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
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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
0-22485
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CNL Income Fund XVII, Ltd.
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(Exact name of registrant as specified in its charter)
<TABLE>
<CAPTION>
<S> <C>
Florida 59-3295393
- - ------------------------------------------------------ ------------------------------------------------
(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
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</TABLE>
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Sections 13 or 15(d) of the Securities Exchange Act of 1934
during the preceding 12 months (or for such shorter period that the registrant
was required to file such reports), and (2) has been subject to such filing
requirements for the past 90 days. Yes X No _________
<PAGE>
CONTENTS
Part I Page
Item 1. Financial Statements:
Condensed Balance Sheets
Condensed Statements of Income
Condensed Statements of Partners' Capital
Condensed Statements of Cash Flows
Notes to Condensed Financial Statements
Item 2. Management's Discussion and Analysis of Financial
Condition and Results of Operations
Item 3. Quantitative and Qualitative Disclosures About
Market Risk
Part II
Other Information
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED BALANCE SHEETS
<TABLE>
<CAPTION>
June 30, December 31,
1999 1998
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<S> <C>
ASSETS
Land and buildings on operating leases, less
accumulated depreciation of $1,061,891 and
$875,817, respectively $ 20,462,054 $ 20,648,128
Net investment in direct financing leases 2,961,618 2,980,811
Investment in joint ventures 1,974,840 1,443,064
Cash and cash equivalents 970,200 1,492,343
Receivables, less allowance for doubtful accounts
of $3,632 and $1,283, respectively 96,840 30,463
Due from related parties 21,468 3,500
Prepaid expenses 7,638 530
Organization costs, less accumulated amortization
of $10,000 and $6,309, respectively -- 3,691
Accrued rental income 721,589 644,643
Other assets 116,065 118,532
------------------- -------------------
$ 27,332,312 $ 27,365,705
=================== ===================
LIABILITIES AND PARTNERS' CAPITAL
Accounts payable $ 3,752 $ 3,598
Distributions payable 600,000 600,000
Due to related parties -- 14,448
Rents paid in advance and security deposits 105,665 20,578
Deferred rental income 62,179 63,918
------------------- -------------------
Total liabilities 771,596 702,542
Contingencies (Note 4)
Minority interest 439,655 432,802
Partners' capital 26,121,061 26,230,361
------------------- -------------------
$ 27,332,312 $ 27,365,705
=================== ===================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVII, 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 $ 567,883 $ 607,665 $ 1,164,707 $ 1,228,481
Adjustments to accrued rental income -- -- (59,643 ) --
Earned income from direct financing leases 91,379 94,087 183,693 188,422
Interest and other income 61,349 14,864 41,174 25,539
------------- ------------- ------------ --------------
720,611 716,616 1,329,931 1,442,442
------------- ------------- ------------ --------------
Expenses:
General operating and administrative 26,623 30,969 59,090 57,616
Bad debt expense 299 -- 299 --
Professional services 5,297 6,433 11,179 10,629
Management fees to related party 6,399 6,602 12,979 13,362
State and other taxes 4,861 -- 17,595 11,804
Depreciation and amortization 95,323 78,126 194,337 176,959
------------- ------------- ------------ --------------
138,802 122,130 295,479 270,370
------------- ------------- ------------ --------------
Income Before Minority Interest in Income of
Consolidated Joint Venture and Equity in
Earnings of Unconsolidated Joint Ventures 581,809 594,486 1,034,452 1,172,072
Minority Interest in Income of Consolidated
Joint Venture (15,808 ) (15,488 ) (31,436 ) (31,219 )
Equity in Earnings of Unconsolidated Joint
Ventures 46,794 35,039 87,684 69,785
------------- ------------- ------------ --------------
Net Income $ 612,795 $ 614,037 $ 1,090,700 $ 1,210,638
============= ============= ============ ==============
Allocation of Net Income (Loss):
General partners $ (103 ) $ 140 $ (1,093 ) $ 106
Limited partners 612,898 613,897 1,091,793 1,210,532
------------- ------------- ------------ --------------
$ 612,795 $ 614,037 $ 1,090,700 $ 1,210,638
============= ============= ============ ==============
Net Income Per Limited Partner Unit $ 0.20 $ 0.20 $ 0.36 $ 0.40
============= ============= ============ ==============
Weighted Average Number of Limited Partner
Units Outstanding 3,000,000 3,000,000 3,000,000 3,000,000
============= ============= ============ ==============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVII, 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 $ (610 ) $ (551 )
Net loss (1,093 ) (59 )
----------------------- ---------------------
(1,703 ) (610 )
----------------------- ---------------------
Limited partners:
Beginning balance 26,230,971 26,236,754
Net income 1,091,793 2,394,217
Distributions ($0.40 and $0.80 per
limited partner unit, respectively) (1,200,000 ) (2,400,000 )
----------------------- ---------------------
26,122,764 26,230,971
----------------------- ---------------------
Total partners' capital $ 26,121,061 $ 26,230,361
======================= =====================
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
CONDENSED STATEMENTS OF CASH FLOWS
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<CAPTION>
Six Months Ended
June 30,
1999 1998
---------------- ---------------
<S> <C>
Increase (Decrease) in Cash and Cash Equivalents
Net Cash Provided by Operating Activities $1,230,304 $1,274,084
---------------- ---------------
Cash Flows from Investing Activities:
Reimbursement from developer of
construction costs -- 322,897
Investment in joint ventures (527,864 ) (127,807 )
Other -- (16,797 )
---------------- ---------------
Net cash provided by (used in) investing
activities (527,864 ) 178,293
---------------- ---------------
Cash Flows from Financing Activities:
Distributions to limited partners (1,200,000 ) (1,200,000 )
Distributions to holder of minority interest (24,583 ) (24,426 )
---------------- ---------------
Net cash used in financing activities (1,224,583 ) (1,224,426 )
---------------- ---------------
Net Increase (Decrease) in Cash and Cash Equivalents (522,143 ) 227,951
Cash and Cash Equivalents at Beginning of Period 1,492,343 1,238,799
---------------- ---------------
Cash and Cash Equivalents at End of Period $ 970,200 $1,466,750
================ ===============
Supplemental Schedule of Non-Cash Financing
Activities:
Land and building under operating lease
exchanged for land and building under
operating lease $ -- $ 899,654
================ ===============
Distributions declared and unpaid at end of
period $600,000 $ 600,000
================ ===============
</TABLE>
See accompanying notes to condensed financial statements.
<PAGE>
CNL INCOME FUND XVII, 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 XVII, Ltd. (the "Partnership") for the year ended December
31, 1998.
The Partnership accounts for its 80 percent interest in the accounts of
CNL/GC El Cajon Joint Venture using the consolidation method. Minority
interest represents the minority joint venture partner's proportionate
share of the equity in the Partnership's consolidated joint venture.
All significant intercompany accounts and transactions have been
eliminated.
Effective January 1, 1999, the Partnership adopted Statement of
Position 98-5 "Reporting on the Costs of Start-Up Activities." The
Statement requires that an entity expense the costs of start-up
activities and organization costs as they are incurred. Adoption of
this statement did not have a material effect on the Partnership's
financial position or results of operations.
Certain items in the prior year's financial statements have been
reclassified to conform to 1999 presentation. These reclassifications
had no effect on partners' capital or net income.
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
2. Investment in Joint Ventures:
In January 1999, the Partnership entered into a joint venture
arrangement, Ocean Shores Joint Venture, with CNL Income Fund X, Ltd.,
an affiliate of the general partners to own and lease one restaurant
property. The Partnership contributed approximately $359,500 to the
joint venture. As of June 30, 1999, the Partnership owned a 30.94%
interest in the profits and losses of the joint venture. The
Partnership accounts for its investment in this joint venture under the
equity method since the Partnership shares control with an affiliate.
In addition, in January 1999, the Partnership invested in a property in
Zephyrhills, Florida as tenants-in-common with CNL Income Fund IV,
Ltd., an affiliate of the general partners. As of June 30, 1999, the
Partnership contributed approximately $168,400 for a 24 percent
interest in the property. The Partnership accounts for its investment
in this property using the equity method since the Partnership shares
control with an affiliate, and amounts relating to its investment are
included in investment in joint ventures.
