<PAGE>
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, 1999
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)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
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. No [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, 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 made the remaining net sales proceeds available to pay
Partnership liabilities. During 1999, the Partnership sold its Property in Kent
Island, Maryland, to a third party and intends to reinvest the net sales
proceeds in an additional Property. As a result of the above transactions, as of
December 31, 1999, the Partnership owned 16 Properties. The 16 Properties
include interests in two Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with affiliates of the
General Partners 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.
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.
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 "Termination
of 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. Under the Agreement and
Plan of Merger, APF was to issue shares of its common stock as consideration for
the Merger. On March 1, 2000, the General Partners and APF announced that they
had mutually agreed to terminate the Agreement and Plan of Merger. The agreement
to terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners' ability to
unequivocally recommend voting for the transaction, in the exercise of their
fiduciary duties, had become questionable.
1
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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.
Lessees of six of the Partnership's 16 Properties 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. Fair market value will be determined through an
appraisal by an independent appraisal firm. 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.
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.
In October 1999, the Partnership entered into a lease amendment with the
tenant of the Property in Camp Hill, Pennsylvania, that changed the obligation
of payment of percentage rent by the tenant until renovations to the Property
are completed. The tenant is funding all renovations to the Property.
During 1999, the tenant of the Property in Mesquite, Texas, filed for
bankruptcy and effective October 1, 1999, assigned its lease to a new tenant,
with all other lease terms remaining unchanged.
Major Tenants
During 1999, Golden Corral Corporation and Wendy's International, Inc. each
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 of the General
Partners as tenants-in-common). As of December 31, 1999, Golden Corral
Corporation was the lessee under leases relating to four restaurants and Wendy's
International, Inc. was the lessee under leases relating to two restaurants. It
is anticipated that based on the minimum rental payments required by the leases,
these two lessees each will continue to contribute ten percent or more of the
Partnership's total rental income in 2000 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 1999
(including the Partnership's share of the rental income from two Properties
owned by joint ventures and a Property owned with affiliates of the General
Partners 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. As of December 31, 1999, Golden Corral
Corporation leased Properties with an aggregate carrying value in excess of 20
percent of the total assets of the Partnership.
2
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Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into two separate joint venture arrangements:
Sand Lake Road Joint Venture and Orange Avenue Joint Venture, each with Pembrook
Properties, an unaffiliated entity, for each joint venture to purchase and hold
one Property. 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 has a 50 percent interest in each of Sand Lake
Road Joint Venture and Orange Avenue Joint Venture. The Partnership and its
joint venture partner 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 shares management control for each joint venture with
Pembrook Properties. 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 CNL Income Fund II, Ltd., CNL Income Fund
V, Ltd. and CNL Income Fund VI, Ltd., 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-tenant's percentage
interest. The Partnership owns a 12.17% interest in this Property. Each of the
affiliates is a limited partnership organized pursuant to the laws of the State
of Florida. The tenancy in common agreement restricts each co-tenant's ability
to sell, transfer, or assign its interest in the tenancy in common's Property
without first offering it for sale to the remaining co-tenant.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow the
Partnership to defer the gain for federal income tax purposes upon the sale of
the property if the proceeds are reinvested in an additional 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.
(the "Advisor") 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
3
<PAGE>
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.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees of CNL American Properties Fund, Inc. ("APF"),
the parent company 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 Financial Group,
Inc. (formerly 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, 1999, the Partnership owned 16 Properties. Of the 16
Properties, 13 are owned by the Partnership in fee simple, two are owned through
joint venture arrangements and one is owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation 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.
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation.
State Number of Properties
----- --------------------
Alabama 1
Arizona 2
Florida 3
Georgia 1
Louisiana 1
Maryland 1
Oklahoma 1
Pennsylvania 1
Texas 3
Virginia 1
Washington 1
-----------------
TOTAL PROPERTIES 16
=================
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 5,540 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
4
<PAGE>
than restaurant operations. As of December 31, 1999, the Partnership had no
plans for renovation of the Properties. Depreciation expense is computed for
buildings and improvements using the straight line method using depreciable
lives of 19, 31.5 and 40 years for federal income tax purposes. As of December
31, 1999, the aggregate cost of the Properties owned by the Partnership and
joint ventures (including the Property owned through a tenancy in common
arrangement) for federal income tax purposes was $5,259,453 and $2,318,464,
respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by Restaurant Chain.
Properties Number of Properties
---------- --------------------
Burger King 1
Chevy's Fresh Mex 1
Golden Corral 4
Ground Round 1
Pizza Hut 2
Popeye's 1
Wendy's 5
Other 1
-----------------
TOTAL PROPERTIES 16
=================
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
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.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on a
long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. 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. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
As of December 31, 1999, 1998, 1997, 1996 and 1995, all of the Properties
were occupied. The following is a schedule of the average annual rent per
Property for each of the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------- ----------------- ----------------- ----------------- -------------
<S> <C> <C> <C> <C> <C>
Rental Revenues (1) $1,126,114 $1,154,410 $1,183,568 $1,232,983 $1,300,447
Properties 16 17 18 18 18
Average Rent per
Property $ 70,382 $ 67,906 $ 65,754 $ 68,499 $ 72,247
</TABLE>
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Property
owned through a tenancy in common arrangement. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
5
<PAGE>
The following is a schedule of lease expirations for leases in place as of
December 31, 1999 for each year for the next ten years and thereafter.
<TABLE>
<CAPTION>
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
------------ ------------ --------------- -------------------
<S> <C> <C> <C>
2000 -- $ -- --
2001 4 360,010 35.46%
2002 -- -- --
2003 1 64,896 6.39%
2004 1 33,118 3.26%
2005 -- --
2006 4 249,569 24.58%
2007 1 15,960 1.57%
2008 -- -- --
2009 -- -- --
Thereafter 5 291,805 28.74%
------------ --------------- -----------
Totals 16 $1,015,358 100.00%
============ ============== ===========
</TABLE>
Leases with Major Tenants. The terms of the leases with the Partnership's
major tenants as of December 31, 1999 (see Item 1. Business - Major Tenants),
are substantially the same as those described in Item 1. Business - Leases.
Golden Corral Corporation leases four 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 $90,000 (ranging from
approximately $77,600 to $109,300). The General Partners will seek to re-lease
these Properties with Golden Corral or another tenant, or to sale these
Properties upon the expiration of the leases.
Wendy's International, Inc. leases two Wendy's restaurants. The initial
term of each lease ranges from 16.66 to 17.44 years (expiring 2006 and 2016) and
the average minimum base annual rent is approximately $76,900.
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.
Item 3. Legal Proceedings
On May 11, 1999, four limited partners in several CNL Income Funds served a
derivative and purported class action lawsuit filed April 22, 1999 against the
general partners and APF in the Circuit Court of the Ninth Judicial Circuit of
Orange County, Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL Income Fund
partnership agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming three
additional plaintiffs, includes allegations of aiding and abetting and
conspiring to breach fiduciary duties, negligence and breach of duty of good
faith against certain of the defendants and seeks additional equitable relief .
As amended, the caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
-------------------------------------
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
- ---------------------------------------------------------------------------
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty
- ----------------------------------------------------------------------------
Corporation, and CNL American Properties Fund, Inc., Case No. CIO-99-0003561.
- ----------------------------------------------------
6
<PAGE>
On June 22, 1999, a limited partner of several CNL Income Funds served a
purported class action lawsuit filed April 29, 1999 against the general partners
and APF, Ira Gaines, individually and on behalf of a class of persons similarly
----------------------------------------------------------------------
situated, v. CNL American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
- --------------------------------------------------------------------------------
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL Financial
- ----------------------------------------------------------------------
Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
- ---------------------------------------------------------------------------
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth Judicial
- -----------
Circuit of Orange County, Florida, alleging that the general partners breached
their fiduciary duties and that APF aided and abetted their breach of fiduciary
duties in connection with the proposed Merger. The plaintiff is seeking
unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order
consolidating the two cases under the caption In re: CNL Income Funds
-----------------------
Litigation, Case No. 99-3561. Pursuant to this order, the plaintiffs in these
- ----------------------------
cases filed a consolidated and amended complaint on November 8, 1999. On
December 22, 1999, the General Partners and CNL Group, Inc. filed motions to
dismiss and motions to strike. On December 28, 1999, APF and CNL Fund Advisors,
Inc. filed motions to dismiss. On March 6, 2000, all of the defendants filed a
Joint Notice of Filing Form 8-K Reports and Suggestions of Mootness.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
7
<PAGE>
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2000, there were 1,056 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. During 1999, Limited Partners who
wished to sell their Units could have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), could have done so pursuant to such
Plan. The General Partners had 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 -- Capital Resources, the price paid for any
Unit transferred pursuant to the Plan ranged from $351.50 to $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 1999 and 1998 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1999 1998 (1)
---------------------------------------- ------------------------------------------
High Low Average High Low Average
--------- --------- ------------ --------- --------- -------------
<S> <C> <C> <C> <C> <C> <C>
First Quarter $352 $352 $352 $422 $422 $422
Second Quarter 400 381 391 (2) (2) (2)
Third Quarter (2) (2) (2) 420 420 420
Fourth Quarter 330 240 292 373 373 373
</TABLE>
(1) A total of 418 and 153 Units were transferred other than pursuant to the
Plan for the years ended December 31, 1999 and 1998, 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, 1999 and 1998, the Partnership declared
cash distributions of $1,067,928 and $1,703,468, 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.
8
<PAGE>
As indicated in the chart below, 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.
Quarter Ended 1999 1998
------------- ---- ----
March 31 $266,982 $316,221
June 30 266,982 853,283
September 30 266,982 266,982
December 31 266,982 266,982
The Partnership intends to continue to make distributions of cash available
for distribution to the Limited Partners on a quarterly basis.
(b) Not Applicable
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
--------------- --------------- --------------- --------------- ---------------
Year ended December 31:
<S> <C> <C> <C> <C> <C>
Revenues (1) $1,119,652 $1,153,824 $1,333,000 $1,389,308 $1,290,567
Net income (2) 1,075,771 1,001,437 1,248,757 1,083,109 962,102
Cash distributions
declared (3) 1,067,928 1,703,468 1,264,884 1,264,884 1,264,883
Net income per Unit (2) 35.51 33.09 41.24 35.75 31.75
Cash distributions declared
per Unit (3) 35.60 56.78 42.16 42.16 42.16
At December 31:
Total assets $8,825,685 $8,760,926 $9,500,078 $9,479,777 $9,668,878
Partners' capital 8,334,862 8,327,019 9,029,050 9,045,177 9,226,952
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the years ended December 31, 1999, 1998, 1997, and 1996,
includes $315,649, $235,804, $233,183, and $19,000, respectively, from
gains on sale of land and buildings.
(3) Distributions for the year ended December 31, 1998 include $586,300, 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, 1999, the Partnership owned 16 Properties, either directly or indirectly
through joint venture and tenancy in common arrangements.
9
<PAGE>
Capital Resources
During the years ended December 31, 1999, 1998, and 1997, 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 $993,124, $1,033,789, and $1,316,816. The decrease in cash from
operations during 1999 and 1998, each as compared to the prior year was
primarily a result of changes in income and expenses as described in "Results of
Operations" below.
Other sources and uses of capital included the following during the years
ended December 31, 1999, 1998 and 1997.
During 1997, the Partnership entered into a promissory note with the
corporate General Partner for a loan totalling $133,000 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 addition, during 1999,
the Partnership entered into another promissory note with the corporate General
Partner for a loan in the amount of $122,000 in connection with the operations
of the Partnership. The note is uncollateralized, non-interest bearing and due
on demand. As of December 31, 1999, the Partnership had repaid the loan in full
to the corporate General Partner. In addition, in January 2000, the Partnership
entered into another promissory note with the corporate General Partner for a
loan in the amount of $70,000 in connection with the operations of the
Partnership. The note is uncollateralized, non-interest bearing and due on
demand. As of February 28, 2000, the Partnership had repaid the loan 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
$125,700 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. A portion of the transaction 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 $174,700 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 the 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.
10
<PAGE>
The Partnership distributed $586,300 of the net sales proceeds received
from the 1998 sale of the Property in Kissimmee, Florida as a special
distribution to the Limited Partners and use the remaining net sales proceeds
available to pay Partnership liabilities. 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 October 1999, the Partnership sold its Property in Kent Island, Maryland to
a third party for $875,000 and received net sales proceeds of approximately
$820,500, resulting in a gain of $315,649 for financial reporting purposes.
