UNITED STATES
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, 2003
[ ] 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 0-8639
CONSOLIDATED CAPITAL GROWTH FUND
(Exact name of registrant as specified in its charter)
California 94-2382571
(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)
PART I - FINANCIAL INFORMATION
ITEM 1. FINANCIAL STATEMENTS
CONSOLIDATED CAPITAL GROWTH FUND
BALANCE SHEET
(Unaudited)
(in thousands, except unit data)
March 31, 2003
Assets
Cash and cash equivalents $ 623
Receivables and deposits 370
Restricted escrows 93
Other assets 600
Investment properties:
Land $ 3,969
Buildings and related personal property 35,898
39,867
Less accumulated depreciation (26,693) 13,174
$ 14,860
Liabilities and Partners' Deficit
Liabilities
Accounts payable $ 189
Tenant security deposit liabilities 263
Accrued property taxes 221
Other liabilities 429
Mortgage notes payable 29,068
Partners' Deficit
General partner $ (4,908)
Limited partners (49,196 units issued and
outstanding) (10,402) (15,310)
$ 14,860
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF OPERATIONS
(Unaudited)
(in thousands, except per unit data)
Three Months Ended
March 31,
2003 2002
(Restated)
Revenues:
Rental income $ 2,024 $ 2,199
Other income 166 141
Total revenues 2,190 2,340
Expenses:
Operating 842 809
General and administrative 135 110
Depreciation 497 506
Interest 534 539
Property taxes 222 163
Total expenses 2,230 2,127
(Loss) income from continuing operations (40) 213
(Loss) income from discontinued operations (104) 64
Gain on sale of discontinued operations 8,153 --
Net income $ 8,009 $ 277
Net income allocated to general partner (1%) $ 1,140 $ 3
Net income allocated to limited partners (99%) 6,869 274
$ 8,009 $ 277
Per limited partnership unit:
(Loss) income from continuing operations $ (0.81) $ 4.29
(Loss) income from discontinued operations (2.09) 1.28
Gain on sale of discontinued operations 142.53 --
$139.63 $ 5.57
Distribution per limited partnership unit $ 81.82 $ --
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENT OF CHANGES IN PARTNERS' DEFICIT
(Unaudited)
(in thousands, except unit data)
Limited
Partnership General Limited
Units Partner Partners Total
Original capital contributions 49,196 $ 1 $ 49,196 $ 49,197
Partners' deficit at
December 31, 2002 49,196 $(5,441) $(13,246) $(18,687)
Distribution to partners -- (607) (4,025) (4,632)
Net income for the three months
ended March 31, 2003 -- 1,140 6,869 8,009
Partners' deficit at
March 31, 2003 49,196 $(4,908) $(10,402) $(15,310)
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
STATEMENTS OF CASH FLOWS
(Unaudited)
(in thousands)
Three Months Ended
March 31,
2003 2002
Cash flows from operating activities:
Net income $ 8,009 $ 277
Adjustments to reconcile net income to net cash
provided by operating activities:
Depreciation 523 585
Amortization of loan costs 15 17
Bad debt expense 122 --
Loss on early extinguishment of debt 39 --
Gain on sale of investment property (8,153) --
Change in accounts:
Receivables and deposits (42) (104)
Other assets (48) (247)
Accounts payable (119) 35
Tenant security deposit liabilities (44) 8
Accrued property taxes 221 177
Other liabilities 24 207
Net cash provided by operating activities 547 955
Cash flows from investing activities:
Property improvements and replacements (230) (177)
Net withdrawals from restricted escrows 108 235
Net proceeds from sale of investment property 10,341 --
Net cash provided by investing activities 10,219 58
Cash flows from financing activities:
Principal payments on mortgage notes payable (65) (61)
Distributions to partners (4,632) --
Loan costs paid (5) --
Repayment of mortgage note payable (6,000) --
Net cash used in financing activities (10,702) (61)
Net increase in cash and cash equivalents 64 952
Cash and cash equivalents at beginning of period 559 644
Cash and cash equivalents at end of period $ 623 $ 1,596
Supplemental disclosure of cash flow information:
Cash paid for interest $ 538 $ 630
See Accompanying Notes to Financial Statements
CONSOLIDATED CAPITAL GROWTH FUND
NOTES TO FINANCIAL STATEMENTS
(Unaudited)
Note A - Basis of Presentation
The accompanying unaudited financial statements of Consolidated Capital Growth
Fund (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 Article 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 ConCap Equities, Inc. (the "General Partner"), all adjustments
(consisting of normal recurring accruals) considered necessary for a fair
presentation have been included. Operating results for the three month period
ended March 31, 2003, are not necessarily indicative of the results that may be
expected for the fiscal year ending December 31, 2003. For further information,
refer to the financial statements and footnotes thereto included in the
Partnership's Annual Report on Form 10-KSB for the year ended December 31, 2002.
