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, 1997
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 0-17549
CNL INCOME FUND IV, LTD.
(Exact name of registrant as specified in its charter)
Florida 59-2854435
(State or other jurisdiction of (I.R.S. Employer Identification No.)
incorporation or organization)
400 East South Street
Orlando, Florida 32801
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 422-1574
Securities registered pursuant to Section 12(b) of
the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of
the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
Indicate by check mark if disclosure of delinquent filers pursuant to
Item 405 of Regulation S-K is not contained herein, and will not be contained,
to the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-K or any
amendment to this Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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 value 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 IV, Ltd. (the "Registrant" or the "Partnership") is a
limited partnership which was organized pursuant to the laws of the State of
Florida on November 18, 1987. 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 May 6, 1988, the Partnership
offered for sale up to $30,000,000 in limited partnership interests (the
"Units") (60,000 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 30, 1988, as of which date the maximum offering proceeds of
$30,000,000 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 and family-style
restaurant chains (the "Restaurant Chains"). Net proceeds to the Partnership
from its offering of Units, after deduction of organizational and offering
expenses, totalled $26,550,000, and were used to acquire 40 Properties,
including interests in five Properties owned by joint ventures in which the
Partnership is a co-venturer. During the year ended December 31, 1994, the
Partnership sold its Property in York, Pennsylvania, and reinvested the majority
of the net sales proceeds in two Checkers Properties, consisting of only land,
located in Miami, Florida, and Douglasville, Georgia. The remaining net sales
proceeds were used to meet other working capital needs of the Partnership. The
lessee of the two Properties consisting of only land owns the buildings
currently on the land and has the right, if not in default under the lease, to
remove the buildings from the land at the end of the lease terms. During the
year ended December 31, 1995, the Partnership sold its Property in Hastings,
Michigan, and during 1996, reinvested the net sales proceeds in a Property
located in Clinton, North Carolina, with affiliates of the General Partners as
tenants-in-common. Also, during the year ended December 31, 1996, the
Partnership sold its Property in Tampa, Florida, and reinvested the majority of
the net sales proceeds in a Boston Market in Richmond, Virginia. During the year
ended December 31, 1997, the Partnership sold its Property in Douglasville,
Georgia. As a result of the above transactions, as of December 31, 1997, the
Partnership owned 40 Properties, including interests in five Properties owned by
joint ventures in which the Partnership is a co-venturer and one Property owned
with affiliates as tenants-in-common. Generally, the Properties are leased on a
triple-net basis with the lessees responsible for all repairs and maintenance,
property taxes, insurance and utilities.
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 purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. In general, the General Partners plan to seek the sale of some of
the Properties commencing seven to 15 years after their acquisition. 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.
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
terms, ranging from five to 20 years (the average being 18 years), and expire
between 2003 and 2014. 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
$18,100 to $135,800. Generally, the leases provide for percentage rent, based on
sales in excess of a specified amount, to be paid annually. In addition, some of
the leases provide that commencing in the sixth lease year the
1
<PAGE>
percentage rent will be an amount equal to the greater of the percentage rent
calculated under the lease formula or a specified percentage (ranging from
one-half to two percent) of the purchase price.
Generally, the leases of the Properties provide for two or four
five-year renewal options subject to the same terms and conditions as the
initial lease. Certain lessees also have been granted options to purchase
Properties at the Property's then fair market value, or pursuant to a formula
based on the original cost of the Property, after a specified portion of the
lease term has elapsed. Additionally, certain leases provide the lessee an
option to purchase up to a 49 percent 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 generally provide that, in the event the Partnership
wishes to sell the Property subject to the lease, the Partnership must first
offer the lessee the right to purchase the Property on the same terms and
conditions, and for the same price, as any offer which the Partnership has
received for the sale of the Property.
In September 1994, the tenant of the Property in Leesburg, Florida,
ceased operations of the restaurant business located at the Property. Currently,
the Partnership is not receiving rental payments for this Property and is
seeking a replacement tenant.
In June 1997, the Partnership terminated the leases with the tenant of
the Properties in Portland and Winchester, Indiana. In July 1997, the
Partnership entered into new leases for the Properties in Portland and
Winchester, Indiana, with a new tenant to operate the Properties as Arby's
restaurants. In October 1997, the tenant of the Property in Palm Bay, Florida,
vacated the Property. In February 1998, the Partnership entered into a new lease
for this Property with a new tenant. The lease terms for these Properties are
substantially the same as the Partnership's other leases as described above in
the first three paragraphs of this section.
Major Tenants
During 1997, two lessees of the Partnership, Shoney's, Inc. and Tampa
Foods, L. P., each contributed more than ten percent of the Partnership's total
rental income (including the Partnership's share of the rental income from five
Properties owned by joint ventures and one Property owned with affiliates as
tenants-in-common). As of December 31, 1997, Shoney's, Inc. was the lessee under
leases relating to six restaurants and Tampa Foods, L. P. was the lessee under
leases relating to two restaurants. It is anticipated that, based on the minimum
rental payments required by the leases, Shoney's, Inc. will continue to
contribute more than ten percent of the Partnership's total rental income in
1998 and subsequent years. In addition, four Restaurant Chains, Shoney's,
Denny's, Wendy's Old Fashioned Hamburger Restaurants ("Wendy's") and Taco Bell,
each accounted for more than ten percent of the Partnership's total rental
income in 1997 (including the Partnership's share of the rental income from five
Properties owned by joint ventures and one Property owned with affiliates as
tenants-in-common). In subsequent years, it is anticipated that these four
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 the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income. No single tenant or group of affiliated tenants
lease Properties with an aggregate carrying value, excluding acquisition fees
and certain acquisition expenses, in excess of 20 percent of the total assets of
the Partnership.
Joint Venture Arrangements
The Partnership has entered into five separate joint venture
arrangements, Holland Joint Venture, Titusville Joint Venture, Cocoa Joint
Venture, Auburn Joint Venture and Kingsville Real Estate Joint Venture, to
purchase and hold five Properties through such joint ventures. The remaining
interests in these joint ventures are held by affiliates of the Partnership
which have the same general partners.
Each joint venture arrangement provides for the Partnership and its
joint venture partners to share in all costs and benefits associated with the
joint venture in accordance with their respective percentage interests in the
joint venture. The Partnership and its joint venture partners are also jointly
and severally liable for all debts, obligations and other liabilities of the
joint venture.
2
<PAGE>
Each joint venture has an initial term of approximately 20 to 30 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 of each joint venture equally
with affiliates of the General Partners. 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 its 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 Holland Joint Venture, Titusville
Joint Venture, Cocoa Joint Venture, Auburn Joint Venture and Kingsville Real
Estate Joint Venture is distributed 51.0%, 26.6%, 57.0%, 96.1% and 68.87%,
respectively, to the Partnership and the balance is distributed to each of the
other joint venture partners. 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 joint venture partner's percentage interest
in the joint venture.
In addition to the above joint venture agreements, in January 1996, the
Partnership entered into an agreement to hold a Golden Corral Property as
tenants-in-common with affiliates of the General Partners. The agreement
provides for the Partnership and the affiliates to share in the profits and
losses of the Property in proportion to each co-venturer's percentage interest.
The Partnership owns a 53.68% interest in this Property.
Certain Management Services
CNL Income Fund Advisors, Inc., an affiliate of the General Partners,
provided certain services relating to management of the Partnership and its
Properties pursuant to a management agreement with the Partnership through
September 30, 1995. Under this agreement, CNL Income Fund Advisors, Inc. was
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 Income Fund Advisors, Inc. also
assisted the General Partners in negotiating the leases. For these services, the
Partnership had agreed to pay CNL Income Fund Advisors, Inc. an annual fee equal
to one percent of the sum of gross rental revenues from Properties wholly owned
by the Partnership plus the Partnership's allocable share of gross revenues of
joint ventures in which the Partnership is a co-venturer, but not in excess of
competitive fees for comparable services. Under the management agreement, the
management fee is subordinated to receipt by the Limited Partners of an
aggregate, ten percent, cumulative, 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").
Effective October 1, 1995, CNL Income Fund Advisors, Inc. assigned its
rights in, and its obligations under, the management agreement with the
Partnership to CNL Fund Advisors, Inc. All of the terms and conditions of the
management agreement, including the payment of fees, as described above, remain
unchanged.
The management agreement continues until the Partnership no longer owns
an interest in any Properties unless terminated at an earlier date upon 60 days'
prior notice by either party.
Competition
The fast-food and family-style restaurant business is characterized by
intense competition. The restaurants on the Partnership's Properties compete
with independently owned restaurants, restaurants which are part of local or
regional chains, and restaurants in other well-known national chains, including
those offering different types of food and service.
3
<PAGE>
At the time the Partnership elects to dispose of its Properties, other
than as a result of the exercise of tenant options to purchase Properties, the
Partnership will be in competition with other persons and entities to locate
purchasers for its Properties.
Employees
The Partnership has no employees. The officers of CNL Realty
Corporation and the officers and employees of CNL Fund Advisors, Inc. perform
certain services for the Partnership. In addition, the General Partners have
available to them the resources and expertise of the officers and employees of
CNL Group, Inc., a diversified real estate company, and its affiliates, who may
also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1997, the Partnership owned, either directly or
through joint venture arrangements, 40 Properties located in 14 states and the
District of Columbia. Reference is made to the Schedule of Real Estate and
Accumulated Depreciation filed with this report for a listing of the Properties
and their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 14,100
to 98,800 square feet depending upon building size and local demographic
factors. Sites purchased by the Partnership are in locations zoned for
commercial use which have been reviewed for traffic patterns and volume.
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
building located on one Checkers Property is owned by the tenant, while the land
parcel is owned by the Partnership. The buildings generally are rectangular and
are constructed from various combinations of stucco, steel, wood, brick and
tile. The sizes of buildings owned by the Partnership range from approximately
800 to 6,800 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations.
Generally, a lessee is required, under the terms of its lease
agreement, to make such capital expenditures as may be reasonably necessary to
refurbish buildings, premises, signs and equipment so as to comply with the
lessee's obligations, if applicable, under the franchise agreement to reflect
the current commercial image of its Restaurant Chain. These capital expenditures
are required to be paid by the lessee during the term of the lease.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1997 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Tampa Foods, L.P. leases two Wendy's restaurants. The initial term of
each lease is 20 years (expiring in 2008) and average minimum base rent is
approximately $105,500 (ranging from approximately $98,600 to $112,500).
Shoney's, Inc. leases four Shoney's restaurants and two Captain D's
restaurants. The initial term of each lease is 20 years (expiring in 2008) and
average minimum base rent is approximately $65,100 (ranging from approximately
$41,000 to $81,300).
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
Item 3. Legal Proceedings
4
<PAGE>
Neither the Partnership, nor its General Partners or any affiliate of
the General Partners, nor any of their respective properties, is a party to, or
subject to, any material pending legal proceedings.
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
As of March 13, 1998, there were 2,917 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. Limited Partners who wish to sell
their Units may offer the Units for sale pursuant to the Partnership's
distribution reinvestment plan (the "Plan"), and Limited Partners who wish to
have their distributions used to acquire additional Units (to the extent Units
are available for purchase), may do so pursuant to such Plan. The General
Partners have the right to prohibit transfer of Units. The price paid for any
Unit transferred pursuant to the Plan has been $475 per Unit. The price to be
paid for any Unit transferred other than pursuant to the Plan is 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 1997 and 1996 other than
pursuant to the Plan, net of commissions.
