FORM 10-KSB.-ANNUAL OR TRANSITIONAL REPORT UNDER
SECTION 13 OR 15(D)
FORM 10-KSB
(Mark One)
[X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934 [NO FEE REQUIRED]
For the fiscal year ended December 31, 1996
[ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT
OF 1934 [NO FEE REQUIRED]
For the transition period from to
Commission file number 0-16877
FOX STRATEGIC HOUSING INCOME PARTNERS
(Name of small business issuer in its charter)
California 94-3016373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
One Insignia Financial Plaza,
P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices) (Zip code)
Issuer's telephone number (864) 239-1000
Securities registered under Section 12(b) of the Exchange Act:
None
Securities registered under Section 12(g) of the Exchange Act:
Limited Partnership Units
(Title of class)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 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
Check if there is no disclosure of delinquent filers in response to Item 405 of
Regulation S-B contained in this form, and no disclosure will be contained, to
the best of registrant's knowledge, in definitive proxy or information
statements incorporated by reference in Part III of this Form 10-KSB or any
amendment to this Form 10-KSB. X
State issuer's revenues for its most recent fiscal year. $3,198,000.
State the aggregate market value of the voting stock held by non-affiliates
computed by reference to the price at which the stock was sold, or the average
bid and asked prices of such stock, as of a specified date within the past 60
days. Market value information for Registrant's Partnership Interests is not
available. Should a trading market develop for these Interests, it is the
Managing General Partner's belief that such trading would not exceed
$25,000,000.
DOCUMENTS INCORPORATED BY REFERENCE
NONE
PART I
ITEM 1. DESCRIPTION OF BUSINESS
Fox Strategic Housing Income Partners (the "Partnership" or "Registrant") is a
publicly-held limited partnership organized in June 1984, under the Uniform
Limited Partnership Act of the California Corporations Code. Fox Partners VIII,
a California general partnership, is the general partner of the Partnership. The
Partnership's Managing General Partner is Fox Capital Management Corporation
("FCMC" or the "Managing General Partner"), a California corporation. FCMC and
Fox Realty Investors ("FRI") are the general partners of Fox Partners VIII.
The Partnership, through its public offering of Limited Partnership Units, sold
26,111 units aggregating $26,111,000. The Partnership was formed for the
purpose of acquiring fee and other forms of equity interests in various types of
real property. The Partnership currently owns two apartment complexes. The
Managing General Partner of the Partnership intends to maximize the operating
results and, ultimately, the net realizable value of each of the Partnership's
properties in order to achieve the best possible return for the investors. Such
results may best be achieved through property sales, refinancings, debt
restructurings or relinquishment of the assets. The Partnership intends to
evaluate each of its holdings periodically to determine the most appropriate
strategy for each of the assets.
The Partnership has no full time employees. The Managing General Partner is
vested with full authority as to the general management and supervision of the
business and affairs of the Partnership. Limited partners have no right to
participate in the management or conduct of such business and affairs. NPI-AP
Management, L.P. ("NPI-AP"), an affiliate of the Managing General Partner,
provides property management services to each of the Partnership's investment
properties.
The business in which the Partnership is engaged is highly competitive, and the
Partnership is not a significant factor in its industry. Each of its apartment
properties is located in or near a major urban area and, accordingly, competes
for rentals not only with similar apartment properties in its immediate area but
with hundreds of similar apartment properties throughout the urban area. Such
competition is primarily on the basis of location, rents, services and
amenities. In addition, the Partnership competes with significant numbers of
individuals and organizations (including similar partnerships, real estate
investment trusts and financial institutions) with respect to the sale of
improved real properties, primarily on the basis of the prices and terms of such
transactions.
Change in Control
On December 6, 1993, NPI Equity Investments II, Inc. ("NPI Equity") became the
managing partner of FRI and assumed operational control over FCMC. NPI Equity
is a wholly-owned subsidiary of National Property Investors, Inc. ("NPI"). The
individuals who had served previously as partners of FRI and as officers and
directors of FCMC contributed their general partnership interests in FRI to a
newly formed limited partnership, Portfolio Realty Associates, L.P. ("PRA"), in
exchange for limited partnership interests in PRA. In the foregoing capacity,
such partners continue to hold indirectly certain economic interests in the
Partnership and such other investment partnerships, but ceased to be responsible
for the operation and management of the Partnership and such other partnerships.
On August 10, 1994, an affiliate of Apollo Real Estate Advisors, L.P. ("Apollo")
obtained general and limited partnership interests in NPI-AP.
On October 12, 1994, Apollo acquired one-third of the stock of NPI. Pursuant to
the terms of the stock acquisition, Apollo was entitled to designate three of
the seven directors of NPI Equity. In addition, the approval of certain major
actions on behalf of the Partnership required the affirmative vote of at least
five directors of NPI Equity.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i)control of
NPI Equity and (ii) all of the issued and outstanding shares of stock of FCMC.
