JCM PARTNERS LLC - 10-K Annual Report

Securities registered pursuant to Section 12(g) of the Act: Class 1 Units


	(Title of Class)

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 þ No o

Indicate by check mark if disclosure of delinquent filers pursuant to Item 405 of Regulation S-K is not contained herein, and will not be contained, to the best of registrant’s knowledge, in definitive proxy or information statements incorporated by reference in Part III of this Form 10-K or any amendment to this Form 10-K. o

Indicate by check mark whether the registrant is an accelerated filer (as defined in Exchange Act Rule 12b-2). Yes o No þ

State the aggregate market value of the voting and non-voting common equity held by non-affiliates of the registrant: Not applicable, since the registrant has no established trading market.

Indicate by check mark whether the registrant has filed all documents and reports required to be filed by Section 12, 13 or 15(d) of the Securities Exchange Act of 1934 subsequent to the distribution of securities under a plan confirmed by a court. Yes o No þ⁽¹⁾

As of March 30, 2004, the registrant had the following Classes of Units outstanding of which the following number of Units were owned by a wholly owned subsidiary of the Company:

Portions of the registrant’s Definitive Proxy Statement to be held in conjunction with registrant’s annual meeting of members to be held in June 2004 are incorporated by reference into Part III.

Certain information included in this Annual Report contains or may contain forward-looking statements within the meaning of Section 27A of the Securities Act of 1933, as amended (the “Securities Act”), and Section 21E of the Securities Exchange Act of 1934, as amended (the “Exchange Act”). Forward-looking statements are typically identified by words or phrases such as “believe,” “expect,” “intend,” and variations of such words and similar expressions, or future or conditional verbs such as “will,” “would,” “should,” “could,” “might,” or similar expressions. Forward-looking statements, including those relating to our business strategy, capital expenditures, refinancing activities, occupancy levels, financial performance, and liquidity and capital resources, are subject to risks and uncertainties. Actual results or outcomes may differ materially from those described in the forward-looking statements and will be affected by a variety of risks and factors. Those risks and factors include unanticipated adverse business developments affecting us or our properties, adverse changes in the real estate markets, increases in interest rates, increased competition, changes in general and local economies, and federal, state and local governmental regulations that affect us. Forward-looking statements speak only as of the date they are made, and we assume no duty to update them.

JCM Partners, LLC, a Delaware limited liability company (“JCM Partners”, “JCM” or the “Company”), was organized on May 15, 2000. We are the reorganized entity which emerged from the bankruptcy proceedings in the United States Bankruptcy Court for the Eastern District of California entitled In re IRM Corporation, et al. (the “IRM entities”), Case Number 98-32231-A-11. Pursuant to a plan of reorganization confirmed on June 5, 2000, all of the assets of the IRM entities were vested in our company. We commenced operations on June 30, 2000 pursuant to the confirmation order and the plan. Additional background information about the bankruptcy proceedings from which we emerged is set forth later in this Item 1 — Business, under “The IRM Bankruptcy Proceedings.”

We adopted “fresh start” accounting rules as of June 30, 2000 in accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization under the Bankruptcy Code.” Accordingly, all of the assets and liabilities of JCM Partners were reflected at their reorganization value, which approximated fair value at the date of the reorganization, June 30, 2000. As a result, our financial results during the period from June 30, 2000 to December 31, 2000 serve as benchmark data for future comparisons, but generally are not comparable to prior periods.

Our principal executive offices are located at 2151 Salvio Street, Suite 325, Concord, California, 94520.

JCM Partners is a limited liability company with activities related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities and commercial properties in California. Through our wholly-owned subsidiaries, we own 55 properties. Management’s strategy is to be a regional, highly efficient provider of quality apartment communities. We seek to be a market leader by operating a sufficiently sized portfolio of apartments within each of the markets in which we own properties in order to drive down operating costs through economies of scale and management efficiencies.

As of December 31, 2003, our real estate portfolio consisted of:


	•	46 apartment complexes with an aggregate of 5,361 units;
	•	two office/retail properties with 28 tenants and approximately 172,200 square feet;
	•	six industrial properties with 21 tenants and approximately 145,000 square feet; and
	•	one 16.7-acre site held for future development or sale.

All of our real estate assets are located in Northern California, primarily in the Sacramento Metropolitan Area, the Central Valley communities of Tracy, Manteca, Modesto, Turlock and Stockton and the San Francisco Bay Area.

We are subject to the risks inherent in the ownership of real property, such as fluctuating land values, interest rates, vacancy rates and rental values. Further, there could be difficulties in selling the properties as a result of general and local economic conditions, the condition of the properties, the demand for the properties and real property tax rates.

In addition, certain expenditures associated with real estate equity investments (principally, mortgage payments, real estate taxes, and maintenance costs) are not necessarily decreased by events adversely affecting our income from the properties. Thus, the cost of operating and holding the properties, or certain of them, may exceed the properties’ resale value and income producing ability, and we therefore may have to borrow funds in order to protect our investment or be required to dispose of the properties, or certain of them, at a loss. Our ability to meet our debt and other obligations, and thereafter to make distributions to our members in accordance with our Operating Agreement and Certificates of Designations, will depend on these and other factors. We are also subject to the rights of our Class 1 and Class 2 holders to require us to redeem their Units

Our Operating Agreement provides that the purposes of JCM Partners are:


	•	to own, exchange, manage, sell and dispose of our properties and to distribute the excess proceeds to the members or reinvest such excess proceeds in any type of investment,
	•	to engage in any other activities relating to, and compatible with, the purposes set forth above, and
	•	to take such other actions, or do such other things, as are necessary or appropriate as determined by the Board of Managers to carry out the provisions of our Operating Agreement.

We have focused our activities on those related to the ownership, development, acquisition, renovation, management, marketing and strategic disposition of multifamily apartment communities and commercial properties in California. We currently intend to continue this focus, but our Board of Managers could, without member approval, decide to engage in other activities. Similarly, our Board of Managers has broad discretion with respect to our investments and has the power to determine which types of investments are in the best interests of our Company and its members. Although we are not limited by our Operating Agreement, we currently intend to continue our focus on investing in apartment communities and commercial properties in California. We currently hold these properties primarily for capital appreciation and income. However, in connection with the redemption rights of the holders of our Class 1 and Class 2 Units, we may need to sell some of our properties. Although we do not have a policy as to the amount or percentage of assets which will be invested in any specific property, it is our intent to maintain a diversified portfolio of properties.

Except as described below, we have not adopted any formal policies regarding the extent to which we will engage in specific activities such as issuing senior securities, borrowing money, making loans, investing in the securities of other issuers for the purpose of exercising control, underwriting securities of other issuers, engaging in the purchase and sale (or turnover) of investments, offering securities in exchange for property, repurchasing or otherwise reacquiring our Units, or making annual or other reports to our members.

Under the terms of our Operating Agreement, we have the discretion to repurchase or otherwise reacquire Units from our members. In December 2001, our board of managers authorized us from time to time to repurchase Units from our members, although we are not obligated to do so. In March 2004, our Board of Managers modified our repurchase guidelines to allow us to repurchase up to $20 million of Units in any single month. In addition, under guidelines approved by our Board of Managers, we provide information to our members that allow them to contact each other in order to facilitate trading of Units among members. In 2003, through a wholly-owned subsidiary, we repurchased 3,715,074 Class 1 Units for an aggregate price of $4,841,000. From January 1, 2004 through March 30, 2004, through a wholly-owned subsidiary, we repurchased an additional 513,483 Class 1 Units for an aggregate price of $754,800; 19,657 Class 2 Units for an aggregate price of $28,900; and 105,508 Class 3 Units for an aggregate price of $155,100. As of March 30, 2004, our wholly owned subsidiary owned 10,861,214 Class 1 Units, 19,657 Class 2 Units and 105,508 Class 3 Units. During 2003, we did not have any outstanding Class 2 or 3 Units. Effective April 1, 2004, as our members convert their Units into different Classes of Units, we have a policy of converting Units held by our wholly-owned subsidiary into the same Class of Units, so that our wholly-owned subsidiary will proportionately own the same number of different Classes of Units as those owned by our members.

At its March 2004 Board meeting, our Board of Managers approved in concept our issuing Series B Preferred Units, which would be senior to Units with respect to certain payments to the Series B holders upon our liquidation or certain other liquidity events for our members. The Series B Preferred Units are intended to be issued in connection with our need to raise capital to finance the Class 1 Unit Put Right. The final terms of the Series B Preferred Units have not yet been established.

As of December 31, 2003, our apartment properties consisted of 46 apartment complexes located in the following counties: twenty-one in Sacramento County, five in Solano County, seven in Stanislaus County,

eight in San Joaquin County and five in Contra Costa County. The majority of these properties are classified as “second tier,” meaning that they are considered to be typically well located, older properties in average to good condition. Additional information about these properties can be found under “Item 2 — Properties.”

Revenues from our apartment properties result primarily from rents. These rents are required to be paid on a monthly basis. Our business strategy includes seeking to increase the cash flow generated by our apartment properties through rent increases upon tenant turnover and lease expiration, while maintaining high occupancy rates and prudent management of our operating expenses. Our ability to increase rents is subject to market conditions and general economic conditions. Accordingly, there can be no assurance that we will be able to implement our operating strategy successfully. Therefore, we do not institute such increases based on a pre-determined range, nor are such increases based on increased services and/ or renovations. We will generally make the increased cash flow, if any, available for our operating and capital expenses and cash distributions, but may offer some increased services and/ or renovations as determined by market conditions. The average occupancy rate of our apartment properties was 94.8% at December 31, 2003, 95.7% at December 31, 2002 and 94.6% at December 31, 2001.

In general, the tenants in our apartment properties enter into our standard form of lease, as modified, if necessary, to comply with local ordinances or custom. The term of these leases varies with market conditions, although six-month leases are most common. Generally, the leases provide that unless the parties agree in writing to a renewal, the tenancy will convert at the end of the lease term to a month-to-month tenancy, subject to the terms and conditions of the lease, unless either party gives the other at least 30 days’ prior notice of termination. All leases are terminable by us for nonpayment of rent, violation of property rules and regulations, or other defaults specified in the lease.

Approximately 60% of the tenants in our apartment properties leave each year, and rents are adjusted to reflect market conditions existing at the time any new rental relationship commences. As a result of the relatively short-term stay of the majority of our tenants, our apartment properties tend not to have long-term leases that lock in current market rates.

Our employees are responsible for marketing, maintenance and leasing activities at our apartment properties. These employees meet with prospective residents, show models, rent vacant units and strive to maintain contact with current tenants to monitor their level of satisfaction. From time to time, we have employed the services of, and paid customary fees to, apartment locator services and existing tenants for locating prospective tenants.

All of our apartment properties are located in developed areas that include other apartment properties serving comparable tenant populations. An increase in the number of competitive apartment properties in a particular area could have a material adverse effect on rents and our ability to maintain occupancy levels. Construction of a significant number of new apartment properties during the last two years in Sacramento and Solano Counties, combined with high unemployment, has had an adverse effect on rents and occupancy levels of our properties located in those counties. In addition, we compete with providers of other forms of multifamily residential properties and single-family housing. Buying or renting single-family housing was the reason given by 26% of residents who moved out of our apartment properties during 2003.

Our commercial properties consist of nine sites in Northern California, including the Concord, California building housing our executive offices. Our commercial properties are located in the following counties: six in Napa County; and one each in San Francisco County, Contra Costa County and Solano County. Additional information regarding our commercial properties can be found in “Item 2 — Properties.”

Except for a vacant lot, revenues from our commercial properties are derived primarily from commercial tenants’ rents and common area maintenance charges. The rents are payable monthly.

As with our apartment properties, we seek to increase cash flow at our commercial properties through periodic rent increases for existing tenants according to the terms of their leases, through rent increases at tenant turnover and lease expiration, by maintaining high occupancy rates and through prudent management of our

operating expenses. Our ability to increase rents is subject to market conditions and general economic conditions. Accordingly, there can be no assurance that we will be able to implement our operating strategy successfully. Currently, market rates upon lease expiration have been below our lease rates at some of our commercial properties. Therefore, we do not institute such increases based on a pre-determined range, nor based on increased services and/ or renovations. We will generally make the increased cash flow, if any, available for our operating and capital expenses and cash distributions. The average occupancy rate of our commercial properties was 75.4% as of December 31, 2003, 88.3% as of December 31, 2002 and 82.0% as of December 31, 2001.

We use a standard lease, modified at each property to the extent necessary to comply with local law or custom. The term of a lease varies with local market conditions, although multi-year leases with annual CPI rent increases are most common. Some of our leases include an option for the tenant to extend the term of the lease for an additional period. All leases are terminable by us for nonpayment of rent, violation of property rules and regulations, or other defaults specified in the lease.

In any given year, 6% to 25% of our existing commercial leases expire. Some tenants will exercise their option to extend the term of the lease, while others will sign a new lease and extend their tenancy for an additional multi-year period. Recently some tenants, mainly at our San Francisco property, have been vacating the premises upon expiration of their leases. Rents are adjusted to reflect market conditions for spaces that are vacated or when leases are renewed. Currently, market rates are below some of the rates of expiring leases. Rents are also adjusted to reflect any changes in rental rates associated with a lessee’s option to extend their lease.

Our employees are responsible for marketing, maintenance and leasing activities at the commercial properties. Prospective tenant leads are generated through our marketing program, which includes traditional advertising in newspapers, drive-by traffic and commercial real estate broker referrals. We strive to maintain contact with our existing commercial tenants to determine their level of satisfaction with property management and operations. We may employ the services of, and pay customary fees to, unaffiliated real estate brokers for leasing services and for locating prospective tenants.

All of our commercial properties are located in developed areas that include other commercial properties serving comparable tenant profiles. An increase in the number of competitive commercial properties in a particular area could have a material adverse effect on our ability to maintain current occupancy levels and on our ability to maintain or increase the rental rates applicable to the properties.

Each of our properties is covered by liability and casualty insurance provided by reputable companies and with commercially reasonable deductibles and limits, with such limits being equal to the replacement value of each property. Our management exercises its discretion in determining amounts, coverage limits and deductibility provisions of insurance, with a view to maintaining appropriate insurance on our investments at a reasonable cost and on suitable terms. Insurance costs for the apartment industry increased significantly after the events of September 11, 2001. By increasing our casualty loss deductible from $10,000 to $50,000 per claim, we were able to keep the costs of these insurance premiums from increasing on an annual basis effective November 1, 2003.

Where required by our lenders, flood insurance is obtained. However, we do not maintain earthquake insurance coverage due to the high premium cost. Accordingly, a loss resulting from earthquake damage could have a material adverse effect on our financial condition and our operating results. Even if a loss is covered by our insurance, our insurance coverage may not be sufficient to pay the full current market value or replacement cost of our lost investment. Inflation, changes in building codes and ordinances, environmental considerations and other factors also might make it infeasible to use insurance proceeds to replace a property after it has been damaged or destroyed.

As a general matter, concern about indoor exposure to mold has been increasing as such exposure has been alleged to have a variety of adverse health effects. As a result, there has been an increasing number of lawsuits

in our industry against owners and managers of apartment communities relating to moisture infiltration and resulting mold. Mold growth may occur when excessive moisture accumulates in buildings or on building materials, particularly if the moisture problem remains undiscovered or is not addressed over a period of time. To help limit mold growth, we educate residents about the importance of adequate ventilation and request or require that they notify us when they see mold or excessive moisture. We have established procedures for promptly addressing and remediating mold or excessive moisture from apartment homes when we become aware of its presence regardless of whether we or the resident believe a health risk is present. However, we cannot assure that mold or excessive moisture will be detected and remediated in a timely manner. If a significant mold problem arises at one of our communities, we could be required to undertake a costly remediation program to contain or remove the mold from the affected community and could be exposed to other liabilities.

The presence of, or the failure to remedy properly, mold or other hazardous substances may adversely affect both occupancy at affected apartment communities and also the ability to sell or finance the affected properties. In addition to the costs associated with investigation and remediation the presence of mold on a property could result in claims by private plaintiffs for personal injury, disease, disability or other infirmities.

The terms of our property and general liability policies exclude mold-related claims. Should an uninsured loss arise against the Company, we would be required to use our own funds to resolve the issue, including litigation costs. Therefore, we can make no assurance that future liabilities resulting from the presence of, or exposure to, mold will not have a material adverse effect on our financial condition or results of operations. To date, we have not incurred any material costs or liabilities relating to claims of mold exposure or to abatement of mold conditions. However, we are and have been party to alleged moisture infiltration and resulting mold lawsuits at some of our apartment properties. We believe these suits are without merit, nonetheless, in certain instances we have negotiated a settlement with certain of the plaintiffs in an effort to expedite the resolution of their claims and avoid potentially protracted litigation and associated attorney’s fees.

The tax issues associated with the ownership of Units of JCM Partners are extremely complex and are unique to each member’s own individual tax situation. The following summary of the tax laws may not be applicable to all of our members. Our members should consult their tax advisors concerning their individual tax situations with respect to the federal, state, local and foreign tax consequences arising from their ownership of JCM Partners Units.

Definitions for many of the terms used throughout this section can be found at the end of the section.

JCM is treated as a partnership for tax purposes. Therefore, the Company is not subject to federal income tax. Instead, it files an annual information return with the Internal Revenue Service. Each member is required to report on the member’s personal tax return the member’s share of each item of Company income, gain, loss, deduction and credit, if any. During the first quarter of each year, the Company provides each member with a Form K-1 that reports that member’s pro rata share of the Company’s income, gains and/ or losses for the previous calendar year. Each member is subject to tax on the member’s share of JCM income, even if no cash is distributed.

The amount of any loss or deduction that a member may use in computing the member’s tax liability is limited to the member’s adjusted basis in the member’s Units. In other words, a deduction cannot be taken if it would cause the member’s adjusted basis to become negative. Additionally, losses are limited to the amount “at risk” and the amount of income and loss from other passive activities.

The tax law restricts the ability of taxpayers to deduct losses derived from so-called “passive activities.” Passive activities generally include any activity involving a business in which the taxpayer does not actively participate — including membership in limited liability companies such as JCM. For almost all JCM members, their membership interest will be treated as a passive activity. Accordingly, JCM’s income and/ or loss will likely constitute passive income and/ or loss to its members.

Generally, losses from passive activities are deductible only to the extent the taxpayer has income or gains from other passive activities. Therefore, passive losses are not allowed to offset other income — such as salary, compensation for personal service, active business income, dividends, interest, royalties, annuities or gains from the sale of property held for investment. Passive losses that are not allowed in any tax year are suspended and carried forward indefinitely. Suspended losses may be used in future years to offset future passive income.

Upon the sale or transfer of a taxpayer’s entire interest in a passive activity in a taxable transaction to an unrelated person, suspended losses with respect to that activity will be allowed as a deduction against:


	(i)	First, any remaining income or gain from that activity, including gain recognized on such disposition; then

	(ii)	On income or gain for the taxable year from other passive activities; and finally

	(iii)	Any other non-passive income or gain.

IRS regulations provide that similar investments, which are under common control and owned by a pass-through entity such as JCM, are generally treated as a single investment. Accordingly, suspended losses derived from an investment in JCM would not be available to members to offset non-passive income from other sources until the sale of all Company properties has occurred or until a member disposed of the member’s entire interest in JCM.

The Company maintains a capital account for each member. This capital account is the beginning point in computing a member’s basis in the member’s JCM Units. A member’s adjusted basis in JCM is equal to the amount originally invested in IRM, plus the cumulative effect of all capital account adjustments reported annually to the investor by both IRM and JCM on Form K-1. More specifically, a member’s adjusted basis is the amount originally invested increased by:


	•	Any increases in a member’s allocable share of the Company’s non-recourse debt,
	•	The member’s allocable share of the Company’s taxable income, and
	•	Any additional contributions to the Company’s capital made by the member,


	•	The member’s allocable share of Company losses;
	•	The sum of all cash distributions made to the member; and
	•	Any decreases in a member’s share of the Company’s non-recourse debt.

Distributions in excess of a member’s adjusted basis generally will be treated as a gain from the sale of a member’s interest in the Company.

A Member may not deduct from the member’s income, losses in an amount exceeding the member’s adjusted basis. If, in any one tax year, a member’s share of Company losses exceeds the member’s adjusted basis at the end of that year, the excess losses must be carried forward and applied against gains in future years. In general, these suspended losses cease being deductible whenever the member’s adjusted basis drops below zero.

