, he was a
partner in the accounting firm of Chastang, Ferrell & Walker, P.A., where he was
the partner in charge of audit and consulting services, and from 1981 to 1984,
Mr. Walker was a Senior Consultant/Audit Senior at Price Waterhouse. Mr. Walker
is a Cum Laude graduate of Wake Forest University with a B.S. in Accountancy and
is a certified public accountant.
Lynn E. Rose, age 47, a certified public accountant, has served as
Chief Financial Officer and Secretary of CNL Group, Inc. since December 1993,
and served as Controller and Secretary of CNL Group, Inc. from 1987 until
December 1993. In addition, Ms. Rose has served as Chief Financial Officer and
Secretary of CNL Securities Corp. since July 1994. She has served as Chief
Operating Officer of CNL Corporate Services, Inc. since November 1994. Ms. Rose
also has served as Chief Financial Officer of CNL Institutional Advisors, Inc.
since its inception in 1990, a director of CNL Realty Advisors, Inc. since its
inception in 1991, Secretary of CNL Realty Advisors, Inc. since its inception in
1991 (excluding February 1996 to July 1996), Treasurer of CNL Realty Advisors,
Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial Net Lease
Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund Advisors,
Inc. since its inception in 1994 to December 1995, and a director, Secretary and
Treasurer of CNL Fund Advisors, Inc. since 1994. Ms. Rose also has served as
Chief Financial Officer, Secretary and Treasurer of CNL American Properties
Fund, Inc. since 1994. In addition, Ms. Rose oversees the management
information services, administration, legal compliance, accounting, tenant
compliance, and reporting for over 200 corporations, partnerships, and joint
ventures. Prior to joining CNL, Ms. Rose was a partner with Robert A. Bourne in
the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Ms.
Rose holds a B.A. in Sociology from the University of Central Florida and is a
registered financial and operations principal of CNL Securities Corp. She was
licensed as a Certified Public Accountant in 1979.
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Jeanne A. Wall, age 38, has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
and, in 1987, she became a Senior Vice President of CNL Securities Corp. In this
capacity, Ms. Wall serves as national marketing director and oversees the
national marketing plan for the CNL investment programs. In addition, Ms. Wall
oversees the partnership administration and investor services for programs
offered through participating brokers. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991, as Vice President of Commercial Net Lease Realty, Inc. since
1992, as Executive Vice President of CNL Income Fund Advisors, Inc. from its
inception in 1994 to December 1995, as Executive Vice President of CNL Fund
Advisors, Inc. since 1994, and as Executive Vice President of CNL American
Properties Fund, Inc. since 1994. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp. Ms. Wall currently serves as a trustee on the board of the
Investment Program Association and on the Direct Participation Program committee
for the National Association of Securities Dealers (NASD).
NET WORTH OF GENERAL PARTNERS
Messrs. Seneff and Bourne, the individual General Partners, have
represented that at April 30, 1995, along with their wives, they had a reviewed
aggregate net worth in excess of $14,000,000, and that their aggregate net worth
at April 23, 1996 was in excess of $14,000,000. However, a substantial portion
of their assets is represented by interests in real estate and closely held
companies which are essentially illiquid. At April 30, 1995 and April 23, 1996,
Messrs. Seneff and Bourne also had contingent liabilities in the aggregate
amount of approximately $7,900,000 and $9,700,000, respectively, as a result of
all guarantees of loans to limited partnerships in which they serve as general
partners. Should some of these contingent liabilities become actual, or should
some of the assets prove to be uncollectible, their net worth may be
significantly reduced. Messrs. Seneff and Bourne have additional contingent
liabilities as a result of their practice of maintaining lines of credit that
enable Affiliates to invest in restaurant properties or restaurant facilities on
an interim basis prior to the time that an affiliated partnership has sufficient
funds to purchase the restaurant properties or restaurant facilities. At April
30, 1995 and April 23, 1996, these lines of credit aggregated approximately
$2,000,000 and $5,900,000, respectively. In addition, Messrs. Seneff and Bourne
have certain contingent liabilities as a result of guarantees of loans to
various general partnerships in which they are partners. At April 30, 1995 and
April 23, 1996, these guarantees totalled approximately $22,400,000 and
$31,500,000, respectively. All of the loans guaranteed by Messrs. Seneff and
Bourne, as well as the lines of credit, are secured by real property or other
collateral which, in the event of a default under any such loan or line of
credit, would be subject to foreclosure and sale, with the proceeds of such sale
applied against the outstanding balance of the loan or line of credit. Messrs.
Seneff and Bourne believe that such properties or collateral are of sufficient
value to cover the outstanding balance of such loans and lines of credit. In
addition, it is highly unlikely that all such loans would be in default at any
one time, since they represent loans made to a number of different partnerships.
Messrs. Seneff and Bourne also have contingent liabilities of approximately
$1,300,000 attributable to capital notes payable to certain corporations that
serve as general partners of certain affiliated partnerships on demand in the
event that these corporations require additional funds. As of the date of this
Prospectus, Messrs. Seneff and Bourne have not been required to advance any
amounts pursuant to such notes and, based on operations of the related
partnerships, do not expect to be required to do so in the foreseeable future.
In addition, Messrs. Seneff and Bourne have guaranteed the obligations of two
master tenants (CNL Management Group, Inc. and CNL Group, Inc., affiliates of
the General Partners) under master leases, of which the aggregate present value
of the master lease obligations as of April 23, 1996, was $3,400,000. Messrs.
Seneff and Bourne also have contingent liabilities as a result of their
agreement to fund reserves under certain limited circumstances for the CNL
Income Fund Partnerships. Messrs. Seneff and Bourne do not anticipate that they
will be required to fund such reserves due to the structure of those public
limited partnerships. See "Conflicts of Interest" and "Risk Factors--Investment
Risks--Limited Resources of General Partners." The corporate General Partner has
a nominal net worth.
REMOVAL OF GENERAL PARTNERS
Limited Partners of the Partnership who hold a majority of the
outstanding Units may remove a General Partner and elect a substitute General
Partner in his or its place. In such event, the removed General Partner is
entitled to be paid the then-present fair market value of his or its interest
and to prompt repayment of any loans made in accordance with the Partnership
Agreement by such General Partner or his or its Affiliates to the Partnership.
In addition, the substitute General Partner must make arrangements to (i)
release the removed General Partner from personal liability on any existing or
future Partnership borrowing and indemnify the removed General Partner against
all other Partnership liabilities (except against liabilities for which a
General Partner may not be indemnified under the Partnership Agreement), or (ii)
indemnify the removed General Partner against all Partnership liabilities
(except against liabilities for which a General Partner may not be indemnified
under the Partnership Agreement). Any removal shall become effective only on the
earlier of (i) the date a substitute General Partner is admitted to the
Partnership or (ii) a date 90 days after the date on which the required majority
voted for removal of the General Partner.
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES
The information presented in this section represents the historical
experience of certain real estate programs organized by the General Partners.
INVESTORS IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE
RETURNS, IF ANY, COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR REAL
ESTATE PROGRAMS. INVESTORS WHO PURCHASE INTERESTS IN THE PARTNERSHIP WILL NOT
THEREBY ACQUIRE ANY OWNERSHIP INTEREST IN ANY PROGRAMS TO WHICH THE FOLLOWING
INFORMATION RELATES.
42
<PAGE>
The General Partners of the Partnership are Robert A. Bourne, James M.
Seneff, Jr., and CNL Realty Corporation. Messrs. Bourne and Seneff, individually
or with others, have served as general partners of 84 and 85 real estate limited
partnerships, respectively, including the 17 prior CNL Income Fund Partnerships
and as officers and directors of a real estate investment trust, CNL American
Properties Fund, Inc., listed in the table below. None of these entities has
been audited by the IRS. Of course, there is no guarantee that the Partnership
will not be audited. Based on an analysis of the operating results of the prior
programs, the General Partners believe that each of such programs has met or is
meeting its principal investment objectives in a timely manner.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole stockholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner with Messrs. Bourne and Seneff
as individual general partners of 17 prior CNL Income Fund Partnerships, all of
which were organized to invest in fast-food and family-style restaurant
properties and have investment objectives similar to those of the Partnership.
In addition, Messrs. Bourne and Seneff currently serve as directors and officers
of CNL American Properties Fund, Inc. an unlisted public REIT, which was
organized to invest in fast-food, family-style and casual dining restaurant
properties, mortgage loans and secured equipment leases and has investment
objectives similar to those of the Partnership. As of September 30, 1996, these
17 partnerships and CNL American Properties Fund, Inc. had raised a total of
$682,716,387 from a total of 53,154 investors, and had invested in 735
fast-food, family-style or casual dining restaurant properties.
<TABLE>
<CAPTION>
Date 90% of Net
Proceeds Fully
Maximum Invested or
Name of Offering Number of Committed for
Entity Amount (1) Date Closed Units Sold Investment (2)
- --------- ---------- ----------- ---------- --------------
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December 1986
Fund, Ltd. (30,000 units)
CNL Income $25,000,000 August 21, 1987 50,000 November 1987
Fund II, Ltd. (50,000 units)
CNL Income $25,000,000 April 29, 1988 50,000 June 1988
Fund III, Ltd. (50,000 units)
CNL Income $30,000,000 December 6, 1988 60,000 February 1989
Fund IV, Ltd. (60,000 units)
CNL Income $25,000,000 June 7, 1989 50,000 December 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May 1990
Fund VI, Ltd. (70,000 units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January 1991
Fund VII, Ltd. (30,000,000 units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September 1991
Fund VIII, Ltd. (35,000,000 units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June 1992
Fund X, Ltd. (4,000,000 units)
CNL Income $40,000,000 September 28, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July 1993
Fund XII, Ltd. (4,500,000 units)
</TABLE>
43
<PAGE>
<TABLE>
<CAPTION>
Date 90% of Net
Proceeds Fully
Maximum Invested or
Name of Offering Number of Committed for
Entity Amount (1) Date Closed Units Sold Investment (2)
- --------- ---------- ----------- ---------- --------------
<S> <C>
CNL Income $40,000,000 August 26, 1993 4,000,000 August 1993
Fund XIII, Ltd. (4,000,000 units)
CNL Income $45,000,000 February 22, 1994 4,500,000 May 1994
Fund XIV, Ltd. (4,500,000 units)
CNL Income $40,000,000 September 1, 1994 4,000,000 December 1994
Fund XV, Ltd. (4,000,000 units)
CNL Income $45,000,000 June 12, 1995 4,500,000 August 1995
Fund XVI, Ltd. (4,500,000 units)
CNL Income $30,000,000 September 19, 1996 3,000,000 (3)
Fund XVII, Ltd. (3,000,000 units)
CNL American $165,000,000 (4) (4) (4)
Properties (16,500,000
Fund, Inc. shares)
</TABLE>
(1) The amount stated includes the exercise by the general partners of each
Partnership of their option to increase by $5,000,000 the maximum size
of the offering of CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund VI,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund X, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIV, Ltd., and CNL Income Fund XVI,
Ltd.
(2) For a description of the property acquisitions by these programs during
the last ten years, see the table set forth on the following page.
(3) As of September 30, 1996, CNL Income Fund XVII, Ltd. had purchased 19
properties for approximately $20,130,700, representing an investment of
77% of net proceeds received.
(4) As of September 30, 1996, CNL American Properties Fund, Inc., which is
offering a maximum of 16,500,000 shares of common stock ($165,000,000),
had received subscriptions totalling $102,960,892 (10,296,089 shares),
including $391,348 (39,135 shares) through the distribution
reinvestment plan. As of such date, CNL American Properties Fund, Inc.
had purchased 82 properties.
- ---------------------------------
As of September 30, 1996, Mr. Seneff and Mr. Bourne, directly or
through affiliated entities, also had served as joint general partners of 64
nonpublic real estate limited partnerships. The offerings of 63 of these 64
nonpublic limited partnerships had terminated as of September 30, 1996. These 63
partnerships raised a total of $164,419,266 from approximately 4,111 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 197 projects as of September 30, 1996.
These 197 projects consist of 19 apartment projects (comprising 11% of the total
amount raised by all 64 partnerships), 13 office buildings (comprising 5% of the
total amount raised by all 64 partnerships), 151 fast-food, family-style, or
casual dining restaurant property and business investments (comprising 69% of
the total amount raised by all 64 partnerships), one condominium development
(comprising .5% of the total amount raised by all 64 partnerships), four
hotels/motels (comprising 5% of the total amount raised by all 64 partnerships),
seven commercial/retail properties (comprising 9% of the total amount raised by
all 64 partnerships), and two tracts of undeveloped land (comprising .5% of the
total amount raised by all 64 partnerships). The offering of the one remaining
nonpublic limited partnership (offering of $15,000,000) had raised $335,831 from
8 investors (approximately 2.25% of the total offering amount) as of September
30, 1996.
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 83 real estate limited partnerships whose offerings had closed
as of September 30, 1996 (including 17 CNL Income Fund limited partnerships) in
which Mr. Seneff and/or Mr. Bourne serve or have served as general partners in
the past ten years, 35 invested in restaurant properties leased on a
"triple-net" basis, including six which also invested in franchised restaurant
businesses (accounting for approximately 93% of the total amount raised by all
83 real estate limited partnerships).
44
<PAGE>
The following table sets forth summary information, as of September 30,
1996 regarding property acquisitions during the nine preceding years by the 17
limited partnerships that, either individually or through a joint venture or
partnership arrangement, acquired properties (or intend to acquire properties)
and that have investment objectives similar to those of the Partnership and by a
real estate investment trust, CNL American Properties Fund, Inc.
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
<S> <C>
CNL Income 20 fast-food or family- AL, AZ, CA, FL, GA, All cash Public
Fund, Ltd. style restaurants LA, MD, OK, TX,
VA
CNL Income 43 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund II, Ltd. family-style IL, IN, LA, MI, MN,
restaurants MO, NC, NM, OH,
TX, WY
CNL Income 32 fast-food or AZ, CA, FL, GA, IA, All cash Public
Fund III, Ltd. family-style IL, IN, KS, KY, MD,
restaurants MI, MN, MO, NE,
OK, TX
CNL Income 43 fast-food or AL, DC, FL, GA, IL, All cash Public
Fund IV, Ltd. family-style IN, KS, MA, MD, MI,
restaurants MS, NC, OH, PA,
TN, TX, VA
CNL Income 30 fast-food or FL, GA, IL, IN, MI, All cash Public
Fund V, Ltd. family-style NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 46 fast-food or AR, AZ, FL, IN, MA, All cash Public
Fund VI, Ltd. family-style MI, MN, NC, NE,
restaurants NM, NY, OH, OK,
PA, TN, TX, VA, WY
CNL Income 45 fast-food or AZ, CO, FL, GA, IN, All cash Public
Fund VII, Ltd. family-style LA, MI, MN, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 40 fast-food or AZ, FL, IN, LA, MI, All cash Public
Fund VIII, Ltd. family-style MN, NC, NY, OH,
restaurants TN, TX, VA
CNL Income 41 fast-food or AL, FL, GA, IL, IN, All cash Public
Fund IX, Ltd. family-style LA, MI, MN, MS,
restaurants NC, NH, NY, OH,
SC, TN, TX
CNL Income 49 fast-food or AL, CA, CO, FL, ID, All cash Public
Fund X, Ltd. family-style IL, LA, MI, MO, MT,
restaurants NC, NH, NM, NY,
OH, PA, SC, TN, TX
CNL Income 39 fast-food or family- AL, AZ, CA, CO, CT, All cash Public
Fund XI, Ltd. style restaurants FL, KS, LA, MA, MI,
MS, NC, NH, NM,
OH, OK, PA, SC, TX,
VA, WA
CNL Income 49 fast-food or family- AL, AZ, CA, FL, GA, All cash Public
Fund XII, Ltd. style restaurants LA, MO, MS, NC,
NM, OH, SC, TN,
TX, WA
CNL Income 48 fast-food or family- AL, AR, AZ, CA, CO, All cash Public
Fund XIII, Ltd. style restaurants FL, GA, IN, KS, LA,
MD, NC, OH, PA,
SC, TN, TX, VA
</TABLE>
45
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
<S> <C>
CNL Income 56 fast-food or family- AL, AZ, CO, FL, GA, All cash Public
Fund XIV, Ltd. style restaurants KS, LA, MO, MS,
NC, NJ, NV, OH, SC,
TN, TX, VA
CNL Income 47 fast-food or family- CA, FL, GA, KS, KY, All cash Public
Fund XV, Ltd. style restaurants MO, MS, NC, NJ,
NM, OH, OK, PA,
SC, TN, TX, VA
CNL Income 43 fast-food or family- AZ, CA, CO, DC, FL, All cash Public
Fund XVI, Ltd. style restaurants GA, ID, IN, KS, MN,
MO, NC, NM, NV,
OH, TN, TX, UT, WI
CNL Income 19 fast-food, CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style, or casual MI, NV, OH, SC, TN,
dining restaurant TX
properties
CNL American 82 fast-food, CA, CT, DE, FL, IA, All cash Public
Properties Fund, Inc. family-style, or casual IL, IN, MI, MN, MO,
dining restaurants NE, NJ, NM, OH,
OK, OR, TN, TX,
WV
</TABLE>
- ------------------------------------
A more detailed description of the acquisitions by the prior public
programs sponsored by the individual General Partners is set forth in prior
performance Table VI, included as Exhibit 99 to Part II of the registration
statement filed with the Securities and Exchange Commission for this Offering. A
copy of Table VI is available to investors from the General Partners upon
request, free of charge. In addition, upon request to the General Partners, the
General Partners will provide, without charge, a copy of the most recent Annual
Report on Form 10-K filed with the Securities and Exchange Commission for CNL
Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., CNL
Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd.,
and CNL American Properties Fund, Inc., as well as a copy, for a reasonable fee,
of the exhibits filed with such reports.
In order to provide potential purchasers of Units with information to
enable them to evaluate the prior experience of the General Partners as general
partners of public real estate limited partnerships, including those set forth
in the foregoing table, certain financial and other information concerning those
limited partnerships with similar investment objectives in which the General
Partners are general partners is provided in the Prior Performance Tables
included as Exhibit C. Information about the previous public partnerships, the
offerings of which closed between October 1991 and September 1996, is included
therein. Potential investors are encouraged to examine the Prior Performance
Tables attached as Exhibit C (in Table III), which include information as to the
operating results of these prior public partnerships, for more detailed
information concerning the experience of the individual General Partners.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The Partnership's primary investment objectives are to preserve,
protect, and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year of Partnership operations in amounts which exceed
current taxable income (due to the fact that depreciation deductions
attributable to the Properties reduce taxable income even though depreciation is
not a cash expenditure); (ii) an anticipated minimum level of income through the
long-term rental of Properties to selected operators of certain national and
regional fast-food, family-style, and casual dining restaurant chains; (iii)
additional income and protection against inflation by participation in certain
restaurant gross sales through the receipt of percentage rent; and (iv) capital
appreciation through the potential increase in value of the Properties. The
Partnership intends to meet these objectives by purchasing carefully selected
restaurant properties and leasing them on a "triple-net" basis (which means that
the lessee will be responsible for paying the cost of all repairs, maintenance,
property taxes, and insurance) to creditworthy operators of certain national or
regional fast-food, family-style, and casual dining restaurant chains under
leases requiring the lessee to pay both base annual rent and a percentage rent
based on gross sales. See "Business--Site Selection and Acquisition of
Properties" and "Business--Description of Leases" for a more complete
description of the manner in which the structure of the Partnership's business
will facilitate the Partnership's ability to meet its investment objectives. The
Partnership's investment policies are set forth in the Partnership Agreement and
cannot be changed except by amendment of the Partnership Agreement which
requires the approval of the Limited Partners. There can be no assurance that
46
<PAGE>
these objectives will be met. The sheltering from tax of income from other
sources is not an objective of the Partnership. If the Partnership is successful
in achieving its investment and operating objectives, the Limited Partners
(other than tax-exempt entities) are likely to recognize taxable income in each
year. The General Partners expect that all but a small portion of the
Partnership's net income will constitute net income from a "passive activity,"
as defined in section 469 of the Code, against which a Limited Partner's net
losses and credits from investments in other "passive activities" may be taken,
in accordance with the limitations provided in section 469. See "Risk
Factors--Federal Income Tax Risks--Passive Activity Income." While there is no
order of priority intended in the listing of the Partnership's objectives,
investors should realize that the ability of the Partnership to realize these
objectives may be severely handicapped by any lack of diversification of the
Partnership's investments and the terms of the leases.
The Partnership intends to invest its assets in restaurant Properties
that are part of one of the Restaurant Chains to be selected by the General
Partners. Although there is no limit on the number of restaurants of a
particular Restaurant Chain which the Partnership may acquire, the General
Partners currently do not expect to invest more than 25% of the Gross Proceeds
in restaurant Properties of any one Restaurant Chain or to invest 30% of the
Gross Proceeds in Properties located in any one state. It is intended that
investments will be made in several Properties in various locations in an
attempt to achieve diversification and thereby minimize the effect of changes in
local economic conditions and certain other risks. The extent of such
diversification, however, depends in part upon the amount of the Partnership's
funds available from the sale of Units of the Partnership. See "Estimated Use of
Proceeds" and "Risk Factors--Investment Risks--Possible Lack of
Diversification."
The purpose and investment policies of the Partnership may not be
changed without the approval of Limited Partners owning a majority of the Units.
CERTAIN INVESTMENT LIMITATIONS
The Partnership will not: (i) issue Units in exchange for property or
otherwise than pursuant to the terms of this Offering; (ii) issue senior
securities; (iii) make loans to the General Partners or their Affiliates; (iv)
underwrite the securities of other issuers; (v) invest in the securities of
other issuers, including junior trust deeds or other similar obligations
(provided, however, that the Partnership may invest Partnership funds
temporarily in short-term, highly liquid investments, with appropriate safety of
principal, may accept purchase money mortgages secured by a first mortgage on a
Property in connection with the Sale of a Property , and may enter into Joint
Ventures to acquire Properties to be leased primarily to operators of selected
Restaurant Chains); (vi) operate in such a manner as to be classified as an
"investment company" for purposes of the Investment Company Act of 1940; (vii)
redeem or repurchase Units (except that the Partnership may implement the
Distribution Reinvestment Plan); (viii) invest in real estate mortgages; (ix)
purchase or own equipment unless the General Partners determine that it is in
the best interests of the Partnership in order to preserve the asset values of
the Properties; (x) engage in the purchase and sale (or turnover) of investments
(provided, however, that the Partnership may invest Partnership funds in
Properties and, temporarily, in short-term, highly liquid investments, with
appropriate safety of principal, may accept purchase money mortgages secured by
a first mortgage on a Property in connection with the Sale of a Property, and
may enter into Joint Ventures to acquire Properties to be leased primarily to
operators of selected Restaurant Chains); (xi) offer securities in exchange for
property; or (xiii) purchase or lease any Property from, or sell or lease any
Property to, the General Partners or their Affiliates, except for a purchase of
Property which such persons have temporarily purchased to facilitate acquisition
of such Property as described in "Business--Site Selection and Acquisition of
Properties--Interim Acquisitions."
INVESTMENT IN PROPERTIES
It is intended that the Partnership invest a substantial percentage of
Limited Partners' Capital Contributions to the Partnership in restaurant
Properties. See "Estimated Use of Proceeds." The General Partners and their
Affiliates have agreed to forego the payment of certain fees and to make
reimbursements to the Partnership to the extent necessary to comply with the
minimum Investment in Properties requirement of Article 7.7 of the Partnership
Agreement. See Articles 7.5, 7.7 and 7.8 of the Partnership Agreement.
The Partnership will invest no more than 10% of Offering proceeds
available for investment in unimproved land or any non-income producing
Property, and then only on terms that can be financed from Partnership capital
or Net Cash Flow and only if (i) the Partnership simultaneously receives a
commitment to build a restaurant thereon, and (ii) the Partnership
simultaneously enters into an agreement for the lease of the land and the
restaurant. The term "unimproved land" does not include any Property for which
there is a reasonable expectation that such Property will produce income within
two years following its acquisition by the Partnership.
All Properties will be purchased for cash, and neither the Partnership
nor any Joint Venture or general partnership in which the Partnership invests or
participates will finance the acquisition of any Properties by secured or
unsecured indebtedness, or encumber any of the Properties with a lien.
USE OF PROCEEDS PRIOR TO INVESTMENT IN PROPERTIES
Prior to the purchase of Properties, Partnership funds will be invested
in short-term, highly liquid investments with appropriate safety of principal,
including certificates of deposit, money market funds which invest in short-term
securities directly or indirectly issued or guaranteed by the U.S. Government,
U.S. Treasury bonds, notes or bills, or in obligations of a financial
institution collateralized by the pledge of such U.S. Government obligations,
and other short-term investments. Fees and commissions may be charged by
unaffiliated parties in connection with such investments.
Any portion of the proceeds available for Investment in Properties
(excluding working capital reserves of up to 1% of Limited Partners' Capital)
not invested in Properties within one year after termination of the Offering,
will be distributed pro rata to the Limited Partners together with Front-End
Fees in the ratio that the amount of such uninvested or unreserved funds bears
to Limited
47
<PAGE>
Partners' Capital. Proceeds are deemed to have been invested and shall not be
included in proceeds required to be returned to Limited Partners pursuant to the
preceding sentence to the extent such proceeds are reserved for completion of an
investment in any Property that has been acquired by the Partnership. Any
proceeds returned to Limited Partners will be treated as a partial return of
capital for tax and accounting purposes and will be returned without deduction
for expenses. See Article 7.8 of the Partnership Agreement. All funds will be
available for the general use of the Partnership during such period and may be
expended in operating the Properties which have been acquired and to reimburse
the General Partners or their Affiliates for certain expenses of the Partnership
for which reimbursement is permitted under the Partnership Agreement. Funds will
not be segregated or held separate from other funds of the Partnership pending
investment, except for those funds held in reserve, and no interest will be
payable to the Limited Partners if uninvested funds are returned to them.
BORROWING POLICIES
The Partnership and any general partnership or Joint Venture in which
the Partnership becomes a partner or joint venturer will acquire Properties
without borrowing. The General Partners do not anticipate that the Partnership
will borrow for any reason and do not intend to cause the Partnership to do so.
Subject to certain restrictions on borrowing, however, the Partnership may
borrow funds but will not encumber any of the Properties in connection with any
such borrowing. The Partnership will not borrow for the purpose of returning
capital to the Limited Partners or under arrangements that would make the
Limited Partners liable to creditors of the Partnership. The General Partners
have represented that they will limit the Partnership's outstanding indebtedness
to 3% of the aggregate adjusted tax basis of its Properties and that they will
use their reasonable efforts to structure any borrowing so that it will not
constitute "acquisition indebtedness" (as discussed in "Federal Income Tax
Considerations--Qualified Plan Investors").
ALLOCATIONS AND DISTRIBUTIONS
The following paragraphs summarize the allocations and distributions to
which the Limited Partners of the Partnership are entitled under the Partnership
Agreement. This description is only a summary and is qualified in its entirety
by reference to the form of Partnership Agreement attached hereto as Exhibit A.
In addition, the simplified definitions that follow are designed to facilitate
an understanding of Partnership allocations and distributions, do not include
all of the details of the defined terms included in the "Definitions" section of
this Prospectus, and are qualified by reference to that section of this
Prospectus.
"Net Cash Flow," in general terms, is the Partnership's cash receipts,
other than proceeds of a Sale, less its cash expenses, including the 1%
Management Fee to CNL Fund Advisors, Inc. "Net Sales Proceeds," in general, is
the cash the Partnership receives from the Sale of a Property or its interest
therein, less expenses related to the Sale. A Limited Partner's "Invested
Capital Contribution" generally is such Limited Partner's investment of capital
in the Partnership reduced by prior distributions of certain Net Sales Proceeds
(generally, Net Sales Proceeds distributions made following full payment of the
Limited Partners' 8% Return as of the distribution date). The "Limited Partners'
8% Return" generally refers to an annual, noncompounded return on the Invested
Capital Contributions of the Limited Partners equal to 8% per annum, which
return shall be noncumulative when computed or paid from Net Cash Flow and shall
be cumulative when computed or paid from Net Sales Proceeds. The Limited
Partners' 8% Return is payable only (i) to the extent of available Net Cash Flow
and (ii) to the extent of available Net Sales Proceeds from a Sale or Sales not
in liquidation of the Partnership. The Limited Partners' 8% Return is payable
only after payment of Partnership expenses, including the 1% Management Fee (to
the extent taken by CNL Fund Advisors, Inc.), without any guarantee of its
payment. The terms "Net Income," "Net Loss," "Gain," and "Loss" describe the
items of income, gain, loss, and deduction to be allocated among the Partners
for federal income tax purposes.
To the extent the General Partners determine that funds are available
for distribution, distributions of Net Cash Flow will be made at least
quarterly. These distributions to Limited Partners of the Partnership are
expected to commence no later than the first full calendar quarter after the
admission of Limited Partners to the Partnership pursuant to the Offering. See
"Distributions of Net Cash Flow" below.
DISTRIBUTIONS OF NET CASH FLOW
The Partnership will make distributions of Net Cash Flow of the
Partnership that the General Partners, in their sole and absolute discretion,
determine is available for distribution. Such distributions will be payable
quarterly or, by the election of the Limited Partner for a fee, monthly. A
Limited Partner who purchases a minimum of 500 Units ($5,000) may elect to
receive monthly distributions, paid in arrears, by written notice to the General
Partners upon subscription, or, thereafter, upon at least 10 days' prior written
notice to the General Partners, with any such election made following
subscription to be effective as of the beginning of the following calendar
quarter. Absent such an election, Limited Partners will receive distributions
quarterly. In any quarter, Limited Partners may terminate their election to
receive distributions monthly rather than quarterly by written notice to the
Partnership, which termination will be effective as of the beginning of the
following calendar quarter. The General Partners, in their sole discretion, will
have the option in the future to make monthly rather than quarterly
distributions to all Limited Partners. In such event, annual fees for monthly
distributions will terminate.
Distributions of Net Cash Flow are expected to commence in the fourth
quarter of 1996, and will be paid quarterly thereafter. At that time, each
Limited Partner will receive a distribution of available Net Cash Flow for the
calendar quarter and each Limited Partner who has elected to receive
distributions monthly will receive one-third of such amount. The remaining
two-thirds of such amount will be held in an interest-bearing monthly
distribution account segregated from other Partnership funds, and will be paid,
without interest, in approximately equal installments in each of the next two
months to those Limited Partners who have elected to receive distributions
monthly.
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Limited Partners who elect the monthly distribution option will not be
eligible to participate in the Distribution Reinvestment Plan, unless the
General Partners elect to make distributions to all Limited Partners on a
monthly basis. See "Summary of Distribution Reinvestment Plan."
Distributions of Net Cash Flow of the Partnership for any fiscal year
will be made 95% to the Limited Partners and 5% to the General Partners;
provided, however, that the 5% of Net Cash Flow to be distributed to the General
Partners shall be subordinated to receipt by the Limited Partners of their
Limited Partners' 8% Return. See Article 9.3(a) of the Partnership Agreement.
The Limited Partners' 8% Return from Net Cash Flow is payable only to
the extent of available Net Cash Flow (generally, cash available from gross
revenues after payment of Partnership expenses, including the Management Fee
payable to CNL Fund Advisors, Inc. in the amount of 1% of Partnership gross
revenues, and the creation of any reserves), and payment therefore is not
guaranteed.
DISTRIBUTIONS OF NET SALES PROCEEDS
Net Sales Proceeds from a Sale or Sales not in liquidation of the
Partnership, after creation of any reserves, will be distributed in the
following order of priority: (i) first, 100% to the Limited Partners in an
amount equal to their aggregate Limited Partners' 8% Return (an annual,
noncompounded return on the Invested Capital Contributions of the Limited
Partners equal to 8% per annum, which is cumulative when computed or paid from
Net Sales Proceeds); (ii) second, 100% to the Limited Partners in an amount
equal to their Invested Capital Contributions; (iii) third, 100% to the General
Partners until the General Partners have received an amount equal to the sum of
their Capital Contributions plus an amount equal to 5% of all prior and current
distributions of Net Cash Flow, reduced by any prior distributions to the
General Partners of Net Cash Flow and of Net Sales Proceeds pursuant to this
subparagraph (iii); and (iv) thereafter, 95% to the Limited Partners and 5% to
the General Partners. Therefore, payment of the Limited Partners' 8% Return is
not guaranteed. See Article 9.3(b) of the Partnership Agreement.
Distributions of Net Sales Proceeds from a Sale or Sales of
substantially all of the Partnership's assets are designed to provide Limited
Partners with their aggregate Limited Partners' 8% Return, to return their
Invested Capital Contributions, and, after providing the General Partners with a
return of their Capital Contributions and a 5% interest in all Net Cash Flow
distributions (to the extent not previously distributed to them), to provide
Limited Partners an aggregate 95% interest in distributions of remaining Net
Sales Proceeds. Specifically, Net Sales Proceeds from such a Sale or Sales will
be distributed in the following order of priority: (i) first, to pay all debts
and liabilities of the Partnership and to establish reserves; (ii) second, to
Partners with positive Capital Account balances, determined after the allocation
of Net Income, Net Loss, Gain and Loss described below, in proportion to such
balances, up to amounts sufficient to reduce such balances to zero; and (iii)
thereafter, 95% to the Limited Partners and 5% to the General Partners.
Therefore, payment of the Limited Partners' 8% Return is not guaranteed. See
Article 18.2 of the Partnership Agreement.
ALLOCATION OF NET INCOME AND NET LOSS
Net Income and Net Loss of the Partnership generally will be allocated
as follows: first, in an amount not to exceed the amount of Net Cash Flow
attributable to such year in the same proportion as such Net Cash Flow is
distributable; and thereafter, any remaining Net Income or Net Loss shall be
allocated 99% to the Limited Partners and 1% to the General Partners; provided,
however, that all deductions for depreciation and amortization will be specially
allocated 99% to the Taxable Limited Partners and 1% to the General Partners.
See Article 9.2(a) of the Partnership Agreement.
Notwithstanding the above allocations, the General Partners will be
allocated at least 1% of each material tax item, including gain or loss on Sale.
See Section 9.8 of the Partnership Agreement.
ALLOCATION OF GAIN ON SALE
Any Gain realized by the Partnership generally will be allocated as
follows: (i) first, to the Partners having negative balances in their Capital
Accounts, in the proportion that the negative balance of each such Partner's
Capital Account bears to the aggregate negative balances in the Capital Accounts
of all such Partners, until the balances in their Capital Accounts equal zero;
(ii) second, 100% to each Limited Partner whose Capital Account balance, divided
by the number of Units held by such Limited Partner ("Capital Account Balance
Per Unit"), is less than the highest Capital Account Balance Per Unit of any
Limited Partner, until each Limited Partner's Capital Account Balance Per Unit
equals such highest Capital Account Balance Per Unit; (iii) third, 100% to the
Limited Partners until the aggregate positive balances in the Limited Partners'
Capital Accounts equal the sum of their Limited Partners' 8% Return and their
aggregate Invested Capital Contributions; and (iv) fourth, 100% to the General
Partners until the aggregate positive balances in their Capital Accounts equal
the sum of their Capital Contributions plus an amount equal to 5% of all prior
and current distributions of Net Cash Flow, to the extent the General Partners
have not previously received such amount; and (v) thereafter, 95% to the Limited
Partners and 5% to the General Partners. See Article 9.2(b) of the Partnership
Agreement.
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ALLOCATION OF LOSS ON SALE
Any Loss realized by the Partnership will be allocated as follows: (i)
first, 100% to each Limited Partner whose Capital Account Balance Per Unit is
greater than the lowest Capital Account Balance Per Unit of any Limited Partner,
until each Limited Partner's Capital Account Balance Per Unit equals such lowest
Capital Account Balance Per Unit; (ii) second, to the Partners with positive
balances in their Capital Accounts in the proportion that the positive balance
in each such Partner's Capital Account bears to the aggregate positive balances
in the Capital Accounts of all such Partners, until the balances in their
Capital Accounts equal zero; and (iii) thereafter, 95% to the Limited Partners
and 5% to the General Partners. See Article 9.2(c) of the Partnership Agreement.
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership is a Florida limited partnership whose General Partners
are Robert A. Bourne, James M. Seneff, Jr., and CNL Realty Corporation, a
Florida corporation. The term of the Partnership commenced on February 10, 1995.
Upon the admission of the Limited Partners to the Partnership, the sole initial
Limited Partner will withdraw from the Partnership. The Partnership Agreement, a
form of which is attached hereto as Exhibit A, will govern the rights and
obligations of the Limited Partners upon their admission to the Partnership.
The following discussion summarizes the material terms of the
Partnership Agreement, but all statements made below and elsewhere in this
Prospectus are qualified in their entirety by reference to the Partnership
Agreement itself, a copy of the form of which is attached hereto as Exhibit A.
See "Allocations and Distributions" for a description of the allocations and
distributions to which the Limited Partners of the Partnership are entitled
under the Partnership Agreement.
MANAGEMENT OF THE PARTNERSHIP
The management, operation, and control of the Partnership and all of
its business and affairs will rest exclusively with the General Partners. The
vote of a majority of the General Partners will control. Limited Partners
holding a majority of the outstanding Units may remove one or more of the
General Partners, provided that written notice of the removal of a General
Partner, setting forth the reasons for such removal and the date upon which the
removal is to become effective, shall be served upon such General Partner,
either by certified or registered mail, return receipt requested, or by personal
service. Any removal of the last remaining General Partner shall be effective
only on the earlier of (i) such date as a substituted General Partner shall have
been admitted to the Partnership in accordance with the terms of the Partnership
Agreement or (ii) a date 90 days after the date on which Limited Partners
holding the required majority in interest shall have voted for such removal of
the General Partner. Upon the effective date of the removal of a General
Partner, he or it shall cease to be a General Partner, and any loans made by
such General Partner or his or its Affiliates to the Partnership in accordance
with the provisions of the Partnership Agreement shall be repaid as
expeditiously as possible. Additionally, if the business of the Partnership is
to be continued following the removal of a General Partner, then (i) the
Partnership shall purchase the General Partner's Partnership Interest at a price
determined in accordance with the terms of Article 15.5 of the Partnership
Agreement, and (ii) if no substituted General Partner is elected in the place of
any removed General Partner, those persons or entities who are General Partners
following such removal shall use their best efforts to release such removed
General Partner (and his or its Affiliates, if applicable) from personal
liability on any existing or future Partnership borrowing, if any.
LIABILITY OF THE LIMITED PARTNERS TO THIRD PARTIES
Except as provided below, no Limited Partner will be personally liable
for the debts of the Partnership beyond the amount of such Partner's Capital
Contribution and such Partner's share of undistributed profits of the
Partnership. In the event the Partnership is unable to meet its obligations, the
Limited Partners, under applicable law, could be obligated to (i) return, with
interest, any cash wrongfully distributed which represents a return of their
Capital Contributions, for a period of six years thereafter, and (ii) repay,
with interest, any cash distributed to them which represents a return of a
Capital Contribution, pro rata in accordance with their Partnership Interests,
for a period of one year after the date of such distribution, as are required to
discharge liabilities of the Partnership to creditors who extended credit or
whose claims arose during the period the returned Capital Contributions were
held by the Partnership. In addition, the Limited Partners could be held liable
with the General Partners for the general obligations of the Partnership if they
were found to have participated in the management and control of the
Partnership.
MEETINGS AND VOTING RIGHTS
Meetings of the Partnership for any purpose may be called by the
General Partners or by written request (stating the purpose of such meeting) of
Limited Partners holding 10% or more of the outstanding Units. Meetings called
at the written request of the Limited Partners will be held not less than 15 nor
more than 60 days after receipt of such written request. Each Limited Partner
has the right, at such Partner's own expense, either to inspect and copy the
list of Partners maintained at the Partnership's principal office or to receive,
by mail, a copy of this list.
Limited Partners holding a majority of Units may vote to (i) amend or
terminate contracts for services or goods between the Partnership and the
General Partners or their Affiliates; (ii) approve or disapprove the sale or
transfer of all or substantially all of the Partnership's assets except sales in
the ordinary course of the Partnership's business (including, without
limitation, the Sale of the Properties within 7 to 12 years after their
acquisition or as soon thereafter as market conditions permit); (iii) amend the
Partnership Agreement; (iv) remove any one or more of the General Partners and
elect one or more substituted General Partners; (v) change the investment
objectives of the Partnership; and (vi) dissolve the Partnership. Except as
expressly provided in the Partnership Agreement, the Limited Partners have no
voting rights.
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The General Partners may acquire Partnership Interests as Limited
Partners and will acquire for investment at least 5,000 Units (and may, but are
not required to, purchase for investment up to an additional 15,000 Units) as
Limited Partners. Except as otherwise provided in the Partnership Agreement, the
General Partners will have full voting rights in their capacities as Limited
Partners. See Article 13.1 of the Partnership Agreement.
RESTRICTIONS ON TRANSFERABILITY OF UNITS
Subject to the conditions on transfer in Article Fourteen of the
Partnership Agreement, Limited Partners shall have the right to transfer their
Units. The investment in Units is designed, however, as a long-term investment
for persons who have no need for liquidity in this investment. For example, the
General Partners have retained the right to prohibit transfers of Units,
including transfers of economic interests, if the General Partners determine
that such transfers could increase the likelihood that the Partnership would be
treated as a "publicly traded partnership." Because the characterization of the
Partnership as a "publicly traded partnership" would significantly decrease the
value of the Units, the General Partners intend to exercise fully their right to
prohibit transfers of Units under these circumstances. See "Federal Income Tax
Considerations--Publicly Traded Partnerships" and Article Fourteen of the
Partnership Agreement. In the case of any permitted transfer of an economic
interest, the substitution of the transferee as a Limited Partner in the
Partnership will be subject to the prior written consent of the General
Partners. The assignment must be documented with original signatures on forms
supplied by the General Partners. Other conditions on transfers Units by Limited
Partners are as follows: (i) a duly executed and acknowledged counterpart of the
instrument making the transfer, signed by both the transferor and the
transferee, with such instrument evidencing the written acceptance by the
transferee of all of the terms and provisions of the Partnership Agreement and
containing a representation by the transferor that such transfer was made in
accordance with all applicable laws and regulations shall have been filed with
the Partnership; (ii) the transferor and the transferee shall have executed such
documents and performed such acts as the General Partners may request in
connection with the transfer; (iii) no transfer will be permitted if, based upon
information provided by the Partnership, counsel for the Partnership or the
General Partners is of the view that there is a substantial risk that such
transfer would result in the Partnership being considered to have terminated
within the meaning of Section 708 of the Code; (iv) Units shall not be
transferred to a minor or an incompetent except by will or intestate succession;
(v) no transfer will be recognized for any purpose whatsoever if, after such
transfer, the transferor or the transferee will hold an interest representing a
Capital Contribution of less than $2,500 ($1,000, or such greater amounts as may
be required by applicable state law, in the case of transfers by an individual
retirement account, Keogh or pension plan), unless such transfer represents the
transfer of the entire Partnership Interest of the transferor; (vi) transfers to
a foreign persons for purposes of U.S. federal income taxation may be prohibited
by the General Partners; and (vii) purported transfers of Units, or any
beneficial interest therein, will be void if, as a result of such transfer, the
Partnership would violate the safe harbors of section 7704 of the Code and the
regulations issued thereunder.
The Partnership will amend the Partnership Agreement at least once each
calendar quarter to reflect the substitution of Limited Partners but is not
required to file any such amendments with the Secretary of State of the State of
Florida. See Articles 14.3 and 14.5 of the Partnership Agreement.
DISSOLUTION AND LIQUIDATION
Unless terminated earlier, the Partnership will be terminated,
dissolved, and its assets liquidated on December 31, 2025. Events which may
cause earlier dissolution of the Partnership include, among others, the
disposition of all or substantially all of the Partnership's assets (as defined
in the Partnership Agreement), a vote of Limited Partners owning at least a
majority of Units to dissolve the Partnership, and the removal, withdrawal,
resignation, bankruptcy, death, dissolution, or incompetency of any General
Partner. In the event that a dissolution of the Partnership is followed by its
liquidation, there will be an accounting with respect to its assets and
liabilities. All of its liabilities and obligations, including expenses incurred
in connection with the termination and the sale or distribution of Partnership
assets, will be paid. If available cash is not sufficient to fund the required
payments, the assets of the Partnership will be sold for cash as required to
generate sufficient liquidity. When the specified payments all have been made,
the remaining assets of the Partnership will be sold and the funds received from
such sales will be distributed to the Partners pro rata in accordance with their
Capital Accounts and Partnership Interests. For a complete discussion of events
causing dissolution and of the manner in which the assets of the Partnership
will be liquidated and the proceeds of liquidation distributed, see Articles
Seventeen and Eighteen of the Partnership Agreement.
INDEMNIFICATION
The Partnership will indemnify the General Partners, as well as any of
their Affiliates and any officer or director of the General Partners or their
Affiliates who performs services on behalf of the Partnership, against losses,
damages, and expenses, including attorneys' fees and costs payable by such
persons, incurred by them as a result of actions which the General Partners
determined in good faith were in the best interests of the Partnership, except
for liability arising out of misconduct, negligence, or breach of fiduciary duty
to the Limited Partners or the Partnership. For a more complete description of
the indemnification provisions of the Partnership Agreement, see "Fiduciary
Responsibility of the General Partners."
NONEXCLUSIVE DUTIES
The General Partners and their Affiliates may engage in any other
transactions and possess interests in any other business ventures of any nature
or description, including transactions or business ventures which compete with
the Partnership. Neither the Partnership nor the Limited Partners shall thereby
acquire any rights in such ventures or any rights to receive income or profits
derived therefrom. See "Conflicts of Interest--Prior and Future Programs."
POWER OF ATTORNEY
By executing the Subscription Agreement, each Limited Partner
irrevocably constitutes and appoints each General Partner as such Limited
Partner's true and lawful attorney-in-fact with full power and authority in such
Limited Partner's name, place, and stead
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to execute, acknowledge, swear to, file, and record at the appropriate public
offices all documents, instruments, and certificates which the General Partners
determine are necessary or advisable to execute or conduct the business of the
Partnership.
PROHIBITIONS ON "ROLL-UP" TRANSACTIONS
The Partnership will not, directly or indirectly, participate in any
acquisition of the Partnership by another entity, any combination of the
Partnership with another entity through a merger or consolidation, or any
conversion of the Partnership into another form of business entity (such as a
corporation) if, as a result, the other entity would issue securities to the
Limited Partners. The Partnership, however, may itself convert to another form
of business entity (such as a corporation, trust, or association) if the
conversion will not result in a significant adverse change in (i) the voting
rights of the Limited Partners, (ii) the termination date of the Partnership
(currently, December 31, 2025, unless terminated earlier in accordance with the
Partnership Agreement), (iii) the compensation payable to the General Partners
or their Affiliates, or (iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Properties; the performance of the restaurant industry in
general, and of the fast-food, family-style, and casual-dining segments of the
industry in particular; and the then-current value and marketability of the
Partnership's Properties. In general, the General Partners would consider any
material limitation on the voting rights of the Limited Partners or any
substantial increase in the compensation payable to the General Partners or
their Affiliates to be a significant adverse change in the listed provisions.
It is anticipated that, under the provisions of the Partnership
Agreement, the consummation of any such conversion of the Partnership into
another form of business entity (whether or not approved by the General
Partners) would require the approval of Limited Partners holding a majority of
the Units. See "Meetings and Voting Rights" above.
APPLICABLE LAW
The Partnership Agreement is to be construed and enforced in accordance
with the laws of the State of Florida.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the federal income tax considerations
material to an investment in the Partnership by prospective Limited Partners,
prepared by Baker & Hostetler, as counsel. This summary is based upon the Code,
effective and proposed administrative regulations (the "regulations"), judicial
decisions, published and private rulings and procedural announcements issued by
the Treasury Department as in effect as of the date of this Prospectus, any of
which may be subject to change, possibly with adverse retroactive effect.
Certain changes to the Code enacted as part of the Revenue Reconciliation Act of
1993 and other provisions of the Code that significantly affect the tax
consequences of investments in real estate limited partnerships have not yet
been the subject of court decisions or authoritative interpretation by the IRS.
In considering the tax aspects of the Offering, prospective investors
should note that the Partnership is not intended to be a so-called "tax
shelter," and that, accordingly, many of the tax aspects commonly associated
with a "tax shelter" are inapplicable to the Partnership or are of minor
importance. The Partnership does not expect to generate tax losses that can be
used to offset Limited Partners' income from sources other than the Partnership.
If the Partnership's investment objectives are met, the Partnership's operations
will generate taxable income for investors. Further, the Partnership does not
expect to realize significant tax benefits from credits, rent-up fees, or
similar items.
The availability and amount of tax benefits that will be claimed by the
Partnership will depend not only upon the general legal principles described
below, but also upon certain decisions and determinations which will be made in
the future by the General Partners as to which no legal opinion is expressed and
which are subject to potential controversy on factual or other grounds. Such
determinations include allocations of basis of a Fee Property among
nondepreciable land and the components of depreciable improvements, the proper
characterization and purpose of various fees, commissions and other
expenses of the Partnership, the reasonableness and timing of fees, the dates on
which the Partnership commences business, the dates on which a Property will be
considered "placed in service," and various other matters.
No rulings have been or will be requested from the IRS concerning any
of the tax matters described herein. Accordingly, there can be no assurance that
the IRS or a court will not disagree with the following discussion or with any
of the positions taken by the Partnership for federal income tax purposes.
This summary is not, and is not intended to be, a complete analysis of
all applicable provisions of the Code, the regulations, and judicial and
administrative interpretations thereof. The income tax considerations discussed
below are necessarily general and will vary with the individual circumstances of
each prospective Limited Partner. In particular, this summary assumes that the
Limited Partners will be individuals or tax-exempt pension or profit-sharing
trusts or IRAs. It does not generally discuss the federal income
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tax consequences of an investment in the Partnership peculiar to corporate
taxpayers, foreign taxpayers, estates, taxable trusts, or to transferee Limited
Partners.
FOR THE FOREGOING REASONS, PROSPECTIVE LIMITED PARTNERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE FEDERAL AND STATE TAX
CONSEQUENCES RESULTING FROM THE PURCHASE OF UNITS AND FROM FUTURE CHANGES IN TAX
LAWS AND REGULATIONS.
CHANGES IN THE TAX LAW
The federal income tax laws, generally, and the income tax laws
relating to investments in limited partnerships such as the Partnership,
specifically, in recent years have been, and possibly will continue to be,
subject to significant revisions. The following discussion and the opinion of
Counsel described below are based upon the provisions of the Internal Revenue
Code of 1986, as amended, and in effect as of the date hereof, Treasury
Regulations, reported judicial decisions, and current published administrative
rulings and procedures. It is impossible to predict how subsequent developments
in tax legislation, case law, Treasury Regulations, or administrative
interpretations may affect the taxation of the Partners or the Partnership.
IT IS EMPHASIZED THAT NO ASSURANCE CAN BE GIVEN THAT LEGISLATIVE,
JUDICIAL OR ADMINISTRATIVE CHANGES MAY NOT BE FORTHCOMING THAT WOULD MODIFY ANY
PORTION OF THE FOLLOWING DISCUSSION AND THE OPINION OF COUNSEL, NOR IS THERE ANY
ASSURANCE THAT THE TAX CONSEQUENCES TO THE LIMITED PARTNERS WILL CONTINUE AS
HEREIN DESCRIBED.
OPINION OF COUNSEL
The Partnership has obtained an opinion from Counsel to the Partnership
that:
1. Partnership Tax Status. It is more likely than not that the
Partnership will be treated as a partnership as defined in sections 7701(a)(2)
and 761(a) of the Code and not as an association taxable as a corporation, and
that the Limited Partners will be subject to tax as partners pursuant to
sections 701-761 of the Code.
2. Publicly Traded Partnerships. Based upon the representations of the
Managing Dealer and the General Partners, and the provisions of the Partnership
Agreement, it is more likely than not that the Partnership will not constitute a
publicly traded partnership for purposes of sections 7704 and 469(k) of the
Code.
3. Unrelated Business Taxable Income. Assuming that the Partnership
owns and leases the Fee Properties on substantially the terms and conditions
described in "Business--Description of Leases" and that it does not own and
lease personal property, borrow money, or act as a dealer in real property, and
that income attributable to tenant improvements made to Leasehold Property is
considered income from the rental or lease of real Property for UBTI purposes,
it is more likely than not that the income of the Partnership will not
constitute unrelated business taxable income.
4. Allocations to the Partners. All material allocations to the
Partners of income and gain set forth in the Partnership Agreement more likely
than not will be treated as having substantial economic effect or otherwise will
be treated as being in accordance with the interests of the Partners in the
Partnership, and (ii) all material allocations set forth in the Partnership
Agreement of deductions, losses and credits more likely than not will have
substantial economic effect or will be otherwise treated as being in accordance
with the interests of the Partners in the Partnership to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreased in such
balance.
5. Ownership of Fee Properties; Depreciation. Assuming that (i) the
Partnership leases the Fee Properties on substantially the terms and conditions
described in "Business--Description of Leases," (except that this opinion does
not apply to cases in which any lessee purchase option, computed pursuant to
formula or otherwise, is exercisable at an amount less than the Fee Property's
then fair market value) and (ii) as is represented by the General Partners, the
residual values of the Fee Properties remaining after the end of their lease
terms (including all renewal periods) may reasonably be expected to be at least
20% of the Partnership's costs of such Fee Properties, and the remaining useful
lives of the Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the Fee
Properties' useful lives at the beginning of their lease terms, it is more
likely than not that the Partnership will be treated as the owner of the Fee
Properties for federal income tax purposes and will be entitled to claim
depreciation and other tax benefits
associated with such ownership. Further, the Partnership will have a reasonable
basis for taking the position that it is the owner for federal income tax
purposes of any Fee Property that meets the above requirements except that the
lessee is granted the option to purchase the Fee Property at a formula price
based on measures of value contained in an independent appraisal, assuming, as
is represented by the General Partners, that such formula will approximate, or
bear a reasonable relationship to, the fair market value of the Fee Property at
the time of the option's exercise. No opinion has been issued with respect to
the tax consequences associated with Leasehold Properties.
6. Passive Activity Income. Assuming that the Partnership is operated,
acquires, and leases Fee Properties in the manner described in this Prospectus
and, as is anticipated by the General Partners, that 30% or more of the
unadjusted basis of each Fee Property, other than Properties in which the
Partnership acquires only land, is subject to the allowance for depreciation, it
is more likely than not that a Limited Partner's share of the Partnership's net
income from Fee Properties will be net income from a "passive activity," as
defined in section 469 of the Code. This opinion does not apply to any
Partnership income attributable to (i) the investment of Partnership funds in
liquid investments prior to the purchase of Properties, (ii) the investment, in
interest-bearing accounts or otherwise, of amounts held by the Partnership as
working capital, security deposits, or in reserve, or amounts held pursuant
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to the Reinvestment Plan, (iii) Properties with respect to which the Partnership
(or any Joint Venture) is determined not to be the owner, or (iv) Properties
acquired by the Partnership comprised on land only.
7. Investment Through Joint Venture. Assuming that the Joint Ventures
have the characteristics described in "Business--Joint Venture Arrangements,"
and that each Joint Venture operates in the same manner that the Partnership
operates with respect to Properties which it owns directly, it is more likely
than not that (i) the Joint Ventures will be treated as partnerships as defined
in sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Partnership will be subject to tax as a partner
pursuant to sections 701-761 of the Code, (ii) all material allocations of
income and gain as provided in the Joint Venture Agreements more likely than not
will be treated as being in accordance with the interests of the partners in the
Joint Venture and all material allocations set forth in the Joint Venture
Agreements of deductions, losses, and credits more likely than not will have
substantial economic effect or will otherwise be treated as being in accordance
with the interest of the partners in the Joint Venture to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreases in such
balance, and (iii) the foregoing opinions regarding ownership of Properties,
passive activity income, and unrelated business taxable income also will apply
to Properties held by the Partnership indirectly through a Joint Venture.
The opinion of Counsel reflects the tax consequences which Counsel
believes a Limited Partner reasonably may expect as the result of an investment
in the Partnership. The opinion is based on the facts described in this
Prospectus and upon certain assumptions and representations of the Managing
Dealer and the General Partners. The material assumptions and representations
are summarized below.
(i) The Partnership was organized and will be operated in
accordance with the Revised Uniform Limited Partnership Act,
as adopted by, and in effect in, the State of Florida;
(ii) The Partnership will be operated in accordance with the
Partnership Agreement, and the Partnership and each Joint
Venture will have the characteristics described in the
Prospectus and will be operated as described in the
Prospectus;
(iii) The Partnership will not participate in any Joint Venture on
terms other than those described in "Business--Joint Venture
Agreements" without first receiving certain advice of Counsel;
(iv) The Fee Properties will be leased on substantially the terms
and conditions described in the Prospectus in
"Business--Description of Leases";
(v) The net worth of the individual General Partners will continue
to exceed an amount that is intended to assure that the
Partnership may qualify as a partnership for federal income
tax purposes;
(vi) The residual value and useful life of each Fee Property
remaining after the end of its lease term will exceed a
percentage of the Fee Property's initial cost and useful life
which is intended to assure that the Partnership (or Joint
Venture) will be treated for federal income tax purposes as
the owner of the Fee Property;
(vii) Lessee purchase options will be structured in a manner that
will increase the likelihood that the Partnership will be
treated as the owner of the Fee Properties or will have a
reasonable basis for taking the position that it is the owner
of the Fee Properties;
(viii) The General Partners and the Managing Dealer will take certain
steps in connection with the transfer of Units to decrease the
likelihood that the Partnership will be treated as a publicly
traded partnership for purposes of sections 7704 and 469(k) of
the Code;
(ix) The Partnership (and each Joint Venture) will not act as a
dealer in real property and will structure the acquisition and
leasing of each Property (and any personal property) in a
manner that will reduce the likelihood that the Partnership
will have a significant amount of unrelated business taxable
income; and
(x) The portion of the unadjusted basis of each Fee Property that
is subject to the allowance for depreciation will exceed a
percentage that is intended to assure that rents from such Fee
Property will be treated as passive income, except for those
Properties consisting of land only.
As of the date of this Prospectus, no Properties had been acquired by
the Partnership, nor had the Partnership entered into any arrangements that
create a reasonable probability that the Partnership will acquire any
Properties. Therefore, it is impossible at this time to opine on the application
of the law to the specific facts which will exist when Properties are acquired
and leased. For this reason, and for the reasons described more fully below, it
is not possible to reach a judgment as to the probable outcome on the merits
(either favorable or unfavorable) of the following income tax issues: (i)
whether the Partnership will be the owner for tax purposes of any Fee Property
subject to a lease in which the lessee may purchase the Fee Property at an
amount other than the Fee Property's then fair market value (determined by
appraisal or otherwise); (ii) the characterization and deductibility of certain
fees and expenses; (iii) whether the Partnership will be treated as a dealer in
real property for federal income tax purposes; (iv) the taxation of Limited
Partners under state or local income tax laws; and (v) the tax consequences
associated with Leasehold Properties. The Partnership intends to take the
position that it is the owner for tax purposes of each Fee Property and that the
Partnership is not a dealer with respect to the Properties. Further, the General
Partners will exercise their best judgment as to their proper characterization
of fees and expenses based on all surrounding facts and circumstances.
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PARTNERSHIP STATUS
Treasury regulations provide that an entity generally will be treated
as a partnership rather than a corporation for federal income tax purposes if it
has associates and an objective to carry on business for a joint profit and has
no more than two of the following corporate attributes: (i) continuity of life;
(ii) centralization of management; (iii) limited liability; and (iv) free
transferability of interests.
Based upon the continued organization and operation of the Partnership
in accordance with the Revised Uniform Limited Partnership Act as adopted by the
State of Florida, the terms of the Partnership Agreement, and the continued
satisfaction by the General Partners of certain net worth requirements, the
Partnership should lack the corporate characteristics of continuity of life,
limited liability, and free transferability of interests. Accordingly, it is the
opinion of Counsel that it is more likely than not that the Partnership will be
treated as a partnership as defined in sections 7701(a)(2) and 761(a) of the
Code and not as an association taxable as a corporation, and that the
Partnership and the Limited Partners will be subject to tax as partners pursuant
to sections 701-761 of the Code.
If the Partnership in any taxable year were treated for federal income
tax purposes as an association taxable as a corporation, income and deductions
of such partnership would be reflected only on its tax return rather than being
passed through to its partners, and it would be required to pay income tax on
its net income at corporate tax rates (currently 35%). The imposition of any
such tax would reduce the amount of cash, if any, available to be distributed to
the Limited Partners. If the Partnership is treated as an association taxable as
a corporation, distributions would be ordinary dividend income to the extent of
the Partnership's earnings and profits and the payment of such dividends would
not be deductible. Moreover, any income received by the Limited Partners would
constitute portfolio income that could not be offset by any losses they may have
from passive activities. See "Basis, At-Risk, and Passive Activity Limitations
on Deduction of Losses" below.
INVESTMENT IN JOINT VENTURES
As indicated in "Business--Joint Venture/Co-Tenancy Arrangements," the
Partnership may participate in Joint Ventures which own and lease Properties.
Assuming that the Joint Ventures have the characteristics described in
"Business--Joint Venture/Co-Tenancy Arrangements," and are operated in the same
manner that the Partnership operates with respect to Properties that it owns
directly, it is the opinion of Counsel that it is more likely than not that (i)
the Joint Ventures will be treated as partnerships, as defined in sections
7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Partnership will be subject to tax as a partner
pursuant to sections 701-761 of the Code and (ii) all material allocations to
the Partnership of income, gain, loss and deduction as provided in the Joint
Venture Agreements and as discussed in the Prospectus will be respected under
section 704(b) of the Code. The General Partners have represented that the
Partnership will not become a participant in any Joint Venture on terms other
than those described in "Business--Joint Venture/Co-Tenancy Arrangements" unless
the Partnership has first obtained advice of Counsel that the Joint Venture will
more likely than not constitute a partnership for federal income tax purposes
and that the allocations to the Partnership contained in the Joint Venture
Agreement more likely than not will be respected. If, contrary to the opinions
of Counsel, a Joint Venture were to be treated as an association taxable as a
corporation, the same adverse tax consequences as described above with respect
to the characterization of the Partnership as a corporation would apply to the
Joint Venture. See "Partnership Status" below.
Because each Joint Venture should be treated as a partnership and will
operate in the same manner that the Partnership operates with respect to
Properties which it owns directly, the discussions contained in this section
"Federal Income Tax Considerations" should apply equally to Properties held by
the Partnership indirectly through a Joint Venture.
CO-TENANCY ARRANGEMENTS
As indicated in "Business--Joint Venture/Co-Tenancy Arrangements," the
Partnership may own and operate Properties through Co-Tenancy Arrangements under
which the Partnership and another entity will each hold an undivided interest in
a Property. Co-Tenants, unlike partners, are taxed on a pure aggregate basis, as
if each separately owned a portion of the jointly held property. Thus, each
party in a co-tenancy generally includes in income its pro-rata share of income
and is entitled to deduct its pro-rata share of expenses. Because Properties
operated under Co-Tenancy Arrangements are generally expected to be operated in
the same manner that the Partnership operates Properties it will own exclusively
or through a Joint Venture, the discussion contained in the section "Federal
Income Tax Considerations" should generally apply to Properties held in
Co-Tenency Arrangements.
PUBLICLY TRADED PARTNERSHIPS
Two provisions of the Code adversely affect the taxation of publicly
traded partnerships. The first, section 7704, causes certain publicly traded
partnerships to be taxed as corporations, with the consequences described in
"Federal Income Tax Considerations--Partnership Status." The second, section
469(k), causes the passive activity loss rules to apply more harshly to net
income and net losses attributable to publicly traded partnerships. Net passive
income from such partnerships is treated as investment income, which cannot be
offset by net losses from other "passive activities," and net losses
attributable to such partnerships may not be used to offset a partner's other
passive income. See "Federal Income Tax Considerations--Basis, At-Risk, and
Passive Activity Limitations on Deduction of Losses."
Article Fourteen of the Partnership Agreement provides that the General
Partners may prohibit the transfer or assignment of a Unit (or an economic
interest therein), including transfers pursuant to the Distribution Reinvestment
Plan, if such transfer is effected through a secondary market (or the
substantial equivalent thereof) or, together with other transfers, could
increase the
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likelihood that the Partnership would be treated as a publicly traded
partnership. Further, the General Partners have the right under the Partnership
Agreement not to recognize any purported transfer or assignment of a Unit made
without their consent.
The General Partners have represented that they intend to enforce these
restrictions to the extent possible under the Partnership Agreement and
applicable law to prevent any increased likelihood of the Partnership being
treated as a publicly traded partnership. In addition, the General Partners have
represented that they will terminate the Distribution Reinvestment Plan if the
existence of the Distribution Reinvestment Plan creates a substantial risk of
the Partnership being treated as a publicly traded partnership. The Managing
Dealer and the General Partners also have made the following representations:
(i) they will not list, facilitate, or recognize the trading of Units on an
established securities market, (ii) they will not create a market for Units or
facilitate or recognize the trading of Units on a secondary market (or the
substantial equivalent thereof) within the meaning of section 7704 or section
469(k) of the Code (and the General Partners will not recognize any transfers by
redeeming the transferor Partner or admitting the transferee as a Partner or
otherwise recognize any rights of the transferee, such as a right of the
transferee to receive partnership distributions (directly or indirectly) or to
acquire an interest in capital or profits of the Partnership), and (iii) they
will not allow any transfers of Units which could cause the Partnership to
violate the safe harbors of section 7704 of the Code and the regulations issued
thereunder.
In the opinion of Counsel, based upon the representations of the
Managing Dealer and the General Partners, and the provisions of the Partnership
Agreement, it is more likely than not that the Partnership will not constitute a
publicly traded partnership for the purposes of sections 7704 and 469(k) of the
Code.
TAXATION OF THE LIMITED PARTNERS
The Partnership will not be subject to federal income tax. Instead, the
Limited Partners will be required to report on their individual income tax
returns, and to take into account in determining their own income tax, their
allocable share of all items of the Partnership's income, gain, loss, or
deduction and items of tax preference for the Partnership's taxable year ending
with or within their own taxable year. These items will have, in the hands of
the Limited Partners, the same character as they had in the hands of the
Partnership.
The Limited Partners are subject to tax on their distributive share of
Partnership taxable income and items of the Part- nership's income, gain or tax
preference even though they may have received total cash distributions less than
the amount of reportable income or even the resultant federal income tax. For
example, Limited Partners who participate in the Distribution Reinvestment Plan
will be allocated their share of Partnership Net Income and Gain (including Net
Income and Gain attributable to Units acquired pursuant to the Distribution
Reinvestment Plan) even though such Partners may receive no cash distributions
from the Partnership. To the extent that the resultant tax exceeds cash
distributions to a Limited Partner in any year, such excess will constitute an
out-of-pocket expense to the Limited Partner.
Regarding certain limitations on the extent to which Limited Partners
can deduct their share of Partnership losses, see "Basis, At-Risk, and Passive
Activity Limitations on Deduction of Losses" below.
QUALIFIED PLAN INVESTORS
Qualified retirement plans, IRAs, Keogh plans, and other plans that are
subject to ERISA (collectively, "Qualified Plans") are generally exempt from
taxation except to the extent that their "unrelated business taxable income"
("UBTI") from all sources exceeds $1,000 during any year. Certain passive-type
income from unrelated businesses, such as interest and dividend income and gain
from the sale of property (other than inventory and property held primarily for
sale to customers in the ordinary course of business), is excluded from UBTI.
Rents from real property are also excluded from UBTI, except that rent
which is contingent on the income or profits derived with respect to the leased
property is excluded only if based on a fixed percentage of receipts or sales
(as is the case with the anticipated leases of the Properties). Rents from
personal property leased with real property will also be excluded from UBTI, but
only if the rent attributable to the personal property is not more than 10% of
the total rent received under the lease.
Notwithstanding the foregoing exclusions, Partnership income generally
will constitute UBTI to the extent it is attributable to property financed with
"acquisition indebtedness" (other than indebtedness to acquire or improve real
Property in certain limited circumstances). The General Partners do not
currently intend (although they have the right) to cause the Partnership to
borrow money. If the Partnership does borrow money, the General Partners have
represented that they will use reasonable efforts to structure the debt in a
manner so that it will not constitute "acquisition indebtedness." In addition,
the Partnership Agreement prohibits the Partnership from borrowing money to
purchase Properties or from encumbering the Properties in connection with any
borrowing. The General Partners further have represented that they will limit
the Partnership's outstanding indebtedness to 3% of the aggregate adjusted tax
basis of its Properties, thus limiting the portion of its income that could be
characterized as attributable to property financed with acquisition
indebtedness.
In addition, a Qualified Plan's share of Net Income from the
Partnership generally would be characterized as UBTI if the Partnership were
held to be a dealer with respect to the Properties. Whether the Partnership is
treated as a dealer is inherently factual in nature and depends on the
intentions of the Partnership and its operations from time to time, and,
accordingly, Counsel is unable to render an opinion (either favorable or
unfavorable) on this issue. The Partnership, however, has not been organized to
engage in the buying and selling of Properties and, thus, it is expected (and
the Partnership will take the position) that it will not be treated as a dealer
with respect to the Properties.
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Assuming that the Partnership owns and leases the Properties on
substantially the terms and conditions described in "Business--Description of
Leases" and that it does not own and lease personal property, borrow money, or
act as a dealer in real property, in the opinion of Counsel it is more likely
than not that the income of the Partnership will not constitute UBTI.
The tax treatment of distributions by Qualified Plans and other exempt
entities is beyond the scope of this discussion, and such entities should
consult their tax advisers regarding such questions.
ALLOCATIONS OF INCOME, GAIN, LOSS, AND DEDUCTION
A partner's distributive share of income, gain, loss or deduction for
federal income tax purposes generally is determined in accordance with the
provisions of the partnership agreement. Under section 704(b) of the Code,
however, an allocation will be respected only if it has "substantial economic
effect" or is in accordance with the partners' "interests in the partnership."
Treasury regulations issued under section 704(b) provide rules for determining
whether an allocation will have economic effect, and whether the economic effect
will be substantial. An allocation will have economic effect if (i) the
partners' capital accounts are maintained and determined in accordance with a
prescribed set of guidelines, (ii) liquidation proceeds are required in all
cases to be distributed in accordance with the partners' capital account
balances, (iii) the partnership agreement does not allocate losses to a partner
that cause such partner's capital account balance (reduced for certain
anticipated future reductions in such partner's capital account) to go below the
amount of any deficit balance that the partner is, or is deemed to be, required
to restore, and (iv) the partnership agreement contains a "qualified income
offset provision," which generally allocates items of gross income to a partner
to reduce any unexpected excess deficit capital account balance.
The economic effect of an allocation is substantial if there is a
reasonable possibility that the allocation will affect substantially the dollar
amounts to be received by the partners from the partnership, independent of tax
consequences. To make this determination, the likelihood and magnitude of any
shift in the economic consequences among partners must be weighed against the
shifting of tax consequences resulting from an allocation. The economic effect
of an allocation may be found to be insubstantial if, among other factors, a
change in tax allocation percentages is only remotely related to, or is
disproportionately larger than, the likely change in economic benefits and
burdens, or if such a change has no nontax business purpose, is likely to be
offset in the future, or is motivated by interaction with the nonpartnership tax
attributes of the partners. In addition, the economic effect of an allocation
will be insubstantial if, as a result of the allocation, the after-tax economic
consequences of at least one partner, in present value terms, may be enhanced,
and there is a strong likelihood that the after-tax economic consequences of no
partner, in present value terms, will be diminished. The Treasury Regulations
provide that the economic effect of depreciation deductions is deemed to be
substantial.
Generally, all allocations of tax items are made among the Partners in
accordance with their relative interest in the Partnership or their allocable
share of cash distributions from the Partnership, except that 99% of the total
depreciation and amortization deductions are specially allocated to the Limited
Partners who are not exempt from federal income tax; provided, however,
notwithstanding the foregoing, the interest of the General Partners in each
material item of Partnership income, gain, loss, deduction, and credit will be
equal to at least 1% of each such item at all times during the existence of the
Partnership.
The allocations contained in the Partnership Agreement are intended to
comply with the regulations' test for having economic effect. The Partnership
Agreement requires Capital Accounts to be properly maintained, requires
distributions of proceeds from the liquidation of a Partner's interest in the
Partnership to be made in accordance with such Partner's positive Capital
Account balance, does not permit allocations of losses which cause a Limited
Partner to have an Adjusted Capital Account Deficit, and contains a qualified
income offset provision. Moreover, the economic effect of the allocations should
be substantial, in part because the economic and tax consequences of deductions
representing paid or incurred expenses will move in tandem and, in part, because
allocations of depreciation deductions are deemed to be substantial. For
example, the special allocation of depreciation deductions to the Taxable
Limited Partners will cause a Tax-Exempt Limited Partner's Capital Account to
exceed the Capital Account of a similarly situated Taxable Limited Partner. If
the sale of the Properties does not produce sufficient Gain or Loss to eliminate
this disparity, the Tax-Exempt Limited Partners' share of liquidation proceeds
will be greater than would be the case if there were no special allocation of
the depreciation deductions.
In the opinion of Counsel, it is more likely than not that (i) all
material allocations to the Partners of income and gain set forth in the
Partnership Agreement more likely than not will be treated as having substantial
economic effect or otherwise will be treated as being in accordance with the
interests of the Partners in the Partnership, and (ii) all material allocations
set forth in the Partnership Agreement of deductions, losses and credits more
likely than not will have substantial economic effect or will be otherwise
treated as being in accordance with the interests of the Partners in the
Partnership to the extent that such allocations do not create a deficit in any
Partner's Capital Account balance, taking into account all reasonably expected
increases and decreases in such balance. There can be no assurance, however,
that the IRS will not challenge the allocations provided for in the Partnership
Agreement as lacking substantial economic effect, and, if successful, reduce the
anticipated tax benefits to the Limited Partners.
ALLOCATIONS TO NEWLY ADMITTED PARTNER OR TRANSFEREE
Section 706(d) of the Code requires that a partner's distributive share
of items of partnership income, gain, loss, deduction, and credit be determined
by the use of one of the methods prescribed in Treasury Regulations that takes
into account the varying interests of the partners (attributable, for example,
to the admission of new partners or the transfer of a partnership interest)
during the partnership's taxable year. The Partnership Agreement permits the
General Partners to select any method and convention permissible under section
706(d) for the allocation of tax items during the time persons are admitted as
Limited Partners, but requires that any method or convention first utilized be
consistently applied thereafter for all subsequent admissions of Partners,
unless it is determined subsequently that such method or convention is not
permissible under section 706(d). Further, the Partnership Agreement provides
that if a Partner transfers a Unit, other than at the end of the Partnership's
fiscal year, the entire year's depreciation deductions
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and remaining items of Net Income and Net Losses allocable to such Unit will be
apportioned between the transferor and transferee based on the number of days
during the year that each is treated under the Partnership Agreement as owning
the Unit, and Gain or Loss will be allocated to the Partner who is treated under
the Partnership Agreement as owning the Unit on the date such Gain or Loss was
realized for federal income tax purposes.
DISTRIBUTION REINVESTMENT PLAN
A Limited Partner who participates in the Distribution Reinvestment
Plan will be allocated such Partner's share of Partnership Net Income and Gain
(including Net Income and Gain attributable to Units acquired pursuant to the
Distribution Reinvestment Plan) even though such Partner may receive no cash
distributions from the Partnership. See "Taxation of the Limited Partners"
above. A Limited Partner who participates in the Distribution Reinvestment Plan
will be deemed to receive cash distributions for federal income tax purposes
when such Partner's Partnership distributions are deposited with the
Distribution Reinvestment Plan. When Units are acquired pursuant to the
Distribution Reinvestment Plan on behalf of such Partner, the Partner's basis in
the Partner's Partnership Interest will be increased by the purchase price of
such Units. See "Cash Distributions to Limited Partners" and "Bases of Interests
Held by Limited Partners" below.
CHARACTERIZATION OF LEASES
The Partnership will purchase both new and existing Fee Properties and
lease them to franchisees or corporate franchisors pursuant to leases of the
type described in "Business--Description of Leases." The ability of the
Partnership to claim certain tax benefits associated with ownership of the Fee
Properties, such as depreciation, depends on a finding that the lease
transactions engaged in by the Partnership are true leases, under which the
Partnership is the owner of the leased Fee Property for federal income tax
purposes, rather than a conditional sale of the Fee Property or a financing
transaction. A determination by the IRS that the Partnership was not the owner
of the Fee Properties for federal income tax purposes could have substantial
adverse consequences to the Limited Partners, such as denying depreciation
deductions to the Partnership and causing the income and losses attributable to
such Properties to be characterized as investment or portfolio income and losses
under the passive activity loss rules. See "Basis, At-Risk, and Passive Activity
Limitations on Deduction of Losses" below.
The characterization of transactions as leases, conditional sales, or
financings has been addressed in a number of recent cases. The courts have not
identified any one factor as being determinative of whether the lessor or the
lessee of property is to be treated as the owner. Judicial decisions and
pronouncements of the IRS with respect to the characterization of transactions
as either leases, conditional sales, or financing transactions have made it
clear that the characterization of leases for tax purposes is a question which
must be decided on the basis of a weighing of many factors, and courts have
reached different conclusions even where characteristics of two lease
transactions were substantially similar.
While certain characteristics of the leases anticipated to be entered
into by the Partnership suggest the Partnership would not be the owner of the
Fee Properties, such as the fact that such leases are "triple-net" leases, a
substantial number of other characteristics indicate the bona fide nature of
such leases and that the Partnership will be the owner of the Fee Properties.
For example, under the types of leases described in "Business--Description of
Leases," the Partnership will bear the risk of substantial loss in the value of
the Fee Properties, since the Partnership will acquire its interests in the Fee
Properties with an equity investment, rather than with nonrecourse indebtedness.
Further, the Partnership, rather than the lessee, will benefit from any
appreciation in the Fee Properties, since the Partnership will have the right at
any time to sell or transfer its Fee Properties, subject to the lessee's right
to purchase the Fee Property at a price not less than the Fee Property's fair
market value (determined by appraisal or pursuant to a formula price which looks
to various measures of value contained in an appraisal).
Other factors that are consistent with the ownership of the Fee
Properties by the Partnership are (i) the lessees are liable for repairs and to
return the Fee Properties in reasonably good condition, excepting normal wear
and tear; (ii) insurance proceeds are generally to be used to restore the Fee
Properties and, to the extent not so used, belong to the Partnership; (iii) the
lessees agree to subordinate their interests in the Fee Properties to the lien
of any first mortgage upon delivery of a nondisturbance agreement and agree to
attorn to the purchaser upon any foreclosure sale; and (iv) based on the General
Partners' representation that the Fee Properties can reasonably be expected to
have at the end of their lease terms (generally a maximum of 30 to 40 years) a
fair market value of at least 20% of the Partnership's cost and a remaining
useful life of at least 20% of their useful lives at the beginning of the
leases, the Partnership has not relinquished the Fee Properties to the lessees
for their entire useful lives, but has retained a significant residual interest
in them.
Finally, since the Partnership will purchase the Fee Properties with
its own funds and is prohibited under the Partnership Agreement both from
incurring any debt in connection with their acquisition and from subsequently
mortgaging the Fee Properties, the Partners will not be primarily dependent upon
tax benefits in order to realize a reasonable return upon their investment.
On the basis of the foregoing, assuming that (i) the Partnership leases
the Fee Properties on substantially the terms and conditions described in
"Business--Description of Leases," except that any lessee purchase options are
exercisable only at an amount equal to or in excess of the Properties' then fair
market values (determined by appraisal or otherwise), and (ii) as is represented
by the General Partners, the residual value of the Fee Properties remaining
after the end of their lease terms (including all renewal periods) may
reasonably be expected to be at least 20% of the Partnership's cost of such Fee
Properties, and the remaining useful lives of the Fee Properties after the end
of their lease terms (including all renewal periods) may reasonably be expected
to be at least 20% of the Fee Properties' useful lives at the beginning of their
lease terms, in the opinion of Counsel it is more likely than not the
Partnership will be treated as the owner of the Fee Properties for federal
income tax purposes and will be entitled to claim depreciation and other tax
benefits associated with such ownership.
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As mentioned above, the General Partners, on occasion, may negotiate a
lease that provides the lessee with an option to purchase the leased Fee
Property at an amount determined by a formula that looks to various measures of
value contained in an independent appraisal of the leased Fee Property. The
General Partners expect that such formula will approximate the fair market value
of the Fee Property when the option is exercised. For federal income tax
purposes, leases with lessee purchase options have been respected, and the
lessors have been treated as the owners of the leased property, where option
prices not specifically at fair market value were negotiated by the parties with
the expectation that they would approximate, or bear a reasonable relationship
to, the fair market value of the leased property at the time of the option's
exercise. However, because valuation is a question of fact, Counsel cannot opine
(either favorably or unfavorably) whether the Partnership will more likely than
not be the owner of any Fee Property subject to a lease in which the lessee may
purchase the Fee Property at an amount other than the Fee Property's then fair
market value (determined by appraisal or otherwise). However, Counsel is of the
opinion that the Partnership will have a reasonable basis for taking the
position that it is the owner, for federal income tax purposes, of any Fee
Property subject to a lease meeting the above-listed criteria except that the
lessee's purchase option price is determined by a formula, provided, as the
General Partners have represented will be the case, such formula will
approximate, or bear a reasonable relationship to, the fair market value of the
Fee Property at the time of the option's exercise.
The law governing the characterization of transactions as leases is
complicated and is in a state of change. Furthermore, for federal income tax
purposes, lease characterization is made on a property-by-property basis, based
on an analysis of each particular location including, among other factors, fair
rental value of the particular property and, in the case of any lease involving
a lessee purchase option, the fair market value of the property at the time the
option is exercisable. Accordingly, there can be no assurance that the status of
the Partnership as owner of a Fee Property will not be challenged successfully
by the IRS.
With respect to Leasehold Properties, depending on the facts of any
particular lease and sublease arrangement, the Partnership may be treated, for
federal income tax purposes, as (i) owning the building and having a leasehold
interest in the underlying land, (ii) having a leasehold interest in both the
building and the land, (iii) both having sold or assigned its interests (whether
ownership or leasehold) in the building and/or the land to the lessee, or (iv)
having merely engaged in a financing transaction. If either of the last two
characterizations applies, a portion of the rental payments received from the
lessee would be treated as interest income. Further, if the second
characterization applies, it is not clear under current law whether rental
income attributable to subleasing a leasehold interest in a building constitutes
passive or portfolio income. Because of the numerous unknown variables that may
arise with respect to leases and subleases of Leasehold Properties and the
uncertain state of the law, counsel cannot opine with respect to the tax
consequences associated with Leasehold Properties. However, the General Partners
anticipate that substantially all of the Properties acquired by the Partnership
will be Fee Properties.
BASES OF INTERESTS HELD BY LIMITED PARTNERS
The Limited Partners' adjusted bases in their Interests are relevant in
determining gain or loss on the sale or other disposition of their Interests
(see "Sale of Limited Partnership Interests by the Limited Partners" below), in
determining the taxability of cash distributions to the Limited Partners (see
"Cash Distributions to Limited Partners" below), and in determining the ability
of the Limited Partners to deduct losses of the Partnership (see "Basis,
At-Risk, and Passive Activity Limitations on Deduction of Losses" below).
A Limited Partner's adjusted basis in an Interest initially will equal
the amount of the Limited Partner's actual cash contribution to the Partnership
and will be increased by the Limited Partner's distributive share of items of
Partnership income and gain. A Limited Partner's basis in an Interest will be
decreased (but not below zero) by (i) cash distributions received from the
Partnership, and (ii) the Limited Partner's distributive share of items of
Partnership deduction and loss.
BASIS, AT-RISK, AND PASSIVE ACTIVITY LIMITATIONS ON DEDUCTION OF LOSSES
The General Partners expect that the Partnership will produce taxable
income and will not produce taxable losses that could be used to shelter a
Limited Partner's income from other sources. In the event, however, that the
Partnership did generate Net Losses, or the special allocation of depreciation
deductions caused a Taxable Limited Partner to be allocated a net loss from the
Partnership, the amount of a Limited Partner's distributive share of Partnership
losses that could be deducted would be determined by applying three separate
limitations.
First, a Limited Partner may not deduct an amount exceeding the
adjusted basis in such Partner's Interest. See "Bases of Interests Held by
Limited Partners" above for a discussion of the computation of a Limited
Partner's adjusted basis in an Interest. If a Limited Partner's share of
Partnership losses exceeds the adjusted basis in such Partner's Interest at the
end of any taxable year, such share of excess losses may be carried over
indefinitely and deducted to the extent that at the end of any succeeding year,
the adjusted basis in such Partner's Interest exceeds zero.
Second, section 465 of the Code limits the ability of a Limited Partner
to deduct losses from the Partnership to the amount that the Limited Partner is
"at risk" with respect thereto. A Limited Partner generally will be considered
to be at risk to the extent of the amount of such Partner's Capital
Contributions, increased by the Partner's share of Net Income and reduced by the
Partner's share of Net Loss and by cash distributions to the Partner. Losses in
excess of a Limited Partner's amount at risk are suspended and are carried over
indefinitely and deducted to the extent that, at the end of any succeeding year,
such Limited Partner's amount at risk exceeds zero.
Third, under section 469 of the Code, the deduction of losses from all
businesses in which the taxpayer does not "materially participate" and from all
rental activities in which the taxpayer does not "actively participate"
(collectively, "Passive Activities") would be allowed only to the extent of
income from those types of activities. (However, for taxable years beginning
after
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December 31, 1993, certain taxpayers materially participating in real property
trades or businesses will not have to treat losses from rental activities as
passive losses subject to the limitations of section 469 of the Code.)
Accordingly, net losses from Passive Activities cannot be used to offset earned
income, income from participatory businesses, or portfolio income, such as
interest, dividends, royalties, and nonbusiness capital gains. Any losses in
excess of income from Passive Activities can be carried forward indefinitely to
offset future income from those activities, including gain from the eventual
disposition of the activity. For purposes of this provision, interest deductions
attributable to debt incurred to purchase or carry an interest in a Passive
Activity generally are considered as Passive Activity deductions and are thus
subject to the same limitation. The amount of tax losses subject to the Passive
Activity limitation is determined by first applying the basis and at-risk
limitations described above.
A limited partner generally is deemed not to materially or actively
participate in partnership activities. Thus, except for those special
circumstances described below in "Passive Activity Income," any activity of the
Partnership would be a Passive Activity with respect to a Limited Partner, and a
Limited Partner's share of Partnership losses, as well as any interest on debt
incurred to purchase or carry the Limited Partner's limited partnership
interest, would be allowed only to the extent of the Limited Partner's share of
Partnership Passive Activity income, plus the Limited Partner's net income, if
any, from other Passive Activities.
PASSIVE ACTIVITY INCOME
If the Partnership is successful in achieving its investment and
operating objectives, the Limited Partners (other than tax-exempt entities) are
likely to recognize taxable income from the Partnership in each year. As
described in "Basis, At- Risk, and Passive Activity Limitations on Deduction of
Losses" above, the business activities of the Partnership will be deemed a
Passive Activity of the Limited Partners, and thus a Limited Partner's share of
any Partnership Net Income will generally constitute passive income which can be
offset by the Limited Partner's net losses and credits from investments in other
Passive Activities. It should be noted, however, that the income from certain
activities will be denied passive income treatment, even though losses
attributable to such activities will continue to be treated as passive losses.
For example, income attributable to the rental of property is treated as not
from a Passive Activity if less than 30% of the property used in the activity
during the taxable year is subject to the allowance for depreciation. Income
from such rental activity will be treated as portfolio income which cannot be
offset by losses derived from Passive Activities. Further, the Treasury has
broad authority to issue regulations defining income that does not constitute
Passive Activity income, and no assurance can be given that the future
regulations promulgated under section 469 will not adversely affect the Limited
Partners.
Assuming, as is anticipated by the General Partners, that 30% or more
of the unadjusted basis of each Fee Property, other than Properties consisting
of land only, is subject to the allowance for depreciation, then, in the opinion
of Counsel, it is more likely than not that a Limited Partner's share of the
Partnership's net income from Fee Properties will, except as described below, be
net income from a "passive activity," as defined in section 469. However,
certain items of Partnership income will be considered portfolio income or
income other than passive income which cannot be offset by losses from Passive
Activities (including deductions of the Partnership attributable to its business
activities). These items include any portion of Partnership income attributable
to (i) the investment of Partnership funds in liquid investments, such as
certificates of deposit and money market accounts, prior to the purchase of
Properties and distributions of Net Cash Flow to the Partners, (ii) the
investment, in interest-bearing accounts or otherwise, of amounts held by the
Partnership as working capital, security deposits, or in reserve, or amounts
held pursuant to the Distribution Reinvestment Plan, (iii) income from
Properties with respect to which the Partnership is determined not to be the
owner, or (iv) Properties acquired by the Partnership consisting of land only.
Such income will constitute, for purposes of section 469, portfolio income which
cannot be offset by losses from Passive Activities.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
A cash distribution to a Limited Partner from the Partnership (other
than a cash distribution made in exchange for all or part of the Limited
Partner's Interest) will not be taxable to the Limited Partner except to the
extent, if any, that the distribution exceeds such Partner's adjusted basis in
an Interest. A cash distribution in excess of the Limited Partner's adjusted
basis in an Interest will be taxable to the Limited Partner as if it resulted
from a sale or exchange of an Interest. See "Sale of Limited Partnership
Interests by the Limited Partners" below.
In the event that, contrary to the expectation of the General Partners,
a Limited Partner realizes Net Losses from an investment in the Partnership, or
the special allocation of depreciation deductions causes a Taxable Limited
Partner to be allocated a Net Loss from the Partnership, a cash distribution
which reduces the Limited Partner's amount at risk below zero will be taxable to
the extent of the lesser of (i) the amount of the cash distribution, or (ii) the
amount of losses from the Partnership previously deducted by the Limited
Partner. See "Basis, At-Risk, and Passive Activity Limitations on Deduction of
Losses" above.
Amounts reinvested pursuant to the Distribution Reinvestment Plan will
be treated for federal income tax purposes as if such amounts had been
distributed to the Participants in the Distribution Reinvestment Plan and then
used by the Participants to acquire additional Units.
DEPRECIATION OF THE FEE PROPERTIES
The Partnership's depreciation deductions will be determined under the
Accelerated Cost Recovery System ("ACRS") over the recovery period specified in
section 168 of the Code. Under ACRS, nonresidential real property placed in
service on or after May 13, 1993 generally is depreciable over a period of 39
years using the straight-line method of recovery. Nonresidential real property
placed in service prior to May 13, 1993 generally is depreciable over a period
of 31.5 years using the straight-line method of recovery. Depreciable real
property that is acquired from, and leased back to, operators owning the
property prior to 1981 (or persons related to such franchisees) is not eligible
for ACRS treatment. Such property must be depreciated over its economic useful
life under straight-line or accelerated methods.
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The Partnership's basis in a Fee Property for depreciation purposes is
its cost. The IRS may seek to reclassify a portion of amounts attributed to
improvements as attributable to land or other nondepreciable, nonamortizable
expenditures, thereby decreasing the Partnership's depreciation deductions.
Depreciation claimed by the Partnership with respect to a particular
Fee Property will reduce the adjusted basis of that Fee Property, thereby
increasing the potential gain (or decreasing the potential loss) upon
disposition of such Fee Property. Depreciation claimed by the Partnership also
will reduce a Limited Partner's adjusted basis in such Partner's Interest,
similarly affecting the potential gain or loss realized upon a sale of such
Interest.
Fee Properties that are otherwise eligible for depreciation under ACRS
will not be eligible for, as applicable, a 31.5- year or 39-year recovery period
to the extent they are considered to be "tax-exempt use property." In the case
of a partnership that includes partners that are tax-exempt entities (including
Qualified Plans, such as IRAs), such partnership property will be considered
"tax-exempt use property" to the extent of the tax-exempt entity partners'
proportionate share of such property, unless (i) such property is used by the
partnership in an "unrelated trade or business" and the tax-exempt entity
partners are subject to tax under the applicable Code provisions on their
distributive share of partnership income, or (ii) all allocations to tax-exempt
entity partners constitute "qualified allocations."
The General Partners anticipate that a substantial number of Units will
be purchased by entities that are considered to be tax-exempt entities for
purposes of this rule and that, with certain possible limited exceptions, the
Fee Properties will not be considered to be used in an "unrelated trade or
business," the income from which is subject to tax. See "Qualified Plan
Investors" above. Further, because depreciation deductions are allocated 1% to
the General Partners and 99% to the Taxable Limited Partners, the allocations to
the Tax-Exempt Limited Partners will not constitute qualified allocations.
Consequently, the Partnership will be required to depreciate the Tax-Exempt
Limited Partners' proportionate share of the Properties using the straight-line
method over a 40-year recovery period or, in the case of a Property that is
leased for a term in excess of 32 years (taking into account certain options to
renew), over a period equal to 125% of the lease term. In order to reduce the
Partnership's administrative costs associated with allocating basis between the
Tax-Exempt Limited Partners and the Taxable Limited Partners, the Partnership
may depreciate all of the depreciable portion of its Properties (rather than
only the Tax-Exempt Limited Partners' proportionate share) over the extended
recovery period.
SYNDICATION AND ORGANIZATIONAL EXPENSES
The Code provides for various treatments of certain initial
expenditures of the Partnership. Expenses incurred by the Partnership with
respect to the offering and sale of the Limited Partner Interests (i.e.,
syndication costs) must be capitalized and cannot be deducted or amortized. In
contrast, amounts paid to organize the Partnership, as well as other start-up
expenditures, may (if so elected) be amortized ratably over 60 months. Certain
other costs must be capitalized as part of the cost of the Properties, while
others may be deducted or amortized ratably over various periods. The
Partnership intends to treat Selling Commissions, the due diligence expense
reimbursement fees, and most of Organizational and Offering Expenses as
syndication expenses. The remainder of Organizational and Offering Expenses will
be treated as amortizable organizational expenses. There can be no assurance
that the IRS will not challenge the treatment of certain fees and expenses paid
by the Partnership by asserting, for example, that fees and expenses were
allocated improperly between organizational and syndication expenses or that
some or all of the fees paid to the General Partners or their Affiliates are
properly characterized as nondeductible syndication expenses or as
organizational expenses. If the IRS were successful in seeking to disallow or
recharacterize these expenditures, the deductions of the Partnership available
to offset Partnership income could be decreased. See "Tax Treatment of Certain
Fees" below for a description of possible limitations on the deduction of
expenses.
TAX TREATMENT OF CERTAIN FEES
The Partnership will pay fees to the General Partners and their
Affiliates for services rendered to the Partnership. For a description of these
fees, see "Management Compensation." The amount of the fees has not been
determined by arm's- length negotiations. Instead, the amounts have been set by
the General Partners on the basis of their judgment of the reasonable value of
the services provided.
The IRS could assert that the amount incurred for some or all of the
services exceeds the reasonable value of those services. In addition, the IRS
might accept the reasonableness of a fee, but contend that the fee should be
deducted in a later year, or be capitalized rather than deducted, or be
amortized over a period longer than the period chosen by the Partnership.
Finally, the IRS might attempt to recharacterize a fee as a nondeductible,
nonamortizable syndication expense or as an itemized deduction subject to the
limitation imposed on the deduction of so-called miscellaneous itemized
deductions. If the IRS were successful in seeking to disallow or recharacterize
these expenditures, the deductions of the Partnership available to offset
Partnership income would be decreased. Because the question of the reasonable
value of services and the period to which services relate is factual in nature,
and because such services will be rendered in the future, Counsel cannot render
an opinion with respect to the deductibility of the foregoing fees.
SALE OF THE PROPERTIES
Upon a Sale of all or a portion of a Property, the Partnership will
recognize Gain or Loss to the extent that the amount realized is more or less
than the adjusted basis in the Property sold, taking into account all prior
depreciation thereon. Assuming the Partnership is not a dealer with respect to
the Properties (see "Qualified Plan Investors" above), Gain or Loss on the sale
of a Property will be taxable as provided in section 1231 of the Code. Section
1231 provides generally that a taxpayer's net section 1231 gains will be taxed
first as ordinary income to the extent of the taxpayer's excess net section 1231
losses from the prior five years, and then as
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capital gains; section 1231 losses will be taxed as ordinary losses. See
"Capital Gains and Losses" below for the effect of such characterizations.
SALE OF LIMITED PARTNERSHIP INTERESTS BY THE LIMITED PARTNERS
Generally, a Limited Partner will realize gain or loss on the sale of
such Limited Partner's Interest equal to the difference between the amount
realized and the Partner's adjusted basis in the Interest. Assuming a Limited
Partner is not a dealer with respect to Interests and has held the Interest more
than one year, the Limited Partner's gain or loss will be long-term capital Gain
or Loss. See "Capital Gains and Losses" below.
Capital Gain or Loss treatment will not apply, however, to any portion
of the amount realized from such a sale or other disposition that is
attributable to the Limited Partner's proportionate share of the Partnership's
"unrealized receivables" or "substantially appreciated inventory" as defined in
section 751 of the Code. The General Partners do not expect any significant
portion of the Partnership's property to be treated as "section 751 property."
If any portion of the Partnership's property is section 751 property, the Code
imposes certain notice requirements on the transferor of a Limited Partner
Interest. These requirements will be satisfied by delivering to the Partnership
a completed and executed application for assignment of an Interest on forms
provided by the General Partners upon request.
Transfers of property by gift and on the death of an owner generally
are not taxable transfers and do not result in the recognition of gain or loss.
Limited Partners who desire to make gifts of their Interests should seek advice
from their tax advisers.
LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the Partnership will result in the
distribution to the Partners of any assets remaining after payment of, or
provision for, the Partnership's debts and liabilities. If a Limited Partner
receives money in excess of the basis of the Limited Partner's Interest, such
excess generally will be taxable as a capital gain, except to the extent of any
"unrealized receivables" or "substantially appreciated inventory items," as
described in section 751 of the Code. A Limited Partner will recognize a loss
upon dissolution only if the liquidating distribution consists solely of cash,
or of cash and "unrealized receivables" and "substantially appreciated inventory
items," and then only to the extent that the adjusted basis of such Limited
Partner's Interest exceeds the amount of money received and such Limited
Partner's share of the Partnership's basis in such "unrealized receivables" and
"inventory items."
SPECIAL BASIS ADJUSTMENTS
The Partnership Agreement permits (but does not obligate) the General
Partners to elect under section 754 of the Code to adjust the basis of the
Partnership's Property in the hands of a Partner who acquired an Interest by
sale or exchange or on the death of a Partner. Because of the complexities of
the tax accounting required, the Partnership does not presently intend to file
an election under section 754. If the section 754 election is not made by the
Partnership, even if the transferee Partner's tax basis of the Interest is
higher than the share of the adjusted basis of the Partnership's Properties,
such transferee Partner's distributive share of depreciation and Gain or Loss on
the sale of the Partnership's assets will be determined in the same way as it
would have been for the transferor, so that the transferee Partner will receive
no tax benefits from the additional basis until the Partnership is liquidated or
terminated or the transferee Partner transfers the Interest. Thus, the absence
of such an election by the Partnership may reduce the market value of an
Interest.
CAPITAL GAINS AND LOSSES
The characterization of income recognized upon a Sale of a Property or
a sale of a Limited Partner's Interest as capital or ordinary income is relevant
in determining the rate at which such income is taxed and the extent to which a
Limited Partner may deduct capital losses. As a result of the Revenue
Reconciliation Act of 1993, beginning in 1993, ordinary income is taxed at a
maximum marginal rate of 39.6%, while capital gains are taxed at a maximum
marginal rate of 28%. Capital losses generally may be used to offset capital
gains and, in addition, a maximum of $3,000 of ordinary income annually. The
capital losses not utilized in any year may be carried forward to succeeding
years.
