<PAGE>
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K/A
Amendment No. 1
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31,1998
--------------------
OR
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from to
--------------
Commission file number 0-17549
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) 650-1000
Securities registered pursuant to Section 12(b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to Section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No
---------
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 60,000 units of limited
partnership interest (the "Units") on Form S-11 under the Securities Act of
1933, as amended. Since no established market for such Units exists, there is
no market value for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
<PAGE>
The Form 10-K of CNL Income Fund X, Ltd. for the year ended December 31,
1998 is being amended to revise the disclosure under Item 1. Business, Item 2.
Properties, Item 7. Management's Discussion and Analysis of Financial Condition
and Results of Operations and Item 8. Financial Statements and Supplementary
Data.
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 pay Partnership liabilities. 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. During the year
ended December 31, 1998, the Partnership sold its Properties in Fort Myers,
Florida and Union Township, Ohio and distributed the majority of the net sales
proceeds to the limited partners as a special distribution. In addition, during
the year ended December 31, 1998, the Partnership sold a Property in Leesburg,
Florida and reinvested the majority of the net sales proceeds in a joint
venture, Warren Joint Venture, to purchase and hold one restaurant Property, and
sold a Property in Naples, Florida. As a result of the above transactions, as
of December 31, 1998, the Partnership owned 37 Properties. The 37 Properties
include interests in six Properties owned by joint ventures in which the
Partnership is a co-venturer and one Property owned with affiliates as tenants-
in-common. During January 1999, the Partnership reinvested the net sales
proceeds from the sale of the Property in Naples, Florida, in one Property in
Zephyrhills, Florida, as tenants-in-common, with an affiliate of the General
Partners. Generally, the Properties are leased on a triple-net basis with the
lessees responsible for all repairs and maintenance, property taxes, insurance
and utilities.
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Merger").
APF is a real estate investment trust whose primary business is the ownership of
restaurant properties leased on a long-term, "triple-net" basis to operators of
national and regional restaurant chains. APF has agreed to issue shares of its
common stock, par value $0.01 per share (the "APF Shares"), as consideration for
the Merger. At a special meeting of the partners that is expected to be held in
the fourth quarter of 1999, Limited Partners holding in excess of 50% of the
Partnership's outstanding limited partnership interests must approve the Merger
prior to consummation of the transaction. If the Limited Partners at the
special meeting approve the Merger, APF will own the Properties and other assets
of the Partnership.
2
<PAGE>
In the event that the Limited Partners vote against the Merger, the
Partnership will hold its Properties until the General Partners determine that
the sale or other disposition of the Properties is advantageous in view of the
Partnership's investment objectives. In deciding whether to sell Properties, the
General Partners will consider factors such as potential capital appreciation,
net cash flow and federal income tax considerations. Certain lessees also have
been granted options to purchase Properties, generally at the Property's then
fair market value after a specified portion of the lease term has elapsed. The
Partnership has no obligation to sell all or any portion of a Property at any
particular time, except as may be required under property or joint venture
purchase options granted to certain lessees.
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 2001 and 2018. Generally, the leases are on a triple-net basis, with
the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities. The leases of the Properties provide for minimum base
annual rental payments (payable in monthly installments) ranging from
approximately $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.
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. Fair market value will be determined through an appraisal by an
independent appraisal firm. 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 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 on substantially the same terms as the
Partnership's other leases as described above.
During 1994, the leases relating to the Properties in Dundee, Michigan and
Marion, Ohio, were amended to provide for the payment of reduced annual base
rent with no scheduled rent increases. However, the lease amendments provided
for lower percentage rent breakpoints, as compared to the original lease
agreements, a change that was designed to result in higher percentage rent
payments at any time that percentage rent became payable. In accordance with a
provision in the amendments, as a result of the former tenant assigning the
leases to a new tenant during 1998, the rents under the assigned leases reverted
back to those required under the original lease agreements.
In January 1999, the Partnership invested in an Arby's Property in
Zephyrhills, Florida, as tenants-in-common with affiliates of the General
Partners. The lease terms for this Property are substantially the same as the
Partnership's other leases as described above.
During 1998, the tenant of the Property owned by Kingsville Real Estate
Joint Venture experienced financial difficulties and ceased payment of rents
under the terms of its lease agreement. In January 1999, Kingsville Real Estate
Joint Venture entered into a five year lease with a new tenant.
Major Tenants
During 1998, one lessee of the Partnership, Shoney's, Inc., contributed
more than ten percent of the Partnership's total rental income (including the
Partnership's share of the rental income from six Properties owned by joint
ventures and one Property owned with affiliates as tenants-in-common). As of
December 31, 1998, Shoney's, Inc. was the lessee under leases relating to six
restaurants. It is anticipated that, based on the minimum rental payments
3
<PAGE>
required by the leases, Shoney's, Inc. will continue to contribute more than ten
percent of the Partnership's total rental income in 1999. In addition, two
Restaurant Chains, Shoney's and Wendy's Old Fashioned Hamburger Restaurants
("Wendy's"), each accounted for more than ten percent of the Partnership's total
rental income in 1998 (including the Partnership's share of the rental income
from six Properties owned by joint ventures and one Property owned with
affiliates as tenants-in-common). In 1999, it is anticipated that these two
Restaurant Chains each will continue to account for more than ten percent of the
total rental income to which the Partnership is entitled under the terms of the
leases. Any failure of these lessees or Restaurant Chains could materially
affect the Partnership's income if the Partnership is unable to re-lease the
Property in a timely manner. No single tenant or group of affiliated tenants
lease Properties with an aggregate carrying value in excess of 20 percent of the
total assets of the Partnership.
Joint Venture and Tenancy in Common Arrangements
The Partnership has entered into the following separate joint venture
arrangements: Holland Joint Venture with CNL Income Fund II, Ltd., an affiliate
of the General Partners, to purchase and hold one Property; Titusville Joint
Venture with CNL Income Fund III, Ltd., an affiliate of the General Partners, to
purchase and hold one Property; Cocoa Joint Venture with CNL Income Fund V,
Ltd., an affiliate of the General Partners, to purchase and hold one Property;
Auburn Join Venture with CNL Income Fund VI, Ltd., an affiliate of the General
Partners, to purchase and hold one Property; Kingsville Real Estate Joint
Venture with CNL Income Fund XII, Ltd., an affiliate of the General Partners, to
purchase and hold one Property; and Warren Joint Venture with CNL Income Fund
VI, Ltd., an affiliate of the General Partners, to purchase and hold one
Property. The affiliates are limited partnerships organized pursuant to the
laws of the State of Florida.
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 interest in the joint
venture. The Partnership has a 51.0% interest in Holland Joint Venture, a 26.6%
interest in Titusville Joint Venture, a 57 percent interest in Cocoa Joint
Venture, a 96.1% interest in Auburn Joint Venture, a 68.87% interest in
Kingsville Real Estate Joint Venture and a 35.71% interest in Warren 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.
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, Kingsville Real Estate Joint
Venture, and Warren Joint Venture is distributed 51.0%, 26.6%, 57.0%, 96.1%,
68.87%, and 35.71%, 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
equal zero, and thereafter in proportion each joint venture partner's percentage
interest in the joint venture.
In addition to the above joint venture arrangements, in January 1996, the
Partnership entered into an agreement to hold a Property in Clinton, North
Carolina, as tenants-in-common, with CNL Income Fund VI, Ltd., CNL Income Fund
X, Ltd., and CNL Income Fund XV, Ltd., affiliates of the General Partners. In
January 1999, the Partnership entered into an agreement to hold a Property in
Zephyrhills, Florida, as tenants-in-common, with CNL Income Fund XVII, Ltd., an
affiliate of the General Partners. The agreements provide for the Partnership
and the affiliates to share in the profits and losses of the Properties in
proportion to each co-tenant's percentage interest. The Partnership owns a 53.0%
and a 76 percent interest in the Properties in Clinton, Tennessee and
Zephyrhills, Florida, respectively. Each of the affiliates is a limited
partnership organized pursuant to the laws of the State of Florida. The
4
<PAGE>
tenancy in common agreements restrict each co-tenant's ability to sell,
transfer, or assign its interest in the tenancy in common's Properties without
first offering it for sale to the remaining co-tenants.
The use of joint venture and tenancy in common arrangements allows the
Partnership to fully invest its available funds at times at which it would not
have sufficient funds to purchase an additional property, or at times when a
suitable opportunity to purchase an additional property is not available. The
use of joint venture and tenancy in common arrangements also provides the
Partnership with increased diversification of its portfolio among a greater
number of properties. In addition, tenancy in common arrangements may allow
the Partnership to defer the gain for federal income tax purposes upon the sale
of the property if the proceeds are reinvested in an additional property.
Certain Management Services
CNL Fund Advisors, Inc., an affiliate of the General Partners, provides
certain services relating to management of the Partnership and its Properties
pursuant to a management agreement with the Partnership. Under this agreement,
CNL Fund Advisors, Inc. is responsible for collecting rental payments,
inspecting the Properties and the tenants' books and records, assisting the
Partnership in responding to tenant inquiries and notices and providing
information to the Partnership about the status of the leases and the
Properties. CNL Fund Advisors, Inc. also assists the General Partners in
negotiating the leases. For these services, the Partnership has agreed to pay
CNL Fund Advisors, Inc. an annual fee 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").
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.
Employees
The Partnership has no employees. The officers of CNL Realty Corporation
and the officers and employees of CNL Fund Advisors, Inc. perform certain
services for the Partnership. In addition, the General Partners have available
to them the resources and expertise of the officers and employees of CNL Group,
Inc., a diversified real estate company, and its affiliates, who may also
perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1998, the Partnership owned 37 Properties. Of the 37
Properties, 30 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and one is owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses. This schedule was filed with the Partnership's Form 10-K for the year
ended December 31, 1998.
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.
5
<PAGE>
The following table lists the Properties owned by the Partnership as of
December 31, 1998 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation filed with the Partnership's Form 10-K for the year ended December
31, 1998.
State Number of Properties
- ----- --------------------
Alabama 3
Washington D.C. 1
Florida 8
Illinois 2
Indiana 3
Kansas 1
Massachusetts 1
Maryland 1
Michigan 4
Mississippi 1
North Carolina 1
Ohio 1
Tennessee 1
Texas 7
Virginia 2
----------
TOTAL PROPERTIES: 37
==========
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
1,200 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. As of December 31, 1998, the Partnership had no plans for
renovation of the Properties. Depreciation expense is computed for buildings
and improvements using the straight line method using depreciable lives of 31.5
and 39 years for federal income tax purposes. As of December 31, 1998, the
aggregate cost of the Properties owned by the Partnership and joint ventures
(including Properties owned through tenancy in common arrangements) for federal
income tax purposes was $20,503,529 and $6,360,167, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1998 by Restaurant Chain.
Restaurant Chain Number of Properties
- ---------------- --------------------
Arby's 2
Boston Market 1
Captain D's 2
Checkers 1
Denny's 4
Golden Corral 3
IHOP 1
Jack in the Box 1
KFC 1
Pizza Hut 5
Shoney's 6
Taco Bell 1
Waffle House 1
Wendy's 4
Other 4
----------
TOTAL PROPERTIES: 37
==========
The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
6
<PAGE>
The General Partners believe that the Properties are adequately covered by
insurance. In addition, the General Partners have obtained contingent liability
and property coverage for the Partnership. This insurance is intended to reduce
the Partnership's exposure in the unlikely event a tenant's insurance policy
lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 1998, 1997, 1996, 1995, and 1994, the Properties were 97%,
93%, 98%, 98%, and 98% occupied, respectively. The following is a schedule of
the average annual rent for each of the five years ended December 31:
<TABLE>
<CAPTION>
For the Year Ended December 31:
1998 1997 1996 1995 1994
-------- -------- --------- --------- --------
<S> <C> <C> <C> <C> <C>
Rental Revenues (1) $2,544,386 $2,596,455 $2,815,542 $2,876,873 $2,861,346
Properties (2) 36 37 40 39 41
Average Rent per Unit $ 70,677 $ 70,174 $ 70,389 $ 73,766 $ 69,789
</TABLE>
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Property owned
through a tenancy in common arrangement. Rental revenues have been
adjusted, as applicable, for any amounts for which the Partnership has
established an allowance for doubtful accounts.
(2) Excludes Properties that were vacant at December 31, and that did not
generate rental revenues during the year ended December 31.
The following is a schedule of lease expirations for leases in place as of
December 31, 1998 for each of the ten years beginning with 1999 and thereafter.
Percentage of
Number Annual Rental Gross Annual
Expiration Year of Leases Revenues Rental Income
--------------- ------------- --------------- ----------------
1999 -- -- --
2000 -- -- --
2001 1 $ 37,800 1.62%
2002 2 100,855 4.32%
2003 1 70,708 3.03%
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 1 60,000 2.57%
2008 16 997,848 42.75%
Thereafter 15 1,067,028 45.71%
------- ------------ ----------
Totals (1) 36 $2,334,239 100.00%
======= ============ ==========
(1) Excludes one Property which was vacant at December 31, 1998.
Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenants as of December 31, 1998 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
7
<PAGE>
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 $65,000 (ranging from approximately
$41,000 to $81,300).
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.
PART II
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, 1998, the Partnership owned 37 Properties,
either directly or indirectly through joint venture or tenancy in common
arrangements.
Capital Resources
During the years ended December 31, 1998, 1997, and 1996, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures and interest received, less cash paid for
expenses) of $2,362,320, $2,417,972, and $2,713,964. The decrease in cash from
operations for 1998 and 1997, each as compared to the previous year, 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, 1998, 1997, and
1996, 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 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, 1998, 1997, and 1996.
8
<PAGE>
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, 1998, the Partnership owned a 53 percent 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 were used to
pay Partnership liabilities.
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. As of December 31, 1998, the
Partnership had collected the full amount of the promissory note.
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, 1998,
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. 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. The net sales proceeds were used to pay liabilities of the
Partnership, including quarterly distributions to the Limited Partners, and to
fund the renovation costs described above. The Partnership distributed amounts
sufficient to enable the Limited Partners to pay federal and state income taxes,
if any (at a level reasonably assumed by the General Partners), resulting from
the sale.
In March 1998, the Partnership sold its Property in Fort Myers, Florida, to
a third party for $842,100 and received net sales proceeds of $794,690,
resulting in a gain of $225,902 for financial reporting purposes. This Property
was originally acquired by the Partnership in December 1988 and had a cost of
approximately $598,000, excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$196,700 in excess of its original purchase price. In addition, in March 1998,
the Partnership sold its Property in Union Township, Ohio, to an unrelated third
party for $680,000 and received net sales proceeds of $674,135, resulting in a
loss of $104,987 for financial reporting purposes. In connection with the sale
of these Properties, the Partnership incurred deferred, subordinated, real
estate disposition fees of $45,663. In April 1998, the Partnership distributed
$1,233,748 of the net sales proceeds from these Properties as a special
distribution to the Limited Partners and used the remaining net proceeds to pay
Partnership liabilities.
In addition, in July 1998, the Partnership sold its Property in Leesburg,
Florida for $565,000 and received net sales proceeds of $523,931, resulting in a
total loss for financial reporting purposes of $135,509. Due to the fact that
at December 31, 1997, the Partnership recorded a provision for loss on the land
and building in the amount of $70,337 for this Property, the Partnership
recognized the remaining loss of $65,172 for financial reporting purposes at
July 1998, relating to the sale. In September 1998, the Partnership contributed
the majority of the net sales proceeds from the sale of the Property in
Leesburg, Florida, to a joint venture, Warren Joint Venture, to purchase and
hold one restaurant
9
<PAGE>
property. The Partnership has an approximate 36 percent interest in the profits
and losses of Warren Joint Venture and the remaining interest in this joint
venture is held by an affiliate of the General Partners.
In September 1998, the Partnership sold its Property in Naples, Florida, to
a third party for $563,000 and received net sales proceeds of $533,598,
resulting in a gain of $170,281 for financial reporting purposes. This Property
was originally acquired by the Partnership in December 1988 and had a cost of
approximately $410,500 excluding acquisition fees and miscellaneous acquisition
expenses; therefore, the Partnership sold the Property for approximately
$123,100 in excess of its original purchase price. In January 1999, the
Partnership invested a majority of the net sales proceeds in a Property in
Zephyrhills, Florida, with an affiliate of the General Partners as tenants-in-
common for a 76 percent interest in the Property. The Partnership will account
for its investment in this Property using the equity method since the
Partnership will share control with an affiliate. The General Partners believe
that the transaction, or a portion thereof, relating to the sale of the Property
in Naples, Florida and the reinvestment of the net sales proceeds will be
structured to qualify as a like-kind exchange transaction for federal income tax
purposes. However, the Partnership will distribute amounts sufficient to enable
the Limited Partners to pay federal and state income taxes, if any, (at a level
reasonably assumed by the General Partners) resulting from the sale.
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, 1998.
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangement 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 and net sales
proceeds from the sale of Properties, pending reinvestment in additional
Properties, distributions to Limited Partners or use for the payment of
Partnership liabilities, are invested in money market accounts or other short-
term, highly liquid investments such as demand deposit accounts at commercial
banks, CDs and money market accounts with less than a 30-day maturity date,
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At December 31, 1998, the Partnership had
$739,382 invested in such short-term investments, as compared to $876,452 at
December 31, 1997. The decrease in the amount invested in short-term
investments during 1998, as compared to 1997, is primarily attributable to the
payment of construction costs accrued at December 31, 1997, relating to the
Partnership's Properties in Winchester and Portland, Indiana, as described
above. The decrease was partially offset by an increase in cash due to using a
portion of the net sales proceeds from the sales of the Properties in Fort
Myers, Florida, and Union Township, Ohio, for other Partnership purposes, as
described above. As of December 31, 1998, the average interest rate earned on
the rental income deposited in demand deposit accounts at commercial banks was
approximately three percent annually. Total liabilities at December 31, 1998,
to the extent they exceed cash and cash equivalents at December 31, 1998, will
be paid from future cash from operations, and in the event the General Partners
elect to make additional contributions, from future General Partner
contributions.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily of
the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash and
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.
10
<PAGE>
Due to low operating expenses and ongoing cash flow, the General Partners
do not believe that working capital reserves are necessary at this time. In
addition, because the leases for the Partnership's Properties are generally on a
triple-net basis, it is not anticipated that a permanent reserve for maintenance
and repairs will be established at this time. To the extent, however, that the
Partnership has insufficient funds for such purposes, the General Partners will
contribute to the Partnership an aggregate amount of up to one percent of the
offering proceeds for maintenance and repairs.
The Partnership generally distributes cash from operations remaining after
the payment of the operating expenses of the Partnership, to the extent that the
General Partners determine that such funds are available for distribution.
Based on (i) current and anticipated future cash from operations, (ii) for the
year ended December 31, 1998, net sales proceeds from the sale of the Properties
in Fort Myers, Florida and Union Township, Ohio and (iii) to a lesser extent,
for the year ended December 31, 1997, additional capital contributions received
from the General Partners, the Partnership declared distributions to the Limited
Partners of $3,633,748, $2,760,000, and $2,760,000 for the years ended December
31, 1998, 1997, and 1996, respectively. This represents distributions of
$60.56, $46 and $46 per Unit for the years ended December 31, 1998, 1997, and
1996, respectively. Distributions for the year ended December 31, 1998 included
$1,233,748 as a result of the distribution of net sales proceeds from the sale
of the Properties in Fort Myers, Florida and Union Township, Ohio. This special
distribution was effectively a return of a portion of the Limited Partners'
investment, although, in accordance with the Partnership agreement, it was
applied to the Limited Partners' unpaid preferred return. The reduced number of
Properties for which the Partnership receives rental payments, as well as
ongoing operations, reduced the Partnership's revenues in 1998 and is expected
to reduce the Partnership's revenues in subsequent years. The decrease in
Partnership revenues, combined with the fact that a significant portion of the
Partnership's expenses are fixed in nature, resulted in a decrease in cash
distributions to the Limited Partners during 1998. No amounts distributed to
the Limited Partners for the years ended December 31, 1998, 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. The Partnership intends to continue to make
distributions of cash available for distribution to the Limited Partners on a
quarterly basis.
During 1998, 1997, and 1996, affiliates of the General Partners, incurred
on behalf of the Partnership $111,482, $85,702, and $114,409, respectively, for
certain operating expenses. As of December 31, 1998 and 1997, the Partnership
owed $103,315 and $88,854, respectively, to affiliates for such amounts and
accounting and administrative services. In addition, during the year ended
December 31, 1998, the Partnership incurred $45,663 in real estate disposition
fees due to an affiliate as a result of its services in connection with the sale
of two Properties. The payment of such fees is deferred until the Limited
Partners have received the sum of their 10% Preferred Return and their adjusted
capital contributions. Amounts payable to other parties, including
distributions payable, decreased to $700,855 at December 31, 1998, from
$1,068,735 at December 31, 1997. The decrease in liabilities at December 31,
1998, is primarily attributable to the payment during the year ended December
31, 1998 of construction costs accrued at December 31, 1997 for the Properties
in Portland and Winchester, Indiana, in connection with the new leases entered
into in July 1997. In addition, the decrease in total liabilities was
attributable to a decrease in distributions payable to the Limited Partners at
December 31, 1998, as compared to December 31, 1997. Total liabilities at
December 31, 1998, to the extent they exceed cash and cash equivalents at
December 31, 1998, will be paid from future cash from operations and, in the
event the General Partners elect to make additional contributions, from future
General Partner contributions.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During 1996, the Partnership owned and leased 36 wholly owned Properties
(including one Property in Tampa, Florida, which was sold in September 1996),
during 1997, the Partnership owned and leased 35 wholly owned Properties
(including one Property in Douglasville, Georgia, which was sold in November
1997) and during 1998, the Partnership owned and leased 34 wholly owned
Properties (including four Properties which were sold in 1998). In addition,
during 1998, 1997, and 1996, the Partnership was a co-venturer in five separate
joint ventures that each owned and leased one Property and owned one Property
with affiliates as tenants-in-common. In addition, during 1998, the Partnership
was a co-venturer in an additional joint venture that owned and leased one
Property. As of December 31, 1998, the Partnership owned, either directly or
through joint venture arrangements, 37 Properties, which are, in general,
subject to long-term, triple-net leases. The leases of the Properties provide
for minimum base annual
11
<PAGE>
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, 1998, 1997, and 1996, the Partnership
earned $2,231,513, $2,189,386, and $2,397,691, respectively, in rental income
from operating leases and earned income from direct financing leases from its
wholly owned Properties described above. The increase in rental and earned
income during 1998, as compared to 1997, was partially attributable to the fact
that during 1997, the Partnership increased its allowance for doubtful accounts
for past due rental amounts relating to the Hardee's Properties located in
Portland and Winchester, Indiana, which were leased by the same tenant, due to
financial difficulties the tenant was experiencing. No such allowance was
recorded during 1998 due to the fact that the Partnership renovated both
Properties, as described above in "Capital Resources" and re-leased the
Properties to a new tenant for which rents commenced in October 1997. The
decrease in rental and earned income during 1997, as compared to 1996, is
partially attributable to the Partnership increasing its allowance for doubtful
accounts by approximately $28,500, for rental income amounts relating to the
Hardee's Properties located in Portland and Winchester, Indiana, as described
above. 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 "Capital Resources." The Partnership re-leased these
Properties in October 1997, as described above. 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 in October 1997, after it was renovated into an
Arby's Property.
