FORM 10-Q--QUARTERLY REPORT UNDER SECTION 13 OR 15(D)
OF THE SECURITIES EXCHANGE ACT OF 1934
UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
FORM 10-Q
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended September 30, 1998
or
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period.........to.........
Commission file number 0-11723
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
(Exact name of registrant as specified in its charter)
California 94-2883067
(State or other jurisdiction of (I.R.S. Employer
incorporation or organization) Identification No.)
55 Beattie Place, P.O. Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Registrant's telephone number)
Indicate by check mark whether the registrant (1) has filed all reports required
to be filed by Section 13 or 15 (d) of the Securities Exchange Act of 1934
during the preceding 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)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEET
(in thousands, except unit data)
September 30, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 11,089 $ 12,417
Interest receivable on Master Loan -- 634
Other assets 15 21
Investment in Master Loan to affiliate 80,470 80,549
Less: Allowance for impairment loss (15,129) (42,715)
65,341 37,834
$ 76,445 $ 50,906
Liabilities and Partners' Capital (Deficit)
Liabilities
Accounts payable $ -- $ 6
Other liabilities 22 10
Distributions payable 141 141
163 157
Partners' Capital (Deficit)
General partner (222) (507)
Limited partners (909,134 units
outstanding at September 30, 1998 and
December 31, 1997, respectively) 76,504 51,256
76,282 50,749
$ 76,445 $ 50,906
Note:The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Financial Statements
b)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except unit data)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Interest income on investment
in Master Loan to affiliate $ -- $ 147 $ 1,069 $ 236
Reduction of provision for
impairment loss -- 78 27,586 588
Interest income on investments 143 142 454 463
Total revenues 143 367 29,109 1,287
Expenses:
General and administrative 248 95 592 361
Total expenses 248 95 592 361
Net income (loss) $ (105) $ 272 $28,517 $ 926
Net income (loss) allocated
to general partner (1%) $ (1) $ 3 $ 285 $ 9
Net income (loss) allocated
to limited partners (99%) (104) 269 28,232 917
$ (105) $ 272 $28,517 $ 926
Net income per limited partnership unit $ (.12) $ .30 $ 31.05 $ 1.01
Operating distribution per limited
partnership unit $ -- $ -- $ -- $ 1.08
Surplus distribution per limited
partnership unit 1.63 -- 3.28 9.90
Distributions per limited
partnership unit $ 1.63 $ -- $ 3.28 $10.98
See Accompanying Notes to Financial Statements
c)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENT OF CHANGES IN PARTNERS' CAPITAL (DEFICIT)
(Unaudited)
(in thousands, except unit data)
<TABLE>
<CAPTION>
Limited
Partnership General Limited
Units Partner Partners Total
<S> <C> <C> <C> <C>
Original capital contributions 912,182 $ 1 $228,046 $228,047
Partners' capital (deficit) at
December 31, 1996 909,138 $ (560) $ 55,026 $ 54,466
Net income for the nine months
ended September 30, 1997 -- 9 917 926
Distributions to partners -- (10) (9,982) (9,992)
Partners' capital (deficit) at
September 30, 1997 909,138 $ (561) $ 45,961 $ 45,400
Partners' capital (deficit) at
December 31, 1997 909,134 $ (507) $ 51,256 $ 50,749
Net income for the nine months
ended September 30, 1998 -- 285 28,232 28,517
Distributions to partners -- -- (2,984) (2,984)
Partners' capital (deficit) at
September 30, 1998 909,134 $ (222) $ 76,504 $ 76,282
<FN>
See Accompanying Notes to Financial Statements
</FN>
</TABLE>
d)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net income $ 28,517 $ 926
Adjustments to reconcile net income to
net cash provided by operating activities:
Reduction of provision for impairment loss (27,586) (588)
Change in accounts:
Interest receivable on Master Loan 634 (144)
Other assets 6 (3)
Accounts payable (6) 23
Other liabilities 12 (21)
Net cash provided by operating activities 1,577 193
Cash flows from investing activities:
Advances in master loan -- (150)
Principal receipts on Master Loan 79 409
Net cash provided by investing activities 79 259
Cash flows used in financing activities:
Distributions to partners (2,984) (9,992)
Net cash used in financing activities (2,984) (9,992)
Net decrease in cash and cash equivalents (1,328) (9,540)
Cash and cash equivalents at beginning of period 12,417 18,478
Cash and cash equivalents at end of period $ 11,089 $ 8,938
See Accompanying Notes to Financial Statements
e)
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited financial statements of Consolidated Capital
Institutional Properties/2 (the "Partnership") have been prepared in accordance
with generally accepted accounting principles for interim financial information
and with the instructions to Form 10-Q and Article 10 of Regulation S-X.
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 ConCap Equities, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998. For
further information, refer to the financial statements and footnotes thereto
included in the Partnership's annual report on Form 10-K for the year ended
December 31, 1997.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
NOTE B - TRANSACTIONS WITH AFFILIATED PARTIES
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. The Partnership Agreement (the
"Agreement") provides for reimbursement to the General Partner and its
affiliates for costs incurred in connection with the administration of
Partnership activities. The General Partner and its affiliates received
reimbursements as reflected in the following table:
For the Nine Months Ended
September 30,
1998 1997
(in thousands)
Reimbursements for services of affiliates
(included in general and administrative
expenses) $226 $187
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which receives payment on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations was not significant.