The General Partner is a wholly owned subsidiary of Apartment Investment and
Management Company ("AIMCO"), a publicly traded real estate investment trust.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Breckinridge Square as (loss)
income from discontinued operations.
Note B - Transactions with Affiliated Parties
The Partnership has no employees and is dependent on the General Partner and its
affiliates for the management and administration of all partnership activities.
The Partnership Agreement provides for (i) certain payments to affiliates for
services and (ii) reimbursement of certain expenses incurred by affiliates on
behalf of the Partnership.
Affiliates of the General Partner are entitled to receive 5% of gross receipts
from all of the Partnership's properties for providing property management
services. The Partnership paid to such affiliates approximately $120,000 and
$145,000 for the three months ended March 31, 2003 and 2002, respectively, which
is included in operating expenses.
An affiliate of the General Partner received reimbursement of accountable
administrative expenses amounting to approximately $90,000 and $88,000 for the
three months ended March 31, 2003 and 2002, respectively, which is included in
general and administrative expenses and investment properties.
The Partnership Agreement provides for a fee equal to 9% of the total
distributions made to the limited partners from "cash available for
distribution" (as defined in the Agreement) to be paid to the General Partner
for executive and administrative management services. During the three months
ended March 31, 2003, affiliates of the General Partner received approximately
$28,000 for providing these services, which is included in general and
administrative expenses. No fees were earned for the three months ended March
31, 2002.
The Partnership insures its properties up to certain limits through coverage
provided by AIMCO which is generally self-insured for a portion of losses and
liabilities related to workers compensation, property casualty and vehicle
liability. The Partnership insures its properties above the AIMCO limits through
insurance policies obtained by AIMCO from insurers unaffiliated with the General
Partner. During 2003 and 2002 the Partnership's cost for insurance coverage and
fees associated with policy claims administration provided by AIMCO and its
affiliates will be approximately $127,000 and $135,000, respectively.
Note C - Sale of Investment Property
On January 16, 2003, the Partnership sold Breckinridge Square to an unrelated
third party for net proceeds of approximately $10,341,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,153,000 as a
result of the sale. The Partnership used approximately $6,000,000 of the net
proceeds to repay the mortgage encumbering the property. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$39,000 as a result of unamortized loan costs being written off. This amount is
included in loss from discontinued operations in the accompanying consolidated
statement of operations. In accordance with SFAS 144, the accompanying statement
of operations for the three months ended March 31, 2002 has been restated to
reflect the operations of Breckinridge Square as discontinued operations.
Included in (loss) income from discontinued operations for the three months
ended March 31, 2003 and 2002 is approximately $88,000 and $506,000,
respectively, of revenue generated by the property.
Note D - Legal Proceedings
In March 1998, several putative unit holders of limited partnership units which
are affiliates 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, certain affiliated partnership,
the General Partner of the Partnership 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 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; tender offers by affiliates of AIMCO and Insignia
to acquire limited partnership units; management of the partnerships; 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 January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action. On April 4, 2003, the
Court preliminarily approved the settlement and scheduled a hearing on final
approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provides for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. Before completing briefing on the appeal, the parties stayed further
proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The General Partner does not anticipate that any costs to the Partnership,
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 OPERATION
The matters discussed in this report contain certain forward-looking statements,
including, without limitation, statements regarding future financial performance
and the effect of government regulations. The discussions of the Registrant's
business and results of operations, including forward-looking statements
pertaining to such matters, do not take into account the effects of any changes
to the Registrant's business and results of operations. Actual results may
differ materially from those described in the forward-looking statements and
will be affected by a variety of risks and factors including, without
limitation: national and local economic conditions; the terms of governmental
regulations that affect the Registrant and interpretations of those regulations;
the competitive environment in which the Registrant operates; financing risks,
including the risk that cash flows from operations may be insufficient to meet
required payments of principal and interest; real estate risks, including
variations of real estate values and the general economic climate in local
markets and competition for tenants in such markets; and possible environmental
liabilities. Readers should carefully review the Registrant's financial
statements and the notes thereto, as well as the risk factors described in the
documents the Registrant files from time to time with the Securities and
Exchange Commission.
