FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d)
OF THE SECURITIES EXCHANGE ACT OF 1934
Quarterly or Transitional Report
U.S. Securities and Exchange Commission
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the quarterly period ended March 31, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-13454
NATIONAL PROPERTY INVESTORS 7
(Exact name of small business issuer as specified in its charter)
California 13-3230613
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, Post Office Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the registrant was required to file such reports), and (2) has been
subject to such filing requirements for the past 90 days.
Yes X No___
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
NATIONAL PROPERTY INVESTORS 7
BALANCE SHEET
(Unaudited)
(in thousands, except per unit data)
March 31, 2002
Assets
Cash and cash equivalents $ 1,573
Receivables and deposits 254
Restricted escrows 539
Other assets 753
Investment properties:
Land $ 3,738
Buildings and related personal property 45,284
49,022
Less accumulated depreciation (32,088) 16,934
$ 20,053
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 142
Tenant security deposit liabilities 113
Accrued property taxes 91
Other liabilities 442
Mortgage notes payable 23,939
Partners' Deficit:
General partner $ (349)
Limited partners (60,517 units
issued and outstanding) (4,325) (4,674)
$ 20,053
See Accompanying Notes to Financial Statements
b)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2002 2001
Revenues:
Rental income $1,782 $1,828
Other income 128 85
Total revenues 1,910 1,913
Expenses:
Operating 735 777
General and administrative 86 154
Depreciation 515 514
Interest 456 415
Property taxes 112 104
Total expenses 1,904 1,964
Net income (loss) $ 6 $ (51)
Net income (loss) allocated to general partner (1%) $ -- $ (1)
Net income (loss) allocated to limited partners (99%) 6 (50)
$ 6 $ (51)
Net income (loss) per limited partnership unit $ 0.10 $(0.83)
Distributions per limited partnership unit $ -- $11.80
See Accompanying Notes to Financial Statements
c)
NATIONAL PROPERTY INVESTORS 7
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except per unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 60,517 $ 1 $30,259 $30,260
Partners' deficit at
December 31, 2001 60,517 $ (349) $(4,331) $(4,680)
Net income for the three months
ended March 31, 2002 -- -- 6 6
Partners' deficit at
March 31, 2002 60,517 $ (349) $(4,325) $(4,674)
See Accompanying Notes to Financial Statements
d)
NATIONAL PROPERTY INVESTORS 7
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2002 2001
Cash flows from operating activities:
Net income (loss) $ 6 $ (51)
Adjustments to reconcile net income (loss) to net cash
provided by operating activities:
Depreciation 515 514
Amortization of loan costs 19 25
Change in accounts:
Receivables and deposits 175 (22)
Other assets (81) (47)
Accounts payable 33 7
Tenant security deposit liabilities 5 2
Accrued property taxes 91 48
Other liabilities 178 (10)
Net cash provided by operating activities 941 466
Cash flows from investing activities:
Property improvements and replacements (182) (94)
Net withdrawals from restricted escrows -- 1
Net cash used in investing activities (182) (93)
Cash flows from financing activities:
Payments on mortgage notes payable (98) (23)
Loan costs paid -- (7)
Distributions to partners -- (721)
Net cash used in financing activities (98) (751)
Net increase (decrease) in cash and cash equivalents 661 (378)
Cash and cash equivalents at beginning of period 912 871
Cash and cash equivalents at end of period $ 1,573 $ 493
Supplemental disclosure of cash flow information:
Cash paid for interest $ 438 $ 390
See Accompanying Notes to Financial Statements
e)
NATIONAL PROPERTY INVESTORS 7
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of National Property Investors 7
(the "Partnership" or "Registrant") have been prepared in accordance with
generally accepted accounting principles for interim financial information and
with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B.
Accordingly, they do not include all of the information and footnotes required
by generally accepted accounting principles for complete financial statements.
In the opinion of NPI Equity Investments, Inc. (the "Managing General Partner")
all adjustments (consisting of normal recurring accruals) considered necessary
for a fair presentation have been included. Operating results for the three
month period ended March 31, 2002 are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2002. For further
information, refer to the financial statements and footnotes thereto included in
the Partnership's Annual Report on Form 10-KSB for the year ended December 31,
2001. The Managing General Partner is an affiliate of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the Managing General
Partner and its affiliates for the management and administration of all
Partnership activities. The Partnership Agreement provides for payments to
affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
During the three months ended March 31, 2002 and 2001, affiliates of the
Managing General Partner were entitled to receive 5% of gross receipts from all
of the Partnership's properties as compensation for providing property
management services. The Registrant paid to such affiliates approximately
$94,000 and $93,000 for the three months ended March 31, 2002 and 2001,
respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received reimbursement of
accountable administrative expenses amounting to approximately $80,000 and
$63,000 for the three months ended March 31, 2002 and 2001, respectively, which
is included in general and administrative expenses and investment properties.
