UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1998
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
Commission file number 0-15666
CNL INCOME FUND, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2666264
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 650-1000
Securities registered pursuant to Section 12 (b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 30,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is no
market for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
PART I
Item 1. Business
CNL Income Fund, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 26, 1985. The general partners of the Partnership are Robert
A. Bourne, James M. Seneff, Jr. and CNL Realty Corporation, a Florida
corporation (the "General Partners"). Beginning on April 16, 1986, the
Partnership offered for sale up to $15,000,000 in limited partnership interests
(the "Units") (30,000 Units at $500 per Unit) pursuant to a registration
statement on Form S-11 under the Securities Act of 1933, as amended. The
offering terminated on December 31, 1986, as of which date the maximum offering
proceeds of $15,000,000 had been received from investors who were admitted to
the Partnership as limited partners (the "Limited Partners").
The Partnership was organized to acquire both newly constructed and
existing restaurant properties, as well as properties upon which restaurants
were to be constructed (the "Properties"), which are leased primarily to
operators of selected national and regional fast-food restaurant chains (the
"Restaurant Chains"). Net proceeds to the Partnership from its offering of
Units, after deduction of organizational and offering expenses, totaled
$13,284,970, and were used to acquire 20 Properties, including interests in
three Properties owned by joint ventures in which the Partnership is a
co-venturer. During the year ended December 31, 1996, the Partnership sold a
small, undeveloped portion of land relating to its Property in Mesquite, Texas.
This sale of land had no bearing on the operations of the Property or the
restaurant business. During the year ended December 31, 1997, the Partnership
sold its Property in Casa Grande, Arizona to a third party. In addition, during
1997, Seventh Avenue Joint Venture, in which the Partnership owned a 50 percent
interest, sold its Property to the tenant and the Partnership received a return
of capital from the net sales proceeds. The Partnership reinvested the majority
of the net sales proceeds from the sale of the Property in Casa Grande, Arizona,
and the return of capital received from Seventh Avenue Joint Venture in a
Property in Camp Hill, Pennsylvania, and in a Property in Vancouver, Washington,
as tenants-in-common , with affiliates of the General Partners. During 1998, the
Partnership sold its Property in Kissimmee, Florida to the tenant and
distributed the majority of the net sales proceeds as a special distribution to
the Limited Partners and used the remaining net sales proceeds for other
Partnership purposes. As a result of the above transactions, the Partnership
currently owns 17 Properties, including interests in two Properties owned by
joint ventures in which the Partnership is a co-venturer and one Property owned
with affiliates as tenants-in-common. Generally, the Properties are leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the third quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the special
meeting approve the Merger, APF will own the Properties and other assets of the
Partnership. See Item 8.
Financial Statements and Supplementary Data -- Note 10. Subsequent Event.
In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. 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. Certain lessees also have
been granted options to repurchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has 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.
<PAGE>
Leases
Although there are variations in the specific terms of the leases, the
following is a summarized description of the general structure of the
Partnership's leases. The leases of the Properties owned by the Partnership and
joint ventures in which the Partnership is a co-venturer provide for initial
lease terms, ranging from five to 20 years (the average being 16 years), and
expire between 2001 and 2018. Generally, the leases are on a triple-net basis,
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $16,000 to $222,800. Generally, the leases provide for percentage
rent, based on sales in excess of a specified amount, to be paid annually. In
addition, certain leases provide for increases in the annual base rent during
the lease term.
Generally, the leases of the Properties provide for two or three
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original cost of the Property, after a specified portion of the
lease term has elapsed. Additionally, certain leases provide the lessees the
option to purchase up to a 49 percent joint venture interest in the Property,
after a specified portion of the lease term has elapsed, at an option purchase
price similar to those described above multiplied by the percentage interest in
the Property with respect to which the option is being exercised.
The leases also provide that, in the event the Partnership wishes to
sell the Property subject to that lease, the Partnership first must offer the
lessee the right to purchase the Property on the same terms and conditions, and
for the same price, as any offer which the Partnership has received for the sale
of the Property.
In June 1998, the Partnership entered into a lease amendment with the
tenant of the Property in Oklahoma City, Oklahoma, to provide for reduced annual
rents and to provide for a change in the percentage rent calculation.
In July 1998, the Partnership entered into a lease amendment with the
tenant of the Property in Payson, Arizona, to extend the lease term to 20 years.
All other lease terms remained unchanged.
During 1998, the tenant of the Property in Angleton, Texas exercised
its option to extend the lease for an additional five years beginning in
February 1999. All other lease terms remained unchanged.
Major Tenants
During 1998, Golden Corral Corporation contributed more than ten
percent of the Partnership's total rental income (including the Partnership's
share of the rental income from two Properties owned by joint ventures and a
Property owned with affiliates as tenants-in-common). As of December 31, 1998,
Golden Corral Corporation was the lessee under leases relating to five
restaurants. It is anticipated that Golden Corral Corporation will continue to
contribute ten percent or more of the Partnership's total rental income in 1999
and subsequent years. In addition, two Restaurant Chains, Golden Corral Family
Steakhouse Restaurants ("Golden Corral") and Wendy's Old Fashioned Hamburger
Restaurants ("Wendy's"), each accounted for more than ten percent of the
Partnership's total rental income in 1998 (including the Partnership's share of
the rental income from two Properties owned by joint ventures and a Property
owned with affiliates as tenants-in-common). In subsequent years, it is
anticipated that these two Restaurant Chains each will continue to account for
more than ten percent of the total rental income to which the Partnership is
entitled under the terms of its leases. Any failure of these lessees or
Restaurant Chains could materially affect the Partnership's income if the
Partnership is not able to re-lease the Properties in a timely manner.
Joint Venture Arrangements
As of December 31, 1996, the Partnership had entered into two separate
joint venture arrangements, Sand Lake Road Joint Venture and Orange Avenue Joint
Venture, with various unaffiliated entities to purchase and hold two of the
Properties through such joint ventures. The joint venture arrangements for Sand
Lake Road Joint Venture and Orange Avenue Joint Venture provide for the
Partnership and its joint venture partner to share equally in all costs and
benefits associated with the joint venture. The Partnership and its joint
venture partners are jointly and severally liable for all debts, obligations and
other liabilities of the joint venture.
Each joint venture has an initial term of 20 years, and, after the
expiration of the initial term, continues in existence from year to year unless
terminated at the option of either joint venturer or by an event of dissolution.
Events of dissolution include the bankruptcy, insolvency or termination of any
joint venturer, sale of the Property owned by the joint venture and mutual
agreement of the Partnership and its joint venture partner to dissolve the joint
venture.
The Partnership has management control of each joint venture in which
it participates. The joint venture agreements restrict each venturer's ability
to sell, transfer or assign its joint venture interest without first offering it
for sale to the joint venture partner, either upon such terms and conditions as
to which the venturers may agree or, in the event the venturers cannot agree, on
the same terms and conditions as any offer from a third party to purchase such
joint venture interest.
Net cash flow from operations of each joint venture is distributed 50
percent 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 in proportion to each partner's percentage
interest in the joint venture.
In addition to the above joint venture agreements, in December 1997,
the Partnership entered into an agreement to hold a Property in Vancouver,
Washington, as tenants-in-common with affiliates of the General Partners. The
agreement provides for the Partnership and the affiliates to share in the
profits and losses of the Property in proportion to each co-venturer's
percentage interest. The Partnership owns a 12.17% interest in this Property.
Property Management
CNL Fund Advisors, Inc., an affiliate of the General Partners, acts as
manager of the Partnership's Properties pursuant to a property management
agreement with the Partnership. Under this agreement, CNL Fund Advisors, Inc. is
responsible for collecting rental payments, inspecting the Properties and the
tenants' books and records, assisting the Partnership in responding to tenant
inquiries and notices and providing information to the Partnership about the
status of the leases and the Properties. CNL Fund Advisors, Inc. also assists
the General Partners in negotiating the leases. For these services, the
Partnership has agreed to pay CNL Fund Advisors, Inc. an annual fee of one-half
of one percent of Partnership assets (valued at cost) under management, not to
exceed the lesser of one percent of gross rental revenues or competitive fees
for comparable services. Under the property management agreement, the property
management fee is subordinated to receipt by the Limited Partners of an
aggregate, ten percent, noncumulative, noncompounded annual return on their
adjusted capital contributions (the "10% Preferred Return"), calculated in
accordance with the Partnership's limited partnership agreement (the
"Partnership Agreement"). In any year in which the Limited Partners do not
receive a 10% Preferred Return, no property management fee will be paid.
The property management 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.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties 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.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 17 Properties, located in 11 states.
Reference is made to the Schedule of Real Estate and Accumulated Depreciation
filed with this report for a listing of the Properties and their respective
costs, including acquisition fees and certain acquisition expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 16,000
to 95,000 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. The buildings
generally are rectangular and are constructed from various combinations of
stucco, steel, wood, brick and tile. Building sizes range from approximately
1,900 to 7,400 square feet. All buildings on Properties acquired by the
Partnership are freestanding and surrounded by paved parking areas. Buildings
are suitable for conversion to various uses, although modifications may be
required prior to use for other than restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of the lease with the
Partnership's major tenant as of December 31, 1998 (see Item 1. Business - Major
Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Golden Corral Corporation leases five Golden Corral restaurants. The
initial term of each lease ranges from 7.83 to 15 years (expiring 2001) and the
average minimum base annual rent is approximately $90,500 (ranging from
approximately $77,600 to $109,300).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 11, 1999 there were 1,065 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfers of Units. From January 1997
through April 1998, due primarily to sales of Properties in prior years, the
price paid for any Unit transferred pursuant to the Plan was $422 per Unit.
Effective with the date of sale of the Property in Kissimmee, Florida, as
described below in Item 7. Management's Discussion and Analysis of Financial
Condition and Results of Operations. -- Liquidity and Capital Resources, the
price paid for any Unit transferred pursuant to the Plan was $410. The price
paid for any Unit transferred other than pursuant to the Plan was subject to
negotiation by the purchaser and the selling Limited Partner. The Partnership
will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low
and average sales prices for transfers of Units during 1998 and 1997 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1998 (1) 1997 (1)
-------------------------------- --------------------------------
High Low Average High Low Average
------- ------- ---------- ------- ------- ----------
<S> <C>
First Quarter $422 $422 $422 (2) (2) (2)
Second Quarter (2) (2) (2) $422 $380 $401
Third Quarter 420 420 420 422 422 422
Fourth Quarter 373 373 373 444 410 427
</TABLE>
(1) A total of 153 and 449 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1998 and 1997, respectively.
(2) No transfer of Units took place during the quarter other than pursuant
to the Plan.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provisions of
the Partnership Agreement.
For the years ended December 31, 1998 and 1997, the Partnership
declared cash distributions of $1,703,468 and $1,264,884, respectively, to the
Limited Partners. Distributions during the year ended December 31, 1998 included
$586,300 in a special distribution, as a result of the distribution of net sales
proceeds from the sale of the Property in Kissimmee, Florida. This special
distribution was effectively a return of a portion of the Limited Partners'
investment, although, in accordance with the Partnership agreement, $216,361 was
applied towards the 10% Preferred Return, on a cumulative basis, and the balance
of $369,939 was treated as a return of capital for purposes of calculating the
10% Preferred Return. As a result of this return of capital and the returns of
capital in prior years, the amount of the Limited Partners' invested capital
contributions (which generally is the Limited Partners' capital contributions,
less distributions from the sale of Properties that are considered to be a
return of capital) was decreased; therefore, the amount of the Limited Partners'
invested capital contributions on which the 10% Preferred Return is calculated
was lowered accordingly. As a result of the sale of the Property during 1998,
the Partnership's total revenue was reduced during 1998 and is expected to
remain reduced in subsequent years, while the majority of the Partnership's
operating expenses remained fixed. Therefore, distributions of net cash flow
were adjusted commencing during the quarter ended June 30, 1998. No
distributions have been made to the General Partners to date.
As indicated in the chart below, these distributions were declared at
the close of each of the Partnership's calendar quarters. This amount includes
monthly distributions made in arrears for the Limited Partners electing to
receive such distributions on this basis.
<PAGE>
<TABLE>
<CAPTION>
Quarters Ended 1998 1997
------------------------- -------------- --------------
<S> <C>
March 31 $316,221 $316,221
June 30 853,283 316,221
September 30 266,982 316,221
December 31 266,982 316,221
</TABLE>
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1998 1997 1996 1995 1994
------------- -------------- -------------- --------------- --------------
<S> <C>
Year ended December 31:
Revenues (1) $1,153,824 $ 1,333,000 $ 1389,308 $ 1,290,567 $ 1,358,871
Net income (2) 1,001,437 1,248,757 1,083,109 962,102 1,208,576
Cash distributions
declared (3) 1,703,468 1,264,884 1,264,884 1,264,883 2,279,123
Net income per Unit (2) 33.09 41.24 35.75 31.75 39.91
Cash distributions declared
per Unit (3) 56.78 42.16 42.16 42.16 75.97
At December 31:
Total assets $8,760,926 $ 9,500,078 $ 9,479,777 $ 9,668,878 $10,857,414
Partners' capital 8,327,019 9,029,050 9,045,177 9,226,952 9,529,733
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 1998, 1997, and 1996,
includes $235,804, $233,183, and $19,000, respectively, from gains on
sale of land and buildings.
(3) Distributions for the years ended December 31, 1998 and 1994 include
$586,300 and $861,500, respectively, as a result of the distribution of
a portion of the net sales proceeds from the sales of Properties.
The above selected financial data should be read in conjunction with
the financial statements and related notes contained in Item 8 hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and
Results of Operations
The Partnership was organized on November 26, 1985, to acquire for
cash, either directly or through joint venture arrangements, both newly
constructed and existing restaurant Properties, as well as land upon which
restaurant Properties were to be constructed, which are leased primarily to
operators of selected national and regional fast-food Restaurant Chains. The
leases are generally triple-net leases, with the lessees generally responsible
for all repairs and maintenance, property taxes, insurance and utilities. As of
December 31, 1998, the Partnership owned 17 Properties, either directly or
indirectly through joint venture arrangements.
Liquidity and Capital Resources
During the years ended December 31, 1998, 1997, and 1996, the
Partnership generated cash from operations (which includes cash received from
tenants, distributions from joint ventures and interest received, less cash paid
for expenses) of $1,033,789, $1,316,816, and $1,132,688. The decrease in cash
from operations during 1998, as compared to 1997, and the increase during 1997,
as compared to 1996, is primarily a result of changes in income and expenses as
described in "Results of Operations" below and changes in the Partnership's
working capital during each of the respective years.
Cash from operations during the years ended December 31, 1998, 1997,
and 1996, was also affected by the following.
In August 1996, the Partnership entered into a lease amendment with the
tenant of the Property in Mesquite, Texas, to provide for lower initial base
rent with scheduled rent increases retroactively effective March 1996. In
anticipation of entering into this lease amendment, the Partnership accepted a
promissory note in March 1996, in the amount of $156,308, for past due rental
and other amounts, and real estate taxes previously paid by the Partnership on
behalf of the tenant. Payments were due in 60 monthly installments of $3,492,
including interest at a rate of 11 percent per annum, and collections commenced
on June 1, 1996. Receivables at December 31, 1996, included $150,787 of such
amounts, including accrued interest of $5,657 and late fees of $1,222. During
1997, the Partnership collected the full amount of the promissory note.
Other sources and uses of capital included the following during the
years ended December 31, 1998, 1997, and 1996.
In June 1996, the Partnership sold a small, undeveloped portion of the
land relating to its Property in Mesquite, Texas. In connection therewith, the
Partnership received net sales proceeds of $20,000 and recognized a gain for
financial reporting purposes of $19,000. Proceeds from the sale were used for
operating activities of the Partnership.
During 1996 and 1997, the Partnership entered into various promissory
notes with the corporate General Partner for loans totalling $83,100 and
$133,000, respectively, in connection with the operations of the Partnership.
The loans were uncollateralized, non-interest bearing and due on demand. As of
December 31, 1997, the Partnership had repaid the loans in full to the corporate
General Partner.
In August 1997, the Partnership sold its Property in Casa Grande,
Arizona, to a third party for $840,000 and received net sales proceeds of
$793,009, resulting in a gain of $233,183 for financial reporting purposes. This
Property was originally acquired by the Partnership in December 1986 and had a
cost of approximately $667,300, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $128,400 in excess of its original purchase price. In October
1997, the Partnership reinvested the majority of the net sales proceeds in a
Property in Camp Hill, Pennsylvania, as described below. The Partnership used
the remaining net sales proceeds to pay liabilities of the Partnership,
including quarterly distributions to the Limited Partners. The transaction, or a
portion thereof, relating to the sale of the Property in Casa Grande, Arizona,
and the reinvestment of the majority of the net sales proceeds in a Property in
Camp Hill, Pennsylvania, qualified as a like-kind exchange transaction for
federal income tax purposes.
In addition, in August 1997, Seventh Avenue Joint Venture, in which the
Partnership owned a 50 percent interest, sold its Property to its tenant for
$950,000 and received net sales proceeds of $944,747, resulting in a gain to the
joint venture of approximately $295,100 for financial reporting purposes. The
Property was originally acquired by Seventh Avenue Joint Venture in June 1986
and had a total cost of approximately $770,000, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the joint venture sold the
Property for approximately $177,400 in excess of its original purchase price.
During 1997, as a result of the sale of the Property, the joint venture was
dissolved in accordance with the joint venture agreement. As a result, the
Partnership received approximately $472,400, representing its pro rata share of
the net sales proceeds received by the joint venture. In October 1997, the
Partnership reinvested a portion of these net sales proceeds in a Ground Round
Property in Camp Hill, Pennsylvania, as described below. In December 1997, the
Partnership reinvested the remaining net sales proceeds in a Property located in
Vancouver, Washington, as tenants-in-common with affiliates of the General
Partners. The Partnership distributed amounts sufficient to enable the Limited
Partners to pay federal and state income taxes, if any (at a level reasonably
assumed by the General Partners), resulting from the sale.
In April 1998, the Partnership sold its Property in Kissimmee, Florida,
to the tenant for $680,000 and received net sales proceeds of $661,300,
resulting in a gain of $235,804 for financial reporting purposes. This Property
was originally acquired by the Partnership in 1987 and had a cost of
approximately $475,400, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold this Property for approximately
$185,900 in excess of its original purchase price. In connection with the sale,
the Partnership incurred a deferred, real estate disposition fee of $20,400.
Payment of the real estate disposition fee is subordinated to receipt by the
Limited Partners of the cumulative 10% Preferred Return, plus their adjusted
capital contributions. The Partnership distributed $586,300 of the net sales
proceeds as a special distribution to the Limited Partners and the balance of
the funds were retained by the Partnership to meet the Partnership's working
capital and other needs. The Partnership distributed amounts sufficient to
enable the Limited Partners to pay federal and state income taxes, if any (at a
level reasonably assumed by the General Partners), resulting from the sale.
