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 June 30, 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>
June 30, December 31,
1999 1998
------------------- -------------------
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ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,947,353 and
$3,744,609, respectively $ 15,283,715 $ 15,486,459
Net investment in direct financing leases 1,211,023 1,231,482
Investment in joint ventures 3,354,395 2,862,906
Cash and cash equivalents 651,282 739,382
Restricted cash -- 537,274
Receivables, less allowance for doubtful accounts
of $250,622 and $258,641, respectively 69,583 24,676
Prepaid expenses 13,317 9,836
Lease costs, less accumulated amortization of
$23,710 and $21,450, respectively 31,434 18,094
Accrued rental income 290,049 279,724
------------------- -------------------
$ 20,904,798 $ 21,189,833
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 85,694 $ 4,503
Accrued and escrowed real estate taxes payable 43,826 36,732
Distributions payable 600,000 600,000
Due to related party 160,865 148,978
Rents paid in advance and deposits 52,445 59,620
------------------- -------------------
Total liabilities 942,830 849,833
Commitments and Contingencies (Note 3)
Partners' capital 19,961,968 20,340,000
------------------- -------------------
$ 20,904,798 $ 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
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<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ -------------- -------------
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Revenues:
Rental income from operating leases $ 496,860 $ 511,225 $ 993,393 $1,051,001
Earned income from direct financing leases 30,864 31,872 61,990 63,981
Contingent rental income 26,131 15,546 34,374 37,207
Interest and other income 7,051 8,347 16,969 21,192
------------ ------------ -------------- -------------
560,906 566,990 1,106,726 1,173,381
------------ ------------ -------------- -------------
Expenses:
General operating and administrative 31,152 41,090 71,590 75,715
Professional services 11,364 26,397 21,364 32,645
Real estate taxes 8,576 -- 13,855 20,755
State and other taxes -- 106 15,395 15,747
Depreciation and amortization 102,473 107,626 205,004 222,777
Transaction costs 71,148 -- 104,166 --
------------ ------------ -------------- -------------
224,713 175,219 431,374 367,639
------------ ------------ -------------- -------------
Income Before Equity in Earnings (Loss) of
Joint Ventures, Gain on Sale of Land and
Buildings and Provision for Loss on Land
and Building 336,193 391,771 675,352 805,742
Equity in Earnings (Loss) of Joint Ventures 72,942 (191,062 ) 146,616 (148,888 )
Gain on Sale of Land and Buildings -- -- -- 120,915
Provision for Loss on Land and Building -- (65,172 ) -- (65,172 )
------------ ------------ -------------- -------------
Net Income $ 409,135 $ 135,537 $ 821,968 $ 712,597
============ ============ ============== =============
Allocation of Net Income:
General partners $ 4,091 $ (66 ) $ 8,220 $ 2,417
Limited partners 405,044 135,603 813,748 710,180
------------ ------------ -------------- -------------
$ 409,135 $ 135,537 $ 821,968 $ 712,597
============ ============ ============== =============
Net Income Per Limited Partner Unit $ 6.75 $ 2.26 $ 13.56 $ 11.84
============ ============ ============== =============
Weighted Average Number of Limited Partner
Units Outstanding 60,000 60,000 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
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<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
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General partners:
Beginning balance $ 769,078 $ 756,354
Net income 8,220 12,724
------------------ ------------------
777,298 769,078
------------------ ------------------
Limited partners:
Beginning balance 19,570,922 21,395,945
Net income 813,748 1,808,725
Distributions ($20.00 and $60.56 per
limited partner unit, respectively) (1,200,000 ) (3,633,748 )
------------------ ------------------
19,184,670 19,570,922
------------------ ------------------
Total partners' capital $19,961,968 $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>
Six Months Ended
June 30,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,127,102 $1,154,124
--------------- ----------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating
leases -- (275,000 )
Proceeds from sale of land and buildings -- 1,468,825
Investment in joint venture (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
--------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,200,000 ) (2,523,748 )
--------------- ----------------
Net cash used in financing activities (1,200,000 ) (2,523,748 )
--------------- ----------------
Net Decrease in Cash and Cash Equivalents (88,100 ) (175,799 )
Cash and Cash Equivalents at Beginning of Period 739,382 876,452
--------------- ----------------
Cash and Cash Equivalents at End of Period $ 651,282 $ 700,653
=============== ================
Supplemental Schedule of Non-Cash Investing and
Financing Activities:
Deferred real estate disposition fees incurred
and unpaid at end of period $ -- $ 45,663
=============== ================
Distributions declared and unpaid at end
of period $ 600,000 $ 600,000
=============== ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 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 and six months ended June 30, 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 June 30, 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 and Six Months Ended June 30, 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>
June 30, December 31,
1999 1998
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Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $ 5,288,090 $ 4,406,943
Net investment in direct financing
leases, less allowance for
impairment in carrying value 377,724 626,594
Cash 23,087 14,025
Receivables 5,334 10,943