<TABLE>
<CAPTION>
1997 (1) 1996 (1)
---------------------------------- ----------------------
<S> <C>
High Low Average High Low Average
First Quarter $500 $425 $467 $475 $385 $432
Second Quarter 500 410 461 500 380 467
Third Quarter 465 420 437 420 387 400
Fourth Quarter 475 450 470 500 397 464
</TABLE>
(1) A total of 647 and 845 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1997 and 1996, respectively.
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 each of the years ended December 31, 1997 and 1996, the Partnership
declared cash distributions of $2,760,000 to the Limited Partners. Distributions
of $690,000 were declared at the close of each of the Partnership's calendar
quarters during 1997 and 1996 to the Limited Partners. The General Partners
expect to distribute some or all of the net sales proceeds from the sale of the
Property in Fort Myers, Florida, to the Limited Partners. 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. The
reduced number of Properties for which the Partnership receives rental payments,
as well as ongoing operations, is expected to reduce the Partnership's revenues.
The decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, is expected to result
in a decrease in cash distributions to the Limited Partners during 1998. No
amounts distributed to partners for the years ended December 31, 1997 and 1996,
are required to be or have been treated by the Partnership as a return of
capital for purposes of calculating the Limited Partners' return on their
adjusted capital contributions. No distributions have been made to the General
Partners to date.
5
<PAGE>
The Partnership intends to continue to make distributions of cash
available for distribution to the Limited Partners on a quarterly basis,
although the General Partners, in their sole discretion, may elect to pay
distributions monthly.
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1997 1996 1995 1994 1993
------------ ------------ ------------ ------------ --------
<S> <C>
Year ended December 31:
Revenues (1) $ 2,531,385 $ 2,820,295 $ 2,871,572 $ 2,865,770 $ 2,933,727
Net income (2) 1,720,668 2,347,167 2,210,339 2,310,524 2,263,745
Cash distributions
declared 2,760,000 2,760,000 2,760,000 2,760,000 2,760,000
Net income per Unit (2) 28.42 38.75 36.48 38.13 37.35
Cash distributions
declared per Unit 46.00 46.00 46.00 46.00 46.00
At December 31:
Total assets $23,309,888 $23,730,892 $24,057,829 $24,598,179 $25,195,579
Partners' capital 22,152,299 22,897,631 23,288,164 23,837,825 24,287,301
</TABLE>
(1) Revenues include equity in earnings of joint ventures.
(2) Net income for the year ended December 31,1997, includes $6,652 from a
loss on the sale of land and $70,337 for a provision for loss on land
and building. Net income for the years ended December 31, 1996, 1995
and 1994, includes $221,390, $128,547 and $128,592, respectively, from
gains on the sale of land and buildings.
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 18, 1987, 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 and family-style
Restaurant Chains. Substantially all of the leases are triple-net leases, with
the lessees generally responsible for all repairs and maintenance, property
taxes, insurance and utilities. As of December 31, 1997, the Partnership owned
40 Properties, either directly or indirectly through joint venture arrangements.
Liquidity and Capital Resources
The Partnership's primary source of capital for the years ended
December 31, 1997, 1996 and 1995, was cash from operations (which includes cash
received from tenants, distributions from joint ventures and interest received,
less cash paid for expenses). Cash from operations was $2,417,972, $2,713,964
and $2,670,393 for the years ended December 31, 1997, 1996 and 1995,
respectively. The decrease in cash from operations for 1997, as compared to
1996, and the increase in cash from operations for 1996, as compared to 1995, is
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital. Cash from
operations during the years ended December 31, 1997, 1996 and 1995, was also
affected by the following:
In October 1992, the Partnership accepted a promissory note from the
former tenant of the Property in Maywood, Illinois, for $175,000 for amounts due
relating to past due rents and real estate taxes and other expenses
6
<PAGE>
the Partnership had incurred as a result of the former tenant's having defaulted
under the terms of the lease. The note was non-interest bearing and was payable
in 36 monthly installments of $2,500 through September 1995, and thereafter in
eight monthly installments of $10,000, with the balance due and payable on
February 20, 1996. The Partnership discounted the note to a principal balance of
$138,094 using an interest rate of ten percent. During 1995, the former tenant
defaulted under the terms of the note. Because of the financial difficulties
that the former tenant was experiencing, the Partnership established an
allowance for doubtful accounts for the full amount of unpaid principal and
interest of $111,031 relating to this note; therefore, no amounts were included
in receivables at December 31, 1996. During 1997, the Partnership ceased
collection efforts for this note and wrote off the related allowance for
doubtful accounts.
Other sources and uses of capital included the following during the
years ended December 31, 1997, 1996 and 1995.
In December 1995, the Partnership sold its Property in Hastings,
Michigan, for $520,000 and received net sales proceeds of $518,650, resulting in
a gain of $128,547 for financial reporting purposes. This Property was
originally acquired by the Partnership in August 1988 and had a cost of
approximately $419,600, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately $99,100
in excess of its original purchase price.
In January 1996, the Partnership reinvested the net sales proceeds it
received from the 1995 sale of the Property in Hastings, Michigan, along with
additional funds, in a Golden Corral Property located in Clinton, North
Carolina, with affiliates of the General Partners as tenants-in-common. In
connection therewith, the Partnership and its affiliates entered into an
agreement whereby each co-venturer will share in the profits and losses of the
Property in proportion to its applicable percentage interest. As of December 31,
1997, the Partnership owned a 53.68% interest in this Property.
In September 1996, the Partnership sold its Property in Tampa, Florida,
for $1,090,000 and received net sales proceeds of $1,049,550, resulting in a
gain of $221,390 for financial reporting purposes. This Property was originally
acquired by the Partnership in December 1988 and had a cost of approximately
$832,800, excluding acquisition fees and miscellaneous acquisition expenses;
therefore, the Partnership sold the Property for approximately $216,800 in
excess of its original purchase price. In December 1996, the Partnership
reinvested the majority of the net sales proceeds in a Boston Market Property,
located in Richmond, Virginia. The remaining net sales proceeds will be used to
meet other working capital needs of the Partnership.
In June 1997, the Partnership terminated the leases with the tenant of
the Properties in Portland and Winchester, Indiana. In connection therewith, the
Partnership accepted a promissory note from the former tenant for $32,343 for
amounts relating to past due real estate taxes the Partnership had accrued as a
result of the former tenant's financial difficulties. The promissory note, which
is uncollateralized, bears interest at a rate of ten percent per annum, and is
being collected in 36 monthly installments. Receivables at December 31, 1997
include $7,106 of such amounts.
In July 1997, the Partnership entered into new leases for the
Properties in Portland and Winchester, Indiana, with a new tenant to operate the
Properties as Arby's restaurants. In connection therewith, the Partnership
agreed to fund up to $125,000 in renovation costs for each Property. As of
December 31, 1997, such renovations had been completed.
In November 1997, the Partnership sold its Property in Douglasville,
Georgia to a third party for $402,000 and received net sales proceeds of
$378,149 (net of $2,546 which represents amounts due to the former tenant for
prorated rent). This Property was originally acquired by the Partnership in
December 1994 and had a cost of approximately $363,800, excluding acquisition
fees and miscellaneous acquisition expenses; therefore, the Partnership sold the
Property for approximately $16,900 in excess of its original purchase price. Due
to the fact that the Partnership had recognized accrued rental income since the
inception of the lease relating to the straight-lining of future scheduled rent
increases in accordance with generally accepted accounting principles, the
Partnership wrote off the cumulative balance of such accrued rental income at
the time of the sale of this Property, resulting in a loss of $6,652 for
financial reporting purposes. Due to the fact that the straight-lining of future
rent increases over the term of the lease is a non-cash accounting adjustment,
the write off of these amounts is a loss for financial statement
7
<PAGE>
purposes only. The net sales proceeds will be used to pay liabilities of the
Partnership, including quarterly distributions to the Limited Partners, and to
fund the renovation costs described above. The Partnership anticipates that it
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.
In March 1998, the Partnership sold its Property in Fort Myers,
Florida, to an unrelated third party, for $842,100 and received net sales
proceeds of $794,690, resulting in a gain of approximately $251,100 for
financial reporting purposes. The Partnership intends to distribute some or all
of the net sales proceeds to the Limited Partners. The remaining net sales
proceeds, if any, will be used for other Partnership purposes.
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. During the years ended December 31, 1997 and
1996, the Partnership received $294,000 and $22,300, respectively, in capital
contributions from the corporate General Partner in connection with the
operations of the Partnership. No such contributions were received during the
year ended December 31, 1995.
None of the Properties owned by the Partnership or the joint ventures
in which the Partnership owns an interest is or may be encumbered. Under its
Partnership Agreement, the Partnership is prohibited from borrowing for any
purpose; provided, however, that the General Partners or their affiliates are
entitled to reimbursement, at cost, for actual expenses incurred by the General
Partners or their affiliates on behalf of the Partnership. Affiliates of the
General Partners from time to time incur certain operating expenses on behalf of
the Partnership for which the Partnership reimburses the affiliates without
interest.
Currently, rental income from the Partnership's Properties is invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At December 31, 1997, the Partnership had
$876,452 invested in such short-term investments, as compared to $554,593 at
December 31, 1996. The increase in the amount invested in short-term investments
is primarily a result of the receipt of net sales proceeds from the sale of the
Property in Douglasville, Georgia, during 1997. The funds remaining at December
31, 1997, will be used for the payment of distributions and other liabilities,
as described above.
During 1997, 1996 and 1995, affiliates of the General Partners,
incurred on behalf of the Partnership $85,702, $114,409 and $101,876,
respectively, for certain operating expenses. As of December 31, 1997 and 1996,
the Partnership owed $88,854 and $67,153, respectively, to affiliates for such
amounts and accounting and administrative services. Amounts payable to other
parties, including distributions payable, increased to $1,068,735 at December
31, 1997, from $766,108 at December 31, 1996. The increase in liabilities at
December 31, 1997, is primarily the result of the Partnership accruing
renovation costs during 1997 for the Properties in Portland and Winchester,
Indiana, in connection with the new leases entered into in July 1997. In
addition, the increase in liabilities is due to the Partnership accruing current
real estate taxes for its Property in Palm Bay, Florida, during 1997, due to the
fact that the tenant vacated the Property in October 1997. In addition, the
increase in liabilities is due to an increase in rents paid in advance at
December 31, 1997. Total liabilities at December 31, 1997, to the extent they
exceed cash and cash equivalents at December 31, 1997, will be paid from future
cash from operations and, in the event the General Partners elect to make
additional contributions, from future General Partner contributions.
Based primarily on current and anticipated future cash from operations,
and for the years ended December 31, 1997 and 1996, additional capital
contributions received from the General Partners, the Partnership declared
distributions to the Limited Partners of $2,760,000 for each of the years ended
December 31, 1997, 1996 and 1995. This represents distributions of $46 per Unit
for each of the years ended December 31, 1997, 1996 and 1995. The General
Partners expect to distribute some or all of the net sales proceeds from the
sale of the Property in Fort Myers, Florida, to the Limited Partners. 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. The reduced number of Properties for which the Partnership
receives rental payments, as well as ongoing operations, is expected to reduce
the Partnership's revenues. The decrease in Partnership revenues, combined with
the fact that a significant portion of the Partnership's expenses are fixed in
nature, is expected to result in a decrease in cash distributions to the Limited
Partners during 1998. No amounts distributed or to be distributed to the Limited
Partners for the years
8
<PAGE>
ended December 31, 1997, 1996 and 1995, are required to be or have been treated
by the Partnership as a return of capital for purposes of calculating the
Limited Partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available for
distribution to the Limited Partners on a quarterly basis.
