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, 2002
[ ] TRANSITION REPORT PURSUANT TO SECTION 13 OR 15(d) OF THE SECURITIES
EXCHANGE ACT OF 1934
For the transition period from _________to _________
Commission file number 0-11767
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, 2002
Assets
Cash and cash equivalents $ 450
Receivables and deposits 296
Restricted escrows 88
Other assets 673
Investment properties:
Land $ 1,984
Buildings and related personal property 33,088
35,072
Less accumulated depreciation (26,601) 8,471
$ 9,978
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 73
Tenant security deposit liabilities 250
Accrued property taxes 202
Other liabilities 335
Due to affiliates 35
Mortgage notes payable 24,853
Partners' Deficit
General partners $ (596)
Limited partners (99,784 units issued and
outstanding) (15,174) (15,770)
$ 9,978
See Accompanying Notes to Consolidated Financial Statements
b)
ANGELES INCOME PROPERTIES, LTD. II
CONSOLIDATED STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2002 2001
Revenues:
Rental income $1,692 $1,677
Other income 154 89
Total revenues 1,846 1,766
Expenses:
Operating 540 542
General and administrative 113 96
Depreciation 484 448
Interest 487 349
Property taxes 167 178
Total expenses 1,791 1,613
Net income $ 55 $ 153
Net income allocated to general partners $ 1 $ 2
Net income allocated to limited partners 54 151
$ 55 $ 153
Net income per limited partnership unit $ 0.54 $ 1.51
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, 2001 99,784 $ (597) $(15,228) $(15,825)
Net income for the three months
ended March 31, 2002 -- 1 54 55
Partners' deficit at
March 31, 2002 99,784 $ (596) $(15,174) $(15,770)
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,
2002 2001
Cash flows from operating activities:
Net income $ 55 $ 153
Adjustments to reconcile net income to net cash provided
by operating activities:
Depreciation 484 448
Amortization of mortgage discounts and loan costs 19 19
Change in accounts:
Receivables and deposits 97 (93)
Other assets (132) (83)
Accounts payable (19) 69
Tenant security deposit liabilities (8) (1)
Accrued property taxes 69 104
Due to affiliates 33 21
Other liabilities 111 (137)
Net cash provided by operating activities 709 500
Cash flows from investing activities:
Property improvements and replacements (262) (369)
Net withdrawals from restricted escrows 34 9
Net cash used in investing activities (228) (360)
Cash flows from financing activities:
Payments on mortgage notes payable (125) (63)
Repayments of advances from affiliates (47) --
Loan costs paid (9) (535)
Net cash used in financing activities (181) (598)
Net increase (decrease) in cash and cash equivalents 300 (458)
Cash and cash equivalents at beginning of period 150 975
Cash and cash equivalents at end of period $ 450 $ 517
Supplemental disclosure of cash flow information:
Cash paid for interest $ 467 $ 329
At December 31, 2001 and 2000, approximately $59,000 and $150,000, respectively,
of property improvements and replacements were included in accounts payable
which are included in property improvements and replacements during the three
months ended March 2002 and 2001, respectively.
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"), a publicly traded real estate investment trust,
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, 2002, are not necessarily indicative of the results
that may be expected for the fiscal year ending December 31, 2002. For further
information, refer to the consolidated financial statements and footnotes
thereto included in the Partnership's Annual Report on Form 10-KSB for the year
ended December 31, 2001.
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.
During the three months ended March 31, 2002 and 2001, 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 $92,000 and
$88,000 for the three months ended March 31, 2002 and 2001, respectively, which
is included in operating expenses.
Affiliates of the Managing General Partner received reimbursement of accountable
administrative expenses amounting to approximately $66,000 and $59,000 for the
three months ended March 31, 2002 and 2001, respectively, which is included in
general and administrative expenses and investment properties. Included in these
amounts are construction oversight fees paid to an affiliate of the Managing
General Partner of approximately $9,000 and $12,000 for the three months ended
March 31, 2002 and 2001, respectively. This fee is related to construction
management services provided by AIMCO and its affiliates. The fee was calculated
based on a percentage of additions to investment properties.
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. During the
three months ended March 31, 2002, a fee of approximately $35,000 was earned by
the Managing General Partner and is included in "Due to affiliates" on the
accompanying consolidated balance sheet. During the year ended December 31,
2000, the Managing General Partner earned fees of approximately $100,000 of
which approximately $81,000 was accrued at December 31, 2000. The additional
fees due for the year ended December 31, 2000 of approximately $19,000 were
accrued during the three months ended March 31, 2001 and included in general and
administrative expense. No fees were earned by the Managing General Partner for
the three months ended March 31, 2001.
