FORM 10-QSB--QUARTERLY OR TRANSITIONAL REPORT UNDER SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 Quarterly or Transitional Report U.S. Securities and Exchange Commission Washington, D.C. 20549 Form 10-QSB (Mark One) [X] QUARTERLY REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the quarterly period ended March 31, 2001 [ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES EXCHANGE ACT OF 1934 For the transition period from _________to _________ Commission file number 0-11767 ANGELES INCOME PROPERTIES, LTD. II (Exact name of small business issuer as specified in its charter) California 95-3793526 (State or other jurisdiction of (I.R.S. Employer incorporation or organization) Identification No.) 55 Beattie Place, PO Box 1089 Greenville, South Carolina 29602 (Address of principal executive offices) (864) 239-1000 (Issuer's telephone number) Check whether the issuer (1) filed all reports required to be filed by Section 13 or 15(d) of the Exchange Act during the past 12 months (or for such shorter period that the registrant was required to file such reports), and (2) has been subject to such filing requirements for the past 90 days. Yes X No___ PART I - FINANCIAL INFORMATION ITEM 1. FINANCIAL STATEMENTS a) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED BALANCE SHEET (Unaudited) (in thousands, except unit data) March 31, 2001 Assets Cash and cash equivalents $ 517 Receivables and deposits 421 Restricted escrows 134 Other assets 313 Investment properties: Land $ 1,984 Buildings and related personal property 31,969 33,953 Less accumulated depreciation (24,785) 9,168 $ 10,553 Liabilities and Partners' Deficit Liabilities Accounts payable $ 173 Tenant security deposit liabilities 289 Accrued property taxes 217 Other liabilities 159 Due to affiliates 102 Mortgage notes payable 17,491 Partners' Deficit General partners $ (517) Limited partners (99,784 units issued and outstanding) (7,361) (7,878) $ 10,553 See Accompanying Notes to Consolidated Financial Statements b) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENTS OF OPERATIONS (Unaudited) (in thousands, except unit data) Three Months Ended March 31, 2001 2000 Revenues: Rental income $1,677 $1,605 Other income 89 86 Total revenues 1,766 1,691 Expenses: Operating 542 526 General and administrative 96 112 Depreciation 448 423 Interest 349 351 Property taxes 178 140 Total expenses 1,613 1,552 Income before discontinued operation 153 139 Income from discontinued operation -- 61 Gain on sale of discontinued operation -- 2,060 Net income $ 153 $2,260 Net income allocated to general partners $ 2 $ 108 Net income allocated to limited partners 151 2,152 $ 153 $2,260 Per limited partnership unit: Income before discontinued operation $ 1.51 $ 1.37 Income from discontinued operation -- 0.62 Gain on sale of discontinued operation -- 19.58 Net income $ 1.51 $21.57 Distributions per limited partnership unit $ 5.31 $ -- See Accompanying Notes to Consolidated Financial Statements c) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENT OF CHANGES IN PARTNERS' DEFICIT (Unaudited) (in thousands, except unit data) Limited Partnership General Limited Units Partners Partners Total Original capital contributions 100,000 $ 1 $50,000 $50,001 Partners' deficit at December 31, 2000 99,784 $ (514) $(6,982) $(7,496) Distributions to partners -- (5) (530) (535) Net income for the three months ended March 31, 2001 -- 2 151 153 Partners' deficit at March 31, 2001 99,784 $ (517) $(7,361) $(7,878) See Accompanying Notes to Consolidated Financial Statements d) ANGELES INCOME PROPERTIES, LTD. II CONSOLIDATED STATEMENTS OF CASH FLOWS (Unaudited) (in thousands) Three Months Ended March 31, 2001 2000 Cash flows from operating activities: Net income $ 153 $ 2,260 Adjustments to reconcile net income to net cash provided by operating activities: Depreciation 448 423 Amortization of discounts, loan costs and lease commissions 19 25 Gain on sale of investment property -- (2,060) Change in accounts: Receivables and deposits (93) 33 Other assets (83) 143 Accounts payable 69 52 Tenant security deposit liabilities (1) (11) Accrued property taxes 104 68 Due to affiliates 21 44 Other liabilities (137) (104) Net cash provided by operating activities 500 873 Cash flows from investing activities: Property improvements and replacements (369) (374) Net withdrawals from restricted escrows 9 122 Proceeds from sale of investment property -- 2,746 Net cash (used in) provided by investing activities (360) 2,494 Cash flows from financing activities: Payments on mortgage notes payable (63) (61) Distributions to partners (535) (1,500) Net cash used in financing activities (598) (1,561) Net (decrease) increase in cash and cash equivalents (458) 1,806 Cash and cash equivalents at beginning of period 975 4,229 Cash and cash equivalents at end of period $ 517 $ 6,035 Supplemental disclosure of cash flow information: Cash paid for interest $ 329 $ 331 At December 31, 2000 and 1999, approximately $150,000 and $157,000, respectively, of property improvements and replacements were included in accounts payable. Distributions to partners of approximately $1,500,000 