The Partnership's investment properties consist of three apartment complexes.
The following table sets forth the average occupancy of the properties for the
three months ended March 31, 2003 and 2002:
Average Occupancy
Property 2003 2002
Churchill Park (1) 90% 74%
Louisville, Kentucky
The Lakes 84% 86%
Raleigh, North Carolina
Doral Springs 94% 94%
Miami, Florida
(1) The General Partner attributes the increase in occupancy at Churchill Park
Apartments to a major property refurbishment in early 2002 and strong
marketing efforts to attract occupants once the project was complete.
Results of Operations
The Partnership's net income was approximately $8,009,000 and $277,000 for the
three months ended March 31, 2003 and 2002, respectively. The increase in net
income is due to the recognition of the gain on sale of Breckinridge Square
offset by a decrease in total revenues and an increase in total expenses.
Effective January 1, 2002, the Partnership adopted Statement of Financial
Accounting Standards No. 144, "Accounting for the Impairment or Disposal of
Long-Lived Assets", which established standards for the way that public business
enterprises report information about long-lived assets that are either being
held for sale or have already been disposed of by sale or other means. The
standard requires that results of operations for a long-lived asset that is
being held for sale or has already been disposed of be reported as a
discontinued operation on the statement of operations. As a result, the
accompanying consolidated statements of operations have been restated as of
January 1, 2002 to reflect the operations of Breckinridge Square as (loss)
income from discontinued operations.
On January 16, 2003, the Partnership sold Breckinridge Square to an unrelated
third party for net proceeds of approximately $10,341,000 after payment of
closing costs. The Partnership realized a gain of approximately $8,153,000 as a
result of the sale. The Partnership used approximately $6,000,000 of the net
proceeds to repay the mortgage encumbering the property. In addition, the
Partnership recorded a loss on early extinguishment of debt of approximately
$39,000 as a result of unamortized loan costs being written off. This amount is
included in loss from discontinued operations. Included in (loss) income from
discontinued operations for the three months ended March 31, 2003 and 2002 is
approximately $88,000 and $506,000, respectively, of revenue generated by the
property.
Excluding the discontinued operations, the Partnership realized a loss from
continuing operations for the three months ended March 31, 2003 of approximately
$40,000 compared to income of approximately $213,000 for the corresponding
period in 2002. The decrease in income from continuing operations is due to a
decrease in total revenue and an increase in total expenses. Total revenue
decreased due to a decrease in rental income partially offset by an increase in
other income. Rental income decreased due to a decrease in occupancy and average
rental rates at The Lakes Apartments and due to an increase in bad debt expense
at Doral Springs Apartments partially offset by an increase in occupancy at
Churchill Park Apartments. Other income increased due to an increase in fees and
late charges at Doral Springs Apartments.
Total expenses for the three months ended March 31, 2003 increased due to
increases in general and administrative and property tax expenses. General and
administrative expenses increased due to an increase in Partnership management
fees that are payable with the distributions to partners. Property taxes
increased due to an increase in the assessed value of Doral Springs Apartments.
Included in general and administrative expense for the three months ended March
31, 2003 and 2002 are management reimbursements to the General Partner as
allowed under the Partnership Agreement. In addition, 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
general and administrative expenses.
As part of the ongoing business plan of the Partnership, the 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 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 General Partner will
be able to sustain such a plan.
Liquidity and Capital Resources
At March 31, 2003, the Partnership had cash and cash equivalents of
approximately $623,000 compared to approximately $1,596,000 at March 31, 2002.