Non-recourse debt is any Company liability in which a member has a pro rata interest, but no personal responsibility (e.g. mortgages on JCM properties). Any increase in non-recourse liabilities is treated as a cash contribution and increases a member’s basis. Any decrease in non-recourse liabilities is treated as a cash distribution and decreases a member’s basis. These rules apply even though a member does not actually contribute or receive actual cash. Distributions in excess of a member’s adjusted basis generally will be treated as a gain from the sale of a member’s interest in the Company.

The gain or loss on the sale of a member’s Units is the difference between the sale amount and the member’s adjusted basis.

Generally, gain on the sale of Units that have been held for more than 12 months will be taxed as a long-term capital gain. For non-corporate taxpayers, long-term capital gains are taxed at special tax rates. For sales prior to May 6, 2003 and after December 31, 2008, long term capital gains are subject to a maximum rate of 20% (10% for individuals in the 10% or 15% tax bracket). A lower rate of 8% (for individuals in the 10% or 15% tax bracket) may apply when the Units were held for more than five years.

For sales after May 5, 2003 and before January 1, 2009, long-term capital gains are subject to a maximum rate of 15% (5% for individuals in the 10% or 15% tax brackets). For years beginning after December 31, 2007, the long-term capital gains rate is reduced to 0% for the 5% income tax brackets.

In the event of a loss, the amount of ordinary income against which an individual taxpayer may deduct a capital loss is the lower of $3,000 ($1,500 for a married taxpayer filing a separate return) or the amount of the loss.

There is a separate capital gains tax applied to “unrecaptured gain” as described in Section 1250 of the Internal Revenue Code. This class of gain includes real property that is subject to an allowance for depreciation. JCM has substantial unrecaptured Section 1250 gain on its books. Therefore, upon the sale of a property, a portion of each member’s gain may be subject to the 25% tax rate even though members may not actually receive any distribution upon the sale of the property. Additionally, the 25% tax rate on unrecaptured gain is triggered upon the sale, redemption, repurchase or gift of a member’s Units. The tax is computed on the portion of the gain attributable to previously taken depreciation. For example, suppose a person bought a rental unit for $100,000, depreciated it over several years down to $60,000, and then sold it for $130,000. There would be a total gain of $70,000 with the following taxes applying:


	•	The difference ($40,000) between what was paid for the property ($100,000) and its depreciated value ($60,000) would be taxed at the 25% recapture rate.

	•	The difference ($30,000) between what was paid for the property ($100,000) and its sales price ($130,000) would be taxed at the 15% capital gain rate.

Consequences of Exercise of the “Put” Options in 2005 and 2010 and Liquidation in 2007 or 2012

Our Certificate of Designations of Class 1 Units (“Class 1 COD”) gives our Class 1 Unit holders the right to require the Company to redeem some or all of their Class 1 Units on June 30, 2007. The exercise of this right by a sufficient number of Class 1 Unit holders may result in the liquidation of the entire Company. Our Certificate of Designations of Class 2 Units (“Class 2 COD”) gives our Class 2 Unit holders the right to require the Company to redeem some or all of their Class 2 Units on June 30, 2012. The exercise of this right by a sufficient number of Class 2 Unit holders may also result in the liquidation of the entire Company. The redemption of Units or the liquidation of the Company will most likely result in gain to the members. This gain will be computed in a manner similar to that described above.

As a result of the IRM bankruptcy proceedings, on June 30, 2000, persons who were equity investors in IRM (Equity Investors) and persons who were debt investors in IRM (Debt Investors) both became equity owners of JCM. The fact that their JCM Units originated from different types of IRM investments (i.e. equity and/ or debt) will affect the determination of their future tax consequences.

Capital gains associated with the sale of JCM properties will be allocated back to the former Equity Investors to the extent those gains or losses were unrealized at the time of the JCM’s formation. These pre-contribution gains are substantial. Therefore, if JCM sold a large number of properties or liquidated entirely, there would be substantial gains allocated back to the original IRM Equity Investors. Any gains since JCM’s formation that are attributed to the appreciation of real property will be divided among all JCM members in accordance with their ownership interests. In connection with the exercise of the “puts” held by holders of Class 1 and Class 2 Units, JCM might be required to liquidate a large number of properties or to liquidate entirely. This action would cause the recognition of pre-contribution gains.

The pre-contribution rules also cause the reduction of pre-contribution gain over time through specific allocations of deductions. Section 704(c) of the Internal Revenue Code may require the allocation of depreciation associated with property contributed to a partnership, away from the contributing partner where the member’s capital account reflects an unrealized gain inherent in the contributed property. It is the responsibility of the Tax Matters Partner to select the method for making the allocations under Section 704(c) of the Tax Code. In general, the Tax Matters Partner has elected not to allocate depreciation to members with negative capital account balances.

Generally, no gain or loss is recognized for income tax purposes as a result of a gift of property. However, if a gift of JCM Units is made at a time when a JCM member’s allocable share of non-recourse indebtedness exceeds the adjusted basis for the JCM units gifted, the gifting member will recognize a gain upon the transfer to the extent of such excess. Any such gain will be computed in a manner similar to the tax treatment of gains on the sale of an interest as described above. Gifts of JCM Units may also be subject to a gift tax imposed pursuant to the rules generally applicable to all gifted property.

A gift of JCM Units will not cause any suspended passive losses to become deductible. The recipient’s basis in the gifted JCM Units is the same as the donor’s basis at the time of the gifting, plus any suspended passive losses allocable to the gifted Units. It should be remembered, however, that the recipient’s basis, for purposes of determining loss on a later disposition, cannot exceed the fair market value of the Units on the date of the gift. Consequently, if the sum of the donor’s basis in the Units plus the suspended passive losses associated with those units exceeds the fair market value of the Units, the deductibility of a portion of the suspended losses could be permanently lost.

In general, the basis for inherited property is increased or decreased (“stepped up” or “down”) from the decedent’s basis to the asset’s fair market value at the date of the decedent’s death. This adjustment to basis also applies to inherited JCM units. JCM has elected to reflect this adjustment in the tax basis of the property held by the Company. Any gain, loss or deduction associated with this step up or step down is specifically allocated to the member inheriting a deceased member’s JCM interest. To the extent the adjustment is allocated to depreciable property, the inheriting member is specifically allocated any related depreciation.

Current tax law provides for a Modified Accelerated Cost Recovery System (“MACRS”) of depreciation. Under this system, the cost of eligible residential real property, whether new or used, generally must be depreciated over a 27.5 year period using the straight-line method.

Furthermore, under MACRS, eligible personal property is divided into six classes (i.e. 3-year, 5-year, 7-year, 10-year, 15-year and 20-year). Any property, whether new or used, generally must be depreciated over specified periods using a prescribed accelerated method of depreciation or, if the taxpayer so elects, using the straight-line method over various periods. Property placed in service prior to 1987 was depreciated under an accelerated cost recovery system (“ACRS”), which provided for faster tax depreciation than under MACRS.

Generally, the real property owned by JCM is subject to a 27.5 year recovery period and is depreciated using the straight-line method. JCM’s personal property is generally depreciated over a seven-year period using the double declining balance method, switching to straight-line when appropriate to maximize the depreciation deductions.

Some expenses may not be deductible in the year they were paid. To the extent this occurs, the taxable income of the partnership may exceed its cash receipts for the year in which the expense is paid. As discussed above, the costs of acquiring properties must generally be recovered through depreciation deductions over a number of years. Prepaid interest and loan fees, and prepaid management fees are other examples of expenses that may not be deducted in the year they were paid.

Members are required to treat partnership items on their tax returns consistently with the treatment on JCM’s return, unless a member files a statement with the IRS identifying the inconsistency. Failure to satisfy this requirement could result in an adjustment to conform the treatment of the items by the member to its treatment on JCM’s return. In the event such adjustments are imposed, the member may also be subject to interest and penalties.

JCM’s income tax returns may be audited by the Internal Revenue Service or the California Franchise Tax Board. Such audits may result in the audit of the returns of its members. In an audit, various deductions claimed by members on their returns could be disallowed in whole or in part. Such an action would result in an increase in the taxable income or a decrease in the taxable loss of JCM, with no associated increase in distributions with which to pay any resulting increase in the members’ tax liabilities.

Audits of the Company by the Internal Revenue Service or the California Franchise Tax Board would be conducted at the JCM level in a single proceeding, rather than in separate proceedings with each of JCM’s members. Administrative adjustments to items challenged in an audit can be initiated by JCM’s Tax Matters Partner or by a member. Suits challenging the Service’s determinations may be brought by the Tax Matters Partner or by JCM’s Board of Managers. Only one such action may be litigated. All JCM members generally will be bound by the outcome of final partnership adjustments made by the Internal Revenue Service, as well as the outcome of any judicial review of such adjustments.

JCM has California source income. Therefore, members who are non-residents of California will be subject to tax in California with respect to their share of such income. California law requires JCM to withhold taxes from JCM’s non-resident members who do not provide withholding waivers and to remit the taxes to the California Franchise Tax Board. Withholding waivers can be obtained by members who file required California income tax returns. It is the responsibility of non-resident members to consult with their tax advisors regarding their California income tax return filing requirements. Many non-resident members may be required to file California income tax returns because of their JCM California source income.

In the past, JCM has declared a voluntary distribution to non-resident members in an amount sufficient to pay this tax. JCM then has paid this amount to the California Franchise Tax Board and has sent JCM’s other members, a cash distribution in an equal and compensating amount per Unit. There is no assurance that JCM will continue to declare these additional distributions in the future.

Non-resident members may consent to California’s authority to tax their JCM income by completing a Limited Liability Company Nonresident Members’ Consent (Form 3832). JCM then will generally not be required to collect or remit these taxes to California. In any year that JCM declares a voluntary distribution to non-resident, non-consenting members in an amount sufficient to pay this tax, non-resident consenting members (those members who have completed a Form 3832) will generally receive the above mentioned compensating distribution.

Qualified plans (e.g. pension plans, profit sharing plans and IRA’s) and other tax-exempt entities should consult their tax advisors with regard to the tax issues unique to such entities, including, but not limited to, issues relating to the classification of partnership interests as plan assets, unrelated business taxable income (UBTI) and required distributions.

Any person who is a fiduciary of an IRA, Keogh Plan, Qualified Plan or other tax-exempt entity with an investment in JCM should be aware that most JCM properties are debt-financed properties. This indebtedness is considered acquisition indebtedness, creating UBTI. A trustee of a charitable remainder trust should be aware that if any portion of the income derived from its ownership of Units is deemed to be UBTI, the trust will lose its exemption from income taxation.

JCM Partners, LLC is the single member in approximately 50 separate entities organized as California limited liability companies (LLC’s). These LLC’s were established at the inception of JCM to hold title to the individual properties. For federal tax purposes these LLC’s are disregarded and treated as if they did not exist. In general, California also disregards these entities, but imposes a minimum tax of $800 and a fee on the gross income of a limited liability company. This fee is a function of the LLC’s gross income and currently ranges from $900 where gross income is at least $250,000 to $11,790 where gross income is $5,000,000 or more. For purposes of the California tax returns for years 2000, 2001 and 2002, JCM took the position that these LLC’s had been mere agents of JCM and, therefore, had no gross income. Based on this, these entities paid the minimum tax but did not pay the LLC fee. The California taxing authorities may not concur with this position. For the year 2003, JCM has paid the minimum tax totaling $45,600 and has accrued as an expense a $161,200 LLC fee based on gross income for JCM and all of the LLCs to be paid in April 2004. JCM intends to pay the minimum tax and the LLC fees for JCM and the LLCs in future years. JCM is considering restructuring options regarding the LLCs in order to reduce the amount of these fees in the future.

In August 2003 JCM received a private letter ruling from the Internal Revenue Service confirming that the conversion from Class 1 Units to Class 2 or Class 3 Units is a non-taxable event. As such, converting members do not recognize gain or loss on the conversion and JCM disregards the conversion for tax purposes. Other than as discussed above, JCM has not obtained any rulings from the Internal Revenue Service regarding the tax issues discussed above. The Company relies on the opinions of its tax advisors. Their opinions are based upon representations and assumptions and are conditioned upon the existence of specified facts. The opinions are not binding on the IRS or the courts.

If JCM becomes classified as a “publicly traded partnership”, we would be taxed as a corporation and our net income could be treated as portfolio income rather than passive income. The application of “publicly traded partnership” rules to us will be based upon future facts. The IRS may determine that we should be treated as a “publicly-traded partnership” if our Units are readily tradable on a secondary market.

If JCM is classified as a publicly traded partnership, but substantially all of its income is passive, it will avoid being treated as a corporation. However, in this situation, members would only be allowed to deduct JCM losses against JCM income. Any unused losses would be suspended and carried forward until they are either used against future JCM income or the member disposes of their entire interest in JCM.

Taxing authorities may challenge our allocations of income, gain, loss and deductions. JCM’s Operating Agreement provides for the allocation of income, gain, loss and deductions among the members. The rules regarding partnership allocations are complex. It is possible that the taxing authorities could successfully challenge the allocations in the Operating Agreement and reallocate items of income, gain, loss or deductions in a manner which reduces benefits or increases income allocable to JCM’s members.

The taxing authorities may disallow our deduction of some or all fees and expenses. The IRS could seek to reallocate our basis in properties among land, improvements and personal property. Such reallocation could result in reduced tax losses or increased income without a corresponding increase in net cash flow to JCM’s members.

Members may be taxed on income which exceeds the cash distributions received by them. In any year in which we report income or gain in excess of expenses, members will be required to report their share of such net income on their personal tax returns even though they may have received total cash distributions which are less than the amount of net income they must report.

Members may be subject to alternative minimum tax which could reduce the tax benefits of their units. The effect of the alternative minimum tax upon members depends on their particular overall tax and financial situation. Members should consult with their tax advisor regarding the possible application of this tax.

An audit of member returns could result in adjustments to items on their returns that may or may not be related to JCM. There are special procedures pertaining to audits of partnership tax returns which may reduce the control members would otherwise have over proceedings concerning any proposed adjustment of their tax items by the IRS. If the IRS determines that a member has underpaid taxes, that member would be required to pay the amount of the underpayment plus interest. Members may also be liable for penalties from the date the tax originally was due.

Future events may result in federal income tax treatment of JCM and its members that is materially and adversely different from the treatment described here. This discussion of the federal income tax aspects of an ownership interest in JCM is based on current law, including the Internal Revenue Code, the treasury regulations, administrative interpretations and court decisions. Changes could affect taxable years arising before and after such events. We cannot assure members that future legislation and administrative interpretations will not be applied retroactively.

Due to the history of the IRM entities that preceded the formation of JCM and the lack of specific tax law addressing the related issues, risks remain associated with the tax positions taken during the formation of JCM. Although these positions were believed to be reasonable, neither the taxing authorities nor the courts are bound by them. Therefore, there is a continuing risk that the taxing authorities and courts will not concur with these positions. All these risks were disclosed to the original investors in connection with the Plan of

Reorganization that was approved by investors during IRM’s bankruptcy proceedings. JCM believes that any risks inherent in the positions taken during those proceedings apply only to those original investors and not to individuals who have subsequently become JCM members.

The amount you use to determine your profit or loss from a sale or exchange of property. To determine your adjusted basis for an asset, start with the original cost. Add your cost of improvements to the original cost and subtract deductions you have taken, such as depreciation.

Capital Gain is profit on the sale of a capital asset. Capital gains receive favorable tax treatment. Depending on your tax bracket and on how long you held a capital asset, you may pay about one to two-thirds less tax on a capital gain than you would have paid on the same amount of ordinary income.

A deduction you are allowed for the wearing away over time of assets such as office equipment, vehicles, buildings and furniture. For assets that have an expected useful life of more than one year, you spread the cost of the asset over its estimated useful life rather than deducting the entire cost in the year you place the asset in service. For tax purposes, tax law specifies the depreciation term for specific types of assets.

The difference between your adjusted basis in an asset and the value you receive when you sell or otherwise dispose of the asset.

A type of debt for which a borrower is not personally liable. If you default on a non-recourse loan, the lender must recover the amount you owe by foreclosing on the property by which the loan is secured. At-risk rules limit the amount of loss you can take from activities with non-recourse financing.

An unincorporated business or investment organization having two or more owners. A partnership is not subject to income tax, but passes income, losses and other tax items through to its partners.

An activity in which you do not materially participate. Real estate rentals and limited partnerships are examples of passive activities. Passive loss rules apply to losses from passive activities.

Income such as interest, dividends, royalties and gains or losses from investments.

A limited partnership, or LLC (normally taxed as a partnership) that has limited partnership or membership interests traded in an organized securities market or a substantial equivalent. Publicly traded partnerships are taxed as corporations, except under certain circumstances.

The section of the Internal Revenue Code that deals with depreciable real estate.

The partner responsible for representing the partnership in IRS audit proceedings.

Our commercial properties must comply with Title III of the Americans with Disabilities Act, commonly referred to as the ADA, to the extent that such properties are public accommodations or commercial facilities as defined by the ADA. Compliance with the ADA requirements could require removal of structural barriers to handicapped access in certain public areas of our commercial properties where such removal is readily achievable. The ADA does not, however, consider residential properties, such as our apartment properties, to be public accommodations or commercial facilities, except to the extent portions of such facilities, such as the leasing office, are open to the public. We believe that our properties comply with, or are exempt from, all present requirements under the ADA and applicable state laws. Noncompliance could result in imposition of fines or an award of damages to private litigants. If we are required to make material changes to our properties to comply with the ADA, our operating results could be materially adversely affected.

Under various federal, state and local environmental laws, ordinances and regulations, a current or former owner of real estate may be required to investigate, remove and clean up hazardous or toxic substances or petroleum product releases at such property or may be held liable to governmental entities or to third parties for property or natural resource damage and for investigation, removal, clean-up and other costs incurred by such parties in connection with the contamination. Such laws typically impose clean-up responsibility and liability without regard to whether the owner knew of or caused the presence of the contamination. The liability under such laws has been interpreted to be joint and several, unless the harm is capable of apportionment and there is a reasonable basis for allocation of responsibility. Recently, indoor air quality issues, including mold, have been highlighted in the media and the industry is seeing mold claims from apartment residents rising. California state agencies are attempting to assess this issue.

Our leases generally provide that the tenant is responsible for compliance with applicable laws and regulations. However, this contractual arrangement does not eliminate our statutory liability or preclude claims against us by governmental authorities or persons who are not parties to such arrangement. The cost of an investigation and clean-up of site contamination can be substantial, and the fact that the property is or has been contaminated, even if remediated, may adversely affect the value of the property and the owner’s ability to sell or lease the property or to borrow using the property as collateral. In addition, some environmental laws create a lien on the contaminated site in favor of the government for damages and costs that it incurs in connection with the contamination. Some state laws provide that such lien has priority over all other encumbrances on the property or that a lien can be imposed on any other property owned by the liable party. Finally, the owner of a site may be subject to common law claims by governmental agencies or third parties based on damages and costs resulting from the environmental contamination emanating from the site.

Other federal, state and local laws, regulations and ordinances govern the removal or encapsulation of asbestos-containing material when such material is either in poor condition or in the event of building remodeling, renovation or demolition. Still other federal, state and local laws, regulations and ordinances may require the removal or upgrade of underground storage tanks that are out of service or out of compliance. In addition, federal, state and local laws, regulations and ordinances may impose prohibitions, limitations and operational standards on, or require permits, licenses, approvals, or submission of reports or notifications in connection with, the discharge of wastewater and other water pollutants, the emission of air pollutants, the operation of air or water pollution equipment, the generation, storage, transportation, disposal and management of materials classified as hazardous or nonhazardous substances or waste, the use of electrical equipment containing polychlorinated biphenyls, the storage or release of toxic or hazardous chemicals, substances, or waste, the ownership or operation of underground storage tanks and workplace health and safety. Noncompliance with environmental or health and safety requirements may also result in the need to cease or alter operations at a property which could affect the financial health of a tenant and its ability to make lease payments. Furthermore, if there is a violation of such a requirement in connection with the tenant’s operations, it is possible that we, as the owner of the property, could be held accountable by governmental authorities, or as the result of a third party action, for such violation and could be required to correct the violation.

Such laws and regulations have not historically had a material effect on the operation of our properties. We are not aware of any environmental condition on any of our properties which would be likely to have a material adverse effect on our financial condition and results of operations. There may be, however, environmental problems that may have developed since our properties were acquired which remain latent or of which we are otherwise unaware.

The real estate industry in Northern California is generally fragmented and characterized by significant competition. Numerous developers, owners of apartment, industrial, office, and retail properties and managers compete with us in seeking properties for acquisition, development or management and in attracting and retaining tenants. No one competitor owns a majority of the apartment units in any county in which our properties are located. Competition for tenants is principally on the basis of location, physical condition, amenities and rental rates. There are competitors in each area in which we operate that have greater capital resources than we do. In addition, we compete for residential tenants with the housing market. When home mortgage rates are low, as they have been recently, we lose some of our most qualified tenants to home ownership. There can be no assurance that the existence of such competition will not have a material adverse effect on our business, operations and cash flow.

As discussed above under “Background,” JCM Partners is the reorganized entity which emerged from the IRM entities bankruptcy proceedings. Pursuant to the plan of reorganization, the assets of the IRM entities were vested in JCM Partners on June 30, 2000. The real estate assets of JCM Partners are held through 55 wholly-owned subsidiaries, all but one of which is a single-asset limited liability company. The creditors of the IRM entities were divided into classes, as set forth in the plan of reorganization, with Classes 21 through 25 (representing certain investors in the equity and loan partnerships) receiving preferred or common membership interests in JCM Partners in satisfaction of their claims against the IRM entities. The plan of reorganization stated that 100 units (either common or preferred, as applicable) would be issued to these creditors for every $10,000 of their allowed claims (i.e., one unit for every $100 of allowed claim). Creditors in other classes were treated as specified in the plan of reorganization, with many receiving immediate or deferred cash payment of all or part of their claims. None of the IRM entities received any payment or consideration for any claim against, or interest in, another IRM entity.

Under the terms of the plan of reorganization, each preferred membership unit had an initial redemption value equal to $40 (therefore representing a return of 40% of the holder’s claim), plus or minus that unit’s share of the profits or losses of JCM Partners. In September 2000, the board of managers of JCM Partners approved a split of units and an adjustment of each unit’s redemption value. Preferred unit holders would receive one unit,

with a redemption value of $1.00, for every $2.50 of their allowed claim. For example, a preferred unit holder with an allowed claim of $100,000 would receive 40,000 preferred units, with a total redemption value of $40,000. This split simplified the correlation between the number of preferred units and the dollar amount of a complete redemption of the preferred units, while still achieving the result that each preferred unit holder would receive a 40% return of its claim amount upon redemption. As a result of the split, common unit holders received one unit for approximately every $1.53 of their allowed claim. The plan of reorganization and JCM Partners’ operating agreement provided for penalties in the event that JCM Partners did not redeem all of the preferred units by June 30, 2001. JCM Partners made a series of partial redemptions of preferred units, followed by a final and complete redemption of the preferred units on June 15, 2001. See “Item 7 — Management’s Discussion and Analysis of Financial Consideration and Results of Operations — Liquidity and Capital Resources” regarding the redemption obligations of JCM Partners for the Class 1 and Class 2 Units.

As of December 31, 2003, we had 222 employees. We consider our relationships with our employees to be good.

Gayle M. Ing has been a manager and our President, Chief Executive Officer, Secretary and Tax Matters Partner since April 11, 2001. From April 11, 2001 until October 2, 2002, Ms. Ing was also our Chief Financial Officer. From March 15, 2001 until April 11, 2001, Ms. Ing served as a consultant to JCM Partners through Computer Management Corporation. Prior to that, from December 1996 until March 2001, Ms. Ing was a management consultant, also through Computer Management Corporation, and was a volunteer with a child services facility. Ms. Ing served as the Vice President and Business Manager for Electronic Banking at Bank of America from January 1994 to November 1996.

Michael W. Vanni has been a manager of JCM Partners and Chairman of our Board since June 2000. Since 1978, Mr. Vanni has been the President of Computer Management Corporation, a data processing consulting company.

Marvin J. Helder has been a manager of JCM Partners and Vice Chairman of our Board since June 2000. Mr. Helder has been the President of Helder Construction, a commercial and residential construction and property management company, for the past eight years.

Brian S. Rein has been our Chief Operating Officer and Director of Property Management since June 2000. Mr. Rein was the Chief Operating Officer of JCM Partners’ predecessor, IRM Corporation, from October 1998 through June 2000. For the ten years prior to his employment with IRM and JCM Partners, Mr. Rein has had similar operations and management responsibilities serving as Vice President of John Connolly IV & Company where he directed the management of multifamily and commercial properties for institutional clients.

Cornelius Stam has been a Director of Property Management since June 2000, and our Chief Financial Officer since October 2002. Mr. Stam was the Executive Director of Property Management of IRM Corporation from August 1998 through June 2000. From 1983 to August 1998, Mr. Stam was the Senior Vice President of Property Management for IRM Corporation.

Managers, Lois Mol and James H. Mol, are mother and son. Mr. Vanni and Ms. Ing are husband and wife. There are no other family relationships among executive officers, or managers, or persons chosen by us to be nominated as a manager or appointed as an executive officer of JCM Partners or any of its subsidiaries.


	•	46 apartment complexes with an aggregate of 5,361 units;

	•	two office/retail properties with 28 tenants and approximately 172,200 square feet;

	•	six industrial properties with 21 tenants and approximately 145,000 square feet; and

	•	one 16.7-acre site held for future development or sale.

The ordinary course of our business operations includes ongoing renovation projects to our properties, including but not limited to exterior painting, roofing, siding, fencing, balcony and deck replacement, landscape upgrades, asphalt repairs and resurfacing, swimming pool resurfacing, new signage and interior unit remodeling. Costs are incorporated in operating budgets and covered by cash flow from operations or may be financed as required lender repairs during refinancing of certain properties.

The table below sets forth general information relating to the properties owned by our subsidiaries at December 31, 2003. All of the properties are suitable for the purpose for which they are designed and are being used. None of our properties accounted for 10% or more of our assets or accounted for 10% or more of our gross revenues during the year ended December 31, 2003.


(B)	Average monthly rent is calculated as the contract rent plus estimated market rent for vacant apartment homes, divided by the number of apartment homes.

None of our residential tenants occupy 10% or more of any individual property’s rentable square footage. Fifteen of our commercial tenants occupy 10% or more of an individual property’s rentable square footage. The principal nature of the businesses of our commercial tenants include sausage manufacturing, counseling, construction, publishing, plumbing supplier, dry cleaning, insurance and various facets of the wine industry including wine production and cork and label suppliers. Additional principal businesses carried on at our nine commercial properties include accounting, financial, food and retail service, home building, technology, property management services, and engineering. For those tenants that occupy 10% or more of an individual property, such existing leases expire beginning April 8, 2004 and at varying times through January 31, 2009. Each lease provides for annual rental payments of between $38,000 and $358,000, with the average annual payment equaling $131,000. Eight of such leases contain no renewal options. One lease has a two-year option which includes a CPI increase of 3-6%. One lease includes 2 three-year options, the first of which the rent will increase by 4%, the second of which is at market rate. Two leases include a five-year renewal option. Of those, one tenant has a choice of a 4% increase or to go to market rate and the other tenant will have a CPI increase of 3-5%. Two leases include two five-year renewal options at market rate for both tenants. One tenant is month to month.

The following table sets forth occupancy information for the last five years by sub-markets for the properties owned by our subsidiaries at December 31 of each year. Accordingly, information for the periods prior to such date is based on records we obtained from the IRM entities as part of the IRM bankruptcy proceedings.


(A)	Physical occupancy as of the last Monday of the year for properties owned as of December 31 of each year.

The following table sets forth the average rent per square foot by sub-market for the last five years for the properties owned by our subsidiaries at December 31 of each year. Accordingly, information for the periods prior to such date is based on records we obtained from the IRM entities as part of the IRM bankruptcy proceedings.


(A)	Average monthly rent per square foot is contract rent for occupied units plus estimated market rent for vacant units divided by total rentable square feet for properties owned as of December 31 of each year.

The following sets forth a summary of tax information for the properties owned by our subsidiaries at December 31, 2003:

We are subject in the normal course of business to various legal proceedings in which claims for monetary or other damages may be asserted. Management does not believe any such legal proceedings are material.

There is no public trading market for any of our Classes of Units and there can be no assurance that a market will ever develop for any of our Classes of Units.

Since the Class 1 Units are held by more than 300 holders, we are required to file annual, quarterly and other reports with the SEC. If Unit holders convert their Class 1 Units into other classes of Units, including Class 2 and 3 Units and any other classes of Units that the Board might create, we may in the future have less than 300 holders of each class of Units. In addition, if a sufficient number of Class 1 Unit holders exercise their Class 1 put rights, we may have less than 300 holders of record of our class 1 Units after we redeem such Class 1 Units. Under these circumstances, we could become eligible to cease filing reports with the SEC. If that happens, we would not be required to file with the SEC annual reports, quarterly reports and proxy statements as currently required by SEC rules. Although we have no current intention to do so, we could cease filing these reports and members may receive less information about the Company and our financial condition, liquidity and results of operations.

We did not sell any securities during 2001, 2002 or 2003 that were not registered under the Securities Act. At our 2003 annual meeting of members, our members approved a change to our Operating Agreement that authorizes the Board of Managers to create multiple Classes of Units with differing terms. Pursuant to this authority, we created Class 2 Units and Class 3 Units. Under the terms of our Class 1 Units, holders of our Class 1 Units are currently able to convert their Class 1 Units into either Class 2 Units or Class 3 Units. During the last quarter of 2003, we began receiving Unit Conversion Forms from holders of Class 1 Units to convert their Class 1 Units into either Class 2 Units or Class 3 Units. Effective January 1, 2004, we converted the Class 1 Units submitted during 2003 for conversion to Class 2 Units or Class 3 Units. We did not receive any consideration in connection with the conversions, other than the Class 1 Units, which effective upon their conversions assumed the status of authorized but unissued Units. Any future conversions of Units will become effective the first of the month after a properly completed Conversion Form and any other required documentation is received by us. A sample of our Unit Conversion Form was filed with the SEC as Exhibit 99.1 to our Form 8-K, dated October 27, 2003.

The conversions were made in reliance on Section 3(a)(9) of the Securities Act, which provides an exemption from the registration requirements of the Securities Act for securities exchanged by an issuer with its existing security holders exclusively where no commission or other remuneration is paid or given directly or indirectly for soliciting such exchange. We processed the conversions internally and did not pay anyone to solicit the conversions. On September 26, 2003, we became our own transfer agent.

We filed information with the SEC regarding our Class 2 Units and Class 3 Units on a Form 8-K, dated October 15, 2003. See our Description of Securities filed as Exhibit 99.1 thereto and our Summary of Operating Agreement filed as Exhibit 99.2 thereto. These documents are collectively referred to as the “Class 2 and Class 3 Disclosure Documents”.


	•	Into Class 3 Units at any time provided the holder has not exercised the Class 2 Put Right (as described in the Class 2 and Class 3 Disclosure Documents).

	•	Into other classes of Units when a future Class of Units grants the holders of Class 2 Units a conversion right.

Class 2 Units may not be converted back into Class 1 Units. All Class 2 Units will be converted into other classes of Units on a 1:1 basis, unless otherwise determined by our Board of Managers. Class 2 Units may only be converted into Class 3 Units on a book entry certificate-by-certificate basis. We have the right to impose reasonable procedures and controls related to the conversion of Class 2 Units.


	Class 3 Units are convertible by the holders of Class 3 Units into other classes of Units if and when a future Class of Units grants the holders of Class 3 Units a conversion right.

	Class 3 Units may not be converted back into Class 1 or 2 Units. All Class 3 Units will be converted into other classes of Units on a 1:1 basis, unless otherwise determined by our Board of Managers. Class 3 Units may only be converted on a book entry certificate-by-certificate basis. We have the right to impose reasonable procedures and controls related to the conversion of Class 3 Units.

Pursuant to the terms of our Class 1 Units, we are required to pay a monthly mandatory distribution equal to 1/12 of $0.0775 ($0.00646) per Class 1 Unit. In addition, in December 2002 our Board of Managers declared a voluntary monthly distribution, to be paid in addition to the mandatory monthly distribution on an ongoing basis, of 1/12 of $0.0025 ($0.00021) per Class 1 Unit. Accordingly, in 2003 we paid each month distributions of $0.00667 per Class 1 Unit.

In 2002 we made voluntary monthly distributions on the Class 1 Units until our Operating Agreement was modified to require mandatory monthly distributions. From January through May of 2002, we made monthly distributions of $0.00458 per Class 1 Unit. From June through November, we made mandatory monthly distributions of $0.00646 per Class 1 Unit. In December, we paid per Class 1 Unit the mandatory monthly distribution of $0.00646 plus the voluntary monthly distribution of $0.00021 that our Board declared on December 10, 2002, for a total distribution of $0.00667 per Class 1 Unit in December 2002.

In addition, in April 2003 and April 2002 we made distributions, ratified in June of these years, of $0.00710 and $0.00820 per Class 1 Unit (except for Class 1 Units held by our wholly-owned subsidiary), respectively, to offset state income tax liabilities incurred by our members in 2002 and 2001 due to their ownership interests in JCM. These payments were made either to members directly or to the California Franchise Tax Board on their behalf.

We did not have any Class 2 or Class 3 holders of record in 2002 or 2003, since the first conversions of Class 1 Units to Class 2 or Class 3 Units were effective January 1, 2004. Accordingly, we did not make any distributions to holders of Class 2 or Class 3 Units during 2002 or 2003.

Distributions Required by Our Operating Agreement and Certificates of Designations

Beginning in July 2002, we were required under the terms of our Operating Agreement to make mandatory monthly distributions to the holders of Class 1 Units in an amount equal to 1/12 of $0.0775 (seven and 3/4 cents) per Class 1 Unit (the “Mandatory Monthly Distributions”). When we amended and restated our Operating Agreement as of June 25, 2003, our obligation to pay the Mandatory Monthly Distributions was placed in the Class 1 COD. If we fail, for any reason, to pay any Class 1 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our properties as quickly as commercially reasonable and must pay the Class 1 Unit holders interest on any overdue Mandatory Monthly Distributions at the rate of ten percent per year. Once we no longer have any overdue Mandatory Monthly Distributions, we may cease liquidating our properties.

Beginning in January 2004, as required under the terms of our Certificate of Designations of Class 2 Units, we started making mandatory monthly distributions to the holders of Class 2 Units in an amount equal to 1/12 of $0.08 (eight cents) per Class 2 Unit (the “Class 2 Mandatory Monthly Distributions”). If we fail, for any reason, to pay any Class 2 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our assets as quickly as commercially reasonable and must pay the Class 2 Unit holders interest on any overdue Class 2 Mandatory Monthly Distribution(s) at the rate of ten percent per year. Once we no longer have any overdue Class 2 Mandatory Monthly Distribution, we may cease liquidating our assets.

Beginning in January 2004, as required under the terms of our Certificate of Designations of Class 3 Units, we started making mandatory monthly distributions to the holders of Class 3 Units in an amount equal to 1/12 of $0.0825 (eight and 1/4 cents) per Class 3 Unit (the “Class 3 Mandatory Monthly Distributions”). If we fail, for any reason, to pay any Class 3 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our assets as quickly as commercially reasonable and must pay the Class 3 Unit holders interest on any overdue Class 3 Mandatory Monthly Distribution(s) at the rate of ten percent per year. Once we no longer have any overdue Class 3 Mandatory Monthly Distribution, we may cease liquidating our assets.

Our Board of Managers may declare additional distributions for Units on a Class-by-Class basis, provided that no Class of Units may receive an additional distribution that is double the additional distribution declared for any other Class of Units on a per-Unit annualized basis. However, we must pay the Class 2 and Class 3 Units at least the same amount of additional distributions that we pay on our Class 1 Units on a per Unit basis.

Our Board of Managers may not create a Class of Units with a right to receive a priority in payment upon our liquidation or dissolution over any other Classes of Units that may be in existence. However, this provision does not affect our Board of Manager’s ability to create Preferred Units with a right to receive a priority in payment upon our liquidation over the Class 1, Class 2, Class 3 or any other Class of Units. If we have a shortfall in our ability to pay distributions when due to Class 1, Class 2 and Class 3 Units, then Class 1, Class 2 and Class 3 Units will share in any shortfalls on a pro-rata basis.

Our Class 1 COD provides that, except as set forth below, each holder of Class 1 Units as of June 30, 2005 will have the right to require us to redeem all or, if so elected by the holder, a portion, of his or her Class 1 Units on June 30, 2007. The redemption price for each Class 1 Unit will be calculated as follows:


	•	We must obtain an appraisal on each of our real properties from one or more MAI appraisers to be selected by our Board of Managers and we may retain a business appraiser, investment bank, or other qualified person to appraise our other assets (collectively, the “Appraisals”).

	•	The Appraisals must be dated no earlier than April 2, 2005 nor later than June 29, 2005.

	•	We must retain CPAs to calculate the total value of all classes of issued and outstanding Units by preparing a pro-forma balance sheet using the appraised values from the Appraisals with allowance for all anticipated costs and expenses (including but not limited to the estimated costs and expenses of liquidating all of our properties), and using the profit and loss allocation provisions of Article 7 of our Operating Agreement, and otherwise in accordance with accounting principles generally accepted in the United States, all of which may be determined by our Board of Managers pursuant to specific written instructions to the CPAs. The CPAs will then divide the total value of all classes of Units by the total number of Units then outstanding, excluding any Units owned by our wholly-owned subsidiary. The resulting amount will be the Exercise Price for the Class 1 Units.

	•	All distributions paid after June 30, 2005 to the holders of Class 1 Units who exercise their Put Rights will be credited against the Exercise Price.

Our Board of Managers has determined that the anticipated costs and expenses (including but not limited to the estimated costs and expenses of liquidating all of our properties) will be an amount equal to $0.40 per Unit, excluding any Units owned by our wholly-owned subsidiary as of the date of the pro forma balance sheet. Our Board intends to provide instructions to the CPAs to this effect.

If a sufficient number of Class 1 Unit holders exercise their right to have their Class 1 Units redeemed, our continued operation beyond June 30, 2007 may not be reasonably feasible. Accordingly, the Class 1 COD requires our Board of Managers to meet no later than June 30, 2006 to determine whether we should continue operations beyond June 30, 2007. If our Board of Managers determines in its sole discretion that our operations should not continue beyond June 30, 2007, then we must inform all owners of Units (and Preferred Units, if any) of this decision within 30 days after June 30, 2006 and the following will occur:


	•	the Class 1 Unit holders’ rights to be redeemed as described above on June 30, 2007 will be null and void;

	•	all of our properties will be sold as soon as practicable; and

	•	all owners of Units and Preferred Units, if any, will receive the liquidation distributions to which they are entitled under our Operating Agreement and CODs.

Our Class 2 COD provides that, except as set forth below, each holder of Class 2 Units as of June 30, 2010, will have the right to require us to redeem all, of if so elected by the holder, a portion, of his or her Class 2 Units on June 30, 2012. The redemption price for each Class 2 Unit will be calculated as follows:


	•	We must obtain an appraisal on each of our assets in substantially the same manner as set forth in the Class 1 COD (collectively, the “Class 2 Appraisals”).

	•	The Class 2 Appraisals must be as of a date that is no earlier than April 2, 2010, nor later than June 29, 2010.


	•	We will retain CPAs to calculate the total value of all classes of issued and outstanding Units in substantially the same manner as in the Class 1 COD. The CPAs will then divide the total value of all classes of Units by the total number of Units then outstanding, excluding any Units owned by our wholly-owned subsidiary. The resulting amount will be the Exercise Price for the Class 2 Units.

	•	All distributions paid after June 30, 2010 to the holders of Class 2 Units who exercise their Class 2 Put Rights will be credited against the Exercise Price.

If a sufficient number of Class 2 Unit holders exercise their Class 2 Put Rights, our continued operations may not be feasible. Accordingly, the Class 2 COD requires our Board of Managers to meet no later than December 27, 2010 to determine whether we should continue to operate past June 30, 2012. If our Board of Managers determines, in its sole discretion, that we cannot continue customary operations beyond June 30, 2012, the following will occur under Section 5.6 of the Class 2 COD:


	•	If the Board determines that we can maintain our existence as a going concern and prudently satisfy our obligations to the holders of Class 2 Units who exercised their Class 2 Put Rights through one or more of the following methods: use of available cash and cash equivalents, the issuance of new Units or Preferred Units in capital raising transactions, other financing transactions, or a partial liquidation of our assets, then we will not be liquidated, and we will satisfy our obligations to the holders of Class 2 Units who exercised their Put Option in a timely manner. It is our intent to remain a going concern and not to be liquidated, even if substantially all of our assets are sold in order to satisfy our obligations.

	•	If the Board determines that we cannot meet the test set forth above, then the following will occur: the Class 2 Put Rights will be null and void and no holder of Class 2 Units will be entitled to receive the Exercise Price; all of our assets will be sold as soon as practicable; all owners of Units and Preferred Units, if any, will receive the liquidation distributions to which they are entitled under the Agreement; and we will inform all owners of Units and Preferred Units of this decision before January 27, 2011.

The holders of Class 3 Units do not have a Put Right similar to the Class 1 Units or Class 2 Units, or any other right to require JCM to redeem their Class 3 Units.

We have no compensation plans under which equity securities are authorized for issuance.

We were organized as a Delaware limited liability company on May 15, 2000 and commenced operations as JCM Partners, LLC, the successor company to the IRM entities, on June 30, 2000.

The following table sets forth selected financial data for JCM Partners for the years ended December 31, 2003, 2002 and 2001 and as of December 31, 2003, 2002, 2001. For the time periods set forth, we did not have any Class 2 or Class 3 Units outstanding.

(A)

Pursuant to an amendment to our Operating Agreement approved by our Members on May 22, 2002, we were required under the terms of our Operating Agreement to pay mandatory monthly distributions to our Class 1 Unit holders in an amount equal to 1/12 of $0.0775 per Class 1 Unit. This provision is now set forth in our Class 1 COD. However, since this distribution is not required to be paid upon our dissolution, change of control, merger or consolidation, it is not reflected as a liability in the above table.

The following table sets forth selected financial data, not excluding discontinued operations, for the properties owned by JCM Partners, LLC for six months ended December 31, 2000 and for the properties owned by IRM entities for the period from January 1, 2000 to June 29, 2000 and for the year ended December 31, 1999.

The foregoing combined statement of operations data presents operating results of the properties owned by the IRM entities for the period from January 1, 2000 to June 29, 2000 and the year ended December 31, 1999. This data was prepared pursuant to SEC Regulation S-X, Rule 3-14, “Special instructions for real estate operations to be acquired.” Accordingly, the presentation excludes certain items not comparable to the future operations of the property, such as mortgage interest, leasehold rental, depreciation and corporate expenses.

We are not aware of any material factors relating to the properties transferred by the IRM entities to us that would cause the reported results of operations not to be necessarily indicative of future operating results.

Item 7. Management’s Discussion and Analysis of Financial Condition and Results of Operations

The following discussion contains forward-looking statements. See our statement that is set forth after the Table of Contents regarding Forward Looking Statements.

The following discussion should be read in conjunction with the Consolidated Financial Statements and notes set forth in Item 8 below.

The Company generates revenues from the leasing and, to a lesser extent, sales of commercial and residential properties it owns in California.

Even in a very challenging economic environment, total revenues from our continuing operations increased 2%, or $1,153,000 year-over-year for the year ended December 31, 2003. The revenue increase was primarily from our continuing residential properties and was partially offset by a decrease in our continuing commercial properties. Approximately 94% of total revenues from continuing operations came from continuing residential properties and 6% from continuing commercial properties. We expect very little, if any, revenue growth in 2004 from our continuing operations as some of our residential markets have been experiencing increased supply from new construction and both our residential and commercial markets have been experiencing slow to non-existent employment growth, dampening the demand for both rental housing and office space.

The revenue decrease in our continuing commercial properties was primarily due to a lease default by a major tenant at our office building in Concord in early 2003. This building is presently at 66% occupancy and while affected by the soft market for large blocks of office space in the San Francisco Bay Area, its rental rates are moderate and the building is located and designed to serve small local users and regional branch offices with a portion of the ground space designated for retail. Since we have the financial capacity to remodel or divide existing suites to suit market demand and can provide significant tenant improvements to attract new tenants, we expect the demand from such tenants to improve occupancy in the coming periods. We are aggressively marketing the available space. During 2003, we leased approximately 8,200 square feet to four new tenants and released approximately 11,700 square feet to three tenants at average monthly rental rates approximately 4.1% less than the previous expired leases. It may be necessary to lease new space or renew expired leases at lower monthly rates than expired leases.

Management responded to the continuing significant vacancies in the San Francisco office sub-market and listed our San Francisco office property for sale during May 2003 at which time we also designated the property as a real estate investment held for sale. The building is presently at 14% occupancy. The building is an old San Francisco style structure (constructed in 1908) that is somewhat inconsistent with the balance of our portfolio. We feel the combination of current vacancies and short term tenancies may make it attractive to a buyer intending to occupy the building. The building is currently in contract with a prospective buyer.

In May 2003, as part of a Section 1031 (of the Internal Revenue Code of 1986, as amended) reverse exchange process, we purchased an apartment complex consisting of 108 units located in Sacramento for $7,900,000. In July 2003, we sold an 88 unit apartment complex in Rancho Cordova, California for $5,045,000 with the intent to defer tax consequences on the resulting gain from the sale of the property. The equity from the property sold was used as the down payment for the newly acquired property. The remaining purchase price was financed with a mortgage loan.

During the fourth quarter ended December 31, 2003, we recorded a $1,250,000 charge for loss on impairment of assets related to a parcel of land located in Vallejo, California so the carrying value reflects the appraised value obtained on the property.

We believe we have made extensive progress in our rehabilitation and deferred maintenance programs and believe they are essential to realizing the full income potential of our properties. In accordance with our

accounting policies on capital expenditures, certain of these improvements are expensed and are included as operating and maintenance expenses, rather than being capitalized. The improvements that we expensed include appliance and fixture replacements, window coverings, exterior painting, asphalt repairs and seal coating, major roof repairs and coatings, major carpentry repairs to balconies, siding and fencing, major landscaping projects and swimming pool resurfacing. These improvements were $4,211,000 in 2003, $4,334,000 in 2002 and $3,069,000 in 2001 for continuing operations. We expect to spend approximately $4,000,000 in 2004 for these items. We also capitalized various capital improvements (which includes such items as new carpet and vinyl flooring, new fencing, new roofs, new monument signs, new HVAC units and commercial tenant improvements). We had capital improvements of $2,121,000 in 2003, $3,253,000 in 2002 and $2,009,000 in 2001. We are expecting to spend approximately $2,100,000 for capital improvements in 2004.

As a result of its ongoing long term debt refinancing strategy, the Company reduced its interest expense significantly by approximately $1,509,000 in 2003 compared to 2002. The weighted average interest rate for our mortgage debt was 6.13%, 6.57% and 7.48% at the end of 2003, 2002 and 2001 respectively.

We believe that the sustained reduction in long term interest rates over the last few years has had a significant effect on the value of our properties. We believe that the yield (rate of return on investment) expectations of real estate investors of income producing properties have been reduced, thereby reducing capitalization rates (see below) used by potential buyers. The effect of reduced capitalization rates, when income and expenses are held constant, is an increase in property values. However, we also believe that a sustained increase in long term interest rates could cause property values to decrease, as buyers require higher yields on income producing properties, thereby increasing capitalization rates used by potential buyers. We believe that long term interest rates will have a significant effect on the appraisals we are required to obtain on our properties in the second quarter of 2005 in connection with the Class 1 Put Rights. However, we cannot forecast with any accuracy what long term interest rates will be at any given time in the future.

The capitalization rate is a shorthand term for the relationship between a buyer’s estimate of the property’s first year of net operating income and the price the buyer is willing to pay. For example, if a buyer expects a property to earn $1,000,000 in net operating income in its first year of operations and the buyer is seeking an 8% capitalization rate, then the buyer would be willing to pay $12,500,000 for the property (i.e., an 8% return on $12,500,000 is $1,000,000). A decrease in the capitalization rate to 7.5% in this example would increase the property’s value to $13,333,000 and an increase in the capitalization rate to 8.5% in this example would decrease the property’s value to $11,765,000. Accordingly, a 1/2% point change in the capitalization rate would affect the property’s value by approximately 6%.

The value of our properties will be important to our Members who exercise their Class 1 or Class 2 put rights or otherwise sell their Units, since redemption prices will be based, in large part, on the value of our properties. Similarly, other sales of Units should also be based, in large part, on the value of our properties. In addition, the value of our properties will be important should we ever engage in a change-of-control transaction.

We believe that a portion of the increased valuation of our properties caused by the decline in long-term interest rates has been offset by increased expenses including industry-wide increases in the cost of insuring income producing properties, due in part to the insurance industry’s response to the events of September 11, 2001. We believe that potential purchasers will forecast higher operating expenses due to these increased costs, which will result in lower estimates of net operating income. Currently, we believe the effect of lower long-term interest rates, even with increased operating expenses, has been an overall increase in the value of our properties. However, if long-term interest rates and capitalization rates rise and income and operating expenses remain constant, the value of our properties could decrease.

The accompanying discussion and analysis of our financial condition and results of operations are based upon our consolidated financial statements, which have been prepared in accordance with accounting principles generally accepted in the United States (US GAAP). The preparation of these financial statements requires management to make estimates and judgments that affect the reported amount of assets, liabilities, revenues,

expenses and related disclosure of contingent assets and liabilities. These estimates form the basis for making judgments about the carrying values of assets and liabilities that are not readily apparent from other sources. We base our estimates and judgments on historical experience, industry practices and on various other assumptions that we believe are reasonable under the circumstances. However, future events are subject to change and the best estimates and judgments routinely require adjustment.

We believe the following critical accounting policies, in addition to those described in Note 2 to our financial statements (beginning on page F-7 of this filing), affect our more significant judgments and estimates used in the preparation of our consolidated financial statements.

Our rental properties are carried at reorganization value plus improvements less accumulated depreciation. Depreciation is calculated using the straight-line method. The estimated useful lives for the properties range from 20 to 40 years for buildings and from 5 to 15 years for improvements, all of which are judgmental determinations made by management.

Our apartment communities are generally leased under operating leases with terms of six months. Rental income is recognized according to the terms of the underlying leases, which approximates the revenue which would be recognized if recognized evenly over the lease term. Rental revenue on our commercial properties is recognized over the term of the related lease.

Amounts paid for new buildings or for permanent improvements made to increase the value of the property or substantially prolong its life are capitalized. These expenditures are depreciated over estimated useful lives determined by management. Tenant improvements and leasing commissions paid in operating our commercial properties are capitalized and amortized over the live of the respective lease. We expense certain improvements related to the operation of our apartment communities, including appliance replacements, window coverings, major carpentry repairs to balconies, siding and fencing, exterior painting as well as those expenditures necessary to maintain our properties in ordinary operating condition. The determination as to whether expenditures should be capitalized or expensed, and the period over which depreciation is recognized, requires management’s judgment.

The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the expected undiscounted cash flows expected to be generated by those assets are less than the related carrying amounts. If a rental property is determined to be impaired, the impairment would be measured based upon the excess of the asset’s carrying value over the fair value. The Company reports assets to be disposed of at the lower of carrying amount or fair value less cost to sell.

During the fourth quarter ended December 31, 2003, we recorded a $1,250,000 charge for loss on impairment of assets related to undeveloped land located in Vallejo, California, so the carrying value reflects the appraised value obtained on the property.

In June 2001, the Financial Accounting Standards Board approved for issuance Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the

initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives will be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will be required to be tested at least annually for impairment. The Company adopted SFAS No. 142 effective January 1, 2002. The adoption of SFAS Nos. 141 and 142 did not have any impact to the Company’s financial statements.

In August 2001, the Financial Accounting Standards Board approved for issuance SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, Reporting The Results Of Operations — Reporting The Effects Of Disposal Of A Segment Of A Business, And Extraordinary, Unusual and Infrequently Occurring Events And Transactions. SFAS No. 144 unifies the accounting treatment for various types of long-lived assets to be disposed of, and resolves implementation issues related to SFAS No. 121. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have an effect on the Company’s financial position, results of operations, or cash flows, as the Company had no long-lived assets that were considered impaired upon adoption of the standard. Adoption of this standard did have an effect on the presentation of the Company’s results of operations with respect to Discontinued Operations as presented in Note 3.

In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. The Company will adopt the provisions of SFAS No. 146 for any restructuring activities initiated after December 31, 2002. The adoption of this standard did not have any effect on the Company’s financial position, results of operations or cash flows.

In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation assumed under that guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The liability recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company had no such guarantee arrangements for the years ended December 31, 2002 and 2003.

In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements” to variable interest entities (VIEs) in which equity investors lack an essential characteristic of a controlling financial interest or do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties. In the past, the Company has formed numberous subsidiaries in which properties are owned. All of these subsidiaries are included in the consolidated financial statements. The adoption of FIN 46 did not have an impact on the Company’s 2003 consolidated financial statements.

In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and

measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and, otherwise, is effective at the beginning of the first interim period beginning after June 15, 2003. Certain provisions have been deferred indefinitely by the FASB under FSP 150-3. The Company has adopted this standard and it did not have a material impact on the consolidated financial position or results of operations; however, the Company does have redemption provisions related to Class 1 and Class 2 units that will be effected by this standard once Class 1 and Class 2 Unit holders notify the Company of their intent to put the Class 1 and Class 2 Units back to the Company. The Class 1 Unit holders do not have the right to put Class 1 Units back to the Company until after June 30, 2005. The Class 2 Unit holders do not have the right to put Class 2 Units back to the Company until after June 30, 2010. The redemption rights and provisions are more fully described in Note 7.

The table below sets forth the overall weighted average occupancy levels for our properties, by type of property, at December 31 for the last three years. The weighted average occupancy is calculated by multiplying the occupancy of each property by its square footage and dividing by the total square footage in the portfolio.

The overall weighted average occupancy level for our entire property portfolio as of December 31, 2003 was 91.1%, compared to 94.3% at December 31, 2002, and 92.2% at December 31, 2001.

The occupancy at our apartment communities in the year ending December 31, 2003 shows a slight decrease to 94.8% from 95.7% for the year ended December 31, 2002. Contributing factors include the slowdown in the California economy, continuing competition with providers of other forms of multifamily residential properties and single-family housing and a significant increase in the construction of new apartment properties where our properties are located. We believe the occupancy will remain relatively stable at this level for 2004 due to a continuing management implemented cross-marketing program, resident referral program, resident retention focus and rent concession incentives.

Our future apartment occupancy rates will be subject to numerous factors, many of which are outside of our control. We believe that 2004 will continue to be challenging on the leasing front. The overall slowdown of the California economy, the California deficit and other factors are impacting our sub-markets. Forecasts in trade journals and marketing reports indicate relatively stable and flat rents with optimism for a pick up in mid to late 2004. A large unknown factor for our portfolio will be how California’s large budget deficit will impact local economies as funding cuts roll downward. Consumers are carefully considering how much they are willing to spend on housing, which is putting pressure on rents. In addition, historically low mortgage rates have enabled more renters to purchase homes. Buying or renting single-family housing was the reason given by many residents who moved out of our apartment properties during 2003. If mortgage rates increase, we anticipate slightly less pressure on rents, as renters may be less able to purchase homes; however, we can not predict when changes in mortgage rates will occur. Qualified potential residents continue to be difficult to find. Our market surveys indicate that a number of competitors have decreased asking rents, as we have done at some selected properties in order to remain competitive. Many of our competitors give rent concessions. We give them as well at selected properties, such as a discount off a first month’s rent. Accordingly, there can be no assurance that our future occupancy or rental rates will not be significantly less than our occupancy and rental rates at December 31, 2003.

Decreased occupancy at our commercial properties is primarily due to the vacating of three tenants during the first quarter, whose leases accounted for a combined total of 30,000 square feet, from our Concord and San Francisco office buildings. One of these tenants, on lease through July 31, 2007 at our Concord office building, owes rent from February 1, 2003. The tenant claims it had an option to cancel the lease which we dispute. We are pursuing collection of rent owed. Occupancy decreased further in the last quarter due to an additional vacating of 9,000 square feet from our San Francisco office building resulting from non-renewed tenant leases. Subsequent to December 31, 2003, at the same building, there was an additional vacating of 7,700 square feet at the end of February, 2004 from non-renewed tenant leases. During 2003, we leased approximately 15,000 square feet to six new tenants at an average monthly rental rate of $1.24, down $0.03 from the average monthly rate paid by the previous tenants. We also renewed leases with seven tenants for approximately 27,000 square feet of space at an average monthly rental rate of $1.26, up $0.01 from the average monthly rental rate under their old leases.

Market conditions for leased space in commercial buildings remain considerably weakened in the San Francisco Bay Area. The general economic decline and job loss in the technology industry have significantly reduced demand for commercial buildings in most San Francisco Bay Area sub-markets.

Vacancy rates have gone up and rents have come down considerably from the peaks reached in early 2000. The possibility of a worsening economic slowdown, a continuation of the California budget problem, the technology-based recession or continuation of current economic conditions may result in higher vacancy rates, lower prevailing rents, increased rent concessions and/or more tenant defaults and bankruptcies.

We use a supplemental performance measure, Funds from Operations (“FFO”), along with net income, to report operating results. FFO is calculated by making various adjustments to net income. Depreciation, amortization, impairment loss, and write off of deferred debt issuance costs are added back to net income, as they represent non-cash charges. In addition, gains on sale of real estate investments are excluded from the FFO calculation.

FFO is not a measure of operating results or cash flows from operating activities as defined by accounting principles generally accepted in the United States. Further, FFO is not necessarily indicative of cash available to fund cash needs and should not be considered as an alternative to cash flows as a measure of liquidity. We believe, however, that FFO provides relevant information about operations and is useful, along with net income, for an understanding of our operating results.

For the year ended December 31, 2003, FFO was $9,272,000 as compared to $9,561,000 for the year ended December 31, 2002, a decrease of approximately 3.0% or $289,000. FFO decreased $245,000 in 2002 compared to the $9,806,000 for the year ended December 31, 2001. However, on a per Unit basis, FFO remained relatively flat primarily due to the lower weighted average number of units outstanding during 2003 compared to 2002.

Total rental revenues were $52,248,000 in 2003, $50,931,000 in 2002 and $48,519,000 in 2001, excluding revenues from discontinued operations.

Total rental revenues from our apartment communities were $48,791,000 in 2003, $47,227,000 in 2002 and $45,347,000 in 2001, excluding revenues from discontinued operations. The approximate 3% increase in 2003 is primarily attributable to increases in average monthly rental rates and rental revenue of $585,000 from a newly acquired property purchased in May 2003. The approximate 4% increase in 2002 was from increased average monthly rental rates and improved occupancy.

Total rental revenues from our commercial properties were $3,457,000 in 2003, $3,704,000 in 2002 and $3,172,000 in 2001, excluding revenues from discontinued operations. The approximate 7% decrease in 2003 is primarily attributable to lower occupancy at our Concord office building, as previously discussed, lower building operating costs billable to tenants and lower average monthly rental rates, partially offset by improved occupancy at our light industrial buildings located in Napa, California. The tenant that vacated our Concord office building is on lease through July 31, 2007 and owes rent from February 1, 2003. The tenant claims that they had an option to cancel the lease which we dispute. We are pursuing collection of rent owed. The unpaid rent and additional charges of approximately $565,000 owed through December 31, 2003, is not included as accrued revenues on the consolidated statement of operations. The Company believes the tenant is solvent.

During the year ended December 31, 2003, the average monthly rental rate per square foot for same-store apartment communities and commercial properties on a combined basis increased by approximately 1.0%. In 2002 and 2001 the same store average monthly rental rate per square foot increased 3.3% and 9.5% on a full-year basis, respectively. Our ability to continue to increase rents will largely depend on the changes in the real estate market and on general economic conditions in the areas in which we own properties. Same store properties are defined as those properties owned by us during all months of the reporting periods. Average monthly rental rates are defined as contract rents for occupied units plus estimated market rents for vacant units divided by the total square footage in the portfolio at the end of the reporting periods.

During the year ended December 31, 2003, the average monthly rental rate per square foot for same-store apartment communities increased by approximately 1.2%. In 2002 and 2001 the same store average monthly rental rate per square foot increased 3.1% and 9.6% on a full-year basis, respectively. These increases were attributable to increased rents both to existing tenants upon lease expiration and to new tenants upon move in. The average monthly rental rate per square foot for same-store apartment communities were $1.04, $1.03 and $1.00 as of December 31, 2003, 2002 and 2001 respectively.

At December 31, 2003, the average monthly rental rate per square foot for same-store commercial properties decreased by approximately 1.2%. The decrease reflects lower estimated market rents for vacant space and some lower rents on renewed leases with existing tenants. In 2002 and 2001 the same store average monthly rental rate per square foot increased 5.3% and 8.4% on a full-year basis, respectively. These increases were attributable to increased rents to existing tenants upon lease expiration, rent adjustments as allowed in existing leases and to new tenants upon move in. Average monthly rental rate per square foot for same-store commercial properties were $1.26, $1.27 and $1.21 as of December 31, 2003, 2002 and 2001 respectively.