In connection with these transactions, affiliates of Insignia appointed new
officers and directors of NPI Equity and FCMC.
ITEM 2. DESCRIPTION OF PROPERTIES
The following table sets forth the Partnership's investments in properties:
Date of
Property Purchase Type of Ownership Use
Barrington Place Apartments 7/89 Fee ownership, subject Residential rental
Westlake, Ohio to a first mortgage 164 units
Wood View Apartments 9/87 Fee ownership, subject Residential rental
Atlanta, Georgia to a first mortgage 180 units
SCHEDULE OF PROPERTIES (IN THOUSANDS):
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
Barrington Place $ 11,359 $ 3,215 5-30 yrs. S/L $ 8,078
Wood View Apartments 9,842 2,575 5-30 yrs. S/L 7,071
Total $ 21,201 $ 5,790 $ 15,149
See "Note A" of the financial statements included in "Item 7" for a description
of the Partnership's depreciation policy.
SCHEDULE OF MORTGAGES (IN THOUSANDS):
Principal Principal
Balance At Balance
December 31, Interest Period Maturity Due At
Property 1996 Rate Amortized Date Maturity
Barrington Place $ 4,110 10.9% (a) 8/1/98 $ 4,510
Woodview 3,781 10.9% (a) 8/1/98 4,203
Total $ 7,891
(a) Each property is cross-collateralized by a first mortgage which secures
the entire amount of the loan. The mortgage is a zero coupon mortgage
with payments due on the then outstanding original principal amount of
the loan as follows: 30 percent in August 1997, with the remaining
principal balance plus all accrued and unpaid interest due in August
1998.
SCHEDULE OF RENTAL RATES AND OCCUPANCY:
Average Annual Average Annual
Rental Rates Occupancy
Property 1996 1995 1996 1995
Barrington Place $ 9,104/unit $ 8,729/unit 96% 98%
Wood View 8,673/unit 8,090/unit 94% 97%
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. Both of the properties of the Partnership are subject to
competition from other residential apartment complexes in the area. The
Managing General Partner believes that both of the properties are adequately
insured. No individual tenant leases 10% or more of the available rental space
of the respective properties.
Real estate taxes (in thousands) and rates in 1996 for each property were:
1996 1996
Billing Rate
Barrington Place $ 161 5.42%
Wood View 108 3.27%
ITEM 3. LEGAL PROCEEDINGS
The Partnership is unaware of any pending or outstanding litigation that is not
of a routine nature. The Managing General Partner of the Partnership believes
that all such pending or outstanding litigation will be resolved without a
material adverse effect upon the business, financial condition, or operations of
the Partnership.
ITEM 4. SUBMISSION OF MATTERS TO A VOTE OF SECURITY HOLDERS
The unit holders of the Partnership did not vote on any matter during the fiscal
year covered by this report.
PART II
ITEM 5. MARKET FOR THE PARTNERSHIP'S EQUITY AND RELATED PARTNER
MATTERS
The Partnership, a publicly-held limited partnership, sold 26,111 Limited
Partnership Units aggregating $26,111,000. As of January 1, 1997, the
Partnership had 26,111 units outstanding and 1,640 Limited Partners of record.
There is no intention to sell additional Limited Partnership Units nor is there
an established market for these Units.
The Partnership distributed cash from operations of approximately $799,000
during the year ended December 31, 1995. Of this amount approximately $783,000
($29.99 per unit) was distributed to the limited partners. No distributions
were made or declared in 1996. Future cash distributions will depend on the
levels of net cash generated from operations, property sales, refinancings, and
the availability of cash reserves. Cash distributions are expected to remain
suspended as a result of the pending debt maturity in August 1998, as discussed
in "Item 6. Capital Resources and Liquidity."
ITEM 6. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Partnership's net loss for the year ended December 31, 1996, was
approximately $281,000 versus a net loss of approximately $152,000 for the year
ended December 31, 1995. Overall, the Partnership experienced an increase in
revenues which was more than offset by an increase in expenses in 1996 as
compared to 1995. The increase in net loss is primarily attributable to
increases in operating expenses and general and administrative expenses.
