UNITED STATES
SECURITIES AND EXCHANGE COMMISSION

Washington, D.C. 20549

FORM 10-Q

þ		QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

o		TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934

Commission file number 0-27496

CRONOS GLOBAL INCOME FUND XVI, L.P.

(Exact name of registrant as specified in its charter)

California		94-3230380
(State or other jurisdiction of incorporation or organization)		(I.R.S. Employer Identification No.)

One Front Street, Suite 925, San Francisco, California 94111
(Address of principal executive offices) (Zip Code)

(415) 677-8990
(Registrant’s telephone number, including area code)

Indicate by check mark whether the registrant (1) has filed all reports required to be filed by Section 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 þ No o

Indicate by check mark whether the registrant has submitted electronically and posted on its corporate Web site, if any, every Interactive Data File required to be submitted and posted pursuant to Rule 405 of Regulation S-T (17 C.F.R. §232.405) during the preceding 12 months (or for such shorter period that the registrant was required to submit and post such files). Yes o No o

Indicate by check mark whether the registrant is a large accelerated filer, an accelerated filer, a non-accelerated filer, or a smaller reporting company. See definition of “large accelerated filer,” “accelerated filer” and “smaller reporting company” in Rule 12b-2 of the Exchange Act:

Large accelerated filer o

Accelerated filer o

Non-accelerated filer o (Do not check if a smaller reporting company)

Smaller reporting company þ

Indicate by check mark whether the registrant is a shell company (as defined in Rule 12b-2 of the Act). Yes o No þ

 

 

CRONOS GLOBAL INCOME FUND XVI, L.P.

Report on Form 10-Q for the Quarterly Period
Ended September 30, 2009

TABLE OF CONTENTS

		PAGE
PART I — FINANCIAL INFORMATION			1
Item 1. Financial Statements			1
Unaudited Condensed Balance Sheets as of September 30, 2009 and December 31, 2008			2
Unaudited Condensed Statements of Operations for the three and nine months ended September 30, 2009 and 2008			3
Unaudited Condensed Statements of Cash Flows for the nine months ended September 30, 2009 and 2008			4
Unaudited Notes to the Condensed Financial Statements			5
Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations			11
Item 3. Quantitative and Qualitative Disclosures About Market Risk			16
Item 4. Controls and Procedures			16
Item 4T. Controls and Procedures			16
PART II — OTHER INFORMATION			17
Item 1. Legal Proceedings			17
Item 1A. Risk Factors			17
Item 2. Unregistered Sales of Equity Securities and Use of Proceeds			17
Item 3. Defaults Upon Senior Securities			17
Item 4. Submissions of Matters to a Vote of Security Holders			17
Item 5. Other Information			17
Item 6. Exhibits			17
EX-17.A
EX-31.1
EX-31.2
EX-32

PART I — FINANCIAL INFORMATION

Item 1. Financial Statements

Presented herein are Cronos Global Income Fund XVI, L.P.’s (the “Partnership”) condensed balance sheets as of September 30, 2009 and December 31, 2008, condensed statements of operations for the three and nine months ended September 30, 2009 and 2008, and condensed statements of cash flows for the nine months ended September 30, 2009 and 2008 (collectively the “Financial Statements”), prepared by the Partnership without audit, pursuant to the rules and regulations of the Securities and Exchange Commission. Certain information and footnote disclosures normally included in financial statements prepared in accordance with accounting principles generally accepted in the United States of America have been condensed or omitted pursuant to such rules and regulations, although the Partnership believes that the disclosures are adequate to make the information presented not misleading. These Financial Statements should be read in conjunction with the financial statements and the notes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008. These Financial Statements reflect, in the opinion of the Partnership and Cronos Capital Corp., the general partner, all adjustments (consisting only of normal recurring adjustments) necessary to present fairly the results for the interim periods. The statements of operations for such interim periods are not necessarily indicative of the results for the full year.

The information in this Quarterly Report on Form 10-Q contains certain “forward-looking statements” within the meaning of the securities laws. These forward-looking statements reflect the current view of the Partnership with respect to future events and financial performance and are subject to a number of risks and uncertainties, many of which are beyond the Partnership’s control. All statements, other than statements of historical fact included in this report, including the statements under “Management’s Discussion and Analysis of Financial Condition and Results of Operations,” regarding the Partnership’s strategy, future operations, financial position, estimated revenues, projected costs, prospects, plans and objectives of the Partnership are forward-looking statements. When used in this report, the words “would”, “believe”, “anticipate”, “intend”, “estimate”, “expect”, “project”, and similar expressions are intended to identify forward-looking statements, although not all forward-looking statements contain these identifying words. All forward-looking statements speak only as of the date of this report. The Partnership does not undertake any obligation to update or revise publicly any forward-looking statements, whether as a result of new information, future events or otherwise. Although the Partnership believes that its plans, intentions and expectations reflected in or suggested by the forward-looking statements made in this report are reasonable, the Partnership can give no assurance that these plans, intentions or expectations will be achieved. Future economic and industry trends that could potentially impact revenues and profitability are difficult to predict.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Condensed Balance Sheets

