##### Table of Contents



U.S. SECURITIES AND EXCHANGE COMMISSION
Washington, DC 20549 FORM 10-K
 (Mark One) þ ANNUAL REPORT UNDER SECTION 13 or 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
 For the fiscal year ended December 31, 2004 OR o 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
    
    
    
    (I.R.S. Employerof incorporation or organization)
    
    
    
    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 þ Noo 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. þ Indicate by check mark whether the registrant is an accelerated filer (as defined in Rule 12b-2 of
the Act). Yes o No þ At December 31, 2004, 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,
2004, there were 28,975 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. Statement of Discontinued Operations 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 Financial Statement SchedulesSIGNATURESReport of Independent Registered Public Accounting FirmEXHIBIT INDEXCertification 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, 1,025 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, 2004, the
Partnership had 28,975 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. Effective November 8, 2004 the limited partners consented to a plan of liquidation and
dissolution (Plan of Liquidation and Dissolution), which involves the dissolution of the
Partnership, the liquidation of its assets and the winding up of its affairs. As a result, the
general partner is authorized to liquidate the assets of the Partnership and distribute the net
proceeds from such liquidation after the repayment of all debt in accordance with the partnership
agreement. The Partnership is undertaking steps to liquidate and dispose of its assets in
accordance with the Plan of Liquidation and Dissolution and has entered into an exclusive listing
agreement with a third party that will oversee the marketing and sale of the Partnerships assets. 
 Item 2. Description of Properties. As of December 31, 2004, the Partnership had a portfolio of 19 properties located in 9 states,
with a cost basis of $29.4 million, and 4 performing equipment leases, with an original investment
of $950,000. The properties are leased to eight operators of restaurant concepts and four retail
operators.




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As of December 31, 2004, operating leases to S&A Restaurants Corporation, United Supermarkets,
Inc. and Hollywood Entertainment Corp. represented 22.4%, 15.5% and 11.0%, 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, 2004, 89.5% of the properties owned by Partnership are occupied, with two
remaining properties being vacant. In addition, all but one of the Partnerships investments in
equipment subject to financing leases are performing. Of the seventeen occupied properties,
sixteen are paying as agreed and one is more than 120 days delinquent. The Partnership is working
with this tenant on a plan to recover the outstanding past due rents. The original leases have
been terminated on the Partnerships two vacant properties. All of the above properties and
investments in equipment subject to financing leases are held for sale. Based on current offers
and sales agreements for the properties, the General Partner does not have sufficient evidence at
this time to believe impairment exists on any of the properties. The following is a summary description of the property and equipment leases as of December 31,
2004. OriginalAsset Cost
    
    
    Asset
    
    
    
    
    
    
    Date of
    
    
    Annual
    
    
    BuildingConcept
    
    
    Date of
    
    
    Date of
    
    
    Including
    
    
    State
    
    
    Monthly
    
    
    Next Rent
    
    
    Rate of
    
    
    SizeTenant/Lessee Name
    
    
    Name
    
    
    Commence
    
    
    Expiration
    
    
    Acquisiton Fees
    
    
    Location
    
    
    Rent
    
    
    Increase
    
    
    Increase
    
    
    (SQFT)PROPERTYHollywood Entertainment Corp.
    
    
    Hollywood Video
    
    
    11/01/97
    
    
    
    07/01/12
    
    
    $
    1,455,300
    
    
    OH
    
    $
    13,972
    
    
    
    08/01/07
    
    
    
    (1
    )
    
    
    7,488Blockbuster Entertainment Corp.
    
    
    Blockbuster Video
    
    
    09/01/97
    
    
    
    08/01/07
    
    
    
    1,170,000
    
    
    GA
    
    
    11,012
    
    
    
    
    
    
    
    n/a
    
    
    
    6,500NT Management
    
    
    Carinos
    
    
    08/01/97
    
    
    
    08/01/14
    
    
    
    1,680,000
    
    
    TX
    
    
    16,170
    
    
    
    08/01/06
    
    
    
    1.64
    %
    
    
    6,257CALVIR Taco II, LLC
    
    
    Del Taco
    
    
    01/01/99
    
    
    
    01/01/19
    
    
    
    1,239,000
    
    
    CA
    
    
    10,994
    
    
    
    01/01/05
    
    
    
    1.32
    %
    
    
    2,164Kona Restaurant Group, Inc.
    
    
    Carinos
    
    
    08/01/99
    
    
    
    08/01/16
    
    
    
    1,675,622
    
    
    TX
    
    
    15,360
    
    
    
    08/01/05
    
    
    
    1.64
    %
    
    
    6,595Hollywood Entertainment Corp.
    
    
    Hollywood Video
    
    
    10/01/98
    
    
    
    12/24/12
    
    
    
    1,454,880
    
    
    OH
    
    
    13,740
    
    
    
    
    
    
    
    n/a
    
    
    
    7,488S&A Restaurant Corporation
    
    
    Steak & Ale
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    2,100,000
    
    
    MI
    
    
    19,195
    
    
    
    07/01/07
    
    
    
    1.96
    %
    
    
    7,724S&A Restaurant Corporation
    
    
    Steak & Ale
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    2,441,250
    
    
    PA
    
    
    22,314
    
    
    
    07/01/07
    
    
    
    1.96
    %
    
    
    7,239S&A Restaurant Corporation
    
    
    Bennigans
    
    
    07/01/98
    
    
    
    07/01/18
    
    
    
    1,627,500
    
    
    VA
    
    
    14,876
    
    
    
    07/01/07
    
    
    
    1.96
    %
    
    
    6,798Vacant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    941,850
    
    
    AZ
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,536Vacant
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    948,150
    
    
    AZ
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    3,203Sterling Jewelers
    
    
    Jared Jewelers
    
    
    02/01/99
    
    
    
    02/01/19
    
    
    
    1,131,619
    
    
    TX
    
    
    12,833
    
    
    
    02/01/09
    
    
    
    1.92
    %
    
    
    5,227TEC Foods
    
    
    Taco Bell
    
    
    01/01/99
    
    
    
    01/01/09
    
    
    
    766,500
    
    
    MI
    
    
    6,360
    
    
    
    01/01/05
    
    
    
    0.66
    %
    
    
    2,252TEC Foods
    
    
    Taco Bell
    
    
    01/01/99
    
    
    
    01/01/19
    
    
    
    766,500
    
    
    MI
    
    
    6,360
    
    
    
    01/01/05
    
    
    
    0.66
    %
    
    
    2,269Sybra, Inc.
    
    
    Arbys
    
    
    09/01/98
    
    
    
    09/01/18
    
    
    
    840,000
    
    
    MI
    
    
    6,720
    
    
    
    09/01/05
    
    
    
    1.49
    %
    
    
    2,778Simply Fondue Inc.
    
    
    Simply Fondue
    
    
    12/01/04
    
    
    
    03/01/15
    
    
    
    1,914,230
    
    
    TX
    
    
    11,893
    
    
    
    02/01/10
    
    
    
    1.90
    %
    
    
    6,805DRM, Inc.
    
    
    Arbys
    
    
    01/01/00
    
    
    
    01/01/20
    
    
    
    987,000
    
    
    IA
    
    
    8,029
    
    
    
    01/01/05
    
    
    
    1.92
    %
    
    
    3,094United Supermarkets, Inc.
    
    
    United Supermarket
    
    
    11/01/00
    
    
    
    06/01/20
    
    
    
    5,077,907
    
    
    TX
    
    
    39,093
    
    
    
    
    
    
    
    n/a
    
    
    
    43,100SDI Foods Inc.
    
    
    Taco Bell
    
    
    04/01/03
    
    
    
    09/01/19
    
    
    
    1,155,000
    
    
    OH
    
    
    10,627
    
    
    
    09/01/09
    
    
    
    2.00
    %
    
    
    2,21429,372,308
    
    
    
    
    
    
    
    239,548
    
    
    
    
    
    
    
    
    
    
    
    132,731CurrentNet InvestmentEQUIPMENTGirardi-Riva Enterprises, Inc.
    
    
    Arbys
    
    
    02/01/98
    
    
    
    02/01/05
    
    
    
    4,082
    
    
    WA
    
    
    4,108GC of Charlottesville
    
    
    Golden Corral
    
    
    05/01/98
    
    
    
    05/01/05
    
    
    
    31,792
    
    
    VA
    
    
    6,439Circle Restaurant Company, Inc.
    
    
    Arbys
    
    
    12/01/00
    
    
    
    09/01/05
    
    
    
    42,461
    
    
    CO
    
    
    1,373DJ Enterprises, Inc.
    
    
    Taco Bell
    
    
    10/01/98
    
    
    
    09/01/07
    
    
    
    13,937
    
    
    FL
    
    
    50092,272
    
    
    
    
    
    
    
    12,420$
    29,464,580
    
    
    
    
    
    
    $
    251,968
   (1)
    
    Rent Increase equals the lesser of CPI or 10%. Leases Real Estate Leases:All of the properties are subject to triple net leases 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, 2004,
original base terms of the property leases ranged from 10 to 20 years, and the weighted average
remaining base term of the property lease portfolio was 11 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 increase. One of the leases provides 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 ten 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, and maintenance and repair costs. All of the equipment was purchased with cash
from Offering proceeds. As of December 31, 2004, 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 10 months. All of the leases provide for fixed monthly rents during the entire term of the
lease. Approximately 100% 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.




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In selecting specific equipment, the General Partner typically requires the following: (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. None 
 Item 4. Submission of Matters to a Vote of Security Holders. On or about September 24, 2004, the Partnership filed with the Securities and Exchange
Commission and mailed to its limited partners a consent solicitation statement pursuant to which
the Partnership began soliciting the consent of its limited partners to (i) dissolve the
Partnership, liquidate its assets and wind up its affairs; and (ii) amend the partnership agreement
to permit, on a limited basis, the sale of Partnership assets to certain affiliates in connection
with the dissolution, liquidation and winding up of the Partnership. Effective November 8, 2004, the requisite limited partner consents for each proposal were
obtained and the consent solicitation was closed. Limited partners
holding 16,679 Units and 16,062
Units consented to the liquidation proposal and the amendment to the limited partnership agreement,
respectively. Limited partners holding 95 Units and 581 Units did not consent to the liquidation
proposal and the amendment to the limited partnership agreement, respectively. Limited partners
holding 280 Units and 411 Units abstained from consenting to the liquidation proposal and the
amendment to the limited partnership agreement, respectively. In
summary, 97.8% of the Units voted
approved the liquidation proposal and 94.2% of the Units voted approved the amendment to the
limited partnership agreement. 
 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, 2004, Units were held by 1,543 investors of record. In the last three years, the Partnership
has not engaged in the sale of any Units. The Partnership declared cash distributions of
approximately $4.2 million, $2.5 million and $3.0 million for the years ended December 31, 2004,
2003 and 2002 respectively. The Partnership made no Unit repurchases in the three months ended
December 31, 2004. 
 Item 6. Statement of Discontinued Operations Financial Data. In accordance with Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived-Assets (FAS 144), as a result of the approval of the Plan of Liquidation
and Dissolution, all assets except cash are classified as Assets Held for Sale, all liabilities are
classified as Liabilities Held for Sale and the results of the operations in their entirety are
classified as discontinued operations for all years presented, since the operations are directly
related to the assets or liabilities held for sale. The assets of the Partnership will be sold and
the cash will be used to distribute the net proceeds from such liquidation after the repayment of
all debt in accordance with the partnership agreement Year Ended
    
    
    Year Ended
    
    
    
    Year Ended
    
    
    
    Year Ended
    
    
    
    Year EndedDecember 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,
    
    
    December 31,2004
    
    
    2003
    
    
    2002
    
    
    2001
    
    
    2000Statements of Discontinued Operations Data:Operating revenue:Rental income
    
    $
    2,874,064
    
    
    $
    3,666,636
    
    
    $
    3,363,815
    
    
    $
    3,363,815
    
    
    $
    3,002,022Finance income
    
    
    146,330
    
    
    
    199,059
    
    
    
    310,428
    
    
    
    456,552
    
    
    
    588,435Total operating revenue
    
    
    3,020,394
    
    
    
    3,865,695
    
    
    
    3,674,243
    
    
    
    3,820,367
    
    
    
    3,590,457Operating costs and expenses:Interest expense
    
    
    1,182,993
    
    
    
    1,271,165
    
    
    
    1,266,420
    
    
    
    1,217,899
    
    
    
    923,965Depreciation
    
    
    473,108
    
    
    
    506,298
    
    
    
    489,976
    
    
    
    482,954
    
    
    
    394,312General and administrative
    
    
    617,557
    
    
    
    218,997
    
    
    
    166,788
    
    
    
    129,144
    
    
    
    101,226Debt Retirement Costs
    
    
    209,010
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Provision for Losses
    
    
    15,000
    
    
    
    
    
    
    
    195,542
    
    
    
    65,000
    
    
    
    Total operating costs and expenses
    
    
    2,497,668
    
    
    
    1,996,460
    
    
    
    2,118,726
    
    
    
    1,894,997
    
    
    
    1,419,503Income from discontinued operations
    
    
    522,726
    
    
    
    1,869,235
    
    
    
    1,555,517
    
    
    
    1,925,370
    
    
    
    2,170,954Other income (expense):Interest and other income
    
    
    5,340
    
    
    
    4,857
    
    
    
    1,478
    
    
    
    14,608
    
    
    
    722Gain on sale of operating lease
    
    
    262,045
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    
    Gain (loss) on sale of real equipment
    
    
    8,040
    
    
    
    45,741
    
    
    
    
    
    
    
    (258
    )
    
    
    42,433Total other income from discontinued operations
    
    
    275,425
    
    
    
