March 15, 2000
United States
Securities and Exchange Commission
Washington, D.C. 20549
RE: Fox Strategic Housing Income Partners
Form 10-KSB
File No. 0-16877
To Whom it May Concern:
The accompanying Form 10-KSB for the year ended December 31, 1999 describes a
change in the method of accounting to capitalize exterior painting and major
landscaping, which would have been expensed under the old policy. The
Partnership believes that this accounting principle change is preferable because
it provides a better matching of expenses with the related benefit of the
expenditures and it is consistent with industry practice and the policies of the
Managing General Partner.
Please do not hesitate to contact the undersigned with any questions or comments
that you might have.
Very truly yours,
Stephen Waters
Real Estate Controller
<PAGE>
- -------------------------------------------------------------------------------
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, 1999
[ ] 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.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
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 X No___
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 the 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. [ ]
State issuer's revenues for its most recent fiscal year. $3,073,000
State the aggregate market value of the voting partnership interests held by
non-affiliates computed by reference to the price at which the partnership
interests were sold, or the average bid and asked prices of such partnership
interests, as of December 31, 1999. No market exists for the limited partnership
interests of the Registrant, and, therefore, no aggregate market value can be
determined.
DOCUMENTS INCORPORATED BY REFERENCE
None
- --------------------------------------------------------------------------------
<PAGE>
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. Fox
Capital Management Corporation ("FCMC" or the "Managing General Partner"), a
California corporation, and Fox Realty Investors ("FRI") are the general
partners of Fox Partners VIII. The Managing General Partner and the managing
general partner of FRI are each subsidiaries of Apartment Investment and
Management Company ("AIMCO"). The Partnership Agreement provides that the
Partnership is to terminate on December 31, 2025 unless, terminated earlier in
accordance with the terms of the Partnership Agreement.
The Partnership, through its public offering of Limited Partnership Units, sold
26,111 units aggregating $26,111,000. From April 1987 through February 28, 1989,
the Partnership acquired one mobile home park and two apartment complexes. The
Partnership continues to hold and operate the two apartment complexes as of the
date of this filing (see "Item 2. Description of Properties"). Since its initial
offering, the Partnership has not received, nor are limited partners required to
make, additional capital contributions.
The Partnership has no 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. An affiliate of the Managing
General Partner provides day-to-day property management services.
Both the income and expenses of operating the properties owned by the
Partnership are subject to factors outside of the Partnership's control, such as
changes in the supply and demand for similar properties resulting from various
market conditions, increases/decreases in unemployment or population shifts,
changes in the availability of permanent mortgage financing, changes in zoning
laws, or changes in patterns or needs of users. In addition, there are risks
inherent in owning and operating residential properties because such properties
are susceptible to the impact of economic and other conditions outside of the
control of the Partnership.
There have been, and it is possible there may be other, Federal, state and local
legislation and regulations enacted relating to the protection of the
environment. The Partnership is unable to predict the extent, if any, to which
such new legislation or regulations might occur and the degree to which such
existing or new legislation or regulations might adversely affect the properties
owned by the Partnership.
The Partnership monitors its properties for evidence of pollutants, toxins and
other dangerous substances, including the presence of asbestos. In certain cases
environmental testing has been performed which resulted in no material adverse
conditions or liabilities. In no case has the Partnership received notice that
it is a potentially responsible party with respect to an environmental clean up
site.
The real estate business in which the Partnership is engaged is highly
competitive. There are other residential properties within the market area of
the Partnership's properties. The number and quality of competitive properties,
including those which may be managed by an affiliate of the Managing General
Partner, in such market area could have a material effect on the rental market
for the apartments at the Partnership's properties and the rents that may be
charged for such apartments. While the Managing General Partner and its
affiliates own and/or control a significant number of apartment units in the
United States, such units represent an insignificant percentage of total
apartment units in the United States and competition for apartments is local.
A further description of the Partnership's business is included in "Management's
Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form
10-KSB.
Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the Managing General Partner. The Managing
General Partner does not believe that this transaction has had or will have a
material effect on the affairs and operations of the Partnership.
Item 2. Description of Properties:
The following table sets forth the Partnership's investments in properties:
<TABLE>
<CAPTION>
Date of
Property Purchase Type of Ownership Use
<S> <C> <C> <C>
Barrington Place Apartments 7/89 Fee ownership, subject Apartment
Westlake, Ohio to a first mortgage (1) 164 units
Wood View Apartments 9/87 Fee ownership, subject Apartment
Atlanta, Georgia to a first mortgage 180 units
</TABLE>
(1) Property is held by a limited partnership in which the Partnership owns a
99% interest.
Schedule of Properties:
Set forth below for each of the Registrant's properties is the gross carrying
value, accumulated depreciation, depreciable life, method of depreciation and
Federal tax basis.
<TABLE>
<CAPTION>
Gross
Carrying Accumulated Federal
Property Value Depreciation Rate Method Tax Basis
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Barrington Place $11,713 $ 4,257 5-30 yrs S/L $ 7,301
Wood View 10,101 3,450 5-30 yrs S/L 6,383
$21,814 $ 7,707 $13,684
</TABLE>
See "Note A" to the consolidated financial statements included in "Item 7.
Financial Statements" for a description of the Partnership's depreciation policy
and "Note J- Change in Accounting Principle".
<PAGE>
Schedule of Property Indebtedness
The following table sets forth certain information relating to the loans
encumbering the Registrant's properties.
<TABLE>
<CAPTION>
Principal Principal
Balance At Stated Balance
December 31, Interest Period Maturity Due At
Property 1999 Rate Amortized Date Maturity (2)
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Barrington Place $ 4,829 6.65% (1) 8/1/08 $ 4,178
Wood View 5,518 6.64% (1) 8/1/08 4,774
Total $10,347 $ 8,952
</TABLE>
(1) The principal balance is being amortized over 360 months with a
balloon payment due August 1, 2008.
(2) See "Item 7. Financial Statements - Note C" for information with respect
to the Registrant's ability to repay these loans and other specific
details about the loans.
Rental Rates and Occupancy:
Average annual rental rates and occupancy for 1999 and 1998 for each property:
Average Annual Average Annual
Rental Rate Occupancy
(per unit)
Property 1999 1998 1999 1998
Barrington Place $9,747 $9,725 87% 92%
Wood View 9,346 9,081 95% 95%
The Managing General Partner attributes the decrease in occupancy at Barrington
Place to increased competition in the local market. The Partnership has
implemented a more aggressive marketing campaign and has offered concessions in
an attempt to increase occupancy.