(Unaudited)

		September 30,				December 31,
		2009				2008
Assets
Current assets:
Cash		$	674,190			$	886,181
Net lease receivables due from Leasing Agent			198,340				396,009
Direct finance lease receivable, due from Leasing Agent within one year, net			22,753				22,382
Total current assets			895,283				1,304,572
Direct finance lease receivable, due from Leasing Agent after one year, net			42,948				21,091
Container rental equipment, at cost			15,097,946				18,016,216
Less accumulated depreciation			(11,004,164	)			(12,517,613	)
Net container rental equipment			4,093,782				5,498,603
Total assets		$	5,032,013			$	6,824,266
Partners’ Capital
Partners’ capital:
General partner			1,074				607
Limited partners			5,030,939				6,823,659
Total partners’ capital		$	5,032,013			$	6,824,266

The accompanying notes are an integral part of these condensed financial statements.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Condensed Statements of Operations

(Unaudited)

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
Net lease revenue from Leasing Agent		$	181,459			$	397,201			$	704,843			$	1,211,404
Other operating (expenses) income:
Depreciation			(226,548	)			(321,888	)			(732,033	)			(995,975	)
Other general and administrative expenses			(33,328	)			(38,614	)			(86,637	)			(115,780	)
Net gain on disposal of equipment			76,542				50,682				164,178				92,527
			(183,334	)			(309,820	)			(654,492	)			(1,019,228	)
(Loss) income from operations			(1,875	)			87,381				50,351				192,176
Other income:
Interest income			—				1,059				—				5,196
Net (loss) income		$	(1,875	)		$	88,440			$	50,351			$	197,372
Allocation of net (loss) income:
General partner		$	15,697			$	23,815			$	56,777			$	94,649
Limited partners			(17,572	)			64,625				(6,426	)			102,723
		$	(1,875	)		$	88,440			$	50,351			$	197,372
Limited partners’ per unit share of net (loss) income		$	(0.01	)		$	0.04			$	—			$	0.06

The accompanying notes are an integral part of these condensed financial statements.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Condensed Statements of Cash Flows

(Unaudited)

		Nine Months Ended
		September 30,				September 30,
		2009				2008
Net cash provided by operating activities		$	719,040			$	1,159,128
Cash flows from investing activities:
Proceeds from sale of container rental equipment			911,574				922,147
Cash flows from financing activities:
Distributions to general partner			(56,311	)			(69,567	)
Distributions to limited partners			(1,786,294	)			(1,919,600	)
Net cash used in financing activities			(1,842,605	)			(1,989,167	)
Net (decrease) increase in cash			(211,991	)			92,108
Cash at the beginning of the period			886,181				831,160
Cash at the end of the period		$	674,190			$	923,268

The accompanying notes are an integral part of these condensed financial statements.

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

(1) Summary of Significant Accounting Policies

	(a)		Nature of Operations
			Cronos Global Income Fund XVI, L.P. (the “Partnership”) is a limited partnership that was organized under the laws of the State of California on September 1, 1995, for the purpose of owning and leasing dry and specialized marine cargo containers to ocean carriers. The Partnership commenced operations on March 29, 1996, when the minimum subscription proceeds of $2,000,000 were received from over 100 subscribers (excluding from such count, Pennsylvania residents, Cronos Capital Corp. (“CCC”), the general partner, and all affiliates of CCC). On February 3, 1997, CCC suspended the offer and sale of units in the Partnership. The offering terminated on December 27, 1997, at which time 1,599,667 limited partnership units had been sold.
			CCC and its affiliate, Cronos Containers Limited (the “Leasing Agent”), manage the business of the Partnership. CCC and the Leasing Agent also manage the container leasing business for other partnerships affiliated with CCC.
			In April 2009, the Partnership commenced its 14th year of operations and continued its liquidation phase, wherein CCC focuses its attention on the retirement of the remaining equipment in the Partnership’s container fleet. At September 30, 2009, approximately 60% of the original equipment remained in the Partnership’s fleet. CCC will take several factors into consideration when examining options for the timing of the disposal of the containers. These factors include the level of gross lease revenue generated by the diminishing fleet, the level of costs relative to this revenue, projected disposal proceeds on the disposition of the Partnership’s containers, overall market conditions and any foreseeable changes in other general and administrative expenses.
			The Partnership’s operations are subject to economic, political and business risks inherent in a business environment. The Partnership believes that the profitability of, and risks associated with, leases to foreign customers is generally the same as those of domestic customers. The Partnership’s leases generally require all payments to be made in United States dollars.
	(b)		Leasing Agent
			The Partnership and the Leasing Agent have entered into an agreement (the “Leasing Agent Agreement”) whereby the Leasing Agent manages the leasing operations for all equipment owned by the Partnership. In addition to responsibility for leasing and re-leasing the equipment to ocean carriers, the Leasing Agent disposes of the containers at the end of their useful economic life and has full discretion over which ocean carriers and suppliers of goods and services it may deal with. The Leasing Agent Agreement permits the Leasing Agent to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Agent and its affiliates, as part of a single fleet operated without regard to ownership. The Leasing Agent Agreement generally provides that the Leasing Agent will make payments to the Partnership based upon rentals collected from ocean carriers after deducting direct operating expenses and management fees due both to CCC and the Leasing Agent.
			The Leasing Agent leases containers to ocean carriers, generally under operating leases which are either master leases or term leases (mostly one to five years) and periodically under direct finance leases.

(Continued)

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

			Master leases do not specify the exact number of containers to be leased or the term that each container will remain on hire but allow the ocean carrier to pick up and drop off containers at various locations. Rentals are charged and recognized based upon the number of containers used and the applicable per-diem rate. Accordingly, rentals under master leases are variable and contingent upon the number of containers used.
			Term leases are for a fixed quantity of containers for a fixed period of time, typically varying from three to five years. In most cases, containers cannot be returned prior to the expiration of the lease. Term lease agreements may contain early termination penalties that apply in the event of early redelivery. Term leases provide greater revenue stability to the lessor, usually at lower lease rates than master leases. Ocean carriers use term leases to lower their operating costs when they have a need for an identified number of containers for a specified term. Rentals under term leases are charged and recognized based upon the number of containers leased, the applicable per-diem rate and the length of the lease, irrespective of the number of days which the customer actually uses the containers.
			Direct finance leases are long-term in nature, usually ranging from three to seven years, and require relatively low levels of customer service. They ordinarily require fixed payments over a defined period and provide customers with an option to purchase the subject containers at the end of the lease term. Per-diem rates include an element of repayment of capital and therefore are usually higher than rates charged under either term or master leases.
	(c)		Basis of Presentation
			The accompanying unaudited condensed financial statements have been prepared in accordance with accounting principles generally accepted in the United States of America (“US GAAP”) for interim financial information and with the instructions to Form 10-Q and Article 10 of Regulation S-X. Accordingly, they do not include all of the information and footnotes required by US GAAP for annual financial statements. In the opinion of management, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the interim period are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2009. For further information, refer to the financial statements and footnotes thereto included in the Partnership’s Annual Report on Form 10-K for the year ended December 31, 2008.
	(d)		Use of Estimates in Interim Financial Statements
			The preparation of interim financial statements, in conformity with US GAAP and the Securities and Exchange Commission (“SEC”) regulations for interim reporting, requires the Partnership to make estimates and assumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reported period. The most significant estimates are those relating to the carrying value of equipment, including estimates relating to depreciable lives, residual values and asset impairments, and those relating to the allowance for doubtful accounts. Actual results could differ from those estimates.

(Continued)