Included in the total is approximately $12,000 in construction service
reimbursements for the three months ended March 31, 2002. There were no such
reimbursements for the three months ended March 31, 2001. The construction
management service fees are calculated based on a percentage of additions to
investment properties.
For services relating to the administration of the Partnership and operation of
Partnership properties, the Managing General Partner is entitled to receive
payment for non-accountable expenses up to a maximum of $150,000 per year from
distributions from operations, based upon the number of Partnership units sold,
subject to certain limitations. The Managing General Partner received no
reimbursements for the three months ended March 31, 2002 and received
approximately $71,000 in reimbursements for the three months ended March 31,
2001.
For managing the affairs of the Partnership, the Managing General Partner of the
Partnership is entitled to receive a partnership management fee. The fee is
equal to 4% of the Partnership's adjusted cash from operations, as defined in
the Partnership Agreement, in any year, provided that 50% of the fee shall not
be paid until the Partnership has distributed to the limited partners adjusted
cash from operations in such year which is equal to 5% of the limited partners'
adjusted invested capital, as defined, on a non-cumulative basis. In addition,
50% of the fee shall not be paid until the Partnership has distributed to the
limited partners adjusted cash from operations in such year which is equal to 8%
of the limited partners' adjusted invested capital on a non-cumulative basis.
The fee shall be paid when adjusted cash from operations is distributed to the
limited partners. The Managing General Partner was not entitled to receive this
fee during the three months ended March 31, 2002 or 2001.
The Managing General Partner has extended to the Partnership a line of credit of
up to $500,000. Loans under the line of credit will have a term of 365 days, are
unsecured and bear interest at the rate of 2% per annum in excess of the prime
rate announced from time to time by Chase Manhattan Bank, N.A. The maturity date
of such borrowing will be accelerated in the event of: (i) the removal of the
Managing General Partner (whether or not For Cause); (ii) the sale or
refinancing of a property by the Partnership; or (iii) the liquidation of the
Partnership. At the present time, the Partnership has no outstanding amounts due
under this line of credit.
Beginning in 2001, the Partnership began insuring 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 three months ended
March 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $78,000 and $70,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note C - 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
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which 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 seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATION
The matters discussed in this Form 10-QSB contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-QSB and the other filings with the
Securities and Exchange Commission made by the Registrant from time to time. The
discussion of the Registrant's business and results of operations, including
forward-looking statements pertaining to such matters, does not take into
account the effects of any changes to the Registrant's business and results of
operation. Accordingly, actual results could differ materially from those
projected in the forward-looking statements as a result of a number of factors,
including those identified herein.
The Partnership's investment properties consist of five apartment complexes. The
following table sets forth the average occupancy of the properties for each of
the three month periods ended March 31, 2002 and 2001:
Average Occupancy
2002 2001
Fairway View II Apartments 90% 91%
Baton Rouge, Louisiana
The Pines Aparments 92% 96%
Roanoke, Virginia
Patchen Place Apartments 80% 91%
Lexington, Kentucky
Northwoods I and II Apartments 95% 95%
Pensacola, Florida
South Point Apartments 94% 93%
Durham, North Carolina
The Managing General Partner attributes the decrease in occupancy at The Pines
Apartments to a decrease in employment transfers to the area by local employers,
and an increase in home purchases due to lower interest rates. The Managing
General Partner attributes the decrease in occupancy at Patchen Place Apartments
to an increase in new apartment communities recently built in the area.
Management is implementing new marketing strategies to make Patchen Place more
competitive within its market.
Results of Operations
The Registrant's net income for the three months ended March 31, 2002 was
approximately $6,000 compared to a net loss of approximately $51,000 for the
three months ended March 31, 2001. The increase in net income was due to a
decrease in total expenses which was slightly offset by a decrease in total
revenues.
Total expenses decreased for the three months ended March 31, 2002 due to
decreases in operating and general and administrative expenses which were
partially offset by an increase in interest expense. Operating expenses
decreased primarily due to decreased gas bills at The Pines and Patchen Place
Apartments and decreased maintenance expenses at Patchen Place, Northwoods I and
II, and South Point Apartments. These decreases were partially offset by
increased hazard insurance expense at all of the Partnership's properties.
General and administrative expenses decreased due to reduced fees paid to the
Managing General Partner in connection with distributions made from operations.
Also included in general and administrative expenses at both March 31, 2002 and
2001 are management reimbursements to the Managing General Partner as allowed
under the Partnership Agreement and the costs associated with the quarterly
communications with investors and regulatory agencies and the annual audit
required by the Partnership Agreement. Interest expense increased due to the
refinancings of Northwoods I and II Apartments in August 2001 and Fairway View
II Apartments in November 2001 which increased the average debt balance at these
two properties.
Total revenues decreased slightly for the three months ended March 31, 2002 due
to a decrease in rental income largely offset by an increase in other income.
Rental income decreased primarily due to decreases in occupancy at The Pines,
Fairway View II and Patchen Place Apartments, decreases in subsidized rent at
Fairway View II which more than offset increased average rental rates at Fairway
View II and decreased concessions at Fairway View II and South Point Apartments.
The increase in other income was primarily due to increased utility
reimbursements at The Pines and Northwoods I and II Apartments and increased
cable TV revenue at all of the Partnership's properties except Patchen Place
Apartments. These increases were partially offset by reduced interest income as
a result of lower interest rates on interest bearing accounts.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expense. As part of this plan, the Managing General Partner attempts to protect
the Registrant from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2002, the Partnership had cash and cash equivalents of
approximately $1,573,000 as compared to approximately $493,000 at March 31,
2001. Cash and cash equivalents increased by approximately $661,000 from the
Partnership's year ended December 31, 2001 due to approximately $941,000 of cash
provided by operating activities, which more than offset approximately $98,000
of cash used in financing activities and approximately $182,000 of cash used in
investing activities. Cash used in financing activities consisted of payments of
principal made on the mortgages encumbering Fairway View II, The Pines and
Northwoods I and II Apartments. Cash used in investing activities consisted of
property improvements and replacements. The Partnership invests its working
capital reserves in interest bearing accounts.
The Managing General Partner has extended to the Partnership a $500,000 line of
credit. The Partnership has no outstanding amounts due under this line of
credit. Based on present plans, the Managing General Partner does not anticipate
the need to borrow against the line of credit in the near future. Other than
cash and cash equivalents, the line of credit is the Partnership's only unused
source of liquidity.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the various properties to adequately maintain the
physical assets and other operating needs of the Registrant and to comply with
Federal, state and local legal and regulatory requirements. Capital improvements
for each of the Registrant's properties are detailed below.
Fairway View II
During the three months ended March 31, 2002, the Partnership completed
approximately $25,000 of capital improvements at Fairway View II Apartments,
consisting primarily of building improvements. These improvements were funded
from operating cash flow. For 2002, the amount budgeted for capital improvements
is approximately $69,000 consisting primarily of air conditioning unit
replacement, appliances, floor covering replacements, and window treatments.
Additional improvements may be considered and will depend on the physical
condition of the property as well as anticipated cash flow generated by the
property.
The Pines
During the three months ended March 31, 2002, the Partnership completed
approximately $28,000 of capital improvements at The Pines Apartments,
consisting primarily of floor covering replacements, office equipment, and
cabinetry upgrades. These improvements were funded from operating cash flow. For
2002, the amount budgeted for capital improvements is approximately $78,000
consisting primarily of floor covering replacements. Additional improvements may
be considered and will depend on the physical condition of the property as well
as anticipated cash flow generated by the property.
Patchen Place
During the three months ended March 31, 2002, the Partnership completed
approximately $28,000 of capital improvements at Patchen Place Apartments,
consisting primarily of office equipment, floor covering replacements, plumbing
upgrades, water heater replacements, fitness equipment and wall covering
improvements. These improvements were funded from operating cash flow and
replacement reserves. For 2002, the amount budgeted for capital improvements is
approximately $137,000 consisting primarily of plumbing upgrades, floor covering
replacements, air conditioning unit replacements and appliances. Additional
improvements may be considered and will depend on the physical condition of the
property as well as replacement reserves and anticipated cash flow generated by
the property.
Northwoods I and II
During the three months ended March 31, 2002, the Partnership completed
approximately $41,000 of capital improvements at Northwoods I & II Apartments,
consisting primarily of floor covering replacements, appliances, and structural
improvements. These improvements were funded from operating cash flow. For 2002,
the amount budgeted for capital improvements is approximately $135,000
consisting primarily of fitness equipment, floor covering replacements,
structural improvements, swimming pool improvements, appliances, plumbing
upgrades, and air conditioning unit replacements. Additional improvements may be
considered and will depend on the physical condition of the property as well as
anticipated cash flow generated by the property.
South Point
During the three months ended March 31, 2002, the Partnership completed
approximately $60,000 of capital improvements at South Point Apartments,
consisting primarily of floor covering replacements, appliances, office
equipment, air conditioning unit replacements and water submetering. These
improvements were funded from Partnership reserves and operating cash flow. For
2002, the amount budgeted for capital improvements is approximately $105,000
consisting primarily of fitness equipment, floor covering replacements,
appliances, air conditioning unit replacements, and water submetering.
Additional improvements may be considered and will depend on the physical
condition of the property as well as replacement reserves and anticipated cash
flow generated by the property.
The additional capital improvements will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Registrant's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Registrant. The mortgage
indebtedness of approximately $23,939,000 has maturity dates ranging from
November 1, 2003 to December 1, 2021. The mortgage indebtedness of approximately
$16,339,000 that was refinanced during 2000 and 2001 requires monthly payments
until the loans mature between January 2020 and December 2021 at which time the
loans are scheduled to be fully amortized. The Partnership's other mortgage
indebtedness of $7,600,000 requires interest only payments with balloon payments
due November 1, 2003. The Managing General Partner will attempt to refinance
such indebtedness and/or sell the properties prior to such maturity dates. If
the properties cannot be refinanced or sold for a sufficient amount, the
Registrant may risk losing such properties through foreclosure.
Pursuant to the Partnership Agreement, the term of the Partnership is scheduled
to expire on December 31, 2008. 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 three months ended
March 31, 2002 and 2001 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2002 Unit March 31, 2001 Unit
Operations $ -- $ -- $ 721 $11.80
Future cash distributions will depend on the levels of net cash generated from
operations, the availability of cash reserves and the timing of debt maturities,
refinancings and/or property sales. The Partnership's cash available for
distribution is reviewed on a monthly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital expenditures, to permit distributions to its partners during
the remainder of 2002 or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 40,365.67 limited
partnership units in the Partnership representing 66.70% of the outstanding
units. A number of these units were acquired pursuant to tender offers made by
affiliates of the Managing General Partner, AIMCO, or its affiliates. It is
possible that AIMCO or its affiliates will make one or more additional offers to
acquire additional limited partnership interests in the Partnership for cash or
in exchange for units in the operating partnership of AIMCO. Under the
Partnership Agreement, unitholders holding a majority of the units are entitled
to take action with respect to a variety of matters, which would include voting
on certain amendments to the Partnership Agreement and voting to remove the
Managing General Partner. As a result of its ownership of 66.70% of the
outstanding units, AIMCO is in a position to influence all voting decisions with
respect to the Registrant. When voting on matters, AIMCO would in all likelihood
vote the units it acquired in a manner favorable to the interest of the Managing
General Partner because of their affiliation with the Managing General Partner.
However, DeForest Ventures II L.P., from whom AIMCO, through its merger with
Insignia, acquired 25,399 units (approximately 41.97%), had agreed for the
benefit of non-tendering unit holders, that it would vote its units: (i) against
any increase in compensation payable to the Managing General Partner or to
affiliates; and (ii) on all other matters submitted by it or its affiliates, in
proportion to the votes cast by all other unit holders. Except for the
foregoing, no other limitations are imposed on AIMCO's or its affiliates right
to vote each unit acquired.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (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
purports to assert claims on behalf of a class of limited partners and
derivatively on behalf of a number of limited partnerships (including the
Partnership) which are named as nominal defendants, challenging, among other
things, the acquisition of interests in certain Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which 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 seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the Managing General Partner filed a motion seeking dismissal
of the action. In lieu of responding to the motion, the plaintiffs filed an
amended complaint. The Managing General Partner filed demurrers to the amended
complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the Managing General Partner and its affiliates terminated
the proposed settlement. In February 2000, counsel for some of the named
plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who
negotiated the settlement. On June 27, 2000, the Court entered an order
disqualifying them from the case and an appeal was taken from the order on
October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff
Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the
putative class. Plaintiffs filed a third amended complaint on January 19, 2001.
On March 2, 2001, the Managing General Partner and its affiliates filed a
demurrer to the third amended complaint. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K filed during the three months ended March 31, 2002:
None.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
NATIONAL PROPERTY INVESTORS 7
By: NPI EQUITY INVESTMENTS, INC.
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Martha L. Long
Martha L. Long
Senior Vice President
and Controller
Date: