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U.S. SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549
 FORM 10-K
 (Mark One) /x/
    
    ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934
 For the fiscal year ended December 31, 2003 OR / /
    
    TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
 For the Transition period from __________ to __________ Commission file number 333-9371 CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IV  Delaware
    
    38-3304096(State or other jurisdiction
of incorporation or organization)
    
    (I.R.S. Employer
Identification No.)24 Frank Lloyd Wright Drive, Lobby L, 4th Floor, P.O.
Box 544, Ann Arbor, Michigan
    
    48106-0544(Address of principal executive offices)
    
    (Zip Code)Issuers telephone number, including area code: (734) 994-5505Securities registered under Section 12(b) of the Exchange Act:
    
    NoneSecurities registered under Section 12(g) of the Exchange Act:
    
    None(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 for such shorter period that the
registrant was required to file such reports), and (2) has been subject to such
filing requirements for the past 90 days. Yes /x/ No / / Indicate by check mark if disclosure of delinquent filers pursuant to Item 405
of Regulation S-K is not contained herein, and will not be contained, to the
best of registrants knowledge, in definitive proxy or information statements
incorporated by reference in Part III of this Form 10-K or any amendment to
this Form 10-K. [X] Indicate by check mark whether the registrant is an accelerated filer (as
defined in Rule 12b-2 of the Act). Yes / / No /x/ At December 31, 2003, subscriptions for 30,000 Units of limited partnership
interest (the Units) had been accepted, representing an aggregate amount of
$30,000,000. The aggregate sales price does not reflect market value and
reflects only the price at which the Units were offered to the public.
Currently, there is no market for the Units and no market is expected to
develop. At December 31, 2003, there were 29,155 Units issued and outstanding. DOCUMENTS INCORPORATED BY REFERENCE The following documents are incorporated by reference in Part III of this
Annual Report on Form 10-K:  (1)
    
    Portions of the Registrants Form 10-K for the fiscal year ended December
31, 1998; and(2)
    
    A portion of the Registrants Form 10-Q for the quarter ended March 31,
1999.




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TABLE OF CONTENTS  PART IItem 1. BusinessItem 2. Description of PropertiesItem 3. Legal ProceedingsItem 4. Submission of Matters to a Vote of Security HoldersPART IIItem 5. Market for Registrants Limited Partnership Interests and Related Security Holder Matters and Issuer Purchases of Equity SecuritiesItem 6. Selected Financial DataItem 7. Managements Discussion and Analysis of Financial Condition and Results of OperationsItem 7A. Qualitative and Quantitative Disclosures About Market RiskItem 8. Financial Statements and Supplementary DataItem 9. Changes in and Disagreements with Accountants on Accounting and Financial DisclosureItem 9A. Controls and ProceduresPART IIIItem 10. Directors and Executive Officers of the RegistrantItem 11. Executive CompensationItem 12. Security Ownership of Certain Beneficial Owners and Management and Related Securityholder MattersItem 13. Certain Relationships and Related TransactionsItem 14. Accountant Fees and ServicesItem 15. Exhibits and Reports on Form 8-KSIGNATURESReport of Independent AuditorsBalance SheetsStatements of OperationsStatements of Changes in Partners CapitalStatements of Cash FlowsNotes to Financial StatementsSCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION AS OF DECEMBER 31, 2003Certification Pursuant to Section 302Certification Pursuant to 18 U.S.C. Section 1350    Table of Contents  
 PART I 
 Item 1. Business Captec Franchise Capital Partners L.P. IV (the Partnership), a Delaware
limited partnership, was organized on July 23, 1996 for the purpose of
acquiring income-producing commercial real properties and equipment leased on a
triple net or double net basis, primarily to operators of national and
regional chain franchised fast food and family style restaurants, as well as
other national and regional retail chains. The initial general partners of the Partnership were Captec Franchise
Capital Corporation IV (the Corporation), a wholly-owned subsidiary of Captec
Financial Group, Inc. (Captec), an affiliate, and Patrick L. Beach, the
Chairman of the Board of Directors, President and Chief Executive Officer of
the Corporation and Captec. In August 1998, Captec Net Lease Realty, Inc.
(Captec Net Lease), an affiliate, acquired the General Partnership interest
of the Partnership. In December 2001, Captec Net Lease merged with and into
Commercial Net Lease Realty, Inc. (Commercial Net Lease). In connection with
the merger, Commercial Net Lease agreed to sell and assign its General
Partnership interest in the Partnership to GP4 Asset Acquisition, LLC (GP4
Asset Acquisition), which is wholly-owned by Mr. Beach and is an affiliate of
Captec. Effective January 15, 2002, the limited partners consented to the
transfer of the General Partnership interest. On September 11, 2003, the
Partnerships secured lender consented to the transfer of the general
partnership interest to GP4 Asset Acquisition. Upon receipt of the secured
lenders consent, the general partnership interest was immediately transferred
to GP4 Asset Acquisition. Therefore, as of September 11, 2003, GP4 Asset
Acquisition became the general partner of the Partnership. The Partnership commenced a public offering (the Offering) of up to
30,000 limited partnership units (the Units), priced at $1,000 per Unit,
registered under the Securities Act of 1933, as amended, by means of a
Registration Statement filed on Form S-11, which was declared effective by the
Securities and Exchange Commission on December 23, 1996. The Partnership
accepted subscriptions for the minimum number of Units on March 5, 1997 and
immediately commenced operations. The Offering was fully subscribed in December
1998. Since 1999, 845 Units have been repurchased by the Partnership pursuant
to the terms of the Repurchase Plan set forth in the Partnerships December 23,
1996 prospectus with respect to the Offering. At December 31, 2003, the
Partnership had 29,155 Units issued and outstanding. The principal investment objectives of the Partnership are: (i)
preservation and protection of capital; (ii) distribution of cash flow
generated by the Partnerships leases; (iii) capital appreciation of
Partnership properties; (iv) generation of increased income and protection
against inflation through escalation of base rents or participation in gross
revenues of tenants of Partnership properties; and (v) deferred taxation of
cash distributions to the limited partners. The properties generally are leased on terms which provide for a base
minimum annual rent with fixed increases on specific dates or indexation of
rent to indices such as the Consumer Price Index. The equipment is leased only
pursuant to leases under which the present value of non-cancellable rental
payments payable during the initial term of the lease is at least sufficient to
permit a lessor to recover the purchase price of the equipment. The Partnership has no employees. The General Partner and its affiliates,
however, are permitted to perform services for the Partnership. 
 Item 2. Description of Properties As of December 31, 2003, the Partnership had a portfolio of 22 properties
located in 10 states, with a cost basis of $33.0 million, 7 performing
equipment leases with an original investment of $1.9 million and one
repossessed equipment package related to a defaulted equipment contract. The
properties are leased to twelve operators of restaurant concepts and four
retail operators. As of December 31, 2003, operating leases to S&A Restaurants Corporation,
United Supermarkets, Inc. and Hollywood Entertainment Corp. represented 17.38%,
14.14% and 9.03% respectively, of the annualized rent from the total portfolio.
Any performance failure under these leases could materially adversely affect
the Partnerships income and financial position. As of December 31, 2003, approximately 88.5% of the properties owned by
the Partnership are occupied and the related leases are performing, and all of
the Partnerships investments in equipment subject to financing leases are
performing. The Partnership has two properties which are vacant and for which
rental payments have been delinquent approximately fourteen months. The tenant
experienced financial difficulties that resulted in the stores recent closure.
The Partnership is actively seeking to re-tenant the 2




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properties as well as pursuing rights and remedies under the leases to
collect all the amounts owed. In addition, the lease for a third property was
terminated during the fourth quarter and a lease termination agreement was
executed. The Partnership received approximately $254,000 which was applied as
revenue from the property. The Partnership is actively seeking to re-tenant
the property. The General Partner does not have sufficient evidence at this
time to believe impairment exists on any of the vacant properties. As of December 31, 2003, the Partnership had one impaired equipment lease
with a recorded investment of $15,000, net of a related allowance of $260,542.
The net investment in the impaired lease represents the estimated net proceeds
that the Partnership expects to receive on liquidating the equipment The following is a summary description of the property and equipment
leases as of December 31, 2003. Original
    
    Remaining
    
    Original Asset CostConcept
    
    Date of
    
    Date of
    
    Term
    
    Base Term
    
    (including acquisition fees)Lessee Name
    
    Name
    
    Commence
    
    Expiration
    
    (months)
    
    (months)
    
    CostHollywood Entertainment Corp.
    
    Hollywood Video
    
    
    11/01/97
    
    
    
    07/01/12
    
    
    
    177
    
    
    
    103
    
    
    $
    1,455,300Blockbuster Entertainment Corp.
    
    Blockbuster Video
    
    
    09/01/97
    
    
    
    08/01/07
    
    
    
    199
    
    
    
    123
    
    
    
    1,170,000NT Management
    
    Carinos
    
    
    08/01/97
    
    
    
    08/01/14
    
    
    
    204
    
    
    
    127
    
    
    
    1,680,000Capital Foods, Inc.
    
    Arbys
    
    
    12/01/98
    
    
    
    12/01/18
    
    
    
    240
    
    
    
    179
    
    
    
    819,000CALVIR Taco II, LLC
    
    Del Taco
    
    
    02/01/99
    
    
    
    02/01/19
    
    
    
    240
    
    
    
    181
    
    
    
    1,239,000Moondance, Inc.
    
    Kona Ranch Steakhouse
    
    
    08/01/99
    
    
    
    08/01/16
    
    
    
    204
    
    
    
    151
    
    
    
    1,801,622Kona Restaurant Group, Inc.
    
    Carinos
    
    
    08/01/99
    
    
    
    08/01/16
    
    
    
    204
    
    
    
    151
    
    
    
    1,675,622Hollywood Entertainment Corp.
    
    Hollywood Video
    
    
    10/01/98
    
    
    
    12/24/12
    
    
    
    169
    
    
    
    106
    
    
    
    1,454,880S&A Restaurant Corporation
    
    Steak & Ale
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    240
    
    
    
    174
    
    
    
    2,100,000S&A Restaurant Corporation
    
    Steak & Ale
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    240
    
    
    
    174
    
    
    
    2,441,250S&A Restaurant Corporation
    
    Bennigans
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    240
    
    
    
    174
    
    
    
    1,627,500Slaymaker Group
    
    Wingers
    
    
    03/01/99
    
    
    
    03/01/19
    
    
    
    240
    
    
    
    182
    
    
    
    941,850Slaymaker Group
    
    Wingers
    
    
    02/01/99
    
    
    
    02/01/19
    
    
    
    240
    
    
    
    181
    
    
    
    948,150Sterling Jewelers
    
    Jared Jewelers
    
    
    02/01/99
    
    
    
    02/01/19
    
    
    
    240
    
    
    
    181
    
    
    
    1,131,619TEC Foods
    
    Taco Bell
    
    
    01/01/99
    
    
    
    01/01/09
    
    
    
    240
    
    
    
    180
    
    
    
    766,500TEC Foods
    
    Taco Bell
    
    
    01/01/99
    
    
    
    01/01/19
    
    
    
    240
    
    
    
    180
    
    
    
    766,500RTM Acquisition Company, Inc.
    
