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UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D. C. 20549
FORM 10-K
(Mark One)
[x] ANNUAL REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the fiscal year ended December 31, 1999
OR
[_] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _______ to ______
Commission file number 0-17549
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)
450 South Orange Avenue
Orlando, Florida 32801-3336
(Address of principal executive offices, including zip code)
Registrant's telephone number, including area code: (407) 540-2000
Securities registered pursuant to Section 12 (b) of the Act:
Title of each class: Name of exchange on which registered:
None Not Applicable
Securities registered pursuant to section 12(g) of the Act:
Units of limited partnership interest ($500 per Unit)
(Title of class)
Indicate by check mark whether the registrant (1) has filed all reports
required to be filed by Section 13 or 15(d) of the Securities Exchange Act of
1934 during the preceding 12 months (or such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days: Yes X No ___
----
Indicate by check mark if disclosure of delinquent filers pursuant to Item
405 of Regulation S-K is not contained herein, and will not be contained, to the
best of registrant's knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to this
Form 10-K. No [x]
Aggregate market value of the voting stock held by nonaffiliates of the
registrant: The registrant registered an offering of 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 for such Units. Each Unit was originally sold at $500 per Unit.
DOCUMENTS INCORPORATED BY REFERENCE:
None
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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. During 1999, the Partnership reinvested the
net sales proceeds received from the sale of the Property in Naples, Florida in
a Property in Zephryhills, Florida, with affiliates of the General Partners as
tenants-in-common. As a result of the above transactions, as of December 31,
1999, the Partnership owned 38 Properties. The 38 Properties include 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. Generally, the Properties are leased on a triple-net basis
with the lessees responsible for all repairs and maintenance, property taxes,
insurance and utilities.
The Partnership will hold its Properties until the General Partners
determine that the sale or other disposition of the Properties is advantageous
in view of the Partnership's investment objectives. In deciding whether to sell
Properties, the General Partners will consider factors such as potential capital
appreciation, net cash flow and federal income tax considerations. Certain
lessees also have been granted options to purchase Properties, generally at the
Property's then fair market value after a specified portion of the lease term
has elapsed. 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
purchase options granted to certain lessees.
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to which the
Partnership would be merged with and into a subsidiary of APF (the "Termination
of Merger"). APF is a real estate investment trust whose primary business is the
ownership of restaurant properties leased on a long-term, "triple-net" basis to
operators of national and regional restaurant chains. Under the Agreement and
Plan of Merger, APF was to issue shares of its common stock as consideration for
the Merger. On March 1, 2000, the General Partners and APF announced that they
had mutually agreed to terminate the Agreement and Plan of Merger. the agreement
to terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate
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investment trusts, the value of the transaction had diminished. As a result of
such diminishment, the General partners; ability to unequivocally recommend
voting for the transaction, in the exercise of their fiduciary duties, had
become questionable.
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 and Properties owned as
tenants-in-common with affiliates of the General Partners provide for initial
terms, ranging from five to 20 years (the average being 17 years), and expire
between 2001 and 2019. 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 $21,000 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.
Lessees of 32 of the Partnership's 38 Properties also have been granted options
to purchase Properties at the Property's then fair market value, or pursuant to
a formula based on the original cost of the Property, after a specified portion
of the lease term has elapsed. Fair market value will be determined through an
appraisal by an independent appraisal firm. Additionally, certain leases
provide the 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.
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 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.
Effective January 1, 1999, the Partnership entered into a lease amendment
with the tenant of the Property in Edgewood, Maryland to provide for reduced
annual rents and to extend the lease for an additional 20 years.
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 new lease with a new tenant. The lease terms are
substantially the same as the Partnership's other leases as described above.
Major Tenants
During 1999, 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
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joint ventures and two Properties owned with affiliates of the General Partners
as tenants-in-common). As of December 31, 1999, Shoney's, Inc. was the lessee
under leases relating to five restaurants. It is anticipated that, based on the
minimum rental payments required by the leases, Shoney's, Inc. will continue to
contribute more than ten percent of the Partnership's total rental income in
2000. 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 1999 (including the Partnership's share
of the rental income from six Properties owned by joint ventures and two
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2000, 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 this
lessee or these 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, each to purchase and hold one Property: Holland Joint Venture with
CNL Income Fund II, Ltd., Titusville Joint Venture with CNL Income Fund III,
Ltd., Cocoa Joint Venture with CNL Income Fund V, Ltd., Auburn Join Venture with
CNL Income Fund VI, Ltd., Kingsville Real Estate Joint Venture with CNL Income
Fund XII, Ltd., and Warren Joint Venture with CNL Income Fund VI, Ltd. Each of
the CNL Income Funds is an affiliate of the General Partners and is a limited
partnership 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 percent 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 5 to 20 years and,
after the expiration of the initial term, continues in existence from year to
year unless terminated at the option of either joint venturer or by an event of
dissolution. Events of dissolution include the bankruptcy, insolvency or
termination of any joint venturer, sale of the Property owned by the joint
venture and mutual agreement of the Partnership and its joint venture partner to
dissolve the joint venture.
The Partnership shares management control 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 percent, 26.6%, 57 percent,
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
addition, 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 party's percentage interest. The Partnership
owns a 53 percent and 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
tenancy in common agreements restrict each Party's ability to sell, transfer,
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or assign its interest in the tenancy in common's Properties without first
offering it for sale to the remaining parties to the agreement.
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 American Properties Fund, Inc. ("APF"),
the parent company of CNL Fund Advisors, Inc., perform certain services for the
Partnership. In addition, the General Partners have available to them the
resources and expertise of the officers and employees of CNL Financial Group,
Inc., (formerly CNL Group, Inc.), a diversified real estate company, and its
affiliates, who may also perform certain services for the Partnership.
Item 2. Properties
As of December 31, 1999, the Partnership owned 38 Properties. Of the 38
Properties, 30 are owned by the Partnership in fee simple, six are owned through
joint venture arrangements and two are owned through a tenancy in common
arrangement. See Item 1. Business - Joint Venture and Tenancy in Common
Arrangements. The Partnership is not permitted to encumber its Properties under
the terms of its partnership agreement. Reference is made to the Schedule of
Real Estate and Accumulated Depreciation for a listing of the Properties and
their respective costs, including acquisition fees and certain acquisition
expenses.
Description of Properties
Land. The Partnership's Property sites range from approximately 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.
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The following table lists the Properties owned by the Partnership as of
December 31, 1999 by state. More detailed information regarding the location of
the Properties is contained in the Schedule of Real Estate and Accumulated
Depreciation for the year ended December 31, 1999.
State Number of Properties
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Alabama 3
Florida 9
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
Washington, D.C. 1
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TOTAL PROPERTIES 38
===================
Buildings. Each of the Properties owned by the Partnership includes a
building that is one of a Restaurant Chain's approved designs. However, the
building located on one Checkers Property is owned by the tenant, while the land
parcel is owned by the Partnership. The buildings generally are rectangular and
are constructed from various combinations of stucco, steel, wood, brick and
tile. The sizes of buildings owned by the Partnership range from approximately
800 to 6,800 square feet. All buildings on Properties are freestanding and
surrounded by paved parking areas. Buildings are suitable for conversion to
various uses, although modifications may be required prior to use for other than
restaurant operations. As of December 31, 1999, the Partnership had no plans
for renovation of the Properties. Depreciation expense is computed for
buildings and improvements using the straight line method using depreciable
lives of 31.5 and 39 years for federal income tax purposes. As of December 31,
1999, the aggregate cost of the Properties owned by the Partnership and joint
ventures (including Properties owned through tenancy in common arrangements) for
federal income tax purposes was $13,161,860 and $4,650,500, respectively.
The following table lists the Properties owned by the Partnership as of
December 31, 1999 by Restaurant Chain.
Restaurant Chain Number of Properties
---------------- --------------------
Arby's 3
Big Boy 1
Boston Market 1
Captain D's 2
Checkers 1
Denny's 4
Dunkin Donuts 1
Golden Corral 3
IHOP 1
Jack in the Box 1
KFC 1
Pizza Hut 5
Shoney's 5
Taco Bell 1
Waffle House 1
Wendy's 4
Other 3
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TOTAL PROPERTIES 38
=================
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The General Partners consider the Properties to be well-maintained and
sufficient for the Partnership's operations.
The General Partners believe that the Properties are adequately covered by
insurance. In addition, the General Partners have obtained contingent liability
and property coverage for the Partnership. This insurance is intended to reduce
the Partnership's exposure in the unlikely event a tenant's insurance policy
lapses or is insufficient to cover a claim relating to the Property.
Leases. The Partnership leases the Properties to operators of selected
national and regional fast-food restaurant chains. The leases are generally on
a long-term "triple net" basis, meaning that the tenant is responsible for
repairs, maintenance, property taxes, utilities and insurance. Generally, a
lessee is required, under the terms of its lease agreement, to make such capital
expenditures as may be reasonably necessary to refurbish buildings, premises,
signs and equipment so as to comply with the lessee's obligations, if
applicable, under the franchise agreement to reflect the current commercial
image of its Restaurant Chain. These capital expenditures are required to be
paid by the lessee during the term of the lease. The terms of the leases of the
Properties owned by the Partnership are described in Item 1. Business - Leases.
At December 31, 1999, 1998, 1997, 1996, and 1995, the Properties were 97%,
97%, 93%, 98%, and 98% occupied, respectively. The following is a schedule of
the average rent per party for the years ended December 31:
1999 1998 1997 1996
---------- ---------- ---------- ----------
Rental Revenues (1) $2,640,100 $2,544,386 $2,596,455 $2,815,542
Properties (2) 37 36 37 40
Average Rent per Property $ 71,354 $ 70,677 $ 70,174 $ 70,389
(1) Rental income includes the Partnership's share of rental income from the
Properties owned through joint venture arrangements and the Property owned
through tenancy in common arrangements. 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, 1999 for the next ten years and thereafter.
Percentage of
Expiration Number Annual Rental Gross Annual
Year of Leases Revenues Rental Income
------------- -------------- --------------- -----------------
2000 -- -- --
2001 1 $ 40,200 1.62%
2002 2 100,855 4.07%
2003 2 70,708 2.86%
2004 -- -- --
2005 -- -- --
2006 -- -- --
2007 1 93,510 3.78%
2008 16 1,012,955 40.92%
2009 7 634,674 25.64%
Thereafter 8 522,511 21.11%
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Total (1) 37 $2,475,413 100.00%
======== ============ =============
(1) Excludes one Property which was vacant at December 31, 1999.
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Leases with Major Tenants. The terms of each of the leases with the
Partnership's major tenant as of December 31, 1999 (see Item 1. Business -
Major Tenants), are substantially the same as those described in Item 1.
Business - Leases.
Shoney's, Inc. leases three 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 $62,500 (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.
Item 3. Legal Proceedings
On May 11, 1999, four limited partners in several CNL Income Funds served a
derivative and purported class action lawsuit filed April 22, 1999 against the
general partners and APF in the Circuit Court of the Ninth Judicial Circuit of
Orange County, Florida, alleging that the general partners breached their
fiduciary duties and violated provisions of certain of the CNL Income Fund
partnership agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8, 1999, the
plaintiffs filed an amended complaint which, in addition to naming three
additional plaintiffs, includes allegations of aiding and abetting and
conspiring to breach fiduciary duties, negligence and breach of duty of good
faith against certain of the defendants and seeks additional equitable relief.
As amended, the caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
-------------------------------------
Hewitt, Gretchen M. Hewitt, Bernard J. Schulte, Edward M. and Margaret Berol
- ---------------------------------------------------------------------------
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne, CNL Realty
- ----------------------------------------------------------------------------
Corporation, and CNL American Properties Fund, Inc., Case No. CIO-99-0003561.
- ----------------------------------------------------
On June 22, 1999, a limited partner of several CNL Income Funds served a
purported class action lawsuit filed April 29, 1999 against the general partners
and APF, Ira Gaines, individually and on behalf of a class of persons similarly
----------------------------------------------------------------------
situated, v. CNL American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
- --------------------------------------------------------------------------------
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL Financial
- ----------------------------------------------------------------------
Corporation a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
- ---------------------------------------------------------------------------
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth Judicial
- -----------
Circuit of Orange County, Florida, alleging that the general partners breached
their fiduciary duties and that APF aided and abetted their breach of fiduciary
duties in connection with the proposed Merger. The plaintiff is seeking
unspecified damages and equitable relief.
On September 23, 1999, Judge Lawrence Kirkwood entered an order consolidating
the two cases under the caption In re: CNL Income Funds Litigation, Case No. 99-
-----------------------------------------------
3561. Pursuant to this order, the plaintiffs in these cases filed a
- ----
consolidated and amended complaint on November 8, 1999. On December 22, 1999,
the General Partners and CNL Group, inc. filed motions to dismiss and motions to
strike. On December 28, 1999, APF and CNL Fund Advisors, Inc. filed motions to
dismiss. On March 6, 2000, all of the defendants filed a Joint Notice of Filing
Form 8-K Reports and Suggestion of Mootness
Item 4. Submission of Matters to a Vote of Security Holders
Not applicable.
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PART II
Item 5. Market for Registrant's Common Equity and Related Stockholder Matters
(a) As of March 15, 2000, there were 2,915 holders of record of the Units.
There is no public trading market for the Units, and it is not anticipated that
a public market for the Units will develop. During 1999, Limited Partners who
wished to sell their Units may have offered the Units for sale pursuant to the
Partnership's distribution reinvestment plan (the "Plan"), and Limited Partners
who wished to have their distributions used to acquire additional Units (to the
extent Units were available for purchase), may have done so pursuant to such
Plan. The General Partners had the right to prohibit transfer of Units. The
price paid for any Unit transferred pursuant to the Plan range from $405.10 to
$475 per Unit. The price paid for any Unit transferred other than pursuant to
the Plan was subject to negotiation by the purchasers and the selling Limited
Partner. The Partnership will not redeem or repurchase Units.
The following table reflects, for each calendar quarter, the high, low and
average sales prices for transfers of Units during 1999 and 1998 other than
pursuant to the Plan, net of commissions.
1999 (1) 1998 (1)
------------------------------ ---------------------------
High Low Average High Low Average
-------- -------- ---------- -------- -------- --------
First Quarter $500 $500 $500 $435 $411 $422
Second Quarter 406 368 387 475 475 475
Third Quarter 413 295 366 500 387 463
Fourth Quarter 450 311 370 476 380 433
(1) A total of 373 1/2 and 552 Units were transferred other than pursuant to
the Plan for the years ended December 31, 1999 and 1998, respectively.
The capital contribution per Unit was $500. All cash available for
distribution will be distributed to the partners pursuant to the provision of
the Partnership Agreement.
For the years ended December 31, 1999 and 1998, the Partnership declared cash
distributions of $2,400,000 and $3,633,748, respectively, to the Limited
Partners. Distributions for the year ended December 31, 1998 included
$1,233,748 as a result of the distribution of the net sales proceeds from the
sale of the Properties in Fort Myers, Florida and Union Township, Ohio to the
Limited Partners. This amount was applied toward the Limited Partners'
cumulative 10% Preferred Return. The reduced number of Properties for which the
Partnership receives rental payments reduced the Partnership's revenues. The
decrease in Partnership revenues, combined with the fact that a significant
portion of the Partnership's expenses are fixed in nature, resulted in a
decrease in cash distribution to the Limited Partners commencing in 1998. No
amounts distributed to partners for the years ended December 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. No distributions have been made to the General
Partners to date. As indicated in the chart below, these distributions were
declared at the close of each of the Partnership's calendar quarters. This
amount includes monthly distributions made in arrears for the Limited Partners
electing to receive such distributions on this basis.
Quarter Ended 1999 1998
------------------ ------------- -------------
March 31 $600,000 $1,833,748
June 30 600,000 600,000
September 30 600,000 600,000
December 31 600,000 600,000
The Partnership intends to continue to make distributions of cash available
for distribution to the Limited Partners on a quarterly basis, although the
General Partners, in their sole discretion, may elect to pay distributions
monthly.
8
<PAGE>
(b) Not applicable
Item 6. Selected Financial Data
<TABLE>
<CAPTION>
1999 1998 1997 1996 1995
---------------- ---------------- ---------------- ---------------- ----------------
<S> <C> <C> <C> <C> <C>
Year ended December 31:
Revenues (1) $ 2,602,057 $ 2,285,696 $ 2,531,385 $ 2,820,295 $ 2,871,572
Net income (2) 1,827,359 1,821,449 1,720,668 2,347,167 2,210,339
Cash distributions
declared (3) 2,400,000 3,633,748 2,760,000 2,760,000 2,760,000
Net income per Unit (2) 30.15 30.15 28.42 38.75 36.48
Cash distributions declared
per Unit 40.00 60.56 46.00 46.00 46.00
At December 31:
Total assets $20,828,319 $21,189,833 $23,309,888 $23,730,892 $24,057,829
Partners' capital 19,767,359 20,340,000 22,152,299 22,897,631 23,288,164
</TABLE>
(1) Revenues include equity in earnings (losses) of joint ventures.
(2) Net income for the year ended December 31, 1997 includes $6,652 from a loss
on the sale of land and $70,337 for a provision for loss on land and
building. Net income for the years ended December 31, 1998, 1996, and 1995
includes $226,024, $221,390 and $128,547, respectively, from gains on the
sale of land and buildings.
(3) Distributions for the year ended December 31, 1998 include a special
distribution to the Limited Partners of $1,233,748 in net sales proceeds
from the sale of two properties in 1998.
The above selected financial data should be read in conjunction with the
financial statements and related notes contained in Item 8. hereof.
Item 7. Management's Discussion and Analysis of Financial Condition and Results
of Operations
The Partnership was organized on November 18, 1987, to acquire for cash,
either directly or through joint venture arrangements, both newly constructed
and existing restaurant Properties, as well as land upon which restaurant
Properties were to be constructed, which are leased primarily to operators of
selected national and regional fast-food and family-style Restaurant Chains.
Substantially all of the leases are triple-net leases, with the lessees
generally responsible for all repairs and maintenance, property taxes, insurance
and utilities. As of December 31, 1999, the Partnership owned 38 Properties,
either directly or indirectly through joint venture or tenancy in common
arrangements.
Capital Resources
During the years ended December 31, 1999, 1998, and 1997, the Partnership
generated cash from operations (which includes cash received from tenants,
distributions from joint ventures and interest received, less cash paid for
expenses) of $2,401,313, $2,362,320, and $2,417,972, respectively. The increase
in cash from operations for 1999, as compared to 1998, and the decrease during
1998, as compared to 1997, were primarily a result of changes in income and
expenses as described in "Results of Operations" below and changes in the
Partnership's working capital.
Other sources and uses of capital included the following during the years
ended December 31, 1999, 1998, and 1997.
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 was uncollateralized, bore interest at a rate of ten percent
9
<PAGE>
per annum, and was 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 $14,300 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 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. As of December 31, 1998, the
remaining net sales proceeds from the sale of this Property, including accrued
interest, were being held in an interest bearing escrow account pending
reinvestment. In January 1999, the Partnership invested 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. A portion of
the transaction relating to the sale of the Property in Naples, Florida and the
reinvestment of the net sales proceeds qualified as a like-kind exchange
transaction for federal income tax purposes.
The General Partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership. During the year ended December 31, 1997, the
Partnership received $294,000, in capital contributions from the corporate
General Partner in connection with the operations of the Partnership. No such
contributions were received during the years ended December 31, 1999 and 1998.
10
<PAGE>
None of the Properties owned by the Partnership, or the joint ventures or
tenancy in common arrangements 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, certificates of deposit and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses or to make distributions to the partners. At December 31, 1999, the
Partnership had $725,493 invested in such short-term investments, as compared to
$739,382 at December 31, 1998. As of December 31, 1999, the average interest
rate earned on the rental income deposited in demand deposit accounts at
commercial banks was 3.79% annually. Total liabilities at December 31, 1999, to
the extent they exceed cash and cash equivalents at December 31, 1999, 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.
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 $2,400,000, $3,633,748, and $2,760,000, for the years ended December
31, 1999, 1998, and 1997, respectively. This represents distributions of $40,
$61, and $46 per Unit for the years ended December 31, 1999, 1998, and 1997,
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 reduced the
Partnership's revenues. The decrease in Partnership revenues, combined with the
fact that a significant portion of the Partnership's expenses are fixed in
nature, resulted in a decrease in cash distributions to the Limited Partners
commencing in 1998. No amounts distributed to the Limited Partners for the
years ended December 31, 1999, 1998, and 1997, 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.
11
<PAGE>
During 1999, 1998, and 1997, affiliates of the General Partners incurred on
behalf of the Partnership $150,972, $111,482, and $85,702, respectively, for
certain operating expenses. As of December 31, 1999 and 1998, the Partnership
owed affiliates $195,846 and $103,315, respectively, 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,
increased to $819,451 at December 31, 1999, from $700,855 at December 31, 1998.
The increase in liabilities at December 31, 1999, was primarily the result of
the Partnership accruing transaction costs relating to the proposed Merger with
CNL American Properties Fund, Inc. ("APF"), as described below in "Termination
of Merger", and an increase in tenant security deposits received during 1999.
Total liabilities at December 31, 1999, to the extent they exceed cash and cash
equivalents at December 31, 1999, 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 1997, the Partnership owned and leased 35 wholly owned Properties
(including one Property in Douglasville, Georgia, which was sold in November
1997). During 1998, the Partnership owned and leased 34 wholly owned Properties
(including four Properties which were sold in 1998) and during 1999, the
Partnership owned and leased 30 wholly owned Properties. In addition, during
1997, 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. During 1998 and 1999, the Partnership was a co-venturer in
an additional joint venture that owned and leased one Property. In addition,
during 1999, the Partnership owned and leased one additional Property, with an
affiliate of the General Partners, as tenants-in-common. As of December 31,
1999, the Partnership owned, either directly or through joint venture
arrangements, 38 Properties, which are, in general, subject to long-term,
triple-net leases. The leases of the Properties provide for minimum base annual
rental amounts (payable in monthly installments) ranging from $21,000 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, 1999, 1998, and 1997, the Partnership
earned $2,132,891, $2,231,513, and $2,189,386, respectively, in rental income
from operating leases and earned income from direct financing leases from its
wholly owned Properties described above. The decrease in rental and earned
income during 1999, as compared to 1998, was partially attributable to, and the
increase during 1998, as compared to 1997, was partially offset by, a decrease
in rental and earned income due to the sales of various Properties during 1998.
During 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 during 1999, used the net sales proceeds from the sale of a Property in
Naples, Florida to acquire one Property in Zephryhills, Florida, held as
tenants-in-common with affiliates of the General Partners, as described above in
"Capital Resources." 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.
Rental and earned income also decreased by approximately $25,000 during
1999, as a result of the fact that, effective January 1, 1999, the Partnership
amended the lease for the Property located in Edgewood, Maryland, to provide for
reduced annual rental income.
12
<PAGE>
Rental and earned income were reduced during 1997, as a result of the
Partnership establishing an allowance for doubtful accounts totalling
approximately $128,200, 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 decrease in rental and earned income during 1999, as compared to
1998, is partially offset by an increase of approximately $25,600 relating to
the new tenant.
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 1999 or 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. 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.
For the years ended December 31, 1999, 1998, and 1997, the Partnership also
earned $126,521, $83,377, and $117,031, respectively, in contingent rental
income from the Partnership's Properties. The increase in contingent rental
income during the year ended December 31, 1999, as compared to the year ended
December 31, 1998, was primarily attributable to an increase in gross sales of
certain restaurant Properties, the leases of which require the payment of
contingent rental income. The decrease during 1998, as compared to 1997, was
partially attributable to (i) the Partnership adjusting estimated contingent
rental amounts accrued at December 31, 1997, to actual amounts received in 1998
and (ii) a decrease in gross sales for certain restaurant Properties whose
leases require the payment of contingent rental income.