Operating expenses increased mostly due to increased maintenance expense and tax
expense at the properties. The increase in maintenance expense is primarily the
result of exterior painting and wood repairs to all of the buildings at Wood
View during 1996. Tax expense increased at both properties in 1996 due to tax
rate increases, which are currently under appeal. The increase in general and
administrative expenses is due to increased professional fees and expense
reimbursements. As noted in "Item 7, Note D - Transactions with Affiliated
Parties," the Partnership reimburses the Managing General Partner and its
affiliates for its costs involved in the management and administration of all
partnership activities. While overall expense reimbursements have increased
during the year ended December 31, 1996, the recurring expenses subsequent to
the transition efforts to the new administration are expected to more closely
approximate historical levels. The increase in expense reimbursements during
1996 is directly attributable to the combined efforts of the Greenville, South
Carolina, and Atlanta, Georgia, administrative offices during the year-end
close, preparation of the 1995 10-K and tax return (including the limited
partner K-1's), filing of the first two quarterly reports and transition of
asset management responsibilities to the new administration. Partially
offsetting the increase in operating and general administrative expenses, was a
decrease in interest and depreciation expenses. Interest expense decreased as a
result of principal payments made in August 1995 and August 1996 on the loans
encumbering the Partnership's properties. Depreciation expense decreased due to
certain fixed assets at Barrington Place becoming fully depreciated in 1995.
Despite a slight drop in occupancy rates at the Partnership's properties for the
year ended December 31, 1996, rental income increased as a result of an
increase in rental rates at both properties in 1996.
Included in operating expenses is approximately $213,000 of major repairs and
maintenance comprised of exterior painting, exterior building repairs, and
swimming pool repairs for the year ended December 31, 1996.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from the burden of
increases in expense. As part of this plan, the Managing General Partner
attempts to protect the Partnership from the burden of inflation-related
increases in expenses by increasing rents and maintaining a high overall
occupancy level. However, due to changing market conditions, which can result
in the use of rental concessions and rental reductions to offset softening
market conditions, there is no guarantee that the Managing General Partner will
be able to sustain such a plan.
Capital Resources and Liquidity
At December 31, 1996, the Partnership had cash and cash equivalents of
approximately $4,315,000 as compared to approximately $1,409,000 at December 31,
1995. Net cash provided by operating activities decreased primarily due to the
increase in expenses as discussed above. The increase in cash provided by
investing activities is the result of proceeds from a maturing investment in
1996. This increase is partially offset by an increase in property improvements
and replacements. The decrease in cash used in financing activities is
partially due to the reduction in the payment of the notes payable in 1996
compared to 1995. Also contributing to the decrease are cash distributions of
approximately $799,000 made during 1995 compared to no distributions made in
1996.
The Partnership's properties are cross-collateralized by a zero coupon first
mortgage which secures the entire amount of the note payable. Interest accrues
on the amount borrowed at a contract rate of 10.9 percent per annum, with the
interest accrued added to principal each January and July. As of December 31,
1996, approximately $4,763,000 in accrued interest has been added to the
principal of this note. The Partnership is or was required to repay a specified
percentage of the then outstanding original principal amount of the loan as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. In addition, provided that the Partnership has generated income
in an amount as defined in the note agreement, it will be required to repay a
specified percentage of the then outstanding accrued interest added to principal
as follows: 20 percent in August 1995, 20 percent in August 1996, and 30
percent in August 1997. The remaining principal balance plus all accrued and
unpaid interest is due in August 1998. In August 1995, the Partnership paid
approximately $1,947,000 (which included $970,000 of accrued interest added to
principal). In August 1996, the Partnership paid $782,000, which is 20 percent
of the then outstanding original principal balance (no additional payment of
accrued interest was required). In August 1997, the Partnership will have to
pay approximately $938,000 of principal.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership. Such assets are currently
thought to be sufficient for any near-term needs of the Partnership. The
mortgage indebtedness and accrued interest mature August 1, 1998, at which time
the properties will either be refinanced or sold. Future cash distributions
will depend on the levels of net cash generated from operations, property sales,
refinancings, and the availability of cash reserves. In addition, distributions
may be limited by the debt repayments discussed above. Cash distributions paid
in 1995 totaled approximately $799,000, which represents a partial return of
capital. No cash distributions were paid during the year ended December 31,
1996. Cash distributions are expected to remain suspended as a result of the
pending debt maturity which is discussed above.
ITEM 7. FINANCIAL STATEMENTS
FOX STRATEGIC HOUSING INCOME PARTNERS
LIST OF FINANCIAL STATEMENTS
Report of Independent Auditors'
Consolidated Balance Sheet - December 31, 1996
Consolidated Statements of Operations - Years ended December 31, 1996 and
1995
Consolidated Statement of Changes in Partners' Capital (Deficit) - Years
ended December 31, 1996 and 1995
Consolidated Statements of Cash Flows - Years ended December 31, 1996 and
1995
Notes to Consolidated Financial Statements
Independent Auditors' Report
To the Partners
Fox Strategic Housing Income Partners
a California Limited Partnership
Greenville, South Carolina
We have audited the accompanying consolidated balance sheet of Fox Strategic
Housing Income Partners, a California Limited Partnership (the "Partnership"),
and its subsidiary, as of December 31, 1996, and the related consolidated
statements of operations, changes in partners' capital (deficit) and cash flows
for each of the two years in the period ended December 31, 1996. These
consolidated financial statements are the responsibility of the Partnership's
management. Our responsibility is to express an opinion on these consolidated
financial statements based on our audits.
We conducted our audits in accordance with generally accepted auditing
standards. Those standards require that we plan and perform the audits to
obtain reasonable assurance about whether the consolidated financial statements
are free of material misstatement. An audit includes examining, on a test
basis, evidence supporting the amounts and disclosures in the consolidated
financial statements. An audit also includes assessing the accounting
principles used and significant estimates made by management, as well as
evaluating the overall consolidated financial statement presentation. We believe
that our audits provide a reasonable basis for our opinion.
In our opinion, the financial statements referred to above present fairly, in
all material respects, the consolidated financial position of Fox Strategic
Housing Income Partners, a California Limited Partnership, and its subsidiary,
as of December 31, 1996, and the results of its operations and its cash flows
for each of the two years in the period ended December 31, 1996, in conformity
with generally accepted accounting principles.
/S/ IMOWITZ KOENIG & CO., LLP
Certified Public Accountant
New York, NY
February 3, 1997
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
December 31, 1996
(in thousands, except unit data)
Assets
Cash and cash equivalents $ 4,315
Receivables and other assets 209
Deferred financing costs, net 64
Investment properties:
Land $ 3,119
Buildings and related personal property 18,082
21,201
Less accumulated depreciation (5,790) 15,411
$ 19,999
Liabilities and Partners' Capital (Deficit)
Liabilities
Accrued expenses and other liabilities $ 302
Accrued interest 358
Notes payable 7,891
Partners' Capital (Deficit)
General partner's $ (228)
Limited partners' (26,111 units outstanding) 11,676 11,448
$ 19,999
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
<TABLE>
<CAPTION>
Years Ended December 31,
1996 1995
<S> <C> <C>
Revenues:
Rental income $ 2,875 $ 2,808
Other income 323 329
Total revenues 3,198 3,137
Expenses:
Operating 1,634 1,372
Interest 922 977
Depreciation 607 665
General and administrative 316 275
Total expenses 3,479 3,289
Net loss $ (281) $ (152)
Net loss allocated to general partner $ (47) $ (152)
Net loss allocated to limited partners (234) --
$ (281) $ (152)
Net loss per limited partnership assignee unit $ (8.96) $ (--)
Cash distribution per limited partnership assignee unit $ -- $ 29.99
<FN>
See Accompanying Notes to Consolidated Financial Statements
</TABLE>
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner's Partners' Total
Original capital contributions 26,111 $ -- $ 26,111 $ 26,111
Partners' (deficit) capital at
December 31, 1994 26,111 $ (13) $ 12,693 $ 12,680
Distributions to partners -- (16) (783) (799)
Net loss for the year
ended December 31, 1995 -- (152) -- (152)
Partners' (deficit) capital
at December 31, 1995 26,111 (181) 11,910 11,729
Net loss for the year ended
December 31, 1996 -- (47) (234) (281)
Partners' (deficit) capital
at December 31, 1996 26,111 $ (228) $ 11,676 $ 11,448
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(in thousands)
Years Ended December 31,
1996 1995
Cash flows from operating activities:
Net loss $ (281) $ (152)
Adjustments to reconcile net loss to net cash
provided by operating activities:
Depreciation and amortization 642 704
Interest added to note payable principal 530 580
Change in accounts:
Receivables and other assets (166) 19
Accrued interest, accrued expenses and other
liabilities 504 262
Net cash provided by operating activities 1,229 1,413
Cash flows from investing activities:
Property improvements and replacements (171) (12)
Proceeds from cash investments 2,630 3,004
Purchase of cash investments -- (2,497)
Net cash provided by investing activities 2,459 495
Cash flows from financing activities:
Repayment of note payable principal (782) (1,946)
Cash distributions to partners -- (799)
Net cash used in financing activities (782) (2,745)
Net increase (decrease) in cash and cash equivalents 2,906 (837)
Cash and cash equivalents at beginning of period 1,409 2,246
Cash and cash equivalents at end of period $ 4,315 $ 1,409
Supplemental disclosure of noncash investing and
financing activities:
Beginning accrued interest added to note
payable principal $ 355 $ 398
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
Notes to Consolidated Financial Statements
December 31, 1996
NOTE A - ORGANIZATION AND SIGNIFICANT ACCOUNTING POLICIES
Organization:
Fox Strategic Housing Income Partners (the "Partnership") is a limited
partnership organized under the laws of the State of California to acquire,
manage and ultimately sell income-producing properties. The Partnership
currently owns two apartment buildings located in Atlanta, Georgia, and
Westlake, Ohio. Fox Partners VIII, a California general partnership, is the
general partner. The general partners of Fox Partners VIII are Fox Capital
Management Corporation ("FCMC" or the "Managing General Partner"), a California
corporation, and Fox Realty Investors ("FRI"), a California general partnership.
The Partnership was organized in 1984 and commenced operations in 1987. The
capital contributions of $26,111,000 ($1,000 per assignee unit) were made by the
limited partners including one limited partnership assignee unit purchased by an
affiliate of FCMC.
Consolidation:
The consolidated financial statements include the statements of the Partnership
and a wholly owned subsidiary. All significant intercompany transactions and
balances have been eliminated.
Allocations to Partners:
Net income, net loss, and distributions of cash of the Partnership are allocated
between general and limited partners in accordance with the provisions of the
partnership agreement.
Income Tax:
Taxable income or loss of the Partnership is reported in the income tax returns
of its partners. Accordingly, no provision for income taxes is made in the
financial statements of the Partnership.
Depreciation:
Depreciation is computed by the straight-line method over estimated useful lives
ranging from 15 to 30 years for buildings and improvements and five to seven
years for furnishings.
Cash and Cash Equivalents:
The Partnership considers all highly liquid investments with a maturity, when
purchased, of three months or less to be cash equivalents. At certain times,
the amount of cash deposited at a bank may exceed the limit on insured deposits.
Leases:
The Partnership generally leases apartment units for twelve-month terms or less.
The Partnership recognizes income as earned on its leases.
Deferred Financing Costs:
Financing costs relating to the zero coupon mortgage are deferred and amortized,
as interest expense, over the ten year life of the mortgage. At December 31,
1996, accumulated amortization of deferred financing costs totaled $299,000.
Fair Value of Financial Instruments:
In 1995, the Partnership implemented "Statement of Financial Accounting
Standards ("SFAS") No. 107, Disclosures about Fair Value of Financial
Instruments", as amended by "SFAS No. 119, Disclosures about Derivative
Financial Instruments and Fair Value of Financial Instruments", which requires
disclosure of fair value information about financial instruments, whether or not
recognized in the balance sheet, for which it is practicable to estimate fair
value. Fair value is defined in the SFAS as the amount at which the instruments
could be exchanged in a current transaction between willing parties, other than
in a forced or liquidation sale. The Partnership believes that the carrying
amount of its financial instruments (except for long term debt) approximates
their fair value due to the short term maturity of these instruments. The debt,
with a carrying balance of $7,891,000 has been calculated to have a fair value
of approximately $8,659,000 after discounting the scheduled loan payments to
maturity. Due to significant prepayment penalties associated with the debt the
Partnership would be unable to refinance this obligation to obtain such
calculated debt amount.
Investment Properties:
Investment properties are stated at cost. Acquisition fees are capitalized as a
cost of real estate. In 1995, the Partnership adopted "SFAS No. 121, Accounting
For the Impairment of Long-Lived Assets and For Long-Lived Assets to be Disposed
Of", which requires impairment losses to be recognized for long-lived assets
used in operations when indicators of impairment are present and the
undiscounted cash flows are not sufficient to recover the assets' carrying
amounts. The impairment loss is measured by comparing the fair value of the
asset to its carrying amount. The adoption of the SFAS had no effect on the
Partnership's financial statements.
Use of Estimates:
The preparation of financial statements in conformity with generally accepted
accounting principles requires management to make estimates and assumptions that
affect the amount reported in the financial statements and accompanying notes.
Actual results could differ from those estimates.
Reclassifications:
Certain reclassifications have been made to the 1995 balances to conform to the
1996 presentation.
NOTE B - MORTGAGE NOTE PAYABLE
The principal terms of the mortgage note payable are as follows (in thousands):
Principal Principal
Balance At Balance
December 31, Interest Maturity Due At
Property 1996 Rate Date Maturity
Barrington Place $ 4,110 10.9% 8/1/98 $ 4,510
Wood View 3,781 10.9% 8/1/98 4,203
Total $ 7,891
The Partnership's properties are cross-collateralized by a zero coupon first
mortgage which secures the entire amount of the note payable. Interest accrues
on the amount borrowed at a contract rate of 10.9 percent per annum, with the
interest accrued added to principal each January and July. As of December 31
1996, approximately $4,763,000 in accrued interest has been added to the
principal of this note. The Partnership is required to repay a specified
percentage of the then outstanding original principal amount of the loan as
follows: 20 percent in August 1995, 20 percent in August 1996, and 30 percent
in August 1997. In addition, provided that the Partnership has generated income
in an amount as defined in the note agreement, it will be required to repay a
specified percentage of the then outstanding accrued interest added to principal
as follows: 20 percent in August 1995, 20 percent in August 1996, and 30
percent in August 1997. The remaining principal balance plus all accrued and
unpaid interest is due in August 1998. In August 1995, the Partnership paid
approximately $1,947,000 (which included $970,000 of accrued interest added to
principal). In August 1996, the Partnership paid $782,000, which is 20 percent
of the then outstanding original principal balance (no additional payment of
accrued interest was required).
Amortization of deferred financing costs totaled approximately $35,000 and
$39,000 for the years ended December 31, 1996 and 1995, respectively.
NOTE C - INCOME TAXES
The Partnership files its tax return on an accrual basis and has computed
depreciation for tax purposes using accelerated methods, which are not in
accordance with generally accepted accounting principles. A reconciliation of
the net loss per the consolidated financial statements to the net taxable income
(loss) to partners is as follows (in thousands, except unit date):
1996 1995
Net loss as reported $ (281) $ (152)
Add (deduct):
Depreciation differences (89) (61)
Other 7 --
Federal taxable loss $ (363) $ (213)
Federal taxable loss
per limited partnership unit $ (14) $ (8)
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets (in thousands):
Net assets as reported $ 11,448
Organization expenses 11
Capital account adjustment 1,030
Payments credited to rental property 143
Depreciation (410)
Gain on sale of property (271)
Other taxes expenses (12)
Other 20
Net assets - Federal tax basis $ 11,959
NOTE D - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control
of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner
of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI
Equity is a wholly-owned subsidiary of National Property Investors, Inc.
("NPI"). In connection with these transactions, affiliates of Insignia appointed
new officers and directors of NPI Equity and FCMC.
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were incurred in 1996 and 1995:
1996 1995
Property management fees (included in operating
expenses) $ 150,000 $ 141,000
Reimbursement for services of affiliates (included
in general and administrative and operating
expenses) 161,000 96,000
Partnership management fees (included in general
and administrative expenses) -- 32,000
For the period of January 19, 1996, to December 31, 1996, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
Included in operating expenses for the fiscal year ended December 31, 1995, are
insurance premiums of approximately $83,000 which were paid to the Managing
General Partner under a master insurance policy arranged for by the Managing
General Partner.
For the period ended December 31, 1995, an affiliate of NPI was paid a fee of
$12,000 relating to the successful real estate tax appeals on the Partnership's
properties. This fee is included in operating expenses.
In accordance with the partnership agreement, the Partnership's net income and
taxable income in 1994, including gain on sale of property, was allocated 20% to
the general partner (until cumulative income allocated is equal to 2.0408% of
the total original limited partner invested capital). For 1995 and 1996, the
Partnership's net loss is allocated 100% to the general partner until the
cumulative loss allocated equals cumulative income allocated to the general
partner subsequent to December 31, 1991. This level was reached in 1996,
thereafter, the net loss is allocated 100% to the limited partners until their
capital accounts are zero. In addition, two percent of cash distributions are
allocated to the general partner.
As the Partnership had completed the acquisition phase, the accrual of a portion
of partnership management fees are subordinate in accordance with the
partnership agreement pending certain returns to the limited partners. At
December 31, 1996, $492,000 of Partnership management fees have been
subordinated to an 8% annualized return to the limited partners. It is unlikely
that these fees will ever be due. Accordingly, the subordinated management fee
has not been recorded as a liability. Upon sale of all properties and
termination of the Partnership the general partners may be required to
contribute certain funds to the Partnership in accordance with the partnership
agreement.
NOTE E - INVESTMENT PROPERTIES AND ACCUMULATED DEPRECIATION (IN THOUSANDS)
Initial Cost
To Partnership
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
Barrington Place $ 4,110 $ 1,152 $ 10,180 $ 27
Wood View 3,781 1,982 7,365 495
Totals $ 7,891 $ 3,134 $ 17,545 $ 522
<TABLE>
<CAPTION>
Gross Amount At Which Carried
At December 31, 1996
Buildings
And Related
Personal Accumulated Year Of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
<S> <C> <C> <C> <C> <C> <C> <C>
Barrington Place $1,138 $ 10,221 $11,359 $ 3,215 1989 07/89 5-30
Wood View 1,981 7,861 9,842 2,575 1982 09/87 5-30
Totals $3,119 $ 18,082 $21,201 $ 5,790
</TABLE>
Reconciliation of "Investment Properties and Accumulated Depreciation":
Years Ended December 31,
1996 1995
Balance at beginning of year $ 21,030 $ 21,018
Property improvements 171 12
Balance at end of year $ 21,201 $ 21,030
Years Ended December 31,
1996 1995
Accumulated Depreciation
Balance at beginning of year $ 5,183 $ 4,518
Additions charged to expense 607 665
Balance at end of year $ 5,790 $ 5,183
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1996 and 1995, is $21,350,000 and $21,178,000. The accumulated
depreciation taken for Federal income tax purposes at December 31, 1996 and
1995, is $6,202,000 and $5,505,000.
