-----BEGIN PRIVACY-ENHANCED MESSAGE----- Proc-Type: 2001,MIC-CLEAR Originator-Name: webmaster@www.sec.gov Originator-Key-Asymmetric: MFgwCgYEVQgBAQICAf8DSgAwRwJAW2sNKK9AVtBzYZmr6aGjlWyK3XmZv3dTINen TWSM7vrzLADbmYQaionwg5sDW3P6oaM5D3tdezXMm7z1T+B+twIDAQAB MIC-Info: RSA-MD5,RSA, VrquzmZcIViLxPy2HpnZeFDQB5ck27aGqPcPzEsB+g5j+uUG6IfJ+cS7kDdOEC/j SA29E/bhzRl9j/asbw0h8w== 0000711642-05-000038.txt : 20050325 0000711642-05-000038.hdr.sgml : 20050325 20050325160119 ACCESSION NUMBER: 0000711642-05-000038 CONFORMED SUBMISSION TYPE: 10KSB PUBLIC DOCUMENT COUNT: 1 CONFORMED PERIOD OF REPORT: 20041231 FILED AS OF DATE: 20050325 DATE AS OF CHANGE: 20050325 FILER: COMPANY DATA: COMPANY CONFORMED NAME: CENTURY PROPERTIES FUND XVII CENTRAL INDEX KEY: 0000356472 STANDARD INDUSTRIAL CLASSIFICATION: REAL ESTATE [6500] IRS NUMBER: 942782037 STATE OF INCORPORATION: CA FISCAL YEAR END: 1231 FILING VALUES: FORM TYPE: 10KSB SEC ACT: 1934 Act SEC FILE NUMBER: 000-11137 FILM NUMBER: 05704593 BUSINESS ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: PO BOX 1089 C/O INSIGNIA FINANCIAL GROUP CITY: GREENVILLE STATE: SC ZIP: 29602 BUSINESS PHONE: 8642391000 MAIL ADDRESS: STREET 1: 55 BEATTIE PLACE STREET 2: P O BOX 1089 CITY: GREENVILLE STATE: SC ZIP: 29602 10KSB 1 cpf17.txt CPF17 UNITED STATES SECURITIES AND EXCHANGE COMMISSION Washington, DC 20549 Form 10-KSB (Mark One) [X] ANNUAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the fiscal year ended December 31, 2004 [ ] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period _________to _________ Commission file number 0-11137 CENTURY PROPERTIES FUND XVII (Name of small business issuer in its charter) California 94-2782037 (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 Securities registered under Section 12(b) of the Exchange Act: None Securities registered under Section 12(g) of the Exchange Act: Units of Limited Partnership Interests (Title of class) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act of 1934 during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ Check if there is no disclosure of delinquent filers in response to Item 405 of Regulation S-B contained in this form, and no disclosure will be contained, to the best of registrant's knowledge in definitive proxy or information statements incorporated by reference in Part III of this Form 10-KSB or any amendment to this Form 10-KSB. [X] State issuer's revenues for its most recent fiscal year. $12,408,000 State the aggregate market value of the voting partnership interests held by non-affiliates computed by reference to the price at which the partnership interests were sold, or the average bid and asked prices of such partnership interests as of December 31, 2004. No market exists for the limited partnership interests of the Registrant, and, therefore, no aggregate market value can be determined. DOCUMENTS INCORPORATED BY REFERENCE None The matters discussed in this report contain certain forward-looking statements, including, without limitation, statements regarding future financial performance and the effect of government regulations. Actual results may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors including, without limitation: national and local economic conditions; the terms of governmental regulations that affect the Registrant and interpretations of those regulations; the competitive environment in which the Registrant operates; financing risks, including the risk that cash flows from operations may be insufficient to meet required payments of principal and interest; real estate risks, including variations of real estate values and the general economic climate in local markets and competition for tenants in such markets; litigation, including costs associated with prosecuting and defending claims and any adverse outcomes, and possible environmental liabilities. Readers should carefully review the Registrant's financial statements and the notes thereto, as well as the risk factors described in the documents the Registrant files from time to time with the Securities and Exchange Commission. PART I Item 1. Description of Business Century Properties Fund XVII (the "Partnership" or the "Registrant") was organized in November 1981 as a California limited partnership under the Uniform Limited Partnership Act of the California Corporations Code. Fox Partners, a California general partnership, is the general partner of the Partnership. The general partners of Fox Partners are Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), a California corporation, Fox Realty Investors ("FRI"), a California general partnership, and Fox Partners 82, a California general partnership. NPI Equity Investments II Inc., a Florida Corporation ("NPI Equity"), is the general partner of FRI. FCMC and NPI Equity are affiliates of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2006, unless terminated prior to such date. The principal business of the Partnership is and has been to operate, hold for investment, and ultimately sell income-producing multi-family residential properties. During 1982, the Partnership offered and sold, pursuant to a Registration Statement filed with the Securities and Exchange Commission, 75,000 units of limited partnership interest ("Units") for an aggregate purchase price of $75,000,000. The net proceeds of this offering were used to acquire twelve existing apartment properties. Since its initial offering, the Partnership has not received, nor are limited partners required to make, additional capital contributions. The Partnership's original property portfolio was geographically diversified with properties acquired in four states. Three apartment properties were sold in 1988. One apartment was acquired by the lender through a deed in-lieu of foreclosure in 1992. During 1993, two apartment properties were sold and one was acquired by the lender through foreclosure. The Partnership continues to own the remaining five properties (see "Item 2. Description of Properties"). The Partnership has no employees. The Managing General Partner is vested with full authority as to the general management and supervision of the business and affairs of the Partnership. The non-managing general partners and the Limited Partners have no right to participate in the management or conduct of such business and affairs. Property management services are provided at the Partnership's properties by an affiliate of the Managing General Partner. Risk Factors The real estate business in which the Partnership is engaged is highly competitive. There are other residential properties within the market area of the Partnership's properties. The number and quality of competitive properties, including those which may be managed by an affiliate of the Managing General Partner, in such market area could have a material effect on the rental market for the apartments at the Partnership's properties and the rents that may be charged for such apartments. While the Managing General Partner and its affiliates own and/or control a significant number of apartment units in the United States, such units represent an insignificant percentage of total apartment units in the United States and competition for the apartments is local. Laws benefiting disabled persons may result in the Partnership's incurrence of unanticipated expenses. Under the Americans with Disabilities Act of 1990, or ADA, all places intended to be used by the public are required to meet certain Federal requirements related to access and use by disabled persons. Likewise, the Fair Housing Amendments Act of 1988, or FHAA, requires apartment properties first occupied after March 13, 1990 to be accessible to the handicapped. These and other Federal, state and local laws may require modifications to the Partnership's properties, or restrict renovations of the properties. Noncompliance with these laws could result in the imposition of fines or an award of damages to private litigants and also could result in an order to correct any non-complying feature, which could result in substantial capital expenditures. Although the Managing General Partner believes that the Partnership's properties are substantially in compliance with present requirements, the Partnership may incur unanticipated expenses to comply with the ADA and the FHAA. Both the income and expenses of operating the properties owned by the Partnership are subject to factors outside of the Partnership's control, such as changes in the supply and demand for similar properties resulting from various market conditions, increases/decreases in unemployment or population shifts, changes in the availability of permanent mortgage financing, changes in zoning laws, or changes in patterns or needs of users. In addition, there are risks inherent in owning and operating residential properties because such properties are susceptible to the impact of economic and other conditions outside of the control of the Partnership. From time to time, the Federal Bureau of Investigation, or FBI, and the United States Department of Homeland Security issue alerts regarding potential terrorist threats involving apartment buildings. Threats of future terrorist attacks, such as those announced by the FBI and the Department of Homeland Security, could have a negative effect on rent and occupancy levels at the Partnership's properties. The effect that future terrorist activities or threats of such activities could have on the Partnership's operations is uncertain and unpredictable. If the Partnership were to incur a loss at a property as a result of an act of terrorism, the Partnership could lose all or a portion of the capital invested in the property, as well as the future revenue from the property. In this regard, the Partnership has purchased insurance to cover acts of terrorism. The Managing General Partner does not anticipate that these costs will have a negative effect on the Partnership's consolidated financial condition or results of operations. There have been, and it is possible there may be other, Federal, state and local legislation and regulations enacted relating to the protection of the environment. The Partnership is unable to predict the extent, if any, to which such new legislation or regulations might occur and the degree to which such existing or new legislation or regulations might adversely affect the properties owned by the Partnership. The Partnership monitors its properties for evidence of pollutants, toxins and other dangerous substances, including the presence of asbestos. In certain cases environmental testing has been performed which resulted in no material adverse conditions or liabilities. In no case has the Partnership received notice that it is a potentially responsible party with respect to an environmental clean up site. A further description of the Partnership's business is included in "Management's Discussion and Analysis or Plan of Operation" included in "Item 6" of this Form 10-KSB. Item 2. Description of Properties The following table sets forth the Partnership's investments in properties:
Date of Property Purchase Type of Ownership Use Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) 09/82 Fee ownership subject Apartment Englewood, Colorado to first mortgage (1) 296 units Creekside Apartments 10/82 Fee ownership subject Apartment Denver, Colorado to first mortgage (1) 328 units The Lodge Apartments 10/82 Fee ownership subject Apartment Denver, Colorado to first mortgage (1) 376 units The Village in the Woods 10/82 Fee ownership subject Apartment Apartments to first mortgage 530 units Cypress, Texas Cooper's Pond Apartments 03/83 Fee ownership subject Tampa, Florida to first and second Apartment mortgages 463 units
(1) Property is owned by a limited partnership or limited liability corporation in which the Partnership holds a 100% interest. Schedule of Properties Set forth below for each of the Partnership's properties is the gross carrying value, accumulated depreciation, depreciable life, method of depreciation and Federal tax basis.
Gross Carrying Accumulated Depreciable Method of Federal Property Value Depreciation Life Depreciation Tax Basis (in thousands) (in thousands) Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) $21,129 $11,440 5-30 yrs S/L $ 6,371 Creekside Apartments 12,384 7,828 5-30 yrs S/L 2,891 The Lodge Apartments 14,307 8,906 5-30 yrs S/L 3,377 The Village in the Woods 17,460 10,622 5-30 yrs S/L 4,066 Apartments Coopers Pond Apartments 17,274 11,566 5-30 yrs S/L 3,184 $82,554 $50,362 $19,889
See "Note A - Organization and Summary of Significant Accounting Policies" to the consolidated financial statements included in "Item 7. Financial Statements" for a description of the Partnership's capitalization and depreciation policies. Schedule of Property Indebtedness The following table sets forth certain information relating to the loans encumbering the Partnership's properties.
Principal Principal Balance At Balance December 31, Interest Period Maturity Due At Property 2004 Rate Amortized Date Maturity (3) (in thousands) (in thousands) Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) $10,896 7.99% (1) 20 years 01/01/20 $ -- Creekside Apartments 5,952 6.43% (1) 30 years 09/01/08 5,501 The Lodge Apartments 6,593 6.43% (1) 30 years 09/01/08 6,093 The Village in the Woods Apartments 12,858 8.56% (1) 20 years 02/01/20 -- Cooper's Pond Apartments 1st mortgage 7,458 8.77% (1) 20 years 07/01/14 6,655 2nd mortgage 2,540 (2) (2) 07/01/07 2,540 $46,297 $20,789
(1) Fixed rate mortgage. (2) On June 7, 2004 the Partnership obtained a second mortgage loan on Cooper's Pond Apartments in the amount of $2,540,000. The second mortgage requires monthly payments of interest beginning August 1, 2004 until the loan matures July 1, 2007, with interest being equal to the one month LIBOR rate plus 300 basis points (5.42% at December 31, 2004). In connection with obtaining the second mortgage, loan costs of approximately $85,000 were capitalized and are included in other assets on the consolidated balance sheet included in "Item 7. Financial Statements". In connection with the new financing, the Partnership agreed to certain modifications on the existing mortgage loan encumbering Cooper's Pond Apartments. The modification of terms consisted of an interest rate of 8.77%, a monthly payment of approximately $62,000 on July 1, 2004, and monthly payments of approximately $59,000, commencing August 1, 2004 through its maturity of July 1, 2014, with a balloon payment of approximately $6,655,000 due at maturity. The previous terms consisted of monthly payments of approximately $72,000 with a stated interest rate of 8.47% through its maturity of March 1, 2020, at which time the loan was scheduled to be fully amortized. (3) See "Note B - Mortgage Notes Payable" to the consolidated financial statements included in "Item 7. Financial Statements" for information with respect to the Partnership's ability to prepay these loans and other specific details about the loans. Schedule of Rental Rates and Occupancy Average annual rental rates and occupancy for 2004 and 2003 for each property are as follows: Average Annual Average Annual Rental Rates Occupancy (per unit) Property 2004 2003 2004 2003 Peakview Place Apartments (1) (formerly Cherry Creek Gardens Apartments) $ 8,057 $ 8,140 71% 80% Creekside Apartments (2) 6,520 7,090 92% 87% The Lodge Apartments (3) 5,759 6,626 87% 76% The Village in the Woods Apartments (4) 7,328 7,339 76% 88% Cooper's Pond Apartments (5) 6,157 6,208 95% 90% (1) The Managing General Partner attributes the decrease in occupancy at Peakview Place Apartments to units made unavailable for lease as a result of the redevelopment project which began at the property during the fourth quarter of 2003 (as discussed below). (2) The Managing General Partner attributes the increase in occupancy at Creekside Apartments to competitive pricing and increased resident retention efforts. (3) The Managing General Partner attributes the increase in occupancy at The Lodge Apartments to competitive pricing and increased marketing and resident retention efforts. (4) The Managing General Partner attributes the decrease in occupancy at The Village in the Woods Apartments to increased competition and an increase in home purchases in the Houston area. (5) The Managing General Partner attributes the increase in occupancy at Cooper's Pond Apartments to competitive pricing and increased resident retention efforts. As noted under "Item 1. Description of Business", the real estate industry is highly competitive. All of the Partnership's properties are subject to competition from other apartment complexes in the area. The Managing General Partner believes that all of the properties are adequately insured. The properties are apartment complexes which lease units for terms of one year or less. No tenant leases 10% or more of the available rental space. With the exception of Peakview Place Apartments, as discussed below, all of the properties are in good physical condition, subject to normal depreciation and deterioration as is typical for assets of this type and age. Real Estate Taxes and Rates Real estate taxes and rates in 2004 for each property were as follows: 2004 2004 Billing Rate (in thousands) Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) $157 8.77% Creekside Apartments 83 6.44% The Lodge Apartments 89 6.44% The Village in the Woods Apartments 422 2.88% Cooper's Pond Apartments 238 2.36% Capital Improvements Peakview Place Apartments During the year ended December 31, 2004, the Partnership completed approximately $3,697,000 of capital improvements arising from the redevelopment of the property, which includes capitalization of construction period interest of approximately $196,000, real estate taxes of approximately $19,000 and other construction period costs of approximately $54,000. Approximately 20 units were in redevelopment and not in service at December 31, 2004. Additional capital improvements of approximately $153,000 consisted primarily of water heater, heating, air conditioning and furniture upgrades. These improvements were funded from operating cash flow and advances from an affiliate of the Managing General Partner. The property is currently undergoing a redevelopment project in order to become more competitive with other properties in the area in an effort to increase occupancy at the property. Based on current redevelopment plans, the Managing General Partner anticipates the redevelopment to be complete in April 2005 at a total cost of approximately $4,840,000, approximately $640,000 of which was completed during 2003. The project is being funded by advances from an affiliate of the Managing General Partner. Approximately $3,830,000 was advanced during the year ended December 31, 2004 to pay for redevelopment project costs. The Partnership regularly evaluates the capital improvement needs of the property. The Partnership currently expects to spend approximately $503,000 for property redevelopment during 2005. In addition, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Creekside Apartments During the year ended December 31, 2004, the Partnership completed approximately $386,000 of capital improvements at the property, consisting primarily of structural improvements, exterior painting, water heater and air conditioning upgrades, interior improvements, signage upgrades and floor covering replacement. These improvements were funded from operating cash flow and replacement reserves. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Lodge Apartments During the year ended December 31, 2004, the Partnership completed approximately $576,000 of capital improvements at the property, consisting primarily of heating and air conditioning upgrades, structural improvements, exterior painting, major landscaping, lighting upgrades and appliance and floor covering replacements. These improvements were funded from operating cash flow, replacement reserves and advances from an affiliate of the Managing General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The Village in the Woods Apartments During the year ended December 31, 2004, the Partnership completed approximately $607,000 of capital improvements at the property, consisting primarily of structural improvements, exterior painting, interior improvements, plumbing and air conditioning upgrades, and appliance and floor covering replacements. These improvements were funded from operating cash flow and advances from an affiliate of the Managing General Partner. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as anticipated cash flow generated by the property. Cooper's Pond Apartments During the year ended December 31, 2004, the Partnership completed approximately $447,000 of capital improvements at the property, consisting primarily of structural improvements, parking area resurfacing, major landscaping, floor covering replacement, and construction related to the October 2003 fire (as discussed in "Item 6. Management's Discussion and Analysis or Plan of Operation"). These improvements were funded from operating cash flow and insurance proceeds. The Partnership regularly evaluates the capital improvement needs of the property. While the Partnership has no material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Capital improvements will be incurred only to the extent of cash available from operations and Partnership reserves. To the extent that capital improvements are completed, the Partnership's distributable cash flow, if any, may be adversely affected, at least in the short term. Item 3. Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a court appointed appraiser. An affiliate of the Managing General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the Managing General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the Managing General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call." The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Item 4. Submission of Matters to a Vote of Security Holders The unit holders of the Registrant did not vote on any matter through the solicitation of proxies or otherwise during the quarter ended December 31, 2004. PART II Item 5. Market for the Partnership's Equity and Related Partner Matters The Partnership, a publicly held limited partnership, sold 75,000 Limited Partnership Units (the "Units") aggregating $75,000,000 during its offering period. The Partnership currently has 75,000 Units outstanding and 2,753 Limited Partners of record. Affiliates of the Managing General Partner owned 51,453 Units or 68.60% at December 31, 2004. No public trading market has developed for the Units, and it is not anticipated that such a market will develop in the future. The Partnership distributed the following amounts during the years ended December 31, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2004 Unit December 31, 2003 Unit Operations $ -- $ -- $ 132 $ 1.55
Future cash distributions will depend on the levels of net cash generated from operations and the timing of debt maturities, refinancings and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at December 31, 2004, there can be no assurance that the Partnership will generate sufficient funds from operations after required capital improvements to permit any distributions to its partners in 2005 or subsequent periods. See "Item 2. Description of Properties - Capital Improvements" for information relating to anticipated capital expenditures at the properties. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 51,453 Units in the Partnership representing 68.60% of the outstanding Units at December 31, 2004. 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 acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 68.60% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. However, DeForest Ventures I L.P., from whom AIMCO, through its merger with Insignia Financial Group, Inc., acquired 25,833.5 (approximately 34.45%) of its Units, had agreed for the benefit of third party unitholders, that it would vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to its affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by third party unit holders. Except for the foregoing, no other limitations are imposed on AIMCO and its affiliates right to vote each Unit held. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder. Item 6. Management's Discussion and Analysis or Plan of Operation This item should be read in conjunction with the consolidated financial statements and other items contained elsewhere in this report. The Partnership's financial results depend upon a number of factors including the ability to attract and maintain tenants at the investment properties, interest rates on mortgage loans, costs incurred to operate the investment properties, general economic conditions and weather. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment 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, the Managing General Partner may use rental concessions and rental rate reductions to offset softening market conditions; accordingly, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Further, a number of factors that are outside the control of the Partnership such as the local economic climate and weather can adversely or positively affect the Partnership's financial results. Results of Operations The Partnership's net loss for the years ended December 31, 2004 and 2003 was approximately $2,170,000 and $1,146,000, respectively. The increase in net loss is due to an increase in total expenses and a decrease in total revenues. The increase in total expenses is due to increases in operating, depreciation, interest and property tax expenses, partially offset by a decrease in general and administrative expenses. The increase in operating expenses is primarily due to increases in advertising expenses at four of the Partnership's investment properties and utility and payroll related expenses at all of the properties. The increase in depreciation expense is due to property improvements and replacements placed into service at the Partnership's investment properties during the past twelve months. The increase in interest expense is primarily due to an increase in interest on advances from an affiliate of the Managing General Partner and a larger debt balance encumbering Cooper's Pond Apartments as a result of the second mortgage obtained in June 2004 (as discussed in "Liquidity and Capital Resources"), partially offset by scheduled principal payments made on the mortgages encumbering the Partnership's investment properties, which reduced the carrying balance of the loans, and interest capitalized at Peakview Place Apartments, due to a redevelopment project at the property which has required 20 units to be vacated at December 31, 2004 in order to expedite reconstruction (as discussed below). The increase in property tax expense is primarily a result of increases in the assessed value of Cooper's Pond Apartments and the tax rate at Peakview Place Apartments, partially offset by the receipt of a refund due to the Partnership's successful appeal of the assessed value in a prior year of Peakview Place Apartments. The decrease in general and administrative expenses is primarily due to decreases in the cost of services included in the management reimbursements to the Managing General Partner as allowed under the Partnership Agreement, professional fees associated with the administration of the Partnership, and audit fees. Also included in general and administrative expenses for the years ended December 31, 2004 and 2003 are costs associated with the quarterly communications with the investors and regulatory agencies and the annual audit required by the Partnership Agreement. The decrease in total revenues is due to a decrease in rental income, partially offset by an increase in other income and the recognition of a casualty gain during 2004. The decrease in rental income is primarily due to decreases in the average rental rates at all of the Partnership's investment properties and occupancy at Peakview Place Apartments and The Village in the Woods Apartments, partially offset by increases in occupancy at The Lodge Apartments, Cooper's Pond Apartments and Creekside Apartments and reduced bad debt expense at Peakview Place Apartments, Cooper's Pond Apartments and Creekside Apartments. The increase in other income is primarily due to increases in utility reimbursements at all of the Partnership's investment properties, laundry income at Cooper's Pond Apartments and The Lodge Apartments, and cleaning fees at The Lodge Apartments, partially offset by a decrease in late charges at all of the properties. In October 2003, there was a fire at Cooper's Pond Apartments, causing minor damage to seven units. The property suffered damages of approximately $33,000. Insurance proceeds of approximately $27,000 were received during the year ended December 31, 2004 to cover the damages. After writing off the undepreciated damaged assets of approximately $4,000, the Partnership recognized a casualty gain of approximately $23,000 for the year ended December 31, 2004. During 2003, the Managing General Partner began a major redevelopment project at Peakview Place Apartments. The property has had difficulty staying competitive and needed to be updated. Therefore, in an effort to increase occupancy and become competitive in the local market, a significant redevelopment project has been started and is expected to be completed in April 2005. During the construction period, certain expenses are being capitalized and depreciated over the remaining life of the property. During the year ended December 31, 2004, approximately $196,000 of interest, approximately $19,000 of real estate taxes, and approximately $54,000 of other construction period costs were capitalized. Liquidity and Capital Resources At December 31, 2004, the Partnership had cash and cash equivalents of approximately $344,000, compared to approximately $433,000 at December 31, 2003. The decrease in cash and cash equivalents of approximately $89,000 is due to approximately $6,122,000 of cash used in investing activities, partially offset by approximately $5,334,000 of cash provided by financing activities and approximately $699,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements and net deposits to escrow accounts maintained by the mortgage lenders, partially offset by insurance proceeds received related to the casualty at Cooper's Pond Apartments. Cash provided by financing activities consisted of advances from an affiliate of the Managing General Partner and proceeds from a second mortgage note obtained on Cooper's Pond Apartments, partially offset by payments of principal made on the mortgages encumbering the Partnership's properties, loan costs paid, and payments on advances from an affiliate of the Managing General Partner. The Partnership invests its working capital reserves in interest bearing accounts. An affiliate of the Managing General Partner has made available to the Partnership a credit line of up to $150,000 per property owned by the Partnership. During the year ended December 31, 2004, an affiliate of the Managing General Partner exceeded this credit limit and advanced the Partnership approximately $3,830,000 to fund the redevelopment project at Peakview Place Apartments, approximately $425,000 to fund property taxes at The Village in the Woods Apartments and Cooper's Pond Apartments, and approximately $1,263,000 to fund capital improvements and operating expenses at four of the Partnership's investment properties. An affiliate of the Managing General Partner has committed to fund additional redevelopment costs of approximately $503,000 during 2005 (as discussed below). During the year ended December 31, 2003, an affiliate of the Managing General Partner advanced the Partnership approximately $351,000 to fund the redevelopment project at Peakview Place Apartments and approximately $50,000 to fund operating expenses at Cooper's Pond Apartments. These advances bear interest at the prime rate plus 2% (7.25% at December 31, 2004). Interest expense for the years ended December 31, 2004 and 2003 was approximately $160,000 and $1,000, respectively. During the year ended December 31, 2004, the Partnership made payments of approximately $1,524,000 on the advances and approximately $22,000 in accrued interest, from proceeds from the second mortgage obtained on Cooper's Pond Apartments (as discussed below). At December 31, 2004, the total outstanding loans and accrued interest due to an affiliate of the Managing General Partner is approximately $4,534,000 and is included in due to affiliates on the consolidated balance sheet included in "Item 7. Financial Statements". The Partnership expects to repay these advances and related accrued interest from cash from operations during 2005 and subsequent periods. 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. The Managing General Partner monitors developments in the area of legal and regulatory compliance. For example, the Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures with regard to governance, disclosure, audit and other areas. In light of these changes, the Partnership expects that it will incur higher expenses related to compliance. The Partnership regularly evaluates the capital improvement needs of the property. The Partnership currently expects to budget approximately $503,000 for 2005 related to the redevelopment project at Peakview Place Apartments. While the Partnership has no other material commitments for property improvements and replacements, certain routine capital expenditures are anticipated during 2005. Such capital expenditures will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that 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 assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. On June 7, 2004 the Partnership obtained a second mortgage loan on Cooper's Pond Apartments in the amount of $2,540,000. The second mortgage requires monthly payments of interest beginning August 1, 2004 until the loan matures July 1, 2007, with interest being equal to the one month LIBOR rate plus 300 basis points (5.42% at December 31, 2004). In connection with obtaining the second mortgage, loan costs of approximately $85,000 were capitalized and are included in other assets on the consolidated balance sheet included in "Item 7. Financial Statements". In connection with the new financing, the Partnership agreed to certain modifications on the existing mortgage loan encumbering Cooper's Pond Apartments. The modification of terms consisted of an interest rate of 8.77%, a monthly payment of approximately $62,000 on July 1, 2004, and monthly payments of approximately $59,000, commencing August 1, 2004 through its maturity of July 1, 2014, with a balloon payment of approximately $6,655,000 due at maturity. The previous terms consisted of monthly payments of approximately $72,000 with a stated interest rate of 8.47% through its maturity of March 1, 2020, at which time the loan was scheduled to be fully amortized. The remaining mortgage indebtedness of approximately $36,299,000 is amortized over varying periods. The debt encumbering Creekside Apartments and The Lodge Apartments matures in September 2008, at which time balloon payments totaling approximately $11,594,000 will be due. The debt encumbering Peakview Place Apartments and The Village in the Woods Apartments matures in 2020 at which time the loans are scheduled to be fully amortized. The Managing General Partner will attempt to refinance the indebtedness encumbering Cooper's Pond Apartments, Creekside Apartments, and The Lodge Apartments and/or sell the properties prior to their maturity dates. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership will risk losing such properties through foreclosure. Pursuant to the Partnership Agreement, the term of the Partnership is scheduled to expire on December 31, 2006. Accordingly, prior to such date the Partnership will need to either sell its investment properties or extend the term of the Partnership. The Partnership distributed the following amounts during the years ended December 31, 2004 and 2003 (in thousands, except per unit data):
Per Limited Per Limited Year Ended Partnership Year Ended Partnership December 31, 2004 Unit December 31, 2003 Unit Operations $ -- $ -- $ 132 $ 1.55
Future cash distributions will depend on the levels of net cash generated from operations, the timing of debt maturities, refinancings, and/or property sales. The Partnership's cash available for distribution is reviewed on a monthly basis. In light of the amounts accrued and payable to affiliates of the Managing General Partner at December 31, 2004, there can be no assurance that the Partnership will generate sufficient funds from operations, after planned capital improvement expenditures, to permit any distributions to its partners in 2005 or subsequent periods. Other In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 51,453 Units in the Partnership representing 68.60% of the outstanding Units at December 31, 2004. 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 acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 68.60% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. However, DeForest Ventures I L.P., from whom AIMCO, through its merger with Insignia Financial Group, Inc., acquired 25,833.5 (approximately 34.45%) of its Units, had agreed for the benefit of third party unitholders, that it would vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to its affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by third party unit holders. Except for the foregoing, no other limitations are imposed on AIMCO and its affiliates right to vote each Unit held. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder. Critical Accounting Policies and Estimates A summary of the Partnership's significant accounting policies is included in "Note A - Organization and Summary of Significant Accounting Policies" which is included in the consolidated financial statements in "Item 7. Financial Statements". The Managing General Partner believes that the consistent application of these policies enables the Partnership to provide readers of the financial statements with useful and reliable information about the Partnership's operating results and financial condition. The preparation of consolidated financial statements in conformity with accounting principles generally accepted in the United States requires the Partnership to make estimates and assumptions. These estimates and assumptions affect the reported amounts of assets and liabilities at the date of the financial statements as well as reported amounts of revenues and expenses during the reporting period. Actual results could differ from these estimates. Judgments and assessments of uncertainties are required in applying the Partnership's accounting policies in many areas. The Partnership believes that of its significant accounting policies, the following may involve a higher degree of judgment and complexity. Impairment of Long-Lived Assets The Partnership's investment properties are recorded at cost, less accumulated depreciation, unless considered impaired. If events or circumstances indicate that the carrying amount of a property may be impaired, the Partnership will make an assessment of its recoverability by estimating the undiscounted future cash flows, excluding interest charges, of the property. If the carrying amount exceeds the aggregate future cash flows, the Partnership would recognize an impairment loss to the extent the carrying amount exceeds the fair value of the property. Real property investments are subject to varying degrees of risk. Several factors may adversely affect the economic performance and value of the Partnership's investment properties. These factors include, but are not limited to, changes in the national, regional and local economic climate; local conditions, such as an oversupply of multifamily properties; competition from other available multifamily property owners and changes in market rental rates. Any adverse changes in these factors could cause impairment of the Partnership's assets. Revenue Recognition The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. Item 7. Financial Statements CENTURY PROPERTIES FUND XVII LIST OF FINANCIAL STATEMENTS Report of Independent Registered Public Accounting Firm Consolidated Balance Sheet - December 31, 2004 Consolidated Statements of Operations - Years ended December 31, 2004 and 2003 Consolidated Statements of Changes in Partners' Deficit - Years ended December 31, 2004 and 2003 Consolidated Statements of Cash Flows - Years ended December 31, 2004 and 2003 Notes to Consolidated Financial Statements Report of Independent Registered Public Accounting Firm The Partners Century Properties Fund XVII We have audited the accompanying consolidated balance sheet of Century Properties Fund XVII as of December 31, 2004, and the related consolidated statements of operations, changes in partners' deficit, and cash flows for each of the two years in the period ended December 31, 2004. These financial statements are the responsibility of the Partnership's management. Our responsibility is to express an opinion on these financial statements based on our audits. We conducted our audits in accordance with the standards of the Public Company Accounting Oversight Board (United States). Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. We were not engaged to perform an audit of the Partnership's internal control over financial reporting. Our audit included consideration of internal control over financial reporting as a basis for designing audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Partnership's internal control over financial reporting. Accordingly, we express no such opinion. An audit also includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements, assessing the accounting principles used and significant estimates made by management, and evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion. In our opinion, the financial statements referred to above present fairly, in all material respects, the consolidated financial position of Century Properties Fund XVII at December 31, 2004, and the consolidated results of its operations and its cash flows for each of the two years in the period ended December 31, 2004, in conformity with accounting principles generally accepted in the United States. /s/ERNST & YOUNG LLP Greenville, South Carolina March 21, 2005 CENTURY PROPERTIES FUND XVII CONSOLIDATED BALANCE SHEET (in thousands, except unit data) December 31, 2004
Assets Cash and cash equivalents $ 344 Receivables and deposits 724 Restricted escrows 497 Other assets 897 Investment properties (Notes B and E): Land $ 7,078 Buildings and related personal property 75,476 82,554 Less accumulated depreciation (50,362) 32,192 $ 34,654 Liabilities and Partners' Deficit Liabilities Accounts payable $ 454 Tenant security deposit liabilities 284 Accrued property taxes 713 Other liabilities 635 Due to affiliates (Note D) 4,598 Mortgage notes payable (Note B) 46,297 Partners' Deficit General partner $ (9,102) Limited partners (75,000 units issued and outstanding) (9,225) (18,327) $ 34,654 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENTS OF OPERATIONS (in thousands, except per unit data)
Years Ended December 31, 2004 2003 Revenues: Rental income $10,637 $10,969 Other income 1,748 1,577 Casualty gain (Note F) 23 -- Total revenues 12,408 12,546 Expenses: Operating 6,345 5,786 General and administrative 375 407 Depreciation 3,338 3,006 Interest 3,560 3,551 Property taxes 960 942 Total expenses 14,578 13,692 Net loss (Note C) $(2,170) $(1,146) Net loss allocated to general partner (11.8%) $ (256) $ (135) Net loss allocated to limited partners (88.2%) (1,914) (1,011) $(2,170) $(1,146) Net loss per limited partnership unit $(25.52) $(13.48) Distribution per limited partnership unit $ -- $ 1.55 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENTS OF CHANGES IN PARTNERS' DEFICIT (in thousands, except unit data)
Limited Partnership General Limited Units Partner Partners Total Original capital contributions 75,000 $ -- $75,000 $ 75,000 Partners' deficit at December 31, 2002 75,000 $(8,695) $(6,184) $(14,879) Distribution to partners -- (16) (116) (132) Net loss for the year ended December 31, 2003 -- (135) (1,011) (1,146) Partners' deficit at December 31, 2003 75,000 (8,846) (7,311) (16,157) Net loss for the year ended December 31, 2004 -- (256) (1,914) (2,170) Partners' deficit at December 31, 2004 75,000 $(9,102) $(9,225) $(18,327) See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVII CONSOLIDATED STATEMENTS OF CASH FLOWS (in thousands)
Years Ended December 31, 2004 2003 Cash flows from operating activities: Net loss $ (2,170) $ (1,146) Adjustments to reconcile net loss to net cash provided by operating activities: Depreciation 3,338 3,006 Amortization of loan costs 65 57 Casualty gain (23) -- Bad debt expense 610 929 Change in accounts: Receivables and deposits (900) (772) Other assets (141) (181) Accounts payable (151) 70 Tenant security deposit liabilities (48) 38 Accrued property taxes (11) (40) Other liabilities (42) 202 Due to affiliates 172 31 Net cash provided by operating activities 699 2,194 Cash flows from investing activities: Insurance proceeds received 27 56 Net deposits to restricted escrows (215) (70) Property improvements and replacements (5,934) (1,604) Net cash used in investing activities (6,122) (1,618) Cash flows from financing activites: Loan costs paid (85) -- Payments on mortgage notes payable (1,115) (1,109) Distribution to partners -- (132) Proceeds from mortgage note payable 2,540 -- Advances from affiliate 5,518 401 Payments on advances from affiliate (1,524) -- Net cash provided by (used in) financing activities 5,334 (840) Net decrease in cash and cash equivalents (89) (264) Cash and cash equivalents at beginning of year 433 697 Cash and cash equivalents at end of year $ 344 $ 433 Supplemental disclosure of cash flow information: Cash paid for interest $ 3,549 $ 3,547 Supplemental disclosure of non-cash activity: Property improvements and replacements in accounts Payable $ 298 $ 366 See Accompanying Notes to Consolidated Financial Statements
CENTURY PROPERTIES FUND XVII NOTES TO CONSOLIDATED FINANCIAL STATEMENTS December 31, 2004 Note A - Organization and Summary of Significant Accounting Policies Organization: Century Properties Fund XVII (the "Partnership" or the "Registrant") is a California limited partnership organized in November 1981 to acquire and operate residential apartment complexes. The Partnership currently owns five residential apartment complexes of which three are located in Colorado, and one each are located in Florida and Texas. Fox Partners, a California general partnership, is the general partner of the Partnership. The general partners of Fox Partners are Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"), Fox Realty Investors ("FRI"), and Fox Partners 82. NPI Equity Investments II, Inc., a Florida corporation ("NPI Equity"), is the general partner of FRI. FCMC and NPI Equity are affiliates of Apartment Investment and Management Company ("AIMCO"), a publicly traded real estate investment trust. The Partnership Agreement provides that the Partnership is to terminate on December 31, 2006 unless terminated prior to such date. Principles of Consolidation: The financial statements include all the accounts of the Partnership and Apartment CCG 17, L.P., which owns Peakview Place Apartments, Apartment Creek 17, LLC, which owns Creekside Apartments and Apartment Lodge 17, LLC, which owns The Lodge Apartments. The Partnership ultimately holds 100% interest in Apartment CCG 17, L.P., Apartment Creek 17, LLC, and Apartment Lodge 17, LLC. All intra-entity balances have been eliminated. The financial statements include all of the accounts of the Partnership and its wholly owned partnerships. Allocation of Profits, Gains and Losses: Profits, gains and losses of the Partnership are allocated between the general partner and limited partners in accordance with the provisions of the Partnership Agreement. The general partner is entitled to receive, as a management incentive, an allocation of ten percent of the net income and net loss, taxable income and taxable loss, and cash available for distribution distributed to the partners. After payment of the management incentive, net income (including that arising from the occurrence of sales or dispositions) and net loss of the Partnership and taxable income (loss) are allocated 98% to the limited partners and 2% to the general partner. Depreciation: Depreciation is provided by the straight-line method over the estimated lives of the apartment properties and related personal property. For Federal income tax purposes, the accelerated cost recovery method is used for real property over 19 years for additions after May 8, 1985, and before January 1, 1987. As a result of the Tax Reform Act of 1986, for additions after December 31, 1986, the modified accelerated cost recovery method is used for depreciation of (1) real property over 27 1/2 years and (2) personal property additions over 5 years. Cash and Cash Equivalents: Cash and cash equivalents include cash on hand and in banks. At certain times, the amount of cash deposited at a bank may exceed the limit on insured deposits. Cash balances include approximately $296,000 at December 31, 2004 that is maintained by an affiliated management company on behalf of affiliated entities in cash concentration accounts. Tenant Security Deposits: The Partnership requires security deposits from lessees for the duration of the lease and such deposits are included in receivables and deposits. Deposits are refunded when the tenant vacates, provided the tenant has not damaged its space and is current on its rental payments. Replacement Reserves: A replacement reserve account was established in 1998 with the refinancing proceeds for Creekside Apartments and The Lodge Apartments. A replacement reserve account was established during the year ended December 31, 2004 with the second mortgage obtained on Cooper's Pond Apartments. These funds were established to complete listed repairs and replacements. The total reserve account balance at December 31, 2004 is approximately $497,000 which includes interest. Leases: The Partnership generally leases apartment units for twelve-month terms or less. The Partnership will offer rental concessions during particularly slow months or in response to heavy competition from other similar complexes in the area. Rental income attributable to leases, net of any concessions, is recognized on a straight-line basis over the term of the lease. The Partnership evaluates all accounts receivable from residents and establishes an allowance, after the application of security deposits, for accounts greater than 30 days past due on current tenants and all receivables due from former tenants. Deferred Costs: Loan costs of approximately $769,000, less accumulated amortization of approximately $329,000, are included in other assets in the accompanying consolidated balance sheet. The loan costs are amortized over the terms of the related loan agreements. Amortization of loan costs for the years ended December 31, 2004 and 2003 was approximately $65,000 and $57,000, respectively, and is included in interest expense. Amortization expense is expected to be approximately $83,000 in 2005, $82,000 in 2006, $71,000 in 2007, $46,000 in 2008 and $25,000 in 2009. Leasing commissions and other direct costs incurred in connection with successful leasing efforts are deferred and amortized over the terms of the related leases. Amortization of these costs is included in operating expenses. Investment Properties: Investment properties consist of five apartment complexes and are stated at cost. Acquisition fees are capitalized as a cost of real estate. The Partnership capitalizes all expenditures in excess of $250 that clearly relate to the acquisition and installation of real and personal property components. These expenditures include costs incurred to replace existing property components, costs incurred to add a material new feature to a property, and costs that increase the useful life or service potential of a property component. These capitalized costs are depreciated over the estimated useful life of the asset. Expenditures for ordinary repairs, maintenance and apartment turnover costs are expensed as incurred. In accordance with Statement of Financial Accounting Standards ("SFAS") No. 144, "Accounting for the Impairment or Disposal of Long-Lived Assets", the Partnership records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the undiscounted cash flows estimated to be generated by those assets are less than the carrying amounts of those assets. No adjustments for impairment of value were recorded in the years ended December 31, 2004 or 2003. Fair Value of Financial Instruments: SFAS No. 107, "Disclosures about Fair Value of Financial Instruments", as amended by SFAS No. 119, "Disclosures about Derivative Financial Instruments and Fair Value of Financial Instruments", requires disclosure of fair value information about financial instruments, whether or not recognized in the balance sheet, for which it is practicable to estimate fair value. Fair value is defined in the SFAS as the amount at which the instruments could be exchanged in a current transaction between willing parties, other than in a forced or liquidation sale. The Partnership believes that the carrying amount of its financial instruments (except for long term debt) approximates their fair value due to the short term maturity of these instruments. The Partnership estimates fair value of discounting future cash flows using a discount rate commensurate with that currently believed to be available to the Partnership for similar term, fully amortizing long-term debt. The fair value of the Partnership's long term debt at the Partnership's incremental borrowing rate is approximately $49,524,000. Segment Reporting: SFAS No. 131, "Disclosure about Segments of an Enterprise and Related Information" established standards for the way that public business enterprises report information about operating segments in annual financial statements and requires that those enterprises report selected information about operating segments in interim financial reports. SFAS No. 131 also established standards for related disclosures about products and services, geographic areas, and major customers. As defined in SFAS No. 131, the Partnership has only one reportable segment. Advertising Costs: Advertising costs of approximately $383,000 and $333,000 for the years ended December 31, 2004 and 2003, respectively, were charged to expense as incurred and are included in operating expenses. Use of Estimates: The preparation of financial statements in conformity with accounting principles generally accepted in the United States requires management to make estimates and assumptions that affect the amounts reported in the financial statements and accompanying notes. Actual results could differ from those estimates. Note B - Mortgage Notes Payable The terms of the mortgage notes payable are as follows:
Principal Monthly Principal Balance At Payment Balance December 31, Including Interest Maturity Due At Property 2004 Interest Rate Date Maturity (in thousands) (in thousands) Peakview Place Apartments $10,896 $ 104 7.99% (1) 01/01/20 $ -- (formerly Cherry Creek Gardens Apartments) Creekside Apartments 5,952 41 6.43% (1) 09/01/08 5,501 The Lodge Apartments 6,593 45 6.43% (1) 09/01/08 6,093 The Village in the Woods Apartments 12,858 126 8.56% (1) 02/01/20 -- Cooper's Pond Apartments 1st mortgage 7,458 59 8.77% (1) 07/01/14 6,655 2nd mortgage 2,540 11 (2) 07/01/07 2,540 $46,297 $ 386 $20,789
(1) Fixed rate mortgage. (2) Variable rate mortgage, with interest being equal to the one month LIBOR rate plus 300 basis points (5.42% at December 31, 2004). On June 7, 2004 the Partnership obtained a second mortgage loan on Cooper's Pond Apartments in the amount of $2,540,000. The second mortgage requires monthly payments of interest beginning August 1, 2004 until the loan matures July 1, 2007, with interest being equal to the one month LIBOR rate plus 300 basis points (5.42% at December 31, 2004). In connection with obtaining the second mortgage, loan costs of approximately $85,000 were capitalized and are included in other assets. In connection with the new financing, the Partnership agreed to certain modifications on the existing mortgage loan encumbering Cooper's Pond Apartments. The modification of terms consisted of an interest rate of 8.77%, a monthly payment of approximately $62,000 on July 1, 2004, and monthly payments of approximately $59,000, commencing August 1, 2004 through its maturity of July 1, 2014, with a balloon payment of approximately $6,655,000 due at maturity. The previous terms consisted of monthly payments of approximately $72,000 with a stated interest rate of 8.47% through its maturity of March 1, 2020, at which time the loan was scheduled to be fully amortized. The mortgage notes payable are non-recourse and are secured by pledge of the respective apartment properties and by pledge of revenues from the respective apartment properties. Certain of the notes require prepayment penalties if repaid prior to maturity and all notes prohibit resale of the properties subject to existing indebtedness. Scheduled principal payments on the mortgage notes payable subsequent to December 31, 2004 are as follows (dollar amounts in thousands): 2005 $ 1,111 2006 1,202 2007 3,841 2008 12,931 2009 1,225 Thereafter 25,987 $46,297 Note C - Income Taxes Taxable income or loss of the Partnership is reported in the income tax returns of its partners. Accordingly, no provision for income taxes is made in the consolidated financial statements of the Partnership. The following is a reconciliation of reported net loss and Federal taxable (loss) income (in thousands, except per unit data): 2004 2003 Net loss as reported $(2,170) $(1,146) (Deduct) add: Casualty gain (23) -- Depreciation differences 1,066 1,588 Other (210) 92 Interest expense (137) (137) Federal taxable (loss) income $(1,474) $ 397 Federal taxable (loss) income per Limited partnership unit $(17.33) $ 4.67 The following is a reconciliation between the Partnership's reported amounts and Federal tax basis of net liabilities (in thousands): Net liabilities as reported $(18,327) Land and Buildings 7,490 Accumulated Depreciation (19,793) Syndication and Distribution Costs 9,319 Original issue discount 3,100 Other 456 Net liabilities - Federal tax basis $(17,755) Note D - Transactions with Affiliated Parties The Partnership has no employees and depends 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 reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $604,000 and $623,000 for the years ended December 31, 2004 and 2003, respectively, which are included in operating expenses. An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $326,000 and $237,000 for the years ended December 31, 2004 and 2003, respectively, which are included in investment properties and general and administrative expenses. The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $147,000 and $48,000, respectively. The fees are calculated based upon a percentage of current year additions to the investment properties. At December 31, 2004, approximately $64,000 was owed to an affiliate of the Managing General Partner for unpaid reimbursements, which is included in due to affiliates. Pursuant to the Partnership Agreement, for managing the affairs of the Partnership, the Managing General Partner is entitled to receive a Partnership management fee equal to 10% of the Partnership's adjusted cash from operations as distributed. Approximately $13,000 in Partnership management fees were paid along with the distributions from operations made during the year ended December 31, 2003. There were no Partnership management fees paid during the year ended December 31, 2004, as there were no distributions from operations. An affiliate of the Managing General Partner has made available to the Partnership a credit line of up to $150,000 per property owned by the Partnership. During the year ended December 31, 2004, an affiliate of the Managing General Partner exceeded this credit limit and advanced the Partnership approximately $3,830,000 to fund the redevelopment project at Peakview Place Apartments, approximately $425,000 to fund property taxes at The Village in the Woods Apartments and Cooper's Pond Apartments, and approximately $1,263,000 to fund capital improvements and operating expenses at four of the Partnership's investment properties. An affiliate of the Managing General Partner has committed to fund additional redevelopment costs of approximately $503,000 during 2005 (as discussed in Note E), During the year ended December 31, 2003, an affiliate of the Managing General Partner advanced the Partnership approximately $351,000 to fund the redevelopment project at Peakview Place Apartments and approximately $50,000 to fund operating expenses at Cooper's Pond Apartments. These advances bear interest at the prime rate plus 2% (7.25% at December 31, 2004). Interest expense for the years ended December 31, 2004 and 2003 was approximately $160,000 and $1,000, respectively. During the year ended December 31, 2004, the Partnership made payments of approximately $1,524,000 on the advances and approximately $22,000 in accrued interest, from proceeds from the second mortgage obtained on Cooper's Pond Apartments (as discussed in Note B). At December 31, 2004, the total outstanding loans and accrued interest due to an affiliate of the Managing General Partner is approximately $4,534,000 and is included in due to affiliates. Subsequent to December 31, 2004, an affiliate of the Managing General Partner advanced approximately $1,026,000 to fund the redevelopment project at Peakview Place Apartments, property taxes at The Village in the Woods Apartments and operating expenses at Peakview Place Apartments and The Village in the Woods Apartments. The Partnership expects to repay these advances and related accrued interest from cash from operations during 2005 and subsequent periods. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $191,000 and $175,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 51,453 Units in the Partnership representing 68.60% of the outstanding Units at December 31, 2004. 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 acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 68.60% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. However, DeForest Ventures I L.P., from whom AIMCO, through its merger with Insignia Financial Group, Inc., acquired 25,833.5 (approximately 34.45%) of its Units, had agreed for the benefit of third party unitholders, that it would vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to its affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by third party unit holders. Except for the foregoing, no other limitations are imposed on AIMCO and its affiliates right to vote each Unit held. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder. Note E - Investment Properties and Accumulated Depreciation Initial Cost To Partnership (in thousands)
Net Cost Buildings Capitalized and Related (Written Down) Personal Subsequent to Description Encumbrances Land Property Acquisition (in thousands) (in thousands) Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) $10,896 $ 1,320 $11,879 $ 7,930 Creekside Apartments 5,952 1,366 7,307 3,711 The Lodge Apartments 6,593 1,575 8,580 4,152 The Village in the Woods Apartments 12,858 2,852 20,915 (6,307) Cooper's Pond Apartments 9,998 1,476 12,505 3,293 Total $46,297 $ 8,589 $61,186 $12,779
Gross Amount At Which Carried At December 31, 2004 (in thousands)
Buildings And Related Year of Personal Accumulated Construc- Date Depreciable Description Land Property Total Depreciation tion Acquired Life (in thousands) Peakview Place Apartments (formerly Cherry Creek Gardens Apartments) $ 1,320 $19,809 $21,129 $11,440 1979 9/82 5-30 yrs Creekside Apartments 1,366 11,018 12,384 7,828 1974 10/82 5-30 yrs The Lodge Apartments 1,577 12,730 14,307 8,906 1974 10/82 5-30 yrs The Village in the Woods Apartments 1,500 15,960 17,460 10,622 1983 10/82 5-30 yrs Cooper's Pond Apartments 1,315 15,959 17,274 11,566 1979-1981 3/83 5-30 yrs Total $ 7,078 $75,476 $82,554 $50,362
During the year ended December 31, 2003, the Managing General Partner began a major redevelopment project at Peakview Place Apartments. The property has had difficulty staying competitive and needed to be updated. Therefore, in an effort to increase occupancy and become competitive in the local market, a significant redevelopment project has been started and is expected to be completed in April 2005. During the construction period, certain expenses are being capitalized and depreciated over the remaining life of the property. As of December 31, 2004, approximately $243,000 of interest, approximately $22,000 of real estate taxes and approximately $69,000 of operating costs have been capitalized. The total cost of the redevelopment is expected to be approximately $4,840,000, approximately $3,697,000 and $640,000 of which was completed during the years ended December 31, 2004 and 2003, respectively. The project is being funded by advances from an affiliate of the Managing General Partner. It is expected that the redevelopment will continue to be funded from operating cash flow and advances from an affiliate of the Managing General Partner. Reconciliation of "investment properties and accumulated depreciation": Years Ended December 31, 2004 2003 Investment Properties (in thousands) Balance at beginning of year $76,700 $74,774 Property improvements 5,866 1,926 Disposal of property (12) -- Balance at end of year $82,554 $76,700 Accumulated Depreciation Balance at beginning of year $47,032 $44,026 Additions charged to expense 3,338 3,006 Disposal of property (8) -- Balance at end of year $50,362 $47,032 The aggregate cost of the real estate for Federal income tax purposes at December 31, 2004 and 2003 is approximately $90,044,000 and $84,263,000, respectively. The accumulated depreciation taken for Federal income tax purposes at December 31, 2004 and 2003, is approximately $70,155,000 and $67,883,000, respectively. Note F - Casualty Event In October 2003, there was a fire at Cooper's Pond Apartments, causing minor damage to seven units. The property suffered damages of approximately $33,000. Insurance proceeds of approximately $27,000 were received during the year ended December 31, 2004, to cover the damages. After writing off the undepreciated damaged assets of approximately $4,000, the Partnership recognized a casualty gain of approximately $23,000 for the year ended December 31, 2004. Note G - Contingencies 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. (the "Nuanes action") in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purported to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) that are named as nominal defendants, challenging, among other things, the acquisition of interests in certain Managing General Partner entities by Insignia Financial Group, Inc. ("Insignia") and entities that were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the series of transactions which closed on October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties Trust, respectively, were merged into AIMCO. The plaintiffs sought monetary damages and equitable relief, including judicial dissolution of the Partnership. In addition, during the third quarter of 2001, a complaint captioned Heller v. Insignia Financial Group (the "Heller action") was filed against the same defendants that are named in the Nuanes action. On or about August 6, 2001, plaintiffs filed a first amended complaint. The Heller action was brought as a purported derivative action, and asserted claims for, among other things, breach of fiduciary duty, unfair competition, conversion, unjust enrichment, and judicial dissolution. On January 8, 2003, the parties filed a Stipulation of Settlement in proposed settlement of the Nuanes action and the Heller action. In general terms, the proposed settlement provides for certification for settlement purposes of a settlement class consisting of all limited partners in this Partnership and others (the "Partnerships") as of December 20, 2002, the dismissal with prejudice and release of claims in the Nuanes and Heller litigation, payment by AIMCO of $9.9 million (which shall be distributed to settlement class members after deduction of attorney fees and costs of class counsel and certain costs of settlement) and up to $1 million toward the cost of independent appraisals of the Partnerships' properties by a court appointed appraiser. An affiliate of the Managing General Partner has also agreed to make at least one round of tender offers to purchase all of the partnership interests in the Partnerships within one year of final approval, if it is granted, and to provide partners with the independent appraisals at the time of these tenders. The proposed settlement also provided for the limitation of the allowable costs which the Managing General Partner or its affiliates will charge the Partnerships in connection with this litigation and imposes limits on the class counsel fees and costs in this litigation. On April 11, 2003, notice was distributed to limited partners providing the details of the proposed settlement. On June 13, 2003, the court granted final approval of the settlement and entered judgment in both the Nuanes and Heller actions. On August 12, 2003, an objector ("Objector") filed an appeal (the "Appeal") seeking to vacate and/or reverse the order approving the settlement and entering judgment thereto. On November 24, 2003, the Objector filed an application requesting the court order AIMCO to withdraw settlement tender offers it had commenced, refrain from making further offers pending the appeal and auction any units tendered to third parties, contending that the offers did not conform with the terms of the settlement. Counsel for the Objector (on behalf of another investor) had alternatively requested the court take certain action purportedly to enforce the terms of the settlement agreement. On December 18, 2003, the court heard oral argument on the motions and denied them both in their entirety. The Objector filed a second appeal challenging the court's use of a referee and its order requiring Objector to pay those fees. On January 28, 2004, the Objector filed his opening brief in the Appeal. On April 23, 2004, the Managing General Partner and its affiliates filed a response brief in support of the settlement and the judgment thereto. The plaintiffs have also filed a brief in support of the settlement. On June 4, 2004, Objector filed a reply to the briefs submitted by the Managing General Partner and Plaintiffs. In addition both the Objector and plaintiffs filed briefs in connection with the second appeal. On March 21, 2005, the Court of Appeals issued opinions in both pending appeals. With regard to the settlement and judgment entered thereto, the Court of Appeals vacated the trial court's order and remanded to the trial court for further findings on the basis that the "state of the record is insufficient to permit meaningful appellate review". With regard to the second appeal, the Court of Appeals reversed the order requiring the Objector to pay referee fees. The Managing General Partner does not anticipate that any costs to the Partnership, whether legal or settlement costs, associated with these cases will be material to the Partnership's overall operations. As previously disclosed, AIMCO Properties L.P. and NHP Management Company, both affiliates of the Managing General Partner, are defendants in an action in the United States District Court, District of Columbia. The plaintiffs have styled their complaint as a collective action under the Fair Labor Standards Act ("FLSA") and seek to certify state subclasses in California, Maryland, and the District of Columbia. Specifically, the plaintiffs contend that AIMCO Properties L.P. failed to compensate maintenance workers for time that they were required to be "on-call." Additionally, plaintiffs allege AIMCO Properties L.P. failed to comply with the FLSA in compensating maintenance workers for time that they worked in responding to a call while "on-call". The defendants have filed an answer to the amended complaint denying the substantive allegations. Discovery relating to the certification of the collective action has concluded and briefing on the matter is underway. Although the outcome of any litigation is uncertain, AIMCO Properties, L.P. does not believe that the ultimate outcome will have a material adverse effect on its financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. The Partnership is unaware of any other pending or outstanding litigation matters involving it or its investment properties that are not of a routine nature arising in the ordinary course of business. Environmental Various Federal, state and local laws subject property owners or operators to liability for management, and the costs of removal or remediation, of certain hazardous substances present on a property. Such laws often impose liability without regard to whether the owner or operator knew of, or was responsible for, the release or presence of the hazardous substances. The presence of, or the failure to manage or remedy properly, hazardous substances may adversely affect occupancy at affected apartment communities and the ability to sell or finance affected properties. In addition to the costs associated with investigation and remediation actions brought by government agencies, the presence of hazardous substances on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities. Various laws also impose liability for the cost of removal, remediation or disposal of hazardous substances through a licensed disposal or treatment facility. Anyone who arranges for the disposal or treatment of hazardous substances is potentially liable under such laws. These laws often impose liability whether or not the person arranging for the disposal ever owned or operated the disposal facility. In connection with the ownership and operation of its properties, the Partnership could potentially be liable for environmental liabilities or costs associated with its properties. Mold The Partnership is aware of lawsuits against owners and managers of multifamily properties asserting claims of personal injury and property damage caused by the presence of mold, some of which have resulted in substantial monetary judgments or settlements. The Partnership has only limited insurance coverage for property damage loss claims arising from the presence of mold and for personal injury claims related to mold exposure. Affiliates of the Managing General Partner have implemented a national policy and procedures to prevent or eliminate mold from its properties and the Managing General Partner believes that these measures will eliminate, or at least minimize, the effects that mold could have on residents. To date, the Partnership has not incurred any material costs or liabilities relating to claims of mold exposure or to abate mold conditions. Because the law regarding mold is unsettled and subject to change the Managing General Partner can make no assurance that liabilities resulting from the presence of or exposure to mold will not have a material adverse effect on the Partnership's consolidated financial condition or results of operations. SEC Investigation As previously disclosed, the Central Regional Office of the United States Securities and Exchange Commission (the "SEC") is conducting a formal investigation relating to certain matters. Although the staff of the SEC is not limited in the areas that it may investigate, AIMCO believes the areas of investigation include AIMCO's miscalculated monthly net rental income figures in third quarter 2003, forecasted guidance, accounts payable, rent concessions, vendor rebates, capitalization of payroll and certain other costs, and tax credit transactions. AIMCO is cooperating fully. AIMCO is not able to predict when the matter will be resolved. AIMCO does not believe that the ultimate outcome will have a material adverse effect on its consolidated financial condition or results of operations. Similarly, the Managing General Partner does not believe that the ultimate outcome will have a material adverse effect on the Partnership's consolidated financial condition or results of operations. Item 8. Changes in and Disagreements with Accountants on Accounting and Financial Disclosures None. Item 8A. Controls and Procedures (a) Disclosure Controls and Procedures. The Partnership's management, with the participation of the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, has evaluated the effectiveness of the Partnership's disclosure controls and procedures (as such term is defined in Rules 13a-15(e) and 15d-15(e) under the Securities Exchange Act of 1934, as amended (the "Exchange Act")) as of the end of the period covered by this report. Based on such evaluation, the principal executive officer and principal financial officer of the Managing General Partner, who are the equivalent of the Partnership's principal executive officer and principal financial officer, respectively, have concluded that, as of the end of such period, the Partnership's disclosure controls and procedures are effective. (b) Internal Control Over Financial Reporting. There have not been any changes in the Partnership's internal control over financial reporting (as such term is defined in Rules 13a-15(f) and 15d-15(f) under the Exchange Act) during the fourth quarter of 2004 that have materially affected, or are reasonably likely to materially affect, the Partnership's internal control over financial reporting. Item 8b. Other Information None. PART III Item 9. Directors, Executive Officers, Promoters and Control Persons; Compliance with Section 16(a) of the Exchange Act Century Properties Fund XVII (the "Partnership" or the "Registrant") has no directors or officers. The managing general partner of the Partnership is Fox Capital Management Corporation ("FCMC" or the "Managing General Partner"). The names and ages of, as well as the positions and offices held by, the directors and officers of the Managing General Partner are set forth below. There are no family relationships between or among any directors or officers. Name Age Position Martha L. Long 45 Director and Senior Vice President Harry G. Alcock 42 Director and Executive Vice President Miles Cortez 61 Executive Vice President, General Counsel and Secretary Patti K. Fielding 41 Executive Vice President Paul J. McAuliffe 48 Executive Vice President and Chief Financial Officer Thomas M. Herzog 42 Senior Vice President and Chief Accounting Officer Stephen B. Waters 43 Vice President Martha L. Long has been a Director and Senior Vice President of the Managing General Partner since February 2004. Ms. Long has been with AIMCO since October 1998 and has served in various capacities. From 1998 to 2001, Ms. Long served as Senior Vice President and Controller of AIMCO and the Managing General Partner. During 2002 and 2003, Ms. Long served as Senior Vice President of Continuous Improvement for AIMCO. Harry G. Alcock was appointed as a Director of the Managing General Partner in October 2004 and was appointed Executive Vice President of the (Managing, Corporate) General Partner in February 2004 and has been Executive Vice President and Chief Investment Officer of AIMCO since October 1999. Prior to October 1999 Mr. Alcock served as a Vice President of AIMCO from July 1996 to October 1997, when he was promoted to Senior Vice President Acquisitions where he served until October 1999. Mr. Alcock has had responsibility for acquisition and financing activities of AIMCO since July 1994. Miles Cortez was appointed Executive Vice President, General Counsel and Secretary of the Managing General Partner in February 2004 and of AIMCO in August 2001. Prior to joining AIMCO, Mr. Cortez was the senior partner of Cortez Macaulay Bernhardt & Schuetze LLC, a Denver law firm, from December 1997 through September 2001. Patti K. Fielding was appointed Executive Vice President - Securities and Debt of the Managing General Partner in February 2004 and of AIMCO in February 2003. Ms. Fielding was appointed Treasurer of AIMCO in January 2005. Ms. Fielding is responsible for debt financing and the treasury department. Ms. Fielding previously served as Senior Vice President - Securities and Debt of AIMCO from January 2000 to February 2003. Ms. Fielding joined AIMCO in February 1997 as a Vice President. Paul J. McAuliffe has been Executive Vice President and Chief Financial Officer of the Managing General Partner since April 2002. Mr. McAuliffe has served as Executive Vice President of AIMCO since February 1999 and was appointed Chief Financial Officer of AIMCO in October 1999. From May 1996 until he joined AIMCO, Mr. McAuliffe was Senior Managing Director of Secured Capital Corp. Thomas M. Herzog was appointed Senior Vice President and Chief Accounting Officer of the Managing General Partner in February 2004 and of AIMCO in January 2004. Prior to joining AIMCO in January 2004, Mr. Herzog was at GE Real Estate, serving as Chief Accounting Officer & Global Controller from April 2002 to January 2004 and as Chief Technical Advisor from March 2000 to April 2002. Prior to joining GE Real Estate, Mr. Herzog was at Deloitte & Touche LLP from 1990 until 2000. Stephen B. Waters was appointed Vice President of the Managing General Partner in April 2004. Mr. Waters previously served as a Director of Real Estate Accounting since joining AIMCO in September 1999. Mr. Waters has responsibilities for real estate and partnership accounting with AIMCO. One or more of the above persons are also directors and/or officers of a general partner (or general partner of a general partner) of limited partnerships which either have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15(d) of such Act. Further, one or more of the above persons are also directors and/or officers of Apartment Investment and Management Company and the general partner of AIMCO Properties, L.P., entities that have a class of securities registered pursuant to Section 12(g) of the Securities Exchange Act of 1934, or are subject to the reporting requirements of Section 15 (d) of such Act. The board of directors of the Managing General Partner does not have a separate audit committee. As such, the board of directors of the Managing General Partner fulfills the functions of an audit committee. The board of directors has determined that Martha L. Long meets the requirement of an "audit committee financial expert". The directors and officers of the Managing General Partner with authority over the Partnership are all employees of subsidiaries of AIMCO. AIMCO has adopted a code of ethics that applies to such directors and officers that is posted on AIMCO's website (www.AIMCO.com). AIMCO's website is not incorporated by reference to this filing. Item 10. Executive Compensation Neither the directors nor the officers of the Managing General Partner received any remuneration from the Partnership during the year ended December 31, 2004. Item 11. Security Ownership of Certain Beneficial Owners and Management The following table sets forth certain information regarding limited partnership units (the "Units") of the Registrant owned by each person who is known by the Registrant to own beneficially or exercise voting or dispositive control over more than 5% of the Registrant's Units, by each of the directors and by the directors and officers of the Managing General Partner as a group as of December 31, 2004. Amount and nature of % Name of Beneficial Owner Beneficial Owner of Units AIMCO IPLP, L.P. 25,833.50 34.45% (an affiliate of AIMCO) Fox Capital Management Corporation 100.00 0.13% (an affiliate of AIMCO) IPLP Acquisition I LLC 3,369.50 4.49% (an affiliate of AIMCO) AIMCO Properties, L.P. 22,150.00 29.53% (an affiliate of AIMCO) AIMCO IPLP, L.P., Fox Capital Management Corporation and IPLP Acquisition I LLC are indirectly ultimately owned by AIMCO. Their business address is 55 Beattie Place, Greenville, South Carolina 29602. AIMCO Properties, L.P. is indirectly ultimately controlled by AIMCO. Its business address is 4582 S. Ulster St. Parkway, Suite 100, Denver, Colorado 80237. No director or officer of the Managing General Partner owns any Units. The general partner owns 100 Units as required by the terms of the Partnership Agreement governing the Partnership. Item 12. Certain Relationships and Related Transactions The Partnership has no employees and depends 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 reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. Affiliates of the Managing General Partner receive 5% of gross receipts from all of the Partnership's properties as compensation for providing property management services. The Partnership paid to such affiliates approximately $604,000 and $623,000 for the years ended December 31, 2004 and 2003, respectively, which are included in operating expenses on the consolidated statements of operations included in "Item 7. Financial Statements". An affiliate of the Managing General Partner charged the Partnership for reimbursement of accountable administrative expenses amounting to approximately $326,000 and $237,000 for the years ended December 31, 2004 and 2003, respectively, which are included in investment properties and general and administrative expenses on the consolidated financial statements included in "Item 7. Financial Statements". The portion of these reimbursements included in investment properties for the years ended December 31, 2004 and 2003 are fees related to construction management services provided by an affiliate of the Managing General Partner of approximately $147,000 and $48,000, respectively. The fees are calculated based upon a percentage of current year additions to the investment properties. At December 31, 2004, approximately $64,000 was owed to an affiliate of the Managing General Partner for unpaid reimbursements, which is included in due to affiliates on the consolidated balance sheet included in "Item 7. Financial Statements". Pursuant to the Partnership Agreement, for managing the affairs of the Partnership, the Managing General Partner is entitled to receive a Partnership management fee equal to 10% of the Partnership's adjusted cash from operations as distributed. Approximately $13,000 in Partnership management fees were paid along with the distributions from operations made during the year ended December 31, 2003. There were no Partnership management fees paid during the year ended December 31, 2004, as there were no distributions from operations. An affiliate of the Managing General Partner has made available to the Partnership a credit line of up to $150,000 per property owned by the Partnership. During the year ended December 31, 2004, an affiliate of the Managing General Partner exceeded this credit limit and advanced the Partnership approximately $3,830,000 to fund the redevelopment project at Peakview Place Apartments, approximately $425,000 to fund property taxes at The Village in the Woods Apartments and Cooper's Pond Apartments, and approximately $1,263,000 to fund capital improvements and operating expenses at four of the Partnership's investment properties. An affiliate of the Managing General Partner has committed to fund additional redevelopment costs of approximately $503,000 during 2005 (as discussed in Note E to the consolidated financial statements included in "Item 7. Financial Statements"). During the year ended December 31, 2003, an affiliate of the Managing General Partner advanced the Partnership approximately $351,000 to fund the redevelopment project at Peakview Place Apartments and approximately $50,000 to fund operating expenses at Cooper's Pond Apartments. These advances bear interest at the prime rate plus 2% (7.25% at December 31, 2004). Interest expense for the years ended December 31, 2004 and 2003 was approximately $160,000 and $1,000, respectively. During the year ended December 31, 2004, the Partnership made payments of approximately $1,524,000 on the advances and approximately $22,000 in accrued interest, from proceeds from the second mortgage obtained on Cooper's Pond Apartments (as discussed in Note B). At December 31, 2004, the total outstanding loans and accrued interest due to an affiliate of the Managing General Partner is approximately $4,534,000 and is included in due to affiliates on the consolidated balance sheet included in "Item 7. Financial Statements". The Partnership expects to repay these advances and related accrued interest from cash from operations during 2005 and subsequent periods. The Partnership insures its properties up to certain limits through coverage provided by AIMCO which is generally self-insured for a portion of losses and liabilities related to workers compensation, property casualty and vehicle liability. The Partnership insures its properties above the AIMCO limits through insurance policies obtained by AIMCO from insurers unaffiliated with the Managing General Partner. During the years ended December 31, 2004 and 2003, the Partnership was charged by AIMCO and its affiliates approximately $191,000 and $175,000, respectively, for insurance coverage and fees associated with policy claims administration. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates owned 51,453 Units in the Partnership representing 68.60% of the outstanding Units at December 31, 2004. 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 acquire additional Units in exchange for cash or a combination of cash and units in AIMCO Properties, L.P., the operating partnership of AIMCO, either through private purchases or tender offers. Pursuant to the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters that include, but are not limited to, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 68.60% of the outstanding Units, AIMCO and its affiliates are in a position to influence all voting decisions with respect to the Partnership. However, DeForest Ventures I L.P., from whom AIMCO, through its merger with Insignia Financial Group, Inc., acquired 25,833.5 (approximately 34.45%) of its Units, had agreed for the benefit of third party unitholders, that it would vote such Units: (i) against any increase in compensation payable to the Managing General Partner or to its affiliates; and (ii) on all other matters submitted by it or its affiliates, in proportion to the votes cast by third party unit holders. Except for the foregoing, no other limitations are imposed on AIMCO and its affiliates right to vote each Unit held. Although the Managing General Partner owes fiduciary duties to the limited partners of the Partnership, the Managing General Partner also owes fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of the Managing General Partner, as managing general partner, to the Partnership and its limited partners may come into conflict with the duties of the Managing General Partner to AIMCO as its sole stockholder. Item 13. Exhibits See Exhibit Index. Item 14. Principal Accounting Fees and Services The Managing General Partner has reappointed Ernst & Young LLP as independent auditors to audit the financial statements of the Partnership for 2005. The aggregate fees billed for services rendered by Ernst & Young LLP for 2004 and 2003 are described below. Audit Fees. Fees for audit services totaled approximately $53,000 and $54,000 for 2004 and 2003, respectively. Fees for audit services also include fees for the reviews of the Partnership's Quarterly Reports on Form 10-QSB. Tax Fees. Fees for tax services totaled approximately $15,000 and $17,000 for 2004 and 2003, respectively. 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. CENTURY PROPERTIES FUND XVII By: Fox Partners General Partner By: Fox Capital Management Corporation Managing General Partner By: /s/Martha L. Long Martha L. Long Senior Vice President /s/Stephen B. Waters By: Stephen B. Waters Vice President Date: March 25, 2005 In accordance with the Exchange Act, this report has been signed below by the following persons on behalf of the Registrant and in the capacities and on the date indicated. /s/Harry G. Alcock Director and Executive Date: March 25, 2005 Harry G. Alcock Vice President /s/Martha L. Long Director and Senior Vice Date: March 25, 2005 Martha L. Long President /s/Stephen B. Waters Vice President Date: March 25, 2005 Stephen B. Waters CENTURY PROPERTIES FUND XVII EXHIBIT INDEX Exhibit Number Description of Exhibit 2.5 Master Indemnity Agreement incorporated by reference to Exhibit 2.5 to Form 8-K filed by Insignia with the Securities and Exchange Commission on September 1, 1995. 3.4 Agreement of Limited Partnership incorporated by reference to Exhibit A to the Prospectus of the Registrant dated March 29, 1982 and as thereafter supplemented contained in the Registrant's Registration Statement on Form S-11 (Reg. No. 2-75411). 10.1 Multifamily Note dated December 7, 1999, by and between Apartment CCG 17, L.P., a California limited partnership, and GMAC Commercial Mortgage Corporation, a California Corporation; incorporated by reference to Exhibit 16.3 to the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. 10.2 Multifamily Note dated January 27, 2000, by and between Century Properties Fund XVII, a California limited partnership, and GMAC Commercial Mortgage Corporation, a California Corporation; incorporated by reference to Exhibit 16.4 to the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. 10.3 Multifamily Note dated February 11, 2000, by and between Century Properties Fund XVII, a California limited partnership, and GMAC Commercial Mortgage Corporation, a California Corporation; incorporated by reference to Exhibit 16.5 to the Partnership's Annual Report on Form 10-KSB for the fiscal year ended December 31, 1999. 10.4 Allonge and Amendment to Multifamily Note dated June 7, 2004, by and among Century Properties Fund XVII, a California limited partnership, GMAC Commercial Mortgage Corporation, and Federal Home Loan Mortgage Corporation, incorporated by reference to the Partnership's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004. 10.5 Multifamily Note dated June 7, 2004, by and between Century Properties Fund XVII, a California limited partnership, and GMAC Commercial Mortgage Bank, incorporated by reference to Exhibit 10.1 to the Partnership's Quarterly Report on Form 10-QSB for the quarter ended June 30, 2004. 10.6 Multifamily Note dated August 24, 1998, by and between Apartment Lodge 17 A LLC, a Colorado limited liability company and Newport Mortgage Company, L.P. a Texas limited partnership, incorporated by reference to Exhibit 10.2 to the Partnership's Quarterly Report on 10-QSB for the quarter ended September 30, 1998. 10.7 Multifamily Note dated August 24, 1998, by and between Apartment Creek 17 A LLC, a Colorado limited liability company and Newport Mortgage Company, L.P., a Texas limited partnership, incorporated by reference to the Partnership's Quarterly Report on 10-QSB for the quarter ended September 30, 1998. 31.1 Certification of equivalent of Chief Executive Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 31.2 Certification of equivalent of Chief Financial Officer pursuant to Securities Exchange Act Rules 13a-14(a)/15d-14(a), as Adopted Pursuant to Section 302 of the Sarbanes-Oxley Act of 2002. 32.1 Certification Pursuant to 18 U.S.C. Section 1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002. Exhibit 31.1 CERTIFICATION I, Martha L. Long, certify that: 1. I have reviewed this annual report on Form 10-KSB of Century Properties Fund XVII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 25, 2005 /s/Martha L. Long Martha L. Long Senior Vice President of Fox Capital Management Corporation, equivalent of the chief executive officer of the Partnership Exhibit 31.2 CERTIFICATION I, Stephen B. Waters, certify that: 1. I have reviewed this annual report on Form 10-KSB of Century Properties Fund XVII; 2. Based on my knowledge, this report does not contain any untrue statement of a material fact or omit to state a material fact necessary to make the statements made, in light of the circumstances under which such statements were made, not misleading with respect to the period covered by this report; 3. Based on my knowledge, the financial statements, and other financial information included in this report, fairly present in all material respects the financial condition, results of operations and cash flows of the small business issuer as of, and for, the periods presented in this report; 4. The small business issuer's other certifying officer(s) and I are responsible for establishing and maintaining disclosure controls and procedures (as defined in Exchange Act Rules 13a-15(e) and 15d-15(e)) for the small business issuer and have: (a) Designed such disclosure controls and procedures, or caused such disclosure controls and procedures to be designed under our supervision, to ensure that material information relating to the small business issuer, including its consolidated subsidiaries, is made known to us by others within those entities, particularly during the period in which this report is being prepared; (b) Evaluated the effectiveness of the small business issuer's disclosure controls and procedures and presented in this report our conclusions about the effectiveness of the disclosure controls and procedures, as of the end of the period covered by this report based on such evaluation; and (c) Disclosed in this report any change in the small business issuer's internal control over financial reporting that occurred during the small business issuer's most recent fiscal quarter (the small business issuer's fourth fiscal quarter in the case of an annual report) that has materially affected, or is reasonably likely to materially affect, the small business issuer's internal control over financial reporting; and 5. The small business issuer's other certifying officer(s) and I have disclosed, based on our most recent evaluation of internal control over financial reporting, to the small business issuer's auditors and the audit committee of the small business issuer's board of directors (or persons performing the equivalent functions): (a) All significant deficiencies and material weaknesses in the design or operation of internal control over financial reporting which are reasonably likely to adversely affect the small business issuer's ability to record, process, summarize and report financial information; and (b) Any fraud, whether or not material, that involves management or other employees who have a significant role in the small business issuer's internal control over financial reporting. Date: March 25, 2005 /s/Stephen B. Waters Stephen B. Waters Vice President of Fox Capital Management Corporation, equivalent of the chief financial officer of the Partnership Exhibit 32.1 Certification of CEO and CFO Pursuant to 18 U.S.C. Section 1350, As Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 In connection with the Annual Report on Form 10-KSB of Century Properties Fund XVII (the "Partnership"), for the year ended December 31, 2004 as filed with the Securities and Exchange Commission on the date hereof (the "Report"), Martha L. Long, as the equivalent of the chief executive officer of the Partnership, and Stephen B. Waters, as the equivalent of the chief financial officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002, that, to the best of his knowledge: (1) The Report fully complies with the requirements of Section 13(a) or 15(d) of the Securities Exchange Act of 1934; and (2) The information contained in the Report fairly presents, in all material respects, the financial condition and results of operations of the Partnership. /s/Martha L. Long Name: Martha L. Long Date: March 25, 2005 /s/Stephen B. Waters Name: Stephen B. Waters Date: March 25, 2005 This certification is furnished with this Report pursuant to Section 906 of the Sarbanes-Oxley Act of 2002 and shall not be deemed filed by the Partnership for purposes of Section 18 of the Securities Exchange Act of 1934, as amended. -----END PRIVACY-ENHANCED MESSAGE-----