The following presents the combined, condensed financial information
for all of the Partnership's investments in joint ventures and
properties held as tenants-in-common at:
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<CAPTION>
June 30, December 31,
1999 1998
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<S> <C>
Land and buildings on operating
leases, less accumulated
depreciation $5,414,968 $4,412,584
Net investment in direct
financing lease 807,212 --
Cash 17,299 2,352
Other assets 33,093 87
Accrued rental income 173,995 134,121
Liabilities 25,450 11,918
Partners' capital 6,421,117 4,537,226
Revenues 354,738 554,934
Net income 297,915 458,588
</TABLE>
The Partnership recognized income totalling $87,684 and $69,785 for the
six months ended June 30, 1999 and 1998, respectively, from these joint
ventures, $46,794 and $35,039 of which were earned during the quarters
ended June 30, 1999 and 1998, respectively.
<PAGE>
CNL INCOME FUND XVII, LTD.
(A Florida Limited Partnership)
NOTES TO CONDENSED FINANCIAL STATEMENTS - CONTINUED
Quarters and Six Months Ended June 30, 1999 and 1998
3. 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"). Subsequent to entering into the Merger agreement, the
general partners received a number of comments from brokers who sold
the Partnership's units concerning the loss of passive income treatment
in the event the Partnership merged with APF. On June 3, 1999, the
general partners, on behalf of the Partnership, and APF agreed that it
would be in the best interests of the Partnership and APF that APF not
attempt to acquire the Partnership in the acquisition. Notwithstanding
this agreement, representatives of APF stated that they would attempt,
depending on market conditions, seek to acquire the Partnership after
APF was listed on the New York Stock Exchange. The representatives
further noted that they would be willing to structure any future
acquisition in a manner so that the limited partners could retain
passive income treatment most likely by offering the limited partners
an exchange offer whereby limited partners would exchange their units
of limited partnership interest for APF shares. Therefore in June 1999,
APF entered into a termination agreement with the general partners of
the Partnership.
4. Contingencies:
On May 11, 1999, four limited partners in several of the CNL Income
Funds served a lawsuit against the general partners and APF in
connection with the proposed Merger. On July 8, 1999, the plaintiffs
amended the complaint to add three additional limited partners as
plaintiffs. Additionally, on June 22, 1999, a limited partner in
certain of the CNL Income Funds served a lawsuit against the general
partners, APF and CNL Fund Advisors, Inc. and certain of its affiliates
in connection with the proposed Merger. The general partners and APF
believe that the lawsuits are without merit and intend to defend
vigorously against the claims. See Part II - Item 1. Legal Proceedings.
<PAGE>
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
CNL Income Fund XVII, Ltd. (the "Partnership") is a Florida limited
partnership that was organized on February 10, 1995, to acquire for cash, either
directly or through joint venture arrangements, both newly constructed and
existing restaurant properties, as well as land upon which restaurants were to
be constructed, to be leased primarily to operators of national and regional
fast-food, family-style and casual dining restaurant chains (collectively, the
"Properties"). 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 30 Properties, which
included interests in four Properties owned by joint ventures in which the
Partnership is a co-venturer and four Properties owned with affiliates as
tenants-in-common.
Capital Resources
The Partnership's primary source of capital is 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 $1,230,304 and $1,274,084 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.
Other sources and uses of capital included the following during the
quarter and six months ended June 30, 1999.
In January 1999, the Partnership entered into a joint venture
arrangement, Ocean Shores Joint Venture, with CNL Income Fund X, Ltd., an
affiliate of the general partners, to own and lease one restaurant property. The
Partnership contributed approximately $359,500 to the joint venture. As of June
30, 1999, the Partnership owned a 30.94% interest in the profits and losses of
the joint venture.
In addition, in January 1999, the Partnership invested in a property in
Zephyrhills, Florida as tenants-in-common with CNL Income Fund IV, Ltd., an
affiliate of the general partners. As of June 30, 1999, the Partnership had
contributed approximately $168,400 for a 24 percent interest in the Property.