DEDUCTIBILITY OF INTEREST
The Code contains various restrictions on a taxpayer's ability to
deduct interest expense. Personal interest (other than qualified residence
interest) is not deductible. Investment interest is deductible only to the
extent of net investment income. Any investment interest which cannot be
currently deducted by a taxpayer by reason of these limitations may be carried
over to, and deducted in, future years, subject to certain limitations. Interest
expense attributable to a passive activity is deductible only as part of the net
passive income or loss from that activity. Thus, any interest incurred by a
taxpayer to acquire an interest in the Partnership will be taken into account to
compute the taxpayer's income or loss from such passive activity.
ALTERNATIVE MINIMUM TAX
The Code contains an alternative minimum tax, which may reduce the
benefit to particular Limited Partners of an investment in the Partnership. The
individual alternative minimum tax is 26% to 28% of "alternative minimum taxable
income" in excess of certain exemption amounts. The alternative minimum tax is
payable to the extent that it exceeds the "regular" federal income tax payable
for that year. No credits other than the foreign tax credit may be applied
against the alternative minimum tax.
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Alternative minimum taxable income generally is computed by adding
defined tax preference items to adjusted gross income and then subtracting
certain specified deductions, except that in determining adjusted gross income
for this purpose, a less beneficial alternative method of depreciation must be
used for certain property. For alternative minimum taxable income purposes,
depreciable Properties must generally be depreciated using an extended recovery
period.
The amount of minimum tax or alternative minimum tax imposed depends
upon various factors peculiar to the particular taxpayer, and the extent, if
any, to which these taxes may adversely affect any Limited Partner cannot be
predicted. It should be noted that certain states also impose a minimum tax on
items of tax preference. The Limited Partners should consult with their own tax
advisers regarding the possible application of the alternative minimum tax.
INTEREST ON UNDERPAYMENT OF TAXES
If it is finally determined that a taxpayer has underpaid tax for any
taxable year, the taxpayer must pay the amount of underpayment plus interest on
the underpayment and certain penalties from the date the tax originally was due.
The rate of interest is compounded daily and is adjusted quarterly. For the
period July 1, 1996 through September 30, 1996, the interest rate is 9%.
ACCURACY-RELATED PENALTIES
Section 6662 of the Code imposes penalties with respect to any
substantial understatement of income tax and with respect to the portion of any
underpayment of tax attributable to a substantial valuation overstatement or to
negligence.
1. Substantial Understatement Penalty. Section 6662 imposes a 20%
penalty on the amount of an understatement of income tax if such understatement
is substantial. An understatement of tax liability is substantial if the amount
of the understatement exceeds the greater of $5,000 or 10% of the total tax
required to be shown on the return for the taxable year. If the understatement
is not attributable to a "tax shelter" (defined as an arrangement the principal
purpose of which is the avoidance or evasion of federal income tax), there will
be no substantial understatement penalty if there was substantial authority for
the taxpayer's position or if there was a reasonable basis for the taxpayer's
position and the position was disclosed adequately on the taxpayer's tax return.
A taxpayer may use Form 8275 to ensure adequate disclosure of a non-tax shelter
matter. If the understatement arises out of a tax shelter, the taxpayer must
have relied upon substantial authority for such position and must also have had
a reasonable belief that the position taken more likely than not was the proper
treatment to avoid the penalty. The General Partners expect that the Partnership
will not be considered a "tax shelter" for this purpose.
2. Substantial Valuation Overstatement Penalty. A 20% substantial
valuation overstatement penalty applies to the portion of any underpayment of
tax attributable to a substantial valuation overstatement. There is a
substantial valuation overstatement under new section 6662 if (i) the value or
adjusted basis of property claimed on a return is 200% or more of the correct
value or adjusted basis and (ii) the resulting underpayment of tax exceeds
$5,000. Further, the amount of the penalty is increased to 40% of the resulting
underpayment if the value or adjusted basis of property claimed on a return is
400% or more of the correct value or adjusted basis. The IRS has ruled under the
predecessor provision of section 6662 that the substantial valuation
overstatement penalty applies to individual partners when the overstatement is
made by a partnership on the partnership return.
3. Negligence Penalty. Section 6662 imposes a 20% penalty with respect
to any underpayment of tax attributable to negligence. An underpayment is
attributable to negligence if such underpayment results from any failure to make
a reasonable attempt to comply with the provisions of the Code, or any careless,
reckless, or intentional disregard of the federal income tax rules or
regulations. In addition, the legislative history of the 1989 Reconciliation Act
indicates that the failure by a taxpayer to include on a tax return any amount
shown on an information return is strong evidence of negligence. The disclosure
of a position on the taxpayer's return will not necessarily prevent the
imposition of the negligence penalty. In addition, a valuation overstatement
that results in the underpayment of tax but does not fall within the scope of
the substantial valuation overstatement provisions may still be subject to the
20% penalty if it is attributable to negligence.
TAX RETURN, TAX INFORMATION, AND AUDITS
The Partnership will furnish annually to the Limited Partners (but not
to assignees of Limited Partners unless they become substituted Limited
Partners) sufficient information from the Partnership's tax return for the
Limited Partners to prepare their own federal, state, and local tax returns.
In the event that any of the tax returns of the Partnership are
audited, it is possible that substantial legal and accounting fees will have to
be paid to substantiate the reporting positions taken, and such fees would
reduce the cash otherwise distributable to the Limited Partners. Such an audit
may result in adjustments to the tax returns of the Partnership which would
require an adjustment to each Limited Partner's personal return.
The partners of a partnership either must report partnership items on
their returns consistently with treatment on the partnership information return
or must file statements on Form 8082 with their returns identifying and
explaining the inconsistency. Otherwise, the IRS may treat such inconsistency as
a computational error, recompute and assess the tax without the usual procedural
protection applicable to federal income tax deficiency proceedings, and impose
penalties for negligent or intentional failure to pay tax.
Audits of items of partnership income, gain, loss, deduction, or credit
will be determined by a unified administrative proceeding at the partnership
level, in which all of the partners have a right to participate. As a general
rule, the administrative proceeding is managed by the tax matters partner. The
Partnership will initially designate Robert A. Bourne as the tax matters partner
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for the Partnership. Certain settlements entered into by the tax matters partner
may be binding upon all Limited Partners who do not file a statement to the
contrary with the Secretary of the Treasury. Any adjustments resulting from any
such audit may result in adjustments to the individual tax returns of Limited
Partners.
Adjustments, if any, made by the IRS at the partnership level must be
reviewed in a single judicial proceeding filed on behalf of the partnership and
all partners. Subject to certain restrictions, this judicial proceeding may be
initiated by the tax matters partner or any other partner who disagrees with the
adjustments. Generally, a limited partner who owns less than a 1% interest,
directly or indirectly, in the partnership under audit may initiate the action
only as part of a group of partners whose interests in the partnership under
audit in the aggregate are at least 5%.
In the event of an audit of the return of the Partnership, the tax
matters partner, pursuant to advice of counsel, will take all actions necessary
to preserve the rights of the Limited Partners, will provide all Limited
Partners with any notices of such proceedings and other information as required
by law, and will notify all Limited Partners of their rights with respect to
settlement negotiations. All expenses of such proceedings undertaken by the tax
matters partner, which might be substantial, will be paid for entirely out of
the assets of the Partnership, which might otherwise be distributable to the
Limited Partners. Moreover, the tax matters partner of the Partnership is not
obligated to contest adjustments made by the IRS. Each Limited Partner who
elects to participate in such proceedings will be responsible for any expenses
such Partner incurs in connection with the proceedings.
STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership and are advised to consult
their tax advisers to determine (i) whether the states in which they are
residents impose an income tax upon their share of the taxable income of the
Partnership, (ii) whether such state calculates the tax which is due in the same
manner as federal income taxes (for example, whether the state permits the use
of ACRS), and (iii) in what state and local jurisdictions a return may be
required and tax liability may arise. Returns may be required and tax liability
may be imposed in each state and local jurisdiction in which the Partnership
owns property.
It is possible that some states or localities where the Properties are
located will require that the Partnership withhold state or local taxes on the
income allocated (or distributions made) to Limited Partners. The Partnership is
authorized to withhold from amounts otherwise distributable to Limited Partners
such amounts as the General Partners determine are necessary or appropriate to
satisfy the Partnership's state or local tax withholding requirement.
No opinion has been or will be rendered by Counsel on matters of state
or local income tax law.
REPORTS TO LIMITED PARTNERS
The Partnership will furnish an annual report to Limited Partners
within 120 days following the close of each fiscal year. The annual report will
contain a balance sheet, statement of operations, statement of partners'
capital, and statement of cash flows, audited by independent certified public
accountants, and a report of the activities of the Partnership during the
Partnership's most recent fiscal year. In addition, the annual report will
contain a complete statement of the amount and sources of distributions to
Partners, of any transactions with the General Partners or their Affiliates, and
a summary of compensation and fees paid or payable to the General Partners and
their Affiliates (including reimbursable expenses).
The Partnership also will furnish Limited Partners within 60 days after
the end of each fiscal quarter in which the General Partners or their Affiliates
received fees or other compensation from the Partnership a detailed statement
setting forth the services rendered or to be rendered by the General Partners or
their Affiliates to the Partnership and the fees or compensation received
therefor.
Tax information will be provided to Limited Partners within 75 days
following the close of each fiscal year. In addition to providing information
concerning federal tax, the General Partners may elect to provide the Limited
Partners with information as to the minimum filing requirements in each state in
which the Partnership's Properties are located.
Within 75 days following the close of the Partnership fiscal year, each
Limited Partner that is a Qualified Plan will be furnished with an annual
statement of Unit valuation to enable it to file annual reports required by
ERISA as they relate to its Partnership investment. The statement will report an
estimated value of each Unit based on the amount Limited Partners would receive
if the Properties were sold at their values (determined by appraisal updates) as
of the close of the fiscal year, and if such proceeds and any other funds of the
Partnership were distributed in a liquidation of the Partnership as described in
this Prospectus. For the first three annual reports to Limited Partners after
the termination of the Offering, the General Partners intend to value all
Properties at cost and to report the net asset value per Unit at $10.00.
Thereafter, an appraisal update based on capitalization of income will be
obtained for each Property unless the Partnership previously obtained an
appraisal for such Property within the nine-month period prior to the close of
the relevant fiscal year. After the first three annual reports, the General
Partners may elect to deliver such reports to all Limited Partners. Limited
Partners will not be forwarded copies of appraisals or updates. In providing
such reports to Limited Partners, neither the Partnership nor the General
Partners or their Affiliates thereby make any warranty, guarantee, or
representation that (i) the Limited Partners or the Partnership, upon
liquidation, will actually realize the estimated value per Unit, or (ii) the
Limited Partners will realize the estimated net asset value if they attempt to
sell their Units.
If the Partnership is required by the Securities Exchange Act of 1934,
as amended, to file quarterly reports with the Securities and Exchange
Commission, Limited Partners will be furnished with a summary of the information
contained in each report within 60 days after the end of each fiscal quarter.
Such information generally will include a balance sheet, a quarterly statement
of income, a statement of partners' capital, a statement of cash flows, and any
other pertinent information regarding the Partnership and its activities during
the quarter. Limited Partners also may receive a copy of any Form 10-Q required
to be filed by the Partnership under the
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Securities Exchange Act of 1934, as amended, upon request to the Partnership. If
the Partnership is not subject to this filing requirement, Limited Partners will
be furnished with a semi-annual report within 60 days after each six-month
period containing information similar to that contained in the quarterly report
but applicable to such six-month period.
Until such time as all of the Gross Proceeds to the Partnership from
sale of its Units (after the creation of reserves and the payment of the fees,
commissions, and expenses specified in Article Seven of the Partnership
Agreement) are invested in Properties or returned to investors, the Partnership
will distribute special reports to the Limited Partners within 45 days after the
end of each quarter. These reports will contain the following information: (i)
the location and a description of the general character of all Properties which
the Partnership acquired or which the Partnership intends to acquire during the
following quarter; (ii) the present or proposed use of such Properties and their
suitability or adequacy for such use; (iii) the terms of any material lease
affecting the Properties; (iv) the method of financing such Properties; (v) a
statement that title insurance and any required performance bond(s) or other
assurances with respect to builders, have been or will be obtained on all
Properties acquired or to be acquired; and (vi) a statement as to the amount of
the Gross Proceeds which remain uncommitted or unexpended, stated as to dollar
amount and percentage of total Gross Proceeds received by the Partnership from
sale of its Units. The information contained in such reports may be incorporated
into any of the other reports distributed to the Limited Partners.
Financial information contained in all reports to Limited Partners will
be prepared on the accrual method of accounting in accordance with generally
accepted accounting principles. If such information differs from the information
furnished to Limited Partners for tax purposes, the two sets of information will
be reconciled in the annual report.
Limited Partners and their duly authorized representatives are entitled
to inspect and copy, at their expense, the books and records of the Partnership
at all times during regular business hours, upon reasonable prior notice to the
General Partners, at the location where such reports are kept by the
Partnership. Limited Partners, upon request and at their expense, may obtain
full information regarding the financial condition of the Partnership, a copy of
the Partnership's federal, state, and local income tax returns for each fiscal
year of the Partnership, and, subject to certain confidentiality requirements, a
list of the names, addresses, and capital contributions of all Limited Partners.
The fiscal year of the Partnership will be the calendar year.
The Partnership, upon the request of any federal or state securities
authority through which the Units are registered, will submit to such authority
any report or statement which the Partnership is required to distribute to the
Limited Partners.
THE OFFERING
GENERAL
On September 19, 1996, the offering of units of limited partnership
interest in CNL XVII terminated upon the receipt of subscriptions for an
aggregate of 3,000,000 units ($30,000,000). An aggregate of 1618 subscribers
were admitted as limited partners to CNL XVII in accordance with the terms of
the partnership agreement of CNL XVIII. The Offering of Units in CNL XVIII
commenced on September 20, 1996. As of September 30, 1996, CNL XVIII had
received subscriptions for 60,676 Units, representing $606,756 in subscription
proceeds from unaffiliated Limited Partners which were being held in escrow
until CNL XVIII received aggregate subscription proceeds of at least $1,500,000
from the Offering. As of October 11, 1996, CNL XVIII had received aggregate
subscriptions for 173,313 Units, representing $1,733,131 in aggregate
subscription proceeds from Limited Partners and $1,517,431 of the funds were
released from escrow (which excluded all funds received from New York and
Pennsylvania investors). As of November 15, 1996, the Partnership had sold
468,646 Units, representing $4,686,463 of capital contributed by Limited
Partners and all funds received from New York and Pennsylvania investors had
been released from escrow.
A maximum of 3,500,000 Units are being offered at a purchase price of
$10.00 each. A minimum purchase of 250 Units (or a minimum purchase of 100 Units
in the case of most IRAs and Keogh and pension plans) is required. Nebraska
investors, however, as well as any investor who wishes to receive monthly
distributions, must make a minimum investment of 500 Units ($5,000). IRAs and
Keogh and pension plans must make a minimum investment of at least 100 Units
(except for Iowa tax-exempt investors who must make a minimum investment of 300
Units, or $3,000, and Minnesota IRAs, which must make a minimum purchase of 200
Units, or $2,000). Investors making the required minimum investment may make
additional purchases in increments of one Unit. Maine investors, however, may
not purchase additional Units in amounts less than the applicable minimum
investment except at the time of the initial subscription or with respect to
Units purchased pursuant to the Distribution Reinvestment Plan. See "Suitability
Standards and How to Subscribe--How to Subscribe." The General Partners or their
Affiliates may purchase up to 15,000 Units ($150,000) of the Partnership for
their own accounts for investment purposes and not with a view towards
distribution, on the same terms and conditions as other investors, and will
purchase a minimum of 5,000 Units ($50,000) of the Partnership.
The General Partners have elected to extend the Offering to a date not
later than August 11, 1997.
PLAN OF DISTRIBUTION
The Units will be offered to the public on a "best efforts" basis
(which means that no one is guaranteeing that any minimum amount will be sold)
through the Soliciting Dealers, who will be members of the National Association
of Securities Dealers, Inc. (the "NASD") and CNL Securities Corp., which will
act as Managing Dealer. Both of the individual General Partners are Affiliates
and licensed principals of the Managing Dealer, and the corporate General
Partner is an Affiliate of the Managing Dealer. The Soliciting
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Dealers will use their best efforts during the Offering period to find eligible
persons who desire to subscribe for the purchase of Units from the Partnership.
The maximum Offering is 3,500,000 Units ($35,000,000).
Prior to a subscriber's admission to the Partnership as a Limited
Partner, funds paid by such subscriber will be deposited in an interest-bearing
escrow account with SouthTrust Asset Management Company of Florida, N.A. The
Partnership, within 30 days after the date a subscriber is admitted to the
Partnership as a Limited Partner, will pay to such subscriber the interest
(generally calculated on a daily basis) actually earned on such subscriber's
funds. Interest will be payable only to those subscribers whose funds have been
held in escrow by such bank for at least 20 days. Limited Partners otherwise
will not be entitled to interest earned on Partnership funds or to receive
interest on their Capital Contributions. See "Escrow Arrangements" below.
In order to provide for the orderly closing of the Offering , the
Managing Dealer may institute a system pursuant to which it will accept
reservations to purchase Units provided all subscription materials with respect
to the purchase of such Units are received by the Managing Dealer within five to
ten business days after making the reservation.
Subject to the provisions for reduced Selling Commissions described
below, the Partnership will pay the Managing Dealer an aggregate of 8.5% of the
Gross Proceeds to the Partnership as Selling Commissions. The Managing Dealer
may reallow fees of up to 8% to the Soliciting Dealers with respect to Units
sold by them. In addition, the Partnership will pay the Managing Dealer, as an
expense allowance, a due diligence expense reimbursement fee equal to 0.5% of
Gross Proceeds. The Managing Dealer, in its sole discretion, may reallow to any
Soliciting Dealer all or any portion of this fee based on such factors as the
number of Units sold by such Soliciting Dealer, the assistance, if any, of such
Soliciting Dealer in marketing the Offering, and bona fide due diligence
expenses incurred. Limited Partners who elect to participate in the Distribution
Reinvestment Plan will be charged Selling Commissions on Units purchased for
their accounts on the same basis as investors who do not purchase Units pursuant
to the Distribution Reinvestment Plan until the Offering has terminated. After
the Offering has terminated, no Selling Commissions will be paid for Units
purchased pursuant to the Distribution Reinvestment Plan.
Although it is not the intent of the Partnership, the Partnership, the
General Partners, or their Affiliates may provide incentive items for registered
representatives of the Managing Dealer and the Soliciting Dealers, which in no
event shall exceed an aggregate of $100 per annum per participating salesperson.
In the event other incentives are provided to registered representatives of the
Managing Dealer or the Soliciting Dealers, they will be paid only in cash, and
such payments will be made only to the Managing Dealer or the Soliciting Dealers
rather than to their registered representatives. Any such sales incentive
program must first have been submitted for review by the NASD, and must comply
with Section 5(f) of Appendix F to Section 34 of its Rules of Fair Practice.
Costs incurred in connection with such sales incentive programs, if any, will be
considered underwriting compensation.
A registered principal or representative of the Managing Dealer or a
Soliciting Dealer, may purchase Units net of 8% commissions, at a per Unit
purchase price of $9.20. In addition, Soliciting Dealers, in their sole
discretion, may elect not to accept any Selling Commissions offered by the
Partnership for Units that they sell. In that event, such Units shall be sold to
the investor net of all Selling Commissions, at a per Unit purchase price of
$9.20. In connection with purchases of certain minimum numbers of Units, the
amount of Selling Commissions otherwise payable to the Managing Dealer or a
Soliciting Dealer, shall be reduced in accordance with the following schedule:
<TABLE>
<CAPTION>
Dollar Amount
of Units Purchase Price Reallowed Commissions on Sales Per Unit
Purchased Per Unit Percent Dollar Amount
<S> <C>
$10-- $249,990 $10.00 8.0% $0.80
$250,000-- $499,990 $9.80 6.0% $0.60
$500,000-- $999,990 $9.60 4.0% $0.40
$1,000,000-- $1,499,990 $9.50 3.0% $0.30
$1,500,000 or more $9.40 2.0% $0.20
</TABLE>
For example, if an investor purchases 100,000 Units, the investor could
pay as little as $950,000 rather than $1,000,000 for the Units, in which event
the Selling Commissions on the sale of such Units would be $35,000 ($0.35 per
Unit). The net proceeds to the Partnership will not be affected by such
discounts.
Any such reduction in Selling Commissions will be credited to the
"purchaser," as defined below, by reducing the total purchase price otherwise
payable by the "purchaser." The net proceeds to the Partnership will not be
affected by the volume discount.
Subscriptions for Units of CNL XVIII may be combined for the purpose of
determining the volume discounts in the case of subscriptions made by any
"purchaser," provided all such Units are purchased through the same Soliciting
Dealer or through the Managing Dealer. The volume discount will be prorated
among the separate subscribers considered to be a single "purchaser." Units
purchased pursuant to the Distribution Reinvestment Plan on behalf of a
Participant in the Distribution Reinvestment Plan will not be combined with
other subscriptions for Units by the investor in determining the volume discount
to which such investor may be entitled. See "Summary of Distribution
Reinvestment Plan." Further, subscriptions for Units will not be combined for
purposes of the volume discount in the case of subscriptions by any "purchaser"
who subscribes for additional Units subsequent to the purchaser's initial
purchase of Units.
Any request to combine more than one subscription must be made in
writing in a form satisfactory to the General Partners and must set forth the
basis for such request. Any such request will be subject to verification by the
Managing Dealer that all of such
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subscriptions were made by a single "purchaser." If a "purchaser" does not
reduce the per Unit purchase price, the excess purchase price over the
discounted purchase price will be returned to the actual separate subscribers
for Units.
For purposes of such volume discounts, "purchaser" includes (i) an
individual, his or her spouse, and their children under the age of 21, who
purchase the Units for his or her or their own accounts, and all pension or
trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Units and must have formed such group for a purpose
other than to purchase the Units at a discount); (iii) an employee's trust,
pension, profit-sharing, or other employee benefit plan qualified under section
401 of the Code; and (iv) all pension, trust, or other funds maintained by a
given bank. In addition, the General Partners, in their sole discretion, may
aggregate and combine separate subscriptions for Units received during the
Offering period from (i) the Managing Dealer or the same Soliciting Dealer, (ii)
investors whose accounts are managed by a single investment adviser registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other entity exercises
discretionary investment responsibility, or (iv) a single corporation,
partnership, trust association, or other organized group of persons, whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group . Except as provided
in this paragraph, subscriptions will not be cumulated, combined, or aggregated.
Any reduction in commissions will reduce the effective purchase price
per Unit to the investor involved but will not alter the net proceeds payable to
the Partnership as a result of such sale.
All investors will be deemed to have contributed the same amount per
Unit to the Partnership whether or not the investor receives a volume discount.
Accordingly, for purposes of Partnership allocations, as well as distributions
of Net Cash Flow and Net Sales Proceeds, investors qualifying for volume
discounts will receive higher returns on their investments in the Partnership as
compared to investors who do not qualify for such discounts.
In connection with the sale of Units, certain registered principals or
representatives of the Managing Dealer may perform wholesaling functions for
which they will receive compensation payable by the Managing Dealer in an
aggregate amount not in excess of one percent of Gross Proceeds. In addition,
the General Partners and their Affiliates, including the Managing Dealer and its
registered principals or representatives, may incur due diligence fees and other
expenses, including expenses related to sales seminars and wholesaling
activities, a portion of which may be paid by the Partnership. Any such expenses
paid by the Partnership are estimated not to exceed $34,300 in the event
3,500,000 Units ($35,000,000) are sold. In no event, however, will the total
underwriting compensation payable to the Managing Dealer, Soliciting Dealer, or
persons performing wholesaling functions, whether characterized as Selling
Commissions, expense reimbursements, sales incentives, or otherwise, exceed 10%
of Gross Proceeds, plus a maximum of 0.5% for reimbursement of bona fide due
diligence expenses.
The Managing Dealer and the Soliciting Dealers severally will indemnify
the Partnership, the General Partners, and their Affiliates, officers and
directors against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
SUBSCRIPTION PROCEDURES
In order to purchase Units, the subscriber must complete and execute
the Subscription Agreement. Any subscription for Units must be accompanied by
cash or a check payable to "SouthTrust Asset Management Company of Florida,
N.A., Escrow Agent" (or to the Partnership after subscription funds are released
from escrow), in the amount of $10.00 per Unit. See "Escrow Arrangements" below.
Certain Soliciting Dealers who have "net capital," as defined in the applicable
federal securities regulations, of $250,000 or more may instruct their customers
to make their checks for Units subscribed for payable directly to the Soliciting
Dealer. In such case, the Soliciting Dealer will issue a check made payable to
the order of the Partnership for the aggregate amount of the subscription
proceeds.
Each subscription will be accepted or rejected by the General Partners
within 30 days after its receipt. If a subscription is rejected, the funds will
be returned to the subscriber within ten business days after the date of such
rejection, without interest and without deduction. A form of the Subscription
Agreement is set forth as Exhibit E to this Prospectus. A subscription may not
be revoked or withdrawn by the subscriber. The subscription price of each Unit
is payable in full upon execution of the Subscription Agreement.
By executing the Subscription Agreement, the subscribers agree to all
of the terms of the Partnership Agreement, including the grant to the General
Partners of a power of attorney under certain circumstances. The General
Partners and each Soliciting Dealer who sells Units on behalf of the Partnership
have the responsibility to make every reasonable effort to determine that the
purchase of Units is suitable and appropriate for an investor. In making this
determination, the Soliciting Dealers will rely on relevant information provided
by the investor, including information as to the investor's age, investment
objectives, investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
Certain Soliciting Dealers may permit investors to subscribe for Units
by telephonic order to the Soliciting Dealer. There are no additional fees
associated with telephonic orders. Representatives of Soliciting Dealers who
accept telephonic orders may execute the Subscription Agreement on behalf of
those investors who place such orders. Investors, however, who are residents of
Florida, Iowa, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, New Mexico, North Carolina, Oregon, South Dakota, Tennessee, or
Washington, must complete and sign the Subscription Agreement in order to
subscribe for Units and, therefore, may not subscribe for Units by telephone.
Representatives of Soliciting Dealers who accept telephonic orders will execute
the Subscription Agreement on behalf of investors who place such orders. All
investors who telephonically subscribe for Units will receive, with confirmation
of their subscription, a second copy of the Prospectus.
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Residents of California, Oklahoma, and Texas who telephonically
subscribe for Units will have the right to rescind such subscriptions within ten
days from receipt of the confirmation. Such investors who do not rescind their
subscriptions within such ten-day period shall be deemed to have assented to all
of the terms and conditions of the Subscription Agreement and the Partnership
Agreement, including, but not limited to, the power of attorney therein.
Investors who have questions or who wish to place orders for Units by
telephone or to participate in the Distribution Reinvestment Plan should contact
their Soliciting Dealer. Certain Soliciting Dealers do not permit telephonic
subscriptions or participation in the Distribution Reinvestment Plan. See
"Summary of Distribution Reinvestment Plan." The form of Subscription Agreement
for certain Soliciting Dealers who do not permit telephonic subscriptions or
participation in the Distribution Reinvestment Plan differs slightly from the
form attached hereto as Exhibit E, primarily in that it will eliminate one or
both of these options.
Investors who wish to establish an IRA for the purpose of investing
solely in Units may do so by so indicating on the Subscription Agreement,
appointing Franklin Bank, N.A., an unaffiliated bank, to act as their IRS
custodian. The custodian will not have the authority to vote any of the Units
held in any IRA except in accordance with written instructions from the
beneficiary of the IRA, although it will hold the Units on behalf of that
beneficiary and make distributions and, at the direction and in the discretion
of the beneficiary, investments in Units or in other securities issued by
Affiliates of the General Partners. The custodian will not have the authority at
any time to make investments through any such IRA on behalf of the beneficiary
if the investment do not constitute Units or other securities issued by
Affiliates of the General Partners. The investors will not be required to pay
any initial or annual fees in connection with any such IRA. The fees for
establishing and maintaining all such IRAs will be paid by the General Partners
initially and annually up to an aggregate amount of $5,000, and by the
Partnership above such amount. In determining whether to use the IRA option made
available by the Partnership and the General Partners, investors should consider
the impact of the withholding rules under Section 3405 and, more importantly,
the limitation on tax-free rollovers under Section 408(d)(3)(E) that limits an
individual from making a tax-free rollover of any amounts received from any IRA
or group of IRAs more than once during a one-year period, and whether direct
transfers ameliorate the impact of such rules and limitations.
Investors should not purchase Units unless such investors believe that
they are in a financial position appropriate to enable them to realize to a
significant extent the benefits described in the Prospectus, have adequate means
for providing for their current needs and personal contingencies, have
sufficient net worth and income to sustain the risks inherent in the investment,
including limited liquidity of the investment, and believe the investment is
otherwise suitable. In addition, each investor should be aware that none of the
Partnership, the General Partners, or any Affiliates, agents, or representatives
of the Partnership or the General Partners are authorized to make any
representations or warranties on behalf of the Partnership other than those
contained in the Prospectus or specified by the investors in the Subscription
Agreement.
Subscribers will be admitted as Limited Partners not later than the
last day of the calendar month following acceptance of their subscriptions.
ESCROW ARRANGEMENTS
Subscription proceeds will be received in trust and deposited in a
separate account with SouthTrust Asset Management Company of Florida, N.A., 135
W. Central Blvd., Suite 1200, Orlando, Florida 32801 (the "Bank").
The Escrow Agreement between the General Partners and the Bank provides
that escrowed funds will be invested by the Bank in an interest-bearing account
with the power of investment in short-term, highly liquid U.S. Government
securities or in other short-term, highly liquid investments with appropriate
safety of principal. Such subscription funds will be released periodically (at
least once per month) upon admission of Limited Partners to the Partnership.
The interest, if any, earned on subscription proceeds prior to their
release from escrow, within 30 days after the date a subscriber is admitted to
the Partnership as a Limited Partner, will be distributed to such subscriber.
Interest will be payable only to those subscribers whose funds have been held in
escrow by the Bank for at least 20 days. Limited Partners will not otherwise be
entitled to interest earned on Partnership funds or to receive interest on their
Capital Contributions.
INVESTMENT BY QUALIFIED RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Considerations. The General Partners believe that an investment
in Units may be made consistent with the requirements of ERISA. However, since
compliance with ERISA is essentially a factual determination, there can be no
assurance that these requirements will be met. In considering whether to invest
a portion of the assets of a qualified retirement plan, Keogh plan, or
individual retirement account (collectively "Qualified Plans") in Units,
fiduciaries of Qualified Plans should consider the following: (i) whether the
Qualified Plan's documents permit the investment, (ii) whether the purchase or
holding of Units will cause the General Partners to be considered fiduciaries of
the Qualified Plan (discussed below, under "Plan Asset Rules"), and if so,
whether the General Partners' control over Partnership operations violates ERISA
(discussed below, under "Prohibited Transactions"); (iii) whether an investment
in Units will be considered "prudent," and will not affect the obligation to
maintain proper liquidity and diversification in the Qualified Plan's
investments; (iv) whether Units, once acquired, can be valued as frequently as
needed for ERISA reporting and internal plan purposes; (v) whether either the
Partnership, the General Partners, the soliciting or purchasing agent, or any
affiliate thereof, is presently a fiduciary, a "party-in-interest," or a
"disqualified person" with respect to the Qualified Plan, and if so, whether an
investment in Units would violate ERISA and the Code (discussed below, under
"Prohibited Transactions"); and (vi) whether any income from the Units will be
considered taxable to Qualified Plans as "unrelated business income" (discussed
above, under "Federal Income Tax Considerations--Qualified Plan Investors").
Prohibited Transactions. Generally, a fiduciary may not cause a
Qualified Plan to engage in a transaction that constitutes a prohibited
transaction. Many types of transactions with a "party-in-interest" or a
"disqualified person" will constitute prohibited transactions. In general, any
fiduciary of the plan, any person providing services to the plan, any employer
whose employees are covered by the plan, any employee organization whose members
are covered by the plan, and certain parties related to or affiliated
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with such persons, will be considered "parties in interest" and "disqualified
persons." A fiduciary responsible for a Qualified Plan engaging in a prohibited
transaction may be held personally liable for any losses incurred by the
Qualified Plan on account of the prohibited transaction. In addition, the Code
imposes an excise tax on any "disqualified person" (other than a fiduciary
acting only as such) who participates in a prohibited transaction. Prohibited
transactions generally include direct or indirect sales, exchanges, or leases of
property, loans or extensions of credit, furnishing of goods or services or
facilities, benefiting from assets of the Qualified Plan ("plan assets"), or
certain acquisitions on behalf of the Qualified Plan of employer securities or
employer real property.
Plan Asset Rules. Fiduciaries of Qualified Plans also should consider
whether an investment in Units will cause the General Partners to be considered
a fiduciary of such Qualified Plans with respect to their management of the
Partnership, thus making the General Partners subject to the fiduciary
responsibility and the prohibited transaction provisions of ERISA and the Code.
The U.S. Department of Labor has issued regulations, relating to the definition
of "plan assets," which require that the assets of pooled investment vehicles,
including certain partnerships, be treated as plan assets unless an exception
applies. A person with control over a plan's assets becomes a fiduciary of that
plan (and thus, a "party in interest" and a "disqualified person" as a matter of
law.
Under the regulations, assets of Qualified Plans are defined to include
not only securities (such as Units) held by the Qualified Plan, but also the
underlying assets of the issuer of the securities unless: (i) the Units are
"publicly-offered securities" (as defined in the regulations); (ii) the issuer
is an "operating company" (as defined in the regulations); or (iii) equity
participation in the Partnership by Qualified Plan investors is not
"significant" (as defined in the regulations). It is not anticipated that the
Partnership will constitute an "operating company," and equity participation in
the Partnership is likely to be "significant."
The Partnership's assets will not be considered plan assets so long as
the Units are "publicly-offered securities." The securities offered by the
Partnership may constitute "publicly-offered securities" if such securities are
(i) freely transferable, (ii) part of a class of securities that is widely held,
and (iii) either part of a class of securities registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended, or sold to the Qualified Plan
as part of a public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended. A security is deemed to be
"widely-held" so long as it is owned by at least 100 or more investors, not
affiliated with the Partnership, immediately following the Offering. Although it
is anticipated the Units will be held by at least 100 unrelated persons at the
conclusion of the Offering, there can be no assurance that this requirement will
be met. Whether a security is "freely transferable" is a factual question, but
the final regulations provide that a security may be deemed to be "freely
transferable" even if there is a restriction on transfer that is drafted to
avoid the Partnership being treated as a "publicly-traded partnership" under
sections 469(k) and 7704 of the Code. A security also may be deemed to be
"freely transferable," even if there is a restriction on substitution of an
assignee as a limited partner (such as a requirement for prior consent of a
general partner to any such substitution), so long as the economic benefits of
ownership of the assignor may be transferred or assigned without regard to such
restriction. The economic benefits of ownership of the Units generally may be
transferred without regard to the restriction on substitution of an assignee as
a Limited Partner. The Partnership intends to register the Units under Section
12(g) in order to satisfy the above-described registration requirements.
Assuming that the Units will be "widely-held" and "freely
transferable," the General Partners believe that the Units will be
"publicly-offered" securities for purposes of the U.S. Department of Labor
regulations and that the assets of the Partnership will not be deemed "plan
assets" of any Plan that invests in the Units, but have not requested an opinion
of counsel to this effect.
Potential Consequences of Treatment as Plan Assets. In the event that
the Units do not constitute "publicly-offered securities," the underlying assets
of the Partnership treated as plan assets, and the Partnership likely will be
required to take steps which could affect Partners who are subject to income
tax, as well as Qualified Plans which may invest in the Partnership. In such
event, the fiduciary duties, including compliance with the exclusive benefit
rule and the diversification and prudence requirements, must be considered with
respect to the investment in the Partnership. Each Partner of the Partnership
who has authority or control with respect to the management or disposition of
the assets of the Partnership, or who renders investment advice for a fee or
other compensation, direct or indirect, with respect to the assets of the
Partnership would be treated as a fiduciary and therefore would be personally
liable for any losses to a Qualified Plan which invests in the Partnership
resulting from a breach of fiduciary duty.
The prohibited transaction restrictions would apply to any transactions
in which the Partnership engages involving the assets of the Partnership and a
party-in-interest. Such restrictions could, for example, require that the
Partnership and the General Partners avoid transactions with entities that are
affiliated with the Partnership or the General Partners, or that Qualified Plan
investors be given the opportunity to withdraw from the Partnership. Also, the
General Partners who participate in a prohibited transaction may be subject to
an excise tax. Finally, while unlikely, entering into a prohibited transaction
could result in loss of a Qualified Plan's tax-exempt status.
DETERMINATION OF OFFERING PRICE
The Offering price per Unit was determined by the General Partners
based upon the estimated costs of acquiring the Properties, the fees to be paid
to the General Partners and their Affiliates, as well as fees to third parties,
and the expenses of this Offering.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Partnership may use certain sales
materials in connection with this Offering, although only when accompanied or
preceded by the delivery of this Prospectus. No sales material may be used
unless it has first been approved in writing by the General Partners. As of the
date of this Prospectus, it is anticipated that the following sales material
will be authorized for use by the Partnership in connection with this Offering:
(i) a brochure entitled CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII,
Ltd.; (ii) a brochure describing CNL Group, Inc. and its affiliated entities;
(iii) a fact sheet describing the general features of the Partnership; (iv) a
cover letter transmitting the Prospectus; (v) a summary description of the
Offering; (vi) a slide
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and computer presentation; (vii) broker updates; (viii) an audio cassette
presentation; (ix) a video presentation; (x) a script for telephonic marketing;
(xi) seminar advertisements and invitations; and (xii) certain third-party
articles. Units are being offered only through this Prospectus. All such
materials will be used only by registered broker-dealers who are members of the
National Association of Securities Dealers, Inc. The Partnership also may
respond to specific questions from Soliciting Dealers and prospective investors.
Additional materials relating to the Offering may be made available to
Soliciting Dealers for their internal use.
LEGAL OPINIONS
The legality of the Units being offered hereby has been passed upon for
the Partnership by Baker & Hostetler. Statements made under "Risk
Factors--Federal Income Tax Risks" and "Federal Income Tax Considerations" have
been reviewed by Baker & Hostetler, who have given their opinion that such
statements as to matters of law are correct. Baker & Hostetler serves as
securities counsel to the Partnership and to the General Partners and certain of
their Affiliates.
EXPERTS
The audited financial statements of the Partnership, as of December 31,
1995 and for the period February 10, 1995 (date of inception) through December
31, 1995, and the audited balance sheet of the corporate General Partner, as of
December 31, 1995, included in this Prospectus, have been included herein in
reliance on the reports of Coopers & Lybrand, L.L.P., independent accountants,
given on the authority of that firm as experts in accounting and auditing.
ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission
(the "Commission"), Washington, D.C., a Registration Statement on Form S-11, as
amended, with respect to the Units offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Partnership and the Units offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of such document filed as an exhibit or schedule
to the Registration Statement, each such statement being qualified in all
respects by reference to such exhibit or schedule.
The Registration Statement, together with its exhibits and schedules,
may be inspected, without charge, at the Commission's principal office at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also at the following
regional offices of the Commission: Room 1400, 75 Park Place, New York, New York
10007, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Commission upon payment of prescribed fees.
The Commission maintains a Web site that contains reports, proxy and
information statements and other information regarding registrants that file
electronically with the Commission, which includes the Partnership. The address
of such site is http://www.sec.gov.
DEFINITIONS
"Acquisition Expenses" shall mean any and all expenses incurred by the
Partnership, any General Partner, or any Affiliate of any General Partner in
connection with the selection or acquisition of any Property, whether or not
acquired, including, without limitation, legal fees and expenses, travel and
communication expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, taxes, and title insurance.
"Acquisition Fees" shall mean any and all fees and commissions,
exclusive of Acquisition Expenses, paid by any person or entity to any other
person or entity (including any fees or commissions paid by or to any General
Partner or any Affiliate of any General Partner) in connection with the
selection or acquisition of any Property, including, without limitation, real
estate commissions, acquisition fees, finder's fees, selection fees,
nonrecurring management fees, consulting fees, or any other fees or commissions
of a similar nature.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts that such Partner is
obligated to restore pursuant to any provision of this Agreement, is otherwise
treated as being obligated to restore under section 1.704-1(b)(2)(ii)(c) of the
Treasury regulations, or is deemed to be obligated to restore pursuant to
sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury regulations (determined
after taking into account any changes during such year in minimum gain); and
(ii) debit to such Capital Account the items described in Treasury regulation
section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of
Adjusted Capital Account Deficit is intended to comply with the provision of
Treasury regulation section 1.704-1(b)(2)(ii)(d), and shall be interpreted
consistently therewith.
"Affiliate" shall mean (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (ii) any person or entity owning or
controlling 10% or more of the outstanding voting securities of another person
or entity; (iii) any officer, director, partner, or trustee of such person or
entity; and (iv)
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if such other person or entity is an officer, director, partner, or trustee of a
person or entity, the person or entity for which such person or entity acts in
any such capacity.
"Capital Account" shall mean the book account which shall be
established and maintained for each Partner of the Partnership in accordance
with Treasury Regulation ss.1.704-1(b)(2)(iv), as amended, in such fashion as
the General Partners deem advisable. Each Capital Account shall reflect, among
other items (i) all contributions made by such Partner to the Partnership, (ii)
all allocations of Partnership Net Income, Net Loss, Gain and Loss, and (iii)
all distributions made to such Partner by the Partnership. Any and all amounts
distributed by the Partnership to a Partner as a fee and/or as compensation or
reimbursement for services shall not reduce such Partner's Capital Account.
"Capital Contribution(s)" shall mean the gross amount of investment in
the Partnership by a Partner or all Partners, as the case may be. For purposes
of computing a Limited Partner's Capital Contribution, any Limited Partner who
pays less than the per Unit Offering price of $10.00 per Unit due to a decrease
in the commissions otherwise payable to the Managing Dealer or a Soliciting
Dealer (where net proceeds to the Partnership are not reduced), shall
nevertheless be deemed to have contributed to the Partnership the full amount of
the per Unit Offering price. In the event that any amount is returned to a
Limited Partner as required by the Partnership Agreement due to the fact that
the Partnership does not have an Investment in Properties of at least 80% of
Limited Partners' Capital within a specified period of time, the Limited
Partner's Capital Contribution shall be reduced, following the return of any
such amount, by the amount so returned. The Capital Contribution of a
substituted Limited Partner shall be that attributable to the interest in the
Partnership assigned to such substituted Limited Partner.
"CNL XVII" shall mean CNL Income Fund XVII, Ltd., a Florida limited
partnership whose units of limited partnership interest were offered prior to
the Units of CNL XVIII, but as a part of the aggregate offering by CNL XVII and
CNL XVIII (of which this Offering is a part) .
"CNL XVIII" shall mean CNL Income Fund XVIII, Ltd., a Florida limited
partnership.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competitive Real Estate Commission" shall mean a real estate or
brokerage commission for the purchase or sale of property which is reasonable,
customary, and competitive in light of the size, type, and location of the
property. The total of all real estate commissions paid by the Partnership to
all persons and entities (including the subordinated real estate disposition fee
payable to CNL Fund Advisors, Inc.) in connection with any sale of one or more
of the Partnership's Properties shall not exceed the lesser of (i) a Competitive
Real Estate Commission or (ii) six percent of the gross sales price of the
Property or Properties.
"Co-Tenancy Arrangements" shall mean the co-tenancy arrangements
pursuant to which the Partnership becomes a co-tenant or tenant-in-common of
properties which are acquired, in part, by the Partnership and which may include
a written agreement among the tenants.
"Counsel" shall mean legal counsel to the Partnership.
"Distribution Reinvestment Plan" or "Plan" shall mean the Distribution
Reinvestment Plan, in substantially the form attached hereto as Exhibit D.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Fee Property" or "Fee Properties" shall mean real property or
properties, including the building or buildings located thereon, if any, but
only in cases in which the Partnership, either directly or through Joint Venture
or Co-Tenancy arrangements or other partnerships, owns the real property and any
building or buildings located thereon. "Fee Property" or "Fee Properties" does
not include "Leasehold Property" or "Leasehold Properties."
"Front-End Fees" shall mean fees and expenses paid by any person or
entity to any person or entity for any services rendered in connection with the
organization of the Partnership and the acquisition of Properties, including
Selling Commissions, the due diligence expense reimbursement fee, Organizational
and Offering Expenses, Acquisition Expenses, Acquisition Fees, and any other
similar fees, however designated. During the term of the Partnership, Front-End
Fees, including Front-End Fees incurred with respect to the reinvestment of Net
Sales Proceeds, shall not exceed 20% of Gross Proceeds.
"Gain" shall mean the income or gain of the Partnership for federal
income tax purposes arising from any Sale, and includes the Partnership's
distributive share of the income or gain for federal income tax purposes of any
Joint Venture or partnership of which the Partnership is a co-venturer or
partner arising from the sale or other disposition of all or a substantial
portion of the assets of such Joint Venture or partnership.
"General Partners" shall mean Robert A. Bourne, James M. Seneff, Jr.,
and CNL Realty Corporation, and singularly shall mean any one of them, or any
other person or entity which is substituted for or succeeds to the interest of
all or any of such persons or entity as a general partner pursuant to the
Partnership Agreement.
"Gross Proceeds" shall mean the aggregate purchase price of all Units
sold for the account of the Partnership through the Offering, without deduction
for Selling Commissions, volume discounts, the due diligence expense
reimbursement fee or Organization and Offering Expenses. For the purpose of
computing Gross Proceeds, the purchase price of any Unit for which reduced
Selling
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Commissions are paid to the Managing Dealer or a Soliciting Dealer (where net
proceeds to the Partnership are not reduced) shall be deemed to be $10.00.
"Interest" or "Partnership Interest" shall mean the ownership interest
of a Partner in the Partnership represented by such Partner's right to share in
distributions from operations and on liquidation of the Partnership, and an
allocable share of the Net Income and Net Loss of the Partnership.
"Invested Capital Contribution" as of any date shall mean the Capital
Contribution to the Partnership of a Limited Partner, reduced by all prior cash
distributions to such Limited Partner of Net Sales Proceeds from a Sale or Sales
not in liquidation of the Partnership, other than those prior cash distributions
applied in payment of the portion of the Limited Partners' 8% Return
attributable to such Limited Partner. Invested Capital Contributions may differ
from Capital Accounts, but may not be less than zero.
"Investment in Properties" shall mean the amount of the Limited
Partners' Capital actually paid or allocated by the Partnership, either directly
or through joint venture arrangements or other partnerships, to the purchase,
development, construction, or improvement (including working capital reserves of
up to one percent of the Limited Partners' Capital) of Properties, and other
cash payments such as interest and taxes, but excluding Front-End Fees.
"IRA" shall mean an Individual Retirement Account.
"IRS" shall mean the Internal Revenue Service.
"Joint Ventures" shall mean the joint venture or general partnership
arrangements in which the Partnership is a co-venturer or general partner which
are established to acquire Properties.
"Leasehold Property" or "Leasehold Properties" shall mean cases in
which the Partnership acquires only the building with the land owned by a third
party and the Partnership's interest in such land, as lessee, being represented
by a ground lease.
"Limited Partner" shall mean any person or entity admitted to the
Partnership as a limited partner, including any person or entity admitted to the
Partnership as a substituted limited partner in accordance with the Partnership
Agreement.
"Limited Partners' 8% Return" shall mean an amount equal to 8% which
amount shall be computed on a noncompounded, annual basis, which computation
shall be noncumulative when computed or paid from Net Cash Flow and shall be
cumulative when computed or paid from Net Sales Proceeds, of the Limited
Partners' Invested Capital Contributions (calculated from the date a Limited
Partner is admitted to the Partnership and the Capital Account attributable to
such Limited Partner initially is established), to the extent sufficient cash is
available to make such distributions, reduced by all prior cash distributions of
Net Cash Flow and of Net Sales Proceeds from a Sale or Sales not in liquidation
of the Partnership, other than those prior cash distributions applied in payment
of such Limited Partner's Invested Capital Contribution.
"Limited Partners' Capital" as of any date shall mean the aggregate
Capital Contributions made by all of the Limited Partners of the Partnership.
"Loss" shall mean the loss of the Partnership, for federal income tax
purposes, arising from any Sale, and includes the Partnership's distributive
share for federal income tax purposes of the loss of any Joint Venture or
partnership of which the Partnership is a co-venturer or partner arising from
the sale or other disposition of all or a substantial portion of the assets of
such Joint Venture or partnership.
"Management Fee" shall mean the fee payable to CNL Fund Advisors, Inc.,
an affiliate of the General Partners, for day-to-day professional management
services in connection with the Partnership and its Properties.
"Managing Dealer" shall mean CNL Securities Corp., an Affiliate of the
General Partners, or such other person or entity selected by the General
Partners to act as the managing dealer for the Offering. CNL Securities Corp.
is a member of the National Association of Securities Dealers, Inc.
"Net Cash Flow" shall mean the Net Income or Net Loss of the
Partnership for each fiscal year, with the following adjustments: (i) there
shall be added to such Net Income or Net Loss the amount charged for any
deduction not involving a cash expenditure (such as depreciation and
amortization), and any cash receipts (excluding Net Sales Proceeds) or reserves
which the General Partners, in their sole discretion, deem to be available for
distribution; and (ii) there shall be subtracted from such Net Income or Net
Loss the amount of any nondeductible reserves established or maintained by the
General Partners in their sole discretion and any other nondeductible cash
items, including distributions made to the Partners prior to the end of such
fiscal year, loans, or expenditures made by the Partnership, and the amount of
any and all income not attributable to cash receipts of the Partnership (such as
accrued accounts receivable).
"Net Income" shall mean the taxable income of the Partnership for
federal income tax purposes for each taxable year, determined using the accrual
method of accounting and calculated without regard to Gain or Loss.
"Net Loss" shall mean the taxable loss of the Partnership for federal
income tax purposes for each taxable year, determined using the accrual method
of accounting and calculated without regard to Gain or Loss.
"Net Sales Proceeds" shall mean, in the case of a transaction described
in clause (i)(A) of the definition of Sale, the proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Partnership. In the case of a transaction described in clause (i)(B) of such
definition, Net Sales Proceeds mean the proceeds of any such transaction less
the amount
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of any legal and other selling expenses incurred in connection with such
transaction. In the case of a transaction described in clause (i)(C) of such
definition, Net Sales Proceeds mean the proceeds of any such transaction
actually distributed to the Partnership from the Joint Venture. Net Sales
Proceeds shall not include any reserves established by the General Partners in
their sole discretion. In the case of a transaction described in clause (ii) of
the definition of Sale, Net Sales Proceeds shall mean the proceeds of such
transaction or series of transactions less all amounts generated thereby and
reinvested in one or more Properties within 180 days thereafter and less the
amount of any real estate commissions, closing costs, and legal and other
selling expenses incurred by or allocated to the Partnership in connection with
such transaction or series of transactions.
"Offering" shall mean the offering for sale to the public of limited
partnership interests in CNL XVIII.
"Organizational and Offering Expenses" shall mean any and all costs and
expenses, other than Selling Commissions and the 0.5% due diligence expense
reimbursement fee, incurred by the Partnership, any General Partner or any
Affiliate of any General Partner in connection with the formation,
qualification, and registration of the Partnership and the marketing and
distribution of Units, including, without limitation, the following: legal,
accounting, partnership administration, and escrow fees; printing, amending,
supplementing, mailing, and distributing costs; filing, registration and
qualification fees and taxes; telegraph and telephone costs; and all advertising
and marketing expenses, including the costs related to investor and
broker-dealer sales meetings.
"Participants" shall mean those Limited Partners who elect to
participate in the Distribution Reinvestment Plan.
"Partner" shall mean a General Partner or a Limited Partner of the
Partnership, and "Partners" means all Partners of the Partnership, both General
and Limited.
"Partnership" shall mean CNL XVIII, the Florida limited partnership
which will be reorganized pursuant to the Partnership Agreement.
"Partnership Agreement" shall mean the Amended and Restated Agreement
of Limited Partnership, in substantially the form attached hereto as Exhibit A.
"Property" or "Properties" shall mean (i) the real property or
properties, including the building or buildings located thereon, (ii) the real
properties only, or (iii) the buildings only, which are acquired by the
Partnership, either directly or through Joint Venture or Co-Tenancy arrangements
or other partnerships. The Partnership or any Joint Venture or Co- Tenancy
Arrangement that owns Properties has the right, but is not expected, to acquire
equipment located in or on such Properties. For purposes of this definition, the
term real property includes a Partnership's interest as lessee under a ground
lease.
"Prospectus" shall mean the final prospectus included in the
Partnership's Registration Statement filed with the Securities and Exchange
Commission, pursuant to which the Partnership will offer Units to the public, as
the same may be amended or supplemented from time to time after the effective
date of such Registration Statement.
"Qualified Plans" shall mean qualified pension, profit-sharing, and
stock bonus plans, including Keogh plans and IRAs.
"Reinvestment Agent" or "Agent" shall mean the independent agent, which
currently is MMS Escrow and Transfer Agency, Inc., for Participants in the
Distribution Reinvestment Plan.
"Restaurant Chains" shall mean the national and regional fast-food,
family-style, and casual dining restaurant chains to be selected by the General
Partners who themselves or through franchisees will lease the Properties
purchased by the Partnership.
"Sale" (i) shall mean any transaction or series of transactions
whereby: (A) the Partnership sells, grants, transfers, conveys, or relinquishes
its ownership of any Property or portion thereof, including any event with
respect to any Property which gives rise to a significant amount of insurance
proceeds or condemnation awards; (B) the Partnership sells, grants, transfers,
conveys, or relinquishes its ownership of all or substantially all of the
interest of the Partnership in any Joint Venture in which it is a co-venturer or
partner; or (C) any Joint Venture in which the Partnership is a co-venturer or
partner sells, grants, transfers, conveys, or relinquishes its ownership of any
Property or portion thereof, including any event with respect to any Property
which gives rise to insurance claims or condemnation awards, but (ii) shall not
include any transaction or series of transactions specified in clause (i)(A),
(i)(B), or (i)(C) above in which the proceeds of such transaction or series of
transactions are reinvested in one or more Properties within 180 days
thereafter.
"Selling Commissions" shall mean any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Units as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
"Soliciting Dealers" shall mean those broker-dealers that are members
of the National Association of Securities Dealers, Inc., and that enter into
participating broker agreements with the Managing Dealer to sell Units.
"Subscription Agreement" shall mean the Subscription Agreement and
Power of Attorney, in the form attached hereto as Exhibit E.
"Taxable Limited Partner" shall mean any Limited Partner other than a
Tax-Exempt Limited Partner.
"Tax-Exempt Limited Partner" shall mean any Limited Partner who is
described in section 168(h)(2) of the Code.
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"Unit" shall mean the Interest of a Limited Partner in the Partnership
which is represented by a Capital Contribution of $10.00.
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EXHIBIT A
FORM OF
AMENDED AND RESTATED
AGREEMENT OF
LIMITED PARTNERSHIP
CNL INCOME FUND , LTD.
(A Florida limited partnership)
<PAGE>
TABLE OF CONTENTS
<TABLE>
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ARTICLE ONE - CERTAIN DEFINITIONS.......................................................................................A-1
ARTICLE TWO - ORGANIZATION..............................................................................................A-5
2.1 Formation ............................................................................................A-5
2.2 Filings...............................................................................................A-5
2.3 Foreign Qualification.................................................................................A-5
ARTICLE THREE - NAME AND PRINCIPAL OFFICE ..............................................................................A-5
3.1 Name and Office.......................................................................................A-5
3.2 Assumed Names.........................................................................................A-5
ARTICLE FOUR - PURPOSES AND POWERS OF THE PARTNERSHIP A-5
4.1 Purposes of the Partnership ..........................................................................A-5
4.2 Powers of the Partnership ............................................................................A-6
ARTICLE FIVE - TERM OF PARTNERSHIP .....................................................................................A-7
ARTICLE SIX - CAPITALIZATION............................................................................................A-7
6.1 Limited Partners' Capital Contributions ..............................................................A-7
6.2 General Partners' Capital Contribution .............................................................. A-7
6.3 Minimum Capital Contributions ....................................................................... A-7
6.4 Escrow .............................................................................................. A-7
6.5 Admission of Limited Partners ....................................................................... A-7
6.6 Liability of Limited Partners ....................................................................... A-8
6.7 Interest ............................................................................................ A-8
6.8 Additional Capital Contributions .................................................................... A-8
6.9 Repayment of Capital Contributions of Limited Partners .............................................. A-8
6.10 No Priorities Among Limited Partners ................................................................ A-8
ARTICLE SEVEN - APPLICATION OF PARTNERSHIP CAPITAL .................................................................... A-8
7.1 General ............................................................................................. A-8
7.2 Return of Earned Interest ........................................................................... A-8
7.3 Selling Commissions ................................................................................. A-8
7.4 Organizational and Offering Expenses ................................................................ A-9
7.5 Acquisition Expenses and Fees ....................................................................... A-9
7.6 Reserves ............................................................................................A-10
7.7 Investment in Properties ............................................................................A-10
7.8 Return of Uninvested Partnership Capital ............................................................A-10
7.9 Restrictions on Investments .........................................................................A-10
ARTICLE EIGHT - OPERATING EXPENSES; OTHER FEES AND EXPENSES ...........................................................A-11
8.1 Operating Expenses ..................................................................................A-11
8.2 Management Fee ......................................................................................A-11
8.3 Real Estate Commissions .............................................................................A-11
ARTICLE NINE - ALLOCATIONS AND DISTRIBUTIONS ..........................................................................A-12
9.1 Definitions .........................................................................................A-12
9.2 Allocations .........................................................................................A-12
9.3 Distributions .......................................................................................A-13
</TABLE>
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TABLE OF CONTENTS (continued)
<TABLE>
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9.4 Determination of Allocations and Distributions
Among the Limited Partners.......................................................................A-14
9.5 Determination of Allocations and Distributions
Among the General Partners.......................................................................A-14
9.6 Admission of Limited Partners........................................................................A-14
9.7 Transfer of Units ...................................................................................A-14
9.8 Interest of the General Partners ....................................................................A-14
9.9 Allocation of Recapture Items for Tax Purposes ......................................................A-14
9.10 Qualified Income Offset .............................................................................A-14
9.11 Allocation With Respect to Reserved Liquidation
Proceeds ........................................................................................A-14
9.12 Limitation on Distributions .........................................................................A-14
9.13 Certain Computations for Monthly Limited Partners ...................................................A-14
9.14 Certain Computations for Participants in the Distribution Reinvestment Plan .........................A-15
9.15 Optional Monthly Distributions ......................................................................A-15
9.16 Allocation of Syndication Expenses ..................................................................A-15
ARTICLE TEN - TRANSACTIONS WITH GENERAL PARTNERS AND AFFILIATES .......................................................A-15
10.1 Services and Goods ..................................................................................A-15
10.2 Purchases, Sales and Leases .........................................................................A-16
10.3 Loans ...............................................................................................A-16
10.4 No Exclusive Right to Sell ..........................................................................A-16
10.5 Construction and Development of Properties ..........................................................A-16
10.6 No Other Compensation for Goods and Services ........................................................A-17
ARTICLE ELEVEN - MANAGEMENT BY GENERAL PARTNERS .......................................................................A-17
11.1 Duties of the General Partners ......................................................................A-17
11.2 Rights and Powers ...................................................................................A-17
11.3 Limitations on General Partners' Authority ..........................................................A-18
11.4 Nonexclusive Duties .................................................................................A-18
11.5 Limitation on Liability .............................................................................A-19
11.6 Restriction on Sale of Properties ..................................................................A-19
ARTICLE TWELVE - RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS ...........................................................A-19
12.1 Liabilities .........................................................................................A-19
12.2 Management ..........................................................................................A-20
12.3 Authority ...........................................................................................A-20
12.4 Rights ..............................................................................................A-20
ARTICLE THIRTEEN - VOTING RIGHTS AND MEETINGS OF THE PARTNERSHIP ......................................................A-20
13.1 Voting Rights .......................................................................................A-20
13.2 Meetings of the Partnership .........................................................................A-21
13.3 Amendment of Agreement ..............................................................................A-21
ARTICLE FOURTEEN - RESTRICTIONS ON TRANSFER OF INTEREST
IN PARTNERSHIP ......................................................................................................A-22
14.1 Representations of Limited Partners .................................................................A-22
14.2 Transfer of Limited Partners' Partnership Interests .................................................A-22
14.3 Effect of Transfer ..................................................................................A-22
14.4 Liability of Transferring Limited Partner ...........................................................A-23
14.5 Record Owner of Partnership Interest ................................................................A-23
14.6 Admission of Additional Limited Partners ............................................................A-23
14.7 Death, Incompetency, or Dissolution of a Limited Partner ............................................A-23
14.8 Distribution Reinvestment Plan ......................................................................A-23
</TABLE>
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TABLE OF CONTENTS (continued)
<TABLE>
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ARTICLE FIFTEEN - ADDITION, REMOVAL OR WITHDRAWAL
OF A GENERAL PARTNER ................................................................................................A-24
15.1 Additional General Partners .........................................................................A-24
15.2 Removal and Election of General Partners ............................................................A-24
15.3 Death, Incompetency, Bankruptcy, Dissolution,
or Withdrawal of a General Partner ..............................................................A-24
15.4 Admission of Substituted General Partner ............................................................A-25
15.5 Purchase Price of a General Partner's Interest ......................................................A-25
ARTICLE SIXTEEN - REPORTS, ACCOUNTING AND TAX MATTERS .................................................................A-26
16.1 Fiscal Year .........................................................................................A-26
16.2 Books of Account and Accounting .....................................................................A-26
16.3 Reports to the Limited Partners .....................................................................A-26
16.4 Tax Returns .........................................................................................A-27
16.5 Tax Matters .........................................................................................A-27
16.6 Withholding on Certain Amounts Attributable to Interest of Foreign Person
Limited Partners ...............................................................................A-27
16.7 Withholding of State and Local Taxes ................................................................A-27
ARTICLE SEVENTEEN - DISSOLUTION OF THE PARTNERSHIP ....................................................................A-28
17.1 Events of Dissolution ...............................................................................A-28
17.2 Reformation .........................................................................................A-28
ARTICLE EIGHTEEN - WINDING UP OF PARTNERSHIP ..........................................................................A-28
18.1 Liquidation of Assets ...............................................................................A-28
18.2 Distributions .......................................................................................A-28
18.3 Distribution in Kind ................................................................................A-29
18.4 Time for Orderly Liquidation ........................................................................A-29
18.5 Indebtedness of Partners ............................................................................A-29
18.6 Deficit Restoration .................................................................................A-29
18.7 Final Accounting ....................................................................................A-29
18.8 Compliance with Law .................................................................................A-29
ARTICLE NINETEEN - INDEMNIFICATION ....................................................................................A-29
19.1 General .............................................................................................A-29
19.2 Securities Laws Violations ..........................................................................A-30
19.3 Liability Insurance .................................................................................A-30
19.4 Advancement of Legal Costs and Expenses .............................................................A-30
ARTICLE TWENTY - POWER OF ATTORNEY ....................................................................................A-30
20.1 General Partners as Attorney-in-Fact ................................................................A-30
20.2 Special and Durable Power ...........................................................................A-31
ARTICLE TWENTY-ONE - MISCELLANEOUS ....................................................................................A-31
21.1 Reliance Upon General Partners ......................................................................A-31
21.2 Banking .............................................................................................A-31
21.3 Investment Company Act ..............................................................................A-31
21.4 Notices .............................................................................................A-31
21.5 No Roll-Up ..........................................................................................A-31
21.6 No Inducement to Advise .............................................................................A-31
21.7 Issuance of Senior Securities .......................................................................A-31
21.8 Section Headings ....................................................................................A-31
21.9 Severability ........................................................................................A-32
</TABLE>
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TABLE OF CONTENTS (continued)
<TABLE>
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21.10 Governing Law .......................................................................................A-32
21.11 Counterpart Execution ...............................................................................A-32
21.12 Parties in Interest .................................................................................A-32
21.13 Gender and Number ...................................................................................A-32
21.14 Arbitration of Disputes .............................................................................A-32
21.15 Partition ...........................................................................................A-32
21.16 Entire Agreement ....................................................................................A-32
</TABLE>
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<PAGE>
FORM OF AMENDED AND RESTATED
AGREEMENT OF LIMITED PARTNERSHIP
OF
CNL INCOME FUND , LTD.
THIS AMENDED AND RESTATED AGREEMENT OF LIMITED PARTNERSHIP is made and
entered into effective this day of , 1996, by and among
Robert A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, as General
Partners, the Initial Limited Partner, and those persons and entities admitted
to the Partnership as Limited Partners.
WHEREAS, on February 10, 1995, an Affidavit and Certificate of Limited
Partnership (the "Original Agreement") was filed with the Secretary of State of
the State of Florida, whereby Robert A. Bourne, James M. Seneff, Jr. and CNL
Realty Corporation, as General Partners, and the Initial Limited Partner formed
the Partnership under the Florida Revised Uniform Limited Partnership Act;
WHEREAS, pursuant to Section 620.109 of the Florida Revised Uniform
Limited Partnership Act, the parties hereto desire to amend, restate, and
supersede in its entirety the Original Agreement and to enter into this
Agreement for the purposes of admitting the Limited Partners into the
Partnership, and permitting the withdrawal of the Initial Limited Partner;
NOW, THEREFORE, in consideration of the foregoing and the mutual
covenants herein contained, and intending to be legally bound hereby, the
parties hereto agree to continue the Partnership as follows.
ARTICLE ONE
CERTAIN DEFINITIONS
When used in this Agreement, the following terms (used in plural where
the context indicates) shall have the meanings designated below.
1.1 "Act" means the Florida Revised Uniform Limited Partnership Act
(1986), as amended.
1.2 "Acquisition Expenses" mean any and all expenses incurred by the
Partnership, any General Partner or any Affiliate of any General Partner in
connection with the selection or acquisition of any Property, whether or not
acquired, including, without limitation, legal fees and expenses, travel and
communication expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, and title insurance.
1.3 "Acquisition Fees" mean any and all fees and commissions, exclusive
of Acquisition Expenses, paid by any person or entity to any other person or
entity, including any fees or commissions paid by or to any General Partner or
any Affiliate of any General Partner, in connection with the selection or
acquisition of any Property, including, without limitation, real estate
commissions, acquisition fees, finder's fees, selection fees, nonrecurring
management fees, consulting fees, or any other fees of a similar nature, however
designated and however treated for tax or accounting purposes.
1.4 "Additional Closing Date" means any date, other than the Initial
Closing Date, on which subscribers for Units are admitted to the Partnership as
Limited Partners.
1.5 "Affiliate" means (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by or under common
control with another person or entity; (ii) any person or entity owning or
controlling ten percent (10%) or more of the outstanding voting securities of
another person or entity; (iii) any officer, director, partner, or trustee of
such person or entity; and (iv) if such other person or entity is an officer,
director, partner, or trustee of a person or entity, the person or entity for
which such person or entity acts in any such capacity.
1.6 "Agreement" means this Amended and Restated Agreement of Limited
Partnership, as amended from time to time, including all exhibits thereto.
1.7 "Capital Account" means the book account, established and
maintained for each Partner in a manner which complies with Treasury Regulation
ss.1.704-1(b)(2)(iv), as may be amended from time to time. Each Capital Account
shall reflect, among other items, (i) all cash and the fair market value of
property (net of liabilities securing such property that the Partnership is
considered to assume or take subject to under Code section 752) contributed by
the Partner to the Partnership, (ii) all allocations to the Partner of
Partnership Net Income, Net Loss, Gain and Loss, and (iii) all cash and the fair
market value of property (net of liabilities securing such property that the
Partner is considered to assume or take subject to under Code section 752)
distributed to the Partner by the Partnership. Any and all amounts distributed
to a Partner as a fee and/or as compensation or reimbursement for services shall
not reduce such Partner's Capital Account.
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1.8 "Capital Contribution(s)" means the gross amount of investment in
the Partnership by a Partner or all Partners, as the case may be. For purposes
of computing a Limited Partner's Capital Contribution, any Limited Partner who
pays less than the per Unit offering price due to a decrease in the commissions
otherwise payable to CNL Securities Corp. or a broker-dealer (where net proceeds
to the Partnership are not reduced), nevertheless shall be deemed to have
contributed to the Partnership the full offering price of $10.00 per Unit. Any
amount returned to a Limited Partner pursuant to Article 7.8 shall reduce such
Limited Partner's Capital Contribution by the amount so returned. The Capital
Contribution of a Substituted Limited Partner shall be that attributable to the
interest in the Partnership assigned to him.
1.9 "Code" means the Internal Revenue Code of 1986, as amended from
time to time.
1.10 "Competitive Real Estate Commission" means a real estate or
brokerage commission for the purchase or sale of property which is reasonable,
customary, and competitive in light of the size, type, and location of the
property.
1.10.1 "Co-Tenancy Arrangements" means the co-tenancy arrangements
pursuant to which the Partnership becomes a co-tenant or tenant-in-common of
Properties which are acquired, in part, by the Partnership and which may include
a written agreement among the tenants.
1.11 "Distributions" means the cash distributions paid by the
Partnership with respect to Units owned by Participants in the Distribution
Reinvestment Plan.
1.12 "Distribution Reinvestment Plan" means the Distribution
Reinvestment Plan adopted by the Partnership pursuant to which a Limited Partner
may elect to have the full amount of the cash distributions paid by the
Partnership with respect to such Limited Partner's Units reinvested in
additional Units of the Partnership.
1.13 "Effective Date" means the date on which this Agreement is
executed by the General Partners, by the Initial Limited Partner, and by or on
behalf of the Limited Partners.
1.14 "Final Closing Date" means the last date on which subscribers for
Units are admitted to the Partnership as Limited Partners.
1.15 "Front-End Fees" mean fees and expenses paid by any person or
entity to any person or entity for any services rendered in connection with the
organization of the Partnership and the acquisition of Properties, including
Selling Commissions, the due diligence expense reimbursement fee, Organizational
and Offering Expenses, Acquisition Expenses, Acquisition Fees, and any other
similar fees, however designated. During the term of the Partnership, Front-End
Fees, including Front-End Fees incurred with respect to the reinvestment of Net
Sales Proceeds, shall not exceed twenty percent (20%) of the gross offering
proceeds.
1.16 "Gain" means the income or gain of the Partnership for federal
income tax purposes arising from any Sale, and includes the Partnership's
distributive share for federal income tax purposes of the income or gain arising
from the sale or other disposition of all or a substantial portion of the assets
of any co-tenancy arrangement, joint venture, or partnership in which the
Partnership is a co-tenant, co-venturer, or partner.
1.17 "General Partners" mean Robert A. Bourne, James M. Seneff, Jr.,
and CNL Realty Corporation, or any other person or entity which is substituted
for or succeeds to the interest of all or any of such persons as a general
partner pursuant to this Agreement.
1.18 "General Partners' Capital Contribution" means the total cash
contributed to the Partnership by the General Partners.
1.19 "Initial Closing Date" means the first date on which subscribers
for Units are admitted to the Partnership as Limited Partners.
1.20 "Initial Limited Partner" means the individual who will withdraw
from the Partnership on or immediately prior to the Effective Date.
1.21 "Invested Capital Contribution" as of any date means the Capital
Contribution of a Limited Partner reduced by all prior cash distributions to
such Limited Partner of Net Sales Proceeds from a Nonliquidating Sale other than
those prior cash distributions applied in payment of the portion of the Limited
Partners' 8% Return attributable to such Limited Partner pursuant to Article
9.3(b)(i). Invested Capital Contributions may differ from Capital Accounts, but
may not be less than zero.
1.22 "Investment in Properties" means the amount of the Limited
Partners' Capital actually paid or allocated by the Partnership, either directly
or through co-tenancy arrangements, joint venture arrangements, or other
partnerships, to the purchase, development, construction, or improvement
(including working capital reserves of up to one percent (1%) of the Limited
Partners' Capital) of Properties, and other cash payments such as interest and
taxes, but excluding Front-End Fees.
1.23 "Limited Partner" means any person or entity admitted to the
Partnership as a limited partner, including any person or entity admitted to the
Partnership as a Substituted Limited Partner in accordance herewith.
1.24 "Limited Partners' 8% Return" means an amount equal to eight
percent (8%) which amount shall be computed on a noncompounded annual basis,
which computation shall be noncumulative when computed or paid from Net Cash
Flow and shall be cumulative when computed or paid from Net Sales Proceeds, of
the Limited Partners' Invested Capital Contributions (calculated from the date
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such Limited Partner is admitted to the Partnership and the Capital Account
attributable to such Limited Partner initially is established), to the extent
sufficient cash is available to make such distributions, reduced by all prior
distributions of Net Cash Flow and Net Sales Proceeds from a Sale or Sales not
in liquidation of the Partnership, other than those prior cash distributions
applied in payment of such Limited Partner's Invested Capital Contribution
pursuant to Article 9.3(b)(ii).
1.25 "Limited Partners' Capital" as of any date means the aggregate
Capital Contributions made by all of the Limited Partners.
1.26 "Liquidating Sale" means any Sale or any series of Sales occurring
within a period of twelve consecutive months, pursuant to which eighty percent
(80%) or more in value of the Properties acquired by the Partnership within two
(2) years after the initial date of the Prospectus are sold or otherwise
transferred, except that, for purposes of Article 12.4, any such Sale or series
of Sales made in accordance with the Partnership's purposes, as set forth in
Article 4.1, shall not constitute a Liquidating Sale.
1.27 "Loss" means the loss of the Partnership for federal income tax
purposes arising from any Sale, and includes the Partnership's distributive
share for federal income tax purposes of the loss arising from the sale or other
disposition of all or a substantial portion of the assets of any co-tenancy
arrangement, joint venture, or partnership in which the Partnership is a
co-venturer or partner.
1.28 "Management Fee" means the fee paid for the day-to-day
professional management services in connection with Properties owned by the
Partnership.
1.29 "Monthly Distribution Account" means an account established by the
Partnership for the benefit of those Limited Partners who elect to receive
monthly distributions of Net Cash Flow, into which account the amounts specified
in Article 9.3(a)(iii) shall be deposited.
1.30 "Monthly Distribution Fee" means, for any month until changed by
the General Partners in accordance with the following sentence, an amount equal
to $1.75. The General Partners may change the amount of the Monthly Distribution
Fee only by written notice to each Limited Partner who properly has elected to
receive monthly distributions at least 30 days prior to the beginning of the
calendar quarter that includes the first month to which the new Monthly
Distribution Fee will apply. The Monthly Distribution Fee is designed to cover
the additional postage and handling associated with the more frequent monthly
distributions; the payment of which shall be subtracted equally from the
distribution check of any Limited Partner receiving distributions of net cash
flow on a monthly basis.
1.31 "Net Cash Flow" means the Net Income or Net Loss of the
Partnership for each fiscal year, with the following adjustments: (i) there
shall be added to such Net Income or Net Loss the amount charged for any
deduction not involving a cash expenditure (such as depreciation and
amortization), and any cash receipts (excluding Net Sales Proceeds) or reserves
which the General Partners, in their sole discretion, deem to be available for
distribution; and (ii) there shall be subtracted from such Net Income or Net
Loss the amount of any nondeductible reserves established or maintained by the
General Partners and any other nondeductible cash items, including distributions
made to the Partners prior to the end of such fiscal year and the amount of any
and all income not attributable to cash receipts of the Partnership (such as
accrued accounts receivable).
1.32 "Net Income" means the taxable income of the Partnership for
federal income tax purposes for each taxable year, determined using the accrual
method of accounting and calculated without regard to Gain or Loss.
1.33 "Net Loss" means the taxable loss of the Partnership for federal
income tax purposes for each taxable year, determined using the accrual method
of accounting and calculated without regard to Gain or Loss.
1.34 "Net Sales Proceeds" mean, in the case of a transaction described
in Article 1.47(i)(A), the proceeds of any such transaction less all costs and
expenses associated therewith and the amount of all Real Estate Commissions paid
by the Partnership. In the case of a transaction described in Article
1.47(i)(B), Net Sales Proceeds mean the proceeds of any such transaction less
the amount of any and all costs and expenses, including legal and other selling
expenses, incurred in connection with such transaction. In the case of a
transaction described in Article 1.47(i)(C), Net Sales Proceeds mean the
proceeds of any such transaction actually distributed to the Partnership from
the Co-Tenancy Arrangement, Joint Venture, or partnership. In the case of a
transaction described in Article 1.47(ii), Net Sales Proceeds mean the proceeds
of such transaction or series of transactions less all amounts generated thereby
and reinvested in one or more Properties within 180 days thereafter, and less
the amount of any Real Estate Commissions, closing costs, legal and other
selling expenses incurred by or allocated to the Partnership in connection with
such transaction or series of transactions.
1.35 "Nonliquidating Sale" means any Sale other than a Liquidating
Sale.
1.36 "Operating Expenses" mean any and all costs and expenses incurred
by the Partnership, any General Partner or any Affiliate of any General Partner
which are in any way related to the operation of the Partnership or to
Partnership business, including but not limited to the costs and expenses listed
in Article 8.1, but excluding Selling Commissions, the due diligence expense
reimbursement fee, Organizational and Offering Expenses, Acquisition Expenses,
Acquisition Fees, Management Fees, and Real Estate Commissions.
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1.37 "Organizational and Offering Expenses" mean any and all costs and
expenses, exclusive of Selling Commissions and the 0.5% due diligence expense
reimbursement fee, incurred by the Partnership, any General Partner or any
Affiliate of any General Partner in connection with the formation,
qualification, organization, and registration of the Partnership and in the
marketing and distribution of Units, including, without limitation, the
following: legal, accounting, partnership administration, and escrow fees;
printing, amending, supplementing, mailing, and distributing costs; filing,
registration, and qualification fees and taxes; telegraph and telephone costs;
and all advertising and marketing expenses, including the costs related to
investor and broker-dealer sales meetings.
1.38 "Participants" means those Limited Partners who elect to
participate in the Distribution Reinvestment Plan.
1.39 "Partner" means a General Partner or a Limited Partner, and
"Partners" means all Partners, both General and Limited.
1.40 "Partnership" means CNL Income Fund , Ltd., the Florida
limited partnership reorganized pursuant to this Agreement.
1.41 "Partnership Capital" means the total Capital Contributions made
by all Partners of the Partnership, both General and Limited.
1.42 "Partnership Interest(s)" means the ownership interest of a
Partner in the Partnership's profits and losses, other items of income, gain,
losses, deductions, expenses, and credits, and distributions of net cash
receipts at any particular time, including the right of such Partner to any and
all benefits to which a Partner may be entitled as provided in this Agreement
and under the Act, together with the obligations of such Partner to comply with
all the terms and provisions of this Agreement and the Act. The term
"Partnership Interests" shall refer to the entire ownership interest of all
Partners in the Partnership.
1.43 "Property" or "Properties" mean (i) the real property or
properties, including the building or buildings located thereon, (ii) the real
properties only, or (iii) the buildings only, which are acquired by the
Partnership, either directly or through Joint Venture or Co-Tenancy arrangements
or other partnerships. The Partnership or any Joint Venture or Co- Tenancy
Arrangement that owns Properties has the right, but is not expected, to acquire
equipment located in or on such Properties. For purposes of this definition, the
term real property includes a Partnership's interest as lessee under a ground
lease.
1.44 "Prospectus" means the final prospectus included in the
Partnership's Registration Statement filed with the Securities and Exchange
Commission, pursuant to which the Partnership will offer Units to the public, as
the same may be amended or supplemented from time to time after the effective
date of such Registration Statement.
1.45 "Real Estate Commissions" mean any and all real estate commissions
and other similar fees, costs, or expenses, including a subordinated real estate
disposition fee payable to CNL Income Fund Advisors, Inc., pursuant to Article
8.3, incurred in connection with the Sale of Properties owned by the
Partnership.
1.46 "Reinvestment Agent" means the agent for Participants in the
Distribution Reinvestment Plan.
1.47 "Sale" (i) means any transaction or series of transactions
whereby: (A) the Partnership sells, grants, transfers, conveys, or relinquishes
its ownership of any Property or portion thereof, including any event with
respect to any such Property which gives rise to insurance claims or
condemnation awards; (B) the Partnership sells, grants, transfers, conveys, or
relinquishes its ownership of all or substantially all of the interest of the
Partnership in any co-tenancy arrangement, joint venture, or partnership in
which it is a co-tenant, co-venturer, or partner; or (C) any co-tenancy
arrangement, joint venture, or partnership in which the Partnership is a
co-tenant, co-venturer, or partner sells, grants, transfers, conveys, or
relinquishes its ownership of any Property or portion thereof, including any
event with respect to any such Property which gives rise to insurance claims or
condemnation awards, but (ii) does not include any transaction or series of
transactions specified in clause (i)(A), (i)(B), or (i)(C) above in which the
proceeds of such transaction or series of transactions are reinvested in one or
more Properties within 180 days thereafter.
1.48 "Selling Commissions" mean any and all commissions payable to
underwriters, managing dealers, or other broker dealers in connection with the
sale of Units as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
1.49 "Sponsor" means any person or entity and such person or entity's
Affiliates directly or indirectly instrumental in organizing, wholly or in part,
the Partnership, or managing or participating in the management of the
Partnership, but does not include any person or entity whose only relation with
the Partnership is that of an independent property manager whose only
compensation is as such, or wholly independent third parties such as attorneys,
accountants, and underwriters whose only compensation is for professional
services rendered in connection with the offering of Units. A person or entity
may also be a Sponsor of the Partnership by (i) taking the initiative, directly
or indirectly, in founding or organizing the business or enterprise of the
Partnership, either alone or in conjunction with one or more other persons or
entities; (ii) receiving a material participation in the Partnership in
connection with the founding or organizing of the business of the Partnership,
in consideration of services or property, or both services and property; (iii)
having a substantial number of relationships and contracts with the Partnership;
(iv) possessing significant rights to control the Partnership properties; (v)
receiving fees for providing services to the Partnership which are paid on a
basis that is not customary in the industry; and (vi) providing goods or
services to the Partnership on a basis which was not negotiated at arm's-length
with the Partnership.
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1.50 "Substituted Limited Partner" means a person or entity admitted to
the Partnership pursuant to the provisions of Article 14.3 hereof and in
accordance with the provisions of the Act.
1.51 "Taxable Limited Partner" means any Limited Partner other than a
Tax-Exempt Limited Partner.
1.52 "Tax-Exempt Limited Partner" means any Limited Partner who is
described in section 168(h)(2) of the Code.
1.53 "Termination Date" means December 31, 2025, or such earlier date
as the Partnership may be terminated pursuant to any provision of this
Agreement.
1.54 "Unit" means the interest of a Limited Partner in the Partnership
which is represented by a Capital Contribution of $10.00.
ARTICLE TWO
ORGANIZATION
2.1 Formation. The parties hereby acknowledge that the term of the
Partnership commenced on February 10, 1995, and agree to continue the
Partnership as a limited partnership pursuant and subject to the Act.
2.2 Filings. The General Partners shall file, record, and publish such
certificates and other documents as may be necessary and appropriate to comply
with the requirements for the organization and operation of a limited
partnership under the Act.
2.3 Foreign Qualification. In the event that the business of the
Partnership may be carried on or conducted in other states in addition to the
State of Florida, then the parties agree that this Partnership shall exist or
shall be qualified under the laws of each such additional state in which
business is actually conducted by the Partnership, and they severally agree to
execute and authorize the General Partners to execute on their behalf or on
behalf of the Partnership such other and further documents as may be necessary
or appropriate to permit the General Partners to qualify this Partnership, or
otherwise comply with requirements for the formation and organization of a
limited partnership in all such states.
ARTICLE THREE
NAME AND PRINCIPAL OFFICE
3.1 Name and Office. The name of the Partnership is "CNL Income Fund ,
Ltd." Its principal office and its registered office in the State of Florida
shall be located at 400 East South Street, Suite 500, Orlando, Florida 32801, or
at such other address as the General Partners notify each Limited Partner in
writing in accordance herewith. The registered agent of the Partnership in
Florida shall be Robert A. Bourne, 400 East South Street, Suite 500, Orlando,
Florida 32801. The General Partners also shall have the right, without notice to
the Limited Partners, to establish a registered office or offices in such other
states as the General Partners deem necessary in order to qualify the
Partnership under the laws of any additional state in which the Partnership
actually conducts business.
3.2 Assumed Names. The business of the Partnership shall be conducted
under the name listed above or under such variations of this name as the General
Partners deem appropriate to comply with the laws of any state in which the
Partnership does business. The General Partners shall execute and file in the
proper offices such certificates as may be required by the Assumed Name Act or
similar law in effect in the counties and other governmental jurisdictions in
which the Partnership may elect to conduct business.
ARTICLE FOUR
PURPOSES AND POWERS OF THE PARTNERSHIP
4.1 Purposes of the Partnership. The purposes of the Partnership shall
be to acquire and lease Properties on which restaurants which are part of
regional or national restaurant chains are or will be located, as more fully
described in the Prospectus, and to sell the Properties within seven (7) to
twelve (12) years after their acquisition, or as soon thereafter as, in the
opinion of the General Partners, market conditions permit. The Partnership's
primary investment objectives are to preserve, protect, and enhance the
Partnership capital, while providing (i) cash distributions commencing in the
initial year of Partnership operations in amounts that exceed current taxable
income (due to the fact that depreciation deductions attributable to the
Properties reduce taxable income even though depreciation is not a cash
expenditure); (ii) an anticipated minimum level of income through the long-term
rental of Properties to selected operators of certain national and regional
fast-food, family-style, and casual dining restaurant chains; (iii) additional
income and protection against inflation by participation in certain restaurant
gross sales through the receipt of percentage rent payments and, typically,
automatic increases in the minimum annual rent; and (iv) capital appreciation
through the potential increase in value of the Properties.
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4.2 Powers of the Partnership. Subject to the limitations set forth
elsewhere in this Agreement, the Partnership shall be empowered to do or cause
to be done, or not to do, any and all acts deemed by the General Partners to be
necessary or appropriate or in furtherance of the purpose of the Partnership,
including, without limitation, the power and authority:
(a) to acquire, own, lease, manage, and/or operate any
Properties;
(b) to enter into co-tenancy arrangements, joint venture
arrangements or general partnerships to own and operate a Property
with any person or entity which is not an Affiliate of any of the
General Partners, either alone or together with another program formed
by the General Partners and whose securities have been offered to the
public pursuant to a registration statement filed under the Securities
Act of 1933, as amended, provided that the Partnership, alone or
together with such affiliated program, (i) acquires a controlling
equity interest in such tenancy property, joint venture or general
partnership and possesses the power to direct or cause the direction of
the management and policies of such tenancy property, joint venture or
general partnership, including, at a minimum, the power (A) to review
all contracts entered into (1) by the co-tenants with respect to the
tenancy property or (2) by the general partnership or joint venture
that will have a material effect on its business or property, (B) to
cause a sale or refinancing of the Property or its interest therein
subject in certain cases where required pursuant to a tenancy agreement
or by the partnership or joint venture agreement to limits as to time,
minimum amounts and/or right of first refusal by the joint venture
partner or co-tenant or consent of the joint venture partner or
co-tenant, (C) to approve budgets and major capital expenditures,
subject to a stated maximum amount, (D) to veto any sale of the
Property, or alternately, to receive a specified preference on sale
proceeds, and (E) to exercise a right of first refusal on any desired
sale or refinancing by the joint venture partner or co-tenant or its
interest in the Property except for transfer to an affiliate of the
joint venture partner or co-tenant, and (ii) there are no duplicate
fees;
(c) to enter into co-tenancy arrangements, joint venture
arrangements or general partnerships with another program formed by the
General Partners whose securities have been offered to the public
pursuant to a registration statement filed under the Securities Act of
1933, as amended, for the acquisition, ownership, leasing, management,
and/or operation of any Properties provided that (i) there are no
duplicate fees, (ii) the two programs have substantially identical
investment objectives, (iii) compensation to the General Partners and
their Affiliates is substantially identical in each program, (iv) each
program's investment is on substantially the same terms and conditions,
and (v) each program has a right of first refusal to buy the Property
held under the Co-Tenancy Arrangement or by the joint venture or general
partnership, as the case may be, at a purchase price equal to the fair
market value as determined by an independent appraisal, if the other
program has the right to sell the Property held under the Co-Tenancy
Arrangement or in the joint venture or general partnership, as the case
may be;
(d) to borrow money, subject to the limitations contained in
Article 10.3, except that no borrowing may be made to purchase
Properties or which will encumber Properties or directly or indirectly
for the purpose of funding distributions to the Limited Partners, and
to make loans to unaffiliated persons (such as lessees) if the General
Partners deem such loans to be necessary or appropriate or in
furtherance of the purpose of the Partnership;
(e) to adopt, institute, amend, supplement, or terminate the
Distribution Reinvestment Plan and to execute and deliver such
documents and agreements which the General Partners deem advisable,
appropriate, or convenient in connection therewith;
(f) to make such elections under the Code as to the treatment
of items of Partnership income, Gain, Loss, deductions, and credit, and
as to all relevant matters as the General Partners believe necessary,
desirable, or beneficial to the Limited Partners;
(g) to purchase from others (except for the General Partners
or their Affiliates), at the expense of the Partnership, contracts of
liability, casualty, and other insurance which the General Partners
deem advisable, appropriate, or convenient for the protection of the
assets or affairs of the Partnership or for any purpose convenient or
beneficial to the Partnership;
(h) to employ persons, including Affiliates, for the operation
and management of the Partnership and/or the Properties, on such terms
and for such compensation as the General Partners deem, in their
absolute discretion, to be in the best interest of the Partnership, but
subject to the limitations contained in Article 10.6 and elsewhere in
this Agreement;
(i) to designate the depository or depositories in which all
bank accounts of the Partnership shall be kept and the person or
persons upon whose signature withdrawals therefrom shall be made;
(j) to prosecute, defend, settle, compromise or submit to
arbitration, at the Partnership's expense, any suits, actions or claims
at law or in equity to which the Partnership is a party or by which it
is affected, as may be necessary, proper or convenient, and to satisfy
out of Partnership funds any judgment, decree or decision of any court,
board, agency, or authority having jurisdiction, or any settlement of
any suit, action, or claim prior to judgment or final decision thereon;
(k) to incur, at the expense of the Partnership, bank charges
with respect to bank accounts maintained, and expenses relating to the
purchase of supplies, materials, equipment, or similar items used in
connection with the operation of the Partnership, and to incur escrow
fees, recording fees, insurance premiums, and similar expenses in
connection with the Properties;
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(l) to employ persons, at the expense of the Partnership, to
perform administrative, legal and independent auditing services in
connection with the operation and management of the Partnership's
business, and to provide services in connection with the preparation
and filing of any tax return required of the Partnership;
(m) to make distributions of cash among the Partners, subject
to the limitations, and in accordance with the provisions, hereof;
(n) to transfer, sell or convey Properties (subject to the
limitations contained elsewhere in this Agreement) including its
interest in any co-tenancy arrangements, joint ventures, or
partnerships, if such transactions are deemed by the General Partners
to be in the best interest of the Partnership;
(o) to establish any reserves deemed necessary or advisable by
the General Partners, and to invest such funds as temporarily are not
required for Partnership purposes in short-term, highly liquid
investments with appropriate safety of principal, including, without
limitation, United States Treasury bills or bonds and money market
funds;
(p) to engage in such other businesses, activities, and
transactions similar in nature and scope to those described in this
Article Four as the General Partners from time to time may determine to
be necessary or appropriate in furtherance of the purpose of the
Partnership;
(q) to enter into such agreements, contracts, documents,
leases, and instruments and to give such receipts, releases, and
discharges with respect to all of the foregoing and any matters
incident thereto, as the General Partners may deem advisable,
appropriate or convenient; and
(r) to execute, deliver, perform and carry out all contracts,
agreements, and undertakings of every kind, pay all amounts required by
this Agreement or by applicable law, and engage in all activities and
transactions as may in the opinion of the General Partners be
necessary, incidental, or advisable to the accomplishment of the
Partnership's purposes or in connection with any of the foregoing,
subject in each case to the limitations contained in Article 10.6 and
elsewhere in this Agreement.
ARTICLE FIVE
TERM OF PARTNERSHIP
The Partnership commenced on February 10, 1995, and shall continue in
existence until the Termination Date.
ARTICLE SIX
CAPITALIZATION
6.1 Limited Partners' Capital Contributions. No Limited Partner shall
be admitted to the Partnership unless such Limited Partner shall make a Capital
Contribution of $2,500 or more; provided, however, that the required minimum
Capital Contribution for individual retirement accounts and Keogh and pension
plans shall be $1,000 where permitted by applicable state law. Except where
prohibited by applicable state law or the Prospectus, any investor who makes the
required minimum investment in the Partnership shall be entitled to make
additional purchases in increments of one Unit; provided, however, that
fractional Units may be sold pursuant to the Distribution Reinvestment Plan, and
provided further that, in connection with the termination of the Offering, one
fractional Unit may be purchased by a Limited Partner who at that time has made
the required minimum investment. Limited Partners shall be admitted to the
Partnership solely by subscription, upon approval by the General Partners. No
Limited Partner shall borrow funds from the General Partners or their Affiliates
in order to make contributions to Partnership Capital, and the Partnership shall
not acquire Properties in exchange for Units.
6.2 General Partners' Capital Contribution. On or before the Effective
Date, the General Partners shall contribute to the Partnership the aggregate sum
of $1,000 as their initial General Partners' Capital Contribution. The General
Partners, in their sole discretion, may increase their General Partners' Capital
Contribution by contributing additional amounts to the Partnership. The General
Partners also may acquire Units as Limited Partners pursuant to the same terms
and conditions as other Limited Partners.
6.3 Minimum Capital Contributions. The aggregate Capital Contributions
by the Limited Partners may range from a minimum of $1,500,000 (150,000 Units)
to the maximum amount described in the Prospectus, depending upon the number of
such Units offered and sold in connection with the Partnership's public offering
of the Units. Capital Contributions shall be due and payable in cash upon
subscription.
6.4 Escrow. Prior to the General Partners' acceptance or rejection of
any subscription, funds received from such subscription shall be held in escrow.
6.5 Admission of Limited Partners. The General Partners, in their sole
and absolute discretion, may reject any subscription for any reason.
Subscriptions for Units shall be accepted or rejected by the General Partners
within thirty (30) days after receipt thereof by the General Partners.
Subscribers whose subscriptions are accepted by the General Partners subsequent
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to the Initial Closing Date shall be admitted as Limited Partners not later than
the last day of the calendar month following the date such subscriptions are
accepted. Funds received from subscriptions rejected by the General Partners
shall be returned to subscribers within ten (10) business days after the date of
such rejection with interest and without deduction. No sale of Units shall be
made pursuant to the Prospectus after two years following the initial date of
the Prospectus.
6.6 Liability of Limited Partners. Except as otherwise provided in
Article 12.1, a Limited Partner shall not be liable to the Partnership beyond
the amount of his or her Capital Contribution, nor shall he or she be personally
liable for any liabilities, contracts, or obligations of the Partnership.
However, it is the intent of the Partners that no distribution (or any part of a
distribution) made to any Limited Partner pursuant to Article Nine of this
Agreement shall be deemed a return or withdrawal of capital, even if such
distribution represents (in full or in part) an allocation of depreciation or
any other non-cash item accounted for as a Loss or deduction from or offset to
the Partnership's income, and that no Limited Partner shall be obligated to pay
any such amount to or for the account of the Partnership or any creditor of the
Partnership.
6.7 Interest. Except as provided in Articles 7.2, 9.3, and Section 1(e)
of the Dividend Reinvestment Plan, interest earned on Partnership funds shall
inure to the benefit of the Partnership, and the Partners shall not receive
interest on their Capital Contributions. As provided in Section 1(e) of the
Dividend Reinvestment Plan, interest earned on accounts thereunder will be paid
to the Partnership to the extent necessary to pay for any administrative
expenses relating to the costs of such plan and any excess remaining thereafter
shall be distributed to the General Partners.
6.8 Additional Capital Contributions. No Limited Partner shall be
required to make any additional capital contributions beyond the amount of the
Limited Partner's initial Capital Contribution, except as provided in Section
12.1, and the General Partner shall not be required to make any additional
Capital Contributions beyond the amount of its initial Capital Contribution,
except as provided in Section 18.6. No Partner shall be required to lend any
funds to the Partnership. The General Partner shall have the right to make
additional capital contributions to the Partnership and thereby increase its
General Partner's Capital Contribution by the amount of such additional capital
contributions.
6.9 Repayment of Capital Contributions of Limited Partners. Except as
expressly provided in this Agreement, no specific time has been agreed upon for
the repayment of the Capital Contributions of the Limited Partners. The Limited
Partners understand that the General Partners and their Affiliates make no
warranty, guarantee, or representation that the Partnership will have sufficient
funds to repay the Capital Contribution or Capital Account of any Limited
Partner and that repayment of the Capital Contribution or Capital Account of any
Limited Partner shall be made only from available Partnership funds as provided
in this Agreement. No Limited Partner or any successor in interest shall have a
right to withdraw or reduce any capital contributed to the Partnership.
6.10 No Priorities Among Limited Partners. Except as expressly provided
in this Agreement, no Limited Partner shall have the right to demand or receive
property other than cash in return for his or her Capital Contribution, nor
shall any Limited Partner have priority over any other Limited Partner as to
Capital Contributions or as to compensation by way of income.
ARTICLE SEVEN
APPLICATION OF PARTNERSHIP CAPITAL
7.1 General. Partnership Capital shall initially be applied as set
forth in this Article Seven.
7.2 Return of Earned Interest. Within thirty (30) days after the
Initial Closing Date, the Partnership shall return to each subscriber for Units
from whom the Partnership received funds prior to the Initial Closing Date an
amount equal to the interest earned on such subscriber's funds during the period
in which such subscriber's funds were held in escrow, with such interest to be
calculated by the General Partners based on such subscriber's pro rata share of
all interest on subscribers' funds during such period of time; provided,
however, that a subscriber for Units who subscribes for Units after the Initial
Closing Date shall receive interest on his or her subscription funds only if his
or her subscription is accepted and his or her funds were held in escrow for
more than twenty (20) days.
7.3 Selling Commissions.
(a) Except as otherwise provided in this Article 7.3, the
Partnership shall pay any and all Selling Commissions, in the amount of
$0.85 per Unit sold, on the Initial Closing Date and on each Additional
Closing Date in accordance with the Managing Dealer Agreement with CNL
Securities Corp.
(b) A registered principal or representative of CNL Securities
Corp. or any other broker-dealer may purchase Units net of eight
percent (8%) commissions, at a per Unit purchase price of $9.20. In
addition, clients of an investment advisor registered under the
Investment Advisors Act of 1940, as amended, who have been advised by
such adviser on an ongoing basis regarding investments other than in
the Partnership, and who are not being charged by such adviser or its
Affiliates, through the payment of commissions or otherwise, for the
advice rendered by such adviser in connection with the purchase of
Units, may purchase Units net of eight percent (8%) commission. In
connection with purchases of certain minimum numbers of Units, the
amount of Selling Commissions otherwise payable to CNL Securities Corp.
or a soliciting dealer shall be reduced in accordance with the
following schedule:
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Dollar Amount of
----------------
Units Purchase Price Commissions on Sales Per Unit
----- -------------- -----------------------------
Purchased Per Unit Percent Dollar Amount
--------- -------- ------- -------------
$10 - $249,999 $10.00 8.0% $0.80
$250,000 - $499,990 9.80 6.0% 0.60
$500,000 - $999,990 9.60 4.0% 0.40
$1,000,000 - $1,499,990 9.50 3.0% 0.30
$1,500,000 - or more 9.40 2.0% 0.20
(c) Any such reduction in Selling Commissions will be credited
to the "purchaser" (as defined in Article 7.3(f) below) by reducing the
total purchase price otherwise payable by the purchaser. The net
proceeds to the Partnership will not be affected by the volume
discount.