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

	(e)		Container Rental Equipment
			Container rental equipment is depreciated over a 15-year life using the straight-line basis to its residual value of 10% of original equipment cost. CCC evaluates the period of depreciation and residual values to determine whether subsequent events and circumstances warrant revised estimates of useful lives.
			In accordance with Accounting Standards Codification (the “Codification” or “ASC”) 360-10-35 — “Accounting for the Impairment or Disposal of Long-Lived Assets,” container rental equipment is considered to be impaired if the carrying value of the asset exceeds the expected future cash flows from related operations (undiscounted and without interest charges). If impairment is deemed to exist, the assets are written down to fair value. An analysis of projected future cash flows from container rental equipment operations is prepared when indicators, such as material changes in market conditions, are present. Indicators of a potential impairment include a sustained decrease in utilization or operating profitability, or indications of technological obsolescence. The primary variables utilized in the analysis are current and projected utilization rates, per-diem rental rates, direct operating expenses, fleet size, container disposal proceeds and the timing of container disposals. Additionally, the Partnership evaluates future cash flows and potential impairment for its entire container fleet rather than for container type or each individual container. As a result, future losses could result for individual container dispositions due to various factors, including age, condition, suitability for continued leasing, as well as the geographical location of containers when disposed. There were no impairment charges recorded against the carrying value of container rental equipment for the nine-month periods ended September 30, 2009 and 2008.
	(f)		Allocation of Net Income or Loss, Partnership Distributions and Partners’ Capital
			Net income or loss has been allocated between the general and limited partners in accordance with the Partnership Agreement. The Partnership Agreement generally provides that CCC shall at all times maintain at least a 1% interest in each item of income or loss, including the gain arising from the sale of containers. The Partnership Agreement further provides that the gain arising from the sale of containers be allocated first to the partners with capital account deficit balances in an amount sufficient to eliminate any deficit capital account balance. Thereafter, the Partnership’s gains arising from the sale of containers are allocated to the partners in accordance with their share of sale proceeds distributed. The Partnership Agreement also provides for income (excluding the gain arising from the sale of containers) for any period, be allocated to CCC in an amount equal to that portion of CCC’s distributions in excess of 1% of the total distributions made to both CCC and the limited partners of the Partnership for such period, as well as other allocation adjustments.
			Actual cash distributions differ from the allocations of net income or loss between the general and limited partners as presented in these financial statements. Partnership distributions are paid to the partners (general and limited) from distributable cash from operations, allocated 95% to the limited partners and 5% to CCC. Distributions of sales proceeds are allocated 99% to the limited partners and 1% to CCC. The allocations remain in effect until such time as the limited partners have received from the Partnership aggregate distributions in an amount equal to their capital contributions plus an 8% cumulative, compounded (daily), annual return on their adjusted capital contributions. Thereafter, all Partnership distributions will be allocated 85% to the limited partners and 15% to CCC. Cash distributions from operations to CCC in excess of 5% of distributable cash will be considered an incentive fee and will be recorded as compensation to CCC, with the remaining distributions from operations charged to partners’ capital.

(Continued)

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

			Upon dissolution, the assets of the Partnership will be sold and the proceeds thereof distributed as follows: (i) all of the Partnership’s debts and liabilities to persons other than CCC or the limited partners shall be paid and discharged; (ii) all of the Partnership’s debts and liabilities to CCC and the limited partners shall be paid and discharged; and (iii) the balance of such proceeds shall be distributed to CCC and the limited partners in accordance with the positive balances of CCC and the limited partners’ capital accounts. CCC shall contribute to the Partnership an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess of the Limited Partners’ capital contribution to the Partnership over the capital contributions previously made to the Partnership by CCC, after giving effect to the allocation of income or loss arising from the liquidation of the Partnership’s assets.
	(g)		Recent Accounting Pronouncements
			In June 2009, the FASB issued Statement No. 168 — “The FASB Accounting Standards Codification and the Hierarchy of Generally Accepted Accounting Principles — a replacement of FASB Statement No. 162”. The FASB Accounting Standards Codification (the “Codification” or “ASC”) will be the single source of authoritative non-governmental U.S. generally accepted accounting principles. Rules and interpretive releases of the SEC under authority of federal securities laws are also sources of authoritative GAAP for SEC registrants. SFAS 168 is effective for interim and annual periods ending after September 15, 2009. All existing accounting standards are superseded as described in SFAS 168. All other accounting literature not included in the Codification is non-authoritative.

(2) Net Lease Receivables Due from Leasing Agent

Net lease receivables due from Leasing Agent at September 30, 2009 and December 31, 2008 comprised:

		September 30,				December 31,
		2009				2008
Gross lease receivables		$	455,806			$	607,309
Less:
Direct operating expenses payable			190,898				131,180
Base management fees payable			19,403				30,874
Reimbursed administrative expenses payable			6,589				6,421
Allowance for doubtful accounts			40,576				42,825
Net lease receivables due from Leasing Agent		$	198,340			$	396,009

Included within the amount of gross lease receivables are $88,150 and $183,061 in respect of amounts owed by the Leasing Agent in relation to the disposal of containers for the nine months ended September 30, 2009, and the year ended December 31, 2008, respectively.

(Continued)

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

(3) Net Lease Revenue

Net lease revenue for the three and nine-month periods ended September 30, 2009 and 2008 comprised:

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
Gross lease revenue		$	333,252			$	538,687			$	1,166,746			$	1,673,217
Interest income (loss) from direct finance lease			5,557				2,539				10,739				(3,000	)
Less:
Direct operating expenses			114,312				84,573				330,954				264,560
Base management fees			23,535				37,407				81,151				115,089
Reimbursed administrative expenses
Salaries			14,783				16,696				45,568				59,971
Other payroll related expenses			1,215				1,410				4,280				6,163
General and administrative expenses			3,505				3,939				10,689				13,030
			157,350				144,025				472,642				458,813
Net lease revenue		$	181,459			$	397,201			$	704,843			$	1,211,404

(4) Operating Segment

An operating segment is a component of an enterprise that engages in business activities from which it may earn revenues and incur expenses, whose operating results are regularly reviewed by the enterprise’s chief operating decision maker to make decisions about resources to be allocated to the segment and to assess its performance, and about which separate financial information is available. CCC and the Leasing Agent operate the Partnership’s container fleet as a homogenous unit and have determined that as such, it has a single reportable operating segment.

A summary of gross lease revenue earned by each Partnership container type for the periods ended September 30, 2009 and 2008 follows:

		Three Months Ended								Nine Months Ended
		September 30,				September 30,				September 30,				September 30,
		2009				2008				2009				2008
Dry cargo containers		$	256,508			$	418,447			$	899,779			$	1,265,888
Refrigerated containers			40,908				80,328				154,391				280,846
Tank containers			35,836				39,912				112,576				126,483
Total		$	333,252			$	538,687			$	1,116,746			$	1,673,217

Due to the Partnership’s lack of information regarding the physical location of its fleet of containers when on lease in the global shipping trade, the Partnership believes that it does not possess discernible geographic reporting segments as defined in ASC 280-10-05 — “Segment Reporting”.

(Continued)

CRONOS GLOBAL INCOME FUND XVI, L.P.

Notes to Unaudited Condensed Financial Statements

(5) Limited Partners’ Capital

Cash distributions made to the limited partners for the nine-month periods ended September 30, 2009 and 2008 were as follows:

		Nine Months Ended
		September 30,				September 30,
		2009				2008
Cash Distribution from Operations		$	899,812			$	1,179,753
Cash Distribution from Sales Proceeds			886,482				739,847
Total Cash Distributions		$	1,786,294			$	1,919,600

These distributions are used in determining “Adjusted Capital Contributions” as defined by the Partnership Agreement.

The limited partners’ per unit share of capital at September 30, 2009, and December 31, 2008, was $3.14 and $4.27, respectively. This is calculated by dividing the limited partners’ capital at the end of September 30, 2009, and December 31, 2008, by 1,599,667, the total number of outstanding limited partnership units.

Item 2. Management’s Discussion and Analysis of Financial Condition and Results of Operations

     The following discussion of the Partnership’s historical financial condition and results of operations should be read in conjunction with the Partnership’s December 31, 2008, Annual Report on Form 10-K and the financial statements and the notes thereto appearing elsewhere in this report.

Results of Operations

Partnership Overview

     Pursuant to the Limited Partnership Agreement of the Partnership, all authority to administer the business of the Partnership is vested with CCC. A Leasing Agent Agreement exists between the Partnership and the Leasing Agent, whereby the Partnership contracted with the Leasing Agent to manage the leasing operations for all equipment owned by the Partnership. In addition to responsibility for leasing and re-leasing the equipment to ocean carriers, the Leasing Agent disposes of the containers at the end of their useful economic life. The Leasing Agent has full discretion over which ocean carriers and suppliers of goods and services it may deal with. The Leasing Agent Agreement permits the Leasing Agent to use the containers owned by the Partnership, together with other containers owned or managed by the Leasing Agent and its affiliates, as part of a single fleet operated without regard to ownership.

     All of the revenue generated by the Partnership comes from the leasing and sale of marine dry cargo, refrigerated and tank containers. The primary component of the Partnership’s results of operations is net lease revenue. Net lease revenue is determined by deducting direct operating expenses, management fees and reimbursed administrative expenses from the gross lease revenues that are generated from the leasing of the Partnership’s containers. Gross lease revenue is directly related to the size, utilization and per-diem rental rates of the Partnership’s fleet. Direct operating expenses are direct costs associated with the Partnership’s containers and may be categorized as follows:

	•		Activity-related expenses, including agent costs and depot costs such as repairs, maintenance and handling;
	•		Inventory-related expenses for off-hire containers, comprising storage and repositioning costs. These costs are sensitive to the quantity of off-hire containers as well as the frequency at which containers are re-delivered and the frequency and size of repositioning moves undertaken; and
	•		Legal and other expenses, including legal costs related to the recovery of containers and doubtful accounts, insurance and provisions for doubtful accounts.

     The following table summarizes the composition of the Partnership’s operating lease fleet based on container type, and is measured in twenty foot equivalent units (TEUs) at September 30, 2009:

		Dry Cargo				Refrigerated				Tank
		Containers				Containers				Containers				Total
Container on lease:
Master lease			4,107				70				20				4,197
Term lease
Short term1			348				4				12				364
Long term2			1,077				33				9				1,119
			1,425				37				21				1,483
Subtotal			5,532				107				41				5,680
Containers off-hire			1,383				28				9				1,420
Total container fleet			6,915				135				50				7,100

     At September 30, 2009, approximately 60% of the original equipment remained in the Partnership’s operating fleet, compared to approximately 65% at December 31, 2008. The following table details the proportion of the operating lease fleet remaining by product type, and is measured in TEUs:

		Dry Cargo								Refrigerated
		Containers								Containers								Tank Containers								Total
		TEU				%				TEU				%				TEU				%				TEU				%
Total purchases			11,053				100	%			690				100	%			52				100	%			11,795				100	%
Less disposals			4,138				37	%			555				80	%			2				4	%			4,695				40	%
Remaining fleet at September 30, 2009			6,915				63	%			135				20	%			50				96	%			7,100				60	%

Market & Industry Overview

     One of the primary effects of the decline in global trade levels on the container leasing industry has been the pace at which leased containers have been redelivered by shipping lines as they have attempted to correct the over-supply of equipment in their container fleets. This resulting decline in utilization of the Partnership fleet has led to an increase in inventory and activity related expenses. Although there are signs that the rate of decline in utilization leveled off in the third quarter of 2009, the overall market still reflects the underlying uncertainty in the global economy.

     Shipping lines continue to experience challenging operating conditions. The deterioration in the financial condition of the Partnership’s customers since the beginning of the current economic crisis means that there is a risk that the size and number of customer defaults may increase. The Leasing Agent maintains insurance to protect against customer defaults and customer payments are monitored continually for deterioration and risk of default. However, if a major customer defaulted and ceased trading, the net lease revenue of the Partnership would decline and it could potentially incur additional losses for receivables and containers not recovered to the extent that the losses exceeded the insurance cover available.

     In recent years, the strong leasing environment meant that there was a limited supply of containers available for sale into the secondary market, contributing to sale prices reaching historically high levels. As a result of the global economic down-turn, the availability of containers for sale into the secondary markets has increased and there has been a decrease in container sales prices toward longer-term average historical levels. In 2009, the average proceeds realized per dry container was approximately 23% lower than in the first nine months of 2008. Future proceeds and the volume of containers disposed will be highly dependent on factors such as the performance of the container leasing market, regional economics, currency stability, new equipment prices and the volume of new equipment entering the market place.

     The Partnership’s average fleet size and utilization rates for the nine-month periods ended September 30, 2009 and 2008 were as follows:

		Nine Months Ended
		September 30,				September 30,
		2009				2008
Fleet size (measured in TEUs)
Dry cargo containers			7,345				8,278
Refrigerated containers			173				333
Tank containers			51				51
Utilization rates for combined fleet
Average for the period			83	%			92	%
Position at end of period			80	%			95	%

Three Months Ended September 30, 2009 Compared to the Three Months Ended September 30, 2008

Overview

     Net loss for the three months ended September 30, 2009, was $1,875, a decrease of $90,315, when compared to net income of $88,440 in the corresponding period in the prior year. The primary changes between the two periods included the impact of:

	•		a 14% reduction in the size of the container fleet (measured in TEUs) as equipment that was redelivered by customers was sold;
	•		a decline in the levels of net lease revenues, resulting from the combined effect of a reduction in the size of the fleet, lower utilization and lease per-diem levels; and
	•		a decrease in depreciation expense as a result of the declining fleet size.

Analysis and discussion

     Net lease revenue decreased $215,742, or 54%, in the third quarter of 2009 when compared to the corresponding period in 2008. The decline was primarily due to a $205,435 decrease in gross lease revenue (a component of net lease revenue), of which approximately 41% was attributable to a reduction in the size of the Partnership’s fleet size and 59% was attributable to the combined effect of lower utilization rates and lower dry cargo container per-diem rental rates.

     Depreciation expense of $226,548 was $95,340, or 30%, lower than in the corresponding period in 2008. This was a direct result of the Partnership’s declining fleet size.

     Other general and administrative expenses were $33,328 for the three-month period ended September 30, 2009, a decrease of $5,286, or 14%, when compared to the same period in 2008. The decrease was attributable to lower fees for audit services and investor administrative services.

     Net gains on disposal of equipment for the three months ended September 30, 2009, were $76,542, an increase of $25,860, or 51%, when compared to the corresponding period in 2008. The Partnership disposed of 230 containers, compared to 161 containers during the same three-month period in 2008. The decline in disposal sale price per container was offset by the impact of the higher volume of containers disposed and lower net book value from an additional year of depreciation.