None of the Properties owned by the Partnership or any joint venture in
which the Partnership owns an interest is or may be encumbered. Subject to
certain restrictions on borrowings from the General Partners, however, the
Partnership may borrow, in the discretion of the General Partners, for the
purpose of maintaining the operations of the Partnership. The Partnership will
not encumber any of the Properties in connection with any borrowings or
advances. The Partnership will not borrow for the purpose of returning capital
to the Limited Partners. The Partnership also will not borrow under
circumstances which would make the Limited Partners liable to creditors of the
Partnership. Affiliates of the General Partners from time to time incur certain
operating expenses on behalf of the Partnership for which the Partnership
reimburses the affiliates without interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1998, the Partnership had
$252,521 invested in such short-term investments as compared to $184,130 at
December 31, 1997. The increase in cash and cash equivalents is primarily due to
the Partnership not reinvesting all of the net sales proceeds received from the
sale of the Property in Kissimmee, Florida in April 1998. The funds remaining at
December 31, 1998, will be used for the payment of distributions and other
liabilities.
During 1998, 1997, and 1996, affiliates of the General Partners
incurred on behalf of the Partnership $45,018, $33,962, and $40,510,
respectively, for certain operating expenses. As of December 31, 1998 and 1997,
the Partnership owed $41,910 and $48,991, respectively, to affiliates for such
amounts and accounting and administrative services. In addition, as of December
31, 1998 and 1997, the Partnership also owed affiliates $87,150 and $66,750,
respectively, in real estate disposition fees due as a result of services
rendered in connection with the sale of one Property during 1998 and two
Properties in previous years. The payment of such fees is deferred until the
Limited Partners have received the sum of their cumulative 10% Preferred Return
and their adjusted capital contributions.
Amounts payable to other parties, including distributions payable,
decreased to $268,742 at December 31, 1998, from $319,550 at December 31, 1997.
The decrease is primarily the result of a decrease in distributions payable to
the Limited Partners at December 31, 1998. Liabilities at December 31, 1998, to
the extent they exceed cash and cash equivalents at December 31, 1998, will be
paid from future cash from operations or, in the event the General Partners
elect to make additional contributions or loans to the Partnership, from future
General Partner contributions or loans.
Based primarily on current and anticipated future cash from operations,
proceeds from the sale of Properties as described above, and to a lesser extent
additional loans received from the General Partners, the Partnership declared
distributions to Limited Partners of $1,703,468 during 1998 and $1,264,884 for
each of the years ended December 31, 1997 and 1996. This represents
distributions of $56.78 per Unit for the year ended December 31, 1998 and $42.16
per Unit for each of the years ended December 31, 1997 and 1996. Distributions
during 1998 included $586,300 of net sales proceeds from the sale of the
Property in Kissimmee, Florida. This special distribution was effectively a
return of a portion of the Limited Partners investment; although, in accordance
with the Partnership agreement, $216,361 was applied towards the 10% Preferred
Return, on a cumulative basis, and the balance of $369,939 was treated as a
return of capital for purposes of calculating the 10% Preferred Return. As a
result of the sale of the Property during 1998, the Partnership's total revenue
was reduced during 1998 and is expected to remain reduced in subsequent years,
while the majority of the Partnership's operating expenses remained fixed.
Therefore, distributions of net cash flow were adjusted commencing during the
quarter ended June 30, 1998. The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance 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.
The Partnership's investment strategy of acquiring Properties for cash
and generally leasing them under triple-net leases to operators who generally
meet specified financial standards minimizes the Partnership's operating
expenses. The General Partners believe that the leases will continue to generate
cash flow in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established 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, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership, in which event such contributions will be
returned to the General Partners from distributions of net sales proceeds at the
same time that their initial capital contributions of $1,000 are returned.
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. As consideration for the Merger, APF has agreed to
issue 1,157,759 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors in APF's most recent public offering. In order to assist the
General Partners in evaluating the proposed merger consideration, the General
Partners retained Valuation Associates, a nationally recognized real estate
appraisal firm, to appraise the Partnership's restaurant property portfolio.
Based on Valuation Associates' appraisal, the Partnership's property portfolio
and other assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $11,384,042 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a financial point
of view. The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely tradable at the option of the former Limited Partners. At a
special meeting of the partners that is expected to be held in the third quarter
of 1999, Limited Partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior to
consummation of the transaction. The General Partners intend to recommend that
the Limited Partners of the Partnership approve the Merger. In connection with
their recommendation, the General Partners will solicit the consent of the
Limited Partners at the special meeting.
Results of Operations
During 1996, the Partnership owned and leased 15 wholly owned
Properties, during 1997, the Partnership owned and leased 16 wholly owned
Properties (including one Property in Casa Grande, Arizona, which was sold in
August 1997) and during 1998, the Partnership owned and leased 15 wholly owned
Properties (including one Property in Kissimmee, Florida, which was sold in
April 1998). During the years ended December 31, 1997 and 1996, the Partnership
was also a co-venturer in three separate joint ventures that each owned and
leased one Property (including one Property owned and leased by Seventh Avenue
Joint Venture, which was sold in August 1997) and during the year ended December
31, 1998, the Partnership was a co-venturer in two separate joint ventures that
each owned and leased one Property. In addition, during 1997 and 1998, the
Partnership owned and leased one Property, with an affiliate of the General
Partners, as tenants-in-common. As of December 31, 1998, the Partnership owned,
either directly or through joint venture arrangements, 17 Properties which are,
in general, subject to long-term, triple net leases. The leases of the
Properties provide for minimum base annual rental amounts (payable in monthly
installments) ranging from approximately $16,000 to $222,800. Generally, the
leases provide for percentage rent based on sales in excess of a specified
amount. In addition, certain leases provide for increases in the annual base
rent during the lease terms. For further description of the Partnership's leases
and Properties, see Item 1. Business - Leases and Item 2. Properties,
respectively.
During the years ended December 31, 1998, 1997, and 1996, the
Partnership earned $1,015,292, $1,038,443, and $1,115,530, respectively, in base
rental income from the Partnership's wholly owned Properties described above.
The decrease in rental income during 1998 and 1997, each as compared to the
previous year, is partially attributable to a decrease in rental income as a
result of the sale of Properties during 1998 and 1997. The decrease during 1998
and 1997, each as compared to the previous year, is partially offset by an
increase in rental income due to the fact that the Partnership reinvested the
majority of these net sales proceeds in a Property in Camp Hill, Pennsylvania,
in October 1997, as described above in "Liquidity and Capital Resources."
The decrease in rental income during 1997, as compared to 1996, is also
partially attributable to the fact that during 1996, the Partnership recognized
as income approximately $62,000 due under the promissory note with the tenant of
the Property in Mesquite, Texas, for which the Partnership had previously
established an allowance for doubtful accounts as the result of collection being
doubtful, as described above in "Liquidity and Capital Resources."
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $22,193, $22,205, and $56,409, respectively, in
contingent rental income. The decrease in contingent rental income during 1998
and 1997, as compared to 1996, is attributable to the fact that during 1996, the
Partnership recognized approximately $27,800 in contingent rental income due
under the promissory note with the tenant of the Property in Mesquite, Texas,
for which the Partnership had previously established an allowance for doubtful
accounts as the result of collection being doubtful, as described above in
"Liquidity and Capital Resources."
During the years ended December 31, 1998, 1997, and 1996, the
Partnership also earned $21,087, $22,210, and $101,293, respectively, in
interest and other income. The decrease in interest and other income during
1997, as compared to 1996, is primarily attributable to the fact that during
1996, the Partnership recognized approximately $82,600 in interest and other
income due under the promissory note with the tenant of the Property in
Mesquite, Texas, for which the Partnership had previously established an
allowance for doubtful accounts due to collection being doubtful, as described
above in "Liquidity and Capital Resources."
In addition, during the years ended December 31, 1998, 1997, and 1996,
the Partnership earned $95,252, $250,142, and $116,076, respectively,
attributable to net income earned by the three joint ventures in which the
Partnership is a co-venturer and one Property with affiliates as
tenants-in-common (including one Property owned and leased by Seventh Avenue
Joint Venture, which was sold in August 1997). The decrease in net income earned
by joint ventures during 1998, as compared to 1997, and the increase during
1997, as compared to 1996, is partially attributable to the fact that in August
1997, Seventh Avenue Joint Venture, in which the Partnership owns a 50 percent
interest, recognized a gain of approximately $295,100 for financial reporting
purposes, as a result of the sale of its Property, as described above in
"Liquidity and Capital Resources." The decrease during 1998, as compared to
1997, is also partially attributable to, and the increase during 1997, as
compared to 1996, is partially offset by, a decrease in rental income earned by
the joint venture due to the sale of the Property in August 1997 and the
subsequent liquidation of the joint venture in accordance with the joint venture
agreement. The decrease during 1998 is also partially offset by the fact that in
December 1997, the Partnership reinvested a portion of its pro rata share of the
net sales proceeds in a Property in Vancouver, Washington, as tenants-in-common
with affiliates of the General Partners.
During the year ended December 31, 1998, one of the Partnership's
lessees, Golden Corral Corporation, contributed more than ten percent of the
Partnership's total rental income (including the Partnership's share of the
rental income from two Properties owned by joint ventures and one Property owned
with an affiliate as tenants-in-common). As of December 31, 1998, Golden Corral
Corporation was the lessee under leases relating to five restaurants. It is
anticipated that Golden Corral Corporation will continue to contribute ten
percent or more of the Partnership's total rental income during 1999. In
addition, two Restaurant Chains, Golden Corral and Wendy's each accounted for
more than ten percent of the Partnership's total rental income in 1998
(including the Partnership's share of the rental income from two Properties
owned by joint ventures and one Property owned with an affiliate as
tenants-in-common). It is anticipated that these two Restaurant Chains each will
continue to account for more than ten percent of the total rental income to
which the Partnership is entitled under the terms of its leases. Any failure of
these lessees or Restaurant Chains could materially affect the Partnership's
income if the Partnership is not able to re-lease the Properties in a timely
manner.