On October 30, 1997, an Insignia affiliate commenced tender offers for limited
partnership interests in the Partnership. The Purchaser offered to purchase up
to 300,000 of the outstanding units of limited partnership interest in the
Partnership, at $40.00 per Unit, net to the seller in cash. As a result of the
October 1997 tender offer, an Insignia affiliate purchased 164,940.99 of the
outstanding limited partner units of the Partnership during December 1997 and an
additional 4,164.30 in February 1998.
On July 30, 1998, an Insignia affiliate commenced a tender offer for limited
partnership interests in the Partnership. The Purchaser offered to purchase up
to 300,000 of the outstanding units of limited partnership interest in the
Partnership, at $50 per Unit, net to the seller in cash. The tender offer was
extended through November 16, 1998.
NOTE C - NET INVESTMENT IN MASTER LOAN
At September 30, 1998, the recorded investment in the Master Loan is considered
to be impaired under "Statement of Financial Accounting Standard No. 114 ("SFAS
114") Accounting by Creditors for Impairment of a Loan." The Partnership
measures the impairment of the loan based upon the fair value of the collateral
due to the fact that repayment of the loan is expected to be provided solely by
the collateral. For the nine months ended September 30, 1998 and 1997, the
Partnership recorded approximately $27,586,000 and $824,000, respectively, in
income based upon an increase in the fair value of the collateral.
The fair value of the collateral properties was determined using the net
operating income of the collateral properties capitalized at a rate deemed
reasonable for the type of property adjusted for market conditions, physical
condition of the property and other factors. This methodology has not changed
from that used in prior calculations performed by the General Partner in
determining the fair value of the collateral properties. The approximate
$27,586,000 reduction in the provision for impairment loss that was recognized
during the nine months ended September 30, 1998 is attributed to an increase in
the net realizable value of the collateral properties. The General Partner
evaluates the net realizable value on a semi-annual basis. The General Partner
has seen a consistent increase in the net realizable value of the collateral
properties, taken as a whole, over the past two years. The increase is deemed
to be attributable to major capital improvement projects and the strong effort
to complete deferred maintenance items that have been ongoing over the past few
years at the various properties. This has enabled the properties to increase
their respective occupancy levels or in some cases to maintain the properties'
high occupancy levels. The vast majority of this work was funded by cashflow
from the collateral properties themselves as no amounts have been borrowed on
the master loan or from other sources in the past few years. Based upon the
consistent increase in net realizable value of the collateral properties the
General Partner determined the increase to be permanent in nature and
accordingly reduced the allowance for impairment loss on the master loan during
the nine months ended September 30, 1998.
Approximately $1,069,000 and $236,000 for September 30, 1998 and 1997,
respectively, was recorded as interest income on investment in Master Loan to
affiliate based upon cash generated as a result of improved operations of the
properties which secure the loan. A cash payment of approximately $634,000 was
received from Consolidated Capital Equity Partners/2, L.P. ("CCEP/2") during the
first quarter of 1998 for interest income recognized in 1997. A cash payment of
approximately $564,000 for the interest income recorded in the first quarter of
1998 was received during the second quarter of 1998. A cash payment of
approximately $505,000 was received from CCEP/2 during the third quarter of 1998
for interest income recognized in the second quarter of 1998.
The principal balance of the Master Loan due to the Partnership totaled
approximately $80,470,000 at September 30, 1998. Interest due to the
Partnership pursuant to the terms of the Master Loan Agreement, but not
recognized in the income statements, totaled approximately $16,704,000, and
$16,457,000 for the nine months ended September 30, 1998, and 1997,
respectively. At September 30, 1998 and December 31, 1997, such cumulative
unrecognized interest totaled approximately $171,074,000 and $154,370,000 and
was not included in the balance of the investment in Master Loan. The allowance
for possible losses totaled approximately $15,129,000 and $42,715,000 at
September 30, 1998 and December 31, 1997, respectively.
During the first nine months of 1998, no advances were made to CCEP/2.
Principal payments received from CCEP/2 on the Master Loan were $79,000.
NOTE D - CONTINGENCIES
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
Additional complaints were filed in November 1997 and July 1998 by PHC
Construction against the Partnership, CCEP/2 and other defendants. Several of
these lawsuits have been consolidated. The complaints arise from construction
services allegedly performed by the plaintiff at the North Park Plaza Building
in Southfield, Michigan prior to the sale of that property in September 1996.
The complaints assert claims for breach of contract, quantum meruit, promissory
estoppel and constructive trust. On October 23, 1998 this lawsuit was settled
for approximately $615,000. CCIP/2 was responsible for $61,000 of the
settlement, and the settlement was paid on October 30, 1998.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate had breached certain contractual and fiduciary duties allegedly owed
to the claimant. The General Partner believes the claim to be without merit and
intends to vigorously defend the claim.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in Superior Court of the State of California for
the County of San Mateo. The Plaintiffs named as defendants, among others, the
Partnership, the General Partner and several of their affiliated partnerships
and corporate entities. The complaint purports to assert claims on behalf of a
class of limited partners and derivatively on behalf of a number of limited
partnerships (including the Partnership) which are named as nominal defendants,
challenging the acquisition by Insignia Financial Group, Inc. and entities which
were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests
in certain general partner entities, past tender offers by Insignia Affiliates
to acquire limited partnership units, the management of partnerships by Insignia
Affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The General Partner has filed demurrers to the amended
complaint which are scheduled to be heard on January 8, 1999. The General
Partner believes the action to be without merit, and intends to vigorously
defend it.
