UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the quarterly period ended June 30, 2002
[] TRANSITION REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF
1934
For the transition period from _________to _________
Commission file number 0-16877
FOX STRATEGIC HOUSING INCOME PARTNERS
(Exact name of small business issuer as specified in its charter)
California 94-3016373
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
June 30, 2002
Assets
Cash and cash equivalents $ 331
Receivables and deposits 114
Other assets 218
Investment properties:
Land $ 3,119
Buildings and related personal property 19,430
22,549
Less accumulated depreciation (9,553) 12,996
$ 13,659
Liabilities and Partners' (Deficit) Capital
Liabilities
Accounts payable $ 37
Due to general partner 258
Tenant security deposit liabilities 42
Accrued property taxes 178
Other liabilities 231
Mortgage notes payable 10,018
Partners' (Deficit) Capital
General partner $ (296)
Limited partners (26,111 units issued and
outstanding) 3,191 2,895
$ 13,659
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
Revenues:
Rental income $ 737 $ 749 $ 1,484 $ 1,495
Other income 45 53 91 96
Total revenues 782 802 1,575 1,591
Expenses:
Operating 222 257 465 486
General and administrative 74 88 144 194
Depreciation 196 187 387 372
Interest 174 177 348 353
Property taxes 75 68 151 137
Total expenses 741 777 1,495 1,542
Net income $ 41 $ 25 $ 80 $ 49
Net income allocated to general
partner $ 8 $ 5 $ 16 $ 10
Net income allocated to limited
partners 33 20 64 39
$ 41 $ 25 $ 80 $ 49
Net income per limited partnership
unit $ 1.26 $ .77 $ 2.45 $ 1.49
Distributions per limited
partnership unit $ 6.89 $ 9.12 $ 6.89 $ 28.46
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 26,111 $ -- $26,111 $26,111
Partners' (deficit) capital at
December 31, 2001 26,111 $ (308) $ 3,307 $ 2,999
Distribution to partners -- (4) (180) (184)
Net income for the six months
ended June 30, 2002 -- 16 64 80
Partners' (deficit) capital
at June 30, 2002 26,111 $ (296) $ 3,191 $ 2,895
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
Cash flows from operating activities:
Net income $ 80 $ 49
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 387 372
Amortization of loan costs 14 14
Change in accounts:
Receivables and deposits (65) (57)
Other assets (29) (12)
Accounts payable (63) 43
Tenant security deposit liabilities (1) (6)
Accrued property taxes (17) (29)
Due to general partner 6 39
Other liabilities 70 17
Net cash provided by operating activities 382 430
Cash flows from investing activities:
Property improvements and replacements (121) (162)
Net withdrawals from restricted escrows -- 50
Net cash used in investing activities (121) (112)
Cash flows from financing activities:
Payments on mortgage notes payable (70) (66)
Distribution to partners (184) (758)
Net cash used in financing activities (254) (824)
Net increase (decrease) in cash and cash equivalents 7 (506)
Cash and cash equivalents at beginning of period 324 712
Cash and cash equivalents at end of period $ 331 $ 206
Supplemental disclosure of cash flow information:
Cash paid for interest $ 334 $ 339
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited consolidated financial statements of Fox Strategic
Housing Income Partners (the "Partnership" or "Registrant") have been prepared
in accordance with generally accepted accounting principles for interim
financial information and with the instructions to Form 10-QSB and Item 310(b)
of Regulation S-B. Accordingly, they do not include all of the information and
footnotes required by generally accepted accounting principles for complete
financial statements. Fox Partners VIII is the general partner of the
Partnership. The general partners of Fox Partners VIII are Fox Capital
Management Corporation ("FCMC" or the Managing General Partner), a California
corporation, and Fox Realty Investors ("FRI"), a California general partnership,
the Managing General Partner and the managing general partner of FRI are
affiliates of Apartment Investment and Management Company ("AIMCO"), a publicly
traded real estate investment trust. In the opinion of FCMC, all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three and six month
periods ended June 30, 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 consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the
fiscal year ended December 31, 2001.
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 certain payments
to affiliates for services and as reimbursement of certain expenses incurred by
affiliates on behalf of the Partnership.
Affiliates of the Managing General Partner are entitled to receive 5% of gross
receipts from both of the Partnership's properties as compensation for providing
property management services. The Partnership paid to such affiliates
approximately $82,000 and $85,000 for the six months ended June 30, 2002 and
2001, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $88,000 and
$86,000 for the six months ended June 30, 2002 and 2001, respectively, which is
included in general and administrative expenses.
In addition, the general partner earned $12,000 and $63,000 in partnership
management fees on distributions from operations during the six months ended
June 30, 2002 and 2001, respectively, of which $10,000 and $39,000 is
subordinated to the Limited Partner's annual receipt of 8% of Adjusted
Investment Capital as defined in the Partnership Agreement. The partnership
management fees are included in general and administrative expenses. Such
cumulative subordinated fees owed to the general partner at June 30, 2002
amounted to approximately $258,000 and is included in due to general partner.
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 six months ended June
30, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $31,000 and $18,000, 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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order by the court, was submitted by the parties. On
July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 parties are currently in the midst of briefing that appeal.
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 Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operation. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the six
months ended June 30, 2002 and 2001:
Average Occupancy
Property 2002 2001
Barrington Place Apartments 96% 93%
Westlake, Ohio
Wood View Apartments 88% 91%
Atlanta, Georgia
The Managing General Partner attributes the increase in occupancy at Barrington
Place Apartments to increased concessions and improved resident relations. The
Managing general Partner attributes the decrease in occupancy at Wood View
Apartments to the competitive market of the apartment industry in the Atlanta
area and a softening economy.
Results of Operations
The Partnership's net income for the six months ended June 30, 2002 totaled
approximately $80,000 compared to net income of approximately $49,000 for the
six months ended June 30, 2001. The Partnership realized net income for the
three months ended June 30, 2002 of approximately $41,000 compared to net income
of approximately $25,000 for the three months ended June 30, 2001. The increase
in net income for the three and six months ended June 30, 2002 is attributable
to a decrease in total expenses partially offset by a decrease in total
revenues. The decrease in total revenues for both periods is attributable to a
decrease in other income and rental income. The decrease in rental income is
primarily due to a decrease in average rental rates at Barrington Place
Apartments, and a decrease in occupancy and increased bad debt expense at Wood
View Apartments. These decreases were partially offset by an increase in
occupancy at Barrington Place Apartments and a decrease in concessions at both
of the Partnership's investment properties. The decrease in other income is
primarily due to a decrease in interest income and a decrease in tenant
reimbursements at Wood View Apartments, which was partially offset by an
increase in utility reimbursements at both of the Partnership's investment
properties.
The decrease in total expenses for the three and six months ended June 30, 2002
is the result of a decrease in operating and general and administrative expenses
partially offset by an increase in depreciation and property tax expenses.
Operating expense decreased primarily due to decreases in property, advertising
and maintenance expenses at Barrington Place Apartments partially offset by an
increase in insurance expense. Property expenses decreased primarily due to a
decrease in utilities at Barrington Place Apartments. Maintenance expenses
decreased primarily due to decreased contract services at Barrington Place
Apartments. Insurance expense increased due to an increase in insurance premiums
at both investment properties. Depreciation expense increased primarily due to
capital improvements completed and placed in service during the last twelve
months at the Partnership's investment properties. Property tax expense
increased as a result of the timing and receipt of tax bills received from the
taxing authorities, which affected the accruals.
The decrease in general and administrative expenses for the three and six months
ended June 30, 2002 is primarily due to a decrease in Partnership management
fees paid with distributions from operations. Included in general and
administrative expense for the three and six months ended June 30, 2002 and 2001
are management reimbursements to the Managing General Partner allowed under the
Partnership Agreement. In addition, costs associated with the quarterly and
annual communications with investors and regulatory agencies and the annual
audit required by the Partnership Agreement are also included.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its investment
properties to assess the feasibility of increasing rents, maintaining or
increasing occupancy levels and protecting the Partnership from increases in
expenses. As part of this plan, the Managing General Partner attempts to protect
the Partnership from the burden of inflation-related increases in expenses by
increasing rents and maintaining a high overall occupancy level. However, due to
changing market conditions, which can result in the use of rental concessions
and rental reductions to offset softening market conditions, there is no
guarantee that the Managing General Partner will be able to sustain such a plan.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$331,000 compared to approximately $206,000 at June 30, 2001. The increase in
cash and cash equivalents of approximately $7,000 since December 31, 2001 is due
to approximately $382,000 of cash provided by operating activities partially
offset by approximately $121,000 and $254,000 of cash used in investing and
financing activities, respectively. Cash used in investing activities consisted
of property improvements and replacements. Cash used in financing activities
consisted of principal payments made on the mortgages encumbering the
Partnership's properties and distributions to partners. The Partnership invests
its working capital reserves in interest bearing accounts.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required at the properties to adequately maintain the physical
assets and other operating needs of the Partnership and to comply with Federal,
state, and local legal and regulatory requirements. Capital improvements planned
for each of the Partnership's properties are detailed below.
Barrington Place Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $75,000 of budgeted and unbudgeted capital improvements at
Barrington Place Apartments consisting primarily of a water submetering project,
floor covering replacements and other building improvements. These improvements
were funded from operating cash flow. Capital improvements budgeted for 2002 are
expected to cost approximately $59,000, which include floor covering and
appliance replacements, air conditioning upgrades and other building
improvements. Additional improvements may be considered and will depend on the
physical condition of the property as well as the anticipated cash flow
generated by the property.
Wood View Apartments
During the six months ended June 30, 2002, the Partnership completed
approximately $46,000 of capital improvements at Wood View Apartments consisting
primarily of plumbing enhancements, floor covering replacements, air
conditioning upgrades and other building improvements. These improvements were
funded from operating cash flow. Capital improvements budgeted for 2002 are
expected to cost approximately $65,000 which include floor covering
replacements. Additional improvements may be considered and will depend on the
physical condition of the property as well as the anticipated cash flow
generated by the property.
The additional capital expenditures will be incurred only if cash is available
from operations or from Partnership reserves. To the extent that such budgeted
capital improvements are completed, the Partnership's distributable cash flow,
if any, may be adversely affected at least in the short term.
The Partnership's current assets are thought to be sufficient for any near-term
needs (exclusive of capital improvements) of the Partnership. The mortgage
indebtedness of approximately $10,018,000 is amortized over 360 months with
balloon payments of approximately $8,952,000 due on August 1, 2008. The Managing
General Partner will attempt to refinance such indebtedness and/or sell the
properties prior to such maturity date. If the properties cannot be refinanced
and/or sold for a sufficient amount, the Partnership will risk losing such
properties through foreclosure.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June, 2002 Unit June 30, 2001 Unit
Operations $ 184 $ 6.89 $ 758 $28.46
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 further distributions to its
partners during 2002 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 10,566 limited partnership units
(the "Units") in the Partnership representing 40.47% of the outstanding Units at
June 30, 2002. 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 of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. In this
regard, on June 25, 2002, a tender offer by AIMCO Properties, L.P., to acquire
any and all of the units not owned by affiliates of AIMCO for a purchase price
of $121.00 per unit expired. Pursuant to this offer, AIMCO acquired 579 units
during the quarter ended June 30, 2002. 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 40.47% of the outstanding Units, AIMCO is in a
position to control all voting decisions with respect to the Registrant.
Although the Managing General Partner owes fiduciary duties to the limited
partners of the Partnership, the Managing General Partner also owed fiduciary
duties to AIMCO as its sole Stockholder. As a result, the duties of the Managing
General Partner, as managing general partner, to the Partnerships and its
limited partners may come into conflict with the duties of the Managing General
Partner to AIMCO, as it sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. 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
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 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 an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
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 held a hearing on
plaintiffs' motion for class certification and took the matter under submission
after further briefing, as order by the court, was submitted by the parties. On
July 10, 2002, the Court entered an order vacating the current trial date of
January 13, 2003 (as well as the pre-trial and discovery cut-off dates) and
stayed the case in its entirety through November 7, 2002 so that the parties can
have an opportunity to discuss settlement.
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 parties are currently in the midst of briefing that appeal.
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:
Exhibit 3.1, Agreement of Limited Partnership, incorporated by reference to
Exhibit A to the Prospectus of the Partnership dated March 24, 1987, and
thereafter supplemented, included in the Registrant's Registration
Statement on Form S-11 (Reg. No. 33-8481).
Exhibit 99, Certification of Chief Executive Officer and Chief Financial Officer
b) Reports on Form 8-K:
None filed during the quarter ended June 30, 2002.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
FOX STRATEGIC HOUSING INCOME PARTNERS
(a California Limited Partnership)
By: FOX PARTNERS VIII
Its General Partner
By: Fox Capital Management Corporation
Its Managing General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/ Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
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 Quarterly Report on Form 10-QSB of Fox Strategic Housing
Income Partners (the "Partnership"), for the quarterly period ended June 30,
2002 as filed with the Securities and Exchange Commission on the date hereof
(the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive
Officer of the Partnership, and Paul J. McAuliffe, 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/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.