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 June 30, 1999 [ ] 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 0-9704 ANGELES PARTNERS IX (Exact name of small business issuer as specified in its charter) California 95-3417137 (State or other jurisdiction of (IRS Employer incorporation or organization) Identification No.) 55 Beattie Place, P.O. 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 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 PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES PARTNERS IX CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) June 30, 1999 Assets Cash and cash equivalents $ 1,320 Receivables and deposits 468 Restricted escrows 397 Other assets 497 Investment properties: Land $ 3,083 Buildings and related personal property 34,990 38,073 Less accumulated depreciation (25,487) 12,586 $15,268 Liabilities and Partners' Deficit Liabilities Accounts payable $ 108 Tenant security deposit liabilities 116 Accrued property taxes 280 Other liabilities 229 Mortgage notes payable 19,422 Partners' Deficit General partner's $ (225) Limited partners' (19,975 units issued and outstanding) (4,662) (4,887) $15,268 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS IX CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Six Months Ended June 30, June 30, 1999 1998 1999 1998 Revenues: Rental income $ 1,905 $ 1,792 $ 3,791 $ 3,553 Other income 87 87 168 172 Total revenues 1,992 1,879 3,959 3,725 Expenses: Operating 946 1,095 1,727 2,050 General and administrative 76 81 159 150 Depreciation 392 455 920 914 Interest 430 432 856 866 Property taxes 101 109 249 217 Total expenses 1,945 2,172 3,911 4,197 Net income (loss) $ 47 $ (293) $ 48 $ (472) Net income (loss) allocated to general partner (1%) $ -- $ (3) $ -- $ (5) Net income (loss) allocated to limited partners (99%) 47 (290) 48 (467) $ 47 $ (293) $ 48 $ (472) Net income (loss) per limited Partnership unit $ 2.35 $(14.52) $ 2.40 $(23.38) See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS IX CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partner's Partner's Total Original capital contributions 20,000 $ 1 $20,000 $20,001 Partners' deficit at December 31, 1998 19,975 $ (225) $(4,710) $(4,935) Net income for the six months ended June 30, 1999 -- -- 48 48 Partners' deficit at June 30, 1999 19,975 $ (225) $(4,662) $(4,887) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS IX CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Six Months Ended June 30, 1999 1998 Cash flows from operating activities: Net income (loss) $ 48 $ (472) Adjustments to reconcile net income (loss) to net cash provided by operating activities: Depreciation 920 914 Amortization of loan costs and discounts 48 56 Change in accounts: Receivables and deposits 33 (39) Other assets (120) 29 Accounts payable (32) (108) Tenant security deposit liabilities 2 (2) Accrued property taxes (3) 37 Other liabilities 28 (53) Net cash provided by operating activities 924 362 Cash flows from investing activities: Property improvements and replacements (346) (380) Net withdrawals from restricted escrows 73 193 Net cash used in investing activities (273) (187) Cash flows used in financing activities: Payments on mortgage notes payable (130) (120) Net increase in cash and cash equivalents 521 55 Cash and cash equivalents at beginning of period 799 683 Cash and cash equivalents at end of period $1,320 $ 738 Supplemental disclosure of cash flow information: Cash paid for interest $ 800 $ 810 See Accompanying Notes to Consolidated Financial Statements e) ANGELES PARTNERS IX NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A - BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Angeles Partners IX (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 Angeles Realty Corporation (the "General Partner" or "ARC"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and six months ended June 30, 1999, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 1999. 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, 1998. Certain reclassifications have been made to the 1998 information to conform to the 1999 presentation. Principles of Consolidation The consolidated financial statements of the Partnership include its 99% limited partnership interest in Houston Pines, Ltd. Houston Pines Ltd. owns the Pines of Northwest Crossing Apartments, Forest River Apartments and Rosemont Crossing Apartments. The Partnership may remove the general partner of Houston Pines, Ltd.; therefore, the partnership is controlled and consolidated by the Partnership. All significant interpartnership balances have been eliminated. Minority interest is immaterial and not shown separately in the consolidated financial statements. 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. ("Insignia") 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 General Partner. The General Partner does not believe that this transaction will have a material effect on the affairs and operations of the Partnership. NOTE C - TRANSACTION WITH AFFILIATES The Partnership has no employees and is dependent on the General Partner and its affiliates for the management and administration of all Partnership activities. Affiliates of the General Partner provide property management and asset management services to the Partnership. The Partnership Agreement provides for payments to affiliates for services and as reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following amounts were paid to the General Partner and/or its affiliates for the six months ended June 30, 1999 and 1998: 1999 1998 (in thousands) Property management fees (included in operating expenses) $201 $189 Reimbursement of services of affiliates, (included in investment properties, operating expenses and general and administrative expenses) 94 142 During the six months ended June 30, 1999 and 1998, affiliates of the General Partner were entitled to receive 