Cash and cash equivalents increased approximately $64,000 from December 31, 2002
due to approximately $10,219,000 and $547,000 of cash provided by investing and
operating activities, respectively, partially offset by approximately
$10,702,000 of cash used in financing activities. Cash provided by investing
activities consisted of proceeds on the sale of Breckinridge Square and net
withdrawals from restricted escrows maintained by the mortgage lender, partially
offset by property improvements and replacements. Cash used in financing
activities consisted of principal payments on the mortgage encumbering Doral
Springs Apartments, repayment of principal on the mortgage encumbering
Breckinridge Square and distributions to partners. 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 investment properties to adequately maintain the
physical assets and other operating needs of the Partnership and to comply with
Federal, state, local, legal and regulatory requirements. The General Partner
monitors developments in the area of legal and regulatory compliance and is
studying new federal laws, including the Sarbanes-Oxley Act of 2002. The
Sarbanes-Oxley Act of 2002 mandates or suggests additional compliance measures
with regard to governance, disclosure, audit and other areas. In light of these
changes, the Partnership expects that it will incur higher expenses related to
compliance, including increased legal and audit fees. Capital improvements
planned for each of the Partnership's properties are detailed below.
Breckinridge Square Apartments:
During the three months ended March 31, 2003, the Partnership completed
approximately $13,000 of capital improvements at Breckinridge Square Apartments,
consisting primarily of appliance and floor covering replacements. These
improvements were funded from operating cash flow. Breckinridge Square
Apartments was sold on January 16, 2003.
Doral Springs Apartments:
During the three months ended March 31, 2003, the Partnership completed
approximately $75,000 of capital improvements at Doral Spring Apartments,
consisting primarily of electrical upgrades, plumbing fixtures, structural
improvements, and floor covering replacements. These improvements were funded
from operating cash flow. The Partnership evaluates the capital improvement
needs of the property during the year and currently expects to complete an
additional $885,000 in capital improvements during the remainder of 2003. The
additional capital improvements will consist primarily of appliances, flooring
and cabinet replacements, roofing, parking lot upgrades, and pool improvements.
Additional capital improvements may be considered and will depend on the
physical condition of the property as well as the anticipated cash flow
generated by the property.
Churchill Park Apartments:
During the three months ended March 31, 2003, the Partnership completed
approximately $22,000 of capital improvements at Churchill Park, consisting
primarily of appliance and floor covering replacements. These improvements were
funded from operating cash flow. The Partnership evaluates the capital
improvement needs of the property during the year and currently expects to
complete an additional $517,000 in capital improvements during the remainder of
2003. The additional capital improvements will consist primarily of appliance,
flooring, cabinet, window and door replacements, and pool upgrades. Additional
capital improvements may be considered and will depend on the physical condition
of the property as well as the anticipated cash flow generated by the property.
The Lakes Apartments:
During the three months ended March 31, 2003, the Partnership completed
approximately $120,000 of capital improvements at The Lakes, consisting
primarily of swimming pool upgrades, lighting, office computers, maintenance
equipment, structural improvements, and floor covering replacements. These
improvements were funded from operating cash flow and replacement reserves. The
Partnership evaluates the capital improvement needs of the property during the
year and currently expects to complete an additional $3,034,000 in capital
improvements during the remainder of 2003. The additional capital improvements
will consist primarily of breezeway upgrades, exterior breezeway lighting,
exterior painting of common areas, resurfacing tennis courts, and appliance,
flooring, and cabinet replacements. These improvements are part of a
redevelopment project at the property. Additional capital 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.
Additional capital expenditures will be incurred only if cash is available from
operations and Partnership reserves. To the extent that such budgeted capital
improvements are completed, the Partnership's distributable cash flow, if any,
may be adversely affected at least in the short term.
The Partnership's assets are thought to be sufficient for any near-term needs
(exclusive of capital improvements) of the Partnership. The mortgage
indebtedness is approximately $29,068,000 of which approximately $18,690,000
requires monthly interest only payments. These notes require balloon payments on
December 1, 2005. The remaining indebtedness, approximately $10,378,000,
requires monthly principal and interest payments of approximately $87,000. This
note is scheduled to be fully amortized when it matures on July 1, 2021. The
General Partner may attempt to refinance such indebtedness and/or sell the
properties prior to such maturity dates. If the properties cannot be refinanced
or sold for a sufficient amount, the Partnership will risk losing such
properties through foreclosure.