ITEM 8. CHANGES IN AND DISAGREEMENTS WITH ACCOUNTANT ON ACCOUNTING AND
FINANCIAL DISCLOSURES
There were no disagreements with Imowitz Koenig & Co., LLP regarding the 1996
or 1995 audits of the Partnership's financial statements.
PART III
ITEM 9. DIRECTORS, EXECUTIVE OFFICERS, PROMOTERS AND CONTROL PERSONS,
COMPLIANCE WITH SECTION 16(A) OF THE EXCHANGE ACT.
The names and ages of, as well as the positions and offices held by, the
executive officers and directors of Fox Capital Management Corporation ("FCMC"
or the "Managing General Partner") are set forth below. There are no family
relationships between or among any officers or directors.
Name Age Position
William H. Jarrard, Jr. 50 President and Director
Ron Uretta 40 Vice President and Treasurer
John K. Lines 37 Vice President and Secretary
Kelley M. Buechler 39 Assistant Secretary
William H. Jarrard, Jr. has been President and Director of FCMC since June 1996
and Managing Director-Partnership Administration of Insignia Financial Group,
Inc. ("Insignia") since January 1991. Mr. Jarrard served as Managing Director-
Partnership Administration and Asset Management from July 1994 until January
1996.
Ronald Uretta has been Vice President and Treasurer of FCMC since June 1996 and
Insignia's Treasurer since January 1992. Since August 1996, he has served as
Insignia's Chief Operating Officer. He also served as Insignia's Secretary from
January 1992 to June 1994 and as Chief Financial Officer from January 1992 to
August 1996. Since September 1990, Mr. Uretta has also served as the Chief
Financial Officer and Controller of Metropolitan Asset Group.
John K. Lines has been Vice President and Secretary of FCMC since June 1996,
Insignia's General Counsel since June 1994 and General Counsel and Secretary
since July 1994. From May 1993 until June 1994, Mr. Lines was the Assistant
General Counsel and Vice President of Ocwen Financial Corporation, West Palm
Beach, Florida. From October 1991 until May 1993, Mr. Lines was a Senior
Attorney with Banc One Corporation, Columbus, Ohio. From May 1984 until October
1991, Mr. Lines was an attorney with Squire Sanders & Dempsey, Columbus, Ohio.
Kelley M. Buechler has been Assistant Secretary of FCMC since June 1996 and
Assistant Secretary of Insignia since 1991.
ITEM 10. EXECUTIVE COMPENSATION
No direct form of compensation or remuneration was paid by the Partnership to
any officer or director of the Managing General Partner. The Partnership has no
plan, nor does the Partnership presently propose a plan, which will result in
any remuneration being paid to any officer or director upon termination of
employment. However, reimbursements and other payments have been made to the
Partnership's Managing General Partner and its affiliates, as described in "Item
12" below.
ITEM 11. SECURITY OWNERSHIP OF CERTAIN BENEFICIAL OWNERS AND MANAGEMENT
There is no person known to the Partnership who owns beneficially or of record
more than five percent of the voting securities of the Partnership. Neither the
Partnership's general partners nor affiliates of the Partnership's general
partners have contributed capital to the Partnership.
The Partnership is a limited partnership and has no officers or directors. The
Managing General Partner has discretionary control over most of the decisions
made by or for the Partnership in accordance with the terms of the Partnership
Agreement. The partners and officers of the Partnership's general partners and
its affiliates, as a group, own less than one percent of the Partnership's
voting securities.
There are no arrangements known to the Managing General Partner, the operation
of which may, at a subsequent date, result in a change in control of the
Partnership.
ITEM 12. CERTAIN RELATIONSHIPS AND RELATED TRANSACTIONS
No transactions have occurred between the Partnership and any officer or
director of FCMC.
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Pursuant to a series of transactions which closed during the first half of 1996,
affiliates of Insignia Financial Group, Inc. ("Insignia") acquired (i) control
of NPI Equity Investments II, Inc. ("NPI Equity"), the managing general partner
of FRI, and (ii) all of the issued and outstanding shares of stock of FCMC. NPI
Equity is a wholly-owned subsidiary of National Property Investors, Inc.
("NPI"). In connection with these transactions, affiliates of Insignia appointed
new officers and directors of NPI Equity and FCMC.
The following transactions with affiliates of Insignia, NPI, and affiliates of
NPI were incurred in 1996 and 1995:
1996 1995
Property management fees (included in operating
expenses) $ 150,000 $ 141,000
Reimbursement for services of affiliates (included
in general and administrative and operating
expenses) 161,000 96,000
Partnership management fees (included in general
and administrative expenses) -- 32,000
For the period of January 19, 1996, to December 31, 1996, the Partnership
insured its properties under a master policy through an agency and insurer
unaffiliated with the Managing General Partner. An affiliate of the Managing
General Partner acquired, in the acquisition of a business, certain financial
obligations from an insurance agency which was later acquired by the agent who
placed the current year's master policy. The current agent assumed the
financial obligations to the affiliate of the Managing General Partner who
received payments on these obligations from the agent. The amount of the
Partnership's insurance premiums accruing to the benefit of the affiliate of the
Managing General Partner by virtue of the agent's obligations is not
significant.
Included in operating expenses for the fiscal year ended December 31, 1995, are
insurance premiums of approximately $83,000 which were paid to the Managing
General Partner under a master insurance policy arranged for by the Managing
General Partner.
For the period ended December 31, 1995, an affiliate of NPI was paid a fee of
$12,000 relating to the successful real estate tax appeals on the Partnership's
properties. This fee is included in operating expenses.
In accordance with the partnership agreement, the Partnership's net income and
taxable income in 1994, including gain on sale of property, was allocated 20% to
the general partner (until cumulative income allocated is equal to 2.0408% of
the total original limited partner invested capital). For 1995 and 1996, the
Partnership's net loss is allocated 100% to the general partner until the
cumulative loss allocated equals cumulative income allocated to the general
partner subsequent to December 31, 1991. This level was reached in 1996,
thereafter, the net loss is allocated 100% to the limited partners until their
capital accounts are zero. In addition, two percent of cash distributions are
allocated to the general partner.
As the Partnership had completed the acquisition phase, the accrual of a portion
of partnership management fees are subordinate in accordance with the
partnership agreement pending certain returns to the limited partners. At
December 31, 1996, $492,000 of Partnership management fees have been
subordinated to an 8% annualized return to the limited partners. It is unlikely
that these fees will ever be due. Accordingly, the subordinated management fee
has not been recorded as a liability. Upon sale of all properties and
termination of the Partnership the general partners may be required to
contribute certain funds to the Partnership in accordance with the partnership
agreement.
ITEM 13. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits: See Exhibit Index contained herein.
(b) Reports on Form 8-K filed during the fourth quarter of 1996: None.
SIGNATURES
Pursuant to the requirements of Section 13 or 15(d) of the Securities Exchange
Act of 1934, the Registrant has duly caused this report to be signed on its
behalf by the undersigned, thereunto duly authorized.
FOX STRATEGIC HOUSING INCOME PARTNERS
(a California Limited Partnership)
By: FOX PARTNERS VIII
Its General Partner
By: Fox Capital Management Corporation
Its Managing General Partner
By: /s/William H. Jarrard, Jr.
William H. Jarrard, Jr.
President and Director
Date: March 19, 1997
Pursuant to the requirements of the Securities Exchange Act of 1934, this Report
has been signed below by the following persons on behalf of the Registrant and
in the capacities and on the date indicated.
/s/ William H. Jarrard, Jr. President and Director March 19, 1997
William H. Jarrard, Jr.
/s/Ronald Uretta Vice President and Treasurer March 19, 1997
Ronald Uretta
EXHIBIT INDEX
Exhibit Number
2. NPI, Inc. Stock Purchase Agreement, dated as
of August 17, 1995, incorporated by reference
to the Partnership's Current Report on Form
8-K dated August 17, 1995.
3.4. Agreement of Limited Partnership,
incorporated by reference to Exhibit A to the
Prospectus of the Partnership dated March 24,
1987, and thereafter supplemented, included
in the Registrant's Registration Statement on
Form S-11 (Reg. No. 33-8481).
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Fox
Strategic Housing Income Partners 1996 Year-End 10-KSB and is qualified in its
entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000800080
<NAME> FOX STRATEGIC HOUSING INCOME PARTNERS
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1996
<PERIOD-END> DEC-31-1996
<CASH> 4,315
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 21,201
<DEPRECIATION> 5,790
<TOTAL-ASSETS> 19,999
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 7,891
0
0
<COMMON> 0
<OTHER-SE> 11,448
<TOTAL-LIABILITY-AND-EQUITY> 19,999
<SALES> 0
<TOTAL-REVENUES> 3,198
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,479
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 922
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> (281)
<EPS-PRIMARY> (8.96)<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