In April 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. IFGP
Corporation c/o Consolidated Capital Institutional Properties/2, et al. The
complaint claims that the Partnership and an affiliate of the General Partner
breached certain contractual and fiduciary duties allegedly owed to the claimant
and seeks damages and injunctive relief. The General Partner believes the
claims to be without merit and intends to vigorously defend the claims.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties LLC. v.
Insignia Financial Group, Inc. in the Superior Court of the State of
California, County of Los Angeles. The action involves 44 real estate limited
partnerships (including the Partnership) in which the plaintiffs allegedly own
interests and which Insignia Affiliates allegedly manage or control (the
"Subject Partnerships"). The complaint names as defendants Insignia, several
Insignia Affiliates alleged to be managing partners of the defendant limited
partnerships, the Partnership and the General Partner. Plaintiffs allege that
they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the limited partner units of each
of the Subject Partnerships. The complaint also alleges that certain of the
defendants made tender offers to purchase limited partner units in many of the
Subject Partnerships, with the alleged result that plaintiffs have been deprived
of the benefits they would have realized from ownership of the additional units.
The plaintiffs assert eleven causes of action, including breach of contract,
unfair business practices, and violations of the partnership statutes of the
states in which the Subject Partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. The General Partner filed an answer
to the complaint on September 15, 1998. The General Partner believes the claims
to be without merit and intends to defend the action vigorously.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such pending
or outstanding litigation will be resolved without a material adverse effect on
the business, financial condition, or operations of the Partnership.
NOTE E - COMMITMENT
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined in the Partnership Agreement. In the event expenditures are made
from this reserve, operating revenue shall be allocated to such reserves to the
extent necessary to maintain the foregoing levels. Reserves, including cash and
cash equivalents totaling approximately $11,089,000, were greater than the
reserve requirement of approximately $7,008,000 at September 30, 1998.
NOTE F - DISTRIBUTION
In March and September of 1998, the Partnership distributed approximately
$1,499,000 and $1,485,000, respectively, all to the limited partners ($1.65 and
$1.63 per limited partnership unit). These distributions were from surplus
funds as a result of the sale of one of the CCEP/2 properties late in 1997,
which was passed up to the Partnership in 1997 as a reduction in principal of
the Master Loan.
NOTE G - TRANSFER OF CONTROL - SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the entity which controls the General Partner. Also, effective
October 1, 1998 IPT and AIMCO entered into an Agreement and plan of Merger
pursuant to which IPT is to be merged with and into AIMCO or a subsidiary of
AIMCO (the "IPT Merger"). The IPT Merger requires the approval of the holders
of a majority of the outstanding IPT Shares. AIMCO has agreed to vote all of
the IPT Shares owned by it in favor of the IPT Merger and has granted an
irrevocable limited proxy to unaffiliated representatives of IPT to vote the
IPT Shares acquired by AIMCO and its subsidiaries in favor of the IPT Merger.
As a result of AIMCO's ownership and its agreement, the vote of no other holder
of IPT is required to approve the merger. The General Partner does
not believe that this transaction will have a material effect on the affairs
and operations of the Partnership.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The Partnership's sole investment property was sold in 1996 and accordingly as
of September 30, 1998, the Partnership has no real estate assets.
Results of Operations
The Partnership reported net (loss) income of approximately $(105,000) and
$28,517,000, respectively, for the three and nine months ended September 30,
1998, as compared to net income of approximately $272,000 and $926,000,
respectively for the three and nine months ended September 30, 1997. The
increase in net income for the nine months ended September 30, 1998, is due to
an increase in interest income on investment in Master Loan to affiliate and the
reduction of provision for impairment loss. As discussed in "Item 1. Financial
Statements Note C - Net Investment in Master Loan," the Partnership recorded
interest income of approximately $1,069,000 and $236,000 and recorded a
reduction of allowance for impairment loss of approximately $27,586,000 and
$588,000 for September 30, 1998 and 1997, respectively. The increase in income
recognized is due to an increase in the fair value of underlying collateral
properties as a result of capital improvements and repairs performed over the
last few years, changing market conditions and due to improved operations at
such properties. Without giving effect to reduction of provision for impairment
loss, the Partnership generated net income for the nine months ended September
30, 1998 of $931,000 as compared to $338,000 for the nine months ended September
30, 1997.
Partially offsetting the increase in revenues was an increase in general and
administrative expenses as a result of an increase in legal fees. Legal fees
increased due to the lawsuits discussed in "Part II, Item 1. Legal Proceedings".
The decrease in net income for the three months ended September 30, 1998 as
compared to the three months ended September 30, 1997 is attributable to the
Partnership not receiving any interest income on investment in Master Loan to
affiliate or recognizing a reduction of provision for impairment loss for the
three month period ended September 30, 1998. In contrast, the Partnership
received a total of $225,000 with respect to such income items for the
comparable period in 1997. In addition, general and administrative expenses
increased by $153,000 for the three months ended September 30, 1998 as compared
to the comparable period in 1997 as a result of the increased legal fees
described above.
Liquidity and Capital Resources
At September 30, 1998 the Partnership had cash and cash equivalents of
approximately $11,089,000 as compared to approximately $8,938,000 at September
30, 1997. The net decrease in cash and cash equivalents for the nine months
ended September 30, 1998 was $1,328,000. The net decrease in cash and cash
equivalents for the nine months ended September 30, 1997 was $9,540,000. Net
cash provided by operating activities increased primarily due to the increase in
net income as a result of an increase in interest income received on the Master
Loan as discussed above. Net cash provided by investing activities decreased
due to a decrease in principal receipts on the Master Loan for the nine months
ended September 30, 1998 as compared to September 30, 1997. Cash used in
financing activities decreased due to a decrease in distributions paid to
partners.
The sufficiency of existing liquid assets to meet future liquidity and capital
expenditure requirements is directly related to the level of capital
expenditures required to meet the ongoing operating needs of the Partnership and
to comply with Federal, state and local legal and regulatory requirements. Such
assets are currently thought to be sufficient for any near-term needs of the
Partnership. See "CCEP/2 Property Operations" for discussion on CCEP/2's
ability to provide future cash flow as Master Loan debt service. The Partnership
made distributions totaling approximately $2,984,000 during the nine months
ended September 30, 1998. During the nine months ended September 30, 1997, the
Partnership made a distribution of approximately $9,992,000. Future cash
distributions will depend on CCEP/2's ability to make payments on account of the
Master Loan and the availability of cash reserves. The Partnership's
distribution policy will be reviewed on a quarterly basis. There can be no
assurance, however, that the Partnership will have sufficient funds from
operations to permit distributions to its partners in 1998 or subsequent
periods.
The Partnership is required by the Partnership Agreement to maintain working
capital reserves for contingencies of not less than 5% of Net Invested Capital,
as defined by the Partnership Agreement. Reserves, including cash and cash
equivalents, totaling approximately $11,089,000, were greater than the reserve
requirement of $7,008,000 as of September 30, 1998.
CCEP/2 Property Operations
For the nine months ended September 30, 1998, CCEP/2's net loss totaled
approximately $16,661,000 on total revenues of approximately $14,470,000.
CCEP/2 recognizes interest expense on the New Master Loan Agreement obligation
according to the note terms, although payments to the Partnership are required
only to the extent of Excess Cash Flow, as defined therein. During the nine
months ended September 30, 1998, CCEP/2's statement of operations includes total
interest expense attributable to the Master Loan of approximately $17,773,000,
$1,703,000 of which represents interest paid, and the remaining of which
represents interest expense in excess of required payments. CCEP/2 is expected
to continue to generate operating losses as a result of such interest accruals
and noncash charges for depreciation.
During the nine months ended September 30, 1998, CCEP/2 made approximately
$79,000 as principal payments on the Master Loan to the Partnership. This cash
was received by CCEP/2 on certain investments which it holds. Such cash
receipts are required to be transferred to the Partnership per the Agreement.
Transfer of Control - Subsequent Event
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the Managing General Partner. In addition, AIMCO also acquired
approximately 51% of the outstanding common shares of beneficial interest of
Insignia Properties Trust ("IPT"), the entity which controls the General
Partner. Also, effective October 1, 1998 IPT and AIMCO entered into an
Agreement and plan of Merger pursuant to which IPT is to be merged with and
into AIMCO or a subsidiary of AIMCO (the "IPT Merger"). The IPT Merger
requires the approval of the holders of a majority of the outstanding IPT
Shares. AIMCO has agreed to vote all of the IPT Shares owned by it in favor
of the IPT Merger and has granted an irrevocable limited proxy to unaffiliated
representatives of IPT to vote the IPT Shares acquired by AIMCO and its
subsidiaries in favor of the IPT Merger. As a result of AIMCO's ownership and
its agreement, the vote of no other holder of IPT is required to approve the
merger. The Managing General Partner does not believe that this transaction
will have a material effect on the affairs and operations of the Partnership.
Year 2000
GENERAL DESCRIPTION OF THE YEAR 2000 ISSUE AND THE NATURE AND EFFECTS OF THE
YEAR 2000 ON INFORMATION TECHNOLOGY (IT) AND NON-IT SYSTEMS
The Year 2000 Issue is the result of computer programs being written using two
digits rather than four to define the applicable year. The Partnership is
dependent upon the General Partner and its affiliates for management and
administrative services ("Managing Agent"). Any computer programs or hardware
that have date-sensitive software or embedded chips may recognize a date using
"00" as the year 1900 rather than the year 2000. This could result in a system
failure or miscalculations causing disruptions of operations, including, among
other things, a temporary inability to process transactions, send invoices, or
engage in similar normal business activities.
The Managing Agent has determined that it will be required to modify or replace
significant portions of its software and certain hardware so that those systems
will properly utilize dates beyond December 31, 1999. The Managing Agent
presently believes that with modifications or replacements of existing software
and certain hardware, the Year 2000 Issue can be mitigated. However, if such
modifications and replacements are not made, or are not completed timely, the
Year 2000 Issue could have a material impact on the operations of the Managing
Agent and the Partnership.
STATUS OF PROGRESS IN BECOMING YEAR 2000 COMPLIANT
The Managing Agent's plan to resolve the Year 2000 Issue involves the following
four phases: assessment, remediation, testing and implementation. To date, the
Managing Agent has fully completed its assessment of all information systems
that could be significantly affected by the Year 2000, and has begun the
remediation, testing and implementation phase on both hardware and software
systems. Assessments are continuing in regards to embedded systems in operating
equipment. The Managing Agent anticipates having all phases complete by June 1,
1999.
In addition to the areas the Partnership is relying on the Managing Agent to
verify compliance with, the Partnership has certain operating equipment,
primarily at the property sites, which needed to be evaluated for Year 2000
compliance. The focus of the General Partner was to the security systems,
elevators, heating-ventilation-air-conditioning systems, telephone systems and
switches, and sprinkler systems. The General Partner is currently engaged in the
identification of all non-compliant operational systems, and is in the process
of estimating the costs associated with any potential modifications or
replacements needed to such systems in order for them to be Year 2000 compliant.
