-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, LeqzKR6tGs+PEB/5UEy8fu5z6aK7j6FW+9cQqGONUYfgSUXEaYQSMav23FqxI6oH jcePt6Q/l1pLhGmxQKz4RA== 0000878657-98-000001.txt : 19980402 0000878657-98-000001.hdr.sgml : 19980402 ACCESSION NUMBER: 0000878657-98-000001 CONFORMED SUBMISSION TYPE: 10-K PUBLIC DOCUMENT COUNT: 2 CONFORMED PERIOD OF REPORT: 19971231 FILED AS OF DATE: 19980331 SROS: NONE FILER: COMPANY DATA: COMPANY CONFORMED NAME: BRAUVIN CORPORATE LEASE PROGRAM IV L P CENTRAL INDEX KEY: 0000878657 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 363800611 STATE OF INCORPORATION: DE FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10-K SEC ACT: SEC FILE NUMBER: 000-21536 FILM NUMBER: 98584281 BUSINESS ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 BUSINESS PHONE: 3124430922 MAIL ADDRESS: STREET 1: BRAUVIN REAL ESTATE FUNDS STREET 2: 30 N LASALLE ST STE 3100 CITY: CHICAGO STATE: IL ZIP: 60602 10-K 1 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 FORM 10-K [X] Annual Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the fiscal year ended December 31, 1997 or [ ] Transition Report Pursuant to Section 13 or 15(d) of the Securities Exchange Act of 1934 For the transition period from to Commission File Number 0-21536 Brauvin Corporate Lease Program IV L.P. (Exact name of registrant as specified in its charter) Delaware 36-3800611 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 30 North LaSalle Street, Chicago, Illinois 60602 (Address of principal executive offices) (Zip Code) (312) 759-7660 (Registrant's telephone number,including area code) Securities registered pursuant to Section 12(b) of the Act: Title of each class Name of each exchange on which registered None None Securities registered pursuant to Section 12(g) of the Act: Limited Partnership Interests (Title of class) Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 13 or 15(d) of the Securities Exchange Act of 1934 during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and(2) has been subject to such filing requirements for the past 90 days. Yes X No Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K (Section 229.405 of this chapter) is not contained herein, and will not be contained, to the best of registrant's knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. [ X ] The aggregate sales price of the limited partnership interests of the registrant (the "Units") to unaffiliated investors of the registrant during the initial offering period was $16,008,310. This does not reflect market value. This is the price at which the Units were sold to the public during the initial offering period. There is no current market for the Units nor have any Units been sold within the last 60 days prior to this filing except for Units sold to or by the registrant pursuant to the registrant's distribution reinvestment plan, as described in the prospectus of the registrant dated December 12, 1991 (the "Prospectus") as supplemented March 25, 1992 and June 17, 1993 and filed pursuant to Rule 424(b) and Rule 424(c) under the Securities Act of 1933, as amended. Portions of the Prospectus are incorporated by reference into Parts II, III and IV of this Annual Report on Form 10-K. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. 1997 FORM 10-K ANNUAL REPORT INDEX PART I Page Item 1. Business . . . . . . . . . . . . . . . . . . . . . .3 Item 2. Properties . . . . . . . . . . . . . . . . . . . . .6 Item 3. Legal Proceedings. . . . . . . . . . . . . . . . . .14 Item 4. Submission of Matters to a Vote of Security Holders. . . . . . . . . . . . . . . . . . . . . . .19 PART II Item 5. Market for the Registrant's Units and Related Security Holder Matters. . . . . . . . . . . . . . .20 Item 6. Selected Financial Data. . . . . . . . . . . . . . .22 Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. . . . . . . . .24 Item 7A.Quantitative and Qualitative Disclosures About Market Risk. . . . . . . . . . . . . . . . . . . . .32 Item 8. Consolidated Financial Statements and Supplementary Data . . . . . . . . . . . . . . . . .32 Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure . . . . . . . . 32 PART III Item 10. Directors and Executive Officers of the Partnership. . . . . . . . . . . . . . . . . . . . .33 Item 11. Executive Compensation. . . . . . . . . . . . . . .35 Item 12. Security Ownership of Certain Beneficial Owners and Management . . . . . . . . . . . . . . . . . . .37 Item 13. Certain Relationships and Related Transactions. . .38 PART IV Item 14. Exhibits, Consolidated Financial Statement Schedules, and Reports on Form 8-K . . . . . . . . .39 Signatures . . . . . . . . . . . . . . . . . . . . . . . . .41 PART I Item 1. Business. Brauvin Corporate Lease Program IV L.P. (the "Partnership") is a Delaware limited partnership formed in August 1991 for the purpose of acquiring debt-free ownership of existing, income-producing retail and other commercial properties predominantly all of which will be subject to "triple-net" leases. It was anticipated at the time that the Partnership first offered its Units (as defined below) that the properties would be leased primarily to corporate lessees of national and regional retail businesses, service providers and other users consistent with "triple net" lease properties. The leases would provide for a base minimum annual rent with periodic increases in rent as a result of: (i) fixed increases on specific dates; (ii) upward adjustments to indices, such as the Consumer Price Index, to which base rents are indexed; or (iii) participation in lessees' gross sales above a stated level. The Partnership had not sold any of its limited partnership interests (the "Units") as of December 31, 1991, pursuant to a Registration Statement on Form S-11 under the Securities Act of 1933, as amended, dated December 12, 1991 (the "Offering"). The Offering was conditioned upon the sale of $1,200,000 of Units, which was achieved on April 27, 1992. The Offering was anticipated to close on December 11, 1992 but the Partnership obtained an extension until December 11, 1993, with the appropriate governmental approval. A total of 1,600,831 Units were sold to the public at $10 per Unit ($16,008,310) through December 11, 1993. The investors in the Partnership (the "Limited Partners") share in the benefits of ownership of the Partnership's real property investments based on the number of Units owned by each Limited Partner compared to the total number of Units sold. An additional $435,100 of Units was sold through the Partnership's distribution reinvestment plan (the "Plan") as of December 31, 1997. As of December 31, 1997, $118,706 of Units sold through the Offering have been repurchased by the Partnership from investors liquidating their investment and retired. The principal investment objectives of the Partnership are: (i) preservation and protection of capital; (ii) distribution of the Partnership's current cash flow attributable to rental income; (iii) capital appreciation; (iv) the potential for increased income through escalations in the base rent or participation in the growth of the sales of the tenants of the Partnership's properties; (v) the deferral of the taxation of cash distributions for investors who are not exempt from federal taxation; and (vi) the production of "passive" income to offset "passive" losses from other investments. Some tax shelter of cash distributions by the Partnership will be available to Class A Investors through depreciation of the underlying properties. Class A Investors benefit from the special allocation of all depreciation to the Units which they acquired from the Partnership because their reduced taxable income each year will result in a reduction in taxes due, although no "spill-over" losses are expected. Taxable income generated by property operations will likely be considered passive income for federal income tax purposes because Section 469(c)(2) of the Internal Revenue Code states that a passive activity includes "any rental activity" and, therefore, is available to offset losses Class A Investors may have realized in other passive investments. During the early years of the Partnership, the Limited Partners received cash distributions in excess of their allocable share of the Partnership's income, and substantially in excess of their tax liability thereon, particularly the Class A Investors, due to the special allocation of depreciation deductions, although the Class A Investors will recognize more income from the ultimate sale of Partnership properties. Taxable income generated by property operations will likely be considered passive income for federal income tax purposes and, therefore, such income can be used to offset losses Limited Partners will receive from other passive investments, subject to certain limitations. It was originally contemplated that the Partnership would dispose of its properties approximately seven to nine years after their acquisition with a view towards liquidation of the Partnership within that period. In accordance therewith, the Partnership entered into an Agreement for Purchase and Sale of Assets dated as of June 14, 1996, as amended March 24, 1997, June 30, 1997, September 30, 1997 and December 31, 1997 (the "Sale Agreement") with Brauvin Real Estate Funds L.L.C., a Delaware limited liability company affiliated with the General Partners (as defined below) of the Partnership (the "Purchaser"). Pursuant to the terms of the Sale Agreement, the Partnership proposes to sell substantially all of the Partnership's properties (the "Assets") for a purchase price of $12,489,100 in cash, which is $7.65 per Unit. If certain conditions of the Transaction (as defined below) are met, the Partnership will be liquidated and dissolved (the "Liquidation") and those investors who entered into the Partnership as Class A Investors (those not in need of passive income) (the "Class A Limited Partners") will receive a liquidating distribution of approximately $6.95 to $7.50 per Unit in cash based upon the time such Class A Limited Partners invested in the Partnership and Class B Investors (those who are tax-exempt or seeking passive income to offset passive losses) (the "Class B Limited Partners") will receive a liquidating distribution of approximately $8.44 to $8.73 per Unit. Of the total liquidating distributions for both Class A Limited Partners and Class B Limited Partners approximately $0.38 has already been distributed in the December 31, 1997 distribution. The General Partners anticipate that the Sale Agreement will be extended past March 31, 1998 in the hope that the pending litigation (see Item 3) will be resolved. A special meeting of Limited Partners of the Partnership (the "Special Meeting") was held on Friday, November 8, 1996 at 10:30 a.m. At this Special Meeting, the Limited Partners holding a majority of the Units approved the Sale to the Purchaser and the Liquidation per the terms of the Partnership's proxy materials dated August 23, 1996, as amended (the "Proxy"). At the Special Meeting, Limited Partners also approved the adoption of an amendment to the Partnership's Restated Limited Partnership Agreement, as amended (the "Agreement"), to allow the Partnership to sell or lease property to affiliates (this amendment, together with the Sale shall be referred to as the "Transaction"). Further information regarding the Sale, as supplemented is located in Items 3 and 7 below. The terms of the transactions between the Partnership and affiliates of the General Partners are set forth in Item 13 below. The Agreement provides that the Partnership shall terminate December 31, 2011, unless sooner terminated. The Partnership has no employees. Market Conditions/Competition The Partnership has utilized its proceeds available for investment to acquire properties. Since the leases of certain of the Partnership's properties entitle the Partnership to participate in gross receipts of lessees above fixed minimum amounts, the success of the Partnership will depend in part on the ability of those lessees to compete with similar businesses in their respective vicinities. Although management of the Partnership anticipates that the Sale will be consummated it is unable to predict the timing of the closing of the Transaction as the Partnership has been unable to meet the "no material litigation" condition of the Sale. Should the Sale not be completed, the General Partners will have to determine whether to continue its operations or attempt to sell some or all of the properties. The Partnership has and continues to compete with many other entities engaged in real estate investment activities. It is not possible for the General Partners to determine at this time what actions they will take in connection with the continuation of the Partnership should the Sale not be completed. The General Partners will evaluate factors such as the economy, the lease terms, the financial strength of the existing tenants and the ability to locate potential purchasers. Item 2. Properties. The Partnership is a landlord only and does not participate in the operations of any of the properties discussed herein. All lease payments due to the Partnership are current. At December 31, 1997, all properties, except the House of Fabrics located in Joliet, Illinois, were 100% occupied. All properties were paid for in cash, without any financing. The General Partners believe that all properties are adequately insured. On October 31, 1996, the Partnership and three other affiliated public real estate limited partnerships formed a joint venture, Brauvin Bay County Venture, to purchase the land and building underlying a newly constructed Blockbuster Video store. The Partnership has a 24% equity interest in the Brauvin Bay County Venture. The following information is presented for the properties acquired by the Partnership whose cost basis exceeds 10% of the gross proceeds of the Offering. On January 18, 1994, the Partnership purchased the land and the 6,240 square foot building (the "East Side Mario's Property") underlying an East Side Mario's restaurant, located in Copley, Ohio, from Morgan's Foods, Inc. for $1,435,000 plus closing costs. Morgan's Food is the East Side Mario's franchisee for the State of Ohio. During 1994, the franchisor, Prime Group of Canada, Inc., sold the East Side Mario's concept to Pizza Hut, Inc., a division of Pepsico, Inc. This sale has no effect on the existing lease. The store is leased to Morgan's Creative Concepts, Inc. and the lease is guaranteed by the parent company, Morgan's Food, Inc. for 20 years expiring on January 31, 2014, plus two ten year options. The tenant is obligated to pay base minimum rent each month in the amount of $13,453 plus minimum rent escalations of 15% of the then minimum base rent every five years beginning in the sixth year of the lease. The tenant is also obligated to pay percentage rent of 5% of total annual sales which exceed a pre-established amount. The tenant leased the East Side Mario's Property under a triple-net lease whereby the tenant pays for all expenses related to the East Side Mario's Property including real estate taxes, insurance, and maintenance and repair costs. On February 23, 1994, the Partnership purchased the land and the 7,028 square foot