(d) Subscriptions may be combined for the purpose of
determining the volume discounts in the case of subscriptions made by
any "purchaser," as that term is defined in Article 7.3(f) below,
provided all such Units are purchased through the same soliciting
dealer or through CNL Securities Corp. The volume discount will be
prorated among the separate subscribers considered to be a single
purchaser. Units purchased pursuant to the Distribution Reinvestment
Plan on behalf of Participants in the Distribution Reinvestment Plan
will not be combined with other subscriptions for Units by an investor
in determining the volume discount to which such investor may be
entitled. Further, subscriptions for Units will not be combined for
purposes of the volume discount in the case of subscriptions by any
"purchaser" who subscribes for additional Units subsequent to the
purchaser's initial purchase of Units.
(e) Any request to combine more than one subscription must be
made in writing in a form satisfactory to the General Partners and must
set forth the basis for such request. Any such request will be subject
to verification by CNL Securities Corp. that all of such subscriptions
were made by a single purchaser. If a purchaser does not reduce the per
Unit purchase price, the excess purchase price over the discounted
purchase price will be returned to the actual separate subscribers for
Units.
(f) For purposes of the volume discounts provided for in this
Article 7.3, "purchaser" includes (i) an individual, his or her spouse,
and their children under the age of 21, who purchase the Units for his
or her or their own accounts, and all pension or trust funds
established by each such individual; (ii) a corporation, partnership,
association, joint-stock company, trust fund, or any organized group of
persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least
six months before purchasing the Units and must have formed such group
for a purpose other than to purchase the Units at a discount); (iii) an
employee's trust, pension, profit-sharing, or other employee benefit
plan qualified under Section 401 of the Code; and (iv) all pension,
trust, or other funds maintained by a given bank. In addition, the
General Partners, in their sole discretion, may aggregate and combine
separate subscriptions for Units received during the offering period
from (i) CNL Securities Corp. or the same soliciting dealer, (ii)
investors whose accounts are managed by a single investment adviser
registered under the Investment Advisers Act of 1940, (iii) investors
over whose accounts a designated bank, insurance company, trust
company, or other entity exercises discretionary investment
responsibility, or (iv) a single corporation, partnership, trust
association, or other organized group of persons, whether incorporated
or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group. Except as
provided in this Article 7.3, subscriptions will not be cumulated,
combined, or aggregated.
(g) Any reduction in commissions will reduce the effective
purchase price per Unit to the investor involved but will not alter the
net proceeds payable to the Partnership as a result of such sale.
(h) The Partnership will also pay to CNL Securities Corp., as
a nonaccountable expense allowance, a due diligence expense
reimbursement fee in an amount equal to $0.05 per Unit (aggregating
0.5% of the gross offering proceeds) for expenses incurred in marketing
and selling the Units, including expenses incurred in connection with
due diligence activities. Any and all sums payable for bona fide due
diligence expense reimbursements will be paid by CNL Securities Corp.
from this fee.
7.4 Organizational and Offering Expenses. As soon as practicable after
the Initial Closing Date (and thereafter as soon as practicable after such
expenses are incurred), the Partnership shall reimburse the General Partners and
their Affiliates for all Organizational and Offering Expenses incurred by the
General Partners and their Affiliates, and the Partnership shall pay all other
Organizational and Offering Expenses. Notwithstanding anything to the contrary
in the preceding sentence, the General Partners or their Affiliates shall pay
all Organizational and Offering Expenses which exceed three percent (3%) of
Limited Partners' Capital.
7.5 Acquisition Expenses and Fees. The Partnership, as soon as
practicable after such fees and expenses are incurred, shall reimburse the
General Partners and Affiliates for any and all Acquisition Expenses and
Acquisition Fees incurred by any of them, and, in connection with services to be
provided by CNL Income Fund Advisors, Inc. related to the acquisition of
properties, shall pay to CNL Income Fund Advisors, Inc. an Acquisition Fee in an
amount equal to four and one-half percent (4.5%) of Limited Partners' Capital;
provided, however, that the Acquisition Fee paid to CNL Income Fund Advisors,
Inc. shall be reduced or paid back to the Partnership if and to the extent (i)
necessary for the Partnership to make the required Investment in Properties as
set forth in Article 7.7, or (ii) the total of all Acquisition Fees paid by all
persons in connection with the purchase of all of the Properties exceeds the
lesser of eighteen percent (18%) of Limited Partners' Capital or the
compensation customarily charged in arm's-length transactions by others
rendering similar services as an ongoing public activity in the same geographic
locations and for comparable properties. Notwithstanding anything contained
herein to the contrary, the Partnership may not directly pay or reimburse the
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General Partners or their Affiliates for Acquisition Expenses consisting of
salaries, fringe benefits, miscellaneous expenses related to the evaluation,
selection, or acquisition of Properties, unless such expenses reduce the
Acquisition Fees permitted to be paid pursuant to this Section 7.5. The
Partnership shall pay all other Acquisition Expenses and Acquisition Fees.
7.6 Reserves. The Partnership shall maintain reserves in such amounts
as the General Partners in their sole and absolute discretion determine to be
adequate, appropriate or advisable to meet the Partnership's existing or
anticipated needs.
7.7 Investment in Properties. The Partnership, when and to the extent
desirable investment opportunities are available as determined by the General
Partners in their sole and absolute discretion, shall acquire, either directly
or through co-tenancy arrangements, joint venture arrangements, or other
partnerships, such Properties as the General Partners in their sole and absolute
discretion determine to be in the best interests of the Partnership. The
Partnership shall have an Investment in Properties of at least eighty percent
(80%) of Limited Partners' Capital within the later of two years following the
initial date of the Prospectus or one year after the termination of the
offering; provided, however, that any amount returned to the Limited Partners
pursuant to Article 7.8 shall not be considered in determining the percentage
invested in Properties as of such date. If any Acquisition Fees are paid by the
seller of any Property or Properties, such fees shall not be included in the
purchase price of such Property or Properties for purposes of determining
whether the required minimum Investment in Properties set forth herein has been
satisfied.
7.8 Return of Uninvested Partnership Capital. If any portion of Limited
Partners' Capital is not invested in Properties in accordance with the
provisions of Article 7.7 above or reserved by the General Partners for
Partnership purposes within the later of two years after the initial date of the
Prospectus, or one year after the termination of the offering, then,
notwithstanding anything to the contrary herein, the Partnership shall
distribute to the Limited Partners, pro rata in proportion to their Partnership
Interests, as a return of Capital, such portion of Limited Partners' Capital not
so used or invested plus Front-End Fees in the ratio that the amount of such
uninvested funds bears to Limited Partners' Capital.
7.9 Restrictions on Investments.
(a) The Partnership shall not acquire or invest in any of the
following: (i) limited partnership interests of another real estate
program; (ii) unimproved or non-income producing property, except in
amounts not exceeding ten percent (10%) of Limited Partners' Capital
available for investment in Properties and only upon terms which can be
financed by Partnership Capital or from Net Cash Flow, and only if the
Partnership simultaneously receives a commitment to build a restaurant
thereon and simultaneously enters into an agreement for the lease of
the land and the restaurant (provided that the terms "unimproved or
non-income producing property" shall not include any Property for which
there is an expectation that such Property will produce income within
two (2) years from the date of acquisition by the Partnership); (iii)
the securities of other issuers (nor shall the Partnership underwrite
any such securities), except that the Partnership may invest in
short-term, highly liquid investments with appropriate safety of
principal, may accept purchase money mortgages secured by a first
mortgage on a Property in connection with the Sale of a Property, and
may enter into Joint Ventures to acquire Properties to be leased
primarily to operators of selected Restaurant Chains; (iv) real estate
mortgages, junior trust deeds or other similar obligations; (v) acquire
or own equipment unless the General Partners determine that it is in
the best interests of the Partnership in order to preserve the asset
value of the Properties; and (vi) any Properties that the Partnership
is prohibited from acquiring pursuant to Article 10.2 or any other
provision of this Agreement.
(b) The Partnership shall not reinvest Net Cash Flow. Net
Sales Proceeds shall not be reinvested by the Partnership unless
sufficient cash will be distributed to pay any state (at a rate
reasonably assumed by the General Partners) and federal (assuming the
Limited Partners are taxable at the maximum applicable federal income
tax bracket) income taxes created by the Sale.
(c) Neither the Partnership nor any co-tenancy arrangement,
joint venture, or general partnership in which the Partnership invests
or participates will finance the acquisition of any Properties by
secured or unsecured indebtedness or encumber any of the Properties
with a lien.
(d) All investments in Fee Properties shall be supported by an
appraisal prepared by an independent appraiser, and the purchase price
of any Fee Property, plus all Acquisition Fees paid by the Partnership
in connection with the acquisition of such Property, shall not exceed,
but may be less than, the appraised value of such Property. In
connection with the acquisition of a Property which is to be
constructed or renovated, the comparison of the purchase price and the
appraised value of such Property may be based on the "when constructed"
price and value of such Property. Each such appraisal shall be
maintained in the Partnership's records for five (5) years and shall be
available for inspection and copying by the Limited Partners during
normal business hours.
(e) The Partnership may not deposit funds in banks, savings
and loans, other financial institutions, or money market funds which
are Affiliates of the General Partners. The Partnership shall not
permit compensating balance arrangements for the benefit of the General
Partners.
(f) The Partnership shall not (i) issue Units in exchange for
property or otherwise than pursuant to the terms of the public offering
of Units; or (ii) redeem or repurchase Units (except that the
Partnership may adopt and implement the Distribution Reinvestment Plan
which will reinvest Distributions in Units owned by Limited Partners
who wish to sell their Units).
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ARTICLE EIGHT
OPERATING EXPENSES; OTHER FEES AND EXPENSES
8.1 Operating Expenses. Subject to the restrictions on reimbursement of
the General Partners and their Affiliates set forth in Article 10.1, the
Partnership, as soon as practicable after such expenses are incurred, shall
reimburse CNL Income Fund Advisors, Inc. and Affiliates for any and all
Operating Expenses incurred by CNL Income Fund Advisors, Inc. and Affiliates.
All other Operating Expenses shall be billed directly to and paid by the
Partnership. Operating Expenses shall include, but shall not be limited to, the
following (excluding, however, any costs or expenses listed below which
constitute Selling Commissions, the due diligence expense reimbursement fee,
Organizational and Offering Expenses, Acquisition Expenses, Acquisition Fees,
Management Fees or Real Estate Commissions):
(a) all costs of personnel employed or otherwise engaged by
the Partnership and directly involved in the operation of the
Partnership or the Properties; expenses of insurance required in
connection with the operation of the Partnership or the Properties;
taxes and assessments on Properties and other taxes, including, without
limitation, sales taxes allocable to the Partnership as an entity;
travel expenses related to Partnership business; fees and expenses paid
to consultants, bankers, independent contractors, insurance and other
brokers and agents, and expenses in connection with the replacement,
alteration, repair, leasing, maintenance, and operation of Properties
and any other Partnership properties or assets;
(b) all accounting, legal, audit, and other professional and
reporting fees and expenses, which may include, but are not limited to,
preparation and documentation of Partnership bookkeeping, accounting
and audits; preparation and documentation of budgets, economic surveys,
cash flow projections, and working capital requirements; preparation
and documentation of Partnership state and federal tax returns;
printing and other expenses and taxes incurred in connection with the
issuance, distribution, transfer, and recordation of documents in
connection with the business of the Partnership;
(c) expenses in connection with distributions made by the
Partnership to, and communications, bookkeeping and clerical work
necessary in maintaining relations with, the Partners, including
expenses in connection with preparing and mailing reports required to
be furnished to the Limited Partners pursuant to Article 16.3;
(d) expenses of revising, amending, modifying, or terminating
this Agreement, and of dissolving, terminating, reforming, liquidating,
or winding up the Partnership;
(e) costs incurred in connection with any litigation in which
the Partnership is involved as well as any examination, investigation,
or other proceeding conducted by any governmental agency of the
Partnership, including legal and accounting fees incurred in connection
therewith; and
(f) costs of any services performed for the Partnership, costs
of any accounting, statistical, or bookkeeping services necessary for
the maintenance of the books and records of the Partnership, the costs
of preparation and dissemination of informational material and
documentation relating to the potential sale or other disposition of
Partnership property, and the costs of supervision and the expenses of
professionals employed by the Partnership in connection with any of the
foregoing, including attorneys, accountants, and appraisers; provided,
however, that the Partnership will only be charged for its pro rata
share of any services not performed exclusively for the benefit of the
Partnership.
(g) subject to the restrictions contained in Article Four, the
Partnership's share of all fees, commissions, costs, and expenses
incurred by any co-tenancy arrangement, joint venture, or partnership
of which the Partnership is a co-venturer, co-tenant, or partner.
8.2 Management Fee. The Partnership shall pay to CNL Income Fund
Advisors, Inc., pursuant to the terms of a management agreement to be entered
into by and between CNL Income Fund Advisors, Inc. and the Partnership, a
Management Fee in an amount equal to one percent (1%) of the sum of the gross
revenues derived in each year from Properties wholly owned by the Partnership,
plus, in the case of Properties owned by any co-tenancy arrangement, joint
venture, or partnership in which the Partnership is a co-tenant, co-venturer, or
partner, a fee in an amount equal to one percent (1%) of the Partnership's
allocable share of such gross operating revenues. The Management Fee shall be
payable monthly on the last day of such month, or the first business day
following the last day of such month. The Management Fee, which shall not exceed
fees which are competitive for similar services in the same geographic area, may
be taken or not, in whole or in part, as to any fiscal year, in the sole
discretion of CNL Income Fund Advisors, Inc. All or any portion of the
Management Fee not taken as to any fiscal year shall be deferred without
interest and may be taken in such other fiscal year as CNL Income Fund Advisors,
Inc. shall determine.
8.3 Real Estate Commissions. The Partnership shall pay any and all Real
Estate Commissions. In addition, upon any Sale of one or more of the
Partnership's Properties, the Partnership shall pay to CNL Income Fund Advisors,
Inc., as a deferred, subordinated real estate disposition fee, an amount equal
to the lesser of (i) one-half of a Competitive Real Estate Commission, or (ii)
three percent (3%) of the gross sales price of the Property or Properties. In
the case of a Property or Properties owned by a co-tenancy arrangement, joint
venture, or partnership in which the Partnership is a co-tenant, co-venturer, or
partner, such fee shall be reduced proportionately by an amount equal to the
percentage interest in such co-tenancy arrangement, joint venture, or
partnership which is not owned by the Partnership. The real estate disposition
fee payable to CNL Income Fund Advisors, Inc. shall be paid (i) only if CNL
Income Fund Advisors, Inc. provides a substantial amount of services in
connection with the Sale of the Property or Properties, (ii) in the case of a
Nonliquidating Sale, only after all distributions of Net Sales Proceeds pursuant
to Articles 9.3(b)(i) and 9.3(b)(ii) have been made, and (iii) in the case of a
Liquidating Sale, only after all distributions of Net Sales Proceeds pursuant to
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Articles 18.2(a) and 18.2(b), plus an additional amount equal to the sum, as of
such date, of the aggregate Limited Partners' 8% Return and their aggregate
Invested Capital Contributions, have been distributed to the Limited Partners.
If, at the time of a Sale, payment of the disposition fee is deferred because
the subordination conditions have not been satisfied at that time, then the
disposition fee shall be paid at such later time as the subordination conditions
are satisfied. The total compensation paid by the Partnership to all persons and
entities as Real Estate Commissions in connection with any Sale of Partnership
Properties shall not exceed the lesser of (i) a Competitive Real Estate
Commission or (ii) six percent (6%) of the gross sales price of the Property or
Properties.
ARTICLE NINE
ALLOCATIONS AND DISTRIBUTIONS
9.1 Definitions. For purposes of this Article Nine, the following terms
shall have the meanings set forth below:
(a) "Adjusted Capital Account Deficit" means with respect to
any Partner, the deficit balance, if any, in such Partner's Capital
Account as of the end of the relevant fiscal year, after giving effect
to the following adjustments:
(i) Credit to such Capital Account any amounts that
such Partner is obligated to restore pursuant to any provision
of this Agreement, is otherwise treated as being obligated to
restore under section 1.704-1(b)(2)(ii)(c) of the Treasury
regulations, or is deemed to be obligated to restore pursuant
to sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury
regulations (determined after taking into account any changes
during such year in minimum gain); and
(ii) Debit to such Capital Account the items
described in Treasury regulation section
1.704-1(b)(2)(ii)(d)(4), (5) and (6).
The foregoing definition of Adjusted Capital Account Deficit is
intended to comply with the provision of Treasury regulation section
1.704-1(b)(2)(ii)(d), and shall be interpreted consistently therewith.
(b) "Capital Account Balance Per Unit" means a Limited
Partner's Capital Account balance divided by the number of Units held
by such Limited Partner.
(c) "Limited Partner" means each Limited Partner of the
Partnership, as defined in Article 1.22, and includes all the Monthly
Limited Partners and all the Quarterly Limited Partners.
(d) "Monthly Limited Partner" means any Limited Partner who
makes a Capital Contribution of $5,000 or more and who, for the quarter
in question, has elected (either (i) by written notice to the General
Partners upon subscription or (ii) thereafter, upon ten days' prior
written notice to the General Partners, effective as of the beginning
of the following quarter), to receive monthly distributions of Net Cash
Flow.
(e) "Quarterly Limited Partner" means any Limited Partner
other than a Monthly Limited Partner.
9.2 Allocations. Net Income, Net Loss, Gain, and Loss for any taxable
year shall be allocated in the following manner. For purposes of this Article
9.2, Capital Accounts shall be determined as if the Partnership's taxable year
had ended immediately prior to any Sale.
(a) Net Income and Net Loss (and each Partner's allocable
share of any Partnership item of income, gain, loss, deduction, credit,
or allowance for any Partnership tax year or other period taken into
account in determining Net Income and Net Loss) shall be allocated
between the Limited Partners and the General Partner as follows: (A)
first, in an amount not to exceed the amount of Net Cash Flow
attributable to such period in the same proportion as such Net Cash
Flow is distributable; and (B) thereafter, any remaining Net Income or
Net Loss shall be allocated 99% to the Limited Partners and 1% to the
General Partners; provided, however, that (i) in determining the amount
of Net Income or Net Loss allocable to each Partner, depreciation and
amortization deductions shall be specially allocated 99% to the Taxable
Limited Partners and 1% to the General Partners, and (ii) Net Loss or
any item of Partnership deduction shall not be allocated to any Partner
(and instead shall be allocated among the other Partners) to the extent
it would cause or increase an Adjusted Capital Account Deficit with
respect to such Partner; provided, however, that in determining the
amount of Net Income and Net Loss allocable to each Partner,
depreciation and amortization deductions shall be specially allocated
99% to the Taxable Limited Partners and 1% to the General Partners.
(b) Gain shall be allocated as follows:
(i) first, to the Partners having negative balances
in their Capital Accounts, in the proportion that the negative
balance of each such Partner's Capital Account bears to the
aggregate negative balances in the Capital Accounts of all
such Partners, until the balances in their Capital Accounts
equal zero;
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(ii) second, 100% to each Limited Partner whose
Capital Account Balance Per Unit is the lowest Capital Account
Balance Per Unit of all Limited Partners, until each Limited
Partner's Capital Account Balance Per Unit equals the highest
Capital Account Balance Per Unit;
(iii) third, 100% to the Limited Partners until the
aggregate positive balances in the Limited Partners' Capital
Accounts equal the sum of their Limited Partners' 8% Return
and their aggregate Invested Capital Contributions;
(iv) fourth, 100% to the General Partners until the
aggregate positive balances in their Capital Accounts equal
the sum of (1) their General Partners' Capital Contributions,
plus (2) an amount equal to 5% of all prior and current Net
Cash Flow available for distribution reduced by (3) any
amounts previously distributed to the General Partners from
Net Cash Flow and from Net Sales Proceeds pursuant to
subparagraph (iii) of Article 9.3(b); and
(v) thereafter, 95% to the Limited Partners and 5%
to the General Partners.
In any year (other than the final year of the Partnership) in which the
General Partners determine that allocating Gain pursuant to the priorities set
forth above would result in an undue administrative burden, the General Partners
may allocate Gain to the Partners in the same manner as Net Income would be
allocated, but only if such alternate allocation would not have a material
adverse effect on any Limited Partner.
(c) Any Loss shall be allocated as follows:
(i) first, 100% to each Limited Partner whose Capital
Account Balance Per Unit is higher than the lowest Capital
Account Balance Per Unit of any Limited Partner, until each
Limited Partner's Capital Account Balance Per Unit equals the
lowest such Capital Account Balance Per Unit;
(ii) second, to the Partners with positive balances
in their Capital Accounts in the proportion that the positive
balance in each such Partner's Capital Account bears to the
aggregate positive balances in the Capital Accounts of all
such Partners, until the balances in their Capital Accounts
equal zero; and
(iii) thereafter, 95% to the Limited Partners and 5%
to the General Partners.
Notwithstanding the foregoing, no Loss shall be allocated to a
Partner to the extent it would cause or increase an Adjusted Capital
Account Deficit with respect to such Partner.
9.3 Distributions. Except as provided in Article 18.2, Partnership
distributions shall be made as provided in this Article 9.3.
(a) Net Cash Flow shall be distributed as follows:
(i) The General Partners, within thirty (30) days
following the close of each fiscal quarter or as soon
thereafter as practicable, shall determine, in their sole and
absolute discretion, the amount of Net Cash Flow that is
available for distribution. Such Net Cash Flow available for
distribution shall be apportioned then 95% to the Limited
Partners and 5% to the General Partners; provided, however,
that the 5% of Net Cash Flow to be distributed to the General
Partners shall be subordinated to receipt by the Limited
Partners of their Limited Partners' 8% Return for the related
year.
(ii) Net Cash Flow available for distribution to the
Limited Partners on a quarterly basis shall be allocated
between the Monthly Limited Partners, as a group, and the
Quarterly Limited Partners, as a group, in proportion to the
number of Units owned by each such group of Limited Partners.
(iii) The portion of Net Cash Flow allocable to the
Quarterly Limited Partners shall be distributed to the
Quarterly Limited Partners and one-third (1/3rd) of the
portion allocable to the Monthly Limited Partners shall be
distributed to the Monthly Limited Partners, with all such
distributions to be made within thirty (30) days following the
close of each fiscal quarter or as soon thereafter as
practicable. The remaining two-thirds (2/3) of the Net Cash
Flow available for distribution to the Monthly Limited
Partners shall be deposited in the Monthly Distribution
Account. One-half (1/2) of the amount so deposited shall be
distributed to the Monthly Limited Partners within seventy
(70) days following the close of such immediately preceding
fiscal quarter, or as soon thereafter as practicable, and the
remainder of the Net Cash Flow so deposited shall be
distributed within one hundred (100) days following the close
of such immediately preceding fiscal quarter, or as soon
thereafter as practicable. Notwithstanding the foregoing, each
distribution pursuant to this Article 9.3(a) that is payable
to the Monthly Limited Partners first shall be reduced by an
amount equal to the Monthly Distribution Fee, less any
interest earned on the Monthly Distribution Account.
(b) Net Sales Proceeds from a Nonliquidating Sale, after
creation of any reserves deemed necessary or advisable by the General
Partners, shall be distributed in the following order of priority:
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(i) first, 100% to the Limited Partners until the
Limited Partners have received an amount equal to their
aggregate Limited Partners' 8% Return;
(ii) second, 100% to the Limited Partners until the
Limited Partners have received an amount equal to their
aggregate Invested Capital Contributions;
(iii) third, 100% to the General Partners until the
General Partners have received the sum of (1) their General
Partners' Capital Contributions, plus (2) an amount equal to
5% of all prior and current distributions of Net Cash Flow,
reduced by (3) any amounts previously distributed to the
General Partners from Net Cash Flow and from Net Sales
Proceeds pursuant to this subparagraph (iii) of this Article
9.3(b); and
(iv) thereafter, 95% to the Limited Partners and 5%
to the General Partners.
9.4 Determination of Allocations and Distributions Among the Limited
Partners. For purposes of making allocations and distributions among the Limited
Partners (or a specified group of Limited Partners) pursuant to Articles 9.2 and
9.3 (or as required elsewhere in this Agreement), if the operative provision
refers to positive or negative balances of Capital Accounts, aggregate Limited
Partners' 8% Return, Invested Capital Contributions, or additions or
subtractions to Capital Accounts to reach a specified level, then the allocation
or distribution shall be made in accordance with the respective sizes of such
items for each Limited Partner; if, however, no specific item is referred to,
then the allocation or distribution shall be made in accordance with the Limited
Partners' respective Partnership Interests.
9.5 Determination of Allocations and Distributions Among the General
Partners. The allocations and distributions pursuant to Articles 9.2 and 9.4 (or
as required elsewhere in this Agreement) shall be made among the General
Partners in such amounts as the General Partners may agree among themselves.
9.6 Admission of Limited Partners. In connection with the admission of
any Limited Partner to the Partnership, the General Partners may select any
method and convention permissible under Code section 706(d) for the allocations
of tax items during the time persons are admitted as Limited Partners. However,
any method or convention first utilized must be applied consistently thereafter
for all subsequent admissions of Limited Partners unless it is later determined
that such method or convention is not permissible under section 706(d).
9.7 Transfer of Units. Net Income, Net Loss, or Net Cash Flow for a
fiscal year attributable to any Units which may have been transferred during
such year shall be allocated or distributed between the transferor and the
transferee based upon the period during such year that each Limited Partner is
treated as the owner (as determined under Article Fourteen) of the Units. Gain,
Loss, or Net Sales Proceeds from a Nonliquidating Sale for a fiscal year
attributable to any Units which may have been transferred during such year shall
be allocated to the Limited Partner who owned such Units on the date such Gain
or Loss was realized for federal income tax purposes or, as the case may be,
shall be distributed to the Limited Partner who owned such Units on the date of
such Nonliquidating Sale.
9.8 Interest of the General Partners. Notwithstanding anything
contained in this Agreement to the contrary, the interest of the General
Partners in each material item of Partnership income, gain, loss, deduction, and
credit will be equal to at least one percent (1%) of each such item at all times
during the existence of the Partnership.
9.9 Allocation of Recapture Items for Tax Purposes. Notwithstanding the
allocation of Gain described above in Article 9.2(b), any income recognized
pursuant to the recapture provisions of sections 1245 or 1250 of the Code, or
pursuant to Code section 751 with respect to such recapture provisions, shall be
allocated among the Partners in the proportions in which the original
depreciation deductions being recaptured were allocated to them or to their
predecessors in interest.
9.10 Qualified Income Offset. Notwithstanding the allocations provided
in Article 9.2, any Limited Partner who unexpectedly receives an allocation or
distribution described in Treasury Regulation ss.1.704-1(b)(2)(ii)(d)(4), (5) or
(6), as may be amended from time to time, respectively, which causes or
increases an Adjusted Capital Account Deficit, will first be allocated items of
income or gain in an amount and manner sufficient to eliminate such deficit
balance as quickly as possible. It is intended that items to be so allocated
shall be determined and the allocations made in accordance with the qualified
income offset provision of section 1.704-1(b)(2)(ii)(d) of the Treasury
Regulations and this Article 9.10 shall be interpreted consistently therewith.
9.11 Allocation With Respect to Reserved Liquidation Proceeds. Any
deduction allowed to the Partnership by reason of the payment of any liability
from liquidation proceeds reserved pursuant to Article 18.2(b) shall be
allocated among the Partners in the same proportions that the amount paid on
such liability would otherwise have been distributed pursuant to Article 18.2.
9.12 Limitation on Distributions. Notwithstanding the foregoing, no
distribution shall be made unless, after such distribution, the Partnership's
assets are in excess of all liabilities of the Partnership except liabilities to
Limited Partners on account of their Capital Contributions and liabilities to
the General Partners.
9.13 Certain Computations for Monthly Limited Partners. For purposes of
allocating Gain and Loss pursuant to Article 9.2 and, for all purposes of this
Agreement, in making any computation of the Limited Partners' 8% Return (i) the
Monthly Distribution Fee shall not be deducted from Net Cash Flow in computing
the Limited Partners' 8% Return, and (ii) the Monthly Limited Partners shall be
deemed to have received their distributions of Net Cash Flow pursuant to Article
9.3(a) as if they were Quarterly Limited Partners.
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9.14 Certain Computations for Participants in the Distribution
Reinvestment Plan. For purposes of allocating Gain and Loss pursuant to Article
9.2 and, for all purposes of this Agreement, in making any computation of the
Limited Partners' 8% Return, the Participants in the Distribution Reinvestment
Plan shall be deemed to have received their Distributions of Net Cash Flow and
Net Sales Proceeds from a Nonliquidating Sale pursuant to Article 9.3 at the
time such Distributions were paid to the Distribution Reinvestment Plan.
9.15 Optional Monthly Distributions.
(a) The General Partners, in their sole discretion, may elect
to make all distributions of Net Cash Flow that the General Partners,
in their sole and absolute discretion, determine is available for
distribution on a monthly basis.
(b) In the event that the General Partners elect to make all
distributions of Net Cash Flow on a monthly basis pursuant to this
Article 9.15, such distributions shall be made, at the option of the
General Partners, to all Limited Partners either (i) in the manner
specified in Articles 9.3(a) and 9.13 for Monthly Limited Partners,
except that there shall be no Monthly Distribution Fee, or (ii) within
thirty (30) days following the close of each calendar month or as soon
thereafter as practicable, or pursuant to such other procedures as the
General Partners shall establish, 95% to the Limited Partners and 5% to
the General Partners; provided, however, that the 5% of Net Cash Flow
to be distributed to the General Partners shall be subordinated to
receipt by the Limited Partners of their Limited Partners' 8% Return
for the related year.
(c) In the event the General Partners elect to make all
distributions of Net Cash Flow on a monthly basis pursuant to this
Article 9.15, amounts previously deposited in the Monthly Distribution
Account shall be distributed pursuant to Articles 9.3(a)(iii) and
11.2(b), and, thereafter, the Monthly Limited Partners shall not be
assessed any Monthly Distribution Fee.
9.16 Allocation of Syndication Expenses. Any "syndication expenses," as
described in the regulations under section 709 of the Code, paid or incurred by
the Partnership in respect of any Unit shall be specially allocated to and
charged to the Capital Account of the Limited Partner owning such Unit.
ARTICLE TEN
TRANSACTIONS WITH GENERAL PARTNERS AND AFFILIATES
10.1 Services and Goods.
(a) Other than those transactions in which the General
Partners or their Affiliates provide goods or services to the
Partnership in accordance with other provisions of this Agreement, no
other goods or services will be provided by the General Partners or
their Affiliates to the Partnership, except under extraordinary
circumstances and in accordance with the following conditions: (i) the
goods and services must be necessary to the prudent operation of the
Partnership; (ii) the services or goods for which the General Partners
or their Affiliates are to receive compensation shall be embodied in a
written contract which details the services to be rendered and all
compensation to be paid; (iii) such contract may be modified only by a
vote of a majority in interest of Limited Partners' Capital; (iv) such
contract shall contain a clause allowing termination without penalty on
sixty (60) days notice to the General Partners; (v) the compensation,
price, or fee must not exceed the lesser of the cost of such services
or 90% of the competitive price or fee charged by unaffiliated persons
or entities for providing comparable services in the same or comparable
geographic location which could reasonably be made available to the
Partnership; (vi) the fees and other terms of the contract shall be
fully disclosed to the Limited Partners; and (vii) the General Partners
or their Affiliates must have engaged previously in the business of
rendering such services or selling or leasing such goods, independent
of the Partnership as an ordinary and ongoing business. For this
purpose, extraordinary circumstances shall be presumed to exist if
either the service is not available from an unaffiliated person or
entity or there is an emergency situation requiring immediate action by
the General Partners and the service is not immediately available from
an unaffiliated person or entity. Extraordinary circumstances shall, in
no event, include general and administrative expenses, except as
otherwise provided herein.
(b) Reimbursement of the General Partners and their Affiliates
for Operating Expenses incurred by the General Partners or their
Affiliates shall be limited to: (i) the actual cost to the General
Partners and their Affiliates of all goods, materials, and services
used for or by the Partnership, which are necessary to the prudent
operation of the Partnership and are obtained from entities
unaffiliated with the General Partners or their Affiliates; and (ii)
the lower of the actual cost of administrative services performed by
the General Partners or their Affiliates which are reasonably necessary
to the prudent operation of the Partnership, or ninety percent (90%) of
the amount charged by independent parties for comparable services in
the same geographic area. Such reimbursement shall not include (i) rent
or depreciation, utilities, capital equipment, and other overhead
items, or (ii) salaries, fringe benefits, travel expenses, and other
overhead items incurred by or allocated to any controlling persons of
the General Partners or their Affiliates. For purposes of this Article
10.1(b) only, controlling persons shall mean any person who: (i) holds
a five percent (5%) or more equity interest in a General Partner or
Affiliate or has the power to direct or cause the direction of a
General Partner or Affiliate whether through the ownership of voting
securities or otherwise; or (ii) performs functions for the General
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Partners similar to those of the chairman or member of the board of
directors; executive management, such as the president, vice president,
corporate secretary, or treasurer; or senior management, such as the
vice president of an operating division who reports directly to
executive management. No reimbursement shall be permitted for services
for which the General Partners are entitled to compensation by way of a
separate fee as provided for elsewhere in this Agreement. None of the
restrictions on reimbursement of the General Partners or their
Affiliates set forth in this Article 10.1(b) shall apply to the payment
to the General Partners or their Affiliates of any fees or other
compensation to which any of them is entitled in accordance with any
other provision of this Agreement.
(c) No rebates or give-ups may be received by the General
Partners or their Affiliates in connection with any services or goods
provided to the Partnership by unaffiliated persons or entities, nor
may the General Partners or their Affiliates participate in any
reciprocal business arrangement which would circumvent any restriction
contained in this Agreement with respect to transactions between the
Partnership and the General Partners or their Affiliates.
(d) Independent certified public accountants shall verify the
allocation of Operating Expenses for which the General Partners or
their Affiliates are reimbursed using normal accounting procedures.
Such verification shall at a minimum include the following: (i) a
review of the time records of individual employees, the costs of whose
services were reimbursed; and (ii) a review of the specific nature of
the work performed by such employees. The methods of verification shall
be in accordance with generally accepted auditing standards. The cost
of such verification shall be itemized by such accountants, which costs
may be reimbursed to the General Partners or their Affiliates only to
the extent that such reimbursement, when added to the cost to the
Partnership of the administrative services rendered by the General
Partners or their Affiliates, does not exceed the amount the
Partnership would be required to pay to independent parties in the same
geographic area for administrative services comparable to those
rendered by the General Partners or their Affiliates.
10.2 Purchases, Sales, and Leases.
(a) The Partnership shall not purchase or lease Properties in
which the General Partners or their Affiliates have an interest (except
as permitted pursuant to Article 4.2 (c) hereof); provided, however,
that the General Partners or their Affiliates may purchase Properties
in the name of any one or more of them and temporarily own such
Properties for the purpose of facilitating the acquisition of such
Properties by the Partnership, or the completion of construction of the
Properties, or any other purpose related to the business of the
Partnership, if such Properties are purchased by the Partnership within
twelve (12) months from the date such Properties were originally
acquired by the General Partners or their Affiliates for a price no
greater than the cost (including carrying costs) of such Properties to
the General Partners or their Affiliates and there is no other benefit
to the General Partners or their Affiliates arising out of such sale
transaction apart from any and all fees and other compensation
otherwise permitted under this Agreement. In the case of any such
acquisition by the Partnership, all cash income, expenses, profits and
losses generated by or associated with Properties so acquired shall be
treated as belonging to the Partnership from the date of acquisition of
such Properties by the General Partners or their Affiliates.
Notwithstanding the foregoing, the Partnership may not acquire
Properties held by an interim owner if such interim owner is a limited
partnership in which the General Partners or their Affiliates have an
interest.
(b) The Partnership shall not sell or lease Properties to the
General Partners or their Affiliates, except as permitted in accordance
with Article 4.2(c) hereof;
10.3 Loans.
(a) The Partnership shall not make any loans to the General
Partners or their Affiliates.
(b) The Partnership may obtain loans from the General Partners
or their Affiliates (subject to the provisions of paragraph (c) of this
Article 10.3) or from any third party, provided that it shall not
obtain loans for the purpose of purchasing Properties nor shall it
obtain financing, as defined in the following sentence, for the
Partnership. For purposes of this paragraph (b), the term "financing"
shall mean loans to the Partnership encumbering any Properties owned by
the Partnership, or loans whose principal amount is scheduled to be
paid over a period of forty-eight (48) months or more, and with fifty
percent (50%) or more of the principal amount thereof scheduled to be
paid during
the first twenty-four (24) months of the loan; provided, however, that
nothing in this definition shall be construed as prohibiting a bona
fide prepayment provision in a financing agreement.
(c) Except as limited by paragraph (b) of this Article 10.3,
the General Partners and their Affiliates may, but shall not be
required to, lend funds to the Partnership. The General Partners and
their Affiliates shall not receive interest or similar charges or fees
with respect to any such loan in excess of the amount charged to the
General Partners or their Affiliates for a comparable loan from an
unaffiliated lending institution.
10.4 No Exclusive Right to Sell. The Partnership shall not give the
General Partners or their Affiliates an exclusive right to sell or exclusive
employment to sell Properties for the Partnership.
10.5 Construction and Development of Properties. The General Partners
and their Affiliates shall not construct or develop any Properties or render any
services for which they will receive compensation from the Partnership in
connection with their construction or development of Properties.
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10.6 No Other Compensation for Goods and Services. Except in
extraordinary circumstances pursuant to Article 10.1 above, the Partnership
shall not pay to the General Partners or their Affiliates any commissions, fees,
or compensation except for those provided for in this Agreement, i.e., Selling
Commissions and the due diligence expense reimbursement fee pursuant to Article
7.3, Organizational and Offering Expenses pursuant to Article 7.4, Acquisition
Expenses and Acquisition Fees pursuant to Article 7.5, Management Fees pursuant
to Article 8.2, Real Estate Commissions pursuant to Article 8.3, reimbursement
for Operating Expenses pursuant to Article 8.1, and indemnification pursuant to
Article Nineteen.
ARTICLE ELEVEN
MANAGEMENT BY GENERAL PARTNERS
11.1 Duties of the General Partners. The General Partners shall manage
and control the Partnership and its business and affairs, and each of the
General Partners shall participate in all decisions made by the General Partners
hereunder, and the vote of a majority of the General Partners shall control. The
General Partners' obligations shall include the following:
(a) management of the Partnership affairs;
(b) fiduciary responsibility (i) for the safekeeping and use
of all funds of the Partnership, whether or not in their immediate
possession or control, and (ii) for ensuring that Partnership funds and
assets are employed for the exclusive benefit of the Partnership or its
Partners;
(c) furnishing Limited Partners with reports and information
as specified in Article Sixteen hereof;
(d) maintenance of records of Partnership assets, including
information and reports of architects, appraisers, engineers,
attorneys, accountants, or other professionals;
(e) maintenance of books of account regarding Partnership
operations and business affairs;
(f) keeping all records of the Partnership available for
inspection and audit by any Limited Partner or his representative,
during normal business hours at the principal place of business of the
Partnership and at the expense of the Limited Partner, following
reasonable notice to the Partnership; and
(g) submitting to officials or agencies administering
applicable state securities laws information required to be filed with
such officials or agencies, including reports and statements required
to be distributed to Limited Partners.
11.2 Rights and Powers. The General Partners shall have all the rights
and powers which may be possessed by a general partner under the Act and such
rights and powers as are otherwise conferred by law or are necessary, advisable,
or convenient to the discharge of their duties under this Agreement and to the
management of the business and affairs of the Partnership. Without limiting the
generality of the foregoing powers of the General Partners, it is agreed that
the General Partners shall have the following rights and powers, which they may
exercise on behalf of the Partnership at the cost, expense, and risk of the
Partnership, on terms and conditions deemed necessary or appropriate in their
discretion:
(a) to carry out and implement any and all of the purposes of
the Partnership set forth in Article Four hereof;
(b) to employ the funds of the Partnership in the exercise of
any rights or powers possessed by the General Partners hereunder,
including, without limitation, remitting funds in the Monthly
Distribution Account to the Partnership in accordance with the
limitations set forth in Articles 9.15(c) and 11.3(j);
(c) to pay all fees and expenses incurred in the organization
of the Partnership and in the offer and sale of the Units;
(d) to invest such funds as temporarily are not required for
Partnership purposes in any short-term, highly liquid investments with
appropriate safety of principal;
(e) to obtain and maintain, at the expense of the Partnership,
or in their sole discretion to elect not to obtain, insurance policies
covering the property and operations of the Partnership;
(f) to sell, lease, exchange, or otherwise dispose of all or
any portion of the Properties of the Partnership, subject to the
limitations contained elsewhere in this Agreement;
(g) to hire, train, transfer, supervise, and discharge
employees of the Partnership and establish the compensation and
benefits thereof;
(h) to delegate, by vote of a majority of the General
Partners, any or all of their duties hereunder, and to appoint, employ,
or contract with any person, which person shall be under the ultimate
supervision of the General Partners, subject to the limitations
contained elsewhere in this Agreement;
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(i) to hold Properties in the Partnership name or the name of
any of them or in the name of any designee;
(j) to establish any reserves deemed necessary or advisable
by the General Partners;
(k) to make ministerial amendments, including any amendments
to cure any ambiguity or correct or supplement an inconsistent
provision of the Agreement, to make any amendments required in
connection with any filing or otherwise required by any state
securities authority or under any state securities laws or regulations,
to make any amendments the General Partners deem appropriate to add to
the duties or responsibilities of the General Partners, and to make any
amendments to this Agreement which are approved or authorized in
accordance with Article 13.3;
(l) to admit, in their discretion, one or more Limited
Partners to the Partnership, in accordance with Article Fourteen, at
any time after the Effective Date, and without the vote of the Limited
Partners, to amend the Agreement to reflect the admission of such
person or persons as Limited Partners;
(m) to enter into such agreements, contracts, documents, and
instruments and perform such acts with respect to all of the foregoing
and any matter incident thereto; and
(n) to make loans in accordance with Article 10.3.
11.3 Limitations on General Partners' Authority. The General Partners
shall not:
(a) do any act in contravention of this Agreement;
(b) do any act which would make it impossible to carry on the
ordinary business of the Partnership;
(c) possess Properties, or assign the Partnership's rights in
any Properties, for other than a Partnership purpose;
(d) confess a judgment against the Partnership;
(e) consummate a Liquidating Sale without the prior consent
of a majority in interest of Limited Partners' Capital;
(f) admit a person as a General Partner except as provided in
this Agreement;
(g) admit a person as a Limited Partner except as provided in
this Agreement;
(h) contract away the fiduciary duty owed to the Limited
Partners under the common law of any applicable jurisdiction; or
(i) cause or permit the Partnership to borrow money, except as
provided in Article 10.3, provided that the General Partners or their
Affiliates shall be entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their Affiliates on behalf
of the Partnership.
(j) cause or permit money to be withdrawn from the Monthly
Distribution Account, except (i) to make distributions to those Limited
Partners who elect to receive distributions of Net Cash Flow on a
monthly basis, as described in Article 9.3, or (ii) to remit to the
Partnership, from time to time, but in no event prior to the
calculation of the Monthly Distribution Fee for the immediately
preceding month, any interest earned on deposits in the Monthly
Distribution Account.
11.4 Nonexclusive Duties.
(a) The General Partners shall devote such time, effort, and
skill as they in their discretion determine may be reasonably required
for the conduct of the Partnership's business and affairs, which may be
less than full time. The Limited Partners recognize and agree that the
General Partners' involvement with the Partnership is not exclusive and
that they or the Affiliates of any one of them may perform similar
duties for other entities in another business, including the real
estate business, some or all of which may compete with the Partnership.
The General Partners, however, will not offer or sell interests in any
future public investor program that (i) has investment objectives and
structure similar to the Partnership and (ii) intends to invest in a
diversified portfolio of existing restaurant properties, as well as
properties upon which restaurants are to be constructed, to be leased
on a "triple net" basis to operators of national and regional
fast-food, family-style, and casual dining restaurant chains until the
Partnership's offering has been concluded, and the General Partners
will not purchase property for any such subsequently formed public
investor program with similar investment objectives and structure until
substantially all of the funds of the Partnership have been fully
invested or committed for investment. For purposes hereof, Partnership
funds will be deemed to have been committed for investment to the
extent written agreements in principle or letters of understanding are
executed and in effect at any time, whether or not any such investments
are made, and also to the extent any funds have been reserved to make
contingent payments in connection with any Property, regardless of
whether or not any such payments are made.
(b) The General Partners and their Affiliates are in the
business of organizing publicly offered and privately placed programs,
some or all of which may be considered competitive with the business of
the Partnership. In connection therewith, the General Partners and
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their Affiliates or any of them shall be entitled to engage in any
other transactions and possess interests in any other business ventures
of any nature or description, independently or with others, whether
existing as of the date hereof or hereafter coming into existence, and
neither the Partnership nor the Limited Partners shall have any rights
in or to any such independent ventures or the income or profits derived
therefrom. The Limited Partners recognize and agree that such other
business ventures may be in or related to the real estate business
and/or the restaurant business and from time to time may compete with
the Partnership. Notwithstanding the foregoing, neither the General
Partners nor any of their Affiliates shall engage in any venture which
is competitive with the business of the Partnership unless the General
Partners believe such venture would not have a materially adverse
effect on the business of the Partnership.
(c) At all times when the Partnership has funds available for
investment, the General Partners first will offer to the Partnership,
on the same terms and conditions, any real estate investment in a
restaurant that also would be suitable for investment by the
Partnership and which the General Partners or their Affiliates (other
than a public or private entity with which the General Partners or
their Affiliates are affiliated and that has investment objectives and
structure similar to those of the Partnership) may be considering for
their personal investment. In the event that the Partnership and a
public or private entity with which the General Partners or their
Affiliates are affiliated have the same investment objectives and
structure, and an investment opportunity becomes available which is
suitable for both entities and for which both entities have sufficient
uninvested funds, then the entity which has had the longest period of
time elapse since it was offered an investment opportunity will first
be offered the investment opportunity. In determining whether or not an
investment opportunity is suitable for more than one program, the
General Partners and their Affiliates will examine such factors, among
others, as the cash requirements of each program, the effect of the
acquisition both on diversification of each program's investments by
types of restaurants and geographic ares, and on diversification of the
lessees of its properties (which may also affect the need for one of
the programs to prepare or produce audited financial statements for a
property or a lessee), the anticipated cash flow of each program, the
size of the investment, the amount of funds available to each program,
and the length of time such funds have been available for investment.
If a subsequent development, such as a delay in the closing of a
property or a delay in the construction of a property, causes any such
investment, in the opinion of the General Partners, to be more
appropriate for an entity other than the entity which committed to make
the investment, the General Partners have the right to cause an
affiliated program to make the investment. The General Partners also
have agreed not to sell any of the Partnership's Properties
contemporaneously with a property owned by another program managed by
the General Partners, if the two properties are part of the same
restaurant chain and are within a three mile radius of each other
unless the General Partners are able to locate a suitable purchaser for
each property.
11.5 Limitation on Liability. No General Partner or Affiliate,
as the term Affiliate is defined in Article 19.1, shall be liable to the
Partnership or to any Limited Partner for any loss incurred by the Partnership
which arises out of any action or inaction of a General Partner or Affiliate, if
the General Partner or Affiliate acted within the scope of the General Partners'
authority and, in good faith, determined that such course of conduct was in the
best interests of the Partnership, and such course of conduct did not constitute
negligence, misconduct, or breach of fiduciary duty to the Limited Partners.
11.6 Restriction on Sale of Properties. The General Partners shall not
sell any of the Partnership's Properties contemporaneously with the sale of a
property owned by another program managed by the General Partners if both such
properties are part of the same restaurant chain and are within a three (3) mile
radius of each other, unless the General Partners are able to locate a suitable
purchaser for each property. The foregoing restriction is in addition to any
other limitations contained elsewhere in this Agreement.
ARTICLE TWELVE
RIGHTS AND OBLIGATIONS OF LIMITED PARTNERS
Limited Partners shall have the following rights and obligations.
12.1 Liabilities. Except as otherwise provided in this Article 12.1 or
under applicable law, no Limited Partner shall be personally liable for any of
the debts of the Partnership or any of the losses thereof beyond the amount of
his or her Capital Contribution and the share of undistributed profits of the
Partnership attributable to such Limited Partner. The Limited Partners may be
additionally liable under applicable partnership law to:
(a) return any cash wrongfully distributed which represents a
return of a Capital Contribution, together with interest thereon, for a
period of six (6) years thereafter; and
(b) repay any cash distributions which represent a return of a
Capital Contribution, together with interest thereon, pro rata in
accordance with their Partnership Interests, for a period of one (1)
year after the date of such distribution, to the extent required to
discharge liabilities of the Partnership to creditors who extended
credit or whose claims arose during the period the returned Capital
Contribution was held by the Partnership.
Limited Partners also may be liable for the general obligations of the
Partnership if they are found, under applicable law, to have participated in the
management and control of the Partnership.
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12.2 Management. No Limited Partner, as such, shall take part in the
management of the business or transact any business for the Partnership. All
management responsibility is vested in the General Partners.
12.3 Authority. No Limited Partner, as such, shall have the power to
sign for or to bind the Partnership. All authority to act on behalf of the
Partnership is vested in the General Partners.
12.4 Rights. A Limited Partner shall have the right to:
(a) have the Partnership books and records maintained pursuant
to Article Sixteen, and this Agreement, kept at the principal office of
the Partnership or at an office designated by the General Partners
through written notice to the Limited Partners and, following
reasonable prior notice, at all times during regular business hours to
inspect and copy, at his expense, any of them;
(b) have on demand, at his own expense and for any purpose
reasonably related to his or her Partnership Interest, true and full
information regarding the state of the business and financial condition
of the Partnership, and other information regarding Partnership affairs
whenever circumstances render it just and reasonable, as well as copies
of the Partnership's federal, state, and local income tax returns for
each fiscal year of the Partnership;
(c) have on demand, at his own expense, by mail printed on
white paper in no less than 10 point type within ten days following
receipt by the Partnership of such Limited Partner's request therefor,
or by inspection by such Limited Partner or his or her designated agent
at the principal office of the Partnership during normal business
hours, the list of Limited Partners kept pursuant to Article 16.2(a) if
the requesting Limited Partner represents to the General Partners and
the Partnership, in writing, that the request for inspection or a copy
of the list is not for the purpose of selling such list or copies
thereof, using such list for commercial purposes unrelated to the
Limited Partner's interest in the Partnership as a Limited Partner, or
using such list for a commercial purpose other than in the interest of
the Limited Partner relative to the affairs of the Partnership
(d) approve or disapprove a Liquidating Sale by a vote of a
majority in interest of Limited Partners' Capital, without the
concurrence of the General Partners;
(e) propose and vote on certain amendments to this
Agreement, as provided in Article Thirteen, without the concurrence of
the General Partners;
(f) remove any one or more of the General Partners and elect
one or more substitute General Partners, as provided in Article
Fifteen, without the concurrence of the General Partners;
(g) have dissolution and winding up by decree of court as
provided in Articles Seventeen and Eighteen;
(h) upon sixty (60) days' notice to the General Partners,
terminate by vote of a majority in interest of Limited Partners'
Capital any contract between the Partnership and the General Partners
or their Affiliates pursuant to which the General Partners or their
Affiliates are to receive compensation from the Partnership for
services rendered or goods sold or leased to the Partnership; and
(i) except for those amounts payable under, and contracts
permitted by, Articles 7.3, 7.4, 7.5, 8.2 and 8.3 hereof, modify by
vote of a majority in interest of Limited Partners' Capital any
contract between the Partnership or their Affiliates pursuant to which
the General Partners or their Affiliates are to receive compensation
from the Partnership for services rendered or goods sold or leased to
the Partnership.
The purposes for which a Limited Partner may request a copy of the list
described in Article 12.4(c) above include, without limitation, matters relating
to the voting rights of the Limited Partners as set forth herein and the
exercise of the Limited Partners' rights under the federal proxy laws. If the
General Partners neglect or refuse to exhibit, produce, or mail a copy of the
list as requested, the General Partners shall be liable to any Limited Partner
requesting the list for the costs, including attorneys' fees, incurred by that
Limited Partner for compelling the production of the list, and for actual
damages suffered by any Limited Partner by reason of such refusal or neglect.
The remedies provided hereunder to any Limited Partners requesting the list are
in addition to, and shall not in any way limit, other remedies available to
Limited Partners under federal or state laws. It shall be a defense of the
General Partners that the actual purpose and reason for the requests for
inspection or for a copy of the list is to secure such list or other information
for the purpose of selling such list or copies thereof, or of using the same for
a commercial purpose other than in the interest of the Limited Partner as a
Limited Partner relative to the affairs of the Partnership.
ARTICLE THIRTEEN
VOTING RIGHTS AND MEETINGS OF THE PARTNERSHIP
13.1 Voting Rights. Except as otherwise expressly provided in this
Agreement, a Limited Partner shall have no right to vote upon any matter
affecting the Partnership. Votes may be cast on any matter submitted for
consideration at a duly called meeting of the Partnership, or without a meeting
upon call of the General Partners or written request (stating the purpose of
such vote) of the Limited Partners holding ten percent (10%) or more of the
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Limited Partners' Capital. Within twenty (20) days after receipt of such a
request, the General Partners (i) shall provide all Limited Partners with
appropriate ballots, which ballots shall include a verbatim statement of the
wording of each resolution proposed for adoption by any Limited Partner
requesting a vote on each such resolution, and (ii) shall specify a time not
less than fifteen (15) nor more than sixty (60) days after receipt of such
request by which such ballots shall be returned. Notwithstanding anything
contained herein to the contrary, at any time that the General Partners
collectively own, in their capacities as Limited Partners, five percent (5%) or
more of the Limited Partners' Capital, the General Partners shall not have the
right to vote the Partnership Interests held by them in their capacities as
Limited Partners on any of the following issues: (i) termination of the
Partnership; (ii) cancellation or other termination of contracts between the
Partnership and Affiliates; (iii) issues regarding compensation to the General
Partners or their Affiliates; (iv) removal of a General Partner; or (v) issues
regarding a change of investment objectives of the Partnership as set forth in
Section 4.1.
13.2 Meetings of the Partnership. Meetings of the Partnership may be
called by the General Partners, or by written request (stating the purpose of
such meeting) of Limited Partners holding ten percent (10%) or more of the
Limited Partners' Capital. Within ten (10) days after receipt of such request,
the General Partners shall provide all Limited Partners with written notice of a
meeting to be held not less than fifteen (15) nor more than sixty (60) days
after receipt of such written request, which notice (i) shall specify the time
and place of such meeting, (ii) shall contain a detailed statement of each
matter to be acted on at such meeting, (iii) shall include a verbatim statement
of the wording of any resolution proposed for adoption by any Limited Partner
calling such meeting, and (iv) shall include proxies or written consents which
specify a choice between approval or disapproval of each matter to be acted upon
at such meeting. Meetings of the Partnership shall be held at such location
within the continental United States as shall be specified by the General
Partners. Voting by proxy shall be permitted. A majority of the Limited
Partners' Capital entitled to vote, represented in person or by proxy, shall
constitute a quorum at a meeting of the Partnership.
13.3 Amendment of Agreement.
(a) Amendments to this Agreement may be proposed by the
General Partners or by Limited Partners owning not less than ten
percent (10%) in interest of the Limited Partners' Capital. The General
Partners shall have the right, without first proposing such amendment
to the Limited Partners and without notice to, or the vote or consent
of, the Limited Partners, to amend the Agreement to reflect a
ministerial amendment, amendment required by state securities
authority, or amendment to add to the duties or responsibilities of the
General Partners pursuant to Article 11.2(k), to reflect the transfer
of Partnership Interests pursuant to Article 14.3, or to reflect the
admission of additional Limited Partners pursuant to Article 14.6.
Proposed amendments, subject to the conditions set forth in this
Article Thirteen, may concern any Article in this Agreement, including,
but not limited to (i) removal of any one or more of the General
Partners and election of one or more substitute General Partners and
(ii) termination of the Partnership. As to any proposed amendment to
this Agreement, Limited Partners shall vote separately on each
significant change proposed, and each such proposed change shall be set
forth in a separate resolution.
(b) Following any proposal of an amendment, other than an
amendment to be made pursuant to Articles 11.2(k), 14.3 or 14.6, the
General Partners, within fifteen (15) days after receipt, shall submit
to all Limited Partners a verbatim statement of the proposed amendment.
The General Partners shall include in such submission an opinion of
counsel to the General Partners concerning whether the proposed
amendment would result in changing the Partnership to a general
partnership, changing the liability of the General Partners or the
Limited Partners, or allowing the Limited Partners to take part in the
control or management of the Partnership. The General Partners also may
include in said submission their recommendation as to the proposed
amendment. In the case of any proposed amendment that would affect the
allocations or distributions provided for in Articles Nine or Eighteen
hereof or would amend Article 7.9(c) hereof, the General Partners shall
include in said submission the written advice of counsel experienced in
federal income tax matters as to the effect, if any, which such
amendment would have on such allocations and distributions and on the
bases of the Limited Partners' Partnership Interests. Any Limited
Partner, at his sole expense, may include an opinion of counsel
experienced in matters under the Act concerning the effect of the
proposed amendment. Except as otherwise provided in Articles 13.3(a) or
13.3(c) hereof, all proposed amendments, whether proposed by the
General Partners or by Limited Partners, shall be submitted to Limited
Partners for a vote, and the affirmative vote of holders of a majority
in interest of Limited Partners' Capital shall be required to approve
any such amendment. The General Partners may seek the written vote of
the Limited Partners as provided in Article 13.1 hereof or may call a
meeting as provided in Article 13.2 hereof.
(c) Notwithstanding any other provision of this Agreement to
the contrary, the General Partners are authorized and directed to
allocate Net Income, Net Loss, Gain, and Loss arising in any year
differently than otherwise provided for in this Agreement to the extent
that the General Partners determine that allocating income, gain, loss,
deduction, or credit (or item thereof) in the manner provided for in
this Agreement would not be permitted under section 704(b) of the Code
and Treasury regulations promulgated thereunder. Any such allocation
(hereinafter referred to as the "New Allocation") shall be deemed to be
a complete substitute for any allocation otherwise provided for in this
Agreement, and no amendment of this Agreement or approval of any
Limited Partner shall be required. In making a New Allocation, the
General Partners are authorized to act only after having been advised
by the Partnership's counsel that the existing allocations are not or
may not be permissible under section 704(b) of the Code and Treasury
regulations promulgated thereunder. The General Partners shall use
their best efforts to cause the New Allocations to resemble in all
material ways and to the maximum extent possible the allocations
contained in this Agreement as originally adopted; the General
Partners, however, make absolutely no warranties in this regard. No New
Allocation, and no choice by the General Partners among possible
alternative New Allocations, shall give rise to any claim or cause of
action by any Limited Partner against any party, including, but not
limited to, the General Partners, the Partnership's counsel, or any
individual related thereto.
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(d) Notwithstanding any other provision in this Section 13.3
to the contrary, and in accordance with Section 11.2(1) of this
Agreement, the General Partners shall have the right to amend this
Agreement without the vote of the Limited Partners to reflect the
admission of persons as Limited Partners.
ARTICLE FOURTEEN
RESTRICTIONS ON TRANSFER OF INTEREST IN PARTNERSHIP
14.1 Representations of Limited Partners. Each Limited Partner
acknowledges that he or she is fully aware that the Partnership is selling the
Units in reliance upon the truth and accuracy of the representations of each
Limited Partner contained in this Agreement and in such Limited Partner's
Subscription Agreement.
14.2 Transfer of Limited Partners' Partnership Interests. Subject to
compliance with applicable state and federal securities laws and the conditions
on transfer set forth in this Article Fourteen, a Limited Partner shall have the
right to sell, assign, transfer, encumber, pledge, convey, hypothecate, or
otherwise transfer or dispose of (which actions are collectively referred to in
this Article Fourteen as a "transfer") all or any part of his or her Partnership
Interest. Transfers, including transfers pursuant to the Distribution
Reinvestment Plan, may be made only on forms provided by the General Partners
and with the prior written consent of the General Partners, which consent may
not be unreasonably withheld. Any such transfer also shall comply with the
following conditions:
(a) No transfer will be permitted if (i) based upon
information provided by the Partnership, counsel for the Partnership or
the General Partners is of the view that there is a substantial risk
that such transfer would result in the Partnership being considered to
have terminated within the meaning of Section 708 of the Code, or (ii)
the General Partners determine that such transfer is effectuated
through or, together with other similar transfers, could result in the
creation of an "established securities market" or a "secondary market"
(or the substantial equivalent thereof) or increase the likelihood that
the Partnership would be treated as a "publicly traded partnership," in
each case within the meaning of Sections 469, 7704, or 512 of the Code.
(b) In no event shall Units be transferred to a minor or an
incompetent except by will or intestate succession.
(c) No transfer after which the transferor or the transferee
will hold an interest representing a Capital Contribution of less than
$2,500 ($1,000, or such greater amounts as may be required by
applicable state law, in the case of transfers by an individual
retirement account, Keogh or pension plan), will be recognized for any
purpose, unless such transfer represents the transfer of the entire
Partnership Interest of the transferor.
(d) The General Partners may prohibit a transfer if the
transferee is a foreign person for purposes of U.S. federal income
taxation.
(e) No purported transfer of a Unit, or any beneficial
interest therein, may be made, and any such purported transfer will be
void if, as a result of such Transfer, the Partnership would violate
the safe harbors of section 7704 of the Code and the regulations issued
thereunder.
14.3 Effect of Transfer.
(a) No transfer will be binding upon the Partnership or the
Partners until (i) the provisions of Article 14.2 have been met; (ii)
there shall have been filed with the Partnership a duly executed and
acknowledged counterpart of the instrument making such transfer, signed
by both the transferor and the transferee, with such instrument
evidencing the written acceptance by the transferee of all of the terms
and provisions of this Agreement and containing a representation by the
transferor that such transfer was made in accordance with all
applicable laws and regulations; and (iii) the transferor and the
transferee have executed such documents and performed such acts as the
General Partners may request in connection with the transfer. All
transfers of a Limited Partner's Partnership Interest shall entitle the
transferee only to receive the economic interest to which the
transferring Limited Partner otherwise would be entitled. Such
transferee shall become a Substituted Limited Partner only with the
written consent of the General Partners, which may be unreasonably
withheld, following compliance with the conditions set forth in this
Article 14.3 and in Article 14.2 hereof. The effective date of any
permitted transfer of an economic interest in the Partnership shall be
(x) the first (1st) day of the month in which the Partnership receives
the instrument described in clause (ii) above and any other documents
required by the General Partners in connection with the transfer if
such instrument and other documents are received on or before the
fifteenth (15th) day of a month or (y) the first day of the month
immediately following the date the Partnership receives the instrument
and documents described in clause (x) of this sentence if such
instrument and other documents are received on or after the sixteenth
(16th) day of a month. Notwithstanding the foregoing sentence, in the
event of a transfer pursuant to the Distribution Reinvestment Plan, the
effective date of any permitted transfer of an economic interest in the
Partnership shall be the first day of the calendar quarter in which the
purchase of the interest is made. The General Partners shall amend the
books and records of the Partnership at least once each calendar
quarter to reflect any permitted transfers of economic interests in the
Partnership.
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(b) A transferee shall be admitted as a Substituted Limited
Partner following compliance with the conditions set forth in this
Article 14.3 and in Article 14.2 hereof, and only with the separate
written consent of the General Partners. The Substituted Limited
Partner also shall be required to (i) execute and acknowledge such
instruments and perform such acts as the General Partners deem
necessary or advisable to effect the admission of such person as a
Substituted Limited Partner and (ii) pay all reasonable expenses
incurred by the Partnership in connection with such person's admission
as a Substituted Limited Partner (not to exceed $100). The General
Partners shall be required to amend this Agreement at least once each
calendar quarter to reflect the admission to the Partnership of any
Substituted Limited Partners. Until this Agreement is so amended (which
amendment may consist solely of amending and updating Schedule A
hereto), an assignee shall not become a Substituted Limited Partner.
The date on Schedule A shall be the date on which the substitution is
effective. The General Partners are not required to file any such
amendment to this Agreement with the State of Florida. Any Substituted
Limited Partner so admitted to the Partnership will succeed to all the
rights and be subject to all the obligations of the transferring
Limited Partner with respect to the Partnership Interest as to which
such Limited Partner was substituted. The Limited Partners hereby
consent to the substitution as a Limited Partner of any individual or
entity approved by the General Partners.
14.4 Liability of Transferring Limited Partner. Any Limited
Partner who shall transfer all of his or her Partnership Interest shall cease to
be a Limited Partner of the Partnership, except that unless and until a
Substituted Limited Partner is admitted in his or her stead, such transferring
Limited Partner shall retain the statutory rights of an assignor of a limited
partnership interest under the Act. No substitution of an assignee as a Limited
Partner shall operate to relieve the assignor of the liabilities imposed under
the Act or of his or her duties and obligations hereunder, unless the General
Partners agree in writing to release such Limited Partner.
14.5 Record Owner of Partnership Interest. Notwithstanding anything
contained in this Agreement to the contrary, both the Partnership and the
General Partners shall be entitled to prohibit the transfer of a Limited
Partner's economic interest in the Partnership in accordance with Article 14.2
hereof and also to treat the transferor of any Partnership Interest as the
absolute owner thereof in all respects, and shall incur no liability for
distributions of cash or other property made to such transferor until such time
as the above-referenced written instrument of transfer has been received by,
approved, and recorded on the books of, the Partnership.
14.6 Admission of Additional Limited Partners. The General Partners are
authorized, in their sole discretion and without the approval of any of the
Limited Partners, to admit from time to time as additional Limited Partners such
persons or entities who subscribe for Units during the period in which Units are
offered for sale to the public as described in the Prospectus. Each such person
or entity may apply for admission by completing, executing and delivering to the
General Partners (i) a form of subscription agreement required by the General
Partners which shall include, and constitute, an agreement by such person or
entity to be bound by this Agreement and to become a Limited Partner, (ii) the
required per Unit Capital Contribution, and (iii) such other documents as may be
required by the General Partners. Admission of an additional Limited Partner
will become effective upon an amendment to Schedule A of this Agreement
reflecting such admission. The recordation of such amendment with the State of
Florida is not required. The admission of an additional Limited Partner
therefore will be effective as of the date indicated on Schedule A to this
Agreement.
14.7 Death, Incompetency, or Dissolution of a Limited Partner. The
death, legal incompetency, bankruptcy, or dissolution of a Limited Partner shall
not dissolve the Partnership. The rights and obligations of such Limited Partner
to share in the Net Income, Net Loss, Net Cash Flow, Gain, and Loss of the
Partnership, to receive distributions of Partnership funds and to transfer his
or her Partnership Interest pursuant to this Article Fourteen, upon the
happening of such an event, shall devolve upon such Limited Partner's legal
representative or successor in interest, as the case may be, subject to the
terms and conditions of this Agreement, and the Partnership shall continue as a
limited partnership. Upon the death of a Limited Partner, his or her legal
representative shall have all the other rights of a Limited Partner solely for
the purpose of settling his or her estate. In no event, however, may such
estate, legal representative, or other successor in interest become a
Substituted Limited Partner except in accordance with Articles 14.2 and 14.3
hereof. Each Limited Partner's estate or other successor in interest shall be
liable for all the obligations and liabilities of such Limited Partner.
14.8 Distribution Reinvestment Plan. The Partnership will adopt a
Distribution Reinvestment Plan pursuant to which Limited Partners, except
Limited Partners who are residents of the State of California, may elect to have
their Distributions reinvested in additional Units of the Partnership, as
follows:
(a) The Reinvestment Agent will receive all Distributions paid
by the Partnership with respect to Units owned by Limited Partners who
elect to participate in the Distribution Reinvestment Plan and will
reinvest such Distributions on behalf of the Participants in Units in
accordance with the terms and conditions of the Distribution
Reinvestment Plan.
(b) All transfers of Units to Participants in the Distribution
Reinvestment Plan will be made in accordance with the terms and
conditions of the Distribution Reinvestment Plan and this Agreement.
(c) The ownership of Units purchased pursuant to the
Distribution Reinvestment Plan shall be reflected on the books of the
Partnership and in each Participant's Capital Account, and
Distributions not reinvested in Units will be paid to the Participants
as provided in the Distribution Reinvestment Plan.
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ARTICLE FIFTEEN
ADDITION, REMOVAL OR WITHDRAWAL OF A GENERAL PARTNER
15.1 Additional General Partners. The General Partners may at any time
designate one or more additional general partners if the addition of such
additional general partner is necessary to preserve the tax status of the
Partnership, such additional general partner has no authority to manage or
control the Partnership, and there is no change in the identity of the persons
who have authority to manage or control the Partnership unless such additional
general partner is admitted as a substitute General Partner pursuant to the
provisions of Section 15.4 below, and provided that the Partnership Interests of
the Limited Partners shall not be materially adversely affected thereby. The
Partnership Interests of any such additional general partners shall be such as
shall be agreed upon by the General Partners and such additional general
partners.
15.2 Removal and Election of General Partners.
(a) Notwithstanding anything else herein contained, any
General Partner may be removed and a new General Partner may be elected
as a substitute General Partner in the place of such removed General
Partner by the vote of a majority in interest of the Limited Partners'
Capital.
(b) Written notice of the removal of a General Partner shall
be served upon such General Partner, either by certified or registered
mail, return receipt requested, or by personal service. Such notice
shall set forth the reasons for the removal and the date upon which the
removal is to become effective. Notwithstanding the foregoing sentence,
any removal of the last remaining General Partner shall be effective
only on the earlier of (i) such date as a substituted General Partner
shall have been admitted to the Partnership pursuant to Section 15.4
hereof or (ii) a date ninety (90) days after the date on which the
required majority in interest of the Limited Partners' Capital shall
have voted for such removal of the General Partner. Upon the effective
date of the removal of a General Partner, he or it shall cease to be a
General Partner, and any loans made by such General Partner or his or
its Affiliates to the Partnership in accordance with the provisions
hereof shall be repaid as expeditiously as possible.
(c) In the event a General Partner is removed and the
remaining General Partner or General Partners agree to continue the
business of the Partnership pursuant to Article 17.2, or if the
business of the Partnership is continued pursuant to Article 17.2 in
the event of the removal of the last remaining General Partner, then
(i) the Partnership shall purchase the General Partner's Partnership
Interest at a price determined in accordance with Article 15.5 hereof,
and (ii) if no substituted General Partner is elected in the place of
any removed General Partner, those persons or entities who are General
Partners following such removal shall use their best efforts to release
such removed General Partner (and his or its Affiliates, if applicable)
from personal liability on any existing or future Partnership
borrowing.
15.3 Death, Incompetency, Bankruptcy, Dissolution, or Withdrawal of a
General Partner.
(a) Subject to the provisions of Articles 17.1(e) and 17.2
hereof, the death, incompetency, bankruptcy or dissolution of a General
Partner shall dissolve the Partnership. In the event that, following
the death, incompetency, bankruptcy or dissolution of a General
Partner, the remaining General Partner or General Partners (if any)
agree to continue the business of the Partnership pursuant to Article
17.2, or if the business of the Partnership is otherwise continued
pursuant to Article 17.2, the Partnership shall have the obligation, in
accordance with Article 17.2, to purchase the Partnership Interest of
such General Partner at a purchase price determined in accordance with
Article 15.5 hereof.
(b) A General Partner may withdraw, whether through
resignation or otherwise, or transfer all of his General Partner's
Partnership Interest at any time provided that he shall give at least
sixty (60) days' prior written notice to the Limited Partners of such
resignation, and such withdrawal shall become effective at the
expiration of such sixty-day period; provided, however, that a majority
in interest of Limited Partners' Capital must consent in writing to
such withdrawal, resignation, or transfer if, as a result of such
withdrawal, resignation, or transfer (i) the remaining General Partners
would have less than two years of relevant real estate experience, (ii)
the remaining General Partners or any Affiliate thereof that will
continue to provide services to the Partnership after such withdrawal,
resignation, or transfer, would have less than four years of relevant
experience in the type of service being rendered, (iii) the remaining
General Partners would have an aggregate net worth of less than
$1,000,000 (exclusive of home, furnishings, and personal automobiles),
(iv) counsel for the Partnership is of the view that such withdrawal
would result in the dissolution of the Partnership for purposes of
state law or the loss of partnership status for federal income tax
purposes, or (v) none of the remaining General Partners is Robert A.
Bourne, James M. Seneff, Jr., CNL Realty Corporation, or a General
Partner whose admission was previously consented to by a majority in
interest of Limited Partners' Capital. Notwithstanding the foregoing,
the last remaining General Partner may withdraw or transfer all of such
General Partner's Partnership Interest only if (i) such General Partner
shall give the notice specified in the foregoing sentence, (ii) in such
notice, such General Partner shall nominate as a substituted General
Partner a willing person or entity that, in such General Partner's
reasonable discretion, meets the requirements for qualification of the
Partnership as a partnership for federal income tax purposes, and (iii)
a majority in interest of Limited Partners' Capital shall consent in
writing to such withdrawal, resignation, or transfer. Such General
Partner, concurrently with the request for such consent, shall identify
to the Limited Partners the interest to be transferred, the date of the
transfer, the proposed transferee, and the proposed substituted General
Partner, if any, who, in such General Partner's reasonable discretion,
shall meet the requirements for qualification of the Partnership as a
partnership for federal income tax purposes. If the Limited Partners
consent to a transfer of such General Partner's Partnership Interest by
the requisite majority, the nominated substituted
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General Partner shall seek admission to the Partnership in accordance
with the provisions of Article 15.4 hereof prior to the withdrawal of
such General Partner, and the withdrawal, resignation, or transfer by
such General Partner shall become effective only upon the admission of
a substituted General Partner or the expiration of ninety (90) days
following such withdrawal, resignation, or transfer. The substituted
General Partner shall purchase such withdrawing, transferring, or
resigning General Partner's Partnership Interest at such price as the
substituted General Partner and such withdrawing, transferring, or
resigning General Partner shall agree upon or, if they cannot so agree,
at a price determined in accordance with Article 15.5 hereof.
Notwithstanding anything else herein contained, no person or entity
shall be admitted as a substituted General Partner until the full
purchase price for the Partnership Interest of such withdrawing,
transferring, or resigning General Partner has been paid in full or
arrangements satisfactory to such withdrawing, transferring, or
resigning General Partner for full payment have been made. Upon the
effective date of the withdrawal or resignation of any General Partner,
or the transfer of his Partnership Interest, he shall cease to be a
General Partner of the Partnership.
15.4 Admission of Substituted General Partner. No person or entity
shall be admitted as a substituted General Partner unless all of the following
conditions are met or, by unanimous agreement of the Limited Partners, waived:
(a) such person or entity agrees in writing to accept the
responsibilities of the removed General Partner and, unless waived by
the removed General Partner, makes arrangements or causes the
Partnership to make arrangements (i) to release such General Partner
(and his Affiliates, if applicable) from personal liability on any
existing or future Partnership borrowing and to indemnify such General
Partner and his or its Affiliates against all other liabilities of the
Partnership, fixed, contingent, or otherwise, except liabilities for
which the General Partners may not be indemnified by the Partnership
under Article Nineteen, or (ii) to indemnify such General Partner and
his or its Affiliates against all liabilities of the Partnership,
fixed, contingent, or otherwise (including any existing or future
Partnership borrowing), except such liabilities for which the General
Partners may not be indemnified by the Partnership under Article
Nineteen;
(b) such person or entity agrees in writing to become a
substituted General Partner;
(c) counsel for the Partnership renders an opinion that such
admission is in conformity with the Act and will not cause a
termination or dissolution of the Partnership or cause it to be
classified other than as a partnership for federal income tax purposes;
(d) a majority in interest of Limited Partners' Capital
consent to the admission of such person as a substituted General
Partner; and
(e) such person or entity executes and acknowledges such
instruments as may be necessary or advisable to effect the admission of
such person or entity as a substituted General Partner, including,
without limitation, the written acceptance and adoption by such person
of the provisions of this Agreement and the filing of an amendment to
this Agreement evidencing such admission.
Upon satisfaction or waiver of the foregoing conditions, this Agreement
shall be amended in accordance with the Act, and all other steps shall be taken
as are reasonably necessary to effect the admission of the substituted General
Partner.
15.5 Purchase Price of a General Partner's Interest.
(a) In the event that a General Partner's Partnership Interest
is purchased pursuant to Articles 15.2(c) or 15.3(a), or pursuant to
15.3(b) if a purchase price cannot be agreed upon, the purchase price
shall be based upon an appraisal performed as set forth in this Article
15.5 and shall be equal to the then-present fair market value of the
distribution of Partnership funds to which such General Partner would
have been entitled if the Partnership were dissolved and wound up
pursuant to Article Eighteen hereof on the effective date of the
dissolution and its assets sold on such date without compulsion of the
Partnership to do so.
(b) The Partnership (or the substituted General Partner in the
event of a purchase pursuant to Article 15.3(b) hereof) and the General
Partner whose Partnership Interest is being purchased (or the legal
representative of such General Partner) each shall select an appraiser
which is not an Affiliate of the Partnership or such General Partner to
perform the appraisal. If such General Partner (or such General
Partner's legal representative) and the Partnership (or the substituted
General Partner in the event of a purchase pursuant to Article 15.3(b)
hereof) cannot agree upon such an appraiser, then each shall appoint
one appraiser. If the two appraisers so appointed cannot agree on a
purchase price, the two appraisers shall select a third appraiser, or
if the first two appraisers are unable to agree upon a third appraiser,
such third appraiser shall be selected by the American Arbitration
Association or by a similar impartial person or entity mutually agreed
upon by such General Partner and the Partnership. The third appraiser
shall submit a written report on the value of such General Partner's
Partnership Interest. If the value arrived at by the third appraiser is
between the values arrived at by the first two appraisers, the report
of the third appraiser shall govern. If the value arrived at by the
third appraiser is higher than the value arrived at by the first two
appraisers, the report of the higher of the first two appraisers shall
govern. If the value arrived at by the third appraiser is lower than
the value arrived at by the first two appraisers, the report of the
lower of the first two appraisers shall govern. The costs of the
appraisals shall be borne equally by such General Partner (or such
General Partner's legal representative) and the Partnership.
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(c) In the event that a General Partner's Partnership Interest
is purchased pursuant to Article 15.2(c) or 15.3(a), the purchase price
of such General Partner's Partnership Interest shall be paid by the
Partnership giving such General Partner (or such General Partner's
legal representative) a non interest-bearing, unsecured promissory note
evidencing such purchase price payable only from Net Cash Flow
otherwise payable to the General Partners pursuant to Article Nine
hereof or, as the case may be, from assets available for payment of
Partnership liabilities upon dissolution and liquidation pursuant to
Articles Seventeen and Eighteen hereof.
ARTICLE SIXTEEN
REPORTS, ACCOUNTING AND TAX MATTERS
16.1 Fiscal Year. The fiscal year of the Partnership shall be the
calendar year.
16.2 Books of Account and Accounting. The General Partners shall
maintain or cause to be maintained, full, complete, accurate, and proper books
of account and records of the Partnership's operations. The General Partners
also shall maintain, or cause to be maintained, the following records:
(a) A current alphabetical list, updated at least quarterly,
of the full names, last-known business addresses, and business
telephone numbers of, and the number of Units owned by, each Partner,
separately identifying the General Partners and the Limited Partners;
(b) A copy of the Partnership's Certificate of Limited
Partnership and all certificates or amendments thereto, together with
executed copies of any powers of attorney pursuant to which any such
Certificate was executed;
(c) Copies of the Partnership's federal, state, and local
income tax returns and reports, if any, for the three (3) most recent
years; and
(d) Copies of the Agreement, as amended, and of all of the
Partnership's financial statements, if any, for the three (3) most
recent years.
The Partnership's books and records shall be maintained at the
principal office of the Partnership or at an office designated by the General
Partners through written notice to the Limited Partners, and each Partner or his
representative, upon reasonable prior notice, shall have access thereto during
regular business hours.
16.3 Reports to the Limited Partners.
(a) An annual report, examined and reported on by independent
certified public accountants, will be furnished to Limited Partners
within one hundred twenty (120) days following the close of each fiscal
year. The annual report will contain an audited balance sheet,
statement of operations, statement of Partners' capital, statement of
cash flows, and a report of the activities of the Partnership during
the relevant period. The annual report also will contain a complete
statement of any transactions with the General Partners or their
Affiliates, as well as a summary of compensation and fees paid or
payable to the General Partners and their Affiliates (including
reimbursable expenses).
(b) Within sixty (60) days after the end of each fiscal
quarter in which the General Partners or their Affiliates received fees
or other compensation from the Partnership, Limited Partners will be
furnished with a detailed statement setting forth the services rendered
or to be rendered by the General Partners or their Affiliates for the
Partnership and the fees or compensation received therefor.
(c) Information necessary for the preparation of federal
income tax returns will be furnished to Limited Partners within
seventy-five (75) days following the close of each fiscal year.
(d) Within seventy-five (75) days following the close of each
fiscal year, each Limited Partner that is a qualified pension,
profit-sharing, or stock bonus plan, including Keogh and IRAs, will be
furnished with an annual statement of Unit valuation to enable it to
file such annual reports as may be required by ERISA as they relate to
its Partnership investment. The statement will report an estimated
value of each Unit based on the amount Limited Partners would receive
if the Properties were sold at their values (determined by appraisal
updates) as of the close of the fiscal year, and if such proceeds and
any other funds of the Partnership were distributed in a liquidation of
the Partnership as described in the Prospectus. For the first three
annual valuation reports to Limited Partners after the termination of
the offering, the General Partners will value all Properties at cost
and report the net asset value per each Unit at $10.00. Thereafter, the
Partnership will obtain an appraisal update based on the capitalization
of income for each Property unless the Partnership previously obtained
an appraisal for such Property dated within nine months prior to the
end of the relevant fiscal year. After the first three annual reports,
the General Partners may elect to deliver such reports to all Limited
Partners. Limited Partners will not receive copies of appraisals. In
providing such reports to Limited Partners, the Partnership and the
General Partners and their Affiliates do not thereby make any warranty,
guarantee, or representation that (i) the Limited Partners or the
Partnership, upon liquidation, actually will realize the estimated
value per Unit, or (ii) the Limited Partners will realize the estimated
net asset value if they attempt to sell their Units.
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(e) If the Partnership is required by the Securities Exchange
Act of 1934, as amended, to file quarterly reports with the Securities
and Exchange Commission, Limited Partners, within sixty (60) days after
the end of each fiscal quarter, will be furnished with a summary of the
information contained in such report. Such information generally will
include a balance sheet, a quarterly statement of income, partners'
capital, and cash flow, and other information regarding the Partnership
and its activities during the quarter. Limited Partners also may
receive a copy of any Form 10-Q required to be filed by the Partnership
under the Securities Exchange Act of 1934 upon request to the
Partnership. If the Partnership is not subject to this filing
requirement, Limited Partners will be furnished with a semi-annual
report within sixty (60) days after the end of each six (6) month
period containing information similar to that contained in the
quarterly report but applicable to such six (6) month period.
(f) Until such time as all of the Limited Partners' Capital
remaining after payment of the amounts specified in Articles 7.2, 7.3,
7.4, and 7.5 and creation of reserves as provided in Article 7.6 is
used to acquire Properties as provided in Article 7.7 or is returned to
investors as provided in Article 7.8, special reports will be furnished
to the Limited Partners within forty-five (45) days after the end of
each quarter (or such later date as may hereafter be permitted by
applicable law), which shall contain the following information: (i) the
location and a description of the general character of all Properties
which the Partnership acquired during such quarter or which the
Partnership intends to acquire during the following quarter, (ii) the
present or proposed use of such Properties, their suitability and
adequacy for such uses, (iii) the terms of any material leases
affecting such Properties, (iv) the method of financing such
Properties, (v) a statement that title insurance, and any required
performance bond(s) or other assurances with respect to builders, have
been or will be obtained on all Properties acquired or to be acquired,
and (vi) a statement as to amount of the Gross Proceeds which remain
uncommitted or unexpended, stated as to dollar amount and percentage of
total Gross Proceeds received by the Partnership from sale of its
Units. The Partnership may incorporate the information contained in
such reports into any of the reports furnished to the Limited Partners
pursuant to this Article 16.3.
(g) Within sixty (60) days after the end of each fiscal
quarter in which Limited Partners have received distributions from the
Partnership, each Limited Partner who is at that time a resident of the
State of New York will be furnished with the information required by
New York Form SD-1 or any successor form.
(h) Financial information contained in all reports to Limited
Partners will be prepared on the accrual basis of accounting in
accordance with generally accepted accounting principles. If such
information differs from the information furnished to Limited Partners
for tax purposes, the two sets of information will be reconciled.
16.4 Tax Returns. The General Partners shall use their best efforts to
cause the Partnership to file on a timely basis all federal, state, and local
tax and information returns required of the Partnership and, on behalf of the
Limited Partners, shall make such elections and determinations as are provided
for herein or as they otherwise in their sole discretion deem appropriate. Such
returns shall be prepared on the accrual basis of accounting.
16.5 Tax Matters. Upon the transfer of a Partnership Interest, the
Partnership will consider, upon any Partner's request, an election to cause the
basis of the Partnership property to be adjusted for federal income tax
purposes, as provided in section 754 of the Code. Robert A. Bourne, or his
successor, is hereby designated as the "Tax Matters Partner" in accordance with
section 6231(a)(7) of the Code and, in connection therewith and in addition to
all other powers given thereunto, shall have all other powers necessary or
appropriate to fully perform such role, including without limitation the power
to retain all attorneys and accountants of his choice and the right to settle
any audits without the consent of the Limited Partners, subject to Articles 11.5
and Nineteen. This designation is hereby expressly consented to by each Limited
Partner as an express condition to becoming a Limited Partner.
16.6 Withholding on Certain Amounts Attributable to Interest of Foreign
Person Limited Partners. Notwithstanding any provision of this Agreement to the
contrary, if the General Partners, in their sole discretion, determine that any
Units are held by a Limited Partner who is a foreign partner (as defined in
section 1446 of the Code), the General Partners are authorized to cause the
Partnership to withhold from amounts otherwise distributable under Article Nine
and Article Eighteen such amounts as the General Partners shall determine in
their sole discretion are necessary or appropriate to apply to the satisfaction
of the amount, if any, of federal taxes owed by such Limited Partner who is a
foreign partner with respect to his or her interest in the Partnership. Any
amount so withheld shall be charged to that Limited Partner's Capital Account as
if the amount had been distributed to such Limited Partner. Neither the
Partnership nor the General Partners shall have any liability to any foreign
partner for any decision to withhold or not to withhold amounts otherwise
distributable to such Limited Partner, provided that such decision is made in
good faith. Each Limited Partner who is a foreign partner agrees to indemnify
and hold harmless the Partnership and the General Partners from and against any
and all loss, liability, cost, damage or expense that it or they may suffer or
incur based upon or arising out of federal taxes owed by such Limited Partner
who is a foreign partner with respect to his interest in the Partnership.
16.7 Withholding of State and Local Taxes. Notwithstanding any
provision of this Agreement to the contrary, if the General Partners, in their
sole discretion, determine that the laws and regulations of any state or
locality in which the Partnership is engaged in business require the Partnership
to withhold state or local taxes on the income allocated (or distributions made
or to be made) to any Limited Partner, then the General Partners are authorized
to cause the Partnership to withhold from amounts otherwise distributable under
Article Nine and Article Eighteen such amounts as the General Partners shall
determine in their sole discretion are necessary or appropriate to apply to the
satisfaction of the Partnership's state or local tax withholding requirement
with respect to such Limited Partner. Any amount so withheld shall be charged to
that Limited Partner's Capital Account as if the amount had been distributed to
such Limited Partner. Neither the Partnership nor the General Partners shall
have any liability to any Limited Partner
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for any decision under this provision to withhold or not to withhold amounts
otherwise distributable to such Limited Partner, provided that such decision is
made in good faith.
ARTICLE SEVENTEEN
DISSOLUTION OF THE PARTNERSHIP
17.1 Events of Dissolution. The Partnership shall dissolve upon the
first to occur of:
(a) the expiration of the term of the Partnership;
(b) the vote of a majority in interest of the Limited
Partners' Capital that the Partnership shall dissolve;
(c) a Liquidating Sale;
(d) the removal of any General Partner pursuant to Article
15.2 hereof or the withdrawal or resignation of any General Partner
pursuant to Article 15.3, subject in each case to the provisions of
Article 17.2 hereof;
(e) the bankruptcy, death, dissolution, or adjudication of
incompetency of any General Partner, in each case subject to the
provisions of Article 17.2, and further provided that for purposes of
this Article 17.1(e), the term "dissolution" shall not include the
merger, consolidation or recapitalization of any corporate General
Partner; or
(f) any other event causing the dissolution of the
Partnership under the Act.
17.2 Reformation. Notwithstanding Article 17.1, in the event of a
dissolution pursuant to Article 17.1(d) or 17.1(e) above, the Partnership shall
not be dissolved if either of the following conditions is met: (i) all the
remaining General Partners agree to continue the business of the Partnership or
(ii) in the event there are no General Partners remaining at such time, then if
all of the Limited Partners agree to continue the business of the Partnership on
the same terms and conditions as are contained herein and, by vote of a majority
in interest of Limited Partners' Capital, elect a substituted General Partner
admitted pursuant to Article 15.4 hereof within ninety (90) days following the
occurrence of one of the events specified in Article 17.1(d) or 17.1(e). If
either of the foregoing conditions are met, then the provisions of Article
Eighteen hereof shall not apply, the Partnership shall continue its business
without dissolving, and the interest in the Partnership of the General Partner
to whom one of the events specified in Article 17.1(d) or 17.1(e) applies shall
be purchased by the Partnership. In the event of such reformation, all of the
assets and liabilities of the Partnership shall be contributed to the new
partnership which shall be formed and all parties to this Agreement shall become
partners in such new partnership and, unless otherwise agreed to by unanimous
vote of the Limited Partners, this Agreement, as it may from time to time be
amended, shall continue as the Limited Partnership Agreement of such new
partnership.
ARTICLE EIGHTEEN
WINDING UP OF PARTNERSHIP
18.1 Liquidation of Assets. The Partnership shall not terminate upon a
dissolution, but shall cease to engage in further business except to the extent
necessary to wind up its affairs, perform existing contracts, and preserve the
value of its assets. The General Partners or a liquidation trustee appointed by
the General Partners or, if there is no General Partner, a liquidation trustee
selected by a majority in interest of Limited Partners' Capital (the
"Liquidation Trustee") shall take full account of the Partnership's assets and
liabilities, file all certificates and notices of dissolution as are required by
law, wind up its affairs, and liquidate the Partnership's assets as promptly as
is consistent with obtaining the fair value thereof. The General Partners or the
Liquidation Trustee, as the case may be, shall have full power and authority to:
(a) sell or otherwise dispose of, at such prices and upon such
terms as they or it in their or its sole discretion may deem
appropriate, all of the Partnership's assets; and
(b) as promptly as possible after such liquidation, effect a
distribution of the assets of the Partnership in cash as set forth in
Article 18.2.
During the course of winding up, the Partners shall continue to share
in Net Income, Net Loss, Net Cash Flow, Gain, and Loss as provided in this
Agreement, and all of the provisions of this Agreement shall continue to bind
the parties and apply to the activities of the Partnership except as
specifically provided to the contrary, but there shall be no distributions to
the Partners except pursuant to this Article Eighteen.
18.2 Distributions. Distribution of the proceeds of liquidation
pursuant to Article 18.1 hereof, any Net Sales Proceeds of a Liquidating Sale
and any cash assets of the Partnership following a dissolution, subject to
Article 8.3, shall be made in the following order of priority:
(a) first, to the payment and discharge of all of the
Partnership's debts and liabilities to creditors other than Partners;
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(b) second, to the establishment of any reserves which the
General Partners or the Liquidation Trustee, as the case may be, may
deem necessary for any anticipated, contingent, or unforeseen
liabilities or obligations of the Partnership arising out of the
conduct of its business, which reserves will be held in escrow until
the expiration of such period of time as the General Partners or the
Liquidation Trustee, as the case may be, shall deem advisable, at which
time any balance of any such reserves not required to discharge such
liabilities or obligations shall be distributed as provided in
subsections (c), (d), and (e) below;
(c) third, to the payment and discharge of all of the
Partnership's debts and liabilities, if any, to the Partners (other
than in respect of their Partnership Interests);
(d) fourth, after allocations of (i) Net Income or Net Loss,
if any, have been made pursuant to Article 9.2(a) hereof and (ii) Gain
or Loss have been made pursuant to Articles 9.2(b) or 9.2(c) hereof, to
the Partners with positive Capital Account balances, in proportion to
such balances, up to amounts sufficient to reduce such positive
balances to zero; and
(e) thereafter, any funds then remaining shall be distributed
95% to the Limited Partners and 5% to the General Partners.
18.3 Distribution in Kind. The Partnership shall not make any
distribution in kind of tangible or intangible assets.
18.4 Time for Orderly Liquidation. A reasonable amount of time shall be
allowed for the orderly liquidation of the assets of the Partnership and the
discharge of liabilities to creditors so as to enable the General Partners or
the Liquidation Trustee, as the case may be, to minimize the normal losses
attendant upon such liquidation.
18.5 Indebtedness of Partners. Notwithstanding the foregoing, if any
Partner shall be indebted to the Partnership, then until payment of such amount
by him or her, the General Partners or the Liquidation Trustee, as the case may
be, shall retain such Partner's distributive share of the assets and apply such
assets or the income therefrom to the liquidation of such indebtedness and the
cost of holding such assets during the period of such liquidation. If such
amount has not been paid or otherwise liquidated at the expiration of six months
after the statement required by the first sentence of Article 18.7 hereof has
been given to such Partner, the General Partners or the Liquidation Trustee, as
the case may be, may sell the interest of such Partner at public or private sale
at the best price immediately obtainable which shall be determined in the sole
judgment of the General Partners, or the Liquidation Trustee, as the case may
be. The proceeds of such sale shall be applied to the liquidation of the amount
then due under this Article Eighteen, and the balance of such proceeds, if any,
shall be delivered to such Partner.
18.6 Deficit Restoration. Notwithstanding any other provision of this
Agreement to the contrary, if, upon the liquidation of a General Partner's
Partnership Interest (whether or not in connection with the liquidation of the
Partnership), such General Partner has a negative balance in his Capital Account
(as determined after taking into account Capital Account adjustments for the
Partnership taxable year during which such liquidation occurs, other than those
made pursuant to this Article 18.6), then such General Partner shall be required
to pay to the Partnership, by the end of such taxable year (or, if later, within
90 days after the date of such liquidation), an amount in cash equal to the
difference between such Partner's negative Capital Account and zero. The
aggregate of such payments by all General Partners having negative Capital
Accounts, upon liquidation of the Partnership, shall be distributed to the
Partnership's then-creditors, if any, and any excess among the Partners having
positive Capital Account balances.
18.7 Final Accounting. Upon the dissolution of the Partnership pursuant
to Article Seventeen, the accountants for the Partnership shall promptly
prepare, and the General Partners or the Liquidation Trustee, as the case may
be, shall furnish to each Partner, a statement setting forth the assets and
liabilities of the Partnership upon its dissolution. Promptly following the
complete liquidation and distribution of Partnership property and assets, the
Partnership accountants shall prepare, and the General Partners or the
Liquidation Trustee, as the case may be, shall furnish to all Partners, a
statement showing the manner in which the Partnership assets were liquidated and
distributed.
18.8 Compliance with Law. The General Partners and each Liquidation
Trustee shall comply with any requirements of the Act or other applicable law
pertaining to the winding up of a limited partnership, upon the completion of
which the Partnership shall be deemed terminated. Upon the complete liquidation
and distribution of the Partnership's assets, the Partners shall cease to be
Partners of the Partnership and the General Partners or the Liquidation Trustee,
as the case may be, shall execute, acknowledge, and cause to be filed all
certificates and notices required by law to terminate the Partnership.
ARTICLE NINETEEN
INDEMNIFICATION
19.1 General. In any pending or completed action, suit, or proceeding
to which a General Partner or an Affiliate, as defined below, is or was a party
by reason of the fact that such General Partner or Affiliate (i) is or was a
General Partner, or (ii) is an Affiliate of a General Partner, the Partnership
shall hold harmless and indemnify such General Partner or Affiliate against any
and all losses, harm, liabilities, damages, costs, and expenses (including, but
not limited to, attorneys' fees, judgments, and amounts paid in settlement)
incurred by such General Partner or Affiliate in connection with such action,
suit, or proceeding if such General Partner determined in good faith that the
course of conduct which caused the loss or liability was in the best interests
of the Partnership, and provided that such General Partner's or Affiliate's
conduct does not constitute negligence, misconduct, or breach of fiduciary duty
to
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the Limited Partners or the Partnership. For purposes of Articles 11.5 and
Nineteen only, the term "Affiliate" shall mean any person acting on behalf of or
performing services for the Partnership within the scope of the General
Partners' authority who (i) directly or indirectly controls, is controlled by,
or is under common control with a General Partner; or (ii) owns or controls ten
percent (10%) or more of the outstanding voting securities of a General Partner;
or (iii) is an officer, director, partner, or trustee of a General Partner; or
(iv) if a General Partner is an officer, director, partner, or trustee, is any
company for which a General Partner acts in any such capacity.
19.2 Securities Laws Violations. Notwithstanding anything to the
contrary in Article 19.1, the Partnership shall not indemnify a General Partner
or Affiliate, as the term Affiliate is defined in Article 19.1, or any person
acting as a broker-dealer, for any loss, liabilities or expenses arising from or
out of an alleged violation of federal or state securities laws unless the
following conditions are met: (i) there has been a successful adjudication on
the merits of each count involving alleged securities law violations as to the
particular indemnitee, or (ii) such claims have been dismissed with prejudice on
the merits by a court of competent jurisdiction as to the particular indemnitee,
or (iii) a court of competent jurisdiction approves a settlement of the claims
against a particular indemnitee and finds that indemnification of the settlement
and related costs should be made provided the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and the position of any state securities regulatory authority in
which the Units were offered or sold as to indemnification for violations of
securities laws; provided that the court need only be advised of and consider
the positions of the securities regulatory authorities of those states in which
the plaintiffs claim they were offered and sold Units and the Massachusetts
Securities Division.
19.3 Liability Insurance. The Partnership shall not incur the cost of
that portion of any liability insurance which insures a General Partner or
Affiliate, as the term Affiliate is defined in Article 19.1, against liabilities
as to which such General Partner or Affiliate may not be indemnified under this
Article Nineteen.
19.4 Advancement of Legal Costs and Expenses. The Partnership may
advance Partnership funds to the General Partners or their Affiliates, as the
term Affiliate is defined in Article 19.1, for legal expenses and other costs
incurred as a result of any legal action if the following conditions are
satisfied: (a) the legal action relates to acts or omissions with respect to the
performance of duties or services on behalf of the Partnership; (ii) the legal
action is initiated by a third party who is not a Limited Partner, or the legal
action is initiated by a Limited Partner and a court of competent jurisdiction
specifically approves such advancement; and (iii) the General Partners or their
Affiliates undertake to repay the advanced funds, together with interest at the
rate of prime plus one percent (1%), to the Partnership in cases in which such
General Partner or his or its Affiliate is not entitled to indemnification under
this Article 19.1.
ARTICLE TWENTY
POWER OF ATTORNEY
20.1 General Partners as Attorney-in-Fact. In order to induce the
General Partners to accept each Limited Partner as a Limited Partner of the
Partnership, and in consideration of the General Partners' agreement to serve as
General Partners of the Partnership, each Limited Partner, by the execution of
this Agreement (either individually or through his or her agent or attorney),
irrevocably does constitute and appoint the General Partners, and each of them,
with full power of substitution and ratification, his or her true and lawful
attorney, in his or her name, place, and stead, to execute, acknowledge, swear
to, file, and record in the appropriate public offices all documents,
instruments, and certificates of whatsoever nature which the General Partners
determine are necessary or advisable to execute or conduct the business of the
Partnership, including, without limitation:
(a) those (including counterparts of this Agreement) which the
General Partners deem appropriate to qualify or continue the
Partnership as a limited partnership (or a partnership in commendam) in
any jurisdiction in which the Partnership may conduct business;
(b) those which the General Partners deem appropriate to
reflect a change or modification of the Partnership or this Agreement
made in accordance with the terms of this Agreement;
(c) those, including, without limitation, amendments to this
Agreement made in accordance with Article 13.3(a), or which the General
Partners deem appropriate to reflect the admission of additional
Limited Partners or General Partners or Substituted Limited Partners
admitted to the Partnership in accordance with the terms of this
Agreement;
(d) all conveyances and other documents, instruments, and
certificates which the General Partners deem necessary, appropriate, or
convenient to sell, assign, convey, or transfer Partnership property in
accordance with the terms of this Agreement or to effect the
dissolution, termination, and liquidation of the Partnership;
(e) those which may be required to be filed by the Partnership
under the laws of any state or by any governmental agency or which the
General Partners deem it advisable to file to the extent that such laws
require or such governmental agency requires the execution thereof by
the Limited Partners;
(f) documents which may be required in connection with any
filing with state securities commissions or other state authorities or
otherwise may be required under any state securities laws or
regulations;
(g) those which the General Partners deem necessary,
desirable, or beneficial to comply with changes in the federal tax laws
or regulations, or judicial or administrative interpretations thereof,
so as to comport with the original intent of this Agreement; and
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(h) any amendments or modifications of any of the foregoing
documents, certificates, applications, or instruments.
20.2 Special and Durable Power. The foregoing grant of authority is
hereby declared to be irrevocable, and a special power coupled with an interest
which shall survive the death, disability, dissolution, bankruptcy, incapacity,
or insolvency of the Limited Partners. In the event of any conflict between the
provisions of this Agreement and any document executed or filed by any of the
General Partners pursuant to the Power of Attorney granted in this Article
Twenty, this Agreement shall govern. Each Limited Partner authorizes the General
Partners, and each of them, to take any further action which such General
Partner(s) shall consider necessary or advisable in connection with any of the
foregoing, hereby giving the General Partners, and each of them, full power and
authority to do and perform each and every act or thing whatsoever requisite or
advisable to be done relating to the foregoing as fully as such Limited Partner
might or could do if personally present, and hereby ratifying and confirming all
that the General Partners shall lawfully do or cause to be done by virtue
hereof. This Power of Attorney may be exercised by the General Partners by
listing all of the Limited Partners executing any agreement, certificate,
instrument, or document with the single signature of the General Partners, or
any of them, in their, his, or its capacity as attorney-in-fact for any and all
of them; and shall survive the delivery of a transfer by a Limited Partner of
his Partnership Interest, except that where the purchaser, transferee, or
assignee of the whole of such Partnership Interest with the consent of the
General Partner is admitted as a Substituted Limited Partner, the Power of
Attorney shall survive the delivery of such transfer for the sole purpose of
enabling such General Partner to sign, execute, certify, acknowledge, swear to,
file, and record any such agreement, certificate, instrument, or document
necessary to effect such substitution. The power hereby conferred to make
agreements, certificates, instruments, and documents shall be deemed to include
the power to sign, execute, acknowledge, swear to, verify, deliver, file,
record, and publish the same.
ARTICLE TWENTY-ONE
MISCELLANEOUS
21.1 Reliance Upon General Partners. No person or entity dealing with
any General Partner shall be required to determine such General Partner's
authority to make any commitment or undertaking on behalf of the Partnership,
nor to determine any fact or circumstance bearing upon the existence of his or
its authority.
21.2 Banking. All funds of the Partnership shall be deposited in such
bank account or accounts as shall be determined by the General Partners. Such
bank accounts shall be maintained separately from other bank accounts of any of
the General Partners. All withdrawals therefrom shall be made upon checks signed
by one of the General Partners or by a person authorized to do so by the General
Partners. The funds of the Partnership shall not be commingled with those of any
other person or entity.
21.3 Investment Company Act. The Partnership shall not operate in
such a manner as to be classified as an "investment company" for purposes of the
Investment Company Act of 1940.
21.4 Notices. Any notice or other communication required or permitted
to be given by any provision of this Agreement shall be in writing and shall be
deemed to have been delivered and given for all purposes (i) if delivered
personally to the party to whom the same is directed or (ii) whether or not the
same is actually received, if sent by registered or certified mail, return
receipt requested, postage and charges prepaid, addressed to Robert A. Bourne,
CNL Income Fund Advisors, Inc., 400 East South Street, Suite 500, Orlando,
Florida 32801, if to the Partnership or any General Partner, or to such other
address as any of the General Partners may from time to time specify by written
notice to the Limited Partners; and if to a Limited Partner, at such Limited
Partner's address as set forth on Schedule A hereto, or to such other address as
such Limited Partner may from time to time specify by written notice to the
Partnership in accordance herewith.
21.5 No Roll-Up. The Partnership will not participate in any
transaction involving (i) the acquisition, merger, conversion, or consolidation,
either directly or indirectly, of the Partnership, and (ii) the issuance of
securities of any other partnership, real estate investment trust, corporation,
trust or other entity that would be created or would survive after the
successful completion of such transaction. Nothing contained in this Article
21.5 shall prevent the Partnership from participating in a transaction involving
the conversion to corporate, trust, or association form of only the Partnership
if, as a consequence of the transaction, there will be no significant adverse
change in any of the following: (i) the voting rights of the Limited Partners;
(ii) the Termination Date; (iii) the compensation payable to the General
Partners or their Affiliates; or (iv) the Partnership's investment objectives as
stated in the Prospectus.
21.6 No Inducement to Advise. Neither the General Partners nor their
Affiliates shall directly or indirectly pay or award any commission or other
compensation to any person engaged by a potential investor for investment advice
as an inducement to such advisor to advise the purchase of Units; provided,
however, that this provision shall not prohibit the Selling Commissions
authorized in the Prospectus and this Agreement which are payable to a
registered broker-dealer or other properly licensed person or entity for selling
Units.
21.7 Issuance of Senior Securities. The Partnership shall not issue
senior securities.
21.8 Section Headings. All headings contained in this Agreement are for
convenience of reference only and are in no way intended to describe, interpret,
define, or limit the scope, extent, or intent of this Agreement or any
provisions hereof.
A-31
<PAGE>
21.9 Severability. The provisions of this Agreement shall be deemed
severable, and the invalidity or unenforceability of any provision shall not
affect the validity or enforceability of the remainder of this Agreement or any
valid clause of any invalid portion. Any such invalid or unenforceable provision
shall be replaced with a valid and enforceable provision which comes closest to
the intent of the parties with respect to such invalid or unenforceable
provision.
21.10 Governing Law. The Act shall govern the validity of this
Agreement, the construction of its terms and the interpretation of the rights
and duties of the parties.
21.11 Counterpart Execution. This Agreement may be executed in any
number of counterparts with the same effect as if all parties hereto had signed
the same document. All counterparts shall be construed together and shall
constitute one Agreement.
21.12 Parties in Interest. Each and every covenant, term, provision and
agreement herein contained shall be binding upon, and inure to the benefit of,
the heirs, successors, assigns, and legal representatives of the respective
parties hereto.
21.13 Gender and Number. As the context requires, all words used herein
in the singular number shall extend to and include the plural; all words used in
the plural number shall extend to and include the singular; and all words used
in any gender shall extend to and include all genders or be neutral.
21.14 Arbitration of Disputes. Except as permitted in Article 15.5
hereof, no provision either in this Agreement or the subscription agreement
(other than preexisting contracts between broker-dealers and the Limited
Partners) requiring the mandatory arbitration of disputes between the Limited
Partners and the General Partners or the Partnership is permitted.
21.15 Partition. Each of the parties hereof irrevocably waives during
the term of the Partnership any right, if any, to maintain an action for
partition with respect to Partnership property.
21.16 Entire Agreement. This Agreement contains the entire
understanding of the parties with respect to the subject matter hereof, and no
amendment, modification, or alteration of the terms shall be binding unless the
same be in writing, dated subsequent to the date hereof, and duly executed as
required by law.
IN WITNESS WHEREOF, this Agreement has been executed as of the date
first above written by the General Partners, the Initial Limited Partner and the
Limited Partners.
GENERAL PARTNERS:
Sworn to this day of , 1996
- ----------------------------------
- ----------------------------------
NOTARY PUBLIC ROBERT A. BOURNE
In and For Orange County, Florida
- ----------------------------------
- ----------------------------------
NOTARY PUBLIC JAMES M. SENEFF, JR.
In and For Orange County, Florida
CNL REALTY CORPORATION
- ---------------------------------
- --------------------------------- By:
NOTARY PUBLIC Title:
- ---------------------------------
In and For Orange County, Florida
A-32
<PAGE>
LIMITED PARTNERS:
Sworn to this day of , 1996
- ---------------------------------
- --------------------------------- By:
NOTARY PUBLIC ROBERT A. BOURNE,
as Attorney-in-Fact for
the Limited Partners
In and For Orange County, Florida
INITIAL LIMITED PARTNER:
- ---------------------------------
- ---------------------------------
NOTARY PUBLIC
In and For Orange County, Florida
A-33
<PAGE>
EXHIBIT B
FINANCIAL STATEMENTS OF
CNL INCOME FUND XVIII, LTD.
AND
CNL REALTY CORPORATION
<PAGE>
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
----
<S> <C>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
Unaudited Condensed Financial Statements:
Condensed Balance Sheets as of September 30, 1996 and December 31, 1995 B-1
Condensed Statements of Partners' Capital for the nine months ended September 30, 1996
and the period February 10, 1995 (date of inception) through December 31, 1995 B-2
Notes to Condensed Financial Statements for the nine months ended
September 30, 1996 and the period February 10, 1995 (date of inception)
through September 30, 1995 B-3
Audited Financial Statements:
Report of Independent Accountants B-6
Balance Sheet as of December 31, 1995 B-7
Statement of Partners' Capital for the period February 10, 1995 (date of
inception) through December 31, 1995 B-8
Notes to Financial Statements for the period February 10, 1995 (date of
inception) through December 31, 1995 B-9
CNL REALTY CORPORATION
Financial Statements:
Report of Independent Accountants B-15
Balance Sheets as of September 30, 1996 (unaudited) and December 31, 1995 B-16
Notes to Balance Sheets as of September 30, 1996 and December 31, 1995 B-17
</TABLE>
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED BALANCE SHEETS
September 30, December 31,
ASSETS 1996 1995
------------- ------------
Cash $ 730 $ 980
Prepaid expenses 20 20
Organization costs 10,000 10,000
Deferred syndication costs 504,079 245,890
Other assets 27,304 -
-------- -------
$542,133 $256,890
======== ========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,505 $ 22,130
Due to related parties 532,628 233,760
-------- --------
Total liabilities 541,133 255,890
Partners' capital 1,000 1,000
-------- --------
$542,133 $256,890
======== ========
See accompanying notes to condensed financial statements.
B-1
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Nine Months Ended September 30, 1996 and the
Period February 10, 1995 (Date of Inception)
through December 31, 1995
<TABLE>
<CAPTION>
Number of
Units of
Limited
Partnership
Interest Limited General
Issued Partners Partners Total
----------- -------- -------- -----
<S> <C>
Balance,
February 10, 1995
(Date of Inception) - $ - $ - $ -
Cash contributions
on February 22,
1995, for general
partners' interest - - 1,000 1,000
------- -------- ------ -------
Balance,
December 31, 1995 - - 1,000 1,000
Subscriptions received
for limited partner-
ship units through
public offering 60,676 606,756 - 606,756
Subscriptions held
in escrow at
September 30, 1996 (60,676) (606,756) - (606,756)
------- -------- ------ ---------
Balance, September 30, 1996 - $ - $1,000 $ 1,000
================================================================
</TABLE>
See accompanying notes to condensed financial statements.
B-2
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended September 30, 1996 and 1995
and Nine Months Ended September 30, 1996, and the
Period February 10, 1995 (Date of Inception)
through September 30, 1995
1. Significant Accounting Policies:
Basis of Presentation - The accompanying unaudited condensed financial
statements have been prepared in accordance with the instructions to
Form 10-Q and do not include all of the information and note
disclosures required by generally accepted accounting principles. The
financial statements reflect all adjustments, consisting of normal
recurring adjustments, which are, in the opinion of management,
necessary to a fair statement of the results for the interim periods
presented. Amounts as of December 31, 1995, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XVIII, Ltd. (the "Partnership") for the year ended December
31, 1995.
Under the terms of a registration statement filed with the Securities
and Exchange Commission, the Partnership is authorized to sell a
maximum of 3,500,000 units ($35,000,000) of limited partnership
interest. Subscriptions for 60,676 units ($606,756) of limited
partnership interest had been received and were being held in escrow as
of September 30, 1996.
As of September 30, 1996, the Partnership was a development stage
enterprise and operations had not begun.
2. Deferred Syndication Costs:
At September 30, 1996 and December 31, 1995, syndication costs
consisting of commissions, due diligence expense reimbursement fees,
legal fees, printing and other expenses which were incurred in
connection with the offering totalled $504,079 and $245,890,
respectively. These syndication costs have been treated as deferred
costs and, once the Partnership receives the minimum offering proceeds
and funds are released from escrow, will be charged to the limited
partners' capital accounts to reflect the net capital proceeds of the
offering. All organizational and offering expenses, as defined in the
Partnership's prospectus, which exceed three percent of the total gross
proceeds received from the sale of units of the Partnership will be
paid by the general partners and will not be the responsibility of the
Partnership.
B-3
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS -
CONTINUED Quarters Ended September 30, 1996 and 1995
and Nine Months Ended September 30, 1996, and the
Period February 10, 1995 (Date of Inception)
through September 30, 1995
3. Related Party Transactions:
CNL Securities Corp. is entitled to receive commissions amounting to
8.5% of limited partners' contributions for services in connection with
selling limited partnership interests, a substantial portion of which
will be paid as commissions to other broker-dealers. As of September
30, 1996, $51,574 of such fees had been incurred.
In addition, CNL Securities Corp. is entitled to receive a due
diligence expense reimbursement fee equal to 0.5% of limited partners'
contributions, a portion of which may be reallowed to other
broker-dealers. As of September 30, 1996, $3,034 of such fees had been
incurred.
CNL Fund Advisors, Inc. is entitled to receive acquisition fees for
services in finding, negotiating and acquiring properties on behalf of
the Partnership equal to 4.5% of the limited partners' contributions.
As of September 30, 1996, $27,304 of such fees had been incurred. This
amount is included in other assets at September 30, 1996.
During the quarter and nine months ended September 30, 1996, CNL Fund
Advisors, Inc. and its affiliates provided accounting and
administrative services to the Partnership, primarily in connection
with the registration of the offering, totalling $23,375 and $29,980,
respectively, which are included in deferred syndication costs.
The amounts due to related parties consisted of the following at:
September 30, December 31,
1996 1995
Due to CNL Securities Corp.:
Commissions $ 51,574 $ -
Due diligence expense
reimbursement fee 3,034 -
-------- --------
54,608 -
-------- --------
Due to CNL Fund Advisors, Inc.:
Expenditures incurred for
organizational and offering
expenses on behalf of the
Partnership 383,150 233,760
Accounting and administrative
services 67,566 -
Acquisition fees 27,304 -
-------- --------
478,020 233,760
- --------------------------------------------------------- --------
$532,628 $233,760
======== ========
B-4
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS -
CONTINUED Quarters Ended September 30, 1996 and 1995
and Nine Months Ended September 30, 1996, and the
Period February 10, 1995 (Date of Inception)
through September 30, 1995
3. Related Party Transactions - Continued:
In the event the minimum offering proceeds are not received by the
Partnership, the Partnership will have no obligation to repay such
amounts.
4. Subsequent Event:
As of October 11, 1996, the Partnership had received aggregate
subscription proceeds of $1,733,131, which exceeded the minimum
offering amount of $1,500,000, and $1,517,431 of the funds (which
excluded all funds received from New York and Pennsylvania investors)
were released from escrow. As of October 31, 1996, the Partnership had
sold 368,665 units, representing $3,686,653 of capital contributed by
limited partners and all funds received from New York and Pennsylvania
investors had been released from escrow.
B-5
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund XVIII, Ltd.
We have audited the accompanying balance sheet of CNL Income Fund XVIII, Ltd. (a
development stage Florida limited partnership) as of December 31, 1995, and the
related statement of partners' capital for the period February 10, 1995 (date of
inception) through December 31, 1995. These financial statements are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements based on our audit.
We conducted our audit in accordance with generally accepted auditing standards.
Those standards require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund XVIII, Ltd. as
of December 31, 1995, and the changes in partners' capital for the period
February 10, 1995 (date of inception) through December 31, 1995 in conformity
with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Orlando, Florida
February 13, 1996
B-6
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
BALANCE SHEET
December 31, 1995
ASSETS
Cash $ 980
Prepaid expenses 20
Organization costs 10,000
Deferred syndication costs 245,890
---------
$ 256,890
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 22,130
Due to related parties 233,760
---------
Total liabilities 255,890
Partners' capital 1,000
$ 256,890
See accompanying notes to financial statements
B-7
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
STATEMENT OF PARTNERS' CAPITAL
February 10, 1995 (Date of Inception)
through December 31, 1995
General Limited
Partners Partners Total
Balance, February 10, 1995
(date of inception) $ - $ - $ -
Cash contributions 1,000 - 1,000
------ ------- ------
Balance, December 31, 1995 $1,000 $ - $1,000
====== ======= ======
See accompanying notes to financial statements
B-8
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
February 10, 1995 (Date of Inception)
through December 31, 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund XVIII, Ltd. (the
"Partnership") is a Florida limited partnership that was organized for
the purpose of acquiring both newly constructed and existing restaurant
properties, as well as properties upon which restaurants are to be
constructed, to be leased primarily to operators of national and
regional fast-food, family-style and casual dining restaurant chains.
As of December 31, 1995, the Partnership was a development stage
enterprise and operations had not begun.
The general partners of the Partnership are CNL Realty
Corporation (the "Corporate General Partner"), James M.
Seneff, Jr. and Robert A. Bourne. Mr. Seneff and Mr. Bourne
are also 50 percent shareholders of the Corporate General
Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Organization Costs - Organization costs will be amortized over five
years using the straight-line method once operations commence.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership will
be subject to certain state taxes on its income and property.
New Accounting Standard - In March 1995, the Financial Accounting
Standards Board issued Statement of Financial Accounting Standards No.
121, Accounting for the Impairment of Long-Lived Assets and for
Long-Lived Assets to Be Disposed Of. The Statement, which is effective
for fiscal years beginning after December 15, 1995, requires that an
entity review long-lived assets and certain identifiable intangibles,
to be held and used, for impairment whenever events or changes in
circumstances indicate that the carrying amount of the asset may not be
recoverable. The Partnership will adopt this standard in 1996. The
general partners believe adoption of this standard currently would not
have had a material effect on the Partnership's financial position.
B-9
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
February 10, 1995 (Date of Inception)
through December 31, 1995
2. Public Offering:
The Partnership, together with an affiliated newly-formed partnership,
CNL Income Fund XVII, Ltd. ("CNL XVII"), has filed a currently
effective registration statement on Form S- 11 with the Securities and
Exchange Commission. Under the terms of the registration statement, the
Partnership is authorized to sell a maximum of 3,500,000 units
($35,000,000) of limited partnership interest. The units will be
offered to the public on a "best efforts" basis (which means that no
one is guaranteeing that any minimum amount will be sold) through CNL
Securities Corp., the managing dealer, and other broker-dealers. The
offering will terminate not later than August 11, 1996, unless the
general partners elect to extend the offering to a date not later than
August 11, 1997, in states that permit such an extension.
The Partnership has and will continue to incur certain expenses of its
offering of units, including filing fees, legal, accounting, printing
and escrow fees, which will be deducted from the gross proceeds of the
offering. Preliminary costs incurred prior to raising capital have been
and will continue to be advanced by an affiliate of the general
partners. If the offering is not successful, the Partnership will not
be required to repay these amounts. Expenses of the offering of units
are expected to amount to 12 percent (assuming the minimum number of
units is sold; the total offering expenses are expected to decrease to
11.5% if the maximum number of units is sold of the gross offering
proceeds available to the Partnership). Of these amounts, the managing
dealer (an affiliate of the general partners) is to be paid 8.5% of the
gross offering proceeds in the form of selling commissions and 0.5% of
the gross offering proceeds as a due diligence expense reimbursement
fee. Other broker-dealers may be engaged as soliciting dealers to sell
units and may be reallowed selling commissions of up to eight percent
with respect to units which they sell. In addition, all or a portion of
the due diligence expense reimbursement fee may be reallowed to
soliciting dealers for reimbursement for bona fide expenses incurred in
connection with due diligence activities. The general partners have
agreed to pay all organizational and offering expenses, as defined in
the Partnership's prospectus, which exceed three percent of the gross
offering proceeds received from the sale of units of the Partnership.
B-10
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
February 10, 1995 (Date of Inception)
through December 31, 1995
2. Public Offering - Continued:
The first $30,000,000 of subscription funds received (3,000,000 units)
will be for units of CNL XVII, although the general partners have the
right to terminate the offering of units of CNL XVII at any time after
subscriptions aggregating at least 150,000 units ($1,500,000) have been
received and the funds have been released from escrow. As of December
31, 1995, CNL XVII had sold 569,692 units, representing $5,696,921 of
capital contributed by limited partners. After the termination of the
offering of units of CNL XVII, the next up to $30,000,000 of
subscription funds will be for units of the Partnership. The managing
dealer has the option to increase the offering of units of the
Partnership by up to $5,000,000 (500,000 units).
3. Deferred Syndication Costs:
As of December 31, 1995, syndication costs consisting of legal fees,
printing and other expenses which were incurred in connection with the
offering totalled $245,890. These syndication costs have been treated
as deferred costs and, once the Partnership's offering commences, will
be charged to the limited partners' capital accounts to reflect the net
capital proceeds of the offering. All organizational and offering
expenses, as defined in the Partnership's prospectus, which exceed
three percent of the total gross proceeds received from the sale of
units of the Partnership will be paid by the general partners and will
not be the responsibility of the Partnership.
4. Allocations and Distributions:
Generally, distributions of net cash flow, as defined in the limited
partnership agreement of the Partnership, will be made 95 percent to
the limited partners and five percent to the general partners;
provided, however, that for any particular year the five percent of net
cash flow to be distributed to the general partners will be
subordinated to receipt by the limited partners in that year of an
eight percent noncumulative, noncompounded return on their aggregate
invested capital contributions (the "Limited Partners' 8% Return").
B-11
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
February 10, 1995 (Date of Inception)
through December 31, 1995
4. Allocations and Distributions - Continued:
Generally, net income (determined without regard to any depreciation
and amortization deductions and gains and losses from the sale of
properties) will be allocated between the limited partners and the
general partners first, in an amount not to exceed the net cash flow
distributed to the partners attributable to such year in the same
proportions as such net cash flow is distributed; and thereafter, 99
percent to the limited partners and one percent to the general
partners. All deductions for depreciation and amortization will be
allocated 99 percent to the limited partners and one percent to the
general partners.
Net sales proceeds from the sale of a property generally will be
distributed first to the limited partners in an amount sufficient to
provide them with the return of their invested capital contributions,
plus their cumulative Limited Partners' 8% Return. The general partners
will then receive a return of their capital contributions and, to the
extent previously subordinated and unpaid, a five percent interest in
all net cash flow distributions. Any remaining net sales proceeds will
be distributed 95 percent to the limited partners and five percent to
the General Partners.
Any gain from the sale of a property will be, in general, allocated in
the same manner as net sales proceeds are distributable. Any loss will
be allocated first, on a pro rata basis to the partners with positive
balances in their capital accounts; and thereafter, 95 percent to the
limited partners and five percent to the general partners.
Notwithstanding the above allocations, at least one percent of each
material item of income and loss, including any gain or loss from the
sale of a property, will be allocated to the general partners.
5. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr.,
is one of the principal shareholders of CNL Group, Inc., the
parent company of CNL Securities Corp. and CNL Fund Advisors,
Inc. The other individual general partner, Robert A. Bourne,
is the president of CNL Securities Corp. and CNL Fund
Advisors, Inc.
B-12
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
February 10, 1995 (Date of Inception)
through December 31, 1995
5. Related Party Transactions - Continued:
CNL Securities Corp. is entitled to receive syndication fees amounting
to 8.5% of limited partners' contributions for services in connection
with selling limited partnership interests, a substantial portion of
which will be paid as commissions to other broker-dealers. As of
December 31, 1995, no such fees had been incurred.
In addition, CNL Securities Corp. is entitled to receive a due
diligence expense reimbursement fee equal to 0.5% of limited partners'
contributions, a portion of which may be reallowed to other
broker-dealers. As of December 31, 1995, no such fees had been
incurred.
CNL Fund Advisors, Inc. will be entitled to receive acquisition fees
for services in finding, negotiating and acquiring properties on behalf
of the Partnership equal to 4.5% of the limited partners'
contributions. As of December 31, 1995, no such fees had been incurred.
The Partnership and CNL Fund Advisors, Inc. will enter into a
management agreement pursuant to which CNL Fund Advisors, Inc. will
receive annual management fees of one percent of the sum of gross
revenues from properties wholly owned by the Partnership and the
Partnership's allocable share of gross revenues from joint ventures.
The management fee, which will not exceed fees which are competitive
for similar services in the same geographic area, may or may not be
taken, in whole or in part as to any year, in the sole discretion of
CNL Fund Advisors, Inc. All or any portion of the management fee not
taken as to any fiscal year shall be deferred without interest and may
be taken in such other fiscal year as CNL Fund Advisors, Inc. shall
determine. As of December 31, 1995, no management fees had been
incurred.
CNL Fund Advisors, Inc. also will be entitled to receive a deferred,
subordinated real estate disposition fee, payable upon the sale of one
or more properties based on the lesser of one-half of a competitive
real estate commission or three percent of the sales price if CNL Fund
Advisors, Inc. provides a substantial amount of services in connection
with the sale. The real estate disposition fee is payable only after
the limited partners receive their cumulative Limited Partners' 8%
B-13
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
February 10, 1995 (Date of Inception)
through December 31, 1995
5. Related Party Transactions - Continued:
Return and their invested capital contributions. No deferred,
subordinated real estate disposition fees have been incurred to date.
During the period February 10, 1995 (date of inception) through
December 31, 1995, CNL Fund Advisors, Inc. and its affiliates provided
accounting and administrative services to the Partnership, primarily in
connection with the registration of the offering, totalling $37,586,
which are included in deferred syndication costs at December 31, 1995.
The amount due to related parties at December 31, 1995, of $233,760
represents amounts due to CNL Fund Advisors, Inc. and its affiliates
for organizational and offering expenses incurred on behalf of the
Partnership and for accounting and administrative services. In the
event the minimum offering proceeds are not received by the
Partnership, the Partnership will have no obligation to repay such
amounts.
B-14
<PAGE>
Report of Independent Public Accountants
To the Stockholders
CNL Realty Corporation
We have audited the accompanying balance sheet of CNL Realty
Corporation as of December 31, 1995. This financial statement is the
responsibility of the Company's management. Our responsibility is to express an
opinion on this financial statement 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 balance sheet is free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the balance sheet. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall balance sheet presentation. We
believe that our audit of the balance sheet provides a reasonable basis for our
opinion.
In our opinion, the balance sheet referred to above presents fairly, in
all material respects, the financial position of CNL Realty Corporation as of
December 31, 1995, in conformity with generally accepted accounting principles.
/s/COOPERS & LYBRAND L.L.P.
Orlando, Florida
February 15, 1996
B-15
<PAGE>
CNL REALTY CORPORATION
BALANCE SHEETS
September 30,
1996 December 31,
ASSETS (Unaudited) 1995
Cash $ 213 $ 49
Investment in CNL Income
Fund Partnerships 1,233,369 1,018,346
---------- ----------
$1,233,582 $1,018,395
========== ==========
LIABILITIES AND
STOCKHOLDERS' EQUITY
Loans payable to stockholders $ 70,030 991,524
Loan payable to CNL Group, Inc. 1,171,248 -
Other payables to related parties 2,422 3,522
---------- ----------
Total liabilities 1,243,700 995,046
---------- ----------
Commitments and contingencies
(Note 5)
Stockholders' equity:
Common stock, $1 par value,
7,500 shares authorized,
1,000 shares issued and
outstanding 1,000 1,000
Retained earnings (Accumulated
deficit) (11,118) 22,349
---------- ----------
(10,118) 23,349
---------- ----------
$1,233,582 $1,018,395
========== ==========
See accompanying notes to balance sheets.
B-16
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEETS
September 30, 1996 and December 31, 1995
(Information with respect to September 30, 1996 is unaudited)
1. Organization and Significant Accounting Policy:
Organization - CNL Realty Corporation (the "Company") was incorporated
on November 26, 1985, under the laws of the State of Florida. The
Company is a general partner in CNL Income Fund, Ltd., CNL Income Fund
II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL
Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income
Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV,
Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and CNL
Income Fund XVIII, Ltd. (collectively, the "CNL Income Fund
Partnerships"), all of which were formed to acquire existing restaurant
properties, as well as properties upon which restaurants will be
constructed, to be leased primarily to operators of national and
regional fast-food, family-style and casual dining restaurant chains.
The other general partners in the CNL Income Fund Partnerships are
James M. Seneff, Jr. and Robert A. Bourne.
Use of Estimates - The Company's management has made a number of
estimates and assumptions relating to the reporting of assets and
liabilities and the disclosure of contingent assets and liabilities to
prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
2. Investment in CNL Income Fund Partnerships:
The Company accounts for its general partner interests in the CNL
Income Fund Partnerships under the equity method. The terms of the
limited partnership agreements of each of the CNL Income Fund
Partnerships are similar. Each agreement provides that allocations and
distributions among the general partners will be in such amounts as the
general partners agree among themselves. The general partners have
agreed that ten percent of their one percent interest in the CNL Income
Fund Partnerships will be allocated to CNL Realty Corporation.
B-17
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEETS - CONTINUED
September 30, 1996 and December 31, 1995
(Information with respect to September 30, 1996 is unaudited)
2. Investment in CNL Income Fund Partnerships - Continued:
The following table presents combined, summarized financial information
relating to the CNL Income Fund Partnerships at:
September 30,
1996 December 31,
(Unaudited) 1995
------------ ------------
Total assets $508,709,317 $486,778,595
Total liabilities 19,253,590 16,318,645
Limited partners'
equity 486,220,565 467,736,550
General partners'
equity:
CNL Realty
Corporation 1,233,369 1,018,346
Other 2,001,793 1,705,054
The Company had made total capital contributions of $1,012,905 and
$830,905 to the CNL Income Fund Partnerships as of September 30, 1996
and December 31, 1995, respectively.
In January 1996, the Company entered into two promissory notes which
provide for loans to certain of the CNL Income Fund Partnerships in the
aggregate amount of $112,500 in connection with the operations of the
CNL Income Fund Partnerships. The loans were uncollateralized, bore
interest at a rate of prime plus 0.25% per annum and were due on
demand. The outstanding balance of these loans, including interest of
approximately $860, was repaid to the Company as of September 30, 1996.
In addition, in April and July 1996, the Company entered into several
promissory notes which provide for loans to certain of the CNL Income
Fund Partnerships in the aggregate amounts of $151,900 and $254,000,
respectively, in connection with the operations of the CNL Income Fund
Partnerships. These loans were uncollateralized, non-interest bearing
and due on demand. These loans were repaid to the Company as of
September 30, 1996.
3. Income Taxes:
Effective January 1988, the Company made an election to be governed by
Subchapter S of the Internal Revenue Code. Taxable income is reported
by the stockholders on their individual income tax returns.
B-18
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEETS - CONTINUED
September 30, 1996 and December 31, 1995
(Information with respect to September 30, 1996 is unaudited)
4. Related Parties:
The Company and its stockholders have entered into two promissory notes
which provide for loans to the Company in the aggregate amount of
$1,500,000. The notes are uncol- lateralized and bear interest at rates
in accordance with the applicable federal rate prescribed by the
Internal Revenue Service. At September 30, 1996 and December 31, 1995,
the blended applicable federal rate was 5.77% and 6.58%, respectively.
Principal and interest are payable on demand or December 31, 1996,
whichever comes first.
The following presents the outstanding balances under these notes,
including accrued interest, at:
September 30,
1996 December 31,
(Unaudited) 1995
----------- -----------
James M. Seneff, Jr $ 35,015 $495,762
Robert A. Bourne 35,015 495,762
-------- --------
$ 70,030 $991,524
======== ========
In April 1996, the Company entered into a promissory note with CNL
Group, Inc., an affiliate of the Company, which provides for loans to
the Company in the aggregate amount of up to $500,000. In September
1996, the promissory note was amended to provide for loans to the
Company in the aggregate amount of up to $1,500,000. The note is
uncollateralized and bears interest at a rate of prime plus one percent
per annum. Principal and interest are payable on demand or December 31,
1997, whichever comes first. The loan payable to CNL Group, Inc. of
$1,171,248 includes accrued interest of $10,349 at September 30, 1996.
Affiliates of the stockholders provide accounting and administrative
services to the Company on a day-to-day basis. Other payables to
related parties at September 30, 1996 and December 31, 1995 of $2,422
and $3,522, respectively, represent amounts for such services and for
operating expenses that affiliates have paid on behalf of the Company.
B-19
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEETS - CONTINUED
September 30, 1996 and December 31, 1995
(Information with respect to September 30, 1996 is unaudited)
5. Commitments and Contingencies:
As one of the general partners in the CNL Income Fund Partnerships, the
Company will share in the liability for organizational and offering
expenses which exceed three percent of the gross offering proceeds.
Further, the general partners have agreed to contribute up to one
percent of the gross offering proceeds for partnership property
maintenance and repairs to the extent that the CNL Income Fund
Partnerships have insufficient funds for such purposes.
6. Subsequent Events:
In October 1996, the Company received additional advances under the
loan from CNL Group, Inc. totalling $430,000 in connection with the
promissory note described in Note 4. As of November 14, 1996, the
Company had repaid $239,000 of such amounts advanced.
In connection therewith, in October 1996, the Company entered into
three promissory notes which provide for loans to certain of the CNL
Income Fund Partnerships in the aggregate amount of $430,000 in
connection with the operations of the CNL Income Fund Partnerships. The
loans are uncollateralized, non-interest bearing and are due on demand.
As of November 14, 1996, $271,000 of these amounts had been repaid to
the Company.
In addition, in November 1996, the Company repaid the stockholders
$32,000 of amounts advanced under the promissory notes described in
Note 4.
7. Basis of Presentation of Unaudited Financial Statements:
In the opinion of management of the Company, the unaudited balance
sheet contains all adjustments (consisting of only normal recurring
accruals) necessary to present fairly the Company's financial position
as of September 30, 1996.
B-20
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
<PAGE>
EXHIBIT C
PRIOR PERFORMANCE TABLES
The information in this Exhibit C contains certain relevant summary
information concerning prior public partnerships sponsored by the individual
General Partners and their Affiliates which have investment objectives similar
to the Partnership (the "Prior Public Partnerships").
A more detailed description of the acquisitions by the Prior Public
Partnerships is set forth in Part II of the registration statement filed with
the Securities and Exchange Commission for this Offering and is available from
the General Partners upon request, without charge. In addition, upon request to
the General Partners, the General Partners will provide, without charge, a copy
of the most recent Annual Report on Form 10-K filed with the Securities and
Exchange Commission for CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL
Income Fund III, Ltd., CNL Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL
Income Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL
Income Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL
Income Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd.,
CNL Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd.
and CNL Income Fund XVIII, Ltd., as well as a copy, for a reasonable fee, of the
exhibits filed with such reports.
The investment objectives of the Prior Public Partnerships, which are
substantially the same as those of the Partnership, generally include
preservation and protection of partnership capital, the potential for increased
income and protection against inflation, potential for capital appreciation, and
partially tax-sheltered cash distributions, all through investment in restaurant
properties.
INVESTORS SHOULD NOT CONSTRUE INCLUSION OF THE FOLLOWING TABLES AS
IMPLYING THAT THE PARTNERSHIP WILL HAVE RESULTS COMPARABLE TO THOSE REFLECTED IN
SUCH TABLES. DISTRIBUTABLE CASH FLOW, FEDERAL INCOME TAX DEDUCTIONS, OR OTHER
FACTORS COULD BE SUBSTANTIALLY DIFFERENT. INVESTORS SHOULD NOTE THAT, BY
ACQUIRING UNITS IN THE PARTNERSHIP, THEY WILL NOT BE ACQUIRING ANY INTEREST IN
ANY PRIOR PUBLIC PARTNERSHIPS.
Description of Tables
The following Tables are included herein:
Table I - Experience in Raising and Investing Funds
Table II - Compensation to Sponsor
Table III - Operating Results of Prior Programs
Table V - Sales or Disposal of Properties
Unless otherwise indicated in the Tables, all information contained in
the Tables is as of June 30, 1996. The following is a brief description of the
Tables:
Table I - Experience in Raising and Investing Funds
Table I presents information on a percentage basis showing the
experience of the individual General Partners and their Affiliates in raising
and investing funds for the Prior Public Partnerships, the offerings of which
closed between October 1991 and September 1996.
The Table sets forth information on the offering expenses incurred and
amounts available for investment expressed as a percentage of total dollars
raised. The Table also shows the percentage of property acquisition cost
leveraged, the date the offering commenced, and the time required to raise funds
for investment.
Table II - Compensation to Sponsor
Table II provides information, on a total dollar basis, regarding
amounts and types of compensation paid to the general partners of the Prior
Public Partnerships.
The Table indicates the total offering proceeds and the portion of such
offering proceeds paid or to be paid to the General Partners and their
Affiliates in connection with the Prior Public Partnerships, the offerings of
which closed between October 1991 and September 1996. The Table also shows the
amounts paid to the General Partners and their Affiliates from cash generated
from operations and from cash generated from sales or refinancing by each of the
Prior Public Partnerships on a cumulative basis commencing with inception and
ending June 30, 1996.
C-1
<PAGE>
Table III - Operating Results of Prior Programs
Table III presents a summary of operating results for the period from
inception through June 30, 1996, of the Prior Public Partnerships, the offerings
of which closed between October 1991 and September 1996.
The Table includes a summary of income or loss of the Prior Public
Partnerships which are presented on the basis of generally accepted accounting
principles ("GAAP"). The Table also shows cash generated from operations, which
represents the cash generated from operations of the properties of the Prior
Public Partnerships, as distinguished from cash generated from other sources
(special items). The section of the Table entitled "Special Items" provides
information relating to cash generated from or used by items which are not
directly related to the operations of the properties of the Prior Public
Partnerships, but rather are related to items of a partnership nature. These
items include proceeds from capital contributions of limited partners, and
disbursements made from these sources of funds, such as syndication and
organizational costs, acquisition of the properties and other costs which are
related more to the organization of the partnership and the acquisition of
properties than to the actual operations of the partnerships.
The Table also presents information pertaining to investment income,
returns of capital on a GAAP basis, cash distributions from operations, sales
and refinancing proceeds expressed in total dollar amounts as well as
distributions and tax results on a per $1,000 investment basis.
Table IV - Results of Completed Programs
Table IV is omitted from this Exhibit C because none of the General
Partners or their Affiliates has been involved in completed public programs
which had investment objectives similar to those of the Partnership.
Table V - Sales or Disposal of Properties
Table V provides information regarding the sale or disposal of
properties owned by the Prior Public Partnerships between October 1991 and June
1996.
The Table includes the selling price of the property, the cost of the
property, the date acquired and the date of sale.
C-2
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income CNL Income
Fund X, Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- -----------
<S> <C>
Dollar amount offered $40,000,000 $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0% 100.0% 100.0%
----------- ----------- ----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5) (8.5) (8.5)
Organizational expenses (3.0) (3.0) (3.0) (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5) (0.5) (0.5) (0.5)
----------- ----------- ----------- ----------- -----------
(12.0) (12.0) (12.0) (12.0) (12.0)
----------- ----------- ----------- ----------- -----------
Reserve for operations -- -- -- -- --
----------- ----------- ----------- ----------- ----------
Percent available for
investment 88.0% 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== =========== ===========
Acquisition costs:
Cash down payment 83.0% 83.0% 83.0% 82.5% 82.5%
Acquisition fees paid
to affiliates 5.0 5.0 5.0 5.5 5.5
Loan costs -- -- -- -- --
----------- ----------- ----------- ----------- ----------
Total acquisition costs 88.0% 88.0% 88.0% 88.0% 88.0%
=========== =========== =========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- -- -- --
Date offering began 9/09/91 3/18/92 9/29/92 3/31/93 8/27/93
Length of offering (in
months) 6 6 6 5 6
Months to invest 90% of
amount available for
investment measured
from date of offering 7 6 11 10 11
</TABLE>
C-3
<PAGE>
TABLE I
EXPERIENCE IN RAISING AND INVESTING FUNDS
(continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ---------- -----------
(Note 1) (Note 1)
<S> <C>
Dollar amount offered $40,000,000 $45,000,000
=========== ===========
Dollar amount raised 100.0% 100.0%
----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5)
Organizational expenses (3.0) (3.0)
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated
entities) (0.5) (0.5)
----------- -----------
(12.0) (12.0)
----------- -----------
Reserve for operations -- --
----------- ----------
Percent available for
investment 88.0% 88.0%
=========== ===========
Acquisition costs:
Cash down payment 82.5% 82.5%
Acquisition fees paid
to affiliates 5.5 5.5
Loan costs -- --
----------- ----------
Total acquisition costs 88.0% 88.0%
=========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- --
Date offering began 2/23/94 9/02/94
Length of offering (in
months) 6 9
Months to invest 90% of
amount available for
investment measured
from date of offering 10 11
</TABLE>
Note 1: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995. Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. CNL Income Fund
XVII, Ltd. terminated its offering of Units on September 19, 1996, at
which time subscriptions for an aggregate 3,000,000 Units ($30,000,000)
had been received. Upon the termination of the offering of Units of
CNL Income Fund XVII, Ltd., CNL Income Fund XVIII, Ltd. commenced its
offering to the public of 3,500,000 Units ($35,000,000).
C-4
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income CNL Income
Fund X, Fund XI, Fund XII, Fund XIII, Fund XIV,
Ltd. Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ----------- -----------
<S> <C>
Date offering commenced 9/09/91 3/18/92 9/29/92 3/31/93 8/27/93
Dollar amount raised $40,000,000 $40,000,000 $45,000,000 $40,000,000 $45,000,000
=========== =========== =========== =========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,400,000 3,825,000 3,400,000 3,825,000
Real estate commissions - - - - -
Acquisition fees 2,000,000 2,000,000 2,250,000 2,200,000 2,475,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 200,000 225,000 200,000 225,000
----------- ----------- ----------- ----------- -----------
Total amount paid to sponsor 5,600,000 5,600,000 6,300,000 5,800,000 6,525,000
=========== =========== =========== =========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1996 (6 Months) 1,877,818 1,866,649 1,986,907 1,701,335 1,857,023
1995 3,603,470 3,758,271 3,928,473 3,482,461 3,823,939
1994 3,828,234 3,574,474 3,933,486 3,232,046 2,897,432
1993 3,499,905 3,434,512 3,320,549 1,148,550 329,957
1992 3,141,123 1,525,462 63,401 - -
1991 204,240 - - - -
1990 - - - - -
1989 - - - - -
1988 - - - - -
1987 - - - - -
1986 - - - - -
1985 - - - - -
1984 - - - - -
1983 - - - - -
1982 - - - - -
1981 - - - - -
1980 - - - - -
1979 - - - - -
1978 - - - - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1996 (6 Months) 55,272 55,339 55,932 53,682 57,121
1995 76,108 106,086 109,111 103,083 114,095
1994 42,741 76,533 84,524 83,046 84,801
1993 38,999 78,926 73,789 27,003 8,220
1992 39,505 30,237 2,031 - -
1991 2,834 - - - -
1990 - - - - -
1989 - - - - -
1988 - - - - -
1987 - - - - -
1986 - - - - -
1985 - - - - -
1984 - - - - -
1983 - - - - -
1982 - - - - -
1981 - - - - -
1980 - - - - -
1979 - - - - -
1978 - - - - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 1,057,386 - 1,640,000 286,411 696,012
Notes - - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - - -
Incentive fees - - - - -
Other - - - - -
</TABLE>
C-5
<PAGE>
TABLE II
COMPENSATION TO SPONSOR
(continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
----------- ---------- -------------- -----------
(Note 2) (Note 2)
<S> <C>
Date offering commenced 2/23/94 9/02/94
Dollar amount raised $40,000,000 $45,000,000
=========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000
Real estate commissions - -
Acquisition fees 2,200,000 2,475,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000
----------- ----------
Total amount paid to sponsor 5,800,000 6,525,000
=========== ==========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1996 (6 Months) 1,741,150 1,936,583
1995 3,361,477 2,619,840
1994 1,154,454 212,171
1993 - -
1992 - -
1991 - -
1990 - -
1989 - -
1988 - -
1987 - -
1986 - -
1985 - -
1984 - -
1983 - -
1982 - -
1981 - -
1980 - -
1979 - -
1978 - -
Amount paid to sponsor from
operations (administrative,
accounting and management
fees):
1996 (6 Months) 53,223 74,887
1995 122,107 138,445
1994 37,620 7,023
1993 - -
1992 - -
1991 - -
1990 - -
1989 - -
1988 - -
1987 - -
1986 - -
1985 - -
1984 - -
1983 - -
1982 - -
1981 - -
1980 - -
1979 - -
1978 - -
Dollar amount of property
sales and refinancing
before deducting payments
to sponsor:
Cash 811,706 775,000
Notes - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - -
Incentive fees - -
Other - -
</TABLE>
Note 1: During the year ended December 31, 1995, CNL Income Fund X, Ltd.
received proceeds of $7,200 for a small parcel of land as a result of
an easement relating to a certain property.
Note 2: Pursuant to a Registration Statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, CNL Income Fund
XVII, Ltd. and CNL Income Fund XVIII, Ltd. each registered for sale
$30,000,000 of units of limited partnership interest (the "Units"). The
offering of Units of CNL Income Fund XVII, Ltd. commenced September 2,
1995. Pursuant to the Registration Statement, the offering of Units of
CNL Income Fund XVIII, Ltd. could not commence until the offering of
Units of CNL Income Fund XVII, Ltd. had terminated. As of June 30,
1996, CNL Income Fund XVII, Ltd. was in the offering stage; therefore,
CNL Income Fund XVIII, Ltd. had not commenced its offering of Units. As
of June 30, 1996, CNL Income Fund XVII, Ltd. had sold 2,113,286 Units,
representing $21,132,863 of capital contributed by limited partners,
and 13 properties had been acquired. From commencement of the offering
through June 30, 1996, total selling commissions and discounts were
$1,796,293, due diligence expense reimbursement fees were $105,665, and
acquisition fees were $950,978, for a total amount paid to sponsor of
$2,852,936. CNL Income Fund XVII, Ltd. had cash generated from
operations for the period November 3, 1995 (the date funds were
originally released from escrow) through June 30, 1996, of $266,033.
CNL Income Fund XVII, Ltd. made payments of $47,754 to the sponsor from
operations for this period. CNL Income Fund XVII, Ltd. terminated its
offering of Units on September 19, 1996, at which time subscriptions
for an aggregate 3,000,000 Units ($30,000,000) had been received. Upon
the termination of the offering of Units of CNL Income Fund XVII, Ltd.,
CNL Income Fund XVIII, Ltd. commenced its offering to the public of
3,500,000 Units ($35,000,000).
C-6
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND X, LTD.
<TABLE>
<CAPTION>
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 80,723 $ 2,985,620 $ 3,729,533
Equity in earnings of unconsolidated
joint venture 0 0 184,425 273,564
Profit from sale of properties 0 0 0 0
Interest income 0 77,424 149,051 35,072
Less: Operating expenses 0 (7,078) (147,094) (178,294)
Interest expense 0 0 0 0
Depreciation and amortization 0 (5,603) (261,058) (215,143)
Minority interest in income of
consolidated joint venture 0 0 (4,902) (8,159)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 145,466 2,906,042 3,636,573
============ ============ ============ ============
Taxable income
- from operations 0 187,164 2,652,037 2,936,325
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 201,406 3,101,618 3,460,906
Cash generated from sales (Note 4) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 201,406 3,101,618 3,460,906
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (163,012) (2,760,446) (2,659,655)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 38,394 341,172 801,251
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 19,972,663 20,027,337 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (1,942,339) (1,880,824) 0
Acquisition of land and buildings 0 (7,317,942) (12,095,378) (316)
Investment in direct financing
leases 0 (3,024,796) (8,018,153) (46,364)
Investment in joint ventures 0 0 (3,687,069) 0
Return of capital from joint
ventures 0 0 0 0
Deposit received for sale of land
and building 0 0 0 0
Increase in other assets (78) (482,466) 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund X, Ltd. by
related parties 0 (815,938) (313,196) (544)
Distributions to holder of minority
interest 0 0 (5,729) (5,543)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 922 6,417,576 (5,631,840) 748,484
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 70 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-7
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND X, LTD.
(continued)
<TABLE>
<CAPTION>
6 Months
1994 1995 1996
------------ ------------ -------------
<S> <C>
Gross revenue $ 3,710,792 $ 3,544,446 $ 1,763,069
Equity in earnings of unconsolidated
joint venture 271,512 267,799 134,133
Profit from sale of properties 0 67,214 0
Interest income 46,456 72,600 30,695
Less: Operating expenses (138,507) (189,230) (116,253)
Interest expense 0 0 0
Depreciation and amortization (208,941) (201,696) (95,126)
Minority interest in income of
consolidated joint venture (8,471) (9,066) (3,986)
------------ ------------ ------------
Net income - GAAP basis 3,672,841 3,552,067 1,712,532
============ ============ ============
Taxable income
- from operations 3,212,304 2,956,800 1,447,328
============ ============ ============
- from gain on sale 0 50,819 0
============ ============ ============
Cash generated from operations
(Notes 2 and 5) 3,785,493 3,527,362 1,822,546
Cash generated from sales (Note 4) 0 1,057,386 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 3,785,493 4,584,748 1,822,546
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,017) (3,527,362) (1,822,546)
- from sale of properties 0 0 0
- from cash flow from prior period 0 (172,641) (17,454)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 285,476 884,745 (17,454)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 (359,506) (978)
Investment in direct financing
leases 0 (566,097) (1,542)
Investment in joint ventures 0 0 (129,503)
Return of capital from joint
ventures 0 0 0
Deposit received for sale of land
and building 0 69,000 0
Increase in other assets 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund X, Ltd. by
related parties 0 0 0
Distributions to holder of minority
interest (7,909) (7,998) (3,677)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 277,567 20,144 (153,154)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 80 73 36
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 1 0
============ ============ ============
</TABLE>
C-8
<PAGE>
TABLE III - CNL INCOME FUND X, LTD. (continued)
<TABLE>
<CAPTION>
1990
(Note 1) 1991 1992 1993
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 13 73 66
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 0 2 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 15 73 66
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 15 73 66
- from cash flow from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 15 73 66
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 0.00% 5.75% 7.38% 8.75%
Total cumulative cash distributions
per $1,000 investment from inception 0 15 88 154
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) N/A 100% 100% 100%
</TABLE>
C-9
<PAGE>
TABLE III - CNL INCOME FUND X, LTD. (continued)
<TABLE>
<CAPTION>
6 Months
1994 1995 1996
------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 88 87 42
- from capital gain 0 2 0
- from investment income from
prior period 0 4 4
- from return of capital (Note 3) 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 88 93 46
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 88 88 46
- from cash flow from prior
period 0 5 0
------------ ------------ ------------
Total distributions on cash basis
(Note 6) 88 93 46
============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 9.06% 9.03% 9.00%
Total cumulative cash distributions
per $1,000 investment from inception 242 335 381
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 4) 100% 99% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund X, Ltd. ("CNL X") and CNL
Income Fund IX, Ltd. each registered for sale $35,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund IX, Ltd. commenced March 20, 1991. Pursuant to the
registration statement, CNL X's offering of Units could not commence
until the offering of Units of CNL Income Fund IX, Ltd. was terminated.
CNL Income Fund IX, Ltd. terminated its offering of Units on September
6, 1991, at which time the maximum offering proceeds of $35,000,000 had
been received. Upon the termination of the offering of Units of CNL
Income Fund IX, Ltd., CNL X commenced its offering of Units.
Activities through September 24, 1991, were devoted to organization of
the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund X, Ltd. has not treated this amount as a return of capital for any
other purpose.
Note 4: In August 1995, CNL Income Fund X, Ltd. sold one of its properties and
received net sales proceeds of $1,050,186. In September 1995, the
partnership reinvested $928,122 in an additional property. In addition,
in January 1996, the partnership reinvested the remaining net sales
proceeds in an additional property as tenants-in-common with affiliates
of the general partners.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund X, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994 and 1995, are reflected in the 1994, 1995 and 1996 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994, 1995 and 1996, respectively. As a
result of 1994, 1995 and 1996 distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
Note 7: On December 31, 1994 and December 31, 1995, CNL Income Fund X, Ltd.
declared a special distribution of cumulative excess operating reserves
equal to .25% and .10%, respectively, of the total invested capital.
Accordingly, the total yield for 1994 and 1995 was 9.06% and 9.03%,
respectively.
Note 8: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 9: Certain data for columns representing less than 12 months have been
annualized.
C-10
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XI, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993
------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,269,086 $ 3,831,648
Equity in earnings of unconsolidated
joint ventures 0 33,367 121,059
Profit from sale of properties 0 0 0
Interest income 0 150,535 24,258
Less: Operating expenses 0 (63,390) (206,987)
Interest expense 0 0 0
Depreciation and amortization 0 (180,631) (469,127)
Minority interests in income of
consolidated joint ventures 0 (23,529) (68,399)
------------ ------------ ------------
Net income - GAAP basis 0 1,185,438 3,232,452
============ ============ ============
Taxable income
- from operations 0 1,295,104 2,855,026
============ ============ ============
- from gain on sale 0 0 0
============ ============ ============
Cash generated from operations
(Notes 2 and 4) 0 1,495,225 3,355,586
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,495,225 3,355,586
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (1,205,030) (2,495,002)
- from sale of properties 0 0 0
- from cash flow from prior period 0 0 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 290,195 860,584
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 40,000,000 0
General partners' capital
contributions 1,000 0 0
Minority interests' capital
contributions 0 426,367 0
Organization costs 0 (10,000) 0
Syndication costs 0 (3,922,875) 0
Acquisition of land and buildings 0 (26,428,556) (276,157)
Investment in direct financing
leases 0 (6,716,561) (276,206)
Investment in joint ventures 0 (1,658,925) (772)
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 (1,011,487) (900)
Increase in other assets 0 (122,024) 0
Distributions to holders of minority
interests 0 (17,467) (51,562)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 828,667 254,987
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 45 71
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-11
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XI, LTD.
(continued)
<TABLE>
<CAPTION>
6 Months
1994 1995 1996
------------ ------------ ------------
<S> <C>
Gross revenue $ 3,852,107 $ 3,820,990 $ 1,905,317
Equity in earnings of unconsolidated
joint ventures 119,370 118,384 56,598
Profit from sale of properties 0 0 0
Interest income 30,894 51,192 24,214
Less: Operating expenses (179,717) (237,126) (148,842)
Interest expense 0 0 0
Depreciation and amortization (481,226) (481,226) (240,613)
Minority interests in income of
consolidated joint ventures (68,936) (70,038) (34,437)
------------ ---------- -----------
Net income - GAAP basis 3,272,492 3,202,176 1,562,237
============ ========== ===========
Taxable income
- from operations 2,947,445 2,985,221 1,414,282
============ ========== ==========
- from gain on sale 0 0 0
============ ========== ==========
Cash generated from operations
(Notes 2 and 4) 3,497,941 3,652,185 1,811,310
Cash generated from sales 0 0 0
Cash generated from refinancing 0 0 0
------------ ---------- ----------
Cash generated from operations, sales
and refinancing 3,497,941 3,652,185 1,811,310
Less: Cash distributions to investors
(Note 5)
- from operating cash flow (3,400,001) (3,500,023) (1,790,012)
- from sale of properties 0 0 0
- from cash flow from prior period 0 0 0
------------ ---------- ----------
Cash generated (deficiency) after cash
distributions 97,940 152,162 21,298
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0 0
General partners' capital
contributions 0 0 0
Minority interests' capital
contributions 0 0 0
Organization costs 0 0 0
Syndication costs 0 0 0
Acquisition of land and buildings 0 0 0
Investment in direct financing
leases 0 0 0
Investment in joint ventures 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 0 0
Increase in other assets 0 0 0
Distributions to holders of minority
interests (57,641) (54,227) (27,839)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 40,299 97,935 (6,541)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 73 74 35
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 0 0
============ ============ ============
</TABLE>
C-12
<PAGE>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
<TABLE>
<CAPTION>
1991 6 Months
(Note 1) 1992 1993 1994 1995 1996
------------ ----------- ------------ ------------ ------------ ----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 41 62 81 79 39
- from capital gain 0 0 0 0 0 0
- from investment income from
prior period 0 0 0 4 9 5
- from return of capital (Note 3) 0 1 0 0 0 1
------------ ----------- ------------ ------------ ------------ ----------
Total distributions on GAAP basis
(Note 5) 0 42 62 85 88 45
============ =========== ============ ============ ============ ==========
Source (on cash basis)
- from sales 0 0 0 0 0 0
- from refinancing 0 0 0 0 0 0
- from operations 0 42 62 85 88 45
- from cash flow from prior
period 0 0 0 0 0 0
------------ ----------- ------------ ------------ ------------ ----------
Total distributions on cash basis
(Note 5) 0 42 62 85 88 45
============ =========== ============ ============ ============ ==========
Total cash distributions as a
percentage of original $1,000
investment (Notes 6 and 7) 0.00% 6.17% 8.31% 8.56% 8.78% 8.75%
Total cumulative cash distributions
per $1,000 investment from inception 0 42 104 189 277 322
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XI, Ltd. became effective on March 12, 1992. Activities
through April 22, 1992, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund XI, Ltd. has not treated this amount as a return of capital for
any other purpose.
Note 4: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XI, Ltd.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994 and 1995, are reflected in the 1994, 1995 and 1996 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994, 1995 and 1996, respectively. As a
result of 1994, 1995 and 1996 distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
Note 6: On December 31, 1995, CNL Income Fund XI, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .10% of
the total invested capital. Accordingly, the total yield for 1995 was
8.78%.
Note 7: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 8: Certain data for columns representing less than 12 months have been
annualized.
C-13
<PAGE>
C-14
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XII, LTD.
<TABLE>
<CAPTION>
1991 6 Months
(Note 1) 1992 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 25,133 $ 3,374,640 $ 4,397,881 $ 4,404,792 $ 2,171,212
Equity in earnings of joint ventures 0 46 49,604 85,252 81,582 55,297
Profit (Loss) from sale of properties 0 0 0 0 0 (15,355)
Interest income (Note 7) 0 45,228 190,082 65,447 84,197 49,199
Less: Operating expenses 0 (7,211) (193,804) (192,951) (228,404) (150,511)
Interest expense 0 0 0 0 0 0
Depreciation and amortization 0 (3,997) (286,293) (327,795) (327,795) (156,420)
------------ ------------ ------------ ------------ ---------- ----------
Net income - GAAP basis 0 59,199 3,134,229 4,027,834 4,014,372 1,953,422
============ ============ ============ ============ ========== ==========
Taxable income
- from operations 0 58,543 2,749,072 3,301,005 3,262,046 1,591,118
============ ============ ============ ============ ========== ==========
- from gain (loss) on sale 0 0 0 0 0 (66,395)
============ ============ ============ ============ ========== ==========
Cash generated from operations
(Notes 2 and 5) 0 61,370 3,246,760 3,848,962 3,819,362 1,930,975
Cash generated from sales (Note 7) 0 0 0 0 0 1,640,000
Cash generated from refinancing 0 0 0 0 0 0
------------ ------------ ------------ ------------ ---------- ----------
Cash generated from operations, sales
and refinancing 0 61,370 3,246,760 3,848,962 3,819,362 3,570,975
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (61,370) (1,972,769) (3,768,754) (3,819,362) (1,930,975)
- from sale of properties 0 0 0 0 0 0
- from return of capital (Note 4) 0 (60,867) 0 0 0 0
- from cash flow from prior period 0 0 0 0 (5,645) (26,529)
------------ ------------ ------------ ------------ ---------- ----------
Cash generated (deficiency) after cash
distributions 0 (60,867) 1,273,991 80,208 (5,645) 1,613,471
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,543,270 23,456,730 0 0 0
General partners' capital
contributions 1,000 0 0 0 0 0
Organization costs 0 (10,000) 0 0 0 0
Syndication costs 0 (2,066,937) (2,277,637) 0 0 0
Acquisition of land and buildings 0 (7,536,009) (15,472,737) (230) 0 0
Investment in direct financing
leases 0 (2,503,050) (11,875,100) (591) 0 0
Loan to tenant of joint venture,
net of repayments 0 0 (207,189) 6,400 7,008 3,774
Investment in joint ventures 0 (372,045) (468,771) (4,400) 0 (1,655,928)
Increase in restricted cash 0 0 0 0 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 (704,923) (432,749) 0 0 0
Increase in other assets 0 (654,497) 0 0 0 0
Other 0 0 0 973 0 0
------------ ------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 7,634,942 (6,003,462) 82,360 1,363 (38,683)
============ ============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 5 64 73 72 35
============ ============ ============ ============ ============ ============
- from recapture 0 0 0 0 0 0
============ ============ ============ ============ ============ ============
Capital gain (loss) 0 0 0 0 0 (1)
============ ============ ============ ============ ============ ============
</TABLE>
C-15
<PAGE>
C-16
<PAGE>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
<TABLE>
<CAPTION>
1991 6 Months
(Note 1) 1992 1993 1994 1995 1996
----------- ------------ ------------ ------------ ------------ ----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 5 46 84 85 44
- from capital gain 0 0 0 0 0 0
- from investment income from
prior period 0 0 0 0 0 0
- from return of capital (Note 3) 0 7 0 0 0 0
----------- ------------ ------------ ------------ ------------ ----------
Total distributions on GAAP basis
(Note 6) 0 12 46 84 85 44
=========== ============ ============ ============ ============ ==========
Source (on cash basis)
- from sales 0 0 0 0 0 0
- from refinancing 0 0 0 0 0 0
- from operations 0 6 46 84 85 43
- from return of capital (Note 4) 0 6 0 0 0 0
- from cash flow from prior period 0 0 0 0 0 1
----------- ------------ ------------ ------------ ------------ ----------
Total distributions on cash basis
(Note 6) 0 12 46 84 85 44
=========== ============ ============ ============ ============ ==========
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 0.00% 5.00% 6.75% 8.50% 8.53% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 0 12 58 142 227 271
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XII, Ltd. ("CNL XII") and CNL
Income Fund XI, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XI, Ltd. commenced March 12, 1992. Pursuant to the
registration statement, CNL XII could not commence until the offering
of Units of CNL Income Fund XI, Ltd. was terminated. CNL Income Fund
XI, Ltd. terminated its offering of Units on September 28, 1992, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XI, Ltd., CNL XII commenced its offering of Units. Activities
through October 8, 1992, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash distributions presented above as a return of capital on a GAAP
basis represent the amount of cash distributions in excess of
accumulated net income on a GAAP basis. Accumulated net income includes
deductions for depreciation and amortization expense and income from
certain non-cash items. This amount is not required to be presented as
a return of capital except for purposes of this table, and CNL Income
Fund XII, Ltd. has not treated this amount as a return of capital for
any other purpose.
Note 4: CNL Income Fund XII, Ltd. makes its distributions in the current period
rather than in arrears based on estimated operating results. In cases
where distributions exceed cash from operations in the current period,
once finally determined, subsequent distributions are lowered
accordingly in order to avoid any return of capital. This amount is not
required to be presented as a return of capital except for purposes of
this table, and CNL Income Fund XII, Ltd. has not treated this amount
as a return of capital for any other purpose.
Note 5: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XII, Ltd.
Note 6: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994 and 1995, are reflected in the 1994, 1995 and 1996 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994, 1995 and 1996, respectively. As a
result of 1994, 1995 and 1996 distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
C-17
<PAGE>
Note 7: In April 1996, CNL Income Fund XII, Ltd. sold one of its properties to
an unrelated third party for $1,640,000. As a result of this
transaction, CNL Income Fund XII, Ltd. recognized a loss of $15,355 for
financial reporting purposes primarily due to acquisition fees and
miscellaneous acquisition expenses CNL Income Fund XII, Ltd. had
allocated to this property. In May 1996, CNL Income Fund XII, Ltd.
reinvested the proceeds from this sale, along with additional funds,
for a total of $1,655,928 in Middleburg Joint Venture.
Note 8: On December 31, 1995, CNL Income Fund XII, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .10% of
the total invested capital. Accordingly, the total yield for 1995 was
8.53%.
Note 9: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 6 above)
Note 10: Certain data for columns representing less than 12 months have been
annualized.
C-18
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIII, LTD.
<TABLE>
<CAPTION>
1992 6 Months
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 966,564 $ 3,558,447 $ 3,806,944 $ 1,773,791
Equity in earnings of joint ventures 0 1,305 43,386 98,520 52,525
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (29,560) 0
Interest income 0 181,568 77,379 51,410 18,430
Less: Operating expenses 0 (59,390) (183,311) (214,705) (173,194)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (148,170) (378,269) (393,435) (196,717)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 941,877 3,117,632 3,319,174 1,474,835
============ ============ ============ ============ ============
Taxable income
- from operations 0 978,535 2,703,252 2,920,859 1,427,419
============ ============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0 0
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,121,547 3,149,000 3,379,378 1,647,653
Cash generated from sales (Note 4) 0 0 0 286,411 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,121,547 3,149,000 3,665,789 1,647,653
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (528,364) (2,800,004) (3,350,014) (1,647,653)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 (52,351)
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 0 593,183 348,996 315,775 (52,351)
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0 0
General partners' capital
contributions 1,000 0 0 0 0
Syndication costs 0 (3,932,017) (181) 0 0
Acquisition of land and buildings 0 (19,691,630) (5,764,308) (336,116) 0
Investment in direct financing leases 0 (6,760,624) (1,365,075) 0 0
Investment in joint ventures 0 (314,998) (545,139) (140,052) 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0 (799,980) (25,036) (3,074) 0
Increase in other assets 0 (454,909) 9,226 0 0
Other 0 0 0 954 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 8,639,025 (7,341,517) (162,513) (52,351)
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 67 72 35
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0 0
============ ============ ============ ============ ============
</TABLE>
C-19
<PAGE>
C-20
<PAGE>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
<TABLE>
<CAPTION>
1992 6 Months
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ -------- -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 18 70 82 37
- from capital gain 0 0 0 0 0
- from investment income from prior
period 0 0 0 2 6
------------ ------------ ------------ ------------ -----------
Total distributions on GAAP basis (Note 5) 0 18 70 84 43
============ ============ ============ ============ ===========
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 18 70 84 41
- from cash flow from prior period 0 0 0 0 2
------------ ------------ ------------ ------------ -----------
Total distributions on cash basis (Note 5) 0 18 70 84 43
============ ============ ============ ============ ===========
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 5.33% 7.56% 8.44% 8.50%
Total cumulative cash distributions per
$1,000 investment from inception 0 18 88 172 215
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
</TABLE>
Note 1: The registration statement relating to the offering of Units by CNL
Income Fund XIII, Ltd. became effective on March 17, 1993. Activities
through April 15, 1993, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIII, Ltd.
Note 4: During 1995, the partnership sold one of its properties to a tenant for
its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
to acquire an additional property. As a result of this transaction,
the partnership recognized a loss for financial reporting purposes of
$29,560 primarily due to acquisition fees and miscellaneous acquisition
expenses the partnership had allocated to the property and due to the
accrued rental income relating to future scheduled rent increases that
the partnership had recorded and reversed at the time of sale.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994 and 1995, are reflected in the 1994, 1995 and 1996 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994, 1995 and 1996, respectively. As a
result of 1994, 1995 and 1996 distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996, are not included in the 1994, 1995 and 1996
totals, respectively.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-21
<PAGE>
C-22
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIV, LTD.
<TABLE>
<CAPTION>
1992 6 Months
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266 $ 1,987,463
Equity in earnings of joint ventures 0 1,305 35,480 338,717 177,099
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (66,518) 0
Interest income 0 27,874 200,499 50,724 21,659
Less: Operating expenses 0 (14,049) (181,980) (248,840) (138,978)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112) (170,044)
------------ ------------ ------------ ------------ ------------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237 1,877,199
============ ============ ============ ============ ============
Taxable income
- from operations 0 278,845 2,482,240 3,162,165 1,570,651
============ ============ ============ ============ ============
- from gain on sale 0 0 0 0 0
============ ============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 321,737 2,812,631 3,709,844 1,799,902
Cash generated from sales (Note 4) 0 0 0 696,012 0
Cash generated from refinancing 0 0 0 0 0
------------ ------------ ------------ ------------ ------------
Cash generated from operations, sales 1,799,902
and refinancing 0 321,737 2,812,631 4,405,856
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751) (1,799,902)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 (56,358)
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 312,687 582,679 862,105 (56,358)
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 28,785,100 16,214,900 0 0
General partners' capital
contributions 1,000 0 0 0 0
Syndication costs 0 (2,771,892) (1,618,477) 0 0
Acquisition of land and buildings 0 (13,758,004) (11,859,237) (964,073) 0
Investment in direct financing leases 0 (4,187,268) (5,561,748) (75,352) 0
Investment in joint ventures 0 (315,209) (1,561,988) (1,087,218) 0
Return of capital from joint venture 0 0 0 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIV, Ltd. by related parties 0 (706,215) (376,738) (577) 0
Increase in other assets 0 (444,267) 0 0 0
Other 0 0 0 5,530 0
------------ ------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 6,914,932 (4,180,609) (1,259,585) (56,358)
============ ============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70 35
============ ============ ============ ============ ============
- from recapture 0 0 0 0 0
============ ============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0 0
============ ============ ============ ============ ============
</TABLE>
C-23
<PAGE>
C-24
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
<TABLE>
<CAPTION>
1992 6 Months
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ ------------ ---------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79 41
- from capital gain 0 0 0 0 0
- from return of capital 0 0 0 0 0
------------ ------------ ------------ ------------ ---------
Total distributions on GAAP basis (Note 5) 0 1 51 79 41
============ ============ ============ ============ =========
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 1 51 79 40
- from cash flow from prior period 0 0 0 0 1
------------ ------------ ------------ ------------ ---------
Total distributions on cash basis (Note 5) 0 1 51 79 41
============ ============ ============ ============ =========
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 4.50% 6.50% 8.06% 8.25%
Total cumulative cash distributions
per $1,000 investment from inception 0 1 52 131 172
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100% 100%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XIV, Ltd. ("CNL XIV") and CNL
Income Fund XIII, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XIII, Ltd. commenced March 17, 1993. Pursuant to the
registration statement, CNL XIV could not commence until the offering
of Units of CNL Income Fund XIII, Ltd. was terminated. CNL Income Fund
XIII, Ltd. terminated its offering of Units on August 26, 1993, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XIII, Ltd., CNL XIV commenced its offering of Units. Activities
through September 13, 1993, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint ventures, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XIV, Ltd.
Note 4: During 1995, the partnership sold two of its properties to a tenant for
its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The net sales proceeds were used
to acquire two additional properties. As a result of these
transactions, the partnership recognized a loss for financial reporting
purposes of $66,518 primarily due to acquisition fees and miscellaneous
acquisition expenses the partnership had allocated to the property and
due to the accrued rental income relating to future scheduled rent
increases that the partnership had recorded and reversed at the time of
sale.
Note 5: As a result of the partnership's change in investor services agents in
1993, distributions are now declared at the end of each quarter and
paid in the following quarter. Since this table generally presents
distributions on a cash basis (rather than amounts declared),
distributions on a cash basis for 1993 only reflect payments for three
quarters. Distributions declared for the quarters ended December 31,
1993, 1994 and 1995, are reflected in the 1994, 1995 and 1996 columns,
respectively, for distributions on a cash basis due to the payment of
such distributions in January 1994, 1995 and 1996, respectively. As a
result of 1994, 1995 and 1996 distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-25
<PAGE>
C-26
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XV, LTD.
<TABLE>
<CAPTION>
1993 6 Months
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320 $ 1,799,609
Equity in earnings of joint venture 0 8,372 280,606 144,539
Profit (Loss) from sale of properties
(Note 4) 0 0 (71,023) 0
Interest income 0 167,734 88,059 21,155
Less: Operating expenses 0 (62,926) (228,319) (138,719)
Interest expense 0 0 0 0
Depreciation and amortization 0 (70,848) (243,175) (124,093)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468 1,702,491
============ ============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912 1,399,634
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,116,834 3,239,370 1,687,927
Cash generated from sales (Note 4) 0 0 811,706 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,116,834 4,051,076 1,687,927
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (635,944) (2,650,003) (1,600,000)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 480,890 1,401,073 87,927
Special items (not including sales and
refinancing):
Limited partners' capital contra-
bunions 0 40,000,000 0 0
General partners' capital contra-
bunions 1,000 0 0 0
Syndication costs 0 (3,892,003) 0 0
Acquisition of land and buildings 0 (22,152,379) (1,625,601) 0
Investment in direct financing
leases 0 (6,792,806) (2,412,973) 0
Investment in joint venture 0 (1,564,762) (720,552) (145,526)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XV, Ltd. by related parties 0 (1,098,197) (23,507) 0
Increase in other assets 0 (187,757) 0 0
Other (38) (6,118) 25,150 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 962 4,786,868 (3,356,410) (57,599)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71 35
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-27
<PAGE>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 Months
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66 40
- from capital gain 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 21 66 40
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 21 66 40
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 21 66 40
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 5.00% 7.25% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 21 87 127
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100% 100% 100%
Note 1: The registration statement relating to this offering of Units of CNL
Income Fund XV, Ltd. became effective February 23, 1994. Activities
through March 23, 1994, were devoted to organization of the partnership
and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
plus distributions from joint venture, less cash paid for expenses,
plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XV, Ltd.
Note 4: During 1995, the partnership sold three of its properties to a tenant
for its original purchase price, excluding acquisition fees and
miscellaneous acquisition expenses. The majority of the net sales
proceeds were used to acquire additional properties. As a result of
these transactions, the partnership recognized a loss for financial
reporting purposes of $71,023 primarily due to acquisition fees and
miscellaneous acquisition expenses the partnership had allocated to the
three properties and due to the accrued rental income relating to
future scheduled rent increases that the partnership had recorded and
reversed at the time of sale.
Note 5: Distributions declared for the quarters ended December 31, 1994 and
1995 are reflected in the 1995 and 1996 columns, respectively, due to
the payment of such distributions in January 1995 and 1996,
respectively. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-28
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVI, LTD.
</TABLE>
<TABLE>
<CAPTION>
1993 6 Months
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 2,143,589
Profit from sale of properties (Note 5) 0 0 0 124,305
Interest income 0 21,478 321,137 43,562
Less: Operating expenses 0 (10,700) (274,595) (148,823)
Interest expense 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (270,831)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 187,577 2,430,841 1,891,802
============ ============ ============ ============
Taxable income
- from operations 0 189,864 2,139,382 1,550,241
============ ============ ============ ============
- from gain on sale (Note 5) 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 1,861,696
Cash generated from sales (Note 5) 0 0 0 775,000
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 205,148 2,481,395 2,636,696
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (2,845) (1,798,921) (1,631,251)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,005,445
Special items (not including sales and
refinancing):
Limited partners' capital contra-
bunions 0 20,174,172 24,825,828 0
General partners' capital contra-
bunions 1,000 0 0 0
Syndication costs 0 (1,929,465) (2,452,743) 0
Acquisition of land and buildings 0 (13,170,132) (16,012,458) (2,392,562)
Investment in direct financing
leases 0 (975,853) (5,595,236) (382,372)
Increase in restricted cash 0 0 0 (775,000)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVI, Ltd. by related parties 0 (854,154) (405,569) 0
Collection of overpayment of acquit-
cyton and syndication costs paid
by related parties on behalf of the
partnership 0 0 0 1,204
Increase in other assets 0 (443,625) (58,720) 0
Other (36) (20,714) 20,714 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 964 2,982,532 1,004,290 (2,543,285)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 34
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 5) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-29
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993 6 Months
(Note 1) 1994 1995 1996
------------ ------------ ------------ --------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 33
- from capital gain 0 0 0 3
- from investment income from
prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 4) 0 1 45 36
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 45 36
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 4) 0 1 45 36
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 4.50% 6.00% 8.00%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 82
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Note 5) N/A 100% 100% 98%
</TABLE>
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVI, Ltd. ("CNL XVI") and CNL
Income Fund XV, Ltd. each registered for sale $40,000,000 units of
limited partnership interests ("Units"). The offering of Units of CNL
Income Fund XV, Ltd. commenced February 23, 1994. Pursuant to the
registration statement, CNL XVI could not commence until the offering
of Units of CNL Income Fund XV, Ltd. was terminated. CNL Income Fund
XV, Ltd. terminated its offering of Units on September 1, 1994, at
which time the maximum offering proceeds of $40,000,000 had been
received. Upon the termination of the offering of Units of CNL Income
Fund XV, Ltd., CNL XVI commenced its offering of Units. Activities
through September 22, 1994, were devoted to organization of the
partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVI, Ltd.
Note 4: Distributions declared for the quarters ended December 31, 1994 and
1995 are reflected in the 1995 and 1996 columns, respectively, due to
the payment of such distributions in January 1995 and 1996,
respectively. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of December 31, 1994 and
1995, and June 30, 1996 are not included in the 1994, 1995 and 1996
totals, respectively.
Note 5: In April 1996, CNL Income Fund XVI, Ltd. sold one of its properties for
$775,000, resulting in a gain for financial reporting purposes of
$124,305. As of June 30, 1996, the net sales proceeds of $775,000,
plus accrued interest of $3,526, were being held in an interest-bearing
escrow account. The general partners believe that the sale of this
property will qualify as a like-kind exchange transaction in accordance
with Section 1031 of the Internal Revenue Code. As a result, no gain
or loss was recognized for federal income tax purposes. The remaining
net sales proceeds are expected to be invested in an additional
property or used for other Partnership purposes.
Note 6: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 5 above)
Note 7: Certain data for columns representing less than 12 months have been
annualized.
C-30
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVII, LTD.
1995 6 Months
(Note 1) 1996
------------ ------------
Gross revenue $ 0 $ 264,636
Profit from sale of properties 0 0
Interest income 12,153 102,696
Less: Operating expenses (3,493) (68,597)
Interest expense 0 0
Depreciation and amortization (309) (32,931)
------------ ------------
Net income - GAAP basis 8,351 265,804
============ ============
Taxable income
- from operations 12,153 254,708
============ ============
- from gain on sale 0 0
============ ============
Cash generated from operations
(Notes 2 and 3) 9,012 257,021
Cash generated from sales 0 0
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 9,012 257,021
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (1,199) (142,120)
- from sale of properties 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions 7,813 114,901
Special items (not including sales and
refinancing):
Limited partners' capital contra-
bunions 5,696,921 15,435,942
General partners' capital contra-
bunions 1,000 0
Syndication costs (604,348) (1,544,293)
Acquisition of land and buildings (332,928) (10,087,458)
Investment in direct financing
leases 0 (1,258,674)
Increase in restricted cash 0 0
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XVII, Ltd. by related parties (347,907) (339,105)
Increase in other assets (221,282) (65,775)
Other (410) 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 2,255,538
============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 194
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 0
============ ============
C-31
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
1995 6 Months
(Note 1) 1996
------------ ------------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 108
- from capital gain 0 0
- from investment income from
prior period 0 0
------------ ------------
Total distributions on GAAP basis (Note 4) 0
============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 4 108
------------ ------------
Total distributions on cash basis (Note 4) 4 108
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 0.00% 5.17%
Total cumulative cash distributions per
$1,000 investment from inception 4 112
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) N/A 100%
Note 1: Pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, CNL Income Fund XVII, Ltd. ("CNL XVII") and
CNL Income Fund XVIII, Ltd. each registered for sale $30,000,000 units
of limited partnership interests ("Units"). The offering of Units of
CNL Income Fund XVII, Ltd. commenced September 2, 1995. Pursuant to
the registration statement, CNL XVIII could not commence until the
offering of Units of CNL Income Fund XVII, Ltd. was terminated. CNL
Income Fund XVII, Ltd. terminated its offering of Units on September
19, 1996, at which time subscriptions for the maximum offering proceeds
of $30,000,000 had been received. Upon the termination of the offering
of Units of CNL Income Fund XVII, Ltd., CNL XVIII commenced its
offering of Units. Activities through September 30, 1996, were devoted
to organization of the partnership and operations had not begun.
Note 2: Cash generated from operations includes cash received from tenants,
less cash paid for expenses, plus interest received.
Note 3: Cash generated from operations per this table agrees to cash generated
from operations per the statement of cash flows included in the
financial statements of CNL Income Fund XVII, Ltd.
Note 4: Distributions declared for the quarter ended December 31, 1995 are
reflected in the 1996 column due to the payment of such distributions
in January 1996. As a result of distributions being presented on a cash
basis, distributions declared and unpaid as of June 30, 1996 are not
included in the 1996 totals.
Note 5: Total cash distributions as a percentage of original $1,000 investment
are calculated based on actual distributions declared for the period.
(See Note 4 above)
Note 6: Certain data for columns representing less than 12 months have been
annualized.
C-32
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
=========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
----------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
=========================================================================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 02/05/87 06/12/92 $1,169,021 0 0 0 $1,169,021
Wendy's -
Fairfield, CA 07/01/87 10/03/94 1,018,490 0 0 0 1,018,490
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 05/29/87 07/21/93 746,800 0 0 0 746,800
Pizza Hut -
Graham, TX 08/24/87 07/28/94 261,628 0 0 0 261,628
Golden Corral -
Medina, OH 11/18/87 11/30/94 626,582 0 0 0 626,582
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 03/22/89 04/27/94 712,000 0 0 0 712,000
Burger King -
Hastings, MI 08/12/88 12/15/95 518,650 0 0 0 518,650
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 02/28/90 08/25/95 0 0 1,040,000 0 1,040,000
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 11/02/89 05/24/94 791,211 0 0 0 791,211
Hardee's -
Heber Springs, AR 02/13/90 05/24/94 638,270 0 0 0 638,270
Hardee's -
Little Canada, MN 11/28/89 06/29/95 899,503 0 0 0 899,503
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
===================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
===================================================================================
<S> <C>
CNL Income Fund, Ltd.:
Burger King -
San Dimas, CA 0 $955,000 $955,000 $214,021
Wendy's -
Fairfield, CA 0 861,500 861,500 156,990
CNL Income Fund II, Ltd.:
Golden Corral -
Salisbury, NC 0 642,800 642,800 104,000
Pizza Hut -
Graham, TX 0 205,500 205,500 56,128
Golden Corral -
Medina, OH 0 743,000 743,000 (116,418)
CNL Income Fund IV, Ltd.:
Taco Bell -
York, PA 0 616,501 616,501 95,499
Burger King -
Hastings, MI 0 419,936 419,936 98,714
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
CNL Income Fund VI, Ltd.:
Hardee's -
Batesville, AR 0 605,500 605,500 185,711
Hardee's -
Heber Springs, AR 0 532,893 532,893 105,377
Hardee's -
Little Canada, MN 0 821,692 821,692 77,811
</TABLE>
C-33
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
==========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
-----------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
==========================================================================================================
<S> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 06/14/90 05/19/92 700,000 0 0 0 700,000
Hardee's -
St. Paul, MN 08/09/90 05/24/94 869,036 0 0 0 869,036
Perkins -
Florence, SC (3) 08/28/90 08/25/95 0 0 1,160,000 0 1,160,000
Church's Fried Chicken -
Jacksonville, FL (4) 04/30/90 12/01/95 0 0 240,000 0 240,000
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 03/16/91 07/31/95 1,184,865 0 0 0 1,184,865
Church's Fried Chicken -
Jacksonville, FL (4) 09/28/90 12/01/95 0 0 240,000 0 240,000
Church's Fried Chicken -
Jacksonville, FL (5) 09/28/90 12/01/95 0 0 220,000 0 220,000
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 03/04/92 08/11/95 1,050,186 0 0 0 1,050,186
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 12/28/92 04/10/96 1,640,000 0 0 0 1,640,000
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 03/31/94 04/24/95 286,411 0 0 0 286,411
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
=================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
=================================================================================
<S> <C>
CNL Income Fund VII, Ltd.:
Taco Bell -
Kearns, UT 0 560,202 560,202 139,798
Hardee's -
St. Paul, MN 0 742,333 742,333 126,703
Perkins -
Florence, SC (3) 0 1,084,905 1,084,905 75,095
Church's Fried Chicken -
Jacksonville, FL (4) 0 233,728 233,728 6,272
CNL Income Fund VIII, Ltd.:
Denny's -
Ocoee, FL 0 949,199 949,199 235,666
Church's Fried Chicken -
Jacksonville, FL (4) 0 238,153 238,153 1,847
Church's Fried Chicken -
Jacksonville, FL (5) 0 215,845 215,845 4,155
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
CNL Income Fund XII, Ltd.:
Golden Corral -
Houston, TX 0 1,636,643 1,636,643 3,357
CNL Income Fund XIII, Ltd.:
Checkers -
Houston, TX 0 286,411 286,411 0
</TABLE>
C-34
<PAGE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
<TABLE>
<CAPTION>
===========================================================================================================
Selling Price, Net of
Closing Costs and GAAP Adjustments
------------------------------------------------
Purchase
Cash money Adjustments
received Mortgage mortgage resulting
net of balance taken from
Date Date of closing at time back by application
Property Acquired Sale costs of sale program of GAAP Total
===========================================================================================================
<S> <C>
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 03/31/94 03/01/95 339,031 0 0 0 339,031
Checkers -
Dallas, TX 03/31/94 03/01/95 356,981 0 0 0 356,981
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 05/27/94 03/01/95 263,221 0 0 0 263,221
Checkers -
Leavenworth, KS 06/22/94 03/01/95 259,600 0 0 0 259,600
Checkers -
Knoxville, TN 07/08/94 03/01/95 288,885 0 0 0 288,885
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 06/24/95 04/24/96 775,000 0 0 0 775,000
</TABLE>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
(continued)
<TABLE>
<CAPTION>
====================================================================================
Cost of Properties
Including Closing and
Soft Costs
--------------------------------
Excess
Total (deficiency)
acquisition of property
cost, capital operating cash
Original improvements receipts over
mortgage closing and cash
Property financing soft costs (1) Total expenditures
====================================================================================
<S> <C>
CNL Income Fund XIV, Ltd.:
Checkers -
Knoxville, TN 0 339,031 339,031 0
Checkers -
Dallas, TX 0 356,981 356,981 0
CNL Income Fund XV, Ltd.:
Checkers -
Knoxville, TN 0 263,221 263,221 0
Checkers -
Leavenworth, KS 0 259,600 259,600 0
Checkers -
Knoxville, TN 0 288,885 288,885 0
CNL Income Fund XVI, Ltd.:
Long John Silver's -
Appleton, WI 0 613,838 613,838 161,162
</TABLE>
(1) Amounts shown do not include pro rata share of original offering costs or
acquisition fees.
(2) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,006,004 in July 2000.
(3) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.25% per annum and provides
for a balloon payment of $1,106,657 in July 2000.
(4) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.00% per annum and
provides for a balloon payment of $218,252 in December 2005.
(5) Amount shown is face value and does not represent discounted current value.
The mortgage note bears interest at a rate of 10.00% per annum and provides
for a balloon payment of $200,324 in December 2005.
C-35
<PAGE>
EXHIBIT D
DISTRIBUTION REINVESTMENT PLAN
<PAGE>
DISTRIBUTION REINVESTMENT PLAN
CNL INCOME FUND , LTD., a Florida limited partnership (the "Partnership"),
governed by the Amended and Restated Agreement of Limited Partnership, dated as
of _________ __, 199__, adopted a Distribution Reinvestment Plan (the "Plan") on
the terms and conditions set forth below. Any capitalized terms used but not
otherwise defined herein shall have the respective meanings given to them in the
Partnership Agreement.
1. Reinvestment of Distributions. MMS Escrow and Transfer Agency, Inc., the
agent (the "Reinvestment Agent") for participants (the "Participants") in the
Plan, will receive all cash distributions paid by the Partnership with respect
to units of limited partnership interest in the Partnership (the "Units") owned
by each Participant (collectively, the "Distributions"). The Reinvestment Agent
will apply such Distributions, after deducting applicable administrative charges
and expenses as specified in Paragraph 8 below, as follows:
(a) Prior to the termination of the public offering of Units, the
Reinvestment Agent will invest Distributions in Units acquired from the
Partnership at the public offering price per Unit. Commissions will be paid
to the broker who made the initial sale of Units to the Participant at the
same rate as for initial purchases. Accordingly, the Partnership will pay
the Managing Dealer Selling Commissions of 8.5% (subject to reduction under
certain conditions) and a due diligence fee of 0.5%. CNL Fund Advisors,
Inc. will receive Acquisition Fees of 4.5% of the purchase price of the
Units sold pursuant to the Distribution Reinvestment Plan will be paid to
until the termination of the offering.
(b) After termination of the public offering of Units, the Reinvestment
Agent will purchase Units from Limited Partners for the Participants'
accounts to the extent such Units are available for purchase and subject,
in all cases, to the General Partners' good faith judgment that such
purchases are within the safe harbors made available by sections 7704,
512(c)(2), or 469(k) of the Internal Revenue Code of 1986, as amended. The
Reinvestment Agent will provide such information to the General Partners
regarding transfers of Units as the General Partners may reasonably request
and consult with the General Partners before purchasing Units to assure
that the Partnership remains in compliance with the safe harbors referred
to above. No commissions will be payable on such purchases.
(c) Units will be purchased from selling Limited Partners in negotiated
transactions at a purchase price that is competitive with prevailing market
prices and on such other terms as the Reinvestment Agent shall determine.
(d) For each Participant, the Reinvestment Agent will maintain an
account which shall reflect for each fiscal quarter the Distributions
received by the Reinvestment Agent on behalf of such Participant. A
Participant's account shall be reduced as purchases of Units are made on
his behalf. At the end of each fiscal quarter, the Reinvestment Agent shall
disburse to each Participant an amount equal to the balance in such
Participant's account, as reduced by the administrative charges and
expenses specified in Paragraph 8 below and any handling fees charged by
the Reinvestment Agent.
(e) Distributions shall be invested by the Reinvestment Agent in Units
promptly following the payment date with respect to such Distributions to
the extent Units are available and subject to the limitations described in
Paragraph 1(b). If sufficient Units are not available, Distributions shall
be invested on behalf of the Participants in one or more interest-bearing
accounts in Plaza Bank of Commerce, San Jose, California, or in another
commercial bank approved by the General Partners which is located in the
continental United States and has assets of at least $100,000,000, until
Units are available for purchase, provided that any such funds that have
not been invested in Units within 30 days after receipt by the Reinvestment
Agent and, in any event, by the end of the fiscal quarter in which they are
received, will be distributed to the Participants in accordance with
Paragraph 1(d). The interest earned on such accounts will be paid to the
Partnership to the extent necessary to pay for any administrative expenses
relating to the costs of the Plan and any excess remaining thereafter shall
be distributed, in its entirety, to the General Partners.
(f) Each Participant during a fiscal quarter will acquire and own a pro
rata portion of each Unit acquired pursuant to the Plan during such
quarter, based on the amount in the Participant's account at the time the
Unit is acquired. The ownership of the Units shall be reflected on the
books of the Partnership and in each Partner's Capital Account. The
allocation of Units among Participants may result in the ownership of
fractional Units, computed to four decimal places.
(g) Distributions attributable to Units purchased on behalf of the
Participants pursuant to the Plan will be reinvested in additional Units in
accordance with the terms hereof.
(h) No certificates will be issued to a Participant for Units purchased
on behalf of the Participant pursuant to the Plan. Participants in the
Reinvestment Plan will receive statements of account in accordance with
Paragraph 7 below.
2. Election to Participate. An investor who participates in the initial
public offering of Units and who has received a copy of the final prospectus
included in the Partnership's registration statement on Form S-11 filed with the
Securities and Exchange Commission may elect to participate in and purchase
Units through the Plan at any time by written notice to the General Partners and
would not need to receive a separate prospectus relating solely to the Plan.
Persons not purchasing Units in the initial Offering who want to participate in
the Distribution Reinvestment Plan must receive a separate prospectus relating
solely to the Distribution Reinvestment Plan. California residents may not
participate in the Reinvestment Plan. Any Limited Partner who has not previously
elected to participate in the Plan may so elect at any time by written notice to
the General Partners of his or her desire to participate in the Plan.
Participation in the Plan will commence with the next Distribution payable after
receipt of the Participant's notice, provided it is received more than ten days
prior to the last day of the fiscal quarter to which such Distribution relates.
Subject to the preceding sentence, regardless of the date of such election, a
Limited Partner will become a Participant in the Plan effective on the first day
of the fiscal quarter following such election, and the election will apply to
all Distributions attributable to the fiscal quarter in which the Limited
Partner makes such written election to participate in the Plan and to all fiscal
quarters thereafter. Limited Partners who elect the monthly distribution option
are not eligible to participate in the Plan.
3. Distribution of Funds. In making purchases for Participants' accounts,
the Reinvestment Agent may commingle Distributions attributable to Units owned
by Participants in the Plan.
4. Purchase of Outstanding Units. After termination of the public offering
of Units, outstanding Units will be purchased by the Reinvestment Agent from
Limited Partners who have provided the General Partners with written notice of
their desire to sell all or a portion of their Units, subject to the limitations
described in Paragraph 1(b). Purchases of Units will be made only to the extent
funds are available, and on a first-come, first-served basis, determined in
accordance with the date a properly completed written request is received by the
General Partners. All repurchases will become effective in accordance with the
provisions and limitations set forth in Article Fourteen of the Partnership
Agreement.
D-1
<PAGE>
5. Absence of Liability. Neither the Partnership, the General Partners, nor
the Reinvestment Agent shall have any responsibility or liability as to the
value of the Partnership's Units, any change in the value of the Units acquired
for the Participant's account, or the rate of return earned on, or the value of,
the interest-bearing accounts, in which Distributions are invested. Neither the
Partnership, the General Partners, nor the Reinvestment Agent shall be liable
for any act done in good faith, or for any good faith omission to act,
including, without limitation, any claims of liability (a) arising out of the
failure to terminate a Participant's participation in the Plan upon such
Participant's death prior to receipt of notice in writing of such death and the
expiration of 15 days from the date of receipt of such notice and (b) with
respect to the time and the prices at which Units are purchased for a
Participant. Notwithstanding the foregoing, liability under the federal
securities laws cannot be waived.
6. Suitability.
(a) Within 60 days prior to the end of each fiscal year, CNL Securities
Corp., the managing dealer of the offering ("CSC"), will mail to each
Participant a participation agreement (the "Participation Agreement"), in
which the Participant will be required to represent that there has been no
material change in the Participant's financial condition and confirm that
the representations made by the Participant in the Subscription Agreement
(a form of which shall be attached to the Participation Agreement) are true
and correct as of the date of the Participation Agreement, except as noted
in the Participation Agreement or the attached form of Subscription
Agreement.
(b) Each Participant will be required to return the executed
Participation Agreement to CSC within 30 days after receipt. In the event
that a Participant fails to respond to CSC or return the completed
Participation Agreement on or before the 15th day after the beginning of
the fiscal year following receipt of the Participation Agreement, the
Participant's distribution for the first fiscal quarter of that year will
be sent directly to the Participant and no Units will be purchased on
behalf of the Participant for that fiscal quarter and, subject to (c)
below, any fiscal quarters thereafter, until CSC receives an executed
Participation Agreement from the Participant.
(c) If a Participant fails to return the executed Participation
Agreement to CSC prior to the end of the second fiscal quarter for any year
of the Participant's participation in the Plan, the Participant's
participation in the Plan shall be terminated in accordance with Paragraph
11 below.
(d) Each Participant shall notify CSC in the event that, at any time
during his participation in the Plan, there is any material change in the
Participant's financial condition or inaccuracy of any representation under
the Subscription Agreement.
(e) For purposes of this Paragraph 6, a material change shall include
any anticipated or actual decrease in net worth or annual gross income or
any other change in circumstances that would cause the Participant to fail
to meet the suitability standards set forth in the Partnership's
Prospectus.
7. Reports to Participants. Within 60 days after the end of each fiscal
quarter, the Reinvestment Agent will mail to each Participant a statement of
account describing, as to such Participant, the Distributions received during
the quarter, the number of Units purchased during the quarter, the per Unit
purchase price for such Units, the total administrative charge to such
Participant, and the total Units purchased on behalf of the Participant pursuant
to the Plan. Each statement shall also advise the Participant that, in
accordance with Paragraph 6(d) hereof, he or she is required to notify the
General Partners in the event that there is any material change in his or her
financial condition or if any representation under the Subscription Agreement
becomes inaccurate.
8. Administrative Charges and Plan Expenses. The Partnership shall be
responsible for administrative charges and expenses charged by the Reinvestment
Agent. Any interest earned shall be paid to the Partnership to help defray
certain costs relating to the Plan. The administrative charge to each
Participant for each fiscal quarter shall be the lesser of 5% of the amount
reinvested for the Participant or $2.50, with a minimum charge of $.50. The
maximum annual charge is $10.00.
9. No Drawing. No Participant shall have any right to draw checks or
drafts against his account or give instructions to the Partnership or the
Reinvestment Agent except as expressly provided herein.
10. Taxes. Taxable Participants will incur a tax liability for Partnership
income and gain allocated to them even though they have elected not to receive
their Distributions in cash but rather to have their Distributions held in their
account under the Plan.
11. Termination.
(a) A Participant may terminate his participation in the Plan at any
time by written notice to the General Partners. To be effective for any
Distribution, such notice must be received by the General Partners at least
ten days prior to the last day of the fiscal quarter to which such
Distribution relates.
(b) The General Partners or the Reinvestment Agent may terminate a
Participant's individual participation in the Plan, and the General
Partners, on behalf of the Partnership, may terminate the Plan itself at
any time by ten days' prior written notice mailed to a Participant, or to
all Participants, as the case may be, at the address or addresses shown on
their account or such more recent address as a Participant may furnish to
the General Partners in writing.
(c) After termination of the Plan or termination of a Participant's
participation in the Plan, the Reinvestment Agent will send to each
Participant (i) a statement of account in accordance with Paragraph 7
hereof, and (ii) a check for the amount of any Distributions in the
Participant's account that have not been reinvested in Units. Any future
distributions made after the effective date of the termination will be sent
directly to the former Participant.
12. Notice. Any notice or other communication required or permitted to be
given by any provision of this Plan shall be in writing and addressed to
Investor Services Department, CNL Securities Corp., 400 East South Street, Suite
500, Orlando, Florida 32801, if to the General Partners, or to 1845 Maxwell,
Suite 101, Troy, Michigan 48084-4510, if to the Reinvestment Agent, or such
other addresses as may be specified by written notice to all Participants.
Notices to a Participant may be given by letter addressed to the Participant at
the Participant's last address of record with the Partnership. Each Participant
shall notify the General Partners promptly in writing of any change of address.
13. Amendment. The terms and conditions of this Plan may be amended or
supplemented by an agreement between the Reinvestment Agent and the General
Partners on behalf of the Partnership at any time, including but not limited to
an amendment to the Plan to substitute a new Reinvestment Agent to act as agent
for the Participants or to increase the administrative charge payable to the
Reinvestment Agent, by mailing an appropriate notice at least 30 days prior to
the effective date thereof to each Participant at his last address of record.
Such amendment or supplement shall be deemed conclusively accepted by each
Participant except those Participants from whom the General Partners receive
written notice of termination prior to the effective date thereof.
D-2
<PAGE>
14. Governing Law. THIS PLAN AND A PARTICIPANT'S ELECTION TO PARTICIPATE
IN THE PLAN SHALL BE GOVERNED BY THE LAWS OF THE STATE OF FLORIDA.
D-3
<PAGE>
EXHIBIT E
FORM OF SUBSCRIPTION AGREEMENT
<PAGE>
CNL INCOME FUND XVIII, LTD.
Up to 3,500,000 Units -- $10.00 per Unit
Minimum Purchase -- 250 Units ($2,500)
100 Units ($1,000) for IRAs, Keogh, and Qualified Plans
(Minimum purchase may be higher in certain states)
================================================================================
PLEASE READ CAREFULLY this Subscription Agreement and the Notices (on the back
of the Agreement) before completing this document. TO SUBSCRIBE FOR UNITS,
complete and sign, where appropriate, and deliver the Subscription Agreement,
along with your check, to your Registered Representative. YOUR CHECK SHOULD BE
MADE PAYABLE TO:
SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
ALL ITEMS ON THE SUBSCRIPTION AGREEMENT MUST BE COMPLETED IN ORDER FOR YOUR
SUBSCRIPTION TO BE PROCESSED.
================================================================================
CNL SECURITIES CORP.
(407) 422-1574 or (800) 522-3863
Overnight Packages: Regular Mail Packages:
Attn: Investor Services Attn: Investor Services
400 E. South Street, Suite 500 Post Office Box 1033
Orlando, Florida 32801 Orlando, Florida 32802-1033
<PAGE>
CNL INCOME FUND XVIII, LTD.
- --------------------------------------------------------------------------------
1. INVESTMENT
This subscription is in the amount of $ for the purchase of Units
($10.00 per Unit). The minimum initial subscription is 250 Units ($2,500); 100
Units ($1,000) for IRA, Keogh and qualified plan accounts (except in states with
higher minimum purchase requirements).
[ ] INITIAL PURCHASE [ ] ADDITIONAL PURCHASE
2. SUBSCRIBER INFORMATION
Name (1st) Date of Birth (MM/DD/YY)
Name (2nd) Date of Birth (MM/DD/YY)
Address City State Zip Code
Custodian Account No. Daytime Phone # ( )
[ ] U.S. Citizen [ ] Resident Alien [ ] Foreign Resident Country
[ ] Check if Subscriber is a U.S. citizen residing outside the U.S.
Income Tax Filing State
ALL SUBSCRIBERS: State of Residence of Subscriber/Plan Beneficiary (required)
Taxpayer Identification Number: For most individual taxpayers, it is their
Social Security number. Note: If the purchase is in more than one name, the
number should be that of the first person listed. For IRAs, Keoghs and
qualified plans, enter both the Social Security number and the taxpayer
identification number.
Taxpayer ID# - Social Security # - -
3. INVESTOR MAILING ADDRESS
For the Subscriber of an IRA, Keogh (H.R.10), or qualified plan to receive
informational mailings, please fill in residence address below if different from
address in Section 2.
Name
Address
City State Zip Code
Daytime Phone #( )
4. DIRECT DEPOSIT ADDRESS
Investors requesting direct deposit of distribution checks to another financial
institution or mutual fund, please complete below. In no event will the
Partnership or Affiliates be responsible for any adverse consequences of direct
deposit.
Company
Account No.
Address
City State Zip Code
5. DISTRIBUTION REINVESTMENT PLAN (DRP):
Check if the Subscriber wishes to participate in the Distribution Reinvestment
Plan described in the Prospectus (California residents may not participate in
this plan). Distributions will be used to purchase available Units only in the
Partnership in which the Limited Partner made the initial investment.
[ ] Yes [ ] No
6. FORM OF OWNERSHIP
(Select only one)
[ ] INDIVIDUAL-one signature required (1)
[ ] HUSBAND AND WIFE, AS COMMUNITY PROPERTY- two
signatures required (15)
[ ] TENANTS IN COMMON-two signatures required (3)
[ ] TENANTS BY THE ENTIRETY-two signatures required (31)
[ ] CORPORATIONS
[ ]S-Corporation (22)
[ ]C-Corporation (5)
[ ] IRA-custodian signature required (23)
[ ] SEP-custodian signature required (38)
[ ] TAXABLE TRUST (7)
[ ] TAX-EXEMPT TRUST (28)
[ ] IRREVOCABLE TRUST-trustee signature required (21)
[ ] JOINT TENANTS WITH RIGHT OF SURVIVORSHIP-all parties must sign (8)
[ ] A MARRIED PERSON/SEPARATE PROPERTY-one signature required (34)
[ ] KEOGH (H.R.10)-trustee signature required (24)
[ ] CUSTODIAN-custodian signature required (33)
[ ] PARTNERSHIP (3)
[ ] NON-PROFIT ORGANIZATION (12)
[ ] PENSION PLAN-trustee signature(s) required (19)
[ ] PROFIT SHARING PLAN-trustee signature(s) required (27)
[ ] CUSTODIAN UGMA-STATE of -custodian signature required (16)
[ ] CUSTODIAN UTMA-STATE of -custodian signature required (42)
[ ] ESTATE-Personal Representative signature required (13)
[ ] REVOCABLE GRANTOR TRUST-grantor signature required (25)
[ ] SUBSCRIBER elects to have the Units covered by this subscription placed in a
new sponsored IRA account offered by Franklin Bank as custodian. IRA documents
will be sent to subscriber upon receipt of subscription documents. There is no
annual fee involved for CNL Income Fund XVIII, Ltd. investments.
<PAGE>
7. SUBSCRIBER SIGNATURES
If the Subscriber is executing the Subscriber Signature Page, the Subscriber is
agreeing to become a Limited Partner under the terms of the Partnership
Agreement in substantially the form attached as Exhibit A to the Prospectus and
understands that, BY EXECUTING THIS AGREEMENT A SUBSCRIBER DOES NOT WAIVE ANY
RIGHTS HE MAY HAVE UNDER THE SECURITIES ACT OF 1933 OR THE SECURITIES EXCHANGE
ACT OF 1934 OR UNDER ANY STATE SECURITIES LAW:
X X
--------------------------- ------- --------------------------- --------
Signature of 1st Subscriber Date Signature of 2nd Subscriber Date
8. BROKER/DEALER INFORMATION
THE REGISTERED REPRESENTATIVE AND REGISTERED PRINCIPAL MUST SIGN BELOW TO
COMPLETE ORDER. The undersigned certify that they recognize and have complied
with their obligations under sections 3(b) and 4(d) of Appendix F of the NASD
Manual, Rules of Fair Practice, and under the Participating Broker Agreement (i)
to determine the suitability of investors and maintain documentation on which
the determination was based for a period of not less than six years, and (ii) to
inform investors of the lack of liquidity and marketability of the Units.
Broker/Dealer NASD Firm Name
Home Office Address
Registered Representative
Branch Mail Address [ ] Sold CNL before
City State Zip Code
Phone #( ) Fax #( )
Shipping Address City State Zip Code
[ ] Telephonic Subscriptions (check here): If the Registered Repre entative and
Branch Manager are executing the signature page on behalf of the Subscriber,
both must sign below and by such execution, represents and warrants that
they have due power and authority to execute this signature page on behalf
of Subscriber. Registered Representatives and Branch Managers may not sign
on behalf of residents of Florida, Iowa, Maine, Michigan, Minnesota,
Mississippi, Missouri, Nebraska, New Mexico, North Carolina, Ohio, Oregon,
South Dakota, Tennessee, or Washington. [NOTE: Not to be executed until
Subscriber(s) has (have) acknowledged receipt of final prospectus.]
Telephonic subscriptions may not be completed for IRA accounts.
[ ] Registered Investment Advisor (check here): If an owner or principal or any
member of the RIA firm is an NASD licensed Registered Representative
affiliated with a Broker/Dealer, the transaction should be conducted through
that Broker/Dealer not through the RIA.
PLEASE READ CAREFULLY THE REVERSE SIDE OF THIS SIGNATURE PAGE AND SUBSCRIPTION
AGREEMENT BEFORE COMPLETING
<TABLE>
<CAPTION>
<S> <C>
X
------------------------------------------------------- --------- ------------------------------------
Principal, Branch Manager or Other Authorized Signature Date Print or Type Name of Person Signing
X
-------------------------------------------------------- --------- ------------------------------------
Registered Representative Signature Date Print or Type Name of Person Signing
- --------------------------------------------------------------------------------------------------------------
Make check payable to : SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A.
Please remit check and For overnight delivery, please send to:
subscription document to: For Office Use Only:
CNL SECURITIES CORP. CNL SECURITIES CORP. Sub. #
Attn: Investor Services Attn: Investor Services Admit Date
P.O. Box 1033 400 E. South Street, Suite 500 Amount
Orlando, FL 32802-1033 Orlando, FL 32801 Region
(407) 422-1574 RSVP#
(800) 522-3863
- --------------------------------------------------------------------------------------------------------------
</TABLE>
<PAGE>
NOTICE TO ALL INVESTORS:
(a) The purchase of Units by an IRA, Keogh, or other tax-qualified plan is
not a "prohibited transaction" and does not, by itself, create the plan.
However, the purchase of Units by an individual, for contribution or transfer to
an IRA, Keogh, or other tax-qualified plan, will constitute a "prohibited
transaction" which will give rise to adverse Federal tax consequences.
(b) The Partnership, in its sole and absolute discretion, may accept or
reject the Subscriber's subscription which if rejected will be promptly returned
to the Subscriber, without interest.
(c) THE SALE OF UNITS SUBSCRIBED FOR HEREUNDER MAY NOT BE COMPLETED UNTIL AT
LEAST FIVE BUSINESS DAYS AFTER THE DATE THE SUBSCRIBER RECEIVES A FINAL
PROSPECTUS. EXCEPT AS PROVIDED IN THIS NOTICE, THE NOTICE BELOW, AND IN THE
PROSPECTUS, THE SUBSCRIBER WILL NOT BE ENTITLED TO REVOKE OR WITHDRAW HIS
SUBSCRIPTION.
NOTICE TO CALIFORNIA AND FLORIDA RESIDENTS: California and Florida investors
will have the right to withdraw their subscription funds if subscriptions for at
least $1,500,000 have not been accepted by the Company within six months after
the initial offer of Units of the Company pursuant to the Prospectus and the
Company elects at that time to extend the offering beyond such date. The Company
will promptly notify California and Florida investors if the Company so elects
to extend the offering, and such investors must exercise their right to withdraw
within ten (10) days of such notice by delivering written notice to the Company
of their intention to exercise such right. The subscription funds of withdrawing
California and Florida investors will be promptly returned along with such
investor's pro rata share of interest earned thereon net of any escrow fees
calculated as set forth in the Prospectus and the Escrow Agreement.
NOTICE TO CALIFORNIA RESIDENTS: IT IS UNLAWFUL TO CONSUMMATE A SALE OR TRANSFER
OF THIS SECURITY, OR ANY INTEREST THEREIN, OR TO RECEIVE ANY CONSIDERATION
THEREFORE, WITHOUT THE PRIOR WRITTEN CONSENT OF THE COMMISSIONER OF CORPORATIONS
OF THE STATE OF CALIFORNIA, EXCEPT AS PERMITTED IN THE COMMISSIONER'S RULES.
California investors who do not execute the Subscription Agreement will receive
a confirmation of investment accompanied by a second copy of the final
Prospectus, and will have the opportunity to rescind the investment within ten
(10) days from the date of confirmation.
NOTICE TO NORTH CAROLINA RESIDENTS: By signing this Subscription Agreement,
North Carolina investors acknowledge receipt of the Prospectus and represent
that they meet the suitability standards for North Carolina investors listed in
the Prospectus.
BROKER/DEALER AND REGISTERED REPRESENTATIVE:
By signing this subscription agreement, the signers certify that they recognize
and have complied with their obligations under the NASD's Rules of Fair
Practice, and hereby further certify as follows: (i) a copy of the Prospectus,
including the Subscription Agreement attached thereto as Exhibit C, as amended
and/or supplemented to date, has been delivered to the Subscriber; (ii) they
have discussed such investor's prospective purchase of Units with such investor
and have advised such investor of all pertinent facts with regard to the
liquidity, valuation, and marketability of the Units; and (iii) they have
reasonable grounds to believe that the purchase of Units is a suitable
investment for such investor, that such investor meets the suitability standards
applicable to such investor set forth in the Prospectus and related supplements,
if any, that such investor is legally capable of purchasing such Units and will
not be in violation of any laws for having engaged in such purchase, and that
such investor is in a financial position to enable such investor to realize the
benefits of such an investment and to suffer any loss that may occur with
respect thereto and will maintain documentation on which the determination was
based for a period of not less than six years; (iv) for any purchase of Units
made by or on behalf of an IRA, Keogh, or other tax-qualified plan, such
purchase was either (a) made or approved by the owner of the IRA, Keogh, or
other tax-qualified plan or (b) made or approved by a fiduciary of such plan who
is not affiliated with the signers and has not been compensated for having made
or approved such purchase; and (v) under penalties of perjury, (a) the
information provided in this Subscription Agreement to the best of our knowledge
and belief is true, correct, and complete, including, but not limited to, the
number shown above as the Subscriber's taxpayer identification number; (b) to
the best of our knowledge and belief, the Subscriber is not subject to backup
withholding either because the Subscriber has not been notified that the
Subscriber is subject to backup withholding as result of failure to report all
interest or dividends or the Internal Revenue Service has notified the
subscriber that the Subscriber is no longer subject to backup withholding under
Section 3406(a)(1)(C) of the Internal Revenue Code of 1986, as amended; and (c)
to the best of our knowledge and belief, the Subscriber is not a nonresident
alien, foreign corporation, foreign trust, or foreign estate for U.S. tax
purposes, and we hereby agree to notify the Company if it comes to the attention
of either of us that the Subscriber becomes such a person within sixty (60) days
of any event giving rise to the Subscriber becoming such a person.
<PAGE>
PROSPECTUS
CNL INCOME FUND XVII, LTD. and CNL INCOME FUND XVIII, LTD.
$1,500,000 -- Minimum $1,500,000 -- Minimum
(Florida Limited Partnerships)
Minimum Purchase -- 250 Units ($2,500)
100 Units ($1,000) for IRAs and Keogh and Pension Plans
(Minimum purchase may be higher in certain states)
CNL INCOME FUND XVII, LTD. ("CNL XVII") and CNL INCOME FUND XVIII, LTD.
("CNL XVIII") are separate, newly organized Florida limited partnerships, which
have been formed to acquire existing restaurant properties, as well as
properties upon which restaurants are to be constructed (collectively, the
"Properties"), to be leased primarily to operators of national and regional
fast-food, family-style, and casual dining restaurant chains. The Partnership
may sell up to 6,500,000 Units for a maximum of $65,000,000 in gross offering
proceeds.
THE ACQUISITION OF UNITS IN ONE PARTNERSHIP WILL NOT ENTITLE THE INVESTOR
TO ANY OWNERSHIP INTEREST IN THE OTHER PARTNERSHIP OR ITS PROPERTIES. Each
partnership is referred to in this Prospectus as the "Partnership." The
Partnership is not a mutual fund or any other type of investment company within
the meaning of the Investment Company Act of 1940, and is not subject to
regulation thereunder.
There are significant risks associated with an investment in the
Partnership (see "Risk Factors" at page 8 of this Prospectus), including the
following:
o The Partnership currently owns no Properties, and investors, therefore,
will not have the opportunity to evaluate the Properties that the
Partnership will acquire.
o The Partnership will rely on the General Partners with respect to all
investment decisions.
o If the Partnership raises only $1,500,000 from sales of Units, it will
acquire no more than one Property and therefore will not have
diversification of its investments.
o Investors who must sell their Units are unlikely to be able to sell them
quickly because there will be no public market for the Units.
o Market and economic conditions that the Partnership cannot control will
affect the value of the Properties and the amount of cash that the
Partnership receives from the lessees of its Properties.
o Under certain circumstances, the General Partners may determine to
reinvest the Net Sales Proceeds of Properties into other Properties,
which proceeds would be otherwise distributable to the Partners.
o The General Partners and their affiliates will perform services for the
Partnership in connection with the Offering, the selection and
acquisition of the Partnership's Properties, and the operation of the
Partnership, and will receive substantial compensation from the
Partnership in consideration of these services.
o The General Partners are or will be engaged in other activities that
will result in potential conflicts of interest.
THE PARTNERSHIP'S PRIMARY INVESTMENT OBJECTIVES are to preserve, protect,
and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year of Partnership operations in amounts that exceed
current taxable income (due to the fact that depreciation deductions
attributable to the Properties reduce taxable income even though depreciation is
not a cash expenditure); (ii) an anticipated minimum level of income through the
long-term rental of Properties to selected operators of certain national and
regional fast-food, family-style, and casual dining restaurant chains; (iii)
additional income and protection against inflation by participation in certain
restaurant gross sales through the receipt of percentage rent payments and,
typically, automatic increases in the minimum annual rent; and (iv) capital
appreciation through the potential increase in value of the Properties. There
can be no assurance that these objectives will be met. Distributions in excess
of net income of the Partnership may constitute a return of capital. The
Partnership intends to meet these objectives by purchasing carefully selected
restaurant properties and leasing them on a "triple-net" basis (which means that
the lessee will be responsible for paying the cost of all repairs, maintenance,
property taxes, and insurance) to creditworthy operators of certain national or
regional fast-food, family-style, and casual dining restaurant chains under
leases requiring the lessee to pay both base annual rent and a percentage rent
based on gross sales. See "Business--Site Selection and Acquisition of
Properties," "Business--Description of Leases," and "Investment Objectives and
Policies" for a more complete description of the manner in which the structure
of the Partnership's business will facilitate the Partnership's ability to meet
its investment objectives.
This Prospectus describes an investment in Units of limited partnership
interest in the Partnership, which will use investors' money to purchase the
Properties. Of the proceeds from the sale of Units received by the Partnership,
approximately 83% (in the event the minimum proceeds of $1,500,000 are raised)
to 83.5% (in the event proceeds of approximately $65,000,000 are raised) will be
used to acquire Properties, and approximately 9% to 8.5%, respectively, will be
paid in fees and expense reimbursements to Affiliates of the General Partners
for their services; and the balance will be reallowed to Soliciting Dealers or
retained by the Managing Dealer, which is an Affiliate of the General Partner,
as selling commissions.
NEITHER THE ATTORNEY GENERAL OF THE STATE OF NEW YORK NOR THE ATTORNEY GENERAL
OF THE STATE OF NEW JERSEY OR THE BUREAU OF SECURITIES OF THE STATE OF NEW
JERSEY HAS PASSED ON OR ENDORSED THE MERITS OF THIS OFFERING. ANY REPRESENTATION
TO THE CONTRARY IS UNLAWFUL.
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.
<TABLE>
<CAPTION>
Price to Selling Proceeds to
Public Commissions(1) Partnership(2)
- -----------------------------------------------------------------------------------------------------------
<S> <C>
Per Unit ............................... $ 10.00 $ 0.85 $ 9.15
- -----------------------------------------------------------------------------------------------------------
Total Minimum for each Partnership...... $ 1,500,000 $ 127,500 $ 1,372,500
- -----------------------------------------------------------------------------------------------------------
Total Maximum for CNL XVII(3)........... $ 30,000,000 $ 2,550,000 $ 27,450,000
- -----------------------------------------------------------------------------------------------------------
Total Maximum for CNL XVIII(3)(4)....... $ 35,000,000 (4) $ 2,975,000 (4) $ 32,025,000 (4)
===========================================================================================================
</TABLE>
See Footnotes Following Page
August 11, 1995
<PAGE>
(Cover Page Continued From Previous Page)
Footnotes:
(1) If the minimum of 150,000 Units is sold, CNL Securities Corp. (the
"Managing Dealer") will receive Selling Commissions of 8.5% on sales of
Units, subject to reduction in certain circumstances. The Managing
Dealer, which is an Affiliate of the General Partners, may engage other
broker-dealers that are members of the National Association of
Securities Dealers, Inc. to sell Units and reallow to them commissions
of up to 8% with respect to Units which they sell. The amounts indicated
for Selling Commissions assume that reduced Selling Commissions are not
paid in connection with the purchase of any Units and do not include a
0.5% due diligence expense reimbursement fee payable to the Managing
Dealer, all or a portion of which may be reallowed to Soliciting
Dealers. See "The Offering--Plan of Distribution" for a discussion of
the circumstances under which reduced Selling Commissions may be paid
and a description of the due diligence expense reimbursement fee payable
to the Managing Dealer.
(2) Before deducting organizational and offering expenses of the Partnership
(excluding Selling Commissions and the due diligence expense
reimbursement fee) estimated to be 3% of gross offering proceeds
computed at $10.00 per Unit sold ("Gross Proceeds") on the sale of
150,000 Units and 2.5% of Gross Proceeds on the sale of 6,000,000 Units
or 6,500,000 Units. The General Partners will pay all organizational and
offering expenses which exceed 3% of the Gross Proceeds.
(3) The offering of CNL XVII and CNL XVIII in the aggregate is a maximum of
$65,000,000. See "Estimated Use of Proceeds."
(4) Assumes that the Managing Dealer exercises its option to sell an
additional 500,000 Units (all of which will be for Units of CNL XVIII)
in the event the offering of CNL XVII and CNL XVIII is oversubscribed.
--------------------------------------------
All subscription funds for Units of the Partnership will be deposited in
an interest-bearing escrow account with SouthTrust Estate & Trust Company, Inc.,
which will act as the escrow agent for this offering, until subscription funds
for the Partnership total $1,500,000. Subscription funds will be released from
escrow to the Partnership to be used for Partnership purposes within
approximately 30 days after the minimum is reached. Subscribers have no right to
revoke or withdraw their subscriptions during the Partnership's escrow period,
and no funds will be returned to subscribers if more than $1,500,000 of
subscription funds for Units of the Partnership are received. In no event will
subscription funds be held in escrow for longer than one year. Pursuant to the
requirements of the Attorney General of the State of New York and the
Commissioner of Securities of the State of Pennsylvania, subscriptions from New
York and Pennsylvania residents may not be released from escrow, or included in
determining whether the $1,500,000 minimum for the Partnership has been reached,
until subscriptions for Units of the Partnership totalling at least $2,500,000
and $2,000,000 (including subscriptions from New York and Pennsylvania
residents), respectively, have been received from all sources. CNL XVII and CNL
XVIII each will have the same, but separate, escrow provisions. After the escrow
conditions have been satisfied, all proceeds of the Offering will be available
to the Partnership whose Unit sales generated the Offering proceeds. This
Offering will terminate no later than six months from the initial date of this
Prospectus, unless the General Partners elect to extend the Offering to a date
not later than one year after the initial date of this Prospectus. If
subscriptions aggregating $1,500,000 are not received prior to the expiration of
the foregoing period (exclusive of subscriptions from New York and Pennsylvania
residents, if subscriptions aggregating $2,000,000 and $2,500,000, respectively,
are not received from all sources prior to the expiration of the foregoing
period), this Offering will terminate, and subscription funds will be promptly
returned with interest. If the $1,500,000 minimum is reached prior to the
expiration of the foregoing period, the General Partners may elect to extend the
Offering to a date not later than two years after the initial date of this
Prospectus in states that permit such extension.
NO PERSON HAS BEEN AUTHORIZED IN CONNECTION WITH THIS OFFERING TO GIVE
ANY INFORMATION OR TO MAKE ANY REPRESENTATIONS OTHER THAN THOSE CONTAINED IN
THIS PROSPECTUS. THIS PROSPECTUS DOES NOT CONSTITUTE AN OFFER OR SOLICITATION IN
ANY STATE IN WHICH SUCH OFFER OR SALE WOULD BE UNLAWFUL, AND NO SUBSCRIPTION
WILL BE ACCEPTED FROM ANY PERSON WHO DOES NOT MEET THE SUITABILITY STANDARDS SET
FORTH HEREIN. NEITHER THE DELIVERY OF THIS PROSPECTUS NOR ANY SALE HEREUNDER
SHALL CREATE, UNDER ANY CIRCUMSTANCES, AN IMPLICATION THAT THERE HAS BEEN NO
CHANGE IN THE AFFAIRS OF THE PARTNERSHIP SINCE THE DATE HEREOF. IF, HOWEVER, ANY
MATERIAL CHANGE OCCURS WHILE THIS PROSPECTUS IS REQUIRED BY LAW TO BE DELIVERED,
THIS PROSPECTUS WILL BE AMENDED OR SUPPLEMENTED ACCORDINGLY.
THE USE OF FORECASTS IN THIS OFFERING IS PROHIBITED. ANY REPRESENTATIONS
TO THE CONTRARY, AND ANY PREDICTIONS, WRITTEN OR ORAL, AS TO THE AMOUNT OR
CERTAINTY OF ANY PRESENT OR FUTURE CASH BENEFIT OR TAX CONSEQUENCE WHICH MAY
FLOW FROM AN INVESTMENT IN THIS PARTNERSHIP IS PROHIBITED.
The Units of limited partnership interest in the Partnership are subject
to restrictions on transferability. See "Summary of Partnership Agreement --
Restrictions on Transferability of Units" for a discussion of such restrictions.
See the "Reports to Limited Partners" section of this Prospectus for a
discussion of the reports to be furnished to Limited Partners. Prospective
investors are encouraged to read the entire Prospectus, which contains a copy of
the form of Amended and Restated Agreement of Limited Partnership.
--------------------------------------------
Until November 9, 1995 (90 days after the date of this Prospectus), all
dealers effecting transactions in the registered securities, whether or not
participating in this distribution, may be required to deliver a Prospectus.
This is in addition to the obligation of dealers to deliver a prospectus when
acting as underwriters and with respect to unsold allotments or subscriptions.
ii
<PAGE>
TABLE OF CONTENTS
Page
CNL INCOME FUND XVII, LTD. AND CNL INCOME FUND XVIII, LTD.....................1
SUMMARY OF THE OFFERING.......................................................1
RISK FACTORS..................................................................8
Investment Risks...........................................................8
Real Estate Risks.........................................................10
Federal Income Tax Risks..................................................12
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE...................................16
ESTIMATED USE OF PROCEEDS....................................................18
MANAGEMENT COMPENSATION......................................................19
CONFLICTS OF INTEREST........................................................23
Prior and Future Programs ................................................23
Acquisition of Properties.................................................23
Allocation of Properties Between CNL XVII and CNL XVIII...................24
Sales of Properties.......................................................25
Joint Investment With An Affiliated Program .............................25
Competition for Management Time ..........................................25
Compensation of General Partners and Affiliates ..........................25
Relationship with Managing Dealer ........................................26
Legal Representation .....................................................26
Certain Conflict Resolution Procedures....................................26
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS.............................27
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN....................................28
CAPITALIZATION...............................................................31
BUSINESS.....................................................................31
General ..................................................................31
Site Selection and Acquisition of Properties .............................33
Standards for Investment .................................................36
Description of Properties.................................................37
Description of Leases.....................................................38
Joint Venture/Co-Tenancy Arrangements ....................................41
Management Services.......................................................42
Financing ................................................................43
Sale of Properties .......................................................43
Regulation ...............................................................43
Competition ..............................................................43
MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
OF THE PARTNERSHIP......................................................44
MANAGEMENT...................................................................44
Individual General Partners ..............................................45
Corporate General Partner.................................................45
CNL Income Fund Advisors, Inc.............................................46
CNL Group, Inc............................................................46
Net Worth of General Partners ............................................46
Removal of General Partners ..............................................47
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES.....................47
INVESTMENT OBJECTIVES AND POLICIES...........................................51
General ..................................................................51
Certain Investment Limitations ...........................................52
Investment in Properties .................................................52
Use of Proceeds Prior to Investment in Properties.........................52
ALLOCATIONS AND DISTRIBUTIONS................................................53
Distribution of Net Cash Flow.............................................53
Distributions of Net Sales Proceeds.......................................54
Allocation of Net Income and Net Loss.....................................54
Allocation of Gain on Sale................................................55
Allocation of Loss on Sale................................................55
iii
<PAGE>
TABLE OF CONTENTS (continued)
Page
SUMMARY OF PARTNERSHIP AGREEMENT.............................................55
Management of the Partnership ............................................55
Liability of the Limited Partners to Third Parties .......................55
Meetings and Voting Rights ...............................................56
Restrictions on Transferability of Units .................................56
Dissolution and Liquidation ..............................................56
Indemnification ..........................................................56
Nonexclusive Duties ......................................................56
Power of Attorney ........................................................57
Prohibitions on "Roll-Up" Transactions ...................................57
Applicable Law ...........................................................57
FEDERAL INCOME TAX CONSIDERATIONS............................................57
General...................................................................57
Changes in the Tax Law....................................................58
Opinion of Counsel........................................................58
Partnership Status........................................................60
Investment in Joint Ventures..............................................61
Co-Tenancy Arrangements...................................................61
Publicly Traded Partnerships..............................................61
Taxation of the Limited Partners..........................................62
Qualified Plan Investors .................................................62
Allocations of Income, Gain, Loss, and Deduction..........................63
Allocations to Newly Admitted Partner or Transferee.......................64
Distribution Reinvestment Plan............................................64
Characterization of Leases................................................64
Bases of Interests Held by Limited Partners...............................66
Basis, At-risk, and Passive Activity Limitations on Deduction of Losses...66
Passive Activity Income...................................................67
Cash Distributions to Limited Partners....................................67
Depreciation of the Properties............................................67
Syndication and Organizational Expenses...................................68
Tax Treatment of Certain Fees.............................................68
Sale of the Properties....................................................69
Sale of Limited Partnership Interests by the Limited Partners.............69
Liquidation of the Partnership............................................69
Special Basis Adjustments.................................................69
Capital Gains and Losses..................................................70
Deductibility of Interest.................................................70
Alternative Minimum Tax...................................................70
Interest on Underpayment of Taxes.........................................70
Accuracy-Related Penalties................................................70
Tax Return, Tax Information, and Audits...................................71
State and Local Taxes.....................................................72
REPORTS TO LIMITED PARTNERS..................................................72
THE OFFERING.................................................................73
General ..................................................................73
Plan of Distribution .....................................................74
Subscription Procedures ..................................................76
Escrow Arrangements ......................................................77
Investment by Qualified Plans and Individual Retirement Accounts..........78
Determination of Offering Price ..........................................79
SUPPLEMENTAL SALES MATERIAL..................................................79
LEGAL OPINIONS...............................................................79
EXPERTS......................................................................79
ADDITIONAL INFORMATION.......................................................80
DEFINITIONS..................................................................80
--------------------------------------------------------
Form of Amended and Restated Agreement of Limited Partnership.........Exhibit A
Financial Information.................................................Exhibit B
Prior Performance Tables..............................................Exhibit C
Distribution Reinvestment Plan........................................Exhibit D
Form of Subscription Agreement........................................Exhibit E
iv
<PAGE>
CNL INCOME FUND XVII, LTD. AND CNL INCOME FUND XVIII, LTD.
CNL Income Fund XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd.
("CNL XVIII") are two newly organized Florida limited partnerships that have the
same purpose, business plan, investment objectives, and management, including
General Partners. Each partnership is referred to in this Prospectus as the
"Partnership." Although Units of both CNL XVII and CNL XVIII are offered by this
Prospectus, Units of CNL XVIII will not be offered until the Offering of Units
of CNL XVII has terminated. THE ACQUISITION OF UNITS IN ONE PARTNERSHIP WILL NOT
ENTITLE THE INVESTOR TO ANY OWNERSHIP INTEREST IN THE OTHER PARTNERSHIP.
The first approximately $30,000,000 of subscription funds (3,000,000
Units) will be for Units of CNL XVII, although the General Partners have the
right to terminate the Offering of Units of CNL XVII at any time after
subscriptions for a minimum of 150,000 Units ($1,500,000) have been received and
the funds released from escrow. After the termination of the Offering of CNL
XVII, the next up to $30,000,000 of subscription funds will be for Units of CNL
XVIII. If the Managing Dealer elects to exercise its option to increase the
Offering to up to $65,000,000 (6,500,000 Units), all subscription funds in
excess of $60,000,000 will be for Units of CNL XVIII.
CNL XVII and CNL XVIII each will acquire its own separate portfolio of
Properties. AN INVESTMENT IN ONE PARTNERSHIP WILL NOT ENTITLE THE INVESTOR TO
ANY OWNERSHIP INTEREST IN THE PROPERTIES OF THE OTHER PARTNERSHIP.
All acquisitions of Properties will be made by CNL XVII until
substantially all of the net Offering proceeds available to it have been
invested or committed to investment and, thereafter, Properties will be acquired
by CNL XVIII until the net Offering proceeds available to it have been fully
invested or committed to investment. However, the General Partners will not
purchase Properties for CNL XVII or CNL XVIII until substantially all of the
funds available for investment by CNL Income Fund XVI, Ltd. ("CNL XVI"), a prior
public program that has investment objectives and an investment structure
similar to those of the Partnership, have been invested or committed to
investment. If the General Partners determine that a Property is not suitable
for CNL XVII, however, the General Partners may cause CNL XVIII to acquire the
Property at a time when CNL XVII has uncommitted net Offering proceeds. The
General Partners will determine the suitability of a particular Property for CNL
XVII based on such factors as the amount of the proposed investment, the amount
of funds available to CNL XVII, the effect of the acquisition on the
diversification of the investments of CNL XVII and on the diversification of the
lessees of its Properties (which also may affect the need for CNL XVII to
prepare or produce audited financial statements for a Property or a lessee), and
the anticipated cash flow of CNL XVII and CNL XVIII.
SUMMARY OF THE OFFERING
THIS SECTION SUMMARIZES CERTAIN INFORMATION CONTAINED ELSEWHERE IN THIS
PROSPECTUS AND IS INTENDED FOR QUICK REFERENCE ONLY. THIS IS NOT A COMPLETE
DESCRIPTION OF THE INVESTMENT. POTENTIAL INVESTORS MUST READ AND EVALUATE THE
FULL TEXT OF THIS PROSPECTUS AND ALL SUPPORTING DOCUMENTS ATTACHED AS EXHIBITS
HERETO IN ORDER TO EVALUATE AN INVESTMENT IN THE PARTNERSHIP. THE FOLLOWING
SUMMARY THEREFORE IS QUALIFIED IN ITS ENTIRETY BY REFERENCE TO THE FULL TEXT OF
THIS PROSPECTUS AND THE SUPPORTING DOCUMENTS.
CNL INCOME FUND XVII, LTD. AND CNL INCOME FUND XVIII, LTD.
CNL Income Fund XVII, Ltd. ("CNL XVII") and CNL Income Fund XVIII, Ltd.
("CNL XVIII") are each newly formed Florida limited partnerships, whose address
is 400 East South Street, Suite 500, Orlando, Florida 32801, telephone (407)
422-1574 or toll free (800) 522-3863. AN INVESTOR WHO PURCHASES UNITS IN ONE OF
THE PARTNERSHIPS WILL NOT THEREBY ACQUIRE ANY OWNERSHIP INTEREST IN THE OTHER
PARTNERSHIP OR ITS PROPERTIES. Each partnership is referred to in this
Prospectus as the "Partnership."
The Partnership is an all-cash income fund that intends to acquire
existing restaurant properties, as well as properties upon which restaurants are
to be constructed (collectively, the "Properties"), to be leased to operators of
selected national and regional restaurant chains, primarily fast-food,
family-style, and casual dining chains (the "Restaurant Chains"). See "Business"
for a description of the types of Restaurant Chains that may be selected by the
General Partners. See "CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII,
Ltd." for a description of the relative order in which CNL XVII and CNL XVIII
will acquire Properties. The leases of the Properties typically will provide for
payment of base annual rents
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with scheduled increases and percentage rents based on gross sales. All leases
will be on a "triple-net" basis, which means that the lessee will be responsible
for all repairs, maintenance, property taxes, and insurance.
RISK FACTORS
The "Risk Factors" section discusses in detail the more important risks
associated with an investment in the Partnership, including risks associated
with an investment in real estate such as the Properties, risks associated with
an investment in a limited partnership such as the Partnership, and tax risks.
These risks include:
o Risks related to the fact that, because the Partnership currently owns no
Properties, investors will not have the opportunity to evaluate the
Properties that the Partnership will acquire.
o Risks of reduced diversification in the Partnership's investment if the
Partnership raises only $1,500,000 from sales of Units.
o Risks that investors who must sell their Units will not be able to sell them
quickly because there will be no public market for the Units.
o Market risks associated with investments in real estate, which means that
both the amount of cash the Partnership will receive from tenants and
lessees and the future value of its Properties cannot be predicted.
o Risks of default by tenants or lessees resulting in decreased income.
o Risks relating to the fact that the General Partners and their Affiliates,
who will perform services for the Partnership in connection with the
Offering, the selection and acquisition of the Partnership's Properties, and
the operation of the Partnership, will receive substantial compensation from
the Partnership in consideration of these services.
o Reliance on the General Partners, who will have full responsibility for the
day-to-day management of the Partnership.
o Risks relating to the fact that Limited Partners owning a majority of the
Units may vote to take certain actions, such as amending of the Partnership
Agreement to change the investment objectives of the Partnership.
ESTIMATED USE OF PROCEEDS
The Partnership will use the proceeds of the sale of its Units to
acquire Properties and to pay expenses relating to the organization of the
Partnership and the sale of the Units. If only 150,000 Units ($1,500,000) are
sold, however, the Partnership will acquire no more than one Property. CNL XVII
and CNL XVIII will each acquire approximately 28 Properties if each Partnership
sells 3,000,000 Units ($30,000,000) based on an estimated average purchase price
of $900,000 per Property. The General Partners have estimated the average
purchase price based on their past experience in acquiring similar properties
and in light of current market conditions, although prices of Properties may be
higher or lower. In the event that the Managing Dealer elects to exercise its
option to increase the Offering by up to 500,000 Units ($5,000,000), CNL XVIII
will acquire approximately four additional Properties for a total of 32
Properties if 3,500,000 Units ($35,000,000) are sold. See "Estimated Use of
Proceeds" and "Business" for a more detailed description of the anticipated use
of Partnership funds.
MANAGEMENT COMPENSATION
The General Partners, the Managing Dealer, and other Affiliates of the
General Partners will receive compensation for services they will perform for
the Partnership and also will receive expense reimbursements from the
Partnership for expenses they pay on behalf of the Partnership. The following
paragraphs summarize the more significant items of compensation.
In connection with the formation of the Partnership and the Offering of
the Units, the Managing Dealer will receive Selling Commissions of 8.5% (a
maximum of $5,525,000 if 6,500,000 Units are sold), and a due diligence expense
reimbursement fee of 0.5% (a maximum of $325,000 if 6,500,000 Units are sold),
of the total amount raised from the sale of Units, computed at $10.00 per Unit
sold ("Gross Proceeds"). The Managing Dealer in turn may reallow Selling
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Commissions of up to 8% on Units sold, and all or a portion of the 0.5% due
diligence expense reimbursement fee to certain Soliciting Dealers, who are not
Affiliates of the General Partners.
For identifying the Properties and assisting the General Partners in
structuring the terms of the acquisition and leases of the Properties, CNL
Income Fund Advisors, Inc. will receive Acquisition Fees of 4.5% of Gross
Proceeds (a maximum of $2,925,000 if 6,500,000 Units are sold) from the sale of
Units.
For managing the Properties, CNL Income Fund Advisors, Inc. will be
entitled to receive an annual Management Fee of 1% of gross revenues that the
Partnership earns from the Properties.
CNL Income Fund Advisors, Inc. may receive a disposition fee of 3% of
the gross sales price of one or more Properties for providing substantial
services in connection with the Sale of one or more such Properties, but only
after such time, if any, that the Limited Partners have received the Limited
Partner's 8% Return, plus the return of their aggregate Invested Capital
Contributions. See "Summary of the Offering--Allocations and Distributions."
With respect to distributions of Net Cash Flow, the General Partners
will receive a 5% distribution of cash as described below in "Summary of the
Offering--Allocations and Distributions," but only after such time, if any, as
the Limited Partners have received at least their Limited Partners' 8% Return
for the related year, calculated at the time of such cash distribution.
Additionally, the General Partners will receive a subordinated share of Net
Sales Proceeds upon the Sale of a Property in an amount equal to 5% of Net Sales
Proceeds as described below in "Summary of the Offering--Allocations and
Distributions," but only after such time, if any, as the Limited Partners have
received at least their Limited Partners' 8% Return, plus a return of their
investment in the Partnership.
Payment of certain fees is subject to conditions and restrictions. The
General Partners and their Affiliates also may receive reimbursement for
out-of-pocket expenses that they incur on behalf of the Partnership during its
term, subject to certain limitations. See "Management Compensation" for a
complete description.
CONFLICTS OF INTEREST
The General Partners and their Affiliates will experience conflicts of
interest in their management of the Partnership. These arise principally from
their involvement in other activities that may conflict with those of the
Partnership and include matters related to (i) allocation of properties and
management time and services between the Partnership and various partnerships
and other entities, (ii) the timing and terms of the sale of a Property, (iii)
investments with Affiliates of the General Partners, (iv) compensation of the
General Partners and their Affiliates, (v) the Partnership's relationship with
the Managing Dealer, which is an Affiliate of the General Partners, and (vi) the
fact that the Partnership's securities and tax counsel also serves as securities
and tax counsel for certain Affiliates of the General Partners, and that neither
the Partnership nor the Limited Partners will have separate counsel. The
"Conflicts of Interest" section discusses in more detail the more significant of
these potential conflicts of interest, as well as the procedures the General
Partners have established to resolve a number of these potential conflicts.
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN
The Partnership has established a distribution reinvestment plan (the
"Distribution Reinvestment Plan") pursuant to which Limited Partners who
purchase Units in the initial Offering (other than residents of the State of
California) may elect to have their cash distributions from the Partnership
automatically reinvested in Units. Prior to termination of the Offering, the
cash distributions will be reinvested in Units at the public Offering price of
$10.00 per Unit. Thereafter, the distributions will be reinvested in Units
purchased from Limited Partners, to the extent Units are available for purchase,
on the terms specified in the Distribution Reinvestment Plan. See "Summary of
Distribution Reinvestment Plan," "Federal Income Tax
Considerations--Distribution Reinvestment Plan," and the Distribution
Reinvestment Plan accompanying this Prospectus as Exhibit D for more specific
information about the Distribution Reinvestment Plan.
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BUSINESS (PURCHASE AND SALE OF PROPERTIES)
The nature of the Properties which the Partnership intends to purchase
and lease is described in the section entitled "Business." The Properties, which
typically will be freestanding and will be located across the United States,
will be leased on a "triple-net" basis to creditworthy operators of the
Restaurant Chains. See "Business--Standards for Investment--Selection of
Properties and Lessees". The Properties may consist of both land and building,
the land underlying the building with the building owned by the tenant or a
third party, or the building only with the land owned by a third party. The
Properties will be purchased for cash and will not be encumbered by any liens.
As of the initial date of this Prospectus, the Partnership had not entered into
any arrangements that create a reasonable probability that the Partnership will
purchase any Properties. The General Partners have undertaken to supplement this
Prospectus during the Offering period to describe the acquisition of Properties
at such time as the General Partners believe that a reasonable probability
exists that a Property will be acquired by the Partnership. Based upon the
General Partners' experience and acquisition methods, a reasonable probability
that the Partnership will acquire a Property normally will occur as of the date
on which (i) a commitment letter is executed by a proposed lessee, (ii) a
satisfactory credit underwriting for the proposed lessee has been completed, and
(iii) a satisfactory site inspection has been completed. See
"Business--General."
In general, all acquisitions of Properties will be made by CNL XVII
until substantially all of the net Offering proceeds available to CNL XVII have
been invested or committed to investment, and thereafter by CNL XVIII, unless
the General Partners determine (based on factors such as the amount of the
proposed investment, diversification considerations, and the anticipated cash
flow of CNL XVII and CNL XVIII) that a Property is not suitable for CNL XVII.
The General Partners will not purchase Properties for CNL XVII or CNL XVIII
until substantially all of the funds available for investment by CNL Income Fund
XVI, Ltd. ("CNL XVI"), a prior public program that has investment objectives and
an investment structure similar to those of the Partnership, have been invested
or committed to investment. If an investment opportunity that is suitable for
both CNL XVI and XVII becomes available before CNL XVI has invested or committed
substantially all of its funds to investment, and both CNL XVI and CNL XVII have
sufficient uninvested funds to make the investment, then the entity which has
had the longest period of time elapse since it was offered an investment
opportunity will be first offered the investment opportunity. The General
Partners will examine factors such as the effect of the acquisition on each
program's investments and lessees, the size of the investment, and the cash
requirements and anticipated cash flow of each of CNL XVI and CNL XVII in
determining the suitability of an investment opportunity for CNL XVI or CNL
XVII. See "Conflicts of Interest--Allocation of Properties Between CNL XVII and
CNL XVIII," "Conflicts of Interest--Acquisition of Properties" and Items 5 and 6
of "Conflicts of Interest--Certain Conflict Resolution Procedures" for a more
detailed discussion of allocations of Properties between CNL XVII and CNL XVIII
and between the Partnership and other prior or subsequently formed public and
private entities with which the General Partners or their Affiliates are
affiliated that have the same investment objectives as the Partnership. See also
"Prior Performance of the General Partners and Affiliates" for information
regarding the status of the investment program of CNL XVI.
Proceeds designated for investment in Properties temporarily may be
invested in short-term, highly liquid investments with appropriate safety of
principal.
The Partnership intends to sell the Properties for cash within seven to
twelve years after their acquisition or as soon thereafter as market conditions
permit, at which time the Partnership will be dissolved. See "Business--Sale of
Properties" for a description of the distribution of proceeds of the Sale of a
Property.
MANAGEMENT
The General Partners are Robert A. Bourne, James M. Seneff, Jr., and CNL
Realty Corporation, a Florida corporation. The address of the General Partners
is 400 East South Street, Suite 500, Orlando, Florida 32801, telephone (407)
422-1574.
The General Partners will manage the affairs of the Partnership, and the
Limited Partners will not participate in the management of the Partnership. An
Affiliate of the General Partners, CNL Income Fund Advisors, Inc., will provide
certain management services relating to the Partnership and the Properties. See
"Management" for a description of the business background of the General
Partners and Affiliates and "Business--Management Services" for a description of
the services that CNL Income Fund Advisors, Inc. will provide.
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PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES
The "Prior Performance of the General Partners and Affiliates" section
of this Prospectus contains a narrative discussion of the public and private
real estate limited partnerships and a real estate investment trust sponsored by
the General Partners and their Affiliates during the past ten years. These
include the 16 existing CNL Income Fund limited partnerships and the real estate
investment trust, CNL American Properties Fund., Inc., which, as of June 30,
1995, had purchased 618 fast-food, family-style, and casual dining restaurant
properties similar to those to be acquired by the Partnership. Based on an
analysis of the operating results of the 73 investor real estate limited
partnerships in which Messrs. Bourne and Seneff have served, individually or
with others, as general partners and the real estate investment trust in which
they serve as officers and directors, the General Partners believe that each of
such programs has met, or currently is in the process of meeting, its principal
investment objectives. Certain statistical data relating to those prior limited
partnerships with investment objectives similar to those of the Partnership,
including the 16 prior CNL Income Fund limited partnerships, are contained in
Exhibit C--Prior Performance Tables.
INVESTMENT OBJECTIVES AND POLICIES
The Partnership's primary investment objectives are to preserve,
protect, and enhance the Partnership capital, while providing (i) cash
distributions commencing in the initial year of Partnership operations in
amounts that exceed current taxable income (due to the fact that depreciation
deductions attributable to the Properties reduce taxable income even though
depreciation is not a cash expenditure); (ii) an anticipated minimum level of
income through the long-term rental of Properties to selected operators of
certain national and regional fast-food, family-style, and casual dining
restaurant chains; (iii) additional income and protection against inflation by
participation in certain restaurant gross sales through the receipt of
percentage rent payments and, typically, automatic increases in the minimum
annual rent; and (iv) capital appreciation through the potential increase in
value of the Properties. The Partnership intends to meet these objectives by
purchasing carefully selected restaurant properties and leasing them on a
"triple-net" basis (which means that the lessee will be responsible for paying
the cost of all repairs, maintenance, property taxes, and insurance) to
creditworthy operators of certain national or regional fast-food, family-style,
and casual dining restaurant chains under leases requiring the lessee to pay
both base annual rent and a percentage rent based on gross sales. See
"Business--Site Selection and Acquisition of Properties," "Business--Description
of Leases," and "Investment Objectives and Policies" for a more complete
description of the manner in which the structure of the Partnership's business
will facilitate the Partnership's ability to meet its investment objectives. The
Partnership's investment policies are set forth in the Partnership Agreement and
cannot be changed except by amendment of the Partnership Agreement which
requires the approval of the Limited Partners. There can be no assurance that
these objectives will be met.
ALLOCATIONS AND DISTRIBUTIONS
Distributions to the Limited Partners of the Partnership are expected to
commence not later than the close of the first full calendar quarter after the
first release of funds from escrow to the Partnership, and will be paid
quarterly thereafter. There can be no assurance, however, as to the date on
which distributions will commence or the amount of any distributions. In
addition, Limited Partners who purchase a minimum of 500 Units ($5,000) have the
option upon subscription to elect, for a fee, to receive distributions, paid in
arrears, on a monthly basis. In the future, the General Partners, in their sole
discretion, may elect to pay distributions to all Limited Partners on a monthly
basis. See "Allocations and Distributions--Distributions of Net Cash Flow" for a
description of the timing and anticipated amount of any such distributions.
Net Cash Flow for any fiscal year (which, in general terms, means the
Partnership's cash receipts from operations, other than proceeds of a Sale, less
its cash expenses, including the 1% Management Fee to CNL Income Fund Advisors,
Inc.) will be distributed 95% to the Limited Partners and 5% to the General
Partners. However, the General Partners will not receive their 5% share of Net
Cash Flow for any year until the Limited Partners have received aggregate
distributions in an amount equal to 8% of their Invested Capital Contributions,
computed on an annual, noncumulative, noncompounded basis for the related year.
In general, the Limited Partners' investment in the Partnership is the amount of
cash they contributed to the Partnership reduced by certain prior cash
distributions to the Limited Partners from the Sale of a Property.
Net Sales Proceeds (which, in general, means the cash the Partnership
receives from the Sale of a Property or its interest in a Property less expenses
related to the Sale) will be distributed to the Limited Partners, to the extent
of available cash after creation of any reserves, in an amount sufficient to
provide them with aggregate distributions in an amount equal
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to 8% of their Invested Capital Contributions, computed on an annual,
cumulative, noncompounded basis, plus a return of their investment in the
Partnership. The General Partners then will receive a return of their investment
in the Partnership and, to the extent previously subordinated and unpaid, an
amount equal to 5% of Partnership distributions of Net Cash Flow. Any remaining
Net Sales Proceeds will be distributed 95% to the Limited Partners and 5% to the
General Partners.
After payment of the 1% Management Fee to CNL Income Fund Advisors, Inc.
(see "Summary of the Offering--Management Compensation" for a brief description
of this fee), the Limited Partners' 8% Return (as described in the two preceding
paragraphs) will be payable to the extent of available Net Cash Flow and Net
Sales Proceeds. Payment of the Limited Partners' 8% Return, therefore, is not
guaranteed.
Generally, all allocations of tax items are made among the Partners in
accordance with their relative interest in the Partnership or their allocable
share of cash distributions from the Partnership, except that 99% of the total
depreciation and amortization deductions are specially allocated to the Limited
Partners who are not exempt from federal income tax; provided, however,
notwithstanding the foregoing, the interest of the General Partners in each
material item of Partnership income, gain, loss, deduction, and credit will be
equal to at least 1% of each such item at all times during the existence of the
Partnership.
The Partnership generally expects to elect to use straight-line cost
recovery (depreciation) for the depreciable portion of its Properties. A portion
of the Properties will constitute tax-exempt use property and must be
depreciated over a period equal to or exceeding 40 years. In order to reduce the
Partnership's administrative costs, the Partnership intends to depreciate the
remainder of its depreciable real property on the same basis.
For a more detailed description of the allocations and distributions to
be made to the Limited Partners, see "Allocations and Distributions."
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership's limited partnership agreement (the "Partnership
Agreement") governs the relationship between the Limited Partners and the
General Partners. Please refer to the "Summary of Partnership Agreement" section
for more detailed information concerning the terms of the Partnership Agreement,
including:
o Meetings and Voting Rights: Subject to certain limitations, Limited
Partners holding a majority of Units may vote to (i) amend or terminate
contracts for services or goods between the Partnership and the General
Partners, (ii) remove the General Partners and elect substitute General
Partners, (iii) approve or disapprove the Sale of all or substantially all
of the Partnership's Properties unless the Sale is made in accordance with
the Partnership's purposes (including the Sale of Properties within seven to
twelve years after their acquisition or as soon thereafter as market
conditions permit); (iv) amend the Partnership Agreement, (v) change the
investment objectives of the Partnership, or (vi) dissolve the Partnership.
Limited Partners who do not vote with the majority in interest of the
Limited Partners nonetheless will be bound by the majority vote.
o Restrictions on Transferability of Units: The Units will be transferable,
but only with the consent of the General Partners upon application on forms
provided by the General Partners, who may withhold their consent to any
transfer that could cause or contribute to the characterization of the
Partnership as a "publicly traded partnership" (in general, a partnership
with frequent transfers of its Units), or otherwise adversely affect the
Partnership's tax status. It is not anticipated that a public market for the
Units will develop.
o Indemnification: The Partnership will indemnify the General Partners and
their Affiliates who perform services for the Partnership against all losses
and expenses incurred by them as a result of actions the General Partners
determined in good faith were in the best interests of the Partnership,
except for any liability arising out of misconduct, negligence, or breach of
fiduciary duty to the Limited Partners or the Partnership.
o Fiscal Year and Termination: The Partnership's fiscal year is the calendar
year. The Partnership Agreement provides that the Partnership will terminate
on December 31, 2025, unless sooner terminated pursuant to any provision of
the Partnership Agreement. See "Summary of Partnership
Agreement--Dissolution and Liquidation" for a more complete description of
dissolution events.
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All statements made here or elsewhere in this Prospectus are qualified
in their entirety by reference to the copy of the form of the Partnership
Agreement attached hereto as Exhibit A.
FEDERAL INCOME TAX CONSIDERATIONS
The "Federal Income Tax Considerations" section of this Prospectus
discusses the material tax issues relevant to an investment in the Partnership
and the legal opinions that the Partnership will receive relating to tax matters
from Baker & Hostetler, as tax counsel for the Partnership.
In general, the material federal income tax issues, as to which the
Partnership has received an opinion from its tax counsel, are (i) the tax status
of the Partnership and any Joint Ventures; (ii) the likelihood that the
Partnership will not be treated as a publicly traded partnership under the
publicly traded partnership rules; (iii) the likelihood that income of the
Partnership will not constitute unrelated business taxable income to investing
qualified pension, profit-sharing, and stock bonus plans and IRAs; (iv) the
likelihood that allocations of tax items from the Partnership to a Limited
Partner (and from any Joint Ventures to the Partnership) will be respected; (v)
the likelihood that the Partnership (and any Joint Ventures) will be treated as
the owner of the Properties and will be entitled to claim depreciation
deductions associated with such ownership; and (vi) whether, and to what extent,
net income of the Partnership will constitute net income from a passive
activity. Subject to the conditions described in more detail in "Federal Income
Tax Considerations--Opinion of Counsel," the Partnership has received a
favorable opinion from its tax counsel on each of these matters. Until the
Partnership has acquired and leased all of its Properties, however, it is
impossible to opine on certain material income tax issues which, along with the
listed opinions, are discussed in detail in "Federal Income Tax Considerations."
THE OFFERING
A minimum of $1,500,000 and a maximum of $30,000,000 of limited
partnership interests in each of CNL XVII and CNL XVIII, subject to increase to
$35,000,000 for CNL XVIII at the option of CNL Securities Corp. (the "Managing
Dealer"), if the Offering is oversubscribed, will be offered in Units of $10.00
each.
The Units are being offered by the Managing Dealer and other registered
broker-dealers (the "Soliciting Dealers") on a "best efforts" basis, which means
that no one is guaranteeing that any minimum number of Units will be sold. All
of the General Partners are Affiliates of the Managing Dealer. See "The
Offering--Plan of Distribution."
Until subscription funds for the Partnership total $1,500,000 (exclusive
of subscriptions from New York and Pennsylvania residents), the funds will be
held in escrow by SouthTrust Estate & Trust Company, Inc., and interest earned
on such funds will accrue to the benefit of subscribers. This Offering will
terminate no later than six months from the initial date of this Prospectus,
unless the General Partners elect to extend the Offering to a date not later
than one year after the initial date of this Prospectus. If subscriptions
aggregating $1,500,000 are not received prior to the expiration of the foregoing
period, this Offering will terminate, and subscription funds will be returned
with interest. If the $1,500,000 minimum is reached prior to the expiration of
the foregoing period, the General Partners may elect to extend this Offering to
a date not later than two years after the initial date of this Prospectus in
states that permit such extension. Units of CNL XVIII will be offered only upon
termination of the Offering of Units in CNL XVII. See "The Offering" for a more
complete description.
A minimum investment of 250 Units ($2,500) by each investor is required,
except for tax-qualified plans (such as employee pension plans or IRAs), for
which the minimum investment is 100 Units ($1,000), Iowa tax-exempt investors,
who must make a minimum investment of 300 Units ($3,000), Minnesota IRAs, for
which the minimum investment is 200 Units ($2,000), and Nebraska investors, who
must make a minimum investment of 500 Units ($5,000). In addition, an investor
may elect to receive monthly distributions only if the investor makes a minimum
investment of 500 Units ($5,000). See "Suitability Standards and How to
Subscribe."
DEFINITIONS
This Prospectus includes simplified terms and definitions to make the
Prospectus easier to understand. These simplified terms and definitions do not
include all of the details of the terms, however, and investors therefore should
review the "Definitions" section for a more complete understanding.
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RISK FACTORS
The purchase of Units involves risks and therefore is suitable only for
persons who understand the possible consequences of an investment in the
Partnership and who are able to bear the risk of loss of their investment. The
acquisition of Units in one Partnership will not give the investor any ownership
interest in the other Partnership or its Properties and, consequently, the risks
associated with an investment in one Partnership may not apply to an investment
in the other Partnership. Prospective investors should consider the following
risks in addition to other information describing an investment in the
Partnership set forth elsewhere in this Prospectus.
INVESTMENT RISKS
Risks of Reliance on General Partners. All decisions with respect to the
management of the Partnership will be made exclusively by the General Partners,
whose Affiliates will receive between 5% and 13.5% of the Gross Proceeds as fees
(depending on the portion of Selling Commissions and the due diligence expense
reimbursement fee reallowed to Soliciting Dealers) and a maximum of 3% of the
Gross Proceeds as reimbursement of organizational and offering expenses and 0.5%
in Acquisition Expenses that they incur on behalf of the Partnership in
connection with the Offering. The Limited Partners will have no right or power
to take part in the management of the Partnership except through the exercise of
their voting rights. The General Partners may be removed under certain
conditions set forth in the Partnership Agreement but only subject to payment
for their interest in the residual value of Partnership assets and release from
all guarantees and other obligations incurred as General Partners. See "Summary
of Partnership Agreement" for a summary description of these voting and removal
rights. See "Management" and "Prior Performance of the General Partners and
Affiliates" for a summary of the General Partners' experience in real estate
investment and management of limited partnerships formed to acquire restaurant
properties, apartments, and office buildings, as well as in direct management of
apartments and office parks.
Risks Relating to Management Compensation. The General Partners and
their Affiliates will perform services for the Partnership in connection with
the offer and sale of Units, the selection and acquisition of the Partnership's
Properties, and the operation of the Partnership, and will receive substantial
compensation from the Partnership in consideration of these services. See
"Management Compensation" for a more complete description of expense
reimbursements and fees to be paid to the General Partners and their Affiliates
in connection with their services to the Partnership.
Possible Lack of Diversification. There can be no assurance that the
Partnership will obtain Capital Contributions equal to the maximum number of its
Units. The potential profitability of the Partnership and its ability to
diversify its investments, both geographically and by type of restaurant
Properties purchased, will be limited by the amount of funds at its disposal.
For example, if Gross Proceeds total $1,500,000 (the minimum needed for the
Partnership to commence operations), the Partnership will be able to acquire no
more than one Property and therefore will not achieve diversification of its
investments. In addition, CNL XVIII may receive up to $5,000,000 more in Gross
Proceeds than CNL XVII, and therefore would be able to acquire more Properties
and could achieve greater diversification in its investments than CNL XVII.
Lack of Market for Units. The Partnership is under no obligation to
repurchase Units from a Limited Partner, and it is not anticipated that there
will be a public market for the Units. It therefore may be difficult to sell
Units quickly. This investment is designed for investors with no need for
liquidity in this investment. See "Suitability Standards and How to
Subscribe--Suitability Standards." The Partnership has established a
Distribution Reinvestment Plan which, on behalf of Participants in the
Distribution Reinvestment Plan, will repurchase Units from Limited Partners who
desire to sell their Units to the extent of available funds and subject to
certain additional limitations. There of course can be no assurance that the
funds available through the Plan will be sufficient to permit the purchase of
all of the Units for which the General Partners receive repurchase requests. See
"Summary of Distribution Reinvestment Plan."
Because the classification of the Partnership as a "publicly traded
partnership" would significantly decrease the value of the Units, the General
Partners intend to exercise fully their right to prohibit transfers of Units
under circumstances that could cause the Partnership to be so classified. An
assignee of Units may be substituted as a Limited Partner only with the consent
of the General Partners, using assignment forms required by the General
Partners, which could affect the resale value of the Units. See "Summary of
Partnership Agreement--Restrictions on Transferability of Units." Accordingly,
there can be no assurance that Limited Partners will be able to liquidate their
investments in the event of an emergency. Therefore, Units should be purchased
only for long-term investment.
Risks Associated With Management of Joint Ventures. In the event that
the Partnership enters into a Joint Venture with an unaffiliated party to
purchase a Property, the Joint Venture or general partnership agreement will
provide that the
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Partnership will have management control of the Joint Venture. Such agreement,
however, may be ineffective as to a third party who has no notice of the
agreement, and the Partnership therefore may be unable to control fully the
activities of any such Joint Venture in which it participates. In the event that
the Partnership enters into a Joint Venture with another program sponsored by
the General Partners, the Partnership will not have sole management control of
the Joint Venture.
Lack of Control of Property Management. The Partnership uses
"triple-net" leases and, therefore, day-to-day management of the Properties will
be the responsibility of the tenants of the Properties. The Partnership has not
yet entered into any arrangement with specific lessees and does not intend to do
so until such time as one or more Properties suitable for purchase by the
Partnership have been identified. In general, the Partnership intends to enter
into leasing agreements only with lessees having substantial prior experience in
the restaurant industry, but there can be no assurance that the Partnership will
be able to make such arrangements because the Partnership had not entered into
any arrangements that create a reasonable probability that the Partnership will
purchase any Properties as of the initial date of this Prospectus.
Potential Liability of Limited Partners. The Limited Partners'
liability, in general, will be limited to the amount they agree to contribute to
the capital of the Partnership plus their share of any undistributed profits and
assets. If, however, Limited Partners participate in the control of the business
of the Partnership, or permit their names to be used in the conduct of the
Partnership's business, they may become personally liable as general partners
for the Partnership's obligations. The nature of the activities constituting
"control" which are required to impose such liability on a Limited Partner is
not altogether clear. In certain cases, however, the exercise by a Limited
Partner of voting rights granted in the Partnership Agreement could be deemed to
constitute management control. Further, in the event the Partnership is unable
to meet its obligations, the Limited Partners, in certain limited circumstances,
could become obligated, under applicable partnership law, to return
distributions made to them. See Exhibit A--Form of Amended and Restated
Agreement of Limited Partnership and "Summary of Partnership
Agreement--Liability of the Limited Partners to Third Parties."
Risks for Qualified Plan Investors. The assets of the Partnership will
not constitute plan assets if, for example, the Units qualify as "publicly
offered" securities within the meaning of U.S. Department of Labor Regulations,
or if the Partnership is deemed to be an "operating company" under such
regulations. If the assets of the Partnership were deemed to be "plan assets"
under ERISA (i) it is not clear that the exemptions from the "prohibited
transaction" rules under ERISA would be available for the Partnership's
transactions, and (ii) the prudence standards of ERISA would apply to
investments made by the Partnership (and might not be met). ERISA makes plan
fiduciaries personally responsible for any losses resulting to the plan from any
breach of fiduciary duty and the Code imposes nondeductible excise taxes on
prohibited transactions. The Partnership has not requested an opinion of Counsel
regarding whether or not the assets of the Partnership would constitute "plan
assets" under ERISA. See "The Offering--Investment by Qualified Plans and
Individual Retirement Accounts."
Limited Resources of General Partners. The corporate General Partner has
only nominal capitalization. The individual General Partners are general
partners in other partnerships and have certain contingent liabilities or may
incur additional liabilities in connection therewith. Should some of these
liabilities become actual, the net worth of the General Partners could be
significantly reduced. This in turn could have an adverse effect on the
Partnership's operations prior to the time at which all proceeds of the Offering
are fully invested in Properties if the Partnership had significant outstanding
obligations at that time. See "Business--Financing" for a description of the
limitations on Partnership borrowing and "Management--Net Worth of General
Partners" for a description of the assets that secure the majority of the loans
relating to these contingent liabilities.
Conflicts of Interest. As discussed in detail in "Conflicts of
Interest," the Partnership will be subject to conflicts of interest arising out
of its relationship to the General Partners and their Affiliates, including
conflicts related to allocation of management and allocation of properties
between the Partnership and various other entities, including the REITs and some
or all of the 16 other CNL Income Funds, as to each of which the General
Partners and their Affiliates have management responsibilities. See, for
example, "Conflicts of Interest--Acquisition of Properties" and "Conflicts of
Interest-- Competition for Management Time."
Risks Associated with a Minority Interest in a Partnership. Limited
Partners in the Partnership have certain limited voting rights. A vote of the
majority in interest of the Limited Partners (without regard to any limited
partnership interests owned by the General Partners and their Affiliates) is
sufficient to take certain significant Partnership actions, such as (i)
termination of contracts for goods and services between the Partnership and the
General Partners or their Affiliates; (ii) removal of one or more of the General
Partners and election of substitute General Partner(s); (iii) amendment of the
Partnership Agreement (such as changing the investment objectives of the
Partnership); and (iv) dissolution of the Partnership. Limited Partners who take
a minority position will be bound by the vote of a majority of the Limited
Partners entitled to vote on such matters.
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REAL ESTATE RISKS
Risks Related to an Unspecified Property Offering. The Partnership has
established certain criteria for evaluating Restaurant Chains, particular
Properties and the operators of the Properties proposed for investment by the
Partnership. See "Business--Standards for Investment" and "Business--General"
for a description of these criteria and the types of Properties in which the
Partnership intends to invest. Because the Partnership, as of the initial date
of this Prospectus, has not entered into any arrangements that create a
reasonable probability that the Partnership will purchase any Properties, this
is an unspecified property Offering, and prospective investors therefore have no
information to assist them in evaluating the merits of any Property to be
purchased or developed by the Partnership. There is no limit on the number of
restaurant Properties of a particular Restaurant Chain which the Partnership may
acquire, although the General Partners currently do not anticipate that the
Partnership will invest more than 25% of its Gross Proceeds in Properties of any
one Restaurant Chain.
No assurance can be given that the Partnership will be successful in
obtaining suitable investments on financially attractive terms or that, if
investments are made, the objectives of the Partnership will be achieved. There
also can be no assurance that all of the Properties will operate profitably or
that defaults will not occur. See "Management" and "Prior Performance of the
General Partners and Affiliates," however, for a description of the prior real
estate experience of the General Partners.
The General Partners or their Affiliates from time to time expect to
acquire restaurant properties on a temporary basis with the intention of
subsequently transferring the properties to one or more partnerships formed by
them (including, potentially, the Partnership). This practice could represent an
additional risk to the Partnership and result in increased potential conflicts
of interest among the General Partners, their Affiliates, the Partnership, and
prior or future programs formed by the General Partners or their Affiliates. See
"Conflicts of Interest--Acquisition of Properties."
Risks of Real Property Investments. The value of leased restaurants such
as those to be acquired by the Partnership, the ability of the lessees to pay
rent on a timely basis, and the amount of the rent, may be adversely affected by
certain changes in general or local economic or market conditions, increased
costs of energy or food products, increased costs and shortages of labor,
competitive factors, fuel shortages, quality of restaurant management, the
ability of a Restaurant Chain to fulfill any obligations to operators of its
restaurants, limited alternative uses for the building, changing consumer
habits, condemnation or uninsured losses, changing demographics, changing
traffic patterns, inability to remodel outmoded restaurants as required by the
franchise or lease agreement, voluntary termination by a lessee of its
obligations under a lease, and other factors. Neither the Partnership nor the
General Partners can control these factors.
Each Property will have a single lessee, and lessees may lease more than
one Property. Events such as the default or financial failure of a lessee
therefore could cause one or more Properties to become vacant under certain
circumstances. Vacancies would reduce the cash receipts of the Partnership and,
at least until the Partnership is able to re-lease any such Properties, could
decrease their ultimate resale value. The value of the Partnership's Properties
will depend principally upon the value of the leases of the Properties. Minor
defaults by a lessee may continue for some time before the General Partners
determine that it is in the interest of the Partnership to evict that lessee.
If a Property becomes vacant, the Partnership may be unable either to
re-lease the Property for the rent due under the prior lease or to re-lease the
Property without incurring additional expenditures relating to the Property. The
Partnership could experience delays in enforcing its rights against, and
collecting rents (and, under certain circumstances, real estate taxes and
insurance costs) due from, a defaulting lessee.
The Partnership will not be a party to any franchise agreement between a
Restaurant Chain and a lessee, and such agreement could therefore be modified or
canceled without notice to, or the prior consent of, the Partnership. In that
event, the lessee could be required to cease its operations at a Property,
although the lessee's obligation to pay rent to the Partnership would continue.
Before operations at the Property could resume, however, the Partnership would
be required to locate a new lessee acceptable to a Restaurant Chain.
The inability of lessees to make lease payments as a result of any of
these factors could result in a decrease in the amount of cash available for
distribution to the Limited Partners.
The General Partners require the lessee to obtain insurance to cover
casualty risks, and the General Partners generally will require that lessees
other than those with a substantial net worth obtain "rental value" or "business
interruption" insurance. See "Business--Description of Leases--Insurance, Taxes,
Maintenance, and Repairs." If, however, the Partnership, as lessor, incurs any
liability which is not fully covered by insurance, the Partnership would be
liable for such amounts, and returns to the Limited Partners could be reduced.
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Risks of Adverse Trends in Restaurant Industry. The success of the
future operations of fast-food, family-style, and casual dining segments will
depend largely on their ability to adapt to dominant industry trends, including
greater competitive pressures, increased consolidation of the leading restaurant
chains, industry overbuilding, dependence on consumer spending patterns and
changing demographics, the introduction of new concepts and menu items,
availability of labor, levels of food prices, and general economic conditions.
See "Business--General" for a description of current trends in the industry. The
success of a particular Restaurant Chain concept, the Restaurant Chain's ability
to fulfill any obligations to operators of its restaurants, and trends in the
fast-food, family-style, and casual dining segments of the restaurant industry
will affect the income that the Partnership derives from restaurants which are
part of such Restaurant Chain.
Possible Delays in Investment. The Partnership Agreement provides that
the Offering proceeds may remain uninvested for up to the later of two years
from the initial date of this Prospectus or one year after termination of the
Offering, although it is expected that substantially all net Offering proceeds
will be invested prior to the end of such period. See "Prior Performance of the
General Partners and Affiliates" for a summary description of the investment
experience of the General Partners in prior CNL Income Fund partnerships, which
is not necessarily indicative of the rate at which the proceeds of this Offering
will be invested.
An extended Offering period, the inability of the General Partners to
find suitable Properties, or the inability of a prior public program formed by
the General Partners that currently is in the process of acquiring fast-food,
family-style, and casual dining restaurant properties to substantially complete
its acquisition program prior to the time that the Partnership has funds
available to invest in Properties may result in delays in investment of
Partnership funds in real estate and in the receipt of a return from real
property investments.
Revenues received by the Partnership pending investment in Properties
will be limited to the rates of return available on short-term, highly liquid
investments with appropriate safety of principal. These rates of return, which
affect the amount of cash available for distribution to the Limited Partners,
are expected to be lower than the Partnership would receive under its restaurant
leases. Further, any funds of the Partnership required to be invested in
Properties that have not been invested in Properties or reserved within the
later of two years from the initial date of this Prospectus, or one year after
the termination of the Offering, will be distributed pro rata to the then
Limited Partners of the Partnership in accordance with the provisions of Article
7.8 of the Partnership Agreement.
Risks Resulting From Competition. The Partnership will compete with
other entities, including Affiliates, for the acquisition of restaurant sites
and completed restaurants. See "Conflicts of Interest--Prior and Future
Programs." In addition, the restaurant business is highly competitive, and it is
anticipated that any restaurant Property acquired by the Partnership will
compete with other restaurants in the vicinity. The extent to which the
Partnership will be entitled to receive rent in excess of the base rent for the
Properties will depend in part on the ability of the lessees to compete
successfully with other restaurants in the vicinity. In addition, the
Partnership will compete with other financing sources for suitable lessees and
properties.
Possible Environmental Liabilities. Under various federal and state
environmental laws and regulations, a current or previous owner or operator of
real estate may be required to investigate and clean-up certain hazardous or
toxic substances, asbestos-containing materials, or petroleum product releases
at the property, and may be held liable to a governmental entity or to third
parties for property damage and for investigation and cleanup costs incurred by
such parties in connection with the contamination. In addition, some
environmental laws create a lien on the contaminated site in favor of the
government for damages and costs it incurs in connection with the contamination.
The presence of contamination or the failure to remediate contaminations may
adversely affect the owner's ability to sell or lease real estate or to borrow
using the real estate as collateral. The owner or operator of a site may be
liable under common law to third parties for damages and injuries resulting from
environmental contamination emanating from the site.
All of the Properties will be acquired by the Company subject to
satisfactory Phase I environmental assessments, which generally involve
inspection of site conditions without invasive testing such as sampling or
analysis of soil, groundwater or other media or conditions, or satisfactory
Phase II environmental assessments, which generally involve testing of soil,
groundwater or other media and conditions. A Phase I or Phase II environmental
assessment may be determined by the General Partners to be satisfactory if a
problem exists and has not been resolved at the time the Property is acquired
provided that the seller has agreed in writing to indemnify the Partnership.
There can be no assurance, however, that any seller will be able to pay under an
indemnity obtained by the Partnership. Further, no assurances can be given that
all environmental liabilities have been identified or that no prior owner,
operator or current occupant has created an environmental condition not known to
the Partnership. Moreover, no assurances can be given that (i) future laws,
ordinances or regulations will not impose any material environmental liability
or (ii) the current environmental condition of the
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Properties will not be affected by tenants and occupants of the Properties, by
the condition of land or operations in the vicinity of the Properties (such as
the presence of underground storage tanks), or by third parties unrelated to the
Partnership.
Risks of Acquiring Properties Under Construction. Generally, the
Partnership intends to acquire sites on which a particular restaurant is to be
built as well as existing restaurants (including restaurants which require
renovation). To the extent that the Partnership acquires property on which
improvements are to be constructed or completed or renovations are to be made,
the Partnership may be subject to certain risks in connection with the
developer's ability to control construction costs, and the timing of completion
of construction, or to build in conformity with plans, specifications, and
timetables. The Partnership's agreements with the developer will provide certain
safeguards designed to minimize these risks. Further, in the event of a default
by a developer, the Partnership generally will have the right to require the
lessee to repurchase the Property that is under development at a preestablished
price designed to reimburse the Partnership for all costs incurred by the
Partnership in connection with the acquisition and development of the Property.
There can be no assurance, however, that under such circumstances, the lessee
will have sufficient funds to fulfill its obligations. See "Business--Site
Selection and Acquisition of Properties."
Risks of Joint Investment in Properties. In the event that the
Partnership enters into a Joint Venture or Co-Tenancy Arrangement with another
program formed by the General Partners, there will be a potential risk of
impasse in certain joint venture or co-tenancy decisions since the approval of
each program is required for certain decisions. In any Joint Venture or
Co-Tenancy Arrangement with an affiliated program, however, the Partnership will
have the right to buy the other co- venturer's or co-tenant's interest or to
sell its own interest on specified terms and conditions in the event of an
impasse regarding a Sale. Under such circumstances, it is possible that neither
party will have the funds necessary to consummate the transaction. See
"Business--Joint Venture/Co-Tenancy Arrangements." CNL XVII and CNL XVIII have
the right to, and may, enter into joint venture and co-tenancy arrangements with
each other.
Investments in Joint Ventures or Co-Tenancy Arrangements may involve the
risk that the Partnership's co-venturer or co-tenant may have economic or
business interests or goals which, at a particular time, are inconsistent with
the interests or goals of the Partnership, that such co-venturer or co-tenant
may be in a position to take action contrary to the Partnership's instructions,
requests, policies or objectives, or that such co-venturer or co-tenant might
become bankrupt. Among other things, actions by a co-venturer or co-tenant might
subject property owned pursuant to the Co-Tenancy Arrangement or by the Joint
Venture to liabilities in excess of those contemplated by the terms of the
tenancy agreement or joint venture agreement or to other adverse consequences.
Risks Relating to Future Disposition of Properties. The General Partners
intend to sell the Properties within seven to twelve years after their
acquisition or as soon thereafter as market conditions permit. There can be no
assurance that the Partnership will be able to sell its Properties so as to
return a Limited Partner's Invested Capital Contribution or to generate a profit
for the Limited Partners. Investors will receive a return of their Invested
Capital Contributions in the aggregate upon disposition of the Properties only
if the Properties are sold for more than such Invested Capital Contributions. In
the event that a purchase money obligation is taken in part payment of the sales
price of a Property, the proceeds of the Sale will be realized over a period of
years. Additionally, the General Partners may determine that it is in the best
interest of the Partnership to reinvest Net Sales Proceeds in Properties under
circumstances described in "Business--Sale of Properties," rather than
distribute such proceeds to the partners.
The General Partners may not be able to control the timing of Sales due
to market conditions or the fact that certain lessees are expected to have the
right to purchase the Property from the Partnership, commencing a specified
number of years after the date of the lease. The leases also generally provide
the lessee with a right of first refusal on any proposed Sale of the Property
leased by that lessee, which could affect the value and marketability of any
Properties subject to these provisions. See "Business--Description of
Leases--Right of Lessee to Purchase." A lessee will have no obligation to
purchase the restaurant it leases.
FEDERAL INCOME TAX RISKS
The purchase of Units involves certain potential tax risks and tax
consequences which are discussed briefly below. This discussion is based upon
the Code, effective and proposed administrative regulations, judicial decisions,
published and private rulings, and procedural announcements issued by the
Treasury Department. All these authorities are subject to amendment or change
that may be applied retroactively and in a manner that is adverse to the
Partnership and the Limited Partners. The Partnership will not seek any rulings
from the Internal Revenue Service (the "IRS") regarding any of the tax issues
discussed herein, but will instead rely on opinions of Counsel, which are not
binding on the IRS or the courts and
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are based upon the representations and assumptions referred to therein and are
conditioned upon the existence of certain facts. Currently, Counsel for the
Partnership is Baker & Hostetler. For a more complete discussion of the tax
risks and tax consequences associated with an investment in Units, see "Federal
Income Tax Considerations."
Risks of Loss of Partnership Status. Counsel has opined that, for
federal income tax purposes, the Partnership and the Joint Ventures more likely
than not will be treated as partnerships for federal income tax purposes. If
either the Partnership or any Joint Venture were to be reclassified as an
association taxable as a corporation, it would be taxable on its net income (at
rates up to 35%) and all items of its income, gain, loss, deduction, and credit
would be reflected only on its tax returns and would not be passed through to
the Limited Partners. Distributions by a partnership treated as an association
would be ordinary dividend income to the extent of its earnings and profits, and
the payment of these dividends would not be deductible by the partnership. See
"Federal Income Tax Considerations--Partnership Status."
Risks of Partnership Characterization as a Publicly Traded Partnership.
Based on representations by the General Partners and Managing Dealer regarding
their compliance with certain safe harbors provided by the IRS, Counsel has
opined that it is more likely than not that the Partnership will not be treated
as a "publicly traded partnership" for federal income tax purposes.
Classification of the Partnership as a "publicly traded partnership" could
result in (i) taxation of the Partnership as a corporation and (ii) application
of the passive activity loss rules in a manner that could adversely affect the
Limited Partners. See "Federal Income Tax Considerations--Publicly Traded
Partnerships," "Federal Income Tax Considerations--Qualified Plan Investors,"
and "Federal Income Tax Considerations--Basis, At-Risk and Passive Activity
Limitations on Deduction of Losses."
Risks Relating to Allocations of Income, Gain, Loss, and Deduction. The
Partnership Agreement provides (and any joint venture agreement will provide)
for the allocation of income, gain, loss, and deduction. Counsel has opined that
(i) all material allocations to the Partners of income and gain set forth in the
Partnership Agreement (and in the joint venture agreements) more likely than not
will be treated as having substantial economic effect or otherwise will be
treated as being in accordance with the interests of the Partners in the
Partnership (or the interests of the partners in the joint venture) and (ii) all
material allocations set forth in the Partnership Agreement (and in the joint
venture agreements) of deductions, losses, and credits more likely than not will
have substantial economic effect or will be otherwise treated as being in
accordance with the interests of the Partners in the Partnership (or the
interests of the partners in the joint venture) to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreases in such
balance. The rules regarding partnership allocations are complex, and no
assurance can be given that the IRS will not successfully challenge the
allocations in the Partnership Agreement (or any joint venture agreement) and
reallocate items of income, gain, loss, or deduction in a manner which reduces
the anticipated tax benefits or increases the income allocable to the Limited
Partners. See "Federal Income Tax Considerations--Allocations of Income, Gain,
Loss, and Deduction."
The Partnership Agreement generally allocates depreciation deductions
99% to the Taxable Limited Partners and 1% to the General Partners. As a
consequence, the Tax-Exempt Limited Partners will be allocated a greater amount
of Net Income during the course of the Partnership, which will give the
Tax-Exempt Limited Partners a larger Capital Account balance with respect to
each Unit owned by them than the Taxable Limited Partners will have with respect
to each of their Units. The Partnership Agreement provides that liquidating
distributions to the Partners will be made in accordance with positive Capital
Account balances, and there is a risk that, upon liquidation, there will be
insufficient Gain or Loss to eliminate such disparity.
The extent to which the special allocation of depreciation deductions to
the Taxable Limited Partners will shelter cash distributions from current
taxation will depend upon a number of factors, including the percentage of total
Units owned by Tax-Exempt Limited Partners and the Partnership's holding period
for the Properties. It is possible that Taxable Limited Partners could receive
allocations of depreciation deductions that would reduce their respective
Capital Accounts to zero, at which point future distributions of cash flow would
not be sheltered from current taxation. See "Federal Income Tax
Considerations--Allocations of Income, Gain, Loss, and Deduction."
Risks Relating to Disallowance of Deduction of Certain Fees and Expenses
by the Partnership. There can be no assurance that the deduction by the
Partnership of some or all fees and expenses will not be challenged or
disallowed by the IRS. If such challenge is successful, it could result in
reduced tax losses or increased profits without a corresponding increase in Net
Cash Flow to a Limited Partner in the years in which such deductions were
allowed.
Risks of Recharacterization of Leases and Limited Availability of
Depreciation. The Partnership is subject to the risk that its leases may be
treated as conditional sales or financing arrangements rather than true leases
for federal income tax purposes. Counsel has opined that, assuming that (i) the
Fee Properties (generally, Properties where the Partnership
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owns the related real property and building located thereon) are leased on
substantially the terms and conditions described in "Business--Description of
Leases," except that any lessee purchase options are exercisable only at an
amount equal to or in excess of the Fee Properties' then fair market values
(determined by appraisal or otherwise), and (ii) as is represented by the
General Partners, the residual values of the Fee Properties after the end of
their lease terms (including all renewal periods) may reasonably be expected to
be at least 20% of the cost of such Fee Properties, and the remaining useful
lives of the Fee Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the Fee
Properties' useful lives at the beginning of their lease terms, it is more
likely than not that the Partnership (or Joint Venture) will be treated as the
owner of the Fee Properties for federal income tax purposes, and will be
entitled to claim depreciation and other tax benefits associated with such
ownership.
The General Partners may negotiate a lease that meets the criteria
described above except that it provides the lessee with an option to purchase
the leased Fee Property at an amount determined by a formula which looks to
various measures of value contained in an independent appraisal of the leased
Fee Property. Counsel cannot opine (either favorably or unfavorably) whether the
Partnership (or any Joint Venture) will more likely than not be the owner of any
Fee Property subject to a lease containing such a purchase option and counsel
cannot opine with respect to the tax consequences associated with Leasehold
Properties (generally, those Properties in which the Partnership acquires only
the building with the land owned by a third party and the Partnership's interest
in such land, as lessee, being represented by a ground lease). With respect to
such Fee Properties, however, Counsel has opined that the Partnership (and any
Joint Venture) will have a reasonable basis for taking the position that it is
the owner, provided, as the General Partners have represented will be the case,
that the exercise price of a lessee purchase option is determined by a formula
which looks to various measures of value contained in an independent appraisal
of the leased Fee Property, and the General Partners believe that such formula
will approximate, or bear a reasonable relationship to, the fair market value of
the Fee Property at the time of the option's exercise. Additionally, the General
Partners anticipate that substantially all of the Properties acquired by the
Partnership will be Fee Properties.
For federal income tax purposes, lease characterization is made on a
property-by-property basis, based on an analysis of all the facts and
circumstances relating to a particular lease, and there can be no assurance that
the tax characterization of a lease will not be successfully challenged by the
IRS. If the Partnership (or the Joint Venture) were held not to be the owner of
Fee Properties for federal income tax purposes, there could be substantial
adverse consequences to the Limited Partners, including disallowance of
deductions for depreciation and characterization of Partnership income as
portfolio income under the passive activity loss rules. See "Federal Income Tax
Considerations--Characterization of Leases."
Risks of Loss of Passive Activity Income. If the Partnership is
successful in achieving its investment and operating objectives, the Limited
Partners (other than tax-exempt entities) are likely to recognize taxable income
from the Partnership in each year. Counsel has opined that, assuming the Fee
Properties are acquired, operated, and leased in the manner described in this
Prospectus, and further assuming that 30% or more of the unadjusted basis of
each Fee Property is subject to the allowance for depreciation, it is more
likely than not that an individual Limited Partner's share of the Partnership's
net income from Fee Properties will be net income from a "passive activity," as
defined in section 469 of the Code, which generally can be offset by a Limited
Partner's net losses and credits from other passive activities. This opinion
does not apply to the income that is attributable to (i) the investment of
Partnership funds in liquid investments, such as certificates of deposit or
money market funds, prior to the purchase of Properties or distribution of Net
Cash Flow to the Partners, (ii) the investment, in interest-bearing accounts or
otherwise, of amounts held as working capital, security deposits, or in reserve,
or amounts held pursuant to the Reinvestment Plan, (iii) Properties with respect
to which the Partnership (or any Joint Venture) is determined not to be the
owner (see "Characterization of Leases and Availability of Depreciation" above),
or (iv) Properties acquired by the Partnership comprised of land only. Such
income will constitute, for purposes of section 469, portfolio income which
cannot be offset by losses from passive activities. The Treasury Department has
been given broad authority to issue regulations defining income that does not
constitute passive activity income, and no assurance can be given that future
regulations promulgated under section 469 will not treat Partnership income as
income that is not from a passive activity. See "Federal Income Tax
Considerations--Publicly Traded Partnerships" and "Federal Income Tax
Considerations--Basis, At-Risk, and Passive Activity Limitations on Deduction of
Losses."
Risks Relating to Taxation of Undistributed Revenues. In any year in
which the Partnership reports income in excess of expenses, the Limited Partners
will be required to report their allocable shares of such income on their
personal income tax returns even though they may have received total cash
distributions less than the amount of reportable income or even the resultant
federal income tax. For example, Limited Partners who participate in the
Distribution Reinvestment Plan will be allocated their shares of Partnership Net
Income and Gain (including Net Income and Gain attributable to Units acquired
pursuant to the Distribution Reinvestment Plan) even though such Partners may
receive no cash distributions from the Partnership. See "Federal Income Tax
Considerations--Distribution Reinvestment Plan."
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Risks Relating to Creation of Unrelated Business Taxable Income. A
Tax-Exempt Limited Partner (such as an employee pension benefit plan or an IRA)
may be subject to tax to the extent that income from the Partnership is treated
as unrelated business taxable income ("UBTI"). Counsel has opined that, assuming
(i) the Properties are owned and leased in the manner described in
"Business--Description of Leases," (ii) neither the Partnership nor any Joint
Venture owns and leases personal property, borrows money, or is treated as a
dealer with respect to the Properties, and (iii) income from the lease of
improved Leasehold Property is itself considered income from the rental of real
Property, it is more likely than not that the income of the Partnership will not
constitute UBTI. The General Partners do not currently intend (although they
have the right) to cause the Partnership to borrow funds or own and lease
personal property. In the event the Partnership borrows funds or leases personal
property, the General Partners have represented that they will use reasonable
efforts to do so in a manner that does not cause Partnership income to be
treated as UBTI. Moreover, there is no intention to operate the Partnership or
any Joint Venture in a manner such that it would be treated as a dealer in real
property. See "Federal Income Tax Considerations--Qualified Plan Investors" and
"Federal Income Tax Considerations--Sale of the Properties."
Risks of Taxable Gain on Sale of a Limited Partner's Partnership
Interest. Upon the sale or other taxable disposition by a Limited Partner of all
or a portion of his or her interest in the Partnership, he or she will realize
taxable income to the extent that (for federal income tax purposes) the
consideration he or she receives upon the sale of his or her interest exceeds
his or her tax basis in his or her interest in the Partnership. However, such
sale may not result in cash proceeds sufficient to pay the tax obligations
arising from such sale.
Risks of Applicability of Alternative Minimum Tax. The application of
the alternative minimum tax to Limited Partners could reduce certain tax
benefits associated with the purchase of Interests in the Partnership. The
effect of the alternative minimum tax upon Limited Partners depends on each
Limited Partner's particular overall tax situation, and the Limited Partners
should consult with their tax advisers regarding the possible application of
this tax.
Audit Risks, Interest, and Penalties. The federal income tax returns of
the Partnership and Joint Ventures may be audited by the IRS, which could result
in an audit by the IRS of the federal income tax returns of the Limited Partners
and adjustments of items both related and unrelated to the Partnership. There
are also procedures pertaining to audits of partnership tax returns which, to an
extent, may reduce the control that an individual partner can have over
proceedings concerning any proposed adjustment of partnership tax items by the
IRS. If, in connection with an audit of the Partnership's tax return, it is
finally determined that a Partner has underpaid tax, such Partner would be
required to pay the amount of the underpayment plus interest on the underpayment
and certain penalties from the date the tax originally was due. See "Federal
Income Tax Considerations--Interest on Underpayment of Taxes" and "Federal
Income Tax Considerations--Accuracy--Related Penalties."
Risks of Possible Federal Income Tax Legislation or Administrative
Changes. Prospective Limited Partners should recognize that the present federal
income tax treatment of an investment in a limited partnership may be modified
by legislative, administrative or judicial action at any time, and that any such
action may affect investments previously made. Changes in federal income tax
laws have been proposed in the past and may be proposed again, which, if
enacted, would adversely affect investments in partnerships. Further, the rules
dealing with federal income taxation are constantly under review by the IRS
resulting in revisions of its regulations and revised interpretations of
established concepts. In addition, the General Partners understand that the IRS
is paying increased attention to the proper application of tax laws to
partnerships, including limited partnerships.
Effects of State and Local Taxation. The state in which a Limited
Partner is a resident may impose an income tax upon the Limited Partner's share
of the taxable income of the Partnership. Furthermore, states in which the
Partnership will own property generally impose income taxes upon each partner's
share of a partnership's taxable income considered allocable to such states.
Differences may exist between federal income tax laws and state and local income
tax laws. The Partnership may be required to withhold state taxes from
distributions to Limited Partners in certain instances. Prospective Limited
Partners are urged to consult with their own tax advisers with respect to state
and local income taxation.
15
<PAGE>
SUITABILITY STANDARDS AND HOW TO SUBSCRIBE
SUITABILITY STANDARDS
The Units offered hereby are suitable only as a long-term investment for
persons of adequate financial means who have no need for liquidity in this
investment. There is not expected to be any public market for the Units, which
means that it may be difficult to sell Units. See "Summary of Partnership
Agreement--Restrictions on Transferability of Units" for a description of the
transfer requirements. As a result, the Partnership has established suitability
standards which require investors to have either (i) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000.
Iowa, Maine, Missouri, New Hampshire, North Carolina, Ohio, and
Pennsylvania have established suitability standards different from those
established by the Partnership, and Units will be sold only to investors in
those states who represent in writing that they meet the special suitability
standards set forth below.
IOWA AND OHIO -- The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten (10) times the investor's
investment in the Partnership, and (ii) either (a) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (b) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000.
MISSOURI AND NORTH CAROLINA -- The investor has either (i) a net worth
(exclusive of home, furnishings, and personal automobiles) of at least $60,000
and an annual gross income of at least $60,000, or (ii) a net worth (exclusive
of home, furnishings, and personal automobiles) of at least $225,000.
MAINE -- The investor has either (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $50,000 and an annual gross
income of at least $50,000, or (ii) a net worth (exclusive of home, furnishings,
and personal automobiles) of at least $200,000.
NEW HAMPSHIRE -- The investor has either (i) a net worth (exclusive a
home, furnishings, and personal automobiles) of at least $125,000 and an annual
gross income of at least $50,000, or (ii) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $250,000.
PENNSYLVANIA -- The investor has (i) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least ten times the investor's
investment in the Partnership, and (ii) either (a) a net worth (exclusive of
home, furnishings, and personal automobiles) of at least $45,000 and an annual
gross income of at least $45,000, or (b) a net worth (exclusive of home,
furnishings, and personal automobiles) of at least $150,000. Because the minimum
Offering of Units of each Partnership is less than $4,000,000, Pennsylvania
investors are cautioned to evaluate carefully the Partnership's ability to fully
accomplish its stated objectives and to inquire as to the current dollar volume
of the Partnership's subscription proceeds.
The foregoing suitability standards must be met by the investor who
purchases the Units. If the investment is being made for a fiduciary account
(such as an IRA, Keogh Plan, or corporate pension or profit-sharing plan), the
beneficiary, the fiduciary account, or any donor or grantor that is the
fiduciary of the account who directly or indirectly supplies the investment
funds must meet such suitability standards.
In addition, under the laws of certain states, investors may transfer
their Units only to persons who meet similar standards, and the Partnership may
require certain assurances that such standards are met. Investors should read
carefully the requirements in connection with resales of Units as set forth in
Article Fourteen of the Partnership Agreement and as summarized under "Summary
of Partnership Agreement--Restrictions on Transferability of Units."
In purchasing Units, custodians or trustees of employee pension benefit
plans or IRAs may be subject to the fiduciary duties imposed by the Employee
Retirement Income Security Act of 1974 ("ERISA") or other applicable laws and to
the prohibited transaction rules prescribed by ERISA and related provisions of
the Internal Revenue Code. See "Federal Income Tax Considerations--Qualified
Plan Investors" and "The Offering." In addition, prior to purchasing Units, the
trustee or custodian of an employee pension benefit plan or an IRA should
determine that such an investment would be permissible under the governing
instruments of such plan or account and applicable law. For information
regarding "unrelated business taxable income," see "Federal Income Tax
Considerations--Qualified Plan Investors."
16
<PAGE>
In order to insure adherence to the suitability standards described
above, requisite suitability standards must be met, as set forth in the
Subscription Agreement in the form attached hereto as Exhibit E. In addition,
Soliciting Dealers who sell Units have the responsibility to make every
reasonable effort to determine that the purchase of Units is a suitable and
appropriate investment for an investor. In making this determination, the
Soliciting Dealers will rely on relevant information provided by the investor,
including information as to the investor's age, investment objectives,
investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. See "The
Offering--Subscription Procedures." Executed Subscription Agreements will be
maintained in the Partnership's records for the term of the Partnership.
HOW TO SUBSCRIBE
An investor who meets the suitability standards described above may
subscribe for Units by completing and executing the Subscription Agreement and
delivering it to a Soliciting Dealer, together with a check for the full
purchase price of the Units subscribed for, payable to "SouthTrust Estate &
Trust Company, Inc., Escrow Agent." See "The Offering--Subscription Procedures."
Certain Soliciting Dealers who have "net capital," as defined in the applicable
federal securities regulations, of $250,000 or more may instruct their customers
to make their checks for Units subscribed for payable directly to the Soliciting
Dealer. Care should be taken to ensure that the Subscription Agreement is filled
out correctly and completely. Partnerships, individual fiduciaries signing on
behalf of trusts, estates, and in other capacities, and persons signing on
behalf of corporations and corporate trustees may be required to obtain
additional documents from Soliciting Dealers. Any subscription may be rejected
by the General Partners in whole or in part, regardless of whether the
subscriber meets the minimum suitability standards.
Certain Soliciting Dealers may permit investors who meet the suitability
standards described above to subscribe for Units by telephonic order to the
Soliciting Dealer. This procedure may not be available in certain states. See
"The Offering--Subscription Procedures" and "The Offering--Plan of
Distribution."
A minimum investment of 250 Units ($2,500) is required, although
investors who wish to receive monthly distributions must make a minimum
investment of 500 Units ($5,000). IRAs, Keogh plans, and pension plans must make
a minimum investment of at least 100 Units ($1,000), except for Iowa tax-exempt
investors who must make a minimum investment of 300 Units ($3,000). For
Minnesota investors only, IRAs must make a minimum investment of 200 Units
($2,000). In addition, Nebraska investors must make a minimum investment of 500
Units ($5,000). Any investor who makes the required minimum investment may
purchase additional Units in increments of one Unit. Maine investors, however,
may not purchase additional Units in amounts less than the applicable minimum
investment except at the time of the initial subscription or with respect to
Units purchased pursuant to the Distribution Reinvestment Plan. See "The
Offering--General," "The Offering--Subscription Procedures," and "Summary of
Distribution Reinvestment Plan."
{THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK}
17
<PAGE>
ESTIMATED USE OF PROCEEDS
The table set forth below summarizes certain information relating to the
anticipated use of Offering proceeds by CNL XVII and CNL XVIII, assuming that
150,000 Units and 6,500,000 Units (which assumes that the Managing Dealer
exercises its option, if the Offering is oversubscribed, to sell an additional
500,000 Units, all of which will be for Units of CNL XVIII), respectively, are
sold. It is anticipated that Offering proceeds up to $60,000,000 will be
available to CNL XVII and CNL XVIII in approximately equal amounts, and that the
use of such Offering proceeds by CNL XVII and CNL XVIII, as well as the relative
amounts of proceeds applied for such purposes (including the approximately 83.5%
of Gross Proceeds expected to be used to purchase Properties), will be the same
for both CNL XVII and CNL XVIII. While the estimated use of proceeds set forth
in this table is believed to be reasonable, this table should be viewed only as
an estimate of the use of proceeds that may be achieved.
<TABLE>
<CAPTION>
Minimum Offering (1) Maximum Offering (2)
-------------------- --------------------
Amount Percent Amount Percent
------ ------- ------ -------
<S> <C>
GROSS PROCEEDS TO CNL XVII
AND CNL XVIII (2) (3) ...................... $1,500,000 100.0% $65,000,000 100.0%
Less:
Selling Commissions to CNL
Securities Corp. (3) ................. 127,500 8.5% 5,525,000 8.5%
Due Diligence Expense Reimbursement Fee to
CNL Securities Corp. (3)............... 7,500 0.5% 325,000 0.5%
Organizational and Offering Expenses (4)... 45,000 3.0% 1,625,000 2.5%
---------- ------ ---------- -------
NET PROCEEDS TO CNL XVII AND XVIII (2) ....... 1,320,000 88.0% 57,525,000 88.5%
Less:
Acquisition Fees to CNL
Income Fund Advisors, Inc.(5) .......... 67,500 4.5% 2,925,000 4.5%
Acquisition Expenses (6)................... 7,500 .5% 325,000 .5%
Initial Working Capital Reserve ........... (7) (7)
---------- ------ ---------- -------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
BY CNL XVII AND CNL XVIII (2) ............. $1,245,000 83.0% $54,275,000 83.5%
========== ====== =========== =======
</TABLE>
- ------------------------------------
FOOTNOTES:
(1) For each of CNL XVII and CNL XVIII, but excluding in each case the
purchase of 5,000 Units ($50,000) to be made by the General Partners for
investment. The General Partners may, but are not required to, purchase
for investment up to an additional 15,000 Units ($150,000) of the
Partnership.
(2) It is anticipated that Offering proceeds up to $60,000,000 will be
available to CNL XVII and CNL XVIII in approximately equal amounts, and
that the uses of such Offering proceeds by CNL XVII and CNL XVIII, as
well as the relative amounts of proceeds applied for such purposes, will
be the same for each of CNL XVII and CNL XVIII. All Offering proceeds in
excess of $60,000,000 will be for Units of CNL XVIII, and Offering
proceeds will exceed $60,000,000 only if the Managing Dealer exercises
its option to sell an additional 500,000 Units (all of which will be for
Units of CNL XVIII) if the Offering is oversubscribed.
(3) Gross Proceeds of the Offering are calculated as if all Units are sold
at $10.00 per Unit and do not take into account any reduction in Selling
Commissions. See "The Offering--Plan of Distribution" for a description
of commission discounts available for certain large volume purchases of
Units and for purchases by registered representatives or principals of
the Managing Dealer or Soliciting Dealers. Selling Commissions are
calculated assuming that reduced commissions are not paid in connection
with the purchase of any Units. The Units are being offered to the
public through CNL Securities Corp., which will receive Selling
Commissions of 8.5% on all sales of Units and will act as Managing
Dealer. The Managing Dealer is an Affiliate of the General Partners.
Other broker-dealers may be engaged as Soliciting Dealers to sell Units
and reallowed Selling Commissions of up to 8% with respect to Units
which they sell. In addition, all or a portion of the due diligence
expense reimbursement fee may be reallowed to certain Soliciting Dealers
for expenses incurred by them in selling the Units, including
reimbursement for bona fide expenses incurred in connection with due
diligence activities. See "The Offering--Plan of Distribution" for a
more complete description of this fee.
(4) Organizational and Offering Expenses include legal, accounting,
printing, escrow, filing, registration, qualification, and other
expenses of the organization of the Partnership and the Offering of the
Units, but exclude Selling Commissions and the due diligence expense
reimbursement fee. The General Partners will pay all Organizational and
Offering Expenses which exceed 3% of Gross Proceeds received from the
sale of the Units.
(5) Acquisition Fees include all fees and commissions paid by the
Partnership to any person or entity in connection with the selection or
acquisition of any Property, including Acquisition Fees to
nonaffiliates. Acquisition Fees do not include Acquisition Expenses.
(6) Represents that portion of Acquisition Expenses that are neither
reimbursed to the Partnership nor included in the purchase price of the
Properties, and on which rent is not received, but does not include
certain Acquisition Expenses associated with Property acquisitions that
are part of the purchase price of the Properties, that are included in
the basis of the Properties, and on which rent is received. Acquisition
Expenses include any and all expenses incurred by the Partnership, any
General Partner, or any Affiliate of any General Partner in connection
with the selection or acquisition of any Property, whether or not
acquired, including, without limitation, legal fees and expenses, travel
and communication expenses, costs of appraisals, nonrefundable option
payments on property not acquired, accounting fees and expenses, taxes,
and title insurance, but exclude Acquisition Fees. The portion of
Acquisition Expenses that is attributable to the seller of the
Properties and part of the purchase price of the Properties is
anticipated to range between 1% and 2% of Gross Proceeds.
(7) Because leases will be on a "triple-net" basis, it is not anticipated
that a permanent reserve for maintenance and repairs will be
established. However, to the extent that the Partnership has
insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to 1% of the
Offering proceeds available to the Partnership for maintenance and
repairs. The General Partners also may, but are not required to,
establish reserves from Offering proceeds, operating funds, and the
available proceeds of any Sales of Properties.
18
<PAGE>
MANAGEMENT COMPENSATION
The tables below summarize the types, recipients, methods of
computation, and estimated amounts of all compensation, fees, and distributions
to be paid directly or indirectly by the Partnership to the General Partners and
their Affiliates, exclusive of any distributions to which the General Partners
or their Affiliates may be entitled by reason of their purchase and ownership of
Units. The following arrangements for compensation and fees to the General
Partners and their Affiliates were not determined by arm's-length negotiations.
See "Conflicts of Interest."
NONSUBORDINATED PAYMENTS
The following aggregate amounts of compensation and fees payable to the
General Partners and their Affiliates by CNL XVII and CNL XVIII are not
subordinated to minimum returns to the Limited Partners:
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
-------------------- ------------------------ -----------------
Organizational Stage
<S> <C>
Selling Commissions to Managing Dealer Selling Commissions of 8.5% per Unit on $ 127,500 if 150,000 Units sold
and Soliciting Dealers all Units sold, subject to reduction $5,525,000 if 6,500,000 Units sold(1)
for volume purchases and purchases by
registered representatives and
principals of the Managing Dealer or a
Soliciting Dealer (as described in "The
Offering--Plan of Distribution").
Soliciting Dealers may be reallowed
Selling Commissions of up to 8% with
respect to Units they sell.
Due Diligence expense reimbursement fee Expense allowance of 0.5% of Gross $ 7,500 if 150,000 Units sold
to Managing Dealer Proceeds to the Managing Dealer, all or $325,000 if 6,500,000 Units sold(1)
a portion of which may be reallowed to
Soliciting Dealers. The Managing Dealer
will pay all sums attributable to bona
fide due diligence expenses from this fee.
Reimbursement to General Partners and Actual expenses incur red, except that the Amount is not determinable at this time,
their Affiliates for Organizational General Partners will pay all such expenses but will not exceed 3% of Gross Proceeds
and Offering Expenses in excess of 3% of Gross Proceeds. ($ 45,000 if 150,000 Units sold and
$1,625,000 if 6,500,000 Units sold).(1)
Acquisition Stage
Acquisition Fees to CNL Income Fund 4.5% of the aggregate Capital Contribu- $ 67,500 if 150,000 Units sold
Advisors, Inc. and reimbursement of tions of the Limited Partners, payable to $2,925,000 if 6,500,000 Units sold(1)
Acquisition Expenses to the General CNL Income Fund Advisors, Inc. as
Partners and their Affiliates Acquisition Fees, plus reimbursement to
the General Partners and their Affiliates Acquisition Expenses, which are based on
for expenses actually incurred. a number of factors, including the
Acquisition Fees and Acquisition Expenses purchase price of the Properties, are
are subject to reduction or return in certain not determinable at this time.
circumstances. See Exhibit A--Form of
Amended and Restated Agreement of
Limited Partnership, Article 7.5.
</TABLE>
- ------------------------------------------------------
(1) Compensation and fees that are calculated with reference to the number of
Units sold, the Gross Proceeds, or the Capital Contributions of Limited
Partners will be paid by CNL XVII and CNL XVIII based on the number of
Units sold on behalf of the Partnership, the aggregate Gross Proceeds
available to the Partnership, or the Capital Contributions of Limited
Partners to the Partnership, respectively. A maximum of 3,000,000 Units
($30,000,000) of CNL XVII may be sold, and if the Managing Dealer
exercises its option (in the event the Offering is oversubscribed) to sell
an additional 500,000 Units (all of which will be for Units of CNL XVIII),
a maximum of 3,500,000 Units ($35,000,000) of CNL XVIII may be sold. There
is no item of compensation and no fee that can be paid to the General
Partners or their Affiliates under more than one category.
19
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
-------------------- ------------------------ -----------------
<S> <C>
Operational Stage
Annual Management Fee to CNL The Management Fee represents 1% of Amount is not determinable at this
Income Fund Advisors, Inc. the gross revenues (excluding time. The amount of the Management
noncash lease accounting Fee will depend upon the revenues
adjustments) that the Partnership received from the Partnership's
earns from its Properties. Properties.
Specifically, the Management Fee
equals 1% of the sum of such gross
revenues derived from Properties
wholly owned by the Partnership,
plus, in the case of Properties
owned by any Joint Venture or
partnership in which the Partnership
is a co-venturer or partner, 1% of
the Partnership's allocable share of
such gross revenues. The Management
Fee, which will not exceed fees
which are competitive for similar
services in the same geographic
area, may or may not be taken, in
whole or in part as to any year, in
the sole discretion of CNL Income
Fund Advisors, Inc. All or any
portion of the Management Fee not
taken as to any fiscal year shall be
deferred without interest and may be
taken in such other fiscal year as
CNL Income Fund Advisors, Inc. shall
determine.
Reimbursement to CNL Income Fund Operating expenses (which, in general, Amount is not determinable at this
Advisors, Inc. and Affiliates for are those expenses relating to time.
operating expenses administration of the Partnership on
an ongoing basis) will be reimbursed
at lower of cost or 90% of the
prevailing rate at which comparable
services could have been obtained in
the same geographic area.
Reimbursement of such expenses is
subject to certain conditions set
forth in the Partnership Agreement.
See Exhibit A--Form of Amended and
Restated Agreement of Limited
Partnership, Articles 8.1 and 10.1.
Share of Partnership
Distributions and
Liquidation Stage
See "Payments Subordinated to
Minimum Return to Limited Partners"
on following page.
</TABLE>
- ------------------------------------------------------
(1) Compensation and fees that are calculated with reference to the number of
Units sold, the Gross Proceeds, or the Capital Contributions of Limited
Partners will be paid by CNL XVII and CNL XVIII based on the number of
Units sold on behalf of the Partnership, the aggregate Gross Proceeds
available to the Partnership, or the Capital Contributions of Limited
Partners to the Partnership, respectively. A maximum of 3,000,000 Units
($30,000,000) of CNL XVII may be sold, and if the Managing Dealer
exercises its option (in the event the Offering is oversubscribed) to sell
an additional 500,000 Units (all of which will be for Units of CNL XVIII),
a maximum of 3,500,000 Units ($35,000,000) of CNL XVIII may be sold. There
is no item of compensation and no fee that can be paid to the General
Partners or their Affiliates under more than one category.
20
<PAGE>
PAYMENTS SUBORDINATED TO MINIMUM RETURN TO LIMITED PARTNERS(2)
The following aggregate amounts of compensation, fees, and distributions
payable to the General Partners and their Affiliates by CNL XVII and CNL XVIII
will be payable only after specified distributions have been made to the Limited
Partners, as set forth below.
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
-------------------- ------------------------ -----------------
<S> <C>
Operational Stage
Deferred, subordinated real estate A deferred, subordinated real estate Amount is not determinable at this
disposition fee payable to CNL Income disposition fee, payable upon Sale of time. The amount of this fee, if it
Fund Advisors, Inc. from a Sale or one or more Properties, in an amount becomes payable, will depend upon the
Sales not in liquidation of the equal to the lesser of (i) one-half of price at which Properties are sold.
Partnership a Competitive Real Estate Commission, or
(ii) 3% of the price of such Property or
Properties. Payment of such fee shall be
made only if CNL Income Fund Advisors,
Inc. provides a substantial amount of
services in connection with the Sale of
a Property or Properties and shall be
subordinated to receipt by the Limited
Partners of an amount equal to the sum
of (i) their aggregate Limited Partners'
8% Return and (ii) their aggregate
Invested Capital Contributions. In
general, a Limited Partner's Invested
Capital Contribution is the amount of
cash contributed by the Limited Partner
to the Partnership reduced by certain
prior capital distributions to the
Limited Partner from the Sale of one or
more Properties. If, at the time of a
Sale, payment of the disposition fee is
deferred because the subordination
conditions have not been satisfied at
that time, then the disposition fee
shall be paid at such later time as the
subordination conditions are satisfied.
</TABLE>
- --------------------------------------------
(1) Compensation and fees that are calculated with reference to the number of
Units sold, the Gross Proceeds, or the Capital Contributions of Limited
Partners will be paid by CNL XVII and CNL XVIII based on the number of
Units sold on behalf of the Partnership, the aggregate Gross Proceeds
available to the Partnership, or the Capital Contributions of Limited
Partners to the Partnership, respectively. A maximum of 3,000,000 Units
($30,000,000) of CNL XVII may be sold, and if the Managing Dealer
exercises its option (in the event the Offering is oversubscribed) to sell
an additional 500,000 Units (all of which will be for Units of CNL XVIII),
a maximum of 3,500,000 Units ($35,000,000) of CNL XVIII may be sold.
There is no item of compensation and no fee that can be paid to the
General Partners or their Affiliates under more than one category.
(2) The payments described in this subsection are subordinated to payment to
the Limited Partners of (i) their aggregate Limited Partners' 8% Return
(in general, an amount equal to a 8% annual, noncompounded return on their
Invested Capital Contribution), payable from cash available after
operating expenses and the Management Fee to CNL Income Fund Advisors,
Inc. are paid and any reserves are created, and (ii) in the case of the
real estate disposition fee and the General Partners' share of Net Sales
Proceeds, their aggregate Limited Partners' 8% Return, calculated at the
time of any such Sale, plus an amount equal to their aggregate Invested
Capital Contributions. In general, the Limited Partners' Invested Capital
Contributions are the amount of cash they contributed to the Partnership
reduced by certain prior capital distributions to the Limited Partners
from the Sale of a Property.
21
<PAGE>
<TABLE>
<CAPTION>
Type of Compensation Estimated
and Recipient Method of Computation(1) Maximum Amount(1)
-------------------- ------------------------ -----------------
<S> <C>
Deferred, Subordinated
Share of
Partnership Distributions
General Partners' deferred, subordinated A deferred, subordinated share equal Amount is not determinable at this
share of Net Cash Flow to 5% of Partnership distributions time. Actual amounts depend upon the
of Net Cash Flow, subordinated to result of operations of the
receipt by the Limited Partners of Partnership and the Properties.
their aggregate, noncumulative
Limited Partners' 8% Return for the
related year. See "Allocations and
Distributions."
General Partners' deferred, subordinated A deferred, subordinated share equal Amount is not determinable at this
share of Net Sales Proceeds from a Sale to 5% of Partnership distributions of time.
or Sales not in liquidation of the such Net Sales Proceeds, subordinated
Partnership to receipt by the Limited Partners of
an amount equal to the sum of (i)
their aggregate, cumulative Limited
Partners' 8% Return, and (ii) their
aggregate Invested Capital
Contributions (and to receipt by the
General Partners of their Capital
Contributions and their share of
distributions of Net Cash Flow, to the
extent not previously distributed to
them). See "Allocations and
Distributions."
Liquidation Stage
Subordinated real estate disposition fee See "Operational Stage" above for a Amount is not determinable at this
payable to CNL Income Fund Advisors, Inc. description of this fee. time. The amount of this fee, if it
from a Sale or Sales in liquidation of becomes payable, will depend upon
the Partnership the price at which Properties are
sold.
General Partners' subordinated share of See "Deferred, Subordinated Share of Amount is not determinable at this
Net Sales Proceeds from a Sale or Sales Partnership Distributions" above for time.
in liquidation of the Partnership a description of this share of
distributions.
</TABLE>
- --------------------------------------------
(1) Compensation and fees that are calculated with reference to the number
of Units sold, the Gross Proceeds, or the Capital Contributions of
Limited Partners will be paid by CNL XVII and CNL XVIII based on the
number of Units sold on behalf of the Partnership, the aggregate Gross
Proceeds available to the Partnership, or the Capital Contributions of
Limited Partners to the Partnership, respectively. A maximum of
3,000,000 Units ($30,000,000) of CNL XVII may be sold, and if the
Managing Dealer exercises its option (in the event the Offering is
oversubscribed) to sell an additional 500,000 Units (all of which will
be for Units of CNL XVIII), a maximum of 3,500,000 Units ($35,000,000)
of CNL XVIII may be sold. There is no item of compensation and no fee
that can be paid to the General Partners or their Affiliates under more
than one category.
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CONFLICTS OF INTEREST
The Partnership will be subject to various conflicts of interest arising
out of its relationship to the General Partners and their Affiliates, as
described below.
The following chart indicates the relationship between the General
Partners and those Affiliates that will provide services to the Partnership.
------------------------- -----------------------
JAMES M. SENEFF, JR. ROBERT A. BOURNE
(GENERAL PARTNER) (GENERAL PARTNER)
------------------------- -----------------------
100%
-------------------------
CNL GROUP, INC. (1) 50%
------------------------- 50%
100% 100%
- ------------------------- ---------------------- ------------------------
CNL INCOME FUND
ADVISORS, INC. CNL SECURITIES CORP. CNL REALTY CORPORATION
(PROPERTY ADVISORY AND (MANAGING DEALER) (GENERAL PARTNER)
MANAGEMENT SERVICES)
- ------------------------- ---------------------- ----------------------
(1) MR. SENEFF SHARES OWNERSHIP AND VOTING CONTROL OF CNL GROUP, INC. WITH
DAYLE L. SENEFF, HIS WIFE.
Prior and Future Programs
The General Partners and their Affiliates in the past have organized
other real estate programs, currently have other real estate holdings, and in
the future expect to form, offer interests in, and manage other real estate
programs in addition to CNL XVII and CNL XVIII, and make additional real estate
investments. Some of these involve and will involve the General Partners and
their Affiliates in the ownership, operation, leasing, and management of
fast-food, family-style, and casual dining restaurants, including restaurants
that may be suitable for the Partnership.
Certain of these affiliated public or private real estate programs
invest or may invest solely in fast-food, family-style, and casual dining
restaurants, and may purchase properties concurrently with the Partnership.
Further, such programs may lease fast-food, family-style, and casual dining
restaurant properties to operators who also lease or operate certain of the
Partnership's Properties. These properties, if located in the vicinity of, or
adjacent to, Properties acquired by the Partnership, may affect the Properties'
gross revenues. Such conflicts between the Partnership and affiliated programs
may affect the value of the Partnership's investments as well as its Net Income.
The General Partners believe that they have established guidelines to minimize
such conflicts. See "Certain Conflict Resolution Procedures" below.
An Affiliate of the General Partners currently is purchasing restaurant
properties for a private investor program that was organized to purchase, lease
and/or finance fast-food, family-style, and casual dining restaurant properties,
including furniture, fixtures, equipment and start-up costs associated
therewith. Such program generally will purchase restaurant properties or an
interest therein only when furniture, fixtures, equipment and start-up costs
also will be supplied by the program.
ACQUISITION OF PROPERTIES
The General Partners and their Affiliates regularly have opportunities
to acquire restaurant properties of a type suitable for acquisition by the
Partnership as a result of their existing relationships and past experience with
various fast-food, family- style, and casual dining restaurant chains and their
franchisees. See "Business--General." A purchaser who wishes to acquire one or
more of these properties must do so within a relatively short period of time,
occasionally at a time when the Partnership (due to insufficient funds, for
example) may be unable to make the acquisition.
In an effort to address these situations and preserve the acquisition
opportunities for the Partnership (and other entities with which the General
Partners are affiliated), the General Partners or their Affiliates maintain
lines of credit which enable them
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to acquire these restaurant properties on an interim basis. Typically, no more
than ten to 15 restaurant properties are temporarily owned by the General
Partners or their Affiliates on this interim basis at any particular time. These
restaurant properties generally will be purchased from the General Partners or
their Affiliates, at their cost, by one or more existing or future public or
private programs formed by the General Partners or their Affiliates, potentially
including CNL XVII and CNL XVIII.
The General Partners and their Affiliates could experience potential
conflicts in connection with the negotiation of the purchase price and other
terms of the acquisition of a Property, as well as the terms of the lease of a
Property, due to the ongoing business relationship of the General Partners and
their Affiliates with operators of Restaurant Chains.
The General Partners or their Affiliates also may be subject to
potential conflicts of interest in determining which partnership will acquire a
particular property. In an effort to establish standards for resolving these
potential conflicts, the General Partners have agreed to the guidelines set
forth below under "Allocations of Properties Between CNL XVII and CNL XVIII" and
"Certain Conflict Resolution Procedures," and in Article 11.4 of the Partnership
Agreement. The General Partners have a fiduciary obligation to act in the best
interest of both the Limited Partners and the investors in other programs with
investment objectives that are similar to those of the Partnership and will use
their best efforts to assure that the Partnership will be treated as favorably
as any such other program. See "Fiduciary Responsibility of the General
Partners."
The individual General Partners are directors of Commercial Net Lease
Realty, Inc., a Maryland corporation, and CNL American Properties Fund, Inc., a
separate Maryland corporation, both of which are intended to qualify as real
estate investment trusts for federal income tax purposes (collectively, the
"REITs"). The individual General Partners also are officers of the REITs and
officers and directors of CNL Realty Advisors, Inc. and CNL Fund Advisors, Inc.,
the advisors to Commercial Net Lease Realty, Inc. and CNL American Properties
Fund, Inc., respectively. The REITs, subject to compliance with the provisions
relating to qualification as real estate investment trusts under the Code, have
authority to invest in all types of real property, similar to those to be
acquired by the Partnership, although both have the authority, unlike the
Partnership, to leverage the properties so acquired under certain circumstances
and, in the case of CNL American Properties Fund, Inc., to provide furniture,
fixture and equipment financing. At such time, if any, as either of these
entities wishes to acquire a restaurant property that also would be suitable for
acquisition by the Partnership, a conflict of interest could develop in
determining whether the Partnership or one of the REITs should acquire the
property. The General Partners have a fiduciary duty to act in the best interest
of the Limited Partners, and the individual General Partners, as two of the
directors of both REITs, have a fiduciary duty to act in the best interest of
the REITs, and each will use his best efforts to assure that the Partnership
will be treated as favorably as the REITs in determining which entity will
acquire a particular property. See "Fiduciary Responsibility of the General
Partners."
ALLOCATION OF PROPERTIES BETWEEN CNL XVII AND CNL XVIII
CNL XVII and CNL XVIII each will acquire its own separate portfolio of
Properties. In selecting Properties for acquisition by either CNL XVII or CNL
XVIII, the General Partners will consider the factors discussed throughout this
Prospectus, with particular emphasis on those described in the sections entitled
"Business--General," "Business--Site Selection and Acquisition of Properties,"
"Business--Standards for Investment," and "Investment Objectives and Policies."
CNL XVII and CNL XVIII could compete with each other for suitable
Properties to the extent, if any, that both Partnerships have funds available
for investment in Properties at a particular time. Accordingly, the General
Partners have instituted certain procedures (described below), in addition to
those procedures described in "Certain Conflict Resolution Procedures" below for
resolution of potential conflicts between the Partnership and the General
Partners or other Affiliates.
In general, all acquisitions of Properties will be made by CNL XVII
until substantially all of the net Offering proceeds available to it have been
invested or committed to investment. Thereafter, Properties will be acquired by
CNL XVIII until the net Offering proceeds available to it have been fully
invested or committed to investment. If the General Partners determine that a
Property is not suitable for CNL XVII, however, the General Partners may cause
CNL XVIII to acquire the Property at a time when CNL XVII has uncommitted net
Offering proceeds. The General Partners will determine the suitability of a
particular Property for CNL XVII based on such factors as the amount of the
proposed investment, the amount of funds available to CNL XVII, the effect of
the acquisition on the diversification of the investments of CNL XVII and on the
diversification of the lessees of its Properties (which also may affect the need
for CNL XVII to prepare or produce audited financial statements for a Property
or a lessee), and the anticipated cash flow of CNL XVII and CNL XVIII.
In addition to the factors listed above, the General Partners intend to
apply two additional standards if necessary or advisable in order to resolve
potential conflicts relating to allocations of Properties between CNL XVII and
CNL XVIII. First, the Partnership generally will not acquire a Property if, as a
result, more than 20% of its Gross Proceeds would be invested in Properties that
would be leased to a single lessee or a group of affiliated lessees. Second, the
General Partners expect that the Partnership's Properties will be located in
various states and regions throughout the United States and, in general, the
Partnership
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will not acquire a Property if, as a result, more than 30% of its Gross Proceeds
would be invested in Properties located in a single state. The General Partners
have undertaken to supplement this Prospectus during the Offering period to
disclose the acquisition of a Property at such time as the General Partners
believe that a reasonable probability exists that the Property will be acquired
by the Partnership.
SALES OF PROPERTIES
A conflict also could arise in connection with the General Partners'
determination as to whether or not to sell a Property, since the interests of
the General Partners and the Limited Partners are likely to differ as a result
of their distinct financial and tax positions and the compensation to which the
General Partners or their Affiliates may be entitled upon the Sale of a
Property. See "Management Compensation" for a description of these compensation
arrangements. In the unlikely event that the Partnership and another program
managed by the General Partners attempted to sell similar properties at the same
time, a conflict could arise since the two programs potentially could compete
with each other for a suitable purchaser. In order to resolve this potential
conflict, the General Partners have agreed not to sell any of the Partnership's
Properties contemporaneously with a property owned by another program managed by
the General Partners if the two properties are part of the same Restaurant Chain
and are within a three-mile radius of each other, unless the General Partners
are able to locate a suitable purchaser for each property.
JOINT INVESTMENT WITH AN AFFILIATED PROGRAM
The Partnership may invest in Joint Ventures and Co-Tenancy Arrangements
with another public program sponsored by the General Partners whose securities
were, are, or will be offered to the public pursuant to a registration statement
filed under the Securities Act of 1933, as amended, to purchase and hold
Properties for investment if all of the following conditions are met: (i) the
two programs have substantially identical investment objectives, (ii) there are
no duplicate management or other fees, (iii) compensation to the General
Partners and their Affiliates is substantially the same in each program, (iv)
each program has a right of first refusal to buy the Property held in the Joint
Venture or Co-Tenancy Arrangement, at the Property's fair market value as
determined by an independent appraisal, if the other program has the right to
sell such Property, and (v) each program's investment is on substantially the
same terms and conditions. CNL XVII and CNL XVIII also may enter into Joint
Ventures or Co-Tenancy Arrangements with each other provided the foregoing
conditions are met. There may be a potential risk of impasse in Joint Venture or
Co-Tenancy Arrangement decisions since neither program will control the Joint
Venture or Co-Tenancy Arrangement. Although either program will have the
effective right to buy the Property from the co-venturer or co-tenant by
purchasing the co-venturer's or co-tenant's interest in the Joint Venture or
Co-Tenancy Arrangement, it may not have the resources to do so at the time of
the sale.
COMPETITION FOR MANAGEMENT TIME
The General Partners and their Affiliates currently are engaged, and in
the future will engage, in the management of other business entities and
properties and in other business activities. They will devote only as much of
their time to the business of the Partnership as they, in their judgment,
determine is reasonably required. The General Partners and their Affiliates may
experience conflicts of interest in allocating management time, services, and
functions among the various existing partnerships in which one or more of them
serve as general partners (including CNL XVII, CNL XVIII, and 16 other public
partnerships with investment objectives similar to those of the Partnership),
any investor programs (public or private) which the General Partners or their
Affiliates may organize in the future, and any other business ventures in which
the General Partners or their Affiliates are or may become involved. CNL XVII
and CNL XVIII will be engaged in their business operations simultaneously,
thereby increasing the potential for conflicts of interest in the allocation of
management time, services, and functions between the two Partnerships.
COMPENSATION OF GENERAL PARTNERS AND AFFILIATES
The General Partners and their Affiliates will be engaged to perform
various services for the Partnership and will receive fees and compensation for
such services. None of the agreements for such services were the result of
arm's-length negotiations. The General Partners believe, however, that the terms
of such arrangements are reasonable and no less favorable than those which could
be obtained from unaffiliated entities. The timing and nature of these fees and
compensation could create a conflict between the interests of the General
Partners and those of the Limited Partners in connection with the engagement of
CNL Income Fund Advisors, Inc. as manager of the Partnership's Properties or the
proposed disposition of one or more Properties. See "Management Compensation."
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RELATIONSHIP WITH MANAGING DEALER
The Managing Dealer is CNL Securities Corp., an Affiliate of the General
Partners. The individual General Partners are officers, directors, and
registered principals of the Managing Dealer. This relationship may create
conflicts in connection with the fulfillment by the Managing Dealer of its due
diligence obligations under the federal securities laws. Although the Managing
Dealer will examine the information in the Prospectus for accuracy and
completeness, the Managing Dealer is an Affiliate of the General Partners and
will not make an independent review of the Partnership and the Offering.
Accordingly, the investors do not have the benefit of such independent review.
Certain of the Soliciting Dealers have made, or are expected to make, their own
independent due diligence investigations. The Managing Dealer is not prohibited
from acting in any capacity in connection with the offer and sale of securities
offered by entities that may have investment objectives similar to those of the
Partnership and is expected to participate in other offerings sponsored by one
or more of the General Partners.
LEGAL REPRESENTATION
Baker & Hostetler, which serves as securities counsel to the Partnership
in this Offering, also serves as securities counsel for the General Partners and
certain of their Affiliates, including other real estate programs, in connection
with other matters. Neither the Partnership nor the Limited Partners will have
separate counsel. In the event any controversy arises following the termination
of this Offering in which the interests of the Partnership appear to be in
conflict with those of the General Partners or their Affiliates, other counsel
may be retained for one or both parties.
CERTAIN CONFLICT RESOLUTION PROCEDURES
In order to reduce or eliminate certain potential conflicts of interest,
the Partnership Agreement contains a number of restrictions relating to (i)
transactions between the Partnership and the General Partners or their
Affiliates, (ii) certain future partnership offerings, and (iii) allocation of
restaurant properties among certain affiliated partnerships. These restrictions
include, among others, the following:
1. No goods or services will be provided by the General Partners or
their Affiliates to the Partnership except for transactions in which the General
Partners or their Affiliates provide goods or services to the Partnership in
accordance with the Partnership Agreement or under extraordinary circumstances
and in accordance with additional conditions. All transactions between the
Partnership and the General Partners or their Affiliates for the provision of
goods or services to the Partnership, other than those specifically provided for
in the Partnership Agreement, must be evidenced by written agreements which may
be terminated without penalty, upon 60 days' prior written notice, by vote of
Limited Partners holding a majority of the outstanding Units. In addition, the
terms of such agreements will be comparable to the terms available from
unrelated parties, and the compensation payable thereunder shall be limited to:
(i) the actual cost to the General Partners and their Affiliates of all goods,
materials, and services used for or by the Partnership, which are necessary to
the prudent operation of the Partnership and are obtained from entities
unaffiliated with the General Partners or their Affiliates; and (ii) the lower
of the actual cost of administrative services performed by the General Partners
or their Affiliates which are reasonably necessary to the prudent operation of
the Partnership, or 90% of the amount charged by independent parties for
comparable services in the same geographic area.
2. Reimbursement of the General Partners or their Affiliates for
operating expenses of the Partnership is limited to (i) the cost to the General
Partners or their Affiliates of goods, materials, and services obtainable from
unaffiliated parties which are necessary for the prudent operation of the
Partnership, and (ii) the lower of the actual cost of administrative services
performed by the General Partners or their Affiliates which, in the opinion of
the General Partners, are necessary to the prudent operation of the Partnership,
or 90% of the amount charged by independent parties for comparable services in
the same geographic area.
3. The Partnership will not purchase or lease Properties in which the
General Partners or their Affiliates have an interest, except that the General
Partners or their Affiliates, subject to certain limitations, may purchase and
temporarily own Properties for the purpose of facilitating the acquisition of
such Properties by the Partnership. The Partnership will not sell or lease
Properties to the General Partners or their Affiliates.
4. The Partnership will not make any loans to the General Partners or
their Affiliates. The General Partners and their Affiliates will not make loans
to the Partnership, or to Joint Ventures in which the Partnership is a
co-venturer, for the purchase of Properties. The Partnership may, but does not
expect to, borrow for other purposes. Interest and fees on any amounts loaned to
the Partnership by the General Partners or their Affiliates for other purposes
will not exceed those charged for comparable loans. The General Partners or
their Affiliates shall be entitled to reimbursement, at cost, for actual
expenses incurred by the General Partners or their Affiliates on behalf of the
Partnership or Joint Venture.
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5. Until completion of this Offering, the General Partners and their
Affiliates will not offer or sell interests in any public limited partnership
program that has investment objectives and structure similar to those of the
Partnership and that intends to invest on a non-leveraged basis primarily in a
diversified portfolio of existing restaurant properties (as well as properties
upon which restaurants are to be constructed) to be leased on a "triple-net"
basis to operators of national and regional fast-food, family-style, and casual
dining Restaurant Chains. The General Partners also will not purchase property
for any such subsequently formed public investor program that has investment
objectives and structure similar to the Partnership and that intends to invest
on a non-leveraged basis primarily in a diversified portfolio of existing
restaurant properties (as well as properties upon which restaurants are to be
constructed) to be leased on a "triple-net" basis to operators of national and
regional fast-food, family-style, and casual dining Restaurant Chains until
substantially all (generally, 80%) of the funds available for investment (net
Offering proceeds) by CNL XVII and CNL XVIII have been invested or committed to
investment. For purposes of the preceding sentence only, funds are deemed to
have been committed to investment to the extent written agreements in principle
or letters of understanding are executed and in effect at any time, whether or
not any such investment is consummated, and also to the extent any funds have
been reserved to make contingent payments in connection with any Property,
whether or not any such payments are made. The General Partners also agreed to
these standards in connection with the offerings and investments of the 16 prior
CNL Income Funds, 15 of which have invested or committed to investment
substantially all of their funds. As of the date hereof, however, the remaining
partnership, CNL XVI, had not yet invested or committed to investment
substantially all of its funds. Neither CNL XVII nor CNL XVIII may purchase any
Properties until substantially all of the funds of CNL XVI have been invested or
committed to investment. See "Prior Performance of the General Partners and
Affiliates" for certain information regarding the status of the investment
program of CNL XVI. However, the General Partners or their Affiliates in the
future may offer interests in one or more private investor programs organized to
purchase and lease fast-food, family-style, and casual dining restaurants on a
"triple-net" basis. An Affiliate of the General Partners currently is purchasing
restaurant properties for a private investor program which has investment
objectives that are not similar to those of the Partnership, but that was
organized to purchase and lease, on a "triple-net" basis, fast-food,
family-style, and casual dining restaurant properties, as well as the furniture,
fixtures and equipment located at such properties and the initial capital
required to commence operations at such properties. Additionally, CNL American
Properties Fund, Inc., a corporation intended to qualify as a real estate
investment trust which is an Affiliate of the General Partners, is currently
offering shares to the public pursuant to a separate prospectus in order to
raise funds for the purchase of restaurant properties similar to those intended
to be purchased by the Partnership. Further, Commercial Net Lease Realty, Inc.,
a real estate investment trust which is an Affiliate of the General Partners,
but which has investment objectives which are not similar to those of the
Partnership, owns certain restaurant properties and may purchase in the future
additional restaurant properties which are similar to those intended to be
purchased by the Partnership. Because each of the Affiliates described above
have either investment objectives which differ from those of the Partnership, or
structure which differs from that of the Partnership and/or may purchase, on a
leveraged basis, restaurant properties similar to those intended to be purchased
by the Partnership, the allocation of future restaurant property acquisitions
among such entities and the Partnership will occur pursuant to Conflict
Resolutions Procedure No. 6 set forth below.
6. The General Partners have agreed that in the event that a public or
private entity (other than the Partnership) with which the General Partners or
their Affiliates are affiliated intends to invest in restaurant properties
similar to the type intended to be purchased by the Partnership to be leased on
a "triple-net" basis to operators of national and regional fast-food, family-
style, and casual dining Restaurant Chains, and an investment opportunity for
such a restaurant property becomes available which is suitable for such entity
and the Partnership and for which both entities have sufficient uninvested
funds, then the entity which has had the longest period of time elapse since it
was offered an investment opportunity for such a restaurant property will first
be offered the investment opportunity. An investment opportunity will not be
considered suitable for a program if the provisions of Item 5 above could not be
satisfied if the program were to make the acquisition. In determining whether or
not an investment opportunity is suitable for more than one program, the General
Partners and their Affiliates will examine such factors, among others, as the
cash requirements of each program, the effect of the acquisition both on
diversification of each program's investments by types of restaurants and
geographic area, and on diversification of the lessees of its properties (which
also may affect the need for one of the programs to prepare or produce audited
financial statements for a property or a lessee), the anticipated cash flow of
each program, the size of the investment, the amount of funds available to each
program, and the length of time such funds have been available for investment.
If a subsequent development, such as a delay in the closing of a property or a
delay in the construction of a property, causes any such investment, in the
opinion of the General Partners, to be more appropriate for an entity other than
the entity which committed to make the investment, however, the General Partners
have the right to cause an affiliated program to make the investment.
FIDUCIARY RESPONSIBILITY OF THE GENERAL PARTNERS
The General Partners are accountable to the Partnership as fiduciaries
and consequently must exercise good faith and integrity in handling Partnership
affairs. Under Florida law, each Limited Partner will have the right to bring an
action on behalf
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of the Partnership (a derivative action) to recover a judgment in the
Partnership's favor, including an action against a General Partner for breach of
his or its fiduciary duties. This right is available if the General Partners who
have authority to bring such an action have refused to bring the action or if an
effort to cause the General Partners to bring the action is not likely to
succeed. In addition, a breach of fiduciary duties by a General Partner may give
the Limited Partners the right to institute a class action on behalf of
themselves and other similarly situated Limited Partners or to seek relief under
federal or state securities laws.
By statute, a general partner of a Florida limited partnership has the
same liabilities to the partnership and the partners as a partner in a
partnership without limited partners. In any action alleging a breach of the
fiduciary duties of the General Partners to either the Limited Partners or the
Partnership, it therefore is not anticipated that the General Partners will be
able to assert as a defense the so-called "business judgment rule," which
creates a presumption that the actions of directors of corporations on behalf of
the corporation are reasonable. This is a rapidly developing and changing area
of the law, however, and Limited Partners who have questions concerning the
duties or defenses of the General Partners should consult with their counsel.
The Partnership Agreement provides that the General Partners, as well as
any of their Affiliates (including certain officers and directors of the
corporate General Partner or any of the Affiliates of the General Partners) who
performs services for the Partnership within the scope of the General Partners'
authority, will not be liable to the Partnership or the Limited Partners for any
act or omission performed or omitted by them in good faith, but only for
misconduct, negligence, or breach of fiduciary duty to the Limited Partners or
the Partnership. The Partnership Agreement also provides that such persons will
be indemnified by the Partnership for any loss, damage or expenses, including
attorneys' fees and costs payable by such persons, that they may incur in
connection with an action, suit, or proceeding to which the person is or was a
party by reason of the fact that such person was a General Partner or Affiliate
of a General Partner if the General Partners determined in good faith that the
course of conduct which caused the loss or damage was in the best interests of
the Partnership, except indemnification shall not be available for conduct that
constitutes misconduct, negligence, or breach of fiduciary duty to the Limited
Partners. Thus, the Limited Partners may have a more limited right of action
than would be the case absent such provision.
Notwithstanding the foregoing, however, the Partnership will not
indemnify a General Partner or Affiliate, or any person acting as a
broker-dealer, for any loss, liabilities or expenses arising from or out of an
alleged violation of federal or state securities laws unless the following
conditions are met: (i) there has been a successful adjudication on the merits
of each count involving an alleged securities law violation as to the particular
indemnitee, (ii) such claims have been dismissed with prejudice on the merits by
a court of competent jurisdiction as to the particular indemnitee, or (iii) a
court of competent jurisdiction approves a settlement of the claims against a
particular indemnitee and finds that indemnification of the settlement and
related costs should be made provided the court considering the request for
indemnification has been advised of the position of the Securities and Exchange
Commission and the position of the securities regulatory authorities of those
states in which the plaintiffs claim they were offered and sold Units as to
indemnification for violations of securities laws. In the opinion of the
Securities and Exchange Commission, indemnification for liabilities arising
under the Securities Act of 1933, as amended, is contrary to public policy and
therefore unenforceable.
The Partnership Agreement also provides that the Partnership may make
advances to the General Partners and their Affiliates (including certain
officers and directors of the corporate General Partner or any of the Affiliates
of the General Partners) for legal expenses and costs incurred as a result of
legal action if (i) the legal action relates to the performance of duties or
services on behalf of the Partnership, (ii) the action is not initiated by a
Limited Partner, or (if the action is initiated by a Limited Partner) a court of
competent jurisdiction specifically approves such advance, and (iii) the General
Partners or their Affiliates agree to repay such advance, together with interest
at the rate of prime plus one percent, to the Partnership if they are determined
not to be entitled to indemnification by the Partnership.
Indemnification will be payable only from insurance policies which
insure the General Partners against some or all of such losses, damages, and
expenses (not currently including federal securities laws claims), and to the
extent not covered by insurance policies, from Partnership assets.
Indemnification will not be payable from personal assets of the Limited
Partners.
SUMMARY OF DISTRIBUTION REINVESTMENT PLAN
The Partnership has adopted the Distribution Reinvestment Plan pursuant
to which Limited Partners who purchase Units in the initial Offering may elect
to have the full amount of their cash distributions from the Partnership
reinvested in additional Units of the Partnership. California residents and
Limited Partners who elect to receive monthly distributions, which will be paid
in arrears, may not participate in the Distribution Reinvestment Plan. Neither
the General Partners nor their Affiliates will sell any Units held by them as
Limited Partners pursuant to the provisions of the Distribution Reinvestment
Plan. In addition, certain Soliciting Dealers may not offer their clients the
opportunity to participate in the Distribution Reinvestment Plan. Each
prospective investor who wishes to participate in the Distribution Reinvestment
Plan should consult with the investor's Soliciting
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Dealer as to the Soliciting Dealer's position regarding participation in the
Distribution Reinvestment Plan. Persons not purchasing Units in the initial
Offering who want to participate in the Distribution Reinvestment Plan must
receive a separate prospectus relating solely to the Distribution Reinvestment
Plan. CNL XVII and CNL XVIII each will have a separate Distribution Reinvestment
Plan, and the individual plan will only purchase Units issued by the Partnership
that adopted the Distribution Reinvestment Plan. The following discussion
summarizes the principal terms of the Distribution Reinvestment Plan. The
Distribution Reinvestment Plan is attached hereto as Exhibit D.
GENERAL
An independent agent (the "Reinvestment Agent"), which currently is MMS
Escrow and Transfer Agency, Inc., will act on behalf of the participants in the
Distribution Reinvestment Plan (the "Participants"). Prior to the time that the
Offering terminates, the Distribution Reinvestment Agent will invest all cash
distributions attributable to Units owned by Participants in Units of the
Partnership at the public offering price per Unit, or $10.00 per Unit. Until the
Offering has terminated, Participants will be charged Selling Commissions on
Units purchased for their accounts on the same basis as other investors
purchasing in the Offering. See "The Offering--Plan of Distribution."
Accordingly, the Partnership will pay the Managing Dealer, which is an affiliate
of the General Partners, Selling Commissions of 8.5% (subject to reduction under
the circumstances provided under "The Offering--Plan of Distribution") and a due
diligence fee of 0.5%. CNL Income Fund Advisors, Inc., which is an affiliate of
the General Partners, will receive Acquisition Fees of 4.5% of the purchase
price of the Units sold pursuant to the Distribution Reinvestment Plan until the
termination of the Offering. Affiliates of the General Partners will receive
between 5% and 13.5% of the Gross Proceeds as fees (depending on the portion of
the Selling Commissions and the due diligence expense reimbursement fee
reallowed to Soliciting Dealers) and a maximum of 3% of the Gross Proceeds as
reimbursement of Organizational and Offering Expenses and 0.5% in Acquisition
Expenses that they incur on behalf of the Partnership in connection with the
Offering. No additional fees will be charged with respect to Units purchased
under the Distribution Reinvestment Plan other than those paid with respect to a
purchase of Units in the Offering, except for the nominal administrative charge
to each participant of the lesser of $2.50 or 5%, with a minimum charge of
$0.50, of the reinvestment amount per quarter. All Units available for purchase
under the Distribution Reinvestment Plan either are registered pursuant to this
Prospectus or, if necessary, will be registered under the Securities Act of
1933, as amended, through a separate prospectus relating solely to the
Distribution Reinvestment Plan. After the Offering has terminated, the
Reinvestment Agent will reinvest the distributions in Units of the Partnership
purchased from Limited Partners to the extent Units are available for purchase
and subject, in all cases, to the General Partners' good faith judgment that
such purchases will not cause the Partnership to be considered a "publicly
traded partnership" under the Code. See "Federal Income Tax
Considerations--Publicly Traded Partnerships." Selling Commissions will not be
paid on Units purchased pursuant to the Distribution Reinvestment Plan after the
Offering has terminated.
Outstanding Units will be purchased from Limited Partners at a price
that is competitive with prevailing market prices and on such other terms as the
Reinvestment Agent shall determine. It is not anticipated that there will be a
market for the Units. See "Risk Factors--Investment Risks--Lack of Market for
Units." Accordingly, in determining the "market price" of the Units for this
purpose, it is expected that the purchase price for Units purchased from Limited
Partners will be determined by reference to the following factors, as well as
any others deemed relevant or appropriate by the Reinvestment Agent: (i) the
price at which Units have been purchased from Limited Partners, either pursuant
to the Distribution Reinvestment Plan or outside of the Distribution
Reinvestment Plan (to the extent the Partnership has information regarding the
prices paid for Units purchased outside the Distribution Reinvestment Plan),
(ii) the annual statement of Unit valuation provided to certain Limited Partners
(see "Reports to Limited Partners"), and (iii) the price at which Limited
Partners are willing to sell their Units. Units purchased during any particular
period of time therefore may be purchased at varying prices.
INVESTMENT OF DISTRIBUTIONS
Distributions will be used by the Reinvestment Agent, promptly following
the payment date with respect to such distributions, to purchase Units on behalf
of the Participants from the Partnership (prior to the time that all Units of
the Partnership are sold) or from Limited Partners who wish to sell their Units
(after such time) to the extent such Units are available. If sufficient Units
are not available, the distributions will be held in one or more
interest-bearing accounts until Units are available for purchase. Any such funds
that have not been invested in Units within 30 days after receipt by the
Reinvestment Agent and, in any event, by the end of the fiscal quarter in which
they are received, will be paid to the Participants, however. The interest
earned on such accounts will be paid to the Partnership to the extent necessary
to pay for any administrative expenses relating to the costs of the Plan and any
excess remaining thereafter shall be distributed, in its entirety, to the
General Partners.
At this time, Participants will not have the option to make voluntary
contributions to the Distribution Reinvestment Plan to purchase Units in excess
of the amount of Units that can be purchased with their cash distributions. The
General Partners reserve the right, however, to amend the Distribution
Reinvestment Plan in the future to permit voluntary contributions to the
Distribution Reinvestment Plan by Participants.
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PARTICIPANT ACCOUNTS, FEES, AND ALLOCATION OF UNITS
For each Participant, the Reinvestment Agent will maintain an account
which shall reflect for each fiscal quarter the distributions received by the
Reinvestment Agent on behalf of such Participant. A Participant's account shall
be reduced as purchases of Units are made on behalf of such Participant. At the
end of each fiscal quarter, the Reinvestment Agent shall disburse to each
Participant an amount equal to the balance in such Participant's account. The
Partnership shall be responsible for all administrative charges and expenses
charged by the Reinvestment Agent. Any interest earned on such accounts will be
paid to the Partnership to defray certain costs relating to the Distribution
Reinvestment Plan and any excess will be distributed to the General Partners.
The administrative charge to each Participant for each fiscal quarter will be
the lesser of 5% of the amount reinvested for the Participant or $2.50, with a
minimum charge of $0.50. The maximum annual charge is $10.00.
Each Participant during a fiscal quarter will acquire and own a pro rata
portion of each Unit acquired pursuant to the Distribution Reinvestment Plan
during such quarter, based on the amount in the Participant's account at the
time the Unit is acquired. The ownership of the Units shall be reflected on the
books of the Partnership and in each Partner's Capital Account. Subject to the
provisions in Article Fourteen of the Partnership Agreement relating to certain
restrictions on and the effective dates of transfer, Units acquired pursuant to
the Distribution Reinvestment Plan will entitle the Participant to the same
rights and be treated in the same manner as those purchased by the Participants
in the Offering.
The allocation of Units among Participants may result in the ownership
of fractional Units, computed to four decimal places.
REPORTS TO PARTICIPANTS
Within 60 days after the end of each fiscal quarter, the Reinvestment
Agent will mail to each Participant a statement of account describing, as to
such Participant, the distributions received during the quarter, the number of
Units purchased during the quarter, the per Unit purchase price for such Units,
the total administrative charge to each Participant (see "Participant Accounts,
Fees, and Allocation of Units" above), and the total Units purchased on behalf
of the Participant pursuant to the Reinvestment Plan.
ELECTION TO PARTICIPATE OR TERMINATE PARTICIPATION
Limited Partners of the Partnership may become Participants in the
Distribution Reinvestment Plan by making a written election to participate on
their Subscription Agreements at the time they subscribe for Units. No Limited
Partner, however, who is a resident of the State of California is eligible to
become a Participant in the Distribution Reinvestment Plan. Any other Limited
Partner who has not previously elected to participate in the Distribution
Reinvestment Plan may so elect at any time by written notice to the General
Partners of such Limited Partner's desire to participate in the Distribution
Reinvestment Plan. Participation in the Distribution Reinvestment Plan will
commence with the next distribution payable after receipt of the Participant's
notice, provided it is received at least ten days prior to the last day of the
fiscal quarter to which such distribution relates. Subject to the preceding
sentence, the election to participate in the Distribution Reinvestment Plan,
whether made upon subscription or subsequently, will apply to all distributions
attributable to the fiscal quarter in which the Limited Partner made such
written election to participate in the Distribution Reinvestment Plan and to all
fiscal quarters thereafter. Participants will be able to terminate their
participation in the Distribution Reinvestment Plan at any time without penalty
by delivering ten days' written notice to the General Partners.
The General Partners reserve the right to prohibit Qualified Plans from
participating in the Distribution Reinvestment Plan if such participation would
cause the underlying assets of the Partnership to constitute "plan assets" of
Qualified Plans. See "The Offering--Investment by Qualified Plans and Individual
Retirement Accounts."
FEDERAL INCOME TAX CONSIDERATIONS
Taxable Limited Partners who elect to participate in the Distribution
Reinvestment Plan may incur a tax liability for Partnership income and gain
allocated to them even though they have elected not to receive their
distributions in cash but rather to have their distributions held pursuant to
the Distribution Reinvestment Plan. For a discussion of the federal income tax
consequences of participation in the Distribution Reinvestment Plan, see
"Federal Income Tax Considerations--Distribution Reinvestment Plan."
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AMENDMENTS AND TERMINATION
The Partnership reserves the right to amend any aspect of the
Distribution Reinvestment Plan, provided that notice of the amendment is sent to
Participants at least 30 days prior to the effective date thereof. The
Partnership also reserves the right to terminate the Distribution Reinvestment
Plan for any reason at any time by ten days' prior written notice of termination
to all Participants.
CAPITALIZATION
The capitalization of each of CNL XVII and CNL XVIII assuming the sale
of the minimum of 150,000 Units of each Partnership necessary to break escrow
(after deduction of $180,000 for Selling Commissions, due diligence expense
reimbursement fee, and estimated Organizational and Offering Expenses) is set
forth below.
Minimum
150,000 Units
-------------
General Partners' Capital Contributions ....... $ 1,000
Limited Partnership Units ($10.00 per Unit) ... 1,320,000
----------
Total ............................... $1,321,000
==========
BUSINESS
GENERAL
The Partnership intends to purchase existing fast-food, family-style,
and casual dining restaurant Properties, including land and buildings, as well
as Properties upon which such restaurants are to be constructed, the land
underlying the restaurant building, with the building owned by the lessee or a
third party, and the building only with the land owned by a third party. The
Properties, which typically will be freestanding and will be located across the
United States, will be leased on a "triple-net" basis to creditworthy operators
of certain national and regional fast-food, family-style, and casual dining
Restaurant Chains to be selected by the General Partners. Properties purchased
by the Partnership are expected to be leased under arrangements requiring base
annual rent equal to a specified percentage of the Partnership's cost of
purchasing a particular Property, with automatic rent increases, as well as
percentage rent based on gross sales. See "Description of Leases--Computation of
Lease Payments" below.
It is expected that the Partnership will invest in Properties of
selected Restaurant Chains that are national and regional restaurant chains,
primarily fast-food, family-style, and casual dining chains. Fast-food
restaurants feature quality food and quick service, which often includes
drive-through service, and offer a variety of menu items such as hamburgers,
steaks, seafood, chili, pizza, pasta dishes, chicken, hot and cold sandwiches,
and salads. Family-style restaurants feature services that generally are
associated with full-service restaurants, such as full table service,
cooked-to-order foods, but at more moderate prices and three meal a day service.
The casual-dining segment features a variety of popular contemporary foods, full
table service, moderate prices, and surroundings that are appealing to families.
The casual-dining segment of the restaurant industry, like the family-style
segment, features services that generally are associated with the full-service
restaurant category. According to forecasts appearing in the January 1, 1995
issue of Restaurants and Institutions, it is projected that the casual dining
segment of full-service restaurants will experience 3.5% real growth this year,
with sales predicted to reach $44 billion. The top 15 casual dining chains have
a total of 3,587 restaurants throughout the United States.
The restaurant industry is one of the largest industries in the United
States in volume of sales and number of employees (approximately 9 million
persons) and includes fast-food outlets, cafeterias, lunchrooms, convenience
stores, family-style restaurants, full-service restaurants, and contract and
industrial feeders. By the year 2000, food service sales are expected to exceed
$400 billion. Industry publications project that restaurant industry sales will
increase from $173.7 billion in 1985 to $289.7 billion in 1995. Restaurant
industry sales for 1994 were $276.7 billion. In 1994, nominal growth, which is
comprised of real growth and inflationary growth, was 4.4% and is estimated to
be 4.7% in 1995. Real growth of the restaurant industry in 1994 was 2.7%, and
industry analysts currently estimate that the restaurant industry will achieve
2.4% real growth in 1995; however, according to the National Restaurant
Association, fast-food restaurants should outpace the industry average for real
growth, with a projected 5% increase over 1994. Sales in this segment of the
restaurant industry are projected to be $93.4 billion for 1995.
The Partnership will invest in the fast-food, family-style, and casual
dining segments of the restaurant industry, the most rapidly growing segments in
recent years. According to the National Restaurant Association, 51% of adults
eat at a quick-service
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restaurant and 42% of adults patronize a moderately-priced family restaurant at
least once each week. USA Today reported that in 1994, for the first time in
history, time-starved Americans spent as much money eating out as they did
eating at home. Experts attributed this to the increasing number of two-earner
families which has soared from 16 million in 1960 to 30 million today. In
addition, the National Restaurant Association indicates that Americans spend
approximately 43 cents of every food dollar on dining away from home. Surveys
published in Restaurant Business indicate that families with children choose
quick-service restaurants four out of every five times they dine out.
Additionally, according to The Wall Street Journal (May 11, 1992) the average
American spends $19,791 on fast-food in a lifetime. Further, according to
Nation's Restaurant News, the 100 largest restaurant chains are posting an
average of 7.58% growth in their sales figures for 1994. The sandwich segment is
expected to experience the third highest sales growth in 1994, 8.2% over 1993
figures, and, the casual dining segment, posting the strongest growth in all
market categories, is expected to experience systemwide sales growth of 15.11%
in 1994. The General Partners believe that these growth trends will continue,
particularly in the fast-food, family-style, and casual dining segments of the
industry, and the Partnership will have the opportunity to participate in these
segments through the ownership of Properties leased to operators of fast-food,
family-style, and casual dining Restaurant Chains.
The fast-food, family-style, and casual dining segments of the
restaurant industry have demonstrated their ability to adapt to changes in
consumer preferences, such as health and dietary issues, decreases in the
disposable income of consumers, and environmental awareness, through various
innovative techniques, including special value pricing and promotions, increased
advertising, menu changes featuring low-calorie, low-cholesterol menu items, and
new packaging and energy conservation techniques.
The table set forth below provides information with respect to
Restaurant Chains in which Affiliates of the General Partners (consisting of a
public REIT, 16 public partnerships and 6 private partnerships) have invested,
as of January 19, 1995:
<TABLE>
<CAPTION>
Approximate Aggregate
Dollars Invested by Percentage of Number of
Restaurant Chain Partnership Affiliates Dollars Invested Prior Programs
<S> <C>
Golden Corral $91,368,000 15.5% 21
Burger King 84,306,000 14.3% 21
Denny's 73,693,000 12.5% 18
Jack in the Box 59,652,000 10.1% 12
Hardee's 58,599,000 10.0% 13
Long John Silver's 30,650,000 5.2% 6
Shoney's 28,825,000 4.9% 9
Wendy's 24,593,000 4.2% 13
Checkers 19,370,000 3.3% 7
Perkins 16,311,000 2.8% 9
KFC 13,067,000 2.2% 9
Pizza Hut 12,404,000 2.1% 7
Popeyes 9,347,000 1.6% 7
TGI Friday's 7,950,000 1.4% 5
Taco Bell 6,428,000 1.1% 5
Ponderosa 3,210,000 0.6% 4
Captain D's 2,819,000 0.5% 4
</TABLE>
The General Partners intend to structure the Partnership's investments
to allow it to participate, to the maximum extent possible, in any sales growth
in these industry segments, as reflected in the Properties that it owns. The
Partnership therefore intends to structure all of its leases with percentage
rent requirements which are based on gross sales of the particular restaurant.
Gross sales may increase even absent real growth because increases in the
restaurant's costs are passed on to the consumers through increased prices, and
increased prices are reflected in gross sales. In an effort to provide regular
cash flow to the Partnership, the Partnership's leases also will provide a
minimum level of rent that is payable regardless of the amount of gross sales at
a particular Property. The Partnership also will endeavor to maximize growth and
minimize risks associated with ownership and leasing of real estate that
operates in these industry segments through careful selection and screening of
its lessees (as described in "Standards for Investment" below) in order to
reduce risks of tenant default; monitoring statistics relating to restaurant
chains and continuing to develop relationships in the industry; and acquisition
of Properties for all cash, with no debt or liens relating to the Properties, in
order to reduce certain risks associated with investment in real estate. See
"Standards for Investment" below for a description of the standards which the
General Partners will employ in selecting Restaurant Chains and particular
restaurant Properties within a Restaurant Chain for investment.
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The General Partners expect to acquire Properties in part with a view to
diversification among Restaurant Chains and the geographic location of the
Properties. There are no restrictions on the geographic area or areas within the
United States in which Properties acquired by the Partnership may be located. It
is anticipated that, as in the prior public programs sponsored by the General
Partners (which have invested in fast-food, family-style, and casual dining
restaurant properties located in the District of Columbia and an aggregate of 39
states in all regions of the United States), the Properties acquired by the
Partnership will be located in various states and regions within the United
States. As of the initial date of this Prospectus, the Partnership had not
entered into any arrangements that create a reasonable probability that the
Partnership will purchase any Property, nor had any restaurant Properties
definitively been selected for acquisition by the Partnership.
While the Partnership may acquire both Fee Properties and Leasehold
Properties, the General Partners anticipate that substantially all of the
Properties acquired by the Partnership will be Fee Properties.
The General Partners believe that freestanding, "triple-net" leased
restaurant properties of the type in which the Partnership will invest are
attractive to tenants because freestanding properties typically offer high
visibility to passing traffic, ease of access from a busy thoroughfare, tenant
control over the site to set hours of operation and maintenance standards and
distinctive building designs conducive to customer name recognition.
The General Partners have undertaken to supplement this Prospectus
during the Offering period to disclose the acquisition of Properties at such
time as the General Partners believe that a reasonable probability exists that
any such Property will be acquired by the Partnership. Based upon the General
Partners' experience and acquisition methods, this normally will occur as of the
date on which (i) a commitment letter is executed by a proposed lessee, (ii) a
satisfactory credit underwriting for the proposed lessee has been completed, and
(iii) a satisfactory site inspection has been completed. The initial disclosure
of any proposed acquisition, however, cannot be relied upon as an assurance that
the Partnership ultimately will consummate such proposed acquisition or that the
information provided concerning the proposed acquisition will not change between
the date of such supplement and the actual purchase.
CNL XVII and CNL XVIII each will acquire its own separate portfolio of
Properties. AN INVESTMENT IN ONE PARTNERSHIP WILL NOT ENTITLE THE INVESTOR TO
ANY OWNERSHIP INTEREST IN THE OTHER PARTNERSHIP OR ITS PROPERTIES. In general,
all acquisitions of Properties will be made by CNL XVII until substantially all
of the net Offering proceeds available to it have been invested or committed to
investment. See "Conflicts of Interest--Allocation of Properties Between CNL
XVII and CNL XVIII" for a description of the relative order in which CNL XVII
and CNL XVIII will acquire Properties.
It is estimated that CNL XVII and CNL XVIII each will purchase
approximately 28 Properties, assuming that 3,000,000 Units of each Partnership
are sold, based on an estimated average purchase price of $900,000 per Property.
The General Partners have estimated the average purchase price based on their
past experience in acquiring similar properties and in light of current market
conditions. In the event that the Managing Dealer elects to exercise its option
to increase the Offering by up to $5,000,000 (500,000 Units), CNL XVIII will
acquire approximately four additional Properties. Generally, acquisition of a
restaurant Property involves an investment in land and building of approximately
$400,000 to $1,500,000, although higher or lower figures for individual
Properties are possible. If the minimum number of Units is sold ($1,500,000 in
Gross Proceeds), the Partnership will be able to purchase approximately one
Property. In certain cases, the Partnership may become a co-venturer or general
partner in a Joint Venture or general partnership that will own the Property. In
each such case, the Partnership's cost to purchase an interest in such Property
will be less than the total purchase price and the Partnership therefore will be
able to acquire interests in a greater number of Properties. In cases where the
Partnership acquires both land and building, the General Partners estimate that
approximately 30% to 50% of the Partnership's investment in a Property generally
will be for the cost of land, and 50% to 70% generally will be for the cost of
the building. See "Joint Venture Arrangements" below and "Risk
Factors--Investment Risks--Possible Lack of Diversification."
SITE SELECTION AND ACQUISITION OF PROPERTIES
General. It is anticipated that the Restaurant Chains selected by the
General Partners will have full-time staffs engaged in site selection and
evaluation. All new sites must be approved by the Restaurant Chains. The
Restaurant Chains generally conduct or require the submission of studies which
typically include such factors as traffic patterns, population trends,
commercial and industrial development, office and institutional development,
residential development, per capita or household median income, per capita or
household median age, and other factors. The Restaurant Chains also will review
and approve all proposed lessees and restaurant sites. The Restaurant Chains or
the operators are expected to make their site evaluations and analyses, as well
as financial information regarding proposed lessees, available to CNL Income
Fund Advisors, Inc.
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The Partnership will elect to purchase and lease Properties based
principally on an examination and evaluation by CNL Income Fund Advisors, Inc.
of the potential value of the site, the financial condition and business history
of the proposed lessee, the demographics of the area in which the restaurant
Property is located or to be located, the proposed purchase price and proposed
lease terms, geographic and market diversification, and potential sales expected
to be generated by the restaurant. In addition, the potential lessee must meet
at least the minimum standards established by a Restaurant Chain for its
operators. CNL Income Fund Advisors, Inc. also performs an independent
break-even analysis of the potential profitability of a restaurant property
using historical data and other data developed by CNL Income Fund Advisors, Inc.
and provided by the Restaurant Chains.
Although the Restaurant Chains that are selected by the General Partners
will have approved each lessee and each Property, CNL Income Fund Advisors, Inc.
will exercise its own judgment as to, and will be solely responsible for, the
ultimate selection of both lessees and Properties. Therefore, some of the
properties approved by a Restaurant Chain may not be purchased by the
Partnership.
In each Property acquisition, it is anticipated that CNL Income Fund
Advisors, Inc. will negotiate the land and building lease agreement with the
lessee. In certain instances, CNL Income Fund Advisors, Inc. may negotiate an
assignment of an existing lease, in which case the terms of the lease may vary
substantially from the Partnership's standard lease terms, if the General
Partners, based on the recommendation of CNL Income Fund Advisors, Inc.,
determine that the terms of an acquisition and lease of a Property, taken as a
whole, are favorable to the Partnership. It is expected that the structure of
the long-term "triple-net" lease agreements, which provide for monthly rental
payments plus a percentage of gross sales, will increase the value of the land
and buildings and provide an inflation hedge. See "Description of Leases" below
for a discussion of the anticipated terms of the Partnership's leases. In
connection with a Property acquisition, it also is anticipated that a lessee
will provide at its own expense all furniture, fixtures, and equipment (such as
deep fryers, grills, refrigerators, and freezers) necessary to operate the
Partnership's Property as a restaurant. A lessee either pays cash or obtains a
loan from a third party to purchase such items. If the lessee obtains such a
loan, the lessee will own this personal property subject to the lessee's
obligations under its loan. In the experience of the General Partners, there may
be rare circumstances in which a lessee defaults under such a loan, in which
event the lender may attempt to remove the personal property from the building,
resulting in the Property becoming inoperable as a restaurant until new
furniture, fixtures, and/or equipment can be purchased and installed. In order
to prevent repossession of this personal property by the lender, and only on an
interim basis in order to preserve the value of a Property, the General Partners
may elect to use Partnership reserves to purchase the personal property from the
lender, generally at a discount from the remaining unpaid balance under the
lessee's loan. The Partnership then would expect to resell the personal property
to a new lessee in connection with the transfer of the lease to that lessee.
Some lease agreements will be negotiated to provide the lessee with the
opportunity to purchase the Property under certain conditions, generally either
at the greater of fair market value or 120% of the original purchase price. In
addition, tenants will be offered a right of first refusal to purchase the
Property in the event an offer is received from a third party to purchase the
Property and the General Partners intend to accept such offer. Certain leases
may provide the lessee with the right to purchase the Property at a purchase
price which looks to various measures of value contained in an independent
appraisal of the Property. See "Sale of Properties" below and "Federal Income
Tax Considerations--Characterization of Leases."
The purchase of each Fee Property will be supported by an appraisal of
the real estate prepared by an independent appraiser. CNL Income Fund Advisors,
Inc., however, will rely on its own independent analysis and not on such
appraisals in determining whether or not to acquire a particular Property. The
purchase price of each such Property, plus any Acquisition Fees paid by the
Partnership in connection with such purchase, will not exceed the Property's
appraised value. (In connection with the acquisition of a Property which is to
be constructed or renovated, the comparison of the purchase price and the
appraised value of such Property ordinarily will be based on the "when
constructed" price and value of such Property.) It should be noted that
appraisals are estimates of value and should not be relied upon as measures of
true worth or realizable value. Each appraisal will be maintained in the
Partnership's records for at least five years and will be available for
inspection and duplication by any Partner.
The titles to Properties purchased by the Partnership will be insured by
appropriate title insurance policies and/or abstract opinions consistent with
normal practices in the jurisdictions in which the Properties are located.
Construction and Renovation. In some cases, construction or renovation
will be required after the purchase contract has been entered into, but before
the total purchase price has been paid. In connection with the acquisition of
Properties that are to be constructed or renovated, the Partnership generally
will enter into a development agreement with the lessee pursuant to which the
Partnership will advance funds to the lessee to meet construction or renovation
costs as they are incurred. The lessee will act as the project developer, will
enter into all construction contracts, and will arrange for and coordinate all
aspects of the construction or renovation of the restaurant improvements. The
lessee will be responsible for the construction or renovation of the restaurant
improvements, although it may employ co-developers or sub-agents in fulfilling
its responsibilities
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under the development agreement. Generally, all general contractors performing
work in connection with such restaurant improvements must provide a payment and
performance bond or other satisfactory form of guarantee of performance. All
construction and renovation will be performed or supervised by persons or
entities acceptable to the General Partners. The Partnership will be obligated
to make, as construction or renovation costs are incurred, the remaining
payments due as part of the purchase price for the Properties, provided that the
construction or renovation conforms to definitive plans, specifications, and
costs approved by the General Partners and embodied in the construction
contract.
Under the terms of the development agreement, the Partnership generally
will advance its funds on a monthly basis to meet construction draw requests of
the lessee. The Partnership, in general, only will advance its funds to meet the
lessee's draw requests upon receipt of an inspection report and a certification
of draw requests from an inspecting architect or engineer suitable to the
Partnership, and the Partnership may retain a portion of any advance until
satisfactory completion of the project. The certification must be supported by
color photographs showing the construction work completed as of the date of
inspection. The total amount of the funds advanced to the lessee (including the
purchase price of the land plus closing costs and certain other costs) generally
will not exceed the maximum amount specified in the development agreement. Such
maximum amount will be based on the Partnership's estimate of the costs of such
construction or renovation. Initially, the calculation of minimum annual rent
will be based on such estimated amount; however, once the actual cost is known,
the minimum annual rent will be increased or reduced accordingly and the
Partnership or the lessee, as the case may be, will promptly refund or remit to
the other an amount equal to any excess rent paid or any underpayment of rent
due.
In certain cases in which the Partnership intends to purchase a Property
upon completion of construction or renovation of that Property, the Partnership
may permit the proposed lessee to arrange for a bank or another lender to
provide construction financing to the lessee. In such cases, the lender may seek
assurance from the Partnership that it has sufficient funds to pay to the lessee
the full purchase price of the Property upon completion of the construction or
renovation. In the event that the Partnership segregates funds as assurance to
the lender of its ability to purchase the Property, the funds will remain the
property of the Partnership, and the lender will have no rights with respect to
such funds upon any default by the lessee under the development agreement or
under the loan agreement with such lender, or if the closing of the purchase of
the Property by the Partnership does not occur for any reason.
Under the development agreement, the lessee generally will be obligated
to complete the construction or renovation of the restaurant improvements within
120 to 180 days from the date of the development agreement. If the construction
or renovation is not completed within that time and the lessee fails to remedy
this default within 10 days after notice from the Partnership, the Partnership
will have the option to grant the lessee additional time to complete the
construction, to take over construction or renovation of the restaurant
improvements, or to terminate the development agreement and require the lessee
to purchase the Property at a price equal to the sum of (i) the Partnership's
purchase price of the land, including all fees, costs, and expenses paid by the
Partnership in connection with its purchase of the land, (ii) all fees, costs,
and expenses disbursed by the Partnership pursuant to the development agreement
for construction of the restaurant improvements, and (iii) the Partnership's
"construction financing costs." The "construction financing costs" of the
Partnership is an amount equal to a return, at the annual percentage rate used
in calculating the minimum annual rent under the lease, on all Partnership
payments and disbursements described in clauses (i) and (ii) above.
The Partnership also generally will enter into an indemnification and
put agreement (the "Indemnity Agreement") with the lessee and any guarantor of
the obligations of the lessee under the lease in connection with the acquisition
of Properties to be constructed or renovated. The Indemnity Agreement will
provide for certain additional rights to the Partnership unless certain
conditions are met. In general, these conditions are (i) the lessee's
acquisition of all permits, approvals, and consents necessary to permit
commencement of construction or renovation of the restaurant within a specified
period of time after the date of the Indemnity Agreement (normally, 60 days), or
(ii) the completion of construction or renovation of the restaurant as evidenced
by the issuance of a certificate of occupancy, within a specified period of time
(generally, 120 to 150 days) after the date of the Indemnity Agreement. If such
conditions are not met, the Partnership will have the right to grant the lessee
additional time to satisfy the conditions or to require the lessee to purchase
the Property from the Partnership at a purchase price equal to the total amount
disbursed by the Partnership in connection with the acquisition and construction
or renovation of the Property (including closing costs), plus an amount equal to
the return described in item (iii) of the preceding paragraph. Failure of the
lessee to purchase the Property from the Partnership upon demand by the
Partnership under the circumstances specified above will entitle the Partnership
to declare the lessee in default under the lease and to declare each guarantor
in default under any guarantee of the lessee's obligations to the Partnership.
In general, if the Partnership acquires Properties which are to be
constructed or renovated, payment by the lessee of all amounts due to the
Partnership and performance by the lessee under the lease, the development
agreement, and the related documents will be guaranteed unconditionally by
individuals with substantial net worth on behalf of the lessee.
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In certain situations where construction or renovation is required for a
restaurant Property, the Partnership will pay a negotiated maximum amount upon
completion of construction or renovation rather than providing financing to the
lessee, with such amount to be based on the lessee's actual costs of such
construction or renovation.
In all situations where construction or renovation of a restaurant
Property is required, the Partnership also will have the right to review the
lessee's books, records, and agreements during and following completion of
construction to verify actual costs.
Interim Acquisitions. The General Partners and their Affiliates
regularly have opportunities to acquire restaurant properties of a type suitable
for acquisition by the Partnership as a result of their existing relationships
and past experience with various fast-food, family-style, and casual dining
Restaurant Chains and restaurant operators. See "General" above. These
acquisitions often must be made within a relatively short period of time,
occasionally at a time when the Partnership may be unable to make the
acquisition. In an effort to address these situations and preserve the
acquisition opportunities of the Partnership (and other entities with which the
General Partners are affiliated), the General Partners or their Affiliates
maintain lines of credit which enable them to acquire these restaurant
properties on an interim basis and temporarily own them for the purpose of
facilitating their acquisition by the ultimate owner. At such time as a Property
acquired on an interim basis is determined to be suitable for acquisition by the
Partnership, the interim owner of the Property will sell its interest in the
Property to the Partnership at a price no greater than its cost (including
carrying costs) to purchase such interest in the Property, provided, however,
that the Property must be purchased by the Partnership within 12 months from the
date it was acquired by the interim owner. In the case of any such acquisition
by the Partnership, all income, expenses, profits, and losses generated by or
associated with the Properties so acquired shall be treated as belonging to the
Partnership from the date of acquisition of such Properties by the General
Partners or their Affiliates.
Acquisition Services. Acquisition services performed by CNL Income Fund
Advisors, Inc. may include, but are not limited to, site selection and/or
approval; review and selection of lessees and negotiation of lease agreements
and related documents; monitoring Property acquisitions until completion of the
Partnership's acquisitions of Properties; and the processing of all final
documents and/or procedures to complete the acquisition of Properties and the
commencement of lessee occupancy and lease payments.
The Partnership will pay CNL Income Fund Advisors, Inc. an Acquisition
Fee not to exceed 4.5% of the aggregate Capital Contributions of the Limited
Partners to the Partnership. See "Management Compensation." The total of all
Acquisition Fees payable to all persons or entities will not exceed the
compensation customarily charged in arm's-length transactions by others
rendering similar services as an ongoing activity in the same geographical
location and for comparable property.
CNL Income Fund Advisors, Inc. engages counsel to perform legal
services, and such counsel also may provide legal services to the Partnership in
connection with the acquisition of Properties. The legal fees payable to such
counsel by the Partnership will not exceed those generally charged for similar
services.
STANDARDS FOR INVESTMENT
Selection of Restaurant Chains. The selection of Restaurant Chains by
CNL Income Fund Advisors, Inc. and the General Partners will be based on an
evaluation of the operations of restaurants in the Restaurant Chain, the number
of restaurants operated throughout the Restaurant Chain's system, the
relationship of average restaurant gross sales to the average capital costs of a
restaurant, the Restaurant Chain's relative competitive position among the same
type of restaurants offering similar types of food, name recognition, and market
penetration. The Restaurant Chains will not be affiliated with the General
Partners, CNL Income Fund Advisors, Inc., or the Partnership. Prior partnerships
or joint ventures sponsored by one or more of the General Partners, however,
have owned one or more restaurant properties in certain of these Restaurant
Chains.
Selection of Properties and Lessees. In making investments in
Properties, the General Partners and CNL Income Fund Advisors, Inc. will
consider relevant real property and financial factors, including the condition,
use, and location of the Property, income-producing capacity, the prospects for
long-term appreciation, the relative success of the Restaurant Chain in the
geographic area in which the Property is located, and the management capability
and financial condition of the lessee. The Partnership will obtain an
independent appraisal for each Property it purchases. In selecting lessees, the
General Partners and CNL Income Fund Advisors, Inc. will consider the prior
experience of the lessee in the restaurant industry, the net worth of the
lessee, past operating results of other restaurants currently or previously
operated by the lessee, and the lessee's prior experience in managing
restaurants within a particular Restaurant Chain.
In selecting specific Properties within a particular Restaurant Chain
and in selecting lessees for the Partnership's Properties, CNL Income Fund
Advisors, Inc. will apply the following minimum standards.
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1. Each Property will be in what the General Partners believe is a
prime business location.
2. Base (or minimum) annual rent will provide a specified minimum return
on the Partnership's cost of purchasing and, if applicable, developing the
restaurant Property, and the lease typically also will provide for automatic
increases in base rent at specified times during the lease term and for payment
of percentage rent based on gross sales.
3. The initial lease term typically will be at least 15 to 20 years.
4. The Partnership will reserve the right to approve or reject any
lessee and restaurant site selected by a Restaurant Chain.
5. In evaluating prospective tenants, the Partnership will examine,
among other factors, the lessee's ranking in its market segment, trends in per
store sales, overall changes in consumer preferences, and the lessee's ability
to adapt to changes in market and competitive conditions, the lessee's
historical financial performance, and its current financial condition.
6. In general, the Partnership will not acquire a Property, if, as a
result, more than 25% of its Gross Proceeds would be invested in Properties of a
single Restaurant Chain or if more than 30% of its Gross Proceeds would be
invested in Properties in a single state.
DESCRIPTION OF PROPERTIES
Although the General Partners have not yet selected any Properties for
investment, based on their past experience and knowledge of the fast-food,
family-style, and casual dining restaurant industry, it is expected that any
Properties purchased by the Partnership will conform generally to the following
specifications of size, cost, and type of land and buildings. These
specifications may vary substantially if the Partnership invests in any
full-service restaurant Properties.
Land. Lot sizes generally range from 25,000 to 65,000 square feet
depending upon building size and local demographic factors. Restaurants located
on land within shopping centers will be freestanding and may be located on
smaller parcels if sufficient common parking is available. Restaurant sites
purchased by the Partnership will be in locations zoned for commercial use which
have been reviewed for traffic patterns and volume of traffic. There is
substantial competition for quality sites; accordingly, land costs may be high
and are generally expected to range from $150,000 to $700,000, although the cost
of the land for particular Properties may be higher or lower in some cases.
Buildings. Either before or after construction or renovation, the
restaurant Properties to be acquired by the Partnership will be one of a
Restaurant Chain's approved designs. Prior to purchase of all restaurant
Properties other than those purchased prior to completion of construction, CNL
Income Fund Advisors, Inc. will receive a copy of the certificate of occupancy
issued by the local building inspector or other governmental authority which
permits the use of the Property as a restaurant, and shall receive a certificate
from the Restaurant Chain to the effect that (i) the Property is operational and
(ii) the Property and the lessee are in compliance with all of the Restaurant
Chain's requirements, including, but not limited to, building plans and
specifications approved by the Restaurant Chain. CNL Income Fund Advisors, Inc.
also will receive a certificate of occupancy for each restaurant for which
construction has not been completed at the time of purchase, prior to the
Partnership's payment of the final installment of the purchase price for the
restaurant Property.
The restaurant buildings generally will be rectangular and constructed
from various combinations of stucco, steel, wood, brick, and tile. Building
sizes generally will range from 2,500 to 6,500 square feet, with the larger
restaurants having greater seating and equipment areas. Building and site
preparation costs vary depending upon the size of the building and the site and
the area in which the restaurant Property is located. It is estimated that
building and site preparation costs generally will range from $250,000 to
$800,000 for each restaurant Property.
Generally, Properties to be acquired will consist of both land and
building, although in a number of cases the Partnership may acquire only the
land underlying the restaurant building with the building owned by a tenant or a
third party, and also may acquire the building only with the land owned by a
third party. In general, the Properties to be acquired by the Partnership will
be freestanding and surrounded by paved parking areas. Buildings are suitable
for conversion to various uses, although modifications will be required prior to
use for other than restaurant operations.
A lessee generally will be required by the lease agreement to make such
capital expenditures as may be reasonably necessary to refurbish restaurant
buildings, premises, signs, and equipment so as to comply with the lessee's
obligations under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures will be paid by the
lessee during the term of the lease.
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DESCRIPTION OF LEASES
The terms and conditions of any lease entered into by the Partnership
with regard to a restaurant Property may vary from those described below. CNL
Income Fund Advisors, Inc. in all cases will use its best efforts to obtain
terms at least as favorable as those described below. If the General Partners
determine, based on the recommendation of CNL Income Fund Advisors, Inc., that
the terms of an acquisition and lease of a Property, taken as a whole, are
favorable to the Partnership, they may, in their sole discretion, cause the
Partnership to enter into leases with terms which are substantially different
than the terms described below. In making such determination, the General
Partners will consider such factors as the type and location of the restaurant,
the creditworthiness of the lessee, the purchase price of the Property, the
prior performance of the lessee, and the prior business experience of the
principals of CNL Income Fund Advisors, Inc., its Affiliates, or the General
Partners with a Restaurant Chain or restaurant operator.
General. In general, the leases are expected to be "triple-net" leases,
which means that the lessees will be required to pay all repairs, maintenance,
property taxes, and insurance. The lessees also will be required to pay for
utilities and the cost of any renovations permitted under the leases. The
Partnership will be the lessor under each lease except in certain circumstances
in which it may be a party to a Joint Venture or Co-Tenancy Arrangement which
will own the Property. In those cases, the Joint Venture, rather than the
Partnership, will be the lessor, and all references in this section to the
Partnership as lessor therefore should be read accordingly. See "Joint
Venture/Co-Tenancy Arrangements" below.
Term of Leases. It presently is anticipated that restaurant Properties
will be leased on a "triple-net" basis for an initial term of either 15 or 20
years with up to four, five-year renewal options. The minimum rental payment
under the renewal option generally is expected to be greater than that due for
the final lease year of the initial term of the lease. Upon termination of the
lease, the lessee will surrender possession of the Property to the Partnership,
together with any improvements made to the Property during the term of the
lease.
Computation of Lease Payments. During the initial term of the lease, the
lessee will pay the Partnership, as lessor, minimum annual rent equal to a
specified percentage of the Partnership's cost of purchasing the restaurant
Property. Generally, the leases provide for the escalation of the minimum annual
rent at predetermined intervals during the term of the lease. In the case of
acquisition of Properties that are to be constructed or renovated pursuant to a
development agreement, the Partnership's costs of purchasing the Property will
include the purchase price of the land, including all fees, costs, and expenses
paid by the Partnership in connection with its purchase of the land, and all
fees, costs, and expenses disbursed by the Partnership for construction of
restaurant improvements. See "Site Selection and Acquisition of
Properties--Construction and Renovation" above.
In addition to minimum annual rent, the lessee will pay the Partnership
"percentage rent." Percentage rent is computed as a percentage of the restaurant
gross sales at a particular Property. The leases generally will provide that
percentage rent will commence in the first lease year in which gross sales
exceed a specified amount. Certain leases, however, may provide that percentage
rent is to be paid quarterly beginning at the end of the first two years of the
lease and each succeeding quarter thereafter to the extent the restaurant gross
sales in that quarter exceed the average quarterly gross sales during the first
two lease years. The leases also generally will provide that the tenant will
receive a credit against percentage rent for the amount of the escalations in
the minimum annual rent due under the lease. Gross sales include sales of all
products and services of the restaurant, excluding sales taxes, tips paid to
serving people, and sales from vending machines.
Assignment and Sublease. In general, it is expected that no lease may be
assigned or subleased without the Partner- ship's prior written consent (which
may not be unreasonably withheld) except to a tenant's corporate franchisor,
corporate affiliate or subsidiary, a successor by merger or acquisition, or, in
certain cases, another franchisee, if such assignee or sublessee agrees to
operate the same type of restaurant on the premises. The leases set forth
certain factors (such as the financial condition of the proposed lessee or
subtenant) that are deemed to be a reasonable basis for the Partnership's
refusal to consent to an assignment or sublease. The original lessee generally
will remain fully liable, however, for the performance of all lessee obligations
under the lease following any such assignment or sublease unless the Partnership
agrees in writing to release the original lessee from its lease obligations.
Alterations to Premises. A lessee generally will have the right, without
the prior consent of the Partnership and at the lessee's own expense, to make
certain immaterial structural modifications to the restaurant building and
improvements (with a cost of up to $10,000) or, with the Partnership's prior
written consent and at the lessee's own expense, to make material structural
modifications that may include demolishing and rebuilding the restaurant. Under
certain leases, the lessee, at its own expense, may make any type of alterations
to the leased premises without the Partnership's consent but must provide the
Partnership with plans of any proposed structural modifications at least 30 days
before construction of the alterations commences.
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Certain leases may require the lessee to post a payment and performance bond for
any structural alterations with a cost in excess of a certain amount.
Right of Lessee to Purchase. It is anticipated that if the Partnership
wishes at any time to sell a Property pursuant to a bona fide offer from a third
party, the lessee of that Property will have the right to purchase the Property
for the same price, and on the same terms and conditions, as contained in the
offer. In certain cases, the lessee also may have a right to purchase the
Property seven to 20 years after commencement of the lease at a purchase price
equal to the greater of (i) the Property's appraised value at the time of the
lessee's purchase, or (ii) a specified amount, generally equal to the
Partnership's purchase price of the Property, plus a predetermined percentage
(generally, 20%) of such purchase price. Alternatively, a limited number of
leases may provide for a purchase option price which is computed pursuant to a
formula that looks to various measures of value contained in an independent
appraisal of the Property. The General Partners will negotiate only such
formulae that they expect will result in reasonable approximations of the fair
market value of the Property at the time the option is exercised. See "Federal
Income Tax Considerations--Characterization of Leases."
Substitution of Properties. Under certain leases, the lessee, at its own
expense, is entitled to operate another form of approved restaurant on the
Property as long as such approved restaurant has an operating history which
reflects an ability to generate gross sales and potential sales growth equal to
or greater than that experienced by the lessee in operating the original
restaurant.
In addition, the General Partners anticipate that certain leases will
provide the lessee with the right to offer the substitution of another national
or regional fast-food, family-style, or casual dining restaurant property
selected by the lessee in the event that (i) the Property that is the subject of
the lease is not producing percentage rent pursuant to the terms of the lease,
and (ii) the lessee determines that the Property has become uneconomic (other
than as a result of an insured casualty loss or condemnation) for the lessee's
continued use and occupancy in its business operation and the lessee's Board of
Directors has determined to close and discontinue use of the Property. The
lessee's determination that a Property has become uneconomic is to be made in
good faith based on the lessee's reasonable business judgment after comparing
the results of operations of the Property to the results of operations at the
majority of other properties then operated by the lessee. If either of these
events occurs, the lessee will have the right to offer the Partnership the
opportunity to exchange the Property for another national or regional fast-food,
family-style, or casual-dining restaurant property (the "Substituted Property")
with a total cost for land and improvements thereon (including overhead,
construction interest, and other related charges) equal to or greater than the
cost of the Property to the Partnership.
Generally, the Partnership will have 30 days following receipt of the
lessee's offer for exchange of the Property to accept or reject such offer. In
the event that the Partnership requests an appraisal of the Substituted
Property, it will have at least ten days following receipt of the appraisal to
accept or reject the offer. If the Partnership accepts such offer, (i) the
Substituted Property will be exchanged for the Property in a transaction
designed and intended to qualify as a "like-kind exchange" within the meaning of
section 1031 of the Code with respect to the Partnership and (ii) the lease of
the Property will be amended to (a) provide for minimum rent in an amount equal
to the sum determined by multiplying the cost of the Substituted Property by the
Property lease rate and (b) provide for the number of five-year lease renewal
options sufficient to permit the lessee, at its option, to continue its
occupancy of the Substituted Property for up to 35 years from the date on which
the exchange is made. The Partnership will pay the lessee the difference, if
any, between the cost of the Property and the cost of the Substituted Property.
If the substitution does not take place within a specified period of time after
the lessee makes the offer to exchange the Property for the Substituted
Property, either party thereafter will have the right not to proceed with the
substitution. If the Partnership rejects the Substituted Property offered by the
lessee, the lessee is required to offer at least three additional alternative
properties for the Partnership's acceptance or rejection. If the Partnership
rejects all Substituted Properties offered to it pursuant to the lease, or
otherwise fails or refuses to consummate a substitution for any reason other
than the lessee's failure to fulfill the conditions precedent to the exchange,
then the lessee will be entitled to terminate the lease on the date scheduled
for such exchange by purchasing the Property from the Partnership for a price
equal to the cost of the Property to the Partnership.
Neither the lessee nor any of its subsidiaries, licensees,
concessionaires, or sublicensees or any other affiliate will be permitted to use
the original Property as a restaurant of the same type and style for at least
one year after the closing of the original Property. In addition, in the event
the lessee or any of its affiliates sells the Property within twelve months
after the Partnership acquires the Substituted Property, the Partnership will
receive from the proceeds of the sale the amount by which the selling price
exceeds the cost of the Property to the Partnership.
The foregoing paragraphs provide the terms by which substituted
properties are requested by and provided to lessees of the Partnership's
Properties. However, such descriptions are for those leases generally entered
into between the Partnership and the lessees of the Partnership's Properties.
Variation to the foregoing terms will be provided in leases between the
Partnership and (i) Checker's Drive-in Restaurant ("Checker's") and (ii) Golden
Corral restaurant Properties.
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In the event the Partnership acquires one or more Golden Corral
restaurant properties, the General Partners anticipate that the leases entered
into between the Partnership, as lessor, and Golden Corral Corporation, as
lessee, will provide that if a Golden Corral restaurant Property is not
producing percentage rent and the lessee determines, in good faith, that the
restaurant has become uneconomic and unsuitable the lessee may choose any one of
the following three alternatives: (i) to cancel the lease during the sixth,
seventh or eighth lease year upon 90 days prior written notice accompanied by a
cancellation fee equal to 30 times one month's minimum annual rent if canceled
in year six, or 24 times one month's minimum annual rent if canceled in years
seven or eight; (ii) to purchase the Property during the sixth, seventh, or
eighth lease year for a purchase price, net of closing costs, payable to the
Partnership equal to 120% of the purchase price paid by the Partnership for the
Property; or (iii) to substitute the Property for another Golden Corral
restaurant property at any time during the initial term of the lease on the same
terms as those described above for substitution of other restaurant properties.
In the event the Partnership acquires one or more Checker's Properties,
the General Partners anticipate that the leases entered into between the
Partnership, as lessor, and Checker's, as lessee, will provide that if a
Checker's restaurant Property is not adequate or profitable and the lessee
determines in its reasonable business discretion, exercising good faith, that
such restaurant Property is, in fact, inadequate or unprofitable, the tenant, at
any time, may provide written notice to the Partnership of its request for a
substitute property in which to operate a Checker's. The substitute property
shall be subject to the approval of the Partnership, which approval must not be
unreasonably withheld or delayed. The terms of the related lease for such
substitute property will be identical to the lease for the original Property.
The lessee is required to pay all costs associated with the closing on the
exchange of the original Property and the substitute property. If the
Partnership rejects all substitute properties submitted by lessee, then the
lessee may, at its option, provide written notice to the Partnership of its
intention to purchase the original Property. If so elected, the purchase price
shall be the greater of (i) the fair-market value of the original Property as of
the date of the lessee's written notice, as determined by an appraisal of the
property by an independent appraiser, or (ii) the initial cost of the Property
paid by the Partnership plus twenty percent. At no time will the Partnership be
required to offer the lessee an alternate site for a substitute property.
However, as noted, the Partnership may not reject any substitute properties
presented to the Partnership by the lessee unless such rejections are
reasonable.
Special Conditions. Certain leases may provide that the Partnership will
not be permitted to own or operate, directly or indirectly, another restaurant
Property of the same or similar type as the leased Property that is or will be
located within a specified distance of the leased Property.
Insurance, Taxes, Maintenance, and Repairs. All of the leases are
expected to require that the lessee pay all taxes and assessments, maintenance,
repair, utility, and insurance costs applicable to the real estate and permanent
improvements. Lessees will be required to maintain all Properties in good order
and repair.
Lessees generally will be required, under the terms of the leases, to
maintain, for the benefit of the Partnership and the lessee, casualty insurance
in an amount not less than the full replacement value of the building and other
permanent improvements (or a percent of such value in the case of certain
leases, but in no case less than 90%), as well as liability insurance, generally
in an amount not less than $2,000,000 for each location and event. All lessees,
other than those lessees with a substantial net worth, generally also will be
required to obtain "rental value" or "business interruption" insurance to cover
losses due to the occurrence of an insured event for a specified period,
generally six to twelve months. In general, no lease will be entered into
unless, in the opinion of CNL Income Fund Advisors, Inc., the insurance required
by the lease adequately insures the Property.
The lessees generally will be required to maintain the Property and
repair any damage to the Property, except damage occurring during the last 24
months of the lease term (as extended), which in the opinion of the lessee
renders the Property unsuitable for occupancy, in which case the lessee will
have the right instead to pay the insurance proceeds to the Partnership and
terminate the lease.
The lessee generally will be required to repair the Property in the
event that less than a material portion of the Property (for example, more than
20% of the building or more than 40% of the land) is taken for public or
quasi-public use. The Partnership's leases generally will provide that, in the
event of any condemnation of the Property that does not give rise to an option
to terminate the lease or in the event of any condemnation which does give rise
to an option to terminate the lease and the lessee elects not to terminate, the
Partnership will remit to the lessee the award from such condemnation and the
lessee will be required to repair and restore the Property. To the extent that
the award exceeds the estimated costs of restoring or repairing the Property,
the lessee is required to deposit such excess amount with the Partnership. Until
a specified time (generally, ten days) after the lessee has restored the
premises and all improvements thereon to the same condition as existed
immediately prior to such condemnation insofar as is reasonably possible, a
"just and proportionate" amount of the minimum annual rent will be abated from
the date of such condemnation. In addition, the minimum annual rent will be
reduced in proportion to the reduction in the then rental value of the premises
or the fair market value of the premises after the condemnation in comparison
with the rental value or fair market value prior to such condemnation.
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Events of Default. The leases generally are expected to provide that the
following events, among others, will constitute a default under the lease: (i)
the insolvency or bankruptcy of the lessee, provided that the lessee may have
the right, under certain circumstances, to cure such default, (ii) the failure
of the lessee to make timely payment of rent or other charges due and payable
under the lease, if such failure continues for a specified period of time
(generally, five to 30 days) after notice from the Partnership of such failure,
(iii) the failure of the lessee to comply with any of its other obligations
under the lease (for example, the discontinuance of operations of the leased
restaurant Property) if such failure continues for a specified period of time
(generally, ten to 45 days), (iv) a default under or termination of the
franchise agreement between the lessee and its franchisor, (v) in cases where
the Partnership enters into a development agreement relating to the construction
or renovation of a restaurant, a default under the development agreement or the
Indemnity Agreement or the failure to establish the minimum annual rent at the
end of the development period, and (vi) in cases where the Partnership has
entered into other leases with the same lessee, a default under such lease.
Upon default by the lessee, the Partnership will have the right under
the lease and under most state laws to evict the lessee, re-lease the Property
to others, and hold the lessee responsible for any deficiency in the minimum
lease payments. Similarly, if the Partnership determined not to re-lease the
Property, it could sell the Property. (Unless required to do so by the lease,
however, the Partnership does not intend to sell any Property prior to seven to
twelve years after the commencement of the lease on such Property. See "Right of
Lessee to Purchase" above.) In the event that a lease requires the lessee to
make a security deposit (which it is anticipated normally would be equal to two
months' base rent), the Partnership will have the right under the lease to apply
the security deposit, upon default by the lessee, towards any payments due from
the defaulting lessee. In general, the lessee will remain liable for all amounts
due under the lease to the extent not paid from a security deposit or by a new
lessee.
In the event that a lessee defaults under a lease with the Partnership,
the Partnership either will attempt to locate a replacement restaurant operator
acceptable to the Restaurant Chain involved or will discontinue operation of the
restaurant. In lieu of obtaining a replacement restaurant operator, some
Restaurant Chains may have the option and may elect to operate the restaurants
themselves. The Partnership will have no obligation to operate the restaurants,
and no Restaurant Chain will be obligated to permit the Partnership or a
replacement restaurant operator to operate the restaurants.
JOINT VENTURE/CO-TENANCY ARRANGEMENTS
The Partnership may enter into Joint Ventures or Co-Tenancy Arrangements
to own and operate a Property with various unaffiliated persons or entities,
either alone or together with another program formed by the General Partners and
whose securities have been offered to the public pursuant to a registration
statement filed under the Securities Act of 1933, as amended, as amended,
provided that the Partnership, alone or together with such affiliated program,
acquires a controlling equity interest in such Joint Venture or Co-Tenancy
property and possesses the power to direct or cause the direction of the
management and policies of such Joint Venture or Co-Tenancy property. In
addition, the Partnership may enter into Joint Ventures or Co-Tenancy
Arrangements with another program formed by the General Partners whose
securities are, or will be offered to the public pursuant to a registration
statement filed under the Securities Act of 1933, as amended, as amended, to
purchase and hold one or more Properties if all of the following conditions are
met: (i) the two programs have substantially identical investment objectives,
(ii) there are no duplicate management or other fees, (iii) compensation to the
General Partners and their Affiliates is substantially the same in each program,
(iv) each program has a right of first refusal to buy the Property, at the
Property's fair market value as determined by an independent appraisal, if the
other program has the right to sell the Property held under Co-Tenancy
Arrangements or in the Joint Venture, as the case may be, and (v) each program's
investment is on substantially the same terms and conditions. CNL XVII and CNL
XVIII also may enter into Joint Ventures or Co-Tenancy Arrangements with each
other provided the foregoing conditions are met. In the event that the
Partnership enters into Joint Ventures or Co- Tenancy Arrangements with other
programs sponsored by the General Partners, the Partnership may take more or
less than a 50% interest. See "Risk Factors--Real Estate Risks--Joint Investment
in Properties."
The terms and conditions of any Joint Venture or Co-Tenancy agreement
entered into by the Partnership with regard to a restaurant property may vary
from those described below. Under the terms of each joint venture agreement, the
Partnership and each joint venture partner will be jointly and severally liable
for all debts, obligations, and other liabilities of the Joint Venture. In
addition, the General Partners or their Affiliates shall be entitled to
reimbursement, at cost, for actual expenses incurred by the General Partners or
their Affiliates on behalf of the Partnership. Joint Ventures entered into to
purchase and hold a Property for investment generally will have an initial term
of 15 to 20 years (generally the same term as the initial term of the lease for
the Property in which the Joint Venture invests), and, after the expiration of
the initial term, will continue in existence from year to year unless terminated
at the option of either joint venturer or unless terminated by an event of
dissolution. Events of dissolution will include the bankruptcy, insolvency, or
termination of any joint venturer, sale of the Property owned by the Joint
Venture, mutual agreement of the Partnership and its joint venture partner to
dissolve the Joint Venture, and the expiration of the term of the Joint Venture.
The Partnership will have management control of each Joint Venture in which it
participates
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with an unaffiliated party. The joint venture agreement will restrict each
venturer's ability to sell, transfer, or assign its joint venture interest
without first offering it for sale to its joint venture partner. In addition, in
any Joint Venture with another program sponsored by the General Partners, where
such arrangements are entered into for the purpose of purchasing and holding
Properties for investment, in the event that one party desires to sell the
Property and the other party does not desire to sell, either party will have the
right to trigger dissolution of the Joint Venture by sending a notice to the
other party. The notice will establish the price and terms for the sale or
purchase of the other party's interest in the Joint Venture to the other party.