In October 1998, the tenant of one Boston Market Property filed for
bankruptcy. As of March 15, 2000, the Partnership was continuing to receive
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 affect on the results of operations of the
Partnership if the Partnership is not able to re-lease this Property in a timely
manner.
For the years ended December 31, 1999, 1998, and 1997, the Partnership also
recognized income of $303,223, a loss of $90,144 and income of $189,747,
respectively, attributable to net income earned or losses recognized by joint
ventures in which the Partnership is a co-venturer. The increase in net income
in 1999, as compared to 1998, and the decrease during 1998, as compared to 1997,
was partially attributable 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 of approximately $316,000 during the year ended December 31, 1998 in
accordance with its policy. The tenant of this Property experienced financial
difficulties and ceased payment of rents under the terms of its lease agreement.
The allowance represented 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 1998, and approximately $20,600 during 1997, for
amounts due from this tenant deemed uncollectible in accordance with its
collection policy. No such allowances were recorded during 1999. 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.
During 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. In addition, the joint venture recorded real
estate tax expense of approximately $16,600 and wrote off unamortized lease
costs of $23,500 due to the tenant vacating the Property. In addition, during
1998 and 1997, the joint venture established an allowance for loss on land and
building for its Property for approximately $125,300 and $147,000, respectively,
for financial reporting purposes. The allowances represented the difference
13
<PAGE>
between the Property's carrying values at December 31, 1998 and 1997,
respectively, and the estimated net realizable value of the Property.
Titusville Joint Venture had ceased collection efforts on past due amounts. 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.
In addition, the increase in net income earned by joint ventures during
1999, as compared to 1998, was partially attributable to, and the decrease
during 1998, as compared to 1997, was partially offset by, the fact that, during
1998, the Partnership reinvested net sales proceeds from the 1998 sale of its
Property in Leesburg, Florida in Warren Joint Venture, and during 1999,
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
affiliates of the General Partners, as described above in "Capital Resources."
During the year ended December 31, 1999, 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 two Properties owned with affiliates of
the General Partners as tenant-in-common). As of December 31, 1999, Shoney's,
Inc. was the lessee under leases relating to five 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 2000. In addition, during the year
ended December 31, 1999, 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 two
Properties owned with affiliates of the General Partners as tenants-in-common).
In 2000, 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 this
lessee or these 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
$774,698, $690,271, and $733,728, for the years ended December 31, 1999, 1998,
and 1997, respectively. The decrease in operating expenses for 1998, as
compared to 1997, was partially due to the fact that during 1997, the
Partnership expensed approximately $25,400 in current and past due real estate
taxes for the Property in Palm Bay, Florida due to the tenant vacating the
Property in October 1997. The Property was re-leased and the new tenant is
responsible for these expenses beginning in December 1997. The increase during
1999, as compared to 1998, is partially offset by the fact that, through a
settlement agreement during 1999, the Partnership collected a portion of the
amounts due from the former tenant that had been expensed by the Partnership, as
described above in "Capital Resources".
The increase in operating expenses for 1999, as compared to 1998, was
partially attributable to, and the decrease in operating expenses for 1998, as
compared to 1997, was partially offset by, an increase in operating expense for
1999 and 1998 due to the fact that the Partnership incurred $142,244 and
$18,286, respectively, in transaction costs related to the General Partners
retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described in "Termination of
Merger."
The increase during 1999, as compared to 1998, was partially offset by, and
the decrease during 1998, as compared to 1997, was partially attributable to, a
decrease in depreciation expense which resulted from the sales of various
Properties during 1997 and 1998.
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 and 1999.
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 1999, 1998, and 1997, 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
14
<PAGE>
relating to this Property during 1998 and 1997. 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, the Partnership recognized a
total gain of $226,024 for financial reporting purposes during the year ended
December 31, 1998. 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. No
Properties were sold during 1999.
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. The Partnership sold this Property in July 1998.
The Partnership's leases as of December 31, 1999, are, in general, triple-
net leases and contain provisions that the General Partners believe mitigate the
adverse effect of inflation. Such provisions include clauses requiring the
payment of percentage rent based on certain restaurant sales above a specified
level and/or automatic increases in base rent at specified times during the term
of the lease. Management expects that increases in restaurant sales volumes due
to inflation and real sales growth should result in an increase in rental income
over time. Continued inflation also may cause capital appreciation of the
Partnership's Properties. Inflation and changing prices, however, also may have
an adverse impact on the sales of the restaurants and on potential capital
appreciation of the Properties.
Termination of Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March 1,
2000, the General Partners and APF announced that they had mutually agreed to
terminate the Agreement and Plan of Merger. The agreement to terminate the
Agreement and Plan of Merger was based, in large part, on the General Partners'
concern that, in light of market conditions relating to publicly traded real
estate investment trusts, the value of the transaction had diminished. As a
result of such diminishment, the General Partners' ability to unequivocally
recommend voting for the transaction, in the exercise of their fiduciary duties,
had become questionable.
Overview of Year 2000 Problem
The year 2000 problem concerns the inability of information and non-
information technology systems to properly recognize and process date-sensitive
information beyond January 1, 2000. The failure to accurately recognize the
year 2000 could result in a variety of problems from data miscalculations to the
failure of entire systems.
Status
The Partnership generally does not directly own information technology
systems. The General Partners and their affiliates generally provide all
services requiring the use of information and some non-information technology
systems. In early 1998, affiliates of the General Partners formed a year 2000
committee ("the Y2K Team") that assessed the readiness of any systems that are
date sensitive and completed upgrades for the hardware equipment and software
that was not year 2000 compliant, as necessary. The cost for these upgrades and
other remedial measures is the responsibility of the General Partners and their
affiliates. The General Partners and their affiliates do not expect that the
Partnership will incur any costs in connection with the year 2000 remedial
measures. In addition, the Y2K Team requested and received certifications of
compliance from other companies with which the General Partners, their
affiliates, and the Partnership have material third party relationships.
In assessing the risks presented by the year 2000 problem, the Y2K Team
identified potential worst case scenarios involving the failure of the
information and non-information technology systems used by the Partnership's
transfer agent, financial institutions and tenants. As of January 14, 2000, the
General Partners and their affiliates have tested the information and non-
information technology systems used by the Partnership and have not experienced
material
15
<PAGE>
disruption or other significant problems. In addition, as of the same date, the
General Partners are not aware of any material year 2000 problems relating to
information and non-information technology systems of third parties with which
the Partnership maintains material relationships, including those of the
Partnership's transfer agent, financial institutions and tenants. In addition in
the Partnership's interactions with its transfer agent, financial institutions
and tenants, the systems of these third parties have functioned normally. Until
the Partnership's first distribution in 2000 and the delivery of the information
by the transfer agent to stockholders in early 2000, the General Partners will
continue to monitor the year 2000 compliance of the transfer agent. In addition,
the General Partners will continue to monitor the systems used by the
Partnership and to maintain contact with third parties with which the
Partnership has material relationships with respect to year 2000 compliance and
any year 2000 issues that may arise at a later date. The General Partners will
develop contingency plans relating to ongoing year 2000 issues at the time that
such issues are identified and such plans are deemed necessary.
Based on the information provided to the Y2K Team, the upgrades and
remedial measures by the General Partners and their affiliates, and the normal
functioning to date of information and non-information technology systems used
by the Partnership and those third parties, the General Partners do not foresee
significant risks associated with its year 2000 compliance at this time. In
addition, the General Partners and their affiliates do not expect to incur any
additional costs in connection with the year 2000 remedial efforts. However,
there can be no assurance that the General Partners and their affiliates or any
third parties will not have ongoing year 2000 issues that may have adverse
effects on the Partnership,.
Item 7A. Quantitative and Qualitative Disclosures About Market Risk
Not applicable.
Item 8. Financial Statements and Supplementary Data
16
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
CONTENTS
--------
Page
----
Report of Independent Certified Public Accountants 18
Financial Statements:
Balance Sheets 19
Statements of Income 20
Statements of Partners' Capital 21
Statements of Cash Flows 22
Notes to Financial Statements 24
17
<PAGE>
Report of Independent Certified Public 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, 1999
and 1998, and the results of its operations and its cash flows for each of the
three years in the period ended December 31, 1999 in conformity with accounting
principles generally accepted in the United States. In addition, in our
opinion, the financial statement 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
auditing standards generally accepted in the United States which require that we
plan and perform the audit to obtain reasonable assurance about whether the
financial statements are free of material misstatement. An audit includes
examining, on a test basis, evidence supporting the amounts and disclosures in
the financial statements, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial
statement presentation. We believe that our audits provide a reasonable basis
for the opinion expressed above.
/s/ PricewaterhouseCoopers LLP
Orlando, Florida
February 4, 2000, except for Note 11 for which the date is March 1, 2000
18
<PAGE>
CNL INCOME IV, LTD.
(A Florida Limited Partnership)
BALANCE SHEETS
--------------
<TABLE>
<CAPTION>
1999 1998
------------------- -------------------
<S> <C> <C>
ASSETS
------
Land and buildings on operating leases, less
accumulated depreciation and allowance
for loss on land and building $15,080,971 $15,486,459
Net investment in direct financing leases 1,189,488 1,231,482
Investment in joint ventures 3,332,012 2,862,906
Cash and cash equivalents 725,493 739,382
Restricted cash -- 537,274
Receivables, less allowance for doubtful
accounts of $215,029 and $258,641, respectively 141,675 24,676
Prepaid expenses 15,383 9,836
Lease costs, less accumulated amortization
of $26,113 and $21,450, respectively 29,031 18,094
Accrued rental income 314,266 279,724
------------------- -------------------
$20,828,319 $21,189,833
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
---------------------------------
Accounts payable $ 91,074 $ 4,503
Accrued and escrowed real estate taxes payable 63,585 36,732
Distributions payable 600,000 600,000
Due to related parties 241,509 148,978
Rents paid in advance and deposits 64,792 59,620
------------------- -------------------
Total liabilities 1,060,960 849,833
Partners' capital 19,767,359 20,340,000
------------------- -------------------
$20,828,319 $21,189,833
=================== ===================
</TABLE>
See accompanying notes to financial statements.
19
<PAGE>
CNL INCOME FUND IV, LTD
(A Florida Limited Partnership)
STATEMENTS OF INCOME
--------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Revenues:
Rental income from operating leases $2,009,987 $2,104,520 $2,058,703
Earned income from direct financing
leases 122,904 126,993 130,683
Contingent rental income 126,521 83,377 117,031
Interest and other income 39,422 60,950 35,221
------------------ ------------------ ------------------
2,298,834 2,375,840 2,341,638
------------------ ------------------ ------------------
Expenses:
General operating and administrative 146,650 151,775 149,808
Professional services 36,759 43,609 33,439
Bad debt expense -- -- 12,794
Real estate taxes 21,468 31,879 65,316
State and other taxes 17,426 15,747 16,476
Depreciation and amortization 410,151 428,975 455,895
Transaction costs 142,244 18,286 --
------------------ ------------------ ------------------
774,698 690,271 733,728
------------------ ------------------ ------------------
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 1,524,136 1,685,569 1,607,910
Equity in Earnings (Losses) of Joint Ventures 303,223 (90,144) 189,747
Gain (Loss) on Sale of Land and Buildings -- 226,024 (6,652)
Provision for Loss on Land and Building -- -- (70,337)
------------------ ------------------ ------------------
Net Income $1,827,359 $1,821,449 $1,720,668
================== ================== ==================
Allocation of Net Income:
General partners $ 18,273 $ 12,724 $ 15,697
Limited partners 1,809,086 1,808,725 1,704,971
------------------
$1,827,359 $1,821,449 $1,720,668
================== ================== ==================
Net Income per Limited Partner Unit $ 30.15 $ 30.15 $ 28.42
================== ================== ==================
Weighted Average Number of Limited
Partner Units Outstanding 60,000 60,000 60,000
================== ================== ==================
</TABLE>
See accompanying notes to financial statements.