were declared at December 31, 1999 and paid in January 2000. See Accompanying Notes to Consolidated Financial Statements e) ANGELES INCOME PROPERTIES, LTD. II NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) Note A - Basis of Presentation The accompanying unaudited consolidated financial statements of Angeles Income Properties, Ltd. II (the "Partnership" or "Registrant") have been prepared in accordance with generally accepted accounting principles for interim financial information and with the instructions to Form 10-QSB and Item 310(b) of Regulation S-B. Accordingly, they do not include all of the information and footnotes required by generally accepted accounting principles for complete financial statements. In the opinion of Angeles Realty Corporation II (the "Managing General Partner") which is wholly-owned by Apartment Investment and Management Company ("AIMCO"), all adjustments (consisting of normal recurring accruals) considered necessary for a fair presentation have been included. Operating results for the three month period ended March 31, 2001, are not necessarily indicative of the results that may be expected for the fiscal year ending December 31, 2001. For further information, refer to the consolidated financial statements and footnotes thereto included in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2000. Principles of Consolidation The consolidated financial statements of the Partnership include all accounts of the Partnership and its 99% limited partnership interest in Georgetown AIP II, LP and its 100% owned limited liability corporation interest in AIPL II GP, LLC. Although legal ownership of the respective asset remains with these entities, the Partnership retains all economic benefits from the properties. As a result, the Partnership consolidates its interests in these two entities, whereby all accounts are included in the consolidated financial statements of the Partnership with all inter-entity accounts being eliminated. Note B - Transactions with Affiliated Parties The Partnership has no employees and is dependent on the Managing General Partner and its affiliates for the management and administration of all Partnership activities. The Partnership Agreement provides for certain payments to affiliates for services and reimbursement of certain expenses incurred by affiliates on behalf of the Partnership. The following payments were paid or accrued to the Managing General Partner and affiliates during the three months ended March 31, 2001 and 2000: 2001 2000 (in thousands) Property management fees (included in operating expenses) $ 88 $ 84 Reimbursement for services of affiliates (included in general and administrative expense and investment properties) 59 46 Due to affiliate 102 272 Deposition fee (included in general partner distribution) -- 86 During the three months ended March 31, 2001 and 2000, affiliates of the Managing General Partner were entitled to receive 5% of gross receipts from all of the Registrant's residential properties for providing property management services. The Registrant paid to such affiliates approximately $88,000 and $84,000 for the three months ended March 31, 2001 and 2000, respectively. An affiliate of the Managing General Partner received reimbursement of accountable administrative expenses amounting to approximately $59,000 and $46,000 for the three months ended March 31, 2001 and 2000, respectively. The Partnership Agreement provides for a fee equal to 10% of "Net cash flow from operations," as defined in the Partnership Agreement to be paid to the Managing General Partner for executive and administrative management services. The amount of the fee for the year ended December 31, 2000 was $100,000. This amount is included in "Due to affiliates" on the consolidated balance sheet and will be paid during the second quarter of 2001. Pursuant to the Partnership Agreement, the Managing General Partner is entitled to receive a distribution equal to 3% of the aggregate disposition price of sold properties. The Partnership paid a distribution of approximately $86,000 to the Managing General Partner related to the sale of Atlanta Crossing Shopping center in March 2000. This amount is subordinate to the limited partners receiving their original capital contributions plus a cumulative preferred return of 6% per annum of their adjusted capital investment, as defined in the Partnership Agreement. If the limited partners have not received these returns when the Partnership terminates, the Managing General Partner will return this amount to the Partnership. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 57,254 limited partnership units in the Partnership representing 57.38% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.38% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Managing General Partner because of their affiliation with the Managing General Partner. Note C - Sale of Discontinued Operation In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama, was sold to an unaffiliated party for $2,875,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $2,746,000. For financial statement purposes, the sale resulted in a gain of approximately $2,060,000, which was recognized during the three months ended March 31, 2000. Atlanta Crossing Shopping Center was the only commercial property owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of this property, the results of the commercial segment have been shown as income from discontinued operation on the consolidated statement of operations. Revenues of this property were approximately $136,000 for the three months ended March 31, 2000. Income from operations was approximately $61,000 for the three months ended March 31, 2000. Note D - Distributions During the three months ended March 31, 2001, the Partnership declared and paid distributions of approximately $535,000 (approximately $530,000 to the limited partners or $5.31 per limited partnership unit) from operations. Subsequent to March 31, 2001, the Partnership declared and paid a distribution of approximately $173,000 (approximately $171,000 to the limited partners or $1.71 per limited partnership unit) from operations. During the three months ended March 31, 2000, the Partnership paid a distribution of approximately $1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the limited partners or $10.65 per limited partnership unit) is from operations and approximately $426,000 (approximately $422,000 to the limited partners or $4.23 per limited partnership unit) is from proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The distribution was accrued in December 1999. Note E - Segment Reporting Description of the types of products and services from which the reportable segment derives its revenues: The Partnership had two reportable segments: residential properties and commercial properties. The Partnership's residential property segment consists of three apartment complexes, one each in New Jersey, Indiana, and North Carolina. The Partnership rents apartment units to tenants for terms that are typically twelve months or less. The commercial property segment consisted of a retail shopping center located in Montgomery, Alabama. This property leased space to a discount store, various specialty retail outlets, and several restaurants at terms ranging from twelve months to twenty years. The commercial property was sold on March 15, 2000 (see "Note C"). Therefore, the commercial segment is reflected as discontinued operations. Measurement of segment profit or loss: The Partnership evaluates performance based on segment profit (loss) before depreciation. The accounting policies of the reportable segments are the same as those of the Partnership as described in the Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2000. Factors management used to identify the enterprise's reportable segment: The Partnership's reportable segments are investment properties that offer different products and services. The reportable segments are each managed separately because they provide distinct services with different types of products and customers. Segment information for the three months ended March 31, 2001 and 2000 is shown in the tables below (in thousands). The "Other" column includes Partnership administration related items and income and expense not allocated to the reportable segments. 2001 Residential Other Totals Rental income $ 1,677 $ -- $ 1,677 Other income 88 1 89 Interest expense 349 -- 349 Depreciation 448 -- 448 General and administrative expense -- 96 96 Segment profit (loss) 248 (95) 153 Total assets 10,419 134 10,553 Capital expenditures for investment properties 219 -- 219 2000 Residential Commercial Other Totals (discontinued) Rental income $ 1,605 $ -- $ -- $ 1,605 Other income 76 -- 10 86 Interest expense 351 -- -- 351 Depreciation 423 -- -- 423 General and administrative expense -- -- 112 112 Income from discontinued operation -- 61 -- 61 Gain on sale of discontinued operation -- 2,060 -- 2,060 Segment profit (loss) 241 2,121 (102) 2,260 Total assets 12,975 -- 3,488 16,463 Capital expenditures for investment properties 211 6 -- 217 Note F - Legal Proceedings In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. The demurrer is scheduled to be heard on May 14, 2001. The Court has also scheduled a hearing on a motion for class certification for August 27, 2001. Plaintiffs must file their motion for class certification no later than June 15, 2001. The Managing General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. The Partnership is unaware of any other pending or outstanding litigation that is not of a routine nature arising in the ordinary course of business. ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS OR PLAN OF OPERATIONS The matters discussed in this Form 10-QSB contain certain forward-looking statements and involve risks and uncertainties (including changing market conditions, competitive and regulatory matters, etc.) detailed in the disclosures contained in this Form 10-QSB and the other filings with the Securities and Exchange Commission made by the Registrant from time to time. The discussion of the Registrant's business and results of operations, including forward-looking statements pertaining to such matters, does not take into account the effects of any changes to the Registrant's business and results of operations. Accordingly, actual results could differ materially from those projected in the forward-looking statements as a result of a number of factors, including those identified herein. The Partnership's investment properties consist of three apartment complexes. The following table sets forth the average occupancy of the properties for both of the three months ended March 31, 2001 and 2000: Average Occupancy Property 2001 2000 Deer Creek Apartments 97% 97% Plainsboro, New Jersey Georgetown Apartments 96% 96% South Bend, Indiana Landmark Apartments 92% 90% Raleigh, North Carolina Results of Operations The Partnership's net income for the three months ended March 31, 2001, was approximately $153,000 compared to approximately $2,260,000 for the three months ended March 31, 2000. The decrease in net income for the three months ended March 31, 2001 is attributable to the sale of Atlanta Crossing Shopping Center in March 2000 (see discussion below). Excluding the operations of and the gain on the sale of the discontinued operation, the Partnership had income before discontinued operation of approximately $153,000 for the three months ended March 31, 2001, compared to approximately $139,000 for the three months ended March 31, 2000. The increase in income is due to an increase in total revenues which was partially offset by an increase in total expenses. The increase in total revenues is due primarily to an increase in rental income and, to a lesser extent, other income. The increase in rental income is the result of increased average rental rates at all of the Partnership's properties and an increase in occupancy at Landmark Apartments. The increase in other income is due to an increase in clubhouse rentals at Deer Creek Apartments and tenant reimbursements at Georgetown Apartments and Landmark Apartments. Total expenses increased for the three months ended March 31, 2001 primarily due to increases in operating, property tax and depreciation expenses partially offset by a decrease in general and administrative expenses. Operating expenses increased due to an increase in salary expenses at all of the Partnership's properties. Property tax expense increased due to an increase in the tax rate at Deer Creek Apartments. Depreciation expense increased due to capital improvements completed during the past twelve months. General and administrative expenses decreased due to a decrease in a management fee accrued to the Managing General Partner based on cash flow as allowed in the Partnership Agreement and a decrease in legal expenses. These decreases were partially offset by increases in the cost of services included in the management reimbursements paid to the Managing General Partner as allowed under the Partnership Agreement and increased professional fees. Included in general and administrative expenses at both March 31, 2001 and 2000 are reimbursements to the Managing General Partner allowed under the Partnership Agreement associated with its management of the Partnership. Costs associated with the quarterly and annual communications with investors and regulatory agencies and the annual audit required by the Partnership Agreement are also included. In March 2000, Atlanta Crossing Shopping Center, located in Montgomery, Alabama, was sold to an unaffiliated party for $2,875,000. After payment of closing expenses, the net sales proceeds received by the Partnership were approximately $2,746,000. For financial statement purposes, the sale resulted in a gain of approximately $2,060,000, which was recognized during the three months ended March 31, 2000. Atlanta Crossing Shopping Center was the only commercial property owned by the Partnership and represented one segment of the Partnership's operations. Due to the sale of this property, the results of the commercial segment have been shown as income from discontinued operation on the consolidated statement of operations. Revenues of this property were approximately $136,000 for the three months ended March 31, 2000. Income from operations was approximately $61,000 for the three months ended March 31, 2000. As part of the ongoing business plan of the Partnership, the Managing General Partner monitors the rental market environment of each of its investment properties to assess the feasibility of increasing rents, maintaining or increasing occupancy levels and protecting the Partnership from increases in expense. As part of this plan, the Managing General Partner attempts to protect the Partnership from the burden of inflation-related increases in expenses by increasing rents and maintaining a high overall occupancy level. However, due to changing market conditions, which can result in the use of rental concessions and rental reductions to offset softening market conditions, there is no guarantee that the Managing General Partner will be able to sustain such a plan. Liquidity and Capital Resources At March 31, 2001, the Partnership had cash and cash equivalents of approximately $517,000 compared to approximately $6,035,000 at March 31, 2000. The decrease in cash and cash equivalents of approximately $458,000 since December 31, 2000 is due to approximately $360,000 of cash used in investing activities and approximately $598,000 of cash used in financing activities partially offset by approximately $500,000 of cash provided by operating activities. Cash used in investing activities consisted of property improvements and replacements slightly offset by net withdrawals from escrow accounts maintained by the mortgage lenders. Cash used in financing activities consisted primarily of distributions to the partners and, to a lesser extent, payments of principal made on the mortgages encumbering the Partnership's properties. The Partnership invests its working capital reserves in interest bearing accounts. The sufficiency of existing liquid assets to meet future liquidity and capital expenditure requirements is directly related to the level of capital expenditures required at the various properties to adequately maintain the physical assets and other operating needs of the Partnership and to comply with Federal, state, and local legal and regulatory requirements. Capital improvements planned for each of the Registrant's properties are detailed below. Deer Creek During the three months ended March 31, 2001, the Partnership spent approximately $144,000 on capital improvements consisting primarily of carpet replacements, exterior painting, cabinets, appliances and maintenance equipment. These improvements were funded from Partnership reserves and operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the year 2001. The amount budgeted is approximately $917,000, consisting primarily of cabinets, appliances and water submetering. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Georgetown During the three months ended March 31, 2001, the Partnership spent approximately $57,000 on capital improvements consisting primarily of appliances and carpet replacements. These improvements were funded from Partnership reserves and operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the year 2001. The amount budgeted is approximately $64,000, consisting primarily of appliances, carpet and vinyl replacements and structural improvements. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. Landmark During the three months ended March 31, 2001, the Partnership spent approximately $18,000 on capital improvements consisting primarily of parking area improvements, water heater replacements and carpet and vinyl replacements. These improvements were funded from operating cash flow. The Partnership has evaluated the capital improvement needs of the property for the year 2001. The amount budgeted is approximately $80,000, consisting primarily of air conditioning unit replacements, window treatments, appliances, cabinets and carpet and vinyl replacement. Additional improvements may be considered and will depend on the physical condition of the property as well as replacement reserves and anticipated cash flow generated by the property. The additional capital expenditures will be incurred only if cash is available from operations or from Partnership reserves. To the extent that such budgeted capital improvements are completed, the Registrant's distributable cash flow, if any, may be adversely affected at least in the short term. The Partnership's current assets are thought to be sufficient for any near-term needs (exclusive of capital improvements) of the Partnership. The mortgage indebtedness of approximately $17,491,000, net of discount, is amortized over periods ranging from 29 to 30 years with balloon payments due in 2003. The Managing General Partner will attempt to refinance such indebtedness and/or sell the properties prior to such maturity date. If the properties cannot be refinanced or sold for a sufficient amount, the Partnership may risk losing such properties through foreclosure. During the three months ended March 31, 2001, the Partnership declared and paid distributions of approximately $535,000 (approximately $530,000 to the limited partners or $5.31 per limited partnership unit) from operations. Subsequent to March 31, 2001, the Partnership declared and paid a distribution of approximately $173,000 (approximately $171,000 to the limited partners or $1.71 per limited partnership unit) from operations. During the three months ended March 31, 2000, the Partnership paid a distribution of approximately $1,500,000 of which approximately $1,074,000 (approximately $1,063,000 to the limited partners or $10.65 per limited partnership unit) is from operations and approximately $426,000 (approximately $422,000 to the limited partners or $4.23 per limited partnership unit) is from proceeds from the sale of Princeton Meadows Golf Course Joint Venture. The distribution was accrued in December 1999. Future cash distributions will depend on the levels of cash generated from operations, the availability of cash reserves and the timing of debt maturities, refinancings and/or property sales. The Partnership's distribution policy is reviewed on a quarterly basis. There can be no assurance, however, that the Partnership will generate sufficient funds