Currently, rental income from the Partnership's Properties is 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 $970,200 invested in such short-term
investments, as compared to $1,492,343 at December 31, 1998. The decrease in
short-term investments at June 30, 1999 was primarily due to the fact that in
January 1999 the Partnership invested in a joint venture arrangement, Ocean
Shores Joint Venture, and in a Property in Zephyrhills, Florida, as
tenants-in-common, with an affiliate of the general partners, as described
above. 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.
The Partnership generally distributes cash from operations remaining
after the payment of operating expenses of the Partnership, to the extent that
the general partners determine that such funds are available for distribution.
Based on cash from operations, the Partnership declared distributions to limited
partners of $1,200,000 for each of the six months ended June 30, 1999 and 1998
($600,000 for each of the quarters ended June 30, 1999 and 1998). This
represents distributions for each applicable six months of $0.40 per unit ($0.20
per unit for each applicable quarter). No distributions were made to the general
partners for the quarter 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 $771,596 at June 30, 1999, from $702,542 at December 31, 1998,
primarily as a result of the Partnership receiving approximately $84,500 in a
security deposit relating to one of the three Boston Market Properties which was
not rejected in conjunction with the tenant filing for bankruptcy as described
below in "Results of Operations." The general partners believe that the
Partnership has sufficient cash on hand to meet its current working capital
needs.
Long-Term Liquidity
The Partnership has no long-term debt or other long-term liquidity
requirements.
Results of Operations
During the six months ended June 30, 1999 and 1998, the Partnership and
its consolidated joint venture, CNL/GC El Cajon Joint Venture, owned and leased
23 wholly owned Properties to operators of fast-food and family-style restaurant
chains. In connection with the Properties, during the six months ended June 30,
1999 and 1998, the Partnership earned $1,288,757 and $1,416,903, respectively,
in rental income from operating leases (net of adjustments to accrued rental
income), and earned income from direct financing leases from these Properties,
$659,262 and $701,752 of which was earned during the quarters ended June 30,
1999 and 1998, respectively. The decrease in rental and earned income 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 a decrease in rental
income due from the tenants of the Properties in Aiken, South Carolina and
Weatherford, Texas, as a result of receiving reimbursements of construction
costs from the developer, which reduced the cost of the Property on which rental
income is computed.
During 1998, the tenant of three Boston Market Properties filed for
bankruptcy, but continued making rental payments on the Properties. In April
1999, the tenant rejected, vacated and ceased making rental payments on two of
the three leases resulting in a decrease in rental and earned income of
approximately $38,700 during the quarter and six months ended June 30, 1999. In
addition, the Partnership wrote off approximately $59,700 of accrued rental
income (non-cash accounting adjustment relating to the straight-lining of future
scheduled rent increases over the terms of the leases in accordance with
generally accepted accounting principles) relating to the two rejected leases
during the six months ended June 30, 1999. The general partners are currently
seeking either new tenants or purchasers for these two Properties. The
Partnership will not recognize rental and earned income from these two
Properties until new tenants for these Properties are located or until the
Properties are sold and the proceeds from the sale are reinvested in additional
Properties. While the tenant has not rejected or affirmed the remaining lease,
there can be no assurance that the lease will not be rejected in the future. The
lost revenues resulting from the rejection of the two leases and the possible
rejection of the third lease could have an adverse effect of 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
also earned $41,174 and $25,539 in interest and other income, $61,349 and
$14,864 of which was earned during the quarters ended June 30, 1999 and 1998,
respectively. The increase in interest and other income for the quarter and six
months ended June 30, 1999 was primarily due to the fact that the Partnership
reversed $46,667 and $14,139 in transaction costs during the quarter and six
months ended June 30, 1999, respectively. These represented amounts that had
previously been expensed 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. The general partners and APF agreed that it would
be in the best interest of the Partnership that it not be acquired in the
acquisition due to the limited partners' loss of passive income in the
acquisition, as described below. As a result, the general partners have agreed
to reimburse the Partnership for these costs.