Operating expenses, including depreciation and amortization expense,
were $388,191, $317,426, and $325,199 for the years ended December 31, 1998,
1997, and 1996, respectively. The increase in operating expenses during 1998, as
compared to 1997, is partially attributable to an increase in amortization
expense relating to the amortization of the difference between the investment in
a joint venture and the underlying equity of the joint venture at December 31,
1998.
The increase in operating expenses during 1998, as compared to 1997, is
also partially due to the fact that the Partnership incurred $7,322 in
transaction costs related to the General Partners retaining financial and legal
advisors to assist them in evaluating and negotiating the proposed Merger with
APF, as described above in "Liquidity and Capital Resources." If the Limited
Partners reject the Merger, the Partnership will bear the portion of the
transaction costs based upon the percentage of "For" votes and the General
Partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
The decrease in operating expenses during 1997, as compared to 1996, is
primarily attributable to a decrease in accounting and administrative expenses
associated with operating the Partnership and its Properties.
As a result of the sale of the Property in Kissimmee, Florida, as
described above in "Liquidity and Capital Resources," the Partnership recognized
a gain of $235,804 for financial reporting purposes during 1998. In addition, as
a result of the sale of the Property in Casa Grande, Arizona, as described above
in "Liquidity and Capital Resources," the Partnership recognized a gain of
$233,183 during 1997, for financial reporting purposes. In 1996, the Partnership
sold a portion of land related to the Property in Mesquite, Texas, as described
above in "Liquidity and Capital Resources," and recognized a gain of $19,000 for
financial reporting purposes.
The Partnership's leases as of December 31, 1998, are, in general,
triple-net leases and contain provisions that the General Partners believe
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 (for certain Properties) 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.
Year 2000
The Year 2000 problem is the result of information technology systems
and embedded systems (products which are made with microprocessor (computer)
chips such as HVAC systems, physical security systems and elevators) using a
two-digit format, as opposed to four digits, to indicate the year. Such
information technology and embedded systems may be unable to properly recognize
and process date-sensitive information beginning January 1, 2000.
The Partnership currently does not have any information technology
systems. Affiliates of the General Partners provide all services requiring the
use of information technology systems pursuant to a management agreement with
the Partnership. The maintenance of embedded systems, if any, at the
Partnership's Properties is the responsibility of the tenants of the Properties
in accordance with the terms of the Partnership's leases. The General Partners
and affiliates have established a team dedicated to reviewing the internal
information technology systems used in the operation of the Partnership, and the
information technology and embedded systems and the Year 2000 compliance plans
of the Partnership's tenants, significant suppliers, financial institutions and
transfer agent.
The information technology infrastructure of the affiliates of the
General Partners consists of a network of personal computers and servers that
were obtained from major suppliers. The affiliates utilize various
administrative and financial software applications on that infrastructure to
perform the business functions of the Partnership. The inability of the General
Partners and affiliates to identify and timely correct material Year 2000
deficiencies in the software and/or infrastructure could result in an
interruption in, or failure of, certain of the Partnership's business activities
or operations. Accordingly, the General Partners and affiliates have requested
and are evaluating documentation from the suppliers of the software and
infrastructure of the affiliates regarding the Year 2000 compliance of their
products that are used in the business activities or operations of the
Partnership. The General Partners and affiliates have not yet received
sufficient certifications to be assured that the suppliers have fully considered
and mitigated any potential material impact of the Year 2000 deficiencies. The
costs expected to be incurred by the General Partners and affiliates to become
Year 2000 compliant will be incurred by the General Partners and affiliates;
therefore, these costs will have no impact on the Partnership's financial
position or results of operations.
The Partnership has material third party relationships with its
tenants, financial institutions and transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. If any of these third parties are unable to meet their obligations
to the Partnership because of the Year 2000 deficiencies, such a failure may
have a material impact on the Partnership. Accordingly, the General Partners
have requested and are evaluating documentation from the Partnership's tenants,
financial institutions, and transfer agent relating to their Year 2000
compliance plans. The General Partners have not yet received sufficient
certifications to be assured that the tenants, financial institutions, and
transfer agent have fully considered and mitigated any potential material impact
of the Year 2000 deficiencies. Therefore, the General Partners do not, at this
time, know of the potential costs to the Partnership of any adverse impact or
effect of any Year 2000 deficiencies by these third parties.
The General Partners currently expect that all Year 2000 compliance
testing and any necessary remedial measures on the information technology
systems used in the business activities and operations of the Partnership will
be completed prior to June 30, 1999. Based on the progress the General Partners
and affiliates have made in identifying and addressing the Partnership's Year
2000 issues and the plan and timeline to complete the compliance program, the
General Partners do not foresee significant risks associated with the
Partnership's Year 2000 compliance at this time. Because the General Partners
and affiliates are still evaluating the status of the information technology
systems used in business activities and operations of the Partnership and the
systems of the third parties with which the Partnership conducts its business,
the General Partners have not yet developed a comprehensive contingency plan and
are unable to identify "the most reasonably likely worst case scenario" at this
time. If the General Partners identify significant risks related to the
Partnership's Year 2000 compliance or if the Partnership's Year 2000 compliance
program's progress deviates substantially from the anticipated timeline, the
General Partners will develop appropriate contingency plans.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants
Financial Statements:
Balance Sheets
Statements of Income
Statements of Partners' Capital
Statements of Cash Flows
Notes to Financial Statements
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which 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, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
Orlando, Florida
February 1, 1999, except for Note 10 for which the date is March 11, 1999
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
<TABLE>
<CAPTION>
December 31,
1998 1997
---------------- ----------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation $ 7,574,188 $ 8,185,465
Investment in and due from joint ventures 841,379 919,476
Cash and cash equivalents 252,521 184,130
Restricted cash -- 129,257
Receivables, less allowance for doubtful
accounts of $3,092 in 1997 30,959 21,331
Prepaid expenses 5,463 4,989
Lease costs, less accumulated amortization
of $24,375 and $21,875 25,625 28,125
Accrued rental income 30,791 27,305
---------------- ----------------
$ 8,760,926 $ 9,500,078
================ ================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 736 $ 2,595
Escrowed real estate taxes payable 1,024 734
Distributions payable 266,982 316,221
Due to related parties 129,060 115,741
Rents paid in advance and deposits 36,105 35,737
---------------- ----------------
Total liabilities 433,907 471,028
Partners' capital 8,327,019 9,029,050
---------------- ----------------
$ 8,760,926 $ 9,500,078
================ ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ---------------
<S> <C>
Revenues:
Rental income from
operating leases $1,015,292 $1,038,443 $1,115,530
Contingent rental income 22,193 22,205 56,409
Interest and other income 21,087 22,210 101,293
--------------- --------------- ---------------
1,058,572 1,082,858 1,273,232
--------------- --------------- ---------------
Expenses:
General operating and
administrative 87,080 86,780 92,462
Professional services 17,110 12,772 13,262
Real estate taxes 3,969 3,929 4,009
State and other taxes 4,450 5,138 5,260
Depreciation and amortization 268,260 208,807 210,206
Transaction costs 7,322 -- --
--------------- --------------- ---------------
388,191 317,426 325,199
--------------- --------------- ---------------
Income Before Equity in Earnings
of Joint Ventures and Gain on Sale
of Land and Buildings 670,381 765,432 948,033
Equity in Earnings of Joint Ventures 95,252 250,142 116,076
Gain on Sale of Land and Buildings 235,804 233,183 19,000
--------------- --------------- ---------------
Net Income $1,001,437 $1,248,757 $1,083,109
=============== =============== ===============
Allocation of Net Income:
General partners $ 8,671 $ 11,577 $ 10,641
Limited partners 992,766 1,237,180 1,072,468
--------------- --------------- ---------------
$1,001,437 $1,248,757 $1,083,109
=============== =============== ===============
Net Income Per Limited Partner Unit $ 33.09 $ 41.24 $ 35.75
=============== =============== ===============
Weighted Average Number of
Limited Partner Units Outstanding 30,000 30,000 30,000
=============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
-------------------------- ----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ----------- ------------- ------------- ------------ ------------ -------------
<S> <C>
Balance, December 31, 1995 $ 193,400 $ 106,141 $ 13,314,525 $ (13,429,078 ) $ 10,705,104 $ (1,663,140 ) $ 9,226,952
Distributions to limited
partners ($42.16 per
limited partner unit) -- -- -- (1,264,884 ) -- -- (1,264,884 )
Net income -- 10,641 -- -- 1,072,468 -- 1,083,109
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1996 193,400 116,782 13,314,525 (14,693,962 ) 11,777,572 (1,663,140 ) 9,045,177
Distributions to limited
partners ($42.16 per
limited partner unit) -- -- -- (1,264,884 ) -- -- (1,264,884 )
Net income -- 11,577 -- -- 1,237,180 -- 1,248,757
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1997 193,400 128,359 13,314,525 (15,958,846 ) 13,014,752 (1,663,140 ) 9,029,050
Distributions to limited
partners ($44.45 per
limited partner unit) -- -- (369,939 ) (1,333,529 ) -- -- (1,703,468 )
Net income -- 8,671 -- -- 992,766 -- 1,001,437
------------ ------------ ------------- -------------- ------------- ------------- ------------
Balance, December 31, 1998 $ 193,400 $ 137,030 $ 12,944,586 $ (17,292,375 ) $ 14,007,518 $ (1,663,140 ) $ 8,327,019
============ ============ ============= ============== ============= ============= ============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
---------------- --------------- --------------
<S> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $1,030,115 $1,227,883 $ 1,096,290
Distributions from joint ventures 113,770 152,019 133,296
Cash paid for expenses (131,054 ) (84,642 ) (106,546)
Interest received 20,958 21,556 9,648
---------------- --------------- --------------
Net cash provided by operating
activities 1,033,789 1,316,816 1,132,688
---------------- --------------- --------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 661,300 793,009 20,000
Additions to land and building -- (863,135 ) --