Accrued rental income 166,304 163,773
Other assets 2,924 2,513
Liabilities 48,357 27,211
Partners' capital 5,815,106 5,197,580
Revenues 305,224 368,058
Provision for loss on land and
buildings and net investment in
direct financing lease -- (441,364 )
Net income (loss) 222,901 (212,388 )
</TABLE>
The Partnership recognized income totaling $146,616 and a loss totaling
$148,888 for the six months ended June 30, 1999 and 1998, respectively,
of which income of $72,942 and a loss of $191,062 were recognized for
the quarters ended June 30, 1999 and 1998, respectively, from these
joint ventures.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which
the Partnership would be merged with and into a subsidiary of APF (the
"Merger"). As consideration for the Merger, APF has agreed to issue
1,334,008 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 $20.00 per APF Share, the price paid by APF
investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) 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. 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 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. 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in certain
of the CNL Income Funds served a lawsuit against the general partners,
APF, and CNL Fund Advisors, Inc and certain of its affiliates, in
connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<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 June 30,
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 of the general partners as
tenants-in-common.
Capital Resources
During the six months ended June 30, 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 $1,127,102 and $1,154,124, respectively. The decrease
in cash from operations for the six months ended June 30, 1999 is primarily a
result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 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 June 30, 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, were structured to qualify as a like-kind
exchange transaction for federal income tax purposes.
Currently, rental income from the Partnership's Properties and net
sales proceeds from the sale of Properties, pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments such as demand deposit accounts at commercial banks,
certificates of deposit, and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses or to make distributions to the partners. At June 30, 1999, the
Partnership had $651,282 invested in such short-term investments, as compared to
$739,382 at December 31, 1998. The funds remaining at June 30, 1999 will be used
to pay distributions and other liabilities.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and 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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations and, for the six
months ended June 30, 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 $1,200,000 and $2,433,748 for the six
months ended June 30, 1999 and 1998, respectively ($600,000 for each of the
quarters ended June 30, 1999 and 1998). This represents distributions of $20.00
and $40.56 per unit for the six months ended June 30, 1999 and 1998,
respectively ($10.00 per unit for each of the quarters ended June 30, 1999 and
1998). Distributions for the six months ended June 30, 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. No distributions were
made to the general partners for the quarters and six months ended June 30, 1999
and 1998. No amounts distributed to the limited partners for the six months
ended June 30, 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.
Total liabilities of the Partnership, including distributions payable,
increased to $942,830 at June 30, 1999 from $849,833 at December 31, 1998,
primarily as a result of the Partnership accruing transaction costs relating to
the proposed Merger with CNL American Properties Fund, Inc. ("APF"), as
described below. Total liabilities at June 30, 1999, to the extent they exceed
cash and cash equivalents at June 30, 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.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 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 six months ended June 30, 1999, the Partnership owned and leased 30
wholly owned Properties, generally to operators of fast-food and family-style
restaurant chains. During the six months ended June 30, 1999 and 1998, the
Partnership earned $1,055,383 and $1,114,982, respectively, in rental income
from operating leases and earned income from the direct financing leases from
these Properties, $527,724 and $543,097 of which was earned during the quarters
ended June 30, 1999 and 1998, respectively. The decrease in rental and earned
income for the quarter and six months ended June 30, 1999 was primarily due to
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 six months ended June 30, 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.
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy. As of July 31, 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 six months ended June 30, 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 six months ended June 30, 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 six months ended June 30, 1999 and 1998, the Partnership
recognized income of $146,616 and a loss of $148,888, respectively, of which
income of $72,942 and a loss of $191,062 were recognized for the quarters ended
June 30, 1999 and 1998, respectively. The increase in net income earned by joint
ventures is primarily due to the fact that Kingsville Real Estate Joint Venture
(in which the Partnership owns a 68.87% interest in the profits and losses of
the joint venture) established an allowance for doubtful accounts of
approximately $50,800 and $65,900 during the quarter and six months ended June
30, 1998, respectively, in accordance with its collection policy. No such
allowance was established during the quarter and six months ended June 30, 1999.