20
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF PARTNERS' CAPITAL
-------------------------------
Years Ended December 31, 1999, 1998 and 1997
<TABLE>
<CAPTION>
General Partners Limited Partners
--------------------------- --------------------------------------------------------------------
Accumulated Accumulated Syndication
Contributions Earnings Contributions Distributions Earnings Costs Total
-------------- ----------- ------------- ------------- ----------- ------------ -----------
<S> <C> <C> <C> <C> <C> <C> <C>
Balance, December 31, 1996 $ 263,804 $ 182,853 $30,000,000 $(22,447,963) $18,338,937 $(3,440,000) $22,897,631
Contributions from general
partners 294,000 -- -- -- -- -- 294,000
Distributions to limited
partners ($46 per limited
partner unit) -- -- -- (2,760,000) -- -- (2,760,000)
Net income -- 15,697 -- -- 1,704,971 -- 1,720,668
------------ ----------- ------------ ------------- ----------- ------------ -----------
Balance, December 31, 1997 557,804 198,550 30,000,000 (25,207,963) 20,043,908 (3,440,000) 22,152,299
Distributions to limited
partners ($61 per limited
partner unit) -- -- -- (3,633,748) -- -- (3,633,748)
Net income -- 12,724 -- -- 1,808,725 -- 1,821,449
----------- ---------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1998 557,804 211,274 30,000,000 (28,841,711) 21,852,633 (3,440,000) 20,340,000
Distributions to limited
partners ($40 per limited
partner unit) -- -- -- (2,400,000) -- -- (2,400,000)
Net income -- 18,273 -- -- 1,809,086 -- 1,827,359
----------- ---------- ----------- ------------ ----------- ----------- -----------
Balance, December 31, 1999 $ 557,804 $ 229,547 $30,000,000 $(31,241,711) $23,661,719 $(3,440,000) $19,767,359
=========== ========== =========== ============ =========== =========== ===========
</TABLE>
See accompanying notes to financial statements.
21
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS
------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
------------------ ------------------ ------------------
<S> <C> <C> <C>
Increase (Decrease) in Cash and Cash
Equivalents:
Cash Flows from Operating Activities:
Cash received from tenants $ 2,186,946 $ 2,351,732 $ 2,345,612
Distributions from joint ventures 367,317 248,360 265,473
Cash paid for expenses (181,668) (274,436) (211,213)
Interest received 28,718 36,664 18,100
------------- ------------- -------------
Net cash provided by operating
activities 2,401,313 2,362,320 2,417,972
------------- ------------- -------------
Cash Flows from Investing Activities:
Proceeds from sale of land and building -- 2,526,354 378,149
Additions to land and buildings on
operating leases -- (275,000) --
Investment in joint ventures (533,200) (493,398) --
Decrease (increase) in restricted cash 533,598 (533,598) --
Payment of lease costs (15,600) -- (17,384)
Other -- -- 9,122
------------- ------------- -------------
Net cash provided by (used in) investing
activities (15,202) 1,224,358 369,887
------------- ------------- -------------
Cash Flows from Financing Activities:
Contributions from general partners -- -- 294,000
Distributions to limited partners (2,400,000) (3,723,748) (2,760,000)
------------- ------------- -------------
Net cash used in financing activities (2,400,000) (3,723,748) (2,466,000)
------------- ------------- -------------
Net Increase (Decrease) in Cash and Cash
Equivalents (13,889) (137,070) 321,859
Cash and Cash Equivalents at Beginning of Year 739,382 876,452 554,593
------------- ------------- -------------
Cash and Cash Equivalents at End of Year $ 725,493 $ 739,382 $ 876,452
============= ============= =============
</TABLE>
See accompanying notes to financial statements.
22
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
STATEMENTS OF CASH FLOWS - CONTINUED
------------------------------------
<TABLE>
<CAPTION>
Year Ended December 31,
1999 1998 1997
--------------- -------------- --------------
<S> <C> <C> <C>
Reconciliation of Net Income to Net Cash
Provided by Operating Activities:
Net income $1,827,359 $1,821,449 $1,720,668
--------------- -------------- --------------
Adjustments to reconcile net income to
net cash provided by operating
activities:
Depreciation 405,488 425,481 453,397
Amortization 4,663 3,494 2,498
Equity in earnings of joint ventures,
net of distributions 64,094 338,504 75,726
Bad debt expense -- -- 12,794
Loss (gain) on sale of land and
buildings -- (226,024) 6,652
Provision for loss on land and
building -- -- 70,337
Decrease (increase) in receivables (113,323) 8,607 5,422
Decrease (increase) in prepaid expenses (5,547) 1,279 (180)
Decrease in net investment in direct
financing leases 41,994 37,907 34,215
Increase in accrued rental income (34,542) (40,515) (39,669)
Increase (decrease) in accounts
payable and accrued expenses 113,424 (26,960) 31,976
Increase in due to related parties 92,531 9,461 26,701
Increase in rents paid in advance
and deposits 5,172 9,637 17,435
--------------- -------------- --------------
Total adjustments 573,954 540,871 697,304
--------------- -------------- --------------
Net Cash Provided by Operating Activities $2,401,313 $2,362,320 $2,417,972
=============== ============== ==============
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 $ 600,000 $ 690,000
=============== ============== ==============
</TABLE>
See accompanying notes to financial statements.
23
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS
-----------------------------
Years Ended December 31, 1999, 1998 and 1997
1. Significant Accounting Policies:
--------------------------------
Organization and Nature of Business - CNL Income Fund 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 generally leased to unrelated third parties on a
triple-net basis, whereby the tenant is generally responsible for all
operating expenses relating to the property, including property taxes,
insurance, maintenance and repairs. The leases are accounted for using
either the direct financing or the operating methods. Such method 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.
24
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998 and 1997
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 reverses 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
properties in Clinton, North Carolina and Zephyrhills, Florida, 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.
25
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998 and 1997
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
that 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.
26
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998 and 1997
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 these leases are operating
leases. Substantially all leases are for 15 to 20 years and provide for
minimum and contingent rentals. In addition, the tenant generally pays all
property taxes and assessments, fully maintains the interior and exterior of
the building and carries insurance coverage for public liability, property
damage, fire and extended coverage. The lease options generally allow
tenants to renew the leases for two or 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:
1999 1998
--------------- ---------------
Land $ 7,244,512 $ 7,244,512
Buildings 11,986,556 11,986,556
--------------- ---------------
19,231,068 19,231,068
Less accumulated depreciation (4,150,097) (3,744,609)
--------------- ---------------
$15,080,971 $15,486,459
=============== ===============
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.
27
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998 and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
In connection with the sale of the properties described above, the
Partnership incurred deferred, subordinated, real estate disposition fees of
$45,663 (see Note 9).
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 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 in
July 1998, relating to the sale.
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, 1999, 1998, and 1997, the Partnership recognized $34,542,
$40,515, and $39,669, 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, 1999:
2000 $ 1,952,958
2001 1,922,508
2002 1,926,607
2003 1,734,847
2004 1,753,495
Thereafter 9,689,151
-----------------
$18,979,566
=================
28
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
Years Ended December 31, 1999, 1998 and 1997
3. Land and Buildings on Operating Leases - Continued:
--------------------------------------------------
Since lease renewal periods are exercisable at the option of the tenant, the
above table only presents future minimum lease payments due during the
initial lease terms. In addition, this table does not include any amounts
for future contingent rentals which may be received on the leases based on a
percentage of the tenant's gross sales.
4. Net Investment in Direct Financing Leases:
-----------------------------------------
The following lists the components of the net investment in direct financing
leases at December 31:
1999 1998
-------------- -------------
Minimum lease payments receivable $1,495,893 $1,660,791
Estimated residual values 527,829 527,829
Less unearned income (834,234) (957,138)
-------------- -------------
Net investment in direct
financing leases $1,189,488 $1,231,482
============== =============
The following is a schedule of future minimum lease payments to be received
on direct financing leases at December 31, 1999:
2000 $ 164,899
2001 164,899
2002 164,899
2003 164,899
2004 164,899
Thereafter 671,398
------------
$1,495,893
============
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).
29
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
5. Investment in Joint Ventures:
----------------------------
As of December 31, 1999, the Partnership had a 51 percent, 26.6%, 57
percent, 96.1% and 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.
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, 1999, the Partnership had acquired
a 35.71% interest in the profits and losses of the joint venture.
In January 1999, the Partnership invested $533,200 in a property in
Zephyrhills, Florida as tenants-in-common with CNL Income Fund XVII, Ltd., a
Florida limited partnership and affiliate of the general partners. As of
December 31, 1999, the Partnership had a 76 percent interest in the
property.
30
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
5. Investment in Joint Ventures - Continued:
----------------------------------------
The following presents the joint ventures' combined, condensed financial
information at December 31:
1999 1998
------------- --------------
Land and buildings on operating
leases, less accumulated
depreciation and allowance for
loss on land and building $5,223,253 $4,406,943
Net investment in direct financing
leases, less allowance for loss on
building 371,740 626,594
Cash 29,223 14,025
Receivables 13,544 10,943
Accrued rental income 168,836 163,773
Other assets 3,644 2,513
Liabilities 44,425 27,211
Partners' capital 5,765,815 5,197,580
Revenues 619,788 368,058
Provision for loss on land and
buildings and net investment in
direct financing lease -- (441,364)
Net income (loss) 458,146 (212,388)
The Partnership recognized income totalling $303,223, a loss totalling
$90,144 and income totalling $189,747 for the years ended December 31, 1999,
1998 and 1997, respectively, from these joint ventures.
6. Restricted Cash:
---------------
During 1998, 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. The
funds were released by the escrow agent in 1999 and were used to acquire an
additional property (see Note 5).
31
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
7. Allocations and Distributions:
-----------------------------
Generally, all net income and net losses of the Partnership, excluding gains
and losses from the sale of property, are allocated 99 percent to the
limited partners and one percent to the general partners. Distributions of
net cash flow are made 99 percent to the limited partners and one percent to
the general partners; provided, however, that the one percent of net cash
flow to be distributed to the general partners is subordinated to receipt by
the limited partners of an aggregate, ten percent, cumulative, noncompounded
annual return on their adjusted capital contributions (the "10% Preferred
Return").
Generally, net sales proceeds from the sale of properties 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 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, 1999, 1998 and 1997, the
Partnership declared distributions to the limited partners of $2,400,000,
$3,633,748, 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.
32
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
8. Income Taxes:
------------
The following is a reconciliation of net income for financial reporting
purposes to net income for federal income tax purposes for the years ended
December 31:
<TABLE>
<CAPTION>
1999 1998 1997
--------------- --------------- ---------------
<S> <C> <C> <C>
Net income for financial reporting
purposes $1,827,359 $1,821,449 $1,720,668
Depreciation for tax reporting purposes
in excess of depreciation for financial
reporting purposes (8,171) (8,014) (9,203)
Allowance for loss on land and building -- -- 70,337
Direct financing leases recorded as
operating leases for tax reporting
purposes 41,995 37,907 34,215
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
Capitalization of transaction costs
for tax reporting purposes 142,244 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 (76,060) 319,186 51,115
Allowance for doubtful accounts (43,612) (36,939) 138,647
Accrued rental income (34,542) (40,515) (39,669)
Rents paid in advance (14,327) 9,137 7,435
Other -- 501 --
--------------- --------------- ---------------
Net income for federal income tax
purposes $1,834,886 $1,889,079 $2,018,463
=============== =============== ===============
</TABLE>
33
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
9. Related Party Transactions:
--------------------------
One of the individual general partners, James M. Seneff, Jr., is one of the
principal shareholders of CNL Holdings, Inc. The other individual general
partner, Robert A. Bourne, serves as President and Treasurer of CNL
Financial Group, Inc., a wholly owned subsidiary of CNL Holdings, Inc. CNL
Fund Advisors, Inc. (the "Advisor") was a majority owned subsidiary of CNL
Financial Group, Inc. until it merged with CNL American Properties Fund,
Inc. ("APF"), effective September 1, 1999. The individual general partners
are stockholders and directors of APF.
The Advisor provides certain services relating to management of the
Partnership and its properties pursuant to a management agreement with the
Partnership. In connection therewith, the Partnership agreed to pay the
Advisor 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
are incurred 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, 1999, 1998 and 1997.
The Advisor is also entitled to receive a deferred, subordinated, real
estate disposition fee, payable upon the sale of one or more properties
based on the lesser of one-half of a competitive real estate commission or
three percent of the sales price if the Advisor provides a substantial
amount of services in connection with the sale. However, if the net sales
proceeds are reinvested in a replacement property, no such real estate
disposition fees will be incurred until such replacement property is sold
and the net sales proceeds are distributed. The payment of the real estate
disposition fee is subordinated to the 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
34
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
9. Related Party Transactions - Continued:
--------------------------------------
properties. No deferred, subordinated, real estate disposition fees were
incurred for the years ended December 31, 1999 and 1997.
During the years ended December 31, 1999, 1998 and 1997, the Advisor and its
affiliates provided accounting and administrative services to the
Partnership on a day-to-day basis including services relating to the
proposed and terminated merger as described in Note 11. The Partnership
incurred $107,553, $94,365, and $81,838 for the years ended December 31,
1999, 1998 and 1997, respectively, for such services.
The due to related parties consisted of the following at December 31:
1999 1998
----------- -----------
Due to the Advisor:
Expenditures incurred on
behalf of the Partnership $122,830 $ 53,363
Accounting and administrative
services 70,716 49,952
Deferred, subordinated real
estate disposition fee 45,663 45,663
Other 2,300 --
----------- -----------
$241,509 $148,978
=========== ===========
10. Concentration of Credit Risk:
-----------------------------
For the years ended December 31, 1999, 1998, and 1997, rental income from
Shoney's, Inc. was $347,088, $413,755, and $427,238, respectively,
representing more than ten percent of the Partnership's total rental and
earned income (including the Partnership's share of rental and earned income
from joint ventures and the properties held as tenants-in-common with
affiliates of the general partners).
35
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO FINANCIAL STATEMENTS - CONTINUED
-----------------------------------------
10. Concentration of Credit Risk - Continued:
----------------------------------------
In addition, the following schedule presents total rental and earned income
from individual restaurant chains, each representing more than ten percent
of the Partnership's total rental and earned income (including the
Partnership's share of total rental and earned income from joint ventures
and the properties held as tenants-in-common with affiliates of the general
partners) for each of the years ended December 31:
1999 1998 1997
------------- ------------- ------------
Shoney's $466,964 $541,175 $557,303
Wendy's Old Fashioned
Hamburger Restaurants 442,195 437,896 432,585
Denny's N/A N/A 345,749
Taco Bell N/A N/A 262,909
The information denoted by N/A indicates that for each period presented, 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.
11. Termination of Merger:
---------------------
On March 11, 1999, the Partnership entered into an Agreement and Plan of
Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF. Under the Agreement and Plan of Merger, APF was to
issue shares of its common stock as consideration for the Merger. On March
1, 2000, the General Partners and APF announced that they had mutually
agreed to terminate the Agreement and Plan of Merger. The agreement to
terminate the Agreement and Plan of Merger was based, in large part, on the
General Partners' concern that, in light of market conditions relating to
publicly traded real estate investment trusts, the value of the transaction
had diminished. As a result of such diminishment, the General Partners'
ability to unequivocally recommend voting for the transaction, in the
exercise of their fiduciary duties, had become questionable
36
<PAGE>
Item 9. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
PART III
Item 10. Directors and Executive Officers of the Registrant
The General Partners of the Registrant are James M. Seneff, Jr., Robert A.
Bourne and CNL Realty Corporation, a Florida corporation. The General Partners
manage and control the Partnership's affairs and have general responsibility and
the ultimate authority in all matters affecting the Partnership's business. The
Partnership has available to it the services, personnel and experience of CNL
Fund Advisors, Inc., CNL Financial Group, Inc. and their affiliates, all of
which are affiliates of the General Partners.
James M. Seneff, Jr., age 53, Since 1971, Mr. Seneff has been active in the
acquisition, development, and management of real estate projects and, directly
or through an affiliated entity, has served as a general partner or co-venturer
in over 100 real estate ventures. These ventures have involved the financing,
acquisition, construction, and leasing of restaurants, office buildings,
apartment complexes, hotels, and other real estate. Mr. Seneff is a principal
stockholder of CNL Holdings, Inc., the parent company of CNL Financial Group,
Inc. (formerly CNL Group, Inc.), a diversified real estate company, and has
served as a director, Chairman of the Board and Chief Executive Officer of CNL
Financial Group, Inc. since its formation in 1980. Mr. Seneff has served as a
director and Chairman of the Board since inception in 1994, and served as Chief
Executive Officer from 1994 through August 1999, of CNL American Properties
Fund, Inc., a public, unlisted real estate investment trust. He also served as a
director, Chairman of the Board and Chief Executive Officer of CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. until it
merged with the company in September 1999. In addition, he serves as a director,
Chairman of the Board and Chief Executive Officer of CNL Health Care Properties,
Inc., as well as CNL Health Care Corp., the advisor to the company. He also
serves as director, Chairman of the Board and Chief Executive Officer of CNL
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Since 1992, Mr. Seneff has served
as Chairman of the Board and Chief Executive Officer of Commercial Net Lease
Realty, Inc., a public real estate investment trust that is listed on the New
York Stock Exchange. Mr. Seneff has also served as a director, Chairman of the
Board and Chief Executive Officer of the following affiliated companies since
formation: CNL Securities Corp., since 1979; CNL Investment Company, since 1990;
and CNL Institutional Advisors, a registered investment advisor for pension
plans, since 1990. Mr. Seneff formerly served as a director of First Union
National Bank of Florida, N.A., and currently serves as the Chairman of the
Board of CNLBank. Mr. Seneff served on the Florida State Commission on Ethics
and is a former member and past Chairman of the State of Florida Investment
Advisory Council, which recommends to the Florida Board of Administration
investments for various Florida employee retirement funds. The Florida Board of
Administration is Florida's principal investment advisory and money management
agency and oversees the investment of more than $60 billion of retirement funds.
Mr. Seneff received his degree in Business Administration from Florida State
University in 1968.
Robert A. Bourne, age 52, Since joining CNL Securities Corp. in 1979, Mr.
Bourne has participated as a general partner or co-venturer in over 100 real
estate ventures involved in the financing, acquisition, construction, and
leasing of restaurants, office buildings, apartment complexes, hotels, and other
real estate. Mr. Bourne is the President and Treasurer of CNL Financial Group,
Inc. (formerly CNL Group, Inc.). Mr. Bourne has served as a director since
inception in 1994, President from 1994 through February 1999, Treasurer from
February 1999 through August 1999, and Vice Chairman of the Board since February
1999 of CNL American Properties Fund, Inc., a public, unlisted real estate
investment trust. He also served in the following positions for CNL Fund
Advisors, Inc., the advisor to CNL American Properties Fund, Inc. prior to its
merger with CNL American Properties Fund, Inc.: director from 1994 through
August 1999, Treasurer from July 1998 through August 1999, President from 1994
through September 1997, and Vice Chairman of the Board from September 1997
through August 1999. Mr. Bourne is a director and President of CNL Health Care
Properties, Inc., as well as a director and President of CNL Health Care Corp.,
the advisor to the company. He is also a director, Vice Chairman of the Board
and President of CNL
37
<PAGE>
Hospitality Properties, Inc., a public, unlisted real estate investment trust,
as well as CNL Hospitality Corp., its advisor. Mr. Bourne also serves as a
director of CNL Bank. He has served as a director since 1992, Vice Chairman of
the Board since February 1996, Secretary and Treasurer from February 1996
through 1997, and President from July 1992 through February 1996, of Commercial
Net Lease Realty Inc., a public real estate investment trust listed on the New
York Stock Exchange. Mr. Bourne holds the following positions for these
affiliates of CNL Financial Group, Inc.: director, President and Treasurer of
CNL Investment Company; director, President, Treasurer, and Registered Principal
of CNL Securities Corp., a subsidiary of CNL Investment Company and director,
President, Treasurer, and Chief Investment Officer of CNL Institutional
Advisors, Inc., a registered investment advisor for pension plans. Mr. Bourne
began his career as a certified public accountant employed by Coopers & Lybrand,
Certified Public Accountants, from 1971 through 1978, where he attained the
position of tax manager in 1975. Mr. Bourne graduated from Florida State
University in 1970 where he received a B.A. in Accounting, with honors.
CNL Realty Corporation is a corporation organized on November 26, 1985,
under the laws of the State of Florida. Its sole directors and shareholders are
James M. Seneff, Jr. and Robert A. Bourne, the individual General Partners. CNL
Realty Corporation was organized to serve as the corporate general partner of
real estate limited partnerships, such as the Partnership, organized by one or
both of the individual General Partners. CNL Realty Corporation currently
serves as the corporate general partner of the CNL Income Fund Partnerships.
CNL Fund Advisors, Inc. provides certain management services in connection
with the Partnership and its Properties. CNL Fund Advisors, Inc. is a
corporation organized in 1994 under the laws of the State of Florida, and its
principal office is located at 450 South Orange Avenue, Orlando, Florida 32801.
CNL Fund Advisors, Inc. was a majority owned subsidiary of CNL Financial Group,
Inc., until its merger effective September 1, 1999. On September 1, 1999, CNL
American Properties Fund, Inc. acquired CNL Fund Advisors, Inc. and was
organized to perform property acquisition, property management and other
services.
CNL Financial Group, Inc., which was the parent company of CNL Fund
Advisors, Inc. through August 1999, was organized in 1980 under the laws of the
State of Florida. CNL Financial Group, Inc. is a diversified real estate
company which provides a wide range of real estate, development and financial
services to companies in the United States through the activities of its
subsidiaries. These activities are primarily focused on the franchised
restaurant and hospitality industries. James M. Seneff, Jr., an individual
General Partner of the Partnership, is the Chairman of the Board, Chief
Executive Officer, and a director of CNL Financial Group, Inc. Mr. Seneff and
his wife own all of the outstanding shares of CNL Holdings, Inc., the Parent
company of CNL Financial Group, Inc.
The following persons serve as operating officers of CNL Financial Group,
Inc. or its affiliates or subsidiaries in the discretion of the Boards of
Directors of those companies, but, except as specifically indicated, do not
serve as members of the Boards of Directors of those entities. The Boards of
Directors have the responsibility for creating and implementing the policies of
CNL Financial Group, Inc. and its affiliated companies.
Curtis B. McWilliams, age 44, joined CNL Financial Group, Inc. in April
1997 and served as an Executive Vice President through August 1999. He serves
as Chief Executive Officer of CNL American Properties Fund, Inc. and CNL Fund
Advisors, Inc. In addition, Mr. McWilliams served as President of CNL Fund
Advisors, Inc. and as President of the Restaurant and Financial Services Groups
within CNL Financial Group, Inc. through August 1999. Mr. McWilliams served as
President of CNL American Properties Fund, Inc. from February 1999 through
August 1999 and previously served as Executive Vice President from February 1998
through February 1999. From September 1983 through March 1997, Mr. McWilliams
was employed by Merrill Lynch & Co., most recently as Chairman of Merrill
Lynch's Private Advisory Services until March 1997. Mr. McWilliams received a
B.S.E. in Chemical Engineering from Princeton University in 1977 and a Masters
of Business Administration with a concentration in finance from the University
of Chicago in 1983.