Return of capital from joint venture -- 472,373 --
Investment in joint venture -- (303,419 ) --
Decrease (increase) in restricted cash 126,009 (126,009 ) --
---------------- --------------- --------------
Net cash provided by (used in)
investing activities 787,309 (27,181 ) 20,000
---------------- --------------- --------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate
general partner -- 133,000 83,100
Repayment of loan from corporate
general partner -- (133,000 ) (83,100)
Distributions to limited partners (1,752,707 ) (1,264,884 ) (1,264,884)
---------------- --------------- --------------
Net cash used in financing activities (1,752,707 ) (1,264,884 ) (1,264,884)
---------------- --------------- --------------
Net Increase (Decrease) in Cash and Cash
Equivalents 68,391 24,751 (112,196)
Cash and Cash Equivalents at Beginning of Year 184,130 159,379 271,575
---------------- --------------- --------------
Cash and Cash Equivalents at End of Year $ 252,521 $ 184,130 $ 159,379
================ =============== ==============
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
--------------- --------------- ----------------
<S> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $1,001,437 $1,248,757 $1,083,109
--------------- --------------- ----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 206,181 206,307 207,706
Amortization 62,079 2,500 2,500
Equity in earnings of joint ventures,
net of distributions 18,518 (98,123 ) 17,220
Gain on sale of land and buildings (235,804 ) (233,183 ) (19,000 )
Decrease (increase) in receivables (6,380 ) 158,360 (151,105 )
Increase in prepaid expenses (474 ) (524 ) (650 )
Decrease (increase) in accrued
rental income (3,486 ) (3,706 ) 1,234
Increase (decrease) in accounts
payable and accrued expenses (1,569 ) 673 (11,712 )
Increase (decrease) in due to related
parties (7,081 ) 20,729 19,873
Increase (decrease) in rents paid in
advance and deposits 368 15,026 (16,487 )
--------------- --------------- ----------------
Total adjustments 32,352 68,059 49,579
--------------- --------------- ----------------
Net Cash Provided by Operating Activities $1,033,789 $1,316,816 $1,132,688
=============== =============== ================
Supplemental Schedule of Non-Cash Investing
and Financing Activities:
Deferred real estate disposition fee
incurred and unpaid at end of year $ 20,400 $ -- $ --
=============== =============== ================
Distributions declared and unpaid at
December 31 $ 266,982 $ 316,221 $ 316,221
=============== =============== ================
</TABLE>
See accompanying notes to financial statements.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund, 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 were to be
constructed, which are leased primarily to operators of national and
regional fast-food restaurant chains.
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 generally 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 leases 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.
Accrued rental income represents the aggregate amount of income
recognized on a straight-line basis in excess of scheduled rental
payments to date. Whenever a tenant defaults under the terms of its
lease or events or changes in circumstances indicate that the tenant
will not lease the property through the end of the lease term, the
Partnership either reserves or writes-off the cumulative accrued rental
income balance.
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 the 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, the
assets are adjusted to their fair
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies - Continued:
value. Although the general partners have made their best estimate of
these factors based on current conditions, it is reasonable possible
that changes could occur in the near term which could adversely affect
the general partners' best estimate of net cash flows expected to be
generated from its properties and the need for asset impairment write
downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the
allowance for doubtful accounts, which is netted against receivables,
and to decrease rental or other income or increase bad debt expense for
the current period, although the Partnership continues to pursue
collection of such amounts. If amounts are subsequently determined to
be uncollectible, the corresponding receivable and the allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Sand
Lake Road Joint Venture, Orange Avenue Joint Venture, and a property in
Vancouver, Washington, held as tenants-in-common with affiliates, are
accounted for using the equity method since the Partnership shares
control with affiliates which have the same general partners.
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.
Lease Costs - Lease incentive costs and brokerage and legal fees
associated with negotiating new leases are amortized over the terms of
the new leases using the straight-line method.
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.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
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.
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. The more significant areas requiring
the use of management estimates relate to the allowance for doubtful
accounts and future cash flows associated with long-lived assets.
Actual results could differ from those estimates.
2. Leases:
The Partnership leases its land and buildings primarily to operators of
national and regional fast-food restaurants. The leases are accounted
for under the provisions of Statement of Financial Accounting Standards
No. 13, "Accounting for Leases." The leases have been classified as
operating leases. Substantially all leases are for 15 to 20 years and
provide for minimum and contingent rentals. In addition, the tenant
generally 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 tenants to renew the leases for two or
three 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.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1998 1997
----------------- -----------------
<S> <C>
Land $3,759,766 $3,999,700
Buildings 6,092,049 6,358,678
----------------- -----------------
9,851,815 10,358,378
Less accumulated depreciation (2,277,627 ) (2,172,913 )
----------------- -----------------
$7,574,188 $8,185,465
================= =================
</TABLE>
In August 1997, the Partnership sold its property in Casa Grande,
Arizona, to a third party for $840,000 and received net sales proceeds
of $793,009, resulting in a gain of $233,183 for financial reporting
purposes. This property was originally acquired by the Partnership in
December 1986 and had a cost of approximately $667,300, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the property for approximately $128,400 in excess of
its original purchase price. In October 1997, the Partnership
reinvested the majority of the net sales proceeds in a property located
in Camp Hill, Pennsylvania.
During the year ended December 31, 1998, the Partnership sold its
property in Kissimmee, Florida for $680,000 and received net sales
proceeds of $661,300 resulting in a gain of $235,804 for financial
reporting purposes. This property was originally acquired by the
Partnership in 1987 and had a cost of approximately $475,400, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold this property for approximately $185,900 in excess of
its original purchase price. In connection with the sale, the
Partnership incurred a deferred, subordinated, real estate disposition
fee of $20,400 (See Note 8).
Certain leases provide for escalating guaranteed minimum rents
throughout the lease terms. Income from these scheduled rent increases
is recognized on a straight-line basis over the terms of the leases.
For the years ended December 31, 1998 and 1997, the Partnership
recognized $3,486 and $3,706, respectively, of such income. For the
year ended December 31, 1996, rental payments received exceeded the
rental income recognized on a straight-line basis by $1,234.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 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 noncancellable operating leases at December 31, 1998:
1999 $ 894,752
2000 894,405
2001 870,528
2002 457,415
2003 456,511
Thereafter 4,013,686
----------------
$7,587,297
================
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 the tenant's gross sales.
4. Investment in Joint Ventures:
In August 1997, Seventh Avenue Joint Venture, in which the Partnership
owned a 50 percent interest, sold its property to its tenant for
$950,000, and received net sales proceeds of $944,747, resulting in a
gain to the joint venture of approximately $295,100 for financial
reporting purposes. The property was originally acquired by Seventh
Avenue Joint Venture in June 1986 and had a total cost of approximately
$770,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the joint venture sold the property for
approximately $177,400 in excess of its original purchase price. During
1997, as a result of the sale of the property, the joint venture was
dissolved in accordance with the joint venture agreement. As a result,
the Partnership received approximately $472,400, representing its
pro-rata share of the net sales proceeds received by the joint venture.
In December 1997, the Partnership acquired a property in Vancouver,
Washington, as tenants-in-common with affiliates of the general
partners. The Partnership accounts for its investment in this property
using the equity method since the Partnership shares control with an
affiliate, and amounts relating to its investment are included in
investment in joint ventures. As of December 31, 1998, the Partnership
owned a 12.17% interest in this property.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
4. Investment in Joint Ventures - Continued:
As of December 31, 1998, the Partnership had a 50 percent interest in
the profits and losses of Orange Avenue Joint Venture and Sand Lake
Road Joint Venture, and owned a 12.17% interest in a property in
Vancouver, Washington, as tenants-in-common. These joint ventures, and
the Partnership and affiliates, as tenants-in-common, each own and
lease one property to an operator of national fast-food or family-style
restaurants. The following presents the combined, condensed financial
information for the joint ventures and the property held as
tenants-in-common with affiliates at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $3,261,368 $3,338,774
Cash 1,354 1,636
Prepaid expenses 219 --
Accrued rental income 23,087 --
Liabilities 1,619 1,677
Partners' capital 3,284,409 3,338,733
Revenues 420,677 246,236
Gain on sale of land and building -- 295,080
Net income 340,503 500,285
</TABLE>
The Partnership recognized income totaling $95,252, $250,142 and
$116,076 for the years ended December 31, 1998, 1997, and 1996,
respectively, from these joint ventures.
5. Restricted Cash:
As of December 31, 1997, the remaining net sales proceeds of $126,009
from the sale of the property in Casa Grande, Arizona, plus accrued
interest of $3,248, were being held in an interest-bearing escrow
account pending the release of funds by the escrow agent to acquire an
additional property or use for other Partnership purposes. During 1998,
the funds were returned to the Partnership and used to pay
distributions to the limited partners.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of properties, are allocated 99 percent
to the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, noncumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their cumulative 10% Preferred Return, plus the
return of their adjusted capital contributions. The general partners
will then receive, to the extent previously subordinated and unpaid, a
one percent interest in all prior distributions of net cash flow and a
return of their capital contributions. Any remaining 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 not in
liquidation of the Partnership is, in general, allocated in the same
manner as net sales proceeds are distributable. Any loss from the sale
of a property is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and
thereafter, 95 percent to the limited partners and five percent to the
general partners.
Generally, net sales proceeds from a liquidating sale of properties,
will be used in the following order: i) first to pay and discharge all
of the Partnership's liabilities to creditors, ii) second, to establish
reserves that may be deemed necessary for any anticipated or unforeseen
liabilities or obligations of the Partnership, iii) third, to pay all
of the Partnership's liabilities, if any, to the general and limited
partners, iv) fourth, after allocations of net income, gains and/or
losses, to distribute 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 v) thereafter, any funds
remaining shall then be distributed 95 percent to the limited partners
and five percent to the general partners.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
6. Allocations and Distributions - Continued:
During the year ended December 31, 1998, the Partnership declared
distributions to the limited partners of $1,703,468, and during each of
the years ended December 31, 1997 and 1996, the Partnership declared
distributions to the limited partners of $1,264,884. Distributions for
the year ended December 31, 1998, included $586,300 in a special
distribution, as a result of the distribution of net sales proceeds
from the sale of the property in Kissimmee, Florida. This special
distribution was effectively a return of a portion of the limited
partners' investment, although, in accordance with the Partnership
agreement, $216,361 was applied toward the limited partners' 10%
Preferred Return and the balance of $369,939 was treated as a return of
capital for purposes of calculating the limited partners' 10% Preferred
Return. As a result of the return of capital, and the returns of
capital in prior years, the amount of the limited partners' invested
capital contributions (which generally is the limited partners' capital
contributions, less distributions from the sale of a property that are
considered to be a return of capital) was decreased; therefore, the
amount of the limited partners' invested capital contributions on which
the 10% Preferred Return is calculated was lowered accordingly. As a
result of the sale of the property during 1998, the Partnership's total
revenue was reduced, while the majority of the Partnership's operating
expenses remained fixed. Therefore, distributions of net cash flow were
adjusted during the quarter ended June 30, 1998. No distributions have
been made to the general partners to date.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
7. Income Taxes:
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years
ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- -------------- --------------
<S> <C>
Net income for financial reporting purposes $ 1,001,437 $ 1,248,757 $ 1,083,109
Depreciation for tax reporting purposes
in excess of depreciation for financial
reporting purposes (87,967 ) (104,279 ) (108,995 )
Gainon sale of land and buildings
for financial reporting
purposes less than (in excess of)
gain for tax reporting purposes 58,632 (233,183 ) --
Equity in earnings of joint ventures
for financial reporting
purposes less than (in excess of)
equity in earnings of joint
ventures for tax reporting purposes 49,058 (18,410 ) (17,987 )
Capitalization of transaction costs for tax
reporting purposes 7,322 -- --
Accrued rental income (3,486 ) (3,706 ) 1,234
Rents paid in advance 368 15,026 (16,487 )
Allowance for doubtful accounts (3,091 ) 1,679 (120,724 )
-------------- -------------- --------------
Net income for federal income tax purposes $ 1,022,273 $ 905,884 $ 820,150
============== ============== ==============
</TABLE>
8. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the majority stockholder
of CNL Fund Advisors, Inc. James M. Seneff, Jr. is director, chairman
of the board of directors and chief executive officer of CNL Fund
Advisors, Inc. The other individual general partner, Robert A. Bourne,
serves as treasurer, director and vice chairman of the board of CNL
Fund Advisors, Inc. During the years ended December 31, 1998, 1997, and
1996, CNL Fund Advisors, Inc. (hereinafter referred to as the
"Affiliate") performed certain services for the Partnership, as
described below.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Related Party Transactions - Continued:
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
acted as manager of the Partnership's properties pursuant to a property
management agreement with the Partnership. In connection therewith, the
Partnership agreed to pay the Affiliate an annual, noncumulative,
subordinated property management fee of one-half of one percent of the
Partnership assets under management (valued at cost) annually. The
property management fee is limited to one percent of the sum of gross
operating revenues from properties wholly owned by the Partnership and
the Partnership's allocable share of gross operating revenues from
joint ventures or competitive fees for comparable services. In
addition, these fees will be incurred and will be payable only after
the limited partners receive their aggregate, noncumulative 10%
Preferred Return. Due to the fact that these fees are noncumulative, if
the limited partners do not receive their 10% Preferred Return in any
particular year, no management fees will be due or payable for such
year. As a result of such threshold, no management fees were incurred
during the years ended December 31, 1998, 1997, and 1996.
The Affiliate is entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission
or three percent of the sales price if the Affiliate provides a
substantial amount of services in connection with the sale. However, if
the net sales proceeds are reinvested in a replacement property, no
such real estate disposition fees will be incurred until such
replacement property is sold and the net sales proceeds are
distributed. Payment of the real estate disposition fee is subordinated
to receipt by the limited partners of the 10% Preferred Return on a
cumulative basis, plus their adjusted capital contributions. For the
year ended December 31, 1998, the Partnership incurred $20,400 in a
deferred, subordinated real estate disposition fee as a result of the
sale of a property (See Note 3). No deferred, subordinated real estate
disposition fees were incurred for the years ended December 31, 1997
and 1996.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $63,981, $57,679 and $67,685
for the years ended December 31, 1998, 1997, and 1996, respectively,
for such services.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
8. Related Party Transactions - Continued:
The due to related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1998 1997
--------------- ---------------
<S> <C>
Due to CNL Fund Advisors, Inc.
and its affiliates:
Deferred, subordinated real
estate disposition fee $87,150 $ 66,750
Expenditures incurred on
behalf of the Partnership 15,123 17,902
Accounting and
administrative services 26,787 31,089
--------------- ---------------
$129,060 115,741
=============== ===============
</TABLE>
The deferred, subordinated real estate disposition fees are the result
of the Partnership's sale of one property during 1998 and two
properties in prior years. These fees will not be paid until after the
limited partners have received their cumulative 10% Preferred Return,
plus their adjusted capital contributions, as described above.
9. Concentration of Credit Risk:
The following schedule presents total rental income from individual
lessees, each representing more than ten percent of the Partnership's
total rental income (including the Partner-ship's share of rental
income from joint ventures and the property held as tenants-in-common
with an affiliate), for each of the years ended December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- -------------
<S> <C>
Golden Corral Corporation $452,653 $452,653 $452,653
Wendy's International, Inc. N/A 164,857 212,322
Restaurant Management
Services, Inc. N/A 128,737 129,633
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
9. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental income from
individual restaurant chains, each representing more than ten percent
of the Partnership's total rental income (including the Partnership's
share of rental income from joint ventures and the property held as
tenant-in-common with an affiliate), for each of the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
------------- -------------- -------------
<S> <C>
Golden Corral Family
Steakhouse Restaurants $452,653 $452,653 $452,653
Wendy's Old Fashioned
Hamburger Restaurants 352,330 443,335 507,642
Popeyes Famous Fried
Chicken N/A 128,737 129,633
</TABLE>
The information denoted by N/A indicates that for each period
presented, the tenant and the chains did not represent more than ten
percent of the Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse
throughout the United States and the Partnership's lessees operate a
variety of restaurant concepts, default by any one of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership if the Partnership is not able to re-lease the
properties in a timely manner.
10. Subsequent Event:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 1,157,759 shares of its common stock, par value $0.01 per shares
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in APF's most recent public offering. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $11,384,042 as of December 31, 1998. Legg Mason
Wood Walker, Incorporated has rendered a fairness opinion that the APF
Share consideration, payable by APF, is fair to the Partnership from a
financial point of view.
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1998, 1997, and 1996
10. Subsequent Event - Continued:
The APF Shares are expected to be listed for trading on the New York
Stock Exchange concurrently with the consummation of the Merger, and,
therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be
held in the third quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. The
general partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 52, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, a director and Chief Executive Officer since its formation
in 1980. Mr. Seneff has been Chairman of the Board of Directors, director, and
Chief Executive Officer of CNL Securities Corp. since its formation in 1979. Mr.
Seneff also has held the position of Chairman of the Board of Directors, Chief
Executive Officer, President and director of CNL Management Company, a
registered investment advisor, since its formation in 1976, has served as Chief
Executive Officer, Chairman of the Board and a director of CNL Investment
Company, has served as Chief Executive Officer, a director and Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc., a publicly-traded REIT,
listed on the NYSE, since 1992, served as Chief Executive Officer, a director
and Chairman of the Board of Directors of CNL Realty Advisors, Inc. from its
inception in May 1992 through December 1997, at which time such company merged
with Commercial Net Lease Realty, Inc., and has held the position of Chief
Executive Officer, Chairman of the Board and a director of CNL Institutional
Advisors, Inc., a registered investment advisor, since its inception in December
1990. Mr. Seneff has served as Chairman of the Board of Directors of CNL
American Properties Fund, Inc. since December 1994 and as a director and Chief
Executive Officer since May 1994. Mr. Seneff has served as Chairman of the
Board, Chief Executive Officer and a director of CNL Fund Advisors, Inc. since
March 1994. Mr. Seneff has served as Chairman of the Board, Chief Executive
Officer and a director of CNL Hospitality Properties, Inc. since June 1996 and
of CNL Hospitality Advisors, Inc. since January 1997. Mr. Seneff has also served
as Chairman of the Board, Chief Executive Officer and a director of CNL Health
Care Properties, Inc. since December 1997 and CNL Health Care Advisors, Inc.
since July 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 advises 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 then $60 billion of retirement funds.
Mr. Seneff has served as a member of the board of directors of First Union
National Bank of Florida since May 1998 and has served as a member of the
Orlando Advisory Board of First Union National Bank of Florida since March 1994.
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 restaurants, office buildings, apartment complexes, 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 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. (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.
