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
---------------------------
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
0-21558
------------------------------
CNL Income Fund XII, Ltd.
- --------------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
Florida 59-3078856
- -------------------------------------------- ---------------------------
(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
---------------------------
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 1
Condensed Statements of Income 2
Condensed Statements of Partners' Capital 3
Condensed Statements of Cash Flows 4
Notes to Condensed Financial Statements 5-6
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations 7-12
Item 3. Quantitative and Qualitative Disclosures About
Market Risk 12
Part II
Other Information 13-14
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
<S> <C>
March 31, December 31,
1999 1998
---------------- --------------
ASSETS
Land and buildings on operating leases,
less accumulated depreciation of
$1,879,307 and $1,795,099 and allowance
for loss on building of $206,535 in
1999 and 1998 $ 20,619,125 $ 20,703,333
Net investment in direct financing leases 12,425,957 12,471,978
Investment in joint ventures 2,652,267 2,522,004
Cash and cash equivalents 2,000,725 2,362,980
Receivables, less allowance for doubtful accounts
of $3,990 and $214,633 43,584 16,862
Prepaid expenses 17,024 7,038
Lease costs, less accumulated amortization
of $3,754 and $3,256 25,799 26,297
Accrued rental income, less allowance for doubtful
accounts of $6,323 in 1999 and 1998 2,574,477 2,524,406
------------------- -------------------
$ 40,358,958 $ 40,634,898
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 37,483 $ 21,195
Accrued and escrowed real estate taxes payable 17,146 10,137
Distributions payable 956,252 1,091,252
Due to related party 11,351 24,025
Rents paid in advance and deposits 39,624 97,448
------------------- -------------------
Total liabilities 1,061,856 1,244,057
Commitment (Note 3)
Partners' capital 39,297,102 39,390,841
------------------- -------------------
$ 40,358,958 $40,634,898
=================== ===================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
Quarter Ended
March 31,
1999 1998
-------------- ---------------
Revenues:
Rental income from operating leases $ 604,884 $ 626,546
Earned income from direct financing leases 376,334 407,674
Contingent rental income 2,371 7,422
Interest and other income 19,755 15,252
-------------- ---------------
1,003,344 1,056,894
-------------- ---------------
Expenses:
General operating and administrative 47,284 34,465
Professional services 11,141 12,986
Bad debt expense -- 8,968
Management fees to related party 10,530 10,580
Real estate taxes 2,125 --
State and other taxes 20,764 17,248
Depreciation and amortization 84,706 79,994
Transaction costs 35,419 --
-------------- ---------------
211,969 164,241
-------------- ---------------
Income Before Equity in Earnings of Joint Ventures 791,375 892,653
Equity in Earnings of Joint Ventures 71,138 65,650
-------------- ---------------
Net Income $ 862,513 $ 958,303
============== ===============
Allocation of Net Income:
General partners $ 8,625 $ 9,583
Limited partners 853,888 948,720
-------------- ---------------
$ 862,513 $ 958,303
============== ===============
Net Income Per Limited Partner Unit $ 0.19 $ 0.21
============== ===============
Weighted Average Number of Limited
Partner Units Outstanding 4,500,000 4,500,000
============== ===============
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
Quarter Ended Year Ended
March 31, December 31,
1999 1998
------------------- ------------------
General partners:
Beginning balance $ 223,305 $ 192,411
Net income 8,625 30,894
------------------- ------------------
231,930 223,305
------------------- ------------------
Limited partners:
Beginning balance 39,167,536 40,224,901
Net income 853,888 2,902,643
Distributions ($0.21 and $0.88 per
limited partner unit, respectively) (956,252 ) (3,960,008 )
------------------- ------------------
39,065,172 39,167,536
------------------- ------------------
Total partners' capital $ 39,297,102 $ 39,390,841
=================== ==================
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
Quarter Ended
March 31,
1999 1998
---------------- ---------------
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $ 853,445 $1,129,927
---------------- ---------------
Cash Flows from Investing Activities:
Investment in joint venture (124,448 ) --
Payment of lease costs -- (3,500 )
---------------- ---------------
Net cash used in investing activities (124,448 ) (3,500 )
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,091,252 ) (956,252 )
---------------- ---------------
Net cash used in financing activities (1,091,252 ) (956,252 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash
Equivalents (362,255 ) 170,175
Cash and Cash Equivalents at Beginning of Quarter 2,362,980 1,706,415
---------------- ---------------
Cash and Cash Equivalents at End of Quarter $2,000,725 $1,876,590
================ ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
quarter $ 956,252 $ 956,252
================ ===============
See accompanying notes to condensed financial statements.
</TABLE>
<PAGE>
CNL INCOME FUND XII, 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 XII, Ltd. (the "Partnership") for the year ended December
31, 1998.
2. 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 4,768,496 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 $46,951,127 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
<PAGE>
CNL INCOME FUND XII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters Ended March 31, 1999 and 1998
2. Merger Transaction - Continued:
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
transactions 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.
3. Commitment:
In March 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in
Morganton, North Carolina. The general partners believe that the
anticipated sales price will exceed the Partnership's cost attributable
to the property; however, as of May 13, 1999, the sale had not
occurred.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND
RESULTS OF OPERATIONS
CNL Income Fund XII, 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 generally 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 48 Properties, which included interests in five Properties
owned by joint ventures in which the Partnership is a co-venturer.
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 $853,445 and
$1,129,927, for the quarters ended March 31, 1999 and 1998, 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.
In August 1998, the Partnership entered into a joint venture
arrangement, Columbus Joint Venture, with affiliates of the general partners, to
construct and hold one restaurant Property. As of March 31, 1999, the
Partnership had contributed approximately $239,700, of which approximately
$124,400 was contributed during the quarter ended March 31, 1999, to the joint
venture to purchase land and pay for construction costs relating to the joint
venture. As of March 31, 1999, the Partnership owned an approximate 28 percent
interest in the profits and losses of the joint venture.
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 $2,000,725
invested in such short-term investments, as compared to $2,362,980 at December
31, 1998. The decrease in cash and cash equivalents for the quarter ended March
31, 1999, is partially attributable to the payment of a special distribution to
the limited partners of $135,000 in January 1999 of cumulative excess operating
reserves. In addition, the decrease is partially due to the Partnership funding
additional amounts to Columbus Joint Venture to pay construction costs relating
to the joint venture. The funds remaining at March 31, 1999, after payment of
distributions and other liabilities, will be used to acquire 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 decreased to $1,061,856 at March
31, 1999, from $1,244,057 at December 31, 1998, primarily as a result of the
Partnership accruing a special distribution payable to the limited partners of
$135,000 at December 31, 1998, as described above, which was paid in January
1999. The decrease is also partially attributable to a decrease in rents paid in
advance at March 31, 1999. The general partners believe that the Partnership has
sufficient cash on hand to meet its current working capital needs.
In March 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's Property in Morganton,
North Carolina. The general partners believe that the anticipated sales price
will exceed the Partnership's cost attributable to the Property; however, as of
May 13, 1999, the sale had not occurred.
Based on current cash from operations, and for the quarter ended March
31, 1999, future cash from operations, the Partnership declared distributions to
the limited partners of $956,252 for each of the quarters ended March 31, 1999
and 1998. This represents distributions for each applicable quarter of $0.21 per
unit. 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 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 4,768,496 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 $46,951,127 as of
<PAGE>
Liquidity and Capital Resources - Continued
- -------------------------------------------
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.
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 44 wholly owned Properties (which included one Property in Monroe, North
Carolina which was sold in December 1998), and during the quarter ended March
31, 1999, the Partnership owned and leased 43 wholly owned Properties 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 $981,218 and $1,034,220, respectively, in rental income from operating
leases and earned income from direct financing leases from these Properties.
Rental and earned income decreased due to the fact that in June 1998, Long John
Silver's, Inc. filed for bankruptcy and rejected the leases relating to three of
the eight Properties that it leased. As a result, the tenant ceased making
rental payments on the three rejected leases. The Partnership has continued
receiving rental payments relating to the five leases not rejected by the
tenant. In December 1998, the Partnership sold one of the vacant Properties and
intends to reinvest the net sales proceeds from the sale of this Property in an
additional Property. The Partnership will not recognize any rental and earned
income from the two remaining vacant Properties until new tenants for these
Properties are located, or until the Properties are sold and the proceeds from
such sales are reinvested in additional Properties. The general partners are
currently seeking either new tenants or buyers for the two remaining vacant
Properties. While Long John Silver's, Inc. has not rejected or affirmed the
remaining five leases, there can be no assurance that some or all of the leases
will not be rejected in the future. The lost revenues resulting from the two
remaining vacant Properties, and the possible rejection of the remaining five
leases could have an adverse effect on the results of operations of the
Partnership, if the Partnership is not able to re-lease these Properties in a
timely manner.
<PAGE>
Results of Operations - Continued
- ---------------------------------
In addition, during the quarter ended March 31, 1998, the Partnership
owned and leased four Properties indirectly through joint venture arrangements
and during the quarter ended March 31, 1999, the Partnership owned and leased
five Properties indirectly through joint venture arrangements. In connection
therewith, during the quarters ended March 31, 1999 and 1998, the Partnership
earned $71,138 and $65,650, respectively, attributable to net income earned by
joint ventures. The increase in net income earned by joint ventures during the
quarter ended March 31, 1999, is primarily due to the fact that in August 1998,
the Partnership invested in Columbus Joint Venture, as described above in
"Liquidity and Capital Resources."
Operating expenses, including depreciation and amortization expense,
were $211,969 and $164,241 for the quarters ended March 31, 1999 and 1998,
respectively. The increase in operating expenses during the quarter ended March
31, 1999, as compared to the quarter ended March 31, 1998, was partially a
result of the Partnership incurring $35,419 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.
In addition, the increase in operating expenses during the quarter
ended March 31, 1999, is partially attributable to the fact that the Partnership
accrued insurance and real estate tax expenses on the two remaining rejected and
vacant Properties as a result of Long John Silver's, Inc. filing for bankruptcy,
as described above. In addition, the increase in operating expenses during the
quarter ended March 31, 1999, is partially attributable to an increase in
depreciation expense due to the fact that during 1998, the Partnership
reclassified these assets from net investment in direct financing leases to land
and buildings on operating leases. The Partnership will continue to incur
certain expenses, such as real estate taxes, insurance, and maintenance relating
to the two remaining, vacant Properties until new tenants or buyers are located.
The Partnership is currently seeking either new tenants or purchasers for these
two Properties. In addition, the Partnership will incur certain expenses such as
real estate taxes, insurance, and maintenance relating to one or more of the
five Properties still leased by Long John Silver's, Inc. if one or more of the
leases are rejected.
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
<PAGE>
Year 2000 Readiness Disclosure - Continued
- ------------------------------------------
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.
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.
<PAGE>
Year 2000 Readiness Disclosure - Continued
- ------------------------------------------
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 XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-11 and
incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership of CNL
Income Fund XII, Ltd. (Included as Exhibit 3.2 to
Registration Statement No. 33-43278-01 on Form S-1 and
incorporated herein by reference.)
<PAGE>
4.2 Amended and Restated Agreement of Limited Partnership
of CNL Income Fund XII, 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 XII, 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 Income Fund Advisors, Inc. (Included as
Exhibit 10.2 to Form 10-K filed with the Securities and
Exchange Commission on March 31, 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.
By: CNL INCOME FUND XII, LTD.
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 XII, 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 10-Q of CNL Income Fund XII, 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> 2,000,725
<SECURITIES> 0
<RECEIVABLES> 47,574
<ALLOWANCES> 3,990
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 22,498,432
<DEPRECIATION> 1,879,307
<TOTAL-ASSETS> 40,358,958
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 39,297,102
<TOTAL-LIABILITY-AND-EQUITY> 40,358,958
<SALES> 0
<TOTAL-REVENUES> 1,003,344
<CGS> 0
<TOTAL-COSTS> 211,969
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 862,513
<INCOME-TAX> 0
<INCOME-CONTINUING> 862,513
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 862,513
<EPS-PRIMARY> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