John T. Walker, age 41, serves as President and Chief Operating Officer of
CNL American Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as
Executive Vice President of CNL American Properties Fund, Inc. from January 1996
through August 1999, as Chief Operating Officer since March 1995 through August
1999, and previously served as Senior Vice President from December 1994 through
August 1999. In addition, Mr. Walker has served as Executive Vice President of
CNL Fund Advisors, Inc. since January 1996 through August 1999, Chief Operating
Officer from April 1995 through August 1999, and previously served as Senior
Vice President from
38
<PAGE>
November 1994 through January 1996. In addition, Mr. Walker previously served as
Executive Vice President of CNL Hospitality Properties, Inc. and CNL Hospitality
Advisors, Inc. As of September 1, 1999, Mr. Walker serves as President for CNL
American Properties Fund, Inc. From May 1992 to May 1994, Mr. Walker, a
certified public accountant, was Executive Vice President for Finance and
Administration and Chief Financial Officer of Z Music, Inc., a cable television
network (subsequently acquired by Gaylord Entertainment), where he was
responsible for overall financial and administrative management and planning.
From January 1990 through April 1992, Mr. Walker was Chief Financial Officer of
the First Baptist Church in Orlando, Florida. From April 1984 through December
1989, he was a partner in the accounting firm of Chastang, Ferrell & Walker,
P.A., where he was the partner in charge of audit and consulting services, and
from 1981 to 1984, Mr. Walker was a Senior Consultant/Audit Senior at Price
Waterhouse. Mr. Walker is a Cum Laude graduate of Wake Forest University with a
B.S. in Accountancy and is a certified public accountant.
Lynn E. Rose, age 51, Ms. Rose served as Secretary of CNL American
Properties Fund, Inc., a public, unlisted real estate investment trust, from
1994 through August 1999, and served as Treasurer from 1994 through February
1999. She also served as Treasurer of CNL Fund Advisors, Inc., from 1994 through
July 1998, and served as Secretary and a director from 1994 through August 1999,
at which point it merged with CNL American Properties Fund, Inc. In addition,
she is Secretary and Treasurer of CNL Health Care Properties, Inc., and serves
as Secretary of its subsidiaries. In addition, she serves as Secretary,
Treasurer and a director of CNL Health Care Corp., the advisor. to the company.
Ms. Rose also serves as Secretary and Treasurer of CNL Hospitality Properties,
Inc., a public, unlisted real estate investment trust, as Secretary, Treasurer
and a director of CNL Hospitality Corp., its Advisor, and as Secretary of the
subsidiaries of the company. Ms. Rose served as Secretary and Treasurer of
Commercial Net Lease Realty, Inc., a public real estate investment trust listed
on the New York Stock Exchange, from 1992 to February 1996, and as Secretary and
a director of CNL Realty Advisors, Inc., its advisor, from its inception in 1991
through 1997. She also served as Treasurer of CNL Realty Advisors, Inc. from
1991 through February 1996. Ms. Rose, a certified public accountant, has served
as Secretary of CNL Financial Group, Inc. (formerly CNL Group, Inc.) since 1987,
served as Controller from 1987 to 1993 and has served as Chief Financial Officer
since 1993. She also serves as Secretary of the subsidiaries of CNL Financial
Group, Inc. and holds various other offices in the subsidiaries. In addition,
she serves as Secretary for approximately 50 additional corporations affiliated
with CNL Financial Group, Inc. and its subsidiaries. Ms. Rose oversees the tax
and legal compliance for over 375 corporations, partnerships and joint ventures,
and the accounting and financial reporting for over 200 entities. Prior to
joining CNL, Ms. Rose was a partner with Robert A. Bourne in the accounting firm
of Bourne & Rose, P.A., Certified Public Accountants. Ms. Rose holds a B.A. in
Sociology from the University of Central Florida. She was licensed as a
certified public accountant in 1979.
Jeanne A. Wall, age 41, Ms. Wall served as Executive Vice President of CNL
American Properties Fund, Inc., a public, unlisted real estate investment trust,
from 1994 through August 1999, and as Executive Vice President of CNL Fund
Advisors, Inc., its advisor, from 1994 through August 1999, at which point it
merged with CNL American Properties Fund, Inc. Ms. Wall also serves as Executive
Vice President of CNL Health Care Properties, Inc. and CNL Health Care Corp.,
the Advisor to the Company. Ms. Wall also serves as Executive Vice President of
CNL Hospitality Properties, Inc., a public, unlisted real estate investment
trust, and serves as Executive Vice President and a director of CNL Hospitality
Corp., its advisor. She also serves as a director for CNL Bank. Ms. Wall serves
as Executive Vice President of CNL Financial Group, Inc. (formerly CNL Group,
Inc.). Ms. Wall has served as Chief Operating Officer of CNL Investment Company
and of CNL Securities Corp. since 1994 and has served as Executive Vice
President of CNL Investment Company since January 1991. In 1984, Ms. Wall joined
CNL Securities Corp. and in 1985, became Vice President. In 1987, she became a
Senior Vice President and in July 1997, became Executive Vice President of CNL
Securities Corp. In this capacity, Ms. Wall serves as national marketing and
sales director and oversees the national marketing plan for the CNL investment
programs. In addition, Ms. Wall oversees product development, communications and
investor services for programs offered through participating brokers. Ms. Wall
also served as Senior Vice President of CNL Institutional Advisors Inc., a
registered investment advisor, from 1990 to 1993. Ms. Wall served as Vice
President of Commercial Net Lease Realty, Inc., a public real estate investment
trust listed on the New York Stock Exchange, from 1992 through 1997, and served
as Vice President of CNL Realty Advisors, Inc. from its inception in 1991
through 1997. Ms. Wall currently serves as a trustee on the Board of the
Investment Program Association, is a member of the Corporate Advisory Council
for the International Association for Financial Planning and is a member of IWF,
International Women's Forum. In addition, she previously served on the Direct
Participation Program committee for the National
39
<PAGE>
Association of Securities Dealers, Inc. Ms. Wall holds a B.A. in Business
Administration from Linfield College and is a registered principal of CNL
Securities Corp.
Steven D. Shackelford, age 36, a certified public accountant, serves as Senior
Vice President, Chief Financial Officer, and Secretary of CNL American
Properties Fund, Inc. and CNL Fund Advisors, Inc. He served as Chief Financial
Officer of CNL American Properties Fund, Inc. from January 1997 and as Chief
Financial Officer of CNL Fund Advisors, Inc. since September 1996 through August
1999. From March 1995 to July 1996, Mr. Shackelford was a senior manager in the
national office of Price Waterhouse where he was responsible for advising
foreign clients seeking to raise capital and a public listing in the United
States. From August 1992 to March 1995, he served as a manager in the Price
Waterhouse, Paris, France office serving several multinational clients. Mr.
Shackelford was an audit staff and audit senior from 1986 to 1992 in the
Orlando, Florida office of Price Waterhouse. Mr. Shackelford received a B.A. in
Accounting, with honors, and a Masters of Business Administration from Florida
State University.
Item 11. Executive Compensation
Other than as described in Item 13, the Partnership has not paid and does
not intend to pay any executive compensation to the General Partners or any of
their affiliates. There are no compensatory plans or arrangements regarding
termination of employment or change of control.
Item 12. Security Ownership of Certain Beneficial Owners and Management
As of March 15, 2000, no person was known to the Registrant to be a
beneficial owner of more than five percent of the Units.
The following table sets forth, as of March 15, 2000, the beneficial
ownership interests of the General Partners in the Registrant.
Title of Class Name of Partner Percent of Class
-------------- --------------- ----------------
General Partnership Interests James M. Seneff, Jr. 45%
Robert A. Bourne 45%
CNL Realty Corporation 10%
------
100%
======
Neither the General Partners, nor any of their affiliates, owns any
interest in the Registrant, except as noted above.
40
<PAGE>
Item 13. Certain Relationships and Related Transactions
The table below summarizes the types, recipients, methods of
computation and amounts of compensation, fees and distributions paid or payable
by the Partnership to the General Partners and their affiliates for the year
ended December 31, 1999, exclusive of any distributions to which the General
Partners or their affiliates may be entitled by reason of their purchase and
ownership of Units.
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- ------------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
Reimbursement to affiliates Operating expenses are reimbursed at Operating expenses incurred on
for operating expenses the lower of cost or 90 percent of behalf of the Partnership:
the prevailing rate at which $150,972
comparable services could have been
obtained in the same geographic area. Accounting and administrative
Affiliates of the General Partners services: $107,553
from time to time incur certain
operating expenses on behalf of the
Partnership for which the Partnership
reimburses the affiliates without
interest.
Annual, subordinated One percent of the sum of gross $-0-
management fee to affiliates operating 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, subordinated to certain
minimum returns to the Limited
Partners. The management fee will
not exceed competitive fees for
comparable services. Due to the fact
that these fees are non-cumulative,
if the Limited Partners have not
received their 10% Preferred Return
in any particular year, no management
fees will be due or payable for such
year.
</TABLE>
41
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- ------------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
Deferred, subordinated real A deferred, subordinated real estate $-0-
estate disposition fee disposition fee, payable upon sale of
payable to affiliates. one or more Properties, in an amount
equal to the lesser of (i) one-half
of a competitive real estate
commission, or (ii) three percent of
the sales price of such Property or
Properties. Payment of such fee
shall be made only if affiliates of
the General Partners provide a
substantial amount of services in
connection with the sale of a
Property or Properties and shall be
subordinated to certain minimum
returns to the Limited Partners.
However, if the net sales proceeds
are reinvested in a replacement
Property, no such real estate
disposition fee will be incurred
until such replacement Property is
sold and the net sales proceeds are
distributed.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to one percent of Partnership
Partnership net cash flow distributions of net cash flow,
subordinated to certain minimum
returns to the Limited Partners.
General Partners' deferred, A deferred, subordinated share equal $-0-
subordinated share of to five percent of Partnership
Partnership net sales distributions of such net sales
proceeds from a sale or sales proceeds, subordinated to certain
not in liquidation of the minimum returns to the Limited
Partnership Partners
</TABLE>
42
<PAGE>
<TABLE>
<CAPTION>
Amount Incurred
Type of Compensation For the Year
and Recipient Method of Computation Ended December 31, 1999
- ------------------------------- ---------------------------------------- ---------------------------------
<S> <C> <C>
General Partners' share of Distributions of net sales proceeds $-0-
Partnership net sales from a sale or sales of substantially
proceeds from a sale or sales all of the Partnership's assets will
in liquidation of the be distributed in the following order
Partnership or priority: (i) first, to pay all
debts and liabilities of the
Partnership and to establish
reserves; (ii) second, to Partners
with positive capital account
balances, determined after the
allocation of net income, net loss,
gain and loss, in proportion to such
balances, up to amounts sufficient to
reduce such balances to zero; and
(iii) thereafter, 95% to the Limited
Partners and 5% to the General
Partners.
</TABLE>
43
<PAGE>
PART IV
Item 14. Exhibits, Financial Statement Schedules and Reports on Form 8-K
(a) The following documents are filed as part of this report.
1. Financial Statements
Report of Independent Certified Public Accountants
Balance Sheets at December 31, 1999 and 1998
Statements of Income for the years ended December 31, 1999,
1998 and 1997
Statements of Partners' Capital for the years ended December
31, 1999, 1998 and 1997
Statements of Cash Flows for the years ended December 31,
1999, 1998 and 1997
Notes to Financial Statements
2. Financial Statement Schedules
Schedule II - Valuation and Qualifying Accounts for the
years ended December 31, 1999, 1998 and 1997
Schedule III - Real Estate and Accumulated Depreciation at
December 31, 1999
Notes to Schedule III - Real Estate and Accumulated
Depreciation at December 31, 1999
All other Schedules are omitted as the required information
is inapplicable or is presented in the financial statements
or notes thereto.
3. Exhibits
3.1 Certificate of Limited Partnership of CNL Income Fund
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.)
44
<PAGE>
10.2 Assignment of Property Management Agreement from CNL
Investment Company to CNL Income Fund Advisors, Inc.
(Included as Exhibit 10.2 to Form 10-K filed with the
Securities and Exchange Commission on March 30, 1995,
and incorporated herein by reference.)
10.3 Assignment of Property Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors, Inc.
(Included as Exhibit 10.3 to Form 10-K filed with the
Securities and Exchange Commission on April 1, 1996,
and incorporated herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) The Registrant filed no reports on Form 8-K during the period from October
1, 1999 through December 31, 1999.
45
<PAGE>
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities
Exchange Act of 1934, the Registrant has duly caused this report to be signed on
its behalf by the undersigned, thereunto duly authorized, on the 23rd day of
March, 2000.
CNL INCOME FUND 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.
Signature Title Date
--------- -----
/s/ Robert A. Bourne President, Treasurer and Director March 23, 2000
- ------------------------- (Principal Financial and Accounting
Robert A. Bourne Officer)
/s/ James M. Seneff, Jr. Chief Executive Officer and Director March 23, 2000
- ------------------------- (Principal Executive Officer)
James M. Seneff, Jr.
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE II - VALUATION AND QUALIFYING ACCOUNTS
-----------------------------------------------
Years Ended December 31, 1999, 1998, and 1997
<TABLE>
<CAPTION>
Additions Deductions
------------------------------- -----------------------------------
Collected
or Deter-
Balance at Charged to Charged to Deemed mined to Balance
Beginning Costs and Other Uncollec- be Col- at End
Year Description of Year Expenses Accounts tible lectible of Year
- ---- ------------------- ------------ ------------- ------------- --------------- -------------- -------------
<S> <C> <C> <C> <C> <C> <C> <C>
1997 Allowance for
doubtful
accounts (a) $ 156,933 $ -- $ 258,818 (b) $ 112,624 (c) $ 7,547 $ 295,580
============ ============= ============= =============== ============== =============
1998 Allowance for
doubtful
accounts (a) $ 295,580 $ -- $ 26,370 (b) $ 3,303 (c) $ 60,006 $ 258,641
============ ============= ============= =============== ============== =============
1999 Allowance for
doubtful
accounts (a) $ 258,641 $ -- $ 18,765 (b) $ 7,167 (c) $ 55,210 $ 215,029
============ ============= ============= =============== ============== =============
</TABLE>
(a) Deducted from receivables on the balance sheet.
(b) Reduction of rental and other income.
(c) Amounts written off as uncollectible.
F-1
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
-------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------------------- ----------------------- ------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements
------- ------ ------------- ---------- ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Winchester, Indiana - $287,769 - $567,785 - $287,769 $567,785
Portland, Indiana - 187,928 - 657,931 - 187,928 657,931
Boston Market Restaurant:
Richmond, Virginia 504,169 522,025 - - 504,169 522,025
Captain D's Restaurants:
Alexander City, Alabama - 120,210 279,689 - - 120,210 279,689
Oak Ridge, Tennessee - 169,951 281,686 - - 169,951 281,686
Checkers Drive-In Restaurant:
Miami, Florida - 174,336 - - - 174,336 -
Denny's Restaurants:
Marion, Ohio - 135,407 334,665 - - 135,407 334,665
Dundee, Michigan - 251,650 - 372,278 - 251,650 372,278
Golden Corral Family
Steakhouse Restaurants:
Franklin, Indiana - 107,560 586,375 - - 107,560 586,375
Streator, Illinois - 161,616 650,934 - - 161,616 650,934
Jack in the Box Restaurant:
San Antonio, Texas - 352,957 - 368,702 - 352,957 368,702
Pizza Hut Restaurants:
Memphis, Texas - 26,510 231,874 - - 26,510 231,874
Carthage, Texas - 40,444 232,823 - - 40,444 232,823
Crystal City, Texas - 8,826 178,570 - - 8,826 178,570
Sequin, Texas - 63,708 184,279 - - 63,708 184,279
Washington, D.C. - 191,737 - - - 191,737 (f)
Shoney's Restaurants:
Alexander City, Alabama - 202,438 428,406 - - 202,438 428,406
Brookhaven, Mississippi - 312,574 452,601 - - 312,574 452,601
Auburn, Alabama - 363,432 426,123 - - 363,432 426,123
Tampa, Florida - 316,697 - 894,659 - 316,697 894,659
Taco Bell Restaurant:
Edgewood, Maryland - 440,355 - 523,478 - 440,355 523,478
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Total Depreciation struction Acquired Computed
---------- ---------------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Properties the Partnership
has Invested in Under
Operating Leases:
Arby's Restaurants:
Winchester, Indiana $855,554 $177,499 1988 07/88 (b)
Portland, Indiana 845,859 194,694 1989 11/88 (b)
Boston Market Restaurant:
Richmond, Virginia 1,026,194 52,251 1996 12/96 (b)
Captain D's Restaurants:
Alexander City, Alabama 399,899 102,784 1988 12/88 (b)
Oak Ridge, Tennessee 451,637 103,543 1988 12/88 (b)
Checkers Drive-In Restaurant:
Miami, Florida 174,336 (g) - 06/94 (g)
Denny's Restaurants:
Marion, Ohio 470,072 80,054 1989 10/88 (h)
Dundee, Michigan 623,928 138,571 1988 10/88 (b)
Golden Corral Family
Steakhouse Restaurants:
Franklin, Indiana 693,935 224,778 1988 06/88 (b)
Streator, Illinois 812,550 245,909 1988 08/88 (b)
Jack in the Box Restaurant:
San Antonio, Texas 721,659 133,144 1989 11/88 (b)
Pizza Hut Restaurants:
Memphis, Texas 258,384 87,276 1985 09/88 (b)
Carthage, Texas 273,267 87,633 1981 09/88 (b)
Crystal City, Texas 187,396 67,212 1981 09/88 (b)
Sequin, Texas 247,987 69,361 1974 09/88 (b)
Washington, D.C. 191,737 - 1986 01/89 (d)
Shoney's Restaurants:
Alexander City, Alabama 630,844 157,435 1988 12/88 (b)
Brookhaven, Mississippi 765,175 166,367 1988 12/88 (b)
Auburn, Alabama 789,555 156,635 1988 12/88 (b)
Tampa, Florida 1,211,356 313,131 1989 02/89 (b)
Taco Bell Restaurant:
Edgewood, Maryland 963,833 189,761 1989 10/88 (b)
</TABLE>
F-2
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to Gross Amount at Which
Initial Cost Acquisition Carried at Close of Period (c)
----------------------- ----------------------- ------------------------------
Encum- Buildings and Improve- Carrying Buildings and
brances Land Improvements ments Costs Land Improvements
------- ------ ------------- ---------- ---------- ------ ---------------
<S> <C> <C> <C> <C> <C> <C> <C>
Wendy's Old Fashioned
Hamburger Restaurants:
Detroit, Michigan - 192,813 462,793 - - 192,813 462,793
Mechanicsville, Virginia - 346,627 502,117 - - 346,627 502,117
Tampa, Florida - 530,456 432,958 - - 530,456 432,958
Tampa, Florida - 476,755 368,405 - - 476,755 368,405
Other Restaurants:
Corpus Christi, Texas - 204,287 - 460,803 - 204,287 460,803
Maywood, Illinois (i) - 310,966 - 443,472 - 310,966 443,472
Palm Bay, Florida - 469,927 365,128 310,676 - 469,927 675,804
Topeka, Kansas (l) - 292,407 465,321 - - 292,407 465,321
---------- ---------- ---------- ---------- -----------
$7,244,512 $7,386,772 $4,599,784 - $7,244,512 $11,986,556
========== ========== ========== ======= ========== ===========
Property of Joint Venture in
Which the Partnership
has a 51% Interest and
has Invested in Under an
Operating Lease:
Denny's Restaurant:
Holland, Michigan - $ 295,987 - $ 780,451 - $ 295,987 $ 780,451
========== ========== ========== ======= ========== ===========
Property of Joint Venture in
Which the Partnership
has a 26.6% Interest and
has Invested in Under an
Operating Lease:
Po Folks Restaurant:
Titusville, Florida (j) - $ 271,350 - $ 750,985 - $ 271,350 $ 750,985
========== ========== ========== ======= ========== ===========
Property of Joint Venture in
Which the Partnership
has a 57% Interest and
has Invested in Under an
Operating Lease:
Waffle House Restaurant:
Cocoa, Florida $ 183,229 $ 192,857 - - $ 183,229 $ 192,857
========== ========== ========== ======= ========== ===========
Property of Joint Venture in
Which the Partnership
has a 96.1% Interest and
has Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts - $ 484,362 - - - $ 484,362 (f)
========== ========== ========== ======= ==========
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
Accumulated of Con- Date Statement is
Total Depreciation struction Acquired Computed
---------- ---------------- ---------- ------------- ------------------
<S> <C> <C> <C> <C> <C>
Wendy's Old Fashioned
Hamburger Restaurants:
Detroit, Michigan 655,606 172,262 1983 10/88 (b)
Mechanicsville, Virginia 848,744 185,505 1988 12/88 (b)
Tampa, Florida 963,414 158,839 1984 12/88 (b)
Tampa, Florida 845,160 135,157 1987 12/88 (b)
Other Restaurants:
Corpus Christi, Texas 665,090 171,217 1988 10/88 (b)
Maywood, Illinois (i) 754,438 161,179 1988 09/88 (b)
Palm Bay, Florida 1,145,731 246,857 1989 12/88 (b)
Topeka, Kansas (l) 757,728 171,043 1988 12/88 (b)
----------- ----------
$19,231,068 $4,150,097
=========== ==========
Property of Joint Venture in
Which the Partnership
has a 51% Interest and
has Invested in Under an
Operating Lease:
Denny's Restaurant:
Holland, Michigan $ 1,076,438 $ 290,501 1988 11/88 (b)
=========== ==========
Property of Joint Venture in
Which the Partnership
has a 26.6% Interest and
has Invested in Under an
Operating Lease:
Po Folks Restaurant:
Titusville, Florida (j) $ 1,022,335 $ 262,930 1988 12/88 (b)
=========== ==========
Property of Joint Venture in
Which the Partnership
has a 57% Interest and
has Invested in Under an
Operating Lease:
Waffle House Restaurant:
Cocoa, Florida $ 376,086 $ 64,340 1986 12/89 (b)
=========== ==========
Property of Joint Venture in
Which the Partnership
has a 96.1% Interest and
has Invested in Under an
Operating Lease:
KFC Restaurant:
Auburn, Massachusetts $ 484,362 - 1989 05/89 (d)
=========== ==========
</TABLE>
F-3
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
-------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
---------------------------------- -----------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
------------------------------- ----------------- ---------------- ------------
<S> <C> <C> <C> <C> <C>
Property of Joint Venture in
Which the Partnership
has a 68.87% Interest and has
Invested in Under an Operating Lease:
Denny's Restaurant:
Kingsville, Texas (k) - $270,189 - $243,326 -
================ ================= ================ ============
Property in Which the Partner-
ship has a 53% Interest as
Tenants-in-Common and
has Invested in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina - $138,382 $676,588 - -
================ ================= ================ ============
Property of Joint Venture
in Which the Partnership has
a 35.71% Interest and has
Invested in Under an Operating Lease:
IHOP Restaurant:
Warren, Michigan - $507,965 $889,080 - -
================ ================= ================ ============
Property in Which the Partnership
has a 76% Interest as
Tenants- in-Common and
has Invested in Under an Operating Lease:
Arby's Restaurant:
Zephyrhills, Florida - $260,146 $441,434 - -
================ ================= ================ ============
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D. C. - - $459,543 - -
Shoney's Restaurant:
Punta Gorda, Florida - 210,438 770,826 39,193 -
---------------- ----------------- ---------------- ------------
$210,438 $1,230,369 $39,193 -
================ ================= ================ ============
<CAPTION>
Gross Amount at Which
Carried at Close of Period (c)
--------------------------------------------------------
Buildings and Accumulated
Land Improvements Total Depreciation
-------------- ------------------ ------------------ ----------------
<S> <C> <C> <C> <C>
Property of Joint Venture in
Which the Partnership
has a 68.87% Interest and has
Invested in Under an Operating Lease:
Denny's Restaurant:
Kingsville, Texas (k) $270,189 $243,326 $513,515 $12,807
=============== =============== ============= ==============
Property in Which the Partner-
ship has a 53% Interest as
Tenants-in-Common and
has Invested in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina $138,382 $676,588 $814,970 $88,826
=============== ================ ============= ==============
Property of Joint Venture
in Which the Partnership has
a 35.71% Interest and has
Invested in Under an Operating Lease:
IHOP Restaurant:
Warren, Michigan $507,965 $889,080 $1,397,045 $38,405
=============== ================ ============= ==============
Property in Which the Partnership
has a 76% Interest as
Tenants- in-Common and
has Invested in Under an Operating Lease:
Arby's Restaurant:
Zephyrhills, Florida $260,146 $441,434 $701,580 $13,532
=============== ================ ============= ==============
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D. C. - (f) (f) (d)
Shoney's Restaurant:
Punta Gorda, Florida (f) (f) (f) (e)
<CAPTION>
Life on Which
Depreciation in
Date Latest Income
of Com- Date Statement is
struction Acquired Computed
------------ ------------ ---------------
<S> <C> <C> <C>
Property of Joint Venture in
Which the Partnership
has a 68.87% Interest and has
Invested in Under an Operating Lease:
Denny's Restaurant:
Kingsville, Texas (k) 1998 10/88 (d)
Property in Which the Partner-
ship has a 53% Interest as
Tenants-in-Common and
has Invested in Under an Operating Lease:
Golden Corral Family
Steakhouse Restaurant:
Clinton, North Carolina 1996 01/96 (b)
Property of Joint Venture
in Which the Partnership has
a 35.71% Interest and has
Invested in Under an Operating Lease:
IHOP Restaurant:
Warren, Michigan 1998 09/98 (b)
Property in Which the Partnership
has a 76% Interest as
Tenants- in-Common and
has Invested in Under an Operating Lease:
Arby's Restaurant:
Zephyrhills, Florida 1990 01/99 (b)
Properties the Partnership has
Invested in Under Direct
Financing Leases:
Pizza Hut Restaurant:
Washington, D. C. 1986 01/89 (d)
Shoney's Restaurant:
Punta Gorda, Florida 1989 02/89 (e)
</TABLE>
F-4
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
December 31, 1999
<TABLE>
<CAPTION>
Costs Capitalized
Subsequent to
Initial Cost Acquisition
------------------------------------ -------------------------------
Encum- Buildings and Improve- Carrying
brances Land Improvements ments Costs
---------------- ----------------- ------------------ ---------------- ------------
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has
Invested in Under a Direct
Financing Lease:
KFC Restaurant:
Auburn, Massachusetts - - - $434,947 -
================= ================== ================ ============
<CAPTION>
Gross Amount at Which Life on Which
Carried at Close of Period (c) Depreciation in
------------------------------------------ Date Latest Income
Buildings and Accumulated of Con- Date Statement is
Land Improvements Total Depreciation struction Acquired Computed
------------ -------------- ------------ -------------- ---------- ---------- --------------
<S> <C> <C> <C> <C> <C> <C> <C>
Property of Joint Venture in
Which the Partnership has a
96.1% Interest and has
Invested in Under a Direct
Financing Lease:
KFC Restaurant:
Auburn, Massachusetts - (f) (f) (d) 1989 05/89 (d)
</TABLE>
F-5
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION
----------------------------------------------------------------
December 31, 1999
(a) Transactions in real estate and accumulated depreciation during 1999, 1998,
and 1997 are summarized as follows:
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------- --------------------
<S> <C> <C>
Properties the Partnership has Invested
in Under Operating Leases:
Balance, December 31, 1996 $22,128,551 $3,391,035
Dispositions (365,785) --
Acquisitions 250,000 --
Depreciation expense -- 453,397
------------------- --------------------
Balance, December 31, 1997 22,012,766 3,844,432
Dispositions (2,781,698) (525,304)
Depreciation expense -- 425,481
------------------- --------------------
Balance, December 31, 1998 19,231,068 3,744,609
Depreciation expense -- 405,488
------------------- --------------------
Balance, December 31, 1999 $19,231,068 $4,150,097
=================== ====================
Property of Joint Venture in Which the Partnership has
a 51% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 1,076,438 $ 212,456
Depreciation expense -- 26,015
------------------- --------------------
Balance, December 31, 1997 1,076,438 238,471
Depreciation expense -- 26,015
------------------- --------------------
Balance, December 31, 1998 1,076,438 264,486
Depreciation expense -- 26,015
------------------- --------------------
Balance, December 31, 1999 $ 1,076,438 $ 290,501
=================== ====================
</TABLE>
F-6
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION CONTINUED
--------------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Cost Depreciation
-------------------- ---------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
a 26.6% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $1,022,335 $200,263
Depreciation expense -- 25,033
-------------------- ---------------------
Balance, December 31, 1997 1,022,335 225,296
Depreciation expense -- 20,010
-------------------- ---------------------
Balance, December 31, 1998 1,022,335 245,306
Depreciation expense -- 17,624
-------------------- ---------------------
Balance, December 31, 1999 (j) $1,022,335 $262,930
==================== =====================
Property of Joint Venture in Which the Partnership has
a 57% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 376,086 $ 45,053
Depreciation expense -- 6,429
-------------------- ---------------------
Balance, December 31, 1997 376,086 51,482
Depreciation expense -- 6,429
-------------------- ---------------------
Balance, December 31, 1998 376,086 57,911
Depreciation expense -- 6,429
-------------------- ---------------------
Balance, December 31, 1999 $ 376,086 $ 64,340
==================== =====================
</TABLE>
F-7
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------------ ------------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
a 35.71% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1997 $ -- $ --
Acquisition 1,397,045 --
Depreciation expense -- 8,769
------------------------ ------------------------
Balance, December 31, 1998 1,397,045 8,769
Depreciation expense -- 29,636
------------------------ ------------------------
Balance, December 31, 1999 $ 1,397,045 $ 38,405
======================== ========================
Property of Joint Venture in Which the Partnership has
a 96.1% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 484,362 $ --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1997 484,362 --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1998 484,362 --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1999 $ 484,362 $ --
======================== ========================
</TABLE>
F-8
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 1999
<TABLE>
<CAPTION>
Accumulated
Cost Depreciation
------------------------ ------------------------
<S> <C> <C>
Property of Joint Venture in Which the Partnership has
a 68.87% Interest and has Invested in Under an
Operating Lease:
Balance, December 31, 1996 $ 270,189 $ --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1997 270,189 --
Depreciation expense (d) -- --
------------------------ ------------------------
Balance, December 31, 1998 (k) 270,189 --
Reclassified from net investment in direct
financing lease 243,326 --
Depreciation expense -- 12,807
------------------------ ------------------------
Balance, December 31, 1999 (h) $ 513,515 $ 12,807
======================== ========================
Property in Which the Partnership has a 53% Interest
as Tenants-in-Common and has Invested in Under
an Operating Lease:
Balance, December 31, 1996 $ 814,970 $ 21,168
Depreciation expense -- 22,552
------------------------ ------------------------
Balance, December 31, 1997 814,970 43,720
Depreciation expense -- 22,553
------------------------ ------------------------
Balance, December 31, 1998 814,970 66,273
Depreciation expense -- 22,553
------------------------ ------------------------
Balance, December 31, 1999 $ 814,970 $ 88,826
======================== ========================
Property in Which the Partnership has a 76% Interest
as Tenants-in-Common and has Invested in Under
an Operating Lease:
Balance, December 31, 1998 $ -- $ --
Acquisition 701,580 --
Depreciation expense -- 13,532
------------------------ ------------------------
Balance, December 31, 1999 $ 701,580 $ 13,532
======================== ========================
</TABLE>
F-9
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 1999
(b) Depreciation expense is computed for buildings and improvements based upon
estimated lives of 30 years.
(c) As of December 31, 1999, the aggregate cost of the Properties owned by the
Partnership and joint ventures for federal income tax purposes was
$20,503,529 and $7,061,746, respectively. All of the leases are treated as
operating leases for federal income tax purposes.
(d) For financial reporting purposes, the portion of the lease relating to the
building has been recorded as a direct financing lease. The cost of the
building has been included in the net investment in direct financing
leases, therefore, depreciation is not applicable.
(e) For financial reporting purposes, the lease for the land and building has
been recorded as a direct financing lease. The cost of the land and
building has been included in the net investment in direct financing
leases, therefore, depreciation is not applicable.
(f) For financial reporting purposes, certain components of the lease relating
to land and building have been recorded as a direct financing lease.
Accordingly, costs relating to these components are not shown.
(g) The building portion of this Property is owned by the tenant; therefore,
depreciation is not applicable.
(h) Effective January 1, 1994, the lease for this Property was amended,
resulting in the reclassification of the building portion of the lease as
an operating lease. The building was recorded at net book value as of
January 1, 1994, and depreciated over remaining estimated life of
approximately 25 years.
(i) The restaurant on the Property in Maywood, Illinois, was converted to a
Dunkin Donuts restaurant and a Holsum Bread bakery in 1993.
(j) For financial reporting purposes, the undepreciated cost of the Property in
Titusville, Florida, was written down to net realizable value due to an
anticipated impairment in value. The Partnership recognized the impairment
by recording allowances for loss on land and building in the amount of
$125,251 and $147,039 at December 31, 1998 and December 31, 1997,
respectively. During 1997, the operator of this Property vacated the
Property and ceased operations. The impairment at December 31, 1998,
represents difference between the Property's carrying value and the
estimated net realizable value of the Property. No additional impairment
was recorded during 1999. The cost of the Property presented on this
schedule is the gross amount at which the Property was carried at December
31, 1999, excluding the allowance for loss on land and building.
F-10
<PAGE>
CNL INCOME FUND IV, LTD.
(A Florida Limited Partnership)
NOTES TO SCHEDULE III - REAL ESTATE AND ACCUMULATED DEPRECIATION - CONTINUED
----------------------------------------------------------------------------
December 31, 1999
(k) For financial reporting purposes, the undepreciated cost of the Property in
Kingsville, Texas, was written down to net realizable value due to an
anticipated impairment in value. The Partnership recognized the impairment
by recording an allowance for loss on land and building in the amount of
$316,113 at December 31, 1998. The tenant of this Property experienced
financial difficulties and ceased payment of rents under the terms of their
lease agreement. The impairment at December 31, 1998, represented the
difference between the Property's carrying value at December 31, 1998, and
the estimated net realizable value of the Property. During 1999, the joint
venture re-leased the Property to a new tenant, resulting in the
reclassification of the building portion of the lease as an operating
lease. The building was recorded at net book value as of January 15, 1999,
and depreciated over the remaining life of approximately 19 years. The
cost of land for this the Property presented on this schedule is the gross
amount at which the Property was carried at December 31, 1999, excluding
the allowance for loss on land of $119,447.
(l) The restaurant on the Property in Topeka, Kansas, was converted to a Big
Boy's restaurant in 1999.
F-11
<PAGE>
EXHIBIT INDEX
Exhibit Number
- --------------
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.)
<TABLE> <S> <C>
<PAGE>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund IV, Ltd. at December 31, 1999, and its statement of
income for the twelve months then ended and is qualified in its entirety by
reference to the Form-10K of CNL Income Fund IV, Ltd. for the twelve months
ended December 31, 1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 725,493
<SECURITIES> 0
<RECEIVABLES> 356,704
<ALLOWANCES> 215,029
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 19,231,068
<DEPRECIATION> 4,150,097
<TOTAL-ASSETS> 20,828,319
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 19,767,359
<TOTAL-LIABILITY-AND-EQUITY> 20,828,319
<SALES> 0
<TOTAL-REVENUES> 2,298,834
<CGS> 0
<TOTAL-COSTS> 774,698
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,827,359
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,827,359
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,827,359
<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>