The joint venture or partnership agreement will grant the receiving party the
right to elect either to purchase the other party's interest on the terms set
forth in the notice or to sell its own interest on such terms.
The following paragraphs describe the allocations and distributions
under the expected terms of the joint venture agreement for any Joint Venture in
which the Partnership and its joint venture partner each have a 50% ownership
interest. In any other case, the allocations and distributions are expected to
be similar to those described below, except that allocations and distributions
which are described below as being made 50% to each joint venture partner will
instead be made in proportion to each joint venture partner's respective
ownership interest.
Under the terms of each joint venture agreement, operating profits and
losses generally will be allocated 50% to each joint venture partner. Profits
from the sale or other disposition of joint venture property first will be
allocated to any joint venture partners with negative capital account balances
in proportion to such balances until such capital accounts equal zero, and
thereafter 50% to each joint venture partner. Similarly, losses from the sale or
other disposition of joint venture property first will be allocated to joint
venture partners with positive capital account balances in proportion to such
balances until such capital accounts equal zero, and thereafter 50% to each
joint venture partner. Notwithstanding any other provisions in the joint venture
agreement, income, gain, loss, and deductions with respect to any contributed
property will be shared in a manner which takes into account the variation
between the basis of such property and its fair market value at the time of
contribution in accordance with section 704(c) of the Code.
Net cash flow from operations of the Joint Venture will be distributed
50% to each joint venture partner. Any liquidation proceeds, after paying joint
venture debts and liabilities and funding reserves for contingent liabilities,
will be distributed first to the joint venture partners with positive capital
account balances in proportion to such balances until such balances equal zero,
and thereafter 50% to each joint venture partner.
In order that the allocations of joint venture income, gain, loss, and
deduction provided in joint venture agreements may be respected for federal
income tax purposes, it is expected that any joint venture agreement (i) will
contain a "qualified income offset" provision, (ii) will prohibit allocations of
loss or deductions to the extent such allocation would cause or increase an
"Adjusted Capital Account Deficit," and (iii) will require (a) that capital
accounts be maintained for each joint venture partner in a manner which complies
with Treasury Regulation ss.1.704-1(b)(2)(iv) and (b) that distributions of
proceeds from the liquidation of a partner's interest in the Joint Venture
(whether or not in connection with the liquidation of the Joint Venture) be made
in accordance with the partner's positive capital account balance. See "Federal
Income Tax Considerations--Allocations of Income, Gain, Loss, and Deductions."
Prior to entering into any joint venture or general partnership
arrangement with any unaffiliated co-venturer or general partner (or the
principals of any unaffiliated co-venturer or general partner which is an
entity), the Partnership will confirm that such person or entity either has a
net worth of $1,000,000 or more, or otherwise has demonstrated to the
satisfaction of the General Partners that requisite financial qualifications are
met.
MANAGEMENT SERVICES
CNL Income Fund Advisors, Inc. will provide management services relating
to the Partnership and its Properties pursuant to a management agreement between
it and the Partnership. Under this agreement, CNL Income Fund Advisors, Inc.
will be responsible for assisting the Partnership in negotiating leases,
collecting rental payments, inspecting the Properties and the tenants' books and
records, and responding to tenant inquiries and notices. CNL Income Fund
Advisors, Inc. also will provide information to the Partnership about the status
of the leases and the Properties. In exchange for these services, CNL Income
Fund Advisors, Inc. will be entitled to receive from the Partnership the
Management Fee, which, generally, is an annual fee equal to 1% of the sum of
gross revenues (excluding noncash lease accounting adjustments) that the
Partnership derives from the Properties. The Management Fee shall be payable
monthly on the last day of such month, or the first business day following the
last day of such month. The Management Fee, which will not exceed fees that are
competitive for similar services in the same geographic area, may be taken or
not, in whole or in part as to any year, in the sole discretion of CNL Income
Fund Advisors, Inc. All or any portion of the Management Fee not taken as to any
fiscal year shall be deferred without interest and may be taken in such other
fiscal year as CNL Income Fund Advisors, Inc. shall determine. The agreement
continues until the
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Partnership no longer owns an interest in any Properties unless terminated at an
earlier date upon 60 days' prior notice by either party.
FINANCING
The Partnership and any general partnership or Joint Venture in which
the Partnership becomes a partner or joint venturer will acquire Properties
without borrowing. The General Partners do not anticipate that the Partnership
will borrow for any reason and do not intend to cause the Partnership to do so.
Subject to certain restrictions on borrowing, however, the Partnership may
borrow funds but will not encumber any of the Properties in connection with any
such borrowing. The Partnership will not borrow for the purpose of returning
capital to the Limited Partners or under arrangements that would make the
Limited Partners liable to creditors of the Partnership. The General Partners
have represented that they will limit the Partnership's outstanding indebtedness
to 3% of the aggregate adjusted tax basis of its Properties and that they will
use their reasonable efforts to structure any borrowing so that it will not
constitute "acquisition indebtedness" (as discussed in "Federal Income Tax
Considerations--Qualified Plan Investors"). In addition, the Partnership will
not borrow unless it first obtains an opinion of counsel that such borrowing
will not constitute acquisition indebtedness. Notwithstanding the foregoing, the
General Partners or their Affiliates shall be entitled to reimbursement, at
cost, for actual expenses incurred by the General Partners or their Affiliates
on behalf of the Partnership.
SALE OF PROPERTIES
The Partnership generally will hold its Properties until the General
Partners determine either that their Sale or other disposition is advantageous
in view of the Partnership's investment objectives, or that such objectives will
not be met. The General Partners intend to sell the Properties seven to twelve
years after their acquisition or as soon thereafter as market conditions permit.
In deciding whether to sell Properties, the General Partners will consider
factors such as potential capital appreciation, Net Cash Flow, and federal
income tax considerations. See "Federal Income Tax Considerations--Sale of the
Properties." The terms of certain leases, however, may require the Partnership
to sell a Property if the lessee exercises its option to purchase a Property
after a specified portion of the lease term has elapsed. See
"Business--Description of Leases--Right of Lessee to Purchase." The Partnership
will have no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
In connection with any Sale of a Property, the General Partners do not
anticipate that any reinvestment of Net Sales Proceeds in Properties will take
place. Net Sales Proceeds not reinvested in Properties or used to establish
reserves deemed necessary or advisable by the General Partners will be
distributed to the Limited Partners in accordance with the Partnership
Agreement. If the General Partners determine, however, that it is in the
interest of the Partnership to reinvest Net Sales Proceeds in Properties, Net
Sales Proceeds will be reinvested only if sufficient cash also is distributed to
the Partners to pay any state income tax (at a rate reasonably assumed by the
General Partners) and federal income tax (assuming the Limited Partners' income
is taxable at the maximum federal income tax rate then applicable to individuals
for capital gains) created by the disposition. Net Cash Flow will not be
invested in Properties.
In connection with Sales of Properties by the Partnership, purchase
money obligations may be taken by the Partnership as part payment of the sales
price. The terms of payment will be affected by custom in the area in which the
Property is located and by prevailing economic conditions. When a purchase money
obligation is accepted in lieu of cash upon the Sale of a Partnership Property,
the Partnership will continue to have a mortgage on the Property and the
proceeds of the Sale will be realized over a period of years rather than at
closing of the Sale.
REGULATION
Many states regulate the franchise or license relationship between a
lessee/franchisee and a Restaurant Chain. The Partnership will not be, and
neither CNL Income Fund Advisors, Inc. nor any of the General Partners will be,
an Affiliate of any Restaurant Chain, and they are not currently aware of any
states in which the relationship between the Partnership as lessor and the
lessee will be subjected to those regulations, but it will comply with such
regulations in the future, if so required. Restaurant Chains which franchise
their operations are subject to regulation by the Federal Trade Commission.
COMPETITION
The fast-food, family-style, and casual dining restaurant business is
characterized by intense competition. The Partnership's restaurant Properties
will compete with independently owned restaurants, restaurants which are part of
local or regional chains, and restaurants in other well-known national chains,
including those offering different types of food and service.
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In many cases, however, the absence of local competition is considered
more detrimental than the presence of such competition, since many successful
fast-food, family-style, and casual dining restaurants are located in "eating
islands," areas to which people tend to return frequently, and within which they
can diversify their eating habits. Like retail stores clustered in a shopping
center, fast-food, family-style, and casual dining restaurants frequently
experience better operating results when there are other restaurants in the same
area.
The Partnership also will be in competition with other persons and
entities both to locate suitable Properties to acquire and to locate purchasers
for its Properties. The Partnership also will compete with other financing
sources such as banks, mortgage lenders, and sale/leaseback companies for
suitable Properties and tenants.
MANAGEMENT'S DISCUSSION AND ANALYSIS OF
FINANCIAL CONDITION OF THE PARTNERSHIP
The Partnership has been formed recently and has no operating history.
Since leases will be entered into on a "triple-net" basis, the Partnership does
not expect, although it has the right, to maintain a reserve for operating
expenses. The Partnership's Properties will not be readily marketable and their
value may be affected by general market conditions. Nevertheless, the General
Partners believe that Partnership capital and revenues will be sufficient to
fund the Partnership's anticipated investments, proposed operations, and cash
distributions to the Limited Partners.
Until the Partnership sells a minimum of 150,000 Units ($1,500,000), all
proceeds of the Offering of its Units will be held in escrow. After the sale of
the minimum number of Units of the Partnership, the proceeds will be deposited
in the Partner- ship's general accounts, and, thereafter, the Partnership
intends to commence its acquisition of suitable Properties.
Pending investment in suitable Properties, Partnership funds will be
invested in short-term, highly liquid U.S. Government securities or in other
short-term, highly liquid investments with appropriate safety of principal. The
General Partners anticipate that after the Partnership has invested funds in
Properties, Partnership revenues sufficient to pay operating expenses and
provide cash distributions to the Limited Partners will be derived from the
lease payments paid to the Partnership by the restaurant lessees.
LIQUIDITY AND CAPITAL RESOURCES
The Partnership will utilize its net proceeds from this Offering to
purchase Properties. The Partnership expects to acquire Properties entirely for
cash. See "Investment Objectives and Policies." As of the initial date of this
Prospectus, the Partnership had not entered into any arrangements creating a
reasonable probability that a Property would be acquired by the Partnership. The
number of Properties to be acquired will depend upon the amount of net Offering
proceeds (Gross Proceeds less fees and expenses of the Offering) available to
the Partnership. The General Partners are not aware of any material trends,
favorable or unfavorable, in either capital resources or the outlook for
long-term cash generation, nor do they expect any material changes in the
availability and relative cost of such capital resources, other than as referred
to in this Prospectus.
The General Partners expect that the cash to be generated from
operations of all Properties will be adequate to pay operating expenses and
provide distributions to Partners.
RESULTS OF OPERATIONS
As of the initial date of this Prospectus, no significant operations had
commenced because the Partnership was in its development stage. No operations
will commence until such time as the Partnership has sold at least 150,000 Units
($1,500,000). The General Partners are not aware of any known trends or
uncertainties, other than national economic conditions, which have had or which
may reasonably be expected to have a material impact, favorable or unfavorable,
on revenues or income from the acquisition and operations of real properties,
other than those referred to in this Prospectus.
There currently are no material changes being considered in the
objectives and policies of the Partnership as set forth in this Prospectus.
MANAGEMENT
The following is a description of the individual General Partners, the
corporate General Partner, CNL Income Fund Advisors, Inc. (which will provide
certain management services to the Partnership), CNL Group, Inc. (the parent
company of
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both CNL Income Fund Advisors, Inc. and the Managing Dealer, CNL Securities
Corp.), and certain employees of CNL Group, Inc. or its subsidiaries.
INDIVIDUAL GENERAL PARTNERS
James M. Seneff, Jr., age 48, is the one of the individual General
Partners of CNL XVII and CNL XVIII and serves as Chairman of the Board, a
director, and Chief Executive Officer of CNL Realty Corporation, the corporate
General Partner of the Partnership, of which he is a 50% stockholder. Mr.
Seneff, along with his wife Dayle L. Seneff, is the sole stockholder of CNL
Group, Inc., a diversified real estate company, and has served as its Chairman
of the Board of Directors, director, and Chief Executive Officer since its
formation in 1980. CNL Group, Inc. is the parent company of CNL Securities
Corp., which is acting as the Managing Dealer in this Offering, and CNL Income
Fund Advisors, Inc. Mr. Seneff has been a director and registered principal of
CNL Securities Corp. since its formation in 1979. Mr. Seneff also has held the
position of President and a director of CNL Management Company, a registered
investment advisor, since its formation in 1976; has served as Chairman of the
Board of CNL Investment Company since 1990 and Chief Executive Officer and
Chairman of the Board of Commercial Net Lease Realty, Inc. since 1992; has
served as the Chairman of the Board and the Chief Executive Officer of CNL
Realty Advisors, Inc. since its inception in 1991; and has held the position of
Chief Executive Officer and a director of CNL Institutional Advisors, Inc., a
registered investment advisor, since its inception in 1990. Mr. Seneff
previously served on the State of Florida Commission on Ethics and is a former
member and past Chairman of the Florida Investment Advisory Council, which
recommends to the Florida Board of Administration investments for various
Florida employee retirement funds. The Florida Board of Administration,
Florida's principal investment advisory and money management agency, oversees
the investment of more than $40 billion of retirement funds. Since 1971, Mr.
Seneff has been active in the acquisition, development, and management of real
estate projects and, directly or through an affiliated entity, has served as a
general partner or joint venturer in approximately 100 real estate ventures
involved in the acquisition, construction, and rental of office buildings,
apartment complexes, restaurants, hotels, and other real estate. Included in
these 100 real estate ventures are approximately 57 privately offered real
estate limited partnerships in which Mr. Seneff, directly or through an
affiliated entity, serves or has served as a general partner. Also included are
CNL Income Fund, Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL
Income Fund IV, Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL
Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL
Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL
Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., and
CNL Income Fund XVI, Ltd., (collectively, the "CNL Income Fund Partnerships,"
public real estate limited partnerships with investment objectives similar to
those of the Partnership, in which Mr. Seneff serves as a general partner. Mr.
Seneff received his degree in Business Administration from Florida State
University in 1968. See "Conflicts of Interest."
Robert A. Bourne, age 48, is one of the individual General Partners of
CNL XVII and CNL XVIII and serves as President and a director of CNL Realty
Corporation, the corporate General Partner of the Partnership, of which he is a
50% stockholder. Mr. Bourne is President, a director, and a registered principal
of CNL Securities Corp. (the Managing Dealer of this Offering), President and a
director of CNL Income Fund Advisors, Inc., and President, Chief Investment
Officer, and a director of CNL Institutional Advisors, Inc., a registered
investment advisor. Mr. Bourne also has served as President and a director of
Commercial Net Lease Realty, Inc. since 1992 and President and director of CNL
Realty Advisors, Inc. since its inception in 1991, and President and a director
of CNL Investment Company. Upon graduation from Florida State University in
1970, where he received a B.A. in Accounting, with honors, Mr. Bourne worked as
a certified public accountant and, from September 1971 through December 1978 was
employed by Coopers & Lybrand, Certified Public Accountants, where he held the
position of tax manager beginning in 1975. From January 1979 until June 1982,
Mr. Bourne was a partner in the accounting firm of Cross & Bourne and from July
1982 through January 1987 he was a partner in the accounting firm of Bourne &
Rose, P.A., Certified Public Accountants. Mr. Bourne, who joined CNL Securities
Corp. in 1979, has participated as a general partner or joint venturer in
approximately 100 real estate ventures involved in the acquisition,
construction, and rental of office buildings, apartment complexes, restaurants,
hotels, and other real estate. Included in these 100 real estate ventures are
approximately 57 privately offered real estate limited partnerships in which Mr.
Bourne, directly or through an affiliated entity, serves or has served as a
general partner. Also included are the CNL Income Fund Partnerships in which Mr.
Bourne serves as a general partner. See "Conflicts of Interest."
CORPORATE GENERAL PARTNER
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. James M. Seneff, Jr., one of the
individual General Partners, serves as Chief Executive Officer, a director and a
stockholder and Robert A. Bourne, the other individual General Partner, serves
as President, a director and a stockholder. CNL Realty Corporation was organized
to serve as the corporate general partner of real estate limited partnerships,
such as the Partnership, organized by one or both of the individual General
Partners. CNL Realty Corporation currently serves as the corporate general
partner of the CNL Income Fund Partnerships. See Exhibit B--Financial
Information, for the most recent audited financial statements of CNL Realty
Corporation.
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CNL INCOME FUND ADVISORS, INC.
CNL Income Fund Advisors, Inc., which will provide certain advisory and
property management services in connection with the Partnership and its
Properties, is a corporation organized in 1994 under the laws of the State of
Florida. Its principal office is located at 400 East South Street, Suite 500,
Orlando, Florida 32801. CNL Income Fund Advisors, Inc. is a wholly owned
subsidiary of CNL Group, Inc., a diversified real estate company, and was
organized to perform the property acquisition, property management, and other
services described herein.
CNL GROUP, INC.
CNL Group, Inc., which is the parent company of the Managing Dealer, CNL
Securities Corp., and CNL Income Fund Advisors, Inc., is a diversified real
estate corporation organized in 1980 under the laws of the State of Florida.
Other subsidiaries and Affiliates of CNL Group, Inc. include a property
development and management company, two investment advisory companies, and 5
corporations organized as strategic business units. James M. Seneff, Jr., an
individual General Partner of the Partnership, is the Chairman of the Board,
Chief Executive Officer, and a director of CNL Group, Inc. Mr. Seneff and his
wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its Affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
D. Ben Kenney, age 32, has served as Chief Operating Officer for CNL
Income Fund Advisors, Inc. since November 1994, and has served as a Vice
President of CNL Investment Company since 1992, where he is responsible for real
estate acquisitions and property management for the CNL Income Fund
Partnerships. From 1985 through 1990, Mr. Kenney served as real estate manager
for two of the nation's largest multi-concept restaurant chains, responsible for
property acquisition and management. From 1991 until 1992, Mr. Kenney was a real
estate specialist, responsible for the management of the Orlando area office,
for a major shopping center developer. Mr. Kenney holds a B.A., with honors, in
Economics from Washington University and an M.S. in Real Estate Development from
M.I.T.
Lynn E. Rose, age 46, a certified public accountant, has served as Chief
Financial Officer and Secretary of CNL Group, Inc. since December 1993, and
served as Controller and Secretary of CNL Group, Inc. from 1987 until December
1993. She has served as Chief Operating Officer of CNL Corporate Services, Inc.
since November 1994. Ms. Rose also has served as Chief Financial Officer of CNL
Institutional Advisors, Inc. since its inception in 1990, Secretary, Treasurer
and a director of CNL Realty Advisors, Inc. since its inception in 1991,
Secretary and Treasurer of Commercial Net Lease Realty, Inc. since 1992, and
Secretary of CNL Income Fund Advisors, Inc. since 1994. In addition, Ms. Rose
oversees the management information services, administration, legal compliance,
accounting, tenant compliance, and reporting for over 200 corporations,
partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of
Central Florida and is a registered financial and operations principal of CNL
Securities Corp. She was licensed as a Certified Public Accountant in 1979.
Jeanne A. Wall, age 36, has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and
previously served as Executive Vice President of CNL Investment Company since
January 1991. In 1984, Ms. Wall joined CNL Securities Corp. as its Partnership
Administrator. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
and, in 1987, she became a Senior Vice President of CNL Securities Corp. In this
capacity, Ms. Wall serves as national marketing director and oversees the
national marketing plan for the CNL investment programs. In addition, Ms. Wall
oversees the partnership administration and investor services for programs
offered through participating brokers. Ms. Wall also has served as Senior Vice
President of CNL Institutional Advisors, Inc., a registered investment advisor,
from 1990 to 1993, as Vice President of CNL Realty Advisors, Inc. since its
inception in 1991, and as Vice President of Commercial Net Lease Realty, Inc.
since 1992. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp. Ms. Wall currently
serves as a trustee on the board of the Investment Program Association and on
the Direct Participation Program committee for the National Association of
Securities Dealers (NASD).
NET WORTH OF GENERAL PARTNERS
Messrs. Seneff and Bourne, the individual General Partners along with
their wives, have represented that at October 6, 1994, they had an audited
aggregate net worth in excess of $14,000,000, and that their net worth
(reviewed) at April 30, 1995, was in excess of $14,000,000. However, a
substantial portion of their assets is represented by interests in real estate
and closely held companies which are essentially illiquid. At October 6, 1994
and April 30, 1995, Messrs. Seneff and Bourne also had
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contingent liabilities in the aggregate amount of approximately $11,400,000 and
$7,900,000, respectively, as a result of all guarantees of loans to limited
partnerships in which they serve as general partners. Should some of these
contingent liabilities become actual, or should some of the assets prove to be
uncollectible, their net worth may be significantly reduced. Messrs. Seneff and
Bourne have additional contingent liabilities as a result of their practice of
maintaining lines of credit that enable Affiliates to invest in restaurant
properties or restaurant facilities on an interim basis prior to the time that
an affiliated partnership has sufficient funds to purchase the restaurant
properties or restaurant facilities. At October 6, 1994 and April 30, 1995,
these lines of credit aggregated approximately $17,000,000 and $2,000,000,
respectively. In addition, Messrs. Seneff and Bourne have certain contingent
liabilities as a result of guarantees of loans to various general partnerships
in which they are partners. At October 6, 1994 and April 30, 1995, these
guarantees totalled approximately $16,400,000 and $22,400,000, respectively. All
of the loans guaranteed by Messrs. Seneff and Bourne, as well as the lines of
credit, are secured by real property or other collateral. Messrs. Seneff and
Bourne believe that such properties or collateral are of sufficient value to
cover the outstanding balance of such loans and lines of credit. In addition, it
is unlikely that all such loans would be in default at any one time, since they
represent loans made to a number of different partnerships. Messrs. Seneff and
Bourne also have contingent liabilities of approximately $1,000,000 attributable
to capital notes payable on demand to certain corporations that serve as general
partners of certain affiliated partnerships in the event that these corporations
require additional funds. As of the date of this Prospectus, Messrs. Seneff and
Bourne have not been required to advance any amounts pursuant to such notes and,
based on operations of the related partnerships, do not expect to be required to
do so in the foreseeable future. In addition, Messrs. Seneff and Bourne have
guaranteed the obligations of a master tenant (CNL Management Group, Inc., an
affiliate of the General Partners) under a master lease, of which the present
value of the master lease obligation as of April 30, 1995, amounts to
$2,400,000. Messrs. Seneff and Bourne also have contingent liabilities as a
result of their agreement to fund reserves under certain limited circumstances
for the CNL Income Fund Partnerships. Messrs. Seneff and Bourne do not
anticipate that they will be required to fund such reserves due to the structure
of those public limited partnerships. See "Conflicts of Interest" and "Risk
Factors--Investment Risks--Limited Resources of General Partners." The corporate
General Partner has a nominal net worth.
REMOVAL OF GENERAL PARTNERS
Limited Partners of the Partnership who hold a majority of the
outstanding Units may remove a General Partner and elect a substitute General
Partner in his or its place. In such event, the removed General Partner is
entitled to be paid the then- present fair market value of his or its interest
and to prompt repayment of any loans made in accordance with the Partnership
Agreement by such General Partner or his or its Affiliates to the Partnership.
In addition, the substitute General Partner must make arrangements to (i)
release the removed General Partner from personal liability on any existing or
future Partnership borrowing and indemnify the removed General Partner against
all other Partnership liabilities (except against liabilities for which a
General Partner may not be indemnified under the Partnership Agreement), or (ii)
indemnify the removed General Partner against all Partnership liabilities
(except against liabilities for which a General Partner may not be indemnified
under the Partnership Agreement). Any removal shall become effective only on the
earlier of (i) the date a substitute General Partner is admitted to the
Partnership or (ii) a date 90 days after the date on which the required majority
voted for removal of the General Partner.
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES
The information presented in this section represents the historical
experience of real estate programs organized by the General Partners. INVESTORS
IN THE PARTNERSHIP SHOULD NOT ASSUME THAT THEY WILL EXPERIENCE RETURNS, IF ANY,
COMPARABLE TO THOSE EXPERIENCED BY INVESTORS IN SUCH PRIOR REAL ESTATE PROGRAMS.
INVESTORS WHO PURCHASE INTERESTS IN THE PARTNERSHIP WILL NOT THEREBY ACQUIRE ANY
OWNERSHIP INTEREST IN ANY PROGRAMS TO WHICH THE FOLLOWING INFORMATION RELATES.
The General Partners of the Partnership are Robert A. Bourne, James M.
Seneff, Jr., and CNL Realty Corporation. Messrs. Bourne and Seneff, individually
or with others, have served as general partners of 72 and 73 investor real
estate limited partnerships, respectively, including the 16 prior CNL Income
Fund Partnerships and as officers and directors of a real estate investment
trust, CNL American Properties Fund, Inc., listed in the table below. None of
these entities has been audited by the IRS. Of course, there is no guarantee
that the Partnership will not be audited. Based on an analysis of the operating
results of the prior programs, the General Partners believe that each of such
programs has met, or currently is in the process of meeting, its principal
investment objectives, and, as of June 30, 1995, no such program has experienced
any material adverse developments.
CNL Realty Corporation, which was organized as a Florida corporation in
November 1985 and whose sole shareholders are Messrs. Bourne and Seneff,
currently serves as the corporate general partner, with Messrs. Bourne and
Seneff as individual
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general partners, of the 16 prior CNL Income Fund Partnerships, all of which
were organized to invest in fast-food and family- style restaurant properties
and have investment objectives similar to those of the Partnership.
As of June 30, 1995, the 16 CNL Income Fund Partnerships and CNL
American Properties Fund, Inc. had raised a total of $555,181,000 from a total
of approximately 46,000 investors, and had invested in 618 fast-food,
family-style, or casual dining restaurant properties. Certain additional
information relating to the offerings and investment history of the 16 CNL
Income Fund Partnerships and CNL American Properties Fund, Inc. is set forth
below.
<TABLE>
<CAPTION>
Date 90% of Net
Maximum Proceeds Fully
Name of Offering Number of Invested or Committed
Entity Amount (1) Date Closed Units Sold to Investment (2)
<S> <C>
CNL Income $15,000,000 December 31, 1986 30,000 December, 1986
Fund, Ltd. (30,000 Units)
CNL Income $25,000,000 August 21, 1987 50,000 November, 1987
Fund II, Ltd. (50,000 Units)
CNL Income $25,000,000 April 29, 1988 50,000 June, 1988
Fund III, Ltd. (50,000 Units)
CNL Income $30,000,000 December 6, 1988 60,000 February, 1989
Fund IV, Ltd. (60,000 Units)
CNL Income $25,000,000 June 7, 1989 50,000 December, 1989
Fund V, Ltd. (50,000 units)
CNL Income $35,000,000 January 19, 1990 70,000 May, 1990
Fund VI, Ltd. (70,000 Units)
CNL Income $30,000,000 August 1, 1990 30,000,000 January, 1991
Fund VII, Ltd. (30,000,000 Units)
CNL Income $35,000,000 March 7, 1991 35,000,000 September, 1991
Fund VIII, Ltd. (35,000,000 Units)
CNL Income $35,000,000 September 6, 1991 3,500,000 November, 1991
Fund IX, Ltd. (3,500,000 Units)
CNL Income $40,000,000 March 18, 1992 4,000,000 June, 1992
Fund X, Ltd. (4,000,000 Units)
CNL Income $40,000,000 September 28, 1992 4,000,000 September, 1992
Fund XI, Ltd. (4,000,000 Units)
CNL Income $45,000,000 March 15, 1993 4,500,000 July, 1993
Fund XII, Ltd. (4,500,000 Units)
CNL Income $40,000,000 August 26, 1993 4,000,000 August, 1993
Fund XIII, Ltd. (4,000,000 Units)
CNL Income $45,000,000 February 22, 1993 4,500,000 May, 1994
Fund XIV, Ltd. (4,500,000 Units)
CNL Income $40,000,000 September 1, 1994 4,000,000 December, 1994
Fund XV, Ltd. (4,000,000 Units)
CNL Income $45,000,000 June 12, 1995 4,500,000 (3)
Fund XVI, Ltd. (4,500,000 Units)
- --------------------------------------------
</TABLE>
(1) The amount stated includes the exercise by the general partners of
each Partnership of their option to increase by $5,000,000 the
maximum size of the offering of CNL Income Fund, Ltd., CNL Income
Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV, Ltd.,
CNL Income Fund VI, Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund
X, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIV, Ltd., and
CNL Income Fund XVI, Ltd.
48
<PAGE>
<TABLE>
<CAPTION>
<S> <C>
CNL American $165,000,000 (4) (4) (4)
Properties Fund, Inc. (16,500,000 Shares)
</TABLE>
- --------------------------------------------
(2) For a description of the property acquisitions by these programs during
the last eight years, see the table set forth on the following page.
(3) As of June 30, 1995, CNL Income Fund XVI, Ltd. had purchased 34
properties.
(4) As of June 30, 1995, CNL American Properties Fund, Inc., which offered a
maximum of 16,500,000 shares ($165,000,000), had received subscriptions
totalling $5,181,000 (518,100 shares). As of such date, CNL American
Properties Fund, Inc. had purchased one property.
As of June 30, 1995, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served, as joint general partners of 55 nonpublic
investor real estate limited partnerships. The offerings of 54 of these 55
nonpublic limited partnerships had terminated as of June 30, 1995. These 54
partnerships raised a total of $124,032,480 from approximately 3,200 investors,
and purchased, directly or through participation in a joint venture or limited
partnership, interests in a total of 173 projects as of June 30, 1995. These 173
projects consist of 19 apartment projects (comprising 15% of the total amount
raised by all 54 partnerships), 12 office buildings (comprising 6% of the total
amount raised by all 54 partnerships), 131 fast-food or family-style restaurant
property and business investments (comprising 67% of the total amount raised by
all 54 partnerships), one condominium development (comprising 1% of the total
amount raised by all 54 partnerships), four hotels/motels (comprising 6% of the
total amount raised by all 54 partnerships), five commercial/retail properties
(comprising 4% of the total amount raised by all 54 partnerships), and two
tracts of undeveloped land (comprising 1% of the total amount raised by all 54
partnerships).
Mr. Bourne also has served, without Mr. Seneff, as a general partner of
one additional nonpublic real estate limited partnership program which raised a
total of $600,000 from 13 investors and purchased, through participation in a
limited partnership, one apartment building located in Georgia with a purchase
price of $1,712,000.
Mr. Seneff also has served, without Mr. Bourne, as a general partner of
two additional nonpublic real estate limited partnerships which raised a total
of $240,000 from 12 investors and purchased two office buildings with an
aggregate purchase price of $928,390. Both of the office buildings are located
in Florida.
Of the 73 real estate limited partnerships whose offerings had closed as
of June 30, 1995 (including 16 CNL Income Fund limited partnerships) in which
Mr. Seneff and/or Mr. Bourne serve or have served as general partners in the
past ten years, 32 invested in restaurant properties leased on a "triple-net"
basis, including five which also invested in franchised restaurant businesses
(accounting for approximately 94% of the total amount raised by all 73 real
estate limited partnerships).
The following table sets forth summary information, as of June 30, 1995,
regarding property acquisitions during the eight preceding years by the 17
limited partnerships that, either individually or through a joint venture or
partnership arrangement, acquired properties (or intend to acquire properties)
and that have investment objectives similar to those of the Partnership and by a
real estate investment trust, CNL American Properties Fund, Inc.
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
<S> <C>
CNL Income 20 fast-food or AL, AZ, CA, FL, All cash Public
Fund, Ltd. family-style GA, LA, MD, OK,
restaurants TX, VA
CNL Income 43 fast-food or AL, AZ, CO, FL, All cash Public
Fund II, Ltd. family-style GA, IL, IN, LA, MI,
restaurants MN, MO, NC, NM,
OH, TX, WY
CNL Income 32 fast-food or AZ, CA, FL, GA, All cash Public
Fund III, Ltd. family-style IA, IL, IN, KS, KY,
restaurants MD, MI, MN, MO,
NE, OK, TX
CNL Income 42 fast-food or AL, DC, FL, GA, All cash Public
Fund IV, Ltd. family-style IL, IN, KS, MA,
restaurants MD, MI, MS, OH,
PA, TN, TX, VA
49
<PAGE>
CNL Income 30 fast-food or FL, GA, IL, IN, MI, All cash Public
Fund V, Ltd. family-style NH, NY, OH, SC,
restaurants TN, TX, UT, WA
CNL Income 44 fast-food or AR, AZ, FL, IN, All cash Public
Fund VI, Ltd. family-style MA, MI, MN, NC,
restaurants NE, NM, NY, OH,
OK, PA, TN, TX,
VA, WY
CNL Income 45 fast-food or AZ, CO, FL, GA, All cash Public
Fund VII, Ltd. family-style IN, LA, MI, MN,
restaurants OH, SC, TN, TX,
UT, WA
CNL Income 38 fast-food or AZ, FL, IN, LA, All cash Public
Fund VIII, Ltd. family-style MI, MN, NC, NY,
restaurants OH, TN, TX, VA
CNL Income 41 fast-food or AL, FL, GA, IL, IN, All cash Public
Fund IX, Ltd. family-style LA, MI, MN, MS,
restaurants NC, NH, NY, OH,
SC, TN, TX
CNL Income 47 fast-food or AL, CA, CO, FL, All cash Public
Fund X, Ltd. family-style ID, IL, LA, MI,
restaurants MO, MT, NC, NH,
NM, NY, OH, PA,
SC, TN, TX
CNL Income 39 fast-food or AL, AZ, CA, CO, All cash Public
Fund XI, Ltd. family-style CT, FL, KS, LA,
restaurants MA, MI, MS, NC,
NH, NM, OH, OK,
PA, SC, TX, VA,
WA
CNL Income 48 fast-food or AL, AZ, CA, FL, All cash Public
Fund XII, Ltd. family-style GA, LA, MO, MS,
restaurants NC, NM, OH, SC,
TN, TX, WA
CNL Income 48 fast-food or AL, AR, AZ, CA, All cash Public
Fund XIII, Ltd. family-style CO, FL, GA, IN,
restaurants KS, LA, MD, NC,
OH, PA, SC, TN,
TX, VA
CNL Income 56 fast-food or AL, AZ, CO, FL, All cash Public
Fund XIV, Ltd. family-style GA, KS, LA, MO,
restaurants MS, NC, NJ, NV,
OH, SC, TN, TX,
VA
CNL Income 48 fast-food or CA, FL, GA, KS, All cash Public
Fund XV, Ltd. family-style KY, MO, MS, NC,
restaurants NJ, NM, OH, OK,
PA, SC, TN, TX,
VA
CNL Income 34 fast-food or AZ, CA, CO, DC, All cash Public
Fund XVI, Ltd. family-style FL, GA, ID, KS,
restaurants MO, NC, NM, NV,
OH, TN, TX, UT,
WI
50
<PAGE>
Prudential-Bache/ 12 fast-food or FL, NC, TN, TX, Approx. 40% cash, Nonpublic
CNL National Net family-style VA 60% two-year non-
Lease Properties, restaurants mortgage financing
Ltd.
CNL American 1 fast-food, family- CA All cash Public
Properties Fund, Inc. style, or casual dining
restaurants
- ----------------------------------------------------------
</TABLE>
A more detailed description of the acquisitions by the prior programs
sponsored by the individual General Partners is set forth in Part II of the
registration statement filed with the Securities and Exchange Commission for
this Offering and is available from the General Partners upon request, without
charge. In addition, upon request to the General Partners, the General Partners
will provide, without charge, a copy of the most recent Annual Report on Form
10-K filed with the Securities and Exchange Commission for CNL Income Fund,
Ltd., CNL Income Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund IV,
Ltd., CNL Income Fund V, Ltd., CNL Income Fund VI, Ltd., CNL Income Fund VII,
Ltd., CNL Income Fund VIII, Ltd., CNL Income Fund IX, Ltd., CNL Income Fund X,
Ltd., CNL Income Fund XI, Ltd., CNL Income Fund XII, Ltd., CNL Income Fund XIII,
Ltd., CNL Income Fund XIV, Ltd., CNL Income Fund XV, Ltd., and CNL Income Fund
XVI, Ltd., as well as a copy, for a reasonable fee, of the exhibits filed with
such reports.
In order to provide potential purchasers of Units with information to
enable them to evaluate the prior experience of the General Partners as general
partners of limited partnerships, including those set forth in the foregoing
table, certain financial and other information concerning the 17 limited
partnerships with similar investment objectives in which the General Partners
are general partners is provided in the Prior Performance Tables included as
Exhibit C. Potential investors are encouraged to examine the Prior Performance
Tables attached as Exhibit C, which includes (in Table III) information as to
the operating results of these prior partnerships, for more detailed information
concerning the experience of the individual General Partners.
INVESTMENT OBJECTIVES AND POLICIES
GENERAL
The Partnership's primary investment objectives are to preserve,
protect, and enhance Partnership capital, while providing (i) cash distributions
commencing in the initial year of Partnership operations in amounts which exceed
current taxable income (due to the fact that depreciation deductions
attributable to the Properties reduce taxable income even though depreciation is
not a cash expenditure); (ii) an anticipated minimum level of income through the
long-term rental of Properties to selected operators of certain national and
regional fast-food, family-style, and casual dining restaurant chains; (iii)
additional income and protection against inflation by participation in certain
restaurant gross sales through the receipt of percentage rent; and (iv) capital
appreciation through the potential increase in value of the Properties. The
Partnership intends to meet these objectives by purchasing carefully selected
restaurant properties and leasing them on a "triple-net" basis (which means that
the lessee will be responsible for paying the cost of all repairs, maintenance,
property taxes, and insurance) to creditworthy operators of certain national or
regional fast-food, family-style, and casual dining restaurant chains under
leases requiring the lessee to pay both base annual rent and a percentage rent
based on gross sales. See "Business--Site Selection and Acquisition of
Properties" and "Business--Description of Leases" for a more complete
description of the manner in which the structure of the Partnership's business
will facilitate the Partnership's ability to meet its investment objectives. The
Partnership's investment policies are set forth in the Partnership Agreement and
cannot be changed except by amendment of the Partnership Agreement which
requires the approval of the Limited Partners. There can be no assurance that
these objectives will be met. The sheltering from tax of income from other
sources is not an objective of the Partnership. If the Partnership is successful
in achieving its investment and operating objectives, the Limited Partners
(other than tax-exempt entities) are likely to recognize taxable income in each
year. The General Partners expect that all but a small portion of the
Partnership's net income will constitute net income from a "passive activity,"
as defined in section 469 of the Code, against which a Limited Partner's net
losses and credits from investments in other "passive activities" may be taken,
in accordance with the limitations provided in section 469. See "Risk
Factors--Federal Income Tax Risks--Passive Activity Income." While there is no
order of priority intended in the listing of the Partnership's objectives,
investors should realize that the ability of the Partnership to realize these
objectives may be severely handicapped by any lack of diversification of the
Partnership's investments and the terms of the leases.
51
<PAGE>
The Partnership intends to invest its assets in restaurant Properties
that are part of one of the Restaurant Chains to be selected by the General
Partners. Although there is no limit on the number of restaurants of a
particular Restaurant Chain which the Partnership may acquire, the General
Partners currently do not expect to invest more than 25% of the Gross Proceeds
in restaurant Properties of any one Restaurant Chain or to invest 30% of the
Gross Proceeds in Properties located in any one state. It is intended that
investments will be made in several Properties in various locations in an
attempt to achieve diversification and thereby minimize the effect of changes in
local economic conditions and certain other risks. The extent of such
diversification, however, depends in part upon the amount of the Partnership's
funds available from the sale of Units of the Partnership. See "Estimated Use of
Proceeds" and "Risk Factors--Investment Risks--Possible Lack of
Diversification."
The purpose and investment policies of the Partnership may not be
changed without the approval of Limited Partners owning a majority of the Units.
CERTAIN INVESTMENT LIMITATIONS
The Partnership will not: (i) issue Units in exchange for property or
otherwise than pursuant to the terms of this Offering; (ii) issue senior
securities; (iii) make loans to the General Partners or their Affiliates; (iv)
invest in or underwrite the securities of other issuers, including junior trust
deeds or other similar obligations (provided, however, that the Partnership may
invest Partnership funds temporarily in short-term, highly liquid investments,
with appropriate safety of principal, and may accept purchase money mortgages
secured by a first mortgage on a Property in connection with the Sale of a
Property); (v) operate in such a manner as to be classified as an "investment
company" for purposes of the Investment Company Act of 1940; (vi) redeem or
repurchase Units (except that the Partnership may implement the Distribution
Reinvestment Plan); (vii) invest in real estate mortgages; (viii) purchase or
own equipment unless the General Partners determine that it is in the best
interests of the Partnership in order to preserve the asset values of the
Properties; or (ix) purchase or lease any Property from, or sell or lease any
Property to, the General Partners or their Affiliates, except for a purchase of
Property which such persons have temporarily purchased to facilitate acquisition
of such Property as described in "Business--Site Selection and Acquisition of
Properties--Interim Acquisitions."
INVESTMENT IN PROPERTIES
It is intended that the Partnership invest a substantial percentage of
Limited Partners' Capital Contributions to the Partnership in restaurant
Properties. See "Estimated Use of Proceeds." The General Partners and their
Affiliates have agreed to forego the payment of certain fees and to make
reimbursements to the Partnership to the extent necessary to comply with the
minimum Investment in Properties requirement of Article 7.7 of the Partnership
Agreement. See Articles 7.5, 7.7 and 7.8 of the Partnership Agreement.
The Partnership will invest no more than 10% of Offering proceeds
available for investment in unimproved land or any non-income producing
Property, and then only on terms that can be financed from Partnership capital
or Net Cash Flow and only if (i) the Partnership simultaneously receives a
commitment to build a restaurant thereon, and (ii) the Partnership
simultaneously enters into an agreement for the lease of the land and the
restaurant. The term "unimproved land" does not include any Property for which
there is a reasonable expectation that such Property will produce income within
two years following its acquisition by the Partnership.
All Properties will be purchased for cash, and neither the Partnership
nor any Joint Venture or general partnership in which the Partnership invests or
participates will finance the acquisition of any Properties by secured or
unsecured indebtedness, or encumber any of the Properties with a lien.
USE OF PROCEEDS PRIOR TO INVESTMENT IN PROPERTIES
Prior to the purchase of Properties, Partnership funds will be invested
in short-term, highly liquid investments with appropriate safety of principal,
including certificates of deposit, money market funds which invest in short-term
securities directly or indirectly issued or guaranteed by the U.S. Government,
U.S. Treasury bonds, notes or bills, or in obligations of a financial
institution collateralized by the pledge of such U.S. Government obligations,
and other short-term investments. Fees and commissions may be charged by
unaffiliated parties in connection with such investments.
Any portion of the proceeds available for Investment in Properties
(excluding working capital reserves of up to 1% of Limited Partners' Capital)
not invested in Properties within the later of two years from the initial date
of this Prospectus, or one year after termination of the Offering, will be
distributed pro rata to the Limited Partners together with Front-End Fees in the
ratio that the amount of such uninvested or unreserved funds bears to Limited
Partners' Capital. Proceeds are deemed to have been invested and shall not be
included in proceeds required to be returned to Limited Partners pursuant to the
preceding sentence
52
<PAGE>
to the extent such proceeds are reserved for completion of an investment in any
Property that has been acquired by the Partnership. Any proceeds returned to
Limited Partners will be treated as a partial return of capital for tax and
accounting purposes and will be returned without deduction for expenses. See
Article 7.8 of the Partnership Agreement. All funds will be available for the
general use of the Partnership during such period and may be expended in
operating the Properties which have been acquired and to reimburse the General
Partners or their Affiliates for certain expenses of the Partnership for which
reimbursement is permitted under the Partnership Agreement. Funds will not be
segregated or held separate from other funds of the Partnership pending
investment, except for those funds held in reserve, and no interest will be
payable to the Limited Partners if uninvested funds are returned to them.
ALLOCATIONS AND DISTRIBUTIONS
The following paragraphs summarize the allocations and distributions to
which the Limited Partners of the Partnership are entitled under the Partnership
Agreement. This description is only a summary and is qualified in its entirety
by reference to the form of Partnership Agreement attached hereto as Exhibit A.
In addition, the simplified definitions that follow are designed to facilitate
an understanding of Partnership allocations and distributions, do not include
all of the details of the defined terms included in the "Definitions" section of
this Prospectus, and are qualified by reference to that section of this
Prospectus.
"Net Cash Flow," in general terms, is the Partnership's cash receipts,
other than proceeds of a Sale, less its cash expenses, including the 1%
Management Fee to CNL Income Fund Advisors, Inc. "Net Sales Proceeds," in
general, is the cash the Partnership receives from the Sale of a Property or its
interest therein, less expenses related to the Sale. A Limited Partner's
"Invested Capital Contribution" generally is such Limited Partner's investment
of capital in the Partnership reduced by prior distributions of certain Net
Sales Proceeds (generally, Net Sales Proceeds distributions made following full
payment of the Limited Partners' 8% Return as of the distribution date). The
"Limited Partners' 8% Return" generally refers to an annual, noncompounded
return on the Invested Capital Contributions of the Limited Partners equal to 8%
per annum, which return shall be noncumulative when computed or paid from Net
Cash Flow and shall be cumulative when computed or paid from Net Sales Proceeds.
The Limited Partners' 8% Return is payable only (i) to the extent of available
Net Cash Flow and (ii) to the extent of available Net Sales Proceeds from a Sale
or Sales not in liquidation of the Partnership. The Limited Partners' 8% Return
is payable only after payment of Partnership expenses, including the 1%
Management Fee (to the extent taken by CNL Income Fund Advisors, Inc.), without
any guarantee of its payment. The terms "Net Income," "Net Loss," "Gain," and
"Loss" describe the items of income, gain, loss, and deduction to be allocated
among the Partners for federal income tax purposes.
To the extent the General Partners determine that funds are available
for distribution, distributions of Net Cash Flow will be made at least
quarterly. These distributions to Limited Partners of the Partnership are
expected to commence no later than the first full calendar quarter after the
admission of Limited Partners to the Partnership pursuant to the Offering. See
"Distributions of Net Cash Flow" below.
DISTRIBUTIONS OF NET CASH FLOW
The Partnership will make distributions of Net Cash Flow of the
Partnership that the General Partners, in their sole and absolute discretion,
determine is available for distribution. Such distributions will be payable
quarterly or, by the election of the Limited Partner for a fee, monthly. A
Limited Partner who purchases a minimum of 500 Units ($5,000) may elect to
receive monthly distributions, paid in arrears, by written notice to the General
Partners upon subscription, or, thereafter, upon at least 10 days' prior written
notice to the General Partners, with any such election made following
subscription to be effective as of the beginning of the following calendar
quarter. Absent such an election, Limited Partners will receive distributions
quarterly. In any quarter, Limited Partners may terminate their election to
receive distributions monthly rather than quarterly by written notice to the
Partnership, which termination will be effective as of the beginning of the
following calendar quarter. The General Partners, in their sole discretion, will
have the option in the future to make monthly rather than quarterly
distributions to all Limited Partners. In such event, annual fees for monthly
distributions will terminate.
Distributions of Net Cash Flow are expected to commence no later than
the end of the first full calendar quarter following the admission of Limited
Partners to the Partnership pursuant to the Offering. At that time, each Limited
Partner will receive a distribution of available Net Cash Flow for the calendar
quarter and each Limited Partner who has elected to receive distributions
monthly will receive one-third of such amount. The remaining two-thirds of such
amount will be held in an interest-bearing monthly distribution account
segregated from other Partnership funds, and will be paid, without interest, in
approximately equal installments in each of the next two months to those Limited
Partners who have elected to receive distributions monthly.
53
<PAGE>
Limited Partners who elect the monthly distribution option will be
charged an annual administrative fee, which will be $21.00 for 1995, designed to
cover the additional postage and handling associated with the more frequent
distributions. The annual administrative fee will be reduced by any interest
earned on the monthly distribution account and will be deducted equally from
each monthly distribution. In the event that the interest earned on the monthly
distribution account exceeds the annual administrative fee, such excess interest
will be available to the Partnership for Partnership purposes. It is anticipated
that the fee will be calculated in January of each year, although the General
Partners may change the amount of the fee during the year by written notice to
each Limited Partner who properly has elected to receive monthly distributions,
with such notice to be given at least 30 days prior to the beginning of the
calendar quarter that includes the first month to which the new fee will apply.
Limited Partners who elect the monthly distribution option will not be
eligible to participate in the Distribution Reinvestment Plan, unless the
General Partners elect to make distributions to all Limited Partners on a
monthly basis. See "Summary of Distribution Reinvestment Plan."
Distributions of Net Cash Flow of the Partnership for any fiscal year
will be made 95% to the Limited Partners and 5% to the General Partners;
provided, however, that the 5% of Net Cash Flow to be distributed to the General
Partners shall be subordinated to receipt by the Limited Partners of their
Limited Partners' 8% Return. See Article 9.3(a) of the Partnership Agreement.
The Limited Partners' 8% Return from Net Cash Flow is payable only to
the extent of available Net Cash Flow (generally, cash available from gross
revenues after payment of Partnership expenses, including the Management Fee
payable to CNL Income Fund Advisors, Inc. in the amount of 1% of Partnership
gross revenues, and the creation of any reserves), and payment therefore is not
guaranteed.
DISTRIBUTIONS OF NET SALES PROCEEDS
Net Sales Proceeds from a Sale or Sales not in liquidation of the
Partnership, after creation of any reserves, will be distributed in the
following order of priority: (i) first, 100% to the Limited Partners in an
amount equal to their aggregate Limited Partners' 8% Return (an annual,
noncompounded return on the Invested Capital Contributions of the Limited
Partners equal to 8% per annum, which is cumulative when computed or paid from
Net Sales Proceeds); (ii) second, 100% to the Limited Partners in an amount
equal to their Invested Capital Contributions; (iii) third, 100% to the General
Partners until the General Partners have received an amount equal to the sum of
their Capital Contributions plus an amount equal to 5% of all prior and current
distributions of Net Cash Flow, reduced by any prior distributions to the
General Partners of Net Cash Flow and of Net Sales Proceeds pursuant to this
subparagraph (iii); and (iv) thereafter, 95% to the Limited Partners and 5% to
the General Partners. Therefore, payment of the Limited Partners' 8% Return is
not guaranteed. See Article 9.3(b) of the Partnership Agreement.
Distributions of Net Sales Proceeds from a Sale or Sales of
substantially all of the Partnership's assets are designed to provide Limited
Partners with their aggregate Limited Partners' 8% Return, to return their
Invested Capital Contributions, and, after providing the General Partners with a
return of their Capital Contributions and a 5% interest in all Net Cash Flow
distributions (to the extent not previously distributed to them), to provide
Limited Partners an aggregate 95% interest in distributions of remaining Net
Sales Proceeds. Specifically, Net Sales Proceeds from such a Sale or Sales will
be distributed in the following order of priority: (i) first, to pay all debts
and liabilities of the Partnership and to establish reserves; (ii) second, to
Partners with positive Capital Account balances, determined after the allocation
of Net Income, Net Loss, Gain and Loss described below, in proportion to such
balances, up to amounts sufficient to reduce such balances to zero; and (iii)
thereafter, 95% to the Limited Partners and 5% to the General Partners.
Therefore, payment of the Limited Partners' 8% Return is not guaranteed. See
Article 18.2 of the Partnership Agreement.
ALLOCATION OF NET INCOME AND NET LOSS
Net Income and Net Loss of the Partnership generally will be allocated
as follows: first, in an amount not to exceed the amount of Net Cash Flow
attributable to such year in the same proportion as such Net Cash Flow is
distributable; and thereafter, any remaining Net Income or Net Loss shall be
allocated 99% to the Limited Partners and 1% to the General Partners; provided,
however, that all deductions for depreciation and amortization will be specially
allocated 99% to the Taxable Limited Partners and 1% to the General Partners.
See Article 9.2(a) of the Partnership Agreement.
Notwithstanding the above allocations, the General Partners will be
allocated at least 1% of each material tax item, including gain or loss on Sale.
See Section 9.8 of the Partnership Agreement.
54
<PAGE>
ALLOCATION OF GAIN ON SALE
Any Gain realized by the Partnership generally will be allocated as
follows: (i) first, to the Partners having negative balances in their Capital
Accounts, in the proportion that the negative balance of each such Partner's
Capital Account bears to the aggregate negative balances in the Capital Accounts
of all such Partners, until the balances in their Capital Accounts equal zero;
(ii) second, 100% to each Limited Partner whose Capital Account balance, divided
by the number of Units held by such Limited Partner ("Capital Account Balance
Per Unit"), is less than the highest Capital Account Balance Per Unit of any
Limited Partner, until each Limited Partner's Capital Account Balance Per Unit
equals such highest Capital Account Balance Per Unit; (iii) third, 100% to the
Limited Partners until the aggregate positive balances in the Limited Partners'
Capital Accounts equal the sum of their Limited Partners' 8% Return and their
aggregate Invested Capital Contributions; and (iv) fourth, 100% to the General
Partners until the aggregate positive balances in their Capital Accounts equal
the sum of their Capital Contributions plus an amount equal to 5% of all prior
and current distributions of Net Cash Flow, to the extent the General Partners
have not previously received such amount; and (v) thereafter, 95% to the Limited
Partners and 5% to the General Partners. See Article 9.2(b) of the Partnership
Agreement.
ALLOCATION OF LOSS ON SALE
Any Loss realized by the Partnership will be allocated as follows: (i)
first, 100% to each Limited Partner whose Capital Account Balance Per Unit is
greater than the lowest Capital Account Balance Per Unit of any Limited Partner,
until each Limited Partner's Capital Account Balance Per Unit equals such lowest
Capital Account Balance Per Unit; (ii) second, to the Partners with positive
balances in their Capital Accounts in the proportion that the positive balance
in each such Partner's Capital Account bears to the aggregate positive balances
in the Capital Accounts of all such Partners, until the balances in their
Capital Accounts equal zero; and (iii) thereafter, 95% to the Limited Partners
and 5% to the General Partners. See Article 9.2(c) of the Partnership Agreement.
SUMMARY OF PARTNERSHIP AGREEMENT
The Partnership is a Florida limited partnership whose General Partners
are Robert A. Bourne, James M. Seneff, Jr., and CNL Realty Corporation, a
Florida corporation. The term of the Partnership commenced on February 10, 1995.
Upon the admission of the Limited Partners to the Partnership, the sole initial
Limited Partner will withdraw from the Partnership. The Partnership Agreement, a
form of which is attached hereto as Exhibit A, will govern the rights and
obligations of the Limited Partners upon their admission to the Partnership.
The following discussion summarizes certain portions of the Partnership
Agreement, but all statements made below and elsewhere in this Prospectus are
qualified in their entirety by reference to the Partnership Agreement itself, a
copy of the form of which is attached hereto as Exhibit A. See "Allocations and
Distributions" for a description of the allocations and distributions to which
the Limited Partners of the Partnership are entitled under the Partnership
Agreement.
MANAGEMENT OF THE PARTNERSHIP
The management, operation, and control of the Partnership and all of its
business and affairs will rest exclusively with the General Partners. The vote
of a majority of the General Partners will control. Limited Partners holding a
majority of the outstanding Units may, subject to the limitations set forth in
Article Fifteen of the Partnership Agreement, remove one or more of the General
Partners.
LIABILITY OF THE LIMITED PARTNERS TO THIRD PARTIES
Except as provided below, no Limited Partner will be personally liable
for the debts of the Partnership beyond the amount of such Partner's Capital
Contribution and such Partner's share of undistributed profits of the
Partnership. In the event the Partnership is unable to meet its obligations, the
Limited Partners, under applicable law, could be obligated under some
circumstances to (i) return, with interest, any cash wrongfully distributed
which represents a return of their Capital Contributions, for a period of six
years thereafter, and (ii) repay, with interest, any cash distributed to them
which represents a return of a Capital Contribution, pro rata in accordance with
their Partnership Interests, for a period of one year after the date of such
distribution, as are required to discharge liabilities of the Partnership to
creditors who extended credit or whose claims arose during the period the
returned Capital Contributions were held by the Partnership. In addition, the
Limited Partners could be held liable with the General Partners for the general
obligations of the Partnership if they were found to have participated in the
management and control of the Partnership.
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MEETINGS AND VOTING RIGHTS
Meetings of the Partnership for any purpose may be called by the General
Partners or by written request (stating the purpose of such meeting) of Limited
Partners holding 10% or more of the outstanding Units. Meetings called at the
written request of the Limited Partners will be held not less than 15 nor more
than 60 days after receipt of such written request. Each Limited Partner has the
right, at such Partner's own expense, either to inspect and copy the list of
Partners maintained at the Partnership's principal office or to receive, by
mail, a copy of this list.
Subject to the limitations set forth in the Partnership Agreement,
Limited Partners holding a majority of Units may vote to (i) amend or terminate
contracts for services or goods between the Partnership and the General Partners
or their Affiliates; (ii) approve or disapprove the sale or transfer of all or
substantially all of the Partnership's assets except sales in the ordinary
course of the Partnership's business (including, without limitation, the Sale of
the Properties within seven to 12 years after their acquisition or as soon
thereafter as market conditions permit); (iii) amend the Partnership Agreement;
(iv) remove any one or more of the General Partners and elect one or more
substituted General Partners; (v) change the investment objectives of the
Partnership; and (vi) dissolve the Partnership. Except as expressly provided in
the Partnership Agreement, the Limited Partners have no voting rights.
The General Partners may acquire Partnership Interests as Limited
Partners and will acquire for investment at least 5,000 Units (and may, but are
not required to, purchase for investment up to an additional 15,000 Units) as
Limited Partners. Except as otherwise provided in the Partnership Agreement, the
General Partners will have full voting rights in their capacities as Limited
Partners. See Article 13.1 of the Partnership Agreement.
RESTRICTIONS ON TRANSFERABILITY OF UNITS
Subject to the conditions on transfer in Article Fourteen of the
Partnership Agreement, Limited Partners shall have the right to transfer their
Units. The investment in Units is designed, however, as a long-term investment
for persons who have no need for liquidity in this investment. For example, the
General Partners have retained the right to prohibit transfers of Units,
including transfers of economic interests, if the General Partners determine
that such transfers could increase the likelihood that the Partnership would be
treated as a "publicly traded partnership." Because the characterization of the
Partnership as a "publicly traded partnership" would significantly decrease the
value of the Units, the General Partners intend to exercise fully their right to
prohibit transfers of Units under these circumstances. See "Federal Income Tax
Considerations--Publicly Traded Partnerships" and Article Fourteen of the
Partnership Agreement. In the case of any permitted transfer of an economic
interest, the substitution of the transferee as a Limited Partner in the
Partnership will be subject to the prior written consent of the General
Partners. The assignment must be documented with original signatures on forms
supplied by the General Partners.
The Partnership will amend the Partnership Agreement at least once each
calendar quarter to reflect the substitution of Limited Partners but is not
required to file any such amendments with the Secretary of State of the State of
Florida. See Articles 14.3 and 14.5 of the Partnership Agreement.
DISSOLUTION AND LIQUIDATION
Unless terminated earlier, the Partnership will be terminated,
dissolved, and its assets liquidated on December 31, 2025. Events which may
cause earlier dissolution of the Partnership include, among others, the
disposition of all or substantially all of the Partnership's assets (as defined
in the Partnership Agreement), a vote of Limited Partners owning at least a
majority of Units to dissolve the Partnership, and the removal, withdrawal,
resignation, bankruptcy, death, dissolution, or incompetency of any General
Partner. In the event that a dissolution of the Partnership is followed by its
liquidation, there will be an accounting with respect to its assets and
liabilities. All of its liabilities and obligations, including expenses incurred
in connection with the termination and the sale or distribution of Partnership
assets, will be paid. If available cash is not sufficient to fund the required
payments, the assets of the Partnership will be sold for cash as required to
generate sufficient liquidity. When the specified payments all have been made,
the remaining assets of the Partnership will be sold and the funds received from
such sales will be distributed to the Partners pro rata in accordance with their
Capital Accounts and Partnership Interests. For a complete discussion of events
causing dissolution and of the manner in which the assets of the Partnership
will be liquidated and the proceeds of liquidation distributed, see Articles
Seventeen and Eighteen of the Partnership Agreement.
INDEMNIFICATION
The Partnership will indemnify the General Partners, as well as any of
their Affiliates and any officer or director of the General Partners or their
Affiliates who performs services on behalf of the Partnership, against losses,
damages, and expenses, including attorneys' fees and costs payable by such
persons, incurred by them as a result of actions which the General Partners
determined in good faith were in the best interests of the Partnership, except
for liability arising out of misconduct, negligence, or breach of fiduciary duty
to the Limited Partners or the Partnership. For a more complete description of
the indemnification provisions of the Partnership Agreement, see "Fiduciary
Responsibility of the General Partners."
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NONEXCLUSIVE DUTIES
The General Partners and their Affiliates may engage in any other
transactions and possess interests in any other business ventures of any nature
or description, including transactions or business ventures which compete with
the Partnership. Neither the Partnership nor the Limited Partners shall thereby
acquire any rights in such ventures or any rights to receive income or profits
derived therefrom. See "Conflicts of Interest--Prior and Future Programs."
POWER OF ATTORNEY
By executing the Subscription Agreement, each Limited Partner
irrevocably constitutes and appoints each General Partner as such Limited
Partner's true and lawful attorney-in-fact with full power and authority in such
Limited Partner's name, place, and stead to execute, acknowledge, swear to,
file, and record at the appropriate public offices all documents, instruments,
and certificates which the General Partners determine are necessary or advisable
to execute or conduct the business of the Partnership.
PROHIBITIONS ON "ROLL-UP" TRANSACTIONS
The Partnership will not, directly or indirectly, participate in any
acquisition of the Partnership by another entity, any combination of the
Partnership with another entity through a merger or consolidation, or any
conversion of the Partnership into another form of business entity (such as a
corporation) if, as a result, the other entity would issue securities to the
Limited Partners. The Partnership, however, may itself convert to another form
of business entity (such as a corporation, trust, or association) if the
conversion will not result in a significant adverse change in (i) the voting
rights of the Limited Partners, (ii) the termination date of the Partnership
(currently, December 31, 2025, unless terminated earlier in accordance with the
Partnership Agreement), (iii) the compensation payable to the General Partners
or their Affiliates, or (iv) the Partnership's investment objectives.
The General Partners will make the determination as to whether or not
any such conversion will result in a significant adverse change in any of the
provisions listed in the preceding paragraph based on various factors relevant
at the time of the proposed conversion, including an analysis of the historic
and projected operations of the Partnership; the tax consequences (from the
standpoint of the Limited Partners) of the conversion of the Partnership to
another form of business entity and of an investment in a limited partnership as
compared to an investment in the type of business entity into which the
Partnership would be converted; the historic and projected operating results of
the Partnership's Properties; the performance of the restaurant industry in
general, and of the fast-food, family-style, and casual-dining segments of the
industry in particular; and the then-current value and marketability of the
Partnership's Properties. In general, the General Partners would consider any
material limitation on the voting rights of the Limited Partners or any
substantial increase in the compensation payable to the General Partners or
their Affiliates to be a significant adverse change in the listed provisions.
It is anticipated that, under the provisions of the Partnership
Agreement, the consummation of any such conversion of the Partnership into
another form of business entity (whether or not approved by the General
Partners) would require the approval of Limited Partners holding a majority of
the Units. See "Meetings and Voting Rights" above.
APPLICABLE LAW
The Partnership Agreement is to be construed and enforced in accordance
with the laws of the State of Florida.
FEDERAL INCOME TAX CONSIDERATIONS
GENERAL
The following is a summary of the federal income tax considerations
material to an investment in the Partnership by prospective Limited Partners,
prepared by Baker & Hostetler, as counsel. This summary is based upon the Code,
effective and proposed administrative regulations (the "regulations"), judicial
decisions, published and private rulings and procedural announcements issued by
the Treasury Department as in effect as of the date of this Prospectus, any of
which may be subject to change, possibly with adverse retroactive effect.
Certain changes to the Code enacted as part of the Revenue Reconciliation Act of
1993 and other provisions of the Code that significantly affect the tax
consequences of investments in real estate limited partnerships have not yet
been the subject of court decisions or authoritative interpretation by the IRS.
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In considering the tax aspects of the Offering, prospective investors
should note that the Partnership is not intended to be a so-called "tax
shelter," and that, accordingly, many of the tax aspects commonly associated
with a "tax shelter" are inapplicable to the Partnership or are of minor
importance. The Partnership does not expect to generate tax losses that can be
used to offset Limited Partners' income from sources other than the Partnership.
If the Partnership's investment objectives are met, the Partnership's operations
will generate taxable income for investors. Further, the Partnership does not
expect to realize significant tax benefits from credits, rent-up fees, or
similar items.
The availability and amount of tax benefits that will be claimed by the
Partnership will depend not only upon the general legal principles described
below, but also upon certain decisions and determinations which will be made in
the future by the General Partners as to which no legal opinion is expressed and
which are subject to potential controversy on factual or other grounds. Such
determinations include allocations of basis of a Fee Property among
nondepreciable land and the components of depreciable improvements, the proper
characterization and purpose of various fees, commissions and other expenses of
the Partnership, the reasonableness and timing of fees, the dates on which the
Partnership commences business, the dates on which a Property will be considered
"placed in service," and various other matters.
No rulings have been or will be requested from the IRS concerning any of
the tax matters described herein. Accordingly, there can be no assurance that
the IRS or a court will not disagree with the following discussion or with any
of the positions taken by the Partnership for federal income tax purposes.
This summary is not, and is not intended to be, a complete analysis of
all applicable provisions of the Code, the regulations, and judicial and
administrative interpretations thereof. The income tax considerations discussed
below are necessarily general and will vary with the individual circumstances of
each prospective Limited Partner. In particular, this summary assumes that the
Limited Partners will be individuals or tax-exempt pension or profit-sharing
trusts or IRAs. It does not generally discuss the federal income tax
consequences of an investment in the Partnership peculiar to corporate
taxpayers, foreign taxpayers, estates, taxable trusts, or to transferee Limited
Partners.
FOR THE FOREGOING REASONS, PROSPECTIVE LIMITED PARTNERS ARE URGED TO
CONSULT THEIR OWN TAX ADVISERS WITH RESPECT TO THE FEDERAL AND STATE TAX
CONSEQUENCES RESULTING FROM THE PURCHASE OF UNITS AND FROM FUTURE CHANGES IN TAX
LAWS AND REGULATIONS.
CHANGES IN THE TAX LAW
The federal income tax laws, generally, and the income tax laws relating
to investments in limited partnerships such as the Partnership, specifically, in
recent years have been, and possibly will continue to be, subject to significant
revisions. The following discussion and the opinion of Counsel described below
are based upon the provisions of the Internal Revenue Code of 1986, as amended,
and in effect as of the date hereof, Treasury Regulations, reported judicial
decisions, and current published administrative rulings and procedures. It is
impossible to predict how subsequent developments in tax legislation, case law,
Treasury Regulations, or administrative interpretations may affect the taxation
of the Partners or the Partnership.
IT IS EMPHASIZED THAT NO ASSURANCE CAN BE GIVEN THAT LEGISLATIVE,
JUDICIAL OR ADMINISTRATIVE CHANGES MAY NOT BE FORTHCOMING THAT WOULD MODIFY ANY
PORTION OF THE FOLLOWING DISCUSSION AND THE OPINION OF COUNSEL, NOR IS THERE ANY
ASSURANCE THAT THE TAX CONSEQUENCES TO THE LIMITED PARTNERS WILL CONTINUE AS
HEREIN DESCRIBED.
OPINION OF COUNSEL
The Partnership has obtained an opinion from Counsel to the Partnership
that:
1. Partnership Tax Status. It is more likely than not that the
Partnership will be treated as a partnership as defined in sections 7701(a)(2)
and 761(a) of the Code and not as an association taxable as a corporation, and
that the Limited Partners will be subject to tax as partners pursuant to
sections 701-761 of the Code.
2. Publicly Traded Partnerships. Based upon Notice 88-75, the
representations of the Managing Dealer and the General Partners, and the
provisions of the Partnership Agreement, it is more likely than not that the
Partnership will not constitute a publicly traded partnership for purposes of
sections 7704 and 469(k) of the Code.
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3. Unrelated Business Taxable Income. Assuming that the Partnership owns
and leases the Fee Properties on substantially the terms and conditions
described in "Business--Description of Leases" and that it does not own and
lease personal property, borrow money, or act as a dealer in real property, and
that income attributable to tenant improvements made to Leasehold Property is
considered income from the rental or lease of real Property for UBTI purposes,
it is more likely than not that the income of the Partnership will not
constitute unrelated business taxable income.
4. Allocations to the Partners. All material allocations to the Partners
of income and gain set forth in the Partnership Agreement more likely than not
will be treated as having substantial economic effect or otherwise will be
treated as being in accordance with the interests of the Partners in the
Partnership, and (ii) all material allocations set forth in the Partnership
Agreement of deductions, losses and credits more likely than not will have
substantial economic effect or will be otherwise treated as being in accordance
with the interests of the Partners in the Partnership to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreased in such
balance.
5. Ownership of Fee Properties; Depreciation. Assuming that (i) the
Partnership leases the Fee Properties on substantially the terms and conditions
described in "Business--Description of Leases," (except that this opinion does
not apply to cases in which any lessee purchase option, computed pursuant to
formula or otherwise, is exercisable at an amount less than the Fee Property's
then fair market value) and (ii) as is represented by the General Partners, the
residual values of the Fee Properties remaining after the end of their lease
terms (including all renewal periods) may reasonably be expected to be at least
20% of the Partnership's costs of such Fee Properties, and the remaining useful
lives of the Properties after the end of their lease terms (including all
renewal periods) may reasonably be expected to be at least 20% of the Fee
Properties' useful lives at the beginning of their lease terms, it is more
likely than not that the Partnership will be treated as the owner of the Fee
Properties for federal income tax purposes and will be entitled to claim
depreciation and other tax benefits associated with such ownership. Further, the
Partnership will have a reasonable basis for taking the position that it is the
owner for federal income tax purposes of any Fee Property that meets the above
requirements except that the lessee is granted the option to purchase the Fee
Property at a formula price based on measures of value contained in an
independent appraisal, assuming, as is represented by the General Partners, that
such formula will approximate, or bear a reasonable relationship to, the fair
market value of the Fee Property at the time of the option's exercise. No
opinion has been issued with respect to the tax consequences associated with
Leasehold Properties.
6. Passive Activity Income. Assuming that the Partnership is operated,
acquires, and leases Fee Properties in the manner described in this Prospectus
and, as is anticipated by the General Partners, that 30% or more of the
unadjusted basis of each Fee Property, other than Properties in which the
Partnership acquires only land, is subject to the allowance for depreciation, it
is more likely than not that a Limited Partner's share of the Partnership's net
income from Fee Properties will be net income from a "passive activity," as
defined in section 469 of the Code. This opinion does not apply to any
Partnership income attributable to (i) the investment of Partnership funds in
liquid investments prior to the purchase of Properties, (ii) the investment, in
interest-bearing accounts or otherwise, of amounts held by the Partnership as
working capital, security deposits, or in reserve, or amounts held pursuant to
the Reinvestment Plan, (iii) Properties with respect to which the Partnership
(or any Joint Venture) is determined not to be the owner, or (iv) Properties
acquired by the Partnership comprised on land only.
7. Investment Through Joint Venture. Assuming that the Joint Ventures
have the characteristics described in "Business--Joint Venture Arrangements,"
and that each Joint Venture operates in the same manner that the Partnership
operates with respect to Properties which it owns directly, it is more likely
than not that (i) the Joint Ventures will be treated as partnerships as defined
in sections 7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Partnership will be subject to tax as a partner
pursuant to sections 701-761 of the Code, (ii) all material allocations of
income and gain as provided in the Joint Venture Agreements more likely than not
will be treated as being in accordance with the interests of the partners in the
Joint Venture and all material allocations set forth in the Joint Venture
Agreements of deductions, losses, and credits more likely than not will have
substantial economic effect or will otherwise be treated as being in accordance
with the interest of the partners in the Joint Venture to the extent that such
allocations do not create a deficit in any Partner's Capital Account balance,
taking into account all reasonably expected increases and decreases in such
balance, and (iii) the foregoing opinions regarding ownership of Properties,
passive activity income, and unrelated business taxable income also will apply
to Properties held by the Partnership indirectly through a Joint Venture.
The opinion of Counsel reflects the tax consequences which Counsel
believes a Limited Partner reasonably may expect as the result of an investment
in the Partnership. The opinion is based on the facts described in this
Prospectus and upon certain assumptions and representations of the Managing
Dealer and the General Partners. The material assumptions and representations
are summarized below.
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(i) The Partnership will be organized and operated in accordance with
the Revised Uniform Limited Partnership Act, as adopted by, and
in effect in, the State of Florida;
(ii) The Partnership will be operated in accordance with the
Partnership Agreement, and the Partnership and each Joint Venture
will have the characteristics described in the Prospectus and
will be operated as described in the Prospectus;
(iii) The Partnership will not participate in any Joint Venture
on terms other than those described in "Business--Joint
Venture Agreements" without first receiving certain advice
of Counsel;
(iv) The Fee Properties will be leased on substantially the terms and
conditions described in the Prospectus in "Business--Description
of Leases";
(v) The net worth of the individual General Partners will continue to
exceed an amount that is intended to assure that the Partnership
may qualify as a partnership for federal income tax purposes;
(vi) The residual value and useful life of each Fee Property remaining
after the end of its lease term will exceed a percentage of the
Fee Property's initial cost and useful life which is intended to
assure that the Partnership (or Joint Venture) will be treated
for federal income tax purposes as the owner of the Fee Property;
(vii) Lessee purchase options will be structured in a manner
that will increase the likelihood that the Partnership
will be treated as the owner of the Fee Properties or will
have a reasonable basis for taking the position that it is
the owner of the Fee Properties;
(viii) The General Partners and the Managing Dealer will take
certain steps in connection with the transfer of Units to
decrease the likelihood that the Partnership will be
treated as a publicly traded partnership for purposes of
sections 7704 and 469(k) of the Code;
(ix) The Partnership (and each Joint Venture) will not act as a dealer
in real property and will structure the acquisition and leasing
of each Property (and any personal property) in a manner that
will reduce the likelihood that the Partnership will have a
significant amount of unrelated business taxable income; and
(x) The portion of the unadjusted basis of each Fee Property that is
subject to the allowance for depreciation will exceed a
percentage that is intended to assure that rents from such Fee
Property will be treated as passive income, except for those
Properties consisting of land only.
As of the initial date of this Prospectus, no Properties had been
acquired by the Partnership, nor had the Partnership entered into any
arrangements that create a reasonable probability that the Partnership will
acquire any Properties. Therefore, it is impossible at this time to opine on the
application of the law to the specific facts which will exist when Properties
are acquired and leased. For this reason, and for the reasons described more
fully below, it is not possible to reach a judgment as to the probable outcome
on the merits (either favorable or unfavorable) of the following income tax
issues: (i) whether the Partnership will be the owner for tax purposes of any
Fee Property subject to a lease in which the lessee may purchase the Fee
Property at an amount other than the Fee Property's then fair market value
(determined by appraisal or otherwise); (ii) the characterization and
deductibility of certain fees and expenses; (iii) whether the Partnership will
be treated as a dealer in real property for federal income tax purposes; (iv)
the taxation of Limited Partners under state or local income tax laws; and (v)
the tax consequences associated with Leasehold Properties. The Partnership
intends to take the position that it is the owner for tax purposes of each Fee
Property and that the Partnership is not a dealer with respect to the
Properties. Further, the General Partners will exercise their best judgment as
to their proper characterization of fees and expenses based on all surrounding
facts and circumstances.
PARTNERSHIP STATUS
Treasury regulations provide that an entity generally will be treated as
a partnership rather than a corporation for federal income tax purposes if it
has associates and an objective to carry on business for a joint profit and has
no more than two of the following corporate attributes: (i) continuity of life;
(ii) centralization of management; (iii) limited liability; and (iv) free
transferability of interests.
Based upon the continued organization and operation of the Partnership
in accordance with the Revised Uniform Limited Partnership Act as adopted by the
State of Florida, the terms of the Partnership Agreement, and the continued
satisfaction by
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the General Partners of certain net worth requirements, the Partnership should
lack the corporate characteristics of continuity of life, limited liability, and
free transferability of interests. Accordingly, it is the opinion of Counsel
that it is more likely than not that the Partnership will be treated as a
partnership as defined in sections 7701(a)(2) and 761(a) of the Code and not as
an association taxable as a corporation, and that the Partnership and the
Limited Partners will be subject to tax as partners pursuant to sections 701-761
of the Code.
If the Partnership in any taxable year were treated for federal income
tax purposes as an association taxable as a corporation, income and deductions
of such partnership would be reflected only on its tax return rather than being
passed through to its partners, and it would be required to pay income tax on
its net income at corporate tax rates (currently 35%). The imposition of any
such tax would reduce the amount of cash, if any, available to be distributed to
the Limited Partners. If the Partnership is treated as a corporation,
distributions would be ordinary dividend income to the extent of the
Partnership's earnings and profits and the payment of such dividends would not
be deductible. Moreover, any income received by the Limited Partners would
constitute portfolio income that could not be offset by any losses they may have
from passive activities. See "Basis, At- Risk, and Passive Activity Limitations
on Deduction of Losses" below.
INVESTMENT IN JOINT VENTURES
As indicated in "Business--Joint Venture/Co-Tenancy Arrangements," the
Partnership may participate in Joint Ventures which own and lease Properties.
Assuming that the Joint Ventures have the characteristics described in
"Business--Joint Venture/Co-Tenancy Arrangements," and are operated in the same
manner that the Partnership operates with respect to Properties that it owns
directly, it is the opinion of Counsel that it is more likely than not that (i)
the Joint Ventures will be treated as partnerships, as defined in sections
7701(a)(2) and 761(a) of the Code and not as associations taxable as
corporations, and that the Partnership will be subject to tax as a partner
pursuant to sections 701-761 of the Code and (ii) all material allocations to
the Partnership of income, gain, loss and deduction as provided in the Joint
Venture Agreements and as discussed in the Prospectus will be respected under
section 704(b) of the Code. The General Partners have represented that the
Partnership will not become a participant in any Joint Venture on terms other
than those described in "Business--Joint Venture/Co-Tenancy Arrangements" unless
the Partnership has first obtained advice of Counsel that the Joint Venture will
more likely than not constitute a partnership for federal income tax purposes
and that the allocations to the Partnership contained in the Joint Venture
Agreement more likely than not will be respected. If, contrary to the opinions
of Counsel, a Joint Venture were to be treated as an association taxable as a
corporation, the same adverse tax consequences as described above with respect
to the characterization of the Partnership as a corporation would apply to the
Joint Venture. See "Partnership Status" below.
Because each Joint Venture should be treated as a partnership and will
operate in the same manner that the Partnership operates with respect to
Properties which it owns directly, the discussions contained in this section
"Federal Income Tax Considerations" should apply equally to Properties held by
the Partnership indirectly through a Joint Venture.
CO-TENANCY ARRANGEMENTS
As indicated in "Business--Joint Venture/Co-Tenancy Arrangements," the
Partnership may own and operate Properties through Co-Tenancy Arrangements under
which the Partnership and another entity will each hold an undivided interest in
a Property. Co-Tenants, unlike partners, are taxed on a pure aggregate basis, as
if each separately owned a portion of the jointly held property. Thus, each
party in a co-tenancy generally includes in income its pro-rata share of income
and is entitled to deduct its pro-rata share of expenses. Because Properties
operated under Co-Tenancy Arrangements are generally expected to be operated in
the same manner that the Partnership operates Properties it will own exclusively
or through a Joint Venture, the discussion contained in the section "Federal
Income Tax Considerations" should generally apply to Properties held in
Co-Tenency Arrangements.
PUBLICLY TRADED PARTNERSHIPS
Two provisions of the Code adversely affect the taxation of publicly
traded partnerships. The first, section 7704, causes certain publicly traded
partnerships to be taxed as corporations, with the consequences described in
"Federal Income Tax Considerations--Partnership Status." The second, section
469(k), causes the passive activity loss rules to apply more harshly to net
income and net losses attributable to publicly traded partnerships. Net passive
income from such partnerships is treated as investment income, which cannot be
offset by net losses from other "passive activities," and net losses
attributable to such partnerships may not be used to offset a partner's other
passive income. See "Federal Income Tax Considerations--Basis, At- Risk, and
Passive Activity Limitations on Deduction of Losses."
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The scope of the term "publicly traded partnership" has not yet been the
subject of court decisions or IRS regulations. However, Notice 88-75 provides
limited safe harbors from the definition of a publicly traded partnership in
advance of the issuance of regulations. Most notably, a partnership whose
interests are not traded on an established securities market will not be treated
as a publicly traded partnership if the sum of the percentage interests in
partnership capital or profits that are sold or otherwise disposed of during the
taxable year does not exceed 5% of the total interest in partnership capital or
profits (the "Five Percent Safe Harbor"). According to Notice 88-75, certain
transfers are disregarded for purposes of the Five Percent Safe Harbor,
including transfers at death, transfers between certain family members, and
transfers in which the basis of the partnership interest in the hands of the
transferee is determined, in whole or in part, by reference to its basis in the
hands of the transferor.
Article Fourteen of the Partnership Agreement provides that the General
Partners may prohibit the transfer or assignment of a Unit (or an economic
interest therein), including transfers pursuant to the Distribution Reinvestment
Plan, if such transfer is effected through a secondary market (or the
substantial equivalent thereof) or, together with other transfers, could
increase the likelihood that the Partnership would be treated as a publicly
traded partnership. Further, the General Partners have the right under the
Partnership Agreement not to recognize any purported transfer or assignment of a
Unit made without their consent.
The General Partners have represented that they intend to enforce these
restrictions to the extent possible under the Partnership Agreement and
applicable law to prevent any increased likelihood of the Partnership being
treated as a publicly traded partnership. In addition, the General Partners have
represented that they will terminate the Distribution Reinvestment Plan if the
existence of the Distribution Reinvestment Plan creates a substantial risk of
the Partnership being treated as a publicly traded partnership. The Managing
Dealer and the General Partners also have made the following representations:
(i) they will use their best efforts to assure that Units are not traded on a
national securities exchange, local securities exchange, or over-the-counter
market, and they will not list the Units on any such exchange or market, and
(ii) they will use their best efforts to assure that transfers of Units comply
with the Five Percent Safe Harbor.
In the opinion of Counsel, based upon Notice 88-75, the representations
of the Managing Dealer and the General Partners, and the provisions of the
Partnership Agreement, it is more likely than not that the Partnership will not
constitute a publicly traded partnership for the purposes of sections 7704 and
469(k) of the Code.
TAXATION OF THE LIMITED PARTNERS
The Partnership will not be subject to federal income tax. Instead, the
Limited Partners will be required to report on their individual income tax
returns, and to take into account in determining their own income tax, their
allocable share of all items of the Partnership's income, gain, loss, or
deduction and items of tax preference for the Partnership's taxable year ending
with or within their own taxable year. These items will have, in the hands of
the Limited Partners, the same character as they had in the hands of the
Partnership.
The Limited Partners are subject to tax on their distributive share of
Partnership taxable income and items of the Part- nership's income, gain or tax
preference even though they may have received total cash distributions less than
the amount of reportable income or even the resultant federal income tax. For
example, Limited Partners who participate in the Distribution Reinvestment Plan
will be allocated their share of Partnership Net Income and Gain (including Net
Income and Gain attributable to Units acquired pursuant to the Distribution
Reinvestment Plan) even though such Partners may receive no cash distributions
from the Partnership. To the extent that the resultant tax exceeds cash
distributions to a Limited Partner in any year, such excess will constitute an
out-of-pocket expense to the Limited Partner.
Regarding certain limitations on the extent to which Limited Partners
can deduct their share of Partnership losses, see "Basis, At-Risk, and Passive
Activity Limitations on Deduction of Losses" below.
QUALIFIED PLAN INVESTORS
Qualified retirement plans, IRAs, Keogh plans, and other plans that are
subject to ERISA (collectively, "Qualified Plans") are generally exempt from
taxation except to the extent that their "unrelated business taxable income"
("UBTI") from all sources exceeds $1,000 during any year. Certain passive-type
income from unrelated businesses, such as interest and dividend income and gain
from the sale of property (other than inventory and property held primarily for
sale to customers in the ordinary course of business), is excluded from UBTI.
Rents from real property are also excluded from UBTI, except that rent
which is contingent on the income or profits derived with respect to the leased
property is excluded only if based on a fixed percentage of receipts or sales
(as is the case with the anticipated leases of the Properties). Rents from
personal property leased with real property will also be excluded from UBTI, but
only if the rent attributable to the personal property is not more than 10% of
the total rent received under the lease.
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Notwithstanding the foregoing exclusions, Partnership income generally
will constitute UBTI to the extent it is attributable to property financed with
"acquisition indebtedness"(other than indebtedness to acquire or improve real
Property in certain limited circumstances). The General Partners do not
currently intend (although they have the right) to cause the Partnership to
borrow money. If the Partnership does borrow money, the General Partners have
represented that they will use reasonable efforts to structure the debt in a
manner so that it will not constitute "acquisition indebtedness." In addition,
the Partnership Agreement prohibits the Partnership from borrowing money to
purchase Properties or from encumbering the Properties in connection with any
borrowing. The General Partners further have represented that they will limit
the Partnership's outstanding indebtedness to 3% of the aggregate adjusted tax
basis of its Properties, thus limiting the portion of its income that could be
characterized as attributable to property financed with acquisition
indebtedness.
In addition, a Qualified Plan's share of Net Income from the Partnership
generally would be characterized as UBTI if the Partnership were held to be a
dealer with respect to the Properties. Whether the Partnership is treated as a
dealer is inherently factual in nature and depends on the intentions of the
Partnership and its operations from time to time, and, accordingly, Counsel is
unable to render an opinion (either favorable or unfavorable) on this issue. The
Partnership, however, has not been organized to engage in the buying and selling
of Properties and, thus, it is expected (and the Partnership will take the
position) that it will not be treated as a dealer with respect to the
Properties.
Assuming that the Partnership owns and leases the Properties on
substantially the terms and conditions described in "Business--Description of
Leases" and that it does not own and lease personal property, borrow money, or
act as a dealer in real property, in the opinion of Counsel it is more likely
than not that the income of the Partnership will not constitute UBTI.
The tax treatment of distributions by Qualified Plans and other exempt
entities is beyond the scope of this discussion, and such entities should
consult their tax advisers regarding such questions.
ALLOCATIONS OF INCOME, GAIN, LOSS, AND DEDUCTION
A partner's distributive share of income, gain, loss or deduction for
federal income tax purposes generally is determined in accordance with the
provisions of the partnership agreement. Under section 704(b) of the Code,
however, an allocation will be respected only if it has "substantial economic
effect" or is in accordance with the partners' "interests in the partnership."
Treasury regulations issued under section 704(b) provide rules for determining
whether an allocation will have economic effect, and whether the economic effect
will be substantial. An allocation will have economic effect if (i) the
partners' capital accounts are maintained and determined in accordance with a
prescribed set of guidelines, (ii) liquidation proceeds are required in all
cases to be distributed in accordance with the partners' capital account
balances, (iii) the partnership agreement does not allocate losses to a partner
that cause such partner's capital account balance (reduced for certain
anticipated future reductions in such partner's capital account) to go below the
amount of any deficit balance that the partner is, or is deemed to be, required
to restore, and (iv) the partnership agreement contains a "qualified income
offset provision," which generally allocates items of gross income to a partner
to reduce any unexpected excess deficit capital account balance.
The economic effect of an allocation is substantial if there is a
reasonable possibility that the allocation will affect substantially the dollar
amounts to be received by the partners from the partnership, independent of tax
consequences. To make this determination, the likelihood and magnitude of any
shift in the economic consequences among partners must be weighed against the
shifting of tax consequences resulting from an allocation. The economic effect
of an allocation may be found to be insubstantial if, among other factors, a
change in tax allocation percentages is only remotely related to, or is
disproportionately larger than, the likely change in economic benefits and
burdens, or if such a change has no nontax business purpose, is likely to be
offset in the future, or is motivated by interaction with the nonpartnership tax
attributes of the partners. In addition, the economic effect of an allocation
will be insubstantial if, as a result of the allocation, the after-tax economic
consequences of at least one partner, in present value terms, may be enhanced,
and there is a strong likelihood that the after-tax economic consequences of no
partner, in present value terms, will be diminished. The Treasury Regulations
provide that the economic effect of depreciation deductions is deemed to be
substantial.
Generally, all allocations of tax items are made among the Partners in
accordance with their relative interest in the Partnership or their allocable
share of cash distributions from the Partnership, except that 99% of the total
depreciation and amortization deductions are specially allocated to the Limited
Partners who are not exempt from federal income tax; provided, however,
notwithstanding the foregoing, the interest of the General Partners in each
material item of Partnership income, gain, loss, deduction, and credit will be
equal to at least 1% of each such item at all times during the existence of the
Partnership.
The allocations contained in the Partnership Agreement are intended to
comply with the regulations' test for having economic effect. The Partnership
Agreement requires Capital Accounts to be properly maintained, requires
distributions of
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proceeds from the liquidation of a Partner's interest in the Partnership to be
made in accordance with such Partner's positive Capital Account balance, does
not permit allocations of losses which cause a Limited Partner to have an
Adjusted Capital Account Deficit, and contains a qualified income offset
provision. Moreover, the economic effect of the allocations should be
substantial, in part because the economic and tax consequences of deductions
representing paid or incurred expenses will move in tandem and, in part, because
allocations of depreciation deductions are deemed to be substantial. For
example, the special allocation of depreciation deductions to the Taxable
Limited Partners will cause a Tax-Exempt Limited Partner's Capital Account to
exceed the Capital Account of a similarly situated Taxable Limited Partner. If
the sale of the Properties does not produce sufficient Gain or Loss to eliminate
this disparity, the Tax-Exempt Limited Partners' share of liquidation proceeds
will be greater than would be the case if there were no special allocation of
the depreciation deductions.
In the opinion of Counsel, it is more likely than not that (i) all
material allocations to the Partners of income and gain set forth in the
Partnership Agreement more likely than not will be treated as having substantial
economic effect or otherwise will be treated as being in accordance with the
interests of the Partners in the Partnership, and (ii) all material allocations
set forth in the Partnership Agreement of deductions, losses and credits more
likely than not will have substantial economic effect or will be otherwise
treated as being in accordance with the interests of the Partners in the
Partnership to the extent that such allocations do not create a deficit in any
Partner's Capital Account balance, taking into account all reasonably expected
increases and decreases in such balance. There can be no assurance, however,
that the IRS will not challenge the allocations provided for in the Partnership
Agreement as lacking substantial economic effect, and, if successful, reduce the
anticipated tax benefits to the Limited Partners.
ALLOCATIONS TO NEWLY ADMITTED PARTNER OR TRANSFEREE
Section 706(d) of the Code requires that a partner's distributive share
of items of partnership income, gain, loss, deduction, and credit be determined
by the use of one of the methods prescribed in Treasury Regulations that takes
into account the varying interests of the partners (attributable, for example,
to the admission of new partners or the transfer of a partnership interest)
during the partnership's taxable year. The Partnership Agreement permits the
General Partners to select any method and convention permissible under section
706(d) for the allocation of tax items during the time persons are admitted as
Limited Partners, but requires that any method or convention first utilized be
consistently applied thereafter for all subsequent admissions of Partners,
unless it is determined subsequently that such method or convention is not
permissible under section 706(d). Further, the Partnership Agreement provides
that if a Partner transfers a Unit, other than at the end of the Partnership's
fiscal year, the entire year's depreciation deductions and remaining items of
Net Income and Net Losses allocable to such Unit will be apportioned between the
transferor and transferee based on the number of days during the year that each
is treated under the Partnership Agreement as owning the Unit, and Gain or Loss
will be allocated to the Partner who is treated under the Partnership Agreement
as owning the Unit on the date such Gain or Loss was realized for federal income
tax purposes.
DISTRIBUTION REINVESTMENT PLAN
A Limited Partner who participates in the Distribution Reinvestment Plan
will be allocated such Partner's share of Partnership Net Income and Gain
(including Net Income and Gain attributable to Units acquired pursuant to the
Distribution Reinvestment Plan) even though such Partner may receive no cash
distributions from the Partnership. See "Taxation of the Limited Partners"
above. A Limited Partner who participates in the Distribution Reinvestment Plan
will be deemed to receive cash distributions for federal income tax purposes
when such Partner's Partnership distributions are deposited with the
Distribution Reinvestment Plan. When Units are acquired pursuant to the
Distribution Reinvestment Plan on behalf of such Partner, the Partner's basis in
the Partner's Partnership Interest will be increased by the purchase price of
such Units. See "Cash Distributions to Limited Partners" and "Bases of Interests
Held by Limited Partners" below.
CHARACTERIZATION OF LEASES
The Partnership will purchase both new and existing Fee Properties and
lease them to franchisees or corporate franchisors pursuant to leases of the
type described in "Business--Description of Leases." The ability of the
Partnership to claim certain tax benefits associated with ownership of the Fee
Properties, such as depreciation, depends on a finding that the lease
transactions engaged in by the Partnership are true leases, under which the
Partnership is the owner of the leased Fee Property for federal income tax
purposes, rather than a conditional sale of the Fee Property or a financing
transaction. A determination by the IRS that the Partnership was not the owner
of the Fee Properties for federal income tax purposes could have substantial
adverse consequences to the Limited Partners, such as denying depreciation
deductions to the Partnership and causing the income and losses attributable to
such Properties to be characterized as investment or portfolio income and losses
under the passive activity loss rules. See "Basis, At-Risk, and Passive Activity
Limitations on Deduction of Losses" below.
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The characterization of transactions as leases, conditional sales, or
financings has been addressed in a number of recent cases. The courts have not
identified any one factor as being determinative of whether the lessor or the
lessee of property is to be treated as the owner. Judicial decisions and
pronouncements of the IRS with respect to the characterization of transactions
as either leases, conditional sales, or financing transactions have made it
clear that the characterization of leases for tax purposes is a question which
must be decided on the basis of a weighing of many factors, and courts have
reached different conclusions even where characteristics of two lease
transactions were substantially similar.
While certain characteristics of the leases anticipated to be entered
into by the Partnership suggest the Partnership would not be the owner of the
Fee Properties, such as the fact that such leases are "triple-net" leases, a
substantial number of other characteristics indicate the bona fide nature of
such leases and that the Partnership will be the owner of the Fee Properties.
For example, under the types of leases described in "Business--Description of
Leases," the Partnership will bear the risk of substantial loss in the value of
the Fee Properties, since the Partnership will acquire its interests in the Fee
Properties with an equity investment, rather than with nonrecourse indebtedness.
Further, the Partnership, rather than the lessee, will benefit from any
appreciation in the Fee Properties, since the Partnership will have the right at
any time to sell or transfer its Fee Properties, subject to the lessee's right
to purchase the Fee Property at a price not less than the Fee Property's fair
market value (determined by appraisal or pursuant to a formula price which looks
to various measures of value contained in an appraisal).
Other factors that are consistent with the ownership of the Fee
Properties by the Partnership are (i) the lessees are liable for repairs and to
return the Fee Properties in reasonably good condition, excepting normal wear
and tear; (ii) insurance proceeds are generally to be used to restore the Fee
Properties and, to the extent not so used, belong to the Partnership; (iii) the
lessees agree to subordinate their interests in the Fee Properties to the lien
of any first mortgage upon delivery of a nondisturbance agreement and agree to
attorn to the purchaser upon any foreclosure sale; and (iv) based on the General
Partners' representation that the Fee Properties can reasonably be expected to
have at the end of their lease terms (generally a maximum of 30 to 40 years) a
fair market value of at least 20% of the Partnership's cost and a remaining
useful life of at least 20% of their useful lives at the beginning of the
leases, the Partnership has not relinquished the Fee Properties to the lessees
for their entire useful lives, but has retained a significant residual interest
in them.
Finally, since the Partnership will purchase the Fee Properties with its
own funds and is prohibited under the Partnership Agreement both from incurring
any debt in connection with their acquisition and from subsequently mortgaging
the Fee Properties, the Partners will not be primarily dependent upon tax
benefits in order to realize a reasonable return upon their investment.
On the basis of the foregoing, assuming that (i) the Partnership leases
the Fee Properties on substantially the terms and conditions described in
"Business--Description of Leases," except that any lessee purchase options are
exercisable only at an amount equal to or in excess of the Properties' then fair
market values (determined by appraisal or otherwise), and (ii) as is represented
by the General Partners, the residual value of the Fee Properties remaining
after the end of their lease terms (including all renewal periods) may
reasonably be expected to be at least 20% of the Partnership's cost of such Fee
Properties, and the remaining useful lives of the Fee Properties after the end
of their lease terms (including all renewal periods) may reasonably be expected
to be at least 20% of the Fee Properties' useful lives at the beginning of their
lease terms, in the opinion of Counsel it is more likely than not the
Partnership will be treated as the owner of the Fee Properties for federal
income tax purposes and will be entitled to claim depreciation and other tax
benefits associated with such ownership.
As mentioned above, the General Partners, on occasion, may negotiate a
lease that provides the lessee with an option to purchase the leased Fee
Property at an amount determined by a formula that looks to various measures of
value contained in an independent appraisal of the leased Fee Property. The
General Partners expect that such formula will approximate the fair market value
of the Fee Property when the option is exercised. For federal income tax
purposes, leases with lessee purchase options have been respected, and the
lessors have been treated as the owners of the leased property, where option
prices not specifically at fair market value were negotiated by the parties with
the expectation that they would approximate, or bear a reasonable relationship
to, the fair market value of the leased property at the time of the option's
exercise. However, because valuation is a question of fact, Counsel cannot opine
(either favorably or unfavorably) whether the Partnership will more likely than
not be the owner of any Fee Property subject to a lease in which the lessee may
purchase the Fee Property at an amount other than the Fee Property's then fair
market value (determined by appraisal or otherwise). However, Counsel is of the
opinion that the Partnership will have a reasonable basis for taking the
position that it is the owner, for federal income tax purposes, of any Fee
Property subject to a lease meeting the above-listed criteria except that the
lessee's purchase option price is determined by a formula, provided, as the
General Partners have represented will be the case, such formula will
approximate, or bear a reasonable relationship to, the fair market value of the
Fee Property at the time of the option's exercise.
The law governing the characterization of transactions as leases is
complicated and is in a state of change. Furthermore, for federal income tax
purposes, lease characterization is made on a property-by-property basis, based
on an analysis of each particular location including, among other factors, fair
rental value of the particular property and, in the case of any lease
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involving a lessee purchase option, the fair market value of the property at the
time the option is exercisable. Accordingly, there can be no assurance that the
status of the Partnership as owner of a Fee Property will not be challenged
successfully by the IRS.
With respect to Leasehold Properties, depending on the facts of any
particular lease and sublease arrangement, the Partnership may be treated, for
federal income tax purposes, as (i) owning the building and having a leasehold
interest in the underlying land, (ii) having a leasehold interest in both the
building and the land, (iii) both having sold or assigned its interests (whether
ownership or leasehold) in the building and/or the land to the lessee, or (iv)
having merely engaged in a financing transaction. If either of the last two
characterizations applies, a portion of the rental payments received from the
lessee would be treated as interest income. Further, if the second
characterization applies, it is not clear under current law whether rental
income attributable to subleasing a leasehold interest in a building constitutes
passive or portfolio income. Because of the numerous unknown variables that may
arise with respect to leases and subleases of Leasehold Properties and the
uncertain state of the law, counsel cannot opine with respect to the tax
consequences associated with Leasehold Properties. However, the General Partners
anticipate that substantially all of the Properties acquired by the Partnership
will be Fee Properties.
