FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended March 31, 1999
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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
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CNL Income Fund IV, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-2854435
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for 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 _____
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
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ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,845,981 and
$3,744,609 $ 15,385,087 $ 15,486,459
Net investment in direct financing leases 1,221,384 1,231,482
Investment in joint ventures 3,388,240 2,862,906
Cash and cash equivalents 689,011 739,382
Restricted cash -- 537,274
Receivables, less allowance for doubtful accounts
of $254,396 and $258,641 36,107 24,676
Prepaid expenses 9,150 9,836
Lease costs, less accumulated amortization of
$22,609 and $21,450 32,535 18,094
Accrued rental income 285,013 279,724
------------------- -------------------
$ 21,046,527 $ 21,189,833
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 35,965 $ 4,503
Accrued and escrowed real estate taxes payable 31,312 36,732
Distributions payable 600,000 600,000
Due to related parties 145,312 148,978
Rents paid in advance and deposits 81,105 59,620
------------------- -------------------
Total liabilities 893,694 849,833
Partners' capital 20,152,833 20,340,000
------------------- -------------------
$ 21,046,527 $ 21,189,833
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
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Revenues:
Rental income from operating leases $ 496,533 $ 539,776
Earned income from direct financing leases 31,126 32,109
Contingent rental income 8,243 21,661
Interest and other income 9,918 12,845
-------------- ---------------
545,820 606,391
-------------- ---------------
Expenses:
General operating and administrative 40,438 34,625
Professional services 10,000 6,248
Real estate taxes 5,279 20,755
State and other taxes 15,395 15,641
Depreciation and amortization 102,531 115,151
Transaction costs 33,018 --
-------------- ---------------
206,661 192,420
-------------- ---------------
Income Before Equity in Earnings of Joint Ventures
and Gain on Sale of Land and Buildings 339,159 413,971
Equity in Earnings of Joint Ventures 73,674 42,174
Gain on Sale of Land and Buildings -- 120,915
-------------- ---------------
Net Income $ 412,833 $ 577,060
============== ===============
Allocation of Net Income:
General partners $ 4,128 $ 2,483
Limited partners 408,705 574,577
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$ 412,833 $ 577,060
============== ===============
Net Income Per Limited Partner Unit $ 6.81 $ 9.58
============== ===============
Weighted Average Number of Limited Partner
Units Outstanding 60,000 60,000
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
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<S> <C>
General partners:
Beginning balance $ 769,078 $ 756,354
Net income 4,128 12,724
------------------- ------------------
773,206 769,078
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Limited partners:
Beginning balance 19,570,922 21,395,945
Net income 408,705 1,808,725
Distributions ($10.00 and $60.56 per
limited partner unit, respectively) (600,000 ) (3,633,748 )
------------------- ------------------
19,379,627 19,570,922
------------------- ------------------
Total partners' capital $ 20,152,833 $ 20,340,000
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 564,831 $586,084
-------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings -- 1,468,825
Additions to land and buildings on operating
leases -- (275,000 )
Investment in joint ventures (533,200 ) --
Decrease in restricted cash 533,598 --
Payment of lease costs (15,600 ) --
-------------- ---------------
-------------- ---------------
Net cash provided by (used in)
investing activities (15,202 ) 1,193,825
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Cash Flows from Financing Activities:
Distributions to limited partners (600,000 ) (690,000 )
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Net cash used in financing activities (600,000 ) (690,000 )
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Net Increase (Decrease) in Cash and Cash Equivalents (50,371 ) 1,089,909
Cash and Cash Equivalents at Beginning of Quarter 739,382 876,452
-------------- ---------------
Cash and Cash Equivalents at End of Quarter $ 689,011 $1,966,361
============== ===============
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of quarter $ -- $ 45,663
============== ===============
Distributions declared and unpaid at end
of quarter $ 600,000 $1,833,748
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter ended March 31, 1999, may not be indicative of the results
that may be expected for the year ending December 31, 1999. Amounts as
of December 31, 1998, included in the financial statements, have been
derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund IV, Ltd. (the "Partnership") for the year ended December 31,
1998.
2. Investment in Joint Ventures:
In January 1999, the Partnership invested $533,200 in a property in
Zephyrhills, Florida as tenants-in-common with CNL Income Fund XVII,
Ltd., an affiliate of the general partners. As of March 31, 1999, the
Partnership had a 76 percent interest in the property. The Partnership
accounts for its investment in this property using the equity method
since the Partnership shares control with an affiliate, and amounts
relating to its investment are included in investment in joint ventures.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
2. Investment in Joint Ventures - Continued:
The following presents the combined, condensed financial information for
all of the Partnership's investment in joint ventures and properties
held as tenants-in-common at:
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<CAPTION>
March 31, December 31,
1999 1998
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<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $5,320,508 $4,406,943
Net investment in direct financing
leases, less allowance for
impairment in carrying value 380,548 626,594
Cash 50,229 14,025
Receivables 7,930 10,943
Accrued rental income 165,038 163,773
Other assets 2,514 2,513
Liabilities 50,816 27,211
Partners' capital 5,875,951 5,197,580
Revenues 152,150 368,058
Provision for loss on land and
buildings and net investment in
direct financing lease -- (441,364 )
Net income 111,787 (212,388 )
</TABLE>
The Partnership recognized income totalling $73,674 and $42,174 for the
quarters ended March 31, 1999 and 1998, respectively, from these joint
ventures.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Merger Transaction:
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 share (the
"APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the
price paid by APF investors in three previous public offerings, the most
recent of which was completed in December 1998. In order to assist the
general partners in evaluating the proposed merger consideration, the
general partners retained Valuation Associates, a nationally recognized
real estate appraisal firm, to appraise the Partnership's restaurant
property portfolio. Based on Valuation Associates' appraisal, the
Partnership's property portfolio and other assets were valued on a going
concern basis (meaning the Partnership continues unchanged) at
$26,259,630 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. The APF Shares are expected to be listed for
trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and, therefore, would be freely tradable at
the option of the former limited partners. At a special meeting of the
partners that is expected to be held in the third quarter of 1999,
limited partners holding in excess of 50% of the Partnership's
outstanding limited partnership interests must approve the Merger prior
to consummation of the transaction. 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.
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.
On May 5, 1999, four limited partners in several of the CNL Income Funds
filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The
general partners and APF believe that the lawsuit is without merit and
intend to defend vigorously against the claims. Because the lawsuit was
so recently filed, it is premature to further comment on the lawsuit at
this time.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund IV, Ltd. (the "Partnership") is a Florida limited
partnership that 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 restaurants were to
be constructed, which are leased primarily to operators of national and regional
fast-food and family-style restaurant chains (collectively, the "Properties").
The leases generally are triple-net leases, with the lessees responsible for all
repairs and maintenance, property taxes, insurance and utilities. As of March
31, 1999, the Partnership owned 38 Properties, which included interests in six
Properties owned by joint ventures in which the Partnership is a co-venturer and
two Properties owned with affiliates as tenants-in-common.
Liquidity and Capital Resources
During the quarters ended March 31, 1999 and 1998, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures, and interest and other income received, less
cash paid for expenses) of $564,831 and $586,084, respectively. The decrease in
cash from operations for the quarter ended March 31, 1999 is primarily a result
of changes in the Partnership's working capital and changes in income and
expenses as described in "Results of Operations" below.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
In January 1999, the Partnership used $533,200 of the net sales
proceeds from the 1998 sale of the Property in Naples, Florida to acquire a
Property in Zephyrhills, Florida, as tenants-in-common with CNL Income Fund
XVII, Ltd., an affiliate of the general partners. In connection therewith, the
Partnership and the affiliate 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 March 31, 1999, the Partnership owned a 76
percent interest in the Property in Zephyrhills, Florida. The sale of the
Property in Naples, Florida and the reinvestment of the net sales proceeds in
the Property in Zephyrhills, Florida, was structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
Currently, rental income from the Partnership's Properties are invested
in money market accounts or other short-term, highly liquid investments pending
the Partnership's use of such funds to pay Partnership expenses or to make
distributions to the partners. At March 31, 1999, the Partnership had $689,011
invested in such short-term investments, as compared to $739,382 at December 31,
1998. The funds remaining at March 31, 1999 will be used to pay distributions
and other liabilities.