In addition, during the quarter and six months ended June 30, 1998, Kingsville
Real Estate Joint Venture established a provision for loss on land and net
investment in the direct financing lease for its Property in Kingsville, Texas
for approximately $316,000. The allowance represented the difference between the
Property's carrying value at June 30, 1998 and the estimated net realizable
value of the Property. 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 increase in net
income for the quarter and six months ended June 30, 1999 is also 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.
In addition, the increase was also due to 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.
Operating expenses, including depreciation and amortization, were
$431,374 and $367,639 for the six months ended June 30, 1999 and 1998,
respectively, of which $224,713 and $175,219 were incurred for the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
for the quarter and six months ended June 30, 1999, as compared to the quarter
and six months ended June 30, 1998, was primarily due to the fact that the
Partnership incurred $71,148 and $104,166 for the quarter and six months ended
June 30, 1999, respectively, in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described 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 for the quarter and six months ended June 30, 1999, as compared to the
quarter and six months ended June 30, 1998, was partially offset by a decrease
in depreciation expense which resulted from the sale of four Properties in 1998.
During the quarter and six months ended June 30, 1998, the Partnership
recorded a provision for loss on land and building in the amount of $65,172 for
financial reporting purposes for the Property in Leesburg, Florida. The
allowance at June 30, 1998, represented the difference between the Property's
carrying value at June 30, 1998 and the net realizable value of the Property
based on the net sales proceeds received in July 1998 from the sale of the
Property. No such provision was recorded for the quarter and six months ended
June 30, 1999.
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 six months ended June 30, 1998. No
Properties were sold during the six months ended June 30, 1999.
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 (the "Merger"). As consideration for the Merger, APF
has agreed to issue 1,334,008 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 $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
which became effective June 3, 1999) 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. 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 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. 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 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
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. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the 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
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 certain of 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 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 that 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 their 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 will 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.
Based upon the progress the general partners and their 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, we 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 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
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 and as amended June
4, 1999 (Filed as Appendix B to the Prospectus
Supplement for the Registrant, constituting a
part of Amendment No. 1 to the Registration
Statement of APF on Form S-4, File No. 74329.)
<PAGE>
3.1 Certificate of Limited Partnership of CNL Income
Fund IV, Ltd. (Included as Exhibit 3.1 in
Amendment No. 1 to Registration Statement No.
33-20249 on Form S-11 and incorporated herein by
reference.)
3.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with
the Securities and Exchange Commission on March
31, 1994, and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income
Fund IV, Ltd. (Included as Exhibit 3.1 in
Amendment No. 1 to Registration Statement No.
33-20249 on Form S-11 and incorporated herein by
reference.)
4.2 Amended and Restated Agreement and Certificate of
Limited Partnership of CNL Income Fund IV, Ltd.
(Included as Exhibit 3.2 to Form 10-K filed with
the Securities and Exchange Commission on March
31, 1994, and incorporated herein by reference.)
10.1 Property Management Agreement (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 31,
1994, and incorporated herein by reference.)
10.2 Assignment of Property Management Agreement from
CNL Investment Company to CNL Income Fund
Advisors, Inc. (Included as Exhibit 10.2 to Form
10-K filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Property Management Agreement from
CNL Income Fund Advisors, Inc. to CNL Fund
Advisors, Inc. (Included as Exhibit 10.3 to Form
10-K filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 10-K
No reports on Form 8-K were filed during the quarter ended
June 30, 1999.
<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 10th day of August, 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 June 30, 1999, and its statement of income
from the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund IV, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 651,282
<SECURITIES> 0
<RECEIVABLES> 320,205
<ALLOWANCES> 250,622
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,231,068
<DEPRECIATION> 3,947,353
<TOTAL-ASSETS> 20,904,798
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,961,968
<TOTAL-LIABILITY-AND-EQUITY> 20,904,798
<SALES> 0
<TOTAL-REVENUES> 1,106,726
<CGS> 0
<TOTAL-COSTS> 431,374
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 821,968
<INCOME-TAX> 0
<INCOME-CONTINUING> 821,968
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 821,968
<EPS-BASIC> 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>
