Non-traded Alternatives for Individual Investors 1 CSC-0313-13221-BD Member FINRA/SIPC
Risks & Suitability This material does not constitute a solicitation of an offer to sell/buy the securities described herein. Such an offering is made only by the prospectus. This material must be read in conjunction with the prospectus to fully understand the risks associated with an offering. There are no assurances that offerings will meet their stated objectives. Investing in commercial real estate or non-traded REITs is not suitable for all investors. Investors should consult a financial professional to determine whether risks associated with an investment in the shares, including illiquidity, underlying investments, failure to make distributions, and liquidation at less than the original amount invested are compatible with investment objectives. Investments in non-traded BDCs are subject to significant risks. These risks include limited operating histories, reliance on the advisors, conflicts of interests, payment of substantial fees to the advisors and their affiliates, illiquidity and liquidations at less than the original amounts invested. Investing in these products is not suitable for all investors. Investors should consult a financial professional to determine whether risks associated with an investment in the shares are compatible with their investment objectives. 2
Alternative Investments: Forging the Path Institutional Investors High-Net-Worth Individuals 3
Model Advanced by Institutions and High-Net-Worth Individuals Chart is not intended to represent actual or suggested allocations. For illustrative purposes only. 4
Alternative Investment Examples 5
Institutional Investors: Prominent University Endowments Yale Endowment Asset Allocation Harvard Endowment Asset Allocation Alternative, Alternatives 64% Traditional 46% Alternatives 39% Traditional 61% Sources: The Yale Endowment 2012 Performance, 2013 Target Asset Allocations, September 2012. Harvard Management Company Endowment Report Message from the CEO, 2013 Policy Portfolio, September 2012. Charts are for illustrative purposes only. 6
Institutional Investors: Prominent University Endowments 12.00% 10.00% 10-Year Historical Investment Returns 9.49% 10.60% 8.00% 6.00% 5.86% 4.00% 2.00% 0.00% Traditional 60/40 Stock/ Bond Portfolio Harvard Endowment Yale Endowment Sources: :Harvard Management Company Endowment Report Message from the CEO, September 2012. The Yale Endowment 2012 Performance, September 2012.Stock and Bond Portfolio includes S&P 500 and CITI US BIG. Past performance is no guarantee of future results. Charts are for illustrative purposes only. 7
Alternative Investments: Potential Benefits May offer diversification benefits Low historical correlation to stocks and bonds Reduced portfolio volatility May hedge against rising inflation Hard assets have fared well historically 8
Potential Benefits: Low Correlation See endnotes for dataset details. 9
Potential Benefits: Reduced Portfolio Volatility See endnotes for dataset details. 10
Potential Benefits: Inflation Hedge Sources: United States Bureau of Labor Statistics, NCREIF. Past performance is no guarantee of future results. 11
Potential Benefits: Inflation Hedge Floating Rate Loans Market Rates Loan Interest Increase Decrease Returns Compared to Market Stable Stable Fixed Rate Loans Fixed Fixed Decrease Increase Hypothetical in nature and provided for illustrative purposes only. All loans carry the potential risk of default. 12
Alternative Investments: Potential Risks Less liquid investments Complex and difficult to evaluate Some may have higher volatility and correlation to traded markets than others Values can fluctuate or be valued less frequently than traditional investments 13
Alternative Investments: Historical Barriers for Individuals High costs Direct ownership of alternative assets such as a multi-million dollar piece of commercial real estate is cost prohibitive Market or industry knowledge Considerable knowledge may be needed to navigate complex markets or industries Active management Direct investment in alternatives requires significant time and resources associated with daily management 14
Alternative Investments: Access for Individuals Traded options Higher liquidity Values influenced by market sentiment May have higher correlation to traded markets Non-traded alternatives Less liquidity Structure aligned with less liquid assets May have lower correlation and volatility to traded markets 15
Alternative Investments: Non-traded REITs 16
Alternative Investments: Non-traded BDCs 17
Alternative Investments: Non-traded Structure Comparison Mutual Funds REITs BDCs Underlying Investments Public Companies Real Estate Private Companies SEC registered (Public Offering) ü ü ü SEC reporting (Public Reporting) ü ü ü Tax reporting on Form 1099 ü ü ü Distribute 90% of income to avoid corporate tax ü ü ü Meets asset and diversification test ü ü ü Comply with Sarbanes-Oxley ü ü ü Non-traded REITs and BDCs are less liquid, alternative investments. Despite structural similarities to mutual funds, they are not traded on an exchange, have different fee structures and are valued less frequently. 18
Alternative Investments: Risk and Suitability Considerations Potential Risks and Suitability Standards Not suitable for all investors Minimum annual gross income of $70,000 and a minimum net worth of $70,000; or a minimum net worth of $250,000 (exclusive of home, home furnishings or automobiles), and some states may have higher gross income or net worth standards or may have additional limitations on allocation percentages Less liquid investments and liquidation may be less than original amount invested There is no guarantee of distributions or that distribution rates will be sustained Limited operating history and reliance on the advisor, conflicts of interest, payment of substantial fees to the advisor and its affiliates 19
CNL Securities Member FINRA/SIPC CNL Center at City Commons 450 South Orange Avenue Orlando, FL 32801 3336 www.cnlsecurities.com (407) 650 1000 (866) 650 0650 FOR BROKER/DEALER USE ONLY This is not an offer. Securities can be offered only by prospectus. Dissemination to prospective or current investors is prohibited. Broker/dealers are reminded that communications to any person must be accompanied or preceded by a prospectus in accordance with the Securities Act of 1933, as amended. Investments in non-traded real estate investment trusts (REITs) and non-traded business development companies (BDCs) are subject to significant risks. These risks include limited operating histories, reliance on the advisors, conflicts of interests, payment of substantial fees to the advisors and their affiliates, illiquidity and liquidations at less than the original amounts invested. Investing in these products is not suitable for all investors. Investors should consult a financial professional to determine whether risks associated with an investment in the shares are compatible with their investment objectives. Member FINRA/SIPC
Dataset Details: Correlation and Volatility Morningstar Chart Dataset Information (1992-2011): Government bonds are guaranteed by the full faith and credit of the United States government as to the timely payment of principal and interest, while returns in stocks, direct real estate, private debt, private equity and REITs are not guaranteed. Direct real estate trades in a private asset market, which is different in structure and function compared to the publicly-traded REIT market. Direct real estate differs from non-public REITs in many ways, as it does not incorporate brokerage fees, take into account market valuation in the event of public offering or reflect liquidity constraints. Real estate investment options are subject to certain risks, such as risks associated with general and local economic conditions, interest rate fluctuation, credit risks, liquidity risks and corporate structure. International investments involve special risks such as fluctuations in currency, foreign taxation, economic and political risks, liquidity risks, and differences in accounting and financial standards. Private Debt- equally weighted composite made up of 50% Credit Suisse Leveraged Loan Index and 50% Bank of America Merrill Lynch U.S. High Yield Master II Index. U.S. Bond Index- Barclays U.S. Aggregate Bond Index which measures investment grade, U.S. dollar-denominated, fixedrate taxable bond market, including Treasuries, government-related and corporate securities, MBS, ABS, and CMBS. Domestic Stocks- Standard and Poor s 90 index from 1950 through February 1957 and the S&P 500 index thereafter. International Stocks- Morgan Stanley Capital International Europe, Australasia, and Far East (EAFE ) Index. Traded REITS- FTSE NAREIT All Equity REIT Index Private Equity- Cambridge U.S. Private equity index which is compiled from 883 U.S. private equity funds (buyouts, growth equity, private equity energy and mezzanine funds), including fully liquidated partnerships, formed between 1986 and 2010. Direct Real Estate- Transactions-Based Index of Institutional Commercial Property Investment Performance (TBI) from the MIT Center for Real Estate from March 1985 to December 2010 and the NCREIF Transaction Based Index (NTBI) thereafter. Correlations are based on annual frequency. The data assumes reinvestment of all income and does not account for taxes or transaction costs. An investment cannot be made directly in an index. Risk is measured by annual standard deviation, which measures the fluctuation of returns around the arithmetic average return of the investment. The higher the standard deviation, the greater the variability (and thus risk) of the investment returns. The data assumes reinvestment of all income and does not account for taxes or transaction costs. An investment cannot be made directly in an index. Disclaimer: The underlying index series and weightings used to represent the private debt composite were requested by CNL Financial Group. The 1992 start date for this analysis is constrained by the maximum available historical data for the private debt composite. 21