5% of gross receipts from all of Registrant's properties for providing property management services. The Registrant paid to such affiliates approximately $201,000 and $189,000 for the six months ended June 30, 1999 and 1998, respectively. An affiliate of the General Partner received reimbursement of accountable administrative expenses amounting to approximately $94,000 and $142,000 for the six months ended June 30, 1999 and 1998, respectively. Included in the expense is approximately $11,000 and $35,000 for construction oversight reimbursements in the six months ended June 30, 1999 and 1998, respectively. On April 13, 1998, an affiliate of the General Partner (the "Purchaser") commenced a tender offer for limited partnership interests in the Partnership. The Purchaser offered to purchase up to 8,300 of the outstanding units of limited partnership interest ("Units") in the Partnership at a purchase price of $325 per Unit, net to the seller in cash. On May 11, 1998, the tender offer was closed, and the Purchaser acquired 2,529 Units of limited partnership interest. On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 6,303.27 (approximately 31.56% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $356 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As a result, AIMCO and its affiliates currently own 6,788 units of limited partnership interest in the Partnership representing approximately 33.98% of the total 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. NOTE D - SEGMENT INFORMATION The Partnership has one reportable segment: residential properties. The Partnership's residential property segment consists of five apartment complexes in Texas and Alabama. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The Partnership evaluates performance based on net income. The accounting policies of the reportable segment are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1998. 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 six months ended June 30, 1999 and 1998, is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segment. 1999 Residential Other Totals Rental income $ 3,791 $ -- $ 3,791 Other income 159 9 168 Interest expense 856 -- 856 Depreciation 920 -- 920 General and administrative expense -- 159 159 Segment income (loss) 198 (150) 48 Total assets 14,887 381 15,268 Capital expenditures for investment properties 346 -- 346 1998 Residential Other Totals Rental income $ 3,553 $ -- $ 3,553 Other income 160 12 172 Interest expense 866 -- 866 Depreciation 914 -- 914 General and administrative expense -- 150 150 Segment loss (334) (138) (472) Total assets 15,209 570 15,779 Capital expenditures for investment properties 380 -- 380 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 General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 filed an amended complaint. The General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. In July 1998, a limited partner of the Partnership commenced an action in the Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles Partners IX, et al. The complaint claims that the Partnership and an affiliate of the General Partner breached certain contractual and fiduciary duties allegedly owed to the claimant and seeks damages and injunctive relief. This case was settled on April 9, 1999. The Partnership is responsible for a portion of the settlement costs. The costs associated with the settlement are included in total expenses for the six months ended June 30, 1999, and did not have a material effect on 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 OPERATIONS 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 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 operations. 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 five apartment complexes. The following table sets forth the average occupancy of the properties for the six months ended June 30, 1999 and 1998: Average Occupancy Property 1999 1998 Pines of Northwest Crossing Apartments 97% 95% Houston, Texas Panorama Terrace Apartments 97% 89% Birmingham, Alabama Forest River Apartments 96% 93% Gadsden, Alabama Village Green Apartments 97% 93% Montgomery, Alabama Rosemont Crossing Apartments 93% 88% San Antonio, Texas The General Partner attributes the increase in occupancy at Panorama Terrace Apartments, Forest River Apartments, Rosemont Crossing Apartments and Village Green Apartments to management's aggressive marketing campaigns to attract new tenants. RESULTS OF OPERATIONS The Partnership's net income for the three and six month periods ended June 30, 1999, was approximately $47,000 and $48,000, respectively, versus net losses of approximately $293,000 and $472,000 for the corresponding periods of 1998. The increase in net income is due primarily to an increase in total revenues and to a decrease in total expenses. The increase in total revenues is primarily due to an increase in rental income. The increase in rental income is primarily due to increases in average rental rates at The Pines of Northwest Crossing Apartments, Village Green Apartments, and Rosemont Crossing Apartments and to increases in average occupancy at all of the Partnership's investment properties. Total expenses decreased primarily due to a reduction in operating expenses partially offset by increased property tax expense. The decrease in operating expenses is primarily due to a decrease in insurance expense and maintenance expense. Insurance expense decreased due to a new insurance carrier for all five of the Partnership's investment properties. The maintenance expense decrease is attributed to exterior building renovation projects at The Pines of Northwest Crossing Apartments and Village Green Apartments which were completed in 1998. Panorama Terrace Apartments and Forest River Apartments also completed major landscaping projects in 1998. The exterior building repairs and landscaping projects were necessary to improve the appearance of the properties in order to remain competitive in the market area. Property tax expense increased due to an increase in the property value of Panorama Terrace. In addition, property tax expense at Forest River Apartments was underaccrued in 1998 and the additional 1998 expense was recorded during 1999. General and administrative expense increased slightly for the six month period but decreased slightly for the three month comparative period. Included in general and administrative expenses at both June 30, 1999 and 1998, are reimbursements to the General Partner allowed under the Partnership Agreement associated with its management of the Partnership. In addition, costs associated with the quarterly communications with investors and regulatory agencies required by the Partnership Agreement are included. As part of the ongoing business plan of the Partnership, the 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 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 General Partner will be able to sustain such a plan. CAPITAL RESOURCES AND LIQUIDITY At June 30, 1999, the Partnership had cash and cash equivalents of approximately $1,320,000 as compared to approximately $738,000 at June 30, 1998. Cash and cash equivalents increased approximately $521,000 from the Partnership's year ended December 31, 1998, primarily due to approximately $924,000 of cash provided by operating activities, which was partially offset by approximately $273,000 of cash used in investing activities and approximately $130,000 of cash used in financing activities. Cash used in investing activities consisted of property improvements and replacements, partially offset by withdrawals from escrow accounts maintained by the mortgage lender. Cash used in financing activities consisted of payments of principal made on the mortgages encumbering the Partnership's properties. 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 various 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. The Pines of Northwest Crossing Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $304,000 of capital improvements over the next few years. Capital improvements planned for 1999 consist of carpet and vinyl replacement, landscaping, parking lot repairs, exterior painting, air conditioning units and roof replacement, which includes certain of the required improvements. These improvements are budgeted for, but not limited to, approximately $432,000. As of June 30, 1999 approximately $188,000 has been incurred consisting primarily of carpet and vinyl replacement, parking lots, roof replacement, appliances, air conditioning units, and exterior painting. These improvements were funded from operating cash flows. Panorama Terrace Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $511,000 of capital improvements over the next few years. Capital improvements planned for 1999 consist of carpet and vinyl replacement, landscaping, parking lot repairs, roof replacement and other structural repairs, which includes certain of the required improvements. These improvements are budgeted for, but not limited to, approximately $527,000. As of June 30, 1999, approximately $25,000 has been incurred consisting primarily of appliance, and carpet and vinyl replacements. These improvements were funded from operating cash flows and replacement reserves. Forest River Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $235,000 of capital improvements over the next few years. Capital improvements planned for 1999 consist of carpet and vinyl replacement, landscaping, roof replacement and other structural improvements, which includes certain of the required improvements. These improvements are budgeted for, but not limited to, approximately $209,000. As of June 30, 1999, approximately $49,000 has been incurred consisting primarily of appliances, carpet and vinyl replacements and other building improvements. These improvements were funded from operating cash flows. Village Green Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $101,000 of capital improvements over the next few years. Capital improvements planned for 1999 consist of carpet and vinyl replacement, landscaping, perimeter fencing, and appliances, which includes certain of the required improvements. These improvements are budgeted for, but not limited to, approximately $191,000. As of June 30, 1999 approximately $52,000 has been incurred consisting primarily of appliances, carpet and vinyl replacements and equipment. These improvements were funded form replacement reserves. Rosemont Crossing Apartments Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the General Partner on interior improvements, it is estimated that the property requires approximately $677,000 of capital improvements over the next few years. Capital improvements planned for 1999 consist primarily of carpet and vinyl replacement, which includes certain of the required improvements. These improvements are budgeted for, but not limited to, approximately $60,000. As of June 30, 1999, approximately $32,000 has been incurred consisting primarily of appliances and carpet and vinyl replacements. These improvements were funded from operating cash flows. 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. The mortgage indebtedness of approximately $19,422,000, net of discounts, is amortized over periods ranging from approximately 29 to 30 years with balloon payments due in 2002 and 2003. The General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. No cash distributions were paid to the partners during the six months ended June 30, 1999 and 1998. Future cash distributions will depend on the levels of net cash generated from operations, availability of cash reserves, and the timing of debt maturities, property sales and/or refinancings. The Partnership's distribution policy will be reviewed on an annual basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital improvements to permit distributions to its partners in 1999 or subsequent periods. Tender Offer On June 7, 1999, AIMCO Properties, L.P., an affiliate of the General Partner commenced a tender offer to purchase up to 6,303.27 (approximately 31.56% of the total outstanding units) units of limited partnership interest in the Partnership for a purchase price of $356 per unit. The offer expired on July 14, 1999. Pursuant to the offer, AIMCO Properties, L.P. acquired 760 units. As a result, AIMCO and its affiliates currently own 6,788 units of limited partnership interest in the Partnership representing approximately 33.98% of the total 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. Year 2000 Compliance General Description of the Year 2000 Issue and the Nature and Effects of the Year 2000 on Information Technology (IT) and Non-IT Systems 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 General Partner and its affiliates for management and administrative services ("Managing Agent"). Any of the computer programs or hardware that have date-sensitive software or embedded chips may recognize a date using "00" as the year 1900 rather than the year 2000. This could result 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. Over the past two years, the Managing Agent has determined that it will be required to modify or replace significant portions of its software and certain hardware so that those systems will properly utilize dates beyond December 31, 1999. The Managing Agent presently believes that with modifications or replacements of existing software and certain hardware, the Year 2000 issue can be mitigated. However, if such modifications and replacements are not made, or not completed in time, the Year 2000 issue could have a material impact on the operations of the Partnership. The Managing Agent's plan to resolve Year 2000 issues involves four phases: assessment, remediation, testing, and implementation. To date, the Managing Agent has fully completed its assessment of all the information systems that could be significantly affected by the Year 2000, and has begun the remediation, testing and implementation phases on both hardware and software systems. Assessments are continuing in regards to embedded systems. The status of each is detailed below. Status of Progress in Becoming Year 2000 Compliant, Including Timetable for Completion of Each Remaining Phase Computer Hardware: During 1997 and 1998, the Managing Agent identified all of the computer systems at risk and formulated a plan to repair or replace each of the affected systems. In August 1998, the main computer system used by the Managing Agent became fully functional. In addition to the main computer system, PC-based network servers, routers and desktop PCs were analyzed for compliance. The Managing Agent has begun to replace each of the non-compliant network connections and desktop PCs and, as of June 30, 1999, had completed approximately 90% of this effort. The total cost to the Managing Agent to replace the PC-based network servers, routers and desktop PCs is expected to be approximately $1.5 million of which $1.3 million has been incurred to date. The remaining network connections and desktop PCs are expected to be upgraded to Year 2000 compliant systems by September 30, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Computer Software: The Managing Agent utilizes a combination of off-the-shelf, commercially available software programs as well as custom-written programs that are designed to fit specific needs. Both of these types of programs were studied, and implementation plans written and executed with the intent of repairing or replacing any non-compliant software programs. In April, 1999 the Managing Agent embarked on a data center consolidation project that unifies its core financial systems under its Year 2000 compliant system. The estimated completion date for this project is October, 1999. During 1998, the Managing Agent began converting the existing property management and rent collection systems to its management properties Year 2000 compliant systems. The estimated additional costs to convert such systems at all properties, is $200,000, and the implementation and testing process was completed in June, 1999. The final software area is the office software and server operating systems. The Managing Agent has upgraded all non-compliant office software systems on each PC and has upgraded 90% of the server operating systems. The remaining server operating systems are planned to be upgraded to be Year 2000 compliant by September, 1999. The completion of this process is scheduled to coincide with the release of a compliant version of the Managing Agent's operating system. Operating Equipment: The Managing Agent has operating equipment, primarily at the property sites, which needed to be evaluated for Year 2000 compliance. In September 1997, the Managing Agent began taking a census and inventory of embedded systems (including those devices that use time to control systems and machines at specific properties, for example elevators, heating, ventilating, and air conditioning systems, security and alarm systems, etc.). The Managing Agent has chosen to focus its attention mainly upon security systems, elevators, heating, ventilating and air conditioning systems, telephone systems and switches, and sprinkler systems. While this area is the most difficult to fully research adequately, management has not yet found any major non-compliance issues that put the Managing Agent at risk financially or operationally. A pre-assessment of the properties by the Managing Agent has indicated no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent is in process and will be completed in September, 1999. Any operating equipment that is found non-compliant will be repaired or replaced. The total cost incurred for all properties managed by the Managing Agent as of June 30, 1999 to replace or repair the operating equipment was approximately $75,000. The Managing Agent estimates the cost to replace or repair any remaining operating equipment is approximately $125,000. The Managing Agent continues to have "awareness campaigns" throughout the organization designed to raise awareness and report any possible compliance issues regarding operating equipment within its enterprise. Nature and Level of Importance of Third Parties and Their Exposure to the Year 2000 The Managing Agent continues to conduct surveys of its banking and other vendor relationships to assess risks regarding their Year 2000 readiness. The Managing Agent has banking relationships with three major financial institutions, all of which have indicated their compliance efforts will be complete before July, 1999. The Managing Agent has updated data transmission standards with all of the financial institutions. The Managing Agent's contingency plan in this regard is to move accounts from any institution that cannot be certified Year 2000 compliant by September 1, 1999. The Partnership does not rely heavily on any single vendor for goods and services, and does not have significant suppliers and subcontractors who share information systems (external agent). To date the Partnership is not aware of any external agent with a Year 2000 compliance issue that would materially impact the Partnership's results of operations, liquidity, or capital resources. However, the Partnership has no means of ensuring that external agents will be Year 2000 compliant. The Managing Agent does not believe that the inability of external agents to complete their Year 2000 remediation process in a timely manner will have a material impact on the financial position or results of operations of the Partnership. However, the effect of non-compliance by external agents is not readily determinable. Costs to Address Year 2000 The total cost of the Year 2000 project to the Managing Agent is estimated at $3.5 million and is being funded from operating cash flows. To date, the Managing Agent has incurred approximately $2.9 million ($0.7 million expensed and $2.2 million capitalized for new systems and equipment) related to all phases of the Year 2000 project. Of the total remaining project costs, approximately $0.5 million is attributable to the purchase of new software and operating equipment, which will be capitalized. The remaining $0.2 million relates to repair of hardware and software and will be expensed as incurred. The Partnership's portion of these costs are not material. Risks Associated with the Year 2000 The Managing Agent believes it has an effective program in place to resolve the Year 2000 issue in a timely manner. As noted above, the Managing Agent has not yet completed all necessary phases of the Year 2000 program. In the event that the Managing Agent does not complete any additional phases, certain worst case scenarios could occur. The worst case scenarios could include elevators, security and heating, ventilating and air conditioning systems that read incorrect dates and operate with incorrect schedules (e.g., elevators will operate on Monday as if it were Sunday). Although such a change would be annoying to residents, it is not business critical. In addition, disruptions in the economy generally resulting from Year 2000 issues could also adversely affect the Partnership. The Partnership could be subject to litigation for, among other things, computer system failures, equipment shutdowns or failure to properly date business records. The amount of potential liability and lost revenue cannot be reasonably estimated at this time. Contingency Plans Associated with the Year 2000 The Managing Agent has contingency plans for certain critical applications and is working on such plans for others. These contingency plans involve, among other actions, manual workarounds and selecting new relationships for such activities as banking relationships and elevator operating systems. 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 General Partner and several of their affiliated partnerships and corporate entities. The complaint 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 and entities which were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests in certain general partner entities, past tender offers by Insignia Affiliates as well as a recently announced agreement between Insignia and AIMCO. The complaint seeks 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 filed an amended complaint. The General Partner has filed demurrers to the amended complaint which were heard during February 1999. No ruling on such demurrers has been received. The General Partner does not anticipate that costs associated with this case, if any, will be material to the Partnership's overall operations. In July 1998, a limited partner of the Partnership commenced an action in the Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. Angeles Partners IX, et al. The complaint claims that the Partnership and an affiliate of the General Partner breached certain contractual and fiduciary duties allegedly owed to the claimant and seeks damages and injunctive relief. This case was settled on April 9, 1999. The Partnership is responsible for a portion of the settlement costs. The costs associated with the settlement are included in total expenses for the six months ended June 30, 1999, and did not have a material effect on 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) No reports on Form 8-K were filed during the quarter ended June 30, 1999. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant has caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS IX By: Angeles Realty Corporation General Partner By: /s/ Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/ Carla R. Stoner Carla R. Stoner Senior Vice President Finance and Administration Date: August 6, 1999