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 September 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 0-11766 ANGELES PARTNERS XI (Exact name of small business issuer as specified in its charter) California 95-3788040 (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 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 XI CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) September 30, 1999 Assets Cash and cash equivalents $ 2,354 Receivables and deposits 981 Other assets 308 Investment in joint venture 157 Investment properties: Land $ 3,998 Buildings and related personal property 26,419 30,417 Less accumulated depreciation (19,790) 10,627 $ 14,427 Liabilities and Partners' Deficit Liabilities Accounts payable $ 84 Tenant security deposit liabilities 596 Other liabilities 641 Mortgage notes payable 30,130 Partners' Deficit General partners $ (486) Limited partners (39,627 units issued and outstanding) (16,538) (17,024) $ 14,427 See Accompanying Notes to Consolidated Financial Statements b) ANGELES PARTNERS XI CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues: Rental income $1,913 $1,814 $ 5,707 $ 5,367 Other income 117 136 298 321 Casualty gain 120 -- 120 346 Total revenues 2,150 1,950 6,125 6,034 Expenses: Operating 515 676 1,625 1,858 General and administrative 44 43 147 140 Depreciation 384 374 1,128 1,122 Interest 698 726 2,141 2,180 Property taxes 203 204 580 606 Total expenses 1,844 2,023 5,621 5,906 Income (loss) before equity in income (loss) and extraordinary loss on debt extinguishment of joint venture 306 (73) 504 128 Equity in income (loss) of joint venture (Note D) (6) 29 1,214 55 Income (loss) before equity in extraordinary loss on debt extinguishment of joint venture 300 (44) 1,718 183 Equity in extraordinary loss on debt extinguishment (Note D) -- -- (3) -- Net income (loss) $ 300 $ (44) $ 1,715 $ 183 Net income allocated to general partners (1%) $ 3 $ -- $ 17 $ 2 Net income (loss) allocated to limited partners (99%) 297 (44) 1,698 181 $ 300 $ (44) $ 1,715 $ 183 Net income (loss) per limited partnership unit: Income (loss) before equity in extraordinary loss on debt extinguishment of joint venture $ 7.50 $ (1.11) $ 42.93 $ 4.57 Extraordinary loss -- -- (.08) -- $ 7.50 $ (1.11) $ 42.85 $ 4.57 Distributions per limited partnership unit $ 5.00 $ -- $ 5.00 $ -- See Accompanying Notes to Consolidated Financial Statements c) ANGELES PARTNERS XI CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT) (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 40,000 $ 30 $ 40,000 $ 40,030 Partners' deficit at December 31, 1998 39,627 $ (501) $ (18,038) $(18,539) Net income for the nine months ended September 30, 1999 -- 17 1,698 1,715 Distributions to partners -- (2) (198) (200) Partners' deficit at September 30, 1999 39,627 $ (486) $ (16,538) $(17,024) See Accompanying Notes to Consolidated Financial Statements d) ANGELES PARTNERS XI CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Nine Months Ended September 30, 1999 1998 Cash flows from operating activities: Net income $ 1,715 $ 183 Adjustments to reconcile net income to net cash provided by operating activities: Equity in income of joint venture (1,214) (55) Equity in extraordinary loss on debt extinguishment of joint venture 3 -- Depreciation 1,128 1,122 Amortization of loan costs 84 85 Casualty gain (120) (346) Change in accounts: Receivables and deposits (24) (67) Other assets (46) 12 Accounts payable 26 61 Tenant security deposit liabilities 34 24 Due to affiliates (33) (460) Other liabilities (16) 20 Net cash provided by operating activities 1,537 579 Cash flows from investing activities: Property improvements and replacements (674) (438) Insurance proceeds received related to casualty 372 230 Distributions from joint venture 1,086 -- Repayment of advance to joint venture 164 -- Net cash provided by (used in) investing activities 948 (208) Cash flows from financing activities: Repayments of notes payable (868) -- Payment on mortgage notes payable (270) (3) Distributions to partners (200) -- Net cash used in financing activities (1,338) (3) Net increase in cash and cash equivalents 1,147 368 Cash and cash equivalents at beginning of period 1,207 746 Cash and cash equivalents at end of period $ 2,354 $ 1,114 Supplemental disclosure of cash flow information: Cash paid for interest $ 2,065 $ 2,096 Supplemental disclosure of non-cash activity: At September 30, 1998, in connection with a fire at Fox Run Apartments, accounts payable was adjusted by approximately $43,000 and receivables and deposits were adjusted by approximately $297,000 for non-cash activity. See Accompanying Notes to Consolidated Financial Statements e) ANGELES PARTNERS XI NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) NOTE A _ BASIS OF PRESENTATION The accompanying unaudited consolidated financial statements of Angeles Partners XI (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 II (the "Managing General Partner"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three and nine month periods ended September 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. Principles of Consolidation The consolidated financial statements include all of the accounts of Fox Run AP XI, L.P., of which the Partnership owns a 99% limited partnership interest. The general partner of Fox Run AP XI, L.P. is AP XI Fox Run GP, LLC, a single member limited liability corporation which is wholly-owned by the Registrant. Thus, these entities are deemed controlled and, therefore, consolidated by the Partnership. All inter-entity 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 ("IPT") 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 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's partnership agreement provides for (i) certain payments to affiliates for services and (ii) reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments owed to the Managing General Partner and its affiliates during the nine months ended September 30, 1999 and 1998 were paid or accrued: 1999 1998 (in thousands) Property management fees (included in operating expense) $297 $281 Reimbursement for services of affiliates (included in investment properties, general and administrative and operating expenses) 90 107 Due to affiliates -- 10 During the nine months ended September 30, 1999 and 1998, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from the Registrant's property for providing property management services. The Registrant paid to such affiliates approximately $297,000 and $281,000 for the nine months ended September 30, 1999 and 1998, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $90,000 and $107,000 for the nine months ended September 30, 1999 and 1998, respectively. Included in these expenses at September 30, 1999 and 1998 is approximately $6,000 and $10,000, respectively, in reimbursements for construction oversight costs. Angeles Mortgage Investment Trust ("AMIT"), a real estate investment trust, provided financing (the "AMIT Loan") to the Princeton Meadows Golf Course Joint Venture ("Joint Venture") (see "Note D"). Pursuant to a series of transactions, affiliates of the Managing General Partner acquired ownership interests in AMIT. On September 17, 1998, AMIT was merged with and into IPT, the entity which controlled the Managing General Partner. Effective February 26, 1999, IPT was merged into AIMCO. As a result, AIMCO became the holder of the AMIT loan. On February 26, 1999, Princeton Meadows Golf Course was sold to an unaffiliated third party. Upon closing, the AMIT principal balance of $1,567,000 plus accrued interest of approximately $17,000 was paid off. Also, the Partnership had an AMIT note payable, which was collateralized by the Partnership's investment in the Joint Venture with a principal balance of approximately $868,000 and accrued interest of $8,500. In June 1999, the Joint Venture distributed a total of approximately $2,641,000 to the joint venturers from the proceeds of the sale of the property. The Partnership's share of this distribution represented approximately $1,086,000. Upon receipt of the distribution funds, the Partnership repaid its AMIT note payable of approximately $868,000 plus accrued interest of $8,500. In addition, the Partnership made advances to the Joint Venture as deemed appropriate by the Managing General Partner. These advances did not bear interest nor have stated terms of repayment. In June 1999, the advance receivable from the Joint Venture of approximately $164,000 was collected from the proceeds of the sale of the golf course. On May 13, 1999 and on August 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced tender offers to purchase limited partnership interest in the Partnership for a purchase price of $77 and $110 per unit, respectively. The June offer expired on July 30, 1999 and the August offer expired on October 22, 1999. Pursuant to the offers, AIMCO Properties, L.P. acquired 2,432 units. As a result, AIMCO and its affiliates currently own 13,626 units of limited partnership interest in the Partnership representing approximately 34.4% of the total outstanding units. It is possible that AIMCO or its affiliate 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. (See "Note G - Legal Proceedings"). NOTE D - INVESTMENT IN JOINT VENTURE The Partnership had a 41.1% investment in Princeton Meadows Golf Course Joint Venture. On February 26, 1999, the Joint Venture sold its only investment property, Princeton Meadows Golf Course, to an unaffiliated third party. The sale resulted in net proceeds of approximately $3,411,000 after payment of closing costs, and repayment of mortgage principal and accrued interest, resulting in a gain on sale of approximately $3,088,000. In connection with the sale, a commission of approximately $153,000 was paid to the Joint Venture's managing general partner in accordance with the Joint Venture Agreement. The Partnership's 1999 pro-rata share of this gain is approximately $1,269,000. The Joint Venture also recognized an extraordinary loss on early extinguishment of debt of approximately $7,000 as a result of unamortized loan costs being written off. Condensed balance sheet information of the Joint Venture at September 30, 1999, is as follows (in thousands): Assets Cash $ 336 Other assets 51 Total $ 387 Liabilities and Partners' Capital Other liabilities $ 12 Partners' capital 375 Total $ 387 The condensed statements of operations of the Joint Venture for the three and nine months ended September 30, 1999 and 1998 are summarized as follows (in thousands): Three Months Ended Nine Months Ended September 30, September 30, 1999 1998 1999 1998 Revenues $ 4 $ 575 $ 94 $ 1,319 Costs and expenses -- (490) (230) (1,171) (Loss) income before gain on sale of investment property and extraordinary loss on extinguishment of debt 4 85 (136) 148 Gain (loss) on sale of investment property (20) -- 3,088 -- Extraordinary loss on extinguishment of debt -- -- (7) -- Net income (loss) $ (16) $ 85 $ 2,945 $ 148 The Partnership realized equity income of approximately $1,214,000 and $55,000 in the Joint Venture for the nine months ended September 30, 1999 and 1998, respectively. The Partnership also realized an extraordinary loss on extinguishment of debt of $3,000 for the nine months ended September 30, 1999. The Princeton Meadows Golf Course property had an underground fuel storage tank that was removed in 1992. This fuel storage tank caused contamination to the area. Management installed monitoring wells in the area where the tank was formerly buried. Some samples from these wells indicated lead and phosphorous readings that were higher than the range prescribed by the New Jersey Department of Environmental Protection ("DEP"). The Joint Venture notified the DEP of the findings when they were first discovered. However, the DEP did not give any directives as to corrective action until late 1995. In November 1995, representatives of the Joint Venture and the New Jersey DEP met and developed a plan of action to clean-up the contamination site at Princeton Meadows Golf Course. The Joint Venture engaged an engineering firm to conduct consulting and compliance work and a second firm to perform the field work necessary for the clean-up. Field work was in process, with skimmers having been installed at three test wells on the site. These skimmers were in place to detect any residual fuel that may have still been in the ground. The completion date of field work was expected to be in 1999. Upon the sale of the Golf Course, as noted above, the Joint Venture was released from any further responsibility or liability with respect to the clean-up. NOTE E - CASUALTY In October, 1997, there was a fire at Fox Run Apartments that completely destroyed the clubhouse and office. In prior years, a gain was recognized only to the extent of the loss recognized due to the write-off of assets. A casualty gain of approximately $346,000 was recognized during the nine months ended September 30, 1998 resulting from the partial receipt of anticipated insurance proceeds. The insurance claim relating to this fire has been settled with additional proceeds of $75,000 and $120,000 being received during the three months ended December 31, 1998 and the nine months ended September 30, 1999, respectively. Total insurance proceeds received approximated the costs incurred to replace the assets. NOTE F - SEGMENT REPORTING 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 one apartment complex located in Plainsboro, New Jersey. 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 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 year ended December 31, 1998. Segment information for the nine months ended September 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 $ 5,707 $ -- $ 5,707 Other income 270 28 298 Casualty gain 120 -- 120 Interest expense 2,141 -- 2,141 Depreciation 1,128 -- 1,128 General and administrative expense -- 147 147 Equity in income of joint venture -- 1,214 1,214 Equity in extraordinary loss on debt extinguishment of joint venture -- (3) (3) Segment profit 623 1,092 1,715 Total assets 12,948 1,479 14,427 Capital expenditures for investment properties 674 -- 674 1998 Residential Other Totals Rental income $ 5,367 $ -- $ 5,367 Other income 297 24 321 Casualty gain 346 -- 346 Interest expense 2,180 -- 2,180 Depreciation 1,122 -- 1,122 General and administrative expense -- 140 140 Equity in income of joint venture -- 55 55 Segment profit (loss) 244 (61) 183 Total assets 12,999 1,056 14,055 Capital expenditures for investment properties 438 -- 438 NOTE G - 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 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 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 complaint seeks 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 ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the Managing General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. 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 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 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 property consists of one apartment complex. The following table sets forth the average occupancy of the property for the nine months ended September 30, 1999 and 1998: Average Occupancy Property 1999 1998 Fox Run Apartments 98% 96% Plainsboro, New Jersey Results from Operations The Partnership's net income for the nine months ended September 30, 1999 was approximately $1,715,000 compared to approximately $183,000 for the corresponding period in 1998. The Partnership recorded net income of approximately $300,000 for the three months ended September 30, 1999 compared to a net loss of approximately $44,000 for the corresponding period in 1998. The increase in net income for the nine months ended September 30, 1999 compared to the corresponding period in 1998 is primarily due to the recognition of the gain on disposal of the Princeton Meadows Golf Course Joint Venture. Income before equity in income and extraordinary loss on debt extinguishment of joint venture for the three and nine months ended September 30, 1999 increased as compared to the corresponding periods in 1998 due to an increase in total revenues and a decrease in total expenses. The increase in revenues was primarily the result of an increase in rental income at Fox Run Apartments due to an increase in average occupancy and the average rental rate. The increase in revenues for the nine month period was partially offset by a decrease in other income and casualty gain. In October, 1997, there was a fire at Fox Run Apartments that completely destroyed the clubhouse and office. In prior years, a gain was recognized only to the extent of the loss recognized due to the write-off of assets. A casualty gain of approximately $346,000 was recognized during the nine months ended September 30, 1998 resulting from the partial receipt of anticipated insurance proceeds. The insurance claim relating to this fire has been settled with additional proceeds of $75,000 and $120,000 being received during the three months ended December 31, 1998 and the nine months ended September 30, 1999, respectively. Total insurance proceeds received approximated the costs incurred to replace the assets. Total expenses for the three and nine months ended September 30, 1999 decreased, as compared with the comparable periods in 1998, primarily due to a decrease in operating expense and, to a lesser extent, decreases in interest and property tax expense. The decrease in operating expense is primarily attributable to decreases in salaries and related expenses, utilities, and insurance expense. Insurance expense decreased due to a change in insurance carriers. Also contributing to the decrease in operating expense is the completion of interior painting and landscaping projects at the property during the nine months ended September 30, 1998. Interest expense decreased primarily due to the repayment of the AMIT note payable, which was collateralized by the Partnership's investment in the Joint Venture. In June 1999, the Partnership paid off the principal balance of the AMIT note plus accrued interest upon receiving its share of net proceeds from the sale of Princeton Meadows Golf Course. General and administrative expense remained relatively constant for the nine months ended September 30, 1999. Included in general and administrative expense at both September 30, 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. The Partnership had a 41.1% investment in Princeton Meadows Golf Course Joint Venture. On February 26, 1999, the Joint Venture sold the Princeton Meadows Golf Course to an unaffiliated third party for gross sale proceeds of $5,100,000. The Joint Venture received net proceeds of $3,411,000 after payment of closing costs, and repayment of the mortgage principal and accrued interest resulting in a gain on sale of approximately $3,088,000. For the nine months ended September 30, 1999 the Partnership realized equity in income of the Joint Venture of approximately $1,214,000, which included its equity in the gain on disposal of Princeton Meadows Golf Course of $1,269,000 and the equity in loss on operations of $55,000, as compared to equity in income of the Joint Venture of approximately $55,000 for the nine months ended September 30, 1998. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment at its investment property 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 September 30, 1999, the Partnership had cash and cash equivalents of approximately $2,354,000 as compared to approximately $1,114,000 at September 30, 1998. Cash and cash equivalents increased approximately $1,147,000 for the nine month period ended September 30, 1999, from the Registrant's fiscal year- end and is primarily due to approximately $1,537,000 of cash provided by operating activities and approximately $948,000 of cash provided by investing activities, which is partially offset by approximately $1,338,000 of cash used in financing activities. Cash provided by investing activities consisted primarily of distributions from the Joint Venture, and to a lesser extent, the repayment of advances to the Joint Venture and insurance proceeds received as a result of the casualty at Fox Run Apartments, all of which was partially offset by property improvements and replacements. Cash used in financing activities consisted primarily of payments of principal made on the mortgages encumbering Fox Run Apartments and, to a lesser extent, the repayment of the AMIT note payable and distributions to partners. 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 property 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. Based on a report received from an independent third party consultant analyzing necessary exterior improvements and estimates made by the Managing General Partner on interior improvements, it is estimated that Fox Run Apartments requires approximately $2,192,000 of capital improvements over the next few years. The Partnership has budgeted, but is not limited to, capital improvements of approximately $2,021,000 for 1999 at the property, which include certain of the required improvements and consist of roof upgrades, landscaping and irrigation improvements, and parking lot upgrades. As of September 30, 1999, the Partnership spent approximately $674,000 on capital improvements at Fox Run Apartments, primarily consisting of interior decorating, parking lot improvements, swimming pool enhancements, landscaping, appliance replacements, water heater and electrical upgrades and property replacements due to the 1997 fire at the property. These improvements were funded from cash flow. The additional capital improvements planned for 1999 at the Partnership's property 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 Registrant's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Registrant. The mortgage indebtedness of approximately $30,130,000 encumbering Fox Run is being amortized over periods ranging from 15 to 30 years with a balloon payment of $29,107,000 due January 2002. The Managing General Partner may attempt to refinance such indebtedness and/or sell the property prior to such maturity date. If the property cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such property through foreclosure. During the nine months ended September 30, 1999, a distribution of $200,000 was paid to partners, of which $198,000 was paid to limited partners (approximately $5.00 per limited partnership unit). There were no cash distributions made during the nine months ended September 30, 1998. Future cash distributions will depend on the levels of net cash generated from operations, the availability of cash reserves and the timing of the debt maturities, refinancings and/or sale of the property. The Partnership's distribution policy will be reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations, after required capital improvement expenditures, to permit additional distributions to its partners during the remainder of 1999 or subsequent periods. Tender Offers On May 13, 1999 and on August 19, 1999, AIMCO Properties, L.P., an affiliate of the Managing General Partner commenced tender offers to purchase limited partnership interest in the Partnership for a purchase price of $77 and $110 per unit, respectively. The June offer expired on July 30, 1999 and the August offer expired on October 22, 1999. Pursuant to the offers, AIMCO Properties, L.P. acquired 2,432 units. As a result, AIMCO and its affiliates currently own 13,626 units of limited partnership interest in the Partnership representing approximately 34.4% of the total outstanding units. It is possible that AIMCO or its affiliate 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. (See "Item 1. Financial Statements, Note G - Legal Proceedings"). 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 Managing 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 September 30, 1999, had virtually completed 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. 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 virtually all of the server operating systems. 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 virtually no Year 2000 issues. A complete, formal assessment of all the properties by the Managing Agent was virtually completed by September 30, 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 September 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 has banking relationships with three major financial institutions, all of which have designated their compliance. The Managing Agent has updated data transmission standards with all of the financial institutions. All financial institutions have communicated that they are Year 2000 compliant and accordingly no accounts were required to be moved from the existing financial institutions. 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 expenses 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 PROCEDINGS 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 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 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 I _ Financial Information, Item 1. Financial Statements, Note B _ Transfer of Control"). The complaint seeks 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 ("Stipulation"), settling claims, subject to final court approval, on behalf of the Partnership and all limited partners who own units as of November 3, 1999. The Court has preliminarily approved the Settlement and scheduled a final approval hearing for December 10, 1999. In exchange for a release of all claims, the Stipulation provides that, among other things, an affiliate of the Managing General Partner will make tender offers for all outstanding limited partnership interests in 49 partnerships, including the Registrant, subject to the terms and conditions set forth in the Stipulation, and has agreed to establish a reserve to pay an additional amount in settlement to qualifying class members (the "Settlement Fund"). At the final approval hearing, Plaintiffs' counsel will make an application for attorneys' fees and reimbursement of expenses, to be paid in part by the partnerships and in part from the Settlement Fund. 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 is filed as an exhibit to this report. b) Reports on Form 8-K: None filed during the quarter ended September 30, 1999. SIGNATURES In accordance with Section 13 or 15(d) of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES PARTNERS XI By: Angeles Realty Corporation II 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: