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
0-21560
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CNL Income Fund XI, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3078854
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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
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 XI, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $2,696,431 and
$2,589,785 $ 21,914,945 $ 21,683,785
Net investment in direct financing leases 7,455,352 6,786,286
Investment in joint ventures 2,759,981 2,521,613
Cash and cash equivalents 1,872,630 1,559,240
Restricted cash -- 1,640,936
Receivables, less allowance for doubtful accounts
of $869 and $5,820 36,172 132,311
Prepaid expenses 13,454 12,335
Accrued rental income 1,677,835 1,645,062
Other assets 122,024 122,024
------------------- -------------------
$ 35,852,393 $ 36,103,592
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 42,816 $ 14,461
Accrued and escrowed real estate taxes payable 16,436 15,138
Distributions payable 875,006 995,006
Due to related party 11,398 25,446
Rents paid in advance and deposits 90,907 92,069
------------------- -------------------
Total liabilities 1,036,563 1,142,120
Minority interest 503,903 503,860
Partners' capital 34,311,927 34,457,612
------------------- -------------------
$ 35,852,393 $ 36,103,592
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
--------------- --------------
<S> <C>
Revenues:
Rental income from operating leases $ 643,500 $ 675,491
Earned income from direct financing leases 235,529 207,060
Contingent rental income 20,242 19,768
Interest and other income 20,934 12,405
--------------- --------------
920,205 914,724
--------------- --------------
Expenses:
General operating and administrative 42,360 29,458
Professional services 10,838 4,952
Management fees to related party 9,476 9,342
State and other taxes 28,189 23,334
Depreciation and amortization 106,646 114,665
Transaction costs 34,967 --
--------------- --------------
232,476 181,751
--------------- --------------
Income Before Minority Interests in Income of
Consolidated Joint Ventures and Equity in
Earnings of Unconsolidated Joint Ventures 687,729 732,973
Minority Interests in Income of Consolidated
Joint Ventures (16,409 ) (17,018 )
Equity in Earnings of Unconsolidated Joint Ventures 58,001 40,001
--------------- --------------
Net Income $ 729,321 $ 755,956
=============== ==============
Allocation of Net Income:
General partners $ 7,293 $ 7,560
Limited partners 722,028 748,396
--------------- --------------
$ 729,321 $ 755,956
=============== ==============
Net Income Per Limited Partner Unit $ 0.18 $ 0.19
=============== ==============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000
=============== ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Quarter Ended Year Ended
March 31, December 31,
1999 1998
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<S> <C>
General partners:
Beginning balance $ 211,047 $ 176,232
Net income 7,293 34,815
------------------- ------------------
218,340 211,047
------------------- ------------------
Limited partners:
Beginning balance 34,246,565 34,132,000
Net income 722,028 3,774,589
Distributions ($0.22 and $0.92 per
limited partner unit, respectively) (875,006 ) (3,660,024 )
------------------- ------------------
34,093,587 34,246,565
------------------- ------------------
Total partners' capital $ 34,311,927 $ 34,457,612
=================== ==================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Quarter Ended
March 31,
1999 1998
-------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 974,168 $1,024,997
-------------- ---------------
Cash Flows from Investing Activities:
Additions to land and buildings on operating
leases (337,806 ) --
Investment in direct financing leases (694,610 ) --
Investment in joint ventures (247,286 ) --
Decrease in restricted cash 1,630,296 --
-------------- ---------------
Net cash provided by investing activities 350,594 --
-------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (995,006 ) (875,006 )
Distributions to holders of minority interests (16,366 ) (19,126 )
-------------- ---------------
Net cash used in financing activities (1,011,372 ) (894,132 )
-------------- ---------------
Net Increase in Cash and Cash Equivalents 313,390 130,865
Cash and Cash Equivalents at Beginning of Quarter 1,559,240 1,272,386
-------------- ---------------
Cash and Cash Equivalents at End of Quarter $1,872,630 $1,403,251
============== ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 875,006 $ 915,006
============== ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XI, 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 XI, Ltd. (the "Partnership") for the year ended December 31,
1998.