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. Rental and
earned income increased during 1998, as compared to 1997, due to the fact that
no such allowance was established during 1998 and the fact that the Partnership
negotiated a settlement agreement with the former tenant's guarantor to collect
some of the amounts due to the Partnership from the former tenant. During 1998,
the Partnership collected and recognized as income a portion of the past due
rental amounts from the former tenant's guarantor. In addition, in February
1998, the Partnership entered into a new lease with a new tenant for this
Property.
The increase in rental and earned income for the year ended December 31,
1998 was partially offset by a decrease in rental and earned income due to the
sale of the Property in Douglasville, Georgia in November 1997, the sale of the
Properties in Fort Myers, Florida and Union Township, Ohio in March 1998, and
the sale of the Property in Naples, Florida in September 1998. During the year
ended December 31, 1998, the Partnership used the net sales proceeds from the
sale of the Property in Douglasville, Georgia to fund renovation costs for two
Properties and for other Partnership purposes. Rental and earned income are
expected to remain at reduced amounts as a result of distributing the net sales
proceeds from the 1998 sales of the Properties in Fort Myers, Florida and Union
Township, Ohio to the Limited Partners.
In addition, rental and earned income decreased approximately $76,300
during the year ended 1997 as compared to 1996, as a result of the sale of the
Property in Tampa, Florida, in September 1996. The decrease in rental income
for 1997 was 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.
For the years ended December 31, 1998, 1997, and 1996, the Partnership
earned $83,377, $117,031 and $97,318, respectively, in contingent rental income
from the Partnership's wholly owned Properties. The decrease in contingent
rental income during the year ended December 31, 1998, as compared to the year
ended December 31, 1997, is partially attributable to the Partnership adjusting
estimated contingent rental amounts accrued at December 31, 1997, to actual
amounts during the year ended December 31, 1998 and is partially attributable to
a decrease in gross sales for certain restaurant Properties whose leases require
the payment of contingent rental income. 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, the leases of which require the
payment of contingent rental income.
12
<PAGE>
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy. As of March 11, 1999, the Partnership has continued receiving
rental payments relating to this lease. While the tenant has not rejected or
affirmed the lease, there can be no assurance that the lease will not be
rejected in the future. The lost revenue resulting from the rejection of this
lease could have an adverse effect on the results of operations of the
Partnership if the Partnership is not able to re-lease this Property in a timely
manner.
In addition, for the years ended December 31, 1998, 1997, and 1996, the
Partnership recognized a loss of $90,144 and income of $189,747 and $277,431,
respectively, attributable to net income earned by joint ventures in which the
Partnership is a co-venturer. The decrease in net income in 1998, as compared
to 1997, is primarily due to the fact that Kingsville Real Estate Joint Venture
(in which the Partnership owns a 68.87% interest) established an allowance for
loss on the land and net investment in the direct financing lease for its
Property for approximately $316,000 during the year ended December 31, 1998.
The tenant of this Property experienced financial difficulties and ceased
payment of rents under the terms of its lease agreement. The allowance
represents the difference between the Property's carrying value at December 31,
1998 and the estimated net realizable value of the Property. In addition, the
joint venture increased its allowance for doubtful accounts by approximately
$130,000 during the year ended December 31, 1998, as compared to an increase in
allowance for doubtful accounts of approximately $20,600 during the year ended
December 31, 1997, for amounts due from this tenant deemed uncollectible in
accordance with its collection policy. In January 1999, Kingsville Real Estate
Joint Venture entered into a new lease for this Property with a new tenant and
the General Partners ceased collection efforts on the past due amounts. The
decrease in net income for 1998, as compared to 1997, is partially offset by an
increase in net income earned by joint ventures due to the fact that in
September 1998, the Partnership reinvested net sales proceeds from the sale of
its Property in Leesburg, Florida in Warren Joint Venture.
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. 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 ceased collection efforts on past due amounts and the joint venture will
not recognize any rental income from this Property until a new tenant is located
or until the Property is sold and the proceeds from such a sale are reinvested
in an additional Property. Titusville Joint Venture is currently seeking either
a replacement tenant or purchaser for this Property. In addition, during 1998
and 1997, the joint venture established an allowance for loss on land and
building for its Property in Titusville, Florida, for approximately $125,300 and
$147,000, respectively, for financial reporting purposes. The allowance
represents the difference between the Property's carrying value at December 31,
1998, and the estimated net realizable value of the Property. Net income earned
by joint ventures also decreased during 1997, as compared to 1996, due to an
adjustment in estimated contingent rental amounts accrued at December 31, 1996,
to actual amounts during the year ended December 31, 1997 for the Property in
Clinton, North Carolina, held as tenants-in-common.
During the year ended December 31, 1998, one of the Partnership's lessees,
Shoney's, Inc., contributed more than ten percent of the Partnership's total
rental income (including the Partnership's share of the rental income from six
Properties owned by joint ventures and one Property owned with affiliates as
tenant-in-common). As of December 31, 1998, Shoney's, Inc. was the lessee under
leases relating to six 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
1999. In addition, during the year ended December 31, 1998, two Restaurant
Chains, Shoney's and Wendy's Old Fashioned Hamburger Restaurants ("Wendy's"),
each accounted for more than ten percent of the Partnership's total rental
income (including the Partnership's share of the rental income from six
Properties owned by joint ventures and one Property owned with affiliates as
tenants-in-common). In 1999, it is anticipated that these two Restaurant Chains
each will continue to account for more than ten percent of the total rental
income to which the Partnership is entitled under the terms of the leases. Any
failure of these lessees or Restaurant Chains could materially affect the
Partnership's income if the Partnership is not able to re-lease the Properties
in a timely manner.
Operating expenses, including depreciation and amortization expense, were
$690,271, $733,728, and $694,518 for the years ended December 31, 1998, 1997,
and 1996, respectively. The decrease in operating expenses for 1998, as
compared to 1997, and the increase in operating expenses for 1997, as compared
to 1996, was partially due
13
<PAGE>
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 decrease in operating expenses for 1998, as compared to 1997,
is partially due to the decrease in depreciation expense which resulted from the
sale of one Property in November 1997, and the sale of four Properties in 1998.
The decrease in operating expenses for 1998, as compared to 1997, is
partially offset by an increase in operating expense for 1998 due to the fact
that the Partnership incurred $18,286 in transaction costs related to the
General Partners retaining financial and legal advisors to assist them in
evaluating and negotiating the proposed Merger with APF, as described below. If
the Limited Partners reject the Merger, the Partnership will bear the portion of
the transaction costs based upon the percentage of "For" votes and the General
Partners will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
The increase in operating expenses during 1997 was also partially due to
the fact that the Partnership recorded bad debt expense of $12,794 from the
former tenant during 1997, relating to the Properties located in Portland and
Winchester, Indiana, for past due rental income amounts. Due to the fact that
the Partnership re-leased these Properties to a new tenant in October 1997, as
described above, no such expense was recorded during 1998.
The Partnership is responsible for the proportionate share of real estate
taxes and insurance expense for one of the two leases for the Property in
Maywood, Illinois. In addition, during 1998, 1997, and 1996, 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 1998, 1997, and 1996. The Partnership sold
this Property in July 1998, therefore the Partnership does not anticipate
incurring such expenses in future periods.
As a result of the sales of four Properties and one Property, the
Partnership recognized a gain of $226,024 and $221,390, respectively, for
financial reporting purposes during the years ended December 31, 1998 and 1996,
respectively. In addition, 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.
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 tenant of this Property defaulted under the
terms of its lease and vacated the Property. The allowance represented 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. In July 1998, the Partnership sold this Property.
The Partnership's leases as of December 31, 1998, are, in general, triple-
net leases and contain provisions that the General Partners believe mitigate the
adverse effect of inflation. Such provisions include clauses requiring the
payment of percentage rent based on certain restaurant sales above a specified
level and/or automatic increases in base rent at specified times during the term
of the lease. Management expects that increases in restaurant sales volumes due
to inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and into
a subsidiary of APF. As consideration for the Merger, APF has agreed to issue
2,668,016 APF Shares. In order to assist the General Partners in evaluating the
proposed merger consideration, the General Partners retained Valuation
Associates, a nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation Associates'
appraisal, the fair value of the Partnership's property portfolio and other
assets was $26,259,630 as of December 31, 1998. The APF Shares are expected to
be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at the
option of the former Limited Partners. At a special meeting of the Limited
Partners that is expected to be held in the fourth quarter of 1999, Limited
Partners holding in excess
14
<PAGE>
of 50% of the Partnership's outstanding limited partnership interests must
approve the Merger prior to consummation of the transaction. If the Limited
Partners at the special meeting approve the Merger, APF will own the Properties
and other assets of the Partnership. The General Partners intend to recommend
that the Limited Partners of the Partnership approve the Merger. In connection
with their recommendation, the General Partners will solicit the consent of the
Limited Partners at the special meeting.
Year 2000 Readiness Disclosure
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date sensitive
information beyond January 1, 2000. The failure to accurately recognize the
year 2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Information and Non-Information Technology Systems
The Partnership does not have any information or non-information technology
systems. The General Partners and their affiliates provide all services
requiring the use of information and non-information technology systems pursuant
to a management agreement with the Partnership. The information technology
system of the General Partners' affiliates consists of a network of personal
computers and servers built using hardware and software from mainstream
suppliers. The non-information technology systems of the affiliates are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
have no internally generated programmed software coding to correct, because
substantially all of the software utilized by the affiliates is purchased or
licensed from external providers. The maintenance of non-information technology
systems at the Partnership's restaurant properties is the responsibility of the
tenants of such properties in accordance with the terms of the Partnership's
leases.
The Y2K Team
In early 1998, the General Partners and their affiliates formed a Year 2000
committee (the "Y2K Team") for the purpose of identifying, understanding and
addressing the various issues associated with the year 2000 problem. The Y2K
Team consists of the General Partners and members from their affiliates,
including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management.
Assessing Year 2000 Readiness
The Y2K Team's initial step in assessing year 2000 readiness consists of
identifying any systems that are date-sensitive and, accordingly, could have
potential year 2000 problems. The Y2K Team has conducted inspections,
interviews and tests to identify which of the systems used by the Partnership
could have a potential year 2000 problem.
The information system of the General Partners' affiliates is comprised of
hardware and software applications from mainstream suppliers. Accordingly, the
Y2K Team has contacted and is evaluating documentation from the respective
vendors and manufacturers to verify the year 2000 compliance of their products.
The Y2K Team has also requested and is evaluating documentation from the non-
information technology systems providers of the affiliates.
In addition, the Y2K Team has requested and is evaluating documentation
from other companies with which the Partnership has material third party
relationships. Such third parties, in addition to the providers of information
and non-information technology systems, consist of the Partnership's transfer
agent and financial institutions. The Partnership depends on its transfer agent
to maintain and track investor information and its financial institutions for
availability of cash.
As of September 15, 1999, the Y2K Team had received responses from
approximately 60% of the third parties. All of the responses were in writing.
Of the third parties responding, all indicated that they are currently year 2000
compliant or will be year 2000 compliant prior to the year 2000. Although the
Y2K Team continues to
15
<PAGE>
receive positive responses from the companies with which the Partnership has
third party relationships regarding their year 2000 compliance, the General
Partners cannot be assured that the third parties have adequately considered the
impact of the year 2000.
In addition, the Y2K Team has requested documentation from the
Partnership's tenants. The Y2K Team is in the process of evaluating the
responses and expects to complete this process by October 31, 1999. The
Partnership has also instituted a policy of requiring any new tenants to
indicate that their systems are year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000.
Achieving Year 2000 Compliance
The Y2K Team has identified and completed upgrades of the hardware
equipment that was not year 2000 compliant. In addition, the Y2K Team has
identified and completed upgrades of the software applications that were not
year 2000 compliant, although the General Partners cannot be assured that the
upgrade solutions provided by the vendors have addressed all possible year 2000
issues.
The cost for these upgrades and other remedial measures is the
responsibility of the General Partners and their affiliates. The General
Partners do not expect that the Partnership will incur any costs in connection
with year 2000 remedial measures.
Assessing the Risks to the Partnership of Non-Compliance and Developing
Contingency Plans
Risk of Failure of Information and Non-Information Technology Systems Used by
the Partnership
The General Partners believe that the reasonably likely worst case scenario
with regard to the information and non-information technology systems used by
the Partnership is the failure of one or more of these systems as a result of
year 2000 problems. Because the Partnership's major source of income is rental
payments under long-term triple-net leases, any failure of information or non-
information technology systems used by the Partnership is not expected to have a
material impact on the results of operations of the Partnership. Even if such
systems failed, the payment of rent under the Partnership's leases would not be
affected. In addition, the Y2K Team is expected to correct any Y2K problems
within the control of the General Partners and their affiliates before the year
2000.
The Y2K Team has determined that a contingency plan to address this risk is
not necessary at this time. However, if the Y2K Team identifies additional
risks associated with the year 2000 compliance of the information or non-
information technology systems used by the Partnership, the Y2K Team will
develop a contingency plan if deemed necessary at that time.
Risk of Inability of Transfer Agent to Accurately Maintain Partnership Records
The General Partners believe that the reasonably likely worst case scenario
with regard to the Partnership's transfer agent is that the transfer agent will
fail to achieve year 2000 compliance of its systems and will not be able to
accurately maintain the records of the Partnership. This could result in the
inability of the Partnership to accurately identify its Limited Partners for
purposes of distributions, delivery of disclosure materials and transfer of
units. The Y2K Team has received certification from the Partnership's transfer
agent of its year 2000 compliance. Despite the positive response from the
transfer agent, the General Partners cannot be assured that the transfer agent
has addressed all possible year 2000 issues.
The Y2K Team has developed a contingency plan pursuant to which the General
Partners and their affiliates would maintain the records of the Partnership
manually, in the event that the systems of the transfer agent are not year 2000
compliant. The General Partners and their affiliates would have to allocate
resources to internally perform the functions of the transfer agent. The
General Partners do not anticipate that the additional cost of these resources
would have a material impact on the results of operations of the Partnership.
Risk of Loss of Short-Term Liquidity from Failure of Financial Institutions to
Achieve Year 2000 Compliance
The General Partners believe that the reasonably likely worst case scenario
with regard to the Partnership's financial institutions is that some or all of
its funds on deposit with such financial institutions may be temporarily
unavailable. The Y2K Team has received responses from 93% of the Partnership's
financial institutions indicating
16
<PAGE>
that their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000. Despite the positive responses from the
financial institutions, the General Partners cannot be assured that the
financial institutions have addressed all possible year 2000 issues. The loss of
short-term liquidity could affect the Partnership's ability to pay its expenses
on a current basis. The General Partners do not anticipate that a loss of
short-term liquidity would have a material impact on the results of operations
of the Partnership.
Based upon the responses received from the Partnership's financial
institutions and the inability of the Y2K Team to identify a suitable
alternative for the deposit of funds that is not subject to potential year 2000
problems, the Y2K Team has determined not to develop a contingency plan to
address this risk.
Risks of Late Payment or Non-Payment of Rent by Tenants
The General Partners believe that the reasonably likely worst case scenario
with regard to the Partnership's tenants is that some of the tenants may make
rental payments late as the result of the failure of the tenants to achieve year
2000 compliance of their systems used in the payment of rent, the failure of the
tenant's financial institutions to achieve year 2000 compliance, or the
temporary disruption of the tenants' businesses. The Y2K Team is in the process
of requesting responses from the Partnership's tenants indicating the extent to
which their systems are currently year 2000 compliant or are expected to be year
2000 compliant prior to the year 2000. The General Partners cannot be assured
that the tenants have addressed all possible year 2000 issues. The late payment
of rent by one or more tenants would affect the results of operations of the
Partnership in the short-term.
The General Partners are also aware of predictions that the year 2000
problem, if uncorrected, may result in a global economic crisis. The General
Partners are not able to determine if such predictions are true. A widespread
disruption of the economy could affect the ability of the Partnership's tenants
to pay rent and, accordingly, could have a material impact on the results of
operations of the Partnership.
Because payment of rent is under the control of the Partnership's tenants,
the Y2K Team is not able to develop a contingency plan to address these risks.
In the event of late payment or non-payment of rent, the General Partners will
assess the remedies available to the Partnership under its lease agreements.
Item 8. Financial Statements and Supplementary Data
17
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
Page
----
Report of Independent Accountants 19
Financial Statements:
Balance Sheets 20
Statements of Income 21
Statements of Partners' Capital 22
Statements of Cash Flows 23
Notes to Financial Statements 25
18
<PAGE>
Report of Independent Accountants
---------------------------------
To the Partners
CNL Income Fund IV, Ltd.
In our opinion, the financial statements listed in the index appearing under
item 14(a)(1) present fairly, in all material respects, the financial position
of CNL Income Fund IV, Ltd. (a Florida limited partnership) at December 31, 1998
and 1997, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1998 in conformity with generally
accepted accounting principles. In addition, in our opinion, the financial
statement schedules listed in the index appearing under item 14(a)(2) present
fairly, in all material respects, the information set forth therein when read in
conjunction with the related financial statements. These financial statements
and financial statement schedules are the responsibility of the Partnership's
management; our responsibility is to express an opinion on these financial
statements and financial statement schedules based on our audits. We conducted
our audits of these statements in accordance with generally accepted auditing
standards which require that we plan and perform the audit to obtain reasonable
assurance about whether the financial statements are free of material
misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the financial statements, assessing the
accounting principles used and significant estimates made by management, and
evaluating the overall financial statement presentation. We believe that our
audits provide a reasonable basis for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
January 18, 1999, except for the second paragraph of Note 12 for which the date
is March 11, 1999.
19
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
December 31,
1998 1997
----------- -----------
ASSETS
<S> <C> <C>
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on land and building $15,486,459 $18,097,997
Net investment in direct financing leases 1,231,482 1,269,389
Investment in joint ventures 2,862,906 2,708,012
Cash and cash equivalents 739,382 876,452
Restricted cash 537,274 --
Receivables, less allowance for doubtful
accounts of $258,641 and $295,580 24,676 37,669
Prepaid expenses 9,836 11,115
Lease costs, less accumulated amortization
of $21,450 and $17,956 18,094 21,588
Accrued rental income 279,724 287,466
Other assets -- 200
----------- -----------
$21,189,833 $23,309,888
=========== ===========
LIABILITIES AND PARTNERS' CAPITAL
- ---------------------------------
Accounts payable $ 4,503 $ 8,576
Accrued construction costs payable -- 250,000
Accrued and escrowed real estate taxes
payable 36,732 65,176
Distributions payable 600,000 690,000
Due to related parties 148,978 93,854
Rents paid in advance and deposits 59,620 49,983
----------- -----------
Total liabilities 849,833 1,157,589
Partners' capital 20,340,000 22,152,299
----------- -----------
$21,189,833 $23,309,888
=========== ===========
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
----------- ---------- ----------
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $2,104,520 $2,058,703 $2,263,677
Earned income from direct financing
leases 126,993 130,683 134,014
Contingent rental income 83,377 117,031 97,318
Interest and other income 60,950 35,221 47,855
---------- ---------- ----------
2,375,840 2,341,638 2,542,864
---------- ---------- ----------
Expenses:
General operating and administrative 151,775 149,808 161,714
Professional services 43,609 33,439 29,289
Bad debt expense -- 12,794 --
Real estate taxes 31,879 65,316 37,589
State and other taxes 15,747 16,476 21,694
Depreciation and amortization 428,975 455,895 444,232
Transaction costs 18,286 -- --
---------- ---------- ----------
690,271 733,728 694,518
---------- ---------- ----------
Income Before Equity in Earnings (Losses)
of Joint Ventures, Gain (Loss) on Sale of
Land and Buildings and Provision for
Loss on Land and Building 1,685,569 1,607,910 1,848,346
Equity in Earnings (Losses) of Joint (90,144) 189,747 277,431
Ventures
Gain (Loss) on Sale of Land and Buildings 226,024 (6,652) 221,390
Provision for Loss on Land and Building -- (70,337) --
---------- ---------- ----------
Net Income $1,821,449 $1,720,668 $2,347,167
========== ========== ==========
Allocation of Net Income:
General partners $ 12,724 $ 15,697 $ 22,219
Limited partners 1,808,725 1,704,971 2,324,948
---------- ---------- ----------
$1,821,449 $1,720,668 $2,347,167
========== ========== ==========
Net Income Per Limited Partner Unit $30.15 $28.42 $38.75
========== ========== ==========
Weighted Average Number of Limited
Partner Units Outstanding 60,000 60,000 60,000
========== ========== ==========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1998, 1997 and 1996
<TABLE>
<CAPTION>
General Partners Limited Partners
----------------------------- --------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs
--------------- ------------- --------------- --------------- ------------- --------------
<S> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1995 $241,504 $160,634 $30,000,000 $(19,687,963) $16,013,989 $(3,440,000)
Contributions from general
partners 22,300 -- -- -- --
Distributions to limited
partners ($46 per limited
partner unit) -- -- -- (2,760,000) --
Net income -- 22,219 -- -- 2,324,948 --
-------------- ------------ -------------- -------------- ------------- -----------
Balance, December 31, 1996 263,804 182,853 30,000,000 (22,447,963) 18,338,937 (3,440,000)
Contributions from general
partners 294,000 -- -- -- --
Distributions to limited
partners ($46 per limited
partner unit) -- -- -- (2,760,000) --
Net income -- 15,697 -- -- 1,704,971 --
-------------- ------------ -------------- -------------- ------------- -----------
Balance, December 31, 1997 557,804 198,550 30,000,000 (25,207,963) 20,043,908 (3,440,000)
Distributions to limited
partners ($61 per
limited partner unit) -- -- -- (3,633,748) --
Net income -- 12,724 -- -- 1,808,725 --
-------------- ------------ -------------- -------------- ------------- -----------
Balance, December 31, 1998 $557,804 $211,274 $30,000,000 $(28,841,711) $21,852,633 $(3,440,000)
============== ============ ============== ============== ============= ===========
</TABLE>
Total
------------
Balance, December 31, 1995 $23,288,164
Contributions from general
partners
Distributions to limited 22,300
partners ($46 per limited
partner unit) (2,760,000)
Net income 2,347,167
------------
Balance, December 31, 1996 22,897,631
Contributions from general
partners
Distributions to limited 294,000
partners ($46 per limited
partner unit) (2,760,000)
Net income 1,720,668
------------
Balance, December 31, 1997 22,152,299
Distributions to limited
partners ($61 per
limited partner unit) (3,633,748)
Net income 1,821,449
------------
Balance, December 31, 1998 $20,340,000
============
See accompanying notes to financial statements.
