UNITED STATES
SECURITIES AND EXCHANGE COMMISSION
Washington, D.C. 20549
Form 10-Q
(Mark One)
[X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the quarterly period ended June 30, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE
ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11723
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, PO Box 1089
Greenville, South Carolina 29602
(Address of principal executive offices)
(864) 239-1000
(Issuer's telephone number)
Check whether the issuer (1) filed all reports required to be filed by Section
13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter
period that the Partnership 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
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
BALANCE SHEETS
(in thousands, except unit data)
June 30, December 31,
2002 2001
---- ----
(Unaudited) (Note)
Assets
Cash and cash equivalents $ 41 $ 381
Accounts receivable -- 100
Other assets 21 21
Investment in Master Loan to affiliate 44,779 39,423
Less: allowance for impairment loss (24,329) (28,129)
20,450 11,294
$ 20,512 $ 11,796
Liabilities and Partners' (Deficit) Capital
Liabilities
Due to affiliates $ 5,223 $ --
Other liabilities 61 45
Distributions payable 141 141
5,425 186
Partners' (Deficit) Capital
General partner (372) (407)
Limited partners (909,123.60 units issued and
outstanding) 15,459 12,017
15,087 11,610
$ 20,512 $ 11,796
Note: The balance sheet at December 31, 2001, 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 in the United States for complete financial statements.
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended Six Months Ended
June 30, June 30,
2002 2001 2002 2001
---- ---- ---- ----
Revenues:
Interest income on investment in Master
Loan to affiliate $ -- $ -- $ 1 $ 904
Reduction of provision for impairment
loss -- -- 3,800 --
Interest income on investments -- 6 -- 25
Total revenues -- 6 3,801 929
Expenses:
General and administrative 127 151 271 343
Interest 48 -- 53 --
Total expenses 175 151 324 343
Net (loss) income $ (175) $ (145) $ 3,477 $ 586
Net (loss) income allocated to general
partner (1%) $ (2) $ (1) $ 35 $ 6
Net (loss) income allocated to limited
partners (99%) (173) (144) 3,442 580
$ (175) $ (145) $ 3,477 $ 586
Net (loss) income per limited partnership
unit $ (0.19) $ (0.16) $ 3.79 $ 0.64
Distribution per limited partnership unit $ -- $ 1.24 $ -- $ 2.67
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CHANGES IN PARTNERS' (DEFICIT) CAPITAL
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 912,182 $ 1 $228,046 $228,047
======= == ======= =======
Partners' (deficit) capital
at December 31, 2000 909,124 $ (421) $ 13,038 $ 12,617
Net income for the six months
ended June 30, 2001 -- 6 580 586
Distributions to partners -- -- (2,428) (2,428)
Partners' (deficit) capital
at June 30, 2001 909,124 $ (415) $ 11,190 $ 10,775
Partners' (deficit) capital
at December 31, 2001 909,124 $ (407) $ 12,017 $ 11,610
Net income for the six months
ended June 30, 2002 -- 35 3,442 3,477
Partners' (deficit) capital at
June 30, 2002 909,124 $ (372) $ 15,459 $ 15,087
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Six Months Ended
June 30,
2002 2001
---- ----
Cash flows from operating activities:
Net income $ 3,477 $ 586
Adjustments to reconcile net income to net cash (used
in) provided by operating activities:
Reduction of provision for impairment loss (3,800) --
Change in accounts:
Accounts receivable 100 --
Accounts payable -- (1)
Due to affiliates 53 --
Other liabilities 16 18
Net cash (used in) provided by operating
activities (154) 603
Cash flows from investing activities:
Advances on Master Loan (5,408) --
Principal receipts on Master Loan 52 72
Net cash (used in) provided by investing
activities (5,356) 72
Cash flows from financing activities:
Proceeds from advances from affiliates 5,270 --
Principal payments on advances from affiliates (100) --
Distributions to partners -- (2,428)
Net cash provided by (used in) financing
activities 5,170 (2,428)
Net decrease in cash and cash equivalents (340) (1,753)
Cash and cash equivalents at beginning of period 381 2,143
Cash and cash equivalents at end of period $ 41 $ 390
See Accompanying Notes to Financial Statements
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" or "Registrant") 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 six month periods ended June 30, 2002, are not necessarily indicative
of the results that may be expected for the fiscal year ending December 31,
2002. For further information, refer to the financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-K for the year
ended December 31, 2001. The General Partner is a subsidiary of Apartment
Investment and Management Company ("AIMCO"), a publicly traded real estate
investment trust.
Note B - Related Party Transactions
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
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.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $197,000 and $252,000 for the
six months ended June 30, 2002 and 2001, respectively, which is included in
general and administrative expenses.
In accordance with the Partnership Agreement, the General Partner has loaned the
Partnership approximately $5,270,000 during the six months ended June 30, 2002
so that the Partnership could make advances on a non-recourse note with a
participation interest (see "Note C") to assist in the reconstruction of
Glenbridge Manor Apartments (formerly known as Village Brook Apartments). Of
this $5,270,000, the Partnership paid approximately $100,000 in principal
payments during the six months ended June 30, 2002. Interest is charged at the
prime rate plus 2%. Interest expense was approximately $53,000 for the six
months ended June 30, 2002.
Note C - Net Investment in Master Loan
The Partnership was formed for the benefit of its limited partners to lend funds
to Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2"), a California
general partnership. The general partner of CCEP/2 is an affiliate of the
General Partner. The Partnership loaned funds to CCEP/2 subject to a
non-recourse note with a participation interest (the "Master Loan"). The loans
were made to, and the real properties that secure the Master Loan were purchased
and are owned by, Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2").
At June 30, 2002, the recorded investment in the Master Loan is considered to be
impaired under "Statement of Financial Accounting Standards 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 six months ended June 30, 2002, the Partnership recorded
approximately $3,800,000 in income based upon an increase in the fair value of
the collateral. The increase in the fair value of the collateral is due to the
reconstruction of Glenbridge Manor Apartments. For the six month period ended
June 30, 2001, there was no change in the fair value of the collateral and
accordingly no income was recognized.
The fair value of all of the collateral properties, which on a combined basis
secure the Master Loan, was determined by obtaining an appraisal by an
independent third party or by using the net operating income of all of the
collateral properties capitalized at a rate deemed reasonable for the type of
property adjusted for market conditions, physical condition of each respective
property, and other factors, less the value of the first mortgage loans held on
each property which are superior to the Master Loan. 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 principal balance of the Master Loan due to the Partnership totaled
approximately $44,779,000 at June 30, 2002. Interest, calculated on the accrual
basis, due to the Partnership pursuant to the terms of the Master Loan
Agreement, but not recognized in the income statements due to the impairment of
the loan, totaled approximately $14,780,000 and $12,438,000 for the six months
ended June 30, 2002 and 2001, respectively. Interest income is recognized on the
cash basis in accordance with SFAS 114. At June 30, 2002 and December 31, 2001,
such cumulative unrecognized interest totaled approximately $264,499,000 and
$249,719,000 and was not included in the balance of the investment in Master
Loan. The allowance for possible losses totaled approximately $24,329,000 and
$28,129,000 at June 30, 2002 and December 31, 2001, respectively.
During the six months ended June 30, 2002, the Partnership advanced
approximately $5,408,000 on the Master Loan to CCEP/2 to cover reconstruction
costs of Glenbridge Manor Apartments. During the six months ended June 30, 2002
and 2001, the Partnership received approximately $52,000 and $72,000,
respectively, as principal payments on the Master Loan consisting of funds
received by CCEP/2 from certain investments. These funds are required to be
transferred to the Partnership under the terms of the Master Loan.
The Master Loan matured in November 2000. The General Partner had been
negotiating with CCEP/2 with respect to its options which included foreclosing
on the properties that collateralize the Master Loan or extending the terms of
the Master Loan. The General Partner has decided to foreclose on the properties
that collaterize the Master Loan. During the six months ended June 30, 2002, the
Partnership Agreement was amended to allow the Partnership to directly or
indirectly own investment properties. The General Partner began the process of
executing deeds in lieu of foreclosure during the second quarter of 2002 on the
three active properties of CCEP/2. The deed in lieu of foreclosure on the fourth
property, which is currently being rebuilt, will be executed at a later date. As
the deeds are executed, title in the properties currently owned by CCEP/2 will
be vested in the Partnership, subject to the existing liens on such properties
including the first mortgage loans. As a result, the Partnership will become
responsible for the operations of such properties.
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 General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
UNAUDITED CONSOLIDATED FINANCIAL STATEMENTS
FOR THE SIX MONTHS ENDED
June 30, 2002 and 2001
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT OF NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
June 30, 2002
Assets
Cash and cash equivalents $ 1,342
Receivables and deposits 224
Restricted escrows 105
Other assets 90
Investment in affiliated partnerships (Note D) 1,371
Investment properties 36,414
39,546
Liabilities
Liabilities
Accounts payable 2,262
Accrued property taxes 363
Tenant security deposit liabilities 109
Other liabilities 202
Mortgage notes payable 15,900
Master loan and interest payable 20,710
39,546
Net liabilities in liquidation $ --
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF CHANGES IN NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
Three Months Ended June 30, 2002
Net liabilities in liquidation at March 31, 2002 $ --
Changes in net liabilities in liquidation attributed to:
Increase in cash and cash equivalents 616
Increase in receivables and deposits 20
Decrease in other assets (45)
Increase in investment properties 4,934
Increase in accounts payable (892)
Decrease in accrued property taxes 50
Increase in tenant security deposits (2)
Decrease in other liabilities 88
Decrease in mortgage notes payable 98
Increase in Master Loan and interest payable (4,867)
- ------
Net liabilities in liquidation at June 30, 2002 $ --
===
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED BALANCE SHEET
(Unaudited)
(in thousands)
December 31,
2001
(Note)
Assets
Cash and cash equivalents $ 1,307
Receivables and deposits 210
Restricted escrows 104
Other assets 416
Investment properties:
Land 2,731
Buildings and related personal property 20,617
-- ------
23,348
Less accumulated depreciation (13,615)
- -------
9,733
$ 11,770
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 328
Accrued property taxes 535
Tenant security deposit liabilities 109
Other liabilities 194
Mortgage notes 16,094
Master loan and interest payable 289,142
- -------
306,402
Partners' Deficit
General partner (2,932)
Limited partners (291,700)
--------
(294,632)
$ 11,770
Note: The balance sheet at December 31, 2001, has been derived from the audited
consolidated financial statements at that date, but does not include all
the information and footnotes required by accounting principles generally
accepted in the United States for complete financial statements.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands)
Three Months Ended Six Months Ended
March 31, June 30, June 30,
2002 2001 2001
Revenues:
Rental income $ 1,124 $ 1,131 $ 2,257
Other income 132 184 317
Total revenues 1,256 1,315 2,574
Expenses:
Operating 428 432 912
General and administrative 76 31 111
Depreciation 301 297 590
Interest 7,652 6,984 13,984
Property taxes 112 106 224
Total expenses 8,569 7,850 15,821
Net loss $(7,313) $(6,535) $(13,247)
Net loss allocated to general partner (1%) $ (73) $ (65) $ (132)
Net loss allocated to limited partners (99%) (7,240) (6,470) (13,115)
$(7,313) $(6,535) $(13,247)
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENTS OF PARTNERS' DEFICIT/NET LIABILITIES IN LIQUIDATION
(Unaudited)
(in thousands)
General Limited
Partner Partners Total
Partners' deficit at
December 31, 2000 $(2,670) $(265,744) $(268,414)
Net loss for the six months
ended June 30, 2001 (132) (13,115) (13,247)
Partners' deficit at
June 30, 2001 $(2,802) $(278,859) $(281,661)
Partners' deficit at
December 31, 2001 $(2,932) $(291,700) $(294,632)
Net loss for the three months
ended March 31, 2002 (73) (7,240) (7,313)
Partners' deficit at
March 31, 2002 $(3,005) $(298,940) (301,945)
Adjustment to liquidation basis
(Note C) 301,945
Net liabilities in liquidation
at March 31, 2002 $ --
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
CONSOLIDATED STATEMENT OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Six Months
Ended Ended
March 31, 2002 June 30, 2001
Cash flows from operating activities:
Net loss $ (7,313) $(13,247)
Adjustments to reconcile net loss to net cash
provided by (used in) operating activities:
Depreciation 301 590
Amortization of loan costs 5 21
Change in accounts:
Receivables and deposits 6 245
Other assets (179) (55)
Accounts payable 487 27
Accrued property taxes (122) (157)
Tenant security deposit liabilities (2) 5
Other liabilities 96 (24)
Interest on Master Loan 7,339 12,438
Net cash provided by (used in) operating
activities 618 (157)
Cash flows from investing activities:
Net (deposits to) withdrawals from restricted escrows (1) 298
Property improvements and replacements (1,933) (762)
Net cash used in investing activities (1,934) (464)
Cash flows from financing activities:
Advances on Master Loan 831 --
Principal payments on mortgage notes payable (96) (172)
Principal payments on Master Loan -- (72)
Net cash provided by (used in) financing
activities 735 (244)
Net decrease in cash and cash equivalents (581) (865)
Cash and cash equivalents at beginning of period 1,307 2,972
Cash and cash equivalents at end of period $ 726 $ 2,107
Supplemental disclosure of cash flow information:
Cash paid for interest $ 306 $ 1,507
Supplemental disclosure of non-cash activity:
Property improvements and replacements in accounts
payable $ 985 $ --
At March 31, 2002 and December 31, 2001, accounts payable and property
improvements and replacements were adjusted by approximately $430,000.
See Accompanying Notes to Consolidated Financial Statements
CONSOLIDATED CAPITAL EQUITY PARTNERS/TWO, L.P.
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
On March 31, 2002, Consolidated Capital Equity Partners/Two, L.P. ("CCEP/2")
adopted the liquidation basis of accounting due to the Partnership receiving
notification from Consolidated Capital Institutional Properties/2 ("CCIP/2"),
the holder of the nonrecourse note ("Master Loan") and a related party, of its
intention to exercise its remedy under the Master Loan Agreement and to execute
deeds in lieu of foreclosure on the investment properties held by the
Partnership. The Master Loan matured in November 2000. The Partnership does not
have the means with which to satisfy its obligation under the Master Loan. No
other sources of additional financing have been identified by the Partnership,
nor does Concap Holdings, Inc. (the "General Partner") have any other plans to
remedy the liquidity problems the Partnership is currently experiencing. Upon
completion of the execution of the deeds in lieu of foreclosure, the Partnership
will cease to exist as a going concern and will be dissolved. The General
Partner is ultimately owned by Apartment Investment and Management Company
("AIMCO"), a publicly traded real estate investment trust.
As a result of the decision to liquidate the Partnership, the Partnership
changed its basis of accounting for its consolidated financial statements at
March 31, 2002, to the liquidation basis of accounting. Consequently, assets
have been valued at estimated net realizable value and liabilities are presented
at their estimated settlement amounts, including estimated costs associated with
completing the liquidation and estimated operations of the investment
properties. The valuation of assets and liabilities necessarily requires many
estimates and assumptions and there are substantial uncertainties in carrying
out the liquidation. The actual realization of assets and settlement of
liabilities could be higher or lower than amounts indicated and is based upon
estimates of the General Partner as of the date of the consolidated financial
statements.
Note B - Casualty Event
In April 1999, one of the Partnership's residential properties, Glenbridge Manor
Apartments (formerly known as Village Brooke), was completely destroyed by a
tornado. It is estimated that the property sustained approximately $16,000,000
in damages. As of June 30, 2002, $11,302,000 in insurance proceeds have been
received. These proceeds were used to repay the first mortgage and to pay down
the Master Loan. All of the property's fixed assets and related accumulated
depreciation were written off as a result of this casualty. The General Partner
began reconstruction of the property during the third quarter of 2001 and the
project is expected to be completed in the first quarter of 2003. The ultimate
remaining insurance proceeds to be received is currently being disputed by the
insurance carrier and the Partnership. The Partnership is seeking an additional
$3,500,000, however, there can be no assurance that any additional amounts will
be received. The Partnership's General Partner is working with the insurance
companies to resolve this matter.
Note C - Adjustment to Liquidation Basis of Accounting
At March 31, 2002, in accordance with the liquidation basis of accounting,
assets were adjusted to their estimated net realizable value and liabilities
were adjusted to their estimated settlement amount. The net adjustment required
to convert to the liquidation basis of accounting was a decrease in net
liabilities of approximately $301,945,000 which is included in the Statement of
Changes in Partners' Deficit/Net Liabilities In Liquidation. The adjustments are
summarized as follows:
Increase in
Net Assets
----------
(in thousands)
Adjustment of book value of property and
improvements to estimated net realizable value $ 19,560
Adjustment for estimated net realizable value of
investment in affiliated partnerships 1,371
Adjustment of master loan and accrued interest to
estimated settlement amount 281,469
Adjustment of other assets and liabilities, net (455)
Decrease in net liabilities $301,945
Note D - Investment in Affiliated Partnerships
The Partnership has investments in the following affiliated partnerships:
Estimated
Ownership Net Realizable
Partnership Type of Ownership Percentage Value
Consolidated Capital Non-controlling
Growth Fund General Partner 0.40% $ 47
Consolidated Capital Non-controlling
Properties III General Partner 1.85% 27
Consolidated Capital Non-controlling
Properties IV General Partner 1.85% 1,297
-----
$1,371
Prior to the adoption of the liquidation basis of accounting, the Partnership
did not recognize an investment in these affiliated partnerships in its
consolidated financial statements as these investment balances had been reduced
to zero as a result of the receipt of distributions from the affiliated
partnerships in prior periods exceeding the investment balance of the
Partnership. However, due to the adoption of the liquidation basis of
accounting, the investments in these affiliated partnerships have been valued at
their estimated fair value and included in the Consolidated Statement of Net
Liabilities in Liquidation as of June 30, 2002.
Note E - Related Party Transactions
CCEP/2 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. CCEP/2 paid property management fees
based upon collected gross rental revenues for property management services for
the six months ended June 30, 2002 and 2001. 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.
During the six months ended June 30, 2002 and 2001, affiliates of the General
Partner were entitled to receive 5% of gross receipts from the Registrant's
residential properties for providing property management services. The
Registrant paid to such affiliates approximately $125,000 and $124,000 for the
six months ended June 30, 2002 and 2001, respectively.
An affiliate of the General Partner received investment advisory fees amounting
to approximately $19,000 and $43,000 for the six months ended June 30, 2002 and
2001, respectively.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $97,000 and $85,000 for the
six months ended June 30, 2002 and 2001, respectively. Included in these amounts
are fees related to construction management services provided by an affiliate of
the General Partner of approximately $16,000 and $1,000 for the six months ended
June 30, 2002 and 2001, respectively. The construction management service fees
are calculated based on a percentage of current year additions to the investment
properties.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the General Partner. During the six months ended June 30, 2002
and 2001, the Partnership was charged by AIMCO and its affiliates approximately
$98,000 and $106,000, respectively, for insurance coverage and fees associated
with policy claims administration.
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. Such interest payments totaled approximately $904,000 for
the six months ended June 30, 2001. CCEP/2 made no interest payments during the
six months ended June 30, 2002. These payments were based upon the results of
operations for the Partnership's properties. CCEP/2 made principal payments on
the Master Loan of $52,000 and $72,000 during the six months ended June 30, 2002
and 2001, respectively. These funds were received from distributions from three
affiliated partnerships.
Note F - Master Loan and Accrued Interest Payable
Prior to the adjustments for the liquidation basis, the Master Loan principal
and accrued interest payable balances at June 30, 2002 was approximately
$308,729,000. At December 31, 2001, the Master Loan principal and accrued
interest payable balance was approximately $289,142,000.
Until the deeds in lieu of foreclosure are executed, interest will accrue 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 capital improvements and 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 General Partner has been in negotiations with CCIP/2 with respect to its
options which include CCIP/2 foreclosing on the properties in CCEP/2 which
collateralize the Master Loan or extending the terms of the Master Loan. CCIP/2
has decided to foreclose on the properties that collaterize the Master Loan.
During the six months ended June 30, 2002, the Partnership Agreement of CCIP/2
was amended to allow CCIP/2 to directly or indirectly own investment properties.
CCIP/2 began the process of executing deeds in lieu of foreclosure during the
second quarter of 2002 on the three active properties of the Partnership. The
deed in lieu of foreclosure on the fourth property, which is currently being
rebuilt (see "Note B"), will be executed at a later date. As the deeds are
executed, title in the properties currently owned by the Partnership will be
vested in CCIP/2, subject to the existing liens on the properties including the
first mortgage loans. When the Partnership no longer has title to the
properties, it will be dissolved.
During the six months ended June 30, 2002, CCIP/2 advanced approximately
$5,408,000 on the Master Loan to the Partnership to cover reconstruction costs
of Glenbridge Manor Apartments.
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 G - 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 General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for class certification and took
the matter under submission after further briefing, as ordered by the court, was
submitted by the parties. On July 10, 2002, the Court entered an order vacating
the current trial date of January 13, 2003 (as well as the pre-trial and
discovery cut-off dates) and stayed the case in its entirety through November 7,
2002 so that the parties can have an opportunity to discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2.MANAGEMENT'S DISCUSSION AND ANALYSIS OF FINANCIAL CONDITION AND RESULTS
OF OPERATIONS
The matters discussed in this Form 10-Q contain certain forward-looking
statements and involve risks and uncertainties (including changing market
conditions, competitive and regulatory matters, etc.) detailed in the
disclosures contained in this Form 10-Q and the other filings with the
Securities and Exchange Commission made by the Partnership from time to time.
The discussion of the Partnership's business and results of operations,
including forward-looking statements pertaining to such matters, does not take
into account the effects of any changes to the Partnership's business and
results of operations. Accordingly, actual results could differ materially from
those projected in the forward-looking statements as a result of a number of
factors, including those identified herein.
Results of Operations
The Partnership's net income for the six months ended June 30, 2002 and 2001 was
approximately $3,477,000 and $586,000, respectively. The Partnership's net loss
for the three months ended June 30, 2002 and 2001 was approximately $175,000 and
$145,000, respectively. Net income increased for the six months ended June 30,
2002 primarily due to an increase in total revenues and a decrease in total
expenses. The increase in total revenues is due to an increase in the reduction
of impairment loss on the investment in the Master Loan partially offset by a
decrease in interest income on the investment in the Master Loan and a decrease
in interest income. Interest income on the investment in the Master Loan
decreased as a result of a decrease in excess cash flow payments received from
CCEP/2. Interest income on investments decreased primarily due to a decrease in
the balance maintained in interest bearing cash accounts.
The decrease in total expenses for the six months ended June 30, 2002, is due to
a decrease in general and administrative expense offset by an increase in
interest expense. Interest expense increased due to accrued interest on loans
advanced by the General Partner during 2002.
The net loss for the three months ended June 30, 2002 increased due to an
increase in total expenses and a decrease in total revenues. Total expenses
increased due to an increase in interest expense, offset by a decrease in
general and administrative expenses. Interest expense increased due to accrued
interest on loans advanced by the General Partner during 2002.
General and administrative expenses decreased for the three and six months ended
June 30, 2002 due to a decrease in the costs of services included in the
management reimbursements to the General Partner as allowed under the
Partnership Agreement. Also included in the general and administrative expenses
for the three and six months ended June 30, 2002 and 2001, are costs associated
with the quarterly and annual communications with investors and regulatory
agencies and the annual audit required by the Partnership Agreement.
Liquidity and Capital Resources
At June 30, 2002, the Partnership had cash and cash equivalents of approximately
$41,000 as compared to approximately $390,000 at June 30, 2001. The decrease in
cash and cash equivalents of approximately $340,000 for the six months ended
June 30, 2002, from the Partnership's calendar year end is due to approximately
$5,356,000 and $154,000 of cash used in investing and operating activities,
respectively, which was partially offset by approximately $5,170,000 of cash
provided by financing activities. Cash used in investing activities consisted of
advances on the Master Loan slightly offset by principal receipts on the Master
Loan. Cash provided by financing activities consisted of loans from an affiliate
of the General Partner partially offset by payments on the loan from affiliates.
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 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" below for discussion on CCEP/2's ability to
provide future cash flow as Master Loan debt service.
The Partnership distributed the following amounts during the six months ended
June 30, 2002 and 2001 (in thousands, except per unit data):
Six Months Per Limited Six Months Per Limited
Ended Partnership Ended Partnership
June 30, 2002 Unit June 30, 2001 Unit
Refinancing (1) $ -- $ -- $1,299 $ 1.43
Surplus cash (2) -- -- 1,129 1.24
$ -- $ -- $2,428 $ 2.67
(1) Proceeds from refinancing of CCEP/2 properties.
(2) Receipt of interest income on Master Loan.
Until the deeds in lieu of foreclosure are executed, future cash distributions
will depend on CCEP/2's ability to make payments on the account of the Master
Loan and the availability of cash reserves. 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 to permit
any distributions to its partners during the remainder of 2002 or subsequent
periods.
During the six months ended June 30, 2002 and 2001, the Partnership received
approximately $52,000 and $72,000, respectively, as principal payments on the
Master Loan consisting of funds received by CCEP/2 from certain investments.
These funds are required to be transferred to the Partnership under the terms of
the Master Loan.
CCEP/2 Property Operations
CCIP/2 has decided to foreclose on the properties that collaterize the Master
Loan. During the six months ended June 30,2002, the Partnership Agreement of
CCIP/2 was amended to allow CCIP/2 to directly or indirectly own investment
properties. CCIP/2 began the process of executing deeds in lieu of foreclosure
during the second quarter of 2002 on the three active properties of CCEP/2. The
deed in lieu of foreclosure on the fourth property, which is currently being
rebuilt, will be executed at a later date. As the deeds are executed, title in
the properties currently owned by CCEP/2 will be vested in CCIP/2, subject to
the existing liens on the properties including the first mortgage loans. When
CCEP/2 no longer has title to the properties, it will be dissolved.
As a result of the decision to liquidate, CCEP/2 changed its basis of accounting
for its financial statements at March 31, 2002, to the liquidation basis of
accounting. Consequently, assets have been valued at estimated net realizable
value and liabilities are presented at their estimated settlement amounts. The
valuation of assets and liabilities necessarily requires many estimates and
assumptions and there are substantial uncertainties in carrying out the
liquidation. The actual realization of assets and settlement of liabilities
could be higher or lower than amounts indicated and is based upon estimates of
the General Partner of CCEP/2 as of the date of the consolidated financial
statements.
During the three months ended June 30, 2002, the net change in liabilities
remained constant, but was affected by an increase in cash and cash equivalents,
investment properties, and the Master Loan and interest. The increase in cash
and cash equivalents is primarily due to the operating cash generated by the
Partnership's investment properties and advances on the Master Loan from CCIP/2.
The increase in the investment properties is due to fixed asset additions. The
increase in the Master Loan is due to the advances received and the increases in
interest payable due on the Master Loan.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 449,585.80 limited partnership units
in the Partnership representing 49.48% of the outstanding units at June 30,2002.
A number of these units were acquired pursuant to tender offers made by AIMCO or
its affiliates. It is possible that AIMCO or its affiliates will acquire
additional units of limited partnership interest in the Partnership in exchange
for cash or a combination of cash and units in the operating partnership of
AIMCO either through private purchases or tender offers. In this regard, on June
25, 2002, a tender offer by AIMCO Properties, L.P., to acquire any and all of
the Units not owned by affiliates of AIMCO for a purchase price of $6.00 per
Unit expired. Pursuant to this offer, AIMCO acquired 18,203.80 Units during the
quarter ended June 30, 2002. Under the Partnership Agreement, unitholders
holding a majority of the Units are entitled to take action with respect to a
variety of matters, which would include voting on certain amendments to the
Partnership Agreement and voting to remove the General Partner. As a result of
its ownership of 49.48% of the outstanding units, AIMCO is in a position to
influence all such voting decisions with respect to the Registrant. Although the
General Partner owes fiduciary duties to the limited partners of the
Partnership, the General Partner also owed fiduciary duties to AIMCO as its sole
stockholder. As a result, the duties of the General Partner, as general partner,
to the Partnerships and its limited partners may come into conflict with the
duties of the General Partner to AIMCO, as its sole stockholder.
Critical Accounting Policies and Estimates
The 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.
Investment in Master Loan to Affiliated and Interest Income Recognition
The investment in the Master Loan is evaluated for impairment based upon the
fair value of the collateral properties as the collateral is the sole basis of
repayment of the loan. The fair value of the collateral properties is determined
by either an appraisal from an independent third party or by using the net
operating income of each collateral property, capitalized at a rate deemed
reasonable for the type of
property, adjusted for market conditions, physical condition and other factors,
less the value of the first mortgage loans on each collateral property which are
superior to the Master Loan. If the fair value of a collateral property
increases or decreases for other than temporary conditions, than the allowance
on the Master Loan is adjusted appropriately.
The investment in the Master Loan is considered to be impaired under Statement
of Financial Accounting Standard No. 114, "Accounting by Creditors for
Impairment of a Loan". Due to this impairment, interest income is recognized on
the cash basis of accounting.
Item 3. Quantitative and Qualitative Disclosures about Market Risk Factors
The Partnership is exposed to market risks associated with its Master Loan to
Affiliate ("Loan"). Receipts (interest income) on the Loan are based upon the
operations and cash flow of the underlying investment properties that
collateralize the Loan. Both the income and expenses of operating the investment
properties are subject to factors outside the Partnership's control, such as an
oversupply of similar properties resulting from overbuilding, increases in
unemployment or population shifts, reduced availability of permanent mortgage
financing, changes in zoning laws, or changes in the patterns or needs of users.
The investment properties are also susceptible to the impact of economic and
other conditions outside of the control of the Partnership as well as being
affected by current trends in the market area in which they operate. In this
regard, the General Partner of the Partnership closely monitors the performance
of the properties collateralizing the Loan.
Based upon the fact that the Loan is considered impaired under Statement of
Financial Accounting Standards No. 114, "Accounting by Creditor for Impairment
of a Loan", interest rate fluctuations do not affect the recognition of income,
as income is only recognized to the extent of cash flow. Therefore, market risk
factors do not affect the Partnership's results of operations as it relates to
the Loan.
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 General Partner and several of
their affiliated partnerships and corporate entities. The action purports to
assert claims on behalf of a class of limited partners and derivatively on
behalf of a number of limited partnerships (including the Partnership) which are
named as nominal defendants, challenging, among other things, the acquisition of
interests in certain General Partner entities by Insignia Financial Group, Inc.
("Insignia") and entities which were, at one time, affiliates of Insignia; past
tender offers by the Insignia affiliates to acquire limited partnership units;
management of the partnerships by the Insignia affiliates; and the series of
transactions which closed on October 1, 1998 and February 26, 1999 whereby
Insignia and Insignia Properties Trust, respectively, were merged into AIMCO.
The plaintiffs seek monetary damages and equitable relief, including judicial
dissolution of the Partnership. On June 25, 1998, the General Partner filed a
motion seeking dismissal of the action. In lieu of responding to the motion, the
plaintiffs filed an amended complaint. The General Partner filed demurrers to
the amended complaint which were heard February 1999.
Pending the ruling on such demurrers, settlement negotiations commenced. On
November 2, 1999, the parties executed and filed a Stipulation of Settlement,
settling claims, subject to court approval, on behalf of the Partnership and all
limited partners who owned units as of November 3, 1999. Preliminary approval of
the settlement was obtained on November 3, 1999 from the Court, at which time
the Court set a final approval hearing for December 10, 1999. Prior to the
December 10, 1999 hearing, the Court received various objections to the
settlement, including a challenge to the Court's preliminary approval based upon
the alleged lack of authority of prior lead counsel to enter the settlement. On
December 14, 1999, the General Partner and its affiliates terminated the
proposed settlement. In February 2000, counsel for some of the named plaintiffs
filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated
the settlement. On June 27, 2000, the Court entered an order disqualifying them
from the case and an appeal was taken from the order on October 5, 2000. On
December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann &
Bernstein LLP as new lead counsel for plaintiffs and the putative class.
Plaintiffs filed a third amended complaint on January 19, 2001. On March 2,
2001, the General Partner and its affiliates filed a demurrer to the third
amended complaint. On May 14, 2001, the Court heard the demurrer to the third
amended complaint. On July 10, 2001, the Court issued an order sustaining
defendants' demurrer on certain grounds. On July 20, 2001, Plaintiffs filed a
motion for reconsideration of the Court's July 10, 2001 order granting in part
and denying in part defendants' demurrer. On September 7, 2001, Plaintiffs filed
a fourth amended class and derivative action complaint. On September 12, 2001,
the Court denied Plaintiffs' motion for reconsideration. On October 5, 2001, the
General Partner and affiliated defendants filed a demurrer to the fourth amended
complaint, which was heard on December 11, 2001. On February 2, 2002, the Court
served its order granting in part the demurrer. The Court has dismissed without
leave to amend certain of the plaintiffs' claims. On February 11, 2002,
plaintiffs filed a motion seeking to certify a putative class comprised of all
non-affiliated persons who own or have owned units in the partnerships. The
General Partner and affiliated defendants oppose the motion. On April 29, 2002,
the Court held a hearing on plaintiffs' motion for
class certification and took the matter under submission after further briefing,
as ordered by the court, was submitted by the parties. On July 10, 2002, the
Court entered an order vacating the current trial date of January 13, 2003 (as
well as the pre-trial and discovery cut-off dates) and stayed the case in its
entirety through November 7, 2002 so that the parties can have an opportunity to
discuss settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. The parties are currently in the midst of briefing that appeal.
The General Partner does not anticipate that any costs, whether legal or
settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3(a), Certificates of Limited Partnership (incorporated by
reference to Registration Statement of Partnership (File No. 2-83540)
filed July 22, 1983, as amended to date).
Exhibit 3(b), Agreement of Limited Partnership (Exhibit A to the Prospectus
of Registrant dated May 6, 1983, is incorporated herein by reference).
Exhibit 3(c), Fourth Amendment to Amended and Restated Limited Partnership
Agreement of Consolidated Capital Institutional Properties/2 (Exhibit
3.2 to the Registrant's Annual Report on Form 10-K for the year ended
December 31, 2001, is incorporated herein by reference).
Exhibit 99, Certification of Chief Executive Officer and Chief Financial
Officer.
b) Reports on Form 8-K filed during the quarter ended June 30, 2002:
None.
SIGNATURES
Pursuant to the requirements of the Securities Exchange Act of 1934, the
registrant has duly caused this report to be signed on its behalf by the
undersigned, thereunto duly authorized.
CONSOLIDATED CAPITAL INSTITUTIONAL PROPERTIES/2
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: August 14, 2002
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-Q of Consolidated Capital
Institutional Properties/2 (the "Partnership"), for the quarterly period ended
June 30, 2002 as filed with the Securities and Exchange Commission on the date
hereof (the "Report"), Patrick J. Foye, as the equivalent of the Chief Executive
Officer of the Partnership, and Paul J. McAuliffe, as the equivalent of the
Chief Financial Officer of the Partnership, each hereby certifies, pursuant to
18 U.S.C. Section 1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley
Act of 2002, that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/Patrick J. Foye
Name: Patrick J. Foye
Date: August 14, 2002
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: August 14, 2002
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.