The Partnership accounts for its 85 percent interest in Denver Joint
Venture and its 77.33% interest in CNL/Airport Joint Venture using the
consolidation method. Minority interests represent the minority joint
venture partners' proportionate share of the equity in the Partnership's
consolidated joint ventures. All significant intercompany accounts and
transactions have been eliminated.
2. Land and Buildings on Operating Leases:
In January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the 1998 sale of the property in Nashua, New
Hampshire in a Burger King property located in Yelm, Washington, at an
approximate cost of $1,032,400. In accordance with Statement of
Financial Accounting Standards No. 13, "Accounting for Leases," the land
portion of this property was classified as an operating lease while the
building portion was classified as a capital lease.
3. Investment in Joint Ventures:
In February 1999, the Partnership reinvested a portion of the remaining
net sales proceeds it received from the 1998 sale of the property in
Nashua, New Hampshire in a joint venture arrangement, Portsmouth Joint
Venture, with CNL Income Fund XVIII, Ltd., an affiliate of the general
partners, to purchase and hold one restaurant property. As of March 31,
1999, the Partnership had contributed approximately $247,000 to the
joint venture and owned a 42.8% interest in the profits and losses of
this joint venture. The Partnership accounts for its investment in this
joint venture under the equity method since the Partnership shares
control with this affiliate.
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
3. Investment in Joint Ventures - Continued:
The following presents the combined, condensed financial information for
the joint ventures and the property held as tenants-in-common with an
affiliate at:
<TABLE>
<CAPTION>
March 31, December 31,
1999 1998
----------------- ------------------
<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $ 3,660,771 $ 3,427,681
Net investment in direct
financing lease 323,424 --
Cash 8,405 1,109
Prepaid expenses 3,230 8,290
Accrued rental income 139,279 130,585
Liabilities 155 --
Partners' capital 4,134,954 3,567,665
Revenues 111,420 399,305
Net income 83,608 300,036
</TABLE>
The Partnership recognized income totalling $58,001 and $40,001 for the
quarters ended March 31, 1999 and 1998, respectively, from these joint
ventures.
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
4,394,196 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 $43,333,961 of December
<PAGE>
CNL INCOME FUND XI, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
4. Merger Transaction - Continued:
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.
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 XI, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on August 20, 1991 to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurants, as well as properties 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
are, in general, 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 five Properties
owned by joint ventures in which the Partnership is a co-venturer and one
Property owned with an affiliate as tenants-in-common.
Liquidity and Capital Resources
The Partnership's primary source of capital for the quarters ended
March 31, 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 $974,168 and
$1,024,997 for the quarters ended March 31, 1999 and 1998, respectively. The
decrease in cash from operations for the quarter ended March 31, 1999 is
primarily a result of changes in the Partnership's working capital.
Other sources and uses of capital included the following during the
quarter ended March 31, 1999.
In January 1999, the Partnership reinvested a portion of the net sales
proceeds it received from the 1998 sale of the Property in Nashua, New Hampshire
in a Burger King Property located in Yelm, Washington, at an approximate cost of
$1,034,000. In addition, in February 1999, the Partnership reinvested a portion
of the remaining net sales proceeds in a joint venture arrangement, Portsmouth
Joint Venture, with CNL Income Fund XVIII, Ltd., an affiliate of the general
partners, to purchase and hold one restaurant Property, at a total cost of
approximately $584,100. The Partnership contributed approximately $247,300 and
had a 42.8% interest in the profits and losses of the joint venture as of March
31, 1999. The Partnership intends to invest the remaining net sales proceeds in
a replacement Property.
Currently, rental income from the Partnership's Properties is 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. At March 31, 1999, the Partnership had $1,872,630
invested in such short-term investments, as compared to $1,559,240 at December
31, 1998. The increase in cash and cash equivalents during the quarter ended
March 31, 1999, is primarily attributable to the release of a portion of the
funds held in escrow at December 31, 1998 relating to the sale of the Property
in Nashua, New Hampshire during 1998. The funds remaining at March 31, 1999,
after payment of distributions and other liabilities, will be used to invest in
an additional Property 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,
decreased to $1,036,563 at March 31, 1999 from $1,142,120 at December 31, 1998
primarily as a result of the Partnership accruing a special distribution payable
to the limited partners of $120,000, representing cumulative excess operating
reserves, at December 31, 1998, which was paid in January 1999. The general
partners believe that the Partnership has sufficient cash on hand to meet its
current working capital needs.
Based on cash from operations, and for the quarter ended March 31,
1998, accumulated excess operating reserves, the Partnership declared
distributions to limited partners of $875,006 and $915,006 for the quarters
ended March 31, 1999 and 1998, respectively. This represents distributions of
$0.22 and $0.23 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 CNL American Properties Fund, Inc. ("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 4,394,196 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 $43,333,961 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
<PAGE>
Liquidity and Capital Resources - Continued
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.
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 quarters ended March 31, 1999 and 1998, the Partnership and
its consolidated joint ventures, Denver Joint Venture and CNL/Airport Joint
Venture, owned and leased 36 wholly owned Properties (which included one
Property in Nashua, New Hampshire, which was sold in October 1998) to operators
of fast-food and family-style restaurant chains. In connection therewith, during
the quarters ended March 31, 1999 and 1998, the Partnership, Denver Joint
Venture and CNL/Airport Joint Venture earned $879,029 and $882,551,
respectively, in rental income from operating leases and earned income from
direct financing leases. In addition, during the quarters ended March 31, 1999
and 1998, the Partnership earned $20,242 and $19,768, respectively, in
contingent rental income.
In addition, during the quarter ended March 31, 1998, the Partnership
owned and leased two Properties indirectly through other joint venture
arrangements and owned and leased one Property with an affiliate as
tenants-in-common, and during the quarter ended March 31, 1999 the Partnership
owned and leased three Properties indirectly through other joint venture
arrangements and owned and leased one Property with and affiliate as
tenants-in-common. In connection therewith, during the quarters ended March 31,
1999 and 1998, the Partnership earned $58,001 and $40,001, respectively,
attributable to net income earned by unconsolidated joint ventures. Net income
earned by joint ventures during the quarter ended March 31, 1998 was less than
that earned during the quarter ended March 31, 1999, primarily due to the fact
that Ashland Joint Venture adjusted estimated contingent rental amounts accrued
at December 31, 1997 to actual amounts during the quarter ended March 31, 1998.
<PAGE>
Results of Operations - Continued
Operating expenses, including depreciation and amortization expense,
were $232,476 and $181,751 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during 1999, as compared to
1998, is primarily a result of the Partnership incurring $34,967 in transaction
costs relating 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.
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.
<PAGE>
Year 2000 Readiness Disclosures - Continued
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 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.
<PAGE>
Year 2000 Readiness Disclosures - Continued
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. Defaults 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 XI, Ltd. (Included as Exhibit
3.2 to Registration Statement No. 33-43278 on
Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XI, Ltd. (Included Exhibit
3.2 to Registration Statement 33-43278 on Form
S-11 and incorporated herein by reference.)
<PAGE>
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XI, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on April
15, 1993, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XI,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on April 15,
1993, and incorporated herein by reference.)
10.2 Assignment of Management Agreement from CNL
Investment Company to CNL 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 XI, 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 XI, 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 XI, 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> 1,872,630
<SECURITIES> 0
<RECEIVABLES> 37,041
<ALLOWANCES> 869
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,611,376
<DEPRECIATION> 2,696,431
<TOTAL-ASSETS> 35,852,393
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 34,311,927
<TOTAL-LIABILITY-AND-EQUITY> 35,852,393
<SALES> 0
<TOTAL-REVENUES> 920,205
<CGS> 0
<TOTAL-COSTS> 232,476
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 729,321
<INCOME-TAX> 0
<INCOME-CONTINUING> 729,321
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 729,321
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XI, Ltd. has an
unclassified balance sheet; therefore no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