As noted under "Item 1. Description of Business", the real estate industry is
highly competitive. All of the properties are subject to competition from other
residential apartment complexes in the area. The Managing General Partner
believes that all of the properties are adequately insured. Each property is an
apartment complex which leases units for lease terms of one year or less. No
resident leases 10% or more of the available rental space. All of the properties
are in good condition, subject to normal depreciation and deterioration as is
typical for assets of this type and age.
<PAGE>
Real Estate Taxes and Rates:
Real estate taxes and rates in 1999 for each property were:
1999 1999
Billing Rate
(in thousands)
Barrington Place $165 5.36%
Wood View 120 2.93%
Capital Improvements:
Barrington Place: The Partnership completed approximately $262,000 in capital
expenditures at Barrington Place as of December 31, 1999, consisting primarily
of parking lot enhancements, HVAC improvements, major landscaping, recreation
facility upgrades, structural improvements, and floor covering replacement.
These improvements were funded from replacement reserves and operating cash
flow. The Partnership is currently evaluating the capital improvement needs of
the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $49,200. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Wood View: The Partnership completed approximately $87,000 in capital
expenditures at Wood View as of December 31, 1999, consisting primarily of roof
replacement, wall covering replacement, and floor covering replacement. These
improvements were funded primarily from replacement reserves and operating cash
flow. The Partnership is currently evaluating the capital improvement needs of
the property for the upcoming year. The minimum amount to be budgeted is
expected to be $300 per unit or $54,000. Additional improvements may be
considered and will depend on the physical condition of the property as well as
replacement reserves and anticipated cash flow generated by the property.
Item 3. Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Item 7. Financial Statements, Note B - Transfer of Control"). The plaintiffs
seek monetary damages and equitable relief, including judicial dissolution of
the Partnership. On June 25, 1998, the Managing General Partner filed a motion
seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs have filed an amended complaint. The Managing General Partner filed
demurrers to the amended complaint which were heard February 1999. Pending the
ruling on such demurrers, settlement negotiations commenced. On November 2,
1999, the parties executed and filed a Stipulation of Settlement settling
claims, subject to final court approval, on behalf of the Partnership and all
limited partners who own units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Superior Court of the
State of California, County of San Mateo, at which time the Court set a final
approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing
the Court received various objections to the settlement, including a challenge
to the Court's preliminary approval based upon the alleged lack of authority of
class plaintiffs' counsel to enter the settlement. On December 14, 1999, the
Managing General Partner and its affiliates terminated the proposed settlement.
Certain plaintiffs have filed a motion to disqualify some of the plaintiffs'
counsel in the action. The Managing General Partner does not anticipate that
costs associated with this case will be material to the Partnership's overall
operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Item 4. Submission of Matters to a Vote of Security Holders
---------------------------------------------------
The unit holders of the Registrant did not vote on any matter during the quarter
ended December 31, 1999.
<PAGE>
PART II
Item 5. Market for Partnership Equity and Related Partner Matters
The Partnership offered and sold 26,111 Limited Partnership Units aggregating
$26,111,000. As of December 31, 1999, there were 1,059 holders of record owning
an aggregate of 26,111 Units. Affiliates of the Managing General Partner owned
8,832 Units or 33.83% as of December 31, 1999. There is no intention to sell
additional Limited Partnership Units nor is there an established market for
these Units.
The following table sets forth the distributions made by the Partnership for the
years ended December 31, 1998 and 1999.
Distributions
Per Limited
Aggregate Partnership Unit
(in thousands)
01/01/98 - 12/31/98 $ 5,381 (1) $201.95
01/01/99 - 12/31/99 1,860 (2) 69.82
(1) Consists of approximately $1,431,000 from operations, $2,401,000 from sale
proceeds, and $1,549,000 from refinancing proceeds. (See "Item 6" for more
details).
(2) Distribution was made from cash from operations. (See "Item 6." for
more details).
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves, and the timing of debt
maturities, refinancings and/or property sales. The Partnership's distribution
policy is reviewed on a semi-annual basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations, after
required capital expenditures, to permit any distributions to its partners in
the year 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 8,832 limited partnership units in the Partnership representing
approximately 33.83% of the outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Managing
General Partner because of their affiliation with the Managing General Partner.
<PAGE>
Item 6. Management's Discussion and Analysis or Plan of Operation
The matters discussed in this Form 10-KSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the disclosure
contained in this Form 10-KSB and the other filings with the Securities and
Exchange Commission made by the Registrant from time to time. The discussion of
the Registrant's business and results of operations, including forward-looking
statements pertaining to such matters, does not take into account the effects of
any changes to the Registrant's business and results of operation. Accordingly,
actual results could differ materially from those projected in the
forward-looking statements as a result of a number of factors, including those
identified herein.
This item should be read in conjunction with the consolidated financial
statements and other items contained elsewhere in this report.
Results of Operations
The Registrant's net income for the year ended December 31, 1999 and 1998 was
approximately $34,000 and $204,000, respectively. The decrease in net income is
due to a decrease in total revenue which was partially offset by a decrease in
total expenses. Total revenue decreased due to a decrease in other income and a
decrease in rental income. The decrease in other income is due primarily to
lower interest income as a result of a decrease in interest bearing cash
balances. Reduced tenant changes and corporate unit revenue at Barrington Place
also resulted in a decrease in other income. The decrease in rental income is
due primarily to a decrease in occupancy as well as increased concession costs
at the Barrington Place Apartments, which were partially offset by an increase
in the average annual rental rate and reduced concession costs at the Wood View
Apartments.
Total expenses decreased primarily due to decreases in interest expense and
operating expense which were partially offset by an increase in general and
administrative expense and property tax expense. Interest expense decreased due
to the lower interest rates obtained in 1998 on the refinanced loans encumbering
the Partnership's properties (see further discussion below). The decrease in
operating expense is primarily due to decreased maintenance expense due to the
completion of repair and maintenance projects at both the Partnership's
properties during 1998 and a change in accounting policy during 1999 as
discussed below. In addition, insurance expense decreased due to a change in
insurance carriers at the investment properties during the fourth quarter of
1998. General and administrative expense increased primarily due to an increase
in Partnership management fees on distributions from operations. The Managing
General Partner earned $149,000 and $115,000 in Partnership Management fees on
distributions from operations for 1999 and 1998, respectively, of which $93,000
and $72,000, respectively, are subordinated to the Limited Partner's annual
receipt of 8% of Adjusted Investment Capital, as defined in the Partnership
Agreement. In addition, there was an increase in legal expenses related to the
settlement of a lawsuit as discussed in the Partnership's Form 10-QSB at June
30, 1999. Property tax expense increased due to an increase in assessed values
at both of the Partnership's properties.