The Partnership distributed the following amounts during the three months ended
March 31, 2003 and 2002 (in thousands, except per unit data):
Three Months Per Limited Three Months Per Limited
Ended Partnership Ended Partnership
March 31, 2003 Unit March 31, 2002 Unit
Operations $ 317 $ 6.38 $ -- $ --
Sale proceeds from
Breckinridge Square 4,315 75.44 -- --
$4,632 $81.82 $ -- $ --
The Partnership's cash available for distribution is reviewed on a monthly
basis. Future cash distributions will depend on the levels of net cash generated
from operations, the availability of cash reserves, and the timing of debt
maturities, refinancings, and/or property sales. There can be no assurance that
the Partnership will generate sufficient funds from operations, after required
capital expenditures, to permit further distributions to its partners during the
remainder of 2003 or subsequent periods.
Other
In addition to its indirect ownership of the general partner interest in the
Partnership, AIMCO and its affiliates owned 31,755.75 limited partnership units
(the "Units") in the Partnership representing 64.55% of the outstanding Units at
March 31, 2003. A number of these Units were acquired pursuant to tender offers
made by AIMCO or its affiliates. It is possible that AIMCO or its affiliates
will acquire additional units of limited partnership interest in the Partnership
in exchange for cash or a combination of cash and units in the operating
partnership of AIMCO either through private purchases or tender offers. Under
the Partnership Agreement, unitholders holding a majority of the Units are
entitled to take action with respect to a variety of matters which would include
voting on certain amendments to the Partnership Agreement and voting to remove
the General Partner. As a result of its ownership of 64.55% of the outstanding
Units, AIMCO is in a position to influence all such voting decisions with
respect to the Partnership. Although the General Partner owes fiduciary duties
to the limited partners of the Partnership, the General Partner also owes
fiduciary duties to AIMCO as its sole stockholder. As a result, the duties of
the General Partner, as general partner, to the Partnership and its limited
partners may come into conflict with the duties of the General Partner to AIMCO,
as its sole stockholder.
Critical Accounting Policies and Estimates
The consolidated financial statements are prepared in accordance with accounting
principles generally accepted in the United States which require the Partnership
to make estimates and assumptions. The Partnership believes that of its
significant accounting policies, the following may involve a higher degree of
judgment and complexity.
Impairment of Long-Lived Assets
Investment properties are recorded at cost, less accumulated depreciation,
unless considered impaired. If events or circumstances indicate that the
carrying amount of a property may be impaired, the Partnership will make an
assessment of its recoverability by estimating the undiscounted future cash
flows, excluding interest charges, of the property. If the carrying amount
exceeds the aggregate future cash flows, the Partnership would recognize an
impairment loss to the extent the carrying amount exceeds the fair value of the
property.
Real property investments are subject to varying degrees of risk. Several
factors may adversely affect the economic performance and value of the
Partnership's investment properties. These factors include changes in the
national, regional and local economic climate; local conditions, such as an
oversupply of multifamily properties; competition from other available
multifamily property owners and changes in market rental rates. Any adverse
changes in these factors could cause an impairment in the Partnership's assets.
Revenue Recognition
The Partnership generally leases apartment units for twelve-month terms or less.
Rental income attributable to leases is recognized monthly as it is earned and
the Partnership fully reserves all balances outstanding over thirty days. The
Partnership will offer rental concessions during particularly slow months or in
response to heavy competition from other similar complexes in the area.
Concessions are charged to income as incurred.
ITEM 3. CONTROLS AND PROCEDURES
The principal executive officer and principal financial officer of the General
Partner, who are the equivalent of the Partnership's principal executive officer
and principal financial officer, respectively, have, within 90 days of the
filing date of this quarterly report, evaluated the effectiveness of the
Partnership's disclosure controls and procedures (as defined in Exchange Act
Rules 13a-14(c) and 15d-14(c)) and have determined that such disclosure controls
and procedures are adequate. There have been no significant changes in the
Partnership's internal controls or in other factors that could significantly
affect the Partnership's internal controls since the date of evaluation. The
Partnership does not believe any significant deficiencies or material weakness
exist in the Partnership's internal controls. Accordingly, no corrective actions
have been taken.
