FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. SECURITIES AND EXCHANGE COMMISSION Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2000 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-16877 FOX STRATEGIC HOUSING INCOME PARTNERS (Exact name of small business issuer as specified 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) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the preceding 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 2000 Assets Cash and cash equivalents $ 1,080 Receivables and deposits 58 Restricted escrows 95 Other assets 254 Investment properties: Land $ 3,119 Buildings and related personal property 18,738 21,857 Less accumulated depreciation (7,880) 13,977 $ 15,464 Liabilities and Partners' (Deficit) Capital Liabilities Accounts payable $ 41 Due to general partner 164 Tenant security deposit liabilities 44 Accrued property taxes 163 Other liabilities 114 Mortgage notes payable 10,316 Partners' (Deficit) Capital General partner $ (290) Limited partners (26,111 units issued and outstanding) 4,912 4,622 $ 15,464 See Accompanying Notes to Consolidated Financial Statements b) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 2000 1999 Revenues: Rental income $ 744 $ 688 Other income 28 50 Total revenues 772 738 Expenses: Operating 226 228 General and administrative 53 58 Depreciation 173 163 Interest 179 183 Property taxes 70 50 Total expenses 701 682 Net income $ 71 $ 56 Net income allocated to general partner $ 14 $ 11 Net income allocated to limited partners 57 45 $ 71 $ 56 Net income per limited partnership unit $ 2.18 $ 1.72 See Accompanying Notes to Consolidated Financial Statements c) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner Partners Total Original capital contributions 26,111 $ -- $26,111 $26,111 Partners' (deficit) capital at December 31, 1999 26,111 $ (304) $ 4,855 $ 4,551 Net income for the three months ended March 31, 2000 -- 14 57 71 Partners' (deficit) capital at March 31, 2000 26,111 $ (290) $ 4,912 $ 4,622 See Accompanying Notes to Consolidated Financial Statements d) FOX STRATEGIC HOUSING INCOME PARTNERS CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2000 1999 Cash flows from operating activities: Net income $ 71 $ 56 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 173 163 Amortization of loan costs 8 9 Change in accounts: Receivables and deposits 52 78 Other assets (6) 22 Accounts payable 20 (2) Tenant security deposit liabilities 1 (1) Accrued property taxes (12) (116) Due to general partner (53) -- Other liabilities (18) (6) Net cash provided by operating activities 236 203 Cash flows used in investing activities: Property improvements and replacements (112) (40) Cash flows used in financing activities: Payments on mortgage notes payable (31) (29) Net increase in cash and cash equivalents 93 134 Cash and cash equivalents at beginning of period 987 2,127 Cash and cash equivalents at end of period $ 1,080 $ 2,261 Supplemental disclosure of cash flow information: Cash paid for interest $ 172 $ 174 At December 31, 1999 and March 31, 2000, property improvements and replacements and accounts payable were both adjusted by approximately $69,000 for non-cash activity. See Accompanying Notes to Consolidated Financial Statements e) FOX STRATEGIC HOUSING INCOME PARTNERS NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Fox Strategic Housing Income Partners (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California corporation, all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2000, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2000. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. Principles of 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 inter-partnership transactions and balances have been eliminated. 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 Apartment Investment and Management Company ("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. Note C - 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 three months ended March 31, 2000 and 1999: 2000 1999 (in thousands) Property management fees (included in operating expenses) $ 39 $ 36 Reimbursement for services of affiliates (included in investment properties and general and administrative expenses) 15 15 During the three months ended March 31, 2000 and 1999, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from both of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $39,000 and $36,000 for the three months ended March 31, 2000 and 1999, respectively. An affiliate of the Managing General Partner received reimbursements of accountable administrative expenses amounting to approximately $15,000 for each of the three month periods ended March 31, 2000 and 1999. AIMCO and its affiliates currently own 8,882 limited partnership units in the Partnership representing approximately 34.02% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. 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. Note D - 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 one located in Ohio and the other in 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 of the Partnership as described in Partnership's Annual Report on Form 10-KSB for the year ended December 31, 1999. 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 three months ended March 31, 2000 and 1999, is shown in the following tables below. The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. 