    Arbys
    
    
    09/01/98
    
    
    
    09/01/18
    
    
    
    240
    
    
    
    176
    
    
    
    840,000Vacant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    1,914,230DRM, Inc.
    
    Arbys
    
    
    01/01/00
    
    
    
    01/01/20
    
    
    
    240
    
    
    
    192
    
    
    
    987,000United Supermarkets, Inc.
    
    United Supermarket
    
    
    11/01/00
    
    
    
    06/01/20
    
    
    
    235
    
    
    
    197
    
    
    
    5,077,907Golden Restaurants Operations, Inc.
    
    Boston Market
    
    
    04/01/97
    
    
    
    08/01/12
    
    
    
    184
    
    
    
    103
    
    
    
    1,012,200SDI Foods Inc.
    
    Taco Bell
    
    
    04/01/03
    
    
    
    09/01/19
    
    
    
    197
    
    
    
    188
    
    
    
    1,155,000$
    33,005,130EQUIPMENTGirardi-Riva Enterprises, Inc.
    
    Arbys
    
    
    02/01/98
    
    
    
    02/01/05
    
    
    
    84
    
    
    
    12
    
    
    
    252,269Morgans Restaurants of PA, Inc.
    
    KFC
    
    
    10/15/97
    
    
    
    10/15/04
    
    
    
    84
    
    
    
    8
    
    
    
    242,572Virginia QSC, LLC
    
    Burger King
    
    
    11/01/97
    
    
    
    11/01/04
    
    
    
    84
    
    
    
    9
    
    
    
    296,444GC of Charlottesville
    
    Golden Corral
    
    
    05/01/98
    
    
    
    05/01/05
    
    
    
    84
    
    
    
    15
    
    
    
    418,870Circle Restaurant Company, Inc.
    
    Arbys
    
    
    12/01/00
    
    
    
    09/01/05
    
    
    
    60
    
    
    
    22
    
    
    
    98,425DJ Enterprises, Inc.
    
    Taco Bell
    
    
    10/01/98
    
    
    
    09/01/07
    
    
    
    107
    
    
    
    44
    
    
    
    180,600J.M.C. Limited Partnership
    
    Applebees
    
    
    03/01/97
    
    
    
    03/01/04
    
    
    
    84
    
    
    
    1
    
    
    
    422,101$
    1,911,280REPOSSESSED EQUIPMENTN/A
    
    Dennys
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    367,500$
    35,283,910
   [Continued from above table, first column(s) repeated] Date of
    
    Annual
    
    BuildingAsset
    
    Monthly
    
    Next Rent
    
    Rate of
    
    SizeLessee Name
    
    Location
    
    Rent
    
    Increase
    
    Increase
    
    (SQFT)Hollywood Entertainment Corp.
    
    OH
    
    $
    12,702
    
    
    
    07/01/07
    
    
    
    (1
    )
    
    
    7,488Blockbuster Entertainment Corp.
    
    GA
    
    
    11,012
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    6,500NT Management
    
    TX
    
    
    16,170
    
    
    
    08/01/06
    
    
    
    1.64
    %
    
    
    6,257Capital Foods, Inc.
    
    OH
    
    
    8,072
    
    
    
    12/01/04
    
    
    
    2.50
    %
    
    
    2,795CALVIR Taco II, LLC
    
    CA
    
    
    10,994
    
    
    
    02/01/06
    
    
    
    0.99
    %
    
    
    2,164Moondance, Inc.
    
    TX
    
    
    16,515
    
    
    
    08/01/05
    
    
    
    1.64
    %
    
    
    7,158Kona Restaurant Group, Inc.
    
    TX
    
    
    15,360
    
    
    
    08/01/05
    
    
    
    1.64
    %
    
    
    6,595Hollywood Entertainment Corp.
    
    OH
    
    
    12,268
    
    
    
    n/a
    
    
    
    n/a
    
    
    
    7,488S&A Restaurant Corporation
    
    MI
    
    
    18,109
    
    
    
    07/01/04
    
    
    
    1.96
    %
    
    
    7,724S&A Restaurant Corporation
    
    PA
    
    
    21,051
    
    
    
    07/01/04
    
    
    
    1.96
    %
    
    
    7,239S&A Restaurant Corporation
    
    VA
    
    
    14,034
    
    
    
    07/01/04
    
    
    
    1.96
    %
    
    
    6,798Slaymaker Group
    
    AZ
    
    
    8,036
    
    
    
    03/01/04
    
    
    
    1.92
    %
    
    
    3,536Slaymaker Group
    
    AZ
    
    
    8,089
    
    
    
    02/01/04
    
    
    
    1.92
    %
    
    
    3,203Sterling Jewelers
    
    TX
    
    
    11,667
    
    
    
    02/01/04
    
    
    
    1.92
    %
    
    
    5,227TEC Foods
    
    MI
    
    
    6,360
    
    
    
    01/01/05
    
    
    
    0.66
    %
    
    
    2,252TEC Foods
    
    MI
    
    
    6,360
    
    
    
    01/01/05
    
    
    
    0.66
    %
    
    
    2,269RTM Acquisition Company, Inc.
    
    MI
    
    
    6,720
    
    
    
    09/01/05
    
    
    
    1.49
    %
    
    
    2,778Vacant
    
    TX
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    6,805DRM, Inc.
    
    IA
    
    
    8,029
    
    
    
    01/01/05
    
    
    
    1.92
    %
    
    
    3,094United Supermarkets, Inc.
    
    TX
    
    
    39,094
    
    
    
    
    
    
    
    n/a
    
    
    
    43,100Golden Restaurants Operations, Inc.
    
    MN
    
    
    9,288
    
    
    
    05/26/04
    
    
    
    1.70
    %
    
    
    3,035SDI Foods Inc.
    
    OH
    
    
    9,625
    
    
    
    09/01/04
    
    
    
    10.40
    %
    
    
    2,214$
    269,553
    
    
    
    
    
    
    
    
    
    
    
    145,719EQUIPMENTGirardi-Riva Enterprises, Inc.
    
    WA
    
    
    4,108Morgans Restaurants of PA, Inc.
    
    PA
    
    
    3,766Virginia QSC, LLC
    
    VA
    
    
    4,862GC of Charlottesville
    
    VA
    
    
    6,439Circle Restaurant Company, Inc.
    
    CO
    
    
    1,373DJ Enterprises, Inc.
    
    FL
    
    
    500J.M.C. Limited Partnership
    
    UT
    
    
    6,838$
    27,885REPOSSESSED EQUIPMENTN/A
    
    SC
    
    
    $
    297,438
 (1) Rent Increase equals the lesser of CPI or 10%. Leases Real Estate Leases:All of the properties are subject to triple net leases
on the Partnerships form of standard lease pursuant to which the tenant is
responsible for all expenses related to the cost of operating the properties,
including real estate taxes, insurance, maintenance and repair costs. As of
December 31, 2003, original base terms of the property leases ranged from 14 to
20 years, and the weighted average remaining base term of the property lease
portfolio was 13 years. Certain of the leases provide the tenant with one or
more options to renew the lease upon expiration of the base term at
predetermined or market rental rates. All but two of the leases provide for
increases in the monthly rents during the base term of the lease, with most of
these determined based upon fixed, contractual rates of increases. One of the
leases provide for rental increases based upon the lesser of a fixed percentage
or changes in the Consumer Price Index. The timing of rental increases is
specified in the leases, but generally occurs no more often than annually and
no less often than once every five years. Equipment Leases:All of the equipment leases are on the Partnerships
standard form of lease pursuant to which the lessee is responsible for all
expenses related to the equipment, including taxes, insurance, maintenance and
repair costs. All of the equipment was purchased with cash from Offering
proceeds. As of December 31, 2003, original base terms of the equipment leases
ranged from 5 to 9 years, and the weighted average remaining base term of the
equipment lease portfolio was 13 months. All of the leases provide for fixed
monthly rents during the entire term of the lease. Approximately 78% of the
equipment leases provide the lessee with the option to purchase the equipment
for a nominal purchase price ($1) upon expiration of the base lease term. Summary of Investment Objectives and Policies The Partnership acquires income-producing property and equipment which are
leased primarily to operators of nationally franchised fast-food, family style
and dinner house restaurants as well as other franchised service-type
businesses such as automotive and specialty retail franchises. Properties are
selected for acquisition based on an examination and evaluation by the General
Partner, or an affiliate, of the potential value of the site, the financial
condition and business history of the proposed tenant or lessee, area
demographics, prospective purchase price and lease terms, geographic and market
diversification, and potential operating results. Similar analyses are utilized
in selecting equipment for inclusion in lease packages. The Partnership
anticipates that fee interests in real property will be acquired, although
other interests (including acquisitions of buildings subject to a long-term
ground lease) may be acquired if it is deemed to be advantageous to the
Partnership. In no event is property or equipment acquired unless a
satisfactory lease commitment has been obtained from a suitable tenant or
lessee as further described below. In selecting specific properties, the General Partner generally requires
the following: (i) Base annual rent that provides a specified minimum return on the
contract purchase price of the property; and (ii) An initial lease term of between ten and twenty years. In selecting specific equipment, the General Partner typically requires
the following: 3




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(i) Leases providing for fixed rents structured to return 100% of the
cost of the equipment plus yield a return equivalent to market interest rates
over the lease term; and (ii) Terms of five to seven years with residual values of equipment at
the end of such terms expected to be minimal. The determination of whether particular properties or equipment should be
sold or otherwise disposed of is made after consideration of relevant factors,
including performance or projected performance of the property or equipment and
market conditions, with a view toward achieving the principal investment
objectives of the Partnership. 
 Item 3. Legal Proceedings On November 19, 2002, the Partnership was named as one of the defendants
in a personal injury suit relating to an alleged unsafe walkway at a property
owned by the Partnership. The general Partner and Partnership have denied any
wrongdoing and intend to vigorously contest the matter. The Partnership has
insurance, which would cover any amounts less retention that may ultimately be
paid. 
 Item 4. Submission of Matters to a Vote of Security Holders None 
 PART II 
 Item 5. Market for Registrants Limited Partnership Interests and Related Security Holder Matters and Issuer Purchases of Equity Securities There is no public market for the Units and the Partnership does not
currently expect that any market will develop. There are restrictions upon the
transferability of Units, including the requirement that the General Partner
consent to any transferee becoming a substituted Limited Partner (which consent
may be granted or withheld at the sole discretion of the General Partner). In
addition, restrictions on transfer may be imposed under state securities laws.
As of December 31, 2003, Units were held by 1,569 investors of record. In the
last three years, the Partnership has not engaged in the sale of any Units. The Internal Revenue Code of 1986, as amended, contains provisions that
may have an adverse impact on investors in certain publicly traded
partnerships. If the Partnership were to be classified as a publicly traded
partnership, income attributable to the Units would be characterized as
portfolio income and the gross income attributable to Units acquired by
tax-exempt entities would be unrelated business income, which could render the
Units less marketable. The General Partner will, if necessary, take appropriate
steps to ensure that the Partnership will not be deemed a publicly traded
partnership. 4




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Item 6. Selected Financial Data Selected Financial Data Year Ended
    
    Year Ended
    
    Year Ended
    
    Year Ended
    
    Year EndedDecember 31,
    
    December 31,
    
    December 31,
    
    December 31,
    
    December 31,2003
    
    2002
    
    2001
    
    2000
    
    1999Statements of Operations Data:Operating revenue:Rental income
    
    $
    3,412,477
    
    
    $
    3,363,815
    
    
    $
    3,363,815
    
    
    $
    3,002,022
    
    
    $
    2,672,588Lease Termination Fee
    
    
    254,159
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Finance income
    
    
    199,059
    
    
    
    310,428
    
    
    
    456,552
    
    
    
    588,435
    
    
    
    805,410Total operating revenue
    
    
    3,865,695
    
    
    
    3,674,243
    
    
    
    3,820,367
    
    
    
    3,590,457
    
    
    
    3,477,998Operating costs and expenses:Interest expense
    
    
    1,271,165
    
    
    
    1,266,420
    
    
    
    1,217,899
    
    
    
    923,965
    
    
    
    788,199Depreciation
    
    
    506,298
    
    
    
    489,976
    
    
    
    482,954
    
    
    
    394,312
    
    
    
    327,803General and administrative
    
    
    218,997
    
    
    
    166,788
    
    
    
    129,144
    
    
    
    101,226
    
    
    
    108,023Provision for Losses
    
    
    
    
    
    
    195,542
    
    
    
    65,000
    
    
    
    
    
    
    
    Total operating costs
and expenses
    
    
    1,996,460
    
    
    
    2,118,726
    
    
    
    1,894,997
    
    
    
    1,419,503
    
    
    
    1,224,025Income from operations
    
    
    1,869,235
    
    
    
    1,555,517
    
    
    
    1,925,370
    
    
    
    2,170,954
    
    
    
    2,253,973Other income (expense):Interest and other income
    
    
    4,857
    
    
    
    1,478
    
    
    
    14,608
    
    
    
    722
    
    
    
    34,198Loss (Gain)on sale of equipment
    
    
    45,741
    
    
    
    
    
    
    
    (258
    )
    
    
    42,433
    
    
    
    5,858Total other income
    
    
    50,598
    
    
    
    1,478
    
    
    
    14,350
    
    
    
    43,155
    
    
    
    40,056Net income
    
    
    1,919,833
    
    
    
    1,556,995
    
    
    
    1,939,720
    
    
    
    2,214,109
    
    
    
    2,294,029Net income allocable to general partners
    
    
    19,198
    
    
    
    15,570
    
    
    
    19,397
    
    
    
    22,141
    
    
    
    22,940Net income allocable to limited partners
    
    $
    1,900,635
    
    
    $
    1,541,425
    
    
    $
    1,920,323
    
    
    $
    2,191,968
    
    
    $
    2,271,089Net income per limited partnership unit
    
    $
    65.00
    
    
    $
    52.49
    
    
    $
    65.10
    
    
    $
    73.65
    
    
    $
    75.78weighted average units outstanding
    
    
    29,239
    
    
    
    29,369
    
    
    
    29,496
    
    
    
    29,763
    
    
    
    29,969Other Data:Cash flows from operating activities
    
    $
    1,951,899
    
    
    $
    1,934,582
    
    
    $
    2,020,200
    
    
    $
    2,626,092
    
    
    $
    3,306,697Cash flows from investing activities
    
    $
    (97,459
    )
    
    $
    1,402,096
    
    
    $
    1,253,154
    
    
    $
    (3,138,164
    )
    
    $
    4,000,047Cash flows from financing activities
    
    $
    (2,292,589
    )
    
    $
    (3,461,189
    )
    
    $
    (2,094,788
    )
    
    $
    (110,817
    )
    
    $
    (507,083
    )Balance Sheet Data:Cash and cash equivalents
    
    $
    928,132
    
    
    $
    1,367,069
    
    
    $
    1,460,847
    
    
    $
    179,066
    
    
    $
    915,760Investment in property under leases
    
    $
    31,262,517
    
    
    $
    31,516,729
    
    
    $
    33,604,343
    
    
    $
    35,405,709
    
    
    $
    32,619,423Total assets
    
    $
    34,246,143
    
    
    $
    34,612,180
    
    
    $
    36,589,728
    
    
    $
    36,819,022
    
    
    $
    34,533,478Total liabilities
    
    $
    15,120,012
    
    
    $
    14,552,078
    
    
    $
    14,928,823
    
    
    $
    13,753,388
    
    
    $
    9,832,387Total partners capital
    
    $
    19,126,131
    
    
    $
    20,060,102
    
    
    $
    21,660,905
    
    
    $
    23,065,634
    
    
    $
    24,701,091
 5




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Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations When used in this discussion, words such as intends, anticipates,
expects, will, could, estimate, and similar expressions are intended to
identify forward-looking statements. Such statements are subject to certain
risks and uncertainties, which could cause actual results to differ materially
from those described herein. Such risks and uncertainties, some of which are
beyond the Partnerships control, include, but are not limited to, the
following: (i) the possibility that tenants and lessees may default in making
rent payments, (ii) the risk of fire or other casualty interrupting cash flow
from a property, (iii) the inability to enter into leases at the assumed rental
rates, (iv) unexpected expenses, and (v) the inability to sell properties at
anticipated prices and/or times. As a result of these and other factors, the Partnership may experience
material fluctuations in future operating results on a quarterly or annual
basis, which could materially and adversely affect its business, financial
condition and operating results. Any statements contained in this report or any
document incorporated herein by reference that are not statements of historical
fact may be deemed to be forward-looking statements. These statements by their
nature involve substantial risks and uncertainties, some of which are beyond
the Partnerships control, and actual results may differ materially depending
on a variety of important factors, many of which are also beyond the
Partnerships control. You should not place undue reliance on these
forward-looking statements, which speak only as of the date of this report. The
Partnership disclaims, except as may be required by law, any obligations to
update or release revisions to these forward-looking statements to reflect
events or circumstances after the date of this report or to reflect the
occurrence of unanticipated events. Results of Operations - 2003 to 2002 For the year ended December 31, 2003, operating revenue increased 5% to
approximately $3.9 million compared to approximately $3.7 million for the year
ended December 31, 2002. Rental revenue from operating leases for the year
ended December 31, 2003 increased by $49,000 compared to the year ended
December 31, 2002, due to the acquisition of a Taco Bell property in April 2003.
Operating revenues include lease termination fee of approximately $254,000 in the
fourth quarter of 2003. Earned income from financing leases for 2003 decreased
36% to approximately $199,000, compared to approximately $310,000 for 2002, due
to the amortization of principal balances and the termination and disposition
of equipment leases in 2003. Operating expenses decreased 6% to approximately $2.0 million for 2003,
compared to approximately $2.1 million for 2002, principally due to the
provision for losses in 2002 related to an impaired equipment lease which was
partially offset by increased administrative expenses from increased
professional fees, an increase in the depreciation expense due to the
acquisition of a Taco Bell property in April 2003 and the increase in interest
expense due to the issuance of the additional debt in connection with the
purchase of the Taco Bell property. The Partnership recorded a provision of
$196,000 in December 2002 to reserve for losses anticipated in connection with
an impaired equipment lease. Rental payments on this lease are delinquent by
more than 90 days, and income accrual has been suspended by the Partnership.
The tenant, a Dennys restaurant franchisee, filed for Chapter 11 bankruptcy
protection in September 2001 and subsequently converted to a Chapter 7 filing
in May 2002. The restaurant in which the equipment is located is a leased
facility. The landlord, who had been operating the restaurant during the
bankruptcy period, decided to discontinue operation of the restaurant in
December 2002, and accordingly the reserve allowance was increased as described
above. Other income for 2003 was approximately $51,000 partly due to the
disposition of an equipment lease in April 2003, two equipment leases in August
2003 and one in October 2003 for aggregate cash proceeds of approximately
$345,000, resulting in a gain of approximately $46,000. The remaining income of
$4,000 was attributable to late fees. As a result of the foregoing, the Partnerships net income for 2003
increased 23% to approximately $1.9 million compared to $1.6 million in 2002.
The Partnership is not subject to income taxation as all of its income and
expenses flow through to the Partners. During the year ended December 31, 2003,
the Partnership made distributions to limited partners totaling $2.7 million,
compared to $3.1 million for the preceding year. Results of Operations - 2002 to 2001 For the year ended December 31, 2002, operating revenue decreased 4% to
approximately $3.7 million compared to approximately $3.8 million for the year
ended December 31, 2001. Rental revenue from operating leases for the year
ended December 31, 2002 remained unchanged at $3,364,000. Earned income from
financing leases for 2002 decreased 32% to approximately $310,000 6




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compared to approximately $457,000 for 2001 due to the amortization of
principal balances and the suspension of income recognition in January 2002 on
an impaired equipment lease. Operating expenses increased 12% to approximately $2.1 million for 2002
compared to approximately $1.9 million for 2001. The increase in operating
expenses is principally due to increased interest expense resulting from the
$1.5 million term note that the Partnership entered into in November 2001 and
an increase in the provision for losses related to an impaired equipment lease.
The note was used to provide cash for future property acquisitions. The
Partnership recorded a provision for losses of $65,000 in 2001 and subsequently
recorded an additional provision of $196,000 in December 2002 to reserve for
losses anticipated in connection with an impaired equipment lease. Rental
payments on this lease are delinquent by more than 90 days, and income accrual
has been suspended by the Partnership. The tenant, a Dennys restaurant
franchisee, filed for Chapter 11 bankruptcy protection in September 2001 and
subsequently converted to a Chapter 7 filing in May 2002. The restaurant in
which the equipment is located is a leased facility. The landlord, who had been
operating the restaurant during the bankruptcy period, decided to discontinue
operation of the restaurant in December 2002 and, accordingly, the reserve
allowance was increased as described above. Other income for 2001 of $14,000 was attributable to late fees and
interest income on short-term investments. As a result of the foregoing, the Partnerships net income for 2002
decreased 20% to approximately $1.6 million compared to $1.9 million in 2001.
The Partnership is not subject to income taxation as all of its income and
expenses flow through to the Partners. During the year ended December 31, 2002,
the Partnership made distributions to limited partners totaling $3.1 million,
compared to $3.2 million for the preceding year. Liquidity and Capital Resources In December 1996, the Partnership commenced its Offering of up to 30,000
limited partnership Units. Net proceeds after offering expenses were
approximately $26.1 million. In December 1998, the Partnership entered into a $6.4 million term note.
The Partnership entered into an additional $3.3 million term note in March
1999. Proceeds from the notes were used to acquire additional properties. The
notes each have a 10-year term, are collateralized by certain properties
subject to operating leases, and bear interest at rates ranging from 8.1% to
8.5% per annum. The Partnership purchased one net leased real estate property in October
2000 and assumed a $3.75 million term note in connection with the acquisition.
The note has a 10-year term and bears interest at the rate of 8.35% per annum. In November 2001, the Partnership entered into an additional $1.5 million
note. The note has a 2-year term, is collateralized by certain properties
subject to operating leases and bears interest at a rate equal to prime plus 2%
per annum. Proceeds from this note were used to repay approximately $700,000 of
short-term borrowings and to provide working capital intended to be used to
fund Unit repurchases and potential property acquisitions. In November 2003,
the Partnership extended this note for an additional two years. In April 2003, the Partnership acquired a property located in Harrison,
Ohio subject to an existing lease with a Taco Bell Franchisee. The property
was purchased from an affiliate for a price of $1,100,000 plus acquisition fees
of $55,000, which the Partnership funded with $230,000 of cash and $920,000 of
proceeds from two term notes issued in connection with the purchase. The first
note in the aggregate principal amount of $862,000 has a 5-year term, is
collaterized by a certain property subject to an operating lease, and bears
interest at a rate equal to 6.25% per annum. The second note in the aggregate
principal amount of $57,500 has a 2-year term and bears interest at a variable
rate equivalent to the Wall Street Journal (WSJ) prime rate plus 1/2%. The
interest rate is adjusted monthly for changes in the WSJ prime rate. Debt issuance costs of approximately $634,710 incurred in connection with
the issuance of the notes are being amortized into interest expense over the
life of the notes using the straight-line method. As of December 31, 2003, the Partnership had a portfolio of 22 properties
located in 10 states, with a cost basis of $33.0 million, 7 performing
equipment leases with an original investment of $1.9 million and one
repossessed equipment package related to a defaulted equipment contract. The
remaining net investment in the Partnerships leased equipment is $327,000, net
of $1.6 million of aggregate principal collections on financing leases during
the life of those investments. Inclusive of the above amount, the Partnership
has received approximately $6.8 million of aggregate principal collections on
its financing leases during the life of those investments. As of December 31,
2003, the Partnership has not made, nor does it intend to make, any commitments to
purchase additional properties. 7




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##### Table of Contents



The Partnership semi-annually considers written requests to repurchase
Units pursuant to the terms of the repurchase plan set forth in the
Partnerships prospectus with respect to the Offering. Since 1999, 845 Units
have been repurchased by the Partnership pursuant the repurchase plan. At
December 31, 2003, the Partnership had 29,155 Units issued and outstanding. The
Partnership expects to fund future Unit repurchases out of working capital
reserves and net sale or refinancing proceeds, but may also fund such
repurchases out of cash flow. The Partnership is not obligated to accept Unit
repurchase requests if the Partnership does not have the liquidity to fund such
requests and/or if the Partnership does not have sufficient Cash Flow to
distribute the 10% Current Preferred Return. The Partnership expects that only limited amounts of liquid assets will be
required for existing properties since its property and equipment leases
require tenants and lessees to pay all taxes and assessments, maintenance and
repairs and insurance premiums, including casualty insurance thereby minimizing
the Partnerships operating expenses and capital requirements. The General
Partner expects that the cash flow to be generated by the Partnerships
properties and equipment will provide adequate liquidity and capital resources
to pay operating expenses and provide distributions to Limited Partners. Critical Accounting Policies The financial statements are prepared in accordance with Generally
Accepted Accounting Principles (GAAP), which requires the Partnership to make
certain estimates and assumptions. A summary of the Partnerships significant
accounting policies is provided in note 1 to the financial statements. The
following section is a summary of certain aspects of those accounting policies
that require management estimates and judgment. When real estate properties are acquired, acquisition costs are allocated
to components of the property using relative fair values based on historical
experience and the Partnerships current judgment. These assumptions and
estimates impact the amount of costs allocated between land and building,
depreciation expense, and gains or losses recorded on sales of properties. Receivables are reported net of allowance
for doubtful accounts and may be uncollectible in the future. The Partnership reviews its
receivables regularly for potential collection problems in computing the allowance recorded
against its receivables. This review process requires the Partnership to make certain
judgements regarding collections that are inherently difficult to predict. The Partnerships operating leases have scheduled rent increases which
occur at various dates throughout the lease terms. Increases to rental income
on leases that provide for rental increases based on changes in the Consumer
Price Index commence being recognized when the increase is known. The
Partnership recognizes the total rent, as stipulated by the lease agreement, as
income on a straight-line basis over the term of each lease for those leases
with fixed percentage increases subject to reasonably ensured collectibilty. To
the extent rental income on the straight-line basis exceeds rents billable per
the lease agreement, an amount is recorded as unbilled rent. In addition to
scheduled rent increases, certain of the Partnerships leases also have
percentage and overage rent clauses, which the Partnership recognizes after the
tenants reported sales have exceeded the applicable sales breakpoint. The Partnership periodically reviews its real estate portfolio for impairment whenever events or changes in circumstances indicate that the carrying amount of the property may not be recoverable. If an impairment loss is indicated using the undiscounted cash flows, the loss is
measured as the amount by which carrying amount of the asset exceeds the estimated fair
value of the asset on a discounted cash flow basis. 
 Item 7A. Qualitative and Quantitative Disclosures About Market Risk Credit risk relates to investment in leases and accounts receivable
balances and results from the possibility that a lessee defaults on its
contractual obligation to the Partnership. Both the ability of the lessees to
pay rent on a timely basis and the amount of the rent (which is the
Partnerships principal source of income) are affected by general economic
conditions. A default by a lessee or other premature termination of a lease
agreement will interrupt rental payments and Partnership cash flows would be
temporarily impacted. In such an instance, the General Partner expects that it
would find a substitute lessee, however, there can be no assurances that the
property or equipment could be leased on comparable or acceptable terms. The
Partnership monitors this risk by performing ongoing credit evaluations of
lessees and maintains allowances for potential credit losses. The Partnership is exposed to interest rate risks, primarily as a result
of its long-term fixed rate debt used to finance its investments. The
Partnerships approach to interest rate risk management is to limit the impact
of interest rate changes on earnings and cash flows by matching investments
with long-term fixed rate borrowings to the extent possible. A change in
interest rates will not affect the interest expense associated with the fixed
rate debt. Changes in the interest rate environment upon maturity of this
fixed rate debt could have an effect on the Partnerships future cash flows and
earnings, depending on whether the debt is replaced with other fixed rate debt,
variable rate debt, or equity or repaid by the sale of assets. Current Notes
Payables mature in 2005 and in the years 2008 through 2010. The
carrying amounts and estimated fair values of the Notes Payable are as
follows: December 31, 2003
    
    December 31, 2002Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    Amount
    
    Fair Value$14,948,390
    
    $
    16,411,027
    
    
    $
    14,374,899
    
    
    $
    15,659,148
 8




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##### Table of Contents



Item 8. Financial Statements and Supplementary Data See Index to Financial Statements on Page F-I of this Form 10-K for
Financial Statements and Financial Statement Schedules, where applicable. 
 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. On September 24, 2003, the Partnership dismissed PricewaterhouseCoopers
LLP (PWC) as the Partnerships certifying accountant. PWCs reports on the
financial statements for the past two years contained no adverse opinion or
disclaimer of opinion, nor were the reports qualified or modified as to
uncertainty, audit scope, or accounting principles. The decision to change
accountants was approved by GP4 Asset Acquisition, LLC, the Partnerships sole
manager. The Partnership does not have a board of directors or audit
committee. During the last two fiscal years and through the subsequent interim
period, there were no disagreements with PWC on any matter of accounting
principles or practices, financial statement disclosure, or auditing scope or
procedure. Moreover, during the last two fiscal years and during the
subsequent interim period PWC did not advise the Partnership that (a) the
internal controls necessary for the Partnership to develop reliable financial
statements did not exist, (b) the Partnership needed to expand significantly
the scope of its audit, or (c) PWC was aware of information that on its face,
or if further investigated, (i) made, or would have made, PWC unable to rely on
managements representations, (ii) made, or would have made, PWC unwilling to
be associated with the financial statements prepared by management, or (iii)
materially impacted, or would have materially impacted, the fairness or
reliability of a previously issued audit report or the underlying financial
statements, or the financial statements issued or to be issued covering the
fiscal period(s) subsequent to the date of the most recent financial statements
covered by an audit report, including information that could have prevented PWC
from rendering an unqualified report on those financial statements. The Partnership engaged Ernst & Young LLP (Ernst & Young) as the
Partnerships certifying accountant as of October 7, 2003. During 2002 and
2001 and in the subsequent interim period from January 1, 2003 through October
7, 2003, the Partnership did not consult with Ernst & Young on items that
concerned the application of accounting principles generally, or to a specific
transaction or group of either completed or proposed transactions, or the type
of audit opinion that might be rendered on the Partnerships financial
statements, or any other matters or reportable events as set forth in Items
304(a)(2)(i) and (ii) of Regulation S-K. 
 Item 9A. Controls and Procedures Mr. Beach, acting in his capacity as the principal executive officer of
GP4 Asset Acquisition, is ultimately responsible for the disclosure controls
and procedures of the Partnership. Disclosure controls and procedures are
established and maintained by the Partnership to ensure the information
required to be disclosed by the Partnership in the reports that it files or
submits pursuant to the Securities Exchange Act of 1934, as amended (the
Act), is recorded, processed, summarized and reported within the time periods
specified in the Commissions rules and forms. Mr. Beach has evaluated the
effectiveness of the Partnerships disclosure controls and procedures as of a
date within 90 days prior to the filing date of this report, and has determined
that the Partnerships disclosure controls and procedures effectively
communicate the information required to be disclosed by the Partnership in the
reports it files or submits under the Act in a manner that allows timely
decisions regarding such disclosure. There have been no significant changes in the Partnerships internal
controls or in other factors that could significantly affect these controls
subsequent to the evaluation date, including, but not limited to, any
corrective actions with regard to significant deficiencies and material
weaknesses. 
 PART III 
 Item 10. Directors and Executive Officers of the Registrant The Partnership has no directors, officers or other employees. To the
best knowledge of the Partnership, as of December 31, 2003, no person
beneficially owned more than 5.0% of the outstanding Units. Patrick L. Beach is the sole member of CRC Asset Acquisition LLC, the sole
member of GP4 Asset Acquisition and the President of GP4 Asset Acquisition, the
Partnerships General Partner. Mr. Beach attended the University of Michigan and graduated from its
School of Business Administration in 1977 with a Bachelor of Business
Administration degree. From 1997 until 2001, Mr. Beach served as the Chairman,
President and Chief Executive Officer 9