Nine Months Ended September 30, 2009 Compared to the Nine Months Ended September 30, 2008

Overview

     Net income for the nine months ended September 30, 2009, was $50,351, a decrease of $147,021, or 74%, when compared to the corresponding period in the prior year. The primary changes between the two periods included the impact of:

	•		a 13% reduction in the size of the container fleet (measured in TEUs) as equipment that was redelivered by customers was sold;
	•		a decline in the levels of net lease revenues, resulting from the combined effect of a reduction in the size of the fleet, lower utilization, lease per-diem levels and increased direct operating expenses; and
	•		a decrease in depreciation expense as a result of the declining fleet size.

Analysis and discussion

     Net lease revenue decreased $506,561, or 42%, in the nine-month period ended September 30, 2009 when compared to the corresponding

period. The decline was primarily due to a $506,471 decrease in gross lease revenue (a component of net lease revenue), of which approximately 48% was attributable to reduction in the size of the Partnership’s fleet size and 52% was attributable to the combined effect of lower utilization rates and lower dry cargo container per-diem rental rates.

     Depreciation expense of $732,033 was $263,942, or 27%, lower than in the corresponding period in 2008. This was a direct result of the Partnership’s declining fleet size.

     Other general and administrative expenses were $86,637 for the nine-month period ended September 30, 2009, a decrease of $29,143, or 25%, when compared to the same period in 2008. The decrease was attributable to lower fees for audit services and third-party investor administrative services.

     Net gains on disposal of equipment for the nine months ended September 30, 2009, was $164,178, an increase of $71,651, or 77%, when compared to the corresponding period in 2008. The Partnership disposed of 650 containers, compared to 490 containers during the same nine-month period in 2008. The increase in the net gain was due to the higher volume of containers disposed, offset by the decline in lower average proceeds per container and lower net book value from an additional year of depreciation.

Liquidity and Capital Resources

     During the Partnership’s first ten years of operations, the Partnership’s primary objective was to generate cash flow from operations for distribution to its limited partners. The Partnership relied primarily on container rental receipts to meet this objective. No credit lines are maintained to finance working capital. Commencing in April 2007, the Partnership entered its liquidation phase, wherein CCC began to focus its attention on the retirement of the remaining equipment in the Partnership’s container fleet, in accordance with another of its original investment objectives, realizing the residual value of its containers after the expiration of their economic useful lives, estimated to be 15 years after placement in leased service.

     In April 2009, the Partnership commenced its 14th year of operations and continued its liquidation phase. CCC will take several factors into consideration when examining options for the timing of the disposal of the containers. These factors include the level of gross lease revenue generated by the diminishing fleet, the level of costs relative to this revenue, projected disposal proceeds on the disposition of the Partnership’s containers, overall market conditions and any foreseeable changes in other general and administrative expenses. Upon the liquidation of CCC’s interest in the Partnership, CCC shall contribute to the Partnership, if necessary, an amount equal to the lesser of the deficit balance in its capital account at the time of such liquidation, or 1.01% of the excess of the limited partners’ capital contributions to the Partnership over the capital contributions previously made to the Partnership by CCC, after giving effect to the allocation of income or loss arising from the liquidation of the Partnership’s assets.

Distributions are paid monthly, based primarily on each quarter’s cash flow from operations. Monthly distributions are also affected by periodic increases or decreases to working capital reserves, as deemed appropriate by CCC. Cash distributions from operations are allocated 5% to CCC and 95% to the limited partners. Distributions of sales proceeds are allocated 1% to CCC and 99% to the limited partners. This sharing arrangement will remain in place until the limited partners have received aggregate distributions in an amount equal to their capital contributions plus an 8% cumulative, compounded (daily) annual return on their adjusted capital contributions. Thereafter, all distributions will be allocated 15% to CCC and 85% to the limited partners, pursuant to Section 6.1(b) of the Partnership’s Partnership Agreement.

     At September 30, 2009, the Partnership had $674,190 in cash, a decrease of $211,991 from cash balances at December 31, 2008. As of September 30, 2009, the Partnership held its cash on deposit in an operating bank account. The Partnership will review its investment strategy for cash balances on a periodic basis but for the immediate future it will hold all available balances on deposit in operating bank accounts.

     Cash from Operating Activities: Net cash provided by operating activities, primarily generated by net lease revenue receipts, was $719,040 during the nine months ended September 30, 2009, compared to $1,159,128 for the same nine-month period in 2008.

     Cash from Investing Activities: Net cash provided by investing activities was $911,574 during the nine months ended September 30, 2009, compared to $922,147 in the corresponding period of 2008. These amounts represent sales proceeds generated from the sale of container rental equipment.

     Cash from Financing Activities: Net cash used in financing activities was $1,842,605 during the nine months ended September 30, 2009, compared to $1,989,167 during the nine months ended September 30, 2008. These amounts represent distributions to the Partnership’s general and limited partners. The Partnership’s continuing container disposals should produce lower operating results, and consequently, lower distributions to its partners in subsequent periods.

Critical Accounting Policies

     The Partnership’s accounting policies are fundamental to understanding management’s discussion and analysis of results of operations and financial condition. The Partnership has identified three significant policies that require the Partnership to make subjective and / or complex judgments about matters that are inherently uncertain. These policies include the following:

	•		Container equipment — depreciable lives and residual values.
	•		Container equipment — recoverability and valuation in accordance with ASC 360-10-35 — “Accounting for the Impairment or Disposal of Long Lived Assets”.
	•		Allowance for doubtful accounts.

     The Partnership, in consultation with its audit committee, has reviewed and approved these significant accounting policies which are further described in the Partnership’s 2008 Annual Report on Form 10-K.

Inflation

     The Partnership believes inflation has not had a material adverse effect on the results of its operations.

Item 3. Quantitative and Qualitative Disclosures About Market Risk

     Exchange rate risk: Substantially all of the Partnership’s revenues are billed and paid in US dollars and a significant portion of costs are billed and paid in US dollars. Of the non-US dollar direct operating expenses, the majority are individually small, unpredictable and incurred in various denominations. Thus, the Leasing Agent has determined such amounts are not suitable for cost effective hedging. As exchange rates are outside of the control of the Partnership and Leasing Agent, there can be no assurance that such fluctuations will not adversely affect the Partnership’s results of operations and financial condition. The Partnership believes it does not have significant exposure to other forms of market risk.

     Credit risk: The Leasing Agent sets maximum credit limits for all of the Partnership’s customers, limiting the number of containers leased to each according to established credit criteria. The Leasing Agent continually tracks its credit exposure to each customer. The Leasing Agent’s credit committee meets quarterly to analyze the performance of the Partnership’s customers and to recommend actions to be taken in order to minimize credit risks. The Leasing Agent uses specialist third party credit information services and reports prepared by local staff to assess credit quality.

Item 4. Controls and Procedures

     See Item 4T.

Item 4T. Controls and Procedures

     The principal executive and principal financial officers of CCC have evaluated the disclosure controls and procedures of the Partnership as of the end of the period covered by this report. Based upon their evaluation, the principal executive and principal financial officers of CCC have concluded that the Partnership’s disclosure controls and procedures were effective.

PART II — OTHER INFORMATION

Item 1. Legal Proceedings

     Not applicable.

Item 1A. Risk Factors

There are no material changes from the risk factors as disclosed under Item 1A of Part I in the Partnership’s December 31, 2008 report on Form 10-K.

Item 2. Unregistered Sales of Equity Securities and Use of Proceeds

     Not applicable.

Item 3. Defaults Upon Senior Securities

     Not applicable.

Item 4. Submissions of Matters to a Vote of Security Holders

     Not applicable.

Item 5. Other Information

     Appointment and Confirmation of Officers and Audit Committee of CCC. See Exhibit 17A.

Item 6. Exhibits

(a) Exhibits

Exhibit
No.		Description		Method of Filing
3(a)		Limited Partnership Agreement, amended and restated as of December 28, 1995		*
3(b)		Certificate of Limited Partnership		**
10		Form of Leasing Agent Agreement with Cronos Containers Limited		***
17A		Appointment and Confirmation of Officers and Audit Committee of CCC		Filed with this document
31.1		Rule 13a-14 Certification		Filed with this document
31.2		Rule 13a-14 Certification		Filed with this document
32		Section 1350 Certification		Filed with this document ****

SIGNATURES

     Pursuant to the requirements of the Securities Exchange Act of 1934, the Partnership has duly caused this Report to be signed on its behalf by the undersigned thereunto duly authorized.

Date: November 6, 2009

EXHIBIT INDEX

Exhibit
No.		Description		Method of Filing
3(a)		Limited Partnership Agreement, amended and restated as of December 28, 1995		*
3(b)		Certificate of Limited Partnership		**
10		Form of Leasing Agent Agreement with Cronos Containers Limited		***
17A		Appointment and Confirmation of Officers and Audit Committee of CCC		Filed with this document
31.1		Rule 13a-14 Certification		Filed with this document
31.2		Rule 13a-14 Certification		Filed with this document
32		Section 1350 Certification		Filed with this document ****