FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1999
--------------------------------------------------------------------------
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
0-19144
---------------------------------------
CNL Income Fund VI, Ltd.
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-2922954
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Page
Part I.
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II.
Other Information
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $3,069,230 and
$3,586,086, respectively $ 15,258,241 $ 18,559,844
Net investment in direct financing leases 3,897,669 3,929,152
Investment in joint ventures 5,061,676 5,021,121
Cash and cash equivalents 1,124,292 1,170,686
Restricted cash 4,332,095 --
Receivables, less allowance for doubtful accounts
of $281,449 and $323,813, respectively 82,799 150,912
Prepaid expenses 6,172 949
Lease costs, less accumulated amortization of
$8,006 and $7,181, respectively 9,694 10,519
Accrued rental income, less allowance for doubtful
accounts of $44,793 and $38,944, respectively 442,192 785,982
Other assets 26,731 26,731
------------------- -------------------
$ 30,241,561 $ 29,655,896
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 87,205 $ 8,173
Accrued and escrowed real estate taxes payable 6,796 2,500
Due to related party 26,828 19,403
Distributions payable 787,500 857,500
Rents paid in advance and deposits 44,054 28,241
------------------- -------------------
Total liabilities 952,383 915,817
Commitments and Contingencies (Note 4)
Minority interest 140,106 144,949
Partners' capital 29,149,072 28,595,130
------------------- -------------------
$ 30,241,561 $ 29,655,896
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ----------- ------------ -----------
<S> <C>
Revenues:
Rental income from operating leases $595,624 $653,877 $1,199,285 $1,288,852
Adjustments to accrued rental income (2,925 ) (158,453 ) (5,849 ) (161,377 )
Earned income from direct financing leases 124,461 132,575 236,541 256,784
Contingent rental income 7,307 2,089 16,482 34,479
Interest and other income 23,796 31,006 39,252 67,682
------------ ----------- ------------ -----------
748,263 661,094 1,485,711 1,486,420
------------ ----------- ------------ -----------
Expenses:
General operating and administrative 37,328 40,577 78,111 86,042
Bad debt expense -- 12,854 -- 12,854
Professional services 14,132 10,921 18,842 16,791
State and other taxes 247 487 9,713 10,392
Depreciation and amortization 108,393 114,143 222,646 230,053
Transaction costs 77,695 -- 110,820 --
------------ ----------- ------------ -----------
237,795 178,982 440,132 356,132
------------ ----------- ------------ -----------
Income Before Minority Interest in Income of
Consolidated Joint Venture, Equity in Earnings of
Unconsolidated Joint Ventures and Gain on Sale of
Land and Buildings 510,468 482,112 1,045,579 1,130,288
Minority Interest in Income of Consolidated Joint
Venture (9,662 ) (11,659 ) (12,162 ) (24,540 )
Equity in Earnings of Unconsolidated Joint Ventures 123,447 61,403 247,222 117,899
Gain on Sale of Land and Buildings 848,303 -- 848,303 345,122
------------ ----------- ------------ -----------
Net Income $1,472,556 $531,856 $2,128,942 $1,568,769
============ =========== ============ ===========
Allocation of Net Income:
General partners $ 13,529 $ 5,318 $ 20,093 $ 13,806
Limited partners 1,459,027 526,538 2,108,849 1,554,963
------------ ----------- ------------ -----------
$1,472,556 $531,856 $2,128,942 $1,568,769
============ =========== ============ ===========
Net Income Per Limited Partner Unit $ 20.84 $ 7.52 $ 30.13 $ 22.21
============ =========== ============ ===========
Weighted Average Number of Limited Partner
Units Outstanding 70,000 70,000 70,000 70,000
============ =========== ============ ===========
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
----------------------- ------------------
<S> <C>
General partners:
Beginning balance $ 257,690 $ 229,363
Net income 20,093 28,327
----------------------- ------------------
277,783 257,690
----------------------- ------------------
Limited partners:
Beginning balance 28,337,440 28,564,886
Net income 2,108,849 2,992,554
Distributions ($22.50 and $46.00 per
limited partner unit, respectively) (1,575,000 ) (3,220,000 )
----------------------- ------------------
28,871,289 28,337,440
----------------------- ------------------
Total partners' capital $ 29,149,072 $ 28,595,130
======================= ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
--------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,663,032 $1,655,360
--------------- ---------------
Cash Flows from Investing Activities:
Proceeds from sale of land and buildings 4,318,145 2,832,253
Additions to land and buildings on operating
leases -- (125,000 )
Investment in joint ventures (44,121 ) (2,740,640 )
Increase in restricted cash (4,318,145 ) (204,074 )
Payment of lease costs (3,300 ) (3,300 )
--------------- ---------------
Net cash used in investing activities (47,421 ) (240,761 )
--------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,645,000 ) (1,575,000 )
Distributions to holder of minority interest (17,005 ) (21,020 )
--------------- ---------------
Net cash used in financing activities (1,662,005 ) (1,596,020 )
--------------- ---------------
Net Decrease in Cash and Cash Equivalents (46,394 ) (181,421 )
Cash and Cash Equivalents at Beginning of Period 1,170,686 1,614,759
--------------- ---------------
Cash and Cash Equivalents at End of Period $1,124,292 $1,433,338
=============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 787,500 $ 787,500
=============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1999 may not be indicative of
the results that may be expected for the year ending December 31, 1999.
Amounts as of December 31, 1998, included in the financial statements,
have been derived from audited financial statements as of that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund VI, Ltd. (the "Partnership") for the year ended December
31, 1998.
The Partnership accounts for its approximate 66 percent interest in the
accounts of Caro Joint Venture using the consolidation method. Minority
interest represents the minority joint venture partner's proportionate
share of the equity in the Partnership's consolidated joint venture.
All significant intercompany accounts and transactions have been
eliminated.
2. Land and Buildings on Operating Leases:
In June 1999, the Partnership sold four of its Burger King properties,
one in each of Sevierville, Walker Springs, Broadway and Greeneville,
Tennessee, to the tenant in accordance with the purchase option under
the lease agreements, for a total of approximately $4,354,000 and
received net sales proceeds of $4,318,145 resulting in a total gain of
$848,303 for financial reporting purposes. These properties were
originally acquired by the Partnership in January 1990 and had costs
totaling approximately $3,535,700, excluding acquisition fees and
miscellaneous acquisition expenses; therefore, the Partnership sold
these properties for a total of approximately $782,400 in excess of
their original purchase prices.
3. Restricted Cash:
As of June 30, 1999, the net sales proceeds of $4,318,145 from the
sales of the four Burger King properties, plus accrued interest of
$13,950, were being held in interest-bearing escrow accounts pending
the release of funds by the escrow agent to acquire additional
properties on behalf of the Partnership.
<PAGE>
CNL INCOME FUND VI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
4. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 1,865,194 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $36,721,726 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation of the Merger, and
therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be
held in the fourth quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If
the limited partners at the special meeting approve the Merger, APF
will own the properties and other assets of the Partnership. The
general partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund VI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 17, 1988 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, which are leased primarily to operators of selected national and
regional fast-food and family-style restaurant chains (collectively, the
"Properties"). The leases are triple-net leases, with the lessees generally
responsible for all repairs and maintenance, property taxes, insurance, and
utilities. As of June 30, 1999, the Partnership owned 38 Properties, which
included interests in six Properties owned by joint ventures in which the
Partnership is a co-venturer and five Properties owned with affiliates of the
general partners as tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,663,032 and
$1,655,360 for the six months ended June 30, 1999 and 1998, respectively. The
increase in cash from operations for the six months ended June 30, 1999, was
primarily a result of changes in income and expenses as described in "Results of
Operations" below and changes in the Partnership's working capital.
Other sources and uses of capital included the following during the six
months ended June 30, 1999.
In April 1998, the Partnership reinvested a portion of the net sales
proceeds from the 1998 sale of the Property in Melbourne, Florida, in a joint
venture arrangement, Melbourne Joint Venture, with an affiliate of the general
partners, to construct and hold one restaurant Property. As of June 30, 1999,
the Partnership had contributed approximately $539,100, of which approximately
$44,100 was contributed during the six months ended June 30, 1999, to the joint
venture to purchase land and pay for construction costs relating to the joint
venture. As of June 30, 1999, the Partnership owned a 50 percent interest in the
profits and losses of the joint venture.
In June 1999, the Partnership sold four of its Burger King Properties
to the tenant in accordance with the purchase option under the lease agreements,
for a total of approximately $4,354,000 and received net sales proceeds of
$4,318,145 resulting in a total gain of $848,303 for financial reporting
purposes. These Properties were originally acquired by the Partnership in
January 1990 and had costs totaling approximately $3,535,700, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold these properties for a total of approximately $782,400 in
excess of their original purchase prices. As of June 30, 1999, the net sales
proceeds of $4,318,145, plus accrued interest of $13,950, were being held in
interest-bearing escrow accounts pending the release of funds to acquire
additional Properties. The general partners believe that the transaction, or a
portion thereof, relating to the sales of the four Properties and the
reinvestment of the net sales proceeds will qualify as like-kind exchange
transactions for federal income tax purposes.
Currently, rental income from the Partnership's Properties and any net
sales proceeds held by the Partnership, pending reinvestment in additional
Properties, are invested in money market accounts or other short-term, highly
liquid investments such as demand deposit accounts at commercial banks,
certificates of deposit, and money market accounts with less than a 30-day
maturity date, pending the Partnership's use of such funds to pay Partnership
expenses or to make distributions to the partners. At June 30, 1999, the
Partnership had $1,124,292 invested in such short-term investments as compared
to $1,170,686 at December 31, 1998. The funds remaining at June 30, 1999, after
payment of distributions and other liabilities, will be used to meet the
Partnership's working capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, the Partnership declared distributions to the
limited partners of $1,575,000 for each of the six months ended June 30, 1999
and 1998 ($787,500 for each of the quarters ended June 30, 1999 and 1998). This
represents distributions for each applicable six months of $22.50 per unit
($11.25 per unit for each of the quarters ended June 30, 1999 and 1998). No
distributions were made to the general partners for the quarters and six months
ended June 30, 1999 and 1998. No amounts distributed to the limited partners for
the six months ended June 30, 1999 and 1998 are required to be or have been
treated by the Partnership as a return of capital for purposes of calculating
the limited partners' return on their adjusted capital contributions. The
Partnership intends to continue to make distributions of cash available to the
limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $952,383 at June 30, 1999, from $915,817 at December 31, 1998,
primarily as the result of the Partnership accruing transaction costs relating
to the proposed Merger with CNL American Properties Fund, Inc. ("APF"), as
described below. The increase in liabilities is partially offset by a decrease
due to the Partnership paying in January 1999 a special distribution of
accumulated, excess operating reserves to the limited partners of $70,000 which
has been accrued at December 31, 1998. The general partners believe the
Partnership has sufficient cash on hand to meet the Partnership's current
working capital needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 1998, the Partnership and its
consolidated joint venture, Caro Joint Venture, owned and leased 35 wholly owned
Properties (which included four Properties which were sold during 1998) to
operators of fast-food and family-style restaurant chains. During the six months
ended June 30, 1999, the Partnership and Caro Joint Venture, owned and leased 32
wholly owned Properties (which included four Properties which were sold in June
1999). In connection therewith, the Partnership and Caro Joint Venture earned
$1,429,977 and $1,384,259 during the six months ended June 30, 1999 and 1998,
respectively, in rental income from operating leases (net of adjustments to
accrued rental income) and earned income from direct financing leases from these
Properties, $717,160 and $627,999 of which was earned during the quarters ended
June 30, 1999 and 1998. Rental and earned income increased during the quarter
and six months ended June 30, 1999, as compared to the quarter and six months
ended June 30, 1998, primarily as a result of the fact that during the quarter
and six months ended June 30, 1998 the Partnership wrote off approximately
$155,500 in accrued rental income (non-cash accounting adjustments relating to
the straight-lining of future scheduled rent increases over the lease term in
accordance with generally accepted accounting principles) relating to its
Property in Bellevue, Nebraska to adjust the carrying value of the asset to the
net sales proceeds received in June 1998 from the sale of this Property. The
increase in rental and earned income was partially offset by a decrease in
rental and earned income as a result of the sales of Properties during 1998 and
the 1999 sales which are described above in "Capital Resources". Rental and
earned income are expected to remain at reduced amounts while equity in earnings
of joint ventures is expected to increase due to the fact that the Partnership
reinvested the net sales proceeds from the 1998 sales of Properties in joint
ventures or in Properties with affiliates of the general partners, as
tenants-in-common.
For the six months ended June 30, 1999 and 1998, the Partnership also
earned $16,482 and $34,479, respectively, in contingent rental income, $7,307
and $2,089 of which was earned during the quarters ended June 30, 1999 and 1998,
respectively. The decrease in contingent rental income during the six months
ended June 30, 1999 is primarily attributable to a decrease in gross sales of
certain restaurant properties, the leases of which require the payment of
contingent rental income. Contingent rental income was higher for the quarter
ended June 30, 1999, due to the fact that during the quarter ended June 30, 1998
the Partnership adjusted estimated contingent rental amounts accrued at December
31, 1997, to actual amounts.
For the six months ended June 30, 1998, the Partnership owned and
leased four Properties indirectly through joint venture arrangements and five
Properties as tenants-in-common with affiliates of the general partners. For the
six months ended June 30, 1999, the Partnership owned and leased five Properties
indirectly through joint venture arrangements and five Properties as
tenants-in-common with affiliates of the general partners. In connection
therewith, during the six months ended June 30, 1999 and 1998, the Partnership
earned $247,222 and $117,899, respectively, attributable to net income earned by
these joint ventures, $123,447 and $61,403 of which was earned for the quarters
ended June 30, 1999 and 1998, respectively. The increase in net income earned by
joint ventures during the quarter and six months ended June 30, 1999, as
compared to the quarter and six months ended June 30, 1998, is primarily due to
the fact that in 1998 the Partnership used the net sales proceeds from the 1998
sales of three Properties to invest in Melbourne Joint Venture and Warren Joint
Venture and to acquire an interest in a Property in Fort Myers, Florida, with an
affiliate of the general partners as tenants-in-common.
During the six months ended June 30, 1999 and 1998, the Partnership
earned $39,252 and $67,682, respectively, in interest and other income, $23,796
and $31,006 of which was earned for the quarters ended June 30, 1999 and 1998.
Interest and other income was higher during the quarter and six months ended
June 30, 1998, partially due to the fact that during the quarter and six months
ended June 30, 1998, the Partnership earned interest on the net sales proceeds
relating to the sale of the Properties in Deland and Melbourne, Florida, and
Liverpool, New York, pending the reinvestment of the net sales proceeds in
additional Properties. Interest and other income were also higher during the
quarter and six months ended June 30, 1998, because Caro Joint Venture
recognized approximately $13,300 in other income during such periods due to the
fact that the joint venture reversed real estate tax expense as a result of the
tenant of the Property paying past due real estate taxes.
Operating expenses, including depreciation and amortization expense,
were $440,132 and $356,132 for the six months ended June 30, 1999 and 1998,
respectively, of which $237,795 and $178,982 of which were incurred for the
quarters ended June 30, 1999 and 1998, respectively. The increase in operating
expenses for the quarter and six months ended June 30, 1999, was primarily due
to the fact that the Partnership incurred $77,695 and $110,820 in transaction
costs during the quarter and six months ended June 30, 1999, respectively,
related to the general partners retaining financial and legal advisors to assist
them in evaluating and negotiating the proposed Merger with APF, as described
below. If the limited partners reject the Merger, the Partnership will bear the
portion of the transaction costs based upon the percentage of "For" votes and
the general partners will bear the portion of such transaction costs based upon
the percentage of "Against" votes and abstentions. The increase in operating
expenses was partially offset by a decrease in depreciation expense due to sales
of several Properties in 1998 and 1999.
As a result of the sales of the four Properties described above in
"Capital Resources," the Partnership recognized a gain of $848,303 during the
quarter and six months ended June 30, 1999. In addition, as a result of the sale
of the Property in Deland, Florida, the Partnership recognized a gain of
$345,122 during the six months ended June 30, 1998 for financial reporting
purposes.
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). As consideration for the Merger, APF
has agreed to issue 1,865,194 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $36,721,726 as of December 31, 1998. The APF Shares are expected
to be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and therefore, would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject the
Merger, the Partnership will bear the portion of the transaction costs based
upon the percentage of "For" votes and the general partners will bear the
portion of such transaction costs based upon the percentage of "Against" votes
and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the Partnership's transfer agent. The Partnership depends on
its tenants for rents and cash flows, its financial institutions for
availability of cash and its transfer agent to maintain and track investor
information. The Y2K Team has also requested and is evaluating documentation
from the non-information technology systems providers of the affiliates of the
general partners. Although the general partners continue to receive positive
responses from the companies with which the Partnership has third party
relationships regarding their Year 2000 compliance, the general partners cannot
be assured that the tenants, financial institutions, transfer agent, other
vendors and system providers have adequately considered the impact of the Year
2000. The general partners are not able to measure the effect on the operations
of the Partnership of any third party's failure to adequately address the impact
of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A.
Hewitt, Gretchen M. Hewitt Bernard J. Schulte, Edward M. and
Margaret Berol Trust, and Vicky Berol v. James M. Seneff, Jr.,
Robert A. Bourne, CNL Realty Corporation, and CNL American
Properties Fund, Inc., Case No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999
against the general partners and APF, Ira Gaines, individually and
on behalf of a class of persons similarly situated, v. CNL
American Properties Fund, Inc., James M. Seneff, Jr., Robert A.
Bourne, CNL Realty Corporation, CNL Fund Advisors, Inc., CNL
Financial Corporation a/k/a CNL Financial Corp., CNL Financial
Services, Inc. and CNL Group, Inc., Case NO. CIO-99-3796, in the
Circuit Court of the Ninth Judicial Circuit of Orange County,
Florida, alleging that the general partners breached their
fiduciary duties and that APF aided and abetted their breach of
fiduciary duties in connection with the proposed Merger. The
plaintiff is seeking unspecified damages and equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Defaults upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 and as amended
on June 4, 1999 (Filed as Appendix B to the
Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 1 to the
Registration Statement of APF on Form S-4, File
No. 74329)
3.1 Certificate of Limited Partnership of CNL Income
Fund VI, Ltd. (Included as Exhibit 3.3 to
Registration Statement No. 33-23892 on Form S-11
and incorporated herein by reference.)
4.1 Certificate of Limited Partnership of CNL Income
Fund VI, Ltd. (Included as Exhibit 4.2 to
Registration Statement No. 33-23892 on Form S-11
and incorporated herein by reference.)
4.2 Agreement and Certificate of Limited Partnership
of CNL Income Fund VI, Ltd. (Included as Exhibit
4.2 to Form 10-K filed with the Securities and
Exchange Commission on April 1, 1996, and
incorporated herein by reference.)
10.1 Management Agreement (Included as Exhibit 10.1
to Form 10-K filed with the Securities and
Exchange Commission on March 31, 1994, and
incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL Income Fund Advisors,
Inc. (Included as Exhibit 10.2 to Form 10-K
filed with the Securities and Exchange
Commission on March 30, 1995, and incorporated
herein by reference.)
10.3 Assignment of Management Agreement from CNL
Income Fund Advisors, Inc. to CNL Fund Advisors,
Inc. (Included as Exhibit 10.3 to Form 10-K
filed with the Securities and Exchange
Commission on April 1, 1996, and incorporated
herein by reference.)
27 Financial Data Schedule (Filed herewith.)
(b) Reports on Form 8-K
A Current Report on Form 8-K dated June 3, 1999, was filed
on June 18, 1999, to report property dispositions.
<PAGE>
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, as
amended, the registrant has duly caused this report to be signed on its behalf
by the undersigned, thereunto duly authorized.
DATED this 10th day of August, 1999.
CNL INCOME FUND VI, LTD.
By: CNL REALTY CORPORATION
General Partner
By: /s/ James M. Seneff, Jr.
-----------------------------
JAMES M. SENEFF, JR.
Chief Executive Officer
(Principal Executive Officer)
By: /s/ Robert A. Bourne
-----------------------------
ROBERT A. BOURNE
President and Treasurer
(Principal Financial and
Accounting Officer)
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from the balance
sheet of CNL Income Fund VI, Ltd. at June 30, 1999, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund VI, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-mos
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 5,456,387<F2>
<SECURITIES> 0
<RECEIVABLES> 364,248
<ALLOWANCES> 281,449
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 18,327,471
<DEPRECIATION> 3,069,230
<TOTAL-ASSETS> 30,241,561
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,149,072
<TOTAL-LIABILITY-AND-EQUITY> 30,241,561
<SALES> 0
<TOTAL-REVENUES> 1,485,711
<CGS> 0
<TOTAL-COSTS> 440,132
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 2,128,942
<INCOME-TAX> 0
<INCOME-CONTINUING> 2,128,942
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 2,128,942
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industy, CNL Income Fund VI, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
<F2>Includes $4,332,095 in restricted cash.
</FN>
</TABLE>