Included in general and administrative expense at both December 31, 1999 and
1998 are management reimbursements to the Managing General Partner allowed under
the Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $26,000 ($.80 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
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 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.
Liquidity and Capital Resources
At December 31, 1999, the Registrant had cash and cash equivalents of
approximately $987,000 compared to approximately $2,127,000 at December 31,
1998. The decrease in cash and cash equivalents of approximately $1,140,000 for
the year ended December 31, 1999 is due to approximately $1,976,000 of cash used
in financing activities and approximately $250,000 of cash used in investing
activities which was partially offset by approximately $1,086,000 of cash
provided by operating activities. Cash used in financing activities consisted
primarily of partner distributions and, to a lesser extent, principal payments
made on the mortgages encumbering the Registrant's properties. Cash used in
investing activities consisted of property improvements and replacements, which
was partially offset by withdrawals from escrow accounts maintained by the
mortgage lender. The Registrant invests its working capital reserves in a money
market account.
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 investment properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state, local, legal, and regulatory requirements. The Partnership is
currently evaluating the capital improvement needs of the properties for the
upcoming year. The minimum amount to be budgeted is expected to be $300 per unit
or $103,200. The additional capital expenditures will be incurred only if cash
is available from operations and Partnership reserves. To the extent that such
budgeted capital improvements are completed, the Registrant's distributable cash
flow, if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. At December 31,
1999, mortgage indebtedness was approximately $10,347,000. Prior to July 30,
1998, the Partnership's properties were cross-collateralized by a zero coupon
first mortgage which secured the entire amount of the note payable. Interest
accrued on the amount borrowed at a contract rate of 10.9% per annum, with the
accrued interest added to principal each January and July. On July 30, 1998, the
Partnership refinanced this indebtedness with new mortgage loans on each of the
properties. As a result, the properties are no longer cross-collateralized. The
new loan on the Wood View Apartments was in the original principal amount of
$5,600,000, bears interest at a rate of 6.64% per annum and requires monthly
debt service payments of approximately $36,000. The new mortgage encumbering
Barrington Place Apartments was in the original amount of $4,900,000, bears
interest at a rate of 6.65% and requires monthly debt service payments of
approximately $31,000. Both mortgage loans mature on August 1, 2008, with
balloon payments due, at which time the properties will need to be refinanced or
sold. If the properties cannot be refinanced and/or sold for a sufficient
amount, the Partnership will risk losing such properties through foreclosure.
During the year ended December 31, 1999, the Partnership distributed cash from
operations of approximately $1,860,000 (approximately $1,823,000 to the limited
partners, $69.82 per limited partnership unit). During the year ended December
31, 1998, the Partnership distributed approximately $1,431,000 from operations
(approximately $1,402,000 to the limited partners, $53.69 per limited
partnership unit), approximately $2,401,000 from proceeds from the 1994 sale of
Lakewood Village Mobile Home Park (approximately $2,353,000 to the limited
partners, $90.12 per limited partnership unit), and approximately $1,549,000
from refinancing proceeds (approximately $1,518,000 to the limited partners,
$58.14 per limited partnership unit). Future cash distributions will depend on
the levels of net cash generated from operations, the availability of cash
reserves and the timing of debt maturities, refinancings, and/or property sales.
The Partnership's distribution policy is reviewed on a quarterly basis. There
can be no assurance, however, that the Partnership will generate sufficient
funds from operations, after required capital expenditures, to permit any
distributions to its partners in 2000 or subsequent periods.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 8,832 units of limited partnership units in the Partnership representing
approximately 33.83% of the outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Managing
General Partner because of their affiliation with the Managing General Partner.
Year 2000 Compliance
General Description
The Year 2000 issue is the result of computer programs being written using two
digits rather than four digits to define the applicable year. The Partnership is
dependent upon the Managing General Partner and its affiliates for management
and administrative services ("Managing Agent"). Any of the Managing Agent's
computer programs or hardware that had date-sensitive software or embedded chips
might have recognized a date using "00" as the year 1900 rather than the year
2000. This could have resulted in a system failure or miscalculations causing
disruptions of operations, including, among other things, a temporary inability
to process transactions, send invoices, or engage in similar normal business
activities.
Computer Hardware, Software and Operating Equipment
In 1999, the Managing Agent completed all phases of its Year 2000 program by
completing the replacement and repair of any hardware or software system or
operating equipment that was not yet Year 2000 compliant. The Managing Agent's
hardware and software systems and its operating equipment are now Year 2000
compliant. To date, no material failure or erroneous results have occurred in
the Managing Agent's computer applications related to the failure to reference
the Year 2000.
Third Parties
To date, the Managing Agent is not aware of any significant supplier or
subcontractor (external agent) or financial institution of the Partnership that
has a Year 2000 issue that would have a material impact on the Partnership's
results of operations, liquidity or capital resources. However, the Managing
Agent has no means of ensuring or determining the Year 2000 compliance of
external agents. At this time, the Managing Agent does not believe that a Year
2000 issue of any non-compliant external agent will have a material impact on
the Partnership's financial position or results of operations.
Costs
The total cost of the Managing Agent's Year 2000 project was approximately $3.2
million and was funded from operating cash flows.
Risks Associated with the Year 2000
The Managing Agent completed all necessary phases of its Year 2000 program in
1999, and did not experience system or equipment malfunctions related to a
failure to reference the Year 2000. The Managing Agent or Partnership have not
been materially adversely effected by disruptions in the economy generally
resulting from the Year 2000 issue.
At this time, the Managing Agent does not believe that the Partnership's
businesses, results of operations or financial condition will be materially
adversely effected by the Year 2000 issue.
Contingency Plans Associated with the Year 2000
The Managing Agent has not had to implement contingency plans such as manual
workarounds or selecting new relationships for its banking or elevator operation
activities in order to avoid the Year 2000 issue.
<PAGE>
Item 7. Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
LIST OF FINANCIAL STATEMENTS
Report of Ernst & Young LLP, Independent Auditors
Consolidated Balance Sheet - December 31, 1999
Consolidated Statements of Operations - Years ended December 31, 1999 and
1998
Consolidated Statements of Changes in Partners' (Deficit) Capital - Years
ended December 31, 1999 and 1998
Consolidated Statements of Cash Flows - Years ended December 31, 1999 and
1998
Notes to Consolidated Financial Statements
<PAGE>
Report of Ernst & Young LLP, Independent Auditors
The Partners
Fox Strategic Housing Income Partners
We have audited the accompanying consolidated balance sheet of Fox Strategic
Housing Income Partners as of December 31, 1999, and the related consolidated
statements of operations, changes in partners' (deficit) capital and cash flows
for each of the two years in the period ended December 31, 1999. These financial
statements are the responsibility of the Partnership's management. Our
responsibility is to express an opinion on these financial statements based on
our audits.
We conducted our audits in accordance with auditing standards generally accepted
in the United States. Those standards require that we plan and perform the audit
to obtain reasonable assurance about whether the financial statements are free
of material misstatement. An audit includes examining, on a test basis, evidence
supporting the amounts and disclosures in the financial statements. An audit
also includes assessing the accounting principles used and significant estimates
made by the Partnership's management, as well as evaluating the overall
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 at December 31, 1999, and the consolidated results of
its operations and its cash flows for each of the two years in the period ended
December 31, 1999, in conformity with accounting principles generally accepted
in the United States.
As discussed in Note J to the consolidated financial statements, the Partnership
changed its method of accounting to capitalize the cost of exterior painting and
major landscaping effective January 1, 1999.
/s/ ERNST & YOUNG LLP
Greenville, South Carolina
February 25, 2000
<PAGE>
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(in thousands, except unit data)
December 31, 1999
<TABLE>
<CAPTION>
Assets
<S> <C> <C>
Cash and cash equivalents $ 987
Receivables and deposits 110
Restricted escrows 95
Other assets 256
Investment properties (Notes C and F):
Land $ 3,119
Buildings and related personal property 18,695
21,814
Less accumulated depreciation (7,707) 14,107
$ 15,555
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 90
Tenant security deposit liabilities 43
Accrued property taxes 175
Due to general partner 217
Other liabilities 132
Mortgage notes payable (Note C) 10,347
Partners' (Deficit) Capital
General partner $ (304)
Limited partners (26,111 units issued and
outstanding) 4,855 4,551
$ 15,555
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(in thousands, except unit data)
Years Ended
December 31,
1999 1998
Revenues:
Rental income $ 2,890 $ 2,957
Other income 183 346
Total revenues 3,073 3,303
Expenses:
Operating 978 1,012
General and administrative 402 308
Depreciation 654 637
Interest 714 884
Property taxes 291 258
Total expenses 3,039 3,099
Net income (Note D) $ 34 $ 204
Net income allocated to general partner $ 7 $ 41
Net income allocated limited partners 27 163
$ 34 $ 204
Net income per limited partnership unit $ 1.03 $ 6.24
Distributions per limited partnership unit $ 69.82 $201.95
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 26,111 $ -- $26,111 $26,111
Partners' (deficit) capital at
December 31, 1997 26,111 $ (207) $11,761 $11,554
Distributions to partners -- (108) (5,273) (5,381)
Net income for the year ended
December 31, 1998 -- 41 163 204
Partners' (deficit) capital at
December 31, 1998 26,111 (274) 6,651 6,377
Distributions to partners -- (37) (1,823) (1,860)
Net income for the year ended
December 31, 1999 -- 7 27 34
Partners' (deficit) capital at
December 31, 1999 26,111 $ (304) $ 4,855 $ 4,551
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLDIATED STATEMENTS OF CASH FLOWS
(in thousands)
<TABLE>
<CAPTION>
Years Ended
December 31,
1999 1998
<S> <C> <C>
Cash flows from operating activities:
Net income $ 34 $ 204
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 654 637
Amortization of loan costs 21 44
Change in accounts:
Receivables and deposits 200 (204)
Other assets 4 (13)
Accounts payable 4 (23)
Tenant security deposit liabilities (1) (5)
Accrued property taxes 4 --
Accrued interest payable -- 578
Due to general partner 145 72
Other liabilities 21 3
Net cash provided by operating activities 1,086 1,293
Cash flows from investing activities:
Property improvements and replacements (280) (101)
Net withdrawals from (deposits to) restricted escrows 30 (125)
Net cash used in investing activities (250) (226)
Cash flows from financing activities:
Proceeds from mortgage notes payable -- 10,500
Repayment of mortgage note payable -- (8,712)
Payments on mortgage notes payable (116) (37)
Loan costs paid -- (278)
Distributions to partners (1,860) (5,381)
Net cash used in financing activities (1,976) (3,908)
Net decrease in cash and cash equivalents (1,140) (2,841)
Cash and cash equivalents at beginning of period 2,127 4,968
Cash and cash equivalents at end of period $ 987 $ 2,127
Supplemental disclosure of cash flow information:
Cash paid for interest $ 693 $ 261
Supplemental disclosure of non-cash investing and
financing activities:
Accrued interest added to note payable $ -- $ 876
Property improvements and replacements included in
accounts payable $ 69 $ --
</TABLE>
See Accompanying Notes to Consolidated Financial Statements
<PAGE>
FOX STRATEGIC HOUSING INCOME PARTNERS
Notes To Consolidated Financial Statements
December 31, 1999
Note A - Organization and Significant Accounting Policies
Organization: Fox Strategic Housing Income Partners (the "Partnership" or
"Registrant") is a limited partnership organized under the laws of the State of
California to operate and hold income-producing properties. The Partnership
currently owns two apartment buildings, one located in Atlanta, Georgia, and one
located in Westlake, Ohio. Fox Partners VIII, a California general partnership,
is the general partner of the Partnership. 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 Managing General Partner and the managing
general partner of FRI are subsidiaries of Apartment Investment and Management
Company ("AIMCO") (see "Note B - Transfer of Control"). The director and
officers of the Managing General Partner also serve as executive officers of
AIMCO. The Partnership Agreement provides that the Partnership is to terminate
on December 31, 2025 unless terminated earlier in accordance with the terms of
the Partnership Agreement. The Partnership was organized in 1984 and commenced
operations in 1987. The capital contributions of $26,111,000 ($1,000 per unit)
were made by the limited partners including one limited partnership unit
purchased by an affiliate of FCMC.
Consolidation: The consolidated financial statements include the statements of
the Partnership and Westlake East Associates, L.P., a limited partnership in
which the partnership owns a 99% interest. The general partner may be removed by
the Registrant; therefore, the consolidated partnership is controlled and
consolidated by the Registrant. All significant interpartnership 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.
In accordance with the Partnership Agreement, the Partnership's net losses were
allocated 100% to the general partner until the cumulative loss allocated
equaled cumulative income allocated to the general partner subsequent to
December 31, 1991. This level was reached in 1996; thereafter, the net losses
have been allocated 100% to the limited partners until their capital accounts
are zero. For the years ended December 31, 1999 and 1998, the Partnership's net
income has been allocated 20% to the general partner until cumulative income is
equal to 2.0408% of the total Original Invested Capital. In addition, two
percent of cash distributions are allocated to the general partner.
Fair Value of Financial Instruments: 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", 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 fair value of the
Partnership's long term debt, after discounting the scheduled loan payments to
maturity, approximates its carrying balance.
Investment Properties: Investment properties consist of two apartment complexes
and are stated at cost. Acquisition fees are capitalized as a cost of real
estate. In accordance with SFAS No. 121, "Accounting for the Impairment of
Long-Lived Assets and for Long-Lived Assets to be Disposed Of", the Partnership
records impairment losses on long-lived assets used in operations when events
and circumstances indicate that the assets might be impaired and the
undiscounted cash flows estimated to be generated by those assets are less than
the carrying amounts of those assets. No adjustments for impairment of value
were recorded in the years ended December 31, 1999 or 1998.
Depreciation: Depreciation is provided by the straight-line method over the
estimated lives of the investment properties and related personal property. For
Federal income tax purposes, the accelerated cost recovery method is used (1)
for real property over 18 years for additions after March 15, 1984, and before
May 9, 1985, and 19 years for additions after May 8, 1985 and before January 1,
1987, and (2) for personal property over 5 years for additions prior to January
1, 1987. As a result of the Tax Reform Act of 1986, for additions after December
31, 1986, the alternative depreciation system is used for depreciation of (1)
real property over 40 years and (2) personal property additions over 5-20 years.
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping ("Note J").
Cash and Cash Equivalents: Includes cash on hand and in banks and money market
accounts. 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. In addition,
the Managing General Partner's policy is to offer rental concessions during
particularly slow months or in response to heavy competition from other similar
complexes in the area. Concessions are charged against rental income as
incurred.
Loan Costs: Loan costs of approximately $278,000, less accumulated amortization
of approximately $42,000, are included in other assets and are being amortized
on a straight-line basis over the lives of the loans.
Tenant Security Deposits: The Partnership requires security deposits from
lessees for the duration of the lease and such deposits are included in
receivables and deposits. The security deposits are refunded when the tenant
vacates, provided the tenant has not damaged the space and is current on its
rental payments.
Restricted Escrows: In conjunction with the refinancing of both the Barrington
Place and Wood View Apartments mortgage notes payable in 1998, the Partnership
established "Capital Improvement" escrows for certain capital improvements. At
December 31, 1999, the balance in the account was approximately $95,000 for
Barrington Place. Wood View Apartments completed all the required improvements
during 1999 and withdrew its reserve funds.
Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and
Related Information" established standards for the way that public business
enterprises report information about operating segments in annual financial
statements and requires that those enterprises report selected information about
operating segments in interim financial reports. It also establishes standards
for related disclosures about products and services, geographic areas, and major
customers. See "Note H" for required disclosure.
Advertising: The Partnership expenses the costs of advertising as incurred.
Advertising costs of approximately $54,000 and $57,000 for the years ended
December 31, 1999 and 1998, respectively, were charged to operating expense as
incurred.
Uses of Estimates: The preparation of financial statements in conformity with
generally accepted accounting principles requires management to make estimates
and assumptions that affect the amounts reported in the financial statements and
accompanying notes. Actual results could differ from those estimates.
Note B - Transfer of Control
Pursuant to a series of transactions which closed on October 1, 1998 and
February 26, 1999, Insignia Financial Group, Inc. and Insignia Properties Trust
merged into AIMCO, a publicly traded real estate investment trust, with AIMCO
being the surviving corporation (the "Insignia Merger"). As a result, AIMCO
acquired 100% ownership interest in the Managing General Partner. The Managing
General Partner does not believe that this transaction has had or will have a
material effect on the affairs and operations of the Partnership.
<PAGE>
Note C - Mortgage Notes Payable
The principle terms of mortgage notes payable are as follows:
<TABLE>
<CAPTION>
Principal Monthly Principal
Balance At Payment Stated Balance
December 31, Including Interest Maturity Due At
Property 1999 Interest Rate Date Maturity
(in thousands) (in thousands)
<S> <C> <C> <C> <C> <C>
Barrington Place $ 4,829 $ 31 6.65% 08/01/08 $ 4,178
Wood View 5,518 36 6.64% 08/01/08 4,774
Totals $10,347 $ 67 $ 8,952
</TABLE>
Prior to July 30, 1998, the Partnership's properties were cross-collateralized
by a zero coupon first mortgage which secured the entire amount of the note
payable. Interest accrued on the amount borrowed at a contract rate of 10.9% per
annum, with the accrued interest added to principal each January and July. On
July 30, 1998, the Partnership refinanced this indebtedness with new mortgage
loans on each of the properties. As a result, the properties are no longer
cross-collateralized. The new loan on the Wood View Apartments was in the
original principal amount of $5,600,000, bears interest at a rate of 6.64% per
annum and requires monthly debt service payments of approximately $36,000. The
new mortgage encumbering Barrington Place Apartments was in the original
principal amount of $4,900,000, bears interest at a rate of 6.65% and requires
monthly debt service payments of approximately $31,000. Both mortgage loans
mature on August 1, 2008, at which time balloon payments will be due. The
Partnership received net proceeds from these refinancings in the aggregate
amount of approximately $1,549,000. In addition, the Partnership was required to
establish escrows with the lender for tax and insurance costs, capital
improvements and repairs.
The mortgage notes payable are nonrecourse and are secured by pledge of the
Partnership's rental properties and by pledge of reserves from the respective
rental properties. The notes require prepayment penalties if repaid prior to
maturity. Further, the properties may not be sold subject to existing
indebtedness.
Scheduled principal payments of the mortgage notes payable subsequent to
December 31, 1999 are as follows (in thousands):
2000 $ 125
2001 133
2002 142
2003 152
2004 163
Thereafter 9,632
$10,347
<PAGE>
Note D - Income Taxes
The Partnership is classified as a Partnership for Federal income tax purposes.
Accordingly, no provision for income taxes is made in the consolidated financial
statements of the Partnership. Taxable income or loss of the Partnership is
reported in the income tax returns of its partners.
The following is a reconciliation of net income as reported in the consolidated
financial statements and Federal taxable income allocated to the partners in the
Partnership's information return for the years ended December 31, 1999 and 1998
(in thousands, except unit data):
1999 1998
Net income as reported $ 34 $ 204
Add (deduct):
Depreciation differences (65) (52)
Other 95 142
Federal taxable income $ 64 $ 294
Federal taxable income per
limited partnership unit $ 2.40 $ 11.03
The following is a reconciliation between the Partnership's reported amounts and
Federal tax basis of net assets (in thousands):
Net assets as reported $ 4,551
Land and buildings 157
Accumulated depreciation (580)
Syndication and distribution costs 757
Other 245
Net assets - Federal tax basis $ 5,130
<PAGE>
Note E - 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 certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Managing General Partner and/or its affiliates were incurred during the years
ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees (included in
operating expense) $ 154 $ 158
Reimbursement for services of affiliates
(included in operating, general and
administrative expenses, and investment
properties) 56 61
Partnership management fee (included in
general and administrative expense) 149 115
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $154,000 and
$158,000 for the years ended December 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $56,000 and $61,000 for the
years ended December 31, 1999 and 1998, respectively.
In addition, the Managing General Partner earned $149,000 and $115,000 in
Partnership Management fees on distributions from operations for 1999 and 1998,
respectively, of which $93,000 and $72,000, respectively, are subordinated to
the Limited Partner's annual receipt of 8% of Adjusted Investment Capital, as
defined in the Partnership Agreement.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 8,832 units of limited partnership units in the Partnership representing
33.83% of the outstanding units. It is possible that AIMCO or its affiliates
will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Managing
General Partner because of their affiliation with the Managing General Partner.
<PAGE>
Note F - Real Estate and Accumulated Depreciation
Initial Cost
To Partnership
(in thousands)
<TABLE>
<CAPTION>
Buildings Cost
and Related Capitalized
Personal Subsequent to
Description Encumbrances Land Property Acquisition
(in thousands) (in thousands)
<S> <C> <C> <C> <C>
Barrington Place $ 4,829 $ 1,152 $10,180 $ 381
Wood View Apartments 5,518 1,981 7,366 754
Totals $10,347 $ 3,133 $17,546 $ 1,135
</TABLE>
<TABLE>
<CAPTION>
Gross Amount At Which
Carried
At December 31, 1999
--------------------
(in thousands)
Buildings
And Related
Personal Accumulated Year of Date Depreciable
Description Land Property Total Depreciation Construction Acquired Life-Years
(in thousands)
<S> <C> <C> <C> <C> <C> <C> <C>
Barrington Place $ 1,138 $10,575 $11,713 $ 4,257 1989 07/89 5-30
Wood View 1,981 8,120 10,101 3,450 1982 09/87 5-30
Totals $ 3,119 $18,695 $21,814 $ 7,707
</TABLE>
Reconciliation of "Real Estate and Accumulated Depreciation" (in thousands):
Years Ended December 31,
1999 1998
Real Estate
Balance at beginning of year $21,465 $21,364
Property improvements 349 101
Balance at end of year $21,814 $21,465
Accumulated Depreciation
Balance at beginning of year $ 7,053 $ 6,416
Additions charged to expense 654 637
Balance at end of year $ 7,707 $ 7,053
The aggregate cost of the real estate for Federal income tax purposes at
December 31, 1999 and 1998, is approximately $21,971,000 and $21,614,000,
respectively. The accumulated depreciation taken for Federal income tax purposes
at December 31, 1999 and 1998, is approximately $8,287,000 and $7,569,000,
respectively.
Note G - Distributions
During the year ended December 31, 1999, the Partnership distributed cash from
operations of approximately $1,860,000 (approximately $1,823,000 to the limited
partners, $69.82 per limited partnership unit). During the year ended December
31, 1998, the Partnership distributed approximately $1,431,000 from operations
(approximately $1,402,000 to the limited partners, $53.69 per limited
partnership unit), approximately $2,401,000 from proceeds from the 1994 sale of
Lakewood Village Mobile Home Park (approximately $2,353,000 to the limited
partners, $90.12 per limited partnership unit), and approximately $1,549,000
from refinancing proceeds (approximately $1,518,000 to the limited partners,
$58.14 per limited partnership unit).
<PAGE>
Note H - Segment Information
Description of the types of products and services from which the reportable
segment derives its revenues:
The Partnership has one reportable segment: residential properties. The
Partnership's residential property segment consists of two apartment complexes
located in Ohio and Georgia. The Partnership rents apartment units to tenants
for terms that are typically twelve months or less.
Measurement of segment profit or loss:
The Partnership evaluates performance based on segment profit (loss) before
depreciation. The accounting policies of the reportable segment are the same as
those described in the summary of significant accounting policies.
Factors management used to identify the enterprise's reportable segment:
The Partnership's reportable segment consists of investment properties that
offer similar products and services. Although each of the investment properties
is managed separately, they have been aggregated into one segment as they
provide services with similar types of products and customers.
Segment information for the years 1999 and 1998 is shown in the tables below.
The "Other" column includes Partnership administration related items and income
and expense not allocated to the reportable segment.
1999 Residential Other Totals
---- ----------- ----- ------
(in thousands)
Rental income $ 2,890 $ -- $ 2,890
Other income 176 7 183
Interest expense 714 -- 714
Depreciation 654 -- 654
General and administrative expense -- 402 402
Segment profit (loss) 429 (395) 34
Total assets 15,454 101 15,555
Capital expenditures for investment
properties 349 -- 349
1998 Residential Other Totals
---- ----------- ----- ------
(in thousands)
Rental income $ 2,957 $ -- $ 2,957
Other income 218 128 346
Interest expense 884 -- 884
Depreciation 637 -- 637
General and administrative expense -- 308 308
Segment profit (loss) 384 (180) 204
Total assets 17,143 112 17,255
Capital expenditures for investment
properties 101 -- 101
Note I - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Managing General Partner and several of their affiliated
partnerships and corporate entities. The action purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia
("Insignia Affiliates") of interests in certain general partner entities, past
tender offers by Insignia Affiliates to acquire limited partnership units, the
management of partnerships by Insignia Affiliates and the Insignia Merger (see
"Note B - Transfer of Control"). The plaintiffs seek monetary damages and
equitable relief, including judicial dissolution of the Partnership. On June 25,
1998, the General Partner filed a motion seeking dismissal of the action. In
lieu of responding to the motion, the plaintiffs have filed an amended
complaint. The Managing General Partner filed demurrers to the amended complaint
which were heard February 1999. Pending the ruling on such demurrers, settlement
negotiations commenced. On November 2, 1999, the parties executed and filed a
Stipulation of Settlement settling claims, subject to final court approval, on
behalf of the Partnership and all limited partners who own units as of November
3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999
from the Superior Court of the State of California, County of San Mateo, at
which time the Court set a final approval hearing for December 10, 1999. Prior
to the December 10, 1999 hearing the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of class plaintiffs' counsel to enter the
settlement. On December 14, 1999, the Managing General Partner and its
affiliates terminated the proposed settlement. Certain plaintiffs have filed a
motion to disqualify some of the plaintiffs' counsel in the action. The Managing
General Partner does not anticipate that costs associated with this case will be
material to the Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
Note J - Change in Accounting Principle
Effective January 1, 1999, the Partnership changed its method of accounting to
capitalize the cost of exterior painting and major landscaping on a prospective
basis. The Partnership believes that this accounting principle change is
preferable because it provides a better matching of expenses with the related
benefit of the expenditures and it is consistent with industry practice and the
policies of the Managing General Partner. The effect of the change in 1999 was
to increase net income by approximately $26,000 ($.80 per limited partnership
unit). The cumulative effect, had this change been applied to prior periods, is
not material. The accounting principle change will not have an effect on cash
flow, funds available for distribution or fees payable to the Managing General
Partner and affiliates.
<PAGE>
Item 8. Changes in and Disagreements with Accountants on Accounting and
Financial Disclosure
None.
<PAGE>
PART III
Item 9. Directors and Executive Officers, Promoters and Control Persons,
Compliance with Section 16(a) of the Exchange Act
The general partner of Fox Strategic Housing Income Partners (the "Partnership"
or the "Registrant") is Fox Partners VIII. The general partners of Fox Partners
VIII are Fox Capital Management Corporation ("FCMC" or the "Managing General
Partner") and Fox Realty Investors ("FRI"). The names and ages of, as well as
the position and offices held by, the present executive officers and directors
of the Managing General Partner are set forth below. There are no family
relationships between or among any officers or directors.
Name Age Position
Patrick J. Foye 42 Executive Vice President and Director
Martha L. Long 40 Senior Vice President and Controller
Patrick J. Foye has been Executive Vice President and Director of the Managing
General Partner since October 1, 1998. Mr. Foye has served as Executive Vice
President of AIMCO since May 1998. Prior to joining AIMCO, Mr. Foye was a
partner in the law firm of Skadden, Arps, Slate, Meagher & Flom LLP from 1989 to
1998 and was Managing Partner of the firm's Brussels, Budapest and Moscow
offices from 1992 through 1994. Mr. Foye is also Deputy Chairman of the Long
Island Power Authority and serves as a member of the New York State
Privatization Council. He received a B.A. from Fordham College and a J.D. from
Fordham University Law School.
Martha L. Long has been Senior Vice President and Controller of the Managing
General Partner and AIMCO since October 1998, as a result of the acquisition of
Insignia Financial Group, Inc. From June 1994 until January 1997, she was the
Controller for Insignia, and was promoted to Senior Vice President - Finance and
Controller in January 1997, retaining that title until October 1998. From 1988
to June 1994, Ms. Long was Senior Vice President and Controller for The First
Savings Bank, FSB in Greenville, South Carolina.
Based solely upon a review of Forms 3 and 4 and amendments thereto furnished to
the Registrant under Rule 16a-3(e) during the Registrant's most recent fiscal
year and Forms 5 and amendments thereto furnished to the Registrant with respect
to its most recent fiscal year, the Registrant is not aware of any director,
officer, beneficial owner of more than ten percent of the units of limited
partnership interest in the Registrant that failed to file on a timely basis, as
disclosed in the above Forms, reports required by section 16(a) of the Exchange
Act during the most recent fiscal year or prior fiscal years except as follows:
AIMCO and its joint filers failed to timely file a Form 4 with respect to its
acquisition of Units.
Item 10. Executive Compensation
None of the directors and officers of the Managing General Partner received any
remuneration from the Registrant.
<PAGE>
Item 11. Security Ownership of Certain Beneficial Owners and Management
Except as noted below, no person or entity was known by the Registrant to be the
beneficial owner of more than 5% of the Limited Partnership Units of the
Registrant as of December 31, 1999.
Entity Number of Units Percentage
IPLP Acquisition I LLC ("IPLP LLC")
(an affiliate of AIMCO) 3,919 15.01%
Insignia Properties LP ("IPLP")
(an affiliate of AIMCO) 213 .82%
AIMCO Properties LP
(an affiliate of AIMCO) 4,700 18.00%
IPLP LLC and IPLP are indirectly ultimately owned by AIMCO. Their business
address is 55 Beattie Place, Greenville, SC 29602. AIMCO Properties LP is
indirectly ultimately controlled by AIMCO. Its business address is 2000 South
Colorado Blvd., Denver, Colorado 80222.
No director or officer of FCMC owns any Units of the Partnership of record or
beneficially.
Item 12. Certain Relationships and Related Transactions
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 certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership. The following transactions with the
Managing General Partner and/or its affiliates were incurred during the years
ended December 31, 1999 and 1998:
1999 1998
(in thousands)
Property management fees $ 154 $ 158
Reimbursement for services of affiliates 56 61
Partnership management fee 149 115
During the years ended December 31, 1999 and 1998, affiliates of the Managing
General Partner were entitled to receive 5% of gross receipts from all of the
Partnership's properties as compensation for providing property management
services. The Partnership paid to such affiliates approximately $154,000 and
$158,000 for the years ended December 31, 1999 and 1998, respectively.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $56,000 and $61,000 for the
years ended December 31, 1999 and 1998, respectively.