Robert A. Bourne, age 51, is President and Treasurer of CNL Group,
Inc., President, Treasurer, a director, and a registered principal of CNL
Securities Corp., President, Treasurer, and a director of CNL Investment
Company, and Chief Investment Officer, a director and Treasurer of CNL
Institutional Advisors, Inc., a registered investment advisor. Mr. Bourne served
as President of CNL Institutional Advisor, Inc. from the date of its inception
through July 1997. Mr. Bourne served as President of Commercial Net Lease
Realty, Inc. from July 1992 through February 1996, served as Secretary and
Treasurer from February 1996 through December 1997, and has served as a director
since July 1992 and as Vice Chairman of the Board of Directors since February
1996. In addition, Mr. Bourne served as President of CNL Realty Advisors, Inc.
from May 1992 through February 1996, served as Treasurer from February 1996
through December 1997, served as a director from May 1992 through December 31,
1997 and served as Vice Chairman from February 1996 through December 1997, at
which time such company merged with Commercial Net Lease Realty, Inc. Mr. Bourne
has served as a Vice Chairman of the Board of Directors and Treasurer of CNL
American Properties Fund, Inc. since February 1999, has served as a director
since May 1994 and previously served as President from May 1994 through February
1999. Mr. Bourne has served as a director of CNL Fund Advisors, Inc. since March
1994, has served as Treasurer and Vice Chairman of the Board of Directors since
September 1997, and previously served as President from March 1994 through
September 1997. Mr. Bourne has served as President and a director of CNL
Hospitality Properties, Inc. since June 1996 and of CNL Hospitality Advisors,
Inc. since January 1997. Mr. Bourne has served as President and director of CNL
Health Care Properties, Inc. since December 1997 and CNL Health Care Advisors,
Inc. since July 1997. 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
restaurants, office buildings, apartment complexes, 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. Mr. Bourne formerly was a
certified public accountant with Coopers & Lybrand and a partner in the firm of
Bourne & Rose, P.A. Mr. Bourne received a B.A. in Accounting, with honors, from
Florida State University in 1970.
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.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a majority owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. 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.
Curtis B. McWilliams, age 43, joined CNL Group, Inc. in April 1997 and
currently serves as an Executive Vice President. In addition, Mr. McWilliams has
served as President of CNL Fund Advisors, Inc. and as President of the
Restaurant and Financial Services Groups within CNL Group, Inc. since April
1997. Mr. McWilliams has served as President of CNL American Properties Fund,
Inc. since February 1999 and previously served as Executive Vice President from
February 1998 through February 1999. From September 1983 through March 1997, Mr.
McWilliams was employed by Merrill Lynch & Co., most recently as Chairman of
Merrill Lynch's Private Advisory Services until March 1997. 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.
John T. Walker, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since January 1996, as Chief Operating Officer
since March 1995, and previously served as Senior Vice President since December
1994. In addition, Mr. Walker has served as Executive Vice President of CNL Fund
Advisors, Inc. since January 1996, Chief Operating Officer since April 1995, and
previously served as Senior Vice President from November 1994 through January
1996. In addition, Mr. Walker previously served as Executive Vice President of
CNL Hospitality Properties, Inc. and CNL Hospitality Advisors, Inc. From May
1992 to May 1994, Mr. Walker, a certified public accountant, was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network (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 50, a certified public accountant, has served as
Secretary of CNL American Properties Fund, Inc. since December 1994 and served
as Treasurer from December 1994 through February 1999. Ms. Rose has served as a
director and Secretary of CNL Fund Advisors, Inc. since March 1994, and as
Treasurer from the date of its inception through June 30, 1997. Ms. Rose has
served as Secretary of CNL Group, Inc. since 1987, as Chief Financial Officer of
CNL Group, Inc. since December 1993, 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, as Treasurer of CNL Realty Advisors, Inc. from 1991 to February 1996, and
as Secretary and a director of CNL Realty Advisors, Inc. since its inception in
1991 until December 31, 1997, at which time CNL Realty Advisors, Inc. merged
with Commercial Net Lease Realty, Inc. In addition, Ms. Rose served as Secretary
and Treasurer of Commercial Net Lease Realty, Inc. from 1992 to February 1996.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc. and CNL Health Care Properties, Inc. and as Secretary, Treasurer and a
director of CNL Hospitality Advisors, Inc. and CNL Health Care Advisors, Inc.
Ms. Rose also currently serves as Secretary for approximately 50 additional
corporations. Ms. Rose oversees the 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.
Jeanne A. Wall, age 40, has served as Executive Vice President of CNL
American Properties Fund, Inc. since December 1994. Ms. Wall has served as
Executive Vice President of CNL Fund Advisors, Inc. since November 1994, and
previously served as Vice President from March 1994 through November 1994. Ms.
Wall has served as Chief Operating Officer of CNL Investment Company and of CNL
Securities Corp. since November 1994 and has served as Executive Vice President
of CNL Investment Company since January 1991. Ms. Wall joined CNL Securities
Corp. in 1984. In 1985, Ms. Wall became Vice President of CNL Securities Corp.
In 1987, she became Senior Vice President and in July 1997 she became Executive
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 product
development, partnership administration and investor services for programs
offered through participating brokers and corporate communications for CNL
Group, Inc. and its affiliates. 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 until December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., and served as Vice President
of Commercial Net Lease Realty, Inc. from 1992 through December 31, 1997. In
addition, Ms. Wall serves as Executive Vice President of CNL Hospitality
Properties, Inc., CNL Hospitality Advisors, Inc., CNL Health Care Properties,
Inc. and CNL Health Care Advisors, Inc. 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 35, a certified public accountant, has
served as Chief Financial Officer of CNL American Properties Fund, Inc. since
January 1997 and as Chief Financial Officer of CNL Fund Advisors, Inc. since
September 1996. From March 1995 to July 1996, Mr. Shackelford 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 audit 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.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and
does not intend to pay any executive compensation to the General Partners or any
of their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
<PAGE>
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 11, 1999, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 11, 1999, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above. On March 11, 1999, the
Registrant entered into an Agreement and Plan of Merger with CNL American
Properties Fund, Inc. ("APF") pursuant to which the Registrant would be merged
with and into a subsidiary of APF (the "Merger"). For further discussion, see
Item 8. Financial Statements and Supplementary Data -- Note 10.
Subsequent Event.
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1998, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------- --------------------- -----------------------
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership:
of the prevailing rate at which $45,018
comparable services could have been
obtained in the same geographic Accounting and administra-
area. If the General Partners or tive services: $63,981
their affiliates loan funds to the
Partnership, the General Partners
or their affiliates will be
reimbursed for the interest and
fees charged to them by
unaffiliated lenders for such
loans. Affiliates of the General
Partners from time to time incur
certain operating expenses on
behalf of the Partnership for which
the Partnership reimburses the
affiliates without interest.
Annual, subordinated property management One-half of one percent per year of $ - 0 -
fee to affiliates Partnership assets under management
(valued at cost), subordinated to
certain minimum returns to the
Limited Partners. The property
management fee will not exceed the
lesser of one percent of gross
operating revenues or competitive
fees for comparable services. Due
to the fact that these fees are
non-cumulative, if the Limited
Partners do not receive their 10%
Preferred Return in any particular
year, no property management fees
will be due or payable for such
year.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------- --------------------- -----------------------
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ 20,400
disposition fee payable to affiliates estate disposition fee, payable
upon sale of one or more
Properties, in an amount equal to
the lesser of (i) one-half of a
competitive real estate
commission, or (ii) three percent
of the sales price of such
Property or Properties. Payment of
such fee shall be made only if
affiliates of the General Partners
provide a substantial amount of
services in connection with the
sale of a Property or Properties
and shall be subordinated to
certain minimum returns to the
Limited Partners. However, if the
net sales proceeds are reinvested
in a replacement Property, no such
real estate disposition fee will
be incurred until such replacement
Property is sold and the net sales
proceeds are distributed.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to one percent of Partnership
cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share $ - 0 -
sub-ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or sales not Partnership distributions of such
in liquidation of the Partnership net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1998
------------------------- --------------------- -----------------------
<S> <C>
General Partners' share of Partnership Distributions of net sales proceeds $ - 0 -
net sales proceeds from a sale or sales from a sale or sales of
in liquidation of the Partnership substantially all of the
Partnership's assets will be
distributed in the following order
or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net
loss, gain and loss, 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.
</TABLE>
As discussed above in Item 8. Financial Statements and Supplementary
Data -- Note 10. Subsequent Event, the Registrant has entered into an Agreement
and Plan of Merger, dated March 11, 1999, with APF pursuant to which the
Registrant would be merged with and into a subsidiary of APF in exchange for the
issuance of APF Shares. The APF Shares are expected to be listed for trading on
the New York Stock Exchange concurrently with the consummation of the Merger. If
the Merger is approved by Limited Partners holding units greater than 50% of the
outstanding units of the Registrant, the General Partners of the Registrant
would receive certain benefits. For instance, following the Merger, James M.
Seneff, Jr. and Robert A. Bourne, the individual General Partners, will continue
to serve as directors of APF, with Mr. Seneff serving as Chairman and Mr. Bourne
serving as Vice Chairman. As APF directors, they may also be entitled to receive
stock options under any stock option plan adopted by APF.
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1998 and 1997
Statements of Income for the years ended December 31, 1998,
1997, and 1996
Statements of Partners' Capital for the years ended December
31, 1998, 1997, and 1996
Statements of Cash Flows for the years ended December 31,
1998, 1997, and 1996
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the years
ended December 31, 1998, 1997, and 1996
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1998
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1998
All other Schedules are omitted as the required information is
inapplicable or is presented in the financial statements or
notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 3.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Included as Exhibit 3.2
to Form 10-K filed with the Securities and Exchange Commission
on March 27, 1998, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund, Ltd.,
as amended. (Included as Exhibit 4.1 to Amendment No. 1 to
Registration Statement No. 33-2850 on Form S-11 and
incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included as
Exhibit 3.2 to Form 10-K filed with the Securities and
Exchange Commission on March 27, 1998, and incorporated herein
by reference.)