This Property was originally acquired by the Partnership in 1986 and had a cost
of approximately $726,600, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the Property for
approximately $93,900 in excess of its original purchase price. In connection
with the sale, the Partnership also received $50,000 from the former tenant as
consideration of the Partnership releasing the tenant from its obligation under
the terms of its lease. The Partnership may use the remaining net sales proceeds
to pay liabilities of the Partnership, including quarterly distributions to the
Limited Partners or reinvest in additional properties. In any event, the
Partnership will distribute 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 the joint ventures and
tenancy in common arrangements 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 and net sales
proceeds from the sale of Properties, pending reinvestment in additional
Properties, distributions to Limited Partners or use for the payment of
Partnership liabilities, are invested in money market accounts or other short-
term, highly liquid investments such as demand deposit accounts at commercial
banks, certificates of deposit and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses or to make distributions to the partners. At December 31, 1999, the
Partnership had $1,048,174 invested in such short-term investments as compared
to $252,521 at December 31, 1998. The increase in cash and cash equivalents is
primarily due to the net sales proceeds held by the Partnership as of December
31, 1999, relating to the sale of the Property in Kent Island, Maryland, in
October 1999 as described above. As of December 31, 1999, the average interest
rate earned by the Partnership on rental income deposited in demand deposit
accounts at commercial banks was approximately 3.49% annually. The funds
remaining at December 31, 1999, may be used to reinvest in an additional
Property, and for the payment of distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
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 ongoing 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. The General
Partners may determine to establish reserves in the future. 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.
11
<PAGE>
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.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution.
Based primarily on current and anticipated future cash from operations, and for
1998 proceeds from the sale of Properties as described above, the Partnership
declared distributions to Limited Partners of $1,067,928, $1,703,468 and
$1,264,884 for 1999, 1998 and 1997, respectively. This represents distributions
of $35.60, $56.78 and $42.16 per Unit for years ended December 31, 1999, 1998
and 1997, respectively. The distributions to the Limited Partners for 1999 and
1997 were also based on loans received from the General Partners of $122,000 and
$133,000, respectively, all of which were subsequently repaid, as described
above in "Capital Resources." 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.
During 1999, 1998, and 1997, affiliates of the General Partners incurred
on behalf of the Partnership $68,435, $45,018, and $33,962, respectively, for
certain operating expenses. As of December 31, 1999, 1998 and 1997, the
Partnership owed $36,327, $41,910 and $48,991, respectively, to affiliates for
such amounts and accounting and administrative services. In addition, as of
December 31, 1999 and 1998, the Partnership owed affiliates $87,150 and $66,750,
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, increased to $339,903 at December 31, 1999, from $268,742
at December 31, 1998. The increase is primarily the result of the Partnership
accruing transaction costs relating to the proposed Merger with CNL American
Properties Fund, Inc. ("APF"), as described below in "Termination of Merger".
The General Partners believe that the Partnership has sufficient cash on hand to
meet its current working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1997, the Partnership owned and leased 16 wholly owned Properties
(including one Property in Casa Grande, Arizona, which was sold in August 1997).
During 1998, the Partnership owned and leased 15 wholly owned Properties
(including one Property in Kissimmee, Florida, which was sold in April 1998) and
during 1999, the Partnership owned and leased 14 wholly owned Properties
(including one Property in Kent Island, Maryland, which was sold in October
1999). During the year ended December 31, 1997, 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). During the years ended December 31,
1999 and 1998, the Partnership was a co-venturer in two separate joint ventures
that each owned and leased one Property. In addition, during 1997, 1998 and
1999, the Partnership owned and leased one Property, with an affiliate of the
General Partners, as tenants-in-common. As of December 31, 1999, the
Partnership owned, either directly or through joint venture arrangements, 16
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
12
<PAGE>
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, 1999, 1998, and 1997, the Partnership
earned $971,726, $1,015,292, and $1,038,443, respectively, in base rental income
from the Partnership's wholly owned Properties described above. The decrease in
rental income during 1999 and 1998, each as compared to the previous year, is
primarily attributable to a decrease in rental income as a result of the sale of
Properties during 1999, 1998 and 1997. The decrease during 1999 and 1998, 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 "Capital Resources."
During the years ended December 31, 1999, 1998, and 1997, the Partnership
also earned $37,537, $22,193, and $22,205, respectively, in contingent rental
income. The increase in contingent rental income during 1999 as compared to
1998 and 1997, is attributable to an increase, during 1999, in gross sales of
certain restaurant Properties, the leases of which require the payment of
contingent rental income.
In addition, during the years ended December 31, 1999, 1998, and 1997, the
Partnership earned $95,251, $95,252, and $250,142, respectively, attributable to
net income earned by the three joint ventures in which the Partnership is a co-
venturer and one Property with affiliates of the General Partners as tenants-in-
common (including one Property owned and leased by Seventh Avenue Joint Venture,
which was sold in August 1997). Net income earned by joint ventures during
1997, was higher due to the fact that in August 1997, Seventh Avenue Joint
Venture, in which the Partnership owned 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 "Capital Resources." The decrease
during 1999 and 1998 is partially offset by the fact that in December 1997, the
Partnership reinvested a portion of its pro rata share of the net sales proceeds
received by the joint venture in a Property in Vancouver, Washington, as
tenants-in-common with affiliates of the General Partners.
During the year ended December 31, 1999, two of the Partnership's lessees,
Golden Corral Corporation and Wendy's International, Inc., each 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, 1999, Golden Corral Corporation was the lessee under leases
relating to four restaurants and Wendy's International, Inc. was the lessee
under leases relating to two restaurants. It is anticipated that Golden Corral
Corporation and Wendy's International will continue to contribute ten percent or
more of the Partnership's total rental income during 2000. 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 1999 (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. In
addition, the initial lease term relating to the four Properties leased by
Golden Corral Corporation expire in 2001 and are renewable at the option of the
tenant. In the event Golden Corral Corporation does not renew some or all of
its leases, and the General Partners are not able to re-lease the Properties on
as favorable of terms, the Partnership's income may be adversely affected.