The General Partners believe that the Properties are adequately covered
by insurance. In addition, the General Partners have obtained contingent
liability and property coverage for the Partnership. This insurance is intended
to reduce the Partnership's exposure in the unlikely event a tenant's insurance
policy lapses or is insufficient to cover a claim relating to the Property.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The General Partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
Due to low operating expenses and ongoing cash flow, the General
Partners do not believe that working capital reserves are necessary at this
time. In addition, because the leases for the Partnership's Properties are
generally on a triple-net basis, it is not anticipated that a permanent reserve
for maintenance and repairs will be established at this time. To the extent,
however, that the Partnership has insufficient funds for such purposes, the
General Partners will contribute to the Partnership an aggregate amount of up to
one percent of the offering proceeds for maintenance and repairs.
Results of Operations
During 1995, the Partnership owned and leased 36 wholly owned
Properties (including one Property in Hastings, Michigan, which was sold in
December 1995), during 1996, the Partnership owned and leased 36 wholly owned
Properties (including one Property in Tampa, Florida, which was sold in
September 1996) and during 1997, the Partnership owned and leased 35 wholly
owned Properties (including one Property in Douglasville, Georgia, which was
sold in November 1997). In addition, during 1997, 1996 and 1995, the Partnership
was a co-venturer in five separate joint ventures that each owned and leased one
Property. During 1997 and 1996, the Partnership also owned and leased one
Property with affiliates as tenants-in-common. As of December 31, 1997, the
Partnership owned, either directly or through joint venture arrangements, 40
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 $18,100 to $135,800. Generally, the leases
provide for percentage rent based on sales in excess of a specified amount to be
paid annually. In addition, some of the leases provide that, commencing in the
sixth lease year the percentage rent will be an amount equal to the greater of
the percentage rent calculated under the lease formula or a specified percentage
(ranging from one-half to two percent) of the purchase price. 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, 1997, 1996 and 1995, the
Partnership earned $2,189,386, $2,397,691 and $2,510,406, respectively, in
rental income from operating leases and earned income from direct financing
leases from its wholly owned Properties described above. Rental and earned
income decreased during 1997, as compared to 1996, as a result of the
Partnership establishing an allowance for doubtful accounts totalling
approximately $128,200 during 1997, for rental amounts relating to the Property
located in Palm Bay, Florida, due to financial difficulties the tenant was
experiencing. The tenant vacated the Property in October 1997. The Partnership
has negotiated a settlement agreement with the former tenant's guarantor to
collect some of the amounts due to the Partnership from the former tenant. The
Partnership will recognize such amounts as income if collected. In February
1998, the Partnership entered into a new lease with a new tenant for this
Property.
In addition, rental and earned income decreased approximately $76,300
and $29,300 during the years ended 1997 and 1996, respectively, as a result of
the sale of the Property in Tampa, Florida, in September 1996. The decrease in
rental income for 1997 is partially offset by an increase of approximately
$118,300 in rental income attributable to the reinvestment of the net sales
proceeds in a Property in Richmond, Virginia, in December 1996.
In addition, the decrease in rental and earned income during 1997 and
1996, each as compared to the previous year, is partially attributable to the
Partnership increasing its allowance for doubtful accounts by
9
<PAGE>
approximately $57,000 and $28,500, respectively, for rental income amounts
relating to the Hardee's Properties located in Portland and Winchester, Indiana,
which are leased by the same tenant, due to financial difficulties the tenant
was experiencing. Rental and earned income also decreased by approximately
$86,200 during 1997 due to the fact that the Partnership terminated the lease
with the former tenant of the Properties in Portland and Winchester, Indiana, in
June 1997, as described above in "Liquidity and Capital Resources." The General
Partners have agreed that they will cease collection efforts on past due rental
amounts once the former tenant of these Properties pays all amounts due under
the promissory note for past due real estate taxes described above in "Liquidity
and Capital Resources." The decrease in rental and earned income for 1997, as
compared to 1996, was slightly offset by an increase of approximately $20,200 in
rental income from the new tenant of this Property who began operating the
Property after it was renovated into an Arby's Property.
The decrease in rental and earned income during 1996, as compared to
1995, is primarily attributable to a decrease of approximately $53,100 as a
result of the sale of the Property in Hastings, Michigan, in December 1995.
For the years ended December 31, 1997, 1996 and 1995, the Partnership
earned $117,031, $97,318 and $94,101, respectively, in contingent rental income
from the Partnership's wholly owned Properties. The increase in contingent
rental income in 1997, as compared to 1996, is primarily attributable to an
increase in gross sales for certain restaurant Properties whose leases require
the payment of contingent rental income.
In addition, for the years ended December 31, 1997, 1996 and 1995, the
Partnership earned $189,747, $277,431 and $245,778, respectively, attributable
to net income earned by joint ventures in which the Partnership is a
co-venturer. The decrease in net income earned by these joint ventures during
1997, as compared to 1996, is partially attributable to the fact that, during
July 1997, the operator of the Property owned by Titusville Joint Venture
vacated the Property and ceased operations. In conjunction therewith, Titusville
Joint Venture (in which the Partnership owns a 26.6% interest in the profits and
losses of the joint venture) established an allowance for doubtful accounts of
approximately $27,000 during 1997. No such allowance was established during
1996. In addition, the joint venture recorded real estate tax expense of
approximately $16,600 during 1997. No such real estate taxes were incurred
during 1996. The joint venture intends to pursue collection of these amounts
from the former tenant and will recognize such amounts as income if collected.
In addition, during 1997, the joint venture established an allowance for loss on
land and building for its Property in Titusville, Florida, for approximately
$147,000. The allowance represents the difference between the Property's
carrying value at December 31, 1997, and the property manager's estimate of the
net realizable value of the Property. In addition, the joint venture wrote off
unamortized lease costs of $23,500 in 1997 due to the tenant vacating the
Property. Titusville Joint Venture is currently seeking either a replacement
tenant or purchaser for this Property.
Net income earned by joint ventures also decreased during 1997, as
compared to 1996, due to the Property in Clinton, North Carolina, held as
tenants-in-common, adjusting estimated contingent rental amounts accrued at
December 31, 1996, to actual amounts during the year ended December 31, 1997.
The increase in net income earned by joint ventures during 1996, as compared to
1995, is primarily attributable to the fact that in January 1996, the
Partnership reinvested the net sales proceeds it received from the sale in
December 1995 of the Property in Hastings, Michigan, along with additional
funds, in a Golden Corral Property in Clinton, North Carolina, with affiliates
as tenants-in-common, as described above in "Liquidity and Capital Resources."
During the years ended December 31, 1997, 1996 and 1995 two of the
Partnership's lessees, Shoney's, Inc. and Tampa Foods, L.P., each contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of the rental income from five Properties owned by joint
ventures and one Property owned with affiliates as tenant-in-common). As of
December 31, 1997, Shoney's, Inc. was the lessee under leases relating to six
restaurants and Tampa Foods L.P. was the lessee under leases relating to two
restaurants. It is anticipated that, based on the minimum rental payments
required by the leases, Shoney's, Inc. will continue to contribute more than ten
percent of the Partnership's total rental income during 1998 and subsequent
years. In addition, three Restaurant Chains, Shoney's, Denny's and Wendy's Old
Fashioned Hamburger Restaurants, each accounted for more than ten percent of the
Partnership's total rental income in 1997, 1996 and 1995 (including the
Partnership's share of the rental income from five Properties owned by joint
ventures and one Property owned with affiliates as tenants-in-common). During
the year ended December 31, 1997, another of the Partnership's restaurant
chains, Taco Bell, accounted for more than ten percent of total rental income.
In subsequent years, it is anticipated that these four Restaurant Chains each
will continue to account for more than ten percent of the total rental income to
which the
10
<PAGE>
Partnership is entitled under the terms of the leases. Any failure of these
lessees or Restaurant Chains could materially affect the Partnership's income.
Operating expenses, including depreciation and amortization expense,
were $733,728, $694,518 and $789,780 for the years ended December 31, 1997, 1996
and 1995, respectively. The increase in operating expenses for 1997, as compared
to 1996, was partially due to the fact that during 1997, the Partnership
expensed approximately $25,400 in current and past due real estate taxes for the
Property in Palm Bay, Florida due to the tenant vacating the Property in October
1997. The Property was re-leased and the new tenant is responsible for these
expenses beginning in December 1997. In addition, the increase in operating
expenses during 1997 was partially due to the fact that the Partnership recorded
bad debt expense of $12,794 during 1997, relating to the Properties located in
Portland and Winchester, Indiana, for past due rental income amounts. The
Partnership does not intend to continue to pursue the collection of such amounts
unless the former tenant defaults under the promissory note, as described above
in "Liquidity and Capital Resources."
The decrease in operating expenses in 1996, as compared to 1995, is
primarily a result of the fact that the Partnership's former tenant of the
Property in Maywood, Illinois, defaulted under the terms of its promissory note
with the Partnership, as described above in "Liquidity and Capital Resources,"
and the Partnership recorded bad debt expense of $102,431 relating to this
Property during 1995. The decrease in operating expenses during 1996, as
compared to 1995, was partially offset by an increase in accounting and
administrative expenses associated with operating the Partnership and its
Properties and an increase in insurance expense as a result of the General
Partners' obtaining contingent liability and property coverage for the
Partnership beginning in May 1995.
As the result of the former tenant of the Maywood Property defaulting
under the terms of its lease, the Partnership re-leased this Property during
1993, to two new operators subject to two separate leases. In connection with
one of the two new leases for the Property in Maywood, Illinois, the Partnership
is responsible for the proportionate share of real estate taxes and insurance
expense. In addition, during 1997, 1996 and 1995, the Partnership paid for a
portion of the real estate taxes that are the responsibility of the other tenant
of the Maywood Property, due to a shortage of amounts collected from the tenant
for the payment of their proportionate share of real estate taxes. In addition,
as a result of the former tenant of the Property in Leesburg, Florida,
defaulting under the terms of its lease, the Partnership incurred certain
expenses, such as real estate taxes, insurance and maintenance expense relating
to this Property during 1997, 1996 and 1995. The Partnership is currently
seeking a replacement tenant for the Property in Leesburg, Florida, and expects
to incur these expenses until such time as a new lease is executed for this
Property.
As a result of the sale of the Property in Douglasville, Georgia, in
November 1997, the Partnership recognized a loss for financial reporting
purposes of $6,652 for the year ended December 31, 1997. In addition, as a
result of the sale of the Property in Tampa, Florida, in September 1996 and the
sale of the Property in Hastings, Michigan, in December 1995, the Partnership
recognized gains for financial reporting purposes of $221,390 and $128,547, for
the years ended December 31, 1996 and 1995, respectively.
During 1997, the Partnership established an allowance for loss on land
and building in the amount of $70,337 for financial reporting purposes for the
Property in Leesburg, Florida. The allowance represents the difference between
the Property's carrying value at December 31, 1997, and the estimated net
realizable value for this Property based on an anticipated sales price.
The General Partners of the Partnership are in the process of assessing
and addressing the impact of the year 2000 on their computer package software.
The hardware and built-in software are believed to be year 2000 compliant.
Accordingly, the General Partners do not expect this matter to materially impact
how the Partnership conducts business nor its current or future results of
operations or financial position.
The Partnership's leases as of December 31, 1997, 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 over time. Continued inflation also may cause capital
appreciation of the Partnership's Properties. Inflation and changing prices,
however,
11
<PAGE>
also may have an adverse impact on the sales of the restaurants and on potential
capital appreciation of the Properties.
Item 8. Financial Statements and Supplementary Data
12
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONTENTS
Page
Report of Independent Accountants 14
Financial Statements:
Balance Sheets 15
Statements of Income 16
Statements of Partners' Capital 17
Statements of Cash Flows 18
Notes to Financial Statements 20
13
<PAGE>
Report of Independent Accountants
To the Partners
CNL Income Fund IV, Ltd.
We have audited the financial statements and financial statement schedules of
CNL Income Fund IV, Ltd. (a Florida limited partnership) listed in Item 14(a) of
this Form 10-K. These financial statements and financial statement schedules are
the responsibility of the Partnership's management. Our responsibility is to
express an opinion on these financial statements and financial statement
schedules based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audit to obtain
reasonable assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements. An audit also includes
assessing the accounting principles used and significant estimates made by
management, as well as evaluating the overall financial statement presentation.
We believe that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the financial position of CNL Income Fund IV, Ltd. as of
December 31, 1997 and 1996, and the results of its operations and its cash flows
for each of the three years in the period ended December 31, 1997 in conformity
with generally accepted accounting principles. In addition, in our opinion, the
financial statement schedules referred to above, when considered in relation to
the basic financial statements taken as a whole, present fairly, in all material
respects, the information required to be included therein.
/s/ Coopers & Lybrand, L.L.P.
- ----------------------------------
Orlando, Florida
January 26, 1998
14
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
December 31,
ASSETS 1997 1996
------ ----------- ----------
Land and buildings on operating
leases, less accumulated
depreciation and allowance
for loss on land and building $18,097,997 $18,737,516
Net investment in direct
financing leases 1,269,389 1,303,604
Investment in joint ventures 2,708,012 2,783,738
Cash and cash equivalents 876,452 554,593
Receivables, less allowance for
doubtful accounts of $295,580
and $156,933 37,669 62,561
Prepaid expenses 11,115 10,935
Lease costs, less accumulated
amortization of $17,956 and
$15,458 21,588 8,486
Accrued rental income 287,466 269,359
Other assets 200 100
----------- -----------
$23,309,888 $23,730,892
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 8,576 $ 10,831
Accrued construction costs
payable 250,000 -
Accrued and escrowed real
estate taxes payable 65,176 32,729
Distributions payable 690,000 690,000
Due to related parties 93,854 67,153
Rents paid in advance and
deposits 49,983 32,548
----------- -----------
Total liabilities 1,157,589 833,261
Partners' capital 22,152,299 22,897,631
----------- -----------
$23,309,888 $23,730,892
=========== ===========
See accompanying notes to financial statements.
15
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
---------- ---------- -------
<S> <C>
Revenues:
Rental income from operating
leases $2,058,703 $2,263,677 $2,373,386
Earned income from direct
financing leases 130,683 134,014 137,020
Contingent rental income 117,031 97,318 94,101
Interest and other income 35,221 47,855 21,287
---------- ---------- ----------
2,341,638 2,542,864 2,625,794
---------- ---------- ----------
Expenses:
General operating and
administrative 149,808 161,714 140,374
Professional services 33,439 29,289 31,287
Bad debt expense 12,794 - 102,431
Real estate taxes 65,316 37,589 37,745
State and other taxes 16,476 21,694 19,006
Depreciation and amortization 455,895 444,232 458,937
---------- ---------- ----------
733,728 694,518 789,780
---------- ---------- ----------
Income Before Equity in Earnings
of Joint Ventures, Gain (Loss)
on Sale of Land and Buildings
and Provision for Loss on Land
and Building 1,607,910 1,848,346 1,836,014
Equity in Earnings of Joint
Ventures 189,747 277,431 245,778
Gain (Loss) on Sale of Land and
Buildings (6,652) 221,390 128,547
Provision for Loss on Land and
Building (70,337) - -
---------- ---------- ---------
Net Income $1,720,668 $2,347,167 $2,210,339
========== ========== ==========
Allocation of Net Income:
General partners $ 15,697 $ 22,219 $ 21,590
Limited partners 1,704,971 2,324,948 2,188,749
---------- ---------- ----------
$1,720,668 $2,347,167 $2,210,339
========== ========== ==========
Net Income Per Limited Partner
Unit $ 28.42 $ 38.75 $ 36.48
========== ========== ==========
Weighted Average Number of
Limited Partner Units
Outstanding 60,000 60,000 60,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
16
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
General Partners Limited Partners
Accumu- Accumu-
Contri- lated Contri- Distri- lated Syndication
butions Earnings butions butions Earnings Costs Total
-------- -------- ----------- ------------ ----------- ----------- --------
<S> <C>
Balance, December 31, 1994 $241,504 $139,044 $30,000,000 $(16,927,963) $13,825,240 $(3,440,000) $23,837,825
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,760,000) - - (2,760,000)
Net income - 21,590 - - 2,188,749 - 2,210,339
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1995 241,504 160,634 30,000,000 (19,687,963) 16,013,989 (3,440,000) 23,288,164
Contributions from
general partners 22,300 - - - - - 22,300
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,760,000) - - (2,760,000)
Net income - 22,219 - - 2,324,948 - 2,347,167
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1996 263,804 182,853 30,000,000 (22,447,963) 18,338,937 (3,440,000) 22,897,631
Contributions from
general partners 294,000 - - - - - 294,000
Distributions to limited
partners ($46 per
limited partner unit) - - - (2,760,000) - - (2,760,000)
Net income - 15,697 - - 1,704,971 - 1,720,668
-------- -------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1997 $557,804 $198,550 $30,000,000 $(25,207,963) $20,043,908 $(3,440,000) $22,152,299
======== ======== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
17
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Increase (Decrease) in Cash and
Cash Equivalents:
Cash Flows from Operating
Activities:
Cash received from tenants $ 2,345,612 $ 2,588,248 $ 2,586,716
Distributions from joint
ventures 265,473 305,866 271,006
Cash paid for expenses (211,213) (206,059) (205,759)
Interest received 18,100 25,909 18,430
----------- ----------- -----------
Net cash provided by
operating activities 2,417,972 2,713,964 2,670,393
----------- ----------- -----------
Cash Flows from Investing
Activities:
Proceeds from sale of
land and building 378,149 1,049,550 518,650
Additions to land and
buildings on operating
leases - (1,035,516) (1,628)
Investment in joint venture - (437,489) -
Decrease (increase) in
restricted cash - 518,150 (518,150)
Payment of lease costs (17,384) (2,230) (1,800)
Other 9,122 - -
----------- ----------- ----------
Net cash provided by
(used in) investing
activities 369,887 92,465 (2,928)
----------- ----------- -----------
Cash Flows from Financing
Activities:
Reimbursement of acqui-
sition costs paid by
related parties on
behalf of the Partner-
ship - - (1,175)
Contributions from General
Partners 294,000 22,300 -
Distributions to limited
partners (2,760,000) (2,760,000) (2,760,000)
----------- ----------- -----------
Net cash used in
financing activities (2,466,000) (2,737,700) (2,761,175)
----------- ----------- -----------
Net Increase (Decrease) in Cash
and Cash Equivalents 321,859 68,729 (93,710)
Cash and Cash Equivalents at
Beginning of Year 554,593 485,864 579,574
----------- ----------- -----------
Cash and Cash Equivalents at End
of Year $ 876,452 $ 554,593 $ 485,864
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
18
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
<TABLE>
<CAPTION>
Year Ended December 31,
1997 1996 1995
----------- ----------- -------
<S> <C>
Reconciliation of Net Income to
Net Cash Provided by Operating
Activities:
Net income $ 1,720,668 $ 2,347,167 $ 2,210,339
----------- ----------- -----------
Adjustments to reconcile net
income to net cash provided
by operating activities:
Depreciation 453,397 442,065 455,543
Amortization 2,498 2,167 3,394
Equity in earnings of
joint ventures, net
of distributions 75,726 28,435 25,228
Loss (gain) on sale of
land and buildings 6,652 (221,390) (128,547)
Provision for loss on
land and building 70,337 - -
Decrease in receivables 18,216 41,531 93,451
Increase in prepaid
expenses (180) (1,202) (1,747)
Decrease in net invest-
ment in direct finan-
cing leases 34,215 30,885 27,879
Increase in accrued rental
income (39,669) (21,520) (22,921)
Increase (decrease) in
accounts payable and
accrued expenses 31,976 11,162 (3,532)
Increase in due to related
parties 26,701 39,987 27,166
Increase (decrease) in
rents paid in advance
and deposits 17,435 14,677 (15,860)
----------- ----------- -----------
Total adjustments 697,304 366,797 460,054
----------- ----------- -----------
Net Cash Provided by Operating
Activities $ 2,417,972 $ 2,713,964 $ 2,670,393
=========== =========== ===========
Supplemental Schedule of Non-Cash
Financing Activities:
Distributions declared
and unpaid at December 31 $ 690,000 $ 690,000 $ 690,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies:
Organization and Nature of Business - CNL Income Fund IV, 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 and family-style 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 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 either the direct financing or the operating methods. Such
methods are described below:
Direct financing method - The leases accounted for using the
direct financing method are recorded at their net investment
(which at the inception of the lease generally represents the
cost of the asset) (Note 4). Unearned income is deferred and
amortized to income over the lease terms so as to produce a
constant periodic rate of return on the Partnership's net
investment in the leases.
Operating method - Land and building leases accounted for
using the operating method 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.
20
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
Accrued rental income represents the aggregate amount of
income recognized on a straight-line basis in excess of
scheduled rental payments to date.
When the properties are sold, the related cost and accumulated
depreciation for operating leases and the net investment for direct
financing leases, plus any accrued rental income, are removed from the
accounts and gains or losses from sales are reflected in income. The
general partners of the Partnership review properties for impairment
whenever events or changes in circumstances indicate that the carrying
amount of the assets may not be recoverable through operations. The
general partners determine whether an impairment in value has occurred
by comparing the estimated future undiscounted cash flows, including
the residual value of the property, with the carrying cost of the
individual property. If an impairment is indicated, 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
reasonably possible that changes could occur in the near term which
could adversely affect the general partners' 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 allowance for
doubtful accounts are decreased accordingly.
Investment in Joint Ventures - The Partnership's investments in Holland
Joint Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn
Joint Venture, Kingsville Real Estate Joint Venture and a property in
Clinton, North Carolina, held as tenants-in-common, are accounted for
using the equity method since the Partnership shares control with
affiliates which have the same general partners.
21
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
1. Significant Accounting Policies - Continued:
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 - Brokerage fees associated with negotiating new leases are
amortized over the terms of the new leases using the straight-line
method.
Income Taxes - Under Section 701 of the Internal Revenue Code, all
income, expenses and tax credit items flow through to the partners for
tax purposes. Therefore, no provision for federal income taxes is
provided in the accompanying financial statements. The Partnership is
subject to certain state taxes on its income and property.