10.1 Property Management Agreement. (Included as Exhibit 10.1 to
Form 10-K filed with the Securities and Exchange Commission on
March 27, 1998, and incorporated herein by reference.)
<PAGE>
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc. (Included
as Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 30, 1995, and incorporated herein
by reference.)
10.3 Assignment of Property Management Agreement from CNL Income
Fund Advisors, Inc. to CNL Fund Advisors, Inc. (Included as
Exhibit 10.3 to Form 10-K filed with the Securities and
Exchange Commission on March 29, 1996, and incorporated herein
by reference.)
27 Financial Data Schedules (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1998 through December 31, 1998.
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 30th day of
March, 1999.
CNL INCOME FUND, LTD.
By: CNL REALTY CORPORATION
General Partner
/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 Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 30, 1999
- ---------------------------
Robert A. Bourne (Principal Financial and Accounting
Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 30, 1999
- ---------------------------
James M. Seneff, Jr. (Principal Executive Officer)
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1998, 1997, and 1996
<TABLE>
<CAPTION>
Additions Deductions
------------------------------- -------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
-------- ---------------- ------------- ------------- -------------- ------------ ------------ -----------
<S> <C>
1996 Allowance for
doubtful
accounts $ 122,136 $ -- $ 1,413 (b) $ 32,166 (c) $ 89,970 $ 1,413
(a)
============= ============= ============== ============ ============ ===========
1997 Allowance for
doubtful
accounts $ 1,413 $ 685 $ 1,582 (b) $ 588 (c) $ -- $ 3,092
(a)
============= ============= ============== ============ ============ ===========
1998 Allowance for
doubtful
accounts $ 3,092 $ -- $ -- (b) $ 290 (c) $ 2,802 $ --
(a)
============= ============= ============== ============ ============ ===========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
<PAGE>
<TABLE>
<CAPTION>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<S> <C>
Costs Capitalized
Subsequent To
Initial Cost Acquisition
-------------------------- --------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
------------ ------------ ------------- ---------- -------
Properties the Partnership
has Invested in:
Golden Corral Family
Steakhouse Restaurants:
Virginia Beach, Virginia - $340,125 $580,432 - -
Kent Island, Maryland - 140,703 637,826 - -
Salisbury, Maryland - 263,217 532,213 - -
Jasper, Alabama (d) - 220,665 473,818 - -
Eunice, Louisiana - 186,009 477,947 - -
Ground Round Restaurant:
Camp Hill, Pennsylvania - 331,962 531,174 - -
Pizza Hut Restaurant:
Bowie, Texas - 29,683 106,042 10,897 -
Popeyes Famous Fried
Chicken Restaurants:
Merritt Island, Florida - 248,564 303,406 - -
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona - 440,339 328,579 - -
Oklahoma City, Oklahoma - 278,878 393,423 20,000 -
Stockbridge, Georgia - 282,482 363,008 - -
Mesquite, Texas - 443,956 456,983 - -
Payson, Arizona - 391,076 427,218 - -
Other:
Angleton, Texas - 162,107 447,511 1,572 -
------------ ------------ ----------- -------
$3,759,766 $6,059,580 $32,469 -
============ ============ =========== =======
Properties of Joint Ventures in
Which the Partnership has
a 50% Interest:
Burger King Restaurant:
Orlando, Florida - $291,159 $695,033 - -
Pizza Hut Restaurant:
Orlando, Florida - 206,575 234,064 - -
------------ ------------ ----------- -------
$497,734 $929,097 - -
============ ============ =========== =======
Property in Which the Partnership
has a 12.17% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Chevy's Fresh Mex Restaurant:
Vancouver, Washington - $875,659 $1,389,366 - -
============ ============ =========== =======
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
----------------------------------------- Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
------------- ------------ ----------- ----------- --------- -------- -------------
$340,125 $580,432 $920,557 $237,010 1986 10/86 (b)
140,703 637,826 778,529 256,902 1986 12/86 (b)
263,217 532,213 795,430 215,842 1986 12/86 (b)
220,665 473,818 694,483 190,843 1986 12/86 (b)
186,009 477,947 663,956 191,179 1987 01/87 (b)
331,962 531,174 863,136 21,229 1983 10/97 (b)
29,683 116,939 146,622 43,035 1976 12/87 (b)
248,564 303,406 551,970 122,205 1983 12/86 (b)
440,339 328,579 768,918 135,996 1986 08/86 (b)
278,878 413,423 692,301 168,424 1986 08/86 (b)
282,482 363,008 645,490 150,245 1986 08/86 (b)
443,956 456,983 900,939 187,871 1986 09/86 (b)
391,076 427,218 818,294 172,075 1986 12/86 (b)
162,107 449,083 611,190 184,771 1986 09/86 (b)
- ----------- ------------ ------------ -----------
$3,759,766 $6,092,049 $9,851,815 $2,277,627
=========== ============ ============ ===========
$291,159 $695,033 $986,192 $285,875 1986 11/86 (b)
206,575 234,064 440,639 98,176 1986 06/86 (b)
- ----------- ------------ ------------ -----------
$497,734 $929,097 $1,426,831 $384,051
=========== ============ ============ ===========
$875,659 $1,389,366 $2,265,025 $46,437 1994 12/97 (b)
=========== ============ ============ ===========
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
(a) Transactions in real estate and accumulated depreciation
during 1998, 1997, and 1996, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- ---------------
<S> <C>
Properties the Partnership has Invested
in:
Balance, December 31, 1995 $10,199,928 $1,901,068
Depreciation expense -- 207,706
--------------- ---------------
Balance, December 31, 1996 10,199,928 2,108,774
Dispositions (704,687) (142,168)
Acquisition 863,137 --
Depreciation expense -- 206,307
--------------- ---------------
Balance, December 31, 1997 10,358,378 2,172,913
Disposition (506,563) (101,467)
Depreciation expense -- 206,181
--------------- ---------------
Balance, December 31, 1998 $ 9,851,815 $2,277,627
=============== ===============
Properties of Joint Ventures in Which
the Partnership has a
50% Interest:
Balance, December 31, 1995 $ 2,216,871 $ 422,581
Depreciation expense -- 44,225
--------------- ---------------
Balance, December 31, 1996 2,216,871 466,806
Dispositions (790,040) (153,154)
Depreciation expense -- 39,303
--------------- ---------------
Balance, December 31, 1997 1,426,831 352,955
Depreciation expense -- 31,096
--------------- ---------------
Balance, December 31, 1998 $ 1,426,831 $ 384,051
=============== ===============
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1998
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
--------------- ---------------
<S> <C>
Property in Which the Partnership
has a 12.17% Interest as
Tenants-in-Common and has
Invested in Under an Operating
Lease:
Balance, December 31, 1996 $ -- $ --
Acquisitions 2,265,025 --
Depreciation expense -- 127
--------------- ---------------
Balance, December 31, 1997 2,265,025 127
Depreciation expense -- 46,310
--------------- ---------------
Balance, December 31, 1998 $ 2,265,025 $ 46,437
=============== ===============
</TABLE>
(b) Depreciation expense is computed for buildings and
improvements based upon estimated lives of 30 years.
(c) As of December 31, 1998, the aggregate cost of the
Properties owned by the Partnership and joint ventures for
federal income tax purposes was $9,535,350 and $3,691,857,
respectively. All of the leases are treated as operating
leases for federal income tax purposes.
(d) The tenant of this Property, Golden Corral Corporation, has
subleased this Property to a local, independent restaurant.
Golden Corral Corporation continues to be responsible for
complying with all the terms of the lease agreement and is
continuing to pay rent on this Property to the Partnership.
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number
3.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 3.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Certificate and Agreement of Limited
Partnership of CNL Income Fund, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund,
Ltd., as amended. (Included as Exhibit 4.1 to Amendment
No. 1 to Registration Statement No. 33-2850 on Form S-11
and incorporated herein by reference.)
4.2 Form of Amended and Restated Certificate and Agreement of
Limited Partnership of CNL Income Fund, Ltd. (Included as
Exhibit 3.2 to Form 10-K filed with the Securities and
Exchange Commission on March 27, 1998, and incorporated
herein by reference.)
10.1 Property Management Agreement. (Included as Exhibit 10.1
to Form 10-K filed with the Securities and Exchange
Commission on March 27, 1998, and incorporated herein by
reference.)
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995, and
incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on March 29, 1996, and
incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund, Ltd. at December 31, 1998, and its statement of income
for the year then ended and is qualified in its entirety by reference to the
Form 10-K of CNL Income Fund, Ltd. for the year ended December 31, 1998.
</LEGEND>
<S> <C>
<PERIOD-TYPE> year
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-START> JAN-01-1998
<PERIOD-END> DEC-31-1998
<CASH> 252,521
<SECURITIES> 0
<RECEIVABLES> 30,959
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,851,815
<DEPRECIATION> 2,277,627
<TOTAL-ASSETS> 8,760,926
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,327,019
<TOTAL-LIABILITY-AND-EQUITY> 8,760,926
<SALES> 0
<TOTAL-REVENUES> 1,058,572
<CGS> 0
<TOTAL-COSTS> 388,191
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,001,437
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,001,437
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,001,437
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund, Ltd. has an unclassified
balance sheet; therefore, no values are shown above for current assets and
current liabilities.
</FN>
</TABLE>