It is not expected that such costs would have a material adverse affect upon
the operations of the Partnership.
RISK ASSOCIATED WITH THE YEAR 2000
The General Partner believes that the Managing Agent has an effective program in
place to resolve the Year 2000 issue in a timely manner and has appropriate
contingency plans in place for critical applications that could affect the
Partnership's operations. To date, the General Partner is not aware of any
external agent with a Year 2000 issue that would materially impact the
Partnership's results of operations, liquidity or capital resources. However,
the General Partner has no means of ensuring that external agents will be Year
2000 compliant. The General Partner does not believe that the inability of
external agents to complete their Year 2000 resolution process in a timely
manner will have a material impact on the financial position or results of
operations of the Partnership. However, the effect of non-compliance by
external agents is not readily determinable.
Other
Certain items discussed in this quarterly report may constitute forward-looking
statements within the meaning of the Private Securities Litigation Reform Act of
1995 (the "Reform Act") and as such may involve known and unknown risks,
uncertainties and other factors which may cause the actual results, performance
or achievements of the Partnership to be materially different from any future
results, performance or achievements expressed or implied by such forward-
looking statements. Such forward-looking statements speak only as of the date
of this quarterly report. The Partnership expressly disclaims any obligation or
undertaking to release publicly any updates of revisions to any forward-looking
statements contained herein to reflect any change in the Partnership's
expectations with regard thereto or any change in events, conditions or
circumstances on which any such statement is based.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
Additional complaints were filed in November 1997 and July 1998 entitled PHC
Construction Corporation v. Consolidated Capital Institutional Properties/2
et al by PHC Construction against the Partnership, CCEP/2 and other defendants.
Several of these lawsuits have been consolidated. The complaints arise from
construction services allegedly performed by the plaintiff at the North Park
Plaza Building in Southfield, Michigan prior to the sale of that property in
September 1996. The complaints assert claims for breach of contract, quantum
meruit, promissory estoppel and constructive trust. On October 23, 1998 this
lawsuit was settled for approximately $615,000. CCIP/2 was responsible for
$61,000 of the settlement, and the settlement was paid on October 30, 1998.
In January 1998, a limited partner of the Partnership commenced an arbitration
proceeding against an affiliate of the General Partner claiming that the
affiliate of the General Partner had breached certain contractual and fiduciary
duties allegedly owed to the claimant. The General Partner believes the claim
to be without merit and intends to vigorously defend the claim.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in Superior Court of the State of California for
the County of San Mateo. The Plaintiffs named as defendants, among others, the
Partnership, the General Partner and several of their affiliated partnerships
and corporate entities. The complaint purports to assert claims on behalf of a
class of limited partners and derivatively on behalf of a number of limited
partnerships (including the Partnership) which are named as nominal defendants,
challenging the acquisition by Insignia Financial Group, Inc. and entities which
were, at the time, affiliates of Insignia ("Insignia Affiliates") of interests
in certain general partner entities, past tender offers by Insignia Affiliates
to acquire limited partnership units, the management of partnerships by Insignia
Affiliates as well as a recently announced agreement between Insignia and
Apartment Investment and Management Company. The complaint seeks monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the General Partner filed a motion seeking dismissal of the
action. In lieu of responding to the motion, the plaintiffs have filed an
amended complaint. The General Partner has filed demurrers to the amended
complaint which are scheduled to be heard on January 8, 1999. The General
Partner believes the action to be without merit, and intends to vigorously
defend it.
In April 1998, a limited partner of the Partnership commenced an action in the
Circuit Court for Jackson County, Missouri entitled Bond Purchase LLC v. IFGP
Corporation c/o Consolidated Capital Institutional Properties/2, et al. The
complaint claims that the Partnership and an affiliate of the General Partner
breached certain contractual and fiduciary duties allegedly owed to the claimant
and seeks damages and injunctive relief. The General Partner believes the
claims to be without merit and intends to vigorously defend the claims.
On July 30, 1998, certain entities claiming to own limited partnership interests
in certain limited partnerships whose general partners were, at the time,
affiliates of Insignia filed a complaint entitled Everest Properties LLC. v.
Insignia Financial Group in the Superior Court of the State of California,
County of Los Angeles. The action involves 44 real estate limited partnerships
(including the Partnership) in which the plaintiffs allegedly own interests and
which Insignia Affiliates allegedly manage or control (the "Subject
Partnerships"). The complaint names as defendants Insignia, several Insignia
Affiliates alleged to be managing partners of the defendant limited
partnerships, the Partnership and the General Partner. Plaintiffs allege that
they have requested from, but have been denied by each of the Subject
Partnerships, lists of their respective limited partners for the purpose of
making tender offers to purchase up to 4.9% of the limited partner units of each
of the Subject Partnerships. The complaint also alleges that certain of the
defendants made tender offers to purchase limited partner units in many of the
Subject Partnerships, with the alleged result that plaintiffs have been deprived
of the benefits they would have realized from ownership of the additional units.
The plaintiffs assert eleven causes of action, including breach of contract,
unfair business practices, and violations of the partnership statutes of the
states in which the Subject Partnerships are organized. Plaintiffs seek
compensatory, punitive and treble damages. The General Partner filed an answer
to the complaint on September 15, 1998. The General Partner believes the claims
to be without merit and intends to defend the action vigorously.
The Registrant is unaware of any other pending or outstanding litigation that is
not of a routine nature. The General Partner of the Registrant believes that
all such pending or outstanding litigation will be resolved without a material
adverse effect upon the business, financial condition, or operations of the
Partnership.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
(a) Exhibits:
S-K Reference
Number Description
27 Financial Data Schedule is filed as an exhibit to
this report.
99.1 Consolidated Capital Equity Partners/Two, L.P.,
unaudited financial statements for the three and
nine months ended September 30, 1998 and 1997.
(b) Reports on Form 8-K:
None filed during the quarter ended September 30, 1998.
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.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: CONCAP EQUITIES, INC.
Its General Partner
By: /s/ Patrick Foye
Patrick Foye
Executive Vice President
By: /s/ Timothy R. Garrick
Timothy R. Garrick
Vice President - Accounting
(Duly Authorized Officer)
Date: November 12, 1998
<TABLE> <S> <C>
<ARTICLE> 5
<LEGEND>
This schedule contains summary financial information extracted from
Consolidated Capital Institutional Properties/2 1998 Third Quarter 10-Q
and is qualified in its entirety by reference to such 10-Q filing.
</LEGEND>
<CIK> 0000719184
<NAME> CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
<MULTIPLIER> 1,000
<S> <C>
<PERIOD-TYPE> 9-MOS
<FISCAL-YEAR-END> DEC-31-1998
<PERIOD-END> SEP-30-1998
<CASH> 11,089
<SECURITIES> 0
<RECEIVABLES> 0
<ALLOWANCES> 0
<INVENTORY> 0
<CURRENT-ASSETS> 0<F1>
<PP&E> 0
<DEPRECIATION> 0
<TOTAL-ASSETS> 76,445
<CURRENT-LIABILITIES> 0<F1>
<BONDS> 0
0
0
<COMMON> 0
<OTHER-SE> 76,504
<TOTAL-LIABILITY-AND-EQUITY> 76,445
<SALES> 0
<TOTAL-REVENUES> 29,109
<CGS> 0
<TOTAL-COSTS> 0
<OTHER-EXPENSES> 592
<LOSS-PROVISION> 0
<INTEREST-EXPENSE> 0
<INCOME-PRETAX> 0
<INCOME-TAX> 0
<INCOME-CONTINUING> 0
<DISCONTINUED> 0
<EXTRAORDINARY> 0
<CHANGES> 0
<NET-INCOME> 28,517
<EPS-PRIMARY> 31.05<F2>
<EPS-DILUTED> 0
<FN>
<F1>Registrant has an unclassified balance sheet.
<F2>Multiplier is 1.
</FN>
</TABLE>
EXHIBIT 99.1
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE THREE AND NINE MONTHS ENDED
SEPTEMBER 30, 1998 AND 1997
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
a)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEET
(in thousands)
September 30, December 31,
1998 1997
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 1,345 $ 1,807
Receivables and deposits 1,863 1,964
Restricted escrows 1,849 1,245
Other assets 2,654 2,443
Investment properties:
Land 10,498 10,498
Buildings and related personal property 90,864 88,871
101,362 99,369
Less accumulated depreciation (63,199) (59,501)
38,163 39,868
$ 45,874 $ 47,327
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 441 $ 623
Tenant security deposit liabilities 594 564
Accrued property taxes 515 770
Other liabilities 421 582
Mortgage notes 32,692 32,905
Master loan and interest payable 250,850 234,861
285,513 270,305
Partners' Deficit
General Partner (2,383) (2,216)
Limited Partners (237,256) (220,762)
(239,639) (222,978)
$ 45,874 $ 47,327
Note:The balance sheet at December 31, 1997, has been derived from the audited
financial statements at that date but does not include all the information
and footnotes required by generally accepted accounting principles for
complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
b)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Nine Months Ended
September 30, September 30,
1998 1997 1998 1997
Revenues:
Rental income $ 4,563 $ 4,306 $ 13,368 $ 12,846
Other income 424 256 1,050 871
Gain on disposal 52 -- 52 --
Total revenues 5,039 4,562 14,470 13,717
Expenses:
Operating 2,119 2,468 6,185 7,071
General and administrative 153 119 498 440
Interest 6,578 6,155 19,783 18,459
Depreciation 1,274 1,241 3,698 3,643
Property taxes 323 337 967 997
Total expenses 10,447 10,320 31,131 30,610
Net loss $(5,408) $(5,758) $(16,661) $(16,893)
Net loss allocated
to general partner (1%) $ (54) $ (58) $ (167) $ (169)
Net loss allocated
to limited partners (99%) (5,354) (5,700) (16,494) (16,724)
$(5,408) $(5,758) $(16,661) $(16,893)
See Accompanying Notes to Consolidated Financial Statements
c)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT OF PARTNERS' DEFICIT
(Unaudited)
(in thousands)
<TABLE>
<CAPTION>
General Limited
Partner Partners Total
<S> <C> <C> <C>
Partners' deficit at December 31, 1996 $(2,017) $(201,079) $(203,096)
Net loss for the nine months ended
September 30, 1997 (169) (16,724) (16,893)
Partners' deficit at September 30, 1997 $(2,186) $(217,803) $(219,989)
Partners' deficit at December 31, 1997 $(2,216) $(220,762) $(222,978)
Net loss for the nine months ended
September 30, 1998 (167) (16,494) (16,661)
Partners' deficit at September 30, 1998 $(2,383) $(237,256) $(239,639)
<FN>
See Accompanying Notes to Consolidated Financial Statements
</FN>
</TABLE>
d)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Nine Months Ended
September 30,
1998 1997
Cash flows from operating activities:
Net loss $(16,661) $(16,893)
Adjustments to reconcile net loss to net
cash provided by operating activities:
Depreciation 3,698 3,643
Amortization of loan costs, lease commissions
and ground lease 408 480
Bad debt 106 134
Gain on disposal (52) --
Change in accounts:
Other assets (92) (132)
Receivables and deposits (5) 460
Accounts payable (182) (277)
Accrued property taxes (255) 32
Tenant security deposit liabilities 30 (17)
Other liabilities (161) (157)
Interest on master loan 16,068 16,368
Net cash provided by operating activities 2,902 3,641
Cash flows from investing activities:
Deposits to restricted escrows (604) (502)
Property improvements and replacements (1,993) (2,237)
Proceeds from property dispositions 52 --
Lease commissions (527) (505)
Distributions from investment in limited partnerships -- 336
Net cash used in investing activities (3,072) (2,908)
Cash flow used in financing activities:
Principal payments on notes payable (213) (207)
Principal payments on Master Loan (79) (409)
Advances on master loan -- 150
Loan costs paid -- (29)
Net cash used in financing activities (292) (495)
Net (decrease) increase in cash and cash equivalents (462) 238
Cash and cash equivalents at beginning of period 1,807 932
Cash and cash equivalents at end of period $ 1,345 $ 1,170
Supplemental disclosure of cash flow information:
Cash paid for interest $ 3,632 $ 2,216
See Accompanying Notes to Consolidated Financial Statements
e)
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
NOTE A - BASIS OF PRESENTATION
The accompanying unaudited consolidated financial statements of Consolidated
Capital Equity Partners/Two, L.P. ("CCEP/2") have been prepared in accordance
with generally accepted accounting principles for interim financial information.
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 ConCap Equities, Inc., (the "General Partner"), all
adjustments (consisting of normal recurring accruals) considered necessary for a
fair presentation have been included. Operating results for the three and nine
month periods ended September 30, 1998, are not necessarily indicative of the
results that may be expected for the fiscal year ending December 31, 1998.
Certain reclassifications have been made to the 1997 information to conform to
the 1998 presentation.
Consolidation
In 1985, Equity Partners/Two ("EP/2"), a California general partnership,
together with Anderson CC 2, a Georgia limited partnership, entered into a
general partnership agreement ("CC Office Associates") to acquire Cosmopolitan
Center, an office building located in Atlanta, Georgia. Pursuant to such general
partnership agreement, the property ownership is split 90%/10% between CCEP/2,
as successor to EP/2, and Anderson CC 2, respectively. CCEP/2's investment in CC
Office Associates is consolidated in CCEP/2's financial statements. No minority
interest liability has been reflected for Anderson CC 2's minority 10% interest
because the Master Loan balance, which is secured by a deed of trust held by
Consolidated Capital Institutional Properties/2 ("CCIP/2") on Cosmopolitan
Center, exceeds the value of the property. As a result, CC Office Associates
has a net capital deficit and no minority liability exists with respect to
CCEP/2. On December 2, 1997, CCEP/2 sold Cosmopolitan Center to an unrelated
third party for a contract price of $3,500,000 and realized a gain on sale of
approximately $2,739,000. Approximately $3,307,000 of the proceeds from the
sale of Cosmopolitan Center were paid to CCIP/2 as payment on the Master Loan.
During the nine months ended September 30, 1998, CCEP/2 received an additional
$52,000 related to the sale of Cosmopolitan Center.
NOTE B - RELATED PARTY TRANSACTIONS
CCEP/2 has no employees and is dependent on the General Partner and its
affiliates for management and administration of all partnership activities.
Affiliates of the General Partner provide property management and asset
management services to the Partnership. CCEP/2 paid property management fees
based upon collected gross rental revenues for property management services in
each of the nine month periods ended September 30, 1998 and 1997. The
Partnership Agreement (the "Agreement") also provides for reimbursement to the
General Partner and its affiliates for costs incurred in connection with the
administration of CCEP/2's activities.
Also, CCEP/2 is subject to an Investment Advisory Agreement between CCEP/2 and
an affiliate of the General Partner. This agreement provides for an annual fee,
payable in monthly installments, to an affiliate of the General Partner for
advising and consulting services for CCEP/2's properties. The General Partner
and its affiliates received reimbursements and fees for the nine months ended
September 30, 1998 and 1997 as follows:
1998 1997
(in thousands)
Property management fees (included in operating expenses) $675 $661
Investment advisory fees (included in general and
administrative expenses) 129 115
Lease commissions 381 265
Reimbursement for services of affiliates, (included in
operating, general and administrative expenses and
investment properties) (1) 220 211
(1)Included in "Reimbursement for services of affiliates" for 1998 and 1997 is
approximately $13,000 and $15,000, respectively, of reimbursements for
construction oversight costs.
In addition to the compensation and reimbursements described above, interest
payments are made to and loan advances are received from CCIP/2 pursuant to the
Master Loan Agreement, which is described more fully in the 1997 Annual Report.
Interest payments totaling approximately $1,704,000 were made during the nine
months ended September 30, 1998. An interest payment of approximately $89,000
was made during the nine months ended September 30, 1998. No advances were
received under the Master Loan Agreement during the nine months ended September
30, 1998. An advance of $150,000 was received under the Master Loan Agreement
during the nine months ended September 30, 1997. A principal payment of
approximately $79,000 was made on the Master Loan during the nine months ended
September 30, 1998. Principal payments of approximately $409,000 were made on
the Master Loan during the nine months ended September 30, 1997.
For the period of January 1, 1997 to August 31, 1997, the Partnership insured
its properties under a master policy through an agency affiliated with the
General Partner with an insurer unaffiliated with the General Partner. An
affiliate of the General Partner acquired, in the acquisition of a business,
certain financial obligations from an insurance agency which was later acquired
by the agent who placed the master policy. The agent assumed the financial
obligations to the affiliate of the General Partner which receives payments on
these obligations from the agent. The amount of the Partnership's insurance
premiums accruing to the benefit of the affiliate of the General Partner by
virtue of the agent's obligations is not significant.
NOTE C - MASTER LOAN AND ACCRUED INTEREST PAYABLE
The Master Loan principal and accrued interest payable balances at September 30,
1998, and December 31, 1997, are approximately $250,850,000 and approximately
$234,861,000, respectively.
Terms of Master Loan Agreement
Under the terms of the Master Loan Agreement, interest accrues at 10% per annum
and payments are due quarterly in an amount equal to Excess Cash Flow, generally
defined in the Master Loan Agreement as net cash flow from operations after
third-party debt service. If such Excess Cash Flow payments are less than the
current accrued interest during the quarterly period, the unpaid interest is
added to principal, compounded annually, and is payable at the loan's maturity.
If such Excess Cash Flow payments are greater than the currently payable
interest, the excess amount is applied to the principal balance of the loan.
Any net proceeds from the sale or refinancing of any of CCEP/2's properties are
paid to CCIP/2 under the terms of the Master Loan Agreement.
The Master Loan matures in November 2000. The General Partner has determined
that the Master Loan and related interest payable has no determinable fair value
since payments are limited to net cash flows, as defined, but is not believed to
be in excess of the fair values of the underlying collateral.
Effective January 1, 1993, CCEP/2 and CCIP/2 amended the Master Loan Agreement
to stipulate that Excess Cash Flow would be computed net of capital
improvements. Such expenditures were formerly funded from advances on the Master
Loan from CCIP/2 to CCEP/2. This amendment and change in the definition of
Excess Cash Flow will have the effect of reducing Master Loan payments to CCIP/2
by the amount of CCEP/2's capital expenditures since such amounts were
previously excluded from Excess Cash Flow. The amendment will have no effect on
the computation of interest expense on the Master Loan.
NOTE D - LEGAL PROCEEDING
In May 1997, the Partnership was named as a defendant in a lawsuit brought by
PHC Construction Corporation in the Circuit Court for Oakland County, Michigan.
Additional complaints were filed in November 1997 and July 1998 entitled PHC
Construction Corporation v. Consolidated Capital Equity Properties/2, LP by PHC
Construction against the Partnership, CCIP/2 and other defendants. Several of
these lawsuits have been consolidated. The complaints arise from construction
services allegedly performed by the plaintiff at the North Park Plaza Building
in Southfield, Michigan prior to the sale of that property in September 1996.
The complaints assert claims for, among other things, breach of contract,
quantum meruit, promissory estoppel and constructive trust. On October 23, 1998
this lawsuit was settled for approximately $615,000. It is anticipated that
CCEP/2 will be responsible for $554,000 of the settlement which is due on or
before October 31, 1998.
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. in the Superior Court of the State of California
for the County of San Mateo. The plaintiffs named as defendants, among others,
the Partnership, the Corporate General Partner and several of their affiliated
partnerships and corporate entities. The complaint purports to assert claims on
behalf of a class of limited partners and derivatively on behalf of a number of
limited partnerships (including the Partnership) which are named as nominal
defendants, challenging the acquisition by Insignia Financial Group, Inc. and
entities which were, at the time, affiliates Insignia ("Insignia Affiliates") of
interests in certain general partner entities, past tender offers by Insignia
Affiliates to acquire limited partnership units, the management of partnerships
by Insignia Affiliates as well as a recently announced agreement between
Insignia and AIMCO. The complaint seeks monetary damages and equitable relief,
including judicial dissolution of the Partnership. On June 25, 1998, the General
Partner filed a motion seeking dismissal of the action. In lieu of responding to
the motion, the plaintiffs have filed an amended complaint. The General Partner
has filed demurrers to the amended complaint which are scheduled to be heard on
January 8, 1999. The General Partner believes the action to be without merit,
and intends to vigorously defend it.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature. The General Partner believes that all such pending
or outstanding litigation will be resolved without a material adverse effect
upon the business, financial condition or operations of the Partnership.
NOTE E - TRANSFER OF CONTROL - SUBSEQUENT EVENT
On October 1, 1998, Insignia Financial Group, Inc. completed its merger with and
into Apartment Investment and Management Company ("AIMCO"), a publicly traded
real estate investment trust, with AIMCO being the surviving corporation (the
"Insignia Merger"). As a result of the Insignia Merger, AIMCO acquired control
of the General Partner. In addition, AIMCO also acquired approximately 51% of
the outstanding common shares of beneficial interest of Insignia Properties
Trust ("IPT"), the entity which controls the General Partner of the Partnership.
Also, effective October 1, 1998 IPT and AIMCO entered into an Agreement and plan
of Merger pursuant to which IPT is to be merged with and into AIMCO or a
subsidiary of AIMCO (the "IPT Merger"). The IPT Merger requires the approval of
the holders of a majority of the outstanding IPT Shares. AIMCO has indicated
that it expects to vote all of the IPT Shares owned by it in favor of the IPT
Merger, and accordingly, IPT shareholder approval is assured. The General
Partner does not believe that this transaction will have a material effect on
the affairs and operations of the Partnership.