BASES OF INTERESTS HELD BY LIMITED PARTNERS
The Limited Partners' adjusted bases in their Interests are relevant in
determining gain or loss on the sale or other disposition of their Interests
(see "Sale of Limited Partnership Interests by the Limited Partners" below), in
determining the taxability of cash distributions to the Limited Partners (see
"Cash Distributions to Limited Partners" below), and in determining the ability
of the Limited Partners to deduct losses of the Partnership (see "Basis,
At-Risk, and Passive Activity Limitations on Deduction of Losses" below).
A Limited Partner's adjusted basis in an Interest initially will equal
the amount of the Limited Partner's actual cash contribution to the Partnership
and will be increased by the Limited Partner's distributive share of items of
Partnership income and gain. A Limited Partner's basis in an Interest will be
decreased (but not below zero) by (i) cash distributions received from the
Partnership, and (ii) the Limited Partner's distributive share of items of
Partnership deduction and loss.
BASIS, AT-RISK, AND PASSIVE ACTIVITY LIMITATIONS ON DEDUCTION OF LOSSES
The General Partners expect that the Partnership will produce taxable
income and will not produce taxable losses that could be used to shelter a
Limited Partner's income from other sources. In the event, however, that the
Partnership did generate Net Losses, or the special allocation of depreciation
deductions caused a Taxable Limited Partner to be allocated a net loss from the
Partnership, the amount of a Limited Partner's distributive share of Partnership
losses that could be deducted would be determined by applying three separate
limitations.
First, a Limited Partner may not deduct an amount exceeding the adjusted
basis in such Partner's Interest. See "Bases of Interests Held by Limited
Partners" above for a discussion of the computation of a Limited Partner's
adjusted basis in an Interest. If a Limited Partner's share of Partnership
losses exceeds the adjusted basis in such Partner's Interest at the end of any
taxable year, such share of excess losses may be carried over indefinitely and
deducted to the extent that at the end of any succeeding year, the adjusted
basis in such Partner's Interest exceeds zero.
Second, section 465 of the Code limits the ability of a Limited Partner
to deduct losses from the Partnership to the amount that the Limited Partner is
"at risk" with respect thereto. A Limited Partner generally will be considered
to be at risk to the extent of the amount of such Partner's Capital
Contributions, increased by the Partner's share of Net Income and reduced by the
Partner's share of Net Loss and by cash distributions to the Partner. Losses in
excess of a Limited Partner's amount at risk are suspended and are carried over
indefinitely and deducted to the extent that, at the end of any succeeding year,
such Limited Partner's amount at risk exceeds zero.
Third, under section 469 of the Code, the deduction of losses from all
businesses in which the taxpayer does not "materially participate" and from all
rental activities in which the taxpayer does not "actively participate"
(collectively, "Passive Activities") would be allowed only to the extent of
income from those types of activities. (However, for taxable years beginning
after December 31, 1993, certain taxpayers materially participating in real
property trades or businesses will not have to treat losses from rental
activities as passive losses subject to the limitations of section 469 of the
Code.) Accordingly, net losses from Passive Activities cannot be used to offset
earned income, income from participatory businesses, or portfolio income, such
as interest, dividends, royalties, and nonbusiness capital gains. Any losses in
excess of income from Passive Activities can be carried forward indefinitely to
offset future income from those activities, including gain from the eventual
disposition of the activity. For purposes of this provision, interest deductions
attributable to debt incurred to purchase or carry an interest in a Passive
Activity generally are considered as Passive Activity deductions and are thus
subject to the same limitation. The amount
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of tax losses subject to the Passive Activity limitation is determined by first
applying the basis and at-risk limitations described above.
A limited partner generally is deemed not to materially or actively
participate in partnership activities. Thus, except for those special
circumstances described below in "Passive Activity Income," any activity of the
Partnership would be a Passive Activity with respect to a Limited Partner, and a
Limited Partner's share of Partnership losses, as well as any interest on debt
incurred to purchase or carry the Limited Partner's limited partnership
interest, would be allowed only to the extent of the Limited Partner's share of
Partnership Passive Activity income, plus the Limited Partner's net income, if
any, from other Passive Activities.
PASSIVE ACTIVITY INCOME
If the Partnership is successful in achieving its investment and
operating objectives, the Limited Partners (other than tax-exempt entities) are
likely to recognize taxable income from the Partnership in each year. As
described in "Basis, At-Risk, and Passive Activity Limitations on Deduction of
Losses" above, the business activities of the Partnership will be deemed a
Passive Activity of the Limited Partners, and thus a Limited Partner's share of
any Partnership Net Income will generally constitute passive income which can be
offset by the Limited Partner's net losses and credits from investments in other
Passive Activities. It should be noted, however, that the income from certain
activities will be denied passive income treatment, even though losses
attributable to such activities will continue to be treated as passive losses.
For example, income attributable to the rental of property is treated as not
from a Passive Activity if less than 30% of the property used in the activity
during the taxable year is subject to the allowance for depreciation. Income
from such rental activity will be treated as portfolio income which cannot be
offset by losses derived from Passive Activities. Further, the Treasury has
broad authority to issue regulations defining income that does not constitute
Passive Activity income, and no assurance can be given that the future
regulations promulgated under section 469 will not adversely affect the Limited
Partners.
Assuming, as is anticipated by the General Partners, that 30% or more of
the unadjusted basis of each Fee Property, other than Properties consisting of
land only, is subject to the allowance for depreciation, then, in the opinion of
Counsel, it is more likely than not that a Limited Partner's share of the
Partnership's net income from Fee Properties will, except as described below, be
net income from a "passive activity," as defined in section 469. However,
certain items of Partnership income will be considered portfolio income or
income other than passive income which cannot be offset by losses from Passive
Activities (including deductions of the Partnership attributable to its business
activities). These items include any portion of Partnership income attributable
to (i) the investment of Partnership funds in liquid investments, such as
certificates of deposit and money market accounts, prior to the purchase of
Properties and distributions of Net Cash Flow to the Partners, (ii) the
investment, in interest-bearing accounts or otherwise, of amounts held by the
Partnership as working capital, security deposits, or in reserve, or amounts
held pursuant to the Distribution Reinvestment Plan, (iii) income from
Properties with respect to which the Partnership is determined not to be the
owner, or (iv) Properties acquired by the Partnership consisting of land only.
Such income will constitute, for purposes of section 469, portfolio income which
cannot be offset by losses from Passive Activities.
CASH DISTRIBUTIONS TO LIMITED PARTNERS
A cash distribution to a Limited Partner from the Partnership (other
than a cash distribution made in exchange for all or part of the Limited
Partner's Interest) will not be taxable to the Limited Partner except to the
extent, if any, that the distribution exceeds such Partner's adjusted basis in
an Interest. A cash distribution in excess of the Limited Partner's adjusted
basis in an Interest will be taxable to the Limited Partner as if it resulted
from a sale or exchange of an Interest. See "Sale of Limited Partnership
Interests by the Limited Partners" below.
In the event that, contrary to the expectation of the General Partners,
a Limited Partner realizes Net Losses from an investment in the Partnership, or
the special allocation of depreciation deductions causes a Taxable Limited
Partner to be allocated a Net Loss from the Partnership, a cash distribution
which reduces the Limited Partner's amount at risk below zero will be taxable to
the extent of the lesser of (i) the amount of the cash distribution, or (ii) the
amount of losses from the Partnership previously deducted by the Limited
Partner. See "Basis, At-Risk, and Passive Activity Limitations on Deduction of
Losses" above.
Amounts reinvested pursuant to the Distribution Reinvestment Plan will
be treated for federal income tax purposes as if such amounts had been
distributed to the Participants in the Distribution Reinvestment Plan and then
used by the Participants to acquire additional Units.
DEPRECIATION OF THE FEE PROPERTIES
The Partnership's depreciation deductions will be determined under the
Accelerated Cost Recovery System ("ACRS") over the recovery period specified in
section 168 of the Code. Under ACRS, nonresidential real property placed in
service on
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or after May 13, 1993 generally is depreciable over a period of 39 years using
the straight-line method of recovery. Nonresidential real property placed in
service prior to May 13, 1993 generally is depreciable over a period of 31.5
years using the straight-line method of recovery. Depreciable real property that
is acquired from, and leased back to, operators owning the property prior to
1981 (or persons related to such franchisees) is not eligible for ACRS
treatment. Such property must be depreciated over its economic useful life under
straight-line or accelerated methods.
The Partnership's basis in a Fee Property for depreciation purposes is
its cost. The IRS may seek to reclassify a portion of amounts attributed to
improvements as attributable to land or other nondepreciable, nonamortizable
expenditures, thereby decreasing the Partnership's depreciation deductions.
Depreciation claimed by the Partnership with respect to a particular Fee
Property will reduce the adjusted basis of that Fee Property, thereby increasing
the potential gain (or decreasing the potential loss) upon disposition of such
Fee Property. Depreciation claimed by the Partnership also will reduce a Limited
Partner's adjusted basis in such Partner's Interest, similarly affecting the
potential gain or loss realized upon a sale of such Interest.
Fee Properties that are otherwise eligible for depreciation under ACRS
will not be eligible for, as applicable, a 31.5-year or 39-year recovery period
to the extent they are considered to be "tax-exempt use property." In the case
of a partnership that includes partners that are tax-exempt entities (including
Qualified Plans, such as IRAs), such partnership property will be considered
"tax-exempt use property" to the extent of the tax-exempt entity partners'
proportionate share of such property, unless (i) such property is used by the
partnership in an "unrelated trade or business" and the tax-exempt entity
partners are subject to tax under the applicable Code provisions on their
distributive share of partnership income, or (ii) all allocations to tax-exempt
entity partners constitute "qualified allocations."
The General Partners anticipate that a substantial number of Units will
be purchased by entities that are considered to be tax-exempt entities for
purposes of this rule and that, with certain possible limited exceptions, the
Fee Properties will not be considered to be used in an "unrelated trade or
business," the income from which is subject to tax. See "Qualified Plan
Investors" above. Further, because depreciation deductions are allocated 1% to
the General Partners and 99% to the Taxable Limited Partners, the allocations to
the Tax-Exempt Limited Partners will not constitute qualified allocations.
Consequently, the Partnership will be required to depreciate the Tax-Exempt
Limited Partners' proportionate share of the Properties using the straight-line
method over a 40-year recovery period or, in the case of a Property that is
leased for a term in excess of 32 years (taking into account certain options to
renew), over a period equal to 125% of the lease term. In order to reduce the
Partnership's administrative costs associated with allocating basis between the
Tax-Exempt Limited Partners and the Taxable Limited Partners, the Partnership
may depreciate all of the depreciable portion of its Properties (rather than
only the Tax-Exempt Limited Partners' proportionate share) over the extended
recovery period.
SYNDICATION AND ORGANIZATIONAL EXPENSES
The Code provides for various treatments of certain initial expenditures
of the Partnership. Expenses incurred by the Partnership with respect to the
offering and sale of the Limited Partner Interests (i.e., syndication costs)
must be capitalized and cannot be deducted or amortized. In contrast, amounts
paid to organize the Partnership, as well as other start-up expenditures, may
(if so elected) be amortized ratably over 60 months. Certain other costs must be
capitalized as part of the cost of the Properties, while others may be deducted
or amortized ratably over various periods. The Partnership intends to treat
Selling Commissions, the due diligence expense reimbursement fees, and most of
Organizational and Offering Expenses as syndication expenses. The remainder of
Organizational and Offering Expenses will be treated as amortizable
organizational expenses. There can be no assurance that the IRS will not
challenge the treatment of certain fees and expenses paid by the Partnership by
asserting, for example, that fees and expenses were allocated improperly between
organizational and syndication expenses or that some or all of the fees paid to
the General Partners or their Affiliates are properly characterized as
nondeductible syndication expenses or as organizational expenses. If the IRS
were successful in seeking to disallow or recharacterize these expenditures, the
deductions of the Partnership available to offset Partnership income could be
decreased. See "Tax Treatment of Certain Fees" below for a description of
possible limitations on the deduction of expenses.
TAX TREATMENT OF CERTAIN FEES
The Partnership will pay fees to the General Partners and their
Affiliates for services rendered to the Partnership. For a description of these
fees, see "Management Compensation." The amount of the fees has not been
determined by arm's-length negotiations. Instead, the amounts have been set by
the General Partners on the basis of their judgment of the reasonable value of
the services provided.
The IRS could assert that the amount incurred for some or all of the
services exceeds the reasonable value of those services. In addition, the IRS
might accept the reasonableness of a fee, but contend that the fee should be
deducted in a later
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year, or be capitalized rather than deducted, or be amortized over a period
longer than the period chosen by the Partnership. Finally, the IRS might attempt
to recharacterize a fee as a nondeductible, nonamortizable syndication expense
or as an itemized deduction subject to the limitation imposed on the deduction
of so-called miscellaneous itemized deductions. If the IRS were successful in
seeking to disallow or recharacterize these expenditures, the deductions of the
Partnership available to offset Partnership income would be decreased. Because
the question of the reasonable value of services and the period to which
services relate is factual in nature, and because such services will be rendered
in the future, Counsel cannot render an opinion with respect to the
deductibility of the foregoing fees.
SALE OF THE PROPERTIES
Upon a Sale of all or a portion of a Property, the Partnership will
recognize Gain or Loss to the extent that the amount realized is more or less
than the adjusted basis in the Property sold, taking into account all prior
depreciation thereon. Assuming the Partnership is not a dealer with respect to
the Properties (see "Qualified Plan Investors" above), Gain or Loss on the sale
of a Property will be taxable as provided in section 1231 of the Code. Section
1231 provides generally that a taxpayer's net section 1231 gains will be taxed
first as ordinary income to the extent of the taxpayer's excess net section 1231
losses from the prior five years, and then as capital gains; section 1231 losses
will be taxed as ordinary losses. See "Capital Gains and Losses" below for the
effect of such characterizations.
SALE OF LIMITED PARTNERSHIP INTERESTS BY THE LIMITED PARTNERS
Generally, a Limited Partner will realize gain or loss on the sale of
such Limited Partner's Interest equal to the difference between the amount
realized and the Partner's adjusted basis in the Interest. Assuming a Limited
Partner is not a dealer with respect to Interests and has held the Interest more
than one year, the Limited Partner's gain or loss will be long-term capital Gain
or Loss. See "Capital Gains and Losses" below.
Capital Gain or Loss treatment will not apply, however, to any portion
of the amount realized from such a sale or other disposition that is
attributable to the Limited Partner's proportionate share of the Partnership's
"unrealized receivables" or "substantially appreciated inventory" as defined in
section 751 of the Code. The General Partners do not expect any significant
portion of the Partnership's property to be treated as "section 751 property."
If any portion of the Partnership's property is section 751 property, the Code
imposes certain notice requirements on the transferor of a Limited Partner
Interest. These requirements will be satisfied by delivering to the Partnership
a completed and executed application for assignment of an Interest on forms
provided by the General Partners upon request.
Transfers of property by gift and on the death of an owner generally are
not taxable transfers and do not result in the recognition of gain or loss.
Limited Partners who desire to make gifts of their Interests should seek advice
from their tax advisers.
LIQUIDATION OF THE PARTNERSHIP
The dissolution and liquidation of the Partnership will result in the
distribution to the Partners of any assets remaining after payment of, or
provision for, the Partnership's debts and liabilities. If a Limited Partner
receives money in excess of the basis of the Limited Partner's Interest, such
excess generally will be taxable as a capital gain, except to the extent of any
"unrealized receivables" or "substantially appreciated inventory items," as
described in section 751 of the Code. A Limited Partner will recognize a loss
upon dissolution only if the liquidating distribution consists solely of cash,
or of cash and "unrealized receivables" and "substantially appreciated inventory
items," and then only to the extent that the adjusted basis of such Limited
Partner's Interest exceeds the amount of money received and such Limited
Partner's share of the Partnership's basis in such "unrealized receivables" and
"inventory items."
SPECIAL BASIS ADJUSTMENTS
The Partnership Agreement permits (but does not obligate) the General
Partners to elect under section 754 of the Code to adjust the basis of the
Partnership's Property in the hands of a Partner who acquired an Interest by
sale or exchange or on the death of a Partner. Because of the complexities of
the tax accounting required, the Partnership does not presently intend to file
an election under section 754. If the section 754 election is not made by the
Partnership, even if the transferee Partner's tax basis of the Interest is
higher than the share of the adjusted basis of the Partnership's Properties,
such transferee Partner's distributive share of depreciation and Gain or Loss on
the sale of the Partnership's assets will be determined in the same way as it
would have been for the transferor, so that the transferee Partner will receive
no tax benefits from the additional basis until the Partnership is liquidated or
terminated or the transferee Partner transfers the Interest. Thus, the absence
of such an election by the Partnership may reduce the market value of an
Interest.
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CAPITAL GAINS AND LOSSES
The characterization of income recognized upon a Sale of a Property or a
sale of a Limited Partner's Interest as capital or ordinary income is relevant
in determining the rate at which such income is taxed and the extent to which a
Limited Partner may deduct capital losses. As a result of the Revenue
Reconciliation Act of 1993, beginning in 1993, ordinary income is taxed at a
maximum marginal rate of 39.6%, while capital gains are taxed at a maximum
marginal rate of 28%. Capital losses generally may be used to offset capital
gains and, in addition, a maximum of $3,000 of ordinary income annually. The
capital losses not utilized in any year may be carried forward to succeeding
years.
DEDUCTIBILITY OF INTEREST
The Code contains various restrictions on a taxpayer's ability to deduct
interest expense. Personal interest (other than qualified residence interest) is
not deductible. Investment interest is deductible only to the extent of net
investment income. Any investment interest which cannot be currently deducted by
a taxpayer by reason of these limitations may be carried over to, and deducted
in, future years, subject to certain limitations. Interest expense attributable
to a passive activity is deductible only as part of the net passive income or
loss from that activity. Thus, any interest incurred by a taxpayer to acquire an
interest in the Partnership will be taken into account to compute the taxpayer's
income or loss from such passive activity.
ALTERNATIVE MINIMUM TAX
The Code contains an alternative minimum tax which may reduce the
benefit to individual Limited Partners of an investment in the Partnership.
Beginning in 1993, the individual alternative minimum tax is 26% of the first
$175,000 of "alternative minimum taxable income" in excess of certain exemption
amounts and 28% of "alternative minimum taxable income" in excess of $175,000.
The alternative minimum tax is payable to the extent that it exceeds the
"regular" federal income tax payable for that year. No credits other than the
foreign tax credit may be applied against the alternative minimum tax.
Alternative minimum taxable income generally is computed by adding
defined tax preference items to adjusted gross income and then subtracting
certain specified deductions, except that in determining adjusted gross income
for this purpose, a less beneficial alternative method of depreciation must be
used for certain property. For alternative minimum taxable income purposes,
depreciable Properties must generally be depreciated using an extended recovery
period.
The amount of minimum tax or alternative minimum tax imposed depends
upon various factors peculiar to the particular taxpayer, and the extent, if
any, to which these taxes may adversely affect any Limited Partner cannot be
predicted. It should be noted that certain states also impose a minimum tax on
items of tax preference. The Limited Partners should consult with their own tax
advisers regarding the possible application of the alternative minimum tax.
INTEREST ON UNDERPAYMENT OF TAXES
If it is finally determined that a taxpayer has underpaid tax for any
taxable year, the taxpayer must pay the amount of underpayment plus interest on
the underpayment and certain penalties from the date the tax originally was due.
The rate of interest is compounded daily and is adjusted quarterly. For the
period April 1, 1995 through June 30, 1995, the interest rate is 10%.
ACCURACY-RELATED PENALTIES
Section 6662 of the Code imposes penalties with respect to any
substantial understatement of income tax and with respect to the portion of any
underpayment of tax attributable to a substantial valuation overstatement or to
negligence.
1. Substantial Understatement Penalty. Section 6662 imposes a 20%
penalty on the amount of an understatement of income tax if such understatement
is substantial. An understatement of tax liability is substantial if the amount
of the understatement exceeds the greater of $5,000 or 10% of the total tax
required to be shown on the return for the taxable year. If the understatement
is not attributable to a "tax shelter" (defined as an arrangement the principal
purpose of which is the avoidance or evasion of federal income tax), there will
be no substantial understatement penalty if there was substantial authority for
the taxpayer's position or if there was a reasonable basis for the taxpayer's
position and the position was disclosed adequately on the taxpayer's tax return.
A taxpayer may use Form 8275 to ensure adequate disclosure of a non-tax shelter
matter. If the understatement arises out of a tax shelter, the taxpayer must
have relied upon substantial authority for such position and must also have had
a reasonable belief that the position taken more likely than not was the proper
treatment to avoid the penalty. The General Partners expect that the Partnership
will not be considered a "tax shelter" for this purpose.
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2. Substantial Valuation Overstatement Penalty. A 20% substantial
valuation overstatement penalty applies to the portion of any underpayment of
tax attributable to a substantial valuation overstatement. There is a
substantial valuation overstatement under new section 6662 if (i) the value or
adjusted basis of property claimed on a return is 200% or more of the correct
value or adjusted basis and (ii) the resulting underpayment of tax exceeds
$5,000. Further, the amount of the penalty is increased to 40% of the resulting
underpayment if the value or adjusted basis of property claimed on a return is
400% or more of the correct value or adjusted basis. The IRS has ruled under the
predecessor provision of section 6662 that the substantial valuation
overstatement penalty applies to individual partners when the overstatement is
made by a partnership on the partnership return.
3. Negligence Penalty. Section 6662 imposes a 20% penalty with respect
to any underpayment of tax attributable to negligence. An underpayment is
attributable to negligence if such underpayment results from any failure to make
a reasonable attempt to comply with the provisions of the Code, or any careless,
reckless, or intentional disregard of the federal income tax rules or
regulations. In addition, the legislative history of the 1989 Reconciliation Act
indicates that the failure by a taxpayer to include on a tax return any amount
shown on an information return is strong evidence of negligence. The disclosure
of a position on the taxpayer's return will not necessarily prevent the
imposition of the negligence penalty. In addition, a valuation overstatement
that results in the underpayment of tax but does not fall within the scope of
the substantial valuation overstatement provisions may still be subject to the
20% penalty if it is attributable to negligence.
TAX RETURN, TAX INFORMATION, AND AUDITS
The Partnership will furnish annually to the Limited Partners (but not
to assignees of Limited Partners unless they become substituted Limited
Partners) sufficient information from the Partnership's tax return for the
Limited Partners to prepare their own federal, state, and local tax returns.
In the event that any of the tax returns of the Partnership are audited,
it is possible that substantial legal and accounting fees will have to be paid
to substantiate the reporting positions taken, and such fees would reduce the
cash otherwise distributable to the Limited Partners. Such an audit may result
in adjustments to the tax returns of the Partnership which would require an
adjustment to each Limited Partner's personal return.
The partners of a partnership either must report partnership items on
their returns consistently with treatment on the partnership information return
or must file statements on Form 8082 with their returns identifying and
explaining the inconsistency. Otherwise, the IRS may treat such inconsistency as
a computational error, recompute and assess the tax without the usual procedural
protection applicable to federal income tax deficiency proceedings, and impose
penalties for negligent or intentional failure to pay tax.
Audits of items of partnership income, gain, loss, deduction, or credit
will be determined by a unified administrative proceeding at the partnership
level, in which all of the partners have a right to participate. As a general
rule, the administrative proceeding is managed by the tax matters partner. The
Partnership will initially designate Robert A. Bourne as the tax matters partner
for the Partnership. Certain settlements entered into by the tax matters partner
may be binding upon all Limited Partners who do not file a statement to the
contrary with the Secretary of the Treasury. Any adjustments resulting from any
such audit may result in adjustments to the individual tax returns of Limited
Partners.
Adjustments, if any, made by the IRS at the partnership level must be
reviewed in a single judicial proceeding filed on behalf of the partnership and
all partners. Subject to certain restrictions, this judicial proceeding may be
initiated by the tax matters partner or any other partner who disagrees with the
adjustments. Generally, a limited partner who owns less than a 1% interest,
directly or indirectly, in the partnership under audit may initiate the action
only as part of a group of partners whose interests in the partnership under
audit in the aggregate are at least 5%.
In the event of an audit of the return of the Partnership, the tax
matters partner, pursuant to advice of counsel, will take all actions necessary
to preserve the rights of the Limited Partners, will provide all Limited
Partners with any notices of such proceedings and other information as required
by law, and will notify all Limited Partners of their rights with respect to
settlement negotiations. All expenses of such proceedings undertaken by the tax
matters partner, which might be substantial, will be paid for entirely out of
the assets of the Partnership, which might otherwise be distributable to the
Limited Partners. Moreover, the tax matters partner of the Partnership is not
obligated to contest adjustments made by the IRS. Each Limited Partner who
elects to participate in such proceedings will be responsible for any expenses
such Partner incurs in connection with the proceedings.
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STATE AND LOCAL TAXES
In addition to the federal income tax aspects described above,
prospective Limited Partners should consider potential state and local tax
consequences of an investment in the Partnership and are advised to consult
their tax advisers to determine (i) whether the states in which they are
residents impose an income tax upon their share of the taxable income of the
Partnership, (ii) whether such state calculates the tax which is due in the same
manner as federal income taxes (for example, whether the state permits the use
of ACRS), and (iii) in what state and local jurisdictions a return may be
required and tax liability may arise. Returns may be required and tax liability
may be imposed in each state and local jurisdiction in which the Partnership
owns property.
It is possible that some states or localities where the Properties are
located will require that the Partnership withhold state or local taxes on the
income allocated (or distributions made) to Limited Partners. The Partnership is
authorized to withhold from amounts otherwise distributable to Limited Partners
such amounts as the General Partners determine are necessary or appropriate to
satisfy the Partnership's state or local tax withholding requirement.
No opinion has been or will be rendered by Counsel on matters of state
or local income tax law.
REPORTS TO LIMITED PARTNERS
The Partnership will furnish an annual report to Limited Partners within
120 days following the close of each Partnership fiscal year. The annual report
will contain a balance sheet, statement of operations, statement of partners'
capital, and statement of cash flows, audited by independent certified public
accountants, and a report of the activities of the Partnership during the
Partnership's most recent fiscal year. In addition, the annual report will
contain a complete statement of the amount and sources of distributions to
Partners, of any transactions with the General Partners or their Affiliates, and
a summary of compensation and fees paid or payable to the General Partners and
their Affiliates (including reimbursable expenses).
The Partnership also will furnish Limited Partners within 60 days after
the end of each fiscal quarter in which the General Partners or their Affiliates
received fees or other compensation from the Partnership a detailed statement
setting forth the services rendered or to be rendered by the General Partners or
their Affiliates to the Partnership and the fees or compensation received
therefor.
Tax information will be provided to Limited Partners within 75 days
following the close of each Partnership fiscal year. In addition to providing
information concerning federal tax, the General Partners may elect to provide
the Limited Partners with information as to the minimum filing requirements in
each state in which the Partnership's Properties are located.
Within 75 days following the close of each Partnership fiscal year, each
Limited Partner that is a Qualified Plan will be furnished with an annual
statement of Unit valuation to enable it to file annual reports required by
ERISA as they relate to its Partnership investment. The statement will report an
estimated value of each Unit based on the amount Limited Partners would receive
if the Properties were sold at their values (determined by appraisal updates) as
of the close of the fiscal year, and if such proceeds and any other funds of the
Partnership were distributed in a liquidation of the Partnership as described in
this Prospectus. For the first three annual reports to Limited Partners after
the termination of the Offering, the General Partners intend to value all
Properties at cost and to report the net asset value per Unit at $10.00.
Thereafter, an appraisal update based on capitalization of income will be
obtained for each Property unless the Partnership previously obtained an
appraisal for such Property within the nine-month period prior to the close of
the relevant fiscal year. After the first three annual reports, the General
Partners may elect to deliver such reports to all Limited Partners. Limited
Partners will not be forwarded copies of appraisals or updates. In providing
such reports to Limited Partners, neither the Partnership nor the General
Partners or their Affiliates thereby make any warranty, guarantee, or
representation that (i) the Limited Partners or the Partnership, upon
liquidation, will actually realize the estimated value per Unit, or (ii) the
Limited Partners will realize the estimated net asset value if they attempt to
sell their Units.
If the Partnership is required by the Securities Exchange Act of 1934,
as amended, to file quarterly reports with the Securities and Exchange
Commission, Limited Partners will be furnished with a summary of the information
contained in each report within 60 days after the end of each fiscal quarter.
Such information generally will include a balance sheet, a quarterly statement
of income, a statement of partners' capital, a statement of cash flows, and any
other pertinent information regarding the Partnership and its activities during
the quarter. Limited Partners also may receive a copy of any Form 10-Q required
to be filed by the Partnership under the Securities Exchange Act of 1934, as
amended, upon request to the Partnership. If the Partnership is not subject to
this filing requirement, Limited Partners will be furnished with a semi-annual
report within 60 days after each six-month period containing information similar
to that contained in the quarterly report but applicable to such six-month
period.
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Until such time as all of the Gross Proceeds to the Partnership from
sale of its Units (after the creation of reserves and the payment of the fees,
commissions, and expenses specified in Article Seven of the Partnership
Agreement) are invested in Properties or returned to investors, the Partnership
will distribute special reports to the Limited Partners within 45 days after the
end of each quarter. These reports will contain the following information: (i)
the location and a description of the general character of all Properties which
the Partnership acquired or which the Partnership intends to acquire during the
following quarter; (ii) the present or proposed use of such Properties and their
suitability or adequacy for such use; (iii) the terms of any material lease
affecting the Properties; (iv) the method of financing such Properties; (v) a
statement that title insurance and any required performance bond(s) or other
assurances with respect to builders, have been or will be obtained on all
Properties acquired or to be acquired; and (vi) a statement as to the amount of
the Gross Proceeds which remain uncommitted or unexpended, stated as to dollar
amount and percentage of total Gross Proceeds received by the Partnership from
sale of its Units. The information contained in such reports may be incorporated
into any of the other reports distributed to the Limited Partners.
Financial information contained in all reports to Limited Partners will
be prepared on the accrual method of accounting in accordance with generally
accepted accounting principles. If such information differs from the information
furnished to Limited Partners for tax purposes, the two sets of information will
be reconciled in the annual report.
Limited Partners and their duly authorized representatives are entitled
to inspect and copy, at their expense, the books and records of the Partnership
at all times during regular business hours, upon reasonable prior notice to the
General Partners, at the location where such reports are kept by the
Partnership. Limited Partners, upon request and at their expense, may obtain
full information regarding the financial condition of the Partnership, a copy of
the Partnership's federal, state, and local income tax returns for each fiscal
year of the Partnership, and, subject to certain confidentiality requirements, a
list of the names, addresses, and capital contributions of all Limited Partners.
The fiscal year of the Partnership will be the calendar year.
The Partnership, upon the request of any federal or state securities
authority through which the Units are registered, will submit to such authority
any report or statement which the Partnership is required to distribute to the
Limited Partners.
THE OFFERING
GENERAL
A minimum of 150,000 Units and a maximum of 6,000,000 Units are being
offered at a purchase price of $10.00 each. The maximum Offering is subject to
increase to 6,500,000 Units at the option of the Managing Dealer if the Offering
is oversubscribed (all Units in excess of 6,000,000 will be for CNL XVIII). The
proceeds of the Offering will be allocated between CNL XVII and CNL XVIII as
described below. A minimum purchase of 250 Units (or a minimum purchase of 100
Units in the case of most IRAs and Keogh and pension plans) is required.
Nebraska investors, however, as well as any investor who wishes to receive
monthly distributions, must make a minimum investment of 500 Units ($5,000).
IRAs and Keogh and pension plans must make a minimum investment of at least 100
Units (except for Iowa tax-exempt investors who must make a minimum investment
of 300 Units, or $3,000, and Minnesota IRAs, which must make a minimum purchase
of 200 Units, or $2,000). Investors making the required minimum investment may
make additional purchases in increments of one Unit. Maine investors, however,
may not purchase additional Units in amounts less than the applicable minimum
investment except at the time of the initial subscription or with respect to
Units purchased pursuant to the Distribution Reinvestment Plan. See "Suitability
Standards and How to Subscribe--How to Subscribe." The General Partners or their
Affiliates may purchase up to 15,000 Units ($150,000) of each Partnership for
their own accounts for investment purposes and not with a view towards
distribution, on the same terms and conditions as other investors, and will
purchase a minimum of 5,000 Units ($50,000) of each Partnership. These amounts
will not be included in determining whether or not the minimum Offering of
150,000 Units ($1,500,000) has been reached.
This Offering will terminate no later than six months from the initial
date of this Prospectus, unless the General Partners elect to extend the
Offering to a date not later than one year after the initial date of this
Prospectus. If subscriptions aggregating $1,500,000 are not received prior to
the expiration of the foregoing period, this Offering will terminate, and
subscription funds will be returned to investors with interest. If the
$1,500,000 minimum is reached prior to expiration of the foregoing period
(excluding subscriptions from New York and Pennsylvania investors), the General
Partners may elect to extend the Offering to a date not later than two years
after the initial date of this Prospectus in states that permit such extension.
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PLAN OF DISTRIBUTION
The Units will be offered to the public on a "best efforts" basis (which
means that no one is guaranteeing that any minimum amount will be sold) through
the Soliciting Dealers, who will be members of the National Association of
Securities Dealers, Inc. (the "NASD") and CNL Securities Corp., which will act
as Managing Dealer. Both of the individual General Partners are Affiliates and
licensed principals of the Managing Dealer, and the corporate General Partner is
an Affiliate of the Managing Dealer. The Soliciting Dealers will use their best
efforts during the Offering period to find eligible persons who desire to
subscribe for the purchase of Units from the Partnership.
The maximum Offering is 6,000,000 Units ($60,000,000), but the Managing
Dealer has the option to increase the Offering to up to 6,500,000 Units
($65,000,000) if the Offering is oversubscribed. The first approximately
$30,000,000 (3,000,000 Units) of subscription funds will be Units of CNL XVII,
although the General Partners have the right to terminate the Offering of Units
of CNL XVII at any time after subscriptions for a minimum amount of 150,000
Units ($1,500,000) have been received and the funds released from escrow. After
the termination of the Offering of Units of CNL XVII, the next up to 3,000,000
Units ($30,000,000) will be for Units of CNL XVIII. If the Managing Dealer
elects to exercise its option to increase the offering by up to 500,000 Units
($5,000,000), all subscription funds in excess of $60,000,000 will be for Units
of CNL XVIII.
Prior to a subscriber's admission to the Partnership as a Limited
Partner, funds paid by such subscriber will be deposited in an interest-bearing
escrow account with SouthTrust Estate & Trust Company, Inc. The Partnership,
within 30 days after the date a subscriber is admitted to the Partnership as a
Limited Partner, will pay to such subscriber the interest (generally calculated
on a daily basis) actually earned on such subscriber's funds. After the initial
admission of Limited Partners to the Partnership in connection with the sale of
at least 150,000 Units of the Partnership, interest will be payable only to
those subscribers whose funds have been held in escrow by such bank for at least
20 days. Limited Partners otherwise will not be entitled to interest earned on
Partnership funds or to receive interest on their Capital Contributions. See
"Escrow Arrangements" below.
In order to provide for the orderly closing of the Offering and/or the
contingency that subscriptions in excess of 6,000,000 Units are received, the
Partnership has granted to the Managing Dealer the right, exercisable in its
sole discretion, to offer and sell an additional 500,000 Units on the same terms
and conditions as the other Units. Such right to sell up to 500,000 additional
Units may be exercised by the Managing Dealer in whole or in part at any time
and from time to time prior to the termination of the Offering. If the Managing
Dealer elects to exercise this option, all subscription funds in excess of
$60,000,000 will be for Units of CNL XVIII. The Managing Dealer may institute a
system pursuant to which it will accept reservations to purchase Units provided
all subscription materials with respect to the purchase of such Units are
received by the Managing Dealer within five to ten business days after making
the reservation.
Subject to the provisions for reduced Selling Commissions described
below, the Partnership will pay the Managing Dealer an aggregate of 8.5% of the
Gross Proceeds to the Partnership as Selling Commissions. The Managing Dealer
may reallow fees of up to 8% to the Soliciting Dealers with respect to Units
sold by them. In addition, the Partnership will pay the Managing Dealer, as an
expense allowance, a due diligence expense reimbursement fee equal to 0.5% of
Gross Proceeds. The Managing Dealer, in its sole discretion, may reallow to any
Soliciting Dealer all or any portion of this fee based on such factors as the
number of Units sold by such Soliciting Dealer, the assistance, if any, of such
Soliciting Dealer in marketing the Offering, and bona fide due diligence
expenses incurred. Limited Partners who elect to participate in the Distribution
Reinvestment Plan will be charged Selling Commissions on Units purchased for
their accounts on the same basis as investors who do not purchase Units pursuant
to the Distribution Reinvestment Plan until the Offering has terminated. After
the Offering has terminated, no Selling Commissions will be paid for Units
purchased pursuant to the Distribution Reinvestment Plan.
Although it is not the intent of the Partnership, the Partnership, the
General Partners, or their Affiliates may provide incentive items for registered
representatives of the Managing Dealer and the Soliciting Dealers, which in no
event shall exceed an aggregate of $100 per annum per participating salesperson.
In the event other incentives are provided to registered representatives of the
Managing Dealer or the Soliciting Dealers, they will be paid only in cash, and
such payments will be made only to the Managing Dealer or the Soliciting Dealers
rather than to their registered representatives. Any such sales incentive
program must first have been submitted for review by the NASD, and must comply
with Section 5(f) of Appendix F to Section 34 of its Rules of Fair Practice.
Costs incurred in connection with such sales incentive programs, if any, will be
considered underwriting compensation.
A registered principal or representative of the Managing Dealer or a
Soliciting Dealer, may purchase Units net of 8% commissions, at a per Unit
purchase price of $9.20. In addition, clients of an investment advisor
registered under the Investment Advisors Act of 1940, as amended, who have been
advised by such adviser on an ongoing basis regarding investments other than in
the Partnership, and who are not being charged by such adviser or its
Affiliates, through the payment of commissions or otherwise, for the advice
rendered by such adviser in connection with the purchase of Units, may purchase
Units net of 8%
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commission. In connection with purchases of certain minimum numbers of Units,
the amount of Selling Commissions otherwise payable to the Managing Dealer or a
Soliciting Dealer, shall be reduced in accordance with the following schedule:
<TABLE>
<CAPTION>
Dollar Amount
of Units Purchase Price Reallowed Commissions on Sales Per Unit
Purchased Per Unit Percent Dollar Amount
<S> <C>
$10-- $249,990 $10.00 8.0% $0.80
$250,000-- $499,990 $9.80 6.0% $0.60
$500,000-- $999,990 $9.60 4.0% $0.40
$1,000,000-- $1,499,990 $9.50 3.0% $0.30
$1,500,000 or more $9.40 2.0% $0.20
</TABLE>
Subscriptions for Units of CNL XVII and CNL XVIII may not be combined in
determining the volume discount to which an investor may be entitled. Any such
reduction in Selling Commissions will be credited to the "purchaser," as defined
below, by reducing the total purchase price otherwise payable by the
"purchaser." The net proceeds to the Partnership will not be affected by the
volume discount.
Subscriptions may be combined for the purpose of determining the volume
discounts in the case of subscriptions made by any "purchaser," provided all
such Units are purchased through the same Soliciting Dealer or through the
Managing Dealer. The volume discount will be prorated among the separate
subscribers considered to be a single "purchaser." Units purchased pursuant to
the Distribution Reinvestment Plan on behalf of a Participant in the
Distribution Reinvestment Plan will not be combined with other subscriptions for
Units by the investor in determining the volume discount to which such investor
may be entitled. See "Summary of Distribution Reinvestment Plan." Further,
subscriptions for Units will not be combined for purposes of the volume discount
in the case of subscriptions by any "purchaser" who subscribes for additional
Units subsequent to the purchaser's initial purchase of Units.
Any request to combine more than one subscription must be made in
writing in a form satisfactory to the General Partners and must set forth the
basis for such request. Any such request will be subject to verification by the
Managing Dealer that all of such subscriptions were made by a single
"purchaser." If a "purchaser" does not reduce the per Unit purchase price, the
excess purchase price over the discounted purchase price will be returned to the
actual separate subscribers for Units.
For purposes of such volume discounts, "purchaser" includes (i) an
individual, his or her spouse, and their children under the age of 21, who
purchase the Units for his or her or their own accounts, and all pension or
trust funds established by each such individual; (ii) a corporation,
partnership, association, joint-stock company, trust fund, or any organized
group of persons, whether incorporated or not (provided that the entities
described in this clause (ii) must have been in existence for at least six
months before purchasing the Units and must have formed such group for a purpose
other than to purchase the Units at a discount); (iii) an employee's trust,
pension, profit-sharing, or other employee benefit plan qualified under section
401 of the Code; and (iv) all pension, trust, or other funds maintained by a
given bank. In addition, the General Partners, in their sole discretion, may
aggregate and combine separate subscriptions for Units received during the
Offering period from (i) the Managing Dealer or the same Soliciting Dealer, (ii)
investors whose accounts are managed by a single investment adviser registered
under the Investment Advisers Act of 1940, (iii) investors over whose accounts a
designated bank, insurance company, trust company, or other entity exercises
discretionary investment responsibility, or (iv) a single corporation,
partnership, trust association, or other organized group of persons, whether
incorporated or not, and whether such subscriptions are by or for the benefit of
such corporation, partnership, trust association, or group, provided that
subscriptions for Units of CNL XVII will not be aggregated or combined with
subscriptions for Units of CNL XVIII. Except as provided in this paragraph,
subscriptions will not be cumulated, combined, or aggregated.
Any reduction in commissions will reduce the effective purchase price
per Unit to the investor involved but will not alter the net proceeds payable to
the Partnership as a result of such sale.
All investors will be deemed to have contributed the same amount per
Unit to the Partnership whether or not the investor receives a volume discount.
Accordingly, for purposes of Partnership allocations, as well as distributions
of Net Cash Flow and Net Sales Proceeds, investors qualifying for volume
discounts will receive higher returns on their investments in the Partnership as
compared to investors who do not qualify for such discounts.
In connection with the sale of Units, certain registered principals or
representatives of the Managing Dealer may perform wholesaling functions for
which they will receive compensation payable by the Managing Dealer in an
aggregate amount not in excess of one percent of Gross Proceeds. In addition,
the General Partners and their Affiliates, including the Managing Dealer and its
registered principals or representatives, may incur due diligence fees and other
expenses, including expenses related to
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sales seminars and wholesaling activities, a portion of which may be paid by the
Partnership. Any such expenses paid by the Partnership are estimated not to
exceed $27,400 in the event 3,000,000 Units ($30,000,000) of the Partnership are
sold or $34,300 in the event 3,500,000 Units ($35,000,000) of CNL XVIII are
sold. In no event, however, will the total underwriting compensation payable to
the Managing Dealer, Soliciting Dealer, or persons performing wholesaling
functions, whether characterized as Selling Commissions, expense reimbursements,
sales incentives, or otherwise, exceed 10% of Gross Proceeds, plus a maximum of
0.5% for reimbursement of bona fide due diligence expenses.
The Managing Dealer and the Soliciting Dealers severally will indemnify
the Partnership, the General Partners, and their Affiliates, officers and
directors against certain liabilities, including liabilities under the
Securities Act of 1933, as amended.
SUBSCRIPTION PROCEDURES
In order to purchase Units, the subscriber must complete and execute the
Subscription Agreement. Any subscription for Units must be accompanied by cash
or a check payable to "SouthTrust Estate & Trust Company, Inc., Escrow Agent"
(or to the Partnership after subscription funds are released from escrow), in
the amount of $10.00 per Unit. See "Escrow Arrangements" below. Certain
Soliciting Dealers who have "net capital," as defined in the applicable federal
securities regulations, of $250,000 or more may instruct their customers to make
their checks for Units subscribed for payable directly to the Soliciting Dealer.
In such case, the Soliciting Dealer will issue a check made payable to the order
of the Escrow Agent for the aggregate amount of the subscription proceeds. The
first approximately $30,000,000 of subscription funds (3,000,000 Units) will be
for Units of CNL XVII, although the General Partners have the right to terminate
the Offering of Units of CNL XVII at any time after subscriptions for a minimum
of $1,500,000 (150,000 Units) have been received and the funds released from
escrow. After the termination of the Offering of Units of CNL XVII, the next up
to $30,000,000 of subscription funds (3,000,000 Units) will be for Units of CNL
XVIII. If the Managing Dealer elects to exercise its option to increase the
offering by up to $5,000,000 (500,000 Units), all subscription funds in excess
of $60,000,000 will be for Units of CNL XVIII.
Each subscription will be accepted or rejected by the General Partners
within 30 days after its receipt. If a subscription is rejected, the funds will
be returned to the subscriber within ten business days after the date of such
rejection, without interest and without deduction. A form of the Subscription
Agreement is set forth as Exhibit E to this Prospectus. A subscription may not
be revoked or withdrawn by the subscriber. The subscription price of each Unit
is payable in full upon execution of the Subscription Agreement.
By executing the Subscription Agreement, the subscribers agree to all of
the terms of the Partnership Agreement, including the grant to the General
Partners of a power of attorney under certain circumstances. The General
Partners and each Soliciting Dealer who sells Units on behalf of the Partnership
have the responsibility to make every reasonable effort to determine that the
purchase of Units is suitable and appropriate for an investor. In making this
determination, the Soliciting Dealers will rely on relevant information provided
by the investor, including information as to the investor's age, investment
objectives, investment experience, income, net worth, financial situation, other
investments, and any other pertinent information. Each investor should be aware
that determining suitability is the responsibility of the Soliciting Dealer.
Certain Soliciting Dealers may permit investors to subscribe for Units
by telephonic order to the Soliciting Dealer. There are no additional fees
associated with telephonic orders. Representatives of Soliciting Dealers who
accept telephonic orders may execute the Subscription Agreement on behalf of
those investors who place such orders. Investors, however, who are residents of
Florida, Iowa, Maine, Massachusetts, Michigan, Minnesota, Mississippi, Missouri,
Nebraska, New Mexico, North Carolina, Oregon, South Dakota, Tennessee, or
Washington, must complete and sign the Subscription Agreement in order to
subscribe for Units and, therefore, may not subscribe for Units by telephone.
Representatives of Soliciting Dealers who accept telephonic orders will execute
the Subscription Agreement on behalf of investors who place such orders. All
investors who telephonically subscribe for Units will receive, with confirmation
of their subscription, a second copy of the Prospectus.
Residents of California, Oklahoma, and Texas who telephonically
subscribe for Units will have the right to rescind such subscriptions within ten
days from receipt of the confirmation. Such investors who do not rescind their
subscriptions within such ten-day period shall be deemed to have assented to all
of the terms and conditions of the Subscription Agreement and the Partnership
Agreement, including, but not limited to, the power of attorney therein.
Investors who have questions or who wish to place orders for Units by
telephone or to participate in the Distribution Reinvestment Plan should contact
their Soliciting Dealer. Certain Soliciting Dealers do not permit telephonic
subscriptions or participation in the Distribution Reinvestment Plan. See
"Summary of Distribution Reinvestment Plan." The form of Subscription Agreement
for certain Soliciting Dealers who do not permit telephonic subscriptions or
participation in the Distribution Reinvestment Plan differs slightly from the
form attached hereto as Exhibit E, primarily in that it will eliminate one or
both of these options.
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Investors who wish to establish an IRA for the purpose of investing
solely in Units may do so by so indicating on the Subscription Agreement,
appointing Franklin Bank, N.A., an unaffiliated bank, to act as their IRS
custodian. The custodian will not have the authority to vote any of the Units
held in any IRA except in accordance with written instructions from the
beneficiary of the IRA, although it will hold the Units on behalf of that
beneficiary and make distributions and, at the direction and in the discretion
of the beneficiary, investments in Units or in other securities issued by
Affiliates of the General Partners. The custodian will not have the authority at
any time to make investments through any such IRA on behalf of the beneficiary
if the investment do not constitute Units or other securities issued by
Affiliates of the General Partners. The investors will not be required to pay
any initial or annual fees in connection with any such IRA. The fees for
establishing and maintaining all such IRAs will be paid by the General Partners
initially and annually up to an aggregate amount of $5,000, and by the
Partnership above such amount. In determining whether to use the IRA option made
available by the Partnership and the General Partners, investors should consider
the impact of the withholding rules under Section 3405 and, more importantly,
the limitation on tax-free rollovers under Section 408(d)(3)(E) that limits an
individual from making a tax-free rollover of any amounts received from any IRA
or group of IRAs more than once during a one-year period, and whether direct
transfers ameliorate the impact of such rules and limitations.
Investors should not purchase Units unless such investors believe that
they are in a financial position appropriate to enable them to realize to a
significant extent the benefits described in the Prospectus, have adequate means
for providing for their current needs and personal contingencies, have
sufficient net worth and income to sustain the risks inherent in the investment,
including limited liquidity of the investment, and believe the investment is
otherwise suitable. In addition, each investor should be aware that none of the
Partnership, the General Partners, or any Affiliates, agents, or representatives
of the Partnership or the General Partners are authorized to make any
representations or warranties on behalf of the Partnership other than those
contained in the Prospectus or specified by the investors in the Subscription
Agreement.
Subscription payments will be released from escrow promptly after the
receipt by the Partnership of subscriptions for a minimum of 150,000 Units
(excluding subscriptions of New York and Pennsylvania investors). Persons whose
subscriptions are accepted prior to the release of such payments from escrow
will be admitted as Limited Partners within 15 days after such release of
payments. Thereafter, subscribers will be admitted as Limited Partners not later
than the last day of the calendar month following acceptance of their
subscriptions.
ESCROW ARRANGEMENTS
Subscription proceeds will be received in trust and deposited in a
separate account with SouthTrust Estate & Trust Company, Inc., 135 W. Central
Blvd., Suite 1200, Orlando, Florida 32801 (the "Bank"). No Units will be sold by
the Partnership, no commissions or fees will be paid by it, and the initial
admission of investors to the Partnership will not take place unless
subscriptions have been accepted for at least 150,000 Units ($1,500,000) and
subscription funds from investors who place telephonic orders have been on
deposit with the Bank for at least 15 days from the date written confirmation is
mailed to the investor by the Managing Dealer. If subscriptions for at least
$1,500,000 have not been received, accepted, and paid for within six months from
the initial date of this Prospectus (subject to the right of the General
Partners to extend the Offering for up to an additional six months), all funds
received will be promptly repaid in full, with any interest earned thereon. In
addition, California and Florida investors only will have the right, as provided
in the attached form of Subscription Agreement, to withdraw their subscription
funds if subscriptions for at least $1,500,000 have not been accepted by the
General Partners within six months after the initial date of this Prospectus and
the General Partners elect at that time to extend the Offering beyond such date.
All Offering proceeds will first be applied to investment in Units of CNL XVII.
The Offering of Units of CNL XVIII will commence upon termination of the
Offering of Units in CNL XVII.
The Escrow Agreement between the General Partners and the Bank provides
that escrowed funds will be invested by the Bank in an interest-bearing account
with the power of investment in short-term, highly liquid U.S. Government
securities or, upon receipt of subscription proceeds for at least 150,000 Units
(provided that subscription funds from investors who place telephonic orders
have been on deposit with the Bank for at least 15 days), in other short-term,
highly liquid investments with appropriate safety of principal. Such
subscription funds will be released periodically (at least once per month) upon
admission of Limited Partners to the Partnership.
The interest, if any, earned on subscription proceeds prior to their
release from escrow, within 30 days after the date a subscriber is admitted to
the Partnership as a Limited Partner, will be distributed to such subscriber.
After the initial admission of Limited Partners to the Partnership in connection
with the sale of at least 150,000 Units, interest will be payable only to those
subscribers whose funds have been held in escrow by the Bank for at least 20
days. Limited Partners will not otherwise be entitled to interest earned on
Partnership funds or to receive interest on their Capital Contributions.
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INVESTMENT BY QUALIFIED RETIREMENT PLANS AND INDIVIDUAL RETIREMENT ACCOUNTS
General Considerations. The General Partners believe that an investment
in Units may be made consistent with the requirements of ERISA. However, since
compliance with ERISA is essentially a factual determination, there can be no
assurance that these requirements will be met. In considering whether to invest
a portion of the assets of a qualified retirement plan, Keogh plan, or
individual retirement account (collectively "Qualified Plans") in Units,
fiduciaries of Qualified Plans should consider the following: (i) whether the
Qualified Plan's documents permit the investment, (ii) whether the purchase or
holding of Units will cause the General Partners to be considered fiduciaries of
the Qualified Plan (discussed below, under "Plan Asset Rules"), and if so,
whether the General Partners' control over Partnership operations violates ERISA
(discussed below, under "Prohibited Transactions"); (iii) whether an investment
in Units will be considered "prudent," and will not affect the obligation to
maintain proper liquidity and diversification in the Qualified Plan's
investments; (iv) whether Units, once acquired, can be valued as frequently as
needed for ERISA reporting and internal plan purposes; (v) whether either the
Partnership, the General Partners, the soliciting or purchasing agent, or any
affiliate thereof, is presently a fiduciary, a "party-in-interest," or a
"disqualified person" with respect to the Qualified Plan, and if so, whether an
investment in Units would violate ERISA and the Code (discussed below, under
"Prohibited Transactions"); and (vi) whether any income from the Units will be
considered taxable to Qualified Plans as "unrelated business income" (discussed
above, under "Federal Income Tax Considerations -- Qualified Plan Investors").
Prohibited Transactions. Generally, a fiduciary may not cause a
Qualified Plan to engage in a transaction that constitutes a prohibited
transaction. Many types of transactions with a "party-in-interest" or a
"disqualified person" will constitute prohibited transactions. In general, any
fiduciary of the plan, any person providing services to the plan, any employer
whose employees are covered by the plan, any employee organization whose members
are covered by the plan, and certain parties related to or affiliated with such
persons, will be considered "parties in interest" and "disqualified persons." A
fiduciary responsible for a Qualified Plan engaging in a prohibited transaction
may be held personally liable for any losses incurred by the Qualified Plan on
account of the prohibited transaction. In addition, the Code imposes an excise
tax on any "disqualified person" (other than a fiduciary acting only as such)
who participates in a prohibited transaction. Prohibited transactions generally
include direct or indirect sales, exchanges, or leases of property, loans or
extensions of credit, furnishing of goods or services or facilities, benefiting
from assets of the Qualified Plan ("plan assets"), or certain acquisitions on
behalf of the Qualified Plan of employer securities or employer real property.
Plan Asset Rules. Fiduciaries of Qualified Plans also should consider
whether an investment in Units will cause the General Partners to be considered
a fiduciary of such Qualified Plans with respect to their management of the
Partnership, thus making the General Partners subject to the fiduciary
responsibility and the prohibited transaction provisions of ERISA and the Code.
The U.S. Department of Labor has issued regulations, relating to the definition
of "plan assets," which require that the assets of pooled investment vehicles,
including certain partnerships, be treated as plan assets unless an exception
applies. A person with control over a plan's assets becomes a fiduciary of that
plan (and thus, a "party in interest" and a "disqualified person" as a matter of
law.
Under the regulations, assets of Qualified Plans are defined to include
not only securities (such as Units) held by the Qualified Plan, but also the
underlying assets of the issuer of the securities unless: (i) the Units are
"publicly-offered securities" (as defined in the regulations); (ii) the issuer
is an "operating company" (as defined in the regulations); or (iii) equity
participation in the Partnership by Qualified Plan investors is not
"significant" (as defined in the regulations). It is not anticipated that the
Partnership will constitute an "operating company," and equity participation in
the Partnership is likely to be "significant."
The Partnership's assets will not be considered plan assets so long as
the Units are "publicly-offered securities." The securities offered by the
Partnership may constitute "publicly-offered securities" if such securities are
(i) freely transferable, (ii) part of a class of securities that is widely held,
and (iii) either part of a class of securities registered under Section 12(g) of
the Securities Exchange Act of 1934, as amended, or sold to the Qualified Plan
as part of a public offering pursuant to an effective registration statement
under the Securities Act of 1933, as amended. A security is deemed to be
"widely-held" so long as it is owned by at least 100 or more investors, not
affiliated with the Partnership, immediately following the Offering. Although it
is anticipated the Units will be held by at least 100 unrelated persons at the
conclusion of the Offering, there can be no assurance that this requirement will
be met. Whether a security is "freely transferable" is a factual question, but
the final regulations provide that a security may be deemed to be "freely
transferable" even if there is a restriction on transfer that is drafted to
avoid the Partnership being treated as a "publicly-traded partnership" under
sections 469(k) and 7704 of the Code. A security also may be deemed to be
"freely transferable," even if there is a restriction on substitution of an
assignee as a limited partner (such as a requirement for prior consent of a
general partner to any such substitution), so long as the economic benefits of
ownership of the assignor may be transferred or assigned without regard to such
restriction. The economic benefits of ownership of the Units generally may be
transferred without regard to the restriction on substitution of an assignee as
a Limited Partner. The Partnership intends to register the Units under Section
12(g) in order to satisfy the above-described registration requirements.
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Assuming that the Units will be "widely-held" and "freely transferable,"
the General Partners believe that the Units will be "publicly-offered"
securities for purposes of the U. S. Department of Labor regulations and that
the assets of the Partnership will not be deemed "plan assets" of any Plan that
invests in the Units, but have not requested an opinion of counsel to this
effect.
Potential Consequences of Treatment as Plan Assets. In the event that
the Units do not constitute "publicly-offered securities," the underlying assets
of the Partnership treated as plan assets, and the Partnership likely will be
required to take steps which could affect Partners who are subject to income
tax, as well as Qualified Plans which may invest in the Partnership. In such
event, the fiduciary duties, including compliance with the exclusive benefit
rule and the diversification and prudence requirements, must be considered with
respect to the investment in the Partnership. Each Partner of the Partnership
who has authority or control with respect to the management or disposition of
the assets of the Partnership, or who renders investment advice for a fee or
other compensation, direct or indirect, with respect to the assets of the
Partnership would be treated as a fiduciary and therefore would be personally
liable for any losses to a Qualified Plan which invests in the Partnership
resulting from a breach of fiduciary duty.
The prohibited transaction restrictions would apply to any transactions
in which the Partnership engages involving the assets of the Partnership and a
party-in-interest. Such restrictions could, for example, require that the
Partnership and the General Partners avoid transactions with entities that are
affiliated with the Partnership or the General Partners, or that Qualified Plan
investors be given the opportunity to withdraw from the Partnership. Also, the
General Partners who participate in a prohibited transaction may be subject to
an excise tax. Finally, while unlikely, entering into a prohibited transaction
could result in loss of a Qualified Plan's tax-exempt status.
DETERMINATION OF OFFERING PRICE
The Offering price per Unit was determined by the General Partners based
upon the estimated costs of acquiring the Properties, the fees to be paid to the
General Partners and their Affiliates, as well as fees to third parties, and the
expenses of this Offering.
SUPPLEMENTAL SALES MATERIAL
In addition to this Prospectus, the Partnership may use certain sales
materials in connection with this Offering, although only when accompanied or
preceded by the delivery of this Prospectus. No sales material may be used
unless it has first been approved in writing by the General Partners. As of the
date of this Prospectus, it is anticipated that the following sales material
will be authorized for use by the Partnership in connection with this Offering:
(i) a brochure entitled CNL Income Fund XVII, Ltd. and CNL Income Fund XVIII,
Ltd.; (ii) a brochure describing CNL Group, Inc. and its affiliated entities;
(iii) a fact sheet describing the general features of CNL XVII and CNL XVIII;
(iv) a cover letter transmitting the Prospectus; (v) a summary description of
the Offering; (vi) a slide presentation; (vii) broker updates; (viii) an audio
cassette presentation; (ix) a video presentation; (x) a script for telephonic
marketing; (xi) seminar advertisements and invitations; and (xii) certain
third-party articles. Units are being offered only through this Prospectus. All
such materials will be used only by registered broker-dealers who are members of
the NASD. The Partnership also may respond to specific questions from Soliciting
Dealers and prospective investors. Additional materials relating to the Offering
may be made available to Soliciting Dealers for their internal use.
LEGAL OPINIONS
The legality of the Units being offered hereby has been passed upon for
the Partnership by Baker & Hostetler. Statements made under "Risk
Factors--Federal Income Tax Risks" and "Federal Income Tax Considerations" have
been reviewed by Baker & Hostetler, who have given their opinion that such
statements as to matters of law are correct. Baker & Hostetler serves as
securities counsel to the Partnership and to the General Partners and certain of
their Affiliates.
EXPERTS
The audited financial statements of CNL XVII and CNL XVIII, as of
February 22, 1995 and for the period February 10, 1995 (date of inception)
through February 22, 1995, and the audited balance sheet of the corporate
General Partner, as of December 31, 1994, included in this Prospectus, have been
included herein in reliance on the reports 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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ADDITIONAL INFORMATION
The Partnership has filed with the Securities and Exchange Commission
(the "Commission"), Washington, D.C., a Registration Statement on Form S-11, as
amended, with respect to the Units offered hereby. This Prospectus, which is
part of the Registration Statement, does not contain all of the information set
forth in the Registration Statement and the exhibits and schedules thereto. For
further information with respect to the Partnership and the Units offered
hereby, reference is made to the Registration Statement and the exhibits and
schedules filed as a part thereof. Statements contained herein concerning the
provisions of any document are not necessarily complete and in each instance
reference is made to the copy of such document filed as an exhibit or schedule
to the Registration Statement, each such statement being qualified in all
respects by reference to such exhibit or schedule.
The Registration Statement, together with its exhibits and schedules,
may be inspected, without charge, at the Commission's principal office at Room
1024, 450 Fifth Street, N.W., Washington, D.C. 20549, and also at the following
regional offices of the Commission: Room 1400, 75 Park Place, New York, New York
10007, and Suite 1400, Northwestern Atrium Center, 500 West Madison Street,
Chicago, Illinois 60661-2511. Copies of such material may also be obtained from
the Commission upon payment of prescribed fees.
DEFINITIONS
"Acquisition Expenses" shall mean any and all expenses incurred by the
Partnership, any General Partner, or any Affiliate of any General Partner in
connection with the selection or acquisition of any Property, whether or not
acquired, including, without limitation, legal fees and expenses, travel and
communication expenses, costs of appraisals, nonrefundable option payments on
property not acquired, accounting fees and expenses, taxes, and title insurance.
"Acquisition Fees" shall mean any and all fees and commissions,
exclusive of Acquisition Expenses, paid by any person or entity to any other
person or entity (including any fees or commissions paid by or to any General
Partner or any Affiliate of any General Partner) in connection with the
selection or acquisition of any Property, including, without limitation, real
estate commissions, acquisition fees, finder's fees, selection fees,
nonrecurring management fees, consulting fees, or any other fees or commissions
of a similar nature.
"Adjusted Capital Account Deficit" shall mean, with respect to any
Partner, the deficit balance, if any, in such Partner's Capital Account as of
the end of the relevant fiscal year, after giving effect to the following
adjustments: (i) credit to such Capital Account any amounts that such Partner is
obligated to restore pursuant to any provision of this Agreement, is otherwise
treated as being obligated to restore under section 1.704-1(b)(2)(ii)(c) of the
Treasury regulations, or is deemed to be obligated to restore pursuant to
sections 1.704-2(g)(1) and 1.704-2(i)(5) of the Treasury regulations (determined
after taking into account any changes during such year in minimum gain); and
(ii) debit to such Capital Account the items described in Treasury regulation
section 1.704-1(b)(2)(ii)(d)(4), (5) and (6). The foregoing definition of
Adjusted Capital Account Deficit is intended to comply with the provision of
Treasury regulation section 1.704-1(b)(2)(ii)(d), and shall be interpreted
consistently therewith.
"Affiliate" shall mean (i) any person or entity directly or indirectly
through one or more intermediaries controlling, controlled by, or under common
control with another person or entity; (ii) any person or entity owning or
controlling 10% or more of the outstanding voting securities of another person
or entity; (iii) any officer, director, partner, or trustee of such person or
entity; and (iv) if such other person or entity is an officer, director,
partner, or trustee of a person or entity, the person or entity for which such
person or entity acts in any such capacity.
"Capital Account" shall mean the book account which shall be established
and maintained for each Partner of the Partnership in accordance with Treasury
Regulation ss.1.704-1(b)(2)(iv), as amended, in such fashion as the General
Partners deem advisable. Each Capital Account shall reflect, among other items
(i) all contributions made by such Partner to the Partnership, (ii) all
allocations of Partnership Net Income, Net Loss, Gain and Loss, and (iii) all
distributions made to such Partner by the Partnership. Any and all amounts
distributed by the Partnership to a Partner as a fee and/or as compensation or
reimbursement for services shall not reduce such Partner's Capital Account.
"Capital Contribution(s)" shall mean the gross amount of investment in
the Partnership by a Partner or all Partners, as the case may be. For purposes
of computing a Limited Partner's Capital Contribution, any Limited Partner who
pays less than the per Unit Offering price of $10.00 per Unit due to a decrease
in the commissions otherwise payable to the Managing Dealer or a Soliciting
Dealer (where net proceeds to the Partnership are not reduced), shall
nevertheless be deemed to have contributed to the Partnership the full amount of
the per Unit Offering price. In the event that any amount is returned to a
Limited Partner as required by the Partnership Agreement due to the fact that
the Partnership does not have an Investment in Properties of at least 80% of
Limited Partners' Capital within a specified period of time, the Limited
Partner's Capital
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Contribution shall be reduced, following the return of any such amount, by the
amount so returned. The Capital Contribution of a substituted Limited Partner
shall be that attributable to the interest in the Partnership assigned to such
substituted Limited Partner.
"CNL XVII" shall mean CNL Income Fund XVII, Ltd., a newly formed Florida
limited partnership.
"CNL XVIII" shall mean CNL Income Fund XVIII, Ltd., a newly formed
Florida limited partnership.
"Code" shall mean the Internal Revenue Code of 1986, as amended.
"Competitive Real Estate Commission" shall mean a real estate or
brokerage commission for the purchase or sale of property which is reasonable,
customary, and competitive in light of the size, type, and location of the
property. The total of all real estate commissions paid by the Partnership to
all persons and entities (including the subordinated real estate disposition fee
payable to CNL Income Fund Advisors, Inc.) in connection with any sale of one or
more of the Partnership's Properties shall not exceed the lesser of (i) a
Competitive Real Estate Commission or (ii) six percent of the gross sales price
of the Property or Properties.
"Co-Tenancy Arrangements" shall mean the co-tenancy arrangements
pursuant to which the Partnership becomes a co-tenant or tenant-in-common of
properties which are acquired, in part, by the Partnership and which may include
a written agreement among the tenants.
"Counsel" shall mean legal counsel to the Partnership.
"Distribution Reinvestment Plan" or "Plan" shall mean the Distribution
Reinvestment Plan, in substantially the form attached hereto as Exhibit D.
"ERISA" shall mean the Employee Retirement Income Security Act of 1974,
as amended.
"Fee Property" or "Fee Properties" shall mean real property or
properties, including the building or buildings located thereon, if any, but
only in cases in which the Partnership, either directly or through Joint Venture
or Co-Tenancy arrangements or other partnerships, owns the real property and any
building or buildings located thereon. "Fee Property" or "Fee Properties" does
not include "Leasehold Property" or "Leasehold Properties."
"Front-End Fees" shall mean fees and expenses paid by any person or
entity to any person or entity for any services rendered in connection with the
organization of the Partnership and the acquisition of Properties, including
Selling Commissions, the due diligence expense reimbursement fee, Organizational
and Offering Expenses, Acquisition Expenses, Acquisition Fees, and any other
similar fees, however designated. During the term of the Partnership, Front-End
Fees, including Front-End Fees incurred with respect to the reinvestment of Net
Sales Proceeds, shall not exceed 20% of Gross Proceeds.
"Gain" shall mean the income or gain of the Partnership for federal
income tax purposes arising from any Sale, and includes the Partnership's
distributive share of the income or gain for federal income tax purposes of any
Joint Venture or partnership of which the Partnership is a co-venturer or
partner arising from the sale or other disposition of all or a substantial
portion of the assets of such Joint Venture or partnership.
"General Partners" shall mean Robert A. Bourne, James M. Seneff, Jr.,
and CNL Realty Corporation, and singularly shall mean any one of them, or any
other person or entity which is substituted for or succeeds to the interest of
all or any of such persons or entity as a general partner pursuant to the
Partnership Agreement.
"Gross Proceeds" shall mean the aggregate purchase price of all Units
sold for the account of the Partnership through the Offering, without deduction
for Selling Commissions, volume discounts, the due diligence expense
reimbursement fee or Organization and Offering Expenses. For the purpose of
computing Gross Proceeds, the purchase price of any Unit for which reduced
Selling Commissions are paid to the Managing Dealer or a Soliciting Dealer
(where net proceeds to the Partnership are not reduced) shall be deemed to be
$10.00.
"Interest" or "Partnership Interest" shall mean the ownership interest
of a Partner in the Partnership represented by such Partner's right to share in
distributions from operations and on liquidation of the Partnership, and an
allocable share of the Net Income and Net Loss of the Partnership.
81
<PAGE>
"Invested Capital Contribution" as of any date shall mean the Capital
Contribution to the Partnership of a Limited Partner, reduced by all prior cash
distributions to such Limited Partner of Net Sales Proceeds from a Sale or Sales
not in liquidation of the Partnership, other than those prior cash distributions
applied in payment of the portion of the Limited Partners' 8% Return
attributable to such Limited Partner. Invested Capital Contributions may differ
from Capital Accounts, but may not be less than zero.
"Investment in Properties" shall mean the amount of the Limited
Partners' Capital actually paid or allocated by the Partnership, either directly
or through joint venture arrangements or other partnerships, to the purchase,
development, construction, or improvement (including working capital reserves of
up to one percent of the Limited Partners' Capital) of Properties, and other
cash payments such as interest and taxes, but excluding Front-End Fees.
"IRA" shall mean an Individual Retirement Account.
"IRS" shall mean the Internal Revenue Service.
"Joint Ventures" shall mean the joint venture or general partnership
arrangements in which the Partnership is a co-venturer or general partner which
are established to acquire Properties.
"Leasehold Property" or "Leasehold Properties" shall mean cases in which
the Partnership acquires only the building with the land owned by a third party
and the Partnership's interest in such land, as lessee, being represented by a
ground lease.
"Limited Partner" shall mean any person or entity admitted to the
Partnership as a limited partner, including any person or entity admitted to the
Partnership as a substituted limited partner in accordance with the Partnership
Agreement.
"Limited Partners' 8% Return" shall mean an amount equal to 8% which
amount shall be computed on a noncompounded, annual basis, which computation
shall be noncumulative when computed or paid from Net Cash Flow and shall be
cumulative when computed or paid from Net Sales Proceeds, of the Limited
Partners' Invested Capital Contributions (calculated from the date a Limited
Partner is admitted to the Partnership and the Capital Account attributable to
such Limited Partner initially is established), to the extent sufficient cash is
available to make such distributions, reduced by all prior cash distributions of
Net Cash Flow and of Net Sales Proceeds from a Sale or Sales not in liquidation
of the Partnership, other than those prior cash distributions applied in payment
of such Limited Partner's Invested Capital Contribution.
"Limited Partners' Capital" as of any date shall mean the aggregate
Capital Contributions made by all of the Limited Partners of the Partnership.
"Loss" shall mean the loss of the Partnership, for federal income tax
purposes, arising from any Sale, and includes the Partnership's distributive
share for federal income tax purposes of the loss of any Joint Venture or
partnership of which the Partnership is a co-venturer or partner arising from
the sale or other disposition of all or a substantial portion of the assets of
such Joint Venture or partnership.
"Management Fee" shall mean the fee payable to CNL Income Fund Advisors,
Inc., an affiliate of the General Partners, for day-to-day professional
management services in connection with the Partnership and its Properties.
"Managing Dealer" shall mean CNL Securities Corp., an Affiliate of the
General Partners, or such other person or entity selected by the General
Partners to act as the managing dealer for the Offering. CNL Securities Corp.
is a member of the National Association of Securities Dealers, Inc.
"Net Cash Flow" shall mean the Net Income or Net Loss of the Partnership
for each fiscal year, with the following adjustments: (i) there shall be added
to such Net Income or Net Loss the amount charged for any deduction not
involving a cash expenditure (such as depreciation and amortization), and any
cash receipts (excluding Net Sales Proceeds) or reserves which the General
Partners, in their sole discretion, deem to be available for distribution; and
(ii) there shall be subtracted from such Net Income or Net Loss the amount of
any nondeductible reserves established or maintained by the General Partners in
their sole discretion and any other nondeductible cash items, including
distributions made to the Partners prior to the end of such fiscal year, loans,
or expenditures made by the Partnership, and the amount of any and all income
not attributable to cash receipts of the Partnership (such as accrued accounts
receivable).
"Net Income" shall mean the taxable income of the Partnership for
federal income tax purposes for each taxable year, determined using the accrual
method of accounting and calculated without regard to Gain or Loss.
"Net Loss" shall mean the taxable loss of the Partnership for federal
income tax purposes for each taxable year, determined using the accrual method
of accounting and calculated without regard to Gain or Loss.
82
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"Net Sales Proceeds" shall mean, in the case of a transaction described
in clause (i)(A) of the definition of Sale, the proceeds of any such transaction
less the amount of all real estate commissions and closing costs paid by the
Partnership. In the case of a transaction described in clause (i)(B) of such
definition, Net Sales Proceeds mean the proceeds of any such transaction less
the amount of any legal and other selling expenses incurred in connection with
such transaction. In the case of a transaction described in clause (i)(C) of
such definition, Net Sales Proceeds mean the proceeds of any such transaction
actually distributed to the Partnership from the Joint Venture. Net Sales
Proceeds shall not include any reserves established by the General Partners in
their sole discretion. In the case of a transaction described in clause (ii) of
the definition of Sale, Net Sales Proceeds shall mean the proceeds of such
transaction or series of transactions less all amounts generated thereby and
reinvested in one or more Properties within 180 days thereafter and less the
amount of any real estate commissions, closing costs, and legal and other
selling expenses incurred by or allocated to the Partnership in connection with
such transaction or series of transactions.
"Offering" shall mean the offering for sale to the public of limited
partnership interests in CNL XVII and in CNL XVIII.
"Organizational and Offering Expenses" shall mean any and all costs and
expenses, other than Selling Commissions and the 0.5% due diligence expense
reimbursement fee, incurred by the Partnership, any General Partner or any
Affiliate of any General Partner in connection with the formation,
qualification, and registration of the Partnership and the marketing and
distribution of Units, including, without limitation, the following: legal,
accounting, partnership administration, and escrow fees; printing, amending,
supplementing, mailing, and distributing costs; filing, registration and
qualification fees and taxes; telegraph and telephone costs; and all advertising
and marketing expenses, including the costs related to investor and
broker-dealer sales meetings. Organizational and Offering Expenses generally are
expected to be allocated between CNL XVII and CNL XVIII based on the number of
Units sold for the account of each Partnership.
"Participants" shall mean those Limited Partners who elect to
participate in the Distribution Reinvestment Plan.
"Partner" shall mean a General Partner or a Limited Partner of the
Partnership, and "Partners" means all Partners of the Partnership, both General
and Limited.
"Partnership" shall mean CNL XVII and/or CNL XVIII, as the context
requires, the Florida limited partnerships which will be reorganized pursuant to
the Partnership Agreement.
"Partnership Agreement" shall mean the Amended and Restated Agreement of
Limited Partnership, in substantially the form attached hereto as Exhibit A.
"Property" or "Properties" shall mean (i) the real property or
properties, including the building or buildings located thereon, (ii) the real
properties only, or (iii) the buildings only, which are acquired by the
Partnership, either directly or through Joint Venture or Co-Tenancy arrangements
or other partnerships. The Partnership or any Joint Venture or Co-Tenancy
Arrangement that owns Properties has the right, but is not expected, to acquire
equipment located in or on such Properties. For purposes of this definition, the
term real property includes a Partnership's interest as lessee under a ground
lease.
"Prospectus" shall mean the final prospectus included in the
Partnership's Registration Statement filed with the Securities and Exchange
Commission, pursuant to which the Partnership will offer Units to the public, as
the same may be amended or supplemented from time to time after the effective
date of such Registration Statement.
"Qualified Plans" shall mean qualified pension, profit-sharing, and
stock bonus plans, including Keogh plans and IRAs.
"Reinvestment Agent" or "Agent" shall mean the independent agent, which
currently is MMS Escrow and Transfer Agency, Inc., for Participants in the
Distribution Reinvestment Plan.
"Restaurant Chains" shall mean the national and regional fast-food,
family-style, and casual dining restaurant chains to be selected by the General
Partners who themselves or through franchisees will lease the Properties
purchased by the Partnership.
"Sale" (i) shall mean any transaction or series of transactions whereby:
(A) the Partnership sells, grants, transfers, conveys, or relinquishes its
ownership of any Property or portion thereof, including any event with respect
to any Property which gives rise to a significant amount of insurance proceeds
or condemnation awards; (B) the Partnership sells, grants, transfers, conveys,
or relinquishes its ownership of all or substantially all of the interest of the
Partnership in any Joint Venture in which it is a co-venturer or partner; or (C)
any Joint Venture in which the Partnership is a co-venturer or partner sells,
grants, transfers, conveys, or relinquishes its ownership of any Property or
portion thereof, including any event with respect to any Property which gives
rise to insurance claims or condemnation awards, but (ii) shall not include any
transaction or series of transactions specified
83
<PAGE>
in clause (i)(A), (i)(B), or (i)(C) above in which the proceeds of such
transaction or series of transactions are reinvested in one or more Properties
within 180 days thereafter.
"Selling Commissions" shall mean any and all commissions payable to
underwriters, managing dealers, or other broker-dealers in connection with the
sale of Units as described in the Prospectus, including, without limitation,
commissions payable to CNL Securities Corp.
"Soliciting Dealers" shall mean those broker-dealers that are members of
the National Association of Securities Dealers, Inc., and that enter into
participating broker agreements with the Managing Dealer to sell Units.
"Subscription Agreement" shall mean the Subscription Agreement and Power
of Attorney, in the form attached hereto as Exhibit E.
"Taxable Limited Partner" shall mean any Limited Partner other than a
Tax-Exempt Limited Partner.
"Tax-Exempt Limited Partner" shall mean any Limited Partner who is
described in section 168(h)(2) of the Code.
"Unit" shall mean the Interest of a Limited Partner in the Partnership
which is represented by a Capital Contribution of $10.00.
84
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are included in the Prospectus.
(1) Condensed Balance Sheets of CNL Income Fund XVIII, Ltd. as of
September 30, 1996 and December 31, 1995
(2) Condensed Statements of Partners' Capital of CNL Income Fund XVIII,
Ltd. for the nine months ended September 30, 1996 and the period
February 10, 1995 (date of inception) through December 31, 1995.
(3) Notes to Condensed Financial Statements of CNL Income Fund XVIII, Ltd.
for the nine months ended September 30, 1996 and the period February
10, 1995 (date of inception) through June 30, 1995.
(4) Report of Independent Accountants for CNL Income Fund XVIII, Ltd.
(5) Balance Sheet of CNL Income Fund XVIII, Ltd. as of December 31, 1995
(6) Statement of Partners' Capital of CNL Income Fund XVIII, Ltd. for the
period February 10, 1995 (date of inception) through December 31, 1995
(7) Notes to Financial Statements of CNL Income Fund XVIII, Ltd. for the
period February 10, 1995 (date of inception) through December 31, 1995
(8) Report of Independent Accountants for CNL Realty Corporation
(9) Balance Sheets of CNL Realty Corporation as of September 30, 1996
(Unaudited) and December 31, 1995
(10) Notes to Balance Sheets of CNL Realty Corporation as of September 30,
1996 (Unaudited) and December 31, 1995
All Schedules have been omitted as the required information is inapplicable
or is presented in the financial statements or related notes.
(b) Exhibits.
**1.1 Form of Managing Dealer Agreement (Filed as Exhibit 1.1 to
the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**1.2 Form of Participating Broker Agreement (Filed as Exhibit 1.2
to Amendment No. Three to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**3.2 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**3.3 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund , Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein by reference.)
**3.4 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Post-Effective Amendment
No. 4 to the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 3.1 and incorporated herein
by reference.)
**4.2 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 3.2 and incorporated herein
by reference.)
**4.3 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund , Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein by reference.)
**4.4 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**4.5 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Post- Effective
Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, No. 33- 90998, incorporated herein by reference.)
**5.1 Opinion of Baker & Hostetler as to the legality of the
securities being registered by CNL Income Fund XVII, Ltd.
(Filed as Exhibit 5.1 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.) II-1
<PAGE>
**5.2 Opinion of Baker & Hostetler as to the legality of the
securities being registered by CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 5.2 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.1 Opinion of Baker & Hostetler regarding certain material tax
issues relating to CNL Income Fund XVII, Ltd. (Filed as
Exhibit 8.1 to Amendment No. Three to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.2 Opinion of Baker & Hostetler regarding certain material tax
issues relating to CNL Income Fund XVIII, Ltd. (Filed as
Exhibit 8.2 to Amendment No. Three to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.3 Opinion of Baker & Hostetler regarding certain material issues
relating to the Distribution Reinvestment Plan of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 8.3 to Amendment No. Three
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.4 Opinion of Baker & Hostetler regarding certain material issues
relating to the Distribution Reinvestment Plan of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 8.4 to Amendment No. Three
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.5 Amended Opinion of Baker & Hostetler regarding certain
material tax issues relating to CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 8.5 to Post-Effective Amendment No. Four to
the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.1 Form of Escrow Agreement among CNL Income Fund XVII, Ltd., CNL
Income Fund XVIII, Ltd., and SouthTrust Estate and Trust
Company (Filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.2 Form of Joint Venture Agreement for Joint Ventures with
Unaffiliated Entities (Filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.3 Form of Joint Venture Agreement for Joint Ventures with
Affiliated Programs (Filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.4 Form of Management Agreement (Filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.5 Form of Development Agreement (Filed as Exhibit 10.5 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.6 Form of Indemnification and Put Agreement (Filed as Exhibit
10.6 to the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**10.7 Form of Unconditional Guarantee of Payment and Performance
(Filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.8 Form of Lease Agreement for Existing Restaurant (Filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.9 Form of Lease Agreement for Restaurant to be Constructed
(Filed as Exhibit 10.9 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.10 Form of Premises Lease for Golden Corral Restaurant (Filed
as Exhibit 10.10 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.11 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.12 Form of Cotenancy Agreement with Unaffiliated Entity (Filed
as Exhibit 10.12 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.13 Form of Cotenancy Agreement with Affiliated Entity (Filed as
Exhibit 10.13 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.14 Form of Registered Investor Advisor Agreement (Filed as
Exhibit 10.14 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**24.1 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated March 30, 1995
**24.2 Form of consent of Baker & Hostetler (Contained in its opinion
filed as Exhibit 5.1 and incorporated herein by reference.)
**24.3 Form of consent of Baker & Hostetler (Contained in its opinion
filed as Exhibit 5.2 and incorporated herein by reference.)
**24.4 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated June 14, 1995
**24.5 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated July 12, 1995
II-2
<PAGE>
**24.6 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated August 3, 1995
**24.7 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated March 18, 1996
**24.8 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated May 2, 1996
**24.9 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated July 29, 1996
**24.10 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated September 12, 1996
24.11 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants (Filed herewith.)
99 Table VI (Submitted pursuant to Guide 5 for the Preparation of
Registration Statements Relating to Interests in Real Estate
Limited Partnerships) (Filed herewith.)
**previously filed
II-3
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Act of 1933, the
Registrant certifies that it has reasonable grounds to believe that it meets all
of the requirements for filing on Form S-11 and has duly caused this Post-
Effective Amendment No. Five to Registration Statement to be signed on its
behalf by the undersigned, thereunto duly authorized, in the City or Orlando,
State of Florida, on the 26th day of November, 1996.
CNL INCOME FUND XVII, LTD. and
CNL INCOME FUND XVIII, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/Robert A. Bourne
---------------------------
Robert A. Bourne, President
By: ROBERT A. BOURNE
General Partner
/s/Robert A. Bourne
-------------------
Robert A. Bourne
By: JAMES M. SENEFF, JR.
General Partner
/s/James M. Seneff, Jr.
-----------------------
James M. Seneff, Jr.
<PAGE>
Pursuant to the requirements of the Securities Act of 1933, this
Post-Effective Amendment No. Five to Registration Statement has been signed
below by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title
<S> <C>
/s/Robert A. Bourne President, Treasurer and November 26, 1996
- ------------------- Director (Principal Financial
ROBERT A. BOURNE and Accounting Officer) of
corporate General Partner, and
individually as General Partner
/s/James M. Seneff, Jr. Chairman and Director November 26, 1996
- ----------------------- (Principal Executive Officer)
JAMES M. SENEFF, JR. of corporate General Partner,
and individually as General
Partner
</TABLE>
<PAGE>
EXHIBITS
Exhibit
Number
**1.1 Form of Managing Dealer Agreement (Filed as Exhibit 1.1 to
the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**1.2 Form of Participating Broker Agreement (Filed as Exhibit 1.2
to Amendment No. Three to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**3.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 3.1 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**3.2 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 3.2 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**3.3 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund , Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein by reference.)
**3.4 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Post- Effective
Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 3.1 and incorporated herein
by reference.)
**4.2 Affidavit and Certificate of Limited Partnership of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 3.2 and incorporated herein
by reference.)
**4.3 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund , Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein by reference.)
**4.4 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**4.5 Form of Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XVIII, Ltd. (Included in the Prospectus as
Exhibit A filed with the Registrant's Post- Effective
Amendment No. 4 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**5.1 Opinion of Baker & Hostetler as to the legality of the
securities being registered by CNL Income Fund XVII, Ltd.
(Filed as Exhibit 5.1 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**5.2 Opinion of Baker & Hostetler as to the legality of the
securities being registered by CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 5.2 to Amendment No. Three to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.1 Opinion of Baker & Hostetler regarding certain material tax
issues relating to CNL Income Fund XVII, Ltd. (Filed as
Exhibit 8.1 to Amendment No. Three to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.2 Opinion of Baker & Hostetler regarding certain material tax
issues relating to CNL Income Fund XVIII, Ltd. (Filed as
Exhibit 8.2 to Amendment No. Three to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.3 Opinion of Baker & Hostetler regarding certain material issues
relating to the Distribution Reinvestment Plan of CNL Income
Fund XVII, Ltd. (Filed as Exhibit 8.3 to Amendment No. Three
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.4 Opinion of Baker & Hostetler regarding certain material issues
relating to the Distribution Reinvestment Plan of CNL Income
Fund XVIII, Ltd. (Filed as Exhibit 8.4 to Amendment No. Three
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**8.5 Amended Opinion of Baker & Hostetler regarding certain
material tax issues relating to CNL Income Fund XVIII, Ltd.
(Filed as Exhibit 8.5 to Post-Effective Amendment No. Four
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.1 Form of Escrow Agreement among CNL Income Fund XVII, Ltd., CNL
Income Fund XVIII, Ltd., and SouthTrust Estate and Trust
Company (Filed as Exhibit 10.1 to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.2 Form of Joint Venture Agreement for Joint Ventures with
Unaffiliated Entities (Filed as Exhibit 10.2 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**previously filed
<PAGE>
**10.3 Form of Joint Venture Agreement for Joint Ventures with
Affiliated Programs (Filed as Exhibit 10.3 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.4 Form of Management Agreement (Filed as Exhibit 10.4 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.5 Form of Development Agreement (Filed as Exhibit 10.5 to the
Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.6 Form of Indemnification and Put Agreement (Filed as Exhibit
10.6 to the Registrant's Registration Statement on Form S-11,
No. 33-90998, incorporated herein by reference.)
**10.7 Form of Unconditional Guarantee of Payment and Performance
(Filed as Exhibit 10.7 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.8 Form of Lease Agreement for Existing Restaurant (Filed as
Exhibit 10.8 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.9 Form of Lease Agreement for Restaurant to be Constructed
(Filed as Exhibit 10.9 to the Registrant's Registration
Statement on Form S-11, No. 33-90998, incorporated herein by
reference.)
**10.10 Form of Premises Lease for Golden Corral Restaurant (Filed
as Exhibit 10.10 to the Registrant's Registration Statement on
Form S-11, No. 33-90998, incorporated herein by reference.)
**10.11 Form of Agreement between CNL Income Fund XVII, Ltd. and MMS
Escrow and Transfer Agency, Inc. and between CNL Income Fund
XVIII, Ltd. and MMS Escrow and Transfer Agency, Inc. relating
to the Distribution Reinvestment Plans (Filed as Exhibit 4.4
to the Registrant's Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.12 Form of Cotenancy Agreement with Unaffiliated Entity (Filed
as Exhibit 10.12 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33- 90998,
incorporated herein by reference.)
**10.13 Form of Cotenancy Agreement with Affiliated Entity (Filed as
Exhibit 10.13 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33- 90998,
incorporated herein by reference.)
**10.14 Form of Registered Investor Advisor Agreement (Filed as
Exhibit 10.14 to Amendment No. One to the Registrant's
Registration Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**24.1 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated March 30, 1995
**24.2 Form of consent of Baker & Hostetler (Contained in its opinion
filed as Exhibit 5.1 and incorporated herein by reference.)
**24.3 Form of consent of Baker & Hostetler (Contained in its opinion
filed as Exhibit 5.2 and incorporated herein by reference.)
**24.4 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated June 14, 1995
**24.5 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated July 12, 1995
**24.6 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated August 3, 1995
**24.7 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated March 18, 1996
**24.8 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated May 2, 1996
**24.9 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated July 29, 1996
**24.10 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated September 12, 1996
24.11 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants (Filed herewith.)
99 Table VI (Submitted pursuant to Guide 5 for the Preparation of
Registration Statements Relating to Interests in Real Estate
Limited Partnerships) (Filed herewith.)
**previously filed
EXHIBIT 24.11
[Coopers & Lybrand Letterhead]
Consent of Coopers & Lybrand L.L.P., Certified Public Accountants
CONSENT OF INDEPENDENT PUBLIC ACCOUNTANTS
We consent to the inclusion in this registration statement on Form S-11 (File
No. 33-90998) of our report dated February 13, 1996 on our audit of the
financial statements of CNL Income Fund XVIII, Ltd. and our report dated
February 15, 1996 on our audit of the balance sheet of CNL Realty Corporation.
We also consent to the reference to our Firm under the caption "Experts".
/s/ Coopers & Lybrand L.L.P.
Orlando, Florida
November 25, 1996
EXHIBIT 99
Table VI (Submitted pursuant to Guide 5 for the Preparation of Registration
Statements Relating to Interests in Real Estate Limited Partnerships)
<PAGE>
TABLE VI
ACQUISITION OF PROPERTIES BY PROGRAMS
Table VI presents information concerning the acquisition of real
properties by public real estate limited partnerships sponsored by Affiliates of
the Partnership in the ten years ended June 30, 1996. The information includes
the gross leasable space or number of units and total square feet of units,
dates of purchase, locations, cash down payment and contract purchase price plus
acquisition fee. This information is intended to assist the prospective investor
in evaluating the terms involved in acquisitions by such prior public
partnerships.
<PAGE>
TABLE VI
ACQUISITIONS OF PROPERTIES BY PROGRAMS
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund, Fund II, Fund III, Fund IV,
Ltd. Ltd. Ltd. Ltd.
(Note 2) (Note 3) (Note 4) (Note 5)
<S> <C>
AL,DC,FL,GA, AL,AZ,CO,FL, AZ,CA,FL,GA, IL,IN,KS,MA,
AL,AZ,CA,FL, GA,IL,IN,LA, IA,IL,IN,KS, MD,MI,MS,NC,
GA,LA,MD,OK, MI,MN,MO,NC, KY,MD,MI,MN, OH,PA,TN,TX,
Locations TX,VA NM,OH,TX,WY MO,NE,OK,TX VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 20 units 43 units 32 units 43 units
total square feet
of units 67,645 s/f 149,829 s/f 131,992 s/f 156,317 s/f
Dates of purchase 6/17/86 - 2/11/87- 10/04/87- 6/24/88-
12/17/87 12/08/94 6/30/88 1/24/96
Cash down payment (Note 1) $12,296,264 $23,182,624 $19,637,008 $26,594,469
Contract purchase price
plus acquisition fee $12,222,062 $23,022,783 $19,512,548 $26,479,912
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 74,202 159,841 124,460 114,557
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $12,296,264 $23,182,624 $19,637,008 $26,594,469
=========== =========== =========== ===========
</TABLE>
Note 1: This amount was derived from capital contributions from partners and
net sales proceeds reinvested in other properties.
Note 2: The partnership owns a 50% interest in three separate joint ventures
which each own a restaurant property.
Note 3: The partnership owns a 49%, 50% and 64% interest in three separate
joint ventures. Each joint venture owns one restaurant property. In
addition, the partnership owns a 33.87% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 4: The partnership owns a 73.4% and 69.07% interest in two separate joint
ventures. Each joint venture owns one restaurant property.
Note 5: The partnership owns a 51%, 26.6%, 57%, 96.1% and 68.87% interest in
five separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 53.68% interest in one
restaurant property held as tenants-in-common with affiliates.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund V, Fund VI, Fund VII, Fund VIII,
Ltd. Ltd. Ltd. Ltd.
(Note 6) (Note 7) (Note 8) (Note 9)
<S> <C>
AR,AZ,FL,IN,
FL,GA,IL,IN, MA,MI,MN,NC, AZ,CO,FL,GA,
MI,NH,NY,OH, NE,NM,NY,OH, IN,LA,MI,MN, AZ,FL,IN,LA,
SC,TN,TX,UT, OK,PA,TN,TX, OH,SC,TN,TX, MI,MN,NC,NY,
Locations WA VA,WY UT,WA OH,TN,TX,VA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 30 units 46 units 45 units 40 units
total square feet
of units 117,652 s/f 173,841 s/f 160,939 s/f 179,705 s/f
Dates of purchase 2/06/89- 7/13/89- 3/30/90- 9/13/90-
1/05/90 1/24/96 7/29/94 5/31/96
Cash down payment (Note 1) $22,113,522 $32,679,181 $27,310,125 $31,985,071
Contract purchase price
plus acquisition fee $21,706,859 $32,146,520 $26,638,040 $31,450,507
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 406,663 532,661 672,085 534,564
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $22,113,522 $32,679,181 $27,310,125 $31,985,071
=========== =========== =========== ===========
</TABLE>
Note 6: The partnership owns a 43%, 49% and 66.5% interest in three separate
joint ventures. Each joint venture owns one restaurant property.
Note 7: The partnership owns a 3.9%, 14.5%, 36% and a 66.14% interest in four
separate joint ventures. Each joint venture owns one restaurant
property. In addition, the partnership owns a 51.67% and a 17.93%
interest in two restaurant properties held separately as
tenants-in-common with affiliates.
Note 8: The partnership owns a 51%, 83.3%, 4.79% and a 18% interest in four
separate joint ventures. Three of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties. In addition, the partnership owns a 48.33% interest in one
restaurant property held as tenants-in-common with an affiliate.
Note 9: The partnership owns a 85.5%, 87.68%, 36.8% and a 12% interest in four
separate joint ventures. Three of the joint ventures each own one
restaurant property and the other joint venture owns six restaurant
properties.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund IX, Fund X, Fund XI, Fund XII,
Ltd. Ltd. Ltd. Ltd.
(Note 10) (Note 11) (Note 12) (Note 13)
<S> <C>
AL,AZ,CA,CO,
AL,CA,CO,FL, CT,FL,KS,LA,
AL,FL,GA,IL, ID,IL,LA,MI, MA,MI,MS,NC, AL,AZ,CA,FL,
IN,LA,MI,MN, MO,MT,NC,NH, NH,NM,OH,OK, GA,LA,MO,MS,
MS,NC,NH,NY, NM,NY,OH,PA, PA,SC,TX,VA, NC,NM,OH,SC,
Locations OH,SC,TN,TX SC,TN,TX WA TN,TX,WA
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 41 units 49 units 39 units 49 units
total square feet
of units 177,469 s/f 203,466 s/f 168,418 s/f 206,865 s/f
Dates of purchase 5/31/91- 10/01/91- 5/18/92- 11/20/92-
10/01/92 1/24/96 10/16/92 5/31/96
Cash down payment (Note 1) $30,748,694 $36,036,814 $35,200,825 $40,840,795
Contract purchase price
plus acquisition fee $30,021,833 $35,320,865 $34,595,348 $40,339,796
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 726,861 715,949 605,477 500,999
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $30,748,694 $36,036,814 $35,200,825 $40,840,795
=========== =========== =========== ===========
</TABLE>
Note 10: The partnership owns a 50%, 45.2% and 27.3% interest in three
separate joint ventures. One of the joint ventures owns one
restaurant property and the other two joint ventures own six
restaurant properties each.
Note 11: The partnership owns a 50%, 88.3%, 40.95% and 10.5% interest in
four separate joint ventures. Three of the joint ventures own one
restaurant property each and the other joint venture owns six
restaurant properties. In addition, the partnership owns a 13.37%
interest in one restaurant property held as tenants-in-common with
affiliates.
Note 12: The partnership owns a 62.2%, 77.33%, 85% and 76.6% interest in
four separate joint ventures. Each joint venture owns one
restaurant property.
Note 13: The partnership owns a 31.13%, 59.05%, 18.61% and 88% interest in
four separate joint ventures. Each joint venture owns one
restaurant property.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XIII, Fund XIV, Fund XV, Fund XVI,
Ltd. Ltd. Ltd. Ltd.
(Note 14) (Note 15) (Note 16)
<S> <C>
AL,AR,AZ,CA, AL,AZ,CO,FL, CA,FL,GA,KS, AZ,CA,CO,DC,
CO,FL,GA,IN, GA,KS,LA,MO, KY,MO,MS,NC, FL,GA,ID,IN,
KS,LA,MD,NC, MS,NC,NJ,NV, NJ,NM,OH,OK, KS,MN,MO,NC,
OH,PA,SC,TN, OH,SC,TN,TX, PA,SC,TN,TX, NM,NV,OH,TN,
Locations TX,VA VA VA TX,UT,WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 48 units 56 units 48 units 43 units
total square feet
of units 156,156 s/f 161,913 s/f 143,473 s/f 166,793 s/f
Dates of purchase 5/18/93- 9/27/93- 4/28/94- 10/21/94-
4/24/95 3/16/95 1/24/96 3/15/96
Cash down payment (Note 1) $34,905,219 $39,943,098 $35,778,136 $39,421,376
Contract purchase price
plus acquisition fee $34,535,596 $39,515,928 $35,388,860 $39,030,014
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 369,623 427,170 389,276 391,362
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $34,905,219 $39,943,098 $35,778,136 $39,421,376
=========== =========== =========== ===========
</TABLE>
Note 14: The partnership owns a 50% and 28% interest in two separate joint
ventures. Each joint venture owns one restaurant property. In
addition, the Partnership owns a 66.13% interest in one restaurant
property held as tenants-in-common with an affiliate.
Note 15: The partnership owns a 50% interest in two separate joint ventures
and a 72% interest in one joint venture. Two of the joint ventures
each own one restaurant property and the other joint venture owns
two restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which owns
two restaurant properties. In addition, the partnership owns a
15.02% interest in one restaurant property held as
tenants-in-common with affiliates.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
CNL Income
Fund XVII,
Ltd.
CA,FL,IL,IN,
MI,NV,SC,TN,
Locations TX
Type of property Restaurants
Gross leasable space
(sq. ft.) or number
of units and 13 units
total square feet
of units 62,488 s/f
Dates of purchase 12/20/95 -
6/30/96
Cash down payment (Note 1) $12,616,047
Contract purchase price
plus acquisition fee $12,574,025
Other cash expenditures
expensed -
Other cash expenditures
capitalized 42,022
Total acquisition cost
(Note 1) $12,616,047
===========