from operations after required capital expenditures to permit additional distributions to its partners during the remainder of 2001 or subsequent periods. In addition to its indirect ownership of the general partner interest in the Partnership, AIMCO and its affiliates currently own 57,254 limited partnership units in the Partnership representing 57.38% of the outstanding units. A number of these units were acquired pursuant to tender offers made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates will acquire additional limited partnership interests in the Partnership for cash or in exchange for units in the operating partnership of AIMCO either through private purchases or tender offers. Under the Partnership Agreement, unitholders holding a majority of the Units are entitled to take action with respect to a variety of matters, which would include without limitation, voting on certain amendments to the Partnership Agreement and voting to remove the Managing General Partner. As a result of its ownership of 57.38% of the outstanding units, AIMCO is in a position to influence all voting decisions with respect to the Registrant. When voting on matters, AIMCO would in all likelihood vote the Units it acquired in a manner favorable to the interest of the Managing General Partner because of their affiliation with the Managing General Partner. PART II - OTHER INFORMATION ITEM 1. LEGAL PROCEDINGS In March 1998, several putative unit holders of limited partnership units of the Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia Financial Group, Inc., et al. in the Superior Court of the State of California for the County of San Mateo. The plaintiffs named as defendants, among others, the Partnership, its Managing General Partner and several of their affiliated partnerships and corporate entities. The action purports to assert claims on behalf of a class of limited partners and derivatively on behalf of a number of limited partnerships (including the Partnership) which are named as nominal defendants, challenging, among other things, the acquisition of interests in certain general partner entities by Insignia Financial Group, Inc. ("Insignia") and entities which were, at one time, affiliates of Insignia; past tender offers by the Insignia affiliates to acquire limited partnership units; management of the partnerships by the Insignia affiliates; and the Insignia Merger. The plaintiffs seek monetary damages and equitable relief, including judicial dissolution of the Partnership. On June 25, 1998, the Managing General Partner filed a motion seeking dismissal of the action. In lieu of responding to the motion, the plaintiffs filed an amended complaint. The Managing General Partner filed demurrers to the amended complaint which were heard February 1999. Pending the ruling on such demurrers, settlement negotiations commenced. On November 2, 1999, the parties executed and filed a Stipulation of Settlement, settling claims, subject to court approval, on behalf of the Partnership and all limited partners who owned units as of November 3, 1999. Preliminary approval of the settlement was obtained on November 3, 1999 from the Court, at which time the Court set a final approval hearing for December 10, 1999. Prior to the December 10, 1999 hearing, the Court received various objections to the settlement, including a challenge to the Court's preliminary approval based upon the alleged lack of authority of prior lead counsel to enter the settlement. On December 14, 1999, the Managing General Partner and its affiliates terminated the proposed settlement. In February 2000, counsel for some of the named plaintiffs filed a motion to disqualify plaintiff's lead and liaison counsel who negotiated the settlement. On June 27, 2000, the Court entered an order disqualifying them from the case and an appeal was taken from the order on October 5, 2000. On December 4, 2000, the Court appointed the law firm of Lieff Cabraser Heimann & Bernstein LLP as new lead counsel for plaintiffs and the putative class. Plaintiffs filed a third amended complaint on January 19, 2001. On March 2, 2001, the Managing General Partner and its affiliates filed a demurrer to the third amended complaint. The demurrer is scheduled to be heard on May 14, 2001. The Court has also scheduled a hearing on a motion for class certification for August 27, 2001. Plaintiffs must file their motion for class certification no later than June 15, 2001. The Managing General Partner does not anticipate that costs associated with this case will be material to the Partnership's overall operations. ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K a) Exhibits: None. b) Reports on Form 8-K filed in the first quarter of 2001: None. SIGNATURES In accordance with the requirements of the Exchange Act, the Registrant caused this report to be signed on its behalf by the undersigned, thereunto duly authorized. ANGELES INCOME PROPERTIES, LTD. II By: Angeles Realty Corporation II Managing General Partner By: /s/Patrick J. Foye Patrick J. Foye Executive Vice President By: /s/Martha L. Long Martha L. Long Senior Vice President and Controller Date: