FORM 10-Q
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
(X) QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the quarterly period ended June 30, 1999
--------------------------------------------------------------------------
OR
( ) TRANSITION REPORT PURSUANT TO SECTION 13 OR 15 (d)
OF THE SECURITIES EXCHANGE ACT of 1934
For the transition period from _____________________ to ____________________
Commission file number
0-26216
---------------------------------------
CNL Income Fund XV, Ltd.
----------------------------------------------------------------------------
(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3198888
- ------------------------------------------------------ ------------------------------------------------
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
400 East South Street
Orlando, Florida 32801
- ------------------------------------------------------ ------------------------------------------------
(Address of principal executive offices) (Zip Code)
Registrant's telephone number
(including area code) (407) 650-1000
------------------------------------------------
</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
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 XV, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
------------------- -------------------
<S> <C>
ASSETS
Landand buildings on operating leases,
less accumulated depreciation of
$1,230,329 and $1,080,652, respectively
and allowance for loss on land
and building of $413,353 and $280,907,
respectively $ 22,891,786 $ 23,173,909
Net investment in direct financing leases 7,548,173 7,589,694
Investment in joint ventures 2,726,054 2,743,450
Cash and cash equivalents 1,083,203 1,214,444
Receivables, less allowance for doubtful
accounts of $849 in 1999 and 1998 43,835 62,465
Prepaid expenses 19,252 9,627
Organization costs, less accumulated
amortization of $10,000 and $9,549, respectively -- 451
Accrued rental income 1,740,806 1,565,014
------------------- -------------------
$ 36,053,109 $ 36,359,054
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 81,072 $ 592
Accrued and escrowed real estate taxes payable 29,799 16,019
Distributions payable 800,000 800,000
Due to related party 36,701 23,337
Rents paid in advance and deposits 37,764 53,206
------------------- -------------------
Total liabilities 985,336 893,154
Commitments and Contingencies (Note 3)
Partners' capital 35,067,773 35,465,900
------------------- -------------------
$ 36,053,109 $ 36,359,054
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF INCOME
<TABLE>
<CAPTION>
Quarter Ended Six Months Ended
June 30, June 30,
1999 1998 1999 1998
------------ ------------ ------------- -------------
<S> <C>
Revenues:
Rental income from operating leases $ 594,419 $ 618,834 $ 1,188,465 $ 1,250,545
Adjustments to accrued rental income -- (265,192 ) -- (265,192 )
Earned income from direct financing leases 209,566 243,835 419,728 507,064
Interest and other income 9,010 19,451 20,114 39,637
------------ ------------ ------------- -------------
812,995 616,928 1,628,307 1,532,054
------------ ------------ ------------- -------------
Expenses:
General operating and administrative 34,365 35,368 74,682 66,963
Professional services 13,617 8,708 22,221 13,509
Management fees to related party 8,093 8,525 16,144 17,295
Real estate taxes 8,030 2,646 16,720 2,646
State and other taxes 9,114 7,620 30,305 27,763
Depreciation and amortization 75,048 62,100 150,547 124,200
Transaction costs 74,477 -- 107,297 --
------------ ------------ ------------- -------------
222,744 124,967 417,916 252,376
------------ ------------ ------------- -------------
Income Before Equity in Earnings of Joint Ventures
and Provision for Loss on Building 590,251 491,961 1,210,391 1,279,678
Equity in Earnings of Joint Ventures 62,027 60,549 123,928 120,294
Provision for Loss on Building (132,446 ) -- (132,446 ) --
------------ ------------ ------------- -------------
Net Income $ 519,832 $ 552,510 $ 1,201,873 $ 1,399,972
============ ============ ============= =============
Allocation of Net Income:
General partners $ 5,996 $ 5,525 $ 12,817 $ 14,000
Limited partners 513,836 546,985 1,189,056 1,385,972
------------ ------------ ------------- -------------
$ 519,832 $ 552,510 $ 1,201,873 $ 1,399,972
============ ============ ============= =============
Net Income Per Limited Partner Unit $ 0.13 $ 0.14 $ 0.30 $ 0.35
============ ============ ============= =============
Weighted Average Number of Limited Partner
Units Outstanding 4,000,000 4,000,000 4,000,000 4,000,000
============ ============ ============= =============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF PARTNERS' CAPITAL
<TABLE>
<CAPTION>
Six Months Ended Year Ended
June 30, December 31,
1999 1998
------------------------ ------------------------
<S> <C>
General partners:
Beginning balance $ 145,629 $ 117,411
Net income 12,817 28,218
------------------------ ------------------------
158,446 145,629
------------------------ ------------------------
Limited partners:
Beginning balance 35,320,271 36,105,992
Net income 1,189,056 2,614,279
Distributions ($0.40 and $0.85 per
limited partner unit, respectively) (1,600,000 ) (3,400,000 )
------------------------ ------------------------
34,909,327 35,320,271
------------------------ ------------------------
Total partners' capital $ 35,067,773 $ 35,465,900
======================== ========================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
<TABLE>
<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ----------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,468,759 $1,710,905
---------------- ----------------
Cash Flows from Investing Activities:
Investment in joint venture -- (207,986 )
---------------- ----------------
Net cash used in investing activities -- (207,986 )
---------------- ----------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,600,000 ) (1,800,000 )
---------------- ----------------
Net cash used in financing activities (1,600,000 ) (1,800,000 )
---------------- ----------------
Net Decrease in Cash and Cash Equivalents (131,241 ) (297,081 )
Cash and Cash Equivalents at Beginning of Period 1,214,444 1,614,708
---------------- ----------------
Cash and Cash Equivalents at End of Period $1,083,203 $1,317,627
================ ================
Supplemental Schedule of Non-Cash Financing
Activities:
Distributions declared and unpaid at end of
period $ 800,000 $ 800,000
================ ================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
1. Basis of Presentation:
The accompanying unaudited condensed financial statements have been
prepared in accordance with the instructions to Form 10-Q and do not
include all of the information and note disclosures required by
generally accepted accounting principles. The financial statements
reflect all adjustments, consisting of normal recurring adjustments,
which are, in the opinion of management, necessary to a fair statement
of the results for the interim periods presented. Operating results for
the quarter and six months ended June 30, 1999, may not be indicative
of the results that may be expected for the year ending December 31,
1999. Amounts as of December 31, 1998, included in the financial
statements, have been derived from audited financial statements as of
that date.
These unaudited financial statements should be read in conjunction with
the financial statements and notes thereto included in Form 10-K of CNL
Income Fund XV, Ltd. (the "Partnership") for the year ended December
31, 1998.
2. Land and Building on Operating Leases:
At June 30, 1999, the Partnership recorded a provision for loss on
building in the amount of $132,446 for financial reporting purposes
relating the Long John Silver's property in Gastonia, North Carolina.
The tenant of this property filed for bankruptcy and ceased payment of
rents under the terms of its lease agreement. The allowance represents
the difference between the carrying value of the property at June 30,
1999 and the estimated net sales proceeds from the sale of the property
based on a purchase and sales contract with an unrelated third party
(see Note 4).
3. Commitments and Contingencies:
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with CNL American Properties Fund, Inc. ("APF"), pursuant to
which the Partnership would be merged with and into a subsidiary of APF
(the "Merger"). As consideration for the Merger, APF has agreed to
issue 1,866,951 shares of its common stock, par value $0.01 per share
(the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the
price paid by APF investors (after an adjustment for a one for two
reverse stock split effective June 3, 1999) in three previous public
offerings, the most recent of which was completed in December 1998. In
order to assist the general partners in evaluating the proposed merger
consideration, the general partners retained Valuation Associates, a
nationally recognized real estate appraisal firm, to appraise the
Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other
<PAGE>
CNL INCOME FUND XV, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS
Quarters and Six Months Ended June 30, 1999 and 1998
3. Commitments and Contingencies - Continued:
assets were valued on a going concern basis (meaning the Partnership
continues unchanged) at $36,726,950 as of December 31, 1998. The APF
Shares are expected to be listed for trading on the New York Stock
Exchange concurrently with the consummation of the Merger, and
therefore, would be freely tradable at the option of the former limited
partners. At a special meeting of the partners that is expected to be
held in the fourth quarter of 1999, limited partners holding in excess
of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If
the limited partners at the special meeting approve the Merger, APF
will own the properties and other assets of the Partnership. The
general partners intend to recommend that the limited partners of the
Partnership approve the Merger. In connection with their
recommendation, the general partners will solicit the consent of the
limited partners at the special meeting. If the limited partners reject
the Merger, the Partnership will bear the portion of the transaction
costs based upon the percentage of "For" votes and the general partners
will bear the portion of such transaction costs based upon the
percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners and APF in connection with the proposed Merger. The general
partners and APF believe that the lawsuits are without merit and intend
to defend vigorously against the claims. See Part II - Item 1. Legal
Proceedings.