2000 Residential Other Totals (in thousands) Rental income $ 744 $ -- $ 744 Other income 26 2 28 Interest expense 179 -- 179 Depreciation 173 -- 173 General and administrative expense -- 53 53 Segment profit (loss) 122 (51) 71 Total assets 15,010 454 15,464 Capital expenditures for investment properties 43 -- 43 1999 Residential Other Totals (in thousands) Rental income $ 688 $ -- $ 688 Other income 49 1 50 Interest expense 183 -- 183 Depreciation 163 -- 163 General and administrative expense -- 58 58 Segment profit (loss) 113 (57) 56 Total assets 16,912 245 17,157 Capital expenditures for investment properties 40 -- 40 Note E - 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 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 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Partnership from time to time. The discussion of the Partnership'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 Partnership'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. The Partnership's investment properties consist of two apartment complexes. The following table sets forth the average occupancy of the properties for the three months ended March 31, 2000 and 1999 Average Occupancy Property 2000 1999 Barrington Place Apartments 91% 77% Westlake, Ohio Wood View Apartments 97% 95% Atlanta, Georgia The Managing General Partner attributes the increase in occupancy at Barrington Place to the implementation of a more aggressive marketing campaign and a reduction in average rental rates to be more competitive with other complexes within the market. Results of Operations The Partnership's net income for the three months ended March 31, 2000, was approximately $71,000 as compared to net income of approximately $56,000 for the three months ended March 31, 1999. The increase in net income for the three months ended March 31, 2000 is attributable to an increase in total revenues partially offset by an increase in total expenses. Total revenues increased primarily due to an increase in rental income, partially offset by a decrease in other income. The increase in rental income is due to an increase in occupancy at Barrington Place Apartments, as discussed above, as well as an increase in occupancy and rental rates at Wood View Apartments. The decrease in other income is primarily due to a decrease in interest income due to lower average cash balances held in interest bearing accounts. Other income also decreased due to a decrease in lease cancellation fees as well as a decrease in cleaning and damage fees. The increase in total expenses is primarily attributable to increases in property tax expense and depreciation expense, partially offset by a decrease in general and administrative expenses. The increase in property tax expense is due primarily to an increased assessed value at Barrington Place Apartments. Depreciation expense increased primarily due to capital improvements put into service during the last twelve months. General and administrative expenses decreased primarily due to the settlement of a lawsuit in 1999 as discussed in the Partnership's Form 10-QSB at March 31, 1999. Included in general and administrative expenses for the three months ended March 31, 2000 and 1999, are reimbursements to the Managing General Partner allowed under the Partnership Agreement associated with its management of the Partnership. 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. 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 expenses. 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 March 31, 2000, the Partnership had cash and cash equivalents of approximately $1,080,000 as compared to approximately $2,261,000 at March 31, 1999. The net increase in cash and cash equivalents for the three months ended March 31, 2000 is approximately $93,000 from the Partnership's year ended December 31, 1999. The increase is due to approximately $236,000 of cash provided by operating activities, partially offset by approximately $112,000 of cash used in investing activities and approximately $31,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Partnership's properties. The Partnership invests its working capital reserves in money market accounts. 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 and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Partnership's properties are detailed below. Barrington Place During the three months ended March 31, 2000, the Partnership expended approximately $4,000 for budgeted capital improvements at Barrington Place primarily consisting of heating upgrades and water heater replacements. These improvements were funded from operating cash flow. Capital improvements budgeted for 2000 are expected to cost approximately $125,000, which include, but are not limited to, carpet replacement, exterior painting, heating upgrades, swimming pool improvements and appliance replacements. Wood View During the three months ended March 31, 2000, the Partnership expended approximately $39,000 for budgeted capital improvements at Wood View primarily consisting of a submetering project, a water conservation project, and carpet and vinyl replacement. These improvements were funded from operating cash flow. Capital improvements budgeted for 2000 are expected to cost approximately $59,000 which include, but are not limited to, carpet and vinyl replacement, wall covering replacement, and air conditioning unit replacement. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Partnership'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 $10,316,000. The loan on the Wood View Apartments in the amount of approximately $5,502,000, bears interest at a rate of 6.64% per annum. The mortgage encumbering Barrington Place Apartments in the amount of $4,814,000, bears interest at a rate of 6.65%. 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. No distributions were declared or paid during either of the three month periods ended March 31, 2000 and 1999. 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 distributions to its partners during the remainder of 2000 or subsequent periods. PART II - OTHER INFORMATION ITEM 1. 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 "Part 1 - Financial Information, Item 1. 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. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: Exhibit 27, Financial Data Schedule, is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended March 31, 2000. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant 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: May 12, 2000