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.
22
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
2. Leases:
The Partnership leases its land or land and buildings primarily to
operators of national and regional fast-food and family-style
restaurants. The leases are accounted for under the provisions of
Statement of Financial Accounting Standards No. 13, "Accounting for
Leases." The leases generally are classified as operating leases;
however, some leases have been classified as direct financing leases.
For the leases classified as direct financing leases, the building
portions of the property leases are accounted for as direct financing
leases while the land portion of one of these leases is an operating
lease. 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 four
successive five-year periods subject to the same terms and conditions
as the initial lease. Most leases also allow the tenant to purchase the
property at fair market value after a specified portion of the lease
has elapsed.
3. Land and Buildings on Operating Leases:
Land and buildings on operating leases consisted of the following at
December 31:
1997 1996
----------- -------
Land $ 8,328,572 $ 8,694,357
Buildings 13,684,194 13,434,194
----------- -----------
22,012,766 22,128,551
Less accumulated
depreciation (3,844,432) (3,391,035)
----------- -----------
18,168,334 18,737,516
Less allowance for
loss on land and
building (70,337) -
----------- ----------
$18,097,997 $18,737,516
=========== ===========
23
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
In September 1996, the Partnership sold its Property in Tampa, Florida,
for 1,090,000 and received net sales proceeds of $1,049,550, resulting
in a gain of $221,390 for financial reporting purposes. This Property
was originally acquired by the Partnership in December 1988 and had a
cost of approximately $832,800, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
Property for approximately $216,800 in excess of its original purchase
price. In December 1996, the Partnership reinvested approximately
$1,026,200 in a Boston Market property located in Richmond, Virginia.
In July 1997, the Partnership entered into new leases for the
properties in Portland and Winchester, Indiana, with a new tenant to
operate the properties as Arby's restaurants. In connection therewith,
the Partnership incurred $125,000 in renovation costs for each
property.
In November 1997, the Partnership sold its property in Douglasville,
Georgia to an unrelated third party for $402,000 and received net sales
proceeds of $378,149 (net of $2,546 which represents amounts due to the
former tenant for prorated rent). This property was originally acquired
by the Partnership in December 1994 and had a cost of approximately
$363,800, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the property for
approximately $16,900 in excess of its original purchase price. Due to
the fact that the Partnership had recognized accrued rental income
since the inception of the lease relating to the straight-lining of
future scheduled rent increases in accordance with generally accepted
accounting principles, the Partnership wrote off the cumulative balance
of such accrued rental income at the time of the sale of this property,
resulting in a loss of $6,652 for financial reporting purposes. Due to
the fact that the straight-lining of future rent increases over the
term of the lease is a non-cash accounting adjustment, the write off of
these amounts is a loss for financial statement purposes only.
At December 31, 1997, the Partnership established an allowance for loss
on land and building in the amount of $70,337 for financial reporting
purposes for the property in Leesburg, Florida. The allowance
represents the difference between the property's carrying value at
December 31, 1997 and the estimated net realizable value of this
property based on an anticipated sales price.
24
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
3. Land and Buildings on Operating Leases - Continued:
Some 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, 1997, 1996 and 1995, the Partnership
recognized $39,669, $21,520 and $22,921, respectively, of such rental
income.
The following is a schedule of the future minimum lease payments to be
received on noncancellable operating leases at December 31, 1997:
1998 $ 1,996,330
1999 2,007,362
2000 2,009,453
2001 1,979,003
2002 1,983,101
Thereafter 12,867,319
-----------
$22,842,568
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. Net Investment in Direct Financing Leases:
The following lists the components of the net investment in direct
financing leases at December 31:
1997 1996
----------- -----------
Minimum lease payments
receivable $ 1,825,690 $ 1,990,589
Estimated residual values 527,829 527,829
Less unearned income (1,084,130) (1,214,814)
----------- -----------
Net investment in direct
financing leases $ 1,269,389 $ 1,303,604
=========== ===========
25
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
4. Net Investment in Direct Financing Leases - Continued:
The following is a schedule of future minimum lease payments to be
received on direct financing leases at December 31, 1997:
1998 $ 164,899
1999 164,899
2000 164,899
2001 164,899
2002 164,899
Thereafter 1,001,195
----------
$1,825,690
The above table does not include future minimum lease payments for
renewal periods or for contingent rental payments that may become due
in future periods (see Note 3).
5. Investment in Joint Ventures:
The Partnership has a 51 percent, a 26.6%, a 57 percent, a 96.1% and a
68.87% interest in the profits and losses of Holland Joint Venture,
Titusville Joint Venture, Cocoa Joint Venture, Auburn Joint Venture and
Kingsville Real Estate Joint
Venture, respectively.
In January 1996, the Partnership acquired a property in Clinton, North
Carolina, as tenants-in-common with affiliates of the general partners.
The Partnership accounts for its investment in this property using the
equity method since the Partnership shares control with affiliates, and
amounts relating to its investment are included in investment in joint
ventures. As of December 31, 1997, the Partnership owned a 53.68%
interest in this property.
The remaining interests in these joint ventures are held by affiliates
of the Partnership which have the same general partners. Holland Joint
Venture, Titusville Joint Venture, Cocoa Joint Venture, Auburn Joint
Venture, Kingsville Real Estate Joint Venture and the Partnership and
affiliates, as tenants-in-common, each own and lease one property to an
operator of national fast-food or family-style restaurants.
26
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
5. Investment in Joint Ventures - Continued:
The following presents the joint ventures' combined, condensed
financial information at December 31:
1997 1996
---------- -------
Land and buildings on
operating leases,
less accumulated
depreciation and
allowance for loss
on land and building $3,338,372 $3,565,440
Net investment in
direct financing
leases 842,633 859,667
Cash 12,331 11,001
Receivables 40,456 34,308
Accrued rental income 177,567 168,784
Other assets 2,029 30,143
Liabilities 16,283 10,724
Partners' capital 4,397,105 4,658,619
Revenues 434,177 511,606
Net income 126,271 411,884
The Partnership recognized income totalling $189,747, $277,431 and
$245,778 for the years ended December 31, 1997, 1996 and 1995,
respectively, from these joint ventures.
6. Receivables:
In June 1997, the Partnership terminated the leases with the tenant of
the properties in Portland and Winchester, Indiana. In connection
therewith, the Partnership accepted a promissory note from the former
tenant for $32,343 for amounts relating to past due real estate taxes
the Partnership had accrued as a result of the former tenant's
financial difficulties. The promissory note, which is uncollateralized,
bears interest at a rate of ten percent per annum, and is being
collected in 36 monthly installments. Receivables at December 31, 1997
included $7,106 of such amounts.
27
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
7. Allocations and Distributions:
Generally, all net income and net losses of the Partnership, excluding
gains and losses from the sale of property, are allocated 99 percent to
the limited partners and one percent to the general partners.
Distributions of net cash flow are made 99 percent to the limited
partners and one percent to the general partners; provided, however,
that the one percent of net cash flow to be distributed to the general
partners is subordinated to receipt by the limited partners of an
aggregate, ten percent, cumulative, noncompounded annual return on
their adjusted capital contributions (the "10% Preferred Return").
Generally, net sales proceeds from the sale of properties, to the
extent distributed, will be distributed first to the limited partners
in an amount sufficient to provide them with their 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 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.
During each of the years ended December 31, 1997, 1996 and 1995, the
Partnership declared distributions to the limited partners of
$2,760,000. No distributions have been made to the general partners to
date.
28
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
8. 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>
1997 1996 1995
---------- ---------- -------
<S> <C>
Net income for
financial reporting
purposes $1,720,668 $2,347,167 $2,210,339
Depreciation for tax
reporting purposes
in excess of
depreciation for
financial reporting
purposes (9,203) (17,764) (16,933)
Allowance for loss on
land and building 70,337 - -
Direct financing
leases recorded as
operating leases for
tax reporting
purposes 34,215 30,885 27,879
Gain on sale of land and
buildings for financial
reporting purposes less
than (in excess of) gain
for tax reporting
purposes 44,918 (140,228) (128,547)
Equity in earnings of joint
ventures for financial
reporting purposes in
excess of equity in
earnings of joint ventures
for tax reporting
purposes 51,115 (25,853) (22,624)
Allowance for doubtful
accounts 138,647 (9,933) 122,022
Accrued rental income (39,669) (21,520) (22,921)
Rents paid in advance 7,435 14,677 (15,860)
---------- ---------- ----------
Net income for federal
income tax purposes $2,018,463 $2,177,431 $2,153,355
========== ========== ==========
</TABLE>
29
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Related Party Transactions:
One of the individual general partners, James M. Seneff, Jr., is one of
the principal shareholders of CNL Group, Inc., the parent company of
CNL Fund Advisors, Inc. The other individual general partner, Robert A.
Bourne, served as president of CNL Fund Advisors, Inc. through October
1997. CNL Income Fund Advisors, Inc. was a wholly owned subsidiary of
CNL Group, Inc. until its merger, effective January 1, 1996, with CNL
Fund Advisors, Inc. During the years ended December 31, 1997, 1996 and
1995, CNL Income Fund Advisors, Inc. and CNL Fund Advisors, Inc.
(hereinafter referred to collectively as the "Affiliates") each
performed certain services for the Partnership, as described below.
During the years ended December 31, 1997, 1996 and 1995, certain
Affiliates acted as manager of the Partnership's properties pursuant to
a management agreement with the Partnership. In connection therewith,
the Partnership agreed to pay the Affiliates an annual, noncumulative,
subordinated management fee of one percent of the sum of gross revenues
from properties wholly owned by the Partnership and the Partnership's
allocable share of gross revenues from joint ventures, but not in
excess of competitive fees for comparable services. These fees will be
incurred and will be payable only after the limited partners receive
their 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, 1997, 1996 and
1995.
Certain Affiliates are 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
Affiliates provide 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. The payment of the real estate disposition
fee
30
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
9. Related Party Transactions - Continued:
is subordinated to receipt by the limited partners of their aggregate
10% Preferred Return, plus their adjusted capital contributions. No
deferred, subordinated real estate disposition fees have been incurred
since inception.
During the years ended December 31, 1997, 1996 and 1995, the Affiliates
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $81,838, $85,899 and $79,776
for the years ended December 31, 1997, 1996 and 1995, respectively, for
such services.
The due to related parties consisted of the following at December 31:
1997 1996
------- -----
Due to Affiliates:
Expenditures incurred on
behalf of the Partnership $48,126 $39,279
Accounting and administrative
services 40,728 27,874
Other 5,000 -
------- ------
$93,854 $67,153
======= =======
10. Concentration of Credit Risk:
The following schedule presents total rental and earned income from
individual lessees, each representing more than ten percent of the
Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint
ventures), for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Shoney's, Inc. $427,238 $425,390 $423,124
Tampa Foods, L.P. 215,265 291,347 320,883
31
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
Years Ended December 31, 1997, 1996 and 1995
10. Concentration of Credit Risk - Continued:
In addition, the following schedule presents total rental and earned
income from individual restaurant chains, each representing more than
ten percent of the Partnership's total rental and earned income
(including the Partnership's share of total rental and earned income
from joint ventures) for at least one of the years ended December 31:
1997 1996 1995
-------- -------- ------
Shoney's $557,303 $557,841 $559,710
Wendy's Old
Fashioned
Hamburger
Restaurants 432,585 499,305 525,948
Denny's 345,749 360,080 358,467
Taco Bell 262,909 251,314 251,273
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 of these lessees or
restaurant chains could significantly impact the results of operations
of the Partnership. However, the general partners believe that the risk
of such a default is reduced due to the essential or important nature
of these properties for the on-going operations of the lessees.
32
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert
A. Bourne and CNL Realty Corporation, a Florida corporation. The General
Partners manage and control the Partnership's affairs and have general
responsibility and the ultimate authority in all matters affecting the
Partnership's business. The Partnership has available to it the services,
personnel and experience of CNL Fund Advisors, Inc., CNL Group, Inc. and their
affiliates, all of which are affiliates of the General Partners.
James M. Seneff, Jr., age 51, is a principal stockholder of CNL Group,
Inc., a diversified real estate company, and has served as its Chairman of the
Board of Directors, director and Chief Executive Officer since its formation in
1980. CNL Group, Inc. is the parent company of CNL Securities Corp., CNL
Investment Company, CNL Fund Advisors, Inc., CNL Real Estate Advisors, Inc. and
prior to its merger with CNL Fund Advisors, Inc., effective January 1, 1996, CNL
Income Fund Advisors, Inc. Mr. Seneff is Chief Executive Officer, and has been a
director and registered principal of CNL Securities Corp., which served as the
managing dealer in the Partnership's offering of Units, since its formation in
1979. Mr. Seneff also has held the position of President and a director of CNL
Management Company, a registered investment advisor, since its formation in
1976, has served as Chief Executive Officer and Chairman of the Board of CNL
Investment Company, and Chief Executive Officer and Chairman of the Board of
Commercial Net Lease Realty, Inc. since 1992, has served as the Chairman of the
Board and the Chief Executive Officer of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., served as Chairman of the
Board and Chief Executive Officer of CNL Income Fund Advisors, Inc. since its
inception in 1994 through December 31, 1995, has served as a director, Chairman
of the Board and Chief Executive Officer of CNL Fund Advisors, Inc. since its
inception in 1994, and has held the position of Chief Executive Officer and a
director of CNL Institutional Advisors, Inc., a registered investment advisor,
since its inception in 1990. In addition, Mr. Seneff has served as a director,
Chairman of the Board and Chief Executive Officer of CNL American Properties
Fund, Inc. since 1994, and has served as a director, Chairman of the Board and
Chief Executive Officer of CNL American Realty Fund, Inc. since 1996 and of CNL
Real Estate Advisors, Inc. since January 1997. Mr. Seneff previously served on
the Florida State Commission on Ethics and is a former member and past Chairman
of the State of Florida Investment Advisory Council, which recommends to the
Florida Board of Administration investments for various Florida employee
retirement funds. The Florida Board of Administration, Florida's principal
investment advisory and money management agency, oversees the investment of more
than $60 billion of retirement funds. Since 1971, Mr. Seneff has been active in
the acquisition, development and management of real estate projects and,
directly or through an affiliated entity, has served as a general partner or
joint venturer in over 100 real estate ventures involved in the financing,
acquisition, construction and rental of office buildings, apartment complexes,
restaurants, hotels and other real estate. Included in these real estate
ventures are approximately 65 privately offered real estate limited partnerships
in which Mr. Seneff, directly or through an affiliated entity, serves or has
served as a general partner. Also included are CNL Income Fund, Ltd., CNL Income
Fund II, Ltd., CNL Income Fund III, Ltd., CNL Income Fund V, Ltd., CNL Income
Fund VI, Ltd., CNL Income Fund VII, Ltd., CNL Income Fund VIII, Ltd., CNL Income
Fund IX, Ltd., CNL Income Fund X, Ltd., CNL Income Fund XI, Ltd., CNL Income
Fund XII, Ltd., CNL Income Fund XIII, Ltd., CNL Income Fund XIV, Ltd., CNL
Income Fund XV, Ltd., CNL Income Fund XVI, Ltd., CNL Income Fund XVII, Ltd. and
CNL Income Fund XVIII, Ltd. (the "CNL Income Fund Partnerships"), public real
estate limited partnerships with investment objectives similar to those of the
Partnership, in which Mr. Seneff serves as a general partner. Mr. Seneff
received his degree in Business Administration from Florida State University in
1968.
33
<PAGE>
Robert A. Bourne, age 50, is President and Treasurer of CNL Group,
Inc., President, a director and a registered principal of CNL Securities Corp.,
President and a director of CNL Investment Company, and prior to its merger with
CNL Fund Advisors, Inc., effective January 1, 1996, CNL Income Fund Advisors,
Inc., and Chief Investment Officer, Vice Chairman of the Board of Directors, a
director and Treasurer of CNL Institutional Advisors, Inc., a registered
investment advisor. Mr. Bourne served as President of CNL Institutional
Advisors, Inc. from the date of its inception through June 30, 1997 and served
as President of CNL Fund Advisors, Inc. from the date of its inception through
October 1997. Mr. Bourne also has served as a director since 1992, as President
from July 1992 to February 1996, as Secretary and Treasurer from February 1996
through December 1997, and since February 1996, served as Vice Chairman of the
Board of Directors of Commercial Net Lease Realty, Inc. In addition, Mr. Bourne
has served as a director since its inception in 1991, as President from 1991 to
February 1996, as Secretary from February 1996 to July 1996, and since February
1996, served as Treasurer and Vice Chairman of CNL Realty Advisors, Inc. through
December 31, 1997, at which time CNL Realty Advisors, Inc. merged with
Commercial Net Lease Realty, Inc. In addition, Mr. Bourne has served as
President and a director of CNL American Properties Fund, Inc. since 1994, and
has served as President and a director of CNL American Realty Fund, Inc. since
1996 and of CNL Real Estate Advisors, Inc. since January 1997. Upon graduation
from Florida State University in 1970, where he received a B.A. in Accounting,
with honors, Mr. Bourne worked as a certified public accountant and, from
September 1971 through December 1978, was employed by Coopers & Lybrand,
Certified Public Accountants, where he held the position of tax manager
beginning in 1975. From January 1979 until June 1982, Mr. Bourne was a partner
in the accounting firm of Cross & Bourne and from July 1982 through January
1987, he was a partner in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Mr. Bourne, who joined CNL Securities Corp. in 1979, has
participated as a general partner or joint venturer in over 100 real estate
ventures involved in the financing, acquisition, construction and rental of
office buildings, apartment complexes, restaurants, hotels and other real
estate. Included in these real estate ventures are approximately 64 privately
offered real estate limited partnerships in which Mr. Bourne, directly or
through an affiliated entity, serves or has served as a general partner. Also
included are the CNL Income Fund Partnerships, public real estate limited
partnerships with investment objectives similar to those of the Partnership, in
which Mr. Bourne serves as a general partner.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently serves
as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in
connection with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 400 East South Street, Orlando, Florida 32801.
CNL Fund Advisors, Inc. is a wholly owned subsidiary of CNL Group, Inc., a
diversified real estate company, and was organized to perform property
acquisition, property management and other services.
CNL Group, Inc., which is the parent company of CNL Fund Advisors,
Inc., was organized in 1980 under the laws of the State of Florida. CNL Group,
Inc. is a diversified real estate company which provides a wide range of real
estate, development and financial services to companies in the United States
through the activities of its subsidiaries. These activities are primarily
focused on the franchised restaurant and hospitality industries. James M.
Seneff, Jr., an individual General Partner of the Partnership, is the Chairman
of the Board, Chief Executive Officer, and a director of CNL Group, Inc. Mr.
Seneff and his wife own all of the outstanding shares of CNL Group, Inc.
The following persons serve as operating officers of CNL Group, Inc. or
its affiliates or subsidiaries in the discretion of the Boards of Directors of
those companies, but, except as specifically indicated, do not serve as members
of the Boards of Directors of those entities. The Boards of Directors have the
responsibility for creating and implementing the policies of CNL Group, Inc. and
its affiliated companies.
34
<PAGE>
Curtis B. McWilliams, age 42, joined CNL Fund Advisors, Inc. in April
1997 and currently serves as President of CNL Fund Advisors, Inc. and as
Executive Vice President of CNL American Properties Fund, Inc. In addition, Mr.
McWilliams serves as Executive Vice President of CNL Group, Inc. and as
President of CNL Financial Services, Inc. and certain other subsidiaries of CNL
Group, Inc. From September 1983 through March 1997, Mr. McWilliams was employed
by Merrill Lynch. From January 1991 to August 1996, Mr. McWilliams was a
managing director in the corporate banking group of Merrill Lynch's investment
banking division. During this time, he was a senior relationship manager with
Merrill Lynch and as such was responsible for a number of the firm's larger
clients. From February 1990 to February 1993, he also served as co-head of one
of the Industrial Banking Groups within Merrill Lynch's investment banking
division and had administrative responsibility for a group of bankers and client
relationships, including the firm's transportation group. From September 1996 to
March 1997, Mr. McWilliams served as Chairman of Merrill Lynch's Private
Advisory Services. 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 39, is the Chief Operating Officer and Executive
Vice President of CNL Fund Advisors, Inc. and CNL American Properties Fund, Inc.
and serves as Executive Vice President of CNL American Realty Fund, Inc. and CNL
Real Estate Advisors, Inc. From May 1992 to May 1994, he was Executive Vice
President for Finance and Administration and Chief Financial Officer of Z Music,
Inc., a cable television network which was subsequently acquired by Gaylord
Entertainment, where he was responsible for overall financial and administrative
management and planning. From January 1990 through April 1992, Mr. Walker was
Chief Financial Officer of the First Baptist Church in Orlando, Florida. From
April 1984 through December 1989, he was a partner in the accounting firm of
Chastang, Ferrell & Walker, P.A., where he was the partner in charge of audit
and consulting services, and from 1981 to 1984, Mr. Walker was a Senior
Consultant/Audit Senior at Price Waterhouse. Mr. Walker is a Cum Laude graduate
of Wake Forest University with a B.S. in Accountancy and is a certified public
accountant.
Lynn E. Rose, age 49, a certified public accountant, has served as
Chief Financial Officer of CNL Group, Inc. since December 1993, has served as
Secretary of CNL Group, Inc. since 1987, and served as Controller of CNL Group,
Inc. from 1987 until December 1993. In addition, Ms. Rose has served as Chief
Financial Officer and Secretary of CNL Securities Corp. since July 1994. She has
served as Chief Operating Officer, Vice President and Secretary of CNL Corporate
Services, Inc. since November 1994. Ms. Rose also has served as Chief Financial
Officer and Secretary of CNL Institutional Advisors, Inc. since its inception in
1990, served as a director and Secretary of CNL Realty Advisors, Inc. since its
inception in 1991 through December 31, 1997, at which time CNL Realty Advisors,
Inc. merged with Commercial Net Lease Realty, Inc., Treasurer of CNL Realty
Advisors, Inc. from 1991 to February 1996, Secretary and Treasurer of Commercial
Net Lease Realty, Inc. from 1992 to February 1996, Secretary of CNL Income Fund
Advisors, Inc. since its inception in 1994 to December 1995, and a director,
Secretary and Treasurer of CNL Fund Advisors, Inc. since 1994 and has served as
a director, Secretary and Treasurer of CNL Real Estate Advisors, Inc. since
January 1997. Ms. Rose also has served as Secretary and Treasurer of CNL
American Properties Fund, Inc. since 1994, and has served as Secretary and
Treasurer of CNL American Realty Fund, Inc. since 1996. Ms. Rose also currently
serves as Secretary for approximately 50 additional corporations. Ms. Rose
oversees the management information services, administration, legal compliance,
accounting, tenant compliance, and reporting for over 300 corporations,
partnerships, and joint ventures. Prior to joining CNL, Ms. Rose was a partner
with Robert A. Bourne in the accounting firm of Bourne & Rose, P.A., Certified
Public Accountants. Ms. Rose holds a B.A. in Sociology from the University of
Central Florida. She was licensed as a certified public accountant in 1979.
35
<PAGE>
Jeanne A. Wall, age 39, has served as Chief Operating Officer of CNL
Investment Company and of CNL Securities Corp. since November 1994 and has
served as Executive Vice President of CNL Investment Company since January 1991.
In 1984, Ms. Wall joined CNL Securities Corp. In 1985, Ms. Wall became Vice
President of CNL Securities Corp., in 1987, she became Senior Vice President and
in July 1997, she became Executive Vice President of CNL Securities Corp. In
this capacity, Ms. Wall serves as national marketing and sales director and
oversees the national marketing plan for the CNL investment programs. In
addition, Ms. Wall oversees product development, partnership administration and
investor services for programs offered through participating brokers, and
corporate communications for CNL Group, Inc. and Affiliates. Ms. Wall also has
served as Senior Vice President of CNL Institutional Advisors, Inc., a
registered investment advisor, from 1990 to 1993, as Vice President of CNL
Realty Advisors, Inc. since its inception in 1991 through 1997, as Vice
President of Commercial Net Lease Realty, Inc. from 1992 through 1997, as
Executive Vice President of CNL Fund Advisors, Inc. since 1994, and as Executive
Vice President of CNL American Properties Fund, Inc. since 1994. In addition,
Ms. Wall has served as Executive Vice President of CNL Real Estate Advisors,
Inc. since January 1997 and as Executive Vice President of CNL American Realty
Fund, Inc. since 1996. Ms. Wall holds a B.A. in Business Administration from
Linfield College and is a registered principal of CNL Securities Corp. Ms. Wall
currently serves as a trustee on the board of the Investment Program Association
and on the Direct Participation Program committee for the National Association
of Securities Dealers (NASD).
Steven D. Shackelford, age 34, has served as Chief Financial Officer of
CNL Fund Advisors, Inc. since September 1996 and as Chief Financial Officer of
CNL American Properties Fund, Inc. since January 1997. From March 1995 to July
1996, he was a senior manager in the national office of Price Waterhouse where
he was responsible for advising foreign clients seeking to raise capital and a
public listing in the United States. From August 1992 to March 1995, he served
as a manager in the Price Waterhouse, Paris, France office serving several
multinational clients. Mr. Shackelford was an audit staff and 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 and is a certified public
accountant.
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 13, 1998, 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 13, 1998, the beneficial
ownership interests of the General Partners in the Registrant.
<TABLE>
<CAPTION>
Title of Class Name of Partner Percent of Class
<S> <C>
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
----
100%
</TABLE>
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant except as noted above. There are no arrangements
which at a subsequent date may result in a change in control of the Registrant.
36
<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, 1997, 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>
==========================================================================================================================
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 1997
<S> <C>
Reimbursement to affiliates for Operating expenses are reimbursed Operating expenses incurred on
operating expenses at the lower of cost or 90 percent behalf of the Partnership:
of the prevailing rate at which $85,702
comparable services could have
been obtained in the same Accounting and administrative
geographic area. Affiliates of the services: $81,838
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 manage- One percent of the sum of gross $ - 0 -
ment fee to affiliates operating revenues from
Properties wholly owned by the
Partnership plus the Partner-ship's
allocable share of gross revenues of
joint ventures in which the Partnership
is a co-venturer, subordinated to
certain minimum returns to the Limited
Partners. The management fee will not
exceed 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 management fees will be due or
payable for such year.
==========================================================================================================================
</TABLE>
37
<PAGE>
<TABLE>
<CAPTION>
==========================================================================================================================
Type of Amount Incurred
Compensation Method of For the Year
and Recipient Computation Ended December 31, 1997
<S> <C>
Deferred, subordinated real estate A deferred, subordinated real $ - 0 -
disposition fee payable to estate disposition fee, payable
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, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to one percent of
cash flow Partnership distributions of net
cash flow, subordinated to certain
minimum returns to the Limited
Partners.
General Partners' deferred, sub- A deferred, subordinated share $ - 0 -
ordinated share of Partnership net equal to five percent of
sales proceeds from a sale or Partnership distributions of such
sales net sales proceeds, subordinated to
certain minimum returns to the
Limited Partners.
==========================================================================================================================
</TABLE>
38
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Accountants
Balance Sheets at December 31, 1997 and 1996
Statements of Income for the years ended December 31, 1997,
1996 and 1995
Statements of Partners' Capital for the years ended December
31, 1997, 1996 and 1995
Statements of Cash Flows for the years ended December 31,
1997, 1996 and 1995
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for
the years ended December 31, 1997, 1996 and
1995
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1997
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1997
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
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund
IV, Ltd. (Included as Exhibit 3.1 in Amendment No. 1
to Registration Statement No. 33-20249 on Form S-11
and incorporated herein by reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with the
Securities and Exchange Commission on March 31, 1994,
and incorporated herein by reference.)
39
<PAGE>
10.1 Property Management Agreement (Included as Exhibit
10.1 to Form 10-K filed with the Securities and
Exchange Commission on March 31, 1994, 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 April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from
October 1, 1997 through December 31, 1997.
40
<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 27th day of
March, 1998.
CNL INCOME FUND IV, LTD.
By: CNL REALTY CORPORATION
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE, President
By: ROBERT A. BOURNE
General Partner
/s/ Robert A. Bourne
----------------------------
ROBERT A. BOURNE
By: JAMES M. SENEFF, JR.
General Partner
/s/ James M. Seneff, Jr.
---------------------------
JAMES M. SENEFF, JR.
<PAGE>
Pursuant to the requirements of the Securities Exchange Act of 1934,
this report has been signed below by the following persons on behalf of the
Registrant and in the capacities and on the dates indicated.
<TABLE>
<CAPTION>
==========================================================================================================================
Signature Title Date
<S> <C>
/s/ Robert A. Bourne President, Treasurer and Director March 27, 1998
- ------------------------------------- (Principal Financial and
Robert A. Bourne Accounting Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and March 27, 1998
- ------------------------------------- Director (Principal Executive
James M. Seneff, Jr. Officer)
==========================================================================================================================
</TABLE>
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
Years Ended December 31, 1997, 1996 and 1995
<TABLE>
<CAPTION>
Additions Deductions
Balance at Charged to Charged to Deemed Balance
Beginning Costs and Other Uncollec- Collec- at End
Year Description of Year Expenses Accounts tible ted of Year
- ---- ----------- ---------- ---------- ---------- --------- ------- ---------
<S> <C>
1995 Allowance for
doubtful
accounts (a) $ 44,844 $111,687 $ 24,138 (b) $ 13,803 $ - $166,866
======== ======== ======== ======== ====== ========
1996 Allowance for
doubtful
accounts (a) $166,866 $ - $ 38,389 (b) $ 48,322 $ - $156,933
======== ======== ======== ======== ====== ========
1997 Allowance for
doubtful
accounts (a) $156,933 $ - $258,818 (b) $112,624 $7,547 $295,580
======== ======== ======== ======== ====== ========
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
F-1
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Winchester, Indiana - $ 287,769 $ - $ 567,785 $ -
Portland, Indiana - 187,928 - 657,931 -
Boston Market Restaurant:
Richmond, Virginia - 504,169 522,025 - -
Captain D's Restaurants:
Alexander City, Alabama - 120,210 279,689 - -
Oak Ridge, Tennessee - 169,951 281,686 - -
Checkers Drive-In Restaurants:
Miami, Florida - 174,336 - - -
Denny's Restaurants:
Marion, Ohio - 135,407 334,665 - -
Dundee, Michigan - 251,650 - 372,278 -
Union Township, Ohio - 300,179 630,608 - -
Golden Corral Family
Steakhouse Restaurants:
Franklin, Indiana - 107,560 586,375 - -
Streator, Illinois - 161,616 650,934 - -
Jack in the Box Restaurant:
San Antonio, Texas - 352,957 - 368,702 -
Pizza Hut Restaurants:
Memphis, Texas - 26,510 231,874 - -
Carthage, Texas - 40,444 232,823 - -
Crystal City, Texas - 8,826 178,570 - -
Sequin, Texas - 63,708 184,279 - -
Washington, D.C. - 191,737 - - -
Perkins Restaurants:
Leesburg, Florida (j) - 409,840 282,290 89,112 -
Palm Bay, Florida - 469,927 365,128 310,676 -
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 287,769 $ 567,785 $ 855,554 $ 136,114 1988 07/88 (b)
187,928 657,931 845,859 147,321 1989 11/88 (b)
504,169 522,025 1,026,194 17,449 1996 12/96 (b)
120,210 279,689 399,899 84,137 1988 12/88 (b)
169,951 281,686 451,637 84,763 1988 12/88 (b)
174,336 - 174,336 (g) - 06/94 (g)
135,407 334,665 470,072 53,368 1989 10/88 (h)
251,650 372,278 623,928 113,752 1988 10/88 (b)
300,179 630,608 930,787 191,810 1987 11/88 (b)
107,560 586,375 693,935 185,685 1988 06/88 (b)
161,616 650,934 812,550 202,513 1988 08/88 (b)
352,957 368,702 721,659 108,562 1989 11/88 (b)
26,510 231,874 258,384 71,816 1985 09/88 (b)
40,444 232,823 273,267 72,110 1981 09/88 (b)
8,826 178,570 187,396 55,307 1981 09/88 (b)
63,708 184,279 247,987 57,075 1974 09/88 (b)
191,737 (f) 191,737 - 1986 01/89 (d)
409,840 371,402 781,242 110,905 1989 12/88 (b)
469,927 675,804 1,145,731 201,803 1989 12/88 (b)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Shoney's Restaurants:
Alexander City, Alabama - 202,438 428,406 - -
Topeka, Kansas - 292,407 465,321 - -
Brookhaven, Mississippi - 312,574 452,601 - -
Auburn, Alabama - 363,432 426,123 - -
Tampa, Florida - 316,697 - 894,659 -
Taco Bell Restaurants:
Edgewood, Maryland - 440,355 - 523,478 -
Naples, Florida - 141,188 236,224 57,565 -
Ft. Myers, Florida - 232,853 332,911 68,928 -
Wendy's Old Fashioned
Hamburger Restaurants:
Detroit, Michigan - 192,813 462,793 - -
Mechanicsville, Virginia - 346,627 502,117 - -
Tampa, Florida - 530,456 432,958 - -
Tampa, Florida - 476,755 368,405 - -
Other Restaurant:
Corpus Christi, Texas - 204,287 - 460,803 -
Maywood, Illinois (i) - 310,966 - 443,472 -
---------- ---------- ---------- -------
$8,328,572 $8,868,805 $4,815,389 $ -
========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
202,438 428,406 630,844 128,874 1988 12/88 (b)
292,407 465,321 757,728 140,021 1988 12/88 (b)
312,574 452,601 765,175 136,194 1988 12/88 (b)
363,432 426,123 789,555 128,226 1988 12/88 (b)
316,697 894,659 1,211,356 253,487 1989 02/89 (b)
440,355 523,478 963,833 154,862 1989 10/88 (b)
141,188 293,789 434,977 85,377 1981 12/88 (b)
232,853 401,839 634,692 117,229 1977 12/88 (b)
192,813 462,793 655,606 141,408 1983 10/88 (b)
346,627 502,117 848,744 152,030 1988 12/88 (b)
530,456 432,958 963,414 129,974 1984 12/88 (b)
476,755 368,405 845,160 110,596 1987 12/88 (b)
204,287 460,803 665,090 140,463 1988 10/88 (b)
310,966 443,472 754,438 131,201 1988 09/88 (b)
---------- ----------- ----------- ----------
$8,328,572 $13,684,194 $22,012,766 $3,844,432
========== =========== =========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Property of Joint Venture in
Which the Partnership has a
51% Interest and has Invested
in Under an Operating Lease:
Denny's Restaurant:
Holland, Michigan - $ 295,987 $ - $ 780,451 $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
26.6% Interest and has Invested
in Under an Operating Lease:
Po Folks Restaurant:
Titusville, Florida (k) - $ 271,350 $ - $ 750,985 $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
57% Interest and has Invested
in Under an Operating Lease:
Waffle House Restaurant:
Cocoa, Florida - $ 183,229 $ 192,857 $ - $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has Invested
in Under an Operating Lease:
KFC Restaurant:
Auburn, Massachusetts - $ 484,362 $ - $ - $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
68.87% Interest and has Invested
in Under an Operating Lease:
Denny's Restaurant:
Kingsville, Texas - $ 171,061 $ - $ 99,128 $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
53.68% Interest and has Invested
in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina - $ 138,382 $ 676,588 $ - $ -
========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
$ 295,987 $ 780,451 $ 1,076,438 $ 238,471 1988 11/88 (b)
========== =========== =========== ==========
$ 271,350 $ 750,985 $ 1,022,335 $ 225,296 1988 12/88 (b)
========== =========== =========== ==========
$ 183,229 $ 192,857 $ 376,086 $ 51,482 1986 12/89 (b)
========== =========== =========== ==========
$ 484,362 (f) $ 484,362 $ - 1989 05/89 (d)
========== =========== ==========
$ 270,189 (f) $ 270,189 $ - 1988 10/88 (d)
========== =========== ==========
$ 138,382 $ 676,588 $ 814,970 $ 43,720 1996 01/96 (b)
========== =========== =========== ==========
</TABLE>
F-4
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent
Initial Cost To Acquisition
Buildings
Encum- and Improve- Carrying
brances Land Improvements ments Costs
<S> <C>
Properties the Partnership
has Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D.C. - $ - $ 459,543 $ - $ -
Shoney's Restaurant:
Punta Gorda, Florida - 210,438 770,826 39,193 -
---------- ---------- ---------- -------
$ 210,438 $1,230,369 $ 39,193 $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has Invested
in Under a Direct Financing
Lease:
KFC Restaurant:
Auburn, Massachusetts - $ - $ - $ 434,947 $ -
========== ========== ========== =======
Property of Joint Venture in
Which the Partnership has a
68.87% Interest and has Invested
in Under a Direct Financing
Lease:
Denny's Restaurant:
Kingsville, Texas - $ - $ - $ 535,489 $ -
========== ========== ========== =======
</TABLE>
<PAGE>
<TABLE>
<CAPTION>
Life
on Which
Gross Amount at Which Carried Depreciation
at Close of Period (c) in Latest
Buildings Date Income
and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
---------- ------------ ----------- ------------ --------- -------- ----------
<S> <C>
- (f) (f) (d) 1986 01/89 (d)
(f) (f) (f) (e) 1989 02/89 (e)
- (f) (f) (d) 1989 05/89 (d)
- (f) (f) (d) 1988 10/88 (d)
</TABLE>
F-5
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
December 31, 1997
(a) Transactions in real estate and accumulated depreciation during 1997,
1996 and 1995, are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
<S> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Balance, December 31, 1994 $22,436,693 $2,666,857
Dispositions (447,176) (77,251)
Additional costs
capitalized 326 -
Depreciation expense - 455,543
----------- ----------
Balance, December 31, 1995 21,989,843 3,045,149
Dispositions (887,486) (96,179)
Acquisitions 1,026,194 -
Depreciation expense - 442,065
----------- ----------
Balance, December 31, 1996 22,128,551 3,391,035
Dispositions (365,785) -
Additional costs capitalized 250,000 -
Depreciation expense - 453,397
----------- ----------
Balance, December 31, 1997 (j) $22,012,766 $3,844,432
=========== ==========
Property of Joint Venture in
Which the Partnership has a 51%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1994 $ 1,076,438 $ 160,426
Depreciation expense - 26,015
----------- ----------
Balance, December 31, 1995 1,076,438 186,441
Depreciation expense - 26,015
Balance, December 31, 1996 1,076,438 212,456
Depreciation expense - 26,015
Balance, December 31, 1997 $ 1,076,438 $ 238,471
=========== ==========
</TABLE>
F-6
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
<S> <C>
Property of Joint Venture in
Which the Partnership has a
26.6% Interest and has Invested
in Under an Operating Lease:
Balance, December 31, 1994 $ 1,022,335 $ 150,197
Depreciation expense - 25,033
----------- ----------
Balance, December 31, 1995 1,022,335 175,230
Depreciation expense - 25,033
Balance, December 31, 1996 1,022,335 200,263
Depreciation expense - 25,033
Balance, December 31, 1997 (k) $ 1,022,335 $ 225,296
=========== ==========
Property of Joint Venture in
Which the Partnership has a 57%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1994 $ 376,086 $ 32,195
Depreciation expense - 6,429
----------- ----------
Balance, December 31, 1995 376,08 638,624
Depreciation expense - 6,429
Balance, December 31, 1996 376,086 45,053
Depreciation expense - 6,429
Balance, December 31, 1997 $ 376,086 $ 51,482
=========== ==========
</TABLE>
F-7
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
<S> <C>
Property of Joint Venture in Which
the Partnership has a 96.1%
Interest and has Invested
in Under an Operating Lease:
Balance, December 31, 1994 $ 484,362 $ -
Depreciation expense (d) - -
----------- ---------
Balance, December 31, 1995 484,362 -
Depreciation expense (d) - -
Balance, December 31, 1996 484,362 -
Depreciation expense (d) - -
Balance, December 31, 1997 $ 484,362 $ -
=========== =========
Property of Joint Venture in Which
the Partnership has a 68.87%
Interest and has Invested in
Under an Operating Lease:
Balance, December 31, 1994 $ 270,189 $ -
Depreciation expense (d) - -
----------- ---------
Balance, December 31, 1995 270,189 -
Depreciation expense (d) - -
Balance, December 31, 1996 270,189 -
Depreciation expense (d) - -
Balance, December 31, 1997 $ 270,189 $ -
=========== =========
Property of Joint Venture in Which
the Partnership has a 53.68% Interest
and has Invested in Under an
Operating Lease:
Balance, December 31, 1995 $ - $ -
Acquisitions 814,970 -
Depreciation expense - 21,168
----------- ----------
Balance, December 31, 1996 814,970 21,168
Depreciation expense - 22,552
Balance, December 31, 1997 $ 814,970 $ 43,720
=========== ==========
</TABLE>
F-8
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED
DEPRECIATION - CONTINUED
December 31, 1997
(b) Depreciation expense is computed for buildings and improvements based
upon estimated lives of 30 years.
(c) As of December 31, 1997, the aggregate cost of the Properties owned
by the Partnership and joint ventures for federal income tax purposes
was $23,285,225 and $4,439,602, respectively. All of the leases are
treated as operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating
to the building has been recorded as a direct financing lease. The
cost of the building has been included in the net investment in
direct financing leases, therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building
has been recorded as a direct financing lease. The cost of the land
and building has been included in the net investment in direct
financing leases, therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease
relating to land and building have been recorded as a direct
financing lease. Accordingly, costs relating to these components are
not shown.
(g) The building portion of this Property is owned by the tenant;
therefore, depreciation is not applicable.
(h) Effective January 1, 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the
lease as an operating lease. The building was recorded at net book
value as of January 1, 1994, and depreciated over remaining estimated
life of approximately 25 years.
(i) The restaurant on the Property in Maywood, Illinois, was converted to
a Dunkin Donuts restaurant and a Holsum Bread bakery in 1993.
(j) For financial reporting purposes, the undepreciated cost of the
Property in Leesburg, Florida, was written down to net realizable
value due to an anticipated impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on land
and building in the amount of $70,337 at December 31, 1997. The
impairment at December 31, 1997, represents the difference between
the Property's carrying value at December 31, 1997, and the Property
manager's estimate of the net realizable value of the Property based
on an anticipated sales price of this Property. The cost of the
Property presented on this schedule is the gross amount at which the
Property was carried at December 31, 1997, excluding the allowance
for loss on land and building.
(k) For financial reporting purposes, the undepreciated cost of the
Property in Titusville, Florida, was written down to net realizable
value due to an anticipated impairment in value. The Partnership
recognized the impairment by recording an allowance for loss on land
and building in the amount of $147,039 at December 31, 1997. The
impairment at December 31, 1997, represents difference between the
Property's carrying value and the General Partners' estimate of the
net realizable value of the Property based on an anticipated sales
price of this Property to an interested and unrelated third party.
The cost of the Property presented on this schedule is the gross
amount at which the Property was carried at December 31, 1997,
excluding the allowance for loss on land and building.
F-9
<PAGE>
EXHIBITS
<PAGE>
EXHIBIT INDEX
Exhibit Number Page
3.1 Certificate of Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.1 in Amendment No. 1 to Registration
Statement No. 33-20249 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund IV, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, and incorporated herein by
reference.)
4.1 Certificate of Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.1 in Amendment No. 1 to Registration
Statement No. 33-20249 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of Limited
Partnership of CNL Income Fund IV, Ltd. (Included as Exhibit
3.2 to Form 10-K filed with the Securities and Exchange
Commission on March 31, 1994, 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 31, 1994, 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 April 1, 1996, and incorporated herein
by reference.)
27 Financial Data Schedule (Filed herewith.)
i
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IV, Ltd. at December 31, 1997, and its statement of
income for the year then ended and is qualified in its entirety by reference to
the Form 10K of CNL Income Fund IV, Ltd. for the year ended December 31, 1997.
</LEGEND>
<S> <C>
<PERIOD-TYPE> YEAR
<FISCAL-YEAR-END> DEC-31-1997
<PERIOD-START> JAN-01-1997
<PERIOD-END> DEC-31-1997
<CASH> 846,452
<SECURITIES> 0
<RECEIVABLES> 333,249
<ALLOWANCES> 295,580
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,942,429
<DEPRECIATION> 3,844,432
<TOTAL-ASSETS> 23,309,888
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 22,152,299
<TOTAL-LIABILITY-AND-EQUITY> 23,309,888
<SALES> 0
<TOTAL-REVENUES> 2,341,638
<CGS> 0
<TOTAL-COSTS> 720,934
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 12,794
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,720,668
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,720,668
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,720,668
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