During the quarter and six months ended June 30, 1998, the Partnership
owned and leased three Properties with affiliates as tenants-in-common and two
Properties indirectly through joint venture arrangements, and during the quarter
and six months ended June 30, 1999, the Partnership owned and leased four
Properties with affiliates as tenants-in-common and three Properties indirectly
through joint venture arrangements. In connection therewith, during the six
months ended June 1999 and 1998, the Partnership earned $87,684 and $69,785,
respectively, $46,794 and $35,039 of which were earned during the quarters ended
June 30, 1999 and 1998, respectively. The increase was primarily due to the fact
that the Partnership entered into a joint venture arrangement, Ocean Shores
Joint Venture, with CNL Income Fund X, Ltd., an affiliate of the general
partners, and invested in a Property in Zephyrhills, Florida, as
tenants-in-common with CNL Income Fund IV, Ltd., an affiliate of the general
partners, in January 1999.
Operating expenses, including depreciation and amortization expense,
were $295,479 and $270,370 for the six months ended June 30, 1999 and 1998,
respectively, of which $138,802 and $122,130 were incurred for the quarters
ended June 30, 1999 and 1998, respectively. The increase in operating expenses
for the quarter and six months ended June 30, 1999, as compared to the quarter
and six months ended June 30, 1998, was partially due to the fact that
depreciation expense was lower during the quarter and six months ended June 30,
1998, as a result of an adjustment to depreciation expense relating to the
reimbursement from the developer of construction costs relating to the
Properties in Aiken, South Carolina and Weatherford, Texas, as described above,
which reduced the depreciable base of each Property.
Additionally, operating expenses increased during the quarter and six
months ended June 30, 1999, due to an increase in insurance and real estate tax
expense incurred in connection with the fact that the tenant of two Boston
Market Properties who had filed for bankruptcy, rejected the leases and ceased
making rental payments relating to these two Properties. The Partnership will
continue to incur certain expenses such as real estate taxes, insurance and
maintenance relating to these Properties until replacement tenants or purchasers
are located. The Partnership is currently seeking either replacement tenants or
purchasers for these Properties.
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").
Subsequent to entering into the Merger agreement, the general partners received
a number of comments from brokers who sold the Partnership's units concerning
the loss of passive income treatment in the event the Partnership merged with
APF. On June 3, 1999, the general partners, on behalf of the Partnership, and
APF agreed that it would be in the best interests of the Partnership and APF
that APF not attempt to acquire the Partnership in the acquisition.
Notwithstanding this agreement, representatives of APF stated that they would
attempt, depending on market conditions, seek to acquire the Partnership after
APF was listed on the New York Stock Exchange. The representatives further noted
that they would be willing to structure any future acquisition in a manner so
that the limited partners could retain passive income treatment most likely by
offering the limited partners an exchange offer whereby limited partners would
exchange their units of limited partnership interest for APF shares. Therefore
in June 1999, APF entered into a termination agreement with the general partners
of the Partnership.
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 requested and is evaluating documentation from other
companies with which the Partnership has a material third party relationship,
including the Partnership's tenants, vendors, financial institutions and the
Partnership's transfer agent. The Partnership depends on its tenants for rents
and cash flows, its financial institutions for availability of cash and its
transfer agent to maintain and track investor information. The Y2K Team has also
requested and is evaluating documentation from the non-information technology
systems providers of the affiliates of the general partners. Although the
general partners continue to receive positive responses from the companies with
which the Partnership has third party relationships regarding their Year 2000
compliance, the general partners cannot be assured that the tenants, financial
institutions, transfer agent, other vendors and system providers have adequately
considered the impact of the Year 2000. The general partners are not able to
measure the effect on the operations of the Partnership of any third party's
failure to adequately address the impact of the Year 2000.
The general partners and their affiliates have identified and have
implemented upgrades for certain hardware equipment. In addition, the general
partners and their affiliates have identified certain software applications
which will require upgrades to become Year 2000 compliant. The general partners
expect that all of these upgrades, as well as any other necessary remedial
measures on the information technology systems used in the business activities
and operations of the Partnership, to be completed by September 30, 1999,
although, the general partners cannot be assured that the upgrade solutions
provided by the vendors have addressed all possible Year 2000 issues. The
general partners do not expect the aggregate cost of the Year 2000 remedial
measures to be material to the results of operations of the Partnership.
