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 March 31, 1999
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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
0-20017
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CNL Income Fund IX, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3004138
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(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
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(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
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</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
Part I Page
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 IX, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
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<CAPTION>
March 31, December 31,
1999 1998
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ASSETS
Landand buildings on operating leases, less accumulated depreciation of
$1,661,133 and $1,711,187 and allowance for loss on building
of $249,368 for 1999 and 1998 $ 14,933,928 $ 15,066,178
Net investment in direct financing leases, less
allowance for impairment in carrying value of
$65,407 for 1998 5,366,053 5,905,995
Investment in joint ventures 6,421,708 6,473,381
Cash and cash equivalents 2,044,011 1,287,379
Receivables, less allowance for doubtful accounts
of $208,186 and $206,052 61,678 93,569
Prepaid expenses 20,404 3,185
Lease costs, less accumulated amortization of
$1,952 and $1,577 13,048 13,423
Accrued rental income 1,163,425 1,255,968
------------------- -------------------
$ 30,024,255 $ 30,099,078
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 31,318 $ 1,103
Accrued and escrowed real estate taxes payable 36,161 9,022
Distributions payable 787,501 787,501
Due to related parties 8,412 24,187
Rents paid in advance and deposits 101,984 63,347
------------------- -------------------
Total liabilities 965,376 885,160
Partners' capital 29,058,879 29,213,918
------------------- -------------------
$ 30,024,255 $ 30,099,078
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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Revenues:
Rental income from operating leases $ 418,795 $ 476,737
Earned income from direct financing leases 173,188 210,157
Interest and other income 23,251 11,621
--------------- --------------
615,234 698,515
--------------- --------------
Expenses:
General operating and administrative 41,973 33,378
Professional services 9,062 6,336
Real estate tax expense 7,692 --
State and other taxes 24,759 14,145
Depreciation and amortization 75,910 63,245
Transaction costs 35,275 --
--------------- --------------
194,671 117,104
--------------- --------------
Income Before Equity in Earnings of Joint Ventures
and Gain on Sale of Land, Building, and Net
Investment in Direct Financing Lease 420,563 581,411
Equity in Earnings of Joint Ventures 135,902 127,808
Gain on Sale of Land, Building and Net Investment in
Direct Financing Lease 75,997 --
--------------- --------------
Net Income $ 632,462 $ 709,219
=============== ==============
Allocation of Net Income:
General partners $ 6,128 $ 7,092
Limited partners 626,334 702,127
--------------- --------------
$ 632,462 $ 709,219
=============== ==============
Net Income Per Limited Partner Unit $ 0.18 $ 0.20
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 3,500,000 3,500,000
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
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<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
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General partners:
Beginning balance $ 214,763 $ 190,772
Net income 6,128 23,991
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220,891 214,763
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Limited partners:
Beginning balance 28,999,155 29,956,452
Net income 626,334 2,262,707
Distributions ($0.23 and $0.92 per
limited partner unit, respectively) (787,501 ) (3,220,004 )
------------------- ------------------
28,837,988 28,999,155
------------------- ------------------
Total partners' capital $ 29,058,879 $ 29,213,918
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Quarter Ended
March 31,
1999 1998
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Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 785,344 $ 804,054
---------------- ----------------
Cash Flows from Investing Activities:
Proceeds from sale of land, building and Net
investment in direct financing lease 2,400,000 --
Additions to land and building on
operating leases (1,641,211 ) --
---------------- ----------------
Net cash provided by investing activities 758,789 --
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (787,501 ) (787,501 )
---------------- ----------------
Net cash used in financing activities (787,501 ) (787,501 )
---------------- ----------------
Net Increase in Cash and Cash Equivalents 756,632 16,553
Cash and Cash Equivalents at Beginning of Quarter 1,287,379 1,250,388
---------------- ----------------
Cash and Cash Equivalents at End of Quarter $2,044,011 $1,266,941
================ ================
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 787,501 $ 857,501
================ ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 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 ended March 31, 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 IX, Ltd. (the "Partnership") for the year ended December
31, 1998.
Certain items in the prior year's financial statements have been
reclassified to conform to 1999 presentation. These reclassifications
had no effect on partners' capital or net income.
2. Land and Buildings on Operating Leases:
During February and March 1999, the Partnership sold its properties in
Corpus Christi, Texas and Rochester, New York, respectively, received
net sales proceeds of $1,350,000 and $1,050,000, respectively,
resulting in a gain of $56,369 and $19,628, respectively for financial
reporting purposes (see Note 3). These properties were originally
acquired by the Partnership in 1991 and 1992 and had a total cost of
approximately $2,288,800, excluding acquisition fees and miscellaneous
acquisition expenses; therefore, the Partnership sold the properties
for a total of approximately $111,200 in excess of their original
purchase prices. In March 1999, the Partnership reinvested a portion of
the net sales proceeds it received from these sales, in a Golden Corral
property located in Albany, Georgia, at an approximate cost of
$1,641,000.
3. Net Investment in Direct Financing Leases:
At December 31, 1998, the Partnership had recorded an allowance for
impairment in carrying value of $65,407 relating to the Property in
Rochester, New York, due to the tenant filing for bankruptcy. The
allowance represented the difference between the carrying value of the
property at December 31, 1998 and the estimated net realizable value
for this property. In March 1999, the Partnership sold this property
and received net sales proceeds of $1,049,999 and recorded a gain of
$19,628 for financial reporting
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Net Investment in Direct Financing Leases - Continued:
purposes, resulting in a net loss of approximately $45,800. The
building portion of this property had been classified as a direct
financing lease. In connection therewith, the gross investment (minimum
lease payments receivable and the estimated residual value), unearned
income and the allowance for impairment in carrying value relating to
the building were removed from the accounts and the gain from the sale
of the property was reflected in income (see Note 2.)
4. Merger Transaction:
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 3,700,097 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 $10.00 per APF Share, the
price paid by APF investors 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 $36,414,830 as of December 31, 1998. Legg Mason Wood
Walker, Incorporated has rendered a fairness opinion that the APF Share
consideration, payable by APF, is fair to the Partnership from a
financial point of view. 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 third 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.
<PAGE>
CNL INCOME FUND IX, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Merger Transaction - Continued:
On May 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in
connection with the proposed Merger (see Part II - Item 1. Legal
Proceedings). The general partners and APF believe that the lawsuit is
without merit and intend to defend vigorously against the claims.
Because the lawsuit was so recently filed, it is premature to further
comment on the lawsuit at this time.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION
AND RESULTS OF OPERATIONS
CNL Income Fund IX, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on April 16, 1990, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as land upon which restaurants were to be
constructed (the "Properties"), which are leased primarily to operators of
national and regional fast-food and family-style restaurant chains. The leases
generally are triple-net leases, with the lessees responsible for all repairs
and maintenance, property taxes, insurance and utilities. As of March 31, 1999,
the Partnership owned 40 Properties, which included interests in 13 Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate of the general partners as tenants-in-common.
Liquidity and Capital Resources
The Partnership generated cash from operations (which includes cash
received from tenants, distributions from joint ventures, and interest and other
income received, less cash paid for expenses) during the quarters ended March
31, 1999 and 1998, of $785,344 and $804,054, respectively. The decrease in cash
from operations for the quarter ended March 31, 1999, as compared to the quarter
ended March 31, 1998, is 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
quarter ended March 31, 1999.
During February and March 1999, the Partnership sold its Properties in
Corpus Christi, Texas and Rochester, New York, respectively, and received total
sales proceeds of $2,400,000 resulting in a total gain of $75,997 for financial
reporting purposes. These Properties were originally acquired by the Partnership
in 1991 and 1992 and had a total cost of approximately $2,288,800, excluding
acquisition fees and miscellaneous acquisition expenses; therefore, the
Partnership sold the Properties for approximately $111,200 in excess of their
original purchase prices. In March 1999, the Partnership reinvested a majority
of the net sales proceeds in a Golden Corral Property located in Albany,
Georgia, at an approximate cost of $1,641,000. The Partnership intends to
reinvest the remaining net sales proceeds in additional Properties.
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 pending the Partnership's use of such funds to pay
Partnership expenses, or to make distributions to the partners and, for net
sales proceeds, to reinvest in additional Properties. At March 31, 1999, the
Partnership had $2,044,011 invested in such short-term investments, as compared
to $1,287,379 at December 31, 1998. The increase in cash and cash equivalents
for the quarter ended March 31, 1999, is primarily attributable to the fact that
the Partnership is holding the remaining net sales proceeds relating to the
Property sales described above, pending reinvestment in additional Properties.
The funds remaining at March 31, 1999, after payment of distributions and other
liabilities, will be used to invest in additional Properties and to meet the
Partnership's working capital and other needs.
<PAGE>
Liquidity and Capital Resources - Continued
Total liabilities of the Partnership, including distributions payable,
increased to $965,376 at March 31, 1999, from $885,160 at December 31, 1998,
partially as a result of an increase in escrowed real estate taxes payable and
an increase in rents paid in advance at March 31, 1999. In addition, the
increase in liabilities at March 31, 1999 is partially a result of the
Partnership accruing transaction costs relating to the proposed merger with CNL
American Properties Fund, Inc. ("APF"), as described below. The general partners
believe that the Partnership has sufficient cash on hand to meet its current
working capital needs.
Based on current and anticipated future cash from operations, and for
the quarter ended March 31, 1998, accumulated excess operating reserves, the
Partnership declared distributions to the limited partners of $787,501 and
$857,501 for the quarters ended March 31, 1999 and 1998, respectively. This
represents distributions for the quarters ended March 31, 1999 and 1998 of $0.23
and $0.25 per unit, respectively. No distributions were made to the general
partners for the quarters ended March 31, 1999 and 1998. No amounts distributed
to the limited partners for the quarters ended March 31, 1999 and 1998, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
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.
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"). APF is a real estate investment trust
whose primary business is the ownership of restaurant properties leased on a
long-term, "triple-net" basis to operators of national and regional restaurant
chains. APF has agreed to issue shares of its common stock, par value $0.01 per
share (the "APF Shares"), as consideration for the Merger. APF has agreed to
issue 3,700,097 APF Shares which, for the purposes of valuing the merger
consideration, have been valued by APF at $10.00 per APF Share, the price paid
by APF investors 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 $36,414,830 as of December 31, 1998. Legg Mason Wood Walker,
Incorporated has rendered a fairness opinion that the APF Share consideration,
payable by APF, is fair to the Partnership from a financial point of view. 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
<PAGE>
Liquidity and Capital Resources - Continued
limited partners. At a special meeting of the partners that is expected to be
held in the third 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 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 5, 1999, four limited partners in several of the CNL Income
Funds filed a lawsuit against the general partners and APF in connection with
the proposed Merger (see Part II - Item 1. Legal Proceedings). The general
partners and APF believe that the lawsuit is without merit and intend to defend
vigorously against the claims. Because the lawsuit was so recently filed, it is
premature to further comment on the lawsuit at this time.
Results of Operations
During the quarter ended March 31, 1998, the Partnership owned and
leased 27 wholly owned Properties, and during the quarter ended March 31, 1999,
the Partnership owned and leased 28 wholly owned Properties (which included two
Properties which were sold during 1999), to operators of fast-food and
family-style restaurant chains. In connection therewith, during the quarters
ended March 31, 1999 and 1998, the Partnership earned $591,983 and $686,894,
respectively, in rental income from operating leases, earned income from direct
financing leases and contingent rental income from these Properties. The
decrease in rental, earned, and contingent rental income during the quarter
ended March 31, 1999, as compared to the quarter ended March 31, 1998, is
partially due to a decrease in rental and earned income of approximately
$44,100, as a result of the sale of two Properties, as described above in
"Liquidity and Capital Resources." The decrease was partially offset
approximately $5,000 due to the fact that the Partnership reinvested a portion
of the net sales proceeds in a Property in Albany, Georgia, during the quarter
ended March 31, 1999.
The decrease in rental, earned, and contingent rental income is also
partially attributable to a decrease of approximately $32,000 due to the fact
that during 1998, Brambury Associates, the tenant of the Property in
Williamsville, New York filed for bankruptcy, rejected the lease and ceased
making rental payments to the Partnership. The Partnership will not recognize
rental, earned, or contingent rental income until a new tenant is located or
until the Property is sold and the proceeds from such sale are reinvested in an
additional Property. The lost revenues resulting from the rejected lease could
have an adverse effect on the results of operations of the Partnership if the
Partnership is unable to re-lease the Property in a timely manner. The general
partners are currently seeking either a new tenant or purchaser for the
Property.
<PAGE>
Results of Operations - Continued
Rental, earned and contingent rental income also decreased by
approximately $15,600 during the quarter ended March 31, 1999, as compared to
the quarter ended March 31, 1998, due to the fact that during the quarter ended
March 31, 1998, the Partnership recorded additional contingent rental amounts as
a result of adjusting estimated contingent rental amounts accrued at December
1997, to actual amounts.
For the quarters ended March 31, 1999 and 1998, the Partnership also
owned and leased 13 Properties indirectly through joint venture arrangements and
one Property with an affiliate of the general partners as tenants-in-common. In
connection therewith, during the quarters ended March 31, 1999 and 1998, the
Partnership earned $135,902 and $127,808, respectively, attributable to net
income earned by these joint ventures.
Operating expenses, including depreciation and amortization expense,
were $194,671 and $117,104 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses was partially due to an
increase in depreciation expense as a result of the lease amendments requiring
the reclassification of two leases from direct financing leases to operating
leases during 1998.
Operating expenses also increased during the quarter ended March 31,
1999, due to an increase in legal fees, insurance and real estate tax expense
incurred in connection with the fact that the tenant of the Property in
Williamsville, New York filed for bankruptcy and ceased making rental payments.
The Partnership will continue to incur certain expenses such as real estate
taxes, insurance and maintenance relating to this Property until a replacement
tenant or purchaser is located. The Partnership is currently seeking either a
replacement tenant or purchaser for this Property.
The increase in operating expenses for the quarter ended March 31,
1999, as compared to March 31, 1998, is also due to the fact that the
Partnership incurred $35,275 in transaction costs related to the general
partners retaining financial and legal advisors to assist them in evaluating and
negotiating the proposed Merger with APF, as described above in "Liquidity and
Capital Resources." 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.
As a result of the sales of the Properties in Corpus Christi, Texas and
Rochester, New York, as described above in "Liquidity and Capital Resources,"
the Partnership recognized a total gain of $75,997 for financial reporting
purposes during the quarter ended March 31, 1999. No Properties were sold during
the quarter ended March 31, 1998.
<PAGE>
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. The Partnership does not have any
information or non-information technology systems. The general partners and
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
committee (the "Y2K 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 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.
<PAGE>
Year 2000 Readiness Disclosure - Continued
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 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 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 would 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 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, they 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 5, 1999, four limited partners in several of the CNL
Income Funds filed a lawsuit, Jon Hale, Mary J. Hewitt,
Charles A. Hewitt, and Gretchen M. Hewitt v. James M. Seneff,
Jr., Robert A. Bourne, CNL Realty Corporation, and CNL
American Properties Fund, Inc., Case No. CIO-99-0003561, in
the Circuit Court of the Ninth Judicial Circuit of Orange
County, Florida, alleging that the Messrs. Seneff and Bourne
and CNL Realty Corporation, as general partners of the CNL
Income Funds, breached their fiduciary duties and violated the
provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed acquisition of the
CNL Income Funds by APF. The plaintiffs are seeking
unspecified damages and equitable relief. The general partners
and APF believe that the lawsuit is without merit and intend
to defend vigorously against such claims. Because the lawsuit
was so recently filed, it is premature to further comment on
the lawsuit at this time.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
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 (filed as
Appendix B to the Prospectus Supplement for the
Registrant, constituting a part of the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund IX, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-35049 on
Form S-11 and incorporated herein by reference.)
<PAGE>
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund IX, Ltd.
(Included as Exhibit 4.6 to Post-Effective
Amendment No. 1 to Registration Statement No.
33-35049 on Form S-11 and incorporated herein by
reference.)
10.1 Management Agreement between CNL Income Fund IX,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 17,
1998, 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
Current Report on Form 8-K dated March 11, 1999 and
filed March 12, 1999, describing the proposed merger
of the Partnership with and into a subsidiary of CNL
American Properties Fund, Inc.
<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 14th day of May, 1999
CNL INCOME FUND IX, 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 IX, Ltd. at March 31, 1999, and its statement of income
for the three months then ended and is qualified in its entirety by reference to
the Form 10Q of CNL Income Fund IX, Ltd. for the three months ended March 31,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 3-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> MAR-31-1999
<CASH> 2,044,011
<SECURITIES> 0
<RECEIVABLES> 269,864
<ALLOWANCES> 208,186
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 16,595,061
<DEPRECIATION> 1,661,133
<TOTAL-ASSETS> 30,024,255
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 29,058,879
<TOTAL-LIABILITY-AND-EQUITY> 30,024,255
<SALES> 0
<TOTAL-REVENUES> 615,234
<CGS> 0
<TOTAL-COSTS> 194,671
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 632,462
<INCOME-TAX> 0
<INCOME-CONTINUING> 632,462
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 632,462
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund IX, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