In accordance with the Partnership Agreement, the Managing General Partner has
loaned the Partnership funds for operating expenses at Landmark Apartments. At
December 31, 2001 the amount of the outstanding loan and accrued interest was
approximately $47,000 and was included in "Due to Affiliates" on the
consolidated balance sheet. During the three months ended March 31, 2002, this
loan was repaid in full by the Partnership. Interest was charged at the prime
rate plus 2%. Interest expense was approximately $1,000 for the three months
ended March 31, 2002. There were no loans from the Managing General Partner or
associated interest expenses during the three months ended March 31, 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.
Beginning in 2001, the Partnership began insuring its properties up to certain
limits through coverage provided by AIMCO which is generally self-insured for a
portion of losses and liabilities related to workers compensation, property
casualty and vehicle liability. The Partnership insures its properties above the
AIMCO limits through insurance policies obtained by AIMCO from insurers
unaffiliated with the Managing General Partner. During the three months ended
March 31, 2002 and 2001, the Partnership was charged by AIMCO and its affiliates
approximately $76,000 and $69,000, respectively, for insurance coverage and fees
associated with policy claims administration.
Note C - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
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 Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the 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. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
The Partnership is unaware of any other pending or outstanding litigation that
is not of a routine nature arising in the ordinary course of business.
ITEM 2. MANAGEMENT'S DISCUSSION AND ANALYSIS 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, 2002 and 2001:
Average Occupancy
Property 2002 2001
Deer Creek Apartments 93% 97%
Plainsboro, New Jersey
Georgetown Apartments 95% 96%
South Bend, Indiana
Landmark Apartments 92% 92%
Raleigh, North Carolina
The Managing General Partner attributes the decrease in occupancy at Deer Creek
Apartments to the weak economy of the Plainsboro, NJ area which is a short
commute to New York City.
Results of Operations
The Partnership's net income for the three months ended March 31, 2002, was
approximately $55,000 compared to approximately $153,000 for the three months
ended March 31, 2001. The decrease in net income for the three months ended
March 31, 2002 is attributable to an increase in total expenses which was
partially offset by an increase in total revenues.
Total expenses increased for the three months ended March 31, 2002 primarily due
to increases in interest, depreciation and general and administrative expenses
partially offset by a decrease in property tax expense. Interest expense
increased due to the refinancing of Deer Creek Apartments in June 2001 which
increased the debt balance at the property. Depreciation expense increased due
to capital improvements completed during the past twelve months which are now
being depreciated. General and administrative expenses increased due to an
increase in a management fee due to the Managing General Partner based on cash
flow as allowed in the Partnership Agreement and an increase in cost of services
included in the management reimbursements paid to the Managing General Partner
as allowed under the Partnership Agreement partially offset by reduced
professional fees associated with the management of the Partnership. Included in
general and administrative expenses at both March 31, 2002 and 2001 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. Property tax expense decreased due to the reappraisal of Deer Creek
Apartments.
The increase in total revenues is due primarily to an increase in other income
and, to a lesser extent, rental income. The increase in other income is
primarily due to an increase in utility reimbursements and lease cancellation
fees at Deer Creek Apartments. The increase in rental income is primarily due to
increased average rental rates at Deer Creek Apartments and a decrease in
concessions at Landmark Apartments partially offset by a decrease in average
rental rates at Landmark Apartments and a decrease in occupancy at Deer Creek
and Georgetown Apartments.
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, 2002, the Partnership had cash and cash equivalents of
approximately $450,000 compared to approximately $517,000 at March 31, 2001. The
increase in cash and cash equivalents of approximately $300,000 since December
31, 2001 is due to approximately $709,000 of cash provided by operating
activities partially offset by approximately $181,000 of cash used in financing
activities and approximately $228,000 of cash used in investing activities. Cash
used in investing activities consisted of property improvements and replacements
slightly offset by net withdrawals from restricted escrow accounts maintained by
the mortgage lenders. Cash used in financing activities consisted primarily of
payments of principal made on the mortgages encumbering the Partnership's
properties, repayment of advances from affiliates and, to a lesser extent, loan
costs paid. 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, 2002, the Partnership completed
approximately $136,000 of improvements at Deer Creek Apartments consisting
primarily of clubhouse renovations. These improvements were funded from
operating cash flow. The Partnership has budgeted, but is not limited to,
capital improvements of approximately $113,000, consisting primarily of floor
covering replacements, structural improvements, parking lot upgrades and
appliances. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Georgetown
During the three months ended March 31, 2002, the Partnership completed
approximately $16,000 of improvements at Georgetown Apartments consisting
primarily of office equipment, appliance and floor covering replacements and
landscaping. These improvements were funded from operating cash flow. The
Partnership has budgeted, but is not limited to, capital improvements of
approximately $65,000, consisting primarily of appliance and floor covering
replacements. Additional improvements may be considered and will depend on the
physical condition of the property as well as anticipated cash flow generated by
the property.