building (the "Blockbuster Property") underlying a Blockbuster Video store located in Eagan, Minnesota, from an unaffiliated seller, for a purchase price of $905,000 plus closing costs. The Blockbuster Property is leased to Mid-America Entertainment Company (the "Blockbuster Tenant"), a privately held company under an existing lease for a ten year period expiring on November 30, 2003. The Blockbuster Tenant has the option to renew the lease for two additional five year periods. The Blockbuster Tenant is the exclusive Blockbuster Video franchisee for most of the State of Minnesota and parts of Iowa. The Blockbuster Tenant is obligated to pay base minimum rent each month in the amount of $8,931 plus periodic increases beginning in the third lease year. The Blockbuster Tenant leased the Blockbuster Property under a triple-net lease whereby the Blockbuster Tenant pays for all expenses related to the Blockbuster property including real estate taxes, insurance premiums, maintenance and repair costs. The Partnership is responsible for repairs to the roof and structure. The General Partners believe that the costs associated with these items will be immaterial during the lease term as the building was completed in November 1993 and the Partnership obtained a roof guarantee for the duration of the lease term. The Partnership may reserve a portion of the rent for possible repairs in the future. On February 28, 1994, the Partnership purchased the land and the 8,500 square foot building (the "Walden Books Property") occupied by a Walden Books store located in Miami, Florida, from an unaffiliated seller, for a purchase price of $1,680,000 plus closing costs. The Walden Books Property was completed in November 1988 and is leased under a triple-net lease to Walden Books, Inc. (the "Walden Books Tenant") for a minimum term ending January 31, 2009. Walden Books, Inc. is one of the largest bookstore chains in the country with approximately 1,150 stores and gross revenues of over one billion dollars. The Walden Books Tenant is obligated to pay base minimum rent each month in the amount of $14,167 with scheduled increases in rent beginning in February 1999. The Walden Books Tenant is also obligated to pay percentage rent based on the total annual sales which exceed a pre-established amount. The Walden Books Tenant leased the Walden Books Property under a triple-net lease whereby the Walden Books Tenant pays for all expenses related to the Walden Books Property including real estate taxes, insurance premiums and maintenance and repair costs. The Partnership is responsible for repairs to the roof and structure. The General Partners believe costs associated with these items will be minimal during the lease term as the building is in good condition. The Partnership may reserve a portion of the rent for possible repairs in the future. The following is a summary of the real estate and improvements purchased by the Partnership: Steak n Shake: Peerless Park, Missouri The property is located on the southeast corner of Highway 141 and Interstate I-44, approximately 16 miles southwest of downtown St. Louis. The single-story building is 3,860 square feet situated on a 39,500 square foot parcel of land. Children's World Learning Center: Arlington, Texas The property is located at 1235 West Sublet. The building is 4,950 square feet built on 0.625 acres of land. The single-story, wood-frame building has brick veneer exterior and has a pitched roof with asphalt shingles. The building was constructed in 1984. Chuck E. Cheese's Restaurants: Ashwaubenon, Wisconsin The Chuck E. Cheese restaurant is located at 1273 Lombardi Access Road. The building consists of 10,183 square feet situated on a 3.385 acre parcel and was constructed in 1983 utilizing a steel frame with birch and wood siding. Springfield, Ohio The Chuck E. Cheese restaurant is located at 2345 Valley Loop Road. The building consists of 10,183 square feet situated on a 2.769 acre parcel and was constructed in 1983 utilizing a steel frame with concrete block. Mrs. Winner's Chicken & Biscuit Restaurant: Oakwood, Georgia The Mrs. Winner's Chicken & Biscuit restaurant is located at 3465 Mundy Mill Road. The building consists of 2,436 square feet situated on a 25,700 square foot parcel and was constructed in 1983 utilizing concrete block construction with vinyl siding. House of Fabrics: Joliet, Illinois The House of Fabrics store is located at 2900 Colorado Avenue. The building consists of 20,000 square feet situated on a 1.299 acre parcel and was constructed in 1993 utilizing concrete block construction with steel frame and metal deck roof. In October 1994, House of Fabrics filed for protection under Chapter 11 of the United States Bankruptcy Code. At the time of the filing the tenant was over one month in arrears. From October 1994 until January 1996, House of Fabrics occupied the Joliet property and paid all rents and occupancy expenses on a timely basis. In August 1995, House of Fabrics notified the Partnership that, under the provisions of the bankruptcy code, it had rejected the lease and indicated that it would vacate the property at the end of January 1996. House of Fabrics vacated the property on January 31, 1996. The Partnership has engaged a national brokerage firm to assist in re-leasing this property. In 1997, the Partnership received a Federal Bankruptcy Court award of approximately 20,800 shares of the House of Fabric with a market value of $98,800. At December 31, 1997, the market value of the remaining shares (approximately 17,000) that the Partnership owns is $35,075. In March 1998, the Partnership sold its remaining shares of the House of Fabrics stock for approximately $72,300. Volume ShoeSource: Blaine, Washington The Volume ShoeSource store is located at 439 Peace Portal Drive. The building consists of 10,900 square feet situated on a .389 acre parcel and was fully renovated in 1992. During the fourth quarter of 1996, a provision for impairment of $356,400 was recorded to adjust the carrying value of the property to its estimated net realizable value. This provision has been recorded as a reduction of the property's cost, and allocated to the land and building based on the original acquisition percentages of approximately 45% (land) and 55% (building). Joint Venture CompUSA: Duluth, Georgia The CompUSA store is a 25,000 square foot single story building located on a 105,919 square foot parcel in Duluth, a suburb of Atlanta, in the Gwinnett Place Mall Shopping Area. The single story building was completed in March 1993. The Partnership purchased a 70.2% interest in a joint venture (the "Joint Venture") with affiliated public limited real estate partnerships that acquired the land and building underlying the CompUSA computer superstore. The seller undertook to expand the store by an additional 1,150 square feet pursuant to a lease amendment executed by the Tenant, as hereinafter defined. The store was completed in March 1993, and is leased to CompUSA, Inc. (the "Tenant"), a NYSE-listed company, for a minimum term of 15 years upon completion of the expansion space. During the fourth quarter of 1996, a provision for impairment of $197,000 was recorded to adjust the carrying value of the property to its estimated net realizable value. This allowance has been recorded as a reduction of the property's cost, and allocated to the land and building based on the original acquisition percentages of approximately 37% (land) and 63% (building). Blockbuster Video: Eagan, Minnesota The property is located at 2075 Cliff Road and consists of a 7,028 square foot building situated on a 37,364 square foot parcel of land. The building was constructed in 1993 of concrete block and steel frame covered with stucco. East Side Mario's: Copley, Ohio The property is located at 85 W. Montrose Avenue and consists of a 6,240 square foot building situated on 1.76 acres of land. The building was constructed in 1993 of concrete block and steel frame. Walden Books Store: Miami, Florida The property is located on the southeast corner of Kendall Drive and S.W. 112th Street and consists of a 8,500 square foot building situated on .743 acres of land. The building was constructed in 1988 of masonry block with stucco and dryvit parapet. During the fourth quarter of 1996, a provision for impairment of $303,600 was recorded to adjust the carrying value of the property to its estimated net realizable value. This provision has been recorded as a reduction of the property's cost, and allocated to the land and building based on the original acquisition percentages of approximately 31% (land) and 69% (building). Joint Venture Blockbuster: Callaway, Florida The Partnership owns a 24.0% equity interest in a joint venture with affiliated public real estate limited partnerships that acquired the land and building underlying a Blockbuster Video store. The property is located at 123 N. Tydall Parkway on the major arterial in the Panama City, Florida area. The property contains a 6,466 square foot building located on a 40,075 square foot parcel of land. The following table summarizes the operations of the Partnership's properties: BRAUVIN CORPORATE LEASE PROGRAM IV L.P. SUMMARY OF OPERATING DATA DECEMBER 31, 1997
1997 PERCENT OF 1997 PERCENT OF LEASE PURCHASE ORIGINAL RENTAL RENTAL EXPIRATION RENEWAL PROPERTIES PRICE UNITS SOLD INCOME INCOME DATES OPTIONS 1 STEAK N' SHAKE RESTAURANT $ 995,000 6.2% $ 121,887 8.6% 2010 2 TEN YEAR OPTIONS 1 CHILDREN'S WORLD LEARNING CENTER 425,000 2.7% 52,607 3.7% 2007 2 FIVE YEAR OPTIONS 2 CHUCK E. CHEESE'S RESTAURANTS 2,085,000 13.0% 263,375 18.6% 2005 2 FIVE YEAR OPTIONS 1 MRS. WINNER'S CHICKEN & BISCUIT 600,000 3.7% 92,553 6.5% 2013 2 FIVE YEAR OPTIONS 1 HOUSE OF FABRICS STORE 1,430,000 8.9% -- -- -- -- 1 VOLUME SHOESOURCE STORE 1,627,822 10.2% 189,278 13.3% 2003 4 FIVE YEAR OPTIONS 1 BLOCKBUSTER VIDEO 905,000 5.7% 116,668 8.2% 2003 2 FIVE YEAR OPTIONS 1 EAST SIDE MARIO'S 1,435,000 9.0% 197,325 13.9% 2014 2 TEN YEAR OPTIONS 1 WALDEN BOOK CO. INC. 1,680,000 10.5% 175,698 12.4% 2009 NONE 70.2% OF 1 COMPUSA STORE 1,649,700 10.3% 183,786 13.0% 2008 4 FIVE YEAR OPTIONS 24.0% OF 1 BLOCKBUSTER VIDEO STORE 243,319 1.5% 26,220 1.8% 2006 3 FIVE YEAR OPTIONS $13,075,841 81.7% $1,419,397 100.0% NOTE - THE FORMAT OF THIS SCHEDULE DIFFERS FROM THE INCOME STATEMENT OF THE PARTNERSHIP. THIS SCHEDULE ALLOCATES THE PARTNERSHIP'S SHARE OF PURCHASE PRICE AND RENTAL INCOME FROM EACH JOINT VENTURE. THE INCOME STATEMENT USES THE EQUITY METHOD OF ACCOUNTING FOR THE 24% INTEREST IN THE BLOCKBUSTER VIDEO STORE, THEREFORE, NO RENTAL INCOME IS RECORDED IN THE RENTAL INCOME ACCOUNTS FOR THE JOINT VENTURE. THE INCOME STATEMENT CONSOLIDATES THE COMPUSA STORE, THEREFORE RECORDING 100% OF THE COMPUSA STORES RENTAL INCOME.
Risk of Ownership The possibility exists that the tenants of the Partnership's properties as well as lease guarantors, if any, may be unable to fulfill their obligations pursuant to the terms of their leases, including making base rent or percentage rent payments to the Partnership. Such a default by the tenants or a premature termination of any one of the leases (as is the case with the House of Fabrics) could have an adverse effect on the financial position of the Partnership. Furthermore, the Partnership may be unable to successfully locate a substitute tenant due to the fact that these buildings have been designed or built primarily to house a particular type of operation. Thus, the properties may not be readily marketable to a new tenant without substantial capital improvements or remodeling. Such improvements may require expenditure of Partnership funds which might otherwise be available for distribution. Item 3. Legal Proceedings. Two legal actions, as hereinafter described, are pending against the General Partners and affiliates of such General Partners, as well as against the Partnership on a nominal basis in connection with the Sale. One additional legal action, which was dismissed on January 28, 1998, had also been brought against the General Partners and affiliates of such General Partners, as well as against the Partnership on a nominal basis in connection with the Sale. With respect to the pending actions the Partnership and the General Partners and their named affiliates deny all allegations set forth in the complaints and are vigorously defending against such claims. A. The Dismissed Florida Lawsuit On September 17, 1996, a lawsuit was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J. Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV, L.P., Docket No. 96012807. The Partnership and the other affiliated partnerships named in this lawsuit (the "Affiliated Partnerships") that are proposed to be a party to a Sale or merger with the Purchaser, were each named as a "Nominal Defendant" in this lawsuit. The named plaintiffs were not limited partners in the Partnership. Rather, the named plaintiffs are limited partners in Brauvin High Yield Fund L.P. II, one of the Affiliated Partnerships. Jerome J. Brault, the Managing General Partner of the Partnership, and Brauvin Realty Advisors IV, Inc., the Corporate General Partner of the Partnership, as well as certain corporate general partners of the Affiliated Partnerships, were named as defendants in this lawsuit. James L. Brault, an officer of the Corporate General Partner and the son of Jerome J. Brault, was also named as a defendant. This lawsuit was dismissed for want of prosecution on January 28, 1998. B. The Illinois Christman Lawsuit On September 18, 1996, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois, styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV L.P., Docket No. 96C6025. The Partnership and the Affiliated Partnerships are each named as a "Nominal Defendant" in the lawsuit. Jerome J. Brault and the Corporate General Partner of the Partnership, as well as the corporate general partners of the Affiliated Partnerships, are named as defendants. The plaintiffs filed an amended complaint on October 8, 1996, which alleges claims for breach of fiduciary duties, breaches of the Agreement, and violation of the Illinois Deceptive Trade Practices Act. The amended complaint seeks injunctive relief, as well as compensatory and punitive damages, relating to the Transaction. On October 2, 1996, the District Court certified plaintiffs' proposed class as all of the limited partners of the Partnership and of the Affiliated Partnerships, and appointed plaintiffs' counsel, The Mills Law Firm, as counsel for the class. On October 2, 1996, the District Court also conducted a hearing on plaintiffs' motion to preliminarily enjoin the special meetings of the limited partners and the Transaction. The District Court denied plaintiffs' motion for a preliminary injunction at the conclusion of the October 2, 1996 hearing. On September 27, 1996, counsel for plaintiffs, The Mills Law Firm, mailed a solicitation to all of the Limited Partners, requesting that they revoke their previously-mailed proxies in favor of the Sale. On October 11, 1996, the General Partners filed a counterclaim against plaintiffs and their counsel, The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm violated the federal securities laws and proxy rules by sending their September 27, 1996 letter to the Limited Partners. The plaintiffs and The Mills Law Firm have moved to dismiss this counterclaim. The District Court has taken this motion under advisement and has yet to issue a ruling. On October 10 and 11, 1996, the District Court conducted an evidentiary hearing on the motion of the General Partners to invalidate revocations of proxies procured as a result of The Mills Law Firm's September 27, 1996 letter. In that evidentiary hearing, The Mills Law Firm admitted that it violated the proxy rules by sending its September 27, 1996 letter to the Limited Partners without filing such letter with the Commission (as defined below) in violation of the Commission's requirements. At the conclusion of the hearing on October 10 and 11, the District Court found that the General Partners have a likelihood of succeeding on the merits with respect to their claim that the September 27, 1996 letter sent to the Limited Partners by plaintiffs and The Mills Law Firm is false or misleading in several significant respects. Notwithstanding this finding, the District Court did not invalidate the revocations of proxies resulting from The Mills Law Firm's September 27, 1996 letter because it did not believe it possessed the authority to do so under present law. This ruling was appealed to the Seventh Circuit Court of Appeals. The Seventh Circuit Court of Appeals subsequently dismissed this appeal on the grounds that the appeal was rendered moot by the Limited Partners' approval November 8, 1996 of the Sale. On October 16, 1996 and on November 6, 1996, the parties filed cross-motions for partial summary judgement addressing the allegation in plaintiffs' amended complaint that the Agreement does not allow the Limited Partners to vote in favor of or against the Transaction by proxy. These cross-motions for partial summary judgement were taken under advisement by the District Court, and the District Court has yet to issue a ruling. On April 2, 1997, the Court granted plaintiffs' leave to again amend their complaint. In their second amended complaint, plaintiffs have named the Partnership as a "Nominal Defendant." Plaintiffs have also added a new claim, alleging that the General Partners violated certain of the rules of the Securities and Exchange Commission (the "Commission") by making false and misleading statements in the Proxy. Plaintiffs also allege that the General Partners breached their fiduciary duties, breached various provisions of the Agreement, violated the Illinois Deceptive Trade Practice Act, and violated section 17-305 of the Delaware Revised Uniform Limited Partnership Act. The General Partners deny those allegations and will continue to vigorously defend against these claims. On April 2, 1997, plaintiffs again requested that the District Court enjoin the closing of the Transaction. After conducting a lengthy hearing on May 1, 1997, the District Court denied plaintiffs' motion to preliminarily enjoin the closing of the Transaction. Plaintiffs filed a notice of appeal to the Seventh Circuit Court of Appeals from the District Court's May 1, 1997 order denying plaintiffs' motion to preliminarily enjoin the closing of the Transaction. This appeal was dismissed by the Seventh Circuit Court of Appeals on January 23, 1998, based on the appellate court's finding that the District Courts order of January 16, 1998 rendered the appeal moot. On January 16, 1998, by agreement of the Partnership and the General Partners and pursuant to a motion of the General Partners, the District Court entered an order preventing the Partnership and the General Partners from completing the Sale, or otherwise disposing of all or substantially all of the Partnership's assets, until further order of the Court. On January 28, 1998, the District Court entered an Order of Reference to Special Master, designating a Special Master and vesting the Special Master with authority to resolve certain aspects of the lawsuit subject to the District Court's review and confirmation. C. The Scialpi Illinois Lawsuit On June 20, 1997, another lawsuit was filed in the United States District Court for the Northern District of Illinois, styled Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS & Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault, Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P., Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450. The Partnership and the Affiliated Partnerships are each named as "Nominal Defendant" in the lawsuit. Jerome J. Brault and the Corporate General Partner of the Partnership, as well as the corporate general partners of the Affiliated Partnerships, have been named as defendants in this lawsuit. James L. Brault, an officer of the Corporate General Partner and the son of Jerome J. Brault, is also named as a defendant. Notably, the complaint was filed by two of the same parties, Scialpi and Friedlander, who were plaintiffs in the Florida lawsuit, which is described above. As also described above, Scialpi and Friedlander are not limited partners in the Partnership, but are limited partners in one of the Affiliated Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997 the plaintiffs filed an amended complaint dropping Benjamin Siegel as a plaintiff. The plaintiffs are also represented by the same lawyers that represented them in the Florida lawsuit. The complaint alleges a putative class action consisting of claims that certain Commission rules were violated by making false and misleading statements in the Proxy, the defendants breached their fiduciary duties and breached the Agreement. The complaint was consolidated with the Christman lawsuit, which is described above, pursuant to General Rule 2.31 of the United States District Court of the Northern District of Illinois. The General Partners deny these allegations and intend to vigorously defend these claims. There have been no material developments with respect to this lawsuit since it was filed on June 20, 1997. Item 4. Submission of Matters to a Vote of Security Holders. None. PART II Item 5. Market for the Registrant's Units and Related Security Holder Matters. At December 31, 1997, there were 886 Limited Partners in the Partnership. There is no established public trading market for Units and it is not anticipated that there will be a public market for Units. Neither the General Partners nor the Partnership are obligated to redeem or repurchase Units, but the Partnership may, as described under the section of the Prospectus entitled "Unit Repurchase Program" on pages 73-74 of the Prospectus, purchase Units under certain very limited circumstances. However, there is no intent to redeem or purchase Units pending the Sale. Units in the hands of a transferee will retain the same character as in the hands of the transferor. Thus, the transferee, whether a taxable or tax-exempt investor, who acquires a Unit from a Class B Investor, as such term is defined in the Agreement, will not be allocated any depreciation and, conversely, a transferee who is a tax-exempt investor and acquires a Unit from a Class A Investor will be allocated depreciation even though such depreciation may not provide a benefit to it. Pursuant to the terms of the Agreement, there are restrictions on the ability of the Limited Partners to transfer their Units. In all cases, the General Partners must consent to the substitution of a Limited Partner. Cash distributions to Limited Partners for 1997, 1996 and 1995 were $1,745,585, $632,669 and $1,296,726, respectively. Prior to the commencement of the Partnership's proxy solicitation in August 1996, distributions of operating cash flow were paid four times per year, 45 days after the end of each calendar quarter or were paid monthly within 15 days of the end of the month, depending upon the Limited Partner's preference (see Item 7). The distributions were generated from a combination of property operations and interest income. No amount distributed was a return of capital. Pursuant to the terms of the Sale Agreement, net income after August 1, 1996 accrues to the Purchaser and, therefore, the net income through July 31, 1996 will be distributed to the Limited Partners at the time of the closing of the Sale. Since the net income of the Partnership after August 1, 1996 accrues to the Purchaser, no distributions of net income were paid to the Limited Partners for the two months of August and September 1996 and the quarter ended December 31, 1996. As a result of the delays in closing the Sale, the Purchaser has agreed to allow periodic distributions of net income relating to the period from January 1, 1997 until the Sale is consummated. See Item 7. Item 6. Selected Financial Data. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) (not covered by Independent Auditors' Report) Year Ended Year Ended Year Ended December 31, December 31, December 31, 1997 1996 1995 Selected Income Statement Data: Rental Income $1,520,046 $1,491,109 $ 1,643,736 Interest Income 40,918 33,608 31,777 Net Income(Loss) 977,509 (97,221) 1,203,510 Net Income(Loss)Per Unit (a) $ 0.59 $ (0.06) $ 0.74 Selected Balance Sheet Data: Cash and Cash Equivalents $ 139,508 $ 753,655 $ 711,167 Land, Buildings and Improvements 13,451,630 13,451,630 14,308,630 Total Assets 13,375,062 14,109,844 14,850,948 Cash Distributions to Limited Partners 1,745,585 632,669 1,296,726 Cash Distributions to Limited Partners Per Unit (a) $ 1.07 $ 0.39 $ 0.80 (a) Net income (loss) per Unit and cash distributions per Unit are based on the average Units outstanding during the year since they were of varying dollar amounts and percentages based upon the dates Limited Partners were admitted to the Partnership and additional Units were purchased through the Plan. The above selected financial data should be read in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this annual report. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) (not covered by Independent Auditors' Report) Year Ended Year Ended December 31, December 31, 1994 1993 Selected Income Statement Data: Rental Income $ 1,571,077 $ 639,565 Interest Income 37,754 124,814 Net Income 1,030,281 492,617 Net Income Per Unit (a) $ 0.64 $ 0.42 Selected Balance Sheet Data: Cash and Cash Equivalents $ 569,244 $4,803,350 Land, Buildings and Improvements 14,308,630 10,066,508 Total Assets 14,895,510 15,009,234 Cash Distributions to Limited Partners 1,244,736 495,347 Cash Distributions to Limited Partners Per Unit (a) $ 0.77 $ 0.43 (a) Net income per Unit and cash distributions per Unit are based on the average Units outstanding during the year since they were of varying dollar amounts and percentages based upon the dates Limited Partners were admitted to the Partnership and additional Units were purchased through the Plan. The above selected financial data should be read in conjunction with the consolidated financial statements and the related notes appearing elsewhere in this annual report. Item 7. Management's Discussion and Analysis of Financial Condition and Results of Operations. General Certain statements in this Annual Report that are not historical fact constitute "forward-looking statements" within the meaning of the Private Securities Litigation Reform Act of 1995. Discussions containing forward-looking statements may be found in this section and in the section entitled "Business." Without limiting the foregoing, words such as "anticipates," "expects," "intends," "plans," and similar expressions are intended to identify forward- looking statements. These statements are subject to a number of risks and uncertainties. Actual results could differ materially from those projected in the forward-looking statements. The Partnership undertakes no obligation to update these forward- looking statements to reflect future events or circumstances. Year 2000 In 1997, the Partnership initiated the conversion from its existing accounting software to a program that is year 2000 compliant. Management has determined that the year 2000 issue will not pose significant operational problems for its computer system. All costs associated with this conversion are being expensed as incurred and are not material. Also in 1997, management of the Partnership initiated formal communications with all of its significant third party vendors, service providers and financial institutions to determine the extent to which the Partnership is vulnerable to those third parties' failure to remedy their own year 2000 issues. There can be no guarantee that the systems of these third parties will be timely converted and would not have an adverse effect on the Partnership. Liquidity and Capital Resources The Partnership commenced an offering to the public on December 12, 1991 of 3,300,000 Units, 300,000 of which were available only through the Plan. The Offering was anticipated to close on December 11, 1992, but was extended until December 11, 1993 with the appropriate governmental approvals. None of the Units were subscribed and issued between December 12, 1991 and December 31, 1991, pursuant to the Offering. The Offering was conditioned upon the sale of $1,200,000, which was achieved on April 27, 1992. Prior to the commencement of the Partnership's proxy solicitation, the Partnership raised a total of $16,008,310 through the Offering and an additional $435,100 through the Plan through December 31, 1997. As of December 31, 1997, Units valued at $118,706 have been repurchased by the Partnership from Limited Partners liquidating their original investment and have been retired. The Partnership purchased the land and buildings underlying a Steak n Shake restaurant and a Children's World Learning Center in 1992. In 1993, the Partnership purchased the land and buildings underlying two Chuck E. Cheese's restaurants, a Mrs. Winner's Chicken & Biscuit restaurant, a House of Fabrics store, and a Volume ShoeSource. Additionally in 1993, the Partnership acquired a 70.2% equity interest in a joint venture with affiliated public real estate limited partnerships that acquired the land and building underlying a CompUSA computer superstore. The Partnership acquired the land and buildings underlying an East Side Mario's restaurant, a Blockbuster Video store and a Waldens Books Store in 1994. In 1996, the Partnership acquired a 24% equity interest in a joint venture with affiliated public real estate limited partnerships that acquired the land and building underlying a Blockbuster Video store. The following is additional information regarding the Partnership acquisition during the last three years: On October 31, 1996, the Partnership purchased a 24% equity interest in a joint venture with affiliated public real estate limited partnerships, the Brauvin Bay County Venture. The Bay County Venture purchased real property upon which is operated a newly constructed Blockbuster Video store. The property contains 6,466 square foot building located on a 40,075 square foot parcel of land. During the fourth quarter of 1996, the Partnership recorded a provision for impairment of $660,000 to adjust the carrying value of the real estate for the Volume ShoeSource ($356,400) and the Walden Books Store ($303,600) to its estimated realizable value. These provisions have been recorded as reductions of each property's cost, and allocated to the land and building based on the original acquisition percentages for each property. During the fourth quarter of 1996, a provision for impairment of $197,000 was recorded to adjust the carrying value of the investment in real estate of the CompUSA property to its estimated net realizable value. This provision has been recorded as a reduction of the property's cost, and allocated to the land and building based on the original acquisition percentages of approximately 37% (land) and 63% (building). Below is a table summarizing the historical data for distribution rates per unit: Distribution Date 1997(a) 1996 1995 1994 February 15 $.2422 $.2000 $.2000 $.1625 May 15 .1093 .1875 .2000 .1750 August 15 .1767 -- .2000 .2000 November 15 .5411 -- .2000 .2500 (a) The 1997 distributions were made on March 31, 1997, July 15, 1997, October 22, 1997 and December 31, 1997. Per the terms of the Sale, the Partnership's net earnings from April 1996 through July 1996 were to be distributed to the Limited Partners in conjunction with the closing of the Sale. However, because of the lengthy delay and the uncertainty of the ultimate closing date, the General Partners decided to make a significant distribution on December 31, 1997 of the Partnership's earnings. This distribution will not change the effective sales price being received by the Partnership through the Sale; it will only adjust the timing of the payout dollar for dollar based on these earnings being distributed now. In addition, included in the December 31, 1997 distribution was any prior period earnings including amounts previously reserved for anticipated closing costs. These reserves will be re-established by the Partnership as soon as a definitive closing date is scheduled. Should the Sale not occur, future increases in the Partnership's distributions will depend on increased sales at the Partnership's properties, resulting in additional percentage rent. Rental increases, to a lesser extent, may occur due to increases in receipts from certain leases based upon increases in the Consumer Price Index or scheduled increases of base rent. Pursuant to the terms of the Sale Agreement, the Partnership proposes to sell substantially all of the Partnership's properties for a purchase price of $12,489,100 in cash which is approximately $7.65 per Unit. If certain conditions of the Transaction are met, the Partnership will be liquidated and the Class A Limited Partners will receive a liquidating distribution of approximately $6.95 to $7.50 per Unit in cash based upon the time such Class A Limited Partners invested in the Partnership and Class B Limited Partners will receive a liquidating distribution of approximately $8.44 to $8.73 per Unit. Of the liquidating distributions (of both Class A and Class B investors) referred to above, approximately $0.38 has already been distributed to the Limited Partners in the December 31, 1997 distribution. The Limited Partners holding a majority of the Units approved the Sale on November 8, 1996. The Partnership drafted a proxy statement, which required prior review and comment by the Securities and Exchange Commission, to solicit proxies for use at the Special Meeting originally to be held at the offices of the Partnership on September 24, 1996. As a result of various pending legal issues, as described in Item 3, the Special Meeting was adjourned to November 8, 1996 at 10:30 a.m. The purpose of the Special Meeting was to vote upon the Sale and certain other matters as described in the Proxy. At the Special Meeting, Limited Partners were also asked to approve the adoption of an amendment to the Agreement, to allow the Partnership to sell or lease property to affiliates. Neither the Delaware Revised Limited Partnership Act nor the Agreement provide Limited Partners not voting in favor of the Transaction with dissenters' appraisal rights. The sale price to be paid to the Limited Partners in connection with the Sale is based on the fair market value of the properties of the Partnership (the "Assets"). Cushman & Wakefield Valuation Advisory Services ("Cushman & Wakefield"), an independent appraiser, the largest real estate valuation and consulting organization in the United States, was engaged by the Partnership to prepare an appraisal of the Assets, to satisfy the Partnership's requirements under the Employee Retirement Income Security Act of 1974, as amended. On April 1, 1996, Cushman & Wakefield determined the fair market value of the Assets to be $12,489,100, or $7.65 per Unit. Subsequently, the Partnership purchased a 24% interest in Brauvin Bay County Venture. Based on the terms of the Sale Agreement, the fair market value of the Assets will be increased by the amount of the investment in Brauvin Bay County Venture, and correspondingly, the Partnership's cash holdings were reduced by the same amount and therefore the total liquidating distribution remains unchanged. The liquidating distribution includes all remaining cash of the Partnership, less net earnings of the Partnership from and after August 1, 1996 through December 31, 1996, less the Partnership's actual costs incurred and accrued through the effective time of filing of the certificate of dissolution, including reasonable reserves in connection with: (i) the proxy solicitation; (ii) the Sale (as detailed in the Sale Agreement); and (iii) the winding up of the Partnership, including preparation of the final audit, tax return and K-1s (collectively, the "Transaction Costs") and less all other outstanding Partnership liabilities. Cushman & Wakefield subsequently provided an opinion as to the fairness of the Transaction to the Limited Partners from a financial point of view. In its opinion, Cushman & Wakefield advises that the price per Unit reflected in the proposed Transaction is fair from a financial point of view to the Limited Partners. Cushman & Wakefield's determination that a price is "fair" does not mean that the price is the highest price which might be obtained in the marketplace, but rather that based on the appraised values of the properties, the price reflected in the proposed transaction is believed by Cushman & Wakefield to be reasonable. Mr. Jerome J. Brault is the Managing General Partner of the Partnership and Brauvin Realty Advisors IV, Inc. is the Corporate General Partner. Mr. Cezar M. Froelich resigned his position as an Individual General Partner of the Partnership effective as of September 17, 1996. The General Partners will not receive any fees in connection with the Transaction and will receive only a de minimis liquidating distribution of less than $17,000 in the aggregate in accordance with the terms of the Agreement. The Managing General Partner and his son, James L. Brault, an executive officer of the Corporate General Partner, will have a minority ownership interest in the Purchaser. Therefore, the Messrs. Brault have an indirect economic interest in consummating the Transaction that is in conflict with the economic interests of the Limited Partners. Mr. Froelich has no affiliation with the Purchaser. Although the Special Meeting was held and the necessary approvals received, the Sale has not been completed primarily due to the lawsuits that are still pending (see Item 3). The General Partners believe that these lawsuits are without merit and, therefore, continue to vigorously defend against them. Following receipt of Limited Partner approval, representatives of the Purchaser commenced in earnest the finalization of the Purchaser's financing and its due diligence review of the assets of the Partnership and those of the Affiliated Partnerships. The due diligence process revealed certain concerns relating to potential environmental problems at one of the properties of the Affiliated Partnerships. The due diligence review has also raised questions regarding the interpretation of certain terms in the leases governing some of the Affiliated Partnerships' properties. A very significant tenant of the Affiliated Partnerships is interpreting certain purchase options contained in its leases in a way that would cause the value of the properties leased by such tenant to be significantly below the Cushman & Wakefield appraised value. Members of management of the Partnership and the Affiliated Partnerships have been working diligently with the Purchaser to assess these risks and to resolve them in a way that will allow the Sale and the related transactions to be consummated without any changes to the terms or the sale price. In accordance with the terms of the Sale Agreement, the General Partners suspended all distributions to Limited Partners; however, as a result of the unforeseen delays brought about by the litigation and the due diligence issues highlighted above, the General Partners felt it was appropriate that an earnings distribution be made to the Limited Partners. Although the terms of the Sale Agreement entered into by the Partnership and the Purchaser provides that the assets being acquired by the Purchaser in connection with the Sale include all earnings of the Partnership from and after August 1, 1996, the Purchaser has agreed to allow the Partnership to make distributions to the Limited Partners of net earnings for the period from and after January 1, 1997 until the Sale is consummated. In exchange, the Partnership has agreed to extend the termination date of the Sale Agreement to March 31, 1998 to allow the Purchaser time to complete its due diligence. It is anticipated that the Merger Agreement will be extended past March 31, 1998 in the hope that the pending litigation will be resolved. Distributions of the Partnership's net earnings for the periods January 1, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997, July 1, 1997 to September 30, 1997 and October 1, 1997 to December 31, 1997 was made to the Limited Partners on March 31, 1997, July 15, 1997, October 22, 1997 and December 31, 1997, respectively in the amount of approximately $597,600 $178,500, $288,400 and $883,300, respectively. Net earnings accruing after December 31, 1997 through the closing date will be included with the final cash distribution to the Limited Partners from the Sale. Results of Operation - Years Ended December 31, 1997 and 1996 Results of operations for the year ended December 31, 1997 reflected net income of $977,509 compared to net loss of $97,221 for the year ended December 31, 1996, an increase of approximately $1,074,700. Total income for the year ended December 31, 1997 was $1,610,225 as compared to $1,560,196 for the period ended December 31, 1996, an increase of approximately $50,000. The increase in total income was primarily the result of the Federal Bankruptcy Court's decision awarding the Partnership stock in the House of Fabrics. The increase in rental income is primarily the result of 1996 rental income reflecting a nonrecurring one time charge for the reversal of the deferred rents receivable of the House of Fabrics property, while 1997 reflects no such adjustment. Total expenses for the year ended December 31, 1997 was $587,249 as compared to $1,595,459 for the period ended December 31, 1996, a decrease of approximately $1,008,000. The primary reason for the decrease in expenses between 1997 and 1996 relate to the 1996 provision for impairment in the aggregate amount of $857,000 to adjust the value of real estate for Volume ShoeSource, Walden Books and CompUSA properties while no such provisions were recorded in 1997. Additionally, the decrease in expenses was related to a decrease in Transaction costs and valuation fees of approximately $104,000 and $45,700, respectively. Results of Operation - Years Ended December 31, 1996 and 1995 Results of operations for the year ended December 31, 1996 reflected a net loss of $97,221 compared to net income of $1,203,510 for the year ended December 31, 1995, a decrease of approximately $1,300,700. The decrease in net income resulted from an increase in expenses as a result of the Transaction, the Partnership hiring an independent real estate company to conduct property valuations and a provision for impairment to adjust the carrying value of certain real estate to its net realizable value. Total income was $1,560,196 in 1996 as compared to $1,698,451 in 1995, a decrease of approximately $138,300. The decrease in total income is due to 1996 rental income reflecting a month of operations of the House of Fabrics property, while 1995 reflects a full twelve month period. Total expenses were $1,595,459 in 1996 as compared to $433,045 in 1995, an increase of approximately $1,162,400. The increase in expenses is primarily the result of an increase in Transaction costs of $226,316 due to legal and other professional fees paid or accrued as a result of the Transaction and a provision for impairment in the aggregate amount of $857,000 to adjust the value of real estate for the Volume ShoeSource, Walden Books and CompUSA properties to their net realizable values. Total expenses also increased in 1996 as compared to 1995 as a result of the Partnership hiring an independent real estate company to conduct property valuations to provide a valuation of the Units to satisfy the Partnership's requirements under the Employee Retirement Income Security Act of 1974, as amended. Results of Operations - Years Ended December 31, 1995 and 1994 Results of operations for the year ended December 31, 1995 reflected net income of $1,203,510 compared to $1,030,281 for the year ended December 31, 1994, an increase of $173,229. Net income primarily increased by a decline in the expense category of acquisition fees not capitalized of approximately $97,000, which was a result of the Partnership being completely invested by February 1994. An increase in rental income of approximately $73,000 also contributed to the increase in net income when comparing 1995 to 1994. Rental income increased due primarily to 1995 reflecting a full year of operations for the three properties that the Partnership purchased in 1994. Impact of Inflation The Partnership anticipates that the operations of the Partnership should not be significantly impacted by inflation. To offset any potential adverse effects of inflation, the Partnership has entered into "triple-net" leases with the tenants, making the tenants responsible for all operating expenses, insurance and real estate taxes. In addition, several of the leases require escalations of rent based upon increases in the Consumer Price Index, scheduled increases in base rents, or tenant sales. Item 7A. Quantitative and Qualitative Disclosures About Market Risk. The Partnership does not engage in any hedge transactions or derivative financial instruments. Item 8. Consolidated Financial Statements and Supplementary Data. See Index to Consolidated Financial Statements and Schedule on Page F-1 of this Form 10-K for consolidated financial statements and financial statement schedule, where applicable. The supplemental financial information specified in Item 302 of Regulation S-K is not applicable. Item 9. Changes in and Disagreements with Accountants on Accounting and Financial Disclosure. During the Partnership's two most recent fiscal years, there have been no changes in, or disagreements with, the accountants. PART III Item 10. Directors and Executive Officers of the Partnership The General Partners of the Partnership are: Brauvin Realty Advisors IV, Inc., an Illinois corporation Mr. Jerome J. Brault, individually Brauvin Realty Advisors IV, Inc. (the "Corporate General Partner") was formed under the laws of the State of Illinois in 1991, with its issued and outstanding shares being owned by Messrs. Jerome J. Brault (beneficially) (50%) and Cezar M. Froelich (50%). The principal officers and directors of the Corporate General Partner are: Mr. Jerome J. Brault Chairman of the Board of Directors, President, Chief Executive Officer and Director Mr. B. Allen Aynessazian Treasurer and Chief Financial Officer Mr. James L. Brault Executive Vice President and Secretary The business experience during the past five years of the General Partners, and the officers and directors of the Corporate General Partner is as follows: MR. JEROME J. BRAULT (age 64) chairman of the board of directors, president and chief executive officer of the Corporate General Partner, as well as a principal shareholder of the Corporate General Partner. He is a member and manager of Brauvin Real Estate Funds, L.L.C. Since 1979, he has been a shareholder, president and a director of Brauvin/Chicago, Ltd. He is an officer, director and one of the principal shareholders of various Brauvin entities which act as the general partners of six other publicly registered real estate programs. He is an officer, director and one of the principal shareholders of Brauvin Associates, Inc., Brauvin Management Company, Brauvin Advisory Services, Inc. and Brauvin Securities, Inc., Illinois companies engaged in the real estate and securities businesses. He is a director, president and chief executive officer of Brauvin Net Lease V, Inc. Mr. Brault received a B.S. in Business from DePaul University, Chicago, Illinois in 1959. MR. JAMES L. BRAULT (age 37) is a executive vice president and secretary and is responsible for the overall operations of the Corporate General Partner and other affiliates of the Corporate General Partner. He is a manager of Brauvin Real Estate Funds, L.L.C. He is an officer of various Brauvin entities which act as the general partners of six other publicly registered real estate programs. Mr. Brault is executive vice president and assistant secretary and is responsible for the overall operations of Brauvin Management Company. He is also an executive vice president and secretary of Brauvin Net Lease V, Inc. Prior to joining the Brauvin organization in May 1989, he was a Vice President of the Commercial Real Estate Division of the First National Bank of Chicago ("First Chicago"), based in their Washington, D.C. office. Mr. Brault joined First Chicago in 1983 and his responsibilities included the origination and management of commercial real estate loans, as well as the direct management of a loan portfolio in excess of $150 million. Mr. Brault received a B.A. in Economics from Williams College, Williamstown, Massachusetts in 1983 and an M.B.A. in Finance and Investments from George Washington University, Washington, D.C. in 1987. Mr. Brault is the son of Mr. Jerome J. Brault. MR. B. ALLEN AYNESSAZIAN (age 33) is the treasurer and chief financial officer of the Corporate General Partner and other affiliates of the Corporate General Partner. He is the chief financial officer of various Brauvin publicly registered real estate programs, including Brauvin Net Lease V, Inc. He is also responsible for the overall financial accounting of Brauvin Management Company, Brauvin Financial, Inc. and related partnerships. He is also responsible for the Partnership's accounting and financial reporting to regulatory agencies. He joined the Brauvin organization in August 1996. Prior to that time, he was the chief financial officer of Giordano's Enterprises, a privately held, 40-restaurant, family-style pizza chain in the Chicago metropolitan area where he worked since 1989. While at Giordano's, Mr. Aynessazian was responsible for all accounting functions, lease negotiations and financings of new restaurants, equipment and general corporate debt. From 1987 to 1989, Mr. Aynessazian worked in the accounting compliance and tax department of KPMG Peat Marwick. Mr. Aynessazian is a certified public accountant. Item 11. Executive Compensation. (a & b) The Partnership is required to pay certain fees, make distributions and allocate a share of the profits and losses of the Partnership to the Corporate General Partner or its affiliates as described under the caption "Compensation Table" on pages 14 to 17 of the Prospectus, as supplemented, and "Summary of Limited Partnership Agreement - Allocations and Distributions to the Limited Partners" on page 63 of the Prospectus, as supplemented, and the sections of the Agreement entitled "Distribution of Operating Cash Flow," "Allocation of Profits, Losses and Deductions," "Distribution of Net Sales Proceeds" and "Compensation of General Partners and Their Affiliates" located on pages A-8 to A-13 of the Agreement, attached as Exhibit A to the Prospectus. The relationship of the Corporate General Partner (and its directors and officers) to its affiliates is set forth in Item 10. Reference is also made to Note 2 of the Notes to the Consolidated Financial Statements filed with this annual report for a description of such distributions and allocations. The General Partners are entitled to receive Acquisition Fees for services rendered in connection with the selection, purchase, construction or development by the Partnership of any property whether designated as real estate commissions, acquisition fees, finders' fees, selection fees, development fees, non-recurring management fees, consulting fees, payments for covenants not to compete, guarantee fees, financing fees or any other similar fees or commissions, however treated for tax or accounting purposes. Such Acquisition Fees may not exceed such compensation as is customarily charged in arm's-length transactions by others rendering similar services as an ongoing public activity in the same geographic locale and for comparable properties. The aggregate Acquisition Fees to be paid to an affiliate of the General Partners shall not exceed: (a) the lesser of 5% of the gross proceeds of the Offering; or (b) such compensation as is customarily charged in arm's-length transactions by others rendering similar services as an ongoing public activity in the same geographic locale and for property comparable to the property to be purchased by the Partnership. To the extent Acquisition Fees paid to the General Partners, their Affiliates and third parties would cause the Partnership to invest less than 80% of the gross proceeds of the Offering in properties, the General Partners and their Affiliates will return those fees, so as to provide compliance with paragraph 1, Section M of the Agreement. No such amount was paid in 1995 or 1997 as no acquisitions were consummated. In 1996, an acquisition fee of $14,837 was paid related to the Bay County purchase. In the event that the Partnership does not use more than 2% of the gross proceeds of the Offering for the payment of legal, accounting, escrow, filing and other fees incurred in connection with the organization or formation of the Partnership, the Partnership may pay the General Partners any unused portion of the 2% of the gross proceeds of the Offering allowed for organization and offering expenses, not to exceed 1/2% of the gross proceeds of the Offering. The General Partners will use such funds to pay certain expenses of the Offering incurred by them not covered by the definition of organization and Offering expenses. An affiliate of the General Partners may provide leasing and re-leasing services to the Partnership in connection with the management of Partnership's properties. The property management fee payable to an affiliate of the General Partners shall not exceed the lesser of: (i) fees which are competitive for similar services in the geographical area where the properties are located; or (ii) 1% of the gross revenues of each Partnership property. Property management fees of $14,291, $14,217 and $16,428, were incurred in 1997, 1996 and 1995, respectively. An affiliate of the General Partners or the General Partners will receive a real estate brokerage commission in connection with the disposition of Partnership properties. Such commission shall be in an amount equal to the lesser of: (i) 3% of the sale price of the property; or (ii) 50% of the real estate commission customarily charged for similar services in the locale of the property being sold; provided, however, that receipt by the General Partners or one of their affiliates of such commission shall be subordinated to receipt by the Limited Partners of their Current Preferred Return, as defined in the Agreement. No real estate sales commission was paid in 1997, 1996 or 1995. In addition, should the Sale be consummated, affiliates of the General Partner will not receive a real estate brokerage commission. (c, d, e & f) Not applicable. (g) The Partnership has no employees and pays no employee or director compensation. (h, i) Not applicable. (j) Compensation Committee Interlocks and Insider Participation. Since the Partnership has no employees, it did not have a compensation committee and is not responsible for the payment of any compensation. (k) Not applicable. (l) Not applicable. The following is a summary of all fees, commissions and other expenses paid or payable to the General Partners or their affiliates for the years ended December 31, 1997, 1996 and 1995: 1997 1996 1995 Acquisition fees $ -- $ 14,837 $ -- Selling commissions -- 4,098 16,155 Management fees 14,291 14,217 16,428 Reimbursable operating expense 96,899 86,443 61,973 Legal fees 155 3,958 4,885 Transaction costs -- 5,626 -- As of December 31, 1997, the Partnership has made all payments to affiliates except for $1,460 related to management fees. Item 12. Security Ownership of Certain Beneficial Owners and Management. (a) No person or group is known by the Partnership to own beneficially more than 5% of the outstanding Units. (b) None of the officers and directors of the Corporate General Partner purchased Units. (c) Other than as described in the Proxy, the Partnership is not aware of any arrangements, which may result in a change in control of the Partnership. No officer or director of the Corporate General Partner possesses a right to acquire beneficial ownership of Units. The General Partners of the Partnership will share in the profits, losses and distributions of the Partnership as outlined in Item 11, "Executive Compensation." Item 13. Certain Relationships and Related Transactions. (a & b) The Partnership is entitled to engage in various transactions involving affiliates of the Corporate General Partner, as described under the captions "Compensation Table" and "Conflicts of Interest" at pages 14 to 17 and 17 to 20, respectively, of the Prospectus, as supplemented, and the section of the Agreement entitled "Rights, Duties and Obligations of General Partners" at pages A-15 to A-18 of the Agreement. The relationship of the Corporate General Partner to its affiliates is set forth in Item 10. Cezar M. Froelich, a former Individual General Partner and a shareholder of the Corporate General Partner, is a principal of the law firm of Shefsky & Froelich Ltd., which firm acted as securities and real estate counsel to the Partnership and as counsel to the Corporate General Partner and certain of its affiliates. (c) No management persons are indebted to the Partnership. (d) There have been no significant transactions with promoters. PART IV Item 14. Exhibits, Consolidated Financial Statement and Schedules, and Reports on Form 8-K. (a) The following documents are filed as part of this report: (1) (2) Consolidated Financial Statements and Schedule indicated in Part II, Item 8 "Consolidated Financial Statements and Supplementary Data." See Index to Consolidated Financial Statements and Schedule on page F-1 of Form 10-K. (3) Exhibits required by the Securities and Exchange Commission Regulation S-K, Item 601: (21) Subsidiaries of the Registrant. (27) Financial Data Schedule. The following exhibits are incorporated by reference from the Registrant's Registration Statement (File No. 33-42327) on Form S-11 filed under the Securities Act of 1933, as amended: Exhibit No. Description 3.(a) Restated Limited Partnership Agreement. 3.(b) Articles of Incorporation of Brauvin Realty Advisors IV, Inc. 3.(c) By-Laws of Brauvin Realty Advisors IV, Inc. 3.(d) Amendment to the Certificate of Limited Partnership of the Partnership. 10.(a) Escrow Agreement. (b) Form 8-K. None (c) An annual report for the fiscal year 1997 will be sent to the Limited Partners subsequent to this filing. The following exhibits are incorporated by reference to the Registrant's fiscal year ending December 31, 1994 Form 10-K (File No. 0-21536): Exhibit Description (10)(b)(1) Management Agreement. (28) Pages 14-20, 63, 73 and 74 of the Partnership's Prospectus dated December 12, 1991, as supplemented, pages A-8 to A-13 and A-15 to A-18 of the Agreement. The following exhibits are incorporated by reference to the Registrant's definitive proxy statement dated August 23, 1996(File No. 0-17557): Exhibit No. Description (10)(c) Agreement for Purchase and Sale of Assets. The following exhibit is incorporated by reference to the Registrant's fiscal year ending December 31, 1996 Form 10-K (File No. 0-21536): Exhibit Description (10)(d) First Amendment and Waiver to the Agreement for Purchase and Sale of Assets. SIGNATURES Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange Act of 1934, the Registrant has duly caused this report to be signed on its behalf by the undersigned thereunto duly authorized. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. BY: Brauvin Realty Advisors IV, Inc. Corporate General Partner By: /s/ Jerome J. Brault Jerome J. Brault Chairman of the Board of Directors, President and Chief Executive Officer By: /s/ James L. Brault James L. Brault Executive Vice President and Secretary By: /s/ B. Allen Aynessazian B. Allen Aynessazian Chief Financial Officer and Treasurer INDIVIDUAL GENERAL PARTNER /s/ Jerome J. Brault Jerome J. Brault DATED: March 31, 1998 BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) INDEX TO CONSOLIDATED FINANCIAL STATEMENTS AND SCHEDULE Page Independent Auditors' Report. . . . . . . . . . . . . . . .F-2 Consolidated Financial Statements: Consolidated Balance Sheets, December 31, 1997 and 1996 .F-3 Consolidated Statements of Operations, for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . .F-4 Consolidated Statements of Partners' Capital, for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . .F-5 Consolidated Statements of Cash Flows, for the years ended December 31, 1997, 1996 and 1995 . . . . . . . . . . . .F-6 Notes to Consolidated Financial Statements. . . . . . . .F-7 Schedule III - Real Estate and Accumulated Depreciation, December 31, 1997. . . . . . . . . . . . . . . . . . . . .F-27 All schedules provided for in Item 14(a)(2) of Form 10-K are either not required, not applicable or not material. INDEPENDENT AUDITORS' REPORT To the Partners Brauvin Corporate Lease Program IV L.P. Chicago, Illinois We have audited the accompanying consolidated balance sheets of Brauvin Corporate Lease Program IV L.P. (a limited partnership) and subsidiary as of December 31, 1997 and 1996, and the related consolidated statements of operations, partners' capital, and cash flows for each of the three years in the period ended December 31, 1997. Our audits also included the financial statement schedule listed in the Index to Consolidated Financial Statements and Schedule on page F-1. These consolidated financial statements and the financial statement schedule are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these consolidated financial statements and the financial statement schedule based on our audits. We conducted our audits in accordance with generally accepted auditing standards. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, such consolidated financial statements present fairly, in all material respects, the financial position of Brauvin Corporate Lease Program IV L.P. and its subsidiary at December 31, 1997 and 1996, and the results of their operations and their cash flows for each of the three years in the period ended December 31, 1997 in conformity with generally accepted accounting principles. Also, in our opinion, such financial statement schedule, when considered in relation to the basic consolidated financial statements taken as a whole, presents fairly in all material respects the information set forth therein. /s/ Deloitte & Touche LLP Chicago, Illinois February 7, 1998 BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) CONSOLIDATED BALANCE SHEETS December 31, December 31, 1997 1996 ASSETS Investment in real estate, (Note 5): Land $ 3,991,040 $ 3,991,040 Buildings and improvements 9,460,590 9,460,590 13,451,630 13,451,630 Less: Accumulated depreciation (1,135,602) (902,615) Net investment in real estate 12,316,028 12,549,015 Investment in Brauvin Bay County Venture (Note 6) 251,449 259,104 Cash and cash equivalents 139,508 753,655 Investment in marketable securities 35,075 -- Tenant receivables -- 325 Deferred rent receivable 453,999 333,099 Prepaid offering costs 175,163 175,163 Organization costs (net of accumulated amortization: 1996-$28,000) -- 2,000 Other assets 3,840 37,483 Total Assets $13,375,062 $14,109,844 LIABILITIES AND PARTNERS' CAPITAL LIABILITIES: Accounts payable and accrued expenses $ 96,709 $ 50,054 Rent received in advance 41,611 47,146 Due to affiliate 1,460 -- Total Liabilities 139,780 97,200 MINORITY INTERESTS IN BRAUVIN GWINNETT COUNTY VENTURE 693,157 702,443 PARTNERS' CAPITAL: General Partners 16,995 10,794 Limited Partners 12,525,130 13,299,407 Total Partners' Capital 12,542,125 13,310,201 Total Liabilities and Partners' Capital $13,375,062 $14,109,844 See accompanying notes to consolidated financial statements. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF OPERATIONS For the years ended December 31, 1997 1996 1995 INCOME: Rental (Note 4) $1,520,046 $1,491,109 $1,643,736 Interest 40,918 33,608 31,777 Other 49,261 35,479 22,938 Total income 1,610,225 1,560,196 1,698,451 EXPENSES: General and administrative 215,454 182,087 146,480 Management fees (Note 3) 14,291 14,217 16,428 Amortization of organization costs 2,000 6,000 6,000 Depreciation 232,987 264,136 264,137 Valuation fees -- 45,703 -- Transaction costs (Note 7) 122,517 226,316 -- Loss on impairment (Note 5) -- 857,000 -- Total expenses 587,249 1,595,459 433,045 Income (loss)before minority and equity interests in joint venture 1,022,976 (35,263) 1,265,406 Minority interest share in Brauvin Gwinnett County Venture's net income (62,532) (62,906) (61,896) Equity interest in Brauvin Bay County Venture 17,065 948 -- Net income (loss) $ 977,509 $ (97,221) $1,203,510 Net income allocated to General Partners $ 6,201 -- -- Net income (loss) allocated to Limited Partners $ 971,308 $ (97,221) $1,203,510 Net income (loss) per Unit outstanding (a) $ 0.59 $ (0.06) $ 0.74 (a) Net income (loss) per Unit was based on the average Units outstanding during the year since they were of varying dollar amounts and percentages based upon the dates Limited Partners were admitted to the Partnership and additional Units were purchased through the distribution reinvestment plan (the "Plan"). See accompanying notes to consolidated financial statements. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF PARTNERS' CAPITAL For the years ended December 31, 1997, 1996 and 1995 General Limited Partners Partners* Total Balance, January 1, 1995 $ 10,794 $14,003,907 $14,014,701 Contributions, net -- 136,937 136,937 Selling commissions and other offering costs -- (19,395) (19,395) Net income -- 1,203,510 1,203,510 Cash distributions -- (1,296,726) (1,296,726) Balance, December 31, 1995 10,794 14,028,233 14,039,027 Contributions, net -- 5,982 5,982 Selling commissions and other offering costs -- (4,918) (4,918) Net loss -- (97,221) (97,221) Cash distributions -- (632,669) (632,669) Balance, December 31, 1996 10,794 13,299,407 13,310,201 Net income 6,201 971,308 977,509 Cash distributions -- (1,745,585) (1,745,585) Balance, December 31, 1997 $ 16,995 $12,525,130 $12,542,125 * Total Units outstanding, including those raised through the Plan, at December 31, 1997, 1996 and 1995 were 1,632,510, 1,632,510 and 1,632,872, respectively. Cash distributions to Limited Partners per Unit were approximately $1.07, $0.39 and $0.80 for the years ended December 31, 1997, 1996 and 1995, respectively. Cash distributions to Limited Partners per Unit are based on the average Units outstanding during the year since they were of varying dollar amounts and percentages based upon the dates Limited Partners were admitted to the Partnership and additional Units were purchased through the Plan. See accompanying notes to consolidated financial statements. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) CONSOLIDATED STATEMENTS OF CASH FLOWS For the years ended December 31, 1997 1996 1995 Cash flows from operating activities: Net income (loss) $977,509 $ (97,221)$1,203,510 Adjustments to reconcile net income(loss)to net cash provided by operating activities: Depreciation and amortization 234,987 270,136 270,137 Provision for impairment -- 857,000 -- Minority interests in Brauvin Gwinnett County Venture's net income 62,532 62,906 61,896 Equity interest in Brauvin Bay County Venture's net income (17,065) (948) -- Decrease (increase) in tenant receivable 325 (325) 40,587 Increase in deferred rent receivable (120,900) (91,980) (97,631) Decrease in due from affiliates -- 7,627 6,503 Decrease (increase) in other assets 33,643 (582) (36,351) Increase (decrease) in accounts payable and accrued expenses 46,655 16,394 (69,701) (Decrease)increase in rent received in advance (5,535) (20,059) 17,199 Increase (decrease)in due to affiliates 1,460 -- (802) Net cash provided by operating activities 1,213,611 1,002,948 1,395,347 Cash flows from investing activities: Increase in investment of marketable securities (35,075) -- -- Investment in Brauvin Bay County Venture -- (258,156) -- Distribution from Brauvin Bay County Venture 24,720 -- -- Cash provided by (used in) investing activities (10,355) (258,156) -- Cash flows from financing activities: Sale of Units, net of liquidations, selling commissions and other offering costs -- 1,884 120,782 Cash distributions to Limited Partners (1,745,585) (632,669)(1,296,726) Cash distribution to minority interests in Brauvin Gwinnett County Venture (71,818) (71,519) (77,480) Net cash used in financing activities (1,817,403) (702,304)(1,253,424) Net (decrease) increase in cash and cash equivalents (614,147) 42,488 141,923 Cash and cash equivalents at beginning of year 753,655 711,167 569,244 Cash and cash equivalents at end of year $ 139,508 $753,655 $ 711,167 See accompanying notes to consolidated financial statements. BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) NOTES TO CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31, 1997, 1996 and 1995 (1) ORGANIZATION AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES ORGANIZATION Brauvin Corporate Lease Program IV L.P. (the "Partnership") is a Delaware limited partnership formed on August 7, 1991 for the purpose of acquiring debt-free ownership of existing, income-producing retail and other commercial properties predominantly all of which will be subject to "triple-net" leases. It was anticipated that these properties will be leased primarily to corporate lessees of national and regional retail businesses, service providers and other users consistent with "triple-net" lease properties. The leases provide for a base minimum annual rent and increases in rent such as through participation in gross sales above a stated level, fixed increases on specific dates or indexation of rent to indices such as the Consumer Price Index. The General Partners of the Partnership are Brauvin Realty Advisors IV, Inc. and Jerome J. Brault. Brauvin Realty Advisors IV, Inc. is owned by Messrs. Brault (beneficially)(50%) and Cezar M. Froelich (50%). Mr. Froelich resigned as a director of the Corporate General Partner in December 1994 and as an Individual General Partner effective as of September 17, 1996. Brauvin Securities, Inc., an affiliate of the General Partners, is the selling agent of the Partnership. The Partnership is managed by an affiliate of the General Partners. The Partnership filed a Registration Statement on Form S-11 with the Securities and Exchange Commission which was declared effective on December 12, 1991. Per the terms of the Restated Limited Partnership Agreement of the Partnership (the "Agreement"), the minimum of $1,200,000 of limited partnership interests of the Partnership (the "Units") necessary for the Partnership to commence operations was achieved on April 27, 1992. The Partnership's offering was anticipated to close on December 11, 1992 but the Partnership obtained an extension until December 11, 1993. A total of 1,600,831 Units were sold to the public through the offering at $10 per Unit ($16,008,310). Through December 31, 1997, 1996 and 1995, the Partnership has sold $16,443,810, $16,443,810 and $16,402,428 of Units, respectively. These totals include $435,100, $435,100 and $394,118 of Units, respectively, raised by Limited Partners who utilized their distributions of Operating Cash Flow to purchase additional Units through the Partnership's distribution reinvestment plan (the "Plan"). Units valued at $118,706, $118,706 and $83,706 have been repurchased by the Partnership from Limited Partners liquidating their investment in the Partnership and have been retired as of December 31, 1997, 1996 and 1995, respectively. As of December 31, 1997, the Plan participants own Units which approximate 3% of the total Units sold. The Partnership has acquired the land and buildings underlying a Steak n Shake restaurant, a Children's World Learning Center, two Chuck E. Cheese's restaurants, a Mrs. Winner's Chicken and Biscuit restaurant, a House of Fabrics store, a Volume ShoeSource store, an East Side Mario's Restaurant, a Blockbuster Video Store, and a Walden Books Store. In addition, the Partnership has acquired a 70.2% and 24.0% equity interest in two joint ventures with three entities affiliated with the Partnership. These ventures own the land and building underlying a CompUSA store and a Blockbuster Video store. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Management's Use of Estimates The preparation of financial statements in conformity with generally accepted accounting principles 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 these estimates. Accounting Method The accompanying financial statements have been prepared using the accrual method of accounting. Rental Income Rental income is recognized on a straight-line basis over the life of the related leases. Differences between rental income earned and amounts due per the respective lease agreements are credited or charged, as applicable, to deferred rent receivable. Federal Income Taxes Under the provisions of the Internal Revenue Code, the Partnership's income and losses are reportable by the partners on their respective income tax returns. Accordingly, no provision is made for Federal income taxes in the consolidated financial statements. However, in certain instances, the Partnership has been required under applicable state law to remit directly to the tax authorities amounts representing withholding from distributions paid to partners. Consolidation of Joint Venture The Partnership owns a 70.2% equity interest in a joint venture, which owns the land and the building underlying one CompUSA store. The accompanying financial statements have consolidated 100% of the assets, liabilities, operations and partners' capital of Brauvin Gwinnett County Venture. All significant intercompany accounts have been eliminated. Investment in Joint Venture The Partnership owns a 24% equity interest in a joint venture, Brauvin Bay County Venture, which owns one Blockbuster Video store. The accompanying financial statements include the investment in Brauvin Bay County Venture using the equity method of accounting. Investment in Real Estate At December 31, 1997 and 1996, the Partnership has classified its real estate investments as held for sale in recognition of the proposed transaction (see Note 7), and the properties are stated at the lower of cost including acquisition costs, or net realizable value. Depreciation expense is computed on a straight-line basis over approximately 39 years. In 1995, the Partnership adopted Statement of Financial Accounting Standards No. 121, "Accounting for the Impairment of Long-Lived Assets and Long-Lived Assets to be Disposed Of" (SFAS 121). In 1996, the Partnership engaged Cushman & Wakefield Valuation Advisory Services to prepare an appraisal of the Partnership's properties. As a result of the reclassification of the real estate investments to be held for sale, and based upon this appraisal, the Partnership recorded a provision for the impairment of assets of $857,000 (see Note 5). Organization and Offering Costs Organization costs represent costs incurred in connection with the organization and formation of the Partnership. Organization costs were amortized over a period of five years using the straight-line method. Offering costs represent costs incurred in selling Units, such as the printing of the Prospectus and marketing materials, and have been recorded as a reduction of Limited Partners' capital. Prepaid offering costs represent amounts in excess of the defined percentages of the gross proceeds. Prior to the commencement of the Partnership's proxy solicitation (See Note 7), gross proceeds were expected to increase due to the purchase of additional Units through the Plan and the prepaid offering costs would be transferred to offering costs and treated as a reduction in Partners' Capital. Cash and Cash Equivalents Cash and cash equivalents include all highly liquid debt instruments with an original maturity within three months from date of purchase. Estimated Fair Value of Financial Instruments Disclosure of the estimated fair value of financial instruments is made in accordance with the requirements of Statement of Financial Accounting Standards No. 107, "Disclosures About Fair Value of Financial Instruments." The estimated fair value amounts have been determined by using available market information and appropriate valuation methodologies. However, considerable judgement is necessarily required in interpreting market data to develop estimates of fair value. The fair value estimates presented herein are based on information available to management as of December 31, 1997 and 1996, but may not necessarily be indicative of the amounts that the Partnership could realize in a current market exchange. The use of different assumptions and/or estimation methodologies may have a material effect on the estimated fair value amounts. The carrying amounts of the following items are a reasonable estimate of fair value: cash and cash equivalents; investment in marketable securities; tenant receivables; accounts payable and accrued expenses; rent received in advance and due to affiliate. (2) PARTNERSHIP AGREEMENT Distributions All Operating Cash Flow, as defined in the Agreement, during the period commencing with the date the Partnership accepts subscriptions for Units totaling $1,200,000 and terminating on the Termination Date, as defined in the Prospectus, shall be distributed to the Limited Partners on a quarterly basis. Distributions of Operating Cash Flow, if available, shall be made within 45 days following the end of each calendar quarter or are paid monthly within 15 days of the end of the month, depending upon the Limited Partner's preference, commencing with the first quarter following the Termination Date. Operating Cash Flow during such period shall be distributed as follows: (a) first, to the Limited Partners until the Limited Partners receive an amount equal to a 9% non-cumulative, non-compounded annual return on Adjusted Investment, as defined in the Agreement, commencing on the last day of the calendar quarter in which the Unit was purchased (the "Current Preferred Return"); and (b) thereafter, any remaining amounts will be distributed 98% to the Limited Partners (on a pro rata basis) and 2% to the General Partners. The net proceeds of a sale or refinancing of a Partnership property shall be distributed as follows: * first, pro rata to the Limited Partners until each Limited Partner has received an amount equal to a 10% cumulative, non-compounded, annual return of Adjusted Investment (the "Cumulative Preferred Return"); * second, to the Limited Partners until each Limited Partner has received an amount equal to the amount of his Adjusted Investment, apportioned pro rata based on the amount of the Adjusted Investment; and * thereafter, 95% to the Limited Partners (apportioned pro rata based on Units) and 5% to the General Partners. Profits and Losses Net profits and losses from operations of the Partnership [computed without regard to any allowance for depreciation or cost recovery deductions under the Internal Revenue Code of 1986, as amended (the "Code")] for each taxable year of the Partnership shall be allocated to each Partner in the same ratio as the cash distributions received by such Partner attributable to that period bears to the total cash distributed by the Partnership. In the event that there are no cash distributions, net profits and losses from operations of the Partnership (computed without regard to any allowance for depreciation or cost recovery deductions under the Code) shall be allocated 99% to the Limited Partners and 1% to the General Partners. Notwithstanding the foregoing, all depreciation and cost recovery deductions allowed under the Code shall be allocated 2% to the General Partners and 98% to the Class A Investors, as defined in the Agreement. The net profit of the Partnership from any sale or other disposition of a Partnership property shall be allocated (with ordinary income being allocated first) as follows: (a) first, an amount equal to the aggregate deficit balances of the Partners' Capital Accounts, as such term is defined in the Agreement, shall be allocated to each Partner who or which has a deficit Capital Account balance in the same ratio as the deficit balance of such Partner's Capital Account bears to the aggregate of the deficit balances of all Partners' Capital Accounts; (b) second, to the Limited Partners until the Capital Account balances of the Limited Partners are equal to any unpaid Cumulative Preferred Return as of such date; (c) third, to the Limited Partners until the Capital Account balances of the Limited Partners are equal to the sum of the amount of their Adjusted Investment plus any unpaid Cumulative Preferred Return; (d) fourth, to the General Partners until their Capital Account balances are equal to any previously subordinated fees; and (e) thereafter, 95% to the Limited Partners and 5% to the General Partners. The net loss of the Partnership from any sale or other disposition of a Partnership property shall be allocated as follows: (a) first, an amount equal to the aggregate positive balances in the Partners' Capital Accounts, to each Partner in the same ratio as the positive balance in such Partner's Capital Account bears to the aggregate of all Partners' positive Capital Accounts balances; and (b) thereafter, 95% to the Limited Partners and 5% to the General Partners. (3) TRANSACTIONS WITH RELATED PARTIES The Partnership pays an affiliate of the General Partners an acquisition fee in the amount of up to 5% of the gross proceeds of the Partnership's offering for the services rendered in connection with the process pertaining to the acquisition of a property. Acquisition fees related to the properties not ultimately purchased by the Partnership are expensed as incurred. The Partnership paid an affiliated entity a non-accountable selling expense allowance in an amount equal to 2% of the gross proceeds of the Partnership's offering, a portion of which may be reallowed to participating dealers. In the event that the Partnership does not use more than 2% of the gross proceeds of the offering for the payment of legal, accounting, escrow, filing and other fees incurred in connection with the organization or formation of the Partnership, the Partnership may pay the General Partners any unused portion of the 2% of the gross proceeds of the offering allowed for organization and offering expenses, not to exceed 1/2% of the gross proceeds of the offering. The General Partners will use such funds to pay certain expenses of the offering incurred by them not covered by the definition of organization and offering expenses. An affiliate of the General Partners provides leasing and re-leasing services to the Partnership in connection with the management of Partnership properties. The property management fee payable to an affiliate of the General Partners is 1% of the gross revenues of each Partnership property. An affiliate of the General Partners or the General Partners will receive a real estate brokerage commission in connection with the disposition of Partnership properties. Such commission will be in an amount equal to the lesser of: (i) 3% of the sale price of the property; or (ii) 50% of the real estate commission customarily charged for similar services in the locale of the property being sold; provided, however, that receipt by the General Partners or one of their affiliates of such commission is subordinated to receipt by the Limited Partners of their Current Preferred Return. An affiliate of one of the General Partners provided securities and real estate counsel to the Partnership. Fees, commissions and other expenses paid or payable to the General Partners or its affiliates for the years ended December 31, 1997, 1996 and 1995 were as follows: 1997 1996 1995 Acquisition fees $-- $ 14,837 $ -- Selling commissions -- 4,098 16,155 Management fees 14,291 14,217 16,428 Reimbursable operating expense 96,899 86,443 61,973 Legal fees 155 3,958 4,885 Transaction costs -- 5,626 -- As of December 31, 1997, the Partnership has made all payments to affiliates except for $1,460 related to management fees. (4) LEASES The Partnership's rental income is principally obtained from tenants through rental payments provided under triple-net noncancelable operating leases. The leases provide for a base minimum annual rent and increases in rent such as through participation in gross sales above a stated level. The following is a schedule of noncancelable future minimum rental payments due to the Partnership under operating leases of Partnership properties as of December 31, 1997: Year Ending December 31: 1998 $ 1,394,474 1999 1,445,637 2000 1,460,730 2001 1,490,772 2002 1,493,994 Thereafter 8,796,999 $16,082,606 Additional rent based on percentages of tenant sales increases was $9,753, $18,877 and $21,620 in 1997, 1996 and 1995, respectively. (5) PROVISION FOR IMPAIRMENT During the fourth quarter of 1996 the Partnership recorded a provision for impairment of $857,000 to adjust the carrying values of real estate for the Volume ShoeSource ($356,400), the Walden Books Store ($303,600) and the investment in the Brauvin Gwinnett County Venture ($197,000) to their estimated net realizable values. This provision for impairment has been recorded as a reduction of each property's cost, and allocated to the land and building based on the original acquisition percentages. (6) INVESTMENT IN JOINT VENTURE The Partnership owns an equity interest in the Brauvin Bay County Venture and reports its investment on the equity method. The following are condensed financial statements for the Brauvin Bay County Venture: BRAUVIN BAY COUNTY VENTURE December 31, 1997 December 31,1996 Land and buildings, net $1,051,588 $1,069,277 Other assets 11,989 13,531 $1,063,577 $1,082,808 Liabilities $ 13,820 $ 1,155 Partners' capital 1,049,757 1,801,653 $1,063,577 $1,082,808 Period from October 31,1996 Year Ended (inception) to December 31, December 31, 1997 1996 Rental income $109,985 $18,502 Expenses: Depreciation 17,689 2,898 Management fees 1,178 191 Operating and administrative 20,014 11,463 38,881 14,552 Net income $ 71,104 $ 3,950 (7) SALE OF PROPERTIES AND LITIGATION Sale of Properties Pursuant to the terms of an agreement of purchase and sale of assets dated as of June 14, 1996, as amended March 24, 1997, June 30, 1997, September 30, 1997 and December 31, 1997 (the "Sale Agreement"), the Partnership proposes to sell substantially all of the Partnership's properties (the "Assets") to Brauvin Real Estate Funds L.L.C., a Delaware limited liability company affiliated with certain of the General Partners (the "Purchaser"), for a purchase price of $12,489,100, in cash, which is approximately $7.65 per Unit. If certain conditions of the Transaction are met, the Partnership will be liquidated and the Class A Limited Partners will receive a liquidating distribution of approximately $6.95 to $7.50 per Unit in cash based upon the time such Class A Limited Partners invested in the Partnership and Class B Limited Partners will receive a liquidating distribution of approximately $8.44 to $8.73 per Unit. Of the liquidating distributions (of both Class A and Class B investors) referred to above, approximately $0.38 has already been distributed to the Limited Partners. The Limited Partners holding a majority of the Units approved the Sale on November 8, 1996. In approving the Sale, the Limited Partners also approved the adoption of an amendment to the Agreement, to allow the Partnership to sell or lease property to affiliates (this amendment, together with the Sale shall be referred to herein as the "Transaction"). The sale price to be paid to the Limited Partners in connection with the Sale is based on the fair market value of the properties of the Partnership (the "Assets"). Cushman & Wakefield Valuation Advisory Services ("Cushman & Wakefield"), an independent appraiser, the largest real estate valuation and consulting organization in the United States, was engaged by the Partnership to prepare an appraisal of the Assets, to satisfy the Partnership's requirements under the Employee Retirement Income Security Act of 1974, as amended. On April 1, 1996, Cushman & Wakefield determined the fair market value of the Assets to be $12,489,100, or $7.65 per Unit. Subsequently, the Partnership purchased a 24% interest in Brauvin Bay County Venture. Based on the terms of the Sale Agreement, the fair market value of the Assets will be increased by the amount of the investment in Brauvin Bay County Venture, and correspondingly, the Partnership's cash holdings were reduced by the same amount and therefore the total liquidating distribution remains unchanged. The liquidating distribution includes all remaining cash of the Partnership, less net earnings of the Partnership from and after August 1, 1996 through December 31, 1996, less the Partnership's actual costs incurred and accrued through the effective time of filing of the certificate of dissolution, including reasonable reserves in connection with: (i) the proxy solicitation; (ii) the Sale (as detailed in the Sale Agreement); and (iii) the winding up of the Partnership, including preparation of the final audit, tax return and K-1s (collectively, the "Transaction Costs") and less all other outstanding Partnership liabilities. The General Partners will not receive any fees in connection with the Transaction and will receive only a de minimis liquidating distribution of less than $17,000 in the aggregate in accordance with the terms of the Partnership Agreement. The Managing General Partner and his son, James L. Brault, an executive officer of the Corporate General Partner, will have a minority ownership interest in the Purchaser. The Sale has not been completed primarily due to certain litigation, as described below, that is still pending. The General Partners believe that these lawsuits are without merit and, therefore, continue to vigorously defend against them. Following receipt of Limited Partner approval, the Purchaser commenced the finalization of the Purchaser's financing and its due diligence review of the assets of the Partnership and those of the Affiliated Partnerships (as defined below). The due diligence process has revealed certain concerns relating to a potential environmental problem at one of the properties of the Affiliated Partnerships. The due diligence review has also raised questions regarding the interpretation of certain terms in the leases governing some of the Affiliated Partnerships' properties. A very significant tenant of the Affiliated Partnerships is interpreting certain purchase options contained in its leases in a way that would cause the value of the properties leased by such tenant to be significantly below the Cushman & Wakefield appraised value. Members of management of the Partnership and the Affiliated Partnerships have been working diligently with the Purchaser to assess these risks and to resolve them in a way that will allow the Sale and the related transactions to be consummated without any changes to the terms or the sale price. In accordance with the terms of the Sale Agreement, the General Partners suspended all distributions to Limited Partners, however, as a result of the unforeseen delays brought about by the litigation and the due diligence issues highlighted above, the General Partners felt it was appropriate that an earnings distribution be made to the Limited Partners. Although the terms of the Sale Agreement entered into by the Partnership and the Purchaser provide that the Assets being acquired by the Purchaser in connection with the Sale include all earnings of the Partnership from and after August 1, 1996, the Purchaser has agreed to allow the Partnership to make distributions to the Limited Partners of net earnings for the period from and after January 1, 1997 until the Sale is consummated. In exchange, the Partnership has agreed to extend the termination date of the Sale Agreement to March 31, 1998. It is anticipated that the Sale Agreement will be extended past March 31, 1998 in the hope that the pending litigation will be resolved. Distributions of the Partnership's net earnings for the periods January 1, 1997 to March 31, 1997, April 1, 1997 to June 30, 1997, July 1, 1997 to September 30, 1997 and October 1, 1997 to December 31, 1997 was made to the Limited Partners on March 31, 1997, July 15, 1997, October 22, 1997 and December 31, 1997 respectively in the amount of approximately $597,600 $178,500, $288,400 and $883,300, respectively. Net earnings accruing after December 31, 1997 through the closing date will be included with the final cash distribution to the Limited Partners from the Sale. Litigation Two legal actions, as hereinafter described, are pending against the General Partners and affiliates of such General Partners, as well as against the Partnership on a nominal basis in connection with the Sale. One additional legal action, which was dismissed on January 28, 1998, had also been brought against the General Partners and affiliates of such General Partners, as well as against the Partnership on a nominal basis in connection with the Sale. With respect to the pending actions the Partnership and the General Partners and their named affiliates deny all allegations set forth in the complaints and are vigorously defending against such claims. A. The Dismissed Florida Lawsuit On September 17, 1996, a lawsuit was filed in the Circuit Court of the Seventeenth Judicial Circuit in and for Broward County, Florida, styled Rebecca Scialpi and Helen Friedlander v. Jerome J. Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., and Brauvin Realty Advisors IV, Inc., James L. Brault, and Brauvin Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV, L.P., Docket No. 96012807. The Partnership and the other affiliated partnerships named in this lawsuit (the "Affiliated Partnerships") that are proposed to be a party to a Sale or merger with the Purchaser, were each named as a "Nominal Defendant" in this lawsuit. The named plaintiffs were not limited partners in the Partnership. Rather, the named plaintiffs are limited partners in Brauvin High Yield Fund L.P. II, one of the Affiliated Partnerships. Jerome J. Brault, the Managing General Partner of the Partnership, and Brauvin Realty Advisors IV, Inc., the Corporate General Partner of the Partnership, as well as certain corporate general partners of the Affiliated Partnerships, were named as defendants in this lawsuit. James L. Brault, an officer of the Corporate General Partner and the son of Jerome J. Brault, was also named as a defendant. This lawsuit was dismissed for want of prosecution on January 28, 1998. B. The Illinois Christman Lawsuit On September 18, 1996, a class action lawsuit was filed in the United States District Court for the Northern District of Illinois, styled M. Barbara Christman, Joseph Forte, Janet M. Toolson, John Archbold, and Ben O. Carroll v. Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin Realty Advisors IV, Inc., Jerome J. Brault, Brauvin Real Estate Funds, L.L.C. and Brauvin High Yield Fund L.P., Brauvin High Yield Fund L.P. II, Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV L.P., Docket No. 96C6025. The Partnership and the Affiliated Partnerships are each named as a "Nominal Defendant" in the lawsuit. Jerome J. Brault and the Corporate General Partner of the Partnership, as well as the corporate general partners of the Affiliated Partnerships, are named as defendants. The plaintiffs filed an amended complaint on October 8, 1996, which alleges claims for breach of fiduciary duties, breaches of the Agreement, and violation of the Illinois Deceptive Trade Practices Act. The amended complaint seeks injunctive relief, as well as compensatory and punitive damages, relating to the Transaction. On October 2, 1996, the District Court certified plaintiffs' proposed class as all of the limited partners of the Partnership and of the Affiliated Partnerships, and appointed plaintiffs' counsel, The Mills Law Firm, as counsel for the class. On October 2, 1996, the District Court also conducted a hearing on plaintiffs' motion to preliminarily enjoin the special meetings of the limited partners and the Transaction. The District Court denied plaintiffs' motion for a preliminary injunction at the conclusion of the October 2, 1996 hearing. On September 27, 1996, counsel for plaintiffs, The Mills Law Firm, mailed a solicitation to all of the Limited Partners, requesting that they revoke their previously-mailed proxies in favor of the Sale. On October 11, 1996, the General Partners filed a counterclaim against plaintiffs and their counsel, The Mills Law Firm, alleging that plaintiffs and The Mills Law Firm violated the federal securities laws and proxy rules by sending their September 27, 1996 letter to the Limited Partners. The plaintiffs and The Mills Law Firm have moved to dismiss this counterclaim. The District Court has taken this motion under advisement and has yet to issue a ruling. On October 10 and 11, 1996, the District Court conducted an evidentiary hearing on the motion of the General Partners to invalidate revocations of proxies procured as a result of The Mills Law Firm's September 27, 1996 letter. In that evidentiary hearing, The Mills Law Firm admitted that it violated the proxy rules by sending its September 27, 1996 letter to the Limited Partners without filing such letter with the Commission (as defined below) in violation of the Commission's requirements. At the conclusion of the hearing on October 10 and 11, the District Court found that the General Partners have a likelihood of succeeding on the merits with respect to their claim that the September 27, 1996 letter sent to the Limited Partners by plaintiffs and The Mills Law Firm is false or misleading in several significant respects. Notwithstanding this finding, the District Court did not invalidate the revocations of proxies resulting from The Mills Law Firm's September 27, 1996 letter because it did not believe it possessed the authority to do so under present law. This ruling was appealed to the Seventh Circuit Court of Appeals. The Seventh Circuit Court of Appeals subsequently dismissed this appeal on the grounds that the appeal was rendered moot by the Limited Partners' approval November 8, 1996 of the Sale. On October 16, 1996 and on November 6, 1996, the parties filed cross-motions for partial summary judgement addressing the allegation in plaintiffs' amended complaint that the Agreement does not allow the Limited Partners to vote in favor of or against the Transaction by proxy. These cross-motions for partial summary judgement were taken under advisement by the District Court, and the District Court has yet to issue a ruling. On April 2, 1997, the Court granted plaintiffs' leave to again amend their complaint. In their second amended complaint, plaintiffs have named the Partnership as a "Nominal Defendant." Plaintiffs have also added a new claim, alleging that the General Partners violated certain of the rules of the Securities and Exchange Commission (the "Commission") by making false and misleading statements in the Proxy. Plaintiffs also allege that the General Partners breached their fiduciary duties, breached various provisions of the Agreement, violated the Illinois Deceptive Trade Practice Act, and violated section 17-305 of the Delaware Revised Uniform Limited Partnership Act. The General Partners deny those allegations and will continue to vigorously defend against these claims. On April 2, 1997, plaintiffs again requested that the District Court enjoin the closing of the Transaction. After conducting a lengthy hearing on May 1, 1997, the District Court denied plaintiffs' motion to preliminarily enjoin the closing of the Transaction with the Purchaser. Plaintiffs filed a notice of appeal to the Seventh Circuit Court of Appeals from the District Court's May 1, 1997 order denying plaintiffs' motion to preliminarily enjoin the closing of the Transaction. This appeal was dismissed by the Seventh Circuit Court of Appeals on January 23, 1998, based on the appellate court's finding that the District Courts order of January 16, 1998 rendered the appeal moot. On January 16, 1998, by agreement of the Partnership and the General Partners and pursuant to a motion of the General Partners, the District Court entered an order preventing the Partnership and the General Partners from completing the Sale, or otherwise disposing of all or substantially all of the Partnership's assets, until further order of the Court. On January 28, 1998, the District Court entered an Order of Reference to Special Master, designating a Special Master and vesting the Special Master with authority to resolve certain aspects of the lawsuit subject to the District Court's review and confirmation. C. The Scialpi Illinois Lawsuit On June 20, 1997, another lawsuit was filed in the United States District Court for the Northern District of Illinois, styled Benjamin Siegel, Rebecca Scialpi, Helen Friedlander, and BHS & Associates, Inc. v. Jerome J. Brault, Brauvin Realty Advisors, Inc., Brauvin Realty Advisors II, Inc., Brauvin Realty Advisors III, Inc., Brauvin Realty Advisors IV, Inc., James L. Brault, Brauvin Real Estate Funds LLC, Brauvin High Yield Fund L.P., Brauvin High Yield Fund II L.P., Brauvin Income Plus L.P. III, and Brauvin Corporate Lease Program IV, L.P. docket number 97 C 4450. The Partnership and the Affiliated Partnerships are each named as "Nominal Defendant" in the lawsuit. Jerome J. Brault and the Corporate General Partner of the Partnership, as well as the corporate general partners of the Affiliated Partnerships, have been named as defendants in this lawsuit. James L. Brault, an officer of the Corporate General Partner and the son of Jerome J. Brault, is also named as a defendant. Notably, the complaint was filed by two of the same parties, Scialpi and Friedlander, who were plaintiffs in the Florida lawsuit, which is described above. As also described above, Scialpi and Friedlander are not limited partners in the Partnership, but are limited partners in one of the Affiliated Partnerships, Brauvin High Yield Fund L.P. II. On August 15, 1997 the plaintiffs filed an amended complaint dropping Benjamin Siegel as a plaintiff. The plaintiffs are also represented by the same lawyers that represented them in the Florida lawsuit. The complaint alleges a putative class action consisting of claims that certain Commission rules were violated by making false and misleading statements in the Proxy, the defendants breached their fiduciary duties and breached the Agreement. The complaint was consolidated with the Christman lawsuit, which is described above, pursuant to General Rule 2.31 of the United States District Court of the Northern District of Illinois. The General Partners deny these allegations and intend to vigorously defend these claims. There have been no material developments with respect to this lawsuit since it was filed on June 20, 1997. SCHEDULE III BRAUVIN CORPORATE LEASE PROGRAM IV L.P. (a Delaware limited partnership) REAL ESTATE AND ACCUMULATED DEPRECIATION DECEMBER 31, 1997
Gross Amount at Which Carried Initial Cost at Close of Period Buildings Cost of Buildings and Subsequent and Accumulated Date Description Encumbrances (c) Land Improvements Improvements Land Improvements Total(a) Deprec. (b) Acquired Steak n' Shake $0 $ 427,872 $ 618,525 $0 $ 427,872 $ 618,525 $ 1,046,397 $ 99,447 5/92 Children's World Learning Center 0 123,962 325,827 0 123,962 325,827 449,789 69,442 8/92 Chuck E. Cheese's 0 224,335 976,601 0 224,335 976,601 1,200,936 112,443 4/93 Chuck E. Cheese's 0 153,722 864,307 0 153,722 864,307 1,018,029 127,052 4/93 Mrs. Winner's Chicken & Biscuit 0 278,340 363,983 0 278,340 363,983 642,323 46,934 5/93 House of Fabrics 0 344,393 1,167,573 0 344,393 1,167,573 1,511,966 131,437 7/93 Volume Shoesource Store 0 766,724 954,704 0 608,024 757,004 1,365,028 99,010 9/93 CompUSA Store 0 663,681 1,811,959 0 591,481 1,687,159 2,278,640 190,633 11/93 East Side Mario's 0 538,257 976,254 0 538,257 976,254 1,514,511 97,575 1/94 Blockbuster Video Store 0 248,168 708,162 0 248,168 708,162 956,330 68,544 2/94 Walden Books Store 0 546,086 1,225,195 0 452,486 1,015,195 1,467,681 93,085 2/94 $0 $4,315,540 $9,993,090 $0 $3,991,040 $9,460,590 $13,451,630 $1,135,602 NOTES: (a) The cost of this real estate is $14,308,630 for tax purposes (unaudited). The buildings are depreciated over approximately 39 years using the straight line method. The properties were constructed between 1969 and 1993. (b) The following schedule summarizes the changes in the Partnership's real estate and accumulated depreciation balances: Real estate 1997 1996 1995 Balance at beginning of year $13,451,630 $14,308,630 $14,308,630 Deductions - land and building (d) -- (857,000) -- Balance at end of year $13,451,630 $13,451,630 $14,308,630 Accumulated depreciation Balance at beginning of year $ 902,615 $ 638,479 $ 374,342 Provision for depreciation 232,987 264,136 264,137 Balance at end of year $ 1,135,602 $ 902,615 $ 638,479 (c) Encumbrances - Brauvin Corporate Lease Program L.P. IV did not borrow cash in order to purchase its properties. 100% of the land and buildings were paid for with funds contributed by the Limited Partners. (d) Amount reflects provision for impairment on land and building based on the original acquisition percentages for the Volume ShoeSource store ($356,400), the Walden Books store ($303,600) and the CompUSA store ($197,000).
EXHIBITS TO BRAUVIN CORPORATE LEASE PROGRAM IV L.P. FORM 10-K ANNUAL REPORT FOR THE YEAR ENDED DECEMBER 31, 1997 EXHIBIT INDEX BRAUVIN CORPORATE LEASE PROGRAM IV L.P. FORM 10-K For the year ended December 31, 1997 Exhibit (21) Subsidiaries of the Registrant Exhibit (27) Financial Data Schedule Exhibit 21 Name of Subsidiary State of Formation Brauvin Gwinnett County Venture Illinois Brauvin Bay County Venture Illinois EX-27 2
5 12-MOS DEC-31-1997 DEC-31-1997 139,508 251,449 453,999 0 0 0 13,451,630 1,135,602 13,375,062 139,780 693,157 0 0 12,542,125 0 13,375,062 0 1,610,225 0 587,249 45,467 0 0 0 0 0 0 0 0 977,509 0 0 "SECURITIES" REPRESENTS INVESTMENTS IN JOINT VENTURE "PP&E" REPRESENTS INVESTMENT IN REAL ESTATE [LAND AND BUILDING] "BONDS" REPRESENTS MINORITY INTEREST IN JOINT VENTURE "COMMON" REPRESENTS TOTAL PARTNERS CAPITAL "TOTAL REVENUES" REPRESENTS RENTAL, INTEREST, AND OTHER INCOME "TOTAL COSTS" REPRESENTS TOTAL EXPENSES "OTHER EXPENSES" REPRESENTS MINORITY INTEREST IN JOINT VENTURES' NET INCOME
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