The general partners and their affiliates have received certification
from the Partnership's transfer agent of its Year 2000 compliance. Due to the
material relationship of the Partnership with its transfer agent, the Y2K Team
is evaluating the Year 2000 compliance of the systems of the transfer agent and
expects to have the evaluation completed by September 30, 1999. Despite the
positive response from the transfer agent and the evaluation of the transfer
agent's system by the Y2K Team, the general partners cannot be assured that the
transfer agent has addressed all possible Year 2000 issues. In the event that
the systems of the transfer agent are not Year 2000 compliant, the general
partners and their affiliates will have to allocate resources to internally
perform the functions of the transfer agent. The general partners do not
anticipate that the additional cost of these resources would have a material
impact on the Partnership.
Based upon the progress the general partners and their affiliates have
made in addressing the Year 2000 issues and their plan and timeline to complete
the compliance program, the general partners do not foresee significant risks
associated with Year 2000 compliance at this time. The general partners and
their affiliates plan to address their significant Year 2000 issues prior to the
Partnership being affected by them; therefore, we have not developed a
comprehensive contingency plan. However, if the general partners and their
affiliates identify significant risks related to their Year 2000 compliance, or
if their progress deviates from the anticipated timeline, the general partners
and their affiliates will develop contingency plans as deemed necessary at that
time.
ITEM 3. QUANTITATIVE AND QUALITATIVE DISCLOSURES ABOUT MARKET RISK
Not applicable.
<PAGE>
PART II. OTHER INFORMATION
Item 1. Legal Proceedings.
On May 11, 1999, four limited partners in several CNL Income Funds
served a derivative and purported class action lawsuit filed April
22, 1999 against the general partners and APF in the Circuit Court
of the Ninth Judicial Circuit of Orange County, Florida, alleging
that the general partners breached their fiduciary duties and
violated provisions of certain of the CNL Income Fund partnership
agreements in connection with the proposed Merger. The plaintiffs
are seeking unspecified damages and equitable relief. On July 8,
1999, the plaintiffs filed an amended complaint which, in addition
to naming three additional plaintiffs, includes allegations of
aiding and abetting and conspiring to breach fiduciary duties,
negligence and breach of duty of good faith against certain of the
defendants and seeks additional equitable relief. As amended, the
caption of the case is Jon Hale, Mary J. Hewitt, Charles A. Hewitt,
Gretchen M. Hewitt Bernard J. Schulte, Edward M. and Margaret Berol
Trust, and Vicky Berol v. James M. Seneff, Jr., Robert A. Bourne,
CNL Realty Corporation, and CNL American Properties Fund, Inc., Case
No. CIO-99-0003561.
On June 22, 1999, a limited partner of several CNL Income Funds
served a purported class action lawsuit filed April 29, 1999 against
the general partners and APF, Ira Gaines, individually and on behalf
of a class of persons similarly situated, v. CNL American Properties
Fund, Inc., James M. Seneff, Jr., Robert A. Bourne, CNL Realty
Corporation, CNL Fund Advisors, Inc., CNL Financial Corporation
a/k/a CNL Financial Corp., CNL Financial Services, Inc. and CNL
Group, Inc., Case NO. CIO-99-3796, in the Circuit Court of the Ninth
Judicial Circuit of Orange County, Florida, alleging that the
general partners breached their fiduciary duties and that APF aided
and abetted their breach of fiduciary duties in connection with the
proposed Merger. The plaintiff is seeking unspecified damages and
equitable relief.
Item 2. Changes in Securities. Inapplicable.
Item 3. 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 (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 XVII, Ltd. (Filed as Exhibit
3.1 to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**3.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XVII, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.1 Affidavit and Certificate of Limited Partnership
of CNL Income Fund XVII, Ltd. (Filed as Exhibit
3.1 to Registration Statement No. 33-90998 on
Form S-11 and incorporated herein by reference.)
**4.2 Amended and Restated Agreement of Limited
Partnership of CNL Income Fund XVII, Ltd.
(Included as Exhibit 4.2 to Form 10-K filed with
the Securities and Exchange Commission on March
21, 1996, and incorporated herein by reference.)
**4.3 Form of Agreement between CNL Income Fund XVII,
Ltd. and MMS Escrow and Transfer Agency, Inc.
and between CNL Income Fund XVIII, Ltd. and MMS
Escrow and Transfer Agency, Inc. relating to the
Distribution Reinvestment Plans (Filed as
Exhibit 4.4 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**8.1 Opinion of Baker & Hostetler regarding certain
material issues relating to the Distribution
Reinvestment Plan of CNL Income Fund XVII, Ltd.
(Filed as Exhibit 8.3 to Amendment No. Three to
the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.1 Management Agreement between CNL Income Fund
XVII, Ltd. and CNL Fund Advisors, Inc. (Included
as Exhibit 10.1 to Form 10-K filed with the
Securities and Exchange Commission on March 21,
1996, and incorporated herein by reference.)
<PAGE>
**10.2 Form of Joint Venture Agreement for Joint
Ventures with Unaffiliated Entities (Filed as
Exhibit 10.2 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.3 Form of Joint Venture Agreement for Joint
Ventures with Affiliated Programs (Filed as
Exhibit 10.3 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.4 Form of Development Agreement (Filed as Exhibit
10.5 to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**10.5 Form of Indemnification and Put Agreement (Filed
as Exhibit 10.6 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.6 Form of Unconditional Guarantee of Payment and
Performance (Filed as Exhibit 10.7 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.7 Form of Lease Agreement for Existing Restaurant
(Filed as Exhibit 10.8 to the Registrant's
Registration Statement on Form S-11, No.
33-90998, incorporated herein by reference.)
**10.8 Form of Lease Agreement for Restaurant to be
Constructed (Filed as Exhibit 10.9 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.9 Form of Premises Lease for Golden Corral
Restaurant (Filed as Exhibit 10.10 to the
Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
**10.10 Form of Agreement between CNL Income Fund XVII,
Ltd. and MMS Escrow and Transfer Agency, Inc.
and between CNL Income Fund XVIII, Ltd. and MMS
Escrow and Transfer Agency, Inc. relating to the
Distribution Reinvestment Plans (Filed as
Exhibit 4.4 to the Registrant's Registration
Statement on Form S-11, No. 33-90998,
incorporated herein by reference.)
**10.11 Form of Cotenancy Agreement with Unaffiliated
Entity (Filed as Exhibit 10.12 to Amendment No.
One to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**10.12 Form of Cotenancy Agreement with Affiliated
Entity (Filed as Exhibit 10.13 to Amendment No.
One to the Registrant's Registration Statement
on Form S-11, No. 33-90998, incorporated herein
by reference.)
**10.13 Form of Registered Investor Advisor Agreement
(Filed as Exhibit 10.14 to Amendment No. One to
the Registrant's Registration Statement on Form
S-11, No. 33-90998, incorporated herein by
reference.)
10.14 Termination Agreement by and between CNL Income
Fund XVII, Ltd. and CNL American Properties
Fund, Inc. ("APF") dated June 4, 1999
(incorporated by reference hereby to Exhibit
10.54 of Amendment No. 1 to APF's Registration
Statement on Form S-4, File No. 333-74329 filed
with the Securities and Exchange Commission
under the Securities Act of 1933, as amended)
27 Financial Data Schedule (Filed herewith.)
**previously filed
(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 XVII, 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 XVII, 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 XVII, 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> 970,200
<SECURITIES> 0
<RECEIVABLES> 100,472
<ALLOWANCES> 3,632
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,523,945
<DEPRECIATION> 1,061,891
<TOTAL-ASSETS> 27,332,312
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 26,121,061
<TOTAL-LIABILITY-AND-EQUITY> 27,332,312
<SALES> 0
<TOTAL-REVENUES> 1,329,931
<CGS> 0
<TOTAL-COSTS> 295,180
<OTHER-EXPENSES> 0
<LOSS-PROVISION> 299
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 1,090,700
<INCOME-TAX> 0
<INCOME-CONTINUING> 1,090,700
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 1,090,700
<EPS-BASIC> 0
<EPS-DILUTED> 0
<FN>
<F1>Due to the nature of its industry, CNL Income Fund XVII, Ltd. has an
unclassified balance sheet; therefore, no values are shown above for current
asset and current liabilities.
</FN>
</TABLE>