In addition, the Managing General Partner earned $149,000 and $115,000 in
Partnership Management fees on distributions from operations for 1999 and 1998,
respectively, of which $93,000 and $72,000, respectively, are subordinated to
the Limited Partner's annual report of 8% of Adjusted Investment Capital, as
defined in the Partnership Agreement.
Several tender offers were made by various parties, including affiliates of the
Managing General Partner, during the years ended December 31, 1999 and 1998. As
a result of these and prior tender offers, AIMCO and its affiliates currently
own 8,832 units of limited partnership units in the Partnership representing
approximately 33.83% of the outstanding units. It is possible that AIMCO or its
affiliates will make one or more additional offers to acquire additional limited
partnership interests in the Partnership for cash or in exchange for units in
the operating partnership of AIMCO. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters. When voting on matters, AIMCO would in all likelihood vote
the Units it acquired in a manner favorable to the interest of the Managing
General Partner because of their affiliation with the Managing General Partner.
<PAGE>
Item 13. Exhibits and Reports on Form 8-K
(a) Exhibits:
2.1 Agreement and Plan of Merger dated as of October 1, 1998, by and
between AIMCO and IPT; incorporated by reference to Registrant's
Current Report on Form 8-K dated October 1, 1998.
10.1* Repair Escrow Agreement dated July 30, 1998, between Fox Strategic
Housing Income Partners, a California limited partnership, and
Newport Mortgage Company, L.P., a Texas limited partnership, related
to the refinancing of debt on Wood View Apartments.
10.2* Replacement Reserve Agreement dated July 30, 1998, between Fox
Strategic Housing Income Partners, a California limited partnership,
and Newport Mortgage Company, L.P., a Texas limited partnership,
related to the refinancing of debt on Wood View Apartments.
10.3* Multi-Family Note dated July 30, 1998, between Westlake East
Associates Limited Partnership, an Ohio limited partnership, and
Newport Mortgage Company, L.P., a Texas limited partnership, related
to the refinancing of debt on Barrington Place Apartments.
10.4* Repair Escrow Agreement dated July 30, 1998, between Fox Strategic
Housing Income Partners, a California limited partnership, and
Newport Mortgage Company, L.P., a Texas limited partnership, related
to the refinancing of debt on Barrington Place Apartments.
10.5* Replacement Reserve Agreement dated July 30, 1998, between Fox
Strategic Housing Income Partners, a California limited partnership,
and Newport Mortgage Company, L.P., a Texas limited partnership,
related to the refinancing of debt on Barrington Place Apartments.
10.6 Multi-Family Note dated July 30, 1998, between Fox Strategic Housing
Income Partners, a California limited partnership, and Newport
Mortgage Company, L.P., a Texas limited partnership, related to the
refinancing of debt on Wood View Apartments, filed as an exhibit to
this report.
*Filed as Exhibits 10.1 through 10.5, respectively, to Form 10-QSB -
Quarterly or Transitional Report filed on November 12, 1998 and
incorporated herein by reference.
16 Letter dated November 11, 1998, from the Registrant's former
independent accountant regarding its concurrence with the statements
made by the Registrant in Current Report on Form 8-K filed on
November 16, 1998.
18 Independent Accountants' Preferability Letter for Change in
Accounting Principle, filed as an exhibit to this report.
27 Financial Data Schedule, filed as an exhibit to this report.
(b) Reports on Form 8-K filed in the fourth quarter of calendar year 1999:
None.
<PAGE>
SIGNATURES
In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant has
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/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President and
Controller
Date:
In accordance with the Exchange Act, this report has been signed below by the
following persons on behalf of the Partnership and in the capacities and on the
dates indicated.
/s/Patrick J. Foye Executive Vice President Date:
Patrick J. Foye and Director
/s/Martha L. Long Senior Vice President Date:
Martha L. Long and Controller
<PAGE>
Exhibit 18
February 7, 2000
Mr. Patrick J. Foye
Executive Vice President
Fox Capital Management Corporation
Managing General Partner of Fox Strategic Housing Income Partners
55 Beattie Place
P.O. Box 1089
Greenville, South Carolina 29602
Dear Mr. Foye:
Note J of Notes to the Consolidated Financial Statements of Fox Strategic
Housing Income Partners included in its Form 10-KSB for the year ended December
31, 1999 describes a change in the method of accounting to capitalize exterior
painting and major landscaping, which would have been expensed under the old
policy. You have advised us that you believe that the change is to a preferable
method in your circumstances because it provides a better matching of expenses
with the related benefit of the expenditures and is consistent with policies
currently being used by your industry and conforms to the policies of the
Managing General Partner.
There are no authoritative criteria for determining a preferable method based on
the particular circumstances; however, we conclude that the change in the method
of accounting for exterior painting and major landscaping is to an acceptable
alternative method which, based on your business judgment to make this change
for the reasons cited above, is preferable in your circumstances.
Very truly yours,
/s/ Ernst & Young LLP
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from Fox
Strategic Housing Income Partners 1999 Fourth Quarter 10-KSB and is qualified in
its entirety by reference to such 10-KSB filing.
</LEGEND>
<CIK> 0000800080
<NAME> Fox Strategic Housing Partners
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 12-MOS
<FISCAL-YEAR-END> DEC-31-1999
<PERIOD-START> JAN-01-1999
<PERIOD-END> DEC-31-1999
<CASH> 987
<SECURITIES> 0
<RECEIVABLES> 110
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0 <F1>
<PP&E> 21,814
<DEPRECIATION> 7,707
<TOTAL-ASSETS> 15,555
<CURRENT-LIABILITIES> 0 <F1>
<BONDS> 10,347
0
0
<COMMON> 0
<OTHER-SE> 4,551
<TOTAL-LIABILITY-AND-EQUITY> 15,555
<SALES> 0
<TOTAL-REVENUES> 3,073
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 3,039
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 714
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 34
<EPS-BASIC> 1.03 <F2>
<EPS-DILUTED> 0
<FN>
<F1> Registrant has an unclassified balance sheet. <F2> Multiplier is 1.
</FN>
</TABLE>