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##### Table of Contents



of Captec Net Lease. Since 1981, he has served as Chairman and Chief
Executive Officer of Captec Financial Group, Inc., affiliate of the
Partnership, that is involved in the acquisition and development of single
tenant restaurant properties, shopping centers, and multi-family residential
properties. Since the Partnership has no directors, officers or employees, it has not
adopted a code of ethics. 
 Item 11. Executive Compensation The Partnership does not have directors, officers or employees. All
amounts paid by the Partnership for management and administration services are
pursuant to agreements described under Item 13, Certain Relationships and
Related Transactions. 
 Item 12. Security Ownership of Certain Beneficial Owners and Management and Related Securityholder Matters The Partnership has no directors or officers and, to the best knowledge of
the Partnership, as of December 31, 2003, no person known by the Partnership
beneficially owned more than 5% of the outstanding Units. 
 Item 13. Certain Relationships and Related Transactions Pursuant to the Partnership Agreement, the General Partner receives
acquisition fees of 4%, plus an additional .00624% for each 1% of indebtedness
incurred in acquiring properties and equipment, of the aggregate purchase
prices of properties and equipment (not to exceed a total 5% acquisition fee).
The Partnership incurred $55,000 in acquisition fees in 2003 relating to the
purchase of the Taco Bell property. No acquisition fees were incurred in 2002
and 2001. The Partnership has entered into an asset management agreement with the
General Partner and its affiliates, pursuant to which the General Partner and
the General Partners affiliates provide various property and equipment
management services for the Partnership. A subordinated asset management fee is
charged, in an amount equal to 1% of the gross rental revenues derived from the
properties and equipment. Payment of the asset management fee is subordinated
to receipt by the limited partners of annual distributions equal to a
cumulative, non-compounded return of 10% per annum on their adjusted invested
capital. Management fees of $43,093, $48,142 and $47,426 were incurred during
2003, 2002 and 2001, respectively. The Partnership Agreement provides for the General Partner to receive
liquidation fees limited to the lesser of 3% of the gross sales price or 50% of
the customary real estate commissions in the event of a real estate
liquidation. This fee is payable only after the Limited Partners have received
distributions equal to a cumulative, non-compounded return of 10.5% per annum,
cumulative non-compounded preferred return on their adjusted invested capital
plus distributions of sale or refinancing proceeds equal to 100% of their
original contributions. The Partnership did not pay any liquidation fees during
2003, 2002 or 2001. The Partnership Agreement provides for the payment of equipment
liquidation fees to the General Partner in the amount of 3% of the contract
sales price. The Partnership did not incur any equipment liquidation fees
during 2003 and 2002. An affiliate of the Partnership, a Small Business Investment Corporation
(SBIC), has invested in certain entities that have leases with the
Partnership. As a result of the investments made through the SBIC, Mr. Beach or
his associates in the SBIC, may have board representation in these companies.
The Partnership and its General Partner believe that the leases are at market
rates for such properties and equipment. In April 2003, the Partnership acquired a property located in Harrison,
Ohio subject to an existing lease with a Taco Bell Franchisee. The property
was purchased from an affiliate for a price of $1,100,000 plus acquisition fees
of $55,000, which the Partnership funded with $230,000 of cash and $920,000 of
proceeds from two term notes issued in connection with the purchase. The lease
is an absolute net lease that expires in September 2019. Under the terms of
the lease, annual rent is presently $115,000 and will increase 10.4% in
September 2004 and every five years thereafter. In December 2001, Captec Net Lease merged with and into Commercial Net
Lease. In connection with the merger, Commercial Net Lease agreed to sell and
assign its General Partnership interest in the Partnership to GP4 Asset
Acquisition, which is wholly-owned by Patrick L. Beach. Patrick L. Beach is the
former Chairman of the Board of Directors and President and Chief Executive
Officer of Captec Net Lease and an original general partner of the Partnership.
Effective January 15, 2002, the limited partners consented to the transfer of
the General Partnership interest. On September 11, 2003, the Partnerships
secured lender consented to the transfer of the general partnership interest to
GP4 Asset Acquisition. Upon receipt of the secured lenders consent, the
general 10




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partnership interest was immediately transferred to GP4 Asset Acquisition.
Therefore, as of September 11, 2003, GP4 Asset Acquisition became the general
partner of the Partnership. The agreements and arrangements, including those relating to compensation,
between the Partnership and the General Partner or any of its affiliates have
not been and will not be the result of arms-length negotiations, although the
General Partner believes that such agreements and arrangements will approximate
those which would be arrived at through arms-length negotiations. While the
Partnership will make no loans to the General Partner or its affiliates, the
Partnership may borrow money from the General Partner or its affiliates but
only on such terms as to interest rate, security, fees and other charges at
least as favorable to the Partnership as are charged by unaffiliated lending
institutions in the same locality on comparable loans for the same purpose. The
General Partner and its affiliates are not prohibited from providing services
to, and otherwise dealing or doing business with, persons (for example,
franchisees), who may deal with the Partnership. However, the Partnership
Agreement prohibits receipt of rebates or participation in any reciprocal
business arrangements which would have the effect of circumventing any of the
provisions of the Partnership Agreement. 
 Item 14. Accountant Fees and Services Audit Fees The aggregate fees billed to the Partnership for professional services
rendered by the Partnerships principal accountant for the audit of the
Partnerships annual financial statements and review of the financial
statements included in the Partnerships quarterly reports on Form 10-Q or for
services normally provided by the Partnerships accountant in connection with
statutory or regulatory filings were $56,000 and $21,000 for the years ended
December 31, 2003 and 2002, respectively. Audit-Related Fees The aggregate fees billed to the Partnership for assurance and related
services by the Partnerships principal accountant that were reasonably related
to the performance of the audit or review of the Partnerships financial
statements were $0 for the years ended December 31, 2003 and 2002,
respectively. Tax Fees The aggregate fees billed to the Partnership for professional services
rendered by the Partnerships principal accountant for tax compliance, tax
advice and tax planning were $0 for the years ended December 31, 2003 and 2002,
respectively. All Other Fees The aggregate fees billed to the Partnership for products and services
provided by the Partnerships principal accountant were $0 for the years ended
December 31, 2003 and 2002, respectively. 
 Item 15. Exhibits and Reports on Form 8-K (a) The following exhibits are included herein or incorporated by
reference: Number
    
    Exhibit4
    
    Amended Agreement of Limited Partnership of Registrant. (Incorporated
by reference to the corresponding exhibit in the Registrants Form
10-K for the fiscal year ended December 31, 1998)10.1
    
    Promissory Note dated December 17, 1998 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-K for the fiscal
year ended December 31, 1998)10.2
    
    Promissory Note dated March 30, 1999 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-Q for the quarter
 11




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##### Table of Contents



Number
    
    Exhibitended March 31, 1999)31
    
    Certification Pursuant to section 302 of the Sarbanes-Oxley Act of 200232
    
    Certification Pursuant to 18 U.S.C. Section 1350, as adopted
pursuant to section 906 of the Sarbanes-Oxley Act of 2002
 (b) Reports on Form 8-K: On October 1, 2003, the Partnership filed a Current Report on Form 8-K,
dated October 1, 2003, to report the dismissal of PricewaterhouseCoopers LLP as
the Partnerships certifying accountant and to disclose that the Partnerships
lender had consented to the proposed transfer of the Partnerships general
partnership interest. This Form 8-K was amended on October 14, 2003 to report
the engagement of Ernst & Young LLP as the Partnerships new certifying
accountant. 12




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##### Table of Contents



SIGNATURES Pursuant to the requirements of Section 13 or 15 (d) of the Securities
Exchange Act of 1934, as amended, the registrant has caused this report to be
signed on its behalf by the undersigned, thereunto duly authorized. CAPTEC FRANCHISE CAPITAL PARTNERS L.P. IVBy:
    
    GP4 Asset Acquisition, LLC
Its ManagerBy:
    
    /s/ Patrick L. Beach
Patrick L. Beach
PresidentDate:
    
    March 28, 2004
 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. By:
    
    /s/ Patrick L. Beach
Patrick L. Beach
PresidentDate:
    
    March 28, 2004
 13




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##### Table of Contents



Captec Franchise Capital Partners, L.P. IV Contents Page(s)Reports of Independent Auditors
    
    
    F-1Financial StatementsBalance Sheets
    
    
    F-3Statements of Operations
    
    
    F-4Statements of Changes in Partners Capital
    
    
    F-5Statements of Cash Flows
    
    
    F-6Notes to Financial Statements
    
    
    F-7Schedule III - Properties and Accumulated Depreciation as
of December 31, 2003
    
    
    F-13




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##### Table of Contents



Report of Independent Auditors To the partners of Captec Franchise Capital Partners L.P. IV We have audited the accompanying balance sheet of Captec Franchise Capital
Partners L.P. IV as of December 31, 2003 and the related statements of
operations, cash flows and changes in partners capital for the year then
ended. Our audit also included the financial statement schedule. These financial statements and schedule are the
responsibility of the Partnerships management. Our responsibility is to
express an opinion on these financial statements and schedule based on our
audit. We conducted our audit in accordance with auditing standards generally
accepted in the United States. Those standards require that we plan and
perform the audit to obtain reasonable assurance about whether the financial
statements are free of material misstatement. An audit includes examining, on a
test basis, evidence supporting the amounts and disclosures in the financial
statements. An audit also includes assessing the accounting principles used
and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a
reasonable basis for our opinion. In our opinion, the 2003 financial statements referred to above present fairly,
in all material respects, the financial position of Captec Franchise Capital
Partners L.P. IV at December 31, 2003, and the results of its operations and
its cash flows for the year then ended, in conformity with accounting
principles generally accepted in the United States. Also, in our opinion, the related
financial statement schedule, when considered in relation to the basic financial statements
taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Ernst & Young LLP Toledo, Ohio
February 28, 2004 F-1




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##### Table of Contents



Report of Independent Auditors To the partners of Captec Franchise Capital Partners L.P. IV: In our opinion, the accompanying balance sheet as of December 31, 2002 and the related
statements of operations, of changes in partners capital and of cash flows
for each of the two years in the period ended December 31, 2002 present fairly,
in all material respects, the financial position, results of operations and
cash flows of Captec Franchise Capital Partners L.P. IV at December 31, 2002
and for each of the two years in the period ended December 31, 2002, in
conformity with accounting principles generally accepted in the United States
of America. These financial statements are the responsibility of the Companys
management; our responsibility is to express an opinion on these financial
statements based on our audits. We conducted our audits of these statements in
accordance with auditing standards generally accepted in the United States of
America, 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 our opinion. PricewaterhouseCoopers LLP
Detroit, Michigan
February 28, 2003 F-2




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##### Table of Contents



Captec Franchise Capital Partners L.P. IV
Balance Sheets
December 31, 2003 and 2002 2003
    
    2002AssetsCash and cash equivalents
    
    $
    694,742
    
    
    $
    1,132,891Restricted cash
    
    
    233,390
    
    
    
    234,178Investment in leases:Operating leases, net
    
    
    29,667,981
    
    
    
    28,910,393Financing leases, net
    
    
    1,579,536
    
    
    
    2,591,336Impaired financing leases, net
    
    
    15,000
    
    
    
    15,000Accounts receivable
    
    
    300,189
    
    
    
    90,785Unbilled rent, net
    
    
    1,446,046
    
    
    
    1,261,886Deferred financing costs, net
    
    
    309,259
    
    
    
    375,711Total assets
    
    $
    34,246,143
    
    
    $
    34,612,180Liabilities and Partners CapitalLiabilities:Notes payable
    
    $
    14,948,390
    
    
    $
    14,374,899Accounts payable and accrued expenses
    
    
    160,513
    
    
    
    157,241Due to related parties
    
    
    11,109
    
    
    
    19,938Total liabilities
    
    
    15,120,012
    
    
    
    14,552,078Partners capital:Limited partners capital accounts
    
    
    19,138,676
    
    
    
    20,091,845General partners capital account
    
    
    (12,545
    )
    
    
    (31,743
    )Total partners capital
    
    
    19,126,131
    
    
    
    20,060,102Total liabilities and partners capital
    
    $
    34,246,143
    
    
    $
    34,612,180
 The accompanying notes are an integral part of the financial statements. F-3




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##### Table of Contents



Captec Franchise Capital Partners L.P. IV
Statements of Operations
For the Years Ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Operating revenue:Rental income
    
    $
    3,412,477
    
    
    $
    3,363,815
    
    
    $
    3,363,815Lease Termination Fee
    
    
    254,159
    
    
    
    
    
    
    
    Finance income
    
    
    199,059
    
    
    
    310,428
    
    
    
    456,552Total operating revenue
    
    
    3,865,695
    
    
    
    3,674,243
    
    
    
    3,820,367Operating costs and expenses:Interest expense
    
    
    1,271,165
    
    
    
    1,266,420
    
    
    
    1,217,899Depreciation
    
    
    506,298
    
    
    
    489,976
    
    
    
    482,954General and administrative
    
    
    218,997
    
    
    
    166,788
    
    
    
    129,144Provision for losses
    
    
    
    
    
    
    195,542
    
    
    
    65,000Total operating costs and expenses
    
    
    1,996,460
    
    
    
    2,118,726
    
    
    
    1,894,997Income from operations
    
    
    1,869,235
    
    
    
    1,555,517
    
    
    
    1,925,370Other income:Interest and other income
    
    
    4,857
    
    
    
    1,478
    
    
    
    14,608Gain (loss) on sale of equipment
    
    
    45,741
    
    
    
    
    
    
    
    (258
    )Total other income
    
    
    50,598
    
    
    
    1,478
    
    
    
    14,350Net income
    
    
    1,919,833
    
    
    
    1,556,995
    
    
    
    1,939,720Net income allocable to general partner
    
    
    19,198
    
    
    
    15,570
    
    
    
    19,397Net income allocable to limited partners
    
    $
    1,900,635
    
    
    $
    1,541,425
    
    
    $
    1,920,323Net income per limited partnership unit
    
    $
    65.00
    
    
    $
    52.49
    
    
    $
    65.10Weighted average number of limited partnership
units outstanding
    
    
    29,239
    
    
    
    29,369
    
    
    
    29,496
 The accompanying notes are an integral part of the financial statements. F-4




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##### Table of Contents



Captec Franchise Capital Partners L.P. IV
Statements of Changes in Partners Capital
For the Years Ended December 31, 2003, 2002 and 2001 Limited
    
    Limited
    
    General
    
    TotalPartners
    
    Partners
    
    Partners
    
    PartnersUnits
    
    Accounts
    
    Account
    
    CapitalBalance, January 1,2001
    
    
    29,625
    
    
    $
    23,069,409
    
    
    $
    (3,775
    )
    
    $
    23,065,634Repurchase of
limited partnership units
    
    
    (234
    )
    
    
    (189,449
    )
    
    
    
    
    
    
    (189,449
    )Distributions -
($106.96 per
limited partnership unit)
    
    
    
    
    
    
    (3,155,000
    )
    
    
    
    
    
    
    (3,155,000
    )Net income
    
    
    
    
    
    
    1,920,323
    
    
    
    19,397
    
    
    
    1,939,720Balance, December
31, 2001
    
    
    29,391
    
    
    
    21,645,283
    
    
    
    15,622
    
    
    
    21,660,905Repurchase of
limited partnership units
    
    
    (50
    )
    
    
    (37,243
    )
    
    
    
    
    
    
    (37,243
    )Distributions -
($104.11 per
limited partnership unit)
    
    
    
    
    
    
    (3,057,620
    )
    
    
    (62,935
    )
    
    
    (3,120,555
    )Net income
    
    
    
    
    
    
    1,541,425
    
    
    
    15,570
    
    
    
    1,556,995Balance, December
31, 2002
    
    
    29,341
    
    
    
    20,091,845
    
    
    
    (31,743
    )
    
    
    20,060,102Repurchase of
limited partnership units
    
    
    (186
    )
    
    
    (133,804
    )
    
    
    
    
    
    
    (133,804
    )Distributions -
($93.03 per
limited partnership unit)
    
    
    
    
    
    
    (2,720,000
    )
    
    
    
    
    
    
    (2,720,000
    )Net income
    
    
    
    
    
    
    1,900,635
    
    
    
    19,198
    
    
    
    1,919,833Balance, December
31, 2003
    
    
    29,155
    
    
    $
    19,138,676
    
    
    $
    (12,545
    )
    
    $
    19,126,131
 The accompanying notes are an integral part of the financial statements. F-5




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##### Table of Contents



Captec Franchise Capital Partners L.P. IV
Statements of Cash Flows
For the Years Ended December 31, 2003, 2002 and 2001 2003
    
    2002
    
    2001Cash flows from operating activities:Net Income
    
    $
    1,919,833
    
    
    $
    1,556,995
    
    
    $
    1,939,720Adjustments to net income:Depreciation
    
    
    506,298
    
    
    
    489,976
    
    
    
    482,954Amortization of debt issuance costs
    
    
    78,728
    
    
    
    79,804
    
    
    
    59,519(Gain) loss on sale of equipment
    
    
    (45,741
    )
    
    
    
    
    
    
    258Provision for losses
    
    
    
    
    
    
    195,542
    
    
    
    65,000Increase in unbilled rent
    
    
    (293045
    )
    
    
    (217,227
    )
    
    
    (314,284
    )(Increase) decrease in accounts receivable
    
    
    (209,404
    )
    
    
    (70,088
    )
    
    
    6,054Increase (decrease) in accounts
payable and accrued expenses
    
    
    3,271
    
    
    
    (9,118
    )
    
    
    56,176Decrease (increase) in due from related parties
    
    
    
    
    
    
    3,667
    
    
    
    (2,701
    )Decrease in due to related parties
    
    
    (8,829
    )
    
    
    (64,236
    )
    
    
    (169,280
    )Decrease (increase) in restricted cash
    
    
    788
    
    
    
    (30,733
    )
    
    
    (103,216
    )Net cash provided by operating activities
    
    
    1,951,899
    
    
    
    1,934,582
    
    
    
    2,020,200Cash flows from investing activities:Purchase of properties subject to operating leases
    
    
    (1,155,000
    )
    
    
    
    
    
    
    (14,000
    )Proceeds from sale of equipment
    
    
    345,309
    
    
    
    180,983
    
    
    
    Net principal collections on financing leases
    
    
    712,232
    
    
    
    1,221,113
    
    
    
    1,267,154Net cash (used in) provided by investing activities
    
    
    (97,459
    )
    
    
    1,402,096
    
    
    
    1,253,154Cash flows from financing activities:Proceeds from issuance of notes payable
    
    
    920,000
    
    
    
    
    
    
    
    2,203,000Debt issuance costs
    
    
    (12,276
    )
    
    
    
    
    
    
    (38,879
    )Repayments of notes payable
    
    
    (346,509
    )
    
    
    (303,391
    )
    
    
    (914,460
    )Repurchase of limited partnership units
    
    
    (133,804
    )
    
    
    (37,243
    )
    
    
    (189,449
    )Distributions to limited partners
    
    
    (2,720,000
    )
    
    
    (3,057,620
    )
    
    
    (3,155,000
    )Distributions to general partner
    
    
    
    
    
    
    (62,935
    )
    
    
    Net cash used in financing activities
    
    
    (2,292,589
    )
    
    
    (3,461,189
    )
    
    
    (2,094,788
    )Net (decrease) increase in cash and cash equivalents
    
    
    (438,149
    )
    
    
    (124,511
    )
    
    
    1,178,566Cash and cash equivalents, beginning of year
    
    
    1,132,891
    
    
    
    1,257,402
    
    
    
    78,836Cash and cash equivalents, end of year
    
    $
    694,742
    
    
    $
    1,132,891
    
    
    $
    1,257,402Supplemental disclosure of cash flow information:Cash paid for interest
    
    $
    1,216,350
    
    
    $
    1,191,910
    
    
    $
    1,147,876
 The accompanying notes are an integral part of the financial statements. F-6




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##### Table of Contents



Captec Franchise Capital
Partners, L.P. IV
Notes to Financial Statements  1.
    
    The Partnership and Its Significant Accounting PrinciplesCaptec Franchise Capital Partners L.P. IV (the Partnership), a Delaware
limited partnership, was organized on July 23, 1996 for the purpose of
acquiring income-producing commercial real properties and equipment leased on
a triple net or double net basis, primarily to operators of national and
regional chain franchised fast food and family style restaurants, as well as
other national and regional retail chains.The initial general partners of the Partnership were Captec Franchise Capital
Corporation IV (the Corporation), a wholly-owned subsidiary of Captec
Financial Group, Inc. (Captec), an affiliate, and Patrick L. Beach, the
Chairman of the Board of Directors, President and Chief Executive Officer of
the Corporation and Captec. In August 1998, Captec Net Lease Realty, Inc.
(Captec Net Lease), an affiliate, acquired the General Partnership interest
of the Partnership. In December 2001, Captec Net Lease merged with and into
Commercial Net Lease Realty, Inc. (Commercial Net Lease). In connection
with the merger, Commercial Net Lease agreed to sell and assign its General
Partnership interest in the Partnership to GP4 Asset Acquisition, LLC (GP4
Asset Acquisition), which is wholly-owned by Mr. Beach and is an affiliate
of Captec. Effective January 15, 2002, the limited partners consented to the
transfer of the General Partnership interest. On September 11, 2003, the
Partnerships secured lender consented to the transfer of the general
partnership interest to GP4 Asset Acquisition. Upon receipt of the secured
lenders consent, the general partnership interest was immediately
transferred to GP4 Asset Acquisition. Therefore, as of September 11, 2003,
GP4 Asset Acquisition became the general partner of the Partnership.The Partnership commenced a public offering (the Offering) of up to 30,000
limited partnership units (the Units), priced at $1,000 per Unit,
registered under the Securities Act of 1933, as amended, by means of a
Registration Statement filed on Form S-11, which was declared effective by
the Securities and Exchange Commission on December 23, 1996. The Partnership
accepted subscriptions for the minimum number of Units on March 5, 1997 and
immediately commenced operations. The Offering was fully subscribed in
December 1998. Since 1999, 845 Units have been repurchased by the Partnership
pursuant to the terms of the Repurchase Plan set forth in the Partnerships
December 23, 1996 prospectus with respect to the Offering. At December 31,
2003, the Partnership had 29,155 Units issued and outstanding.The principal investment objectives of the Partnership are: (i) preservation
and protection of capital; (ii) distribution of cash flow generated by the
Partnerships leases; (iii) capital appreciation of Partnership properties;
(iv) generation of increased income and protection against inflation through
escalation of base rents or participation in gross revenues of tenants of
Partnership properties; and (v) deferred taxation of cash distributions to
the limited partners.Allocation of profits, losses and cash distributions from operations and cash
distributions from sale or refinancing are made pursuant to the terms of the
Partnership Agreement. Profits and losses from operations are allocated among
the limited partners based upon the number of Units owned.Following is a summary of the Partnerships significant accounting policies:Cash and cash equivalentsThe Partnership considers all highly liquid investments purchased with an
original maturity of three months or less to be cash equivalents. F-7




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##### Table of Contents



Restricted cashThe Partnership is required to maintain a cash balance in an escrow account
until specific post closing requirements have been satisfied related to a
note payable.Rental income from operating leasesThe Partnerships operating leases have scheduled rent increases which occur
at various dates throughout the lease terms. Increases to rental income on
leases that provide for rental increases based on changes in the Consumer
Price Index commence being recognized when the increase is known. The
Partnership recognizes the total rent, as stipulated by the lease agreement,
as income on a straight-line basis over the term of each lease for those
leases with fixed percentage increases subject to reasonably assured
collectibilty. To the extent rental income on the straight-line basis exceeds
rents billable per the lease agreement, an amount is recorded as unbilled
rent. In addition to scheduled rent increases, certain of the Partnerships
leases also have percentage and overage rent clauses, which the Partnership
recognizes after the tenants reported sales have exceeded the applicable
sales breakpoint. Straight line rental income accruals are suspended by the
Partnership on leases that are delinquent by more than 90 days. The
Partnership has a receivable of approximately $226,000 related to delinquent
rent. In the opinion of the General Partner, this amount is fully
recoverable based on collateral.As of December 31, 2003, operating leases to S&A Restaurants
Corporation, United Supermarkets, Inc. and Hollywood Entertainment Corp.
represented 17.38%, 14.14% and 9.03% respectively, of the annualized rent
from the total portfolio. Any performance failure under these leases could
materially adversely affect the Partnerships income and financial position.Land and buildings subject to operating leasesLand and buildings subject to operating leases are stated at cost less
accumulated depreciation. Buildings are depreciated on the straight-line
method over their estimated useful lives (40 years). The Partnership
periodically reviews its real estate portfolio for impairment whenever events
or changes in circumstances indicate that the carrying amount of the property
may not be recoverable. If an impairment loss is indicated using undiscounted
cash flows, the loss is measured as the amount by which the carrying amount
of the asset exceeds the estimated fair or present value of the asset on a
discounted cash flow basis.The cost of the properties acquired is allocated among tangible land,
buildings and equipment and recognized intangibles based upon estimated fair
values in accordance with the provisions of SFAS No 141, Business
Combinations. Recognized intangibles include the value of acquired lease
contracts. In computing the value of acquired lease contracts, consideration
is given to (a) whether the lease is at market rates, (b) origination fees
typically incurred to negotiate a contract, and (c) recovery costs to replace
the tenant.As of December 31, 2003, approximately 88.5% of the properties owned by the
Partnership are occupied and the related leases are performing, and all of
the Partnerships investments in equipment subject to financing leases are
performing. The Partnership has two properties which are vacant and for which
rental payments have been delinquent approximately fourteen months. The
tenant experienced financial difficulties that resulted in the stores recent
closure. The Partnership is actively seeking to re-tenant the properties as
well as pursuing rights and remedies under the leases to collect all the
amounts owed. In addition, the lease for a third property was terminated
during the fourth quarter and a lease termination agreement was executed. The
Partnership received approximately $254,000 which was applied against revenue
from the property. The Partnership is actively seeking to re-tenant the
property. The General Partner does not have sufficient evidence at this time
to believe impairment exists on any of the vacant properties.All of the properties are subject to triple net leases on the
Partnerships form of standard lease pursuant to which the tenant is
responsible for all expenses related to the cost of operating the properties,
including real estate taxes, insurance, maintenance and repair costs. As of
December 31, 2003, original base terms of the property leases ranged from 14
to 20 years, and the weighted average remaining base term of the property
lease portfolio was 13 years. Certain of the leases provide the tenant with
one or more options to renew the lease upon expiration of the base term at
predetermined or market rental rates. F-8




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##### Table of Contents



Net investment in financing leasesNet investment in financing leases represents one building used as a retail
store that is subject to a long-term ground lease and equipment used in
restaurant operations which are leased on a triple-net basis. Leases
classified as financing leases are stated as the sum of the minimum lease
payments plus the unguaranteed residual value accruing to the benefit of the
lessor, less unearned income. Unearned income is amortized to income over the
lease term so as to produce a constant periodic rate of return on the net
investment in the lease. Direct origination costs are deferred and amortized
over the life of the lease as an adjustment to yield. The Partnership
periodically reviews its financing lease portfolio for impairment whenever
events or changes in circumstances indicate that the carrying value of a
lease may not be recoverable. If impairment is indicated, a loss reserve is
calculated based on the estimated amounts recoverable. At December 31, 2003
and December 31, 2002, the Partnership has provided an allowance $260,542 for
uncollectible amounts associated with its financing leases.Note payableNotes Payable have fair values equal to $16,411,027 based on debt with
similar terms reflecting current interest rates.Net income per limited partnership interestNet income per limited partnership interest is calculated using the weighted
average number of limited partnership Units outstanding during the period and
the limited partners allocable share of the net income.Distributions per limited partnership UnitDistributions per limited partnership Unit is calculated using the actual
distributions disbursed during the period and the weighted average number of
limited partnership Units outstanding during the period. Actual individual
limited partner distributions realized may vary from this calculation as a
result of a variety of factors including: (i) actual distributions are
computed based on quarterly operating results and outstanding limited
partnership units, which are disbursed in the subsequent quarter; (ii)
certain limited partners have elected to receive monthly distributions versus
quarterly distributions which creates timing differences between comparative
calculations, and (iii) the calculation ignores the timing of repurchases.Income taxesNo provision for income taxes is included in the accompanying financial
statements, as the Partnerships results of operations are passed through to
the partners for inclusion in their respective income tax returns. The
principal reasons for the difference between net income passed through to the
partners for federal income tax purposes and financial statement purposes are
the recognition of straight-line rent for reporting purposes, different
useful lives and depreciation methods for real property and the provision for
losses on deferred financing leases for reporting purposes versus bad debt
expense for tax purposes.EstimatesThe preparation of financial statements in conformity with accounting principles generally accepted in the United States
requires management to make estimates and assumptions
that affect the reported amounts of assets and liabilities and disclosure of
contingent assets and liabilities at the date of the financial statements and
the reported amounts of revenues and expenses during the reporting period.
Actual results could differ from those estimates.ReclassificationsCertain prior period financial statement amounts have been reclassified to
conform to the 2003 presentations.2.
    
    DistributionsCash flows of the Partnership are allocated 99% to the limited partners and
1% to the General Partner, except that the General Partners share is
subordinated to a 10% per annum cumulative, non-compounded preferred return
to the limited partners. Net sale or refinancing proceeds of the Partnership
are allocated 90% to the limited partners and 10% to the General Partner,
except that the General Partners share is subordinated to a 10.5% per annum
cumulative, non-compounded to the limited partners return on their F-9




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##### Table of Contents



Adjusted Investment plus return of the original contributions to the limited
partners. Distributions of cash flow from operations are paid quarterly in arrears.3.
    
    Related Party Transactions and AgreementsPursuant to the Partnership Agreement, the General Partner receives
acquisition fees of 4%, plus an additional .00624% for each 1% of
indebtedness incurred in acquiring properties and equipment, of the aggregate
purchase prices of properties and equipment (not to exceed a total 5%
acquisition fee). The Partnership incurred $55,000 acquisition fees during
2003 for the purchase of the Taco Bell property. In 2002 and 2001, the
Partnership incurred no acquisition fees. The acquisition fees are
capitalized as part of the Partnerships investment in land and buildings
subject to operating leases and net investment in financing leases. The
Partnership has entered into an asset management agreement with the General
Partner and its affiliates, whereby the General Partner and the General
Partners affiliates provide various property and equipment management
services for the Partnership. A subordinated asset management fee is charged,
in an amount equal to 1% of the gross rental revenues derived from the
properties and equipment. Payment of the asset management fee is subordinated
to receipt by the limited partners of annual distributions equal to a
cumulative, non-compounded return of 10% per annum on their adjusted invested
capital. Management fees of $43,092, $48,142 and $47,426 were incurred during
2003, 2002 and 2001, respectively.The Partnership Agreement provides for the General Partner to receive
liquidation fees limited to the lesser of 3% of the gross sales price or 50%
of the customary real estate commissions in the event of a real estate
liquidation. This fee is payable only after the limited partners have
received distributions equal to a cumulative, non-compounded return of 10.5%
per annum, cumulative non-compounded preferred return on their adjusted
invested capital plus distributions of sale or refinancing proceeds equal to
100% of their original contributions. The Partnership did not pay any
liquidation fees during 2003, 2002 or 2001. The Partnership Agreement
provides for the General Partner to receive equipment liquidation fees in the
amount of 3% of the contract sales price. The Partnership did not incur any
equipment liquidation fees during 2003, 2002 and 2001.In April 2003, the Partnership acquired a property located in Harrison, Ohio
subject to an existing lease with a Taco Bell Franchisee. The property was
purchased from an affiliate for a price of $1,100,000 plus acquisition fees
of $55,000, which the Partnership funded with $230,000 of cash and $920,000
of proceeds from two term notes issued in connection with the purchase. The
lease is an absolute net lease that expires in September 2019. Under the
terms of the lease, annual rent is presently $115,000 and will increase 10.4%
in September 2004 and every five years thereafter. In the opinion of the
General Partner, the purchase price is believed to reflect market terms.An affiliate of the Partnership, a Small Business Investment Corporation
(SBIC), has invested in certain entities that have leases with the
Partnership. As a result of the investments made through the SBIC, Mr. Beach
or his associates in the SBIC, may have board representation in these
companies. The Partnership and its General Partner believe that the leases
are at market rates for such properties and equipment.4.
    
    Land and Building Subject to Operating LeasesThe net investment in operating leases as of December 31, 2003 and 2002 is
comprised of the following: 2003
    
    2002Land
    
    $
    11,428,200
    
    
    $
    11,197,200Building and improvements
    
    
    20,445,311
    
    
    
    19,549,58031,873,511
    
    
    
    30,746,780Less accumulated depreciation
    
    
    (2,205,530
    )
    
    
    (1,836,387
    )$
    29,667,981
    
    
    $
    28,910,393
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The following is a schedule of future minimum lease payments to be received on
the operating leases as of December 31, 2003: 2004
    
    $
    3,138,1062005
    
    
    3,193,8452006
    
    
    3,217,9792007
    
    
    3,201,5132008
    
    
    3,163,426Thereafter
    
    
    29,532,477Total
    
    $
    45,447,346
  5.
    
    Net Investment in Financing LeasesThe net investment in financing leases as of December 31, 2003 and 2002
is comprised of the following: 2003
    
    2002Minimum lease payments to be received
    
    $
    2,493,399
    
    
    $
    3,567,069Estimated residual value
    
    
    32,160
    
    
    
    183,485Gross investment in financing leases
    
    
    2,525,559
    
    
    
    3,750,554Less unearned income
    
    
    (946,023
    )
    
    
    (1,147,432
    )Less direct origination costs
    
    
    
    
    
    
    (11,786
    )Net investment in financing leases
    
    $
    1,579,536
    
    
    $
    2,591,336
  The following is a schedule of future minimum lease payments to be received on
the financing leases as of December 31, 2003: 2004
    
    $
    511,7352005
    
    
    194,7792006
    
    
    93,5502007
    
    
    107,6482008
    
    
    154,000Thereafter
    
    
    1,431,687Total
    
    $
    2,493,399
  6.
    
    Impaired Financing LeasesThe Partnership has one impaired equipment lease at December 31, 2003, with a
recorded investment of $15,000, net of a related allowance of $260,542.
Installment payments on the lease are delinquent by more than 90 days, and
income accrual has been suspended by the Partnership. The net investment in
the impaired lease represents the estimated net proceeds that the Partnership
expects to receive upon sale of the equipment.7.
    
    Notes PayableIn December 1998, the Partnership entered into a $6.4 million term note. The
note has a 10-year term, is collateralized by certain properties which have a
carrying value of approximately $11.8 million subject to operating leases,
and bears an interest rate of 8.13% per annum.In March 1999, the Partnership entered into an additional $3.3 million term
note. The note has a 10-year term, is collateralized by certain properties
subject to operating leases which have a carrying value of approximately $4.2
million, and bears an interest rate of 8.5% per annum. In October 2000, the
Partnership assumed a $3.75 million term note in connection with the
acquisition of a property which has a carrying value of approximately $4.7
million. The note has a 10-year term, and bears an interest rate of 8.35% per
annum. In April 2003, the Partnership entered into an $862,500 term note.
The note has a 5-year term, is collaterized by a certain property subject to
an operating lease which has a carrying value of $1.1 million, and bears an
interest rate of 6.25%, per annum. In April 2003, the Partnership entered
into a $57,500 unsecured revolving note. The note has a 2-year term and
bears F-11




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##### Table of Contents



interest at a variable rate equivalent to the Wall Street Journal (WSJ) prime
rate plus 1/2%. The interest rate is adjusted monthly for charges in the WSJ
prime rate. In November 2003, the Partnership extended a $1.5 million term
note which matured at that time. The extended note has an additional 2-year
term, is collaterized by certain properties subject to operating leases which
has a carrying value of $1.6 million, and bears an interest rate of prime
plus 2% per annum.At December 31, 2003, annual maturities on the notes in aggregate are as
follows: 2004
    
    $
    388,2212005
    
    
    1,729,9992006
    
    
    393,5222007
    
    
    426,7452008
    
    
    3,679,800Thereafter
    
    
    8,330,103Total
    
    $
    14,948,390
  Debt issuance costs of $634,710 in aggregate were incurred in connection with
the issuance of the notes, and are being amortized to interest expense using
the straight-line method over the term of the notes.8.
    
    Legal ProceedingsIn the ordinary course of business the Partnership has a legal proceeding
brought against them. Management does not expect the outcome of this
proceeding to have a material effect on the financial position or results of
operations.9.
    
    Subsequent EventBased upon the results of operations for the three-month period ended
December 31, 2003, the Partnership declared distributions of $500,000 to its
limited partners on January 15, 2004.10.
    
    Quarterly Results of Operations (Unaudited)The following is a summary of our unaudited quarterly results of operations
for the year ended December 31, 2003 and 2002 : Year Ended December 31, 20031st
    
    2nd
    
    3rd
    
    4thRevenue- as reported
    
    
    899,237
    
    
    
    926,734
    
    
    
    920,628
    
    
    
    1,119,096Net income allocable to general partner
    
    
    4,315
    
    
    
    4,633
    
    
    
    4,515
    
    
    
    5,735Net income allocable to limited partner
    
    
    427,166
    
    
    
    458,648
    
    
    
    446,995
    
    
    
    567,826Net income per limited partnership unit
    
    
    14.56
    
    
    
    15.69
    
    
    
    15.29
    
    
    
    19.46Year Ended December 31, 2002Revenue- as reported
    
    
    934,891
    
    
    
    919,402
    
    
    
    913,845
    
    
    
    906,105Net income allocable to general partner
    
    
    4,618
    
    
    
    4,232
    
    
    
    4,299
    
    
    
    2,421Net income allocable to limited partner
    
    
    457,166
    
    
    
    418,929
    
    
    
    425,573
    
    
    
    239,757Net income per limited partnership unit
    
    
    15.55
    
    
    
    14.26
    
    
    
    14.49
    
    
    
    8.19
 F-12




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SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2003 Cost
    
    Gross AmountCapitalized
    
    At WhichSubsequent
    
    Carried AtType of
    
    State
    
    
    
    
    
    Initial Cost
    
    To
    
    CloseConcept
    
    Property
    
    Location
    
    Encumbrances
    
    To Company
    
    Acquisition
    
    Of PeriodBoston Market
    
    Restaurant
    
    MN
    
    $
    
    
    
    $
    1,012,200
    
    
    $
    
    
    
    $
    1,012,200Hollywood Video
    
    Retail
    
    OH
    
    
    736,836
    
    
    
    1,455,300
    
    
    
    
    
    
    
    1,455,300Blockbuster Video
    
    Retail
    
    GA
    
    
    590,078
    
    
    
    1,170,000
    
    
    
    
    
    
    
    1,170,000Carinos
    
    Restaurant
    
    TX
    
    
    883,177
    
    
    
    1,680,000
    
    
    
    
    
    
    
    1,680,000Arbys
    
    Restaurant
    
    OH
    
    
    398,136
    
    
    
    819,000
    
    
    
    
    
    
    
    819,000Hollywood Video
    
    Retail
    
    OH
    
    
    762,912
    
    
    
    1,454,880
    
    
    
    
    
    
    
    1,454,880Steak & Ale
    
    Restaurant
    
    MI
    
    
    1,028,261
    
    
    
    2,100,000
    
    
    
    
    
    
    
    2,100,000Steak & Ale
    
    Restaurant
    
    PA
    
    
    1,196,139
    
    
    
    2,441,250
    
    
    
    
    
    
    
    2,441,250Bennigans
    
    Restaurant
    
    VA
    
    
    796,226
    
    
    
    1,627,500
    
    
    
    
    
    
    
    1,627,500Taco Bell
    
    Restaurant
    
    MI
    
    
    385,541
    
    
    
    766,500
    
    
    
    
    
    
    
    766,500Taco Bell
    
    Restaurant
    
    MI
    
    
    385,541
    
    
    
    766,500
    
    
    
    
    
    
    
    766,500Arbys
    
    Restaurant
    
    MI
    
    
    381,371
    
    
    
    840,000
    
    
    
    
    
    
    
    840,000Vacant
    
    Restaurant
    
    TX
    
    
    951,803
    
    
    
    1,914,230
    
    
    
    
    
    
    
    1,914,230Del Taco
    
    Restaurant
    
    CA
    
    
    654,981
    
    
    
    1,239,000
    
    
    
    
    
    
    
    1,239,000Kona Steakhouse
    
    Restaurant
    
    TX
    
    
    750,000
    
    
    
    1,801,622
    
    
    
    
    
    
    
    1,801,622Carinos
    
    Restaurant
    
    TX
    
    
    750,000
    
    
    
    1,675,622
    
    
    
    
    
    
    
    1,675,622Wingers
    
    Restaurant
    
    AZ
    
    
    
    
    
    
    941,850
    
    
    
    
    
    
    
    941,850Wingers
    
    Restaurant
    
    AZ
    
    
    499,998
    
    
    
    948,150
    
    
    
    
    
    
    
    948,150Arbys
    
    Restaurant
    
    IA
    
    
    
    
    
    
    987,000
    
    
    
    
    
    
    
    987,000United Supermarket
    
    Retail
    
    TX
    
    
    3,738,450
    
    
    
    5,077,907
    
    
    
    
    
    
    
    5,077,907Taco Bell
    
    Restaurant
    
    OH
    
    
    920,000
    
    
    
    1,155,000
    
    
    
    
    
    
    
    1,155,000Total Properties
    
    
    
    
    
    
    
    
    
    $
    31,873,511
    
    
    $
    
    
    
    $
    31,873,511
   [Continued from above table, first column(s) repeated] Date ofAccumulated
    
    Acquisition/
    
    Acquisition/Concept
    
    Depreciation
    
    Construction
    
    Construction
    
    DepreciationBoston Market
    
    $
    108,794
    
    
    
    1997
    
    
    Acquisition
    
    40 YearsHollywood Video
    
    
    131,280
    
    
    
    1997
    
    
    Acquisition
    
    40 YearsBlockbuster Video
    
    
    123,738
    
    
    
    1997
    
    
    Acquisition
    
    40 YearsCarinos
    
    
    84,219
    
    
    
    1997
    
    
    Acquisition
    
    40 YearsArbys
    
    
    55,911
    
    
    
    1998
    
    
    Construction
    
    40 YearsHollywood Video
    
    
    138,891
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsSteak & Ale
    
    
    141,055
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsSteak & Ale
    
    
    129,721
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsBennigans
    
    
    175,849
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsTaco Bell
    
    
    53,156
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsTaco Bell
    
    
    61,688
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsArbys
    
    
    70,000
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsVacant
    
    
    7,219
    
    
    
    1998
    
    
    Acquisition
    
    40 YearsDel Taco
    
    
    60,143
    
    
    
    1998
    
    
    Construction
    
    40 YearsKona Steakhouse
    
    
    155,563
    
    
    
    1998
    
    
    Construction
    
    40 YearsCarinos
    
    
    118,091
    
    
    
    1999
    
    
    Construction
    
    40 YearsWingers
    
    
    72,192
    
    
    
    1999
    
    
    Acquisition
    
    40 YearsWingers
    
    
    73,501
    
    
    
    1999
    
    
    Acquisition
    
    40 YearsArbys
    
    
    75,285
    
    
    
    1999
    
    
    Acquisition
    
    40 YearsUnited Supermarket
    
    
    351,910
    
    
    
    2000
    
    
    Acquisition
    
    40 YearsTaco Bell
    
    
    17,325
    
    
    
    2003
    
    
    Acquisition
    
    40 YearsTotal Properties
    
    $
    2,205,530
 Notes: The changes in total properties for the years ended December 31, 2003 and 2002 are as follows: 2003
    
    2002Balance, beginning of year
    
    $
    30,746,780
    
    
    $
    30,746,780Acquisitions
    
    
    1,155,000
    
    
    
    Dispositions and other
    
    
    (28,269
    )
    
    
    Costs Capitalized
    
    
    
    
    
    
    Balance, end of year
    
    $
    31,873,511
    
    
    $
    30,746,780
 The changes in accumulated depreciation for the years ended December 31, 2003 and 2002 are as follows: 2003
    
    2002Balance, beginning of year
    
    $
    1,836,387
    
    
    $
    1,346,411Depreciation expense
    
    
    506,298
    
    
    
    489,976Dispositions and other
    
    
    (137,155
    )
    
    
    Balance, end of year
    
    $
    2,205,530
    
    
    $
    1,836,387
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Number
    
    Exhibit Index4
    
    Amended Agreement of Limited Partnership of Registrant.
(Incorporated by reference to the corresponding exhibit in the
Registrants Form 10-K for the fiscal year ended December 31, 1998)10.1
    
    Promissory Note dated November 28, 1998 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-K for the fiscal
year ended December 31, 1998)10.2
    
    Promissory Note dated March 31, 1999 between Registrant and
National Realty Funding L.C. (Incorporated by reference to the
corresponding exhibit in the Registrants Form 10-Q for the quarter
ended March 31, 1999)31
    
    Certification Pursuant to Section 302 of the Sarbanes-Oxley act of 200232
    
    Certificate pursuant to 18 U.S.C.section 1350, as adopted pursuant to
Section 906 of the Sarbanes-Oxley act of 2002