PART II - OTHER INFORMATION
ITEM 1. LEGAL PROCEEDINGS
In March 1998, several putative unit holders of limited partnership units which
are affiliates 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, certain affiliated partnership,
the General Partner of the Partnership 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 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; tender offers by affiliates of AIMCO and Insignia
to acquire limited partnership units; management of the partnerships; 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 January 8, 2003, the parties filed a Stipulation of Settlement in proposed
settlement of the Nuanes action and the Heller action. On April 4, 2003, the
Court preliminarily approved the settlement and scheduled a hearing on final
approval for June 2, 2003.
In general terms, the proposed settlement provides for certification for
settlement purposes of a settlement class consisting of all limited partners in
this Partnership and others (the "Partnerships") as of December 20, 2002, the
dismissal with prejudice and release of claims in the Nuanes and Heller
litigation, payment by AIMCO of $9.9 million (which shall be distributed to
settlement class members after deduction of attorney fees and costs of class
counsel and certain costs of settlement) and up to $1 million toward the cost of
independent appraisals of the Partnerships' properties by a Court appointed
appraiser. An affiliate of the General Partner has also agreed to make a tender
offer to purchase all of the partnership interests in the Partnerships within
one year of final approval, if it is granted, and to provide partners with the
independent appraisals at the time of these tenders. The proposed settlement
also provides for the limitation of the allowable costs which the General
Partner or its affiliates will charge the Partnerships in connection with this
litigation and imposes limits on the class counsel fees and costs in this
litigation. On April 11, 2003, notice was distributed to limited partners
providing the details of the proposed settlement.
During the third quarter of 2001, a complaint (the "Heller action") was filed
against the same defendants that are named in the Nuanes action, captioned
Heller v. Insignia Financial Group. On or about August 6, 2001, plaintiffs filed
a first amended complaint. The first amended complaint in the Heller action is
brought as a purported derivative action, and asserts claims for among other
things breach of fiduciary duty; unfair competition; conversion, unjust
enrichment; and judicial dissolution. Plaintiffs in the Nuanes action filed a
motion to consolidate the Heller action with the Nuanes action and stated that
the Heller action was filed in order to preserve the derivative claims that were
dismissed without leave to amend in the Nuanes action by the Court order dated
July 10, 2001. On October 5, 2001, the General Partner and affiliated defendants
moved to strike the first amended complaint in its entirety for violating the
Court's July 10, 2001 order granting in part and denying in part defendants'
demurrer in the Nuanes action, or alternatively, to strike certain portions of
the complaint based on the statute of limitations. Other defendants in the
action demurred to the fourth amended complaint, and, alternatively, moved to
strike the complaint. On December 11, 2001, the court heard argument on the
motions and took the matters under submission. On February 4, 2002, the Court
served notice of its order granting defendants' motion to strike the Heller
complaint as a violation of its July 10, 2001 order in the Nuanes action. On
March 27, 2002, the plaintiffs filed a notice appealing the order striking the
complaint. Before completing briefing on the appeal, the parties stayed further
proceedings in the appeal pending the Court's review of the terms of the
proposed settlement described above.
The General Partner does not anticipate that any costs to the Partnership,
whether legal or settlement costs, associated with these cases will be material
to the Partnership's overall operations.
ITEM 6. EXHIBITS AND REPORTS ON FORM 8-K
a) Exhibits:
Exhibit 3.1, Certificate of Limited Partnership (incorporated
by reference to Registration Statement of Registrant (File No.
2-57960) filed March 30, 1978, as amended to date).
Exhibit 3.2, Agreement of Limited Partnership (Exhibit A to
the Prospectus of Registrant dated February 25, 1977 is
incorporated herein by reference).
Exhibit 99, Certification Pursuant to 18 U.S.C. Section 1350,
as Adopted Pursuant to Section 906 of the Sarbanes-Oxley Act
of 2002.
b) Reports on Form 8-K:
Current report on Form 8-K dated January 16, 2003 and filed on
January 27, 2003 disclosing the sale of Breckinridge Square to
an unrelated third party.
Current report on Form 8-K/A dated January 16, 2003 and filed
on March 17, 2003 disclosing the unaudited pro forma financial
statements of the Registrant due to the sale of Breckinridge
Square.
SIGNATURES
In accordance with the requirements of the Exchange Act, the Registrant caused
this report to be signed on its behalf by the undersigned, thereunto duly
authorized.
CONSOLIDATED CAPITAL GROWTH FUND
By: CONCAP EQUITIES, INC.
General Partner
By: /s/Patrick J. Foye
Patrick J. Foye
Executive Vice President
By: /s/Thomas C. Novosel
Thomas C. Novosel
Senior Vice President
and Chief Accounting Officer
Date: May 15, 2003
CERTIFICATION
I, Patrick J. Foye, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated Capital
Growth Fund;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/Patrick J. Foye
Patrick J. Foye
Executive Vice President of ConCap Equities
Inc., equivalent of the chief executive
officer of the Partnership
CERTIFICATION
I, Paul J. McAuliffe, certify that:
1. I have reviewed this quarterly report on Form 10-QSB of Consolidated Capital
Growth Fund;
2. Based on my knowledge, this quarterly report does not contain any untrue
statement of a material fact or omit to state a material fact necessary to make
the statements made, in light of the circumstances under which such statements
were made, not misleading with respect to the period covered by this quarterly
report;
3. Based on my knowledge, the financial statements, and other financial
information included in this quarterly report, fairly present in all material
respects the financial condition, results of operations and cash flows of the
registrant as of, and for, the periods presented in this quarterly report;
4. The registrant's other certifying officers and I are responsible for
establishing and maintaining disclosure controls and procedures (as defined in
Exchange Act Rules 13a-14 and 15d-14) for the registrant and we have:
a) Designed such disclosure controls and procedures to ensure that
material information relating to the registrant, including its
consolidated subsidiaries, is made known to us by others within those
entities, particularly during the period in which this quarterly report is
being prepared;
b) Evaluated the effectiveness of the registrant's disclosure controls and
procedures as of a date within 90 days prior to the filing date of this
quarterly report (the "Evaluation Date"); and
c) Presented in this quarterly report our conclusions about the
effectiveness of the disclosure controls and procedures based on our
evaluation as of the Evaluation Date;
5. The registrant's other certifying officers and I have disclosed, based on our
most recent evaluation, to the registrant's auditors and the audit committee of
registrant's board of directors (or persons performing the equivalent
functions):
a) All significant deficiencies in the design or operation of internal
controls which could adversely affect the registrant's ability to record,
process, summarize and report financial data and have identified for the
registrant's auditors any material weaknesses in internal controls; and
b) Any fraud, whether or not material, that involves management or other
employees who have a significant role in the registrant's internal
controls; and
6. The registrant's other certifying officers and I have indicated in this
quarterly report whether or not there were significant changes in internal
controls or in other factors that could significantly affect internal controls
subsequent to the date of our most recent evaluation, including any corrective
actions with regard to significant deficiencies and material weaknesses.
Date: May 15, 2003
/s/Paul J. McAuliffe
Paul J. McAuliffe
Executive Vice President and Chief Financial
Officer of ConCap Equities Inc., equivalent
of the chief financial officer of the
Partnership
Exhibit 99
Certification of CEO and CFO
Pursuant to 18 U.S.C. Section 1350,
As Adopted Pursuant to
Section 906 of the Sarbanes-Oxley Act of 2002
In connection with the Quarterly Report on Form 10-QSB of Consolidated Capital
Growth Fund (the "Partnership"), for the quarterly period ended March 31, 2003
as filed with the Securities and Exchange Commission on the date hereof (the
"Report"), Patrick J. Foye, as the equivalent of the chief executive officer of
the Partnership, and Paul J. McAuliffe, as the equivalent of the chief financial
officer of the Partnership, each hereby certifies, pursuant to 18 U.S.C. Section
1350, as adopted pursuant to Section 906 of the Sarbanes-Oxley Act of 2002,
that, to the best of his knowledge:
(1) The Report fully complies with the requirements of Section 13(a) or
15(d) of the Securities Exchange Act of 1934; and
(2) The information contained in the Report fairly presents, in all
material respects, the financial condition and results of operations
of the Partnership.
/s/ Patrick J. Foye
Name: Patrick J. Foye
Date: May 15, 2003
/s/ Paul J. McAuliffe
Name: Paul J. McAuliffe
Date: May 15, 2003
This certification accompanies the Report pursuant to Section 906 of the
Sarbanes-Oxley Act of 2002 and shall not, except to the extent required by the
Sarbanes-Oxley Act of 2002, be deemed filed by the Partnership for purposes of
Section 18 of the Securities Exchange Act of 1934, as amended.