Landmark
During the three months ended March 31, 2002, the Partnership completed
approximately $51,000 of improvements at Landmark Apartments consisting
primarily of appliance and water heater replacements, office equipment and floor
covering replacements. These improvements were funded from Partnership reserves.
The Partnership has budgeted, but is not limited to, capital improvements of
approximately $98,000, consisting primarily of air conditioning unit and water
heater replacements, appliances and floor covering replacements. 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 $24,853,000, net of discounts, has maturity dates
ranging from October 2003 to July 2021. The mortgage indebtedness encumbering
Deer Creek Apartments, which was refinanced on June 27, 2001, of approximately
$13,545,000 is amortized over 20 years and matures on July 1, 2021 at which time
it is scheduled to be fully amortized. The mortgage indebtedness encumbering
Georgetown Apartments and Landmark Apartments of approximately $11,308,000, net
of discount, is amortized over periods ranging from 29 to 30 years with balloon
payments of approximately $11,033,000 due in 2003. The Managing General Partner
will attempt to refinance the mortgages encumbering Georgetown Apartments and
Landmark Apartments 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.
The Partnership distributed the following amounts during the three months ended
March 31, 2002 and 2001 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2002 Unit March 31, 2001 Unit
Operations $ -- $ -- $ 535 $ 5.31
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 cash available for
distribution is reviewed on a monthly basis. There can be no assurance, however,
that the Partnership will generate sufficient funds from operations after
required capital expenditures to permit distributions to its partners during the
remainder of 2002 or subsequent periods.
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates currently own 59,236 limited partnership
units in the Partnership representing 59.36% 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 voting on certain amendments to the Partnership Agreement
and voting to remove the Managing General Partner. As a result of its ownership
of 59.36% of the outstanding units, AIMCO is in a position to control 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 PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units of the
Partnership commenced an action entitled Rosalie Nuanes, et al. v. Insignia
Financial Group, Inc., et al. (the "Nuanes action") in the Superior Court of the
State of California for the County of San Mateo. The plaintiffs named as
defendants, among others, the Partnership, its Managing General Partner and
several of their affiliated partnerships and corporate entities. The action
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 Managing General Partner
entities by Insignia Financial Group, Inc. ("Insignia") and entities which were,
at one time, affiliates of Insignia; past tender offers by the Insignia
affiliates to acquire limited partnership units; management of the partnerships
by the Insignia affiliates; and the series of transactions which closed on
October 1, 1998 and February 26, 1999 whereby Insignia and Insignia Properties
Trust, respectively, were merged into AIMCO. The plaintiffs seek monetary
damages and equitable relief, including judicial dissolution of the Partnership.
On June 25, 1998, the 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. On May 14, 2001, the Court heard the
demurrer to the third amended complaint. On July 10, 2001, the Court issued an
order sustaining defendants' demurrer on certain grounds. On July 20, 2001,
Plaintiffs filed a motion for reconsideration of the Court's July 10, 2001 order
granting in part and denying in part defendants' demurrer. On September 7, 2001,
Plaintiffs filed a fourth amended class and derivative action complaint. On
September 12, 2001, the Court denied Plaintiffs' motion for reconsideration. On
October 5, 2001, the Managing General Partner and affiliated defendants filed a
demurrer to the fourth amended complaint, which was heard on December 11, 2001.
On February 2, 2002, the Court served its order granting in part the demurrer.
The Court has dismissed without leave to amend certain of the plaintiffs'
claims. On February 11, 2002, plaintiffs filed a motion seeking to certify a
putative class comprised of all non-affiliated persons who own or have owned
units in the partnerships. The Managing General Partner and affiliated
defendants oppose the motion. On April 29, 2002, the Court heard argument on the
motion and ordered further briefing after which time the matter will be taken
under submission. The Court has set the matter for trial in January 2003.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the Managing General Partner and affiliated
defendants moved to strike the first amended complaint in its entirety for
violating the Court's July 10, 2001 order granting in part and denying in part
defendants' demurrer in the Nuanes action, or alternatively, to strike certain
portions of the complaint based on the statute of limitations. Other defendants
in the action demurred to the fourth amended complaint, and, alternatively,
moved to strike the complaint. On December 11, 2001, the court heard argument on
the motions and took the matters under submission. On February 4, 2002, the
Court served notice of its order granting defendants' motion to strike the
Heller complaint as a violation of its July 10, 2001 order in the Nuanes action.
On March 27, 2002, the plaintiffs filed a notice appealing the order striking
the complaint.
The Managing General Partner does not anticipate that any costs, whether legal
or settlement costs, associated with these cases will be material to the
Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
None.
b) Reports on Form 8-K filed in the first quarter of 2002:
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: