As filed with the Securities and Exchange Commission on August 6, 1997
Registration No. 33-90998-01
33-90998
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SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
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POST-EFFECTIVE AMENDMENT NO. TEN
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)
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Address of principal executive offices)
ROBERT A. BOURNE
General Partner
400 East South Street, Suite 500
Orlando, Florida 32801
Telephone: (407) 422-1574
(Name and Address of Agent for Service)
COPIES TO:
KENNETH C. WRIGHT, ESQUIRE
Baker & Hostetler
200 South Orange Avenue, Suite 2300
Orlando, Florida 32801
Telephone: (407) 649-4001
If this Form is filed to register additional securities for an offering
pursuant to Rule 462(b) under the Securities Act, check the following box and
list the Securities Act registration statement number of earlier effective
registration statement for the same offering. [ ]
If this Form is a post-effective amendment filed pursuant to Rule
462(c) under the Securities Act, check the following box and list the Securities
Act registration statement number of the earlier effective registration
statement for the same offering. [ ]
If delivery of the prospectus is expected to be made pursuant to Rule
434, please check the following box. [ ]
The registrant hereby amends this registration statement on such date or dates
as may be necessary to delay its effective date until the registrant shall file
a further amendment which specifically states that this registration statement
shall thereafter become effective in accordance with Section 8(a) of the
Securities Act of 1933 or until the registration statement shall become
effective on such date as the Commission, acting pursuant to said Section 8(a),
may determine.
<PAGE>
CNL INCOME FUND XVII, LTD.
AND
CNL INCOME FUND XVIII, LTD.
Supplement No. 1, dated August 6, 1997
to Prospectus, dated May 9, 1997
This Supplement is part of, and should be read in conjunction with, the
Prospectus dated May 9, 1997. 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.
All subscriptions referred to in this Supplement are for the purchase
of Units of CNL Income Fund XVIII, Ltd. ("CNL XVIII"). Offers are no longer
being made nor are the General Partners accepting subscriptions for CNL Income
Fund XVII, Ltd. ("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.
Information as to the number and types of Properties acquired by CNL
XVIII is presented as of July 18, 1997, and all references to Property
acquisitions should be read in that context. Proposed properties for which CNL
XVIII receives initial commitments, as well as property acquisitions that occur
after July 18, 1997, will be reported in a subsequent Supplement.
THE OFFERING
GENERAL
The General Partners have elected to extend this Offering until August
11, 1998.
SUBSCRIPTION PROCEDURES
As of July 18, 1997, CNL XVIII had received total subscription proceeds
of $23,290,947 (2,329,095 Units) from 1,127 Limited Partners. As of July 18,
1997, the proceeds had been invested or committed for investment in 19
Properties and to pay Acquisition Fees and miscellaneous Acquisition Expenses.
As of July 18, 1997, CNL XVIII had incurred $1,048,093 in Acquisition Fees to an
Affiliate of the General Partners.
BUSINESS
PROPERTY ACQUISITIONS
Between May 1, 1997 and July 18, 1997, CNL XVIII acquired six
Properties consisting of land and building. The Properties are a Boston Market
Property (in Timonium, Maryland), a Jack in the Box Property (in Houston,
Texas), a Golden Corral Property (in Elizabethtown, Kentucky), two IHOP
Properties (one in each of Santa Rosa, California, and Bridgeview, Illinois) and
an Arby's Property (in Lexington, North Carolina). For information regarding the
13 Properties acquired by CNL XVIII prior to May 1, 1997, see the Prospectus
dated May 9, 1997.
<PAGE>
In connection with the purchase of each of these six Properties, CNL
XVIII, as lessor, entered into a long-term lease agreement with an unaffiliated
lessee. The general terms of the lease agreements are described in the section
of the Prospectus entitled "Business - Description of Leases." For the
Properties that are to be constructed, CNL XVIII has entered into development
and indemnification and put agreements with the lessee. The general terms of
these agreements are described in the section of the Prospectus entitled
"Business - Site Selection and Acquisition of Properties - Construction and
Renovation."
The following table sets forth the location of the six Properties
consisting of land and building acquired by CNL XVIII from May 1, 1997 through
July 18, 1997, a description of the competition, and a summary of the principal
terms of the acquisition and lease of each Property.
3
<PAGE>
PROPERTY ACQUISITIONS
From May 1, 1997 through July 18, 1997
<TABLE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S> <C>
BOSTON MARKET $749,978 05/08/97 05/2012; five 10.38% of CNL for each lease at any
(the "Timonium Property") (excluding five-year XVIII's total year after the time after
Restaurant to be renovated development renewal cost to fifth lease the fifth
costs) options purchase the year, (i) 4% of lease year
The Timonium Property is (3) property; annual gross
located on the northeast corner increases by sales minus
of the intersection of York 10% after the (ii) the
Road and Belfast Road, in fifth lease minimum annual
Timonium, Baltimore County, year and after rent for such
Maryland, in an area of mixed every five lease year
retail, commercial, and years
residential development. Other thereafter
fast-food and family-style during the
restaurants located in lease term
proximity to the Timonium
Property include a McDonald's,
a Burger King, a KFC, and
several local restaurants.
JACK IN THE BOX $1,290,000 05/09/97 05/2015; four $132,225 (6); for each lease at any
(the "Houston Property") (3)(6) five-year increases by 8% year, (i) 5% of time after
Restaurant to be constructed renewal after the fifth annual gross the
options lease year and sales minus seventh
The Houston Property is located after every (ii) the lease year
on the north side of Louetta five years minimum annual
Road, west of State Highway thereafter rent for such
249, in Houston, Harris County, during the lease year (5)
Texas, in an area of mixed lease term
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Houston
Property include a McDonald's
and a Subway Sandwich Shop.
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S> <C>
GOLDEN CORRAL $446,180 05/21/97 05/2012; four 10.75% of Total for each lease during the
(the "Elizabethtown Property") (excluding five-year Cost (4) year, 5% of the first
Restaurant to be constructed closing renewal amount by which through
and options annual gross seventh
The Elizabethtown Property is development sales exceed lease
located on the east side of costs) $2,697,649 (5) years and
North Dixie Avenue, in (3) the tenth
Elizabethtown, Hardin County, through
Kentucky, in an area of mixed fifteenth
retail, commercial, and lease
residential development. Other years only
fast-food and family-style
restaurants located in
proximity to the Elizabethtown
Property include a Steak N
Shake, a Dairy Queen, an
Arby's, a Bob Evans, a Captain
D's, a Fazoli's, a Hardee's, a
McDonald's, a Taco Bell, and a
Lee's Famous Recipe Country
Chicken.
IHOP (7) $1,286,364 05/21/97 05/2017; $130,244; for each lease during the
(the "Santa Rosa Property") three five- increases by year, (i) 4% of eleventh
Existing restaurant year renewal 10% after the annual gross lease year
options fifth lease sales minus and at the
The Santa Rosa Property is year and after (ii) the end of the
located on the northwest every five minimum annual initial
quadrant of Fulton Road and years rent for such lease term
Guerneville Road, in Santa thereafter lease year
Rosa, Sonoma County, during the
California, in an area of mixed lease term
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Santa Rosa
Property include a Taco Bell, a
McDonald's, and several local
restaurants.
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S> <C>
ARBY'S $632,418 07/15/97 07/2017; two $63,242; for each lease during the
(the "Lexington Property") five-year increases by year, (i) 4% of seventh
Existing restaurant renewal 4.14% after the annual gross and tenth
options third lease sales minus lease
The Lexington Property is year and after (ii) the years only
located on the northeast corner every three minimum annual
of North Main Street and East years rent for such
Fourth Street, in Lexington, thereafter lease year
Davidson County, North during the
Carolina, in an area of mixed lease term
retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Lexington
Property include a local
restaurant.
IHOP (7) $1,423,008 07/16/97 07/2017; $144,080; for each lease during the
(the "Bridgeview Property") three five- increases by year, (i) 4% of eleventh
Existing restaurant year renewal 10% after the annual gross lease year
options fifth lease sales minus and at the
The Bridgeview Property is year and after (ii) the end of the
located at the northeast every five minimum annual initial
quadrant of the intersection of years rent for such lease term
West 79th Street and Harlem thereafter lease year
Avenue, in Bridgeview, Cook during the
County, Illinois, in an area of lease term
mixed retail, commercial, and
residential development. Other
fast-food and family-style
restaurants located in
proximity to the Bridgeview
Property include a Pizza Hut, a
McDonald's, a White Castle, and
a Burger King.
</TABLE>
<PAGE>
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for
construction Properties, once the buildings are constructed, is set
forth below:
Property Federal Tax Basis
------- -------------------
Timonium Property $ 454,000
Houston Property 622,000
Elizabethtown Property 1,077,000
Santa Rosa Property 854,000
Lexington Property 456,000
Bridgeview Property 1,144,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the
Timonium Property, minimum annual rent will become due and payable on
the date the tenant receives from the landlord its final funding of the
construction costs. For the Elizabethtown Property, minimum annual rent
will become due and payable on the earlier of (i) 180 days after
execution of the lease, (ii) the date the certificate of occupancy for
the restaurant is issued, or (iii) the date the restaurant opens for
business to the public. During the period commencing with the effective
date of the lease to the date minimum annual rent becomes payable for
the Timonium and Elizabethtown Properties, as described above, interim
rent equal to a specified rate per annum (ranging from 10% to 10.38%)
of the amount funded by CNL XVIII in connection with the purchase and
construction of the Properties shall accrue and be payable in a single
lump sum at the time of final funding of the construction costs.
(3) The development agreements for the Properties which are to be
constructed or renovated provide that construction or renovation must
be completed no later than the dates set forth below. The maximum cost
to CNL XVIII (including the purchase price of the land (if applicable),
development costs (if applicable), and closing and acquisition costs)
is not expected to, but may, exceed the amounts set forth below:
Property Estimated Maximum Cost Estimated Final Completion Date
<TABLE>
<S> <C>
Timonium Property $1,140,100 November 4, 1997
Houston Property 1,290,000 November 5, 1997
Elizabethtown Property 1,572,176 November 17, 1997
</TABLE>
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
Property, (ii) closing costs, and (iii) actual development costs
incurred under the development agreement.
(5) Percentage rent shall be calculated on a calendar year basis (January 1
to December 31).
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<PAGE>
(6) CNL XVIII paid for all construction costs in advance at closing;
therefore, minimum annual rent was determined on the date acquired and
is not expected to change.
(7) The lessee of the Santa Rosa and Bridgeview Properties is the same
unaffiliated lessee.
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<PAGE>
MANAGEMENT COMPENSATION
FEES AND EXPENSES PAID TO THE
GENERAL PARTNERS AND THEIR AFFILIATES
Selling Commissions and Due Diligence Expense Reimbursement Fee. The
Placement Agent, CNL Securities Corp., is entitled to receive Selling
Commissions amounting to 8.5% of the Limited Partners' Capital Contributions for
services in connection with selling the Units, a substantial portion of which
will be paid as Selling Commissions to other broker-dealers. As of July 18,
1997, the Partnership had incurred $1,979,730 for Selling Commissions due to the
Placement Agent, a substantial portion of which was reallowed to other
broker-dealers. CNL Securities Corp. also is entitled to receive a due diligence
expense reimbursement fee equal to 0.5% of the Limited Partners' Capital
Contributions. As of July 18, 1997, the Partnership had incurred $116,455 in due
diligence expense reimbursement fees due to the Placement Agent. The majority of
these fees has since been reallowed to other broker-dealers for payment of bona
fide due diligence expenses.
Acquisition Fees. CNL Fund Advisors, Inc. is entitled to receive
Acquisition Fees for services in finding, negotiating and acquiring Properties
equal to 4.5% of the Limited Partners' Capital Contributions. As of July 18,
1997, the Partnership had incurred $1,048,093 in Acquisition Fees payable to CNL
Fund Advisors, Inc.
Management Fees. The Partnership has entered 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 one percent of the Partnership's allocable
share of gross operating revenues from Joint Ventures. During the quarter ended
March 31, 1997, the Partnership had incurred $1,212 in management fees.
Administrative and Other Expenses. CNL Fund Advisors, Inc. provides
accounting and administrative services (including accounting and administrative
services in connection with the Offering of Units) to the Partnership on a
day-to-day basis. During the quarter ended March 31, 1997, the Partnership had
incurred $95,927 in administrative and other expenses, which includes $82,682
incurred in connection with the Offering and is included with syndication costs.
Real Estate Disposition Fee. CNL Fund Advisors, Inc. is also entitled
to receive a deferred, subordinated real estate disposition fee, payable upon
the sale of one or more Properties based on the lesser of one-half of a
Competitive Real Estate Commission or three percent of the sales price if 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% Return, plus their
Invested Capital Contributions. No real estate disposition fees had been
incurred by the Partnership as of March 31, 1997.
Reimbursement of Out-of-Pocket Expenses. CNL Fund Advisors, Inc. and
its Affiliates are entitled to receive reimbursement, at cost, for expenses they
incur for Organizational and Offering Expenses, Acquisition Expenses and
Operating Expenses. During the quarter ended March 31, 1997, the Advisor and its
Affiliates incurred $158,599, $81,738, and $9,302 on behalf of the Partnership
for Organizational and Offering Expenses, Acquisition Expenses, and Operating
Expenses, respectively.
- 7 -
<PAGE>
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 the Prospectus and this Prospectus
Supplement.
<TABLE>
<CAPTION>
For the Period February 10,
Quarter Ended Year Ended 1995 (date of inception)
March 31, 1997 December 31, through December 31,
(Unaudited) 1996 1995
----------------- --------------- -------------------------------
<S> <C>
Revenues $ 96,214 $ 31,614 $ -
Net income 62,177 26,910 -
Cash distributions declared (2) 154,476 57,846 -
Net income per Unit .05 .05 -
Cash distributions declared per Unit (2) .12 .11 -
Weighted average number of
Limited Partner Units outstanding (3) 1,252,970 503,436 -
</TABLE>
<TABLE>
<CAPTION>
March 31,
1997 December 31, December 31,
Unaudited 1996 1995
--------- ---------------- ----------------
<S> <C>
Total assets $15,420,779 $7,240,324 $ 256,890
Total partners' capital 14,250,188 6,996,213 1,000
</TABLE>
(1) Operations did not commence until October 12, 1996, the date following
when CNL XVIII received the minimum offering proceeds of $1,500,000,
and such proceeds were released from escrow.
(2) Approximately 60% and 53% of cash distributions ($0.07 and $0.06 per
Unit, respectively) for the quarter ended March 31, 1997 and the year
ended December 31, 1996, respectively, represent a return of capital in
accordance with generally accepted accounting principles ( "GAAP ").
Cash distributions treated 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. CNL XVIII has not treated such amount as a
return of capital for purposes of calculating the Limited Partners'
Invested Capital Contributions and the Limited Partners' 8% Return, as
described in the Form of Amended and Restated Agreement of Limited
Partnership included as Exhibit A to the Prospectus.
(3) Represents the weighted average number of Units outstanding during the
period CNL XVIII was operational.
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 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 Part- nership's anticipated investments, proposed
operations, and cash distributions to the Limited Partners.
- 8 -
<PAGE>
LIQUIDITY AND CAPITAL RESOURCES
On September 20, 1996, the Partnership commenced an Offering to the
public of up to 3,500,000 Units of limited partnership interest pursuant to a
registration statement on Form S-11 under the Securities Act of 1933, as
amended, effective August 11, 1995. As of March 31, 1997, the Partnership had
sold 1,673,688 Units, representing $16,736,878 of capital contributed by the
Limited Partners. 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 until August 11, 1998.
As of March 31, 1997, net proceeds to the Partnership from its offering
of Units, after deduction of Organizational and Offering Expenses, totalled
$14,362,423. Of this amount, the Partnership had invested or committed for
investment approximately $9,762,400 of such proceeds in eight Properties (five
of which were under construction at March 31, 1997), and to pay Acquisition Fees
and certain Acquisition Expenses, leaving approximately $4,603,300 of Offering
proceeds available for investment in Properties. As of March 31, 1997, the
Partnership had incurred $753,160 in Acquisition Fees to an Affiliate of the
General Partners.
As of March 31, 1997, the Partnership had entered into five development
agreements with tenants which provide terms and specifications for the
construction of buildings. The agreements provide a maximum amount of
development costs (including the purchase price of the land and closing costs)
to be paid by the Partnership. The aggregate maximum development costs the
Partnership has agreed to pay is approximately $6,225,100, of which
approximately $5,690,900 in land and other costs had been incurred as of March
31, 1997. The buildings under construction are expected to be operational by May
1997. In connection with the acquisition of each of these Properties, the
Partnership entered into a long-term, triple-net lease.
During the period April 1, 1997 through July 18, 1997, the Partnership
acquired 11 additional Properties for cash, at a total cost of approximately
$9,061,600. In connection with the seven Properties under construction or
renovation, the Partnership has agreed to pay development costs (including the
purchase prices of the land and closing costs) of approximately $7,565,600, of
which approximately $4,033,700 in land and other costs had been paid by the
Partnership as of July 18, 1997. The buildings under construction or renovation
are expected to be operational by November 1997. The lease agreements for the
existing Properties and the Properties to be constructed or renovated are
substantially the same as the leases relating to the Partnership's other
Properties.
As of July 18, 1997, the Partnership had sold a total of 2,329,095
Units, for an aggregate of $23,290,947 in gross Offering proceeds. As of July
18, 1997, the proceeds had been invested or committed for investment in 19
Properties and to pay Acquisition Fees and certain Acquisition Expenses. As of
July 18, 1997, the Partnership had incurred $1,048,093 in Acquisition Fees to an
Affiliate of the General Partners.
The Partnership presently is negotiating to acquire additional
properties, but as of July 18, 1997, had not acquired any such properties. The
Partnership will use the remaining net Offering proceeds, together with proceeds
from the sale of Units subsequent to July 18, 1997, to acquire additional
Properties, to pay Acquisition Fees and certain Acquisition Expenses and to pay
expenses relating to the sale of Units. 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.
None of the Properties owned or to be acquired by the Partnership is or
may be encumbered. 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.
Until Properties are acquired by the Partnership, all Partnership
proceeds are held in short-term, highly liquid investments which the General
Partners believe to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Partnership's use of
these funds to acquire Properties at such time as Properties suitable for
acquisition are located. At March 31, 1997, the Partnership had $6,079,177
invested in such short-term investments, as compared to $5,371,325 at December
31, 1996. The increase in the amount invested
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<PAGE>
in short-term investments is a result of the receipt of capital contributions
from the sale of Units during the quarter ended March 31, 1997. These funds will
be used to purchase and develop Properties (directly or indirectly through joint
venture arrangements), to pay syndication and acquisition costs, to pay Limited
Partner distributions, to meet Partnership expenses and, in the General
Partners' discretion, to create cash reserves.
During the quarter ended March 31, 1997, Affiliates of the General
Partners incurred on behalf of the Partnership $158,599 for certain
Organizational and Offering Expenses. In addition, during the quarter ended
March 31, 1997, Affiliates of General Partners incurred on behalf of the
Partnership $81,738 for certain Acquisition Expenses and $9,302 for certain
operating expenses. As of March 31, 1997, the Partnership owed $141,104 to
related parties for such amounts, fees and other reimbursements. As of April 30,
1997, the Partnership had reimbursed the Affiliates all such amounts. Amounts
payable to other parties, including distributions payable, increased to $911,298
at March 31, 1997, from $160,222 at December 31, 1996, as a result of an
increase in distributions payable to Limited Partners and costs incurred with
respect to the Properties under construction and unpaid at March 31, 1997.
During the quarter ended March 31, 1997, the Partnership generated cash
from operations (which includes cash received from tenants, interest and other
income received, less cash paid for expenses) of $189,772. Based on cash from
operations, the Partnership declared distributions to the Limited Partners of
$154,476 for the quarter ended March 31, 1997. This represents distributions of
$0.12 per weighted average Limited Partner Unit for the quarter ended March 31,
1997. No distributions were made to the General Partners for the quarter ended
March 31, 1997. No amounts distributed or to be distributed to the Limited
Partners for the quarter ended March 31, 1997, are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
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. Partnership net income is expected to increase throughout 1997, as
rental income increases, due to the acquisition of additional Properties and due
to the fact that the Properties that were under construction at March 31, 1997,
will be operational. Accordingly, the General Partners believe that any
anticipated decrease in the Partnership's liquidity in 1997, due to its
investment of available net Offering proceeds in Properties and the payment of
additional costs relating to the Properties under construction at March 31,
1997, will not have an adverse effect on the Partnership's operations.
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 purchase a Property until sufficient cash is available for
such purchase, the General Partners do not believe that working capital reserves
are necessary at this time. In addition, due to the fact that the leases of the
Partnership's Properties are on a triple-net basis, it is not anticipated that a
permanent reserve for maintenance and repairs is necessary at this time. To the
extent, however, that the Partnership has insufficient funds for such purposes,
the General Partners will contribute to the Partnership an aggregate amount of
up to one percent of the offering proceeds for repairs and maintenance. The
General Partners have the right to cause the Partnership to maintain reserves
if, in their discretion, they determine such reserves are necessary to meet the
Partnership's working capital needs.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
RESULTS OF OPERATIONS
No significant operations commenced until the Partnership received and
released from escrow the minimum Offering proceeds of $1,500,000 on October 11,
1996.
As of March 31, 1997, the Partnership had purchased eight Properties
and entered into lease agreements relating to each of these Properties. The
leases of the Properties provide for minimum base annual rental payments
(payable in monthly installments) ranging from approximately $69,300 to
$170,300. Most of the leases provide for
- 10 -
<PAGE>
percentage rent based on sales in excess of a specified amount. In addition,
some of the leases provide that, commencing in specified lease years (generally
the sixth lease year), the annual base rent required under the terms of the
lease will increase.
During the quarter ended March 31, 1997, the Partnership earned $53,343
in rental income from operating leases and earned income from the direct
financing lease from three Properties. Because the Partnership did not commence
significant operations until it received the minimum Offering proceeds on
October 11, 1996, and has not yet acquired all of its Properties, Partnership
revenues for the quarter ended March 31, 1997, represent only a portion of
revenues which the Partnership is expected to earn during a full quarter in
which the Partnership's Properties are operational.
During the quarter ended March 31, 1997, two lessees of the Partnership
and their respective Restaurant Chain, Platinum Rotisserie, L.L.C. (operating a
Boston Market restaurant) and Carrols Corporation (operating a Burger King
restaurant) each contributed more than ten percent of the Partnership's total
rental income. As of March 31, 1997, Platinum Rotisserie, L.L.C. was the lessee
under the lease relating to one restaurant and Carrols Corporation was the
lessee under the lease relating to one restaurant. Because the Partnership did
not commence operations until October 1996, and its first Property was not
purchased until December 1996, the foregoing information regarding the lessees
and Restaurant Chains which contributed a significant amount of the
Partnership's total rental income during the quarter ended March 31, 1997, may
or may not be representative of the lessees which will account for more than ten
percent of the Partnership's rental income during the remainder of 1997 and
subsequent years. Because the Partnership has not completed its acquisition of
Properties as yet, it is not possible to determine which lessees or Restaurant
Chains will contribute more than ten percent of the Partnership's rental income
during the remainder of 1997 and subsequent years. In the event that certain
lessees or Restaurant Chains contribute more than ten percent of the
Partnership's rental income in the current and future years, any failure of such
lessees or Restaurant Chains could materially affect the Partnership's income.
During the quarter ended March 31, 1997, the Partnership also earned
$42,871 in interest income from investments in money market accounts or other
short-term, highly liquid investments. As net Offering proceeds are invested in
additional Properties and the Properties under construction become operational,
the percentage of total income representing interest income is expected to
decrease.
Operating expenses, including depreciation and amortization, were
$34,037 for the quarter ended March 31, 1997. The dollar amount of operating
expenses is expected to increase and the amount of general operating and
administrative expenses as a percentage of total revenues is expected to
decrease, as the Partnership acquires additional Properties and the Properties
under construction become operational.
MANAGEMENT
Robert A. Bourne, age 50, 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) and President and a director of CNL
Investment Company. Mr. Bourne currently holds the position of Vice Chairman,
director and Treasurer of CNL Fund Advisors, Inc. Mr. Bourne served as President
of CNL Fund Advisors, Inc. from the date of its inception through June 30, 1997.
Mr. Bourne is Chief Investment Officer, Vice Chairman, a director and Treasurer
of CNL Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne
served as President of CNL Institutional Advisors, Inc. from the date of its
inception through June 30, 1997. 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, 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, and
has served as President and a director of CNL American Realty Fund, Inc. since
1996 and of CNL Real Estate Advisors, Inc since January 1997. Upon graduation
from Florida State University in 1970, where he received a B.A. in Accounting,
with honors, Mr. Bourne worked as a certified public accountant and, from
September 1971 through December 1978, was employed by Coopers & Lybrand,
Certified Public Accountants, where he held the position of tax manager
beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner
in the accounting
- 11 -
<PAGE>
firm of Cross & Bourne and from July 1982 through January 1987, he was a partner
in the accounting firm of Bourne & Rose, P.A., Certified Public Accountants. Mr.
Bourne, who joined CNL Securities Corp. in 1979, has participated as a general
partner or joint venturer in over 100 real estate ventures involved in the
financing, acquisition, construction and rental of office buildings, apartment
complexes, restaurants, hotels and other real estate. Included in these real
estate ventures are approximately 64 privately offered real estate limited
partnerships in which Mr. Bourne, directly or through an affiliated entity,
serves or has served as a general partner. Also included are the CNL Income Fund
Partnerships, public real estate limited partnerships with investment objectives
similar to those of the Partnership, in which Mr. Bourne serves as a general
partner. See "Conflicts of Interest."
CNL GROUP, INC.
The following person serves as an operating officer 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, does not serve as a
member 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. For information regarding other operating
officers, see the section of the Prospectus entitled "Management."
Curtis B. McWilliams. Mr. McWilliams joined CNL Group, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. In addition,
Mr. McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Institutional Advisors, Inc. and certain other subsidiaries of
CNL Group, Inc. From January 1991 to August 1996, Mr. McWilliams was a managing
director in the corporate banking group of Merrill Lynch's investment banking
division. During this time, he was a senior relationship manager with Merrill
Lynch and as such was responsible for a number of the firm's relationships with
companies such as AT&T, AT&T Capital, AMR Corporation, J.C. Penney and the
Robert M. Bass Group. In addition, from February 1990 to February 1993, he
served as co-head of New York #1 Industrial Banking Group and had administrative
responsibility for 25 bankers overseeing 150 client relationships, including the
firm's transportation group. In addition, from September 1996 to March 1997, Mr.
McWilliams served as Chairman of Private Advisory Services, Merrill Lynch's high
net worth brokerage business. Mr. McWilliams received a B.S.E. in Chemical
Engineering from Princeton University in 1977 and a Masters of Business
Administration with a concentration in finance from the University of Chicago in
1983.
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
- 12 -
<PAGE>
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.
ALLOCATIONS AND DISTRIBUTIONS
DISTRIBUTIONS OF NET CASH FLOW
The Partnership declared distributions of Net Cash Flow to the Limited
Partners in the amount of $154,476 and $57,846 for the quarters ended March 31,
1997 and December 31, 1996, respectively, and distributions of Net Cash Flow are
expected to be paid quarterly hereafter. For the quarters ended March 31, 1997
and December 31, 1996, approximately 60% and 53%, respectively, of the
cumulative cash distributions to the Limited Partners constituted cash
distributions that exceeded accumulated net income on a GAAP basis. Accumulated
net income includes deductions for depreciation and amortization expense and
income from certain non-cash items. CNL XVIII did not treat such amounts, which
represent a return of capital on a GAAP basis, as a return of capital for
purposes of calculating the Limited Partners Invested Capital Contributions.
There can be no assurance, however, as to the amount of any future
distributions. At the time distributions are paid, 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.
- 13 -
<PAGE>
ADDENDUM TO
EXHIBIT B
FINANCIAL INFORMATION
THE UPDATED PRO FORMA FINANCIAL STATEMENTS AND THE UPDATED, UNAUDITED FINANCIAL
STATEMENTS OF CNL INCOME FUND XVIII, LTD. AND CNL REALTY CORPORATION CONTAINED
IN THIS ADDENDUM SHOULD BE READ IN CONJUNCTION WITH EXHIBIT B TO THE ATTACHED
PROSPECTUS, DATED MAY 9, 1997.
<PAGE>
INDEX TO UPDATED FINANCIAL STATEMENTS
<TABLE>
<CAPTION>
Page
<S> <C>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
Pro Forma Financial Information (unaudited):
Pro Forma Balance Sheet as of March 31, 1997 B-2
Pro Forma Statement of Income for the quarter ended March 31, 1997 B-3
Pro Forma Statement of Income for the year ended December 31, 1996 B-4
Notes to Pro Forma Financial Statements for the quarter ended March 31, 1997 and
the year ended December 31, 1996 B-5
Updated Condensed Financial Statements (unaudited):
Condensed Balance Sheets as of March 31, 1997 and December 31, 1996 B-6
Condensed Statements of Income for the quarters ended March 31, 1997 and 1996
B-7 Condensed Statements of Partners' Capital for the quarter ended March 31,
1997 and the year ended December 31, 1996 B-8
Condensed Statements of Cash Flows for the quarters ended March 31, 1997 and 1996 B-9
Notes to Condensed Financial Statements for the quarters ended March 31, 1997 and 1996 B-11
CNL REALTY CORPORATION
Updated Financial Statements (unaudited):
Balance Sheets as of March 31, 1997 and December 31, 1996 B-18
Notes to Balance Sheets as of March 31, 1997 and December 31, 1996 B-19
</TABLE>
<PAGE>
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Balance Sheet of CNL Income Fund XVIII, Ltd.
("CNL XVIII") gives effect to (i) property acquisition transactions from
inception through March 31, 1997, including the receipt of $16,736,878 in gross
offering proceeds from the sale of 1,673,688 units of limited partnership
interest (the "Units") pursuant to a registration statement on Form S-11 under
the Securities Act of 1933, as amended, effective August 11, 1995, and the
application of such funds to acquire eight properties, five of which were under
construction at March 31, 1997, and to pay organizational and offering expenses,
acquisition fees, and miscellaneous acquisition expenses, (ii) the receipt of
$6,554,069 in gross offering proceeds from the sale of 655,407 additional Units
during the period April 1, 1997 through July 18, 1997, (iii) the assumed future
sales of 202,422 Units, resulting in the receipt of $2,024,218 in gross offering
proceeds through July 18, 1997, and (iv) the application of such funds and
$6,079,177 of cash and cash equivalents at March 31, 1997, to purchase eleven
additional properties during the period April 1, 1997 through July 18, 1997 (six
of which are under construction and consist of land and building, one property
which is under construction and consists of building only and four properties
which consist of land and building), to pay additional construction costs for
the five properties under construction at March 31, 1997, and to pay offering
expenses, acquisition fees, and miscellaneous acquisition expenses, all as
reflected in the pro forma adjustments described in the related notes. The Pro
Forma Balance Sheet as of March 31, 1997, includes the transactions described in
(i) above, from its historical balance sheet, adjusted to give effect to the
transactions in (ii), (iii) and (iv) above, as if they had occurred on March 31,
1997.
The Pro Forma Statements of Income for the quarter ended March 31, 1997
and the year ended December 31, 1996, include the historical operating results
of the properties described in (i) above from the dates of their acquisitions.
No pro forma adjustments have been made to the Pro Forma Statements of Income
for the properties owned by CNL XVIII as of July 18, 1997, due to the fact that
these properties did not have a previous rental history.
This pro forma financial information is presented for informational
purposes only and does not purport to be indicative of CNL XVIII's financial
results or condition if the various events and transactions reflected therein
had occurred on the dates, or been in effect during the periods, indicated. This
pro forma financial information should not be viewed as predictive of CNL
XVIII's financial results or conditions in the future.
B-1
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
UNAUDITED PRO FORMA BALANCE SHEET
MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma
ASSETS Historical Adjustments Pro Forma
------ ---------- ----------- ---------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 8,231,628 $ 7,871,708 (a) $16,103,336
Net investment in direct
financing leases (b) 651,984 5,494,962 (a) 6,146,946
Cash and cash equivalents 6,079,177 (6,079,177)(a) -
Receivables 78,257 78,257
Prepaid expenses 900 900
Organization costs, less
accumulated amortization 9,089 9,089
Accrued rental income 6,504 6,504
Other assets 363,240 (301,406)(a) 61,834
----------- ----------- -----------
$15,420,779 $ 6,986,087 $22,406,866
=========== =========== ===========
LIABILITIES AND
PARTNERS' CAPITAL
Accounts payable $ 70,480 $ 70,480
Accrued construction costs
payable 686,342 $ (686,342)(a) -
Distributions payable 154,476 154,476
Due to related parties 141,104 (133,812)(a) 7,292
Rents paid in advance 118,189 118,189
----------- ----------- -----------
Total liabilities 1,170,591 (820,154) 350,437
Partners' capital 14,250,188 7,806,241 (a) 22,056,429
----------- ---------- -----------
$15,420,779 $ 6,986,087 $22,406,866
=========== =========== ===========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
B-2
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
UNAUDITED PRO FORMA STATEMENT OF INCOME
QUARTER ENDED MARCH 31, 1997
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
Revenues:
Rental income from operating
leases $ 52,230 $ - $ 52,230
Earned income from direct
financing leases 1,113 - 1,113
Interest income 42,871 - 42,871
--------- --------- ---------
96,214 - 96,214
--------- --------- ---------
Expenses:
General operating and
administrative 16,685 - 16,685
Professional services 5,896 - 5,896
Management fees to related party 1,212 - 1,212
State and other taxes 416 - 416
Depreciation and amortization 9,828 - 9,828
--------- --------- ---------
34,037 - 34,037
--------- --------- ---------
Net Income $ 62,177 $ - $ 62,177
========= ========= =========
Net Income Per Limited Partner
Unit $ 0.05 $ 0.05
========= =========
Weighted Average Number of Units
Outstanding 1,252,970 1,252,970
========= =========
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
B-3
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
<TABLE>
<CAPTION>
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
<S> <C>
Revenues:
Rental income from operating lease $ 1,373 $ - $ 1,373
Interest income 30,241 - 30,241
------- ------- -------
31,614 - 31,614
------- ------- -------
Expenses:
General operating and administrative 3,980 - 3,980
Management fee to related party 12 - 12
Depreciation and amortization 712 - 712
------- ------- -------
4,704 - 4,704
------- ------- -------
Net Income $26,910 $ - $26,910
======= ======= =======
Net Income Per Limited Partner
Unit $ 0.05 $ 0.05
======= =======
Weighted Average Number of Units
Outstanding 503,436 503,436
======= =======
</TABLE>
See accompanying notes to unaudited pro forma financial statements.
B-4
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
FOR THE QUARTER ENDED MARCH 31, 1997 AND THE
YEAR ENDED DECEMBER 31, 1996
Pro Forma Balance Sheet:
(a) Represents gross proceeds of $6,554,069 from the sale of 655,407 Units
during the period April 1, 1997 through July 18, 1997, the assumed
future sales of 202,422 Units, resulting in the receipt of $2,024,218
in gross offering proceeds through July 18, 1997, and $6,079,177 of
cash and cash equivalents at March 31, 1997, used (i) to acquire eleven
properties for $12,360,344, (ii) to fund estimated construction costs
of $1,005,240 ($686,342 of which was accrued as construction costs
payable at March 31, 1997) relating to the five properties under
construction at March 31, 1997, (iii) to pay acquisition fees and other
costs of $435,639 ($49,617 of which was accrued as due to related
parties at March 31, 1997) and reclassify from other assets $301,406 of
acquisition fees and other costs previously incurred relating to the
acquired properties, and (iv) to pay selling commissions and offering
expenses (syndication costs) of $856,241 ($84,195 of which was accrued
as due to related parties at March 31, 1997), which have been netted
against partners' capital.
The pro forma adjustments to land and buildings on operating leases as
a result of the above transactions were as follows:
<TABLE>
<CAPTION>
Estimated purchase
price (including
construction and Acquisition
closing costs) and fees
additional con- allocated
struction costs to property Total
--------------- ----------- -----
<S> <C>
Golden Corral in Stow, OH $ 1,668,863 $ 90,480 $ 1,759,343
Boston Market in San Antonio, TX 851,302 46,154 897,456
On The Border in San Antonio, TX 1,186,744 64,342 1,251,086
Boston Market in Minnetonka, MN 815,065 44,190 859,255
Wendy's in Sparta, TN 633,967 34,372 668,339
Boston Market in Timonium, MD 1,129,934 61,261 1,191,195
Jack in the Box in Houston, TX 1,289,000 69,886 1,358,886
Golden Corral in Elizabethtown, KY 1,453,059 78,780 1,531,839
IHOP in Santa Rosa, CA 1,282,215 69,518 1,351,733
Arby's in Lexington, NC 631,418 34,233 665,651
IHOP in Bridgeview, IL 1,418,777 76,922 1,495,699
Five properties under construction at
March 31, 1997 318,898 17,290 336,188
----------- ----------- -----------
$12,679,242 $ 687,428 $13,366,670
=========== =========== ===========
Adjustment classified as follows:
Land and buildings on operating leases $ 7,871,708
Net investment in direct financing leases 5,494,962
-----------
$13,366,670
===========
</TABLE>
(b) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or
exceeds 90 percent of the value of the related properties are treated
as direct financing leases rather than as land and buildings. The
categorization of the leases has no effect on rental revenues received.
B-5
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
ASSETS 1997 1996
------ ---- ----
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 8,231,628 $ 1,530,768
Net investment in direct financing
lease 651,984 -
Cash and cash equivalents 6,079,177 5,371,325
Receivables 78,257 3,711
Prepaid expenses 900 -
Organization costs, less accumulated
amortization of $911 and $411 9,089 9,589
Accrued rental income 6,504 -
Other assets 363,240 324,931
----------- -----------
$15,420,779 $ 7,240,324
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 70,480 $ 104,514
Accrued construction costs payable 686,342 -
Distributions payable 154,476 55,708
Due to related parties 141,104 83,889
Rents paid in advance 118,189 -
----------- ----------
Total liabilities 1,170,591 244,111
Commitments (Note 8)
Partners' capital 14,250,188 6,996,213
----------- -----------
$15,420,779 $ 7,240,324
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
B-6
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarters Ended
March 31,
1997 1996
--------- ------
<S> <C>
Revenues:
Rental income from operating leases $ 52,230 $ -
Earned income from direct financing
leases 1,113 -
Interest 42,871 -
--------- --------
96,214 -
--------- --------
Expenses:
General operating and administrative 16,685 -
Professional services 5,896 -
Management fees to related party 1,212 -
State and other taxes 416 -
Depreciation and amortization 9,828 -
--------- --------
34,037 -
--------- --------
Net Income $ 62,177 $ -
========= ========
Allocation of Net Income:
General partners $ (98) $ -
Limited partners 62,275 -
--------- --------
$ 62,177 $ -
========= ========
Net Income Per Limited Partner Unit $ 0.05 $ -
========= ========
Weighted Average Number of Limited
Partner Units Outstanding 1,252,970 -
========= ========
</TABLE>
See accompanying notes to condensed financial statements.
B-7
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1997 1996
------------- --------
<S> <C>
General partners:
Beginning balance $ 993 $ 1,000
Contributions - -
Net income (98) (7)
----------- -----------
895 993
----------- -----------
Limited partners:
Beginning balance 6,995,220 -
Contributions 8,315,063 8,421,815
Syndication costs (968,789) (1,395,666)
Net income 62,275 26,917
Distributions ($0.12 and $0.11
per weighted average limited
partner unit, respectively) (154,476) (57,846)
----------- -----------
14,249,293 6,995,220
----------- -----------
Total partners' capital $14,250,188 $ 6,996,213
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
B-8
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1997 1996
----------- --------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Net Cash Provided by Operating
Activities $ 189,772 $ -
----------- ----------
Cash Flows From Investing
Activities:
Additions to land and
buildings on operating
leases (5,953,421) -
Investment in direct
financing leases (651,984) -
Increase in other assets (38,309) -
Other 107 -
----------- ----------
Net cash used in
investing activities (6,643,607) -
----------- ----------
Cash Flows From Financing
Activities:
Reimbursement of acquisition
and syndication costs paid
by related parties on behalf
of the Partnership (177,493) -
Contributions from limited
partners 8,258,063 -
Distributions to limited
partners (55,708) -
Payment of syndication costs (863,175) -
Other - (250)
----------- -----------
Net cash provided by
financing activities 7,161,687 (250)
----------- -----------
Net Increase (Decrease) in Cash and
Cash Equivalents 707,852 (250)
Cash and Cash Equivalents at
Beginning of Quarter 5,371,325 980
----------- -----------
Cash and Cash Equivalents at End of
Quarter $ 6,079,177 $ 730
=========== ===========
</TABLE>
See accompanying notes to condensed financial statements.
B-9
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1997 1996
----------- --------
<S> <C>
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain acquisition and
syndication costs on behalf of
the Partnership as follows:
Acquisition costs $ 81,738 $ -
Syndication costs 158,599 33,482
----------- -----------
$ 240,337 $ 33,482
=========== ===========
Distributions declared and unpaid
at end of quarter $ 154,476 $ -
=========== ==========
</TABLE>
See accompanying notes to condensed financial statements.
B-10
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida
Limited Partnership)
NOTES TO CONDENSED
FINANCIAL STATEMENTS
Quarters Ended March 31,
1997 and 1996
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. Operating results for the quarter ended March 31, 1997, may
not be indicative of the results that may be expected for the year
ended December 31, 1997. Amounts as of December 31, 1996, 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, 1996.
The Partnership was a development stage enterprise from February 10,
1995 through October 11, 1996. Since operations had not begun,
activities through October 11, 1996, were devoted to the organization
of the Partnership.
Rents Paid in Advance - Rents paid in advance by lessees for future
periods are deferred upon receipt and are recognized as revenues during
the period in which the rental income is earned. Rents paid in advance
include "interim rent" payments required to be paid under the terms of
certain leases for construction properties, equal to a pre-determined
rate times the amount funded by the Partnership during the period
commencing with the effective date of the lease to the date minimum
annual rent becomes payable. Once minimum annual rent becomes payable,
the "interim rent" payments are amortized and recorded as income either
(i) over the lease term so as to produce a constant periodic rate of
return for leases accounted for using the direct financing method, or
(ii) over the lease term using the straight-line method for leases
accounted for using the operating method, whichever is applicable.
B-11
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." Seven of the leases are
classified as operating leases and one of the leases has been
classified as a direct financing lease. The leases have initial terms
of 15 to 20 years and provide for minimum and contingent rentals. In
addition, the tenant pays all property taxes and assessments, fully
maintains the interior and exterior of the building and carries
insurance coverage for public liability, property damage, fire and
extended coverage. The lease options generally allow the tenants to
renew the leases for four successive five-year periods subject to the
same terms and conditions as the initial lease. Most leases also allow
the tenant to purchase the property at fair market value after a
specified portion of the lease has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C>
Land $3,990,795 $ 852,578
Buildings 1,259,475 659,134
---------- ----------
5,250,270 1,511,712
Less accumulated
depreciation (9,629) (301)
---------- ----------
5,240,641 1,511,411
Construction in progress 2,990,987 19,357
---------- ----------
$8,231,628 $1,530,768
========== ==========
</TABLE>
Some of the leases provide for scheduled rent increases throughout the
lease term and/or rental payments during the construction of a property
prior to the date it is placed in service. Such amounts are recognized
on a straight-line basis over the terms of the leases. For the quarter
ended March 31, 1997, the Partnership recognized $6,504 of such rental
income.
B-12
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on the noncancellable operating leases for the properties that
were operational as of March 31, 1997:
1997 $ 158,052
1998 212,256
1999 221,357
2000 222,184
2001 222,184
Thereafter 3,050,633
----------
$4,086,666
==========
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease terms. In addition, this table does not
include any amounts for future contingent rentals which may be received
on the leases based on a percentage of tenant's gross sales. The
amounts also do not include minimum lease payments that will become due
when the properties under development are completed (see Note 8).
4. Net Investment in Direct Financing Lease:
The following lists the components of the net investment in direct
financing lease at:
<TABLE>
<CAPTION>
March 31, December 31,
1997 1996
---- ----
<S> <C>
Minimum lease payments
receivable $ 1,893,111 $ -
Estimated residual
value 163,002 -
Less unearned income (1,404,129) -
----------- ----------
Net investment in direct
financing lease $ 651,984 $ -
=========== ==========
</TABLE>
B-13
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
4. Net Investment in Direct Financing Lease - Continued:
The following is a schedule of future minimum lease payments to be
received on the direct financing lease at March 31, 1997:
1997 $ 52,010
1998 69,347
1999 69,347
2000 69,347
2001 69,347
Thereafter 1,563,713
----------
$1,893,111
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Syndication Costs:
Syndication costs consisting of legal fees, commissions, the due
diligence expense reimbursement fee, printing and other expenses
incurred in connection with the offering totalled $968,789 and
$1,395,666 for the quarter ended March 31, 1997 and the year ended
December 31, 1996, respectively. These offering expenses were 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 or reimbursed by the general partners and will
not be the responsibility of the Partnership.
6. Related Party Transactions:
During the quarter ended March 31, 1997, the Partnership incurred
$706,781 in syndication costs due to CNL Securities Corp. for services
in connection with selling units of limited partnership interest. A
substantial portion of these amounts ($599,493) was or will be
reallowed to other broker-dealers.
In addition, during the quarter ended March 31, 1997, the Partnership
incurred $41,575 in due diligence expense reimbursement fees due to CNL
Securities Corp. These fees equal 0.5% of the limited partner
contributions of $8,315,063 received during the quarter ended March 31,
1997. The majority of these fees was reallowed to other broker-dealers
and from which all bona fide due diligence expenses were paid.
B-14
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
6. Related Party Transactions - Continued:
Additionally, during the quarter ended March 31, 1997, the Partnership
incurred $374,178 in acquisition fees due to CNL Fund Advisors, Inc.
for services in finding, negotiating and acquiring properties on behalf
of the Partnership. These fees represent 4.5% of the limited partner
capital contributions received during the quarter ended March 31, 1997,
and are included in land and buildings on operating leases, net
investment in direct financing lease and other assets.
In addition, during the quarter ended March 31, 1997, the Partnership
incurred management fees of $1,212 due to CNL Fund Advisors, Inc.
During the quarter ended March 31, 1997, certain affiliates of the
general partners provided accounting and administrative services to the
Partnership (including accounting and administrative services in
connection with the offering of units) on a day-to-day basis. The
expenses incurred for these services were classified as follows for the
quarters ended March 31:
1997 1996
------- -----
Syndication costs $82,682 $ 3,372
General operating and
administrative
expenses 13,245 -
------- ------
$95,927 $ 3,372
======= =======
B-15
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
6. Related Party Transactions - Continued:
The amounts due to related parties consisted of the following at:
March 31, December 31,
1997 1996
---- ----
Due to CNL Securities Corp.:
Commissions $ 17,044 $ 44,186
Due diligence expense
reimbursement fee 1,003 2,599
-------- --------
18,047 46,785
-------- --------
Due to CNL Fund Advisors,
Inc.:
Expenditures incurred on
on behalf of the
Partnership 69,876 2,788
Acquisition fees 43,331 23,392
Accounting and admini-
strative services 8,638 10,912
Management fees 1,212 12
-------- --------
123,057 37,104
-------- --------
$141,104 $ 83,889
======== ========
7. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees and the respective restaurant chains, each
representing more than ten percent of the Partnership's total rental
and earned income for the quarters ended March 31:
1997 1996
------- ------
Platinum Rotisserie,
L.L.C. (operating
a Boston Market
restaurant) $27,153 $ -
Carrols Corporation
(operating a Burger
King restaurant) 25,078 -
It is expected that the percentage of total rental and earned income
contributed by these lessees and restaurant chains will decrease as
additional properties are acquired and leased during the remainder of
1997 and in subsequent years.
B-16
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Development Stage Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL
STATEMENTS - CONTINUED
Quarters Ended March 31,
1997 and 1996
8. Commitments:
The Partnership has entered into five development agreements with
tenants which provide terms and specifications for the construction of
buildings that the tenants have agreed to lease once construction is
completed. The agreements provide a maximum amount of development costs
(including the purchase price of the land and closing costs) to be paid
by the Partnership. The aggregate maximum development costs the
Partnership has agreed to pay is approximately $6,225,100, of which
approximately $5,690,900 in land and other costs had been incurred as
of March 31, 1997. The buildings under construction are expected to be
operational by May 1997. The lease agreements for these properties are
substantially the same as the leases relating to the Partnership's
other properties as described in Note 2.
9. Subsequent Event:
During the period April 1, 1997 through April 30, 1997, the Partnership
received capital contributions for an additional 174,614 units
($1,746,144) of limited partnership interest.
In addition, during the period April 1, 1997 through April 30, 1997,
the Partnership acquired five additional properties for cash, at a
total cost of approximately $2,933,700. In connection with the four
properties under construction, the Partnership has agreed to pay
development costs (including the purchase prices of the land and
closing costs) of approximately $3,563,300 of which approximately
$1,547,500 in land and other costs had been paid by the Partnership as
of April 30, 1997. The buildings under construction are expected to be
operational by October 1997. The lease agreements for the existing
property and the properties to be constructed are substantially the
same as the leases relating to the Partnership's other properties, as
described in Note 2.
B-17
<PAGE>
CNL REALTY CORPORATION
BALANCE SHEETS
March 31,
1997 December 31,
ASSETS (Unaudited) 1996
------ ----------- ----
Cash $ 178 $ 188
Investment in CNL Income
Fund Partnerships 1,255,853 1,244,812
---------- ----------
$1,256,031 $1,245,000
========== ==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loan payable to CNL Group, Inc. $1,306,849 $1,275,456
Other payables to related parties 2,414 1,201
---------- ----------
Total liabilities 1,309,263 1,276,657
---------- ----------
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
Accumulated deficit (54,232) (32,657)
---------- ----------
Total stockholders' equity (53,232) (31,657)
---------- ----------
$1,256,031 $1,245,000
========== ==========
See accompanying notes to balance sheet.
B-18
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEETS
March 31, 1997 and
December 31, 1996 (Information
with respect to March 31, 1997 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-19
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET - CONTINUED
March 31, 1997 and
December 31, 1996 (Information
with respect to March 31, 1997 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:
March 31,
1997 December 31,
(Unaudited) 1996
----------- ----
Total assets $521,172,855 $514,640,258
Total liabilities 18,817,382 18,782,159
Limited partners'
equity 498,895,027 492,508,044
General partners'
equity:
CNL Realty
Corporation 1,255,853 1,244,812
Other 2,204,593 2,105,243
The Company had made total capital contributions of $1,012,905 to the
CNL Income Fund Partnerships as of March 31, 1997 and December 31,
1996.
In January 1997, the Company entered into two promissory notes which
provide for loans to certain of the CNL Income Fund Partnerships in the
aggregate amount of $228,000 in connection with the operations of the
CNL Income Fund Partnerships. The loans were uncollateralized,
non-interest bearing and due on demand. These loans were repaid to the
Company as of March 31, 1997.
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.
4. Related Parties:
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 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,
B-20
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET - CONTINUED
March 31, 1997 and
December 31, 1996 (Information
with respect to March 31, 1997 is
unaudited)
4. Related Parties - Continued:
1997, whichever comes first. The loan payable to CNL Group, Inc. of
$1,306,849 and $1,275,456 at March 31, 1997 and December 31, 1996,
respectively, includes accrued interest of $14,129 and $4,817,
respectively.
Affiliates of the stockholders provide accounting and administrative
services to the Company on a day-to-day basis. Other payables to
related parties at March 31, 1997 and December 31, 1996 of $2,414 and
$1,201, respectively, represent amounts for such services and for
operating expenses that affiliates have paid on behalf of the Company.
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 April 1997, the promissory note described in Note 4 between the
Company and CNL Group, Inc. was amended to provide loans to the Company
in the aggregate amount of up to $2,000,000. In addition, in April
1997, the Company received additional advances under this promissory
note totalling $399,000. As of May 19, 1997, the Company had repaid
$149,000 of such amounts advanced.
In connection therewith, in April 1997, the Company made additional
capital contributions of $138,000 to one of the CNL Income Fund
Partnerships and entered into two promissory notes which provide for
loans to certain of the CNL Income Fund Partnerships in the aggregate
amount of $261,000 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 May 19, 1997, $149,000 of these amounts
had been repaid to the Company.
B-21
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET - CONTINUED
March 31, 1997 and
December 31, 1996 (Information
with respect to March 31, 1997 is
unaudited)
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 March 31, 1997.
B-22
<PAGE>
ADDENDUM TO
EXHIBIT F
STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS
THE STATEMENT OF ESTIMATED
TAXABLE OPERATING RESULTS IN THIS
ADDENDUM UPDATES AND REPLACES
EXHIBIT F TO THE ATTACHED
PROSPECTUS, DATED MAY 9, 1997.
<PAGE>
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
CNL INCOME FUND XVIII, LTD.
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH JULY 18, 1997
For the Period October 12, 1996 (the date operations commenced)
through December 31, 1996 (Unaudited)
The following statement presents unaudited estimated taxable operating
results of each Property acquired by CNL XVIII from inception through July 18,
1997. The statement presents estimated taxable operating results for each
Property that was operational as if the Property had been acquired and
operational on October 12, 1996 (the date CNL XVIII commenced operations)
through December 31, 1996. The statement should be read in light of the
accompanying footnotes.
These estimates do not purport to present actual or expected operations
of CNL XVIII for any period in the future. These estimates were prepared on the
basis described in the accompanying notes which should be read in conjunction
herewith. No single lessee or group of affiliated lessees lease Properties with
an aggregate purchase price in excess of 20% of the expected total net offering
proceeds of CNL XVIII.
<TABLE>
<CAPTION>
Burger King Golden Corral Jack in the Box Jack in the Box
Kinston, NC Houston #1, TX (7) Echo Park, CA (6) Henderson, NV (6)
----------- ------------------ ----------------- -----------------
<S> <C>
Estimated Taxable Operating Results:
Base Rent (1) $ 19,862 (5) (5) (5)
Management Fees (2) (199) (5) (5) (5)
General and Administrative
Expenses (3) (993) (5) (5) (5)
--------
Estimated Cash Available from
Operations 18,670 (5) (5) (5)
Depreciation Expense (4) (3,660) (5) (5) (5)
--------
Estimated Taxable Operating Results $ 15,010 (5) (5) (5)
========
</TABLE>
See Footnotes
F-1
<PAGE>
<TABLE>
<CAPTION>
Jack in the Box Golden Corral Boston Market Black-eyed Pea
Centerville, TX (6) Galveston, TX (7) Raleigh, NC Atlanta, GA
------------------- ----------------- ------------- ------------
<S> <C>
Estimated Taxable Operating Results:
Base Rent (1) (5) (5) $ 27,144 $ 15,358
Management Fees (2) (5) (5) (271) (154)
General and Administrative
Expenses (3) (5) (5) (1,357) (768)
-------- --------
Estimated Cash Available from
Operations (5) (5) 25,516 14,436
Depreciation Expense (4) (5) (5) (2,672) (3,596)
-------- --------
Estimated Taxable Operating Results (5) (5) $ 22,844 $ 10,840
======== ========
</TABLE>
See Footnotes
F-2
<PAGE>
<TABLE>
<CAPTION>
Golden Corral Boston Market On The Border Boston Market
Stow, OH San Antonio, TX San Antonio, TX Minnetonka, MN
-------- --------------- --------------- --------------
<S> <C>
Estimated Taxable Operating Results:
Base Rent (1) $42,009 (5) (5) (5)
Management Fees (2) (420) (5) (5) (5)
General and Administrative
Expenses (3) (2,100) (5) (5) (5)
--------
Estimated Cash Available from
Operations 39,489 (5) (5) (5)
Depreciation Expense (4) (7,047) (5) (5) (5)
--------
Estimate Taxable Operating Results $ 32,442 (5) (5) (5)
========
</TABLE>
See Footnotes
F-3
<PAGE>
<TABLE>
<CAPTION>
Wendy's Boston Market Jack in the Box Golden Corral
Sparta, TN Timonium, MD Houston #2, TX (6) Elizabethtown, KY (7)
---------- ------------- ------------------ ---------------------
<S> <C>
Estimated Taxable Operating Results:
Base Rent (1) (5) (5) (5) (5)
Management Fees (2) (5) (5) (5) (5)
General and Administrative
Expenses (3) (5) (5) (5) (5)
Estimated Cash Available from
Operations (5) (5) (5) (5)
Depreciation Expense (4) (5) (5) (5) (5)
Estimate Taxable Operating Results (5) (5) (5) (5)
</TABLE>
See Footnotes
F-4
<PAGE>
<TABLE>
<CAPTION>
IHOP Arby's IHOP
Santa Rosa, CA (8) Lexington, NC Bridgeview, IL(8) Total
------------------ ------------- ----------------- -------
<S> <C>
Estimated Taxable Operating Results:
Base Rent (1) $ 28,547 $ 13,861 $ 31,579 $178,360
Management Fees (2) (285) (139) (316) (1,784)
General and Administrative
Expenses (3) (1,427) (693) (1,579) (8,917)
-------- -------- ------- -------
Estimated Cash Available from
Operations 26,835 13,029 29,684 167,659
Depreciation Expense (4) (4,678) (2,499) (6,267) (30,419)
-------- -------- -------- --------
Estimate Taxable Operating Results $ 22,157 $ 10,530 $ 23,417 $137,240
======== ======== ======== ========
</TABLE>
FOOTNOTES:
(1) Represents rental income from leases for seven of the 19 Properties
acquired from inception through July 18, 1997, which were operational
at the time acquired by CNL XVIII, for the period commencing October
12, 1996 (the date CNL XVIII commenced operations) through December 31,
1996. The 12 Properties acquired by CNL XVIII that are under
construction are not presented due to the fact that they were not
operational for the period presented.
(2) The Properties are managed pursuant to a management agreement between
CNL XVIII and an Affiliate of the General Partners, pursuant to which
the Affiliate receives an annual management fee in an amount equal to
one percent of the gross revenues that CNL XVIII earns from its
Properties. See "Management Compensation."
(3) Estimated at five percent of gross rental income based on the previous
experience of Affiliates of the General Partners with 17 public limited
partnerships which own properties similar to that owned by CNL XVIII.
(4) The estimated federal tax basis of the depreciable portion (the
building portion) of the Properties has been depreciated on the
straight-line method over 40 years.
F-5
<PAGE>
(5) This Property is under construction and therefore was not operational
for the period presented. The development agreements for the Properties
which are to be constructed or renovated, provide that construction or
renovation must be completed no later than the dates set forth below:
Property Estimated Final Completion Date
Houston #1 Property June 25, 1997
Echo Park Property July 6, 1997
Henderson Property July 6, 1997
Centerville Property July 7, 1997
Galveston Property July 21, 1997
San Antonio #1 Property October 13, 1997
San Antonio #2 Property October 14, 1997
Minnetonka Property October 26, 1997
Sparta Property August 28, 1997
Timonium Property November 4, 1997
Houston #2 Property November 5, 1997
Elizabethtown Property November 17, 1997
(6) The lessee of the Echo Park, Henderson, Centerville and Houston #2
Properties is the same unaffiliated lessee.
(7) The lessee of the Houston #1, Galveston and Elizabethtown Properties is
the same unaffiliated lessee.
(8) The lessee of the Santa Rosa and Bridgeview Properties is the same
unaffiliated lessee.
F-6
<PAGE>
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 owned, as of April 30, 1997, 13 Properties of the
anticipated total of 28 to 32 Properties (if proceeds of $35,000,000
are raised), and investors, therefore, will not have the opportunity to
evaluate all of 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 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.
<TABLE>
<CAPTION>
Price to Selling Proceeds to
Public Commissions(1) Partnership(2)
- ---------------------------------------------------------------------------------------------------------------
<S> <C>
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)
===============================================================================================================
SEE FOOTNOTES FOLLOWING PAGE
</TABLE>
MAY 9, 1997
<PAGE>
(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 2.5% of gross offering
proceeds computed at $10.00 per Unit sold ("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 April 30, 1997, the Partnership had sold
1,848,302 Units, representing $18,483,022 of capital contributed by 895
unaffiliated Limited Partners. 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.
-----------------------------------------------------
ii
<PAGE>
TABLE OF CONTENTS
Page
CNL INCOME FUND XVIII, LTD...............................................
SUMMARY OF THE OFFERING..................................................
CNL INCOME FUND XVIII, LTD..........................................
STATUS OF THE OFFERING..............................................
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.....................................................
ADVISOR.............................................................
PRIOR PERFORMANCE OF THE GENERAL PARTNERS AND AFFILIATES............
INVESTMENT OBJECTIVES AND POLICIES..................................
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......
Risks 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..............
Risks Relating to Reinvestment of Net Sales Proceeds............
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................................................
iii
<PAGE>
TABLE OF CONTENTS (CONTINUED)
Page
MANAGEMENT COMPENSATION..................................................
NONSUBORDINATED PAYMENTS............................................
PAYMENTS SUBORDINATED TO MINIMUM RETURN TO LIMITED PARTNERS.........
CONFLICTS OF INTEREST....................................................
PRIOR AND FUTURE PROGRAMS...........................................
ACQUISITION OF PROPERTIES...........................................
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.............................................................
PROPERTY ACQUISITIONS...............................................
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.........................................
iv
<PAGE>
TABLE OF CONTENTS (CONTINUED)
Page
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.................................
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.............................................
v
<PAGE>
TABLE OF CONTENTS (CONTINUED)
Page
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.............................................................
-----------------------------------------------------
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
Statement of Estimated Taxable Operating Results.....................Exhibit F
vi
<PAGE>
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.
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. 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.
STATUS OF THE OFFERING
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 April 30, 1997, CNL
XVIII had received total subscription proceeds of $18,483,022 (1,848,302 Units)
from 895 Limited Partners. As of April 30, 1997, CNL XVIII had invested or
committed for investment approximately $15,100,000 of such proceeds in 13
Properties and to pay Acquisition Fees and miscellaneous Acquisition Expenses,
leaving approximately $1,100,000 in offering proceeds available for investment
in Properties. As of April 30, 1997, CNL XVIII had incurred $831,736 in
Acquisition Fees to an Affiliate of the General Partners.
The Partnership is required, pursuant to its undertakings to file
sticker supplements updating this Prospectus to disclose Property acquisitions
and any reasonable probability of a property acquisition. The Partnership is
also obligated to deliver copies of all sticker supplements to prospective
investors subsequent to filing with the SEC.
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 as of April 30, 1997, the
Partnership owned only 13 Properties of the anticipated total of 28 to 32
Properties (if proceeds of $35,000,000 are raised), investors will not have
the opportunity to evaluate all of the Properties that the Partnership will
acquire.
1
<PAGE>
o Risks of reduced diversification in the Partnership's investment if the
Partnership raises less than $35,000,000 from sales of Units.
o Risks that the Partnership may make investments that will not appreciate in
value over time, such as building only Properties, with the land owned by a
third party.
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 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 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 2,500,000 Units ($25,000,000) are
sold, however, the Partnership will acquire approximately 23 Properties. The
Partnership will acquire approximately 28 to 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.
2
<PAGE>
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.
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, as well as a description of the Properties acquired by the
Partnership as of April 30, 1997, 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
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 April 30, 1997, the Partnership had purchased 13
Properties and was negotiating to purchase five additional properties for which
initial commitments had been made, subject to fulfillment of certain conditions.
Although the General Partners believe that the Partnership will acquire these
properties, there can be no assurance that these conditions will be satisfied or
that the Partnership will acquire one or more of these 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
3
<PAGE>
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."
The General Partners have established certain conflict resolution
procedures relating to (i) transactions between CNL XVIII and its Affiliates,
(ii) certain future offerings, and (iii) allocation of restaurant properties
among affiliated entities. 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 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."
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 December 31,
1996, had purchased 760 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 86 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
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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 previous CNL
Income Fund limited partnerships, the offerings of which became fully subscribed
between January 1992 and December 1996, 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
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 commenced in
the fourth quarter of 1996 and will be paid quarterly thereafter. There can be
no assurance, however, as to the amount of any future 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.
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.
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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 federal income
tax purposes.
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 LLP, as tax counsel for the Partnership.
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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
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 April 30, 1997, the Partnership had sold
1,848,302 Units, representing $18,483,022 of capital contributed by 895 Limited
Partners. 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. This authority includes significant
flexibility. For example, the General Partners can (i) direct the Partnership's
investments toward investments that will not appreciate over time, such as
building only Properties, with land owned by a third party, and (ii) change
minimum creditworthiness standards
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with respect to tenants. 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.
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.
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.
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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. 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 in all
cases because the Partnership had acquired only 13 Properties as of April 30,
1997.
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.
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."
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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. The Partnership has not set fixed minimum
standards relating to creditworthiness of tenants and therefore, the General
Partners have flexibility in assessing potential tenants. Because the
Partnership had acquired only 13 Properties as of April 30, 1997 (see
"Business--Property Acquisitions" for a description), prospective investors have
no information to assist them in evaluating the merits of the additional 15 to
19 Properties expected to be purchased or developed by the Partnership if
proceeds of $35,000,000 are raised. There is no limit
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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.
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.
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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.
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
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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."
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. See "Risk Factors--Risks Relating to
Reinvestment of Net Sales Proceeds."
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.
RISKS RELATING TO REINVESTMENT OF NET SALES PROCEEDS. Upon the Sale of
a Property, the General Partners may, in some cases, determine that it is in the
best interest of the Partnership to reinvest the Net Sales Proceeds derived from
such Sale in other Properties under circumstances described in "Business--Sale
of Properties," rather than distribute such proceeds to the Partners. Any
determination to reinvest Net Sales Proceeds shall be in the discretion of the
General Partners and, upon investment, such Net Sales Proceeds will be subject
to the same or substantially similar risks generally applicable to an investment
in Properties. See "Risk Factors--Real Estate Risks." Also, it is possible that
the reinvestment of Net Sales Proceeds in additional Properties would extend the
period during which the Properties are intended to be sold (currently
anticipated by the General Partners to be 7 to 12 years after acquisition of the
Properties or as soon thereafter as market conditions permit). If the General
Partners determine that it is in the best 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.
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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 LLP.
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,
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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.
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,
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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.
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.
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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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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
18
<PAGE>
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.
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."
{THE REMAINDER OF THIS PAGE IS INTENTIONALLY BLANK}
19
<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 2,500,000 Units are sold (1,848,302 Units had been sold as of April
30, 1997) 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>
<CAPTION>
OFFERING OF
2,500,000 UNITS(1) MAXIMUM OFFERING
Amount Percent Amount Percent
<S> <C>
GROSS PROCEEDS TO THE PARTNERSHIP (2)............................. $25,000,000 100.0% $35,000,000 100.0%
Less:
Selling Commissions to CNL Securities Corp. (2)................ 2,125,000 8.5% 2,975,000 8.5%
Due Diligence Expense Reimbursement Fee to
CNL Securities Corp. (2)..................................... 125,000 0.5% 175,000 0.5%
Organizational and Offering Expenses (3)....................... 750,000 3.0% 875,000 2.5%
----------- ------ ----------- ------
NET PROCEEDS TO THE PARTNERSHIP................................... 22,000,000 88.0% 30,975,000 88.5%
Less:
Acquisition Fees to CNL Fund Advisors, Inc. (4)............... 1,125,000 4.5% 1,575,000 4.5%
Acquisition Expenses (5)....................................... 125,000 0.5% 175,000 0.5%
Initial Working Capital Reserve................................ (6) (6)
----------- ------ ----------- ------
CASH PAYMENT FOR PURCHASE OF PROPERTIES
BY THE PARTNERSHIP............................................. $20,750,000 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.
20
<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:
TYPE OF COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION(1) MAXIMUM AMOUNT(1)
-------------------- ------------------------ -----------------
Organizational Stage
Selling Commissions to Selling Commissions of $2,975,000 if 3,500,000
Managing Dealer and 8.5% per Unit on all Units sold. As of
Soliciting Dealers Units sold, subject to December 31, 1996,
reduction for volume $715,854 in Selling
purchases and purchases Commissions had been
by registered incurred, $673,534 of
representatives and which was reallowed to
principals of the other broker-dealers.
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 Expense allowance of $175,000 if 3,500,000
reimbursement fee to 0.5% of Gross Proceeds Units sold. As of
Managing Dealer to the Managing Dealer, December 31, 1996,
all or a portion of $42,109 in due diligence
which may be reallowed expense reimbursement
to Soliciting Dealers. fees had been incurred,
The Managing Dealer will the majority of which
pay all sums was reallowed to other
attributable to bona broker-dealers for
fide due diligence ex- payment of bona fide due
penses from this fee. diligence expenses.
Reimbursement to General Actual expenses Amount is not
Partners and their incurred, except that determinable at this
Affiliates for the General Partners time, but will not
Organizational and will pay all such expen- exceed 3% of Gross
Offering Expenses ses in excess of 3% of Proceeds ($ 875,000 if
Gross Proceeds. 3,500,000 Units sold).
As of December 31, 1996,
$392,745 in
Organizational and
Offering Expenses had
been incurred by the
General Partners and
their Affiliates on
behalf of the
Partnership.
- ---------------------------------------
(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.
21
<PAGE>
TYPE OF COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION(1) MAXIMUM AMOUNT(1)
-------------------- ------------------------ -----------------
Acquisition Fees to CNL 4.5% of the aggregate $1,575,000 if 3,500,000
Fund Advisors, Inc. and Capital Contributions of Units sold
reimbursement of the Limited Partners, As of at December 31,
Acquisition Expenses to payable to CNL Fund 1996, $378,982 in
the General Partners and Advisors, Inc. as Acquisition Fees had
their Affiliates Acquisition Fees, plus been incurred.
reimbursement to the
General Partners and
their Affiliates for Acquisition Expenses,
expenses actually which are based on a
incurred. Acquisition number of factors,
Fees and Acquisition including the purchase
Expenses are subject to price of the Properties,
reduction or return in are not determinable at
certain circumstances. this time. As of
See Exhibit A Form of December 31, 1996,
Amended and Restated $18,036 in Acquisition
Agreement of Limited Fees had been incurred.
Partnership, Article
7.5.
Operational Stage
Annual Management Fee to The Management Fee Amount is not
CNL Fund Advisors, Inc. represents 1% of the determinable at this
gross revenues time. The amount of the
(excluding noncash lease Management Fee will
accounting adjustments) depend upon the revenues
that the Partnership received from the
earns from its Partnership's
Properties. Properties. As of
Specifically, the December 31, 1996, the
Management Fee equals 1% Partnership had incurred
of the sum of such gross $12 in Management Fees.
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.
- -----------------------------------
(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.
22
<PAGE>
TYPE OF COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION(1) MAXIMUM AMOUNT(1)
-------------------- ------------------------ -----------------
Reimbursement to CNL Operating expenses Amount is not
Fund Advisors, Inc. and (which, in general, are determinable at this
Affiliates for operating those expenses relating time. As of December
expenses to administration of the 31, 1996, $3,873 in
Partnership on an operating expenses had
ongoing basis) will be been incurred by
reimbursed at lower of Affiliates on behalf of
cost or 90% of the the Partnership.
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.
- --------------------------------
(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.
23
<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.
TYPE OF COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION(1) MAXIMUM AMOUNT(1)
-------------------- ------------------------ -----------------
Operational Stage
Deferred, subordinated A deferred, subordinated Amount is not
real estate disposition real estate disposition determinable at this
fee payable to CNL Fund fee, payable upon Sale time. The amount of
Advisors, Inc. from a of one or more this fee, if it becomes
Sale or Sales not in Properties, in an amount payable, will depend
liquidation of the equal to the lesser of upon the price at which
Partnership (i) one-half of a Properties are sold. No
Competitive Real Estate amounts had been paid or
Commission, or (ii) 3% accrued at December 31,
of the price of such 1996.
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 Pro-
perties 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.
- ---------------------------------------
(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 Contribution), 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 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.
24
<PAGE>
TYPE OF COMPENSATION ESTIMATED
AND RECIPIENT METHOD OF COMPUTATION(1) MAXIMUM AMOUNT(1)
-------------------- ------------------------ -----------------
Deferred, Subordinated
Share of
Partnership Distributions
General Partners' A deferred, subordinated Amount is not
deferred, subordinated share equal to 5% of determinable at this
share of Net Cash Flow Partnership dis- time. Actual amounts
tributions of Net Cash depend upon the results
Flow, subordinated to of operations of the
receipt by the Limited Partnership and the
Partners of their Properties. No amounts
aggregate, noncumulative had been paid or accrued
Limited Partners' 8% at December 31, 1996.
Return for the related
year. See "Allocations
and Distributions."
General Partners' A deferred, subordinated Amount is not
deferred, subordinated share equal to 5% of determinable at this
share of Net Sales Partnership dis- time. No amounts had
Proceeds from a Sale or tributions of such Net been paid or accrued at
Sales not in liquidation Sales Proceeds, December 31, 1996.
of the Partnership subordinated 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 See "Operational Amount is not
disposition fee payable Stage" above for a determinable at this
to CNL Fund Advisors, description of this fee. time. The amount of
Inc. from a Sale or Sales this fee, if it becomes
in liquidation of the payable, will depend
Partnership upon the price at which
Properties are sold.
General Partners' See "Deferred, Amount is not
subordinated share of Subordinated Share of determinable at this
Net Sales Proceeds Partnership Distribu- time.
from a Sale or Sales tions" above for a
in liquidation of the description of this
Partnership share of
distributions.
- -------------------------------
(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.
25
<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.
26
<PAGE>
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
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.
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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. 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 April 30, 1997, CNL XVII had purchased 26 properties for an
aggregate of approximately $25,900,000. CNL XVII substantially completed its
acquisition of properties during December 1996, and as of April 30, 1997,
approximately 98% 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
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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
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
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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 LLP, 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
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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. 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
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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,
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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.
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
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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.
34
<PAGE>
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."
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 purchases 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 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
35
<PAGE>
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, 1997 issue of RESTAURANTS AND
INSTITUTIONS, it is projected that the casual dining segment of full-service
restaurant sales will experience 3.8% real growth in sales this year, with sales
predicted to reach $49 billion. The top 15 casual dining chains by sales have a
total of 2,977 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, casual dining facilities, 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 $320
billion in 1997. Restaurant industry sales for 1996 are projected to be $307.6
billion. In 1996, nominal growth, which is comprised of real growth and
inflationary growth, was 4.6% and is estimated to be 4.2% in 1997. Real growth
of the restaurant industry in 1996 was 1.7%; however, according to the National
Restaurant Association, fast-food restaurants should outpace the industry
average for real growth, with a projected 2.5% increase over 1996. Sales in this
segment of the restaurant industry are projected to be $103.5 billion for 1997.
The Partnership invests 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 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 7.2% 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
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 certain
Restaurant Chains in which Affiliates of the General Partners (consisting of a
listed public REIT, an unlisted public REIT, 17 public partnerships and 8
private partnerships) have invested, as of September 30, 1996:
Approximate Aggregate
Dollars Invested Percentage of Number of
Restaurant Chain by Affiliates Dollars Invested Prior Programs
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 16,164,000 2.3% 3
36
<PAGE>
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
Arby's 4,765,000 0.7% 5
Ponderosa 3,210,000 0.5% 3
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 47
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.
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.
It is estimated that the Partnership will purchase approximately 28 to
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. 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
37
<PAGE>
of the building. See "Joint Venture Arrangements" below and "Risk
Factors--Investment Risks--Possible Lack of Diversification."
PROPERTY ACQUISITIONS
From inception through April 30, 1997, CNL XVIII undertook negotiations
to purchase 18 Properties of which 13 Properties were purchased. These 18
Properties are six Boston Market Properties (one in each of Charlotte and
Raleigh, North Carolina; Minnetonka, Minnesota; Reno, Nevada; San Antonio,
Texas; and Timonium, Maryland); one Burger King Property (in Kinston, North
Carolina); three Golden Corral Properties (one in each of Houston and Galveston,
Texas; and Stow, Ohio); four Jack in the Box Properties (one in each of Echo
Park, California; Henderson, Nevada; and Centerville and Houston, Texas); one
Black-eyed Pea Property (in Atlanta, Georgia); one IHOP Property (in Santa Rosa,
California); one On The Border Property (in San Antonio, Texas); and one Wendy's
Property (in Sparta, Tennessee). Between December 27, 1996 and April 30, 1997,
CNL XVIII acquired 13 of the 18 Properties.
In connection with the purchase of each of these 13 Properties, CNL
XVIII, as lessor, entered into a long-term lease agreement with an affiliated
lessee. The general terms of the lease agreements are described in
"Business--Description of Leases." The leases also generally provide that, in
the event CNL XVIII desires to sell a Property, the lessee, or in some instances
an Affiliate of the lessee, has a right of first refusal to purchase the
Property on the same terms offered by a BONA FIDE offeror. Unless otherwise
noted, the lessee will have an option to purchase the Property during the
specified years of the lease at a purchase price equal to the greater of (i) the
fair market value of the Property at the date of the exercise of the option, or
(ii) the purchase price of the Property, including all development and certain
acquisition costs incurred in connection therewith, if any, plus a specified
percentage (generally 20%) of the sum of such purchase price and such costs.
For Properties that are to be constructed, CNL XVIII has entered into
development, indemnification and put agreements with the lessees. The general
terms of these agreements are described in "Business--Site Selection and
Acquisition of Properties--Construction and Renovation." Generally, the payment
by the lessee of all amounts due to CNL XVIII and the performance by the lessee
under the lease, development agreements, and related agreements is guaranteed
unconditionally by individuals with substantial net worth.
In connection with the acquisition of the Black-eyed Pea Property,
which is building only, CNL XVIII has also entered into a landlord estoppel
agreement with the landlord of the land and collateral assignment of the ground
lease with the lessee in order to provide CNL XVIII with certain rights with
respect to the land on which the building is located. In connection with the
acquisition of the On The Border Property, which is building only, CNL XVIII has
also entered into a tri-party agreement with the lessee and the landlord of the
land in order to provide CNL XVIII with certain rights with respect to the land
on which the building is located.
The acquisition of each of the remaining five Properties for
which CNL XVIII had received initial commitments as of April 30, 1997, is
subject to the fulfillment of certain conditions, including, but not limited to,
a satisfactory environmental survey and property appraisal. There can be no
assurance that any or all of the conditions will be satisfied or, if satisfied,
that one or more of these Properties will be acquired by CNL XVIII. If acquired,
the leases of all five of these Properties are expected to be entered into on
substantially the same terms described in "Business--Description of Leases" and
set forth below are summarized terms expected to apply to the leases for each of
the Properties. More detailed information relating to a Property and its related
lease will be provided at such time, if any, as the Property is acquired.
Set forth below are summarized terms expected to apply to the leases
for each of the Properties. More detailed information relating to a Property and
its related lease will be provided at such time, if any, as the Property is
acquired:
38
<PAGE>
<TABLE>
<CAPTION>
Lease Term and
Property Renewal Options Minimum Annual Rent Percentage Rent Option to Purchase
- -------- --------------- ------------------- --------------- ------------------
<S><C>
Boston Market 15 years; five five-year 10.38% of CNL XVIII's for each lease year at any time after
Charlotte, NC renewal options total cost to purchase after the fifth lease the fifth lease
Existing restaurant the property; year, (i) 5% of year
increases by 10% after annual gross sales
the fifth lease year minus (ii) the
and after every five minimum annual rent
years thereafter for such lease year
during the lease term
Boston Market 15 years; five five-year 10.38% of Total Cost for each lease year at any time after
Reno, NV renewal options (1); increases by 10% after the fifth lease the fifth lease
Restaurant to be after the fifth lease year, (i) 4% of year
constructed year and after every annual gross sales
five years thereafter minus (ii) the
during the lease term minimum annual rent
for such lease year
Boston Market 15 years; five five-year 10.38% of CNL XVIII's for each lease year at any time after
Timonium, MD renewal options total cost to purchase after the fifth lease the fifth lease
Restaurant to be the property; year, (i) 5% of year
constructed increases by 10% after annual gross sales
the fifth lease year minus (ii) the
and after every five minimum annual rent
years thereafter for such lease year
during the lease term
IHOP 20 years; three five- 10.125% of CNL XVIII's for each lease year, during the eleventh
Santa Rosa, CA year renewal options total cost to purchase (i) 4% of annual lease year and at
Existing restaurant the property; gross sales minus the end of the
increases by 10% after (ii) the minimum initial lease term
the fifth lease year annual rent for such
and after every five lease year
years thereafter
during the lease term
Jack in the Box 18 years; four five-year 10.25% of Total Cost for each lease year, at any time after
Houston, TX renewal options (1); increases by 8% (i) 5% of annual the seventh lease
Restaurant to be after the fifth lease gross sales minus year (2)
constructed year and after every (ii) the minimum
five years thereafter annual rent for such
during the lease term lease year
</TABLE>
39
<PAGE>
FOOTNOTES:
(1) The "Total Cost" is equal to the sum of (i) the purchase price of the
property, (ii) closing costs, and (iii) actual development costs
incurred under the development agreement.
(2) In the event CNL XVIII purchases the property directly from the lessee,
the lessee will have no option to purchase the property.
40
<PAGE>
The following table sets forth the location of the 13 Properties acquired
by CNL XVIII from inception through April 30, 1997, a description of the
competition, and a summary of the principal terms of the acquisition and lease
of each Property:
41
<PAGE>
<TABLE>
PROPERTY ACQUISITIONS
From inception through April 30, 1997
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
BURGER KING $875,000 12/27/96 12/2016; four $89,688; for each lease during the
(the "Kinston Property") five-year increases by 5% year, (i) 6% of eighth,
Existing restaurant renewal options after the fifth annual gross ninth,
lease year and sales minus tenth,
The Kinston Property is by 10% after (ii) the eleventh
located at the northwest the tenth lease minimum annual and twelfth
quadrant of the year and after rent for such lease years
intersection of North every five lease year only
Heritage Street and years
Phillips Street, in thereafter
Kinston, Lenoir County, during the
North Carolina, in an area lease term
of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Kinston Property
include a Hardee's, a
Golden Corral, a KFC, two
Pizza Huts, and a local
restaurant.
GOLDEN CORRAL (12) $579,704 12/27/96 12/2011; four 10.75% of Total for each lease during the
(the "Houston Property") (excluding five-year Cost (4) year, 5% of the first
Restaurant to be closing and renewal options amount by which through
constructed development annual gross seventh
costs) (3) sales exceed lease years
The Houston Property is $2,899,152 (5) and the
located at the southeast tenth
quadrant of the through
intersection of Highway fifteenth
290 and Hollister Road, in lease years
Houston, Harris County, only
Texas, in an area of mixed
retail, commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Houston Property
include a Burger King, a
Taco Bell, a Fuddrucker's,
an Outback Steakhouse, a
Shoney's, a Red Lobster, a
Whataburger, and several
local restaurants.
42
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
JACK IN THE BOX (11) $1,258,223 01/07/97 01/2015; four $128,968 (6); for each lease None
(the "Echo Park (excluding five-year increases by 8% year, (i) 5% of
Property") closing renewal options after the fifth annual gross
Restaurant to be costs) lease year and sales minus
constructed (3)(6) after every (ii) the
five years minimum annual
The Echo Park Property is thereafter rent for such
located on the northeast during the lease year (5)
corner of Effie Street and lease term
Glendale Boulevard, in Los
Angeles, Los Angeles
County, California, in an
area of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Echo Park Property
include a KFC and a
McDonald's.
JACK IN THE BOX (11) $1,067,175 01/07/97 01/2015; four $109,385 (6); for each lease None
(the "Henderson (excluding five-year increases by 8% year, (i) 5% of
Property") closing renewal options after the fifth annual gross
Restaurant to be costs) lease year and sales minus
constructed (3)(6) after every (ii) the
five years minimum annual
The Henderson Property is thereafter rent for such
located within the eastern during the lease year (5)
quadrant of the lease term
intersection of South
Boulder Highway and Texas
Avenue, in Henderson,
Clark County, Nevada, in
an area of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Henderson Property
include an Arby's, a
Domino's Pizza, a KFC, a
McDonald's, a Pizza Hut, a
Sizzler, a Sonic Drive-In,
a Taco Bell, and several
local restaurants.
43
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
JACK IN THE BOX (11) $759,658 01/08/97 01/2015; four $77,865 (6); for each lease None
(the "Centerville (excluding five-year increases by 8% year, (i) 5% of
Property") closing renewal options after the fifth annual gross
Restaurant to be costs) lease year and sales minus
constructed (3)(6) after every (ii) the
five years minimum annual
The Centerville Property thereafter rent for such
is located within the during the lease year (5)
northwest quadrant of the lease term
intersection of Highway 45
and State Highway 7, in
Centerville, Leon County,
Texas, in an area of mixed
retail, commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Centerville Property
include a Dairy Queen and
several local restaurants.
GOLDEN CORRAL (12) $424,883 01/22/97 01/2012; four 10.75% of Total for each lease during the
(the "Galveston (excluding five-year Cost (4) year, 5% of the first
Property") closing and renewal options amount by which through
Restaurant to be development annual gross seventh
constructed costs) (3) sales exceed lease years
$2,532,737 (5) and the
The Galveston Property is tenth
located within the through
southwest quadrant of the fifteenth
intersection of Seawall lease years
Boulevard and 61st Street, only
in Galveston, Galveston
County, Texas, in an area
of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Galveston Property
include an IHOP, a Western
Sizzling, a Shoney's, a
Jack in the Box, a
Whataburger, an Arby's,
and several local
restaurants.
44
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
BOSTON MARKET $1,225,686 01/23/97 01/2012; five $122,569; for each lease at any time
(the "Raleigh Property") (excluding five-year increases to year after the after the
Existing restaurant closing renewal options $132,497 during fifth lease fifth lease
costs) the third year, (i) 5% of year
The Raleigh Property is through fifth annual gross
located on a pad site in lease years, sales minus
the Falls Center Shopping $141,567 during (ii) the
Center, which is located the sixth minimum annual
at the northeast quadrant through tenth rent for such
of the intersection of lease years, lease year
Falls of the Neuse Road and $155,785
and Old Wake Forest Road, during the
in Raleigh, Wake County, eleventh
North Carolina, in an area through
of mixed retail, fifteenth lease
commercial, and years
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Raleigh Property
include a Bojangles, three
Pizza Huts, a Red Lobster,
a Burger King, two
Wendy's, four Subway
Sandwich Shops, two Golden
Corrals, two Hardees, two
KFCs, a Taco Bell Express,
three McDonald's, a Ryan's
Family Steakhouse, a Pizza
Inn, a Denny's, a Sizzler,
and several local
restaurants.
BLACK-EYED PEA (7) $617,610 03/26/97 04/2023 $69,347; None at any time
(the "Atlanta Property") increases to after the
Existing restaurant $73,700 during fifth lease
the eleventh year
The Atlanta Property is through
located along the east twentieth lease
side of Peachtree Road, years and
north of 28th Street $76,051 during
Northwest, in Atlanta, the twenty-
Fulton County, Georgia, in first through
an area of mixed retail, twenty-sixth
commercial, and lease years
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Atlanta Property
include a Miami Subs, a
Wendy's, and several local
restaurants.
45
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
GOLDEN CORRAL $1,686,119 04/02/97 04/2017; two $189,688; for each lease at any time
(the "Stow Property") five-year increases by year, (i) 5% of after the
Existing restaurant renewal options 10% after the annual gross seventh
fifth lease sales minus lease year
The Stow Property is year and after (ii) the
located on the south side every five minimum annual
of Kent Road west of Marsh years rent for such
Road in Stow, Summit thereafter lease year
County, Ohio, in an area during the
of mixed retail, lease term
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Stow Property include
an Applebee's, a Wendy's,
a Taco Bell, and a KFC.
BOSTON MARKET $621,595 04/16/97 04/2012; five 10.38% of Total for each lease at any time
(the "San Antonio #1 (excluding five-year Cost (4); year after the after the
Property") development renewal options increases by fifth lease fifth lease
Restaurant to be costs) (3) 10% after the year, (i) 4% of year
constructed fifth lease annual gross
year and after sales minus
The San Antonio #1 every five (ii) the
Property is located at the years minimum annual
northwest quadrant of San thereafter rent for such
Pedro Avenue and West during the lease year
Maplewood Lane, in San lease term
Antonio, Bexar County,
Texas, in an area of mixed
retail, commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the San Antonio #1
Property include a KFC, a
McDonald's, and several
local restaurants.
ON THE BORDER (8) $182,459 04/17/97 (9); three 13.64% of Total for each lease at any time
(the "San Antonio #2 (excluding five-year Cost (4); (10) year, (i) 4% of after the
Property") development renewal options annual gross tenth lease
Restaurant to be costs) (3) sales minus year
constructed (ii) the
minimum annual
The San Antonio #2 rent for such
Property is located along lease year (5)
the east side of
Interstate Highway 10,
north of Huebner Oaks
Road, in San Antonio,
Bexar County, Texas, in an
area of mixed retail,
commercial, and
residential development.
46
<PAGE>
<CAPTION>
Lease Expira-
Property Location and Purchase Date tion and Minimum Option
Competition Price (1) Acquired Renewal Options Annual Rent (2) Percentage Rent To Purchase
- --------------------- ------------ -------- --------------- --------------- --------------- -----------
<S><C>
BOSTON MARKET $549,772 04/29/97 04/2012; five 10.38% of for each lease at any time
(the "Minnetonka (excluding five-year Total Cost (4); year after the after the
Property") development renewal options increases by fifth lease fifth lease
Restaurant to be costs) (3) 10% after the year, (i) 5% of year
constructed fifth lease annual gross
year and after sales minus
The Minnetonka Property is every five (ii) the
located on the northeast years minimum annual
corner of Shady Oak Road thereafter rent for such
and State Road 62, in during the lease year
Minnetonka, Hennepin lease term
County, Minnesota, in an
area of mixed retail,
commercial, and
residential development.
Other fast-food and
family-style restaurants
located in proximity to
the Minnetonka Property
include a McDonald's, a
Schlotzsky's Deli, and
several local restaurants.
WENDY'S $193,717 04/30/97 04/2017; two 10.25% of Total for each lease at any time
(the "Sparta Property") (excluding five-year Cost (4) year, (i) 7% of after the
Restaurant to be development renewal options annual gross seventh
constructed costs) (3) sales minus lease year
(ii) the
The Sparta Property is minimum annual
located at the southwest rent for such
quadrant of Mose Drive and lease year
Roosevelt Street, in
Sparta, White County,
Tennessee, in an area of
mixed retail, commercial,
and residential
development. Other fast-
food and family-style
restaurants located in
proximity to the Sparta
Property include a Taco
Bell, a Pizza Hut, a
McDonald's, and a KFC.
</TABLE>
47
<PAGE>
FOOTNOTES:
(1) The estimated federal income tax basis of the depreciable portion (the
building portion) of each of the Properties acquired, and for the
construction Properties, once the buildings are constructed, is set
forth below:
Property Federal Tax Basis
Kinston Property $ 661,000
Houston Property 1,058,000
Echo Park Property 655,000
Henderson Property 605,000
Centerville Property 540,000
Galveston Property 1,003,000
Raleigh Property 483,000
Atlanta Property 650,000
Stow Property 1,273,000
San Antonio #1 Property 284,000
San Antonio #2 Property 1,251,000
Minnetonka Property 483,000
Sparta Property 480,000
(2) Minimum annual rent for each of the Properties became payable on the
effective date of the lease, except as indicated below. For the Houston
and Galveston Properties, minimum annual rent will become due and
payable on the earlier of (i) the date the certificate of occupancy for
the restaurant is issued, (ii) the date the restaurant opens for
business to the public or (iii) 180 days after execution of the lease.
Minimum annual rent for the San Antonio #1 and Minnetonka Properties
will become due and payable on the date the tenant receives from the
landlord its final funding of the construction costs. For the San
Antonio #2 Property, minimum annual rent will become due and payable on
the earlier of (i) 180 days after execution of the lease, (ii) the date
the certificate of occupancy for the restaurant is issued, (iii) the
date the restaurant opens for business to the public, or (iv) the date
the tenant receives from the landlord its final funding of the
construction costs. For the Sparta Property, minimum annual rent will
become due and payable on the earlier of (i) 120 days after execution
of the lease, (ii) the date the certificate of occupancy for the
restaurant is issued, (iii) the date the restaurant opens for business
to the public, or (iv) the date the tenant receives from the landlord
its final funding of the construction costs. During the period
commencing with the effective date of the lease to the date minimum
annual rent becomes payable for the Houston and Galveston Properties,
as described above, "interim rent" equal to ten percent per annum of
the amount funded by CNL XVIII in connection with the purchase and
construction of the Property shall accrue and shall be payable in a
single lump sum on the date minimum annual rent becomes payable for
this Property. During the period commencing with the effective date of
the lease to the date minimum annual rent becomes payable for the San
Antonio #1 and Minnetonka Properties, as described above, interim rent
equal to 10.38% per annum of the amount funded by CNL XVIII in
connection with the purchase and construction of the Properties shall
accrue and be payable in a single lump sum at the time of final funding
of the construction costs. During the period commencing with the
effective date of the lease to the date minimum annual rent becomes
payable for the San Antonio #2 and Sparta Properties, as described
above, the tenant shall pay monthly "interim rent" equal to a specified
rate per annum (ranging from 10.25% to 11%) of the amount funded by CNL
XVIII in connection with the purchase and construction of the
Properties.
(3) The development agreements for the Properties which are to be
constructed, provide that construction must be completed no later than
the dates set forth below. The maximum cost to CNL XVIII (including the
purchase price of the land, (if applicable), development costs (if
applicable), and closing and acquisition costs) is not expected to, but
may, exceed the amounts set forth below:
48
<PAGE>
<TABLE>
<CAPTION>
Property Estimated Maximum Cost Estimated Final Completion Date
<S> <C>
Houston Property $1,684,643 June 25, 1997
Echo Park Property 1,258,223 July 6, 1997
Henderson Property 1,067,175 July 6, 1997
Centerville Property 759,658 July 7, 1997
Galveston Property 1,480,132 July 21, 1997
San Antonio #1 Property 860,388 October 13, 1997
San Antonio #2 Property 1,213,504 October 14, 1997
Minnetonka Property 823,052 October 26, 1997
Sparta Property 666,346 August 28, 1997
(4) The "Total Cost" is equal to the sum of (i) the purchase price of the
Property, (ii) closing costs, and (iii) actual development costs
incurred under the development agreement.
(5) Percentage rent shall be calculated on a calendar year basis (January 1
to December 31).
(6) CNL XVIII paid for all construction costs in advance at closing;
therefore, minimum annual rent was determined on the date acquired and
is not expected to change.
(7) CNL XVIII owns the building only for this Property. CNL XVIII does not
own the underlying land; although, CNL XVIII has entered into a
landlord estoppel agreement with the landlord of the land and a
collateral assignment of the ground lease with the lessee in order to
provide CNL XVIII with certain rights with respect to the land on which
the building is located.
(8) CNL XVIII owns the building only for this Property. CNL XVIII does not
own the underlying land; although, CNL XVIII has entered into a
tri-party agreement with the lessee and the landlord of the land in
order to provide CNL XVIII with certain rights with respect to the land
on which the building is located.
(9) The lease term shall expire upon the later of (i) the date 15 years
from the date of closing, (ii) the expiration of the original term of
the ground lease, or (iii) the earlier termination of the ground lease.
(10) Annual rent shall increase after every five years during the lease term
by the lesser of (i) 10% of the minimum annual rent during the
preceding year or (ii) 150% of the change in the Consumer Price Index.
(11) The lessee of the Echo Park, Henderson and Centerville Properties is
the same unaffiliated lessee.
(12) The lessee of the Houston and Galveston Properties is the same
unaffiliated lessee.
49
<PAGE>
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 over specified levels, 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.
(In
50
<PAGE>
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.
51
<PAGE>
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.
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.
52
<PAGE>
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 over specified levels.
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
Based on their past experience and knowledge of the fast-food,
family-style, and casual dining restaurant industry, the General Partners expect
that any Properties purchased by the Partnership will, and the seven Properties
purchased by the Partnership do, 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.
53
<PAGE>
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.
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
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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 above a specified level 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 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 Partnership'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
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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.
In the case of the Golden Corral restaurant properties, which have been
acquired or will be acquired by the Partnership, the General Partners anticipate
that the leases entered into between the Partnership, as lessor, and Golden
Corral Corporation, as lessee, will provide (and the Golden Corral restaurant
Properties acquired by the Partnership do 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
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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. 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
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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 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.
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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
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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 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. However, in some cases the General Partners may determine that it is in
the best interest of the Partnership to reinvest the Net Sales Proceeds derived
from such Sale in other Properties rather than distribute such proceeds to the
Partners. In determining whether to reinvest Net Sales Proceeds, the General
Partners will consider, in addition to the general factors considered when
acquiring a Property (See "Business--Selection and Acquisition of Properties"),
various factors, including, but not limited to, the following factors:
o the anticipated timing of the receipt of the Net Sales
Proceeds and whether or not the Partnership is still within
the anticipated 7 to 12 year holding period,
o the potential impact on anticipated future Net Cash Flow from
continuing operations which the distribution of such Net Sales
Proceeds would have, including but not limited to, the effect
on future distributions of Net Cash Flow and the impact on
anticipated future operating expenses as a percentage of
operating revenues (due to the fact that certain operating
expenses are fixed in nature and would not decrease with the
Sale of a Property),
o the anticipated gain on the Sale of the Property and whether
or not it will result in a significant tax to the investors if
distributed, and
o whether or not there is a prospective acquisition opportunity
where the Net Sales Proceeds could be reinvested which the
General Partners believe would increase future Net Cash Flow
or diversify the Partnership's portfolio.
In the event the General Partners determine to reinvest Net Sales
Proceeds from the Sale of a Property, upon investment, such Net Sales Proceeds
will be subject to the same or substantially similar risks generally applicable
to an investment in Properties. See "Risk Factors--Real Estate Risks." Also, it
is possible that the reinvestment of Net Sales Proceeds in other Properties will
extend the period during which the Properties are intended to be sold (currently
anticipated by the General Partners to be 7 to 12 years after acquisition of the
Properties or as soon thereafter as market conditions permit).
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
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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.
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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.
For the Period February 10,
Year Ended 1995 (date of inception)
December 31, through December 31,
1996 1995
--------------- --------------------------
Revenues $ 31,614 $ -
Net income 26,910 -
Cash distributions 57,846 -
declared (2)
Net income per Unit .05 -
Cash distributions
declared per Unit (2) .11 -
Weighted average number of
Limited Partner Units
outstanding (3) 503,436 -
December 31, December 31,
1996 1995
--------------- ---------------
Total assets $7,240,324 $ 256,890
Total partners' capital 6,996,213 1,000
(1) Operations did not commence until October 12, 1996, the date following
when CNL XVIII received the minimum offering proceeds of $1,500,000,
and such proceeds were released from escrow.
(2) Approximately 53% of cash distributions ($0.06 per Unit) for the year
ended December 31, 1996, represents a return of capital in accordance
with generally accepted accounting principles ( "GAAP "). Cash
distributions treated 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. CNL XVIII has not treated such amount as a return of
capital for purposes of calculating the Limited Partners' Invested
Capital Contributions and the Limited Partners' 8% Return, as described
in the Form of Amended and Restated Agreement of Limited Partnership
included as Exhibit A to the Prospectus.
(3) Represents the weighted average number of Units outstanding during the
period CNL XVIII was operational.
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 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.
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LIQUIDITY AND CAPITAL RESOURCES
The Offering commenced on September 20, 1996. As of December 31, 1996,
the Partnership had sold 842,182 Units, representing $8,421,815 of capital
contributed by Limited Partners. 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.
As of December 31, 1996, net proceeds to the Partnership from its
offering of Units, after deduction of Organizational and Offering Expenses,
totalled $7,016,149. Of this amount, the Partnership had invested or committed
for investment approximately $2,960,800 of such proceeds in two Properties (one
of which was under construction as of December 31, 1996), and to pay Acquisition
Fees and certain Acquisition Expenses, leaving approximately $4,055,400 of
Offering proceeds available for investment in Properties.
In connection with the Property under construction acquired by the
Partnership as of December 31, 1996, the Partnership has entered into a
development agreement with the tenant which provides terms and specifications
for the construction of a building that the tenant has agreed to lease. The
agreement provides a maximum amount of development costs (including the purchase
price of the land and closing costs) to be paid by the Partnership. The maximum
development costs the Partnership has agreed to pay is approximately $1,684,600,
of which approximately $579,700 in land and other costs had been incurred as of
December 31, 1996. The building currently under construction is expected to be
operational by June 1997. In connection with the purchase of this Property, the
Partnership, as lessor entered into a long-term lease agreement.
During the period January 1, 1997 through April 30, 1997, the
Partnership acquired 11 additional Properties (eight of which are under
construction) for cash, at a total cost of approximately $8,586,900, excluding
certain closing and development costs. In connection with the eight Properties
under construction, the Partnership has agreed to pay development costs
(including the purchase prices of the land and closing costs) of approximately
$8,128,500, of which approximately $5,057,500 in land and other costs had been
paid by the Partnership as of April 30, 1997. The buildings are expected to be
operational by October 1997. In connection with the acquisition of each of these
Properties, the Partnership entered into a long-term, triple-net lease.
As of April 30, 1997, the Partnership had sold a total of 1,848,302
Units, for an aggregate of $18,483,022 in gross Offering proceeds and had
invested or committed for investment approximately $15,100,000 of such proceeds
in 13 Properties, nine of which were under construction at April 30, 1997, and
to pay Acquisition Fees and certain Acquisition Expenses, leaving approximately
$1,100,000 in net Offering proceeds available for investment in Properties. As
of April 30, 1997, the Partnership had incurred $831,736 in Acquisition Fees to
an Affiliate of the General Partners.
The Partnership presently is negotiating to acquire additional
Properties, but as of April 30, 1997, had not acquired any such Properties. The
Partnership will use the remaining net Offering proceeds, together with proceeds
from the sale of Units subsequent to April 30, 1997, to acquire additional
Properties, to pay Acquisition Fees and Acquisition Expenses and to pay expenses
relating to the sale of Units. 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.
None of the Properties owned or to be acquired by the Partnership is or
may be encumbered. 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 further have represented that they will use their reasonable
efforts to structure any borrowing so that it will not constitute "acquisition
indebtedness" for federal income tax purposes and also will limit the
Partnership's outstanding indebtedness to three percent of the aggregate
adjusted tax basis of its Properties. Affiliates of the General Partners from
time to time incur certain expenses on behalf of the Partnership for which the
Partnership reimburses the Affiliates without interest.
Until Properties are acquired by the Partnership, all Partnership
proceeds are held in short-term, highly liquid investments which the General
Partners believe to have appropriate safety of principal. This investment
strategy provides high liquidity in order to facilitate the Partnership's use of
these funds to acquire Properties at such time as Properties suitable
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for acquisition are located. At December 31, 1996, the Partnership had
$5,371,325 invested in such short-term investments, as compared to $980 at
December 31, 1995. The increase in the amount invested in short-term investments
reflects subscription proceeds derived from the sale of Units during the year
ended December 31, 1996. These funds will be used to pay costs relating to the
Property under construction at December 31, 1996, to purchase and develop
additional Properties, to pay syndication and acquisition costs, to pay
distributions, to meet the Partnership's working capital and other needs and, in
the General Partners' discretion, to create cash reserves.
During the year ended December 31, 1996 and the period February 10,
1995 (date of inception) through December 31, 1995, Affiliates of the General
Partners incurred on behalf of the Partnership $285,858 and $196,174,
respectively, for certain Organizational and Offering Expenses. In addition,
during 1996, Affiliates incurred $18,036 for certain Acquisition Expenses and
$893 for certain operating expenses. As of December 31, 1996 and 1995, the
Partnership owed $83,889 and $233,760, respectively, to Affiliates for such
amounts, fees and other reimbursements. Amounts payable to other parties,
including distributions payable, increased to $160,222 at December 31, 1996, as
compared to $22,130 at December 31, 1995, primarily as a result of incurring
additional Organizational and Offering Expenses during 1996 and accruing
distributions payable to limited partners as of December 31, 1996. The General
Partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.
During the year ended December 31, 1996, the Partnership generated cash
from operations (which includes interest received, less cash paid for expenses)
of $27,146. Cash from operations is expected to increase significantly in 1997
as (i) the Partnership invests its net Offering proceeds in additional
Properties, (ii) the Property that was owned, but under construction, as of
December 31, 1996, becomes operational and (iii) the existing Property,
purchased on December 27, 1996, is operational for a full year. Based on current
and anticipated future cash from operations, the Partnership declared
distributions to the Limited Partners of $57,846 for the year ended December 31,
1996 (representing distributions of $0.11 per Unit based on the weighted average
number of Units outstanding during the period the Partnership was operational).
No amounts distributed or to be distributed to the Limited Partners for the year
ended December 31, 1996, are required to be or have been treated by the
Partnership as a return of capital for purposes of calculating the Limited
Partners' return on their Invested Capital Contributions. The Partnership
intends to continue to make distributions of cash available for distribution to
the Limited Partners on a quarterly basis, although some Limited Partners, in
accordance with their election, receive monthly distributions, for an annual
fee.
The General Partners have obtained contingent liability and property
coverage for the Partnership. This insurance policy is intended to reduce the
Partnership's exposure in the unlikely event a tenant's insurance policy lapses
or is insufficient to cover a claim relating to the Property; therefore, the
General Partners believe that the Properties the Partnership owned as of
December 31, 1996, are adequately covered by insurance. The Partnership's
investment strategy of acquiring Properties for cash and leasing them under
triple-net leases to operators who generally meet specified financial standards
minimizes the Partnership's operating expenses. The General Partners believe
that the leases will generate cash flow in excess of operating expenses.
Partnership Net Income is expected to increase throughout 1997, as rental income
increases, due to (i) the acquisition of additional Properties, (ii) the
Property under construction at December 31, 1996 becoming operational and (iii)
the existing Property, purchased on December 27, 1996, being operational for a
full year. Accordingly, the General Partners believe that the anticipated
decrease in the Partnership's liquidity in 1997, due to its investment of net
Offering proceeds in additional Properties and the payment of construction costs
for the Property under construction at December 31, 1996, will not have an
adverse effect on the Partnership's operations during 1997.
Due to low operating expenses, ongoing cash flow from rental income
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 purchase, the General Partners do not
believe that working capital reserves are necessary at this time. In addition,
due to the fact that both of the leases for the Partnership's Properties are on
a triple-net basis, it is not anticipated that a permanent reserve for
maintenance and repairs is necessary at this time. To the extent, however, that
the Partnership has insufficient funds for such purposes, the General Partners
will contribute to the Partnership an aggregate amount of up to one percent of
the offering proceeds for maintenance and repairs. 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 have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
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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 commenced until the Partnership received and
released from escrow the minimum Offering proceeds of $1,500,000 on October 11,
1996.
As of December 31, 1996, the Partnership had purchased two Properties
(one of which was under construction), and entered into lease agreements with
Carrols Corporation relating to the existing Property and Golden Corral
Corporation relating to the Property under construction at December 31, 1996.
The lease agreement entered into for the existing Property provides for minimum
base annual rental payments (payable in equal monthly installments) of
approximately $89,700 and provides for percentage rent equal to the amount by
which six percent of annual gross sales of the restaurant exceeds the minimum
annual rent for such lease year. The lease agreement entered into for the
Property under construction, provides for estimated minimum base annual rental
payments (payable in equal monthly installments) of approximately $170,300 and
provides for percentage rent equal to the amount by which five percent of annual
gross sales of the restaurant exceeds a specified amount. In addition, the lease
relating to the existing Property provides that, commencing in the sixth lease
year, the annual base rent required under the terms of the lease will increase
by five percent and commencing in the eleventh lease year and every five years
thereafter, the annual base rent required will increase by ten percent. In
accordance with the lease agreement relating to the Property under construction,
rent will commence the earlier of (i) the date a certificate of occupancy for
the premises is received, (ii) the date the restaurant opens for business, or
(iii) June 25, 1997. The Partnership earned $1,373 in rental income during the
year ended December 31, 1996, attributable to the existing Property purchased on
December 27, 1996. For further description of the Partnership's leases and
Properties owned as of December 31, 1996, see "Business - Property
Acquisitions."
Due to the fact that as of December 31, 1996, the Partnership had only
acquired two Properties and the Partnership anticipates acquiring additional
Properties, it is not possible to determine which lessees or Restaurant Chains
will contribute more than ten percent of the Partnership's rental income during
1997 and subsequent years. In the event that certain lessees or Restaurant
Chains contribute more than ten percent of the Partnership's rental income in
future years, any failure of such lessees or Restaurant Chains could materially
effect the Partnership's income.
During the year ended December 31, 1996, the Partnership earned $30,241
in interest income from investments in money market accounts or other
short-term, highly liquid investments. As net offering proceeds are invested in
additional Properties, the Property under construction becomes operational, and
the existing Property acquired during 1996 becomes operational for a full year,
the percentage of total income representing interest income is expected to
decrease.
Operating expenses, including depreciation and amortization expense,
were $4,704 for the year ended December 31, 1996. The dollar amount of operating
expenses is expected to increase, and the amount of general operating and
administrative expenses as a percentage of total revenues is expected to
decrease, in 1997 as the Partnership acquires additional Properties.
The Partnership's leases as of December 31, 1996, and the leases the
Partnership expects to enter into, are or are expected to be on a triple-net
basis and contain provisions that management believes will mitigate the adverse
effect of inflation. Such provisions include clauses requiring the payment of
percentage rent based on certain restaurant sales above a specified level and/or
automatic increases in base rent at specified times during the term of the
lease. Management expects that increases in restaurant sales volumes due to
inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
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.
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There currently are no material changes being considered in the
objectives and policies of the Partnership as set forth in this Prospectus.
This information contains forward-looking statements within the meaning
of Section 27A of the Securities Act of 1933 and Section 21E of the Securities
Exchange Act of 1934. Although the Partnership believes that the expectations
reflected in such forward-looking statements are based upon reasonable
assumptions, the Partnership's actual results could differ materially from those
set forth in the forward-looking statements. Certain factors that might cause
such a difference include the following: changes in general economic conditions,
changes in local real estate conditions, continued availability of proceeds from
the Partnership's offering, the ability of the Partnership to locate suitable
tenants for its Properties and the ability of tenants to make payments under
their respective leases.
MANAGEMENT
The following is a description of the individual General Partners, the
corporate General Partner, CNL Fund Advisors, Inc. (which provides 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., CNL Real Estate Advisors, Inc., and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which 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, and has served as Chairman of the
Board and Chief Executive Officer of CNL American Realty Fund, Inc. since 1996
and of CNL Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously
served on the Florida State Commission on Ethics and is a former member and past
Chairman of the State of Florida Investment Advisory Council, which recommends
to the Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $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 over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr. Seneff, directly or through an affiliated entity, serves or has
served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income
Fund 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 50, 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
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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, 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, and has served as President and a director of CNL
American Realty Fund, Inc. since 1996 and of CNL Real Estate Advisors, Inc since
January 1997. Upon graduation from Florida State University in 1970, where he
received a B.A. in Accounting, with honors, Mr. Bourne worked as a certified
public accountant and, from September 1971 through December 1978, was employed
by Coopers & Lybrand, Certified Public Accountants, where he held the position
of tax manager beginning in 1975. From January 1979 until June 1982, Mr. Bourne
was a partner in the accounting firm of Cross & Bourne and from July 1982
through January 1987, he was a partner in the accounting firm of Bourne & Rose,
P.A., Certified Public Accountants. Mr. Bourne, who joined CNL Securities Corp.
in 1979, has participated as a general partner or joint venturer in over 100
real estate ventures involved in the financing, acquisition, construction and
rental of office buildings, apartment complexes, restaurants, hotels and other
real estate. Included in these real estate ventures are approximately 64
privately offered real estate limited partnerships in which Mr. Bourne, directly
or through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner. 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 provides 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 38, 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
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Advisors, Inc. and CNL American Properties Fund, Inc. and serves as Executive
Vice President of CNL American Realty Fund, Inc. and CNL Real Estate Advisors,
Inc. 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 48, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She
has served as Chief Operating Officer, Vice President and Secretary of CNL
Corporate Services, Inc. since November 1994. Ms. Rose also has served as Chief
Financial Officer and Secretary of CNL Institutional Advisors, Inc. since its
inception in 1990, a director of CNL Realty Advisors, Inc. since its inception
in 1991, as 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 and has served as a director,
Secretary and Treasurer of CNL Real Estate Advisors, Inc. since January 1997.
Ms. Rose also has served as Secretary and Treasurer of CNL American Properties
Fund, Inc. since 1994, and has served as Secretary and Treasurer of CNL American
Realty Fund, Inc. since 1996. Ms. Rose also currently serves as Secretary for
approximately 50 additional corporations. Ms. Rose oversees the management
information services, administration, legal compliance, accounting, tenant
compliance, and reporting for over 250 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 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 and sales 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. In addition, Ms. Wall has
served as Executive Vice President of CNL Real Estate Advisors, Inc. since
January 1997 and as Executive Vice President of CNL American Realty Fund, Inc.
since 1996. Ms. Wall holds a B.A. in Business Administration from Linfield
College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct Participation Program committee for the National Association
of Securities Dealers (NASD).
STEVEN D. SHACKELFORD, age 33, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996. Mr. Shackelford joined CNL Group,
Inc. in September 1996. He also currently serves as the Chief Financial Officer
of CNL American Properties Fund, Inc. From March 1995 to July 1996, he was a
senior manager in the national office of Price Waterhouse where he was
responsible for advising foreign clients seeking to raise capital and a public
listing in the United States. From August 1992 to March 1995, he served as a
manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and senior from 1986
to 1992 in the Orlando, Florida office of Price Waterhouse. Mr Shackelford
received a B.A. in Accounting, with honors, and a Masters of Business
Administration from Florida State University and is a certified public
accountant.
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<PAGE>
NET WORTH OF GENERAL PARTNERS
Messrs. Seneff and Bourne, the individual General Partners, have
represented that at April 23, 1996, along with their wives, they had an
aggregate net worth in excess of $14,000,000, and that their aggregate net worth
at April 30, 1997 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 23, 1996 and April 30, 1997,
Messrs. Seneff and Bourne also had contingent liabilities in the aggregate
amount of approximately $9,700,000 and $6,700,000, 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
23, 1996 and April 30, 1997, these lines of credit aggregated approximately
$5,900,000 and $1,800,000, 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 and corporations of
which they are stockholders. At April 23, 1996 and April 30, 1997, these
guarantees totalled approximately $31,500,000 and $42,700,000, 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 $1,400,000 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 contingent master lease obligations as of April 30, 1997,
was $3,100,000. 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.
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<PAGE>
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.
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 December 31, 1996, these
17 partnerships and CNL American Properties Fund, Inc. had raised a total of
$719,247,149 from a total of 54,652 investors, and had invested in 760
fast-food, family-style or casual dining restaurant properties.
</TABLE>
<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)
</TABLE>
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<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 $35,000,000 September 6, 1991 3,500,000 November 1991
Fund IX, Ltd. (3,500,000 units)
CNL $40,000,000 March 18, 1992 4,000,000 June 1992
Income (4,000,000 units)
Fund X, Ltd.
CNL Income $40,000,000 September 28, 1992 4,000,000 September 1992
Fund XI, Ltd. (4,000,000 units)
CNL $45,000,000 March 15, 1993 4,500,000 July 1993
Income (4,500,000 units)
Fund XII, Ltd.
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 Fund $30,000,000 September 19, 1996 3,000,000 December 1996
Fund XVII, Ltd. (3,000,000 units)
CNL American $165,000,000 (3) (3) (3)
Properties Fund, (16,500,000 shares)
Inc. (4)
</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 December 31, 1996, CNL American Properties Fund, Inc., which was
offering a maximum of 15,000,000 shares of common stock ($150,000,000),
excluding 1,500,000 shares ($15,000,000) available to investors
participating in the reinvestment plan, had received subscriptions
totalling $139,247,149 (13,924,715 shares), including $591,765 (59,177
shares) through the reinvestment plan. As of such date, CNL American
Properties Fund, Inc. had purchased 94 properties. On February 6, 1997,
the initial offering closed upon receipt of subscriptions totalling
$150,591,765 (15,059,177 shares), including $591,765 (59,177 shares)
through the reinvestment plan.
(4) Following the completion of the initial offering on February 6, 1997,
CNL American Properties Fund, Inc. commenced a subsequent offering of
up to 27,500,000 shares ($275,000,000) of common stock.
As of December 31, 1996, Mr. Seneff and Mr. Bourne, directly or through
affiliated entities, also had served as joint general partners of 65 nonpublic
real estate limited partnerships. The offerings of 63 of these 65 nonpublic
limited partnerships had terminated as of December 31, 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,
71
<PAGE>
interests in a total of 200 projects as of December 31, 1996. These 200 projects
consist of 19 apartment projects (comprising 11% of the total amount raised by
all 63 partnerships), 13 office buildings (comprising 5% of the total amount
raised by all 63 partnerships), 154 fast-food, family-style, or casual dining
restaurant property and business investments (comprising 69% of the total amount
raised by all 63 partnerships), one condominium development (comprising .5% of
the total amount raised by all 63 partnerships), four hotels/motels (comprising
5% of the total amount raised by all 63 partnerships), seven commercial/retail
properties (comprising 9% of the total amount raised by all 63 partnerships),
and two tracts of undeveloped land (comprising .5% of the total amount raised by
all 63 partnerships). The offering of the two remaining nonpublic limited
partnerships (offerings aggregating $16,550,000) had raised $4,675,000 from 95
investors (approximately 58.6% of the total offering amount) as of December 31,
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 December 31, 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).
The following table sets forth summary information, as of December 31,
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 AL, AZ, CA, FL, All cash Public
Fund, Ltd. family-style GA, LA, MD, OK, TX, VA
restaurants
CNL Income 43 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund II, Ltd. family-style IL, IN, OA, 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 44 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
</TABLE>
72
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
- ------------ -------- -------- --------- -------
<S> <C>
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 46 fast-food or AZ, CO, FL, GA, IN, All cash Public
Fund VII, Ltd. family-style LA, MI, MN, OH,
restaurants SC, 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 AL, AZ, CA, CO, CT All cash Public
Fund XI, Ltd. family-style FL, KS, LA, MA, MI,
restaurants MS, NC, NH, NM,
OH, OK, PA, SC, TX
VA, WA
CNL Income 49 fast-food or AL, AZ, CA, FL, GA, All cash Public
Fund XII, Ltd. family-style LA, MO, MS, NC,
restaurants NM, OH, SC, TN, TX, WA
CNL Income 48 fast-food or AL, AR, AZ, CA, CO, All cash Public
Fund XIII, Ltd. family-style FL, GA, IN, KS, LA,
restaurants MD, NC, OH, PA,
SC, TN, TX, VA
CNL Income 61 fast-food or AL, AZ, CO, FL, GA, All cash Public
Fund XIV, Ltd. family-style KS, LA, MN, MO,
restaurants MS, NC, NJ, NV,
OH, SC, TN, TX, VA
CNL Income 53 fast-food or CA, FL, GA, KS, KY, All cash Public
Fund XV, Ltd. family-style MN, MO, MS, NC,
restaurants NJ, NM, OH, OK,
PA, SC, TN, TX, VA
CNL Income 44 fast-food or AZ, CA, CO, DC, FL, All cash Public
Fund XVI, Ltd. family-style GA, ID, IN, KS, MN,
restaurants MO, NC, NM, NV,
OH, TN, TX, UT, WI
CNL Income 24 fast-food or CA, FL, GA, IL, IN, All cash Public
Fund XVII, Ltd. family-style MI, NC, NV, OH, SC,
restaurants TN, TX
</TABLE>
73
<PAGE>
<TABLE>
<CAPTION>
Name of Type of Method of Type of
Entity Property Location Financing Program
- ------------ -------- -------- --------- -------
<S> <C>
CNL American 94 fast-food, CA, CT, DE, FL, GA, All cash Public
Properties Fund, Inc. family-style, or IA, IL, IN, MI, MN,
casual dining MO, NE, NJ, NM,
restaurants 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 became fully subscribed between January 1992 and December
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 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
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<PAGE>
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.
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<PAGE>
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 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
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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. 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.
The Partnership declared distributions of Net Cash Flow to the Limited
Partners in the amount of $57,846 for the quarter ended December 31, 1996, and
distributions of Net Cash Flow are expected to be paid quarterly hereafter. As
of December 31, 1996, approximately 53% of the cumulative cash distributions to
the Limited Partners constituted cash distributions that exceeded accumulated
net income on a GAAP basis. Accumulated net income includes deductions for
depreciation and amortization expense and income from certain non-cash items.
CNL XVIII did not treat such amounts, which represent a return of capital on a
GAAP basis, as a return of capital for purposes of calculating the Limited
Partners Invested Capital Contributions. There can be no assurance, however, as
to the amount of any future distributions. At the time distributions are paid,
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.
Limited Partners who elect the monthly distribution option will be
charged an annual administrative fee, which is $21.00 for 1996, 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.
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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
Except as described below, 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.
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. However, in some cases the General Partners may determine that it is in
the best interest of the Partnership to reinvest the Net Sales Proceeds derived
from such Sale in other Properties rather than distribute such proceeds to the
Partners. In determining whether to reinvest Net Sales Proceeds, the General
Partners will consider, in addition to the general factors considered when
acquiring a Property (See "Business--Selection and Acquisition of Properties"),
various factors, including, but not limited to, the following factors:
o the anticipated timing of the receipt of the Net Sales
Proceeds and whether or not the Partnership is still within
the anticipated 7 to 12 year holding period,
o the potential impact on anticipated future Net Cash Flow from
continuing operations which the distribution of such Net Sales
Proceeds would have, including but not limited to, the effect
on future distributions of Net Cash Flow and the impact on
anticipated future operating expenses as a percentage of
operating revenues (due to the fact that certain operating
expenses are fixed in nature and would not decrease with the
Sale of a Property),
o the anticipated gain on the Sale of the Property and whether
or not it will result in a significant tax to the investors if
distributed, and
o whether or not there is a prospective acquisition opportunity
where the Net Sales Proceeds could be reinvested which the
General Partners believe would increase future Net Cash Flow
or diversify the Partnership's portfolio.
In the event the General Partners determine to reinvest Net Sales
Proceeds from the Sale of a Property, upon investment, such Net Sales Proceeds
will be subject to the same or substantially similar risks generally applicable
to an investment in Properties. See "Risk Factors--Real Estate Risks." Also, it
is possible that the reinvestment of Net Sales Proceeds in other Properties will
extend the period during which the Properties are intended to be sold (currently
anticipated by the General Partners to be 7 to 12 years after acquisition of the
Properties or as soon thereafter as market conditions permit).
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)
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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.
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.
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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.
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.
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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
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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 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.
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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 LLP, 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 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
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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 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.
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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.
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. No opinion of Counsel is given
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regarding the characterization for tax purposes of any lease, and there can be
no assurance that the tax characterization of a lease will not be successfully
challenged by the IRS. 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 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.
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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 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.
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The Limited Partners are subject to tax on their distributive share of
Partnership taxable income and items of the Partnership'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.
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
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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)
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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.
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
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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 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.
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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 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.
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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
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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.
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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 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
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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.
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, 1997 through June 30, 1997, the interest rate is 9%.
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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
for the Partnership. Certain settlements entered into by the tax matters partner
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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
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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.
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.
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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 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 April 30, 1997, the Partnership had sold
1,848,302 Units, representing $18,483,022 of capital contributed by 895
unaffiliated Limited Partners.
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 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
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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 Reallowed Commissions on Sales Per Unit
of Units Purchase Price ---------------------------------------
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 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.
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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
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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.
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.
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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 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
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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.
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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 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 LLP. Statements made under "Risk
Factors--Federal Income Tax Risks" and "Federal Income Tax Considerations" have
been reviewed by Baker & Hostetler LLP, who have given their opinion that such
statements as to matters of law are correct. Baker & Hostetler LLP serves as
securities counsel to the Partnership and to the General Partners and certain of
their Affiliates.
EXPERTS
The audited financial statements (including the financial statement
schedule) of the Partnership, as of December 31, 1996 and 1995, and for the year
ended December 31, 1996 and 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, 1996, 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.
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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 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.
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"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 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.
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"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.
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"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 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.
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"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.
"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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<S> <C>
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>
<PAGE>
TABLE OF CONTENTS (continued)
<TABLE>
<CAPTION>
Page
<S> <C>
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
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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
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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
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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
A-30
<PAGE>
(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
INDEX TO UPDATED FINANCIAL STATEMENTS
-------------------------------------
Page
----
CNL INCOME FUND XVIII, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
Pro Forma Financial Information (unaudited):
Pro Forma Balance Sheet as of December 31, 1996 B-2
Pro Forma Statement of Income for the year ended
December 31, 1996 B-3
Notes to Pro Forma Financial Statements as of
December 31, 1996 B-4
Audited Financial Statements:
Report of Independent Accountants B-5
Balance Sheets as of December 31, 1996 and 1995 B-6
Statements of Income for the year ended
December 31, 1996 and the period February 10, 1995
(date of inception) through December 31, 1995 B-7
Statements of Partners' Capital for the year ended
December 31, 1996 and the period February 10, 1995
(date of inception) through December 31, 1995 B-8
Statements of Cash Flows for the year ended
December 31, 1996 and the period February 10, 1995
(date of inception) through December 31, 1995 B-9
Notes to Financial Statements for the year ended
December 31, 1996 and the period February 10, 1995
(date of inception) through December 31, 1995 B-11
Financial Statement Schedule:
Schedule III - Real Estate and Accumulated Depreciation
as of December 31, 1996 B-22
Notes to Schedule III - Real Estate and Accumulated
Depreciation as of December 31, 1996 B-24
CNL REALTY CORPORATION
Financial Statements:
Report of Independent Accountants B-25
Balance Sheet as of December 31, 1996 B-26
Notes to Balance Sheet as of December 31, 1996 B-27
PRO FORMA FINANCIAL INFORMATION
The following Pro Forma Balance Sheet of CNL Income Fund XVIII, Ltd. ("CNL
XVIII") gives effect to (i) property acquisition transactions from inception
through December 31, 1996, including the receipt of $8,421,815 in gross offering
proceeds from the sale of 842,182 units of limited partnership interest (the
"Units") pursuant to a registration statement on Form S-11 under the Securities
Act of 1933, as amended, effective August 11, 1995, and the application of such
funds to acquire two properties, one of which was under construction at December
31, 1996, and to pay organizational and offering expenses, acquisition fees, and
miscellaneous acquisition expenses, (ii) the receipt of $10,061,207 in gross
offering proceeds from the sale of 1,006,120 additional Units during the period
January 1, 1997 through April 30, 1997, and (iii) the application of such funds
and $3,909,927 of cash and cash equivalents at December 31, 1996, to purchase 11
additional properties during the period January 1, 1997 through April 30, 1997,
(seven of which are under construction and consist of land and building, one
property which is under construction and consists of building only, two
properties which consist of land and building and one property which consists of
building only), to pay additional construction costs for the property under
construction at December 31, 1996, and to pay offering expenses, acquisition
fees, and miscellaneous acquisition expenses, all as reflected in the pro forma
adjustments described in the related notes. The Pro Forma Balance Sheet as of
December 31, 1996, includes the transactions described in (i) above, from its
historical balance sheet, adjusted to give effect to the transactions in (ii)
and (iii) above, as if they had occurred on December 31, 1996.
The Pro Forma Statement of Income for the year ended December 31, 1996,
includes the historical operating results of the properties described in (i)
above from the dates of their acquisitions. No pro forma adjustments have been
made to the Pro Forma Statement of Income for the properties owned by CNL XVIII
as of April 30, 1997, due to the fact that these properties did not have a
previous rental history.
This pro forma financial information is presented for informational
purposes only and does not purport to be indicative of CNL XVIII's financial
results or condition if the various events and transactions reflected therein
had occurred on the dates, or been in effect during the periods, indicated.
This pro forma financial information should not be viewed as predictive of CNL
XVIII's financial results or conditions in the future.
B-1
CNL INCOME FUND XVIII, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
UNAUDITED PRO FORMA BALANCE SHEET
DECEMBER 31, 1996
Pro Forma
ASSETS Historical Adjustments Pro Forma
---------- --------------- -----------
Land and building on operating
leases, less accumulated
depreciation $1,530,768 $ 9,925,590 (a) $11,456,358
Net investment in direct
financing leases (b) - 3,173,358 3,173,358
Cash and cash equivalents 5,371,325 (3,909,927)(a) 1,461,398
Receivables 3,711 3,711
Organization costs, less
accumulated amortization 9,589 9,589
Other assets 324,931 (220,906)(a) 104,025
---------- ----------- -----------
$7,240,324 $ 8,968,115 $16,208,439
========== =========== ===========
LIABILITIES AND
PARTNERS' CAPITAL
Accounts payable $ 104,514 $ (104,514)(a) $ -
Distributions payable 55,708 55,708
Due to related parties 83,889 (83,069)(a) 820
---------- ----------- -----------
Total liabilities 244,111 (187,583) 56,528
Partners' capital 6,996,213 9,155,698 (a) 16,151,911
---------- ----------- -----------
$7,240,324 $ 8,968,115 $16,208,439
========== =========== ===========
See accompanying notes to unaudited pro forma
financial statements.
B-2
CNL INCOME FUND XVIII, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
UNAUDITED PRO FORMA STATEMENT OF INCOME
YEAR ENDED DECEMBER 31, 1996
Pro Forma
Historical Adjustments Pro Forma
---------- ----------- ---------
Revenues:
Rental income from operating lease $ 1,373 $ - $ 1,373
Interest income 30,241 - 30,241
------- ------- -------
31,614 - 31,614
------- ------- -------
Expenses:
General operating and administrative 3,980 - 3,980
Management fee to related party 12 - 12
Depreciation and amortization 712 - 712
------- ------- -------
4,704 - 4,704
------- ------- -------
Net Income $26,910 $ - $26,910
======= ======= =======
Net Income Per Limited Partner Unit $ 0.05 $ 0.05
======= =======
Weighted Average Number of Units
Outstanding 503,436 503,436
======= =======
See accompanying notes to unaudited pro forma
financial statements.
B-3
CNL INCOME FUND XVIII, LTD.
(A FLORIDA LIMITED PARTNERSHIP)
NOTES TO UNAUDITED PRO FORMA FINANCIAL STATEMENTS
DECEMBER 31, 1996
Pro Forma Balance Sheet:
(a) Represents gross proceeds of $10,061,207 from the sale of 1,006,120 Units
during the period January 1, 1997 through April 30, 1997, and $3,909,927
of cash and cash equivalents at December 31, 1996, used (i) to acquire 11
properties for $11,439,559, (ii) to fund estimated construction costs of
$985,729 relating to the property under construction at December 31, 1996,
(iii) to pay acquisition fees and other costs of $485,302 ($6,508 of which
was accrued as accounts payable at December 31, 1996 and $26,040 of which
was accrued as due to related parties at December 31, 1996) and reclassify
from other assets $220,906 of acquisition fees and other costs previously
incurred relating to the acquired properties, and (iv) to pay selling
commissions and offering expenses (syndication costs) of $1,060,544
($98,006 of which was accrued as accounts payable at December 31, 1996 and
$57,029 of which was accrued as due to related parties at December 31,
1996), which have been netted against partners' capital.
The pro forma adjustments to land and buildings on operating leases as a
result of the above transactions were as follows:
<TABLE>
<CAPTION>
Estimated purchase
price (including
construction and Acquisition
closing costs) and fees
additional con- allocated
struction costs to property Total
------------------ ----------- -----------
<S><C>
Jack in the Box in Echo Park, CA $ 1,257,223 $ 68,163 $ 1,325,386
Jack in the Box in Hendersonville, NV 1,066,175 57,805 1,123,980
Jack in the Box in Centerville, TX 758,658 41,132 799,790
Golden Corral in Galveston, TX 1,359,566 73,711 1,433,277
Boston Market in Raleigh, NC 1,225,886 66,463 1,292,349
Black-eyed Pea in Atlanta, GA 616,110 33,404 649,514
Golden Corral in Stow, OH 1,668,863 90,480 1,759,343
Boston Market in San Antonio, TX 851,302 46,154 897,456
On The Border in San Antonio, TX 1,186,744 64,342 1,251,086
Boston Market in Minnetonka, MN 815,065 44,190 859,255
Wendy's in Sparta, TN 633,967 34,372 668,339
One property under construction at
December 31, 1996 985,729 53,444 1,039,173
----------- ----------- -----------
$12,425,288 $ 673,660 $13,098,948
=========== =========== ===========
Adjustment classified as follows:
Land and buildings on operating leases $ 9,925,590
Net investment in direct financing leases 3,173,358
-----------
$13,098,948
===========
</TABLE>
(b) In accordance with generally accepted accounting principles, leases in
which the present value of future minimum lease payments equals or exceeds
90 percent of the value of the related properties are treated as direct
financing leases rather than as land and buildings. The categorization of
the leases has no effect on rental revenues received.
B-4
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund XVIII, Ltd.
We have audited the financial statements and the financial statement schedule of
CNL Income Fund XVIII, Ltd. (a Florida limited partnership) as of December 31,
1996 and the period February 10, 1995 (date of inception) through December 31,
1995. These financial statements and financial statement schedule are the
responsibility of the Partnership's management. Our responsibility is to express
an opinion on these financial statements and financial statement schedule based
on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund XVIII, Ltd. as
of December 31, 1996 and 1995, and the results of its operations and its cash
flows for the year ended December 31, 1996 and the period February 10, 1995
(date of inception) through December 31, 1995, in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedule referred to above, when considered in relation to the basic
financial statements taken as a whole, presents fairly, in all material
respects, the information required to be included therein.
/s/Coopers & Lybrand
Orlando, Florida
February 3, 1997
B-5
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
ASSETS 1996 1995
---------- ----------
<S> <C>
Land and buildings on operating leases,
less accumulated depreciation $1,530,768 $ -
Cash and cash equivalents 5,371,325 980
Receivables 3,711 -
Organization costs, less accumulated
amortization of $411 in 1996 9,589 10,000
Deferred syndication costs - 245,890
Other assets 324,931 20
---------- ----------
$7,240,324 $ 256,890
========== ==========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 104,514 $ 22,130
Distributions payable 55,708 -
Due to related parties 83,889 233,760
---------- ----------
Total liabilities 244,111 255,890
Commitment (Note 9)
Partners' capital 6,996,213 1,000
---------- ----------
$7,240,324 $ 256,890
========== ==========
</TABLE>
See accompanying notes to financial statements.
B-6
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
February 10,
1995 (Date
of Inception)
Year Ended through
December 31, December 31,
1996 1995
------------ -------------
<S> <C>
Revenues:
Rental income from operating
lease $ 1,373 $ -
Interest income 30,241 -
-------- -------------
31,614 -
-------- -------------
Expenses:
General operating and admini-
strative 3,980 -
Management fee to related party 12 -
Depreciation and amortization 712 -
-------- -------------
4,704 -
-------- -------------
Net Income $ 26,910 $ -
======== =============
Allocation of Net Income:
General partners $ (7) $ -
Limited partners 26,917 -
-------- -------------
$ 26,910 $ -
======== =============
Net Income Per Limited Partner
Unit $ 0.05 $ -
======== =============
Weighted Average Number of Limited
Partner Units Outstanding 503,436 -
======== =============
</TABLE>
See accompanying notes to financial statements.
B-7
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------- --------------------------------------------------------
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Losses butions butions Earnings Costs Total
------- -------- ----------- ----------- ---------- ----------- -----------
<S> <C>
Balance, February 10, 1995
(Date of Inception) $ - $ - $ - $ - $ - $ - $ -
Contributions from
general partners 1,000 - - - - - 1,000
------ ------- ----------- ----------- ---------- ----------- -----------
Balance, December 31, 1995 1,000 - - - - - 1,000
Contributions from
limited partners - - 8,421,815 - - - 8,421,815
Distributions to limited
partners ($0.11 per
limited partner unit) - - - (57,846) - - (57,846)
Syndication costs - - - - - (1,395,666) (1,395,666)
Net income - (7) - - 26,917 - 26,910
------ ------- ----------- ----------- ---------- ----------- -----------
Balance, December 31, 1996 $1,000 $ (7) $ 8,421,815 $ (57,846) $ 26,917 $(1,395,666) $ 6,996,213
====== ======= =========== =========== ========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
B-8
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
February 10,
1995 (Date
of Inception)
Year Ended through
December 31, December 31,
1996 1995
------------ --------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows From Operating Activities:
Interest received $ 30,241 $ -
Cash paid for expenses (3,095) -
----------- --------------
Net cash provided by (used in)
operating activities 27,146 -
----------- --------------
Cash Flows From Investing Activities:
Additions to land and buildings on
operating leases (1,533,446) -
Increase in other assets (276,848) -
Other (107) (20)
----------- --------------
Net cash used in investing
activities (1,810,401) (20)
----------- --------------
Cash Flows From Financing Activities:
Reimbursement of acquisition,
organization and syndication
costs paid by related parties on
behalf of the Partnership (497,420) -
Contributions from general partners - 1,000
Contributions from limited partners 8,498,815 -
Distributions to limited partners (2,138) -
Payment of syndication costs (845,657) -
----------- --------------
Net cash provided by financing
activities 7,153,600 1,000
----------- --------------
Net Increase in Cash and Cash Equivalents 5,370,345 980
Cash and Cash Equivalents at Beginning
of Period 980 -
----------- --------------
Cash and Cash Equivalents at End of Period $ 5,371,325 $ 980
=========== ==============
</TABLE>
See accompanying notes to financial statements.
B-9
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
February 10,
1995 (Date
of Inception)
Year Ended through
December 31, December 31,
1996 1995
------------ --------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $ 26,910 $ -
----------- --------------
Adjustments to reconcile net income
to net cash provided by operating
activities:
Depreciation 301 -
Amortization 411 -
Increase in receivables (1,227) -
Increase in accounts payable 57 -
Increase in due to related
parties, excluding reimbursement
of acquisition, organization
and syndication costs paid on
behalf of the Partnership 820 -
Other (126) -
----------- --------------
Total adjustments 236 -
----------- --------------
Net Cash Provided by Operating Activities $ 27,146 $ -
=========== ==============
Supplemental Schedule of Non-Cash
Investing and Financing Activities:
Related parties paid certain
acquisition, organization and
syndication costs on behalf of
the Partnership as follows:
Acquisition costs $ 18,036 $ -
Organization costs - 10,000
Syndication costs 285,858 186,174
----------- --------------
$ 303,894 $ 196,174
=========== ==============
Distributions declared and unpaid at
December 31 $ 55,708 $ -
=========== ==============
</TABLE>
See accompanying notes to financial statements.
B-10
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Year Ended December 31, 1996 and the Period
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.
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. A total of 842,182 units ($8,421,815) of limited partnership
interest had been sold as of December 31, 1996.
The Partnership was a development stage enterprise from February 10,
1995 through October 11, 1996. Since operations had not begun,
activities through October 11, 1996, were devoted to organization of
the Partnership.
The general partners of the Partnership are CNL Realty
Corporation (the "Corporate General Partner"), James M.
Seneff, Jr. and Robert A. Bourne. Mr. Seneff and Mr. Bourne
are also 50 percent shareholders of the Corporate General
Partner. The general partners have responsibility for
managing the day-to-day operations of the Partnership.
Real Estate and Lease Accounting - The Partnership records the
acquisition of land and buildings at cost, including acquisition and
closing costs. Land and buildings are leased to unrelated third parties
on a triple-net basis, whereby the tenant is generally responsible for
all operating expenses relating to the property, including property
taxes, insurance, maintenance and repairs. The leases are accounted for
using the operating method. Under the operating method, land and
building are recorded at cost, revenue is recognized as rentals are
earned and depreciation is charged to operations as incurred. Buildings
are depreciated on the straight-line method over their estimated useful
lives of 30 years. When scheduled rentals vary during the lease term,
income is recognized on a straight-line basis so as to produce a
constant periodic rent over the lease term commencing on the date the
property is placed in service.
B-11
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
1. Significant Accounting Policies - Continued:
When the properties are sold, the related cost and accumulated
depreciation, plus any accrued rental income, will be removed from the
accounts and gains or losses from sales will be reflected in income.
The general partners of the Partnership review properties for
impairment whenever events or changes in circumstances indicate that
the carrying amount of the assets may not be recoverable through
operations. The general partners determine whether an impairment in
value has occurred by comparing the estimated future undiscounted cash
flows, including the residual value of the property, with the carrying
cost of the individual property. If an impairment is indicated, a loss
will be recorded for the amount by which the carrying value of the
asset exceeds its fair market value.
Cash and Cash Equivalents - The Partnership considers all highly liquid
investments with a maturity of three months or less when purchased to
be cash equivalents. Cash and cash equivalents consist of demand
deposits at commercial banks and money market funds (some of which are
backed by government securities). Cash equivalents are stated at cost
plus accrued interest, which approximates market value.
Cash accounts maintained on behalf of the Partnership in demand
deposits at commercial banks and money market funds may exceed
federally insured levels; however, the Partnership has not experienced
any losses in such accounts. The Partnership limits investment of
temporary cash investments to financial institutions with high credit
standing; therefore, the Partnership believes it is not exposed to any
significant credit risk on cash and cash equivalents.
Organization Costs - Organization costs are amortized over five years
using the straight-line method upon commencement of operations.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
B-12
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
1. Significant Accounting Policies - Continued:
Additionally, for tax purposes, syndication costs are included in
Partnership equity and in the basis of each partner's investment. For
financial reporting purposes, syndication costs are netted against
partners' capital and represent a reduction of Partnership equity and a
reduction in the basis of each partner's investment (Note 4).
Weighted Average Number of Limited Partner Units Outstanding - Net
income and distributions per limited partner unit are calculated based
upon the weighted average number of units of limited partnership
interest outstanding during the period the Partnership was operational.
Use of Estimates - The general partners of the Partnership have made a
number of estimates and assumptions relating to the reporting of assets
and liabilities and the disclosure of contingent assets and liabilities
to prepare these financial statements in conformity with generally
accepted accounting principles. Actual results could differ from those
estimates.
New Accounting Standard - Effective January 1, 1996, the Partnership
adopted 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 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.
Adoption of this standard had no material effect on the Partnership's
financial position.
B-13
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
2. Leases:
The Partnership leases its land and buildings to operators of national
and regional fast-food and family-style restaurants. The leases are
accounted for under the provisions of Statement of Financial Accounting
Standards No. 13, "Accounting for Leases." As of December 31, 1996, the
Partnership's leases were classified as operating leases. The leases
have initial terms of 15 to 20 years and provide for minimum and
contingent rentals. One of the leases provides for scheduled rent
increases over the term of the lease. In addition, the tenant pays all
property taxes and assessments, fully maintains the interior and
exterior of the building and carries insurance coverage for public
liability, property damage, fire and extended coverage. The lease
options allow the tenants to renew the leases for four successive
five-year periods subject to the same terms and conditions as the
initial lease. The leases also allow the tenant to purchase the
property at fair market value after a specified portion of the lease
has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1996 1995
---------- ---------
Land $ 852,578 $ -
Building 659,134 -
---------- ---------
1,511,712 -
Less accumulated
depreciation (301) -
---------- ---------
1,511,411 -
Construction in progress 19,357 -
---------- ---------
$1,530,768 $ -
========== =========
B-14
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
3. Land and Buildings on Operating Leases - Continued:
The following is a schedule of the future minimum lease payments to be
received on the noncancellable operating lease for the property that
was operational as of December 31, 1996:
1997 $ 89,688
1998 89,688
1999 89,688
2000 89,688
2001 89,688
Thereafter 1,556,851
----------
$2,005,291
==========
Since lease renewal periods are exercisable at the option of the
tenant, the above table only presents future minimum lease payments due
during the initial lease term. In addition, this table does not include
any amounts for future contingent rentals which may be received on the
lease based on a percentage of tenant's gross sales. The amounts also
do not include minimum lease payments that will become due when the
property under development is completed (see Note 9).
4. Syndication Costs:
Syndication costs consisting of legal fees, commissions, the due
diligence expense reimbursement fee, printing and other expenses
incurred in connection with the offering totalled $1,395,666 for the
year ended December 31, 1996. These offering expenses were 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 or reimbursed by the general partners and will
not be the responsibility of the Partnership.
B-15
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
5. Allocations and Distributions:
Generally, distributions of net cash flow, as defined in the limited
partnership agreement of the Partnership, are 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"). During the year
ended December 31, 1996, the Partnership declared distributions to the
limited partners of $57,846. No distributions have been made to the
general partners to date.
Generally, net income (determined without regard to any depreciation
and amortization deductions and gains and losses from the sale of
properties) is 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 are
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.
B-16
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
6. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the year
ended December 31, 1996 and the period February 10, 1995 (date of
inception) through December 31, 1995:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
Net income for financial
reporting purposes $ 26,910 $ -
Depreciation for tax
reporting purposes
in excess of depreci-
ation for financial
reporting purposes (386) -
Capitalization of admini-
strative expenses for
tax reporting purposes 3,662 -
Accrued rental income (146) -
Amortization for financial
reporting purposes in
excess of amortization
for tax reporting purposes 183 -
-------- --------
Net income for federal
income tax purposes $ 30,223 $ -
======== ========
</TABLE>
B-17
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
7. 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.
CNL Securities Corp. is entitled to receive selling commissions
amounting to 8.5% of the total amount raised from the sale of units of
limited partnership interest for services in connection with the
formation of the Partnership and the offering of units, a substantial
portion of which is paid as commissions to other broker-dealers. As of
December 31, 1996, the Partnership had incurred $715,854 as syndication
costs for such fees, of which $673,534 was or will be paid as
commissions to other broker-dealers.
In addition, CNL Securities Corp. is entitled to receive a due
diligence expense reimbursement fee equal to 0.5% of the total amount
raised from the sale of units of limited partnership interest, a
portion of which may be reallowed to other broker-dealers and from
which all due diligence expenses will be paid. As of December 31, 1996,
the Partnership had incurred $42,109, of such fees, the majority of
which was reallowed to other broker-dealers and from which all bona
fide due diligence expenses were or will be paid.
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 total amount raised from the
sale of units of limited partnership interest. As of December 31, 1996,
the Partnership had incurred $378,982 of such fees. Such fees are
included in land and buildings on operating leases and other assets.
The Partnership and CNL Fund Advisors, Inc. have entered 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
B-18
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
7. Related Party Transactions - Continued:
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, 1996, the Partnership had incurred $12 for such management
fees.
During the year ended December 31, 1996 and 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 (including accounting and administrative services in
connection with the offering of units) on a day-to-day basis. For the
year ended December 31, 1996 and the period February 10, 1995 (date of
inception) through December 31, 1995, the expenses incurred for these
services were classified as follows:
<TABLE>
<CAPTION>
1996 1995
-------- --------
<S> <C>
Syndication costs $106,887 $ 37,586
General operating and
administrative expenses 2,980 -
-------- --------
$109,867 $ 37,586
======== ========
</TABLE>
B-19
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
7. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
<TABLE>
<CAPTION> 1996 1995
-------- --------
<S> <C>
Due to CNL Securities Corp.:
Commissions $ 44,186 $ -
Marketing support and due
diligence expense reim-
bursement fee 2,599 -
-------- --------
46,785 -
-------- --------
Due to CNL Fund Advisors, Inc.
and its affiliates:
Expenditures incurred
on behalf of the
Partnership 2,788 196,174
Acquisition fees 23,392 -
Accounting and admini-
strative services 10,912 37,586
Management fees 12 -
-------- --------
37,104 233,760
-------- --------
$ 83,889 $233,760
======== ========
</TABLE>
8. Concentration of Credit Risk:
Rental income due from Carrols Corporation, which operates a Burger
King restaurant, represented all of the Partnership's rental income for
the year ended December 31, 1996. The percentage of total rental income
contributed by this lessee and restaurant chain will decrease as
additional properties are acquired and leased in 1997 and subsequent
years and the property under construction at December 31, 1996 becomes
operational.
9. Commitment:
The Partnership has entered into a development agreement with a tenant
which provides terms and specifications for the construction of the
building that the tenant has agreed to lease. The agreement provides a
maximum amount of development costs (including the purchase price of
the land and closing costs) to be paid by the Partnership. The
aggregate maximum
B-20
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Year Ended December 31, 1996 and the Period
February 10, 1995 (Date of Inception)
through December 31, 1995
9. Commitment - Continued:
development costs the Partnership has agreed to pay is approximately
$1,684,600, of which approximately $579,700 in land and other costs had
been incurred as of December 31, 1996. The building under construction
is currently expected to be operational by June 1997. The lease
agreement for this property has substantially the same terms as those
described in Note 2.
10. Subsequent Events:
During the period January 1, 1997 through February 3, 1997, the
Partnership received capital contributions for an additional 273,094
units ($2,730,941) of limited partnership interest.
In addition, during the period January 1, 1997 through February 3,
1997, the Partnership acquired five additional properties for cash, at
a total cost of approximately $4,735,600 (excluding certain closing and
development costs). In connection with the four properties under
construction, the Partnership has agreed to pay development costs
(including the purchase prices of the land and closing costs) of
approximately $4,565,200, of which approximately $3,509,900 in land and
other costs had been paid by the Partnership as of February 3, 1997.
The buildings are expected to be operational by July 1997. In
connection with the acquisition of each of these properties, the
Partnership entered into a long-term, triple-net lease. The leases
range from 15 to 18 years and provide for renewal options of four to
five five-year periods. In addition, the leases provide for the payment
of minimum annual rent (payable monthly) ranging from approximately
$77,900 to $148,400 and the payment of percentage rent based on sales
in excess of a specified amount.
B-21
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
--------------------------- ----------------------
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
------- ---------- ------------ --------- --------
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Kinston, North Carolina - $ 260,802 $ 659,134 $ - $ -
Golden Corral Family
Steakhouse Restaurant:
Houston, Texas - 591,776 - 19,357 -
---------- ---------- ---------- --------
$ 852,578 $ 659,134 $ 19,357 $ -
========== ========== ========== ========
B-22
<PAGE>
</TABLE>
<TABLE>
<CAPTION>
Gross Amount at Which Carried
at Close of Period
---------------------------------------------------
Buildings
and Accumulated
Land Improvements Total Depreciation
----------- ------------ ----------- ------------
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Kinston, North Carolina $ 260,802 $ 659,134 $ 919,936 $ 301
Golden Corral Family
Steakhouse Restaurant:
Houston, Texas 591,776 19,357 611,133 -
---------- ---------- ---------- -------
$ 852,578 $ 678,491 $1,531,069 $ 301
========== ========== ========== =======
<CAPTION>
Life
on Which
Depreciation
in Latest
Date Income
of Con- Date Statement is
struction Acquired Computed
--------- -------- ------------
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Burger King Restaurant:
Kinston, North Carolina 1994 12/96 (d)
Golden Corral Family
Steakhouse Restaurant:
Houston, Texas (c) 12/96 (e)
</TABLE>
B-23
<PAGE>
CNL INCOME FUND XVIII, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1996
(a) Transactions in real estate and accumulated depreciation during 1996
are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost (b) Depreciation
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1995 $ - $ -
Acquisitions 1,531,069 -
Depreciation expense - 301
----------- -----------
Balance, December 31, 1996 $ 1,531,069 $ 301
=========== ===========
</TABLE>
(b) Cost for federal income tax purposes is the same as cost for
financial reporting purposes. The leases are treated as operating
leases for federal income tax purposes.
(c) Scheduled for completion in 1997.
(d) Depreciation expense is computed for buildings based upon estimated
lives of 30 years.
(e) Property was not placed in service as of December 31, 1996; therefore,
no depreciation was taken.
B-24
<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, 1996. 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, 1996, in conformity with generally accepted accounting principles.
/s/Coopers & Lybrand L.L.P.
Orlando, Florida
April 9, 1997
B-25
<PAGE>
CNL REALTY CORPORATION
BALANCE SHEET
December 31, 1996
<TABLE>
<CAPTION>
ASSETS
<S> <C>
Cash $ 188
Investment in CNL Income
Fund Partnerships 1,244,812
----------
$1,245,000
==========
LIABILITIES AND STOCKHOLDERS' EQUITY
Loan payable to CNL Group, Inc. 1,275,456
Other payables to related parties 1,201
---------
Total liabilities 1,276,657
---------
Commitments and contingencies (Note 5)
Stockholders' equity:
Common stock, $1 par value, 7,500 shares
authorized, 1,000 shares issued and
outstanding 1,000
Accumulated deficit (32,657)
---------
Total stockholders' equity (31,657)
$1,245,000
=========
</TABLE>
See accompanying notes to balance sheet.
B-26
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET
December 31, 1996
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-27
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET - CONTINUED
December 31, 1996
2. Investment in CNL Income Fund Partnerships - Continued:
The following table presents combined, summarized financial information
relating to the CNL Income Fund Partnerships at December 31, 1996:
Total assets $514,640,258
Total liabilities 18,782,159
Limited partners' equity 492,508,044
General partners' equity:
CNL Realty Corporation 1,244,812
Other 2,105,243
The Company has made total capital contributions of $1,012,905 to the
CNL Income Fund Partnerships as of December 31, 1996.
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 December 31, 1996.
In addition, in April, July and October 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, $254,000
and $430,000, 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 December 31, 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-28
<PAGE>
CNL REALTY CORPORATION
NOTES TO BALANCE SHEET - CONTINUED
December 31, 1996
4. Related Parties:
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 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
$1,275,456 includes accrued interest of $4,817 at December 31, 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 December 31, 1996 of $1,201 represents amount for
such services and for operating expenses that affiliates have paid on
behalf of the Company.
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 January 1997, the Company received additional advances under the
loan from CNL Group, Inc. totalling $228,000 in connection with the
promissory note described in Note 4. The Company repaid these loans to
CNL Group, Inc. in February 1997.
In connection therewith, in January 1997, the Company entered into two
promissory notes which provide for loans to certain of the CNL Income
Fund Partnerships in the aggregate amount of $228,000 in connection
with the operations of the CNL Income Fund Partnerships. The loans are
uncollateralized, non-interest bearing and are due on demand. These
loans were repaid to the Company in February 1997.
B-29
<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 December 31, 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
became fully subscribed between January 1992 and December 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.
C-1
<PAGE>
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 became fully subscribed between January 1992 and December 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 December 31, 1996.
TABLE III - OPERATING RESULTS OF PRIOR PROGRAMS
Table III presents a summary of operating results for the period from
inception through December 31, 1996, of the Prior Public Partnerships, the
offerings of which became fully subscribed between January 1992 and December
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 January 1992 and
December 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>
C-3
<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
C-3
<PAGE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- ------------
(Note 1)
<S> <C>
Dollar amount offered $40,000,000 $45,000,000 $30,000,000
=========== =========== ===========
Dollar amount raised 100.0% 100.0% 100.0%
----------- ----------- -----------
Less offering expenses:
Selling commissions
and discounts (8.5) (8.5) (8.5)
Organizational expenses (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)
----------- ----------- -----------
(12.0) (12.0) (12.0)
----------- ----------- -----------
Reserve for operations -- -- --
----------- ----------- ----------
Percent available for
investment 88.0% 88.0% 88.0%
=========== =========== ===========
Acquisition costs:
Cash down payment 82.5% 82.5% 83.5%
Acquisition fees paid
to affiliates 5.5 5.5 4.5
Loan costs -- -- --
----------- ----------- ----------
Total acquisition costs 88.0% 88.0% 88.0%
=========== =========== ===========
Percent leveraged
(mortgage financing
divided by total
acquisition costs) -- -- --
Date offering began 2/23/94 9/02/94 9/02/95
Length of offering (in
months) 6 9 12
Months to invest 90% of
amount available for
investment measured
from date of offering 10 11 15
</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 3,790,298 3,734,852 4,089,655 3,494,528 3,841,163
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 94,496 133,138 137,966 126,947 134,867
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 1,044,750 1,640,000 836,411 3,196,603
Notes - - - - -
Amount paid to sponsors
from property sales and
refinancing:
Real estate commissions - - - - -
Incentive fees - - - - -
Other - - - - -
C-5
<PAGE>
<CAPTION>
CNL Income CNL Income CNL Income CNL Income
Fund XV, Fund XVI, Fund XVII, Fund XVIII,
Ltd. Ltd. Ltd. Ltd.
----------- ----------- ----------- -----------
(Note 2)
<S> <C>
Date offering commenced 2/23/94 9/02/94 9/02/95
Dollar amount raised $40,000,000 $45,000,000 $30,000,000
=========== =========== ===========
Amount paid to sponsor from
proceeds of offering:
Selling commissions and
discounts 3,400,000 3,825,000 2,550,000
Real estate commissions - - -
Acquisition fees 2,200,000 2,475,000 1,350,000
Marketing support and
due diligence expense
reimbursement fees
(includes amounts
reallowed to
unaffiliated entities) 200,000 225,000 150,000
----------- ----------- -----------
Total amount paid to sponsor 5,800,000 6,525,000 4,050,000
=========== =========== ===========
Dollar amount of cash generated
from operations before
deducting payments to
sponsor:
1996 3,557,073 3,911,609 1,340,159
1995 3,361,477 2,619,840 11,671
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 122,391 157,883 107,211
1995 122,107 138,445 2,659
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 3,312,297 775,000 -
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. 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).
As of December 31, 1996, CNL Income Fund XVIII, Ltd. had sold 842,182
Units, representing $8,421,815 of capital contributed by limited
partners, and two properties had been acquired. From commencement of
the offering through December 31, 1996, total selling commissions and
discounts were $715,854, due diligence expense reimbursement fees were
$42,109, and acquisition fees were $378,982, for a total amount paid to
sponsor of $1,136,945. CNL Income Fund XVIII, Ltd. had cash generated
from operations for the period October 11, 1996 (the date funds were
originally released from escrow) through December 31, 1996, of $24,769.
CNL Income Fund XVIII, Ltd. made payments of $2,980 to the sponsor from
operations for this period.
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
============ ============ ============ ============
C-7
<PAGE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C>
Gross revenue $ 3,710,792 $ 3,544,446 $ 3,541,053
Equity in earnings of unconsolidated
joint venture 271,512 267,799 278,371
Profit from sale of properties 0 67,214 0
Interest income 46,456 72,600 61,108
Less: Operating expenses (138,507) (189,230) (202,098)
Interest expense 0 0 0
Depreciation and amortization (208,941) (201,696) (207,959)
Minority interest in income of
consolidated joint venture (8,471) (9,066) (8,663)
------------ ------------ ------------
Net income - GAAP basis 3,672,841 3,552,067 3,461,812
============ ============ ============
Taxable income
- from operations 3,212,304 2,956,800 3,059,004
============ ============ ============
- from gain on sale 0 50,819 0
============ ============ ============
Cash generated from operations
(Notes 2 and 5) 3,785,493 3,527,362 3,695,802
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 3,695,802
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,017) (3,527,362) (3,640,003)
- from sale of properties 0 0 0
- from cash flow from prior period 0 (172,641) 0
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 285,476 884,745 55,799
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 (108,952)
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) (7,697)
------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 277,567 20,144 (63,370)
============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 80 73 76
============ ============ ============
- from recapture 0 0 0
============ ============ ============
Capital gain (loss) 0 1 0
============ ============ ============
C-8
<PAGE>
TABLE III - CNL INCOME FUND X, LTD. (continued)
<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%
C-9
<PAGE>
<CAPTION>
1994 1995 1996
------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 88 87 86
- from capital gain 0 2 0
- from investment income from
prior period 0 4 5
- from return of capital (Note 3) 0 0 0
------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 88 93 91
============ ============ ============
Source (on cash basis)
- from sales 0 0 0
- from refinancing 0 0 0
- from operations 88 88 91
- from cash flow from prior
period 0 5 0
------------ ------------ ------------
Total distributions on cash basis
(Note 6) 88 93 91
============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 9.06% 9.10% 9.10%
Total cumulative cash distributions
per $1,000 investment from inception 242 335 426
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, 1995
and 1996 are not included in the 1994, 1995 and 1996 totals,
respectively.
Note 7: On December 31, 1994, 1995 and 1996, CNL Income Fund X, Ltd. declared a
special distribution of cumulative excess operating reserves equal to
.25%, .10% and .10%, respectively, of the total invested capital.
Accordingly, the total yield for 1994, 1995 and 1996 was 9.06%, 9.10%
and 9.10%, 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 1994
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,269,086 $ 3,831,648 $ 3,852,107
Equity in earnings of unconsolidated
joint ventures 0 33,367 121,059 119,370
Profit from sale of properties 0 0 0 0
Interest income 0 150,535 24,258 30,894
Less: Operating expenses 0 (63,390) (206,987) (179,717)
Interest expense 0 0 0 0
Depreciation and amortization 0 (180,631) (469,127) (481,226)
Minority interests in income of
consolidated joint ventures 0 (23,529) (68,399) (68,936)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,438 3,232,452 3,272,492
============ ============ ============ ============
Taxable income
- from operations 0 1,295,104 2,855,026 2,947,445
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 4) 0 1,495,225 3,355,586 3,497,941
Cash generated from sales (Note 5) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,495,225 3,355,586 3,497,941
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (1,205,030) (2,495,002) (3,400,001)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 290,195 860,584 97,940
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Minority interests' capital
contributions 0 426,367 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (3,922,875) 0 0
Acquisition of land and buildings 0 (26,428,556) (276,157) 0
Investment in direct financing
leases 0 (6,716,561) (276,206) 0
Increase in restricted cash 0 0 0 0
Investment in joint ventures 0 (1,658,925) (772) 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 (1,011,487) (900) 0
Increase in other assets 0 (122,024) 0 0
Distributions to holders of minority
interests 0 (17,467) (51,562) (57,641)
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 828,667 254,987 40,299
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 45 71 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
C-11
<PAGE>
<CAPTION>
1995 1996
------------ ------------
<S> <C>
Gross revenue $ 3,820,990 $ 3,877,311
Equity in earnings of unconsolidated
joint ventures 118,384 118,211
Profit from sale of properties 0 213,685
Interest income 51,192 51,381
Less: Operating expenses (237,126) (247,569)
Interest expense 0 0
Depreciation and amortization (481,226) (478,198)
Minority interests in income of
consolidated joint ventures (70,038) (70,116)
----------- -----------
Net income - GAAP basis 3,202,176 3,464,705
=========== ===========
Taxable income
- from operations 2,985,221 2,965,514
=========== ===========
- from gain on sale 0 0
=========== ===========
Cash generated from operations
(Notes 2 and 4) 3,652,185 3,601,714
Cash generated from sales (Note 5) 0 1,044,750
Cash generated from refinancing 0 0
----------- -----------
Cash generated from operations, sales
and refinancing 3,652,185 4,646,464
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,500,023) (3,540,024)
- from sale of properties 0 0
- from cash flow from prior period 0 0
----------- -----------
Cash generated (deficiency) after cash
distributions 152,162 1,106,440
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Minority interests' capital
contributions 0 0
Organization costs 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 0
Investment in direct financing
leases 0 0
Increase in restricted cash 0 (1,044,750)
Investment in joint ventures 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XI, Ltd. by
related parties 0 0
Increase in other assets 0 0
Distributions to holders of minority
interests (54,227) (58,718)
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 97,935 2,972
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74 73
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 0
============ ============
C-12
<PAGE>
TABLE III - CNL INCOME FUND XI, LTD. (continued)
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 41 62 81
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 4
- from return of capital (Note 3) 0 1 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 42 62 85
- from cash flow from prior
period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 42 62 85
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 0.00% 6.17% 8.31% 8.56%
Total cumulative cash distributions
per $1,000 investment from inception 0 42 104 189
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% 100%
C-13
<PAGE>
<CAPTION>
1995 1996
------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 79 81
- from capital gain 0 5
- from investment income from
prior period 9 3
- from return of capital (Note 3) 0 0
------------ ------------
Total distributions on GAAP basis
(Note 6) 88 89
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 88 89
- from cash flow from prior
period 0 0
------------ ------------
Total distributions on cash basis
(Note 6) 88 89
============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 7 and 8) 8.85% 8.85%
Total cumulative cash distributions
per $1,000 investment from inception 277 366
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) 100% 97%
</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: In November 1996, CNL Income Fund XI, Ltd. sold one if its properties
and received net sales proceeds of $1,044,750.
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, 1995
and 1996 are not included in the 1994, 1995 and 1996 totals,
respectively.
Note 7: On December 31, 1995 and 1996, CNL Income Fund XI, Ltd. declared a
special distribution of cumulative excess operating reserves equal to
.10% for each year of the total invested capital. Accordingly, the
total yield for each of 1995 and 1996 was 8.85%.
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-14
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XII, LTD.
<TABLE>
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 25,133 $ 3,374,640 $ 4,397,881
Equity in earnings of joint ventures 0 46 49,604 85,252
Profit (Loss) from sale of properties 0 0 0 0
Interest income (Note 7) 0 45,228 190,082 65,447
Less: Operating expenses 0 (7,211) (193,804) (192,951)
Interest expense 0 0 0 0
Depreciation and amortization 0 (3,997) (286,293) (327,795)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 59,199 3,134,229 4,027,834
============ ============ ============ ============
Taxable income
- from operations 0 58,543 2,749,072 3,301,005
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 5) 0 61,370 3,246,760 3,848,962
Cash generated from sales (Note 7) 0 0 0 0
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 61,370 3,246,760 3,848,962
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (61,370) (1,972,769) (3,768,754)
- from sale of properties 0 0 0 0
- from return of capital (Note 4) 0 (60,867) 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 (60,867) 1,273,991 80,208
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 21,543,270 23,456,730 0
General partners' capital
contributions 1,000 0 0 0
Organization costs 0 (10,000) 0 0
Syndication costs 0 (2,066,937) (2,277,637) 0
Acquisition of land and buildings 0 (7,536,009) (15,472,737) (230)
Investment in direct financing
leases 0 (2,503,050) (11,875,100) (591)
Loan to tenant of joint venture,
net of repayments 0 0 (207,189) 6,400
Investment in joint ventures 0 (372,045) (468,771) (4,400)
Increase in restricted cash 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
Increase in other assets 0 (654,497) 0 0
Other 0 0 0 973
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 7,634,942 (6,003,462) 82,360
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 5 64 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) 0 0 0 0
============ ============ ============ ============
C-15
<PAGE>
<CAPTION>
1995 1996
------------ ------------
<S> <C>
Gross revenue $ 4,404,792 $ 4,264,273
Equity in earnings of joint ventures 81,582 200,499
Profit (Loss) from sale of properties 0 (15,355)
Interest income (Note 7) 84,197 88,286
Less: Operating expenses (228,404) (279,341)
Interest expense 0 0
Depreciation and amortization (327,795) (315,319)
------------ -----------
Net income - GAAP basis 4,014,372 3,943,043
============ ===========
Taxable income
- from operations 3,262,046 3,275,495
============ ===========
- from gain (loss) on sale 0 (41,506)
============ ===========
Cash generated from operations
(Notes 2 and 5) 3,819,362 3,951,689
Cash generated from sales (Note 7) 0 1,640,000
Cash generated from refinancing 0 0
------------ -----------
Cash generated from operations, sales
and refinancing 3,819,362 5,591,689
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,819,362) (3,870,008)
- from sale of properties 0 0
- from return of capital (Note 4) 0 0
- from cash flow from prior period (5,645) 0
------------ ------------
Cash generated (deficiency) after cash
distributions (5,645) 1,721,681
Special items (not including sales and
refinancing):
Limited partners' capital
contributions 0 0
General partners' capital
contributions 0 0
Organization costs 0 0
Syndication costs 0 0
Acquisition of land and buildings 0 0
Investment in direct financing
leases 0 0
Loan to tenant of joint venture,
net of repayments 7,008 7,741
Investment in joint ventures 0 (1,645,024)
Increase in restricted cash 0 0
Reimbursement of syndication and
acquisition costs paid on behalf
of CNL Income Fund XII, Ltd. by
related parties 0 0
Increase in other assets 0 0
Other 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,363 (84,398)
============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 72 72
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 (1)
============ ============
C-16
<PAGE>
TABLE III - CNL INCOME FUND XII, LTD. (continued)
<CAPTION>
1991
(Note 1) 1992 1993 1994
------------ ------------ ------------ ------------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 5 46 84
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
- from return of capital (Note 3) 0 7 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis
(Note 6) 0 12 46 84
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 6 46 84
- from return of capital (Note 4) 0 6 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on cash basis
(Note 6) 0 12 46 84
============ ============ ============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 0.00% 5.00% 6.75% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 0 12 58 142
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 7) N/A 100% 100% 100%
</TABLE>
1995 1996
------------ --------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 85 86
- from capital gain 0 0
- from investment income from
prior period 0 0
- from return of capital (Note 3) 0 0
------------ ------------
Total distributions on GAAP basis
(Note 6) 85 86
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 85 86
- from return of capital (Note 4) 0 0
- from cash flow from prior period 0 0
------------ ------------
Total distributions on cash basis
(Note 6) 85 86
============ ============
Total cash distributions as a
percentage of original $1,000
investment (Notes 8 and 9) 8.60% 8.50%
Total cumulative cash distributions
per $1,000 investment from inception 227 313
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 7) 100% 100%
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.
<PAGE>
C-17
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 $1,645,024 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
8.60%.
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>
<CAPTION>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIII, LTD.
1992
(Note 1) 1993 1994 1995
------------ ------------ ------------ -----------
<S> <C>
Gross revenue $ 0 $ 966,564 $ 3,558,447 $ 3,806,944
Equity in earnings of joint ventures 0 1,305 43,386 98,520
Profit (Loss) from sale of properties
(Notes 4 and 5) 0 0 0 (29,560)
Interest income 0 181,568 77,379 51,410
Less: Operating expenses 0 (59,390) (183,311) (214,705)
Interest expense 0 0 0 0
Depreciation and amortization 0 (148,170) (378,269) (393,435)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 941,877 3,117,632 3,319,174
============ ============ ============ ============
Taxable income
- from operations 0 978,535 2,703,252 2,920,859
============ ============ ============ ============
- from gain (loss) on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,121,547 3,149,000 3,379,378
Cash generated from sales (Notes 4 and 5) 0 0 0 286,411
Cash generated from refinancing 0 0 0 0
------------ ------------ ------------ ------------
Cash generated from operations, sales
and refinancing 0 1,121,547 3,149,000 3,665,789
Less: Cash distributions to investors
(Note 6)
- from operating cash flow 0 (528,364) (2,800,004) (3,350,014)
- from sale of properties 0 0 0 0
- from cash flow from prior period 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after
cash distributions 0 593,183 348,996 315,775
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0 40,000,000 0 0
General partners' capital
contributions 1,000 0 0 0
Syndication costs 0 (3,932,017) (181) 0
Acquisition of land and buildings 0 (19,691,630) (5,764,308) (336,116)
Investment in direct financing leases 0 (6,760,624) (1,365,075) 0
Investment in joint ventures 0 (314,998) (545,139) (140,052)
Increase in restricted cash 0 0 0 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)
Increase in other assets 0 (454,909) 9,226 0
Other 0 0 0 954
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions and special items 1,000 8,639,025 (7,341,517) (162,513)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 67 72
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Notes 4 and 5) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-19
<PAGE>
1996
------------
Gross revenue $ 3,685,280
Equity in earnings of joint ventures 60,654
Profit (Loss) from sale of properties 0
(Notes 4 and 5) 82,855
Interest income 49,820
Less: Operating expenses (253,360)
Interest expense 0
Depreciation and amortization (393,434)
------------
Net income - GAAP basis 3,231,815
============
Taxable income
- from operations 2,972,159
============
- from gain (loss) on sale 0
============
Cash generated from operations
(Notes 2 and 3) 3,367,581
Cash generated from sales (Notes 4 and 5) 550,000
Cash generated from refinancing 0
------------
Cash generated from operations, sales
and refinancing 3,917,581
Less: Cash distributions to investors
(Note 6)
- from operating cash flow (3,367,581)
- from sale of properties 0
- from cash flow from prior period (32,427)
------------
Cash generated (deficiency) after
cash distributions 517,573
Special items (not including sales
and refinancing):
Limited partners' capital
contributions 0
General partners' capital
contributions 0
Syndication costs 0
Acquisition of land and buildings 0
Investment in direct financing leases 0
Investment in joint ventures 0
Increase in restricted cash (550,000)
Reimbursement of organization,
syndication and acquisition costs
paid on behalf of CNL Income Fund
XIII, Ltd. by related parties 0
Increase in other assets 0
Other 0
------------
Cash generated (deficiency) after cash
distributions and special items (32,427)
============
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 74
============
- from recapture 0
============
Capital gain (loss) (Notes 4 and 5) 0
============
C-20
<PAGE>
TABLE III - CNL INCOME FUND XIII, LTD. (continued)
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ ------------ -------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 18 70 82 78
- from capital gain 0 0 0 0 2
- from investment income from prior
period 0 0 0 2 5
------------ ------------ ------------ ------------ ---------
Total distributions on GAAP basis (Note 6) 0 18 70 84 85
============ ============ ============ ============ =========
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 18 70 84 84
- from cash flow from prior period 0 0 0 0 1
------------ ------------ ------------ ------------ ---------
Total distributions on cash basis (Note 6) 0 18 70 84 85
============ ============ ============ ============ =========
Total cash distributions as a percentage
of original $1,000 investment (Note 7) 0.00% 5.33% 7.56% 8.44% 8.50%
Total cumulative cash distributions per
$1,000 investment from inception 0 18 88 172 257
Amount (in percentage terms) remaining
invested in program properties at the
end of each year (period) presented
(original total acquisition cost of
properties retained, divided by original
total acquisition cost of all properties
in program) (Notes 4 and 5) N/A 100% 100% 100% 99%
</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: In November 1996, CNL Income Fund XIII, Ltd. sold one of its
properties and received net sales proceeds of $550,000. In January
1997, the partnership reinvested the net sales proceeds in an
additional property as tenants-in-common with an affiliate of the
general partners.
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, 1995
and 1996, are not included in the 1994, 1995 and 1996 totals,
respectively.
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-21
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XIV, LTD.
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995 1996
---------- ------------ ------------ ----------- ------------
<S> <C>
Gross revenue $ 0 $ 256,234 $ 3,135,716 $ 4,017,266 $ 3,999,813
Equity in earnings of joint ventures 0 1,305 35,480 338,717 459,137
Profit (Loss) from sale of properties
(Note 4) 0 0 0 (66,518) 0
Interest income 0 27,874 200,499 50,724 44,089
Less: Operating expenses 0 (14,049) (181,980) (248,840) (246,621)
Interest expense 0 0 0 0 0
Depreciation and amortization 0 (28,918) (257,640) (340,112) (340,089)
------------ ------------ ------------ ------------ ----------
Net income - GAAP basis 0 242,446 2,932,075 3,751,237 3,916,329
============ ============ ============ ============ ===========
Taxable income
- from operations 0 278,845 2,482,240 3,162,165 3,236,329
============ ============ ============ ============ ===========
- 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 3,706,296
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
and refinancing 0 321,737 2,812,631 4,405,856 3,706,296
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (9,050) (2,229,952) (3,543,751) (3,706,296)
- from sale of properties 0 0 0 0 0
- from cash flow from prior period 0 0 0 0 (6,226)
------------ ------------ ------------ ------------ -----------
Cash generated (deficiency) after cash (6,226)
distributions 0 312,687 582,679 862,105
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) (7,500)
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) (13,726)
============ ============ ============ ============ ========
TAX AND DISTRIBUTION DATA PER
$1,000 INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 16 56 70 71
============ ============ ============ ============ =======
- from recapture 0 0 0 0 0
============ ============ ============ ============ =======
Capital gain (loss) (Note 4) 0 0 0 0 0
============ ============ ============ ============ =======
C-22
<PAGE>
TABLE III - CNL INCOME FUND XIV, LTD. (continued)
</TABLE>
<TABLE>
<CAPTION>
1992
(Note 1) 1993 1994 1995 1996
------------ ------------ ------------ -------- -------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 51 79 83
- 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 83
============ ============ ============ ============ =========
Source (on cash basis)
- from sales 0 0 0 0 0
- from refinancing 0 0 0 0 0
- from operations 0 1 51 79 83
- from cash flow from prior period 0 0 0 0 0
------------ ------------ ------------ ------------ --------
Total distributions on cash basis (Note 5) 0 1 51 79 83
============ ============ ============ ============ ========
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 52 131 214
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, 1995
and 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-23
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XV, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 1,143,586 $ 3,546,320 $ 3,632,699
Equity in earnings of joint venture 0 8,372 280,606 392,862
Profit (Loss) from sale of properties
(Note 4) 0 0 (71,023) 0
Interest income 0 167,734 88,059 43,049
Less: Operating expenses 0 (62,926) (228,319) (235,319)
Interest expense 0 0 0 0
Depreciation and amortization 0 (70,848) (243,175) (248,232)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 1,185,918 3,372,468 3,585,059
============ ============ ============ ============
Taxable income
- from operations 0 1,026,715 2,861,912 2,954,318
============ ============ ============ ============
- from gain on sale 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 1,116,834 3,239,370 3,434,682
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 3,434,682
Less: Cash distributions to investors
(Note 5)
- from operating cash flow 0 (635,944) (2,650,003) (3,200,000)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 480,890 1,401,073 234,682
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) (129,939)
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) 104,743
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 33 71 73
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 4) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-24
<PAGE>
TABLE III - CNL INCOME FUND XV, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ -----------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 21 66 80
- from capital gain 0 0 0 0
------------ ------------ ------------ ------------
Total distributions on GAAP basis (Note 5) 0 21 66 80
============ ============ ============ ============
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 21 66 80
------------ ------------ ------------ ------------
Total distributions on cash basis (Note 5) 0 21 66 80
============ ============ ============ ============
Total cash distributions as a percentage
of original $1,000 investment (Notes 6
and 7) 0.00% 5.00% 7.25% 8.20%
Total cumulative cash distributions per
$1,000 investment from inception 0 21 87 167
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%
</TABLE>
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, 1995
and 1996 are not included in the 1994, 1995 and 1996 totals,
respectively.
Note 6: On December 31, 1996, CNL Income Fund XV, Ltd. declared a special
distribution of cumulative excess operating reserves equal to .20% of
the total invested capital. Accordingly, the total yield for 1996 was
8.20%
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-25
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVI, LTD.
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ ------------
<S> <C>
Gross revenue $ 0 $ 186,257 $ 2,702,504 $ 4,343,390
Equity in earnings from joint venture 0 0 0 19,668
Profit from sale of properties (Note 5) 0 0 0 124,305
Interest income 0 21,478 321,137 75,160
Less: Operating expenses 0 (10,700) (274,595) (261,878)
Interest expense 0 0 0 0
Depreciation and amortization 0 (9,458) (318,205) (552,447)
------------ ------------ ------------ ------------
Net income - GAAP basis 0 187,577 2,430,841 3,748,198
============ ============ ============ ============
Taxable income
- from operations 0 189,864 2,139,382 3,239,830
============ ============ ============ ============
- from gain on sale (Note 5) 0 0 0 0
============ ============ ============ ============
Cash generated from operations
(Notes 2 and 3) 0 205,148 2,481,395 3,753,726
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 4,528,726
Less: Cash distributions to investors
(Note 4)
- from operating cash flow 0 (2,845) (1,798,921) (3,431,251)
- from sale of properties 0 0 0 0
------------ ------------ ------------ ------------
Cash generated (deficiency) after cash
distributions 0 202,303 682,474 1,097,475
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 0 20,174,172 24,825,828 0
General partners' capital contri-
butions 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) (2,355,627)
Investment in direct financing
leases 0 (975,853) (5,595,236) (405,937)
Investment in joint venture 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) (2,494)
Collection of overpayment of acqui-
sition and syndication costs paid
by related parties on behalf of the
partnership 0 0 0 0
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 (2,441,583)
============ ============ ============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 0 17 53 71
============ ============ ============ ============
- from recapture 0 0 0 0
============ ============ ============ ============
Capital gain (loss) (Note 5) 0 0 0 0
============ ============ ============ ============
</TABLE>
C-26
<PAGE>
TABLE III - CNL INCOME FUND XVI, LTD. (continued)
<TABLE>
<CAPTION>
1993
(Note 1) 1994 1995 1996
------------ ------------ ------------ --------
<S> <C>
Cash distributions to investors
Source (on GAAP basis)
- from investment income 0 1 45 76
- from capital gain 0 0 0 0
- from investment income from
prior period 0 0 0 0
------------ ------------ ------------ ---------
Total distributions on GAAP basis (Note 4) 0 1 45 76
============ ============ ============ ==========
Source (on cash basis)
- from sales 0 0 0 0
- from refinancing 0 0 0 0
- from operations 0 1 45 76
------------ ------------ ------------ ----------
Total distributions on cash basis (Note 4) 0 1 45 76
============ ============ ============ ==========
Total cash distributions as a percentage
of original $1,000 investment (Note 6) 0.00% 4.50% 6.00% 7.88%
Total cumulative cash distributions per
$1,000 investment from inception 0 1 46 122
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% 100%
</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, 1995
and 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 and
received net sales proceeds of $775,000. In October 1996, the
partnership reinvested the net sales proceeds in an additional property
as tenants-in-common with an affiliate of the general partners.
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-27
<PAGE>
TABLE III
Operating Results of Prior Programs CNL
INCOME FUND XVII, LTD.
1995
(Note 1) 1996
------------ -----------
Gross revenue $ 0 $ 1,195,263
Equity in earnings from joint venture 0 4,834
Interest income 12,153 244,406
Less: Operating expenses (3,493) (169,536)
Interest expense 0 0
Depreciation and amortization (309) (179,208)
------------ ------------
Net income - GAAP basis 8,351 1,095,759
============ ============
Taxable income
- from operations 12,153 1,114,964
============ ============
- from gain on sale 0 0
============ ============
Cash generated from operations
(Notes 2 and 3) 9,012 1,232,948
Cash generated from sales 0 0
Cash generated from refinancing 0 0
------------ ------------
Cash generated from operations, sales
and refinancing 9,012 1,232,948
Less: Cash distributions to investors
(Note 4)
- from operating cash flow (1,199) (703,681)
- from sale of properties 0 0
------------ ------------
Cash generated (deficiency) after cash
distributions 7,813 529,267
Special items (not including sales and
refinancing):
Limited partners' capital contri-
butions 5,696,921 24,303,079
General partners' capital contri-
butions 1,000 0
Contributions from minority interest 0 140,676
Syndication costs (604,348) (2,407,317)
Acquisition of land and buildings (332,928) (19,735,346)
Investment in direct financing
leases 0 (1,784,925)
Investment in joint venture 0 (201,501)
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) (326,483)
Increase in other assets (221,282) 0
Other (410) 410
------------ ------------
Cash generated (deficiency) after cash
distributions and special items 4,198,859 517,860
============ ============
TAX AND DISTRIBUTION DATA PER $1,000
INVESTED
Federal income tax results:
Ordinary income (loss)
- from operations 36 37
============ ============
- from recapture 0 0
============ ============
Capital gain (loss) 0 0
============ ============
C-28
<PAGE>
TABLE III - CNL INCOME FUND XVII, LTD. (continued)
1995
(Note 1) 1996
------------ -----------
Cash distributions to investors
Source (on GAAP basis)
- from investment income 4 23
- from capital gain 0 0
- from investment income from
prior period 0 0
------------ ------------
Total distributions on GAAP basis (Note 4) 0 23
============ ============
Source (on cash basis)
- from sales 0 0
- from refinancing 0 0
- from operations 4 23
------------ ------------
Total distributions on cash basis (Note 4) 4 23
============ ============
Total cash distributions as a percentage
of original $1,000 investment (Note 5) 5.00% 5.50%
Total cumulative cash distributions per
$1,000 investment from inception 4 27
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 December 31, 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-29
<PAGE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
====================================================================================================
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
Wendy's -
Tampa, FL 12/30/88 09/20/96 1,049,550 0 0 0 1,049,550
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
Ponderosa -
St. Cloud, FL (6) 06/01/89 10/24/96 73,713 0 1,057,299 0 1,131,012
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
Jack in the Box -
Dallas, TX 06/28/94 12/09/96 982,980 0 0 0 982,980
</TABLE>
C-30
<PAGE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
============================================================================
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
Wendy's -
Tampa, FL 0 828,350 828,350 221,200
CNL Income Fund V, Ltd.:
Perkins -
Myrtle Beach, SC (2) 0 986,418 986,418 53,582
Ponderosa -
St. Cloud, FL (6) 0 996,769 996,769 134,243
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
Jack in the Box -
Dallas, TX 0 964,437 964,437 18,543
</TABLE>
C-31
<PAGE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
=========================================================================================================
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
Shoney's -
Colorado Springs, CO 07/03/90 07/24/96 1,044,909 0 0 0 1,044,909
Hardee's -
Hartland, MI 07/10/90 10/23/96 617,035 0 0 0 617,035
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
Ponderosa -
Orlando, FL (6) 12/17/90 10/24/96 0 0 1,353,775 0 1,353,775
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 XI, Ltd.:
Burger King -
Philadelphia, PA 09/29/92 11/07/96 1,044,750 0 0 0 1,044,750
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
Checkers -
Richmond, VA 03/31/94 11/22/96 550,000 0 0 0 550,000
C-32
</TABLE>
<PAGE>
<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
Shoney's -
Colorado Springs, CO 0 893,739 893,739 151,170
Hardee's -
Hartland, MI 0 841,642 841,642 (224,607)
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
Ponderosa -
Orlando, FL (6) 0 1,179,210 1,179,210 174,565
CNL Income Fund X, Ltd.:
Shoney's -
Denver, CO 0 987,679 987,679 62,507
CNL Income Fund XI, Ltd.:
Burger King -
Philadelphia, PA 0 818,850 818,850 225,900
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
Checkers -
Richmond, VA 0 413,288 413,288 136,712
</TABLE>
C-33
<PAGE>
<TABLE>
<CAPTION>
TABLE V
SALES OR DISPOSALS OF PROPERTIES
==========================================================================================================
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
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
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
TGI Friday's -
Woodridge, NJ (7) 01/01/95 09/27/96 1,753,533 0 0 0 1,753,533
Wendy's -
Woodridge, NJ (7) 11/28/94 09/27/96 747,058 0 0 0 747,058
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>
<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
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
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
TGI Friday's -
Woodridge, NJ (7) 0 1,510,245 1,510,245 243,288
Wendy's -
Woodridge, NJ (7) 0 672,746 672,746 74,312
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.
(6) Amounts shown are face value and do not represent discounted current value.
Each mortgage note bears interest at a rate of 10.75% per annum and
provides for 12 monthly payments of interest only and thereafter, 168 equal
monthly payments of principal and interest.
(7) CNL Income Fund XIV, Ltd. and CNL Income Fund XV, Ltd. each owned a 50
percent interest in Wood-Ridge Real Estate Joint Venture, which owned two
properties. The amounts presented for each of CNL Income Fund XIV, Ltd.
and CNL Income Fund XV, Ltd. represent each partnership's 50 percent
interest in the properties owned by Wood-Ridge Real Estate Joint Venture.
C-34
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
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)
[ ] S-Corporation (22)
[ ] C-Corporation (5)
[ ] IRA-custodian signature required (23)
[ ] SEP-custodian signature required (38)
[ ] TAXABLE TRUST (7)
[ ] TAX-EXEMPT TRUST (20)
[ ] 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)
[ ] IRREVOCABLE TRUST-trustee signature required (21)
[ ] 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 [ ] Please check if new address
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): This investment is made through
the RIA in its capacity as an RIA and not in its capacity as a Registered
Representative, if applicable. 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/Investment Advisor Signature Date Print or Type Name of Person Signing
- --------------------------------------------------------------------------------------------------------------
Make check payable to : SOUTHTRUST ASSET MANAGEMENT COMPANY OF FLORIDA, N.A., ESCROW AGENT
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>
Franklin Bank, N.A.
- --------------------------------------------------------------------------
FRANKLIN BANK, N.A., INDIVIDUAL RETIREMENT ACCOUNT APPLICATION
ACCOUNTHOLDER INFORMATION: NAME _________________________________________
DISCLAIMER:
Franklin Bank, N.A. is a national bank, not associated with CNL
Group, Inc. or any CNL entity. Franklin Bank, N.A. is a custodian for IRAs and
will act in a custodial capacity for all beneficial owners of IRAs. CNL has no
affiliation with Franklin Bank, N.A.
It is not reasonable to project the growth of your IRA investments
include assets other than bank time deposits or savings accounts. Therefore,
your final account balance will depend upon many factors - the amount of your
contributions, the amount of time the funds are invested, the earnings and/or
losses from the investments, expenses incurred such as brokerage commissions and
trustee's fees and the overall performance of your investments. We expressly
state that the growth in the value of your IRA cannot be guaranteed or
projected.
SIGNATURES IMPORTANT: Please read before signing.
I understand the eligibility requirements for the type of
IRA deposit I am making and I state that I do qualify to
make the deposit. I understand that the terms and
conditions which apply to the Individual Retirement
Account are contained in this Application and Form 5305A
(which will be provided within 10 days of our receipt of
this application). I agree to be bound by those terms and
conditions. I understand that I will not be required to
pay an annual fee as long as all investments in this IRA
are sponsored by a CNL entity. Within seven (7) days from
the date I establish the Individual Retirement Account I
may revoke it without penalty by mailing or delivering a
written notice to the Custodian.
I assume complete responsibility for:
1. Determining that I am eligible for an IRA each year I
make a contribution.
2. Insuring that all contributions I make are within the
limits set forth by the tax laws.
3. The tax consequences of any contribution (including
rollover contributions) and distributions.
Signature _______________________________________________
Accountholder
----------------------------------------------- ------------
Authorized Signature Trustee Date
DESIGNATION OF
BENEFICIARY(IES): I designate the individual(s) named below as my primary and
contingent Beneficiary(ies) of the IRA. I revoke all prior
IRA Beneficiary designations, if any, made by me. I
understand that I may change or add Beneficiaries at any
time by completing and delivering the proper form to the
Custodian. (If you wish to name more than one Beneficiary,
attach a list of each Beneficiary's name, social security
number, relationship to you and percentage share in this
IRA.) If any primary or contingent Beneficiary dies before
me, his or her interest and the interest of his or her heirs
shall terminate completely, and the percentage share of any
remaining Beneficiary(ies) shall be increased on a pro rata
basis.
<TABLE>
<S> <C>
Primary The following individual(s) shall be my Primary Beneficiary(ies):
Beneficiary(ies)
Name______________________________________________________________ Social Security #__________________
Address___________________________________________________________ Date of Birth__________ Share______
__________________________________________________________________ Relationship________________________
Contingent If none of the Primary Beneficiaries survive me, the following individual(s) shall be my Beneficiary(ies):
Beneficiary(ies)
Name______________________________________________________________ Social Security #___________________
Address___________________________________________________________ Date of Birth__________ Share______
__________________________________________________________________ Relationship________________________
Spousal Consent
I am the spouse of IRA accountholder named above. I agree to
my spouse's naming of a primary Beneficiary other than
myself. I acknowledge that I have received a fair and
reasonable disclosure of my spouse's property and financial
obligation. I also acknowledge that I shall have no claim
whatsoever against the Custodian for any payments to my
spouse's Beneficiary(ies).
</TABLE>
- ------------------------------------------------- ---------------
Spouse's Signature Date
- -------------------------------------------------------------------------
Custodial Services P.O. Box 7090 Troy, MI 48007-7090
1-800-344-0667
<PAGE>
INVESTMENT OPTIONS:
|_| I would like to receive information regarding mutual fund investments.
|_| I would like to receive information regarding money market accounts.
Note: Franklin Bank, N.A. may consider other investment options for your IRA.
Please provide the following information on your options.
Fund Name __________________________________________________________________
Sponsor Name________________________________________________________________
Address_____________________________________________________________________
Account No._______________________________________ Telephone #___________
Registered Representative information:
Registered Representative's Name_____________________________________________
Company_____________________________________________________________________
Address_____________________________________________________________________
Telephone #___________________________________________________________________
<PAGE>
EXHIBIT F
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
STATEMENT OF ESTIMATED TAXABLE OPERATING RESULTS
CNL INCOME FUND XVIII, LTD.
PROPERTIES ACQUIRED FROM INCEPTION
THROUGH APRIL 30, 1997
FOR THE PERIOD OCTOBER 12, 1996 (THE DATE OPERATIONS COMMENCED)
THROUGH DECEMBER 31, 1996 (UNAUDITED)
The following statement presents unaudited estimated taxable operating
results of each Property acquired by CNL XVIII from inception through April
30, 1997. The statement presents estimated taxable operating results for each
Property that was operational as if the Property had been acquired and
operational on October 12, 1996 (the date CNL XVIII commenced operations)
through December 31, 1996. The statement should be read in light of the
accompanying footnotes.
These estimates do not purport to present actual or expected operations
of CNL XVIII for any period in the future. These estimates were prepared on
the basis described in the accompanying notes which should be read in
conjunction herewith. No single lessee or group of affiliated lessees lease
Properties with an aggregate purchase price in excess of 20% of the expected
total net offering proceeds of CNL XVIII.
<TABLE>
<CAPTION>
Burger King Golden Corral Jack in the Box Jack in the Box
Kinston, NC Houston, TX (7) Echo Park, CA (6) Henderson, NV (6)
----------- --------------- ----------------- -----------------
<S><C>
Estimated Taxable Operating
Results:
Base Rent (1) $ 19,862 (5) (5) (5)
Management Fees (2) (199) (5) (5) (5)
General and Administrative
Expenses (3) (993) (5) (5) (5)
--------
Estimated Cash Available from
Operations 18,670 (5) (5) (5)
Depreciation Expense (4) (3,660) (5) (5) (5)
--------
Estimated Taxable Operating
Results $ 15,010 (5) (5) (5)
========
See Footnotes
F-1
<CAPTION>
Jack in the Box Golden Corral Boston Market Black-eyed Pea
Centerville, TX (6) Galveston, TX (7) Raleigh, NC Atlanta, GA
------------------- ----------------- ------------- --------------
<S><C>
Estimated Taxable Operating
Results:
Base Rent (1) (5) (5) $ 27,144 $ 15,358
Management Fees (2) (5) (5) (271) (154)
General and Administrative
Expenses (3) (5) (5) (1,357) (768)
-------- --------
Estimated Cash Available from
Operations (5) (5) 25,516 14,436
Depreciation Expense (4) (5) (5) (2,672) (3,596)
-------- --------
Estimated Taxable Operating
Results (5) (5) $ 22,844 $ 10,840
======== ========
See Footnotes
F-2
<CAPTION>
Golden Corral Boston Market On The Border Boston Market
Stow, OH San Antonio, TX San Antonio, TX Minnetonka, MN
------------- --------------- --------------- --------------
<S><C>
Estimated Taxable Operating
Results:
Base Rent (1) $42,009 (5) (5) (5)
Management Fees (2) (420) (5) (5) (5)
General and Administrative
Expenses (3) (2,100) (5) (5) (5)
--------
Estimated Cash Available from
Operations 39,489 (5) (5) (5)
Depreciation Expense (4) (7,047) (5) (5) (5)
--------
Estimate Taxable Operating
Results $ 32,442 (5) (5) (5)
========
See Footnotes
F-3
</TABLE>
Wendy's
Sparta, TN Total
---------- ---------
Estimated Taxable Operating
Results:
Base Rent (1) (5) $104,373
Management Fees (2) (5) (1,044)
General and Administrative
Expenses (3) (5) (5,218)
--------
Estimated Cash Available from
Operations (5) 98,111
Depreciation Expense (4) (5) (16,975)
--------
Estimate Taxable Operating
Results (5) $ 81,136
========
FOOTNOTES:
(1) Represents rental income from leases for four of the 13 Properties
acquired from inception through April 30, 1997, which were operational
at the time acquired by CNL XVIII, for the period commencing October 12,
1996 (the date CNL XVIII commenced operations) through December 31,
1996. The nine Properties acquired by CNL XVIII that are under
construction are not presented due to the fact that they were not
operational for the period presented.
(2) The Properties are managed pursuant to a management agreement between
CNL XVIII and an Affiliate of the General Partners, pursuant to which
the Affiliate receives an annual management fee in an amount equal to
one percent of the gross revenues that CNL XVIII earns from its
Properties. See "Management Compensation."
(3) Estimated at five percent of gross rental income based on the previous
experience of Affiliates of the General Partners with 17 public limited
partnerships which own properties similar to that owned by CNL XVIII.
(4) The estimated federal tax basis of the depreciable portion (the building
portion) of the Properties has been depreciated on the straight-line
method over 40 years.
(5) This Property is under construction and therefore was not operational
for the period presented. The development agreements for the Properties
which are to be constructed, provide that construction must be completed
no later than the dates set forth below:
Property Estimated Final Completion Date
-------- -------------------------------
Houston Property June 25, 1997
Echo Park Property July 6, 1997
Henderson Property July 6, 1997
Centerville Property July 7, 1997
Galveston Property July 21, 1997
San Antonio #1 Property October 13, 1997
San Antonio #2 Property October 14, 1997
Minnetonka Property October 26, 1997
Sparta Property August 28, 1997
(6) The lessee of the Echo Park, Henderson and Centerville Properties is the
same unaffiliated lessee.
(7) The lessee of the Houston and Galveston Properties is the same
unaffiliated lessee.
F-4
<PAGE>
PART II
INFORMATION NOT REQUIRED IN PROSPECTUS
<TABLE>
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ITEM 35. FINANCIAL STATEMENTS AND EXHIBITS.
(a) Financial Statements:
The following financial statements are included in the Prospectus.
(1) Pro Forma Balance Sheet as of December 31, 1996
(2) Pro Forma Statement of Income for the year ended December 31, 1996
(3) Notes to Pro Forma Financial Statements as of December 31, 1996
(4) Report of Independent Accountants for CNL Income Fund XVIII, Ltd.
(5) Balance Sheets of CNL Income Fund XVIII, Ltd. as of December 31, 1996 and 1995
(6) Statements of Income of CNL Income Fund XVIII, Ltd. for the year ended December 31, 1996
and the period February 10, 1995 (date of inception) through December 31, 1995
(7) Statement of Partners' Capital of CNL Income Fund XVIII, Ltd. for the year ended December 31,
1996 and the period February 10, 1995 (date of inception) through December 31, 1995
(8) Notes to Financial Statements of CNL Income Fund XVIII, Ltd. for the year ended December 31,
1996 and the period February 10, 1995 (date of inception) through December 31, 1995
(9) Schedule III - Real Estate and Accumulated Depreciation of CNL Income Fund XVIII, Ltd. as of
December 31, 1996
(10) Notes to Schedule III - Real Estate and Accumulated Depreciation of CNL Income Fund XVIII,
Ltd. as of December 31, 1996
(11) Report of Independent Accountants for CNL Realty Corporation
(12) Balance Sheet of CNL Realty Corporation as of December 31, 1996
(13) Notes to Balance Sheet of CNL Realty Corporation as of December 31, 1996
(14) Pro Forma Balance Sheet as of March 31, 1997
(15) Pro Forma Statement of Income for the quarter ended March 31, 1997
(16) Pro Forma Statement of Income for the year ended December 31, 1996
(17) Notes to Pro Forma Financial Statements for the quarter ended March 31, 1997 and the year ended
December 31, 1996
(18) Condensed Balance Sheets as of March 31, 1997 and December 31, 1996
(19) Condensed Statements of Income for the quarters ended March 31, 1997 and 1996
II-1
<PAGE>
(20) Condensed Statements of Partners' Capital for the quarter ended March 31, 1997 and the year
ended December 31, 1996
(21) Condensed Statements of Cash Flows for the quarters ended March 31, 1997 and 1996
(22) Notes to Condensed Financial Statements for the quarters ended March 31, 1997 and 1996
(23) Balance Sheets of CNL Realty Corporation as of March 31, 1997 and December 31, 1996
(24) Notes to Balance Sheets of CNL Realty Corporation as of March 31, 1997 and December 31, 1996
All other Schedules have been omitted as the required information is
inapplicable or is presented in the financial statements or related notes.
(b) Exhibits.
**1.1 Form of Managing Dealer Agreement (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.)
II-2
<PAGE>
**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.)
**4.6 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XVIII, Ltd. (Filed as Exhibit 4.2 to Form 10-K
filed with the Securities and Exchange Commission on March 21,
1996, 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.)
**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.)
II-3
<PAGE>
**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.)
**10.15 Management Agreement between CNL Income Fund XVIII, Ltd. and CNL Fund Advisors, Inc.
(Filed as Exhibit 10.1 to Form 10-K filed with the Securities and Exchange Commission on
March 19, 1997, 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
II-4
<PAGE>
**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, dated November 25, 1996
**24.12 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated February 4, 1997
**24.13 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated March 18, 1997
**24.14 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated April 21, 1997
**24.15 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated May 8, 1997
24.16 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated August 5, 1997
(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.)
</TABLE>
**previously filed
II-5
<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. Ten 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 5th day of August, 1997.
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. Ten to Registration Statement has been signed below
by the following persons in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/Robert A. Bourne President, Treasurer and August 5, 1997
- -------------------- Director (Principal Financial and
ROBERT A. BOURNE Accounting Officer) of corporate
General Partner, and
individually as General Partner
/s/James M. Seneff, Jr. Chairman and Director August 5, 1997
- ------------------------- (Principal Executive Officer) of
JAMES M. SENEFF, JR. corporate General Partner, and
individually as General Partner
<PAGE>
EXHIBITS
</TABLE>
<TABLE>
<CAPTION>
Exhibit
Number
<S> <C>
**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.)
**previously filed
<PAGE>
**4.6 Amended and Restated Agreement of Limited Partnership of CNL
Income Fund XVIII, Ltd. (Filed as Exhibit 4.2 to Form 10-K
filed with the Securities and Exchange Commission on March 21,
1996, 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.)
**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.)
**previously filed
<PAGE>
**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.)
**10.15 Management Agreement between CNL Income Fund XVIII, Ltd. and CNL Fund
Advisors, Inc. (Filed as Exhibit 10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 19, 1997, incorporated herein by reference.)
**24.1 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated
March 30, 1995
**previously filed
<PAGE>
**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, dated
November 25, 1996
**24.12 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated
February 4, 1997
**24.13 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated
March 18, 1997
**24.14 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated
April 21, 1997
**24.15 Consent of Coopers & Lybrand L.L.P., Certified Public Accountants, dated
May 8, 1997
24.16 Consent of Coopers & Lybrand L.L.P., Certified Public
Accountants, dated August 5, 1997 (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.)
</TABLE>
**previously filed
EXHIBIT 24.16
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 of our
reports dated February 3, 1997, on our audit of the financial statements
(including the financial statement schedule) of CNL Income Fund XVIII, Ltd. and
of our report dated April 9, 1997 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
August 5, 1997
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 December 31, 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 44 units
total square feet
of units 67,645 s/f 149,829 s/f 131,992 s/f 159,196 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 12/31/96
Cash down payment (Note 1) $12,296,264 $23,182,624 $19,637,008 $27,611,441
Contract purchase price
plus acquisition fee $12,222,062 $23,022,783 $19,512,548 $27,506,106
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 74,202 159,841 124,460 105,335
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $12,296,264 $23,182,624 $19,637,008 $27,611,441
=========== =========== =========== ===========
</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 46 units 40 units
total square feet
of units 117,652 s/f 173,841 s/f 164,225 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 10/30/96 5/31/96
Cash down payment (Note 1) $22,113,522 $32,679,181 $28,352,368 $31,985,071
Contract purchase price
plus acquisition fee $21,706,859 $32,146,520 $27,679,595 $31,450,507
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 406,663 532,661 672,773 534,564
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $22,113,522 $32,679,181 $28,352,368 $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 42 units 49 units 39 units 49 units
total square feet
of units 180,843 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-
12/12/96 1/24/96 10/16/92 5/31/96
Cash down payment (Note 1) $31,763,146 $36,036,814 $35,200,825 $40,840,795
Contract purchase price
plus acquisition fee $31,016,376 $35,320,865 $34,595,348 $40,339,796
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 746,770 715,949 605,477 500,999
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $31,763,146 $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) (Note 17)
<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,MN, KY,MN,MO,MS, FL,GA,ID,IN,
KS,LA,MD,NC, MO,MS,NC,NJ, NC,NJ,NM,OH, KS,MN,MO,NC,
OH,PA,SC,TN, NV,OH,SC,TN, OK,PA,SC,TN, NM,NV,OH,TN,
Locations TX,VA TX,VA TX,VA TX,UT,WI
Type of property Restaurants Restaurants Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 48 units 61 units 53 units 44 units
total square feet
of units 156,156 s/f 181,475 s/f 163,035 s/f 169,867 s/f
Dates of purchase 5/18/93- 9/27/93- 4/28/94- 10/21/94-
4/24/95 10/09/96 10/09/96 10/04/96
Cash down payment (Note 1) $34,905,219 $42,141,137 $37,976,175 $40,197,565
Contract purchase price
plus acquisition fee $34,535,596 $41,717,951 $37,590,883 $39,805,020
Other cash expenditures
expensed - - - -
Other cash expenditures
capitalized 369,623 423,186 385,292 392,545
----------- ----------- ----------- -----------
Total acquisition cost
(Note 1) $34,905,219 $42,141,137 $37,976,175 $40,197,565
=========== =========== =========== ===========
</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 five restaurant properties.
Note 16: The partnership owns a 50% interest in a joint venture which
owns five restaurant properties. In addition, the partnership owns
a 15.02% interest in one restaurant property held as
tenants-in-common with affiliates.
Note 17: The partnership owns a 80.27% interest in one restaurant
property held as tenants-in-common with an affiliate.
<PAGE>
TABLE VI - ACQUISITIONS OF PROPERTIES BY PROGRAMS (continued)
<TABLE>
<CAPTION>
CNL Income CNL Income
Fund XVII, Fund XVIII,
Ltd. Ltd.
--------- ----------
(Note 18)
<S> <C>
CA,FL,GA,IL,
IN,MI,NC,NV,
Locations OH,SC,TN,TX NC,TX
Type of property Restaurants Restaurants
Gross leasable space
(sq. ft.) or number
of units and 24 units 2 units
total square feet
of units 102,728 s/f 11,758 s/f
Dates of purchase 12/20/95 - 12/27/96 -
12/31/96 12/31/96
Cash down payment (Note 1) $23,560,315 $ 1,529,483
Contract purchase price
plus acquisition fee $23,520,854 $ 1,531,069
Other cash expenditures
expensed - -
Other cash expenditures
capitalized 39,461 (1,586)
----------- -----------
Total acquisition cost
(Note 1) $23,560,315 $ 1,529,483
=========== ===========
</TABLE>
Note 18: The partnership owns a 80% interest in a joint venture which
owns one restaurant property. In addition, the partnership owns a
19.73% interest in one restaurant property held as
tenants-in-common with an affiliate.
