UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-QSB
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 2003
[ ] 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 0-16877
FOX STRATEGIC HOUSING INCOME PARTNERS
(Exact Name of Registrant 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)
September 30, 2003
Assets
Cash and cash equivalents $ 340
Receivables and deposits 139
Other assets 220
Investment properties:
Land $ 3,119
Buildings and related personal property 19,726
22,845
Less accumulated depreciation (10,509) 12,336
$ 13,035
Liabilities and Partners' (Deficiency) Capital
Liabilities
Accounts payable $ 48
Due to general partner (Note B) 272
Tenant security deposits 56
Accrued property taxes 242
Other liabilities 159
Mortgage notes payable 9,826
Partners' (Deficiency) Capital
General partner $ (418)
Limited partners (26,111 units issued and
outstanding) 2,850 2,432
$ 13,035
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 Nine Months Ended
September 30, September 30,
2003 2002 2003 2002
Revenues:
Rental income $ 701 $ 693 $ 2,012 $ 2,177
Other income 55 49 166 140
Casualty gain (Note C) -- 25 -- 25
Total revenues 756 767 2,178 2,342
Expenses:
Operating 279 227 843 692
General and administrative 64 64 175 208
Depreciation 198 192 589 579
Interest 170 173 514 521
Property taxes 77 62 229 213
Total expenses 788 718 2,350 2,213
Net (loss)income $ (32) $ 49 $ (172) $ 129
Net (loss) income allocated to
general partner $ -- $ 10 $ (114) $ 26
Net (loss) income allocated to
limited partners (32) 39 (58) 103
$ (32) $ 49 $ (172) $ 129
Net (loss) income per limited
partnership unit $ (1.22) $ 1.49 $ (2.22) $ 3.94
Distributions per limited
partnership unit $ -- $ -- $ -- $ 6.89
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' (DEFICIENCY) 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' (deficiency) capital
at December 31, 2002 26,111 $ (304) $ 2,908 $ 2,604
Net loss for the nine months
ended September 30, 2003 -- (114) (58) (172)
Partners' (deficiency) capital
at September 30, 2003 26,111 $ (418) $ 2,850 $ 2,432
See Accompanying Notes to Consolidated Financial Statements
FOX STRATEGIC HOUSING INCOME PARTNERS
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
2003 2002
Cash flows from operating activities:
Net (loss) income $ (172) $ 129
Adjustments to reconcile net (loss) income to net cash
provided by operating activities:
Depreciation 589 579
Casualty gain -- (25)
Amortization of loan costs 22 21
Change in accounts:
Receivables and deposits (86) (87)
Other assets (63) (51)
Accounts payable 15 14
Tenant security deposit liabilities 17 (6)
Accrued property taxes 57 46
Due to general partner -- 6
Other liabilities (26) (4)
Net cash provided by operating activities 353 622
Cash flows from investing activities:
Property improvements and replacements (220) (169)
Insurance proceeds received -- 46
Net cash used in investing activities (220) (123)
Cash flows from financing activities:
Payments on mortgage notes payable (120) (106)
Distribution to partners -- (184)
Net cash used in financing activities (120) (290)
Net increase in cash and cash equivalents 13 209
Cash and cash equivalents at beginning of period 327 324
Cash and cash equivalents at end of period $ 340 $ 533
Supplemental disclosure of cash flow information:
Cash paid for interest $ 522 $ 500
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 25 $ --
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 nine months
ended September 30, 2003, are not necessarily indicative of the results that may
be expected for the fiscal year ending December 31, 2003. 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, 2002.
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 (i) certain
payments to affiliates for services and (ii) 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 $102,000 and $120,000 for the nine months ended September 30, 2003
and 2002, respectively, which is included in operating expenses.
An affiliate of the Managing General Partner received reimbursements of
accountable administrative expenses amounting to approximately $110,000 and
$130,000 for the nine months ended September 30, 2003 and 2002, respectively,
which is included in general and administrative expenses.
In accordance with the Partnership Agreement, the general partner earns
partnership management fees on distributions from operations. The general
partner earned approximately $12,000 in Partnership Management Fees during the
nine months ended September 30, 2002, of which approximately $6,000 was
subordinated to the Limited Partner's annual receipt of 8% of adjusted
investment capital as defined in the Partnership Agreement. There were no
partnership management fees earned during the nine months ended September 30,
2003 because there were no operating distributions. The cumulative subordinated
fees owed to the general partner at September 30, 2003 amounted to approximately
$272,000 and are included in Due to general partner on the accompanying
consolidated balance sheet.
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 nine months ended September 30, 2003 and
2002, the Partnership was charged by AIMCO and its affiliates approximately
$38,000 and $46,000, respectively, for insurance coverage and fees associated
with policy claims administration.
Note C - Casualty Gain
During the nine months ended September 30, 2002 the Partnership recorded a net
casualty gain of approximately $25,000 due to water damage that occurred in
August 2002 at Barrington Place Apartments. This gain was the result of
insurance proceeds received of approximately $46,000 offset by the write-off of
the net book value of the destroyed assets totaling approximately $21,000.
Note D - 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 (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 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
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Managing General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks 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, the Complaint
alleges 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 Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
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.
ITEM 2. Management's Discussion and Analysis or Plan of Operation
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.
The Partnership's investment properties consist of two apartment complexes. The
following table sets forth the average occupancy of the properties for the nine
months ended September 30, 2003 and 2002:
Average Occupancy
Property 2003 2002
Barrington Place Apartments 96% 96%
Westlake, Ohio
Wood View Apartments 92% 87%
Atlanta, Georgia
The Managing General Partner attributes the increase in occupancy at Wood View
Apartments to increased marketing efforts.
Results of Operations
The Partnership recognized a net loss for the three and nine months ended
September 30, 2003 of approximately $32,000 and $172,000, respectively, compared
to net income of approximately $49,000 and $129,000 for the corresponding
periods in 2002. The decrease in net income for both periods is attributable to
a decrease in total revenues and an increase in total expenses. The decrease in
total revenues for the nine months ended September 30, 2003 is primarily due to
a decrease in rental income and a casualty gain at Barrington Place Apartments
recognized during the nine months ended September 30, 2002 partially offset by
an increase in other income. The decrease in total revenues for the three months
ended September 30, 2003 is primarily due to a casualty gain at Barrington Place
Apartments recognized during the three months ended September 30, 2002 partially
offset by increases in rental income and other income. The decrease in rental
income for the nine months ended September 30, 2003 is due to a decrease in
average rental rates at both of the Partnership's properties, increased bad debt
expense at Barrington Place Apartments and Wood View Apartments and an increase
in concessions at Wood View Apartments partially offset by an increase in
occupancy at Wood View Apartments and a decrease in concessions at Barrington
Place Apartments. The increase in rental income for the three months ended
September 30, 2003 is due to an increase in occupancy partially offset by
reduced average rental rates at Wood View Apartments. The increase in other
income for the three and nine months ended September 30, 2003 is attributable
primarily to an increase in lease cancellation fees at Wood View Apartments.
During the nine months ended September 30, 2002 the Partnership recorded a net
casualty gain of approximately $25,000 due to water damage that occurred in
August 2002 at Barrington Place Apartments. This gain was the result of
insurance proceeds received of approximately $46,000 offset by the write-off of
the net book value of the destroyed assets totaling approximately $21,000.
The increase in total expenses for the three and nine months ended September 30,
2003 is the result of increases in operating and property tax expenses. The
increase in total expenses for the nine months ended September 30, 2003 is
partially offset by a decrease in general and administrative expenses.
Depreciation and interest expenses remained relatively constant for the three
and nine months ended September 30, 2003 and general and administrative expenses
remained relatively constant for the three months ended September 30, 2003.
Operating expenses increased for both periods due to increases in maintenance,
property and advertising expenses partially offset by decreases in management
fees and administrative expenses. The increase in maintenance expenses is
primarily due to increases in floor covering and building repairs at Wood View
Apartments, snow removal costs at Barrington Place Apartments and contract
services at both of the Partnership's properties. Property expenses increased
primarily due to increased utility charges and employee salaries and other
related benefits at both of the Partnership's properties partially offset by a
decrease in employee apartment expense at both of the Partnership's properties.
Advertising expense increased primarily due to an increase in referral fees
expense at Wood View Apartments. Management fees decreased due to reduced rental
revenues at both of the Partnership's properties. Administrative expenses
decreased due to the timing of the ad valorem tax bill at Barrington Place
Apartments.
The decrease in general and administrative expenses for the nine months ended
September 30, 2003 is primarily due to a decrease in the costs of services
included in the management reimbursements to the Managing General Partner as
allowed under the Partnership Agreement and a decrease in Partnership management
fees paid with distributions from operations. Also included in general and
administrative expense for the three and nine months ended September 30, 2003
are costs associated with the quarterly and annual communications with investors
and regulatory agencies and the annual audit required by the Partnership
Agreement.
As part of the ongoing business plan of the Partnership, the Managing General
Partner monitors the rental market environment of each of its 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.
Liquidity and Capital Resources
At September 30, 2003, the Partnership had cash and cash equivalents of
approximately $340,000 compared to approximately $533,000 at September 30, 2002.
The increase in cash and cash equivalents of approximately $13,000 since
December 31, 2002 is due to approximately $353,000 of cash provided by operating
activities partially offset by approximately $220,000 and $120,000 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. 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. The Managing General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. 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, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
Barrington Place Apartments
During the nine months ended September 30, 2003, the Partnership completed
approximately $57,000 of capital improvements at Barrington Place Apartments
consisting primarily of floor covering and appliance replacements and heating
and fire safety improvements. These improvements were funded from operating cash
flow. The Partnership evaluates the capital improvement needs of the property
during the year and currently expects to complete an additional $21,000 in
capital improvements during the remainder of 2003. The additional improvements
will consist primarily of floor covering replacements, HVAC upgrades and
exterior 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 nine months ended September 30, 2003, the Partnership completed
approximately $188,000 of capital improvements at Wood View Apartments
consisting primarily of floor covering replacements, major landscaping and
structural and water and sewer improvements. These improvements were funded from
operating cash flow. The Partnership evaluates the capital improvement needs of
the property during the year and currently expects to complete an additional
$50,000 in capital improvements during the remainder of 2003. The additional
improvements will consist primarily of 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 assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness encumbering the Partnership's properties of approximately
$9,826,000 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 nine months ended
September 30, 2003 and 2002, (in thousands except per unit data):
Nine Months Nine Months
Ended Per Limited Ended Per Limited
September 30, Partnership September 30, Partnership
2003 Unit 2002 Unit
Operations $ -- $ -- $ 184 $ 6.89
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 any distributions to its partners
during the remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interests in the
Partnership, AIMCO and its affiliates owned 10,621 limited partnership units
(the "Units") in the Partnership representing 40.68% of the outstanding Units at
September 30, 2003. 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. In this regard, on November
10, 2003, AIMCO Properties, L.P., commenced a tender offer to acquire any and
all limited Units for a purchase price of $157.06 per Unit. Such offer expires
on December 10, 2003. 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 40.68% of the outstanding Units, AIMCO and its
affiliates are in a position to influence voting decisions with respect to the
Partnership. 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
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 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.
Rental income attributable to leases is recognized monthly as it is earned and
the Partnership fully reserves all balances outstanding over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area. Any
concessions given at the inception of the lease are amortized over the life of
the lease.
ITEM 3. 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
fiscal quarter to which this report relates that have materially affected, or
are reasonably likely to materially affect, the Partnership's internal control
over financial reporting.
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
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 (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 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
filed an appeal seeking to vacate and/or reverse the order approving the
settlement and entering judgment thereto. The Managing General Partner intends
to file a respondent's brief in support of the order approving settlement and
entering judgment thereto.
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.
On August 8, 2003 AIMCO Properties L.P., an affiliate of the Managing General
Partner, was served with a Complaint in the United States District Court,
District of Columbia alleging that AIMCO Properties L.P. willfully violated the
Fair Labor Standards Act (FLSA) by failing to pay maintenance workers overtime
for all hours worked in excess of forty per week. The Complaint is styled as a
Collective Action under the FLSA and seeks 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, the Complaint
alleges 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 Complaint also attempts to certify a subclass for salaried
service directors who are challenging their classification as exempt from the
overtime provisions of the FLSA. AIMCO Properties L.P. has filed an answer to
the Complaint denying the substantive allegations. Although the outcome of any
litigation is uncertain, in the opinion of the Managing General Partner the
claims will not result in any material liability to the Partnership.
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 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.
Exhibit 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.
Exhibit 32.1, Certification Pursuant to 18 U.S.C. Section
1350, as Adopted Pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002.
b) Reports on Form 8-K:
None filed during the quarter ended September 30, 2003.
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/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President
and Chief Financial Officer
Date: November 13, 2003
Exhibit 31.1
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Fox Strategic
Housing Income Partners;
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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant
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
registrant, 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 registrant'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 registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed,
based on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant'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 registrant'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 registrant's
internal control over financial reporting.
Date: November 13, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of Fox Capital
Management Corporation, equivalent of the
chief executive officer of the Partnership
Exhibit 31.2
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Fox Strategic
Housing Income Partners;
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 registrant as of, and for, the periods presented in this report;
4. The registrant'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 registrant
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
registrant, 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 registrant'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 registrant's internal
control over financial reporting that occurred during the
registrant's most recent fiscal quarter (the registrant's fourth
fiscal quarter in the case of an annual report) that has materially
affected, or is reasonably likely to materially affect, the
registrant's internal control over financial reporting; and
5. The registrant's other certifying officer(s) and I have disclosed, based
on our most recent evaluation of internal control over financial
reporting, to the registrant's auditors and the audit committee of the
registrant'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 registrant'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 registrant's
internal control over financial reporting.
Date: November 13, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer 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 Quarterly Report on Form 10-QSB of Fox Strategic Housing
Income Partners (the "Partnership"), for the quarterly period ended September
30, 2003 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: November 13, 2003
/s/Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: November 13, 2003
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.