Total liabilities of the Partnership, including distributions payable,
increased to $893,694 at March 31, 1999 from $849,833 at December 31, 1998,
partially as a result of an increase in rents paid in advance at March 31, 1999.
In addition the increase in liabilities at March 31, 1999 is partially a result
of the Partnership accruing transaction costs relating to the proposed Merger
<PAGE>
Liquidity and Capital Resources - Continued
with CNL American Properties Fund, Inc. ("APF"), as described below. Total
liabilities at March 31, 1999, to the extent they exceed cash and cash
equivalents at March 31, 1999, will be paid from future cash from operations,
and in the event the general partners elect to make additional contributions,
from general partners' contributions.
Based on current and anticipated future cash from operations and, for
the quarter ended March 31, 1998, net sales proceeds from the sale of the
Properties in Fort Myers, Florida and Union Township, Ohio, the Partnership
declared distributions to limited partners of $600,000 and $1,833,748 for the
quarters ended March 31, 1999 and 1998, respectively. This represents
distributions of $10.00 and $30.56 per unit for the quarters ended March 31,
1999 and 1998, respectively. Distributions for the quarter ended March 31, 1998
included $1,233,748 as a result of the distribution of net sales proceeds from
the 1998 sale of the Properties in Ft. Myers, Florida and Union Township, Ohio.
The reduced number of Properties for which the Partnership receives rental
payments, as well as ongoing operations, reduced the Partnership revenues during
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. No distributions were
made to the general partners for the quarters ended March 31, 1999 and 1998. No
amounts distributed to the limited partners for the quarters ended March 31,
1999 and 1998 are required to be or have been treated by the Partnership as a
return of capital for purposes of calculating the limited partners' return on
their adjusted capital contributions. The Partnership intends to continue to
make distributions of cash available for distribution to the limited partners on
a quarterly basis.
The 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.
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.
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. As consideration for the Merger, APF has agreed to issue 2,668,016
APF Shares which, for the purposes of valuing the merger consideration, have
been valued by APF at $10.00 per APF Share, the price paid by APF investors in
three previous public offerings, the most recent of
<PAGE>
Liquidity and Capital Resources - Continued
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $26,259,630 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share consideration,
payable by APF, is fair to the Partnership from a financial point of view. The
APF Shares are expected to be listed for trading on the New York Stock Exchange
concurrently with the consummation of the Merger, and, therefore, would be
freely tradable at the option of the former limited partners. At a special
meeting of the partners that is expected to be held in the third quarter of
1999, limited partners holding in excess of 50% of the Partnership's outstanding
limited partnership interests must approve the Merger prior to consummation of
the transaction. 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. 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.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarter ended March 31, 1998, the Partnership owned and
leased 34 wholly owned Properties (which included two Properties, one in each of
Union Township, Ohio and Fort Myers, Florida, which were sold in March 1998) and
during the quarter ended March 31, 1999, the Partnership owned and leased 30
wholly owned Properties, generally to operators of fast-food and family-style
restaurant chains. In connection therewith, during the quarters ended March 31,
1999 and 1998, the Partnership earned $527,659 and $571,885, respectively, in
rental income from operating leases and earned income from the direct financing
leases from these Properties. The decrease in rental and earned income for the
quarter ended March 31, 1999 was primarily due to the sale of the Properties in
Fort Myers, Florida and Union Township, Ohio in March 1998, and the 1998 sale of
the Property in Naples, Florida in September 1998. During the quarter ended
March 31, 1999, the Partnership used the net sales proceeds from the sale of the
Property in Naples, Florida to acquire a Property in Zephyrhills, Florida, as
tenants-in-common with CNL Income Fund XVII, Ltd., an affiliate of the general
partners. 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.
<PAGE>
Results of Operations - Continued
The decrease in rental and earned income during the quarter ended March
31, 1999, was partially offset by the fact that during the quarter ended March
31, 1999, the Partnership collected and recognized as income a portion of the
past due rental amounts owed from the former tenant of the Property located in
Palm Bay, Florida, for which the Partnership had previously established an
allowance for doubtful accounts. The former tenant vacated this Property in
October 1997 and the Partnership had been pursuing collection of the past due
rental amounts. The Partnership received the past due rental amounts from the
former tenant's guarantor in accordance with a settlement agreement between the
Partnership and the former tenant's guarantor to collect some of the amounts due
to the Partnership from the former tenant of this Property. In addition, the
decrease in rental and earned income during the quarter ended March 31, 1999,
was partially offset by an increase in rental and earned income, due to the fact
that, in February 1998, the Partnership entered into a new lease with a new
tenant for this Property.
During the quarters ended March 31, 1999 and 1998, the Partnership
earned $8,243 and $21,661, respectively, in contingent rental income from the
Partnership's wholly owned Properties. The decrease in contingent rental income
during the quarter ended March 31, 1999, as compared to the quarter ended March
31, 1998, is primarily due to a decrease in gross sales of certain restaurant
Properties, the leases of which require the payment of contingent rental income.
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy. As of April 30, 1999, the Partnership had 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 revenues 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.
During the quarter ended March 31, 1998, the Partnership also owned and
leased five Properties indirectly through joint venture arrangements and one
Property as tenants-in-common with affiliates of the general partners. During
the quarter ended March 31, 1999, the Partnership owned and leased six
Properties through joint venture arrangements and two Properties as
tenants-in-common with affiliates of the general partners. In connection
therewith, during the quarters ended March 31, 1999 and 1998, the Partnership
earned $73,674 and $42,174, respectively, attributable to the net income earned
by these joint ventures. The increase in net income earned by joint ventures is
partially due to the fact that in September 1998 the Partnership reinvested net
sales proceeds from the 1998 sale of its Property in Leesburg, Florida in Warren
Joint Venture and the fact that in January 1999, the Partnership reinvested net
sales proceeds from the 1998 sale of its Property in Naples, Florida in a
Property in Zephyrhills, Florida, as tenants-in-common with an affiliate of the
general partners. In addition, net income earned by joint ventures during the
quarter ended March 31, 1998, was less than that earned during the quarter ended
March 31, 1999, due to the fact that Auburn Joint Venture adjusted estimated
contingent rental amounts accrued at December 31, 1997, to actual amounts during
the quarter ended March 31, 1998.
<PAGE>
Results of Operations - Continued
Operating expenses, including depreciation and amortization, were
$206,661 and $192,420 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses for the quarter ended March 31,
1999, as compared to March 31, 1998, was partially due to an increase in
operating expenses for the quarter ended March 31, 1999 due to the fact that the
Partnership incurred $33,018 in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described above in "Liquidity and
Capital Resources." If the limited partners reject the Merger, the Partnership
will bear the portion of the transaction costs based upon the percentage of
"For" votes and the general partners will bear the portion of such transaction
costs based upon the percentage of "Against" votes and abstentions. The increase
in operating expenses for the quarter ended March 31, 1999, as compared to the
quarter ended March 31, 1998, is partially offset by a decrease in depreciation
expense which resulted from the sale of four Properties in 1998.
As a result of the sales of the Properties in Fort Myers, Florida and
Union Township, Ohio, the Partnership recognized a total gain of $120,915 for
financial reporting purposes during the quarter ended March 31, 1998. No
Properties were sold during the quarter ended March 31, 1999.
Year 2000 Readiness Disclosure
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 Partnership does not have any
information or non-information technology systems. The general partners and
affiliates of the general partners 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
affiliates of the general partners 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 of the general partners are
primarily facility related and include building security systems, elevators,
fire suppressions, HVAC, electrical systems and other utilities. The affiliates
of the general partners have no internally generated programmed software coding
to correct, because substantially all of the software utilized by the general
partners and affiliates is purchased or licensed from external providers. The
maintenance of non-information technology systems at the Partnership's
Properties is the responsibility of the tenants of the Properties in accordance
with the terms of the Partnership's leases.
In early 1998, the general partners and 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 the affiliates of the
general partners, including representatives from senior management, information
systems, telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have
<PAGE>
Year 2000 Readiness Disclosure - Continued
potential Year 2000 problems. The Y2K Team is in the process of conducting
inspections, interviews and tests to identify which of the Partnership's systems
could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to 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 tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect all of these upgrades, as well as any other necessary remedial measures
on the information technology systems used in the business activities and
operations of the Partnership, to be completed by September 30, 1999, although,
the general partners cannot be assured that the upgrade solutions provided by
the vendors have addressed all possible Year 2000 issues. The general partners
do not expect the aggregate cost of the Year 2000 remedial measures to be
material to the results of operations of the Partnership.
The general partners and affiliates have received certification from
the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. 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 Partnership.
<PAGE>
Year 2000 Readiness Disclosure - Continued
Based upon the progress the general partners and affiliates have made
in addressing the Year 2000 issues and their plan and timeline to complete the
compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, they have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit, Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, and Gretchen M. Hewitt v. James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, and CNL American Properties Fund,
Inc., Case No. CIO-99-0003561, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
Messrs. Seneff and Bourne and CNL Realty Corporation, as general
partners of the CNL Income Funds, breached their fiduciary duties
and violated the provisions of certain of the CNL Income Fund
partnership agreements in connection with the proposed acquisition
of the CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners and
APF believe that the lawsuit is without merit and intend to defend
vigorously against such claims. Because the lawsuit was so
recently filed, it is premature to further comment on the lawsuit
at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Certificate of Limited Partnership of CNL Income
Fund IV, Ltd. (Included as Exhibit 3.1 in
Amendment No. 1 to Registration Statement No.
33-20249 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate
of Limited Partnership of CNL Income Fund IV,
Ltd. (Included as Exhibit 3.2 to Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by
reference.)
<PAGE>
4.1 Certificate of Limited Partnership of CNL Income
Fund IV, Ltd. (Included as Exhibit 3.1 in
Amendment No. 1 to Registration Statement No.
33-20249 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate
of Limited Partnership of CNL Income Fund IV,
Ltd. (Included as Exhibit 3.2 to Form 10-K filed
with the Securities and Exchange Commission on
March 31, 1994, and incorporated herein by
reference.)
10.1 Property Management Agreement (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from
CNL Investment Company to CNL Income Fund
Advisors, Inc. (Included as Exhibit 10.2 to Form
10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Property Management Agreement from
CNL Income Fund Advisors, Inc. to CNL Fund
Advisors, Inc. (Included as Exhibit 10.3 to Form
10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 10-K
Current Report on Form 8-K dated March 11, 1999 and filed
March 12, 1999, describing the proposed Merger of the
Partnership with and into a subsidiary of CNL American
Properties Fund, Inc.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 14th day of May, 1999.
CNL INCOME FUND IV, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
------------------------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
------------------------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IV, Ltd. at March 31, 1999, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund IV, Ltd. for the three months ended March 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 689,011
<SECURITIES> 0
<RECEIVABLES> 290,503
<ALLOWANCES> 254,396
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,231,068
<DEPRECIATION> 3,845,981
<TOTAL-ASSETS> 21,046,527
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 20,152,833
<TOTAL-LIABILITY-AND-EQUITY> 21,046,527
<SALES> 0
<TOTAL-REVENUES> 545,820
<CGS> 0
<TOTAL-COSTS> 206,661
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 412,833
<INCOME-TAX> 0
<INCOME-CONTINUING> 412,833
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 412,833
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