In June 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's property in
Gastonia, North Carolina. At June 30, 1999, the Partnership established
a provision for loss on building related to the anticipated sale of
this property (see Note 2). As of August 6, 1999, the sale had not
occurred.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XV, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on September 2, 1993, 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 lessee responsible for all repairs and
maintenance, property taxes, insurance and utilities. As of June 30, 1999, the
Partnership owned 50 Properties, which included interests in six Properties
owned by a joint venture in which the Partnership is a co-venturer and two
Properties owned with affiliates of the general partners as tenants-in-common.
Capital Resources
The Partnership's primary source of capital for the six months ended
June 30, 1999 and 1998 was cash from operations (which includes cash received
from tenants, distributions from joint ventures, and interest and other income
received, less cash paid for expenses). Cash from operations was $1,468,759 and
$1,710,905 for the six months ended June 30, 1999 and 1998, respectively. The
decrease in cash from operations for the six months ended June 30, 1999, as
compared to the six months ended June 30, 1998, was primarily a result of
changes in income and expenses as described in "Results of Operations" below and
changes in the Partnership's working capital.
Currently, cash reserves and rental income from the Partnership's
Properties are invested in money market accounts or other short-term, highly
liquid investments such as demand deposits at commercial banks, certificates of
deposit, and money market accounts with less than a 30-day maturity date,
pending the Partnership's use of such funds to pay Partnership expenses or to
make distributions to the partners. At June 30, 1999, the Partnership had
$1,083,203 invested in such short-term investments, as compared to $1,214,444 at
December 31, 1998. The funds remaining at June 30, 1999, after payment of
distributions and other liabilities, will be used meet the Partnership's working
capital and other needs.
Short-Term Liquidity
The Partnership's short-term liquidity requirements consist primarily
of the operating expenses of the Partnership.
The Partnership's investment strategy of acquiring Properties for cash
and leasing them under triple-net leases to operators who generally meet
specified financial standards minimizes the Partnership's operating expenses.
The general partners believe that the leases will continue to generate cash flow
in excess of operating expenses.
The general partners have the right, but not the obligation, to make
additional capital contributions if they deem it appropriate in connection with
the operations of the Partnership.
<PAGE>
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on current and anticipated future cash from operations, and for the six
months ended June 30, 1998, accumulated excess operating reserves, the
Partnership declared distributions to limited partners of $1,600,000 and
$1,800,000 for the six months ended June 30, 1999 and 1998, respectively
($800,000 for each of the quarters ended June 30, 1999 and 1998). This
represents distributions of $0.40 and $0.45 per unit for the six months ended
June 30, 1999 and 1998, respectively ($0.20 for each of the quarters ended June
30, 1999 and 1998). No distributions were made to the general partners for the
quarters and six months ended June 30, 1999 and 1998. No amounts distributed to
the limited partners for the six months ended June 30, 1999 and 1998, are
required to be or have been treated by the Partnership as a return of capital
for purposes of calculating the limited partners' return on their adjusted
capital contributions. The Partnership intends to continue to make distributions
of cash available for distribution to the limited partners on a quarterly basis.
Total liabilities of the Partnership, including distributions payable,
increased to $985,336 at June 30, 1999, from $893,154 at December 31, 1998,
primarily as 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.
In June 1999, the Partnership entered into an agreement with an
unrelated third party to sell the Long John Silver's Property in Gastonia, North
Carolina. At June 30, 1999, the Partnership established a provision for loss on
building and related to the anticipated sale of this Property. As of August 6,
1999, the sale had not occurred.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During each of the six months ended June 30, 1999 and 1998, the
Partnership owned and leased 42 wholly owned Properties to operators of
fast-food and family-style restaurant chains. During the six months ended June
30, 1999 and 1998, the Partnership earned $1,608,193 and $1,492,417,
respectively, in rental income from operating leases (net of adjustments to
accrued rental income) and earned income from direct financing leases from these
Properties, $803,985 and $597,477 of which was earned during the quarters ended
June 30, 1999 and 1998, respectively. Rental and earned income was lower during
the quarter and six months ended June 30, 1998, as compared to the quarter and
six months ended June 30, 1999, primarily due to the fact that in June 1998,
Long John Silver's, Inc. filed for bankruptcy and rejected the leases relating
to four of the eight Properties. As a result, during the quarter and six months
ended June 30, 1998, the Partnership wrote off accrued rental income (non-cash
accounting adjustment relating to the straight-lining of future scheduled rent
increases over the lease term in accordance with generally accepted accounting
principles) relating to these Properties. No amounts were written off during the
quarter and six months ended June 30, 1999. The effect from the write-off
<PAGE>
of accrued rental income was partially offset by the fact that the Partnership
recorded rental and earned income during the quarter and six months ended June
30, 1998, prior to the tenant vacating the Properties in June 1998. The
Partnership has continued receiving rental payments relating to the four leases
not rejected by the tenant. In May 1999, the Partnership re-leased one of the
Properties with rental payments beginning in July 1999. The Partnership will not
recognize rental and earned income from the three remaining Properties with
rejected leases 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 purchasers for the three remaining Properties with rejected leases.
While Long John Silver's, Inc. has not rejected or affirmed the remaining four
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 four leases that
were rejected, as described above, and the lost revenues that would result in
the event the remaining four leases are rejected could have an adverse effect on
the results of operations of the Partnership if the Partnership is unable to
re-lease these Properties in a timely manner.
During the six months ended June 30, 1999 and 1998, the Partnership
earned $20,114 and $39,637, respectively, in interest and other income, $9,010
and $19,451 of which was earned during the quarters ended June 30, 1999 and
1998, respectively. The decrease in interest and other income during the quarter
and six months ended June 30, 1999, as compared to the quarter and six months
ended June 30, 1998, was primarily attributable to a decrease in cash and cash
equivalents related to the fact that, in June 1998, Long John Silver's, Inc.
filed for bankruptcy and rejected the leases relating to four of the eight
Properties they lease. As a result, this tenant ceased making rental payments on
the four rejected leases, as described above.
For the quarter and six months ended June 30, 1999 and 1998, the
Partnership also owned and leased six Properties indirectly through one joint
venture arrangement and two Properties as tenants-in-common with affiliates of
the general partners. In connection with these joint venture arrangements,
during the six months ended June 30, 1999 and 1998, the Partnership earned
$123,928 and $120,294, respectively, $62,027 and $60,549 of which was earned
during the quarters ended June 30, 1999 and 1998, respectively.
Operating expenses, including depreciation and amortization expense,
were $417,916 and $252,376 for the six months ended June 30, 1999 and 1998,
respectively, $222,744 and $124,967 of which was incurred during the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
during the quarter and six months ended June 30, 1999, as compared to the
quarter and six months ended June 30, 1998, was partially attributable to the
fact that the Partnership accrued insurance and real estate taxes as a result of
Long John Silver's, Inc. filing for bankruptcy and rejecting the leases relating
to four Properties in June 1998. In addition, the increase in operating expenses
was partially attributable to an increase in depreciation expense due to the
fact that during the year ended December 31, 1998 the Partnership reclassified
these assets from net investment in direct financing leases to land and
buildings on operating leases. In May 1999, the Partnership re-leased one of the
Properties with a rejected lease. The Partnership will continue to incur certain
expenses, such as real estate taxes, insurance and maintenance relating to the
Properties with rejected leases until replacement tenants or purchasers are
located. The Partnership is currently seeking either replacement tenants
<PAGE>
or purchasers for these Properties. In addition, the Partnership will incur
certain expenses such as real estate taxes, insurance and maintenance relating
to one or more of the four Properties still leased by Long John Silver's, Inc.
if one or more of the leases are rejected.
The increase in operating expenses for the quarter and six months ended
June 30, 1999 was also partially due to the fact that the Partnership incurred
$74,477 and $107,297 in transaction costs for the quarter and six months ended
June 30, 1999, respectively, related to the general partners retaining financial
and legal advisors to assist them in evaluating and negotiating the proposed
Merger with APF, as described below. If the limited partners reject the Merger,
the Partnership will bear the portion of the transaction costs based upon the
percentage of "For" votes and the general partners will bear the portion of such
transaction costs based upon the percentage of "Against" votes and abstentions.
At June 30, 1999, the Partnership recorded a provision for loss on
building in the amount of $132,446 for financial reporting purposes relating to
a Long John Silver's Property in Gastonia, North Carolina, the lease for which
was rejected by the tenant in June 1998, as described above. The tenant of this
Property filed for bankruptcy and ceased payment of rents under the terms of its
lease agreement. The impairment represents the difference between the carrying
value of the Property at June 30, 1999 and the estimated net sales proceeds from
the sale of the Property based on a purchase and pending sales contract with an
unrelated third party.
Proposed Merger
On March 11, 1999, the Partnership entered into an Agreement and Plan
of Merger with APF, pursuant to which the Partnership would be merged with and
into a subsidiary of APF (the "Merger"). As consideration for the Merger, APF
has agreed to issue 1,866,951 shares of its common stock, par value $0.01 per
share (the "APF Shares") which, for the purposes of valuing the merger
consideration, have been valued by APF at $20.00 per APF Share, the price paid
by APF investors (after an adjustment for a one for two reverse stock split
effective June 3, 1999) in three previous public offerings, the most recent of
which was completed in December 1998. In order to assist the general partners in
evaluating the proposed merger consideration, the general partners retained
Valuation Associates, a nationally recognized real estate appraisal firm, to
appraise the Partnership's restaurant property portfolio. Based on Valuation
Associates' appraisal, the Partnership's property portfolio and other assets
were valued on a going concern basis (meaning the Partnership continues
unchanged) at $36,726,950 as of December 31, 1998. The APF Shares are expected
to be listed for trading on the New York Stock Exchange concurrently with the
consummation of the Merger, and therefore, would be freely tradable at the
option of the former limited partners. At a special meeting of the partners that
is expected to be held in the fourth quarter of 1999, limited partners holding
in excess of 50% of the Partnership's outstanding limited partnership interests
must approve the Merger prior to consummation of the transaction. If the limited
partners at the special meeting approve the Merger, APF will own the properties
and other assets of the Partnership. The general partners intend to recommend
that the limited partners of the Partnership approve the Merger. In connection
with their recommendation, the general partners will solicit the consent of the
limited partners at the special
<PAGE>
meeting. If the limited partners reject the Merger, the Partnership will bear
the portion of the transaction costs based upon the percentage of "For" votes
and the general partners will bear the portion of such transaction costs based
upon the percentage of "Against" votes and abstentions.
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in connection with
the proposed Merger. On July 8, 1999, the plaintiffs amended the complaint to
add three additional limited partners as plaintiffs. Additionally, on June 22,
1999, a limited partner in certain of the CNL Income Funds served a lawsuit
against the general partners, APF and CNL Fund Advisors, Inc. and certain of its
affiliates in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend vigorously
against the claims. See Part II - Item 1. Legal Proceedings.
Year 2000 Readiness Disclosure
The Year 2000 problem concerns the inability of information and
non-information technology systems to properly recognize and process date
sensitive information beyond January 1, 2000. As of June 30, 1999 the
Partnership did not have any information or non-information technology systems.
The general partners and certain of the affiliates of the general partners
provide all services requiring the use of information and non-information
technology systems pursuant to a management agreement with the Partnership. The
information technology system of the affiliates of the general partners consists
of a network of personal computers and servers built using hardware and software
from mainstream suppliers. The non-information technology systems of the
affiliates of the general partners are primarily facility related and include
building security systems, elevators, fire suppressions, HVAC, electrical
systems and other utilities. The affiliates of the general partners have no
internally generated programmed software coding to correct because substantially
all of the software utilized by the general partners and affiliates is purchased
or licensed from external providers. The maintenance of non-information
technology systems at the Partnership's Properties is the responsibility of the
tenants of the Properties in accordance with the terms of the Partnership's
leases.
In early 1998, the general partners and affiliates formed a Year 2000
team, for the purpose of identifying, understanding and addressing the various
issues associated with the Year 2000 problem. The Y2K Team consists of the
general partners and members from certain of the affiliates of the general
partners, including representatives from senior management, information systems,
telecommunications, legal, office management, accounting and property
management. The Y2K Team's initial step in assessing the Partnership's Year 2000
readiness consists of identifying any systems that are date-sensitive and,
accordingly, could have potential Year 2000 problems. The Y2K Team is in the
process of conducting inspections, interviews and tests to identify which of the
Partnership's systems could have a potential Year 2000 problem.
The information system of the affiliates of the general partners is
comprised of hardware and software applications from mainstream suppliers.
Accordingly, the Y2K Team is in the process of contacting the respective vendors
and manufacturers to verify the Year 2000 compliance of their products. In
addition, the Y2K Team has also requested and is evaluating documentation from
other companies with which the Partnership has a material third party
relationship, including the Partnership's tenants, vendors, financial
institutions and the
<PAGE>
Partnership's transfer agent. The Partnership depends on its tenants for rents
and cash flows, its financial institutions for availability of cash and its
transfer agent to maintain and track investor information. The Y2K Team has also
requested and is evaluating documentation from the non-information technology
systems providers of the affiliates of the general partners. Although the
general partners continue to receive positive responses from the companies with
which the Partnership has third party relationships regarding their Year 2000
compliance, the general partners cannot be assured that the tenants, financial
institutions, transfer agent, other vendors and system providers have adequately
considered the impact of the Year 2000. The general partners are not able to
measure the effect on the operations of the Partnership of any third party's
failure to adequately address the impact of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt,
Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne,
CNL Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999 against
the general partners and APF, Ira Gaines, individually and on behalf
of a class of persons similarly situated, v. CNL American Properties
Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, CNL Fund Advisors, Inc. CNL Financial Corporation a/k/a
CNL Financial Corp., CNL Financial Services, Inc. and CNL Group,
Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF aided
and abetted their breach of fiduciary duties in connection with the
proposed Merger. The plaintiff is seeking unspecified damages and
equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. Default upon Senior Securities. Inapplicable.
Item 4. Submission of Matters to a Vote of Security Holders. Inapplicable.
Item 5. Other Information. Inapplicable.
<PAGE>
Item 6. Exhibits and Reports on Form 8-K.
(a) Exhibits
2.1 Agreement and Plan of Merger by and between the
Registrant and CNL American Properties Fund,
Inc. ("APF") dated March 11, 1999 and as amended
June 4, 1999 (filed as Appendix B to the
Prospectus Supplement for the Registrant,
constituting a part of Amendment No. 1 to the
Registration Statement of APF on Form S-4, File
No. 74329.)
3.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XV, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-69968 on
Form S-11 and incorporated herein by reference.)
4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XV, Ltd. (Included as Exhibit
3.1 to Registration Statement No. 33-69968 on
Form S-11 and incorporated herein by reference.)
4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XV, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
30, 1995, and incorporated herein by reference.)
10.1 Management Agreement between CNL Income Fund XV,
Ltd. and CNL Investment Company (Included as
Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 30,
1996, 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.)
<PAGE>
(b) Reports on Form 8-K
No reports on Form 8-K were filed during the quarter ended June
30, 1999.
<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 11th day of August, 1999.
CNL INCOME FUND XV, 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 XV, Ltd. at June 30, 1999, and its statement of income
for the six months then ended and is qualified in its entirety by reference to
the Form 10-Q of CNL Income Fund XV, Ltd. for the six months ended June 30,
1999.
</LEGEND>
<S> <C>
<PERIOD-TYPE> 6-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> JUN-30-1999
<CASH> 1,083,203
<SECURITIES> 0
<RECEIVABLES> 44,684
<ALLOWANCES> 849
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 24,122,115
<DEPRECIATION> 1,230,329
<TOTAL-ASSETS> 36,053,109
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 35,067,773
<TOTAL-LIABILITY-AND-EQUITY> 36,053,109
<SALES> 0
<TOTAL-REVENUES> 1,628,307
<CGS> 0
<TOTAL-COSTS> 417,916
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,201,873
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,201,873
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,201,873
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XV, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
assets and current liabilities.
</FN>
</TABLE>