    50,598
    
    
    
    1,478
    
    
    
    14,350
    
    
    
    43,155Net income from discontinued operations
    
    
    798,151
    
    
    
    1,919,833
    
    
    
    1,556,995
    
    
    
    1,939,720
    
    
    
    2,214,109Net income from discontinued operations allocable to general partners
    
    
    7,982
    
    
    
    19,198
    
    
    
    15,570
    
    
    
    19,397
    
    
    
    22,141Net income from discontinued operations allocable to limited partners
    
    $
    790,169
    
    
    $
    1,900,635
    
    
    $
    1,541,425
    
    
    $
    1,920,323
    
    
    $
    2,191,968Net income from discontinued operations per limited partnership unit
    
    $
    27.23
    
    
    $
    65.00
    
    
    $
    52.49
    
    
    $
    65.10
    
    
    $
    73.65weighted average units outstanding
    
    
    29,020
    
    
    
    29,239
    
    
    
    29,369
    
    
    
    29,496
    
    
    
    29,763Other Data:Cash flows from operating activities
    
    $
    1,173,309
    
    
    $
    1,951,899
    
    
    $
    1,934,582
    
    
    $
    2,020,200
    
    
    $
    2,626,092Cash flows from investing activities
    
    $
    4,110,489
    
    
    $
    (97,459
    )
    
    $
    1,402,096
    
    
    $
    1,253,154
    
    
    $
    (3,138,164
    )Cash flows from financing activities
    
    $
    (5,835,077
    )
    
    $
    (2,292,589
    )
    
    $
    (3,461,189
    )
    
    $
    (2,094,788
    )
    
    $
    (110,816
    )Balance Sheet Data:Cash and cash equivalents
    
    $
    476,469
    
    
    $
    928,132
    
    
    $
    1,367,069
    
    
    $
    1,460,847
    
    
    $
    179,066Investment in property under leases
    
    $
    27,231,464
    
    
    $
    31,262,517
    
    
    $
    31,516,729
    
    
    $
    33,604,343
    
    
    $
    35,405,709Total assets
    
    $
    29,220,279
    
    
    $
    34,246,143
    
    
    $
    34,612,180
    
    
    $
    36,589,728
    
    
    $
    36,819,022Total liabilities
    
    $
    13,780,645
    
    
    $
    15,120,012
    
    
    $
    14,552,078
    
    
    $
    14,928,823
    
    
    $
    13,753,388Total partners capital
    
    $
    15,439,634
    
    
    $
    19,126,131
    
    
    $
    20,060,102
    
    
    $
    21,660,905
    
    
    $
    23,065,634
 
 Item 7. Managements Discussion and Analysis of Financial Condition and Results of Operations.




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When used in this discussion, words such as intends, anticipates, expects, will,
could, estimate, and similar expressions are intended to identify forward-looking statements.
Forward-looking 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. 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. 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. As a result of the approval of the Plan of Liquidation and Dissolution, all of the
Partnerships assets except cash are classified as Assets Held for Sale, all liabilities are
classified as Liabilities Held for Sale and the operations of the Partnership have been classified
as discontinued operations for all periods presented. Therefore, the following discussion and
analysis of the results of operations is entirely in regards to discontinued operations, and the
discussion and analysis of financial condition is principally regarding Assets and Liabilities Held
for Sale. Results of Operations  2004 to 2003 For the year ended December 31, 2004, operating revenue from discontinued operations decreased
21.9%, to approximately $3.0 million, compared to approximately $3.9 million for the year ended
December 31, 2003. Rental revenue from operating leases for the year ended December 31, 2004
decreased 21.6% to approximately $2.9 million, compared to approximately $3.7 million for the prior
year period, due to the disposition of the three operating leases in the first and second quarters
of 2004 and also due to the vacant properties. Earned income from financing leases for 2004
decreased 26.5% to approximately $146,000, compared to approximately $199,000 for 2003, due to the
amortization of principal balances and the termination and the disposition of an equipment lease in
April 2004. Operating expenses from discontinued operations increased 25.1% to approximately $2.5 million
for 2004, compared to approximately $2.0 million for 2003. The increase is primarily due to
increased general and administrative expenses as a result of increased property taxes (on vacant
properties), increased professional fees and bad debt expense associated with the termination of
the leases on the two vacant properties. In June 2004, the leases on these properties (for which
rental payments were over eighteen months past due), along with the rights to pursue remedies
against the tenant and all Guarantors, were terminated as the Partnership entered into a Settlement
Agreement with the former tenants and Guarantors. Under that Settlement Agreement, the Partnership
received $100,000 as full and final payment from all parties involved. The remaining receivable of
$277,000 associated with these leases was written off as bad debt expense in 2004 and is included
in the general and administrative expenses. In addition, there were approximately $209,000 in debt
retirement costs associated with the disposition of one of the properties in 2004. The Partnership
also recognized a $15,000 provision for loss to write-off the remaining balance of an impaired
equipment lease since it does not expect to recover any additional proceeds on this investment. Other income from discontinued operations for 2004 was approximately $275,000, due to the sale
of three properties pursuant to purchase option clauses in the lease agreements. The properties
were sold for net cash proceeds of approximately $3.9 million in 2004, resulting in a gain of
approximately $262,000. There was also an $8,000 gain on the disposition of an equipment lease in
2004 for net cash proceeds of approximately $40,000 and late charge income of approximately
$5,000. Other income for the year ended December 31, 2003 was principally 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 $5,000 was attributable to late fees. As a result of the foregoing, the Partnerships net income from discontinued operations for
2004 decreased 58.4%, to approximately $798,000, compared to $1.9 million in 2003. 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, 2004, the Partnership made distributions to limited partners
totaling approximately $4.4 million, compared to approximately $2.7 million for the preceding
year.




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Results of Operations - 2003 to 2002 For the year ended December 31, 2003, operating revenue increased 5.2% 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 $303,000, compared
to the year ended December 31, 2002, due to the acquisition of a Taco Bell property in April 2003
and the receipt of a lease termination fee of approximately $254,000 in the fourth quarter of 2003.
Earned income from financing leases for 2003 decreased 35.9% 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 5.8% 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. Other income for 2003 was approximately $51,000 principally 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 $5,000 was attributable to late fees. As a result of the foregoing, the Partnerships net income for 2003 increased 23.3% to
approximately $1.9 million compared to approximately $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
approximately $2.7 million, compared to approximately $3.1 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 note has a
10-year term, is collateralized by certain properties which have a carrying value of approximately
$11.6 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 which have a carrying value of
approximately $3.4 million subject to operating leases, and bears interest at a rate of 8.5% per
annum. In March 2004, the partnership defeased approximately $466,000 of this note payable with
proceeds from the sale of a property. 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 which has
a carrying value of approximately $4.6 million and bears interest at the rate of 8.35% per annum In November 2001, the Partnership entered into an additional $1.5 million term note. In June
2004, the Partnership sold a property subject to an operating lease that secured this note. Using
proceeds from the sale, the note was paid down to a balance of $874,000, and the maturity date was
extended to July 2006. The remaining note is secured by a certain property subject to an operating
lease which has a carrying value of $1.5 million, and bears interest at a rate of prime plus 2% per
annum. In April 2003, the Partnership entered into an $862,500 term note. The note has a 5-year
term, is collateralized by a certain property subject to an operating lease which has a carrying
value of $1.1 million, and bears interest at a 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 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.




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Debt issuance costs of $646,349 were incurred in connection with the issuance of the notes,
and are being amortized over the life of the notes to interest expense using the straight-line
method, which is not materially different than the interest rate method. As of December 31, 2004, the Partnership had a portfolio of 19 properties located in 9 states,
with a cost basis of $29.4 million, and 4 performing equipment leases with an original investment
of $950,000. The remaining net investment in the Partnerships leased equipment is $92,000, net of
$858,000 of aggregate principal collections on financing leases during the life of those
investments. Inclusive of the above amount, the Partnership has received approximately $7.0 million
of aggregate principal collections on its financing leases during the life of those investments. As
of December 31, 2004, the Partnership has not made, nor does it intend to make, any commitments to
purchase additional properties. 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, 1,025 Units have been repurchased by the Partnership pursuant the repurchase
plan. At December 31, 2004, the Partnership had 28,975 Units issued and outstanding. The
Partnership is not obligated to accept Unit repurchase requests if the annualized Cash Flow for the
three months prior to the redemption period is less than 10% per annum of the adjusted investment
and/or if such repurchases would impair the capital of the Partnership. In connection with the
announcement of the Partnerships liquidation plans, the general partner has indefinitely suspended
the repurchase plan. 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 the Limited Partners. Effective November 8, 2004 the limited partners consented to the Plan of Liquidation and
Dissolution, which involves the dissolution of the Partnership, the liquidation of its assets and
the winding up of its affairs. As a result, the general partner is authorized to liquidate the
assets of the Partnership and distribute the net proceeds from such liquidation after the repayment
of all debt in accordance with the partnership agreement. The Partnership is undertaking steps to
liquidate and dispose of its assets in accordance with the Plan of Liquidation and Dissolution and
has entered into an exclusive listing agreement with a third party that will oversee the marketing
and sale of the Partnerships assets. Management believes the proceeds on sale will be adequate to
pay off all liabilities and make a distribution. Contractual Obligations Payment due by PeriodLess than
    
    
    
    
    
    
    
    
    
    
    
    
    
    More thanContractual Obligations
    
    
    Total
    
    
    
    1 year
    
    
    
    1-3 Years
    
    
    
    3-5 Years
    
    
    
    5 YearsLong-term Debt Obligations
    
    
    $
    13,597,961
    
    
    
    $
    369,399
    
    
    
    $
    1,624,361
    
    
    
    $
    10,866,169
    
    
    
    $
    738,032
 Critical Accounting Policies The financial statements are prepared in accordance with United States generally accepted
accounting principles, which require 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. The cost of
the properties acquired is allocated among 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. 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 judgments regarding collections that are inherently difficult to
predict.




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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 assured collectibility. 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 undiscounted cash flows, the loss is
measured as the amount by which carrying amount of the asset exceeds the estimated fair or present
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 risk, 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
Payable 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, 2004
    
    
    December 31, 2003Carrying
    
    
    
    
    
    CarryingAmount
    
    Fair Value
    
    
    Amount
    
    
    Fair Value$         13,597,961
    
    $
    14,261,504
    
    
    $
    14,948,390
    
    
    $
    16,411,027
 
 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. None. 
 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




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specified in the Commissions rules and forms. Mr. Beach has
evaluated the effectiveness of the Partnerships disclosure controls and has determined that, as of
the end of the period covered by this report, 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 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, 2004, 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 of Captec Net Lease. Since
1981, he has served as Chairman and Chief Executive Officer of Captec Financial Group, Inc., an
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, 2004, 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% of
the aggregate purchase prices of properties and equipment, plus an additional .00624% for each 1%
of indebtedness incurred in acquiring 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 a property. No acquisition fees were incurred in 2004 and 2002. 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 $32,180, $43,093 and $48,142 were
incurred during 2004, 2003 and 2002, 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 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 2004, 2003 or 2002.




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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 2004, 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. 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 $51,000, $56,000 and $21,000 for the years ended December 31, 2004, 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 each of the years ended December 31,
2004, 2003 and 2002. 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 each
of the years ended December 31, 2004, 2003 and 2002. All Other Fees The aggregate fees billed to the Partnership for products and services provided by the
Partnerships principal accountant were $0 for each of the years
ended December 31, 2004, 2003, and 2002. 
 Item 15. Exhibits and Financial Statement Schedules. (a)(1)
    
    Financial StatementsBalance Sheets
    
    F-3Statements of Discontinued Operations
    
    F-4Statements of Changes in Partners Capital
    
    F-5Statements of Cash Flows
    
    F-6Notes to Financial Statements
    
    F-7(a)(2)
    
    Financial Statements SchedulesSchedule III  Properties and AccumulatedDepreciation as of December 31, 2004
    
    F-13(a)(3)
    
    The following exhibits are included herein or incorporated by reference:




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Number
    
    Exhibit2
    
    Plan of Liquidation and Dissolution (Incorporated by reference to the
Registrants Definitive Proxy Statement on Schedule 14A, filed on
September 21, 2004)4
    
    Amended Agreement of Limited Partnership of Registrant. (Incorporated
by reference to the Registrants Definitive Proxy Statement on
Schedule 14A, filed on September 21, 2004 and 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
ended 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




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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, LLCIts ManagerBy:
    
    /s/ Patrick L. BeachPatrick L. BeachPresidentDate:
    
    March 31, 2005
 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. BeachPatrick L. BeachPresidentDate:
    
    March 31, 2005




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Captec Franchise Capital Partners, L.P. IV Contents Page(s)Reports of Independent Registered Public Accounting Firms
    
    F-1Financial StatementsBalance Sheets
    
    F-3Statements of Discontinued 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 asof December 31, 2004
    
    F-13
 F-I




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Report of Independent Registered Public Accounting Firm To the partners of Captec Franchise Capital Partners L.P. IV We have audited the accompanying balance sheets of Captec Franchise Capital Partners L.P. IV as of
December 31, 2004 and 2003 and the related statements of discontinued operations, cash flows and
changes in partners capital for the years then ended. Our audit also included the financial
statement schedule listed at Item 15(a). 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 audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight
Board (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. We
were not engaged to perform an audit of the Companys internal control over financial reporting.
Our audit included consideration of internal control over financial reporting as a basis for
designing audit procedures that are appropriate in the circumstances, but not for the purpose of
expressing an opinion on the effectiveness of the Companys internal control over financial
reporting. Accordingly we express no such opinion. An audit also 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. In our opinion, the 2004 and 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, 2004 and 2003, and the results of its operations and its cash flows for the years then ended,
in conformity with U.S. generally accepted accounting principles. 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 Toledo, Ohio
February 18, 2005 F-1




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Report of Independent Registered Public Accounting Firm To the partners of Captec Franchise Capital Partners L.P. IV: In our opinion, the accompanying statements of discontinued operations,
changes in partners capital and cash flows for the year ended December 31, 2002
present fairly, in all material respects, the results of operations and cash flows of Captec
Franchise Partners L.P. IV (the Company) for the year 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 audit. We conducted our audit
of these statements in accordance with the standards of the Public
Company Accounting Oversight Board (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, assessing the accounting principles used and
significant estimates made by management, and evaluating the overall financial statement
presentation. We believe that our audit provides a reasonable basis for our opinion.    Detroit, Michigan
February 28, 2003




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##### Table of Contents



Captec Franchise Capital Partners L.P. IV
Balance Sheets
December 31, 2004 and 2003 2004
    
    
    2003AssetsCash and cash equivalents
    
    $
    143,463
    
    
    $
    694,742Restricted cash
    
    
    333,006
    
    
    
    233,390Assets Held for Sale:Operating leases, net
    
    
    25,905,039
    
    
    
    29,667,981Financing leases, net
    
    
    1,326,425
    
    
    
    1,579,536Impaired financing leases, net
    
    
    
    
    
    
    15,000Unbilled rent, net
    
    
    1,075,996
    
    
    
    1,446,046Deferred financing costs, net
    
    
    258,339
    
    
    
    309,259Accounts receivable
    
    
    178,011
    
    
    
    300,189Total assets
    
    $
    29,220,279
    
    
    $
    34,246,143Liabilities and Partners CapitalLiabilities Held for Sale:Notes payable
    
    $
    13,597,961
    
    
    $
    14,948,390Accounts payable and accrued expenses
    
    
    171,715
    
    
    
    160,513Due to related parties
    
    
    10,969
    
    
    
    11,109Total liabilities
    
    
    13,780,645
    
    
    
    15,120,012Partners capital:Limited partners capital accounts
    
    
    15,444,197
    
    
    
    19,138,676General partners capital account
    
    
    (4,563
    )
    
    
    (12,545
    )Total partners capital
    
    
    15,439,634
    
    
    
    19,126,131Total liabilities and partners capital
    
    $
    29,220,279
    
    
    $
    34,246,143
 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 Discontinued Operations
For the Years Ended December 31, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Operating revenue:Rental income
    
    $
    2,874,064
    
    
    $
    3,412,477
    
    
    $
    3,363,815Lease termination fee
    
    
    
    
    
    
    254,159
    
    
    
    Finance income
    
    
    146,330
    
    
    
    199,059
    
    
    
    310,428Total operating revenue
    
    
    3,020,394
    
    
    
    3,865,695
    
    
    
    3,674,243Operating costs and expenses:Interest expense
    
    
    1,182,993
    
    
    
    1,271,165
    
    
    
    1,266,420Depreciation
    
    
    473,108
    
    
    
    506,298
    
    
    
    489,976General and administrative
    
    
    617,557
    
    
    
    218,997
    
    
    
    166,788Debt retirement costs
    
    
    209,010
    
    
    
    
    
    
    
    Provision for losses
    
    
    15,000
    
    
    
    
    
    
    

    195,542Total operating costs and expenses
    
    
    2,497,668
    
    
    
    1,996,460
    
    
    
    2,118,726Income from discontinued operations before other income
    
    
    522,726
    
    
    
    1,869,235
    
    
    
    1,555,517Other income :Gain on sale of equipment
    
    
    8,040
    
    
    
    45,741
    
    
    
    Gain on sale of real estate
    
    
    262,045
    
    
    
    
    
    
    
    Interest and other income
    
    
    5,340
    
    
    
    4,857
    
    
    
    1,478Total other income
    
    
    275,425
    
    
    
    50,598
    
    
    
    1,478Net income from discontinued operations
    
    
    798,151
    
    
    
    1,919,833
    
    
    
    1,556,995Net income from discontinued operations allocable to general partner
    
    
    7,982
    
    
    
    19,198
    
    
    
    15,570Net income from discontinued operations allocable to limited partners
    
    $
    790,169
    
    
    $
    1,900,635
    
    
    $
    1,541,425Net income from discontinued operations per limited partnership unit
    
    $
    27.23
    
    
    $
    65.00
    
    
    $
    52.49Weighted average number of limited partnership
units outstanding
    
    
    29,020
    
    
    
    29,239
    
    
    
    29,369
 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, 2004, 2003 and 2002 Limited
    
    
    Limited
    
    
    General
    
    
    TotalPartners
    
    
    Partners
    
    
    Partners
    
    
    PartnersUnits
    
    
    Accounts
    
    
    Account
    
    
    CapitalBalance, January 1, 2002
    
    
    29,391
    
    
    $
    21,645,283
    
    
    $
    15,622
    
    
    $
    21,660,905Distributions - ($104.11 per limited partnership unit)
    
    
    
    
    
    
    (3,057,620
    )
    
    
    (62,935
    )
    
    
    (3,120,555
    )Repurchase of limited partnership units
    
    
    (50
    )
    
    
    (37,243
    )
    
    
    
    
    
    
    (37,243
    )Net income from discontinued operations
    
    
    
    
    
    
    1,541,425
    
    
    
    15,570
    
    
    
    1,556,995Balance, December 31, 2002
    
    
    29,341
    
    
    
    20,091,845
    
    
    
    (31,743
    )
    
    
    20,060,102Distributions - ($93.03 per limited partnership unit)
    
    
    
    
    
    
    (2,720,000
    )
    
    
    
    
    
    
    (2,720,000
    )Repurchase of limited partnership units
    
    
    (186
    )
    
    
    (133,804
    )
    
    
    
    
    
    
    (133,804
    )Net income from discontinued operations
    
    
    
    
    
    
    1,900,635
    
    
    
    19,198
    
    
    
    1,919,833Balance, December 31, 2003
    
    
    29,155
    
    
    
    19,138,676
    
    
    
    (12,545
    )
    
    
    19,126,131Distributions - ($150.24 per limited partnership unit)
    
    
    
    
    
    
    (4,359,932
    )
    
    
    
    
    
    
    (4,359,932
    )Repurchase of limited partnership units
    
    
    (180
    )
    
    
    (124,716
    )
    
    
    
    
    
    
    (124,716
    )Net income from discontinued operations
    
    
    
    
    
    
    790,169
    
    
    
    7,982
    
    
    
    798,151Balance, December 31, 2004
    
    
    28,975
    
    
    $
    15,444,197
    
    
    $
    (4,563
    )
    
    $
    15,439,634
 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, 2004, 2003 and 2002 2004
    
    
    2003
    
    
    2002Cash flows from operating activities:Net income from discontinued operations
    
    $
    798,151
    
    
    $
    1,919,833
    
    
    $
    1,556,995Adjustments to net income:Depreciation
    
    
    473,108
    
    
    
    506,298
    
    
    
    489,976Amortization of debt issuance costs
    
    
    50,920
    
    
    
    78,728
    
    
    
    79,804Gain on sale of equipment
    
    
    (8,040
    )
    
    
    (45,741
    )
    
    
    Gain on sale of real estate
    
    
    (262,045
    )
    
    
    
    
    
    
    Provision for losses
    
    
    15,000
    
    
    
    
    
    
    
    195,542Decrease
(increase) in unbilled rent
    
    
    72,591
    
    
    
    (293,045
    )
    
    
    (217,227
    )Decrease (increase) in accounts receivable
    
    
    122,178
    
    
    
    (209,404
    )
    
    
    (70,088
    )Increase (decrease) in accounts payable and accrued expenses
    
    
    11,202
    
    
    
    3,271
    
    
    
    (9,118
    )Decrease in due from related parties
    
    
    
    
    
    
    
    
    
    
    3,667Decrease in due to related parties
    
    
    (140
    )
    
    
    (8,829
    )
    
    
    (64,236
    )(Increase) decrease in restricted cash
    
    
    (99,616
    )
    
    
    788
    
    
    
    (30,733
    )Net cash provided by operating activities
    
    
    1,173,309
    
    
    
    1,951,899
    
    
    
    1,934,582Cash flows from investing activities:Purchase of properties subject to operating leases
    
    
    
    
    
    
    (1,155,000
    )
    
    
    Proceeds from sale of equipment
    
    
    40,200
    
    
    
    345,309
    
    
    
    180,983Proceeds from sale of operating lease
    
    
    3,849,337
    
    
    
    
    
    
    
    Principal collections on financing leases
    
    
    220,951
    
    
    
    712,232
    
    
    
    1,221,113Net cash provided by (used in) investing activities
    
    
    4,110,489
    
    
    
    (97,459
    )
    
    
    1,402,096Cash flows from financing activities:Proceeds from issuance of notes payable
    
    
    
    
    
    
    920,000
    
    
    
    Debt issuance costs
    
    
    
    
    
    
    (12,276
    )
    
    
    Repayments of notes payable
    
    
    (1,350,429
    )
    
    
    (346,509
    )
    
    
    (303,391
    )Repurchase of limited partnership units
    
    
    (124,716
    )
    
    
    (133,804
    )
    
    
    (37,243
    )Distributions to limited partners
    
    
    (4,359,932
    )
    
    
    (2,720,000
    )
    
    
    (3,057,620
    )Distributions to general partner
    
    
    
    
    
    
    
    
    
    
    (62,935
    )Net cash used in financing activities
    
    
    (5,835,077
    )
    
    
    (2,292,589
    )
    
    
    (3,461,189
    )Net decrease in cash and cash equivalents
    
    
    (551,279
    )
    
    
    (438,149
    )
    
    
    (124,511
    )Cash and cash equivalents, beginning of period
    
    
    694,742
    
    
    
    1,132,891
    
    
    
    1,257,402Cash and cash equivalents, end of period
    
    $
    143,463
    
    
    $
    694,742
    
    
    $
    1,132,891Cash paid for interest
    
    $
    1,129,074
    
    
    $
    1,216,350
    
    
    $
    1,191,910
 The accompanying notes are an integral part of the financial statements. F-6




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Captec Franchise Capital Partners, L.P. IVNotes to Financial Statements 
 1. The Partnership and Its Significant Accounting Principles 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, 1,025 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, 2004,
the Partnership had 28,975 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: Basis of presentation In November 2004, the limited partners approved a plan to liquidate the Partnership and dispose
of all the assets of the Partnership. With this approval, the Partnership commenced activities
to liquidate and dispose of the assets of the Partnership, which include entering into an
exclusive listing agreement with a third party, who will oversee the marketing and offering for
sale of all the real estate assets and equipment leases and loans on behalf of the Partnership.
In accordance with Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived-Assets (FAS 144), as a result of the approval of this plan, all assets
except cash are classified as Assets Held for Sale, all liabilities are classified as
Liabilities Held for Sale and the results of the operations in their entirety are classified as
discontinued operations for all years presented, since the operations are directly related to
the assets or liabilities held for sale. The assets of the Partnership will be sold and the
cash will be used to distribute the net proceeds from such liquidation after the repayment of
all debt in accordance with the partnership agreement. F-7




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##### Table of Contents



Cash and cash equivalents The Partnership considers all highly liquid investments purchased with an original maturity of
three months or less to be cash equivalents. Restricted cash The Partnership is required to maintain a cash balance in an escrow account until specific
requirements have been satisfied related to a note payable. Rental income from operating leases 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 assured collectibility. 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. As of December 31, 2004, operating leases to S&A Restaurants Corporation, United
Supermarkets, Inc. and Hollywood Entertainment Corp. represented 22.4%, 15.5% and 11.0%,
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 leases Land 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 land, buildings and equipment and
recognized intangibles based upon estimated far 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, 2004, 89.5% of the properties owned by Partnership are occupied, with two
remaining properties being vacant. In addition, all but one of the Partnerships investments in
equipment subject to financing leases are performing. Of the seventeen occupied properties,
sixteen are paying as agreed and one is more than 120 days delinquent. The Partnership is
working with this tenant on a plan to recover the outstanding past due rents. The original
leases have been terminated on the Partnerships two vacant properties. All of the above
properties and investments in equipment subject to financing leases are held for sale. Based on
current offers and sales agreements for the properties, the General Partner does not have
evidence at this time to believe impairment exists on any of the properties. For year ended December 31, 2004, the Partnership sold three properties that were triggered by
the tenants exercise of purchase option clauses in the lease agreements. The properties were
sold for net cash proceeds of approximately $3.9 million, resulting in a gain of approximately
$262,000. There were approximately $209,000 in debt retirement costs associated with the
disposition of the one property. All of the properties are subject to triple net leases 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, 2004, original base
terms of the property leases ranged from 10 to 20 years, and the weighted average remaining base
term of the property lease F-8




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##### Table of Contents



portfolio was 11 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 increase. In accordance with the provisions of FAS 144, all assets held for sale are recorded at the lower
of carrying value or fair market value less costs to sell. Additionally, depreciation has been
ceased on these assets effective December 31, 2004. Net investment in financing leases Net 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, 2004, 2003 and 2002, the Partnership had provided an allowance of $275,542, $260,542
and $260,542, respectively, for uncollectible amounts associated with its financing leases. Note payable Notes Payable have fair values equal to $14,261,504 based on debt with similar terms reflecting
current interest rates. Net income per limited partnership interest Net 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 Unit Distributions 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 taxes No 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 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 for reporting purposes
versus bad debt expense for tax purposes. Estimates The preparation of financial statements in conformity with United States generally accepted
accounting 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. Reclassifications Certain prior period financial statement amounts have been reclassified to conform to the 2004
presentations. F-9




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##### Table of Contents



2. Distributions Cash 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
return on their 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 Agreements 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 during 2003 for the
purchase of a property. In 2004 and 2002, 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 $32,180, $43,093 and $48,142 were expensed as incurred
during 2004, 2003 and 2002, 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 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 2004, 2003
or 2002. 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 2004, 2003 and 2002. 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 $1,155,000, 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. 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 Leases The net investment in operating leases as of December 31, 2004 and 2003 is comprised of the
following: 2004
    
    
    2003Land
    
    $
    10,261,124
    
    
    $
    11,428,200Building and improvements
    
    
    17,979,564
    
    
    
    20,445,31128,240,688
    
    
    
    31,873,511Less accumulated depreciation
    
    
    (2,335,649
    )
    
    
    (2,205,530
    )$
    25,905,039
    
    
    $
    29,667,981
 The following is a schedule of future minimum lease payments to be received on the operating
leases as of December 31, 2004: 2005
    
    $
    2,726,0212006
    
    
    2,753,7812007
    
    
    2,725,9592008
    
    
    2,677,9882009
    
    
    2,693,159Thereafter
    
    
    21,998,729Total
    
    $
    35,575,637
 F-10




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##### Table of Contents



5. Net Investment in Financing Leases The net investment in financing leases as of December 31, 2004 and 2003 is comprised of the
following: 2004
    
    
    2003Minimum lease payments to be received
    
    $
    2,126,118
    
    
    $
    2,493,399Estimated residual value
    
    
    
    
    
    
    32,160Gross investment in financing leases
    
    
    2,126,118
    
    
    
    2,525,559Less unearned income
    
    
    (799,693
    )
    
    
    (946,023
    )Net investment in financing leases
    
    $
    1,326,425
    
    
    $
    1,579,536
 The following is a schedule of future minimum lease payments to be received on the financing leases
as of December 31, 2004: 2005
    
    $
    222,9462006
    
    
    160,0002007
    
    
    157,4852008
    
    
    154,0002009
    
    
    166,833Thereafter
    
    
    1,264,854Total
    
    $
    2,126,118
 6. Notes Payable In 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 $11.6
million subject to operating leases, and bears interest at a 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 which have a carrying value of
approximately $3.4 million subject to operating leases, and bears interest at a rate of 8.5% per
annum. In March 2004, the partnership defeased approximately $466,000 of this note payable with
proceeds from the sale of a property. 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 of a property. The note has a 10-year term
which has a carrying value of approximately $4.6 million and bears interest at the rate of 8.35%
per annum In November 2001, the Partnership entered into an additional $1.5 million term note. In June
2004, the Partnership sold a property subject to an operating lease that secured this note.
Using proceeds from the sale, the note was paid down to a balance of $874,000, and the maturity
date was extended to July 2006. The remaining note is secured by a certain property subject to
an operating lease which has a carrying value of $1.5 million, and bears interest at a rate of
prime plus 2% per annum. In April 2003, the Partnership entered into an $862,500 term note. The note has a 5-year term,
is collateralized by a certain property subject to an operating lease which has a carrying value
of $1.1 million, and bears interest at a rate of 6.25%, per annum. F-11




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##### Table of Contents



In April 2003, the Partnership entered into a $57,500 unsecured revolving note. The note 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 $646,349 were incurred in connection with the issuance of the notes, and
are being amortized over the life of the notes to interest expense using the straight-line
method, which is not materially different than the interest rate method. At December 31, 2004, annual maturities on the notes in aggregate are as follows: 2005
    
    $
    369,3992006
    
    
    1,219,9632007
    
    
    404,3982008
    
    
    3,667,1822009
    
    
    7,198,987Thereafter
    
    
    738,032Total
    
    $
    13,597,961
 7. Change in Estimate The
Partnership holds two vacant properties for which it is marketing for
sale. In
June 2004, the leases on these properties (for which rental payments were over eighteen months
past due), along with the rights to pursue remedies against the tenant and all Guarantors, were
terminated as the Partnership entered into a Settlement Agreement with the former tenants and
Guarantors. Under that Settlement Agreement, the Partnership received $100,000 as full and final
payment from all parties involved. The remaining receivable of $277,000 associated with these
leases was written off as bad debt expense in 2004 and is included in the general and
administrative expenses. 8. Subsequent Event Based upon the results of operations for the three-month period ended December 31, 2004, the
Partnership declared distributions of $375,000 to its limited partners on January 18, 2005. On February 15, 2005, the Partnership executed an Agreement of Sale (the Agreement) pursuant to
which the Partnership has agreed to sell twelve of the Partnerships properties and certain real
property leases related to such properties for an aggregate purchase price of $20,975,000. Under
the Agreement, the purchase price may be adjusted if, among other things, less than all the
properties set forth in the Agreement are sold due to the exercise by tenants of certain rights
of first refusal contained in the property leases. The closing of the transactions contemplated by the Agreement is contingent upon the satisfaction
of certain customary conditions set forth more fully in the Agreement, including satisfactory
completion of due diligence review. In addition, the closing is further contingent upon the
contemporaneous closing of a separate agreement of sale between the purchaser and Captec
Franchise Capital Partners, L.P. III (LP III), an affiliate of the Partnership, governing the
sale of ten properties owned by LP III. The parties to the Agreement anticipate that the closing
will occur during the second quarter of 2005. F-12




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##### Table of Contents



9. Quarterly Results of Discontinued Operations (Unaudited) The following is a summary of the Partnerships unaudited quarterly results of operations for the
year ended December 31, 2004 and 2003: Year Ended December 31, 20041st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenue- as reported
    
    
    777,116
    
    
    
    718,800
    
    
    
    703,232
    
    
    
    821,246Net income from discontinued operations allocable to general partner
    
    
    3,041
    
    
    
    2,036
    
    
    
    2,210
    
    
    
    695Net income from discontinued operations allocable to limited partner
    
    
    301,039
    
    
    
    201,607
    
    
    
    218,769
    
    
    
    68,754Net income from discontinued operations per limited partnership unit
    
    
    10.33
    
    
    
    6.96
    
    
    
    7.55
    
    
    
    2.39
 Year Ended December 31, 20031st
    
    
    2nd
    
    
    3rd
    
    
    4thQuarter
    
    
    Quarter
    
    
    Quarter
    
    
    QuarterRevenue- as reported
    
    
    899,237
    
    
    
    926,734
    
    
    
    920,628
    
    
    
    1,119,096Net income from discontinued operations allocable to general partner
    
    
    4,315
    
    
    
    4,633
    
    
    
    4,515
    
    
    
    5,735Net income from discontinued operations allocable to limited partner
    
    
    427,166
    
    
    
    458,648
    
    
    
    446,995
    
    
    
    567,826Net income from discontinued operations per limited partnership unit
    
    
    14.56
    
    
    
    15.69
    
    
    
    15.29
    
    
    
    19.46
 In accordance with Financial Accounting Standards No. 144 Accounting for the Impairment or
Disposal of Long Lived-Assets (FAS 144), as a result of the approval of the Plan of
Liquidation and Dissolution, the results of the operations in their entirety are classified as
discontinued operations for all periods presented, since the operations are directly related to
the assets or liabilities held for sale. F-13




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##### Table of Contents



SCHEDULE III PROPERTIES AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2004 SCHEDULE III
PROPERTIES AND ACCUMULATED DEPRECIATION
AS OF DECEMBER 31, 2004 Cost
    
    Gross AmountCapitalized
    
    At WhichSubsequent
    
    Carried At
    
    
    
    
    
    
    Date ofType of
    
    State
    
    
    
    
    
    Initial Cost
    
    
    To
    
    Close
    
    
    Accumulated
    
    
    Acquisition/
    
    Acquisition/Concept
    
    Property
    
    Location
    
    Encumbrances
    
    
    To Company
    
    
    Acquisition
    
    Of Period
    
    
    Depreciation
    
    
    Construction
    
    Construction
    
    DepreciationHollywood Video
    
    Retail
    
    OH
    
    
    736,836
    
    
    
    1,455,300
    
    
    
    
    
    1,455,300
    
    
    
    152,569
    
    
    1997
    
    Acquisition
    
    40 YearsBlockbuster Video
    
    Retail
    
    GA
    
    
    590,078
    
    
    
    1,170,000
    
    
    
    
    
    1,170,000
    
    
    
    143,275
    
    
    1997
    
    Acquisition
    
    40 YearsCarinos
    
    Restaurant
    
    TX
    
    
    883,177
    
    
    
    1,680,000
    
    
    
    
    
    1,680,000
    
    
    
    97,344
    
    
    1997
    
    Acquisition
    
    40 YearsHollywood Video
    
    Retail
    
    OH
    
    
    762,912
    
    
    
    1,454,880
    
    
    
    
    
    1,454,880
    
    
    
    165,347
    
    
    1998
    
    Acquisition
    
    40 YearsSteak & Ale
    
    Restaurant
    
    MI
    
    
    1,028,261
    
    
    
    2,100,000
    
    
    
    
    
    2,100,000
    
    
    
    166,701
    
    
    1998
    
    Acquisition
    
    40 YearsSteak & Ale
    
    Restaurant
    
    PA
    
    
    1,196,139
    
    
    
    2,441,250
    
    
    
    
    
    2,441,250
    
    
    
    153,307
    
    
    1998
    
    Acquisition
    
    40 YearsBennigans
    
    Restaurant
    
    VA
    
    
    796,226
    
    
    
    1,627,500
    
    
    
    
    
    1,627,500
    
    
    
    207,822
    
    
    1998
    
    Acquisition
    
    40 YearsTaco Bell
    
    Restaurant
    
    MI
    
    
    385,541
    
    
    
    766,500
    
    
    
    
    
    766,500
    
    
    
    63,788
    
    
    1998
    
    Acquisition
    
    40 YearsTaco Bell
    
    Restaurant
    
    MI
    
    
    385,541
    
    
    
    766,500
    
    
    
    
    
    766,500
    
    
    
    74,025
    
    
    1998
    
    Acquisition
    
    40 YearsArbys
    
    Restaurant
    
    MI
    
    
    381,371
    
    
    
    840,000
    
    
    
    
    
    840,000
    
    
    
    83,125
    
    
    1998
    
    Acquisition
    
    40 YearsSimply Fondue
    
    Restaurant
    
    TX
    
    
    951,803
    
    
    
    1,914,230
    
    
    
    
    
    1,914,230
    
    
    
    36,095
    
    
    1998
    
    Acquisition
    
    40 YearsDel Taco
    
    Restaurant
    
    CA
    
    
    654,981
    
    
    
    1,239,000
    
    
    
    
    
    1,239,000
    
    
    
    72,375
    
    
    1998
    
    Construction
    
    40 YearsCarinos
    
    Restaurant
    
    TX
    
    
    750,000
    
    
    
    1,675,622
    
    
    
    
    
    1,675,622
    
    
    
    144,828
    
    
    1999
    
    Construction
    
    40 YearsVacant
    
    Restaurant
    
    AZ
    
    
    
    
    
    
    941,850
    
    
    
    
    
    941,850
    
    
    
    87,128
    
    
    1999
    
    Acquisition
    
    40 YearsVacant
    
    Restaurant
    
    AZ
    
    
    499,998
    
    
    
    948,150
    
    
    
    
    
    948,150
    
    
    
    88,450
    
    
    1999
    
    Acquisition
    
    40 YearsArbys
    
    Restaurant
    
    IA
    
    
    
    
    
    
    987,000
    
    
    
    
    
    987,000
    
    
    
    94,106
    
    
    1999
    
    Acquisition
    
    40 YearsUnited Supermarket
    
    Retail
    
    TX
    
    
    3,738,450
    
    
    
    5,077,906
    
    
    
    
    
    5,077,906
    
    
    
    464,940
    
    
    2000
    
    Acquisition
    
    40 YearsTaco Bell
    
    Restaurant
    
    OH
    
    
    920,000
    
    
    
    1,155,000
    
    
    
    
    
    1,155,000
    
    
    
    40,424
    
    
    2003
    
    Acquisition
    
    40 YearsTotal Properties
    
    
    
    
    
    
    
    
    
    $
    28,240,688
    
    
    $
    
    $
    28,240,688
    
    
    $
    2,335,649
 Notes: The changes in total properties for the years ended December 31, 2004 and 2003 are as follows: 2004
    
    
    2003Balance, beginning of year
    
    $
    31,873,511
    
    
    $
    30,746,780Acquisitions
    
    
    
    
    
    
    1,155,000Dispositions and other
    
    
    (3,632,823
    )
    
    
    (28,269
    )Costs Capitalized
    
    
    
    
    
    
    Balance, end of year
    
    $
    28,240,688
    
    
    $
    31,873,511
 The changes in accumulated depreciation for the years ended December 31, 2004 and 2003 are as follows: 2004
    
    
    2003Balance, beginning of year
    
    $
    2,205,530
    
    
    $
    1,836,387Depreciation expense
    
    
    473,108
    
    
    
    506,298Dispositions and other
    
    
    (342,989
    )
    
    
    (137,155
    )Balance, end of year
    
    $
    2,335,649
    
    
    $
    2,205,530
 F-14




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##### Table of Contents



EXHIBIT INDEX Number
    

Exhibit
Index2
    
    Plan of Liquidation and Dissolution (Incorporated by reference to the
Registrants Definitive Proxy Statement on Schedule 14A, filed on
September 21, 2004)4
    
    Amended Agreement of Limited Partnership of Registrant. (Incorporated
by reference to the Registrants Definitive Proxy Statement on
Schedule 14A, filed on September 21, 2004 and 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
ended 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