22
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,351,732 $ 2,345,612 $ 2,588,248
Distributions from joint ventures 248,360 265,473 305,866
Cash paid for expenses (274,436) (211,213) (206,059)
Interest received 36,664 18,100 25,909
----------- ----------- -----------
Net cash provided by operating
activities 2,362,320 2,417,972 2,713,964
----------- ----------- -----------
Cash Flows from Investing Activities:
Proceeds from sale of land and building 2,526,354 378,149 1,049,550
Additions to land and buildings on
operating leases (275,000) -- (1,035,516)
Investment in joint ventures (493,398) -- (437,489)
Decrease (increase) in restricted cash (533,598) -- 518,150
Payment of lease costs -- (17,384) (2,230)
Other -- 9,122 --
----------- ----------- -----------
Net cash provided by investing activities 1,224,358 369,887 92,465
----------- ----------- -----------
Cash Flows from Financing Activities:
Contributions from general partners -- 294,000 22,300
Distributions to limited partners (3,723,748) (2,760,000) (2,760,000)
----------- ----------- -----------
Net cash used in financing activities (3,723,748) (2,466,000) (2,737,700)
----------- ----------- -----------
Net Increase (Decrease) in Cash and Cash
Equivalents (137,070) 321,859 68,729
Cash and Cash Equivalents at Beginning of Year 876,452 554,593 485,864
----------- ----------- -----------
Cash and Cash Equivalents at End of Year $ 739,382 $ 876,452 $ 554,593
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1998 1997 1996
----------- ----------- -----------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $1,821,449 $1,720,668 $2,347,167
----------- ----------- -----------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 425,481 453,397 442,065
Amortization 3,494 2,498 2,167
Equity in earnings of joint ventures,
net of distributions 338,504 75,726 28,435
Bad debt expense -- 12,794 --
Loss (gain) on sale of land and
buildings (226,024) 6,652 (221,390)
Provision for loss on land and
building -- 70,337 --
Decrease in receivables 8,607 5,422 41,531
Decrease (increase) in
prepaid expenses 1,279 (180) (1,202)
Decrease in net investment in direct
financing leases 37,907 34,215 30,885
Increase in accrued rental income (40,515) (39,669) (21,520)
Increase (decrease) in accounts
payable and accrued expenses (26,960) 31,976 11,162
Increase in due to related parties 9,461 26,701 39,987
Increase in rents paid in advance
and deposits 9,637 17,435 14,677
----------- ----------- -----------
Total adjustments 540,871 697,304 366,797
----------- ----------- -----------
Net Cash Provided by Operating Activities $2,362,320 $2,417,972 $2,713,964
=========== =========== ===========
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred and
unpaid at December 31 $ 45,663 $ -- $ --
=========== =========== ===========
Distributions declared and unpaid at
December 31 $ 600,000 $ 690,000 $ 690,000
=========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
24
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1998, 1997, and 1996
1. Significant Accounting Policies:
-------------------------------
Organization and Nature of Business - CNL Income Fund 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.
25
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
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. Whenever a tenant defaults under the terms of its
lease, or events or changes in circumstance indicate that the tenant
will not lease the property through the end of the lease term, the
Partnership either reserves or writes-off the cumulative accrued
rental income balance.
When the properties are sold, the related cost and accumulated depreciation
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' best
estimate of net cash flows expected to be generated from its properties and
the need for asset impairment write-downs.
When the collection of amounts recorded as rental or other income is
considered to be doubtful, an adjustment is made to increase the allowance
for doubtful accounts, which is netted against receivables, and to decrease
rental or other income or increase bad debt expense for the current period,
although the Partnership continues to pursue collection of such amounts. If
amounts are subsequently determined to be uncollectible, the corresponding
receivable and 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, Warren 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.
26
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
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.
Reclassification - Certain items in the prior years' financial statements
----------------
have been reclassified to conform to 1998 presentation. These
reclassifications had no effect on partners' capital or net income.
27
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
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:
1998 1997
------------ ------------
Land $ 7,244,512 $ 8,328,572
Buildings 11,986,556 13,684,194
------------ ------------
19,231,068 22,012,766
Less accumulated depreciation (3,744,609) (3,844,432)
------------ ------------
15,486,459 18,168,334
Less allowance for loss on
land and building -- (70,337)
------------ ------------
$ 15,486,459 $ 18,097,997
============ ============
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.
28
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
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.
In March 1998, the Partnership sold its property in Fort Myers, Florida, to
a third party for $842,100 and received net sales proceeds of $794,690,
resulting in a gain of $225,902 for financial reporting purposes. This
property was originally acquired by the Partnership in December 1988 and
had a cost of approximately $598,000 excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
Property for approximately $196,700 in excess of its original purchase
price.
In March 1998, the Partnership sold its property in Union Township, Ohio to
a third party for $680,000 and received net sales proceeds of $674,135,
resulting in a loss of $104,987 for financial reporting purposes.
In connection with the sale of the properties described above, the
Partnership incurred deferred, subordinated, real estate disposition fees
of $45,663 (see Note 10).
In July 1998, the Partnership sold its property in Leesburg, Florida, for
$565,000 and received net sales proceeds of $523,931, resulting in a loss
for financial reporting purposes of $135,509. Due to the fact that at
December 31, 1997, the Partnership had recorded a provision for loss on
land and building in the amount of $70,337 for this property, the
Partnership recognized the remaining loss of $65,172 for financial
reporting purposes in July 1998, relating to the sale.
29
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In September 1998, the Partnership sold its property in Naples, Florida, to
a third party for $563,000 and received net sales proceeds of $533,598,
resulting in a gain of $170,281 for financial reporting purposes. This
property was originally acquired by the Partnership in December 1988 and
had a cost of approximately $410,500 excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold the
property for approximately $123,100 in excess of its original purchase
price.
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, 1998, 1997, and 1996, the Partnership recognized $40,515,
$39,669 and $21,520, 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, 1998:
1999 $ 1,975,839
2000 1,977,929
2001 1,947,479
2002 1,951,578
2003 1,759,818
Thereafter 10,670,163
-------------
$20,282,806
=============
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.
30
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct
financing leases at December 31:
1998 1997
------------ -----------
Minimum lease payments receivable $1,660,791 $ 1,825,690
Estimated residual values 527,829 527,829
Less unearned income (957,138) (1,084,130)
-------------- -----------
Net investment in direct
financing leases $1,231,482 $ 1,269,389
============== ===========
The following is a schedule of future minimum lease payments to be received
on direct financing leases at December 31, 1998:
1999 $ 164,899
2000 164,899
2001 164,899
2002 164,899
2003 164,899
Thereafter 836,296
------------
$1,660,791
============
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:
----------------------------
As of December 31, 1997, the Partnership had 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, and a 53
percent interest in the profits and losses of a property in Clinton, North
Carolina, held as tenants-in-common with affiliates of the general
partners.
31
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
----------------------------------------
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.
In September 1998, the Partnership entered into a joint venture
arrangement, Warren Joint Venture, with an affiliate of the general
partners, to hold one restaurant property. As of December 31, 1998, the
Partnership had acquired a 35.71% interest in the profits and losses of the
joint venture. The Partnership accounts for its investment in this joint
venture under the equity method since the Partnership shares control with
the affiliates.
The following presents the joint ventures' combined, condensed financial
information at December 31:
1998 1997
------------- -------------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $4,406,943 $3,338,372
Net investment in direct financing
leases less allowance for loss on
building 626,594 842,633
Cash 14,025 12,331
Receivables 10,943 40,456
Accrued rental income 163,773 177,567
Other assets 2,513 2,029
Liabilities 27,211 16,283
Partners' capital 5,197,580 4,397,105
Revenues 368,058 434,177
Provision for loss on land and
buildings and net investment in
direct financing lease (441,364) (147,039)
Net income (212,388) 126,271
32
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
5. Investment in Joint Ventures - Continued:
----------------------------------------
The Partnership recognized a loss totalling $90,144 and income totalling
$189,747 and $277,431 for the years ended December 31, 1998, 1997, and
1996, respectively, from these joint ventures.
6. Restricted Cash:
---------------
As of December 31, 1998, the net sales proceeds of $533,598 from the sale
of the property in Naples, Florida, plus accrued interest of $3,676 were
being held in an interest-bearing escrow account pending the release of
funds by the escrow agent to acquire an additional property on behalf of
the Partnership.