Average monthly rental rate per square foot for same-store properties at December 31 were as follows:

Our ability to continue to increase rental rates will materially depend on the changes in the real estate market and on general economic conditions in the areas in which we own properties. We expect very little, if any, rental rate increases at any of our properties based on current sub-market conditions.

Interest and other revenue was $196,000 in 2003, $361,000 in 2002 and $337,000 in 2001. The decrease in 2003 was primarily due to lower average cash balances and lower interest rates and the increase in 2002 was primarily due to higher average cash balances

Total expenses. Total expenses (which includes interest expense, operating and maintenance, depreciation and amortization, general and administrative, real estate taxes and insurance, utilities, prepayment penalties and write off of deferred debt issuance costs) were $53,473,000 in 2003, $51,604,000 in 2002 and $47,348,000 in 2001, excluding expenses from discontinued operations. The various components are discussed in more detail as follows.

Interest expense. Interest expense was $11,901,000 in 2003, $13,410,000 in 2002 and $13,048,000 in 2001, excluding interest expense from discontinued operations. The approximate 11% decrease in 2003 was primarily due to our successful mortgage refinancing activity which resulted in lower interest rates. The weighted average interest rate for our mortgage debt was 6.13%, 6.57% and 7.48% at the end of 2003, 2002 and 2001 respectively.

The increase in 2002 was primarily due to increased debt from refinancing activity partially offset by lower interest rates on the new debt.

Operating and maintenance expenses. Operating and maintenance expenses (which includes repair and maintenance, certain improvements, on-site staff payroll, advertising and other direct operational expenses) were $17,375,000 in 2003, $16,119,000 in 2002 and $14,110,000 in 2001, excluding operating and maintenance expenses from discontinued operations. This reflects an increase of $1,256,000 or 8% in 2003 compared to 2002. Operating and maintenance expenses of $913,000 from a newly acquired property purchased in May 2003, is the main reason for this increase. The remaining $343,000 increase was primarily due to advertising and rental expense increases.

The $2,009,000 or 14% increase in 2002 compared to 2001 was primarily attributable to the increased expenditures for our apartment rehabilitation program, additional expenditures on deferred maintenance projects and increased advertising costs due to competitive leasing market conditions.

We expense certain improvements related to the operation of our properties, including appliance and fixture replacements, window coverings, exterior painting, asphalt repairs and seal coating, major roof repairs and coatings, major carpentry repairs to balconies, siding and fencing, major landscaping projects and swimming pool resurfacing. These improvements were $4,211,000 in 2003, $4,334,000 in 2002 and $3,069,000 in 2001. We expect to spend approximately $4,000,000 in 2004 for these items.

Depreciation and amortization expenses. Depreciation and amortization expenses were $9,301,000 in 2003, $8,694,000 in 2002 and $8,209,000 in 2001, excluding depreciation and amortization expenses from discontinued operations. The approximate increase of $607,000, or 7% in 2003 over 2002 was primarily attributable to an increase in real estate investments due to the acquisition of a new property and the capitalization of property improvements to existing properties.

The $486,000 increase in 2002 over 2001 was due to the capitalization of property improvements to existing properties.

General and administrative expenses. General and administrative expenses were $3,701,000 in 2003, $3,415,000 in 2002 and $4,005,000 in 2001. The 8.0% increase in 2003 was primarily due to one time non-recurring legal and consulting expenses and increases in California LLC fees. JCM Partners, LLC is the single member in approximately 50 separate entities organized as California limited liability companies (LLC’s). These LLC’s were established at the inception of JCM to hold title to the individual properties. For federal tax purposes these LLC’s are disregarded and treated as if they did not exist. In general, California also disregards these entities, but imposes a minimum tax of $800 and a fee on the gross income of a limited liability company. For purposes of the California tax returns for years 2000, 2001 and 2002, JCM took the position that these LLC’s were the mere agents of JCM and, therefore, had no gross income. Based on this, these entities paid the minimum tax but did not pay the LLC fee. The California taxing authorities may not concur with this position. For the year 2003, these entities also paid the minimum tax totaling $45,600 and in addition, JCM has accrued as an expense, a $161,200 gross income LLC fee for JCM and all of the LLCs based on their respective gross incomes to be paid in April 2004. JCM intends to pay the minimum tax and the LLC fees for JCM and the LLCs in future years. JCM is considering restructuring options regarding the LLCs in order to reduce the amount of these fees in the future.

The decrease in 2002 was primarily related to lower legal and accounting fees that year compared to higher than normal legal and accounting fees for the Company’s first full year and start up costs for the Company in 2001.

Real estate taxes and insurance expenses. Real estate taxes and insurance expenses were $5,502,000 in 2003, $5,045,000 in 2002 and $3,496,000 in 2001, excluding real estate taxes and insurance expenses from discontinued operations. Increased real estate taxes of $282,000 from higher assessed values and increased workers compensation insurance of $241,000 were the primary reasons for the increase in 2003 over 2002.

In 2002, the $1,549,000 increase was mainly attributable to the significant increase of all insurance costs of approximately $1,098,000 due to general insurance industry conditions which were intensified by the events of

September 11, 2001. Additionally, there was a downward adjustment of real estate taxes in 2001 in the amount of $435,000, to reflect an adjustment for an over accrual in 2000 for possible reassessments from taxing authorities (which did not take place) from the 2000 reorganization.

Utility expenses. Utility expenses were $4,012,000 in 2003, $3,700,000 in 2002 and $3,889,000 in 2001, excluding utility expenses from discontinued operations. The 8% increase in 2003 was due primarily to rate increases for natural gas, sewer, trash removal and water. The 5% decrease in 2002 was primarily attributable to lower overall energy costs in California from the peak levels reached in 2001.

Prepayment penalty. During the twelve months ended December 31, 2003, we recorded $356,000 of prepayment penalties related to debt which was retired in connection with the refinancing of two mortgages and the payoff of three mortgages. In the same period of 2002, we recorded $745,000 of prepayment penalties in connection with the refinancing of five mortgages and the payoff of five mortgages. There were no prepayment penalties incurred during 2001.

Write off of deferred debt issuance costs. During the twelve months ended December 31, 2003, we recorded a loss of $74,000 to reflect the write-off of deferred debt issuance costs related to debt which was retired in connection with the refinancing of two mortgages and the payoff of three mortgages. During the same periods of 2002 and 2001, we recorded $476,000 and $591,000 respectively, of write-offs of deferred debt issuance costs.

Loss on impairment of assets. During the fourth quarter ended December 31, 2003, we recorded a $1,250,000 charge for loss on impairment of assets related to a parcel of land located in Vallejo, California so the carrying value reflects the appraised value obtained on the property.

Net income (loss) before discontinued operations. During the year ended December 31, 2003, net loss before discontinued operations was $1,028,000 compared to a net loss of $312,000 for the prior year and a net income of $1,508,000 in 2001. The decrease in 2003 was due to increases in operating and maintenance, depreciation and amortization, general and administrative, real estate taxes and insurance, utility expenses and a one time charge for loss on impairment of assets and partially offset by increases in rental revenue and decreases in interest expense, prepayment penalties and write off of deferred debt issuance costs.

The decrease in 2002 was due to increases in interest, operating and maintenance, depreciation and amortization, real estate taxes and insurance, and prepayment penalty expenses and partially offset by an increase in total revenues and decreases in general and administrative expenses and write off of deferred debt issuance costs.

Discontinued Operations. In October 2001, the Financial Accounting Standards Board (“FASB”) issued Statement of Financial Accounting Standards (“SFAS”) No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets,” which became effective on January 1, 2002. For properties accounted for under SFAS No. 144, the results of operations for properties sold during the period or designated as held for sale at the end of the period are required to be classified as discontinued operations. The property-specific components of net earnings that are classified as discontinued operations include all property-related revenues and expenses including those recognized prior to the classification as held for sale, and property-specific interest expense to the extent there is secured debt on the property. In addition, the net gain or loss on the eventual disposal of properties held for sale is reported as discontinued operations.

During the twelve months ended December 31, 2003, income from discontinued operations was $2,602,000 compared to $875,000 for the same period last year. The increase was primarily due to a gain of $2,735,000 as a result of selling an 88 unit apartment complex as part of a Section 1031 exchange transaction. The increase in 2002 is primarily due to a receipt of funds from a note secured by farm land that was written off as uncollectible in 2001.

Net income. During the year ended December 31, 2003, net income was $1,574,000 compared to $563,000 for the prior year, an increase of approximately $1,011,000. The increase was due to an increase in income from discontinued operations and partially offset by a decrease in net income before discontinued operations. The decrease in 2002 of approximately $505,000 from the $1,068,000 in 2001 was due to a decrease in net income before discontinued operations and an increase in income from discontinued operations.

We believe that the direct effects of inflation on our operations have been inconsequential.

During 2003, we made cash distributions to our Unit holders of $7,168,000, excluding distributions made to our wholly owned subsidiary for units owned in 2003. This included an April payment to the California Franchise Tax Board of $105,000 on behalf of our non-California Unit holders who had been allocated income deemed taxable by the State of California and a distribution of $489,000 to our members who were not required to make a California tax deposit. This special April distribution and the payments to the California Franchise Tax Board were intended to offset certain state income tax liabilities incurred by our members in 2003 due to their ownership of our Class 1 Units. All of the distributions in 2003 were made from cash from operations and available cash.

During 2002, we made cash distributions to our Unit holders of $6,573,000, excluding distributions made to our wholly owned subsidiary for units owned in 2002. This included an April payment to the California Franchise Tax Board of $125,000 on behalf of our non-California Unit holders who had been allocated income deemed taxable by the State of California and a distribution of $614,000 to our members who were not required to make a California tax deposit. This special April distribution and the payments to the California Franchise Tax Board were intended to offset certain state income tax liabilities incurred by our members in 2002 due to their ownership of JCM Partners’ Class 1 Units. All of the distributions in 2002 were made from cash from operations and available cash.

During 2001, we made cash distributions to our Unit holders of $2,585,000. Our wholly owned subsidiary did not own any units in 2001. This included an April payment to the California Franchise Tax Board of $33,000 on behalf of our non-California Unit holders who had been allocated income deemed taxable by the State of California and a distribution of $260,000 to our members who were not required to make a California tax deposit. This special distribution in April and the payments to the California Franchise Tax Board were intended to offset certain state income tax liabilities incurred by our members in 2001 due to their ownership of JCM Partners’ Class 1 Units. All distributions and the payments to the California Franchise Tax Board were made from our cash from operations.

As of December 31, 2003, our short-term liquidity needs included normal operating requirements, ongoing capital improvements, monthly principal amortization of our debt, repurchase of Class 1 Units, Class 2 Units, Class 3 Units and certain mandatory distributions required to be made to our Class 1, 2 and 3 Unit holders, as described at “Item 5 — Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities — Distributions Required by Our Operating Agreement and Certificates of Designation.” We expect to meet these requirements through net cash provided by operations and available cash. However, if needed for repurchase of Class 1 Units, Class 2 Units and Class 3 Units or capital

improvements, we may increase debt by refinancing certain mortgage obligations or through mortgage borrowing on our debt-free properties. We do not expect that rent increases upon tenant turnover and lease expirations, subject to market and general economic conditions, will have a significant impact on our short-term liquidity.

In 2003, through a wholly-owned subsidiary, we repurchased 3,715,074 Class 1 Units for an aggregate price of $4,841,000. From January 1, 2004 through March 30, 2004, through our wholly-owned subsidiary, we repurchased an additional 513,483 Class 1 Units for an aggregate price of $754,800; 19,657 Class 2 Units for an aggregate price of $28,900; 105,508 Class 3 Units for an aggregate price of $155,100. As of March 30, 2004, our wholly owned subsidiary owned 10,861,214 Class 1 Units, 19,657 Class 2 Units and 105,508 Class 3 Units.

Our long-term liquidity requirements include scheduled debt maturities, significant capital improvements, certain mandatory distributions required to be made to our Class 1, 2 and 3 Unit holders, as described at “Item 5 — Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities — Distributions Required by Our Operating Agreement and Certificates of Designations” and repurchases of Class 1, Class 2 and Class 3 Units. Cash flows from operations, including the effects of any rent increases, will not be sufficient to meet some of these long-term requirements, such as remaining balances due at loan maturities, and that it will be necessary for us to refinance the mortgages on certain of our properties. There can be no assurance that we will be able to refinance on terms advantageous to us, however, especially if interest rates rise in the future.

As described at “Item 5 — Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities — Redemption Rights,” our Class 1 Unit holders have the right to require us to redeem some or all of their Class 1 Units in June 2007. In addition, our Class 2 Unit holders have the right to require us to redeem some or all of their Class 2 Units in June 2012. In order to fund those redemptions, we will use cash from operations, available cash, loan financing proceeds, other capital sources and, if necessary, we may be required to liquidate some or all of our assets.

At December 31, 2003, we had unrestricted cash totaling $6,972,000, compared to $14,898,000 at December 31, 2002 and $14,248,000 at December 31, 2001. The decrease in 2003 is primarily attributable to cash provided by operations of $10,211,000, offset by cash used in investing activities of $4,951,000 and cash used in financing activities of $13,186,000.

The terms of certain of our mortgages require impound accounts for the payment of insurance, property taxes, replacement reserves and lender holdbacks on proceeds from new mortgages for immediate repair improvements, in addition to the scheduled principal and interest payments on the debt. We classify these impound accounts as restricted cash on our balance sheet. Restricted cash for holdbacks, which totaled approximately $1,287,000 at December 31, 2003, will become unrestricted when repair improvements are completed. At December 31, 2003, our restricted cash totaled $2,461,000 compared to $2,331,000 at December 31, 2002.

Net cash provided by operations for the year ended December 31, 2003 was $10,211,000, which reflects net income of $1,574,000, non-cash depreciation and amortization charges of $9,301,000, gain on sales of assets of $2,735,000, net loss of $78,000 on disposal of assets, a loss of $1,250,000 for the impairment of assets and the net decrease of the effect of changes in operating assets and liabilities of $743,000.

Net cash used in investing activities was $4,951,000 for the year ended December 31, 2003. We acquired a new property in May 2003 for $7,900,000 and used $2,121,000 for capital improvements (which includes such items as new carpet and vinyl flooring, new fencing, new roofs, new monument signs, new HVAC units and commercial tenant improvements) to existing properties. These uses were partially offset by proceeds from the sale of a property in July 2003 of $5,070,000. In 2002, net cash used in investing activities was $2,990,000. This consisted of capital improvements of $3,253,000 as part of our asset rehabilitation program and offset by proceeds from the disposal of assets of $263,000. We are expecting to spend approximately $2,100,000 for capital improvements in 2004.

Net cash used in financing activities was $13,186,000 for the year ended December 31, 2003. The sources of cash consisted of proceeds received from the refinance of three mortgage loans of $7,032,000 and the addition of a new mortgage of $5,300,000. The uses of cash were as follows: distributions to Class 1 Unit holders in the

amount of $7,168,000, payoff of four mortgage notes totaling $10,220,000, principal payments on mortgage notes of $2,419,000, repurchases of Class 1 Units in the amount of $4,841,000, change in other assets of $498,000 that is primarily cash in transit for repurchase of additional Class 1 Units and net deferred financing costs totaling $372,000.

Our long-term debt consists of 46 real estate mortgages totaling $185,461,000 as of December 31, 2003. Each of the mortgages is individually secured by one of 45 properties with two mortgages secured by the same property. This debt generally requires monthly payments of principal and interest. As of December 31, 2003, the weighted average interest rate on our real estate mortgages was 6.13% compared to 6.57% at the same time last year.

At December 31, 2002, our long term debt consisted of 48 real estate mortgages totaling $185,769,000. During 2003, we completed the refinancing of three, seven-year, fixed rate loans. The total amount financed was $19,500,000 at 5.21% interest rates. The monthly principal and interest payments are amortized on a 30 year basis. These loans will be due at the end of their seven year term. The balance of the mortgage loans retired was $12,468,000 with a weighted average interest rate of 8.43%. We received net proceeds, including funds held by the lender for required repairs, of $7,032,000 from the issuance of the new mortgage loans. We also completed the financing of one loan in connection with the purchase component of a Section 1031 exchange transaction. The new loan is in the amount of $5,300,000 with a fixed interest rate of 4.60% for the first five years and converts to a variable rate for the last twenty-five years. The four mortgage notes that were paid off during 2003 totaled $10,220,000 and had interest rates ranging from 7.30% to 10.50%.

To provide our Unit holders with additional liquidity, we continue to follow the guidelines adopted by our Board of Managers to allow us to repurchase Units from members and to provide information to our members that will allow members to contact each other in order to facilitate trading of Units among our members.

We are subject to the normal risks associated with debt financing, including the risk our cash flow will be insufficient to meet required payments of principal and interest, the risk that indebtedness on our properties, or unsecured indebtedness, will not be able to be renewed, repaid or refinanced when due or that the terms of any renewal or refinancing will not be as favorable as the existing terms of such indebtedness. If we were unable to refinance our indebtedness on acceptable terms, or at all, we might be forced to dispose of one or more of the properties on disadvantageous terms, which might result in losses to us. Such losses could have a material adverse effect on us and our ability to make distributions to our members and pay amounts due on our debt. Furthermore, if a property is mortgaged to secure payment of indebtedness and we are unable to meet mortgage payments, the mortgage holder could foreclose upon the property, appoint a receiver and receive an assignment of rents and leases or pursue other remedies, all with a consequent loss of our revenues and asset value. Foreclosures could also create taxable income to our members without accompanying cash proceeds.

The following schedule reflects the changes in our members’ equity during 2003 for financial reporting purposes:

Our primary market risk exposure results from changes in interest rates on our debt obligations. We are vulnerable to increases in the interest rates on our variable rate mortgage notes. We are also vulnerable to significant increases in interest rates to the extent we refinance our fixed rate mortgage notes or incur additional debt in the future. We may need to incur additional debt to help finance the redemption of the Class 1 and Class 2 Units that we are required to redeem on June 30, 2007 and on June 30, 2012, respectively.

The following table presents information about our debt obligations at December 31, 2003. The table presents principal cash flows and related weighted average interest rate by expected maturity dates.


(1)	Twenty-eight loans with rates ranging from 5.21% to 7.13%.

(2)	One loan with a rate of 8.69% that increases to 9.19% at January 2004; and seven loans with rates ranging from 4.60% to 7.38% that become variable between July 2004 and January 2008.

(3)	Ten loans with rates from 2.99% to 8.50% at December 31, 2003.

We have audited the accompanying consolidated balance sheet of JCM Partners, LLC and its subsidiaries (the “Company”), as of December 31, 2003 and the related consolidated statements of operations, members’ equity and cash flows for the year ended December 31, 2003. Our audit also included the financial statement Schedule III — Real Estate and Accumulated Depreciation. These financial statements and financial statement schedule are the responsibility of the Company’s management. Our responsibility is to express an opinion on these financial statements and the schedule based on our audit.

We conducted our audit in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.

In our opinion, the financial statements referred to above present fairly, in all material respects, the financial position of JCM Partners, LLC and its subsidiaries as of December 31, 2003 and the results of its operations and its cash flows for the year then ended in conformity with accounting principles generally accepted in the United States of America. Also, in our opinion, the financial statement Schedule III, when considered in relation to the basic financial statements taken as a whole, presents fairly in all material respects the information set forth therein.

We have audited the consolidated balance sheet of JCM Partners, LLC and its subsidiaries (the “Company”), as of December 31, 2002 and the related consolidated statements of operations, members’ equity and cash flows for the years ended December 31, 2002 and 2001. These consolidated financial statements are the responsibility of the Company’s management. Our responsibility is to express an opinion on these consolidated financial statements based on our audits.

We conducted our audits in accordance with auditing standards generally accepted in the United States of America. Those standards require that we plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting the amounts and disclosures in the financial statements. An audit also includes assessing the accounting principles used and significant estimates made by management, as well as evaluating the overall financial statement presentation. We believe that our audits provide a reasonable basis for our opinion.

In our opinion, the consolidated financial statements referred to above present fairly, in all material respects, the financial position of JCM Partners, LLC and its subsidiaries as of December 31, 2002, and the results of their operations and their cash flows for the years ended December 31, 2002 and 2001 in conformity with accounting principles generally accepted in the United States of America.

As discussed in Note 3 to the consolidated financial statements, the accompanying 2002 and 2001 consolidated financial statements have been reclassified to report the operations of properties classified in 2003 as discontinued operations.

NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR
YEARS ENDED DECEMBER 31, 2003, DECEMBER 31, 2002
AND DECEMBER 31, 2001


	JCM Partners, LLC (the “Company”), a Delaware limited liability company, was organized on May 15, 2000. The Company is the reorganized entity which emerged from the bankruptcy proceedings in the United States Bankruptcy Court for the Eastern District of California of IRM Corporation et al. (“the IRM entities”) Pursuant to a plan of reorganization confirmed on June 5, 2000 (the “Plan”), all assets of the IRM entities were vested in the Company. The Company commenced operations on June 30, 2000 pursuant to the confirmation order and the plan of reorganization.

	The Company owns, operates and manages forty-six apartment complexes and eight commercial income properties. The Company also owns one parcel of land which is available for development. All of the properties are located in northern California. The Company holds its real estate assets through 55 wholly-owned subsidiaries, each of which is a single-asset limited liability company.


	*Fresh Start Accounting* — In accounting for the effects of the reorganization, the Company implemented fresh start accounting in accordance with AICPA Statement of Position 90-7, “Financial Reporting by Entities in Reorganization Under the Bankruptcy Code.” Accordingly, all of the Company’s assets and liabilities were restated to reflect their reorganization value, which approximated fair value at the date of the reorganization, June 30, 2000.

	*Basis of Consolidation* — The financial statements include the accounts of the Company and its subsidiaries on a consolidated basis. All significant intercompany balances have been eliminated in consolidation.

	*Restricted Cash* consists of lender impound accounts (see Note 6).

	*Real Estate Investments* consist principally of rental properties which are carried at reorganization value plus improvements less accumulated depreciation, which is calculated using the straight-line method. The estimated useful lives for the properties range from 20 to 40 years for buildings and from 5 to 15 years for improvements, all of which are judgmental determinations made by management.

	The estimated fair value of the properties as of the date of reorganization was determined based on appraisal reports prepared by independent M.A.I. (“Member of the Appraisal Institute”) appraisers. Determination of estimated fair values involves subjective judgment because the actual fair value of the real estate can be determined only by negotiation between the parties in a sales transaction.

	The Company records impairment losses on long-lived assets used in operations when events and circumstances indicate that the assets might be impaired and the expected undiscounted cash flows expected to be generated by those assets are less than the related carrying amounts. If a rental property is determined to be impaired, the impairment would be measured based upon the excess of the asset’s carrying value over the fair value. The Company reports assets to be disposed of at the lower of carrying amount or fair value less cost to sell. No impairment losses have been reflected in the accompanying statements of operations.

	Expenditures for ordinary maintenance and repairs are expensed as incurred. Amounts paid for new buildings or for permanent improvements made to increase the value of the property or substantially prolong its life are capitalized. These expenditures are depreciated over estimated useful lives determined by management. Tenant improvements and leasing commissions paid in operating our commercial properties are capitalized and amortized over the life of the lease. We expense certain improvements related to the operation of our apartment communities, including appliance replacements, window


	coverings, major carpentry repairs, repairs to balconies, siding and fencing, exterior painting as well as those expenditures necessary to maintain our properties in ordinary operating condition. The determination as to whether expenditures should be capitalized or expensed, and the period over which depreciation is recognized, requires management’s judgment.

	*Deferred Costs* include financing costs which are amortized over the term of the related debt using the straight-line method and leasing commissions which are amortized over the term of the related leases using the straight-line method.

	*Other assets* consist primarily of refundable deposits in connection with debt refinancings in process at year-end, other deposits and other receivables.

	*Rents receivable* are carried net of any allowance for uncollectible amounts.

	*Rental Income Recognition* — Apartment communities are generally leased under operating leases with terms of six months. Rental income is recognized according to the terms of the underlying leases, which approximates the revenue which would be recognized if recognized evenly over the lease term. Rental revenue on commercial properties is recognized over the term of the related lease.

	*Use of Estimates* — The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amounts of assets and liabilities, and disclosure of contingent assets and liabilities at the date of the financial statements, as well as the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates.

	*Income Taxes* — Federal and state income taxes are the responsibility of the members. Accordingly, no provision for federal and state income taxes is included in the Company’s financial statements.

	*Segment Reporting* — The Company has two reportable operating segments: residential real estate and commercial real estate which excludes discontinued operations. Residential real estate includes the Company’s 46 apartment communities. Commercial real estate includes the Company’s eight commercial properties and land held for development (See Note 10).

	*New Accounting Standards* — In June 2001, the Financial Accounting Standards Board approved for issuance Statement of Financial Accounting Standard (SFAS) No. 141, Business Combinations and SFAS No. 142, Goodwill and Other Intangible Assets. SFAS No. 141 requires that all business combinations initiated after June 30, 2001 be accounted for under the purchase method of accounting and addresses the initial recognition and measurement of goodwill and other intangible assets acquired in a business combination. SFAS No. 142 addresses the initial recognition and measurement of intangible assets acquired outside of a business combination and the accounting for goodwill and other intangible assets subsequent to their acquisition. SFAS No. 142 provides that intangible assets with finite useful lives will be amortized and that goodwill and intangible assets with indefinite lives will not be amortized, but will be required to be tested at least annually for impairment. The Company adopted SFAS No. 142 effective January 1, 2002. The adoption of SFAS Nos. 141 and 142 did not have any impact to the Company’s financial statements.

	In August 2001, the Financial Accounting Standards Board approved for issuance SFAS No. 144, Accounting For The Impairment Or Disposal Of Long-Lived Assets. SFAS No. 144 supersedes SFAS No. 121, Accounting For The Impairment Of Long-Lived Assets And For Long-Lived Assets To Be Disposed Of and the accounting and reporting provisions of Accounting Principles Board (“APB”) Opinion No. 30, Reporting The Results Of Operations — Reporting The Effects Of Disposal Of A Segment Of A Business, And Extraordinary, Unusual and Infrequently Occurring Events And Transactions. SFAS No. 144 unifies the accounting treatment for various types of long-lived assets to be disposed of, and resolves implementation issues related to SFAS No. 121. The Company adopted SFAS No. 144 effective January 1, 2002. The adoption of SFAS No. 144 did not have an effect on the Company’s financial position, results of operations, or cash flows, as the Company had no long-lived assets that were considered impaired upon adoption of the standard. Adoption of this standard did have an effect on the


	presentation of the Company’s results of operations with respect to Discontinued Operations as presented in Note 4.

	In June 2002, the FASB issued SFAS No. 146, Accounting for Costs Associated with Exit or Disposal Activities, which addresses accounting for restructuring and similar costs. SFAS No. 146 supersedes previous accounting guidance, principally Emerging Issues Task Force Issue No. 94-3, Liability Recognition for Certain Employee Termination Benefits and Other Costs to Exit an Activity (including Certain Costs Incurred in a Restructuring). SFAS No. 146 requires that the liability for costs associated with an exit or disposal activity be recognized when the liability is incurred. Under Issue 94-3, a liability for an exit cost was recognized at the date of a company’s commitment to an exit plan. SFAS No. 146 also establishes that the liability should initially be measured and recorded at fair value. Accordingly, SFAS No. 146 may affect the timing of recognizing future restructuring costs as well as the amounts recognized. The Company will adopt the provisions of SFAS No. 146 for any restructuring activities initiated after December 31, 2002. The adoption of this standard did not have any effect on the Company’s financial position, results of operations or cash flows.

	In November 2002, the FASB issued FASB Interpretation No. 45 (FIN 45), “Guarantor’s Accounting and Disclosure Requirements for Guarantees, Including Indirect Guarantees of Indebtedness of Others.” FIN 45 requires that upon issuance of a guarantee, the guarantor must recognize a liability for the fair value of the obligation assumed under that guarantee. FIN 45 also requires additional disclosures by a guarantor in its interim and annual financial statements about the obligations associated with guarantees issued. The liability recognition provisions of FIN 45 are effective for any guarantees issued or modified after December 31, 2002. The disclosure requirements are effective for financial statements of interim or annual periods ending after December 15, 2002. The Company had no such guarantee arrangements for the years ended December 31, 2002 and 2003.

	In January 2003, the Financial Accounting Standards Board (FASB) issued FASB Interpretation No. 46 (FIN 46), “Consolidation of Variable Interest Entities, an Interpretation of ARB No. 51.” FIN 46 clarifies the application of Accounting Research Bulletin (ARB) No. 51, “Consolidated Financial Statements” to variable interest entities (VIEs) in which equity investors lack an essential characteristic of a controlling financial interest or do not have sufficient equity investment at risk to permit the entity to finance its activities without additional subordinated financial support from other parties. In the past, the Company has formed numerous subsidiaries in which properties are owned. All of these subsidiaries are included in the consolidated financial statements. The adoption of FIN 46 did not have an impact on the Company’s 2003 consolidated financial statements.

	In May 2003, the FASB issued SFAS No. 150, “Accounting for Certain Financial Instruments with Characteristics of both Liabilities and Equity.” This statement establishes standards for the classification and measurement of certain financial instruments with characteristics of both liabilities and equity. SFAS No. 150 requires that an issuer classify a financial instrument that is within its scope as a liability (or an asset in some circumstances). Many of those instruments were previously classified as equity. This statement is effective for financial instruments entered into or modified after May 31, 2003 and, otherwise, is effective at the beginning of the first interim period beginning after June 15, 2003. Certain provisions have been deferred indefinitely by the FASB under FSP 150-3. The Company has adopted this standard and it did not have a material impact on the consolidated financial position or results of operations; however, the Company does have redemption provisions related to Class 1 and Class 2 units that will be effected by this standard once Class 1 and Class 2 Unit holders notify the Company of their intent to put the Class 1 and Class 2 Units back to the Company. The Class 1 Unit holders do not have the right to put Class 1 Units back to the Company until after June 30, 2005. The Class 2 Unit holders do not have the right to put Class 2 Units back to the Company until after June 30, 2010. The redemption rights and provisions are more fully described in Note 7.

	*Reclassifications* — Reclassifications were made to the 2002 and 2001 consolidated financial statements to conform to the 2003 presentation. Certain items were reclassified related to Discontinued Operations as presented in Note 3.


	For properties accounted for under SFAS No. 144, “Accounting for the Impairment or Disposal of Long-Lived Assets” (SFAS 144), the results for properties sold during the period or designated as held for sale at the end of the period are required to be classified as discontinued operations. The property-specific components of net earnings that are classified as discontinued operations include all property-related revenues and operating expenses, depreciation expense recognized prior to the classification as held for sale, and property specific interest expense to the extent there is secured debt on the property, as well as the net gain or loss on disposal.

	In May 2003, we listed for sale our office building in San Francisco, California for $5,400,000. The carrying value of the assets (real estate investments held for sale) of the property was $4,633,000 at December 31, 2003. The mortgage note of $1,408,000 was paid off in December 2003.

	During the third quarter of 2003, JCM Partners sold Rose Glen, an 88 unit complex in Rancho Cordova, California. Rose Glen was sold for $5,045,000, resulting in a gain of approximately $2,735,000. In the second quarter of 2002, we sold a parcel of land in Napa, California for $280,000, for a gain of approximately $61,000.

	In 2002, we received funds, recorded as part of rental revenue, from a note secured by farm land that was written off as uncollectible in 2001. The bad debt of $450,000 in 2001 was recorded in the general and administrative expense line item. The following is a breakdown of the results of operations and gains and losses that are included in Discontinued Operations:


	Real estate investments, including investments held for sale, are comprised of the following at December 31, 2003 and 2002:

During the fourth quarter 2003, we recorded a $1,250,000 charge for loss on impairment of assets related to undeveloped land in Vallejo, California so the carrying value reflects the appraised value obtained on the property. At this point, the Company is not actively marketing the property. The carrying value of this property is included as part of commercial properties and real estate investments, net in the two tables above.


	Minimum future rental revenues to be received on noncancellable tenant operating leases for more than 1 year in effect at December 31, 2003, excluding discontinued operations, are as follows:

The Company’s mortgages payable generally require monthly interest and principal payments. The obligations include twenty eight fixed rate loans and eighteen variable rate loans which are secured by deeds of trust on the Company’s real estate investments. The Company is required by the terms of certain of the mortgage loans to maintain lender impound accounts for insurance, property taxes, reserves for property improvements and a bond account which are recorded as restricted cash. A summary of the Company’s mortgages payable outstanding is as follows:


	Aggregate maturities of mortgage loans payable subsequent to December 31, 2003 are as follows:


	During the year ended December 31, 2003, the Company completed the refinancing of three loans. The balance of the mortgage loans retired was $12,468,000, and the Company received net proceeds, including funds held by the lender for required repairs, from the issuance of the new mortgage loans of approximately $7,032,000. The Company also paid off four mortgage loans totaling $10,220,000. In connection with the early retirement of the old mortgage loans, the Company recorded prepayment penalties of $356,000 and a write off of deferred debt issuance costs of $74,000 in its statement of operations for the year ended December 31, 2003.

	During the year ended December 31, 2002, the Company completed the refinancing of twenty two mortgage loans. The balance of the mortgage loans retired was $61,308,000, and the Company received net proceeds, including funds held by the lender for required repairs, from the issuance of the new mortgage loans of approximately $22,319,000. In connection with the early retirement of the old mortgage loans, the Company recorded prepayment penalties of $745,000 and a write off of deferred debt issuance costs of $476,000 in its statement of operations for the year ended December 31, 2002.


	In 2003, through a wholly-owned subsidiary, the Company repurchased 3,715,074 redeemable Class 1 Units for an aggregate price of $4,841,000.

	From January 1, 2004 through March 30, 2004, through our wholly-owned subsidiary, we repurchased an additional 513,483 Class 1 Units for an aggregate price of $754,800; 19,657 Class 2 Units for an aggregate price of $28,900; 105,508 Class 3 Units for an aggregate price of $155,100.


	If the Company’s Board of Managers declares any additional distributions of cash from available cash, subject to any applicable Certificates of Designations granting any Class of Units or Series of Preferred Units with preferential, participating or subordinate rights, then the holders of Units as of the record date are entitled to receive all such distributions which the Board has declared, with each Unit entitled to receive a pro-rata portion of such available distributions on a per Unit basis.

	During the year ended December 31, 2003, the Company made distributions of $7,168,000 to redeemable Class 1 Unit holders, excluding distributions on Units owned by our subsidiary. During April 2003 the Company paid to the California Franchise Tax Board $105,000 on behalf of our non-California Class 1 Unit holders who had been allocated income deemed taxable by the State of California and made a distribution of $489,000 to members who were not required to make a California tax deposit, excluding distributions on Units owned by our subsidiary. This special distribution and the payments to the California Franchise Tax Board were intended to offset certain state income tax liabilities incurred by the Company’s members in 2003 due to their ownership of JCM Partners’ Class 1 Units. All of the distributions in 2003 were made from cash from operations and available cash.

	During the year ended December 31, 2002, the Company made distributions of $6,573,000 to redeemable Class 1 Unit holders, excluding distributions on Units owned by our subsidiary. During April 2002 the

Company paid to the California Franchise Tax Board $125,000 on behalf of our non-California Class 1 Unit holders who had been allocated income deemed taxable by the State of California and made a distribution of $614,000 to members who were not required to make a California tax deposit, excluding distributions on Units owned by our subsidiary. This special April 2002 distribution and the payments to the California Franchise Tax Board were intended to offset certain state income tax liabilities incurred by the Company’s members in 2002 due to their ownership of JCM Partners’ Class 1 Units. All of the distributions in 2002 were made from cash from operations.

Beginning in July 2002, we were required under the terms of our Operating Agreement to make mandatory monthly distributions to the holders of Class 1 Units in an amount equal to 1/12 of $0.0775 (seven and 3/4 cents) per Class 1 Unit (the “Mandatory Monthly Distributions”). When we amended and restated our Operating Agreement as of June 25, 2003, our obligation to pay the Mandatory Monthly Distributions was placed in the Class 1 COD (Certificate of Designations). The Class 1 Mandatory Monthly Distributions may be from cash from operations or cash from sales, or both. If we fail, for any reason, to pay any Class 1 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our properties as quickly as commercially reasonable and must pay the Class 1 Unit holders interest on any overdue Mandatory Monthly Distributions at the rate of ten percent per year. Once we no longer have any overdue Mandatory Monthly Distributions, we may cease liquidating our properties.

Beginning in January 2004, we were required under the terms of our Certificate of Designations of Class 2 Units to make mandatory monthly distributions to the holders of Class 2 Units in an amount equal to 1/12 of $0.08 (eight cents) per Class 2 Unit (the “Class 2 Mandatory Monthly Distributions”). The Class 2 Mandatory Monthly Distributions may be from cash from operation or cash from sales, or both. If we fail, for any reason, to pay any Class 2 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our assets as quickly as commercially reasonable and must pay the Class 2 Unit holders interest on any overdue Class 2 Mandatory Monthly Distribution(s) at the rate of ten percent per year. Once we no longer have any overdue Class 2 Mandatory Monthly Distribution, we may cease liquidating our assets.

Beginning in January 2004, we were required under the terms of our Certificate of Designations of Class 3 Units to make mandatory monthly distributions to the holders of Class 3 Units in an amount equal to 1/12 of $0.0825 (eight and 25/100 cents) per Class 3 Unit (the “Class 3 Mandatory Monthly Distributions”). The Class 3 Mandatory Monthly Distributions may be from cash from operation or cash from sales, or both. If we fail, for any reason, to pay any Class 3 Mandatory Monthly Distribution(s) in a timely manner, we must begin liquidating our assets as quickly as commercially reasonable and must pay the Class 3 Unit holders interest on any overdue Class 3 Mandatory Monthly Distribution(s) at the rate of ten percent per year. Once we no longer have any overdue Class 3 Mandatory Monthly Distribution, we may cease liquidating our assets.

Our Class 1 COD provides that, except as set forth below, each holder of Class 1 Units as of June 30, 2005 will have the right to require us to redeem all or, if so elected by the holder, a portion, of his or her Class 1 Units on June 30, 2007. The exercise price for each Class 1 Unit will be calculated primarily based on the appraised value of our real properties in accordance with our Operating Agreement. All


	distributions paid after June 30, 2005 to the holders of Class 1 Units who exercise their Put Rights will be credited against the Exercise Price.

	If a sufficient number of Class 1 Unit holders exercise their right to have their Class 1 Units redeemed, our continued operation beyond June 30, 2007 may not be reasonably feasible. Accordingly, the Class 1 COD requires our Board of Managers to meet no later than June 30, 2006 to determine whether JCM should continue operations beyond June 30, 2007. If our Board of Managers determines in its sole discretion that our operations should not continue beyond June 30, 2007, then we must inform all owners of Units (and Preferred Units, if any) of this decision within 30 days after June 30, 2006 and the following will occur:


	•	the Class 1 Unit holders’ rights to be redeemed as described above on June 30, 2007 will become null and void;

	•	all of our properties will be sold as soon as practicable; and

	•	all owners of Units, and Preferred Units, if any, will receive the liquidation distributions to which they are entitled under our Operating Agreement and Class 1 COD.


	Our Class 2 COD provides that, except as set forth below, each holder of Class 2 Units as of June 30, 2010, will have the right to require us to redeem all, of if so elected by the holder, a portion, of his or her Class 2 Units on June 30, 2012. The exercise price for each Class 2 Unit will be calculated as follows primarily based on the appraised value of our real properties in accordance with our Operating Agreement. All distributions paid after June 30, 2010 to the holders of Class 2 Units who exercise their Class 2 Put Rights will be credited against the Exercise Price.

	If a sufficient number of Class 2 Unit holders exercise their Class 2 Put Rights, our continued operations may not be feasible. Accordingly, the Class 2 COD requires our Board of Managers to meet no later than December 27, 2010 to determine whether we should continue to operate past June 30, 2012. If our Board of Managers determines, in its sole discretion, that we cannot continue customary operations beyond June 30, 2012, the following will occur under Section 5.6 of the Class 2 COD:


	•	If the Board determines that we can maintain our existence as a going concern and prudently satisfy our obligations to the holders of Class 2 Units who exercised their Class 2 Put Rights through one or more of the following methods: use of available cash and cash equivalents, the issuance of new Units or Preferred Units in capital raising transactions, other financing transactions, or a partial liquidation of our assets, then we will not be liquidated, and we will satisfy our obligations to the holders of Class 2 Units who exercised their Put Option in a timely manner. It is our intent to remain a going concern and not to be liquidated, even if substantially all of our assets are sold in order to satisfy our obligations.

	•	If the Board determines that we cannot meet the test set forth above, then the following will occur: the Class 2 Put Rights will be null and void and no holder of Class 2 Units will be entitled to receive the Exercise Price; all of our assets will be sold as soon as practicable; all owners of Units, and Preferred Units, if any, will receive the liquidation distributions to which they are entitled under the Agreement; and we will inform all owners of Units and Preferred Units of this decision before January 27, 2011.