Operating expenses, including depreciation and amortization expense, were
$409,530, $388,191, and $317,426, for the years ended December 31, 1999, 1998
and 1997, respectively. The increase in operating expenses during 1999 and
1998, each as compared to the previous year, is partially due to the fact that
the Partnership incurred $83,162 and $7,322, respectively, 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 in
"Termination of Merger." The increase in operating expenses during 1998 as
compared to 1997, is also 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.
13
<PAGE>
As a result of the sale of the Property in Kent Island, Maryland, as
described above in "Capital Resources," the Partnership recognized a gain of
$315,649 for financial reporting purposes during 1999. In connection with the
sale, the Partnership also received $50,000 as a lease termination fee from the
former tenant in consideration of the Partnership's releasing the tenant from
its obligation under the terms of the Lease. In addition, as a result of the
sale of the Properties in Kissimmee, Florida, and Casa Grande, Arizona, each as
described above in "Capital Resources," the Partnership recognized gains of
$235,804 and $233,183 for financial reporting purposes during 1998 and 1997,
respectively.
The Partnership's leases as of December 31, 1999, 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.
Termination of Merger
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. Under the Agreement and Plan of Merger, APF was to issue
shares of its common stock as consideration for the Merger. On March 1, 2000,
the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date-sensitive
information beyond January 1, 2000. The failure to accurately recognize the
year 2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Status
The Partnership generally does not directly own information technology
systems. The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems pursuant to the property management agreement with the Partnership. In
early 1998, affiliates of the General Partners formed a year 2000 committee
("the Y2K Team") that assessed the readiness of any systems that were date
sensitive and completed upgrades for the hardware equipment and software that
was not year 2000 compliant, as necessary. The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates. The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.
In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the future of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants. As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material disruption or other significant problems. In addition, as of the same
date, the General Partners are not aware of any material year 2000 problems
relating to information and non-information technology systems of third parties
with which the Partnership maintains material relationships, including those of
the Partnership's transfer agent, financial institutions and tenants. In
addition, in the Partnership's interactions with its transfer agent, financial
institutions and
14
<PAGE>
tenants, the systems of these third parties have functioned normally. Until the
Partnership's first distribution in 2000 and the delivery of the information by
the transfer agent to stockholders in early 2000, the General Partners will
continue to monitor the year 2000 compliance of the transfer agent. In addition,
the General Partners will continue to monitor the systems used by the
Partnership and to maintain contact with third parties with which the
Partnership has material relationships with respect to year 2000 compliance and
any year 2000 issues that may arise at a later date. The General Partners will
develop contingency plans relating to ongoing year 2000 issues at the time that
such issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners does not
foresee significant risks associated with its year 2000 compliance at this time.
In addition, the General Partners and their affiliates do not expect to incur
any additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
15
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
<TABLE>
<CAPTION>
Page
----
<S> <C>
Report of Independent Certified Public Accountants 17
Financial Statements:
Balance Sheets 18
Statements of Income 19
Statements of Partners' Capital 20
Statements of Cash Flows 21
Notes to Financial Statements 23
</TABLE>
16
<PAGE>
Report of Independent Certified Public 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, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statement schedule 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 schedule 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
auditing standards generally accepted in the United States 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.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 4, 2000, except for Note 9 for which the date is March 1, 2000
17
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1999 1998
------------ ------------
<S> <C> <C>
ASSETS
------
Land and buildings on operating leases, less
accumulated depreciation $ 6,870,603 $ 7,574,188
Investment in and due from joint ventures 822,993 841,379
Cash and cash equivalents 1,048,174 252,521
Receivables, less allowance for doubtful
accounts of $1,236 in 1999 18,768 30,959
Prepaid expenses 8,322 5,463
Lease costs, less accumulated amortization
of $26,875 and $24,375, respectively 23,125 25,625
Accrued rental income 33,700 30,791
------------ ------------
$ 8,825,685 $ 8,760,926
============ ============
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 61,890 $ 736
Escrowed real estate taxes payable 11,031 1,024
Distributions payable 266,982 266,982
Due to related parties 123,477 129,060
Rents paid in advance and deposits 27,443 36,105
------------ ------------
Total liabilities 490,823 433,907
Partners' capital 8,334,862 8,327,019
------------ ------------
$ 8,825,685 $ 8,760,926
============ ============
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
---------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $ 971,726 $1,015,292 $1,038,443
Contingent rental income 37,537 22,193 22,205
Interest and other income 15,138 21,087 22,210
---------- ---------- ----------
1,024,401 1,058,572 1,082,858
---------- ---------- ----------
Expenses:
General operating and administrative 87,383 87,080 86,780
Professional services 32,841 17,110 12,772
Real estate taxes -- 3,969 3,929
State and other taxes 4,867 4,450 5,138
Depreciation and amortization 201,277 268,260 208,807
Transaction costs 83,162 7,322 --
---------- ---------- ----------
409,530 388,191 317,426
---------- ---------- ----------
Income Before Equity in Earnings of Joint
Ventures and Gain on Sale of Land and
Buildings and Lease Termination Income 614,871 670,381 765,432
Equity in Earnings of Joint Ventures 95,251 95,252 250,142
Gain on Sale of Land and Buildings 315,649 235,804 233,183
Lease Termination Income 50,000 -- --
---------- ---------- ----------
Net Income $1,075,771 $1,001,437 $1,248,757
========== ========== ==========
Allocation of Net Income
General partners $ 10,338 $ 8,671 $ 11,577
Limited partners 1,065,433 992,766 1,237,180
---------- ---------- ----------
$1,075,771 $1,001,437 $1,248,757
========== ========== ==========
Net Income Per Limited Partner Unit $ 35.51 $ 33.09 $ 41.24
========== ========== ==========
Weighted Average Number of
Limited Partner Units Outstanding 30,000 30,000 30,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
General Partners Limited Partners
---------------------------- -----------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
------------- ----------- ------------- ------------- ----------- ----------- -----------
<S> <C> <C> <C> <C> <C> <C> <C>
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
Distributions to limited
partners ($35.60 per
limited partner unit) -- -- -- (1,067,928) -- -- (1,067,928)
Net income -- 10,338 -- -- 1,065,433 -- 1,075,771
------------- ----------- ------------- -------------- ----------- ----------- -----------
Balance, December 31, 1999 $193,400 $147,368 $12,944,586 $(18,360,303) $15,072,951 $(1,663,140) $ 8,334,862
============= =========== ============= ============== =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
-------------- --------------- ---------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 1,084,569 $ 1,030,115 $ 1,227,883
Distributions from joint venture 113,637 113,770 152,019
Cash paid for expenses (216,695) (131,054) (84,642)
Interest received 11,613 20,958 21,556
-------------- --------------- ---------------
Net cash provided by operating activities 993,124 1,033,789 1,316,816
-------------- --------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 820,457 661,300 793,009
Proceeds received from tenant in connection
with termination of lease 50,000 -- --
Additions to land and buildings -- -- (863,135)
Return of capital from joint venture -- -- 472,373
Investment in joint ventures -- -- (303,419)
Decrease (increase) in restricted cash -- 126,009 (126,009)
-------------- --------------- ---------------
Net cash provided by (used in) investing
activities 870,457 787,309 (27,181)
-------------- --------------- ---------------
Cash Flows from Financing Activities:
Proceeds from loan from corporate general
partner 122,000 -- 133,000
Repayment of loan from corporate general
partner (122,000) -- (133,000)
Distributions to limited partners (1,067,928) (1,752,707) (1,264,884)
-------------- --------------- ---------------
Net cash used in financing activities (1,067,928) (1,752,707) (1,264,884)
-------------- --------------- ---------------
Net Increase in Cash and Cash Equivalents 795,653 68,391 24,751
Cash and Cash Equivalents at Beginning of Year 252,521 184,130 159,379
-------------- --------------- ---------------
Cash and Cash Equivalents at End of Year $ 1,048,174 $ 252,521 $ 184,130
============== =============== ===============
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Years Ended December 31,
1999 1998 1997
----------------- -------------- -----------------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net Income $1,075,771 $1,001,437 $1,248,757
----------------- -------------- -----------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 198,777 206,181 206,307
Amortization 2,500 62,079 2,500
Equity in earnings of joint
ventures, net of distributions 18,386 18,518 (98,123)
Gain on sale of land and buildings (315,649) (235,804) (233,183)
Lease termination income (50,000) -- --
Decrease (increase) in receivables 12,191 (6,380) 158,360
Increase in prepaid expenses (2,859) (474) (524)
Increase in accrued rental income (2,909) (3,486) (3,706)
Increase (decrease) in accounts
payable and accrued expenses 71,161 (1,569) 673
Increase (decrease) in due to
related parties (5,583) (7,081) 20,729
Increase (decrease) in rents paid in
advance and deposits (8,662) 368 15,026
----------------- -------------- -----------------
Total adjustments (82,647) 32,352 68,059
----------------- -------------- -----------------
Net Cash Provided by Operating Activities $ 993,124 $1,033,789 $1,316,816
================= ============== =================
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 $ 266,982 $ 316,221
================= ============== =================
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1999, 1998, and 1997
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 creates
an allowance or reverses 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
23
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
1. Significant Accounting Policies - Continued:
-------------------------------------------
carrying cost of the individual property. If an impairment is indicated,
the assets are adjusted to their fair 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 of the
General Partners, 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.
24
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
1. Significant Accounting Policies - Continued:
-------------------------------------------
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.
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.
25
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases:
--------------------------------------
Land and buildings on operating leases consisted of the following at
December 31:
<TABLE>
<CAPTION>
1999 1998
---------------- ---------------
<S> <C> <C>
Land $ 3,619,063 $ 3,759,766
Buildings 5,454,223 6,092,049
---------------- ---------------
9,073,286 9,851,815
Less accumulated depreciation (2,202,683) (2,277,627)
---------------- ---------------
$ 6,870,603 $ 7,574,188
================ ===============
</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 $125,700 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 7).
During the year ended December 31, 1999, the Partnership sold its property
in Kent Island, Maryland for $875,000 and received net sales proceeds of
approximately $820,500 resulting in a gain of $315,649 for financial
reporting purposes. This property was originally acquired by the
Partnership in 1986 and had a cost of approximately $726,600, excluding
acquisition fees and miscellaneous acquisition expenses; therefore the
Partnership sold the property for approximately $93,900 in excess of its
original purchase price. In connection with the sale, the Partnership also
received $50,000 from
26
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
the former tenant in consideration of the Partnership releasing the tenant
from its obligation under the terms of its lease.
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, 1999, 1998 and 1997, the Partnership recognized $2,909, $3,486
and $3,706, respectively, of such income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1999:
<TABLE>
<S> <C>
2000 $ 834,063
2001 811,386
2002 492,115
2003 492,411
2004 464,431
Thereafter 3,552,254
----------------
$ 6,646,660
================
</TABLE>
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 $174,700 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 prorata share of the net sales proceeds received
by the joint venture.
27
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
4. Investment in Joint Ventures - Continued:
----------------------------------------
In December 1997, the Partnership acquired a property in Vancouver,
Washington, as tenants-in-common with affiliates of the general partners.
As of December 31, 1999, 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 of the general partners, 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>
1999 1998
--------------- ---------------
<S> <C> <C>
Land and buildings on operating
leases, less accumulated
depreciation $3,184,085 $3,261,368
Cash 11,384 1,354
Prepaid expenses 301 219
Accrued rental income 46,110 23,087
Liabilities 12,102 1,619
Partners' capital 3,229,778 3,284,409
Revenues 420,003 420,677
Net income 340,215 340,503
</TABLE>
The Partnership recognized income totaling $95,251, $95,252, and $250,142
for the years ended December 31, 1999, 1998, and 1997, respectively, from
these joint ventures.
5. 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
28
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
5. Allocations and Distributions - Continued:
-----------------------------------------
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.
During the years ended December 31, 1999, 1998 and 1997, the Partnership
declared distributions to the limited partners of $1,067,928, $1,703,468
and $1,264,884, respectively. 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
29
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
5. Allocations and Distributions - Continued:
------------------------------------------
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, 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.
30
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
6. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- --------------
<S> <C> <C> <C>
Net income for financial reporting purposes $ 1,075,771 $ 1,001,437 $ 1,248,757
Depreciation for tax reporting purposes in
excess of depreciation for financial
reporting purposes (79,392) (87,967) (104,279)
Gain on sale of land and buildings for
financial reporting purposes less than (in
excess of) gain for tax reporting purposes 159,469 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 (5,649) 49,058 (18,410)
Capitalization of transaction costs for tax
reporting purposes 83,162 7,322 --
Accrued rental income (2,909) (3,486) (3,706)
Rents paid in advance (8,662) 368 15,026
Allowance for doubtful accounts 1,236 (3,091) 1,679
------------- -------------- --------------
Net income for federal income tax purposes $ 1,223,026 $ 1,022,273 $ 905,884
============= ============== ==============
</TABLE>
7. Related Party Transactions:
---------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Holdings, Inc. The other individual general
partner, Robert A. Bourne, serves as President and Treasurer of CNL
Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
Financial Group, Inc. until it merged with CNL American Properties Fund,
Inc. ("APF"), effective September 1, 1999. The individual general partners
are stockholders and directors of APF.
31
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
7. Related Party Transactions - Continued:
--------------------------------------
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with the
Partnership. In connection therewith, the Partnership has agreed to pay
the Advisor 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, 1999, 1998, and 1997.
The Advisor is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission or
three percent of the sales price if the Advisor 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 the receipt by the limited partners of
their aggregate 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, 1999 and 1997.
During the years ended December 31, 1999, 1998, and 1997, the Advisor and
their affiliates provided accounting and administrative services to the
Partnership on a day-to-day basis including services relating to the
proposed and terminated merger as described in Note 9. The Partnership
incurred $70,060, $63,981, and $57,679 for the years ended December 31,
1999, 1998, and 1997, respectively, for such services.
32
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
7. Related Party Transactions - Continued:
--------------------------------------
The due to related parties consisted of the following at December 31:
<TABLE>
<CAPTION>
1999 1998
-------------- -------------
<S> <C> <C>
Due to the Advisor and its affiliates:
Deferred, subordinated real
estate disposition fee $ 87,150 $ 87,150
Expenditures incurred on
behalf of the Partnership 29,044 15,123
Accounting and
administrative services 7,283 26,787
-------------- -------------
$ 123,477 $ 129,060
============== =============
</TABLE>
The deferred, subordinated real estate disposition fees will not be paid
until after the limited partners have received their cumulative 10%
Preferred Return, plus their adjusted capital contributions.
8. 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 Partnership's share of rental income from
joint ventures and the property held as tenants-in-common with an affiliate
of the general partners) for each of the years ended December 31:
<TABLE>
<CAPTION>
1999 1998 1997
-------------- -------------- --------------
<S> <C> <C> <C>
Golden Corral Corporation $433,228 $452,653 $452,653
Wendy's International, Inc. 171,340 N/A 164,857
Restaurant Management
of S.C., Inc. N/A N/A 128,737
</TABLE>
33
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
8. 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 of the general partners) for each of the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
------------- -------------- -------------
<S> <C> <C> <C>
Golden Corral Family
Steakhouse Restaurants $433,228 $452,653 $452,653
Wendy's Old Fashioned
Hamburger Restaurants 353,612 352,330 443,335
Popeye's Famous Fried
Chicken N/A N/A 128,737
</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 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.
9. Termination of Merger:
---------------------
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"). Under the Agreement and Plan of Merger, APF was to issue shares
of its common stock as consideration for the Merger. On March 1, 2000, the
General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General
Partners' concern that, in light of market conditions relating to publicly
traded real estate investment trusts, the value of the transaction had
diminished. As a result of such diminishment, the General Partners'
ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable.
34
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998, and 1997
10. Subsequent Event:
----------------
In January 2000, the Partnership entered into a promissory note with the
corporate general partner for a loan in the amount of $70,000 in connection
with the operations of the Partnership. The loan is uncollateralized, non-
interest bearing and due on demand.
35
<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 Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.
James M. Seneff, Jr., age 53, 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 co-
venturer in over 100 real estate ventures. These ventures have involved the
financing, acquisition, construction, and leasing of restaurants, office
buildings, apartment complexes, hotels, and other real estate. Mr. Seneff is a
principal stockholder of CNL Holdings, Inc., the parent company of CNL Financial
Group, Inc. (formerly CNL Group, Inc.), a diversified real estate company, and
has served as a director, Chairman of the Board and Chief Executive Officer of
CNL Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as
a director and Chairman of the Board since inception in 1994, and served as
Chief Executive Officer from 1994 through August 1999, of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust. He also
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Fund Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a
director, Chairman of the Board and Chief Executive Officer of CNL Health Care
Properties, Inc., as well as CNL Health Care Corp., the advisor to the company.
He also serves as director, Chairman of the Board and Chief Executive Officer of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff
has served as Chairman of the Board and Chief Executive Officer of Commercial
Net Lease Realty, Inc., a public real estate investment trust that is listed on
the New York Stock Exchange. Mr. Seneff has also served as a director, Chairman
of the Board and Chief Executive Officer of the following affiliated companies
since formation: CNL Securities Corp., since 1979; CNL Investment Company, since
1990; and CNL Institutional Advisors, a registered investment advisor for
pension plans, since 1990. Mr. Seneff formerly served as a director of First
Union National Bank of Florida, N.A., and currently serves as the Chairman of
the Board of CNLBank. Mr. Seneff served on the Florida State Commission on
Ethics and is a former member and past Chairman of the State of Florida
Investment Advisory Council, which recommends to the Florida Board of
Administration investments for various Florida employee retirement funds. The
Florida Board of Administration is Florida's principal investment advisory and
money management agency and oversees the investment of more than $60 billion of
retirement funds. Mr. Seneff received his degree in Business Administration
from Florida State University in 1968.
Robert A. Bourne, age 52, Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate. Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.). Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust. He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999. Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company. He is also a director, Vice Chairman of the Board
and President of CNL
36
<PAGE>
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Mr. Bourne also serves as a
director of CNLBank. He has served as a director since 1992, Vice Chairman of
the Board since February 1996, Secretary and Treasurer from February 1996
through 1997, and President from July 1992 through February 1996, of Commercial
Net Lease Realty Inc., a public real estate investment trust listed on the New
York Stock Exchange. Mr. Bourne holds the following positions for these
affiliates of CNL Financial Group, Inc.: director, President and Treasurer of
CNL Investment Company; director, President, Treasurer, and Registered Principal
of CNL Securities Corp., a subsidiary of CNL Investment Company and director,
President, Treasurer, and Chief Investment Officer of CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of tax manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
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 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999. On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.
CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida. CNL Financial 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 Financial Group, Inc. Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.
The following persons serve as operating officers of CNL Financial 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 Financial Group, Inc. and its affiliated companies.
Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999. He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc. In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999. Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 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 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999. In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, 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. As of September 1, 1999, Mr. Walker
serves as President for CNL American Properties Fund, Inc. From May 1992 to May
1994, Mr. Walker, a certified public
37
<PAGE>
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 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994
through July 1998, and served as Secretary and a director from 1994 through
August 1999, at which point it merged with CNL American Properties Fund, Inc.
In addition, she is Secretary and Treasurer of CNL Health Care Properties, Inc.,
and serves as Secretary of its subsidiaries. In addition, she serves as
Secretary, Treasurer and a director of CNL Health Care Corp., the advisor. to
the company. Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality
Properties, Inc., a public, unlisted real estate investment trust, as Secretary,
Treasurer and a director of CNL Hospitality Corp., its Advisor, and as Secretary
of the subsidiaries of the company. Ms. Rose served as Secretary and Treasurer
of Commercial Net Lease Realty, Inc., a public real estate investment trust
listed on the New York Stock Exchange, from 1992 to February 1996, and as
Secretary and a director of CNL Realty Advisors, Inc., its advisor, from its
inception in 1991 through 1997. She also served as Treasurer of CNL Realty
Advisors, Inc. from 1991 through February 1996. Ms. Rose, a certified public
accountant, has served as Secretary of CNL Financial Group, Inc. (formerly CNL
Group, Inc.) since 1987, served as Controller from 1987 to 1993 and has served
as Chief Financial Officer since 1993. She also serves as Secretary of the
subsidiaries of CNL Financial Group, Inc. and holds various other offices in the
subsidiaries. In addition, she serves as Secretary for approximately 50
additional corporations affiliated with CNL Financial Group, Inc. and its
subsidiaries. Ms. Rose oversees the tax and legal compliance for over 375
corporations, partnerships and joint ventures, and the accounting and financial
reporting for over 200 entities. 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. She was licensed as a certified public accountant in 1979.
Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as
Executive Vice President of CNL Health Care Properties, Inc. and CNL Health Care
Corp., the Advisor to the Company. Ms. Wall also serves as Executive Vice
President of CNL Hospitality Properties, Inc., a public, unlisted real estate
investment trust, and serves as Executive Vice President and a director of CNL
Hospitality Corp., its advisor. She also serves as a director for CNLBank. Ms.
Wall serves as Executive Vice President of CNL Financial Group, Inc. (formerly
CNL Group, Inc.). Ms. Wall has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since 1994 and has served as
Executive Vice President of CNL Investment Company since January 1991. In 1984,
Ms. Wall joined CNL Securities Corp. and in 1985, became Vice President. In
1987, she became a Senior Vice President and in July 1997, 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,
communications and investor services for programs offered through participating
brokers. Ms. Wall also served as Senior Vice President of CNL Institutional
Advisors Inc., a registered investment advisor, from 1990 to 1993. Ms. Wall
served as Vice President of Commercial Net Lease Realty, Inc., a public real
estate investment trust listed on the New York Stock Exchange, from 1992 through
1997, and served as Vice President of CNL Realty Advisors, Inc. from its
inception in 1991 through 1997. Ms. Wall currently serves as a trustee on the
Board of the Investment Program Association, is a member of the Corporate
Advisory Council for the International Association for Financial Planning and is
a member of IWF, International Women's Forum. In addition, she previously
served on the Direct Participation Program committee for the National
Association of Securities Dealers, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp.
Steven D. Shackelford, age 36, a certified public accountant, serves as
Senior Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer
38
<PAGE>
of CNL Fund Advisors, Inc. since September 1996 through August 1999. 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.
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.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2000, 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 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
<S> <C> <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.
39
<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, 1999, 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, 1999
- -------------------------------- ------------------------------------ --------------------------------
<S> <C> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred
operating expenses at the lower of cost or 90 on behalf of the Partnership:
percent of the prevailing rate at $68,435
which comparable services could
have been obtained in the same Accounting and administrative
geographic area. If the General services: $70,060
Partners or 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 One-half of one percent per year $-0-
management fee to affiliates of 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>
40
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- -------------------------------- ------------------------------------ --------------------------------
<S> <C> <C>
Deferred, subordinated real A deferred, subordinated real $-0-
estate disposition fee payable estate disposition fee, payable
to affiliates 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-
subordinated share of equal to one percent of
Partnership net cash flow Partnership distributions of net
cash flow, subordinated to
certain minimum returns to the
Limited Partners.
General Partners' deferred, A deferred, subordinated share $-0-
subordinated share of equal to five percent of
Partnership net sales proceeds Partnership distributions of such
from a sale or sales not in net sales proceeds, subordinated
liquidation of the Partnership to certain minimum returns to the
Limited Partners.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- -------------------------------- ------------------------------------ --------------------------------
<S> <C> <C>
General Partners' share of Distributions of net sales $-0-
Partnership net sales proceeds proceeds from a sale or sales of
from a sale or sales in substantially all of the
liquidation of the Partnership 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>
42
<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 Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999, 1998,
and 1997
Statements of Partners' Capital for the years ended December 31,
1999, 1998, and 1997
Statements of Cash Flows for the years ended December 31, 1999,
1998, and 1997
Notes to Financial Statements
2. Financial Statement Schedules
Schedule III - Real Estate and Accumulated Depreciation at December
31, 1999
Notes to Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1999
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.)
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.)
43
<PAGE>
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, 1999 through December 31, 1999.
(c) Not applicable.
(d) Other Financial Information
The Partnership is required to file audited financial information of
one of its tenants (Golden Corral Corporation) as a result of this
tenant leasing more than 20 percent of the Partnership's total
assets for the year ended December 31, 1999. Golden Corral
Corporation is a privately-held company and its financial
information is not available to the Partnership to include in this
filing. The Partnership will file this financial information under
cover of a Form 10-K/A as soon as it is available.
44
<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 23rd day of
March, 2000.
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> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 23, 2000
- ----------------------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2000
- ----------------------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
------------------------- --------------------- --------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
---------- ---------- -------------- ---------- ---------- ------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in:
Golden Corral Family
Steakhouse Restaurants:
Virginia Beach, Virginia - $340,125 $580,432 - - $340,125 $580,432 $920,557
Salisbury, Maryland - 263,217 532,213 - - 263,217 532,213 795,430
Jasper, Alabama (d) - 220,665 473,818 - - 220,665 473,818 694,483
Eunice, Louisiana - 186,009 477,947 - - 186,009 477,947 663,956
Ground Round Restaurant:
Camp Hill, Pennsylvania - 331,962 531,174 - - 331,962 531,174 863,136
Pizza Hut Restaurant:
Bowie, Texas - 29,683 106,042 10,897 - 29,683 116,939 146,622
Popeyes Famous Fried
Chicken Restaurants:
Merritt Island, Florida - 248,564 303,406 - - 248,564 303,406 551,970
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona - 440,339 328,579 - - 440,339 328,579 768,918
Oklahoma City, Oklahoma - 278,878 393,423 20,000 - 278,878 413,423 692,301
Stockbridge, Georgia - 282,482 363,008 - - 282,482 363,008 645,490
Mesquite, Texas - 443,956 456,983 - - 443,956 456,983 900,939
Payson, Arizona - 391,076 427,218 - - 391,076 427,218 818,294
Other:
Angleton, Texas - 162,107 447,511 1,572 - 162,107 449,083 611,190
---------- ----------- --------- --------- ----------- ---------- -----------
$3,619,063 $5,421,754 $32,469 - $3,619,063 $5,454,223 $9,073,286
========== =========== ========= ========= =========== ========== ===========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
--------------- ------------ ---------- --------------
<S> <C> <C> <C> <C>
Properties the Partnership
has Invested in:
Golden Corral Family
Steakhouse Restaurants:
Virginia Beach, Virginia $256,358 1986 10/86 (b)
Salisbury, Maryland 233,583 1986 12/86 (b)
Jasper, Alabama (d) 206,638 1986 12/86 (b)
Eunice, Louisiana 207,111 1987 01/87 (b)
Ground Round Restaurant:
Camp Hill, Pennsylvania 38,934 1983 10/97 (b)
Pizza Hut Restaurant:
Bowie, Texas 46,940 1976 12/87 (b)
Popeyes Famous Fried
Chicken Restaurants:
Merritt Island, Florida 132,319 1983 12/86 (b)
Wendy's Old Fashioned
Hamburger Restaurants:
Mesa, Arizona 146,948 1986 08/86 (b)
Oklahoma City, Oklahoma 182,337 1986 08/86 (b)
Stockbridge, Georgia 162,346 1986 08/86 (b)
Mesquite, Texas 203,103 1986 09/86 (b)
Payson, Arizona 186,315 1986 12/86 (b)
Other:
Angleton, Texas 199,751 1986 09/86 (b)
-----------
$2,202,683
===========
</TABLE>
F-1
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent To Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
------------------------ --------------------- -------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements Total
--------- ------- --------------- --------- ---------- ------- --------------- --------
<S> <C> <C> <C> <C> <C> <C> <C> <C>
Properties of Joint Ventures in
Which the Partnership has
a 50% Interest:
Burger King Restaurant:
Orlando, Florida - $291,159 $695,033 - - $291,159 $ 695,033 $ 986,192
Pizza Hut Restaurant:
Orlando, Florida - 206,575 234,064 - - 206,575 234,064 440,639
--------- ---------- ------- ---------- ----------- ----------- -----------
$497,734 $929,097 - - $497,734 $ 929,097 $1,426,831
======== ========== ======= ========== =========== =========== ===========
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 - - $875,659 $1,389,366 $2,265,025
======== ========== ======= ========== =========== =========== ===========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Depreciation struction Acquired Computed
--------------- ------------ ---------- --------------
Properties of Joint Ventures in <C> <C> <C> <C>
Which the Partnership has
a 50% Interest:
Burger King Restaurant:
Orlando, Florida $309,043 1986 11/86 (b)
Pizza Hut Restaurant:
Orlando, Florida 105,979 1986 06/86 (b)
----------
$415,022
==========
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 $92,749 1994 12/97 (b)
==========
</TABLE>
F-2
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999, 1998,
and 1997, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
---------- ---------------
<S> <C> <C>
Properties the Partnership has Invested in:
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
Disposition (778,529) (273,721)
Depreciation expense -- 198,777
----------- ------------
Balance, December 31, 1999 $ 9,073,286 $2,202,683
=========== ============
Property of Joint Ventures in Which the
Partnership has a 50% Interest:
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
Depreciation expense -- 30,971
----------- ------------
Balance, December 31, 1999 $ 1,426,831 $ 415,022
============ ============
</TABLE>
F-3
<PAGE>
CNL INCOME FUND, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
---------------------------------------------------
DEPRECIATION - CONTINUED
------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
-------- --------------
<S> <C> <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
Depreciation expense -- 46,312
----------- ----------
Balance, December 31, 1999 $ 2,265,025 $ 92,749
=========== ===========
</TABLE>
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 1999, the aggregate cost of the Properties owned by the
Partnership and joint ventures for federal income tax purposes was
$8,756,821 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.
F-4
<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.)
i
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund Ltd. at December 31, 1999, and its statement of
income for the twelve months then ended and is qualified in its entirety by
reference to the Form-10K of CNL Income Fund Ltd. for the twelve months
ended December 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 1,048,174
<SECURITIES> 0
<RECEIVABLES> 20,004
<ALLOWANCES> 1,236
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 9,073,286
<DEPRECIATION> 2,202,683
<TOTAL-ASSETS> 8,825,685
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 8,334,862
<TOTAL-LIABILITY-AND-EQUITY> 8,825,685
<SALES> 0
<TOTAL-REVENUES> 1,024,401
<CGS> 0
<TOTAL-COSTS> 409,530
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,075,771
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,075,771
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,075,771
<EPS-BASIC> 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>