7. 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. As
of December 31, 1998, the Partnership had collected the full amount of the
promissory note.
8. 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 not in
liquidation of the Partnership, to the extent distributed, will be
distributed first to the limited partners in an amount sufficient to
provide them with their 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
33
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
8. Allocations and Distributions - Continued:
-----------------------------------------
gain from the sale of a property not in liquidation of the Partnership is,
in general, allocated in the same manner as net sales proceeds are
distributable. Any loss from the sale of a property not in liquidation of
the Partnership is, in general, allocated first, on a pro rata basis, to
partners with positive balances in their capital accounts; and thereafter,
95 percent to the limited partners and five percent to the general
partners.
Generally, net sales proceeds from a liquidating sale of properties, will
be used in the following order: i) first to pay and discharge all of the
Partnership's liabilities to creditors, ii) second, to establish reserves
that may be deemed necessary for any anticipated or unforeseen liabilities
or obligations of the Partnership, iii) third, to pay all of the
Partnership's liabilities, if any, to the general and limited partners, iv)
fourth, after allocations of net income, gains and/or losses, to distribute
to the partners with positive capital accounts balances, in proportion to
such balances, up to amounts sufficient to reduce such positive balances to
zero, and v) thereafter, any funds remaining shall then be distributed 95
percent to the limited partners and five percent to the general partners.
During each of the years ended December 31, 1998, 1997, and 1996, the
Partnership declared distributions to the limited partners of $3,633,748,
$2,760,000, and $2,760,000, respectively. Distributions for the year ended
December 31, 1998 included $1,233,748 as a result of the distribution of
net sales proceeds from the sale of the properties in Fort Myers, Florida
and Union Township, Ohio. This amount was applied toward the limited
partners' 10% Preferred Return. No distributions have been made to the
general partners to date.
34
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
9. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years ended
December 31:
<TABLE>
<CAPTION>
1998 1997 1996
-------------- ---------- ----------
<S> <C> <C> <C>
Net income for financial reporting
purposes $1,821,449 $1,720,668 $2,347,167
Depreciation for tax reporting purposes
in excess of depreciation for financial
reporting purposes (8,014) (9,203) (17,764)
Allowance for loss on land and building -- 70,337 --
Direct financing leases recorded as
operating leases for tax reporting
purposes 37,907 34,215 30,885
Gain on sale of land and buildings for
financial reporting purposes less
than (in excess of) gain for
tax reporting purposes (231,919) 44,918 (140,228)
Capitalization of transaction costs
for tax reporting purposes 18,286 -- --
Equity in earnings of joint ventures
for financial reporting purposes less
than (in excess of) equity in earnings
of joint ventures for tax reporting
purposes 319,186 51,115 (25,853)
Allowance for doubtful accounts (36,939) 138,647 (9,933)
Accrued rental income (40,515) (39,669) (21,520)
Rents paid in advance 9,137 7,435 14,677
Other 501 -- --
-------------- ---------- ----------
Net income for federal income tax
purposes $1,889,079 $2,018,463 $2,177,431
============== ========== ==========
</TABLE>
35
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Group, Inc., the majority stockholder of CNL
Fund Advisors, Inc. The other individual general partner, Robert A.
Bourne, serves as treasurer, director, and vice chairman of the Board of
CNL Fund Advisors, Inc. During the years ended December 31, 1998, 1997,
and 1996, CNL Fund Advisors, Inc. (hereinafter referred to collectively as
the "Affiliate") performed certain services for the Partnership, as
described below.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
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 Affiliate 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 have
not received their 10% Preferred Return in any particular year, no
management fees will be due or payable for such year. As a result of such
threshold, no management fees were incurred during the years ended December
31, 1998, 1997, and 1996.
The Affiliate is also entitled to receive a deferred, subordinated real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission or
three percent of the sales price if the Affiliate provides a substantial
amount of services in connection with the sale. However, if the net sales
proceeds are reinvested in a replacement property, no such real estate
disposition fees will be incurred until such replacement property is sold
and the net sales proceeds are distributed. The payment of the real
estate disposition fee is subordinated to receipt by the limited partners
of their aggregate 10% Preferred Return, plus their adjusted capital
contributions. For the year ended December 31, 1998, the Partnership
incurred $45,663 in deferred, subordinated, real estate disposition fees as
a result of the sales of properties. No deferred, subordinated real estate
disposition fees were incurred for the years ended December 31, 1997 and
1996.
During the years ended December 31, 1998, 1997, and 1996, the Affiliate
provided accounting and administrative services to the Partnership on a
day-to-day basis. The Partnership incurred $94,365, $81,838 and $85,899
for the years ended December 31, 1998, 1997, and 1996, respectively, for
such services.
36
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
10. Related Party Transactions - Continued:
--------------------------------------
The due to related parties consisted of the following at December 31:
1998 1997
-------------- --------------
Due to the Affiliate:
Expenditures incurred on
behalf of the Partnership $ 53,363 $48,126
Accounting and administrative
services 49,952 40,728
Deferred, subordinated real
estate disposition fee 45,663 --
Other -- 5,000
-------------- --------------
$148,978 $93,854
============== ==============
11. 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 each of
the years ended December 31:
1998 1997 1996
---------- ---------- ----------
Shoney's, Inc. $413,755 $427,238 $425,390
Tampa Foods, L.P. N/A N/A 291,347
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 each of the years ended December 31:
1998 1997 1996
---------- ---------- ----------
Shoney's $541,175 $557,303 $557,841
Wendy's Old Fashioned
Hamburger Restaurants 437,896 432,585 499,305
Denny's N/A 345,749 360,080
Taco Bell N/A 262,909 251,314
37
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
11. Concentration of Credit Risk - Continued:
----------------------------------------
The information denoted by N/A indicates that for each period presented,
the tenant and the chains did not represent more than ten percent of the
Partnership's total rental and earned income.
Although the Partnership's properties are geographically diverse throughout
the United States and the Partnership's lessees operate a variety of
restaurant concepts, default by any of these lessees or restaurant chains
could significantly impact the results of operations of the Partnership.
12. Subsequent Events:
-----------------
In January 1999, the Partnership used the net sales proceeds from the sale
of the property in Naples, Florida to invest in a Property in Zephyrhills,
Florida, with an affiliate of the general partners as tenants-in-common for
a 76 percent interest in the property. The Partnership will account for
its investment in this property using the equity method since the
Partnership will share control with affiliates.
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which
the Partnership would be merged with and into a subsidiary of APF (the
"Merger"). As consideration for the Merger, APF has agreed to issue
2,668,016 shares of its common stock, par value $0.01 per shares (the "APF
Shares"). In order to assist the general partners in evaluating the
proposed merger consideration, the general partners retained Valuation
Associates, a nationally recognized real estate appraisal firm, to appraise
the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the fair value of the Partnership's property
portfolio and other assets was $26,259,630 as of December 31, 1998. The
APF Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation of the Merger, and, therefore,
would be freely tradable at the option of the former limited partners. At
a special meeting of the partners, limited partners holding in excess of
50% of the Partnership's outstanding limited partnership interests must
approve the Merger prior to consummation of the transaction. The general
partners intend to recommend that the limited partners of the
38
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1998, 1997, and 1996
12. Subsequent Events - Continued:
-----------------------------
Partnership approve the Merger. In connection with their recommendation,
the general partners will solicit the consent of the limited partners at
the special meeting. If the limited partners reject the Merger, the
Partnership will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the portion of
such transaction costs based upon the percentage of "Against" votes and
abstentions.
39
<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 28th day of
October
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> <C>
/s/ Robert A. Bourne President, Treasurer and Director October 28, 1999
- ------------------------------------ (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director October 28, 1999
- ------------------------------------ (Principal Executive Officer)
James M. Seneff, Jr.
</TABLE>