	The holders of Class 3 Units do not have a Put Right similar to the Class 1 Units or Class 2 Units, or any other right to require JCM to redeem their Class 3 Units.


	In the normal course of business, the Company enters into transactions with related parties on substantially the same terms as comparable transactions with unaffiliated persons. During the years ending December 31, 2003, December 31, 2002 and December 31, 2001 the Company paid approximately $66,000, $122,000 and $36,000 respectively, for landscaping and repair services to a company that is owned by a relative of the chief operating officer of JCM Partners, LLC.

	The Company entered into a management services agreement, dated as of July 1, 2000, with JCIV, LLC, a California limited liability company of which the Company’s then CEO/ President is the sole member. Pursuant to the terms of the management services agreement, the Company agreed to retain JCIV, LLC through April 30, 2001 for a fee of $42,000 per month. On March 15, 2001, the Company entered into a Transition Services Agreement and Amendment to Management Services Agreement with JCIV, LLC. Pursuant to this agreement, the termination date of the management services agreement was accelerated from April 30, 2001 to March 15, 2001 and the Company agreed to engage the former CEO/ President as an independent consultant to provide transition management services for the period of March 19, 2001 through March 30, 2001 with compensation totaling $62,000.

	On March 8, 2001, the Company retained Computer Management Corporation (“CMC”) to provide management services to the Company. The Company’s Chairman of the Board and his wife, who is the CEO/ President of the Company, own CMC. Pursuant to the terms of the agreement, the Company agreed to retain CMC through April 30, 2002 for a fee of $25,000 per month. During the period from March 8, 2001 to December 31, 2001, the Company paid $225,000 for such services to CMC. On March 21, 2002, the Board approved renewal of the agreement with CMC on the same terms as the prior agreement, except that the new agreement with CMC terminates on April 30, 2004, and the amount of insurance required was conformed to the Company’s existing managers’ and officers’ liability insurance. During 2003 and 2002, the Company paid $300,000 each year for such services to CMC.

The Company believes that the carrying amounts of its mortgages payable approximate their fair value as of December 31, 2003 and 2002 because interest rates and yields for these instruments are consistent with rates currently available to the Company for similar instruments. Management believes that the carrying amounts of cash and restricted cash approximate fair value as of December 31, 2003 and 2002 due to the short term maturity of these instruments.

The Company defines each of its real estate investments as an individual operating segment. Based on the criteria for aggregation of segments with similar economic characteristics, the Company has two reportable segments: apartment communities and commercial properties. The accounting policies of the segments are the same as those described in the summary of significant accounting policies. Property administration and corporate overhead expenses, along with interest, other income, capital expenditures, and assets have been allocated on a relative revenue basis to each segment. Net operating income before discontinued operations is calculated by taking total net income (loss) and adding back interest expense, depreciation and amortization, prepayment penalty, write off of deferred debt issuance costs, loss on


	impairment of assets and loss from discontinued operations and subtracting interest revenue and income from discontinued operations. Segment data is as follows:


	Results of operations data for the quarters ended March 31, June 30, September 30, and December 31, 2003, 2002 and 2001, excluding discontinued operations for rental revenue, are as follows:


	*	For the fourth quarter in 2003, rental revenue from discontinued operations for property still owned as of December 31, 2003 was $134,789.


	The Company has adopted and contributes to a 401(k) retirement plan. The plan covers all employees who work 1,000 hours or more per calendar year after one year of employment with the Company. Total discretionary employer match contributions to the plan during the years ended December 31, 2003, 2002 and 2001 were $78,000, $81,000 and $53,000, respectively.

The Company files a consolidated tax return with respect to the LLC fee imposed by the state of California. The Company has taken the position that the LLCs were the mere agents of JCM and, therefore, had no gross income. Based on this, these entities paid the minimum tax but the LLC fee was paid at the parent level. It is at least reasonably possible that the California tax authorities may not concur with this position. For 2003, the Company has accrued as an expense $161,000 related to the LLC fees as if the subsidiary LLCs filed individual returns to be paid in April 2004.

[Continued from above table, first column(s) repeated]



		Gross Amount at Which
		Carried at Close of Period

		Land and		Buildings		Loss on		Total
		Land		and		impairment		Carrying
		Improvements		Improvements		of assets		Value

Apartments:
	Sacramento Region
	Antelope Woods	$	900,886	$	4,825,222		—	$	5,726,108
	Carmichael Gardens		590,408		3,402,249		—		3,992,657
	Country Glen		481,041		3,437,757		—		3,918,798
	Fair Oaks Meadows		1,267,530		3,830,235		—		5,097,765
	Foxworth		676,550		2,876,203		—		3,552,753
	Glenbrook		1,784,510		7,484,372		—		9,268,882
	Hidden Creek		506,463		3,878,817		—		4,385,280
	LaRiviera		1,619,968		7,654,506		—		9,274,474
	LaRiviera Commons		1,706,184		4,948,850		—		6,655,034
	Lincoln Place		1,486,140		8,115,816		—		9,601,956
	Meadow Gardens I		1,137,394		4,581,345		—		5,718,739
	Meadow Gardens II		762,696		2,536,131		—		3,298,827
	Morningside Creek		891,588		3,105,118		—		3,996,706
	North Country Vista		1,862,010		6,180,201		—		8,042,211
	Orangewood East		494,856		3,350,810		—		3,845,666
	Orangewood West		582,084		4,233,731		—		4,815,815
	Riverside Commons		520,380		2,555,498		—		3,075,878
	Sterling Pointe I		969,617		4,136,044		—		5,105,661
	Sterling Pointe II		983,496		4,316,782		—		5,300,278
	Sunrise Commons		1,906,170		6,991,488		—		8,897,658
	Windbridge		1,238,720		6,783,801		—		8,022,521
	Stockton Region
	Inglewood Oaks		477,086		1,836,909		—		2,313,995
	LaEspana		91,616		486,051		—		577,667
	Mariners Cove		633,360		3,371,193		—		4,004,553
	Oakwood		3,829,617		7,918,993		—		11,748,610
	Modesto/ Turlock Region
	Greenbriar		924,792		2,619,770		—		3,544,562
	Meadow Lakes		1,357,884		6,402,119		—		7,760,003
	Northwood Place		677,588		1,813,834		—		2,491,422
	Park Lakewood		930,248		4,101,751		—		5,031,999
	Villa Verde North		1,200,600		3,050,563		—		4,251,163
	Walnut Woods		963,236		4,257,019		—		5,220,255
	Northlake Gardens		501,144		1,228,974		—		1,730,118
	Tracy/ Manteca Region
	Driftwood		940,032		4,581,399		—		5,521,431
	Fairway Estates		1,234,440		5,274,069		—		6,508,509
	Granville		918,000		4,156,411		—		5,074,411
	Laurel Glen		1,574,000		6,474,623		—		8,048,623

[Continued from above table, first column(s) repeated]



		Gross Amount at Which
		Carried at Close of Period

		Land and				Loss on			Total
		Land		Buildings and		Impairment			Carrying
		Improvements		Improvements		of assets			Value

Apartments:
	Fairfield/ Vacaville Region
	Creekside Gardens	$	1,550,920	$	10,291,108		—		$	11,842,028
	Parkwood		950,880		4,749,578		—			5,700,458
	Peach Tree Villa		336,755		2,101,495		—			2,438,250
	Peachwood		584,082		2,814,974		—			3,399,056
	Village Green		1,562,190		11,913,316		—			13,475,506
	Concord/ Antioch Region
	Crestview Pines		1,443,189		3,067,824		—			4,511,013
	Diablo View		1,276,560		4,174,780		—			5,451,340
	Meadowlark		463,130		1,048,569		—			1,511,699
	Oakview		720,360		1,620,734		—			2,341,094
	Villa Diablo		380,800		775,144		—			1,155,944

		$	47,891,200	$	199,356,176		—		$	247,247,376

Commercial:
Bay Area Region
860 Kaiser Road			331,450		1,557,919		—			1,889,369
900 Business Park			831,875		2,124,324		—			2,956,199
908 Enterprise Way			215,574		1,021,024		—			1,236,598
910 Enterprise Way			314,060		1,735,940		—			2,050,000
988 Enterprise Way			205,995		724,005		—			930,000
938 Kaiser Road			286,485		778,515		—			1,065,000
Salvio Pacheco Square			2,107,840		9,256,442		—			11,364,282
Wilson Building			2,365,830		2,484,170		—			4,850,000
Starlight Estates			2,000,000		—		(1,250,000	)		750,000

		$	8,659,109	$	19,682,339	$	(1,250,000	)	$	27,091,448

Total real estate owned		$	56,550,309	$	219,038,515	$	(1,250,000	)	$	274,338,824


(A)	Approximation of fair value as of June 30, 2000 as disclosed in footnote 2 of Notes to Consolidated Financial Statements


(A)	Approximation of fair value as of June 30, 2000 as disclosed in footnote 2 of Notes to Consolidated Financial Statements

At a meeting held on June 26, 2003, the Board of Managers of the Company, upon the recommendation of its audit committee at a meeting earlier that day, approved the dismissal of Deloitte & Touche, LLP (“D&T”), as its independent accountants. Effective June 26, 2003, the Board of Managers of the Company, upon the recommendation of its audit committee, appointed Moss Adams LLP as its new independent accountants. See our Form 8-K, dated June 26, 2003, which we filed with the SEC on July 3, 2003 regarding these matters for further information. The information contained in that Form 8-K is incorporated by reference herein.

Under the supervision and with the participation of Gayle M. Ing, the Company’s Chief Executive Officer, and Cornelius Stam, the Company’s Chief Financial Officer, management carried out an evaluation of the effectiveness of the design and operation of the Company’s disclosure controls and procedures pursuant to Rule 13a-15 of the Exchange Act. Based on that evaluation, the Chief Executive Officer and Chief Financial Officer have concluded that as of the end of the period covered by this report, the Company’s disclosure controls and procedures are effective.

There has been no change in the Company’s internal control over financial reporting during the period covered by this report that has materially affected or is reasonably likely to materially affect the Company’s internal control over financial reporting.

The information required by this item with respect to the managers and compliance with Section 16(a) of the Securities Exchange Act is incorporated by reference from the information provided under the headings Proposal 1 — “Election of Managers” and Section 16(a) Beneficial Ownership Reporting Compliance,” respectively, contained in our Proxy Statement to be filed with the Securities and Exchange Commission in connection with the solicitation of proxies for our Annual Meeting of Members to be held June 2004 (the “Proxy Statement”). The information required by this item with respect to our executive officers is contained in Item 1 of Part I of this Form 10-K under the heading “Executive Officers of the Registrant.”

We have a Code of Ethics, as defined in the SEC rules, as applicable to our chief executive officer and chief financial officer. We will provide a copy of it free of charge upon request. Requests for a copy of the Code should be directed to Secretary, JCM Partners, LLC, P.O. Box 3000, Concord, CA 94522-3000.

The information required by this item is incorporated by reference from the information provided under the heading “Executive Compensation and Other Matters” of the Proxy Statement.

The information required by this item is incorporated herein by reference from the information provided under the heading “Beneficial Ownership” of the Proxy Statement and in Item 5 above.

The information required by this item is incorporated herein by reference from the information provided under the heading “Certain Relationships and Related Transactions” of the Company’s Proxy Statement.

The information required by this item is incorporated herein by reference from the information provided under the heading “Information with Respect to the Independent Accountants” of the Company’s Proxy Statement.


		Independent Auditors Report for the year ended December 31, 2003

		Independent Auditors Report for the years ended December 31, 2002 and 2001

		Consolidated Balance Sheets — For the Years Ended December 31, 2002 and December 31, 2003

		Consolidated Statements of Operations — For the Years Ended December 31, 2001, December 31, 2002 and December 31, 2003

		Consolidated Statements of Changes in Members’ Equity — For the Years Ended December 31, 2001, December 31, 2002 and December 31, 2003

		Consolidated Statements of Cash Flows — For the Years Ended December 31, 2001, December 31, 2002 and December 31, 2003

		Notes to Consolidated Financial Statements

All other schedules are omitted because they are not applicable or because the required information is shown in the Consolidated Financial Statements or the Notes thereto.


*	Indicates management contract or compensation plan or arrangement.

(1)	Incorporated by reference to the exhibit with the same exhibit number attached to our Registration Statement on Form 10 (File No. 000-32653) filed on October 3, 2001 with the Securities and Exchange Commission.

(2)	Incorporated by reference to the exhibit with the same exhibit number attached to our Current Report on Form 8-K filed on November 16, 2001 with the Securities and Exchange Commission.

(3)	Incorporated by reference to Exhibit 3 to our Quarterly Report on Form 10-Q filed on November 19, 2001 with the Securities and Exchange Commission.

(4)	Incorporated by reference to the exhibit with the same exhibit number attached to our Quarterly Report on Form 10-Q, filed on May 15, 2002 with the Securities and Exchange Commission.

(5)	Incorporated by reference to the exhibit with the same exhibit number attached to our Quarterly Report on Form 10-Q, filed on August 14, 2002 with the Securities and Exchange Commission.


(6)	Incorporated by reference to the exhibits with the same exhibit number attached to our Current Report on Form 8-K, filed on July 25, 2003 with the Securities and Exchange Commission.

(7)	Incorporated by reference to the exhibits with exhibit numbers 4.1 and 4.2 attached to our Current Report on Form 8-K, filed on October 8, 2003 with the Securities and Exchange Commission.

(8)	Incorporated by reference to the exhibit with exhibit number 99.3 attached to our Current Report on Form 8-K, filed on July 25, 2003 with the Securities and Exchange Commission.

(9)	Incorporated by reference to the exhibit with exhibit number 99.1 attached to our Current Report on Form 8-K, filed on October 27, 2003 with the Securities and Exchange Commission.


(10)	Incorporated by reference to the exhibit with the same exhibit number attached to our Current Report on Form 8-K, filed on July 3, 2003 with the Securities and Exchange Commission.

(11)	Incorporated by reference to the exhibits with the exhibit numbers 99.1 and 99.2 attached to our Current Report on Form 8-K, filed on October 15, 2003 with the Securities and Exchange Commission.


	(b)	We filed the following Current Reports on Form 8-K with the SEC during the fourth quarter of 2003:


	1.	On October 8, 2003 (September 24, 2003 event date), in order to file the Certificates of Designations of our Class 2 and Class 3 Units.

	2.	On October 15, 2003 (October 14, 2003 event date), in order to file our Description of Securities and Summary of Operating Agreement disclosure documents.

	3.	On October 27, 2003 (October 27, 2003 event date), in order to file our Form of Unit Conversion Form.

Pursuant to the requirements of Section 13 or 15(d) 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, on March 30, 2004.

Pursuant to the requirements of the Securities Exchange Act of 1934, this report has been signed below by the following persons on behalf of the registrant and in the capacities and on the dates indicated.


*	Indicates management contract or compensation plan or arrangement.

(1)	Incorporated by reference to the exhibit with the same exhibit number attached to our Registration Statement on Form 10 (File No. 000-32653) filed on October 3, 2001 with the Securities and Exchange Commission.

(2)	Incorporated by reference to the exhibit with the same exhibit number attached to our Current Report on Form 8-K filed on November 16, 2001 with the Securities and Exchange Commission.

(3)	Incorporated by reference to Exhibit 3 to our Quarterly Report on Form 10-Q filed on November 19, 2001 with the Securities and Exchange Commission.

(4)	Incorporated by reference to the exhibit with the same exhibit number attached to our Quarterly Report on Form 10-Q, filed on May 15, 2002 with the Securities and Exchange Commission.

(5)	Incorporated by reference to the exhibit with the same exhibit number attached to our Quarterly Report on Form 10-Q, filed on August 14, 2002 with the Securities and Exchange Commission.

(6)	Incorporated by reference to the exhibits with the same exhibit number attached to our Current Report on Form 8-K, filed on July 25, 2003 with the Securities and Exchange Commission.

(7)	Incorporated by reference to the exhibits with exhibit numbers 4.1 and 4.2 attached to our Current Report on Form 8-K, filed on October 8, 2003 with the Securities and Exchange Commission.

(8)	Incorporated by reference to the exhibit with exhibit number 99.3 attached to our Current Report on Form 8-K, filed on July 25, 2003 with the Securities and Exchange Commission.

(9)	Incorporated by reference to the exhibit with exhibit number 99.1 attached to our Current Report on Form 8-K, filed on October 27, 2003 with the Securities and Exchange Commission.


(10)	Incorporated by reference to the exhibit with the same exhibit number attached to our Current Report on Form 8-K, filed on July 3, 2003 with the Securities and Exchange Commission.

(11)	Incorporated by reference to the exhibits with the exhibit numbers 99.1 and 99.2 attached to our Current Report on Form 8-K, filed on October 15, 2003 with the Securities and Exchange Commission.


(Mark One)
þ		ANNUAL REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934
		For the fiscal year ended December 31, 2003
OR
o		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 000-32653


Delaware		94-3364323
(State or Other Jurisdiction of Incorporation or Organization)		(I.R.S. Employer Identification No.)

2151 Salvio Street, Suite 325, Concord, CA		94520
(Address of Principal Executive Offices)		(Zip Code)




	Owned by		Owned by		Total
Class of Unit	Members		Subsidiary		Outstanding


Class 1		42,369,779		10,861,214		53,230,993

Class 2		10,391,652		19,657		10,411,309

Class 3		26,404,341		105,508		26,509,849

Total		79,165,772		10,986,379		90,152,151


PART I
Item 1.	Business	1
Item 2.	Properties	16
Item 3.	Legal Proceedings	18
Item 4.	Submission of Matters to a Vote of Security Holders	19
PART II
Item 5.	Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities	19
Item 6.	Selected Financial Data	23
Item 7.	Management’s Discussion and Analysis of Financial Condition and Results of Operations	25
Item 7A.	Quantitative and Qualitative Disclosures About Market Risk	38
Item 8.	Financial Statements and Supplementary Data	39
Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure	40
Item 9A.	Controls and Procedures	40
PART III
Item 10.	Managers and Executive Officers of the Registrant	40
Item 11.	Executive Compensation	40
Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Membership Matters	40
Item 13.	Certain Relationships and Related Transactions	40
Item 14.	Principal Accountant Fees and Services	41
PART IV
Item 15.	Exhibits, Consolidated Financial Statements, Schedules and Reports on Form 8-K	41
Signature Page		44


														Average
														Monthly
														Rental Rates
					Percentage of									for the Year
			Number of		Total Real									Ended		Average
	Number of		Apartment		Estate Net			Net Book				Physical		December 31,		Unit Size
Properties	Properties		Units		Book Value			Value		Encumbrances		Occupancy(A)		2003(B)		(Square feet)

Residential Apartments by Geographic Markets
Sacramento, CA		21		2,805		44.3	%	$	107,947,273	$	86,436,999		94.9%	$	743		734
Stockton, CA		4		483		6.8	%		16,314,256		15,764,141		93.2%		739		813
Modesto/ Turlock, CA		7		752		10.9	%		27,053.174		23,351,387		94.3%		730		780
Tracy/ Manteca, CA		4		454		9.2	%		22,059,049		18,294,509		95.4%		823		721
Fairfield/Vacaville, CA		5		634		13.4	%		33,118,581		18,797,798		96.1%		933		753
Concord/ Antioch, CA		5		233		5.5	%		13,681,897		12,459,911		94.0%		930		684

Total Residential Apartments		46		5,361		90.1	%	$	220,174,230	$	175,104,745		94.8%	$	778		747

Commercial Properties(C)		9		N/A		9.9	%		24,945,853		10,356,497		75.4%		N/A		N/A

Total All Properties		55		5,361		100.0	%	$	245,120,083	$	185,461,243		91.1%	$	778		747


⁽¹⁾	The Company did not file a Form 10-Q for the period ending June 30, 2001. However, the Company’s Form 10, filed with the Securities and Exchange Commission on October 3, 2001 contains certain financial information for the six-month period ended June 30, 2001


Name	Age		Offices

Gayle M. Ing		54	Manager, Chief Executive Officer, President, Secretary and Tax Matters Partner
Michael Vanni		64	Manager and Chairman of the Board
Marvin J. Helder		54	Manager and Vice Chairman of the Board
Brian S. Rein		46	Chief Operating Officer and Director, Property
Cornelius Stam		56	Management Chief Financial Officer and Director, Property Management


(C)	Includes eight commercial properties and one parcel of land.


Properties	2003		2002		2001		2000		1999

Residential Apartments:
Sacramento		94.9%		95.9%		95.6%		96.2%		94.3%
Stockton		93.2%		95.4%		96.1%		97.9%		94.8%
Modesto/ Turlock		94.3%		95.3%		94.9%		96.8%		94.7%
Tracy/ Manteca		95.4%		93.2%		93.0%		94.7%		96.0%
Fairfield/ Vacaville		96.1%		97.8%		92.0%		95.3%		94.6%
Concord/ Antioch		94.0%		93.1%		88.8%		95.3%		94.4%

Total Residential Apartments		94.8%		95.7%		94.6%		96.2%		94.6%
Commercial Properties		75.4%		88.3%		82.0%		88.1%		94.1%

Total All Properties		91.1%		94.3%		92.2%		94.6%		94.5%


							Average Life
Residential							Claimed with
Apartments by	Adjusted Federal		Average Real		Annual Realty		Respect to
Geographic Markets	Tax Basis		Estate Tax		Taxes		Depreciation

Sacramento, CA (21 properties)	$	43,579,607		1.08	$	1,595,762		28
Stockton, CA (4 properties)		11,920,179		1.03		247,352		23
Modesto/ Turlock, CA (7 properties)		14,264,542		1.06		316,001		31
Tracy/ Manteca, CA (4 properties)		10,268,200		1.00		261,214		25
Fairfield/ Vacaville, CA (5 properties)		11,819,480		1.10		472,154		35
Concord/ Antioch, CA (5 properties)		7,078,612		1.05		223,900		31
Commercial (8 properties)		23,881,653		1.09		336,063		35

Total (54 properties)	$	122,812,273			$	3,452,446


Item 5.	Market for Registrant’s Common Equity, Related Security Holder Matters and Issuer Purchases of Equity Securities


	Class 2 Units are convertible by the holders of Class 2 Units as follows:


	Year Ended			Year Ended			Year Ended
	December 31, 2003			December 31, 2002			December 31, 2001

Rental revenue from continuing operations	$	52,248,248		$	50,930,864		$	48,519,384
Rental revenue from discontinued operations	$	918,008		$	2,124,667		$	1,290,075
Net income (loss) before discontinued operations	$	(1,028,392	)	$	(312,364	)	$	1,508,342
Income (loss) from discontinued operations	$	2,602,335		$	875,284		$	(440,239	)
Total net income	$	1,573,943		$	562,920		$	1,068,103
Net income per Class 1 Unit	$	0.02		$	0.01		$	0.01
Distributions to Class 1 Unit holders	$	7,167,503		$	6,572,892		$	2,584,870


(B)	Excludes Class 1 Units owned by our wholly-owned subsidiary.


					Period from
			Six Months Ended		January 1,		Year Ended
			December 31,		2000 to June		December 31,
			2000		29, 2000		1999

Rental revenue			$	23,397,831	$	21,221,841	$	40,038,261
Direct operating expenses:
	Operating and maintenance			6,378,529		7,041,143		11,019,924
	Real estate taxes and insurance			1,914,166		1,712,210		2,916,950
	Utilities			1,841,681		1,822,209		3,279,110

		Total direct operating expenses		10,134,376		10,575,562		17,215,984

Rental revenue in excess of direct operating expenses			$	13,263,455	$	10,646,279	$	22,822,277


Properties	2003		2002		2001		2000		1999

Residential Apartments:
Sacramento	$	1.01	$	0.98	$	0.94	$	0.85	$	0.77
Stockton		0.91		0.88		0.84		0.76		0.68
Modesto/ Turlock		0.94		0.93		0.90		0.80		0.71
Tracy/ Manteca		1.14		1.17		1.19		1.12		0.99
Fairfield/ Vacaville		1.24		1.24		1.20		1.11		0.97
Concord/ Antioch		1.36		1.40		1.47		1.36		1.14

Total Residential Apartments		1.04		1.03		0.99		0.91		0.81
Commercial		1.26		1.27		1.21		1.11		1.00

Total All Properties		1.06		1.04		1.01		0.92		0.82



	Occupancy at December 31,

Property Type	2003		2002		2001

Apartment Communities		94.8%		95.7%		94.6%
Commercial Properties		75.4%		88.3%		82.0%



		Year ended December 31,

		2003			2002			2001

Net income (loss)		$	1,573,943		$	562,920		$	1,068,103
Adjustments:
Depreciation and amortization:
	Real property		8,890,405			8,349,434			7,932,460
	Capitalized leasing expense		88,968			79,982			53,634
Loss on impairment of assets			1,250,000			—			—
Discontinued operations:
	Depreciation		107,284			145,746			154,316
	Capitalized leasing expenses		8,834			8,534			8,534
	Gain on sale of property		(2,734,914	)		(61,475	)		(5,183	)
Write off of deferred debt issuance costs			87,111			475,881			594,543

Funds from operations		$	9,271,631		$	9,561,022		$	9,806,407

Funds from operations per Class 1 Unit		$	0.11		$	0.11		$	0.10

Income (loss) per outstanding unit (per Income Statement) —
	From continuing operation	$	(0.01	)	$	0.00		$	0.02
	From discontinued operations	$	0.03		$	0.01		$	(0.01	)

Net Income per Class 1 Unit (per Income Statement)		$	0.02		$	0.01		$	0.01

Weighted average Class 1 Units			82,163,512			85,861,010			94,951,736



	Payments due by period
Contractual Obligations
	Total		<1 yr		1-3 yrs		3-5 yrs		>5 yrs

Capital Lease		N/A		N/A		N/A		N/A		N/A

Operating Lease		N/A		N/A		N/A		N/A		N/A

Purchase Agreements		N/A		N/A		N/A		N/A		N/A

Long-term debt	$	185,461,243	$	2,687,338	$	5,826,652	$	19,716,059	$	157,231,194

Total	$	185,461,243	$	2,687,338	$	5,826,652	$	19,716,059	$	157,231,194


Balance, January 1, 2003	$	77,138,059
Repurchase Of Redeemable Class 1 Units		(4,840,850	)
Distributions		(7,167,503	)
Net Income		1,573,943

Balance, December 31, 2003	$	66,703,649


			2004			2005			2006			2007			2008			Thereafter

Mortgage loans with fixed rates maturing through March 2012(1)			$	1,622,015		$	1,702,883		$	1,841,597		$	1,963,192		$	2,062,224		$	111,793,117
		Average interest rate		6.39	%		6.39	%		6.39	%		6.39	%		6.39	%		6.39	%
Mortgage loans with fixed rates that become variable between July 2004 and January 2008, maturing through 2033 (2)			$	605,256		$	641,897		$	681,524		$	7,691,476		$	661,700		$	33,493,648
		Average interest rate		6.11	%		6.11	%		6.11	%		6.11	%		6.11	%		6.11	%
Mortgage loans with variable rates maturing through 2031(3)			$	460,067		$	471,609		$	487,141		$	6,934,179		$	403,287		$	11,944,429
	Average interest rate(3)			4.66	%		4.66	%		4.66	%		4.66	%		4.66	%		4.66	%


		Page
INDEPENDENT AUDITORS’ REPORT, FOR THE YEAR ENDED DECEMBER 31, 2003			F-1

INDEPENDENT AUDITORS’ REPORT, FOR YEARS ENDED DECEMBER 31, 2002 AND 2001			F-2

FINANCIAL STATEMENTS:
	Consolidated Balance Sheets as of December 31, 2003 and December 31, 2002		F-3

	Consolidated Statements of Operations for the Years Ended December 31, 2003, December 31, 2002 and December 31, 2001		F-4

	Consolidated Statements of Changes in Members’ Equity for the Years Ended December 31, 2003, December 31, 2002 and December 31, 2001		F-5

	Consolidated Statements of Cash Flows for the Years Ended December 31, 2003, December 31, 2002 and December 31, 2001		F-6

	Notes to Consolidated Financial Statements		F-7

FINANCIAL STATEMENT SCHEDULES:
	Schedule III — Real Estate and Accumulated Depreciation		F-18



		Preferred Units						Redeemable Common Units
														Retained
		Units			Amount			Units			Amount			Earnings			Total

BALANCE, DECEMBER 31, 2000			12,067,539		$	12,067,539			90,152,151		$	90,152,151		$	167,795		$	102,387,485
	Redemption of preferred units		(12,067,539	)		(12,067,539	)											(12,067,539	)
	Distribution														(293,472	)		(293,472	)
	Reclassification of redeemable common units to mandatory distribution payable											(19,741,174	)					(19,741,174	)
	Net Income														1,068,103			1,068,103

BALANCE, DECEMBER 31, 2001			—			—			90,152,151		$	70,410,977		$	942,426		$	71,353,403
	Reclassification of mandatory distribution payable to redeemable common units											14,176,248						14,176,248
	Distributions											(3,299,369	)					(3,299,369	)
	Repurchase of redeemable common units								(6,632,657	)		(5,655,143	)					(5,655,143	)
	Net income														562,920			562,920

BALANCE, DECEMBER 31, 2002			—			—			83,519,494		$	75,632,713		$	1,505,346		$	77,138,059
	Distributions											(7,167,503	)					(7,167,503	)
Repurchase of redeemable Class 1 Units									(3,715,074	)		(4,840,850	)					(4,840,850	)
	Net income														1,573,943			1,573,943

BALANCE, DECEMBER 31, 2003			—			—			79,804,420		$	63,624,360		$	3,079,289		$	66,703,649



	Twelve Months Ended December 31,

	2003			2002			2001

Rental revenues	$	918,008		$	2,124,667		$	1,290,075
Interest and other		10,285			—			—
Interest expense		(206,911	)		(264,244	)		(266,329	)
Operating and maintenance		(458,322	)		(558,941	)		(535,470	)
Depreciation and amortization		(119,056	)		(158,285	)		(154,316	)
General and administrative		(2,400	)		(4,261	)		(453,860	)
Real estate taxes and insurance		(135,684	)		(154,437	)		(130,521	)
Utilities		(125,842	)		(170,690	)		(191,551	)
Write off of deferred debt issuance costs		(12,657	)		—			(3,450	)
Gain on sales		2,734,914			61,475			5,183

Total discontinued operations	$	2,602,335		$	875,284		$	(440,239	)


2004	$	2,876,632
2005		2,183,640
2006		1,382,872
2007		668,159
2008		439,916
Thereafter		24,771

Total	$	7,575,989


			Apartment			Commercial
			Communities			Properties			Total

Continuing Operations
For the Year Ended December 31, 2001:
	Rental revenue		$	45,347,674		$	3,171,710		$	48,519,384
		Net operating income before discontinued operations		21,094,313			1,924,387			23,018,700
		Interest revenue		315,880			21,103			336,983
		Interest expense		11,957,882			1,089,848			13,047,730
		Depreciation and amortization		7,611,253			597,265			8,208,518
		Prepayment penalty		—			—			—
		Write off of deferred debt issuance costs		591,093			—			591,093
		Income (loss) from discontinued operations		17,241			(457,480	)		(440,239	)

	Total net income (loss)			1,267,206			(199,103	)		1,068,103
Capital expenditures				2,007,793			146,739			2,154,532

As of December 31, 2001 —
	Total assets		$	245,386,429		$	29,058,421		$	274,444,850

For the Year Ended December 31, 2002:
	Rental revenue		$	47,226,578		$	3,704,286		$	50,930,864
		Net operating income before discontinued operations		20,559,877			2,092,276			22,652,153
		Interest revenue		334,279			26,345			360,624
		Interest expense		12,436,030			973,901			13,409,931
		Depreciation and amortization		8,034,453			659,882			8,694,335
		Prepayment penalty		744,993			—			744,993
		Write off of deferred debt issuance costs		475,881			—			475,881
		Income (loss) from discontinued operations		(22,371	)		897,655			875,284

	Total net income (loss)			(819,571	)		1,382,491			562,920
Capital expenditures				3,080,872			266,596			3,347,468

As of December 31, 2002 —
	Total assets		$	241,533,429		$	27,909,914		$	269,443,343

For the Year Ended December 31, 2003:
	Rental revenue		$	48,790,908		$	3,457,340		$	52,248,248
		Net operating income before discontinued operations		20,100,449			1,557,596			21,658,045
		Interest revenue		184,254			11,918			196,172
		Interest expense		11,044,900			856,394			11,901,294
		Depreciation and amortization		8,605,964			694,985			9,300,949
		Prepayment penalty		355,913			—			355,913
		Write off of deferred debt issuance costs		74,454			—			74,454
		Loss on impairment of assets		—			1,250,000			1,250,000
		Income (loss) from discontinued operations		2,708,224			(105,889	)		2,602,335

	Total net income (loss)			2,911,697			(1,337,754	)		1,573,943
Capital expenditures				9,678,733			130,938			9,809,671

As of December 31, 2003 —
	Total assets		$	234,985,139		$	24,341,709		$	259,326,848


2003	Q1		Q2		Q3			Q4

Rental revenue*	$	12,874,611	$	13,130,916	$	13,229,746		$	13,012,975
Net income (loss)	$	555,960	$	303,762	$	3,040,705		$	(2,326,484	)
Net income (loss) per unit	$	0.01	$	0.00	$	0.04		$	(0.03	)

2002

Rental revenue	$	12,340,217	$	12,747,252	$	12,846,018		$	12,997,378
Net income (loss)	$	342,089	$	232,402	$	(66,395	)	$	54,824
Net income (loss) per unit	$	0.01	$	0.00	$	(0.00	)	$	0.00

2001

Rental revenue	$	11,680,592	$	12,186,503	$	12,289,562		$	12,362,727
Net income (loss)	$	779,478	$	1,163,275	$	22,165		$	(896,815	)
Net income (loss) per unit	$	0.01	$	0.01	$	0.00		$	(0.01	)


										Cost of
				Initial Costs(A)						Improvements
										Capitalized
				Land and		Buildings		Total Initial		Subsequent
				Land		and		Acquisition		to
		Encumbrances		Improvements		Improvements		Cost(A)		Acquisition

Apartments:
	Sacramento Region
	Antelope Woods	$	4,562,732	$	900,886	$	4,719,114	$	5,620,000	$	106,108
	Carmichael Gardens		2,849,349		590,408		3,049,592		3,640,000		352,657
	Country Glen		3,101,606		481,041		3,388,959		3,870,000		48,798
	Fair Oaks Meadows		4,167,463		1,267,530		3,742,470		5,010,000		87,765
	Foxworth		—		676,550		2,823,450		3,500,000		52,753
	Glenbrook		7,892,825		1,784,510		7,315,490		9,100,000		168,882
	Hidden Creek		3,480,283		506,463		3,703,537		4,210,000		175,280
	LaRiviera		8,300,647		1,619,968		7,340,032		8,960,000		314,474
	LaRiviera Commons		5,809,593		1,706,184		4,773,816		6,480,000		175,034
	Lincoln Place		7,952,677		1,486,140		7,813,860		9,300,000		301,956
	Meadow Gardens I		4,223,211		1,137,394		4,432,606		5,570,000		148,739
	Meadow Gardens II		2,787,953		762,696		2,447,304		3,210,000		88,827
	Morningside Creek		3,282,630		891,588		2,998,412		3,890,000		106,706
	North Country Vista		—		1,862,010		5,787,990		7,650,000		392,211
	Orangewood East		2,688,341		494,856		2,985,144		3,480,000		365,666
	Orangewood West		3,199,434		582,084		3,787,916		4,370,000		445,815
	Riverside Commons		1,958,199		520,380		2,429,620		2,950,000		125,878
	Sterling Pointe I		3,585,925		969,617		3,900,383		4,870,000		235,661
	Sterling Pointe II		4,020,347		983,496		4,176,504		5,160,000		140,278
	Sunrise Commons		7,315,301		1,906,170		6,793,830		8,700,000		197,658
	Windbridge		5,258,483		1,238,720		6,661,280		7,900,000		122,521
	Stockton Region
	Inglewood Oaks		1,443,670		477,086		1,782,914		2,260,000		53,995
	LaEspana		350,147		91,616		468,384		560,000		17,667
	Mariners Cove		3,445,869		633,360		3,266,640		3,900,000		104,553
	Oakwood		10,524,455		3,829,617		7,660,383		11,490,000		258,610
	Modesto/ Turlock Region
	Greenbriar		2,727,356		924,792		2,485,208		3,410,000		134,562
	Meadow Lakes		6,442,792		1,357,884		6,262,116		7,620,000		140,003
	Northwood Place		2,192,429		677,588		1,762,412		2,440,000		51,422
	Park Lakewood		4,187,864		930,248		3,909,752		4,840,000		191,999
	Villa Verde North		3,786,590		1,200,600		2,939,400		4,140,000		111,163
	Walnut Woods		4,014,355		963,236		4,176,764		5,140,000		80,255
	Northlake Gardens		—		501,144		1,178,856		1,680,000		50,118
	Tracy/ Manteca Region
	Driftwood		—		940,032		4,499,968		5,440,000		81,431
	Fairway Estates		5,810,747		1,234,440		5,115,560		6,350,000		158,509
	Granville		4,754,958		918,000		4,082,000		5,000,000		74,411
	Laurel Glen		7,728,805		1,574,000		6,296,000		7,870,000		178,623


								Depreciable
								Life of
		Accumulated		Date of		Date		Building
		Depreciation		Construction		Acquired		Component

Apartments:
	Sacramento Region
	Antelope Woods	$	519,802		1986		07/01/2000		35
	Carmichael Gardens		506,663		1977		07/01/2000		25
	Country Glen		328,649		1991		07/01/2000		40
	Fair Oaks Meadows		357,581		1987		07/01/2000		40
	Foxworth		264,206		1986		07/01/2000		40
	Glenbrook		1,326,475		1972		07/01/2000		20
	Hidden Creek		567,877		1978		07/01/2000		25
	La Riviera		1,348,249		1971		07/01/2000		20
	La Riviera Commons		710,042		1976		07/01/2000		25
	Lincoln Place		1,432,838		1973		07/01/2000		20
	Meadow Gardens I		657,972		1975		07/01/2000		25
	Meadow Gardens II		367,531		1975		07/01/2000		25
	Morningside Creek		331,534		1990		07/01/2000		40
	North Country Vista		594,261		1986		07/01/2000		40
	Orangewood East		610,222		1974		07/01/2000		20
	Orangewood West		763,503		1974		07/01/2000		20
	Riverside Commons		458,648		1968		07/01/2000		20
	Sterling Pointe I		735,332		1972		07/01/2000		20
	Sterling Pointe II		778,391		1972		07/01/2000		20
	Sunrise Commons		850,314		1984		07/01/2000		30
	Windbridge		136,305		1982		05/20/2003		30
	Stockton Region
	Inglewood Oaks		336,398		1970		07/01/2000		20
	La Espana		85,762		1966		07/01/2000		20
	Mariners Cove		423,546		1984		07/01/2000		30
	Oakwood		1,484,862		1971		07/01/2000		20
	Modesto/ Turlock Region
	Greenbriar		485,493		1971		07/01/2000		20
	Meadow Lakes		693,461		1985		07/01/2000		35
	Northwood Place		182,648		1988		07/01/2000		40
	Park Lakewood		477,192		1985		07/01/2000		35
	Villa Verde North		543,722		1971		07/01/2000		20
	Walnut Woods		412,816		1987		07/01/2000		40
	Northlake Gardens		181,016		1977		07/01/2000		25
	Tracy/ Manteca Region
	Driftwood		668,732		1974		07/01/2000		25
	Fairway Estates		950,275		1973		07/01/2000		20
	Granville		750,095		1972		07/01/2000		20
	Laurel Glen		724,823		1985		07/01/2000		35


			Year Ended
ASSET RECONCILIATION			December 31, 2003

Balance at beginning of period			$	268,257,459
	Additions during period:
		Acquisitions through foreclosure		—
		Other acquisitions		7,900,000
		Improvements		2,121,611
		Purchase of assets		—
	Deductions during period:			—
		Cost of real estate sold		(2,335,420	)
		Impairment of assets		(1,250,000	)
		Other		(354,826	)

Balance at close of period			$	274,338,824


			Year Ended
DEPRECIATION RECONCILIATION			December 31, 2003

Balance at beginning of period			$	20,497,972
	Additions during period:
		Acquisitions through foreclosure		—
		Other acquisitions		—
		Depreciation		8,997,689
		Purchase of assets		—
	Deductions during period:			—
		Cost of real estate sold		(276,920	)
		Other		—

Balance at close of period			$	29,218,741


Item 9.	Changes in and Disagreements with Accountants on Accounting and Financial Disclosure


Item 10.	Managers and Executive Officers of the Registrant


Item 12.	Security Ownership of Certain Beneficial Owners and Management and Related Membership Matters


Item 13.	Certain Relationships and Related Transactions


Item 15.	Exhibits, Consolidated Financial Statements, Schedules and Reports on Form 8-K